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Cornell University Library 
 The Bank of England note issue and its e 
 
 3 1924 014 049 682 
 
Cornell University 
 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924014049682 
 
^0Dt6um^ ^, IWo^^^^^ 
 
 THE 
 
 BANK OF ENGLAND 
 
 NOTE ISSUE 
 
 ITS ERROR 
 
 AN ADDRESS TO THE HOLDERS OP BANK OF ENGLAND STOCK, AND TO 
 
 BANKERS AND ECONOMISTS GENERALLY. 
 
 BY ERNEST SEYD, F.S.S., 
 
 AuiHOB OP " BuLLioy IWD FoBXzoir ExcHi.NGBs/' " The Losdon Bajteiitg and Ci.Bi.BnrG Housb STaiBM,' 
 
 &c., &a. 
 
 CASSBLL, FETTER & GALPIN, 
 LONDON, PAEIS, AND NEW YOEK. 
 
 1874. 
 

 (^ H-^^ 00^ 
 
 LoiTBOir: 
 
 W. W. MoBaAH-, Pbiwtee, 
 
 «7, Baebioait, City, 
 
PREFACE. 
 
 Next to the painful task of writing a book on the Contro- 
 versy of the Bank of England, comes the task of reading it. 
 This is one of the difficulties of which the swarm of authors 
 seem aware, who, ever since 1844, have inundated us with 
 hundreds of short pamphlets and press articles, forming, in 
 the aggregate, a mass of literature of the most extraordinary 
 kind. The differences of opinions expressed in these short, firm- 
 toned, and authoritative pamphlets, range from "unlimited 
 right of issue of Bank-notes, to be given, not only to all 
 Banks and merchants, but to everybody," to the total aboli- 
 tion of all Bank-notes, "including those of the Bank of 
 England." Within these extremes come classes of opinions 
 advocating the issue of notes by Banks and Bankers only, 
 some without, others with restrictions, and requirements of 
 capital — "say, one million cash " — are laid down, which shall 
 entitle a Bank or Banker to issue notes. Occasionally the 
 proposal is made : " let Banks and Bankers issue notes only 
 in times of crises and panics." Others boldly recommend 
 the American Bank-note system. More reasonable authors 
 seek to reform the Bank of England system itself, and call 
 for an extension of its issue, or advocate the issue of a 
 kind of Exchequer Bill to help us over a " crisis." In 
 each of the many sub -divisions of opinions on the Bank of 
 England system there are again many dissentients on points 
 of detail, which happen to turn uppermost for the moment. 
 The whole mass of suggestions, not to speak of the heavy 
 parliamentary blue-books on Koyal Commissions Enquiries, 
 has hitherto had no result — it leaves us as we were. The 
 want of success of all these pamphleteers is due, perhaps, to 
 the fact that they make their pamphlets too short and concise, 
 not so much for the sake of the reader, but because the 
 
authors themselves are unable to grasp the subject in all its 
 bearings. 
 
 By one who has closely followed all this, — from the insuf- 
 ficient declarations of Adam Smith to the dogmas of later 
 economists, from the history of John Law to that of 
 Mr. Lowe's proposal for reform in 1873 ; from the occasional 
 attempts of publications, akin to the Family Herald, to that of 
 the daily and weekly articles of the leading modem press, — 
 all these unlucky endeavours are easily understood. The 
 cause of their failure lies in their one-sideclness. In the first 
 place, the majority appears to have regard only to one thing, 
 more Bank-notes ! The minority recognises that the mere 
 printing of Bank-notes does not solve the problem, and it 
 endeavours to deal more reasonably with what may be called 
 the elements of monetary science, or the factors to which 
 regard must be had in a system of Bank-note issue. In their 
 turn the writers of the latter class make this great mistake : 
 in the inventions which they submit to the public thej fix 
 their minds upon one principal factor, and manipulate it so 
 as to suit one of the others ; when, having done so, they are 
 contented. They entirely ignore, or are not aware of the fact, 
 that there are a number of factors to be considered, that each 
 of them has its characteristics and variations, and that, 
 whereas they have only fitted one to the variations of the 
 next, there is a third, a fourth, and fifth, each with its varia- 
 tions, which must all be fitted into the system. Thus, as far 
 as our own note issue is concerned, an author succeeds in 
 providing a scheme between issue and circulation, forgetting 
 however that bullion, the rate of interest and reserve, are aU 
 in mutual relationship. He may even succeed in hinting at a 
 combination between two factors and a third, but when the 
 fourth and fifth are to be considered, the problem becomes 
 confused. He concludes with some emphatic declaration, or 
 quotes somebody else's opinion (dating from last century 
 perhaps), and feels confident that his suggestions are valu- 
 able. So much for the short authoritative pamphlets, which, 
 in the aggregate, make up a respectable library. 
 
 In writing this longer book, in which I, on my part, 
 shall endeavour to lay before you certain facts in fair order, 
 and point out the factors involved, I am fully aware that 
 I am open to the charge of writing at too much length. 
 
This charge will be increased when I mention to you that I 
 have akeady written another book on the subject, to which 
 allusion is made in this publication. I must bow to the 
 reproach, but as my intention is that of instructing persons 
 not thoroughly familiar with all the features of the case, 
 I have not only written at greater length than would suit a 
 practised economist, but I have purposely, when I thought 
 proper, repeated matters for the sake of enabling the inex- 
 perienced reader to maintain the string of facts. 
 
 Ostensibly, this publication is addressed to the Stock- 
 holders of the Bank of England, and my respect for them and 
 the Directors of the Bank induce me here to make the following 
 declaration : In trying to point out the error in the present 
 note issue system of the Bank, I am necessarily obliged to 
 show certain matters in the criticism of which I attack the 
 " admirers " of the present Act. It might, therefore, be 
 imagined that I attack or speak disparagingly of the 
 Directors. Nothing is farther from my intention ; but the 
 controversy requires that the critic should occupy an opposing 
 point of view. Any man of candour, who professes fuUy to 
 understand the nature of the issue, rather than blame the 
 Directors, must, on the contrary, recognise that they have 
 done well with the difficulty before them. The more he 
 enters into the conception of the error, and its palpable 
 serious consequences, the more he must admit that the 
 nation should be grateful to the set of men who have thus 
 far so well succeeded in counteracting a persistently ruinous 
 system. Very few are able to understand this, for the 
 confusion and helplessness into which the subject under 
 discussion has fallen are so great, and the demoralisation of 
 intelligence on this subject has gone so far, that there are 
 actually persons who lay the whole blame on the shoulders of 
 the Directors, and say, " the Bank is mismanaged." In a 
 mercantile community like ours, — so rich and prosperous,- — 
 at the head of which stand the Directors of the Bank of 
 England, chosen from the highest ranks of commerce, such a 
 charge of personal failing in intelligence is an absurd one, 
 and must be repudiated with indignation. The Directors of 
 the Bank must guide the operations of the institution, 
 in accordance with the Act of 1844, the law itself, 
 and they have responded to its requirements as far as it was 
 
possible for them to do. For the error in this Act they 
 are less responsible than the statesmen and the host of 
 economists who framed and uphold it. They cannot undo the 
 law, on the contrary, it is their province, not only from 
 right, but from dictates of prudence, to be conservative — 
 rather to maintain that to which they are accustomed and 
 have shaped their practice, until they feel themselves on 
 fairly safe ground — than listen to other schemes which may 
 necessitate a total reversal of action in so precarious a 
 problem as that here to be discussed. All the fearful sacri- 
 fices which are made on behalf of this just policy, as I shall 
 demonstrate them to you, are, after all, to be preferred to 
 any of the wild schemes started by amateurs. The question 
 here is : What is the Act of 1844 itself ; what is the experience 
 made under it, has it worked with ease and satisfaction, or 
 with difficulties and mischief — is it indeed so constructed that 
 human intelligence can deal with it without gigantic efforts ? 
 I hope to be able to show you that the Act of 1844 
 contains a practical error which baffles all efforts at proper 
 management, and extends its disorganising influences far 
 beyond the range of -our own national interests. I may also 
 succeed in showing you that the remedy is in the Act itself, 
 and that a sUght alteration in one of its minor clauses will set- 
 aside the error ; leaving the Act in full force in other respects. 
 It might be supposed that if the alteration is so slight, a few 
 lines would suffice to explain it. But if you read through 
 Part I. of this book, which deals with the anomalies caused by 
 the error, you will find that its core could not be laid bare 
 until the overlying masses of evil effects were removed 
 first, when, in Part II. of the Book the remedy and a better 
 system of adjustment can be laid before you for your 
 couBideratiou. 
 
CONTENTS, 
 
 (N.B. — A perusal of tMs abstract of contents will enahle the reader to obtwin an 
 idea of the pla/n wnd general tenor of this Boole. The reader who is aVrtady acquainted 
 with the controversy may pass over certain matters, and fix his attention on what may 
 seem noteworthy to him.) 
 
 PART I. 
 
 The Want of Progress of the Bank of England.— wealth must increase as 
 
 if by a natural law The teat of figures can be applied England's wealth, *' local" 
 
 and " international^^ England's decided supremacy in international wealth The 
 
 manifest universal increase in all directions Import and export trade increased four- 
 fold The only exception in this universal increase is the Bank of England The 
 
 Bank of England must not he wantonly abused But there are facts bearing upon 
 
 a long-standing controversy Concerning plain practical matters State of the 
 
 controversy as regards the Bank Vain attempts at reCorm Natural conservative 
 
 tendency of the Directors — •- Baneful influence of dogmas of bygone times Dogmatic 
 
 wisdom versus figures and facts The most fetal of the dogmas concerns " speculation '* 
 
 The Bank is unable to keep itself fr^ from its effects That is plain proof of 
 
 either its participation or its weakness A fault in the nucleus of a system repeats itself 
 
 many thousandfold The mere appeal to strength of capital does not solve a problem 
 
 Patriotic declamation cannot override figures These figures show that the Bank 
 
 of England is not in accord with prosperity generally The interests of the stock- 
 holders In this matter as regards dividends The author will suggest nothing wild and 
 
 Bpeculativet and reasonable suggestions ought to receive attention • Pages 1 to 8 
 
 Comparative Figures. — TaUe l.—Note ctrculation—DeposUs^Bankers' batancee—SilU 
 discoimted^ &c. — Exports and imports — Deposits of four joint stock fia7iA:j— Page 10 - — The 
 
 whole increase not equal even to the single item of increase of population No increase 
 
 from 1844 to 1866 Increase since 1866 owing to Bankers' balances Deposits actually 
 
 declined False reasonings must be set aside first The allegation that commerce has 
 
 increased at the expense of the Bank is quixotic The plea of conservatism cannot be 
 
 stretched to the excess of which the figures given are evidence This kind of rough 
 
 treatment of the question is not worthy of economical truths The rapid growth of 
 
 other banks proves the very fact that the Bank has missed its opportimities The 
 
 deposits at the Bank ought to have increased with general increase, independently of 
 
 the question of allowing interest for them Table 2. — Shoaing tlie increase^ in the 
 
 htmneaa of the Bank of France at the end of Februari/ each year — Page 15 ■ — - The 
 
 "public" duties of the Bank are quite separate from its own rights as a Bank The 
 
 progress of the clearing system has the tendency of increasing deposits Systems 
 
 akin to clearing are in operation in France and Grermany The insufficient increase of 
 
 buUion as the real metallic Reserve Not in accord with our increased conamerce; 
 
 still less with the discovery of the Califomian and Australian gold fields More gold 
 
 ought to have accumulated at tho Bank of England Pages 9 to 19 
 
vm 
 
 The DiVidand of the Bank of England.— The dividend of the Bank of 
 
 England cannot "be called satisfactory The Bank's capital is very large, but the Bank 
 
 has enortnous privilege It holds its deposits free of interest It has the extra isBue 
 
 of fifteen millions of Notes Ita investments exceed the deposits It keeps the 
 
 State acccnintSj Scd. • Sliamng the proporiiona here a/rismg at the Bank ; and London and 
 
 Westminster Bank Another method of comparing resnlts The London and 
 
 Westminster Bank makes four times the profit Making due allowance for the difference 
 
 of position tootween the Banks in question Ibis nevertheless not unreasonable to 
 
 suggest that the Bank of England ought to hav^ paid higher dividends If only by 
 
 2 or 3 per cent -, — All the world has pfofitfld, excepting the holders of* Bank Stock 
 
 Pages 19 to 23 
 
 trhe Discount Business of the Bank of England.— The great business 
 
 of this coimtry is condilcted chiefly by bills of exchange* 'Hheae instruments of 
 
 exchange are the staple of banking — — They amount to 1,200 haillions sterling per annum 
 
 Of which 300 to 350 millions are current at a time • The Bank of England might 
 
 be supposed to be the principal tolder of such bills In some proportion at least to its 
 
 resources But, in reality, the Bank holds but a comparatively insignificant amount of 
 
 bills— Frequently below 3 millions ■ Table 3. — The Bills under discount at the Bank of 
 
 Sngla/nd from 1845 to 1872— Page 27 •" — ' The temporary advances average 2 millions 
 
 The total average of bills discounted is 6 millions only The general public and 
 
 economista are not aware of this extraordinary matter The Bank appears to do a 
 
 Jjrofitable discount bnsineps only when c-ises and panics set in Commerce has a higher 
 
 right of enquiry into these facts The Bank of England is boimd to invest in Govern-' 
 
 inent securities But not to the overwhelming disadvantage of bills Government 
 
 securities require fresh contracts for their conversion Bills of exchange are the 
 
 Ultimate creators of currency ■ Bills Of exchange are continuous contracts already in 
 
 existence Issues of Bank notes bn credit are chiefly made for the support of active 
 
 commerce Other central Banks have a much greater share in commerce Footnote. 
 
 — The account of the Bank ofFruasia — Page 32 The matter involves even the question 
 
 of morality No dogmatic and pompous statement can go against the facts here shown 
 
 The conflict requires the earnest consideration of all economists The undecided 
 
 action of the Bank as regards advances to discount brokers The method in which 
 
 brokers profit from advances of this kind In spite of the long practice, no definite 
 
 policy has been established, such as our valuation requires The Bank stands between 
 
 two sides, each of Which has legitimate claims Pages 23 to 37 
 
 vv lier6 IS tlie Error P — These remarkable accounts presuppose the existence of a 
 
 subtle disturbing error of system, in either the Issue or the Banking Department ■ 
 
 The error cannot be in the Banking Department although the operation of that 
 
 Department may be seriously hampered by a subtle and hidden fault in a system with 
 
 which it is connected The violent fluctuations of the Bank's Reserve and Bullion are 
 
 not due to the Bank's investments The losses on investments are insignificant 
 
 Nor the withdrawal of ddposits, for these increase rather than diminish The question 
 
 of fresh advances is independent of this matter The fault lies solely iu the system 
 
 of the Issue Department The enigma involved in the present seemingly so perfect 
 
 arrangement Its evident conflict nevertheless with facts The remedy is possibly 
 
 hidden by a misconception, engendered in the practice of the system Pages 37 to 42 
 
 ThO Present State of the Controversy.— The absurd schemes being dismissed 
 
 The party divisions on the Bank of England issue remain The only practical 
 
 party is that which seeks reform inside the present system The subdivisions of this 
 
 party — - There are five leading opinions in the controversy — - Class 1 is impracticable 
 
 and impossible Class 2 admits of no reform Class 4 has an uncouth ground 
 
 Class 3 now rules the situation The main characteristic of this proposal is "exten- 
 
 eion " only Whereas both contraction and extension are required The primary 
 
cause oP the evil is the surplus created by the 15 millions The supposed strength of 
 
 large note reserves is in reality the weakness of the system The idea of caution 
 
 involved in the 15 millions fixed issue is fallacious Other causes ore independent of 
 
 this matter The plethora remaius in force The excess drives bullion fiom us 
 
 The scales must fall from the eyes of the authorities Mr. Fowler's proposals involves 
 
 the immeasurable ruin of our valuation The compensating system alone will satis- 
 factorily polve the problem The "concentrated" point of the controversy Increase 
 
 of issue only versus Decrea.«e and iacrease of issue Tlie alte'-ation of a clause 
 
 of the Act is only re<iuired Clause 2 of the present Act already contains the spirit 
 
 of the reform The succeeding portions of the pamphlet enter into closer detail. 
 
 Pages 42 to 50 
 
 The Origin and the Main Principle of the Act of 1844.— The 
 
 "mix:ed" basis of all good bank note issues — — The term. " fiduciary" portion of a bank 
 
 note issue The disastrous experiments with over issue of fiduciary bank notes 
 
 The crude ideas prevailing even to this day The stockholders of the Bank of England 
 
 are concerned only in the issue as practised by the Bank of England The old Bank of 
 
 England Act. The Act of 1844 Its cardinal principle of hmit The Government 
 
 debt and secui-ities for the fiduciary issue Separation into Issue and Banking Depart- 
 ment All issue above 15 millions to be made against bullion The real and the 
 
 deceptive merits of this method of issue The convertibility of the note Converti- 
 bility naust be secured first of all The security of the State and "other" securities 
 
 held against the 15 millions fiduciary issue The same security will be given in the 
 
 scheme of the author The separation of the Issue from the Banking Department • ■ 
 
 The same system of separation will be maintained by the author's scheme A discussion 
 
 on the points enumerated is not necessary. The "real" point will appear all the more 
 
 readily The main point to be considered, viz., the 15 millions fixed issue The 
 
 supposed merit of the limit of 15 millions fixed issue The great chann involved in 
 
 the limit Its apparent principle of caution and prudence The extent of its 
 
 liberaUty Its want of phabihty - - Pages, 50 to 59 
 
 The Demerits of the Fixed Limit of 15 Millions.— The origin of the 
 
 amount of 15 millions The fallacy of the average in matters of this kind The 
 
 variations have since been most excessive ' Table 4. — Returns akotoing the amount of 
 
 total circulation of Sank of England notes, vrith ike amount of bullion held during the years 
 1824 to 1843, two in each year ; and the years 184:5 to 1871, four in each year ,- (at the respective 
 periods mentioned before) and the consequent Jiducia/ry circulation, and the Reserves of notes. — 
 
 Pages 62-3 The previous average relied upon has been totally destroyed A 
 
 lamentable picture of confusion of results has followed The higher state of the 
 
 bullion average is due to our enhanced trade The Bank itself has been unable to 
 
 increase the stock of bullion proportionately But it has kept large idle Reserves of notes. 
 
 Pages 59 to QG 
 
 The Demerits of the Reserve arising from the Fixed Issue.— The 
 
 great misconception involved in the Reserve so arising A regular steady Reserve 
 
 must be kept The question here concerns only the Reserve arising under the present 
 
 system That Reserve drives away bullion Every milhon of more note issue keeps 
 
 away a milhon of bulHon The Reserve is useless for all practical purposes The 
 
 manifold mysteries -of the money market afford one or two simple main points To 
 
 what are due the enormous divergencies in the rate of interest? They are not due to 
 
 the nujnerical increase of circulation or actual use of more money The amount of 
 
 money used remains the same, the rate of interest bemg in question only The only 
 
 causes are the extreme variations in the stock of bullion which the Bank fails in preventing 
 
 The task and the instrumental power to perform it The rate of interest is the 
 
 automaton and unfttUing power The Bank is absolutely free :u exercifling this power 
 
' As any regulating force can be exercised with due watchfiilneBS — — The lamentable 
 
 failure of the Bank in this respect The Bank is too late in raising the rate, and too 
 
 quick in lowering it j and cannot even keep a margin for unknown contingencies The 
 
 idle and useless reserve of notes are the sole cause of the impossibility to keep interest 
 
 at proper levels Example showing how the present system works The Bank of 
 
 England poises the rate in accordance with the amount of actual note Reserve The 
 
 diminution or increase of fiduciary issue in lieu of the fixed amount Will regulate the 
 
 rate of interest, and consequently regulate the stock of bullion The plainest intelU- 
 
 gence can discern the rights of this matter The post facto action of the present 
 
 system The voluntary of reduction the fiduciary issue would have the effect of retaining 
 
 bullion in its stead This rule applies to all conditions and states of the market -— 
 
 The almost ludicrous consequences of this Reserve of notes So long as this fallacy as 
 
 to fixed fiduciary issue exists, a settlement is impossible, and aU our policy is false 
 
 The principle of reduction must have precedence over increase of issue Memorial 
 
 addressed to the Directora of the Bank of England Substantial facta are given in the 
 
 following portions of this Book - ■ - . - - Pages QQ to 79 
 
 The Effect of the 15 Millions of rixed Issue on Bullion and the 
 
 International Exchanges. — The laws of international exchange as connected 
 with rates of interest must be appreciated False allegations as to the causes of with- 
 drawals of buUion The world does not come to the Bank of England for gold 
 
 Our bullion market is open to the Bank of England as well as other hanks Other 
 
 nations are important traders and dealers in Bullion, as the foot note shows Footnote. 
 
 — Tahle 5. — Imports wnd exports of bullion and coin of England, from 1850 to 1872 inclusive, — 
 Page 81. — Tahle 6. — Imports and exports of buUion imd coin of France, from 1860 to 1872 
 inclusioe. — Page 83. — Table 7. — Oold exports and imports between England and France. 
 
 —Page 84 The suggestion that foreigners prey upon our gold coinage is utterly false 
 
 and contemptible The great international movements of bullion rest upon the purest 
 
 basis of arithmetical truths The balance of trade determines the rates of exchange 
 
 Arbitrations of exchanges precede shipments of bullion - — Their refinement and 
 
 delicacy at the present day The action of the rate of interest in regard to exchanges 
 
 The regular and legitimate action of true rates of interest The influence of imdue 
 
 rates of interest The ahsolute force of the estahhshed rate ■ — — The insidious nature 
 
 of an unduly low rate of interest — =— The export of bullion in defiance of the balance of 
 
 trade The consequent necessity for sudden and extreme rises in our rate The 
 
 extreme efEbrts required for balancing fluctuations caused by extremes The moderate 
 
 efforts required for the maintenance of a status quo The breaks in the chain of progress 
 
 in bullion and note issue ... . . . - Pages 79 to 91 
 
 The International Rate of Interest, the Market Rate, and the 
 
 Sank Rate* — variations in the international value of money Instancing the 
 
 supply of precious metals since 1848 The effect on increased production The 
 
 counter effect of increased production The changes in the valuation The 
 
 variations in the international rate of interest are gradual The want of accord 
 
 between the international rates and the Bank of England rates The annexed table 
 
 shows the result Tahl'e 8. — Showing the variations in the Banlc rates of interest in 
 
 England, France, wnd Prussia, from September 18i4 to December 1873 MtciMBiuri— Page 94. - 
 
 The continental bank's protecting action ismore efficient The kej^note for the reform 
 
 of our system indicated by this table Table 9. — Showing the number of cha/nges in th6 
 
 rates of interest, and the number of weeks duri/ng which the rates lasted, of tkeBwiiks ofEngland^ 
 
 France, and Prussia, from Ist September 1841 to Slst December 1873^Page 98 The Bank of 
 
 England ought to be able to keep bulUon with lesser efforts than foreign banks The 
 
 reverse being the case, a false principle must be reversed — The conflict here concerns 
 bullion only as subject to international competition or guardianship by rates of interest — — 
 The wretched result as far as England is concerned —— The consequences fall chiefly on our 
 
own industry and commerce The losses occtmred on behalf of the recovery of 
 
 bullion exceed the amount forced back The angry confusion and just complaints to 
 
 which this gives rise The unhealthy and untrue expedients proposed The 
 
 London exchange market has become powerless through its want of true rates of 
 interest All reciprocity ceases in this case Pages 91 to 106 
 
 The General Circulation and that of the Bank of England Note.— 
 
 The question of the use of money by the home trade of the country The false impression 
 
 that the demands of trade cause scarcity of money The comparative regularity of 
 
 the home circulation The gross amount of money in the country Partly in 
 
 circulation, partly in Reserve Characteristics of the constituents Firmness of the 
 
 gold coin in circulation A sudden addition to the circulation cannot take place 
 
 The subtraction of gold coin from circulation is resisted A general gradual increase 
 
 has taken place Silver and copper coin Country bankers' issues The Bank 
 
 of England note circulation ; is the supernatant constituent of the general circulation 
 
 The variations in the total circulation concentrate in the Issue Department of the 
 
 Bank of England -—^ Table 10. — Shom/ng the extreme variationa of the Bank of England 
 Note Circulation in each Quarter (from let January) of the years 1845 to 1871 {in millioiis £ 
 
 sterling) — Page 113. The regularity of the circulation of Bank notes within three or 
 
 four millions In spite of all movements, failures, crises, and paniesj the public does not 
 
 away with money, or uses too much of it On the contrai'y, it keeps what there is, 
 
 and steadfastly resists all attempts at inflation Through the continual offer of the 
 
