mm fork 
 
 Hntt (KoUegc of Agriculture 
 
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Cornell University Library 
 HG 2996.T27 1867 
 
 The Bank of England: and the organisatio 
 
 3 1924 013 905 892 
 
The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013905892 
 

 d^ 4^c7Z- 
 
 THE BANK OF ENGLAND. 
 
The equilateral triangle represents the Bank-paper, 
 the outside space being fiUed up with Bills and Checks 
 dependent on Credit. 
 The foundation of the Bank-paper is the metallic 
 coinage in copper, silver," and gold, in their respective 
 proportions. 
 
 The basis of the whole is Industry. 
 
 The Circle represents eternity, and the legend within 
 records a great commercial truth. 
 
THE 
 
 BANK OP ENGLAND 
 
 ■ ;1 
 AND THE 
 
 ORGANISATION OF CREDIT 
 IN, ENGLAND'. 
 
 THIRD EDITION, REVISED AND FURTHER ENLARGED. 
 
 WITH THE EVIDENCE 
 
 MM. ISAAC AND EMILE PEREIRE 
 
 BEFORE THE FRENCH COMMISSION OF INQUIRY 
 INTO THE BANE OF FRANCE : 
 
 ALSO 
 
 ABSTRACT OF THE AMEEICATST EEEE 
 BANKING ACT: 
 
 AND 
 
 OUTLINE OF A JOINT STOCK BANK ON THE 
 NEW PRINCIPLES. 
 
 "The Wbieabb of the People is the Hiohest Law." 
 
 LON'DON : 
 
 LONGMANS, .GREEN, READER, & DYER. 
 1867. 
 
 Tlie Right of Trcmslation is reserved. 
 
Tan 
 
 ISC'} 
 
 PEIMTED ET J. E. TATLOE AND CO., 
 LITTLE QUBEW STBEET, LIWCOLW's HflT SJBf,Dg. 
 
NOTE FROM THE AUTHOR. 
 
 'THIRD EDITION. 
 
 The Author has enlarge^ and -carefully revised 
 this new edition, -for a permanent place in the 
 library. - He has nothing to alt&r and little to 
 add, beyond* a few more explanatory remarks in 
 further elucidatioH of his views, but" more par- 
 ticularly in answer to M. Wolowski, of Conti- 
 nental celebrity, who, with laudable zeal but 
 mistaken judgment,' is misleading many in this 
 country, as well as on the Continent,, into his 
 own fatal errors on the«Bank Question. 
 
 The outline of a Joint- Stogk Bank, on the 
 new principles, in the Appendij^ is framed to 
 provide, as far as may be, for the deficiencies of 
 the Bank of England, as at present constituted. 
 
 This is not .proposed as a complete remedy 
 for the evils of the Bank Charter Act, but only 
 as a means for mitigating some of the worst 
 
VI NOTE FROM . THE AUTHOR. 
 
 effects, and, at the same time, providing a pro- 
 fitable investment for the pavings and unem- 
 ployed capital of the country. 
 
 For the success of the Joint-Stock Bank con- 
 ducted on these principles, it would be neces- 
 ■ sary only to -fill up the List of Directors with 
 nine good names, which would carry the confi- 
 dence of the City of London. ^ . 
 
 The required capital might then be subscribed, 
 and the United Kingdom Bank, conducted on 
 these principles, would be found to be so safe" 
 and profitable an investment for unemployed 
 capital and savings, and would -exercise so bene- 
 ficial an influence over the commejicial interests 
 of this country, as to go a great way in settling 
 tlie disputed points, and would thus lead to the 
 re-construction of the Bank of England on the 
 saine sound principles. 
 
 The Author of 
 " The People's Blue Book." 
 
 4. 
 
 Londonylst July^ 1867. 
 
NOTE FROM THE AUTHOR. 
 
 SECOND EDITION. 
 
 Since the publication of the first edition of this 
 book, the Author has had "^the honour of cor- 
 responding with M. Isaac Perefre, of Paris, and 
 has received from Mm copies of the evidence 
 of himself and his Brother, M. Emile Pereire, 
 before the recent French Commission of Inquiry 
 into the Bank of Prance. 
 
 Some additions have been made to Chapter X., 
 for the purpose of directing the attention of 
 English readers tb the last admirable work of 
 M. Isaac Pereire, — " Principes de la Constitution 
 des Banques, et del' Organisation du Credit ;" and 
 to Chapter XL, for the purpose of shortly noti- 
 cing those political views, regarding the freedom 
 of labor and trade, which so essentially concern 
 the prosperity and credit of every country. 
 
 The Author has also had the honour of cor- 
 
VIU NOTE FROM THE AUTHOR. 
 
 responding on the subject of this book with 
 M. Michel ChevaHer and M. Wolowski, and al- 
 though the Author has not the satisfaction of 
 their concurrence in his views, yet he has the 
 pleasure of acknowledging the courtesy of their 
 communications. 
 
 The reputation of M. Wolowski, in France, as 
 an authority on the Bank Question, entitles him 
 to respectful attention, and his opinion oh this 
 question may be interesting to Bank Directors 
 and Capitalists, as supporting their views. M. 
 Wolowski's opinion may be collected from his 
 correspondence with the Author, extracts from 
 which are given in the Appendix. 
 
 As Mr. J. S. Mill says: — "there is always 
 hope when people . . . listen to both sides ; it is 
 when they attend only to one that errors harden 
 into prejudices, and truth itself ceases to have the 
 effect of truth, by b'eing exaggerated into false- 
 hood." [' On Liberty,' page 94.J 
 
 With the exception of a few other additions, 
 arising chiefly out of the evidence of M. Isaac 
 Pereire, and his Brother M. Emile Pereire, and 
 the correction of a few trifling but obvious errors 
 of the Press, this second edition is substantially 
 the same as the first. 
 
 The increase of bulk in the present volume, if 
 alarming to some, has been unavoidable, by the 
 
NOTE FROM THE AUTHOR. IX 
 
 addition of the evidence of the MM. Pereire 
 before the French Commission of Inquiry into 
 the Bank of France, done into English and given 
 in the Appendix; together with Chapter, VI. of 
 M. Isaac Pereire's last w^ork, also translated into 
 English. 
 
 The Author considers the chief wrorth of his 
 volume to be in the Appendix, as containing the 
 unconcerted and conclusive confirmation of his 
 views by the MM. Pereire, Freres. 
 
 The Author, in his Preface to the First Edition, 
 alluded to some slight diflPerences of opinion be- 
 tween himself and M. Isaac Pereire ; but the 
 Author is not aware that any difference of opinion 
 now exists between them on this question. 
 
 If the deplorable consequences of our present 
 Banking System do not fix the attention of a 
 commercial community and bring them together, 
 as one united body, to demand from the Govern- 
 ment a change in conformity with sound princi- 
 ples, the discouragement, to those who have de- 
 voted their time and thoughts to this subject, will 
 be so great that, probably, further efforts will be 
 abandoned, and the affliction of the Bank Act, 
 under which the trade and industry of the country 
 are suffering, will remain, until removed by the 
 more enlightened intelligence of some future and 
 perhaps distant generation. 
 
X NOTE FROM THE ' AUTHOR. 
 
 To wait for an enlightened Government to ori- 
 ginate this change, or to expect any Government 
 to take the initiative in a change against which 
 will be brought to bear the most powerful in- 
 fluence of wealth in the country, is, in effect, the 
 abandonnSent of the interests of the community 
 to the selfish interests or ignorance of a party. 
 
 The Author can only invite the careful atten- 
 tion of his readers to the admirable and conclu- 
 sive evidence of the MM. Pereire, given in the 
 Appendix. 
 
 Here we have the results of the long experi- 
 ence of two most honorable men, whose successful 
 industry has made them great capitalists, and 
 whose names, as financiers and bankers, are 
 justly esteemed not only in their own country but 
 throughout the world. 
 
 That the Author, without any previous com- 
 munication with these two distinguished au- 
 thorities or any previous knowledge of their views 
 on this subject, should have found his own views, 
 in every principle and in all important particu- 
 lars, confirmed by them, is to himself personally 
 very gratifying, but it will be much more so if it 
 should give additional confidence to his readers, 
 especially as he claims nothing from his own 
 personal experience in commercial or financial 
 affairs. 
 
NOTE FROM THE AUTH.OR. XI 
 
 The Author has been invited to throw off the 
 disguise, which he has so long maintained, and 
 to affix his name to this new edition of his book, 
 for more effectual cooperation with MM. Pereiro 
 in Paris and with a few others in this country. 
 But he has no personal object to serve and no 
 wish to be classed among political agitators ; 
 moreover, he believes that his opinion on most 
 questions of politics and finance are in advance 
 of the times and likely to be misinterpreted, as 
 may be seen in the two fanciful emblems which 
 he has rashly affixed to this volume, at the risk 
 of reducing very considerably the number of his 
 readers. But he does not write only for the 
 present generation, nor does he intend to answer 
 rude and ignorant criticisms, and he does not 
 believe that his name, if known, would have the 
 smallest effect in extending the sphere of his 
 cooperation with those who agree with him in 
 opinion. 
 
 He, therefore, prefers remaining in the freedom 
 of obscurity as the Friend of the People and 
 
 The Author of 
 "The People's Blue Book." 
 
 1st July, 1866. 
 
NOTE FROM THE AUTHOR. 
 
 MEST EDITION. 
 
 The outline of this work was written in the year 
 1858, and was then laid aside, as, at that time, 
 the Bank Act did not appear to receive the at- 
 tention which a subject of such importance de- 
 served from the Public. 
 
 The pamphlet of M. Pereire, published in 
 Paris, in December, 1864, entitled, "La Banque 
 de France, et I'Organisation du Credit en Prance," 
 having revived some attention to the subject, 
 and as the whole question of the Bank Charter 
 Act of 1844 will, probably, be brought before 
 a new Parliament next year, I have been in- 
 duced to fill up and complete my original out- 
 line, with additions, showing wherein I differ 
 with M. Pereire in some of his reasoning and 
 conclusions ; though, in the main principle we 
 agree. But it should be borne in mind that, his 
 
NOTE I'ROrvl THE AUTHOR. XUl 
 
 object is the establishment of another Bank of 
 France, or another Financial Association, on new 
 and enlarged principles, with the view of forcing 
 the existing Bank of France to adopt those prin- 
 ciples. 
 
 It is, therefore, not quite a fair test of M. 
 Pereire's arguments to try them as applicable to 
 the Bank of England ; nor would the proof that 
 they are inapplicable to the Bank of England be 
 conclusive against his object, which is to enlarge 
 the sphere of usefulness of the Bank of France, 
 the constitution of the two Banks being, in 
 some respects, essentially different. 
 
 But the main principle seems to be applicable 
 to the National Banks of both countries. 
 
 I have, therefore, assimilated the title of my 
 book to that of M. Pereire's brochure, as being 
 well chosen for the object, and it is satisfactory 
 to me to find that, on the question of making 
 the Bank of England a means for the Organisa- 
 tion of Credit in England, I am confirmed in 
 my opinion by so eminent an authority as M. 
 Pereire. 
 
 But, as " Historicus " has said, in one of his 
 recent Letters in the "Times :" — "It is a la- 
 mentable but certain fact that, the hardest and 
 best work that is done in the world is often that 
 which is least appreciated." 
 
XIV NOTE FROM THE AUTHOR. 
 
 Being quite of that way of thinking, I am 
 prepared to expect that my views and opinions 
 will meet with much opposition from a large 
 class of Capitalists and Financiers ; and, after all 
 care, much may be left open to just criticism. 
 
 My only object being to see our National 
 Bank and Credit placed on a safe basis, and 
 conducted on sound and intelligible principles, 
 I am desirous of correcting my own views on 
 the subject by the opinions of the most eminent 
 and practical men in all countries ; and, for this 
 object, I should give my best attention to any 
 remarks with which they may favor me, through 
 my Publishers. 
 
 Biit, however imperfectly the principles here 
 laid down may be explained, and however feebly 
 supported, I have a very strong conviction that, 
 sooner or later, these principles will be carried 
 out by the Bank of England, and also by the 
 Bank of France. 
 
 Under such conviction, this work is submitted 
 to the judgment of the Public, by a Friend of 
 the People, and 
 
 The Author of 
 "The People's Blue Book." 
 
 • London, \st July, 1865. 
 
CONTENTS. 
 
 -♦- 
 
 CHAPTER I. 
 
 PAGE 
 
 The Bank Chaktek Act 1 
 
 CHAPTEE II. 
 Fallacies Exposed 6 
 
 CHAPTEE III. 
 The False Cuekency Peinciple .15 
 
 CHAPTEE IV. 
 Money, Cukeency, and Capital 37 
 
 CHAPTEE V. 
 Money-Panics 86 
 
 CHAPTEE VI. 
 The Bank Acts 139 
 
 CHAPTEE VII. 
 The Gold Coinage 141 
 
XVI CONTENTS. 
 
 CHAPTEE VIII. 
 
 PAGE 
 
 The Silver Coinage 174 
 
 CHAPTER IX. 
 
 The Bank op England : and The Dis-Organi- 
 
 SATioN OF Credit . . 196 
 
 CHAPTER X. 
 
 The Bank of England : and The Oeganisation 
 
 OP Credit .... 264 
 
 CHAPTER XI. 
 
 The Present and the Proposed Bank Charter 
 
 Acts Compared 573 
 
 CHAPTER Xft. 
 Summary : Conclusion 737 
 
 Appendix ... 791 
 
 Index . . 97X 
 
THE BANK OF ENGLAND 
 
 AND 
 
 THE ORGANISATION OF CREDIT 
 IN ENGLAND. 
 
 CHAPTER I. 
 
 THE BANK CHARTER ACT. 
 
 No public measure, of equal importance, has ever 
 passed through so much good and evil report, 
 with so httle understanding of its true character, 
 as the Bank Charter Act of 1 844. 
 
 This Act has been ever since the subject of 
 vehement comment, for and against. Com- 
 mittees of both Houses of Parliament have sat 
 in judgment upon it. Numerous v^itnesses 
 have recorded their opinions of it, in answer to 
 the volumes of questions submitted to them, and 
 ponderous Blue Books have given these Questions 
 and Ansv?ers to the vrorld. But, to this day, 
 
 B 
 
2 THE BANK OF ENGLAND. 
 
 men of commercial experience and men of intel- 
 lectual renown are not agreed as to the real effects 
 of this famous Bank Charter Act of 1844. 
 
 It is, however, a significant fact that, the 
 great Capitalists are almost universally in favor 
 of it, and that, almost everybody else, — who 
 knows anything about it, — is against it. This is 
 significant of its actual operation and effects. 
 
 It will be shown that, these effects are much 
 more favorable to lenders than to borrowers, 
 and that, as the borrowers are always the. most 
 numerous, the opponents of this measure very 
 far outnumber its advocates. 
 
 If this be no argument against the Act, yet, 
 it is a strong ground for inquiry ; and if it can 
 be shown that this Act has worked injuriously 
 to the trade and industry of the country, and 
 that, it is founded on erroneous principles, the 
 case for repeal is proved, notwithstanding that 
 the Act may have worked to the profit of the 
 Bank of England and to certain large capitalists. 
 
 The present object is to prove this case. 
 
 The main enactments of the existing Bank 
 Charter Act are five. 
 
 1. It estabhshes two separate and distinct 
 departments, the one for the issue of bank-notes, 
 the other for the ordinary banking business. 
 
 2. It enacts that, the Bank of England shall 
 
THE BANK CHARTER ACT. 6 
 
 transfer fourteen millions of Government Secu- 
 rities to the Issue Department, and shall receive 
 from that department the same amount of bank- 
 notes ; and enacts that, the Issue Department 
 shall issue to the public bank-notes to the same 
 amount for any quantity of gold bullion which 
 may be brought into that department for the 
 purchase of such notes, and shall repay sove- 
 reigns, on demand, for all notes of the Bank of 
 England presented to the Issue Department by 
 the public. 
 
 3. It limits the issue of notes by country 
 banks, according to the average of their circu- 
 lation up to a certain time. 
 
 4. It prohibits the establishment of new 
 country banks of issue. 
 
 5. It provides that, if any of the country 
 banks should cease to issue notes, the Bank of 
 England shall be authorised to issue notes, 
 without any deposit of securities or bullion, to 
 the extent of two-thirds of the lapsed issues of 
 such country banks. 
 
 From this it will be seen that, the Bank of 
 England, so far as hanking is concerned, is placed 
 on the same footing as every other bank in the 
 kingdom. It is only the largest bank amongst 
 many others, with a special and very good cus- 
 tomer, the Government. 
 
 B 2 
 
4 THE BANK OF ENGLAND. 
 
 Mr. Samuel Jones Loyd, (now Lord Overstone) 
 who is supposed to have been the principal framer 
 of this Act, and who is avowedly its most strenu- 
 ous supporter, imperatively declares that, the Issue 
 Department is perfectly distinct from the Banking 
 Department of the Bank of England, and has no 
 more to do with it than any other bank. 
 
 The fact that the bank-note still bears the 
 name of the Bank of England, and is signed on 
 behalf of that corporation, has perpetuated the 
 illusion of the division of one and the same body 
 into two subordinate departments, notwithstand- 
 ing the disavowal of any such idea by the author 
 of this curious contrivance. But that is only the 
 illusion of the ignorant, and it is quite immate- 
 rial if, in the consideration of the whole question, 
 the fact be borne in mind that, the Issue Depart- 
 ment is quite separate and distinct from the 
 Bank of England, and is wholly and entirely an 
 ofHce of the State for the manufacture of bank- 
 notes,— as the Royal Mint is for the coinage of 
 sovereigns. 
 
 It is important that this should be borne in 
 mind for a correct understanding of the present 
 question, for it will be maintained that, the 
 Government, and not the Bank of England, 
 authorises the issue of the notes, and, therefore, 
 that the Government, and not the Bank is 
 
THE BANK CHARTER ACT. 5 
 
 responsible for the payment of the notes in gold 
 on demand, just as the Government is responsible 
 for the gold and silver coin, of standard w^eight 
 and purity. 
 
 This view of the case, though very important 
 in its bearing and consequences, seems to have 
 been generally overlooked ; but it must be ad- 
 mitted by Lord Overstone to be consistent vpith all 
 that he has ever written or declared in evidence 
 before Committees of both Houses of Parliament 
 on the subject. 
 
 Lord Overstone is a very eminent authority on 
 the subject, but this admission made by him will 
 go a long way to prove the fallacy of his reasoning 
 and conclusions. 
 
 It will be convenient to notice, presently, some 
 of his fallacies, which are so many obstructions 
 to a right view of this question. 
 
 That the great capitalists will be the last to be 
 brought to look at this question in the right point 
 of view is only what is to be expected, but that 
 will be of little consequence when it is clearly 
 seen and understood by the community. The 
 Land-owners were the last to see the im- 
 policy of the Corn-laws, but, when understood 
 by the People, those foolish and unjust laws were 
 soon repealed. 
 
CHAPTER II. 
 
 FALLACIES EXPOSED. 
 
 LoKD OvERSTONE says : — " A paper circulation, 
 is the substitution of paper, with a view to 
 economy and convenience, in the place of the 
 precious metals. 
 
 "The amount of it ought, therefore, to be 
 equal to what would have been the amount of a 
 metallic circulation; and of this,, the best measure 
 is the influx, or efflux, of bullion. 
 
 " On this ground I must assume that fluctua- 
 tions of the bullion constitute the correct standard 
 by which to measure a paper-currency."* 
 
 If this maxim were strictly carried out, it would 
 lead to universal ruin. 
 
 Lord Overstone says ; Eight millions are a satis- 
 factory minimum reserve in gold; but for this 
 opinion he gives no reason, and it is impossible 
 to see how this is consistent with his opinion, 
 before quoted, on a paper circulation. 
 
 * Metallic and Paper-currency, p. 191. 
 
FALLACIES EXPOSED. 7 
 
 The object of a paper circulation is simply to 
 economise the coin, and, to that extent, the capital 
 of the country. 
 
 The greater the extent to which that economy 
 can be carried with perfect safety to the commu- 
 nity, the greater will be the advantage to the 
 country from the adoption of a mixed circulation 
 of gold and paper. 
 
 Paper is used to take the place of coin because 
 paper costs nothing, and gold costs much, and 
 both perform exactly the same work. 
 
 The only question, therefore, is, to what extent 
 paper can be substituted for gold with perfect 
 safety to the community. 
 
 According to Lord Overstone, Eight millions 
 are a satisfactory minimum reserve in gold. He 
 would, therefore, admit that less would be a more 
 satisfactory minimum reserve in gold, if equally 
 safe, but that is the question. 
 
 Now, the reasoning which will show the mini- 
 mum reserve of eight millions in gold to be per- 
 fectly safe, will also show the minimum reserve 
 of two millions in gold to be equally safe ; or, if it 
 fail to show that, it will show that neither the 
 one nor the other of these reserves would be safe. 
 But, according to Lord Overstone, — " a paper 
 circulation shouldvary in amount exactly as the cir- 
 culation would have varied had it been metallic ;" 
 
8 THE BANK OF ENGLAND. 
 
 " and that," he says, " is the only sound principle 
 of currency." 
 
 This, as will be presently shown, is the great 
 fallacyofthe Actof 1844. 
 
 Again, Lord Overstone says : — " Management 
 of the Currency means regulating the paper is- 
 sues by the fluctuations of the bullion, and 
 mismanagement consists either in putting out 
 large quantities of paper-money and rapidly 
 calling them in again, when there is a cor- 
 responding increase or decrease of the bullion : 
 or, in taking in large quantities of bullion, and 
 not putting forth notes against it. By this 
 rule I contend that all issues of paper-money, 
 whether Bank of England or Country issues, 
 ought to be judged, and that their measures 
 must, in every instance, be condemned, or ap- 
 proved, in proportion as they conform to, or 
 violate it."* 
 
 Now, it is a fact, as will be presently shown, 
 that the Issue Department does not produce such 
 a correspondence between the paper-money and 
 the bullion, and that there never can be, and 
 never ought to be, any such correspondence 
 between them. 
 
 Gold, although used for money, is also an 
 article of merchandise, and is subject to the same 
 
 * Ibid. p. 202. 
 
FALLACIES EXPOSED. 9 
 
 natural laws which regulate all other articles of 
 merchandise. 
 
 A free trade in gold must always exist, and to 
 say that the convertibility of bank-notes, payable 
 in gold on demand, can be endangered, so long 
 as the issuers of the notes possess the means of 
 purchasing gold, and gold is to be purchased, is 
 an unintelligible proposition. 
 
 If the supply of gold be equal to the demand, 
 and the means of obtaining gold be equal to the 
 occasion for it, it must be as unnecessary to keep 
 in hand a stock of gold more than sufficient to 
 meet the ordinary demand, as to keep in hand a 
 stock of any other goods more than sufficient to 
 meet the ordinary demand. 
 
 In the case of cotton, it is considered sufficient 
 to keep in hand a stock enough to meet the ordi- 
 nary demand. 
 
 Why should the rule for gold be difiFerent from 
 the rule for cotton, when both are dealt with as 
 commodities ? 
 
 A small stock of gold has always proved suffi- 
 cient to meet the ordinary demand for gold as 
 money. 
 
 Who ever wanted to convert his bank-notes into 
 gold to any large amount, unless he wanted the 
 gold to send abroad in payment for goods, or to 
 export as merchandise, or for foreign loans ? 
 
10 THE BANK OF ENGLAND. 
 
 And who ever found any difficulty in converting 
 his notes into gold to any amount, since notes 
 were payable in gold? 
 
 When has the Bank of England note, since it 
 was payable in gold on demand, been of less 
 value than the sovereign ? 
 
 At no time has the sovereign been preferred to 
 the bank-note, since it was made payable in gold 
 on demand. 
 
 The Banking Department of the Bank of 
 England has often been severely pressed to supply 
 the demands, but the difficulty has always been 
 as much to find the notes as the gold, and to the 
 public it was a matter of indifference which of 
 the two they carried away. 
 
 The greatest run ever made on the Bank of 
 England was in 1825, and then it was saved from 
 stoppage only by the accidental discovery of one 
 million of unburnt one-pound notes. These were 
 eagerly taken by the public, so perfectly, at that 
 momentous crisis, was the note held equal to the 
 gold. Great authorities say that, the bank- 
 note was then in imminent peril, but on what 
 ground they say so does not appear, for the very 
 reverse was then proved to be the truth. 
 
 Since 1819, the Bank of England note has 
 never been exposed to the slightest risk of de- 
 preciation. 
 
FALLACIES EXPOSED. 11 
 
 This fact, proved by experience, is confirmed 
 by science. 
 
 We see and know that the solvency of a re- 
 sponsible issuer is a complete and sufficient gua- 
 rantee for convertibility. 
 
 We accept the evidence from experience, that 
 the Bank of England and the Bank of Scotland 
 have been solvent and responsible issuers, and 
 have furnished practical and trust-worthy security 
 for solvency and convertibility. 
 
 The Bank of England, when so near a stop- 
 page in 1825, was then solvent, and always has 
 been so since. 
 
 It wanted then, what it accidentally found, the 
 notes. These it has often wanted since. 
 
 The radical defect of this Act is that, it prevents 
 the means of supplying the want. It secures a 
 solvent and convertible currency, but that was 
 secure before. 
 
 The machinery of the Issue Department has 
 secured solvency and convertibility, which were 
 already secure ; but it has, on several occasions, 
 spread insolvency throughout the kingdom, and 
 has retarded the progress of the greatest com- 
 mercial country in the world, by an undue and 
 wholly unnecessary restriction of the circulating 
 medium, thereby enhancing the price of money 
 and lowering credit. 
 
12 THE BANK OF ENGLAND. 
 
 Lord Overstone says : — " It is the universal 
 law of human affairs that every good must be 
 purchased at its appointed price, and no country 
 can expect to enjoy the double advantages of a 
 currency regulated by a fixed metallic standard, 
 vpithout submitting to the occasional inconve- 
 niences and pressure which are the indispensa- 
 ble means for accomplishing that end." 
 
 This long sentence begins and ends with a 
 simple truism. 
 
 The appointed price, and the indispensable 
 means, constitute the question, which Lord Over- 
 stone seems to think he has answered by a ge- 
 neral truism. This is the more strange when 
 compared with his explanation of the object of a 
 paper-circulation, before given in his own words. 
 
 It will be shown that, the occasional inconve- 
 niences and pressure are not the appointed price 
 oi a paper-circulation regulated by a fixed metal- 
 lic standard, if properly regulated, and that, when 
 the occasional inconveniences and pressure do 
 occur, the fixed metallic standard will be in no 
 manner the cause. 
 
 With regard to the separation of the Issue and 
 Banking Departments, Lord Overstone says : — 
 
 " The only object of the proposed separation 
 of the departments of the Bank of England is, to 
 obtain an effectual security for the regulation of 
 
FALLACIES EXPOSED. 13 
 
 the amount of the paper-circulation of the country 
 in correspondence with the fluctuations of the 
 bullion, such regulation being deemed essential 
 for the certain maintenance, under all circum- 
 stances, of the convertibility of paper issues and 
 specie." 
 
 The true answer to this is that, it is the busi- 
 ness of a Bank that administers a paper-currency 
 in exchange for gold, or in lieu of gold, to have 
 no other end in view than that of preserving its 
 paper strictly, correctly, and invariably, upon a 
 level with the value of gold. 
 
 The separation of the departments of the Bank 
 of England can never obtain an effectual security 
 for the regulation of the aroount of the paper- 
 circulation of the country in correspondence with 
 the fluctuations of the bullion. 
 
 Experience was not required to show the fal- 
 lacy of Lord Overstone's extraordinary assertion, 
 the more extraordinary when made by a banker 
 of his experience. 
 
 The fallacy has been already shown in the 
 actual fluctuations between Bank of England 
 litotes and Bullion ; but when the amount of the 
 paper circulation of the country is brought into 
 the question, it is difficult to find words to ex- 
 press the astonishment at such a statement as 
 this by Lord Overstone. 
 
 Sir Eobert Peel, as Chairman of the Parlia- 
 
14 THE BANK OF ENGLAND. 
 
 mentary Committee of Inquiry on the Bank Act 
 of 1844, said : — " I anticipate from the adop- 
 tion of this measure a less fluctuation in the 
 amount of the circulation — a less fluctuation in 
 the range of prices ; but I am not so unreason- 
 ably sanguine as to suppose that it will put an 
 end to all speculation, and to all miscalculation 
 in commercial matters. . . . We can prevent an 
 additional stimulus being given to a rise of 
 prices, and undue speculations by the influence 
 of an "ill-regulated currency, and this it is the 
 duty of the legislature to attempt." 
 
 These anticipated effects have been in no vray 
 realised. The fluctuations in the amount of the 
 circulation have not been less ; nor have the fluc- 
 tuations in, the range of prices been less; but 
 in both cases greater. 
 
 It is not the duty of the legislature to attempt 
 to influence prices by regulations of the currency, 
 nor is it possible to do so by any such means. 
 Prices must necessarily vary according to the 
 relative supply and demand, and can be in no 
 way affected by the amount of notes in circula- 
 tion. AU experience confirms this principle. It 
 is not found that prices vary according to the 
 amount of notes in circulation. Currency, as 
 will be presently shown, has nothing to do with 
 prices, the real use of currency being to circulate 
 commodities and transfer debt. 
 
15 
 
 CHAPTER III. 
 
 THE FALSE CURRENCY PRINCIPLE. 
 
 "That when Bank Notes are permitted to be 
 issued, the number in circulation should always 
 be exactly equal to the Coin which would be in 
 circulation if they did not exist." 
 
 This principle is contained in the Evidence of 
 Mr. Samuel Jones Loyd, (now Lord Overstone) 
 befor the Committee on Banks of Issue, 1840. 
 Question 2663-4. 
 
 The following are his words : 
 
 " The precious metals converted into Coin 
 constitute the money of each country. That 
 Coin circulates sometimes in kind ; but in highly 
 advanced countries it is represented, to a certain 
 extent, by paper notes, promising to pay the coin 
 to bearer on demand, those notes being of such 
 a nature in principle, that the increase of them 
 supplants coin to an equal amount. When these 
 notes are in use, the metallic coin, together with 
 these notes, constitutes the money, or currency 
 
16 THE BANK OF ENGLAND. 
 
 of the country. Now, this money is marked by 
 certain distinguishing characteristics ; /r^^, of all, 
 that its amount is determined by the laws which 
 apportion the precious metals to the different 
 countries of the world; secondly, that it is in 
 every country the common measure of the value 
 of all other commodities, the standard by re- 
 ference to which the value of every other com- 
 modity is ascertained, and every contract ful- 
 filled ; and thirdly, it becomes the common 
 medium of exchange for the adjustment of all 
 transactions equally at all times, between all 
 persons, and in all places. It has, further, the 
 quality of discharging those functions in endless 
 succession. Now, I conceive that neither de- 
 posits nor bills of exchange in any way possess 
 these qualities. In the first place the amount 
 of them is not determined by the laws which 
 determine the amount of the precious metals in 
 each country. In the second place, they will in 
 no respect serve as a common measure of value, 
 or a standard by reference to which we can 
 measure the relative values of all other things ; 
 and, in the next place, they do not possess that 
 power of universal exchangeability which belongs 
 to the money of the country." 
 
 From the foregoing evidence it will be seen 
 that the Witness used the words " Currency," 
 
THE FALSE CURRENQY PRINCIPLE. 17 
 
 and " Circulating Mediuna," as synonymous. 
 Several other high authorities, examined before 
 the same Committee, confirmed that opinion. 
 
 In Lord Overstone's opinion, money and cur- 
 rency are identical, and include the coined me- 
 tallic money, and the paper notes promising 
 to pay the bearer coin on demand. He says 
 that the characteristic of their being money is, 
 that they are received equally at " all times, be- 
 tween all persons, and in all places!' He ex- 
 cludes bills of exchange from the designation of 
 currency, because "they do not possess that 
 power of universal exchangeability which belongs 
 to the money of the country." 
 
 It is impossible to imagine a definition more 
 fatal than this is, to the opinion so expressed ; 
 for, if this definition be the true one, then there 
 is no such thing as money or currency at all. In 
 the first place, it at once excludes the whole of 
 the issues of bank notes. The notes of a bank 
 in the remote district of Cumberland, would not 
 be current in Cornwall, therefore, not being re- 
 ceived equally at " all times, between all persons, 
 and in all places," they are not currency. 
 
 Again, the notes of a bank in Cornwall would 
 not be current in Cumberland, therefore, they 
 are not currency. We may almost say that 
 there are no country bank notes which have a 
 
18 THE BANK OF ENGLAND. 
 
 general currency throughout England, therefore 
 no Country Bank Notes are received equally at 
 " all times, between all persons, and in all 
 places-" therefore, no Country Bank Notes are 
 Currency. 
 
 Till within the last 45 years, the Notes of the 
 Bank of England had scarcely any currency 
 beyond London and Lancashire, -the preference 
 being then universally given to local notes in 
 country districts, therefore Bank of England 
 Notes had not a povrer of " universal exchange- 
 ability ; " therefore they were not currency. 
 
 If this test is to be applied, the claims of all 
 Bank Notes to be considered as Currency are 
 annihilated at once. 
 
 The acceptance of a Baring, or a Rothschild, 
 or of Lord Overstone himself, would be received 
 in payment of a debt by a far larger circle of 
 persons than the notes of an obscure and remote 
 country bank. But Lord Overstone excludes 
 Bills from the term, " Currency," because their 
 amount is not determined by the laws which de- 
 termine the amount of the precious metals in 
 each country. But is the amount of Bank Notes 
 determined by these laws ? 
 • He says that the increase of Bank Notes only 
 supplants coin to an equal amount ; but this is 
 a most extraordinary assertion for a Banker to 
 
THE FALSE CURRENCT PRINCIPLE. 19 
 
 make. Where tlie issue of them is free, it is 
 absokitely certain that their amount will greatly 
 exceed the amount of gold and silver coin that 
 ever would have circulated. But the universality 
 of this Witness' assertion is fatal to his argu- 
 ment in other ways. On the Continent silver 
 is the legal standard of value. In Great Britain 
 silver, like copper, is merely coined into small 
 tokens, called shillings, etc., which are made to 
 pass current above their intrinsic value, and are 
 only a legal tender for a very trifling amount, 
 hence it cannot be used for the adjustment of all 
 transactions, therefore it is not received equally 
 at " all times, between all parties, and in all 
 places : " therefore, it is not Currency. 
 
 There are other countries where gold is not 
 a legal tender, therefore it fails to satisfy Lord 
 Overstone's test, therefore, gold is not Currency. 
 
 It is easy to see that there is no substance, or 
 material whatever that will not fail under this 
 test, and therefore, there is no such thing as 
 ctirrency. 
 
 The fact is, that the only difference between a 
 Bill of Exchange, and a Bank Note is, that the 
 former is a promise of a deferred payment, and 
 the latter is that of an immediate one ; and there 
 is less risk in taking the latter than the formei. 
 From these circumstances a Bank Note possesses 
 
 c 2 
 
20 THE BANK OF ENGLAND. 
 
 a greater degree of circulating power than a Bill 
 of Exchange. To all those who hold the doc- 
 trine that Bills of Exchange are not currency, 
 or circulating medium, the answer is short and 
 simple : — that even if the allegation were true, 
 it is nothing to the purpose, because it only 
 goes to show that there are different species of 
 currency, or circulating medium, some of more 
 eligible descriptions than others. But the alle- 
 gation is not true, and the fallacy and absurdity 
 of it are here shown. To prove the entire fallacy 
 of Lord Overstone's doctrine on this subject ; — 
 he maintains that only Promissory Notes pay- 
 able on d'emand are currency. But would not 
 Notes payable one day, one hour, or minute, 
 after demand be currency ? Are not Bank Post 
 Bills, payable seven days after sight, currency ? 
 Where is it possible to draw the line? The 
 same argument applies to one month, two 
 months, three months, or any longer period. 
 The answer is clear, that they are all species of 
 currency, though differing in degree, and the 
 distinction between them is untenable. 
 
 But though Lord Overstone's criterion of a 
 Currency be fatal to his own view, what would he 
 gain by it if it were admitted 1 For what is it 
 that exists in all places, in all times, and among 
 almost all persons ? 
 
THE FALSE CURRENCY PRINCIPLE. 21 
 
 The answer is — Debt Or Services Due. 
 
 And what is it that it is universally required to 
 measure, record, and transfer theru ? 
 
 Some material. 
 
 But we see that all Currencies are more or less 
 local, none are universal. The idea, or want, 
 alone is universal. The notes of a Country 
 Banker, only circulating in his own neighbour 
 hood, are hke a country patois; each district 
 has its own. A national currency rises to the 
 dignity of a language. But even that is only 
 local on a larger scale. The ideas only ex- 
 pressed in the language are universal. The only 
 trae idea of a Currency is, that it is the — Re- 
 presentation Op Transferable Debt ; and 
 that. Whatever represents transferable debt 
 IS Currenct;. 
 
 All persons except those who advocate an in- 
 convertible paper currency, agree that a paper 
 currency must represent some article of value, 
 and bullion has been generally chosen for that 
 purpose. Now, the idea has occurred to a great 
 many persons, that if it be necessary only that a 
 paper currency should represent some article of 
 value, why should it not represent any or all 
 articles of value, such as Land, Corn, Silk, or 
 any '/other commodity, and among others, the 
 public funds ? And this has actually been tried 
 
22 THE BANK OF ENGLAND. 
 
 in several instances, yet they have universally 
 failed, and in many cases have been attended 
 with the most dreadful calamities. Now, as this 
 has uniformly happened, and must happen, it 
 necessarily follows that there must be some radi- 
 cal error in the principle, and that it must oppose 
 some great law of nature. 
 
 And this is, beyond all comparison, the most 
 momentous problem in political economy : — Why 
 is it improper to issue a paper currency on any 
 other basis than that of bullion ? 
 
 All the most eminent British Statesmen have 
 instinctively resisted such proposals, although re- 
 peatedly pressed to do so. No doubt, it has been 
 a most fortunate instinct for the country; but 
 certainly all their reasonings on the subject have 
 not followed their instinct. 
 
 The Bank Act of 1844 was the first occasion 
 on which a small bit of this fatal theory was in- 
 troduced, which, if only followed out to its legi- 
 timate conclusion would reproduce in this country 
 the horrors of the Mississippi scheme in France. 
 But though the British Parliament, by a blind 
 unreasoning instinct, has always, with the excep- 
 tion just named, resisted such fatal advice, this, 
 will not satisfy the demands of Science. This 
 was the error which brought the name of John 
 Law into such unhappy notoriety, about 160 
 
THE FALSE CURRENCY PRINCIPLE. 23 
 
 years ago. He was the great advocate of what 
 is now the popular cry — basing a paper cur- 
 rency upon any article of value besides bul- 
 lion. The only difference between him and our 
 greatest statesmen is, that he carried out their 
 arguments to their legitimate conclusion. He 
 had the opportunity of carrying this theory into 
 effect, and the result was ruin. 
 
 This has been so fully and clearly shown by 
 Mr. Macleod, in his admirable work on "The 
 Theory and Practice of Banking," etc., that it is 
 only necessary to refer to that work,* from which 
 these remarks on Currency are, for the most 
 part, abridged. As the same writer adds : — " A 
 moment's consideration will show that the theory 
 of basing a paper currency on commodities in- 
 volves this palpable contradiction in terms, that 
 one can buy commodities, and also have the money 
 as well'' 
 
 The origin of the Public Debt of this country 
 was Bank of England Stock, which was advanced 
 to the Government, in consideration of privileges 
 conferred, and as these advances were made from 
 time to time, increasing the Public Debt to the 
 
 * " The Theory and Practice of Banking." By Henry 
 Dunning Macleod, Esq. Longman and Co. 1855. A 2nd 
 edition, enlarged and very much improved, was published in 
 1866, and is by far the most comprehensive and able work 
 which has ever been published on the subject of Banking. 
 
24 THE BANK OF ENGLAND. 
 
 same amount, the Bank was allowed to issue 
 notes to the exact amount of its capital, i. e. 
 the Public Debt, and this permission still con- 
 tinues. 
 
 If this permission had been carried out to its 
 legitimate conclusion, the National Debt and the 
 capital of the Bank of England would have been 
 one and the same thing, and the paper notes of 
 the Bank would have been nearly £800,000,000. 
 
 As Mr. Macleod observes; this fundamental 
 principle of the Bank of England was as erro- 
 neous as the Mississippi scheme, and if this 
 principle had been carried out much further, it 
 must have ended in universal ruin; but that, in 
 all these cases, such as the Mississippi scheme, 
 the Ayr Bank, the French Assignats, or Ameri- 
 can banking, the mischief is not developed until 
 the issues exceed a certain limit. In the case of 
 the Bank of England, the mischief has been pre- 
 vented from producing its inevitable consequences 
 by rigidly restraining it within that limit. The 
 depreciation of the issues is the evidence that the 
 certain limit has been exceeded. That the Bank 
 of England note has not been depreciated, is 
 evidence that the principle has not been carried 
 far enough to develop the mischief. 
 
 The idea, therefore, of basing a paper-currency 
 upon property, or commodities, or upon public 
 
THE FALSE CURRENCY PRINCIPLE. 25 
 
 stock, is essentially erroneous, and if carried out 
 to its legitimate consequences, must terminate, 
 as it did in Prance, in 1796, and in America, in 
 1837-9. 
 
 But the Bank of England, being based, from 
 its commencement to the present time, on this 
 vicious principle, the first step to the re-constitu- 
 tion of the Bank of England on a sound principle 
 must be to restore the borrowed capital of the 
 Bank. 
 
 This must be the foundation of the Bank of 
 England, otherwise it is a Bank without capital, 
 and must be unequal to its purpose and object. 
 
 The next important step must be to enlarge 
 the credit capital of the Bank of England, by 
 extending the power of the Bank over the issue 
 of notes on Government securities. 
 
 That the safe limit has not been exceeded by 
 the issue of .€14,000,000 of Credit Notes is mani- 
 fest from the fact that these notes have never de- 
 preciated. The issue might be extended to 
 £40,000,000 or £50,000,000 on the same se- 
 curity with equal safety, the security depending 
 on the solvency of the British Nation. 
 
 The fallacious theories which have so long 
 bewildered the banking and commercial mind 
 with regard to over-issues and over-trading will 
 be passed over lightly here, the object being to 
 
26 THE BANK OF ENGLAND. 
 
 expose the fundamental fallacies of the Bank 
 Charter Act. 
 
 No practical purpose is now to be served by 
 further discussion of the wearisome questions 
 about Metallic Currency, and Paper-Currency, and 
 how these are affected by Foreign Exchanges. 
 
 We never have had, and never can have, a 
 wholly metallic currency. We have had a wholly 
 and inconvertible paper- currency, and that, whilst 
 it lasted, was an injustice and a disgrace to the 
 nation. But we have paid for that vicious system, 
 and got out of it, and are not likely to go hack 
 to it, whilst common sense, not to say common 
 honesty, prevails in this country. 
 
 We have now a mixed metallic and paper-cur- 
 rency, based on bullion, as the acknowledged 
 measure of value, and the only true basis of the 
 representative value. 
 
 The convertibility of the bank-note into gold 
 coin of the realm, on demand, is the foundation 
 of the commercial honour and prosperity of this 
 country, and must be preserved at whatever 
 cost. 
 
 To show that the convertibihty of the bank- 
 note can be preserved at a much less cost than 
 under the existing system, and with equal safety, 
 is the present object. 
 
27 
 
 CHAPTER IV. 
 
 MONEY, CURRENCY, AND CAPITAL. 
 
 Monet is currency of the legal and acknowledged 
 measure of value. 
 
 The metallic currency is called Money, and 
 the paper-currency of all sorts is termed, Security 
 for Money. These securities for money, or the 
 paper-currency, are divided into two general 
 divisions, firstly, promises to pay money, called 
 Promissory Notes ; and secondly, orders to pay 
 money, called Bills of Exchange. Each of these 
 general divisions, again, is divided into several 
 varieties. 
 
 The Sovereign, or Pound, is 123-274 grains of 
 standard gold, 22 carats fine, and 2 carats alloy. 
 The sovereign was a new gold coin, made current 
 by proclamation, of the value of 205., on the 1st 
 July, 1817. 
 
 Currency is that which passes current from 
 hand to hand, for the transfer of Debt. It is 
 evidence of a debt due to the possessor of it. 
 
28 THE BANK OF ENGLAND. 
 
 proving that he has rendered services for which 
 he has received no equivalent, but which he can 
 demand at any time. It may, therefore, be 
 laid down as a fundamental conception, that 
 Currency and Transferable Debt are convertible 
 terms ; that whatever represents transferable debt 
 of any description is currency ; and that, whatever 
 material the currency consists of, it represents 
 Transferable Debt, and nothing else. Therefore, 
 where there is no debt, there can be no Currency. 
 Where the exchanges are equal, there is no debt, 
 and there can be no currency. The Debt repre- 
 sents the precise inequality of the exchange, and 
 where there is no exchange, the debt must equal 
 in value the service rendered. Hence it is clear 
 that the use of currency is to supply the defect of 
 the exchange, or, rather, in most cases, to do away 
 with the necessity of an exchange. Its real use 
 is manifestly to enable commodities to circulate, or 
 move from the possession of one person to another, 
 or to enable one person to render another services 
 without the necessity of an exchange. Hence, — 
 The use of a Currency is not to facilitate exchanges, 
 hut to abolish exchanges. 
 
 Circulation is the amount of the sum total of all 
 the transferences of the currency. It is generally 
 used as synonymous with money and bank notes, 
 and more particularly the latter. Thus the number 
 
MONEY, CURRENCY, AND CAPITAL. 29 
 
 of notes issued by the Bank of England, or any 
 other Bank, is called its circulation. But this is 
 an objectionable term. 
 
 To call the notes which circulate a circulation, 
 seems as great a confusion of idea, as to call a 
 wheel a rotation. The word circulation, there- 
 fore, cannot properly be apphed to the issues of 
 a Bank. The more correct expression evidently 
 is, the number of its notes in circulation. Cur- 
 rency denotes the substance itself. Circulation the 
 amount of its transferences from hand to hand. 
 
 This simple definition of money and currency, 
 as given by Mr. Macleod, will help to expose 
 many of the common fallacies from the mis-use 
 of these terms. 
 
 Capital is nothing but .a store of accumulated 
 labor, which has not yet been spent, and it is 
 necessary to have some material substance to re- 
 present and measure it. That substance is money. 
 Capital, then, in its primary and true meaning, 
 denotes the accumulated savings of labor, and 
 its symbol is, Money. Among most of the civi- 
 lized nations, the weight of bullion is the measure 
 of value. Capital, therefore, is the purchasing 
 power, the moving power of commerce, the power 
 that causes the goods to move from the producer 
 to the merchant, or it is the circulating power, 
 which causes the goods to circulate. In its pri- 
 
30 THE BANK OF ENGLAND. 
 
 mary meaning, it does not mean the commodities 
 themselves, but the power which transfers the 
 property in them from one person to another. 
 All goods are. circulated, either by capital, or 
 credit ; hence, capital and credit constitute the 
 circulating medium. 
 
 It will, therefore, be seen that every unsuc- 
 cessful operation in trade alters the proportion 
 between the currency and the capital, or the debt 
 it represents; and though a few unsuccessful 
 operations of this sort would not have any sen- 
 sible effect in changing its value, yet a repeated 
 succession must necessarily do so ultimately, just 
 as adding a drop of water in a bucket may not 
 perceptibly increase the quantity of the water, 
 yet a continued series of drops will at length 
 cause the water to overflow the bucket; so a 
 continued series of such operations, under an 
 inconvertible paper-currency, must necessarily re- 
 sult in a serious diminution in the value of the 
 whole. But it may happen that, even though 
 the merchant pay his debt, and no loss of capital 
 ensue to the bank, yet it may be a loss of capi- 
 tal to him. Thus, when he bought the goods on 
 credit, and gave his acceptance for them, which 
 was purchased by the bank, he meant to employ 
 those goods as capital, that is, he bought them 
 merely for the purpose of selling them again with 
 
MONEY, CURRENCY, AND CAPITAL. 31 
 
 a profit. If he succeed in this object and sell 
 them to advantage, he pays his acceptance out 
 of the proceeds realised by the goods, and his 
 Capital is increased more or less, according to 
 the greater or less advantage he sells them at. 
 But if he have made a miscalculation, and sell 
 the goods at a loss, he must still make good his 
 debt to the bank out of his remaining capital ; 
 and such a transaction is a loss of capital to him. 
 But every loss of capital to an individual is a 
 loss of capital to the whole community. And 
 the great general result to the community is 
 absolutely the same, whether the loss of capital 
 fall upon the individual or upon the bank. The 
 capital of the Nation is diminished, but the cur- 
 rency remains the same. Consequently, every 
 unsuccessful operation in trade alters the pro- 
 portion between the quantity of the Currency, 
 and the quantity of the debt, or the Capital it 
 represents; and, therefore, every unsuccessful 
 operation necessarily tends to diminish the value 
 of the whole currency,, unless some means can 
 be devised by which a quantity of currency can 
 be removed from circulation, corresponding to 
 the loss of capital. Now, the diminution in the 
 value of the currency inevitably shows itself in 
 process of time, by a general rise in prices. It 
 may do so gradually and imperceptibly at first 
 
32 THE BANK OF ENGLAND. 
 
 — ^in the hourly variation of prices it may not, 
 perhaps, be perceived at first, — ^just as when the 
 waves are breaking upon the shore, it is im- 
 possible to tell whether the great tide be advan- 
 cing or receding ; but if it continue for any length 
 of time, all traders begin to feel it instinctively. 
 It is impossible, perhaps, to point out the precise 
 influence in any particular transaction ; but, yet, 
 it makes itself felt, in commercial operations, by 
 a general rise in prices. The fact is that, when 
 the operation was done, and the production ex- 
 posed for sale, it was expected and calculated 
 that a certain portion of currency would be ap- 
 propriated to the purchase. But, if people do 
 not want the article, they will not appropriate 
 that portion of currency to the purchase; the 
 producer loses his capital, and the currency re- 
 mains in circulation. And the increased quan- 
 tity of it gradually enters into the prices of other 
 commodities, aggravating them and swelling them 
 up. Now, in this case, when the currency is 
 made of a material which has a universally ac- 
 knowledged value, nature herself provides the re- 
 medy. When commodities rise in price in this 
 country, beyond their prices in foreign countries, 
 besides the cost of transporting them here, they 
 will be imported, and the extra quantity, thrown 
 upon the market, diminishes their price, both by 
 
MONEY, CURRENCY, AND CAPITAL. 33 
 
 altering the rates of supply and demand, as well 
 as by removing from circulation the quantity of 
 currency, necessary to pay for them, until the 
 general equilibrium is again restored between 
 prices, currency, and capital. But if the cur- 
 rency be made of a material which has no value 
 whatever, like paper, this great natural restoring 
 process cannot take place. The quantity of cur- 
 rency remains the same, while the capital it re- 
 presents is diminished. The consequence is a 
 general diminution in value of the whole cur- 
 rency, — all the portion of the currency which 
 has no intrinsic value is driven out of circula- 
 tion; then follows a great rise in the market 
 price of buUion, and, as a necessary consequence, 
 a fall in the foreign exchanges. 
 
 These considerations enable us to affix a defi- 
 nite and specific meaning to a phrase now in 
 constant use, but which no one even attempts to 
 explain. All discussions upon currency are full 
 of misty and vague expressions about " excessive 
 issues," "over-issues," but no attempt is made 
 to define what an " over-issue " is. Now, " over- 
 issues " in general, must consist of specific in- 
 stances of over-issue in particular cases. Where 
 is the use, or the sense, of casting vague and in- 
 definite accusations against the Bank, of making 
 " excessive issues," unless the charge be sup- 
 
 D 
 
34 THE BANK OF ENGLAND. 
 
 ported by pointing out specifically which issues 
 are excessive, and which are not? Now, the 
 meaning of an " excessive issue," or an " over- 
 issue," is an advance upon an unsuccessful opera- 
 tion, or the purchase of a bad debt. Every quan- 
 tity of currency advanced to promote an unsuc- 
 cessful operation, or which purchases a bad debt, 
 alters the proportion between the currency and 
 the debt, or the capital it represents. Each spe- 
 cific instance, then, of such an operation is an 
 "over-issue," and the expression has no other 
 meaning. 
 
 The foregoing considerations also show the 
 complete fallacy of the theory of issuing notes 
 on "good bills." In a Banker's sense, a "good 
 bill" means simply a bill which is duly paid by 
 the proper party at maturity. It is not the 
 smallest consequence to the Banker, as long as 
 he is paid, whether the transaction out of which 
 the bill originated be a profit or a loss to the 
 person who incurred the obligation. But if the 
 expression, "good bill," be taken in a more 
 extended and philosophical sense, to denote a 
 bill upon which it is safe to issue currency, it 
 is a very different matter indeed, for then "a 
 good bill" can only mean one generated by a 
 successful operation. 
 
 Every consideration of sound reasoning and 
 
MONET, CTJRRENCT, AND CAPITAL. 35 
 
 science, then, proves that, the only true foun- 
 dation of a paper currency is that substance 
 which is the legal, or the universally accepted, 
 representative of Debt, i. e. of services due, or 
 Capital, whatever that substance be. Now, 
 among all civilized nations, gold or silver bullion 
 is the acknowledged representative of Debt, or 
 Capital. Consequently, gold or silver bullion 
 is the only true basis of a paper currency. 
 Among all civilized nations, the weight of bullion 
 is the acknowledged measure of value, and, con- 
 sequently, bullion is the only true basis of the 
 representative of value. Many unthinking per- 
 sons declaim against the absurdity of founding 
 a paper currency upon the commodity of gold 
 bullion, rather than any other commodity, such 
 as wheat, or silk, or sugar. But it is not as a 
 commodity that bullion is the basis of a paper 
 currency, but as the substance which is the ac- 
 cepted representative of Debt or Capital. It 
 would be perfectly possible to make a yard of 
 broadcloth, or a Dutch-cheese, the representa- 
 tive of Debt and the measure of value; then 
 the yard of broadcloth or Dutch-cheese would 
 be the only true basis of a paper currency, and 
 to issue paper upon the basis of bullion would, 
 in such a case, be as improper as to issue paper 
 on the basis of broadcloth or Dutch-cheeses 
 
 D 2 
 
36 THE BANK OP ENGLAND. 
 
 under existing circumstances. But all nations 
 are agreed that bullion is better fitted by nature 
 for such a purpose than any other commodity ; 
 and, consequently, as it seems to be the sub- 
 stance pointed out by nature for representing 
 debt, bullion is the substance which forms the 
 only true basis of a paper currency. 
 
 Bullion, then, as the symbol of Capital, is 
 not only the sole proper basis of a paper cur- 
 rency, but is the only true regulator of its 
 amount. As all paper currency is a "promise 
 to pay " gold or silver bullion at some definite 
 time, it is quite evident that the " promises to 
 pay," floating in a nation, must bear some pro- 
 portion in quantity to the actual quantity of the 
 bullion. It is quite impossible to fix any de- 
 finite proportion, because that depends upon a 
 multitude of peculiar circumstances. Experience 
 is the only guide on the subject. 
 
 Capital and Credit, or money, and promises 
 to pay money, then, form the only true circula- 
 ting medium, or currency, and they are its 
 limits. If the limits of Capital and Credit be 
 once transgressed, we plunge at once into the 
 fatal error of the notorious John Law, and there 
 is no logical goal, till we arrive at the Assignats 
 of 1796, or the Issues in America in 1837 ; and 
 even these did not reach the full limits allowed 
 
MONEY, CURRENCY, AND CAPITAL. 37 
 
 by the theory. It is impossible to exceed the 
 boundaries of Capital and Credit in the smallest 
 degree, without involving this absurdity, — iliat 
 we can buy a thing, and keep the price of it as 
 well. 
 
 Capital and Credit, then, must always in- 
 crease and decrease together. If a man's real 
 capital be reduced from £1000 to £100, it is 
 quite clear that he cannot keep in circulation as 
 many "promises to pay," as when he had 
 £1000 ; and if his real capital be leaving him, 
 he must reduce his liabilities in a similar pro- 
 portion. If he choose to spend £500 in buying 
 commodities, such as corn, flour, etc., it is quite 
 clear that he cannot spend the money, buy the 
 commodities, and have the price as well. What 
 is true of a single individual, is equally true of 
 a Bank, or of a ligation. When an ordinary 
 Bank feels a drain upon its bullion, it must re- 
 duce its liabilities, its " promises to pay," or else 
 the ruin of that Bank is certain. Now, although 
 this be true as a general principle, and appli- 
 cable to private banks, yet it is not applicable 
 to the Bank of England, invested with a mono- 
 poly in the issues of the legal tender money of 
 the country, as will be shown in the future pages 
 of this work, where it will be maintained that it 
 is the reverse of true applied to the Bank of 
 
38 THE BANK OF ENGLAND. 
 
 England, and that, as its bullion decreases, it 
 ought to increase its issues, but under certain 
 limitations. 
 
 The operation of reducing " Issues," or " Ad- 
 vances," is always one which will excite much 
 complaint, and requires to be done with much 
 dehcacy; and, indeed, the grand problem, in 
 regulating the paper currency, is to discover the 
 true mode of acting upon it, so as, on the one 
 hand, to maintain always its uniformity in value 
 with the coin it represents, and on the other, not 
 to contract it too suddenly and violently, and 
 without giving the public sufficient warning to 
 enable them to reduce their habilities in pro- 
 portion. 
 
 The plain and obvious method of controlling 
 the paper-currency has almost entirely eluded 
 observation. No person who apprehended the 
 true nature of Banking, and expressed it in 
 simple language, could fail to see the natural 
 controller. The main business of commercial 
 banking is discounting mercantile Bills, that is, 
 buying debts. Discounting a Bill for a mer- 
 chant, is not lending him money, but buying a 
 debt due to him ; and the price of such debt 
 must follow exactly the same law as the price 
 of corn, or any other article, if brought under 
 the same law by exactly the like circumstances. 
 
MONEY, CURRENCY, AND CAPITAL. 39 
 
 but not otherwise. If money be very scarce 
 and wheat very abundant, the price of wheat 
 must fall ; if money be very abundant, the 
 price of wheat will rise. The price of debts 
 obeys the same rule, under the same circum- 
 stances. If capital become very scarce, the price 
 of debts must fall, i. e. the discount must rise. 
 If capital become abundant, the price of debts 
 will rise, i. e. the discount will fall. The price 
 of debts, then, must follow the same great natural 
 law that the price of wheat does, if that law 
 be left uncontrolled in its operation. Now, does 
 not every man of common sense know that, it 
 is foolish to try to control the price of wheat? 
 It is not the fluctuation of the price of wheat 
 that is the evil, but it is only the sign of the 
 evil. The real evil is the change in the pro- 
 portion of the demand and supply, and the 
 fluctuation of the price is the grand natural 
 corrector of the evil. Does not every one know 
 that a high price of corn is the way to attract 
 corn where it is deficient, and a low price the 
 way to repel it from where it is already too 
 abundant ? Does not every one know that it is 
 the most fatal folly to force down the price of 
 wheat when there is a real scarcity, and to sell 
 it below the price it would naturally attain ? 
 Now, apply all the arguments which suggest 
 
40 THE BANK OF ENGLAND. 
 
 themselves so irresistibly in the case of wheat, to 
 the case of credit, or the purchase of debts, and 
 the same results will follow, under the same, or 
 the Hke circumstances. The same natural law 
 operates to preserve the due proportion between 
 capital and credit, and any interference with this 
 law must necessarily be attended with the same 
 evil consequences, as an interference with the 
 natural price of wheat. 
 
 The variations in the rate of discount, there- 
 fore, are, in truth, only the sign of the evil. The 
 real evil is the altered proportion between capital 
 and credit, and a variation in the rate of discount 
 is the corrector of the evil. To attempt to keep 
 the rate of discount uniform, when the proportion 
 between capital and credit is altered, without 
 taking any means to restore the due proportion, 
 is to thwart and contravene the natural law, just 
 the same as an attempt to fix the price of wheat ; 
 but if the proportion between capital and credit 
 can be restored without altering the rate of dis- 
 count, then there is no reason why a uniform rate 
 of discount should not be preserved, and quite 
 consistently with the natural law, for although 
 variations in the rate of discount correct the real 
 evil, yet these variations are also a great evil. 
 The simplicity, beauty, and perfection of action in 
 this natural law, as in all the laws of nature, is 
 
MONEY, CURRENCY, AND CAPITAL. 41 
 
 marvellous, and produces a multitude of results 
 which are not, perhaps, at first, very obvious. If 
 capital beleaving the country and becoming scarce, 
 compared to credit, every principle of nature shovs^s 
 that the value of money must rise, i.e. the rate of 
 discount must rise ; and this has a tendency to 
 prevent the outflow of bullion, and to attract it 
 from abroad ; on the other hand, if capital be 
 flowing into the country, and likely to become 
 too abundant, compared to credit, a faU in its 
 value, or a fall in the rate of discount, repels it 
 from the country. If a nation be visited with a 
 great failure of the crops, it can buy such food 
 from foreign countries only with its commodi- 
 ties or its money ; it cannot send its credit in 
 payment abroad. If commodities be too dear, it 
 must pay with money, and credit in this country 
 is the great producing power, and /or a time is a 
 great sustainer of prices, by enabling people to 
 withhold their commodities from the market. 
 Now, raising the rate of discount curtails credit, 
 forces sales, and thereby lowers the prices of com- 
 modities, and makes it less profitable to export 
 specie, and more profitable to export goods. 
 Moreover, this rise in the value of money here, 
 i.e., the low price of debts and commodities, 
 tempts buyers from neighbonng countries to 
 bring their money here. It thus causes an in- 
 
42 THE BANK OF ENGLAND. 
 
 flux of bullion, and restores our currency to a 
 uniformity of value with that of neighboring 
 countries. Again, if this nation have to spend a 
 great part of its money in buying foreign corn, 
 it is quite clear that it has not got so much 
 money to spend in purchasing goods ; an over- 
 production of goods, therefore, can only end in a 
 disastrous fall of prices. And here, too, the 
 beautiful action of the natural law is manifest. 
 So enormous a proportion of the commodities of 
 this country are produced by the credit system, 
 that a rise in the rate of discounts just hits 
 profits between wind and water. Consequently, 
 a rise in the rate of discount retards and curtails 
 production in proportion to the diminished con- 
 suming powers of the nation, and so prevents 
 such a ruinous fall in price as would necessarily 
 follow an undiminished production, accompanied 
 by a diminished power of consumption. But, 
 this result is a great disturbance to trade and a 
 great loss to the country, and still the question 
 remains, whether, with a mixed metallic and 
 paper-currency, the same result cannot be pro- 
 duced with less disturbance to trade than by 
 raising the rate of discount beyond a certain 
 fixed maximum. 
 
 In fact, when a commercial crisis occurs in a 
 country, it invariably means that more persons 
 
MONET, CUllRENCY, AND CAPITAL. 43 
 
 are wishing to sell than there are persons to buy ; 
 or, at least, at remunerative prices. A commer- 
 cial crisis invariably arises from a lack of pur- 
 chasers, which is, in fact, over-production. True 
 prudence, therefore, shows that, in all commer- 
 cial crises, production should be curbed. It is 
 much better not to produce at all, than to produce 
 and be obliged to sell at a loss. To produce and 
 be obliged to sell below the cost of production is 
 loss of capital. It is better, therefore, not to 
 employ the capital at all, than to lose it. Raising 
 the rate of discount, therefore, acts as a timely 
 warning to producers to hold hard, but, in that 
 case, especially with a paper-currency, it may be 
 better still not to discount at all, than to disturb 
 the uniform rate of discount. 
 
 Now, what is the necessary consequence of an 
 attempt to thwart this great natural law? In 
 time of scarcity of food and a necessary export 
 of money to buy it, if the rate of discount be 
 kept unnaturally low, nothing but money will 
 go; commodities are too dear, they will not go. 
 Again, money being kept at an unnaturally low 
 rate here, no one will bring it here from neigh- 
 boring countries, consequently, great quantities 
 of money will go out, and none will come in, till 
 at last, the circulating medium will be nothing 
 but " promises to pay," and no money to pay 
 
44 THE BANK OF ENGLAND. 
 
 them with. Then, at last, violent convulsions, 
 total destruction of credit, every one wishing to 
 sell, and no one wishing or able to buy. 
 
 On the other hand, if Capital, when flowing 
 in with too great abundance, be not repelled by 
 a due diminution in the value of money — i.e. 
 a fall in the rate of discount, or a suspension of 
 discount, — capital will continue to flow in until 
 it be so superabundant that a violent fall takes 
 place. Persons who are accustomed to depend 
 on the incomes they derive from _the interest of 
 money, suddenly find that their means are se- 
 riously diminished ; then wild speculations find 
 favor in the public mind, promising higher 
 profits, and then the community goes through 
 the cycle of bubble speculation, extravagant 
 credit, ending in a commercial catastrophe. 
 
 The object to be aimed at should be to pre- 
 serve a uniform rate of discount in this country, 
 and at the same time to maintain a uniformity 
 in the value of the British Currency with that 
 of other countries. If money, that is, gold or 
 silver, be made artificially cheap in this country, 
 that is, cheaper than it is in neighboring coun- 
 tries, persons in this country will export it to 
 where it is of greater value ; they will buy foreign 
 securities, they will import foreign commodities. 
 On the other hand, foreign nations will flood this 
 
MONEY, CURRENCY, AND CAPITAL. 45 
 
 country with their securities; just as the Ameri- 
 cans did in 1839, when the Bank kept down the 
 rate of discount below its proper level ; because 
 they can sell their securities at a better price 
 here, than in their own country. But in neither 
 of these cases would an alteration in the rate of 
 discount be necessary, if that uniformity in the 
 value of the currencies can be otherwise pre- 
 served. 
 
 When the Americans wished to sell their 
 debts, and found that, in their own country they 
 could get only £90 per cent, for them ; whereas, 
 they could get £97 per cent, for them in England ; 
 as a natural consequence they sent them to 
 England for sale, and took away the cash. The 
 only way for England to have stopped this would 
 have been to give no more for these securities 
 than the Americans themselves would give; in 
 other words, to maintain a uniformity in value 
 between the currencies of the two countries. 
 
 When the Foreign Exchanges are unfavour- 
 able to this country, the simple meaning of that 
 is, that it is profitable to export gold. But, 
 where is the gold got from for exportation ? From 
 the Bank of England. And how is it got from 
 there? By getting hold of the Bank's "pro- 
 mises to pay" gold on demand. Now, when the 
 Bank of England knows that a multitude of 
 
46 THE BANK OF ENGLAND. 
 
 persons are trying to get hold of its promises to 
 pay, for the purpose of demanding gold for them, 
 and to carry that gold out of the country, it 
 would be folly in the Bank to be multiplying 
 its " promises to pay" in all directions, and sell- 
 ing them cheap. 
 
 When gold is leaving the ^country, nothing 
 can bring it back again here, except selling 
 our commodities, or debts, cheaper than other 
 nations. 
 
 As soon as the exchange becomes so un- 
 favourable as to make it profitable to export gold, 
 an immense number of bills are fabricated for the 
 purpose of being sold for the sake of the pre- 
 mium ; and these will continue to be fabricated 
 as long as the rate of discount is kept below that 
 of neighboring nations. Now, raising the rate 
 of discount, or stopping discount by a mode- 
 rately fixed maximum, strangles all such opera- 
 tions in the birth. 
 
 If the rate of discount be kept below its natural 
 level, it stimulates and encourages production so 
 much beyond the powers of consumption that, it 
 must necessarily terminate in an aggravated fall 
 of prices. In that case a timely raising of the 
 rate of discount to the fixed maximum, would be 
 a warning to producers to contract their ope- 
 rations. 
 
MONEY, CURRENCY, AND CAPITAL. 47 
 
 It is, then, an incontrovertible fundamental 
 truth in Monetary Science that. Capital and 
 Credit form the circulating medium, and that they 
 must increase and decrease together. An increase 
 of Currency without an increase of Capital, has no 
 effect but to diminish the value of Currency. 
 
 The same thing happens if, when Capital is 
 destroyed, Currency "be not destroyed with it. 
 If a metallic currency increase faster than capi- 
 tal, the natural law provides a remedy ; the me- 
 tallic currency is immediately exported. But, 
 with an inconvertible paper-currency, this cannot 
 happen ; and, when capital is destroyed, cur- 
 rency remains in circulation. When this goes 
 on for any great length of time, or to any con- 
 siderable extent, the inevitable result is, a depre- 
 ciation of the paper-currency, which is shown by 
 the rise of the market above, what is called, the 
 Mint price of gold. This was eminently exem- 
 plified in England in the years subsequent to 
 1810. The extravagant speculations were fol- 
 lowed by an enormous destruction of capital; 
 but the currency which was issued to represent 
 it remained in circulation, and soon manifested 
 itself in a rapid fall in the value of paper. It 
 was impossible that paper ever should right itself, 
 unless this superfluous currency were destroyed, 
 and this was brought about by the destruction of 
 the issuers of it. 
 
48 THE BANK OF ENGLAND. 
 
 Such are the principles which must regulate 
 the money of all countries. If the money con- 
 sisted only of the precious metals, these principles 
 would be perfectly simple and self-regulating. 
 But, in most civiHzed countries, the money con- 
 sists partly of the precious metals, and partly of 
 paper, of no intrinsic value, but of an artificial 
 value, dependent wholly on credit. 
 
 To adapt this artificial and complex system to 
 the natural and simple system, opens a great 
 variety of questions, and although these are to 
 be determined by analogy with natural prin- 
 ciples, yet, if the same reasoning be followed out 
 with the artificial system of a mixed currency, 
 as with the natural system of a purely metallic 
 currency, the conclusion will be erroneous, and 
 the result confusion. This is the error of Lord 
 Overstone, and of all those who advocate his 
 theory of variation. And this is the great error 
 of the Bank Charter Act of 1844. 
 
 The principle, so clearly laid down and ex- 
 plained by Mr. Macleod, in his work before re- 
 ferred to, has been here more particularly no- 
 ticed for the purpose of expressing a distinct as- 
 sent thereto, as a general principle, but also for 
 the purpose of distinctly dissenting to the ap- 
 plication of this principle and the reasoning 
 therefrom to the Bank of England, constituted 
 
MONET, CURRENCY, AND CAPITAL. 49 
 
 as it is, under special circumstances, to carry 
 out a system entirely artificial. 
 
 It may be useful here to add a few remarks 
 on the true meaning of money, which is so much 
 capital taken out of the common stock for a 
 special purpose, an important distinction over- 
 looked by most writers. 
 
 Prominent among these is M. Wolowski, 
 Member of the French Institute, etc., who is 
 regarded by some in this country, and many on 
 the Continent, as an authority on the subject. 
 
 M. Wolowski not only loses sight of this dis- 
 tinction, but he attaches to money a property 
 which it does not possess, and he makes this 
 fundamental error the foundation of many other 
 errors. 
 
 As the translator, from the original Latin into 
 French, of two old Tracts on Money, by Nicholas 
 Oresme and the celebrated Copernicus, M. Wo- 
 lowski has endeavoured to support some of his 
 own notions on this subject by bringing forward 
 the crude opinions of those old and forgotten 
 writers, and by referring to some imperfectly 
 expressed ideas by that eminent Frenchman, 
 Turgot. 
 
 M. Wolowski has been so obUging as to pre- 
 sent to the Author a copy of this work.* 
 
 * ' Traictie de la Premiere Invention des Monnoies, de 
 
 £ 
 
50 THE BANK OF ENGLAND. 
 
 It is evidence of commendable industry, but 
 misdirected zeal. 
 
 Viewed in the obscure light of those distant 
 times, the opinions of Oresme and Copernicus 
 on the subject of ' Money' are more curious than 
 useful. They show a surprising hght of intelli- 
 gence for those times, but, viewed in the clearer 
 light of the present day, are opinions of little 
 practical use, and, used as M. Wolowski has 
 used them, are not only not useful, but are in- 
 jurious, as tending to confusion, and to support 
 errors such as those into which M. Wolowski has 
 himself fallen and is misleading others. 
 
 It is only some of M. Wolowski's commen- 
 taries thereon which will be here noticed, and 
 with the view only of rendering them harmless. 
 
 M. Wolowski considers money of gold and 
 silver or other metals to be of intrinsic value, 
 exchangeable for and synonymous with merchan- 
 dise, and, therefore that, money is merchandise. 
 
 He attempts to support this fallacy by refer- 
 ence to the following propositions of Turgot : — 
 
 " Toute marchandise a les deux proprietes 
 essentielles de la monnaie, de mesurer et de 
 
 Nicole Oresme. Texte Fran^ais et Latin, d'apres les Manu- 
 scrits de la Bibliotlieque Imp^riale. Et Traits de la Monnaie 
 de Copernic ; texte Latin et traduction FranQaise ; Publics 
 et Annotes par M. L. Wolowski, Membre de I'lnstitut.' 
 
MONET, CURRENCY, AND CAPITAL. 51 
 
 representer toute valeur ; et dans ce sens toute 
 marchandise est nionnaie." 
 
 " Reciproquement, toute monnaie est essen- 
 tiellement marchandise." 
 
 " L'or et I'argent sont constitues, par la nature 
 des. choses, monnaie et monnaie universelle, inde- 
 pendamment de toute convention et de toute loi." 
 
 These expressions are not exact, but, in the 
 sense in which they are used by Turgot, they 
 are not open to much objection. 
 
 M. Wolowski, however, makes use of these 
 expressions for a very different purpose, when he 
 uses them to support the false reasoning, which 
 runs through all his arguments against the ex- 
 tension of credit issues, in favour of hmiting 
 those issues by high rates of discount. 
 
 There is no reason to suppose from any of 
 the writings of Turgot that, he would have so 
 used his definition of money, or that he intended 
 to restrict credit by the hard and inflexible rules 
 prescribed by M. Wolowski. On the contrary, 
 such a view is inconsistent with all that we 
 know of the opinion of Turgot on this question 
 from his writings. 
 
 But if the words of Turgot in their true sense 
 and meaning do support M. Wolowski's views, 
 then all that can be said is that, Turgot was as 
 much in error as M. Wolowski is. 
 
 E 2 
 
52 THE BANK OF ENGLAND. 
 
 Money is correctly described as the measure 
 of value, and in this sense, Turgot says all money 
 is, merchandise. He does not say, as M. Wo- 
 lowski says, " the money paid for the merchan- 
 dise is the exchange of one intrinsic value against 
 another intrinsic value," but that, the money is 
 the measure of the value of the merchandise. 
 
 This is a conventional form of expression, but 
 it is not accurate. 
 
 There is no value either in the money or the 
 merchandise, and there is no intrinsic value in 
 anything. 
 
 The value consists in the human labor ex- 
 pended in the one and the other, and the money 
 measures the labor, vyhich alone constitutes the 
 value. 
 
 In the merchandise and in the gold the value 
 of the labor has been already paid for. 
 In the merchandise, to the manufacturer. 
 In the gold, to the digger. 
 The money is the measure of the value and 
 the acknowledgment of the debt, and the debt, 
 though legally discharged by the money, is not 
 really satisfied until the money be transferred into 
 other hands. 
 
 The money simply measures the value of the 
 service rendered and transfers the debt thereby 
 incurred, and the holder of the money has a 
 
MONET, CURRENCY, ANU CAPITAL. 53 
 
 claim for a like amount of value or services, so 
 measured and yet to be rendered. 
 
 The money is the measure of the debt or ser- 
 vice, the measure of value ; but the value is in 
 the service rendered, not in the money, for that 
 is of no value. 
 
 There is no value in gold or silver or in any 
 material thing. 
 
 The value consists in the service rendered by 
 getting the thing wanted for its use. 
 
 In the case of the gold, in getting it out of 
 the earth. 
 
 In the case of the merchandise, in manufac- 
 turing it out of the raw material. 
 
 Gold is of no more value than gravel, and 
 there is no value in either. 
 
 Value is merely a conventional term when ap- 
 plied to any material thing, and is as inaccurate 
 as the conventional term circulation, when ap- 
 plied to bank notes in circulation. 
 
 When a gold sovereign is given for a cart-load 
 of gravel, the debt thereby incurred, for the service 
 so rendered, is discharged by the gold sovereign. 
 
 The value of the service rendered is measured 
 and the debt incurred is acknowledged and dis- 
 charged by the gold sovereign. 
 
 But, though the debt be thereby discharged, 
 the value of the service in return is not received 
 
54 THE BANK OF ENGLAND. 
 
 until the gold sovereign be again transferred or 
 applied to produce an equivalent service to the 
 holder, and if he lose the sovereign the service 
 in return is never received, but the debt is still 
 satisfied and discharged, thus proving that neither 
 the gravel nor the gold was of any value, and 
 that the gold sovereign did nothing more than 
 transfer the debt, and also proving that, for 
 value, mutual services must be rendered. 
 
 The payment of the money is for the service 
 rendered in delivering the utility that was v?anted, 
 and the money paid commands the equivalent 
 service. 
 
 The money measures simply the value of the 
 service rendered, and to be rendered in return. 
 
 The materials given and received are the utili- 
 ties of Nature given gratuitously to all, and, 
 therefore, of no value. 
 
 If the gravel vi^ere as scarce and as useful as 
 the gold, and if the gold vpere as plentiful but 
 no more useful than the gravel, a cart-load of 
 gold would be required for a piece of gravel of 
 the size of the sovereign. 
 
 The diamond has its peculiar usefulness, and 
 its great beauty and rarity make it a desirable 
 possession. But it has no more value than a 
 common gravel stone. , 
 
 The value consists only in the service rendered, 
 whether imaginary or real. 
 
MONEY, CURRENCY, AND CAPITAL. 55 
 
 If a person after spending fifty years of his 
 life in searching for a diamond were then to find 
 one, those fifty years would be to him the mea- 
 sure of its value, though that might not be the 
 measure of the value to the person desiring to 
 purchase the diamond. 
 
 But for the diamond itself there could -be no 
 payment, for there is no one entitled to receive 
 payment, any more than for the air we breathe 
 or the water we drink, and these ai'e never paid 
 for, though we do pay for the service of bringing 
 the water to us. 
 
 It is, therefore, by conventional usage only 
 that we talk and write of the value of things, and 
 Turgot was not exact when he wrote : — " Gold 
 and silver are constituted, by the nature of things, 
 money and universal money, independently of 
 all convention and all law." 
 
 Gold and Silver are so constituted, — not bv 
 the nature of things, independently of all con- 
 vention and of all law, but by convention and 
 law, independently of the nature of things. 
 
 This was afterwards partly recognised by 
 Turgot when he added : — " L' usage de I'argent 
 a beaucoup facilite la separation des divers tra- 
 vaux entre les differents membres de la societe." 
 
 Coventional usage arises out of, but cannot 
 alter, the nature of things. The nature of things 
 
56 THE BANK OP ENGLAND. 
 
 is unchangeable, and on that property conven- 
 tional usage is formed. Circumstances may and 
 do change conventional usage, but the nature of 
 things never. 
 
 Gold and Silver and Copper are the chosen 
 measures of value for their peculiar properties, 
 not for any intrinsic value, for there is none. 
 
 These metals are chosen for such purpose, 
 because there are no other known articles, in 
 equal abundance, so little liable to be afiPected 
 by change of circumstances. 
 
 Circumstances are always changing, and con- 
 ventional usage accommodates itself to those 
 changes. But the nature of things never 
 changes. 
 
 Nature works by immutable laws. 
 
 These may be disregarded, but can never be 
 violated. 
 
 The laws of Nature work universal benefi- 
 cence. -To disregard them does not violate 
 them, but perverts the intended good to evil. 
 
 The gratuitous services of Nature are given 
 equally to all, and when all make equally good 
 use of them, all will equa% enjoy them, not 
 otherwise. 
 
 If all would avail themselves of Nature's gra- 
 tuitous services, those services would be more 
 largely appropriated . 
 
MONET, CURRENCY, AND CAPITAL. 57 
 
 Obstacles would be removed and the way 
 made more easy for all. 
 
 Labor would be set free, and the sources of 
 all services and all property would be thereby 
 enlarged. 
 
 Value would be created where no value was 
 before, and value is all that man can ever create. 
 
 Capital would increase and be distributed 
 more equally. 
 
 Credit would be extended on a firmer basis. 
 
 Industry, prosperity, and happiness would i!ti- 
 crease. 
 
 Pauperism would diminish, and with it guilt 
 and wretchedness. 
 
 This is the Equalisation to which Nature 
 points. Digitus Dei Est Hic. 
 
 There is no other equality in Nature than 
 this. 
 
 Nature's gratuitous services are given equally 
 to all, and, being gratuitous, nothing ever has 
 been or ever can be given in exchange for them ; 
 but as value arises only from exchange of ser- 
 vices. Nature's gratuitous services never have 
 been and never can.be of any value. 
 
 These services are utilities, but only when 
 used. 
 
 Air, light, water, gravitation, electricity, etc., 
 are utilities when used, but, though essential for 
 
58 THE BANK OK ENGLAND. 
 
 our existence, we give nothing in exchange for 
 them, and they have no vakie. The water, if 
 we can never obtain it, is even of no utiUty 
 to us. The service is rendered by bringing the 
 water to us, and in this service, if received in ex- 
 change for another, is the value. The service is 
 rendered by human efforts and may be rendered 
 gratuitously, in which case, however great the 
 service, there is no value. Our own efforts may 
 bring the water to us, and in that case we avail 
 oufselves of the gratuitous service of Nature, for 
 which nothing can be given in return, and there 
 can be no value ; or another's efforts may bring 
 the water to us in exchange for something else, 
 and that exchange of services creates value. In 
 the one case, there is no exchange of services 
 and no value, but simply one's own efforts in 
 taking the gratuitous service of nature for the 
 gratification of one's own want ; in the other 
 case, there is another's efforts in exchange for 
 something else, and there is value acknowledged 
 and returned ; in both cases the gratuitous 
 utility of nature is appropriated without any- 
 thing given in return, and when the service is 
 exchanged for another, it becomes a service of 
 value. 
 
 Therefore, every man enjoys gratuitously all 
 the utilities furnished or created by Nature, on 
 
MONET, CURRENCY, AND CAPITAL. 59 
 
 condition of taking the trouble to appropriate 
 them, or of returning an equivalent service to 
 those who render him the service of taking that 
 trouble for him. 
 
 Even the air we breathe ceases to be of ser- 
 vice to us when we cease to respire it. In the 
 midst of the most fertile soil, with every advan- 
 tage of climate, without human efforts, acting in 
 concurrence with the gratuitous utilities of na- 
 ture, we should derive no service, and starvation 
 must ensue. 
 
 In common language it would be said by me- 
 tonymy ; — Such a quantity of land is worth such 
 a quantity of gold, as if the value had passed 
 physically into those bodies ; and this is just 
 what M. Wolowski and most other Economists 
 do say. But it is easy to see that, if the com- 
 mon form of expression enable us to state the 
 results, the scientific expression alone reveals to 
 lis the true causes. 
 
 Thus, we see, Nature gives freely and equally 
 to all. But here equality begins and ends. The 
 gifts of Nature, though equal to all, are of no 
 value to any. As the race is to the swift and 
 the battle to the strong, so is the value of ser- 
 vices. Nature has given no equality here. Why, 
 then, should Man look for equahty where Nature 
 has never given it and clearly never intended it? 
 
60 THE BANK OF ENGLAND. 
 
 Why should Man seek to obtain by force more 
 than Nature has given ? What right have men 
 to impose upon each other anything hy force, but 
 justice? The right to force a man to be just is 
 the right of legitimate defence. Now, individuals 
 in the aggregate can possess no right which did 
 not pre-exist in individuals as such. If, then, 
 the employment of individual force be justified 
 only by legitimate defence, the fact that, the 
 action of government is always manifested by 
 force should lead us to conclude that, it is essen- 
 tially limited to the maintenance of order, secu- 
 rity, and justice. 
 
 All action of governments beyond this limit is 
 a usurpation upon conscience, upon intelhgence, 
 upon industry, in a word, upon human liberty. 
 
 The liberty of labor to each and every man 
 implies the liberty to enjoy the fruits of his own 
 labor. To deprive him of any part of the fruits 
 of his own labor is to deprive him of the liberty 
 of labor, or to make him a slave. If it be right 
 to deprive him of part, it may be right to deprive 
 him of all. But it must be shown to be just, be- 
 fore it can be proved right to deprive him of any. 
 
 Now, all Governments exercise this right by 
 force, but no Government has ever shown that it 
 is just or even necessary or expedient. 
 
 These views, so opposed to long established 
 
MONEY, CURRENCY, AND CAPITAL. 61 
 
 habits, are treated by many as paradoxical, and 
 the distinctions as meifely fanciful. 
 
 But the question is of too much importance to 
 be so easily disposed of. Indeed, it is essential 
 for a correct understanding of the Bank Question 
 that, the distinction between Utility and Value 
 should be clearly seen and acknowledged. 
 
 Many of the errors of M. Wolowski and other 
 Economists and Financiers would have been 
 avoided, if they had kept in view this distinction 
 in their reasoning on this Question. 
 
 To introduce a paradox or word-quibble would 
 be very unworthy on such an occasion as the 
 present. 
 
 This distinction involves a principle of essen- 
 tial importance. 
 
 To many it will appear absurd to say that. 
 Gold and Silver are of no value. But, when the 
 ground of their misapprehension is removed, 
 what now seems to them an absurdity may then 
 be seen to be a simple but important truth. 
 
 The great fundamental error of all Economists, 
 and which has involved them in endless difficul- 
 ties and bev/ildering contradictions, arises from 
 confounding Value with Utility. 
 
 There is not and never can be value in any- 
 thing, the production of Nature. 
 
 There is only Utility. 
 
62 THE BANK OF ENGLAND. 
 
 Value supposes something rendered and some- 
 thing received in exchange, as an accepted equi- 
 valent ; or, a service performed in exchange for 
 another service; an interchange of services or 
 supposed services, for whether real or fanciful is 
 immaterial, if accepted. 
 
 The service is of value and the value is repre- 
 sented in many ways. Sometimes by a piece of 
 gold or silver or copper, or some other substance, 
 sometimes by labor or skill. 
 
 Nothing but service can constitute value, and 
 value implies services exchanged. 
 
 There is no value in gold, as would be more 
 clearly seen if there were no one to receive it in 
 exchange for services. 
 
 All services rendered by Nature being utilities, 
 given gratuitously, must, therefore, be put out of 
 the question. 
 
 We cannot interchange services with the Cre- 
 ator. We have nothing to give in exchange. 
 When we break bread we give thanks, nothing 
 more. This is no service in return, but only an 
 humble acknowledgment. 
 
 " The Earth and the fulness thereof," all the 
 elements, all creation, are the gratuitous services 
 to mankind, and, therefore, cannot constitute 
 value, because it is essential for value that ser- 
 vices should be exchanged. Here can be no ex- 
 change. 
 
MONEY, PURRENCT, AND CAPITAL. 63 
 
 Value, then, can exist only between man and 
 man, and can be only the measure of services ex- 
 changed. These services must all be comprised 
 in and expressed by one word, — efforts. This 
 is a better word than labor, because eflForts com- 
 prise all, which labor does not: 
 
 This distinction between Value and Utility 
 must ever be preserved in the mind. This is no 
 play upon words, but is an essential distinction 
 for the preservation of a most important prin- 
 ciple. 
 
 Now, to apply this distinction to the present 
 question. 
 
 Property, as it is called, is what belongs to 
 man. 
 
 If he hold, as his own, a thing brought to hand 
 by the efforts of man, it is property of value. 
 But he has created nothing. He has only made 
 what he has found subservient to his wants. He 
 has availed himself, by his skill and labor, of the 
 natural utihty of things already made to his 
 hand. He has by the skill and labor of himself 
 and others brought these things together for his 
 own purpose. But he has brought the skill and 
 labor of others together by capital or credit. 
 
 If, in the production of wealth, — which in- 
 cludes everything that is exchangeable, — the 
 action of Nature be combined with the action of 
 
64 THE BANK OF ENGLAND. 
 
 man, the first, gratuitous and common in its 
 own nature, remains gratuitous and common in 
 all our transactions ; the second alone represents 
 services, value ; the action of man alone is re- 
 munerated. 
 
 That alone is the foundation, explanation, and 
 justification of what is called Property. 
 
 Whatever is the action of man is a property or 
 possession, and, as such, is of value. 
 
 A house is the action of man, and, as such, is 
 a property or possession of value. 
 
 Land is not the action of man, and, as such, is 
 not a property or possession of value. 
 
 Gold and Silver are not the action of man, 
 and, as such, are not property, of value. 
 
 A house is the result of human efforts and 
 skill, or services, and thus becomes property, of 
 value. 
 
 Land cultivated or otherwise converted to use- 
 ful purposes by human efforts and skill, or ser- 
 vices, thus becomes property, of value. 
 
 The same of Gold and Silver and all other 
 created things. These are made property, of 
 value, by human means. 
 
 Therefore, relatively to each other, men are 
 proprietors only of the value of things, conven- 
 
 In transferring products from hand to hand. 
 
MONEY, CURRENCY, AND CAPITAL. 65 
 
 what they stipulate for exclusively is, value ; that 
 is to say, reciprocal services; all the qualities, 
 properties, and articles, which these products de- 
 rive from nature, being obtained into the bar- 
 gain. 
 
 This is the true meaning of Community, the 
 admirable phenomenon, the most touching dis- 
 pensation of Providence to the creature — the 
 phenomenon oi progressive community. 
 
 Wealth, taking the word in its general accep- 
 tation, results from the combination of two agen- 
 cies, — the action of Nature, and the action of 
 Man. 
 
 The first is gratuitous and common, by the 
 destination of Providence, and never loses that 
 character. 
 
 The second alone is provided with value, and, 
 consequently, appropriated. 
 
 With the development of intelligence and the 
 progress of civilisation, the one takes a greater 
 and greater part ; — the other a less and less part 
 in the realisation of such given utiHty. 
 
 Hence, it follows that, the domain of the Gra- 
 tuitous and the Common is continually expand- 
 ing among men, relatively to the domain of 
 Value and Property. 
 
 This is a consoling and suggestive view of the 
 subject, entirely hidden from the eye of science, 
 
66 THE BANK OF ENGLAND. 
 
 SO long as we continue to attribute value to the 
 co-operation of Nature. 
 
 Men of all religions thank God for His benefits. 
 The father of a family, blesses the bread which he 
 breaks and distributes to his children; — a touching 
 custom that reason would not justify were the libe- 
 rahty of Providence otherwise than gratuitous. 
 
 For the discovery of this first principle we are 
 indebted to that illustrious but humble-minded 
 Frenchman, Bastiat. 
 
 How little we have understood and do now un- 
 derstand or appreciate this first principle is lamen- 
 tably evident in our present system of taxation.* 
 
 We seek by every means in our power to 
 make the liberality of Providence otherwise than 
 gratuitous. 
 
 We have been, at one time or another, taxing 
 all the gratuitous services which He has rendered 
 to us in the various and bountiful productions of 
 nature, except air, and many of these we still 
 continue to tax. 
 
 We tax the laborer in his own labor, and we 
 select for heaviest taxation those things which are 
 most needful for the poor, thereby making the 
 tax most oppressive on those who are least able 
 to bear it. 
 
 * ' The People's Blue Book : or. Taxation as It Is and as 
 It Ought To Be.* Third Edition, p. 392. 
 
MONEY, CURRENCY, AND CAPITAL. 67 
 
 We justify this on the ground of necessity, — 
 a good ground if true. 
 
 But, — Is it true ? 
 
 As shown in the ' People's Blue Book,' — It is 
 not true. 
 
 It is impossible that it should be true. 
 
 There never can be a necessity for us to baffle 
 the designs of Providence. 
 
 And, — Can the creature ever baffle the designs 
 of the Creator ? 
 
 We can make the attempt, and that we do in 
 many ways, but never without bringing down 
 misery — remediless misery and suffering — upon 
 ourselves and others. 
 
 When we see clearly, in the laws of nature, the 
 provisions of a merciful Providence for our wel- 
 fare, we, as rational human beings, shall cease to 
 frame our laws with a view to counteract those 
 beneficent designs. 
 
 We shall see it to be wiser and better to make 
 our laws in conformity with the Divine laws — 
 to declare that, the gratuitous services of nature 
 shall be gratuitous to all. 
 
 We shall see that, the rights of property will 
 thereby be in no way infringed, but, being ac- 
 knowledged, will be better respected. 
 
 We shall see the folly of attempting to benefit 
 the few by inflicting injury on the many. 
 
 F 2 
 
68 THE BANK OF ENGLAND. 
 
 We shall distinguish between Utility and 
 Value. 
 
 We shall take from Value when realised, and 
 leave Utihty free and undiminished. 
 
 We shall distinguish between the laborer's own 
 labor, and the labor of others acquired by capital. 
 
 It is through confusion and injustice, which 
 have arisen from the want of this distinction, tha-t 
 such writers as Proudhon have found favour, 
 when, in their folly, they have exclaimed: — "La 
 propriete, c'est le vol ;" — verifying the old pro- 
 verb : — ' One fool makes many.' 
 
 But the worst folly is that which makes the 
 greatest number of fools, and that is the gigantic 
 folly of all the civihsed Governments of the world. 
 
 As Adam Smith made value reside in matter, 
 he could not conceive capital as existing other- 
 wise than in an accumulation of material objects. 
 
 How, then, can we attribute value to services 
 not susceptible of being accumulated or con- 
 verted into capital ? 
 
 Among the different descriptions of capital, 
 we give the first place to tools, machines, instru- 
 ments of labor. They serve to make material 
 forces co-operate in the work of production ; and, 
 attributing to these forces the faculty of creating 
 value, people were led to imagine that, instru- 
 ments of labor, as such, were endowed with the 
 
MONEY, CURRENCY, AND CAPITAL. 69 
 
 same faculty, independently of any human ser- 
 vices. Thus, the spade, the plough, the steam- 
 engine were supposed to co-operate simul- 
 taneously with natural agents and human forces, 
 in creating not only utility but value also. Who, 
 then, is to receive that portion of value which is 
 independent of all human services ? 
 
 The error of Proudhon, viewed scientifically, 
 has its root in the prior error of Adam Smith. 
 
 Capital, like natural agents, considered in it- 
 self with reference to its own proper action, 
 creates utility, but never creates value. The 
 latter is essentially the fruit of a legitimate ser- 
 vice. In the social order, capital is not an ac- 
 cumulation of material objects, depending on ma- 
 terial durability, but an accumulation of values, 
 that is to say, of services, and in the business of 
 exchange there is nothing but a mutuality of 
 services. 
 
 So Adam Smith and his disciples have assigned 
 the principal value to labor under the condition 
 of materiality. 
 
 Value must have reference to effort, a word 
 more comprehensive and, therefore, preferable to 
 labor. 
 
 But value can spring only from efforts ex- 
 changed — from reciprocal services; because value 
 is not a thing having independent existence, but 
 a relation. 
 
70 THE BANK OF ENGLAND. 
 
 The word, service, implies necessarily, the idea 
 of transmission, for no service can be rendered 
 which is not received. It implies also the idea 
 of effort, without taking for granted that the 
 value is proportionate. 
 
 To say that, value resides in labor, induces us 
 to suppose that value and labor are proportional, 
 and services are reciprocal measures of each 
 other. 
 
 This is contrary to fact, and a definition con- 
 trary to fact must be defective. 
 
 The value may be estimated as much by the 
 labor saved, as by the labor performed. 
 
 Ships, carriages, steam-engines, and other ma- 
 chines, — the instruments of labor, — .are, like the 
 soil, producers of utility. If that utility have 
 value, it is paid for. The word value implies 
 right to payment. But, to whom is the pay- 
 ment made r To the proprietor of the machine, 
 without doubt. Is it for a personal service? 
 Then, say at once, the value is in the service. 
 But, if you say, it is necessary to make a pay- 
 ment first for the service, and a second payment 
 for the utility produced by the machine, inde- 
 pendently of the human action, which has been 
 already recompensed, then, to whom does this 
 second payment go, and how has the man, who 
 has already been remunerated for all his services, 
 a right to demand anything more ? 
 
MONEY, CURRENCY, AND CAPITAL. 71 
 
 The truth is that, the utility, which is pro- 
 duced by nature, is gratuitous, and, therefore, 
 common, like that produced by the instruments 
 of labor. It is gratuitous and common on the 
 condition that, we take the trouble — that we 
 render the service — of appropriating it ; or, if we 
 give that trouble too, or demand that service 
 from another, that we cede to him in return an 
 equivalent service. 
 
 Thus, it will be seen, utility is complex ; one 
 part we owe to the action of nature, another to 
 the action of man. With reference to a given re- 
 sult, the more nature has done, the less remains 
 for human action to do. 
 
 The co-operation of nature is essentially gra- 
 tuitous; the co-operation of man, whether intel- 
 lectual or muscular, exchanged or not, collective 
 or solitary, is essentially onerous, as the word, 
 effort, implies. 
 
 As what is gratuitous cannot express value, 
 since the idea of value implies onerous acquisi- 
 tion, it follows that, the notion of value would 
 be erroneously conceived if we were to extend it, 
 in whole or in part, to the gifts or to the co- 
 operation of nature, instead of restricting it ex- 
 clusively to human co-operation. 
 
 We are told that utihty is the foundation of 
 value, arid as utility is inherent in the air, we 
 
72 THE BANK OF ENGLAND. 
 
 are led to think that it is the same in regard to 
 value. Here is an evident confusion of ideas. 
 The value springs exclusively from the service 
 rendered. 
 
 If, in laying down the principle that, utility is 
 the foundation of value, the meaning be that, 
 the service has value because it is useful to him 
 who receives it and pays for it, this is only 
 a truism implied in the word, service. 
 
 But we must not confound the utility of the 
 air with the utility of the service. These are 
 two utilities distinct from each other, different 
 in nature, different in kind, which bear no pro- 
 portion to one another and have no necessary 
 relation. 
 
 There are circumstances in which, with very 
 slight exertion, by rendering a very small ser- 
 vice, or saving very little trouble, one may bring 
 within reach of another an article of very great, 
 intrinsic utility. As in the case of the glass of 
 water brought to the man dying of thirst, or in 
 the case of the diving-bell, which furnishes air to 
 the diver. 
 
 We must have a point of comparison, and that 
 can only be in the service rendered in return. 
 The reciprocal demands will depend on the rela- 
 tive situations, on the intensity of the desires, 
 on the greater or less need, and on a multitude 
 
MONEY, CURRENCY, AND CAPITAL 73 
 
 of circumstances, which demonstrate that the 
 value is in the service, since the value increases 
 with the service. 
 
 It is in the services, thus compared, that the 
 value resides, and hot at all in the natural uti- 
 lity. The exertion may be more or less great ; 
 that makes a difference in the value, not in the 
 utility. 
 
 All this is so admirably summed up by Bastiat 
 that, it is here given in his own words, trans- 
 lated. 
 
 " Let us accustom ourselves to distinguish 
 utility from value. Without this there can be 
 no Economic Science. I give utterance to no 
 paradox when I affirm that utility and value, so 
 far from being identical or even similar, are 
 ideas opposed to one another. 
 
 "Want, effort, satisfaction ; — here we have man 
 regarded in an Economic point of view. The 
 relation of utility is with want and satisfaction. 
 The relation of value is with effort. 
 
 " Utility is the good, which puts an end to 
 the want by the satisfaction. 
 
 " Value is the evil, for it springs from the 
 obstacle, which is interposed between the want 
 and the satisfaction. But for these obstacles, 
 there would have been no effort either to make 
 or to exchange ; utility would be infinite, gra- 
 
74 THE BANK OF ENGLAND. 
 
 tuitous, and common, without condition, and the 
 notion of value would never have entered into 
 the world. 
 
 " In consequence of these obstacles, utility is 
 gratuitous only on condition of efforts exchanged, 
 which, when compared with each other, give rise 
 to value. The more these obstacles give way be- 
 fore the liberality of nature and the progress of 
 science, the more does utility approximate to the 
 state of being absolutely common and gratuitous, 
 for the onerous condition, and, consequently, the 
 value, diminish as the obstacles diminish. 
 
 "All that serves us is useful; and, in this 
 respect, it is extremely doubtful whether there 
 be anything in the universe (whether in the 
 shape of forces or materials), which is not useful 
 to man." 
 
 It would far exceed the limits of this work to 
 attempt to show the application of this prin- 
 ciple in all its details ; but a few remarks may 
 assist the reader in applying it for himself to a 
 very important point in the Bank Question. 
 
 M. Wolowski, commenting on the before- 
 quoted proposition of Turgot, — that, " Gold and 
 Silver are constituted, by the nature of things, 
 money and universal money, independently of 
 all convocation and all law," — proceeds to build 
 on this false foundation, thus : — 
 
MONEY, CURRENCY, AND CAPITAL. 75 
 
 " Voila done Tor et I'argent constitnes monnaie 
 et monnaie universelle, et cela sans aucune con- 
 vention arbitraire des hommes, sans I'intervention 
 d'aucune loi, mais par la nature des choses. lis 
 ne sont point, comma bien des gens I'ont ima- 
 gine, des signes de valeur ; ils ont eux-memes 
 une valeur. S'ils sont susceptibles d'etre la 
 mesure et la gage des autres valeurs, cette pro- 
 priete leur est commune avec tous les autres ob- 
 jets qui ont une valeur dans le commerce." 
 
 Here M. Wolowski assumes the whole ques- 
 tion, which he is considering. He assumes, if 
 gold and silver, constituting universal money, be 
 susceptible of being the measure of other values, 
 that property is common to all other objects, 
 which have a value in commerce. 
 
 He assumes that, " independently of all con- 
 vention and all law," gold and silver constitute 
 universal money of Intrinsic Value, and are, 
 therefore, a good measure of value for all other 
 articles of commerce having, what he calls, " in- 
 trinsic value." 
 
 M. Wolowski speaks of value as something 
 external, and he then speaks of intrinsic value — 
 two ideas self-contradictory and inconsistent. 
 
 He says that, gold and silver has intrinsic 
 value, but that a bank-note is only the represen- 
 tative of value. 
 
76 THE BANK OF ENGLAND. 
 
 Adam Smith admits that, gold and silver, if it 
 would exchange for nothing, would have no value. 
 
 J. B. Say says that, the value of gold and 
 silver consists only in what they will buy. 
 
 How, then, can the value of gold and silver 
 be intrinsic ? 
 
 How can anything have intrinsic value unless it 
 have the things it will exchange for inside itself? 
 
 Money of gold and silver will exchange for 
 land, houses, horses, carriages, corn, etc., and 
 each of these, M. Wolowski says, is the value 
 of the money with respect to that commodity. 
 
 But, which of these is its intrinsic value ? 
 
 M. Wolowski leaves us here without any 
 answer. 
 
 There is only one true answer, and that is : — 
 Nothing can have an intrinsic value, and value 
 can exist only in services mutually rendered and 
 received, or for which an equivalent is given in 
 return. 
 
 All the gifts of Nature are Utilities, given 
 gratuitously and equally to all, and for these 
 nothing can be given in return. 
 
 M. Wolowski reasons illogically, and hence his 
 endless errors. 
 
 But, in this way most modern Economists 
 reason, and hence the common confusion. 
 
 On this sort of false foundation the National 
 
MONEY, CURRENCY, AND CAPITAL. 77 
 
 Banks of England and France and all other 
 countries are established. 
 
 The false principles are partially counteracted, 
 but never removed. 
 
 Concurrent circumstances, coincidence of events, 
 periodically occur to expose the fallacy, and the 
 consequent ruin restores the former state of 
 things, which continues until the recurrence of 
 similar circumstances or like coincidences produce 
 like results. 
 
 Thus, the hidden evil remains to work partial 
 ruin and temporary recovery, and by these alter- 
 nate changes, from unforeseen causes, human 
 skill and foresight are baffled, the rules by which, 
 to distinguish between prudence and rashness 
 are confounded, the most honorable pursuits are 
 made the most perilous, and, by these repeated 
 and unforeseen shocks to trade and industry, the 
 best interests of every country suffer the most 
 serious losses and permanent injury. 
 
 The true distinction between Capital and 
 Credit is lost sight of, and Credit, without Capi- 
 tal, is expected to do all the work of Capital, or 
 Capital is expected to do all the work without 
 Credit. 
 
 This is the confusion consequent upon the 
 common error. 
 
 The true properties of Capital and Credit are 
 
78 THE BANK OF ENGLAND. 
 
 not understood. Each is expected to do the 
 proper work of both, though both are necessary 
 to enable each to do the proper work of each. 
 
 All the gold and silver in the world would be 
 insufficient for the work to be done by Capital, 
 aud without Capital there can be no safe founda- 
 tion for Credit. For a safe foundation, Credit 
 must always be in a certain proportion to Capital, 
 and that proportion, being always dependent on 
 circumstances, can never be exactly defined. 
 
 Within the proper proportion, Credit operates 
 to precisely the same 'result as Capital. 
 
 But, to say that Capital and Credit are the 
 same, is a confusion of terms. 
 
 Capital can exist without Credit, but Credit 
 can have no existence without Capital. 
 
 Money of gold and money of paper, payable 
 in gold on demand, are precisely the same in 
 effect ; but payments in money of gold are pay- 
 ments in the universally acknowledged measure 
 of value, and payments in money of paper, pay- 
 able in gold on demand, are only promises to pay 
 in that measure of value. 
 
 It is, therefore, manifestly as inaccurate to say 
 that Capital and Credit are the same, as to say 
 that. Gold and Paper are the same materials. 
 It is confounding cause and effect, and this is the 
 common error of most Economical Writers. 
 
MONEY, CURRENCY, AND CAPITAL. 79 
 
 Bills and Cheques, which are not money, are 
 promises to pay at a certain time in money of 
 gold, or money of paper, payable in gold on 
 demand. 
 
 The gold is of no more value than the paper, 
 but the gold, being the universally acknowledged 
 measure of value, is more generally received than 
 the paper, which is only a promise to pay in gold, 
 and on the faith of this promise the paper is made 
 by law equal to the gold. 
 
 It is, therefore, manifestly inaccurate to say 
 that, — " gold and silver are constituted by the 
 nature of things, money and universal money, 
 independently of all convention and of all law." 
 
 It is manifest that, this state of things is only 
 by convention and law. 
 
 When the paper-money of the Bank of Eng- 
 land was not convertible into gold, still the mea- 
 sure of value was gold. 
 
 The depreciation of the Bank notes was the 
 consequence of the excessive issues, and the de- 
 preciation was the evidence that the measure of 
 value remained unchanged. 
 
 The credit is the measure of the value of the 
 paper, and credit is a variable measure ; but the 
 measure of the value of the money is gold, and 
 gold, for all practical purposes, is an invariable 
 measure. 
 
80 THE BANK OP ENGLAND. 
 
 There is no value in the gold or in the paper, 
 but the gold is more generally received as the 
 measure of value, than the promise to pay ac- 
 cording to that measure. 
 
 If it were certain that the promise would be 
 performed, the promise would be as good as the 
 gold. There would be, in effect, no difference, 
 and the actual difference, in the materials, would 
 be in favor of the paper, as occupying a smaller 
 space than the gold and, therefore, the most con- 
 venient of the two. 
 
 Under these circumstances, money of paper 
 and money of gold would be equally efficient, 
 and Capital and Credit would be, virtually, one 
 and the same ; but that can never be so, practi- 
 cally, until the promise be equal to the per- 
 formance. 
 
 Now, money, being capital, is so much with- 
 drawn from the common stock, and measures 
 services performed, but for which no equivalent 
 services have been rendered ; the money being 
 the measure of the debt or service due, and 
 thereby transferred. 
 
 But, by convention and law, the money paid 
 discharges the debt to the party receiving, and 
 transfers the debt to the party paying. 
 
 It is, therefore, manifestly for the benefit of 
 every country to enlarge credit on a safe basis, 
 
MONEY, CORRENCY, AND CAPITAL. 81 
 
 for the purpose of saving the waste of capital 
 when coined into money. 
 
 The coinage of metallic money is so much 
 capital wasted, by withdrawing it from a pro- 
 ductive to an unproductive state; in the same 
 way as land, taken for a railway, is so much land 
 withdrawn from cultivation. 
 
 If credit cau be made to supply the place of 
 capital, so much capital is saved for the purposes 
 of production ; just as the land would be saved if 
 the railway could be made in the air. 
 
 It is, therefore, the policy of every nation so to 
 apply its capital as to enlarge the limits of credit 
 to the utmost possible extent, consistently with 
 safety, though what these limits are can be learnt 
 only by experience. 
 
 Now, it is just the opposite course which has 
 been pursued by England and France, and by all 
 the other civilised nations of the world. They 
 have all attempted to make Credit equal to Capi- 
 tal, without the employment of capital in a due 
 proportion ; not less absurd than to attempt to 
 make a railway in the air. They have done 
 nothing to support Credit, but everything to 
 destroy it. 
 
 By an unscientific contrivance between the 
 Government and the Bank of England, the Bank 
 of England has substituted credit for capital to 
 
82 THE BANK OF ENGLAND. 
 
 the amount of £15,000,000. This amount of 
 credit is expected to do all the work of the same 
 amount of capital, and the Bank is liable to repay 
 this amount in gold coin on demand, the fact 
 being notorious that, there is not an ounce of gold 
 in the Bank to meet such a demand, if it were 
 made. • 
 
 The credit thus obtained, if that were all, 
 would be, practically, harmless. But that is not- 
 all. 
 
 The same error is carried on, and the Bank of 
 England, without capital, is powerless, for all the 
 purposes of a National Bank, whenever credit is 
 strained by unusual pressure. 
 
 It is the same with the Bank of France, and 
 no where is credit carried to its legitimate extent 
 on a sound principle. 
 
 The law establishes a monopoly in the Bank 
 of England. This monopoly operates to restrict 
 instead of to enlarge the safe limits of credit, and 
 thereby favors the large capitalists at the cost of 
 the whole commercial community, and to the 
 incalculable loss and injury of the trade and 
 industry of the country. 
 
 To prove all this, and to show the remedy is 
 the object of this Volume. 
 
 But, in making this attempt, a feeling of de- 
 spondency arises to weaken the effort. 
 
MONET, CURRENCY, AND CAPITAL. 83 
 
 The self-consbiousness of the truth of a doctrine 
 avails nothing for proving it, and the conviction 
 that, ignorance, prejudice, and powerful party 
 interests are opposed to the truth, is very dis- 
 couraging. 
 
 He who now makes this attempt has very 
 little personal interest in success or failure, the 
 cost of time and labor, to say nothing of any 
 other cost, which he has thus voluntarily imposed 
 upon himself, being the same either way. 
 
 On this Question he has no confidence in the 
 independence of any Government, or in the wis- 
 dom of ParKament, or in the intelHgence of the 
 People. 
 
 But he has great confidence in the influence of 
 the large capitalists, and he has no doubt that 
 they will exert their influence to the utmost to 
 maintain the status quo with the uti possidetis. 
 And yet, with these feelings he retains the con- 
 viction that, the truth will prevail in the end. 
 
 The definition of the true meaning of value 
 distinguished from utility/, though given by the 
 Author, some years ago, in the 'People's Blue 
 Book,' was intentionally kept out of the two 
 former editions of this work, and would not have 
 been here introduced, but for the purpose of ex- 
 posing and refuting the erroneous views of M. 
 Wolowski and other writers of authority on this 
 subject. G 2 
 
84 THE BANK OF ENGLAND. 
 
 In a question like this, already sufficiently com- 
 plicated, it was thought better not to complicate 
 it further by introducing any new abstractions. 
 
 But when Economists of reputed authority 
 build on a foundation of their own making, in 
 disregard of principle, and when they can be re- 
 futed only by exposing the unsoundness of their 
 foundation, it becomes a matter of necessity to 
 point out the original defect, even at the risk of 
 all the cynical criticisms likely to follow. 
 
 It was only at a recent interview with M. 
 Wolowski that, the Author was fully impressed 
 with the necessity of entering into this definition 
 of the true meaning of the word, value, and he 
 has, therefore, taken this farther trouble in the 
 present Edition. 
 
 This is no pedantic distinction, no logomachy, 
 or word quibble. It is a substantial difference 
 of essential importance for a clear understanding 
 of this question. 
 
 Bat the word, value, in its conventional sense 
 is a convenient form of expression, if not used to 
 support error, and if the true meaning be kept in 
 mind. 
 
 The word, value, may, therefore, very likely be 
 found used in its conventional sense in other 
 parts of this volume, being considered, with this 
 explanation, of so Httle importance as not to be 
 worth the trouble of altering. 
 
MONEY, CURRENCY, AND CAPITAL. 85 
 
 It is convenient to use words in their con- 
 ventional sense, provided that they do not lead 
 into error, and to avoid this risk it is sometimes 
 necessary to use many words where a single word 
 might appear to convey the true meaning. 
 
 In the following chapters the Author will en- 
 deavour to express his meaning by the simplest 
 word's in their ordinary sense, but he must, as 
 Adam Smith said, in his celebrated work, — very 
 earnestly entreat both the patience and attention 
 of the reader ; his patience in order to examine a 
 detail which may, perhaps, in some places appear 
 unnecessarily tedious ; and his attention in order 
 to understand what may, perhaps, after the fullest 
 explanation, appear still in some degree obscure, 
 for it is worth running some risk of being tedious 
 to be sure of being perspicuous, and after the 
 utmost pains to be perspicuous, some obscurity 
 may still appear to remain in some parts of a 
 subject in its own nature extremely abstracted. 
 
86 
 
 CHAPTER V. 
 
 MONEY PANICS. 
 
 There are three kinds of Money-Panic. 
 
 1. Panic arising from a drain of Gold from 
 the Bank of England. 
 
 2. From a contraction of Credit. 
 
 3. From the combined results of the con- 
 traction of Credit, and the diminished amount 
 of Bullion in the Bank of England. 
 
 These Money-Panics have been more frequent 
 since the Bank Act of 1844, than before. 
 
 Of these occurrences the following have been 
 the most serious, and are said to have arisen 
 from the following causes : — 
 
 1793 and 1797. These panics arose from the 
 drain of Gold sent Abroad, for subsidies and 
 loans to our Allies. These Gold Panics were 
 partially relieved by the advance of Exchequer 
 Bills, on the deposit of merchandise, but ulti- 
 mately by the Restriction Act of 1797, making 
 the Bank of England Notes, in effect, a legal 
 tender. This Act continued in force until Sir 
 
MONEY PANICS. 87 
 
 Robert Peel's Bill in 1819, enacting a return to 
 Cash Payments. 
 
 The effect of the suspension ef Cash payments 
 on the public funds and on the stock of the Bank 
 of England is expressive of the sense of the coun- 
 try on that measure. 
 
 The price of the funds in the month of March, 
 1792, was as follows : — 
 
 Three per Cent. Consols. . . . 97|^ 
 Four per Cents. ..'.... 195|^ 
 
 Pive per Cents 120 
 
 Bank Stock 219 
 
 On the 6th of April, 1797, about a month after 
 the Bank of England had suspended payments in 
 cash, the price of the funds was as follows : — 
 Three per Cent. Consols. . . . 47 1 
 
 Four per Cents 60| 
 
 Five per Cents 72f 
 
 Bank Stock 121| 
 
 These facts seem to furnish a conclusive answer 
 to the advocates for inconvertible Bank paper. 
 
 1810. This Panic arose from over-trading in 
 produce and excess of Exports, when the Bank 
 of England raised 'its Discounts from 1 3 millions 
 in 1808, to 20 millions in 1810, an increase of 
 53"8 per cent. This was a Credit Panic, as the 
 Bank of England then had the power of issuing 
 an unlimited amount of inconvertible notes. 
 
88 THE BANK OF ENGLAND. 
 
 1815. This Panic arose from the inflation 
 of mercantile Credit, and vast speculations in 
 Cotton and other produce, when eighty Banks 
 suspended payment. This was a Credit Panic, 
 as the Bank of England still continued to issue 
 inconvertible notes. 
 
 1822. This Panic was caused by the Bank 
 of England reducing its Discounts from 15 mil- 
 lions to 3 millions, in order to secure the con- 
 vertibility of the Bank-Note ; aad by the con- 
 traction of Bank of England and Country Bank- 
 Notes from 48 millions in 1818, to 26 millions 
 in 1822. This was a Gold Panic, lowering the 
 price of the British Funds, the stocks of goods 
 held by the mercantile and trading interests, 
 and^agricultural products, to the extent, as esti- 
 mated, of 200 millions ; and, allowing that only 
 one-fifth part of such investments was forced on 
 the markets during the Panic, it may be assumed 
 that, the total loss, including the failure of Banks 
 and Mercantile Houses, the partial closing of 
 Mills, and non-employment of workmen, was not 
 less than £30,000,000. 
 
 1826. This Panic arose from excessive (i. e. 
 unprofitable) speculations in foreign Mines, in 
 Cotton and other products, called over- trading, 
 but really, unsuccessful trading ; also from the 
 increased issue of Notes, which gradually rose 
 
MONEY PANICS. 89 
 
 from 33^ millions, in 1828, to 41 millions in 
 1826, an increase of 22' 3 per cent. This Panic 
 is estimated to have lowered the prices of funded 
 and other property, the stock of goods held by 
 the mercantile and trading interests, to the extent 
 of 800 millions, and the assumed loss by the 
 different parties is estimated at 45 miUions. 
 During this Panic the Gold in the Bank of Eng- 
 land was reduced below a million, and the Credit 
 of the Bank was saved only by the issue of about 
 2 millions of £1 Bank of England notes acciden- 
 tally found in the Bank. 
 
 1832. This Panic lowered the price of Public 
 Securities and other property, to the extent, as 
 estimated, of 100 millions, causing a loss to the 
 trading and other interests, estimated at 15 mil- 
 lions. 
 
 1836-37. These Panics, called the American 
 Panics, originated with and were chiefly confined 
 to Mercantile Houses, connected with the United 
 States. The loss was estimated by the Man- 
 chester Chamber of Commerce, for that City 
 alone, at 40 millions. 
 
 The amount of Gold in the Bank of England 
 had decreased to such an extent that its credit 
 was maintained only by a loan of 2 millions from 
 the Bank of France. 
 
 1847. This Panic, which was caused by a 
 
90 THE BANK OF ENGLAND. 
 
 bad harvest, and great speculations in Corn and 
 Railways, v/as brought to a crisis by the surplus 
 purchases of Corn by the French Government 
 being sent to this Country in the months of 
 June and July, to the extent of about 70,000 
 quarters, which were weekly forced upon the 
 market by the Messrs. Rothschild, at prices 
 much below the current rates. For several suc- 
 cessive weeks there was, in consequence, a fall of 
 8s. or 10s. a quarter, finally reducing prices 
 from 96s. to 56*. Such a fall as this in the 
 value of Wheat brought to a state of bankruptcy 
 a large number of Houses connected with the 
 trade in Corn, and this was followed by many 
 other Houses engaged in general trade, which 
 brought on a Money Panic. The amount of 
 Gold and Silver Coin and Bullion in the Bank 
 of Jlngland was reduced, on the 23rd October, 
 to £7,865,445, and the Bank reserve of notes 
 to £1,547,000 ; and the Credit of the Bank was 
 saved only by the Government authorizing an 
 addition to its issue of 2 millions of notes. 
 
 This Panic is estimated to have lowered the 
 pi-ice of funded and other properties 400 mil- 
 lions, and the loss to the funded and other in- 
 terests is estimated at 60 millions. 
 
 1857. This Panic arose from a Money-Panic 
 in America, which brought down a great number 
 
MONlTf PANICS. 91 
 
 of our large Mercantile Houses, connected with 
 America, and was followed by the failure of se- 
 veral large Joint Stock Banks in the North of 
 England, arising from improvident advances by 
 the Managers of such Banks. The Gold in the 
 Bank of England was reduced to 6f millions, 
 and the notes in reserve to £957,000, and the 
 solvency of the bank was only sustained by 
 another authorized issue of 2 millions of notes. 
 This Panic is estimated to have lowered the 
 prices of funded and other property 400 mil- 
 lions, and the loss to the fund-holders and other 
 interests, and the failure of the Banks, and other 
 Mercantile Houses, is estimated at 80 millions. 
 
 Thus, the aggregate loss to the community ge- 
 nerally from the Panics, between the ypars 1819 
 and 1857, may be fairly assumed to have been 
 not less than £270 miUions, of which £140 
 millions are since the Bank Acts of 1844-45. 
 
 At the end of the year, 1864, after an Autunm 
 of severe difficulty, this country was still suffer- 
 ing under a pressure on the money-market 
 amounting almost to a money-panic, although 
 the amount of Bank of England notes in cir- 
 culation on the 28th of December, 1864, was 
 £19,700,985; and of gold coin and bullion 
 in the Issue Department was £13,386,475 ; and 
 the reserve of notes in the Banking Depart- 
 
92 THE BANK OF ENGLAND. 
 
 ment was £8,663,490, and gold and silver 
 bullion £714,499; making the total amount 
 of notes in circulation, including Bank post bills 
 £19,810,435, and the total amount of coin and 
 bullion in the Bank £14,100,974. And the Bank- 
 rate of discount was 6 per cent. ! the average of 
 whole year exceeding 7 per cent. ! 
 
 This state of things culminated in the remark- 
 able crisis of the 11th May, 1866. All money- 
 panics may be properly called credit-panics, and 
 the judgment of posterity will be that, all these 
 might have been prevented. 
 
 It is impossible, however, in the face of these 
 facts, to assume that the solvency of the Bank 
 of England, or the convertibility of the note, 
 was made more secure by the Act of 1844, than 
 it was before. 
 
 In support of this opinion, the actual state of 
 the Bank of England at any period of time might 
 suffice, and the Weekly Return on the 23rd Oc- 
 tober, 1847, is taken accidentally as an example. 
 
 Liabilities. 
 
 « £. £. 
 
 Notes Issued 21,865,445 
 
 Deduct held by. the Bank . 1,547,270 
 
 20,318,175 
 
 Public Deposits 4,766,394 
 
MONEY PANICS. 93 
 
 Other Deposits 8,580,509 
 
 Seven days and other Bills .... 947,013 
 
 £34,613,091 
 Assets. 
 In the Issue Department : 
 Gold Coin and Bullion . . 6,745,354 
 Silver Bullion 1,120,091 
 
 £7,865,445 
 In the Banking Department : 
 Gold Coin and Silver . . . 447,246 
 
 8,312,691 
 
 Balance which the Bank could not pay 
 
 in Gold or Silver £26,299,400 
 
 Again, on the 11th November, 1867, the day 
 before the suspension, the state of the Bank of 
 England was this : — 
 
 Liabilities. 
 
 £ £ 
 
 Notes Issued 21,141,065 
 
 Deduct held by the Bank . 957,710 
 
 20,183,355 
 
 Public Deposits 5,314,659 
 
 Other Deposits 12,985,344 
 
 Seven days and other Bills .... 853,075 
 
 £39,286,433 
 
94 THE BANK OF ENGLAND. 
 
 Assets. 
 
 In the Issue Department : 
 Gold Coin and Bullion . . 6,666,065 
 
 In the Banking Department : 
 Gold Coin and Silver . . . 504,443 
 
 7,170,508 
 
 Balance which the Bank could not pay 
 
 in Gold or Silver £32,115,935 
 
 Thus, it appears that the convertibility of the 
 Bank Note, so far as it is secured by the Act of 
 1844, is a mere political fiction. 
 
 It was said, in 1844, by Mr. Samuel Jones 
 Loyd (now Lord Oyerstone) that the Bank 
 Charter Act of 1844 " has been justly described 
 by its author, (Sir Robert Peel) as the comple- 
 ment of the Bill of 1819, as the further step 
 which was necessary to render that measure 
 complete, and to render to the Public every pos- 
 sible security for the maintenance of specie pay- 
 ments. This is the true object of the measure; 
 and hy its efficacy, or otherwise, in this respect, the 
 success or failure of the measure ought to be tried." 
 
 How, then, stands the question with regard to 
 the Bank Charter Act of 1844? It was sus- 
 pended by a Government Letter in 1847, again 
 in 1857, and again in 1866. On an inquiry into 
 the circumstances of the first suspension, the 
 
MONET PANICS. 95 
 
 Bank Charter Act was decidedly condemned by 
 a Committee of the House of Lords, and it only 
 escaped a similar fate in the House of Commons 
 Committee by the accidental absence of two 
 members of that Committee. Of the seventeen 
 witnesses examined before the Committee of the 
 House of Commons in 1848, thirteen condemned 
 the Act, and four supported it. Among its four 
 supporters were three Directors of the Bank of 
 England, and Mr. Samuel Jones Loyd. Among 
 those who condemned it were the late Mr. 
 Samuel Gurney, the largest money dealer in 
 Europe, Mr. George Carr Glyn, the eminent 
 JLondon Banker, Mr. Bates, of the House of 
 Messrs. Baring, Brothers, & Co., and Mr. Bir- 
 beck, the recognised representative of the Country 
 Bankers of England. At this time Lord Ash- 
 burton (formerly Mr. Alexander Baring) a finan- 
 cial authority, at least, equally high with Lord 
 Overstone, pronounced it, as his judgment, that 
 the Bank Charter Act " was a great experiment 
 which had signally failed!' But it now stands 
 condemned by the fact, that it has signally failed 
 on the three occasions on which it has been put 
 to the trial. It stands condemned by the very 
 test which Lord Overstone himself propounded, 
 namely, its efficiency in giving to the Public 
 " every jjossihle security for the maintenance of 
 
96 THE BANK OF ENGLAND. 
 
 Cash Payments." It also stands condemned by 
 the community in general as a most unjust and 
 unwise measure, carried by the undue influence 
 of the great Capitalists, against the true interests 
 of the country at large, as the rich man's law, by 
 which the rich are made richer, and the poor are 
 made poorer ; as the Usurer's law enhancing, by 
 artificial restrictions, the value of money above 
 its natural price ; and as a complication of de- 
 ceptions and delusions, disgraceful to the intelli- 
 gence of an enlightened and enterprising people. 
 
 Such is the effect of the Bank Charter Act of 
 1844. 
 
 But it is not intended by these remarks to. 
 impute to the promoters of this measure any- 
 thing more than an imperfect knowledge of the 
 principles on which alone our artificial monetary 
 system can be established on a safe basis. 
 
 The injurious consequences to the country 
 from these money-panics, directly and indirectly, 
 are so extensive and various that, it is impossible 
 to estimate, with anything like accuracy, the aggre- 
 gate of losses to the country from these causes. 
 
 The first effect of every crisis, however ori- 
 ginating, is an impression of exaggerated fear of 
 the unknown. 
 
 The certain consequence of this shock to public 
 credit is, a rush to the banks for notes, not for 
 
MONEY PANICS. 97 
 
 want of money, but for want of confidence, and, 
 with many, for a speculative object. 
 
 It is said that, the banks, for self-preservation 
 against this impulse, must proceed without delay 
 to realise bills in hand and to raise the rate of 
 interest. 
 
 But, from the suddenness and gravity of the 
 crisis, these means may be, and generally are, very 
 feeble, and if the panic continue, then nothing 
 remains but to suspend for a short time cash 
 payments, the effects of which are the more grave, 
 being a measure of necessity. 
 
 But, desperate as is that measure, the conse- 
 quences are, perhaps, less injurious than if the 
 same object were accomplished by means of re- 
 strictions in credit and usurious interest. 
 
 If the sacrifices were directly at the cost of the 
 Banks, in compensation for the privileges accorded 
 to them, the case would be very different, and 
 the Public would only have to congratulate them- 
 selves on seeing these institutions so well fulfil- 
 ling the object of their creation. But it is not 
 so, and everybody knows that, the difficulties 
 and charges, which are involved in the rise of 
 the rate of interest and the diminution of the 
 amount of discounts, are borne by the Public, 
 the interests of which, the Banks say, their mis- 
 sion is to protect. 
 
 H 
 
98 THE BANK OF ENGLAND. 
 
 The example of the past is yet too present 
 to the memory of all for it to be necessary to 
 show that, the effects are really such as are here 
 pointed to. 
 
 It is, therefore, not a matter of doubt that, 
 the diminution of discounts occurs exactly at the 
 time when credit is most wanted : confidence fail- 
 ing, it is necessary to supply that confidence by 
 means of real resources, and as these resources 
 can be no longer procured by credit, even with 
 good bills, or their realisation becomes too costly, 
 it is necessary to have recourse to the sale of 
 merchandise ; but, as in such circumstances the 
 supply very far exceeds the demand, there results 
 a fall and deterioration in the price of the mer- 
 chandise, and, consequently, a diminished pro- 
 duction. 
 
 It is then that disasters accumulate and ruin 
 overwhelms. 
 
 The depreciation of all bills brings to destruc- 
 tion the strongest houses, which are forced to 
 reahse, and the misery, consequent on this state 
 of affairs, reaching the working ' classes, compli- 
 cates and involves all. 
 
 Such are the indisputable results of the over- 
 high rate of interest and reduction of the amount 
 of discounts. 
 
 It is assuredly to be regretted that, the Banks 
 
MONEY PANICS. 99 
 
 of Issue in all countries Are not sufficiently 
 powerful, do not rest on a sufficiently large basis, 
 and have not an organisation sufficiently perfect 
 to put them in a state to maintain, at all times 
 and under all circumstances, the National Credit, 
 on ierms which may be legitimately demanded 
 of them. 
 
 To show what may be legitimately demanded 
 of the Bank of England, and how all that can be 
 reasonably desired or wisely attempted may be 
 easily and safely accomplished, is the object of 
 this volume. 
 
 But, under the present Chapter, a few remarks 
 may be usefully made on the Panic of May, 1866, 
 which will be long remembered for its peculiar 
 origin and disastrous covsjquences, and as fixing 
 the final doom of the Bank Charter Act of 1844. 
 
 Although the panic was unexpected, yet a 
 state of uneasiness had long previously existed 
 in the City. .That uneasiness began in the first 
 week of October, 1SG5, when the Bank of Eng- 
 land suddenly raised the discount from 4^ to 7 
 per cent. This was the minimum rate for first- 
 class short bills, and advances on other securi- 
 ties were charged still higher. 
 
 On the 9th of October,, many first-class bills 
 could hardly be discounted at 10 per cent. Then 
 the uneasiness amounted almost to panic, and 
 
100 THE BANK OF KNGLAND. 
 
 aay great failures at that time would, certainly, 
 have produced a panic. 
 
 Trade was then perfectly sound, and there was 
 no drain of gold for export, the imports then 
 largely exceeding the exports, nor was the de- 
 mand for discounts unusual for that time. 
 
 There was no reasonable explanation of this 
 great and sudden rise in the Bank-rate of dis- 
 count, unless in the interests of the Bank of 
 England, as a private banking establishment. 
 
 In December, 1865, a slight drain of gold for 
 export occurred, and in the beginning of the 
 year, 1866, the Bank of England raised its mi- 
 nimum rate of interest to 8 per cent. 
 
 Notwithstanding this increased cause of un- 
 easiness, affairs went on as usual in the City of 
 London, until the month of March, when the 
 Joint Stock Discount Company collapsed. This 
 Was the first sign of the coming panic. 
 
 Distrust then became general in the City of 
 London, and money was obtained with difficulty 
 on the best security. With the increase of this 
 difficulty distrust spread, and the great Joint 
 Stock Discount and Financial Company of Over- 
 end, Gurney, and Co. was singled out to be 
 brought down by " speculators for the fall," who 
 drove down the price of the shares, till share- 
 holders and customers caught the general alarm, 
 and then came the run for deposits. 
 
MONEY PANICS. IQl 
 
 In the extremity of their distress, the managers 
 applied to the Bank of England for assistance ; 
 but the application was refused, and then, to the 
 dismay of the City of London, the doors, of Over- 
 end, Garney, & Co. were closed. 
 
 The same result would have followed in the 
 panic of 1857, if on that occasion the Bank of 
 England had not made the critical position of the 
 then private firm of Overend, Gurney, & Co. the 
 ground of application to the Government for sus- 
 pension of the Act. 
 
 Thus, the law, regulating the whole monetary 
 system of the kingdom, was, on that occasion, 
 suspended by the Government on the represen- 
 tation of the Directors of the Bank of England, 
 at the instance pf one private firm, and thereby 
 the general distrust was arrested, the panic was 
 stopped, and that private firm was saved, before 
 the crisis came. 
 
 What comment on the law can be stronger 
 than such a fact ! 
 
 But the origin of all these City panics is, want 
 of confidence in the banking system, and, there- 
 fore, the true term, applicable to every crisis, 
 is, — a banking or credit crisis. 
 
 There was no mistrust in the Bank of England 
 note — there never has been any mistrust in that, 
 — neither was there any drain of gold for export 
 or for internal use. 
 
102 THE BANK OF ENGLAND. 
 
 There was nothing in tho commercial relations 
 of the country to account for the catastrophe. 
 TrpHe was perfectly sound before and even after 
 the c.dsis, and, though the panic extended 
 throughout the kingdom, the crisis may be said 
 to have been confined to the City of London. 
 
 The real cause of the panic was simply a 
 general distrust of our banking system, under 
 the control of the Bank of England. 
 
 The Public lost faith in the establishments 
 where they had deposited their money, but the 
 want of faith was originated in the Bajik of 
 England. The depositors made a sudden and 
 simultaneous rush to get back their money again 
 into their own hands, and it is well known that, 
 some great Capitalists in the City, took very 
 effectual means for aggravating the alarm. The 
 sole feature of this crisis was a run for deposits, 
 originating in a general want of confidence in 
 the banks and financial establishments in the 
 City of London. 
 
 A run for deposits carried to an extreme extent 
 must bring down the strongest banks. No bank 
 can pay at once all its deposits, or even any 
 large portion of them, without a National Bank 
 amply filled with the means and at all times 
 ready to supply them: 
 
 There being no such National Bank, it is. 
 
MONEY PANICS. 103 
 
 therefore, only a simple truth to say that, if the 
 panic, which prevailed in London on Friday, the 
 11th of May, 1866, had continued for another 
 day, there was no bank in London, not even the 
 Bank of England itself, and, certainly, no bank 
 in the country that was safe. In one day de- 
 mand was made for half the deposits in the Bank 
 of London. 
 
 The reserve of notes in the Bank of England 
 was down to £415,000 for London and all the 
 branches. Now, half a million is no extreme 
 issue for all the country branches taken together, 
 and if they had happened to make such an issue 
 about the 15th of May, 1866, the Act of 1844 
 must then have broken down. Indeed, the Act 
 may be regarded as having broken down, be- 
 cause the Bank Directors could not have allowed 
 their reserve to dwindle down to this trivial 
 amount, unless they were well assured that, they 
 could break the law with impunity at their plea- 
 sure. The Bank Directors possessed and relied 
 upon an illegal guarantee, though they availed 
 themselves of it only for the benefit of their own 
 shareholders. This is no reflection on the Bank 
 Directors, nor on the Banks in general, but on 
 the Bank Act, which controls the Bank of Eng- 
 land and regulates the system of banking in 
 England. 
 
104 THE BANK OF ENGLAND. 
 
 It was not the collapse of the Joint Stock 
 Discount Banking Company in March, nor the 
 subsequent break-down of the great discount-: 
 house of Overend, Gurney, & Co. in May, nor 
 of the other great Joint Stock Banks, which 
 quickly followed, — the English Joint Stock Bank, 
 the Imperial Mercantile Credit Company, the 
 European Bank, the Bank of London, the Con- 
 solidated Bank, and the Agra and Masterman's 
 Bank,— it was not there that the primary cause 
 of the distrust was to be found, — as generally 
 supposed, — though, undoubtedly, those misfor- 
 tunes aggravated the distrust. 
 
 The primary cause was in the universal dis- 
 trust in the Bank of England, and those misfor- 
 tunes were only the natural and inevitable con- 
 sequences of the system. 
 
 Many charges of mismanagement are made 
 against those fallen establishments, but when 
 the charges are examined they are found to be 
 all reducible to one single error of not sufficiently 
 distrusting tKe weak and treacherous system of 
 the Bank of England. No doubt, that was great 
 mismanagement, but that was all. The helpless 
 position of the Bank of England, and the mode as 
 well as the motive of its actions were all too well 
 known to leave any excuse for those who parted 
 with control over their own money and relied 
 
MONEY PANICS. 105 
 
 for help from that quarter in the time of need, 
 that time being sure to come, sooner or later, to 
 those establishments which placed their money, 
 however profitably, beyond their own reach when 
 wantfed. 
 
 The knowledge of that fact made the misma- 
 nagement of those establishments' inexcusable, 
 and their fall opened the eyes of others to their 
 true danger, in the Bank of England. 
 
 That was the cause of the panic, and that 
 alone. 
 
 Under a properly organised system of credit 
 every one of those fallen estabhshments might 
 have been perfectly solvent. 
 
 If the Bank of England had been in a posi- 
 tion to render legitimate assistance, not one of 
 those establishments need have fallen. This has 
 been since proved by established facts. Their 
 liabilities were great, but their capital was great 
 and ample under a properly organised system of 
 credit. But the Bank of England, instead of 
 being the supporter, is the destroyer of Credit. 
 
 Public Credit is sacrificed for the private gain 
 of the Bank of England, the great capitaHsts, and 
 , the money-jobbers. 
 
 The Bank of England took the most efi'ectual 
 means in its power for that end and object, and 
 when those means were strengthened for the 
 
106 THE BANK OF ENGLAND. 
 
 declared purpose of enabling the Bank of Eng- 
 land to afford relief to other establishments, the 
 Bank of England still withheld relief for the same 
 end and o' ject. 
 
 When the Government boldly but wisely in- 
 terfered by suspending the Law, and thereby 
 placed £5,000,000 of additional currency at the 
 disposal of the Bank of England, for the avowed 
 purpose of saving the sinking establishments, no 
 part of this grant in aid was allowed by the Bank 
 of England to be brought into use. On the con- 
 trary, it was withheld, if not for the purpose of 
 reaping the profits of the ruin, such, at least, was 
 the effect. The profits of the Bank of England 
 were thereby enormously increased, and in this 
 very simple way. These fallen establishments, 
 before their fall, held about thirty millions of 
 deposits, and made advances on bills, &c., to the 
 trade of the country to a like extent. 
 
 The stoppage of these establishments, there- 
 fore, was the cause of great embarrassment 
 throughout the country. The depositors could 
 not get the use of their money, and the commer- 
 cial customers could not get their usual advances. 
 The deposits had been reduced by the run upon, 
 them, but the amount in hand at the time of 
 he stoppage was about sixteen millions sterling. 
 
 This immense sum, though it will ultimately 
 
MONET PANICS. 107 
 
 be repaid with interest, became, for the time, 
 unavailable to its owners. Meanwhile, what were 
 the owners to do ? 
 
 All the banks were nearly drained of their 
 money by the run for deposits, with the exception 
 of the Bank of England, in whose favor the Act- 
 was suspended. The consequence was that, the 
 unfortunate depositors could get no assistance, 
 even upon the best securities, but through the 
 Bank of England. The commercial or discount 
 customers of the fallen establishments were in 
 the same predicament. Their only chance of 
 obtaining the advances indispensable to carrying 
 on their business was through the Bank of Eng- 
 land on its own terms. 
 
 All the discount business of the suspended 
 establishments came to the Bank of England, as 
 also a considerable portion of the depositors, who 
 required loans to compensate the lock up of their 
 own money. What is more, all the money in 
 the hands of those suspended establishments was, 
 according to law, transferred to the safe-keeping 
 of the Bank of England. This money the Bank 
 could lend out freely, to the last shilling, on its 
 own exorbitant terms, with the knowledge that 
 it could not be called for by its owners until the 
 judicial hquidation of the fallen establishments 
 had been accomplished. 
 
108 THE BANK OF ENGLAND. 
 
 In this way the Bank of England obtained not 
 only an immense addition to its loan-business, 
 but also a great addition to the money deposited 
 with it, and which it could use freely in carrying 
 on this extension of its business, The Bank, in 
 fact, became possessed of all the money of the 
 suspended establishments, free of immediate lia- 
 bility to repayment : while the depositors, the 
 rightful owners, had to come to the Bank of Eng- 
 land begging for advances. 
 
 Thus, the Bank of England, in so far as it 
 granted any of those advances, was simply lend- 
 ing to those unfortunate borrowers their own 
 money at an exorbitant rate of interest. 
 
 Throughout this panic the conduct of the 
 Bank of England was in all respects that of a 
 private bank, regarding only its own interests. 
 An immense accession to its business was thus 
 gained, and for accommodation the highest prices 
 were extorted. Advances were made only for 
 the shortest periods and upon the very best 
 securities. Even Government securities were 
 accepted only at the charge of 12 per cent, and, 
 latterly, advances were refused on these securities 
 at any terms. Not that Consols and Exchequer 
 Bills were unsaleable or mistrusted, but that the 
 Bank of England might need its own notes for 
 payment of its own deposits. 
 
MONEY PANICS. 109 
 
 From the sudden and great increase in the 
 monetary requirements of the commercial com- 
 munity, the supply of money under the Act was 
 quite inadequate to the wants, the whole amount 
 of notes allowed to be issued by the Bank of 
 England, available for the banking department, 
 being actually less than the amount of deposits 
 in the London and Westminster and the Union 
 Joint Stocks Banks together. 
 
 There was plenty of capital, but an insufficiency 
 of currency, and to make up the deficiency capital 
 was sEicrificed. 
 
 The estimated deposits in all the banks is 
 £400,000,000 (probably a high estimate), but 
 the whole banking currency of tlie kingdom is 
 only about £40,000,000. 
 
 On Friday, the 11th of May, 1866, the Bank 
 of England had no more money in hand than was 
 absolutely necessary for its own safety, and was 
 powerless for obtaining any more. 
 
 It is, therefore, obvious that, if a like run for 
 deposits had been made on the Bank of England 
 as was made on the other banks, the Bank of 
 England must have stopped payment. Its reserve 
 of notes, £-1.15,000, at the end of that day, makes 
 this manifest as a necessary and unavoidable 
 consequence. 
 
 The banks could not get money for their 
 
110 THE BANK OF ENGLAND. 
 
 money's worth. Their assets, therefore, were 
 not available. 
 
 That was the difficulty. 
 
 This state of things sufficiently explains the 
 conduct of the Bank of England, and its motive 
 for refusing to avail itself of the power conferred 
 on it by the authority given for the suspension 
 qf the Act. 
 
 The Directors may affect to treat with silent 
 scorn any such imputation, or they may attempt 
 to justify their acts by their motive. But their 
 acts is all that the Public have to do with, and 
 their motive as Bank Directors was, doubtless, 
 honorable, though whether it were so or not, is 
 quite immaterial in this question. 
 
 In this question facts and results alone are 
 material, and these are undisputed. 
 
 The Act was suspended, or, rather, the autho- 
 rity for suspending its operation was given on 
 the responsibility of the Government; but this 
 was intended for the benefit of the whole com- 
 munity, not of the Bank of England alone. But 
 the benefit, in fact, was to the Bank of England. 
 The benefit to the community, and to the com- 
 mercial community especially, was little more 
 than imaginary^ and consisted in the partial res- 
 toration of confidence, by the power thus vested 
 in the Bank for meeting the wants of the Public. 
 
MONEY PANICS. Ill 
 
 The Bank, guided by its own interests, as a pri- 
 vate bank, refused to exercise that power for the 
 benefit of the Public ; the profit which would have 
 resulted therefrom being wholly reserved to the 
 Government. In fact, the operation of the Act 
 was not suspended. The actual benefit, there- 
 fore, to the Public was in the confidence partially 
 restored by the fact that, the suspension of the 
 Act was authorisetl to the extent of allowing the 
 Bank of England to issue £5,000,000 additional 
 notes. But that confidence was greatly dimi- 
 nished by the subsequent conduct of the Bank 
 Directors, which rendered the authority of the 
 Government for the suspension of the Act, so far 
 as the Public was concerned, little better than a 
 treacherous deception, though for the Bank share- 
 holders a substantial gain. The real ground of 
 complaint is not against the Directors of the Bank 
 of England, or against the Government for such 
 an exercise of authority, but against the Act 
 which rendered such an exercise of authority 
 necessary. All must be agreed in the wisdom 
 exercised on this occasion by the Government, as 
 regards the simple question of the suspension of 
 the restrictive power of the Act over the issues, 
 though why it should have been accompanied 
 with the condition of 10 per cent is not apparent. 
 The suspension of the Act, under any circum- 
 
113 THE BANK OP ENGLAND. 
 
 stances, is a great service to the Bank of Eng- 
 land, by relieving the artificial restriction upon 
 the issue of its notes, which never have been 
 distrusted, and still leaving the 'Bank at liberty 
 to play its own winning game at the public ex- 
 pense, free from the risk' of an artificial bank- 
 ruptcy ; for the Bank of England is as liable to 
 this'kind of failure as any other bank. A large 
 portion of its deposits consists of the cash reserves 
 of other banks, and on the 12th of May, 1866, any 
 two of the large London banks, by simply com- 
 bining to demand payment of their own money 
 could have made the Bank of England insolvent. 
 
 The authorised suspension of the Act, there- 
 fore, was only a measure of common prudence 
 and justice, as well to the Bank of England as 
 to the whole community, and to the commercial 
 community most especially. But that such a 
 measure should be necessary is a disgrace to the 
 Nation and a gross injustice to all the other 
 banks in the kingdom, especially to those for 
 which this measure of relief comes too late. On 
 this last occasion, the direct benefit was to the 
 Bank of England only ; for, as regarded all other 
 banks and commercial establishments of the 
 country, the restrictions of the Act were kept in 
 force. 
 
 The absurdity and injustice of such a system 
 
MONEY PANICS. 113 
 
 are too manifest to need any comment, and that 
 a system so manifestly absurd in principle, and 
 so practically unjust, should be continued after 
 twenty-two years of fatal experience is as- 
 tonishing. 
 
 The Corn Laws were a striking instance of the 
 stolid stupidity of the British Government, and of 
 the ignorant apathy of the British People ; but 
 the outrage against common sense and justice, in 
 placing the whole of the monetary arrangements 
 of this great commercial nation in the power of 
 one privileged and irresponsible body, whose 
 private interests are in direct opposition to the 
 public interests, and the continuance in this 
 course after the experience of twenty-two years, 
 is something so unaccountably stupid that, with 
 astonishment and distrust are unavoidably min- 
 gled indignation and contempt. 
 
 The authorised suspension of the Act was, in 
 eifect, another special privilege conferred on the 
 Bank of England, in addition to the privileges 
 already so unwisely bestowed upon the Bank ; so 
 unwisely because so imperfectly for the object, 
 thereby vesting in the Bank of England a mono- 
 poly intended for the benefit of the Nation, ope- 
 rating for the benefit of the Bank shareholders, 
 but ruinously for the trade and industry of the 
 country. 
 
114 THE BANK OF ENGLAND. 
 
 The Bank of England is in no respect different 
 from any private bank, except as holding this 
 monopoly for the issue of its notes as legal tender 
 money. 
 
 To confer special and exclusive privileges upon 
 a private bank is an injustice to all other banks, 
 and thereby to the whole community. 
 
 To suspend the law whenever it operates by 
 its restrictions to threaten the safety of the Bank 
 of England, and at the same time to maintain 
 those restrictions against all other banks, is only 
 to increase the monopoly and to make it more 
 monstrous and grotesque. 
 
 To intrust such a power in a body of private 
 individuals is opposed to all experience, and, 
 without impeachment to the purity of the Bank 
 Directors, places them in an invidious and false 
 position. But they make no profession of disin- 
 terestedness. They avow that the Bank of Eng- 
 land, so far as banking is concerned, is a private 
 establishment ; that they are responsible only to 
 their shareholders ; and that, as Directors, their 
 sole rule of conduct is to manage the Bank as 
 profitably as possible. 
 
 The fall of solvent banks and financial estab- 
 lishments is a loss to the community, but is a 
 gain to the Bank of England. The removal of 
 so many rivals is the addition of a large amount 
 
MONEY PANICS. 115 
 
 of deposits and discount business to the Bank of 
 England. The suspension of the Act makes the 
 Bank safe for the extension of its profitable busi- 
 ness ; for, being less anxious about its own re- 
 serve, it can discount more freely at its own high 
 rate of 10 and 12 per cent., and without fear 
 of competition. It holds the power in its own 
 hand and refuses to relax its hold for the benefit of 
 any other establishment than its own. The sus- 
 pension of the Act is for the Bank of England 
 only ; for the community the Act remains in 
 force. Though not suspended in fact, the whole 
 benefit is virtually obtained by the Bank of Eng- 
 land, as if the suspension were a fact. The 
 Government wisely took upon itself the respon- 
 sibility of authorising the suspension of the Act, 
 and most properly conferred upon the Directors 
 of the Bank of England the power of- exercising 
 that authority or not, at their discretion. But 
 the Government thereby conferred a despotic 
 and irresponsible power upon a private estab- 
 lishment, and- the managers of that private es- 
 tablishment, in their discretion, exercised the 
 power so entrusted to them to increase the gains 
 of the shareholders of that private estabhshment, 
 without any regard to other establishments or 
 to the interests of the community at large. 
 
 It is true that, the authority was given on the 
 
 I -2 
 
116 THE BANK OF ENGLAND. 
 
 strange condition of preserving the minimum of 
 accommodation at 10 per cent. But in that 
 consisted the special favor to the Bank of Eng- 
 land, and the loss of the intended benefit to 
 other banks and the community. 
 
 It was obviously for the benefit of the Bank 
 of England not to avail itself of the authorised 
 additional credit of £5,000,000, as long as it 
 had any available money of its ovi^n for the pur- 
 pose of discount, because the whole profit then 
 went to the Bank, instead of going to the Govern- 
 ment. 
 
 The Bank of England, therefore, had the whole 
 benefit of this additional credit, though the Public 
 had none of it, but only a little more accommo- 
 dation from the Bank at 10 per cent. 
 
 That strange condition of 10 per cent, was, 
 therefore, another special and exclusive favor to 
 the private establishment of the Bank of England. 
 The Directors knew perfectly well that, on then- 
 application, the same authority would have been 
 given by the Government at any lower rate of 
 interest. The Directors knew that perfectly well, 
 and Mr. Gladstone, then Chancellor of the Ex- 
 chequer, subsequently made a statement in the 
 House of Commons to that efi'ect. 
 
 The Directors, skilfully but artfully, made no* 
 application to the Government at all, not even 
 
MONEY PANICS. 117 
 
 for suspending the Act. They knew that the 
 Act made its own suspension a State necessity. 
 They wisely let affairs take their natural course. 
 They saw the inevitable ruin, and they knew 
 themselves to be safe; moreover, they saw their 
 own profit in the general ruin, and they wisely, 
 as managers of a private banking establishment, 
 bided their time in graceful and dignified com- 
 posure. 
 
 But, what of the Government ? 
 
 There are many persons who think that the 
 scandalous disgrace to the Government of the 
 country on this occasion was instigated by exte- 
 nuatinff circumstances. Those persons are weak 
 enough to believe that, the Bank of England, by 
 its generous and disinterested efforts, mitigated 
 much of the misery of this most lamentable crisis. 
 
 Not a bit of it. Generosity and disinterested- 
 ness are totally out of the question. 
 
 The Bank of England reaped a rich harvest, 
 as the subsequent division of profits among the 
 Shareholders shows, to say nothing of the sub- 
 stantial increase under that significant head, 
 " Rest," for which they are thankful. 
 
 On the 17th of May, 1866, Mr. Gladstone, 
 Chancellor of the Exchequer, informed the House 
 of Commons that, — " The advances made by the 
 Bank of England, on Government Securities, on 
 
118 THE BANK OF ENGLAND. 
 
 Friday, the day of the panic, amounted to 
 £919,000; on Saturday, to £747,000, and on 
 the three subsequent days various amounts, 
 making up the total amount advanced on these 
 securities in five days to £2,874,000. Then, 
 with regard to the accommodation of commerce 
 in ge.neral, the best measure that can be given 
 of the manner in which the Bank has exercised 
 its functions is shown in this — that it has made 
 advances upon bills, and has discounted bills 
 to the extent of £9,350,000, making a total 
 of advances and discounts in five days of 
 £12,225,000." 
 
 Mr. Gladstone was quite right in bringing 
 forward these facts in defence of the Government 
 of which he was a leading member, and in omit- 
 ting to state the rate per cent, at which "the 
 advances and discounts in five days" were made. 
 
 It would not be discreet here to fill up, if that 
 were possible, this hiatus in Mr. Gladstone's 
 statement. It will be enough to state that, the 
 profits of the Bank of England on that memora- 
 ble and lamentable occasion were sufficiently 
 enormous to deprive the Bank of England of all 
 claim to generous or disinterested conduct, and 
 that, without the suspension of the Act, — or the 
 authority given for its suspension, — those profits 
 could not have been made. 
 
MONEY PANICS. 119 
 
 But what was the cause which rendered neces- 
 sary the advance by the Bank of England of this 
 extraordinary sum of £12,225,000 in five days? 
 
 That is the question, — a question which Mr. 
 Gladstone has not answered, — and he has shown 
 himself as unable to answer it as his successor 
 showed himself to be, when he supposed the 
 difficulty to have arisen from "the want of 
 capital." 
 
 Probably, Mr. D'Israeli did not know, when he 
 gave that answer to the Deputation which waited 
 upon him that, the deposits in the banks in this 
 country were estimated at about £400,000,000 
 sterling, or more than half the National Debt. 
 
 All this is very discouraging to those who see 
 where the mischief lurks, and are looking for the 
 Government to expose and remove it. But the 
 men who ought to see it see only the creations 
 of their own fancies, and these are the men who 
 direct the legislation for this greatest commercial 
 country in the world ! 
 
 As long as the Bank of England enjoys special 
 and exclusive privileges and is allowed to act as 
 a private estabhshment, it is useless to expect 
 that it will neglect its private interests for the 
 public good. 
 
 Now, it is evident that there was ample motive 
 for the Bank of England declining to avail itself 
 
120 THE BANK OP ENGLAND. 
 
 of the power entrusted to it of suspending the 
 Act of 1844. • 
 
 If the Bank of England had exercised that 
 power and had discounted freely at 4 per cent., 
 even to half the authorised amount, it is perfectly 
 clear that, the panic in the City of London on/ 
 Mday, the 11th of May, would have ceased on 
 the following day ; and if the Bank rate of" dis- 
 count had been at 4 per cent, instead of 10 per 
 cent, on that Friday, there would have been no 
 panic at all. 
 
 In either case, Overend, Gurney, & Co. would 
 have obtained the required assistance, and for 
 which they could then have given perfectly good 
 security. 
 
 The other Banks and Financial Establishments 
 would then have been able to convert their secu- 
 rities into currency, at the cost of an inconsider- 
 able deduction from their ample profits. 
 
 Either there would have been no crisis at all, 
 or the crisis would have ended with the first dis- 
 aster. All the subsequent failures of the great 
 Banks would have been spared, at least, for that 
 time, and there is no reason to believe that, any 
 of the commercial suspensions, which so quickly 
 followed, would have taken place at all. 
 
 The other banks would then have been able 
 promptly to resume their ordinary operations, 
 
MONEi: PANICS. 121 
 
 even if those operations had suffered any in- 
 terruption, which is most improbable. 
 
 But the Bank of England would not have 
 reaped so rich a harvest at the expense of the 
 other banks and of the community. It is more 
 profitable to issue 25 millions of notes at 10 per 
 cent, than to issue 30 millions at 4 per cent., 
 and the profits of the additional issues, beyond 
 the amount limited by the Act, would have 
 gone to the Government, not to the Bank of 
 England. 
 
 Towards the end of June, 1866, the bullion 
 in the Bank of England had reached the re- 
 spectable total of £14,851,000, and still the 
 bank rate of discount was 10 per cent., though 
 at the same time the rate of the Bank of France 
 was 4 per cent. 
 
 Towards the end of July, 1866, the bullion 
 in the Bank of England was £13,716,829, aiid 
 still the bank rate of discount was 10 per cent., 
 though at the same time the rate of the Bank of 
 France was 3^ per cent., and in a few days later 
 3 per cent. 
 
 Since the passing of the Act of 1844, there is 
 no other example of a stock of bullion of this 
 large amount coincident with a rate of discount 
 higher than 4 per cent. 
 
 It is true that the Bank of England regulates 
 
122 THE BANK OP ENGLAND. 
 
 its rate of discount to a great extent by the 
 amount of its notes in reserve independently of 
 the aggregate stock of gold in the two depart- 
 ments ; but, with a less advantageous state of the 
 bullion, the Bank rate of discount had never 
 before been maintained at anything like the 
 minimum of 10 per cent., and the circumstances 
 of the time, so far from justifying so high a rate, 
 were precisely those which should have recom- 
 mended a rate below even 4 per cent. 
 
 It was well known that about £5,000,000, in 
 Bank of England notes, were stored up in the 
 various banks of the country in preparation for 
 the panic period. This cash was not really 
 wanted, and was not actually used. When the 
 terror of the crisis was over, all this money 
 flowed back to the Bank of England, to be again 
 advanced on its own terms to its own profit. If 
 the Bank rate had been sooner lowered, these 
 millions of Bank notes would have sooner re- 
 turned to the Bank reserve, and the narrow 
 balance, which is supposed to justify the main- 
 tenance of the high rate, would have been in- 
 stantly increased to justify the low rate. The 
 demand for notes was wholly artificial, and was 
 created by the very precautions which the Bank 
 took to meet it. 
 
 The motives of the Bank Directors, whatever 
 
MONEY PANICS. 123 
 
 they were, were clearly productive of ruin to 
 many, and of results most unsatisfactory to all, 
 excepting only the Bank Shareholders and those 
 capitalists and money-jobbers who prey upon the 
 weak and necessitous or unwary. 
 
 Prom the 11th of May to the 16th of August, 
 1866, the Directors of the Bank of England 
 were, practically, entrusted with the power of 
 manufacturing paper-money to the amount of 
 £5,000,000, at their own sole will and pleasure, 
 and this special privilege was conferred on them 
 on the express condition that the minimum Bank 
 rate of discount was preserved at 10 per cent., 
 a condition which could operate only for the 
 benefit of the Bank. 
 
 It was a great mistake on the part of Govern- 
 ment to impose any such condition, but it was a 
 greater mistake on the part of the Bank Direc- 
 tors to avail themselves of that condition for the 
 benefit of their shareholders, as the consequence 
 will, probably, be, and, certainly, ought to be, 
 fatal to their Bank Charter Act. 
 
 It is hardly to be expected that, the commer- 
 cial community will much longer be content that, 
 the Directors of the Bank of England should be 
 entrusted with the special and exclusive privilege 
 of regulating the currency of this country at 
 their own sole pleasure and profit, or that the 
 
124 THE BANK OF ENGLAND. 
 
 present restrictive system, under the Act of 
 1844, should be much longer continued. 
 
 It must be evident to all, vi^ho have carefully 
 regarded the facts, that the money panics in this 
 country have been brought about or greatly ag- 
 gravated by the restrictions upon the currency 
 under this Act. 
 
 In the year, 1847, the bulUon in the Bank of 
 England having been reduced to a minimum 
 amount, the notes' issued for circulation were 
 reduced to a corresponding amount, by the oper- 
 ation of the Act of 1844. 
 
 The Bank reserve being diminished in the 
 same proportion, the Bank was unable to supply 
 the demand for currency, which had been oc- 
 casioned by the immense advances of capital in 
 the execution of railways. 
 
 In like manner, the financial difficulties conse- 
 quent on the Crimean War, when the public 
 expenditure had increased from 54 to 82 mil- 
 lions, combined with the diversion of capital for 
 meeting the exigencies of the Government, cre- 
 ated demands for currency which the Bank of 
 England was powerless to supply. The amount 
 of bullion at the Bank being then at the lowest 
 ebb, the issue of notes became most restricted at 
 the very time when the currency was most 
 wanted. 
 
MONEY PANICS. 125 
 
 The same effect was reproduced by the same 
 cause in the year, 1866. 
 
 With these instances the year, 1852, furnishes 
 a very striking and elucidating contrast. 
 
 In the year, 1852, the amount of bullion in 
 the Bank of England was larger than in any 
 previous or succeeding year, and then the issue 
 of notes was at the highest and the Bank reserve 
 at the maximum. 
 
 In that year the Bank of England was able to 
 meet all the demands for currency, and by such 
 conversion of capital, represented by bills of ex- 
 change or other good securities, the public credit 
 was sustained, and the productive industry of the 
 country was promoted. 
 
 The judicious operations of banking, which 
 make capital more active and productive than it 
 otherwise would be, must have the same effect in 
 increasing the productive industry of the country, 
 as if the capital of the country were by so much 
 actually increased. 
 
 The true policy of the Bank of England must, 
 therefore, be, never to diminish the amount of 
 notes in circulation below, but always to keep 
 them up to, the requirements, and in time of 
 temporary difficulty or extraordinary demand to 
 issue more freely. 
 
 The Bank of England has never acted on that 
 
126 THE BANK OF ENGLAND. 
 
 policy, and, sometimes with reason, pleads the 
 Act in extenuation or excuse. The practice of 
 the Bank of England has been, whenever it could 
 avail itself of this excuse, to advance the discount 
 to 10 per cent, and the effect of such exaction 
 upon trade was well described by Mr. Watkin in 
 his speech on Currency and Banking, reported in 
 The Times oi August 1st, 1866, when he said : — 
 
 " He knew a firm, which had carried on a 
 foreign trade for 40 years, with sufficient capital 
 for their purposes ; but as their returns took nine 
 months to arrive they were obhged to obtain ad- 
 vances, for which they paid 5 per cent. They 
 told him that, as long as that was the rate they 
 could get on very well, but that when the rate 
 was raised to 10 per cent, it was destruction to 
 their trade." 
 
 It is for those who object to restrict the Bank 
 of England from exacting a higher rate of in- 
 terest or discount than 4 per cent, to state their 
 reasons for such objection. 
 
 The Government must now see the necessity 
 of meeting this Question with a little common 
 sense, and on official responsibility. 
 
 All Banks should be equal in the eye of the 
 law. 
 
 One bank only should be authorised to issue 
 notes, and, in return for this privilege, the maxi- 
 
MONET PANICS. 127 
 
 mum rate of interest and discount for that Bank 
 should be 4 per cent. 
 
 The whole profit of such issue should belong 
 to the Government, and the Government should 
 be responsible for the notes issued. 
 
 The monopoly would then be in the State for 
 the benefit of the community. 
 
 All Banks alike would then be subject to the 
 same restrictions. 
 
 As the Royal Mint is for the coin of the realm, 
 so the Bank of England would be for the Notes 
 of the State, for, theoretically and practically, the 
 Mint is a Royal or State establishment, notwith- 
 standing it is open to all who bring bullion to 
 be coined, and the difference between bullion and 
 paper makes all the difference in this question. 
 
 The Bank of England would be the National 
 reservoir of the notes, but subject to the restric- 
 tions and conditions imposed by the State. 
 
 The State could have no other control over 
 the issues. . 
 
 The Bank of England would have none of the 
 profits of the issues, beyond the ordinary profits 
 of banking, and against the exclusive privilege of 
 issue, would be the 4 per cent, maximum rate of 
 interest and discount for the Bank of England, 
 leaving all other banks free to discount and lend 
 at their own rates. 
 
128 THE BANK 01' ENGLAND. 
 
 Thus, as regards banking, alj the banks would 
 be, substantially, on equal terras. 
 
 The Bank of England, as the National reser- 
 voir of the notes, the Credit Money of the State, 
 would hold a commanding influence, but that in- 
 fluence could be exercised only for the public 
 good, not for the private benefit of the Bank of 
 England. 
 
 The privilege conferred on the Bank of Eng- 
 land would be so little for the benefit of the 
 Bank, that the whole of the advantages which 
 the Bank would derive from its customer, the 
 State, would barely compensate for the loss of 
 profits, which the limited and restricted privilege, 
 so conferred, would of necessity involve. But 
 the compensation, whatever that may be, must 
 be made certain and sufficient, and must be paid 
 by the State, not partially and precariously, as at 
 present, by the commercial community. 
 
 The Bank of England, thus constituted, would 
 be a National Establishment for the Organisation 
 of Credit in England. 
 
 To show on what safe and easy terms this 
 great national benefit may be secured is the ob- 
 ject of the following chapters. 
 
139 
 
 CHAPTER VI. 
 
 THE BANK ACTS. 
 
 It will be convenient now, for some readers, to 
 take a short review of the Bank Acts, commen- 
 cing with the Bank Restriction Act, passed 
 3rd May, 1797. The following are the princi- 
 pal features of this Act : — 
 
 1. That the Bank should not be compelled by 
 any Action at Law to pay its Notes on demand, 
 otherwise than in its own Notes, and the Bank had 
 power to apply to the Court to stay proceedings. 
 No costs were allowed in the Action against the 
 Bank, unless the Court were of opinion that the 
 Action was brought to ascertain the amount of 
 the debt demanded. 
 
 2. The Bank to issue Cash only for sums less 
 than 20s. and for the services of the Army, Navy, 
 or Oi'dnance, by an Order in Council. 
 
 3. The Bank not to issue any money in Cash, 
 or Notes, by way of loans or advances to Go- 
 vernment. 
 
 4. The Bank - may receive sums of money not 
 
 K 
 
130 THE BANK OF ENGLAND. 
 
 under £500, and engage to pay three-fourths in 
 Cash of the sum deposited. 
 
 5. A sura not exceeding £100,000 may be 
 advanced for the accommodation of the persons 
 dealing as Bankers in London and Westminster, 
 and the Borough of Southwark, in such manner 
 as the Governor and Company shall deem expe- 
 dient. 
 
 6. To the Bank of Scotland, and the Royal 
 Bank of Scotland, £25,000 cash may be ad- 
 vanced to each. 
 
 7. Payment in Notes to be considered pay- 
 ment in Cash, if accepted as such. 
 
 8. The Public Revenue to be received in Bank 
 Notes by Collectors of the same, except in sums 
 less than 20s. or fractional parts of a pound. 
 
 9. The Bank may pay in Cash by giving five 
 days' notice Jo the Speaker of the House of 
 Commons. 
 
 It is remarkable that in this Act no provision 
 was made for rendering the Notes of the Bank 
 of England a legal tender, probably from the hos- 
 tihty which at that time existed against the in- 
 troduction of such a principle. 
 
 The Bank Act Of 1819. 
 
 The following is an Abstract of the Act of 
 1819, commonly known as Sir Robert Peel's 
 
THE BANK ACTS. ' 131 
 
 Act, from the influence which he exercised in 
 passing it through ParHament. But it will be 
 seen that, as it had reference only to the Bank 
 of England, it could, therefore, exercise very little 
 influence over other Banks of Issue, either as 
 regards their solvency, or, what is called, the 
 general convertibility of the bank notes. 
 
 This Act, 59 Geo. III. c. 49, passed 2nd July, 
 1819, continues the restrictions contained in 
 several Acts on payments in Cash by the Bank 
 of England, until the 1st May, 1823, and pro- 
 vides for the resumption of Cash payments, and 
 permits the exportation of Gold and Silver. 
 
 Sect. 1. Sets forth the object of the Act, and 
 continues the restriction of Cash payments by 
 the Bank until the 1st May, 1823, and after that 
 date the Bank to resume payments in Cash. 
 
 Sect. 2. Requires the Bank to pay its Notes in 
 gold, on demand, at the rate of £4. Is. per ounce, 
 from 1st February to 1st October, 1820. 
 
 Sect. 3. Requires the Bank to pay its Notes in 
 gold, on demand, at the rate of ^£3. 19s. Qd. per 
 ounce, from 1st October, 1820, to 1st May, 1821. 
 
 Sect. 4. Requires the Bank to pay its Notes 
 in gold, on demand, at the rate of £3. lis. lO^d. 
 per ounce from the 1st May, 1821, to the 1st 
 May, 1823. 
 
 Sect. 5. The Bank is permitted to pay its 
 
 K 2 
 
132 THE BANK OP ENGLAND. 
 
 Notes in gold, on demand, at a less rate than 
 £4. Is. Od. per ounce, from the 1st February to 
 1st October, 1820, and between the 1st October, 
 1820, and the 1st May, 1821, at less than 
 £3. 19*. 6d.,hut not less than £3. I?*. lO^d. per 
 ounce, by giving three days' notice in the London 
 Gazette, specifying the particular rates at which 
 the payments shall be made. 
 
 Sect. 6. Payments only to be made in ingots, 
 or bars, of 60 ounces of standard fineness. 
 
 Sect. 7. Sums of less than 40s. to be paid in 
 Silver Coin. 
 
 Sect. 8. The Bank may pay in the coin of the 
 realm from 21st May, 1822. 
 
 Sect. 9. The Bank is required to deliver weekly 
 Accounts to Government, and to publish Quar- 
 terly statements of its Accounts in the London 
 Gazette. 
 
 Sect. 10. The gold and silver coin of the realm 
 may be melted down, manufactured and ex- 
 ported without any restriction or penalty, 
 
 Sect. 11. All the Acts which prohibited the 
 melting or exportation of gold and silver, from 
 the 9th of King Edward the Third, to the 13th 
 and 14th of Charles the Second, are repealed. 
 
 Sect ] 2. Oaths respecting the export of silver, 
 and so much of the Act 6 and 7 William the 
 Third, as prevented persons, not being a trading 
 
THE BANK ACTS. 133 
 
 Goldsmith, or Refiner of silver, from buying or 
 selling silver bullion under a penalty of six 
 months' imprisonment, are abolished. 
 
 Sect. 13. Clipping or diminishing the Coin of 
 the Realm, to be subject to penalty. 
 
 The Bank Act, 3 & 4 Will. IV., c. 98. 1833. 
 
 By this Act the Bank Charter was renewed in 
 1833, and extended to 1855, but with a pro- 
 viso that it should cease in August, 1846, upon 
 12 months' notice being given, and repayment of 
 the Debt due by the State. 
 
 Several important changes were introduced 
 by this Act. By the 3rd Section, the exclu- 
 sive privilege of the Bank, with regard to part- 
 nership exceeding six persons, was abolished. 
 Persons discounting Bills of Exchange or Pro- 
 missory Notes, were not to be subject to the 
 penalties of the Usury Laws. Bank of England 
 Notes were first made a legal tender for all sums 
 above £5, except at the Bank or its Branches, so 
 long as it continued to pay its Notes on demand 
 in ffold coin. Country Joint Stock Banks were 
 first allowed Agents in London. By this Act one 
 fourth of the debt due to- the Bank, namely, 
 £3,676,700, was to be paid ofi", which was effected 
 by a transfer of £4,080,000, in 3 per Cent. Re- 
 duced Annuities for the amount. The Bank 
 
134 THE BANK 0¥ ENGLAND. 
 
 was also to deduct £120,000 per anDum from 
 the charge of managing the Public Debt. The 
 Accounts were, in pursuance of the Act, to be 
 published quarterly in the London Gazette. 
 
 The Bank Charter Act Op 1844, 7 & 8 Vict. 
 c. 32. 
 By this Act the Bank Charter was again re- 
 newed for a period of ten years, on 12 months' 
 notice being given after the 1st August, 1855. 
 This Act can scarcely be said to refer simply to 
 the "privileges'' of the Bank alone, — inasmuch 
 as it contains clauses which completely changed 
 the entire monetary system of England. The 
 professed object of these changes, as stated by 
 Mr. Henry Goulburn, then Chancellor of the 
 Exchequer, was " to prevent as much as possible, 
 fluctuations in the currency, of the nature of 
 those which have, at diflerent times, occasioned 
 hazard to the Bank, and embarrassment to the 
 country." But the principal alteration in the Act 
 was, the separation of the Issue, from the Banking, 
 Department, an alteration which has, to the pre- 
 sent moment, given rise to the most varied 
 opinions amongst those who oppose, and those 
 who support, the measure. 
 
 That the Act has failed to prevent fluctuations 
 in the currency it needs no argument to prove. 
 
THE BANK :ACTS. 135 
 
 for, in the crisis of October, 1847, this sepa- 
 ration of the Bank into two Departments was 
 thoroughly tested, and, as admitted by Mr. 
 Morris, the Governor of the Bank, in his evi- 
 dence before the Lords' Committee, although 
 the Bank held £8,439,000 in bullion, and a 
 reserve of £1,600,000 in notes, on the 30th of 
 October, 1847, had the Bank been called upon 
 for notes beyond that amount, it must have 
 stopped payment, [Lords' Report, Question 22], 
 notwithstanding the large amount of bullion in 
 its coffers. 
 
 The Government Letter was addressed to the 
 Governor and Deputy Governor of the Bank of 
 England, by Lord John Russell, Premier, and 
 Sir Charles Wood, Chancellor of the Exchequer, 
 dated. Downing Street, October 25th, 1847. 
 
 By this Act the power of the Bank to issue its 
 Notes was regulated as follows, namely, that a 
 sum, equal to £14,000,000, should be issued on 
 Government securities, of which the debt due to 
 the Bank, amounting to £11,015,100 should form 
 a part, and the remainder to consist of other 
 securities, amounting to £2,984,900 ; any excess 
 of this sum in the Issues to be represented by 
 gold and silver coin and bullion, the proportion 
 of the latter to be only one-fourth of the whole 
 amount of the metallic security. 
 
136 THE BANK OF ENGLAND. 
 
 The form of the Weekly Account to be ren- 
 dered by the Bank is given in the Act. By this 
 form, the " Notes Issued " on the debit side of the 
 Issue Department is calculated to mislead ; for it 
 does not represent the notes actually in circula- 
 tion, but, simply, the extreme limit of the power 
 to issue at such a date. The form does not ex- 
 hibit the Notes actually in the hands of the 
 public, except by an operation of figures, taken 
 from the Banking Department, whereon the Credit 
 side will be found, " Notes £ — " which, if sub- 
 tracted from the " Notes Issued," leaves £ — • 
 the sum in the hands of the Public. As the 
 Bullion in the Issue department diminishes, the 
 " Notes " in the Banking Department diminish 
 also ; and hence the alarm at this last item when 
 reduced to a low figure ; and it has been consi- 
 dered by the highest authorities that the placing 
 of the Bullion in the Issue Department, against 
 the £14,000,000, which ought to be balanced by 
 the Bank Debt and Government Securities, is a 
 great error, and one calculated to create great 
 alarm about the bullion when no danger exists. 
 
 The Act also limits the Issues of all existing 
 Banks to a fixed amount, according to an average 
 of twelve weeks preceding the 27th April, 1844, 
 under a penalty of forfeiting a sum equal to the 
 excess. 
 
THE BANK ACTS. 137 
 
 No new Banks of Issue can be established, 
 and any Banker ceasing to issue his own notes 
 cannot re-issue such notes. 
 
 The Bank to allow a deduction of £180,000 
 per annum from the charge of managing the 
 Public Debt. 
 
 These are some of the principal features of 
 the Bank Act of 1844, of which the following 
 is an Epitome : — 
 
 The Bank Charter Ad of 1844, 7^8 Vict. c. 32. 
 
 An Act to regulate the Issues of Bank of 
 England Notes, and for giving to the Governor 
 and Company of the Bank of England certain 
 privileges for a limited period. [12th July 
 1844.] 
 
 1. Preamble. 
 
 2. The separation of the Issue from the 
 Banking Department, to commence on the 31st 
 of August, 1844. 
 
 3. The proportion of Silver Bullion to Gold, 
 not to exceed one-fourth. 
 
 4. All persons may demand notes for gold 
 bullion, at £3. 17s. ^d. per ounce. 
 
 5. The Bank may increase securities in the 
 Issue department, and issue additional Notes 
 equal to one-third of Country Notes, ceased to 
 be issued. 
 
138 THE BANK OF ENGLAND. 
 
 6. Weekly returns of the Bank to be pub- 
 lished. 
 
 7. The Bank to be exempt from Stamp Duty, 
 or Composition on their Notes. 
 
 8. The Bank to deduct £180,000 per annum, 
 on the charge for the Public Debt. 
 
 9. The Bank to allow the profits on increased 
 circulation to the Government. 
 
 10. New Banks of Issue prohibited. 
 
 11. Restrictions upon Banks of Issue. 
 
 12. Bankers ceasing to Issue cannot re-issue 
 their notes. 
 
 13. Limitation of Bank Issues to a fixed 
 amount. 
 
 14. 15, 16, Sect, regulate the union of Bank 
 partnerships. 
 
 17. Penalty on Banks issuing in excess. 
 
 11. Issuing Books to render Accounts. 
 
 19. Mode of ascertaining the average amount 
 of Bank Notes of each Banker in circulation 
 during the first four weeks after the 10th Oc- 
 tober, 1844. 
 
 Banks Of Ireland Act, 1845, 8 & 9 Vict. 
 CAP. 87. 
 
 The principal features in this Act are as 
 follows : — 
 
 Sect. 5. Repeals 33 Geo. II. c. 14, s. 15, so 
 
THE BANK ACTS. 139 
 
 far as prohibits public officers from being part- 
 ners in Banks. 
 
 Sect. 6. Bank of England notes not allowed 
 to be a lec/al tender in Ireland. 
 
 Sect. 8. No Banker, who was issuing his own 
 Notes on the 6th May, 1844, and on the 1st 
 May, 1845, allowed to exceed the average 
 amount of Notes he had in circulation during 
 the year preceding the 1st May, 1845, allowed 
 to exceed the. average amount of Notes he had 
 in circulation during the year preceding the 1st 
 May, 1845, such circulation to be certified by 
 the Commissioners of Stamps, and after that 
 date no uncertified Banker allowed to issue Bank 
 Notes in Ireland. 
 
 Sect. 12. Banks permitted to relinquish their 
 Notes in favour of the Bank of Ireland by an 
 Agreement in writing, and the Bank allowed to 
 increase its Issues to the same amount, exclusive 
 of gold and silver coin. 
 
 Sect. 13. No Banker having relinquished the 
 right to issue Notes can resume his Issues. 
 
 Sect. 16. Every Issuing Bank to render 
 weekly accounts to the Conunissioners of Stamps 
 and Taxes, distinguishing the Notes of £5 and 
 upwards from those below that value ; and also 
 to deliver an account of the total amount of gold 
 and silver coin held at the head office, etc. 
 
140 THE BANK OF ENGLAND. 
 
 # 
 
 Sect. 18. The Commissioners of Stamps and 
 Taxes to make monthly returns of every Bank 
 of Issue, containing the average amount of no'tes 
 in circulation, and also of the amount of gold 
 and silver coin held by each Banker, and publish 
 the same in the Dublin Gazette. 
 
 Sect. 20. The amount of Silver Coin not to 
 exceed one-fourth of the gold coin held by such 
 Bankers ; and no Bankers to issue notes on 
 silver to a greater extent than one;fourth part of 
 the gold coin. 
 
 Authorised Issues of Irish Banks, £6,354,41)4. 
 
 Banks In Scotland Act, 1845, 8 & 9 Vict. 
 CAP. 31. 
 
 By this Act, passed in 1845, the Scotch Banks 
 of Issue were assimilated to the Banks of Issue 
 in Ireland, by fixing a limit to their authorised 
 Issues, based on an average amount of Notes in 
 circulation during the year preceding the 1st 
 May, 1846, such amount not to be exceeded, 
 .except the excess of such issue be covered by 
 gold and silver coin at the head office, in the pro- 
 portion of one-fourth of silver to three-fourths of 
 gold. Only the Banks specified to issue Notes 
 under £5 ; and Bank of England Notes not al- 
 lowed to be a leffal tender in Scotland. 
 
 Authorised Issues of Scotch Banks £3,087,209. 
 
141 
 
 CHAPTER VII. 
 
 THE GOLD COINAGE. 
 
 The standard fineness of the gold sovereign is 
 22 carats out of 24, the representative of fine 
 gold, or ll-12ths of fine gold, and l-12th of 
 alloy ; and the standard weight of the same coin 
 is 123'274 grains troy, vphich constitute the 
 money integer in which all values are reckoned ; 
 the quantity of fine gold in the sovereign is, 
 therefore, llS'OOl grains troy. This standard 
 of weight and fineness, to represent the pound, 
 was fixed by Sir Isaac Newton in 1717, when 
 Master of the Mint. 
 
 It is a common error to consider these regula- 
 tions as a " standard of value ;" whereas, they 
 only constitute a standard measure iov estimating 
 the relative value of different things compared 
 'with gold. 
 
 The common expression " Mint Price," is a 
 term equally vague and uncertain. There is no 
 such thing as Mint price, applicable either to 
 gold or silver. The Mint authorities, in their 
 
142 THE BANK OK ENGLAND. 
 
 management of the Coinage, are simply autho- 
 rised to coin a given weight of bullion, either 
 gold or silver, of a specified fineness, into a cer- 
 tain number of pieces of a given denomination, 
 according to regulations laid down in a docu- 
 ment called the " Mint Indenture." It is this 
 that gives to all the coins a certain fixed legalized 
 value, as currency, which can never be departed 
 from but by the authority of parliament. 
 
 Many attempts have been made by different 
 Statesmen and others to preserve a uniform value 
 between the coin and the bullion from which it 
 is manufactured, but without effect, as the no- 
 minal value, given to com in one country, ceases 
 to exist the instant it enters another country; 
 and it is estimated only by the quantity of fine 
 metal contained in it. 
 
 The market price, and the Mint value of coins, 
 therefore, simply indicate their actual value as 
 bullion in the first case, and their nominal value 
 as coin in the second; and as long as both are 
 allowed to be freely exported and imported from 
 one country to another, this distinction will al- 
 ways exist. 
 
 Gold is, therefore, properly made our legal 
 tender for any sum above 40s., and as the £5 
 Bank of England Note represents 5 gold sove- 
 reigns, and promises to pay that amount of gold 
 
THE GOLD COINAGE. 143 
 
 ■ 
 
 on demand, gold is, therefore, not only the basis 
 of our monetary system, but also of the credit 
 currency of the country. The importance, 
 therefore, of making this basis as secure as it 
 can be made, cannot be too highly estimated, 
 and to withhold any aid which can be given to 
 this security is a manifest departure from the 
 avowed object and policy. 
 
 Now, it will be shown that this object and 
 policy have- been departed from by preventing 
 silver from being brought in more fully to aid 
 and strengthen the basis of gold, and that the 
 credit currency of the country has thereby been 
 greatly and injuriously restricted. 
 
 That the fundamental principle of the con- 
 vertibility of the Bank of England Note into 
 gold is established and carried out by the Act of 
 1844, is admitted. 
 
 Bank of England notes to the amount of 
 £14,000,000 (now £15,000,000) are guaran- 
 teed by a like amount of Government Securities 
 pledged for their protection, and all Bank of Eng- 
 land notes beyond that amount are secured by an 
 equal amount of precious metal, ready to be pro- 
 duced at a moment's notice, and to be paid over to 
 any holders of notes claiming their redemption. 
 
 For this credit circulation of notes there is 
 no anxiety, long experience having established 
 
144 THE BANK OF ENGLAND. 
 
 li 
 
 no fact that, the amount of Bank of England 
 notes in constant circulation is never so low 
 as £16,000,000, and, therefore, that for this 
 amount, at least, gold will never be demanded. 
 
 The important question, then, is, whether or 
 not the fixed Hne or limit for the issue of Credit- 
 notes be correctly drawn at £15,000,000. 
 
 If £14,000,000 were the correct limit in the 
 year 1844, £15,000,000 can hardly be the cor- 
 rect limit in 1&67, when the Trade and Expen- 
 diture of the Country are nearly doubled. 
 
 The limit must have been too high for 1844, 
 or too low for 1867, or, more probably, too low 
 for both periods. 
 
 But, what is the safe rule for fixing the limit ? 
 
 The answer is, — the depreciation of the bank- 
 note. 
 
 But how is that to be proved ? 
 
 The answer is, — by the gold leaving the 
 country. 
 
 And what does all this come to ? 
 
 Simply this: — That the limit for the issue of 
 Credit-notes is correctly fixed when the amount 
 meets the requirements of the country, and the 
 notes do not depreciate. 
 
 . Now, the contrivance of the Issue Department, 
 separate and distinct from the Banking Depart- 
 ment, may be likened to an Automaton moved by 
 
THE GOLD COINAGE. 145 
 
 machinery, acting with the same regularity and 
 with no more discretion. It provides for the 
 safety of the Bank, bat not for the requirements 
 of the country ; it prevents the Bank of England 
 from becoming insolvent, though it does not 
 prevent it from stopping payment ; and it makes 
 insolvent multitudes who are engaged in legiti- 
 mate trade and enterprise, but are deceived by 
 the legerdemain movements of this Automaton 
 into looking to the Bank of England for the help 
 which it cannot give. The Automaton, that is, 
 the Issue Department, has no discretion, and the 
 Banking Department has no power; and so, 
 between the two, the honest trader and the en- 
 terprising speculator are led on to their ruin. 
 This is called the wholesome correction of over- 
 trading, a vague and unmeaning expression, as it 
 is generally used. 
 
 The absurdity consists in confining the Issue 
 Department to a mechanical movement in which 
 there can be no discretion, the machine being 
 so constructed that, when sovereigns are dropped 
 in, the like amount in Bank Notes is given out ; 
 and when Bank Notes are delivered in, the like 
 amount of Sovereigns is dropped out. There 
 might be good reason for the fixed action of this 
 machine, if the circumstances which brought it 
 into action were always the same, but to suppose 
 
 L 
 
146 THE BANK OF ENGLAND. 
 
 that the same action can be equally applicable to 
 different circumstances is as much opposed to 
 common sense as to all experience. For instance, 
 when the amount of the Banking reserve is so 
 low as to create a panic in the Money Market, 
 the mechanical hand of the Automaton holds 
 with inflexible grasp the bank-notes which are 
 wanted, and that grasp can be relaxed only by 
 gold which is not wanted. And again, when the 
 stock of bullion is so large that the amount of 
 Notes in circulation is redundant, suddenly the 
 bullion is taken out to be shipped to the foreign 
 market, and as suddenly the Notes are seized 
 and held fast by the mechanical hand of the 
 Automaton. 
 
 Then comes another money-panic, and in either 
 case it is stopped only by the sudden rise in the 
 rate of discount, and the consequent loss to the 
 trade of the country, and the ruin of many con- 
 cerned in it. 
 
 Now, in the first instance, if the banking 
 reserve could be strengthened by a supply of 
 notes to meet the demand ; and, in the second 
 instance, if the notes in excess of the demand 
 were gradually withdrawn until the efflux of gold 
 ceased, in both these instances the money-panic 
 would be avoided. 
 
 Here is discretion required which Bank Direc- 
 
THE GOLD COINAGE. 147 
 
 tors may be safely entrusted to exercise, but which 
 can never be exercised by any mechanical con- 
 trivance. 
 
 It is a great mistake to suppose that gold is or 
 ever will be wanted in this country in any consi- 
 derable quantity as money; as long as this country 
 maintains its pre-eminent position in commerce 
 and the power of obtaining gold when it is 
 wanted. 
 
 There never has been any want of gold in this 
 country since the resumption of Cash-payments 
 in 1819. 
 
 The want has always been of bank-notes con- 
 vertible into gold on demand. 
 
 The want of gold has never been as money, but 
 as a commodity, or article of merchandise. 
 
 All that we have to do, and all that we can do 
 prudently, to keep the needful supply of gold in 
 this country is, to keep the price of gold as steady 
 as we can in the general market, and that is to 
 be done only by preserving, as nearly as may be, 
 the equilibrium of value between British and 
 Foreign Money. 
 
 As long as the Bank of England Note is the 
 representative of the gold coin of the realm, and 
 known to be convertible into gold on demand, 
 the power of the Bank of England to obtain 
 supplies of gold in the open market at all times 
 
 l2 
 
148 THE BANK OF ENGLAND. 
 
 will be maintained by a large banking reserve, 
 beyond the influence of capitalists and specu- 
 lators, when controlled and regulated by intelli- 
 gent, experienced, and impartial Directors. It 
 may often be necessary to reduce the amount of 
 bank-notes in circulation ; but all money-panics 
 have been increased in intensity by too great and 
 sudden a contraction of the currency, and by the 
 sudden and enormous rise in the rate of discount. 
 With a large banking-reserve, supported by a 
 large and independent real capital, and under 
 judicious management, the ordinary bank-rate of 
 discount would be between 2 and 3 per cent, 
 and would rarely exceed 4 per cent., and then' 
 only under extraordinary combinations of poli- 
 tical or natural causes. 
 
 A bad harvest causes a sudden and large im- 
 portation of corn, for which, usually, the payment 
 is in gold. At such a season the exchange of 
 notes for gold will be at its largest. But, take 
 the case of an abundant harvest, safely garnered. 
 Can it be wise to require the same stock of gold 
 to be kept in the Bank of England, when it is 
 known that the gold will not be wanted, as when 
 all the exchanges of corn-growing countries were 
 enforcing remittances in gold ? 
 
 Such a proceeding would be opposed to uni- 
 versal practice in all the ordinary transactions of 
 
THE GOLD COINAGE. 149 
 
 life ; and any attempt to fix a reserve which shall 
 fluctuate precisely with the fluctuating wants of 
 the community is manifestly beyond the power of 
 human foresight and design. All that can be 
 wisely done is to allow an ample margin to meet 
 present wants and probable contingencies, to be 
 from time to time enlarged or reduced as altered 
 times and circumstances require. 
 
 No mechanical contrivance can be a rational 
 agent or a safe instrument for the issue of bank- 
 notes as the currency of a country, nor was 
 there ever any ground to justify such an absurd 
 attempt. It is impossible to maintain that there 
 was any such ground in the face of the fact 
 that, the Bank of England, from the year 1819, 
 to the year 1844, did so manage its notes that, 
 they never suffered a moment's depreciation, and 
 all through that period supplied this country 
 with a perfectly convertible, safe, and confidently 
 trusted currency of paper; and that a highly- 
 developed currency of notes in Scotland, founded 
 on an exceedingly slender reserve of gold, had 
 been doing its work with uninterrupted success 
 for more than a century, effecting an unrivalled 
 economy of expensive coin, and intensely valued 
 by the population.* Theorists may say that the 
 
 * " The Bani Charter Act." — Some and Foreign Eeview, 
 No. 8, page 414 et seq. 
 
150 THE BANK OP ENGLAND. 
 
 convertibility of the Bank Note was in great 
 clanger at various times, and that the paper notes 
 of Scotland were inadequately sustained, but the 
 facts refute the charges. Every practical witness 
 declares that, never, since Cash payments were 
 resumed, has the Bank of England Note been 
 held in less estimation than the sovereign ; and 
 that, at no time, since that period, has the pubHc 
 preferred gold as safer than the note. The Bank 
 of England has often been severely pressed to 
 supply money to claimants; but the difficulty 
 has been as much in finding notes as gold, and 
 the public was indifi'erent which of the two they 
 carried away. The supply of Notes was insuffi- 
 cient to meet the demand and to keep up a suit- 
 able reserve. There never was a greater run 
 upon the Bank than in the year 1825, and then 
 the stoppage of the Bank was saved by the lucky 
 discovery of one million of unburnt one pound 
 notes. These were eagerly taken by the public, 
 and proved to be the equal and the match of 
 gold. Great authorities have said that the bank- 
 note was then exposed to imminent peril ; but the 
 very reverse is the truth. The bank-note then, 
 as now, or at any period since 1819, has never 
 been exposed to the slightest risk of deprecia- 
 tion. This fact is the assurance that the solvency 
 of the responsible issuer is a complete guarantee 
 
THE GOLD COINAGE. 151 
 
 for convertibility ; and it is confirmed by expe- 
 rience, that the Bank of England and the Bank 
 of Scotland have been found to be solvent and 
 responsible issuers. Therefore, if the' Bank Act 
 of 1844 have made a solvent and convertible 
 currency, the Bank of England and the Bank of 
 Scotland have done the same before.* 
 
 If the state of the bullion in the Bank in 1825, 
 1847, 1857, and at other periods of alarm, be 
 referred to, and if it be said that the note vi^as 
 brought to the border of the precipice, and the 
 country within the danger of the suspension of 
 cash payments, the inference is wrong. The 
 true answer is, see with how little gold the note 
 circulation of the Bank of England was and can 
 be sustained. Amidst the terror of traders and 
 the crash of falling firms, when panie convulsed 
 every mind, and the strongest houses trembled 
 for existence, when money was not to be had, 
 discount not to be bought, the rate of interest 
 rising, and the whole City on the verge of ruin, — 
 one thing, and one thing only stood unshaken. 
 Bank Directors had lent away all their deposits ; 
 the Bank reserve was gone ; commerce in vain 
 shrieked for more rehef ; the Bank tottered to its 
 foundation; but its note never lost the public 
 confidence for one instant. No one asked for 
 gold when the note was offered. 
 
 * Ihid. page 415 et seq. 
 
152 THE BANK OV ENGLAND. 
 
 Why was this ? 
 
 Because the note was the mere instrument of 
 currency for the transfer of debt or commodities ; 
 and because the solvency of the note was un- 
 questioned, the number in circulation being in no 
 excess over the daily requirements of the public, 
 and the note being in no way dependent on 
 banking and its incidents, its prosperity or its 
 disasters. 
 
 No measure, therefore, was needed to secure 
 the convertibility of the bank-note, which was 
 never in danger, being as secure before 1844, as 
 it has been ever since. All the danger has arisen 
 from the smallness of the Bank's reserve for 
 banking and currency liabilities conjoined. The 
 portion required for paying notes on demand was 
 ample for that purpose, but small in comparison 
 with that which remained, which was much too 
 small for the banking business. It w^as that in- 
 adequacy which caused all the agitation and all 
 the danger, that danger threatening the Bank in 
 its banking affairs only. The danger was in the 
 small reserve of notes, not in the stability of the 
 note. If a few millions more of notes had been 
 held in the Banking reserve, the cry of danger 
 would never have been heard. 
 
 Upon the ground assumed by the framers of 
 the Act of 1844, it is clear that the line should 
 
THE GOLD COINAGE. 153 
 
 have deen drawn at sixteen millions, and not at 
 fourteen millions. 
 
 But why should the Banking reserve be re- 
 duced for securing the convertibility of the Bank 
 note which has never been brought into ques- 
 tion, even when, for this purpose, there was no 
 reserve at all? 
 
 Under the pressure of a h^avy export of gold, 
 the stock of gold in the Issue Department has 
 sunk to eight millions, and once to a little only 
 above six millions. Lord Overstone thinks eight 
 millions a very proper amount. But this is, in 
 fact, an extravagant waste, justified neither by 
 reasoning nor by experience. 
 
 Por what, but banking purposes, is any re- 
 serve of gold required ? 
 
 To secure the convertibility of the note. 
 
 Why is convertibility demanded ? 
 
 To prevent the depreciation of the note : — to 
 guard it against discredit : — to protfeet it from 
 discount : to keep it on equality with gold. 
 
 But that is, already done without any reserve 
 of gold. That is effectually done by the Govern- 
 ment guarantee. The proof was seen when the 
 mixed banking and currency reserve stood as low 
 as three millions, or even one million. 
 
 Since the resumption of Cash payments in 
 1819i the Bank of England note has never 
 
154 THE BANK OF ENGLAND. 
 
 suffered discredit or depreciation. Tiie notes 
 were known to be issued by a solvent bodj, and 
 to circulate only in sucli numbers as required to 
 satisfy the actual wants of the public for effecting 
 their ordinary transactions, and the pubHc were 
 willing to hold those notes, and not to send them 
 in for payment, as long as the number did not 
 exceed the want, simply for their usefulness, as 
 convenient instruments for effecting their ordi- 
 nary transactions in buying and selling, instead 
 of exchanging. 
 
 In the face of such facts and all experience, it 
 is nothing but an idle waste of an enormous 
 sum of public money to keep such a reserve as 
 is kept, or any reserve, for the mere purpose of 
 securing the convertibility of the note, which is 
 already secure, and has never been questioned. 
 
 The danger alleged by Lord Overstone and 
 his party is a mere, bugbear to frighten those who 
 understand little or nothing about this .question, 
 and who still associate the large combined re- 
 serve of former days, for the double purpose of 
 banking and currency, with the single object of 
 providing for the currency alone. 
 
 Eight millions may be a proper or even a low 
 figure for the banker's reserve of the private 
 corporation of the Bank of England ; but it is 
 a sheer waste in the cellars of the Bank, for 
 
THE GOLD COINAGE. 1.55 
 
 securing the convertibility of the Bank notes 
 only. 
 
 It may be safely left to the Directors of the 
 Bank of England, as it is left to the managers 
 of all other Banks, to determine what amount 
 of gold is needful to be held in reserve for their 
 Banking purposes. Probably they will come to 
 the conclusion that two millions of sovereigns 
 will be an ample reserve for all their purposes. ' 
 
 When we see, as we have seen, that in the 
 worst times of pressure on the Bank for gold in 
 exchange for notes, the reserve does not sink 
 below a million of sovereigns still at command 
 in the Issue Department, what further evidence 
 can be required to show that a large reserve is 
 mere waste ? What possible end can a larger 
 supply secure ? 
 
 But if the gold in the Bank of England be 
 exhausted ? What then ? Will the Bank of 
 England be in a worse situation than any other 
 Bank in like circumstances ? 
 
 Nothing of the sort, A most efficient remedy 
 is at hand, ready for instant application. Sup- 
 pose forty millions of Consols, or other Govern- 
 ment Securities, at the command of the Bank, 
 and then nothing would be more easy than to 
 sell a million or two of stock, and thus, procure 
 gold or notes from the open market. 
 
156 THE BANK OF ENGLAND. 
 
 That this country will always hold a large 
 amount of so convenient a currency as Bank- 
 notes is certain. But suppose every note sent 
 in for payment. What then? 
 
 Sale of the Consols. Nothing more. 
 
 And if it took a little time to get together so 
 large a quantity of gold ; what then ? 
 
 Wait a little time. Nothing more. The 
 Bankers would not lose anything. Nobody 
 would lose anything. This would be no money- 
 panic. This would aflfect no legitimate traders. 
 It would affect only the speculators in gold, — 
 the conspirators against the currency, — and the 
 loss would be on them. The Bank-note would 
 be as sound and as safe as ever. 
 
 But this is only meeting an absurd hypothesis 
 with an absurd and impossible example. Twenty- 
 two years have now elapsed since the Issue De- 
 partment of the Bank of England was entrusted 
 with the uncontrolled management of the issue 
 of Bank notes, beyond the amount of the credit 
 issues, and during that period the City has been 
 convulsed, in 1847, 1857, and 1866, by three of 
 the severest commercial pressures on record ; but 
 never once has the bullion descended to six 
 millions. Six millions of the original gold on 
 which the Issue Department was opened have 
 reposed undisturbed in the vault in which it was 
 
THE GOLD COINAGE. 157 
 
 then deposited. Not an ingot has been dis- 
 turbed. The whole has remained in that vault, 
 and of no more use or value to mankind than when 
 imbedded in the rocks of California or Australia. 
 If such facts and reasoning fail to make manifest 
 the monstrous absurdity of the present system, 
 further reasoning is only a waste of time, and 
 the change must be left' to be effected by the ne- 
 cessity which time and further experience will 
 show, and that experience will be dearly paid 
 for. 
 
 What the People are now paying for their ex- 
 perience is a very simple calculation. 
 
 If £8,000j000 be a satisfactory minimum for 
 the store of bullion, as Lord Overstone says it 
 is ; and if £2,000,000 be a satisfactory minimum, 
 as here shown to be ; the question raised is upon 
 £6,000,000 at the least, or £300,000 a year, at 
 5 per cent. 
 
 But if these £6,000,000 can be 'sold abroad 
 ■for their equivalent in food, clothing, and raw 
 materials for the laborers of England it is not too 
 much to say that capital applied to average in- 
 dustry yields a profit greatly more than 30 per 
 cent, in the wages to laborers, and in the several 
 profits of the many hands through which a com- 
 modity passes before it is finally consumed. But 
 taking it at 30 per cent, only, and on £6,000,000 
 
168 THE BANK OF ENGLAND. 
 
 only, we have £1,800,000, as the lowest sum 
 which, year after year the Issue Department of 
 the Bank of England costs the People of England. 
 . The principle of the Act of 1 844, in so far as 
 it separates currency from banking, is theoreti- 
 cally correct ; but, in so far as it brings the whole 
 of the currency under the fixed and immutable 
 law of the Issue Department, is both theoretically 
 and practically incorrect. This separation is re- 
 quired only for securing the convertibility of the 
 Bank note, and would not be required if the note 
 were otherwise secure. With a metallic currency 
 only, it is manifest that such separation could 
 answer no purpose whatever. Therefore, if the 
 Bank Note be otherwise secure, as it is proved to 
 be, th6 mixed currency may be regarded as if 
 wholly a metallic currency. 
 
 But, practically, it has been proved that, the 
 Issue Department, working by its inflexible law, 
 withdraws so large a portion of the mixed cur- 
 rency from circulation, — for the unnecessary pur- 
 pose of securing the convertibility of the Note, 
 already secure, — that the Banking Department 
 of the Bank of England is left with an insufficient 
 supply of currency for the necessary accommoda- 
 tion of the Trade of the country, which is there- 
 by left open to all the inconveniences of a want 
 'of currency for ordinary transactions, and also to 
 
THE GOLD COINAGE, 159 
 
 the losses consequent on the fluctuations in the 
 value of money, arising from the continual varia- 
 tions in the state of trade, further aggravated by 
 speculation in the open market in gold. , 
 
 These are evils which no irrational agency or 
 fixed mechanical contrivance, like the Issue De- 
 partment, can correct. The bank-note does not 
 belong to the Banking Department, but to the 
 Issue Department. The Bank of England has 
 no more command over the issue of bank notes 
 for the accommodation of trade, thaa any other 
 bank in the kingdom. 
 
 The Issue Department sells bank notes to all 
 comers, having first sold fourteen millions to the 
 Bank of England, and demands gold from the 
 Bank and from all the rest of the world for any 
 quantity of bank-notes which may be wanted. 
 
 Nothing can be more complete than this con- 
 trivance for securing the convertibility of the 
 bank-note ; but nobody has ever questioned the 
 convertibility of the bank-note, since it has been 
 convertible, because it has never been in danger. 
 Therefore, this contrivance fixes the amount of 
 bank-notes in circulation, as a substitute for gold, 
 at £14,000,000, (now £16,000,000,) which, if 
 the proper amount for 1844, cannot be the pro- 
 per amount for 1867. All the same reason- 
 ing for fixing that amount in 1 844, is equally ap- 
 
160 ^ THE BANK OF ENGLAND. 
 
 plicable to extending the amount to £40,000,000 
 in 1867. Not to extending it to an irrational 
 agency, but to the intelHgent and experienced 
 Directors of the Bank of England, who have no 
 more personal interest in the question than any 
 other members of the community. It is one thing 
 to provide a safe currency, and quite another 
 thing to provide banking accommodation. 
 
 The Issue Department effectually provides the 
 former, as far as it goes, but as effectually pre- 
 vents the latter ; and the great mistake of the 
 Act of 1844 is, in not providing a sufficiency of 
 bank-notes for the necessary wants of the country. 
 The Act assumes a want of gold without the 
 means of getting it ; whereas, the want has been 
 of Bank of England notes only; because, with 
 these notes there has never been any difficulty in 
 getting gold in the market, since that market has 
 been open and free to all buyers. 
 
 But it was another mistake to make the Bank 
 of England an open market to all the world for 
 buying and seUing gold, by making it compulsory 
 on the Bank of England to give its notes for gold. 
 It is one thing to make it compulsory to give 
 gold for notes, and quite another thing to make 
 it compulsory to give notes for gold. There can 
 be no good reason for making the Bank of Eng- 
 land a market for gold, especially if the Mint be 
 
THE GOLD COINAGE. 161 
 
 open and free to all (as it professes to be), to 
 bring their gold to be coined, free of charge, 
 the necessary detention and loss of interest being 
 a sufficient charge. There are many obvious rea- 
 sons against such a compulsory power upon the 
 Bank of England, which ought to be as free as 
 any other Bank to buy gold when and where it 
 pleases, and only when it pleases. 
 
 However excellent in theory may be the prin- 
 ciple of the Act of 1S44, in the separation of 
 currency from banking, yet, the details of the Act, 
 which limited the credit currency of Bank of 
 England Notes to an amount manifestly incon- 
 sistent with that principle and the necessary wants 
 of the country, have not been productive of a 
 single advantage which was not enjoyed before ; 
 and the inflexible line which was then drawn has 
 inflicted incalculable evils on the whole country. 
 If the line for the^credit issues had been so drawn 
 as to leave an ample margin, to be dealt with by 
 rational instead of irrational agency, and if that 
 line had been from time to time enlarged to meet 
 the enlarged demands of an ever increasing popu- 
 lation and trade, nothing can be imagined more 
 perfect for its objects than the Bank Act of 1844. 
 But confined as it is in its operation by inflexible 
 rules, nothing could be more fatal than this en- 
 actment has been to all benefit from the principle 
 thus carried out. m 
 
162 THE BANK OF ENGLAND. 
 
 The folly of assuming that the money-market 
 of this country can be always wisely regulated by 
 rules as unyielding as the movements of a machine, 
 has been shown by the frequent and disastrous 
 failures. 
 
 Nothing can be more unwise than to lay down 
 inflexible rules for government on any subject, 
 and, of all subjects, this is the least suitable for 
 such an attempt. 
 
 If, in former days, the Directors of the Bank 
 of England sometimes acted injudiciously as 
 Bankers, banking is now much better under- 
 stood, and it were better to take the chance of 
 their being wiser now, than to submit the direc- 
 tion of the Bank of England wholly to irrational 
 agency. It is a great cost to the country to pay 
 £1,800,000 a year for a little more theoretical 
 nicety, and a great deal less of practical benefit 
 in the management of our bank-note issues. 
 
 The public would soon learn that trade and 
 discount have no more connection with the issue 
 of notes from the Bank of England, than of sove- 
 reigns from the Royal Mint, and they would soon 
 learn to care as little for the number issued of 
 the one as of the other, when they saw an ample 
 reserve of notes in trhe Bank. When they became 
 accustomed to look upon the issue of bank-notes 
 as in no respect different from the issue of sove- 
 
THE GOLD COINAGE. 163 
 
 reigns, they would cease to feel any uneasiness 
 about the necessary supplies of either or both, or 
 about the convertibility of the note, which was 
 fully protected by securities. These securities, 
 unlike the bullion in the Bank-cellar, involve no 
 loss of capital, but yield their dividends to whom- 
 soever allotted. It is true that, these securities 
 are only Government Debts, but it is also true 
 that, these Debts are secured by the whole capi- 
 tal of the kingdom. 
 
 With respect to the restoration of the One 
 Pound Note, that is a question on which some 
 difference of opinion exists. There seems, how- 
 ever, to be no good reason for returning to One 
 Pound Notes, and the additional facility thereby 
 given to forgery, seems to be a strong reason for 
 discontinuing them. But Lord Overstone gives 
 another reason deserving of attention in the fol- 
 lowing remark : " As a general principle, I think 
 that the system established in England is unques- 
 tionably the right one ; and that it is desirable 
 that the smaller monies of the country should be 
 in the metallic form, and principally for this very 
 obvious reason, that alarm and panic are liable 
 to arise amongst those classes where the intelli- 
 gence and education are the least." 
 
 It is a common but erroneous belief that, a 
 greater amount of gold in the Issue Department 
 
 M 2 
 
164 THE BANK OF ENGLAND. 
 
 implies an increased reserve in the Banking De- 
 partment of the Bank of England, and, therefore, 
 a larger fund for che accommodation of trade. 
 This is a common notion even amongst generally 
 well-informed and commercial men. But this is 
 a mistake. The gold in the Issue Department 
 does not belong to the Bank of England, but to 
 the holders of Bank of England Notes ,• and the 
 amount of gold in the Issue Department may be 
 large or small without affecting in the smallest 
 degree the banking reserve of the Bank of 
 England. No one ever heard it said that the 
 amount of sovereigns in circulation strengthened 
 the reserve of the Banking Department, but there 
 would be as much reason for saying this, as for 
 saying that the notes, or the gold which is held 
 in close pawn for the notes, can add the smallest 
 fraction to the Bank reserve. Such a mistake as 
 this shows that the Bank Act of 1844 is not un- 
 derstood, the fact being that the Issue Depart- 
 ment is nothing but a factory, separate and dis- 
 tinct from the Bank of England, for the making 
 and selling of Bank of England Notes, not ex- 
 clusively for the Bank of England, but for all 
 Banks, all firms, and all persons, who come to 
 buy, or to exchange gold for notes, or to sell gold 
 as well as notes. The gold is the stock-in-trade, 
 and whether the stock be large or small concerns 
 
THE GOLD COINAGE. 165 
 
 only the Issue Department, and not the Bank of 
 England, any more than any private firm, in 
 which relation the Bank of England stands to 
 the Issue Department. If the stock of gold be 
 larger than is wanted, the surplus treasure must 
 be consigned to the cellar. This in no way con- 
 cerns the Bank of England, further than the loss 
 of so much capital to the country. Merchants and 
 Traders do not so deal with their capitals. If 
 they did it would be much the same thing. All 
 these are private affairs, though public losses. 
 
 There is another common delusion, which 
 invests gold with a mysterious and peculiar im- 
 portance, as if it were distinguished from all 
 other commodities by some qualities too mystical 
 to be intelligibly described. Gold is but one of 
 the infinite number of commodities, subject to 
 the same laws, obeying the same influences, 
 bought, sold, and exchanged by precisely the 
 same rules. These commodities have all their 
 peculiar usefulness when used, and, though more 
 or less costly to buy, may be equally useful, when 
 used. But of all these, there is not one which is 
 of the smallest use, unless it be used. Now, it 
 seems as if gold were considered by many to be 
 an exception to this general rule, and that its 
 chief use consisted in not using it at all. 
 
 The six or eight millions of sovereigns and 
 
166 THE BANK OF ENGLAND. 
 
 uncoined gold in the Bank cellar are considered 
 to be doing their good work best in the dark, 
 and out of human sight or touch ! 
 
 But why should this commodity be the only 
 exception to the universal law of supply and 
 demand ? 
 
 Is iron less useful than gold ? 
 
 But who advocates the hoarding of iron and 
 keeping it unemployed ? 
 
 What is the ground of fear that the supply of 
 gold in England will ever be less than the' de- 
 mand? 
 
 EngUsh exports, or English exported manu- 
 factures, far exceed the value of the foreign raw 
 materials of which they are composed ; and this 
 means that foreign countries are always indebted 
 to England. If this be so, — and nobody doubts 
 it, — where is the doubt about our getting gold 
 when we want it? The greater difficulty is in 
 getting rid of it, when we have got it. 
 
 If eight millions of sovereigns be required by 
 the Bank of England for cashing its notes pre- 
 sented for payment, let the Bank have them ; 
 but it is quite enough for the Bank to get them 
 when they are called for ; they never have been 
 called for during these last twenty years, and 
 never were wanted, or, at least, never would 
 have been wanted if notes payable in gold had 
 
THE GOLD COINAGE. 167 
 
 been supplied. But if two millions be enough 
 to meet all wants, why keep seven or eight mil- 
 lions idle and unproductive ? 
 
 This is the question to be answered. 
 
 Another common delusion is, that the Issue 
 Department makes money cheaper or dearer as 
 the circulation expands or contracts, and thereby 
 steadies prices, checks speculation, and furnishes 
 a solid basis for the calculations of the legitimate 
 trader. This assumes that sovereigns and bank- 
 notes alone form, what is called, " the circulation," 
 and that these alone are the regulators of prices. 
 
 Here again is fiction upon fiction. 
 
 Where have these philosophers learned that 
 coin and bank-notes constitute the currency of 
 the country, and that these are the regulators of 
 prices ? 
 
 What is their idea of currency and its functions ? 
 
 They seem to exclude from their idea all 
 cheques, bills, and book-credit, and yet these 
 answ^er the same purpose as coin and bank-notes. 
 When, by the withdrawal of gold for exportation 
 the number of bank-notes in circulation is re- 
 duced, the public aire compelled to use more 
 cheques, bills, and book-credit; and if bank- 
 notes were extinguished altogether, the only ef- 
 fect would be a larger use of the substitutes. 
 
 They say that prices rise when notes and 
 
168 THE BANK OF ENGLAND. 
 
 sovereigns are abundant, and fall when these are 
 deficient ; and they say thsft, the Issue Depart- 
 ment controls the circulation ; therefore the Issue 
 Department controls or regulates prices. But 
 this is an unfounded theory, contradicted by all 
 experience. 
 
 The Issue Department has no control what- 
 ever over the circulation, which is entirely under 
 the control of the public, who may take as many 
 or as few notes in exchange for gold as they 
 please ; and the prices of commodities depend on 
 the supply and demand. 
 
 If the doctrine were true that, the Issue De- 
 partment controlled the circulation, and also 
 controlled prices, then the one doctrine would 
 destroy the other. 
 
 But the doctrine being altogether wrong, the 
 TOUclusions are wrong. 
 
 Supply and demand are always more or less 
 affected by the money-market, which affects 
 credit, and credit affects prices; but the sol- 
 vency of the bank-note, not being in question, does 
 not affect credit. That the Issue Department 
 does very injuriously affect credit, by restricting 
 the issue of notes within too narrow limits, has 
 been too frequently proved by experience ; but 
 in no other way does this affect prices than by 
 affecting supply and demand. 
 
THE GOLD COINAGE. 169 
 
 It is a fact not generally known, or, at least, 
 the consequences are not generally understood, 
 that more gold is imported into this country than 
 the country has any use for, and if the surplus 
 quantity be not immediately exported, it is de- 
 posited in the vaults of the Issue Department. 
 For the buried gold vouchers are given in the 
 form of bank-notes, and these, if not wanted, fall 
 into the common reservoir of the Banking De- 
 partment, and form its reserve. The bullion and 
 the notes are then simply inoperative, waiting till 
 wanted ; or, the bullion is sent abroad, and notes 
 for the same amount are cancelled. 
 
 Such being the simple facts, it is clear that, the 
 Issue Department is merely a safe and convenient 
 place for depositing the gold till it is wanted, and 
 that the notes, which are issued as receipts for 
 the gold, are but the vouchers for the quantity so 
 deposited. Now, it is manifest that, the Issue 
 Department does not keep these notes out of 
 circulation, because they have never been in cir- 
 culation. 
 
 The fluctuations, therefore, in the reserve of 
 the Issue Department, to which so much import- 
 ance is attached, simply and solely indicate the 
 movements in the market of gold, and as the 
 balance of trade in favour of England is almost 
 always causing a flow of gold into England, there 
 
170 THE BANK OF ENGLAND. 
 
 can be oo ground for alarm with regard to a supply 
 of gold sufficient for all the purposes for which it 
 can be required in this country. 
 
 In times of commercial difficulty the alarm is 
 not for gold, but notes. 
 
 For nine-tenths of all the great commercial 
 transactions of this country bills and cheques do 
 the workj and gold and notes are little more than 
 small change for the retail trade and payment of 
 wages. For proof of this it is only necessary to 
 enquire how the wholesale dealers make their 
 payments, and how; the clearing-houses settle 
 them. 
 
 These enquiries will dispel many of the de- 
 lusions about currency, by showing how small a 
 portion of the currency of this country consists of 
 gold and notes. 
 
 When this is shown and understood, but not 
 before, the monstrous proposition of Lord' Over- 
 stone, before the Select Committee of the House 
 of Commons, on the 7.th of July, 1857, will be 
 fully exposed. Spe9,king of the Act of 1844, he 
 said : — " By this means effectual security is ob- 
 tained that the paper money. in the country shall 
 at all times conform to what would be the amount 
 of a metallic circulation. Of this there can be 
 no doubt. The paper money of the country, 
 under the Act of 1844, conforms strictly in 
 
THE GOLD COINAGE. 171 
 
 amount and consequent value to a metallic cir- 
 culation ; those fluctuations in amount, and those 
 only, which would occur under a present mixed 
 circulation of gold and paper, as regulated by the 
 Act of 1844." 
 
 Would Jones Loyd & Co. confirm this pro- 
 position ? Would they say that, if Bank of Eng- 
 land Notes were withdrawn, they would use as 
 many sovereigns in their business as they now use 
 notes, — sovereigns for notes, pound for pound ? 
 
 In that case, a large establishment of carts and 
 horses and trusty porters would be required for 
 the carriage of the precious material, assuming 
 that it would be found in sufficient quantity. 
 But then, as now, the principal instrument of 
 transfer would be cheques and bills, which rest on 
 no such costly foundation as gold, but on the 
 solvency of the issuer. It would be sufiicient for 
 him to get the gold when it was wanted ; in the 
 meantime his cheque or bill would fill the place 
 of the bank-note ; and if bank-notes were with- 
 drawn, cheques and bills would fill their place, not 
 gold. 
 
 But Bank of England Notes, carrying with 
 them the stronger evidence of solvency, are, for 
 general use, the more convenient and safer means 
 of transfer than the cheque or bill, and to subject 
 the more convenient instruments to the risk of 
 
172 THE BANK OF ENGLAND. 
 
 scarcity when most wanted, by making their 
 numbers dependent on the demand for gold, is 
 to subject those who want the notes and cannot 
 get them to the risk of ruin, for the benefit of 
 those who have been able to hoard the notes, or 
 the gold which can command them. 
 
 This is an inevitable consequence of the Bank 
 Act of 1844. 
 
 The trade in gold in England is carried on by 
 Merchants, Brokers, and Refiners. 
 
 Where there is no demand for export the gold 
 is sold to the Bank of England, which is bound to 
 purchase it at the rate of £3. 17*. 9d. per ounce, 
 standard. 
 
 The movements in the price of bullion are 
 proportioned to the amount sent to the Bank. 
 
 The slightuess in the variations in the price of 
 Gold arises out of several conditions, the most 
 important being that, the commodity and the 
 money which pays for it, and in which its price 
 is stated, are the same material. It is a mere 
 exchange of gold for gold. 
 
 £3. 17*. lOJc?. in Gold Coin, will weigh one 
 ounce. 
 
 Again, the English Mint being free to coin the 
 commodity into money, wit/tout charge, a vendor 
 not satisfied with the Bank price of £3. 17«. 9*5?., 
 and not having .regard to the loss of interest 
 
THE GOLD COINAGE. 173 
 
 during the operation, would send his bullion into 
 the Mint and have it coined into money, when 
 every ounce would yield him £3. 17s. lO^d. 
 
 The whole bullion trade between France and 
 England is in the hands of a few houses ; the 
 calculations are very nice, and it is sometimes 
 difficult to see how the prdfit is made. 
 
 The Bank of England professes to sell Bar 
 Gold at any time when it has any to sell, at 
 £3. 17*. lO^^f/. per ounce, standard. 
 
 The Mint is free. There is no seignorage 
 upon Gold Coin. 
 
 The value of an ounce of Bar Gold is equal to 
 an ounce of Gold Coin, with some very minute 
 variations, not worth mentioning. 
 
174 
 
 CHAPTER VIII. 
 
 THE SILVER COINAGE. 
 
 It will be convenient here to consider some of 
 the principal changes which have been made in 
 the Silver Coinage, as aflFecting the money of the 
 country. 
 
 In the year 1816, the old silver standard of 
 coinage was abolished, and the pound weight of 
 silver, which had been coined into 62s,, was 
 then coined into 66s., of which 4*. were taken for 
 seignorage. The effect of this change was to re- 
 duce the pound sterling, or 205., from 1,718,709 
 grains of fine silver, to 1,614,545 grains. 
 
 The Act which limited silver as a legal tender 
 to £25 was repealed, and the legal tender was 
 reduced to 40*. 
 
 By the Act of 181,6, 56 Geo. III. cap. 68, 
 silver, which was a universal medium of trans- 
 fer, was almost prohibited in England. The 
 Mint was closed against the Public, and the 
 coinage of silver money has been, since that 
 time, wholly in the hands of the Government. 
 
THE SII.VER COINAGE. 175 
 
 The limitation of the silver coinage, as a legal 
 tender, to 40s. was judicious -. but it is difficult 
 to discover any principle in restricting the quan- 
 tity of the silver coinage, which would be always 
 regulate'd to the want by the limitation of the 
 legal tender. 
 
 It appears, from a memorandum issued in 
 1819, that the Silver Coinage Act of 1816 was 
 part of the scheme by which the Crown usurped 
 the right of regulating the quantity of silver 
 money that should be in circulation, because it 
 was considered that, " while the coinage of silver 
 is in the hands of the Government, they have 
 the power of regulating the amount, so as neither 
 to be in excess or deficiency." Bat, this is a 
 power quite unnecessary to be in the hands of 
 the Government as more silver would not be 
 coined than is wanted. 
 
 The coinage of the money of the realm is 
 properly a Royal Prerogative, but to restrict the 
 quantity is not. The Royal Mint should be 
 open to the coinage of silver as well as gold free 
 of charge, and our standard, being in gold, has 
 nothing to do with this question. 
 
 As this Memorandum is a document remark- 
 able chiefly for its reasoning, the whole of it is 
 here given. 
 
176 the bank of england. 
 
 Memorandum upon the Issues of the 
 Silver Coinage. 
 
 " Under the authority of the 56th Geo. III. 
 cap. 68, a new silver coinage was prepared, and 
 by a proclamation, dated the 29th day of Janu- 
 ary, 1817, all the old silver coin of the realm 
 was exchanged throughout Great Britain ; this 
 operation was performed by a simultaneous ar- 
 rangement, and the whole exchange was effected 
 in a fortnight, with a very few exceptions in 
 distant and obscure places, where a few days 
 further time was allowed to the inhabitants to 
 bring in their old coin. The silver coin in the 
 Isle of Man, and Guernsey, and Jersey, was in 
 like manner also exchanged. 
 
 " Some silver, which had been in circulation 
 and appeared to be Prench coin, was received at 
 the Mint at the market price of the standard 
 silver it contained ; and some heavy old coin, 
 which had been hoarded, was likewise exchanged 
 there for new coin. Three months were allowed 
 for these operations. 
 
 " The amount of silver coinage in_ Great 
 Britain, previous tp the new coinage, was es- 
 timated at the Mint to be about £5,000,000 ; 
 £2,500,000 of which was supposed to be in old 
 coin, and the remainder in Bank tokens; the 
 
THE SILVER COINAGE. 177 
 
 estimated amount of the coin appears to have 
 been nearly correct; but what Bank tokens were 
 in circulation it has not been possible for the 
 Mint to determine. 
 
 " The amount of coin issued in exchange was 
 £2,600,000. Is. 2d., the amount coined from the 
 old silver coin £2,007,902. 16*., amount coined 
 from bullion, since purchased from the Bank, 
 £516,684 ; total of new silver coinage issued to 
 the present day, £5,124,636. 17s. '2d. 
 
 "The new coin thus issued being £5,124,636. 
 17s. 2d., and some of the distant parts- of the 
 country, and some of the manufacturing districts 
 being still desirous of more silver coin for the 
 accommodation of exchange in their internal 
 traffic, it is probable that the amount of Bank 
 tokens outstanding was more than the Mint 
 calculated ; it is certain that the sum already 
 coined is not sufficient for the convenience of 
 the country. 
 
 " The silver coined from the buUion furnished 
 by the Bank since the old silver coin has been 
 exhausted, has been lodged in the Bank on ac- 
 count of the Government ; and it is distributed 
 to the bankers of London, that it may be cir- 
 culated throughout the country for the accom- 
 modation of the public, and in some instances 
 large sums have been issued for particular dis- 
 
178 THE BANK OF ENGLAND. 
 
 tricts. At present a supply of about £35,006 
 a week is furnished by the Mint for these pur- 
 poses, and it is proposed to continue to coin at 
 this rate, till the Government have ascertained 
 that there is no vi^ant of change in the country. 
 This gradual supply seems to be sufficient to pre- 
 vent any inconvenience to the public. 
 
 " The Mint, having constant communication 
 with the Bank and the London Bankers, is enabled 
 to afford information on the state of the silver cur- 
 rency to the Lords of the Treasury ; and their 
 Lordships, being also in possession of other means 
 of knowing the wants of the country, regulate the 
 issues in such manner as they conceive will best 
 afford the necessary accommodation throughout 
 the kingdom, ' for the facility of exchange and 
 commerce,' without throwing into circulation any 
 superabundance of silver. The silver coinage-can 
 never, therefore, while it is preserved upon its 
 present footing, exceed the amount which the 
 Government, from the best information they can 
 procure, conceive to be necessary for the accom- 
 modation of the public. 
 
 "The 11th and 12th sections of the 56 Geo. 
 III. cap. 68, clearly point out the principle upon 
 which the silver coinage was to be, and has been, 
 issued. It is merely a coin of exchange for the 
 convenience of the country, and not being a legal 
 
THE SILVER COINAGE. 179 
 
 tender for more than the very limited amount of 
 forty shillings in any one payment, cannot be the 
 standard of value,- and is, therefore, not liable to 
 produce any difficulties or inconveniences that 
 -were felt when the coins of the two precious 
 metals were received in payment to an unlimited 
 extent, and were both of the intrinsic value of 
 their denomination. 
 
 " The limitation of the legal tender of the silver 
 coin, and the lowering of the value of it by the 
 deduction of the seignorage of four shillings in 
 the pound troy, place it precisely on the same 
 footing in our circulation, in point of principle, 
 with our copper coins. They are a legal tender 
 as far as twelve-pence in any one payment, and 
 they are at present about 72 per cent, above their 
 intrinsic value, which seignorage, however, pro- 
 duces no mischief, as the coinage of copper, like 
 that of silver, is entirely in the hands of the Go- 
 vernment. The silver coins are a legal tender to 
 forty shiUings, and the seignorage taken from them 
 is about 6 per cent. Both coins serve for change, 
 and change only, and can never be brought into 
 competition with, or used for the purchase of, the 
 gold coins. This is the view taken of them by 
 the late Lord Liverpool and Dr. Adam Smith, 
 who both recommended the system of silver 
 coinage as estabhshed by this Act. Dr. Smith 
 
 N 2 
 
180 THE BANK OF ENGLAND. 
 
 says, the legal tender of the silver coin should be 
 limited to change of a guinea ; the Act limits it 
 to the change of a double sovereign; it having 
 been in contemplation, when the lavs? passed, to 
 coin pieces of that denomination of the value of 
 forty shiUings. By this Act, the Crown, by pro- 
 clamation, may empower the subject to bring 
 silver bulHon to the Mint, to be coined at the 
 rate of sixty-six shillings to the pound Troy, 
 sixty-two shillings to be delivered to him, and 
 four shillings to be retained as seignorage. 
 
 " No such Proclamation has been issued, and 
 the coinage of silver has been entirely in the hands 
 of the Government ; they have the power of regu- 
 lating the amount, so as neither to be in excess 
 or deficiency. 
 
 " The effect of deterioration or debasement of 
 the silver coin limited as it is, as a legal tender, 
 to forty shillings, is to ensure its remaining in 
 circulation until the price of standard silver in 
 the market rises beyond 5s. M. an ounce. Until 
 such a rise, there can be no inducement to melt 
 the silver coin, or sell it as buUion ; and even if 
 the price of silver bullion should rise so high as to 
 make it theinterest of holders to dispose of it as bul- 
 lion, it would not be possible for them to exchange 
 it for gold coin, the limitation in the tender pre- 
 venting them ; nor would they have an opportu- 
 
THE SILVER COINAGE. 181 
 
 nity of collecting any large quantities, as the 
 Government have it in their power to keep the 
 supply of silver coin within such litoits as to 
 render it impossible that the public should part 
 with their change, even if they could, by melting 
 it and selling it as bullion, reaHze a small profit. 
 " The principle upon which the silver coinage 
 is carried on, makes no difference whatever in the 
 price of silver bullion in the market, its price will 
 be regulated by the proportion of gold to silver 
 in the market ; and were the Mint to be thrown 
 open by Proclamation to the public for the silver 
 coinage, no profit could accrue to any individual 
 bringing silver bullion to the Mint, unless he 
 bought it at a lower rate than 5s. U. per ounce,' 
 the old Mint price, as he would receive but 62s. 
 for his pound of silver, 4s. being retained out of 
 the 66s. by Government as a seignorage. He 
 would be neither better nor worse than he was 
 under the old system. There is, in fact, now no 
 Mint price of silver governing that of the market ; 
 its market price will vary in proportion to the 
 quantity of silver which a given qtiantity of gold 
 will purchase ; for example, if one ounce of gold 
 purchase 150,725 ounces of standard silver, the 
 market price of silver will be 5s. U. per ounce ; 
 but if one ounce of gold will purchase only 14 
 ounces of standard silver, the market price ounce. 
 
182 THE BANK OF ENGLAND. 
 
 at that proportion, will be bs. 6^d. The same 
 thing takes place in the price of copper. The 
 Mint price' of copper is 2s. per pound avoirdupois ; 
 that is, the pound is cut into 24 pence. But the 
 market price of copper, in cakes, or in bullion, 
 varies from £112 to aGl68 per ton, or from 1*. 
 to Is. 6d. per pound. The market price of copper, 
 at present is £130 per ton. 
 
 " As there is no silver coin of the realm recog- 
 nised as a standard, there cannot, therefore, be 
 any effect produced upon the relative prices of 
 gold and silver bullion in the market by the 
 present mode of coining and issuing our silver 
 coins ; those prices must be affected by other 
 causes, in fact the relative proportions of the two 
 metals in the market for the three years which 
 have elapsed since the Coinage Act passed have 
 kept to very near the old Mint proportions. 
 
 " The averages are as follows : — 
 
 "In 1817, 15-270 ounces of silver = 1 ounce 
 of gold, which gives the price of silver at 5s. Id. 
 per ounce. 
 
 "1818, 15095 ounces, which gives the price 
 of silver at 5s. If ^. per ounce. 
 
 " 1819, 14-8674 „ „ 5s. 2fi. 
 
 " Within the last six months the proportion of 
 silver has risen (and from the last quotation of 
 the price of -gold it was 14-909) but this may be 
 
THE SILVER COINAGE. 183 
 
 accounted for from the great demand for dollars 
 for the East Indies, a circumstance of frequent 
 occurrence in the history of our currency. 
 "W. W. Pole, 
 
 " Master and Worker of 
 " May, 3rd, 1819." " His Majesty's Mint. 
 
 The Act of 1816, therefore, constituted a new 
 era in the history of our monetary system ; for it 
 placed our silver coinage entirely in the hands of 
 the Government, not only to superintend the man- 
 agement, but also to regulate the quantity, a pri- 
 vilege which had for ages been enjoyed by the 
 people, as their constitutional right. 
 
 By this Act the country was placed, in regard 
 to its circulating medium, under the two-fold 
 monopoly of the Government and the Bank of 
 England ; and the legal tender of the country, in 
 which all the principal money transactions are 
 carried on, was confined within the narrowest 
 possible limits. By what right the Government 
 took upon itself to regulate and control the quan- 
 tity of money in circulation, has never been shown ; 
 and, as regards the silver coinage, the pretence 
 of keeping out of circulation a superabundance of 
 silver, is a sheer absurdity, as a superabundance 
 never could remain in circulation. 
 
 This memarandura says that, the silver coinage 
 
184 THE BANK OF ENGLAND. 
 
 " is merely a coin of exchange, for the conveni- 
 ence of the country,"' and that seems to be the 
 strongest reason for leaving the country to regu- 
 late the amount. 
 
 The Memorandum also says that, both the 
 silver and copper coins " serve for change, and 
 change only, and can never be brought into com- 
 petition with, or used for the purchase of the 
 gold coins." This is a most extraordinary as- 
 sertion, and the more strange as immediately 
 following the declaration that, the silver money 
 was issued as " a coin of exchange for the conve- 
 nience of the country." If 20s. be given for a 
 sovereign, a sovereign may be considered the 
 equivalent in exchange for the 20s. ; therefore, 
 each possesses the same power of purchasing 
 commodities in the market ; and, therefore, there 
 can be no reason why silver should not purchase 
 gold, as well as any other commodity, at the 
 market price. To say, therefore, that the silver 
 coinage will not purchase gold, when it is ad- 
 mitted that the one will exchange for the other, is 
 absurd ; and there is nothing to prohibit any one 
 from making this exchange from day to day, and 
 thus obtaining gold or gold coins, if he please. 
 
 The Act of 1816, therefore injuriously discou- 
 rages the importation of silver into this country, 
 which would otherwise be the best market in the 
 
THE SILVER COINAGE. 185 
 
 world for silver, as it is for gold ; and the Act 
 of 1844, which limits the proportion of silver to 
 one-fourth of gold in the Issue Department of 
 the Bank of England, and thereby narrows the 
 basis of the Bank of England note circulation, is 
 another and serious injury to the country. 
 
 It is impossible to discover on what principle 
 the Government has assumed to itself the power 
 of regulating and controlling the money of the 
 country, by this direct interference with the 
 silver coinage, — and thereby contracting the 
 amount of bank-notes in circulation. This is an 
 infringement of the rights of the British people, 
 for which there is no sanction in historv, and 
 was unknown until the introduction of the sys- 
 tem of paper-money, now monopolised by the 
 Bank of England, that paper-money being made 
 equal in value to the coin of the realm. No 
 other Government but our own has ever de- 
 clared that a "superabundance" of silver money 
 was an evil to be remedied by legislation. 
 
 The closing of the Mint against the public, 
 for the purpose of vesting a monopoly of the 
 coinage in the Government, was a most injurious 
 and unjustifiable infringement of an ancient and 
 constitutional right in the people, and could have 
 been permitted only under a mistaken view of 
 policy. So far from this being the true policy it 
 
186 THE BANK OF ENGLAND. 
 
 is exactly the reverse, the true pohcy of every 
 country being to encourage by every means the 
 importation of all marketable commodities, of 
 M^hich the precious metals have always been the 
 least hazardous, because always the most market- 
 able and least Kable to fluctuations in price. That 
 such was the policy of former Governments, 
 before the introduction of bank-notes, may 
 be seen in the statutes on record, showing that 
 every encouragement was then given to the pub- 
 lic to carry gold and silver to the Royal Mint to 
 be coined, nor was the prerogative of the Crown 
 then used for any other purpose than as a gua- 
 rantee for the genuineness of the coinage, the 
 quantity being left free and uncontrolled in the 
 hands of the public. 
 
 The Coinage Act of 1816 was, therefore, a 
 great wrong to the whole British Nation, and, 
 until this law be repealed, our monetary system 
 cannot be placed on a perfectly sound basis. 
 What would be said if the Government under- 
 took to regulate by legislation the quantity of 
 cotton necessary to supply the wants of Man- 
 chester, the wool for Leeds, the flax for Belfast, 
 or the supply of fruits and vegetables to Covent 
 Garden Market, or of merchandise in Mincing 
 Lane, — that there may be neither an excess nor 
 a deficiency? How much rather, then, should 
 
THE SILVER COINAGE. 187 
 
 1 
 
 the country be free to regulate the amount of 
 money by which its entire transactions are carried 
 on, than to commit it to the keeping of a few 
 gentlemen at the Treasury and at Tower Hill. 
 
 It will be said that gold and silver do not 
 come under the same principles as other com- 
 modities, and that some restrictions should be 
 placed upon money to prevent rash and ruinous 
 speculations. But such reasoning as this can 
 have no weight when applied to metallic money. 
 What country has ever been known to have too 
 much of it ? Instances of its mis-use are nume- 
 rous ; but no instance of its superabundance has 
 ever been known. 
 
 The Act of 1616 is only a part of the policy 
 carried out in the Act of 1844, the 3rd section 
 of which limits the amount of silver bullion in 
 the Issue Department to one-fourth part of the 
 gold coin and bullion. Here is the same prin- 
 ciple at work as in the Act of 1816. 
 
 Every possible contrivance is resorted to for 
 limiting the real money of the country to the 
 narrow basis of gold, and when that is dimi- 
 nished below a certain point the whole super- 
 structure of credit falls. 
 
 The principal objections, therefore, to the Act 
 of 1816 are, that the Government has taken to 
 itself wholly a right which belonged wholly to 
 
188 THE BANK OF ENGLAND. 
 
 the public ; and that it has placed the credit of 
 the country upon a narrower and less secure 
 foundation, by exercising a power, in connection 
 with the Bank of England, by which the basis of 
 that credit must always be subject to more dis- 
 turbing, if not dangerous, fluctuations than it 
 otherwise would be. 
 
 By the 9th section of the Act of 1816, the 
 power of taking silver coin, plate, or bullion, to 
 the Mint, to be coined into money, was prohibited, 
 except by a Proclamation from the Crown, re- 
 storing the privilege ; but as that proclamation 
 has never been made, it may be fairly assumed 
 that, it was never the intention of the Government 
 that the privilege should be restored. 
 
 When the Government took upon itself to 
 regulate the amount of the silver coinage, so that 
 there might be neither " an excess nor a defi- 
 ciency," it ought to have shown how it would 
 undertake to guarantee a sufficiency. Instead of 
 this, it is in evidence before the Committee ap- 
 pointed to examine into this subject, that the 
 Mint never coined any silver money, except when 
 it could make a profit upon the purchases of 
 silver bullion. Therefore, the supply was never 
 regulated to meet the demands of an increasing 
 population, or to rectify foreign exchanges, or to 
 meet an increase in the price of commodities, or 
 
THE SILVER COINAGE. 189 
 
 in any way by which it could be brought in to 
 meet the demands or necessities of the public. 
 
 The arrangements which are at present in 
 operation at the Mint, with regard to the silver 
 coinage of the country are, in plain language, part 
 of the machinery for confining the control of 
 the money of the country in the Bank of England 
 and the Government. 
 
 It is evident that, all the reasoning in the Me- 
 morandum to show that the price of silver is 
 regulated by the proportion of gold to silver in 
 the market, and that, .if the Mint were thrown 
 open to the public for the silver coinage no profit 
 could accrue to any individual bringing silver 
 bullion to the Mint to be coined, unless he bought 
 it at a lower rate than bs. 2d. per ounce, has no- 
 thing to do with the question of the people's right, 
 and is no argument in defence of the Govern- 
 ment monopoly ; nor is it any argument for con- 
 fining the basis of credit to gold, although gold be 
 the only legal tender above forty shillings. 
 
 If the argument be used to prove that, such an 
 increase in the metallic currency of the country 
 might enlarge the note currency of the Bank of 
 England to a dangerous extent, by carrying it be- 
 yond the means of convertibility into gold on de- 
 mand, this is a mere fallacy, though on this fallacy 
 it is clear that, successive Governments have pro- 
 
190 THE BANK O? ENGLAND. 
 
 ceeded in establishing our present system, and 
 that the Act of 1816 is as much a part of the 
 restrictive system of our money laws, as either the 
 Act of 1819, or 1844, and that the theory which 
 they intended to act upon would not have been 
 completely carried out if either of these legisla- 
 tive enactments had been omitted. 
 
 Those who have entertained the notion of main- 
 taining the relative value between gold and silver, 
 which is a mere delusion, have in fact sacrificed 
 the permanent interests of the country to main- 
 tain the present monopoly^ instead of bringing 
 into more general use one of the precious metals, 
 which is universally recognised amongst all na- 
 tions as a circulating medium, in aid of the in- 
 'ternal and external commerce of the kingdom, 
 and as a means of extending the basis of our 
 paper currency, of which long experience has 
 proved that, there is always great abundance when 
 not wanted, and great scarcity when most in de- 
 mand. This is the inevitable result of attempt- 
 ing to regulate by an artificial law what can be 
 only self-regulating, by the natural law of supply 
 and demand. Every money-panic which has 
 arisen to convulse our trade and commerce, may 
 be traced to these legislative enactments for re- 
 gulating and controlling the money, and through 
 the money, the credit of the country. 
 
SILVER COINAGE. 191 
 
 Some of the foregoing remarks on the silver 
 coinage have been taken from an excellent Article 
 on the subject in the Supplement to the "Bankers' 
 Circular" for the 28th April, 1855, a very useful 
 weekly periodical, then conducted with great abi- 
 lity by the Proprietor and Editor, Mr. Henry 
 Ayres, and which deserved better support than it 
 received from the Bankers in particular, and the 
 Public in general. 
 
 Those who desire further information will do 
 well to refer to the evidence taken by the Com- 
 mittee in 1819 on this subject, and particularly 
 to the evidence of Mr. Mushett, one of the offi- 
 cers at the Mint, who enters with great minute- 
 ness into the question of the silver coinage, and 
 furnishes very striking illustrations of the fallacy 
 of his own reasoning for confining the circulation 
 of the Bank of England Notes to the basis of 
 gold. It is unnecessary here to pursue further 
 this important branch of the inquiry, as it will 
 be reverted to in the subsequent pages. 
 
 Thus, in the year 1816, an Act was passed, 
 which abrogated the whole of our ancient laws 
 relating to the Silver Coinage, and converted into 
 a Government department, under Government 
 control, the Mint, which had been for ages a 
 National Institution, open to the public for free 
 coinage, under certain regulations. The coinage 
 
192 THK' BANK OF ENGLAND. 
 
 of silver was no longer to be open to the public 
 and free, but was to be regulated by Govern- 
 ment both as to quantity and quality, through 
 the medium of the Bank of England and the 
 Treasury. 
 
 The old-standard, introduced in Queen Eliza- 
 beth's time, of coining the troy pound weight 
 into 62s., was repealed, and a new standard of 
 coining it into 66«. was substituted; the Mint 
 authorities retaining 4s. on each pound as 
 seignorage, or rather more than 6 per cent., 
 the standard of fineness remaining the same. 
 Silver by tale, which had hitherto been a legal 
 tender in all transactions up to £25, was reduced 
 to 40«., and gold was made the only legal tender 
 for suras exceeding that amount. 
 
 The Act, therefore, completely changed two of 
 the fundamental principles of the English mone- 
 tary system ; firdly, by restricting the quantity 
 of silver money by legislative interference ; and 
 secondly, by making a scarcer metal, and one 
 more difficult to be obtained, the only legitimate 
 metallic medium of transfer beyond 40s., and, 
 subsequently made, the only basis of our Bank- 
 note circulation. 
 
 By a reference to the Coinage Acts of this 
 country down to the passing of the Act of 1816, 
 it will be seen that every facility was given for 
 
THE SILVER COINAGE. 193 
 
 the " encouragement " of coining monies ; while 
 this Act prohibited the people from exercising 
 one of their most ancient and most undoubted 
 privileges. 
 
 England is the only nation where the people 
 have not free access to the Mint, at all reasonable 
 times, for the purpose of converting bullion into 
 the legal coin pf the realm. 
 
 However politic it may have been to alter the 
 standard weight of the silver coinage (an altera- 
 tion which had been advocated by the highest 
 authorities of former times) the closing of the 
 Mint against the Public, and thereby restricting 
 the quantity of the silver coinage, was an abuse 
 of Parhamentary power that no eminent authority 
 has ever sanctioned, and no argument has ever 
 justified. Eor this great wrong and injury to 
 the country there is only one remedy, and that 
 is in the repeal of the Silver Coinage Act of 
 1816. 
 
 The following is a brief Epitome of the Act 
 56 Geo. III. c. 68. June, 1816: 
 
 Sect. I. 18 Car. II. c. 5, as to coining silver 
 brought to the Mint without charge, repealed. 
 
 Sect. 2. 7 & 8 Will. III. c. 1, as to weight 
 and fineness of silver coin, under Mint Indenture, 
 and so much of 14 Geo. III. c. 42, as requires 
 62«. to the pound troy of silver, repealed. 
 
194 THE BANK OF ENGLAND. 
 
 Sect. 3. 38 Geo. III. c. 59, prohibiting silver 
 coinage, repealed. 
 
 Sect. 4. The pound troy of standard silver, 
 eleven ounces two pennyweights fine, etc., may 
 be coined into 66s. 
 
 Sect. 5. Old silver coin of the realm brought 
 to the Mint, may be exchanged for its full nomi- 
 nal value in new silver coin. 
 
 Sect. 6. Treasury may appoint persons to re- 
 ceive old sUver coin, and exchange the same for 
 new, at any places throughout the kingdom. 
 
 Sect. 7. After the end of the period appointed 
 for receiving old coin of the realm at the Mint 
 all old coin deficient in value may be cut by the 
 person to whom it is tendered. 
 
 Sect. 8, Provision for the loss arising from the 
 deficiency, and recoinage of the silver coin. 
 
 Sect. 9. After a day to be appointed by Pro- 
 clamation, any person may bring silver coin and 
 bullion to the Mint, to be coined at the rate of 
 66s. per pound troy of standard silver, eleven 
 ounces two pennyweights fine, etc., of which 42s. 
 per pound shall be delivered to the party bringing 
 in the bulhon, and 4s. retained for assaying, 
 loss, and coinage. 
 
 Sect. 10. Such sum of 4s. per pound shall be 
 appHed to the expense of coinage, and the surplus 
 (if any) carried to the Consolidated fund. 
 
THE SILVER COINAGE. 195 
 
 Sect. 11. Gold coin declared the only legal 
 tender, being of the weight and fineness of the 
 Mint Indenture. 
 
 Sect. 12. 14 Geo. III. c. 42, making silver a 
 tender to £25, and afterwards by weight, repealed 
 after a day to be named in the King's Proclama- 
 tion for that purpose. No tender of silver coin 
 legal beyond 40s. 
 
 Sect. 13. Current gold coin shall not be re- 
 ceived or paid for more or less than its value, 
 according to its denomination, under the penalty 
 of imprisonment for six months. 
 
 Sect. 14. When persons who have been con- 
 victed shall be again guilty, the Clerk of the 
 Peace shall certify former conviction. 
 
 Sect. 15. Indictments not to be traversed. 
 
 Sect. 16. On prosecution it shall not be neces- 
 sary to prove money lawful. 
 
 Sect. 17. All other Acts relating to silver coin 
 extended to this Act. 
 
 Sect. 18. Act not to affect payments in Bank 
 of England Notes. 
 
 Sect. 19. This Act not to affect payments of 
 revenue in Ireland, in Irish Bank tokens. 
 
 It is a fact worth notice that, from 1803 to 
 1809, the price of gold under the Restriction 
 Act was maintained at £4 per ounce. 
 
 o 2 
 
196 
 
 CHAPTER IX. 
 
 THE BANK OF ENGLAND: AND THE DIS- 
 OEGANISATION OF CREDIT. 
 
 It is a remarkable fact that the law, regulating 
 the money of the greatest commercial country in 
 the world, is to be found only in the Charter of 
 a Banking Company. 
 
 But this is an anomaly which time seems to 
 have reconciled us to, nor is it very material, if it 
 do not confound things which ought to be kept 
 distinct. But is the distinction so clear as it 
 ought to be ? 
 
 Many persons, perhaps, are not aware that, the 
 Bank of England, as a Banking Company, in no 
 respect ditfers from any other Bank. 
 
 The fact, that certain special privileges have 
 been attached by the State to the Bank of Eng- 
 land, and to no other Bank, in no respect makes 
 the Bank of England different from any other 
 Bank, as regards Banking. Those special and 
 exclusive privileges were conferred professedly for 
 public convenience. 
 
THE DISORGANISATION OF CREDIT. 197 
 
 By the Bank Charter Act of ] 844, the Bank 
 of England has the privilege of issuing its notes 
 to the amount of £14,000,000 on Government 
 Securities. 
 
 This sum was made up of £11,015,100, the 
 Government Debt to the Bank, and £2,984,900, 
 for other claims, making together £14,000,000, 
 which amount, by the lapsed issues of private 
 banks in December, 1855, was increased to 
 £14,475,000, and subsequently by a further 
 addition to £14,650,000. In consequence of 
 the National Provincial Bank of England having 
 commenced London business, and thereby relin- 
 quished the right to issue notes, an Order in 
 Council was issued [February, 1866] authorising 
 the Bank of England to increase its issues by 
 £350,000, making the total issue authorised 
 £15,000,000, which is the present amount. 
 Thus, the whole capital of the Bank of England 
 is lent to the Government, and to that extent 
 the Bank is authorised to issue notes, theoreti- 
 cally founded on gold, but really on the security 
 of the State. 
 
 Any notes to be issued in excess of this sum 
 of £15,000,000, must be represented by gold 
 and silver coin and bullion, the proportion of 
 silver to be only one-fourth of the whole amount 
 of the metallic security. 
 
198 THE BANK OF ENGLAND. 
 
 The Notes held in reserve, in the Banking 
 Department, must always be equal to the diflfer- 
 ence between the amount of Notes in circulation, 
 or held by the Public, and the sum of the Credit 
 Issues added to the Bullion in the Issue Depart- 
 ment. 
 
 By this means it was proposed, by the Act of 
 1844, to secure the convertibility of the Bank of 
 England Note, an object manifestly accomplished. 
 
 The Credit Issue of Bank of England Notes 
 to the amount of £15,000,000, is a simple con- 
 trivance to save the Government from paying 
 an old debt to the Bank of England. It would 
 have been more simple and much wiser if the 
 Government had paid its debt, and left the Bank 
 in possession of its capital. 
 
 The other arrangements between the Govern- 
 ment and the Bank of England are matters 
 merely of convenience, for insuring the punctual 
 payment, half-yearly, of the dividends to the 
 Creditors of the Public Debt. As everybody is 
 perfectly well satisfied with that part of the 
 arrangement, nothing further need be said about 
 it. 
 
 The result of all this is, that the Bank of 
 England has no actual capital whatever in pos- 
 session, but only a claim upon the Government 
 for it; and the effect of all this is that, if the 
 
THE DISOKGANISATION OF CREDIT. 199 
 
 Bank should have occasion to call in its capital 
 for the payment of its notes, issued on the credit 
 of this capital, the Government would be bound 
 to meet the call, and to pay it in Bank of Eng- 
 land Notes, or in gold coin ; or the Bank would 
 have to sell the Government Securities and buy 
 gold to answer the call. 
 
 But, for these credit issues there is no danger 
 to the Bank of England or to the Government. 
 
 Nor can there be any difficulty in the Govern- 
 ment paying this debt to the Bank of England. 
 
 Since the year 1844, to the present time, the 
 total amountof Bank-notes in circulation has never 
 been so low as £30,000,000, and the present ave- 
 rage may be taken at about £40,000,000. 
 
 During the same time, the amount of Bank of 
 England notes in circulation has never been so 
 low as £16,000,000, and the present average may 
 be taken at £21,000,000. 
 
 During the same time, the amount of Bank- 
 notes in circulation in Ireland has never been so 
 low as £3,000,000, and the present average may 
 be taken at about £5,000,000. 
 
 During the same time, the amount of Bank- 
 notes in circulation in Scotland has never been so 
 low as £2,000,000, and the present average may 
 be taken at about £4,000,000. 
 
 Thus, it is evident that, if the Bank of England 
 
200 THE BANK OF ENGLAND. 
 
 had issued £16,000,000, instead of £14,000,000, 
 of its Notes on Government Securities, the whole 
 of the £16,000,000 would have remained in con- 
 stant circulation as safely as the £14,000,000 has 
 remained in constant circulation. 
 
 It is also evident that, as the issue of the 
 Country Banks diminished, the credit issues 
 might be safely increased in the same propor- 
 tion. 
 
 The lowest amount of Bank of England notes 
 in circulation for the last 20 years and upwards 
 was £16,736,000, on the 16th December, 1848, 
 and the total amount of bank-notes in circula- 
 tion in the United Kingdom on that day was 
 £30,872,782. 
 
 The total amount of gold coin and bullion 
 in the Bank of England on that day was 
 £14,790,000, and the total amount of coin and 
 bullion held by the Bank of England, and the 
 Scotch and Irish Banks on the same day was 
 £17,444,857, and the minimum bank-rate of dis- 
 count was 3 per cent. 
 
 The highest amount of Bank of England notes 
 in circulation, for the last 20 years and upwards 
 was £26,075,000, on the 6th August, 1853; 
 and the total amount of Bank-notes in circulation 
 in the United Kingdom on the same day was 
 £40,684,940. 
 
THE DISORGANISATION OF CREDIT. 201 
 
 The total amount of gold coin and bullion in 
 the Bank of England on the same day was 
 £17,757,000 ; and the minmum Bank-rate of 
 discount was 3^ per cent. 
 
 The ordinary amount of coin and bullion in 
 the Bank of England may be taken at about 
 £15,000,000, the average amount of bullion in 
 the Bank of England from the year, 1849, to 
 the year, 1863, both- years inclusive, being 
 £15,171,902. 
 
 The ordinary amount of Bank of Eng- 
 land Notes in circulation may be taken at 
 £21,000,000, the average amount of Bank of 
 England notes in circulation from the year, 
 1849, to the year, 1863, both years inclusive, 
 being £20,970,054. 
 
 The ordinary amount of the whole Bank-note 
 circulation of the United Kingdom may be taken 
 at about £40,000,000. 
 
 The lowest amount of gold and silver coin 
 and bullion in the Bank of England, since the 
 year 1844, was £6,745,354, on the 25th October, 
 1847, the period of the great money-panic. 
 
 The minimum Bank-rate of interest then was 
 8 per cent. 
 
 The following Table will show the fluctuations 
 in the Bank of England minimum rate of dis- 
 count from the year 1857 to the year 1864, both 
 years inclusive. 
 
o 
 
 EH 
 
 EH 
 P 
 
 O 
 O 
 
 O 
 
 t— I 
 
 O 
 
 EH 
 M 
 
 O 
 
 M 
 
 H 
 O 
 
 00 
 
 T-H 
 
 ■*tt80 
 
 COt^CD»>XOSOOl>Ot»OOC5C01:^ 
 
 C3 
 
 Pi 
 
 Or-l>J3COC<il005tCCD»OT?00O-^ 
 Cir-Hirir-1 i-lWi-HW l-HC* 
 
 CO 
 
 •(inao 
 Jad a^Bg 
 
 
 1 
 
 H? p^H^ § ;? p 
 
 
 
 s 
 
 
 w'coSrweo 1 1 1 1 1 1 1 1 I 
 
 1 
 P 
 
 05 C4 O ^ O 
 
 d i-H W CO 
 
 H, ^ Hs O 
 
 
 
 
 
 
 
 
 
 r-i 
 
 CO 
 QO 
 
 i-H 
 
 ■inao 
 
 -HiN HN III 
 
 t»aot-coioi»io-^-5iicoco 1 J 1 
 
 P 
 
 t^-^i— 1^1— itOi— 11005051:^ 
 
 1— 1 N 1— 1 1-H 1— 1 C<J 1— 1 
 
 
 
 s 
 
 •00 
 
 ■?naQ 
 jad a^Bg 
 
 ^(N M!M HN 1 , , 
 
 R 
 
 01r-l01C<iO-*00e0»000rH 
 
 1— (COcii— ii— lOJ 1— li—IWCO 
 
 1 
 
 
 o5 
 
 r-l 
 
 ■^nao 
 jad a^Bg 
 
 co^cocow||||||||| 
 
 1 
 
 O in N 05 lO 
 
 <1 S l-S Hs 
 
 
 
 
 
 
 
 
 
 00 
 00 
 
 i-i 
 
 •^iiao 
 jad a^Bg 
 
 -HS" H« . 1 1 1 1 1 , 
 
 imin^cocow| III III 
 
 1 
 
 i^ ^ 00 '^ — ' »n 
 
 l-H C* l-H 
 
 >-i fe p 
 
 
 
 
 
 
 
 
 00 
 
 1-f 
 
 ■^Tiao 
 lad a^Bg 
 
 HN r^(N 1 1 1 1 
 
 «3!C«5iO«51:^0005O00| | | | 
 
 1 
 R 
 
 i-HWootooowoimoso 
 
 1— t i-H rH 1— 1 C^i 
 
 e3 S a _fe*-"^ fe o 
 ^ <!h,i-bO Jz; p 
 
 
 
 
 i ■ 
 
THE DISORGANISATION OF CREDIT. 203 
 
 For fluctuations and high rates no nation in 
 Europe comes up to this record of our money- 
 market for the last eight years. No foresight 
 can guard against such changes, and the ordinary 
 profits of trade cannot support such exactions. 
 
 From these facts it is manifest that, the Bank 
 Act of 1844 has failed in its professed objects. 
 
 It is equally manifest that, at the present 
 time, (1867), the amount of Bank of England 
 notes to mffet the requirements of England and 
 Wales cannot be less than £40,000,000, and to 
 meet the requirements of the United Kingdom 
 cannot be less than £50,000,000. 
 
 But, moreover, these facts also prove the 
 failure of the professed principle of the Bank 
 Act of 1844, which was, that as the bullion di- 
 minished the Act would compel a reduction of 
 the notes in the hands of the Public. 
 
 The futility of this idea is shown in the fol- 
 lowing^ figures, selected from innumerable ex- 
 amples. 
 
 Thus, on the 29th August, 1846, the amount 
 of Bank of England notes held by the public 
 was £20,426,000, and the amount of buUion in 
 the Bank on that day was £16,366,000, and the 
 minimum rate of discount was 3 per cent. 
 
 On the 10th April, 1847, the amount of 
 Bank of England notes held by the pubhc was 
 
204 THE BANK OF ENGLAND. 
 
 £20,-403,000, and the amount of bullion in the 
 Bank on that day was £9,867,000, and the 
 minimum rate of discjount was 5 per cent. 
 
 Here the amount of Bank of England notes 
 in circulation was nearly the same at both 
 periods; but, in April, 1847, the bullion in the 
 Bank had diminished nearly one-half, and the 
 minimum rate of discount had risen from 3 to 5 
 per cent. 
 
 This fact seems to be fatal to the Currency 
 Principle of Lord' Overstone : — " That when 
 Bank-notes are permitted to be issued, the 
 number in circulation should always be exactly 
 equal to the coin which would be in circulation 
 if they did not exist." 
 
 On this fallacious principle the Bank Charter 
 Act of 1844 was formed. The power of un- 
 limited issues was taken away and placed on two 
 foundations only : — 
 
 1. A fixed amount of public securities : 
 
 2. The amount of bullion in the Issue Depart- 
 ment of the Bank. 
 
 The amount of Issues upon Public Securities 
 was permanently fixed at £14,000,000, subject 
 to increase by two-thirds, on securities, of the 
 lapsed issues of the country banks,* and every 
 
 * " The reason why the Act fixed' these proportions of two- 
 thirds, and one-third was, because it was assumed that the 
 
THE DISORGANISATION OF CREDIT. 205 
 
 other note was to be issued iii exchange for 
 bullion only ; so that the amount of the notes is- 
 sued on bullion should be governed solely by 
 the public. 
 
 The details with regard to the existing issues 
 of private banks it is unnecessary here to enter 
 into. 
 
 The Bank of England, therefore, as at present 
 established, consists of two separate and distinct 
 departments, — the Issue Department, and the 
 Banking Department, — and although it be true 
 that the Banking Department cannot control the 
 Issue Department, yet, it is no less true that, the 
 Issue Department can and does control the 
 Banking Department. 
 
 The Issue Department is, theoretically, as se- 
 parate and distinct from the Bank of England as 
 from any other Bank, and is simply an office of 
 the State, established for the first time by this 
 Act, and working purely by mechanical agency, 
 or by inflexible rules, for manufacturing and 
 cancelling Bank of England notes, and in this 
 
 country banks returned one-third of their circulation in 
 bullion. Therefore, they allowed any country circulation 
 which lapsed, to be taken up by the Bank of England, to the 
 extent of two-thirds upon securities, and the remainder, of 
 course, as before upon bullion." Select Committee of the 
 House of Commons on the Bank Acts, 1857. Evidence of 
 T. M. Weguelin, Esq., M.P. 598. 
 
206 THE BANK OP ENGLAND. 
 
 work obeying a self-acting rule, without any dia- 
 xretion. 
 
 The Bank of England furnishes the premises 
 for this office, and supplies the machinery, but 
 ■does not control it, and for this accommodation is 
 paid by the Government. 
 
 The machinery of the Issue Department simply 
 responds to the impressions made upon it by the 
 public. When five sovereigns are dropped in, 
 a Five Pound Note is mechanically given out. 
 When the same or a like note re-appears on 
 another day, the operation is reversed : five 
 sovereigns are given out, and the note is taken 
 and cancelled. These operations are repeated as 
 often as the notes or sovereigns are presented. 
 
 The Directors of the Bank of England, as 
 regards the Issue Department, stand in precisely 
 the same situation as aU other members of the 
 community. They can get notes for gold, or gold 
 for notes. 
 
 The Bank of England is precisely in the same 
 situation as any private or joint-stock bank, and 
 obtains its supplies, whether of gold or notes, 
 precisely in the same way. The only difierence is 
 that, the Bank of England has a larger business 
 than any other Bank, and therefore requires to 
 keep in hand a larger amount of gold coin and 
 notes than any other Bank, to meet the ordinary 
 
THE DISORGANISATION OF CREDIT. 307 
 
 demands upon it. The Bank of England pro- 
 cures its needful supplies of gold and notes pre- 
 cisely in the same way as the bank of Smith, 
 Payne, and Smiths, Child & Co., Coutts & Co., 
 the London and Westminster Bank, or any other 
 bank procures its needful supplies; 9nly these 
 banks keep in hand a much smaller sapply of 
 gold than the Bank of England in proportion, 
 because it is well known that the notes can al- 
 ways be converted into gold at the Bank of Eng- 
 land whenever required. 
 
 The Banking Department of the Bank of Eng- 
 land, of course, can do the same. 
 
 But all the Banks could do and always have 
 done the same, since 1819, with the same cer- 
 tainty and convenience as now, and without the 
 machinery of the Issue Department. 
 
 Why the Bank of England should keep in 
 hand a larger quantity of gold, in proportion to 
 the ordinary demand, than other banks find it 
 necessary to keep in hand, is a question to be 
 answered by the advocates of the present system. 
 At the first view, this practice of storing seems 
 to be more in accord with the system of Joseph 
 and his Egyptian Granaries, than with the mo- 
 dern theory, and if it be right to keep a large 
 public store of gold, it cannot be wrong to keep 
 a large public store of corn and other grain. 
 But that is not done now. 
 
208 THE BANK OF ENGLAND. 
 
 We have now had the experience of twenty- 
 two years for ascertaining the precise effects of 
 the separation of the Issue Department from the 
 Banking Department of the Bank of England. 
 
 There can be no doubt that, by this means the 
 convertibihty of the note into gold is made se- 
 cure. 
 
 But, if that were equally secure before, as the 
 experience of the twenty-five previous years 
 proves that it was, then the separation of the 
 Issue Department from the Banking Department 
 was, for this purpose, unnecessary. 
 
 As it is not pretended by the advocates of this 
 measure that, the separation was for any other 
 purpose than securing the convertibility of the 
 note; it would be unnecessary to pursue this 
 branch of the inquiry further, if it were not for 
 the injurious effects of this separation upon the 
 Banking Department, which will now be con- 
 sidered. 
 
 It is generally known that, in the year 1797, 
 the Bank of England was obliged to suspend the 
 payment of its notes in specie. 
 
 But it is not so generally known that it was 
 brought to this extremity by the abuse which had 
 been made of its resources by the Government, 
 which had taken not only the whole of the 
 capital of the Bank, but had also taken advan- 
 
THE DISORGANISATION OF CREDIT. 209 
 
 tage of its credit for obtaining advances to an 
 enormous amount. It was necessary to relieve 
 the heavy expenses required for the gigantic 
 struggle which Pitt had organised against France; 
 and, by a course of political necessities, the Bank 
 was made to serve as the Treasury Chest. 
 
 The British Government by this means avoided 
 too frequent and too large recourse to credit ; 
 but it escaped one danger only to fall into an- 
 other much more perilous : it compromised an 
 Establishment which was the foundation stone of 
 industrial and commercial credit, as well as public 
 credit. 
 
 Thus, the capital, which ought to have been 
 reserved for industry and commerce, was wasted 
 in the unprofitable war in which Pitt, the great 
 Minister, as he was called, involved this country 
 with France. 
 
 The injury done to this country by thus com- 
 promising its credit, and forcing into circulation 
 the inconvertible paper-notes of the Bank of 
 England, was, in the end, a greater loss of 
 capital than the whole expenses of that long and 
 ruinous war, so certain it is that the credit of a 
 country is its most precious possession. 
 
 Enghsh patriotism, however, on that occasion 
 lifted the country over its difficulties, and the 
 honourable unanimity of the Merchants of London 
 
210 THE BANK OF ENGLAND. 
 
 supported the inconvertible note of the Bank of 
 England. 
 
 But this did not prevent the depreciation of 
 the Bank-note 25 to 30 per cent. 
 
 Sir Robert Peel, struck with the serious in- 
 convenience of this state of things, which had 
 continued twenty-two years, in 1819 formally 
 demanded of Parliament the restoration of Cash 
 Payments. 
 
 Of all the measures of that Statesman this was 
 the greatest, and the most salutary; for it changed 
 the face of things by restoring order, and the 
 credit of the country. 
 
 The experience thus acquired, at a tremendous 
 cost, established the fact that, a Bank-note cir- 
 culation can stand only on the basis of the 
 precious metals ; also that, the privilege of is- 
 suing notes should be confined to one Bank, 
 and that, in return for such privilege, the Bank 
 should be deprived of the power of lending 
 mopey, not only to the Government, but to any 
 individual. 
 
 The success of the measure of Sir Robert Peel 
 in 1819, for Hmiting the issue of Bank-notes by 
 compelling their payment in gold, encouraged 
 him to attempt a further limitation of the issue 
 of Bank-notes, and this led to the present Bank 
 Charter Act of 1844. 
 
THE DISORGANISATION OF CREDIT. 211 
 
 Under this Act the Bank of England is divided 
 into two departments ; — that of Issue, and that of 
 Banking, or discounting and advancing. 
 
 This limitation, being too restrictive, has been 
 fatal to the success of the experiment, and has 
 made the Bank Act of 1844, instead of a bene- 
 ficial measure, one most injurious to the country. 
 
 The amount of Bank of England notes, not re- 
 presented byspecie, is nowlimited to £15,000,000, 
 and this amount of Bank-notes forms the capital 
 of the Banking Department. 
 
 The department for Banking, or Discounting, 
 is served with bank-notes, which are issued on 
 credit, and are not likely to be brought in for 
 payment ; but, to this amount, (excepting the 
 deposits) the Banking' Department is strictly 
 confined, these being the only resources for all 
 its banking liabilities.* 
 
 Not only cannot the Banking Department pass 
 beyond these limits, but it must keep, either in 
 bank-notes or in specie, a reserve sufficient for 
 the service of its current accounts, and that is 
 held to be a natural state when the reserve, 
 whether in notes or specie, represents about one- 
 half of the amount of the deposits. When the 
 reserve reaches or exceeds this moiety, that is sup- 
 
 * See description of the banking reserve by Mr. Weguelin, 
 page 427, post. 
 
 P 2 
 
3121 THE BANK OF ENGLAND. 
 
 posed to be a satisfactory state, and the Bank 
 then lowers its discounts to enlarge its business ; 
 on the other hand, it raises its discounts when 
 its reserve in bank-notes or specie descends be- 
 low this proportion, being obliged in that case 
 to reduce its business, in order not to exhaust 
 its reserve. 
 
 This practice of the Bank of England is exem- 
 plified in its weekly returns, and the last account 
 in the last year will serve as well as any other for 
 the example. 
 
 Bank or England. 
 
 An Account pursuant to the Act 7th and 8th 
 Victoria, cap. 32, for the Week ending on Wed- 
 nesday, the 28th day of December, 1864. 
 
 Issue Department. 
 
 
 £. 
 
 £. 
 
 Notes Issued 
 
 . 28,036,475 
 
 GovernmentDebt 11,015,100 
 Other Securities 3,634,900 
 Gold Coin and 
 
 BuUion . . 13,386,475 
 Silver Bullion . 
 
 
 £28,036,475 
 
 £28,036,475 
 
THE DISORGANISATION OF CREDIT. 213 
 
 Banking Department. 
 
 Proprietors' Ca^ 
 pital . . 
 
 Eest . . . 
 
 Public Deposits, 
 including Sav- 
 ings' Banks, 
 Commissioners 
 of National 
 Debt, and Di- 
 vidend Ac- 
 counts . . . 
 
 Other Deposits 
 
 Seven Days and 
 other Bills 
 
 14,553,000 
 3,356,854 
 
 8,601,125 
 13,040,643 
 
 437,450 
 £39,989,072 
 
 Government Se^ 
 curities, (in- 
 cluding Dead 
 Weight An- 
 nuity) . . . 
 
 Other Securities 
 
 Notes .... 
 
 Gold and Silver 
 Coin . . . 
 
 10,824,542 
 
 19,786,541 
 
 8,663,490 
 
 714,499 
 
 £39,989,072 
 
 W. MiLLBE, Chief Cashier. 
 Dated the 28th December, 1864. 
 
 According to the supposed rule, all that was 
 wanted to place the Bank in what is called a satis- 
 factory position was, the addition of £1, 661^620, 
 to the reserve in the Banking Department. The 
 Bank -rate of discount might then have been 3 per 
 cent., instead of 6 per cent. 
 
 With upwards of thirteen millions, sterling, in 
 gold coin and bulhon, in the Issue Department, 
 the amount of notes and gold and silver coin in 
 the Banking Department was only £9,377,989, 
 to meet deposits amounting to £22,079,218, in- 
 clusive of seven days and other Bills, amounting 
 to £437,450. 
 
214 THE BANK OF ENGLAND. 
 
 If the Bank could have issued only £1,661,620 
 more of notes, the bank rate of discount, instead 
 of being at 6 per cent., might have been, accord- 
 ing to the rule, at 3 per cent., and the average of 
 the whole year, instead of being upwards of 7 per 
 cent., might have been under 4 per cent. It was 
 just this state of things. In a little higher degree, 
 which brought upon the country the disasters of 
 1847, 1857, and 1866. 
 
 In 1847, when the Government authorised the 
 unlimited power of issue, so small was the ad- 
 ditional quantity of notes required that, the whole 
 amount taken from the Bank was under £400,000. 
 It was sufficient that the Bank was enabled to 
 use more freely its reserve of notes, being then 
 safe in the power of renewing them if wanted. 
 
 In 1857, the notes authorised to be issued in 
 excess of the Parliamentary limit was £2,000,000, 
 and this power the Bank did not fully exercise. 
 It availed itself of this credit to the extent only of 
 £917,000; but the discounts were more freely 
 made, the public confidence was restored, and the 
 panic ceased. Discounts fell immediately four per 
 cent., that is, from 10 to 6 per cent., and later 
 to 2 5 per cent. 
 
 In 1866 the Government authority, though 
 given, was not used. The Government on these 
 two first occasions acted on the demand of the 
 Bank, and the Bank on the dernand of the Public. 
 
THE DISORGANISATION OF CREDIT. 215 
 
 Thus, it appears that the Bank of England 
 raises the rate of discount only for want of Bank- 
 notes. 
 
 The Bank of France raises the rate of discount 
 only for want of specie.* 
 
 The Bank of England has no want of specie. 
 All the gold that is brought to the Bank is 
 buried in the vaults of the Issue Department, 
 and notes are withdrawn by those who bring the 
 gold in exchange. Consequently, this in no way 
 helps the Banking Department for discount. 
 
 If the Bank of England see with regret the 
 withdrawal of specie from the Issue Department, 
 by the operations of the Bank of France, that 
 regret is not from any fear for the loss of the 
 gold, but only for the consequence, in a corre- 
 sponding withdrawal of bank-notes from the 
 Issue Department, thereby diminishing the 
 already insufficient amount of notes in circu- 
 lation, as proved, with such terrible effect, in 
 these three several periods. 
 
 M, Pereire asks this very pertinent question : — • 
 
 " Des lors, en quoi consiste cette pretendue 
 solidarite entre notre encaisse et celui de la 
 Banque d'Angleterre ? 
 
 " Le mal, le veritable mal est dans la dispro- 
 
 * " La Banque de France," — Par M. Isaac Pereire, page 
 59-60. 
 
216 THE BANK OF ENGLAND. 
 
 portion de I'encaisse de la Banque de France 
 avec le chifFre de ses emissions. 
 
 "La Banque de France a une circulation de 
 billets qui depassegeneralement celle de la Banque 
 d'Angleterre de 250 a 300 millions de francs, et, 
 malgre une pareille difference dans le chiffre de 
 ses emissions, son encaisse est toujours inferieur 
 a celui de la Banque d'Angleterre ; cette inferio- 
 rite a ete de 185,8yi,840 fr. au commencement 
 de la presente annee." * 
 
 This is noticed by M. Pereire as a very re- 
 markable fact, and so it is, when the relative con- 
 ditions of England and France are taken into con- 
 sideration. 
 
 The Bank of England, (as M. Pereire truly 
 observes), reduced in a manner to the character 
 of a bank of deposit, can respond no more to 
 the wants of British commerce ; capital is abun- 
 dant, but its circulation is immediately fettered 
 by an extreme penury of credit- money, an ele- 
 ment indispensable in all transactions of a cer- 
 tain importance. In restricting the Issue within 
 too narrow limits, the capital, besides, finds 
 itself deprived of one of the most powerful means 
 , of action for lowering the rate of interest. 
 
 This opinion, coming from the highest autho- 
 rity on the subject in France, deserves the serious 
 
 * Ibid, page 60. 
 
THE DISORGANISATION OP CREIilT. 217 
 
 consideration of the authorities in this country, 
 and, certainly, more respectful attention than it 
 has received in the answer of the Economist, 
 for Saturday, December 17, 1864. The "slight 
 haze," which that Writer imputes to M. Pereire's 
 exposition, is not there, wherever it may be, and 
 M. Pereire wisely withholds from entering into 
 details which would only enable opponents still 
 further to entangle the question. 
 
 That the writer in the Economist has not mis- 
 understood M. Pereire's proposition for replenish- 
 ing the reserve of gold by sale of Government 
 Securities is clear from the manner of referring 
 to his proposition as not clear. 
 
 But the opinion of M. Pereire is entitled to, 
 at least, as much weight as the dictum of an 
 anonymous writer in the Economist. 
 
 A National Bank ought to be a reservoir of 
 money for supplying the wants for the trade and 
 industry of the country, and, consequently, a 
 National Bank ought to be so organised as to be 
 able to satisfy all legitimate demands on reason- 
 able terms. A National Bank ought to be this, 
 and nothing more. 
 
 The inconvenient consequences of the fluctua- 
 ting and high rates of discount to which this 
 country has been subject since the passing of the 
 Bank Act in 1844, are of such deep importance 
 
218 THE BANK OF ENGLAND. 
 
 to the country as to justify the demand for a 
 remedy, especially when the cause is attributed 
 by so many high authorities to that Act, which 
 was passed with the professed view of producing 
 the very contrary effect. 
 
 But if the limit of the credit circulation were 
 fixed to meet the want in 1844, it seems hardly 
 reasonable to suppose that, the same liuiit shoul 
 be suitable to the altered circumstances of twenty 
 two years later, with population and trade so 
 greatly increased. 
 
 That is, certainly, a deplorable system which 
 creates establishments for the avowed object of 
 aiding and protecting trade and industry, and 
 practically only developes the production of profit 
 to those who are the agents employed to carry 
 out the system. 
 
 But this appears to be the practical effect of 
 the Bank Act of 1844, in its operation on dis- 
 counts ; — serious and often ruinous loss to trade; 
 great and often inordinate gain to the Bank. It 
 is difficult to imagine any parallel to this de- 
 parture from the professed principle, of confer- 
 ring benefit on the community, for that is the 
 professed principle of the Bank Act of 1844, 
 not increasing the profits of the Bank of !Eng- 
 land. 
 
 On what other principle than public benefit 
 
THE DISORGANISATION OF CREDIT. 319 
 
 could the Government justify the appropriation 
 of £14,000,000 of the National Debt to a 
 Banking Company ? 
 
 Every successive Bank Charter Act shows the 
 intention of the Government to cut down the 
 profits of the Company, and though the yearly 
 allowances have been reduced, yet, by the much 
 higher rates of discount since 1844, the profits 
 of the Bank must have been very largely in- 
 creased, and in much larger proportion must 
 have been the losses inflicted on the commu- 
 nity. 
 
 The Bank of England might well consent to 
 confine its profits to its own capital when the 
 average rate of discount is doubled, and was, 
 during the whole of the year, 1864, more than 
 double what ought to be the average ^ate in this 
 country. 
 
 The very fact that, since the year, 1844, a 
 National Discount Company has been esta- 
 blished close to the Bank of England, and has 
 been paying upwards of 20 per cent, per annum 
 on the subscribed capital, is a strong condem- 
 nation of the Act of 1844, for such a Company 
 could hardly have existed previously to that 
 Act.* 
 
 What can be more conclusive evidence of the 
 
 * " The Keport of the National Discount Company, to be 
 
220 THE BANK OF ENGLAND. 
 
 vicious system of the Bank of England than the 
 fact that, during the year 1864, when the Bank- 
 rate of discount was 8 and 9 per cent., the Joint- 
 Stock Banks did not trouble themselves with 
 the variations of the Bank-rate, but allowed to 
 their depositors the same rate of interest as 
 before ? 
 
 The only answer is that, the vicious system 
 of the Bank of England raises the rate of dis- 
 count when money is most wanted, and, in- 
 stead of keeping the rate steady between 2 and 
 3 per cent., keeps it in a state of continual fluc- 
 tuation, and raises the average to more than 
 double. 
 
 If the true object of the Bank of England, 
 as the National Institution of Credit as well as 
 Banking, were kept more clearly in view, it 
 would be seen that, the Bank of England, as at 
 present constituted, operates so imperfectly for 
 the organisation of credit that, it actually en- 
 courages rival institutions for the very purpose 
 of sharing with the Bank of England the enor- 
 mous profits of those times of commercial dis- 
 tress which itself creates. 
 
 presented oa the 26th inst., states the available total (includ- 
 ing a previous balance of £4,753) to be £70,092, and recom- 
 mends a dividend at the rate of 20 per cent, per annum, which 
 will absorb £60,000, and leave £10,092 to be carried for- 
 ward."— Z%e Times, City Article, Saturday, July 13th, 1865. 
 
THE DISORGANISATION 6F CREDIT. 221 
 
 There is no mistake more mischievous than 
 the popular error that, the rate of interest de- 
 pends on the abundance or scarcity of capital. 
 
 A.t no time can it be said that, there is a 
 scarcity of capital in this country, the fact being 
 that, capital is always in abundance in this 
 country. 
 
 But it is equally true that, the lowest rate of 
 interest has not been found in those nations 
 which have had the most capital. 
 
 To prove this, it is only necessary to com- 
 pare the history of Spain and Portugal with 
 Italy, Holland, and England. 
 
 After the discovery of America, a great quan- 
 tity of gold and silver was spread over the world, 
 and the price of these metals was considerably 
 lowered, but the rate of interest did not vary. 
 
 The same result has followed the working of 
 the mines of the precious metals in Australia and 
 California. 
 
 Whether it be possible to influence the rise and 
 fall of the rate of interest, is a question which 
 does not admit of a simple answer. 
 
 This question is a compound of the economical 
 and the political. 
 
 In the economical point of view, the rate of in- 
 terest expresses the supply and demand of capital. 
 
 In the economical point of view, the lowering 
 
232 THE ByVNK OP ENGLAND. 
 
 of the rate of interest is the direct result of the 
 abundance of capital, and the tendency to a 
 low rate in this country is the evidence of that 
 abundance. 
 
 In the political point of view, the rate of in- 
 terest is influenced by the relative situation of 
 the class which possesses the capital, and the 
 class which employs it, of the more or less inde- 
 pendence of the one towards the other, of the 
 importance of wealth in the social position, and 
 its influence in the administration of public af- 
 fairs. 
 
 In this country, notwithstandmg the continual 
 fluctuations, the interest of money has, until the 
 last fifteen years, shown a constant tendency to 
 lowering. 
 
 A little elevation of interest is a sign of pro- 
 sperity in trade, and without a certain elevation 
 there is a lack of encouragement to industry. 
 
 This is the indispensable condition for the de- 
 velopment of labor. 
 
 Enterprises are then multiplied, and a fruitful 
 energy then animates all portions of society, 
 salaries augment, consumption extends and in- 
 vites production, savings are formed, and the 
 increasing accumulation of capital comes with a 
 new power to give life to creations of all kinds, 
 for the which industry, science, and the arts 
 
THE DISORGANISATION OF CREDIT. 223 
 
 concur to ameliorate and ennoble the conditions 
 of human existence.* 
 
 This is the eloquent language of M. Pereire, 
 and millions in this country will respond to it. 
 
 M. Pereire regards it as one of the first duties 
 of the Government, to exercise its power for ac- 
 celerating the natural tendency of the rate of 
 interest to fall ; and is of opinion that the Go- 
 vernment, as one of the largest consumers of 
 capital, must always have a powerful influence 
 over this question. 
 
 Nor is the natural tendency of the rate of 
 interest to fall without compensation to land- 
 owners and capitalists, for the value of all real 
 and personal property is thereby directly affected. 
 
 It is, therefore, not so much the fixity of the 
 rate of interest that is to be desired, as the fixity 
 of the tnaximum at such a rate as will permit 
 capital to be distributed in the manner most 
 conducive to industry, and as long as the interest 
 on the public debt is fixed at 3 per cent., the 
 maximum for the Bank rate of discount should 
 never exceed 4 per cent. 
 
 Extraordinary occasions may occur to raise the 
 interest of money to a higher rate than 4 per 
 cent., but few, if any, such occasions have oc- 
 curred in this country, within the last fifty years, 
 
 * M. Pereire. " La Banque de France."— page 68. 
 
224 THE BANK OF ENGLAND. 
 
 whicli might not have been avoided, if the Bank 
 of England had been established and conducted 
 on sound principles. 
 
 The rate of interest is never otherwise than 
 relative. It expresses a state of things existing 
 at a given moment, but engages nothing for the 
 future. No one has ever spoken of a fixed rate 
 of interest in any other sense than this. 
 
 The regulating cause of the rate of interest is 
 no other than the relation existing between the 
 aggregate of the wealth and the aggregate of the 
 wants of a country. 
 
 When Turgot founded the Bank of Discount 
 in 1776, and imposed on it the mawitnum of 4 
 per cent., he no more reckoned on fixing pos- 
 terity to this rate of interest, than the First 
 Napoleon, when he wrote in these words to M. 
 Mollien : 
 
 "Lacken, 15 Mai, 1810. 
 
 "Je refois votre lettre du 8. Ce que vous 
 devez dire au gouverneur de la Banque et aux 
 regents, c'est qu'ils doivent ecrire en lettres d'or, 
 dans le lieu de leurs assemblees, ces mots : Quel 
 Est Le But De La Banoue De France ? — D'Es- 
 
 COMPTER LeS Cr^ITS De ToUTES liEsMAISONS 
 
 De Commerce A Quatre Pour Cent." 
 
 In the same way, in 1806, he scolded the Bank 
 for having raised its discount to 6 per cent. 
 
THE DISORGANISATION OF CREDIT. 225 
 
 " Berlin, 14 Novembre, 1806. 
 
 " Vous devez dire au gouverneur de la Banque 
 que je pense que, dans les circon stances actuelles, 
 IlEstScandaleuxd'Escompter a6%. Elle ne 
 doit pas qu'elle escomptait deja a 6 % lorsque 
 les maisons de commerce faisaient leurs operations 
 sur le taux de 9 %. II est done convenable de 
 revenir a I'ancien taux de 5 %. 
 
 " Napoleon." 
 
 These are the instances given by M. Pereire 
 (page 73 of his brochure). 
 
 As he remarks, if in 1776 and in 1810, the 
 rate of discount for the great privileged establish- 
 ments of credit, [" les grands etablissements de 
 credit privilegies,"] appeared to be at its natural 
 price at about 6 percent., there v\ras nothing very 
 rash in thinking that we might be able, in our 
 days, to reduce it without inconvenience to 3 per 
 cent. M. Pereire goes on to add, " c'est effec- 
 tivement ce qu'a voulu et ce qu'a realise M. Bi- 
 neau, en 1852, sous I'inspiration del'Empereur." 
 
 The effect of the reduction of the rate of dis- 
 count to 3 per cent, by the Bank of France, on 
 the 3rd March, 1852, through the interference 
 of the French Government, is thus described by 
 M. Pereire : — 
 
 " L'effet de ces simples mesures ne se fit pas 
 attendre. On sait I'impulsion que repurent toutes 
 
 Q 
 
226 THE BANK OF ENGLAND. 
 
 les affaires, rimmense developpement que prirent 
 nos travaux publics, par suite de la reduction de 
 rescompte a 3 % et de I'admission des valeurs de 
 chemins de fer au benefice des avances de la 
 Banque de France sur le meme pied que les eflfets 
 de commerce. 
 
 " Ce mouvement fut rapide, instantane ; I'a- 
 bondance etait revenue avec la confiance, et ce- 
 pendant on sortait a peine d'une situation de 
 trouble et de revolution, pendant la duree de 
 laquelle le capital national etait loin d'avoir aug- 
 mente." 
 
 The creative power of the social forces, when 
 encouraged and brought into action, is seldom 
 taken sufficiently into account : on the other 
 hand, the greatness of the loss which follows 
 the least stoppage in the employment of those 
 forces, and the importance of the capitals lost by 
 the eflFect of an unproductive expenditure or the 
 false measures which have arrested the comple- 
 tion, are not sufficiently measured. 
 
 But though it be true that supply and demand 
 make the general law, which fixes the interest of 
 money, and regulates the rate of discount, yet 
 there is nothing absolute in the rate of interest ; 
 it varies more or less according to the relation of 
 the supply to the demand ; and it is easy to show 
 how, under our artificial system of finances, this 
 
THE DISORGANISATION OF CREDIT. 227 
 
 general law can be influenced and modified so as 
 to steady and lower the interest of money and 
 the rate of discount. 
 
 Banks, and Joint Stock Banks especially, have 
 been formed for the object of bringing cheap 
 capital to labour. 
 
 They perform the intermediate part of uniting 
 and concentrating capitals, on the one hand, and 
 on the other, of distributing them among the 
 various parties in the great social workshop. 
 
 It is these Banks which have mainly contri- 
 buted to break down the usurers and to lower 
 the rate of interest for money ; but, at the same 
 time, to give it a certain fixed elevation. 
 
 The mechanism of the Banks, which have 
 issued their own notes, has also given marvellous 
 aid in this operation. 
 
 This mechanism consists in replacing a portion 
 of the money of the country by the credit-money, 
 — ^in the substitution, for the office of money, of a 
 capital which costs nothing, in comparison with a 
 corrfesponding portion of capital in the precious 
 metals, which serves for the wants of exchanges. 
 
 But the Bank-paper can circulate on equal 
 terms with the money only on the condition of 
 being convertible into money, of gold or silver, 
 and, therefore, there can never be an excess of 
 issue, unless when the paper has a forced cir- 
 
 Q 2 
 
228 THE BANK OF ENGLAND. 
 
 dilation, than which nothing is more detes- 
 table. 
 
 It is necessary, then, that every bank should hold 
 in reserve, or hold the power of obtaining imme- 
 diate possession of, a certain proportion of the pre- 
 cious metals in order to comply with this condition. 
 
 The proportion depends on the special credit 
 of each bank. 
 
 It varies generally from a third to a half of 
 the amount of the circulation ; but in this respect 
 it is necessary that, the responsibility of these 
 establishments should be complete, and the gua- 
 rantees which they owe to the public no Govern- 
 ment could be justified in diminishing. 
 
 The obligation to maintain constantly the re- 
 lative state of account recognised as necessary 
 between their treasure chest and their circulation 
 draws away the advantages which are conceded 
 to them. It is even the condition of these ad- 
 vantages. 
 
 From this results the necessity to constitute a 
 capital, the object of which is to form a fund for 
 satisfying the demand for repayment of the notes 
 issued ; it is useless to add that, this capital serves 
 to guarantee the creditors of these establishments; 
 but this character of guarantee, which it ought to 
 present in every case, is superior to the use that 
 they are able to make of it ; it is independent of 
 
THE DISORGANISATION OF CREDIT. 229 
 
 the mode of placing, of the form under which it 
 is represented. 
 
 The banks receive, besides, deposits, whether 
 public or private, on current accounts without 
 interest; except the Joint Stock Banks which 
 allow interest. 
 
 The Country Banks can, or rather could for- 
 merly, issue paper notes, on which they had no 
 interest to pay, to an amount the double or treble 
 of their capital, and thus realise, with the produce 
 of the sums deposited with them in account cur- 
 rent, a benefit triple or quadruple the interest of 
 their social position. 
 
 Apart from the £14,000,000 (now £15,000,000) 
 the credit capital of the Bank of England, — which 
 ought to be realised in its treasury, — the ordi- 
 nary movement, resulting from the play of its 
 operations, leaves disposable in the Banking De- 
 partment from 5 to 6 millions, and from the 
 bullion in the Issue Department might safely be 
 taken the same amount, thus forming a fund 
 which would carry security to a further issue of 
 Notes to about 10 or 13 millions, and even 
 beyond, according to the wants of the com- 
 munity. 
 
 Thus, for example, taking the actual situation 
 of the Bank of England on the 7th September, 
 1864:— 
 
230 THE BANK OF ENGLAND. 
 
 The amount of deposits, in- 
 cluding, (instead of excluding), 
 the bills, at 7 days' sight, being £19,483,717 
 
 And taking one- half for the 
 rule 9,741,858 
 
 The Notes and Specie in the 
 Banking Department being only 6,810,582 
 
 The deficiency is . . £2,931,276 
 
 In this state of the Banking Department, ac- 
 cording to the rule, there is no legitimate reserve 
 for discount, and consequently the rate of dis- 
 count rises to 8, 9, and 10 per cent. 
 
 But if this deficiency of £2,981,276 had been 
 made up out of the bullion in the Issue Depart- 
 ment, as it might safely have been, the Banking 
 Department would have been in, what is called, 
 — a normal condition, and according to its own 
 rule, might have safely discounted at 3 per cent.; 
 whereas, on the 7th September, 1864, the Bank 
 rate of discount was 9 per cent. 
 
 But, if there had been no separation between 
 the Issue Department and the Banking Depart- 
 ment, the whole of the bullion in the Issue De- 
 partment would have been in the Banking De- 
 partment, and the account would have stood 
 thus : — 
 
THE DISORGANISATION OF CREDIT. 231 
 
 Bullion in the Issue Depart- 
 ment £12,226,895 
 
 Deficiency in the Banking De- 
 partment 2,931,276 
 
 Surplus . . £9,295,619 
 
 If from this surplus were set apart 2 millions 
 to meet the ordinary demand for gold, this would 
 leave £7,295,619 applicable to the further issue 
 of notes according to the want, and the rate of 
 discount might have been safely brought down 
 to 3 per cent. 
 
 With such means as these, it is easy to see 
 that the power, even of the Bank of England 
 alone, properly constituted, with real capital, 
 would be sufficient to keep the rate of interest 
 within certain moderate limits ; but, with the aid 
 of the enormous capitals united in the other 
 Banks, it is manifest that the money-market is, in 
 a great measure, under their joint control; though, 
 from the periodical inflowing of capital, after pay- 
 ment of the Dividends on the public debt, in the 
 form of deposits, on which no interest is paid, 
 the Bank of England must always maintain the 
 superior controlling power. 
 
 With such object the Banks have been insti- 
 tuted. Their mission, as M. Pereire remarks, is 
 
232 THE BANK OF ENGLAND. 
 
 to procure cheap capital for industry and com- 
 merce. The Public are, therefore, entitled to 
 demand from them an account of the manner in 
 which they fulfil their mission, and to require 
 that such arrangements be made as are best cal- 
 culated to effect the object. 
 
 And after all, it is not these establishments 
 which give credit to commerce ; but, on the con- 
 trary, it is commerce which gives them credit, 
 in availing itself of their notes, and in bringing 
 to them, without any remuneration, the whole of 
 its disposable funds. It is, therefore, not too 
 much to demand for the public a participation in 
 such advantages in the form of moderate dis- 
 count. 
 
 But, if the power of the Banks be great for 
 good, it is no less great for evil, especially when 
 they are invested with an exclusive monopoly, 
 and their power is without counter-weight. 
 
 They can, at their pleasure, use the immense 
 capitals at their disposal for the purpose of raising 
 as well as lowering the rate of discount. 
 
 Left to themselves and to the impulses of their 
 own private interests, it is very easy for them to 
 augment their benefits at their pleasure, and so 
 to increase the charges of labor in proportions 
 which cannot be measured by these benefits only, 
 for the loans which they effect are but the smallest 
 
THE DISORGANISATION OF CREDIT. 233 
 
 fraction of the whole of the operations of the same 
 kind. 
 
 It is here that the watchful superintendence 
 of the power is indispensable to prevent such 
 abuse. 
 
 Having placed these premises, let us examine 
 into the actual Working of the Bank of England ; 
 let us see how far it has been faithful to its 
 mission, how far it has comprised and protected 
 the interests of trade and industry, of which it 
 ought to consider itself the guardian. 
 
 The facts unfortunately answer these ques- 
 tions. 
 
 The Bank of England, as already shown, has 
 been in the habit of regarding the exercise of its 
 privileges as a private affair ; the capital which it 
 deducts gratuitously from the circulation is re- 
 garded only as private property of the same 
 nature as all other private property, to be used 
 by the Bank for its own profit. 
 
 The more abundant is this capital, the greater 
 are the benefits to be derived from it. 
 
 The Bank of England has not escaped the 
 common tendency of the country banks of issue, 
 to augment the issue of paper-notes, which cost 
 nothing, without augmenting the proportion of 
 its specie. 
 
 Thus, as before shown, on the 7th Sep- 
 
234 THE BANK OF ENGLAND. 
 
 tember, 1864, the amount of notes issued was 
 £26,876,895, and the amount of notes in reserve 
 was £6,067,030, leaving the notes in circulation 
 £20,809,865. 
 
 The bullion in the Issue Depart- 
 ment was . . . . £12,226,895 
 And the coin in the Banking 
 
 Department . . . . 743,552 
 
 Making together . . . £12,970,447 
 
 The deposits and bills at 7 days' 
 
 sight amounted together to . £19,483,717 
 
 We know that, this is a state of things result- 
 ing from the rigid mechanism of the Issue 
 Department, and though the convertibility of the 
 note be not in question, still this is a very ano- 
 malous state of things, which retains in the 
 Issue Department bullion to the amount of 
 £12,226,895, and in the Banking Department 
 coin to the amount only of £743,552, and a 
 reserve of notes to the amount only of £6,067,030, 
 to meet deposits and bills to the amount of 
 £19,483,717. 
 
 The year 1864, was the longest continuous 
 period of monetary disturbance in this country, 
 short of an actual crisis, that has occurred within 
 living memory. 
 
THE DISOKGANISATION OF CREDIT. 235 
 
 With the exception of the few weeks in 1857, 
 when the rate of discount rose to 10 per cent., 
 money has been dear beyond precedent, the 
 average rate of discount during the whole of the 
 year, 1864, having exceeded 7 per cent. 
 
 Trade has been carried on under a continual 
 pressure, with all the well-known symptoms of 
 an approaching panic, and with all the dread 
 of the consequences. 
 
 A vague impression of impending ruin to 
 many pervaded the City of London, and the 
 same feeling prevailed abroad. 
 
 Paris, Frankfort, and Amsterdam, trembled 
 for themselves, but much more for London. 
 
 Credit was shaken, and industry was para- 
 lysed throughout this country, and expectation 
 waited for another suspension of the Bank Act, 
 or a general collapse of trade. 
 
 By slow degrees, and without any other inter- 
 ference than a rapid rise of the rate of discount 
 to nine per cent., the alarming symptoms sub- 
 sided and the anticipated panic was averted,' but 
 not until many old and well-established houses 
 had fallen. 
 
 The public mind is oppressed by the sense of 
 this frequently occurring danger, and bewildered 
 by the various and different causes to which 
 it is attributed. Over-trading, over-speculating. 
 
236 THE BANK OF ENGLAND. 
 
 and the export of gold, are familiar phrases 
 with those who attribute the high rate of in- 
 terest to one or all of these causes. 
 
 But, when these causes are separately ex- 
 amined, each will be found to be quite insuffi- 
 cient for any such general and extensive effect ; 
 and, when taken in the aggregate, will be found 
 to be quite inconsistent with each other; the 
 true answer being that, each or all of these as- 
 sumed causes has little or no influence on the 
 subject in question. 
 
 Whatever meaning may be attached to over- 
 trading or over- speculating, — -and what it does 
 mean is by no means clear, — that can in no way 
 affect the general rate of the interest of money, 
 for neither the supply nor the demand for ca- 
 pital can be thereby perceptibly, if at all, dimi- 
 nished. All trading is more or less speculative, 
 and over-trading or over-speculation will, cer- 
 tainly, correct itself. 
 
 Neither can the cause be reasonably attri« 
 bute'd to foreign loans, foreign remittances, or 
 the export of gold, for although these might in 
 time operate to some extent to diminish the 
 supply of capital in proportion to the demand 
 for industrial purposes at home, yet this demand 
 would itself provide the remedy, and reduce the 
 extent and duration of the mischief, so as to 
 
THE DISORGANISATION OF CREDIT. 237 
 
 render it impossible that such a cause could 
 continue to produce the effects which have been 
 witnessed through the long period of the past 
 year. 
 
 Under our present . system of credit, engage- 
 ments in trade necessarily extend far into the 
 future, and as immediate contraction is supposed 
 to offer the only escape from a money-crisis, 
 such a remedy cannot fail to produce great anx- 
 iety and also great embarrassments to those 
 engaged in trade. 
 
 But if, instead of this remedy of sudden con- 
 traction of credit, by suddenly raising the rate 
 of discount to 8, 9, or 10 per cent., the ordinary 
 rate were gradually raised 1 or 2 per cent., 
 until the equilibrium in the value of money be- 
 tween this country and foreign countries were 
 restored, the disastrous consequences from these 
 sudden and great variations might be avoided. 
 
 As before observed, the object to be aimed at 
 is not to preserve a uniform rate of discount in 
 this country, but to maintain a uniformity in the 
 value of the British Currency with that of other 
 countries. 
 
 It is not denied that, when the value of money 
 is lower in this country than in other countries, 
 the foreign demand will come into competition 
 with the home demand, and that, the equili- 
 
238 THE BANK OF ENGLAND. 
 
 brium being disturbed, one of the means for 
 restoring it is, to raise the rate of discount. But 
 the present question is, whether there be not 
 other means, equally prompt, more effectual, and 
 less injurious. Nothing so absurd is proposed 
 as any interference with the free circulation of 
 money, which must always be free in spite of all 
 attempts to the contrary. 
 
 The object is to establish the Bank of Eng- 
 land on such a principle as shall effectually pre- 
 vent the disastrous consequences to this country 
 from these great and sudden and continually re- 
 curring variations in the state of credit, resulting 
 from the fluctuations in the value of money, or 
 in the price of gold, which is the same thing. 
 
 Every country must be liable to these fluctu- 
 ations, according to the variations in the supply 
 and demand of the precious metals, and although 
 these fluctuations can never be wholly prevented, 
 yet they may be so far controlled and regulated 
 as not to affect credit perceptibly in this country, 
 instead of being aggravated, as they now are, by 
 the constitution and practice of the Bank of 
 England. 
 
 It is obvious that the transactions of general 
 commerce cannot be suddenly curtailed without 
 serious derangement of the labor market, and, 
 as a necessary consequence, wide spread misery. 
 
THE DISORGANISATION OF, CREDIT. 239 
 
 Of this the sudden interruption to our cotton 
 trade is a striking example. But, notwithstand- 
 ing this and the high rates of interest, with the 
 constant apprehension of an impending crisis, 
 although we have not escaped the serious con- 
 sequences of the derangement of our labor 
 market, yet, the general trade of this country 
 has not only not diminished, but has actually 
 increased, though the profits have greatly dimi- 
 nished. 
 
 How much greater might have been the in- 
 crease, and how much lost capital might have 
 been saved, if the Bank of England had been so 
 constituted as to aid, instead of aggravate, the 
 difficulties created by the high rate of discount, 
 is a question which can never be answered ; but, 
 if the loss have been greater than the cost which 
 might have prevented that loss, then the means 
 of applying the less costly remedy becomes a 
 question of the first importance. 
 
 It is true that, our recent financial difficulties 
 and high rates of discount are attributable, to 
 some extent, to the interruption of the cotton 
 trade, and that Egypt, India, and other countries, 
 in their endeavours to supply the demand for 
 cotton, have taxed the paying powers of this 
 country much more than America ever did in 
 furnishing the supply. America, in the general 
 
240 THE BANK OF ENGLAND. 
 
 course of trade, took payment not in bullion but 
 in our manufactured goods. But Egypt and the 
 other countries, well adapted by soil and climate 
 to the growth of cotton, have had to make costly 
 preparations for supplying this demand ; and, 
 with the price of cotton increased 150 per cent., 
 those countries could well afford to borrow money 
 at 10 or even 15 per cent., for the profit of such 
 a market price. 
 
 The interruption of the cotton trade, therefore, 
 far from contracting the liabilities of this country, 
 as might naturally have been expected, has, on the 
 contrary, actually increased them by the new 
 forms of foreign commerce which have arisen 
 out of this interruption. For, to this country 
 all foreign countries come for money. 
 
 In this state of things, and during the con- 
 tinuance of this transition state, the normal rate 
 of discount has necessarily changed, and has been 
 no longer 3 or 4 per cent., but 7 or 8 per cent. 
 
 If this be a necessary consequence, as undoubt- 
 edly it is, any attempt at forcible prevention must 
 be unphilosophical and in vain. 
 
 This is admitted in the fullest sense. 
 
 But, the Bank of England, by its defective 
 constitution and injurious practice, has greatly 
 aggravated this state of things to the loss and 
 injury of the general trade of this country, by 
 
THK DISORGANISATION OF CREDIT. 241 
 
 diminishing its productions, and pressing with 
 ruinous severity on all trades and industry. 
 
 An increase in the Imports and Exports, 
 though evidence of increase in the commerce, is 
 no evidence of increase in the productions and 
 general prosperity of the country. 
 
 If, in the year 1864, the productive powers of 
 this country were curtailed, and the productions 
 actually diminished, the passage of goods into 
 and from this country is but a very imperfect 
 criterion of prosperity. 
 
 The total value of Imports into this country 
 in the year 1864, exceeded the total value in the 
 year 1863, by nearly £2,000,000; but the total 
 value of Exports from this country in the year, 
 1864, was less than the total value in the year 
 1863 by upwards of £2,000,000. 
 
 An enormous amount of capital has been 
 transferred from this country into other countries 
 on terms very profitable to the capitalists, but not 
 yet productive of any sensible benefits to this coun- 
 try. In the mean time this great outflow of capital 
 and the consequent rise in the rate of discount, 
 from the increased demand with the diminished 
 supply, has checked all our manufactures, throw- 
 ino-out of employ large multitudes of our working 
 classes, and reducing the general rate of wages 
 throughout the country. 
 
242 THE BANK OF ENGLAND. 
 
 This is one of the evils through which every 
 country must pass when, like this country, it is 
 mainly dependent on its trade and manufac- 
 tures. 
 
 But this particular evil, arising out of the civil 
 war in America, need hot be aggravated by 
 raising the price of money in this country, or 
 making money scarce because cotton is scarce, 
 or withdrawing bank-notes because gold is with- 
 drawn. 
 
 Gold, like every other marketable commo- 
 dity, must go to the best market, and every 
 attempt to prevent the operation of this na- 
 tural law must be in vain ; but this is no reason 
 for withdrawing bank-notes, which represent 
 gold, if the Bank of England be able, as it 
 easily might be, to compete with other countries 
 in the open market for the purchase of gold. 
 Neither is this any reason for making the Bank 
 of England liable 'by law to sell £15,000,000 
 worth of gold, more than the Bank possesses, 
 at the fixed price of £3. 17*. \0^d. per ounce. 
 But for this most unscientific and impolitic inter- 
 ference of the legislature, the trade and wealth of 
 this country would attract all the gold required 
 by the country, under any circumstances, at a very 
 trifling per centage beyond its ordinary market 
 value. An attempt to maintain a fixed price for 
 
THE DISORGANISATION 01' CREDIT. 243 
 
 gold against the wants of other nations, must in- 
 volve a loss, exceeding any possible advantage to 
 be derived from such an attempt. 
 
 It may be, and often vpill be, that, in this 
 competition losses will be incurred by the Bank 
 of England, but that is a necessary and una- 
 voidable incident to the economical use of paper 
 for gold, and ought to be considered as part 
 of the inevitable cost of this contrivance ; and 
 as it is one of the first duties of the State to 
 supply money at all times equal to the require- 
 ments, the cost incurred in the performance of 
 that duty ought to fall upon the Bank of England, 
 under the terms of the agreement between the 
 Bank and the State, but certainly not upon the 
 community, by a scarcity of money and conse- 
 quent rise in the rate of interest. 
 
 But in this country and in France this unavoid- 
 able evil, instead of being mitigated, is greatly 
 aggravated by the peculiar constitutions of the 
 Bank of England and the Bank of France, by 
 making these institutions trading associations for 
 their own profit, instead of National Banks for 
 the steady and productive flow of money at all 
 times equal to the requirements. 
 
 There is no reason why the steady flow of 
 money should be interrupted in the country where 
 the capital exists, whatever may be the fluctua- 
 
 R 2 
 
244 THE BANK OP ENGLAND. 
 
 tions to which that capital is subject; and the 
 requirements of money for the transfer of capital 
 must always be in proportion to the capital to be 
 employed. 
 
 When the gold is flowing out of this country 
 at the rate of 10 or 15 per cent., it is idle to 
 be thinking of employing it in this country at 4 
 per cent. But it is active mischief to allow the 
 Bank of England to be trading with its credit, 
 for the purpose of sharing in the profits of that 
 gold trade, at the cost of the trade and industry 
 of this country. 
 
 And that is just what the Bank of England Is 
 doing whenever the opportunity occurs. 
 
 This is an aggravation of the evil, for this is 
 not only encouraging the outflow of gold, but it 
 is at the same time shaking the very foundation 
 of credit, by diminishing, in the same proportion 
 with the gold, the bank-notes which represent 
 the gold and constitute the money, with the dis- 
 tribution of which the Bank of England has been 
 entrusted by the State for the benefit of the 
 country. 
 
 But, — as Capitalists and Political Economists 
 will say, — by so encouraging the outflow of gold 
 the equilibrium of value will be the sooner re- 
 stored. 
 
 This is true. But this will be at an incalcu- 
 
THE DISORGANISATION OF CREDIT. 245 
 
 lable sacrifice of property to the country, and to 
 tiie great profit of the Bank of England. This is 
 not consistent with the object of a National Bank. 
 
 If the security be safe, or be supposed to be 
 so, all the unemployed capital will go where it 
 can gather 10 or 15 per cent., and will not be 
 stopped by the offer of 3 or 4 per cent. It 
 will come back increased, or it will come back 
 diminished ; it will not come v/ith a whoop or 
 come with a call ; it will come with a good will 
 or not at all. But, any way, this is a speculative 
 investment, and the return of the capital is, to 
 some extent, uncertain. 
 
 If the object of the Bank of England be to 
 assist the trade and industry of the country, it is 
 clear that the resources of the Bank ought not to 
 be liable to be drained away by foreign speculation 
 for the benefit of the shareholders in the Bank, and 
 to the loss and injury of the British community. 
 
 On no ground can the Gfovernment justify the 
 appropriation of Fourteen Millions of the Public 
 Debt for the benefit of the shareholders in the 
 Bank of England. 
 
 If the Bank of England insist on its right to 
 do what it likes with its own, then let the Go- 
 vernment pay its debt to the Bank, and let it do 
 what it likes with its own. 
 
 But, then, let the Government establish a Na- 
 
246 THE BANK OF ENGLAND. 
 
 tional Bank on a broader and more independent 
 basis, for the benefit of the country, and with no 
 other object. 
 
 If the privilege of issuing notes of equal value 
 with the coin of the realm be granted exclusively 
 to the Bank of England, as it ought to be, that 
 privilege is conferred for the benefit of the com- 
 munity, not of the Bank. 
 
 The Bank ought not to enjoy even the smallest 
 portion of the profits of that issue. 
 
 The Bank ought to be beyond suspicion that 
 it is influenced in the management of those issues 
 by any expectation of profit therefrom. 
 
 The whole profit of those issues belongs of right 
 to the People, being wholly derived from them. 
 
 The Bank has no more right to participate in 
 the profit from the issue of notes, than it has from 
 the issue of the coin of the realm. 
 
 The special and exclusive privilege to the Bank 
 of England can be justified only on the ground 
 that it is beneficial, and that the whole benefit is 
 secured, to the People. It is not only of the loss 
 of this profit that the People have a right to com- 
 plain, but of the loss and injury which they sus- 
 tain from the improper use made by the Bank 
 of England of this exclusive privilege. 
 
 The distress caused by the high rate of dis- 
 count is one thing, but the distress caused by a 
 
THE DISORGANISATION OF CREDIT. 247 
 
 money-panic is another and different thing. The 
 one arises from deficiency of capital ; the other 
 from deficiency of credit. These are totally dis- 
 tinct, and never occur at one and the same time ; 
 the last occurs very seldom. 
 
 No one doubts the convertibility of the note 
 into gold on demand, and no one ever has doubted 
 it, at least, for the last forty years and upwards. ' 
 
 The doubt is about getting the Bank-notes 
 when they are wanted. 
 
 This difficulty most frequently arises from the 
 small amount of credit capital at .the disposal of 
 the Bank in proportion to the want, and this is 
 aggravated by the speculative jobbing of the Bank 
 for high rates of discount. 
 
 It is this jobbing which wealcens the power of 
 the Bank for holding in check the rising rate of 
 discount. 
 
 Instead of exercising any check on the rising 
 tendency, the Bank of England is the first to 
 raise the rate, and the last to lower it. Alarm 
 follows. — Alarm for its insufficient reserve in the 
 Banking Department, and for its stock of bullion 
 in the Issue Department. The Bank of England 
 is the first to create alarm throughout the coun- 
 try, and is powerless to relieve it. 
 
 The alarm for notes is not unfounded, the 
 Bank having been, on several occasions^ all but 
 at a stop for want of notes. 
 
248 THE BANK OF ENGLAND. 
 
 But the alarm for gold has never been well 
 founded, since the note has been convertible into 
 gold on demand. 
 