 Bank's Reserve of idle notes The paramount importance of this fact The inexor- 
 able firmness of the circulation There is practically no scarcity of money, nor use for 
 
 any surplus The lessons to be derived from this facb The misuse of the term 
 
 "elasticity." It concerns gradual increase only The freedom of supply of gold 
 
 and development of the demand In accordance with the principles of international 
 
 valuation ■ The absurdity of schemes for indefinite or definite supplies of Bank notes 
 
 They would destroy the true elastic force of our currency The same spirit at work in 
 
 all such schemes, ignorant of and incapable of citing facts A current fallacy as 
 
 regards the distress for money Its untruth and the real truth - — The real cause of 
 
 panic — The true causes of the restoration from a panic • - • Pages 106 to 120 
 
 The Availability of the Reserve of the Bank of England.^ 
 
 The difficulty of discussion as to Reserve The abolition of the present Reserve 
 
 The substitution of a better system, explained in Part II The connection between cir- 
 culation and Reserve The clear definition of the purposes of Reserve The 
 
 reasonable considerations by which the use of the Reserve can be measured The 
 
 requiretaents of the Bank of England The use of the Reserve for the accommodation 
 
 of the public ■ Is comprised in andidentical with the circulation The importance of 
 
 Uiis fact and its confirmation by the most severe tests The pubHc refuses altogether 
 
 to make use of the surplus of fiduciary issue The Reserve of the Bank against 
 
 withdrawals of deposits The right of inquiry into this matter by a reasonable method 
 
 The capital and rest of the Bank offer overwhelming security Gradual with- 
 drawals of deposits are met by realisation of securities Sudden withdrawals of 
 
 deposits The capricious and unbusinesshke nature of the supposition What 
 
 would be its effects? It would have no effect on the amount of money required 
 
 The final suggestion of general bankruptcy Such an event would lead to a plethora 
 
 ill the already existing supply -The remarkable fact of the increase of deposits in times 
 
 of pressure Demonstrating the real strength of the depositors The extreme 
 
 iiTegularity of the Reserve shows its failure The supposed purpose of the Reserve to 
 
 replace withdrawais of bulhon Its seenaingly natural application Its real 
 
 tnischieVDUs action is the cause of all the difficulties To demonstrate this is the object 
 
 Of this Book . ^ . . Pages 120 to 129 
 
False Suggestions Founded on Reserve.— The remarks made before estab- 
 
 lish the reliability of the factor circulation False suggestions as regards Resex-ve ■ 
 
 False method of estimating Bankers' liabilities against cash Reserve • ■ Without refer- 
 once to circulation The real state of the case of Bankers' Reserves Concema 
 
 the character of the inve&tment made Failures and want oF confidence result in 
 
 matters of account only They do not destroy currency No legislation can stop 
 
 errors of judgment in banking Reliance on express Reserves increases liability to 
 
 commission of greater errors The supposed insecurity of contracts should be traced to 
 
 its real original source The term "Banking Reserve" ittempts to connect 
 
 Liability and Reserve The purpopeless nature of these estimates The wide 
 
 differences in the Banjc's Reserve Table 11. — Showing the highest and lowest percentage 
 
 of Seaerve (i/ncliiding Coin) to Liahilitiea (including 7 days' Bilh) of the Bank of England fot 
 
 each rate of inter eat—'P age 135. The impossibility of finding a guiding principle in 
 
 such proportions ■ Example of the guess method, by Professor B. Price The 
 
 vagueness of these guesses The attempt to lump all in one factorship The hotch- 
 potch, resulting therefrom The final refuge in mere assertion The ignoring of 
 
 the first requirements as to bullion ■ The clear result when this requirement is provided 
 
 for - ... - ... . Pages 130 to 138 
 
 The Destruction of Bankers' and Others' Solid Cash Reserves 
 by the present Bank of England Reserve.— The real destroyer of all 
 
 Reserve By using up her own and other people's Reserves The alleged insuffi- 
 ciency of Bankers' balances at the Bank of England ■ Irrespective of the amounts pre- 
 scribable The Bank's action in reference to these Reserves concerns us here — -- 
 
 ^Example of ordina/ry good accownt Analysed account Supposed safe position — — 
 
 Departure of bullion and utter disappearance of Issue, Bankers' Reserve and deposits in 
 
 the vortex The absolute Nothing and Minus ■ Example of crisis and no Seserve — - 
 
 Hankers' Reserves 8^ millions, Bank's Meserue \ million The sudden increase in the Bank 
 
 securities The erroneous current explanation of this fact The Bank of England 
 
 loses Bullion and Reserves Replacing them by using up Deposits and Bankers' 
 
 Reserves The danger to the Deposits The injustice of economical principles, 
 
 explaining the Bank's nervousness and slow progress Imagine a per centage 
 
 of the Deposits withdrawn ■ The Bank of England is liable to the charge of over 
 
 investm.ent At other occasions than crises, the Bank encroaches upon the Bankers' 
 
 Reserves Table 12. Showing the Meaerues of Notes at the Bank, aelected from each half-year^ 
 
 with Bankers^ balances as included therein, and consequent Bank Seaerve without them 
 
 Showing the frequent minus and variability of the Bank^ a Seaerve — Page 146. Theheavy 
 
 Spasmodic profits made by the Bank The harvest of the Bank when it has caused 
 
 crisis and panic Contrary to fair business ideas Denial that this is the unavoid- 
 able consequence of circumstances Examples of contrary action Why the Bank 
 
 is abl« to do this will be shown in next chapter The inheritant destnictiveness of 
 
 the present note Reserve illustrated by example ■ The fixed issue would annul every 
 
 attempt to secure a Bullion reserve or a level of Bullion The mathematical force of 
 
 this acts with something like contempt for the sacrifice made - - Pages 138 to 152 
 
 The Money Market and its Special Phases apart from Bullion 
 
 Withdrawals at the Bank. — iJertain phases in the money market which 
 
 appear to be independent of the question of bullion What is their nature and 
 
 influence ? International contracts separated from local contracts AU international 
 
 contracts concentrate their results on the stock of bullion in the Bank International 
 
 contracts have no direct influence on the currency of the moment Local contracts 
 
 not affecting the currency Loans and discounts The current source of supply 
 
 . The current demand The differences in daily supply and demand constitute the 
 
 Bpecial phases The matter must be n arrowed to the contracts in direct connection. 
 
 with actual money The presumab'y clear average amount of these movements per 
 
day Their actual connection with cash Comparative regalarity of production 
 
 and regular growth Degrees of regularity of demand and its gradual increase 
 
 The retention of cuiTeucy in our industrial districts a som-ce of satisfaction The 
 
 consequently longer contracts and smaller average of due dates The cause and the 
 
 amount of daily divergences The legitimate, moderate and beneficial office of 
 
 fiduciai-y issue here made apparent Thepresent nervousness of the market This 
 
 should not be so The legitimacy of these phases in the money market Their 
 
 moderation, and the easy way with which they should be equalised • The great contrast 
 
 of the effects of withdrawals of bullion The coincidence between reqmrements of 
 
 this kind ajid bullion withdrawals -/The misuse of the fiduciary issue for sudden 
 
 business at the Bank - Pages 152 to 163 
 
 The Competition between the Bank of England's Note Re- 
 serves and the Daily Supply of the Market.— The general competition 
 
 of natural supply with the note Reserve arising from the fixed issue Its continual 
 
 competition with the sufficient current supply ■ The uselessness and unfairness of this 
 
 competition The submission of the market rate enforced The consequent rapid 
 
 and extreme decHne in the rate of interest The market is obliged to be beforehand 
 
 with tho Bank Reserve The "reverse" phase of the market — — The sharp com- 
 petition in anticipation of practice Such practice being well known in the market, 
 
 and cannot be departed from The impossibility on the part of the Bank to hold a 
 
 rate higher than the practice of the present Reserve dictates Tho wantonly destructive 
 
 but useless conflict These matters cannot answer the purpose of Bankers Their 
 
 interests demand a reform Such reform will only enhance the convenience of the 
 
 mechanical arrangements Pages 1Q<L to 168 
 
 The Influence of the Idle Note Reserves on Speculation and 
 
 Mercantile Morality. — The dogma regarding speculation The tendency to 
 
 speculation admitted ; but the sweeping charge must meet with protests ■ ■ The morality 
 
 of the whole trading community in question with the iramaculacj' of one establish- 
 ment Against this charge the British public cnn defend itself with sound reasoning 
 
 ■ The Bank cannot hold its own assets, but uses up the Reserves belonging to others 
 
 The art of Banking consists of knowing how to guard assets The Bank of 
 
 England's supposed legitimate influence in controlUng speculation By ita power 
 
 to regulate the value of money Entirely nullified by practice of the present system 
 
 ■ On the contrary the present system deliberately encourages speculation Until 
 
 in the desperate struggle of crises it beats down good and bad business The periodical 
 
 return of the same events • Three-fourths of the eff'ects of speculation due to the 
 
 system itself ■ ■ The show of reasons here apparent The unavoidable general effect 
 
 of a surplus of money upon commercial doings The disappearance by itself of the 
 
 surplus of idle note Reserve The law of valuation here acts in mercantile matters 
 
 by a similar process of arbitration as in exchange of money ■ The price of money is 
 
 the true contract basis The contracts based on money unduly cheap The general 
 
 commerce based on abnormally cheap money The economical law involved in all this 
 
 is independent of morality The time allowed for the final break down of contracts 
 
 on money unduly cheap The enhancement of speculation by way of reaction ■ 
 
 The clear causes and effects For the consideration of economists Pages 168 to 178 
 
 The Direct Loss to the Bank on the Issue.— The validity of the rule of 
 
 mutuality The supposed double profit on the issae No profit on bullion issue 
 
 The 15 millions of fixed issue are the supposed source of profit The expenses of the 
 
 ^g^Q , Administrative and technical expenses Stamp dues and share of profits to 
 
 gjate Account fttrnUhed to Farliament The variationa according to changes in the 
 
XIV 
 
 fixed amount of iaaue — The profit on bullion ia apart from this — • Ths net profit oftJu 
 
 i$8ue department The supposed profit of the 15 millions in the banking depEirtment 
 
 The heayy Reserves show that this profit cannot be made Calculation of these 
 
 profits Table 13 — Total of interest earned ly the Sank on the -notes in circulation above 
 
 the amounts of btillion held The profit from both sources leaves a loss of £100,000 
 
 per annum The interest on securities on the issue is a separate matter — - The 
 
 question lies between expenses and profits on the 15 millions Table l4i—Showinff 
 
 the annual charge on the issue, the annual interest, a/nd consequent profit and loss per annum 
 The large profits only made in years of panic and crisis • • Pages 179 to 186 
 
 The Falsity of the Supposed Automaton Operation of the Issue 
 and the Unnatural Accumulation of Reserve in the Banking 
 
 Department, — The principal allegations made The assertion as to the purely 
 
 automaton character of the issue The invocation of the laws of supply and demand 
 
 The formidable character of these pleas Apparently backed by the weekly Bank 
 
 statement — But nothing can be more false than this method of showing the case 
 
 The lifeless character of the Issue Department The Banking Department is the 
 
 moving force The impossibility of transferring the Issue Department to the State 
 
 Without the State becoming also the Banker of the Nation Freed of the issue the 
 
 Bank would require but a moderate regular Reserve The Issue Department is carried 
 
 on at the charge of the Reserves in the Banking Department Supposed case of 
 
 liquidation of deposits — Statement showing the effect on the Sauk's capital —— The asset 
 
 of idle Reserve of notes left Showing the great loss to the Bank by the issue 
 
 With any given amount of Reserve The enforced incompetence of the Sank^s Capital by 
 
 the Reserve The ludicrous aspect of this matter The reduction of Reserve brings 
 
 the capital into use Pages 187 to 194 
 
 The Violation of the Rules of Supply and Demand, and Con- 
 clusion of Part I. — The argument concerning supply and demand The undue 
 
 accumulation of gold coin would be prevented by its international value Freedom of 
 
 factors of supply and demand Arbitrary partial limits and characteristics depending 
 
 on other factors interfere in their agreement ' The supply of notes mixed with the fixed 
 
 limit of 16 millions Other factors require adjustment Before the system becomes 
 
 truly self-acting The great error of the is sueraust first be recognised Resume of 
 
 the evidence showing the error General reflection on the Bank's strength and splendid 
 
 condition The small effort required for the recognition of the error and the remedy 
 
 The subtlety, yet simplicity of the matter - - Pages 194 to 200 
 
PART II. 
 
 The Principle of Timely Reduction of the Fiduciary Issue.— 
 
 The facts given might lead to the natural inference That the plethora rate of interest 
 
 of some years is the direct cause of extreme scarcity and high rates in others The 
 
 Bank is guided by the state of the Reserve It has the initiative Amounts of 
 
 Eeserve and corresponding rates of interest Eesult of tables showing the ranges of 
 
 Reserve with the corresponding rates of interest Definite proportions of Reserve 
 
 and interest by way of illustration Experience as to a fairly satisfactory state of 
 
 Reserve, say of 10 millions Etnd 4 per cent. The plain principle of reducing surplus of 
 
 Reserve to some such level The whole secret of the difBoulty, and the remedy 
 
 involved in timely reduction Of the surplus of legal tender notes — The maintenance 
 
 of the siatiu quo thereby made easy The law of compensation involvedinthe reduction 
 
 or increase of issue The true fiduciary Reserve thus arising will be moderate, but 
 
 ample at all times The conservative nature of the principle of timely reduction 
 
 Pages 201 to 207 
 
 The Principle of Decrease and Increase of Fiduciary Issue, 
 and the late Proposals for Increase only in times of Crisis.— 
 
 The contrast between these proposals The nature and origin of the proposal for 
 
 increase of issue The perversion of logic and causes here made manifest The 
 
 perversion of actual facts ■ ■ Their accidental nature The restoration of confidence 
 
 The real nature of this one-sided increase of issue The laxity in the valuation 
 
 thereby estabhshed International exchanges would cease to respond to our demands 
 
 for bullion • ■ The overwhelming withdrawals of bullion The greater nervousness 
 
 of the money market ; and reversal of present experience Effect on speculation and 
 
 over-trading The common sense objection - — The proposal as to increase of issue 
 
 only, is a sign of the demoralisation of enquiry into the question Tt would be better to 
 
 prepare for a general scramble The proposal as to temporary increase have, however. 
 
 broken the ground for enquiry The acknowledgment of the necessity of reform 
 
 They admit the possibility of regulating the matter by clauses of the Act The subtle 
 
 point of the whole controversy The slightest turn of economical thought will provide 
 
 the remedy - - .... . . . Pages 207 to 214 
 
 The Temporary Decrease and Increase of the Fiduciary Issue 
 Provided for in the Present Act, and Why it could not be put 
 
 in practice. — Clause 2 ofthe Act distinctly provides for a diminution of the issue 
 
 Wording of the clause Distinct provision for a diminution of the issue Such 
 
 diminution to be "from time to time," and "again to increase." Reasons why the 
 
 sentence in question did not meet with sufl&cient consideration Sir Robert Peel would 
 
 now acknowledge the importance of this matter The inability of the Bank to act in 
 
 accordance with this part of the clause Clause 8 of the Act. Providing for a regular 
 
 share of profit to the State Of £195,000 a year The actual loss made by the Bank 
 
 The great variation in the actual use of the issue The unfairness of the regular 
 
 charge The Bank has no inducement to reduce the issue It already bears the 
 
 high technical charges - — ■ The general statement of loss repeated The balance of 
 
 accounts as regards the securities in the issue department Table 15.—Sham,ng the gron 
 produce of the Jixed issuef leas technical expenses, and the supposed balance qf profit for division 
 
 between Slate and Sank, and Zoss—Fage 221 The regular deduction of £195,000 per 
 
 annum is irreconcilable with principle and practice The forces of bad arrangements 
 
 here operate together against sound practice The State should take the share of actual 
 
 profltB Which with the reform might become fairly regular, if not larger than at 
 
 present Pages 214 to 223 
 
XVI 
 
 The Practical Solution of the Question contained in the 
 Amendment of Clause 8 of the present Act.— The subject reduced to 
 
 ts siraplest'form The amendment of clause 8 gives the practical solution All 
 
 other clauses onithe Bank of England may remain absolutely intact The maintenance 
 
 of the limit [and Reserve satisfied The limit of 15 millions can remain as a nominal one 
 
 The Reserve would be equally maintainable If the adjustment of the circulation 
 
 and bullion stock took place without reference to it It would " float " over the sub- 
 strata and continue to do so without harm The continual availability of thisSBeserve 
 
 and the employment of the Bank's real resources ■ Examples showing the diffeiense lo 
 
 the Banking Department The larger profit made by the Bank Suggestion as 
 
 to a rangement . Pages 223 to 229 
 
 The Control of Interest Regained by the Reduction of large 
 Reserve to a temporary small Indicating Raserve.— The principal 
 
 advaatage given by reduction of the idle Reserve of Notes The Bank would regain 
 
 its liberty of action And act in accordance with the market rate Undue 
 
 withdrawals of bullion will be stopped thereby What shall guile the Bank in raising 
 
 tie rate? The Bank had full liberty under the old Act But under the old, errors 
 
 of omission were comra.itted The Banks of France and Prussia do better, but have no 
 
 perfect system Sir Robert Peel's endeavour to create automaton action By 
 
 incresise and decrease of the issue To create a standard of Reserve In favour 
 
 of anticipatory action The action was changed into posf facto with both extremes 
 
 The regular Reserve protects bullion and serves only as indicator for higher rates 
 
 Clause 3 gives liberty of action together with indicator A true indicator can- 
 not fail to guide discretion rightly Its clearneas and certainty The problem 
 
 solved by the amendment of Clause 8 of the present Act Pages 229 to 234 
 
 The]|System of Compensating Interest and lllncreasing Reserve. 
 
 — The search for adjustments and rules Its failure for want of reference to all factors 
 
 The due appreciation and the reduction to the adjusting points The six factors 
 
 of the system : Circulation, Commerce, Bank Notes, Bullion, Interest, Reserve The 
 
 free scope given to the demands of circulation ■ The encouragement of the circulatioa 
 
 by continual offer for real equivalents The folly of demanding money without equiva- 
 lents The independent concurrence between general circulation and commerce 
 
 The Bank of England note issue not absolutely required for this purpose. We may 
 
 dismiss these first two factors as concentrated in the Bank of England note circulation 
 
 The factor reserve is also a separate one The guiding factor now becomes the amount 
 
 of circulation of notes Bullion must be maintained in proportion thereto Pro- 
 portion of circulation to bullion the true guide The simple ofQ.ce of the rate of interest 
 
 to keep bullion at a level The finding of its level The test by practice 
 
 Its proof by theory - . - - . fages 234 to 242 
 
 The Principles of Compensating Interest in the combination 
 between Bullion and Fiduciary Bank Notes.— Arbitrary assumption 
 
 for standard rates are fallacioas The true abstract ground for such rates lies in the 
 
 valuation itself The point of agreement between amount of bullion and amount of 
 
 circulation The truly normal character of the equality of bullion and circulation 
 
 The abstract and neutral ground thereby established ■ The frequent occurrence 
 
 of this agreement at the Bank of England The deduction of the rate from this normal 
 
 Btate of the valuation From the broad practice of the Bank By testing the 
 
 excesses The practical test results in the rate of 2i per cent. as that on which 
 
 the excesses below are committed The deduction is abstract and not arbitrary 
 
 The ratio of increase of interest to protect bullion Determinable by experience within 
 
XVll 
 
 the known ranges of interest Subject to the natural control of duration of time of 
 
 each change The practice of the Bank affords a distinct available guide The 
 
 theory of adjustment points to a distinct rule Viz., the doubled bid, to obtain the 
 
 desired level Its applicability to the case of attracting bullion The true auto- 
 maton action of the double bid Examples of its working - — The simple rale 
 
 Construction of a table to show its working Table 16. — Showing amount of cir- 
 culation and bulUon, unth raiea of interest to cor respond — Page 252 Table 17.— Degrees 
 
 of agreement and excesses between the practice of the Sank of England from 1845 to 1871, and the 
 rule enunciated compa/red with basis of 2, 2^, and 3 per cent, as lowest rates on 198 instances of 
 
 choffigea — Page 254 The liberty of the Bank to keep interest at a suitable level to 
 
 international rates The practically lowest rate for the maintenance of the issue 
 
 Sufficient to cover the technical costs of the issue The fair rate resulting from the 
 
 moderate issue Its accord with international rates Its fair level for the issue 
 
 itself Its agreement with the market rate On the removal of idle Reserve 
 
 Higher rates of interest Our average level may be slightly below others The 
 
 legitimate advantage of our position The proper proportion of bullion to notes in 
 
 circulation The plain principles here made evident as self-acting The starting 
 
 point of lowest interest dissolves again in the system itself The order and certainty 
 
 resulting therefrom and its corrective The corrective of time and reserve 
 
 Pages 242 to 261 
 
 The Reserve of the Compensating System of Bank Note Issue. 
 
 — The necessity of Reserve and its clear purpose If Bullion can be secured la due 
 
 proportion to ciroidation, the same force can secure the addition of Reserve By pro, 
 
 portionate increase in rates of interest Illustrating its opei'ation Table 18.— 
 
 Showing the rates of interest required to secure Reserves from to 16 millions upon a circulation 
 of 25 millions, commencing with 25 millions down to 10 millions of Bullion. (Millions 00,000 
 
 omitted) — Page 263 The proportionate increase or decrease Suitable to alj 
 
 amounts of circulation And desirable Reserve Illustration in another form 
 
 Table 19. — Showing the effect on rise in rate of interest by successive reserves of 2, 5, 7, 10 and 
 
 15 milUons on circulation of 25 vuUions Ranges of interest dependent on Reserve chosen 
 
 The essential difference between the present Reserve and the proposed Reserve 
 
 The true use of fiduciary issue The decline of present Reserve and enforced realisation 
 
 of claims The continual hold by the proposed Reserve upon such claims Sub, 
 
 iect to instantaneous action The dis-union or union of the factors The simplicity 
 
 of the matter The substitution of subtraction for addition The common sense 
 
 and plain logic involved The reversal of present practice and the safety resulting 
 
 therefrom The degree of safety Abohtion of undue low rates Provision of 
 
 proven j^ro raia action Itsfii'st corrective of time The supernatant corrective of 
 
 Reserve niuBtrating its absolute firmness The Reserve becomes the regulating 
 
 force of all oontingences The inviolability of this Reserve The strength of the 
 
 defensive attitude The presumed amount of such Reserve Will be determined 
 
 by natural indications In reality by rates of interest The balancing of this 
 
 Reserve will give the legitimate scope for discretion by the Bank Directors by 
 
 superior considerations Doing away with petty esqiedients Application of the 
 
 system to great emergencies Orderly expansion and contraction of its factors 
 
 Pages 261 to 270 
 
 The Amendment of Clauses 2 and 8 of the present Act, in 
 
 accordance with the proposed System. — The desirability of prescribing 
 orderly action The Bank might "practice" it without reform of the Act ^Im- 
 propriety of this suggestion The necessity for reform in Clause 8 The sense of 
 
 order and refinement prevalent in England Incorporation of the system in Clause 2 
 
 Ijivolving but removal of 5 words - — ■ And substitution of a short sentence 
 
 Leaving the discretion in Reserve The principle of rates of interest Admitted 
 
 by Parliament Legitimacy of lowest rate Precautionary action better than post 
 
 Mcto action No absolute necessity for abolition of the fixed limit No need fo^ 
 
 maintaining it • - • Pages 271 to 274 
 
xviu 
 The Advantages of this Beform to the Bank of England and 
 
 the Public. — The freedom of its resources secured Disappearance of the idle 
 
 Reserve Plainer statement of tlie accounts Example without specific Reserve 
 
 Desirability of temporary moderate Reserve The issue department to state circulation 
 
 and Reserve Example with five milUons of "first" Reserve ■ The balance ovei* 
 
 "first Reserve " still available The expenses covered by first Reserve - — - The same 
 
 liabilities and assets Exaanple with less bullion Profit on more fiduciary circula- 
 tion Consequent larger profit to the State Example with small stock of bullion 
 
 The check on unduly large issues The compensating action of the whole system 
 
 Advantapfes to the Bank Regularity of bullion Lesser range of interest Satis- 
 faction to circulation Regularity of Reserve — — Greater scope of business In- 
 crease in deposits Larger dividends Advantages to bankers Less competition 
 
 with Bank A better average of interest - — r- Advantage to discount brokers 
 
 Advantages to general public ■ Scepticism for want of contemporary 
 
 comparision Realisation of the strong facts shown in this book Demonstrating the 
 
 grave fault The history of this country teems with the surprisingly beneficial results 
 
 of reform Page 275 to 283 
 
 The Country Bankers' Issues.— Reform of country issues not absolutely required 
 
 Their anomaly The only plea in their favour Suggastion to satisfy this plea 
 
 On issues on gold coin The true meaning of this improvement and the margin for 
 
 expenses The Act of 1856 an insult to Peel Country bankers profit at expense of 
 
 valuation The plea of vested right Is proof of the need of reform The damage 
 
 to our valuation Enlightened men must deal with the whole subject Page 283 to 295 
 
 Conclusion. — The matter here elucidated «, fair subject for inquiry Enquiry 
 
 unfettered from dogmas The necessity for this exhaustive treatment The high 
 
 position of the Bank Directors Their success with a proper system certain Other 
 
 publications of the author Contain matters in support of this book The Author 
 
 willing to correspond with competent parties - ... - Pages 295 to 298 
 
To the Holders of Bank of England Stock, and others. 
 