 Nothing can be better calculated to create 
 alarm in the Public mind than when the cry of 
 alarm is raised by the Bank of England itself, by 
 raising the bank-rate of discount. 
 
 Nor can anything be better calculated to create 
 alarm in the Public mind than the actual position 
 into which the Bank of England is so often 
 brought, with its small reserve and no capital, 
 and no means of getting notes out of the in- 
 flexible grasp of the Issue Department. 
 
 It cannot be denied that there is ground for 
 alarm when the Bank of England shows, as it 
 did show by its Weekly Account on the 7th of 
 September, 1864, an issue of notes to the amount 
 of £26,876,895, and Public and Private Deposits, 
 with Bills at 7 days' sight, amounting altogether 
 to £19,483,717, and a Banking reserve in notes 
 and specie of only £6,810,582. 
 
 According to the understood rule of the Bank, 
 this reserve, as before shown, was less than half 
 the amount of Deposits and Bills at sight by 
 £2,931,276, this being the sum wanting to place 
 the Banking Department in what is considered 
 to be a normal condition, and, consequently, the 
 Banking Department was compelled to curtail 
 
THE DISORGANISATION OF CREDIT. 249 
 
 discounts by raising the rate to 9 per cent. This 
 becomes a necessary precaution of the Bank for 
 its own sake, but at the expense of the community. 
 
 If the banking reserve had been nine millions, 
 instead of six millions, the bank-rate of discount 
 might have been at 3 per cent., instead of 9 per 
 cent. 
 
 The additional issue of three millions of notes, 
 therefore, would have saved the country the addi- 
 tional 6 per cent. 
 
 These deposits are a great power ia the Bank 
 of England, but, when used as part of the capital 
 of the Bank, this is a dangerous power. 
 
 When the Banking Department discounts on 
 the strength of these deposits, the effect is the 
 same as if the Issue Department issued notes 
 against these deposits, as regards the drain of 
 gold from the Issue Department, where these 
 notes may be exchanged for gold. 
 
 The Banking Department, therefore, raises the 
 rate of discount for protecting the gold in the 
 Issue Department, and at the same time encou- 
 rages the drain of gold from the Issue Depart- 
 ment by discounting on the strength of these 
 deposits. 
 
 The reckless inconsistency of this proceeding 
 seems to be accounted for only by the tempting 
 profit to the Bank of 9 per cent. 
 
250 THE BANK OF ENGLAND. 
 
 This is, in effect, issuing notes, or putting 
 them in circulation, against deposits, and the un- 
 certain possession by the Bank of these deposits 
 must be an uncertain foundation for the issue or 
 circulation of notes, payable in gold on demand, 
 and must make continual variations in the bank- 
 rate of discount. 
 
 It is impossible to conceive an action of the 
 Bank of England, as at present constituted, more 
 dangerous than this to itself, as well as to the 
 community; or anything more improper than 
 this practice, the Bank of England being en- 
 trusted exclusively with the issue of the paper- 
 money of the country for the benefit of the com- 
 munity, such paper-money being payable in gold 
 on demand. But, with a sufficient real capital, 
 the Bank might be safely left to deal in its dis- 
 cretion with this part of the question. 
 
 Only a few years ago, a large discount house 
 in the City operated on the Bank-reserve to the 
 extent of nearly £2,000,000, by suddenly with- 
 drawing that amount deposited with the Bank 
 and standing to the credit of that house. The 
 consequence was an immediate advance of 1 per 
 cent, in the rate of discount. 
 
 If other Banks and Financial Companies, 
 having large deposits to their credit, had simul- 
 taneously taken the same course (as they clearly 
 
THE DISORGANISATION Of CREDIT. 251 
 
 might have done), the Bank of England, under 
 the Act, must have stopped payment. 
 
 No one would have any right to complain that ■ 
 Bankers and Merchants employed their money 
 as they thought best for their own benefit, and 
 there is no law to prevent any one from with- 
 drawing his deposits from the Bank of England 
 whenever he thinks fit to do so. Neither is there 
 any law to prevent.capitalists in this country con- 
 tracting with foreign governments for the supply 
 of any given amount of bullion. These opera- 
 tions are within the province of legitimate trade. 
 
 But the Public have a right to complain that 
 the Bank of England, if entrusted with the 
 special and exclusive privilege of issuing, and, 
 in a great degree, regulating the money of the 
 country for the benefit of the community, makes 
 itself an instrument for playing into the hands of 
 the great capitalists for further enriching them, 
 to the incalculable loss and injury of all the rest 
 of the community. 
 
 It is said that, the rate of discount only marks 
 the price of money in the market, and that, the 
 Bank of England can only follow, and cannot 
 control. 
 
 But this, as already shown, is not true. There 
 are times and occasions when the Bank of Eng- 
 land can control by not following. 
 
252 THE BANK OF ENGLAND. 
 
 But the complaint is that, the Bank of England 
 leads in the race and assists the great Capitahsts 
 in their run for gold, and thereby helps to make 
 money scarce and dear throughout the country. 
 
 This is the complaint, and this is a well- 
 grounded complaint. 
 
 It is trifling with this great and important 
 subject to say that, the Bank of England has no 
 influence over the rate of discount. 
 
 The contrary is true, and the People feel and 
 know it to be true, but they have never known 
 how to state their case. 
 
 .The Bank Charter Act leaves them at the 
 mercy of any capricious or concerted movement 
 in finance on a large scale, and helpless against 
 the combinations of capitahsts in league with 
 foreign governments or potentates who may find 
 it worth their while to take advantage of our 
 well-stocked money-market and defective legis- 
 lation. 
 
 During the monetary crisis in 1857, the losses 
 to the community by the failures in trade and 
 depreciation in prices on stocks held were incal- 
 culable, when the fall, at the lowest estimate, on 
 the various articles ranged from 30 to 60 per cent, 
 and upwards, showing an actual loss of capital 
 to the country of many millions, sterling. 
 
 The loss from the previous crisis in 1847, 
 
THE DISORGANISATION OF CREDIT. 253 
 
 may be estimated in the same way and at much 
 the same amount. 
 
 For th^se reasons it seems to follow, as a- ne- 
 cessary consequence, that the Bank of England, 
 as at present constituted, ought not to issue notes 
 on the strength of its deposits. 
 
 The Bank of England, if it would maintain 
 its independence, must give up using its deposits, 
 if unable to act independently of them, for inde- 
 pendence is essential for the security of a Bank 
 of Issue. 
 
 The Public has a right to demand all the 
 security that can be given, if the Bank of Eng- 
 land is to be entrusted exclusively with the issue 
 of the money of the country. 
 
 Imagination exhausts itself in seeking the 
 causes of the frequent and alarming disturbances 
 of the money-market. 
 
 The opinion, so generally expressed, that the 
 cause is in the too great excitement given to 
 labor and production, is an error which must be 
 altogether rejected. 
 
 Labor may be badly done, and that is a cause 
 of real loss, but there can never be too much 
 labor when il is well done. 
 
 The most industrious people are always the 
 richest. And, as to superabundance of produc- 
 tion, let us ask with M. Jacques Lafitte : — 
 
254 THE BANK OF ENGLAND. 
 
 " Si quelque part on jette le ble dans les 
 rivieres, si on detruitet livre au vent les produits 
 de nos manufactures ; si quelque part on foule 
 aux pieds les ouvrages surabondants d'aucune 
 espece de travail?" 
 
 " Is there any part of the M^orld where they 
 throw corn into the rivers, where they deliver to 
 the wind the produce of our manufactories ; is 
 there any part of the world where they tread 
 under their feet the superabundant works of any 
 species of labor?" 
 
 But let us descend from these heights and 
 look simply at one of the most ordinary of the 
 causes which come periodically to afflict our 
 commerce. They flow, almost always, from the 
 imperfect monopoly of the Bank of England in 
 the issue of notes, and the uncertain manner in 
 which their circulation is governed. 
 
 Thus, on the 7th September, 1864, the 
 number of notes issued was £26,876,895, and 
 the reserve of notes and coin was £6,810,582. 
 
 The Bank rate of discount was 9 per cent. 
 
 On the 28th December, 1864, the number of 
 notes issued was £28,036,475, and the reserve of 
 notes and coin was £9,377,989. 
 
 The Bank rate of discount was 6 per cent. 
 
 In the corresponding week in the year 1863, 
 the amount of notes in circulation, including bank 
 
THE DISORGANISATION OF CREDIT. 255 
 
 post bills, was £20,686',538, and the reserve of 
 notes and coin was £8,886,575. 
 
 The Bank rate of discount was 7 per cent. 
 
 In the corresponding week in the year 
 1862, the amount of notes in circulation was 
 £20,516,435, and the reserve of notes and coin 
 was £9,735,171. 
 
 The Bank rate of discount was 3 per cent. 
 
 In the corresponding week in the year, 
 1861, the amount of notes in circulation was 
 £20,818,190, and the reserve of notes and coin 
 was £10,445,899. 
 
 The Bank rate of discount was 3 per cent. 
 
 In the corresponding week in the same years, 
 the amount of coin and bullion in the Bank was 
 as follows : — 
 
 1861 . . . £15,961,439 
 
 1862 . . . • £14,956,421 
 
 1863 . . . £14,362,605 
 
 1864 . . . £14,100,974 
 Examples might be multiplied to any extent, 
 
 but these are sufficient to show that, the amount 
 of notes, and not the amount of bullion, raises 
 or lowers the rate of discount. 
 
 In the last weekly return of the Bank for the 
 years 1862, 1863, 1864, the amount of coin 
 and bullion ranged, with but little difference, 
 between 14 and 15 millions, and the Bank rates 
 
256 THE BANK 01? ENGLAND. 
 
 of discount at the corresponding periods in these 
 years were 3, 7, and 6 per cent. ; and in Sep- 
 tember 1865 9 per cent. 
 
 Instead of over-production being the cause of 
 the average rate of discount at upwards of 7 
 per cent, for the year, 1864, the fact is that, 
 there was a very considerable falling off in all 
 our manufactures in that year ; and, as before 
 noticed, an increase in the amount of our ex- 
 ports and imports is no criterion whatever for 
 determining the amount of our productions, the 
 increase being not in our own but in foreign 
 productions, of which we vpere merely the 
 carriers. 
 
 As a sign of prosperity this is deceitful, the 
 year, 1864, however prosperous to Banters and 
 Capitalists, being very much the reverse to the 
 trade of this country, and the loss of capital 
 being very much greater than the gain to the 
 Bankers and Capitalists. 
 
 It were better for the country that the Bank 
 of England shared in the general loss, than in 
 the partial profit, for then the Bank would be" 
 more disposed to seek the means for preventing 
 or reducing the loss. Unfortunately, the Bank 
 of England finds too large a compensation in 
 the high rate of interest to be induced to adopt 
 any means either for preventing or reducing it. 
 
THE DISORGANISATION OF CREDIT. 257 
 
 It is impossible to suppose that this country 
 should support such a diminution of the circu- 
 lating medium without suffering very serious in- 
 convenience and loss, and, unfortunately, these 
 trials to credit always come suddenly, when the 
 country is least prepared and least able to bear 
 them. Not that the country is deficient, but 
 that the Bank of England is unequal to the 
 occasion ; not that the credit of the country is 
 shaken, but that confidence in the Bank of Eng- 
 land is wanting. It is the helpless state of the 
 Bank of England in the time of need that causes 
 general distrust, and it is this distrust that causes 
 the loss of credit and the scarcity of money. It 
 is the want of confidence in the Bank of Eng- 
 land that increases the demand for money at the 
 very time when to meet this demand is most in- 
 convenient to the Bank, and the demand con- 
 tinues to increase with the inability to meet it. 
 In the fear of further difficulties, every one en- 
 deavours to secure for himself a larger reserve of 
 money than his wants require. 
 
 Thus the evil is aggravated to an extent far 
 exceeding a true proportion to the real cause of 
 the evil, and sometimes to the extent of a money- 
 panic. All this might be prevented if the Bank 
 of England, in the first instance, could only make 
 the supply of notes equal to the demand. With 
 
258 THE BANK OF ENGLAND. 
 
 the return of confidence all the difficulties dis- 
 appear, and credit is restored, thereby showing 
 that it is not capital, but confidence, that is want- 
 ing. With confidence, the capital re-appears, the 
 rate of interest falls, and the Government Funds 
 rise. 
 
 Thus are born and thus die those monetary- 
 disturbances the origin of which is so mystified, 
 though so easily accounted for in the defective 
 organisation of credit. 
 
 With a Bank of England established on the 
 broader basis of a larger credit capital and a large 
 actual capital, and regulated on simple and in- 
 telligible principles, this state of things, so disas- 
 trous to the country, never could arise. 
 
 One of the grandest steps in progress that can 
 be taken is, by simple and natural means to con- 
 fine within moderate limits the rate of interest 
 for the capital required for the trade and industry 
 of a country. 
 
 This was the opinion of that great Statesman, 
 Turgot, and here are his own words : — 
 
 " On pent regarder le taux de I'interet comme 
 une espece de niveau au-dessous duquel tout 
 travail, toute culture, toute Industrie, tout com- 
 merce cessent. C'est comme une mer repandue 
 sur une vaste contree ; les sommets des mon- 
 tagnes s'elevent au-dessus des eaux et forment 
 
THE DISORGANISATION OF CREDIT. 259 
 
 desjles fertiles et cultivees. Si cette mer vient a 
 s'ecouler, a mesure qu'elle descend, les terrains 
 en pente, puis les plaines et les vallons, paraissent 
 et se couvrent de productions de toute espece ; 
 il suffit que I'eau monte ou s'abaisse d'un pied 
 pour inonder ou pour rendre a la culture des 
 plages immenses." 
 
 Many persons, who falsely attribute the rise 
 and fall of interest to the abundance or scarcity 
 of money, think the creation of a bank, issuing 
 a great mass of notes, is of the same nature as 
 the discovery of a mine of gold or silver. They 
 think it is by this augmentation of fictitious money 
 that the rate of interest is lowered. Their error 
 is complete ; they confound the sign with the 
 thing itself. Augment the mass of representa- 
 tive values, by the aid of which the circulation 
 is carried into effect, and you have not added the 
 smallest particle to the riches of the country ; 
 you have only augmented the nominal price of 
 the products, but the relative mass of the instru- 
 ments of production remaining the same in the 
 presence of the same wants, the rate of interest 
 will not vary . 
 
 'industry, positively, has no want of money; it 
 is the use, the disposability of the objects which it 
 can procure for itself with this standard of all 
 values that it stands in need of. The creation 
 
 s 2 
 
260 THE BANK OF ENGLAND. 
 
 of effects doing, like bank notes, the office of 
 money, acts upon interest, in this respect, that 
 it permits the banks to utilise to their profit, 
 and to that of their borrowers, a great part 
 of the disposable capital of society. All the 
 holders of these notes of circulation have ex- 
 changed a real value against these notes. The 
 representation of the bank notes in circulation 
 always exists or ought to exist in the coffers or 
 bill-cases of the banks ; it is there found in 
 the form of ingots and money, or of promises 
 of merchants and manufacturers, which pro- 
 mises are themselves the representation of the 
 capitals which they possess and of which they 
 have the disposal. 
 
 The capitals of the banks consist, then, of the 
 funds of their customers, and especially of a por- 
 tion more or less of capitals, which, at a given 
 time, the owners cannot immediately employ. 
 The banks possess themselves of these capitals 
 gratuitously and lend them at iiiterest. Those 
 to whom the bank notes are remitted receive 
 them as money, because they will be able to 
 pass them in the same M'ay. There is the phe- 
 nomenon of circulation. It is thus that the banks 
 appropriate to the wants of production the 
 riches, which, without their concurrence, would 
 be unproductive. It is, therefore, that the banks 
 
THE DISORGANISATION OF CREDIT. 261 
 
 are able to grant favourable conditions to in- 
 dustry, all finding their own advantage. 
 
 It is industry vphich makes the credit of the 
 banks in giving currency to their notes. The 
 banks ought to pay for that service, ai)d they do 
 pay in reality, by making the producers partici- 
 pate in the benefit of the circulation. As long 
 as the banks do not abuse their credit, we may 
 imagine all the power of the instrument which 
 they dispose of; we may easily imagine also that 
 the concurrence which they introduce into the 
 market of capital obliges all the capitalists in 
 particular to lower their pretensions, and to re- 
 duce the rate of their discounts. 
 
 The fact of the influence of the banks in 
 lowering the rate of interest being admitted, you 
 can equally establish that the extension of this 
 system of credit can in no manner change the 
 equilibrium of values nor carry any disturbance 
 into the economy of production. 
 
 Much error of reasoning arises from con- 
 founding bank paper with paper money. 
 
 Evidently, paper money having a forced circu- 
 lation, having for object to relieve the wants of a 
 nation, — most frequently immense wants, — and 
 its issue having neither control nor limit, it can- 
 not be assimilated to bank paper. Paper money 
 devours social riches in proportion as its mass 
 
362 THE BANK OF ENGLAND. 
 
 . increases. It is thence easy to conceive that the 
 value of the paper ought progressively to lower 
 relatively to the price of all the products. 
 
 Bank notes, on the contrary, are only an ad- 
 vance made on the production ; they represent 
 the value which actually exists; they represent 
 equally the labor which is being accomplished by 
 disposable hands and which, without the concur- 
 rence of the banks, would remain idle in part or 
 be much worse occupied. 
 
 And, moreover, the value of the bank note is 
 always controlled by that of gold and silver. 
 As long as it will exchange easily against the 
 precious metals, as long as the products are able 
 to be bought indiscriminately, whether with 
 bank notes or with effective money, it is not 
 possible to admit that the prices of all things 
 should vary otherwise than by the general causes 
 which act upon the values, causes independent of 
 the action of the banks and which, introducing 
 themselves simultaneously upon all points of 
 the globe, by reason of the constant control of the 
 general standard, gold and silver, cannot, in any 
 manner, damage the equilibrium of the imports 
 and exports.* 
 
 * See this part of the subject admirably treated, with 
 reference to the Bank of France in a small pamphlet, " Si/s- 
 teme Des Banques," by M. M. Pereire, published 1843, 
 republished 1866. — Paris. 
 
THE DISOBOANISA'tflON OP CREDIT. 263 
 
 Now comes the question how to keep the 
 right level or equilibrium, — how to construct 
 the Bank of England so as to make it faithful 
 to its mission for protecting the trade and in- 
 dustry of this country. 
 
264 
 
 CHAPTER X. 
 
 THE BANK OP ENGLAND : AND THE 
 ORGANISATION OP CREDIT. 
 
 Having considered the Bank of England as at 
 present constituted for the disorganisation of 
 credit, the more important question next comes 
 to be considered, — how the Bank of England 
 may be constituted for the organisation of credit. 
 
 It is said that, the rise in the price of loan- 
 able capital is due, in a great measure, to the 
 growing availability and diflFusion of English 
 capital for foreign purposes, and that this grow- 
 ing availability and diffusion are, in their turn, 
 the consequence of the new organisation pro- 
 vided by the comparatively sudden and vast ex- 
 pansion of the Joint-Stock system, and of the 
 birth of so many financial companies capable of 
 undertaking the largest operations. 
 
 It is also said that — 'At first sight it may 
 seem that, the searching competition of the new 
 Companies, which sucks into the money-market 
 and condenses into large and available streams 
 
THE ORGANISATION OF CREDIT. 265 
 
 countless rills of savings scattered up and down the 
 country, which were not reached before, ought, by 
 bringing more unemployed capital into the market, 
 to lessen its value and lower the rate of interest.' 
 
 It is also said that, such would be the case, 
 but that the distributive and diffusive power of 
 the new companies is even greater than this at- 
 tractive and condensive power. That the centri- 
 petal force by which our home capital is made 
 to gravitate towards our home centre is vastly 
 increased by the new oi'ganisation, and that this 
 of itself tends to lower the rate of interest. But 
 that the centrifugal force by which, under the 
 new system, capital, once condensed, is scattered 
 all over the world instead of being allowed to 
 accumulate at home, is greater still, and thus 
 the rate of interest, instead of being lowered is 
 raised, and the rise in the rate is probably, there- 
 fore, not temporary, but permanent.* 
 
 If all this be true, though, as here stated, it is 
 not, that would only go to prove that, the Bank 
 of England, which was framed and constituted 
 under another and ditFerent state of things, is ill 
 adapted to the present state of things ; and that 
 the evils of its constitution, then less visible and 
 less felt, were more bearable ; now more visible 
 and more felt, are less bearable. 
 
 * Edinburgh Review, January, 1865, No. 247, page 227. 
 
266 THE BANK OF ENGLAND. 
 
 As before shown, the rise in the rate of in- 
 terest is but the sign of the evil. The evil is in 
 the disturbance of the equilibrium in the value 
 of money betv^een foreign countries, and the rate 
 of interest rises to restore the equilibrium. 
 
 This disturbance has always existed, more or 
 less, though formerly less noticed, because less 
 perceptible ; but when extraordinary calls for 
 capital began to be made for correcting this 
 difference, then the consequent disturbance of the 
 currency began to be felt in the rise of the rate 
 tof interest. 
 
 Any attempt to prevent those calls from being 
 answered must be useless. 
 
 The trade in capital, or savings, must be -as 
 free as the trade in any other commodity ; and 
 freedom of trade assumes protection to traders 
 against monopolies, as well as against restric- 
 tions and impositions. 
 
 Protection to Traders is quite a different thing 
 from protection to Trade. Deprive the trader 
 of the means of obtaining money necessary for 
 carrying on his trade, and you are bringing down 
 upon the country all the evils of protection in its 
 worst form, for you are helping one class against 
 another, — the large capitalist against the small 
 capitalist. So, as you make it difficult to obtain 
 money, as a means of carrying on trade, you 
 
THE ORGANISATION OP CREDIT. 267 
 
 are, in the same proportion, protecting one class 
 of traders against another class, and their loss 
 is the loss of the whole community. 
 
 Such is, in effect, the present working of the 
 Bank of England. More or less it has always 
 been so, but much more so since the passing of 
 the Bank Act of 1844. 
 
 If it were admitted that, raising the rate of 
 interest in the country where capital is abundant, 
 is one of the means of equalizing the value of 
 money between that country and other countries 
 where capital is less abundant, yet that is not 
 the best means, nor one of the means necessary 
 or expedient for the Bank of England. 
 
 Entrusted by the country with a fictitious 
 capital, — having no real existence, — and allowed 
 the use of it free of cost,— for such is, in effect, 
 the special and exclusive privilege to the Bank 
 of England of the gratuitous issue of its notes 
 to the amount of £15,000,000, there can be no 
 good reason why the whole benefit of the credit 
 so acquired should not be secured to the country. 
 In this arrangement, for the sole purpose of 
 economising gold, it was no part of the original 
 object or intention to bestow a benefit on the 
 Bank of England. The sole object and intention 
 was to save so much capital for the benefit of the 
 country. 
 
268 THE BANK OF ENGLAND. 
 
 The profit of the Bank is another question', and 
 is otherwise provided for. 
 
 It cannot be for the benefit of the country to 
 allow the credit so acquired to be used by the 
 Bank for its own profit. 
 
 This has nothing to do with the question, — 
 whether or not it be necessary for the Bank of 
 England to raise the rate of discount for its own 
 protection. That is another question ; but, before 
 that can be considered, it ought to be shown that 
 the Bank of England, properly constituted, would 
 stand in need of any such precautionary measure. 
 If any state of circumstances can be shown, which 
 would render protection needful, that will be evi- 
 dence of defect in the constitution of the Bank. 
 That the Bank of England is now exposed to 
 many such circumstances has been already shown. 
 But the Bank of England would be no longer 
 exposed to any of these circumstances if esta- 
 blished on the basis and conducted on the princi- 
 ples following : — 
 
 1 . The repeal of the Bank Charter Act of 1 844. 
 
 2. The Government Debt to the Bank of Eng- 
 land to be paid. 
 
 3. The Credit Capital of the Bank of England 
 to be raised to £40,000,000. 
 
 4. All notes of the Bank of England beyond 
 the amount of £40,000,000 to be issued against 
 
THE ORGANISATTON OF CREDIT. 269 
 
 equal value in gold and silver coin and bullion, in 
 any proportions, but all notes to be payable in gold 
 only on demand. 
 
 5. All other Banks of Issue in England and 
 Wales to be prohibited from issuing their own 
 notes from and after the day of 
 
 6. The distinction between the Issue Depart- 
 ment and the Banking Department of the Bank 
 of England to be abolished. 
 
 7. The Bank of England Note to be payable 
 in gold coin of the realm on demand. 
 
 8. No Bank note to be issued under the value 
 of £5. 
 
 9. The Bank of England not to be bound to 
 give its notes in exchange for gold. 
 
 10. The Bank of England Note to be declared 
 a legal tender throughout the United Kingdom 
 for all sums of Five Pounds and upwards ; — Ex- 
 cept by the Bank of England, and its Branches. 
 
 11. Silver coin of the realm to be declared a 
 legal tender under £5. 
 
 12. All gold and silver bullion, brought to the 
 Royal Mint for that purpose, to be coined in the 
 coin of the realm free of charge. 
 
 13. The Bank of England to be exempt from 
 Stamp Duty or Composition on its notes. 
 
 14. The Bank of England not to discount at 
 a higher rate than 4 per cent. 
 
270 THE BANK OF ENGLAND. 
 
 15. The Bank of England not to lend money 
 to the Government, or to any person or persons ; 
 nor to make advances on ingots ; — but to be at 
 liberty to make advances on Government Stock, 
 Exchequer Bills, and other Government Secu- 
 rities. 
 
 16. The Bank of England to account to the 
 Government for all its banking profits on its 
 Credit Capital. 
 
 17. Weekly Accounts of the Bank of England 
 to be published in the London Gazette, in the 
 form given. 
 
 18. The Bank of England not to allow inter- 
 est on Deposits, Public or Private. 
 
 19. The Bank of England to be allowed by 
 the Government £250,000 per annum, for loss 
 of profits on discounts, and for management of 
 the Public Debt, in addition to the other allow- 
 ances. 
 
 20. The Governor, Deputy Governor, and Di- 
 rectors of the Bank of England, to receive, for 
 their personal services, from the Government, the 
 following yearly allowance : — 
 
 The Governor . . . £2,000 per annum. 
 Deputy Governor . . 1,500 „ 
 
 Each other Director . 1,000 
 
 21. These privileges to be continued to the 
 Bank of England until twelve calendar months' 
 
THE ORGANISATION OF CREDIT. 
 
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272 THE BANK OF ENGLAND. 
 
 notice in writing be given by the Government 
 for rescinding or varying the terms on which 
 these privileges are granted. 
 
 Similar privileges to be conferred on the 
 Banks of Ireland and Scotland, with a propor- 
 tionate Credit Issue to each : Or, if these Banks 
 be merged in the Bank of England, (which 
 might be better), then the Credit Issue of the 
 Bank of England to be raised to £50,000,000. 
 
 When the Bank of England is established on 
 this basis, and conducted on this principle, it 
 will be time enough to consider any measure 
 found necessary for its protection. 
 
 An examination of these terms may show 
 that, they place the Bank of England beyond 
 the reach of danger under all circumstances 
 which can be properly, taken into calculation, 
 though the time may come, and probably will, 
 when both the actual and the credit capitals will 
 be required to be enlarged. 
 
 The principle, if true, will be applicable to all 
 time. 
 
 The foregoing outline of the proposed new 
 Bank Charter Act hardly requires further ex- 
 planation, but each item of the terms will now 
 be shortly reviewed, with a few comments, for 
 the purpose of directing attention more particu- 
 larly to the nature and effect of the proposed 
 changes. 
 
THE ORGANISATION OF CREDIT. 273 
 
 1. The repeal of the Bank Charter Act of 1844. 
 
 2. The Government Debt to the Bank of 
 England to be paid. 
 
 This will be a payment or a transfer of 
 £11,015,100, and if a payment will be so much 
 in reduction of the National Debt. 
 
 If the possession of an actual and independ- 
 ent capital by the Bank of England be essential 
 for effecting the proposed objects, it only re- 
 mains to be shown that these objects would be 
 for the benefit df the community. 
 
 The possession by the Bank of an independ- 
 ent capital of this considerable amount would 
 be, on many occasions, more effectual than cur- 
 tailing the notes for operating on the market of 
 gold, to stop the drain of gold. 
 
 If the payment of £11,015,100 be too large 
 a sum for the Government to meet without a 
 loan, this could be effected simply by a transfer 
 of Government Securities, and would be no ad- 
 dition to the National Debt. 
 
 But it would be a very expedient course, if 
 the Government were to take up a further loan 
 and lend it to the Bank at 3 per cent, to make 
 up the real capital of the Bank of England 
 £20,000,000, and the credit-capital £40,000,000. 
 
 3. The Credit- Capital of the Bank of Eng- 
 land to be raised to £40,000,000. 
 
 T 
 
274 THE BANK OF ENGLAND. 
 
 From the imperfect information before the 
 public, "it is difficult to ascertain, precisely, the 
 maximum and minimum amount of Bank-notes 
 in circulation, in the United Kingdom. 
 
 But the following estimate may be sufficient 
 for the present purpose. 
 The authorised Issues of Notes by 
 Private and Joint-Stock Banks in 
 England and Wales is . . £8,488,428 
 
 Irish Banks 6,354,494 
 
 Scotch Banks . . . ' . 3,087,209 
 Average Issue of the Bank of Eng- 
 land 21,000,000 
 
 £38,930,131 
 
 This may be sufficient to show that, the re- 
 quirements of the Kingdom, for a Bank Note 
 Circulation, are not less than £40,000,000. If 
 so, there can be no more reason against the Bank 
 of England issuing Forty Millions than Fifteen, 
 Millions of Credit-notes, especially if all other 
 Banks in England and Wales be prohibited from 
 issuing notes ; or for enlarging the amount to 
 Fifty MilHons, if the issue of Notes for the 
 United Kingdom be confined to the Bank of 
 England. 
 
 With a credit capital of £40,000,000 or 
 £50,000,000, costing nothing, and an actual 
 
THE ORGANISATION OF CREDIT. 375 
 
 capital of £14,553,000 or £20,000,000, the 
 Bank of England would be equal to all occasions 
 for regulating the currency of the country. 
 
 4. Notes beyond the credit capital to be issued 
 to any amount against equal value in gold and 
 silver coin and bullion. 
 
 As the bank-notes cannot depreciate as long 
 as the securities remain good, the restriction on 
 the issues may be safely enlarged from time to 
 time to meet the requirements, subject to this 
 condition. 
 
 5. All other Banks of Issue in England and 
 Wales to be prohibited from issuing their own 
 notes from and after the day of 
 
 For the reasons already given, there can be no 
 injustice in putting a stop to this system, which 
 never ought to have been permitted. 
 
 The notes of a private bank, not being legal 
 tender, are of the nature of a spurious coinage, 
 and are, practically, forced upon the ignorant and 
 unwary, who have not always the option of re- 
 fusal. 
 
 Any temporary credit resting on this insecure 
 foundation must be subject to great variations, 
 and to shocks which must disturb the monetary 
 system of the country. 
 
 Experience has proved the truth of this theory. 
 
 If bank-notes be permitted by the Government 
 
 T 2 
 
276 THE BANK OF ENGLAND. 
 
 to pass current for equal value with coin of the 
 realm, such equal value ought to be made secure 
 on the responsibility of the Government. 
 
 In the year 1844, when the Bank Act passed, 
 there were 208 private banks, and 72 joint-stock 
 banks of issue, and the privilege of issuing notes 
 was then permitted to those banks not only 
 without any inquiry into their solvency, but also 
 without requiring any security for the payment 
 of those notes. 
 
 This was an inexcusable oversight on the part 
 of the Government and the Legislature. The pri- 
 vilege to those banks, instead of being withdrawn, 
 was continued, and, by limiting the amount of 
 notes to be issued by each bank, was sanctioned. 
 
 The Act authorised country banks to commute 
 their issues of notes, and to substitute notes of 
 the Bank of England ; but, the value of money 
 being then 5 and 6 per cent., few banks availed 
 themselves of this permission to surrender their 
 valuable privilege for 3 per cent. 
 
 The principle on which this privilege was con- 
 firmed was unsound, and was clearly opposed to 
 the principle of the Bank Act of 1844. It must, 
 therefore, be assumed that reasons, known only 
 to the Government, prevailed on that occasion 
 against the judgment and intention of the Go- 
 vernment, and against the true interests of the 
 country. 
 
THE ORGAKISATION OF CREDIT. 277 
 
 But though the Act of 1844 so far confirmed 
 the privilege of the issue of notes to' those banks 
 which then enjoyed it, yet the Act hmited the 
 exercise of that privilege, and in no way guaran- 
 teed it. 
 
 But a Bill, brought in by the then Chancellor 
 of the Exchequer, Mr. Gladstone, proposed to 
 grant a lease of the privilege to the banks then 
 holding it, for the term of 15 years, ending 1st 
 January, 1880, as a beneficial interest to those 
 banks, against the interests of all the rest of the 
 community.* 
 
 The same unknown reasons, which prevailed 
 with the Government of 1844, may prevail with 
 the Government of 1867; but, if this Bill paso 
 into an Act, it will be another misfortune for the 
 country. 
 
 Before the Banks of issue can establish their 
 claim to compensation for the loss of their privi- 
 lege of issue, they should show that, they have a 
 vested interest in that privilege ; and if the Go- 
 vernment may terminate, as it may, by twelve 
 months' notice, the privilege of the Bank - of 
 England as a bank of issue, there can be no 
 hardship if the Government exercise the same 
 power towards the other banks of issue. 
 
 * This Bill was withdrawn, and fortunately the avowed 
 intention to introduce it in the first Session of the new Par- 
 liament was prevented. 
 
278 THE BANK OF ENGLAND. 
 
 This privilege ought to cease at the expiration 
 of the twelve months' notice, as in the case of the 
 Bank of England, and if no right of property can 
 be established in the privilege, no gr&und for com- 
 pensation can exist if the privilege be withdrawn. 
 
 It is not easy to see on what ground a claim 
 for compensation can be supported, for the Act 
 itself, section 25, provides, "that all the composi- 
 tions payable to the several bankers, mentioned 
 in the schedule hereunto, marked C, and such 
 other bankers as shall agree with the said Gover- 
 nor and Company to discontinue the issue of 
 their own bank-notes, as aforesaid, shall, if not 
 previously determined by the act of such banker 
 as hereinbefore provided, cease and determine on 
 the 1st day of August, 1856, or on any earlier 
 day on which Parliament may prohibit the issue 
 of bank-notes." 
 
 Nor can the issuers of bank-notes complain of 
 hardship if deprived of their privilege without 
 compensation, for they have not been without 
 warning that, this privilege would not be lasting. 
 At present, the hardship is altogether on the 
 public, who are forced to take these notes with- 
 out any security for their payment. 
 
 6. The distinction between the Issue Depart- 
 ment and the Banking Department of the Bank 
 of England to be abolished. 
 
THE ORGANISATION OF CREDIT. 279 
 
 The reasons for abandoning this distinction 
 have been already given. 
 
 If the separation of the Issue Department 
 from the Banking Department had not been 
 proved to be injurious, that it has been proved 
 to be unnecessary would be a sufficient reason 
 for discontinuing this distinction, the sole and 
 avowed object being to secure the convertibility 
 of the note, which has never been and never 
 need be in danger. 
 
 7. The Bank of England not to be bound to 
 give its notes in exchange for gold. 
 
 Of all the anomalies of the present system, 
 the provision of the Act of 1 844, which compels 
 the Bank of England to buy all the gold that 
 is brought to it, whether it want it or not, is one 
 of the most singular. 
 
 The Bank of England is the only bank in the 
 world which is placed under this whimsical com- 
 pulsion. 
 
 Bullion is not money, and wiU not pass any- 
 where as money. It is simply a commodity of 
 acknowledged value, and may be coined into 
 money, without charge, when taken to the Mint. 
 
 A consequence of the present arrangement is 
 that, the Bank is sometimes overloaded with gold 
 in the form of bullion, and does not know what 
 to do with it. In that case the Bank ought to 
 
280 THE BANK OF ENGLAND. 
 
 be free to reject it, but at liberty to purchase it. 
 In most cases the Bank would purchase, but that 
 ought to be discretionary, not compulsory.* 
 
 8. No bank-note to be issued under the value 
 of £5. 
 
 This question also has been sufficiently consi- 
 dered and answered to render further remark 
 unnecessary. 
 
 .There are arguments for and against £1 notes, 
 but there seems to be no sufficient reason for a 
 change. 
 
 9. The Bank of England to pay its notes in 
 the gold coin of the realm on demand. 
 
 • This is the only safe foundation for any cur- 
 rency.* 
 
 10. The Bank of England note to be a legal 
 tender throughout the United Kingdom for all 
 sums of £5 and upwards ; Except by the Bank 
 of England, and its Branches. 
 
 Under the proposed arrangement, there seems 
 to be no reason against making the Bank of 
 England note a legal tender throughout the 
 United Kingdom. 
 
 11. Silver coin of the realm to be a legal tender 
 under £5. 
 
 * These articles 7 and 9 were not introduced into the 1st 
 Edition, being considered unnecessary, if the existing Act be 
 repealed. But, to prevent misunderstanding, that which was 
 inferentially implied, is now expressly aflSrmed. 
 
THE ORGANISATION OF CREDIT. 281 
 
 This is a change of considerable importance, 
 and in accordance with the ancient coixstitution 
 and usage in this country. 
 
 The reasons given for depriving the People of 
 the full benefit of a Silver Coinage, as formerly 
 enjoyed by them, are quite unintelligible. 
 
 Until the reign of Henry III., the Currency of 
 the country was entirely silver. The first coin was 
 the silver Penny, which contained the 240th part 
 of a Pound of 12 oz., each ounce being 20 dwts. 
 
 Twelve of these Pennies were equal to one 
 Shilling, and twenty Shillings to the Pound, 
 sterling. The Shilling, however, was then only 
 a money of account, and remained so until the 
 reign" of Henry VII., when he introduced the 
 Sovereign, or Real, at 20s., and made the shilling 
 an effective coin. 
 
 12. All gold and silver bullion brought to the 
 Royal Mint for that purpose, to be coined in the 
 coin of the realm free of charge. 
 
 This, as already shown, is an ancient consti- 
 tutional right in the People, of which they have 
 been most unconstitutionally deprived. 
 
 To restore this right is as much for the in- 
 terest of the Government and the Bank of Eng- 
 land as of the People. 
 
 The additional supply of silver, in unrestricted 
 quantity, must strengthen the basis of gold for 
 the security of the Note. 
 
282 THE BANK OF ENGLAND. 
 
 13. The Bank of England to be exempt from 
 Stamp Duty on its Notes. 
 
 The Bank of England now pays £60,000 a 
 year for this exemption. 
 
 14. The Bank of England not to discount at 
 a higher rate than 4 per cent. 
 
 This does not propose to fix the rate of dis- 
 count, but only to confine the rate of the 
 Bank of England within fixed limits. The ob- 
 ject is to diminish the oscillation, and to prevent 
 the Bank of England, as long as it is in pos- 
 session of a monopoly, from being tempted to 
 abuse it. If> a maximum have been judged 
 necessary in the tariffs of the privileged enter- 
 prises of the railroads, why should not the same 
 be necessary in the much more important tariff 
 of the privileged Bank, which is the regulator 
 of the interest of the country ? 
 
 The Bank, with its special and exclusive pri- 
 vilege, not only imposes what charge it hkes upon 
 the whole country in the form of interest and 
 discount, but also refuses to augment its capital 
 and even to render disposable that which it 
 possesses, however urgent the occasion. Not so 
 with the railroads, otherwise they might refuse 
 to augment their rolling stock, to increase the 
 number of their locomotives carriages and wag- 
 gons, however great the necessity, and they 
 might thus profit by the insufficiency of their 
 
THE ORGANISATION OF CREDIT. 283 
 
 stock to levy contributions on passengers and 
 products when these were presented in too great 
 quantity for present convenience. It is precisely 
 to prevent the railway Companies from abusing 
 their privilege that, the obligation is imposed on 
 them to satisfy, on prescribed conditions, all the 
 wants of transport for the travellers and the 
 merchandise. 
 
 The analogy is complete between these two 
 privileges. It would not be more difficult for 
 the Bank to satisfy the demands of discount than 
 for the railroads to satisfy the demands of trans- 
 port; it is only a question of capital, and 
 capital would not be wanting, if it were wished 
 for, to the Bank any more than it is to the rail- 
 roads, but it would be more easily procured by 
 the Bank than it is by the railroads, and on 
 better terms, because the security of the Bank 
 would be thought better than the security 
 of the railroad. Now, why should the Bank 
 not do in this respect that which competition 
 would certainly do under a system of hberty ? 
 
 If the commerce of the Bank were free, the 
 capital would not be wanting to raise the re- 
 sources of credit to the height of the wants. For 
 this object the exclusive privilege was conferred 
 on the Bank of England, and it fails in its mis- 
 sion when it fails to render to the country this 
 just compensation. 
 
284 THE BANK OF ENGLAND. 
 
 If the industry of the Bank were free, it 
 would develop itself in proportion to its affairs. 
 But in that the Bank of England has completely 
 failed, and it must for ever fail vrhilst bound by 
 the restrictions under which it is placed ; more- 
 over, whilst in possession of the monopoly it 
 must prevent other establishments from meeting 
 the wants which are ever increasing with the 
 progress of affairs. 
 
 It is the employment of credit capital which 
 constitutes the principal profit of. the commerce 
 of discount ; and it is because the supply of this 
 capital to all the establishments outside the Bank 
 is uncertain, that the situation of this commerce 
 is very precarious and that the capital engaged 
 in it is not obtained without difficulty, unless 
 with the temptation of large interest imposed on 
 the industry, which borrows and is made to dis- 
 count its bills. 
 
 The Bank of England counts too exclusively 
 upon the credit capital of which it has (or ought 
 to have) the exclusive enjoyment, and not enough 
 upon its own proper capital, upon that new 
 capital which is wanted from time to time for 
 keeping the Bank always on a level with the 
 progress of affairs. The action of the Bank of 
 England is at the present day paralysed by the 
 want of a sufficient capital. The Bank finds 
 
THE ORGANISATION OF CREDIT. 285 
 
 itself continually under the necessity of raising 
 its discount only because its reserve is relatively 
 too weak, and it is so because it has not dispos- 
 able capital wherewith to strengthen its reserve. 
 
 It is, then, only in consequence of the want 
 of disposable capital that the Bank is , obliged to 
 raise the ratio of its discount, and when the 
 Bank raises it, the rise is everywhere in like 
 manner, to the great detriment of the whole 
 community. This injury extends not only to 
 the customers of the Bank, but also to all 
 those who borrow, whether under the form of 
 discount, or under that of mortgage, it reaches 
 the whole community, for the rise of the 
 rate of interest lowers in a corresponding man- 
 ner the capital of all funded properly, of all 
 industrial enterprises, shares and bonds, as it 
 reaches the Government funds, and it dis- 
 courages the employment of industry in all its 
 branches. The rise of the rate of interest is an 
 incalculable injury to everybody and everything. 
 
 The only possible means for avoiding this rise 
 is, to provide a reserve in the Bank of England 
 at all times in a ratio with the wants, and that 
 can be only by the realisation or augmentation of 
 the capital of the Bank. 
 
 The new capital would be furnished by the 
 capitalists seeking investment for their disposable 
 
286 THE BANK OF ENGLAND. 
 
 funds, and this investment would be the more 
 sought after, inasmuch as it would be more useful 
 and more advantageous. 
 
 The result would be to bring about the gene- 
 ral lowering of the hire of capital by means of 
 the increase of the credit paper. The discoun- 
 ters outside the Bank would be no losers, for it 
 is not only with their own capital that they work, 
 but it is also and especially with that which they 
 procure by rediscounting their bills at the Bank. 
 The rate of these discounts would leave them the 
 same profit, and this profit would be so much 
 the greater as the affairs would have taken 
 greater extension. The advantages to industry 
 in all its branches would be very considerable, 
 and especially in the cheapness which would re- 
 sult for all its products. 
 
 The lowering of the discount of the Bank 
 would immediately produce a corresponding 
 lowering in all the relations of lending and bor- 
 rowing, though the interest would vary accord- 
 ing to the risk. 
 
 The action of the Bank of England would be 
 sensibly felt in all affairs throughout the king- 
 dom, in temporary as in permanent investments, 
 and other establishments would always be able 
 to make the same profits, since these profits re- 
 sult only from the difference of interest : — the 
 
THE ORGANrSATION OF CREDIT. 287 
 
 base only will be different, the level everywhere 
 will be lowered.* 
 
 The necessity for the Bank of England to pro- 
 tect its reserve, is evidence complete that it has 
 failed in its mission as a National Bank. These 
 words express -nothing else than the desire of the 
 Bank to elude its engagements, to avoid paying 
 its debts, when, like all other Banks it ought to 
 be always ready to fulfil its obligations. 
 
 To have a reserve always equal to the wants, 
 to be able always to meet those wants by dis- 
 counting at a moderate rate, is one of its most 
 important obligations, the essential obligation, 
 and without which it is impossible to justify the 
 monopoly which it enjoys. And this is nothing 
 more than is expected and required from all 
 bankers and merchants, to have a reserve and a 
 capital proportioned to its affairs. 
 
 The Bank of England has absolutely nothing 
 to fear for its metallic reserve for the raising of 
 the discount with our neighbours, for the rate of 
 interest is quite independent of the reserve of the 
 banks as is also the rate of the exchange. 
 
 The independence confirms the principles here 
 laid down, and shows how unfounded are the 
 fears of those who persuade themselves, contrary 
 
 * See the evidence of M. Isaac Pereire on this part of 
 the question in the Appendix. 
 
288 THE BANK OF ENGLAND. 
 
 to all the facts, that the arbitrary fixing of the 
 interest or discount can have any action what- 
 ever on the metallic reserve.* 
 
 " The proper function of the Bank of Prance," 
 said the first Napoleon, in 1810, is "to discount 
 all commercial paper at 4 per cent.," and he 
 threatened to deprive the Bank of its privileges 
 if this end vs^ere not accomplished. 
 
 " This sentiment," says the vrriter of a lead- 
 ing article in the Times,\ — " This sentiment on 
 the duty of a banking corporation must seem to 
 sound economists one of the crudest utterances 
 possible ; it could only come from a man whose 
 recklessness and ignorance were alike superlative ; 
 yet M. Michel Chevalier has perceived in it the 
 intuition of a genius which understood at a glance 
 the nature of commerce." 
 
 Whatever may be thought of the first Napoleon 
 as an economist, few who know M. Michel 
 Chevalier will regard him as " a man whose reck- 
 lessness and ignorance are alike superlative." 
 
 The same writer, as if to make the boldness 
 of his superlative declaration the more remark- 
 able, adds : — " A pamphlet recently pubHshed in 
 
 * See M. Isaac Pereire's treatise, — " Principes de la Con- 
 stitution des Banques et de I'Organisation du Credit," — 
 Chapter VI. translated in the Appendix. 
 
 t The Kmes, 10th December, 1864. 
 
THE ORGANISATION OP CREDIT. 289 
 
 Paris, shows that M. ChevaUer is not the only 
 Frenchman who accepts the dictum of the first 
 Emperor. M. Isaac Pereire, the colleague in 
 other years of M. Chevalier, has through all the 
 mutations of his subsequent career preserved 
 enough of the old leaven of St. Simonianism to 
 insist that it is the duty of the Bank of France 
 to keep a flow of money available for every cus- 
 tomer at a fixed rate of interest. Not all the 
 experience of practical life, won as a railway 
 manager or as the chief director of the Credit 
 Mobilier, has served to eradicate his early de- 
 lusions. The universal Bank, giving universal 
 credit, is still an object of desire, and M. Pereire 
 betrays no suspicion that the result of its action 
 would be universal insolvency. He is even eager 
 that the experiment should be immediately tried." 
 
 This writer betrays no suspicion about his own 
 knowledge, but this latter sentence betrays super- 
 lative ignorance of what he is writing about. 
 
 The universal hank giving universal credit, is not 
 still and never was an object of desire either to 
 M. Chevalier, or to M. Pereire, or to anybody 
 else. But if M. Chevalier by incautious ex- 
 pressions have laid himself open to such remarks 
 as these, he is not the exponent of the opinions 
 of M. Pereire on this subject. 
 
 As to the rate of interest, that was fixed by 
 
 u 
 
290 THE BANK OF ENGLAND. 
 
 law in this country for several centuries, and 
 although the law was modified in successive 
 reigns from the time of Henry the Eighth, it was 
 totally repealed only in the present reign. To 
 fix the masnimum rate of interest for the loan of 
 money was, no doubt, an absurdity, but that has 
 nothing to do with fixing the maximum rate of 
 discount by the Bank of England, or of France. 
 When both sides are free to act, it is perfectly 
 fair to leave parties to settle for themselves the 
 price to be paid for the accommodation of a loan 
 of money; and if 10 or 16 per cent, be received 
 and paid, a part of that payment only is really 
 for interest, the other being the premium or in- 
 surance on a risk mutually known and admitted. 
 That is a question of credit. 
 
 But the writer in the Times does not seem to 
 know that discount has nothing to do with credit, 
 in the sense in which he uses credit. 
 
 Discounting a bill of exchange means simply 
 buying the bill, and the only credit in the trans- 
 action is that the bill will be paid when due. 
 As when a man buys a horse warranted sound, 
 he buys it on the credit of the warranty. This 
 writer seems to think it as absurd to fix the 
 maximum rate per cent, for the purchase of a bill 
 of exchange, as to fix the price for the purchase 
 of a loaf of bread. 
 
THE ORGANTSATION Ot CREDIT. 291 
 
 He says, in his next sentence :- — " Why not ex- 
 tend the principle of fixed rates of payment to 
 other commodities ? We remember that our 
 logical neighbours have not scrupled to do sd, 
 and that till lately the bakers of Paris could not 
 sell their bread at a price exceeding a fixed num- 
 ber of centimes per kilogramme." 
 
 This makes clear the meaning of the writer, 
 and, at the same time his utter ignorance of what 
 he is writing about. He cannot distinguish be- 
 tween the price of money, and the price of com- 
 modities. He treats of money for the transfer 
 of commodities, as he treats of the commodities 
 so transferred, and he assumes both to be subject 
 to the same law. He does not see that the money 
 is merely an artificial medium, provided and re- 
 gulated by the State for the convenience of the 
 community ; and he thinks that the State has no 
 more right and no more power to fix the price of 
 that convenience, which the State alone has pro- 
 vided, than to fix the price of commodities, with 
 which the State has nothing to do, and over 
 which the State has no control. He does not 
 see that, when the power is all on one side, and 
 advantage is taken of it to charge the premium 
 -of insurance where no risk is incurred, this is 
 usur^ in its objectionabte sense. 
 
 Until Consols are at 60, nothing but legisla- 
 
 u 2 
 
292 THE BANK OP ENGLAND. 
 
 tion'on false principles can render it necessary 
 for the Bank of England to tax the legitimate, 
 trade of this country with discount at the rate of 
 9 or 10 per cent. 
 
 He says : — " It is somewhat difficult to under- 
 stand how a man of the practical experience of 
 M. Isaac Pereire could hope to fix a maximum 
 of the rate of interest." The writer in the Times 
 seems to have forgotten that, such a maximum was 
 first settled by law in England at 10 per cent., 
 37 Henry VITL, 1546 ; that this law was repealed 
 by Edward VI., but restored by Ehzabeth ; that 
 interest was reduced to 8 per cent., and the word 
 interest was first used instead qI usury, 21st James 
 I., 1624 ; that it was reduced by the Rump-par- 
 liament to 6 per cent., and so confirmed at the 
 Restoration ; that it was reduced to 5 per cent., 
 13th Anne, 1714, at which rate it remained until 
 modified in subsequent reigns ; and that the rate 
 of interest in Ireland was 6 per cent., regulated 
 14th George III., 1773. So completely was the 
 m.aximum rate of interest fixed that, a higher raj;e 
 than the legal standard was usury, and punish- 
 able as such, until all this absurdity was totally 
 repealed by 17th and 18th Vict., cap. 90. 
 
 The Writer in the Times seems also to have 
 forgotten, or not to have known that, formerly a 
 maximum rate of discount was fixed by law for 
 
THE ORGANISATION Of CKBDIT. 293 
 
 the Bank of France, and is still fixed by law at 
 six per cent, for the Bank of Belgium. He 
 seems to consider this an impracticable absur- 
 dity, — as an interference with the natural law 
 which regulates supply and demand, — and he 
 seems to have some confused notion that this is 
 inconsistent with the principle of free trade. He 
 does not distinguish between a fixed rate of in- 
 terest for the loan of money, and a fixed rate of 
 discount for the purchase of bills of exchange. 
 He does not seem to see the difference between 
 lending money and buying debts, nor to distin- 
 guish between debts so created, and debts crea- 
 ted by the transfer of commodities, the former 
 concerning the question of credit only, the latter 
 of market-price only. 
 
 Here is no interference with market-price, or 
 with supply and demand of commodities, but only 
 with credit, for keeping prices steady to prevent 
 interference with supply and demand. The maxi- 
 mum rate of discount is, therefore, the minimum 
 rate or price of money, and, as legal tender money 
 is a monopoly in the hands of the Government, 
 there can be no market-price, though there may 
 be various prices in the money-market. 
 
 It is, therefore, no wrong to any one, and no 
 infringement of a natural law if the Govern- 
 ment fix, for the Bank of England, the maximum 
 
294 TBE BANK OF ENGliAND. 
 
 rate of discount, and the minimum rate or price 
 of money, called the Bank rate, provided the mi- 
 nimum be fixed at the lowest rate which the wel^ 
 fgre of the State permits. 
 
 In this way the Government holds the mono- 
 poly for the benefit of the country ; without any 
 interference with money-dealers, who are free to 
 fix any price they please, on their own money ; 
 but, at present, the Bank of England holds the 
 monopoly for its own benefit, and to the loss 
 and injury of the country, which is left at the 
 mercy of the Bank, and other money-dealers. 
 
 This is very different from fixing the price of 
 bread; bnt the tendency is to keep down the 
 price of bread and all other commodities, and to 
 raise the rate of wages by increasing the de- 
 mand for labor in proportion with the increasing 
 trade and industry of the country. 
 
 15. The Bank of England not to lend money 
 to the Government, or to any person or persons ; 
 nor to make advances on ingots; but to be at 
 liberty to make advances on Government Stock, 
 Exchequer Bills and other Government Securities. 
 
 It is not consistent with the objects of the 
 Bank of England, as a national bank, that any 
 portion of its capital should be placed out of 
 reach for an indefinite time. 
 
 Experience may have taught the Bank of Eng- 
 land that this practice is inexpedient 
 
THE ORGANISATION OF CREDIT. 295 
 
 The Bank of England has already experienced 
 the inconvenience of being Mortgagees in pos- 
 session of Blast Furnaces, Copper Smelting 
 Works, Tin Plate Manufactories, and Collieries, 
 and of accountiijg to the Court of Chancery for 
 the due management of them. 
 
 Speculations of this kind, or of any other of 
 a like kind, public or private, ought never again 
 to be within the po-s^er of the Bank of England, 
 as a National Bank for the distribution and re- 
 gulation of the money of the country. But the 
 advance of money by the Bank on the security 
 of an equal amount in value of Government 
 Stock, Exchequer Bills and other Government 
 Securities, does not come within the scope of 
 this objection, and may be, in many cases, a 
 great accommodation to the trade and industry 
 of the country ; nor would there be any objec- 
 tion to the extension of this liberty to advances 
 on Bank of England Stock, if the Bank were 
 established on the principles here proposed. 
 Lending on ingots is more prejudicial than use- 
 ful, as employing capital which might be more 
 advantageously employed for the Bank and for 
 the- PuWic. 
 
 16. The Bank of England to account to the 
 Government for all banking profits on its credit 
 capital. 
 
296 THE BANK OP ENGLAND. 
 
 This the Bank now does, or professes to do. 
 
 17. Weekly Accounts of the Bank of England 
 to be published, &c. 
 
 This the Bank now does, but in a very con- 
 fused manner. 
 
 In the proposed Form of the Weekly Account 
 (see page 371) all the information, which con- 
 cerns the Public, is there given simply and in- 
 telligibly. Under the new conditions, the Pub- 
 lic will have no more concern with the ordinary 
 banking transactions of the Bank of England 
 than with those of any other Bank. 
 
 The Public will have nothing more to do with 
 the Deposits, Public, or Private, in the Bank of 
 England, than with the cash balances on the 
 private accounts. ■ These deposits, therefore, will 
 have no place in the Weekly Account. 
 
 " Other Securities," representing the Private 
 Deposits, and " Dead Weight Annuity," repre- 
 senting a private transaction of the Bank with 
 tbe Government, and which will terminate in 
 1867, are, for the same reason, omitted in this 
 Account. 
 
 The Bank of England will deal with its own 
 psivate affairs as other Banks do, and there will 
 be no longer any reason for making them pub- 
 lic, when no longer mixed up with the public 
 affairs. 
 
THE ORGANISATION OP CREDIT. 297 
 
 It is not proposed to interfere in any manner 
 with the Bank of England in the conduct of its 
 private banking affairs, but only to prevent the 
 Bank from mixing up its private affairs with 
 the public affairs, the terms of their Charter 
 being that, the whole of the £40,000,000 or 
 £50,000,000 guaranteed- by the Government, 
 and the whole of the Capital of the Bank, be set 
 apart exclusively for the public service, under the 
 direction of the Bank of England. 
 
 If that had been the condition of the Bank of 
 England last year (1864), the average rate of 
 discount for the year might have been 3 per cent, 
 instead of upwards of 7 per cent. 
 
 The following is the new Form of the Weekly 
 Account, filled up with the figures in the Weekly 
 Account of the 28th Dec, 1864; so far as those 
 'figures are appUcable to the new Form. The 
 quantity of bulUon retained by the Bank is here 
 given only by way of example, to be regulated by 
 the ordinary demand. 
 
 The actual Account, as published by the Bank 
 of England, for the Week, ending the 28th De- 
 cember, 1864, is also given for the benefit of the 
 comparison. 
 
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300 THE BANK OF ENGLAND. 
 
 Taking this Bank Account, stated on the 28th 
 December, 1864, as regards the notes, it stands 
 simply thus : — 
 
 Issue Department. 
 
 £. £. 
 
 Notes Issued 28,036,475 
 
 Gold Coin and BuUion . . 13,386,475 
 Notes Issued on Credit . . 14,650,000 
 
 28,036,475 
 
 Banking Department. 
 
 Credit Notes in Circulation 14,650,000 
 Bullion Notes in Circulation 4,752,985 
 Notes in reserve .... 8,633,490 
 
 28,036,475 
 
 Notes Issued 28,036,475 
 
 Notes in reserve .... 8,633,490 
 
 Total Notes in Circulation . . . £19,402,985 
 
 Here it will be clearly seen that, the Issue 
 department and the Banking department are 
 perfectly distinct, as they were intended to be, 
 and that, the convertibility of the notes into 
 gold is practically secured. 
 
 The notes are really issued when they are out 
 of the Issue department, though not then neces- 
 
THE ORGANISATION OF CREDIT. 301 
 
 sarily in circulation, and it is quite immaterial to 
 the Issue department what becomes of the notes 
 when issued. 
 
 It will also be clearly seen that, the reserve of 
 notes in the Banking department, which consti- 
 tutes the only fund in the Bank of England ap- 
 plicable to discount, is quite insufficient, and 
 that, if not more than sufficient in 1 844, it must 
 have been less than sufficient in 1864. 
 
 That it was insufficient in 1847 and in 1857 
 is proved by the suspension of the law on those 
 two occasions, and that it was insufficient at all 
 intervening times and is so at the present time 
 (1867) is proved by the high rates of discount. 
 
 18. The Bank of England not to allow inter- 
 est on Deposits, Public or Private. 
 
 The Bank of England does not now allow in- 
 terest on Deposits, but does use these deposits in 
 discounting, and the rate of discount must, there- 
 fore, fluctuate with the varying amount of these 
 deposits. 
 
 This practice, quite proper in private and joint- 
 stock banks, cannot be justified in the Bank of 
 England, as at present constitnted. The Bank 
 of England ought to be at all times a national 
 resource for the community, as free as possible 
 from the control or influence of the large Capi- 
 tahsts. 
 
302 THE BANK OF ENGLAND. 
 
 It is impossible for the Bank of England, how- 
 ever constituted, to be entirely free from such in- 
 fluence. But the Bank of England may be so 
 constituted as to be always able, either by open 
 competition or by the drawing in or temporary 
 suspension of its discount operations to cbuntef- 
 act, in the end, any combination of capitals which 
 can, practically, be brought to bear against it. 
 
 Under the present system, the Bank of England 
 combines with the capitalists, and assists them in 
 producing the very consequences, which it ought, 
 as far as possible, to prevent. 
 
 Instead of this, the Bank of England is com- 
 pelled, for its own preservation, to maintain the 
 high rate of discount, as the only means for bring- 
 ing back the gold, which the Bank itself has, by 
 its operations, been assisting to send away. 
 
 Under the present system, when loans are con- 
 tracted with foreign powers, the effect is thereby 
 to tax the whole trade of the kingdom. How- 
 ever plentiful money or paper may be when the 
 loan is contracted, as soon as the gold is wanted 
 to pay the instalments up goes the value of 
 money one or two percent. This is so much ab- 
 stracted from the profits of the trading commu- 
 nity, who are thus made to contribute to the 
 loan, whether they hke it or not. The Bank of 
 England, without capital, has no alternative but 
 
THE ORGANISATION OP CREDIT. 303 
 
 to raise the rate of discount. Accordingly, when 
 gold is demanded for notes, the Bank of Eng- 
 land, to save the gold, begins to curtail the issue 
 of notes by raising the rate of discount, and, at 
 the same time, curtails the trade of the country. 
 The Bank, in effect, says to the country ; — ' If 
 you will oblige us to pay our notes in gold, we 
 will make you pay the difference between paper 
 and gold, because we have lent all our capital to 
 the Government, and we cannot stand this drain 
 of our gold.' 
 
 The chief difference between the Bank of Eng- 
 land, and the unfortunate British Bank is, that 
 the British Bank lent all its capital to its own 
 Directors, and the Bank of England lent all its 
 capital to the Nation. 
 
 But, under the proposed system, these runs 
 for gold will be extraordinary circumstances, of 
 rare occurrence, and the Bank of England will 
 have the power, if not to prevent them, at least 
 to shorten their duration, and mitigate their 
 effects. The Bank rate of discount can never 
 exceed 4 per cent., and the average may be kept 
 between 3 and 3 per cent. 
 
 19. The Bank of England to be allowed by 
 the Government £350,000 per annum, for loss 
 of profits on discounts, and for management of 
 the Public Debt. 
 
304 THE BANK OF ENGLAND. 
 
 In addition to this allowance, the £60,000 
 a ye^r now paid by the Bank to the Stamp 
 Office for composition on the note-issues, and 
 the £120,000 a year, which the Bank now pays 
 to the Government for the Charter, to be dis- 
 continued. 
 
 The concessions would make the Government 
 allowance to the Bank of England equal to 
 £430,000 a year, and the net yearly profit about 
 £230,000. 
 
 It is wrong in principle to put any charge for 
 Stamp Duty on the State notes issued by the 
 Bank, — for these notes, guaranteed by the State, 
 and representing the coined money of the realm, 
 are virtually issued by the State. 
 
 It would be equally wrong in principle to 
 allow the Bank to hold the profit on these issues 
 beyond the amount of the Capital of the Bank. 
 
 But, it is still more inconsistent with prin- 
 ciple to make the Bank of England pay for its 
 Charter, which is granted not for the benefit of 
 the Bank but of the Nation. 
 
 Against these allowances would be the cost of 
 the note-issues and of the Government Accounts. 
 
 But, the Bank would be in possession of its 
 own Capital of £14,000,000, and the gold now 
 unproductive in the Bank vaults would be turned 
 to profitable account. 
 
THE ORGANISATION OF CREDIT. 305 
 
 The profit and loss account of the Bank would 
 
 be something like the following : — 
 
 £. 
 Profit on 14 millions of Notes at 2^ per 
 
 cent. 350,000 
 
 Government Allowance 250,000 
 
 600,000 
 
 Cost of Note Issues 320,000 
 
 „ Management of Govern- 
 ment Accounts . . . 150,000 
 
 370,000 
 
 Net yearly profit to the Bank of England J230,000 
 
 On the note-issues, above £14,000,000, the 
 Bank would have to account to the Government, 
 and above £40,000,000 there would be no pro- 
 fit, because the Bank must hold gold to an equal 
 amount ; and as the maximum Bank rate of dis- 
 count would be fixed at 4 per cent., the average 
 rate would, probably, be about 3 per cent. The 
 profit on the note-issues is, therefore, taken at 
 2^ per cent., instead of 3 per cent, as estimated 
 in 1844. 
 
 This is given rather as an outline of the esti- 
 mate, than as a detailed estimate. 
 
 The profit and loss account of the Issue De- 
 partment, as estimated by Sir Robert Peel in 
 1844, was as follows : — 
 
 X 
 
306 THE BANK OF ENGLAND. 
 
 £. 
 Profit on 14 millions of notes at 3 percent. 420,000 
 Cost of note-circulation . . . . 117,000 
 Commission of 1 per cent, to other 
 
 banks 24,000 
 
 Composition with Stamp Office . 60,000 
 
 Payment for Charter 120,000 
 
 321,000 
 
 Net profit to Bank in its note-issues . . j699,000 
 
 If the calculation were made on the year 
 1864, instead of the year 1844, the gross pro- 
 iits on the note-issues, instead of 3 per cent, 
 could not have been less than 8 per cent., and 
 instead of £420,000, the figures would have 
 been £1,112,000, from which deducting the 
 costs as above, £321,000, the net profit of the 
 Issue Department for the year would have been 
 £791,000. 
 
 If the People of this country knew that they 
 are paying at this rate to the Bank of England, 
 and think that they are having ' value received,' 
 there is nothing more to be said about it. But, 
 if they suppose that Sir Robert Peel foresaw or 
 intended anything like this, they are mistaken. 
 If he had foreseen the Bank's increased levy 
 upon the country, eight times greater than his 
 estimate, he would certainly have increased his 
 
THE ORGANISATION OF CREDIT. 307 
 
 levy in the same proportion on the Bank, in the 
 shape of a payment for its privileges. 
 
 But, the whole system is wrong, being founded 
 on the gross error that, issuing notes has some 
 relation to banking ; whereas, there is none 
 whatever, the issue of notes, representing the 
 coined money of the realm, being a Sovereign or 
 State prerogative, to be exercised only for the 
 benefit of the community. 
 
 The Bank of England now relies for its pro- 
 fits almost entirely on its note-issues. It very 
 properly refuses to pay interest on any of its de- 
 posits ; but it most improperly makes the com- 
 munity pay more than, the double of what they 
 ought to pay for the use of its notes, or than 
 the State intended that they should pay. The ' 
 State has vested in the Bank a virtual monopoly 
 in the issue of notes, for the benefit of the com- 
 munity, but the Bank uses the monopoly for its 
 own benefit, by plundering the community when 
 they are weak, and plundering them most when 
 they are reduced to the greatest extremity of 
 weakness and cannot help themselves. The 
 State has handed over the community to a set 
 of money jobbers, the Bank Directors. They 
 are " all honourable men," and personally quite 
 disinterested, but they are pledged to job the 
 best in their power for the interests of the Bank 
 
308 THE BANK OF ENGLAND. 
 
 Shareholders who elect them, and they are elected 
 on the faith of that pledge. They are confined 
 within certain limits by the terms of the Bank 
 Charter, and they keep within the letter of the 
 law; but they utterly disregard the principle, 
 and are quite indifferent to the consequences, as 
 regards -the community. 
 
 The community complain of the monopoly, 
 not seeing that the monopoly was intended for, 
 and properly regulated would be for, their bene- 
 fit. They are as helpless as they are ignorant, 
 and their knowledge of their own helplessness 
 produces a state of hopelessness, which has the 
 appearance of indifi'erence. 
 
 The State, almost as helpless, looks on with 
 real indifference, — the stolid indifference of pro- 
 found ignorance. 
 
 The community has too small a share in the 
 representation in Parliament to be able to get 
 a fair hearing of their just complaints against 
 the wrongs, which they feel, but cannot with 
 any clearness explain ; and the Government, un- 
 supported by intelhgent popular representatives, 
 are equally unable to control, if desirous of con- 
 trolling, the wealthy capitalists who, with the 
 Lawyers and Country Squires, (of all men in 
 the country the most ignorant on this subject) 
 compose the great majority in Parliament on the 
 Bank Question. 
 
THE OKGANISATION OF CREQIT. 309 
 
 Such is the subject, — such is the situation. 
 
 But, still, the People have the power in their 
 own hands, and the Constitutional way to exer- 
 cise it is, by themselves representing, in Petitions 
 to Parliament, the wrongs under which they are 
 so grievously suffering. 
 
 In the mean time, the Bank of England stands 
 resolutely still, while all the rest of the world is 
 moving on. Compared with other banks, the 
 Bank of England stands stationary. 
 
 The loanable capital entrusted to the keeping 
 of the Bank of England hardly exceeds in amount 
 that which is held by the London and Westmin- 
 ster or the Union joint-stock bank ; and of the 
 deposits in the Bank of England nearly a third 
 part consists of Government money, which the 
 Bank of England receives through its State pri- 
 vileges, and for the possession of which the other 
 banks cannot compete. If the Treasury balances 
 were deducted, the Bank of England, judged by 
 its deposits, would hold, only a secondary posi- 
 tion among the London Banks. 
 
 The effect of this stand-still poUcy is, to make 
 the Bank of England rely for its gains almost 
 exclusively on its note-issues, and to make the 
 community pay for them. 
 
 Under the present system this is one of the 
 inevitable consequences of the monopoly con- 
 
310 THE BANK OF ENGLAND. 
 
 ferred on the Bank of England. As a Bank of 
 Issue it can nullify every impost laid upon it by 
 the State, by simply transferring the loss to the 
 community. This is just what the Bank of 
 England is doing. Every thousand pounds paid 
 by the Bank to the State is repaid by the com- 
 munity to the Bank in higher rates of discount. 
 
 How much longer this state of things is to 
 continue is for the commercial community to 
 say ; — in the mean time, it is a state of things 
 ruinous to commerce and disgraceful to the Go- 
 vernment. 
 
 It is quite proper that a liberal allowance 
 should be made to the Bank of England for its 
 services. 
 
 20. The Governor, Deputy Governor, and 
 Directors of the Bank of England to receive for 
 their personal services, from the Government, the 
 following yearly allowances : 
 
 The Governor . . . £2,000 per annum. 
 
 Deputy Governor . . 1,500 „ 
 
 Each other Director . 1,000 „ 
 
 It will also be quite proper that those who are 
 entrusted with the important and responsible 
 duty of conducting the affairs of the Bank of 
 England should be remunerated for their services. 
 It is an anomalous state of things that, their 
 services are now gratuitous. 
 
THE ORGANISATION OF CREDIT. 311 
 
 21. These privileges to be coutinued to the 
 Bank of England until twelve calendar months' 
 notice in writing be given by the Government 
 for rescinding or varying them, or the terms on 
 which they are granted. 
 
 On a subject of this vital importance to the 
 country, the Government ought to be able to 
 release itself from the whole or any part of its 
 engagement' with the Bank of England, by giving 
 twelve months' notice of such intention. 
 
 Such is the short outline of the proposed 
 Bank Charter Act for the Organisation of Credit 
 in England. 
 
 The writer of the article entitled " Seven Per 
 Cent.," in the Edinburgh Review for January, 
 1865, before referred to, has, evidently, some ex- 
 perience on the subject. Like a Capitalist and a 
 Bank Director, he treats any suggestion for reliev- 
 ing or mitigating the existing evil as unnecessary, 
 and even denies the existence of any evils. 
 
 But, probably, as is often the case, especially 
 on subjects of this nature, there is some mis- 
 understanding of meaning between the reader 
 and the writer. 
 
 This anonymous writer seems to deny that 
 there is any evil in the want of loanable capital, 
 if that want have been caused by the drawing 
 away of surplus capital to foreign countries, for 
 
312 THE BANK OF ENGLAND. 
 
 the gain of higher interest than can be obtained 
 in this country. 
 
 That this is the expressed meaning seems clear 
 from the' following sentence : — 
 
 " Notwithstanding the events of the past year 
 and the temporaryjpressvire which England has 
 suffered under the new competition for loanable 
 capital, we'are disposed to believe that no country 
 will in the end reap greater advantages from it 
 than England herself, who, of all countries has 
 the greatest capital at command." 
 
 Temporary pressure is an indefinite term, but 
 this article commences by observing that, — 
 " money has been dear beyond precedent through- 
 out the year, 1864, and the average rate of the 
 year exceeded seven per cent'' 
 
 This is temporary, and so it would be if it 
 were ten"years ; but one year is a long time for 
 so high a rate of interest in this country, where 
 that is considered a good trade which brings 
 a profit of 10 per cent. 
 
 But, if it be meant that, an average rate of 
 interest at 7 per cent, is beneficial to the country, 
 that is a new and interesting fact, and deserving 
 of something more than the unsupported asser- 
 tion of the writer, whoever he may be, and how- 
 ever eminent in the City of London or in the 
 Cabinet Council. 
 
THE ORGANISATION OF CREDIT. 313 
 
 But, by whomsoever this assertion is made, 
 many will still continue to think that, an average 
 rate of interest exceeding 7 per cent, on twelve 
 months is a great evil, as being very injurious 
 to the trade and industry of this country, how- 
 ever beneficial to the owners of loanable capital. 
 
 If the falling off in the productions of this 
 country in the year 1864, be any measure of 
 the country's loss, then that loss must have been 
 much greater than any possible gains to the 
 capitalists. 
 
 It is one thing to say that, there is no remedy 
 for an evil, and another thing to say that, there 
 is no evil to be remedied. 
 
 But there is no want of loanable capital. The 
 real evil to be remedied is, the want of the 
 medium for the transfer of capital. 
 
 The writer goes on to add : — " But assuming 
 it to be a disadvantage, the question arises, is 
 it one with which we ought to attempt to deal if 
 we could, or could if we would ? We are pre- 
 pared to answer both questions in the negative." 
 
 This seems to be a form of expression adopted 
 less for the sake of the meaning than of the 
 antithesis. 
 
 It, surely, cannot be the meaning that, we 
 ought not to deal with a disadvantage, if we can 
 deal with it successfully ! 
 
314 THE BANK OF ENGLAND. 
 
 It is clear that the writer could not deal with 
 it successfully; but, if he could, why should he 
 not? 
 
 However, he has not made the attempt, and 
 he is unable to understand how the law which 
 makes loanable capital travel from one country 
 to another, " may be modified or neutralised." 
 
 It is not desired to modify or neutralise that 
 law, but it is desired to prevent the Bank of 
 England from co-operating with that natural 
 law in a manner incompatible with the artificial 
 system of the Bank of England, in regard to its 
 issue of paper money to represent gold money. 
 
 It is not possible ' to modify or neutralise the 
 law which makes loanable capital travel from one 
 country to another,' and, if possible, it would not 
 be desirable. 
 
 But it is not only possible, but quite easy and 
 most desirable, to prevent that natural law from 
 being used to drain away to other countries the 
 money required to be held in the Bank of Eng- 
 land for the convenience of the trade and in- 
 dustry of this country. 
 
 The Bank of England ought not to be looked 
 to as the source of loanable capital, but the Bank 
 of England ought to be the never-failing source 
 of money for the transfer of loanable capital. 
 
 To provide loanable capital is the province of 
 
THE ORGANISATION OF CREDIT. 315 
 
 Other banks, and with them, for this purpose, 
 the Bank of England, as the Bank of Issue, 
 never can and never ought to compete. 
 
 The Joint-Stock Banks must always possess 
 greater facilities for providing loanable capital for 
 enterprise and industry than the Bank of Eng- 
 land, as the Bank of Issue. 
 
 To make great dividends for the shareholders 
 is the object of the Joint-Stock Banks. 
 
 That is their mission. 
 
 They have, therefore, very properly sent their 
 capitals where they would bring back the largest 
 returns. 
 
 They have sent their capitals to Egypt, and 
 Turkey, and India, preferring the 15, or 18, or 
 20 per cent., there, to the 3, 4, or 5 per cent, in 
 London. 
 
 The Bank of England has been used in like 
 manner, for the like purpose, and could not 
 help being so used. But that is not its mission. 
 
 The mission of the Bank of England is not to 
 afford facilities to enterprise and industry, by 
 providing loanable capital ; but to afford facilities 
 to enterprise and industry by providing the cir- 
 culating medium at all times equal to the require- 
 ments. 
 
 The Bank of England, therefore, ought not to 
 be conducted on the same principles as private 
 
316 THE BANK OF ENGLAND. 
 
 and joint-stock banks, their objects being quite 
 different. 
 
 The laws of trade, which properly regulate 
 the latter, have no application whatever to the 
 former, and it is a total misapplication to apply 
 the same reasoning to both. 
 
 The reasoning, wbich may be quite correct 
 when applied to the one, is quite wrong when 
 applied to the other. 
 
 If so, it follows that, the Bank of England 
 must be taken out of the course of the natural 
 law, which serves a general purpose, and made 
 subject to an artificial law to serve a special 
 purpose. 
 
 The private and joint-stock banks were esta- 
 blished for the general purpose of trade profit, and 
 need only to follow the natural course of trade. 
 There is nothing artificial about these banks. The 
 whole system is open, plain, and straightforward, 
 consistent with the natural course of trade. The 
 object is to bring together loanable capital, and 
 to deal with it in the manner most profitable to 
 the owners. 
 
 This is a perfectly legitimate object, but such 
 is not, or ought not to be, the object of the Bank 
 of England. 
 
 The Bank of England is, or ought to be, es- 
 tablished for the one object only of serving the 
 
THE ORGANISATION OF CKEDIT. 317 
 
 interests of the country, by aifording all possible 
 facilities to its trade and industry. 
 
 Everything about the Bank • of England is 
 artificial. Even its capital is artificial. Its con- 
 stitution is artificial. Its system is artificial. 
 Its very material is artificial. 
 
 The non-natural and the natural are in a con- 
 stant state of antagonism. 
 
 The private and joint-stock banks are con- 
 stantly working in combination against the Bank 
 of England, and this combination is powerful 
 enough to weaken the Bank of England and to 
 render it powerless for its most important duties. 
 
 This combination, at its pleasure, drains the 
 Issue Department of the Bank of England of its 
 reserve of gold, and the Banking Department of 
 its reserve of notes ; and the Issue Department 
 costs the country, as already shown, in direct loss, 
 by locking up capital, upwards of a million and 
 a half, sterling, a year, which is a sheer loss, 
 without the smallest benefit. 
 
 The Bank of England is, therefore, made to 
 co-operate with the capitalists, against the trade 
 and industry of the country, not only by making 
 the Bank helpless at the times when help is most 
 in need, but by making it, as far as it can be 
 made, active in aggravating and prolonging those 
 times of distress at home. 
 
318 THE BANK OF ENGLAND. 
 
 If the Bank of England cannot be made to 
 help the distress at those times, it can, at least, 
 be made to prevent itself from being used so as 
 to aggravate the distress. 
 
 There never was a money-panic which did not 
 originate in fear for the want of the bank-notes, 
 and when that fear was removed the panic always 
 ceased. 
 
 And what was the cause of that fear, but the 
 drain of notes for hoarding, or for getting at the 
 gold? 
 
 If the supply of Bank of England Notes had 
 been ample, there would have been no fear on 
 that ground, and no hoarding. 
 
 If the Bank of England, with an ample and 
 independent capital of its own, had come into 
 competition with the capitalists in the general 
 market for gold, by selUng 2 or 3 millions of 
 Government Stock, and investing the produce in 
 gold, at the same time discounting freely at 4 
 per cent., there never would have been a money- 
 panic. Or, if the occasion had required repeti- 
 tions of that operation, the drain of gold must 
 have ceased under such repeated operations, as 
 no longer profitable to the exporters. Or, if 
 stronger measures were required, the Bank of 
 England might have sold Government Stock, 
 cancelled the notes, and. refused to discount. 
 
THK ORGANISATION OF CREDIT. 319 
 
 If the Bank be desirous of reducing its note 
 circulation, that can be effected in two ways ; — 
 either by seUing part of its Government Stock, 
 and cancelling the notes received in payment; 
 or by diminishing its discounts. The first would 
 occasion a loss to the Bank ; the second would 
 impose a greater loss upon Trade. 
 
 But here would be no danger, nor even the 
 apprehension of danger, to the" Bank of England ; 
 and the Bank could always exercise its own dis- 
 cretion as to discounting within and up to the 
 maximum of 4 per cent. 
 
 And why should not the Bank of England, to 
 this extent, be entrusted with the discretionary 
 powers of other Banks, under the discretion of 
 honourable, experienced, and impartial men of 
 business, vrhose duty, would be so clear and 
 simple that, ordinary intelligence would suffice 
 for its due performance ? 
 
 This is a question not to be answered by sneer- 
 ing sarcasms and well-turned sentences on general 
 principles, which have no application to the 
 special circumstances of the case. 
 
 Here is nothing advanced inconsistent with 
 general principles, and the conclusion arrived at 
 is confirmed by all that is known from experience. 
 
 Cheap loans are not dependent on the rate of 
 interest, but on the supply of loanable capital 
 
320 THE BANK OP ENGLAND. 
 
 and the demand for it, and these govern the 
 rate of interest. 
 
 Cheap loans, therefore, are dependent on the 
 productive powers of the country, and it should 
 be the first duty of every country to encourage 
 those productive powers by meeting the require- 
 ments for the trade and industry of the country. 
 
 This is only to be done by giving perfect free- 
 dom to labour, and every possible facility for its 
 free exercise, by reUeving it from every kind of 
 imposition, direct and indirect, by not taxing its 
 produce until the profits have been realised, and 
 by providing, at all times, easy means for the em- 
 ployment and remuneration of labor. 
 
 It is manifest that, all deductions from the 
 wages of labor, by taxes or otherwise, are in- 
 fringements upon the freedom of labor, imped- 
 ing its productive power, aud thereby imposing 
 a loss on the whole community. 
 
 It is, therefore, the first duty of the Govern- 
 ment to give perfect freedom to labor, by re- 
 lieving the laborers from all taxes, direct or in- 
 direct, on their own labor, and to afford every 
 possible facility for the employment and remu- 
 neration of the laborers. 
 
 A small rateable house-tax and a proportionate 
 tax on lodgers would be a sufficient return for 
 the protection to the person aff'orded by the State, 
 
THE ORGANISATION OF CREDIT. 321 
 
 and this would be in the nature of an equal 
 personal tax on the whole people. 
 
 In this view of the question, no words can be 
 necessary to impress the importance of having a 
 National Bank, established and conducted on 
 such principles as will, at all times and on all 
 occasions, support the credit of the country, by 
 giving all possible facilities to the employment of 
 capital, for the benefit of trade and industry, by 
 keeping down the rate of interest and discount 
 at the lowest possible level. 
 
 This object has been seen from the earliest 
 times, though clouded by ignorance and bigotry 
 in the dark ages of monkish superstition. So 
 early as the year 1342, King Edward the Third 
 caused a statute to be passed, " prohibiting usury 
 or interest for money, as being the bane of com- 
 merce;" and in all subsequent reigns the legal 
 rate of interest has been continually lowered and 
 a maximum fixed, until it was abolished in the 
 present reign. 
 
 Sir Josiah Child, in his " Discourse on Trade," 
 remarks that, " the lowering of interest enables 
 merchants to increase foreign trade, whereby 
 home manufacturers and artificers will be in- 
 creased, as also our stock of other useful people, 
 and the poor will be employed." 
 
 This is true, but in the same ' Discourse ' 
 
 Y 
 
322 THE BANK OF ENGLAND. 
 
 are opinions, in these days, quite inexplicable, 
 and though curious, as showing the sentiments 
 of one of the earhest public writers on the sub- 
 ject of the circulation of capital through the 
 medium of Banks, yet show how little the true 
 object of banking was at that time understood, 
 even by the most eminent authority of the day. 
 
 Sir Josiah Child, in various parts of his book, 
 inveighs against what he calls the " innovated 
 practice of hankering, which obstructs circula- 
 tion, advances usury, and renders it so easy that, 
 most men, as they can make a sum of fifty or one 
 hundred pounds, send it to the goldsmiths, which, 
 while it lasts, doth and will occasion that fatal 
 pressing necessity for money so visible throughout 
 the whole kingdom, both to prince and people." 
 
 But, this reasoning of Sir Josiah Child, though 
 now quite out of date, may have been the main 
 ground of the eminent success of his younger 
 brother, Francis Child,* the founder of the great 
 
 * " Francis Cliild, who was the junior of Sir Josiah Child by 
 twelve years, was apprenticed to William Wheeler, a thriving 
 goldsmith next door to Temple Bar. Seeing the worth of the 
 young man, Wheeler married him to his only daughter, and, 
 on his death in 1663, left him heir to his business. Prancis 
 Child carried on the goldsmith's business for a time, and fol- 
 lowed the fashion of others of his craft in also acting as a sort 
 of banker. Therein he prospered so well that before long he 
 abandoned the goldsmith's work and established himself as a 
 banker alone, being the first Englishman who made of this a 
 
THE ORGANISATION OF CREDIT. 323 
 
 Banking House of Child & Co., which, through all 
 the mutations of its long and eventful time, re- 
 mains, at the present day, unchanged in its prac- 
 tice of cautious security, the oldest, the firmest, 
 and the greatest private Banking House in the 
 vForld. The "lovsrering of interest" is a great 
 truth, and must be so for all time, especially for 
 this country, as expressed by Nathan Meyer 
 Rothschild when he said : — " Cheap money and 
 Free Trade only are wanted to make England 
 the centre for the trade of the world." 
 
 This is the great result to be expected from 
 the Bank of England, established on the basis 
 and conducted on the principles here proposed, 
 for the Organisation ov Credit in Egland. 
 
 The same principle, if applicable to England, 
 should be equally applicable to Ireland. 
 
 But, as regards Scotland, the case may be, in 
 some respects, different. The experience of more 
 than a century and a half has prejudiced ^the 
 People of Scotland in favor of their own system 
 of banking, and the success of that system, through 
 
 • separate profession. In 1691, when in Ms fiftieth year, he 
 was chosen Alderman of Farringdon Without. He was Lord 
 Mayor of London in 1699 ; and in 1702, the year of Queen 
 Anne's accession, he was knighted and sent to Parliament as 
 Member for the City of Loudon. He died in 1713, leaving 
 a thriving business, to be carried on by his successors, the 
 present House of Child & Co." — Herbert, Ch-eat City Com,' 
 panies, vol. ii. p. 203. 
 
 Y 2 
 
324 THE BANK OF ENGLAND. 
 
 SO long a period of trial, may be urged as a strong 
 argument against a change. 
 
 But the proposed change in the constitution 
 of the Bank of England, so far as making its 
 notes a legal tender in Scotland, would afford 
 great additional strength to all the Scotch Banks. 
 
 The Scotch Banks issue their own notes, of 
 the value of £1 and upwards, and the currency 
 of Scotland consists almost entirely of paper- 
 money, gold being regarded there as incon- 
 venient and expensive, and Scotch-notes, though 
 not a legal tender, are as readily received in Scot- 
 land as Bank of England notes are in England. 
 
 The paper-money issued by the Scotch Banks 
 amounts to rather more than four millions, ster- 
 ling, against which they hold rather more than 
 half that amount in specie. 
 
 In no case have the Scotch Banks, properly 
 so called, failed to discharge their liabilities.* 
 
 According to a Parliamentary Return, made 
 up to the 1st of June, 1864, there were then in 
 England and Wales, — besides the Bank of Eng- 
 land with its 11 branches, — 140 Private Banks 
 of Issue with 208 branches; 61 Joint-Stock 
 Banks of Issue with 441 branches; 138 Private 
 Banks, not of Issue, with 64 branches; and 
 
 * The Western Bank of Scotland was not conducted on 
 the principles of Scotch banking. But that bank, though it 
 failed totally, ultimately discharged its liabilities in fuU. 
 
THE ORGANISATION OE CREDIT. 325 
 
 56 Joint-Stock Banks, not of Issue, with 303 
 branches, besides four branches in Scotland, a 
 branch in Ireland, and 14 branches abroad. 
 
 For Ireland the Return gives 6 Joint-Stock 
 Banks of Issue with 191 branches; 4 Joint- 
 Stock Banks, not of Issue, with 6 branches, and 
 4 Private Banks, not of Issue. 
 
 For Scotland 13 Joint-Stock Banks, all of 
 Issue, and having 594 branches. 
 
 In England and Wales the amount of notes 
 isued lately averaged about £28,000,000 
 
 In Ireland, upwards of 6,000,000 
 
 In Scotland, upwards of 4,000,000 
 
 Total £38,000,000 
 
 Thus, the average issue of Notes in Great 
 Britain was upwards of £32,000,000, and the 
 total average issue of the United Kingdom was 
 upwards of £38,000,000, and is now about 
 £40,000,000; the gold' and silver money in cir- 
 culation and kept in reserve by the banks being 
 about three times that amount, or £120,000,000.* 
 
 The total amount of specie held by the Banks 
 of the United Kingdom, in ordinary times, is 
 about £20,000,000 ; of which amount the Bank 
 of England holds, on the average, 14^ millions ; 
 the Irish Banks rather more than 2^ millions ; 
 the Scotch Banks rather less than 2| milHons. 
 
 * This is an uncertain estimate. 
 
326 THE BANK OF KNGLAND. 
 
 The deposits in the Banks of the United 
 Kingdom are estimated to amount, on the average, 
 to about £400,000,000 ; but this appears to be 
 a high estimate. 
 
 Any further interference with the system of 
 Banking in Scotland, which has so long and well 
 fulfilled its object, seems to be uncalled for. 
 This system, which has more recently been car- 
 ried out with such extraordinary success by the 
 Joint-Stock Banks, must become more prevalent, 
 because it is formed to consult the convenience 
 and welfare of the community, and there is no 
 doubt that, this system will be more closely fol- 
 lowed than it now is by all the Joint-Stock Banks. 
 
 The practice of collecting together the unem- 
 ployed savings of the country, by allowing interest 
 on the sums brought into a current account, thereby 
 making, out of that which was lying idle and un- 
 profitable, active capital for the profitable employ- 
 ment of industry, is a scheme so simple and so ma- 
 nifestly for the benefit of the contributors and the 
 community as to be worthy of all encouragement. 
 
 The Scotch system most effectually encourages 
 this practice by collecting small as well as large 
 suras, and allowing a larger share of the profits 
 to the contributors. 
 
 The Joint-Stock Companies adopt this system 
 for the purpose of collection, and then divide the 
 whole of the profits among the shareholders. 
 
THE ORGANISATION OF CREDIT. 327 
 
 Other Banking Companies will arise for divi- 
 ding the whole of the profits among the contri- 
 butors, when it is more generally known that, out 
 of their capital these Companies are dividing up- 
 wards of 20 per cent, per annum, in addition to 
 the profits on their own subscribed capital. 
 
 It will be one of the many astonishments which 
 we have prepared for posterity, that our Legis- 
 ture, by fanciful and absurd laws, has been for so 
 many years throwing every possible impediment 
 in the way of these Associations, formed for the 
 good of the community, and that, after our long 
 experience, the Legislature is still clinging to 
 some remnants of the old absurdities. 
 
 The savings of a nation form the only portion 
 of its capital properly available for the resources 
 of a State. The annual savings of the United 
 Kingdom are estimated at 130 millions sterling. 
 The millions of money shut up in strong boxes 
 and hid in holes and corners by small farmers, 
 traders, and humble artisans, is so much money 
 lost to the trade and industry of the country. 
 
 Some notion may be formed of what these 
 small sweepings in the mass would amount to, 
 from the spare money of the humble classes now 
 deposited in the Savings-banks, though this is but 
 a poor contrivance at the best, and only a little 
 better than none at all. 
 
328 THE BANK OF ENGLAND. 
 
 In January, 1865, these small sweepings amoun- 
 ted to £43,61 5,000. 
 
 The Government plays with this money, and 
 the Public pays for the losing game.' The 
 Government has no good right to do so. All 
 these Government contrivances for dealing with 
 the savings of the People, under the pretence of 
 helping them, are mean and shifty ; and if only 
 justice were done to the People, they would do 
 much better for themselves than any Government 
 can do for them. All that they require is, — a 
 voice in the representation, and to be let alone to 
 manage their own affairs. They would not then 
 be taxed in their own labor, because then all 
 taxes would be direct. It is impossible to sup- 
 pose that they would submit to the iujustice of 
 indirect taxation on any of the necessaries or con- 
 veniences of civihzed life if they could choose 
 their own representatives ; or to suppose that they 
 will get rid of that injustice until they do choose 
 their own representatives. 
 
 It is not now considered safe to trust the unre- 
 presented working-classes with that liberty of 
 choice, and it never will be considered safe, as 
 long as so to exercise it is considered wrong. 
 But, however that may be, it would be wise in 
 the meantime to govern the country as it must 
 and would be governed if that liberty of choice 
 
THE ORGANISATION OF CREDIT. 329 
 
 now existed, and all the people were well educated 
 and intelligent. 
 
 Adam Smith, whom the experience of a century 
 has proved to be a safe authority on other ques- 
 tions, has said on this question : — " The pro- 
 perty which every man has in his own labor, as 
 it is the original foundation of all other property, 
 so it is the most sacred and inviolable. The 
 patrimony of a poor man lies in the strength and 
 dexterity of his hands, and to hinder him from 
 employing this strength and dexterity in what 
 manner he thinks proper, without injury to his 
 neighbor, is a plain violation of the most sacred 
 property. As it hinders one from working at 
 what he thinks proper, so it hinders the others 
 from employing whom they may think proper." 
 
 But Mr. John Stuart Mill, in his Letter to the 
 Electors of Westminster,* says : — " I prefer a 
 mixed system of direct and indirect taxation to 
 either alone. If the attempt were made to raise, 
 exclusively by direct taxation, so large a revenue 
 as ours would still be, after all due retrenchment, 
 I do not know of any taxes, in themselves just, 
 which, under a strong pecuniary temptation, 
 would not be successfully evaded. The evasions 
 of the income-tax are already a disgrace to the 
 national morality. I would in no case tax any of 
 the necessaries of life, but if even a working man 
 * 'The Times,' 21st April, 1865. 
 
330 THE BANK OF ENGLAND. 
 
 expends in luxuries for himself — and especially 
 stimulants — what is required by the necessities 
 of his family, I think it perfectly just that he 
 should be taxed on such expenditure." 
 
 If these words should be seen in the light of 
 a few years hence, many may then think of them 
 as some do now. Many may then see, as some 
 do now, that a direct tax on the yearly value of 
 lands, tenements and hereditaments, money in the 
 Punds, and other realised property, is more just, 
 less expensive to collect, and less liable to be 
 evaded than any indirect tax. 
 
 There is no disgrace in evading the Income 
 Tax. Everybody who can evade it does, and there 
 are very few who cannot. There is no disgrace in 
 evading any tax. Abstaining from any taxed ar- 
 ticle is evading the tax, and smuggling is only 
 another way of evading. Smuggling is evasion by 
 breach of the law, but the breach of an injurious 
 law is not necessarily disgraceful and may be 
 meritorious. To evasions of the law we owe our 
 present improved system of laws regulating the 
 disposal of land, and to evasions of the law we 
 shall be indebted for an improved system of taxa- 
 tion, as well as for many other improvements. The 
 disgrace is in the manner of the evasion, not in the 
 fact of the evasion. There is great disgrace in eva- 
 ding a tax by false statements, but quite as much 
 disgrace to the Government in imposing a tax 
 
THE ORGANISATION OF CREDIT. 331 
 
 liable to be so evaded. This applies wilb peculiar 
 force to the Income Tax, which is well calculated 
 to undermine the national morality, and is the 
 more intolerable and the less excusable, being 
 wholly unnecessary, a tax on the annual value of 
 realised property, which is open to valuation, not 
 being subject to that objection. So of the Probate 
 and Legacy duties. There was nothing disgrace- 
 ful in Mr. Richard Leyland, the wealthy merchant 
 of Liverpool, who, on the day before his death, 
 in 1844, handed to his brother Charles, a cheque 
 for £1,000,000. But Probate and Legacy duties 
 to a very large amount were thereby evaded. 
 There are, perhaps, no duties so extensively evaded 
 as these, and, certainly, there are none more ob- 
 noxious than these. In all these cases evasion is 
 meritorious, and, although we may not openly 
 justify smuggling, yet it cannot be denied that, we 
 are chiefly indebted to the smuggler for the repeal 
 of those most obnoxious and unjust laws. If it 
 were not unlawful, an Association for the Encou- 
 ragement of Smuggling would be the most pa- 
 triotic institution which could be established in 
 this country. Running the blockade may be ha- 
 zardous, but it has never been held to be immoral, 
 and running tubs will never be considered so, by 
 universal assent, if the revenue only sufi"er. 
 
 With regard to the tax on luxuries, many 
 may then ask, as some do now, what is the rule 
 
332 THE BANK OF ENGLAND. 
 
 By which to distinguish the necessaries from the 
 luxuries for taxation; why "luxuries" should 
 be taxed, — " especially stimulants," — and who 
 is to determine what is required by the neces- 
 sities of the working-man's family? Or, what 
 are necessaries, and what are luxuries? Sir 
 Charles Trevelyan says, — Salt is a lunury ! 
 Some years hence many, for curiosity, may 
 wish to know how Mr. Mill, himself, would have 
 answered these questions. He has not said why 
 he thinks it perfectly just that the working-man, 
 or any man, should be taxed ou such expendi- 
 ture. But that is a tax on his own labour, and 
 there Adam is directly against John. 
 
 But, as that universal Public Preceptor in 
 Philosophy, Politics, and Polite Literature, ' The 
 Saturday,' has profoundly remarked, " The truth 
 of a true doctrine is shown by experience to be 
 its most efi'ective sanction, and the interest which 
 people have in believing what is true will be 
 found to form the best security for their believ- 
 ing it — a security far better in every way than 
 the establishment of any organisation whatever."* 
 
 But, how to overcome the little difficulty of 
 obtaining by experience " the truth of a true 
 doctrine," without trying it, or without " the 
 establishment of any organisation whatever," 
 still remains to be shown. 
 
 * ' The Saturday Review,' April 15, 1865. 
 
THE ORGANISATION OF CREDIT. 333 
 
 If the large sum of money now collected to- 
 gether by the savings of the working-classes, 
 and taken under the protection of paternal Go- 
 vernment at a loss, which the People pay, might 
 be more usefully and with equal safety applied 
 for the benefit of all parties, when lent out in 
 the form of discounts and other commercial ad- 
 vances for giving additional employment to the 
 working-classes, additional wealth to the trading 
 community, and additional resources to the State, 
 it seems desirable that we should have the bene- 
 fit of experience, by the experiment of an orga- 
 nised establishment for the purpose. 
 
 What length of experience is required to make 
 the truth of a true doctrine its most effective 
 sanction ? 
 
 If twenty years be the required length of ex- 
 perience, then, indeed, is the truth of a true doc- 
 trine most effectively sanctioned in the Bank 
 Charter Act of 1844, and the interest which Bank 
 Directors, Bank Stock Proprietors, and large Ca- 
 pitalists have in believing that doctrine to be true, 
 forms the best security for their believing it. 
 
 For a great many more than twenty years, 
 experience of the truth of a true doctrine was 
 most effectively sanctioned in the Corn Laws, 
 and the interest which Landlords and Farmers 
 had in believing that doctrine to be true, formed 
 the best security for their beheving it. 
 
334 THE BANK OP ENGLAND. 
 
 And so, for a still greater number of years, 
 before the year 1832, — experience of the truth 
 of a true doctrine was most effectively sanctioned 
 in the laws regulating the Elective Franchise in 
 this country, and the interest which the Lords 
 and Squires in the Counties and the Borough- 
 mongers in the Boroughs had in believing that 
 doctrine to be true, formed the best security for 
 their believing it. 
 
 The truth of a true doctrine is shown by ex- 
 perience to be its most effective sanction, but 
 the interest which people have in believing what 
 is true is not " found to form the best security for 
 their believing it ;" for Landlords and Farmers, 
 Lords, Squires, and Borough-mongers, have found 
 that, what they once believed to be true doctrine, 
 yi&s false doctrine. 
 
 They were a long time in' making that dis- 
 covery, but they found it out at last, and Bank 
 Directors and Capitalists will make the same 
 sort of discovery about the true principle of 
 Banking and Currency, though they may be a 
 long time about it. 
 
 In the mean time, this specimen of the pre- 
 tentious sort of reasoning, in which ' The Satur- 
 day' so frequently indulges, may have a useful 
 effect in guarding its readers from being led 
 away by nonsense, disguised to look like sense. 
 
 Banking, conducted by large and powerful 
 
THE ORGANISATION 0¥ CREDIT. 335 
 
 associations of capitalists, great and small, is the 
 agency through which the distribution of capital 
 is effected ; and this is just the agency which the 
 Legislature has so long prevented from coming 
 into action, and now only partially permits. 
 
 Perfect freedom of legitimate action must soon 
 prevail, and then Joint Stock Banking Com- 
 panies and other Financial Associations will be 
 largely extended, and conducted on a broader 
 and more liberal principle than at present. 
 
 It is also equally clear that most of the ex- 
 isting private Banks will merge into these larger 
 Banking Associations. The old and well esta- 
 blished Private Banking Houses in the Metro- 
 pohs, Child & Co., Coutts & Co., Drummond & 
 Co., Hoare & Co., Herries & Co., and a few others, 
 will still maintain their high and honorable posi- 
 tion, as Establishments which, for their peculiar 
 usefulness, no Joint-Stock Banking Companies 
 can replace. 
 
 The Banking House of Child & Co. is, more- 
 over, distinguished by a rule as old as its founda- 
 tion, a rule not generally known, but which has 
 done much to preserve the pre-eminent position 
 of this House in the long list of the private bank- 
 ing establishments of the Metropolis. 
 
 The Clerks in the House of Child & Co. are 
 young men selected from the families of the old 
 and respectable Landed Gentry of England. 
 
336 THE BANK OF ENGLAND. 
 
 They enter young, and on entrance take the 
 lowest place, rising by priority from the Clerk to 
 the Partner, the same rule being strictly preserved 
 for the rise of the Partners as of the Clerks. 
 
 Thus, the youth, on his entrance, knows that, 
 on himself, if his life be spared, depends his 
 attainment to the high and honorable position of 
 partner, even of the senior acting partner, with 
 all the experience of the many years of probation 
 through the various gradations, from the junior 
 to the senior Clerk, and from the junior Partner 
 to the senior Acting Partner. 
 
 Thus, not only are the Clerks initiated into the 
 minutest details of the system of banking, but 
 they themselves form a very essential part of that 
 system, and to them. Temple Bar, or, as it is 
 called, for shortness, " the Bar" is the world for 
 all their hopes of honor and emolument, with no 
 view or wish beyond. 
 
 They, of course, become familiar with the face 
 and character of every Customer, and the Cus- 
 tomers, as time goes on, removing some and ad- 
 vancing others, look with more than common in- 
 terest on the familiar faces at " the Bar" in their 
 slow but certain progress upwards to the Part- 
 ner's seat, seldom attained till past the middle 
 age of life, when long years of experience have 
 brought the Banker to his prime. 
 
 Such is the old and unique rule of the House 
 
THE ORGANISATION OP CREDIT. 337 
 
 of Child & Co., and this rule is inestimable, for 
 it makes a foundation which no time can change, 
 and no change can affect. 
 
 To the class of depositors which chiefly main- 
 tain these large private Banking Establishments, 
 the temptation of interest on their deposits will 
 never be so strong for withdrawing their ac- 
 counts, as will be the accommodation of tem- 
 porary advance, for continuing to keep them 
 where they are. Private Banks will be more 
 ready than Joint-Stock Banks to make advances 
 to their customers ; and their customers, chieflv 
 land-owners and professional men, will find it 
 suit them better to make their applications for 
 such accommodations before the few familiar 
 faces in the Bank Parlour, than before the Board 
 of Directors in the Board Room. 
 
 The few old established Banking Houses in 
 the Metropolis have nothing to fear from the 
 leviathans, but, with such exceptions as these in 
 the metropolis, all the Private Provincial Banks in 
 Town and Country will assuredly be swallowed up. 
 
 This must have been seen by Adam Smith, 
 who remarks in his " Wealth of Nations," that, 
 " though the principles of the banking trade 
 may appear somewhat abstruse, the practice is 
 capable of being reduced to strict rules. To 
 depart upon any occasion from these rules, in 
 
 z 
 
838 THE BANK OF ENGLAND. 
 
 consequence of some flattering speculation of 
 extraordinary gain, is almost always extremely 
 dangerous, and frequently fatal to the banking 
 company which attempts it. But the constitu- 
 tion of joint-stock companies renders them in 
 general more tenacious of established rules than 
 any private copartnery. Such companies, there- 
 fore, seem extremely well fitted for this trade. 
 The principal banking companies in Europe, 
 accordingly, are joint-stock companies, many of 
 which manage their trade very successfully with- 
 out any exclusive privilege. The Bank of Eng- 
 land has no other exclusive privilege, except that 
 no other banking company in England shall con- 
 sist of more than six persons. The two banks 
 of Edinburgh are joint-stock Companies without 
 any exclusive privilege."* 
 
 It is a very remarkable fact, and very dis- 
 creditable to the intelligence of this country that, 
 with such an authority, since confirmed by so 
 many eminent authorities, in favour of a prin- 
 ciple so clearly and generally recognised, it 
 should have taken above a century to establish 
 joint-stock banking in England. 
 
 But this remarkable fact is explained by a 
 clause which the proprietors of Bank Stock got 
 inserted into a Statute of 6th Anne, which 
 enacted, "that during the continuance of the 
 
 * " Wealth of Nations," vol. 3. page 146. 9th Edition. 
 
THE ORGANISATION OF CREDIT. 339 
 
 Governor and Company of the Bank of England, 
 it shall not be lawful for any body politic or cor- 
 porate, united or to Ije united, other than the 
 Governor and Company of the Bank of England, 
 or for other persons whatsoever, united or to be 
 united, in covenants or partnerships, exceeding 
 the number of six persons, in this part of Great 
 Britain, called England, to borrow, owe, or take 
 up, any sum or sums of money in their bills or 
 notes payable on demand, or at any less time 
 than six months from the borrowing thereof." 
 
 This clause was intended to be, and, for more 
 than a century, has been, a bar to joint-stock bank- 
 ing in England, for the sole purpose of preserving 
 the exclusive monopoly of the Bank of England. 
 
 In the year, 1826, an Act of Parliament 
 passed, permitting Copartnerships, for banking 
 purposes, throughout England, " except in Lon- 
 don and within a distance of sixty-five miles 
 thereof." But this did not remove the bar to 
 joint-stock banks in London, or within sixty- 
 five miles thereof, and the bar might have been 
 still standing, but for the common sense of Mr. 
 James William , Gilbart, then, or lately, a Clerk 
 in a London Banking-house, who discovered 
 that, this clause in the Statute of Anne, only 
 interdicted the establishment of joint-stock banks 
 of issue, and did not apply to banks of deposit. 
 
 The fact that this discovery should have re- 
 
 z 2 
 
340 THE BANK OF ENGLAND. 
 
 mained undiscovered for more than a century is 
 hardly less surprising than that such a clause 
 should have passed in an Act of Parliament, and 
 is another instance of short-sighted ignorance very 
 discreditable to the intelligence of this country.* 
 
 Mr. Gilbart's construction of the clause in the 
 Act of Anne being found to be incontrovertible, 
 the Act, 3 & 4 William IV. cap. 98, was passed, 
 and declared as follows : — 
 
 " And whereas doubts have arisen as to the 
 construction of the said Acts, (the Company's 
 Charter Act and the Act of Anne) and as to the 
 extent of such exclusive privilege, and it is ex- 
 pedient that all such doubts should be removed : 
 be it therefore declared and enacted. That any 
 body, politic or corporate, or society, or com- 
 pany or partnership, although consisting of more 
 than six persons, may carry on the trade or 
 business of banking in London, or within sixty- 
 five miles thereof, provided that such body, politic 
 or corporate, or society, or company, or partner- 
 ship, do not borrow, owe, or take up in England 
 any sum or sums of money on their bills or notes 
 
 * A more full account of the rise and progress of the Lon- 
 don and Westminster Bank, and of Joint- Stock Banks gene- 
 rally, will be found in a chapter entitled, " The London and 
 Westminster Bank," in a very interesting and clever little 
 volume, well deserving the attention of all who take any 
 interest in these subjects, called " Stories of Banks and 
 Bankers," by Mr. Frederick Martin; published by Mao- 
 millan & Co., 1865. 
 
THE ORGANISATION Ol' CREDIT. 341 
 
 payable on demand, or at any less time than six 
 months from the borrowing thereof, during the 
 continuance of the privileges granted to the said 
 Governor and Company of the Bank of England." 
 
 Immediately after the passing of this Act, in 
 May, 1833, a prospectus was issued for the for- 
 mation of the London and Westminster Bank ; 
 and, after much secret and open opposition on the 
 part of the Bank of England and private bankers, 
 this joint-stock Bank commenced business in 
 Throgmorton Street, on the 10th of March, 1834. 
 
 But the victory was not yet complete. The 
 Directors of the London and Westminster applied 
 to the Committee of private Bankers for admission 
 to the Clearing House. This was refused. The 
 Directors also applied for permission to have a 
 drawing Account at the Bank of England. This 
 was refused. Every opposition which ingenuity 
 could discover was directed by the Bank of Eng- 
 land and the private Bankers against the London 
 and Westminster Bank- But its march of pro- 
 sperity was not to be stopped, and in the year 
 1854, after twenty years of progressive advance 
 in the yearly dividends, and an extra bonus of 
 £80,000 to the fortunate share-holders of the 
 London and Westminster, all opposition was 
 broken down and the victory of freedom over 
 monopoly in banking was complete. 
 
 In the mean time many other joint-stock banks 
 
342 THE BANK OF ENGLAND. 
 
 had sprung up, and their career of unclouded 
 prosperity is the best proof of the soundness of 
 the principle. 
 
 On the 1st of January, 1864, the nine greatest 
 joint-stock banks of the MetropoHs showed in 
 the aggregate. 
 
 " Paid up Capital, £4,615,695 ;" 
 
 " Reserve Fund, £1,049,982 ;" 
 
 "Deposits, £67,377,556." 
 
 Since that time, some millions of deposits 
 have been added to the London and Westmin- 
 ster by amalgamation with the House of Jones 
 Loyd & Co., the largest private banking-house in 
 the City of London, and the most inveterate of all 
 the enemies of the joint-stock banking principle. 
 
 In 1840, Mr. Samuel Jones Loyd,in his evidence 
 before the Parhamentary Committee on the Bank 
 Charter Act, condemned the joint-stock system as 
 quite inapplicable to banking. He said, on that 
 occasion : — " I think, joint-stock banks are defi- 
 cient in everything requisite for the conduct of 
 banking business, except extended responsibility." 
 
 This opinion is quoted with approbation by 
 Mr. McCuUoch, in his Commercial Dictionary, 
 so late as 1859. And yet, in the year, 1865, 
 the great private banking firm, of which Mr. 
 Samuel Jones Loyd, (Lord Overstone), was for 
 so many years the head, merged into the London 
 and Westminster Joint-Stock Bank ! 
 
THE ORGANISATION OF CREDIT. 343 
 
 So much for high authorities, and to show how 
 little these are worth when opposed to that great 
 principle of freedom of human action, which all 
 human beings claim within certain hmits, although 
 in defining those limits there is no agreement. 
 
 But, this instance of failure in foresight, in 
 the case of a man so eminently successful in his 
 worldly career as Lord Overstone, naturally leads 
 to the remark that, being proved to have been so 
 short-sighted, in a question on which he was sup- 
 posed to have possessed opportunities more than 
 most men for a long and clear sight, his weight, as 
 an authority in favour of the existing Bank Char- 
 ter Act, is much shaken. But, after all the expe- 
 rience of the longest sighted man, we find that. 
 Public Opinion,- sooner or later, comes nearest to 
 the truth ; and when Public Opinion is expressed, 
 the repeal of the Bank Charter Act of 1844 will 
 be another step gained in the cause of freedom. 
 
 In the case of the joint-stock banks, the want 
 of foresight in those who opposed them, (assum- 
 ing their opposition to be honest, which is 
 assuming a great deal,) is the more remarkable, 
 the advantages being so simply manifest. Take, 
 for example, the case of the London & West- 
 minster joint-stock bank. Here is a paid up 
 capital of £1,000,000, with 1,730 shareholders. 
 All these share-holders are its customers. They 
 have not only subscribed the capital for carrying 
 
344 THE BANK OF ENGLAND. 
 
 on the business, but, they have intrusted all their 
 naoney to its keeping, and froiu it they get all 
 their loans and discounts. 
 
 Thus they help to make the business, and 
 they share in the profit of that business. They 
 not only get from it the usual interest on their 
 deposits, — and those deposits, as already shown, 
 amounted to £15,630,000, on the 1st January, 
 1864, and are now much more, — but they get 
 the usual advantages of credit accommodation, and 
 they share in the profits of this greatly extended 
 form of business. 
 
 The hability of each shareholder is limited to 
 the amount of his subscribed capital, but the 
 Public have the security of 1,730 shareholders to 
 the amount of their subscribed capital, in addition 
 to the assets of the bank. Surely, this is better 
 security to the Public, than a private bank of five 
 or six partners, without any evidence that they 
 possess amongst them £100 of their own capital. 
 
 On what gound Lord Overstone gave his 
 opinion that, "joint-stock banks are deficient in 
 everything requisite for the conduct of banking 
 business, except extended responsibihty," does not 
 appear. But, whatever may be the experience of 
 Lord Overstone, as a banker, such an opinion as 
 this from him in the year 1840, deprives him of 
 all claim to be regarded as a valuable authority 
 on this subject in the year 1867 ; and the reputed 
 
THE ORGANISATION OF CREDIT. 345 
 
 wisdom of Parliament, at least on this question, 
 must be regarded as an unmeaning fiction. 
 
 The nine principal joint-stock banking com- 
 panies in London, with a paid up capital of 
 £4,616.095, on the 1st of January, 1864, repre- 
 sented a body of shareholders in number amount- 
 ing to 8,087. These establishments are every 
 year extending and enlarging, and the superior 
 advantages of their principle over that of private 
 banks, both for the individuals concerned therein 
 and for the public, are now so manifest, that private 
 banks, with a few exceptions in the metropolis, 
 must soon cease to exist in this kingdom. 
 
 But, we have yet seen only the beginning of 
 the change, which is coming. The depositors in 
 the Bank of England will not much longer be 
 content to receive no interest on their deposits ; 
 neither will the depositors in the joint-stock 
 banks of deposit and discount be much longer 
 content to receive only the usual interest on their 
 deposits. They will require to share as well in 
 the profits which their deposits produce. Banks 
 on this principle will be established, with paid up 
 capitals to an amount much larger than has ever 
 yet been seen, and thus the 30 per cent, profits 
 of the most successful of the existing joint-stock 
 banks will be brought down. Nor will the im- 
 mense success of some of the great modern firms 
 of bill-brokers fail to bring np rivals. Messrs. 
 
346 THE BANK OF ENGLAND. 
 
 Overend Gurney & Co., with their joint-stock 
 bank of discount, and their £5,000,000 of capi- 
 tal, Messrs. Sanderson & Co., Messrs. Alexander 
 & Co., and some others, may find themselves 
 forestalled in their expected deposits. 
 
 The days are fast passing away when the sur- 
 plus cash of the London and Country Bankers will 
 find its way into the hands of Messrs. Overend 
 Gurney & Co., Messrs. Sanderson & Co., Messrs. 
 Alexander & Co., and other craftsmen of their 
 class, or even into the Bank of England. 
 
 Mr. Gilbart, in his "Logic of Banking," 
 gives the names of three Bill- broking firms in 
 London, in the year 1856, viz. Messrs. Overend 
 Gurney & Co., Messrs. Alexander & Co., Messrs. 
 Sanderson & Co., as then holding deposits to 
 the amount of £15,500,000, sterhug. 
 
 When it is considered that these three firms 
 had been established only about twenty-five 
 years, and were all founded by men in the social 
 position of clerks in banking-houses, these 
 figures are very suggestive. The National Dis- 
 count Company and the London Discount Com- 
 pany, subsequently started, seem to have acted 
 upon that suggestion. 
 
 But, the time is near, when the capitalists, great 
 and small, will be their own bankers, so far as 
 sharing in the profits, which their capitals pro- 
 duce. Nothing but short-sightedness prevents 
 
THE ORGANISATION OF CREDIT. 347 
 
 this now, and everything is tending to clear the 
 vision of those vi^ho have any capital to spare. 
 Banks will soon arise on this principle, but on a 
 scale of which we have yet had no experience, 
 and these will be found to be the most profitable 
 and the safest Savings Banks for the working 
 classes, as well as for the Public in general. 
 
 Every man and woman in the kingdom who 
 can save £50 will be a banker, and will share 
 in the profits of the Bank. But well established 
 bankers have nothing to fear. The profits of 
 banking and discounting with other people's 
 money will only be more equally and more 
 fairly divided than it has been, and much spare 
 money, now lying idle, will be brought into active 
 employment, for the creation of new capital. 
 
 Before many more years are past, we shall see 
 this principle carried out on a scale of which we 
 have yet had no experience, and, instead of being 
 confined to one nation, with a capital of a few 
 millions, it will be extended to all. the nations of 
 Europe, for collecting and utilizing in one Esta- 
 blishment, or "Bank op Europe," all the savings 
 or floating and unemployed capital of all the 
 nations of Europe and dividing the profits from 
 a capital of a few hundred miUions among the 
 contributors, thus equalizing the exchanges and 
 uniting all Europe by one common bond of in- 
 
 * For the outline of a scheme for a Joint-Stock Bank on 
 this principle, see Appendix, page 947. 
 
348 THE BANK OF ENGLAND. 
 
 terest, — a bond wbich monarchs will in vain 
 attempt to sever, and then wars will cease, and 
 Customs Tariffs will be abolished, and Excise 
 duties will no longer be endured. 
 
 But the present time is the right time for our 
 Government to look to the Bank of England, and 
 for the Bank of England to look to itself. The 
 commercial community of this country will not 
 be content much longer with the present state of 
 things which made the minimum Bank rate of dis- 
 count for the year, 1864, average upwards of 
 seven per cent., and for several months of the 
 year, 1866, ten per cent, and upwards. 
 
 Without meaning anything disrespectful to 
 persons, it is difficult to believe that, those 
 bankers and bill-brokers who, in their evidence 
 before the Parliamentary Committee on Joint- 
 Stock Banks, in 1836, expressed themselves so 
 strongly against the principle of joint-stock as- 
 sociation, were not influenced by a nervous 
 anxiety about their own personal interests in that 
 question. 
 
 It was the declared opinion of the great bill- 
 broker, Mr. Samuel Gurney, of the firm of 
 Overend Gurney & Co., on that occasion, that 
 " the peculiar distinction '' of joint-stock banks 
 consisted in their being " neither legitimate nor 
 respectable," and that the system was " dangerous 
 and requiring reffulation." And when the Chair- 
 
THE ORGANISATION OF CREDIT. 349 
 
 man, the Chancellor of the Exchequer, asked Mr. 
 Gurney ; — " Do you conceive it would be an im- 
 provement or a disadvantage to the present 
 system, if joint-stock banks were permitted to 
 be established with a limited liability ? " Mr. 
 Gurney answered ; — ■" / thinli it would he a very 
 serious addition to the evils of the case." But, 
 notwithstanding that opinion the firm of Overend 
 Gurney & Co. has merged into a Joint-Stock 
 Discount Company. 
 
 It is a notable fact that, no banker or bill- 
 broker of any eminence was then to be found 
 to say a word in favour of the principle of joint- 
 stock association, and very few of their class were 
 then to be found favorable to limited liability. 
 
 If, therefore, the present Question with the 
 Bank of England is to be determined by the 
 Directors of the Bank of England, assisted by 
 the' Bankers and Bill-brokers, the chance of a 
 successful issue to the present appeal, it must be 
 admitted, is very small indeed. But still there 
 remains the hope, from experience in the past, 
 that, in the end, the true principle, in all these 
 affairs, will prevail. 
 
 According to the Parliamentary Return No. 
 452, moved for by Mr. Finlay, which has been 
 lately issued in the form of a Blue Book of up- 
 wards of 26( pages, it appears that, the total 
 number of Companies registered since the pass- 
 
350 THE BANK OF ENGLAND. 
 
 ingof the Limited Liability Act of 1S55, down 
 to the 31st of May, 1864, is as follows : — 
 
 Limited. Unlimited. Total. 
 
 England .... 3763 . . 509 . . 4272 
 
 Ireland .... 177 . . 1 . . 178 
 
 Scotland .... 142 . . 24, . . 166 
 
 Total Companies . 4082 . . 534 . . 4616 
 
 By the same Return it appears that, the total 
 amount of nominal capital registered since 1855, 
 down to the 31st May, 1864, is as follows : — 
 
 NOMINAL CAPITAL. 
 
 
 Limited. 
 
 Unlimited. 
 
 Total. 
 
 
 £ 
 
 £ 
 
 £ 
 
 England . 
 
 490,637,256 . 
 
 51,366,218 . 
 
 542,003,474 
 
 Ireland. . 
 
 2,916,437 . 
 
 3,000 . 
 
 2,919,437 
 
 Scotland . 
 
 2,904,935 . 
 
 8,080,400 . 
 
 , 10,985,335 
 
 Total . . £496,458,628 . 59,449,618 . 555,908,246 
 
 These figures furnish the strongest comments on 
 the folly of the Legislature, which, through so many 
 generations, has forbidden freedom to British Capital 
 and enterprise. 
 
 The Joint-Stock Banks, notwithstanding the 
 many instances of mismanagement, are popular, 
 and they deserve their popularity. Their prin- 
 ciple is good, though their system may be im- 
 
THE ORGANISATION OF CEKDIT. 351 
 
 proved ; but heither principle nor system can be 
 bad when attended with such success. 
 
 But this reasoning does not apply to the Bank 
 of England, the purposes and objects of which 
 should be totally different from those of private 
 and joint-stock banks. 
 
 It is no part of the proper object of the Bank 
 of England to collect deposits for distribution, 
 and it is a fatal error in the Bank of England, as 
 at present constituted, to use them. 
 
 The proper object of the Bank of England is 
 the distribution of its own Notes, according to 
 the wants of the community ; not for the benefit 
 of the Bank, but of the community. 
 
 The legitimate object of other banks is their 
 own profit ; but its own profit is not the legiti- 
 mate object of the Bank of England. 
 
 The duty of the Bank of England is to issue 
 Notes, equal at all times to the demand, and 
 payable in gold on demand. The sole object 
 and advantage of the notes is to economise the 
 gold. 
 
 There is no difficulty in securing the converti- 
 bility of the Note, as long as the means are pos- 
 sessed of obtaining an amount of gold equal to 
 the amount of notes issued over and above the 
 amount of notes in constant circulation. 
 
 But when, in addition to this, the Bank of 
 
852 THE BANK OF ENGLAND. 
 
 England issues notes against money deposited, 
 and liable to be withdrawn at any moment, and 
 when these deposits amount, as they often do, 
 to twenty millions, sterling, it is manifest that, 
 the chief concern of the Bank of England, as at 
 present constituted, must be its own preservation. 
 In time of need, when these deposits are being 
 largely withdrawn, the Bank of England must 
 be not only unable to afford help, but must 
 itself stand in need of help. 
 
 The rule of the Bank of England is, or used 
 to be, that one-third of specie was amply suffi- 
 cient to secure both notes and deposit, and so it 
 would be in ordinary times. But when those 
 deposits are used to withdraw notes or gold, — 
 and these are virtually the same, — then, though 
 the gold may be safe, the notes may be wanting, 
 and without the means of obtaining them, for 
 the Bank may be without a sovereign or a note, 
 and without the means of obtaining either. In 
 that condition, the Bank of England has totally 
 failed, as a resource for the trade and industry of 
 the country in the time of need. 
 
 To allow deposits to be used, as part of its 
 capital, by the Bank of England, as at present 
 constituted, is a radical defect, productive of 
 serious evils, by paralysing the power of the 
 Bank when its help is most wanted, and produc- 
 
THE ORGANISATION OF CREDIT. 353 
 
 ing continual fluctuations in the Bank-rate of 
 discount ? 
 
 Why are twenty milhons of money deposited 
 in the Bank of England without interest, when, 
 with equal security, these deposits might be 
 placed in Joint-Stock Banks at interest ? 
 
 For such an apparent sacrifice there must be 
 some compensation, and that can only be in ex- 
 pected favors, by preference in claims for dis- 
 counts or advances. It would be better for the 
 interests of trade if such ground of preference were 
 cut away, as it would be if the maximum Bank- 
 rate of discount were restricted to 4 per cent. 
 
 Deposits would still be brought into active use 
 for the benefit of the trade and industry of the 
 country, but would not be used to keep up a 
 false appearance for deceitful purposes. 
 
 The danger of allowing notes to be issued 
 against deposits has been fully experienced and 
 set forth in the history of the rise and fall of the 
 Country Banks, when the Issues were unrestric- 
 ted, and in that history it has been clearly shown 
 that, deposits form no safe foundation for the issue 
 of notes on Credit. This conclusion might have 
 been arrived at with equal confidence without 
 experience, when it is seen that these deposits, 
 in the aggregate, come up to half the amount of 
 the National Debt. 
 
 2 A 
 
354 THE BANK OF ENGLAND. 
 
 In principle, there is no difference between an 
 issue of Notes on the credit of deposits, and on 
 the credit of the National Debt ; and though this 
 may be done with perfect safety to a certain com- 
 paratively small amount, yet, when there is no 
 restriction to the amount and the safe limit is 
 passed, ruin is the certain consequence, as was 
 proved by John Law, when he attempted to make 
 the amount of loanable money equal to the same 
 amount of debt. 
 
 Absurd as was that error, the same is still con- 
 tinued by the Bank of England, with its pre- 
 sent inadequate capital, in using its Debts, in 
 the form of Deposits, for the issue of Notes, 
 payable in gold on demand. 
 
 But the use made of deposits by the Scotch 
 Banks, and the Joint-Stock and Country Banks, 
 for discounting Bills at short dates, and for tem- 
 porary advances, is quite different, in effect, from 
 the use made by the Bank of England, though 
 for similar purposes. 
 
 Deposits in the Bank of England are all liable 
 to be paid in Notes, convertible into gold on de- 
 mand, and as all the available gold in the King- 
 dom would not suffice to pay 5 per cent, of the 
 amount of all the deposits in all the Banks, it is 
 obvious that this must be a very uncertain foun- 
 dation for the issue of notes. It is equally ob- 
 
THE. ORGANISATION OF CREDIT. 355 
 
 vious that, the use of these deposits by other 
 Banks is no sanction for the use of them by the 
 Bank of England, though for similar purposes, 
 and that the Bank of England, as at present 
 constituted, ought to be restricted from making 
 use of them for any purposes. 
 
 The theoretical truth, that the Bank of England 
 is bound to supply gold for every Bank of England 
 Note issued, involves the practical liability to sup- 
 ply gold also for every country bank note and for 
 every deposit in every country bank in the king- 
 dom. 
 
 This is a practical fact, for, as every one knows, 
 in a run on a country bank, the local notes are 
 met by the legal tender of Bank of England 
 Notes ; and deposits in country banks, — chiefly 
 held for employment by their Agents in London, 
 — are, for the most part, included in the unem- 
 ployed capital in the Bank of England under the 
 v\rell-known entry of " Other Deposits." The 
 run upon the country bank is, therefore, practi- 
 cably a double drain on the reserve of the Banking 
 Department of the Bank of England, to redeem 
 the local notes, and to restore the country deposits. 
 
 In the same way, an export of gold is a drain 
 of notes from the Banking Department, as well 
 as of gold from the Issue Department. 
 
 Now, as the deposits in the Bank of England 
 
 2 A 2 
 
356 THE BANK OF ENGLAND. 
 
 are generally more than sufficient in amount to ab- 
 sorb the whole of the gold coin and bullion in 
 the Bank of England, and as the Banking De- 
 partment is never equal to all its liabilities for 
 notes, it is obvious that, to increase these liabili- 
 ties by issuing notes against deposits, must be 
 contrary to the principle of the Bank Act, and 
 also contrary to the principle of safety and sound 
 policy ; and that, under such circumstances, the 
 Bank of England must often be compelled to ad- 
 vance the rate of discount for its own protec- 
 tion, against the possible disastrous consequences 
 to itself, through the large amount of private 
 deposits, which may at any time be withdrawn 
 in gold. 
 
 It is also obvious that, every such advance in 
 the rate of discount is, in effect, a reduction in 
 the value of all property, whether land. Govern- 
 ment fimds, stocks, shares, shipping, or other 
 goods, and even labor, and is, consequently, a 
 manifest injury to the country. 
 
 But the Act, in its operation, works a dobule 
 injury to the Public, and this double injury, being 
 incidental to the Act, and, therefore, unavoidable, 
 is very greatly aggravated by the practice of the 
 Bank with regard to the deposits. 
 
 The first operation of a drain of gold is always 
 on the Banking Department, by diminishing its 
 
THE ORGANISATION OP CREDIT. 367 
 
 reserve of Notes, drawn out to be exchanged for 
 gold in the Issue Department. 
 
 The second operation is on the Issue Depart- 
 ment, by reducing the issue of notes in propor- 
 tion to the amount of gold withdrawn. 
 
 Thus, if £2,000,000 in notes be drawn out of 
 the Banking Department, and the notes be ex- 
 changed for gold in the Issue Department, these 
 notes are cancelled, and the power of issuing notes 
 is diminished in the same amount, thereby redu- 
 cing the amount of notes £4,000,000. It is no 
 answer to say that this is an improbable event, 
 for it has happened. That it may happen, is suf- 
 ficient to show a serious defect in the system. 
 
 It is, therefore, obvious that, a combined ope- 
 ration by the depositors for withdrawing to the 
 amount of only £10,000,000, or half the ordi- 
 nary deposits^ must stop the Bank. 
 
 Here the Banking Department has lost 
 £10,000,000 of its deposits, and the Issue De- 
 partment has lost an equal amount of notes. 
 
 But the Bank of England has lost, virtually, 
 £20,000,000, actually, all its gold, and nearly 
 all its notes, — and has no means of getting any 
 more of either. 
 
 This could never have happened under the old 
 system, and is, therefore, to be attributed wholly 
 to the Bank Act of 1844. A drain of gold now 
 
358 THE BANK 01' ENGLAND. 
 
 necessarily deranges the trade and industry of the 
 country, and when the amount of notes in circu- 
 lation is inadequate to meet the requirements, the 
 mischief is aggravated by the rise in the Bank- 
 rate of discount to 8 or 10 per cent., and further 
 aggravated by a proportionate depression of Go- 
 vernment Securities, whilst the prices of all 
 colonial produce fall in far greater proportion. 
 Thus, the commercial classes suffer in a two-fold 
 manner from a high rate of discount. They pay 
 double the ordinary price for discounting their 
 bills, and they lose 20 or 25 per cent, on the sale 
 of their goods. In the height of the money- 
 panic of 1857, as before shown, the depreciation 
 of goods, especially colonial produce, was esti- 
 mated at from 30 to 60 per cent, and upwards. 
 
 It is evident that the trade and industry of the 
 country must be very seriously affected by such 
 changes as these, when it is considered that, all 
 the trade of the country is carried on by means 
 of bills, the holders of which get them discounted 
 in the ordinary course of business. Every com- 
 mercial enterprise and every industrial contract 
 is liable to be affected by the Bank-rate of dis- 
 count. All expected profits are varied, and, in 
 many cases, not only profits are taken away, but 
 manufacturers, merchants. Traders, and Contrac- 
 tors, are made bankrupts by an unexpected rise 
 in the Bank-rate of discount. 
 
THE ORGANISATION OP CREDIT. 359 
 
 Such is the effect of the Bank Act, which, prac- 
 tically, prevents what it was intended to provide. 
 
 It was clearly the intention of the Act to pro- 
 vide for increased issues of notes by hastening 
 the return of gold, and thereby to prevent the 
 fluctuations in the Bank-rate of discount. The 
 Bank does hasten the return of the gold by cur- 
 tailing the issue of Notes as the gold departs,, 
 but the very means taken to effect that object 
 raises the rate of discount and produces the panic. 
 The gold does return, but not until the worst of 
 the crisis is past, and the commercial losses and 
 failures are completed. 
 
 The relief comes too late, and the remedy 
 which the Act prescribes becomes the real evil. 
 
 Faith in the notes is not shaken ; but the notes 
 cannot be obtained. 
 
 The drain upon the Bank is not caused by 
 demands for gold in payment of the notes, as 
 mere change. 
 
 Not the note-holders, but the depositors, cause 
 the drain of gold. 
 
 Not the Public, but the customers of the Bank 
 diminish its stock of bullion, and not as money, 
 but as merchandise. 
 
 This is clearly a banking difficulty, occasioned 
 by the separation of the Banking Department 
 from the Issue Department and by the want of 
 
360 THE BANK OF ENGLAND. 
 
 real Capital. But for this separation and this 
 want, this diflBculty would not arise. The de- 
 posits and the gold might both be withdrawn, and 
 the note circulation might still remain the same. 
 The gold must come back, and, if needful, the 
 Bank might, by many means, hasten the return, 
 without curtailing the note-circulation, to the loss 
 and injury of the whole community. 
 
 If this be purely a banking difficulty, as it 
 obviously is, it ought to be simply a banking 
 question, and the community ought to be no 
 more called upon to provide means for carrying 
 on the business of the Bank of England, than of 
 any other Bank. 
 
 Formerly, Bankers were Goldsmiths, or dealers 
 in gold, as merchants. 
 
 The Company of the Bank of England are 
 now Bankers and Goldsmiths, or dealers in 
 gold, as merchants. They are compelled by 
 law to provide gold when demanded in exchange 
 for their notes. Therefore, to be Bankers, they 
 are obliged to be dealers in gold, or gold mer- 
 chants. But this is not so with other Bankers. 
 They are not obHged to give gold in exchange 
 for notes, and when they want gold, for the con- 
 venience of change, they go to the Bank of Eng- 
 land for it. Therefore, if the Bank of England 
 have not sufficient capital for carrying on its 
 
THE ORGANISATION OF CREDIT. 361 
 
 business, that is a fundamental defect in its con- 
 stitution, but no reason for repairing the defect 
 at the cost of the community. To meet the re- 
 quirements of depositors by payments in gold is 
 the ordinary condition upon which the banking 
 business of the Bank of England is carried on, 
 and the liability of the Bank of England to the 
 demand of gold for its notes is a necessary inci- 
 dent to the banking contrivance for making paper 
 pass for the value of the gold represented. There 
 is no hardship in making the Bank give gold in 
 exchange for its own paper, for on that condition 
 alone is the paper accepted as gold ; but there is 
 very great hardship to the community when they 
 are made to pay £1,100 for £1,000 in bank- 
 notes, because the Bank of England happens to 
 be short of gold. 
 
 Money being required for carrying on trade, 
 bankers, as money-dealers, may be said to furnish 
 the material, and though a high rate of discount 
 be profitable to the bankers, as bill-brokers or 
 money-dealers, yet it is very much otherwise to 
 the commercial community, being, in fact, a trans- 
 fer of a portion of the profits, in proportion to 
 the rate of discount, from the hand of the trader 
 into the pocket of the banker or money-dealer. 
 
 To the bankers, as money-dealers, these are 
 legitimate profits ; but such profits are not con- 
 
362 THE BANK OF ENGLAND. 
 
 sistent with the mission and object of the Bank 
 of England, as a national Bank, for the service of 
 the trade and industry of the Nation. But why 
 should the prosperity of the trade and industry of 
 the nation be made dependent on the quantity 
 of gold in the Bank of England, if the means 
 of obtaining any required quantity be always at 
 hand? 
 
 Sovereigns and Notes being legal money, and 
 notes being equal to gold, gold will always be 
 obtainable with notes. It, therefore, seems to fol- 
 low, as a necessary consequence, that no more 
 gold need be kept in the Bank of England than 
 may be required for the ordinary demand and 
 purpose of change ; and that, with an ample re- 
 serve of notes, the gold can always be obtained. 
 
 The ordinary demand for gold must by this 
 time be as well known at the Bank of England 
 as the ordinary demand for notes, and the ordi- 
 nary demand for both will be better known when 
 notes cannot be -demanded for gold. There can 
 be no reason for making it compulsory on the 
 Bank of England to purchase gold when it is 
 not wanted, and it may most safely be left to the 
 discretion of the Bank Directors when to pur- 
 chase gold or silver or any other commodity of 
 which they stand in need. It is enough if they 
 comply with the single condition on which their 
 
THE ORGANISATION OF CREDIT. 363 
 
 notes are issued, — 'that of redeeming them in 
 gold on demand. To calculate the amount of 
 gold required for that purpose will be their duty, 
 and that calculation will be much more easy when 
 confined to this one condition. 
 
 Extraordinary calls for gold are almost always 
 to send abroad in payment for corn or cotton, 
 tea or silk, or for loans to foreign Governments. 
 To a comparatively small extent, foreign coun- 
 tries draw upon our stock of gold, but never to 
 an extent to cause any real embarrassment to the 
 Bank of England. This object is easily accom- 
 plished by the Bank of Erance, or some other 
 great foreign Bank, buying up Bills of Exchange 
 upon London, and sending them to London to 
 be cashed, so keeping up its supply of gold by 
 drawing on the stock in hand at the Bank of 
 England. 
 
 To counteract this proceeding, by rendering it 
 profitless, the practice of the Bank of England is 
 to raise the rate of discount, thereby inflicting a 
 heavy loss on the whole of our trading commu- 
 nity, and out of their loss making a great profit. 
 
 If the Bank of England met every such opera- 
 tion on a large scale, by a similar operation on 
 the foreign Banks, or by purchasing gold in the 
 open market in the ordinary way, with real ca- 
 pital, that would be quite as efi'ectual for stop- 
 
364 THE BANK OF ENGLAND. 
 
 ping the foreign drain of gold, as raising thg 
 rate of discount against the trade and interest of 
 the country ; and if the Bank of England were a 
 loser by this operation, instead of being a gainer 
 by the other, what is that to the country ? and 
 what would be the amount of gain to the Bank 
 in the one case, in comparison with the amount 
 of loss to the country in the other? or, what 
 would be the amount of loss to the Bank in the 
 one case, in comparison with the amount of gain 
 to the country in the other? 
 
 But it is by no means clear that there would 
 be any loss to the Bank in the end, though it is 
 quite clear that a very great loss would be saved 
 to the country, if, instead of raising the rate of 
 discount, the loss in gold were instantly supplied 
 by an increased issue of notes, through a low 
 rate of discount. 
 
 Can anything be more absurd and inconsistent 
 with our artificial system of money, than to reduce 
 the amount of our money of notes in proportion 
 to every diminution in the amount of our money 
 of gold ; so that, when all our gold is withdrawn, 
 all our notes must be withdrawn, and the country 
 must be left without sufficient legal tender for the 
 ordinary transactions of trade, or even for the 
 ordinary purposes of a civilized state of society, 
 and nothing left but to revert to the barbarous 
 condition of barter by exchange ? 
 
THE ORGANISATION OF CREDIT. 365 
 
 It is not necessary to show, that this state of 
 things is likely to happen. 
 
 It is sufficient to show that the principle in- 
 volves this absurdity, than which nothing can be 
 conceived more absurd. Nor is it an answer to 
 say that, the system of cheques and bills would 
 supply the place of money sufficiently to prevent 
 the stoppage of trade. 
 
 That might be so, but it requires no argument 
 to show the necessity for money as a means of 
 transfer in ordinary transactions; or the ab- 
 surdity of the doctrine, — no gold, no money, — 
 when paper-notes are the legal currency of the 
 country as well as gold, and gold in any required 
 quantity is at all times to be purchased in the 
 open market with these paper-notes, which are 
 held to be of equal value with the gold thereby 
 represented. 
 
 In this point of view is exposed the extreme 
 absurdity of the system, which withdraws the 
 notes as the gold is withdrawn, instead of multi- 
 plying the notes as the gold is withdrawn, and 
 bringing back the gold to support the credit of 
 the country, on the faith of which the notes are 
 issued, and issued only for the purpose of econo- 
 mising the gold, for the benefit of the country, 
 not for destroying credit, and bringing ruin with 
 distrust. 
 
366 THE BANK OF ENGLAND. 
 
 If any conceivable case could be put in which 
 the notes could not be exchanged for gold, within 
 the linait assumed, then there might be some 
 pretence for the present practice ; but, as long as 
 the question is confined within the safe hmit, — 
 and that is, as long as the notes issued do not 
 exceed in amount the universally acknowledged 
 credit of the country to redeem them in gold, — 
 there cannot be a shadow of ground for the pre- 
 tence on which the present practice is founded ; 
 and if there were any ground, that would be a 
 conclusive objection to any issue of credit notes, 
 and would be, in effect, to maintain only a me- 
 tallic currency. 
 
 The present practice, therefore, of contracting 
 the issue of notes as the gold is withdrawn, is 
 directly a-t variance with the principle on which 
 the notes are issued, as also with the object for 
 which they are issued ; and keeping a large re- 
 serve of gold shut up in the vaults of the Bank 
 is as much at variance with principle as with 
 common sense ; for credit, instead of being sup- 
 ported, is weakened by the means used for its 
 support, and high rates of discount, with fre- 
 quently recurring money-panics, shake credit to 
 its foundation, inflicting on the community losses 
 far exceeding all the savings effected by the sub- 
 stitution of paper for gold. 
 
THE ORGANISATION OF CREDIT. 367 
 
 This is not a question of the supply of capital, 
 but of the supply of that medium called money, 
 for the transfer and employment of capital. It 
 is quite true that, it is not the purpose of the 
 Bank of England to provide the country with 
 loanable capital ; but it is no less true that, one 
 of the most important purposes, and the first 
 duty of the Bank of England is, to provide the 
 country with cheap money for the convenient 
 and profitable transfer and distribution of the 
 loanable capital of the country. 
 
 This is the great duty which the Bank of 
 England so imperfectly performs. How imper- 
 fectly, is the question which the Public in general, 
 from their very confused and imperfect know- 
 ledge of the working of the Act of 1844, are 
 unable to estimate. But Mr. Thomas Tooke, 
 probably, had an insight into the effects of this 
 Act, when he described it as one of ' the mod 
 wanton, ill-advised, pedantic, rash pieces of legis- 
 lation ' which he had ever known, and that, in 
 its consequences, it had proved a most lamentable 
 failure. Nor did he stand alone in his opinion 
 among the eminent authorities in the country on 
 this subject. 
 
 There can be no reason why banking should 
 be an exception to the principle of free-trade, or 
 why there should not be perfect freedom of trade 
 
368 THE BANK OF ENGLAND. 
 
 in banking. But banking is one thing, and the 
 issue of bank-notes is another thing. 
 
 If bank-notes be made by law equal to the 
 current coin of the realm, the issue of which coin 
 is a Royal or State prerogative, there must be all 
 the same reasons against the issue of notes by 
 private banks, as against the issue of coin of the 
 realm by private banks. It is simply confusion 
 of mind which leads so many persons to suppose 
 that, the issue of promissory notes is essentially 
 and properly part of the business of a banker. 
 
 The business of banking is to collect the un- 
 employed and idle capital, and so to distribute it 
 among the industrious workers as to make it pro- 
 ductive of new capital, not to provide the capital. 
 
 It is no part of the business or duty of the 
 Bank of England to find capital or to distribute 
 it, but to provide means for its convenient trans- 
 fer ; and, in this sense, the money used for such 
 purpose is so much taken out of the capital of 
 the country, as the mere instrument or medium 
 for making the remainder more available for use- 
 ful purposes ; precisely in the same way as the 
 land taken for the purpose of making roads and 
 railways is so much taken out of the food-pro- 
 ducing soil, for the more convenient transfer of 
 natural productions and other commodities. 
 
 The capital of the Bank of England may. 
 
THE ORGANISATION 0¥ CREDIT. 369 
 
 therefore, be compared to the land taken for 
 roads and railways, or to the gold and silver and 
 copper taken for the coinage, being so much ca- 
 pital taken out of the common stock, as a medium 
 or means of transfer and employment for the active 
 capital of the country. 
 
 The purpose of the capital of the Bank of Eng- 
 land is, therefore, essentially different from that 
 of other Banks, their province being to collect 
 the unemployed capital, and to distribute it, as 
 loanable capital, into the infinite variety of chan- 
 nels where it is wanted for profitable employment. 
 
 In this way loanable capital, and capital em- 
 ployed as currency, or the medium of transfer, 
 though identically the same, are distinct in their 
 functions and operations. 
 
 The province of the Banks is to collect, to 
 distribute, and to find employment for, the un- 
 employed capital. 
 
 The province of the Bank of England is to 
 provide ample means at all times for the transfer 
 of that capital from hand to hand,- for the em- 
 ployment of that capital, and for payment of the 
 wages of labor. The Bank of England does this 
 by purchasing debts, created on the credit of 
 capital, and paying the purchase money in Bank 
 of England Notes, that is, discounting bills. 
 
 This is found to be the most convenient way 
 
 3 B 
 
370 THE BANK OF ENGLAND. 
 
 of transferring capital from hand to hand, for 
 facilitating the infinite operations of trade and 
 commerce. 
 
 Now, it is manifestly of the greatest import- 
 ance for the success of these operations that, the 
 rate of discount, or the price for the purchase of 
 bills of exchange, should be so regulated as to 
 take only the smallest possible portion of the 
 profits of the trader, otherwise small facility is 
 afi'orded to trade ; and also that the price should 
 be subject to the fewest and slightest possible 
 variations, that the trader may be able to calcu- 
 late his profits with tolerable accuracy. 
 
 And so with Kailways. If the rates of charge 
 for thecarriage of goods were so high as to take 
 away the trader's profit, no facility would be 
 afforded, and the land taken for the railways would 
 be the loss of so much productive soil to the 
 country. 
 
 As regards discounting by the Bank of Eng- 
 land, the rate of discount should never be regu- 
 lated by the credit of the bill discounted, for if 
 the credit do not justify the low rate, neither can 
 it justify the high rate. That which may be a 
 fair speculation for a private bank, may be a most 
 improper one for the Bank of England ; the pur-' 
 pose and object of the private Bank being profit, 
 and of the Bank of England facility to trade ope- 
 rations. 
 
THE ORGANISATION OF CREDIT. 371 
 
 It is, therefore, of the utmost importance that 
 those who are engaged in trade should be able to 
 calculate on having their bills discounted at the 
 Bank of England on such terms as will leave 
 them a fair profit for their capital and industry. 
 
 It is said that, the Bank of Englaryi does not 
 regulate the rate of discount. This is only par- 
 tially true, for the Bank of England exercises a 
 great influence over the rate of discount, especially 
 in raising it. But the Bank of England ought 
 to regulate the rate of discount, and if the Bank 
 of England and the Bank of France vpere able to 
 co-operate, they would together regulate the dis- 
 count throughout Europe. 
 
 The Bank of England, with its large credit 
 capital, must always exercise great influence over 
 the rate of discount, and generally does keep the 
 rate higher in this country than it is kept in France, 
 although the amount of bullion in the Bank of 
 France is, comparatively to the issue of notes, 
 generally lower than in the Bank of England. 
 
 The complaint is that, the Bank of England 
 exercises or is forced to exercise its influence to 
 raise, instead of being enabled to exercise its in- 
 fluence to lower, the rate of discount ; and that 
 the restrictions of the Act alone prevent the Bank 
 from keeping the ordinary rate of interest between 
 2 and 3 per cent. 
 
 2 B 2 
 
372 THE BANK OP ENGLAND. 
 
 That, the market-price for money, like every 
 other market-price, must depend on supply and 
 demand, is quite true. But that supposes an 
 open and free market. The market for legal 
 tender-money is the Bank of England, and that 
 is not an open or free market, but a monopoly, 
 as it ought to be ; but for the benefit of- the 
 community, not of the Bank. 
 
 It is not true that, the public controls the Issues, 
 for, as already shown, the Bank of England rarely 
 issues notes to the amount which, even under its 
 present restrictions, it might issue them. But 
 the objection is that, these restrictions prevent 
 the issues to an amount sufficient to meet the re- 
 quirements. All that is said about "over-issues " 
 is sheer nonsense, for there never has been and 
 never can be an over-issue as long as the notes are 
 payable in gold on demand ; for then, what is 
 called, " over-issue," must always very soon cor- 
 rect itself. Equally absurd is all that is said 
 about "over-trading" which, if it mean any- 
 thing, can only mean unsuccessful trading, and 
 that must very soon correct itself; for, however 
 injurious to the country, from the loss of capital, 
 that would in no way aff'ect the Bank of Eng- 
 land, if properly constituted. The truth is that, 
 the terms, "over-issues" and "over-trading," with 
 an appearance of meaning, have really no mean- 
 
THE ORGANISATION OF CREDIT. 373 
 
 ing at all ; or, at least, throw no light upon the 
 subject ; and this, is merely a roundabout way of 
 concealing profound ignorance. 
 
 The folly of all such reasoning is in applying 
 general principles to a special case, under special 
 and artificial circumstances, at variance with 
 general principles. 
 
 If it be expedient that there should be a mono- 
 poly, — and under a Government there are many 
 special cases in which it is not only expedient 
 but absolutely essential, — it is only trifling to 
 apply to those special cases the reasoning from 
 general principles. 
 
 The Bank of England is established for carry- 
 ing out an artificial system for the convenience 
 of the community. 
 
 It is, very properly, not a State establishment, 
 but an estabhshment employed by the State to 
 carry out a particular design for a special object, 
 of the greatest importance to the State and to 
 the community. 
 
 All Statesmen and Political Economists are 
 agreed that, the State should have nothing to do 
 with banking. No Government should undertake 
 what can be as well accomplished by private 
 agency ; but least of all should Government in- 
 terfere with what concerns the commcce of the 
 country. This was the opinion of Adam Smith, 
 
374 THE BaI^K 01' ENGLAND. 
 
 and all experience proves that, Government is a 
 bad substitute for a commercial body acting upon 
 sound principles in commercial affairs. 
 
 Anything more unfortunate for this country 
 can hardly be imagined, than that the railways of 
 the kingdom should be under the management 
 and control of the Government. Such a false 
 step would be nothing short of a public calamity. 
 
 The object of the Bank of^ England, as a Na- 
 tional Bank, is to provide a currency of equal 
 value with gold, by means of paper, thereby 
 saving so much gold taken from the capital of 
 the country, and therefore likened to roads and 
 railways made in the air, to the saving of so 
 much land for growing corn, etc. 
 
 For that object the power of issuing paper- 
 notes, as legal tender, to represent gold, is con- 
 fined to the Bank of England. 
 
 In the case of the coin of the realm, the mo- 
 nopoly is vested in the Sovereign or representa- 
 tive of the State, as a Royal or State prerogative. 
 
 But the current coin of the realm belongs to 
 the community, and not to the Sovereign or 
 head of the State, and, therefore, it ought to be 
 minted and coined at the public charge, but so 
 that the cost be extremely small, lest it be pre- 
 judicial to the community at large. 
 
 The incident of the Tribute-money related in 
 
THE ORGANISATION OP CREDIT. 375 
 
 the New Testament, and the divine admonition, 
 ' Render to Caesar that which is Caesar's,' has 
 been used for centuries by the Church to per- 
 plex men's minds with a false conception of the 
 relation of money to the Sovereign. The image 
 and superscription were supposed to mark the 
 coin as something belonging to the king. The 
 piece of silver bearing Caesar's head did in some 
 measure appertain to Caesar ; and Caesar was 
 very apt to exercise fights of property over it. 
 Nicole Oresme, born in the early part of the 
 fourteenth century, was, perhaps, the first church- 
 man who ever exposed so convenient a fallacy. 
 ' It is not,' said he, ' the coin which is Caesar's, 
 but the tribute represented by the coin.' The 
 tribute is his, and we are bound to pay it ; but 
 the coin is ours, and the image and superscrip- 
 tion are not to be regarded as marks of property 
 in it, but they are a stamp imposed by the 
 Crown to attest the value of the article; and 
 the honour of the Crown as well as the order of 
 public dealings require that this stamp should 
 be a mark of inviolable good faith and honesty. 
 The right of affixing this stamp to the coin ap- 
 pertains to the Sovereign, and it is a capital 
 offence for any other man to coin money in the 
 realm or to circulate counterfeit pieces ; indeed, 
 adds Oresme, the privilege is such that it cannot 
 
376 THE BANK OF ENGLAND. 
 
 and ought not to be conceded to any vassal, and 
 would be a good cause of war against such as 
 may usurp it.* 
 
 The same volume contains a treatise entitled, 
 ' Monetae cudendae ratio,' by Copernicus, who 
 was born in 1470. He advocates the suppres- 
 sion of those numerous local mints which had 
 powerfully contributed to confuse and perplex 
 the monetary systems of Europe in the Middle 
 Ages ; and he recommends the limitation of the 
 right of striking money to one establishment 
 under the control of the royal authority. This 
 is a true principle, and of a practical character 
 remarkable for those early times. 
 
 The paper notes, being legal tender and re- 
 presenting the gold coin of the realm, are the 
 current money of the country ; but, being of no 
 intrinsic value, and the value depending wholly 
 on credit, are not necessarily current in any other 
 country, though, in fact, they are to a great ex- 
 tent current in most other countries, and even 
 at a premium in some, because believed to be 
 convertible into gold, on demand. If Bank of 
 England notes were held in the same credit in 
 
 * See Edinburgh Review Ko. 251, January, 1866. Trea- 
 tise by Nicole Oresme— ' De Origine et Jure neonon efc de 
 Mutationibus Monetarum." Texte Latin et traduction Fran- 
 5aise. Publies et annot^s par M. L. Wolowski, Membre de 
 rinstitut. Paris. 1864. 
 
THE OEGANISATION OF CREDIT. 377 
 
 all other countries as in this country, no gold 
 would be required in this country for money, 
 and gold would be only an article of commerce, 
 like any other commodity. 
 
 In this simple view of the case, the absurdity 
 of all that is said about " over-issues " and " over- 
 trading " must be manifest, for, assuming paper- 
 notes and sovereigns to be the same, as virtually 
 they are, it must be a matter of the utmost in- 
 difference to the Bank of England what becomes 
 of the notes when they are taken out of the 
 Bank. If converted into Sovereigns, these will 
 return to the Bank in the same form ; if in the 
 form of notes, these will be cancelled. All that 
 the Bank has to look to is that, the notes are 
 convertible into sovereigns, and that notes and 
 gold are ready when wanted. In this way, the 
 monopoly will be held by the Bank of England 
 for the benefit of the country, instead of being 
 held, as it now is, for the benefit of the Pro- 
 prietors of Bank Stock, at a cost to the country 
 very far exceeding the 12 per cent, dividend now 
 divided among the shareholders. 
 