 PART L 
 
 THE WANT OF PROGRESS OF THE BANK 
 OF ENGLAND. 
 
 AMONG the manifold duties incumbent upon wealth, 
 that of maintaining and increasing itself is the 
 foremost. The most refined intelligence, the highest ^^j^j,.^ 
 economical principles, the utmost truthfulness, should ^^8^88 if 
 
 bya natural 
 
 be brought to bear upon the furtherance of individual '"''^• 
 as well as national wealth. In every community where 
 equitable laws prevail, and free scope is given to pro- 
 duction, the increase of wealth is a positive gain, of 
 which all have the benefit. A certain set of trans- 
 actions, although equitable apparently, gives, it is true, 
 advantage to the one to the disadvantage of the 
 other (among these latter the State Debts take their 
 place), but the vast majority do6s not involve the 
 vulgar notion that the wealth of the one means the 
 poverty of the other — the positive and the negative. 
 It may be said that all the factors and forces con- 
 tributing to the accumulation of such positive wealth, 
 advance together like an army, and in their respective 
 ranks take the shares they are entitled to. These 
 participations find expression in practical results, 
 which can be measured by figures, and the agreement 
 between such figures confirms the active and perfect 
 co-operation of each factor. Indeed the "mutuality" 
 
 1 
 
involved in this rests on a law o£ nature, whicli must 
 The test of manifest itself, unless one of the parties concerned is 
 
 figrnres can -in -r n n 
 
 be applied, unable to keep pace with the rest. It follows that 
 when the figures connected with one of these factdrs 
 stand much below those of others, there is reason to 
 Suppose that it has lagged behind the general ad- 
 vance, and if that factor be an essential one, it is not 
 unreasonable to inquire whether its tardiness does 
 not hamper the general advance, and give occasion 
 for disturbances and quarrels. 
 
 England aflFords a striking example of the truth 
 weauh"*'* of these general reflections. The accumulation of its 
 ■Sat^v^ wealth has proceeded at a most rapid rate. The 
 
 nationali" 
 
 question whether the division of this great store 
 of positive wealth is fairly conducted, whether the 
 whole mass of the people is, on the averagcj more or 
 less happy and comfortable than other nations, is 
 entirely a local or domestic matter ; but there can be 
 no discussion as regards the supremacy of English 
 •' international" wealth. Apart from the accumulation 
 of riches now bodily present in the country in aU sorts 
 of commodities and treasures, England has invested a 
 considerable portion of her wealth in claims on other 
 England's uations, fpom which a large income is derived. Her 
 
 decided su- . . . ' 
 
 SSr investments in foreign state debts, in foreign railways 
 weS and other enterprises, in the current commerce with all 
 parts abroad, according to the best estimates, exceed 
 1,000 millions sterling, and they are steadily increasing, 
 This is what ia meant by the expression *' supremacy 
 in international wealth," in contradistinction to " in- 
 feriority of international wealth," under which laboiit' 
 the nations who hold no such claims, or who, on the 
 contrary, owe them. Among the nations possessing 
 this international wealth may be counted, next to 
 England, Germany, Holland, Belgiuni and Francej 
 the latter country still hblding considerable claims 
 
against its own recently enlarged debt. Among ttose 
 wlio are internationally poor and indebted to them, 
 the United States, Eussia, Austria, Italy, and other 
 States, worse burdened, may be mentioned. 
 
 To every Englishman this decided supremacy of 
 his own country must be most satisfactory and re- ?estSd^" 
 assuring. The figures are at hand to justify such increase in 
 
 Sill uirBC' 
 
 feeling of satisfaction. Throughout the length and "°'^- 
 breadth of the land there has been almost universal 
 progress. Not only has the population increased, 
 but (in spite of higher prices) the production and 
 the consumption of commodities of all kinds, from 
 those required for food up to the highest efibrta 
 of art and intelligence, has doubled and trebled, 
 especially within the last thirty years. One -test is ^p'S?"''"* 
 aflPorded by the exports and imports, which, amounting |,°^°f|'* 
 in 1844 to 130 millions, exceeded 600 millions in 
 1872. And whether the inquiry as to this universal 
 increase be directed to aU kinds of business where 
 figures are available for comparison, such as that of 
 insurance companies, joint stock banks, and other public 
 companies, the advance is general, and in almost the 
 same ratio as that exhibited by our trade returns ; all 
 have progressed together. There is but me solitary eMe°S|fnii, 
 exception to this rule, concerning one of the most vers™'" 
 
 ^ iacreaee is 
 
 important factors — viz., the Bank of England. During ^^l^^_ °' 
 the last thirty years the Bank of England accounts 
 show but little variation, and the utmost extension of 
 its business within the last few years is totally inade- 
 quate and out of proportion to the general increase of 
 business and prosperity. And, as you are also aware, 
 there are periods in our cominercial history, notably at 
 times of so-called crises, when disturbances take place 
 eo grievous to the steady prosperity of the country, 
 and when quarrels and dissensions arise as to the Bank 
 of England and the Act of 1844. 
 
4 
 
 As tolders of the Stock of the Bank of England 
 
 TheBankof YOU feel conscious, no doubt, that you are not only in 
 
 wrnton""' possession of a valuable security, but that your capital 
 
 ° "^ is instrumental also in assisting and promoting the 
 
 commerce of the country through an institution 
 
 managed by gentlemen of the highest standing; and 
 
 the saying, " as safe as the Bank of England," you 
 
 deem perfectly justified. I am far from being inclined 
 
 to throw a shadow of doubt upon the security and 
 
 soHdity of the Bank of England, or to disparage the 
 
 integrity and wisdom of its management under the Act 
 
 of 1844. Any attempt to do this would meet with 
 
 are S' instant and just rebuke. But there are certain striking 
 
 iipS™?ong. facts to be brought before you upon which you may 
 
 standing ° J r J J 
 
 verey?' rcflect ; and these facts have an. important bearing 
 upon the controversy which, as you are aware, has 
 been going on since the Act of 1844, under which the 
 Bank is bound to perform certain duties. This contro- 
 versy, in the first instance, concerns the Issue Depart- 
 ment. Parliamentary inquiries, Eoyal Commissions 
 have sat on the matter, books and pamphlets innume- 
 rable have been written, abortive attempts at reform 
 have been made — all in vain. The problem is not yet 
 solved, and the quarrel continues. I shall be able to 
 show you that the range of this question is not confined 
 to the Issue Department or Bank-note grievance itself, 
 but that it has an influence extending far over the other 
 operations of the Bank and the mercantile community. 
 pSr™^^ You will find that what I have to say concerns plain 
 SS' practical matters, that the suggestions I have to make 
 do not involve anything revolutionary or speculative. 
 But ere I enter upon this task, permit me to 
 coStoversy ^^ your attcntiou to the fact that the controversy as 
 th/Sk' regards the Bank of England is in a state which 
 renders the task of obtaining a hearing extremely 
 difficult. So much lia? been said and written, so many 
 
wild and extraordinary schemes have been started, so 
 violent, on the other side, has been the dogmatic defence 
 of the present state of things, that the case seems 
 almost hopeless. If proof were wanted of the des- 
 perate state of confusion and demoralisation into which vain 
 
 ^ 'in attempts at 
 
 the question has fallen, the lately proposed (but since ™^°™- 
 abandoned) amendment by the Chancellor of the 
 Exchequer may be quoted. People have become tired of 
 the whole thing, and among them your own Directors 
 are probably the most unwilling to listen to new reasons. ronJS-va- 
 They may prefer the present state of things, under the denoyohhe 
 idea that the utmost conservatism is the only course 
 open to them, and have recourse to the dogmas to 
 which we are accustomed. I say so with all due 
 respect to the Dirfictors of the Bank, conscious that 
 they have the power to come before you and con- 
 demn any suggestion by the mere force of their per- 
 sonal position. But with all due respect to the host Bmefui 
 
 -*■ ^ influence ot 
 
 of economists of the last generation, whose opinions by^e °* 
 and assertions are so continually quoted by their 
 present pupils, for want of original thought, let me 
 remind you that these men lived at a time when the 
 aspect of things was diflFerent, when other matters, 
 such as the mere convertibility of the Bank Note, for 
 instance, were uppermost. If we are bound to follow 
 their opinions, most of which involve nothing more 
 than some crooked result, painfally eked out for want of 
 clear thought, but uttered in an authoritative manner, 
 there is an end to all progress and all reform. Many 
 of the controversialists of the present day, among 
 them several of the highest standing, frequently have 
 recourse to quotations, which modern economy is Dogmfttic 
 
 wisdom 
 
 able to condemn as unmitigated sophistry, as the result J^, ^^^ 
 of desperately false reasoning. Against all these ""^' 
 opinions and quotations, none of which are accompanied 
 by facts and figures, you can hold up the accounts as 
 
they present themselves to you and ask, " What is the 
 
 use of all that wisdom if better results cannot be shown?" 
 
 The most prevalent, deep-rooted, and fatal — ^but 
 
 Saufttie weakest — of these dogmas is that founded on the 
 
 concemB assertlou — " all our difficulties and crises are owinar 
 
 specula- o 
 
 ''™-" to the speculative tendency of our merchants ; that 
 the Bank Act itself is perfection." It is but neces- 
 sary that one of the authorities holding this view 
 should say so in the usual style, supporting the Bank 
 Act by the customary quotation of " sentences " 
 pronounced years ago, and the majority of weak-minded 
 people will assent. Nobody can deny that speculation 
 is a serious evil. But there is one primd facie veQeo- 
 tion, which should raise doubts even in the minds of 
 ^^Bankis thoso who are thus easily overwhelmed. If specula- 
 fteefromfts tiou alouc is the cause of the mischief, if the Bank of 
 England is immaculate, why is the establishment 
 either in jeopardy in times of panics and crises, or 
 subject to the effects of speculation at all ? If the 
 system of the Bank is absolutely faultless, it must keep 
 itself absolutely clear, not only of direct participation in 
 speculative matters, but of all their indirect influences 
 on its resources. To use a familiar example : — The 
 pretending temperance man should remain serene and 
 undisturbed however intemperate his associates may 
 choose to be. 
 
 Thus, if the Bank Act were as immaculate as is 
 piataproof alleged, speculation ought not to withdraw Bullion 
 partioipa- ° from its stores, or place the Reserve in danger. The 
 
 tioii or its ° 
 
 weakness, gvidcnce that the Bank is unable thus to guard itself 
 shows either that its system, in spite of all virtuous 
 protestations, is somehow productive of speculation, 
 or, to say the most favourable thing, that it is too weak 
 to defend itself against the effects of overtrading. As 
 in everything else concerning the ramifications of 
 commercial intercourse, the, law of mutuality is opera- 
 
tive here, and the results loudly proclaim its truth. 
 Give waf only to the suspicion that it might be so — 
 that the Bank Act is not perfect — ^and you- will at thenuoieM 
 
 ■*■ - "^ , - of a system 
 
 once perceive that, inasmuch as the principle therein fS many 
 involved concerns the nucleus of supply, it .follows that to°r^ ' 
 any fault, large or small, clearly perceived or difficult 
 of discovery, multiplies its evil effects many thousand 
 fold in the demand, as each unit serves in the thousands 
 upon thousands of transactions. Unless you consent for 
 once to abandon the assertion that speculation alone 
 is to blame, the "old refuge for the intellectually 
 destitute," you will never discover the error. 
 
 I venture, moreover, to request you not to admit 
 as valid any boast or allusion to the strength and ^peauo 
 wealth generally of the Bank, based upon its capital °X^}^^°f 
 and position, or upon results which are one sided, p™"*""- 
 because no concurrent comparison can be made. 
 Nothing is more fatal to the truth than the en- 
 deavours to swamp the search for great economical 
 principles by a rough appeal to wealth and strength. 
 When this method of defence assumes that well known 
 quasi patriotic style, when the defender " points with 
 pride," and, at the pitch of his enthusiasm enforces a 
 cheer, sound reasoning is apt to be set aside. I allege Pawotio 
 
 , declamation 
 
 that there is nothing to be very proud ot m the l^'^^^ 
 accounts of the Bank of England, and that, on the *^"°" 
 contrary, its want of sufficient progress is evident. 
 i hope that you, in this controversy, will not be 
 influenced by the mere declamation that all is satis- 
 factory, whilst in reality the figures show a compara- 
 tively regretable state of things. 
 
 If you should appreciate the remark which I have 
 ventured to make at the beginning of this chapter, 
 respecting the duty of wealth in regard to its main- 
 tenance and increase by the application of refined 
 intelligence, high Economy and logical truth, you will 
 
8 
 
 These 
 figures 
 show that 
 the Bank of 
 England is 
 not in 
 accord 
 with pros- 
 perity 
 generally. 
 
 The inte- 
 rests of the 
 stock- * 
 holders in 
 this matter 
 as regards 
 diridends 
 
 The author 
 will suggest 
 nothing 
 wild and 
 speculative, 
 and reason- 
 able sug- 
 gestions 
 ought to 
 receive 
 attention. 
 
 insist upon the reasonable consideration of indis- 
 putable facts or figures. These facts or figures, already 
 alluded to, I shall lay before you in a more definite 
 shape. They prove that the Bank of England has 
 scarcely naade any advance, and is now far behind the 
 prosperity of the country, and its real, practical, dearest 
 interests. That alone should fix your attention, if it 
 were merely a problem of science to be solved. But 
 beyond this stands your own intereat, as holders of 
 14 millions of Bank Stock. If it can be shown to you 
 that the Bank of England does not occupy the position 
 which it ought to hold, that its influence on the affairs 
 of commerce is not so complete and satifactory as it 
 ought to be, that with the advantages apparently 
 enjoyed by it it does not pay you dividends large 
 enough, you may probably be willing to listen to 
 suggestions which will point out the cause and its 
 effects, and which will indicate the remedy. If it can 
 be shown to you that by the removal of the cause of 
 mischief the Bank will be able to attain its legitimate 
 position, increase its business and dividends, you may 
 be able to confer great benefit upon your own income, . 
 and that of thousands of famiHes whose fortunes are 
 invested in the 14 millions, a capital of national 
 importance. And if an economist, who wants nothing 
 wild and speculative, can show you that by the proper 
 adjustment of your own Bank of England system the 
 disturbances and crises to which the commerce of the 
 country is now subjected, and which bring so much 
 misery to the mercantile and labouring classes, can be 
 dealt with in a better way ; if he proposes to demon- 
 strate that the quarrels and conflicts between the 
 public and the Bank, together with all the vain and 
 wretched attempts at legislation which have been made, 
 need not be renewed, you may at least deem it worth 
 while to listen to what he has to say. 
 
COMPARATIVE FIGUEBS. 
 The table herewith submitted contains the items of 
 the Bank of England accounts from 1845 to December '^^^^^ ^' 
 1872, which determine the extent of the active business. 
 
 First. The circulation of Notes, j Kn?^""' 
 
 Second. The amount of Bullion.; 
 For the sake of convenience, the average for 
 each year has been given, as sufficiently indica- 
 tive of the general advance. 
 
 Third. Total Deposits, viz. : — Public and 
 Private Deposits (including Bankers' balances) "'^p"^''°- 
 and Bank Post Bills, as indicating the actual 
 advance made by the Banking business. The 
 variations in this business make it expedient 
 that four items per annum should be given, 
 taken from the returns. In selecting these, care 
 has been taken to avoid the customary extremes 
 at the periods of half-years, and the fairness 
 of the selection is subject to control. 
 
 Fourth. Bankers' balances, as included in 
 the Total Deposits. ^aBk"! 
 
 Fifth. Bills discounted and | 
 
 Sixth. Temporary Advances,) countea,'&c. 
 
 which indicate the amount of connection be- 
 tween the current commerce of the country 
 and the Bank of England. It is understood, of 
 course, that beyond these items the Bank invests 
 in, and advances on Government Securities and 
 "other Securities," such as railway obligations 
 and kindred matters. The Bills Discounted and 
 Temporary Advances are also given in four 
 items per annum to fairly represent the case. 
 
 Seventh. Contains the annual total of our 
 export and import trade, as indicative of the ^^°^'^'^ 
 general increased prosperity of the country. 
 The " exports " have been corrected in accor- 
 dance with McCuUoch's system. 
 
 Eighth. Contains the total deposits of the 
 four chief London joint stock banks, viz., the S„P°o^t°' 
 London and Westminster Bank, the London stock tanka 
 Joint Stock, the London and County, and the 
 Union Bank. 
 
10 
 
 Table I. 
 
 £ Sterling. Millions and Decimals (000,000) omitted. 
 
 
 From the Bank of England Betums. 
 
 Total of 
 
 Exports and 
 
 Imports. 
 
 Total 
 
 Yeari 
 
 Averages of 
 
 Four Periods each year of 
 
 ''o^S* 
 
 
 
 
 
 
 
 i __ 
 
 
 Four Qh^Bt 
 
 
 Note 
 Clroulatlon 
 
 . Bullion 
 
 Deposits 
 
 Bankers' 
 Balances 
 
 Bills ' Temp. 
 Disoounteil Advances 
 
 Dividend 
 
 
 . Banks 
 
 1846 
 
 21-1 
 
 150 
 
 190 
 
 14'2 
 IT'S 
 
 ns'Y - 
 
 1-1 
 1-0 
 10 
 1-6 
 
 2.3 
 31 
 S'3 
 94 
 
 0-8 
 4-1 
 1-9 
 1-1 
 
 7 
 
 iei-6 
 
 9-6 
 
 1846 
 
 20-3 
 
 14-2 
 
 36r 
 
 20'3 
 231 
 16'8 
 
 2'0 
 1-1 
 2-0 
 1-2 
 
 IS'l 
 
 10'9 
 
 9-2 
 
 65 
 
 4-1 
 1-3 
 1-3 
 0-7 
 
 7 
 
 149-8 
 
 9-3 
 
 1847 
 
 191 
 
 9-7 
 
 16-7 
 13'8 
 15-3 
 14'7 
 
 1-2 
 1-3 
 1-2 
 2-0 
 
 8'8 
 
 89 
 
 8-5 
 
 12'3 
 
 0-9 
 0-9 
 3-8 
 16 
 
 8 
 
 168-8 
 
 8-6 
 
 1848 
 
 186 
 
 13-8 
 
 162 
 17-6 
 14-9 
 17'6 
 
 2'4 
 1-8 
 3-3 
 1-6 
 
 6'7 
 4,7 
 
 3'6 
 31 
 
 1-6 
 1-7 
 1-2 
 11 
 
 9 
 
 164-6 
 
 8-3 
 
 1849 
 
 18-3 
 
 14'3 
 
 ITO 
 16'7 
 16'7 
 20'S 
 
 1-9 
 2-7 
 1-5 
 20 
 
 2-8 
 8-7 
 22 
 83 
 
 0-8 
 07 
 0-9 
 1-6 
 
 n 
 
 184-8 
 
 10-7 
 
 1850 
 
 19-5 
 
 Ifrl 
 
 180 
 20'3 
 17-8 
 20'4 
 
 1-6 
 1'5 
 1-6 
 1-3 
 
 23 
 2'3 
 3'4 
 32 
 
 05 
 2-6 
 0-6 
 11 
 
 7i 
 
 198-7 
 
 11-9 
 
 1851 
 
 19-4 
 
 13-9 
 
 IS'l 
 IS'l 
 IBS 
 190 
 
 1-6 
 1-7 
 1-4 
 1-4 
 
 4'1 
 S-8 
 6'1 
 6'7 
 
 0-9 
 0-6 
 0-9 
 
 1-4 
 
 7i 
 
 208-7 
 
 14-7 
 
 1852 
 
 21-7 
 
 200 
 
 20'1 
 191 
 
 sec 
 
 21 '8 
 
 3-2 
 
 4-8 
 20 
 2-6 
 
 3-1 
 
 a-7 
 
 29 
 8-3 
 
 0-5 
 0-2 
 1-4 
 6-8 
 
 7i 
 
 210-6 
 
 17-4 
 
 1853 
 
 22-9 
 
 17-3 
 
 236 
 16'4 
 200 
 221 
 
 1-5 
 2-5 
 25 
 
 2-1 
 
 5'9 
 4-5 
 8-7 
 7-6 
 
 1'7 
 0-2 
 21 
 11 
 
 8 
 
 240-7 
 
 21-7 
 
 [1854 
 
 20-7 
 
 133 
 
 17-2 
 13-8 
 161 
 15'8 
 
 2-7 
 2-3 
 2-3 
 
 2-7 
 
 S-9 
 7-2 
 8-8 
 6-3 
 
 0-1 
 0-3 
 0-3 
 0-2 
 
 9 
 
 267-2 
 
 26-6 
 
 1855 
 
 19-8 
 
 13-5 
 
 1S4 
 181 
 176 
 16'5 
 
 2-3 
 3-3 
 2-7 
 2-5 
 
 61 
 8-7 
 3'9 
 90 
 
 0-2 
 02 
 0-2 
 
 0-8 
 
 8 
 
 2600 
 
 28-3 
 
 1856 
 
 19-6 
 
 10-2 
 
 18S 
 14'4 
 15'3 
 161 
 
 2-5 
 29 
 2-5 
 
 a-7 
 
 80 
 5'4 
 37 
 9'4 
 
 1-5 
 1-6 
 0-9 
 0-5 
 
 9i 
 
 311-7 
 
 33-0 
 
 1857 
 
 19-2 
 
 9-4 
 
 167 
 191 
 14-7 
 213 
 
 2-8 
 2-7 
 33 
 51 
 
 80 
 
 81 
 
 6-8 
 
 171 
 
 0-9 
 2-4 
 10 
 3-2 
 
 10 
 
 339-0 
 
 37-7 
 
 1858 
 
 200 
 
 17-0 
 
 22'2 
 20'2 
 19'8 
 218 
 
 8-8 
 51 
 50 
 39 
 
 9'8 
 40 
 3-9 
 SO 
 
 0-9 
 0-6 
 0-3 
 0-3 
 
 10 
 
 804-3 
 
 86-3 
 
 1859 
 
 21-3 
 
 17-3 
 
 22'6 
 240 
 22'4 
 20'4 
 
 3-4 
 5-8 
 3-5 
 3-5 
 
 3-8 
 6S 
 61 
 6-5 
 
 0-4 
 0-7 
 1-5 
 10 
 
 8i 
 
 334-8 
 
 35-0 
 
11 
 
 Table l.—eonivnued. 
 
 Millions and Decimals (000,000) omitted. 
 
 
 Prom the Bank of England Returns. 
 
 Total of 
 
 Exports and 
 
 bnports 
 
 Total 
 
 Years 
 
 Averages of | 
 
 
 Four Periods eaoli year of 
 
 
 Deposit 
 of the 
 
 
 
 
 Deposits 
 
 
 Bills '^ 
 Discounted j 
 
 
 j 
 
 Four Chief 
 
 
 Note 
 Clroulatlon 
 
 BulUon 
 
 Bonkers' 
 Balances 
 
 Temp. 
 
 AdvanceB 
 
 Dividend 
 
 
 Banks 
 
 1860 
 
 21-3 
 
 14-5 
 
 230 
 20'5 
 ID'S 
 18-9 
 
 31 
 3-6 
 5-2 
 
 4-7 
 
 8'4 
 
 8-4 
 81 
 
 7-5 
 
 2-5 
 0-8 
 0-8 
 1-4 
 
 9J 
 
 3760 
 
 39-0 
 
 1861 
 
 20-9 
 
 12-2 
 
 18-7 
 189 
 16-9 
 191 
 
 S-2 
 3-6 
 5-2 
 6-0 
 
 81 
 7-9 
 
 7'2 
 4'8 
 
 1-1 
 0-9 
 11 
 0-6 
 
 10 
 
 3771 
 
 450 
 
 1862 
 
 20-9 
 
 15-6 
 
 206 
 322 
 23'S 
 232 
 
 4'1 
 5'2 
 6-7 
 5-9 
 
 5-1 
 6-5 
 70 
 
 7'6 
 
 I'O 
 1-4 
 1-S 
 1-5 
 
 8* 
 
 391-8 
 
 46-6 
 
 1863 
 
 20S 
 
 137 
 
 aO'7 
 23.8 
 24-3 
 .223 
 
 4-5 
 4-1 
 4'7 
 4-7 
 
 70 
 6'7 
 80 
 90 
 
 11 
 S'4 
 2'7 
 2-8 
 
 6i 
 
 445-8 
 
 64-4 
 
 1864 
 
 20-6 
 
 12'8 
 
 32'7 
 195 
 181 
 
 4'1 
 4-8 
 S-5 
 5-9 
 
 78 
 8'3 
 9'4 
 9-1 
 
 1-4 
 2-6 
 13 
 1-5 
 
 11 
 
 487-5 
 
 67-5 
 
 1865 
 
 211 
 
 13'7 
 
 33'7 
 221 
 209 
 176 
 
 4-7 
 4-6 
 4-5 
 
 4-4 
 
 7-5 
 7'6 
 9'8 
 94 
 
 3-6 
 2-4 
 22 
 1-7 
 
 lOi 
 
 489-9 
 
 67-0 
 
 1866 
 
 23-1 
 
 14-0 
 
 17-5 
 181 
 370 
 260 
 
 4-3 
 5'0 
 7'8 
 7-5 
 
 7'8 
 
 7'3 
 
 16'5 
 
 7'8 
 
 1-4 
 1-8 
 7'5 
 2-5 
 
 lU 
 
 534-1 
 
 690 
 
 1867 
 
 23-6 
 
 20-3 
 
 35'3 
 26-5 
 27-6 
 26'1 
 
 7-2 
 8'1 
 7'5 
 73 
 
 7-1 
 6-7 
 4'6 
 45 
 
 19 
 1-8 
 1-3 
 11 
 
 10 
 
 600-9 
 
 58-3* 
 
 1868 
 
 23-8 
 
 19-5 
 
 26'6 
 
 27-5 
 33-3 
 247 
 
 9-2 
 7'3 
 6-2 
 7-1 
 
 4'5 
 68 
 4-3 
 4-1 
 
 11 
 
 1-5 
 1-2 
 1-1 
 
 8 
 
 522-4 
 
 67-3 
 
 1869 
 
 28-4 
 
 17-7 
 
 23'4 
 23'3 
 223 
 21 9 
 
 6-2 
 7-3 
 7-2 
 60 
 
 7-1 
 7-4 
 50 
 4'8 
 
 2-2 
 1-7 
 1-0 
 
 1-4 
 
 8i 
 
 632-4 
 
 57-1 
 
 1870 
 
 22-5 
 
 19-1 
 
 26.6 
 248 
 26'5 
 
 246 
 
 6-9 
 5-5 
 9-2 
 7-3 
 
 6'8 
 60 
 9-2 
 5-2 
 
 3-4 
 3-2 
 2-6 
 2-2 
 
 8i 
 
 547-3 
 
 63-9 
 
 1871 
 
 24.-3 
 
 22-8 
 
 290 
 327 
 
 7-0 
 12-4 
 
 76 
 5-9 
 
 3-9 
 
 3-4 
 
 81 
 
 614-4 
 
 73-9 
 
 
 
 
 27-4 
 290 
 
 10-8 
 10-7 
 
 6-7 
 52 
 
 2-7 
 IS 
 
 
 
 
 1872 
 
 25-2 
 
 22-5 
 
 28'4 
 31 '9 
 33'2 
 
 7-9 
 
 8-3 
 
 130 
 
 8'9 
 8-7 
 8-5 
 
 1-7 
 6-7 
 7-3 
 
 n 
 
 669-2 
 
 79-4 
 
 
 
 
 2d'4 
 
 7-2 
 
 80 
 
 2-6 
 
 
 
 
 * The apparent reduction from this year is owing chiefly to the separation in the accounts 
 of the " acceptances " of the Union Bank, which are thence exoluaed. The London Joint 
 Stock Bank does not separate the acceptances. The two other banks separated them' before. 
 
12 
 
 The full import of these statements, will be more 
 The whole understood if it is borne in mind that the population of 
 
 increase not ^ * 
 
 totoeal.nl'ie England and Wales increased from 16 millions in 1844 
 creaaeqf to 23 milUons lu 1872, and that the rise in the prices 
 
 population. ' -i^ 
 
 of commodities generally is probably not less than 35 
 per cent. Besides the four banks, whose deposits in 
 1844 were 9 millions, and in 1872 amounted to 79 
 millions, numerous other banks have been established, 
 and the old bankers, as well as insurance and all other 
 enterprises, private and public, have trebled and four- 
 folded their business. 
 
 The table accordingly shows that, whereas from 
 tro™i8«to 1845 to 1872 our trade has increased from 160 to 669 
 
 1866. 
 
 millions, the Bank of England has not only made scarcely 
 any progress in its accounts, but that it has gone back- 
 wards. In 1845 the circulation was 21 millions: 
 it was the same in 1865 ; from 1866 to 1872 the 
 increase is 3 millions. The deposits in 1846 were 25 
 millions ; twenty years later they were 20 millions ; in 
 1867 and 1868 they increased to 23 and 27 millions; 
 in 1869 they declined to 22 millions ; in 1871 and 1872 
 they increased to 30 and 33 millions, declining again 
 to 25 millions ; but bear in mind this : — As you see by 
 increaee the columus headed Bankers' Balances, these increases 
 
 Bince 1866 
 
 b^fr's" a""© owing only to such larger balances, which in 1846 
 ■^ere 1 to 2 millions, and rose in 1871 and 1872 to 12 
 and 13 millions. You may recollect that during the 
 late controversy, the other banks were abused for 
 keeping but small balances at the Bank of England. 
 If these be deducted you will see that the deposits of 
 the Bank during the last 28 years have actually 
 
 DepositB declined, although the trade and prosperity of the 
 
 deciinea. natiou has fourfolded. 
 
 What is the cause of this manifest want of progress 
 
 False of the Bank, of England ? In any controversy where 
 
 mSstto'fet the real reasons for disorganisation lie deep, and are 
 
 aside first. '■ 
 
13 
 
 not discernible by the ordinary inquirer, other unreal 
 but more convenient reasons are advanced. These 
 must first be dismissed, so that they no longer obscure 
 the view. It may be said — 
 
 First. That if the Bank of England has pro- 
 gressed slowly, and the wealth of the country rapidly, ^^thaf*' 
 
 cozomerce 
 
 the Bank has made a sacrifice, on the principle that has m 
 
 ■*■ ^ ^ creased at 
 
 having gained less, the country has gained more. 'fthTsS 
 Apart from the quixotic nature of this suggestion, let '^''""°'"'- 
 it be distinctly understood that in all these matters 
 reciprocity rules supreme — that, as I have stated at 
 the beginning of this pamphlet, aU the factors con- 
 cerned in the accumulation of wealth must benefit 
 therein — and if the Bank for its part has not done so, 
 there is, on the contrary, prima facie suspicion that it 
 has not benefited the country as it ought to have done. 
 Second. It may be alleged that the Bank is too 
 conservative, and has remained behind from pru- Thepioaof 
 
 conserva- 
 
 dential reasons. Granted, in general terms, that " the bfTtrSe'd 
 age is too fast," that people press too much in advance, ofwhicMha 
 and that it behoves an important institution hke. fvldence! 
 the Bank to be conservative against this tendency, 
 how much conservatism would suffice ? Between ex- 
 tremes lies the right course which, practically, is more 
 than sufficient ; and the conservative balance is fuUy 
 secure, if, figuratively speaking, the Bank remained 
 one or two per cent, more on this right or safe side ; 
 but when the actual results show that, comparatively, 
 such conservatism is 100 or 200 per cent, in arrear, 
 they prove an excess which cannot be brought into 
 accord with natural truth. There are certain financiers 
 who will tell you the Bank is quite right in keep- 
 ing back, in acting as counterpoise, in discouraging ^^^j^^^^^ 
 business, &c. Men of that class are not economists ; Se^^ ao 
 but their uncouth notions do infinite mischief to nTwori^ 
 
 ofecono- 
 
 the whole question. Arguments of that krad, you ^^, 
 
14 
 
 must admit, have not done any good to the Bank of 
 England itself. Considering that the whole aim of 
 social and commercial intercourse is that of pro- 
 gress, and that such progress has had actual solid 
 results in a fourfold measure, it might well be asked, 
 what would be the aim and purpose of the Bank, or 
 even the reason for its existence, if the idea of con- 
 servatism is to be forced to such a pitch of rough 
 sophistry ? 
 
 Thwd. It may be alleged that the rapid growth 
 The rapid of othcr joiut stock banks and banking generally, has 
 prove5''th^* absorbed business which would otherwise have come to 
 aS^the the Bank. The practical acknowledgment that there was 
 mportiJS- ■fc'iis large field conveys at the same time the reproach 
 to the Bank that it has been unable to take advantage 
 of the favourable contingencies themselves, the very 
 cause of the progress, and this would seem to con- 
 firm the above suggestion as to ultra-conservatism I 
 The Bank of France* has made enormous pro- 
 gress, in spite of the numerous large public banks 
 started in competition with it during the last 
 twenty years, and the much larger number of success- 
 ful private bankers. Some of these French banking 
 institutions do business as large as that done by our 
 oldest and first-class joint stock banks. 
 
 Fourth. It may be said that the other joint 
 The de- stock bauks owe their success to the fact, firstly, that 
 l^ve"^''' *^^y actively solicit business ; and secondly, that they 
 wwhgenl pay interest on deposits, whereas the Bank of 
 
 ralincrease, —^ _ , . , , t . 
 
 enti^rfthe -England pays no mterest to its depositors. It is 
 
 aSoMrB"' alleged, in that general manner so easily adopted, that 
 
 them. the deposits of the Bank of England reptesent the 
 
 " floating capital," the " balances for the moment 
 
 * The follovraig: table shows the increase of the busineBS of , 
 the Bank of France dtiriug the sme period. (The returns from the 
 Sank of FrussiE^ and all other State Banks show similar results— < 
 
1^ 
 
 available only " of the commerce of the country. 
 Considering that these "floating balances" exhibit a 
 large continuous average, that the Banking Depart- 
 ment is supposed to be as independent an institution 
 as other banks, this saying as to the dignity of the 
 Bank in waiting for business, and the non-availability 
 of its deposits, is simply moonshine. The Banks of 
 France and Prussia hold a precisely similar position 
 in the commerce of their countries. The question as 
 to the Bank's inability to pay interest on deposits I 
 reserve for consideration, and I shall show that it is a 
 secondary matter ; but granted that it be an original 
 
 viz., a more or less regular but decided increase of their affairs in 
 accordance -with the progress of commerce.) 
 
 Table II. — Showing the Increase in the Business of the Banlc of France 
 
 at the end of February each Year. 
 
 [In Millions and Decimals Sterling, 000,000 omitted.] 
 
 
 Circulation 
 
 Bullion 
 
 Deposit 
 
 BUls 
 Discounted 
 
 Dividend 
 
 18-1,4 
 
 10'4 
 
 11-7 
 
 62 
 
 5-1 
 
 10-7 
 
 184.5 
 
 110 
 
 12-2 
 
 75 
 
 67 
 
 13-3 
 
 1846 
 
 n'7 
 
 9'8 
 
 7-8 
 
 101 
 
 15-8 
 
 1847 
 
 11-0 
 
 4'2 
 
 3-8 
 
 111 
 
 177 
 
 1848 
 
 10' 1 
 
 8'8 
 
 7-4 
 
 9-6 
 
 7-5* 
 
 1849 
 
 16-8 
 
 12-6 
 
 6-3 
 
 5-5 
 
 10-6 
 
 1850 
 
 18-2 
 
 18-9 
 
 80 
 
 4-5 
 
 10-1 
 
 1851 
 
 20-8 
 
 20'4 
 
 8-3 
 
 5-7 
 
 10-5 
 
 1852 
 
 S2-6 
 
 23-4 
 
 100 
 
 4-6 
 
 11-8 
 
 1853 
 
 26-8 
 
 19-8 
 
 11-3 
 
 119 
 
 15-4 
 
 1851 
 
 24-5 
 
 11-2 
 
 9-2 
 
 178 
 
 19-4 
 
 1855 
 
 25'4 
 
 17'4 
 
 109 
 
 13-2 
 
 200 
 
 1856 
 
 25'4 
 
 8-5 
 
 7-5 
 
 17-4 
 
 27-8 
 
 1857 
 
 23'6 
 
 8-6 
 
 9-4 
 
 201 
 
 27-4 
 
 1868 
 
 22'8 
 
 12-3 
 
 9>8 
 
 18'3 
 
 ll-4t 
 
 1858 
 
 28-4 
 
 21'8 
 
 145 
 
 18"6 
 
 11-5 
 
 1860 
 
 28'8 
 
 21'6 
 
 18-1 
 
 19-8 
 
 140 
 
 1861 
 
 80-4 
 
 17-2 
 
 10-7 
 
 19-4 
 
 14-7 
 
 1862 
 
 885 
 
 15-8 
 
 16'8 
 
 26-6 
 
 15'8 
 
 1868 
 
 81-5 
 
 126 
 
 9-4 
 
 21-6 
 
 16-5 
 
 1864 
 
 80-5 
 
 8-0 
 
 7' 6 
 
 26-4 
 
 200 
 
 186S 
 
 808 
 
 12-6 
 
 10-2 
 
 22-8 
 
 15-4 
 
 1866 
 
 86'0 
 
 18'6 
 
 100 
 
 24-6 
 
 15-6 
 
 1867 
 
 42-5 
 
 3G'8 
 
 ]6'8 
 
 24'8 
 
 10-7 
 
 1868 
 
 47-5 
 
 47-6 
 
 21-8 
 
 17'8 
 
 90 
 
 1868 
 
 5*5 
 
 46-2 
 
 19-7 
 
 21-5 
 
 lO"? 
 
 1870 
 
 665 
 
 50-4 
 
 21-6 
 
 22-2 
 
 8'4t 
 
 * The capital raised from £2,6 millions to £3,6 millions, 
 t The capital raised to £7.3 millionsi 
 X The war began. 
 
16 
 
 The" pub- 
 lic " duties 
 of tlie Bank 
 are quite 
 separate 
 from its own 
 rights as a 
 Bank, 
 
 The pro- 
 gress of the 
 Clearing 
 system haa 
 the tend- 
 ency of 
 increasing 
 deposits. 
 
 reason, and that the deposits at the Bank are such 
 floating balances, they should, considering the enormous 
 increase of wealth, have increased accordingly, without 
 reference whatsoever to the question of interest. 
 
 Fifth. It may be alleged that the Bank has to per- 
 form public duties. It is difficult to perceive why 
 these duties, which consist simply of the management 
 of the National Debt and Government pubhc accounts, 
 for which the Bank receives. adequate remuneration, 
 and which are a source of profit, should interfere 
 with other business, especially when the non-official 
 character of the banking department is so strongly 
 insisted upon. In other countries the central and 
 quasi State Banks perform duties of that kind. 
 
 Sixth. It may be said that the progress of 
 "Clearing systems" has reduced the deposits of the 
 Bank of England. Nothing can be more false. The 
 Clearing systems save Currency only, and they may 
 contribute a reason why the active Note circulation 
 has not shown so great an increase; but as to deposits, 
 or capital so deposited, the Clearing system has the 
 contrary effect, viz. it promotes the accumulation of 
 such free deposits, and if these free balances have not 
 come into the Bank in the measure which they ought 
 to have done, it is simply owing to the fact that the 
 institution was unable to do justice to them. But 
 although the Clearing system does tmdoubtedly save 
 currency, and although this serves as the current 
 explanation why, whilst our trade has four-folded since 
 1844, the circulation of the Bank has only increased 
 by a moderate per centage, we must not carry the idea 
 as to the absolute force of the Clearing system too far. 
 The rule of reciprocity is also valid here, and with the 
 increase of Clearing a certain increase of circulation,* 
 
 i ' 
 
 * The increase of sovereigns in circulation since 1844 may be 
 taken at 40 per cent., equal to increase of population. The 
 
17 
 
 as satisfactory evidence of the greater prosperity and 
 active life in special classes of trade should also have 
 taken place. The Bank of France, and other banks 
 abroad, show a decided increase of their Note circula- 
 tion (and more decided in BuUion) simultaneously with 
 the increase of banking institutions. The allegation, 
 that neither in France nor Germany the principles of 
 the Clearing system are applied, is utterly false, and 
 shows ignorance of the real state of the case. In the 
 Bank of France a special Clearing department, called the systema 
 " Bureaux des Vir^ments," turns over from 3 to 4 Sop'^ftfon 
 millions sterling per diem, on pure "Clearing" anaser- 
 
 O r 7 r a many. 
 
 principles, between bankers, and the systems of 
 " Eecouvrements," both in France and Germany, 
 are in advance of our arrangements. I am quite 
 ready to admit that our own London system of 
 Clearing is best developed, and saves more currency, 
 but I deny that it can absorb so much as not to 
 leave to the Bank of England a fair margin for 
 increase of circulation, especially as upon such in- 
 creased circulation the proper amount of Bullion is 
 really dependent. 
 
 The table on pages 10 and 11 shows that the Bullion 
 at the Bank of England has not increased as it ought Ji^"ent 
 
 increase of 
 
 to have done. It is quite true that, smce 1871, when fjJo'*™!^ 
 the German indemnity question arose, the Bank has Se^rve 
 managed to hold 3 to 4 millions more of Bullion, 
 but previous to this — from 1844 to 1870 — the average 
 was nearly equal. Considering that the stock of Bul- 
 lion at the Bank of England is supposed to be the 
 " Reserve " for international trade, is it not reasonable 
 to expect that this Reserve should have been much 
 higher in 1870, when the international trade of the 
 country was 640 millions and Bullion 19 millions, 
 
 sovereign circulation is independent of the Bank of England Note 
 circulation. 
 
18 
 
 than in, say 1852, when the trade was 210 millions 
 M°ooi"i with and Bullion 20 millions ? Make whatever allowance 
 crorvsed vQu like for the effects of the Banking: and Clearinff 
 
 commerce, ^ o a 
 
 system, and you will yet admit, especially when you 
 consider the necessity of holding a Bullion Eeserve 
 for the sake of the solvency and solidity of our vast 
 commerce, that the want of increase of Bullion in the 
 Bank of England is a remarkable feature, and that " it 
 should be otherwise," at all events to the extent of 
 with'S some fair proportion. In addition thereto, you must 
 thooaii- bear in mind that, since 1848, there has been an 
 
 foruiau and 
 
 GoiTS. enormous increase in the production of Gold and 
 Silver, Grold alone having doubled in amount. Why 
 should the Bank of England not have secured a larger 
 share than it holds now ? Add again the changes in 
 the valuation and rise in prices, and you further 
 increase the force of this reflection. In Trance, 
 from 1848 to 1869, a sum of no less than 250 
 millions sterling in Gold was coined, against 110 
 millions here, and the Bank of Prance in 1870 held 50 
 millions of Bullion against 19 millions of the Bank 
 More Gold of England. It will be said p/obably, the French 
 havea^cu- use SO much morc Gold than we do, because we use 
 
 mulated at 
 
 EngHiKL"^ more cheques. Granted this, and the above difference 
 in coining will account for it, — the question of the Note 
 issue, or rather its foimdation, " Bullion," in the Bank, 
 is another matter. As such, it is essentially apart even 
 from the subi'ect of " Balance of Trade," for it con- 
 cerns the plain and simple rules of natural proportions, 
 and where these are not responded to, an error prevails. 
 Such larger stock of Bullion is the real foundation 
 for more issue ; and moi;e of such solid issue, if the 
 country can absorb it, is indicative of greater strength 
 and prosperity. If a regularly increasing stock of 
 Bullion were thus maintained, the country would 
 absorb it ; but the present spasmodic movements and 
 
1^ 
 
 enforced contractions too frequently break the cHain 
 of progress in this direction. 
 
 Other " grounds " might be quoted upon which 
 the admirers of the Bank Act pretend to explain the 
 anomalies here pointed out. None of them, it will be 
 found, touches the core of the thing, or admits the 
 possibility of a fault in the system itself as the cause 
 of all the evil, as I shall point it out to you, after 
 alluding to the Dividend and Discount business at the 
 Bank. 
 
 THE DIVIDEND OF THE BANK OF ENGLAND. 
 
 The Bank of England pays dividends to its share- 
 holders ranging, since 1844, at from 7 to 11 per cent, dena^ahs 
 No doubt it has been pointed out to you that for so Engima 
 
 ■'■ ** cannot be 
 
 large an institution such a dividend should be con- fSory.*"'" 
 sidered satisfactory, that the stock stands at 250, and 
 so forth. Against this "matter of pride," permit me 
 to place before you the following considerations : — 
 
 Other banks, such as the London and Westminster 
 Bank for instance, have paid from 20 to 30 per cent. The^??''''' 
 
 ' >r sr capital IB 
 
 (and more). Of course, so it will at once be sdd, the bStiY''*' 
 
 Bank has 
 
 capital af the Bank of England is 14 millions, or seven ^^?^°^ 
 times as large as that of the London and "Westminster 
 Bank, so that if both have 25 millions of deposits, the 
 shareholders of the latter bank must receive larger 
 dividends on the smaller capital. That is very true, but, 
 on the other hand, the Bank of England enjoys enor- 
 mous advantages, outweighing this consideration^ 
 
 First. The Bank of England holds its 25 millions of 
 deposits free of interest, the London and Westminster Jg^'ogf^^g 
 Bank pays, say on the average, 3 per cent, per annum ''^™'*"*'- 
 for them, so that if the average rate of interest is taken 
 at 4 per cent., each million of the Bank's deposits is 
 equal in profitable value to 4 milhons of the Lomon 
 and Westminster Bank. 
 
20 
 
 Second. The Bank of England lias the Note issue 
 eSi^sue of 15 millions, clear above all deposits, i.e. it has 
 Notea"' invested (above deposits) 15 millions in Government 
 debt and other securities, which, after deducting ex- 
 penses of issue, and the share of profit taken by the 
 State, leave a profit of about £90,000 per annum, 
 and place 15 milUons of money at its disposal. 
 
 Third. The London and Westminster Bank must 
 ite mvest- keep a Reserve out of its deposits and capital, it cannot 
 aepolatg!'® invest the whole of them, whereas the Bank of England 
 does not only invest the whole of its capital and de- 
 posits, but over and above them, a considerable portion 
 of the 15 millions of Notes. (The question whether the 
 Bank Reserve is due to increase of Deposits, or to the 
 Note issue, is part of the controversy). 
 
 Fourth. The Bank keeps the National Debt and 
 steteM-'''^ Government Accounts for a remuneration, a source of 
 coirns, 0. pj,Qg|. jjQ^ enjoyed by the London and Westminster 
 Bank. 
 
 The dividend of the Bank of England may be 
 aLTropor- taken at 9 per cent, (the average is a trifle less). The 
 a^Lg^It sum of £90,000 gained clear on the issue, together 
 with, say, £50,000 made by the Bank as net profit on the 
 remuneration obtained for the National Debt manage- 
 ment, make up say 1 per cent, of this dividend, leaving 
 8 per cent. This is earned on the use of — 
 
 Capital and rest . . . £18 millions. 
 Deposits, &c. ... 25 „ 
 
 43 
 The proportion of Capital, Punds, and Dividend 
 being . . 14^—43; or, 
 
 1 —3 = 8 per cent, dividend. 
 A.ndatthe Tho dcposits of the London and Westminster Bank 
 are 25 millions. If interest be taken at the average 
 of 4 per cent., the London and Westminster paying 
 
 London and 
 West- 
 minster 
 Bank. 
 
21 
 
 3 per cent, to depositors, the value of this 25 millions, 
 as compared to the free deposits of the Bank of 
 England, becomes reduced to 6J millions; but as- 
 suming that some portion of current balances are also 
 held without interest — 
 
 Taking then the free value at .10 millions 
 To which the capital . . 2 „ 
 
 And reserve fund . . . 1 „ 
 
 Be added, making 13 millions 
 free value, the proportion of capital, funds, and divi- 
 dend of the London and Westminster Bank would be — 
 
 1 — 6^=20 per cent, dividend, 
 besides accumulation of reserve fund. 
 
 Another method of showing the distinction to you 
 is this : — The capital and rest of the Bank of England, ^^„i 
 if " free " in the market, would yield you, say, 4 per raSfta™" 
 cent, per annum (in Consols it would yield 3^ per 
 cent.) 
 
 The dividend of the Bank at 
 9 per cent, on the capital 
 of 14^ millions . . £1,306,000 
 Deduct 4 per cent, on capital 
 
 and rest of 18 millions . 720,000 
 
 Extra profit on issue, £90,000 
 Do. on National Debt 
 
 management . 50,000 
 
 £585,000 
 
 140,000 
 
 £446,000= li^Vo 
 
 which the Bank earns on 
 25 millions of deposits and 
 15 „ of Bank Notes, 
 
 or 40 „ which it holds for nothing, i.e. free of 
 interest. 
 