 But it is by no means clear that, the proprietors 
 of Bank Stock are gainers by the high rate of 
 discount, and there is good reason to believe that 
 a more uniform rate, within the maximum of 4 
 per cent, would make a better dividend. 
 
378 THE BANK OF ENGLAND. 
 
 In this view it may be clearly seen that, much 
 of the reasoning from general principles can have 
 no application to the facts of this case, and that 
 the system of the Bank of England, being entirely 
 artificial, its afiairs must be conducted on prin- 
 ciples consistent therewith ; not that this artifi- 
 cial system is inconsistent with general principles, 
 but that general principles are not applicable to 
 the special circumstances of this anomalous case. 
 
 Experience has shown that, when gold becomes 
 scarce, the public rush to the Bank of England 
 for Notes, not to convert them into sovereigns, 
 but to hold the notes, knowing that, as the gold 
 diminishes, the notes will diminish in the same 
 proportion, and that, the rate of discount will be 
 raised. 
 
 Experience, therefore, confirms the conclusion 
 that, there would be no rush to the Bank of 
 England for notes when the gold diminishes, if 
 notes were not diminished in the same propor- 
 tion, and if the rate of discount remained steady ; 
 for it is not that the notes are really wanted, but 
 it is the fear that, when they are wanted they 
 cannot be obtained, or can be obtained only at 
 an extravagant price. That fear, as experience 
 has shown, is well founded, and prudence dictates 
 the precaution ; but if the fear had never existed, 
 the occasion for the precaution would never have 
 
THE ORGANISATION OF CREDIT. 379 
 
 arisen, and the notes would have remained in the 
 Bank until really wanted. 
 
 Nor would the question of convertibility have 
 arisen, if it had been known that the Bank of 
 England possessed the means of meeting all de- 
 mands for gold. If the Public were assured of 
 that fact, this question would be -one with which 
 the Public could have no concern, and one which 
 could in no manner affect public credit. 
 
 But now, under the existing system, the con- 
 traction of the notes as the gold diminishes must, 
 as a necessary consequence, disturb public credit, 
 and actually create the very danger to be guarded 
 against. The danger itself is merely imaginary, 
 but the fear creates the real danger, and the dan- 
 ger is greatly aggravated by the very means taken 
 to avert it. 
 
 Such is the working of the Bank Charter Act 
 of 1844. 
 
 In 1826, when there was hardly a sovereign 
 in the Bank of England, and when a bundle of old 
 £1 notes was discovered, these were readily ac- 
 cepted, although they had been withdrawn from 
 circulation, and had not been a legal tender for 
 four years before. The Public were as well satis- 
 fied with these notes as if they had been sovereigns. 
 
 It is a fact universally admitted that, for inter- 
 nal circulation, as a means of settling accounts 
 
380 THE BANK OF ENGLAND. 
 
 among ourselves, Bank of England Notes are ac- 
 cepted everywhere and always in preference to 
 sovereigns, as being equally safe and more con- 
 venient ; and, showing the influence of credit in 
 this country, a cheque, if on a good and well- 
 known Bank, though not a legal tender, is gene- 
 rally preferred to either. 
 
 In fact, the British Public, for their own inter- 
 nal monetary transactions, neither require nor 
 desire sovereigns, and all they require is, to know 
 that they can have sovereigns when they want 
 them, in exchange for notes. 
 
 It is a fundamental error, out of which many 
 errors have arisen, that the export of gold coin is a 
 loss of so much capital to the country. It might 
 be said with as much truth that, the export of' 
 our iron or cotton goods is a loss of so much 
 capital to the country. 
 
 It is not a loss of capital that is occasioned by 
 the export of gold coin, but it is a loss of currency, 
 by the consequent loss of bank-notes for our in- 
 ternal transactions, and a diminished supply of 
 gold coin for our foreign, payments. 
 
 In this way the machinery of the Issue De- 
 partment inevitably works. Hence a drain of 
 gold is followed by a high rate of discount, not 
 from the loss of capital, nor from the loss of gold, 
 but from the loss of notes. 
 
THE ORGANISATION OF CREDIT. 381 
 
 A foreign drain of gold is not necessarily 
 attended with national loss, nor is it expressive 
 of national indebtedness. Under our present 
 system, this is the frequent cause of great com- 
 mercial disasters ; but this is a consequence attri- 
 butable entirely to our defective system. The 
 same disastrous consequences may follow an in- 
 ternal drain of gold or notes, or from any cause, 
 which produces a temporary increase of the 
 monetary requirements of the community, and 
 a temporary diminution of the usual accommo- 
 dation to trade. 
 
 Gold is never sent out of the country, but for 
 the benefit of the country, except when sent to 
 support foreign war, or to make improvident 
 loans, or other unsuccessful investments abroad. 
 Most frequently the gold is sent to get the raw 
 materials for the employment of our working 
 people, or cheap food for all classes of our people. 
 Experience has so clearly established these to be 
 facts that, it is wonderful they should be now 
 in question. 
 
 Within the last five years, about 145 millions, 
 sterling, of the precious metals have been im- 
 ported into this country, and about 143 millions 
 have been exported, leaving only about 3 millions 
 remaining in this country. With these 143 
 millions sent away, or the chief part, we have 
 
383 THE BANK OF ENGLAND. 
 
 purchased materials for our industry, and the 
 goods manufactured from those materials, or the 
 chief part, we have sold to other countries ; thus 
 making a profit on the goods which the gold 
 purchased. We might have kept the gold ; but 
 then we should have had no employment for our 
 industry, and we should have made no profit. 
 But to go back no further than the year 1862, the 
 experience of that year alone ought to be con- 
 clusive on this question. 
 
 In that year the demands upon our capital, 
 partly from a bad harvest, and partly from the 
 cotton- dearth, were greater than had been known 
 in any year within living memory. And yet, in 
 that year the Bank-rate of discount stood at the 
 lowest point which has ever been knovra within 
 living memory, namely, 2 per cent., and the 
 highest rate in that year was 3 per cent. 
 
 Or, again, to show that high rates and low 
 prices are not dependent on the export of the 
 precious metals, take the recent case of the mone- 
 tary crisis in India, at the latter end of the year 
 1863, when prices there were reduced 27 per 
 cent., and the -imports of the precious metals into 
 India in 1862-63, were £20,523,459. It is well 
 known that the wealth of India is rapidly in- 
 creasing, and that it was no loss of capital vf\i\G\v 
 occasioned that extraordinary fall of prices ; still 
 
THE ORGANISATION OF CKEDIT. 383 
 
 less a loss of capital caused by export of the pre- 
 cious metals, which, in fact, were then, and had 
 been for many years before pouring into India in 
 prodigious quantities, the total amount imported 
 in the seven previous years being £96,192,078. 
 
 These examples will be sufficient to show that, 
 the theory must be wrong, which attributes the 
 charge for money on loan to the amount of capi- 
 tal in the country ; for, if that were so, the Bank- 
 rate in England, the wealthiest and most com- 
 mercial country in the world, should be lower 
 than in any other country in the world. And if 
 the import and accumulation of the precious 
 metals were a test of national gains, then India 
 should be making greater gains every year than 
 England and all the nations of Europe put toge- 
 ther. 
 
 Neither are our high rates of discount attri- 
 butable, as so often alleged, to a diminution of 
 the loanable capital of the country. 
 
 Loanable capital, in the sense here used, means 
 the spare or unemployed capital of the country. 
 
 If the rate of discount be regulated by the 
 amount of loanable capital only, the rate ought 
 to vary inversely with the amount. 
 
 But it is quite otherwise. The rate and the 
 amount both increase together. This may be 
 easily seen by taking the sum total of the deposits 
 
384 THE BANK OF ENGLAND. 
 
 in the Bank of England and in the Joint-Stock 
 Banks in each year of the last few years, and 
 comparing these accounts with the Bank-rate of 
 discount in the same years. 
 
 The returns of the Bank of England and of 
 tfie London Joint-Stock Banks may be taken 
 as a fair indication of the general increase or 
 decrease of banking-deposits throughout the 
 country. 
 
 Thus in June, 1856, the deposits in the Bank 
 of England amounted to £15,514,000, and in 
 the London Joint-Stock Banks to £34,491,000, 
 making the total £50,005,000. The Bank-rate 
 of discount in the same month was 4^ per cent. 
 
 In June, 1864, the deposits in the Bank of 
 England were £23,013,000, and in the London 
 Joint-Stock Banks, £74,833,000, making the 
 total £97,846,000. The Bank-rate of discount in 
 the same month was, 6 per cent. 
 
 The total amount of deposits in each inter- 
 vening year is on the ascending scale, from 50 
 millions and upwards, to 60 millions and upwards, 
 70 millions and upwards, 80 millions and upwards, 
 and in December, 1863, 87 millions and up- 
 wards. 
 
 In the same years the Bank-rate of discount is 
 also on the ascending scale, with continual varia- 
 tions, but rising from 4 to 5, 6, 7, 8, 9, and 10 
 
THE ORGANISATION OF CREDIT. 885 
 
 per cent., and between the 8th October, and 
 9th November, 1857, rising from 6 to 7, 8, 9, 
 and 10 per cent., and the average of the whole 
 of the year 1864, exceeding 7 per cent. 
 
 These facts are sufficient to show that the Bank- 
 rate of discount is not regulated by the amount 
 of the loanable capital, these deposits, large as is 
 the total amount, forming but a small portion of 
 the loanable capital of the country, w^hich is dif- 
 ferently estimated, but said to be not less than 
 400 millions. But, whatever may be the actual 
 amount, it is clear that, between the years 1855 
 and 1865, the amount of loanable capital has 
 doubled, and that the rate of discount, instead of 
 falling, has risen. The only year in which there 
 was a decrease in the amount of deposits was in 
 1858, and throughout that year the Bank-rate of 
 discount, instead of rising, was falling, the dimi- 
 nution in deposits being upwards of 5 millions, 
 and the rate of discount, in January, being 6 per 
 cent., and in December 2^ per cent. 
 
 Thus, it will be seen, the variations of the Bank- 
 rate of discount do not correspond in any way 
 with the variations in the amount of loanable 
 capital. In the great monetary crisis of 1857, the 
 loanable capital in the possession of the Banks 
 was 20 per cent, larger than in the previous year : 
 and 3-| per cent, larger than in the year following, 
 
 2 c 
 
386 THE BANK OP ENGLAND. 
 
 when the rate of discount was lowered to 3 and 
 2 J per cent. ; — and in the year, 1864, when the 
 rate of discount was 7, 8, and 9 per cent., the 
 amount of loanable capital was 25 per cent, lar- 
 ger than in 1862, when the rate of discount was 
 only 2^ and 2 per cent.* The theory of ■' loss 
 of capital," therefore, is contradicted at all points 
 by experience and facts, and it is clear that there 
 must be some other reason than this for the high 
 rates of discount imposed by the Bank of England 
 when gold is being exported. The real explana- 
 tion of these high rates is, not that there is less 
 capital, but that there is less means of transferring 
 it; that money is diminished, in proportion to 
 the increased want, not capital ; and the real fact 
 is that, this is the effect of the Bank Act, which 
 reduces the amount of Bank of England notes 
 in circulation, when the Bank's stock of gold is 
 reduced. 
 
 It is quite true, as the advocates of the Act of 
 1844 say, that there was not any want of money 
 during the crisis of 1847. It is perfectly true 
 that, there was plenty of money in the country, 
 but it is not true that there was plenty in circula- 
 tion. A great part was in the coffers of the 
 bankers and the money-lenders, — held by the 
 former to secure their credit as bankers, and by 
 
 * "Economy of Capital," page 227. 
 
THE ORGANISATION OF CREDIT. 387 
 
 the latter to gather a rich harvest, which they 
 succeeded in gathering, by exacting almost any 
 premium they chose to ask for their accommo- 
 dation loans to save the necessitous merchant 
 from bankruptcy. The same may be said of the 
 crisis of 1857, and 1866. 
 
 Now, though the Bank of England cannot 
 supply capital, yet it can and ought to supply 
 money ; and, as already shown, the money-panics 
 are caused simply by the want of money, and not 
 of capital ; money being the medium by which 
 capital is transferred, and one of the forms in 
 which credit is given. Therefore, it must follow 
 from the provisions of the Bank Act that, when- 
 ever a drain of gold occurs, a scarcity of money 
 is a necessary consequence. To restrain the 
 efflux of gold, and to encourage its influx, is the 
 object of the Bank, and to accomplish this the 
 Bank raises its rate of discount. By raising its 
 rate, the Bank seeks to destroy the advantage 
 in sending specie abroad, by making this mode 
 of payment less profitable than exporting other 
 merchandise. Thus, the raising of the Bank rate 
 tends to restrain the efflux of gold abroad, and at 
 the same time tends to encourage the influx of 
 gold, by depressing the home market and caus- 
 ing a fall of prices. It acts upon our produce- 
 markets, upon our Bnghsh shares and stocks of 
 
 2 c 2 
 
388 THE BANK OF ENGLAND. 
 
 all kinds, and by so doing induces foreign capi- 
 talists to make purchases of our temporarily de- 
 preciated goods. This is a heavy price to pay 
 for an influx of gold for replenishing the Bank 
 vaults ; — enriching the Bank and sweeping away 
 the legitimate profits of industry. 
 
 The control held by the Bank of England over 
 the issue of notes, as already shown, must always 
 secure to the Bank of England a commanding 
 power over the rate of discount, if not always 
 sufficient, at least generally sufficient, to keep it 
 from exceeding 4 per cent , and to prevent the 
 present grotesque gyrations between 2 and 10 
 per cent., this being absolutely a national calamity, 
 and, as it might be properly called, an Act of 
 Parliament panic. 
 
 When the Bank of England raises the rate of 
 discount to 8 per cent., the markets fall and the 
 serious losses begin. 
 
 With 9 per cent, the losses become heavy ; 
 distrust spreads rapidly, and failures and suspen- 
 sions multiply. 
 
 At 1 per cent, comes the panic and the crash, 
 and another turn of the screw by the Bank to 
 11 per cent., endangers the foundation of the 
 strongest houses in the City of Loudon, and 
 spreads universal dismay at home and abroad. 
 
 This is a power which the Bank of England 
 
THE ORGANISATION OF CREDIT. 389 
 
 ought not to exercise, though it ought to be strong 
 enough to prevent the exercise of any such power. 
 That nothing is more easy than to invest the 
 Bank of England with the controlUng power, 
 within moderate and wholesome limits, has been 
 already shown. All this may be accomplished 
 by the most simple means, consistently with per- 
 fect freedom of trade and the known rules of 
 Political Economy. But, for this purpose, the 
 Bank of England must cease to be a Joint-Stock 
 Bank of discount for profit, and must be an 
 establishment for State purposes, though in no 
 way under the control or direction of the State, 
 but a National Bank for the benefit of the nation 
 at large. 
 
 In this respect, the practice of the Bank of 
 France is much more commendable than that of 
 the Bank of England. 
 
 The Bank of France when pressed by a drain 
 of its gold, does not seek to check the drain so 
 much by raising its rate of discount, as by other 
 means, quite as efficient for obtaining gold as those 
 adopted by the Bank of England, but much less 
 severe upon the trade and industry of the country. 
 The difference between the two methods is, that 
 the Bank of France obtains the gold by buying 
 bills on London, Vienna, and Hamburg, etc., and 
 getting them discounted there at high rates and 
 
390 THE BANK OF ENGLAND. 
 
 paid in gold, the Bank of France thereby bearing 
 the loss instead of throwing it on the community ; 
 whilst the Bank of England enriches itself by the 
 high rates of discount, and throws the loss on 
 the trade and industry of the country. The 
 Bank of England makes a profit out of the dis- 
 tress. The Bank of Erance incurs a loss to relieve 
 the distress. In both cases, under wiser manage- 
 ment, the loss might generally be spared, and 
 always greatly reduced. But the practice of the 
 Bank of France is the most wise and just of the 
 two ; the doctrine being, that it is a first duty to 
 provide gold or notes to meet the requirements 
 of the country; a doctrine vi^hich the Bank of 
 England repudiates, or, at least, does not act 
 upon, for it adopts no other means of obtaining 
 gold than by deterring applicants from coming 
 for notes, because these may be exchanged for 
 gold. Such is the mean and shifty contrivance 
 instigated by the Bank Charter Act, to the dis- 
 grace of the. Legislature and the manifest injury 
 of the country. 
 
 The average stock of bullion held by the Bank 
 of England is about £l5,000,000,and for upwards 
 of twenty years previously to 1844, the average 
 was £8,000,000, or little more than one half, and 
 yet there was never any difficulty about gold. 
 
 The Bank of France, with a note-circulation of 
 
THE ORGANISATION OF CREDIT. 391 
 
 £3 1,000,000, or one-half greater than the average 
 note-circulation of the Bank of England, some- 
 times finds its stock of bullion reduced to 6^ 
 millions, with its rate of discount 7 per cent., 
 and without a panic or crisis of any kind.* 
 
 In this state of affairs with the Bank of Eng- 
 land, the Bank rate of discount would be, at the 
 least, 20 per cent., or, more probably, the Bank 
 would stop payment, and, between these two evils, 
 the last would be the least. 
 
 Many occasions of monetary pressure which 
 would hardly have been felt as embarrassments 
 under the Act of 1819, have been attended with 
 panic and overwhelming disasters under the Act 
 of 1844. Nor could it have been otherwise, 
 since the Act required that the Bank of England 
 should hold an amount of gold corresponding 
 with every note issued beyond the fixed sum of 
 £l4,000,000.t 
 
 Now, as the ordinary amount of notes in circu- 
 lation is £21,000,000, there must be, at the 
 least, £6,000,000 of gold in the Issue Depart- 
 ment to allow those £21,000,000 of notes to be 
 in circulation ; and then the Bank has not the 
 power to issue another note or to draw out a 
 single sovereign. And, taking into account the 
 
 * " Economy of Capital," page 252. Note, 
 t Now £15,000,000. 
 
392 THE BANK OF ENGLAND. 
 
 requirements of the Branch Banks and other 
 matters, this sum may be stated in round num- 
 bers at £7,000,000.* 
 
 In this condition, as Bills which have been dis- 
 counted fall due, the Bank may discount others 
 to a like amount, but not beyond, and this is the 
 utmost that the Bank can do ; but, in that case, 
 if a depositor came to the Bank for even a £5- 
 note, he could not get it, for the Issue Depart- 
 ment, w^ith the £7,000,000 of bullion, is shut up, 
 and the Bank has no legal power to issue even a 
 single note. The issue of a single additional 
 note or sovereign under these circumstances in- 
 volves the loss of the Bank Charter. 
 
 Such a dilemma, it is obvious, must be wholly 
 artificial, whilst £7,000,000 of bullion remain 
 miused in the Bank of England, and as this state 
 of affairs must curtail, if not stop, discounts by 
 the other Banks and discount houses, the diffi- 
 culties so created must be greatly aggravated by 
 withholding help at the time when it is most 
 wanted. 
 
 The objection is not to shutting up £7,000,000 
 of bullion in the Bank vault, as some political 
 writers seem to think,t but to such an unprofit- 
 able appropriation of so much capital. If the 
 
 * " Economy of Capital," p. 254. 
 t "Westminster Eeview," April, 1865, p. 585. 
 
THE ORGANISATION OF CREDIT. 393 
 
 credit of the Bank note were so low as to stand 
 in need of this additional security, a more pro- 
 fitable appropriation than this cannot be imagined. 
 But if, instead of adding to, it diminish, the 
 security, then it is impossible to imagine a more 
 unprofitable appropriation of £7,000,000 of capi- 
 tal, than shutting it up in the Bank vault. 
 
 The writer in the Westminster Review, in his 
 observations on Mr. Patterson's book on " The 
 Economy of Capital," says : — " To declaim against 
 the hardship that, when the Bank has issued 21 
 millions, it has in its vaults nearly seven millions 
 of gold, which it cannot use, is about as wise as 
 to regret that you cannot both eat your cake and 
 have it." 
 
 This homely illustration altogether fails, for in 
 this case the cake is not eaten, but locked up. 
 
 Many think it is a hardship that so rich a 
 cake should be locked up and nobody be the 
 better for it. The writer in the Westminster 
 Review thinks it better that it should be locked 
 np, but he has given no reason for that opinion, 
 and that seems to be the question. 
 
 To keep a good and wholesome cake locked 
 up when you are starving, seems to some an 
 absurd conclusion ; but that is the conclusion to 
 which the principle of the Bank Act inevitably 
 leads, and from that conclusion the Bank of 
 
394 THE BANK OF ENGLAND. 
 
 England has been twice saved only by the sus- 
 pension of the Act. 
 
 The first of those occasions was on the 23rd 
 October, 1847, when the bullion in the Bank of 
 England was £8,313,000, and the Bank rate of 
 discount 8 per cent. 
 
 The second of those occasions was on the 11th 
 November, 1857, when the bullion in the Bank 
 of England was £7,170,000, and the Bank rate 
 of discount was 10 per cent. 
 
 On those two occasions the Bank of England 
 was saved from stopping payment only by the 
 Government taking upon itself the responsibility 
 of suspending the operation of the Bank Act, 
 and the chance of getting an Act of Indemnity. 
 
 The three great occasions previously to 1844, 
 were on the 31st December, 1825, when the 
 bullion in the Bank of England was £1,261,000, 
 and the Bank rate of discount was 5 per cent. ; 
 the 7th February, 1837, when the bullion was 
 £3,831,000, and the rate of discount was 5 per 
 cent.; and the 3rd September 1839, when the 
 bullion was £2,406,000, and the rate of dis- 
 count was 6 per cent. 
 
 On these three occasions of panic, distress, 
 and ruin, the Bank of England, sorely pressed, 
 in imminent peril, unaided, but unshackled, strug- 
 gled through the difficulties. It was unable to 
 
THE ORGANISATION OF CREDIT. 395 
 
 avert the storm, but was able to ride through it. 
 With real capital the storm on all those occa- 
 sions would have been easily averted. But, still, 
 the contrast is greatly in favor of the Act of 1819, 
 vpith all its defects, and against the Act of 1844, 
 with all its pedantic absurdities, in addition to 
 all its imbecile deficiencies. 
 
 The stock of bullion and specie kept by the 
 Bank of England under the Act of 1819, on the 
 average did not exceed £8,000,000, but the con- 
 vertibihty of its notes, though unrestricted in 
 the issues, was never questioned. The unrestricted 
 issues saved the Bank, though the want of real 
 capital left the Bank unequal to the occasion on 
 these emergencies. But the Bank of England 
 was then on a firmer foundation, and, as the 
 facts prove, better able than it has ever been 
 since to help the trade and industry of the 
 country. The average rate of discount was then 
 lower and more steady than it has been since, 
 and the monetary crises were then less frequent 
 and less disastrous than they have. been since; 
 but the want of real capital left the Bank exposed 
 to the operations in gold, and these sometimes 
 threatened, or were supposed to threaten, though 
 it was never brought into question, the conver- 
 tibility of the Bank-note, thus creating distrust, 
 which struck at the foundation of credit. 
 
396 THE BANK OP ENGLAND. 
 
 But £7,000,000 more in gold were at the 
 command of the Bank under the Act of 1819, 
 than under the Act of 1844, and though gold 
 was hoarded more than notes previously to 1844, 
 yet, subsequently, notes have been hoarded more 
 than gold, thereby proving that, of the two evils, 
 the last is the worst ; for the want of notes is an 
 actual and indispensable want ; whereas, of gold, 
 it is sufficient if it be' known that the means be 
 possessed of obtaining it when wanted. 
 
 Thus, it is evident, that the want of Bank- 
 notes and the nullification of £7,000,000 in gold 
 have been the sole causes of those monetary con- 
 vulsions, which have so frequently disturbed the 
 trade operations in this country, and until these 
 causes be removed it is impossible that the coun- 
 try can escape from a periodical recurrence of 
 such disasters. 
 
 Nor are these periodical convulsions the only 
 consequences, for one of the permanent effects of 
 the present system is to enhance the rate of dis- 
 count, or the value of loanable money, through- 
 out the country. 
 
 This must be an inevitable and permanent 
 efi'ect of the nulHfication of £7,000,000 of bul- 
 lion in the Bank, for when the actual amount of 
 bullion in the Bank is £14,000,000, the Bank 
 can operate only on £7,000,000, or one half, the 
 
THE ORGANISATION OF CREDIT. 397 
 
 other half being as much nuUified as if non-ex- 
 istent. 
 
 If the sanie system were carried out in other 
 parts of our domestic pohcy, the monstrous ab- 
 surdity would be more apparent; but this complex 
 and crooked contrivance of the bankers and capi- 
 talists, confined to the currency of the country, 
 is very imperfectly understood. 
 
 The subject is in its nature somewhat intricate, 
 and but a very small proportion of the Public has 
 the time and energy for the study of the question 
 necessary for a clear understanding of it. If the 
 Public did understand this question they would 
 see that, as a currency system, it is not only erro- 
 neous, but that it is a grievous wrong inflicted on 
 the whole community, inflicted by an Act of 
 Parliament, framed by one of the greatest capi- 
 talists in the country, — then at the head of one 
 of the greatest of the private banking houses in 
 the City of London, — justly looked up to as one 
 of the most experienced and influential of his 
 class, and carrying with him nearly the whole of 
 that large and necessarily most influential class 
 on such a subject, and carrying with him also the 
 head of the Government of that day, who, in 
 almost every great measure of State policy in his 
 long political career, himself admitted that he 
 had proceeded in error, who in every great 
 
398 THE BANK OF ENGLANU. 
 
 measure of State policy was rarely in the right 
 until he admitted himself to be in the wrong, 
 who, through the greatest part of his long pohtical 
 career was the fiercest opponent of Tree Trade, 
 and who, just at the close of his career, when he 
 abandoned his principles and party of Protec- 
 tionists and publicly in his place in Parliament 
 declared himself the advocate of Free Trade, — 
 yet, at that very time, set up " Protection " in 
 its worst form, in the Bank Charter Act of 1844. 
 With the zeal of a convert and the blindness of a 
 pervert he rushed out of one error and plunged 
 into another and a worse ; the very fame of his 
 conversion added to his power as a Projectionist ; 
 he did not know what he was doing, and, pro- 
 bably, those who led him knew no more, but 
 least of all did the Public know that he was 
 rivetting the chain of " Protection " upon the 
 trade of this country, when he succeeded in pass- 
 ing his celebrated Bank Charter Act of 1844, 
 which has done more mischief to the trade and 
 industry of this country than any single Act of 
 Parliament that was ever passed, by virtually 
 declaring that the country, when it does not want 
 paper-money, shall have a great supply of it ; and 
 that the country, when it does require paper- 
 money, shall have none of it ; that the country, 
 when it has enough of specie, shall double the 
 
THE ORGANISATION OF CREDIT. 399 
 
 currency by an equal amount of notes ; and that 
 when there is no specie, there shall be no notes. 
 
 Such is the monstrous and grotesque theory 
 which regulates the currency of this great and 
 enlightened country ! 
 
 It is difficult to estimate very accurately the 
 total amount of the currency of the United King- 
 dom. But it will be sufficiently near to reckon 
 the gold and silver coinage at 120 millions, and 
 the Bank notes at 40 millions, making the total 
 currency 160 millions.* In addition to this is 
 the uncoined bullion kept in the vaults of the 
 Bank of* England, seldom less than 10 millions. 
 
 Of this 160 millions of currency, about 120 
 millions is in constant use in carrying on the 
 ordinary operations of daily life, in transactions 
 between tradesmen and their customers, in the 
 purchase of the necessaries and luxuries of life, 
 and in the payment of the wages of l^bor. 
 Being thus constantly employed and passing 
 from hand to hand, it is not available for other 
 purposes. It is only that portion of our cur- 
 rency which is deposited at the banks that is 
 available for the discount operations by which 
 trade is carried on. 
 
 What that portion really is can never be ascer- 
 tained, but it is manifest that it cannot exceed 
 
 * See page 325. 
 
400 THE BANK OF ENGLAND. 
 
 40 millions, and that after the usual provisions 
 have been made for the requirements of the de- 
 positors, it can hardly be so much as 30 millions. 
 
 It is this portion of our currency alone which 
 is available to meet the requirements of trade, 
 subject to all the variations to which these are 
 liable from the continual fluctuations in the 
 amount of the monetary supply and the infinite 
 number of other causes. 
 
 Now, it must be obvious to all who are ac- 
 quainted with trade in this country, that 30 mil- 
 lions is a very inadequate sum for meeting all 
 these requirements, liable to be affected by so 
 many disturbing causes, and that it is impossible, 
 with such means, to prevent those disturbances, 
 and to keep discounts steady at low rates. But 
 when the fund applicable, and solely applicable, 
 for this purpose is reduced 4 or 5 millions, by 
 curtaihng the issue of notes, it will be seen that 
 the pressure upon trade must be very great and 
 unavoidable, and that the consequence of high 
 discounts and falling prices must be ruinous to 
 those whose capital does not enable them to 
 stand against such losses. If the four or five 
 millions were deducted from the hundred and 
 sixty millions, the effect of one thirty-second of 
 the whole would be small, but when it comes 
 to one-sixth of the whole the effect is a con- 
 vulsion. 
 
THE ORGANISATION OF CREDIT. 401 
 
 Thus, the occasional variations in the rate of 
 discount, though quite insignificant compared 
 with the amount of currency, yet, compared with 
 the araoimt of loanable money, are absolutely 
 ruinous ; for an alteration of 5 per cent, in the 
 quantity of the currency, alters the value of the 
 loanable capital to five or six times that extent. 
 When by diminished issues, or increased require- 
 ments, the loanable money is reduced four or five 
 millions below the ordinary amount, the value of 
 money is raised 20 to 25 per cent.; although 
 the currency itself be reduced only a thirtieth or 
 fortieth part, or not at all. 
 
 If variations so small in the quantity of loan- 
 able money produce changes so enormous in 
 prices, it is obvious that, if the Bank of England 
 possessed the power of increasing the issue of 
 notes on credit to the amount of £10,000,000, 
 in addition to its own independent capital of 
 £14,553,000, this would be a power ample for 
 keeping the ordinary rate of discount between 
 2 and 3 per cent., and the maximum at 4 per 
 cent. ; or for bringing down to these rates the 
 higher rates of other Banks, under extraordinary 
 circumstances. With such a preponderating 
 power in the Bank of England, supposing it 
 to be the only Bank of Issue, it is not easy to 
 imagine the extraordinary circumstances which 
 
 2 D 
 
402 THE BANK OF ENGLAND. 
 
 could long maintain a higher rate than the ordi- 
 nary Bank of England rate of discount ; for, the 
 greater facility thus afforded by the Bank of 
 England for the transfer of capital by increasing 
 the issue of notes, and the greater control over 
 the market of gold for counteracting its export, 
 would, under ordinary circumstances, effectually 
 prevent those sudden changes which defeat all 
 calculations and destroy credit. 
 
 When the diminution by only the thirtieth 
 part of the ordinary amount of our currency 
 produces such serious derangements of our mone- 
 tary system, and such extensive commercial em- 
 barrassments, it is a reasonable conclusion that, 
 all these consequ'ehces might be prevented by 
 keeping the supply of currency at all times equal 
 to the demand, or, increasing the issue of notes, 
 and, if necessary, keeping them in circulation by 
 checking the efflux of gold. 
 
 With a power over the issues of notes, and 
 over the market of gold, the Bank of England 
 would be able to prevent those derangements, 
 which cause such general distrust and loss of 
 credit ; or, if, on extraordinary occasions, the 
 power were insufficient to prevent temporary 
 derangements, those occasions would be rare ; 
 and as the operations of the Bank of England 
 would quickly restore the equilibrium of value 
 
THE ORGANISATION OF CREDIT. 403 
 
 between this country and foreign countries, pub- 
 lic couiidence would remain unshaken and would 
 prevent that general distrust and loss of credit 
 which produces panic. 
 
 Experience has proved that, the cause of panic 
 is simply in the fact that, from one cause or 
 another, the currency has become reduced to an 
 amount insufficient for the requirements of the 
 community, and that as soon as the amount has 
 been made sufficient for the requirements, the 
 crisis is at an end. 
 
 The question, then, is simply this ; whether 
 the amount of currency shall be increased to 
 meet the requirements ; or, whether the require- 
 ments shall be reduced to meet the amount of 
 currency. 
 
 Under the present system, the requirements 
 are brought down to the currency, instead of the 
 currency being brought up to the requirements ; 
 the one case being attended with increase of 
 profits to trade and of Capital to the country, — 
 and the other with ruinous losses to trade, and, 
 consequently, diminished capital. 
 
 It is the iron-bound rigidity of the Bank Act, 
 and the want of elasticity in our currency sys- 
 tem which is the great evil. It is this which 
 prevents our currency from accommodating itself 
 to those occasional fluctuations in the demand, 
 
 2 D 2 
 
404 THE BANK OF ENGLAND. 
 
 which must be ever liable to occur, and which it 
 is impossible wholly to prevent. 
 
 Nor is this evil confined to such occasional 
 fluctuations. With an increase of trade and 
 population, such as has occurred in this country 
 within the last twenty years, it is manifestly im- 
 possible that the same amount of Bank-notes 
 which answered the requirements in 1844, should 
 be sufficient for the demands in 1865. If in 
 1844 £21,000,000 of Bank-notes were suffi- 
 cient to keep the ordinary rate of discount be- 
 tween 3 and 4 per cent., and if in 1865 the re- 
 quirements demand £26,000,000 of Bank-notes, 
 it is evident that 10 and 12 per cent, would be- 
 come the ordinary rate of discount, with varia- 
 tions between 15 and 20 per cent, in times of 
 pressure. 
 
 That would still be held to be, as it is now, 
 only a question of supply and demand, and that 
 question would be answered as it is now. But 
 those Political Economists who would so answer, 
 do not distinguish between a natural and artifi- 
 cial law. The natural law cannot be controlled, 
 but the artificial can be. 
 
 The Bank-note, being entirely an artificial con- 
 trivance to save gold, must be regulated by an 
 artificial law, but this artificial law should be 
 so framed as to work in as strict conformity as 
 
THE ORGANISATION Of CREDIT. 405 
 
 possible with the natural law of supply and de- 
 mand. No philosophy, no science, and but very 
 little common sense is required to show the 
 necessity for this. And yet this modicum of 
 common sense is wanting for the regulation of 
 our artificial currency system ! 
 
 Philosophy and science are brought forward 
 in support of a natural law which is undisputed, 
 and this is applied to our currency system which 
 is wholly artificial, and not regulated in confor- 
 mity with the natural law, but in conformity 
 with an arbitrary rule, which is directly opposed 
 to the natural law. 
 
 Thus, by artificial contrivance, money is made 
 out of paper, and the paper is made equal to 
 gold in this country, but cannot be made equal 
 to gold out of this country. 
 
 If the paper were equal to gold in every 
 country, then the paper would be subject to the 
 same natural law as the gold, but being current 
 only in the country where it is issued, paper- 
 money is of no value for foreign commerce with- 
 out the gold ; therefore the natural law of supply 
 and demand is as applicable to the paper as to 
 the gold, which is represented by the paper. 
 
 But the artificial law acts inversely to the 
 natural law, for, as the gold diminishes in quan- 
 tity, the paper which represents the gold dimi- 
 
406 THE BANK OF ENGLAND. 
 
 nishes in like proportion, and, therefore, the 
 natural law of supply and demand is reversed, 
 the supply continually diminishing as the de- 
 mand increases, and as the paper is supplied by 
 credit, and the gold by loanable capital, which 
 is independent of credit, to make the supply of 
 paper-money dependent on loanable capital, is 
 not only to restrict the credit of the country to 
 that amount, but also to subject such restricted 
 credit to all the variations in quantity and value 
 of the loanable capital, instead of extending 
 credit on the broader basis of the whole capital 
 of the country. 
 
 By this radical defect in our system, the issue 
 of our bank-notes is regulated not by the natural 
 law of supply and demand, but by the artificial 
 law of credit ; that credit resting on the com- 
 paratively narrow basis of loanable capital, and, 
 therefore, liable to be affected by all its varia- 
 tions, instead of resting on the broad basis of 
 the whole capital of the country, by which the 
 bank-notes are, in fact, guaranteed. 
 
 The effect of this system, irrteconcilable with 
 any recognized principle, is to withdraw the 
 paper, representing the gold, as the gold itself is 
 withdrawn, thereby withholding the paper at 
 the very time when it is most wanted, afid sha- 
 king, to the very foundation, the credit on which 
 
THE ORGANISATION OF CREDIT. 407 
 
 the whole system of paper-issues rests, and 
 thereby making such issues a delasion and a 
 snare to all those who have recognized and re- 
 lied on these as equal to gold. This is, in its 
 effects, worse than if the paper were issued as 
 notes not convertible into gold. Times and cir- 
 cumstances might again arrive when that pro- 
 mise could not be performed, but still confidence 
 in the paper as the representative of gold, and 
 credit, might remain unshaken in this country, 
 and the consequences of that state of things 
 would be trifling in comparison with the disas- 
 trous consequences when credit is destroyed, and 
 neither paper nor gold can be obtained. This is 
 no speculative opinion, but experience from facts. 
 
 A famine, a long protracted war, or the fo- 
 reign exchanges for any lengthened time against 
 us, would prove the inefficiency and insecurity of 
 our monetary system under the Act of 1844. 
 
 The outflow of gold, which occasionally takes 
 place in this country, as in other countries, is 
 and must be unavoidable ; but, in this country, 
 it is only temporary. The gold returns of ne- 
 cessity in the ordinary course of trade. 
 
 The gold, as it does not leave this country 
 through any depreciation of the currency, will 
 come back without any artificial measures taken 
 to enhance the value of money. 
 
408 THE BANK OF ENGLAND. 
 
 I 
 
 A metallic currency is continually and un- 
 avoidably contracting and expanding. 
 
 To neutralise these effects, the object should 
 be to combine with a metallic currency another 
 kind of money which can be made to expand 
 and contract in inverse order. The principle of 
 the compensation-balance is as indispensable in 
 the measure of value as in other measures. In 
 this way the measure of value can be maintained, 
 and the money-contracts and pecuniary engage- 
 ments of a country can be kept unaltered. 
 
 Bank notes are the means by which this may 
 be effected. Combined with metallic money, 
 Bank-notes are like the steel curve in the com- 
 pensation balance, which keeps the measure un- 
 changing. We cannot stop metallic contraction 
 and expansion, but we can modify and neutralise 
 both.* 
 
 But, under our present system, the transient 
 outflow of gold, instead of being neutrahsed 
 by Bank-notes, is so treated as to produce a 
 serious derangement of our measure of value. 
 The Bank-notes are used to aggravate into a 
 serious evil the beneficent working of a natural 
 and self-regulating law, and thus to defeat the 
 sole object for which a standard measure is in- 
 stituted. 
 
 * Economy of Capital, p. 287. 
 
THE ORGANISATION OF CREDIT. 409 
 
 The indispensable requisite of a standard mea- 
 sure is that, it shall be at all times free from 
 variation. We make our standard-yard of the 
 substance least liafcle to contract and expand in 
 length, and so we try to perfect all our standard- 
 measures, neutralizing by combinations the natu- 
 ral law, and so, by artificial means obtaining, as 
 nearly as possible, a standard of unvarying mea- 
 sure, — for all but the measure of value, — of all 
 measures the most important to the whole com- 
 munity. 
 
 This all important measure of value we leave 
 to expand and contract so as to baffle all calcu- 
 lation, — varying sometimes to a third or a fourth 
 — to the extent of 20, 25, and even 30 per cent. 
 This is as if the yard measure, by contraction 
 and expansion of the material of which it is 
 made, were sometimes three feet in length, and 
 sometimes four. 
 
 The value of money, like that of all commodi- 
 ties which money buys, depends upon the amount 
 of the supply, and the extent of the demand. If 
 the amount of money in a country be below the 
 requirements of the community, the value of the 
 money will be raised, and prices will be lowered. 
 The same quantity of land, houses, goods, or 
 labour, will no longer sell for the same amount 
 of money, as when the amount of money in the 
 
410 THE BANK OF ENGLAND. 
 
 country was equal to the requirements. The 
 trading and working classes (constituting the 
 greatest part of the conamunity) whose wealth is 
 in goods and labour, will suffer serious loss : 
 while the small class (comparatively a very small 
 part of the whole population) whose wealth is in 
 money, will reap immense gains. Every such 
 change in the value of the currency sweeps away 
 the profits of the trading and industrial classes, 
 to fall into the pockets of the capitahsts and 
 money-dealers. 
 
 The losses inflicted upon the employers throw 
 out of employment the working-classes, and the 
 injury to Trade is the loss to the country. In 
 the aggregate, this loss is incalculably great.* 
 
 It is not generally known how small a varia- 
 tion in the amount of the currency is sufficient 
 to produce or to prevent the change in our mea- 
 sure of value. 
 
 The total amount of gold and silver and paper 
 money, variously estimated, may be taken, as 
 already shown (pp. 335 & 399) at about a hun- 
 dred and sixty millions ; but the variations which 
 occasion our monetary calamities seldom exceed 
 five millions. 
 
 This will appear extraordinary, but less so 
 when it is known that, from this total amount 
 
 * Economy of Capital, p. 289. 
 
THE ORGANISATION OF CREDIT. 411 
 
 of currency, about a hundred and twenty millions 
 are supposed to be taken out for constant use in 
 the retail operations of daily life, leaving only 
 about forty millions in the banks to meet the 
 ordinary requirements of the depositors, and that 
 the surplus, after meeting these demands, is the 
 only available fund for the discount operations, 
 by which the trade of this country is carried on. 
 The amount of that surplus and available fund 
 cannot be precisely estimated, but, as already 
 shown, (page 399) it must be a continually vary- 
 ing amount, and can hardly exceed, even if it 
 reach to, thirty millions. 
 
 To withdraw five millions from a currency of 
 a hundred and sixty millions is not a very serious 
 deduction, but, taken out of thirty millions is 
 one-sixth, and that is a very alarming diminution 
 of the fund apphcable to trade requirements, but 
 still more alarming when the surplus, after pro- 
 viding for these requirements, is the only available 
 fund for all the discount operations by which the 
 trade of the greatest commercial country in the 
 vi^orld is carried on. 
 
 This estimate is exclusive of the uncoined bul- 
 lion, — which may be taken, on the average, at 
 ten miUions, — kept in the vaults of the Bank of 
 England. 
 
 Thus, the occasional variations, though small 
 
412 THE BANK OF ENGLAND. 
 
 in comparison with the amount of the currency, 
 are, under our monetary system, sutBcient to vi- 
 tiate our measure of value, and to inflict great 
 wrongs in incalculable losses upon the whole 
 community. Instead of preventing or neutral- 
 izing the effects of these variations, we greatly 
 aggravate them. A diminution of 5 per cent, in 
 the quantity of the currency is in effect to in- 
 crease its value to five or six times that extent ; 
 and when, by a diminution of the supply, or a 
 temporary increase in the requirements of trade, 
 the loanable portion of the currency is reduced 
 four or five millions below the ordinary amount, 
 the value of money is raised 20 or 25 per cent., 
 although the currency itself be reduced only a 
 twentieth or twenty -fifth part, or, may be, not 
 reduced at all.* 
 
 If such small variations in quantity produce 
 such great changes in value, it is easy to see 
 how these variations may be prevented or neu- 
 tralised. 
 
 Experience has demonstrated that, the cause 
 of all our money panics is, the simple fact of the 
 currency being, at those times, insuflBcient in 
 amount for the requirements of the community, 
 and that, when that cause ceases, the panic 
 ceases. In every crisis, when the Bank of Eng- 
 
 * ' Economy of Capital,' p. 291. 
 
THE ORGANISATION OF CREDIT. 413 
 
 land has reversed its policy of contracting its 
 discounts and circulation, and, as the Governor 
 of the Bank in 1826 said, " made common cause 
 with the country," the difficulty has come to an 
 end. It was the notes of the Bank that were 
 wanted, and as soon as these were supplied the 
 crisis ceased. There was no doubt about con- 
 vertibility, and no want of gold ; on the contrary 
 the issue of notes actually stops the internal drain 
 of gold.* 
 
 The conclusion from this is as obvious as the 
 effect is certain, that if the Bank of England had 
 been provided with notes equal to the require- 
 ments, the difficulty would not have arisen, and 
 no losses would have been sustained. 
 
 No depreciation of the notes can arise from 
 such a procedure, for the notes will not go out 
 unless there be a demand for them, and the extra 
 demand must always maintain the value of the 
 extra issue. When the temporary demand ceases, 
 the notes will return to the Bank in the ordinary 
 course of business. 
 
 The extra issue only preserves the measure of 
 value unchanged. It simply prevents prices from 
 being lowered from the want of the means of 
 transfer, and thereby maintains the standard of 
 value. Nor does this impose any hardship on 
 
 * ' Economy of Capital,' p. 294. 
 
414 THE BANK OP ENGLAND. 
 
 the Bank of England, for such an extension of 
 discounts is so much additional profit to the 
 Bank. In this way the requirements of the com- 
 munity may be fully met, without any enhance- 
 ment of the value of money. 
 
 It is not surprising that the Bank Directors 
 are unanimously in favor of the present Bank 
 Act. It would be surprising if it were other- 
 wise. Whatever measures they take, they ap- 
 peal to the Act in justification, and it is impossible 
 to deny their appeal. They keep within the 
 letter of the Act, and that shields them from 
 responsibility. Whether they raise the rate of 
 discount or lower it ; whether they expand the 
 currency or contract it ; whether they refuse to 
 discount cotton bills or Exchequer bills ; or, whe- 
 ther they decline to make advances upon per- 
 sonal assets and securities ; " the Act " is their 
 answer to all criticisms and complaints, whether 
 the provisions of the Act have anything or no- 
 thing to do with the policy which they adopt. 
 The Act makes no regulation as to the rate of 
 discount, though it enjoins a contraction of the 
 currency, and that they do not enforce; on the 
 contrary, they expand the currency when they 
 are enjoined to contract it, and this affords them 
 a plausible pretence for doubling the rate which 
 they charge for money. The Act enables them 
 
THE ORGANISATION OP CREDIT. 415 
 
 to charge 8 per cent, where formerly they charged 
 4 per cent. They pretend to justify this extor- 
 tion by referring to the Act, which requires them 
 to keep so large a stock of gold on hand. They 
 feel the weakness of their position, and answer 
 all complaints by an appeal to the Bank Act. 
 And so most evil doings are excused or exte- 
 nuated by the law of necessity or necessity of the 
 law. But the fact that the Bank Directors are 
 unanimous in favor of the Act is a very doubtful 
 argument in favour of that measure. No sensible 
 person thought of leaving the Corn-laws to be 
 decided by the farmers, nor the Navigation-laws 
 to be judged by the ship-owners, nor the silk- 
 duties by the silk- weavers. But they were quite 
 as competent to determine those questions as the 
 Bank Directors are to determine the Bank Ques- 
 tion. The Act is a convenient screen, which 
 shields them from responsibility, and, at the same 
 time, is a great source of gain to the Bank of 
 England and to all banks. Human motives are not 
 always discernible, but self-interest unconsciously 
 gives a bias to the judgment, and is fertile in 
 suggesting arguments in its own favor. Bank 
 Directors may believe that the losses which they 
 impose on the commercial classes by high rates 
 are necessaiy for avoiding worse evils. So rea- 
 soned the farmers on the corn-law ; but not so 
 
416 THE BANK OF ENGLAND. 
 
 the community at large. Farmers thought, — 
 the corn-law ensured the growth of more wheat 
 in this country than there would otherwise be ; 
 Bank Directors think, — the Act keeps more gold 
 in the Bank than there would otherwise be. The 
 mistake is the same with both ; but the mistake 
 of the farmers has been discovered and amended ; 
 the mistake of the Bank Directors still remains 
 to be discovered and amended, and that is the 
 greatest mistake of the two, for if the Corn-law 
 had not been abolished, and if an additional 
 quantity of wheat had been grown in this coun- 
 try, the whole would have cjpme into the market 
 for the benefit of thg community; whereas the 
 extra stock of gold shut up in the Bank vaults, 
 under the Act of 1844, never can come into the 
 market for the benefit of the community or of 
 anybody, until the Act be suspended or repealed. 
 But, under the Act, a drain of notes is as fatal 
 to the Bank as a drain of gold ; for, as the issue 
 of notes is limited by the amount of gold in the 
 Bank's possession, the effect is the same whether 
 the demand be for notes or gold. The diminu- 
 tion of the reserve of notes corresponds with the 
 demand for notes, and the demand for gold can- 
 cels notes to an equal amount. The more the 
 Bank raises its rate to check the demand for 
 notes, the greater is the commercial difficulty, the 
 
THE ORGANISATION OF CREDIT. 417 
 
 greater the distrust, and the greater the drain of 
 the reserve of notes. And the same of the gold, 
 for the supply of the banks to meet the panic. 
 In this way, an external drain inevitably brings 
 an internal drain, and in the crisis of 1857, the 
 amount of gold withdrawn froffi the Bank of 
 England to meet the internal drain was twice as 
 large as the amount which, during the same time, 
 Avas sent abroad ; while the reserve of notes was 
 in like manner reduced by the effect produced 
 by the Bank's operations on the country.* 
 
 But, to make the system complete, the power 
 of controlling the issues should be vested in the 
 Bank of England, by confining the issue of notes 
 to that one Bank. 
 
 There is no competition in the issue of the 
 coined-money, and there should be none in the 
 issue of notes, which are made equal to the 
 coined-money, on the condition of being con- 
 vertible into gold coin on demand. 
 
 To compare freedom as applied to the coinage, 
 with freedom as applied to the trade of a country, 
 is to compare two things wholly dissimilar. There 
 is no single property or circumstance to connect 
 or assimilate them. The freedom, which is an 
 essential principle of trade, is the very reverse 
 when applied to furnishing the artificial medium, 
 
 * ' Economy of Capital,' p. 139. 
 
418 THE BANK OF ENGLAND. 
 
 called money, as a means of carrying on trade. 
 It is confounding freedom with licence, involving 
 confusion, to allow the free issue of money, which 
 is only an artificial contrivance in substitution for 
 barter or exchange. The free issue of money 
 always has been and atways must be fatal to the 
 freedom of trade. It is the old error of John 
 Law over again, and was fully exemplified in the 
 Assigtiats of revolutionary France. It has since 
 been further exemplified in democratic America, 
 and the absurdity is now being shown in a mo- 
 dified form in the present National Currency Law 
 of the United States, as will be more particularly 
 pointed out in these pages, when dealing with 
 this specimen of American popular but unscien- 
 tific legislation. 
 
 The monopoly proposed to be vested in the 
 Bank of England is for the express purpose of 
 securing to the Trader the legitimate means for 
 carrying on his trade ; not for conferring benefits 
 on the Bank, but for transferring, by means of 
 the Bank, all the benefits to the community at 
 large ; precisely as the sovereign power, limited 
 and guarded, is vested in one person, for the be- 
 nefit of all persons subject thereto. The sove- 
 reign power over the money of the country would 
 then be in the Bank of England, as the sovereign 
 power is now in the Queen of England ; but. 
 
THE ORGANISATION OF CREDIT. 419 
 
 virtually, the power would be in the People ; and 
 there is as little reason for complaining of the 
 monopoly in the one case as in the other. There 
 would be no more competition in the one case 
 than there is in the other ; but individual free- 
 dom, so far as it is consistent with the pubHc 
 good, would be preserved. 
 
 It would then not be so easy as it is now for 
 the great capitalists to make capital out of the 
 ruin of the small capitalists ; nor would it be 
 any longer for the interest of the Bank of England 
 to help to bring about that state of things which 
 so often brings to ruin Traders both great and 
 small. The power would be nominally in the 
 Bank of England, but virtually in the whole 
 People of the kingdom. Freedom of trade would 
 be so far secured that, Traders would be free to 
 carry on their trade, so far as it depended on 
 their own legitimate means, and that is what they 
 are now not free to do. 
 
 The monopoly of the Bank of England in the 
 issue of notes is as necessary for that unity of 
 action, which is essential for preserving the con- 
 stant and regular movements of the compensa- 
 tion-balance required for correcting the occasional 
 and temporary differences between money of 
 paper and money of gold, as the monopoly of 
 power in the Sovereign or Head of the State is 
 
 2 E 2 
 
420 THE BANK OF ENGLAND. 
 
 necessary for that unity of action, which is es- 
 sential for preserving the constant and regular 
 movements of the compensation-balance required 
 in the government of a State. 
 
 The cry for free trade in money, so often heard, 
 is unintelligible and serves only to show how little 
 free trade is understood- 
 
 Free trade is simply freedom of contract, and 
 since the abolition of the Usury Laws and the 
 passing of the Limited Liability Acts, free trade 
 in money has been complete. 
 
 The real and only difficulty is, the want of 
 money equal to the requirements of commerce. 
 
 This is a difficulty arising purely out of an ar- 
 tificial and defective arrangement, consequent on 
 the change from the primitive and natural course 
 of barter by exchange. If the means by which 
 the exchange is effected be wanting, it follows 
 that the interchange of goods is impeded. To 
 avoid this impediment the practice is introduced 
 of giving a premium to the possessor of money, 
 — (the common measure of value), — for its tem- 
 porary use, as the only means for carrying out 
 the ordinary transactions of commerce. The pre- 
 mium so paid by the trader to the capitalist, for 
 the temporary advance of his money, is so much 
 deducted from the profit of the trader for the 
 benefit of the capitalist. 
 
THE OKGANISATION OF CREDIT. 421 
 
 It is, therefore, manifest that, the premium so 
 paid is, to that extent, an impediment to produc- 
 tion, and if , that deduction from the profit of the 
 trader be so great as to leave him but an insuffi- 
 cient return for his capital and labor expended, 
 it is an injury not only to the trader, but also to 
 the whole community, by enhancing the price of 
 the products and discouraging commercial enter- 
 prise. 
 
 In many cases, where the capital has been al- 
 ready expended, the high rate of discount abso- 
 lutely annihilates all profit. 
 
 Thus, it may be seen that, the cry, so often 
 heard, of free trade in money, is without any 
 meaning, there being no want of freedom, but 
 only a want of money on reasonable terms to 
 meet the requirements of commerce. 
 
 The only possible way of meeting that want, 
 under the existing system of a monopoly of credit 
 money in the National Bank, is to fix the maxi- 
 mum rate of discount for that Bank, and to pro- 
 vide it with the means equal to the occasion. 
 This applies as well to the Bank of France as to 
 the Bank of England, and to all other National 
 Banks under hke circumstances. As long as that 
 monopoly exists it will be indispensable to impose 
 on those Establishments a maximum rate of in- 
 terest. At present those Banks are exempted 
 
422 THE BANK OF ENGLAND. 
 
 from all restriction with regard to the rate of in- 
 terest, and the privilege of credit issues (in the 
 case of the Bank of France unlimited), which 
 those Banks enjoy, instead of being a monopoly 
 for the benefit of the country, is converted into a 
 monopoly for the benefit of the Banks to the in- 
 jury of the country. It is this injury, so severely 
 felt, that occasions the cry for free trade in money, 
 but this arises from an imperfect understanding 
 of the subject. It is not that money is not free, 
 but that it cannot be got at when it is wanted, 
 without paying for it an inordinate and ruinous 
 price, high in proportion to the necessity, and, 
 therefore, on. extreme occasions, practically unat- 
 tainable. 
 
 The cry ought to be against this monopoly 
 without the restrictive limit to the rate of dis- 
 count, for without this restriction the privilege of 
 credit issues is a most unjust monopoly, being a 
 benefit conferred on the Bank at the cost of the 
 whole community ; but to abolish that privilege, 
 as a monopoly, would be almost as injurious, 
 being, in effect, the abolition of bank notes. 
 
 If that monopoly did not exist, money, like all 
 matters of trade, might be left to its natural 
 course, because liberty would then correct itself 
 by competition, the best remedy for all defects of 
 natural growth. But that state of things sup- 
 
THE ORGANISATION OF CREDIT. 423 
 
 poses the absence of all artificial contrivances for 
 economising the precious metals, a state of things 
 to which no civihzed country will ever return. 
 
 It, therefore, only remains to make the mono- 
 poly serviceable to the object for which it was 
 created, and that is, to the benefit of the country, 
 instead of being, as it now is, an unjust mono- 
 poly to the benefit of the Bank and the great in- 
 jury of the country. 
 
 The monopoly of the Bank of England en- 
 ables the Bank by its action to regulate the value 
 of the currency, and the rise and fall of prices. 
 All the other Banks are unequal to compete with 
 the Bank of England in the exercise of this power. 
 
 This monopoly should be made still more com- 
 plete in the Bank of England, but the whole 
 benefit should be secured to the community. 
 
 If the privilege of issues be vested exclusively, 
 as it ought to be, in the Bank of England, that 
 ought to be on the principle of making the issues 
 at all times equal to the requirements, without 
 regard to any other consideration, and at a rate 
 of discount not exceeding 4 per cent. The issue 
 of notes by the Bank of England ought to be 
 regulated on no other principle than making the 
 supply equal, at all times and under all circum- 
 stances, to the demand, at 4 per cent, as the 
 maximum rate of interest. 
 
424 THE BANK OF ENGLAND. 
 
 If it be necessary for the Bank of England to 
 check the demand for the purpose of stopping 
 the export of gold, the Bank must effect that ob- 
 ject by its own capital, and at its own cost ; not 
 by its credit capital, at the cost of the credit of 
 the country. 
 
 This is a clear and distinct principle, and on 
 this principle only can the monopoly of paper 
 issues in the Bank of England be justified. 
 
 So regulated, the monopoly in the Bank of 
 England would be attended with incalculable 
 services to the trade and industry of the country, 
 and with perfect safety to the Bank. 
 
 The average rate of discount would then be 
 between 2 and 3 per cent., and the rate would 
 seldom reach 4 per cent. If it ever exceeded 4 
 per cent., that could be only under extraordi- 
 nary circumstances and rare occasions, and the 
 counteracting operations of the Bank of England 
 naust soon restore the ordinary rate. 
 
 The issue of notes being then entirely under 
 the control of the Bank of England, and these 
 notes being the currency with which the other 
 banks and discount-houses carry on their busi- 
 ness, they must be so far dependent on the Bank 
 of England as to follow in its course. 
 
 The chief, if not the only reason to be assigned 
 by the Bank of England for contracting the issue 
 
THE ORGANISATION OF CREDIT. 425 
 
 of notes is, to restrict the export of gold, al- 
 though that has long ceased to be interfered with 
 by law, as an antiquated and admitted absurdity. 
 Gold is exported only when it is more profitable 
 to export gold than other goods. Therefore, 
 to prevent the export of gold is to prevent pro- 
 fitable trading, and is directly at variance wfih 
 freedom of trade. And yet, on this antiquated 
 error of interfering to prevent the export of gold 
 the Bank of England is still acting. 
 
 It seems that, for some time past, the Bank of 
 England has treated the importers of cotton as 
 enemies ; for, in the Bankers Magazine, of Feb- 
 ruary, 1863, is the following notice : — "In No- 
 vember last, the Bank of England refused dis- 
 counts to purchasers of cotton, not because their 
 Bills were doubtful, but because of the dread of 
 a drain of gold." 
 
 If such were the act and motive of the Bank 
 of England, that was a check on the import of 
 cotton, to prevent the revival of our cotton trade, 
 and the employment of our labouring population, 
 to save, at the most, a trifling loss to the Bank of 
 England, or, more probably, no loss at all, unless 
 the loss of a gain. 
 
 To invest the Bank of England with this 
 monopoly of power over the currency of the 
 country, and to allow the Bank to exercise such 
 
426 THE BANK OF ENGLAND. 
 
 power for its own benefit, to the injury of the 
 trade and industry of the country, is as incon- 
 sistent with "free" trade, as with common 
 justice, and common sense. 
 
 Thus, while recent legislation has been striking 
 off the fetters which our ancestors, in their igno- 
 rance, had fastened upon Trade, the Bank Act of 
 1844 has imposed new fetters on the means of 
 carrying on trade, and in such a way as in a great 
 measure to counteract the benefits of freedom and 
 the liberty of expansion. 
 
 To this fatal legislation is to be attributed all 
 the subsequent disasters to our country from our 
 defective Monetary System, and the amount of 
 loss inflicted upon the country by the Bank 
 Charter Act of 1844, is so great, and through 
 channels so numerous, as to be utterly beyond 
 all calculation. 
 
 It has been said, by a writer on this question 
 entitled to the most respectful attention,* that 
 the practical effect of the Act of 1844, upon the 
 circulation of the country and the bullion, is very 
 clearly elucidated in the following replies of Mr. 
 Weguelin (then Governor of the Bank of England), 
 to questions put to him, as a witness, by Mr. 
 Gladstone, in the Select Committee of the House 
 of Commons on the Bank Question, in 1857. 
 
 * "The Currency Question, and the Bank Charter Com- 
 mittees of 1857 and 1858, Eeviewed by an M.P.," page 35. 
 
THE ORGANISATION OF CREDIT. 427 
 
 (300.) " With all the fears of the public when 
 a drain has existed, you consider that the anxiety 
 and true prudence of the Bank is now, and has 
 been, for a considerable time past, directed, not 
 to the provision of bullion as a security for the 
 convertibility of the notes, but to the provision 
 of cash in gold and notes together, in order to 
 maintain your banking reserve?" 
 
 — " The banking reserve consists of the notes 
 not employed in active circulation, as the active 
 circulation is issued partly upon securities, that 
 is, to the extent of £14,475,000, and the rest 
 upon bullion ; the banking reserve is, in point of 
 fact, a reserve of bullion, thus nothing affects the 
 banking reserve but a demand for bullion, either 
 for the internal wants of the country, or for the 
 purposes of export. The rule, therefore, which 
 the Bank has followed in managing its banking 
 affairs is to observe the banking reserve as affected 
 by a demand for bullion." 
 
 (301.) " But when you have had any occasion 
 to desire an increase in the stock of bullion, am 1 
 to understand that that has not been because more 
 bullion was wanted to secure the convertibility of 
 the Note, but because more bullion was the basis 
 of a larger issue of notes, and an increased issue 
 of notes was desirable with reference to the state 
 of your reserve ?" 
 
428 THE BANK OF ENGLAND. 
 
 — " That is so." 
 
 (302.) " paving in view the answers you gave 
 with respect to the state of your banking reserve 
 as the great object of care and attention under 
 the present law, do you think that the provisions 
 of the present law are the best that could be 
 adopted, in order to enable you to maintain the 
 reserve in a satisfactory state ?" 
 
 — " I think that the provisions of the present 
 law, as to issue, little affect the state of our bank- 
 ing reserve, the provisions being that, there shall 
 be only a fixed amount issued upon securities. 
 The fluctuations of the bullion, which is the index 
 measure of the fluctuations of the wants of the 
 commerce of the country, must be the measure 
 of the fluctuations of the reserve; and that must 
 be the case, I think, under any system of law 
 with regard to the circulation you may enact." 
 
 (303.) " Do not the provisions of the law with 
 respect to issue act powerfully upon your measures 
 with regard to the maintenance of your reserve ? 
 And is not your position as to the maintenance 
 of your reserve somewhat different now from what 
 it was before the Act of 1844?" 
 
 — " Before the Act of 1844, it was not neces- 
 sary to keep a reserve, other than the bullion 
 which was in your coSers, — that was your reserve. 
 When you were called upon for any sudden de- 
 
THE ORGANISATION OF CREDIT. 429 
 
 mand you issued Notes, and, of course, that 
 varied the proportion of your buUion to your 
 notes." 
 
 (304.) " Therefore, your position has been ma- 
 terially changed by the Act of 1844, with respect 
 to your power over your own reserve at any given 
 moment ?" 
 
 — " Yes, with reference to our power over the 
 bullion — not over the reserve, but over the 
 bullion." 
 
 The fluctuations of the bullion must be the 
 measure of the fluctuations of the reserve, but 
 the bullion cannot be the index measure of the 
 fluctuations of the wants of the commerce of the 
 country, when the bulhon is sent out of the 
 country not as money, but as a commodity, or 
 merchandise. Therefore, this part of the answer 
 is without any meaning. But that the bullion 
 must vary as the reserve, and that the Bank Di- 
 rectors cannot increase or diminish the reserve 
 without a corresponding augmentation or diminu- 
 tion of bullion is true. This is the effect of the 
 Act of 1844, and is theoretically its great merit 
 but practically its great error ; for this assumes 
 that, the unrepresented note circulation is fixed 
 at the highest amount at which it can be safely 
 fixed; and that it is possible to fix that amount ; — 
 two important points, which are denied. If the 
 
430 THE BANK OF ENGLAND. 
 
 foregoing assumption were true, then the Act of 
 1844 would be perfect both in theory and in 
 practice ; but, in practice, both of these assumed 
 points have been proved to be untrue. It has 
 been proved by experience that, the unrepresented 
 note circulation is not fixed at the highest amount 
 at which it can be safely fixed, and that the 
 amount at which it can be safely fixed can be de- 
 termined only by experience ; also that, the safe 
 limit can be determined only by discretion, guided 
 by experience, according to the ever varying cir- 
 cumstances, subject to regulation and extension 
 from time to time ; and that, in the meantime, 
 the maximum, or extreme limit, can alone be 
 safely fixed, beyond which even the discretion of 
 Bank Directors is not to be trusted. 
 
 At present the principle of the Act and the 
 practice under the Act are at variance. The 
 principle of the Act is that, every holder of a 
 Bank of England Note shall receive in exchange 
 for it, on demand, 5 sovereigns. But the Act 
 authorises the issues of Bank of England Notes 
 to the amount of £14,000,000, and makes no 
 provision for their payment in gold. The pro- 
 vision for the payment in gold is made only for 
 the notes issued in excess of that amount. It is 
 assumed and safely assumed, that none of the 
 £14,000,000 of Notes, unrepresented by gold. 
 
THE ORGANISATION OF CREDIT. 431 
 
 will ever be returned to the Bank to be ex- 
 changed for gold, and, therefore, that it is un- 
 necessary to provide gold for their payjuent. 
 Therefore, if notes to the amount of £21,000,000 
 be issued, it is assumed that £7,000,000 of bul- 
 lion in the Bank will be a sufficient provision. 
 
 There is no fallacy in this reasoning. But the 
 only gain to the country from this mixed currency 
 of paper and specie is in the saving of the in- 
 terest on £14,000,000 of specie. This is a gain 
 easily calculated. But w^hat is the gain of the 
 further issue of £7,000,000 of notes, if the same 
 amount of gold be always kept shut up in the 
 Bank ? It is obvious that there can be no gain 
 if the £7,000,000 of gold remain always in the 
 Bank. It is said that, the value consists in the 
 fact that the gold is there. But this is merely a 
 fanciful idea ; for, if it be always there, that is 
 the best evidence that it has not been wanted ; 
 and, if it had been wanted, it would have been 
 taken away, and would be no longer there. But, 
 if it have been taken away, the same number of 
 notes will also have been taken away, and, if 
 twice 7 be equal to 14, the currency medium, 
 or legal tender money of the country, will have 
 been diminished £14,000,000, the whole amount 
 of the unrepresented note circulation directly 
 authorised by the Act. 
 
432 THE BANK OF ENGLAND. 
 
 Now, if the whole of the £7,000,000 of gold 
 be taken out of the Bank in exchange for notes 
 and sent abroad, there can be no gain in that to 
 the Bank or the country. The same, of course, 
 applies to part as to the whole. 
 
 But when the gold is sent abroad and notes 
 to the same amount are cancelled, what is to 
 become of those traders who have imported 
 largely and have not sufficient time for realising 
 their produce to enable them to meet their bills ■? 
 
 To the traders in this predicament, — and most 
 traders are sometimes in this predicament, — 
 ruinous loss, if not absolute ruin, is the inevitable 
 consequence. 
 
 But suppose only a million or two of gold 
 gone, the Bank, to stop the remainder from 
 going, must raise the discount to such a rate as 
 will take away all profit from the export of gold. 
 This is, in effect, lowering the price of bills, or 
 enhancing the value of the bank notes, to meet 
 the enhanced value of gold. The exchange of 
 the bank notes for gold is stopped, for that time, 
 by taking away the profit on such exchange ; 
 but this gives the profit on the enhanced value 
 of the bank notes to the Bank, and takes away 
 from the traders the profits on their imports, 
 besides restricting them in their future trade 
 transactions, however profitable those might have 
 been to themselves and the country. 
 
THE ORGANISATION OF CREDIT. 433 
 
 This is the meaning of the correction of an 
 adverse exchange, and these are the desperate 
 means prescribed by the Bank Act — cutting off 
 to cure. 
 
 Now, it is quite manifest that, here is no gain 
 to the country, but, on the contrary, a great loss 
 in the unsuccessful transactions of the traders, and 
 in restricting their future operations in trade, if 
 not absolutely annihilating them by bankruptcy. 
 These losses, it is easy to see, may be so multi- 
 plied, in the ramification of consequences, as to 
 be incalculable. 
 
 The profit of the Bank from these disasters, if 
 any in the end, which is doubtful, can be only 
 for the benefit of the owners of Bank Stock, but 
 the loss of 10 or 12 per cent, falling on the 
 whole trade of this great commercial country is 
 beyond calculation, involving the ruin of many, 
 and most injuriously affecting the whole com- 
 munity dependent on trade and industry. 
 
 If it be said ; — ' such would be the effect with 
 a currency wholly metallic,' — that is not true. 
 
 The issue of £14,000,000 of notes unrepre- 
 sented by gold, has saved that amount of gold, 
 and has enabled the Bank of England to retain 
 the £7,000,000 with the profit on the gold saved ; 
 but when the market price of gold rises, the Bank 
 can no longer retain this £7,000,000, without 
 
 2 F 
 
434 THE BANK OF ENGLAND. 
 
 enhancing the value of the bank notes, at a cost 
 to the community much greater in amount than 
 any profit to the Bank or the country on the 
 gold saved. This supposed profit is, simply, the 
 delusion of the Bank Act, for the actual loss 
 very far exceeds any profit, and, clearly, it would 
 be much better for the country to have no bank 
 notes, than to have them at such a cost. If this 
 be the risk and loss on the issue of £7,000,000 
 of notes against the like amount of bulhon in 
 the Bank, how must the risk and loss be multi- 
 plied when the £19,000,000, or £20,000,000 of 
 deposits in the Banking Department are brought 
 into operation against the gold in the Issue De- 
 partment by the same process of exchange of notes 
 for gold"? The trick of the £14,000,000 of notes 
 slipped in on credit, liable, but not likely, to be 
 redeemed in gold, passes unperceived in the case 
 of only £7,000,000 of notes issued against the 
 like amount of gold deposited in the Bank ; but 
 when an additional issue of notes is made on the 
 faith of these deposits, which may be at any 
 moment withdrawn, and these notes are ex- 
 changed for gold, then the original and harmless 
 trick, and the vicious deception founded thereon, 
 are very plainly seen, and the delusion is very 
 forcibly exposed in universal panic and almost 
 universal bankruptcy. 
 
THE ORGANISATION OF CREDIT. 435 
 
 Where is the profit to the country on the 
 original saving then ? 
 
 Certainly not in the community, and certainly 
 not in the Bank. But if it were in the Bank, 
 what compensation is that to the country % 
 
 Who can calculate the losses, and who can 
 guard against them \ 
 
 Who can foresee all the evil consequences of 
 this complicated state of things, or trace the evil 
 through all its intricate courses with a view to 
 precautionary measures against it \ 
 
 That is impossible. 
 
 To find a remedy is also impossible, because 
 the principle and the practice can never be made 
 to agree. It is as impossible as to bring all na- 
 tions to agree to one measure of quantity, or to 
 one denomination of money, or to one language. 
 All these attempts are impossible, and, therefore, 
 all are equally absurd ; a conclusion which might 
 safely be assumed from the innumerable attempts 
 and failures. 
 
 On this Bank Question, how few, among all the 
 most experienced and able men in the courftry, 
 are agreed on any one point ! If they agree in 
 anything, it is in not making any change, for 
 fear of making matters worse. They all, or 
 almost all, agree that there is something wrong, 
 but on the question, — how to mend it, — there 
 
 2e 2 
 
436 THE BANK OF ENGLAND. 
 
 is no agreement. They do not see their way, 
 and, wisely, they do nothing, for, in the dark, it 
 is sometimes the wisest way to stand still. 
 
 Here is an M.P., one of the present members 
 for Westmeath, a gentleman well known and 
 highly esteemed by all who know him, — distin- 
 guished as a Scholar and as a Political Econo- 
 mist, and who is known to have devoted much 
 attention to this Bank Question in particular. 
 He has written a pamphlet in favor of the exist- 
 ing Bank Act, and he entitles his last chapter, — 
 " Remedies Suggested." 
 
 But his remedies are no remedies at all, be-, 
 cause he maintains the principle of the Act, 
 which cannot be carried out in practice, without 
 involving the country in ruinous consequences. 
 This discovery the Bank Directors have long ago 
 made, and, therefore, they do not carry out the 
 principle of the Act, though they obey it to the 
 letter. They enlarge the issues of notes when, 
 according to the principle of the Act, they ought 
 to restrict them. Thus they temporise with the 
 evil," but they never get over it, and it often gets 
 over them. They see the evil, but they have no 
 power to escape from it. The Bank is never in 
 danger, and they know that. They know that 
 the danger and the loss are chiefly to the trading 
 community and the working classes, — who, in 
 
THE ORGANISATION OF CREDIT. 487 
 
 fact, are literally plundered without their know- 
 ing it, — but the great capitalists know it, and 
 they share the plunder with the Bank. But 
 then,— to mitigate these hard words, — they do 
 not know how to help it, and our friend, of 
 ' Westmeath,' almost admits this in ]m final sug- 
 gestions. 
 
 Such is the mystery of the Bank Act of 1844, 
 nor will the mystery ever be cleared up, until 
 the false principle on which the Act proceeds be 
 abandoned. 
 
 The foundation is a fiction, and the whole 
 structure is a baseless fabric. It is a fabric of 
 paper and gold resting on a mere paper founda- 
 tion. To make it stand, the fabric must be of 
 paper only, resting on a gold foundation. There 
 must be much more paper, and much less gold ; 
 and the gold must not rest upon the paper, but 
 the paper on the gold. There must be plenty 
 of paper for all requirements, and something 
 over to spare for special purposes, on extraordi- 
 nary occasions. The gold must be quite apart, 
 and be provided, as required, from the open mar- 
 ket. There must be gold for change, and the 
 means for purchasing gold at all times, and to 
 any required amount. 
 
 By such means alone can these objects be se- 
 cured. With plenty of paper, and the means 
 
438 THE BANK OF ENGLAND. 
 
 of obtaining plenty of gold, the foundation and 
 the fabric will be secure. 
 
 If plenty of paper send away the gold, pur- 
 chases in the open market will always bring it 
 back again, and these operations repeated will 
 make it unprofitable to send it away. In the 
 competition for gold, this country must always 
 prevail over other countries, as long as it main- 
 tains its present pre-eminence in trade. Plenty 
 of notes at all times, with the means of obtaining 
 plenty of gold when required, is the surest way 
 of maintaining that pre-eminence. 
 
 The market of gold thus controlled, would make 
 England the best market for gold in Europe : — 
 it is that now, hut then the trade in gold would 
 be profitable to England, instead of being, as it is 
 now, a very losing trade. 
 
 But, with this command over the market, why 
 should the Bank of England keep in hand a larger 
 stock of gold than suflBcient to meet the ordinary 
 requirements for change, and for foreign pay- 
 ments ? 
 
 If wanted for export, as merchandise, why 
 should not the Bank Directors buy the gold 
 which is their merchandise, like other merchants 
 who buy their merchandise, when wanted ? 
 
 When the price was raised by such a pur- 
 chaser in the market as the Bank of England 
 
THE ORGANISATION OF CBEUIT. 439 
 
 wonld then be, foreign countries would find it 
 less profitable than they do now to come into 
 competition with the Bank of England in the 
 open market for gold. 
 
 Butj if they do come into competition, why 
 should they not, if they pay the market price ? 
 
 And, why should not the Bank of England 
 be free to buy and sell gold, as merchandise 
 without being compelled to increase or reduce 
 the issue of notes? 
 
 And why should the Bank of England be com- 
 pelled to exchange its notes for gold? 
 
 Dealing in gold, as merchandise, is a trade 
 quite separate and distinct from banking, and the 
 one need not in any way interfere with the other, 
 for that must be a very defective system of bank- 
 ing which is subject to such interference. 
 
 This is just the interference to which the Bank 
 of England is subject, and which operates with 
 such fatal severity against the trade and industry 
 of this country. 
 
 But for the bad precedent of such a de- 
 parture from a now universally acknowledged 
 principle, it would be better for the country to 
 revert to the old absurdity of a duty on the ex- 
 port of gold. Such an export duty might easily 
 be so arranged, on a scale varying with the 
 amount of specie in the Bank of England, as to 
 
440 THE BANK OF ENGLAND. 
 
 " correct the exchanges " quite as effectually as 
 by varying the rate of discount under the present 
 system, and without imposing on the exporters 
 any payments beyond their present payments, 
 but to the saving of the community from the 
 money-panics and convulsions to vi^hich they are 
 now exposed by the rise in the rate of discount 
 to stop the export of gold. This would be a dis- 
 graceful departure from principle, and a lament- 
 able retrogression for the Nation ; but still, per 
 se, this would be the saving of a great loss to the 
 Nation, for, now, when a large export of gold 
 takes place, the Bank raises its rate of discount, 
 and thereby makes the merchants, who want gold 
 for foreign payments, pay an extra price for it. 
 This is as^much an impost on the export of gold 
 as was the direct export duty formerly levied by 
 the Government, the only difference being that, 
 the'"profits, which formerly went to the Govern- 
 ment, now go to the Bank. But the export duty 
 affected only the few individual exporters, and 
 now the whole community is taxed alike, when- 
 ever a considerable export of gold takes place ; 
 for, the'high Bank-rate, which is charged for the 
 purpose of checking the export of gold, is levied 
 not only on the exporters but on the whole com- 
 munity. 
 
 But the Bank of England has also another 
 
THE ORGANISATION OF CREDIT. 441 
 
 object, besides checking the export of gold, and 
 that is to attract gold from other countries. In 
 this object, however, the Bank is less successful, 
 for most other countries adopt the same means 
 about the same time, and so the inducement to 
 export or import specie on these occasions gene- 
 rally remains much the same as before. But if 
 the result of this process be that, no one country 
 gains specie at the expense of its neighbor, 
 still, commerce is checked everywhere, and in 
 this country, at least, the Bank of England is 
 the only gainer. 
 
 One of the common fallacies of the advocates 
 of the Bank Ast is, to treat gold and notes as 
 one and the same thing. , Into this fallacy the 
 writer of the leading article in the Times is con- 
 tinually falling. In the Times of 12th Decem- 
 ber, 1866, he writes as follows: — " The Act no 
 more limits the currency than it limits the quan- 
 tity of tea or sugar in the kingdom. Gold and 
 silver are freely imported according to our need, 
 and pass into circulation directly, or indirectly in 
 the form of the notes which are received against 
 them when deposited in the Bank cellars. The 
 currency is thus increased or diminished accord- 
 ing to a natural law, and the stock of coin and 
 bullion in the Issue Department, apparently lying 
 dormant, but really, circulating in the form of 
 
442 THE BANK OP ENGLAND. 
 
 the notes issued against it, is a measure of the 
 extent of . the currency at any time. If an in- 
 creased trade had made it necessary to have a 
 larger amount in circulation, that stock would 
 have shown a corresponding increase." 
 
 The writer has assumed that, because you can 
 always exchange the gold for the note or the note 
 for the gold, the gold and the note are, in effect, 
 one and the same thing, and so they would be, 
 if you could always get the gold or the note. 
 
 But what and if you can get neither? Or, 
 can get neither without a ruinous sacrifice of pro- 
 perty ? 
 
 That is the case in the time of panic, and that 
 is the question, which the writer in the Times 
 overlooks, or does not answer. 
 
 It is not Capital which fails, but the power of 
 converting capital invested in any kind of pro- 
 perty into gold coin or notes, that is, into money 
 or currency. 
 
 The holder hoards his notes to buy 25 per 
 cent, below the value. 
 
 Gold rises in proportion. 
 
 Consols will not sell, for no one will buy. 
 
 The borrowers' acceptance becomes due. He 
 cannot pay it, and he cannot renew it. There is 
 no want of capital, but there is want of currency. 
 He has plenty of property, to be realised, but 
 
THE ORGANISATION OF CREDIT. 443 
 
 there is no ready money or currency wherewith 
 to realise. If he realise, he makes himself in- 
 solvent. If not, he is made a bankrupt, and 
 pays 20s. in the pound. 
 
 When the impression prevails that, the Bank 
 reserve is likely to be exhausted, everybody 
 rushes to the Bank of England for notes and 
 locks them up for usury. Then comes the panic 
 and the crash of falling houses with loss of con- 
 fidence, the worst of all. 
 
 Our capital is estimated at thousands of 
 millions, and onr ready money or currency in 
 notes and gold, at the highest estimate, is 
 £160,000,000. 
 
 And, yet, the Times says : — " The Act no more 
 limits the currency than it limits the quantity of 
 tea and sugar in the kingdom." 
 
 Many suppose that, to invest the Bank of Eng- 
 land with a monoply of the paper issues is to 
 interfere with the freedom of trade. 
 
 This is a great mistake. 
 
 It is manifest that, as the paper-money stands 
 precisely in the same situation as the coined- 
 money, a monopoly in the issue of the one can 
 no more interfere with the freedom of trade, than 
 a monopoly in the issue of the other. 
 
 The only rational ground of objection to a mo- 
 nopoly is that, it confers an advantage on one 
 
444 THE BANK OF ENGLAND. 
 
 individual or set of individuals in the State, to 
 the prejudice of all the others. 
 
 The only justification for a monopoly is that, 
 it does better than liberty, — that it renders ser- 
 vices superior to those attainable by the system 
 of competition. 
 
 There can be no objection to a monopoly when 
 conferred for the equal benefit of all. On the 
 contrary, the more complete the monopoly the 
 greater the benefit, — if then it may be called a' 
 monopoly. The only objection now is that, the 
 monopoly of the issue of paper-money in the 
 Bank of England is not complete for the object 
 of unity. 
 
 To do better, — is it not to distribute'commer- 
 cial credit abundantly, and to distribute it 
 cheaply ? 
 
 With a liberal system for the Banks, the 
 abundance of capital would have no other limit 
 than that of the benefits obtained by the im- 
 dustry so exercised ; assuredly, the capital would 
 not be wanting so long as the benefits were as 
 great as they are in these days, — so long as this 
 industry has not been reduced to the rate of 
 other industries. 
 
 The restrictions of which the Bank makes such 
 frequent use, under the pretence of prudence and 
 moderation, cannot be justified, and are calcu- 
 
THE ORGANISATION OP CREDIT. 445 
 
 lated to cause regret for the absence of compe- 
 tition. 
 
 As M. Isaac Pereire observes : — " We are thus 
 led to examine whether it be not useful to pre- 
 scribe a maximum of discount in the system of 
 monopoly." 
 
 It would be rendering a great service to the 
 country to appreciate at their true value the pre- 
 tences of the Bank for the exercise, which it is so 
 continually making, of its restrictive powers. 
 
 For that purpose it would be essential to in- 
 quire into the causes of the depreciation of the 
 bills and bonds of the great enterprises of public 
 utility, and into the number of those bills which 
 are floating upon the market ; nor would it be 
 less necessary to find out if the depreciation arise 
 only from their abundance, or from the abandon- 
 ment in which they are left by the Bank. 
 
 The work which these bills represent can have 
 been executed only with existing capital. The 
 workmen who have produced the work can have 
 been supported only by subsistence money, or 
 capital before produced. 
 
 The savings of a nation, or the products which 
 form the savings, are thus transformed into ad- 
 vantageous investments, being reproductive. 
 
 But, thai the bills which prove the accomplish- 
 ment of these works of public utility may acquire 
 
446 THE BANK OF ENGLAND. 
 
 all their value, it is necessary to facilitate the 
 classing in the hands where they rest in a state 
 of definitive investment ; their value again is sub- 
 ordinate to the rate of revenue which their capi- 
 talisation will bring, and that rate depends gene- 
 rally on the interest adopted by the Banks. 
 
 In vain is it said, to justify the abandonment 
 in which these bills are left, that they represent 
 only fixed capital, that the debentures and bonds 
 are of this character, and that a bank of discount 
 and advance ought not to sink its capital in such 
 securities. 
 
 That the Bank of England ought not to sink 
 its capital in such securities is admitted, but that 
 is no reason why the Bank of England should 
 refuse to discount bills drawn on such securities ; 
 for there are no properties more quickly and 
 easily realised than those which, like railway de- 
 bentures and bonds, are daily the objects of mul- 
 tiplied transaction. 
 
 When the Bank of England alleges, for mo- 
 tives of its resistance to the sale of its stock, the 
 danger of producing too great a depression of 
 the funds, why does the Bank never hesitate, 
 when it is the question of imposing upon others 
 to make the same depression, and at the same 
 time to depreciate all other property, in suddenly 
 diminishing its discounts, and thus suddenly 
 throwing a mass of bills upon the market ? 
 
THE ORGANISATION OF CREDIT. 447 
 
 It is not necessary to seek further for the cause 
 of a great part of the disturbance in the public 
 funds. 
 
 The attacks directed against foreign loans, or 
 public works executed abroad, are connected 
 again with the infantine prejudices of the lament- 
 able theory of the balance of trade ; it is neces- 
 sary, consequently, in order to appreciate the 
 value, to measure the extent. 
 
 It may be easily shown that these loans and 
 these works, the international utility of which 
 cannot be disputed, are a powerful means for 
 facilitating from without the investment of the 
 produce of our agriculture and of our industry. 
 
 All are bound and linked together in the work 
 of production. 
 
 If there did not exist a certain number of Eng- 
 lish and Foreign Capitalists disposed to accept, 
 stock, debentures, and bonds of foreign enter- 
 prise, in payment for these products, our exports 
 assuredly would never be raised to the colossal 
 amounts which they have attained for some years 
 past. 
 
 It will be seen, by incontestable official proofs, 
 that it is inaccurate to pretend, as the Bank of 
 England and its supporters do, that these stocks, 
 debentures, and bonds, have been paid for by the 
 export of money abroad ; in reality, they have been 
 
448 THE BANK OF ENGLAND. 
 
 paid for only by the excess of our production ; 
 but, even when they have been paid for in me- 
 taUic value, how could we have procured these 
 metals, if not against the products due to the fer- 
 tility of our soil, or to our labor, since the British 
 territory contains neither mines of gold nor of 
 silver ? 
 
 The issue of these loans and the creation of 
 these enterprises have had, besides, for effect, to 
 make the English market the centre of the capi- 
 tals of Europe. 
 
 Our country, moreover, retains only as many 
 of these new bonds and securities as it suits 
 her to retain, and it has really retained only a 
 portion of those which have been issued in Eng- 
 land. 
 
 All restrictions exercised by the Bank of Eng- 
 land against loans and foreign enterprises appear, 
 consequently, to be more injurious than useful, 
 when not exercised by the necessity of the case 
 for safeguards of great political interests. 
 
 As long as a country shall not have created 
 new employments in its own interior, it may be 
 taken for certain that, it will be impossible to 
 hinder disposable capital from seeking advanta- 
 geous investments abroad.* 
 
 * " Principes de la Constitution des Banques et de I'Organi- 
 sation du Credit." Par M. Isaac Pereire— page 15. 
 
THE ORGANISATION OF CREDIT. 449 
 
 Credit money is only the representative of me- 
 tallic money, and upon it only can rest. 
 
 To suppose that the issue of notes, representing 
 money, has anything to do with banking, — or, 
 not to distinguish between the bank of issue and 
 the bank of deposit, is to confound things totally 
 distinct. 
 
 This is a manifest error, and yet into this 
 error the learned members of ' L'Academie Des 
 Sciences Morales Et Politioues,' of Paris, 
 seem to have fallen, in their long and tedious dis 
 cussions, ' SuR Les Banques D'Emission,' when 
 the principal speakers were M. Michel Cheva- 
 liea, M. le baron Dupin, M. Wolowski, and M. 
 Duraont. It is strange that men with such dis- 
 tinguished names should have talked so much to 
 so little purpose, as they have done, by their own 
 account of "la seance du 27 Pevrier, 1864," 
 occupying a brochure of 165 pages. 
 
 But, the most sensible remark on that occasion 
 was made by M. Dupin, who said, in answer on 
 the monopoly question : — " Pen m'importe que la 
 cupidite de quelques particuliers ne soit pas ici 
 satisfaite; je m'occupe avant tout de I'interet 
 national. Chacun peut acheter en nombre illi- 
 mite des actions de la Banque nationale et partici- 
 per a ses benefices aussi bien que ses fondateurs ; 
 voila la veritable egalite, et celle-la me sufEt." 
 
 2 G 
 
460 THE BANK OF ENGLAND. 
 
 And that ought to satisfy everybody, being all 
 that need be said on the subject of this mono- 
 poly. 
 
 Those learned gentlemen who dwelt at so much 
 length on the great extent and requirements of 
 the French Empire, for the purpose of showing 
 the necessity for more than one Bank of Issue 
 in France, seem to have overlooked the simple 
 fact that, their difficulty on this ground could 
 be as easily and effectually removed by the esta- 
 blishment of Branch Banks from the present 
 Bank of France, as by the establishment of new 
 Banks of Issue. 
 
 It is very remarkable that such an over-sight 
 should have been made by such an assemblage 
 of savans, and that the true principle of a Bank 
 of Issue should have been unperceived by any of 
 them. 
 
 M. de Lavergne, (who was prevented from at- 
 tending la Seance de I'Academie), in his written 
 address, subsequently given, says -. — " Onse trom- 
 perait d'ailleurs en croyant qu'une succursale des- 
 sert tout le departement ou elle se trouve. Son 
 action s'arrete au contraire dans un rayon tres- 
 etroit, et il est plus facile d'y escompter du papier 
 sur Paris ou sur une autre succursale que sur les 
 petites villes voisines." But why a Branch Bank 
 should not provide for the department as well as 
 
THE ORGANISATION OF CREDIT. 451 
 
 another Bank of Issue, M. de Ivavergne has not 
 explained. He says that, Scotland, with a po- 
 pulation less than the tenth part of the popula- 
 tion of France, provides 460 Branch Banks, or 
 one for 8000 inhabitants, and that it cannot be 
 an exorbitant demand for France, divided into 
 373 arrondissements, to require 373, or one for 
 100,000 inhabitants. "Alors seulement I'orga- 
 nisation du credit erabrassera I'ensemble da ter- 
 ritoire ; jusque-la on ne fera rien que de partiel 
 et d'incomplet." 
 
 According to this reasoning, it is the number 
 of the inhabitants on the square mile, and not 
 the wants of the inhabitants, that is to determine 
 the number of Banks ! M. de Lavergne seems 
 to have forgotten that. Banks are but shops, de- 
 pendent, not so much on the number of the in- 
 habitants as, on their wants. 
 
 But, whatever may be the wants of France, 
 those wants might be supplied by the Bank of 
 France, properly constituted,'or by Branch Banks, 
 as effectually as by any number of new Banks of 
 Issue, and, for many evident reasons, much more 
 so. France has only one Bank of Issue, but the 
 Bank of France, which has 53 Branches, and is 
 increasing the number every year, would find no 
 more difficulty in directing 373 Branch Banks, 
 if required, than it now finds in directing the 
 
 2 G 2 
 
452 THE BANK OF ENGLAND. 
 
 89 Branch Banks which are authorised by the 
 law. 
 
 The metallic currency of France is estimated 
 at from £160,000,000 to £200,000,000, Eng- 
 lish money. 
 
 M. de Lavergne, with perfect naivete, asks : — 
 " N'est-il pas regrettable que quand la Banque a 
 de grandes demandes a satisfaire a Paris, elle 
 reduise ses escomptes a Marseille, a Bordeaux, a 
 Lyon, qui n'en peuvent rien ?" 
 
 It is regrettable, but the conclusion which M. 
 de Lavergne draws from this fact is astonish- 
 ing. He asks : — " Ne voyons-vous pas ce phe- 
 'nomene singulier que, si elle se croit forcee 
 d'elever le taux de son escompte a Paris, elle 
 I'eleve par ce seul fait dans toutes ses succur- 
 sales? Parce qu'il y a crise a Paris, faut-il de 
 toute necessite que I'escompte monte aussitot a 
 Bayonne, a Nice, a Agen, a Bastia ?" 
 
 It would, indeed, be a singular phenomenon if 
 the consequence were otherwise, as M. de La- 
 vergne seems to think it ought to be and would 
 be, with separate Banks of Issue in all those 
 places. 
 
 If the rate of discount in Paris were 8 or 9 
 per cent., the probability is that, those provincial 
 Banks of Issue would be unable to discount at 
 any rate. 
 
THE ORGANISATION OF CREDIT. 453 
 
 If anything more can be wanting to show the 
 error of M. de Lavergne's conclusion, his own 
 words may supply that want. He says : — 
 " Toute banque presente des dangers : diviser les 
 banques, c'est diviser le risque. Tout le monde 
 connait ce proverbe vulgaire : — ' II ne faut pas 
 mettre tous ses oeufs dans le meme panier.' " 
 
 In support of his peculiar views, M. de La- 
 vergne refers to Sir Robert Peel, and his Bank 
 Acts of 1844-45, and asks, if he suppressed a 
 single one of the 200 Banks of Isssue and more 
 then in England. " A-t-il supprime une seule 
 banque ? Pas une seule. II s'est borne a em- 
 pecher qu'on n'en creat de nouvelles. Si la France 
 avait autant de banques d'emission que I'Angle- 
 terre proportionnellement a sa surface, elle en 
 aurait mille. Nous n'en demandons pas tant." 
 
 That reference to Sir Robert Peel was unfor- 
 tunate. M. de Lavergne was not likely to know 
 how much Sir Robert Peel desired to confine the 
 issue of Bank Notes to the Bank of England, 
 and to suppress all other Banks of Issue in the 
 United Kingdom ; nor that he was prevented 
 from attempting this much-desired object only 
 by the formidable opposition of the Country 
 Bankers, which would have endangered his Bill. 
 Sir Robert Peel did all he could to establish one 
 great central Bank of Issue under the regulation 
 
454 THE BANK OF ENGLAND. 
 
 of a Stringent law. He regarded country issues 
 as an unavoidable evil, to be suffered for a season, 
 and he made the best provision that he could for 
 merging all other issues into the Bank of Eng- 
 land. But, up to the present time, that unity of 
 issue, for which he was so desirous, has not been 
 accompUshed, and, without fresh legislation, may 
 never be accomplished. 
 
 It is astonishing that a French Academicien 
 should have ventured to write on a subject on 
 which he has shown so little knowledge of facts 
 or principles, and that he should have expressed 
 himself in such a style of confidence and au- 
 thority. 
 
 M. Wolowski, who advocates one only Bank 
 of Issue, replied shortly to M. de Lavergne, com- 
 mencing thus: — "Je ne crois pas que le systeme 
 developpe par M. de Lavergne dans le remarquable 
 travail dont il vient de faire hommage a I'Academie 
 soit inconcihable avec celui que je defends. II 
 ne faut pas perdre de vue la distinction sur la- 
 quelle j'ai insiste ; j'ai demande, il est vrai, une 
 banque unique d'emission, mettant dans la cir- 
 culation des billets faisant office de monnaie; 
 mais j'ai reserve la liberie la plus entiere pour les 
 autres fonctions qui appartiennent aux banques. 
 En fin de compte, M. de Lavergne ne me semble 
 pas fort eloigne de mes idees, &c." 
 
THE ORGANISATION OP CREDIT. 455 
 
 The answer of M. Michel Chevaher is scarcely 
 less astonishing than the origmkl jiro^ramme of 
 M. de Lavergne. It is even more astonishing 
 that M. Michel Chevalier, whose name is so much 
 better known in England than M. de Lavergne's, 
 should have fallen into the same error with re- 
 gard to the object and intention of Sir Robert 
 Peel in the Bank Charter Acts of 1844-45. 
 
 That Sir Robert Peel yielded to the force of 
 circumstances, in permitting the continuance of 
 the Country Banks of Issue, and that his object 
 and intention was to deprive all these Banks of 
 the power of issuing their own notes as soon as 
 he possibly could, are facts well known in Eng- 
 land, though, apparently, unknown in France. 
 
 But, that so eminent an authority as M. Michel 
 Chevalier should attempt to support his argu- 
 ment in favor of Country Banks of Issue, on the 
 false assumption that Sir Robert Peel was ever 
 favourable to them, is astonishing to English 
 readers. Even if Sir Robert Peel had main- 
 tained an opinion so erroneous, that would only 
 have placed him in the unfortunate position in 
 which M. Michel Chevalier has placed himself, — 
 of error in the principle on which bank notes are 
 issued to represent money of gold. 
 
 M. Chevalier thus commences his observations 
 on M. de Lavergne's production : — 
 
456 THE BANK OF ENGLAND. 
 
 " J'ai lu le travail de M. de Lavergne avec une 
 veritable admiration. II m'a paru demontrer de 
 la maniere la plus concluaate I'impossibilite de 
 suffire aux besoins qu'eprouve la France, en fait 
 de credit, par le moyeu d'une seule institution 
 d'emission. Dans les observations qu'il vient de 
 presenter a I'Academie, M. Wolowski a persiste 
 dans sa these, qui consiste a invoquer le royaume- 
 uni de la Grande-Bretagne et d'Irlande comme 
 un argument en faveur du systeme de la banque 
 unique. Qu'il me permette de lui dire que je 
 trouve la pretention quelque peu outree, car M. 
 Wolowski sait aussi bien que nous tous que 
 le Royaume-Uni compte plusieurs centaines de 
 banques. Est-ce la I'unite ? Et si Sir Robert 
 Peel avait pense que I'unite d'emission fut une 
 question vitale pour le commerce, est-ce qu'il 
 n'aurait pas cherche et trouve un moyen de 
 couper court a une telle pluralite ? C'est dans 
 le programme de M. de Lavergne, au contraire, 
 et non dans celui de M. Wolovi^ski qu'on re- 
 trouve de I'analogie avec le systeme des Anglais 
 tel qu'il a ete organise par Sir Robert Peel. Ce 
 dernier est en effet une sorte de systeme regional. 
 Sir Robert Peel a organise les banques d'emis- 
 sion d'une maniere distincte dans chacun des 
 trois royaumes. II y a une loi sur les banques 
 pour I'Angleterre proprement dite, une pour 
 
THE ORGANISATION OF CREDIT. 457 
 
 I'Ecosse, une pour I'lrlande. Ce sont trois or- 
 ganisations independantes." 
 
 M. Chevalier then renews his attack on M. 
 Wolowski, — who, in this part of the question, is 
 nearer to the right road than any of them, — and 
 proceeds as follows : — " Ce n'est done pas pour 
 respecter le systeme d'une legislation differente 
 que Sir Robert Peel a admis une constitution 
 separee pour les banques d'emission dans chacun 
 des trois royauraes ; c'est tout simplement parce 
 que 1 'unite appliquee en pareil cas lui paraissait 
 une enormite." 
 
 The enormity in this case is simply in the as- 
 sumption by M. Chevalier, directly contrary to 
 the fact, the fact being that, neither Scotland nor 
 Ireland would consent to one Bank of Issue jyour 
 les trois royaumes. 
 
 ' M. Chevalier, in support of his mistaken view, 
 refers to a bill brought into the House of Com- 
 mons in that year, (1864) by Mr. Gladstone, for 
 maintaining the amount of bank-notes in circula- 
 tion in Scotland, as authorised by the law of 
 1845, that amount having been diminished by 
 some of the Scotch Banks having, in the mean 
 time, ceased to exist. From this fact, M. Che- 
 vaher assumes that the British Government is 
 opposed " a I'unite du billet pour le Royaume- 
 Uni;" — an assumption quite unwarranted. 
 
458 THE BANK OF ENGLAND. 
 
 But M. Chevalier omits to notice, or rather, 
 has not subsequently noticed, that, in the present 
 year, (1866,) Mr. Gladstone brought into the 
 House of Commons a bill for suppressing all 
 country banks of issue, pour arriver a VuniU du 
 billet pour le Royaume-TJni. 
 
 M. Chevalier concludes his observations vfith 
 the following extraordinary words: — "En un 
 mot, le systeme anglais dont se prevaut M. Wo- 
 lowski n'est point le systeme de Tunite absolu 
 du billet. II implique d'une maniere fondamen- 
 tale des billets differents pour chacun des grandes 
 sections du Royaume-Uni; il est la condamna- 
 tion du systeme unitaire. Le systeme de M. Wo- 
 lowski est d'ailleurs condamne par le nom qui est 
 son nom propre : ce nom est en effet le monopole." 
 
 M. de Lavergne, in a further paper, (in reply 
 to M. Wolowski,) says: — "Les banques d'es- 
 compte et de depot sont libres, les banques 
 d'emissions ne le sont pas. Or, I'experience de- 
 montre que, jusqu'ici du moins, et probablement 
 pour longtemps encore, les banques d'escompte 
 et de depot ne peuvent prendre quelque impor- 
 tance si elles u'y joigneut le droit d'emission." 
 
 Was M. de Lavergne ignorant of our Joint- 
 Stock Banks when he wrote this ? 
 
 The following is from the concluding paragraph 
 of M. de Lavergne's reply : — " Quant a I'acte 
 
THE ORGANISATION OF CREDIT. 459 
 
 de 1844 en Angleterre, cet exemple ne prouve 
 rieu centre ma these, il vient au contraire a I'ap- 
 pui. Sir Robert Peel s'est oppose a remission 
 illimitee, soit des banques de province, soit de la 
 Banque d' Angleterre." 
 
 Here seems to be some confusion between the 
 limit to the issues andthe limit to the banks of issue. 
 
 Sir Robert Peel was always in favour of con- 
 fining the issues to one bank, and so fixing a 
 limit to the issues of that bank. But he was able 
 to accomplish only the last. Nobody in this 
 country proposes to invest any bank with an un- 
 limited power of issuing notes. 
 
 M. Wolowski, in his further reply to M. de 
 Lavergne, corrects him in his errors of fact with 
 regard to the objects and intentions of Sir Robert 
 Peel, and also with regard to our Joint-Stock 
 Banks, showing more correct knowledge on this 
 part of the subject than all the other Academi- 
 cieiis put together. 
 
 M. Vuitry, sensibly and sarcastically, observes 
 that, M. Michel Chevalier, though opposed to 
 monopoly, seems to have given his approbation 
 to the system of M. de Lavergne, the partisan of 
 monopoly. 
 
 To this M. de Lavergne replies, objecting to 
 the word monopoly/. " L'etymologie de ce mot 
 suppose I'unite, et je me suis prononce au con- 
 traire pour la pluralite." 
 
460 THE BANK OF ENGLAND. 
 
 M. Chevalier then replies to MM. Vuitry and 
 Wolowski. 
 
 M. Wolowski then replies to M. Chevalier. 
 
 M. Chevalier again replies to M. Wolowski. 
 
 M. Pellat then stands up and hits out gently 
 at M. Chevalier. 
 
 M. Chevalier then modestly resumes his atti- 
 tude of defence. 
 
 M. de Lavergne then reappears upon the plat- 
 form against M. Pellat, but seems rather shy. 
 
 M. Pellat then comes forward again and says, 
 as he said before : — " Je suis partisan decide de la 
 liberte de I'industrie et du commerce ; " and then, 
 — " tirez le rideau — la farce est jouee." 
 
 Certainly, these learned members, ' De L' Aca- 
 demic Des Sciences Morales Et Politiques,' 
 do not throw much light on this question for 
 English readers, whatever they may do for 
 Prench readers. 
 
 As M. Isaac Pereire says : — " L'histoire des 
 grands etablissements de credit n'est pas bril- 
 lante, et Ton pent afBrmer que I'appui seul du 
 pouvoir les a preserves d'un naufrage certain, en 
 les plagant, a des moments critiques, en dehors 
 du droit commun, en donnant a leurs billets le 
 privilege du cours force ; sans cet appui, ils 
 auraient tous succombe, et seraient ainsi devenu 
 la cause des plus gran des calamites. 
 
THE ORGANISATION OF CREDIT. 461 
 
 "II est vrai de dire que la plupart de ces 
 etablissements ont ete presque toujours com- 
 promis par des exigences gouvernementales ; mais, 
 il faut le reconnaitre, ils ont d'autant moins 
 cherche a s'y soustraire qu'ils comptaient pre- 
 cisement sur leur complaisance envers le pouvoir 
 pour obtenir les faveurs dont ils ont ete I'objet, 
 les facilites qu'on leur a laissees d'abuser de leur 
 credit afin de s'assurer des benefices plus con- 
 siderables. 
 
 " Partout, en I'absence de controle ou de con- 
 currence, ces grands etablissements se sont laisse 
 entrainer a etendre leur circulation, en meme 
 temps que, pour grossir leurs dividendes, ils 
 detournaient leur capital de sa destination ; 
 oubliant que ce capital devait rester constam- 
 ment disponible pour faire face aux eventualites 
 de remboursement, ils rimmobilisaient dans des 
 placements sur I'lltat afin de se procurer de plus 
 beaux revenus. 
 
 " La repetition de memes abus par toutes les 
 banques investies d'un privilege exclusif semble 
 etre la loi commune des etablissements de credit 
 places dans les memes conditions ; il y a, des 
 lors, necessite de chercher a ces abus un correctif 
 serieux, efficace." * 
 
 * " Principes de la Constitution des Banques."— Par Isaac 
 Pereire. — pp. 23, 24. 
 
462 THE BANK OF ENGLAND. 
 
 M. Pereire says of the Bank of France; — 
 " Sa position privilegiee lui donne, en realite, le 
 droit absolu de regler comme elle I'entend le 
 taux de I'interet dans toute I'etendue de I'empire 
 fran^ais." * 
 
 It ought to be so in England, but only on 
 certain conditions within certain limits. 
 
 That, the Bank of England does not possess 
 the power of regulating the rate of interest, is the 
 complaint ; and the present object is to show 
 that, the Bank might and ought to possess that 
 power. 
 
 With new and enlarged resources, as proposed, 
 the Bank of England would be able to maintain 
 and exercise that power. 
 
 But, it is said, how are these resources to be 
 procured and maintained ? 
 
 If the principles here laid down be true, that 
 question has been answered. 
 
 On these principles, the capital cannot be 
 wanting in England or in France for maintaining 
 the trade and industry of the country, which 
 alone is required for regulating the rate of in- 
 terest and fixing the maximum rate of discount. 
 The Government Securities held by the Bank of 
 England, are not placed in a different category 
 from the same securities held by private indi- 
 
 * Ibid. p. 32. 
 
THE ORGANISATION OF CREDIT. 463 
 
 viduals, or from those issued by the State when 
 it raises a new loan. The sale of the one or 
 the issue of the other in no way diminishes the 
 mass of notes in circulation, but rather aug- 
 ments the treasury of the Bank. 
 
 Government Stock, it is impossible to deny, 
 enters into the mass of the exchangeable articles 
 of a country, articles which have their own pe- 
 culiar value. With these can be procured all 
 things wanted, metals as well as all other 
 merchandise, and, as before said, the metals 
 are, certainly, not wanting in England, being 
 more abundant in England than anywhere else ; 
 but no one is able to obtain them, otherwise 
 than by borrowing, without giving an equivalent. 
 
 But, it is said again, the Government Se- 
 curities of the Bank of England being realised, 
 the produce would soon be absorbed by the 
 increased demands for discounts. 
 
 That, at least, could happen only with the con- 
 sent of the Bank, by the right of disposing as it 
 pleases of the capital which belongs to it, whilst 
 not being the owner of that with which it is now 
 carrying on its business, and possessing nothing 
 but what is confided to it by the Public, the 
 Bank has no right to regulate the wants of its 
 creditors according to its own pleasure or con- 
 venience. 
 
464 THE BANK OF ENGLAND. 
 
 All the world is able to appreciate the help 
 which the power of disposal over such a capital 
 as proposed would have brought to the Bank 
 of England in these latter times, coming to 
 strengthen its reserve, and to augment its means 
 of discount. 
 
 From the foregoing it can be easily seen that, 
 all things remaining the same, the scale of 
 Government Securities by the Bank of England 
 would have the certain, necessary, and absolute 
 effect of augmenting the metallic reserve perma- 
 nently, with a sum equal to the amount of the 
 Securities sold, and that, thus would be dispelled 
 the only motive alleged to justify the Bank of 
 England in raising the rate of discount. 
 
 The gold so obtained, belonging of right to 
 the Bank, could then be drawn away from it 
 only by a new development of affairs, and in 
 that case, according to this view, the Bank would 
 have no other means of satisfying its new wants 
 than by augmenting its real capital. 
 
 No one will venture to say that, with a capi- 
 tal fixed and invariable, the Bank of England 
 can satisfy increasing wants in proportion more 
 and more considerable, if we may judge by the 
 example which the past has furnished. 
 
 This view of the subject is completely con- 
 firmed by M. Isaac Pereire, in his last able and 
 
THE ORGANISATION OF CREDIT. 465 
 
 convincing work, already referred to : — " Prin- 
 cipes de la Constitution des Banques, et de 
 I'organisation du Credit," — and especially. Chap- 
 ters III. and IV. 
 
 But, to justify what has been affirmed, relative 
 to the facility M'ith which gold can be procured 
 in any required quantity, it may be necessary, for 
 satisfying those who have doubts on this part 
 of the question, to make a few further remarks. 
 
 Gold and silver have been spread in great 
 abundance over the whole surface of the earth 
 during a long series of ages. Of a nature almost 
 inalterable, they have, the one and the other, all 
 the qualities of durability, and they are admirably 
 adapted for the services to which they are applied. 
 
 It is doubtful whether there has been any 
 sensible depreciation in the value of gold, since 
 the discovery of the mines of California and 
 Australia. The conditions for the working 
 of the precious metals have little changed, and 
 their price, consequently, has undergone little, 
 if any, appreciable variation. 
 
 It may be seen that, under tijese conditions, 
 the variations of price are scarcely perceptible, 
 for a merchandise which is produced in such 
 great abundance, which has all the characters of 
 universality, and which circulates throughout the 
 whole world ; also that, whatever may be the 
 
 2 H 
 
46(5 THE BANK OF ENGLAND. 
 
 quantities to be bought or sold, the purchases 
 or sales may be sure to be effected with facility, 
 without fear of provoking any sensible move- 
 ments, as would inevitably be the case in the price 
 of all other merchandise, under the same circum- 
 stances, even that of corn, which approaches 
 nearest to the character of the precious metals 
 under the universal use of which it is the object. 
 
 But to procure gold, as to procure corn, it is 
 necessary, as before remarked, to furnish an 
 equivalent in real value, real riches. 
 
 A rise in the rate of interest can do nothing 
 towards obtaining the real value, unless you wish 
 or are able to obtain it by borrowing, which is 
 not the manner in which the Bank understands 
 the influence of raising the rate of discount 
 upon the abundance of the precious metals. 
 
 The banks are very well able to procure gold 
 in exchange for their notes, but they can keep 
 it only on the express condition not to exceed 
 the limits of the want and of the confidence. 
 
 The only motive of those who consent to pay 
 interest, to keep the gold unproductive in the 
 Bank vaults, is the hope of being able to draw 
 it out at a premium, and every premium given 
 for gold has the effect of making it scarce, of 
 depreciating the notes and leading to demands 
 for repayment. 
 
THE ORGANISATION OF CREDIT. 467 
 
 To maintain abundance of gold in circulation, 
 it is necessary that the value should be in exact 
 equilibrium with that of the bank-paper and 
 should never exceed it, which happens when this 
 ti*ouble is produced or proved by a premium. 
 
 It is the Bank itself then which furnishes the 
 dealers in gold with the means for diminishing 
 its reserve. 
 
 Would it not be better for the Bank to do 
 without these middle-men who press upon it, and 
 to give itself up to the trade in gold and silver ? 
 
 Would not the Bank have acted more pru- 
 dently and in a manner more intelligent, if the 
 part of its capital, which has been shut up in 
 Government Securities or in ingots, had been 
 actively employed in the trade of the precious 
 metals, or in bills of exchange on those places 
 where the precious metals could be obtained on 
 the best terms? 
 
 The Bank would then, at its pleasure, always 
 have been able to procure, in the measure which 
 itself should have fixed, all the gold of which it 
 would have been in want. By such simple 
 means would have been avoided the frequent 
 recourse to that desperate remedy of raising the 
 rate of discount to a ruinous height, which 
 has been the real and only cause of those crises 
 under which England, as well as France, has so 
 frequently suffered. 2 h 2 
 
468 THE BANK OF ENGLAND. 
 
 The raising of the rate of discount by the 
 Bank being determined only by the insufficiency 
 of its reserve, it is very evident that, if it had 
 been possible to renaedy this insufficiency, 
 whether by measures proper to assure at once 
 the disposability and good employment of its 
 resources, whether even, at an extremity, by the 
 augmentation of these resources, the raising of the 
 rate of discount would not have been necessary. 
 
 In reality, the only rule to prescribe to banks 
 consists in the rigorous observance of the ac- 
 knowledged necessary connection between the 
 metallic reserve and the notes in circulation, so 
 that there shall never be any fear of the power of 
 satisfying the demands of repayment. 
 
 It is generally believed that, the rate of in- 
 terest is the indication of the price of gold ; that, 
 the price ought naturally to be raised higher 
 when the gold is scarce or when the wants of 
 commerce bring about a certain export of money. 
 
 This opinion, which is widely spread, rests upon 
 the false notion of the part which gold really 
 plays in the relations industrial and commercial. 
 
 Gold and silver are merchandise, like all other 
 products of the soil or of human industry ; they 
 have, like those products, a price absolute, which 
 results from the cost of production, and a price 
 relative, which depends on their abundance or 
 
THE ORGANISATION OF CREDIT. 469 
 
 scarcity ; this last is indicated by the rise or fall 
 of the market value. Thus gold and silver, 
 according, to the circumstances, gain a premium 
 or sustain a loss ; in other words, the merchandise 
 or other values, against which they are exchanged, 
 rise or fall relatively, in the sense that a larger or 
 a smaller quantity is given for the same sum. 
 
 It is in this way. that the variations in the 
 price of gold and silver are manifested. 
 
 They are not manifested by the rise or fall of 
 the rate of interest, the rate being only the ex- 
 pression of the aggregate of the capitals of all 
 kinds with the demand which is made on them. 
 Gold and silver are bought, like all merchan- 
 dise, by means of exchange direct or indirect 
 with other products. 
 
 Every country could, in effect, if it took such 
 a fancy, transform at its pleasure, in a given 
 time, the greatest part, or even the whole, of its 
 savings into the precious metals; the only re- 
 sult of this hoarding would be an increased price 
 for the precious metals to the foreigner, and con- 
 quently new activity given to the working of the 
 mines. But a like operation would have for its 
 consequence the impoverishment of the country 
 which had attempted it, by causing that country 
 to fall into a state of inaction, a state of stagna- 
 tion ; it would produce an effect directly opposed 
 
470 THE BANK OF ENGLAND. 
 
 to that which would be expected as regards the 
 rate of interest, since .these riches, unproductive 
 in this form, would thus be subtracted from the 
 support of labor and reproduction. Interest 
 would rise instead of fall. 
 
 The true, the only means for obtaining pos- 
 session of the precious metals, which are wanted, 
 is not to hold them or attract them by a high 
 rate of interest, but it is to work and produce. 
 The nation which would have the most gold and 
 silver will always be the nation which is the most 
 industrious, and, consequently, the richest. All 
 that is injurious to labour, to the work of pro- 
 duction, such as a high rate of interest, all that 
 which tends to fetter the springs of commerce 
 by restraining the circulation of the precious 
 metals, to limit the exchanges or the liberty of 
 investment of capital, has no other effect than to 
 diminish the prosperity of the nation, by diminish- 
 ing its power of acquiring wealth, and rather re- 
 ducing than augmenting its monetary circulation. 
 
 The rate of interest is regulated not by the 
 quantity of money which the nation possesses, 
 because money does not constitute riches, but 
 by the amount of loanable capital and the de- 
 mand for it; and the demand is regulated by 
 the profit which can be obtained from the em- 
 ployment of that capital in business. 
 
THE ORGANISATION OF CREDIT. 471 
 
 Even the forms of familiar language lend 
 themselves to propagate the errors spread over 
 the nature of money. 
 
 Thus, it is vulgarly said, — interest of money, — 
 for interest, the loan of capital, solely because all 
 capital is expressed and can be expressed in no 
 other way than by money, the common measure 
 of all values ; but in this you may deceive your- 
 self, and in this you generally do deceive your- 
 self. At the bottom, it is never in reality the 
 money that is borrowed, but exclusively the ob- 
 jects which can be procured with money, which 
 is not always in a metallic state and may supply 
 its place, as it effectively does in England, whether 
 by bank-notes, by the clearing-houses, or by a 
 system of compensations. 
 
 The rate of discount depends not on the abund- 
 ance or scarcity of money, but on the importance 
 of the capital which the country can devote to 
 operations of this kind, and the importance of 
 this capital depends in its turn on the rate of 
 profit which this industry procures. 
 
 In the particular case of the Bank of England, 
 the Bank works with a capital exclusively sub- 
 tracted from the circulation, and, consequently, 
 capital costs the Bank nothing. 
 
 The Bank, therefore, cannot fairly make the 
 high price of money a pretext for raising the dis- 
 count. 
 
472 THE BANK OF ENGLAND. 
 
 The only money which the Bank of England 
 makes use of is its own notes, and this not being 
 dear money for the Bank, its impositions are, 
 consequently, without any justification. 
 
 Nor can the Bank argue on the small quantity 
 of notes that it can put in circulation, for this 
 quantity, already very considerable, tends to in- 
 crease without ceasing, in proportion to the de- 
 velopment of trade and the increase of the ex- 
 changes. 
 
 But the Bank is too much in the habit of con- 
 sidering this credit capital as a property of the 
 same kind as all other property. 
 
 The Bank, however, ought not to forget that, 
 it is not to increase the fortune of some families 
 that the Government has divested itself of the 
 power of issuing credit money ; and the misuse 
 which is made of a privilege, the concession of 
 which is to be justified only on the ground of 
 public interest, is not to be seen without protest- 
 ing against it. 
 
 The reasons drawn from the export of gold for 
 justifying the raising of the interest enter into 
 the subject here considered relative to the abund- 
 ance or scarcity of money. 
 
 These reasons, false in fact, do not even bear 
 examination. They reproduce, as already said, 
 to be destroyed, the prejudices of another age. 
 
THE ORGANISATION OF CREDIT. 473 
 
 Let it be remembered that, those who speak 
 of the export of gold and silver always omit to 
 speak of the import ; nevertheless, in taking any 
 certain period of time, it can be proved that, the 
 import of gold and silver into England greatly 
 exceeds the export. 
 
 There are, necessarily, oscillations from one 
 year to another, according to the special circum- 
 stances, such as a famine or a war, by the effect 
 of which the ordinary relations of exchange are 
 disturbed; but it is necessary to consider the 
 general fact only, not the exception. 
 
 It is, moreover, precisely the special quality 
 of gold and silver to serve for auxiliaries, for 
 intermediums in like circumstances ; the money 
 is the merchandise pre-eminently, the merchan- 
 dise type, that which, as already said, has a uni- 
 versal currency, which goes everywhere, and 
 which we ought to hold in reserve to facilitate 
 our relations with foreign countries, when we are 
 not able to furnish them with the products of 
 our soil or our industry in a proportion corre- 
 sponding with the want which we have for theirs, 
 or when we cannot pay them by proxy, with that 
 which another country owes us. 
 
 Gold and silver thus fill outwardly the func- 
 tions which have devolved upon them inwardly, 
 in the ordinary practice of life. 
 
474 THE BANK OF ENGLAND. 
 
 They remedy the absolute impossibility of 
 direct exchange in nature, or, in other words, 
 gold and silver abolish exchange. 
 
 The opinion of that most distinguished French- 
 man, Bastiat, on this point, is too valuable to be 
 given in any other than his ovi^n vpords : — 
 
 " L'opinion que I'exportation du numeraire 
 constitue une perte etant tres-repandue, et, selon 
 nous, tres-funeste, qu'il nous soit permis de 
 saisir cette occasion d'en dire un mot. 
 
 " Par ou Ton voit que, par 
 I'intervention de la monnaie, le troc de service 
 contre service se decompose en deux echanges. 
 On rend d'abord un service contre lequel on 
 revolt de I'argent, et Ton donne ensuite I'argent 
 contre lequel on regoit un service. Ce n'est 
 qu'alors que le troc est consomme. 
 
 " II en est ainsi pour les peuples. 
 
 " Quand il n'y a pas de mines d'or et d'argent 
 dans un pays, comme c'est le cas pour la France 
 et I'Angleterre, il faut necessairement rendre des 
 services effectifs aux etrangers pour recevoir leur 
 numeraire. 
 
 " On les nourrit, on les abreuve, on les meuble, 
 &c. ; mais tant qu'on n'a que leur numeraire, on 
 n'a pas encore repu d'eux les services effectifs 
 auxquels on a droit. II faut bien en arriver a 
 
THE ORGANISATION OF CREDIT. 475 
 
 la satisfaction des besoins reels, en vue de laquelle 
 on a travaille. La presence meme de cet or 
 prouve que la nation a satisfait au dehors des 
 besoins reels et qu'elle est crfeanciere de services 
 equivalents a ceux qu'elle a rendus. Ce n'est 
 done qu'en exportant cet or contre des produits 
 consommables qu'elle est efficacement payee de 
 ses travaux. 
 
 " En definitive, les nations entre elles, comme 
 les individus entre eux, se rendent des services 
 reciproques. Le numeraire n'est qu'un moyen 
 ingenieux de faciliter ces trocs de services. En- 
 traver directement ou indirectement I'exportation 
 de I'or, c'est traiter le peuple comme on traiterait 
 un chapelier a qui I'on defendrait de jamais re- 
 tirer de la societe, en depensant son argent, des 
 services aussi efficaces que ceux qu'il lui a 
 rendus." 
 
 There can be no fear for the means of procur- 
 ing the precious metals. As long as California, 
 Australia, Mexico, and the other parts of the 
 world produce and do not cease to furnish the 
 precious metals, every country vi^hich wants them 
 will always be able to obtain them, directly or 
 indirectly, with the produce of its own soil or 
 its own industry. 
 
 The quantity which each country will receive 
 
476 THE BANK OF ENGLAND. 
 
 has no other limit than the means of payment : — 
 it is simply a question of price. 
 
 This obligation to pay for what is bought, 
 vulgar as it may seem to be, is not the less gene- 
 rally accepted ; all the world submits to it, with 
 the exception of the Bank of England, which 
 makes the largest purchases of gold and silver, 
 but obstinately withholds any return of value, by 
 refusing to put into its industry any funds which 
 belong to it to satisfy the necessities which that 
 industry admits of; it seriously believes to have 
 found, in raising the rate of interest, a new source 
 for the production of gold and silver. 
 
 It is the old story of the Alchemists over again, 
 only the Bank, more lucky, finds the means in- 
 directly of enriching itself, whilst the credulous 
 alchemists were ruined by their laborious and 
 vain efi"orts. 
 
 If the Bank have reason to congratulate itself 
 on the result obtained from the application of its 
 doctrines, it is not so for the public, which suffers 
 for it. 
 
 These remarks apply equally to the Bank of 
 France, and are used with unanswerable force by 
 M. Isaac Pereire, in his last work, before referred 
 to, " Principes de la Constitution des Banques," 
 &c. Chapter V. 
 
 It must be admitted that, there is no other 
 
THE ORGANISATION OF CREDIT. 477 
 
 way of maintaining an abundance of specie than 
 buying it and paying for it, produce in hand, 
 as the countries do which pay us, in their turn, 
 with cotton, corn, and silk; however, if it be 
 desired to know where the loss ought to fall, 
 should any arise in procuring the specie, there 
 should be no hesitation in admitting that, the 
 loss ought to fall on the Bank, and not on the 
 country, since it is the Bank alone that feels the 
 want and derives the direct profit ; it is the 
 prime article of its industry. 
 
 The price of the money expresses only its in- 
 trinsic or market value ; it has no relation to the 
 rate of interest, which is only the price of the 
 hiring of capital in general ; and the capital of 
 a country, as Voltaire has so well expressed it, 
 comprises the aggregate of all the goods, all the 
 provisions, all the savings, all the riches, follow- 
 ing their proper expressions, consisting in the 
 soil and in the labor, and not in the possession 
 of a greater or less quantity of specie.* 
 
 If, in support of the opinion here expressed, a 
 greater authority than that of Voltaire be de- 
 sired, it would only be necessary to refer to 
 Adam Smith in his chapter on the Balance of 
 Trade. 
 
 There is, then, no connection between the 
 
 * Embellissements de Caohemire. Melanges, tome III. 
 
478 THE BANK OF ENGLAND. 
 
 rate of interest and the abundance or scarcity of 
 money. 
 
 Neither is there any between the rate of in- 
 terest and the movements of export or import of 
 specie. 
 
 These are two orders of phenomena entirely 
 distinct, and are subject to laws essentially dif- 
 ferent. 
 
 The rate of interest has nearly always been 
 higher in England than in France, Germany, and 
 Holland, and yet the metallic reserve of either of 
 those kingdoms has not often exceeded that of 
 England, and is generally much below it. 
 
 The rate of interest at this moment is very 
 high in the United States, in Spain, and in 
 Austria ; and, of late years, it has been equally 
 so in Russia. 
 
 The circulation of gold, however, has followed 
 a direction quite opposed to that which the rate 
 of interest would seem to indicate. 
 
 These countries, contrary to the common 
 opinion, have generally exported instead of im- 
 ported gold. 
 
 Immense amounts of specie were received by 
 England and France, in 1864, from Spain, where 
 the interest had mounted to 12 and 14 per 
 cent. 
 
 In still greater proportions were the receipts 
 
THE ORGANISATION OF CREDIT. 479 
 
 by England and France from Austria and the 
 German Confederation in the year, 1864. 
 
 Also from the United States where the interest 
 was so very high. 
 
 Italy alone presents an exception in this re- 
 spect for the years 1863 and 1863, the loans 
 which she has raised in England and Erance 
 having rendered necessary an export of specie 
 into Italy to a large amount. 
 
 But, in 1864, the imports of specie from Italy 
 have brought it all back, and a great deal 
 more. 
 
 Such facts as these are the best answer to the 
 errors propagated upon the outflow of our specie 
 to the foreigner, in consequence of the great 
 European enterprises to which England has had 
 the glory of co-operating, and of which she has 
 received in part the profits, and to the pretended 
 danger which would follow : they reduce to no- 
 thing the ill founded and unreflecting attacks, 
 the malevolent insinuations, to which these errors 
 have served for pretext. 
 
 When a country sends its capital abroad, it is 
 not necessarily gold that is sent ; that is sent only 
 in default of the products or industry of the 
 country ; and when the country sends money, it 
 is on the condition of having procured it before- 
 hand by the sale of that country's products. 
 
480 THE BANK OF ENGLAND. 
 
 " Les capitaux cherchent les lieux ou. ils trou- 
 vent de la surete et des emplois lucratifs, et 
 abandonnent peu a peu ou Ton ne salt pas leur 
 offrir de tels avantages ; mais pour deserter, ils 
 n'ont nul besoin de se transformer en nu- 
 meraire." 
 
 M. Pereire, who quotes this from Jean-Bap- 
 tiste Say, adds : — 
 
 " Nous sommes loin de nier cependant qu'il 
 existe une certaine solidarite entre les divers pays. 
 Quand les. capitaux sont abondants sur un point, 
 ils ont une tendance a se porter partout oil ils 
 sont rares ; mais cette solidarite n'a pas ['impor- 
 tance qu'on veut bien lui attribuer, particuliere- 
 meut en ce qui concerne I'emploi momentaire de 
 capitaux sous la forme de I'escompte."* 
 
 Capitalists do not displace very considerable 
 sums for the simple benefit of a temporary dif- 
 ference of interest. 
 
 This, which is true of capital in general, is es- 
 pecially true of the import and export of gold 
 and silver. 
 
 The movements of gold and silver are in 
 general determined only by the wants for the li- 
 quidation of the exchanges between nations. 
 
 A country exports specie when the mass of its 
 imports of merchandise or values of all sorts ex- 
 
 * Prineipes de la Conatitution des Banques, p. 81. 
 
THE ORGANISATION OF CREDIT. 481 
 
 ceeds that of its exports, and reciprocally ; or, 
 when the balance of all its transactions is 
 against it. 
 
 This balance, which is paid or received in 
 specie, is what is .called the Balance of Trade. 
 
 It was formerly believed that this payment in 
 specie represented the profit or loss of a nation in 
 its foreign trade. It was therefore that each na- 
 tion endeavoured to turn the balance in its favour 
 by Customs' Tariffs. 
 
 The contrary was nearer the truth, for the 
 more industrious the nation the less it imports 
 money ; it prefers always to replace the money 
 with the raw materials, which will enable it to 
 support the labour of its workshops. 
 
 Thus, England much prefers to receive cotton 
 than gold from America. 
 
 England has always obtained, against its pro- 
 ducts, all the gold for which it has had occasion, 
 and always will obtain enough for all its wants, as 
 long as the value of its exports exceeds that of its 
 imports. 
 
 The Bank of England has wanted gold only 
 because the same means have not been employed 
 for obtaining it. 
 
 Instead of simply buying gold with real 
 capital, the Bank has obtained gold by uselessly 
 augmenting the already considerable mass of its 
 
 2 I 
 
482 THE BANK OF ENGLAND. 
 
 engagements ; and notwithstanding the numerous 
 warnings which have been given, the Bank has 
 persisted in this system, so lamentable to trade 
 and industry. 
 
 In doing this, the Bank has forgotten that its 
 situation, relatively to the holders of its notes was 
 that of debtor and creditor ; that the more a 
 debtor multiplies his engagements the more his 
 position becomes precarious and dangerous ; that 
 he can only ameliorate it by the intervention of 
 capital in the acknowledged necessary propor- 
 tions. 
 
 Thus, it will be seen, the course of the ex- 
 change is independent of the reserve of the banks 
 or of the rate of interest. This independence 
 confirms the principles here laid down at the 
 commencement, and reduces to nothing the false 
 assertions accepted by superficial minds which, 
 stopping at the appearance of things, persuade 
 themselves, contrary to the facts, that the arbi- 
 trary fixing of the rate of interest can have some 
 sort of action on the metallic reserve. 
 
 It is especially with reference to France, when 
 the principle of joint responsibility (soUdarite) is 
 referred to for justifying the raising of the rate 
 of interest in England, the relations of all sorts 
 between these two countries being very nu- 
 merous. . 
 
THE ORGANISATION OP CREDIT. 483 
 
 The facts before established, and the general 
 principles here laid down, have already shown 
 how little this joint responsibility is to be feared 
 for our metallic reserve. 
 
 It may be proper now to examine the question 
 more closely, to look into it more deeply from the 
 point of view of the two Banks of England and 
 Prance, and of the re-action which they are able 
 to exercise the one upon the other. 
 
 The constant anxiety of the Bank of France 
 is the fancied danger to its reserve {encaisse) from 
 the raising of the rate of discount by the Bank 
 of England. 
 
 It is said by the authorities of the Bank of 
 France, and the same is said by the authorities of 
 the Bank of England that, the slightest differ- 
 ence in the rate of interest between the Bank of 
 England and the Bank of France, would have the 
 effect of drawing away from the coffers of the 
 Bank the n^ost richly provided to pour into that 
 of the Bank deprived of its specie. That, con- 
 sequently, it is necessary to avert the danger by 
 temporary elevations of the rate of discount, in 
 order that there may be no stoppage in the cir- 
 culation of the credit money, no shaking of the 
 confidence indispensable to commercial transac- 
 tions and to public credit. 
 
 Such is the doctrine of the Bank of France, 
 
 2 I 2 
 
484 THE BANK OF ENGLAND. 
 
 and such is the doctrine of the Bank of England. 
 This is clearly defined, and put forward, by the 
 Bank authorities of both countries, with an im- 
 perturbable assurance, as if such a declaration by 
 them defied all objections. 
 
 In England this unsteadiness of the rate of 
 discount arises from the very restrictive and very 
 defective organisation of the Bank of England, 
 an organisation entirely different from that of the 
 Bank of France, but each Bank being the prin- 
 cipal establishment of credit in its own country. 
 
 It is admitted that the rate of interest may be 
 suflBciently high in Erance and other countries to 
 determine the English Capitalists to send their 
 large Capitals there. 
 
 But, how do they get their capitals there ? Is 
 it in the form of export of specie that this opera- 
 tion is accomplished ? 
 
 Before having recourse to this means, which is 
 generally the most costly, they would buy all the 
 bills of exchange which the creditors of France 
 would draw upon this country, and they would 
 not begin to export specie until the bills of ex- 
 change, always extremely abundant, began to be 
 exhausted, or, at least, to become scarce, to the 
 extent of being less economical than sending 
 specie, notwithstanding the expense of transport 
 and the risk inherent to this kind of remittance. 
 
THE ORGANISATION OF CREDIT. 485 
 
 It is admitted again that, for obtaining the 
 means of profiting by the difference in the rate 
 of discount between the two Banks, the bankers 
 and money -jobbers, devoted to these kind of 
 operations, make demands for discount on the 
 Bank of England. 
 
 It would be necessary at first that, the de- 
 mands presented a certain importance to attract 
 the attention of the Bank of England, and that 
 would be only when accompanied with a suffi- 
 ciently considerable withdrawal of specie ; in that 
 case the Bank, better placed than any one who- 
 soever, for appreciating the causes and the mo- 
 tives of the demands made upon it, would cer- 
 tainly have the perfect right to put aside those 
 which appeared to be of a nature dangerous to its 
 reserve. A few such warnings would be sufficient 
 to confine these demands within moderate limits. 
 
 In this way the Directors of the Bank of Eng- 
 land and the Governor of the Bank of France do 
 act at present, and the punishment of the whole 
 community for the fault of some, if it be a fault, 
 is thus, to a small extent, avoided. They do not 
 modify the normal conditions of all the commer- 
 cial operations of a country on the ground that 
 some money -jobbers have endeavoured to give an 
 unusual extension to their operations. 
 
 But what would an unusual extension of these 
 operations be able to effect ? 
 
486 the' bank of England. 
 
 Is it dependent on some bankers and money- 
 jobbers to draw away, suddenly the metallic re- 
 serve from one country to another ? 
 
 Would they have the power and the credit ne- 
 cessary for that ? 
 
 They must be very little acquainted with facts, 
 and with the situation of the two countries re- 
 spectively, who suppose that France can want our 
 gold and silver, or that England can want their 
 gold and silver to an extent to inspire either 
 country, even for a moment, with serious uneasi- 
 ness. Nothing of the sort. 
 
 It cannot be denied, and, in fact, it is univer- 
 sally admitted that, England is the great market 
 for gold and silver, — the principal, if not the 
 only, medium for this trade between America 
 Austraha, and other parts, with Europe ; — that 
 England is always abundantly provided with 
 these preciousmetals;— that, it is England which 
 furnishes nearly the whole of these metals, which 
 Erance and other countries import ; — and that, it 
 is only very exceptional when this order of things 
 is inverted. Nor can it be doubted that France, 
 with her immense natural resources and her un- 
 rivalled industry and skill, can always command 
 any required amcJunt of the precious metals. 
 
 In the face of this state of things, it may be 
 seen how vain are the terrors with which Bank 
 
THE ORGANISATION OE CREDIT. 487 
 
 Directors are agitated, and it may be safely 
 affirmed that, in abandoning affairs to their na- 
 tural course, — assuredly the wisest course, — the 
 specie which we might be able thus accidentally 
 to send to France or other countries would 
 not be long in returning to us, simply by the 
 effect of the fall in the price of the specie, which 
 the sending of goods of a certain importance 
 would produce on the French market or markets 
 of other countries. 
 
 The specie would return so much the more 
 promptly that it is by no means the want of 
 specie, as before shown, that determines the rise 
 in the rate of discount with us. 
 
 This want, besides, if it should happen to be 
 so, could never be but very exceptional and tem- 
 porary. 
 
 In England, where the economy of means is 
 carried much farther than in France, the alarmists 
 have imagined the most ingenious proceedings 
 for diminishing the employment of money. All 
 excess of a certain quantity of the precious 
 metals indispensable to the wants of commerce 
 being considered as a power lost, would be soon 
 exported, to be transferred into objects directly 
 useful. 
 
 We know, in fact, that, with a stock of the pre- 
 cious metals comparatively small, England is able 
 
488 THE BANK OF ENGLAND. 
 
 to realise, by means of a system of settlement of 
 accounts and compensations in practice in the 
 clearing-houses, a mass of commercial opera- 
 tions, of exchanges, infinitely more considerable 
 than that which takes place in France. 
 
 It is thus that, we are able to render dispos- 
 able several miUions, sterling, of specie, which 
 was unproductive, and the employment of which 
 has furnished new resources for augmenting the 
 floating capital of the country, for extending the 
 railways and increasing the stock of machinery, 
 engines, and instruments of all sorts. 
 
 But, it will be said, it is not so much of the 
 general wants of British Commerce that we 
 would speak, as of those of the Bank of Eng- 
 land, the special situation of which, sufficiently 
 indicated by the high rate of discount, may re- 
 quire large importations of gold. 
 
 From this side, again, the danger is altogether 
 illusory, as already shown in explaining the 
 special mechanism of the Bank of England, and 
 if any one of the National Banks have cause 
 to fear the designs of its neighbour, it may be 
 seen that, it is not ours. 
 
 It is true that, the Bank of France is often 
 the direct cause of raising the rate of discount 
 by the Bank of England, through purchases of 
 gold by factitious means, and generally at the 
 expense of the Bank of England. 
 
THE ORGANISATION OP CREDIT. 489 
 
 But, the Bank of France, instead of attacking 
 thus the metallic reserves of other banks, would 
 have had simply to draw from real sources, from 
 those where the gold really exists, in the con- 
 siderable stock which the country possesses, and 
 which is the fruit of the savings realised by 
 the nation upon the products of labor or upon 
 the revenues of capital ; but, as already shown, 
 the Bank of France, as well as the Bank of 
 England, knows no other way of supplying itself 
 with gold than by the issue of notes, which, 
 being in over abundant quantities, from that 
 time go into circulation only to return imme- 
 diately to the point of departure. Those who 
 are charged to furnish that gold, against which 
 no new value is given, procure it generally by 
 means of a circulation of which the Bank of 
 England is the pivot ; thereupon the Bank of 
 England raises its rate of interest to counteract 
 these operations, which result at the same time 
 in diminishing its reserve of notes and its stock 
 of the precious metals. The Bank of France does 
 not fail, then, to imitate this example, and the 
 Bank of England responds to the rise of the rate 
 of discount in France by a new rise. 
 
 From this it results that, from both sides of 
 the Channel, the discount is carried to its ex- 
 treme limits. These excessive raisings of the 
 
490 THE BANK OF ENGLAND. 
 
 rate in the two countries thus become alternately 
 cause and effect. It is a true declaration of war, 
 war without profit for one party or the other, 
 war of which commerce, industry and public 
 credit pay all the expenses, as in most cases of 
 war, from whatever cause. 
 
 M. Isaac Pereire is desirous of proving, how- 
 ever, that the Bank of England enters only ex- 
 ceptionally into this mode of reprisals, and that 
 its conduct is influenced by other motives. 
 
 The proof of this, he says, is found in the 
 frequent examples, furnished by the Bank of 
 England, of the adoption and maintenance for a 
 long period of time of its rate of interest below 
 that of the Bank of France of l^- and 2 per cent., 
 and even 3 per cent, without suffering the least 
 from this difference. 
 
 Thus, in the years following, the rate of dis- 
 count of the Bank of England was below that 
 of the Bank of France in the proportions fol- 
 lowing : — 
 In 1844, 1850, 1852, 1859, of 1| per cent. 
 
 In 1861 21 & 3 „ 
 
 In 1862 IJ & 2i „ 
 
 In 1863 i & 1 „ 
 
 However, at none of these epochs did the re- 
 serve (J'encaisse) of the Bank of England cease 
 to be in a perfectly normal condition. It con- 
 
THE ORGANISATION OF CREDIT. 491 
 
 stantly maintained a very high relative position 
 with the circulation. 
 
 M. Pereire then quotes the figures from our 
 Bank returns which completely confirm his state- 
 ment.* 
 
 At this very day, the 30th December, 1865, 
 the rate of discount in France is .3 per cent, less 
 than in England, being 7 per cent, in England 
 and 4 per cent, in France.f 
 
 The amount of bullion in the Bank of Eng- 
 land at the end of 1864, stood at £14,100,974, 
 and is now, the 30th Dec, 1865, £13,403,102, 
 showing a decrease of £697,872. It touched its 
 highest point, £16,407,666 on the 28th June, and 
 its lowest, £12,736,346 on the 11th October. 
 
 The amount of bullion in the Bank of France, 
 at the end of 1864, was £14,400,000, and is 
 now £17,760,000. It touched its highest point, 
 £20,850,000, on the 6th July. 
 
 The Exchange on London is now 25.12^. 
 
 But, long previously to this day, the difference 
 in the rate of discount has been 2 per cent, in 
 favour of France, and yet it does not appear that 
 any considerable amount of money has been 
 drawn from France into England. 
 
 * Prinoipes de la Constitution des Banques, &c., p. 110. 
 
 t In June, July, and August, 1866, tlie rate of discount in 
 France was 4, and 3| per cent., and in England 13 and 10 
 per cent. 
 
492 THE BANK OF ENGLAND. 
 
 The changes in the rate of discount at the 
 Bank of England were 15 in number in the year, 
 1864, and were 16 in number in the year, 1865. 
 On the] 1st of January, 1865, the rate was 6 
 per cent., and after ranging between 7 and 3 
 per cent., it was, on the 30th Dec, 1865, again 
 7 per cent. 
 
 M. Pereire's object is to show that, the danger 
 invoked by the Bank of France to excuse it for 
 raising the discount is absolutely nothing, and 
 that it is so considered by the Bank of England, 
 which does not alter its course, and is in no "way 
 affected, as the figures, he says, eloquently and 
 unexceptionably prove. 
 
 This is unexceptionable proof that, there is no 
 danger to the Bank of England, though the 
 Bank does not always act as if it so considered it. 
 
 But, as M. Pereire goes on to remark, there is 
 better evidence still. 
 
 The doctrine, in virtue of which the rate of 
 interest is obliged to be raised, when the rate of 
 interest is raised in a neighbouring country, M. 
 Pereire says, dates, in fact, only from 1857, and, 
 he adds, — it might be the want of a theory to 
 justify this excessive power given to the Bank 
 to raise without limit the rate of discount ; or, 
 it might be, the authors of this theory were 
 sincerely imbued with these false ideas, — a cen- 
 
THE ORGANISATION OF CREDIT. 493 
 
 tury at least behind, — upon the nature and im- 
 portance of the precious metals. 
 
 In 1847, particularly, notwithstanding the 
 scarcity which prevailed in France at that epoch, 
 requiring large exports of specie, nothwithstaud- 
 ing the financial crisis which raged with the 
 greatest intensity in the United States, in Eng- 
 land, and in the principal States in Europe, not- 
 withstanding the rise in the rate of interest in 
 England, even to 8 per cent., the Bank of 
 France did not go beyond 5 per cent. ; the 
 difference in the rate of discount between the 
 two Banks of England and France was then 3 
 per cent., and nevertheless, however great was 
 this difference, the specie from France did not go 
 to England : far from that, in this same year the 
 imports of gold and silver into France from 
 England exceeded the exports by a sum of 
 54,700,000 francs.* 
 
 M. Pereire, with great simplicity and perfect 
 truth, adds : — Our specie could go no other way 
 than to the countries where we went to seek 
 coin, especially to Russia, and, instead of our 
 gold, Russia consented, happily for the Bank of 
 France, to accept payment in rentes to the 
 amount of 50 millions, which that establishment 
 possessed. It is by mistake that Russia is sup- 
 
 * Ibid., p. 102. 
 
494 THE BANK OF ENGLAND. 
 
 posed to have paid for these rentes in gold : she 
 paid the price with coin : it is the gold which 
 the Emperor Nicholas owed to the Bank which 
 served to pay for the transport of the coin in 
 Russia, and that gold, which the Bank received 
 and kept, was furnished by the French con- 
 sumers, themselves, of that same coin : it is thus 
 that things would have taken place, whatever 
 might have been, at the end of the operation, 
 the movements of money between the Russian 
 Government and the Bank of Prance. 
 
 Again, M. Pereire adds : — In this year, in 
 fact, when Russia had sent us a very large 
 quantity of cereals, the export of gold and sil- 
 ver to that country did not exceed the sum of 
 5,739,400 francs, thanks to the sale of the rentes 
 of the Bank of Prance. 
 
 It is seen then, as M. Pereire says that, at the 
 numerous times when there is an important 
 difference in the rate of discount between the 
 two countries, there has been neither a stoppage 
 in the circulation of the credit money, nor a 
 shaking of the confidence indispensable to com- 
 mercial transactions and public credit. 
 
 These phenomena are, on the contrary, the 
 direct consequence of a too high rate of discount. 
 
 These convincing facts and arguments are con- 
 tinued by M. Pereire to the end of Chapter VII. 
 
THE ORGANISATION OF CREDIT. 495 
 
 of his most able work referred to, and altogether 
 form the most conclusive answer to the objections 
 so much relied on in this part of the question. 
 
 It results from these facts and arguments 
 that, neither the Bank of England nor the Bank 
 of France has anything to fear from the export 
 of gold, and that the export of gold has in reality- 
 no more relation to the rate of interest or dis- 
 count than has the export of corn or any other 
 commodity. 
 
 This is, really, the whole question, and to pre- 
 sent the truth in its own clear light, free from 
 obscurity, these references have been made to 
 the profound work of M. Isaac Pereire, whose 
 experience on this subject in all' its bearings ex- 
 ceeds, perhaps, that of any other man now living. 
 
 The facts and reasoning on this important point 
 are further given with convincing clearness in the 
 Evidence of Messrs. Isaac and Emile Pereire be- 
 fore the French Commission of Inquiry into the 
 constitution and practice of the Bank of France. 
 
 An abstract of this evidence, so far as it is ap- 
 plicable to the Bank of England, is given, in 
 English, in the Appendix. 
 
 In the United States, by a law, approved 3rd 
 June, 1 864, a new system has been adopted to 
 avoid the evils of the old system.* 
 
 * Tlie Author has had much difficulty in procuring a copy 
 
496 THE BANK OF ENGLAND. 
 
 The new system (which will be afterwards 
 more particularly noticed), consists in the State 
 delivering to the Associations or Joint Stock 
 Banks the notes which they want, on the condi- 
 tion of equal value being secured in Government 
 Securities, corresponding with our Consols or 
 Exchequer Bills. 
 
 ■ These notes are stamped with the names of 
 the Associations to which the notes are delivered, 
 and for which each Association is responsible for 
 the payment in specie. The holders of these 
 notes take precedence of all other creditors of the 
 Bank. 
 
 It is evident that, the value of the notes is 
 thus guaranteed ; but the conditions imposed on 
 the banks are hard, since they are obliged to be 
 provided with two capitals, — one capital in the 
 Government securities, equal to the amount of 
 the notes issued; the other capital sufficient to 
 meet the demands for repayment of the notes. 
 
 Thus, by this system, the Bank of England, 
 with its capital of £14,553,000, would be obliged 
 
 of this Act, and has been obliged to send to New York for 
 it. As this Act is so much approved by the Liverpool mer- 
 chants, it may be interesting to them and others to see an 
 outline of it, and that is, probably, more tha,n they have yet 
 seen or will ever take the trouble to read. But those who 
 want it will find it in the Appendix, though even this short 
 outline is hardly worth the space it occupies. 
 
THE ORGANISATION OF CREDIT. 497 
 
 to raise its capital to a figure representing, at 
 least, the notes issued, and also to possess the 
 means of meeting the demands for repayment. 
 
 Taking the week's return of the Bank of Eng- 
 land, dated the 16th November, 1865, the figures 
 would stand thus : — 
 
 Notes issued £27,509,995 
 
 Gold Coin and Bullion in 
 both Departments . . 
 
 I 13,677,098 
 
 Minimum Capital . . . £41,187,093 
 
 of the Bank of England required by the New 
 York system, and, for practical purposes, this 
 ought to be carried, at least, to £46,000,000. 
 
 By this system, the figures, taken on the ac- 
 count of the Bank of France for the same 16th 
 November, 1865, would stand thus : — 
 
 For the Notes . . . . fr. 879,420,775 
 „ Coined money and ingots . 399,099,185 
 
 ^Minimum Capital . . fr, 1,278,519,960 
 
 of the Bank of France required by the New York 
 system, and, for practical purposes, this ought 
 to be carried, at least, to fr. 1,400,000,000, or 
 £56,000,000, English money. 
 
 The inconvenience of this system would be not 
 only in the difficulty of collecting together so 
 considerable a capital, but in making the bank- 
 
 2k 
 
498 THE BANK OF ENGLAND. 
 
 ing trade much less profitable than it now is, for 
 the dividend, which is now spread over a capital 
 of £14,553,000 in the Bank of England, or over 
 a capital of fr. 182,500,000 in the Bank of 
 France, would be, proportionately, very much 
 reduced, if in remuneration of a capital of 
 £46,000,000, or of a capital of fr: 1,400,000,000, 
 in English money, £56,000,000. 
 
 By this system the conditions of discount 
 would be very much aggravated, to the detri- 
 ment of commerce, and nothing in England or 
 Erance would justify taking such excessive gua- 
 rantees to insure the payment of the notes, the 
 risks run by the banks in these countries being, 
 in reality, nothing. 
 
 Under this system, the circulation of notes is 
 very little extended, being not more than from 5 
 to 6 millions of dollars at New York ; conse- 
 quently, it is a system not much in repute even 
 there, and, though called free-hanking, is liberal 
 only in name ; nor is it easy to see, if notes are 
 to be issued at pleasure on Government securi- 
 ties, how that arrangement can have the effect of 
 preventing fluctuations in the rate of discount, 
 provided the capability of meeting these notes in 
 gold is to be preserved, and the extent to which 
 they can circulate is thus dependent on the sup- 
 ply. of that precious metal. 
 
THE ORGANISATION OF CREDIT. 499 
 
 But, some of the principal merchants of Liver- 
 pool, who are very much opposed to our existing 
 Bank Act, express themselves very much in favor 
 of the American system of free-banking ! 
 
 It is a proverbial saying that, "people best 
 understand their own business," but this, like 
 most other proverbs, is open to exceptions, 
 though, of all people in the world, Liverpool 
 merchants might have been supposed the last to 
 prove the exception. 
 
 The merchants of Liverpool also treat as fan- 
 ciful the notion of fixing a maximum rate of dis- 
 count. 
 
 But this is only an instance of one of the many 
 bad consequences of the present organisation of 
 the Bank of England, by perverting pubHc opi- 
 nion and supporting the false idea of the un- 
 avoidable unsteadiness of the rate of interest and 
 discount, and the impossibility of fixing a maxi- 
 mum. In this way only can be explained the 
 incredulity of the merchants of Liverpool. 
 
 It is much to be regretted that, in this great 
 commercial country, a better understanding does 
 not exist among the leading merchants on a ques- 
 tion of such great commercial importance, and 
 the want of uniform action is the more remark- 
 able, inasmuch as the defects of our existing Bank 
 Act are universally felt and acknowledged by all 
 
 2k 2 
 
500 THE BANK OF ENGLAND. 
 
 who have become acquainted with these defects, 
 by practical experience of the injurious conse- 
 quences both in this country and abroad. 
 
 But the American Banks were not spared in 
 the Crisis of 1857. The crisis began in the 
 August of that year, and the American Banks 
 taking alarm then began to curtail their ad- 
 vances to the commercial community by revis- 
 ing to discount their bills, the New York Banks 
 reducing their discounts to the amount of 
 £5,000,000 sterling, between the 8th of August 
 and the 10th of October.* 
 
 It was the restrictive policy pursued by the 
 American Banks, which ultimately obliged them 
 all to suspend. 
 
 In that general crash the New York Banks 
 fell ; but their notes were never distrusted, and 
 even after the suspension of payments in specie, 
 these notes continued to circulate at par. It was 
 a run for deposits which shut up the New York 
 Banks, and a similar run would shut up all 
 Banks. f 
 
 But if those Banks, instead of curtailing their 
 advances, had discounted freely at 4 per cent., 
 there would have been no crisis, and no losses ; or, 
 the losses, whatever they might have been, would 
 have been comparatively trifling, and would have 
 
 * ' Economy of Capital,' p. 92. f Ibid. p. 93. 
 
THE ORGANISATION OF CREDIT. 501 
 
 been confined entirely to the Banks, which alone 
 ought to bear the loss. 
 
 When the American Banks reversed their po- 
 licy and discounted freely, though reduced almost 
 to their last dollar, the crisis was at an end. 
 Within three months after the 14th of October, 
 when cash payments were suspended, the stock 
 of specie in the New York Banks increased from 
 £1,744,000 to £6,500,000, beingamillionsterling 
 higher than it had ever been before;* and in the 
 five principal sea-port cities of the Union, the 
 stock of specie advanced from £3,400,000 to 
 £10,000,000, although £3,200,000 was sent to 
 Europe in the interval.! 
 
 It is the restrictive policy which is the fatal 
 error, and this is an unavoidable incident to the 
 Bank of England, as at present constituted. 
 
 The same remark applies to the Bank of 
 France, and to all the other National Banks of 
 Europe. 
 
 When all the National Banks of Europe and 
 America are established upon sound principles, 
 and all act on the same uniform system, public 
 credit will rest on a basis so broad and firm as to 
 be out of the reach of the shocks of panic. The 
 great burden of sustaining credit which, in times 
 
 * ' Economy of Capital,' p. 98. 
 
 t ' Times' ' City Article, 27tli January, 1856. 
 
502 THE BANK OF ENGLAND. 
 
 of political and commercial difficulty, is now 
 thrown upon the Bank of England, will then rest 
 upon a wider basis, and a uniform system will 
 enable the Banks to maintain a cordial coopera- 
 tion sufficient to reduce to manageable propor- 
 tions any difficulties which can arise, and to avert 
 those panics, which now periodically occur and 
 overwhelm with their disastrous consequences all 
 the countries. 
 
 It is not more gold that is required to strengthen 
 the banking system, for the gold can always be 
 obtained when required, but it is more credit 
 that is wanted, and that can be sustained only 
 by the possession of actual value. A uniform 
 system and cooperation on sound, principles alone 
 can establish credit on a firm basis. 
 
 In the mean time, the Bank of England, even 
 if it stand alone, will be proof against all shocks 
 of panic when established on these principles, for 
 the Organisation of Credit in England. 
 
 But, by these remarks it is by no means in- 
 tended to deny that the price of money must 
 always be subject to variations. For this there 
 are special causes, which are unavoidable. Like 
 all the products, which answer to the wants of 
 primary necessity, money must rise or fall in 
 price, according as it is more or less abundant in 
 reference to those wants. 
 
THE ORGANISATION OF CREDIT. 503 
 
 When in 1848, the mines of CaUfornia, and in 
 1851, the mines of Australia, began to spread 
 over the Continent of Europe hundreds of mil- 
 lions, sterling, a year, it was said that gold would 
 depreciate, and in proof of that assertion, many 
 publications have appeared from persons of con- 
 sideration and authority. However, the result 
 has been, hitherto, quite otherwise. There are 
 still some persons who attribute the rise in the 
 price of certain things to the depreciation of 
 gold; but this opinion is becoming more and 
 more rare, and as the facts are considered with 
 attention, it is more clearly seen that, high prices 
 are to be attributed to another reason than the 
 depreciation of gold. Considered as a mea- 
 sure of value, gold is the same now as it was 
 twenty years ago, notwithstanding the very great 
 addition to the common stock made within the 
 last fifteen years. It has produced, in regard 
 to money, the same effect as in regard to other 
 commodities of primary necessity. The produc- 
 tion of food has tripled in the last fifteen years ; 
 but that has not prevented the rise of price. In 
 cereals the amount is, at the least, doubled, but 
 the price remains very nearly as it was fifteen 
 years ago. The same of wine and many other 
 things. All these things have increased in quan- 
 tity, but the wants have increased in quantity 
 
504 THE BANK OF ENGLANU. 
 
 still more, as may be easily shown by the increase 
 of population and the development of wealth. 
 
 If the produce of food be now three times 
 what it was fifteen years ago, there are, perhaps, 
 four times as many people now who are able to 
 consume it ; the same of the cereals, the same 
 of the wine, and the same for the use of the 
 money. 
 
 Money responds in society to a want which 
 is susceptible of great development ; the more 
 commercial relations become important, the more 
 transactions multiply, and the greater is the 
 want of the medium of exchange. No doubt, 
 the supply is assisted by combination of credits, 
 by balancing accounts, by what is called the 
 system of compensations ; but money is always 
 at the bottom of all the transactions, for, through- 
 out the world, that alone is accepted as a defini- 
 tive settlement; consequently, until the means 
 be found for making the progress of credit equal 
 to the progress of transactions, it will be always 
 necessary to have more money in proportion to 
 more affairs. 
 
 Within the last ten years only we have seen 
 our foreign commerce doubled, and our bome 
 trade tripled. During that time, what has been 
 the increase of our money ? Whilst our affairs 
 have doubled on the one side and tripled on the 
 
THE ORGANISATION OP CKEDIT. 505 
 
 other, our money has scarcely augmented in the 
 proportion of a fourth. The raih'oads and the 
 gold mines are the two secrets of the prosperity 
 industrial and commercial of Europe for a cer- 
 tain number of past years. 
 
 The money has been for the circulation of 
 capital what the railroads have been for the cir- 
 culation of merchandise and travellers. These 
 have exercised a prodigious influence on the pro- 
 gress of national wealth, and money has been 
 able to maintain its price, even to rise in price, 
 in becoming more abundant. If the price had 
 been lower, the circulation would have been 
 greater, and the national wealth would have 
 been greater in the same proportion. 
 
 But the actual increase of money has, perhaps, 
 had less to do with these results than the Or- 
 ganisation of Credit, and, however organised, 
 gold must be the foundation. 
 
 Gold possesses a value quite exceptional, and 
 which belongs to its own peculiar character. As 
 it is an instrument in universal use as a medium 
 of exchange, or for avoiding the inconvenience 
 of exchange by barter, it possesses an immense 
 market, always open, and not dependent on 
 commercial risks. The possessors of it are not 
 affected by panics. It is on those occasions that 
 its standard measure of value is most manifest, 
 
506 THE BANK OE ENGLAND. 
 
 and it is difficult to imagine where a standard 
 measure of value could be found without it, or 
 what would be the consequences of a crisis in 
 commercial affairs without this universal standard. 
 Adam Smith does not seem to have appre- 
 ciated fully the advantages of gold and silver 
 money, when, comparing these with other pro- 
 ducts, he said that, the disappearance of money 
 would have a less injurious effect than the dis- 
 appearance of such or such other commodity ; 
 as there is no agent, in our social organism, 
 which may be so useful as money, though the 
 very term, agent, presupposes the existence of 
 something to be acted upon. The precious 
 metals may be said to be, almost without ex- 
 aggeration, to the social body, what the atmo- 
 sphere is to the physical world, that both fur- 
 nish the instrument of circulation, and that the 
 dissolution of the physical body into its elements, 
 when deprived of air, is not more certain than 
 is the dissolution of society when it is deprived 
 of metallic money. So said Mr. Carey, a dis- 
 tinguished American Economist, and when we 
 reflect on the movement industrial and commer- 
 cial, such as we now see it, it is impossible to 
 imagine this existing without the powerful auxi- 
 liary of the precious metals, or what is called 
 money of gold and silver. It is not meant to be 
 
THE ORGANISATION OF CREDIT. 507 
 
 said that, these may not be in such great abund- 
 ance, at a given time, as to be exposed to a cer- 
 tain depreciation, as there may be too many rail- 
 roads, if made where they are not wanted, but 
 we have not nearly arrived at that state for the 
 one or the other of these two instruments of cir- 
 culation. As to the precious metals, the mines 
 must furnisTi a great deal moi'e, both of gold and 
 silver, before there is any excess, so great is the 
 power of expansion of the commerce destined to 
 absorb them. 
 
 If this be the true view, that must be a miser- 
 able economy, which contracts the expansive 
 power of commerce by reducing the quantity, or 
 enhancing the price, of the money necessary for 
 meeting the requirements. 
 
 The investment of capital in foreign enter- 
 prise, however good it may be, can never give, 
 in a social point of view, or in an economical 
 point of view, all the profits which are given by 
 the investment of capital, equally good, in one's 
 own country. 
 
 If, for example, a railroad be made in a foreign 
 country with Enghsh capital, the produce in the 
 form of dividends can be the only benefit ; but 
 if the- railroad be made in England, besides the 
 produce in dividends, will be the immense social 
 utility, which will result to the country. 
 
508 THE BANK OP ENGLAND, 
 
 That the benefits from works of national 
 utility in one country are in some degree ex- 
 tended to other countries by reciprocity of in- 
 terests is not denied, but the immediate and 
 greater benefits must always be to the country 
 which utilises its own capital in its own interior. 
 
 It should, therefore, be the first object of a 
 National Bank to encourage the creation of new 
 capital and to aid in utilising it by giving the 
 utmost possible assistance to industry, without 
 any other view of profit to the Bank, than through 
 the increased circulation of its notes. For this 
 there is no other way so efiectual as being always 
 provided with a reserve of notes for discounting 
 the bills, which are evidence of the capital already 
 expended, or keeping a reserve always on a level 
 with the wants of the community. 
 
 If the discounts be augmented so as to exceed 
 the credits, which the Bank has at its disposal, 
 and to diminish its reserve below the level of the 
 wants, it is clear that, the efi'ect of this must be 
 to discourage industry and the creation of new 
 capital. In that case, it seems to follow, as a 
 necessary consequence, that the capital of the 
 Bank ought to be augmented in the same pro- 
 portion, under one form or another. It is the 
 natural law, imposed on all industry, to keep itself 
 to the level of the wants that it is called on to 
 satisfy. 
 
THE ORGANISATION OF CREDIT. 509 
 
 Under a free system, the rise of profits leads 
 inevitably to that result. 
 
 Why, then, should the Bank seek to profit by 
 its privileged situation to escape from this natu- 
 ral law ? 
 
 Why should the monopoly be used as the 
 means of exemption ? 
 
 Why should not monopoly be made to fulfil 
 the conditions which are observed by free com- 
 petition ? 
 
 The only excuse — the only possible justifica- 
 tion for monopoly is that, it does better than 
 competition could do. 
 
 Now, under a system of liberty — of free com- 
 petition, — of the plurality of banks, — when the 
 wants of discount increase, the capital devoted 
 to that employment increases in like proportion, 
 new establishments are raised up, or the old ones 
 increase their means of action. 
 
 Why should the Bank of England avoid pla- 
 cing itself in the same situation ? 
 
 Why, because it stands alone, should it fail to 
 follow the natural development of commerce ? 
 
 Why should it thwart that natural develop- 
 ment, under the miserable pretext of giving what 
 it calls salutary warnings ? 
 
 Why should it, under a false pretext, levy a 
 tax on the whole commerce of the country ? 
 
510 THE BANK OF ENGLAND. 
 
 Why should not the capital of the Bank be 
 augmented when the necessity for so doing is 
 universally recognised by all who are most con- 
 cerned in so doing ? 
 
 That there is a limit to the issue of Credit 
 Notes is fully admitted ; but the reserve ought 
 always to be in a ratio with the amount of the 
 issue of notes. 
 
 If, in consequence of the development of dis- 
 count, the Bank be obliged to increase the issue 
 of notes, the reserve ought to be increased in the 
 same proportion, in the proportion recognised to 
 be necessary, and the reserve can be safely aug- 
 mented only by the increase of the capital of the 
 Bank ; there are no other means. 
 
 If the Bank, by the exclusive privilege con- 
 ferred upon it, be made to regulate the com- 
 merce of discount, the Bank ought to be equal 
 to this want. The Bank ought not to be, as it 
 is, an obstacle to the development of affairs. 
 Commerce is not made for the great profit of the 
 Bank, but the Bank is made for commerce. Nor 
 is it a bad condition to have to satisfy the de- 
 velopment of affairs, for it is in this development 
 that the Bank of England draws the benefits 
 that it reaUses. As the afi^airs extend, the means 
 of the Bank ought to extend equally. So, when 
 the quantity of notes tends to increase by the 
 
THE ORGANISATION OF CEEDIT. 511 
 
 effect of legitimate demands, instead of seeking 
 to restrain these issues, and thus to injure com- 
 merce by confining its movements, the Bank 
 ought to augment in hke manner its reserve, in 
 the recognised necessary proportions, and that 
 can be done only by the addition of new capital. 
 
 But how is this new capital to be found ? Is 
 it by the creation of new stock or by the issue 
 of bonds ? 
 
 The two means are equally admissible, equally 
 easy, and either way would render it more easy 
 for the Bank to maintain its dividends at their 
 actual level, for the charges would be augmented 
 only by a supplementary fixed interest, for which 
 the Bank would find compensation by the in- 
 crease of the circulation of its notes, the profits 
 of which, in that case, would properly belong to 
 the Bank. Besides, if the Bank were in want 
 of money, why should it not re-discount its bills ■? 
 There would be plenty of capital always ready 
 for such safe investment, for there are in England 
 large disposable funds always ready to be in- 
 vested at a rate below that of the Bank. 
 
 If, then, the Bank of England wished to re- 
 discount its bills, all the capitahsts would hasten 
 in competition to obtain such investment for 
 their funds, with the same confidence that they 
 now confide them to Exchequer Bills, for a very 
 
512 THE BANK OF ENGLAND. 
 
 low rate of interest, or to other Government Se- 
 curities. 
 
 But that mode of proceeding, being open to 
 many objections, is not to be recommended. A 
 better mode of proceeding than that would be 
 for the Bank to issue notes for a term carrying 
 interest, which would make the Bank the prin- 
 cipal centre, perhaps the exclusive centre of all 
 the operations of lending and borrowing ; and 
 the Bank of England might then be, what it 
 ought to be, the true medium between the capi- 
 talists and the borrowers, between capital on one 
 side — and labor on the other. 
 
 The Bank can employ these various means, 
 which are all positive, efficacious, and especially 
 preferable in all respects to those which have been 
 used to the present time, and which only end in 
 raising the rate of interest. But the means here 
 pointed out would have the effect of maintaining 
 the interest at a low rate without diminishing the 
 profits of the Bank, on the contrary, perhaps in 
 augmenting them, by reason of the development 
 which affairs might take, if they were not thwarted, 
 as they now are, by the restrictions of the circu- 
 lation and by the reduction, which the rise in the 
 rate of interest imposes on labour. 
 
 The Bank of England must always be in a situa- 
 tion to procure capital on very favourable condi- 
 
THE ORGANISATION OF CREDIT. 513 
 
 tions,aiid though the conditions must vary accord- 
 ing to the terms on which the Bank borrows, yet 
 the terms will always be advantageous to theBank. 
 
 If the maturity of the new engagements, which 
 the Bank offered to the capitalists, were shortened, 
 the rate of interest that the Bank would pay 
 would be very low, which would enable it to lend 
 at a higher rate of interest, but still very moderate, 
 relatively to that which now is. 
 
 If the maturity were lengthened, the interest 
 that the Bank would pay ought to be higher ; but, 
 however much higher, the benefit to the Bank in 
 having the disposal of a new permanent capital 
 would still be considerable, since all increase of 
 the reserve would serve to guarantee a new credit 
 capital three times, at least, more considerable ; — 
 in borrowing one, it would lend three. 
 
 This is the secret of the profits that the banks 
 make ; but wishing too much their own proper 
 means in order to gain more, these establishments 
 end by abusing their situation and rendering 
 themselves unendurable. 
 
 The Bank of England derives its profits from 
 having at its disposal a credit capital which 
 costs nothing, and is superior to that which serves 
 to guarantee its operations. 
 
 By the manner in which the Bank conducts its 
 operations, it not only does not fulfil the condi- 
 
 2 L 
 
514 THE BAJ^K OF ENGLAND. 
 
 tion of the services which are imposed upon it, 
 but makes a still worse calculation ; for if its own 
 proper capital were in possession and disposable, 
 that would be employed directly in discounts or' 
 serve for guarantee to a larger credit issue ; so 
 that the Bank would be far from losing the whole 
 of the benefit that it derives from its capital as 
 now invested. 
 
 The privilege of disposing gratuitously of a 
 Credit Capital of £15,000,000 has not been given 
 to the Bank for the sole benefit of its shareholders, 
 but it is given specially in the public interest, to 
 favour commerce and industry; besides, it is just 
 that, by lowering the rate of discount, the public 
 should participate in the advantages derived from 
 the employment of capital, which they themselves 
 furnish; it is, in fact, commerce, it is industry which 
 furnishes the capital of which we avail ourselves 
 to discount their bills ; it is not, then, too exact- 
 ing towards the Bank, to demand of it to asso- 
 ciate the public, in a certain measure, so as to 
 admit them to participate in the benefit of the 
 privilege which the Bank enjoys. It would, 
 therefore, be equitable to impose on the Bank, as 
 an equivalent, a permanent reduction in the rate 
 of interest in favour of trade and industry. 
 
 If the capital of the Bank were augmented in 
 proportion to the successive increase of affairs, it 
 
THE ORGANISATION OF CREDIT. 515 
 
 would always be in the same relative situation. 
 When the issue of notes and the discount come 
 to double, the Bank ought to double its capital. 
 The same relative situation would subsist; the 
 Bank would lose the advantage of the high dis- 
 count ; but, in all probability, it would find a 
 large compensation in the benefits which it would 
 derive from the increase of affairs. Besides, the 
 advantages resulting from the rise of discount are 
 those which cannot be too hastily renounced for 
 they are of a bad nature ; the consequences are 
 lamentable. 
 
 It is from the annual savings of England that 
 the Bank of England should really raise the new 
 resources which it stands in need of. 
 
 The savings of the United Kingdom are esti- 
 mated at 130 millions, sterling, a year. The 
 possessors of these millions evidently seek to give 
 them the most useful and profitable employment. 
 They co-operate for the construction of our rail- 
 roads even to the extent of 400 or 500 millions, 
 sterling. The surplus is eniployed in new con- 
 structions, in improvements of all sorts, or serves 
 to provide for English or Foreign Loans, for 
 English or foreign enterprises, etc. 
 
 The Bank of England might be able to take its 
 part in these savings, without causing the smallest 
 void outside, and that would be so much more 
 
 2 L 2 
 
516 THE BANK OF ENGLAND. 
 
 easy for the Bank of England as its profits are 
 superior to those of all other enterprises. 
 
 If Banks of Issue were now free to be esta- 
 blished, it cannot be doubted that, all the capitals 
 would flow towards an industry which brings 
 back 25 to 80 per cent. There is nothing in 
 England or in Europe comparable to this. As- 
 suredly, all the unemployed capitals would be 
 brought to it, until the profits had been brought 
 down to the level of the other investments. 
 
 The exaggerated profits of the Bank of Eng- 
 land, under the system of monopoly, indicate pre- 
 cisely the utility there would have been in the 
 new capital devoted to the commerce of discount. 
 
 The products do not circulate with sufficient 
 rapidity in the present day ; their distribution 
 leaves much to be desired ; the movement of pro- 
 duction and manufacture is not carried on in a 
 regular manner. Industry suffers from this state 
 of things, and at the bottom it suff'ers only from 
 the insufficiency of the capital of the Bank of 
 England. If the commerce of the Bank were free, 
 the capital would not be wanting, and it would 
 be easy to augment the resources of credit, which 
 are not at the height of the wants. 
 
 The conditions under which the power of issu- 
 ing credit money is exercised are not equal to all, 
 since that power is a monopoly in which the Bank 
 
THE ORGANISATION OF CREDIT. 517 
 
 of England alone profits. Now, it is the employ- 
 ment of a capital of this nature, without intrinsic 
 value, which constitutes the principal advantage 
 of the commerce of discount ; and it is because 
 all the establishments outside the Bank are de- 
 prived of it, that the situation of this commerce 
 is very precarious, and that the capital engaged 
 in it is not got at without difficulty, unless with 
 the temptation of large interest imposed on the 
 industry which borrows and is made to discount 
 its bills. 
 
 The Bank of England counts too exclusively 
 upon the credit capital of which it has the enjoy- 
 ment, and not enough upon its own proper capital, 
 — upon that new capital which should be ob- 
 tained from the shareholders or from the public. 
 The action of the Bank is, at the present day, 
 paralysed by the want of a sufficient capital. The 
 Bank finds itself under the necessity of raising its 
 discount, only because its reserve is relatively too 
 weak, and it is so because it has not disposable 
 capital to turn into it. It is, then, only in conse- 
 quence of the absence of a disposable capital 
 that the Bank is obliged to raise the rate of dis- 
 count, and when the Bank raises it, the interest 
 is raised everywhere in like manner, to the great 
 detriment of the whole community. This damage 
 is felt not only by the customers of the bank, but 
 
518 THE BANK OF ENGLAND. 
 
 also by all those who are borrowers, whether im- 
 der the form of discount or of mortgage ; it reaches 
 all parties of the public wealth, for the rise of the 
 interest lowers in a corresponding manner the 
 capital of all funded property, of all industrial 
 enterprises, shares and bonds, as it reaches the 
 Government funds. 
 
 This may give some notion of the enormous 
 injury which results, for everybody and every- 
 thing, from the rise of the rate of interest. 
 
 The question is, how to seek the efficacious 
 means for avoiding the rise. That is only by in- 
 creasing the reserve of the banks, in a ratio with 
 the wants of the circulation, and that can be only 
 by the realisation or augmentation of their capital. 
 
 The new capital which would be demanded of 
 the public would be by no means taken from the 
 commerce of discount ; it would be furnished 
 only by the capitalists seeking investments for 
 their disposable funds, and this investment 
 would be the more sought after, inasmuch as 
 it would be neither less useful nor less advan- 
 tageous. 
 
 Discount ought always to be lower at the 
 Bank than without, and in that all the world is 
 interested. The object should be to bring about 
 the general lowering of the hire of capital by the 
 competition of credit paper ; the discounters out- 
 
THE ORGANISATION OF CREDIT. 519 
 
 side the Bank would lose nothing, for it is not only 
 with their own capitals that they work, it is also 
 and especially with those that they procure, for 
 themselves by re-discounting their bills at the 
 Bank ; then, that which concerns them is that, 
 the rate even of these discounts leaves them the 
 same profit, and this profit would be so much the 
 greater, as the affairs would have taken greater 
 extension ; as to the advantages which industry 
 in all its branches would derive from it, agricul- 
 tural, manufactural, and commercial, and espe- 
 cially in the cheapness which would result from 
 it for all its products, they would be considerable 
 and of a nature to compensate very largely 
 certain partial and, besides, temporary inconve- 
 niences. 
 
 The lowering of the discount would immedi- 
 ately produce a corresponding lowering in all the 
 relations of lending and borrowing ; but not that 
 if the Bank rate of discount were 3 per cent, all 
 the investments would be made at that rate ; the 
 interest varies according to the risk. But, cer- 
 tainly, the action of the Bank of England will 
 make itself perceived throughout the kingdom 
 in all the affairs, in the temporary as in the per- 
 manent investments ; the English establishments 
 analogous to the French establishments, would 
 always be able to make the same profits, since 
 
520 
 
 THE BANK OF ENGLAND. 
 
 these profits result only from the difference of in- 
 terest ; only the base will be diflFerent, the level 
 will be everywhere lowered. There is nothing 
 absolute, in fact, in the rate of interest ; there is 
 no reason why it should be at 4 per cent, rather 
 than at 3 per cent. ; thus, the competition of an 
 establishment of credit, like the Bank of England, 
 into which the great mass of capitals would be 
 concentrated, would exercise an influence very 
 salutary on the rate of interest in general. 
 
 On the question of the maximumoi the rate of 
 discount, which, for the Banks, is the equivalent 
 of the tariff imposed on the railway companies, 
 this maximum is only the legitimate compensation 
 for the monopoly which the Banks enjoy, that of 
 issuing notes without interest, of the disposal of 
 a capital which costs them nothing. ' It is only 
 by this tarification of the interest that the public 
 can have a chance of enjoying a moderate rate. 
 
 To that it is objected that, the rate of interest 
 cannot be fixed, that the interest must necessarily 
 vary. 
 
 But it is not a fixed rate of interest that is re- 
 quired. It is only necessary to confine it within 
 certain limits, — that the Bank of England should 
 be able to vary it only within these limits ; the 
 object is to diminish the extent of the oscillations. 
 The Bank is in possession of a monopoly; now, 
 
THE OReANISATION OF CREDIT. 521 
 
 as long as a monopoly exists, it must be regulated, 
 in order that those who work it be not tempted 
 to abuse it. Why do they impose tariffs on rail- 
 roads for the transport of travellers and merchan- 
 dise, if it be not that they have a privilege ? If a 
 maximum be judged necessary in that which 
 touches the tarifl's to the privileged enterprises of 
 the railroads, why should it not be the same 
 in that which concerns the Bank of England, 
 which is in a situation of monopoly still more 
 characterised ? 
 
 The railroads cannot imitate the Bank, by 
 reason that they are under the system of the 
 maximum of charges ; otherwise, even as the 
 Bank refuses not only to augment its capital, but 
 also to render disposable that which it possesses, 
 so the railroads might, with as much reason, re- 
 fuse to augment their rolling stock, the number 
 of their waggons as well as the number of their 
 locomotives, they might thus profit by the insuffi- 
 ciency of their stock to levy contributions on the 
 commerce when its products were presented in 
 too great quantity ; it is precisely that they do 
 not abuse this privileged situation that the obli- 
 gation is imposed on them to satisfy, on deter- 
 minate conditions, all the wants of transport for 
 the travellers and the merchandise. 
 
 The analogy is complete : it would not be more 
 
622 THE BANK OP ENGLAND. 
 
 difficult for the Bank to satisfy the demands of 
 discount than for the railroads to satisfy the de- 
 mands of. transport ; it is a question of capital, 
 and as already shown, the capital would not be 
 wanting, if it were wished to procure it. Now, 
 why should the Bank not do that which compe- 
 tition would certainly do in its place under the 
 system of liberty ? 
 
 To support the doctrine of a mawimum rate of 
 interest for the Bank of England, we have the 
 practice, during a hundred and forty years, by 
 that estabhshment itself, and that can hardly be 
 called Utopian, which has continued in practice 
 for so many years. 
 
 The Bank of England having been able to main- 
 tain during that period the rate of its discounts 
 at 4 per cent, there can be no reason why the 
 Bank should not be able to do the same thing 
 now, when clearing-houses and other .compensa- 
 tions, then unknown, are now so extensively used, 
 and the capital of the country is increased, at 
 least, as largely as the demand for discount. 
 
 It is objected, that the affairs were then consi- 
 derably less, and that, the increase is so great that, 
 the Bank would find it impossible now to act in 
 the same way. 
 
 But everything is relative : the savings of a 
 country are so much greater the richer the country 
 
THE ORGANISATION OF CREDIT. 523 
 
 is ; its power is always at the height of its wants. 
 The Bank, having to carry on its operations in a 
 Hke intermediate course, would always be able 
 very easily to place its means in a ratio with the 
 state of affairs, whatever it may be, and to take 
 a proportional development. The principle of a 
 maximum rate of interest would be in these days 
 an application so much the more easy as capital 
 is more abundant. The principle, moreover, can- 
 not change its nature by reason that the affairs 
 have augmented : thus, to compare the Bank to a 
 steam-engine, the principle of which is in no way 
 modified because, to execute a certain nature of 
 work, that work being augmented, it requires the 
 power of a hundred horses, instead of the power 
 of ten. 
 
 The theory of the maximum of interest has been 
 applied for upwards of a hundred and forty years 
 by the Bank of England ; it is not, therefore, a 
 thing so extraordinary that the Bank should con- 
 sider it as a chimera. The legal rate, besides, is 
 only the same idea, it is only a maximum imposed 
 on the interest of the whole country, and we have 
 lived under the legal rate for many centuries. 
 Certainly, the legal rate was not abandoned in 
 this country to assist capitalists in aggravating 
 the conditions of loans; the object was totally 
 opposite to that. 
 
524 THE BANK OF ENGLAND. 
 
 lu order that the intention of the legislature 
 should be realised, in order that the lowering of 
 the rate of interest should be produced as a na- 
 tural consequence of free competition, as the 
 effect of the suppression of the trammels that the 
 law now places on the free investment of capital, 
 certain precautions are necessary ; the better, the 
 most certain of all, is assuredly that of fixing a 
 maximum rate of interest for the regulating esta- 
 blishment, and that measure would not have the 
 least inconvenience for commerce, for it would be 
 always certain to obtain the same powers, when 
 the Bank was placed in a position to raise its 
 means to the height of its wants. 
 
 That which has been practised with success 
 during so long a time ought, therefore, to be re- 
 stored in vigor, and the liberty of the Bank, as to 
 fixing the rate of its discounts, ought to be limited ; 
 the privileges accorded to it require this compen- 
 sation. 
 
 This question, of the rate of interest, is a con ^ 
 siderable question, it is vital, in a poUtical point 
 of view. 
 
 Any means for protecting the reserve are inad- 
 missible. The words — To protect the reserve of 
 the Bank, — express nothing else than the desire 
 of the Bank to elude its engagements, to avoid, 
 in a word, paying its debts ; when, on the con- 
 
THE 0EGANI8ATI0N OF CREDIT. 525 
 
 trary, it ought to be always ready to fulfil its ob- 
 ligations. The means here pointed out for at- 
 taining this end are simple and easy ; it will suf- 
 fice for the Bank to do what all merchants do, to 
 have a reserve and a capital proportioned to its 
 affairs. 
 
 The last few pages are, for the most part, nearly 
 a literal translation of the latter part of M. Isaac 
 Pereii'e's evidence before the Commission of In- 
 quiry into the Bank of France, a translation of 
 which evidence is given in the Appendix. 
 
 This is a repetition, which may appear to some 
 unnecessary, but others may see the importance of 
 comparing the views of M. Isaac Pereire with the 
 text of an anonymous Author, who had formed 
 his own views long before he had become ac- 
 quainted with those of this distinguished financier 
 and banker ; and as the Appendix is a part of the 
 book which often receives the least attention, and, 
 especially in this case, deserves the most, it has 
 been thought desirable thus to assist the reader 
 in making the comparison between the two 
 Authors in the two countries, who, without any 
 previous communication, are in perfect concur- 
 I'ence on this most important question. 
 
 But, it is a very remarkable fact that, the prin- 
 ciples here laid down on the theory and practice 
 of Banking, and confirmed in every particular by 
 
526 THE BANK OF ENGLAND. 
 
 such eminent practical authorities as M. Isaac 
 Pereire and his brother, M. Emile Pereire, are 
 disputed and positively denied by all the twenty- 
 six Directors of the Bank of England, without a 
 single exception. 
 
 This is a remarkable and also a suspicious fact, 
 for, without doubting the sincerity of these 
 twenty-six men, who are supposed to have and 
 may have no direct personal interest in the ques- 
 tion, still, the suspicion will arise that, they are 
 under the influence of old ideas from long habit, 
 and that influence, we know, often impairs the 
 judgment. But, however this may be, it is not 
 to be expected that the Directors should be the 
 reformers of the Bank of England. They wisely 
 keep silent, and they will continue silent, as 
 long as the commercial community continue in- 
 different. 
 
 It is not easy to extract from these Bank Di- 
 rectors the grounds on which they deny the prin- 
 ciples here laid down. They have always been 
 consistent in opposing every measure of freedom 
 in banking aflfairs. They have been the persistent 
 opponents of the Joint Stock Banks, and they 
 have not been scrupulous in their means of oppo- 
 sition. The fact of their having apparently no 
 personal interest, as Bank Directors, in maintain- 
 ing the injurious system of the Bank of England 
 
THE ORGANISATION OP CREDIT. 527 
 
 has not prevented them from using the powers of 
 their monopoly to throw every impediment in the 
 way of the Joint Stock Banks that self-interest 
 and even personal enmity could suggest, and for 
 every exercise of their despotic power they 
 shelter themselves behind the cast-iron and un- 
 yielding machinery of their Act. 
 
 Thus, the trade and industry of the country are 
 brought under the dominion of the Bank of Eng- 
 land and the great capitalists, whilst the com- 
 mercial community, like helpless victims, submit 
 in silence. But it is the silence of ignorance, not 
 of indifference, nor is this ignorance confined to 
 the shop-keepers. In Liverpool, Bristol, Bir- 
 mingham, Manchester, and other great commer- 
 cial cities, the Author, whenever he has had any 
 opportunity of ascertaining the opinions of those 
 who are called the merchant Princes, has been 
 astonished at their little knowledge on this sub- 
 ject. They all complain of the cruel losses which 
 they suffer from the fluctuations and high rate of 
 the Bank discount ; but none seem to under- 
 stand, and very few pretend to understand, the 
 operation of the Bank Act, or to have taken the 
 trouble even to read it. 
 
 It is impossible to imagine more profound 
 ignorance of the principles, than in the mercantile 
 community in general of this country ; for, lite- 
 
528 THE BANK OF ENGLAND. 
 
 rally, they know nothing beyond the practical 
 operation of the Act in the ordinary course of 
 their business ; moreover, they, most of them, 
 admit this, and excuse themselves by the pressure 
 of their own affairs, which leaves them little leisure 
 for the study of this abstruse and complicated 
 question, as they call it. 
 
 It is unfortunate for the country that this im- 
 pression so generally prevails ; for, when freedom 
 from old ideas is once attained and the whole 
 subject is carefully considered in the new light, 
 this question is neither abstruse nor difficult ; it 
 is a simple question, the answer to which is to be 
 traced out by the clear deductions of sound rea- 
 soning, with the same certainty as the solution of 
 a mathematical problem, where nothing is assumed 
 that is not proved. 
 
 As far as the Author has been able to ascertain 
 the opinion of the Directors of the Bank of Eng- 
 land on the principles here laid down, their ob- 
 jections maybe reduced to this single point. 
 
 They say that, to increase the issue of notes 
 and to fix a maximum for the Bank rate of dis- 
 count, must have the effect of destroying the 
 measure of value in this country, of depreciating 
 the Bank note, and of sending away the gold out 
 of the country, and that such would be the ne- 
 cessary consequences of an increased issue of 
 
THE ORGANISATION OP CBBDIT. 529 
 
 notes, even to the amount of one million : they say, 
 this experiment has been already tried by the Bank 
 of England, and that such has been the result. 
 
 Now, here are two unfounded assertions : first, 
 the assertion of a theory ; second, the 'assertion of 
 a fact ; both of which unsupported assertions are 
 denied. 
 
 Gold, as the measure of value, can never main- 
 tain a fixed price in the markets of the world, 
 but must always be subject to certain variations. 
 
 Whenever gold ceases to be of a fixed value, 
 of a value certain in reference to all other values, 
 and that happens when it is sought with a pre- 
 mium, gold is necessarily exported. 
 
 As M. Isaac Pereire says, to give a premium 
 to procure gold, as the Bank of France sometimes 
 does, is then to depreciate in an exact proportion 
 the relative value of the notes, to encourage de- 
 mands for the repayment of the same notes, to 
 favor the withdrawal of gold or silver from circu- 
 lation with a view to speculation ; it is again to 
 raise artificially the price of drafts on the foreigner, 
 and thus to increase the charges of importation ; 
 it is only to serve the interests of some houses suf- 
 ficiently rich, sufficiently powerful to be prepared 
 to act upon all the places to profit by the smallest 
 variations in the rate of exchange or in the price 
 of the precious metals. 
 
 2 M 
 
530 THE BANK OF ENGLAND. 
 
 It is certain that the rate of exchange, when it 
 is not falsified by operations in a contrary direc- 
 tion, ought to indicate perfectly the direction that 
 gold takes or ought to take. 
 
 It remains, consequently, well established that, 
 the movements of export or import of the pre- 
 cious metals have no relations with the variations 
 of the rate of interest. 
 
 All the observations in this respect can con- 
 centrate themselves between England and France, 
 or rather between Paris and London, because 
 these two places are justly considered as the re- 
 gulators of the exchange ; they centralise, in ef- 
 fect, in great part, the liquidation of the exchanges 
 of the whole world. 
 
 The price of gold, therefore, may be fixed by 
 law, as it is in this country, but that does not 
 prevent variations in the price of gold in the 
 markets of the world ; nor does it fix the value 
 of gold in this country; for, though the price be 
 fixed, the value varies in this country as in other 
 countries. These variations are slight, but yet 
 sufficient to remove the gold from one country to 
 another, from the country where it is plentiful to 
 excess, to another where it is scarce to deficiency. 
 
 But this in no way affects the notes, which 
 represent gold and are always convertible into 
 gold. 
 
THE ORGANISATION OF CREDIT. 531 
 
 As long as the notes are convertible into gold, 
 there can never be too many of them. Their 
 mass is without the smallest influence on prices 
 when these notes represent money. 
 
 Prices can rise only with paper money, which 
 has not the control of money ; or by consequence 
 of a reduction in the cost of procuring the pre- 
 cious metals. 
 
 As long as there is no reduction in the cost oi 
 procuring the precious metals, the variations in 
 their value will be very light, and will be subject 
 only to the variations of supply and demand, 
 which are very trifling, the wants being nearly 
 constant. 
 
 The variations of prices depend either on the 
 merchandise other than money, or on the money. 
 Those which arise from the money are extremely 
 weak, even insensible. They do not arise from 
 the notes, unless in the point of view that they 
 contribute in a certain measure to diminish the 
 demand for gold or silver. But this last conside- 
 ration is so very feeble as to be undiscernible. 
 
 If the notes, which represent gold, be at all 
 times convertible into gold, the market price of 
 gold is immaterial, as the notes will always re- 
 present it. 
 
 In that case there can no more be an over- 
 issue of notes than of gold ; for the over-issue of 
 
 2 M 2 
 
532 THE BANK OF ENGLAND. 
 
 either must correct itself; and there can never be 
 a depreciation of the notes, which must always 
 be on a level with the value of the gold. _' 
 
 Therefore, the experiment referred to by the 
 Bank Directors could not have been fairly tried, 
 or could have been no failure at all; but, on the 
 contrary, must have been a complete confirraation 
 of the theory here laid down, proving that the 
 notes had depreciated, not by the increased issue 
 of a million, but by such increased issue without 
 any real capital in the Bank to retain or repur- 
 chase the gold which was then drained away. 
 
 It is impossible to understand the experiment 
 in any other way, or the reasoning by which the 
 Bank Directors arrive at their conclusion. They 
 cannot suppose that, fixing the price of gold in 
 this country fixes the value in all other countries." 
 To impute to them such an error of reasoning as 
 that, would be to impeach their common sense, 
 and yet that is what their conclusion seems to 
 point to. 
 
 Therefore, the very example which the Bank 
 Directors bring forward to prove the principles 
 here laid down erroneous, proves the very con- 
 trary, and also strengthens the suspicion of their 
 judgment weakened by long indulgence in old 
 ideas. But this is no imputation on the virtue 
 of the old Ladies of Threadneedle Street. 
 
THE ORGANISATION OF CEEDIT. 533 
 
 If the extreme issue of credit money be at- 
 tained, as the Bank Directors say it is, it is very 
 obvious that, the additional issue of a milUon of 
 paper money, vrithout a corresponding increase 
 of real money, must have the effect of depre- 
 ciating the whole of the notes in circulation. As 
 a necessary consequence of this state of things, 
 the gold goes away, and the notes still further 
 depreciate. It would be very wonderful if it 
 Avere otherwise. Gold being merchandise, and 
 the Bank having no merchandise of any kind to 
 give in exchange for the gold, and no real money 
 to spare, the Bank has no other means of bring- 
 ing back and retaining the gold than by taking 
 from the profits of trade and industry. That is 
 just what the Bank does when it raises its rate 
 of discount, thereby fixing at its pleasure a high 
 per centage tax on the profits of the whole com- 
 mercial community, and they, ignorant of the 
 cause though suffering from the effect, permit the 
 Bank to go on taking what does not belong to 
 it, whilst the Government, blind and indifferent, 
 stands by quietly j and so a whole nation of in- 
 dustrious workers are deprived of a portion of 
 their profits, for the benefit of the Bank share- 
 holders, though their benefit, by these means, is 
 very doubtful in the end. 
 
 No further evidence can be required to show 
 
534 THE BANK OF ENGLAND. 
 
 the prevailing ignorance on the true principles of 
 banks and banking than the wild ideas which 
 exist on the subject, even among men who are 
 looked up to as authorities in their own coun- 
 tries. That this ignorance is almost universal is 
 shown by the want of anything like uniformity 
 of action in regard to banks and banking in all 
 the civilised nations of the world. This can be 
 accounted for only by ignorance of the true prin- 
 ciples, for there cannot be different principles for 
 different countries, and what is true in one coun- 
 try must be true in all countries. 
 
 The machinery of issue is the main subject of 
 difference and dispute, though other important 
 questions are involved No two countries agree 
 on the whole question, and no country carries 
 out its own system consistently. When paper 
 money was introduced into India, the British 
 Government relinquished in a great measure the 
 doctrines of Sir Robert Peel. In India the Go- 
 vernment issues the notes, which are in form and 
 substance promissory notes of the Government of 
 India. The Government alone is liable to pay 
 each note in money to the bearer on demand. 
 Different notes are issued in different districts, 
 and different centres of operations are appointed. 
 The notes are issued by agents, appointed by 
 Government for the purpose, in exchange for cur- 
 
THE ORGANISATION OF CREDIT. 535 
 
 rent silver coin or standard silver bullion, or, to a 
 limited extent, for gold. All the coin and bul- 
 lion so received is retained by the Government, 
 and secured as a reserve to pay the notes, vi^ith 
 the exception of such an amount, not exceeding 
 four crores of rupees (about £4,000,000) as the 
 Governor General in Council, with the Secretary 
 of State for India, shall from time to time fix. 
 The amount so fixed is invested in Government 
 securities, which, together with the coin and bul- 
 lion, is appropriated to provide for the satisfac- 
 tion and discharge of the notes; and the notes 
 by law are " deemed to have been issued on the 
 security of the coin and bullion and securities 
 so appropriated, as well as the general credit 
 of the Government." The profit, if any, from 
 the circulation of the notes, passes into the State 
 revenues of India. The notes of each district 
 are a legal tender in that district, except by the 
 Government of India, at any Government office 
 or at the Issue department of any Agency of 
 Issue. 
 
 The paper money of India, therefore, consists 
 of State notes, not bank notes. This is an ano- 
 malous case, against all principle ; but India is 
 altogether an anomaly. 
 
 The system of the United States of America 
 puts the Government in an intermediate position, 
 
536 THE BANK OF ENGLAND. 
 
 in which, without becoming issuer itself, it still 
 holds direct command of all issues, and, without 
 any central bank, affords convenience to all banks. 
 A department of State at Washington, under 
 the general direction of the Secretary of the Trea- 
 sury, is entrusted with those functions of issue 
 assumed by the Federal Government as its own 
 peculiar prerogative. Over this department pre- 
 sides a chief oflBcer, called Comptroller of the 
 Currency, second in authority to the Secretary of 
 the Treasury, but immediately responsible to Con- 
 gress for the due execution of the law by the of- 
 fice under his direction. The duty of the Cur- 
 rency Department is, in the first place, to perform 
 the mechanical operation of engraving so many 
 notes, to an amount not exceeding 300,000,000 
 of dollars (say £60,000,000), as may be required 
 for circulation within the United States. But the 
 Government, under the National Banking Act, 
 does not issue. No note is complete until it be 
 tilled in with the name of a bank, from which it 
 is to be put into circulation, and by which it is 
 to be made convertible. The Currency Depart- 
 ment controls the form of the notes, and restricts 
 the total amount of them ; for the rest the banks 
 are answerable under the provisions of the law. 
 Once issued by an authorised Association, each 
 note becomes money, receivable at par through- 
 
THE ORGANISATION OF CREDIT. 537 
 
 out the United States in payment of debt, and, 
 as a rule, of taxes and all other Government dues. 
 But to the Associations alone it appertains to 
 maintain convertibility on demand into lawful 
 money, that is to say, at present, into Government 
 legal tender notes or greenbacks, but hereafter, 
 when these shall have been funded or otherwise 
 withdrawn, into cash, which will then be the only 
 remaining lawful money of the United States. 
 Any Joint Stock Association, having a specified 
 capital, may become a Bank of Issue. On approval 
 of a certificate sent in to the Comptroller of the 
 Currency, stating particulars of its formation and 
 means, and on compliance with the terms of the 
 law, the association will be provided with any 
 amount of notes in blank, not exceeding the 
 amount of its capital stock fictually paid up, out 
 of the store for the time being at the disposal of 
 the Department. But the Government requires 
 of every Bank of Issue a deposit of United States 
 Stock bearing interest, and will only deliver, in 
 exchange, notes equal in amount to 90 per cent, 
 of the current market value of the stock so depo- 
 sited, but not exceeding the par value thereof. 
 Thus the holders of notes are assured of redemp- 
 tion in the form of a debt due from the whole 
 nation, in case, through misconduct of the issuers 
 or any other accident, they should be disappointed 
 
538 THE BANK OP ENGLAND. 
 
 of payment in lawful money. Furthermore, it is 
 enacted that, each Association shall have at all 
 times on hand, in lawful money of the United 
 States, an amount equal to, at least, 25 per cent, 
 of the aggregate amount of its outstanding notes 
 of circulation and deposits. Finally, periodical 
 accounts are to be rendered by the cashiers of 
 the banks, and visitors or auditors are appointed 
 on behalf of the Government.* 
 
 Thus we have in India an example of paper 
 money issued directly by the State, and in Ame- 
 rica an example of paper money issued by banks, 
 under the restriction of a law, and also under the 
 supervision of a Department of the Stale. 
 
 The system of the American Banks, or Joint 
 Stock Associations, has been already noticed. 
 (See page 490.) M. Michel Chevalier has himself 
 briefly described this system, which is called the 
 " free banking " system, and of which this dis- 
 tinguished authority and the merchants of Liver- 
 pool are enamoured. Here is M. Chevalier's 
 description, I'endered into English : — " The State 
 does not constitute itself a banker; it restricts 
 itself to the fabrication of Bank notes, without 
 having the right to put them in circulation on its 
 
 * See Article on " Modern Eeforms in Paper Money," by- 
 Mr. "William Latham, in the ' Fortnightly Eeview ' for 1st 
 March, 1866. 
 
THE ORGANISATION OF CREDIT. 539 
 
 own account. All the world, without exception, 
 individual or association, is entitled to demand 
 them of the State, in order to carry on banking 
 business, on the sole condition of conforming to 
 the law. This law, uniform to all, is that they 
 should lodge with the State public funds, se- 
 lected as being especially sound and secure, and 
 designated by the law itself, for an amount equal 
 to the sum required in notes." 
 
 It is unnecessary here to make any further re- 
 marks on this system of " free banking," or on 
 M. Michel Chevaher's views with regard to un- 
 limited issues, though it might have been sup- 
 posed that the examples in his own country of 
 John Law and the French Assignats would have 
 been warnings to him. 
 
 But it is a pardonable curiosity to desire to 
 know how so eminent an authority as M. Michel 
 Chevalier would avoid the perils of entrusting 
 the function of these issues to the amount of 
 sixty millions, sterling, to the executive power of 
 the State. 
 
 M. Chevalier, if rightly understood, would 
 allow the whole or the greatest part of the na- 
 tional debt to bear up a corresponding amount 
 of paper money, if banks should choose to take 
 such license. According to this principle, if 
 rightly understood, the greater the debt, the 
 
540 THE BANK OF ENGLAND. 
 
 greater the credit. His object is freedom of 
 issue, which he classes with freedom of trade. 
 He requires convertibility into coin by law, but 
 he adopts no means to ensure observance of the 
 law. He trusts to the faith of the banks, and to 
 the decrees of the Courts against defaulters. He 
 is opposed to legislative restrictions on the 
 amount of paper money, to legislative compul- 
 sion on the maintenance of reserves of bullion, 
 and to any separation of the business of issue 
 from the business of banking. 
 
 It is hardly possible to believe that these are 
 really the views of M. Michel Chevalier, but if 
 so, he and all others who are so imbued with 
 republican or free trade notions as to regard a 
 monopoly with horror may be reminded, without 
 outrage to their feelings, that a monopoly by any 
 finite number of banks, though more than one, 
 is still a monopoly in principle. In the United 
 States of America there are already more than 
 1,600 national banks of issue; yet when the 
 300,000,000 of dollars, authorised by Congress 
 to be issued in bank paper money, shall have 
 been dispensed, there will still remain many 
 banks excluded from the privilege so widely ex- 
 tended. In the United Kingdom the number of 
 country banks of issue, English, Scotch, and 
 Irish, is restricted by law, so that no new appli- 
 
THE ORGANISATION OF CREDIT. 541 
 
 cations, however meritorious, can be introduced. 
 But all these are so many little monopolies. 
 
 The plan of M. Chevalier, without modifica- 
 tion, would involve issues to an unhmited amount. 
 Unlimited issues, if there be any profit in is- 
 suing, as there certainly would be under M. 
 Chevalier's system, must end in excessive issues, 
 and excessive issues of money, which means de- 
 preciation, must make unfavourable exchanges. 
 Unfavourable exchanges, long continued, must ul- 
 timately expel the precious metals, and, at last," 
 the issuers must suspend specie payments, be- 
 cause all their specie will have been exported, 
 and they will be without any means for getting it 
 back. All this is so plain that, so eminent an 
 authority as M. Michel Chevalier cannot fail to 
 see it ; therefore, he must be in possession of a 
 secret, and that may excuse curiosity. Perhaps, 
 the secret may lurk in that very common con- 
 fusion, already noticed, by confounding the issue 
 of money with trade or banking. The^'as cu- 
 dendae monetcs resident in the sovereign power 
 must include the engraving of paper, no less 
 than the stamping of gold and silver, destined 
 for use as money. Hence, it follows that, the 
 subject derives the privilege of making paper 
 money, not by natural right, but by right con- 
 ferred by the State alone. With trade or bank- 
 
542 THE BANK OF ENGLAND. 
 
 iiig it is different. There is no sovereign right 
 of trade or of banking, except by usurpation. 
 These are the natural rights of all mankind, with- 
 out distinction. Free trade and free banking 
 are liberties essential to a free people ; but free 
 issue of money would be an encroachment on 
 the sovereign prerogative of government even 
 in a free country, and free issue of money has 
 nothing to do with free trade or free banking. 
 Those who confound them are simply in a state 
 of confused ideas, and that is pretty nearly the 
 condition of the whole commercial community 
 in this country, as well as in all othsr countries. 
 But to attempt to enhghten our commercial com- 
 munity by more Parliamentary Committees or by 
 Royal Commission is simply to waste further 
 time and public money, for such an attempt 
 would proceed on the erroneous notion that 
 Members of Parliament know more about the 
 matter than the Bankers, Merchants, and Shop- 
 keepers who are brought up for examination 
 before the noble lords, right honorable and 
 honorable members. Any such attempt is 
 worse than useless on a subject which can be 
 worked out only by thoughtful minds in the 
 privacy of study. 
 
 It would be more to the purpose and much 
 less expensive to the country, if the Government 
 
THE ORGANISATION OF CREDIT. 543 
 
 would avail itself of the gratuitous services of 
 those who are competent and wilHng to give 
 them, in preparing the outline of an Amended 
 Bank Charter Act. 
 
 Public attention would then be directed to a 
 few well defined and practical points, instead of 
 being led into endless discussions on speculative 
 theories, and the Government, for its own in- 
 formation, could obtain the opinions of those 
 whom it might think fit to consult as the most 
 competent advisers. 
 
 So prepared, it might not be too much to ex- 
 pect that the Government would form its own 
 judgment, and take upon itself the responsibility 
 of framing an Amended Bill for the considera- 
 tion of Parliament and the country. 
 
 In this way the wearisome and wasteful discus- 
 sions on visionary and unpractical theories would 
 be avoided, and the inquiry would be confined 
 to a few definite points on sound principles. 
 
 The great object is to establish the Bank of 
 England and the Bank of France on the same 
 sound principles, and these two great National 
 Banks, acting in unison, instead of counteracting 
 each other, would then regulate the monetary 
 affairs of Europe, if not of the whole world. 
 
 The importance of this object is so great that 
 it is impossible to exaggerate it, as concerns 
 
544 THE BANK OF ENGLAND. 
 
 commercial relations and union between all the 
 nations, on the only secure foundation of mu- 
 tual interests. 
 
 The author has reason to believe that, the adop- 
 tion of this suggestion by the British Govern- 
 ment would be very gratefully received by the 
 French Government at this time, wl\en the whole 
 subject is under consideration in relation to the 
 Bank of France, also by the Emperor and a large 
 and influential party in France, with the leaders 
 of which the Author is in communication. This 
 party, seeking to establish the Bank of France 
 on the broad and liberal principles here laid 
 down, and to which the Emperor is supposed to 
 be favorable, comprises some of the uiost dis- 
 tinguished names connected with the trade and 
 industry of that great Empire. 
 
 To keep money at a low, and as nearly as 
 possible, uniform rate of interest throughout all 
 the nations, must be conducive to the general 
 prosperity of commerce, and to no countries in 
 the world can, the importance of this object be 
 so great as to England and France. With these 
 two countries united for this object, all other 
 countries must follow. The two National Banks 
 of England and France estabhshed on the same 
 sound principles would, in effect, be like the 
 establishment of one Bank for the regulation 
 
THE ORGANISATION OF CREDIT. 545 
 
 and control of all the national Banks of Europe, 
 if not of the whole of the civilised world. 
 
 As M. Isaac Pereire observes, the Banks act 
 upon the rate of interest not only by the re- 
 union, by the concentration of a gross capital 
 destined to discount, but also by the employment 
 of credit money. 
 
 Money is necessary to exchanges, since it is the 
 common measure of all vahaes, but money, as 
 money, is steril capital, as land taken for railways 
 is steril land, producing nothing by itself. The 
 domestic uses for which thc' precious metals are 
 used is another thing. Money, used as money, 
 acts only as a medium in the exchange of pro- 
 ducts, and, as such, has no value. 
 
 The capital that all society employs for this 
 purpose is considerable, and it can be procured 
 only by means of products of a corresponding 
 value. Credit money costing nothing, and repla- 
 cing in part this money, which represents effec- 
 tively the value for which it circulates, there re- 
 sults from its employment a very great economy. 
 Besides, credit money is much more convenient 
 than coined money. Credit moneyi acts, /fihallyi,) 
 in the service of the Banks as a powerful (means> 
 for lowering the rate of interest, since it furnishes' 
 the means of discounting, i almost!) without exj-i 
 pense, the promises of industry. Credili imbaeyi 
 
 2 N 
 
546 THE BANK OF ENGLAND. 
 
 is nothing else than the means by which the 
 powerful credit of the Banks supersedes the ob- 
 scure credit of the private houses. The bank note 
 is nothing else, in effect, than the conjointly re- 
 sponsible representation of a certain number of 
 bills of exchange. 
 
 The pretext for considering credit money as 
 diminishing, by its mass, the value of the metallic 
 money, and, consequently, as necessarily raising 
 the price of all things, is a pretext completely de- 
 void of foundation ; it is only a paradox. 
 
 The credit money is, in effect, the equivalent, 
 the representation exact of the real money, the 
 value of which has nothing arbitrary, since it is 
 only the expression of the cost of production of 
 the precious metals, and that value is universally 
 recognised. 
 
 The credit money postpones itself to the money 
 of gold and silver; supplies and replaces it, and 
 there remains in each country of the one or the 
 other only that which is necessary for the wants of 
 the exchanges. 
 
 The character of credit money augments with 
 the development of affairs. Its employment is 
 not unlimited, but it is indefinite. It is impossi- 
 ble to say, beforehand, within what limits it ought 
 to be confined : it has no other limits than those 
 of the development of affairs. 
 
THE OEGANISATIOIS^ OF CREDIT. 547 
 
 Credit develops itself at the same time, in a 
 maiiTier parallel, as much by the issue of notes as 
 by the help of compensations at the dearing- 
 house, accounts current, cheques, etc. 
 
 In proportion as a nation enters more forward 
 in the ways of credit, she has more recourse to 
 the modes of clearing and compensation, which 
 are, in effect, means of regulation very simple and 
 very convenient. But the bank note is appro- 
 priate to all uses, to others even to which the 
 cheque cannot be apphed; it is employed as 
 money of which it is the appendix. Thus, with 
 a cheque, which represents only an individual en- 
 gagement, you cannot easily buy all the things 
 which you ai e in want of, whilst with a bank note, 
 which represents money, each can procure in all 
 places all that is necessary for his wants. 
 
 The system of clearings or compensations 
 ought not to hurt the development of the circu- 
 lation of notes, nor will it diminish the use 
 of money, the quantity of which augments every 
 day. This system is in practice much more in 
 England than in France ; but, as affairs develop, 
 this system must be more practised in France. 
 
 In England it is by a sort of compression that 
 the use of cheques generalizes itself. It is in con- 
 sequence of the adoption of the extremely re- 
 strictive system applied to the Bank of England 
 
 2n 2 
 
54S THE BANK OF ENGLAND. 
 
 that the circulation of the notes has languished, 
 and this restrictive system, from which commerce 
 suffers, is the principal cause of the crises which 
 occur almost daily in London. If we adopted 
 more liberal ideas, the circulation of the notes 
 would be developed, parallel with the use of the 
 clearing-houses, in a considerable proportion. 
 
 In England it is the notes that want develop- 
 ment ; in France the clearing-houses. 
 
 But it is essential that credit money should be 
 constantly convertible into real money. With- 
 out the control of money, there would be not 
 only instability, but a continual degradation of 
 prices, the depreciation of paper money being 
 always produced in direct ratio to its multipli- 
 cation. Money is for the Banks a counterpoise, 
 an indispensable touchstone ; it permits us to re- 
 cognise if there be too much or too little paper. 
 When there is too much, we naturally call it in, 
 and the real level of the wants of circulation is 
 immediately restored. We are thus sure that, 
 with the oonstanti conyerfcibility of the bank note, 
 ihere cannot ibe excessive issue. When there i is 
 not enough, ybu- carry money to the i bank to take 
 oatmotes, or elseiyou issue inew, notes with . the 
 same funds' in the treasury. There is no exces^j 
 unless when the: paper has a forced circulation, 
 than which nothing can be more detestable, i, 
 
THE ORGANISATION OF CREDIT. 549 
 
 It is, therefore, an essential condition for the 
 circulation of the bank note, that it should be 
 constantly convertible into money. 
 
 We inust not, however, confovmd the check 
 with the bank note ; this is not only, like the 
 check, a means of payment, an instrument of 
 compensation or of liquidation of engagements 
 arrived at maturity ; it is again and especially an 
 instrument of credit ; it represents capital, since 
 it is only the transformation of the bill of ex- 
 change ; it admits of utilising, by means of dis- 
 count, a portion of the floating capital that in- 
 dustry and commerce hold in reserve for the 
 wants of their transactions. 
 
 This distinction in the nature of the two 
 effects is indispensable to avoid falling into fatal 
 errors.* 
 
 From the foregoing facts and reasoning, if 
 rightly understood, it will be evident that, the 
 Bank of England can never be made equal to the 
 occasion, as a .National Bank, without a great 
 increase of its actual and credit capital, and that 
 to enlarge the issue of notes without enlarging 
 the means of converting them into gold on de- 
 mand, would be only an aggravation of the ex- 
 isting evils. 
 
 This is a very important and evident conclu- 
 
 * See evidence of M. Isaac Pereire in the Appendix. 
 
550 THE BANK Or ENGLAND. 
 
 sion, but there is another of equal importance, 
 which may not be equally evident to all readers. 
 For the purpose of directing more particular 
 attention to this, a few further remarks may be 
 useful, even at the risk of tedious repetition. 
 
 It is objected that, an additional issue of notes 
 would, under ordinary circumstances, depreciate 
 the notes in circulation and drive away the gold. 
 
 Under the existing system and ordinary cir- 
 cumstances this would be so. 
 
 But under the proposed system and any cir- 
 cumstances it would not be so. 
 
 The notes in circulation could never exceed the 
 requirements, unless for the purpose of hoarding, 
 under the influence of panic and the fear of a 
 crisis, but with plenty of notes, payable in gold 
 on demand, there could be no panic and no 
 crisis. 
 
 The notes in circulation could never depreciate, 
 if, at all times and under all circumstances, con- 
 vertible into gold on demand. 
 
 These are simple truisms in theory, confirmed 
 by experience, the truth of which, no scientific 
 Economist will venture to deny. 
 
 The principal points on which Economists 
 differ are these. 
 
 Some, indeed, most, Economists say that, with 
 the issue of notes equal to the requirements, at a 
 
THE ORGANISATION OF CREDIT. 551 
 
 fixed and low rate of discount, it is impossible, 
 at all tinaes and under all circumstances, to make 
 the notes payable in gold on demand. In sup- 
 port of their assertion they refer to the experience 
 of the past. 
 
 But what is the experience of the past ? 
 
 It is the experience of the existing system, 
 which has proved its own failure in all the in- 
 tended objects, except in that single object of 
 preserving the convertibility of the notes into 
 gold, an object which has never been the subject 
 of much, if any, doubt or difficulty. 
 
 It is the experience of the existing system in 
 its very defects, which has helped to bring to 
 light the true theory here propounded, and to 
 confirm the practical rules here laid down. 
 
 It has proved that, Credit cannot be made 
 available for practical purposes, as a general prin- 
 ciple, unless supported by actual Capital. 
 
 It has proved that, there is no limit to Credit, 
 if Capital be in due proportion. 
 
 It has proved that. Credit in excess deteriorates 
 or drives away Capital, and that. Credit in due 
 proportion to Capital is, in effect, the same as 
 Capital. 
 
 It has proved that, it is impossible to keep 
 gold with an excessive issue of notes. 
 
 It has proved that, the signs of excessive 
 
552 THE BANK OF ENGLAND. 
 
 issue are in these two facts:— the gold goes 
 away, and the foreign exchanges are unfavour- 
 able. 
 
 It has proved that, when the market price 
 and the Mint price of gold are the same, and 
 the foreign exchanges are favorable, the gold 
 never goes away. 
 
 It has also proved that, the Bank has no other 
 means for bringing back the gold than by raising 
 the rate of discount. 
 
 And, lastly, it has proved that, this is the 
 cause of panic, crisis, and great destruction of 
 Capital. 
 
 The real points in the question, therefore, are, 
 how to keep up the issue of notes to the level of 
 the requirements, and at the same time to keep 
 the gold from going away, and the foreign ex- 
 changes from being unfavorable. 
 
 It seems a very simple answer to say that, the 
 only effectual mode of meeting these points is, to 
 increase the actual capital of the bank, and to en- 
 large, in due proportion, the power of the Bank 
 to issue its credit notes. 
 
 Experience has proved that, it is not safe to 
 trust the Ban'k with an unlimited power of issue, 
 nor to trust to the discretion of Bank Directors, 
 even if that power be limited. But, to invest 
 any Corporate and irresponsible body with such a 
 
THE ORGANISATION OF CREDIT. 553 
 
 power would be contrary to all principle and 
 practice in this world's aifairs. 
 
 It is, therefore, essential that, the discretion of 
 the Bank Directors should be confined within the 
 narrowest limits, by fixing the maximum Bank 
 rate of discount at 4 per cent. 
 
 Thus guarded, the power of issuing notes to an 
 amount exceeding all possible requirements might 
 be safely entrusted to the Directors of the Bank 
 of England. They would then be relieved from 
 all anxiety about their reserve. With the capital 
 of the Bank restored and in hand, with the power 
 of issuing 40 millions in notes, if confined to 
 England and Wales, or 50 miUions, if extended 
 to Great Britain and Ireland, and the absurd dis- 
 tinction between the Issue Department and the 
 Banking Department removed, the reserve would 
 be too ample to admit of the smallest anxiety to 
 the Bank Directors or to the community on that 
 ground. 
 
 For their guidance, the Bank Directors, instead 
 of their present complex and unintelligible rules, 
 which seem reducible to no principle, would have 
 to direct their attention only to the market price 
 of gold and to the foreign exchanges. As long 
 as the market price and the Mint price of gold 
 are the same, or at par, i.e. at the rate of 
 £3. \1s.\^\d. per ounce, and the foreign ex- 
 
554 THE BANK OF ENGLAND. 
 
 changes are favorable, it could not be profitable 
 to export gold; and with the certainty of an 
 ample supply of notes, convertible into gold on 
 demand, at all times and under all circumstances, 
 and this further certainty that, good bills could 
 always be discounted at the Bank of England at 
 a rate not exceeding 4 per cent., it is inconceiv- 
 able that, the market price and the Mint price of 
 gold should be otherwise than the same, or that 
 the exchanges should be otherwise than favor- 
 able, as long as this country preserves its pre- 
 sent pre-eminent position in Trade and Industry. 
 
 Now, the meaning of the Mint price of gold is 
 simply this -. — - 
 
 In 1717 the coins were then improperly rated 
 according to the market value of gold and silver, 
 and Sir Isaac Newton pointed out that the effect 
 of this would necessarily be to drive silver out of 
 circulation. 
 
 In consequence of his representations, the value 
 of the gold coin was reduced, but not to a suffi- 
 cient extent, and the consequence which he pre- 
 dicted took place. 
 
 The gold, in coin, being still over-rated, in 
 comparison with its relative market value to silver, 
 merchants, during the course of the last century, 
 adopted the universal custom of paying their bills 
 in gold coin in preference to silver, and thus gold 
 
THE ORGANISATION OP CREDIT, 555 
 
 became gradually to be considered as the measure 
 of value in England. 
 
 In 1816, this custom was adopted as the law, 
 and gold was declared to be the only legal mea- 
 sure of value, and the pound, the legal tender or 
 measure of value, became the equivalent in gold 
 of 20*. in silver. 
 
 The pound weight of gold bullion was ordered 
 to be cut into 46 pieces of the value of 20s. or 
 £1 each, with a piece over, equal to 14-20ths and 
 6-12ths of l-20th, or the Mint Price of 1 lb. of 
 gold was fixed at £46. 14s. M. 
 
 But, as the value of gold is estimated by 
 the ounce, the Mint Price of gold is fixed at 
 £3. 17s. 10j6?. per ounce, and, as long as the 
 coins are ordered to be coined of the same weight, 
 the Mint Price cannot vary. 
 
 The Mint Price of gold, therefore, in its modern 
 meaning, is nothing more than a public declara- 
 tion of the weight of metal the law requires to be 
 in the coin, which accidental circumstances have 
 caused to be considered as the legal measure of 
 value in this country ; and any alteration of the 
 Mint Price of gold would be simply an alteration 
 in the standard weight of the coin, and would be 
 the same thing in principle as an alteration of the 
 standard yard measure. Those persons who ridi- 
 cule the idea of having the Mint Price of gold 
 
556 THE BANK OF ENGLAND. 
 
 fixed, should, if they be. consistent, also ridicule 
 the idea of having the standard yard measure 
 fixed. Those who wish to let the Mint Price of 
 gold follow the Market Price, should also con- 
 tend that, every tradesman should have his yard 
 measure of as many inches as he pleases, because 
 when the Market Price of gold rises above the 
 Mint Price, it is precisely analogous to curtailing 
 so many inches of the yard.* 
 
 But, let the case of excessive issues and over- 
 irading be assumed, with an unfavorable ex- 
 change, and that the gold is going away. 
 
 What then % 
 
 There can be no fear about the notes, and for 
 those who want them, there they are at the 
 Bank, at a price not exceeding 4 per cent. ; and. 
 Surely, the Bank Directors must have the best 
 means of judging the nature of the bills brought 
 to them for discount. By reducing the dis- 
 cbunts, any excess of issues might be gradually 
 corrected without injury and without alarm ; or, 
 if more prompt and decisive measures were re- 
 quired for calling in the notes and stopping the 
 outflow of gold, the Bank Directors might sell a 
 sufficient amount of Government securities and 
 hold or cancel the notes thus obtained, or buy 
 gold in the open market, or foreign bills to be 
 
 * " Theory and Practice of Banking." Vol. I. pp. 221-224. 
 
THE ORGANISATION OF CKEDIT. 557 
 
 converted into gold. With the power which real 
 capital must always command, the market price 
 of gold must soon be brought to the level of the 
 Mint price, the difference between the two being 
 at any time very trifling, and any loss to the 
 Bank from these operations must be too trifling 
 to deserve a moment's consideration, when the 
 object is to save the whole community from far 
 greater losses ; and if it be objected that, such 
 sales by the Bank would lower the Government 
 funds, the answer is that, the depreciation would 
 be much greater by the sales forced by the Bank 
 or the commercial community in like circum- 
 stances under the present system. 
 
 It is impossible that the outflow of gold should 
 continue long under these operations, and as long 
 as the Market and the Mint price of gold were 
 the same, and our trade and industry continued 
 in the ascendant, the foreign exchanges could 
 never be long unfavourable to this country, nor 
 could it then be profitable to export gold, as a 
 commodity .., ., ,-,,,,, 
 
 The difficulty about gold, therefore, under 
 those circumstances, could never arise ; ; |or, if it 
 did; it would ; concern the Bank only, andlpotithe 
 community; and alarm about the , notes could 
 never arise, for of those there, would always'-be 
 plenty at the, Bank; , , , ,, :■ ^ . ., Dnym 
 
558 THE BANK OF ENGLAND. 
 
 The notes in reserve could always far exceed 
 the possible requirements, and the . commanding 
 influence of the Bank over the market of gold 
 would place the convertibility of the note into 
 gold far beyond the risk of, what may be con- 
 sidered, possible cii'cumstances. 
 
 In this state of affairs, it is impossible to con- 
 ceive -any larger requirements for gold than in 
 the ordinary transactions for foreign payments or 
 advances on foreign loans, and the ordinary pur- 
 poses of change. If this view be correct, it is a 
 sheer waste of capital to keep more than a suffi- 
 cient amount of gold in the Bank to meet these 
 ordinary requirements, and what that sufficient 
 amount will be, the Bank Directors, surely, 
 ought to be the most competent judges. 
 
 These are, in effect, the principles of the Bul- 
 lion Report of 1810, for the amount of gold to 
 be retained by Bank is not a question of prin- 
 ciple, but of practice, to be determined only by 
 experience. 
 
 The main principles of that celebrated Report 
 are: — 
 
 1. That, the mere numerical sunount of notes 
 in circulation at any time is no criteron whether 
 the notes be excessive or not. 
 
 2. That, the sole test or criterion of the de- 
 preciation of the paper currency is to be found in 
 
THE ORGANISATION OF CREDIT. 559 
 
 the price of gold bullion, and the state of the 
 foreign exchanges. 
 
 3. Any positive limitation of the issues is ex- 
 pressly condemned. 
 
 4. That, at certain crises to which our paper 
 is exposed, an enlargement of accommodation is 
 the true remedy, and that, too severe a contrac- 
 tion may lead to general ruin. 
 
 The Bullion Report, in principle, is un- 
 doubtedly right in condemning any positive limi- 
 tation of the issues ; but, after the experience we 
 have had of Bank Directors, the Public can 
 hardly be expected to approve of vesting a regu- 
 lating power in such a body, or in any responsible 
 body, and least of all in the Government, with- 
 out some limitation. A sort of middle course is, 
 therefore, proposed, by fixing the limit so far 
 beyond the present requirements as to leave 
 ample room for the discretion of the Bank Direc- 
 tors, and to leave the further extension of the 
 limit to the wisdom of Parliament. 
 
 But the Bank Act of 1844 expressly pre- 
 vents what the Bullion Report expressly recom- 
 mends : — that the Bank should extend its issues 
 liberally to support public credit. 
 
 Mr. Henry Thornton, one of the Authors of the 
 Bullion Report, in his " Inquiry into the Nature 
 and Effects of Paper Credit" (p. 245), says: — 
 
560 THE BANK OF ENGLAND. 
 
 " Two kinds of error on the subject of the affairs 
 of the Bank of England have been prevalent. 
 Some political persons have assumed it to be a 
 principle that, in proportion as the gold of the 
 Bank lessens, its paper, or as is sometimes said, 
 its loans, (for the amount of the one has been 
 confounded with that of the other) ought to be 
 reduced. It has been already shown that, a 
 maxim of this sort, if strictly followed up, xoould 
 lead to universal failure. 
 
 This is exactly the principle of the Bank Act 
 of 1.844, and such would have been the conse- 
 quences of it in 1847, 1857, and 1866, if it had 
 not been suspended on each occasion. 
 
 But Mr. Goschen, in his "Theory of the 
 Foreign Exchanges," says : — 
 
 " It seems to be evident that, when the ex- 
 changes are manifestly against any country, and 
 it is perceived that excessive indebtedness is the 
 cause, there are only two modes of restoring the 
 equilibrium, — the one being to increase the ex- 
 ports and diminish the imports, — the other to 
 raise, the rate of interest, k In both these cases, 
 that which jwill effectually bring the' gold from 
 abroad, in the most general and practical sense, 
 will be the opportunities offered by a high rate 
 of interest, to effect profitable and attractive ! in- 
 vestments." 4;>£ .iibsiO ' .\\f\ i<) >1■)^^^y 
 
THE ORGANISATION OF CREDIT. 561 
 
 Mr. Goschen may be right in this opinion, but 
 his evident preference of the " high rate of in- 
 terest " shows the tendency of the Bank Director 
 and Capitalist, rather than the wisdom of the 
 Cabinet minister. He seems to forget that, 
 " the opportunities offered by a high rate of in- 
 terest to efiect profitable and attractive invest- 
 ments " arise out of ruinous losses, or the sale of 
 bankrupts' effects, and a general fall of prices 
 below the cost of production. 
 
 It is a bad look out for the commercial com- 
 munity of this country, which ought to be the 
 market, par excellence, for the produce of the 
 world, when a man possessing the experience and 
 knowledge of Mr. Goschen, but with the predi- 
 lections of the Bank Director and capitalist, is 
 found in the Council of State. 
 
 If faith be our best hope in spiritual affairs ; 
 surely, the want of faith is our best protection in 
 temporal affairs, and if we may not put our trust 
 in Princes, neither may we put our trust in Jew 
 or Gentile, especially in money matters. 
 
 Mr. Macleod, in his valuable work on the 
 "Theory and Practice of Banking" (vol. 2. p. 
 222, 2nd Ed.), quotes this passage from Mr. 
 Goschen on ' Foreign Exchanges,' v/ith approval 
 of his recommendation of a " high rate of in- 
 terest," for bringing back the gold from abroad, 
 
 20 
 
562 THE BANK OF ENGLAND. 
 
 and adds : — " Let the Directors settle what sum 
 ought to be retained in the country at all hazards, 
 as indispensably necessary to support the credit 
 of their notes, i. e. to maintain their converti- 
 bihty. Let them then determine upon such a 
 rate of discount as would render it beyond the 
 bounds of any ordinary contingency that their 
 treasure could leave the country when discount 
 was at such a rate." Here Mr. Macleod seems 
 to lose sight of the Bullion Report, although he 
 expresses his entire concurrence in it, and is its 
 most eloquent advocate throughout his work. 
 It is difficult to understand how he can reconcile 
 his approval of the principle of that Report with 
 his proposal to regulate the Bank rate of discount 
 by the amount of Bullion in the Bank according 
 to the scale which he gives. He takes the sum 
 of " £8,000,000, as indispensable to be raised," 
 and the rate of discount then to be 10 per cent. 
 As the bullion increased discount to be low- 
 ered according to the scale, commencing with 
 £20,000,000 at 2^ per cent., £14,000,000 at 4 
 percent., £10,000,000 at 8 percent, £7,000,000 
 at 12 per cent., £6,000,000 at 16 per cent., and 
 so in proportion for the intermediate numbers in 
 the scale. 
 
 Mr. Macleod, referring to the practice of the 
 Bank for the last few years, says : — " It will be 
 
THE ORGANISATION OF CREDIT. 563 
 
 seen that the Bank has been managed entirely ou 
 this plan." 
 
 Assuming this to be so, it is not easy to see 
 why he should derive satisfaction from this fact, 
 his opinion on all other points in question being 
 entirely at variance with the practice of. the Bank ; 
 nor why he should propose a scheme, which 
 seems calculated to augment rather than to 
 diminish the evils of the existing system. 
 
 Mr. Macleod also treats lightly the continual 
 fluctuations in the rate of discount. 
 
 He says; (vol. 2, p. 194, 2nd Ed. :)— "The 
 rate of discount is only the si^/i of the evil. The 
 real evil is the altered proportion between capital 
 and credit, and a variation in the rate of discount 
 is the grand natural corrector of the evil." 
 
 Admitting this to be so, still these fluctuations 
 are in themselves a very great evil, and the ques- 
 tion seems to be, whether " the real evil" cannot 
 be got rid of in some other and better way, as 
 already remarked (p. 40). 
 
 Mr. Macleod, of course, considers this impos- 
 sible, because, in his next sentence, he says : — 
 "To attempt to keep the rate of discount uni- 
 form, is to thwart and contravene the laws of 
 nature, just the same as to attempt to fix the 
 price of wheat." 
 
 If it be "just the same," Mr. Macleod must 
 
 2 o 2 
 
564 THE BANK OF ENGLAND. 
 
 be right ; but if it be quite different, he may be 
 wrong. 
 
 The difference between the price of money and 
 the price of wheat is evidently a different ques- 
 tion. 
 
 The price of money may be said to be depen- 
 dent on the demand ; the price of wheat on the 
 supply. The supply in the one case is depen- 
 dent on human means ; in the other on causes 
 beyond human control. 
 
 If this be so, the dictum of Mr. Macleod must 
 be wrong, and it is much to be regretted that a 
 writer so acute as Mr. Macleod should have given 
 his countenance to this common error of a large 
 class of ignorant scribblers on the subject in 
 Newspapers and Reviews. 
 
 In this way the subject, notwithstanding its 
 momentous importance to the country, has been 
 brought into such disrepute that, even the most 
 thoughtful turn away from it with the feeling of 
 utter hopelessness of arriving at any satisfactory 
 conclusion. Positive assertions of ill-considered 
 opinions are made with all the authority of ad- 
 mitted maxims, and the mind of the reader is left 
 in the writer's own state of bewilderment, with 
 this difference only, that the reader is conscious 
 of his own bewilderment, and the writer is not. 
 
 The difficulties are felt and acknowledged by 
 
THE ORGANISATION OF CREDIT. 565 
 
 all, and every one who thinks himself qualified to 
 point out these difficulties, also thinks himself 
 qualified to remove them by a perfect remedy. 
 The consequence is, a collection of the wildest 
 schemes, resting on the most ignorant assertions, 
 one pulling down what another sets up, making 
 it appear that the existing evils are the necessary 
 consequence of some mysterious law of Nature, 
 and that any attempt to remove them will only 
 introduce greater evils. 
 
 No doubt, Mr. Macleod is among the many 
 who consider it impracticable to fix the maximum 
 for the Bank rate of discount, because, as he says, 
 opposed to " the laws of nature "; — but this is the 
 question, and he has nowhere shown, nor even 
 attempted to show, — beyond the assertion of the 
 natural law, whatever that means, — that this is 
 impracticable. 
 
 Mr. Macleod refers to the period when gold 
 and silver were equally used and their relative 
 values were fixed by law, and he says ; " this 
 was their legal par of exchange, but we also saw 
 that, their market values were continually vary- 
 ing, and from causes quite beyond any law ; and 
 that, it was no more possible to have a fixed legal 
 price of one in terms of the other, than to have a 
 fixed legal price for corn or other commodity." 
 
 But there is no sort of analogy between these 
 two propositions. 
 
566 THE BANK OF ENGLAND. 
 
 To fix the maximum Bank rate of discount is 
 not to fix the price of anything. It is only one 
 of the proposed means for regulating the price of 
 money, the supply of which is entirely within 
 human means, but the supply of corn is not. 
 
 It is evidently impossible to fix prices by law, 
 and it is also evident that there can be no true 
 par of exchange between two countries, which do 
 not employ the same metals as their legal stan- 
 dard. 
 
 But there is no reason why a uniform rate of 
 interest and discount should not be preserved 
 between different countries, nor why the rate of 
 interest and discount should be almost always 
 higher in this country than in Prance and other 
 countries, when we see that, the exchanges be- 
 tween England and France, and between other 
 countries, with different legal standards, can be 
 regulated and brought to par. 
 
 That is the question, and in that there is 
 nothing " to thwart and contravene the natural 
 law," nor anything open to the common charge 
 of absurdity. 
 
 It is confidently asserted by the most distin- 
 guished writers that, any considerable difference 
 in the rate "of discount between London and 
 Paris, or between other countries, cannot possibly 
 continue for any considerable length of time, and 
 
THE ORGANISATION OF CREDIT. 567 
 
 that the gold will go where it finds the highest 
 interest, as all other commodities will go to the 
 best market. The experience of the last year is 
 sufficient to prove this to be an assertion con- 
 trary to the fact. 
 
 Mr. Goschen, in his book on "Foreign Ex- 
 changes," says, — there must be a difference of 
 2 per cent, between London and Paris, to cover 
 the expenses of transmission, before the operation 
 of sending gold over for the sake of the higher 
 interest will pay. And, of course, between other 
 Continental cities the difference may be greater. 
 
 This may be so, and, therefore, it is assumed 
 that, the gold must be transmitted, when the rate 
 of interest is so much higher in one country than 
 in another as to pay for those expenses and leave 
 a profit. 
 
 Under ordinary circumstances it would be so, 
 but the question is, whether that natural conse- 
 quence cannot be prevented by other means than 
 by raising the rate of interest and discount in- 
 juriously to the whole commercial community. 
 
 This proposition is met, almost universally, 
 with contempt and ridicule, and, to expose the 
 absurdity, the usual reference is made to the folly 
 of attempting to fix the price of wheat, or to keep 
 it away from the best market, a sort of plausible 
 reasoning and inapplicable illustration, which 
 meets with almost universal approval. 
 
568 
 
 THE BANK OF ENGLAND. 
 
 But how stand the facts for the support of 
 this theory? 
 
 Taking twelve months from 5th August, 1865, 
 to 16th August, 1866, the following figures seem 
 to answer this question. 
 
 Date. 
 
 Discount. 
 
 
 
 
 London. 
 
 Paris. 
 
 1865 August 5 . . . 
 
 4 
 
 3 
 
 Septemb. 28 
 
 
 
 H 
 
 4 
 
 Octob. 5 
 
 
 
 6 
 
 4 
 
 7 
 
 
 
 7 
 
 4 
 
 Novemb. 23 
 
 
 
 6 
 
 4 
 
 Decemb. 28 
 
 
 
 7 
 
 5 
 
 1866 January 6 
 
 
 
 8 
 
 5 
 
 February 22 
 
 
 
 7 
 
 4 
 
 March 1 5 
 
 
 
 6 
 
 H 
 
 May 8 
 
 
 
 8 
 
 4 
 
 13 
 
 
 
 10 
 
 4 
 
 June 6 
 
 
 
 10 
 
 4 
 
 July . . 
 
 
 
 10 
 
 H 
 
 August 16 
 
 
 
 10 
 
 3 
 
 On the 2nd August, 1866, the amount of coin 
 and Bullion in the Bank of England was 
 £13,793,340, and the Bank rate of discount was 
 10 per cent. 
 
 On the same day, the amount of Coin and 
 Bullion in the Bank of France was £28,300,000, 
 
THE ORGANISATION OF CREDIT. 569 
 
 and the Bank rate of discount was three per cent. 
 
 According to these figures, therefore, the 
 theory of M. Goschen, Mr. Macleod, and others 
 of their opinion, does not fit with the facts. 
 
 Of course, there is no want of explanations to 
 account for this inconsistency, but the explana- 
 tions are very'jfar from convincing, and to follow 
 them would lead only to interminable and uncon- 
 vincing controversy. 
 
 At any. rate, the facts prove incontrovertibly 
 that there are circumstances which may prevent 
 the gold from going away from the cheapest to 
 the dearest market, which under no circumstan- 
 ces could happen with the wheat, and that is 
 sufficient to show that, these two cases are not 
 parallel, or,;not under the same law. 
 
 How to prevent the gold from going away, 
 under these circumstances, has been already 
 shown in the foregoing pages, and, notwithstand- 
 ing the opinion of Mr. Goschen, Mr. Macleod, 
 and the other distinguished authorities who 
 agree with them, this is not only practicable 
 but quite easy and efiectual. by the means here 
 pointed out. 
 
 Another recent publication on this question, 
 by Mr. Fowler, an influential partner in the firm 
 of Alexander & Co., bill-brokers in Lombard 
 Street, may be here shortly noticed. 
 
570 THE BANK OF ENGLAND. 
 
 In his Essay on the Crisis of 1866, he says : — 
 "I see no reason why a power should not be 
 given to the First Lord of the Treasury and the 
 Chancellor of the Exchequer to give the needful 
 authority to the Bank, [to suspend the Act] it 
 being left entirely to the discretion of those 
 Ministers when, and on what conditions, to exer- 
 cise the power. In this way the required authority 
 would be obtained without a breach of the law." 
 
 Such a provision would be only giving a power 
 which has been assumed; the only difference 
 being that, in the one case, legal authority would 
 be given for the exercise of the power before the 
 suspension, and in the other case, that authority 
 is given after the suspension. 
 
 How the fact of breach or no breach of the 
 law can affect the question is inconceivable. But 
 it seems inconsistent to make a law, the main 
 object of which is to restrict the Bank of Eng- 
 land in its issues, and at the same time to invest 
 two individuals with the power to remove that 
 restriction at their discretion. 
 
 This is, in effect, very much like saying : — the 
 Bank of England shall keep to the rule as long 
 as it likes, and depart from it when it likes ; for 
 the two individuals, members of the Government, 
 could hardly be expected to take upon themselves 
 the responsibility of exercising the power without 
 
THE ORGANISATION OF CREDIT. 571 
 
 the application of the Bank Directors, or of re- 
 fusing to exercise the power on their application, 
 and, therefore, virtually the power of suspension 
 would be in them, as it always has been. 
 
 The whole operation of the Act is to fetter the 
 Bank, and the Bank Directors may, in fact, un- 
 fetter it when&ver they please. This is hardly 
 fair to those who might have been saved from 
 faUing, if the fetter had been taken oflf a few 
 hours sooner. 
 
 In such a ease there would be no breach of 
 the law, but then the law may as well be repealed. 
 If an absolute discretion be necessary, where can 
 the discretion be better placed than in the Bank 
 Directors themselves ? 
 
 But why make a law, which is to be dependent 
 for its operation on the discretion of any one ? 
 That must be a weak law at the best, and often 
 a mischievous one ; and to vest a discretionary 
 power in the Government, for the regulation of 
 the money of the country is very objectionable 
 for many obvious reasons. 
 
 Mr. Fowler says ;^-" If the power be not 
 given to the Government, it would naturally be 
 given to the Bank." 
 
 Certainly. And why not ? 
 
 Mr. Fowler answers this question thus : — 
 " But to give the Bank this power would be an 
 
572 THE BANK OF ENGLAND. 
 
 infringement of that most important principle 
 of the Act, which severs entirely issue from 
 banking." 
 
 So it would. But this most important prin- 
 ciple of the Act is, as already shown, one of its 
 most important errors. 
 
 Mr. Fowler's reasoning for this would be good 
 if the Bank issued inconvertible notes, but is good 
 for nothing when the notes are convertible into 
 gold. The paper notes are then money, just the 
 same as the gold coin, and this shows the incon- 
 sistency and impolicy of separating the issue from 
 the banking departments. 
 
 Mr. Fowler's Essay seems to have been favor- 
 ably received by men of practical experience and 
 influence in the City of London. 
 
 No wonder there is so much difference of 
 opinion about Peel's Act, when such reasoning 
 as this is favorably received in the great metro- 
 polis of Commerce. 
 
 But there are in Mr. Fowler's Essay many 
 shrewd remarks, showing a clear mind atid much 
 practical experience; and the whole is recom- 
 mended to attention by an unassuming style. 
 
 With all due deference to the opinions of 
 others, it is submitted that, on the principles here 
 laid down and on these only, can the Organisa- 
 tion Op Credit In England ever be firmly 
 established. 
 
573 
 
 CHAPTER XL 
 
 THE PEESBNT AND THE PROPOSED BANK 
 CHARTER ACTS COMPARED. 
 
 The three most prominent and eifective of all the 
 proposed changes will be : — 
 
 1. Restoring the actual and independent capi- 
 tal of the Bank of England : 
 
 2. Raising the credit capital of the Bank from 
 £14,000,000 to £40,000,000. 
 
 3. Empowering the Bank to issue notes, be- 
 yond the amount of £40,000,000, against gold 
 and silver bullion, both or either, without limi- 
 tation. 
 
 These additional powers, as already shown, 
 will enable the Bank of England to exercise a 
 much greater influence than it has ever yet pos- 
 sessed for the Organisation of Credit in England, 
 by keeping down the price of loanable capital in 
 England. 
 
 But, for making these powers more effective 
 for this object, it is essential that the distinction 
 
574 THE BANK OF ENGLAND. 
 
 between the Issue Department and the Banking 
 Department should be abolished ; that the maxi- 
 mum rate of discount for the Bank of England 
 should be 4 per cent. ; and that the Bank of 
 England should be prohibited from advancing 
 money on loan, except by way of advances oif 
 Government securities. 
 
 Other important changes will be in throwing 
 open the Royal Mint, for the coinage of gold 
 and silver bullion in the coin of the realm, free 
 of charge ; and empowering the Bank of England 
 to issue notes against gold and silver coin and 
 bullion, without regard to proportions, but pay- 
 able in gold coin only ; and not making it com- 
 pulsory on the Bank of England to give its notes 
 for gold or silver bullion. 
 
 The effect of these changes will be to enable 
 the Bank of England to increase the supply of 
 gold and silver coin and bullion, and also of 
 notes, when these are wanted, without inflicting 
 any loss on the trade and industry of the country 
 by raising the rate of discount, and at the same 
 time to strengthen the basis of security for the 
 notes. 
 
 Advancing the legal tender in silver to £5 will 
 be an additional security to the Bank of England, 
 and also an additional convenience to the country. 
 The great demand for silver in the East Indies 
 
THE TWO SYSTEMS COMPARED. 575 
 
 has actually produced, at several times, a very 
 inconvenient scarcity of silver in this country. 
 In the year 1857 the silver sent to the East 
 Indies amounted to £17,000,000, and from Mar- 
 seilles £3,610,000, and for many years past the 
 average annual export of silver to the East Indies 
 has been £6,000,000 sterling. The effect of this 
 has been that, very recently the Bank of England 
 was compelled,' from want of silver, to issue a 
 notice to the public that no silver would be 
 given in exchange for notes or gold, an announce- 
 ment of no small inconvenience to those having 
 to meet the Saturday Pay to large numbers of 
 workmen. To the People the free circulation of 
 silver is more important than that of gold. 
 
 Another great convenience to the country will 
 be in removing the present singular anomalies in 
 regard to legal tender money, by .making Bank 
 of England Notes discharge a debt in Scotland 
 and Ireland, as well as in England. 
 
 The tendency of these changes will be to keep 
 the exchanges favorable to this country. As be- 
 fore explained, the term " favorable," or " un- 
 favorable," applied to the rate of exchange upon 
 foreign countries, is simply a form to express 
 whether more specie be coming in or going out. 
 
 The par of the currency of any two countries 
 means, among merchants, the equivalence of the 
 
676 THE BANK OF ENGLAND. 
 
 certain amount of the currency of the one 
 in the currency of the other, supposing the 
 currencies of both to be of the precise weight 
 and- purity fixed by their respective Mints. 
 Thus, according to the Mint regulations of Great 
 Britain and France, one pound, steriing, is equal 
 to 25 francs 20 cents., which is said to be the 
 par between London and Paris. And the ex- 
 change between the two countries is said to be 
 at par when bills are negotiated on this footing.; 
 that is, for example, when a bill for £100 drawn 
 in London is worth 2520 francs in Paris, and 
 conversely. When £1 in London buys a bill on 
 Paris for more than 25 francs 20 cents., the ex- 
 change is said to be in favour of London and 
 against Paris; and when, on the other hand, £L 
 in London will not buy a bill on Paris for 25 fr. 
 20 cents., the exchange is against London and in 
 favour of Paris.* 
 
 But, the state of the exchanges has, perhaps, 
 more to do with the profits of Bankers than of 
 Traders, foi', when there is a demand for specie, the 
 bankers keep on hand a larger stock of specie than 
 usual to meet the requirements of their customers. 
 This causes a temporary diminution of Bankers' 
 profits. Hence, Bankers term the exchanges 
 " favorable " when specie is flowing into the 
 
 * Lawson, ' History of Banking,' p. 48. 
 
THE TWO SYSTEMS COMPARED. 577 
 
 country, and " unfavorable " when flowing out. 
 This, and nothing more, is signified by " the 
 state of the exchanges." The effect of these 
 changes would be, to give the Bank of England 
 more power to " correct the exchanges," or to 
 keep them constantly favorable to this country, 
 without raising the discount to a panic rate. 
 
 The discontinuance of the Issue Department, 
 as separate and distinct from the Banking Depart- 
 ment, will again strengthen the Bank, by making 
 its assets at all times available for active and real 
 service, instead of shutting up in the Bank vaults 
 so many millions of gold bullion for inactive and 
 wholly imaginary service. 
 
 As already shown, nearly seven millions of 
 coin and bullion may now be in the Issue Depart- 
 ment, and no part of this large amount may be 
 available for the Banking Department; so that 
 the Banking Department may be obhged to stop 
 payment, when nearly seven millions worth of 
 gold and silver coin and bullion are in the Issue 
 Department. 
 
 This is a possible and not very improbable 
 state of things, as experience has proved, but 
 this could hardly have been intended or foreseen. 
 
 Lord Overstone (then Mr. Samuel Jones Loyd) 
 the Author, or supposed Author, thus explained 
 the object of his new measure : — 
 
 2 p 
 
578 THE BANK OF ENGLAND. 
 
 " Contraction of circulation is to be made pre- 
 cisely coincident as regards time and amount, 
 with diminution of the bullion ; and thus, it is 
 conceived that, the danger of total exhaustion, 
 which could not befal a metallic circulation, will 
 be rendered equally impossible with respect to a 
 mixed circulation of gold and paper. The re- 
 sult remains to be ascertained ; but all reasoning 
 confirms the soundness of the grounds upon 
 which this experiment is founded, and justifies a 
 sanguine expectation that, by a close and steady 
 adherence to principle, the safety of our monetary 
 system will be more eflFectually secured. Whatever 
 may be the inconvenience to the public involved 
 in the measures necessary for this purpose, it would 
 be unwise in the extreme not to submit to it." 
 
 So wrote Mr. Samuel Jones Loyd in 1844, 
 when " the result remained to be ascertained." 
 In 1847, the third year of the trial of this ex- 
 periment, the result was ascertained, and, as is 
 too well remembered by many, was proved to be 
 a total failure. 
 
 But, notwithstanding that failure, and the no 
 less disastrous failure ten years afterwards, it is 
 still maintained with singular audacity by the 
 advocates of the theory for dividing the Bank of 
 England into two separate and distinct depart- 
 ments that, the Act did what it was intended it 
 
THE TWO SYSTEMS COMPARED. 579 
 
 should do, namely, prevent an entire drain of 
 bullion from the coffers of the Issue Department. 
 But, the answer is, that was not the real danger. 
 The real danger was the stoppage of the Banking 
 Department ; and that was very nearly happen- 
 ing, although more than six millions of coin and 
 bullion were then in the Issue Department. 
 
 But, if the Act did prevent an entire drain of 
 bullion, the Act did not prevent a panic, and a 
 loss of capital to the country very far exceeding 
 the whole amount of coin and bullion in the 
 Issue Department. 
 
 The power of the Bank of England to issue 
 notes on the 2nd of January, 1847, was 
 £28,258,260, and the reserve of notes in the 
 Banking Department was £8,277,085. 
 
 On the 23rd of October, 1847, the power 
 of the Bank to issue notes was reduced to 
 £21,865,445, and the reserve of notes in the 
 Banking Department was £1,547,270 ; further 
 reduced, on the 30th of October, to £1,176,740. 
 
 Here was a decrease in the amount of notes 
 issued on the 23rd of October, 1847, compared 
 with the amount of notes issued on the 2nd of 
 January, 1847, of £6,392,815, and a decrease 
 in the reserve of notes of £6,729,815, and a 
 further decrease in the reserve of notes on the 
 30th of October, 1847, of £7,100,345. 
 
 2 p 2 
 
580 THE BANK OF ENGLAND. 
 
 On the 9th of January, 1847, the amount of 
 notes in circulation was £20,836,845, and on 
 the 18th of December, 1847, £17,758,255, 
 being a decrease in the amount of notes in cir- 
 culation of £3,078,590. 
 
 The amount of gold in the Issue Department 
 on the 2nd of January, 1847, was £11,788,770, 
 and of silver, £2,469,490, making together a 
 total of £14,258,260. 
 
 On the 23rd of October, 1847, the gold 
 was reduced to £6,745,354, and the silver 
 to £1,120,091, making together a total of 
 £7,865,445. 
 
 So much for Lord Overstone's theory for di- 
 viding the Bank of England into two separate 
 and distinct departments ; and so much for his 
 sanguine expectation that " contraction of the 
 circulation is to be made precisely coincident, as 
 regards time and amount, with the diminution of 
 bullion." 
 
 Lord Overstone appears to be under a great 
 misconception of what may rightfully be de- 
 manded from him as a theorist. He is not en- 
 titled to frame a theory from one class of facts 
 which does not fit, and excuse himself by saying 
 that, if we cannot make it fit, it is because the 
 ultimate facts are controlled by other and special 
 facts. If we propound a theory, we are bound 
 
THE TWO SYSTEMS COMPARED. 581 
 
 to prove all it asserts. It is not philosophical to 
 assert a theory, and to make any special facts an 
 excuse for not proving it. Whatever is a hin- 
 drance to proving a theory ought to be a hin- 
 drance to affirming it. The " variation theory " 
 of Lord Overstone has been disproved by facts, 
 and the best test of right or wrong for any 
 theory is that, it does, or does not, fit perfectly. 
 
 Newton made it an absolute condition of 
 adopting the theory of gravitation, that it should 
 fit ; and when, owing to incorrect data, he could 
 not make it fit perfectly, he abandoned the spe- 
 culation for many years. 
 
 It will be seen from the foregoing figures 
 from the Bank Weekly Returns that, the fluc- 
 tuations under the four diff'erent heads, the 
 Issues, the Notes in circulation, the Bullion in 
 the Issue Department, and the Reserve of Notes 
 in the Banking Department, were in the follow- 
 ing proportions in the year 1847, between the 
 highest and the lowest amounts : — 
 
 
 Highest. 
 
 L°^^^*- percent 
 
 
 £. 
 
 £. 
 
 £. 
 
 Notes Issuable 
 
 38,258,260 
 
 21,865,445 
 
 22-7 
 
 Notes in Circula- 
 
 
 
 
 tion . . 
 
 20,836,845 
 
 17,758,255 
 
 14-8 
 
 Bullion in the Is- 
 
 
 
 
 sue Department 
 
 14,258,260 
 
 7,865,445 
 
 45-6 
 
 Notes in reserve 
 
 8,227,085 
 
 1,176,740 
 
 85-7 
 
582 THE BANK OF ENGLAND. 
 
 Thus, it appears, while the active circulation 
 of the Bank was contracted 14 per cent., the 
 bullion in the Bank diminished 45 per cent. ; 
 and while the power of the Bank to issue notes 
 diminished 22 per cent., the reserve of notes in 
 the Banking Department decreased to the extent 
 of 85 per cent. 
 
 These facts ought to be conclusive against the 
 separation of the Bank of England into two sepa- 
 rate and distinct departments. Examples of the 
 failure of this experiment might be multiplied to 
 any required extent, but one example is as good 
 as a hundred examples to show that there is 
 something wrong in this theory. 
 
 As to " the inconvenience to the public in- 
 volved in the measures necessary for this pur- 
 pose," it is one thing to submit to a painful 
 remedy which effects a cure, and quite another 
 thing to submit to that which is no remedy but 
 an aggravation of the disease. 
 . The theory of " variation " which is the main 
 principle of the Bank Act of 1844, and which 
 now regulates our monetary system, is simply 
 this : — When a large amount of gold is brought 
 into this country, a corresponding amount of 
 Bank of England notes is brought into circula- 
 tion ; and when gold is withdrawn a correspond- 
 ing amount of notes is also withdrawn. If, for 
 
THE TWO SYSTEMS COMPARED. bSS 
 
 some temporary cause, all our monetary gold 
 were sent abroad, all our Bank of England notes 
 would at the same time disappear, and the 
 country would be left without legal tender money 
 of any kind, beyond forty shillings in silver. So, 
 if gold, money fail us, we are, therefore, to lose 
 our paper money, and we are not to use silver 
 for gold, though we have no gold and plenty 
 of silver. This is the masterpiece of monetary 
 science, which we are required to regard as the 
 great discovery of our time, on which rests chiefly 
 the fame of the greatest statesman of our time, 
 and for the helping hand lent to this great work 
 by the greatest Banker and Capitalist of our 
 time, he was made noble by his Sovereign, to be 
 held in perpetual remembrance by his grateful 
 countrymen, for giving them an additional supply 
 of bank-notes when they don't want any more, 
 and for giving them none when they do want 
 more ; or, for giving them a double amount of 
 bank-notes when they have gold enough, and, 
 when they have no gold, taking away their bank- 
 notes and leaving them nothing. 
 
 This is called the Overstone "variation" theory, 
 or, the rule of contrary. 
 
 The ebbing of the gold, which occasionally 
 occurs in this country as in other countries, is 
 temporary only, and as surely as the tide flows 
 
584 THE BANK OF ENGLAND. 
 
 after the ebb, so surely would the gold return to 
 us if left to the ordinary course of trade. The 
 gold does not leave us through any depreciation 
 of the currency, and it will come back again 
 without any artificial measures taken to enhance 
 the value of money. Under the present system, 
 these transient ebbings of the gold, instead of 
 being neutralised, are so treated as to produce a 
 serious derangement of our measure of value. 
 Thus vfe violate the sole object for vrhich stand- 
 ard-measures are instituted. 
 
 The effect of the repeal of that clause in the 
 Bank Act of 1 844, which hmits the issue of notes 
 against silver bullion to the proportion of one- 
 fourth of the gold coin and bullion in the Issue 
 Department, will be no inconsiderable benefit to 
 the trade of the country, by encouraging the im- 
 port of silver into this country, now discouraged, 
 and a very considerable relief to the Bank of 
 England by removing the necessity, now im- 
 posed upon it by the Act, of keeping the exact 
 proportions between the gold and the silver in 
 the Issue Departrnent. 
 
 This inconvenience was pointed out by Mr. 
 Glyn in his evidence before the Committee of the 
 House of Lords, in 1848, when asked : — 
 
 "Do you approve of that clause of the Act 
 which restricts the Bank in the purchase of silver 
 bullion?" 
 
THE TWO SYSTEMS COMPARED. 585 
 
 Answer. " 1 certainly do not. 1 think the re- 
 striction to one-fifth is very inconvenient, and, 
 practically, in the spring of last year, it was 
 found so. Merchants from the Pacific, whose 
 returns are very much in silver bullion, found, 
 when it arrived last spring, that there was no 
 market for it here, and they had to send it over 
 to Paris for return in bills of exchange, and when 
 they came back there was a difficulty in dis- 
 counting. The interval lost, which is about six 
 weeks, is a very serious thing to a mercantile 
 house ; and there is another evil in it -. — sup- 
 posing the amount of bullion held in the Issue 
 Department to be in exact proportions allowed 
 by the Act, with one-fifth silver, and supposing 
 £400,000 of notes go in, taking the same amount 
 of sovereigns out, that immediately alters the pro- 
 portions, and the Issue Department must neces- 
 sarily sell silver bullion to keep the proportion 
 right, and thus reduce the circulation another 
 £100,000 to keep up the proportion." 
 
 It is hardly possible to imagine anything more 
 absurd than this necessary consequence imposed 
 by the Act ! 
 
 There was scarcely a single witness who was 
 examined before the Committee in 1848, that did 
 not condemn this limitation of silver, including 
 Mr. Morris, the Governor of the Bank of England. 
 
586 THE BANK OF ENGLAND. 
 
 Thus, the present system throws the whole 
 weight of our commercial and trading operations 
 upon gold, and as no compensating power is al- 
 lowed to come in to the aid of our paper circula- 
 tion, in the form of silver coin or bullion, when 
 the gold is withdrawn from the Bank, the natural 
 consequence is that, the mercantile credit of the 
 country must be reduced to the level which vrill 
 enable the Bank of England to bring down the 
 amount of its notes in circulation to what is called, 
 a safe margin. 
 
 Under the proposed new system these evils 
 will disappear. 
 
 The ulterior effects of these important changes 
 will be more numerous than can be easily tofd, 
 but some of the immediate effects will be mani- 
 fest. 
 
 The power of the Bank of England to issue 
 Notes will be increased nearly four-fold. 
 
 The attempt to fix the price of gold in this 
 country, by compelling the Bank of England to 
 give notes on demand for gold bulhon, at £3 
 17s. 96?. per ounce, will cease, and the Bank of 
 England, like all other Banks, vsrill be left free to 
 buy gold and silver in the open market, at tlie 
 market-price. 
 
 The trade in gold and silver will then be free, 
 as the trade in all commodities ought to be, and 
 
THE TWO SYSTEMS COMPARED. 587 
 
 this country will then be the best supplied mar- 
 ket in the world for silver as well as gold. 
 
 By confining the issue of notes to the Bank of 
 England greater stabihty will be given to credit 
 generally, by one uniform issue of paper-money, 
 substituted for the present issue by country-banks, 
 at the will and' pleasure of the issuers, without 
 any security for payment, these notes circulating 
 only within a certain confined radius from the 
 place of issue, whilst Bank of England notes cir- 
 culate throughout the length and breadth of the 
 land, and are the secured legal tender money of 
 the kingdom. 
 
 If it be considered by some a strong measure 
 to deprive the private banks, now issuing their 
 notes, from continuing to exercise this privilege, 
 notwithstanding that it was conferred only as a 
 temporary measure, and might be discontinued 
 at any time, yet, when the necessity for discon- 
 tinuing it is more clearly seen, this may be no 
 insuperable difficulty, and, at the worst, it is only 
 a question of compensation. But when the 
 Government refused to stamp any more one- 
 pound notes, without which such notes could not 
 be issued, and when they limited the period for 
 issuing such notes, this was virtually a prohibition 
 to issue one-pound notes beyond that period, but 
 for that deprivation no compensation whatever 
 was given. 
 
588 THE BANK OF ENGLAND. 
 
 As Mr. Lawson asks : — " Is it not strange that 
 the framets of the Act, while applying to a large 
 and wealthy corporation, like the Bank of Eng- 
 land, very stringent regulations, in order to secure 
 the convertibility of its notes, should have allowed 
 so large an amount of the note circulation of the 
 country to be conducted by men who, to adopt 
 the phrase of Lord Liverpool, ' might have been 
 cobblers or .cheesemongers,' and to give to such 
 parties, whether good or bad, an absolute mono- 
 poly of the issues of the country? This was, 
 however, absolutely done ; not only was the mo- 
 nopoly granted to them for an indefinite period, 
 but the amount of notes to be issued by each 
 bank was fixed."* 
 
 It is not easy to see the answer to this question, 
 nor has it ever been answered, unless by the sug- 
 gestion that, this was a necessary concession to 
 the country bankers for insuring the passing of 
 the Act. 
 
 With regard to the Weekly Return of the Bank 
 of England, the change proposed in the form of 
 this return will be a great improvement for the 
 convenience of the Public. 
 
 If this Weekly Return had been intended to 
 disguise the facts most important to be known, 
 
 * " The Bajik of England, As It Is, And As It Ought To 
 be." page 11. 
 
THE TWO SYSTEMS COMPARED. 689 
 
 the present form has been ingeniously contrived 
 for the purpose. 
 
 It is of great importance that the ^financial 
 state of the Bank of England, which is entrusted 
 with the issue of the money of the country, 
 should be clearly and precisely shown. This is 
 not clearly shown in the present form, and all 
 that is necessary to be known by the^Pubhc will 
 be clearly and precisely shown in the proposed 
 new form. 
 
 The following is the actual Account of the 
 Issue and Banking Departments of the Bank of 
 England, for the Week ending on Saturday the 
 9th day of May, 1857. 
 
 Bakk of England, 
 issue department. 
 
 Notes Issued . . 23,567,945 
 
 £23,567,94,5 
 
 £ 
 
 Government Debt 11,015,100 
 Other Securities . 3,459,900 
 Gold Coin and 
 
 BuUion . . . 9,092,945 
 Silver Bullion 
 
 £23,567,945 
 
590 
 
 THE BANK OF ENGLAND. 
 
 BANKING DEPARTMENT. 
 
 Proprietors' Capi- 
 tal .... 14,553,000 
 
 Rest .... 3,328,676 
 
 Public Deposits, 
 including Ex- 
 chequer, Sav- 
 ingsBank, Com- 
 missioners of 
 National Debt 
 and Dividend 
 Accounts . . 5,163,146 
 
 Otber Deposits . 10,081,864 
 
 Seven Day and 
 other Bills . . 749,046 
 
 £?S,h'}bi 
 
 £ 
 
 Government Se- 
 curities, (in- 
 cluding Dead 
 Weight An- 
 nuity) . . . 10,803,838 
 
 Other Securities 12,630,357 
 
 Notes .... 4,226,355 
 
 Gold and Silver 
 
 Coin . . . 715,182 
 
 £33,875,732 
 
 It will be seen, from the foregoing Account, that 
 the Issue Department purports to represent the 
 amount of Notes issued, £23,567,945 ; whereas, 
 the amount actually issued was only,£19,341,590. 
 
 Of these notes actually issued, £14,475,000 
 were issued against Government Securities, leav- 
 ing only £4,866,590 issued against bullion. And 
 yet, gold coin and bullion, to the amount of 
 £9,092,945, are entered in this Account of the 
 Issue Department ! 
 
 Now, here are two deceptions practised. 
 
 1. Notes to the amount of £4,226,355 are 
 stated to be issued, more than are issued. 
 
 2. Gold Coin and Bullion to the amount of 
 
THE TWO SYSTEMS COMPARED. 591 
 
 £4,226,355, which ought to be in the Banking 
 Department, are placed in the Issue Department. 
 
 In the Banking Department, the Account is, 
 in like manner, untruly stated, the amount of 
 Notes there entered as issued being £4,226,355; 
 whereas, in fact, there are no such notes issued, 
 there being only a power to issue them, but 
 which power was not then exercised. If actu- 
 ally issued, as they ought to have been, and if 
 the same amount of gold coin and bullion had 
 been placed to the account of the Banking De- 
 partment, instead of the Issue Department, the 
 Notes in reserve in the Banking Department 
 would then have been £4,236,355 ; and the Gold 
 asd Silver Coin and Bullion would then have 
 been £4,941,537, making the total reserve of 
 Bank Notes, and Gold and Silver Coin in the 
 Banking Department, together, £9,167,892, in- 
 stead of £4,941,537. 
 
 Thus, absurd and useless as is the division 
 into two separate and distinct Departments, this 
 account, if truly stated, would, at least, be in- 
 telligible to everyone, instead of being, as it now 
 is, intelligible only to a few, and a delusion and 
 a snare to many. 
 
 By the Account in the form proposed (page 
 298), the amount of notes in circulation, and the 
 real reserve in the Bank, applicable to the accom- 
 
592 THE BANK OF ENGLAND. 
 
 modation of the Public, are stated in plain and 
 unmistakeable figures. 
 
 It will be seen that, this is not a mere ques- 
 tion of form in the statement of the Account, 
 but that a substantial defect is exposed in the 
 system, for it is manifest that, but for this absurd 
 and deceptive system, the Public, on the 9th day 
 of May, 1857, would have had the accommoda- 
 tion, and the Country the benefit, of a reserve of 
 bank-notes and gold and silver coin and bullion, 
 together, £9,167,892, instead of a reserve of 
 bank-notes and gold and silver coin together, 
 only £4,941,537. 
 
 How great would have been the accommodation 
 to the Public and benefit to the country at that time 
 of severe financial pressure needs no explanation. 
 
 Few, probably, read in the newspapers the 
 Weekly Return of the Bank of England, for many 
 do not understand even the meaning of the terms 
 used in that Account, and those who do are not 
 much the wiser. To the inexperienced, the con- 
 juring tricks played ofi" between the Issue and 
 Banking Departments must be suggestive of 
 thimhle-rigging . When the inexperienced eye 
 looks for the paper note or the gold sovereign in 
 one department, it is pretty sure to be in the 
 other, and how it came there is no more clear 
 than how the pea comes under the conjuror's cup. 
 
THE TWO SYSTEMS COMPARED. 593 
 
 At any rate, all hocus-pocus will be got rid of 
 in the new form of the Weekly Account. All 
 that is immaterial is excluded, and all that is 
 material is presented in a form intelligible to the 
 commonest understanding. 
 
 The following explanation of the items in the 
 present form of the Weekly Account will show 
 the clearness and simplicity of the new form. 
 
 The credit side of the present Weekly Ac- 
 count commences with the Government Debt to 
 the Bank of England. 
 
 Debt was the foundation of the Charter, as 
 well as the means of the great success and power 
 which the Bank of England has since obtained 
 over other Banks, and to this hour Debt forms 
 the basis of its privileges and prosperity. 
 
 But the error is when this forms the only foun- 
 dation, and this is the weakness of the Bank of 
 England. 
 
 The same error has been committed in the 
 foundation of the Bank of Erance, a great part 
 of its capital being advanced to the Government 
 without interest. 
 
 The Government that granted the Charter to 
 the Bank of England began by borrowing of the 
 Bank, and almost every succeeding Government 
 has been guilty of the same abuse. No attempt 
 was made to repay any part of this Debt for 
 
 2 Q 
 
594 THE BANK OF ENGLAND. 
 
 nearly 100 years, namely, between 1738 and 
 1835, as shown by the following statement, 
 giving the origin and progress of the Debt : — 
 
 The Public Debt Due to the Bank. 
 
 £. 
 1694. Original Subscription lent to 
 
 Government at 8 per cent. 
 
 per annum 1,200,000 
 
 1708. Advanced to Government 
 
 without interest . . . 400,000 
 Exchequer Bills cancelled . 1,775,027 
 1717. Ditto ditto . 2,000,000 
 
 1722. Advanced to pay off South 
 
 Sea Stock-holders . . . 4,000,000 
 
 £9,375,027 
 1727-8. Deduct amount paid from 
 
 the Sinking Fund . . 1,775,027 
 
 £7,600,000 
 1728. Advanced on the Security of 
 
 Taxes 1,750,000 
 
 „ Ditto upon Lottery . . . 1,250,000 
 
 £10,600,000 
 
THE TWO SYSTEMS COMPARED. 595 
 
 £. 
 
 1728. Paid from Sinking 
 
 Fund . . . 500,000 
 1738. Ditto ditto 1,000,000 
 
 1,500,000 
 
 £9,100,000 
 1742. Advanced without Interest . 1,600,000 
 1746. Exchequer Bills cancelled . 986,800 
 1816. Advanced at 3 per cent. In- 
 terest 3,000,000 
 
 £14,686,800 
 1835. By the transfer of £4,080,000 
 Reduced 3 per Cent. An- 
 nuities, equal to one-fourth 
 of the debt in accordance 
 with the 9th section of the 
 CharterActof 1833(3and 
 4 Will. IV. c. 98) . . . 3,671,700 
 
 Total Debt £11,015,100 
 
 This total will be found to correspond with 
 what is called the " Government Debt," which 
 is placed on the credit side of the Weekly Re- 
 turns of the Bank, forming part of the basis on 
 which its notes are issued. 
 
 The sum of £2,984,900, which makes up the 
 
 2 Q 2 
 
596 THE BANK OP ENGLAND. 
 
 total of £14,000,000, consists of other securities 
 held by the Bank for claims it possessed upon 
 the Government when the Act of 1844 first 
 came into operation, and this sura, as before 
 mentioned, was further increased to £3,459,900 
 in December, 1855, making up the total of 
 £14,475,000, which has been subsequently in- 
 creased by lapsed issues, to £14,650,000,* on the 
 credit of which the Bank now issues its notes 
 to that amount. 
 
 The " Weekly Returns,'' as they now appear in 
 the London Gazette, give no account of the notes 
 actually issued, or of the amount in circulation, 
 but these facts are to be obtained, as already 
 shown, from the Accounts of the Issue and 
 Banking Departments. 
 
 The "Proprietors Capital" requires no ex- 
 planation, this being the amount which has been 
 from time to time authorised by Parliament. 
 
 The "Best" is simply the amount to the 
 credit of the Bank when all its liabilities are 
 balanced against its assets, thus : — The total 
 amount of securities held in the Banking De- 
 partment on the 9th day of May, 1857, was 
 £33,875,732, but its liabilities on the other side 
 were only £30,547,056, leaving a surplus balance 
 of £3,328,676, which was the amount of the 
 
 * Now £15,000,000. See page 197. 
 
THE TWO SYSTEMS COMPAREU. 597 
 
 " Rest." This mode of keeping the Accounts was 
 introduced into the Bank management in 1722. 
 
 "Public Deposits" constitute what is con- 
 sidered the Treasury Account of Government in 
 the hands of the Bank ; and " Other Deposits " 
 belong to private individuals, public companies, 
 or corporate bodies. Independent of the Dis- 
 count Accounts, nearly all the Bankers have 
 what they call ' Drawing Accounts ' at the Bank 
 of England, or ' Deposit Accounts/ 
 
 " Seven Day and other Dills " comprise the 
 various Bills of the Bank due at different dates. 
 These together comprehend the debit side of the 
 returns in the Banking Department 
 
 The "Government Securities" on the credit side 
 are made up of various kinds held by the Bank for 
 the purpose of realisation, including the "Dead 
 W eight Annuity " which is an Annuity of £585,740 
 paid by the Public to the Bank until 1867. 
 
 The meaning and origin of this term — " Dead 
 Weight" — are not generally understood. It means 
 the payment by the Government to the Bank of 
 England of an Annuity of £583,740, and origi- 
 nated in a bargain made by the Government with 
 the Bank hi the year 1823, whereby the Bank, in 
 consideration of this Annuity, payable by the 
 Government for 45 years, to terminate in 1867 
 agreed to advance to the Government, within 5 
 
598 THE BANK OF ENGLAND. 
 
 years,- the capital sum of £13,089,419, to enable 
 the Government to pay the money due for pensions 
 to the retired officers of the Army and Navy, 
 and the widows of officers who fell at Waterloo. 
 
 The Bank of England accepted the terms and 
 advanced the money, and has been receiving from 
 the Government, since the year 1823, this An- 
 nuity, under the expressive name of the " Dead 
 Weight," for such it has been to the Govern- 
 ment, and also a very heavy loss to the Bank of 
 England, which ought never to have entered into 
 such a transaction. The Bank having no capital 
 of its own advanced this large sum of £13,089,419 
 out of the deposits belonging to the customers of 
 the Bank, for which no interest was payable, but 
 for which the Bank was equally liable as for its 
 notes, payable on demand. If the depositors had 
 been acquainted with that transaction at the time 
 and if they had been alarmed for the safety of 
 their deposits, they might have demanded instant 
 payment, and then the Bank must have stopped 
 payment, or the Government must have come to 
 the rescue. In the material point, there is too 
 much similarity between this case and those cases 
 of some other banks of painful notoriety. 
 
 What will be the situation of the Bank of 
 England in 1867, when this Annuity will cease, 
 is a question which concerns the commercial com- 
 
THE TWO SYSTEMS COMPARED. 599 
 
 munity of this country. But, perhaps, the Bank, 
 with the certainty of this approaching diminution 
 of its resources, has been prudently preparing for 
 the event. In an ordinary case, the Court of 
 Chancery would certainly have held this to be a 
 misapplication of the trust fund, and a gross 
 breach of trust, being contrary to the express 
 provision of the Trust Deed, or, in this case, the 
 Charter. 
 
 " Other Securities " comprise all descriptions 
 on which the Bank make advances, including 
 bills under discount. 
 
 The gold and silver coin requires no explana- 
 tion ; but the item called " Notes," is not very 
 intelligible and is frequently misinterpreted. 
 
 As already remarked, the Bank returns do not 
 give the amount of notes actually in circulation, 
 and what are called " Notes Issued," in reahty 
 indicate only the jooicer of the Bank to issue such 
 Notes. Therefore, to ascertain the amount of 
 Bank of England notes in actual circulation, the 
 amount given under the head of " Notes," in the 
 Banking Department, must be deducted from the 
 " Notes Issued " in the Issue Department, which 
 leaves the amount in actual circulation, or out of 
 the Bank ; thus : — in the Weekly Return of the 
 Bank, for the Week ending on Saturday, the 9th 
 day of May, 1857, — (given on page 589) the 
 
dOO the bank of ENGLAND. 
 
 " Notes Issued " amounted to £4,226,355, and, 
 deducting the latter from the former sum, leaves 
 £19,341,590, which was the amount of notes in 
 actual circulation at that time. 
 
 The "Notes," therefore, forming the "Bank 
 Reserve," are simply the amount of notes un- 
 employed in the Banking Department ; the notes 
 in circulation with the public being one portion 
 of the Bank's issue, and the notes in reserve being 
 the other. 
 
 As the notes in the Banking Department, with 
 the gold and silver coin, are the only means for 
 meeting the requirements of the pubhc, it is ob- 
 vious that, if three or four of the great joint-stock 
 banks were to agree to withdraw, at the same 
 time, £2,000,000 each from the Bank of England, 
 which they could do at any time with the most 
 perfect ease, the Bank of England must stop. 
 The bullion in the Issue Department would avail 
 nothing to the Banking Department deprived of 
 all its notes. But the Issue Department may 
 also be without a sovereign. The Act does not 
 require that any amount of bullion should be 
 kept in the Issue Department. There might not 
 be a single sovereign in the Issue Department, 
 nor a single note in the Banking Department. 
 The Bank might be utterly without gold or silver 
 or paper, and yet there might be £14,000,000 of 
 
THE TWO SYSTEMS COMPARED. 601 
 
 its notes in circulation. All this might happen 
 and still be in strict accordance with the pro- 
 visions of the Act of 1844. And what, if all 
 this were to happen, would be the consequence ? 
 Great inconvenience to the community. Nothing 
 more. The convertibility of the note could not 
 be brought into question. The Government gua- 
 rantee would save the note holder. The deposi- 
 tors would be safe for their deposits. There 
 would be a little delay. Nothing more. The 
 holder of the sovereign would have the security 
 in his own pocket. The holder of the note would 
 be equally secure. Many Bankers, Merchants, 
 and Tradesmen would stop payment, to renew 
 when the Bank of England was re-estabHshed on 
 a broader and a safer basis. Business would not 
 be suspended. The embarrassment would be 
 general, but of short duration. All would soon 
 be restored on a much mofe easy and permanent 
 footing. 
 
 In the meantime, as long as the Government 
 furnished the means, payment of the dividends 
 to the public creditors would continue to be made 
 at the Bank, each Loan Act containing a clause 
 constituting the Bank of England a Corporation 
 until the loan be paid off, and directing that, the 
 interest on such loan shall be paid at the Bank of 
 England, thereby constituting the Bank of Eng- 
 
603 THE BANK OF ENGLAND. 
 
 land a corporation until the whole of the National 
 Debt be paid off. 
 
 This is the pledge and the only pledge that 
 Parhainent has given of the permanency of the 
 Bank, and, though deprived of all its other pri- 
 vileges, still the Bank of England vpould be a 
 corporation for the payment of the dividends to 
 the public creditors. The holders of stock, there- 
 fore, are entitled to insist that the dividends shall 
 continue to be paid at the Bank of England, and 
 whatever may be the embarrassments of the Bank, 
 these need not interfere with public faith to the 
 prejudice of the interest of the Stockholders, so 
 far as regards the punctual payment of the divi- 
 dends on the National Debt. 
 
 In the meantime, until the Bank of England 
 should be re-established, the business of the 
 country would be carried on by the other Banks 
 through bills and cheques, and though the interval 
 of suspension would be attended with great in- 
 convenience to the trading community, the loss 
 to the country would be insignificant in com- 
 parison with that which is continually recurring 
 under the existing system of the Bank of Eng- 
 land. 
 
 It is not in the nature of things that many 
 more years should elapse without that combina- 
 tion of circumstances which must bring the Bank 
 
THE TWO SYSTEMS COMPARED. 603 
 
 of England to a dead stop. Great as that mis- 
 fortune would be at any time, still it would be 
 greatly aggravated if at a time of domestic or 
 foreign disturbance. Nothing could be more 
 fortunate for the country than such an occurrence 
 falling upon a time of peace and plenty. No- 
 thing could be more fortunate for the country 
 than such a speedy termination to the existing 
 Bank Act, unless that happy event were brought 
 about by the unanimous determination of the 
 Legislature. But, of all unlikely events, that is 
 least likely to happen. The other is much more 
 likely, and that is not very unlikely. 
 
 The bills becoming due to the London and 
 Westminster Bank alone in November and De- 
 cember, 1857, are stated to have amounted to 
 £5,623,000. 
 
 Therefore, that Bank alone could, at its plea- 
 sure, stop the Bank of England by only watching 
 for the opportunity. It could have done so 
 easily in November or December, 1857. Un- 
 fortunately for the country, it is not worth the 
 while of any Bank to do so. But let not the 
 Government count upon that as always to be so, 
 for some day it may happen to be otherwise, and, 
 however that may be, the day of trial must come 
 under which the Bank Act of 1844 must fall. 
 
 Under the proposed new system, it must be 
 
604 THK BANK OF ENGLAND. 
 
 unnecessary to give the public any more infor- 
 mation on the transactions of the Bank than is 
 given in the new form of the Weekly Account, 
 as the public can have no concern vi^ith the De- 
 posits, public or private, in the Bank. These en- 
 tries, now not unimportant, would then be only 
 confusing. 
 
 The fair principle of making the Bank of Eng- 
 land accountable to the Government for the pro- 
 fits on the Issue of Notes beyond the Proprietors' 
 Capital is continued. It is important that the 
 Bank of England should be above the suspicion 
 of being influenced by its own interests in the 
 issue of notes, or in the rate of discount. 
 
 For the remuneration of the Bank for the loss 
 of profits consequent on these restrictions, and for 
 its management of the Public Debt, it is proposed 
 to raise the allowance to the Bank to £250,000 
 per annum. 
 
 It is also proposed that the Government should 
 allow to the Governor, the Deputy Governor, and 
 Directors of the Bank of England, for their per- 
 sonal services, the yearly sums before mentioned. 
 These are very honorable offices, involving high 
 trust and responsibility, and it is not fitting that 
 such offices should be, as supposed to be, without 
 any direct emolument. 
 
 According to the evidence of Mr. Thomson 
 
THE TWO SYSTEMS COMPARED. 605 
 
 Haiikey, one of the Directors, in his evidence be- 
 fore the Committee of the House of Commons, 
 the financial operations of the Bank of England 
 average £3,500,000 a day. 
 
 The sections 14, 15, 16, in the existing Bank 
 Charter Act, regulating the union of Bank part- 
 nerships, must be re-enacted. But this ought to 
 be by a separate Act, and the same principle 
 ought to be extended to all partnerships. 
 
 The sections in the existing Act, relating to other 
 Banks of Issue, being proposed to be repealed, any 
 further notice of them here is unnecessary. 
 
 For the manner in which the Public Debt is 
 managed and the Quarterly Dividends are paid 
 by the Bank of England it may be said, without 
 fear of contradiction, that this is the nearest ap- 
 proach to a perfect system which it is possible to 
 conceive. 
 
 When the magnitude of this account and its 
 innumerable, intricate, and minute divisions and 
 subdivisions are considered, with the necessity of 
 extreme accuracy, the practically perfect result 
 brought out by this vast and complicated machi- 
 nery worked entirely by human heads and hands, 
 subject to all the human weaknesses and infir- 
 mities, the impression is that of wonder and 
 admiration at the powers of the human mind, 
 which could conceive and carry out such a system 
 to such perfection. 
 
606 THE BANK OF ENGLAND. 
 
 To those who know little or nothing about it, 
 the following short and clear explanation, from 
 Mr. Lawson's excellent treatise on Banking, may 
 be interesting. 
 
 " The Lords of the Treasury direct Warrants 
 to be drawn out, which are sent to the Auditor 
 of the Exchequer, who directs an order to be 
 made out for the Teller of the Exchequer to pay 
 certain suras to satisfy the Dividends then due. 
 The Warrant and Order are sent to the Treasury, 
 which returns them to the Auditor of the Ex- 
 chequer, who keeps the Warrant in his own pos- 
 session for his security, and upon the Order 
 directs the Teller of the Exchequer to pay cer- 
 tain sums thereon to the amount of the Dividends 
 then due and specified, which is done by giving 
 to the Clerk of the Bank as many Exchequer Bills 
 of £1000 each as the said quarterly dividends 
 amount to, and for which the Chief Cashier gives 
 a receipt, and thus the Bank pays each claimant 
 a dividend thereon. 
 
 " The manner in which the Bank proceeds in 
 preparing the Dividend Warrants is, by making 
 the amount of each party's stock agree with the 
 amount of that particular stock, and the amount 
 of interest on each Warrant to correspond with 
 the total amount of interest due on that particu- 
 lar stock by Government ; but, as the Bank never 
 
THE TWO SYSTEMS COMPARED. 607 
 
 pays the fractional parts of a penny, they are 
 compelled to calculate the interest on each war- 
 rant to the third figure of decimals beyond a 
 penny, which prevents, as far as human prudence 
 can, the possibiHty of an error. The total dif- 
 ferences of the decimals yield to the Bank a net 
 profit of more than £100 per annum."* 
 
 The courteous attention which the Public meet 
 with on all occasions and in every department 
 of the Bank of England is universally acknow- 
 ledged, and with a few simple amendments in its 
 constitution, the Bank of England would be a 
 National Establishment with which none other 
 in the world could compare, and it would be a 
 model from which all the civilised nations of the 
 world would copy. 
 
 The Bank of England is, in fact, a mere ma- 
 chine for circulating the notes which pass under 
 its name, but against the responsibility of the 
 Government to a certain fixed amount, because 
 experience has shown that the amount of notes in 
 circulation will never fall below that amount, and 
 above that amount every note is issued against 
 an equal value of bullion or specie deposited in 
 the cofi'ers of the Issue Department. Although 
 an afiair of the State, here the State has no 
 power, and here is no interference whatever with 
 
 * Lawson on Banking, page 184. 
 
608 THE BANK OF ENGLAND. 
 
 Banking, but the issue of notes is restricted to 
 secure the convertibiUty of the Note. 
 
 The Bank of France is under a different and 
 more imperfect law. It has an absolute monopoly 
 of the issue of notes throughout the Empire, (and 
 so far is more perfect), with tlie doubtful excep- 
 tion of Savoy, and there is no restriction on the 
 amount of its issues ; but, in exchange for this 
 profitable privilege, a very considerable proportion 
 of its capital is lent to the State without interest. 
 The exclusive privilege of issuing notes is sold to 
 the Bank of France, and the responsibility of pre- 
 serving the convertibility of the note is intrusted to 
 the Governor and Directors of the Bank, subject to 
 the additional but questionable safeguard that the 
 Governor of the Corporation is a nominee of the 
 Emperor. The effect of this is to place the Bank 
 of France wholly in the power of the Emperor. 
 
 The superiority of the Bank of England over 
 the Bank of France, in the most essential requisites 
 for such a National Establishment, is, therefore, 
 obvious. Nor can anything be better imagined 
 for securing the honourable and independent 
 management of the Bank of England, than leav- 
 ing its affairs to be conducted by a Governor and 
 Deputy Governor, elected annually out of the 
 Directory, and twenty-four Directors, selected 
 from the most eminent and practical merchants 
 
THE TWO SYSTEMS COMPARED. 609 
 
 in the City of London, and filling the heads of 
 the numerous departments with men brought up 
 in the Establishment and raised, through the va- 
 rious gradations, to the highest positions, by honor- 
 able conduct and superior intelHgence. Perhaps, 
 in no estabhshment in the world can so many 
 honorable and able men be found collected to- 
 gether and so well qualified for their important 
 and responsible duties as in the Bank of England. 
 
 Mr. Miller, the present Chief Cashier, is a gen- 
 tleman distinguished by remarkable qualifications 
 for his high office.* 
 
 He proved himself to be one of the most able 
 of the advocates; in the attempt, made some years 
 ago, for the introduction of a Decimal Coinage 
 in this country, but which was defeated by the 
 persistent opposition of Lord Overstone, and the 
 indifference of a slow and apathetic pubhc, and is 
 deferred for another generation. 
 
 The complete and perfect Decimal Tables, used 
 by the Bank of England for all its calculations, 
 are the work of Mr. Miller. 
 
 The Chief Cashier of the Bank of England 
 must always be selected for his high qualifications, 
 and it may be deserving of consideration, whether 
 the person holding this responsible office should 
 
 * The Bank and the country have lately lost the services 
 of Mr. Miller by death. 
 
 2 R 
 
610 THE BANK OF ENGLAND. 
 
 not be, ex officio, a Bank Director ; whether such 
 an appointment would not tend to strengthen 
 the position of the shareholders, and at the same 
 time to confirm the confidence of the community. 
 But this is a suggestion thrown out only for con- 
 sideration. There may be objections to such an 
 appointment not apparent to those who are un- 
 acquainted with the details of the internal work- 
 ing of the Bank of England. 
 
 Neither is this suggestion made with the in- 
 tention of disparaging in the slightest degree the 
 Directory as at present constituted. More 
 honorable men or more zealous in the faithful 
 discharge of their responsible duties could not be 
 found. With practical experience in the affairs 
 of the Bank of England, they combine the prac- 
 tical experience of private bankers and merchants, 
 and to the best of their judgment they carry out 
 faithfully the terms of the Act. Whether or not 
 their judgment be always right is a very small' 
 and comparatively very immaterial question of 
 opinion. The great and important question in 
 this case is, the question of principle. If the 
 principle, which they, as Directors of the Bank 
 of England, are bound to carry out, be wrong, 
 their judgment or discretion is a very secondary 
 consideration, and if no better men are to be 
 found, — and nobody suggests that better men 
 
■ THE TWO SYSTEMS COMPARED. 611 
 
 are to found, — then a most immaterial question. 
 But admitting that the present Directors are the 
 best men that can be found for carrying out the 
 terms of the Act, it by no means follows that, 
 they are the best men to be found for advising 
 on the principle in question. They may be, and 
 probably are, the very worst advisers on this 
 question, being themselves bankers and mer- 
 chants, and large capitalists, accustomed to work 
 in grooves, from which they cannot get off, and 
 in which, so far as they are personally concerned, 
 they run smoothly and pleasantly enough, those 
 grooves having been laid down for them by the 
 most successful banker and largest capitalist in 
 the City of London, and who is reputed to be, on 
 this question, the greatest authority in the whole 
 world. Under these circumstances the Bank 
 Directors may be, and probably are, the worst 
 evidence which can be taken on the merits or de- 
 merits of the Bank Charter Act of 1844. 
 
 But though the Bank of England be in a posi- 
 tion very superior to that of the Bank of France, 
 in regard to independence of the Sovereign power, 
 yet, it must be admitted that, the Bank of England 
 is not so independent as it ought to be of the 
 Government power, in regard to the advances of 
 money by the Bank to the Government by way 
 of loan. 
 
 2 B 2 
 
612 THE BANK OF ENGLAND. 
 
 This defect would be removed by the provision 
 proposed, prohibiting the Bank from making any 
 advance by way of loan, except on Government 
 securities. 
 
 But this provision would not prevent, nor would 
 it be expedient to prevent, the Bank of England 
 from being a resource 'to the Government for 
 ready money on emergencies, and such emergen- 
 cies must occasionally occur. 
 
 It would still be open to the Bank of England 
 to advance money to the Government on Ex- 
 chequer Bills, by way of purchase. 
 
 The Exchequer now issues three descriptions 
 of Exchequer bills, namely, " deficiency bills," 
 " ways and means bills," and " supply bills." 
 
 1. " Deficiency Bilk." These are issued to the 
 Bank of England as security for sums advanced 
 to the Government to make good any deficiency 
 in the consolidated fund, for payment of the in- 
 terest of the National Debt, and other charges. 
 
 2. " Ways and Means Bills." These are is- 
 sued to the Bank of England as security for funds 
 advanced to the Government to supply the de- 
 ficiency in the consoHdated fund, to meet the 
 grants of ways and means for supply services. 
 
 3. " Supply Bills." These are voted annually 
 in Committee of Ways and Means, either to sup- 
 ply funds by the sale thereof, for defraying the 
 
THE TWO SYSTEMS COMPARED. 613 
 
 public expenditure when the income derived from 
 taxation is insufficient for that purpose, or to meet 
 a vote in supply for paying off outstanding Ex- 
 chequer bills, voted in the preceding session of 
 Parliament. 
 
 The deficiency bills are made payable to the 
 Governor and Company of the Bank- of England, 
 or to their order.* 
 
 In the Report of the Select Committee on 
 Public Moneys it is stated that, from 1842 to 
 1855, 450,000 Exchequer bills were issued, repre- 
 senting the enormous amount of £400,000,000, 
 sterling, besides Exchequer bonds, which were 
 first issued in 1853. 
 
 Of these Exchequer bonds, amounting to 
 £46,000,000, sterhng, or £7,000,000 more in 
 amount than all the banks' promissory notes pay- 
 able to bearer on demand in circulation on the 
 18th of March, 1854, in England, Ireland, and 
 Scotland, no return is made, though carefully pre- 
 pared returns are made of the amount of bankers 
 notes in circulation.! 
 
 It does not come within the scope of the pre- 
 sent work to comment on this objectionable prac- 
 tice of the Government in regard to the issue of 
 this large amount of Exchequer bills, which are, 
 
 * Lawson — " Bank of England," etc. Page 83. 
 t Ibid. Page 84. , 
 
614 THE BANK OP ENGLAND. 
 
 in fact, Government promissory notes payable to 
 bearer, but as these are, like bills, purchasable in 
 the market, at the market-price of the day, it 
 would not be expedient to prevent the Govern- 
 ment from taking these bills to the Bank of 
 England and exchanging them for Bank of Eng- 
 land notes, or selling them at the market-price of 
 the day. But this is a great drain of bank-notes, 
 and tends to raise the bank-rate of discount on 
 all trade bills. 
 
 This comparative view of the two systems in 
 practice in the Bank of England and the Bank 
 of France will suffice to show that, in the changes 
 proposed there is no disregard of any natural 
 law, nor any attempt to force a deviation from 
 the natural course ; but only an attempt to adapt 
 the artificial to the natural, and to make the whole 
 work together uniformly and consistently with 
 known and recognised principles, instead of bring- 
 ing the artificial and the natural, or the paper- 
 money and the gold, into continual conflict and 
 disturbance, as under the present system. 
 
 The measures proposed are founded on the 
 assumption that, the mission of the Bank of 
 England is to provide, not the loanable capital, 
 but the money or legal medium for the convenient 
 transfer of the loanable capital, for carrying on 
 the trade and industry of this country, — without 
 
THE TWO SYSTEMS COMPARED. 615 
 
 regard to any other interests ; and that, when 
 the interest of money in this country exceeds the 
 ordinary rate, it is the first duty of the Bank of 
 England, by every means in its power, to check 
 that excess, and restore the normal state,, and 
 thus to maintain a watchful superintendence and 
 a regulating power for the Organisation of Credit 
 in England. 
 
 To make these views still more clear, it may 
 be convenient to show in more detail, the prin- 
 ciples on which these views are founded, and 
 wherein they are directly at variance with the 
 principles and practice of the Bank of England 
 under the existing Act. 
 
 By this Act the Bank of England is authorised 
 to issue notes to the amount of fourteen millions, 
 sterling,* against an equal amount of Govern- 
 ment Securities ; and further to issue an amount 
 of notes corresponding with the value of the gold 
 and silve/ in the Issue Department of the Bank. 
 Although it be discretionary with the Bank Di- 
 rectors to exercise this power or not, yet, under 
 no circumstances can they exceed it. 
 
 Now, as it is an universally acknowledged fact 
 that, the issue of notes against Government Secu- 
 rities is very much below the amount always and 
 absolutely required for the ordinary purposes of 
 
 * Now fifteen millions. See page 197. 
 
616 THE BANK OF ENGLAND. 
 
 the country, it follows, as a necessary conse- 
 quence, that the amount of notes in circulation 
 is constantly varying with the amount of gold 
 and silver in the Issue Department, and that the, 
 rate of discount is constantly varying with these 
 fluctuations. 
 
 That this is one of the evils of the present 
 system, cannot be doubted, when the extraordi- 
 nary variations, subsequently to the existing Act, 
 are •compared with the ordinary variations pre- 
 viously. For proof of this fact it is necessary 
 only to refer to the printed lists, easily obtained, 
 and which, therefore, need not be here given. 
 
 But it is also a fact, though not so generally 
 known, that the rate of discount does not al- 
 ways rise in .proportion to the diminution of the 
 gold and silver in the Issue Department, and 
 that the amount of notes in circulation often in- 
 creases as the amount of gold and silver in the 
 Bank diminishes. This has been already shown, 
 and the examples which might be given are 
 endless. 
 
 From these examples it will be seen that, the 
 practice of the Bank of England is at variance 
 with the principle and main object of the Act. 
 
 According to the Report of the Committee of 
 the House of Commons in 1858, — "The main 
 object of the Act of 1844 was undoubtedly to 
 
THE TWO SI STEMS COMPARED. 617 
 
 secure the variation of the paper-currency of the 
 kingdom according to the same laws by which a 
 metalUc circulation would vary." 
 
 But Mr. Goulburn, then Chancellor of the 
 Exchequer, in his Letter to the Governor of the 
 Bank of England, (April, 1844,) explanatory of 
 the Act, stated that, its chief object was, "to 
 place the general circulation of the country on a 
 sounder footing, ?iX\di prevent as much as possible, 
 fluctuations in the currency, of the nature of those 
 which have at different times occasioned hazard 
 to the Bank and embarrassment to the country." 
 
 Sir Robert Peel, in the Hopse of Commons, 
 on the 3rd of December, 1847, said: "The 
 Bill of 1844 had a triple object. Its first ob- 
 ject — that in which I admit it has failed — was 
 to prevent severe and sudden contraction, and 
 the panic and confusion inseparable from it. 
 But the Bill had two other objects, — the one, to 
 maintain and guarantee the convertibility of the 
 paper-currency into gold ; the other, to prevent 
 the difficulties which arise at all times from un- 
 due speculation being aggravated by the abuse of 
 paper-credit in the form of promissory notes." 
 
 These remarks of Sir Robert Peel were made 
 after he had gained experience from the recent 
 crisis, and after the failure of the Act in one of 
 'ts principal objects. But here is no allusion to 
 
618 THE BANK OF ENGLAND. 
 
 the " main object " declared by the Committee 
 of the House of Commons ten years afterwards. 
 
 He repeatedly and explicitly stated that, the 
 great object of the Act, after securing the con- 
 vertibility of the Notes, was to prevent the sud- 
 den contraction and undue expansion of the cur- 
 rency; but, for one practical result, namely.; — 
 " to ensure to industry its legitimate profits." 
 
 Of Lord Overstone's doctrine that, — the sup- 
 ply of paper-currency ought to vary with that 
 of gold, — there is not a word either from Mr. 
 Goulburn or Sir Robert Peel, and, if that doc- 
 trine be right, when our gold diminishes, and 
 we are most in need of bank-notes, we ought to 
 diminish our bank-notes ; and, when all our gold 
 is gone, we ought to cancel all our notes, to 
 bring gold and paper-notes to an equal amount, 
 and so, leaving nothing, nothing would be left 
 to vary. 
 
 But, the practice of the Bank of England, for 
 some years past, seems not to have followed in 
 any of these courses, for the ordinary note- cir- 
 culation of the Bank is twenty-one millions, 
 whatever may be the stock of gold in the Bank 
 or the rate of the Bank discount, which is some- 
 times 8 or 9 per cent, when there are thirteen 
 millions of gold in the Bank, and sometimes 
 4 or 5 per cent, when there are sixteen millions 
 of gold in the Bank. 
 
THE TWO SYSTEMS COMPARED. 619 
 
 Practically the, Bank does not regard the 
 amount of the notes in circulation, with refer- 
 ence to the amount of the gold in the Bank. 
 However much the gold in the Issue Depart- 
 ment may diminish, the Bank takes no measures 
 for withdrawing from circulation any portion of 
 its notes. And, however much the gold in the 
 Issue Department may increase, there seems to 
 be a point beyond which the Bank will not ex- 
 pand its note circulation. The Directors care- 
 fully observe the provisions of the Act, but 
 within that limit they do as they please. When 
 a certain amount of gold is in the Issue Depart- 
 ment, they are authorised to keep an equal 
 amount of notes in the Banking Department. 
 These notes constitute the reserve of loanable 
 money, apart from the ordinary circulation, or a 
 supply of money in excess of that which is era- 
 ployed by the Bank in its ordinary discount ope- 
 rations, and 'are, in fact, the Bank's reserve of 
 loanable money. The Act regulates the amount 
 of its reserve, by compelling it to vary with every 
 change in the Bank's stock of gold ; but the Act 
 leaves the Directors free to use this reserve as 
 they please. Accordingly, when this reserve is 
 very large, the Directors lower the Bank-rate, 
 thereby inviting more bills to be discounted at 
 the Bank ; and when the reserve of notes is dimi- 
 
620 THE BANK OF ENGLAND. 
 
 nished, they raise the Bank-rate, thereby re- 
 ducing the amount of bills to be discounted. 
 To this extent the Act authorises the Bank Di- 
 rectors to exercise their discretion, and they ex- 
 ercise it so as to keep the Bank-rate of discount 
 in a continual state of fluctuation. 
 
 Now, as nearly all our trade is carried on by 
 means of bills, which the holders have to get 
 discounted in the ordinary course of business, it 
 is manifest that these fluctuations in the rate of 
 discount must very seriously affect the whole 
 trade and industry of the country. Thus, if, 
 after a contract made for the execution of a 
 large work, the Bank-rate of discount be lowered 
 to 2 per cent., the contractor makes a consider- 
 able profit ; but if the rate be raised to 8 per 
 cent., the contractor finds his expected profit 
 nil, and himself, perhaps, in the Gazette. The 
 effect is no less serious in the wider department 
 of general trade, often obliging traders to with- 
 draw money from their business for their own 
 support, and thereby rendering them unable to 
 meet their engagements. 
 
 Our manufacturing and trading community, 
 before entering into their commercial enterprises, 
 make their calculations on the current rate at 
 which bills can be discounted. But if the Bank- 
 rate be raised greatly and suddenly, as it is 
 
THE TWO SYSTEMS COMPARED. 621 
 
 often is, they find that they have to pay more 
 than double the amount of their calculations, 
 and often not only their expected profit is gone, 
 but their credit too. 
 
 It is said by some that, a very low rate of dis- 
 count, such as 2 per cent., is not to be desired 
 as a means of promoting trade ;* for the reason, 
 among others, that the low rate is sure to be 
 succeeded by a much higher rate, and that, 
 traders are thus tempted to embark in enter- 
 prises virhich must end in failure when the much 
 higher rate is attained. But this, if it be so, is 
 a good reason for preventing a much higher rate, 
 and for keeping a moderate and steady rate. 
 There is a great distinction between an excep- 
 tionally low rate, and an exceptionally high rate. 
 The efiects of a very low rate are permissive ; 
 the effects of a very high rate are compulsory. 
 Prudence may prevent the abuse of a low rate, 
 but no prudence will prevent the loss of a high 
 rate. 
 
 These high rates have a double effect. They 
 effect sales as well as loans. They alter prices 
 as well as the terms of pecuniary accommoda- 
 tion. They depress the markets and the whole 
 goods and property of the country, to a serious 
 
 * ' Economy of Capital,' p. 209. 
 
622 THE BANK OF ENGLAND. 
 
 extent. The sales go on, and must go on, but 
 when the Bank-rate is 8 or 9 per cent, the 
 holders of the goods lose heavily. But upon the 
 import trade these losses fall the most heavily, 
 for many months may elapse before an order for 
 foreign produce can be executed ; and if in the 
 mean time the Bank-rate be raised from 2 or 3 
 per cent, to 8 or 9 per cent., the importer finds 
 all his calculations upset, and his expected profit 
 turned to loss. Moreover, at such times come 
 forced sales to aggravate the loss. Very few, 
 even of the wealthy merchants, can afford to hold 
 back and wait for a better market. On the 
 other hand, their customers having to pay high 
 rates for the usual trade accommodation, curtail 
 their business : they stop buying altogether, or 
 buy only at very reduced prices. Thus, the same 
 cause which forces sales prevents buyers ; and 
 so prices fall ; and so the losses of the mercan- 
 tile community are twofold : they have to pay 
 double or more to get their bills discounted ; 
 and, by the depressed state of the markets, they 
 lose from 15 to 30 per cent., sometimes 60 per 
 cent, on the sale of their goods. 
 
 Hence it is that so many failures occur when- 
 ever the Bank-rate is raised to 9 or 10 per cent. 
 Importers, instead of reaping profits, come in 
 for crushing losses, and this is called over-trading. 
 
THE TWO SYSTEMS COMPARED. 623 
 
 Each firm, as it suspends payment, becomes the 
 centre of fresh embarrassments to others. Fai- 
 lures and suspensions multiply ; distrust spreads ; 
 credit is contracted ; bills are refused in pay- 
 ment, and notes are demanded ; to meet these 
 additional requirements the Bank's reserve of 
 notes is largely drawn upon, and is consequently 
 largely diminished; consequently the Bank-rate 
 is still further raised ; the markets become still 
 further depressed ; still greater losses are sus- 
 tained by the merchants ; distrust is swelled into 
 panic ; and, in the midst of this commercial ruin, 
 the Bank becomes helpless to serve any but it- 
 self. Then the Government comes to the rescue, 
 by suspending the Act which has brought the 
 country into this condition. 
 
 Such is the working of this " most wanton, 
 ill-advised, pedantic, rash piece of legislation," 
 the principle of which is, in practice, openly dis- 
 regarded by those who have to carry out the 
 Act. 
 
 Why should solvent and respectable firms be 
 sacrificed and their credit lost because the Go- 
 vernment did not think fit to suspend the opera- 
 tion of the Act an hour or two sooner ? 
 
 Why should the Government be empowered, 
 or be allowed, to suspend the law of the land, 
 at their pleasure ? The very fact that it is neces- 
 
624 THE BANK OF ENGLAND. 
 
 sary to suspend the law, is evidence conclusive 
 that it is a bad lavr. 
 
 But temporary suspensions are only temporary 
 and partial remedies ; the evil is not cured, and 
 great losses must always be incurred before even 
 this partial remedy can be applied. It can be 
 apphed only to prevent further mischief, — ^never 
 as a remedy for the mischief done, — and the 
 same kind of mischief is sure to recur. As Mr. 
 Patterson observes, it is a golden cord around 
 the neck of trade, to be relaxed only before the 
 strangling process is completed.* 
 
 But these temporary suspensions of the 'Act 
 leave wholly untouched the serious evil of the 
 withdrawal of nearly seven millions of gold from 
 the Banking Department of the Bank, and the 
 consequent high rates of discount. 
 
 This is neither profitable to the Bank nor to 
 the community, though the Bank exacts and the 
 community pays more than double the rates that 
 used to prevail before the Act passed. 
 
 It cannot require further demonstration than 
 the statement of the fact that, the virtual nulh- 
 fication of one-half of the Bank's average stock 
 of gold, must, at certain times, occasion severe 
 monetary pressure and great commercial dis- 
 
 * 'Economy of Capital,' p. 266. 
 
THE TWO SYSTEMS COMPARED. 625 
 
 asters, which the use of this large stock of gold 
 might prevent. 
 
 On this mistaken ground alone the Bank jus- 
 tifies the exorbitant rates which it now charges. 
 But the practice of the Bank is quite contrary 
 to the principle and object of the Act. 
 
 According to the " Overstone theory " of va- 
 riation, when the stock of gold in the Bank falls 
 below sixteen millions, the amount of notes in 
 circulation should be reduced to a corresponding 
 extent. Thus, when the, stock of gold falls from 
 16 to 13 millions, the note-circulation should be 
 reduced from 21 to 18 millions; and when the 
 stock of gold falls to 10 millions, the notes in 
 circulation should be reduced to 15 millions. 
 But, practically nothing of the kind follows, and 
 very often the result is quite the reverse. 
 
 The practice is, to increase the note-circulation 
 by lowering the rate of discount. This, though it 
 endangers the stock of gold and often leads to a 
 high rate of discount in the end, is the least 
 objectionable practice, in the choice of evils. But, 
 if the Bank of England were in possession of its 
 own independent capital, and free to use it, 
 with a large extqpsion of its credit-capital, this 
 course might be persisted in without raising the 
 rate of discount, even through a run for gold, and 
 thus great losses would be saved to the country. 
 
 2 s 
 
626 THE BANK OF ENGLAND. 
 
 Mr. Patterson seems to tiiink that, a sus- 
 pension of discounts by the Bank of England 
 " would bring our whole fabric of commeroe to 
 the ground, and occasion a crisis unparalleled in 
 severity." * 
 
 But, with the ordinary amount of notes in 
 circulation, and an ample reserve in the Bank 
 ready for all ordinary occasions, that must be an 
 extraordinary occasion which could compel the 
 Bank to suspend its discounts, or which could 
 raise the rate of discount above 4 per cent., 
 against the power which the Bank of England, 
 with its independent capital of £14,553,000, in 
 addition to its credit capital of £40,000,000, 
 could bring to bear for arresting the efBux of 
 gold ; and the community would still have all 
 the other banks of discount and financial com- 
 panies open to discount at the market-price of 
 money. But the Bank, if it pleased, could al- 
 ways continue to discount up to the maximum, 
 and, probably, would continue to discount good 
 bills, drawn in the legitimate transactions of trade, 
 — especially in favor of depositors in the Bank. 
 
 But the answer to all these objections is that, 
 the Bank of England would then be the regu- 
 lator of discount, and the discount would seldom, 
 if ever, exceed 4 per cent. 
 
 * " Economy of Capital " — page 202. 
 
THE TWO SYSTEMS COMPARED. 627 
 
 To reduce the paper-currency in proportion to 
 the diminution of the metallic currency is, prac- 
 tically, impossible, and any theory founded on an 
 impossibility must be an absurdity. 
 
 This theory, which would reduce the paper- 
 currency in proportion to the diminution of the 
 metallic currency, is in direct opposition to the 
 true theory of a paper-currency, which is, to 
 economise gold ; and the Bank Directors have, 
 by experience, found this to be the true theory, 
 for they no longer attempt to observe that rule of 
 proportion ; but, on the contrary, they enlarge 
 their discounts without regard to the amount of 
 bullion in the Issue Department. 
 
 But, unfortunately, the reserve in the Banking 
 Department, at all times inadequate, is unable to 
 meet the demands upon it thereby increased, and 
 the iron grasp of the Issue Department cannot 
 be relaxed by the Banking Department. Thus, 
 the practice is at variance with the principle, and, 
 in the continual conflict, the evil principle often 
 prevails o.ver the good practice, sometimes even 
 so far as to make this good practice ultimately 
 an aggravation of the evil principle. 
 
 The Bank Directors, therefore, in their practice 
 do not acknowledge the Overstone " variation " 
 theory, declared by the Author himself to be the 
 principle of the Act, and approved by the Com- 
 
 2 s 2 
 
628 THE BANK OF ENGLAND. 
 
 mittee of the House of Commons in 1S58, nor 
 the " over-issue " theory of Sir Robert Peel, nor 
 have they yet accompUshed Mr. Goulburn's "main 
 object " to " prevent fluctuations in the cur- 
 rency ;" and yet still, these Bank Directors, with 
 singular inconsistency, advocate the principle of 
 the Act, which, in their practice, they do not 
 carry out. 
 
 On the 24th December, 1852, when the total 
 amount of bullion in the Bank of England was 
 £20,749,000, the Bank Directors might have in- 
 creased the issue of bank-notes from £22,226,000 
 to £34,749,000, that being the amount of notes 
 which the Bank of England was then authorised 
 to issue, namely, — 14 millions on Government 
 Securities, and £20,749,000 on gold. 
 
 The Bank-rate of discount was then 2 per cent. 
 
 On the 24th December, 1853, when the total 
 amount of bullion in the Bank of England was 
 £15,819,000, and the amount of its notes issued 
 was £20,810,000, that amount might have been 
 increased to £29,81 9,Oao. 
 
 The Bank-rate of discount was then 5 per cent. 
 
 It will be said that, the Bank-rate of discount 
 being 2 per cent., was evidence that more notes 
 were, not wanted, and could not have been got 
 into circulation. That might have been so, but 
 can it be said that, when the Bank-rate of dis- 
 
THK TWO SYSTEMS COMPARED. 629 
 
 count was 5 per cent., it might not have been 
 reduced to 2 per cent. ? 
 
 But, what if more notes could not be got into 
 circulation ? 
 
 Is that any reason for having them in the 
 Banking Department, ready for circulation when 
 wanted ? 
 
 On the 25th October, 1847, when the bullion 
 in the Bank of England was only £7,865,445, 
 the amount of Bank of England notes issued was 
 a little above the ordinary average of 21 millions ; 
 but the Bank-rate of discount was then 8 per 
 cent. 
 