22 
 
 The London and "Westminster Bank dividend of 20 
 
 TheLoMon per csnt. jieMs . . £400,000 
 
 BaSkmakes Deduct interest on the 2 milHon 
 
 four times 
 
 the profit. capital and 1 muhon reserve 
 
 fund at 4 per cent. . . 120,000 
 
 £280,000=1-3^570 
 earned on 25 million of deposits for which interest is 
 paid, i.e. say three-fourths of the total profit absorbed. 
 This "would show that the London and Westminster 
 Bank makes a profit on its funds four times as large 
 as the Bank of England, after due allowance is made 
 for the larger capital of the latter. 
 
 In presenting this matter to you in this light I am 
 J^'^lot"° ^"% sensible that, under all the circumstances, the 
 (MTerenceof Bank of England must follow a more conservative 
 
 position ° 
 
 bSto** course than the London and Westminster Bank. 
 
 question, ^^^ough the Securities dealt in by the latter stand 
 as high as any, and fi'om their very nature are pro- 
 bably even more convertible than Government Secu- 
 rities — although the London and Westminster Bank 
 has 3 millions of Capital and Reserve, wealthy share- 
 holders, and is as safe as any bank in the country — 
 yet I -will allow that the Bank of England cannot 
 follow precisely the same course. (But I deny that this 
 involves the question of Reserve to be held by the Bank 
 of England for account of others, for the state of the 
 circulations flatly contradicts such an assumption). 
 Making full allowance, then, for the difference in 
 
 theiess not" positlou betwoeu the two Banks ; disclaiming aU inten- 
 
 ^e^to™ tion to urge the Bank of England to earn 20 and 30 
 
 suggest that ■ "_ _ ^ 
 
 England °' V^^ CBut. dividend as the London and Westminster has 
 
 have paid dono — what I want to bring before you is this : In all 
 
 dividends. (Jirectious there has been progress in profits and in 
 
 dividends — good, solid, visible profit, as manifested in 
 
 the last 30 years by the trade returns — facts which no 
 
23 
 
 twaddle can upset. Why should the Bank of England's 
 dividend alone show so little improvement ? Is there 
 anything unreasonable in the suggestion that the Bank 
 of England, under all these favourable contingencies, 
 should have paid an average dividend of say 12 per 
 cent, instead of 9 per cent. This proportion of 3 over 
 the present 9 to 10 would be equal to £400,000 per 
 annum ; and if the exports and' imports of this country 2 m^s'^pe? 
 during the last 20 years have risen from 160 millions 
 to nearly 700 millions, with the local business and 
 wealth in like proportion, the inability of the Bank of 
 England to eke out of all such stupendous increase 
 this comparatively small profit for the benefit of its 
 shareholders, is a matter for serious reflection and 
 legitimate inquiry. 
 
 In claiming that the Bank should have paid to you 
 this larger dividend, bear in mind that the history of worw^na 
 the commerce of the last 2o years is a most remarkable oxceptinpr 
 
 *J the uolnerQ 
 
 one. Of the four-fold increase of our own trade you Itoct'' 
 are aware. Remember also that California and 
 Australia, and the Silver-producing districts of the 
 world, have increased the store of precious metals by 
 nearly 1,000 millions sterling. All the world has had 
 the benefit of this in direct material and manifestly 
 large profits, and especially in this country. You 
 alone, the stockholders of the Bank of England, have 
 not profited a whit by it. From these points of view 
 the subject appears to be one to which your attention 
 may fairly be directed. 
 
 THE DISCOUNT BUSINESS OF THE BANK 
 OF ENGLAND. 
 
 I now bring before you a fact which furnishes a 
 most decisive proof in support of the statements so 
 far made. 
 
24 
 
 You are aware, no doubt, that the great commerce 
 buRinels of of this country, and that of the world, are carried on 
 
 this country 
 
 chiefly'""*'^ principally by "bills of exchange." I trust that m 
 McSga talking of such bills you will clearly u-nderstand what 
 is meant by them. People unacquainted with com- 
 merce hear of " bill transactions," of " accommodation 
 paper," &c., and are not aware that these have no con- 
 nection with the great and gigantic system of credit, 
 and the settlement of business in local and interna- 
 tional commerce by the regular first-class bills of 
 exchange. The " first-class " bills of exchange, those 
 in which the London discount market and bankers 
 all over the country and abroad deal, are drawn 
 either against sales of goods made by one party to 
 another in the country itself, or against securities 
 deposited, or they arise in international trade, drawn 
 against shipments of merchandize on the way, or 
 against guarantees and deposits furnished from 
 abroad. Thus the great Manchester trade, and that 
 arising in all our industrial centres, is carried on 
 chiefly by bills drawn against sales of manufactures, 
 or bills accepted against purchases of raw material. 
 This business, for English home account alone, is 
 enormous ; but England, as the first trading, shipping, 
 and financial nation, also acts as banker for almost all 
 other countries. Shipments of goods between India, 
 America, Germany, Holland, and other parts of the 
 world, are made " by bills upon London," the ac- 
 ceptors here receiving the documents and guarantees, 
 and when the goods are due, the necessary remittances 
 ki8t?^enta from abroad. A continuous large stream of thete 
 are ae°'°®* biUs thus conccntratcs in, and flows from London ; the 
 
 staple of 
 
 banking, yg^gt majority of them does not even involve credit in 
 the common meaning of the term, they are " instru- 
 ments of exchange," in the " clearing " sense of the 
 word, the very life-blood of commerce and of banking. 
 
25 
 
 Mr. R, H. J. Palgrave* states, that for the year 
 (1870 — 71) the circulation in England 
 
 Of Inland Bills amounted to £667 millions. amo^tto 
 
 Of Foreign BiUs (accepted in miiuona 
 
 sterling per 
 
 England) . . . 607 „ ™""°'- 
 
 Of Foreign BiUs (drawn and 
 
 negotiated in England . 104 „ 
 
 £1^78 „ 
 Mr. Palgrave further says, that the aggregate of bills or iriiich 
 in circulation at one time varies between 300 and 350 ^^"4^°™ 
 millions sterling. ™''' 
 
 Bearing in mind these great facts and figures, 
 and knowing, as no doubt you do, that the Bank of ESli^a"^"*^ 
 England is so powerful an institution, with so lar^e a mlpoaed to 
 
 ° ^ _ ° be the prin- 
 
 capital and deposits, the right of the note issue as ofCohb'ms': 
 extra resource, not enjoyed by other banks ; that it is 
 the leader in the discount market, and that it deter- 
 mines the rate of discount, so anxiously watched by 
 commerce, you may suppose that out of the 300 
 millions of bills of exchange current, the Bank of 
 England not only holds the comparatively largest 
 share, but that this share is more or less regular, so 
 as to give a practical foundation to the leadership 
 which the Bank exercises in the discount market. In 
 order to afford you a guide of what the amount of 
 bills held by the bank ought to be, I quote Mr. 
 Palgrave' s figures (p 6 of Notes on Banking) wherein 
 he gives the 
 
 Bank of England total resources at 67 millions. ^oportfon 
 
 T n T» • J. J T ' J. cix 1 atleasttoits 
 
 London Private and Jomt btock resourcea. 
 
 Banks 174! „ 
 
 Provincial Banksf • • • 210 „ 
 451 „ 
 
 * Inhis admirable paper, "Notes onBanking." J. Murray, London, 
 f Country bankers employ a great part of their resources in 
 casli advances, and against securities without bills. 
 
26 
 
 Assuming now that out of the 300 to 350 millions of 
 bills current altogether, there are 175 millions of first 
 class bills of exchange in London, you can form some 
 idea as to what share the Bank of England might 
 fairly be expected to have in the active commerce of 
 the country. According to the above estimate of 
 resources, the Bank of England, upon the assumption 
 only that it should share alike with other Banks, and 
 without holding a superior leading position, ought to 
 discount say from 30 to 40 millions of bills. Make extra 
 allowances for the conservative nature of the Bank, and 
 reduce the expected amount to one-half, if you like, 
 
 and compare 
 it with the facts shown in table on pp 10 and 11. 
 
 You will there find that the "bills discounted" by 
 But, in the Bank of England range between 2, 3, 5, and 9 
 bufarom-^ millions only; that in the years notably of 1849 — ■ 
 MgiiSoant 50 — 51 — 52, they were mostly under 3 millions, that 
 
 amounts 'J -J 
 
 frequently iu 1857 ouly they rose for one week to 17 millions, 
 
 mmiraiB. and in 1866 for one week to 16 millions. In 1872 (last 
 
 year) they were as low again as 3j^ millions. 
 
 The following table has been compiled from the 
 returns* asked for by Parliament. In these the " Bills 
 Discounted " and " Temporary Advances," which in 
 the weekly returns are included in the " Other Secu- 
 rities " of the Banking Department, are given sepa- 
 rately, week by week. The table shows the number 
 of weeks from 1845 to 1872, with the bills under 
 discount, from 2 millions upwards. 
 
 * These returns, from 1845 to 1857, are found in the Par- 
 liamentary Blue Books on the enquiries of 1857 and 1858. They 
 are reprinted in " Reform of the Bank of England Note Issue," a 
 publication of which the author speaks on a subsequent page. Since 
 then, during the present year, Mr. J. B. Smith, M.P. for Stockport, 
 at the request of the author, moved for returns from 1857 to 1872, 
 published on the 26th May 1873, No. 229. 
 
27 
 
 Table 3, 
 
 THE BILLS UNDER DISCOUNT AT THE BANK OF ENGLAND. 
 Millions of Bills so held (000,000 omitted). 
 
 Millions £ 
 of BUls 
 
 3 4 
 
 8 9 10 
 
 H 13 13 14 15 
 
 16 17 
 
 Years 
 
 NUMBBE OP WEEKS IN EACH TEAH.. 
 
 1845 
 1846 
 1847 
 1848 
 1849 
 1850 
 1851 
 1852 
 1853 
 1854 
 1855 
 1856 
 1857 
 1858 
 1859 
 1860 
 1861 
 1862 
 1863 
 1864 
 1865 
 1866 
 1867 
 1868 
 1869 
 1870 
 1871 
 1872 
 
 12 
 
 14 
 
 11 
 
 12 
 
 1 
 30 
 
 9 
 
 11 
 
 2 ! 13 
 
 ... I ... 
 
 35 ' 7 
 
 I 
 
 4 i 14 
 
 .. I 21 
 
 1 I 32 
 
 1 
 
 .. ;i3 
 
 ■■ I 2 
 1 i 8 
 3 3 
 
 i2 
 
 5 
 
 1 
 
 2 
 
 5 
 
 
 
 6 
 
 12 
 
 5 
 
 1 
 
 6 
 
 7 
 
 6 
 
 ... 
 
 
 6 
 
 8 
 
 23 
 
 8 
 
 4 
 
 4 
 
 2 
 
 3 
 
 1 
 
 
 
 
 12 
 
 
 ... 
 
 
 
 ... 
 
 
 25 
 
 2 
 
 9 
 
 6 
 
 1 
 
 
 
 22 
 
 22 
 
 6 
 
 
 
 
 
 12 
 
 8 
 
 1 
 
 13 
 
 1 
 
 
 
 7 
 
 5 
 
 G 
 
 13 
 
 6 
 
 
 
 2 
 
 5 
 
 7 
 
 25 
 
 4 
 
 ... 
 
 2 
 
 2 
 
 2 
 
 1 
 
 1 
 
 1 
 
 1 
 
 
 11 
 
 21 
 
 2 
 
 ... 
 
 
 
 
 
 4 
 
 25 
 
 17 
 
 2 
 
 4 
 
 
 7 
 
 7 
 
 18 
 
 7 
 
 
 
 
 17 
 
 22 
 
 11 
 
 
 
 
 
 3 
 
 17 
 
 18 
 
 12 
 
 2 
 
 
 
 
 
 11 
 
 24 
 
 16 
 
 1 
 
 
 
 
 19 
 
 14 
 
 14 
 
 5 
 
 
 
 7 
 
 14 
 
 9 
 
 6 
 
 4 
 
 2 
 
 3 
 
 21 
 
 5 
 
 2 
 
 
 
 
 11 
 
 9 
 
 
 
 
 
 
 13 
 
 20 
 
 6 
 
 
 
 
 
 21 
 
 21 
 
 1 
 
 2 
 
 3 
 
 2 
 
 
 20 
 
 11 
 
 3 
 
 1 
 
 2 
 
 6 
 
 
 < 8 
 
 9 
 
 12 
 
 14 
 
 3 
 
 
 
 •■ I 
 
28. 
 
 The 
 
 temporary 
 advances 
 average 
 2 millions. 
 
 Tlio total 
 average of 
 bills dis- 
 connted is 
 6 millions 
 only. 
 
 Besides these "bills discounted" the Bank o£ 
 England makes " temporary advances " on bills and 
 other securities. These vary from a quarter of a 
 million to 4 millions, exceeding 5 millions in 46 
 instances, and reaching once 9 millions. The total 
 average of these is under 2 millions. But the essential 
 portion here under our notice are the " bills dis- 
 counted," of which, according to the above table, 
 embracing 28 years, or 1460 weeks — the Bank held 
 For 135 weeks, between 2 and 3 millions 
 
 144 „ 
 
 , 3 and 4 
 
 200 „ 
 
 , 4 and 6 
 
 208 „ 
 
 , 5 and 6 
 
 232 „ 
 
 6 and 7 
 
 190 „ 
 
 7. and 8 
 
 172 „ 
 
 8 and 9 
 
 95 „ 
 
 9 and 10 
 
 38 „ 
 
 , 10 and 11 
 
 14 „ 
 
 , 11 and 12 
 
 13 „ 
 
 , 12 and 13 
 
 5 „ 
 
 , 13 and 14 
 
 1 „ 
 
 , 14 and 15 
 
 6 „ 
 
 , 15 and 16 
 
 4 „ 
 
 , 16 and 17 
 
 3 „ 
 
 , 17 and 18 
 
 That is to say, for nearly 700 weeks, or 14 years — one- 
 half of the existence of the Bank under the Act of 
 1844 — the Bank held bills ranging between 2 and 6 
 millions, or an average of 4^ millions. For 26-| years 
 the bills discounted were under 10 millions, the 
 average being under 6 millions ; for 84 weeks, or 1^ 
 years, they exceeded 10 naillions — average under 12 
 millions ; the total average for the 28 years being 
 about 6 millions. As before stated, the bills current 
 amount to 300-350 millions; the first class bills in 
 London are certainly not less them 175 millions. 
 
 The general public, under the impression that the 
 Banh of England is the great discounter of ov/r money 
 
29 
 
 market, will probably be surprised at the facts here l^ufiJZa 
 shown, for bankers, financiers and economists, wlio for are not 
 
 ' ^ aware of 
 
 many years had inquired into the Bank of England ^^i^^' 
 matters, and had written pamphlets about them, when 
 these results were shown them by the author, were 
 perfectly astounded at their " novelty ! " 
 
 The table submitted speaks for itself. It will be 
 noticed that the discounts exceed 10 millions only in the The Bank 
 
 •^ appears to 
 
 years of panic and crises— viz., 1847, 1857 and 1866; awl§[f' ' 
 and that only for one or two weeks at a time. Soraie bnainess 
 
 •^ ■ only when 
 
 persons will say, " Oh, that is something, at all events; p'^cs^t 
 it shows that the Bank can come forward and assist 
 the public in times of panic." And here " the 
 availability " of the Reserve of the Bank is brought 
 forward. If the office of the Bank be chiefly that of 
 coming forward every 10 years with a few milHons of 
 money — and we know at what sacrifices to the safety 
 of the institution itself this is done — there is but poor 
 comfort in the existence of the estabhshment. These 
 narrow-minded sayings must be dismissed ; they 
 emanate fi'om the same class of rough, would-be 
 economists, who have no other resource left than 
 praising the Bank of England system for everything 
 done, however anomalous it may appear. 
 
 Commerce however has a higher right in this 
 matter, and must demand enquiry into this very commerce 
 
 , ^ . . , hasahjgher 
 
 irreefular and incompetent, though pretentious, action right of 
 
 o 1 •* o 1 -' enquiry into 
 
 of the discounts of the Bank. What explanation can ^^^^^<'*'^- 
 possibly be given by the admirers of the present Act 
 of this extraordinary state of things ? 
 
 The investigation of the returns show that the Bank 
 of England's Banking Department invests the greater 
 part of its deposits in Government securities, and 
 among the " other securities " in that department,* 
 
 * Beyond this, there are the 16 millions of Government debt, 
 and other securities in the issue department. 
 
30 
 
 wHcli include the bills discounted, there are advances 
 
 TheBsmk ou railwav securities and other matters. Nobody will 
 
 of England '' •' 
 
 i^vesTii*" object to any Bank making investments and advances 
 ment ou Government securities : indeed, where such great 
 
 eecuxities. " 
 
 interests are at stake, a good proportion of a Bank's 
 resources should always be invested in such undoubted 
 guarantees. Further, the Bank of England is bound to 
 encourage, by advances on railway and other bonds, 
 all safe and quasi national public and agricultural 
 the over- Undertakings, but when the total of these kinds of 
 
 wnelmmg " 
 
 tale'l^fwiis. investments exceeds the discounts in so overwhelming 
 a manner as here shown, there is reason to suppose 
 that something is wrong. Government, railway and 
 interest-bearing securities of that kind represent 
 transactions already completed — for which currency 
 has passed before — and investments in, and advances 
 thereon, can be conducted by " financial companies " 
 without any great organisation for banking. Upon 
 this view the active produce of such securities is 
 confined to the annual interest they bear, which re- 
 enters commerce for the exchange of commodities 
 without any direct connection with the wants of cur- 
 vencj. When this want of currency arises, as it will 
 in times of crises, the investment in Government 
 securities, albeit considered the safest, cannot of itself 
 Self' produce what is wanted, for whether the sale or con- 
 ?lquhe'^' version be difl&cult or not, it involves only a transfer 
 
 fresh , •' 
 
 fOTtifeir^ of account within narrow limits. There have been 
 
 conversion. 
 
 times when advances on such securities were abso- 
 lutely impossible. Again, the sale of Government 
 securities involves the question of price and possible 
 loss, the realisation cannot take place without afresh 
 contract being made, a contract of " local " nature only. 
 Bills of exchange, however, as the great mass of 
 IreS^^ active instruments, determining not only the exchange 
 creXrlof of commodities, the profits in national and international 
 
 CBrroncy. ' * 
 
 Bills of 
 
31 
 
 trade, and the very foundation of all prosperity, 
 are the ultimate creators of currency, absorbing and 
 reproducing it, adding the balance to the circulation 
 and the wealth of the country. And it is but reason- 
 able to suppose that these active agents, which enter 
 and re-enter commerce by hundreds of millions, should 
 form the chief basis of active banking operations, 
 
 Bills of Exchange, be it understood, represent con- 
 tracts in existence, backed by the solid guarantee of smsof 
 
 < t/ o exchange 
 
 commodities. They require no fi-esh bargain and dis- "ntinuouB 
 
 , . n 1 ' ^ contracts 
 
 crepancy oi price, and their safety hang's on the already m 
 
 i */ i ^ «/ o existence. 
 
 millionfold threads of commerce. For whereas the 
 Crovernment security has nothing but itself to support, 
 the bill of exchange is connected with assets of real 
 and, international value, subject to the reaction of the 
 Bank's influence, be it for the purpose of producing 
 currency or of modifying price or activity. It is evident 
 then that when a Bank like that of England fails to 
 obtain its proper share of influence in this respect, it 
 fails lamentably in its oflS.ce generally. Nothing that 
 can be paraded before you in regard to the present 
 action of the Bank with Government securities (for 
 the attempt to demonstrate its infallibility will no 
 no doubt be made) can upset the truth of the remarks 
 here made, or explain away this gross symptom of 
 disease under which the Bank of England labours. 
 
 Moreover, issues of bank notes on the credit of secu- 
 rities or fiduciary notes (the 15 millions of Bank of BSk^nftes 
 England notes issued above Bullion, are the "fiduciary " Ire^cueay 
 
 ° _ _ " made for 
 
 portion of the issue) are principally made for the purpose of^cuvr" 
 of assisting the active current commerce by supplying ™™"*'°°' 
 the circulation with means, the requirements for discount 
 demand their issue, the realisation of the bill of ex- 
 change at due date repays the advance made by them. 
 In all States where the Bank-note is not used for 
 actual Government necessities,' where there is parity 
 
32 
 
 between Coin and Paper, money and commerce sound, 
 this is distinctly recognised. Accordingly, any bank 
 intrusted with a note issue, has the special duty of 
 bringing this issue in regular contact with bills of 
 exchange. 
 
 The banks of France, Prussia,* and others, con- 
 tinually hold large amounts of bills of exchange, 
 central indeed they form their principal investment. Let it 
 
 a^h*"*^^ not be said that in these countries there are not corn- 
 greater 
 oS^Sce paratively as many other public or private discount 
 
 establishments as in England — indeed the increase of 
 
 joint stock banking in France and Germany has led to 
 
 a large increase of the discounts held by the central 
 
 banks, as properly it should do. The Bank of France 
 
 * The following is the account of the Bank of Prussia of 15th 
 August 1873 (in Sterling) :— 
 
 Coin and Bullion £36,880,000 
 
 Sundry Bank Notes 770,000 
 
 Bills discounted 26,360,000 
 
 Lombards (Advances on Securities) ... 3,790,000 
 State Bonds and Sundries ... ... 540,000 
 
 Passive. 
 
 Notes in Circulation £39,940,000 
 
 Deposit 4,300,000 
 
 Balances of State, Companies, Private 
 
 Aconnts, &c 16,860,000 
 
 This is exclusive of Capital, &c. The comparatively small amount 
 of advances on Securities, as against Bills discounted, will be noticed. 
 The Bank of Prussia charges more on such advances than on Bills. 
 The National Bank of Belgium on the 20th August 1873, held under 
 discount fs. 247| millions, or nearly £10,000,000. Both in Prussia 
 and Belgium there are other powerful joint stock Banks, and 
 a considerable number of private banking firms. Neither of these 
 States are " international Bankers," like we are in England, 
 and the amount of bills during the year in proportion to popula- 
 tion is probably but oixe-tliird or one-fourth of what is done in 
 England. (See Bank of France, p 15). 
 
ns 
 
 (see table on p 15) discounts commercial paper in a 
 far more eflFeotive and regular manner, and if that 
 institution manages to hold such bills at a regular ave- 
 rage of, say, £20 millions, why cannot the Bank of Eng- 
 land do the same, or better? English bills of exchange 
 should not be inferior to French bills — independently of 
 the question of greater severity in the bankruptcy laws. 
 It can be alleged, with good reason, that the fairly 
 regular action of so important a factor in national The matter 
 
 involves 
 
 commerce as the leadmg bank of a country influences q^l^tfonof 
 even the "moral" aspect of this matter. The letter °'°''^'^- 
 printed at foot* (addressed by the author to the Times, 
 of the 8th July 1872), referring to French bills, may 
 assist the reader in his endeavour to appreciate the 
 
 * " A year ago the Bank of France, after an interval of nine 
 months of sieges, again issued its weekly statement of affairs. 
 This statement, for the "ZQth of June 1871, among the assets, 
 contained the following item : — Commercial bills prolonged by law, 
 371,385,060f. ; and among the liabilities, the item — reserve for 
 eventual losses on prolonged bills, and on liquidation of the branches 
 at Metz, Mulhouse and Strasburg, 26,000,000f. 
 
 " At that time a reserve of 26 millions on 371 millions of sus- 
 pended bills, and for the liquidation of three branches, appeared 
 "ridiculously small. The bills so prolonged declined however in the 
 following ratio:— 27th July 1871, 309,834,,000f. ; 21st August, 
 147,701,818f. ; 28th September, 88, 750,045 f. ; 26th October, 
 26,593,372f ; 2nd November, 7,149,440f.; 9th November, 3,070,530f. 
 After which the item disappeared, the balance being included in the 
 usual ' commercial bills overdue,' i.e. bills which lay over for next 
 day or the following days of grace against protest. 
 
 " The ' Compte-rendu ' of the Bank for 1871 states, that from the 
 13th of August 1870, when the law of prolongation came into force, 
 until the 12th of July 1871, when the faculty to prolong ceased, 
 416,000 bills, of a total of 630 millions francs, took advantage of the 
 law at the head office (a very large proportion of the best bills were 
 duly paid even during the siege). Of these bills, 105,000, amounting 
 to 361,000,000f., were paid by anticipation. On the remainder, 
 269,000,000f., 255 millions were duly paid, leaving 14 millions 
 unpaid at the end of 1871. The bills prolongad at the branches 
 
 3 
 
34 
 
 hint here given, and thoughtful men may be wiUing to 
 concede that there is a strong prima facie connection 
 between regular and orderly action, clear of all sus- 
 picion of error in system, and commercial morality. 
 
 And when it is borne in mind that we, here in 
 England, do not only carry on our own business, but 
 that we receive and pay bills for the world's trade at 
 large, that the supply of these first-class securities is 
 far more considerable than elsewhere, the small share 
 which the Bank of England has therein must appear 
 all the more striking. 
 