 These facts seem to admit of no answer, and 
 none has ever been attempted. 
 
 The present system of the Bank of England, 
 therefore, if any system at all, appears to be, 
 to disregard the amount of notes issued, and 
 to take no measures for withdrawing any of its 
 notes from circulation, for stopping the efflux of 
 gold from the Issue Department, but to rely en- 
 tirely on a high rate of discount, when the abso- 
 lute necessity for it arises. 
 
 And so, with regard to the amount of its notes 
 in circulation, there seems to be a Hmit beyond 
 which the Bank will not go, even if it can, either 
 for increase or reduction, whatever may be the 
 amount of bullion in the Issue Department^ 
 
630 THE BANK OF ENGLAND. 
 
 though, as a general rule, the Bank Directors, 
 when they have fourteen millions of gold, act as 
 if they had only seven millions. They may be 
 right, or may be wrong, but their experience is a 
 safer guide than an untried theory, and they care- 
 fully observe the positive provisions of their Char- 
 ter, though they act as they please within the 
 limits there prescribed. That they have their 
 own rules for their guidance is clear, though these 
 do not appear to be formed on any principle, nor 
 to deserve the name of a system. But that they 
 would not disregard sound principles if they were 
 permitted to carry them out, may be assumed. 
 They have proved the existing Act to be unsound 
 and that, while strictly following its provisions, 
 they disregard its theory in practice as erroneous 
 in every principle avowed by its authors and 
 promoters. 
 
 Why, then, should the Act be any longer pre- 
 served, when the principle has been pronounced 
 erroneous by those who ought to be the most 
 competent judges ? 
 
 What is the Government waiting for, or what 
 further facts remain to he enquired into ? 
 
 In every object, but the convertibility of the 
 note, which was never in danger, the Act has 
 been proved to be a signal failure. 
 
 Instead of obviating those " fluctuations which 
 
THE TWO SYSTEMS COMPARED. 631 
 
 have at different times occasioned embarrassment 
 to the country," those fluctuations have been mul- 
 tiplied to an extent never before known in the 
 history of the Bank of England. 
 
 In the year 1847, the amount of discounts by 
 the Bank of England was £38,394,587. For this 
 suQi the rate of discount was from 3 to 4 per 
 cent, on £8,796,597, and from 4|- to 9|- per 
 cent, for the remaining £29,597,990, the largest 
 amounts discounted being £7,759,795, at 5 per 
 cent. ; £6,439,165, at 6 per cent. : £1,906,168, 
 at 65 per cent.; £1,133,059, at 7 per cent.; 
 £1,680,296, at 8 per cent. ; and £780,761, at 9 
 per cent. 
 
 In 1848, the fluctuations were chiefly between 
 4 and 6 per cent., the largest amounts discounted 
 being £l,725,925,at4i per cent.; and £9,17,911, 
 at 5 per cent. ; the total discounts in that year 
 being £8,835,577. 
 
 In the years, 1849, and 1850, the range was 
 more equal between 2|- and 5 per cent. ; the 
 total discounts in 1849 being only £4,506,279, 
 and in 1850 £7,479,563. 
 
 In 1851, the range was steady between 3 
 and 4 per cent. ; the total discounts being 
 £15,284,204. 
 
 In 1852, the range was steady between 2 
 and 3 per cent. ; the total discounts being only 
 £7,762,061. 
 
632 THE BANK OF ENGLAND. ^ 
 
 In 1853, the rate was in continual variation 
 between 2 and 6 per cent. ; the total discounts 
 being £25,924,981. 
 
 In 1854, the rate was in continual variation 
 between 5 and 6 per cent. ; 5 per cent, being the 
 minimum, and 6^ the maximum rate of the whole 
 year; the total discounts being £21,686,762. 
 
 In 1855, the rate was in continual variation 
 between 3 J and 7^ per cent. ; the total discounts 
 being £22,136,590. 
 
 In 1856, the rate was in continual variation 
 between 4^ and 8 percent. ; the largest amounts 
 being £17,650,123 at 6 per cent.; £1,523,362 
 at 6^ per cent. , and £2,466,667 at 7 per cent. ; 
 the total discounts being £30,924,699. 
 
 In the years 1857 and 1858, between October 
 1 and February 11, the Bank-rate of discount 
 underwent eleven great changes, namely; from 
 5-g per cent, on the 1st of October, to 6, 7, and 
 8 per cent, on the 22nd of October ; and from 9 
 per cent, on the 5th of November to 10 per cent, 
 on the 9th of November ; and from 8 per cent, 
 on the 24th of December to 6, 5, 4, 3^, and 3 
 per cent, on the 11th February. 
 
 On the 7th November, 1860, the Bank of 
 England raised its rate of discount from 4 to 4| 
 per cent. 
 
 On the 14th November, 1860, the Bank raised 
 
THE TWO SYSTEMS COMPARED. 633 
 
 its rate of discount from 4^ to 5 per cent., in 
 consequence of £300,000 in gold withdrawn on 
 account of the .Bank of France. 
 
 On the 15th November, 1860, the Bank raised 
 its rate of discount from 5 to 6 per cent., in con- 
 sequence of a further withdrawal of £335,000 in 
 gold for the Bank of France, another withdrawal 
 of £365,000 in gold being expected to follow. 
 
 Thus, by three separate advances in the space 
 of a week, the Bank-rate of discount was in- 
 creased 50 per cent, on the previous rate of dis- 
 count. 
 
 This serious aggression against our trade was 
 made simply by the withdrawal from the Bank 
 of England by the Bank of France of £1,000,000 
 in gold, through the London bullion dealers, who 
 drew upon their deposits in the Bank of England. 
 
 On that occasion the Bank of France raised 
 its rate of discount from 3^ to 4^ per cent. 
 
 From this it seems that, however secure Eng- 
 land may be against military or naval armaments, 
 English Commerce may be at any time success- 
 fully invaded by France ; and the Bank of France, 
 whatever may have been its original constitution, 
 is at present under the complete control of the 
 French Emperor, so far as commanding its money 
 and resources. 
 
 Thus, we are liable any day, at the will of the 
 
634 THE BANK OF ENGLAND. 
 
 Emperor of the French, to lose &11 control not 
 only over our loanable capital, but also over our 
 circulating medium, or legal money. 
 
 These fluctuations may be taken as samples 
 for subsequent years, though the year, 1864, 
 showed fewer fluctuations, these being confined 
 chiefly between 7 and 9 per cent., and the average 
 Bank-rate of discount for that year exceeding 7 
 per cent. 
 
 These facts go a long way to prove the neces- 
 sity of some change for correcting the evil in- 
 fluence of the Bank of England over the whole 
 money operations of the kingdom and seem to 
 give some force to the observation of Lord Ash- 
 burton, — " That if these fluctuations were inse- 
 parable from the circulation of paper, we pay too 
 dear for the accommodation, great and useful as 
 it is." 
 
 As a paper currency is for convenience and 
 economy, it is essential that we should not over- 
 estimate the advantages ; but that we should 
 keep in view these disadvantages, which inflict 
 such extensive ruin, and are so seriously injurious 
 to the commerce of the country. 
 
 The gain to the Bank of England from these 
 fluctuations is more easily calculated than is the 
 loss to the country ; for the loss is not only in 
 the reduced value of stocks from forced sales, but 
 
THE TWO SYSTEMS COMPARED. 635 
 
 also in the diminished production of the country, 
 from want of the means for paying the wages of 
 labor, and in the diminished demand ; not that 
 the capital of the country is so much diminished, 
 as that it is so little increased; not that the pro- 
 duce of the labor is lost, but that it has depre- 
 ciated in value from the want of money, as the 
 means of transfer, and has gone into the hands 
 of the great capitalists at prices so reduced as to 
 leave little or no profit to the producers, and has 
 thus withdrawn capital from trade, thereby di- 
 minishing the labor fund, the capital so with- 
 drawn being otherwise invested, and at a time 
 when it was most wanted for the trade and in- 
 dustry of the country. 
 
 It is true that, the loss of one is the gain of 
 another, but it is not true that, the gain is always 
 equal to the loss, and least of all is it true when 
 the loss is spread over the community, as it is on 
 these occasions. 
 
 The gains of the capitalists, always ready with 
 money in hand to seize their opportunities, are 
 not always invested for the benefit of trade, but 
 are often invested in the Government funds, or 
 other permanent and safe securities, ready for like 
 occasions and opportunities, and the time may be 
 long or short before the capital so withdrawn is 
 allowed to return, if ever, into the channels of 
 
6-36 THE BANK OF ENGLAND. 
 
 trade. In the meantime the trade and industry 
 of the country suffer, and there is no National 
 Bank to which distressed, though perfectly solvent, 
 traders can resort, when relief is most wanted. 
 
 On these occasions the Bank of England takes 
 its own large share of the profits of that distress, 
 which itself has caused, but which it is neither 
 capable of relieving, nor anxious to relieve. 
 
 In this respect the practice of the Bank of 
 France is preferable to that of the Bank of Eng- 
 land. The Bank of France meets the demands 
 upon it by obtaining a supply of specie. The 
 Bank of France admits that, as it profits by the 
 issue of notes and banking, it ought to bear the 
 expenses incidental thereto. To provide a supply 
 of gold or notes to meet the requirements of its 
 customers is regarded by the Bank of France as 
 a duty devolving on itself, even though it involve 
 a loss to the Bank. The Bank of England makes 
 no such admission, but takes the opposite course. 
 It takes no step to obtain specie, but, by raising 
 the rate of discount, deters its customers from 
 demanding gold or notes, and thereby throws the 
 loss upon its customers. 
 
 It is manifest that, the effect of this practice of 
 the Bank of England is, to inflict serious injury' 
 upon the country. This fact does not of itself 
 justify a condemnation of the system, if these 
 
THE TWO SYSTEMS COMPARED. 637 
 
 losses be shown to be unavoidable. But even 
 the practice of the Bank of Prance shows that, 
 to a great extent, these losses upon the country 
 are avoidable. 
 
 By augmenting the losses in trade by depres- 
 sion of prices, the high rate of discount, by dimin- 
 ishing profits, diminishes the trade of the country 
 and the means for employment of the working- 
 classes. An unusually long period of a high rate 
 of discount is always followed by a period of 
 mercantile depression. Manufacturers, merchants, 
 and traders, strained and often exhausted in their 
 resources bythe exactions of the Bank of England, 
 contract their business and habihties, and dis- 
 charge many of their hands. With diminished 
 trade there are fewer bills to be discounted, and 
 the Bank rate of discount lowers. 
 
 Thus, the evil works its own remedy, but at 
 the cost of the community, and to the question- 
 able profit of the Bank, for, by the depression of 
 trade, the rate of discount is reduced, and often 
 for a long time kept down, below its ordinary 
 level. 
 
 Since the passing of the Bank Act in 1844, the 
 minimum Bank rate of discount has varied from 
 2 up to 1.3 per cent. For a century and a half 
 previously to 1844, with the exception of a few 
 months in 1839, in anticipation of a coming 
 
638 THK BANK OF ENGLAND. 
 
 change, the Bank rate of discount never varied 
 more than 1 per cent., or from 4 to 5 per cent. 
 For upwards of a century and a quarter, it was 
 the invariable rule of the Bank of England to 
 discount all commercial bills at 4 or 5 per cent. 
 During that long period, this country went through 
 more severe trials than it has ever undergone 
 since, and yet, during the last twenty years, the 
 Bank rate of discount has changed, on the average, 
 every two or three months, sometimes every two 
 or three weeks, ranging from 2 to 10 and even 
 12 per cent., thus making the trader yield up the 
 profits of his trade to the capitalist ; so true it is 
 that the more we increase the value of money, 
 the more we depress trade and the whole property 
 of the kingdofn. 
 
 The late Mr. Bonamy Dobree, Director of the 
 Bank of England, has left on record his opinion 
 of the effect of these fluctuations in the Bank 
 rate of discount as follows : — "These violent and 
 sudden ebbs and flows, of which there have been 
 various recurrences during the past twelve years, 
 evidenced, in my opinion, by forty variations in 
 the rates of discount, from 2 per cent, the lowest, 
 to 8 per cent, the highest; whilst in the previous 
 ten years there were but two changes, between 
 2^ per cent, the lowest, and 6 per cent, the 
 highest, could not, I think, have been foreseen by 
 
THE TWO SYSTEMS COMPARED. 639 
 
 the promoters of the Act of 1S44, a measure 
 which has acted very prejudicially upon the trad- 
 ing community, for whose particular benefit and 
 safeguard the Act would seem to have been 
 specially framed." 
 
 This is a very strong expression of opinion, and 
 is entitled to much attention, coming from one 
 who had been for many years a Director, and who 
 had filled the important office of Governor of the 
 Bank of England. 
 
 This opinion is quoted by Mr. Lawson, in his 
 small work, recently published, on the Bank of 
 England ;* and he adds some striking facts to 
 show that, these repeated changes in the Bank 
 rate of discount are by no means favourable to 
 the proprietors of Bank Stock. For example, he 
 says: — "The rate of interest charged by the 
 Bank for 140 years never varied from 5 per cent., 
 except on one or two occasions, yet we find the 
 Bank made larger profits when the rate of dis- 
 count never rose beyond 5 per cent, than she has 
 ever done since it varied from 5 to 10 per cent. ; 
 for instance, in 1799, the stockholders, in addi- 
 tion to a dividend of 7 per cent, per annum, re- 
 ceived a bonus of £1,164,240, being 10 per cent, 
 on the then capitalof £11,642,000. In May,1801, 
 
 * "The Bank of England, As It Is, and As It Ought To 
 Be." Page 27. 
 
640 THE BANK OF ENGLAND. 
 
 another bonus of £582,120, being 5 per, cent, 
 on the capital; in November, 1802, £291,060, 
 being 2| per cent. ; in October, 1804, £582,120, 
 being 5 per cent, on the capital stock. In that 
 year the salaries of the Directors were increased. 
 In October, 1805, a bonus of £582,120, being 
 5 per cent. ; in October, 1806, another 5 per 
 cent. ; and in June, 1816, a bonus of £2,910,600, 
 being 25 per cent, on the capital of £11,642,400 ; 
 this latter bonus was added to the stock, which 
 then amounted to £14,553, 000,its present capital. 
 Previous to 1807, when the legal interest was 5 
 per cent., the annual dividend on bank stock was 
 7 per cent. It was in that year increased to 10 
 per cent., and continued at that rate till the 
 year 1822 ; from the latter year to that of 1838 
 it was 8 per cent., and from that date to 1852 it 
 was 7 per cent.; it is now 11 per cent. If, there- 
 fore, we add the additional 3 per cent, received 
 during the 16 years, amounting to £5,588,352, 
 and the interest on the above sum of £2,910,600 
 from 1816 to 1831, on which the proprietors of 
 Bank stock received 10 per cent, for six years, 
 and 8 per cent, for nine years, say, £3,987,522, 
 it will be found that the stock-holders received in 
 the shape of bonuses and additional dividends, 
 during a period of thirty-four years, the enormous 
 sum of £16,270,254, whilst their original capital 
 
THE TWO SYSTEMS COMPARED. 641 
 
 of £14,553,000 remained undisturbed. It is a 
 rare thing in the present day, for the Bank to 
 declare a bonus ; such an event has not occurred 
 for many years." 
 
 A long continued and unusually high rate of 
 interest is always followed by a period of mer- 
 cantile depression. Merchants and manufac- 
 turers suflFering under their losses and unable to 
 bear the high discount exacted by the Bank, 
 contract their business and reduce their esta- 
 blishments. With diminished trade there are 
 fewer bills to be discounted, and the Bank then 
 lowers its rate. But if the Bank had pursued 
 the opposite policy of keeping a low and steady 
 rate, thereby extending trade, instead of de- 
 stroying it, the necessity for lowering the discount 
 to the unusually low rate, which then always 
 follows from want of business, would not arise. 
 
 But the profit or loss of the Bank is a very 
 immaterial consideration in this question. The 
 gist of the question is in the public service, and 
 in the loss to the public from the present state 
 of things. The loss sustained by the commer- 
 cial community every time that the Bank raises 
 its rate is a question not to be answered 
 with any certainty. But, by a statement pub- 
 lished by Mr. Newmarch, it appears that, the 
 amount of bills of exchange circulating one year 
 
 2 T 
 
642 THE BANK OF ENGLAND: 
 
 with another, may be averaged at £350,000,000 
 a year. If one third of this amount, or 
 £116,666,666, be taken as circulating for 3 
 months, and if, of this sum, £100,000,000 be 
 taken as under discount in town and country, 
 an alteration of 3 per cent, in the Bank rate is a 
 loss of £750,000 — sustained in the 3 months, 
 or £3,000,000 a year. 
 
 The loss to the country, consequent on the 
 loss of trade, is not calculable, but, probably, it 
 is more than ten times the amount of this ac- 
 tual annual loss from discounts, or upwards of 
 £30,000,000 a year. 
 
 In the face of these facts, the greatest com- 
 mercial country in the world, and, at least, equal 
 in intelligence to any other country, has submit- 
 ted through all these years, and submitted almost 
 in silence, to an infliction by law amounting, ab- 
 solutely, to a national calamity. But, it is said, 
 this is a question too profound for the People. 
 It is understood only by the Bankers and other 
 great Capitalists — practical men — and they do 
 not complain. The Act was framed by the most 
 experienced banker and the greatest capitaUst in 
 the greatest commercial city in the world. More- 
 over, for this great public service, and being so 
 great a capitalist, he was raised to the dignity of 
 the peerage, and he is now a member of the Upper 
 
THE TWO SYSTEMS COMPARED. 643 
 
 House of the British Legislature, and, by almost 
 universal acknowledgement, the highest authority 
 in the country on all commercial questions. With 
 this noble Lord, of such great wealth and com- 
 mercial experience, no member of any Govern- 
 ment could venture to differ on any commercial 
 question, much less on a question about the Bank 
 Act, which he, the greatest Capitalist and most 
 experienced Banker, himself prepared. He gave 
 his evidence, in 1857, as an authority not to be 
 disputed, before the Committee of the House of 
 Commons, appointed to inquire into the beneficial 
 effects of this very Bank Act. 
 
 He was then a member of the Upper House. 
 Nobody dared to dispute with such an authority. 
 The few members of the Committee who on that 
 occasion ventured to put a few simple questions 
 to the authority seemed half ashamed of their 
 own audacity, and, sometimes, the authority 
 seemed more than half provoked; but, then, 
 some of the questions were rather silly, and a 
 member of the Upper House might be excused 
 for telling members of the Lower House that, he 
 did not come there to instruct them in the ele- 
 ments of political economy, by entering into de- 
 finitions of capital and currency. But either the 
 snubbinff system had the effect of stopping ques- 
 tions, or nobody on the Committee knew how to 
 
 2 T 2 
 
644 THE BANK OF ENGLAND. 
 
 put the questions which ought to have been put 
 to this Witness. Nor did any other Witness 
 seem able to expose, by his evidence, the manifest 
 fallacies in the evidence of this Witness. 
 
 But, these remarks are by no means intended 
 in disparagement of the Banker-Peer, for whom 
 the Writer entertains high respect ; yet, they are 
 intended reproachfully to the Government, espe- 
 cially to the then Chancellor of the Exchequer, 
 from whom better service than he rendered might 
 have been expected on this question. 
 
 That Mr. Gladstone, as Chancellor of the Ex- 
 chequer, should have brought into Parliament a 
 Bill to prolong, for fifteen years, the evils of a 
 spurious bank-note circulation, is a step which 
 leaves little ground to hope that he will ever 
 be prevailed on to make any material change for 
 the better in the present Bank Act. 
 
 It is, therefore, the more important that the 
 People of this country should be made to under- 
 stand that, the present question of the Bank of 
 Engl.and and the Organisation of Credit in Eng- 
 land, is one of paramount importance, as affecting 
 the prosperity of the trade and industry of the 
 country. 
 
 All our trade is carried on by means of bills 
 of exchange, and nearly all the holders are obliged 
 to get their bills discounted to enable them to 
 
THE TWO SYSTEMS COMl'ARED. 645 
 
 carry on their ordinary course of business, and 
 the ordinary business of banking consists in dis- 
 counting commercial bills, or purchasing the cur- 
 rent debts of commerce. 
 
 A manufacturer supplies a merchant with a 
 thousand pounds worth of goods, and receives 
 from him, or draws on him, a bill for the same 
 amount at three or six months, or such other time 
 as may be agreed, to enable him to sell the goods 
 so purchased, the merchant's capital being all, or 
 nearly all, invested in his business. The manu- 
 facturer also has all his capital invested in his 
 business, and not being able to wait till the three 
 or six months have expired, he takes the bill to 
 his banker, or bill-broker, and gets it cashed, 
 receiving the £1000, less the interest for the two 
 or three months, or other time, at the current 
 market rate. 
 
 All commerce is carried on in this way, and 
 thus a great economy of capital is effected. 
 
 What, then, is to become of the merchant, if 
 money be so scarce that, he has been unable to 
 sell his goods at the ordinary market price, when 
 his bill has become due ? 
 
 He must pay, or he may be declared a bank- 
 rupt, and bankruptcy has made many a solvent 
 merchant an insolvent debtor. The better course 
 than that, is to sell his goods for what he can get; 
 
646 THE BANK OF ENGLAND. 
 
 and, instead of making a profit, to put up with 
 a loss. 
 
 Here the capitalist comes in and buys for 
 £5000 what has cost the merchant £10,000. 
 
 The capitaUst keeps the goods until he can 
 realise his £5000 and a large profit, and then he 
 invests the produce in the Government Funds, or 
 Foreign Securities, gr in the purchase of a house 
 or land. 
 
 In these transactions there is no loss of capi- 
 tal to the country ; but the country sufi"ers the 
 loss of the first unsuccessful speculation, and also 
 the further loss of so much capital withdrawn 
 from trade. 
 
 These losses, multiplied through the country 
 in the time of a money-panic, may, in their effects, 
 produce an aggregate loss to the country, greater 
 in amount than the whole of the capital so un- 
 successfully employed. 
 
 If the calculations may be relied upon, such 
 were the efiects of the money-panic in the year, 
 1847. 
 
 If those effects might have been prevented, as 
 undoubtedly they might have been, if the Bank 
 of England had been constituted with strength 
 sufficient to resist the tide, which then swept away 
 and overwhelmed so many engaged in trade' in 
 this country, and so nearly overwhelmed the Bank 
 
THE TWO SYSTEMS COMPARED. 647 
 
 of England itself, this becomes a question second 
 to none, — how to prevent the recurrence of such 
 disastrous consequences. 
 
 It is no satisfactory answer to say that, such 
 consequences were the unavoidable effects of a 
 natural law, even if that be the true answer. 
 
 It may have been so, and yet that was a 
 natural law acting on incongruous and incom- 
 patible human arrangements ; and although we 
 cannot alter the course of a natural law, yet, for 
 many purposes, we can and do so frame our 
 artificial arrangements as to adapt them to the 
 natural law for our service, instead of injury. 
 
 It is the certainty of continuous and uniform 
 action which constitutes the incomparable power 
 of every natural law, and no one can ever wish 
 that it were changeable. Human laws may be 
 abused and violated ; natural laws may be abused, 
 but cannot be violated. 
 
 The human art consists in adapting our artifi- 
 cial contrivances to the natural laws for accom- 
 plishing the desired ends ; as watchmakers com- 
 bine brass and steel in the compensation balance, 
 to counteract the natural contraction and expan- 
 sion of the metals, for regulating the artificial 
 movement of the works. 
 
 That we can do so to a certain extent we have 
 already learnt from experience in our credit- 
 
648 THE BANK OF ENGLAND. 
 
 issues ; but, not content with this, we have tried 
 to make paper answer all the purposes of gold, 
 and in this we shall never succeed, until we can 
 convert the material paper itself into gold. 
 
 It will be asked — What is commerce to do 
 when the Bank of England refuses to discount I 
 
 The answer is — ■ Commerce must pay the 
 penalty of high discount to those Banks which 
 trade in discounts. 
 
 The Bank of England, as a National Insti- 
 tution for the benefit of the country, ought 
 to be constituted and conducted only for. that 
 object. 
 
 Eor this purpose, the superior control over the 
 money of the country must be vested in the 
 Bank of England, and that control, to make it 
 efficient, must be in conformity with the natural 
 law, for regulating the supply of money, either 
 by increasing the quantity when insufficient, or 
 reducing it when in excess ; on the one hand, to 
 encourage trade and industry at home, and on 
 the other to discourage investments abroad, by 
 making investments at home more safe, and in 
 the end more profitable, and investments abroad 
 less safe and less profitable. 
 
 It is as true of gold as of all other commodi- 
 ties, that it will, by the natural law, go to the 
 best market, and our paper-money, as long as it 
 
THE TWO SYSTEMS COMPARED. 649 
 
 represents gold, must always follow the gold, so 
 that when gold becomes scarce, paper-money also 
 must become scarce. 
 
 To alter this course of the natural law by 
 means which are operated upon in the same direc- 
 tion, must always be an impossibility, and, if 
 possible, nothing could be more fatal in the con- 
 sequences. 
 
 But when, against this natural law operating 
 in one direction, another law is brought to bear 
 in an opposite direction, the one neutralises or 
 modifies the other. 
 
 Thus, if the Bank of England be withdrawn 
 from the influence of the natural law, which 
 would drain the Bank of all its gold and stop 
 the further issue of notes, by being brought 
 under the influence of another law acting in a 
 contrary direction, the one law, counteracting or 
 neutralising the other, the drain of gold will 
 cease. The bank notes will return with the gold, 
 and the home demand, being more permanent 
 and therefore more profitable than the foreign 
 demand, as it must always be, will, under these 
 circumstances, by force of the natural law, alwa}s 
 prevail. Such must always be the result of this 
 antagonism, if the power employed be sufficient 
 to overcome, or, rather, to counteract and neutra- 
 lise for a time, the tendency of the natural law. 
 
650 THE BANK OF ENGLAND. 
 
 The Bank of England, in possession of this 
 power and free to exercise it as the occasion re- 
 quired, would then be in a position to compete 
 successfully with any combination of capitals 
 which could, practically, be brought to bear 
 against it, for no such combination could long 
 resist the commanding power of the Bank of 
 England over the bank-notes, and the market for 
 gold; thus throwing the whole burden and re- 
 sponsibility of supplying the demand for money 
 upon the other banks, and at the same time 
 cutting off their resources by refusing to discount 
 at all. 
 
 In this state of things, the Capitahsts, by force 
 of the natural law of self-preservation, would be 
 the first to look after their own affairs at home, 
 and no temptation from abroad would be a suffi- 
 cient inducement to them to continue to send out 
 gold from this country, when the price here was 
 rising to the level of the foreign country. 
 
 By this means the equilibrium between the 
 value of the British Currency with that of other 
 countries would be restored, and the cause of 
 disturbance would be removed. 
 
 The Bank of England, instead of competing 
 in discounts with other banks, would withdraw 
 from the competition when the rate exceeded 4 
 per cent., or would confine its discounts to well 
 
THE TWO SYSTEMS COMPARED. 651 
 
 known bills, not foK the pnrpcses of the money- 
 changers and speculators in gold, but in the legi- 
 timate course of trade, and, instead of co-operat- 
 ing with other banks to keep up the rate of dis- 
 count, would operate to counteract them, by ar- 
 resting the efflux and hastening the influx of 
 gold. 
 
 Whatever may be the evil of withdrawing the 
 Bank of England from discounting when the 
 rate of discount exceeds 4 per cent., — and that 
 is a question of degree which can be determined 
 only by experience, — still it is clear that it must 
 be much less than when the Bank of England 
 co-operated with the other banks to maintain the 
 higher rate with all its consequences. 
 
 But the effect of fixing the maximum at 4 per 
 cent, and constituting the Bank with an ample 
 real and credit capital, as proposed, would be, to 
 secure at all times such an ample reserve or dis- 
 count fund that, the rate of discount must be 
 entirely under the control of the Bank of Eng- 
 land, and never could exceed the maximum of 4 
 per cent. And, as a large floating capital must 
 always be seeking temporary investment, the ten- 
 dency and eflect must be to keep down the dis- 
 count below the maximum rate for bankers or 
 even commercial paper, as it is inconceivable that 
 this floating capital, so considerable, should find 
 
652 THE BANK OF ENGLAND. 
 
 employment at a higher rate of interest than 
 that of the Bank of' England On the con- 
 trary, the floating capital nuist find employ- 
 ment at a rate lower than that of the Bank of 
 England. 
 
 The effect must be, as so clearly shown in the 
 evidence of the Messieurs Pereire, to keep down 
 the rate of interest or discount and to maintain it, 
 with very slight and occasional variations, be- 
 tween 2 and 3 per cent., and the consequence of 
 this would be, to reduce the present inordinate 
 profits of the great capitalists, for the benefit of 
 the whole commercial community, and, the very 
 reduced profit on this sort of money jobbing 
 would, probably, close many of the present dis- 
 count houses, or change their character by driv- 
 ing them into the more riskful speculation of 
 money lending, unless they would be content to 
 reduce their present dividends of 20 and 30 per 
 cent, to 2 and 3 per cent. That idle capitalists 
 should continue to divide their present amount 
 of plunder, forced from the struggling merchants 
 and traders in their necessities, would be im- 
 possible ; not that it is wrong in the capitalists 
 to take what they can get and the law allows, 
 but that it is wrong to make a law which 
 gives to one class at the expense of another ; 
 and that is just what the Bank Act does. 
 
THE TWO SYSTEMS COMPARED. 653 
 
 Instead of supporting credit, it weakens and 
 often destroys credit. 
 
 On all occasions of money-panic, the chief 
 cause is not so much the want of money as the 
 want of credit. In ordinary times, when credit 
 is good, the merchant can afford to wait a little 
 before he gets his bills discounted, for then he is 
 not so much pressed for payment. But, in times 
 of monetary or commercial crisis he cannot wait. 
 
 This pressure, operating more or less on all 
 engaged in trade, causes a great rush on the 
 banks for discounts. 
 
 But the banks also have to look to their own 
 safety, and as money becomes more scarce in 
 proportion to the scarcity of gold, they lessen 
 their liabilities by curtailing their discounts by 
 prohibitory prices. 
 
 If the banks have been relying on deposits, 
 and the deposits are being withdrawn, as may 
 then be expected, a run upon those banks fol- 
 lows, and to many often ends in ruin. 
 
 When the commercial public find the rate of 
 discount too high, or that it is difficult or im- 
 possible to get their bills discounted, they take 
 up every shilling of their deposits ; or, if they 
 have no deposits, they sell their goods at any 
 price, and, taking to the bank the cheque they 
 receive in payment, they withdraw the amount 
 
054 THE BANK OF ENGLAND. 
 
 ill cash. In one way or another they collect all 
 the money they can. The general public, when 
 they begin to feel the pressure, partake of the 
 alarm and join in the run on the banks, and the 
 banks, in their anxiety, join in the rush, and 
 scramble among themselves for the possession of 
 the small stock of gold, by getting bank-notes 
 and converting them into gold. Then comes 
 the panic, and the crash of falling houses, with 
 general distrust and total suspension of credit. 
 
 These results are commonly attributed to over- 
 issues, over-trading, or over-speculation. But 
 neither facts nor reasoning support any of these 
 conclusions. 
 
 The issue of bank-notes for several years pre- 
 ceding the years 1847 and 1857, the years of 
 the two great money panics, did not exceed the 
 ordinary amount of issues, and in the years, 
 1847 and 1857, the issues were considerably 
 under the ordinary amount. But in these two 
 years the gold in the Bank of England very con- 
 siderably diminished. The gold had been drawn 
 off by foreign remittances, and the bank-notes 
 had been reduced in such a proportion as to 
 produce a sensible scarcity and a general alarm, 
 which instigated precautionary measures. Bank- 
 ers, merchants, manufacturers, and traders in 
 general, began to look to themselves and to their 
 
THE TWO SYSTEMS COMPARED. 655 
 
 reserves for the time of need. Bank-notes and 
 sovereigns were hoarded in all the private chests 
 and tills throughout the country. Deposits were 
 drawn out, and Debts were called in. Money 
 at any price was hardly to be had. The Banks 
 which had relied on their deposits were ruined. 
 The Bank of England, which had relied on its 
 banking-reserve and deposits for its discount 
 fund, was suddenly reduced to the necessity of 
 looking after its own notes and gold. Utterly 
 without capital, and in its banking department 
 almost without notes and gold, and absolutely 
 without the means of getting either, the Bank 
 of England was helpless for others and itself. 
 Based upon credit, the foundation is gone when 
 credit is gone. The useless gold locked up in 
 the Issue Department remains, but the Banking 
 Department is empty. With £7,000,000 of 
 gold in its possession, the Bank must stop, just 
 as if it had no gold at all ; and this is just what 
 the Act intended. As a banking reserve these 
 £7,000,000 were never intended to be used, 
 though for this purpose most wanted. The stock 
 of gold kept by the Bank under the Act of 1819, 
 did not exceed the average of £8,000,000 ; and 
 here are £7,000,000 of gold completely nullified, 
 — ^just as much as if actually built up in brick 
 anJ mortar. 
 
656 THE BANK OF ENGLAND. 
 
 During the months of December, 1864, and 
 January, 1865, the amount of bullion in the 
 Bank of France averaged exactly £7,000,000. 
 At that time, the Bank of France, with equal 
 liabihties to those of the Bank of England, had 
 only half as much bullion ; yet the rate of dis- 
 count of the Bank of France was then only 7 
 per cent., when the rate of the Bank of Eng- 
 land was 9 per cent., and more confidence then 
 prevailed in the Bank of France than in the 
 Bank of England. If the Bank of England 
 had then been in the condition of the Bank of 
 France, in liabilities and amount of baUion, the 
 condition of this country would have been that of 
 bankruptcy from one end to the other, and many 
 thousands of our working-classes would have been 
 thrown out of employment. Something very like 
 that was the condition of this country in 1847 and 
 1857. And yet, in those months of December and 
 January, confidence was unshaken in the Bank 
 of France, and the distrust which then prevailed 
 on the continent was in the Bank of England only. 
 
 The issue of 2^ millions in the form of Ex- 
 chequer bills, bearing interest at 5 per cent., 
 sufficed to stop the panic in 1793. An issue of 
 two millions of inconvertible notes stopped the 
 panic in 1797. An old bundle of £1 notes 
 stopped the panic of 1826. The suspension of 
 
THE TWO SYSTEMS COMPARED. 657 
 
 the Bank Act sufficed to stop the panics of 1847 
 and 1857, — although, even in the last and more 
 severe of these crises; the additional issue 
 of Bank of England notes amounted only to 
 £928,000, and the exorbitant rate of 10 per 
 cent, was exacted as the minimum of the Bank's 
 advances. The same may be said of the autho- 
 rity for the suspension of the Act in 1866. 
 
 But the Government that takes upon itself 
 to suspend the Act must obtain from the Legisla- 
 ture an Act of indemnity for such an arbitrary 
 violation of the law, and for this purpose must 
 summon Parliament, if not then assembled. 
 
 If the repeal of this leading provision of the 
 Bank Act be a matter of course, — and it can 
 hardly be otherwise when the circumstances of 
 the case render it absolutely necessary, — there 
 seems to be no good reason why this provision 
 should not be altogether abolished. 
 
 But, to make a law which, it is known, must 
 yield to a certain degree of pressure, is a great 
 practical injustice to those for whom the relief 
 comes too late. To them this is an intolerable 
 hardship and a gross injustice, quite inconsistent 
 with the principle of the British Constitution. 
 
 The Bank of England, therefore, as a national 
 resource in the time of need, has failed, and if 
 there had been no gold in the Bank the failure 
 
668 THE BANK OF ENGLAND. 
 
 would not have been worse; for, in that case 
 every creditor would have been paid in full. 
 
 As a National Bank, it fails when it is unable 
 to fulfil what ought to be its only function, — the 
 maintenance of the financial credit of the country; 
 and, as such, the Bank of England, as long as 
 it rests solely on credit, always must be shaken 
 to its foundation when credit is withdrawn. As 
 long as the Bank of England is without any in- 
 dependent and real capital, and is allowed to 
 speculate with its deposits, it must be in the 
 power of its depositors, and its fictitious strength 
 must fail when credit fails and deposits diminish 
 or disappear. 
 
 This is one of the fatal errors of the present con- 
 stitution of the Bank of England, and this is one 
 of the most active causes of aggravation to the 
 mischief of those periodical panics to which this 
 country is subject, and must always be subject, 
 as long as the Bank of England continues to be 
 so constituted, instead of being constituted, as 
 it might so easily be, for the organisation and 
 maintenance of the credit of the country. 
 
 Private and Joint-Stock Banks, however con- 
 venient for the community, exist for themselves, 
 but the Bank of England ought to exist solely 
 for the community. 
 
 Private and Joint-Stock Banks properly avail 
 
THE TWO SYSTEMS COMPARED. 659 
 
 themselves of opportunities for their own good, 
 without any regard to the good of the commu- 
 nity. It is well for the community when those 
 banks are stopped in their course. The run for 
 deposits, which arises in such circumstances, is a 
 natural consequence of the banks curtailing their 
 discounts, and is also a natural means of retalia- 
 tion against the banks. The depositors say to 
 the bankers : — " As you will not lend us your 
 money, or give us money for our bills, give us 
 back our own money, — give us our deposits." 
 This the banks are sometimes unable to do, and 
 then they stop payment ; whereas, if they had 
 discounted freely the deposits might have re- 
 mained with them undisturbed, and the crisis 
 might have passed away with little more than 
 temporary inconvenience. 
 
 The Bank of England, as the National Bank, 
 ought to exist only for the good of the commu- 
 nity ; but the good of the community seems to 
 be the last thing thought of by the Bank Direc- 
 tory, nor is this their fault. Recollecting their 
 failures in 1847 and 1857, they are now resolved 
 to " save themselves," at whatever sacrifice to the 
 commercial community. 
 
 Mr. Hodgson, M.P., Governor of the Bank, 
 at the quarterly meeting of the Proprietors, on 
 the 33nd September, 1864, said: — "The rate of 
 
 . 2 u 2 
 
660 THE BANK OF ENGLAND. 
 
 discount is charged for one purpose only — the pur- 
 pose of keeping the reserve fund at a proper and 
 safe limit." 
 
 This is an admission so important that, it 
 should never be forgotten. But what the Bank 
 Court regards as a "proper and safe limit" for the 
 reserve fund vi^as not stated. The minimum bank- 
 rate of discount was then 9 per cent., and they 
 had then in the Bank thirteen and a quarter mil- 
 lions of gold. If this be the notion of the Bank 
 Court of a " proper and safe limit," it were better 
 to say so in plain terms. The country, it is to 
 be hoped, will never confirm this notion. 
 
 In the case of the recent bank failure at Bir- 
 mingham, it is perfectly clear that, if the bank 
 had kept its secret of insolvency, and could have 
 exercised a power of issue of its notes to the 
 amount of the half, or even the third or the fourth 
 of the deposits, the credit of that bank would 
 have stood unshaken, and in the course of time, 
 under prudent management, might have become 
 solvent. But no further instance than this can 
 be required to show the necessity for confining 
 the issue of notes to the Bank of England. 
 
 If properly constituted,- the Bank of England 
 would be able to support credit for the benefit of 
 the community, instead of being obliged, as it 
 now is, for its own preservation, though at the 
 
THE TWO SYSTEMS COMPARED. 661 
 
 same time, for its OM'n profit, to operate against 
 credit, to the loss of the community, thus co- 
 operating with- the other banks for high interest 
 and large profits, by following their example, in 
 using the deposits as if these were part of the 
 real capital of the Bank, and thereby aggravating 
 the evil, instead of providing the remedy. 
 
 To curtail discounts by a high rate in a time of 
 monetary panic must aggravate the evil ; but in 
 the present powerless and otherwise helpless state 
 of the Bank of England, there is no other alter- 
 native than the high rate of discount, or the stop- 
 page of the Bank. 
 
 With ample capital for counteracting the course 
 of the crisis, there would be no occasion for the 
 remedy, because the evil would never arise. 
 
 The ordinary rate of discount, unless under 
 very rare and exceptional circumstances, would 
 be maintained. 
 
 When those circumstances occur, it will be 
 better to bear the evil of high discounts for a short 
 time, than to aggravate the evil by protracting its 
 duration. 
 
 Now, in ordinary cii-cumstances, the scarcity of 
 money arises from the efflux of gold, but with a 
 commanding power in the Bank of England, such 
 a scarcity from such a cause could never arise. 
 
 The equilibrium in the value of British and 
 
662 THE BANK OF ENGLAND. 
 
 Foreign Currency restored, the gold would return 
 before a scarcity of money could be perceptible. 
 
 Any loss to the Bank of England must be in- 
 considerable, in comparison with the loss saved 
 to the trade and industry of the country. 
 
 The universal confidence in the power of the 
 Bank of England would, of itself, operate like a 
 charm throughout the country to bring relief by 
 maintaining credit ; as, on all like occasions, 
 from 1793 to 1857, relief has always come with 
 the restoration of credit, by confidence in the 
 Government, when brought to the aid of the Bank 
 in its distress. The relief was, in reality, in the 
 credit restored by confidence, and confidence was 
 always restored by increasing the issue of notes 
 and discounting freely ; but never by contracting 
 the issue of notes, and raising the rate of dis- 
 count. But the credit of the Bank of England 
 should be dependent on its own resources, not 
 on the resources of the Government. 
 
 The history of all the monetary panics teaches 
 the same lesson of dearly bought experience ; 
 that enlarging the amount of discounts and bank- 
 notes is the most prompt and effectual remedy ; 
 not that the bank-notes are so much wanted, 
 as confidence that they are to be obtained when 
 wanted. 
 
 In that momentous crisis of October, 1847, 
 
THE TWO SYSTEMS COMPARED. 663 
 
 the Bank Directors told the Chancellor of the 
 Exchequer that, " they could save themselves, but 
 that they could not do so without pressing more 
 stringently on the commercial world." 
 
 As truly observed by Mr. Patterson, in his 
 useful work on " The Economy of Capital," * 
 already frequently referred to, this crisis was in 
 a great degree artificial, and was immensely ag- 
 gravated by the restrictive policy imposed upon 
 the Bank ; and the better to show this he gives 
 the following extracts from the speech of the 
 Chancellor of the Exchequer (Sir Charles Wood) 
 on the subject. 
 
 " Evidence was laid before the Government, 
 which proved not only the existence of severe 
 pressure, but also that it was aggravated in a 
 very great degree by the hoarding of gold and 
 bank-notes to a very large extent, in consequence 
 of which an amount of circulation, which under 
 ordinary circumstances would have been adequate, 
 became insufficient for the wants of the com- 
 munity. . . . Parties of every description made 
 application to us, with the observation, ' We do 
 not want notes, but give us confidence.' They 
 said, ' We have notes enough, but we have not 
 confidence to use them : say, you will stand by 
 us, and we shall have all that we loanl .- do any- 
 
 * " The Economy of Capital," page 104. 
 
664 THE BANK OF ENGLAND. 
 
 thing, in short, that will give us confidence.' 
 "Ifwe thinh that we can get bank-notes, we shall 
 not want them! . . . Parties said to me ; ' Let 
 us have notes— charge 10, 12 per cent, for them 
 — vce don't care what the rate of interest is. 
 We don't mean, indeed, to take the notes, because 
 we shall not want them ; only tell us that we can 
 get them, and this will at once restore confidence.' 
 ... As soon as the letter of the 25th October 
 appeared, and the panic ceased, thousands and 
 tens of thousands of pounds were taken from the 
 hoards ; some from boxes deposited with bankers, 
 although the parties would not leave the notes 
 in their bankers' hands. Large parcels of notes 
 were returned to the Bank of England cut into 
 halves, as they had been sent down into the 
 country. And so small was the real demand for 
 an additional quantity of notes, that the whole 
 amount taken from the Bank when the unlimited 
 power of issue was given, was under £400,000. 
 The restoration of confidence released notes from 
 their hoards, and no more was wanted — for the 
 trifling quantity of additional notes is hardly 
 worth notice." 
 
 Mr. Patterson remarks : " Here, again, we 
 see that the sufficiency of the Bank's notes was 
 never questioned; — that the crisis was mainly 
 due to the hoarding of notes and gold by the 
 
THK TWO SYSTEMS COMPARED. 665 
 
 public, owing to the break- down of credit and 
 confidence; — that the I'estrictive policy of the 
 Bank of England was the chief cause of this 
 collapse of credit, aggravating a season of com- 
 uiercial difficulty into one of most destructive 
 panic ; — and finally that, immediately after the 
 reversal of that policy, the panic and hoarding 
 were at an end, and confidence returned." 
 
 If it be true, " that the restrictive policy of 
 the Bank of England was the chief cause of this 
 collapse of credit," it does not seem to be quite 
 consistent, " that the crisis was mainly due to the 
 hoarding of notes and gold by the pubHc, owing 
 to the break-down of credit and confidence." 
 
 If it be true, " that the sufficiency of the 
 Bank's notes was never questioned," why were 
 the notes and gold hoarded by the public'? 
 
 The true answer is, that a scarcity of Bank 
 notes was foreseen as an inevitable consequence 
 of the withdrawal of gold from the Bank, and 
 through the insufficiency of the notes, a loss of 
 credit from a want of confidence in the power 
 of the Bank to bring back the gold and to sup- 
 ply the demand for notes. 
 
 The hoarding, as a precautionary measure on the 
 part of the commercial community, no doubt, ag- 
 gravated the mischief; but that was a consequence, 
 and the cause was " the collapse of credit by the 
 
66G THE BANK OF ENGLAND, 
 
 restrictive policy of the Bauk of England ; " or 
 the insufficiency of the notes ; but that restrictive 
 policy was essential for the safety of the Bank 
 itself. This the Bank Directors admitted when 
 they told the Chancellor of the Exchequer that, 
 " they could save themselves, but that they could 
 not do so without pressing more stringently on 
 the commercial world." 
 
 On the 25th of October, 1847, the total 
 amount of bullion in the Bank of England was, 
 £7,865,445, the lowest amount at any time since 
 the year 1844. 
 
 The Bank of England, being without any real 
 capital, could not restore the usual stock of gold, 
 without diminishing the usual supply of notes, 
 unless by curtailing its discounts, and, this being 
 manifest, loss of confidence in the Bank, and loss 
 of credit in the community, were the necessary 
 consequences. 
 
 Under these circumstances, if the Bank had 
 sold Government Securities only, the conse- 
 quences must have been still more disastrous. 
 
 But, if the Bank of England had then been 
 in possession of its own real capital, the sale of 
 Government Securities by the Bank for the pur- 
 chase of gold, and at the same time free dis- 
 counting by the Bank at 4 per cent., would have 
 confirmed confidence in the Bank, and thereby 
 
THE TWO SYSTEMS COMPARED. 667 
 
 would have preserved credit. There would have 
 been no hoarding, because there would have been 
 no distrust, and the facts are the best evidence 
 that there would have been no extraordinary de- 
 mand for notes or discounts. There would have 
 been no panic. There would have been no loss 
 to the country, and the loss to the Bank of Eng- 
 land could not have been great ; but, great or 
 small, that is another, and, comparatively, imma- 
 terial question. The object of the Bank of Eng- 
 land would have been accomplished, — the pur- 
 pose of its foundation would have been fulfilled. 
 
 But severe as was the crisis of 1847, it was 
 surpassed in severity by that which followed ten 
 years afterwards. In the year 1857, the convul- 
 sion of the American crisis was felt in this country, 
 and, before the end of October, shook the Bank 
 of England to its foundation. 
 
 The universal suspension of cash payments 
 throughout the United States put so severe a 
 strain upon the great mercantile firms in Eng- 
 land, engaged in the American trade, that, the 
 question with many of them was, whether to 
 risk their existence by waiting for the money 
 due to them from the American firms, or to 
 realise at the sacrifice of half or other large por- 
 tion of the whole. 
 
 It was well known that the embarrassment in 
 
668 THE BANK 01' ENGLAND. 
 
 America was occasioned by the break-down of 
 credit, through the great depreciation of railway 
 and other securities in the United States, and the 
 consequent suspension of nearly all the American 
 Banks. The effect of these suspensions fell most 
 heavily npon those engaged in trade with the 
 United States, and their transactions were im- 
 mense. But most of these American firms, which 
 had suspended payment, were perfectly solvent, 
 and it was known that they would be able to re- 
 sume business as soon as the effects of the panic 
 had subsided. 
 
 The embarrassment of our trade, therefore, was 
 only temporary, being only until the monetary 
 equilibrium should be restored by the usual re- 
 mittances from Am-erica to this country. 
 
 If the Bank of England could have helped our 
 mercantile interests to tide over that period of 
 difficulty, the convulsion in America, though it 
 must have been felt in this country, would not 
 have come like a wave across the Atlantic to over- 
 whelm so many of our merchants and traders in 
 one common ruin, bringing into peril even our 
 strongest firms. 
 
 But the Bank of England was powerless, and 
 if the cast-iron machinery of the Bank Act had 
 not been relaxed the whole must have come to a 
 dead stop. 
 
THE TWO SYSTEMS COMPARED. 669 
 
 The Bank of England could have helped our 
 mercantile interests to tide over that difficulty if 
 it could have helped them to bank-notes until the 
 monetary equilibrium should be restored by the 
 usual remittances from America to this country. 
 That course was adopted by the Bank of England 
 after the Bank Act was suspended, but, as long as 
 that Act remained in force, such a course was im- 
 practicable. The Bank of England then, for any 
 practical purpose, had no notes and no means of 
 obtaining any. Then, as on former occasions, the 
 best Government securities could not to any extent 
 beconverted into vnoney,and other stock, of course, 
 vi'as then still more unsaleable. Those who were 
 then so fortunate as to hold money, would not part 
 with it on any terms, nor for any security. The 
 prevailing distrust, by invalidating the ordinary 
 forms of commercial credit, had rendered a greater 
 supply of money absolutely indispensable for 
 carrying on the ordinary business of the country, 
 but, yet, by no means could any money be got at. 
 On Wednesday, the 11th of November, 1857, 
 the Bank of England, for all the practical pur- 
 poses of the country, had stopped. In the after- 
 noon of the following day, Thursday, the Bank was 
 again set a-going by the suspension of the Act. 
 But for that relief the stoppage of the Bank of 
 England must have been complete, and the stop- 
 
670 THE BANK OF ENGLAND. 
 
 page of all other Banks in the kingdom must have 
 followed. That relief was instantaneous and effec- 
 tual all over the country, because it restored 
 credit, which was all that was wanted. 
 
 It was not sovereigns or bank-notes that were 
 really wanted, but faith in the fact that bank- 
 notes could be had when wanted. 
 
 Nothing can be more clearly manifest than that, 
 there would have been no crisis in 1857, if the 
 Bank of England could have supplied bank-notes 
 freely, instead of contracting them. If the Bank 
 could have supplied them at 4 per cent., the de- 
 mand would have been comparatively trifling. 
 If it had been known that there was a large re- 
 serve of notes in the Bank, the large and strong 
 firms, with the knowledge of that fact, and of 
 the temporary nature of the difficulty, would have 
 accommodated each other and their dependents 
 by mutual forbearance, rather than pay even 4 
 per cent, for discounting their bills. But the case 
 was quite different when the National Bank was 
 known to be without any available money, and 
 without the means of getting any. Depositors in 
 the Bank to an amount, in the aggregate, of about 
 twenty millions, might well be alarmed at such a 
 state of things, the end of which no one could 
 foresee. The holder of a £5 note might then be 
 excused for running to the Bank to exchange 
 
THE TWO SYSTEMS COMPARED. 671 
 
 his bit of paper for five golden sovereigns. But 
 he vvould not take that trouble if he knew there 
 were plenty of notes in the Bank to meet all de- 
 mands. He has no want of confidence in the 
 note. His want of confidence is in the Bank to 
 meet the demand for notes, and, therefore, he 
 wishes to be independent of the Bank. 
 
 It is not surprising if the depositor of Twenty 
 Thousand Pounds feel that want of confidence in 
 an exaggerated degree, and take measures calcu- 
 lated to extend his distrust to others. Distrust 
 generally arises very suddenly, and spreads very 
 rapidly. 
 
 The crisis of 1857 was the more disastrous be- 
 cause it was unexpected. The commercial com- 
 munity were wholly unprepared for it. Bankers 
 and Merchants, of immense wealth and known 
 solvency, were suddenly overwhelmed and stopped 
 by the want of immediate relief, which none 
 could afibrd to give. 
 
 The amount required to meet the liabilities was 
 very great, but the amount required for the tem- 
 porary relief was, comparatively, very small, and 
 what was most required -was the credit which 
 confidence alone can give. 
 
 But these were just the wants which the Bank 
 of England could not supply, and the ruin which 
 followed was a stupendous loss to the country. 
 
672 THE BANK OF ENGLAND. 
 
 The Scotch banks joined with the English 
 banks in their run upon the Bank of England for 
 notes, and then exchanged them at the Bank for 
 gold. The Bank of England, as before shown, 
 had raised its rate of discount rppidly from 5 to 
 10 per cent., and, having given all the accommo- 
 dation which, under the Act, could be given, was 
 utterly inadequate to any further help. The more 
 tight the money-market became, the faster were 
 notes and gold withdrawn from the Bank. Every 
 bank and firm sold its securities, and kept the 
 notes and gold thus obtained. The English, 
 Irish, and Scotch Banks all took the same pre- 
 cautions, and altogether the Banks kept by them 
 about three millions of specie more than their or- 
 dinary amount. 
 
 The effects of this disastrous state of affairs 
 were first felt in London, Liverpool, and Glasgow, 
 and the panic commenced with the failure of the 
 Borough Bank of Liverpool, quickly followed by 
 the suspension of the great commercial house of 
 Dennistoun and Co., whose outstanding accept- 
 ances amounted to about £2,000,000, all of which 
 were subsequently paid, and the house resumed 
 business. Shortly afterwards, in the same month 
 of November, failed tlie three great northern 
 Banks, — the Western Bank of Scotland, the City 
 of Glasgow Bank, and the Northumberland and 
 Durham Bank. 
 
THE TWO SYSTEMS COMPARED. 673 
 
 The effects of these great failures were felt like 
 the successive shocks of an earthquake in the 
 City of London, where the resources of the dis- 
 count houses and bill-brokers were dried up, and 
 discounts were obtained at the Bank of England 
 with the greatest difBculty at 10 per cent. 
 
 The great discount house of Saunderson and 
 Co. was obliged to suspend with liabilities ex- 
 ceeding £5,000,000. The great American firm 
 of Peabody and Co. was also known to be on the 
 point of suspending, though perfectly solvent, 
 but, like so many other firms, kept out of their 
 money, were unable to meet their engagements. 
 It was of the utmost importance to support this 
 firm, as its fall would bring down many other 
 firms, and create a general panic in London. 
 But the help required was to the extent of 
 £800,000, sterhng, and the Act prevented the 
 Bank of England from advancing this sum. No 
 sooner was the Act suspended and the Bank un- 
 fettered than it advanced the required sum to 
 Peabody and Co., and to many other firms, as 
 also to some of the English banks. The bene- 
 ficial effect produced by the suspension of the 
 Act, and the resolution of the Bank of England 
 to extend its issues, was instantaneous.* 
 
 In four days after the suspension of the Act 
 
 * " Economy of Capital," page 109. 
 
 2x 
 
674 THE BANK OF ENGLAND. 
 
 and the resolution of the Bank of England to ex- 
 tend its issues, the panic had ceased throughout 
 the kingdom, though the effects of the public 
 calamity remained long afterwards. 
 
 But for the suspension of the Act, which en- 
 larged the power of the Bank of England and 
 the other Banks, the trade of the whole country 
 would have been suspended by a state of affairs 
 approaching nearly to universal bankruptcy. 
 
 Many of the great firms, after sustaining enor- 
 mous losses, paid in full, and resumed business, 
 A large number of the other suspended firms 
 proved to be in like manner perfectly solvent, 
 and would, of course, have been saved if the 
 relief had come in time. 
 
 A list of the great and wealthy firms, which 
 suspended under that extraordinary pressure, and 
 afterwards paid 20s. in the pound, with a large 
 surplus, would be much too long for insertion 
 here, nor would it be of any further use here 
 than for showing what is so well exemplified in 
 the child's trick, of the pack of cards so arranged 
 as that the fall of one card brings down the whole 
 pack. Thus, Messrs. Fernie Brothers and Co., 
 whose suspension helped to bring down the 
 Liverpool Borough Bank, were perfectly solvent, 
 and paid all their liabilities, with 5 per cent, in- 
 terest, amounting in all to £420,517. But sol- 
 
THE TWO SYSTEMS COMPARED. 675 
 
 vency did not save them in the general loss of 
 credit, and as they were thrown down by the 
 fall of others, so others were thrown down by 
 their fall, and amongst these, the Liverpool 
 Borough Bank, which spread ruin through Liver- 
 pool, and that spread the ruin through every 
 great commercial City of the kingdom. The 
 magnitude and extent of the bankruptcies, and 
 the bankruptcy expenses which swallowed up 
 more than one-third of the assets, compose an 
 item of charge against the Bank Act of such 
 enormous amount that it ought never to be for- 
 gotten or forgiven by this country. 
 
 There is, to an unconcerned spectator, some- 
 thing whimsical in the fact that, the question of 
 bankruptcy to solvent firms should be dependent 
 on a change in the law of the land between half- 
 past 3 o'clock and half-past 3 o'clock on the same 
 day, for that was the simple fact which saved the 
 firm of Peabody and Co. between those afternoon 
 hours on the 12th of November, 1857 ; or, if not 
 a change in the law, a suspension of the law, and 
 that by the will of one man in Downing Street. 
 It seems hard upon Saunderson and Co., Dennis- 
 toun and Co., Naylor and Co., and the many 
 others in the same category that, the relief should 
 not have come a few hours sooner to save them ; 
 and it seems not an unreasonable question to ask, 
 
 2x2 
 
676 THE BANK OF ENGLAND. 
 
 why the fortunes of so many good and well-de- 
 serving men should be made dependent on the 
 will of one man, in a country professing to be 
 governed by laws administered equally to all. 
 The firm of Peabody & Co. was so extremely 
 wealthy that the property of the chief partner 
 alone, was held by the Bank to furnish suffi- 
 cient security for the enormous advance of nearly 
 a million of money. The other great firms, 
 equally solvent but less fortunate, were allowed 
 to fall, victims sacrificed to the Bank Act. 
 
 Here was no want of capital, but only want 
 of confidence — want of confidence in the means 
 of the Bank of England to meet the requirements, 
 those requirements being the bank-notes. There 
 was plenty of loanable capital, but all the other 
 banking establishments were dependent on the 
 Bank of England for the money, and so the 
 burden and profit of discounting was thrown 
 upon that one Bank, and that was unequal to 
 the occasion, by the restrictions imposed by 
 the Bank Act, as was proved when those restric- 
 tions were relaxed. The Bank exacted 10 per 
 cent, but its means were insufficient, being cut 
 ofi' from its available resources by the provisions 
 of the Act. When the Act ceased to operate 
 and the available resources were set free, these 
 were hardly required, confidence being restored. 
 
THE TWO SYSTEMS COMPARED. 677 
 
 If those resources had been free from the first, 
 the crisis might have been prevented, but cer- 
 tainly would have been prevented if the Bank 
 had been provided with real and available capital 
 equal to the requirements, nor would the re- 
 quirements then have reached to the actual de- 
 mands, for those were chiefly the demands of 
 distrust, not of want. Distrust overspread the 
 country. Traders then refused bills which, in 
 ordinary times, they would have taken. More 
 money was thus required, and a drain upon the 
 Bank commenced. Many who saw the Bank's 
 reserve declining, and who knew that the rate 
 would soon be raised still higher, hastened to 
 provide themselves with even more money than 
 they required. The consequence was, — the Bank 
 rate went up higher and prices fell down 
 lower. The markets were so depressed that, 
 merchants could sell their goods only at a sac- 
 rifice of 25 or 30 per cent., and in some cases 
 60 per cent. Failures multiplied. Falling firms 
 brought down others, and with them their cus- 
 tomers. Distrust became panic. Discount houses 
 stopped discounting, and joint-stock banks stood 
 still, waiting and watching the course of events. 
 The course of events was arrested by the sus- 
 pension of the Act.' But for that the Bank of Eng- 
 land must have suspended payment, and nearly all 
 
678 THE BANK OF ENGLAND. 
 
 the banking and commercial houses in the king- 
 dom must have suspended payments inmoney. 
 
 For those consequences the Bank Act of 1844 
 would have been responsible, as it is responsible 
 for all the losses which did occur, and those are 
 estimated at 80 milHons, besides lowering the 
 prices of funded and other property 400 millions. 
 
 Here was no over-trading, nor unsuccessful 
 trading, but large and prosperous trading with 
 ample capitals. Here was no indiscretion, no 
 want of ordinary foresight, no want of prudence, 
 but simply the want of a law applicable to the 
 circumstances. Now, a law to be efficient should 
 be apphcable to all the circumstances for which 
 it was intended, and it could never have been 
 intended that a law, afiPecting all the property 
 in the kingdom, should continue in force only 
 during the pleasure of one man, or set of men, 
 called the Queen's Servants. 
 
 And yet this law, so often proved to be utterly 
 ineflScient for its intended purpose, is still main- 
 tained as a wise and good law, and the people 
 are expected to be contented with it, and thank- 
 ful for it ! Verily, the British are a slow and 
 patient and long-suffering people, whatever their 
 rulers may be. And what are they ? Emer- 
 son said : — " Chancellors and Boards of Trade, 
 Pitt, Peel, and Robinson, and their Parliaments, 
 
THE TWO SYSTEMS COMPARED. 679 
 
 and theii' whole generation adopted false prin- 
 ciples, and went to their graves in the belief that 
 they were enriching the country which they were 
 impoverishing. They comphmented each other 
 on ruinous expedients. It is rare to find a mer- 
 chant who knows when a crisis occurs in trade, 
 why prices rise or fall, or who knows the mis- 
 chief of paper- money. . . . What befals from 
 the violence of financial crises, befals daily in the 
 violence of artificial legislation." 
 
 The abundant evidence is conclusive of the 
 fact that, on this occasion, as on former occa- 
 sions, the public and private losses, to an amount 
 so great as to be incalculable, are attributable to 
 a deficiency of the circulating medium and to the 
 insufficient capital of the Bank of England, which 
 rendered it quite unequal to these emergencies, 
 thereby paralysing trade, by destroying all con- 
 fidence and credit in the country. 
 
 Experience has proved that capital put out on 
 loan in the issue of bank-notes can never exceed 
 the requirements of the community, for nobody 
 would pay interest for money which he did not 
 want, and no trader would pay for discounting 
 his bill if he did not want the money before the 
 bill became due. 
 
 The only object in the issue of bank-notes is 
 to make the circulating medium, or legal tender 
 
680 THE BANK OF ENGLAND. 
 
 money, equal to the requirements, thereby to pre- 
 serve our measure of value from sinking below 
 its true level. 
 
 Experience has demonstrated that the cause of 
 all our money-panics is simply the fact of a tem- 
 porary insufficiency in the amount of money for 
 the requirements of the community, and that 
 when the insufficiency is supplied the crisis is at 
 an end. This has been fully shown by reference 
 to facts now historical, and is exemplified by the 
 commercial calamities of 1847 and 1857. In 
 every crisis, when the Bank of England has re- 
 versed its policy and the principle of the Bank 
 Act, by meeting the requirements of the com- 
 munity, the difficulty has ceased. It has not 
 been found on these occasions that convertibility 
 has been endangered by such temporary increase of 
 issues. But it has been found that such issues of 
 of notes actually stop the internal demand for gold. 
 
 This fact, as noticed by Mr. Patterson,* was 
 exemplified in a remarkable manner in the Ame- 
 rican crisis of 1857, when the internal drain was 
 owing tq a contraction of discounts and note 
 issues on the part of the banks. At the time of 
 the crisis there was no external drain of gold, — 
 on the contrary, specie was then flowing into the 
 country. The drain of gold was internal only, 
 
 * "Economy of Capital," page 294. 
 
THE TWO SYSTEMS COMPARED. 681 
 
 and was chiefly, if not wholly, occasioned by the 
 mistaken policy of the banks. The suspension 
 of specie payments at New York occurred at a 
 time " when the Exchanges throughout the world 
 gave a profit on the transmission of specie to New 
 York." As the New York Correspondent of the 
 Times wrote, (November 2nd, 1857) — " The 
 banks continued to contract, until a very con- 
 siderable portion of the mercantile community in 
 despair agreed among themselves to withdraw 
 their deposits in specie if relief were not afforded. 
 The relief was denied, and the withdrawal began , 
 There could, of course, be but one end to this. 
 The moment this game began, a suspension be- 
 came inevitable." 
 
 The cause of the panic, as the Times, in its City 
 Article, remarked (November 3rd, 1857), was 
 that, " the banks, in their efforts to save them- 
 selves, had contracted their note-circulation far 
 below the requirements of the country for its in- 
 ternal trade." The same journal, referring to 
 the result, observed : — " The entire suspension of 
 specie payments by the New York and Boston 
 Banks is the most satisfactory announcement that 
 could have been looked for. Had the step been 
 taken a fortnight earlier, an immense amount of 
 ruin might have been averted. The banks, after 
 having by their mismanagement brought about 
 
682 THE BANK OF ENGLAND. 
 
 the state of affairs which rendered the panic pos- 
 sible, sought to save themselves by the sacrifice 
 of the whole mercantile community ; but the pub- 
 lic at last have taken the matter into their own 
 hands, and forced them to a stoppage, which will 
 place them in the same condition with their vic- 
 tims, and thus terminate the struggle. Its effect 
 was instantaneous. Every one, it is said, seemed 
 to feel that the ordinary channels of business 
 would forthwith be restored, and from that mo- 
 ment the progress of recovery would commence. 
 A- postscript announces that everything was going 
 on quietly, and that all excitement had passed 
 away. This result was perfectly natural. The 
 inconvertible paper of the banks would now cir- 
 culate at a value in proportion to the discretion 
 with which it might be issued ; and supposing it 
 to be kept within close limits, there is no reason 
 that it should fall much, if at all, below par."* 
 
 Now, this is very valuable experience for show- 
 ing that no depreciation of the currency follows 
 from supplying the want of bank-notes when gold 
 leaves the country, or is withdrawn from the bank. 
 
 But why should not the Bank of England act 
 on this experience before the disastrous conse- 
 quences have fallen upon the country and endan- 
 gered the position of the Bank itself? No notes 
 
 * Times. City Article, October 27, 1857. 
 
THE TWO SYSTEMS COMPARED. 683 
 
 will go out unless there be a demand for them, 
 and the extra demand fully maintains the value 
 of the extra issue. When no longer wanted they 
 will be returned, and to keep them longer in cir- 
 culation will be impossible. The notes will al- 
 ways preserve their full value as long as the sup- 
 ply does not exceed the wants of the community. 
 An extra issue of bank-notes, when there is an 
 extra demand for them, only preserves the measure 
 of value unchanged. It simply prevents prices 
 from being lowered, and serves to maintain the 
 ordinary value of money, upon which all contracts 
 are made, nor does such an extension of discounts, 
 to meet the requirements of the "country, entail 
 any difBculty or hardship on the Bank of Eng- 
 land. On the contrary, it is a source of profit 
 to the Bank. Every additional bill discounted is 
 so much additional profit to the Bank. 
 
 But a natural expansion of the currency, regu- 
 lated by the requirements of the community, is 
 now forbidden by the Bank Act. The great ex- 
 tension of banking in thfese times, with the in- 
 creased use of cheques and the " clearing-house " 
 system, have happily enabled us to economise our 
 currency, so that the real evil of our currency 
 system is less felt than it otherwise would be, and 
 the cause is less clearly seen. But the consequences 
 are still most disastrous when an exceptional in- 
 
684 • THK BANK OF ENGLAND. 
 
 crease of the public requirements takes place, 
 and the crisis occurs. The consequences are even 
 the more disastrous from being unforeseen, and 
 the exceptional increase of monetary requirements 
 is always very sudden, as well as very brief. Yet 
 brief as it is in time, it is fearfully extensive in its 
 disastrous consequences to the country. When, 
 from increase of trade and population 24 millions 
 of Bank of England notes are permanently re- 
 quired for the wants of the community, as they 
 soon must be, instead of 2 1 miUions as at present, 
 the ordinary rate of discount must be 9 and lU 
 per cent., rising to 15 and 20 percent, whenever 
 any little embarrassment occurs. The present 
 state of things will then be no longer endurable. 
 In the mean time our trade is suffering under 
 the oppressive system, and it is endured, not be- 
 cause it is unfelt, but because it is not understood, 
 and the remedy is unknown. 
 
 The limit of the excess of paper over bullion 
 was fixed twenty years ago, in accordance with 
 the supposed commercial necessities of the time. 
 If the limit were correctly fixed at that time, the 
 wants of a largely expanded trade and greatly in- 
 creased population must be subjecting the com- 
 munity to a needless pressure at the present time. 
 
 This conclusion is denied by the advocates of 
 the Bank Act, and it is not easy to prove that 
 
THE TWO SYSTEMS COMPARED. 685 
 
 they are wrong in such denial. But the very 
 argument which they use, if it prove anything, 
 proves too much ; for it goes to show that the 
 limit of the excess of paper over bullion was 
 fixed too high twenty years ago, and proves still 
 further, that any excess of paper over bullion is 
 unnecessary and inexpedient. Their argument 
 is that, by the working of the Bank Act, what- 
 ever additional amount of bullion may at any 
 time be required for an enlarged currency, to meet 
 the increasing wants of an enlarged population 
 and expanded trade, is brought into the country. 
 
 If that be so, it seems to be conclusive in favor 
 of a metallic currency only. 
 
 But Mr. Ricardo expressed a contrary opinion 
 M'hen he said that : — "The advantage of a paper 
 circulation, when established on correct princi- 
 ples, is, that this additional quantity can be sup- 
 plied without occasioning any variation in the 
 value of the whole currency, either as compared 
 with bullion or any other commodity ; whereas, 
 with a system of metalhc currency, the quantity 
 cannot be so readily supplied." 
 
 Our friend, " of Westmeath," refers to this 
 opinion of Mr. Ricardo, but, '' after due consider- 
 ation of the whole of this part of the question, 
 comes to the conclusion that, the subjecting the 
 country to the process described, under the Act, 
 
68G THE BANK OF ENGLAND. 
 
 to procure bullion for an enlarged circulation, 
 really is essential for the constant preservation of 
 the currency in a sound state ; and that in no 
 other way can the public maintain an effectual 
 check against the depreciation that might other- 
 wise be caused by a multiplicity of bubble specu- 
 lations. It does not seem possible that the ma- 
 nagers of any bank, even one so admirably con- 
 ducted as the Bank of England, should know at 
 once whether the advances that may at any time 
 be demanded from them, are for mere bubble 
 speculations, or for such a hond fide permanent 
 extension of commerce as would justify any in- 
 crease of the notes unrepresented by bullion. A 
 real augmentation of sound trade, in other words, 
 an increased production of commodities saleable 
 in the markets of the world, will, of itself, draw an 
 additional quantity of bullion into the country, 
 without subjecting it to any inconvenient pressure. 
 Its capability of bringing gold into the country, 
 is the only test by which its soundness can be 
 proved. The real effect of the Act of 1844 in 
 these circumstances is, that the first increase of 
 exports is paid for in bullion instead of com- 
 modities, but that no extension of paper circula- 
 tion is allowed on the credit of such articles as 
 will not draw gold into the country, or, in other 
 words, have no exchangeable value in the markets 
 
THE TWO SYSTEMS COMPARED. 687 
 
 of the world. Thui it is that the currency is pre- 
 vented from being unduly efflated by bubble 
 speculations."* 
 
 This somewhat lengthy extract is given in full, 
 from the concluding part of our friend's pam- 
 phlet, as containing the pith of the whole. This 
 may serve as a specimen of the sort of reasoning 
 used by the advocates of the Act in its support ; 
 and this is one of the best specimens, being from 
 a First Class Man of his day at Cambridge. 
 
 Now, the meaning of all this is, that nothing 
 can justify any increase of the notes unrepresented 
 by bullion, unless for a bona fide extension of 
 commerce; and that the Bank of England, — 
 admirably conducted as it is, — cannot possibly 
 know beforehand whether the advances, that may 
 at any time be demanded from it, are for mere 
 bubble speculations, or for such a bona fide per- 
 manent extension of commerce, as would justify 
 any increase of the notes unrepresented by bul- 
 lion ; therefore, any increase of such notes is in- 
 expedient and unjustifiable. 
 
 Everything that is inexpedient is unjustifiable, 
 and everything that is unjustifiable is inexpedient. 
 But, in this case, the inexpediency is not in the 
 increase of such notes, but in the use of them 
 
 * " The Currency Question, and The Bank Charter Com- 
 mittees." By an M.P. Page 54. 
 
688 THE BANK OK ENGLAND. 
 
 "for mere bubble speculations," and as the u?-e 
 which will be made of such notes cannot be fore- 
 known, therefore, to issue any such notes is in- 
 expedient and unjustifiable. 
 
 To follow out this curious reasoning, let this 
 strange conclusion be for a moment assumed. 
 The question of balance between the good and the 
 evil still remains to be determined. If the balance 
 turn in favor of the good, that is just the amount 
 of the loss. And this seems to be the question 
 with everything in this world. There is nothing 
 in this world which may not be used for evil ; 
 therefore, every good thing in this world must be 
 rejected, and we must be content to put up with 
 the evil only. 
 
 In this case, of course, it is assumed that the 
 balance would be in favor of the evil, and against 
 the good. 
 
 But that is the whole question, and that is too 
 much to assxime on mere assertion, without proof, 
 for none has been attempted. Nor is this a 
 question open to proof. AVhen a man has got a 
 bottle of brandy before him, it is admitted that, 
 if he drink off the whole at once he will be dead 
 drunk. But it is too much to assume that he will 
 drink off" the whole at once, or even enough to 
 make him drunk. He may take only just enough 
 to do him good. Now, it seems hard on those 
 
THE TWO SYSTEMS COMPARED. 689 
 
 w ho would take only just enough to do them 
 good, to tell them that they shall have none, be- 
 cause there are some who would take enough to 
 make themselves dead drunk. If the majority were 
 likely to do so, there might be some show of 
 reason for prohibiting the use of brandy alto- 
 gether. But, at least, that should be first shown 
 to be likely. 
 
 But what is the loss to the country from 
 " bubble speculations," in comparison with the 
 loss from " money-panics " ? 
 
 Let those who will assume the " bubble specu- 
 lation " theory, or the " over trading " theory, — 
 let them assume it to any extent they please, and 
 what do they gain by the assumption ? 
 
 If the money be expended in the country, what 
 is the loss to the country, but the loss of the 
 profit on a successful speculation ? 
 
 The loss is just tliat and no other. 
 
 If the money be sent out of the country, the 
 loss may be that, and the whole capital. No- 
 thing more. 
 
 But if the money be expended in the country 
 or out of the country on a successful speculation, 
 resting partly on the sound foundation of capital 
 and partly on the credit of good bills, and if that 
 credit cannot be redeemed by discounting those 
 bills, for want of the bank-notes, the speculation 
 
 2 Y 
 
690 THE BANK OF ENGLAND. 
 
 then becomes unsuccessful ; the trader thereby 
 becomes a bankrupt, and others, whose credit 
 was dependent on his, and who, hke him, were 
 engaged in equally good speculations, thereby 
 also become bankrupts, and they in like manner 
 make others bankrupts, and so bankruptcy spreads 
 over the country from one end to the other, as 
 in 1847 and 1857, and at many other times; — 
 then the loss to the country is not only on those 
 successful speculations so made nnsuccessful, but 
 the trade of the country, inland and foreign, is 
 sensibly diminished, if not, as it often is, for a 
 time suspended, and the whole property of the 
 kingdom is reduced in value. The loss to the 
 country is then in millions. 
 
 This is not reasoning from theory, but from 
 experience, and these are the facts. 
 
 The Member for Westraeath, and all those who 
 support the present Bank Act, must meet these 
 facts with something more than theories resting 
 on their own unsupported opinions. 
 
 The truth must be told, and the truth is that, 
 the Capitalists and the Bank of England are very 
 well satisfied with things as they are. They 
 desire no change, and they will allow no change 
 to be made, if they can help it. They look to 
 their own profit only, and are utterly regardless 
 •on whom the loss falls, if not on them. The 
 
THE TWO SYSTEMS COMPARED. 691 
 
 Bank of England will take upon itself no loss at 
 all. It will not even provide itself with the gold 
 necessary for carrying on its own business. The 
 loss which itself should bear it throws wholly 
 upon the community. 
 
 Instead of selling its stock and curtailing its 
 business, it makes the mercantile community sell 
 not only their stock but their goods also, and 
 curtail their business. Instead of buying gold 
 at the fair market-price, it lowers the market- 
 price of bills, and then buys them at the depre- 
 ciated price, i.e. below their fair value. The 
 Bank throws the cost of replenishing its stock of 
 gold upon the community, and makes this losing 
 transaction to the community a source of addi- 
 tional profit to itself. By charging very high 
 rates of discount, it not only causes gold to be 
 brought into the country at the expense of the 
 mercantile community, in purchases of their ar- 
 tificially depreciated goods, for the benefit of the 
 capitalists, but, by the same process, makes an ad- 
 dition to its ordinary profits, by wringing an extra 
 profit out of the traders in the form of discounts. 
 
 So, the Bank of England, though it works 
 under and keeps strictly within the Act of 1844, 
 does not carry out the principle of the Act. 
 The Bank of England does not take upon itself, 
 as it was intended and expected to do, the cost 
 
 2 Y 2 
 
692 THE BANK OF ENGLAND. 
 
 of its own business, but shifts the cost on to the 
 shoulders of the community, and besides shirking 
 the loss, makes an actual profit out of the loss. 
 
 Such being the facts of the case, it is not sur- 
 prising that the Bank Directors are unanimously 
 in favor of the Bank Act of 1 844. It shields 
 them from personal responsibility, and yet leaves 
 them wide limits for the exercise of their arbi- 
 trary discretion. It makes no regulations as to 
 the rate of discount, but directs a contraction of 
 the currency under certain circumstances, and 
 that direction they disregard by pursuing a di- 
 rectly opposite course, thereby doubling the charge 
 to the community, and the profit to the Bank. 
 
 It enables them to charge 8 per cent, when 
 formerly, under the same circumstances, they 
 used to charge only 4 per cent. They say, 
 — ' The Bank Act of 1 844 compels us to keep 
 on hand this large stock of gold for the protec- 
 tion of the commercial community, and, therefore, 
 the commercial community must pay for it.' And 
 so they answer all complaints by an appeal to the 
 Bank Act. In this they are quite right, but they 
 are not the party to appeal to for the reform of 
 the Bank Act.* 
 
 The Bank Directors are excellent witnesses for 
 facts on the trial of the Bank Act when the 
 
 * " Economy of Capital," page 305. 
 
THE TWO SYSTEMS COMPARED. 693 
 
 criminal charges are brought against it ; but 
 they are not exactly the right persons to sit in 
 judgment on the trial, or to pronounce the verdict 
 of guilty or not guilty. That question can be 
 properly answered only by the People, and on 
 that question the People may very properly be 
 the Judges and the Jury. 
 
 The real question in this case is one of credit, 
 and commerce can no more go on without credit 
 than banking can. 
 
 But in times of crisis commerce is the first 
 to suffer, and the pressure upon the Bank of 
 England is rapidly communicated to all the other 
 banks. 
 
 If, at the commencement of such times, the 
 Bank of England were in a situation to afford the 
 required relief, confidence and credit might re- 
 main unshaken, and then the amount of rehef 
 required would be comparatively small. 
 
 All experience has shown how very small is 
 the relief required if rendered in due time, and 
 how disastrous are the consequences when the 
 want of tliat relief begets distrust and loss of 
 credit. Then, any amount of gold, if uncoined, 
 would not avert the disastrous consequences. 
 
 With the power of free action in the Bank of 
 England, the possession of a strong reserve of 
 notes and real capital to command the gold, dis- 
 trust and loss of credit never could arise. 
 
694 THE BANK OF ENGLAND. 
 
 It is not more gold that the Bank of England 
 is in need of, but more notes and real capital. 
 These will bring more credit, and by credit only 
 can capital be economised. A large stock of gold 
 now lies useless in the Bank vaults, withdrawn 
 from all banking purposes, and useless for all 
 other purposes. As already shown, this is a loss 
 of seven railhons of specie to the Banking De- 
 partment, and, instead of constituting the strength 
 of the Bank, is its weakness. 
 
 This is the fatal error of the Bank Charter Act 
 of 1844. How easily this Act may be amended 
 and made available for all the desired objects, as 
 far as these can be attained by human means, has 
 also been here shown, or, at least, attempted to 
 be shown. 
 
 But, as long as human folly finds place in this 
 world, no human arrangements can be so made 
 as to keep out all evil consequences, — these being, 
 fortunately for mankind, always and inevitably in 
 some proportion to the folly. 
 
 It is not pretended that the changes here 
 proposed will prevent or reheve all the conse- 
 quences of human folly, and more, it is not de- 
 sired. The most that is proposed is, to prevent, 
 as far as possible, — and, at best, that cannot be 
 very far, — the rash and reckless gamblers from 
 involving in their ruin the prudent and industri- 
 
THE TWO SYSTEMS COMPARED. 695 
 
 ous traders ; and to reduce, as far as possible, 
 the risks of legitimate commerce, by the estab- 
 lishment of a National Bank, which shall be open 
 and accessible at all times to the legitimate traders 
 on known and easy terms, and be a safe and sure 
 resource for them in their time of need from 
 unforeseen and extraordinary circumstances, on 
 terms known to them beforehand, and on which, 
 therefore, they may safely calculate. That rash 
 and dishonest speculators will often intrude and 
 force their way in to the detriment of the honest 
 traders is equally certain. But that is an un- 
 avoidable evil, and all human arrangements 
 being subject to unavoidable evils, that cannot 
 be brought forward as a special objection in this 
 case. The whole question depends on the turn of 
 the balance to good or evil, and if the good pre- 
 ponderate the question is answered. 
 
 It may be true that, there is " an innate princi- 
 ple of humanity, which prompts men to ascribe 
 to any but the true cause misfortunes arising 
 either from their own improvidence or from the 
 unavoidable vicissitudes of their calling." 
 
 It may be, — as the Member for Westmeath 
 says, — " thio accounts for more than the due 
 share of abuse which the Bank Act of 1844 has 
 come in for." * 
 
 * " The Currency Question, And The Bank Charter Com- 
 mittees." By An M.P., page 51. 
 
696 THE BANK OF ENGLAND. 
 
 But, whether so or not, it is by no means pre- 
 tended that the proposed reform will prevent 
 misfortunes arising from improvidence, or from 
 the unavoidably vicissitudes to which traders are 
 subject. 
 
 Sydney Smith, speaking of the Reform Bill, 
 said: — "All young ladies will imagine, as soon 
 as the Bill is carried, they will instantly be mar- 
 ried ; school-boys think that gerunds and supines 
 will instantly be abolished, and that currant tarts 
 must instantly come down in price ; the corporal 
 and sergeant are sure of double-pay. . . . Eools 
 will be disappointed, as they always are." 
 
 It is submitted that, a case is shown for bring- 
 ing the Bank Charter Acts of 1844-45 under 
 the revision of the Government with a view to 
 their amendment, and that, as well for impress- 
 ing the Government with the urgent necessity of 
 the case, as for imparting strength and confidence 
 to the Government in such proceeding, the best 
 course to be pursued by ihe country would be, 
 for the members of the leading firms in all the 
 great manufacturing and commercial cities and 
 towns in the kingdom to form themselves into 
 associations in their several localities, for the pur- 
 pose of petitioning Parliament to amend the 
 existing Bank Charter Acts on the principles here 
 laid down, thereby enlarging the issue of credit 
 
THE TWO SYSTEMS COMPARED. 697 
 
 notes and confining the issue to the Bank of 
 England, at the same time fixing the maximum 
 of the bank-rate of discount at 4 per cent. 
 
 There is in the commercial community of this 
 country a feeling of indifference, arising from a 
 sense of hopelessness of any useful result from 
 further inquiry. This feeling cannot be a matter 
 of surprise to those who know liow past inquiries 
 by Select Committees of the Lords and Com- 
 mons have been conducted, and how they have 
 ended. It is, indeed, almost hopeless to expect 
 that, any useful result will ever be arrived at by 
 such means. 
 
 The personal influence of the great Bankers 
 and Capitalists will always prevail over the greater 
 numbers of the manufacturers, merchants, and 
 commercial community in general in this country, 
 so long as the present inequality of representa- 
 tion in Parliament continues, and the Government 
 is unable or unwilling to take upon itself the re- 
 sponsibility of determining this question on the 
 ground of public interests. 
 
 It must be assumed that, all parties are sincere 
 in the opinions they express for and against the 
 existing system. Some think that it works very 
 much for them ; others are equally certain that it 
 works very much against them. Neither party has 
 taken much trouble to study the subject, and both 
 
698 THE BANK OF ENGLAND. 
 
 parties are equally ill-informed about it ; the fact 
 being that, the present system is altogether wrong 
 in principle, and is really working to the very 
 great injury of the country at large, but the in- 
 jury is more evident to the traders with small 
 capitals than to the traders with large capitals, 
 because the former more frequently than the 
 latter, and both of them not unfrequently, but 
 often unexpectedly, find themselves bankrupts. 
 Very often they do not exactly know hovy this 
 has been brought about, and, therefore, they do 
 not know how to guard against it. The small 
 capitalists know that they have been carrying on 
 their trade in their customary way, and the large 
 capitalists know that they have been speculating 
 on their usual calculations. They all know that 
 they possessed property which, in ordinary times, 
 would have enabled them to meet all their ha- 
 bilities. 
 
 They know that they are ruined. 
 
 They do not know how or why. 
 
 They do not know that they are ruined by the 
 Bank of England. 
 
 But that is the question. 
 
 Now, it must be quite useless to put this ques- 
 tion to the Directors of the Bank of England, or 
 to the Proprietors of Bank of England stock, or 
 to the great capitalists, or to the money-jobbers 
 
THE TWO SYSTEMS COMPARED. 699 
 
 who are making their strokes of fortune out of the 
 general distress. 
 
 But who, after the experience of the years 1847, 
 1857, and 1866, will deny that this is the truth? 
 
 And who are the competent parties to answer 
 this question ? 
 
 In all the great commercial cities and towns 
 of the kingdom, how many commercial men are to 
 be foundwho can honestly say, they have read, from 
 beginning to end, the Act 7 and 8 Vict. cap. 32, 
 commonly called the Bank Charter Act of 1844 1 
 
 Even in Liverpool, next to the metropolis, the 
 largest and wealthiest, and, without exception, the 
 dirtiest, unhealthiest, and, judging from its desti- 
 tute and depraved lower population, the most 
 neglected of all the cities and towns of the king- 
 dom, — are there a dozen commercial men who 
 have taken the trouble to read the Bank Act, or 
 those voluminous folio Blue Books, which give the 
 result of the various Parliamentary Inquiries into 
 the effect of that Act upon the Currency and 
 Trade and Industry of the country ?* 
 
 * " Liverpool is tlie most unhealthy town in England, los- 
 ing 33 per 1000 of its population annually, while London loses 
 only 23. In the first week of Nov. 1865, the mortality of Liver- 
 pool was 40 in 1000, and the deaths exceeded the births by 
 85.— The Lancet, 18th November, 1865." 
 
 " The Liverpool magistrates were discussing the relative 
 sobriety of Manchester and Liverpool yesterday, and from 
 
700 THE BANK OF ENGLAND. 
 
 Are there a dozen commercial men in any city 
 or town of the kingdom who can truly say, they 
 have taken even this preliminary trouble for qua- 
 lifying themselves to form an opinion, vi'orth any- 
 thing, on this most important question ? 
 
 Is there one member of the present, the late, 
 or any past Government of this country, w^ho 
 really believes he understands this question 1 
 
 They may not, as a Government, like to make 
 the admission, but, probably, each individual 
 member vpill candidly admit that, he does not. 
 
 In this way only can tTie attempt of the late 
 Chancellor of the Exchequer be accounted for, 
 when he brought in a Bill to prolong the evil of 
 private banks of issue, and declared his intention 
 to repeat that attempt in the present session. 
 
 The great number of irrelevant questions which 
 Mr. Gladstone, as a member of the last Select' 
 Committee of Inquiry, put to the witnesses, and 
 the important questions which he omitted to put, 
 furnish strong ground for the inference that he has 
 not given much consideration to this question. 
 
 No one who understands this question, can 
 
 the statistics laid before them it would appear that Man- 
 chester is a paradise of morality compared to its western 
 coinpetitor. The figures showed that Manchester, in 1864, 
 with 1,884 beer-houses, had 3,587 convictions for drunken- 
 ness, whilst in Liverpool, with 1,001 beer-houses, the convic- 
 tions amounted to 14,002."— Pall Mall Gazette, 28th Dec. 
 1865. 
 
THE TWO SYSTEMS COMPARED. 701 
 
 look with confidence to a Government which 
 supports the " Overstone theory," upon which the 
 present Bank Act is founded. 
 
 This is a question of principle, to be deter- 
 mined by experience. 
 
 One person's opinion may be as good as 
 another's on an abstract question, but the opinion 
 which is confirmed by experience is entitled to 
 the most attention, and he who finds his opinion 
 confirmed by universal experience, without a sin- 
 gle exceptional or inconsistent fact, is entitled to 
 say that, he is right, and that all who differ with 
 him are wrong. In this there is no presumption, 
 for on this foundation alone the whole Newtonian 
 system stands, and will continue to stand, until 
 the exceptional or inconsistent fact be found. 
 
 If the members of the Government, the manu- 
 facturers. Merchants, Bankers, and Shop-keepers, 
 have not taken the trouble necessary for under- 
 standing this question, is it likely that the Law- 
 yers and Country Gentlemen in the House of 
 Commons are better qualified ? 
 
 What, then, can be the use of any more Select 
 Committees to inquire into this question ? 
 
 What has been the result of all these Com- 
 mittees of the Lords and Commons, but volu- 
 minous folio Blue Books, which very few persons 
 have even looked into, and, perhaps, not a dozen 
 
703 THE BANK OF ENGLAND. 
 
 persons in the whole kingdom have read through 
 from beginning to end ? These last, if there 
 be any such, can alone be qualified to say how 
 wearisome is the waste of time and trouble. 
 
 Without meaning anything in disparagement 
 of the witnesses who have given their evidence 
 on this question, but, on the contrary, admitting 
 that their evidence has been, to a certain extent, 
 useful, yet, the result of all these Parliamentary 
 Inquiries has, certainly, been anything but satis- 
 factory. 
 
 As already shown, (page 95) of the seventeen 
 witnesses examined before the Committee of the 
 House of Commons in 1848, thirteen condemned 
 the Act, and four supported it. Among its four 
 supporters were three Directors of the Bank of 
 England, and Mr. Samuel Jones Loyd, the 
 Banker. Among those who condemned it were 
 the late Mr. Samuel Gurney, the largest money- 
 dealer in Europe ; Mr. George Carr Glyn, the 
 eminent London Banker ; Mr. Bates, of the 
 House of Baring, Brothers, and Co. ; and Mr. 
 Birbeck, the recognized representative of the 
 Country Bankers of England. At that time Lord 
 Ashburton, (formerly Mr. Alexander Baring) a 
 distinguished financial authority, gave it as his 
 opinion that, the Bank Charter Act of 1844 " was 
 a great experiment which had signally failed." 
 
THE TWO SYSTEMS COMPARED. 703 
 
 Of the eleven witnesses examined before the 
 Committee of the House of Commons in 1857, 
 six condemned the Act, four partially approved 
 of it, and one wholly supported it, that one bein^ 
 Mr. Samuel Jones Loyd, the Banker, then Lord 
 Overstone. The four partial approvers were Bank 
 Directors. The one whole supporter was the 
 fi'amer of the Bill, or, at least, its recognized 
 chief advocate. Those vi^ho condemned it were, 
 — 1. Mr. David Barclay Chapman, (Partner of 
 the Mr. Samuel Gurney, the largest money- 
 dealer in Europe,) who had been in the house of 
 Overend, Gurney, and Co., " altogether rather 
 more than forty years." 2. Mr. William New- 
 march, wrho had been ' associated with Mr. Tooke 
 in the preparation of the latest volumes of his 
 work on Prices/ who had also ' turned his atten- 
 tion to the principles and theory of currency and 
 banking, and had particularly considered the 
 effect of the Bank Act of 1844,' which his great 
 toaster and teacher had declared to be " the most 
 wanton, ill-advised, pedantic, rash pieces of legisla- 
 tion" which he had ever known, and in its con- 
 sequences, had proved a most lamentable failure. 
 3. Mr. John Stuart Mill, now M.P. for West- 
 minster, who " had considered the provisions and 
 operations of the Bank Act of 1844, as much as 
 any person can do who has no practical acquaint- 
 
704 THE BANK OF ENGLAND. 
 
 ance with commercial business, and knows only 
 at second hand facts which are known at first hand 
 by those concerned in business": — 4. Mr. Na- 
 thaniel Alexander, the head of the firm of Alex- 
 ander and Co., India merchants, who had " nar- 
 rowly watched the operation of the Bank of Eng- 
 land upon trade, as all merchants ought to do :" 
 — 5. Mr. John Twells, a partner in the house of 
 Spooner, Attwoods and Co., and who had been 
 a banker upwards of 50 years, the substance of 
 whose evidence may be given in the following 
 question and answer : — " 4488. How do you 
 think that the Act of 1844 has operated?— If I 
 were to answer you as a banker, I should say that, 
 it has operated exceedingly well, for it has afforded 
 a rich harvest to bankers and capitalists of all 
 kinds. But it has operated very badly to the 
 honest industrious tradesman who requires stea- 
 diness in the rate of discount, that he may be 
 enabled to make his arrangements with confi- 
 dence ; it must distress that class very much in- 
 deed. For large capitalists and bankers it is 
 evident (there is no occasion to disguise the thing), 
 that, it has operated extremely well ; it has made 
 money lending a most profitable pursuit for 
 them:" — 6. And lastly, Mr. Edward Capps, 
 (' engaged extensively in the building trade for 
 30 years past ') whose evidence goes to prove 
 
THE TWO SYSTEMS COMPARED. 705 
 
 that the existing Bank Act operates very injuri- 
 ously to credit. 
 
 After all these Parliamentary Inquiries, with 
 picked witnesses, and the great weight of their 
 evidence against the existing Bank Acts, these 
 Acts still continue to regulate the money and 
 commercial credit of the country ! 
 
 Can it surprise any one, acquainted with these 
 facts, that, the commercial community in general 
 now takes little interest in these Parliamentary 
 Inquiries ? 
 
 Why should not the members of the Govern- 
 ment take upon themselves the trouble of mak- 
 ing up their owtl minds, and then take upon 
 themselve the responsibility of bringing into Par- 
 liament a Bill for the settlement of this question ; 
 or, take upon themselves the responsibility of 
 openly declaring that, they are satisfied with the 
 law as it stands ? 
 
 This was the course taken by the Government, 
 when Sir Robert Peel brought into Parliament 
 in 1819, his Bill for resuming cash payments, 
 and in 1 844 his Bank Bill. 
 
 On both these occasions the Government took 
 upon itself the whole responsibility. 
 
 If the Government waflt further information, 
 why not seek it from those who are wiUing to 
 give it, and who, from their position and pursuits, 
 
 2 z 
 
706 THE BANK OF ENGLAND. 
 
 may be supposed qualified to give it, instead of 
 throwing the responsibility upon a Parliamentary 
 Committee, a course of proceeding, in every 
 case, an admission of ignorance and weakness, 
 and if in some cases excusable, in this case no 
 longer excusable, being only an idle repetition of 
 a useless and evasive form. 
 
 No inquiry into the operation of the Bank 
 Charter Act would add anything material to our 
 knowledge of the facts of the case. Experience 
 is useful for facts, but we have now had the ex- 
 perience of twenty-two years, and we have had 
 all the benefit we ever shall have from special 
 inquiry by Select Committees of the Lords and 
 Commons, but the experience of Bankers, Mer- 
 chants, and Shop-keepers, will no more qualify 
 them for discovering the principles of Banking 
 and Currency, than gazing up into the heavens 
 all their lives wiU fit them for calculating eclipses. 
 
 It is the exact reasoning and the correct con- 
 clusion which make the facts of any use, and, on 
 a question of this extensive nature, individual 
 experience must be very narrow, and open to the 
 influence of many prejudices. Facts, carefully 
 ascertained, are of great value in this inquiry, 
 but it by no means follows that, the most ex- 
 perienced are, therefore, the most competent to 
 draw correct conclusions. The unpractical, with 
 
THE TWO SYSTEMS COMPARED. 707 
 
 all the facts before them, may be more compe- 
 tent, being less liable to be influenced by the 
 narrow views of individual experience. 
 
 These remarks are not intended to disparage 
 the wisdom of experience, but to guard against 
 the common error of confining wisdom to indi- 
 vidual experience. 
 
 The Writer of these remarks has had, per- 
 sonally, no experience in Banking or Bills, and 
 though occasionally drawing bills on others, he 
 has never in his life accepted a bill. But he has 
 endeavoured to avail himself of the experience of 
 others in regard to facts, and on facts carefully 
 ascertained, to exercise his own unprejudiced 
 judgment. 
 
 It will not be out of place here to make a few 
 further remarks on Mr. Goschen's Essay on 
 " Foreign Exchanges," a work which appears to 
 have attracted much attention, being in the Eifth 
 Edition. 
 
 But, though professing to explain the causes of 
 the fluctuations in the price of money in different 
 countries in relation to each other, he does not 
 pretend to draw consequences, and the conse- 
 quences constitute the whole value of the inquiry. 
 
 What possible use can there be in explaining 
 the causes of these fluctuations but with a view 
 to preventing them ? 
 
 2 z 2 
 
70S THE BANK OF ENGLAND. 
 
 If that were really Mr. Goschen's object, cer- 
 tainly he has done little or nothing towards it. 
 But, more probably, his object was indirectly to 
 support the Bank Charter Act of 1844. 
 
 In Mr. Goschen's explanation of Foreign Ex- 
 changes there is nothing new. The explanation 
 was given many years ago by M. Isaac Pereire, 
 and, in his recently published work, already re- 
 ferred to, entitled, " Principes de la Constitution 
 Des Banques, et de I'Organisation Du Credit," the 
 substance of all Mr. Goschen's explanation is 
 given in Chapter VI. " Theorie du Change et 
 du commerce des metaux precieux." The only 
 difference between M. Isaac Pereire and Mr. 
 Goschen is that, the one draws the consequences 
 and the other does not. 
 
 These consequences are so important to the 
 Bank Question that an English translation of 
 Chapter VI from M. Isaac Pereire's book is given 
 in the Appendix. In no other book in any lan- 
 guage is the subject to be found treated in this 
 clear and comprehensive manner, and the reader 
 who follows the explanation cannot fail to see 
 that the only value of the explanation is in cor- 
 rectly deducing and applying the consequences. 
 
 And, after all that can be said, what are Fo- 
 reign Exchanges, but necessarily imperfect con- 
 trivances for correcting the inequalities and 
 
THE TWO SYSTEliJS COMPARED. 709 
 
 preserving something like an equilibrium in the 
 value of money between the different countries, 
 rendered necessary by the want of a systematic 
 and uniform principle of action between Eng- 
 land and Prance, the two countries in Europe 
 whence the chief supplies of capital are drawn ? 
 
 It is undoubtedly true, as Mr. Goschen says, 
 that, the Foreign Exchanges are an index to the 
 fluctuations in the price of money, but it is 
 equally true, as he also shows, that, this is no 
 index to the state of indebtedness between one 
 country and another, and this is the important 
 fact to be known for future guidance. 
 
 Mr. Goschen must know, and indeed, he ad- 
 mits that, to explain all the causes which influence 
 Foreign Exchanges is impossible. 
 
 Many will continue to think, after reading his 
 Essay that, to explain some of the causes and to 
 leave others unexplained, can hardly be attended 
 with much practical benefit. But this is all that 
 Mr. Goschen purports to do by his Essay on 
 Foreign Exchanges. He does not pretend that, 
 he has thrown any new light on the subject, or 
 that any new light was wanting. 
 
 The only conclusion is that, he wrote his Essay 
 for another object, and that was as a Director of 
 the Bank of England, and an advocate for the 
 existing system. 
 
710 THE BANK OF ENGLAND. 
 
 If such were Mr. Goschen's design it is well 
 executed, and his disguise is well preserved to 
 the last page but two of his book. 
 
 On page 145 [5th Edition] the disguise is 
 thrown off, and the true design is exposed in 
 the following paragraph : — 
 
 "The rapid rise of the price of bills on any 
 country as soon as any advance in the general 
 rate of interest obtainable there takes place, is 
 caused by the competition for the most ready and 
 most convenient vehicle for the transmission of 
 capital, the competition itself being the result of 
 a high rate of interest. A fall of the rate will 
 cause a corresponding fall in the prices of bills, 
 and, acting as it does with invariable force, and 
 being succeeded by invariable results, it is clear 
 that there is no corrective of a drain of gold, 
 and all its attendant consequences, more power- 
 ful and effectual than a rapid advance in the 
 rates of discount. It is the only mode by which 
 that which is on the point of being lost may be 
 retained, or that which is actually gone may be 
 replaced; and its natural effect is, not to pro- 
 duce a scarcity of money, of which it can never 
 be the cause, though often the consequence, but 
 to remedy and correct this scarcity by offering a 
 premium to the rest of the world to send their 
 capital or money to the dearest markets." 
 
THE TWO SYSTEMS COMPARED. 711 
 
 This is the reasoning of the Bank Director, — 
 the reasoning on which the Bank Directors act ; 
 and this is quite consistent with what the same 
 writer had said before in another place. That 
 saying, already given, (page 312) it may be con- 
 venient here to reproduce : — 
 
 " Notwithstanding the events of the past year 
 (1864) and the temporary pressure which Eng- 
 land has suffered under the new competition for 
 loanable capital, we are disposed to believe that 
 no country will in the end reap greater advan- 
 tages from it than England herself, who of all 
 countries has the greatest capital at command." 
 
 That was the opinion of Mr. Goschen as a 
 a Bank Director, when writing in the Edinburgh 
 Review, in January, 1865, in reference to the 
 Bank rate of discount, which was upwards of 
 " Seven Per Cent," on the average of the whole 
 of the year 1864. 
 
 Without discussing with Mr. Goschen in re- 
 gard to his belief that, " no country will in the 
 end reap greater advantages from it [the pres- 
 sure] than England herself," — still, he will admit 
 that, it would have been better for England, if 
 not for the Bank of England, (to say nothing of 
 the long list of names in the London Gazette 
 through that pressure) if the advantages could 
 have been reaped at the average pressure of be- 
 
712 THE BANK OF ENGLAND. 
 
 tween 3 and 4 per cent., instead of between 7 
 and 8 per cent, for the year. 
 
 Now, with all respect for the ability and ex- 
 perience of Mr. Goschen, the real and only 
 practical question in this controversy is, whether 
 or not the lower average might have been main- 
 tained, if the Bank of England had been con- 
 stituted as proposed in these pages. 
 
 To prove the affirmative is the present object, 
 and Mr. Goschen would render a real service if 
 he would use his ability and " ten years' experi- 
 ence " to show, if he can, that, the reasoning 
 here advanced is unsound and the conclusion 
 arrived at is erroneous, or his good sense and 
 candor by the admission that, the reasoning is 
 sound and the conclusion correct. 
 
 Mr. Goschen can hardly come to any other 
 than this last conclusion if he will give his care- 
 ful attention to Chapter VI. in the work of M. 
 Isaac Pereire before referred to and to the evi- 
 dence of MM. Isaac and Emile Pereire before 
 the French Commission of Inquiry into the Bank 
 of Prance both given in English in the Ap- 
 pendix. 
 
 As the experience of these two distinguished 
 French Financiers and Political Economists ex- 
 ceeds, in number of years, four times the experi- 
 ence of Mr. Goschen, it will be no disparagement 
 
THE TWO SYSTEMS COMPARED. 713 
 
 to him if he yield to their reasoning and concur 
 in their conviction, and then his present eminent 
 position may enable him to confer a service on 
 his country, which will connect his name in his- 
 tory with one of the most beneficial changes ever 
 made for the trade and industry not only of this 
 country, but of the whole civilised world.* 
 
 Nor is it said with the smallest intention to 
 disparage Mr. Goschen's book on " Foreign Ex- 
 changes," that Chapter VI. in M. Isaac Pereire's 
 work referred to, together with the Evidence of 
 himself and his Brother, M. Emile Pereire, give 
 in a few pages, not only all the information on 
 Poreign Exchanges to be found in Mr. Goschen's 
 book and much more, but give also the conclu- 
 sions and the application, which are the only 
 practical utility, and which are wholly wanting 
 in Mr. Goschen's book. 
 
 But, after all that xan be said about Foreign 
 Exchanges, what are they, but complicated and 
 imperfect attempts for the settlement of accounts 
 between nations, which have different monies of 
 different values, and no uniformity of principle 
 or practice in their dealings with each other. 
 
 The Foreign Exchanges are for correcting 
 these differences and sustaining Credit. And 
 
 * Mr. Gbschen was then a Cabinet Minister, under Earl 
 Eussell's Government. 
 
714 THE BANK OF ENGLAT^fD. 
 
 what does the whole resolve itself into, but a 
 question of Credit, or carrying on, by artificial 
 means, a universal system for the convenient in- 
 terchange of mutual services among the diflPerent 
 nations of the world ; and who can doubt that, 
 this beneficent design is intended to be, and must, 
 ultimately be accomplished t 
 
 It is not within the scope of this work to enter 
 into the great question of human government ; 
 but, in so far as it touches upon the question of 
 the Organisation of Credit, it may not be out of 
 place here to give a faint outline of what ap- 
 pears to be some of the few and certain natural 
 laws for carrying out the beneficent design of 
 Providence for the universal welfare of mankind. 
 
 This cannot be called a new or startling theory, 
 
 being nothing more that the practical application 
 
 ' of a few of the simple truths declared by Adam 
 
 Smith, in his 'Wealth of Nations,' a hundred 
 
 years ago. 
 
 These simple truths, .in practice, would con- 
 stitute a uniform and self-regulating system, ap- 
 plicable to all nations, for the benefit of all 
 people, under all circumstances, and for all time. 
 
 On the differences in the denomination and 
 value of the monies of diff'erent nations, it is use- 
 less to dwell, as it is already well understood 
 that this difficulty can be easily removed by the 
 
THE TWO SYSTEMS COMPAEED. 715 
 
 adoption of a decimal coinage by all the nations, 
 and to that they are slowly coming. 
 
 Por the more difficult part of the subject, con- 
 nected with the Organisation of Credit, the fol- 
 lowing are a few of the principal truths in Po- 
 litical Economy, which must be here shortly 
 noticed, as the foundation of the Wealth of Na- 
 tions : — 
 
 1. That Industry and Commerce constitute 
 the wealth of nations. 
 
 2. That all Taxes, however collected, come 
 ultimately out of the Land. 
 
 3. That to tax the laborer in his own labor, 
 before he has realised the profit of his labor, is 
 as impolitic as it is unjust. 
 
 4. That the whole of the present revenue of 
 the United Kingdom might be easily raised by a 
 single tax of 10 per cent, on the annual value of 
 all the realised property of the kingdom, as de- 
 fined. 
 
 5. That with this single Tax, all Customs and 
 Excise duties, Probate, Legacy and Succession 
 duties and all other Stamp duties (except Post- 
 age-Stamps), Income tax. Land and Assessed 
 taxes, and all other State taxes and duties might 
 be safely abolished. 
 
 6. That the increase of realised property would 
 be so great, from the increase of trade and ge- 
 
716 THE BANK OF ENGLAND. 
 
 neral prosperity, and the annual savings would 
 be so immense from the diminished cost of col- 
 lection and the diminished loss from fraud and 
 waste, that within, probably, five years, the whole 
 revenue might be raised by the single Property 
 tax of 6 per cent., and any larger revenue which 
 could be reasonably required would be easily 
 raised by a small additional per centage. 
 
 7. That the expenses of the State would thus 
 be paid directly out of the realised property of 
 the kingdom by one single Property tax, instead 
 of being paid indirectly by a multitude of costly 
 and vexatious impositions. 
 
 8. That, in addition to this tax on property, a 
 small rateable tax would be paid by all House- 
 holders in proportion to the annual value of the 
 Houses, with a rateable proportion on all Lodgers, 
 for the protection afforded by the State to the 
 persons. The protection being to all, this tax 
 should be payable by all, in rateable proportion. 
 
 This would be in the nature of a Capitation 
 tax, but fixed upon the House for the conve- 
 nience of collection. 
 
 Vagrants, who lived in no houses and pos- 
 sessed no taxable property, would escape all 
 taxes. 
 
 Workers of all classes, who lived on their 
 wages or gains and saved nothing, or who in- 
 
THE TWO SYSTEMS COMPARED. 717 
 
 vested their savings in nothing coming within 
 the definition of realised property, would pay no 
 tax on property. They would pay only the 
 House tax for the protection of their persons. 
 But that would be no loss to the State, or to the 
 other tax-payers in the end; for, in those ex- 
 ceptional cases, the payments would be only 
 postponed.* 
 
 These principles, if true, must be equally ap- 
 plicable to Prance as to England, and in prac- 
 tice the results must be equally beneficial to all 
 countries. 
 
 But these principles, carried out by the will- 
 ing co-operation of England and France, must 
 eff'ect the same change in all the civilised nations 
 of the world. 
 
 The example of England and France, acting 
 together in harmonious concert, with the Ports 
 of the two kingdoms open and free to all the 
 world, would operate with a force that would be 
 irresistible. 
 
 Human Governments, under whatever form, 
 would then be brought down much nearer to 
 the level of the interests of the governed. With 
 the freedom of trade, the freedom of the People 
 
 * See these views fully set forth in the ' People's Blue 
 Book ' (3rd Edition), with all the necessary facts and figures, 
 taken from the G-overnment accounts, for proof of the con- 
 clusions here only shortly referred to. 
 
718 THE BANK OP ENGLAND. 
 
 would be in a much fairer proportion, and every 
 man who contributed in proportion to his means, 
 his equal share of services to the State, would 
 soon find his claim to an equal voice in the elec- 
 tion of the Representatives of the People in the 
 Council of the State, universally acknowledged. 
 It will then soon be seen and universally ac- 
 knowledged that, on no other foundation than 
 this can human government, under whatever 
 form, be a permanent and peaceable institution. 
 The time must come when all human govern- 
 ments must be conducted on just principles for 
 the equal benefit of all. 
 
 In the history of the world there is no ex- 
 ample of any nation governed on these principles. 
 But the time, if not actually arrived, is not dis- 
 tant when this experiment must be tried, and 
 it will be best tried in calm deliberation by Eng- 
 land and Prance, the two most enlightened and 
 most powerful nations of the world. The friendly 
 co-operation of these two great nations is all that 
 is required for the complete success of the expe- 
 riment. All other civilised nations • must follow 
 their example, and the freedom of the People 
 will then be the test of civilisation throughout 
 the world. 
 
 If all the works of private enterprise in Eng- 
 land and France were free from the intrusion 
 
THE TWO SYSTEMS COMPARED. 719 
 
 of the tax-gatherer, if all the obstacles of trade 
 and industry were removed, and these sources 
 of wealth were undisturbed and undiminished, 
 if the wages of labor, the profits of agriculture 
 and trade, the gains of professions and pri- 
 vate enterprises of all descriptions were un- 
 touched, until invested in realised and tangible 
 property under the special cognizance and pro- 
 tection of the State, and if, in addition to all 
 this, the monopoly of the Bank of England and 
 the Bank of France were limited, and money 
 were made cheap by fixing the maximum Bank 
 rate of discount at 4 per cent., the results would 
 be the best evidence of the success of the expe- 
 riment, and Governments would find their best 
 security in the gratitude of a free, happy, and 
 contented people. This is no " vain theory pre- 
 sented in a seductive garb," but it is a grand 
 truth, which Governments have yet to learn. 
 
 Capital would then increase at a greatly ac- 
 celerated rate, and with the increase of com- 
 merce the demand for labour would increase, and 
 wages would rise, in addition to the rise in the 
 money value or purchaseable power of the money, 
 which could not be less than 30 per cent. All 
 property would increase in value. Those who 
 would pay the property-tax would pay much less 
 than they do now, and the People, prosperous, 
 
720 THE BANK OF ENGLAND. 
 
 contented, and happy, would then be the strength, 
 as thev are the wealth of the nation. 
 
 In the midst of this general prosperity, the 
 freedom of the People, by the concession of 
 Manhood Suffrage and the division of the coun- 
 try into Electoral Districts would then appear 
 but as a very small fact, and would be so little 
 thought of, that the demand of the small fee of 
 sixpence from each Voter, for registering his 
 vote and defraying the necessary expenses, would, 
 probably, reduce the number of votes below the 
 present amount. 
 
 The Electoral Districts might be easily ar- 
 ranged so as to give the largest number of Con- 
 stituents to the largest manufacturing and com- 
 mercial Cities and Towns, and the largest num- 
 ber of Representatives to the Counties, with the 
 trifling addition of two members, by increasing 
 the present number of 658 members to 660, — 
 thus : — 
 
 Pkesent Number op Members. 
 
 England. — County Members . . 146 
 
 Isle of Wight .... 1 
 
 Universities 4 
 
 Cities, Boroughs, and 
 Cinque Ports .... 320 
 
 471 
 
THE TWO SYSTEMS COMPARED. 
 
 721 
 
 England — Brought Forward 471 
 
 Wales.— County Members 
 Borough 
 
 Scotland. — County Members . 
 Cities and Boroughs 
 
 Ireland. — County Members . 
 University . . . 
 Cities and Boroughs 
 
 15 
 14 
 
 30 
 23 
 
 29 
 
 53 
 
 64 
 
 2 
 
 39 
 
 105 
 658 
 
 Total Members . 
 Peoposed Ntjmbee of Members. 
 England. — County Members . . .225 
 Wales „ „ ... 20 
 
 Scotland „ „ ... 40 
 
 Ireland „ „ ... _65 
 
 County Members 350 
 
 England. — Cities, Boroughs, and 
 
 Cinque Ports 230 
 
 Wales. — Boroughs 10 
 
 Scotland „ 25 
 
 Ireland „ 35 
 
 Cities, Boroughs, and Cinque Ports 300 
 
 England. — Universities 5 
 
 Wales. — University 1 
 
 Scotland. — Universities 2 
 
 Ireland. — Universities 2 
 
 Universities . 10 
 Total Members . 660 
 3 A 
 
722 THE BANK OF ENGLAND. 
 
 Neither justice nor policy requires that the 
 number of the Representatives should be ad- 
 justed to the number of the represented. With 
 Manhood Suffrage, the adjustment should be 
 rather the other way. The majority of the Re- 
 presentatives should be with the permanent in- 
 terests of the Land, thereby preserving the pre- 
 ponderating influence in the Counties, rather 
 than in the Cities, Towns and Boroughs. 
 
 In this way the rights and interests of all 
 classes would be recognised and respected. The 
 right of the People to a voice in the great 
 Council of the State would be acknowledged, 
 but the preponderating influence would be pre- 
 served in the higher classes, who are the most 
 highly educated, and who have the largest stake 
 in the permanent property of the country. 
 
 It could hardly be thought unsafe to give the 
 right of voting to the Artisans and Laborers in 
 the Cities and Boroughs, supposed to be under 
 the Commercial influence, if the majority of the 
 Representatives were returned by the Counties, 
 supposed to be under the Landed influence. 
 
 According to the proposed distribution, there 
 would be a majority of sixty members of the 
 most highly educated class, out of the whole 
 number of 660. 
 
 New, assuming, as it is asserted, that a po- 
 
THE TWO SYSTEMS COMPARED. 723 
 
 pular member has to perform the double func- 
 tion of advocate and judge, and assuming the 
 inconsistent and monstrous hypothesis that, as 
 the deputy of the People, instead of the repre- 
 sentative of their true interests, he sacrifices the 
 higher duty of the judge for the lovi'er duty of 
 the advocate, still there is a sure and safe ma- 
 jority of Sixty for the Land-owners. 
 
 The great mistake in considering the Fran- 
 chise question is, in supposing that representation 
 should be in proportion to population. Numbers 
 have really very little to do with this question, in 
 comparison with the interests at stake, and the 
 classes to which those interests are confided. 
 
 Numbers dispersed in small masses have the 
 same claim to representation as numbers con- 
 gregated in large masses. Many small towns, 
 in the aggregate, such as Arundel, Honiton, 
 Thetford, Calne, and others, are equal to one 
 large town, such as Liverpool, Manchester, Bir- 
 mingham, or Leeds, and others ; and many small 
 rural districts, in the aggregate, are equal to 
 Yorkshire. There is no reason why dense masses 
 should monopolise representation, nor why dis- 
 persed masses should not be represented. There 
 is no reason why the right of voting should be 
 refused to a class which pays, as Mr. Gladstone 
 lately said at Liverpool, and afterwards repeated 
 
 3 A 2 
 
724 THE BJlSK of ENGLAND. 
 
 in the House of Commons, " not less than one- 
 third, and probably a great deal more than one- 
 third of the whole revenue," though individually 
 their only property be the wages of their daily 
 labour, nor to an individual, of any class, of full 
 age, out of prison, and not out of his senses. 
 
 It is a monstrous doctrine that, a population 
 concentrated ought to have members, but a popu- 
 lation scattered ought not. 
 
 If the numerical basis of representation be the 
 sound one, how are the adjustments to be 
 made? 
 
 If this is to be the principle of representation, 
 how many members are to be appropriated to the 
 large counties, and to those towns which have 
 from 20,000 to 50,000 inhabitants ? 
 
 What then is to become of the small counties 
 and towns ? 
 
 Are they to be unrepresented ? 
 
 Is the whole number of members to be tripled 
 or quadrupled ; or will the great counties and 
 towns consent to make up the proportionate allot- 
 ment to the smaller ones ? 
 
 Is any one prepared to recommend that the re- 
 presentation of the great Metropolitan Boroughs 
 should be trebled, and that fifty per cent, be 
 added to the county representation ? 
 
 If not, we must seek some sounder basis for 
 readjustment than that of mere numbers. 
 
THE TWO SYSTEMS COMPAHED. 725 
 
 And as to property qualification for the right 
 of voting. 
 
 Is it not a singular anomaly to require it from 
 the cestui-que-trust, and not from the trustee, to 
 exact it as a guarantee for the due exercise of the 
 constitutional right, and to dispense with it as a 
 guarantee for the due performance of the trust 
 reposed ? 
 
 Is the one who confides his interest to another 
 not to be trusted, and is the other, who is 
 trusted to protect those interests, beyond the 
 reach of undue influence ? 
 
 If votes be bought and sold, who buys them ? 
 
 And as to the educational qualification fqr the 
 right of voting. 
 
 What has Education to do with the Franchise ? 
 
 If the right of voting be a constitutional right, 
 and unquestionably it is the constitutional right 
 of every tax-payer, there can be no more reason 
 for depriving him of that right because he has 
 no property or because he cannot read or write, 
 than for depriving him of his life or liberty for 
 either of the same reasons. The only diff'erence 
 would be in the degree of injustice ; both would 
 be equally unwise. 
 
 The absurdity is in the assumption that, men 
 of full age and in possession of their common 
 senses, but without property or education, are 
 
726 IHE BANK OF TINGLAND. 
 
 ther^jore bad citizens, and not to be trusted. It 
 M'oula be scarcely more absurd, though certainly 
 more unjust, to say, therefore they are not fit to 
 live or to live at large, and ought to be put to 
 death or shut up. That would be a very likely 
 way to make them bad citizens. 
 
 It would be much nearer the truth and much 
 wiser to assume that, they are all good citizens, 
 and that would be the most likely way to make 
 them so. 
 
 But, no real reformer wishes to see the working 
 classes the predominant power in this country, 
 nor do they themselves wish it. They have too 
 little confidence in themselves for that, or even 
 to trust each other in their own affairs. On the 
 contrary, they distrust each other, and it is no- 
 torious that, they look up to their employers as 
 the higher classes, and more safely to be trusted 
 for guidance and support. 
 
 The English working people are the most loyal, < 
 most industrious, most enduring people in the 
 whole world. By admitting them to the right of 
 free citizens, worth and wealth would exercise 
 their just influence in this country, and bribery 
 and corruption would be unknown, but as the de- 
 grading evils of the past. With the physical, the 
 moral condition of the People would be raised ; 
 the spread of education would then be rapid and 
 
THE TWO SYSTEMS COMPARED. 727 
 
 the effects sensible. There would still be much 
 evil mingled with the good, but then the evil 
 would be more clearly distinguished, more 
 generally condemned, and more effectually sup- 
 pressed. 
 
 The costly game of aggressive war would be 
 much more difficult to play, and the Sovereign 
 who played that hazardous game would then stake 
 his crown. 
 
 But, if the opponents of manhood suffrage 
 must be met on their own ground, what are the 
 facts ? 
 
 What are the numbers and incomes of the 
 working class ? 
 
 Taking the statistics of the Chancellor of the 
 Exchequer, the sum assessed to the income tax 
 is between £300,000,000 and £350,000,000 a 
 year. This includes a portion of the earnings 
 of the working class, but assume, as he does, that 
 this belongs wholly to those who are not of the 
 working class. 
 
 What, then, is the income of the working 
 class ? 
 
 The Chancellor of the Exchequer takes it, on 
 the moderate estimate for the three kingdoms at, 
 from £200,000,000 to £250,000,000. 
 
 Both these estimates are clearly below the fact ; 
 but assuming the fact on the authority of the 
 
728 THE BANK OP ENGLAND. 
 
 ■ Chancellor of the Exchequer, the income of the 
 working class is three-sevenths, or nearly one 
 half, of the whole income of the country. It is 
 unquestionably much nearer two-thirds. 
 
 According to the Chancellor of the Exchequer, 
 out of every £7 of income £3 are received by the 
 working man. It would be nearer the truth to 
 say £4. But assume that three-sevenths of the 
 whole income of the country belongs to the work- 
 ing classes. 
 
 Now, what is the proportion of their repre- 
 sentation ? 
 
 It appears that, 128,000 of the working class 
 now enjoy the borough franchise, besides the 
 comparatively few who enjoy the county franchise 
 by virtue of the 40ff. freehold. 
 
 Thus, avoiding the definition and number of 
 working men, and stating the case as much in 
 favour of the opponents as possible, there may be 
 l/iO.OOO working men who enjoy the county and 
 borough franchise in England and Wales. 
 
 The whole number of voters in the constituen- 
 cies is, in round numbers, 1,050,000, so that, 
 while the working people pay three-sevenths of the 
 income, they have one-seventh of the constituency. 
 
 Again, if we look to the taxation paid by the 
 working community of this country, the case 
 would come out very nearly in the same form. 
 
THE TWO SYSTEMS COMPAEED. 739 
 
 According to the Chancellor of the Exchequer, 
 " not less than one-third, probably a great deal 
 more than one-third, of the £68,000,000, at which 
 our revenue now stands, is contributed by the 
 working population."* Two-thirds is much nearer 
 the truth. t 
 
 Now, the question is, and this is the question 
 which the Chancellor of the Exchequer asks the 
 People of this country to answer ; — " With what 
 justice can we ask the working population to pay 
 this proportion of taxes and put them off in re- 
 turn with the miserable fraction of one-seventh 
 of the representation ?" 
 
 There seems to be only one reasonable answer 
 to this question, and that is, by admitting the 
 working part of the population into an equal 
 share of the representation with the other or non- 
 working part of the population. 
 
 It is obvious that, the most fair and simple 
 course would be to confer the right of voting for 
 Representatives in Parliament on every man on 
 his attaining his age of 21 years, provided he be 
 free from any legal disability. 
 
 But if that would be too sudden and too great 
 a shock to the nervous system of large Land- 
 
 * See the speech of The Eight Honorable "W. E. Glad- 
 stone, at Liverpool, 6th April, 1866. 
 t See the " People's Blue Book," 3rd Edition. 
 
730 THE BANK OF ENGLAND. 
 
 owners and Capitalists, an intermediate resting- 
 place might be found. 
 
 Suppose the 40*. freehold retained and the 
 Franchise fixed at £5 for Counties, Cities, and 
 Boroughs ; and suppose the number of members 
 increased by the addition of 2 members, making 
 the total number for the United Kingdom 660 ; 
 and of these suppose 350 distributed among the 
 Counties and 10 among the Universities, making 
 together for Counties and Universities 360, and 
 300 among the Cities and Boroughs. 
 
 By this simple arrangement might be deferred 
 for an indefinite and very long time Manhood 
 Suffrage, which must be the ultimate end because 
 the safest and most just. 
 
 But here all classes might rest and be thankful 
 for some generations yet to come. 
 
 The Counties, supposed to comprise the per- 
 manent property and highest intelligence, would 
 then have a majority of 60 members over the Cities 
 and Boroughs, supposed to comprise the lower 
 grade of intelligence and the dangerous part of the 
 community. 
 
 All fanciful franchises would then be done 
 away with, and the unwise and unjust distinction 
 between Counties, Cities, and Boroughs, with all 
 the difficulties which such a distinction involves, 
 would be at once removed. 
 
THE TWO SYSTEMS COMPARED. 731 
 
 The fight would then be simply for the £5 
 Franchise. 
 
 For that there would be a fight, moral not 
 physical ; a great efibrt would then be made, such 
 as was made for the repeal of the Corn Laws ; 
 the People would then know for what they were 
 making the effort, and millions, who now look on 
 indifferent, would then start up into activity,- and 
 the House of Commons, which would be returned 
 for the support of such a Bill, would answer all 
 the subtle and sophistical speeches of false friends 
 by a large majority of silent votes. 
 
 The redistribution of seats would then be a 
 comparatively easy work. All the details would 
 then be very simple, and might be easily com- 
 prised in one Bill. 
 
 Fancy Franchises might well be surrendered 
 on these terms. The fewer the details the fewer 
 the difficulties. 
 
 Such a Reform Bill would meet the justice of 
 the case and would be accepted, by an immense 
 majority of the People of this country, as a safe 
 and satisfactory settlement of the Question for, 
 probably, many generations. 
 
 These few remarks on the principles of Govern- 
 ment may be thought by some not to have much 
 bearing on the Bank Question, but these, which 
 are the true conservative principles, have a very 
 
733 THE BANK OF ENGLAND. 
 
 direct bearing on the credit of the country, and 
 that is the foundation on which the Bank of Eng- 
 land stands. 
 
 When the position of this country is considered 
 as dependent for the subsistence of its population 
 on its' trade with foreign nations, it must strike 
 even a casual observer as an astonishing and 
 alarming fact that, the whole monetary system of 
 this country is regulated by a law, which restricts, 
 and often to absolute scarcity, the very means by 
 which that trade is carried on, thereby increasing 
 the risk and diminishing the profit of the traders 
 for the benefit of the shareholders in the legalised 
 monopoly of the Bank of England and the large 
 capitalists, who together regulate the price of 
 money and control the credit of the country, 
 under the sanction of this unjust and most un- 
 wise law. 
 
 That such a law, described by Mr. Thomas 
 Tooke, one of our most distinguished authorities, 
 as " the most wanton, ill-advised, pedantic, rash 
 pieces of legislation" which he had ever known, 
 should have been inflicted on this country for up- 
 wards of twenty years, and that, after such long 
 experience of the baneful consequences, this should 
 be still an existing infliction on the the country, 
 is an astonishing and alarming fact, and the most 
 striking instance which can be given (not excepting 
 
THE TWO SYSTEMS COMPARED. 733 
 
 even the instance of the Corn Laws) of the in- 
 justice and impolicy of the system of Goyernment 
 in this country. 
 
 No further evidence than this can be want- 
 ing to prove that the laws in this country are 
 made not by or for the People, but by the great 
 Land-owners and CapitaHsts for themselves, and 
 it is impossible to come to any other conclusion 
 than that, this country is suffering, as are all other 
 countries in like circumstances, under that provi- 
 dential retribution which ever follows injustice 
 and folly, but is ever working out the righteous 
 and wise end. 
 
 In this, as in all such cases, the remedy for the 
 evil is sure to come. It comes either through the 
 mild means of the reasoning sense, or through 
 the terrible means of unreasoning madness. But 
 it surely comes, and it is only a question of time. 
 We have seen memorable instances of both. Of 
 the reasoning sense, in our own reforms of latter 
 times. Of the unreasoning madness in the 
 chapter of the history of France near the close of 
 the last century, and in the chapter just concluded 
 in the history of the United States. All history 
 shows that, the longer the remedy is delayed, the 
 more severe it is sure to be when it comes. In 
 ancient Rome and in modern Poland the remedy 
 was so long delayed that, it came at last to anni- 
 hilation. 
 
734 THE BANK OF ENGLAND. 
 
 The history of the past is written for our learn- 
 ing, and it has no other use for us but as a re- 
 cord of eternal truths. 
 
 Many will think that there is much exaggeration 
 in these views, and that, to refer to the Bank 
 Act as a serious infliction upon the country is a 
 wild absurdity. But those who think so have, 
 probably, reflected very little on the subject, and, 
 as Colei'idge has said, " those only think who re- 
 flect." Most of the Land-owners and great 
 (Japitalists thought the same, or said the same of 
 the Corn Laws. But serious as was the evil of 
 the Corn Laws, by diminishing the bread of the 
 People, in actual amount of cost and loss to the 
 country the Bank Acts are a more serious evil. 
 
 The Corn Laws enhanced the price of the first 
 necessary of hfe, and to many put the price be- 
 yond their reach. The consequence of this was, 
 the enhancement of the price not only of Corn, 
 but also of all other commodities, the diminution 
 of our Home and Poreign trade, the depreciation 
 of all the property of the kingdom, and the in- 
 crease of pauperism throughout the land. 
 
 The Bank Acts enhance the price of money, 
 thereby diminishing the means of production and 
 interchange of commodities with foreign nations ; 
 and by hmiting the supply of the raw materials, 
 thereby lowering the industry of the whole 
 
THE TWO SYSTEMS COMPARED. 735 
 
 country and the means of subsistence to all the 
 industrious classes. 
 
 The results are, dear money and low wages ; 
 high prices and small profits ; loss of trade and 
 diminished credit. But to the Bank of England 
 and the Capitalists large profits. To the Work- 
 ing Classes small gains, and to many of them 
 destitution. 
 
 But in this country, destitution does not mean 
 starvation. The meaning is, a barely sufficient 
 supply of the necessaries of life, and that is the 
 condition of the laborers,— especially agricultu- 
 ral, — in this country, to a much greater extent 
 than is generally known. Those who know it, 
 and the causes of it, are apt to carry about with 
 them feelings of indignation against the Govern- 
 ment, whether Whig or Tory, difficult to sup- 
 press, and as difiicult to express in terms which, 
 by the comfortably situated, may be considered 
 quite decorous. 
 
 But the end of it all will probably be, the 
 loss of the confidence of the country by both 
 these political parties, and then the only alterna- 
 tive will be, to look to the leader of the third 
 party, or the People's party, for conducting the 
 aff'airs of this country. 
 
 The object of this book is to bring together, 
 in a concise and convenient form, all the essen- 
 
736 THE BANK OF ENGLAND. 
 
 tial facts, derived from the experience of the 
 past, on the Bank Question, and to apply the 
 reasoning necessary for arriving at a correct 
 conclusion. 
 
 This is unavoidably a tedious process for the 
 reader to follow ; but the conclusion, if correct, is 
 worth the trouble; and then it is only a ques- 
 tion of time when the Bank of England will be 
 reconstituted on the true principles for the Or- 
 ganisation Of Credit In England. 
 
737 
 
 CHAPTER XII. 
 
 SUMMARY: CONCLUSION. 
 
 From the foregoing Chapters may be deduced 
 the following principles for the Organisation Of 
 Credit In England : 
 
 That, Capital, in its true meaning, denotes the 
 accumulated savings of labor, and its symbol is, 
 Monet. 
 
 That, among civilised nations, the weight of 
 bullion is the measure of value. 
 
 That, capital is the purchasing or moving 
 power of commerce, the power that causes the 
 goods to move from the producer to the mer- 
 chant, or to circulate. 
 
 That, capital, in its primary and general mean- 
 ing, does not mean the commodities themselves, 
 but the power which transfers the property in 
 them from one person to another. 
 
 That, all goods being circulated by capital or 
 credit, capital and credit constitute the circulat- 
 ing medium. 
 
 3 B 
 
738 THE BANK OF ENGLAND. 
 
 That, capital without credit must always be 
 unequal to the requirements. 
 
 That, credit without capital can have no safe 
 foundation. 
 
 That, for a safe foundation, credit must always 
 be in a certain proportion to capital, but that 
 proportion, being dependent on circumstances, 
 can never be exactly defined. 
 
 That, with capital in due proportion, credit 
 operates to the same results as capital, but that 
 capital and credit are essentially different. 
 
 That, capital and credit, or money and pro- 
 mises to pay money, form the only true circulat- 
 ing medium, or currency, and they are its limits. . 
 
 That, capital and credit must always increase 
 and decrease together. 
 
 That, money of gold and silver is a generally 
 acknowledged measure of value, but there is no 
 value in gold or silver, or in any other natural 
 production, nor any intrinsic value in any created 
 thing. 
 
 That, value exists only in human services mu- 
 tually rendered and received, or for which an 
 equivalent is given. 
 
 That, the gifts of Nature are utihties, but, 
 being gratuitous and given equally to all, are of 
 no value, as nothing can be given for them in re- 
 turn. 
 
SUMMARY: CONCLUSION. 739 
 
 That, to render utilities useful, it is essential 
 that they should be used, and to reader services 
 of value, it is essential that they should be mu- 
 tual, or that an equivalent should be given in 
 return. 
 
 That, all utilities, being the gifts of Nature, 
 for which no equivalent can be given in return, 
 are, therefore, of no value. 
 
 That, the word ' valued therefore, when ap- 
 plied to things, though convenient in its conven- 
 tional sense, is without any real meaning. 
 
 That, money is so much capital withdrawn 
 from the common stock, and measures services 
 performed, but for which no equivalent services 
 have been rendered, the money being the mea- 
 sure of the debt or service due, and thereby 
 transferred. 
 
 That, the money paid discharges the debt to 
 the party receiving, and transfers the debt to the 
 party paying. 
 
 That, credit, duly supported by capital, serves 
 to distribute capital and to make it productive. 
 
 That, it is, therefore, the policy of every coun- 
 try so to apply its capital as to enlarge the limits 
 of credit to the utmost possible extent, consis- 
 tently with safety. 
 
 That, the opposite course is pursued by England 
 and France and all other countries, by attempt- 
 
 3 B 2 
 
740 THE BANK OF ENGLAND. 
 
 ing to make credit equal to capital, without the 
 employment of capital in the due proportion. 
 
 That, such an attempt is as absurd as an at- 
 tempt to make a railway in the air. 
 
 That, the Organisation of Credit is dependent 
 on confining the limits of credit within the due 
 proportions with capital. 
 
 That, in England and France where capital, 
 under a properly organised system of credit, is 
 equal to the requirements, the limits of credit 
 cannot be defined. 
 
 That, all restrictions upon credit, which destroy 
 the due proportion between capital and credit, 
 must be restrictions upon productive industry 
 and capital. 
 
 That, a high rate of interest and discount, 
 being a restriction upon credit, must be a restric- 
 tion upon productive industry and capital most 
 injurious to the best interests of every country. 
 
 That money, the great instrument of com- 
 merce, makes a part, and a very valuable part, of 
 the capital, but makes no part of the revenue; 
 the money distributes the revenue, but makes no 
 part of that revenue. 
 
 That, whatsoever part of the national property 
 goes to provide the medium of, or substitution for, 
 exchange, is wholly inoperative with regard to 
 production. Nothing produces but human labor 
 
summary: conclusion. 741 
 
 or efforts, brought into action by the imme- 
 diate instruments of production ; the tools or ma- 
 chinery with which the workman labors, and the 
 raw material with which he fabricates. If, there- 
 fore, the whole of that portion of the national 
 property, so employed, could be taken from that 
 employment and converted into food, tools, and the 
 materials of production, the productive powers 
 of the country would receive a corresponding in- 
 crease. 
 
 That, it is the total quantity of the money in 
 any country, which determines wliat portion of 
 that quantity shall exchange for a certain portion 
 of the goods or commodities of that country. 
 
 That, the portion of the aunual produce, which 
 is not exchanged at all, as what is consumed by 
 the producer ; or, which is not exchanged for 
 money ; is, with respect to the money, as if such 
 portion of the annual produce had never existed. 
 
 That, a vast accession is, therefore, made to 
 the means of production, by providing a substi- 
 tute for the precious metals, as a medium of, or 
 substitute for, exchange. 
 
 That, paper is far more convenient, as a me- 
 dium of, or substitute for, exchange, than the 
 precious metals. A large sum in gold or silver 
 is a cumbrous commodity. In transferring pro- 
 perty of considerable value the very counting 
 
742 THE BANK OF ENGLAND. 
 
 of gold and silver is a tedious operation. By 
 means of a bank-note, the largest sum is as 
 quickly paid as the smallest. 
 
 That, the inconveniences to vehieh paper money 
 is liable are consequent only on defective arrange- 
 ments. 
 
 That, these inconveniences may be compre- 
 hended under three heads : 
 
 1. — The failure of the parties, by whom the 
 notes are issued, to fulfil their engagements. 
 
 2. — Forgery. 
 
 3. — The alteration of the value of the cur- 
 rency. 
 
 That, the effects of an increase of the quan- 
 tity, and consequent diminution of the value of 
 the currency, are two : — 
 
 1. A rise of prices, or an increase in the 
 quantity of money given in exchange. 
 
 2. A loss to all those persons who had a right 
 to receive a certain sum of money of the old 
 and undiminished value. 
 
 That, an alteration in the value of money, it 
 is obvious, alters the relative value of nothing 
 else. All things rise in value as compared with 
 money ; but not one of them rises in value as 
 compared with another. 
 
 That, difference in price is, in itself, of no 
 coiisequence to anybody. The man who has 
 
SUMMARY : CONCLUSION. 743 
 
 goods to sell gets more money .for them; but 
 this money will purchase just the same quantity 
 of commodities as he was enabled to purchase 
 with the price he obtained before. The man 
 who has goods to purchase has more money to 
 give for them, but he is enabled to do so, by 
 getting just as much more for the commodities 
 he has to sell. 
 
 That, the effect of a degradation in the value 
 of money is obviously a loss to creditors and a 
 gain to debtors. It is equally obvious that, this 
 eflfect is reversed, when the alteration, which has 
 taken place, is an increase in the value of money. 
 
 That, these losses are evils of great magnitude 
 to the individuals concerned, and imply a gross 
 violation of the rules of justice ; but here is no 
 destruction, and consequently no loss, of pro- 
 perty.* But every act of injustice is injurious, 
 and all the consequences of altering the value of 
 money, whether by raising or depressing it, are 
 injurious. 
 
 That, fluctuations in the value of money are 
 temporary alterations of the value, and are, there- 
 fore, extremely injurious, producing effects of the 
 grossest injustice. 
 
 That, paper money, properly regulated, would 
 
 * " Elements of Political Economy," by James Mill, page 
 135 
 
744 THE BANK OT ENGLAND. 
 
 be less liable to fluctuations in value than a cur- 
 rency wholly metallic. 
 
 That, when the whole responsibility of paying 
 the notes in gold is borne by the people, any 
 interference on the part of the Government, to 
 prevent the issue of notes to meet the require- 
 ments of the people, is an act of the grossest im- 
 policy and injustice. 
 
 That, the Government, which persists in such 
 interference in the light of the present day, after 
 twenty years' experience of the injurious conse- 
 quences to the country, declares its own incom- 
 petency or dishonesty, and, in either case, forfeits 
 the confidence of the country by an act of gross 
 injustice to the whole people. 
 
 That, the progress of mankind coincides with 
 the rapid creation of capital. Therefore, the 
 paramount interest of all is to favor the rapid 
 creation of capital, and capital increases of its 
 own accord under the triple influence of activity, 
 frugality, and security. 
 
 That, capital, when formed, necessarily leaves 
 disposable both labor and the remuneration of 
 that labor. It carries in itself a power of pro- 
 gression. The vires acquirit eundo may be ap- 
 plied with rigorous exactitude to capital and its 
 beneficial influence. In proportion as its action 
 is extended, it sets free and renders disposable a 
 
SUMMARY : CONCLUSION. 745 
 
 certain amount of human efforts, only by setting 
 free and rendering disposable a corresponding 
 fund of remuneration, so that these two elements 
 meet and compensate one another. 
 
 That, every increase of capital is followed by 
 a necessary increase of general prosperity. There- 
 fore, in proportion to the increase of capital, the 
 absolute share of the total product falling to the 
 capitaHst is augmented, and his relative share is 
 diminished ; while, on the contrary, the laborer's 
 share is increased both absolutely and relatively.* 
 
 That, the relative share of the product falling 
 to the capitalist goes on continually diminishing, 
 only amounts to saying that, the more abundant 
 capital becomes, the more interest falls . 
 
 That, the absolute share falling to the capitalist 
 goes on continually increasing, only amounts to 
 saying that, a man has a larger income with 
 £10,000 at 4 per cent., than with £5,000 at 5 
 per cent., although, in the first case, he charges 
 less for the use of his capital. The same holds 
 of a nation, and of the world at large. The joer 
 centage, in its tendency to fall, neither does nor 
 can follow a progression so rapid that the sum 
 total of interest should be smaller when capital 
 is abundant than when it is scarce. 
 
 That, all capital is divided into fixed and cir- 
 culating capital. 
 
 * Bafitiat, " Harmonies of Political Economy," page 183. 
 
746 THE BANK OF ENGLAND. 
 
 That, every saving in the fixed capital, such as 
 machinery, instruments of trade, etc., which does 
 not diminish the productive powers of labor, is 
 an improvement of the net revenue ; so every 
 saving, in that part of the circulating capital which 
 consists in money, is an improvement of the same 
 kind. 
 
 That, the circulating capital furnishes the ma- 
 terials and wages of labor, and puts industry into 
 motion. Therefore, every saving in the expense 
 of maintaining the fixed capital, which does not 
 diminish the productive powers of labor, must in- 
 crease the fund which puts industry into motion, 
 and, consequently, the annual produce of land 
 and labor, the real revenue of every society. 
 
 That, the substitution of paper money for gold 
 money, replaces a very expensive instrument of 
 commerce with one much less costly, and within 
 certain limits, under certain regulations, equally 
 or more convenient. 
 
 That, withiu proper Umits and regulations, 
 the paper money has the same currency as the 
 gold money, from the confidence that the gold 
 money can at any time be had for the paper 
 money. 
 
 That, the Bank of England issues, of its own 
 paper notes, say, to the amount of £20,000,000. 
 As those notes serve all the purposes of money. 
 
SUMMARY : CONCLUSION. 747 
 
 the holders pay the same for them as if so much 
 money. What they pay is the gain of the Bank. 
 Though some of these notes are continually coa ing 
 back to the Bank for payment, some of them con- 
 tinue to circulate for months, and years together. 
 Though the Bank has generally in circulation 
 notes to the amount of £20,000,000, an amount 
 in gold of two or three millions may, generally, 
 be a sufficient provision for meeting occasional 
 demands for gold, as money. By this operation, 
 therefore, two or three millions in gold perform 
 all the functions, which twenty millions could 
 otherwise have performed. The same exchanges 
 may be made, the same quantity of consumable 
 goods may be circulated and distributed to their 
 proper customers, by means of these paper notes, 
 to the v^lue of £20,000,000, as by an equal 
 value of gold money. Eighteen millions of gold, 
 therefore, can in this manner, be spared from the 
 circulating capital of the country. 
 
 That, if the annual produce of the land and the 
 labor of the country require only £20,000,000 to 
 circulate and distribute it to its proper consumers, 
 and that annual produce cannot be immediately 
 augmented by those operations of banking, the 
 eighteen millions saved will be over and above 
 what can be employed in the circulation of the 
 country. But, though this sum cannot be em- 
 
748 THE BANK OP ENGLAND. 
 
 ployed at home, it is too valuable to be allowed 
 ■to lie idle. It will, therefore, be sent abroad, in 
 order to seek that profitable employment which it 
 cannot find at home. But the paper cannot go 
 abroad ; because, at a distance from the Bank 
 which issued it, and from the country in which 
 payment of it in gold can be exacted by law, it 
 will not be received in common payments. Gold, 
 therefore, to the amount of £18,000,000, will be 
 sent abroad, and the channel of home circulation 
 will remain filled with £20,000,000 of paper 
 money, instead of £20,000,000 of gold money, 
 which filled it before. 
 
 That, the quantity of gold thus sent abroad 
 will be exchanged for foreign goods of some kind 
 or another, in order to supply the consumption 
 either of some other foreign country, or of our 
 own, or for a higher rate of interest than can be 
 obtained in our own. If employed in purchasing 
 goods in one foreign country, in order to supply 
 the consumption of another, or in what is called 
 the carrying trade, whatever profit is made will 
 be an addition to the net revenue of our own 
 country. It is like a new fund, created for carry- 
 ing on a new trade ; domestic business being 
 now transacted by paper, and the gold, thus 
 saved, being converted into a fund for this new 
 trade. If employed in purchasing from foreign 
 
SUMMARY : CONCLUSION. 749 
 
 countries, for home use, an additional stock of 
 materials, tools and provisions, in order to main- 
 tain and employ an additional number of indus- 
 trious people, who re-produce, with a profit, the 
 value of their annual consumption, it promotes 
 industry ; and though it increase the consump- 
 tion of the society, it provides a permanent fund 
 for supporting that consumption, the people who 
 consume re-producing, with a profit, the whole 
 value of their annual consumption. The gross 
 revenue of the society, the annual produce of their 
 land and labor, is increased by the whole value 
 which the labor of those workmen adds to the 
 materials upon which they are employed, and 
 the net revenue by what remains of this value, 
 after deducting what is necessary for supporting 
 the tools and instruments of their trade. 
 
 That, the greater part of the gold forced abroad 
 by those operations of banking, must be em- 
 ployed in purchasing foreign goods for home con- 
 sumption ; and another part in the less profitable 
 employment of foreign loans, or other foreign in- 
 vestments. 
 
 That, gold and silver are nothing more than 
 commodities, which are the most generally bought 
 and sold, whether by individuals or nations. 
 
 That, those commodities alone can be exported, 
 which are cheaper in the country from which they 
 
750 THE Bank of England. 
 
 go, than in the country to which they are sent ; 
 and those commodities alone can be imported, 
 which are dearer in the country to which they 
 come, than in the country from which they are 
 sent. 
 
 That, if gold be cheaper in any one country, 
 as in England for example, it will be exported 
 from England. If dearer in England than in 
 any other country, it will be imported into Eng- 
 land. 
 
 That, in any country where gold is cheap, 
 other commodities are dear. 
 
 That, gold is cheap, when a greater quantity 
 of it is required to purchase commodities ; and 
 commodities are dear for the same reason ; i.e. 
 when a greater quantity of gold is required to 
 purchase them. 
 
 That, when the value of gold, in England, is 
 low, gold will be exported from England, on the 
 principle that all commodities which are free to 
 seek a market, go from the place where they are 
 cheap, to the place where they are dear. 
 
 That, the fact that gold is cheap, implies the 
 inseparable fact that, other commodities, at the 
 same time, are dear. 
 
 That, therefore, when gold is exported, less of 
 other commodities can be exported ; and no com- 
 modities can be exported if the price of gold be 
 
SUMMARY: CONCLUSION. 751 
 
 SO low as to raise the price of all of them above 
 the price in other countries. A. diminished quan- 
 tity alone can be exported, if the price of gold 
 be only reduced so far as to raise the price of 
 some of them above the price in other countries. 
 
 That, a country, therefore, will export commo- 
 dities, other than the precious metals, only when 
 the price of the precious metals is high; and 
 will import, only when the price of the precious 
 metals is low. 
 
 That, price, with reference to the precious 
 metals, means the quantity or value of other things 
 for which the precious metals will exchange. 
 
 That, price, with reference to money, means the 
 same. 
 
 That, credit-money, constantly convertible into 
 gold, is an exact representation of the real money, 
 and, therefore, can never diminish the value of 
 the metallic money, or affect the measure of 
 value, and, consequently, can never have the 
 smallest influence on prices. 
 
 That, prices can rise with paper money only 
 when paper money has not the control of real 
 money, or by a reduction in the cost of produ- 
 cing the precious metals. 
 
 That, as long as there is no reduction in the 
 cost of procuring the precious metals, the varia- 
 tions in their value will be very light, and will 
 
752 THE BANK OF ENGLAND. 
 
 be subject only to the variations of supply and 
 demand, which are very trifling, the wants being 
 pretty constant and regular. 
 
 That, the variations of prices depend either on 
 the fact of the merchandise, other than money, 
 or on the fact of the money. Those which arise 
 from the fact of the money are extremely weak, 
 even insensible ; they do not arise from the fact 
 of the notes, unless in the point of view that, the 
 notes contribute in a certain degree to diminish 
 the demand for gold or silver ; but this last con- 
 sideration is so very -weak as to be unnoticeable. 
 
 That, if the notes, which represent the gold, 
 be at all times convertible into gold, the market 
 price of gold is quite immaterial, as the notes 
 will always represent it. 
 
 That, credit-money, constantly convertible into 
 real money, only supplies the place of gold and 
 silver, of which no country holds more than is 
 necessary for the wants of the exchanges. 
 
 That, the only difference between gold money 
 and paper money is that, the former is of acknow- 
 ledged value, and the latter is of no value, but 
 wholly dependent on credit. 
 
 That, if the credit be universally acknowledged 
 as unexceptionable, paper money, being less liable 
 to change in value than other things, will ex- 
 change more readily than other things for gold. 
 
SUMMARY : CONCLUSION. 753 
 
 That, when one nation exchanges a part of its 
 commodities for a part of the commodities of 
 another nation, the nation can gain nothing by 
 parting with its commodities ; all the gain must 
 consist in what it receives. 
 
 That, a nation which parts with its commodities 
 for gold and silver, derives no gain, but the con- 
 trary, from possessing more than its due propor- 
 tion of the precious metals. 
 
 That, gold and silver may be profitable com- 
 modities to export, but must always be the least 
 profitable to import. 
 
 That, for every nation, the most profitable com- 
 modities to export must always be the products 
 of its own industry. 
 
 That, therefore, the most profitable application 
 of that part of the nation's annual produce which 
 is destined for industry, must be in providing at 
 all times the provisions and materials necessary for 
 maintaining and enlarging that annual produce. 
 
 That, for this purpose, it is for the best inter- 
 ests of every nation to provide cheap money for 
 the convenient transfer of the circulating capital. 
 
 That, for this purpose, the cheapest and most 
 convenient money is paper money, representing 
 an equal amount of gold, and convertible into 
 gold on demand. 
 
 That, for this purpose, no gold will be required, 
 
 3 c 
 
754 THE BANK OF ENGLAND. 
 
 unless for the convenience of change, if it be 
 known that gold, equal to the amount of notes, 
 will be forthcoming when required. 
 
 That, for this purpose, it must be known that, 
 under ordinary circumstances, paper money, to 
 any amount required, may be had at a price not 
 exceeding the maximum price fixed. 
 
 That, at the present time, the maximum price 
 should be fixed at 4 per cent. ; and if the rate of 
 interest on the National Debt should be reduced 
 to 2 per cent., then the maximum price should 
 be fixed at 3 per cent. 
 
 That, the maximum may be lowered, but not 
 raised, without the authority of Parliament. 
 
 That, in computing the quantity of industry 
 which the circulating capital of any society can em- 
 ploy, regard must always be had to those parts of 
 it only, which consist in provisions, materials, and 
 finished work ; the other part, which consists in 
 money and serves only to circulate those three, 
 must always be deducted. In order to put in- 
 dustry in motion, three things are requisite ; ma- 
 terials to work upon, tools to work with, and the 
 wages or recompense for the work done. Money 
 is neither a material to work upon, nor a tool to 
 work with ; and though the wages of the work- 
 man be commonly paid to him in money, his 
 real revenue, like that of all other men, consists, 
 
SUMMARY: CONCLUSION. 755 
 
 not in the money, but in the money's worth, or 
 what can be got for it. 
 
 That, the quantity of industry which any capi- 
 tal can employ, must, evidently, be equal to the 
 number of workmen whom it can supply with 
 materials, tools, and a maintenance suitable to the 
 nature of the work. Money may be requisite for 
 purchasing the materials and tools of the work, 
 as well as the maintenance of the workman. But 
 the quantity of industry which the whole capital 
 can employ, is certainly not equal both to the 
 'money which purchases, and to the materials, 
 tools, and maintenance, which are purchased with 
 it ; but only to one or other of those two values, 
 and to the latter more properly than to the former. 
 
 That, it is impossible to determine the pro- 
 portion which the circulating money of any 
 country bears to the whole value of the annual 
 produce circulated by means of it. But ho^' 
 small soever the proportion which the circulating 
 money may bear to the whole value of the ann\ial 
 produce, as but a part, and generally but a small 
 part, of that produce, is ever destined for the 
 maintenance of industry, it must always bear a 
 very considerable proportion to that part When, 
 therefore, by the substitution of paper, the gold 
 necessary for circulation is reduced to a fifth part 
 of the former quantity, if the value of only the 
 
 3c 2 
 
756 THE BANK OF ENGLAND. 
 
 greater part of the other four-fifths be added to 
 the funds which are destined for the maintenance 
 of industry, it must make a very considerable 
 addition to the quantity of that industry, and, 
 consequently, to the value of the annual produce 
 of land and labor. 
 
 That, if, instead of such addition, the funds 
 which are destined for the maintenance of in- 
 dustry be diminished, by the withdrawal of the 
 greater part of the other four-fifths of the gold 
 necessary for circulation, and at the same time 
 by the withdrawal of a like amount of paper-* 
 money, substituted for the gold money, it must 
 very considerably diminish the quantity of that 
 industry, and, [consequently, must very greatly 
 reduce the value of the annual produce of land 
 and labor. 
 
 That, as it is impossible to determine the pro- 
 portion, which the circulating money bears to the 
 whole value of the annual produce circulated by 
 means of it, so it is impossible to determine the 
 proportion of loss to the country from such a 
 diminution of the funds destined for the main- 
 tenance of industry, and from the consequently 
 reduced value of the annual produce of the land 
 and labor of the country. 
 
 That, it is manifest, if only a small part of 
 that produce be ever destined for the mainte- 
 
SUMMARY : CONCLUSION. 757 
 
 nance of industry, the value of the annual pro- 
 duce of the whole of the land and labor of the 
 country so reduced, must be a loss to the coun- 
 try much greater than the whole of the small 
 part of that produce ' destined for the mainte- 
 nance of industry. 
 
 That, if such be an inevitable consequence, 
 or, if such be the liability necessarily involved, 
 it is self-evident that, the substitution of paper 
 for gold, for the purpose of economising the gold, 
 is no gain, but a great loss to the country. 
 
 That, the only way to secure the gain to the 
 country, under such circumstances is, to prevent 
 the diminution of the funds destined for, the 
 maintenance of industry, and thereby to main- 
 tain the value of the annual produce of the land 
 and labor of the country, by increasing the 
 amount of the paper circulation in proportion to 
 the diminished amount of the gold circulation. 
 
 That, the whole paper money of every kind, 
 which can easily circulate, or continue long in 
 circulation, in any country can never exceed the 
 value of the gold, of which the paper, or other 
 substitute, supplies the place, or of the gold, 
 which would circulate there, if there were no 
 paper money, or other substitute. Should the 
 circulating paper exceed that sum, as the excess 
 could neither be sent abroad nor be employed 
 
758 THE BANK OF ENGLAND. 
 
 in the circulation of the country, it must imme- 
 diately return upon the Bank to be exchanged 
 for gold. When this superfluous paper was con- 
 verted into gold, the owners could easily make 
 use of it by sending it abroad ; but they could 
 make no use of it while it remained in the shape 
 of paper. There would immediately be a run 
 upon the Bank to the whole extent of this super- 
 fluous paper, and if the Bank showed any diffi- 
 culty or backwardness in payment, that would 
 increase the run and create a panic. 
 
 That, over and above the expenses, which are 
 common to every branch of trade, such as house 
 rent, wages, &c., the expenses peculiar to a Bank 
 consist chiefly in two articles : Firstly, in the ex- 
 pense of keeping at all times in its coffers, a sum 
 of money sufficient for answering the ordinary 
 demands of the holders of its notes : Secondly, 
 in the expense of replenishing those cofiers as 
 fast as they are emptied by answering such occa- 
 sional demands. 
 
 That, when the Bank discounts a real bill of 
 exchange, or a bill which, as soon as it becomes 
 due, is really paid, the Bank only advances a 
 part of the value which the debtor would other- 
 wise be obliged to keep by him unemployed and 
 in ready money for answering occasional de- 
 mands. The payment of the bill, when it be- 
 
SUMMARY : CONCLUSION. 759 
 
 comes due, replaces to the Bank the value of 
 what it had advanced, together with the in- 
 terest. The coflPers of the Bank, so far as its 
 dealings are confined to such customers, resemble 
 a pond, from which, though a stream of water 
 be continually running, yet another is continually 
 running in, fully equal to or greater than that 
 which runs out ; so that, without any further 
 care or attention, the pond keeps equally, or very 
 near equally full. Little or no expense can ever 
 be necessary for replenishing the cofiPers of such 
 a Bank. 
 
 That, bills not real may be brought to the 
 Bank for discount, and thus bank paper may be 
 put into circulation, which may come to exceed 
 the whole quantity of gold, which would have cir- 
 culated in the country if there had been no paper 
 money, supposing the commerce the same ; and 
 the excess of this paper money would immediately 
 be returned upon the Bank, to be exchanged for 
 gold. 
 
 That, such operations would be neither detri- 
 mental to the Bank nor to the country, if the 
 Bank possessed the means for purchasing gold in 
 the open market to meet these extra-ordinary de- 
 mands, without curtailing the bank discounts; 
 but such operations would cease to be profitable 
 to the operators as soon as the equihbrium in the 
 
760 THE BANK OF ENGLAND. 
 
 value of gold between this country and foreign 
 countries was restored ; and any loss to the Bank 
 on such purchases would, in ordinary cases, be 
 fully compensated by 4 per cent, on the additional 
 bank-notes thus brought into circulation; nor 
 would the loss to the Bank be considerable in 
 extra-ordinary cases, under any circumstances, 
 which can be reasonably supposed. But any such 
 loss, being consequent on the substitution of paper 
 for gold, ought to be borne by the Bank. 
 
 That, it is not by augmenting the capital of 
 the country, but by rendering a greater part of 
 that capital active and productive than would 
 otherwise be so, that the most judicious opera- 
 tions of banking can increase the industry of the 
 country. That part of his capital, which a dealer 
 is obliged to keep by him unemployed and in 
 ready money for answering occasional demands, 
 is so much dead stock, which, so long as it remains 
 in this situation, produces nothing either to him 
 or to his country. The judicious operations of 
 banking enable him to convert this dead stock 
 into active and productive stock ; into materials 
 to work upon, into tools to work with, and into 
 provisions and subsistence to work for ; into stock, 
 which produces something both to himself and to 
 his country. The gold and silver money, which 
 circulates in any country, and by means of which 
 
SUMMARY : CONCIiUSION. 761 
 
 the produce of its land and labor is annually cir- 
 culated and distributed to the proper consumers, 
 is, in the same manner as the ready money of the 
 dealer, all dead stock. It is a very valuable part 
 of the capital of the country, which produces no- 
 thing to the country. The judicious operations 
 of banking, by substituting paper for a great part 
 of this gold and silver, enable the country to 
 convert a great part of this dead stock into active 
 and productive stock ; into stock which produces 
 something to the country. The gold and silver 
 money, which circulates in any country, may very 
 properly be compared to a highway, which, while 
 it circulates and carries to market all the grass 
 and corn of the country, produces itself nothing 
 of either. The judicious operations of banking, 
 by providing a sort of roadway through the air, 
 enable the country to convert, as it were, a great 
 part of its highways into good pastures and corn- 
 fields, and thereby to increase very considerably 
 the annual produce of its land and labor.* 
 
 * "Wealtk of Nations," vol. 1, page 484. 9th Ed. Adam 
 Smith refers here to the Dsedalian wings of paper money, as 
 being less secure for sustaining the commerce and industry 
 of the country, than when they travel upon the solid ground 
 of gold and silver. 
 
 In that he is quite right. But here commerce and industry 
 would travel on the solid ground of gold and silver. 
 
 This is in answer to M. Wolowski, about the wings of 
 Icarus. 
 
762 THE BANK OF ENGLAND. 
 
 That, the circulation of every country is divided 
 into two different branches ; the circulation of 
 the dealers with one another, and the circulation 
 between the dealers and the consumers. Though 
 the same pieces of money, whether paper or metal, 
 may be employed sometimes in the one circula- 
 tion and sometimes in the other ; yet as both are 
 constantly going on at the same time, each re- 
 quires a certain stock of money of one kind or 
 another to carry it on. The value of the goods 
 circulated between the different dealers, never can 
 exceed the value of those circulated between the 
 dealers and the consumers; whatever is bought 
 by the dealers being ultimately destined to be 
 sold to the consumers. The circulation between 
 the dealers, as it is carried on by wholesale, re- 
 quires generally a much larger sum for every 
 particular transaction. That between the dealers 
 and consumers, on the contrary, as it is generally 
 carried on by retail, frequently requires but very 
 small ones, a shilling, or even a penny being often 
 sufficient. But small sums circulate much faster 
 than large ones. A shilling changes hands more 
 frequently than a sovereign, and a penny more 
 frequently than a shilling. Though the annual 
 purchases of all the consumers, therefore, are at 
 least equal in value to those of all the dealers, 
 they can generally be transacted with a much 
 
SUMMARY ; CONCLUSION. 763 
 
 smaller quantity of money ; the same pieces, by 
 a more rapid circulation, serving as the instru- 
 ment of many more purchases of the one kind 
 than of the other.* 
 
 That, paper money may be so regulated, as 
 either to confine itself very much to the circula- 
 tion between the different dealers, or to extend 
 itself likewise to a great part of that between the 
 dealers and the consumers. When no bank-notes 
 are circulated under five pounds value, paper 
 money confines itself very much to the circulation 
 between the dealers. 
 
 When a five-pound bank-note comes into the 
 hands of a consumer, he is generally obliged to 
 change it at the first shop where he has occasion 
 to purchase five shillings worth of goods ; so that, 
 it often returns into the hands of a dealer, be- 
 fore the consumer has spent the fortieth part of 
 the money. Where bank notes are issued for so 
 small sums as twenty shillings, as in Scotland, 
 paper money extends itself to a considerable part 
 of the circulation between dealers and consumers. 
 Before the Act of Parliament, which put a stop to 
 the circulation of ten and five shilling notes, it 
 filled a still greater part of that circulation. It 
 were, therefore, better that no bank-notes were 
 issued in any part of the kingdom, for a smaller 
 
 * Ibid., vol. i., page 486. 
 
764 THE BANK OF ENGLAND. 
 
 sum than five pounds ; paper money would then 
 confine itself, in every part of the kingdom, to the 
 circulation between the different dealers. Where 
 paper money is pretty much confined to the cir- 
 culation between dealers and dealers, as in Eng- 
 land, there is always plenty of gold and silver. 
 Where paper money extends itself to a consider- 
 able part of the circulation between dealers and 
 consumers, as in Scotland, it banishes gold and 
 silver almost entirely from the country ; almost 
 all the ordinary transactions of its interior com- 
 merce being thus carried on by paper. Though 
 paper money should be pretty much confined to 
 the circulation between dealers and dealers, yet 
 banks and bankers might still be able to give 
 nearly the same assistance to the industry and 
 commerce of the country, as they had done when 
 paper money filled almost the whole circulation. 
 The ready money, which a dealer is obliged to 
 keep by him, for answering occasional demands, 
 is destined altogether for the circulation between 
 himself and other dealers, of whom he buys goods. 
 He has no occasion to keep any by him for the 
 circulation between himself and the consumers, 
 who are his customers, and who bring ready 
 money to him instead of taking any from him. 
 Though no paper money, therefore, were allowed 
 to be issued, but for such sums as woftld confine it 
 
SUMMARY : CONCLUSION. 765 
 
 pretty. much to the circulation between dealers 
 and dealers ; yet, partly by discounting real bills 
 of exchange, and partly by lending upon cash ac- 
 counts, banks and bankers might still be able to 
 relieve the greater part of those dealers from the 
 necessity of keeping any considerable part of their 
 stock by them, unemployed and in ready money, 
 for answering occasional demands. They might 
 still be able to give the utmost assistance which 
 banks and bankers can, with propriety, give to 
 traders of every kind.* 
 
 That, as the quantity of gold and silver, which 
 is taken from the currency, is always equal to 
 the quantity of paper, which is added to it, paper 
 money does not necessarily increase the quantity 
 nor diminish the value of the whole currency, 
 and does not necessarily augment the money 
 price of commodities.! 
 
 That, a paper currency, which] falls below the 
 value of gold and silver coin, does not thereby 
 sink the value of those metals, or occasion equal 
 quantities of them to exchange for a smaller 
 quantity of goods of any other kind. The pro- 
 portion between the value of gold and silver 
 and that of goods of any other kind, depends in 
 all cases not upon the nature or quantity of any 
 particular paper money, which may be current 
 
 *Ibid., vol. i., page 489. flbid-. vol. i., page 490. 
 
766 THE BANK OF ENGLAND; 
 
 in any particular country, but upon the richness 
 or poverty of the mines, which happen at any 
 particular time to supply the great market of the 
 commercial world with those metals. It depends 
 upon the proportion between the quantity of 
 labor, which is necessary in order to bring a 
 certain quantity of gold and silver to market, and 
 that which is necessary in order to bring thither 
 a certain quantity of any other sort of goods. 
 
 That, the same quantity of money cannot long 
 remain in any country in which the value of the 
 annual produce diminishes. The sole use of 
 money is to circulate consumable goods. By 
 means of it, provisions, materials, and finished 
 works, are bought and sold, and distributed to 
 their proper customers. The quantity of money, 
 therefore, which can be annually employed in any 
 country, must be determined by the value of the 
 consumable goods annually circulated within it. , 
 These must consist either in the immediate pro- 
 duce of the land and labor of the country itself, 
 or in something which had been purchased with 
 some part of that produce. Their value, there- 
 fore, must diminish as the value of that produce 
 diminishes, and aloug with it the quantity of 
 money which can be employed in circulating 
 them. But the money, which by this annual 
 diminution of produce is annually thrown out 
 
SUMMARY : CONCLUSION. 767 
 
 of domestic calculation, will not be allowed to 
 be idle. Whoever possesses it will, for his own 
 sake, require that it should be employed. But 
 having no employment at home, it will, in spite 
 of all laws and prohibitions, be sent abroad, and 
 employed in purchasing consumable goods, which 
 may be of some use at home ; or it will be em- 
 ployed in purchasing gold and silver to be sent 
 abroad as merchandise. This will for some time 
 add something to the annual consumption of the 
 country beyond the value of its own annual pro- 
 duce. But, in this case, of the annual diminu- 
 tioa of produce, the exportation of gold and 
 silver is not the cause, but the effect of the de- 
 clension of national prosperity, and may even, 
 for some little time, alleviate the misery of that 
 declension. 
 
 That, the quantity of money, on the contrary, 
 must in every country naturally increase as the 
 value of the annual produce increases. The 
 value of the consumable goods annually circu- 
 lated within the society being greater, will re- 
 quire a greater quantity of money to circulate 
 them. A part of the increased produce, there- 
 fore, will naturally be employed in purchasing, 
 wherever it is to be had, the additional quantity 
 of gold and silver necessary for circulating the 
 remainder. The increase of those metals will, 
 
768 THE BANK OF ENGLAND. 
 
 in this case, be the effect, not the cause, of the 
 national prosperity. Gold and silver are pur- 
 chased everywhere in the same manner. The 
 food, clothing, and lodging, the revenue and 
 maintenance of all those whose labor or stock is 
 employed in bringing them from the mine to the 
 market, is the price paid for them at the mine as 
 well as in England. 
 
 The country, which has this price to pay, will 
 never be long without the quantity of those 
 metals which it has occasion for ; and no country 
 will ever long retain a quantity which it has no 
 occasion for.* 
 
 That, the real wealth and revenue of every 
 country consists in the value of the annual pro- 
 dace of its land and labor, and, therefore, what- 
 ever tends to increase that annual produce, tends 
 to increase the national prosperity. 
 
 That, it is, therefore, of the first importance 
 for the prosperity of every country that, it should 
 at all times be fully supplied with money to meet 
 all the requirements of trade and industry. If 
 the materials of manufacture be wanted, industry 
 must stop. If provisions be wanted, the people 
 must starve. If gold and silver be wanted, these 
 are more easily supplied than almost any other 
 commodities, if there be wherewithal to purchase 
 
 * Ibid., vol. ii., page 18. 
 
SUMMARY : CONCLUSION. 769 
 
 them. Partly owing to the easy transportation 
 of gold and silver from the places where they 
 abound to those where they are wanted, and 
 partly to the steady supply,- — of late years greatly 
 increasing, — the price of these metals does not 
 fluctuate continually like that of the greatei' part 
 of other commodities, which are hindered by 
 their bulk from shifting their situation, when the 
 market happens to be either over or under-stocked 
 with them. The price of those metals is not 
 altogether exempted from variation, but the 
 changes to which the price is liable are generally 
 slow, gradual, and uniform. To make any sud- 
 den change in the price of gold and silver, so as 
 to raise or lower at once, sensibly and remark- 
 ably, the money price of all other commodities, 
 requires a greater revolution in commerce than 
 has been occasioned by the discovery of the ex- 
 tensive gold and silver fields of Mexico, Cah- 
 fornia, Australia, and New Zealand. A well 
 regulated paper money will at all times supply 
 all the gold and silver that can be wanted in this 
 country, not only without any difficulty or incon- 
 veniency, but, in some cases, with considerable 
 advantages. Nothing,, therefore, can be more 
 unnecessary than the attention of Government to 
 the preservation or increase of the quantity of 
 money in any country ; provided there be always 
 
 3 D 
 
770 THE BANK OF ENGLAND. 
 
 a sufficiency of paper money to naeet the require- 
 ments of the country, and a sufficiency of credit 
 for the purchase of gold and silver, in the open 
 market, when wanted. 
 
 That, currency, when let alone, is self regula- 
 ting, and, therefore, laws cannot improve its ar- 
 rangements, but may, and continually do, derange 
 them. 
 
 That, limiting paper in circulation to an 
 amount smaller than it would otherwise reach, 
 inevitably necessitates a corresponding increase of 
 coin ; and as coin is locked up capital, on which 
 the nation gets no interest, a needless increase of 
 it is equivalent to an additional tax equal to the 
 additional interest lost. 
 
 That, even under such restrictions, men must 
 still depend mainly upon each others' good faith 
 and enhghtened self interest ; seeing that only by 
 requiring the banker to keep sufficient specie in 
 his coffers to cash all the notes he has issued, can 
 complete security be given to the holders of them ; 
 and to require as much is to destroy the motive 
 for issuing notes. 
 
 That, even now the greater part of our paper 
 currency is wholly unguaranteed. 
 
 That, over the bills of exchange in circulation, 
 which represent liabilities five times as great as 
 are represented by notes, no control is exercised. 
 
SUMMARY : CONCLUSION. 771 
 
 For the honoring of these there exists no special 
 security, and the multiplication of them is with- 
 out any limit, save that natural one — the credit 
 men find it safe to give eacli other. 
 
 That, this point is completely established by 
 experience in Scotland. 
 
 That, therefore, when we find a priori reason 
 for concluding that, the due balance between 
 paper and coin will be spontaneously maintained 
 — when we also find that so large a proportion 
 of our paper circulation is self-regulated — that 
 the restrictions in force, besides the useless sink- 
 ing of capital, produce such disastrous conse- 
 quences, — and further, that facts prove a self- 
 regulated system to be both safer and cheaper, it 
 may be fairly inferred that legislative interference 
 is not only needless, but injurious.* 
 
 That, to restrict the issue of notes on credit to 
 a certain amount, is only a precautionary measure, 
 which further experience will, probably, show to 
 be unnecessary. 
 
 That, the limit beyond which it would not be 
 safe to issue notes on credit must always depend 
 upon circumstances, and that limit can be deter- 
 mined only by experience, 
 
 That, paper money may be safely issued to any 
 required amount, if the convertibility of the notes 
 into, gold, on demand, be secured. 
 
 * Herbert Spencer,-^" Social Statics," page 399. 
 
 3 D 2 
 
772 THE BANK OF ENGLAND. 
 
 That, it is manifestly, for the security of the 
 notes that there should be only one bank of issue. 
 
 That, to meet the requirements of trade and 
 industry, the power over the issue of notes, for 
 England and Wales, ought not to be less than 
 £40,000,000, and for the United Kingdom, not 
 less than £50,000,000. 
 
 That, notes to these amounts, payable in gold, 
 on demand, may be safely issued by the Bank of 
 England on the credit of the nation. 
 
 That, the amount of gold and silver coin, to be 
 kept in the Bank of England, need not exceed the 
 amount required to meet the ordinary demands. 
 
 That, the ordinary demands for gold and sil- 
 ver, as money, in this country, are only for foreign 
 payments and the convenience of change. 
 
 That, the extraordinary demands for gold 
 and silver are not as money, but as commodities, 
 and are not for use in this country, but for 
 export. 
 
 That, the demands for gold and silver for ex- 
 port cannot affect the notes issued on credit, if the 
 amount so issued do not exceed £50,000,000. 
 
 That, the issue of notes exceeding £40,000,000 
 for England and Wales, or £50,000,000 for the 
 United Kingdom, ought to be against gold and 
 silver, without regard to proportion. 
 
 That, gold and silver will always be purchase- 
 able in the open market, at the market price. 
 
SUMMARY: CONCLUSION.- 773 
 
 That, the Bank of England may always obtain 
 gold and silver by purchase, and may always re- 
 duce the amount of notes in circulation by sale of 
 Government Securities, without raising the bank 
 rate of discount. 
 
 That, increasing the amount of bank-notes in 
 circulation, and purchasing gold in the open 
 market, will be a more effectual and less injurious 
 means for checking the export of gold, than cur- 
 tailing the amount of bank-notes in circulation, 
 by raising the bank rate of discount. 
 
 That, by increasing the amount of notes in 
 circulation when gold is being exported, the dis- 
 tress occasioned by the demand for money in this 
 country will be mitigated in extent, and shortened 
 in duration. 
 
 That, the true policy of the Bank of England 
 is to increase the issue of notes when the gold is 
 being withdrawn, instead of attempting to stop 
 the gold by curtailing the notes. 
 
 That, restricting the issue of notes, when gold 
 is being withdrawn, produces a run for notes, 
 which ends in panic. 
 
 That, discounting freely at 4 per cent, will 
 stop the run for notes and prevent the panic. 
 
 That, as long as the balance of trade is in 
 favor of this country, the supply of capital will 
 be greater in this country than in any other. 
 
774 THE BANK OF ENGLAND. 
 
 That, the evidence of this fact is in the ten- 
 dency of the rate of interest in this country to 
 fall. 
 
 That, the supply of loanable capital always 
 increases or diminishes in proportion to the de- 
 mand. 
 
 That, the surplus or unemployed capital only 
 leaves the country. 
 
 That, the Bank of England ought always to 
 operate to counteract the rise of the rate of in- 
 terest in this country, instead of co-operating 
 with the other Banks to raise the rate of interest. 
 
 That, the effect of such counteracting in- 
 fluence would be to preserve a lower and steadier 
 rate of interest in this country, by confining the 
 fund for the supply of foreign demands to the 
 surplus or unemployed capital. 
 
 That, the employment of capital in this country 
 at a low rate of interest, must always be more 
 beneficial to this country than the employment 
 of capital at a high rate of interest in a foreign 
 country. 
 
 That, the employment of capital in this country 
 at a high rate of interest must tend to turn the 
 balance of trade in favor of foreign countries. 
 
 That, as long as the balance of trade is in 
 favor of this country, the rate of interest ought 
 always be lower in this country than in foreign 
 countries. 
 
SUMMARY: CONCLUSION. 776 
 
 That, it is, therefore, of the utmost importance 
 for the prosperity of the trade and industry of 
 this country, that its credit should not be liable 
 to serious disturbance through the monetary ope- 
 rations of foreign countries. 
 
 That, if the foundation of credit be firm, every 
 measure, which tends to enlarge credit, tends to 
 increase capital. 
 
 That, enlarging the credit-capital of the 
 country on a safe basis is the gain of so much 
 new capital without the cost of production. 
 
 That, the capital so gained ought to be held 
 and employed, as far as possible, for the benefit 
 of the country. 
 
 That, for this purpose, legislative control may 
 be properly exercised, to a certain extent, over a 
 National Bank, properly constituted, without in- 
 terfering with freedom of trade, or private rights, 
 if exercised for the general trade and industry of 
 the country. 
 
 That, the saving, so effected, is as much a 
 saving to the country, as would be the saving 
 of land, if roads and railways were made in the 
 air. 
 
 That, locking up in gold the saving so efi'ected, 
 and depositing the gold where it cannot be used, 
 is like prohibiting the use of the land saved by 
 making roads and railways in the air. 
 
776 THE BANK OP ENGLAND. 
 
 That, the precious metals are marketable com- 
 modities, and, therefore, the more credit is en- 
 larged on a safe basis, the greater is the saving 
 of the precious metals, and the nearer is this, in 
 effect, to the saving of land by making roads and 
 railways in the air. 
 
 That, silver, in its market price, bears a sufS- 
 ciently near proportion to that of gold to make 
 silver a commodity always exchangeable for 
 gold. 
 
 That, for money, silver is more extensively 
 used than gold throughout the world, and the 
 balance between gold and silver may be one day 
 restored. 
 
 That, silver ought, therefore, to be used to an 
 unlimited extent, for assisting to secure the con- 
 vertibility of the bank-note into gold. 
 
 That, gold, as the most precious of the pre- 
 cious metals, obtainable in sufBcient quantity, is 
 the most suitable for the standard measure of 
 value ; but that, silver, as the next most precious 
 of the precious metals, obtainable in sufBcient 
 quantity, is the most convenient of all commo- 
 dities for exchanging for gold. 
 
 That, silver is, therefore, as useful as gold, in 
 proportion to its acknowledged value, compared 
 with gold. 
 
 That, it is, therefore, inconsistent with the 
 
SUMMARY: CONCLUSION. 777 
 
 principle on which the bank-note is issued, as 
 the representative of gold, to limit the propor- 
 tion of silver to be used for securing the con- 
 vertibility of the bank-note into gold on de- 
 mand. 
 
 That, the bank-note,, as representing the gold 
 coin of the realm, is as much the money of the 
 country as is the gold coin represented. 
 
 That, the supply of Capital and the demand 
 for it, determines the rate Of interest. 
 
 That, the supply does not create, but does 
 affect, the demand. 
 
 That, an over-supply of bank-notes, as money, 
 for the transfer of capital, can never be kept in 
 circulation. 
 
 That, the bank-notes ought to be brought up 
 to meet the requirements of trade, not the re- 
 quirements of trade brought down to meet the 
 notes. 
 
 That, bank-notes being the principal money 
 of the country, an insufficient supply tends to 
 bring down the requirements of trade and to 
 destroy credit, to the great loss and injury of the 
 trade and industry of the country. 
 
 That, " over issues " and " over trading " are 
 fanciful and absurd theories, when applied to a 
 paper currency, payable in gold on demand. 
 
 That, the requirements of trade cannot be de- 
 
778 THE BANK OF ENGLAND. 
 
 termined by the success or non-success of the 
 trading operations, but only by the fact of the 
 requirements, and the success or non-success is 
 immaterial to the question, though not to the 
 result. 
 
 That, bank-notes being payable in gold on 
 demand, the issue of notes beyond the require- 
 nients of the country tends to the outflow of 
 gold. 
 
 That, withdrawing bank-notes from circulation 
 tends to stop the drain of gold, by making its 
 export unprofitable ; but tends also to stop credit, 
 by raising the rate of discount. 
 
 That, the power of issuing notes and with- 
 drawing them from circulation to any required 
 amount is, practically, a power over the currency, 
 which must directly affect the credit of the coun- 
 try, and indirectly the rate of interest in the 
 country. 
 
 That, the power of contracting and enlarging 
 the circulation of its notes to any required amount 
 will be effectually and safely conferred upon the 
 Bank of England, by placing it in possession of its 
 own independent capital and enlarging its credit- 
 capital for England and Wales to £40,000,000, 
 or for the United Kingdom to £50,000,000, 
 provided the Bank be restricted from discounting 
 at a higher rate than 4 per cent. 
 
SUMMARY : CONCLUSION. 779 
 
 That, the effect of these measures will be, to 
 lower and steady the rate of discount in this 
 country, by enabling the Bank of England to 
 enlarge the issue of bank-notes when too con- 
 tracted, and to contract the issue when in excess ; 
 thus lowering the rate of discount, when it is 
 rising from the want of notes, by increasing the 
 amount of notes in circulation ; and raising the 
 rate of discount, when it is rising from the want 
 of gold, by reducing the amount of notes in cir- 
 culation ; but confining the increase in the rate 
 of discount to the maximum, of 4 per cent.; and, 
 at the same time, if necessary, purchasing gold 
 in the open market to the required amount. 
 
 That, these operations and the means of effect- 
 ing them will be perfectly consistent with the 
 natural law and the freedom of trade, the pro- 
 tection given being not to trade but to traders, 
 and not to one class exclusively, but to all classes 
 equally ; not for any class interests but for the 
 benefit of the trade and industry of the country 
 at large, against the monopoly of the capitalists 
 acting in combination for their own benefit only. 
 
 That, the Bank of England, as now consti- 
 tuted, is too weak to provide an effectual re- 
 medy in these emergencies, without aggravating 
 the inconvenient and, to many, ruinous conse- 
 quences. 
 
780 THE BANK OF ENGLAND. 
 
 That, the Bank of England now uses its exclu- 
 sive privilege in the issue of its notes to the 
 injury of the trade and industry of the country, 
 under the useless pretence of keeping a reserve 
 of gold coin and bullion for the benefit of the 
 country. 
 
 That, the country thereby loses the whole 
 benefit of economising gold by the use of paper, 
 for the sole benefit of the Bank of England, if 
 the Bank derive any benefit therefrom, wliich is 
 doubtful. 
 
 That, the measures which the Bank of Eng- 
 land now takes for increasing its banking reserve, 
 by curtailing its discounts, might be avoided, 
 if the Bank had the power to enlarge its issue of 
 notes, by extending its discounts. 
 
 That, the Bank of England, in possession of 
 its own proper capital, might be safely entrusted 
 with this power, as the Bank of England would 
 then, by its own independent means, possess the 
 power of operating on the open market of gold, 
 and of regulating the issue of notes according 
 to the requirements of the country, without re- 
 sorting to a high rate of discount and deranging 
 the money market. 
 
 That, the rate of interest or discount is inde- 
 pendent of the abundance or scarcity of money, 
 and is by no means the price of money; the 
 
SUMMARY: CONCLUSION. 781 
 
 price of money being dependent on the cost of 
 production of gold and silver and their relative 
 quantity in the market with other commodities, 
 and gold and silver being capable of being repre- 
 sented only by an equivalent value in merchandise 
 of any kind. 
 
 That, the Bank of England, properly consti- 
 tuted, would not be under the necessity, as it 
 now is, of raising the rate of interest or discount 
 for maintaining its reserve of notes or gold. 
 
 That, the maximum rate of discount for the 
 Bank of England ought not to exceed 4 per cent., 
 and that this benefit to the public would be only 
 a proper compensation for the privilege conferred 
 on the Bank of England of issuing £40,000,000 
 of notes without interest. 
 
 That, no embarrassment to commerce could 
 arise from the mawimum rate of discount being 
 so fixed. 
 
 That, the embarrassment in that case would 
 not be to the Bank of England, but to the ca- 
 pitalists, who might not be able to find other 
 employment for their capitals. 
 
 That, private banks and capitalists could not 
 find employment for their capitals in this country 
 at a higher rate of interest than the Bank of 
 England in ordinary transactions. 
 
 That, a necessary consequence to private banks 
 
782 THE BANK OP ENGLAND. 
 
 and capitalists would be that, they must be con- 
 tent with a lower rate of interest than the Bank 
 of En2:land. 
 
 That, the paper inadmissible at the Bank of 
 England has such a character of solidity that, 
 the rate of interest at which it would be nego- 
 ciated would not be subject to considerable va- 
 riations. 
 
 That, outside the Bank this paper serves to em- 
 ploy the floating capital of bankers and great mer- 
 chants, and is considered as money in hand, being 
 always convertible in an instant into bank-notes. 
 
 That, such employment of the floating capital 
 of the bankers and great merchants can never 
 cease, 'because they have always the same wants, 
 and there are no great affairs without great 
 funds. 
 
 That, floating capital and its employment, in 
 some sort obligatory, in paper at short date ne- 
 gociable at the Bank, instead of diminishing, 
 would constantly augment in proportion as the 
 affairs and the number of traders and bankers 
 would increase. 
 
 That, the proof of this fact is in the accounts 
 current open at the various joint-stock establish- 
 ments of credit, which dispose of many millions 
 sterling, for which the depositors are content to 
 receive interest at from 2 to 3 per cent, at the 
 
SUMMARY: CONCLUSION. 783 
 
 time when the Bank of England raises its rate of 
 discount to 5, 6, and 7 per cent. 
 
 That, the mass of the negociations of that 
 which is called Bank paper operates principally 
 in the world of finance and high commerce, and 
 rarely, unless the paper is very secondary, is it 
 placed above the rate of discount at the Bank of 
 England. 
 
 Tiiat, the best paper is never negociated above 
 the Bank rate. It is only the inferior paper 
 which is subject to the higher rate. 
 
 That, it would be unnecessary for the Bank of 
 England, when its reserve diminishes, to raise 
 the rate of discount, if the Bank were compelled 
 to use the, means, which ought to be always at 
 its disposal, .for procuring the gold and silver 
 necessary for the requirements. 
 
 That, those means consist in the purchase of 
 gold .and silver by the Bank of England with its 
 own proper capital, with the real capital coming 
 from time to time from the sale of its Govern- 
 ment Securities, or from its augmented capital. 
 
 That, the imports of specie into England al- 
 ways exceed ^ the exports, and the country pays 
 with its products the supplement received of the 
 precious metals. 
 
 That, if the Bank of England take no part in 
 these imports of specie, it is because the Bank 
 has nothing to give in exchange. 
 
784 THE BANK OF ENGLAND. 
 
 That, the rate of interest or discount is in- 
 dependent of the abundance or scarcity of specie, 
 and is by no means the price of money, the price, 
 which depends on the cost of producing the gold 
 and silver and their relative quantity in the 
 market, being able to be represented only by an 
 equivalent value in merchandise or commodities 
 of any nature whatsoever. 
 
 That, the Sank of England is by no means 
 under the necessity of raising its rate of interest 
 or discount, as is generally believed, when the 
 rate of interest or discount is raised in other 
 countries, and particularly in France. 
 
 That, there are such material differences be- 
 tween the constitution of the Bank of England 
 and the Bank of France, as to render quite illu- 
 sory the pretended danger of France drawing 
 away gold from England, when the rate of in- 
 terest or discount is higher in France than in 
 England. 
 
 That, in England the rate of interest or dis- 
 count is raised only when the amount of notes, 
 which the Bank is authorised to issue, is too re- 
 stricted. 
 
 That, in France the interest or discount is 
 raised only when the Bank has not sufficient 
 money relative to the wants, which the Bank 
 ought to satisfy. 
 
SUMMARY: CONCLUSION. 786 
 
 That, the mission of the Bank is to co-operate 
 in facihtating the circulation of capital, and in 
 making it pass into the best possible conditions, 
 from the hands which possess it, into the hands 
 which employ it. 
 
 That, it is the abundance of capital which ani- 
 mates all enterprises; and the low interest of 
 money is at once the effect and the index of the 
 abundance of capital. 
 
 That, the Bank of England and the Bank of 
 France are the two establishments which regulate 
 credit commercial and public in Europe. 
 
 That, these two establishments, properly con- 
 stituted, would maintain a uniform rate of dis- 
 count for all first-class paper throughout Europe, 
 at about 3 per cent. 
 
 That, the Bank of France, with unrestricted 
 power of issues, is deficient in capital. 
 
 That, the Bank of England, with too restricted 
 power of issues, is deficient in capital. 
 
 That, both these establishments, being unequal 
 to the requirements, operate against each other, 
 instead of co-operating with each other. 
 
 That, the want of uniformity of action, between 
 the two regulating Banking Establishments of 
 Europe, leaves the money market open to con- 
 tinual disturbance by the large capitalists and 
 money jobbers. 
 
 3 E 
 
786 THE BANK OF ENGLAND. 
 
 That, the Bank of France is too much under 
 the control of the Government, and, as at pre- 
 sent constituted, is a practical instance of an un- 
 just monopoly. 
 
 That, the effect of the Bank Charter Act of 
 1844 is, to give to one class at the expense of 
 another, and instead of supporting credit, to 
 vpeakeu and often to destroy credit. 
 
 That, the Bank. of England has completely 
 lost sight of its mission, and considers its privi- 
 lege of credit issues as conferred upon it for its 
 own private benefit, without regard to the in- 
 terests of the country. 
 
 That, the Bank of England thus realises a 
 profit for its own benefit, but very inadequately 
 meets the requirements of the country. 
 
 That, it is impossible to meet these require- 
 ments, and to prevent the money-panics, which 
 are periodically reproduced, without the complete 
 reorganisation of the Bank of England, and re- 
 storing to it its own independent capital, in har- 
 mony with new institutions and the altered cir- 
 cumstances of the times. 
 
 Such are the principles, such is the situation. 
 For this situation there is no other remedv than 
 to reconstitute the Bank of England with a large 
 independent capital and the power to issue a much 
 larger amount of bank-notes. 
 
SUMMARY : CONCLUSION. 787 
 
 In this way only can the Bank of England meet 
 the requirements, by organising credit on a broad 
 and substantial basis, and lowering the ordinary 
 rate of interest for money in this country. 
 
 The resources of the country would thus be 
 kept constantly utiHsed, and. the Banks of Dis- 
 count and other Financial Associations would de- 
 rive great advantages from this organisation, and 
 from fixing the maximum rate of discount for the 
 Bank of England at 4 per cent. 
 
 The Bank of England would be placed in a 
 more commanding position, and, with less re- 
 sponsibility, would be less exposed to censure and 
 invidious remarks. 
 
 It would then be more clearly seen that, a low 
 and steady rate of interest for money is essentia! 
 for the encouragement of trade and industry ; 
 and that forthis, the supply of money, as a means 
 for the transfer of capital, must be at all times 
 equal to the requirements. 
 
 The belief that, the rate of interest is dependent 
 on the abundance or scarcity of money, was the 
 gross error on which was founded the system of 
 John Law, upwards of 150 years ago; but, after all 
 the fatal experience, that error is still prevalent. 
 
 The abundance of real or specie money is the 
 effect of a multiplicity of transactions and the in- 
 crease of real capital. 
 
 3 E 2 
 
788 THE BANK OF ENGLAND. 
 
 The abundance of credit or paper-money is the 
 effect of a multiplicity of transactions and the in- 
 crease of credit. 
 
 But credit- money cannot be increased beyond 
 a certain limit, nor be made to produce all the 
 effects of real money. 
 
 Inconvertible paper money always depreciates 
 in direct proportion to its quantity, admitting 
 even that public confidence is not entirely want- 
 ing. If issues of this nature exceed the require- 
 ments in the proportion of the double, the depre- 
 ciation will be one half, but the rate of interest 
 will not vary. 
 
 Through all this reasoning are derived the fol- 
 lowing short results. 
 
 That, the power of the Bank of England must 
 be greatly augmented to enable it to meet, at all 
 times and under all circumstances, the require- 
 ments of the country : 
 
 That, a certain relative proportion must be 
 maintained between the Bank reserve and the 
 issue of notes : 
 
 That, the maximum rate of interest or discount, 
 for the Bank of England, must be fixed, subject 
 to periodical revision : 
 
 That, on these principles only can the Bank of 
 England be established for the Organisation of 
 Credit in England. 
 
SUMMARY : CONCLUSION. 789 
 
 Speaking generally, human conduct, which is 
 subject to the Divine commands, must inevitably 
 be guided by rules, or by principles or maxims. 
 These principles or maxims are nothing more 
 than the inferences suggested by repeated ex- 
 perience and observation, and are the handy 
 abridgments of numerous and intricate conside- 
 rations, reduced to rules for the guidance of hu- 
 man conduct in human affairs. 
 
 This is the main use of theory, which ignorant 
 and weak people are in a habit of opposing to 
 practice, but which is essential to practice guided 
 by experience and observation. 
 
 They say it is true in theory ; but, then, it is 
 false in practice. 
 
 But, that which is true in theory is also true in 
 practice. 
 
 A true theory is a compendium particular of 
 truths, and must necessarily be true as applied to 
 particular cases. The terms of the theory are 
 general and abstract, or the particular truths 
 which the theory implies, would not be abbre- 
 viated or condensed. But, unless it be true of 
 particulars, and, therefore, true in practice, it has 
 no truth at all. Truth is always particular, though 
 language is commonly general. Unless the terms 
 of a theory can be resolved into particular truths, 
 the theory is mere nonsense. 
 
790 THE BANK OF ENGLAND. 
 
 Therefore, they who talk of a thing being true 
 in theory but not in practice, mean (if they mean 
 anyhting) that the theory in question is false : 
 that the particular truths which it concerns are 
 treated imperfectly or incorrectly ; and that, if it 
 were applied in practice, it might, therefore, mis- 
 lead. They say that, truth in theory is not truth 
 in practice. They meav that, a false theory is not 
 a true one, and might lead to practical errors.* 
 
 Tor none of that class of persons has this book 
 been written; but only for those who think dis- 
 tinctly, and speak with a meaning. 
 
 If, after due examination, they find the theory 
 here propounded to be true, they will know that 
 it must fit perfectly in practice ; and further that, 
 the Bank Charter Act of 1844 is an infliction, 
 from which this country ought to be relieved. 
 
 * Austin " On Jurisprudence," page 44. 
 
APPENDIX 
 
APPENDIX. 
 
 The Preface to the Evidence of the MM. Pereire be- 
 fore the French Commission of Inquiry into the Bank 
 of France, as an expression of the opinion of these two 
 distinguished men on the importance of this subject, 
 is too valuable to be here omitted, and, therefore, an 
 English translation of the whole is given, though at 
 the risk of extending this volume beyond what, by 
 some, may be considered its reasonable limits. 
 
 This part of the Appendix has heen revised and 
 approved of by the MM. Pereire. 
 
PEEFACE 
 
 TO THE EVIDENCE OF 
 
 MM. EMILE & ISAAC PEREIRE 
 
 Before the Supeeioe Council 
 OF COMMERCE, AGRICULTURE, & INDUSTRY, 
 
 ON THE INQUIRY 
 
 INTO THE 
 
 BANK OF FRANCE. 
 
 November & December, 1865. 
 
 The pamphlet published by one of usj in 1864, on 
 the question of the Banks, pointed to the necessity of 
 an inquiry. 
 
 The trades of Paris, and Lyons especially, were not 
 slow in manifesting the same desire in respectful but 
 pressing memorials, and before a like manifestation, 
 before the adhesion of the Bank of France, herself 
 yielding to an irresistible movement of opinion the 
 Government judged that the moment had arrived for 
 opening this important inquiry. 
 
 It was ordered in consequenceof a report addressed 
 to the Emperor by their Excellencies, thp Ministers 
 of Finance and Public Works, and the charge was con- 
 fided to the Superior Council of Commerce, under the 
 presidency of his Excellency, the IMinister of State. 
 
 This inquiry has been solemn ; numerous witnesses 
 
APPENDIX. 795 
 
 have been heard, and it is not yet completely termi- 
 nated ; but already, under the pressure of public opi- 
 nion, it has produced good fruits. 
 
 Recent facts have brought their incontestable au- 
 thority to the debate and have confirmed fully the 
 principles of which we are the self-constituted de- 
 fenders. 
 
 When it seemed impossible to face the shghtest 
 difference of interest between France and England, 
 under pain of seeing immediately the metallic reserve 
 of one country flow away into the neighbouring coun- 
 try, it has been proved that a difference of 3 and even 
 3^ per cent, could subsist in our favor without deranging 
 the ordinary current of the precious metals, without 
 the drainage, so dreaded, of our gold manifesting it- 
 self to the profit of England. We have seen discount 
 at London at 8 per cent, whilst the Bank of France 
 maintained its own at 4^ per cent. Further, instead 
 of diminishing in the presence of such a difference, 
 the treasury of the Bank of France, under these cir- 
 cumstances, has not ceased to increase in considerable 
 proportions. 
 
 We have been able to see by this that the move- 
 ments of the precious metals, that their displacement, 
 obeyed, in certain cases, other laws than those of the 
 rate of interest. 
 
 A like experience was decisive ; the infallibility of 
 the partisans of the absolute joint responsibility of 
 the Banks of France and England had received a 
 heavy blow, and the rivalry of the two establishments, 
 instead of displaying itself in an indefinite rise of dis- 
 count, had to take an entirely opposite direction. 
 
796 APPENDIX. 
 
 Therefore, the discount has been lowered both in 
 France and England, and the other places of Europe 
 have not been slow in following that example. 
 
 We shall not stop on so good a road, it is to be 
 hoped, and we shall then appreciate the favorable and 
 certain effects of the lowering of interest on the re- 
 newal of labor, on the amelioration of the condition 
 of agriculture, as on the rise in the value of all pro- 
 perty real and personal. 
 
 By the fact of this experience, France finds itself 
 released from the dependence that it had imposed on 
 itself towards England, and henceforth, free in its 
 movements, our first establishment of credit will be 
 able to realise with security the reforms which shall 
 have been recognised as necessary. 
 
 Ideas govern nations : according as the ideas are 
 just or false, true or erroneous, they bring prosperity 
 or misfortune. 
 
 Theoretical discussions are not, then, so idle, so 
 vain as those persons believe who, by habit, cannot 
 pass over the horizon of a narrow practice. * 
 
 The old theory of the mercantile system or the 
 balance of trade still prevails in the world of affairs ; 
 driven from the domain of the exchanged of people to 
 people, by the triumph of the principle of commercial 
 liberty, it has taken refuge in that of the banks : it is 
 from this last asylum that it must to-day be made to 
 disappear. 
 
 It is useless for the banks to defend themselves, 
 these ideas break out without their knowledge in all 
 their acts, in all their manifestations. 
 
 It is thus that in the memorial presented to the 
 
APPENDIX. 797 
 
 Emperor by the representatives of the Bank of France, 
 we remark that strange aphorism, that old and false 
 maxim which, under their pen, is set up as an axiom. 
 
 When the Bank raises or lowers the rate of dis- 
 count, it creates nothing, it invents nothing, but it 
 reflects exactly the consequences of the supply and de- 
 mand of the precious metals. 
 
 Now, we believe we have proved that the interest 
 depends not on the scarcity or abundance of the pre- 
 cious metals in a country, but on the general state oi 
 its capital, of its riches of every nature, and that the 
 abundance more or less great of the precious metals 
 depends only on the means which each nation has to 
 procure them with the produce of its industry or of 
 its soil. 
 
 Let us imagine the whole of Europe as a vast con- 
 federation subject to the same economical laws, mak- 
 ing due allowance for foreign relations. 
 
 In this situation, could the rise of interest to any 
 rate whatever create a single farthing, add a single 
 atom to the quantity of gold or silver which it would 
 possess ? 
 
 The only means of augmenting this quantity, would 
 it not be to buy it in California, in Australia, Mexico, 
 or in such other producing country, and to send there 
 products, in exchange, in a proportion equivalent to 
 the wants which would meet it ? 
 
 There exists no other means ; it is only by labor 
 and by the riches which it creates that gold and silver 
 can be obtained. 
 
 It is thus that industrious nations truly bring into 
 their domain the production of the mines, which are 
 situated far off, in the new world. 
 
798 APPENDIX. 
 
 The law by which the precious metals spread them- 
 selves among nations is, consequent)}', only that of 
 their respective means of acquiring them. 
 
 The displacements that we seek to work out, by 
 the aid of artificial means, are durable only when they 
 result from the real state of the exchanges ; and when 
 v.'e would counteract this natural movement by facti- 
 tious raisiiigs of the interest, we always call forth on 
 the part of other nations reprisals which annul the 
 effect; it was thus with the Customs duties by which 
 we lately sought to oppose the introduction of foreign 
 produce ; we immediately called for the same prohi- 
 bitive measures. 
 
 The Banks of France and England have in vain 
 had recourse to successive elevations of interest, to 
 prevent the departure of gold and silver ; after as be- 
 fore, the same digression subsisted in the respective 
 rates of their discounts; to what, then, have these 
 measures served, but to carry trouble into industrial 
 and commercial relations and to augment the charges 
 of labor ? 
 
 Who can believe, besides, that England wants the 
 control of the capital of France, and especially of its 
 metallic capital, since it is England which, for ages, 
 has supplied us with the materials of gold and silver ? 
 
 In a time not distant, we shall have difiiculty in 
 comprehending how such ideas have been able to go- 
 vern the commercial world, how, instead of availing 
 themselves of their capital to fill their treasuries, 
 instead of employing this means at once the most 
 simple and most rational, the banks have had recourse 
 to proceedings, which had no other result than to 
 
APPENDIX. 799 
 
 enrich one class of citizens at the expense of the 
 others, to stop the spring of labor and to cause the 
 ruin of all industries, to depress the value of all ca- 
 pital. 
 
 In our evidence before the Superior Council of Com- 
 merce, we were forced to elucidate over again this 
 great question of the relations of capital and labor, 
 to the amelioration of which the banks will be able 
 to contribute in a manner so powerful, when they are 
 recalled to the object of their institution, when they 
 understand that they can only be, as regards the in- 
 dustrious populations, the instruments of protection 
 and freedom. 
 
 In this, we have only followed the great traditions 
 and continued those memorable discussions which, 
 commenced under the Restoration, on the occasion 
 of the reduction of the interest of the rentes, conti- 
 nued under Louis-Philippe, to receive their solution 
 under the present reign. 
 
 Was it only for the simple benefit of an economical 
 budget that this great question of the lowering of the 
 interest was then agitated? 
 
 It is sufficient, to be convinced of the contrary, to 
 carry ourselves back to the times of which we speak, 
 to interrogate the tribune and the press, to read again 
 the discourses of the great orators, the publications 
 of the economists of the highest authority. These 
 documents attest that, the point of view was more ele- 
 vated, and that at the bottom, the debate bore, on 
 the one side, upon the maintenance of the privileges 
 which were felt to be menaced and, on the other, 
 upon the prosperity of industry, upon the ameliora- 
 tion of the condition of the laborers. 
 
800 APPENDIX. 
 
 This is so true that, it produced then a deeply- 
 founded opinion in virtue of which the State ought 
 to have solemnly renounced its right of repayment of 
 the rentes at ,par, and, consequently, to every pro- 
 gramme for the reduction of the debt then consti- 
 tuted, in order not to put a spoke into the movement 
 of the public funds by this permanent menace, to let 
 them, on the contrary, rise without impediments, and 
 thus to promote the lowering of interest in all the 
 transactions, which would have produced an economy 
 far more important than that which was sought after, 
 to the profit of the State, by the conversion of the 
 rentes. 
 
 Let us not forget that, under the ministry of M. 
 de Villele, in 1824, as under that of M. Bineau, in 
 1852, the lowering of the rate of interest has not only 
 permitted the realising of great economies in the bud- 
 get, but that it has coincided with a great develop- 
 ment of labor, and with a prodigious spring of general 
 prosperity. 
 
 Such will always be the consequence of a lowering 
 of interest; but, for the last ten years, all the notions 
 relative to the constitution of banks have been ob- 
 scured; and, whilst the great principles of political 
 economy were misunderstood, whilst the balance of 
 trade was restored to honor, usury justified as a fatal 
 consequence, — an inevitable consequence of the move- 
 ment of the precious metals, — facts the most authen- 
 tic, but contrary to these false ideas, were neglected, 
 denied or brought into doubt. 
 
 It was necessary to dissipate these clouds, to do 
 justice to all the sophisms and to re-establish the true 
 notions of the mechanism of banks. 
 
APPENDIX. 801 
 
 Many important points seem to us henceforth ac- 
 quired : 
 
 The banks ou^ht, in these times, to strive to aug- 
 ment their power to enable them to place themselves 
 at the height of the new. wants, if they do not wish 
 to see new institutions of credit springing up to dis- 
 pute the empire of which they believe themselves to 
 be in exclusive possession. 
 
 Their actual capital, hardly sufficient^ cannot re- 
 main fixed. 
 
 All their capital ought to be exclusively devoted 
 either to the loans or to the advances which the 
 wants of industry and commerce demand, or as the 
 guarantee for their issue of notes, for that moving 
 capital which they hold by public confidence, and to 
 which, by this title, they have given the qualifica- 
 tion of fiduciaire. 
 
 The banks ought not to speculate, and cannot, con- 
 sequently, buy public funds for their own account. 
 
 And Governments which can contract loans with 
 such great facility, ought to renounce addressing 
 themselves to the banks for services of this nature, 
 for all that which is lent to them by these establish- 
 ments is taken away from the labour fund, from the 
 development of that reproductive power which con- 
 stitutes the force of modern societies. 
 
 The repayment of the sums advanced to the State 
 or placed in the public funds would form, for the 
 Banks of France and England alone, a supplement of 
 strength of nearly 600 millions. 
 
 What might we not hope from the addition of such 
 a capital to the resources possessed to-day by these 
 
 3 F 
 
802 APPENDIX. 
 
 establishments, and, by this simple measure, what a 
 spring might be given to all affairs ? 
 
 Without doubt the banks cannot suffice for all the 
 wants of discount and advances upon public funds ; 
 the co-operation of private capital is indispensable for 
 the regular accomplishment of this service, and it will 
 never fail, of that we may be certain; this capital 
 offers itself and always will offer itself in greater 
 quantity than that which the banks will ever have 
 at their disposal; but we cannot fail to recognise 
 that, the more considerable the capital in the banks, 
 the more the competition will be felt in the market 
 and the more effectually will this competition be ex- 
 ercised for reducing the conditions of loans and ame- 
 liorating the situation of industry considered under 
 its triple aspect, agricultural, manufactural, and com- 
 mercial. 
 
 It is equally, in short, by the disposability of their 
 resources that the banks will succeed in setting them- 
 selves free from the variations of their reserve, from 
 those variations by which they seek to explain those 
 of the discount. 
 
 The fixity of the interest is a chimera of which no 
 one dreams, and no one has ever sought to pursue ; 
 but the extreme variableness to which the banks have 
 wished to accustom us cannot be justified in any re- 
 spect; nobody can understand that the public for- 
 tune, of which the rate of interest is the expression, 
 can vary in the proportions which the oscillations of 
 discount seem to indicate ; the necessity of these 
 fluctuations can the less be understood, when history 
 shows us that, during a century and a half from 1694 
 
APPENDIX. 803 
 
 to 1844, the Bank of England has varied its rate of 
 discount only fourteen times, less than takes place at 
 the present time in one single year: that, during 
 this long period, these variations have been contained 
 in the limits from 4 to 5 per cent., equal to an ave- 
 rage of 4|, whilst, since 1844, the difference presents 
 itself between 2 and 10 per cent. ; when we see again 
 that, with almost one single exception, the Bank of 
 France has been able to maintain its discount at 4 
 per cent, during nearly 40 years, the same Bank 
 which, since 1857, has delivered itself up to oscilla- 
 tions, the amplitude and frequency of which differ 
 but slightly from those of the Bank of England. 
 
 False in principle, this variableness is fraught with 
 the greatest danger ; everything, in trade, is become 
 contingent by the fact of the uncertainty of the con- 
 ditions of credit, and the most sagacious merchant, 
 he who engages in the most ordinary operations, is 
 not sheltered from the unforeseen reverses, which a 
 sudden and extreme rise of the interest may impose 
 upon him. 
 
 The banks which repel all limitation of interest 
 do not fear however to limit the field of industry, to 
 submit it to a true law of maximum, and it is after 
 the single inspection of their reserve that they judge 
 if this maximum be reached or exceeded, if the mo- 
 ment be come for pronouncing their sentences, for 
 giving salutary warnings and then for obliging com- 
 merce to forced liquidations, to an inopportune export 
 of the objects of its production for sale, with the 
 single purpose of bringing back the specie which 
 they themselves want but do not want to procure 
 
 3 F 3 
 
804 APPENDIX. 
 
 directly by the most simple and most vulgar means, 
 by the realising of their own capital. 
 
 The measures which the banks take are completely 
 inefficacious ; not only they do not hit the bad spe- 
 culation, but they discourage the good, even when 
 they do not destroy it. 
 
 These precipitate and incessant elevations of the 
 interest have not hindered the foolish speculations in 
 cotton ; but they have stopped others of high public 
 interest ; as, for example, those which might have 
 usefully taken place in corn, if the interest had been 
 more moderate : a lowering of the rate of discount 
 would have facilitated, in effect, like operations, and 
 would, long since, have permitted the farmers to sell 
 their crops advantageously, whilst they have been left 
 to struggle with their wants and to yield up their 
 products to a low price, in the absence of all compe- 
 tition of purchases. 
 
 Withdraw credit from those who might be tempted 
 to abuse it, but do not punish the whole community 
 for the faults of some. 
 
 Happily, public opinion is now fixed upon the 
 value of the principles which have given birth to 
 measures which we may with good right qualify as 
 barbarous. 
 
 The time for these heresies is past. 
 
 All minds are enlightened upon the danger there 
 would be in attributing to monopoly the advantages 
 which are the essence of liberty, and that alone can 
 be possessed, without public inconvenience, by the 
 establishments placed under the great law of compe- 
 tition. 
 
APPENDIX. 805 
 
 If the rate of legal interest ought to be suppressed 
 in virtue of the principle of the freedom of transac- 
 tions, and we are of this opinion, a limit of interest 
 ought to be imposed on the privileged banks, by rea- 
 son of the power with which they are invested, and 
 of the immunities which they enjoy. 
 
 But this limit ought to have nothing arbitrary, as 
 happens at present; it ought not to be below the 
 average of the interest observed in each country. 
 
 The rate of 4 per cent, that we have advised as the 
 proper maximum to be imposed on the Bank ot 
 France, is even that which has been so long practised 
 by itself, and it is really higher than the rate in ge- 
 neral usage for investments of the nature of those 
 which the Bank makes. Nobody acquainted with 
 the affairs will contest it. 
 
 The reforms which we have sought to realise were 
 indispensable; we have acted and spoken without 
 troubling ourselves with the clamors which our efforts 
 would naturally call forth, happy if it be permitted 
 to us to contribute thus to the development of public 
 prosperity. 
 
 To those who accuse us of pushing to exaggeration 
 the means of credit, without regard to the conse- 
 quences which may result from it, and who affect to 
 see a forced circulation as the result of our opinions, 
 we shall observe that our principles are more vigor- 
 ous than theirs, as regards the reprobation of credit 
 issues which would not have metallic money for i- 
 terion, for control and for basis. Our convictions do 
 not date from yesterday, as may be seen by any one 
 taking the trouble to read over the articles that, as 
 
806 APPENDIX. 
 
 far back as 1834, we published upon the system of 
 Law, and reprinted at the end of our Evidence. 
 
 Thus will vanish these bad recollections of another 
 age, those false principles which have always been 
 evoked to strengthen a bad cause; they will disap- 
 pear for ever before the solemn inquiry just now 
 about to terminate, conducted with as much talent 
 as impartiality. 
 
APPENDIX. 
 
 INUUIRY INTO THE BANK OF FRANCE. 
 
 Evidence of Monsieur Eniile Pereire. 
 7th November, 18G5. 
 
 President. His Excellency M. Kouher, Minister of State. 
 EXTEACTS. 
 
 The Author, having been favoured with copies, 
 from Paris, of the Evidence of MM. Isaac and Emile 
 Pereire before the French Commission of Inquiry, 
 still pending, (January, 1866,) into the Bank of 
 France, considers the evidence of these distinguished 
 Financiers and Bankers so valuable and so perfectly 
 applicable to the Bank of England that, he has (with 
 permission) given the following Extracts therefrom 
 in an English translation for the benefit of English 
 readers. 
 
 The first part of this Evidence is given by Mon- 
 sieur fimile Pereire, and, as Monsieur Le President 
 says : — " C'est \h le point capital." 
 
 The following Extracts are given in the strictest 
 literal translation which the idiom of the two lan- 
 guages will admit of, and these Extracts are confined 
 to those parts of the Evidence which are applicable 
 as well to the Bank of England as to the Bank of 
 France. The constitution of these two Banks being 
 
808 APPENDIX. 
 
 in some respects essentially different, it has not been 
 thought necessary to embarrass the English Question 
 with any of the details applicable only to the French 
 Question. 
 
 M Emile Pereire, with his accustomed accuracy 
 when speaking of the English Bank Act, says: — 
 The Act of 1^44 has no effect for preventing' the 
 arrival or departure of specie ; it is a limitation of 
 notes and not of specie. 
 
 So long as the Bank of England is constituted in 
 such a manner that the issue of notes, without any 
 counter-value in specie, cannot exceed 14 millions, 
 sterling, in Government Securities, which form its 
 social capital, and that then, for want of nptes, if in 
 that case it be obliged to raise its discount and to 
 carry it to 5, 6, Ss 7 per cent., the interest here [in 
 France] being at 3 or 4 per cent., it does not follow 
 that that should be a reason why our specie should 
 go to England, if there be no occasion for it to go 
 there and there be no want of it there, that is, if we 
 be not debtors to England. 
 
 M. Le President. — That is the capital point. 
 [C'est \k le point capital.] 
 
 M. Emile Pereire. — I take the example in all its 
 strictness. The Bank of England has raised its dis- 
 count to 7 per cent. ; we have it at 3 per cent. 
 
 It is said : since our discount is at 3 per cent, we 
 are going to send all our money to England, to in- 
 vest it at 7 per cent. 
 
 But, for that there is no occasion to send the 
 money to England. At Paris they buy bills on 
 London, and keep them in hand. They th.us take 
 
APPENDIX. 809 
 
 the benefit of the discount at 7 per cent., without 
 any displacement of specie, for the gold cannot go 
 from France unless the exchange upon London be 
 raised to 25. 37^, in which case the banker, who 
 should have taken London bills to obtain an invest- 
 ment at 7 per cent., would have a further benefit 
 from the rise in the exchange. But in the like cir- 
 cumstances the rise in the exchange is not to be 
 feared ; the bills of all Europe, for the most part, cen- 
 tralise at Paris, and, from there, each takes its direc- 
 tion. We find then at Paris as much paper as we 
 wish for on London, especially when France, for the 
 balance of its own exchanges, is not indebted to 
 England. 
 
 Does this state of things go on at this moment ? 
 
 There is at this moment a difference of 2 per cent, 
 between the rate of discount of the Bank of France 
 and that of the Bank of England, [December, 1865] 
 so that there would be the opportunity, according to 
 the current prejudice, for the speculation, to profit 
 by this difference of 2 per cent, by emptying the 
 treasury of the Bank of France and filling that of 
 the Bank of England. 
 
 Well, that has not happened. It does not go — 
 it cannot go — not one pound, sterling, of gold to 
 England, because the exchange is at 25.22^. It is 
 impossible to send gold from Paris to London, not- 
 withstanding the difference of 2 per cent, in the rate 
 of discount. 
 
 If I insist on the exchange, it is because that is a 
 very important question and with which I am very 
 familiar. 
 
810 APPENDIX. 
 
 Ask of the first money-brokers in Paris; they will 
 tell you that at this moment the pound sterling, in 
 short paper on London, is bought at Paris 25.22^ per 
 cent, and in paper at three months 25. 27^, less the 
 discount at 7 per cent. They make then a little 
 benefit upon this difference of discount ; they take 
 paper at a higher price when it is long for the benefit 
 of a higher discount. 
 
 That which is true for 2 per cent, is true for 3 per 
 cent, is true for 4 per cent. 
 
 If it were 10 or 20 per cent., I do not say. But 
 it is not necessary to push things to the extreme : 
 they never proceed by these extremes. If to ex- 
 aggerate the formula which I am giving you, I speak 
 of the maintenance of the discount at 3 per cent, at 
 the Bank of France and of the elevation to 7 per 
 cent, of that of the Bank of England, it is a difference 
 of 4 per cent., a difference extraordinary and which 
 could not long continue. 
 
 How will it be corrected ? Will it be modified by 
 the departure of gold from the Bank of France, or 
 by the entry of gold to the Bank of England by other 
 channels ? You are going to see it. 
 
 If, pending two or three months, this state of 
 things existed, that money was very abundant in 
 France and that the Bank of England continued to 
 discount at 7 per cent, it would result that there 
 would be such an advantage in taking at Paris paper 
 on London, that they would not present it, or that 
 they would present ranch less of it at the Bank of 
 England, which would enable that Bank to recon- 
 stitute its stock of notes by the maturity of its stock 
 
APPENDIX. 811 
 
 of bills, and it is thus that the equilibrium, which is 
 prescribed for it by the Act of 1844, would be 
 promptly re-established without necessitating re- 
 ference to the treasury of the Bank of France,— the 
 least in the world, that which is called a drainage, a 
 magical word which acts upon the spirit of literary 
 financiers as noise upon the spirit of infants in the 
 dark. It is the same law as that of the siphon for 
 liquids : the level will be restored without the dis- 
 placement of capital by the single fact of the momen- 
 tary retention at Paris of the bills of exchange of the 
 continent. 
 
 M. d'Eichthal. — I do not wish to take any other 
 argument than that which M. Pereire presents to 
 establish the perfect joint responsibility [solidarite] 
 of the rate of discount between the two countries. 
 
 What is he telling us ? If the rate of discount be 
 3 per cent, at Paris, and if it be 7 per cent, at Lon- 
 don, they hasten at Paris, which is the great market 
 of exchange, to take the paper upon London ; they 
 realise its value, they sell its obligations and they 
 receive in exchange paper upon Paris with which 
 they buy paper on London. 
 
 Let us suppose the contrary case : all the paper 
 that I have on London, I send to London and I 
 realise my capital to buy paper on Paris. 
 
 The effect of this difference of the rate of interest, 
 when it is higher at London than at Paris, is then to 
 keep out of England by the attraction of the high 
 interest the bills, which, without that, would go to 
 be negociated at London. . . . M. Emile Pereire. — 
 At the Bank of England ? 
 
812 APPENDIX. 
 
 M. d'Eichthal.— At the Bank of England . . . 
 ■which would induce the necessity for it to increase 
 its issue. 
 
 What does the Bank of England do in raising its 
 rate of discount ? 
 
 It keeps on the Continent all the bills which would 
 have come to the Bank to be discounted^ which 
 renders money less scarce with it, dearer with us. 
 You are conjointly responsible and, in that state of 
 things, the exchange necessarily rises. 
 
 This is the inevitable result of the situation which 
 M. Pereire has so well defined to you. 
 
 Noj it is not necessary to send specie out of the 
 country ; but notwithstanding, when capital becomes 
 rare and dear with your neighbors, if you do not re- 
 tain it with you, they come to take it, or, if you will, 
 the debt that England has contracted remains in 
 your hands, and it is your capital which pays for the 
 merchandise that England has bought. 
 
 You have not to buy cotton in Egypt, say you. 
 Agreed; but the debt of England comes to France, 
 and it is you who give credit to England. M. Emile 
 Pereire. — We lend to England. We give it credit 
 for the amount of our products, but we do not lend 
 it money. There is not, consequently, any risk for 
 our metallic reserve. 
 
 M. d'Eich thai. —You lend to England. This is 
 the clearest explanation which has ever been given. 
 The adversaries of M. Pereire's opinion have never 
 said anything more clear, more decisive that M. 
 Pereire now says. 
 
 No, it is not possible that interest should remain 
 
APPENDIX. 813 
 
 high in England and low in France ; the assimilation 
 is of necessity, and if you have the imprudence not 
 to submit yourself to that law, at the time when the 
 transport of capital is so easy, you render your posi- 
 tion dangerous, because the deficit of money will 
 manifest itself, not little by little, but all at once, 
 because in failure of warning, those who do not 
 occupy themselves with what is going on, those who 
 are absorbed in their own affairs and are shut up in 
 their shops or manufactories, will believe that the 
 situation continues to be the same as it was before, 
 whilst capital will not have ceased to rarefy, and, in- 
 stead of seeing it produce a successive rise of dis- 
 count, which would permit them to reduce their 
 operations, they will be exposed to these sudden and 
 considerable differences, to these starts in the rate 
 of interest of which commerce makes such lively com- 
 plaints. 
 
 It was said, but a few days ago, that they blamed 
 the Bank of England, because it had gone too fast. 
 
 Well, I can declare that all the men who are ac- 
 quainted with English affairs, make only one re- 
 proach against the Bank of England, and that is that, 
 it does not act fast enough, that it does not mark 
 quickly enough the rise of the thermometer, but 
 resists too much the movement which is going on. 
 That is the only reproach which is addressed to it. 
 
 I repeat, M. Pereire has caused the situation to be 
 appreciated in the clearest and most convincing terras 
 for those who would reflect upon it. 
 
 M. Emile Pereire. — You have too much experience 
 in banking affairs to maintain that, when English com- 
 
814 APPENDIX. 
 
 merce is indebted to the stranger in very large sums, 
 there can be any fear at Paris of the rise of the ex- 
 change upon London. It is the contrary which should 
 happen ; if England owe much for the cotton, the wood 
 the corn, the cattle which she imports, that ought to 
 augment the quantity of the bills drawn upon her ; 
 those bills arriving at Paris in much greater quantity 
 ought to lower the exchange instead of raising it. 
 Now, the lowering of the exchange hinders the de- 
 parture of the gold. 
 
 M. d'Eichthal. — What I wish to remark is this : — 
 
 There is nothiug which less indicates the real posi- 
 tion of the exchanges than the difference between the 
 value of the goods exported and the value of the 
 goods imported. 
 
 I go further : I say that, if you suppose all paid 
 and all really exchanged, if you do not admit the 
 intervention of credit, the country which is in pro- 
 sperity will always have a sum of importations su- 
 perior to that of its exportations, and that this dif- 
 ference will be in the proportion of the benefit itself. 
 
 I suppose all commerce represented by one mer- 
 chant : that merchant sends 100,000 francs worth of 
 cloth to New York; there it is sold with a profit of 
 50,000 francs. . . . 
 
 M. Emile Pereire. — Such profits as those are not 
 made ! 
 
 M. d'Eichthal. — That is of no consequence, it is 
 an hypothesis : say 5 per cent., 10 per cent. 
 
APPENDIX. 815 
 
 This merchant sells his cloth at 10 per cent, profit. 
 He buys merchandise in return, and he gains another 
 10 per cent. The French Custom House proves then 
 the departure of the 100,000 francs, and the entrance 
 of the 120,000 francs. The balance between the im- 
 port and the export is then 20,000 francs in favor of 
 the impoi-tation. 
 
 M. Emile Pereire. — You make an error of calcula- 
 tion. 
 
 M. d'Eichthal.— No, indeed ! 
 
 If you make no intervention of credit . . . 
 
 M. Emile Pereire. — It is at least an error of rea~ 
 soning. I am going, I hope, to prove it to you. 1 
 may deceive myself, but I am going to tell you how 
 I understand it. 
 
 The Custom House estimates the things at their 
 value. 
 
 When I send 100,000 francs worth of cloth to 
 America, and the Custom House has valued my cloth 
 at 100,000 francs, it is really 100,000 francs that T 
 export, since they take the market price for the base 
 of the estimate. But when once the ship has left the 
 Port, these 100,000 francs no longer concern France 
 or the French Custom House : they traverse the 
 ocean : they find at New York a market good or bad ; 
 never mind, it is the risk of the merchants and com- 
 merce. They sell them as they can ; they give you in 
 their place what you wish, cotton, for example. If 
 they have given you 120,000 francs, so much the 
 better for you, but it is 100,000 francs, which are 
 really gone, and 120,000 francs which are returned. 
 The profit of the merchant . . . 
 
816 APPENDIX. 
 
 M. Le President.— You have not let M. d'Eichthal 
 deduce the consequences which he would wish to draw 
 from his ohservation. 
 
 M. d'Eichthal. — M. Pereire would consider the ex- 
 cess of importations notified by the Custom House 
 upon the export as a loss. I say it is just the contrary ; 
 it is a profit. 
 
 M. Emile Pereire. — It is neither the one nor the 
 other absolutely ; but that is of no consequence. In 
 the particular case cited by you, it is the affair of the 
 merchant. 
 
 M. d'Eichthal. — That which is true for the mer- 
 chant is true for the whole of France. 
 
 M. Emile Pereire. — If Prance gain, whether the 
 profit be in money or in cotton, it is always a profit. 
 
 M. d'Eichthal. — You avail yourself of this argu- 
 ment, that in exporting more than you import, so far 
 from making specie go out, you make specie come in. 
 
 I am going to show you that it is the contrary. 
 
 If you export merchandise for 100,000 francs and if 
 you sell it at a loss of 10,000 francs, you have only 
 90,000 francs for return ; you have then an export of 
 100,000 francs and an import of 90,000 francs. Evi- 
 dently, if France be in a parallel position, it is a loss. 
 Suppose, instead of sending merchandise to the United 
 States to be paid in cotton, I have sent it to Cali- 
 fornia, which has no other merchandise than gold ; 
 California will send me back gold; but I shall al- 
 ways be at a loss of 10,000 francs. 
 
 -A'L Emile Pereire.— That is not a parallel case with 
 imports and exports. 
 
 There is besides one thing certain : it is that if we 
 
APPENDIX. 817 
 
 export more products than we import, they ought to 
 pay us the difference in money, unless we consent to 
 lend the amount of this difference. 
 
 M. d'Eichthal. — All that I would say is that, I 
 believe you are not correct when you avail yourself 
 of that argument, drawn from the difference between 
 the imports and the exports, to maintain that the 
 Bank has been wrong in acting as it has done, whilst 
 our exports exceed our imports. The proof is that 
 if you examine the state of the Custom House in 
 England, you will see that, for many years, it shows 
 imports much more considerable than exports, for 
 fifteen years that has been so. England, notwith- 
 standing, is in a state of increasing prosperity, and 
 these returns of the Custom House show a state of 
 continual impoverishment ! 
 
 That is not possible. It is the country which im- 
 ports the largest amount which is in prosperity. 
 
 M. Emile Pereire. — It is a great error to seek to 
 appreciate the loss or profit of a country by the ex- 
 cess of its imports or exports. 
 
 The same phenomenon has not the same signifi- 
 cation for the various nations; thus, Austria and 
 Spain import more produce than they export and are 
 not however, in the same situation as England. 
 
 I do not wish, however, to rest the discussion upon 
 that. You seek to show that the balance of commerce, 
 which all the great economists have combated, is a 
 truth; I am convinced that you are wrong, but 
 that is not the question ; it is absolutely foreign to 
 that which I have proposed to prove, namely, that it 
 is an act which I shall take leave, without wishing to 
 
 3 G 
 
818 APPENDIX. 
 
 wound any one^ to call barbarous, stupid, to wish, by 
 such vigorous measures, to give warnings that, by a 
 strange confusion of words, they call salutary, to re- 
 strict the import of cotton, of woollens, of silks, etc. 
 It is the contrary which is necessary to be done : for 
 it is, I repeat it, with these raw materials that the 
 wants of a country are provided for, that give work 
 to our working population, that sustain our manu- 
 facturer, our commerce, and that increase, at the same 
 time, the riches of the country and the mass of our 
 exports. 
 
 What I say here for three principal articles of our 
 imports of raw materials applies, but in a different 
 sense, to the products of our agriculture. In raising 
 the discount, they stop all speculation in corn, wine, 
 oil, sugar, and they increase the sufferings of our 
 agricultural population by the depression of prices. 
 
 M. Le President. — It is proved that, for fourteen 
 years, the balance of commerce is, in England, to 
 the profit of imports to a considerable amount, and 
 I am convinced, with M. d'Eichthal, that that goes 
 for nothing as a proof of impoverishment, but would 
 rather be, on the contrary, a proof of wealth. 
 
 The movement of imports represents the amount 
 of consumption which the accumulated wealth of a 
 country permits it to make, and that of the exports, 
 the amount or excess of interior production which 
 spreads over the exterior. That would be two pa- 
 rallel currents, two distinct currents, which are not 
 absolutely responsible the one to the other. 
 
 But the argument of M. Pereire was foreign to 
 this question. He would say, I believe, that be- 
 
APPENDIX. 819 
 
 tween the merchandise exported and the merchan- 
 dise imported, there was a level such as the com- 
 pensation made itself by reciprocal obligations, with- 
 out the necessity of a violent displacement of money. 
 He acknowledged, without doubt, that there had been 
 .necessity for the purchasers of cotton and silk ; but, 
 according to him, these necessities had not involved 
 an export of money in proportion to their import- 
 ance, because these purchases are settled by means of 
 sales made out of the country. 
 
 I believed that the observation which M. d'Eichthal 
 wished to present was less general and less extensive 
 than that which he has presented ; I believed that 
 he wished to speak of the passage of time which may 
 exist between the import and export, between the 
 purchase and the resale, passage of time which may 
 admit of the use of credit and the necessity of an ex- 
 port of money. 
 
 M. d'Eichthal. — In this point of view, M. Pereire 
 was wrong in saying that credit did not intervene. 
 The United States at this moment buy of us enor- 
 mous amounts of merchandise, but they do not pay 
 for them all at once. 
 
 M. Emile Pereire. — I have not said a word of that ; 
 M. d'Eichthal ought to be well aware that I could not 
 say that merchandise bought in France by America 
 itself balanced the account, for he knows very well 
 that there are passed by my hands many hundreds of 
 millions of bills of exchange at two or three months 
 date or at sight, which have served to balance these 
 operations; I have said the contrary, that these 
 operations do not necessitate an export of money from 
 Erance. 3 g 3 
 
820 APPENDIX. 
 
 M. Le President. — I would return to what was, as 
 I understand it, the capital point of the observation 
 of M. d'Eichthal to'M. Pereire. 
 
 He made the objection following : 
 
 Wlien the rate of discount rises in England, the 
 consequence of it is this : the French capitalist em- 
 ploys the bills, which he has or may cause to be dis- 
 posable, to buy paper on London, because he thus ac- 
 quires a claim which produces to him 7 per cent, of 
 revenue. It results from that that the capital, which 
 ought to be paid by England, is retained in France ; 
 there is there a postponement of three months in 
 these maturities, a postponement which is determined 
 by the rise in the rate of discount and by the profit 
 which results from it. 
 
 Upon this first point, MM. Pereire and d'Eichthal 
 are agreed, and I believe there is no dispute. 
 
 M. Pereire, developing his thought, has gone fur- 
 ther and has said : — " When they are in face of an 
 operation which presents itself thus, and of paper 
 which produces 7 per cent., they sell their obliga- 
 tious, they utilise their bank-notes, they create for 
 themselves resources by the aid of which they may 
 procure for themselves this advantageous paper." 
 
 It is then that M. d'Eichthal comes in and says : — 
 " It is thus that is produced the rarefaction of the 
 resources which are found in a countrj'. You have 
 utilised your money to buy paper on London, you 
 have discounted your bills, sold your obligations ; 
 you have asked for renewals : in what does it result ? 
 As you have taken all these resources to the Bank of 
 France, which is the definitive reservoir, the result 
 
APPENDIX. 821 
 
 of it is that the Bank of France finds itself, at a 
 given moment, the bank, which has co-operated ma- 
 terially and by way of advances to this movement 
 for the acquisition of paper on London, finds itself, I 
 say, in a state of disproportion between its reserve 
 and its issues : and if it had not raised its discount 
 progressively, it would have been obliged to do it 
 suddenly, and by this abruptness, it would disturb 
 the quiet and derange the normal combinations of 
 commerce." 
 
 What have you to reply, M. Pereire, to this objec- 
 tion ? 
 
 M. Emile Pereire. — If England had enormous 
 wants, and if she had not sufficient money for circu- 
 lation, there would be some truth in this objection, 
 because, in the definite, credit cannot be given on an 
 indefinite and unlimited scale.- If it concerned 200 or 
 300 millions, that is nothing for France ; 500 or 600 
 millions, that would be another thing. In reality, 
 the extraordinary investments of this nature hardly 
 exceed 60 to 80 millions. The available resources 
 are not all exhausted at the Bank, and lastly, as to 
 that which concerns England, France exports gold 
 only very exceptionally. 
 
 The Bank of England raises its discount, I repeat, 
 not because it has not money, hue because it is not 
 permitted to issue a sufficiency of notes. The whole 
 question is there. 
 
 The void is filled by delays of payment [des ater- 
 moiements), by credit. So it is at Paris, at Brussels, 
 at Lyons ; so it is everywhere, because there is always 
 everywhere disposable capital. There is no occasion 
 
822 APPENDIX. 
 
 to send away the money from the Bank of Prance to 
 take bills of exchange. There is in France^ and at 
 Paris especially, a movement of capital of which no 
 one has an idea. They reason too much about the 
 treasury {I'encaisse) of the Bank of Prance; this 
 treasury is only the hundredth part of the disposable 
 capital of the country. 
 
 See the last loan to the City of Paris, it was en- 
 tirely subscribed in one day ; they were even obliged 
 to reduce one-i6hird of all the subscriptions. 
 
 The abundance of capital is so great, that the shares 
 fully paid up are worth 10 francs more than the 
 others. 
 
 Thus they have found in one day 270 millions for 
 the City of Paris, and they knock in^ vain at the 
 door to give the money in advance. The City of 
 Paris will not receive it. The financial resources of 
 Prance are immense. 
 
 I spoke to you just now of the sums which have 
 been borrowed in the several states during the last 
 five years ; the figure is from 10 to 15 milliards, 20 
 milliards even, including the loans to the United 
 States. 
 
 I have made a table of the railroad bonds (obliga- 
 tions de chemin defer) which have been issued at the 
 rate of 300 millions of francs per annum, — and they 
 have negociated even more, — it reaches the figure of 
 6 milliards, at the interest of 5^ per cent. 
 
APPENDIX. 823 
 
 See how rich France ought to be, since she has 
 comprised the reproductive value of capitals ! 
 
 I believe that, sometimes, we do not take this suf- 
 ficiently into account, and that this mirage of gold 
 and silver so troubles the spirits that that causes 
 sometimes gross mistakes. 
 
 I say, then, to return to the question, that this 
 situation of a different rate of interest between 
 France and England has only the effect, on the Con- 
 tinent, at Paris, Amsterdam, Berlin, Antwerp, Brus- 
 sels, and in Switzerland, of making them hold their 
 English bills which carry 7 per cent., which they 
 prefer to paper on Paris at 4 or 5 per cent. But, as 
 the demand for tlie papei on London at 7 per cent, 
 increases the demand for paper at long date, the 
 price is raised and the difference disappears ; the level 
 is restored. 
 
 For that it is not necessary to suppose that Eng- 
 land is going to demand our gold, she cannot do 
 that, since she is our debtor. I do not believe in 
 the effects attributed to the balance of commerce, 
 but I must acknowledge that it is we who sell to 
 England corn, eggs, poultry, cattle, Parisian articles, 
 articles of taste, that they do not know how to make 
 in London as at Paris, so that England is indebted 
 for the merchandise that is sent to it from France, 
 and from the whole universe. She buys our pro- 
 ducts, our stuffs, and pays us with the amount of her 
 exports to other countries, with the dividends of the 
 loans that she has made to Turkey, to Russia, etc., 
 the balance at last is paid to us in gold. 
 
 Why does Holland, who has served as banker to 
 
824 APPENDIX. 
 
 Europe and America these last thirty or forty years, 
 why does Holland continue to have considerable ca- 
 pital? Because she has the savings and the repro- 
 duction of the capital which she has lent to all the 
 countries, and she lives upon her acquired riches. 
 
 The people who are thrown on their industry and 
 commerce, as England, and as France, receive the 
 price of their savings, of their economies, and it is 
 thus that the balance of the exchanges, this move- 
 ment of the capitals, movement which troubles so 
 much the imagination, is found in our favour, because, 
 if we have borrowed, we have also lent much to the 
 foreigner. 
 
 M. Le President. — Thus, according to you, the 
 purchasers of bills on London, which can be solicited 
 {sollicites) by a high interest, such as 7 per cent., are 
 covered by the disposable money of the banking- 
 houses and capitalists, and unless the crisis be very 
 strong, the reaction of these operations makes no im- 
 pression on the Bank of France to the extent of 
 causing a rise in the discount. 
 
 M. Emile Pereire. — No, it is in England even that 
 that is corrected, for the bills on London that the 
 rise of the interest naturally retains on the Conti- 
 nent, not being presented for discount at the Bank 
 of England, the demand for bills diminishes and the 
 equilibrium is restored. 
 
 M. Le President. — It is a movement which, in it- 
 self, is satisfied by the ordinary efforts of the capi- 
 talists, and which corrects itself as much by the 
 delays of payment {les atermoiements) even obtained, 
 as by the creation of new bills which bring about the 
 elements of compensation and of liquidation ? 
 
APPENDIX. 825 
 
 M. Emile Pereire. My opinion is well re- 
 sumed. 
 
 M. Hubert Delisle. — Consequently, there is no 
 influence by raising the interest of one bank upon 
 another. 
 
 M. Emile Pereire. — Absolutely none. That would 
 not hinder me, if I had the honour to be the Mi- 
 nister of the Finance, or the Governor of the Bank, 
 from making all possible eflPorts to obtain an under- 
 standing {entente) between the Banks of France and 
 England. With that there would be no more 
 
 DISTURBANCE IN THE CREDIT OF EUROPE. It WOuld 
 
 sufiSce for that to meet each other, to understand each 
 other. 
 
 At first the English would not take any shares in 
 the French railroads, because they feared that in case 
 of war they might come and confiscate their shares 
 and debentures. We have agitated this question for 
 the last twenty or twenty-five years, with the prin- 
 cipal English bankers, and with the great Engineers, 
 such as Stephenson, Brunei, Locke and others; we 
 have their explanation that there would be no con- 
 fiscation possible with the claim to the holder ; all 
 is settled, and we have the co-operation of the Eng- 
 lish capitalists. 
 
 M. d'Eichthal. — To resume the opinion of M. 
 Pereire .... 
 
 M. Michel Chevalier. — M. le President has just 
 resumed it, with M. Pereire's leave. 
 
 M. le President. — M. d'Eichthal wishes, perhaps, 
 to resume in a different manner, and from a different 
 point of view. 
 
826 APPENDIX. 
 
 M. d'Eichthal. — M. Pereire acknowledges that, 
 when the discount is at 3 per cent, in France, and at 7 
 per cent, in London, the bills on London are retained 
 here, and they are sought to be obtained ; they discount 
 at the Bank of France to buy them, and the efifect of 
 these purchases is to make the exchange rise . . . 
 
 M. fimile Pereire. — It does not rise, it lowers. 
 
 M. d'Eichthal.— Not at all ! 
 
 A pound sterling, instead of the value here 25.25, 
 is worth 25.30. 
 
 If this movement continue, if you remain at 3 
 whilst the Bank of England is at 7, they continue 
 the purchase of bills until there be no more profit 
 to be made by them. Then, when the Bank of Eng- 
 land raises its discount to a rate sensibly different 
 from that at which it is in Prance, it is very possible 
 at that moment the exchange may not be against 
 you ; but if you let this difference continue, in a very 
 short time, the exchange upon London will rise. 
 
 M. Emile Pereire. — It will not rise, for the reason 
 that when the discount rises at London, the paper on 
 London becomes more abundant at Paris ; they offer 
 it more. Only the price of long paper will be more 
 raised than that of short paper, on account of the 
 advantage gained on the interest. 
 
 M. d'Eichthal!— How is that ? 
 
 It rises. He who takes the paper will lose part of 
 the difference. 
 
 When I am able to draw on London at 25.35 
 under the deduction of interest as you will, I shall 
 do it, that is to say, I shall draw upon my correspon- 
 dent at London and shall send hira gold. 
 
APPENDIX. 827 
 
 M. le President. — Now M. Pereire, will you ap- 
 proach the question of capital ? 
 
 M. Bmile Pereire. — Upon that point, the elemen- 
 tary thing, it is that the capital should be disposable. 
 Why is it not at first in England, afterwards in 
 France ? That is what is not understood. 
 
 I have established before you by figures, with" the 
 result of the last balance sheet, published five days 
 ago, the 2nd November, [1865] that, the Bank has 
 no disposable capital. 
 
 It has 200 millions fixed [immobilise] that is to 
 say, 2 millions over and above the total of its capital 
 and its reserve. Why this fixity ? [immobilisation.] 
 Is it that they would not easily find investment for 
 these 200 millions which are so vexatiously fixed in 
 their cofiers, — when they would have useful employ- 
 ment, when they could serve as a pledge for a much 
 greater circulation ? That is not explained. 
 
 They give two reasons for that. Some say : The 
 Bank does that to draw two grindings from one sack. 
 It guards its social funds as a guarantee, it takes with 
 its notes bills of exchange which produce interest, 
 and, on the other side, it draws from the same social 
 funds an interest by the arrears of rentes which it 
 receives from the State. 
 
 Evidently, this is to draw two grindings from one 
 sack, but it may draw these two grindings all the 
 same in another manner which may be less danger- 
 ous for it and for the public. • I do not suppose that 
 the object of raising the discounts is to raise the 
 dividends^ since this is denied. 
 
 I return to the principal question. 
 
828 APPENDIX. 
 
 If the capital of the Bank were free [mobilise] 
 what could it do with it ? 
 
 It would discount more and cheaper, it would 
 take more bills of exchange. If the bills of ex- 
 change on France were not sufficient, it would take 
 bills of exchange on the foreigner. With that she 
 might have a safeguard for the demands for money 
 which might be made upon her. The great pur- 
 chases of cotton in the Indies and in Egypt are 
 made, as it was well said by M. Pastre, on ac- 
 count of England, which consumes seven or eight 
 times more of cotton than we do. There is the 
 great market, the great emporium, it is there that 
 the stock is found. If the Bank of France had 
 bills of exchange on the foreigner she will always 
 anticipate the demands for money. 
 
 They will tell me : the 200 millions of capi- 
 tal of the Bank of France will be quickly ex- 
 hausted ! 
 
 So much the better, if quickly ! 
 
 It will be necessary for the bank to raise its 
 capital to the level of the progress of affairs. It 
 did so, in 1847, for 1,500 millions of affairs, and 
 I believe it did it in 1864, for 8 milliards. Now, 
 as it is impossible that such affairs should always 
 be done without capital, it is necessary that there 
 should be capital, and capital in proportion. I ad- 
 mit that three, four, five years after the increase 
 shall have been made, the capital may again be 
 insufficient. Well, it will procure new resources, 
 which it will be able to invest usefully. 
 
 Invest usefully ! Let us understand each other ! 
 
APPENDIX. 829 
 
 I compare the Bank to a Railway Company whioh 
 has a privilege. 
 
 No other than I, for example (I take the liberty to 
 identify myself with the Railroad Company of the 
 South) can employ the same means of transport from 
 Bordeaux to Bayonne. They impose tariffs on me. 
 I ought to submit because I have a monopoly and a 
 privilege. But there is another condition that they 
 impose upon me. It is to have materiel suflScient 
 for transporting the merchandise which is presented 
 to me. If the materiel which I have constituted 
 at the time of the concession be not sufiScient, I 
 must increase it. I shall come with bad grace to 
 say to the Minister of Public Works to say : " Mon- 
 sieur le Ministre, my platforms are obstructed ; they 
 call on me to transport from all sides ; I cannot do 
 it ; let me take 10 centimes instead of 5. In this 
 way I shall distribute the transports over a much 
 longer period and I shall avoid the obstructions." 
 Not at all : I must create new materiel, — sufficient 
 materiel. 
 
 Well, the materiel of the Bank is its treasury. It 
 has a privilege, which I do not discuss ; but at least, 
 that privilege being given for the benefit of all by the 
 State, which represents the generality, the commu- 
 nity, the State watches over that privilege, the great- 
 est of all the privileges, for it is the base of all labor, 
 of all industry, of all commerce, of all prosperity, of 
 all wealth, it ought to make its use useful, intelligent 
 and not selfish. 
 
 When I use the word selfish, I do not mean it in 
 a bad sense. 
 
830 APPENDIX. 
 
 M. le President. — Use in a general and not a par- 
 ticular interest. 
 
 M. Emile Pereire. — Yes. I say only that it is 
 necessary that they should make a moderate use of 
 the privilege, otherwise it would justify the institu- 
 tion of many banks. 
 
 I have told you that there are two important ser- 
 vices to render in matter of credit. The Bank had 
 been instituted to render only one originally. It is 
 since 1852 that it has been called to render two. 
 Before it was only a Commercial Bank ; since 1852 
 it has been a Bank of public funds and railway 
 bonds. 
 
 Frankly, it does not fulfil this second function. It 
 does not like to fulfil it ; it has been imposed upon 
 it 
 
 M. Emile Pereire. — I have been engaged in affairs 
 at Paris since 1822, and I can say that the Bank has 
 always been administered in such a manner that no 
 person has ever raised a doubt about the value of the 
 Bank note. 
 
 The only doubt has been the convertibility of the 
 note into money, or rather, into money independent 
 of the credit accorded to the Bank. 
 
 When they have to make payments to England or 
 to Russia, they cannot send notes of the Bank of 
 France ; they must send money if they have no mer- 
 chandise. Now, to insure the constant convertibility 
 of the note into money, it is necessary that the social 
 funds should be always disposable. That is the only 
 thing that belongs to the Bank, for the rest belongs 
 to all the world, to you, to me, who have notes of 
 
APPENDIX. 831 
 
 ■ 
 
 200 francs, of 500 francs in our pocket ; that which 
 belongs to it, is its capital, its social funds ; it has 
 the evil, the very great evil of being indispOsable 
 [de I'immobiliser] . 
 
 Not only in my opinion, from what I see, from 
 what I know, from what I practise, it will be an in- 
 sufficient thing for it to have in two or three years 
 the disposal [la disponibilite] of this capital of 200 
 millions which has been immoveable [immobilise] ; 
 but it will be inevitable in two or three years that 
 the Bank should be authorised to augment its capital 
 or to issue bonds [obligations], for, above all, it is 
 necessary that it should do the service for which it 
 is constituted: 
 
 To resume, I say that the capital of the Bank ought 
 to be realised. It will employ it in paper on Paris or 
 in bills of exchange. The expression " foreign bills " 
 is an improper expression ; these should be called 
 bills of exchange on the foreigner, which is not the 
 same thing. 
 
 It is well that you should know, and, as for myself, 
 I have very long experience, that the paper which is 
 carried to the Bank has three signatures, that it is 
 paper upon bankers or paper that the banks take, 
 that it is the paper on Hamburg or on Amsterdam, 
 which never suffers loss. They never lose who have 
 the current paper of the Bank ; it is solid as gold. 
 See the yearly accounts of the Bank; it has no 
 losses, its risks are almost nothing. 
 
 Again, the solidity of the Bank note and the 
 solidity of the Bank itself have never been in 
 question. 
 
832 APPENDIX. 
 
 When it is said that the Bank council should have 
 less thought of bankers and more of merchants, that 
 is perhaps a professional quarrel, for, in a technical 
 point of view of the trade, the Bank is perfectly ad- 
 ministered. They would .have there only the old 
 hands well accustomed to the work. There is there 
 a sort of acquired rapidity. It is very well organised, 
 it has a well selected staff, it has notably model 
 treasury clerks, and that is something in an establish- 
 ment where they are looking after 100 millions in a 
 day. It has an excellent staff, a thing not to be 
 acquired without a good deal of patience and ex- 
 perience. It has a committee of discount very 
 enlightened and which oflBciates well. 
 
 In the council, there are young and old interests; 
 there is only one danger against which the Bank 
 has to defend itself, that is a party spirit; for the 
 rest I speak of it only incidentally. 
 
 I say only that, if the Bank cannot do all the 
 service of the country, the necessary and indispen- 
 sable service, it ought to leave others to do what 
 it cannot do itself. 
 
 The performance would be very easy. 
 Is it that the banks in the departments did not 
 act suitably and usefully before 1848 ? They acted ; 
 and however, what was their capital? It was in- 
 significant. 
 
 M. Pastre. — They did not act very well ! 
 M. Emile Pereire. — That depends. 
 There was good, and there was bad ; in the mass 
 they acted well, and none of them, moreover, lost 
 a farthing either to the public, or to the share- 
 
APPENDIX. 833 
 
 holders. No one has been refused the payment of 
 his notes at sight, and that is the important thing. 
 
 In review, I believe that the Bank ought to in- 
 crease its capital and sell its stock [rentes] . 
 
 I believe also that it ought to have a maximum of 
 discount. 
 
 If the Bank would guard its privilege, it ought to 
 submit to these consequences; it ought, I say, to 
 have a maximum of discount, and it ought to con- 
 firm (homologuer) its raisings of discount. 
 
 The maximum rate ought to be 4' per cent, which 
 has been maintained by the Bank during forty years ; 
 the ordinary rate ought to be 3 per cent. ; and that 
 rate of 3 per cent, should be raised only after the 
 confirmation of the Government, after the Govern- 
 ment shall have rendered account of the necessity for 
 such raising, that is to say, of the state of the ex- 
 change, of the state of the material imports afld 
 exports of money, after a verification which is elemen- 
 tary. That it is not sufficient to pretend that, specie 
 is exported, to give the right to raise the discount. 
 
 M. Le President.— And for the loans or discounts 
 of title, if the Bank remain refractory to the system 
 of operations, it is necessary, according to your sys- 
 tem, to require that the Bank should allow it to . be 
 done by another institution ! 
 
 M. Emile Pereire. — Which could and would do it. 
 
 As to its capital, it will be made to realise it, and 
 when it shall become insufScient, in consequence of 
 the immense increase of its aiFairs, it will augment it 
 to put it to the height* of the necessities to which it 
 will be held to provide. , 
 
 3 H 
 
834 APPENDIX. 
 
 M. Le Commissaire General. — If M. Le President 
 permit, I will address to M. Pereire one question, 
 which appears to me, in the point of view of the 
 Questionnaire, to complete his deposition, and the im- 
 formation which he has been kind enough to give us. 
 
 Among other objections to the fixity of the rate of 
 discount, is this — 
 
 M. fimile Pereire. — I do not ask for fixity. 
 
 M. Le Commissaire General. — Bat you ask for a 
 maximum rate. 
 
 M. E mile Pereire. — Yes, but I stop at the idea of 
 fixity, because they have attributed to me a pamphlet 
 remarkable besides, which has been done by one of 
 my brothers in law, which T do not accept in that 
 which is absolute, as regards fixity. 
 
 M. Le President. — The maximum., in your system, 
 will be 4 per cent. 
 
 M. Emile Pereire. — Yes, Monsieur Le President, 
 that rate has been proved by a practice of forty years. 
 
 M. Le President. — So the Government even could 
 not exceed that figure. 
 
 M. Le Commissaire General. — With the authority 
 of the Government, could it not be exceeded ? 
 
 M. Eraile Pereire. — That would not be necessary 
 with a sufBcient capital and a provident arrangement, 
 and imposing on oneself temporary sacrifices which 
 would be a feeble compensation for the privilege with 
 which the Bank is invested. 
 
 M. Michel Chevalier. — On these occasions the 
 Government can do everything, in case of absolute 
 necessity. M. Pereire speaks of the common run of 
 afiaits. 
 
APPENDIX. 835 
 
 M. Le Commissaire General. — This is the objec- 
 tion which has been made. 
 
 I should wish M. Pereire to give us in a word his 
 opinion upon that. 
 
 It is laid down in fact that the Bank, in the ordi- 
 nary state of things, does only a certain quantity of 
 the discounts of that country ; that the rest is done 
 by private capital, and it is said : If the current price 
 of real capital in the country, if the real hire were 6 
 per cent, for example ; if those who discounted with 
 their capitals at 6 per cent., and the Bank discounted 
 at 4 per cent., would it not be to be feared that in- 
 stead of the Bank carrying the third or the fourth of 
 the discounts, for example, it would carry all, and 
 that then it would be obliged, in self-defence, to close 
 its treasury, that is to say, to cease to discount, which 
 would be much more prejudicial to commerce than 
 raising the rate ? 
 
 M. Emile Pereire. — The embarrassment, in that 
 case, would not be to the Bank, but to the capitalists, 
 who cannot find any other employment for their 
 capitals. The Bank has about 600 or 700 millions 
 appropriated to discount; there would remain, on 
 the hypothesis put, two or three milliards in the par- 
 ticular department ; now, it is inconceivable that they 
 should find employment for a capital so considerable 
 at a higher interest than that of the Bank of France, 
 it is the contrary which would necessarily follow. 
 They would be obliged to content themselves with 
 interest lower than that of the Bank of France : but 
 the proportion which you have indicated is very far 
 from the reality : the paper admissible at the Bank 
 
 3 H 2 
 
836 APPENDIX. 
 
 has such a character of solidity, that the rate of in- 
 terest at which it is negociated is not subject to such 
 strong variations. It is paper with three signatures, 
 the maturity of which cannot exceed three months, 
 the maturity of which on the average is 45 days. 
 Beyond the Bank, this paper serves to employ the 
 floating funds of bankers and great merchants. 
 When they have it in their bill-cases, they consider 
 it as money in hand, it is disposable capital, for it 
 can be at any instant converted into bank notes. 
 This employment of the floating capital of bankers 
 and great merchants can never cease, because the 
 houses have always the same wants and there are no 
 great affairs possible without floating capital. 
 
 This floating capital and its employment, in some 
 sort obligatory, in paper at short date negociable at 
 the Bank, instead of diminishing, will constantly in- 
 crease by degrees as the affairs and number of mer- 
 chants and bankers increase. You have the proof of 
 this fact in the accounts current open in the various 
 establishments of credit which dispose at this present 
 time of many hundreds of millions, for which the de- 
 positors are content with interest from 2 to 3 per 
 cent., when the Bank raises its interest to 5 and 6 
 per cent. 
 
 The mass of the negociations of that which is 
 called bank paper operates principally in the world of 
 finance and high commerce, and the Bank serves for 
 regulator. Rarely, unless the paper be very second- 
 ary, it places paper above the Bank rate of discount. 
 It is only commercial paper of two signatures which 
 pays more. But paper, when it is excellent, is never 
 
APPENDIX. 837 
 
 negociated above the Bank rate, it is the contrary 
 which happens. 
 
 M. Le Commissaire General. — You think that the 
 Bank rate of discount will serve for regulator in 
 lowering as it serves for regulator in raising ? 
 
 M. Emile Pereire. — Always. 
 
 M. Le President. — We thank you, Monsieur, for 
 the information which you have been so kind as to 
 give us. 
 
838 
 
 EVIDENCE OF MONSIEUR ISAAC PEREIRE, 
 26th December, 1865. 
 
 President. His Excellency M. Eoiiher, Minister of State. 
 
 EXTRACTS. 
 
 M. Isaac Pereike.' — The regulating cause of the 
 rate of interest is no other than the relation exist- 
 ing between the aggregate of the riches and the ag- 
 gregate of the wants of a country. 
 
 Money is only a fraction of these riches^ it is only 
 a part, and its influence upon the interest ought not 
 to be stronger than that of other parts. 
 
 However, money is generally confounded with 
 general riches. This confusion arises from money 
 being the standard of all the values, the common 
 measure : thus part is taken for the whole, the mea- 
 sure for the thing measured ; but, in reality, does not 
 exercise, and ought not to exercise the exclusive in- 
 fluences that is attributed to it in the hire of capital. 
 It only takes place artificially, owing to the actual 
 constitution of Banks. 
 
 M. Le President. — You would, perhaps, tell us 
 more at large your way of thinking on the ques- 
 tion of the causes which determine the rate of 
 interest .... 
 
 M. Isaac Pereire. — I said that, the interest depends 
 
APPENDIX. 839 
 
 on the state of wealth of a country in relation to its 
 wants. The more abundant capital, the more in- 
 terest tends to diminish. 
 
 There is not, however, anything absolute in the 
 rate of interest, it varies more or less according to 
 the relation of the supply to the demand, but there 
 is no positive reason to justify the fixing of the in- 
 terest at one rate or another. This rate depends 
 much on the respective situations of the capitalists 
 and the producers, of the influence more or less great 
 of the one and the other ; it depends especially on 
 the manner in which the banks are constituted ; these 
 establishments may be able, by the aid of the vast 
 means at their disposal, to exercise a preponderating 
 influence on the hiring of capital, and, within certain 
 limits, to modify at their pleasure the relation of 
 supply and demand. 
 
 It is remarked that the tendency of the rate of 
 interest is to lower successively in proportion to the 
 development of public wealth ; but it cannot be too 
 often repeated, — the capital, that which exercises the 
 greatest influence on the rate of interest, in the man- 
 ner of constituting the banks, these establishments 
 are invested with an all powerful influence in this 
 respect : it is by their means and with the capital 
 which they previously deduct from circulation that 
 the greatest mass of loans is made, and to this cha- 
 racter they join that of regulator ; this capital costs 
 them nothing, they can lend them cheap, and, in 
 that case, all the world is obliged to follow in the 
 same way ; but if the banks be so constituted that it 
 is for their interest to raise the rate for the hire of 
 
840 APPENDIX. 
 
 capital, it is certain that the hire will everywhere 
 follow a corresponding progression. 
 
 The question of the legal rate is not so simple as it 
 is supposed to be. It is complicated by the mono- 
 poly of the banks. In the hypothesis of the liberty 
 of the banks, I should not hesitate to recommend the 
 abolition of the laws restrictive of the rate of interest, 
 by reason that there would then be competition to 
 satisfy the public on the best possible conditions; 
 there would be no exaggeration to fear in fixing the 
 rate of interest, for that exaggeration would imme- 
 diately draw new capital into the commerce of dis- 
 count, and that movement would be continued until 
 the benefits in that branch of industry were brought 
 to a level with those of all the others. But, as long 
 as the monopoly of the banks exists, that is to say, as 
 long as the commerce of discount finds itself delivered 
 up to privileged establishments disposing of all the 
 credit money of a country, I believe it would be 
 dangerous to give to these establishments too exten- 
 sive powers. At present, they have done the con- 
 trary of what they ought to have done : they have 
 exempted the Bank from all restriction with regard 
 to the rate of interest, they have exempted the Bank, 
 which is a monopoly ! And as soon as, in virtue 
 of the dominant influence, of the preponderating in- 
 fluence that it exercises on the hire of capital, the 
 rate of interest is raised everywhere, the share of 
 labour is found to be diminished, and, as we have 
 seen, that produces all the irregularities, all the dis- 
 turbances which are the consequences of a like state 
 of things. 
 
APPENDIX. 841 
 
 I believe, then, that with the monopoly, which the 
 Bank of France enjoys, we cannot, and we ought not 
 to abolish the laws restrictive of the rate of interest, 
 unless on the condition of limiting the power, which 
 it possesses, of raising the rate at its pleasure. If 
 that monopoly did not exist, we might be able, I 
 repeat, to abandon things to their natural course, 
 because liberty itself corrects, by the simple game of 
 competition, the defects to which it gives birth ; but/ 
 there would be, in my opinion, great inconvenience 
 from abolishing the law of 1807, and proclaiming the 
 freedom of the rate of interest before having regu- 
 lated the monopoly of the Bank of France, before 
 having guarded against the abuses which would pro- 
 bably be the consequence. 
 
 M. le President. — So, in the general order of the 
 relations between the citizens, you think that, the 
 freedom of the rate of interest is a good thing ; but 
 that, in that which concerns the Bank of France, 
 which constitutes a monopoly in the state, it ought 
 to be subject to a fixed rule of which you will develop 
 later the character and motives ? 
 
 M. Isaac Pereire. — Yes, Monsieur le President. 
 
 M. le President. — So, with you, the principle is, 
 freedom of the rate of interest ; the exception is, the 
 tarification [tarification] of the rate of interest in 
 juxtaposition with the [vis-a-vis des] privileged esta- 
 blishments. 
 
 M. Isaac Pereire. — Yes, the tarification only in 
 juxtaposition with the privileged establishments, the 
 establishments provided with the means of credit 
 which cost them nothing. 
 
842 APPENDIX. 
 
 M. le President. — Privileged — we shall see later 
 what is the privilege. 
 
 M. Isaac Pereire. — I add that the banks have been 
 instituted only to lower the rate of interest, and that 
 they fail in their mission when they do not fulfil that 
 character. 
 
 The lowering of the rate of interest is a thing 
 desirable in all points of view. It gives rise to enter- 
 prises which could not exist if the interest were too 
 high; it contributes, consequently, to the develop- 
 ment of industry, to the increase of public wealth ; 
 it augments the share of labour, while at the same 
 time it permits all the products to be delivered 
 cheaper, whereas the charges of interest enter, for a 
 considerable part, in the profits and in the price 
 returned ; it facilitates the amelioration of capital ot 
 all values, landed property as well as public funds. 
 
 The rise of the rate of interest produces contrary 
 eflfects. It paralyses labour, depreciates the value of 
 all property, and renders impossible the enterprises 
 which cannot support the charges. In diminishing 
 the advantages of labour in the interior, it reduces 
 the number and proportion of enterprises.* 
 
 * The particular attention of the reader is invited to this 
 short summary of the advantages of a low rate of interest. — 
 Author. 
 
APPENDIX. 843 
 
 Of Credit Money. 
 
 M. Isaac Pereire. — The banks act upon the rate 
 of interest not only by the reunion, by the concen- 
 tration of a gross capital destined to discount, but 
 also by the employment of credit money of which I 
 am going to speak. 
 
 Money is necessary to exchanges, since it is the 
 common measure of all values, but money, as money, 
 is sterile capital ; it produces nothing by itself. I do 
 not speak of the domestic uses for which it may be 
 employed, I speak of money as money. It acts, in 
 this quality, only as a medium in the exchange of 
 products ; I add that it has an intrinsic value. 
 
 The capital that all society employs for this pur- 
 pose is considerable ; and it can be procured only by 
 means of products of a corresponding value. Credit 
 money costing nothing and replacing in part this 
 money, which represents effectively the value for 
 which it circulates, there results from its employment 
 a very great economy. Besides, credit money is 
 much more convenient than coin money. Credit 
 money acts, finally, in the service of the banks as a 
 powerful means for lowering the rate of interest, 
 since it furnishes the means of discounting, almost 
 without expense, the promises of industry. Credit 
 money is nothing else than the means by which the 
 powerful credit of the banks supersedes the obscure 
 credit of the private houses ; the bank note is nothing 
 else, in effect, than the conjointly responsible repre- 
 sentation of a certain number of bills of exchange. 
 The pretext for considering credit money as dimjn- 
 
844 APPENDIX. 
 
 ishing, by its mass, the value of the metallic money, 
 and, consequently, as necessarily raising the price of 
 all things, is a pretext completely devoid of founda- 
 tion ; it is only a paradox. 
 
 The credit money is, in effect, the equivalent, the 
 representation exact of the real money, the value of 
 which has nothing arbitrary, since it is only the 
 expression of the cost of production of the precious 
 metals, and that value is universally recognised. The 
 credit money postpones itself to the money of gold 
 and silver; supplies and replaces it, and there re- 
 mains in each country of the one or the other only 
 that which is necessary for the wants of the ex- 
 changes. 
 
 The character of credit money augments with the 
 development of affairs. Its employment is not un- 
 limited, but it is indefinite. I cannot say within 
 what limits it ought to be confined ; it has no other 
 than those of the development of affairs. 
 
 Credit develops itself at the same time, in a man- 
 ner parallel, as much by the issue of notes as by the 
 help of compensations at the clearing -hmise, accounts 
 current, cheques, &c. 
 
 In proportion as a nation enters more forward in 
 the ways of credit, she has more recourse to the 
 modes of clearing and compensation, which are, in 
 effect, means of regulation very simple and very 
 convenient. But the bank note is appropriate to all 
 uses, to others even to which the cheque can^iot be 
 applied ; it is employed as moaey of which it is the 
 appendix. Thus, with a cheque, which represents 
 only an individual engagement, you cannot easily buy 
 
APPKNDIX. 845 
 
 all the things which you are in want of, whilst with a 
 bank note, which represents money, which is money, 
 each can procure in all places all that is necessary for 
 his wants. 
 
 M. le President. — Do you believe that, in a given 
 time, one of the means here in question may be 
 destined, if not to absorb, at least to diminish the 
 exercise of the other ? 
 
 M. Isaac Pereire.-^— I believe not. 
 
 M. le President. — Do you believe that it may 
 bi'ing about in France what it has produced in Eng- 
 land, where it seems that this movement of circula- 
 tion of notes may be a movement more slow than 
 progressive ? 
 
 M. Isaac Pereire. — I do not believe that the sys- 
 tem of clearings or compensations ought to hurt the 
 development of the circulation of the notes ; it will 
 not more diminish the use of money, the quantity of 
 which augments every day ; it seems to me, however, 
 called to take with us greater importance, but affairs 
 take also every day more considerable extension, and 
 as this system has yet received only very imperfect 
 applications, it may develop itself in stronger propor- 
 tion without injury to the employment of the bank 
 note. 
 
 In England it is by a sort of compression that the 
 use of cheques generalises itself; it is in consequence 
 of the adoption of the extremely restrictive system 
 applied to the Bank of England that the circulation 
 of the notes has languished, and this system, from 
 which commerce suffers, is the principal cause of the 
 crises which occur almost daily of London. If our 
 
846 APPENDIX. 
 
 neighbours adopted more liberal ideas, I am con- 
 vinced that the circulation of the notes would develop 
 itself, parallel with the use of the clearing-houses, in 
 a considerable proportion. In France, in my opinion, 
 it is the employ of the clearing-houses that wants 
 development ; in England it is that of the notes. 
 
 We must not, however, confound the check with 
 the bank note ; this is not only, like the check, a 
 means of payment, an instrument of compensation or 
 of liquidation of engagements arrived at maturity; it 
 is again and especially an instrument of credit; it 
 represents capital, since it is only the transformation 
 of the bill of exchange; it admits of utilising, by 
 means of discount, a portion of the floating capital 
 that industry and commerce hold in reserve for the 
 wants of their transactions. 
 
 This distinction in the nature of the two efiiects is 
 indispensable to avoid falling into fatal errors. 
 
 The Conditions of Good Credit ^NIonky. 
 
 Credit money ought to be constantly convertible 
 into money. The absence of this condition would 
 give rise to grave abuse. Without the control of 
 money, there would be not only instability, but a 
 continual degradation in the prices, the depreciation 
 of paper money being always produced in direct ratio 
 to its multiplication. Money is for the banks a 
 counterpoise, an indispensable touchstone ; it permits 
 us to recognise if there be too much or too little 
 paper, that is to say, bank notes. When there is too 
 much, we naturally call it in, and the real level of the 
 
APPENDIX. 847 
 
 wants of circulation immediately restores itself; we 
 are thus sure that, with constant convertibility of the 
 bank note, there cannot be excessive issue; when 
 there is not enough, you carry money to the bank to 
 take out notes, or else you issue new notes with the 
 same funds in the treasury. 
 
 There is no excess of issue, I repeat, unless when 
 the paper has a forced circulation, a thing most 
 detestable. I believe it useless to prolong this 
 demonstration, convinced, as I am, that I shall be in 
 accord with all the world in saying that, the bank 
 note ought to be constantly convertible into money. 
 It is a condition without which it cannot circulate in 
 a regular manner. 
 
 The systems of unity and plurality of banks have 
 each advantages and inconveniences. The one and 
 the other exist on a very large scale in the different 
 countries. I do not believe that the inconveniences 
 of plurality or liberty are greater than those of unity 
 or monopoly. 
 
 [Evidence on this part of the subject seems un- 
 necessary, and is, therefore, omitted.] 
 
 ESTABLTSHMBNTS WHICH IsStJE CkEDIT MoNEY. 
 
 In my opinion, the Bank of France is far from 
 satisfying all the conditions which a bank of issue 
 ought to fulfil. 
 
 [This part of the evidence applies more particularly 
 to the Bank of France, and is, therefore, omitted.] 
 
848 APPENDIX. 
 
 What advantages or what iuferiority does the Bank 
 of France present with reference to the organisation 
 of foreign banks ? 
 
 ' I consider it useful in this comparison to occupy 
 myself only with the Bank of England, because that 
 establishment is the only one which exercises a serious 
 influence on ours. 
 
 I have criticised the Bank of France from my 
 point of view, but I shall have only to eulogise its 
 organisation, if I compare it with the Bank of Eng- 
 land ; it is, in fact, infinitely superior to that of the 
 Bank of England. 
 
 The Bank of France is not limited in its issues, 
 while the Bank of England is limited in a manner 
 extremely grievous. All the resources of the Bank 
 of France are concentrated in a manner to produce 
 the most useful effect, whilst those of the Bank of 
 England are divided with the view to limitation and 
 restriction extremely injurious to the circulation and 
 to the affairs. The Bank of England has been, in 
 effect, separated into two departments, that of issue 
 and that of discount (banking) ;* the one only creates 
 a number of notes determined beforehand, the other 
 is charged with their employment ; for this separa- 
 tion there has been no other cause than the desire to 
 limit the issue of notes, but, by an inevitable conse- 
 quence the action of the discount department has 
 been found to be singularly reduced. 
 
 * M. Pereire perfectly understands the division into two 
 distinct departments, the Issue department and the Banking 
 department ; but to make himself more intelligible to those 
 whom he is addressing, he often speaks of the Discount de- 
 partment, meaning the Banking department. — Attthoe. 
 
APPENDIX. 849 
 
 The Bank of England can only issue notes with 
 their representation in public securities or in money ; 
 its capital is almost wholly lent to the Government ; 
 of the £1 4,000,000 sterling, of which the capital con- 
 sists, i61 1,000,000 are lent to the Government, and 
 £3,000,000 are invested in the public funds. Be- 
 yond this figure of 14 millions, the Bank of England 
 can only issue notes against specie; so that, under 
 this condition of things, it fills only the function of 
 a bank of deposit. The 14 millions of notes that it 
 can issue, as representing that which is due to it 
 from the Government, and the sum invested in the 
 public funds, are remitted by the Issue department 
 to the Banking department, to be employed by the 
 last in the operations of discount and advance ; this 
 department again serves itself with the sums which 
 are deposited on accounts current. 
 
 Now, the Bank of England, being absolutely limited 
 to these 14 millions sterling, of notes as capital, when 
 this capital is too deeply cut into, is forced to stop 
 from cutting into it any more, and is obliged to raise 
 the rate of discount in order to diminish the demands 
 which it cannot satisfy without danger. 
 
 The Banking department has no other relation to 
 the Issue department than that of the partnership to 
 the sleeping partner [commandite a commanditaire] 
 for the capital and notes received, and the rule of the 
 Banking department is always to have in notes or in 
 gold, a reserve equal to the moiety of the sums which 
 are deposited on accounts current ; it is admitted in 
 principle that the Banking department is in a situa- 
 tion entirely normal when the reserve of notes reaches 
 
 3 I 
 
850 APPENDIX. 
 
 that limit of the moiety ; when that exists, they are 
 easy about the possibility of satisfying all demands 
 for repayment, and they lower the discount ; when 
 that proportion diminishes, they raise the discount, 
 and they raise it in proportion to the diminution of 
 the reserve. 
 
 When I say that the Bank of England holds to 
 have, in the Discount department, a reserve equal to 
 the moiety of its accounts current, I mean always 
 to speak of its notes, for the notes form the money 
 with which it is almost exclusively served ; specie is 
 employed only for change [appoints]. There is a 
 little pocket-book which the bankers and merchants 
 of London make use of, and in which they in- 
 scribe each day and each week the amount of the 
 accounts current, and of the reserve of notes. On 
 inspection of this little book, to which they give the 
 title of barometer, is to be seen at once, by the return 
 of the notes in reserve and the amount of the de- 
 posits, [le montant des comptes courants,] if the Bank 
 ought to raise or lower its discount. It is a material 
 rule ; the Banking department here acts as a machine 
 self-acting, in a manner purely mechanical. 
 
 Such a system presents grave inconveniences. Thus, 
 when in consequence of this limitation of the issue 
 of notes to a figure which, good perhaps in 1844, is 
 become to-day completely insufBcient, the Bank is 
 obliged to raise its discount, it exercises a fatal in- 
 fluence upon all the transactions, it paralyses them ; 
 — and it is not exceptional that a like state of things 
 manifests itself, it is become permanent, and is aggra- 
 vated every day. It is that which has brought com- 
 
APPENDIX. 851 
 
 meroe to the necessity of seeking a remedy in the 
 formation of associations known by the name of Joint 
 Stock Banks, and of establishments of compensation 
 or of liquidation, which they call Clearing-houses. 
 
 The system which consists in the issue, beyond 
 the amount of an immoveable capital [capital immo- 
 bilisi]. of only a quantity of notes corresponding 
 with the specie in reserve [en caisse^, produces, be- 
 sides, this deplorable effect, that when they go to 
 demand specie at the Bank of England for the wants 
 of export, they cannot do it without withdrawing 
 from the market an equal amount of notes, which 
 produces a contraction in the circulation very preju- 
 dicial to the movement of the exchanges. 
 
 Under these divers aspects, our Bank presents a 
 great superiority over the Bank of England. 
 
 Nevertheless, one of the advantages of the English 
 system is, that the Bank of England never wants 
 money ; it has always, in fact, in its chest a sum 
 equal to 60, 70, 75 per cent, of the amount of notes 
 really in circulation. The Bank of England only 
 wants to issue more notes ; that is so true that, twice, 
 they have been obliged to violate the law in this 
 respect, and to authorise the Bank to issue more. In 
 1847 and 1857, there were two violent crises in Eng- 
 land ; the greatest houses fell one after another, and, 
 to avoid general ruin, it was found to be an impe- 
 rious necessity to authorise the Bank to exceed the 
 legal limit of its issues. Each of these times, as I 
 have already had occasion to say, they wanted to 
 augment by two millions sterling, only the permitted 
 amount of issues, and it was not even necessary to 
 
 3i2 
 
852 APPENDIX. 
 
 issue these two millions ; the first time, they did not 
 use the authority, and the second time they issued 
 only £945,000 of new notes ; the certainty that the 
 Bank was in measure to resume the ordinary course 
 of its operations sufficed to restore confidence, and 
 the crisis disappeared as by enchantment. 
 
 It is not by the same motives that the Bank of 
 France raises the price of its advances ; it is only 
 because it fears the want of money to reimburse its 
 notes. 
 
 Thus, whilst the Bank of England escaped the 
 crisis of 1847, thanks to the power of extending its 
 issues [by suspension of the Law], it is by the sales 
 of its rentes to Russia, that is to say, by the realisa- 
 tion in specie of the portion of its immoveable ca- 
 pital, that the Bank of France attained the same 
 end. 
 
 The year following, in 1848, the capital of the 
 Bank of France, finding itself once more placed in 
 rentes, the Bank is obliged to solicit from the Go- 
 vernment the forced circulation for its notes. 
 
 It may then be said that the Bank of England 
 wants only to issue more notes, and that the Bank 
 of France wants only to have more money. 
 
 The wants of the two Banks being different, I do not 
 know why the Bank of France is always so very much 
 pre-occupied with what the Bank of England does. 
 The practices even of the two establishments are dif- 
 ferent : the Bank of France can buy gold or silver 
 at the price which suits it, and, when it wants it, we 
 have seen the premiums that it pays ; but the Bank 
 of England cannot buy gold at a price beyond its in- 
 
APPENDIX. 853 
 
 trinsic value, it is bouad to take at a fixed price all 
 tliat is brought to it, and to give it back at a price 
 equally fixed by the law, the difference between the 
 two representing only the cost of coinage. 
 , There is then no analogy, no mutual responsibility 
 [solidarite] between the two establishments, and the 
 Bank of France might very well maintain its dis- 
 count when the Bank of England raised its own. 
 The proof of what I advance is, that to-day there is 
 a difference of 2 per cent, between the two banks ; 
 the discount is at 4 per cent, in France and at 6 per 
 cent, in England, and nevertheless the gold of that 
 country always flows to us, which sufficiently indi- 
 cates that the Bank of France has nothing to fear 
 from the Bank of England. The difference might 
 reach 3 or even 4 per cent, with the same result, if 
 the quotation indicated that the exchange is in favour 
 of France; that however is nothing new, for, in 
 1847, a difference of 3 per cent, existed a long time 
 in the discounts of the two countries. 
 
 When the Bank of England raises its discount, a 
 certain fulness of bills of exchange payable at London, 
 comes naturally to Paris, to find there a more easy 
 and advantageous investment ; what the Bank of 
 France had better do in like case, instead of follow- 
 ing the Bank of England in its usurious ways, would 
 be for the Bank itself to take part of these bills of 
 exchange; this indirect help which would give oc- 
 casion to employ its capital very usefully, would 
 promptly put a term to these ephemeral crises that 
 we see arising every year; that would be completely 
 efficacious ; it would permit the Bank still, if neces- 
 
854 APPENDIX. 
 
 sary, to exercise upon the exchange a contrary ac- 
 tion, by negotiating the same bills, — when the price 
 of paper in London had a tendency to rise in a pro- 
 portion disturbing to its reserve. 
 
 But as long as the Bank has the power of raising 
 indefinitely its rate of discount, it will not have re- 
 course to the means whicb I point out, and that we 
 can understand, for we can no more ask institutions 
 than individuals to act against their interests .... 
 
 The Bank might in the end avail itself of these 
 bills on London to buy gold in England. ■ 
 
 That would be a certain means to the Bank for ren- 
 dering itself master of the position, and for counter- 
 acting all the contrary operations of the banker^s 
 arbitragistes .... 
 
 M. Le President. — I wish to make an observation. 
 . . . You come to deliver to the Commissioners a con- 
 siderable formula. You have said : — the Bank of 
 France wants money ; the Bank of England wants 
 notes. 
 
 We are then, on this point, in face of three sys- 
 tems; a system which establishes a joint responsi- 
 bility [solidarite] absolute between the oscillations 
 of the rate of interest in France and in England ; an- 
 other system which consists in seeing in this joint 
 responsibility something accidental ; and, lastly, your 
 system, which you lay down as a thesis of complete 
 non-responsibility \non-solidarite] . 
 
 ]\L Isaac Pereire. — I do not place the question in 
 a manner so absolute. I maintain that there exists 
 no real joint responsibility between the two banks, but 
 it may exist between the two countries ; that depends 
 
APPENDIX. 855 
 
 on the nature and the state of their commercial re- 
 lations. 
 
 M. Le President. — You consider that the Bank of 
 England raises the rate of discount because she has 
 not enough of notes, and the Bank of France because 
 she has not enough of money. You say that you 
 will examine later the means by the aid of which she 
 can maintain her stock of money ; but at present, 
 your conclusion is that, there is no occasion to raise 
 the rate of discount in France because the rate is 
 raised by the Bank of England, and you tell us that, 
 after the calculations that you have made, the Batik 
 of England possesses 60, 70, and even 75 per cent, 
 of metallic reserve comparatively to its notes. How 
 do you make that calculation ? Do you compare the 
 metallic reserve with the notes issued only, or do you 
 compare it with the notes, the accounts current, and 
 the deposits united ? 
 
 M. Isaac Pereire. — I compare it only with the 
 notes according to the usage, and then I must limit 
 my comparison, seeing precisely what you point out, 
 that there are two departments in the Bank of Eng- 
 land, that of issue and that of the affairs of the Bank. 
 
 The Issue department delivers about 27 to 28 
 millions of notes to the discount [banking] depart- 
 ment; but, in reality, there are in circulation only 
 20 to 21 millions ; the difference is not really issued ; 
 it is found in the reserve in this last department, which 
 is charged with the affairs of the bank, and opposite 
 to these 20 to 21 millions of notes really circulating 
 in public, the Bauk-has generally 13 to 14 millions, 
 sterling, iu its treasury. 
 
856 APPENDIX. 
 
 It is between these 14 millions of money and these 
 31 millions of notes that I establish the comparison, 
 because the metallic reserve has only to answer to 
 the demands for repayment of the circulating notes. 
 
 The Banking department provides for its own pro- 
 per wants entirely apart from the issue department. 
 Sir Robert Peel had determined that there should be 
 as much diflference, as to the manner of carrying on 
 the banking business, [quant au mode de fonctionne- 
 mentjj between the banking department and the 
 issue department, as there is between any other 
 banker and the issue department. 
 
 M. Le President. — Thus, in your opinion, the 
 issue department and the banking department con- 
 stitute two distinct banks ? 
 
 M. Isaac Pereire. — Yes, Monsieur le President. 
 
 M. Le President. — Two distinct banks which it is 
 necessary to regard intrinsically, without reference to 
 the relations which may exist between them. 
 
 M. Isaac Pereire. — They have no other relations 
 than those of partners to sleeping partners. [Elles 
 n'ont d'autres rapports que ceux de coramanditaire 
 a commandite.] 
 
 M. Le President. — Consequently, the active and 
 the passive of the one ought not to appear [figurer] 
 to the active and passive of the other. 
 
 M. Isaac Pereire. — They are separated, but only 
 for order, for the two accounts represent at the bottom 
 the same interest ; they ought to be reunited, if you 
 wish to appreciate the general situation of the Bank. 
 
 M. de Lavenay. — Which is it that makes the con- 
 version of the notes ? 
 
APPENDIX. 857 
 
 M. Isaac Pereire. — Always the issue department. 
 
 M. de Lavenay.— That is what I wanted to have 
 proved. 
 
 M. Le President. — I have in my hands your 
 pamphlet, M. Pereire, and at page 116 of the new 
 Edition, I see that you examine the balance sheet of 
 the Bank of England to the 7th September 1864. 
 You say that the issue department has £26,876,895 
 of notes, and, on the opposite side, a metallic reserve 
 of iS 12,226,895. The proportion of the reserve would 
 be then a little more than the third . . . 
 
 M. Isaac Pereire. — I beg your pardon; notwith- 
 standing the separation of the two departments, it is 
 necessary for rendering an exact account of the liotes 
 really in circulation, to deduct, as I have done, from 
 the gross amount of 26 millions of notes issued the 
 6 millions which are found in reserve in the banking 
 department. 
 
 M. Le President. — You have just proved, in a very 
 neat manner, that the issue department of the Bank 
 and the banking department constituted two distinct 
 establishments ; you have told me that the passive 
 aad the active of each of the two banks were two 
 things perfectly separated. 
 
 Well, in your pamphlet, when you would establish 
 the proportion between the metallic reserve and 
 the issue of notes, you say : there is on one side 
 £26,876,895 of notes, and on the other £12,226,895 
 in ingots and specie. Then you add : it is necessary 
 to take to the banking department £6,067,030 of 
 notes which are there in the chest, and deduct 
 them from the amount of the notes issued; conse- 
 
858 APPENDIX. 
 
 quently, there remains only about j820,800,000 ot 
 the notes issued, and the proportion between the 
 reserve and the issue is 63 per cent. 
 
 I do not comprehend this deduction, unless you 
 would make it operate at the same time upon the 
 ingots and the specie, for the banking department is 
 a creditor of the issue department, and the day when 
 you will strike off from the 26 millions of notes issued 
 the 6 millions possessed by the banking department, 
 it must diminish the ingots and the specie in the 
 same sum. It is a repayment to work out [k 
 operer] . 
 
 M. Isaac Pereire. — I ought to cut off the 6 millions 
 of notes not employed by the discount [banking] 
 department from the 26 millions which form the 
 total issues, and keep account only of the sum of 
 notes in the hands of the public, and, to establish the 
 true proportion of the ingots or specie in the posses- 
 sion of the Baak with the notes in public circula- 
 tion, I ought to add the metallic reserve of the dis- 
 count [banking] department to that of the issue de- 
 partment. 
 
 M. Le President. — But the 6 millions of notes of 
 the banking department are in the public ; the bank- 
 ing department is the public as regards the issue de- 
 partment. 
 
 M. Isaac Pereire. — That can be true only in pla- 
 cing yourself in a very strict point of view, in an ab- 
 stract point of view, that of the absolute separation 
 of the two departments, but that is not conformable 
 to the reality ; the differences of functions between 
 the two departments are profound, but they do not 
 
APPJiNDlX. 859 
 
 exclude however the community of interests which 
 exist between them ; they make part of one and the 
 same establishment and are placed under the same 
 direction. 
 
 To give yourself an exact account you may reunite 
 the active and the passive of the two departments, 
 without for that cause getting rid of the divisioti 
 which the legislature has thought fit to establish in 
 their operations ; it is not exceptionally that the dis- 
 count [banking] department always keeps in reserve 
 a certain number of notes, it does it only because it 
 serves itself with notes in preference to coined money; 
 it is its money, and it has no other interest to use 
 its notes which form its reserve to make it send out 
 without necessity the money of the issue department ; 
 it has no occasion to do it, for the reason that it 
 could not serve itself with that money for discounts 
 and advances. For that nature of operations, you 
 can serve yourself only with notes, it is infinitely 
 more convenient. 
 
 It would be necessary that they should go and get 
 their money with carriages, if they would serve them- 
 selves with money instead of notes for transactions 
 of the importance of those of the Banks. 
 
 We cannot then regard the notes that the discount 
 [banking] department holds in reserve as being issued 
 to the public. 
 
 In reality they considei- as truly issued only those 
 notes which are really in circulation, and to make 
 that calculation, it is necessary to deduct from the 
 total amount of the issues the amount of the notes in 
 reserve in the Banking department. 
 
860 APPENDIX. 
 
 Now, in the same manner as they cut off from the 
 notes gone from the issue department the amount of 
 the notes which are in the banking department, in 
 the same manner they ought to add the specie which 
 is found in the banking department to the specie 
 which is found in the issue department. 
 
 M. Le President. — It is the contrary that they 
 ought to do. 
 
 M. Isaac Pereire. — How 1 
 
 M. Le President.— Permit me to tell you that it 
 is the contrary they ought to do. 
 
 I insist, because the statement you make there is 
 one of the capital points of your pamphlet ; it is the 
 fundamental thesis by the aid of which you arrive at 
 your formula : " The Bank of England wants notes 
 and the Bank of France wants money." Well, it is 
 this formula that I seek to make clear. 
 
 First, one does not perceive a priori why it should 
 be so. Then, there are publicists who have main- 
 tained that the proportion of the. metallic reserve in 
 relation to the notes was the same at the Bank of 
 England as at the Bank of France, and there is a 
 man who has taken the trouble to establish this thesis 
 at all the epochs which he has thought proper to take. 
 
 I tell you then this : the banking department and 
 the issue department being, according to you, two 
 distinct individualities, as the Banking-house A and 
 the banking-house B, when the banking department 
 has in hand 6 millions of notes which have been re- 
 mitted to it by the issue department, the banking de- 
 partment is creditor for these 6 millions of notes to 
 the issue department, and these 6 millions ought to be 
 
APPENDIX. 861 
 
 considered as being issued to the public. The proof 
 IS that, if they came to the banking department to 
 claim payment or reimbursement, they would receive 
 these notes. 
 
 Thus, the day when you deduct these 6 millions 
 from the amount of the issues, you cannot do it be- 
 cause the issue no longer exists, and it exists no longer 
 inasmuch as you have reimbursed in money. Con- 
 sequently, when you say : " The banking department 
 has in hand 6 millions of notes, I deduct them from 
 the 26 millions of notes issued," you are obliged at 
 the same time to deduct, from the 12 millions of 
 money which exist in the issue department, the 6 
 millions necessary to reimburse the 6 millions of 
 notes. Otherwise you establish a proportion which is 
 not exact. 
 
 Let us go further. 
 
 You have £743,552 in specie in the banking de- 
 partment, which proceed from particular deposits, 
 sums which have been remitted to it on accounts cur- 
 rent ; you have enriched with it the metallic reserve 
 of the issue department. 
 
 But the day when the metallic reserve of the issue 
 department would be enriched by these £743,000, the 
 issue department ought to issue notes for a corre- 
 sponding sum and remit them to the banking depart- 
 ment. Then the proportion would always be the same. 
 
 I do not then understand all this system, which con- 
 sists in considering the issue department and the 
 banking department as two perfectly distinct exist- 
 ences, having no relation between them than as two 
 different banking houses have to each other, and to 
 diminish the passive of the issue department by a 
 
862 APPENDIX. 
 
 portion of the active of the banking department, at 
 the same time to augment the metallic reserve of the 
 issue department by the metallic reserve of the bank- 
 insf department. 
 
 M. Isaac Pereire. — I have no difficulty in acknow- 
 ledging that they might proceed as you do, in placing 
 themselves, as T have said, at the point of view of the 
 absolute separation of the two departments ; but that 
 manner of operating is not the expression of the 
 reality. Suppress an instant, in effect, the separation 
 of the two departments, reunite the accounts of 
 the same nature in the two, and you will have the 
 same result that I have; it is, I will add, the only 
 manner to establish, on the identical terms, a just 
 comparison between the situation of the Bank of 
 England, and that of the Bank of France ; besides, 
 the observation you make does not destroy the formula 
 that I have laid down, — that the Bank of England 
 wants notes, whilst the Bank of France wants money, 
 — because, even adopting your manner of proceeding, 
 they would always have had to prove a proportion very 
 satisfactory of the reserve in the issue department 
 with the aggregate of the notes issued. Tn placing 
 oneself, in fact, in this hypothesis, the relation of the 
 discount with the notes in circulation with the public 
 or in reserve in the discount department, was still 
 nearly 46 per cent, and at that moment to the month 
 of September 1864, they were at the height of the 
 crisis ; the discount was 9 per cent. 
 
 With a like proportion of specie, would the Bank 
 of France ever dream of raising its discount ? Ac- 
 tually, its reserve is far from reaching that proportion 
 against the notes in circulation. 
 
APPKNUIX. 863 
 
 Since 1844, they have never been in England con- 
 cerned about the diminution of the reserve at the 
 point of view of the repayment of the notes ; they 
 have generally had the eyes fixed only on the figure 
 of the reserve of notes in the banking depart- 
 ment. 
 
 They complain of the outflow of gold from the 
 Bank of England for the wants of exportation only 
 because as that gold could not be withdrawn without 
 the notes, — there would not remain enough of notes 
 for the wants of the circulation. 
 
 My formula draws its importance from the limita- 
 tion of the number of notes. The Bank of England 
 cannot issue more than 14 millions, sterling, without 
 having an equivalent in specie ; it is because it cannot 
 issue more that their convertibility is better assured ; 
 but they have only changed the nature of the evil, 
 they have obtained that result at the price of frequent 
 crises and often formidable; the remedy has only 
 changed as the evil. 
 
 How, in reality, have they put an end to these 
 crises ? Have they had recourse to the ordinary 
 means of forced circulation, as they would have done 
 in France? No. They have put an end only by 
 authorising the Bank of England to go beyond the 
 limit of notes fixed by the law ; twice they have au- 
 thorized the temporary issue of 2 millions, sterling, 
 more of notes, that is to say 16 millions in all with- 
 out a representation in specie, and that means has 
 always completely succeeded. 
 
 You see then, in fact, that the observation that you 
 have done me the honour to address to me does 
 
864 APPENDIX. 
 
 not in any manner touch the formula that I have 
 laid down ; that formula is absolutely true. 
 
 M. Le President. — You criticise the mechanism of 
 the Bank of England ; but not my observation . . . 
 
 M. Isaac Pereire. — Pardon ! Your observation 
 stands good so far as being able to modify, in the 
 hypothesis which you have taken the figure of the 
 return of the reserve with the issue of notes; but, 
 even in that case, my formula stands no less good. 
 Tt is not in the interest of any discussion that I 
 wisli to establish a proposition more favourable; 
 I have only conformed to the custom in virtue of 
 which it is considered that the notes are really issued, 
 that is to say, susceptible of being reclaimed at the 
 Bank, only when they are actually in the hands of 
 the public. 
 
 M. d'Bichthal perfectly understands England, and 
 he will be able to say if it be not always so that they 
 make .the Bank account ; all the statistics testify to 
 the truth of it. Only the notes issued are calculated 
 as being in circulation, deduction being made of those 
 which are in the reserve of the banking department, 
 because it would never occur to any one to suppose 
 that the Discount [Banking] department would wish 
 to put the issue department in embarrassment by re- 
 claiming the payment of the notes which constituted 
 the banking reserve. 
 
 The Banking department, I repeat, can serve itself 
 only with notes ; that is more convenient and at the 
 same time more conformable to custom. It discounts 
 with notes, it reimburses the accounts current with 
 notes. The depositor cannot say to it : " Give me 
 
APPENDIX. 865 
 
 money instead of notes." If they would have money, 
 they have only to take the notes that the discount 
 department [banking department] delivers to them, 
 and go and demand the reimbursement at the issue 
 department, which is obliged immediately to effect it. 
 
 Once more, notes are only considered really as issued 
 by the issue department when they circulate with the 
 public; and, at the bottom, the Bank of England 
 never disturbs itself, as the Bank of France some- 
 times does, with the reimbursement of the notes ; its 
 anxieties are relative only to the difficulties which may 
 occur in the operations of the discount [banking] de- 
 partment. 
 
 M. Le President. — Thus, the statement which you 
 have made is a statement established at the point of 
 view of the habits of the public. 
 
 M. Isaac Pereire. — It is a calculation which has 
 been made in remitting the accounts of the two de- 
 partments ; in maintaining the separation, as you 
 make it, the proportion of the specie with reference 
 to the total of the notes issued would still be more 
 than 45 per cent., in the situation which I have pro- 
 duced. 
 
 M. d'Eichthal. — Since M. Pereire has just now 
 referred to me, he will allow me to make an obser- 
 vation. 
 
 I believe that he has committed a grave error, and 
 that, to avoid it, it is necessary to unite the two ac- 
 tives and the two passives of the issue department and 
 the banking department. 
 
 In proceeding thus, here are the figures at which 
 we arrive : — 
 
 3 K 
 
866 APPENDIX. 
 
 Passive. 
 
 Notes issued £26,876,895 
 
 Deduct notes in the banking department 6,067,030 
 
 remains . £20,809,865 
 
 Bills at 7 days and deposits in the bank- 
 ing department 19,483,717 
 
 Total £40,293,582 
 
 Active in Precious Metals. 
 
 In the issue department £12,226,895 
 
 In the banking department .... 743,552 
 
 £12,970,447 
 
 The active in precious metals is then 32.18 per 
 cent, of the passive. 
 
 If ouy separate these two balances, you obtain the 
 figures following : — 
 
 Notes of the issue department . . . £26,876,895 
 
 Precious metals 12,226,895 
 
 which is 45.49 per cent. 
 
 If you deduct from the notes issued . £26,876,895 
 The notes of the discount department 
 
 against the reimbursement of the 
 
 specie 6,067,030 
 
 There remains in notes . £20,809,865 
 
APPENDIX. 867 
 
 But the precious metals in the issue department 
 
 fall to £6,159,865 
 
 which is 29-60 per cent, of notes. 
 
 For the discount [banking] department, the passive 
 demandable is £19,483,717. 
 
 The specie, or the specie and the notes 
 
 reunited, are . , £6,840,58? 
 
 which are 34.25 per cent. 
 
 How then does M. Pereire find that the issue de- 
 partment keeps in precious metals 61 per cent, of its 
 circulation, and the discount [banking] department 
 nearly 50 per cent, of its passive ? 
 
 It is that, in these proceedings, he forgets the rule 
 of compatibility which he himself has laid down, page 
 47 of his pamphlet ; " that you cannot touch one of 
 the terras of the passive without reaching a corre- 
 sponding term in the active, and reciprocally." 
 
 He takes from the passive of the issue department, 
 the £6,067,000 which form the reserve of the discount 
 [banking] department ; but he does not send out of 
 the active an equivalent sum in money, necessary to 
 be restored to the discount [banking] department. 
 He goes further : he takes away these £743,552 of 
 specie that it has in reserve, and does not give it any 
 compensation. 
 
 In this manner, he diminishes the passive of the 
 issue department £6,067,000, he augments its active 
 £743,552, and he thus arrives at the 61 per cent, of 
 which we have spoken. 
 
 As to the discount [banking] department, he esta- 
 blishes the proportion as if it had still in possession 
 
 3 K 2 
 
868 APPENDIX. 
 
 the £6j810,000 which he has taken from it, and which 
 forms still only 35 per cent, and not 50 per cent, of 
 the passive. 
 
 M. Pereire has thus based upon a grave error his 
 assertion that the Bank of England wants notes, and 
 that the Bank of Prance wants the precious metals. 
 
 It is not true, moreover, that the notes in hand iu 
 the discount [banking] department do not go out to 
 pass into the hands of the public and be presented 
 for repayment at the bank of issue. At- all the 
 epochs when capital becomes rare, the reserve of 
 notes in the discount [banking] department dimin- 
 ishes, and the precious metals in the issue department 
 diminish almost as much. Thus, the reserve of notes 
 of the discount [banking] department, which is gene- 
 rally from 6 to 7 millions, fell, in 1847, to £200,000, 
 and in 1857, to £1,200,000. Simultaneously, the 
 notes delivered to the public were presented for re- 
 payment, and the metallic reserve of the issue depart- 
 ment fell from £l?,000,000 to £8,000,000, and even 
 to £7,000,000. 
 
 M. Pereire has consequently committed a double 
 error, but the most grave is that by which he arrives 
 at these 61 per cent, of precious metals as regards 
 the issues. This figure indicates such a guarantee, 
 that the measures taken by the Bank of England 
 were completely inexplicable, to such a degree that 
 M. Pereire himself must have been surprised at the 
 result at which he arrived. 
 
 'M. Isaac Pereire.— :\[. d'Eichthal deceives himself 
 in the criticism that he is addressing to me. 
 
 First, I will remark to him that I remain faithful 
 
AVPKNDIX. 869 
 
 to the principle that I have laid down, namely, that 
 when a modification is made to the active of a balance 
 sheet, the same modification must be made to the 
 passive. 
 
 When I cut off from the discount [banking] de- 
 partment the 6 millions of notes which it has in 
 reserve, and that I thus withdraw them from the 
 active of this department, if I cut them ofiF also from 
 the 26 millions of notes in the passive of the issue 
 department, I make a double operation with respect 
 to the Bank considered in its unity, I take away from 
 the active that which I take away from the passive. 
 
 M. d'Eichthal. — No ! no !— You take away from 
 the active of the one for the purpose of taking away 
 from the passive of the other ! 
 
 M. Isaac Pereire. — I make the same operation 
 from the two sides, the symmetry is perfect and < 
 answers completely to the laws of the compatibility 
 in double part. 
 
 Moreover, I avow that I do not attach very great 
 importance to deducting or not deducting from the 
 amount of the notes issued this sum of notes in 
 reserve of the banking department. I wish to show 
 only one thing, the relation of the effective reserve 
 with the notes in circulation with the public. 
 
 You may group the figures as you would, but, in 
 reality, a bank is bound only to give money against 
 notes; all the other payments are made in notes, 
 that is why you never compare the reserve with the 
 accounts current, you compare it only with the notes 
 in circulation. 
 
 The circumstance which rules the debate in which 
 
870 APPENDIX. 
 
 we are just now engaged, and which fixes the basis, 
 is that, establishing a comparison between the Bank 
 of England and the Bank of France, in relation to 
 the proportion between the reserve and the notes in 
 circulation, I have been obliged to take the identical 
 terms for the two Banks. If you would establish a 
 comparison, comprising the accounts current, I should 
 not oppose it, but that would be another thing than 
 that which I have wished to do, and moreover, it 
 would not be according to the usage. 
 
 As to the fear of seeing reclaimed by the discount 
 [banking] department the repayment of the notes to 
 the issue department, it is without any sort of foun- 
 dation; that of seeing the whole amount of these 
 notes pass into the hands of the public is not less 
 vain in the ordinary practice, since it is precisely with 
 a view to avoid that extremity that the Bank of Eng- 
 land raises its discount. 
 
 M. d'Eichthal said just now that, at certain epochs 
 the metallic reserve had fallen from 12 millions, 
 sterling, to 7 millions. 
 
 If I had made my calculation at that epoch, I 
 should have taken the figure of 7 millions and not 
 that of 12 ; the proportion of the reserve would have 
 diminished, that is all ! 
 
 But at the epochs of which M. d'Eichthal speaks, 
 did the reserve fall in a manner calculated to excite 
 anxiety ? 
 
 The reserve of notes had lowered in consequence of 
 the demands for discount, but the quantity of notes 
 in circulation remained the same; they had not even 
 enough, and the proof of that is, that they were able. 
 
APPENDIX. 871 
 
 Without the least inconvenieuce, to make supplemen- 
 tary issues ; they even did it with great advantage. 
 
 Whilst the discount [banking] department expe- 
 rienced such a restraint that it had been obliged to 
 suspend its payments if they had not increased the 
 quantity of notes^ the issue department was in an 
 excellent situation, holding in its reserve in the ratio 
 of 35 to 40 per cent, with the circulation. 
 
 But, again, once more, I do not attach any impor- 
 tance to such or such grouping of figures. I wish to, 
 say only that, in the system of Sir Robert Pee], one 
 part of. the problem has been solved ; the converti- 
 bility of the notes is there assured, because there are 
 in general only from 30 to 21 millions of notes really 
 in circulation and the reserve in specie is generally 
 from 12 to 13 and 14 millions, in such manner that 
 the effective pro|)ortion is generally from 60 to 70 
 per cent., which guarantees completely the converti-" 
 bility of the notes in specie. That is all that I wish 
 to establish. Now, to return to the question of 
 principle that M. le President has done me the 
 honour to place before me, he will admit, I believe, 
 that my calculation may be modified without chan- 
 ging the foundation of my proposition, the modifica- 
 tions that might be brought there not touching in 
 any manner the formula to the subject of which he 
 has questioned me. 
 
 M. le President. — I do not intend to discuss the 
 foundation of your proposition ; I discuss only one of 
 its elements. 
 
 Your opinion is that, the Bank of England wants 
 notes and that the Bank of France wants money. 
 
872 APPENDIX. 
 
 You prop up your opinion by the fact that the 
 system of the Bank of England is a rigid system, 
 which permits only a limited issue of notes. Thence 
 inconveniences, say you, and inconveniences which 
 have been revealed at two repetitions by a violation 
 of the law itself and a ministerial authorisation of a 
 supplementary issue of notes. That situation appears 
 to you less advantageous than that which exists in 
 France, and the French mechanism, compared with 
 the English mechanism appears to you superior. 
 
 Now, in support of this thesis it had appeared to 
 me that, in your pamphlet, you gave undue value to 
 an argument which is this : the proof that the Bank 
 of England wants notes, is that the issue department 
 has, in metallic reserve, a proportion from 60 to 70 
 per cent, of its notes issued. 
 
 M. Isaac Pereire. — That is not precisely what I 
 meant to say. 
 
 M. le President. — It is not perhaps what you 
 meant to say, but that is what I understood. 
 
 I observed to you that, from the moment when 
 the issue department and the banking department 
 were considered as forming two distinct individuali- 
 ties, the borrowing you made from the active of the 
 banking department to cover a portion of the passive 
 of the issue department, was not admissible; that 
 you truly made a deduction from the active on the 
 one side, to the passive on the other, but not to the 
 active and the passive of the same person. 
 
 M. Isaac Pereire. — According to the manner in 
 ^vhich you lay down the question you are right. 
 
 M. Le President.— It was a deduction from the 
 
APPKNDIX. 873 
 
 active of Paul to the profit of the passive of 
 Peter. 
 
 M. Isaac Pereire. — You are right in these terms. 
 Monsieur le President ; but let us not forget, how- 
 ever, that Peter and Paul are, in reality, but one and 
 the same person ; if you keep yourself rigorously to 
 the principle of the absolute separation of the two 
 departments of the Bank of England, it would be 
 necessary to say then that there was 13 millions, of 
 reserve against 26 millions of issues, which would 
 give nearly, as I show, a proportion of about 46 
 per cent., but I no less continue to think that the 
 real situation was still better than that which ap- 
 peared to result from that apparent proportion, 
 though nevertheless, that was very satisfactory. 
 
 M. le President. — You understand that, on the day of 
 the crisis, the banking department pays what it owes in 
 notes, that day the reserve of notes diminishes sensibly, 
 and then, the proportion which you wished to establish 
 by your labor lessens under the empire of the crisis. 
 
 Now, you must be in one system or another, that 
 is in my eyes a fundamental question : either you 
 must look at the issue department and the banking 
 department as constituting two distinct individualities 
 or you must consider them as one and the same indi- 
 viduality, like that which exists in France. In the 
 first case, you must not weaken the passive of the one 
 with the active of the other ; in the second case, you 
 mu«5t place in the face of the metallic reserve total 
 all the passive demandable, that is to say, the sum of 
 the notes issued and the sura of that which is due on 
 accounts current or in notes at seven days' sight. 
 
874 APPENDIX. 
 
 I have been anxious to elucidate your true opinion 
 on this, point, because I feared not to have well caught 
 your figures; but I do not wish to insist further. 
 Continue your deposition. 
 
 M. Isaac Pereire. — Allow me a few more words, 
 not to answer further what you have just said, be- 
 cause I consider that question suflSciently cleared up, 
 but to point out afresh on this occasion, in a palpable 
 manner, the vices of the system of the Bank of 
 England, in regard to the division into two depart- 
 ments. 
 
 Let us admit the absolute separation, such as you 
 have laid it down, for strict reasoning. I say that, if 
 such separation were so complete, it might happen 
 in certain circumstances, as it did very nearly happen, 
 however, in 1847 and 1857, that the banking depart- 
 ment was obliged to suspend its payments, whilst the 
 issue departments might be gorged with money. 
 
 Thus, at the epoch just now spoken of, the bank- 
 ing department had in depSt, whether in notes or in 
 bills at seven days' sight, £19,483,717, and its reserve 
 of notes, including the fraction in specie necessary 
 for the odd money, was only 7 millions. If the 
 moiety of the depositors had come for repayment, 
 the banking department would have found itself in 
 a state of suspension of payment, whilst there would 
 have been 12 millions ^.of specie in the issue depart- 
 ment. 
 
 Such an eventuality suffices to show the imperfec- 
 tions of a system the vices of which, however, are 
 acknowledged by all the most distinguished econo- 
 mists of England, and have given rise to the recent 
 
APPEiXUIX. 875 
 
 very remarkable publications, among which I shall 
 cite those of MM. Patterson, and Charles Tennant, 
 Stephen Mason, Gutherie, and the discount emanat- 
 ing from the chamber of commerce at Glasgow. 
 
 Commerce itself sees distinctly to day the true 
 cause of the evil from which it suffers, it is deeply 
 moved by it, and an association, which is established 
 at Liverpool for financial reform, is preparing itself 
 at this moment for a struggle to obtain the modifica- 
 tion of the system of the Bank of England. 
 
 M. Michel Chevalier. — I beg leave here to make a 
 short observation. 
 
 To make a comparison such as that in question be- 
 tween the Bank of France and the Bank of England, 
 ought we not in effect to suppose them placed in the 
 same conditions ? Since the Bank of France has 
 not that distinction of the banking department' and 
 the issue department, is it not natural, for the sake 
 of a rational comparison, to suppose for an instant that 
 this distinction no longer exists in England ? It is 
 in this hypothesis, the only one to which logic ac- 
 commodates itself, the only one which permits an 
 equitable comparison, that the circulation of the 
 notes of the Bank of England, instead of being in 
 appearance 26 millions, sterling, is, in reality, only 
 20 to 21 millions, and in that case, the propor- 
 tion of the money to the circulation we have seen to 
 fall in France to 20 per cent, happens again, when 
 the situation is however very painful, from 60 to 70 
 per cent, in England. 
 
 M. d.'Eichthal. — Not at all!— from 30 to 35 per 
 cent. 
 
876 APPENDIX. 
 
 M. Le President. — T admit perfectly that point of 
 view that, to make the comparison, you may destroy 
 the partition which separates, in England, the issue 
 department from the banking department. 
 
 But that once done, the question is to know to 
 what you will compare the metallic reserve. If you 
 compare it only to the notes issued, your argu- 
 ment may be true ; but if you compare it to the 
 whole of the notes issued, and the deposits of bills 
 at seven days sight, then the proportion is not more 
 than 30 per cent. 
 
 M. Michel Chevalier. — Prom the two sides, you 
 set aside the accounts current, and then the propor- 
 tion is truly 61 per cent. The English legislature 
 wished only to assure the convertibility of the notes. 
 
 When in Prance you have said that at a certain 
 epoch the proportion of the reserve to the passive 
 had fallen to 20 per cent, you would not speak of all 
 the passive demandable, but only of the notes in cir- 
 culation ; the accounts current were laid aside. Thus, 
 the reserve fell one day below 170 millions, in face 
 of a circulation of 800 millions of notes : it was then 
 20 per cent. 
 
 M. Vuitry. — In general, the custom of the Bank 
 is; when they examine the situation of the reserve, 
 they do not compare it only to the sum of the notes 
 in circulation, but also to the accumulated amount of 
 the notes and the accounts current. 
 
 M. Michel Chevalier. — It is a manner of opera- 
 ting of which I am far from disputing the wisdom 
 when the Bank of France looks into itself and ren- 
 ders an account to itself of its own situation ; but, 
 
APPENDIX. 877 
 
 the point of view in which we are placing ourselves 
 at this moment, in comparing the two banks, it is the 
 quantity of notes which are really issued, of notes 
 which are in circulation, in the hands of the 
 public. Well, then, we remark this anomaly that 
 the one, without being agitated, without anything 
 to fear, sees the proportion between the reserve and 
 the notes fall to 20 per cent, ^nd the other believes 
 itself in peril when it has a proportion of 61 per cent. 
 