 What can the admirers of the present state of 
 things bring forth in explanation ? They cannot say 
 '•' these bills are not good enough," that would be 
 
 amoTinted to 238,000,000f., of which l,640,000f. remained unpaid. 
 The total of unpaid bills six months ago therefore amounted to 
 about 15i millions of francs. I am informed, on the highest autho- 
 rity, that the greater part of this balance has since come in, and 
 that the eventual loss is not likely to exceed 2| millions of francs, 
 or £100,000. 
 
 " Thus, on a grand total of 868,000,000f , or £34,700,000 of 
 suspended or prolonged bills, there is a loss of £100,000, or 
 scarcely one-tbird of 1 per cent. It is supposed that even this loss 
 would not have happened if a certain number of parties to the bills 
 had not been killed during the Commune. Bear in mind, with all 
 this, that France has fought a most gigantic, disastrous war ; that 
 her trade and industry have been suspended for more than a year ; 
 that a bloody social struggle crowned her misfortunes ; and that 
 she has already paid 80 million pounds sterling to her conquerors. 
 
 "Englishmen are proud of their financial solidity, but if such 
 disasters as happened to France were to fall upon this happy land, 
 and if the ' bill-cases ' of our banks and the Bank of England were 
 suddenly turned into ' suspended paper,' I question whether one- 
 third of 1 per cent, would cover the ultimate total loss. The 
 astounding and wonderful result thus shown by the portfolio of the 
 Bank of France furnishes striking evidence either of the excellent 
 management of the Bank's system of discount, or of the thoroiighly 
 honest, conscientious and solid character of French commerce. In 
 my opinion, both are combined." — Timas, 8th July 1872. 
 
36 
 
 belying our gigantic prosperity, and tlie Banlc itself 
 
 does not hesitate, wlien interest is high, to invest as Satfolid 
 
 much as it can in bills ! Ask them for such explana- a°atoment 
 
 ■"■ can go 
 
 tion, and you are likely to be treated to a string of theS^ts 
 dogmatic statements and sophistical arguments, against ^™° °™' 
 which you must place the facts here laid before you, 
 and decide which is the truth and which is the farce ! 
 Facts like these require more than mere talk of con- 
 fidence and strength, and you may be willing, in your 
 own interests, and those of the country at large, to 
 repudiate for once these attempts at stifling an en- 
 quiry" into " realities." You can do no harm by it. 
 From the most general point of view, what does this 
 want of progress of the Bank indicate ? Is it, to use 
 a familiar term, "worthy" of England, the foremost 
 nation in progress ? You cannot but admit that the 
 figures placed before you indicate a state of " me- 
 diocrity," from which the conclusion may be drawn J^q^uj^-eg^i^j 
 that the evident conflict between the Bank and the coSfdera- 
 
 tion of all 
 
 public has a most practical foundation. The Bank economists. 
 may say " there is no conflict, we are right, we have 
 promoted the commerce of this country in the most 
 perfect manner," and in the absence of a competitor 
 of equal rank, all this might be said with impunity. 
 But the financiers and economists, who ever since the 
 passing of the Act of 1844 have disputed its pro- 
 priety, deserve respect, and if, before this, they had 
 taken the trouble of analyzing the Bank's accounts as 
 has here been done, they might have been able to 
 demonstrate to the common sense of the British public 
 the necessity for a reform. 
 
 Oue of flu most singular features belonging to this 
 conflict, of which the general public is not, but of ^''decided 
 
 . , -. _ action of the 
 
 which discount houses are well aware, is the poncy or ^ankes 
 the Bank as regards "advances to bill brokers." ^^^Zuf 
 Ever since 1844 the Bank of England has wavered on 
 
36 
 
 the question whether it should make such advances 
 or not. Sometimes large transactions have been 
 entered into, at other times the Bank has suddenly 
 declared its intention not to make them. I am credibly 
 informed that, during the present year, the question 
 was again mooted — " shall such advances be made or 
 not ?" — and that no definite decision has been given ; 
 and, let it be remarked, even if such definite decision 
 The method -vyas made, it could not be maintained. The facts of the 
 
 m which ' 
 
 profit from case are these : — Certain discount brokers occasionally 
 
 advances of „ 
 
 thiskmd. come to the Bank, and ask for advances on parcels of 
 first-class bills at Bank rate. They do this at times 
 when they expect a reduction of the rate of discount, 
 so as to be able to gather as many bills together for 
 future re-discount at a lower rate. Within a certain 
 period before dividend times the Bank freely makes 
 such advances, at other times it refuses them, although 
 there may be an ample store of Eeserve. On several 
 occasio]:is the Bank has endeavoured to estabhsh rules 
 to guide this business, but they have not been kept, 
 and the Bank now pretends to act according to 
 circumstances. The Bank's right thus to act accord- 
 ing to circumstances is indisputable, but there is 
 a degree of looseness about the whole matter which is 
 tteTonI"' not; in accord with the firmness of valuation required 
 definite ' in a monev market like that of London. The changes 
 
 pobcy haa •' O 
 
 UBhXsach of policy which have taken place indicate that the 
 valuation grouuds upou wMch such business ought to be con- 
 
 requires. <j ± o 
 
 ducted, namely, the character of the securities presented, 
 and the supply of money, are not adhered to. The class 
 of discount brokers who thus make use of the Bank's 
 reserve present the finest bills, and consider this 
 method of profiting by advances thoroughly legitimate. 
 On the other hand, the system leads to a kind of 
 inflation which ought to be avoided, and the Bank is 
 placed in a position in which the legitimate desire 
 
37 
 
 to employ the idle reserve profitably ob first class 
 securities conflicts -with ulterior considerations, both ^tanto"'' 
 sides involving certain true principles. The subject JwJ'smm, 
 becomes more complicated through the Revenue ^^ttei^l 
 accounts and other matters which should be incidental *'°™^" 
 only. It wiU be shown hereafter why the Bank is 
 unable to maintain a more definite position in respect 
 to advances of this kind. 
 
 WHERE IS THE ERROR? 
 
 The accounts laid before you in the previous 
 chapters, this want of progress in the establishment IS^omtf ° 
 in face of the great prosperity of all other institutions, SoS™" 
 
 f, enoeofa 
 
 this " modest, or, to use a harsher term, " this com- ^Sbln^'" 
 paratively trumpery " discount business of the Bank system 
 of England, must convince even the greatest admirer 
 of the present state of things that " something is 
 wrong." Others may go further, and say that these 
 accounts indicate a serious disease, and if we bear in 
 mind how long the controversy has lasted, that nothing 
 has been done to improve matters, that the attempts 
 made were futile, we may fairly assume that the 
 original cause of the disease lies deeply hidden. 
 
 It is important then that we should discover its 
 
 ^ In either 
 
 locality, for in a controversy of this kind the blame is SlBlSlnl 
 often shifted to causes, and laid on the shoulders of those m^^' 
 who are perfectly innocent of any charge, and cannot 
 help themselves. The Bank being divided into the 
 Issue and the Banking Department, we must decide 
 whether the fault lies in the one or the other. Can 
 the original fault lie in the Banking Department?* 
 
 * In certain quarters the opinion prevails that the pubhc have 
 no right to inquire into the Banking Department of the Bank of 
 
d8 
 
 To this question a decided negative must be giveni, 
 oannoTbe The Bank has an enormous capital and rest, and 
 
 in the Bank- ■*■ 
 
 Slit?^^'^'' therein lies a force which, in high-toned competition 
 even, would meet with its adequate share of deposits 
 and banking business generally, and consequent good 
 dividends. The Banking Department conducts the 
 Grovernment accounts, it receives millions of deposits, 
 the solid wealth of the country, and these branches of 
 business are absolutely free from any possible hitch or 
 suspicion originating in their own nature. Above 
 all, the Bank of England is managed by a set 
 of gentlemen, chosen from the highest ranks of 
 the mercantile community, gentlemen who have 
 inherited aU the experience of bygone days, cautious 
 and ready to carry out the highest policy of business 
 and caution combined. What, may you ask, can be 
 more perfect ? Convinced of this perfection, with the 
 
 England, that being, so to speak, a private matter, the Issue alone 
 concerning the public. Other banks, such as the Bank of Franca 
 (which has less connection with the State than our Bank, and has 
 " private " shareholders), and the Bank of Prussia, regularly publish 
 their accounts in an elaborate manner, so as to lay open to all the 
 world the legitimate business they do. The instruction in social 
 commercial science which is thus distributed is beneficial to these 
 Banks, and to the public at large, and a principle of the highest 
 economic value is thereby vindicated, The Bank of England 
 (beyond the weekly formal statement prescribed by the Act) does not 
 furnish any details of its business, a proceeding which, in a country 
 like this, where open and free investigation should be encouraged 
 above all things, is a blot upon our civilisation. The Direotora of 
 the Bank and the nation should feel proud of showing what a Bank 
 of England can do, and yon, the stockholders of the institution, 
 may feel assured that your property would thereby only improve 
 in value. The returns from which the above accounts are taken 
 were furnished to Parliament (see foot note to page 26). Being 
 thus made public, I have the undoubted right to analyse them, whether 
 the fiction as to the Banking Department being a private matter be 
 maintained or not. 
 
39 
 
 indefinite feeling that with such perfection the Banh 
 must always be right, there may be among you many 
 cynics, who require the strong argument contained 
 in the figures and facts given before they will listen 
 to criticism. 
 
 Whilst therefore it must be acknowledged that the 
 Banking Department of the Bank of England by -"thougii 
 
 o i o «/ the opera- 
 
 itself rests upon elements too solid and clear to admit Dep^tment 
 
 may be 
 
 of any doubt, it is equally clear, as T have shown senousiy 
 by the accounts, that this magnificent strength and 
 wealth is unable to assert itself, that it is under some 
 influence, or has some connection which disorganises 
 and lames its action. In any system of machinery, ^l^^^^^ 
 however expensively and magnificently proportioned it sysl'emwith 
 may be, however perfect it may appear m all its wnmeoted. 
 parts, there may yet be one fault or misconstruction 
 attached to one of the components, which, in its 
 connection with the others, demoralises the action 
 of the whole. Where such a fault lies at the 
 surface, it is easily seen and corrected, but when 
 it is hidden or obscured, and yet has so over- 
 whelming and powerful an effect in disorganising 
 strength, and counteracting mercantile wisdom, there 
 is reason to suppose that it is a very subtle and 
 poisonous matter. 
 
 The conclusive proof that the elements of busi- 
 ness in the Banking Department do not cause auotratton's 
 the trouble, will appear in the following: You Ba^'sRe. 
 
 serve and 
 
 are aware that violent fluctuations in the Reserve ^St'due'to 
 and the Bullion of the Bank of England take iSvesr ^ 
 
 . ments. 
 
 place, movements whose range comprises several 
 millions. The withdrawal or diminution of the 
 Reserve of any Bank, not connected with the Bank 
 note issue, can only take place, because : — 
 
 Firstly. By losses which the Bank incurs on its onl^^S?? 
 investments. The Bank of England invests the greater SlfgniE^' 
 
40 
 
 part of its resources in Government securities, and 
 among the " otSer " securities the bills discounted 
 form a comparatively insignificant portion. The losses 
 possible on such bills are small, they aflfect but profit 
 and loss account, and cannot even remotely influence 
 the Reserve. 
 
 Secondly. The second cause for a diminution of the 
 ^Slwai Bank's Eeserve might be the withdrawal of deposits. 
 
 of deposits, ni iiip-i 
 
 for these Now, here one of the most remarkable facts m the 
 
 increase ' 
 
 ^er^aan jjjg^gry of the Bank of England must, throughout 
 the controversy, be continually borne m mind. During 
 a crisis the deposits of the Bank of England, instead 
 of decreasing, actually increase ; stiU, even in spite of 
 such increase, the drain on the Bank continues. 
 
 Beyond these two causes there are none other 
 tiSnoHve'sh wHch Can possibly aflFect the status quo of any Bank 
 mde^end." in a forciblo manner ; the question whether the Bank 
 
 ent of thia 
 
 matter. .^j pg^j.^ T^i^ itg Reservo for additional advances, is 
 one which it may decide at its own option. It will 
 be shown hereafter that these fresh advances to com- 
 merce, by the Bank of England, are comprised in 
 the circulation of the Bank of England note, which, 
 within certain limits, is of a more or less regular 
 character, its divergences having but little connection 
 with the original effect of the disturbances. 
 
 That original effect is : the fluctuations in the stock of 
 Km aoMy BulUon VKi the Issue Department ; and having shown, in 
 ^stemof the foregoing, that these cannot possibly be due to the 
 
 tllB XB8UQ 
 
 Depart- losscs made by the Bank on its own investments, nor 
 to the withdrawals of deposits — in other words, the 
 Banking business proper of the Bank — it will be my 
 business now to point out to you the special fa/alt in the 
 Issue system which causes these quick and spasmodic 
 withdrawals of Bullion ; the necessity for violent efforts 
 to recover it, and how all this re-acts upon the Banking 
 
41 
 
 Department ; destroying the benefits which both the 
 country and the Bank might derive from the wealth, 
 strength and wisdom there congregated, and leading 
 to the confusion and partial ruin of our otherwise un- 
 interrupted course of national prosperity. 
 
 At the first glance it would seem almost impossible 
 that an issue of Bank notes could have so pernicious The enigma 
 
 ■*■ involved in 
 
 an efilect as I assert it has. The elements upon which it eeemSgiy' 
 is founded appear simple and profitable. A bank amngl"' 
 holds, or purchases, certain valuable securities, which 
 hear interest, and thereupon issues bank notes, which 
 cost but the paper, the printing, and the administration 
 connected with them — and such notes can be employed 
 as inoney, again yielding interest. And when, as is the 
 case with the Bank of England, the amount of such 
 bank notes is limited to a seemingly moderate amount, 
 secured by Government stock, when all bank notes 
 issued above them must be represented by bullion — it 
 would appear that aU the necessary precaution had 
 been taken to secure profit and safety — that nothing 
 more perfect could be suggested by human inge- 
 nuity. 
 
 Yet if you set against this seemingly so proper an 
 arrangement the fact that ever since it came into Jon|^t™' 
 operation it has given rise to violent discussion — that felir^th" 
 crises and panics have been more severe than ever, that 
 Eoyal Commissions have sat upon it, publishing thick 
 Blue Books ; that vain attempts at legislative improve- 
 ment have been made, until the contending parties, in 
 sheer despair at a solution, have formed into the 
 extremes of warm admirers versus violent opponents, 
 you cannot but come to the conclusion that, in spite of 
 all that can be said in its favour, the fault remains 
 undiscovered. The acknowledgment " that something 
 is wrong " is frequently heard, but it is always 
 
42 
 
 ta^poSty'' accompanied by the question, -who can suggest " eome- 
 
 iiiisooncep- tiling better ?" The subtlety of the whole subject -is 
 
 fnfhe**"^^^ thereby made manifest, and nothingis less surprising than 
 
 the system, that all sorts of wild revolutionary suggestions should 
 
 be made in the hope to overwhelm, nolens volens, the 
 
 anomaly. It is possible however, as in so many 
 
 problems of a similar nature, that the error itself lies 
 
 in a narrow compass, that the obscurity which 
 
 surrounds it is due to some misconception arising in 
 
 the practice of the system itself, and that some of the 
 
 remedies suggested on the ground of this practice are 
 
 fallacious, because they are dated from a consequence, 
 
 instead of being led back to the cause. 
 
 THE PRESENT STATE OF THE 
 CONTROYEESY. 
 
 An account of the present state of the controversy 
 
 the absurd y^i][ coutribute to the discovery of the error. Dismiss- 
 schemes *' 
 
 afsS§ssea. ing from consideration the outrageous scheme proposed 
 by Mr. Anderson, M.P. for Glasgow — whose warm 
 advocacy of the American^ system has received a 
 wholesome rebuff by the American crises of September 
 and October 1873 — and other kindred more or less 
 absurd suggestions, we confine our attention to the 
 Bank of England issue and its reform. 
 
 In this field there are two great principal party 
 div1s?ms'''on clivisious, the one may be designated as that which 
 Bng^'"'' advocates the total abolition of the issue department, 
 remain. go as to merge the two departments into one, and 
 recommending the repeal hi toto of the Act of 1844, 
 and certain other sweeping reforms. The other party 
 division recognises the importance and usefulness of 
 the separation between the issue and banking depart- 
 ments, and approves generally of other features in the 
 Act. The latter division is the only one that stands in 
 
4S 
 
 sound practical relationship to the easy reform, and 
 
 a better understanding of the matter will be much 
 
 facilitated if all other considerations are dismissed 
 
 and attention be concentrated upon the point : " that pracSoS 
 
 any reform in the Bank of Bnffland Note issue must which seeks 
 
 ** *-> reform 
 
 be sought inside the present system, the principle of presln?* 
 the arrangement as to the separation between issue 
 and banking department remaining in force." You 
 will perceive that I belong to this category, viz., that 
 I approve of the separation, as indeed I approve of the 
 whole Act, excepting the one point of error which 
 I shall endeavour to demonstrate to you. 
 
 Upon this more narrow, proper, and only practical 
 ground, five different sets of opinions or classes appear, dwislonsot 
 
 1st. The class of economists who, in despair at a 
 solution, pronounce in favour of an issue o?^ hnllion only. 
 
 2nd. The class of economists who still maintain 
 that the present limit of 15 millions is the precise and 
 right thing. IT"" 
 
 3rd. The class who thinks the issue ought to be opinions in 
 
 ° the contro- 
 
 increased temporarily or otherwise. Be it well under- ''^"^" 
 stood that this class speaks only of an increase of 
 issue, not of a decrease. 
 
 4th. The class who would lay down a sliding scale of 
 issue, fixed amounts of bullion to guide the rates of 
 interest. 
 
 5th. The class which I represent, together Tvith 
 those who have given adherence to my reasoning, which 
 proposes a decrease or an. increase of the fiduciary issue, 
 not upon the system of a fixed sliding scale, but upon the 
 well defined co-operation of the factors involved, viz. 
 the amount of circulation, the proportion of bullion, 
 the rate of interest, and the necessities of reserve. 
 
 Of these, classes 1 , 2 and 4 can at once be dismissed, 
 for the following reasons : — 
 
 Class 1. — In favour of pure issue on bullion (the 
 
44 
 
 most careful of all) is impracticable. A bank note 
 S^raltfc- issue made on bullion alone -would continually subject 
 impossible, the circulatiou to forcible withdrawals, and, paradoxical 
 as it may seem, would place the country in an almost 
 continual state of panic. A fiduciary issue must be 
 made so as to exercise, in conjunction with the rate of 
 interest, a regulating influence. Besides this, the 
 fiduciary notes cover the expenses of the total issue. 
 This class may accordingly be dismissed first, as being 
 altogether impracticable. 
 
 Glass 2, which maintains that the present system 
 adSsofno is the right one, and will not admit of any alteration, 
 is still very powerful. (The money article of the Times 
 represents it most effectually). This class takes its 
 stand upon the desperate conclusion that "nothing 
 better can be suggested, and so matters are better left 
 as they are," under the, at all events, instinctively 
 "just objection" that any increase of issue is mis- 
 chievous. Inasmuch as the whole subject involves the 
 question of reform or of no reform, the maintenance of 
 the present evil state, or its improvement, this class, 
 which will not consent even to its discussion, is 
 practically also out of the question. It is noteworthy 
 of remark however that a great many of the hitherto 
 principal supporters of this class have lately admitted 
 the necessity of reform, among them several of the 
 Directors of the Bank of England, who, during last 
 session of Parliament, spoke in favour of some sort of 
 extension of issue, tantamount to occasional legal 
 suspension of the Act. 
 
 Of the two classes remaining, 
 
 Class 4i, which bases its conclusion upon sugges- 
 
 S^uncona tions made by the late Mr. Tooke, as to a fluctuating 
 
 fiduciary issue, for which however Mr. Tooke did not 
 
 submit a definite scheme, proposes a sliding scale 
 
Glass 3 now 
 rules the 
 situation. 
 
 45 
 
 more stiff than the present system, and utterly devoid 
 of Hfe, being a mere rough guess work. This class 
 must be dismissed, although the idea of a fluctuating 
 issue touches a key note of the reform required. 
 
 Class 3 is that which the secessionists from class 2 
 have joined, and, represented by Mr. Wm. Towler, 
 Mr. Lowe and Sir John Lubbock, brought forward the 
 measure proposed by Mr. Lowe in the Session of 1873, 
 which, together with the amendments, was finally with- 
 drawn by Mr. Gladstone. 
 
 This class, be it now distinctly understood, is that 
 which practically has the matter in hand, and rules the 
 situation. The principle which it has adopted is this : 
 — " The limit of the Act of 15 millions of fixed issue 
 is too rigid ; whenever a crisis threatens we are obliged 
 to suspend the Act, in order to allow more issue ; in 
 future we will legalise these suspensions." 
 
 The chief characteristic of this proposal is accord- 
 ingly this : — 
 
 The present system, with Us limit of fixed credit issue 
 is to be maintained, but it shall be suspended when ^^^"J- 
 requisite, by an extension of this limit. And therein the proposal u 
 
 i- ' </ ^ "exten- 
 
 promoters of the proposal see the solution of the matter. °'™" °^^^ 
 "Whereas 
 Class 5, which I represent, here says : the present 
 system shall remain, but the credit issue, hitherto fived at S""^ 
 
 -I If '77 • 7 7 • 7* • • 77 coiitTaction 
 
 15 millions, must be sumect to diminution as well as exten- andexteu- 
 
 ' ^ Bion are 
 
 sion. Mr. Fowler's* party thinks that thepresent credit 
 issue of 16 millions suits the case in every way, except- 
 ing in the event of a crisis, when it should be extended, 
 
 * Mr. Wm. Fowler, M.P., first started the proposal as to exten- 
 sion of issue in the event of crises. Mr. Lowe fotmded a bill upon 
 it, which, with its manifest absurdities, proved too much for Sir 
 John Lubbock, who proposed amendments. The main principle 
 upon which both bill and amendments rest are those promulgated 
 first by Mr. Fowler, who deserves to be called the originator of the 
 party. 
 
 Bion are 
 required. 
 
46 
 
 for it considers that crises and panics aire' due to 
 causes wliich are independent of the system, of issue,; 
 strange and inconsistent though it may appear that, 
 under such an assumption, an alteration of "the issue 
 itself should be at all necessary. U-"""' 
 
 I, on my part, distinctly assert — 
 
 That the primary cause of all our difficulties is the 
 ^mary strict maintenance of the fixed issue of lb millions 
 
 cause of the 7., , • ti , ' t •• i 
 
 evil is the credit notes in the times preceding a crisis, when 
 
 surplus ^ ^ . 
 
 the'if'^^ bullion is in good supply, and sufficient to give a firm 
 °" °°^' foundation to the circulation of the Bank of England 
 notes, when a more moderate issue of credit notes 
 would give a regular, but more moderate, reserve. Also 
 I assert that any surplus of notes beyond the neces- 
 sities of the regular circulation, and a certain amount of 
 reserve, which, by the nature of reserve, should also 
 be regular, is the sole cause of the spasmodic and heavy 
 withdrawals oj bullion from the stores of the Bank of 
 England, and that the laws of exchange must operate 
 against us when a heavy surplus of artificial money is 
 brought into constant competition with the solid bullion 
 basis. 
 
 The expeiience of our market proves that there 
 Apposed are times when the Bank of England holds very heavy 
 faJle^ote' Rcservcs of notes, and when interest is abnormally 
 
 reserves is . " 
 
 inreaiity Jq^^ g_^^^ accordiug to the views maintained by 
 the%stlm'! Mr. Fowler, the Bank is then strong ! Here lies the 
 whole fatal misconception ; for I maintain that these 
 are the times of danger. Such heavy idle reserves not 
 only have the effect of driving BulHon from our 
 market, but the abnormal cheapness of interest then 
 prevailing leads to the negotiation of seemingly 
 legitimate but speculative contracts ; until the 
 low state of that commodity, even with the 15 
 millions of credit issue — which cannot afterwards 
 be maintained, as they require a greater absorption 
 
^■■. - 4,7 
 
 ' : i' ' 
 ef'BtillioEi^^'fo^ their liquidation than we possess — 
 f HVnislies *;a,n amount of total issue insufficient to 
 liJaJintain tfid circulation already engaged, tvhen panic 
 sets' in.: t,''^"- 
 
 The' feutb. qf the matter is accordingly this : in spite 
 q|f the idea of' caution involved in the limit of 16 caution °^ 
 rnillions of credit issue, it is nevertheless the fact that this Sri™ 
 
 , millions 
 
 issue produces an almost continual plethora — deceiving S^flniofoM. 
 and disorganising our market for a length of time, and 
 causing, by the rule of reaction, the subsequent crisis. 
 So, if according to experience, we see that a crisis 
 repeats itself every nine or ten years, we find that 
 during the preceding years there are four or five in 
 which heavy reserves are in hand, others when the ups 
 and downs are vexatious, until the crisis happens. 
 
 That there are other causes which contribute to 
 speculation and to mercantile disturbances; that the °^„fj3„e 
 Bank of England, in order to guard against special 6ntT?hi9 
 
 *" matter. 
 
 political and other contingencies (such as the German 
 demand for gold), must have a degree of independence 
 in ruling the rate of interest, I freely admit ; but the 
 principle here enunciated — that a fixed artificial issue 
 must be productive of a plethora — will be admitted by 
 all who can estimate the situation, and the sense of 
 caution governing the action of the Directors of the 
 Bank of England naturally inclines to the keeping of 
 B-eserve; therefore the plethora is almost constant. 
 The fixed issue of 15 millions deprives the Bank of the 1^^^^^ 
 more direct and legitimate influence on Bullion ; it toree."' 
 altogether deprives the Bank of its independence. 
 And if the admirers of the system say, " a large 
 Eeserve of notes at the Bank is strength," they labour 
 under that great misconception which obscures the 
 "subtle" point of error lying at the bottom, of the 
 whole matter. 
 
 The excessive note reserves are not wanted for the cir- 
 
 remams in 
 
48 
 
 The excess cuiatioD, nor for the accoramodation of the trading world, 
 
 18. for the circulation is more or less regular, and in its 
 
 range the question of accommodation is comprised ; for 
 
 the safety of the Bank against possible withdrawals of 
 
 deposits a more moderate but regular reserve is 
 
 required by the nature of Banking. The combination 
 
 of 15 millions of fixed issue with 10, 16, 20 or 30 
 
 millions of Bullion cannot give this regularity ; it must 
 
 give plethora in most instances, and scarcity in others, 
 
 to the prejudice of Bullion on the whole. This plethora 
 
 of note Reserve is supposed to furnish a set-ofi" against 
 
 possible withdrawals of Bullion ; in reality it is itself 
 
 the chief cause why Bullion is driven from the cov/ntry. 
 
 Let us hope that the scales will fall from the eyes 
 
 mMtf^r of our bankers and economists, and that there are 
 
 ey°e?oftii6 logicians in the country able to appreciate the' mathe- 
 
 authorities. ° _ •' _ '■ '- 
 
 matical law and the practical truth before us. Unless 
 
 that takes place, the proposal of the Reform party, 
 
 headed by Mr. Fowler, are likely to carry their measure 
 
 through Parliament, when, as I assert, " the evils from 
 
 ito.^Fow- -which we are sufiiering will be immeasurably enhanced. 
 
 tovoTve^tiie Not onlv will the permanent action of the 15 millions 
 
 abiendnof pf credit issue in competition with Bullion be thereby 
 
 V ua ion. pQj^£j.j]2ed ; but, with the prospect of extension of issue, 
 
 the preceding caution enforced by the present limit 
 
 will be lessened, and a contract basis be established, 
 
 leading to crises and panics, during which Bullion will 
 
 leave us, not as by a running tap, as at present, but as 
 
 if the bottom of the reservoir was knocked out." 
 
 But if, on the other hand, it be conceded that the 
 pmattSg fixed credit issue must be abolished ; that such credit 
 a^onewiii issuc must be supplementary, and vary according to 
 toriiy solve ^]jg actual necessities of Circulation and Reserve, and 
 pro em. ^^ accordauce with the rates of interest required to 
 restore the equilibrium : " the whole question will then 
 receive its satisfactory solution. A system can be 
 
49 
 
 established wHcli will bring all its factors into con- 
 current action, and which will afford a regular steady 
 reserve, whose influence will remain neutral." 
 
 I have led you so far, and foreshadowed the 
 proposal which I have to make, in order to show ce'S^lJed" 
 you more clearly that the controversy has come to a Sro- 
 
 '' . versy. 
 
 narrow point. Abandoning all wild schemes, concen- 
 trating our attention on the Bank of England issue 
 only, you will now see that the practically contending 
 parties even agree as to the general principle of the 
 separation of Banking and Issue Department, and that 
 the point in dispute concerns only the 15 milhons 
 of issue, determined by Clause II. of the Act of 1844 ; 
 the questions being : — 
 
 Firstly. Shall this be maintained ? In which case 
 no reform takes place, and the present evils wUl 
 continue. 
 
 Secondly. Shall this be reformed ? In which case 
 the sub-questions : — 
 
 a. Shall we adopt Mr. Fowler's proposal, S'.^eTrSy"^ 
 maintaining the present fixed issue, and pro- 
 viding for extension only, — in which case, as I 
 assert, more evils and greater ruin will follow ? „„« 
 
 OE 
 
 b. Shall the fixed issue be abolished ? shall DeoreMe 
 
 and increase 
 
 the principle of diminution and increase of the °^ '^^"®' 
 issue be called into life ? in which case, as 
 I assert, the matter will find its absolutely 
 correct and satisfactory settlement. 
 
 You will perceive that there is nothing revolutionary The 
 
 ■■^ o ./ alteration of 
 
 or violent in these proposals — for the reforms can be aeSif 
 carried out by the amendment merely of Clause II. — required. 
 the body of the Act might remain as it is. If this 
 
 4 
 
50 
 
 toe'^refen^ Clauso II., of the Act of 1844, be read by you, yoii 
 tbeady wlU find tbat it actually provides " for the diminution 
 |pww)faie of the issue," but this is incompletely worded, and 
 Clause VIII., determining the State share of profit 
 not being in accordance, the Bank has been unable to 
 carry out what seems to have been the instinctive 
 feeling of Sir Robert Peel as regards the true nature 
 of a credit issue. 
 
 In the succeeding portions of this pamphlet, for the 
 
 The benefit of those not familiar with the principles of 
 
 POTtionBof Bank note issue, I propose to lay down references to 
 
 eStoto this subject, showing also how the present system has 
 
 detau. been engendered, furnishing more decisive proofs of 
 
 the error which it envelopes. I shall give also the 
 
 outlines of the system of contraction and expansion of 
 
 the issue, which should be adopted in its stead. 
 
 note issues. 
 
 THE ORiaiN AND THE MAIN PRINCIPLE OP 
 THE ACT OF 1844. 
 
 The issues of bank notes of all States which are not 
 The __ compelled by political necessities to make large over- 
 KOTdbi^^ issues, to the ruin of the basis of prices, and conse- 
 quent damage to their commerce with other countries, 
 consist of the " mixed " basis, i.e. bulhon and secu- 
 rities. Issues of bank notes on bullion alone are not 
 practicable ; firstly, because they want that element 
 of pliability which the admixture of credit gives ; and, 
 secondly, they do not pay the issuer. The expenses 
 attending the issue can only be recouped from the 
 profit made on the notes based on credit. The notes 
 issued against this joint basis of bullion and credit 
 are all alike, and " promise to pay;" and, as a matter 
 of course, the public have full faith in the notes so 
 
51 
 
 issued by the Bank of England and other great State 
 Banks so long as they are. regularly paid and remain 
 " convertible into gold." 
 
 The word "fiduciary" is the proper technical term 
 applicable to designate that portion of the issue basis 1^^^ „ 
 which does not consist of bullion, but of securities and ffi°note * 
 instruments of credit held in trust* or as gixarantee for 
 their value and ultimate payment. 
 
 Ever since bank notes were introduced the question 
 of "how much fiduciary issue shall be combined with ^l^t^ug 
 bullion " has been discussed and experimented upon. ^tS'SX'"" 
 
 , issue of 
 
 The creation of money by so easy and costless, and, ^ankSs 
 therefore, so enticing a process, as the mere printing 
 of pieces of paper, ruined French society before the 
 great revolution, through John Law's schemes, and 
 contributed to the terror of that bloody period. In 
 Hayti, 600 dollars in paper money are now worth 
 one dollar in silver, and there are numerous other 
 examples in the history of nations showing the 
 fearful results upon prosperity of such fiduciary over- 
 issues. In other States more reasonable proportions 
 are adhered to, the necessity for some cash basis is 
 recognised, as in Austria and the United States, but 
 the baneful effects of such issues are apparent. Never- 
 theless, at the present day, there are would-be financiers 
 (even in the British Parliament) who would make 
 people " happy " by the copious issue of fiduciary 
 bank notes. It is unnecessary that I should here 
 explain why these crude notions still show themselves ?^^^'*°'^^ 
 — how they originate in the utter want of appreciation Iven'totSs 
 of all that concerns the equihbnum of production and 
 prices — how they are founded, in all probability, upon 
 that " indefinable luscious longing " as regards money 
 matters, in which certain leaders of social democracy 
 
 * See Jolmson's and other Dictionaries of the EngUsh Language.. 
 
52 
 
 find so mucli satisfactioQ for the exercise of their 
 
 superior inventive faculties. 
 
 The English nation and others in the front rank of 
 The stock- civHisation have recognised by experience, as well as by 
 Bng^S°^ theory, that there is bat one truth in this matter, and 
 corned only thcv havo practicallv adhered to bullion, as the leading, 
 
 in the issue J r J ^ o 
 
 bytheBank element in bank note issues. To this fact is due, in 
 
 of England. ' , . iijji-i 
 
 a great measure, the "mtemational wealth, -which 
 England enjoys by the realisation of the profits of her 
 industry and commerce on the cash basis. And you, 
 the stockholders of the Bank of England, should not 
 speculate in the widest field of wild ideas which this 
 question of fiduciary bank note issue involves, but 
 confine your attention to the limits and the practic- 
 able matter of the Bank of England note issue. 
 
 Before the operation of the Act of 1844 the Bank 
 The old of England issued bank notes against a certain amount 
 England gf buUiou, and against securities comprised in what 
 were called the " means " at the disposal Of the 
 establishment. The amount of notes to be thus 
 issued, in proportion to bullion or securities,- was. 
 entirely at the option of the Bank ; in other words, 
 the power of issue was " unlimited." Now, although 
 the Bank of England never did anything that could be 
 called foolish or extravagant, yet it was found that 
 grievous evils resulted from this method. Eapid with- 
 drawals of bullion took place, crises ensued, interest 
 jumped up high, and confusion and ruin followed.* 
 The charge was made that the Bank was unable to 
 keep a hold on bullion, that the rates of interest were 
 not managed so as to become operative in timOj &c. 
 
 * Nevertheless, under the old Act the increase of the Bank of 
 England's business stood in somewhat better proportion to that of 
 the country, and the rates of interest were neither as extravagantly 
 low or high as since then. In saying this, the author does not 
 jioply that ho is in favoar of the old Act, 
 
53 
 
 These charges were true, and the evidence shows that 
 the fiduciary issues were allowed to attain proportions 
 altogether inconsistent with the rate of interest. It 
 was felt that the " unlimited power of issue " was not 
 the proper thing to allow. 
 
 The Bank Act of 1844 (generally designated as Sir 
 Robert Peel's), under which the issue is now con- J^j^^"'"' 
 ducted, therefore adopted a diametrically opposite 
 principle — that of strictly limiting the fiduciary issue. 
 Upon the computation that for a number of years 
 before, the Bank of England had been able to keep 
 " afloat " an average of 11 millions of " fiduciary " 
 notes (above those issued on bullion), it was resolved 
 that this should be a guide for the limit of issue. Certain 
 reservations as to the falling in of certain country 
 bankers' issues were made, under which the amount has 
 since risen to 15 millions, but the one cardinal principle itscnfdmai 
 
 ■^ -*■ princi}.ile of 
 
 that this amount of fixed issue should be made and "'; 
 never be exceeded, was established. At that time the 
 Government owed a sum of money to the Bank of 
 England, and £11,015,100 were thus made a book 
 debt, as guarantee for the issue. For the remaining 
 £2,984,900 to complete the 14 millions (now 1 million 
 more for the 15 millions) the Bank received authority 
 to hold " other securities " as it might deem fit. It is ^'J^^^'^™" 
 necessary to call attention to these " other securities," rifelrorthe 
 
 flduciaiy 
 
 because the impression prevails that the whole of the >^™- 
 issue is made against an express Government debt. It 
 is true that the Bank makes it a practice to hold 
 Government securities against the £3,984,900, but 
 Clause 2 of the Act, which provides the arrangement, 
 does not prescribe this. 
 
 At the same time, by Clause 1 of the Act, the separation 
 
 into Issue 
 
 Bank was ordered- to form two departments, the B2*,,;n„ 
 one called the Issue Department, where the bullion £lnt!"' 
 and securities were to be held against tlie issue 
 
54 
 
 of notes,* the action of this department being pre- 
 sumably entirely " automatic ; " the other to be called 
 the Banking Department, in which the Bank pre^ 
 sumably has full hberty to acb as any other banker. 
 Forms of weekly accounts are prescribed by the Act, 
 as we are now in the habit of seeing them. The 
 other great cardinal feature of this arrangement is 
 abLveil that all the issue of Bank of England notes above 
 temsSe tho 16 millious fixed fiduciary issue must be made 
 
 against "^ 
 
 tuuion. against buUion. Thus, if the Bank has in its vaults 
 5 or 10 or 15 or 20 or 25 millions of bullion, 
 the total issues would respectively be 20, 25, 30, 35 
 and 40 millions of Bank notes. 
 
 What are the real and uppermost merits of the case, 
 
 ^^ereaiand jr^st mcrits ou the Strength of which the Act has met 
 
 omta^"'° with either unqualified admiration, or the deceptive merits, 
 
 issue. which have caused so much mischief and discussion ? 
 
 It is essential that a perfect understanding should 
 
 be arrived at in regard to these merits, for whenever 
 
 the Act is under discussion, such merits are brought 
 
 to the front and are commented upon, without there 
 
 being any necessity to introduce them, the question 
 
 under consideration here lying within the narrower 
 
 compass of the mere amount of fiduciary issue. 
 
 One of the most important objects in view was that 
 ^rtibffity of securing the convertibility of the notes into gold. The 
 traditions of the war with France, the history of French 
 and other bank notes, were uppermost at that time, and 
 the word " convertibility " reigned paramount. Granted 
 now that (if we ignore the crises, notably that of 
 1857 when the danger to convertibility was imminent) 
 this object has been fairly secured, it is evident that 
 
 * Certain other duties as regards the purchase of bullion at a 
 fixed rate, and the control of the gold and silver coinage, as by a 
 qiMsi agency for the Mint, are undertaken in that department. 
 
 of the note. 
 
56 
 
 the precise sum of 14 or 16 millions of credit issue does 
 not contain an absolute principle, it must be admitted 
 that a fiduciary issue o£ but 5 or 10 millions would 
 have enhanced, whilst 20 or 25 millions of it would 
 have diminished, the chances of convertibility; ab- 
 solutely convertible the notes would be if they were 
 issued wholly against bulHon. Nevertheless, whilst I 
 recognise this securing of the convertibility of the note 
 as a just merit of the Act, you must permit me to ask 
 you not to lay too much stress upon this matter of con- 
 vertibility. Many old economists, who live in the odour 
 of traditions, claim this as the sole specific merit of the 
 Act, whereas modern economists have long ago recog- 
 nised the necessity of securing convertibility first of all, 
 and this subject is so well understood, that (in England buS^'^j 
 at least) no scheme would be listened to which does not fl?st°ofRiK 
 provide for this before all other things. The question 
 which must be considered here lies much beyond the 
 convertibility, and in asking you to leave this matter as 
 understood, I require you to free your minds from it 
 for the moment, so that the real point will no longer be 
 obscured by useless reference to it. 
 
 The second supposed great merit of the Act is that 
 the 15 millions of fiduciary issue are secured by Theseourity 
 
 ■^ •' of the state 
 
 Government debt and security, so that, even if all the ^^^^'^' 
 bullion went away from the Bank, the Grovernment thei6^^'"°' 
 
 '' millions 
 
 would, by repaying the debt or by implication of its ^If^ 
 liability, provide cash for these notes. To every 
 Englishman the security offered by his own Govern- 
 ment gives a feeling of comfort and satisfaction, the 
 legitimacy of which I do not deny. Nevertheless it is 
 open to discussion whether Government securities,* 
 which are subject to fluctuations in price, difficult of 
 sale during a crisis, and requiring a fresh contract for 
 
 * See page 30. 
 
56 
 
 their conversion into monejj might not be supplanted 
 by bills of exchange of the first order, i.e., by contracts 
 already made and directly connected with the acquisi- 
 tion of bullion. The Act, it must be borne in mind, 
 covers only 11 millions of the issue by the State debt, 
 the balance consists of " other " securities, as the 
 Bank may see fit to place in the issue ; this, at all 
 events, shows that the idea of Government securities 
 is not absolutely leading. It is often said : let the 
 State repay this debt to the Bank. That could easily 
 be done by the State taking over the portion of notes 
 and not issuing them again ; but this would be tanta- 
 The same mount to a mere annulling of the fiduciary issue. If 
 ^t^J^ this issue is to continue it must have some security, 
 the author, whether this be in State debt, or in consols or bonds 
 to bearer, or first-class bills and other convertible 
 securities, is a question for the Bank. In the scheme 
 which the author will propose, the fiduciary issue will 
 also be covered by Government securities, so that this 
 point, of which so much is made by those who do not 
 go deeply into the matter, needs no further discussion. 
 The third merit or peculiarity claimed on behalf of 
 tion of thJ"" *^® -^^^ ^^ ^^® separation of the issue from the Banking 
 thlsankSg Department as provided by Clause 1. The admirers 
 ment. gf thc Act pretend that the issue is thereby rendered 
 entirely automatic, as a thing with which the Banking 
 Department has nothing to , do. Mucl( discussion has 
 arisen in reference thereto, the opponents declaring 
 that this is all moonshine, that it is merely a matter 
 of account, that both departments are at the charge 
 of the Bank and its stockholders, that it is absurd to 
 pretend that the left hand of the Bank does not know 
 what the right is doing. The admirers of the Act 
 forget that Clause 2 provides expressly for the transfer 
 of the notes to the Banking Department, and that the 
 " Reserve " of notes so arising as not in circulation, 
 
57 
 
 might be as well held in tlie Issue Department, when 
 the two accounts would be practically united. Never- 
 theless the separation of the two departments is of 
 real value and practical importance, and the action of 
 each can be more clearly defined, as will be done in the The same 
 
 «/ ' syBtem of 
 
 scheme to be proposed by me. Sir Robert Peel conceived 3fbt''™ 
 
 _ , , maintained 
 
 the idea upon ]ust grounds ; the reason why it has, to ll^^,^ 
 a great extent, missed its point, will appear hereafter ^''^^""'■ 
 to you. Again, then, as my plan will re-afl&rm and 
 more clearly define the separation of issue and bank- 
 ing, there is no need in discussing this matter as a 
 special merit of the present Act. 
 
 My object in strongly urging you to set aside, for a 
 moment, thesematters concerning convertibility, Govern- Aaiscnssioa 
 
 ,011 the 
 
 ment securities, and separation of issue and banking, P°jf^erated 
 with which, as you see, I fully agree (as, indeed, you will necessary. __^ 
 
 i. no r6&l 
 
 perceive that I agree with every other feature of the Act) ^ppeaTaii 
 is, I repeat, that of leaving a clear space for the real point. 'eldSy™ 
 As I stated before, whenever the Bank Act is under 
 discussion, these subjects are sure to be brought 
 forward. They are crowded one upon the other ; hasty 
 conclusions are made, so that it is difficult to wedge in 
 a word concerning the true nucleus of the matter. It 
 is, accordingly, unnecessary that you should have 
 reference to subjects about which I agree with you. 
 The point under discussion, that upon which all the 
 good and evil turns, that which disorganises the opera- 
 tions of the Bank, is simply the fixed limit of 15 The main 
 
 ' r J J J point to be 
 
 millions of fiduciary issue, both the fixity and the amount ^.flfe u' 
 so fixed, and the whole controversy centres again on taea°SBiie. 
 the simple points as to either the maintenance of this 
 limit, its occasional extension, or its diminution and 
 expansion. (See page 49.) 
 
 "We can now concentrate all our attention upon the 
 fixed limit of 15 millions of fiduciary issue. What are 
 its merits ? 
 
68 
 
 All those acquainted with the subject, and the 
 S°ome previous history of our banking operations, will 
 miuiouB probably agree with me that the leading idea under 
 
 fixed issue, i -^ o o 
 
 which the legislators of 1844 established the system 
 was to the following effect : — 
 
 " We have found that over-issues of paper money 
 have taken place, that speculation was thereby 
 encouraged, that disturbances and crises followed] 
 we will avoid this in future by limiting such issue to 
 16 millions; for all issue above this, the commerce 
 of the country must provide itself with bullion 
 through the Issue Department of the Bank. The 
 commerce of the country must operate within these 
 bounds ! " 
 
 It can be admitted at once that this idea as to 
 Itim^"*" caution involved in the limit is the great charm of 
 the limit, the thing, of which a great many financiers have 
 approved, and to which others readily give their con- 
 sent. Nor is this to be wondered at. The idea of 
 preventing mischief by erecting a strict barrier is one 
 that, in the absence of better suggestions, would rise 
 uppermost and assert itself, for it has the great merit 
 of caution and the apparent merit of moderation, and 
 with these elements secured it is popularly supposed 
 itsapparenfc that uo error can arise on the side of extrava2:ance and 
 
 principle of o 
 
 pradence"* mischief. No woudcr that there are persons going so 
 
 far as to admire even the genius which invented the 
 
 plan, and who enthusiastically defend it. No fault then 
 
 should be found with the earnest men who, acting 
 
 upon the principle of caution, really thought that they 
 
 had established a perfect and almost sacred system. 
 
 Nevertheless, we may ask ourselves, did they act 
 
 ^tyxtent upon refined and really intelligent reasoning ? It is 
 
 liberality. ^^ ^^^^ ^^ ^^^^ ^ Here, this we will give you; mind you 
 
 remain within bounds ; you shall not have a farthing 
 
 beyond it, if everything goes to wreck and ruin — so 
 
59 
 
 please understand that ! " To many the thought of 
 having made and upheld such a proposition is really 
 comforting ; they feel they have done their duty, have 
 nothiog to reproach themselves with ; at any rate — 
 the " there, we have put a stop to excess!" — concludes 
 the matter with them. I call upon all those who have 
 favourably estimated the present arrangement to say 
 whether this feeling, as a kind of argument, is not that 
 which induces them to approve of the principle of the 
 fixed limit. Whatever honour and credit we may now its want of 
 feel disposed to award to the conscientious men, who, 
 by adopting an apparently so straightforward and 
 severe, yet not illiberal, a system, we may yet at the 
 first glance ask the question, why did they fix upon 
 15 millions (originally 14) — what was the charm which 
 made them adopt that sum in 1844, when the trade of 
 the country was one-fifth of what it is now ? Where 
 is the economical principle which, either in the abstract 
 or drawn from practice, induced them to choose this 
 amount ? This will lead us on to the consideration of 
 the demerits involved in the fixed limit. 
 
 THE DEMERITS OF THE FIXED LIMIT OF 
 15 MILLIONS. 
 
 The demerits of the limit consist, in the first place, 
 of errors- of calculation and anticipation, which, 
 although not of overwhelming importance in them- 
 selves, yet show distinctly their fallacious nature, and 
 lead to the inference that they cause a grievous wrong 
 somewhere. The origin of the fixed issue was as The origin 
 
 ° of the 
 
 follows : — For a certain period before 1844 the circula- if^^oSe. 
 tion of the Bank of England, not founded on bulHon, 
 had given an average of slightly above 11 millions, 
 varying, from 1826 to 1843, between 7, 9, 10, 13 and 
 
60 
 
 15 millions. Upon the ground therefore that the Bank 
 had been able to float, and the public in the habit of 
 using, so much fiduciary issue, it was resolved to take 
 the average of 11 millions as a starting point. Certain 
 country bankers having given up their issue, 3 mil- 
 lions more were added to it, making 14 millions, since 
 increased to 15 millions.* 
 
 The system of taking an average of a series of 
 
 The fallacy ... . 
 
 avwagein i^ems is applicable to many cases, and Sir Robert Peel's^ 
 tote ktad!' advisers no doubt imagined that they were doing the 
 right and liberal, yet strict, thing ; and although they 
 did not make any provision for an extension of such 
 issue in accordance with the increase of our trade 
 (since fourfold), they certainly imagined that thiS' 
 system of average would be responded to in future. 
 All the evidence given at that time expresses this 
 anticipation. Now nothing is more contradictory of the 
 true state of facts than the average taken from 
 variety. If previous experience shows greater or 
 lesser amounts, and if that experience is to guido 
 ■the future, the average, instead of doing this, 
 actually belies and directly contradicts it. Modern 
 economy utterly condemns such computations, and 
 the merest tyro in the science must admit that such 
 condemnation is just. 
 