 I do not know any demonstration more positive 
 of the difference of organisation and working which 
 exists between these two institutions. 
 
 M. Le President. — Have the goodness to continue. 
 Monsieur Pereire. 
 
 M. Isaac Pereire. — In the same series of ideas, 
 and to push still further the comparison between the 
 two Banks, I wish to apply by hypothesis to the 
 Bank of France the system which regulates the Bank 
 of England. 
 
 Here are some of the principal results of this com- 
 parison : 
 
 In this supposition, the notes issued by the issue 
 department which would exist then in the Bank of 
 France, would not exceed 537 millions, whilst now, 
 we have more than 900 millions, the bills and ad- 
 vances upon rentes and property could not- exceed 
 397 millions, whilst now we make advances and dis- 
 counts for double the sum. 
 
 These two figures only show to what point the 
 system of the Bank of England is limited ; and, to 
 return to the proposition which I had the honor just 
 now to express, I repeat that, in the presence of a 
 
878 APPENDIX. 
 
 circulation so developed as that of the Bank of 
 France, we are authorised to say that, what this es- 
 tahlishment wants, is a sufiBcient quantity of money; 
 it wants to augment its reserve to put it in relation 
 with this circulation, whilst the Bank of England 
 wants more latitude for the issue of notes, consider- 
 ing the many at itg disposal; nevertheless the Bank 
 of England itself would equally want to augment 
 its reserve hy means of the liberation of its capital, 
 which is completely fixed [immobilise], like that of 
 of the Bank of France. 
 
 Before examining the conditions which constitute 
 every good banking establishment, I should wish to 
 exhaust the series of questions contained in Chapter 
 IV relative to the establishments which issue credit 
 money. 
 
 It would be very inconvenient to separate the issue 
 department from that of discount, as is done in the 
 Bank of England, with the single object of limiting 
 the issue of notes ; but that separation would present 
 nothing but advantages, if it had for effect to insti- 
 tute a central establishment for the issue of credit 
 money, which, on condition of commission, would 
 have to furnish credit money, against good guaran- 
 tees, to other establishments of credit whose mission 
 would be to introduce it into circulation, either by 
 discount or, the articles of commerce, or by advances 
 upon public funds, railway debentures and bonds. 
 
 In point of credit, I am opposed to every sort of 
 constraint, however indirect. In affairs of this nature, 
 confidence ought to be the only and sole rule, the 
 only and sole law ; for this reason, I do not think it 
 
APPENDIX. 879 
 
 is admissible to establish a legal currency for the 
 notes. They must be freely accepted by the puWic. 
 
 The issue of notes can have no other development 
 than that of the affairs. 
 
 As to the question, whether it be necessary to pro- 
 portion the issue with reforence to the reserve or to 
 the capital, I answer that the issue must be propor- 
 tioned to the two, that is to say, the issue should be 
 proportioned to the reserve, and the capital should 
 be in its turn, in a certain ratio with the reserve, so 
 as to be able always to suffice to the wants of that 
 reserve and to fill the voids which might be there 
 produced. It is thus that the issue of notes ought 
 to be, in my opinion, proportioned at the same time 
 to the reserve and to the capital. 
 
 M. Le President. — In your opinion, it would be 
 rather the reserve which ought to be proportioned to 
 the issue ? 
 
 M. Isaac Pereire. — Precisely so. 
 
 M. Le President. — You are of opinion that the 
 issue ought to be up to the mark of the wants, that 
 the reserve ought to develop itself with the issue, and 
 that it is necessary to take measures to put it in a 
 ratio with the issues ? 
 
 M. Isaac Pereire. — That is entirely my opinion. 
 
 Now, what ought to be that ratio? there is 
 nothing absolute, in such a matter, the level at which 
 the reserve ought to be maintained to assure the con- 
 vertibility of the notes depends on the extent of sta- 
 bility of the credit of each establishment. 
 
880 APPENDIX. 
 
 Of the Functions of the Bank. 
 
 Here I touch the heart of the question of banks, 
 that of the character and destination of capital. 
 
 [Much of the evidence of M. Perejre which fol- 
 lows on this part of the subject applies more par- 
 ticularly to the Bank of France and less concerns the 
 more immediate question with the Bank of England. 
 This part of the evidence is, therefore omitted.] 
 
 It is often said that the Bank is a reservoir of the 
 precious metals, and that it is necessary to guard 
 them from exhaustion. The Bank is in effect a 
 reservoir, but that reservoir is neither the only one, 
 nor the most considerable, by the side of it, there is 
 one otherwise very important and from which we can 
 draw largely, I speak of the common reservoir. It 
 is to this source, truly inexhaustible for a rich 
 country, that the Bank has always the possibility of 
 renewing and feeding its reserve, but that can be 
 done only on the condition of employing the necessary 
 means, the true means. 
 
 M. Le President. — Permit me to take objection to 
 this point of view. 
 
 You say that, in selling its rentes, the Bank will 
 procure for itself notes or money ; that is undeni- 
 able. If it be money, it will thus augment its 
 metalHc reserve ; if it be notes, it will diminish its 
 circulation, which comes to the same thing, taking it 
 at the proportional point of view. 
 
APPENDIX. 881 
 
 But that is a primary fact, — [un fait initial], it 
 will be a thing done some day. And then the money 
 brought into the treasury will it remain therein the 
 state of money, or will it serve for the operations of 
 discount ? Do you agree to this^ for this is what I 
 want to know ? 
 
 M. Isaac Pereire. — Permit me to give some de- 
 velopment to the answer that you ask. 
 
 The Bank has to-day its capital of 182 millions 
 entirely fixed [immobilise] ; it is placed in rentes or 
 lent to the state. 
 
 I will suppose that this amount is realised, that 
 the rentes are sold, and that the amount is converted 
 into specie ; there will be in that case 183 millions 
 more in the treasury of the Bank, and these 182 
 millions may be kept there, as long as the affairs do 
 not take a new development. But you bring before 
 me another question, that of the augmentation of the 
 figure of the discounts : it is then a new situation 
 that you suppose. If this case should present itself, 
 if the figure of the discounts came to be augmented 
 so as to exceed the credits which the Bank had at its 
 disposal, and again to diminish its reserve, the capital 
 ought to be augmented in the same proportion, 
 whether under one form, or under another. It is the 
 natural law imposed on all industry to keep itself to 
 the level of the wants that it is called on to satisfy. 
 The rise of profits leads inevitably to that result ur^er 
 the system of liberty. Why should the Bank seek 
 to profit by its situation to escape from this law? 
 Must not monopoly fulfil the conditions which are 
 observed by competition? To be forgiven, it must 
 
 3 L 
 
882 APPENDIX. 
 
 even do better than competition could do. Now, in 
 the system of liberty, of the plurality of banks, when 
 the wants of discount augment, the capital devoted to 
 that commerce becomes more considerable ; new es- 
 tablishments form themselves, or the old ones increase 
 their means of action. 
 
 The Bank cannot avoid placing itself in the same 
 situation. From the moment that it stands alone, 
 and that it intends to remain single, it must follow 
 the development of commerce, instead of thwarting 
 it, under the pretext of giving what it calls salutary 
 warnings. - 
 
 M. Le President.- — Then you would, by a supple- 
 mentary capital, develop the discounts and keep the 
 capital of 182 millions as a fixed base? 
 
 M. Isaac Pereire. — I do not very well see what 
 you mean by keeping the actual capital as a fixed 
 base ; I ask that the capital of the Bank should be 
 augmented when we recognise the necessity of so 
 doing. I must confine myself to saying that the re- 
 serve ought always to be in a ratio with the figure of 
 the issues ; that if, in consequence of the develop- 
 ment of discount, you are obliged to increase the 
 issues of notes, it is necessary that the reserve [I'en- 
 caisse] should be augmented in the same proportion, 
 in the proportion recognised to be necessary, and 
 this reserve can be augmented in a stable manner 
 only by the increase of the capital, there are no other 
 means. This proportion, to my understanding, is 
 strictly mathematical. 
 
 From the moment that the Bank alone exercises 
 the commerce of discount and that of advances upon 
 public funds, it ought to be equal to all these wants. 
 
APPENDIX. 883 
 
 When I had the honour to tell you just now that 
 within the last ten years the figure of the notes has 
 risen from 355 millions to 900 millions, I thus 
 pointed out to you the extension which affairs might 
 and ought to take successively in a country in pro- 
 gress such as ours. I do not know if, in the next 
 ten years, the figure of the discounts and advances 
 on public funds, railway debentures and bonds wiU 
 not have doubled or tripled, and if the number of 
 notes will not have followed the same progression. I 
 say, then, that the Bank ought not to be, cannot be 
 an obstacle to the development of affairs. Commerce 
 is not made for the great profit of the Bank, it is the 
 Bank which is made for commerce. Besides, it is 
 not so bad a condition to have to satisfy the develop- 
 ment of affairs, for it is in this very development 
 even that the Bank of France draws the benefits that 
 it realises. As affairs extend, the means of the Bank 
 ought to extend equally. So, when the quantity 
 of notes tends to increase by the effect of legitimate 
 demands, instead of seeking to restrain these issues, 
 thus to injure commerce, to confine its movements, 
 it would be necessary to augment in like manner the 
 reserve, in the recognised necessary proportions, and 
 we can only effectually augment it by the addition of 
 new capital. 
 
 But how is this new capital to be found ? Is it to , 
 be by new stock or by the issue of bonds ? The two 
 means are equally admissible, equally easy. The 
 Bank has never stopped at the idea of an issue of 
 obligations, because that departs from the manner in 
 which it has to this time looked its situation in the 
 
 3l2 
 
884 APPENDIX. 
 
 face ; it would be, nevertheless, the most favourable 
 solution to its interests ; that which would render it 
 more easy to maintain its dividends at their actual 
 level, since it would only augment its charges by a 
 supplementary fixed interest, for which it would find 
 compensation by the increase of the circulation of its 
 notes, and this I give only as an example. 
 
 There would be, besides, another course to which 
 many financiers have alluded in the number of pamph- 
 lets which have been published on the subject of the 
 grave question which occupies us. 
 
 Is it asked why the Bank should not re-discount its 
 bills when it wants money? It would certainly not 
 be takers that would be wanting, the numbers would 
 be the more considerable because the credit of the 
 Bank is so great, and that in Paris there are large 
 disposable funds to invest in articles of commerce of 
 the highest value, at a rate inferior to that of the 
 Bank. 
 
 If, then, the Bank wished to re-discount its bills, 
 all the capitalists would hasten in emulation to con- 
 fide them to their funds, as they confide them to the 
 Treasury, for a very low rate of interest, as they 
 confide them still to the Mont-de-Piete of Paris, the 
 bonds of which continue to be negociated at 4^ and 
 5 per cent, at the most, even when the Bank rate of 
 discount has reached the really usurious rate of 8 and 
 10 per cent. 
 
 But the question is badly stated in this manner. 
 I should not advise that the Bank of France nego- 
 ciated its bills directly ; that would have many incon- 
 veniences. The only thing that it could do in that 
 
APPENDIX. 885 
 
 situation would be to issue notes for a term, carry- 
 ing interest, which would give it the means of be- 
 coming the principal centre, perhaps the exclusive 
 centre of all the operations of lending and borrow- 
 ing ; it might then be that which it ought to be, the 
 true medium between the capitalists and the bor- 
 rowers, between capital on one side and labor on the 
 other. 
 
 We can employ these divers means, they are all 
 positive, efficacious, they are especially preferable in 
 all respects to those v?hich have been used to the pre- 
 sent time, and which only end in raising the rate of 
 interest. 
 
 The means which I point out would have the effect 
 of maintaining the interest at a low rate, without 
 diminishing the benefits of the Bank, in augmenting 
 them, perhaps, on the contrary, by reason of the de- 
 velopment which affairs might take, if they were not 
 thwarted, as they now are, by the restrictions of the 
 circulation, and by the reduction which the rise in 
 the rate of interest imposes on labor. 
 
 M. Le President. — You admit, however, that the 
 Bank of France could lend only at a reduced in- 
 terest ? 
 
 M.Isaac Pereire. — Certainly; but I am coming 
 to that. 
 
 I have exhausted what I had to say about the ca- 
 pital of the Bank, about the necessity of its disposa- 
 bility [sa disponibilite] , about the necessity of its 
 increase following the wants of commerce. Now, be- 
 fore passing to the question of the rate of interest . . . 
 
 M. Le President. — It appears to me that all theso 
 
886 APPENDIX. 
 
 questions hold together [se solidarisenf] It is evi- 
 dent that the system which you support is the obli- 
 gation on the Bank of France to procure for itself 
 capital at any interest whatsoever, and to give it to 
 the public at a reduced interest. 
 
 M. Isaac Pereire. — It is not so that I shall re- 
 sume the question, for the Bank has always the pos- 
 sibility of procuring capital on very favourable con- 
 ditions ; these conditions vary necessarily according 
 to the terms on which the Bank borrows, but they 
 would always be advantageous. 
 
 If the maturity of the new engagements, which it 
 offered to the capitalists, were shortened, the rate of 
 interest that it would pay would be very low, which 
 would enable it to lend at a higher rate of interest, 
 but which would still be moderate, relatively to that 
 which it now is. 
 
 If the maturity were lengthened, the interest that 
 it would pay ought to be higher ; but, however high 
 you may suppose it, the benefit that the Bank would 
 find in having the disposal of a new permanent ca- 
 pital would still be considerable, since all increase of 
 the reserve would serve to guarantee a new credit 
 capital three times at least more considerable; in 
 borrowing one, it might lend three. 
 
 This is the secret of the profits that the banks . 
 make ; but in wishing to restrain too much their own 
 proper means in order to gain more, these establish- 
 ments end by abusing their situation and rendering 
 themselves insufferable. 
 
 The actual profits of the Bank of France re- 
 sult from having at its disposal a credit capital 
 
APPENDIX. 887 
 
 which costs it nothings aud which is very superior to 
 that which serves for guarantee to its operations. 
 
 Thus, the Bank of. France has a capital of 183 
 millions, and it disposes of 1^200 millions which do 
 not cost it a sou. Of these 1 ,200 millions there are 
 400 millions which are employed in the reserve ; from 
 the 800 other millions it draws a considerable in- 
 terest. 
 
 Not content with drawing an interest from these 
 800 millions, the Bank wishes besides to obtain it 
 anew by investing its capital in rentes. 
 
 In acting so, not only it does not fulfil the con- 
 dition of the services which are imposed upon it, bu{ 
 it makes a still worse calculation ; for, if this capital 
 were moveable \mobilise], if it were rendered dis- 
 posable, a notable part would be employed directly 
 in discounts, or serve for guarantee to a larger credit 
 issue ; so that the Bank would be far from losing the 
 whole of the benefit that it procures from the invest- 
 ment of its capital as at the present day. 
 
 We have not given to the Bank the privilege of 
 disposing gratuitously of a capital from 8 to 900 
 millions for the sole benefit of its shareholders, we 
 have given it specially in the public interest to favour 
 commerce and industry; it is just, besides, thatj by 
 lowering the rate of discount the public should par- 
 ticipate iu the advantages from the employment of 
 capital, which they themselves furnish ; it is, in fact, 
 commerce, it is industry, which furnishes the capital 
 of whicli we avail ourselves to discount their bills ; it 
 is not, then, too exacting towards the Bank, to de- 
 mand of it to associate the public, in a certain mea- 
 
888 APPENDIX. 
 
 sure, so as to admit them to participate in the benefit 
 of the privilege which it enjoys. This demand is so 
 much more moderate, that in England the Govern- 
 ment makes the Bank pay the price of its privilege, and 
 this privilege is, as we know, much more restrained 
 than the French privilege. The Bank of England 
 pays 4,500,000 francs a year for the use of its notes, 
 receiving only 3 per cent, for the considerable capital 
 that it has lent to the Government, and that capital, 
 I will observe by the way, the Government would do 
 much better to restore to the Bank, in the interest 
 of the development of affairs, as also in the interest 
 of the Bank itself. 
 
 Here is nothing of the like : the Bank pays no- 
 thing for the use of its privilege ; but inasmuch as I 
 find the French Government right in not demanding 
 anything from the Bank in that form, so much I find 
 it would be equitable to impose on the Bank, as an 
 equivalent, a permanent reduction in the rate of in- 
 terest in favour of trade and industry. 
 
 If you augment tbe capital of the Bank in propor- 
 tion to the successive increase of afiairs, you would 
 find it always in the same relative situation. I sup- 
 pose that should the issue of notes and the discount 
 come to double, the Bank ought to double its capital. 
 The same relative situation would subsist ; the Bank 
 would lose the advantage of the high discount, but, 
 in all probability, it would find a large compensation 
 in the benefits which it would derive from the in- 
 crease of afiairs. Besides, the advantages resulting 
 from the rise of discount are of those which cannot 
 be too soon renounced, for they are of a bad nature; 
 
APPENDIX. 889 
 
 the consequences are lamentable. There are, I am 
 convinced^ in the government of the Bank men of 
 too good intentions not to make the sacrifice, if it 
 were demonstrated to them that there are other 
 means of deprecating the danger of weakening the 
 reserve. 
 
 M. Vuitry.— There is one point on which I should 
 wish to solicit from you an explanation. 
 
 You have often said, in the course of your deposi- 
 tion, this : " What I hold is, that when the affairs 
 increase, the Bank should increase its capital." 
 
 I am very willing that the Bank should increase 
 its capital; but has the Bank a particular way of in- 
 creasing its capital without, at the same time, dimi- 
 nishing a little the portion of capital which is in the 
 hands of the public and which is already devoted to 
 affairs ? So that if, on one side, the Bank augments 
 its capital, on the other side the Bank causes a void 
 outside itself; and I do not see what great progress 
 there is in that for affairs. 
 
 I do not know if you take my observation. 
 
 M. Isaac Pereire. — I perfectly understand your 
 view ; but that, which you have done me the honor 
 to say to me, may be applicable to all new affairs, to 
 all those that want an increase of means. Your ar- 
 gument wants exactitude, by reason that I do not 
 propose to take away from existing affairs the capital 
 that, as it seems to me, the Bank of France ought to 
 procure for itself. 
 
 It is on the savings of France, incessant savings, 
 that the Bank should really raise the new resources 
 which would be necessary for it. 
 
890 APPENDIX. 
 
 France every year makes savings that I value at 
 1,500 millions francs. The possessors of these 1,500 
 millions evidently seek to employ them in the most 
 useful and most advantageous manner; they coope- 
 rate to the construction of our railroads even to the 
 extent of 400 or 500 millions; the surplus is em- 
 ployed in constructions, in ameliorations of all sorts 
 or else it serves to feed the French or foreign loans, 
 the French or foreign enterprises, &c. &c. The Bank 
 might be able to take its part in these savings with- 
 out causing the smallest void outside, and that would 
 be so much more easy for it as its benefits are supe- 
 rior to those of all other enterprises. If to-day you 
 were free to create banks of issue, do you doubt that 
 all the capital would flow towards an industry which 
 brings back 25 to 30 per cent. ? Is there anything 
 else in France, in Europe, comparable to it? 
 Assuredly all the capital would be brought to it 
 until the benefits had been brought back to the level 
 of the other investments. 
 
 The exaggeration of the profits that the Bank 
 makes, under the system of monopoly, indicates 
 precisely the utility there would have been in the 
 new capital devoted to the commerce of dis- 
 count. 
 
 The products do not circulate with suflScient ra- 
 pidity in the present day; their distribution leaves 
 much to be desired; the movement of production 
 and manufacture is not carried on in a regular 
 manner. Industry suffers from this state of things, 
 and at the bottom it suflfers only from the insuf- 
 ficiency of the capital ol' the Bank of France. If 
 
APPENDIX. 891 
 
 the commerce of the Bank were free, the capital 
 would not be wanting, and you would find it easy to 
 augment the resources of credit, which, in my view, 
 are not to the height of the wants. 
 
 M. Vuitry.— You say : " If the industry of the 
 Bank were free, it would develop itself in proportion 
 to the affairs." 
 
 Have the goodness to remark that, the question, 
 at this moment, for the Bank is, an operation which 
 would consist in a demand on the public for a new 
 capital, for receiving it' in one hand and turning it 
 over with the other into the affairs. Now, in this 
 respect, the industry of the Bank is perfectly free ; 
 it can create for itself by the side of the Bank of 
 Prance as many establishments as you would desire 
 for operations of this nature, consisting of a demand 
 on the public for capital, under the form of deposits 
 for employing it to discount the effects of commerce 
 or to do other affairs of that kind. The point on 
 which industry is not free is not that, it is that which 
 consists in the issue of credit money. 
 
 M. Isaac Pereire. — It is precisely to the use of 
 that power of issuing credit-money that I allude to 
 when I speak of the liberty of the banks. The con- 
 ditions in which this industry is exercised are not 
 equal to all, since that power is the object of a 
 monopoly of which the Bank of France is alone to 
 profit ; now, it is the employment . of the capital of 
 this nature, without intrinsic value, which constitutes 
 the principal advantage of the commerce of discount ; 
 and it is because all the establishments outside the 
 Bank are deprived of it, that the situation of this 
 
892 APPENDIX. 
 
 commerce is very precarious, and that the capital 
 engaged iu it is not got at without difficulty, unless 
 with the temptation of large interest imposed on the 
 industry which borrows and is made to discount its 
 bills. What I criticize in the Bank of France, is 
 that it counts too exclusively upon the credit capital 
 of which it has the enjoyment, and not enough upon 
 its own proper capital, — on that which would consist 
 in demanding from its shareholders or from the pub- 
 lic a new capital for the purpose of receiving it in 
 one hand, to give it with the other for the transaction 
 of its affairs. Have the goodness to remark, in fact, 
 that the action of the Bank is, at the present day, 
 paralysed by the want of a sufficient capital. The 
 Bank finds itself under the necessity of raising its 
 discount only because its reserve is relatively too 
 weak, and it is so because it has not disposable capi- 
 tal to turn into it. 
 
 It is then only in consequence of the absence of a 
 disposable capital that the Bank is obliged to raise 
 the rate of its discount, and when the Bank raises it, 
 the interest raises itself everywhere in like manner, 
 to the great detriment of the whole society. This 
 damage is felt not only by the clients of the bank, 
 but also by aU those who borrow, whether under the 
 form of discount or under that of mortgage ; it 
 reaches all the parties of the public wealth, for the 
 rise of the interest lowers in a corresponding manner 
 the capital of all funded property, of all industrial 
 enterprises, shares and bonds, as it reaches the 
 Government funds. 
 
 See, then, the immense injury which results to 
 
APPENDIX. 893 
 
 everybody and everything, from the rise of the rate of 
 interest. 
 
 The question is, how to seek the efiBcacious means 
 for avoiding this rise. For my part, I see it ohly in 
 the increase of the reserve of the banks, that it must 
 be put in a ratio with the wants of the circulation, 
 and that can be only by the realisation or augmenta- 
 tion of their capital. 
 
 In addition to this, I believe I have demonstrated 
 that the new capital which would be demanded of the 
 public would be by no means taken from the com- 
 merce of discount ; it would be furnished only by the 
 capitalists seeking investment for their disposable 
 funds, and this investment would be the more sought 
 after inasmuch as it would be neither less useful nor 
 less advantageous. 
 
 M. d'Eichthal. — M. Pereire says that only the es- 
 tablishments having the right of issue would be able 
 to discount with great profit. 
 
 The proof that that is not necessary, is that the 
 great banking establishments of London, which have 
 not the issue, make by the simple deposits, greater 
 profits than those of the Bank of France. I will cite 
 the London and Westminster Bank. 
 
 M. Pereire also says that, the capital of the Bank 
 would increase with the savings which would come to 
 be invested with it without prejudice to the other in- 
 dustries. 
 
 But do you know if all these industries have suffi- 
 cient capital? And if all the industries have not 
 sufficient capital, it would result that there is no capi- 
 tal, seeking employment and not finding it, which 
 
894 APPENDIX. 
 
 would come and invest itself in the capital of the 
 Bank, but a capital which would have been able to 
 find, or which would have already found, its employ- 
 ment in other industries. 
 
 I admit perfectly that, when you put a much 
 greater capital into a special operation, the profits 
 diminish if the demands do not augment : if the 
 matter discounted do not augment and if you increase 
 the capital employed in discount, the profit of the 
 discount will diminish. But what will result from 
 that ? It is as if a special house, the Bank, for ex- 
 ample, augments its capital, the profits will be lessened 
 for all the world, the discount outside the Bank will 
 diminish, the capitals will be withdrawn from that 
 industry, and you will find yourself in the same 
 position as before. 
 
 I do not see, then, how the employment of the 
 capital of the Bank can lower the rate of interest. 
 
 M. le President. — M. Pereire does not occupy him- 
 self with the rate of discount outside the Bank, he 
 directs his attention only to the Bank. He says : 
 " The Bank ought to discount at a fixed rate, and it 
 should augment its reserve according to the wants by 
 means of the augmentation of its capital." 
 
 The question is to know if it be possible to have a 
 discount higher outside and lower at the Bank, and 
 if the discounters from without would not be author- 
 ised to say to the Bank : You throw to the public a 
 credit value at an inferior rate, and you depredate 
 the capitals with which we operate and which are real 
 capitals. 
 
 M. Isaac Pereire. — Discount ought always to be 
 
APPENDIX. 895 
 
 lower at the Bank than without, and that is in the 
 interest of all the world. The result which I should 
 wish to obtain would be precisely to bring about the 
 general lowering of the hire of capital by the com- 
 petition of credit paper ; the discounters outside the 
 Bank would lose nothing, for it is not only with their 
 capitals that they work, it is also and especially with 
 those that they procure for themselves by re-discount- 
 ing their bills at the Bank ; then, that which concerns 
 them is that, the rate even of these discounts leaves 
 them the same profit^ and this profit would be so 
 much the greater as the affairs would have taken 
 greater extension ; as to the advantages which in- 
 dustry in all its branches would derive from it, 
 agricultural, manufactural, and commercial, and es- 
 pecially in the cheapness which would result from it 
 for all its products, they would be considerable and 
 of a nature to compensate very largely certain par- 
 tial and besides temporary inconveniences. 
 
 I am convinced that the lowering of the discount 
 of the Bauk would immediately produce a corre- 
 sponding lowering in all the relations of lending and 
 borrowing ; but that would not be to say that if 
 the Bank discount were 3 per cent, all the invest- 
 ments would be made at that rate ; the interest 
 varies according to the risk. I afiBrm only, with- 
 out fear of being contradicted by M. d'Eichthal, 
 that the action of the Bank will make itself per- 
 ceived in France in all the affairs, in the temporary 
 as in the permanent investments; the French es- 
 tablishments analogous to the English establishments 
 of which I have spoken, would always be able to 
 
896 APPENDIX. 
 
 make the same profits, since these profits result 
 only from the difference of interest; only the base 
 will be different, the level will be everywhere lowered. 
 There is nothing absolute, in fact, in the rate of 
 interest. We do not see why it should be at 4 
 per cent, rather than at 3 per cent. ; thus the com- 
 petition of an establishment of credit like the Bank, 
 into which the greatest mass of capital would con- 
 centrate itself, would exercise a very salutary influence 
 on the rate of interest in general. 
 
 Now, I arrive at the question of the maximum of 
 the rate of discount, which, for the Banks, is the 
 equivalent of the tariff imposed on the railway com- 
 panies. This maximum is only the legitimate com- 
 pensation for the monopoly which the Banks enjoy, 
 that of issuing notes without interest, of the disposal 
 of a capital which costs them nothing. It is only by 
 this tarificaiion of the interest that the public can 
 have a chance of enjoying a moderate rate. 
 
 -To that it is objected that, the rate of interest 
 cannot be fixed, that the interest must necessarily 
 vary. 
 
 I do not demand fixity of the rate of interest ; I 
 wish only to confine it within certain limits, I wish 
 that the Bank should be able to vary it only within 
 these limits, I wish to diminish the amplitude of the 
 oscillations. The Bank is in possession of a mono- 
 poly ; now, as long as a monopoly exists, it must be 
 regulated, in order that those who work it be not 
 tempted to abase it. Why do they impose tariffs on 
 railroads for the transport of travellers and merchan- 
 dise, if it be not that they have a privilege? If a 
 
• APPENDIX. 897 
 
 maximum have been judged necessary in that which 
 touches the tariffs to the privileged enterprises of the 
 railroads, I do not see why it should not be the same 
 in that which concerns the Banks; which are in a 
 situation of monopoly still more characterised. 
 
 The railroads cannot imitate the Banks, by reason 
 that they are under the empire of the maximum of 
 taxes ; otherwise, even as the Bank refuses not only 
 to augment its capital, but also to render disposable 
 that which it possesses, so the railroads might, with 
 as much reason, refuse to augment their rolling stock 
 [materiel], the number of their waggons as well as 
 the number of their locomotives, they might thus 
 profit by the insufficiency of their stock to levy con- 
 tributions on the commerce when its products were 
 presented in too great quantity ; it is precisely that 
 they. may not abuse this privileged situation that the 
 obligation is imposed on them to satisfy, on deter- 
 minate conditions, all the wants of transport for the 
 travellers and the merchandise. 
 
 The analogy is complete; it would not be more 
 difficult for the Bank to satisfy the demands of dis- 
 count than for the railroads to satisfy the demands 
 of transport ; it is a question of capital, and I have 
 shown that the capital would not be wanting, if the 
 Bank desired to procure it ; now, why should it not 
 do in this respect that which competition would 
 certainly do in its place under the system of 
 liberty ? 
 
 To support the doctrine of a maximum rate of 
 interest for the Bank of France, we have that which 
 has been practised during forty years by that esta- 
 
 3 M 
 
898 APPENDTX. 
 
 blishment itself, and, I ask, if a fact which has con- 
 tinued so long can be justly qualified as Utopian ? 
 
 The Bank having been able to maintain; during 
 that period, the rate of its discounts at 4 per cent., 
 T do not see why it should not be able to do the same 
 thing to-day. 
 
 It is objected that the affairs were then consider- 
 ably less, and that actually, after the great develop- 
 ment that these have taken, the Bank would find it 
 impossible to act in the same way. 
 
 The objection is easy to refute. 
 
 Everything is relative; the savings of a country 
 are so much greater the richer the country is ; its 
 power is always at the height of its wants. The 
 Bank, having to carry on its operations in a like in- 
 termediate course, would always be able very easily 
 to place its means in a ratio with the state of affairs, 
 whatever it may be, and to takfe a proportional de- 
 velopment. The principle of a maximum rate of 
 interest would be in these days an application so 
 much the more easy as capital is more abundant. 
 This principle cannot, moreover, change its nature by 
 reason that the affairs have augmented ; thus I should 
 compare the Bank to a steam-engine the principle of 
 which is in no way modified because, to execute a 
 certain nature of work, that work being augmented, 
 it requires the power of a hundred horses instead 
 of the power of ten. 
 
 The theory of the maximum of interest has been 
 applied during nearly forty years by the Bank of 
 France, it is not then a thing so extraordinary that 
 the Bank should consider it as a chimera. The legal 
 
APPENDIX. 899 
 
 rate, besides, is only the same idea, is only a maioi- 
 mum imposed on the interest of the whole country, 
 and we have lived under the legal rate for a very long 
 time. If they would to-day suppress it in France, 
 certainly it would not be to assist capitalists in 
 aggravating the conditions of loans ; it is an object 
 totally opposite that they would propose. If it ought 
 not to be so, if the liberty that they claim in this 
 respect ought to have for effect to raise the rate of 
 interest, I should consider such a result as a calamity, 
 which it would be necessary to avert at all price, and, 
 for my part, I should protect with all my power 
 against a like project, I should refuse that liberty as 
 a fatal gift. 
 
 In order that the intention of the legislature 
 should be realised, in order that the lowering of the 
 rate of interest should be produced as a natural con- 
 sequence of free competition, as the effect of the 
 suppression of the trammels that to-day the law 
 places on the free investment of capital, certain pre- 
 cautions are necessary ; the best the most certain of 
 all, is assuredly that of fixing a maximum rate of 
 interest for the regulating establishment, and that 
 measure would not have the least inconvenience for 
 commerce, for it would be always certain to 
 obtain the same powers, when the Bank is placed 
 in a position to raise its means to the height of its 
 wants. 
 
 I believe, then, that what has been practised with 
 success during so long a time ought to be restored in 
 vigor, and that the liberty of the Bank, as to fixing 
 the rates of its discounts, ought to be limited ; the 
 
 3 M 2 
 
900 APPENDIX. 
 
 privileges accorded to it require this compensa- 
 tion. 
 
 This question of the rate of interest is a consider- 
 able question, I will even say, a vital question in a 
 political point of view. It is the same that is pre- 
 sented in the doctrines of socialism, in the opposition 
 that they have sought to establish between capital 
 and labor. It is necessary at all price to prevent 
 that interpretation, to avoid that antagonism. If we 
 refase to take the efficacious measures, conformable 
 to the spirit of the age, which are proper to maintain 
 the hire of capital within certain limits, if we leave 
 to these privileged establishments the liberty to raise 
 it at their pleasure, to increase their profits, we run 
 blindly before the dangers which it is indispensable 
 to avoid. 
 
 Any means for protecting the reserve appears to me 
 inadmissible. The words : to protect the reserve of 
 the Bank, must be banished from the financial dic- 
 tionary. These words express nothing else than the 
 desire of the Bank to elude its engagements, to avoid, 
 in a word, paying its debts ; when, on the contrary, • 
 it ought to be always ready to fulfil its obligations. 
 The means which I have pointed out for attaining 
 this end, are simple and easy ; it will suffice for the 
 Bank to do what all merchants do, to have a reserve 
 and a capital proportioned to its affairs. 
 
 Here, I beg the superior Council to permit me to 
 say some words on the very important question, 
 namely, whether or not the Bank ought to renounce 
 
APPENDIX. 901 
 
 advances upon public fundsj upon industrial property, 
 or whether, on the contrary, it ought to endeavour to 
 develop this branch of its functions. 
 
 I think it is not possible to place beyond the 
 benefit of the distribution of the credit an industry 
 so important, so capital as that of the railroads, an 
 industry which contributes to augment in a propor- 
 tion so considerable the prosperity of the country, 
 the abundance and the cheapness of all the products, 
 the facility and the promptitude of the exchanges 
 whether internal or international. I think likewise 
 that it would be less vexatious for it to throw out the 
 public funds, since it is one of the means for facili- 
 tating their classing, for diminishing the price of the 
 state loans, of the departments and towns, and, 
 consequently, for leading to the diminution of 
 imposts. 
 
 An exclusion with regard to the public funds, or 6f 
 the property which represents the great industry of 
 the public works, would not be understood, — it would 
 be so much less comprehensible that the possibility 
 of repayment is greater for these titles, in the case 
 of non-payment of the advances, than for the effects 
 of commerce en souffrance, considering that they have 
 a market always open which presents the greatest 
 facilities for their realisation. 
 
 If the Bank did not wish to lend upon public funds 
 or other values, it ought to give to other establish- 
 ments the means of doing it usefully, by furnishing 
 to them, against good guarantees, on favourable con- 
 ditions, the resources whicti may be necessary tp them 
 to enable them to undertake these operations indis- 
 
902 APPENDIX. 
 
 pensable to the development of credit and the good 
 classing of the values. 
 
 The loans on public funds or others are, in effect, 
 of extreme importance for the increase of public pro- 
 sperity, for the rise of values, a natural consequence 
 of the lowering of the interest. 
 
 Applied on a large scale, they would diminish the 
 flights of speculation, the oscillations of the currency, 
 would retain capital in France by the amelioration of 
 the conditions of labour and by the advantage that 
 this amelioration would present to industrial capital ; 
 these advances made on good conditions would contri- 
 bute to render possible the industries which are to- 
 day in abeyance, as those for example, of the third 
 and even second rate, such as those relating to the em- 
 bellishment and salubrity of our towns. 
 
 The Bank is not in love with loans on values arid 
 has a particular affection for loans on ingots; the rate 
 of interest on these last loans is very low ; on the 
 contrary, that of its loans on public funds, shares 
 ,and railway bonds is very high ; in these later times 
 it has been established at , 1 per cent, higher than 
 that of the loans to commerce. I avow that I do not 
 comprehend this preference, if it be not because the 
 Bank thus procures for itself profits without running 
 the smallest risk ; but this consideration does not 
 suffice to justify the utility of advances of this nature, 
 and at this point of view, the loans that it makes upon 
 ingots might be muCh better employed in advances 
 on public funds, since the ingots do not in any manner 
 augment its reserve, for they make no part of it. 
 The Bank might receive, like the Bank of England, 
 
APPJiNDIX. 903 
 
 without being obliged to do soj the specie or ingots 
 which are brought to it against notes ; such specie or 
 ingots would then have no more the character of de- 
 posits, they would belong to and would make part of 
 its reserve. 
 
 The Bank has the right to carry on the trade in 
 gold and silver ; it has not made use of it hitherto. 
 The means for making this trade useful would be, 
 to have, as we have said, bills of exchange upon 
 London ; we may be certain that such employment 
 could never take too great an extension, because the 
 rise of the capital of the Bank will suffice to maintain 
 constantly the level of the reserve, without the least 
 effort on its part. 
 
 The Bank ought to give equal facilities to com- 
 merce and industry; if it were not in a position to 
 fill that character, it ought, as I have just said, to 
 make place by its side for other establishments, and 
 associate them, in a certain measure, to a share of its 
 privilege, in furnishing them with its own notes on 
 conditions which permitted them to make with pro- 
 fit the advances which it would not or could not itself 
 make directly. 
 
 I was just now looking for a very important paper 
 which I regret to have forgotten. That paj)er is 
 the outline of the subjects presented to the Chamber, 
 in 1834, by M. Humanu, late Minister of Finance, 
 and who, as we know, was the father-in-law of M. de 
 Germiuy, in support of a project of law the object of 
 which was to permit the Bank to dispose of its re- 
 serve. 
 
 At that time the Bank distributed to its share- 
 
904 APPENDIX. 
 
 holders only 6 per cent.; the excess was put in 
 reserve. In fixing the figure of the reserve in- 
 variably at 10 millions, it was permitted to the Bank 
 to dispose of all its profits, without adding anything 
 more to its reserve; but they gave it that power 
 only on the condition that it made advances on the 
 public funds. M. Humann brought prominently 
 forward, in his exposition of the motives in support 
 of his proposition, the immense interest there was, 
 in all points of view, that the Bank should do wha,t it 
 did not then do, and that was that it should lend on 
 the funds of the State, and the Minister terminated 
 his exposition by saying that the Bank acquired by 
 that means new claims on the public gratitude ; but 
 he added that it justified especially the favour that the 
 Government had accorded it, in permitting it to dis- 
 tribute all its profits, if it reduced the rate of its dis- 
 count, which, then, for many long years was fixed in- 
 variably at 4 per cent. In that exposition of motives, 
 the superior Council can see the enumeration of the 
 advantages, which the reduction of discount had in 
 the eyes of M. Humann ; he appreciated them with 
 the superiority of a statesman. 
 
 I am happy to find myself in such perfect har- 
 mony with a Minister of Finance so eminent, and I 
 shall take the liberty of recommending the reading of 
 that exposition of motives to M. M. the Director of the 
 Bank, as well as to the late Governor M. de Germiny. 
 
 Now, Messieurs, with your permission, I will sum 
 up what I have had the honour of laying before you, 
 in reading a note pointing out the modifications which 
 I should wish to see introduced into the organisation 
 of the Bank of France. 
 
APPENDIX. 905 
 
 M. Le President. — We hear you. 
 
 M. Isaac Pereire. — reading. — 
 
 After what has precededj it seems to me that there 
 is room to demand : 
 
 "1. That the eapital of the Bank should be dis- 
 posable; that, consequently, the Bank realise its rentes, 
 and that the Government repay that which it owes to 
 the Bank, except a stipulated compensation for the 
 abandonment of this facility of credit. 
 
 2. That this capital may be raised according to the 
 development of the wants of commerce and industry, 
 and that, for this object, the Bank may issue at its 
 choice shares or bo ads. 
 
 3. That the Bank may be held to have a reserve 
 sufiBcient to assure constantly the repayment of its 
 notes, which can be obtained only by the realisation 
 of its capital or by the augmentation of its capital to 
 the level of its wants, and not by the rise of the 
 discount ; that consequently, the doctrine of protect- 
 ing the reserve should be renounced. 
 
 4. That a maximum interest of 4 per cent, be im- 
 posed on the Bank, and that this maximum may 
 be lowered at certain epochs; that the Bank may 
 be free to lower its discount, but that it may not 
 raise it without the authority of the Government. 
 
 5. That the Bank renounce lending on ingots, 
 that operation being rather prejudicial than useful to 
 it, and employing, without great profit, a capital which 
 might find a much more advantageous employment 
 for the Bank and for the Public. 
 
 6. That the Bank lend as largely upon the public 
 funds and other values, as upon Commercial bills. 
 
906 APPENDIX. 
 
 7. That the Bank may have a favourable rate for 
 all the great establishments of credit, banks of de- 
 posit, discount offices, in order to create for itself 
 go-betweens [des intermediaires] iu commercial affairs, 
 to diminish thus the risks, in augmenting the dis- 
 countable matter, and to constitute itself, by relation 
 to these go-betweens, the central bank of issue, the 
 hotel of credit money." 
 
 On these conditions, they might adjourn the ideas 
 relative to the creation of new banks, and see if the 
 monopoly, thus regulated, could satisfy the wants of 
 trade and industry. 
 
 M. Le President. — Have yovf anything to add to the 
 evidence that you have given ? 
 
 M. Isaac Pereire. — No, Monsieur le President. 
 
 M. Le President. — We thank you. Monsieur, for 
 the information which you have been so kind as to 
 give us. 
 
907 
 
 PRINCIPLES OF THE CONSTITUTION OF 
 BANKS AND OF THE ORGANISATION OF 
 CREDIT. 
 
 BY MONSIEUR ISAAC PEREIRE. 
 
 CHAPTER VI. 
 
 HOW ABE THE MOVEMENTS OE BXPOET OE IMPOET OF 
 MONET DETBBMINEdP THBOET OP THE EXCHANGE AND 
 COMMEECE OF THE PEECIOTJS METALS. 
 
 We have seen in the preceding chapter that^ there 
 is no relation between the rate of interest and the 
 abundance or scarcity of money. 
 
 There is no more relation between the rate of in- 
 terest and the movements of export or import of 
 money. , 
 
 These are two orders of phenomena entirely dis- 
 tinct, and are subject to laws essentially different. 
 
 From time immemorial, the rate of interest has 
 been higher in France than in all the principal places 
 of Germany and Holland, and yet the metallic reserve 
 in those countries has not passed into our country. 
 
 The interest at this moment is very high in the 
 United States, in Spain, in Austria; it has been equally 
 so in these latter times in Russia. 
 
 The current of gold, however, has followed a direc- 
 tion entirely opposite to that which the rate of interest 
 would seem to indicate. 
 
908 APPENDIX. 
 
 These countries, contrary to the common opinion, 
 have generally exported gold, instead of receiving it. 
 
 Without speaking, for the moment, of England, 
 with which we shall specially occupy ourselves, wc 
 can cite the example of Spain, where the interest 
 has mounted to 12 and li per cent., and which, 
 however, sent us, in 1864, nearly 34 millions and a 
 half of money. 
 
 We have likewise received it in still greater propor- 
 tions, from Austria and the German confederation. 
 (94 miUions in 1864.) 
 
 Even the United States themselves, where the in- 
 terest is so very high, has sent it to us. 
 
 Italy alone presents us an exception in this respect 
 for the years 1862 and 1863 ; the loans she has made 
 with us have rendered necessary the export of money, 
 the amount raised iu these two years being 141 millions 
 and a half. 
 
 But, in 1864, the imports of money coming from 
 that country have exceeded the above ; they have ex- 
 ceeded the exports by 1,900,000 francs. 
 
 Such facts do complete justice to the trrors pro- 
 pagated about the drainage of our money to the 
 foreigner, in consequence of the great European en- 
 terprises in which France has had the glory to co- 
 operate, and from which she has in part gathered 
 the profits, and about the pretended danger which 
 would ensue ; they reduce to nothing the ill founded 
 and unreflecting attacks, the malevolent insinuations 
 to which these errors have served for pretext. 
 
 When a country invests its capital with the 
 foreigner, it is not necessarily gold that it sends ; it 
 
APPENDIX. 909 
 
 does it only in default of the products of its soil or 
 of its industry, and when a country sends money it is 
 on the condition of having procured it beforehand by 
 the sale of its products. 
 
 What we say of capital in general is especially true 
 of the import and export of gold and silver. 
 
 The movements of gold and silver are determined 
 in general only by the wants of the liquidation of the 
 exchanges between the nations. 
 
 A country exports money when the mass of its 
 imports of merchandise or values of all sorts exceeds 
 that of its exports, and reciprocally. 
 
 The balance that is paid or received in specie is 
 called the Balance of Commerce. 
 
 Formerly it was believed that this balance in specie 
 represented the benefit or the loss of a nation in its 
 exterior commerce. That is why each endeavoured 
 to make the balance incline in its favor by the com- 
 bination of custom-house tariffs. 
 
 The contrary was nearer the truth, for the more 
 industrious a nation the less it imports money; it 
 will always prefer to replace it with the raw materials 
 which will permit it to support the labor of its work- 
 shops. 
 
 Thus England prefers receiving cotton to gold from 
 America. 
 
 The part that the precious metals play in the ex- 
 changes is explained not only by the intrinsic quali- 
 ties that they possess and which we have already 
 pointed out, but again by the common consent of all 
 
910 APPENDIX. 
 
 people to admit them for a fixed determinate value, 
 for a certain value in all the relations of buying and 
 selling. 
 
 It is a merchandise legally tariffied [tarifee] under 
 the guarantee of the impress of the sovereign. 
 
 The exchange of two values would be, in reality, 
 extremely difi&cult if the price of the two were un- 
 certain ; all is simplified, on the contrary, when the 
 uncertainty is only on one of them, the contest be- 
 tween the buyer and the seller being reduced to a 
 single term. 
 
 But, if gold and silver are legally tariffied [tarifes] 
 like money, this money has forms, different divisions 
 in each country. 
 
 The proportion of alloy is likewise diflferent. 
 
 In short, the relation between the value of the 
 gold and that of the silver cannot be established in 
 a manner rigorously absolute ; at one point it is 
 favorable to the gold, at another it is favorable to the 
 silver. 
 
 Thence, the preponderance, as money legal or real, 
 of the gold in one country, of the silver in another. 
 
 These divers usages, these differences are again, 
 one of the principal causes of the movements of specie. 
 
 They call exchange, industry, and the arbitration 
 of exchanges [arbitrages] the operations to which a 
 certain number of bankers are devoted for the pur- 
 pose of establishing a constant equilibrium between 
 the monies of different countries, by profiting on the 
 differences, which are the result of the errors com- 
 mitted by the governments, whether in fixing the 
 relation between the two metals, or in the manufac- 
 
APPENDIX. 911 
 
 tare of the monies. These operations have been for 
 a long time so much the more lucrative as they were 
 more obscure, and the confusion was greater and the 
 state of the monies more defective. 
 
 The decimal unit, as well as the improvements in 
 the manufacture of money, will cause to disappear, 
 one day, it is to be hoped, the actual complications, 
 and will reduce the importance of this commerce. 
 
 We may again assign another cause to the move- 
 ments of specie or rather to the displacement of 
 money ; we wish to speak of the existence in a 
 country of a paper money, or of bank paper depre- 
 ciated ; as soon as, this depreciation manifests itself, 
 gold gains a corresponding premium and ceases, more 
 or less, according to the proportions wliich this de- 
 preciation takes, to be the ordinary agent of the ex- 
 changes ; it is the paper which replaces it. 
 
 The prices establish themselves immediately upon 
 the base of this depreciated money, which serves like- 
 wise for the regulation of all the debts. 
 
 Gold disappears from the countries which are in 
 this situation; it is exported into those countries 
 where it has always remained the measure of value, 
 and where it can command a greater amount ot 
 labor, to exchange with a greater quantity of pro- 
 ducts. 
 
 This is the case in which the United States, Russia, 
 Austria, and Spain herself, find themselves, though 
 in a less degree. 
 
 Before the existence of the bill of exchange, all the 
 debtors of England were obliged to send money into 
 that country to pay their purchases there, and the 
 
912 APPENDIX. 
 
 English merchants were obliged to do the same towards 
 their foreign creditors. 
 
 It was a double transport of specie to which the 
 two countries found themselves constrained in order 
 to pay the total of their purchases and the total of 
 their sales. 
 
 The use of the bill of exchange has avoided all 
 these great movements of specie. 
 
 These operations are considerably simplified ; the 
 English debtors buy the drafts that the creditors of 
 England have to draw upon her, and use these to pay 
 the amount of their debts. 
 
 In the hypothesis where the figure of the exports 
 from England would balance that of the imports, 
 there would not be a single farthing in movement 
 between the two countries ; the .supply of the bills of 
 exchange being equal to the demand, the price of the 
 drafts upon England would be confined exactly within 
 the limits of the ratio fixed for the par of the monies 
 of the two countries. 
 
 This ratio, or in other words, the par of exchange, 
 which is intrinsically 25 fr. 22 c. 15^ for a pound 
 sterling, in comparing the quantities of pure gold con- 
 tained in the monies of the two countries, is in reality 
 only 25 fr. 16 c. 70, if you take into account the ex- 
 pense of coinage, and can be raised in certain cases 
 to 25 fr. 20 c. 75. 
 
 Jn the case of equality of exports and imports be- 
 tween France and England, we have seen that the 
 price of bills of exchange ought to be exactly equal 
 to the commercial ^ar. 
 
 If the exports from England exceed the imports, 
 
APPENDIX. 913 
 
 the price would be above par; the contrary would 
 take place if the imports of the country exceeded the 
 exports. 
 
 The price of bills of exchange would lower or rise 
 to the amount of the difference necessary to permit 
 the import of gold and silver into England or their 
 export, and that difference represents, on the average, 
 the expenses of transport and the profits of the 
 bankers. 
 
 When the pound sterling can be obtained at Paris 
 at the rate of from 25 fr. 10 c. to 12 c. ^, the French 
 bankers find a sufficient profit in buying bills of ex- 
 change on London in order to make the gold come 
 to Paris, a difference of about 7 centimes covering 
 all their expenses. 
 
 The price of the pound sterling depends again on 
 the premium which gold obtains at Paris or at Lon- 
 don. 
 
 When the Bank of France pays the premium, and 
 it is generally so, the price of the pound sterling can 
 be so much augmented. 
 
 Now, the examination of the rates during a great 
 number of years proves that the exchange with Eng- 
 land is to Paris generally below par, which indicates 
 that the exports from France to England exceed the 
 imports, that besides, gold, with very few exceptions, 
 has constantly obtained a premium there more or less 
 high, and that there has been consequently, almost 
 always, an advantage in making gold come from that 
 country, as it has happened in reality to this time on 
 a large scale. 
 
 The ofl&cial results of an exterior commerce, par- 
 
 3 N 
 
914 APPENDIX. 
 
 ticularly in that which concerns England, confirm 
 the indications which the rate of exchange furnishes. 
 
 The payment of our commerce with England has 
 always been in favour of the export of our products. 
 
 A notable part of the excess of the products ex- 
 ported by France must necessarily be paid for in 
 money : it could not be otherwise. 
 
 [Here follows a Table showing the trade in the 
 precious metals between France and England, in per- 
 fect accord with and entirely confirmatory of these 
 principles.] 
 
 We may deduce from this table the consequences 
 following : — 
 
 Our imports of money are only the counterpart of 
 our exports of merchandise ; it is thus that we pay, 
 with our products, for the precious metals that we 
 buy from England, who, herself, pays the countries 
 whence she draws them with her own productions. 
 
 The rate of exchange indicates perfectly this double 
 movement of the export of merchandise and the im- 
 port of precious metals; nevertheless, the average 
 rate can furnish only a general and approximate in- 
 dication, because it is impossible to know the im- 
 portance of the exports and imports which may have 
 taken place under the influence of such or such rate. 
 
 In short, the premiums on gold, which generally 
 have no other cause than the special wants of the 
 Bank, sometimes modify iu an anomalous manner 
 the rate of exchange ; which rises in direct ratio with 
 the rise of the premium on gold. 
 
APPENDIX. 915 
 
 The final result remains the same, with this single 
 difference, that the Bank has paid uselessly consider- 
 able premiums to enrich intermediate parasites [des 
 inter mediaires parasites] at its expense, and, in the 
 final analysis, at the expense of commerce, which 
 always finishes by paying all the expenses of these 
 false manoeuvres. 
 
 The loss which gold experienced in 1858 proceeded 
 from the quantity of it sent to us against silver. 
 
 The silver was exported because its relative value 
 had augmented, and, for the same reason, the inverse 
 movement took place for the gold, the value of which 
 had fallen, and which could be sold only at a loss j 
 the silver gained a high premium ; as there went out 
 during this year more silver than there entered gold ; 
 it is that which explains the excess of export which 
 the table shows. 
 
 The same observation applies to the years follow- 
 ing- 
 
 Our exchanges with Spain were settled likewise iu 
 favor of France, as is shown by the excess of exports 
 from the Government returns following [des exer- 
 cices suivants], which has been to the amount of 
 
 130,055,589 francs in 1863, 
 173,832,079 „ 1863, 
 
 The rate of exchange cannot reflect exactly this 
 state of things. 
 
 This rate is, at this moment, for Spain, from 4fr. 
 95 to 5 francs for a piaster, when the par of the 
 piaster is 5 fr. 26. 
 
 We have, then, to-day an incontestable advantage 
 
 3 N 3 
 
916 APPENDIX. 
 
 in making money come from Spain instead of send- 
 ing it tbere ; but this advantage is weakened by the 
 premium of from 2 to 3 per cent, that we pay at 
 Madrid to obtain it. 
 
 This premium given to obtain gold or silver indi- 
 cates, in that country, an anomalous monetary si- 
 tuation, and becomes a new cause for the export of 
 money ; it justifies, what we have before said, of the 
 effect produced by a depreciated credit money. 
 
 Each time, in effect, that gold ceases to be of a 
 fixed value, a value certain in reference to all other 
 values, and that happens when it is sought with a 
 premium, it is necessarily exported. 
 
 To give a premium to procure gold, as the Bank of 
 France sometimes does, is, then, to depreciate in an 
 exact proportion the relative value of the notes, to 
 encourage demands for repayment of the same notes, 
 to favor the withdrawal of gold or silver from cir- 
 culation with a view to speculation ; it is again to 
 raise artificially the price of drafts on the foreigner, 
 and thus to increase the charges of importation ; it 
 is only to. serve the interests of some houses sufiS.- 
 ciently rich, sufficiently powerful to be prepared to 
 act upon all the places, to profit by the smallest varia- 
 tions in the rate of exchange or in the price of the 
 precious metals. 
 
 It is certain that the rate of exchange, when it is 
 not falsified by operations in a contrary direction, 
 ought to indicate perfectly the direction that gold 
 takes or ought to take. 
 
 It remains, consequently, well established that the 
 movements of export or import of the precious metals. 
 
APPENDIX. 917 
 
 of which we are pointing out the real causes, have no 
 relation with the variations of the rate of interest. 
 
 All the observations in this respect can concen- 
 trate themselves particularly on the movements be- 
 tween France and England, or rather between Paris 
 and London, because these two places are justly con- 
 sidered as the regulations of the Exchange; they cen- 
 tralise, in effect, in great part, the liquidation of the 
 exchanges of the whole world. 
 
 Now, we shall be able to prove presently, from 
 official figures, that, before as after the law of 1857, 
 there have frequently been digressions from 1^ to 3 
 per cent, between the rate of interest of the two 
 Banks, sometimes in favor of Paris, sometimes in 
 favor of London, without the reserve of the one or 
 the other having suffered from it the least in the 
 world. 
 
 Experience demonstrates again that, in these same 
 years when gold took quite naturally the direction of 
 France, for the reasons that we have given, the re- 
 serve of the Bank of England has remained con- 
 stantly very high; which proves that the trade of 
 the precious metals in England supports itself from 
 the true sources, that is to say, from the producing 
 countries, and that it is constantly at the height of 
 all the wants interior or exterior. 
 
 We are able to convince ourselves at last, by the 
 facts which come to be exposed, that the sending of 
 specie into France was, on the part of England, 
 forced, inevitable; whatever might have been the 
 variations of the rate of interest, this current could 
 not be turned aside. 
 
918 APPENDIX. 
 
 The Bank of France had then absolutely nothing 
 to fear for its metallic reserves from the raising of 
 the discount with our neighbours. 
 
 Our country has always obtained, against its pro- 
 ducts, all the quantity of gold of which it has been 
 in want ; it ought to count, for this title, upon all 
 that is due to it in exchange for the surplus of the 
 products exported into England. The Bank alone 
 has failed in it, because it has not employed the same 
 means ; instead of simply buying the gold with its 
 capital, it has only uselessly augmented the mass, 
 already considerable, of its engagements ; and, in 
 spite of the numerous warnings which have been 
 given to it, it has persisted in this system so fatal to 
 trade. 
 
 In acting thus, the Bank has not suflBciently re- 
 membered that its situation towards the holders of 
 its notes was that of debtor to creditor; that the 
 more a debtor multiplies his engagements, the more 
 his position becomes precarious and dangerous ; that 
 he can only ameliorate it by making intervene his 
 capital in the recognised necessary proportions. 
 
 The employ that it would be able to make of its 
 capital, in seeing beforehand its eventual wants of 
 specie, had even been very profitable ; for, if it had 
 wished to devote part to purchases of bills of ex- 
 change in London, it would have been able to profit 
 by the elevation of discount in England to effect in- 
 vestments at 8 and 9 per cent., whilst adopting the 
 way it has followed, it has restrained trade, and has 
 worked against the object which it proposed to itself, 
 whilst the houses, which are obliged to have recourse 
 
APPENDIX. 919 
 
 to credit to furnish the Bank with the gold which it 
 demands of them, are under the necessity of exacting 
 from it a higher premium to cover themselves for 
 the supplementary interest which was imposed on 
 them. 
 
 The rate of the exchange is, then, independent of 
 the reserve of the banks and of the rate of interest. 
 This independence confirms the principles that we 
 have laid down at the commencement, and reduces 
 to nothing the false assertions accepted by superficial 
 minds, which, stopping £^t the appearance of things, 
 persuade themselves, contrary to all the facts, that 
 the arbitrary fixing of the interest can have any 
 action whatever on the importance of our metallic 
 reserves. 
 
920 
 
 ABSTRACT OP THE ACT 
 
 TO 
 
 PROVIDE A NATIONAL CURRENCY, 
 
 SECURED BY 
 
 A PLEDGE OP UNITED STATES BONDS, 
 
 AND TO PROVIDE FOR THE 
 
 CIECTJLATION AND EEDEMPTION THEEEOr. 
 
 Approved June 3, 1864. 
 
 Sec. 1. Establishes a Currency Bureau, with Comp- 
 troller and Deputy Comptroller of the Currency, 
 Clerks, &c. 
 
 Sec. 2. Seal of Bureau, &c. 
 
 Sec. 3. Offices, &c. 
 
 Sec. 4. States bonds defined. 
 
 Sec. 5. Associates not less than five. 
 
 Articles of association prescribed. 
 
 Sec. 6. Preliminary certificate prescribed. 
 
 Sec. 7. No association shall be organised with a 
 less capital than one hundred thousand dollars, nor 
 in a city whose population exceeds fifty thousand per- 
 sons, with a less capital than two hundred thousand 
 dollars : Provided, That banks with a capital of not 
 less than fifty thousand dollars may, with the approval 
 of the Secretary of the Treasury, be organised in any 
 
APPENDIX. 921 
 
 place the population of which does not exceed six 
 thousand inhabitants. 
 
 Sec. 8. Corporate organisation. Corporate powers 
 for 20 years from its organisation. 
 
 Power to appoint Directors, &c. 
 
 Sec. 9. Directors qualification, oath, &c. 
 
 Sec. 10- Annual election and duration of office, &c. 
 
 Sec. 11. Votes of Shareholders, &c. 
 
 Sec. 12. Capital stock to be divided into shares of 
 one hundred dollars each. Rights of shareholders 
 and creditors. Limited liability. 
 
 Sec. 13. Power to increase or reduce capital stock 
 under provisions. 
 
 Sec. 14. Fifty per cent., at least, of capital stock 
 to be paid in before business commenced ; and the 
 remainder to be paid in instalments of at least 10 
 per cent, on the whole amount of capital as frequently 
 as one instalment at the end of each succeeding month 
 from the time of commencing business ; and the pay- 
 ment of each instalment to be certified by the Comp- 
 troller, under oath, by the president or cashier of the 
 association. 
 
 Sec. 15. Delinquent shareholders, sale of capital 
 stock. 
 
 Sec. 16. Fvery Association, before commencing 
 business, to transfer and deliver to the Treasurer of 
 the United States, any United States registered 
 bonds, bearing interest, to an amount not less than 
 thirty thousand dollars nor less than one-third of the 
 capital stock paid in, which bonds to be deposited 
 with the Treasurer of the United States, &c. 
 
 Sec. 17. Condition of Association to be examined 
 before granting certificate. 
 
922 APPKNDIX. 
 
 Sec. 18. Certificate granted after satisfactory ex- 
 amination. Certificate to be published. 
 
 Sec. 19. Transfer of bonds by Associations, &c. 
 
 See. 20. Duties of Comptroller upon transfer. 
 
 Sec. 21. The Association, on transfer and delivery 
 of bonds, to be entitled to receive from the Comp- 
 troller of the Currency circulating notes of different 
 denominations, in blank, equal in amount to 90 per 
 cent, of the current market value of the United States 
 bonds so transferred and delivered, but not exceeding 
 90 per cent, of the amount of the said bonds at the 
 par value thereof, if bearing interest at a rate not less 
 than 5 per cent, per annum, and at no time the total 
 amount of such notes, issued to any such Association, 
 to exceed the amount at such time actually paid in 
 of its capital stock. 
 
 Sec. 22. The entire amount of notes for circula- 
 tion to be issued not to exceed 300,000,000 of dollars. 
 In order to furnish suitable notes for circulation, the 
 Comptroller of the Currency, under the direction of 
 the Secretary of the Treasury, to cause plates and 
 dies to be engraved, and to have printed therefrom, 
 and numbered, such quantity of circulating notes, in 
 blank, of the denominations of one dollar, two dollars, 
 three dollars, five dollars, ten dollars, twenty dollars, 
 fifty dollars, one hundred dollars, five hundred dollars, 
 and one thousand dollars, as may be required to sup- 
 ply the Associations entitled to receive the same; 
 such notes to be signed and sealed, &c. Provided, 
 That not more than one-sixth part of such notes be 
 of a less denomination than five dollars, and that after 
 specie payments shall be resumed no notes to be fur- 
 nished of a less denomination than five dollars. 
 
APPENDIX. 923 
 
 Sec. .23. Every such Association authorised to issue 
 and circulate as money such promissory notes payable 
 on demand by such Association at its place of busi- 
 ness, and such notes to be received at par in all parts 
 of the United States in payment of taxes, excises, 
 public lauds, and all other dues to the United States, 
 except for duties on imports ; and also for all salaries 
 and other debts and demands owing by the United 
 States to individuals. Corporations, and Associations 
 within the United States, except interest on the public 
 debt and in redemption of the national currency. 
 Issue of other notes forbidden. 
 
 Sec. 34. Provision for worn, mutilated, and lost 
 currency. 
 
 Sec. 25. Periodical examination of bonds deposited. 
 
 Sec. 26. Bonds deposited to be exclusively as secu- 
 rity. Interest on bonds, how paid. Proceedings on 
 depreciation of bonds deposited, Sec. 
 
 Sec. 27. Punishment for delivering or issuing notes 
 except as herein provided. 
 
 Sec. 28. What real estate Associations may hold. 
 
 Sec. 29. Limitation of liability of customers. 
 
 Sec. 30. Interest on loans and discounts prescribed. 
 Usury and penalties. 
 
 Sec. 31 . Every Association in the cities after named 
 to have at all times on hand, in lawful money of the 
 United States, an amount equal to at least 25 per 
 cent, of the aggregate amount of its notes in circula- 
 tion, and its deposits ; and every other association to 
 have at all times on hand, in lawful money of the 
 United States, an amount equal to at least 15 per 
 cent, of the aggregate amount of its notes in circula- 
 
924 APPENDIX. 
 
 tion, and of its deposits. And whenever the lawful 
 money of any Association in any of the cities after 
 named shall be below the amount of 25 per cent, of 
 its circulation and deposits, and whenever the lawful 
 money of any other Association shall be below 15 per 
 cent, of its circulation and deposits, such Association 
 shall not increase its liabilities by making any new 
 loans or discounts otherwise than by discounting or 
 purchasing bills of exchange payable at sight, nor 
 make any dividend of its profits until the required 
 proportion between the aggregate amount of its out- 
 standing notes of circulation and deposits and its 
 lawful money of the United States shall be restored : 
 Provided, That three-fifths of said 15 per cent, may 
 consist of balances due to an Association available for 
 the redemption of its circulating notes from Associa- 
 tions approved by the Comptroller of the Currency, 
 in the cities of Saint Louis, Louisville, Chicago, De- 
 troit, Milwaukie, New Orleans, Cincinnati, Cleveland, 
 Pittsburg, Baltimore, Philadelphia, Boston, New York, 
 Albany, Leavenworth, San Francisco, and Washing- 
 ton city : Provided, also. That clearing-house certifi- 
 cates, representing specie or lawful money specially 
 deposited for the purpose of any clearing-house Asso- 
 ciation, shall be deemed to be lawful money in the 
 possession of any Association belonging to such clear- 
 ing house holding and owning such certificate, and 
 shall be considered to be part of the lawful money 
 which such Association is required to have under the 
 foregoing provisions of this section : Provided, That 
 the cities of Charleston and Richmond may be added 
 to the list of cities in the National Associations of 
 
APPENDIX. 925 
 
 which other Associations may keep three-fifths o 
 their lawful money, whenever, in the opinion of the 
 Comptroller of the Currency, the condition of the 
 Southern States will warrant it. 
 
 Association failing to make good the reserve may 
 be wound up. 
 
 Sec. 33. Certain Associations to redeem at par in 
 New York. 
 
 Associations to redeem at par in certain cities. 
 
 Associations failing to select banks of redemption 
 to be closed. 
 
 Every association to redeem its circulating notes at 
 its own countei', at par, in lawful money, on demand. 
 Also to take and receive at par, for any debt or lia- 
 bility, any and all notes or bills issued by any Asso- 
 ciation existing under this Act. 
 
 Sec. 33. Half-yearly dividends to be declared of 
 so much of the net profits as the Association shall 
 judge expedient; but before declaring a dividend, 
 one-tenth part of the net profits of the preceding 
 half-year to be carried to the surplus fund, until the 
 same shall amount to 20 per cent, of the capital 
 stock. 
 
 Sec. 34. Quarterly reports. Comptroller to pub- 
 lish abstracts. Association to publish reports. In 
 addition to the quarterly reports, the Association to 
 make a statement, under oath of the president or 
 cashier, on the first Tuesday in each month, showing 
 the condition of the Association on the morning of 
 the day preceding the date of such statement in re- 
 spect of the following items and particulars, to wit, 
 average amount of loans and discounts, specie, and 
 
926 APPENDIX. 
 
 other lawful money belonging to the Association, 
 deposits, and circulation. And Associations in other 
 places than those cities named in the 31st section to 
 return the amount due to them available for the re- 
 demption of this circulation. 
 
 Sec. 35. No Association to make any loan or dis- 
 count on the security of the shares of its own capital 
 stock, nor be the purchaser or holder of any such 
 shares, unless such security or purchase shall be ne- 
 cessary to prevent loss upon a debt previously con- 
 tracted in good faith ; and stock so purchased or re- 
 quired to be sold or disposed of, at public or private 
 sale, within six months from the time of its purchase, 
 in default a receiver may be appointed to close up 
 the business of the Association. 
 
 Sec. 36. Limitation of indebtedness prescribed. 
 
 Sec. 37. Pledge of notes of circulation enjoined. 
 
 Sec. 38. Withdrawal of capital stock enjoined. 
 Dividends restricted if losses have occurred. Bad 
 debts defined. 
 
 Sec. 39. Circulation of depreciated currency for- 
 bidden. 
 
 Sec. 40. Names, residence, &c. of shareholders. 
 
 Sec. 41. Care and control of plates, dies, &c. Ex- 
 penses defrayed. Taxes, &c. &c. 
 
 Sec. 42. Liquidation. 
 
 Sec. 43. Duties of Treasurer on payment of notes 
 in liquidation. Mutilation of redeemed notes. 
 
 Sec. 44. Conversion of State banks into National. 
 Organisation certificate. 
 
 Shares of State banks upon conversion. 
 
 Banking privileges conferred. Capital of Associa- 
 tions converted from State banks. 
 
APPENDIX. 907 
 
 Sec. 45. Financial agents. Security required. 
 National Currency notes received at par. 
 
 Sec. 46. Protest of notes and proceedings thereon, 
 &c. &c. 
 
 Sec. 47. Proceedings of Comptroller on notice of 
 protest, &c. &c. 
 
 Sec. 48. Sale at auction of bonds of failing Asso- 
 elation. 
 
 Sec. 49. Private sale of bonds. 
 
 Sec. 50. Receiver and his duties, &c. &c. 
 
 Sec. 51. Fees for protests, &c. 
 
 Sec. 53. Acts prejudicial to creditors in contem- 
 plation of insolvency. 
 
 Sec. 53. Malfeasance of officers and directors. 
 
 Sec. 54. Visitor. Appointment and duties of. 
 
 Sec. 55. Misdemeanor of officers. 
 
 Sec. 56. Suits and proceedings under this Act. 
 
 Sec. 57. Jurisdiction. 
 
 Sec. 58. Mutilation of paper issued under this 
 Act. 
 
 Sec. 59. Forgery, &c. 
 
 Sec. 60. Making or engraving plates, &c. 
 
 Sec. 61 . Annual report of Comptroller of Currency. 
 
 Sec. 62. Original Act repealed. 
 
 Sec. 63. Executors, Administrators, guardians, and 
 trustees holding stock as such. 
 
 Sec. 64. Rights of Congress reserved. 
 
 Approved, June 3, 1864. 
 
 It will be seen from this Abstract that, the Ame- 
 rican System of Free-Banking is nothing more than 
 
928 APPENDIX. 
 
 a Licence- Systenij on the uncertain guarantee of Go- 
 vernment Securities, to the extent of 300,000,000 of 
 dollars. 
 
 In addition to the objections already noticed, and 
 which, in this country, must be fatal in practice, it is 
 obvious that, freedom of banking is more restricted 
 in the United States of America than in other coun- 
 tries. 
 
 In England there is no restriction on banking, the 
 issue of notes being separate and distinct from bank- 
 ing. 
 
 In the United States the issue of notes is practi- 
 cally made, a necessary part of banking. The issue 
 being limited and, therefore, confined to a certain 
 number of banks, the effect is to restrict the freedom 
 of banking, as vcell as to make the demand of capital 
 nearly double the amount required for conducting the 
 same amount of business in England or France or 
 any other country in Europe. 
 
 It is also manifest that, the Government securities 
 are no security at all for payments in specie. 
 
 It must be unnecessary to point out in detail the 
 many other inconveniences of this system. 
 
 It was, therefore, with astonishment that the Author 
 heard some of the most eminent merchants of Liver- 
 pool advocate the free banking system of the United 
 States of America, when he lately visited Liverpoo 
 for the purpose of collecting their opinions on this 
 subject. 
 
929 
 
 Monsieur Wolowski, Membre de I'Institut, et Pre- 
 sident de I'Academie des Sciences Morales et Poli- 
 tiques k Paris, having done the Author the honour 
 to write to him at much length in several letters, 
 with remarks on his book, and those remarks being 
 entirely in favour of the existing system of the Bank 
 of England, the Author, out of respect to the posi- 
 tion and reputation of M. Wolowski, as an authority 
 on this subject, has thought it proper, in explana- 
 tion of the points in difference between them, to 
 give the substance of this correspondence, by a 
 few extracts, in English, from the Author's own 
 letters, in answer. To give the whole correspondence 
 would occupy too much space, and as the points in 
 difference are stated in M. Wolowski's own words 
 in the Author's answers, the following extracts will 
 sufBce to present those differences to the reader. It 
 will be seen that, M. Wolowski has stated, with 
 as much clearness as could be expected in a cor- 
 respondence, the points generally advanced by the 
 advocates of the English Bank Charter Act of 1844. 
 
 By thus bringing the opinion of M. Wolowski in 
 juxtaposition with the evidence of the MM. Pereire, 
 justice is rendered to both parties, and readers will 
 judge for themselves. 
 
 EXTRACTS 
 From the Author's letters, in answer to Monsieur 
 Wolowski. 
 
 3o 
 
930 APPENDIX. 
 
 12th October, 1865. 
 " In regard to your remarks on my book, I shall, 
 before I answer them, carefully read and consider 
 your printed works.* But it seems to me that, you 
 diflfer with me on some essential principles, and that, 
 if I cannot successfully answer you on those, it is 
 useless for me to enter upon minor points. 
 
 I understand you to say that, under my plan the 
 Bank of England could not maintain a sufficient re- 
 serve of gold to meet the demand for it. If I have 
 correctly understood your meaning, I will confine 
 my answer to that point. But, admitting the abi- 
 lity with which you state your objections, I wish 
 you had been more explicit in the expression of your 
 opinion on some of the leading points. 
 
 You say : — " Voiis vous plaignez que les crises 
 viennent du want of money, et non du want of ca- 
 pital." 
 
 I do say so. 
 
 But what do you say ? 
 
 You next say : — " Enfin vous regardez la monnaie 
 comme improductive." 
 
 I do. 
 
 But, do you ? 
 
 Your great French authority, Bastiat, I think, so 
 considered' it. 
 
 You go on to say : — " A mes yeux elle est une 
 machine energique, ceUe qui rend le plus en propor- 
 tion de ce qu'elle coute." 
 
 * These were kindly forwarded by M. Wolowski to the 
 Author. 
 
APPENDIX. 931 
 
 Do you mean by this that a machine, however 
 powerful, is productive ? 
 
 Gold is an instrument of great power; so is a 
 steam-engine, or a plough ; but these are all unpro- 
 ductive. 
 
 Gold represents services performed, the equivalent 
 for which has not yet been given. Gold, therefore, 
 commands services, or human efforts, and those ef- 
 forts may be productive, not the gold. So of the 
 steam-engine and the plough. 
 
 I wish I had a better understanding of your own 
 opinion than you have conveyed to me on this part of 
 the question. 
 
 But I am glad you admit that, " en substituant 
 simplement le papier h, I'or, suivant vous, I'equi- 
 libre des prix ne saurait 6tre alteree, — k condition 
 qu'on reste dans la limite, et qu^on ait toujours de I'or 
 a volonte, — vous tournez ainsi dans un cercle vicieux." 
 
 In this circle, with your admission, I hope to turn 
 you round to my opinion. 
 
 You agree with me that, " Le pays n'a rien h 
 craindre taut que la balance est favorable." You 
 say — "Qui, mais comment la maintenir telle?" My 
 book answers this ; but I will answer this again, at 
 another time, and show you that this admission is 
 enough for me. You go on about exaggerating 
 prices by means of a purely artificial issue, but I 
 cannot allow you to reason thus after your admis- 
 sion, and you know that I do not advocate a purely 
 artificial issue. 
 
 But, we must all agree with you that, "rien n'est 
 beau que le vrai." " 3 o 2 
 
932 APPENDIX. 
 
 mh October, 1865. 
 
 " I write to you again from my retirement in the 
 country, before my return to London, and before I 
 have had the benefit of reading your works, which I 
 shall most carefully study at the earliest opportunity. 
 
 But I have very carefully considered the letter 
 which you have done me the honour to write to me, 
 and I collect that, you agree with me in some of the 
 leading principles which govern the subject of the 
 Bank Question, but that, you differ with me in the 
 main conclusion. 
 
 It may be, as you say, that, T have correctly laid 
 down the principles, and that, these do not warrant 
 my conclusions ; but it seems to me that, you do not 
 point out with sufficient exactness the errors in my 
 conclusions to afford me any definite ground for meet- 
 ing you on the points of difference. 
 
 If you could precisely state the points on which 
 you differ with me, with your reasons shortly for 
 such difference, I might hope to give you concise an- 
 swers, with some good effect ; but I am afraid, if I 
 were to attempt to follow you through the wide range 
 of your remarks, that would lead only to a desultory 
 and very lengthy controversy, which few,if any, readers 
 ■would have the courage to face. 
 
 You say : — ■" L^idee fondamentale qui nous divise 
 est celle de la fonction de la monnaie. A mes yeux, 
 rien de plus substantiel que cette marchandise, ac- 
 ceptee partout presqu'au meme taux, que ce medium 
 destine k equilibrer les transactions entre tons et par- 
 tout; rien ne saurait remplacer cette mesure com- 
 mune de la valeur, ni le pouvoir d'echange universel, 
 
APPENDIX. 933 
 
 qui lui appartient. J'attache plus d'importance h la 
 fixite et k la solidite de cet iustrument, qu a Feconomie 
 qui resulte de I'artifice au moyen duquel le papier 
 peut toujours, dans une faible mesure, remplaeer I'or. 
 Surtout dans un pays riche comme I'Angleterre, etc." 
 
 Here I agree with you, though I do not know 
 why you call money "merchandise," money being only 
 the instrument or means of transfer. 
 
 What, then, do you mean when you say : — " L'idee 
 fondamentale qui nous divise est celle de la fonction 
 de la monnaie •" ? 
 
 I do not know what you call on me to answer. I 
 have, in my book, (p. 29 et seq.) . . . 
 
 explained what I mean by the terms capital and 
 money. 
 
 But these have been best explained by the illustri- 
 ous Bastiat, and, if you differ with me, " sur I'idee 
 fondamentale de la fonction de la monnaie," you differ 
 with that eminent authority. 
 
 I understand you to say that, you differ with me, 
 but I cannot make out the exact point of differ- 
 ence. 
 
 You say : — " D'ailleurs, I'economie dont vous vous 
 preoccupez, est-elle reelle, ne cedez-vous point ici k 
 I'illusion commune?" 
 
 How am I to answer this, otherwise than by re- 
 ferring you to my book, which, I think, gives- the com- 
 plete answer ? 
 
 You say : — " Les avantages naturels du billet, per- 
 sonne ne les apprecie plus que moi," and you then 
 give excellent reasons for your appreciation. 
 
934 APPENDIX. 
 
 Here, again, we agree. 
 
 You then go on to say : — " Cast ainsi qu'il epargne 
 sur rinstrument metallique, non en le renipla9ant, 
 etc.," — substituant would have been a more accurate 
 word. But, if the note do not replace, or be not sub- 
 stituted for, the metallic instrument, how does the 
 note spare (" epargne ") " I'instrument metallique "? 
 It is by the substitution of notes (" h, condition qu'on 
 reste dans la limite") for the metallic instrument, 
 that the metallic instrument is spared {epargne). 
 
 The notes (I say, with you) must rest upon gold, 
 and must be convertible into gold on demand ; but, for 
 this, I say, (assuming always a sufficient supply to meet 
 the ordinary demand) the credit of the country is a 
 sufficient security, and thus the gold is spared, until 
 the actual demaud for it be made. 
 
 But this, if I understand your meaning, you deny, 
 and you say : when the notes are issued the gold must 
 be provided, whether the demand for it be made or 
 not. 
 
 Now, I say, in that case, the gold is not spared, 
 (epargne), and nothing is gained, and then it were 
 better to have a purely metallic currency, than a 
 mixed currency of coin and paper. 
 
 But, with great deference, I say that, I cannot re- 
 concile your opinion in this part of your letter, with 
 the opinion which you express in the latter part, where 
 you say : — " En substituant simplement le papier h. 
 Tor, suivant vous, I'equilibre des prix ne saurait etre 
 altere. Oui, mais c'est a condition qu'on reste dajis 
 la limite, et qu'on ait toujours de I'or h. volonte." 
 That condition I propose to observe, and to have gold 
 always when wanted. 
 
APPENDIX. 935 
 
 In a former part of your letter, you admit that, gold 
 IS always to be procured at a price. You say: — 
 " Vous supposez qu'il n'est jamais difficile de se pro- 
 curer Tor; — Oui, pourvu qu'on le paie k son prix. 
 Triste commerce qui coiisisterait h. le payer cher pour 
 le livrer bon marche." 
 
 That admission is all I ask for. 
 
 I agree with you, that would be a losing trade on 
 those terms. 
 
 I do not propose to make the Bank of England a 
 trading concern, but a National Institution for the 
 Organisation of Credit in England, and the Bank of 
 England, with the real and the credit capital, which I 
 propose, would soon stop that losing trade and turn it 
 to profitable account. 
 
 If it be said that, the Bank of England, purchasing 
 gold, under such circumstances, by sale of its Govern- 
 ment Securities, would depreciate the Public Funds, 
 allow me to ask, in the words of Monsieur Isaac 
 Pereire : — " Lorsque la Banque allegue, pour motifs 
 de sa resistance h vendre ses rentes, le danger de pro- 
 duire une trop forte depreciation dans les cams, pour- 
 quoi n'hesite-t-elle jamais lorsqu'il s'agit d'imposer 
 aux autres cette meme depreciation et en meme temps 
 celle de toutes les valeurs, en diminuant brusquement 
 ses avances, et en rejetaut ainsi subitement une masse 
 de titres sur la place " ? 
 
 The point in this question I have dwelt upon with 
 great force of facts in my book and I should like to 
 see the answer. 
 
 But, after all, allow me to put this simple question 
 to you, as advocating the principle of our Bank Act of 
 1844. 
 
936 APPENDIX. 
 
 If you approve of the issue of Credit Notes to the 
 amount of £14,000,000 sterling,— Why do you object 
 to extend the issue to £40,000,000 ? 
 
 In answering this question, I would beg you to bear 
 in mind your admissions ;— " h condition qu'on reste 
 dans la limite, et qu'on ait toujours de I'or h. volonte ;" 
 —and again, — " qu'il n'est jamais difficile de se pro- 
 curer de Tor, pourvu qu'on le paie k son prix." 
 
 It is quite immaterial to me what the price is, if it 
 be the market price, and that it must be. 
 
 But you mistake me when you write ; — " Vous dites 
 -.'Le billet a toujours valu I'or?" — I have not said 
 so, but quite the contrary. And you add : — " Oui, 
 depuis 1844, non quand il I'expulsait, en tenant le 
 prix du numeraire, au-dessous de celui des autres 
 marches." And you further add : — " Vous voulez 
 maintenir un taux maximum invariable de I'escompte 
 k 4%, et conserver I'equilibre des valeurs metalliques 
 avec le reste du monde." In this also, you seem to 
 mistake me. 
 
 I say, (p. 153.) " Since the resumption of Cash pay- 
 ments in 1819, the Bank of England note has never 
 suffered discredit or depreciation." 
 
 I do not propose to maintain an invariable maximum 
 rate of discount at 4 per cent. 
 
 I propose only to fix that as the maximum for the 
 Bank of England, leaving it open to all the other 
 Banks, Discount Houses, and Bill-brokers to discount 
 at what rate they please. 
 
 I say, (p. 293) — "It is no wrong to any one, and 
 no infringement of a natural law, if the Government 
 fix the maximum rate of discount, and the maximum 
 
APPENDIX. 937 
 
 rate or price of money, called the Bank-rate, provided 
 the maximum be fixed at the lowest rate which the 
 welfare of the State permits." 
 
 These seem to be important differences between 
 what you suppose me to say, and what I do say, and 
 mean. 
 
 I should consider it of great importance, for leading 
 to a satisfactory settlement, if we could come to a 
 clear understanding and agreement on this question ; 
 or even if we could distinctly determine what are our 
 points of difference." 
 
 27tli October, 1865. 
 
 " Writing with the candour which^'you so much ap- 
 prove of, and in which I so^'entirely concur with you, 
 I will say that, after reading your book on 'La Ques- 
 tion des Banques' you have not touched on any of 
 the points on which I have, in my book, invited the 
 expression of opinion. 
 
 I think any further discussion quite unnecessary on 
 that part of the question, whether or not there 
 should be more than one Bank of Issue for Credit 
 Notes. 
 
 I think it clear that there should be only one Bank 
 for the issue of credit notes, and that the amount 
 issued should be^ under the regulation of the Legisla- 
 ture. 
 
 I think it equally clear that the amount of notes 
 issued should be regulated . by the requirements, but 
 should never exceed the means of payment in gold on 
 demand. 
 
 I think it may be left to the Bank to establish 
 
938 APPENDIX. 
 
 Branch Banks in the different parts of the kingdom, 
 according to the requirements. 
 
 But, for providing the means for the payment of 
 the Credit Notes in Gold on demand, I think it 
 essential that the Bank should be provided with a suf- 
 ficient amount of real capital. 
 
 I think M. Isaac Pereire would be satisfied with the 
 settlement of the Question on these principles. 
 
 Your book is almost entirely confined to the ques- 
 tion " de V unite, des billets." 
 
 I consider this question disposed of, and I am not 
 inclined to discuss a question, which, I think, is not 
 open to argument. 
 
 Your book, therefore, fails to interest me. 
 
 But, if you and the MM. Pereire agree with me 
 on these principles, the Question is substantially 
 settled between us, and we together may, perhaps, as- 
 sist in bringing about a satisfactory settlement of this 
 Question with our respective Governments. 
 
 I beg you to excuse me for presenting the question 
 to you in this short way, but I really think, it is only 
 by reducing it to a few simple and well defined points, 
 that a question of this complex nature can ever be 
 brought to a satisfactory settlement." 
 
 It is due to M. Wolowski to add that, in one of his 
 letters he makes ample acknowledgment of the advan- 
 tages of bank notes, in the following words, trans- 
 lated :— " No one appreciates more than I do the na- 
 tural advantages of notes. Their essence lies in the 
 facility of transmission, in the rapidity of settling ac- 
 counts, in the convenience of the evolutions, in the 
 quickness of the circulation. 
 
APPENDIX. 939 
 
 " The note thus spares the metallic instrument, — 
 not by replacing it, .since in this order of ideas the note 
 remains resting upon a corresponding sum in gold, 
 but by giving it a more positive utility. It is the work- 
 ing of the locomotive and the rail, instead of the horse 
 on the common road. But the road is not constructed 
 in the air and does not confound itself with the clouds, 
 and allow me to say, that in citing Adam Smith you 
 have forgotten the wings of Icarus."* 
 
 * See answer to this in note on p. 761. 
 
940 
 
 APPENDIX. 
 
 The following table shows the stocks of bul- 
 lion held by the Bank of England and the Bank 
 of France, during the year 1866. 
 
 No comments can add to the force of these 
 facts against the present system of the Bank of 
 England, under the Bank Charter Act of 1844. 
 
 Dates 
 
 Hmtk op Engiaud. 
 
 Bank of Feaitce. 
 
 
 Mini- 
 
 
 Mini- 
 
 of Eetums. 
 
 Bullion 
 and 
 
 mum 
 
 Bate 
 
 of 
 
 Bullion 
 and 
 
 mum 
 
 Bate 
 
 of 
 
 
 Specie. 
 
 Dis- 
 count. 
 
 Specie. 
 
 Dis- 
 count. 
 
 
 £ 
 
 
 £ 
 
 
 Jan. 3 and 4 
 
 13,106,183 
 
 8»/o 
 
 16,747,095 
 
 So/o 
 
 — 10 and 11 
 
 12,887,829 
 
 do. 
 
 15,942,830 
 
 do. 
 
 — 17 and 18 
 
 13,031,834 
 
 do. 
 
 15,503,172 
 
 do. 
 
 — 24 and 25 
 
 13,070,760 
 
 do. 
 
 15,655,125 
 
 do. 
 
 — Sl&Feb.l 
 
 13,165,480 
 
 do. 
 
 15,516,400 
 
 do. 
 
 Feb. 7 and 8 
 
 13,056,998 
 
 do. 
 
 16,224,065 
 
 do. 
 
 — 14 and 15 
 
 13,296,114 
 
 do. 
 
 16,820,044 
 
 4i7o 
 
 — 21 and 22 
 
 13,822,935 
 
 70/0 
 
 17,710,000 
 
 4 7o 
 
 — 28&Mar. 1 
 
 13,966,574 
 
 do. 
 
 17,975,543 
 
 do. 
 
 Mar. 7 and 8 
 
 14,050,504 
 
 do. 
 
 18,689,895 
 
 do. 
 
 — 14 and 15 
 
 14,327,618- 
 
 6% 
 
 18,906,607 
 
 do. 
 
 — 21 and 22 
 
 14,435,523 
 
 do. 
 
 19,807,5.52 
 
 nvo 
 
 — 28 and 29 
 
 14,362,397 
 
 do. 
 
 20,333,696 
 
 do' 
 
 Apr. -i and 5 
 
 14,251,047 
 
 do. 
 
 20,192,956 
 
 do. 
 
 — 11 and 12 
 
 14,234,118 
 
 do. 
 
 20,149,030 
 
 do. 
 
 — 18 and 19 
 
 13,fSS9,112 
 
 do. 
 
 20,418,276 
 
 do. 
 
 — 25 and 26 
 
 13,.So5,776 
 
 do. 20,706,935 
 
 do. 
 
 May 2 and 3 
 
 13,509,1 to 
 
 7 % 21,075,384 
 
 do. 
 
 — 9 and 10 
 
 13,156,1 k) 
 
 % 20,su9,932 
 
 i°/o 
 
 — 16 and 17 
 
 12,:i23,N(i5 
 
 10 7„ :iO,3s3,l83 
 
 do. 
 
APPENDIX. 
 
 941 
 
 Dates 
 of Returns. 
 
 Bank op England. 
 
 Bank op France. 
 
 Bullion 
 and 
 
 Specie, 
 
 Mini- 
 mum 
 Bate 
 of 
 Dis- 
 count. 
 
 Bullion 
 
 and 
 Specie. 
 
 Mini- 
 mum 
 Bate 
 of 
 Dis- 
 count. 
 
 May 23 and 24 
 
 — 30 and 31 
 June 6 and 7 
 
 — 13 and 14 
 
 — 20 and 21 
 
 — 27 and 28 
 July 4 and 5 
 
 — 11 and 12 
 
 — 18 and 19 
 
 — 25 and 26 
 Aug. 1 and 2 
 
 — 8 and 9 
 
 — 15 and 16 
 
 — 22 and 23 
 
 — 29 and 30 
 Sept. 5 and 6 
 
 — 12 and 13 
 
 — 19 and 20 
 
 — 26 and 27 
 Oct. 3 and 4 
 
 — 10 and 11 
 
 — 17 and 18 
 
 — 24 and 25 
 
 — 31&N0V.1 
 Nov. 7 and 8 
 
 — 14 and 15 
 
 — 21 and 22 
 
 — 28 and 29 
 Dec. 5 and 6 
 
 — 12 and 13 
 
 — 19 and 20 
 
 — 26 and 27 
 
 £ 
 
 11,857,786 
 11,878,775 
 13,278,961 
 14,481,895 
 14,851,120 
 15,042,399 
 14,876,945 
 13,933,470 
 13,645,975 
 13,716,829 
 13,793,340 
 13,622,429 
 14,150,956 
 14,772,220 
 15,832,020 
 16,195,212 
 15,974,777 
 16,223,516 
 16,729,262 
 16,879,137 
 16,467,566 
 16,133,363 
 16,377,358 
 16,723,596 
 16,891,606 
 17,144,607 
 17,752,914 
 18,175,570 
 18,237,044 
 18,551,471 
 18,815,714 
 19,247,859 
 
 10% 
 . do. 
 do. 
 
 10% 
 do. 
 
 d" 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 8% 
 
 7% 
 
 6»/„ 
 
 5% 
 
 do. 
 
 do. 
 
 4i% 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 4% 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 3t% 
 do. 
 
 £ 
 21,466,108 
 22,523,808 
 24,093,129 
 24,523,322 
 25,096,910 
 25,984,912 
 26,729,511 
 26,291,640 
 26,867,859 
 27,583,393 
 28,275,056 
 29,019,037 
 29,234,000 
 29,847,033 
 29,803,000 
 29,876,779 
 29,356,720 
 29,589,720 
 29,097,508 
 28,143,535 
 27,250,535 
 26,620,500 
 26,310,000 
 25,614,855 
 25,466,427 
 25,334,341 
 25,897,889 
 26,612,882 
 27,177,985 
 27,703,985 
 28,411,605 
 28,580,987 
 
 4% 
 
 do. 
 
 do. 
 
 4% 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 31% 
 
 do. 
 
 do. 
 
 3% 
 . do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
 do. 
 
942 
 
 The Author takes this opportunity of more ex- 
 pressly acknowledging the information which he has 
 derived from the well known and admirable work of 
 Mr. Henry Dunning Macleod on ' The Theory and 
 Practice of Banking/ the 2nd Edition of which, en- 
 larged and much improved, was published shortly 
 after the 3nd Edition of this work. 
 
 Also from Mr. Patterson's recent and valuable 
 work on ' The Economy of Capital.' 
 
 Also from Mr. Lawson's established and useful 
 work on ' The History of Banking,' and his recent 
 work on ' The Bank of England As It Is, And As It 
 Ought To Be.' 
 
 And from the interesting little volume of Mr. 
 Frederick Martin, 'Stories Of Banks And Bankers.' , 
 
 The author has been favoured with many private 
 communications, through his Publishers, on the 
 subject of his book; but among these he has not 
 found anything requiring his particular notice. 
 
 The Public Press, as it is called, has also been polite 
 enough to notice the book in terms more or less 
 commendatory; but, unfortunately, all these notices 
 betray profound ignorance on the subject. 
 
 One of the leading London Journals, in a long 
 and complimentary notice, gave the Author much 
 credit for his enlightened views on this Question; 
 but, unluckily, the Editor went so far in his remarks 
 as to show that, he not only misunderstood the ques- 
 
APPENDIX. 943 
 
 tioii and the object of the whole book, but that, he 
 gave the Author credit for maintainiug opinions 
 which, in fact, he was refuting. The name of that 
 leading journal is withheld in return for the favour 
 of its obliging intention. 
 
 The flippant notice of the book in the 'West- 
 minster Review,' for January, 1866, is almost en- 
 tirely confined to a few silly remarks on the title, — 
 " Organisation of Credit," — which the Editor objects 
 to. This is simply discreditable to the Editor of that 
 Periodical. 
 
 The Bank Question is now fully and fairly before 
 the Public. It is for them to determine the future 
 course. 
 
945 
 
 THE BANK OF ENGLAND NOTE. 
 
 The Bank of England secures its note-issues 
 in the same way that it secures its deposits. In 
 each case it finds by experience the amount 
 which is liable to be called for, and it keeps that 
 amount in hand, or ready at call. 
 
 When specie is wanted for export, to make 
 payments abroad, such a demand is never made 
 by the note-holders, but is always made by the 
 depositors. 
 
 The note-holders never take notes to the Bank 
 to be exchanged for specie, unless required for 
 ■ small change.' 
 
 In England, Bank-notes of less value than £5 
 are not allowed to be issued ; but in Scotland, 
 where £1 Bank-notes are allowed to be issued, 
 gold, for 'small change,' is scarcely ever de- 
 manded, the notes being preferred. 
 
 To meet the demands of the note-holders for 
 specie, the Bank of England, with an issue of 
 twenty millions of notes, does not require to 
 keep in hand more than about £100,000 in gold. 
 
 The Bank of France, with an issue of notes to 
 
 3 p 
 
946 APPENDIX. 
 
 more than thirty millions, sterling, does not re- 
 quire to keep in hand a larger sum in specie 
 than the Bank of England does. 
 
 The note issues of the Bank of England and 
 the Bank of France are, in proportion to their 
 amount, the most trifling of all their liabilities. 
 
 Bearing in mind these facts, the immense im- 
 portance, to the country at large and to the com- 
 mercial community in particular, of a Bank es- 
 tablished on the principles here laid down must 
 be apparent. 
 
 A Bank, established and conducted on these 
 principles by honourable and competent men, with 
 a capital equal to the requirements, would insure 
 the confidence of the Public. It is better to 
 confine the responsibility to a few, than to spread 
 it over many, and a liberal remuneration, for the 
 faithful discharge of responsible duties, is the 
 wisest economy. 
 
 The following Outline of a Scheme, for the es- 
 tablishment of such a Bank, it is submitted, 
 offers greater benefits to the commercial com- 
 munity than the Bank of England, as at present 
 constituted, can ever afford, and, at the same 
 time, a safer and more profitable investment for 
 unemployed capital and savings, than has ever 
 yet been presented to the Public by any Joint 
 Stock Company. 
 
947 
 
 THE UNITED KINGDOM BANK. 
 Capital, £5,000,000. — Limited. 
 
 This is a proposal for the formation of a Bank 
 on a new principle, with a view to correct the 
 errors and to supply the deficiencies of the Bank 
 of England, as at present constituted. 
 
 The following is a short Outline of the pro- 
 posed plan : — 
 
 1. The Company to be formed on the Joint 
 Stock principle, with Limited Liability. 
 
 2. The Capital of £5,000,000, to be raised by 
 subscriptions of £50 and any multiple of £50y 
 and the Bank not to be opened until the whole 
 £5,000,000 be paid up and invested in the 3 
 per Cent. Consols ; but this Capital Stock to be 
 increased, from time to time, by subscriptions, 
 to any larger amount, in sums of £50 and any 
 multiple of £50, to form the capital stock of the 
 Company. 
 
 3. The Company to keep a sum of money in 
 hand to meet the requirements, according to the 
 judgment and discretion of a majority of all the 
 Directors. 
 
 4. Capital Stock to be sold out of Consols 
 
 3 p 3 
 
948 APPENDIX. 
 
 from time to time as required for the purposes 
 of the Bank. 
 
 5. No Capital Stock to be sold without the 
 concurrence of a majority of all the Directors. 
 
 6. The whole net profits of the Bank, after 
 reserving a yearly sum, by way of Rest, at the 
 discretion of the Directors, to be divided among 
 the Stock-holders, by an equal rateable per cen- 
 tage, payable half yearly in each and every year. 
 
 7. The Directors to be nine in number, and 
 to be chosen by the Stock-holders. 
 
 8. The Directors to elect annually, out of 
 their own number, a Governor and Deputy 
 Governor for one year. At the end of the year, 
 the Deputy Governor to succeed the Governor 
 retiring, and each Director in his turn to be- 
 come the Deputy Governor and Governor in suc- 
 cession. 
 
 9. On the death or retirement of a Director, 
 or if, in the opinion of a majority of the Direc- 
 tors, it should be deemed expedient to remove 
 any Director, his place to be supphed by such 
 person as shall be elected by a majority of the 
 Directors, subject to confirmation by the Stock- 
 holders at the Annud General Meeting. 
 
 10. Four Directors, with the Governor or De- 
 puty-Governor, to form a Board of Directors for 
 conducting the business of the Bank, and the 
 
APPENDIX. 949 
 
 Board to meet daily at the Bank for conducting 
 the business of the Bank. 
 
 11. If a sufficient number of Directors be not 
 present to form a Board at the appointed hour 
 of meeting, each absent Director is to be fined £5 
 for each day's non-attendance. 
 
 12. The following sums to be paid to the Di- 
 rectors yearly, by quarterly payments, in remu- 
 neration for their services : — 
 
 The Governor £2000 
 
 The Deputy Governor . . . 1600 
 Each other Director . . .'1200 
 
 13. The Company's Stock to the amount of 
 £2000 stock, or upwards, to be a quahfication for 
 a Director. 
 
 14. A Weekly Statement of the affairs of the 
 Bank, signed by the Chief Cashier of the Bank, 
 in the form hereinafter given, to be published in 
 the ' London Gazette' every Friday. 
 
 15. The Bank not to advance money by way 
 of Loan, except on British Government Securi- 
 ties, and then only to an amount not exceeding 
 three-fourths of the market value of such securi- 
 ties, and not to advance money by way of Loan, 
 (unless a foreign loan), or to discount a bill at a 
 higher rate than 4 per cent. 
 
 16. The Bank not to discount any bill with 
 less than three signatures, unless a well known 
 
950 APPENDIX. 
 
 and approved bill ; and not to discount the bill, 
 however well known and approved, of a Director 
 of the Bank, with less than three signatures. 
 
 17. The Bank not to advance money on the 
 security of any foreign Government, (the British 
 Government in India being included as a foreign 
 Government), without the concurrence of a ma- 
 jority of the Board of Directors. 
 
 18. The Bank not to allow interest on deposits. 
 
 19. The Bank to conduct its affairs in aU other 
 respects like other Banks. 
 
 20. An Annual General Meeting of the Stock- 
 holders to be held on the 4th day of March in 
 each year, and the Governor of the Bank then to 
 submit to the meeting, in a short printed form, 
 a general statement of the affairs of the Com- 
 pany, showing the net profits of the past year, 
 with the amount reserved for Rest, and the Divi- 
 dend payable to the Stock-holders. 
 
 21. £5 per cent, on the amount subscribed 
 to be paid down as a deposit by each subscriber 
 at the time of subscribing, and the same to be 
 returned to the subscriber (but without interest), 
 if the Bank be not opened for business on or 
 before the day of , unless for- 
 feited, as hereinafter mentioned. 
 
 22. The remainder of the amount subscribed 
 to be paid down on or before the day 
 
APPENDIX. 951 
 
 of , or the deposit, previously paid, 
 
 to be forfeited. 
 
 23. Tiie Directors to be jointly and severally 
 responsible for the return of these payments to 
 the parties paying the same, or to their legal 
 personal representatives (but without interest), 
 if the Bank be not opened for business on or be- 
 fore the day of 
 
 24. In the meantime the money, so paid to 
 the Directors, to be forthwith invested by them 
 in the purchase of 3 per Cent. Consols, in their 
 joint names. 
 
 25. When the whole of the £5,000,000 is so 
 paid and invested in 3 per Cent. Consols, the 
 Directors are to apply to Parliament for a Charter 
 of Incorporation to ' The Governor and Company 
 of the United Kingdom Bank.' 
 
 26. The Charter to be granted for 99 years, 
 subject to revocation by the Government for the 
 time being, on twelve months' notice. 
 
 From this outline it will be seen that, a Bank, 
 so established and conducted, will rest on a safe 
 basis, which can never be seriously affected by 
 any monetary or commercial changes, and that, 
 as a Bank of deposit and discount, it can be 
 second only to the Bank of England. 
 
952 APPENDIX. 
 
 If the Bank of England were conducted on 
 sound principles, such a Bank as this now pro- 
 posed, though perfectly consistent and compati- 
 ble with the Bank of England, so constituted, 
 would be unnecessary for falfiUing the duties 
 which ought to be performed by the Bank of 
 England, as a National Bank. 
 
 It will be evident that, the primary object is, to 
 afford that assistance to the commercial commu- 
 nity, in regard to advances and discounts in the 
 time of need, which the Bank of England, from 
 the want of capital, is unable to render. 
 
 The whole or any part of the Capital of the pro- 
 posed Bank would be applicable to discounts, and 
 for this purpose the money required from time to 
 time would be realised by sale of Government 
 Securities, and always ready in hand or at call. 
 
 The United Kingdom Bank will not only be 
 quite independent of the Bank of England, but 
 will exercise a wholesome control over it, so far 
 as to confine its maximum rate of discount to 4 
 per cent. ; for, it is obvious that, the Bank of 
 England will discount no bill at a higher rate, 
 if it can be discounted at the United Kingdom 
 Bank at 4 per cent. 
 
 It is also obvious that, the Bank of England, 
 unless it confined its discounts within the maxi- 
 mum, would be liable to lose both its notes and 
 
APPEN'DIX. 953 
 
 gold without the profit of the discount, and would 
 no longer be able to bring back either, by its 
 present practice of reducing its discounts. 
 
 But, the effect of this would only be to neu- 
 tralise the power of the Bank of England, and 
 bring down the market price of its stock, unless 
 the Bank of England altered its practice. In 
 the sanae proportion it would raise the market 
 price of the stock of the United Kingdom Bank, 
 and. the benefits to the commercial community 
 would be incalculable. 
 
 It would not be compulsory to discount at all, 
 but, practically, the effect would be, to fix the 
 maximum for all discounts at 4 per cent. 
 
 The United Kingdom Bank would be under 
 no anxiety about the gold, and would require 
 to keep in hand only a small amount of that pre- 
 cious metal for the convenience of change. 
 
 The Bank of England would be answerable 
 for the gold as well as for the notes. 
 
 This necessary consequence would command 
 a good understanding between the Bank of Eng- 
 land and the United Kingdom Bank, though the 
 operations of the latter would prevent the former 
 from continuing to practise what it calls, its 
 ' salutary warnings,' but which are, in fact, only 
 notices of intended exactions on the trade and 
 industry of the country. 
 
954 APPENDIX. 
 
 Another beneficial efiect would be, to counter- 
 act the conspiracies of the great Capitalists, and 
 to sweep away all the jobbing discount and 
 financial Companies ; but would in no way inter- 
 fere with the well-established and well-conducted 
 Joint Stock Banking Companies, further than 
 by confining their loan and discount transactions 
 within the maximum of 4 per cent., and reducing 
 their rate of interest on deposits. 
 
 The Public would then have the choice between 
 taking interest, at a reduced rate, on their de- 
 posits in the Joint Stock Banks, or participating 
 in the profits of the United Kingdom Bank, and 
 those profits would be in proportion to the confi- 
 dence of the Public in the Bank. 
 
 If the afiiairs of the Bank, under the manage- 
 ment of nine honorable and competent Directors, 
 were so conducted as to justify public confidence, 
 it would be freely given, and then the market 
 price of United Kingdom Bank Stock would 
 soon exceed the market price of Bank of Eng- 
 land Stock, if the dividends now paid by the best 
 of the existing Joint Stock Banks and Discount 
 Companies may be taken as a fair criterion. 
 
 The United Kingdom Bank, on the plan pro- 
 posed, would combine all the profits of the Joint 
 Stock Banks, without the drawback in the in- 
 terest, which they pay on deposits, and this dif- 
 
APPENDIX. 955 
 
 ference alone would be a very large advantage ; 
 but in addition to this would be the further very 
 great advantage that, all payments to the United 
 Kingdom Bank, if entered as deposits and not 
 to the credit of current accounts, would not be 
 liable to be removed at the pleasure of the de- 
 positors, but would be permanent investments of 
 capital, though always saleable as Bank Stock, 
 which would be continually increasing, but could 
 never diminish, at least whilst the Bank continued 
 to be a well-conducted and flourishing concern, 
 as it must always be, whilst conducted on these 
 principles. 
 
 The United Kingdom Bank Stock would be a 
 safe and profitable investment, always open to 
 receive the savings and unemployed capital of the 
 country, from £50 and its multiples, and would 
 be at all times as saleable and as easily trans- 
 ferred as Bank of England Stock, but would 
 soon pay even a higher dividend; moreover, 
 the United Kingdom Bank would offer advan- 
 tages much greater than can ever be ofi'ered 
 by the Post Office Savings Bank or any other 
 Savings Bank, for any amount from £50 and its 
 multiples. 
 
 Every holder of Stock in the United Kingdom 
 Bank would receive, half-yearly, an equal rate- 
 able per centage on the whole of the divisible 
 
956 APPENDIX. 
 
 net profits of the concern, without the smallest 
 personal trouble or liability. 
 
 It is not unreasonable to calculate that, the 
 stockholders would exercise all their influence for 
 promoting the prosperity of the concern, in which 
 they were so personally interested, and that, in a 
 few years, the United Kingdom Bank would be a 
 great open reservoir of a large portion of the sav- 
 ings and unemployed capital of the country, and 
 would, in time, constitute the largest capital of 
 any banking establishment in the world. 
 
 In this way the United Kingdom Bank would 
 not only neutralise, in a great measure, the in- 
 jurious effects of the Bank of England, as at 
 present constituted, but would be a very powerful 
 prop to that infirm old Lady in Threadueedle 
 Street. 
 
 The foregoing is only a short outline of the 
 proposed scheme, for the purpose of showing the 
 principal objects in view. 
 
 Many other Rules and Regulations would be 
 required, but those might properly be left to be 
 made, as Bye Laws, by the Directors, according 
 to their discretion, as occasions might from time 
 to time require ; provided that nothing be intro- 
 duced inconsistent with the principles here laid 
 down, as essential principles for the constitution 
 of the Company. 
 
APPENDIX. 957 
 
 If it be objected that, the whole capital of the 
 Company would be in the power of the Direc- 
 tors, that is true ; but that is an incident inherent 
 in the Bank of England and every other Banking 
 Association. 
 
 But, it is submitted that, the selection of nine 
 honorable and independent Directors would be 
 a sufficient guarantee against fraud or neglect of 
 duty, and, perhaps, a more effectual guarantee 
 than if the number of Directors were increased, 
 as the smaller number would impose upon each 
 and all the stronger necessity for devoting his 
 and their time and attention to the affairs of the 
 Bank ; and for their services, the remuneration, 
 though not large, would be more than merely 
 honorary. 
 
 It will be evident from this short Outline that, 
 the duties of the Directors, though very impor- 
 tant and highly responsible, would be very sim- 
 ple, and easily performed by ordinary men of 
 business acquainted with banking. 
 
 By the constitution of the Company, the sphere 
 of action for the Directors would be extremely 
 limited, and their discretion would be almost 
 confined to the bills which they discounted, for 
 which little more would be required than the 
 practical experience and caution of bankers. 
 
 It will also be evident that, all Depositors will 
 
958 APPENDIX. 
 
 be Creditors of the Bank, but without power to 
 call for payment of their principal, as long as the 
 dividends, or proportionate shares of the net profits 
 to be distributed, are duly paid half yearly. 
 
 The Creditors of the Bank, therefore, will be 
 precisely in the situation of the Creditors of the 
 National Debt, the Stock of the Bank being, like 
 the Government Stock or figures in the Bank 
 Books, an acknowledgment of the debt, but debt 
 unclaimable by the Creditor, and redeemable by 
 the Debtor only at par, though, like Government 
 Stock, always saleable and transferable by the 
 Creditor, whenever it is desired to convert the 
 Stock into money. 
 
 The depositors in the Bank will, therefore, be 
 able at all times to realise in money, with the 
 same facility as by Sale of Government Securities 
 or Bank Stock, at the market price of the day. 
 
 It is obvious that, the depositors; by their con- 
 tributions or subscriptions to the funds of the 
 Bank, would be free from all liability, and that, 
 the Directors would be liable only for their own 
 acts, deeds, and wilful defaults. The risk of loss, 
 if any, would, therefore, be so small as to be in- 
 appreciable, and the net profits, after setting apart 
 the sum reserved for Rest, would be divisible in 
 equal proportions among the depositors or sub- 
 scribers. 
 
APPENDIX. 959 
 
 But it is not so much the present object to 
 hold out a seductive scheme for large returns to 
 Subscribers and Depositors, as to secure the cer- 
 tainty of discount at all times for all good bills, of 
 short dates, at a rate not exceeding 4 per cent. 
 
 It is not the present purpose to show what 
 would be the profits to the Shareholders from 
 such a Bank as this, nor would any calculation, 
 that could now be made with that view, be de- 
 serving of much attention. 
 
 As the ground-work for such a calculation, the 
 following few and simple facts, bearing upon this 
 very material part of the question, are offered to 
 the Public for consideration. 
 
 The Capital of £5,000,000, if invested in 3 
 per cent. Consols, would produce £150,000 a 
 year. 
 
 If this capital sum we;'e employed in discount- 
 ing good bills of short dates, at 4 per cent., and if 
 the profits, as received, were employed in dis- 
 counting in the same way, the produce would 
 be nearly equal to 5 per cent per annum, or 
 £250,000 a year. 
 
 If, in addition to this subscribed capital, 
 £500,000 of the unemployed capital and savings 
 of the country were deposited with the Bank 
 permanently, as Bank Stock, without Interest, 
 and if this capital sum were employed in dis- 
 
960 APPENDIX. 
 
 counting good bills in the same way, the produce 
 would be, say, — £250,000 a year; thus making 
 the whole produce for discounts, say, — £500,000 
 a year. 
 
 If the subscribed capital and deposits together 
 amounted to £50,000,000, the yearly profits di- 
 visible, from discounts, would be £2,500,000. 
 
 The Profits would be divisible, half-yearly, 
 rateably among the Subscribers and Depositors 
 of the Bank, instead of Interest. 
 
 The annual Savings of the United Kingdom 
 are estimated at £130,000,000 sterling. 
 
 In January, 1865, the amount of deposits in 
 the' Savings-Banks was £43,615,000. 
 
 In addition to the profits of discount, would 
 be the profits on the cash balances to the credit 
 of the accounts current at the Bank, and the 
 legitimate profits to be made from the difierences 
 in the Foreign Exchanges. These additional 
 profits, at a moderate computation, would be 
 much more than sufficient to meet all the ex- 
 penses of the Bank. 
 
 The amount of unemployed capital in this 
 country is not calculable, and it is impossible to 
 calculate what amount of unemployed capital and 
 savings might be invested in a Bank established 
 and conducted on these principles, with the gua- 
 rantee of nine honourable, well known, and ap- 
 
APPENDIX. 961 
 
 proved names in the City of London, offering a 
 well secured return of 5 per cent, per annum, at 
 the least, on all investments, to the amount of 
 £50 and the multiples, free from income tax and 
 all other deductions, and free from all risk of di- 
 minution of capital, as well as from all risk o'f 
 personal liability. But the great gain, and that 
 would be incalculable, would be to the trade and 
 industry of this country, in the certainty that 
 all good bills would be discounted at the United 
 Kingdom Bank at all times, at a rate not exceed- 
 ing 4 per cent., and that the Bank of England 
 must always provide the notes and the gold to 
 meet all the requirements. This would be the 
 primary object. The profits of the Bank, though 
 of essential importance for the success of the 
 scheme, and a necessary consequence, would be 
 only a secondary object. 
 
 The proposer of this scheme has no intention 
 of taking any part in it, and no view of personal 
 benefit to himself from it. He has never held a 
 share in, or been in any way connected with, any 
 public company, and has never had, nor is ever 
 likely to have, occasion to get a bill discounted. 
 He always pays in ready money, and takes the 
 discount. 
 
 But he would regard it as a happy and honor- 
 able circumstance of his life to have exposed the 
 
 3 Q 
 
962 APPENDIX. 
 
 very serious errors in the constitution and prac- 
 tice of tiie Bank of England, and to have pro- 
 vided a remedy for some of the defects. 
 
 Estabhshed custom is not easily broken, till 
 some great event shakes the whole system of 
 things, and hfe seems to recommence upon new 
 principles. 
 
 Leibnitz said : — " If it happened to be the in- 
 terest or supposed interest of men to believe 
 that two and two made five, it would be ex- 
 tremely difficult to convince them of their error." 
 
 But, in the long run, the interests of mankind 
 will always prevail over their prejudices, and truth 
 will displace error. 
 
 In this case, the continuance of the error can 
 be clearly traced to the influence of the large 
 capitalists, who are well satisfied with things as 
 they are, and wish for no change. 
 
 Life consists not of a series of great actions 
 or tranquil enjoyments. The greater part of our 
 time passes in compliance with necessities, in the 
 performance of daily duties, in the removal of 
 small inconveniences, in the procurement of petty 
 pleasures ; and we are well or ill at ease, as the 
 main stream of life glides on smoothly, or is 
 ruffled by small obstacles and frequent interrup- 
 tions. The true state of every nation is the state 
 of common life. The manners of a people, are 
 
APPENDIX. 963 
 
 not to be found in the schools of learning or the 
 mansions of the great, where the national charac- 
 ter is obscured by instruction or vanity ; nor is 
 public happiness to be estimated by the assem- 
 blies of the gay or the banquets of the rich. The 
 great mass of the people of all nations is neither 
 rich nor gay. The aggregate, which constitutes 
 the people, is found in the streets and the villages, 
 in the shops and the farms ; and from them, collec- 
 tively considered, must the measure of general 
 prosperity be taken. As they approach to deli- 
 cacy, a nation is refined; as their conveniences 
 are multiplied, a nation, especially a commercial 
 nation, must be denominated wealthy. But, the 
 progress of a people to delicacy and a nation to re- 
 finement is, we know from experience, very slow. 
 What cannot be done without some uncommon 
 trouble or particular expedient, will not often be 
 done at all. We see plentiful instances of this 
 in the habits of all people, especially in the 
 poorer classes. The necessity of ventilating 
 human habitations has not yet been found by the 
 poor, nor even by the rich, though the fresh air of 
 heaven is open and free to us all. The apathy and 
 indifference of the rich, combined with the ignor- 
 ance and thoughtlessness of the poor, confine all 
 nations and people within the narrow limits of a 
 monotonous routine, which seems as if it could 
 
 3 Q 2 
 
964 APPENDIX. 
 
 be broken through oniy by some sudden and 
 great disaster. 
 
 Of all the great discoveries made for the 
 benefit of mankind, scarcely one has been re- 
 ceived without opposition. 
 
 Every one who has tried to bring the Govern- 
 ment to abandon a mistaken system or to adopt 
 sounder views, has been compelled to admit, with 
 bitterness and indignation, that it is not to the 
 members of the Government, but to the Public 
 that he must address himself. He must convince 
 the Pubhc, not the Government ; and when the 
 Public is enlightened and grows noisy, then the 
 officials follow tardily and reluctantly. 
 
 The present question is one of that class, which 
 is peculiarly open to these remarks. 
 
 These is no question which so deeply concerns 
 the commercial welfare of this commercial 
 country, as how to provide, at a moderate and 
 fixed rate of interest, a supply of money equal to 
 the legitimate requirements ; but there is no 
 question of national importance, which has re- 
 ceived so little attention as this from the succes- 
 sive Governments of the last twenty years. 
 
 The Public has from time to time, for the last 
 twenty years, when suffering under the disastrous 
 consequences of the frequent financial distiu-b- 
 ances, demanded and obtained a Parliamentary 
 
APPENDIX. 965 
 
 Inquiry into the cause, and every inquiry has 
 fixed the cause on the Bank Charter Act of 
 1844. But still that Act remains in full force, 
 and the Government has not only afforded no 
 relief, but does not even admit that any relief is 
 required, and holds out no prospect that any is 
 intended to be given. 
 
 The people, who are the sufferers, are utterly 
 incompetent, and ever must remain incompetent, 
 to understand a question of this abstruse and 
 complex nature, and the Government, undis- 
 turbed by agitation, is well content to leave the 
 subject where it is, and that is, in the hands of 
 the great capitalists and bankers who are well 
 content with the rich harvests', which they are so 
 frequently reaping, amidst the wide-spread ruin 
 of our manufacturing and mercantile community 
 from money panics. 
 
 Long continued discoui-agement of hope, that 
 any remedy will be provided for the evils, which 
 all acknowledge, but none will face, has at length 
 brought a very general feeling of disinclination to 
 the further consideration of the subject, and it 
 seems as if this most important and practical 
 State question had been consigned to the study of 
 a few thoughtful but unpractical men. 
 
 The mercantile community in general admit, 
 there can be no doubt that, it would be a great 
 
966 APPENDIX. 
 
 boon to the commercial world to have something 
 like a moderate and fixed rate of interest, instead 
 of the violent fluctuations of the last twenty 
 years ; but they say, it requires much time and 
 experience to make the public appreciate the ad- 
 vantages of any new system, and it is very doubt- 
 ful whether any men of capital and influence will 
 be found to take up and carry out such a scheme 
 as this, however great the promise, for the public 
 good. 
 
 This is the question on which the present 
 appeal is made to the mercantile and manufactur- 
 ing interests of this great commercial country. 
 
 The Author has submitted this outhne of the 
 proposed Joint Stock Bank to some of the prin- 
 cipal Bankers, Merchants, and Capitalists of the 
 City of London, and to the Managers of the prin- 
 cipal Joint Stock Banks, for their consideration. 
 
 The opinions, which he has received, are va- 
 rious, and, on the whole, not unfavourable to 
 the trial of this important experiment for the 
 Organisation of Credit in England. But it is a 
 significant fact, that all the great Bankers, Mer- 
 chants, and Capitahsts of the City of London, 
 without a single exception, to whom the proof 
 sheets of these last few pages, from page 945 to 
 966, were sent for their opinion, politely dechned 
 to express any opinion. 
 
APPENDIX. 967 
 
 They were not invited to take part in the pro- 
 posed Joint Stock Bank, but simply to express 
 their opinion on the expediency, assuming the 
 practicability, of fixing the maximum rate of dis- 
 count at 4 per cent, for that Bank only. 
 
 That is the question which most of the great 
 Bankers, Merchants, and Capitalists of the City 
 of London refuse to answer. Of their reasons 
 for that refusal the Public at large will form their 
 opinion. 
 
 The Author would respectfully recommend 
 the formation of a Committee of some of the 
 leading Bankers, Merchants and Capitalists of 
 the City of London, with the view of obtaining 
 public opinion on the proposed scheme, prepara- 
 tory to the establishment of a Joint Stock Bank 
 on these principles. 
 
 The amendment of the Bank Charter Act 
 will then be a question of comparatively small 
 importance to the country; and the Bank of 
 England, as at present constituted, will continue 
 for some years longer to excite the astonishment 
 and contempt of all Europe. 
 
 That the change will be made, sooner or later, 
 is certain, but not until some more "money 
 panics " have been stopped by the illegal inter- 
 vention of the Government, and a few more 
 substantial commercial houses have fallen under 
 
968 APPENDIX. 
 
 the evil influence of that Act, which the late Mr. 
 Thomas Tooke described as, "the mostjwanton, 
 ill-advised, pedantic, rash pieces of legislation," 
 which he had ever known. 
 
 By the trial of this experiment under the 
 guarantee of nine honourable and well known 
 names in the City of London, the most import- 
 ant of the disputed points, in this much vexed 
 question will be answered by the irresistible evi- 
 dence of facts, and then theory and practice will 
 be reconciled and estabhshed on grounds intel- 
 ligible to all understandings. 
 ■ Mankind are accustomed to fall into mistakes 
 through prejudice, through perverse or improper 
 prepossessions in favor of any one, and, whilst 
 they boldly and doggedly stand up in defence of 
 their erroneous judgment, are at length com- 
 pelled to acknowledge their error, by the power- 
 ful all-potent evidence of facts. 
 
 This was said in fewer words by an elegant 
 Latin Poet, who thus mildly referred to the mis- 
 takes of his time, under which he himself suf- 
 fered : — 
 
 " Pravo favore labi mortales solent, 
 Et, pro judicio dum staiit erroris sui, 
 Ad pcenitendum rebus manifestis agi." 
 
 PHiEDRUS. 
 
APPENDIX. 
 
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The triangle is tlie symbol of tlie three constitutional 
 estates of the realm, supported by the People outside, 
 the freedom of the People being the basis of the whole. 
 
 The Circle is the symbol of eternity, and the legend 
 within records the three great political truths. 
 
971 
 
 INDEX. 
 
 A. 
 Academie des Sciences Morales et Politiques, 449. 
 Account, Weekly, of the Bank of England, 212, 299, 589. 
 
 new form proposed, 271. 
 
 explained, 596. 
 Act, Bank, of 1844, main enactments of, 2. 
 
 main object of, 616. 
 Act, Silyer Coinage, 174, 191, 193. 
 Agra and Masterman's Bank, 104. 
 Alexander and Co., 346. 
 Alexander, Mr. Nathaniel, his opinion, 704. 
 Allowance, Proposed, to the Bank of England, 604. 
 American Free Banking Act, 418, 495, 501, 535, 538. 
 
 Crisis in 1857, 667. 
 Arbitration of Exchanges, 910. 
 Ashburton, Lord, his opinion, 634, 702. 
 Assignats, Erench, 24, 36, 418, 539. 
 Atermoiements, 821, 824. 
 Austin on Jurisprudence, 790. 
 Authorised Issues of Bank of England, 197. 
 Ayr Bank, 24. 
 
 B. 
 
 Balance of Trade, 477, 481, 796, 818. 
 
972 INDEX. 
 
 Bank Charter Act, main enactments of, 2. 
 
 radical defect of, 11, 24. 
 
 suspensions of, 94, 394. 
 
 condemned by Committees of Inquiry, 95. 
 
 substituted terms, 268. 
 
 explanation of, 373. 
 
 injurious effects of, 357. 
 
 absurdity of, 367, 379. 
 
 main object of, 616. 
 
 effect of, 808. 
 Bank of England, run on in 1825, 10. 
 
 notes not depreciated since 1819, 10. — 
 
 Note, 945. 
 always solvent, 11. 
 credit capital of, 25. 
 
 not different from other banks, 196, 206. 
 Government Debt to the, 197. 
 reserve, rule for, 211, 228, 301. 
 deficiency of, exemplified, 230, 234. 
 has no capital, 198, 594. 
 privileged issues, 197. 
 average note circulation, 199. 
 average coin and bullion, 300. 
 weekly returns, 212, 313. 
 raises discount for want of notes, 215. 
 profits of issue, 246. 
 
 deficiency of capital, 347, 508, 501, 785. 
 discounting on deposits, 349. 
 rates of discount, 354. 
 proposed form of weekly return, 271. 
 proposed Government allowance to, 303. 
 to Directors, 310. 
 ' proper object of, 351, 369. 
 issues on deposits, 352, 353. 
 influence of, on discounts, 370. 
 average stock of bullion, 390. 
 
INDEX. 973 
 
 Bank of England, average issue of notes, 391. 
 mission of the, 472, 785. 
 bad practice of the, 489, 509, 636. 
 misuse of its credit capital, 517. 
 capital of, how disposed of, 594. 
 reserve, how to protect it, 524. 
 compared with the Bank of France, 656, 
 
 784, 852. 
 both Banks should be established on the 
 
 same principle, 543, 835. 
 average daily financial operations of the, 
 
 605. 
 perfect system of accounts, 606. 
 courtesy in all the departments, 607. 
 free from interference of the State, 608. 
 regulates commercial credit, 785. 
 difference of rate of interest and discount, 
 
 809. 
 deficient as a bank of issue, 848. 
 wants notes, 871. 
 the reserve should be proportioned to the 
 
 issue, 879. 
 functions of the, 880. 
 Banking Department separate from the Issue Department, 
 4, 205, 848. 
 
 Lord Overstone's opinion in favor of 
 
 this separation, 12. 
 effects of this separation, 145. 
 Bank Act of 1797, 129. * 
 
 of 1819, 130. 
 of 1833, 133. 
 of 1844, 134, 137. 
 of 1845, 138, 140. 
 of 1844, suspensions of, 394. 
 Banks, The object of, 227. 
 
974 INDEX. 
 
 Banks, The province of, 369. 
 
 Private ought not to issue their own notes, 587. 
 notes in excess cannot be kept in circulation, 777. 
 ought not to speculate, 801. 
 principles of the constitution of, 907. 
 Bank notes and money, distinction between, 361. 
 Bank Question, The, differences of opinion, 435. 
 Bank Directors, not impartial judges, 414, 5-36, 582. 
 Banking Act, Free, of America, 495, 535, 930. 
 Banking and Free Trade, 367. 
 
 Banking Companies and Railway Companies compared, 829. 
 Banking not proper for a State, 373. 
 Bankers and Goldsmiths, 360. 
 Bank Stock Proprietors, 377. 
 
 Bank of France, The, raises discount for want of specie, 315. 
 practice of, 389, 489, 636. 
 average stock of bullion, 391. 
 compared with the Bank of England, 
 
 608, 614, 656, 784, 853. 
 both Banks should be established on 
 
 the same principle, 543, 544. 
 subject to the State, 608. 
 regulates commercial credit, 785. 
 deficient in capital, 785. 
 difference of rates of interest and dis- 
 count, 809. 
 importance of entente with the Bank of 
 
 England, 835. 
 deficient as a Bank of Issue, 847. 
 wants money, 871. 
 the reserve should be proportioned to 
 
 the issue, 879. 
 functions of the Bank, 880. 
 Bankers' Magazine, 425. 
 Barometer of the Bank of England, 850. 
 
INDEX. 975 
 
 Bastiat, on value and utility, 66, 73. 
 
 on Money, 474, 745. 
 Bates, Mr., his opinion, 702. 
 Bill, A good, 34. 
 
 discounting a, 38. 
 Bills of Exchange, 368, 641,' 644, 913. 
 Birbeck, Mr., his opinion, 702. 
 Blue Book, The People's, 717. 
 Bullion Report of 1810, 558. 
 BuUion, the symbol of capital, 36. 
 
 fallacy of the large reserve of, 207. 
 
 average stock of in the Bank of England, 390, 940. 
 in the Bank of Prance, 391, 940. 
 
 shut up in the Bank of England, 396, 577, 775. 
 
 silver, 584. 
 
 C. 
 Capital, 29, 36, 47. 
 
 definition of, 29, 737. 
 movements of, how influenced, 245. 
 Capital and Credit the circulating medium, 30, 36, 47, 738. 
 
 and Money, 367, increase of, 738, 745. 
 Capital of the banks, what it consists of, 260. 
 how it operates, 760. 
 the surplus leaves the country, 774. 
 Capital, Loanable, 383. 
 
 Theory of Loss of, 386. 
 floating, 836. 
 Capital of the Bank of England insufficient, 508. 
 Capps, Mr. Edward, his opinion of the Bank Act, 704. 
 Carey, Mr., his opinion of gold, 506. 
 Cashier, Chief, of the Bank of England, 609. 
 Chapman, Mr. D. B., his opinion of the Bank Act, 703. 
 Check and Note, difference between, 549, 845, 846. 
 Chevalier, M. Michel, his opinions, 288, 449, 456, 457, 
 538. 
 
976 INDEX. 
 
 CbUd, Sir Josiah, ' On Trade,' 331 ; on Bankering, 322. 
 
 Child and Co., 335. 
 
 Circulation, 28. 
 
 Circulating Medium, 30, 47. 
 
 Clearing Houses, 488, 547, 844, 851. 
 
 Coinage, Gold, 141 ; Silver, 174. 
 
 royal prerogative, 374. 
 Coleridge, 734. 
 
 Commandite a Commanditaire, 849, 856. 
 Commerce, Balance of, 477, 480, 796, 818, 909. 
 Community, 65. 
 Conclusion, 737. 
 
 Convertibility of the Note not doubted, 247. 
 Copernicus, 376. 
 
 Corn Laws, 5, 111, il3, 333, 734. 
 Country Banks, 229. 
 Coutts & Co., 335. 
 
 Credit Capital of the Bank of England misused, 517. 
 Credit and Gold, 502. 
 Credit, 36, 47, 77, 551. 
 
 disorganisation of, 196. 
 organisation of, 264. 
 issues, authorised by Act, 197. 
 Credit Money, advantages of, 546, 751, 758, 843. 
 convertibility of, essential, 548. 
 conditions of, 846. 
 ■Crisis in 1857, 252. 
 
 in 1866, Mr. Fowler on, 570. 
 in 1793, and 1797, 656. 
 in 1826, 1847, and 1857, 657, 658. 
 Currency Principle, False, 15, 204. 
 
 abolishes exchanges, 28. 
 Currency, 28. 
 
 Total amount of, 325, 399, 410. 
 deposited at banks, 399. 
 
INDKX. 977 
 
 Currency and Transferrable Debt, convertible terms, 31, 28, 
 Currency, British and Foreign. 
 
 importance of equilibrium of value, 661. 
 
 D. 
 Dead Weight Annuity, 396, 597. 
 Dgedalian Wings, 761, 939. 
 Debt, Public, to the Bank of England, 197, 594. 
 Debt, or Services due, 31. 
 Decimal, The, Unit, 911. 
 Deficiency Bills, 613. 
 Dennistoun & Co., 673, 675. 
 Deposits, 349. Other, 355, 384. 
 
 in the Banks of the United Kingdom, 335. 
 issues on, 3i53. 
 Depreciation of gold, mistaken views of, 508. 
 Diamond, The, of no value, 54. 
 Directors of the Bank of England, not impartial, 414. 
 
 their mistaken views, 485. 
 
 487. 
 allowance proposed to, 
 
 604. 
 how elected, 608. 
 their high character, 610. 
 their practice, 618, 635. 
 Discount, variations in Bank rate of, 40, 383, 384, 581, 631, 
 639, 643. 
 
 effect of, 41, 46, 630. 
 Table showing the variations, 203. 
 how to be regulated, 444, 778. 
 the rate of, how dependent, 471. 
 false principles relating to, 473, 533. 
 fluctuations of, 631, 895. 
 why raised by the Bank of England, 315. 
 why raised by the Bank of France, 215. 
 
 3 K 
 
978 INDEX. 
 
 Discount, maximum rate for Bank of England, 282. 
 
 Napoleon First, his opinion, 288. 
 
 unsteadiness of, accounted for, 484. 
 
 diiferent rates between the Bank of England and 
 the Bank of France,490,491, 633, 636, 808, 846 . 
 
 average rate of, what it ought to be, 424. 
 
 high rate unjustifiable, 488. 
 
 importance of low rate, 519. 
 
 necessity of a maximum rate, 520, 651. 
 
 the purpose of a high rate, 660. 
 
 ruinous effects of high, 888, 892. 
 Discounting a bill, 38, 290, 758. 
 Discount Company, Joint Stock, 100. 
 
 The National, 219. 
 Disorganisation of Credit, 196. 
 D'Israeli, 119. 
 
 Dobree, Mr. Bonamy, his opinion, 638. 
 Drain of gold, 356, 380, 778, 811, 908. 
 Drummond & Co., 385. 
 Dumont, M., 449. 
 Dupin, Le Baron, 449. 
 Duty on export of gold, 439. 
 
 E. 
 Economist, The, 217. 
 
 Edinburgh, The, Eeview, 265, 311, 376, 711. 
 Efforts, 69. 
 Egypt, 239. 
 
 Emerson, his opinion, 678. 
 English Joint Stock Bank, 104. 
 Equilibrium of value, importance of, 44, 661. 
 Exchanges abolished by currency, 28. 
 
 Foreign, 45, 914, 915. 
 
 when unfavorable, 45. 
 
 Goschen on, 7.07. 
 
INDEX. ■ 979 
 
 Exchanges independent of the rate of interest, 919. 
 Exchange, Adverse, meaning of, 433. 
 
 Favorable, meaning of, 57B. 
 
 Par of, meaning of, 576, 913. 
 
 the rate of, what it indicates, 914, 919. 
 Exchequer Bills, large issue of, 613. 
 Exports and Imports, 341, 914. 
 
 of gold, 381, 908, 914. 
 
 E. 
 
 Fallacies of Lord Overstone, 6. 
 
 False currency principle, 15. 
 
 Fernie, Brothers, & Co., 674. 
 
 Financial daily operations of the Bank of England, 605. 
 
 Fluctuations in discount, 303, 581, 620, 638, 631, 639, 643, 
 
 854. 
 Foreign Exchanges, 45, 46, 47, 707, 914, 919. 
 Fowler, Mr., his opinion, 569. 
 
 Franchise, The Electoral, how it should be regulated, 723. 
 Free Banking Act of America, 498, 920. 
 Free Trade and Free Banking, 367, 417, 430, 423, 436, 
 
 542. 
 
 G. 
 
 Gilbart, James William, 339, 346. 
 
 Gladstone, W. E., 118, 377, 458, 644, 700, 737. 
 
 Glasgow Bank, The City of, 673. 
 
 Glyn, Mr., his evidence, 584, 704. 
 
 Gold, an article of Merchandise, 439, 468, 776. 
 
 when exported, 46. 
 
 exports and imports of, 381. 
 
 how to obtain it and how to keep it, 466, 470. 
 
 coinage, 141. Bar gold, 173. 
 
 large reserve of, unnecessary, 207. 
 
 exchange of, for notes ought not to be compulsory, 243. 
 
 3 B 2 
 
980 - INDEX. 
 
 Gold, export duty on, 439. 
 
 the trade in, ought to be free, 344. 
 not, but notes wanted, 248. 
 drain of, 356, 557, 778. 
 and Credit, 502. 
 
 chiefly required for foreign payments, 363. 
 The circulation of, not influenced by the rate of in- 
 terest, 477. 
 import of, exceeds export, 473. 
 export of,, has no relation to the rate of interest, 495, 
 
 907. 
 mistaken views of its depreciation, 503. 
 drain of, 811, 908. 
 Adam Smith's opinion of, 506. 
 the measure of value, 35, 529. 
 subject to variations in price, 530. 
 as merchandise, 583. 
 impolicy of fixing the price of, 586. 
 premium on, 914, 916. 
 bullion, shut up in the Bank, 577, 775. 
 Gold and Silver of no value, 53. 
 Gold and Silver mines, 221, 465. 
 
 The functions of, 473, 749. 
 abolish exchange, 474. 
 money in circulation, 325, 399, 473. 
 less profitable to import than to export, 753. 
 effect of increase of, 503, 769, 772. 
 how required, 772. 
 marketable commodities, 776. 
 how obtained, 797. 
 Goldsmiths and Bankers, 360. 
 Goschen, Mi-., on Foreign Exchanges, 560, 567, 707. 
 Goulburn, Mr., on the Bank Act, 617. 
 Government Debt to the Bank of England, 197. 
 Government Securities, 597. 
 
INDEX. 981 
 
 Gratuitous Services, 56, 57, 58. 
 
 Gumey, Mr. Samuel, his opinions, 348, 703. 
 
 li. 
 Hankey, Mr. Thompson, his evidence, 605. 
 Herbert, Spencer, 771. 
 Hoarding, mischievous consequences of, 665. 
 Hoare and Co., 335. 
 Hodgson, Mr., his dictum, 659. 
 
 I. 
 Icarus, wings of, 761, 939. 
 Imperial Mercantile Credit Company, 104. 
 Imports and Exports, 241. 
 
 of Specie, 473, 783. 
 Income Tax, objectionable, 330. 
 India, 239. 
 
 Paper money of, 534. 
 Industry the source of credit, 261. 
 
 and money, 754. 
 Interest, the rate of, how dependent, 321, 223, 259, 319, 
 470, 780, 784, 787, 838, 907. 
 does not affect value, 466. 
 opinion of 'Napoleon I. on, 224. 
 Turgot on, 224, 258. 
 different legal rates of, 292. 
 has no relation to the price of money, 477. 
 nor to the abundance or scarcity of money, 478, 
 
 797, 838. 
 a fixed rate of, not possible, 520, 834. 
 The legal rate of, 840. 
 
 ought to be regulated under a 
 monopoly, 841. 
 a low rate of, desirable, 842. 
 
 The rate of, in England, in comparison with other 
 countries, 478, 808, 826. 
 
982 INDEX. 
 
 Interest not influenced by the circulation of gold, 478. 
 mistaken views relating to, 483. 
 fixed rate of, not required, 520, 834. 
 injurious eifects of higli rates of, 892. 
 a low and uniform rate of, conducive to prosperity, 
 
 544. 
 how banks acts upon, 545. 
 fixity of, a chimera, 802. 
 Intrinsic value, no meaning, 76. 
 
 Issue Department, separate from the Banking Department, 4, 
 145,205. 
 Lord Overstone's opinion in favour of this 
 
 separation, 12. 
 effects of this separation, 145, 574, 577, 
 582. 
 Issues, authorised, 197. 
 Issues on Deposits, 353, 354. 
 Issues, over, 33, 372, 556, 777. ' 
 
 Issues should be confined to the Bank of England, 374, 587. 
 Issues in India, 534, 538. 
 
 Joint Stock Discount Company collapsed, 100. 
 Joint Stock Banks, the object of, 227, 337, 338. 
 advantages of 315. 
 number of, 324, 325. 
 Act 3 & 4 Wm. IV. c. 98, 133, 340. 
 persecution of, by the Bank of England, 
 
 341. 
 opinion of Mr. Samuel Jones Loyd on, 
 
 342, 344. 
 opinion of Mr. Samuel Gurney on, 348, 
 
 349. 
 capital of the nine principal, 345. 
 probable extension of, 347. 
 
INDEX. 983 
 
 Joint Stock Banks, Parliamentary Committee on, 348. 
 
 return on, 350. 
 opposed by the Bank of England, B26. 
 Jus cudenda monetae, 541. 
 
 L. 
 Labor, freedom of, essential for prosperity, 320. 
 LaVergne, M. de, 451, 454, 455, 458, 459, 460. 
 Law, John, 22, 36, 354, 418, 787. 
 Legal Tender Money, 376, 379, 574, 575. 
 Limited Liability Act, 349. 
 Liverpool Borough Bank, 672, 674. 
 Liverpool and the ' Lancet' 699. 
 Loanable Capital, 383, 401, 774. 
 London and Westminster Bank, 343, 893. 
 Loss of Capital, Theory, 386. 
 Loss to Trade on discounts, 642. 
 Loyd, Mr. Samuel Jones, his opinion on Joint Stock Banks, 
 
 342. 
 Luxuries, Tax on, 332. 
 
 M. 
 
 Macleod, Henry Dunning, 23, 48, 561, 562. 
 Manhood Suffrage, 720. 
 
 Market price and Mint price, 552, 553, 554, 555, B5l 
 Maximum Bank rate of discount, 445, 520, 651. 
 false notions of, 528. 
 how to be fixed, 754, 779, 781, 803, 805, 
 
 833, 834. 
 the theory supported by practice, 898. 
 Maximum rates of charge for Kailways, 520, 829. 
 
 analogy with Banks, 897. 
 Measure of value. The, 35, 56, 738. 
 
 a change in, easily produced, 410. 
 effect of fluctuations in the, 743. 
 
984 INDEX. 
 
 Measure, A standard, requisite, 409. 
 Medium, The circulating, 30. 
 
 Metallic Cun-ency, subject to contraction and expansion, 408 
 Metals, the precious, slight variations in the price of, 465. 
 articles of merchandise, 468. 
 the true way of obtaining them, 470, 475, 477. 
 Mill, Mr. J. S., his opinion on indirect taxes, 329, 332- 
 
 the Bank Act, 703. 
 Miller, Mr., Chief Cashier of the Bank of England, 609. 
 Minimum reserve of gold, according to Lord Overstone, 7. 
 Mint, The, 141. 173, 176. 
 
 price, 141, 173, 554. 
 Mississippi Scheme, 24. 
 Money, definition, 27. 
 Money, the measure of value, 53, 420, 545. 
 the merchandise type, 473. 
 distinguished from revenue, 740. 
 necessary for industry, 754, 905. 
 the price of it has no relation to the rate of interest, 
 
 477. 
 the export or import of, has no relation to the rate of 
 interest, 907. 
 Money, Cun-ency, and Capital, 27, 367. 
 Credit, the advantages of, 545. 
 market price of, 372. 
 
 only a fraction of the aggregate riches, 838. 
 Money panics, 86. 
 
 cause of, 318. 
 Money, Tribute, 375. 
 Monopoly, sometimes necessary, 373, 418, 422, 443. 
 
 justifies regulation, 443, 509. 
 Morris, Mr., his evidence, 585. 
 
 N. 
 Napoleon I., his opinion on interest and discount, 224, 288. 
 
INDEX. 985 
 
 National Discount Company, 346. 
 
 Nature's Laws, 56. 
 
 Nay lor & Co., 675. 
 
 Newmarch, Mr., on Bills of Exchange, 641. 
 
 on the Bank Act, 703. 
 New resources in savings, 890. 
 Nicole Oresme,- 375. 
 Non-solidarite, 854. 
 
 Northumberland and Durham Bank, 672. 
 Notes, 599. 
 
 Note and Check, difference between, 549. 
 Note, Bank of England, 945. 
 
 0. 
 
 Oresme, Nicole, 375. 
 
 Organisation of Credit, 264, 502, 819. 
 
 Oscillations of interest, 854. 
 
 Other Deposits, 355, 597. 
 
 Other securities, 599. 
 
 Outflow of gold, 557. 
 
 Overstone, Lord, supposed framer of the Bank Act, 4. 
 
 his opinion of a paper circulation, 6, 7, 8. 
 his opinion of a satisfactory minimum re- 
 
 seiTe of gold, 7. 
 his opinion for the separation of the Issue 
 
 from the Banking Department, 12. 
 his opinion of the object of the Bank Act, 
 
 94. 
 Fallacies of, 6, 7, 8, 13, 15, 169, 170, 398, 
 
 578, 580, 582, 618,702. 
 his Currency Principle, 204. 
 his opinion of Joint Stock Banks, 342, 
 
 343. 
 his evidence before Committee of the House 
 of Commons, 643,. 703. 
 
986 INDEX. 
 
 Overstone, Lord, Overstone Theory, The, 7, 580, 625, 701. 
 
 not carried out in prac- 
 tice, 627. 
 Overend, Gumey, & Co., 100, 120, 346. 
 Over Issues, 33, 372, 377, 777, 778. 
 Over Production, 256. 
 Over Trading, 236, 372, 377, 556, 622, 777. 
 
 P. 
 
 Panics, Money, 86. 
 
 injurious consequences of, 96. 
 cause of, 318. 
 Par of Exchange, 576, 912. 
 Paper Credit, 559, 560. 
 Paper Currency, the true foundation of, 35. 
 the convenience of, 741. 
 regulated by gold, 757. 
 how far it may he safely issued, 771. 
 Paper Money and Bank Paper, distinction between, 261. 
 
 of India, 534. 
 Parliamentary Committee on Joint Stock Banks, 348. 
 
 return on, 350. 
 Patterson, Mr., 393, 663, 787. 
 
 his opinion on the Bank Act, 624, 626. 
 Peabody & Co., 673, 675, 676. 
 
 Peel, Sir Eobert, his anticipations from the Bank Act not rea- 
 lised, 14. 
 
 resumption of Cash payments his greatest 
 
 measure, 210. 
 defects of the Bank Act, 211, 213, 399, 617. 
 his opinion on Banks of Issue, 454, 455. 
 459. 
 People's Blue Book, The, 66, 717. 
 
 Pereire, M. Isaac, his opinion on the Bank Question, 445, 
 460, 708, 713. On the Kate of Interest, 223, 225, 545. 
 
INDEX. 987 
 
 his evidence before the French Commis- 
 sion, 495, 838. 
 Pereii-e, M. Emile, his evidence before the French Commis- 
 sion, 495, 807. 
 Pellat, M., 460. 
 Pound, The, sterling, 27. 
 Premium on Gold, 529, 914, 916. 
 Principes de la Constitution des Banques, 465, 708, 907. 
 Prices, how regulated, 531, 749, 769, 911, 913. 
 Property, what is, 63, 64, 65. 
 Proprietors' Capital, 596. 
 
 Protection to Traders different from Protection to Trade, 
 266. 
 
 of the Bank reserve, error of the rule for, 900. 
 Proudhon, 68, 69. 
 Public Deposits, 597. 
 Public Press, 942. 
 
 E. 
 Eailways, 370. 
 
 maximum rate of charge on, 520. 
 in the air, 368, 775. 
 Kailway Companies and Banking Companies compared, 829. 
 
 the analogy between, 897. 
 Kate of Exchange, The, what it indicates, 914. 
 Eate of Interest, The, how determined, 777, 780, 781. 
 Eealised Property, the only safe foundation for taxation, 715. 
 Ee-discount, 884. 
 
 Eeform, Electoral, the true principle of, 722. 
 Eeserve in gold, satisfactory minimum of, according to Lord 
 Overstone, 7. 
 
 rule for Bank reserve, 198, 228. 
 protection of, 524, 780, 783. 
 independent of the rate of exchange, 919. 
 Best, 596. 
 Eicardo, his opinion, 685. 
 
958 INDEX. 
 
 Eothscliild, his opinion on cheap money and free trade, 323. 
 Eun on the Bank of England in 1835, 10. 
 
 Saturday, The, Eeview, 332, 334. 
 Saunderson & Co., 346, 673, 675. 
 
 Savings, Annual, of the United Kingdom, estimated, 327, 
 515. 
 
 new resources, 889. 
 Savings Banks, 327, 328. 
 Say, Jean-Baptiste, his opinion, 76, 480. 
 Scotch Banks, 323, 324. 
 Services, 56, 57, 58, 62, 69, 70, 738. 
 " Seven per Cent.," Article in 'Edinburgh Eeview,' 311, 711. 
 " Seven Day and other BUls," 597. 
 Silver Coinage, 174, 191, 381, 325. 
 Silver, an article of merchandise, 468, 469. 
 Silver and Gold Mines, 465. 
 Silver bullion, 584, 776, 915. 
 Silver, Legal tender in, 574. 
 Silver, export and import of, 575. 
 Smith, Adam, his opinion on value, 68 ; on gold, 506, 761. 
 
 on indirect taxation, 329 ; on banking, 337, 
 374. 
 
 on the balance of trade, 477 ; on the wealth of 
 nations, 714, 715. 
 Smith, Sydney, his saying on the Eeform Bill, 696. 
 SolidariU, 482, 811, 853, 854. 
 Sovereign, The, or Pound, 37,' 555. 
 Spencer, Herbert, 771. 
 Standard measure requisite, 409. 
 State Notes in India, 535, 538. 
 
 in America, 538. 
 State, A, ought not to be a bank, 373, 374. 
 Statute, 6th Anne, 338, 339. 
 
INDEX. 989 
 
 Statute, 3i:d and 4th Wm. 4th, 340, 341. 
 
 Suffrage, Manhood, 719. 
 
 Summary, 737. 
 
 Supply Bins, 613. 
 
 Supply and demand, 409. 
 
 Suspension of the Bank Act a practical injustice, 657. 
 
 T. 
 Tarification, 841. . 
 Taxation, direct and indirect, 338. 
 Taxes on labor, impolicy of, 330. 
 
 and on luxuries, 331, 333. 
 Theory and Practice, 790. 
 Thornton, Henry, his opinion, 559. 
 Threadneedle Street, The Old Ladies of, 533, 956. 
 Times, The, and Michel Chevalier, 388. 
 
 fallacies of, 441. 
 Tooke, Mr. Thomas, his opinion of the Bank Act, 367, 633, 
 
 733. 
 Trading, Over, 335, 336, 377, 778. 
 Trade, Balance of, 477. 
 
 Transferable Debt and Currency, convertible terms, 31. 
 Tribute Money, 374, 375. 
 Trocs de services, 475. 
 Turgot on Interest, 358. 
 
 on Money, 50, 74. 
 Twells, Mr. John, his opinion on the Bank Act, 704. 
 
 U. 
 
 Unit, The decimal, 911. 
 
 Uniformity of value, 44. 
 
 United Kingdom, Joint Stock Bank, 947. 
 
 United States Currency Law, 418, 495, 496, 535, 536 930. 
 
 Usury Acts repealed, 393. 
 
 early prohibition of, 331. 
 
990 INDEX. 
 
 utility, distinguished from Value, 54, 61, 63, 739. 
 
 V. 
 
 Value, What is, 52, 62, 63, 64, 68, 69, 738. 
 
 a conventional term, 53. 
 
 distinguished from Utility, 54, 739. 
 
 not an attribute of matter, 53. 
 
 not intrinsic, 53. 
 
 Adam Smith's mistaken view of, 68. 
 
 Diamond of no value, 54. 
 
 Gold and SUver of no value, 53. 
 Value, Money the measure of, 545. 
 Variations in the rate of discount, the sign of the evil, 40. 
 'Variation' Theory, 582. 
 
 not carried out in practice, 627, 701. 
 Virtue not always accompanied by wisdom, 583. 
 Voltaire, his opinion of money, 477. 
 Vuitry, M., 459, 460. 
 
 W. 
 Watkin, Mr., 136. 
 Ways and Means Bills, 613. 
 Wealth, 65. 
 
 Wealth, The, of Nations, 768. 
 Weekly Account of Bank of England, 312, 213, 399, 589, 
 
 590. 
 Weekly Account, new form of, proposed, 371, 398, 588. 
 
 explanation of, 596. 
 Weight, Dead, Annuity, 597. 
 Weguelin, Mr., evidence of, 437. 
 Westmeath, M.P. for, his opinion on the Bank Act, 436, 
 
 685, 695. 
 "Westminster Eeview," 392, 393, 943. 
 Western Bank of Scotland, 672. 
 Wolowski, M., 49, 75, 306 449, 454, 459, 761, 929. 
 
BY THE SAME AUTHOE. 
 
 "RAILWAYS. 
 
 IN A. LETTER TO THE RIGHT HONOURABLE THE 
 
 PRESIDENT OP THE BOARD OF TRADE. 
 
 A PLAN FOR THE SYSTEMATIC EEFOEM 
 
 OF THE EAILWAYS OF THE UNITED KINGDOM BY 
 
 lEGHSLATIVB ENACTMENT." 
 
 Second Edition. Post 8to, cloth, 3s. 6rf. 
 
 LONDON: LONGMAN, GEEEN, LONGMAN, EOBEBTS AND 
 
 GREEN. 
 
 1865. 
 
 An Answer to Mr. John Stuart Mill. 
 
 " UTILITAEIANISM EXPLAINED AND EXEMPLIFIED 
 IN MORAL AND POLITICAL GOVERNMENT." 
 
 Post Svo, cloth, 10«. 6d. 
 
 LONDON: LONGMAN, GBEEN, LONGMAN, EOBEBTS AND 
 
 GEEEN. 
 
 1864. 
 
 "THE AMERICAN QUESTION, AND 
 
 HOW TO SETTLE IT." 
 
 Post 8to, cloth, 10s. 6d. 
 
 LONDON: SAMPSON LOW, SON, & CO., iUDGATE HILL. 
 1863. 
 
 "THE PEOPljiE'S BLUE BOOK: TAXATION AS IT 
 IS, AND AS IT OUGHT TO BE: WITH A PRAC- 
 TICAL SCHEME OF TAXATION." 
 
 Third Edition, crown 8to, pp. 706, 5j. 
 
 Rewritten and Enlarged, and brought down to the Present Time. 
 
 LONDON: EOUTLEDGE, WARNE, AND ROUTLEDGE, 
 
BY THE SAME AUTHOR. 
 
 " THE REVIEWER REVIEWED ; IN ANSWER TO 
 THE EDINBURGH REVIEW ON BRITISH TAXA- 
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 Second Edition, One Shilling. 
 
 LONDON : BOUTLEDGE, WAKNE, AND EOUTLEDGE. 
 1860. 
 
 " OUR NATIONAL DEFENCES : WHAT ARE THEY?" 
 
 LONDON : EFFINGHAM WILSON, 11, EOYAL EXCHANGE. 
 
 One Shilling. 
 
 1859. 
 
 "THE PEOPLE'S BLUE BOOK: TAXATION AS IT 
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 Second Edition, revised and enlarged. Crown 8vo, pp. 559, 5s. 
 
 LONDON: EOUTLEDGE AND CO., FAEEINGDON STEEET 
 
 1857. 
 
 "THE PEOPLE'S BLUE BOOK: TAXATION AS IT 
 IS, AND AS IT OUGHT TO BE." 
 
 First Edition, crown 8vo, pp. 481, 5s. 
 
 LONDON: EOUTLEDGE AND CO., FAEEINGDON STEEET. 
 1857. 
 
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 LONDON: CHAPMAN AND HALL, PICCADILLY. 
 1856.