 If the experience since had borne out that the 11 
 variations Or 15 milHous of issue above bullion could have been 
 been most kcpt lu circulatiou, or even some proportion dmenng 
 within as niuch as 50 per cent., the matter might have 
 turned out as practicable, but the variations since then 
 are of the wildest description, ranging from the nothing 
 (or even an excess of bullion over circulation, 1852, 
 1871,) to 15, and even 17 miUions (1857) of fiduciary 
 
 * 1844, 14,000,000; 1856, 14,475,000; 1861, 14,650,000; 
 1866, 15,000,000. 
 
 excessive. 
 
61 
 
 circulation, and exceeding the ranges of 1 to 15 by two 
 millions in either direction. A more flagrant contra- 
 diction of the validity of average could not weU be 
 shown. 
 
 The table on next page gives the returns furnished, 
 in Parliamentary Blue Book, 1857, Bank Acts, Part II. 
 No. 220, page 91, &c., &c. These comprise the 
 Teturns from 1825 to 1843 of circulation and bullion 
 ■on the 28th February and 31st August, each year. 
 
 From 1845 to 1871, these items have been extracted 
 by the writer, and for the sake of greater accuracy, 
 four periods of each year have been selected, viz.: the 
 returns from the end of February and end of August 
 •each year, as given in the weekly Bank accounts (the 
 second and third number for each year) and two items, 
 the lowest and highest fiduciary circulation (the first 
 and fourth number of each year) . The reader may ignore 
 the latter, and adhere to the two former, as correspond- 
 ing with the previous years. 
 
 The. portion of fiduciary circulation has been ex- 
 tracted. In the old returns this is given under the 
 head of " circulation; " in the new Bank Returns, the 
 term " Notes held by the pubhc " is used. Both 
 mean the same thing, and are here given under the head 
 " consequent fiduciary circulation." 
 
 Under the old Act no special reserve was kept, 
 whilst since the limit was established such Reserve 
 appears. But it must be distinctly understood that 
 under the old Act the Bank had full power of issue 
 tantamount to a Reserve, although not expressed in 
 figures. 
 
 This must be borne in mind, for the column headed 
 " consequent fiduciary circulation " is that by which the 
 case must be tested. 
 
62 
 
 The first portion of the table comprises the period 
 from 1824 to 1843, which served for the con;puta- 
 tion of the fiduciary average to be allowed. What 
 that circulation was you will see under the columns of 
 "consequent fiduciary circulation." It rarely fell 
 below 10 millionSj being above 11 millions in most 
 instances. 
 
 Table 4 
 EbtuRKs showing the amount of Total Cieculation of Bank of 
 England Notes, with the amount of Bullion held during the 
 years 182^ to 18^3 — two in each year ; and the years 18Ji5 to 
 1871 — four in each year; fat the respective periods mentioned 
 heforej and the consequent fidtjoiaey cieculation, and the 
 Eeseeyes o/iVotes. 
 
 (£ Sterling in millions and decimals. 00,000 omitted.) 
 From 1824 to 1843. 
 
 Year. 
 
 Circula- 
 tion. 
 
 Bullion. 
 
 Consequent 
 Fiduciary 
 
 Reserve. 
 
 Tear. 
 
 Ciroula- 
 tiou. 
 
 Bullion. 
 
 Oonsec(uent 
 Fiduciary 
 
 Ecserve. 
 
 
 
 Circulation. 
 
 
 
 
 Circulation. 
 
 
 1824 
 
 197 
 
 13-8 
 
 6'9 
 
 
 1834 
 
 19-2 
 
 8-5 
 
 10'7 
 
 5f- 
 
 
 20-1 
 
 11'7 
 
 8'4 
 
 
 18-8 
 
 6-5 
 
 12'3 
 
 
 1825 
 
 20-7 
 
 8'7 
 
 130 
 
 Jsf 
 
 1835 
 
 18-3 
 
 6-2 
 
 lai 
 
 a B to 
 
 ^11 
 
 
 19-3 
 
 3-6 
 
 18'7 
 
 
 17-8 
 
 6-2 
 
 116 
 
 1826 
 
 25-4 
 
 2-4 
 
 230 
 
 1836 
 
 181 
 
 7-8 
 
 ID'S 
 
 
 
 21-5 
 
 6-7 
 
 14'8 
 
 i«& 
 
 
 18-1 
 
 5-2 
 
 12'6 
 
 1827 
 
 21-8 
 
 101 
 
 11'7 
 
 
 1837 
 
 18-2 
 
 40 
 
 162 
 
 H S) C3 
 
 
 22-7 
 
 10-4 
 
 123 
 
 pt 
 
 
 18-7 
 
 6-6 
 
 121 
 
 1828 
 
 21-9 
 
 103 
 
 lie 
 
 hi 
 
 1838 
 
 18'7 
 
 10-5 
 
 82 
 
 Pb 
 
 
 21-3 
 
 10-4 
 
 109 
 
 lis 
 
 
 19-7 
 
 9-5 
 
 102 
 
 "g° 
 
 1829 
 
 19-8 
 
 6-8 
 
 130 
 
 1839 
 
 180 
 
 6-8 
 
 11 2 
 
 ^ij 
 
 
 19-5 
 
 6-7 
 
 12'8 
 
 
 17-8 
 
 2-4 
 
 15'4 
 
 1830 
 
 200 
 
 9'1 
 
 109 
 
 1840 
 
 16'5 
 
 4-3 
 
 122 
 
 
 21-4 
 
 1-1 
 
 10'3 
 
 iVa 
 
 
 16-9 
 
 4-2 
 
 12>7 
 
 ill 
 
 1831 
 
 19-6 
 
 8-2 
 
 11'2 
 
 HI 
 
 1841 
 
 16-4 
 
 4'4 
 
 140 
 
 
 18-5 
 
 6'4 
 
 12.1 
 
 
 17-0 
 
 4-8 
 
 18'7 
 
 1832 
 
 180 
 
 5-2 
 
 12'8 
 
 
 1842 
 
 17'0 
 
 8-3 
 
 10'7 
 
 eI^ 
 
 
 17-9 
 
 7'5 
 
 X04 
 
 ^9i 
 
 
 200 
 
 93 
 
 107 
 
 
 1833 
 
 19-3 
 
 9-5 
 
 9'8 
 
 8g'l 
 
 1843 
 
 20'2 
 
 iri 
 
 91 
 
 vA 
 
 
 19-6 
 
 9-8 
 
 9'8 
 
 Pi? 
 
 
 193 
 
 12-2 
 
 7'a 
 
 sg? 
 
 The second portion of the table now following 
 comprises the period fi?om 1845 to 1873 ; and you will 
 observe that, whereas upon the assumption that the 
 fiduciary issue would continue in the same measure, 
 there ought to be some similarity, so as to show the 
 correctness of the basis adopted \ a glance down the 
 column " consequent fiduciary issue " will show yoU 
 the greatest divergences instead. 
 
63 
 
 Table 4 — continued. From 1845 to 1871; 
 
 Year. 
 
 Circula- 
 tion. 
 
 Bulljou. 
 
 Consequent 
 Fiduciary 
 
 Reserye. 
 
 Year. 
 
 Circula- 
 tion. 
 
 Bullion. 
 
 Consequent 
 Fiduciary 
 
 Efiserve. 
 
 
 
 
 Circulation. 
 
 
 
 
 Circulation. 
 
 
 1845 
 
 20-2 
 
 16'0 
 
 42 
 
 9-8 
 
 1858 
 
 20-3 
 
 16-9 
 
 34 
 
 110 
 
 
 19-7 
 
 14-6 
 
 64 
 
 8-8 
 
 
 197 
 
 18-4 
 
 12 
 
 13-2 
 
 
 21-0 
 
 15-0 
 
 60 
 
 7-9 
 
 1859 
 
 20-3 
 
 19-2 
 
 11 
 
 13-3 
 
 
 22-0 
 
 13-4 
 
 8'6 
 
 8-6 
 
 
 20-2 
 
 190 
 
 12 
 
 13-2 
 
 1846 
 
 21'1 
 
 12-5 
 
 8'5 
 
 5-4 
 
 
 21-5 
 
 15-9 
 
 6-6 
 
 8-8 
 
 
 20-0 
 
 130 
 
 70 
 
 6-9 
 
 
 22-4 
 
 16-3 
 
 61 
 
 8-3 
 
 
 20-4 
 
 15-8 
 
 4'S 
 
 9-4 
 
 1860 
 
 23-4 
 
 13-9 
 
 95 
 
 4-9 
 
 
 200 
 
 15'8 
 
 41 
 
 9-8 
 
 
 20-6 
 
 14-4 
 
 61 
 
 8-3 
 
 1847 
 
 20-6 
 
 13.2 
 
 74 
 
 6-5 
 
 
 21-1 
 
 151 
 
 59 
 
 8-5 
 
 
 19'3 
 
 11-3 
 
 7'9 
 
 60 
 
 
 20-8 
 
 15-5 
 
 5'2 
 
 9-2 
 
 
 18-2 
 
 8-5 
 
 96 
 
 4'3 
 
 1861 
 
 20-4 
 
 107 
 
 97 
 
 4-9 
 
 
 20-3 
 
 7-5 
 
 12'8 
 
 11 
 
 
 19-5 
 
 11-3 
 
 81 
 
 6-3 
 
 1848 
 
 18-5 
 
 11-8 
 
 66 
 
 7-3 
 
 
 197 
 
 12-2 
 
 7.8 
 
 7-1 
 
 
 18-1 
 
 14-1 
 
 40 
 
 9-9 
 
 
 19-4 
 
 147 
 
 47 
 
 9-9 
 
 
 18-1 
 
 12-8 
 
 6'2 
 
 87 
 
 1862 
 
 19-8 
 
 15-6 
 
 4'1 
 
 10-4 
 
 
 16-7 
 
 13-9 
 
 2''r 
 
 11-2 
 
 
 20-0 
 
 14-8 
 
 51 
 
 94 
 
 1849 
 
 19'2 
 
 13-4 
 
 67 
 
 8-2 
 
 
 21-2 
 
 16-8 
 
 4-3 
 
 10-2 
 
 
 18-1 
 
 14-4 
 
 37 
 
 10-2 
 
 
 210 
 
 14-5 
 
 67 
 
 81 
 
 
 18-4 
 
 187 
 
 4'6 
 
 9-3 
 
 1863 
 
 19'5 
 
 141 
 
 5.4 
 
 9-1 
 
 
 17'8 
 
 16'2 
 
 1'5 
 
 12-4 
 
 
 191 
 
 137 
 
 5.3 
 
 92 
 
 1850 
 
 19'0 
 
 16-4 
 
 2'6 
 
 11-4 
 
 
 20-9 
 
 14-4 
 
 6'5 
 
 8-1 
 
 
 18-8 
 
 16-3 
 
 2'S 
 
 11-4 
 
 
 22-0 
 
 13-1 
 
 8'8 
 
 5-8 
 
 
 19'6 
 
 16-1 
 
 8'6 
 
 104 
 
 1864 
 
 20-4 
 
 117 
 
 97 
 
 49 
 
 
 19'4 . 
 
 157- 
 
 4'6 
 
 9-3 
 
 
 19-6 
 
 130 
 
 6'6 
 
 80 
 
 1861 
 
 19'8 
 
 12-6 
 
 7'8 
 
 67 
 
 
 207 
 
 12'2 
 
 85 
 
 61 
 
 
 187 
 
 137 
 
 4'9 
 
 90 
 
 
 19-2 
 
 13-5 
 
 6'6 
 
 8-9 
 
 
 19-7 
 
 137 
 
 69 
 
 80 
 
 1865 
 
 19-5 
 
 14-4 
 
 51 
 
 9-5 
 
 
 18.6 
 
 16-8 
 
 I'S 
 
 121 
 
 
 19-6 
 
 13-7 
 
 6'8 
 
 87 
 
 1852 
 
 20'2 
 
 17-0 
 
 3'2 
 
 107 
 
 
 21-5 
 
 135 
 
 80 
 
 6-6 
 
 
 20-5 
 
 187 
 
 17 
 
 12-2 
 
 
 22-3 
 
 120 
 
 103 
 
 4-3 
 
 
 22-6 
 
 21-1 
 
 1,1 
 
 12>8 
 
 1866 
 
 26-0 
 
 11-4 
 
 14'S 
 
 0-4 
 
 
 21-3 
 
 21-5 
 
 Nil* 
 
 14-2 
 
 
 20-8 
 
 133 
 
 7'6 
 
 7-3 
 
 1853 
 
 21-4 
 
 18-5 
 
 38 
 
 111 
 
 
 23-8 
 
 , 147 
 
 91 
 
 5-8 
 
 
 21'9 
 
 17-6 
 
 4'3 
 
 9>6 
 
 
 221 
 
 177 
 
 44 
 
 10-6 
 
 
 22-7 
 
 16-5 
 
 63 
 
 77 
 
 1867 
 
 23-1 
 
 17-9 
 
 51 
 
 9-8 
 
 
 23-6 
 
 ]4'6 
 
 8'9 
 
 5-0 
 
 
 223 
 
 18-4 
 
 49 
 
 100 
 
 1854 
 
 21'9 
 
 11'8 
 
 loa 
 
 3-9 
 
 
 23-6 
 
 22-3 
 
 13 
 
 13-6 
 
 
 21-6 
 
 15-5 
 
 61 
 
 7'8 
 
 
 23.3 
 
 23-2 
 
 O'l 
 
 14-9 
 
 
 200 
 
 12-9 
 
 7'1 
 
 6-8 
 
 1868 
 
 23.6 
 
 ^1-6 
 
 20 
 
 13-0 
 
 
 19'0 
 
 13'4 
 
 6'6 
 
 8-3 
 
 
 23.1 
 
 20-1 
 
 2'9 
 
 120 
 
 1855 
 
 19'5 
 
 17'4 
 
 21 
 
 ir8 
 
 
 23-9 
 
 196 
 
 4'3 
 
 10-6 
 
 
 190 
 
 12-3 
 
 67 
 
 7-3 
 
 
 23-6 
 
 170 
 
 6'6 
 
 8-5 
 
 
 200 
 
 14'9 
 
 6'1 
 
 8'8 
 
 1869 
 
 240 
 
 15-5 
 
 64 
 
 6-5 
 
 
 240 
 
 10-6 
 
 97 
 
 4-2 
 
 
 227 
 
 17a 
 
 6'6 
 
 8-3 
 
 1866 
 
 19-5 
 
 12-4 
 
 70 
 
 7-3 
 
 
 23-2 
 
 20-0 
 
 32 
 
 117 
 
 
 18-5 
 
 9'-9 
 
 8'6 
 
 5-8 
 
 
 23-5 
 
 19-9 
 
 36 
 
 11'3 
 
 
 20'1 
 
 117 
 
 84. 
 
 60 
 
 1870 
 
 2-1-4 
 
 17-9 
 
 64 
 
 8-5 
 
 
 19-9 
 
 90 
 
 U'S 
 
 3'6 
 
 
 22'2 
 
 18-9 
 
 S'3 
 
 11'6 
 
 1857 
 
 19'9 
 
 10-9 
 
 90 
 
 5-4 
 
 
 23-3 
 
 197 
 
 64 
 
 8-5 
 
 
 IS'5 
 
 9'6 
 
 8'9 
 
 5-5 
 
 
 22-8 
 
 22-0 
 
 08 
 
 14-1 
 
 
 19-3 
 
 10'8 
 
 8'4 
 
 6'0 
 
 1871 
 
 23-5 
 
 25-6 
 
 Nil J 
 
 17-1 
 
 
 21-4 
 
 60 
 
 15'St 
 
 Nilt 
 
 
 230 
 
 21-1 
 
 1 
 
 130 
 
 1858 
 
 19-6 
 
 127 
 
 69 
 
 7-5 
 
 
 24-8 
 
 24-3 
 
 04 
 
 14-5 
 
 
 19'4 
 
 16'8 
 
 2'6 
 
 11-8 
 
 
 261 
 
 18-8 
 
 7.7 
 
 7'2 
 
 * Excess of £200,000, 
 
 t Extra issue of £2,000,000 
 
 Ij; Excess of £2,196,000, 
 
64 
 
 The table for 1824-43 shows then that from 1826 
 (after the crisis of 1826) to 1842, with Muciary issue 
 varied (with the exception of the crisis of 1837) 
 between 10 to 12 millions — the average being slightly 
 over 11 millions. 
 
 Since then (under the new Act) the variations 
 previous differ by the whole 15 millions — ^and the total average 
 ^^bem™ (computed from the full returns week by week) is 
 des£d. £5,800,000— or little more than one-third of what 
 was contemplated. That the other 9 millions have 
 gone into Reserve has nothing to do with this 
 matter; the old Act had its own reserve power, 
 as already stated. The question here touches only 
 the actual circulation at both periods. Not only 
 then has the average previously assumed at 14 and 15 
 millions not increased, as it was thought capable of 
 with our increased trade, but it has actually decUned 
 to nearly one-third. If the matter were to be con- 
 structed for a new Act, upon the same plan as before 
 adopted, the fixed limit would be only 6 millions. It 
 is evident then that if the public formerly had the 
 benefit of fiduciary issue, whatever such benefit might 
 amount to, it has since had much less of it. 
 
 It might here be said, " if the public has used 
 
 less of these notes than was anticipated, more BulHon 
 
 has been used, and this is a favourable sign !" So it 
 
 Bbif^iSLe would be, provided that the average of 6 millions had 
 
 Sf Msuita"" been maintained, or varied 1 or 2 millions either way 
 
 fouowed. only. But when, as you see, the variations, at their 
 
 extremes ir^ 1857 with 17 millions of fiduciary circula- 
 
 .ion — and in 1871 with no fiduciary circulation — but 
 
 2 millions in excess of Bullion — assume a total range of 
 
 19 millions — you will admit that aU bounds appear to 
 
 be lost, most certainly the bounds of 15 milHons — 
 
 independently of the question of Reserve. And so if 
 
 you glance down the columns of fiduciary issue, since 
 
65 
 
 1845, you will find irregularities of so estreme and 
 irreconcilable a nature tliat you must altogether 
 conceive that the method adopted for fixing the limit 
 of 15 millions was an economical failure of the most 
 flagrant kind — leading to a state of confusion, at the 
 results of which Sir Robert Peel himself would probably 
 stare with astonishment. The arithmetician who, from 
 dates carefully laid down, anticipates a certain, or at 
 all events a fair result, will here admit that there is a 
 fearful mistake somewhere; the serious economist must 
 review such results with terror. Yet there are persons 
 who, to this day, defend that fixed amount as some- 
 thing almost supernaturally clever and wise. Will 
 sensible Englishmen endorse such a " hocus pocus?" 
 
 It would here appear that, at all events, the average 
 of Bullion held is higher than before 1844. This is "^^^f^l 
 true, but at what cost has it been maintained ? How average is 
 
 duo to our 
 
 extravagantly has it varied ! The higher average is due ^^a™'"''' 
 principally to times when Bullion was attracted with 
 too much force, and a state of surplus created, during 
 which the public did not have the advantage in cir- 
 culation of the benefit of even a moderate, perfectly 
 safe share of the issue. During 700 weeks, or one- 
 half of the whole period, from 1845 to 1872, the 
 fiduciary circulation did not exceed one-fourth of the 
 amount allowed. The credit of practically using more 
 Bullion basis is due to the public, which procured 
 the gold, and enabled the Bank to issue notes against it. 
 As far as the Bank is concerned it has itself been 
 unable to increase this Bullion in accordance with j^g^^^ 
 increased commerce, as mentioned on pages 17 and 18. tlflScreS'B* 
 
 , . . tlie Btock of 
 
 The Bank has, indeed, been unable fairly to maintain ^f^^^, 
 the Stock which the public furnished, although it *'°^^' 
 commands the rate of Interest for the maintenance of 
 that Stock. Instead of Bullion, it has held an average 
 of nearly 9 millions of idle notes. The Stock of 
 
66 
 
 idle notes has frequently increased to 12, 13, or 15 
 
 But it has 
 kept laxge 
 
 Reserves of millions, absolutelj useless for the purposes- of the 
 
 circulation, though most efficient in reducing the rate 
 of interest below its natural level. 
 
 THE DEMERITS OF THE RESERVE ARISING 
 FROM THE FIXED ISSUE. 
 
 It may now be said, " If the fixed issue has not 
 The great auswcred the purposes of circulation as originally 
 vofveTta ■ designed, it has been all the more useful in enlarging 
 Bo\nsilZ^ the Reserve of money." Of all the errors under 
 which economists labour, the popular delusions by 
 which a mercantile community is misled, this is 
 probably the most flagrant. The error is so deeply 
 rooted that on all sides the cries are heard — "We 
 do not keep sufficient Reserve ; more is required." 
 One authority says, " The Bank of England ought 
 always to keep 16 or 16 millions of Reserve, and not 
 allow this to decline." In the face of all this wisdom — 
 for in the idea of such Reserve abstinence, moderation, 
 and prudence seem implied — bold indeed must be the 
 man who tells you that all this cry for more Reserve ia 
 fallacious; that the present heavy Reserves are the 
 chief causes which keep bullion out of the market, 
 and bring about the whole mischief. Such a man will 
 at once be accused of " not being a banker, for what 
 is more natural than that every banker, especially the 
 Bank of England, should keep a large Reserve, and 
 without such Reserve where would our trade be?" 
 In order to allay such an accusation, permit me here 
 
 steely'** ^° *®-'^ 7°^^ ^^^* -'■ ^™ ^°^ °^V a-ware of the necessity, 
 
 Sf bl and of all the claims for Reserve, but that I go farther, 
 
 and say that such Reserve must be regular, and in the 
 
 scheme to be submitted to j^ou later on, such a 
 
6f 
 
 Reserve, continually available, of whatever amount it 
 may be deemed advisable, will be provided for, yet in 
 sucb a way that if not absolutely required, it will not 
 unnecessarily influence the rate of interest. Having 
 said this, you mast discharge me of the above suspicion 
 as to not knowing and appreciating the paramount 
 importance of Banking Reserve, and you must wait 
 until you see this appear. 
 
 The question here only concerns the Reserve as 
 arising from the present system, under which we have The 
 
 V •/ J. J ^ question 
 
 formed conclusions and habits that are entirely wrong conoema 
 
 , - . only the 
 
 and contradictory, obscuring the real pomt ; and there ^f;^^™ 
 lies the difficulty of the whole problem. Bearing in '^^l^^ 
 mind then I emphatically repeat, that this is not a 
 question of whether Reserve should be kept ; admitting 
 that Reserve must be kept, I want to impress you with 
 the idea that the Reserve arising or remaining under the 
 fixed issu,e system {the present method) is that which in- 
 volves the error. You must pardon me for insisting so 
 explicitly on this point,. the fallacy under which we seem 
 to labour in regard to this matter cannot be dispelled 
 unless you clearly appreciate what is here indicated. 
 
 I open this matter then by telling you : firstly ^^at^^^ 
 the present fixed limit of 15 millions has the bSura!""^ 
 effect of keeping atvay from this country, or of causing 
 the continihal and spasmodic ivithdrawal of, several 
 millions of bullion which would otherwise remain, if,' 
 instead of a fixed limit of fiduciary issue, we adopted 
 the system of varying that issue in accordance with the 
 demands of circulation and regular reserve. 
 
 Further 
 
 That every million of fiduciary issue, added to the Every 
 present fixed issue, either temporarily or otherwise, is Ske^s 
 tantamount to a million of bullion kept off or withdratvn ^nlonot 
 from the country, 
 
68 
 
 And within the above sentences you may find the 
 solution of the present enigma. 
 Serve is -^^ '^'^^ yeo/TS out of ten {or thereabouts) the 
 
 SiTprMacal 15 millions notes of fixed issue, when added to the 
 
 purposes. 
 
 Bullion m the Bank, a/re too much for our requirements; 
 
 The ci/rculation cannot absorb them ; 
 
 The BanJe cannot use the Reserve of notes for the 
 accommodation of the public, just because the circulation 
 cannot talce it ; 
 
 As a Reserve to protect the Banlc against withdrawals 
 of deposits, it is either too low or too high, independently 
 of the fact that the deposits increase in times of danger 
 instead of diminishvng ; 
 
 Withdrawals of deposits would involve but changes 
 in account, without increasing the currency. 
 
 As Reserve, it is supposed to he useful to the Bank, 
 for the purpose of coveri/n,g imthdrawals of Bullion; 
 whilst — and this i/ndicates the fallacy — it is the main- 
 tenance of the Note Reserve itself which encourages this 
 withd/rawal of Bullion, d/riving it away toith ease, and 
 requiring redoubled efforts and sacrifices to recover it ! 
 
 I am well aware that the assertions made above 
 may appear startling to many, and that, sunk as we 
 are in the mire of misconceptions engendered by the 
 present system, it will take some time before the 
 .truth makes its way. 
 
 To the ordinary reader, who hears of the Money 
 
 Tte.j^j^ Market, of capital, supply or scarcity of money, 
 
 armoley"' buUiou, the stock markets, the clearing-house, and all 
 
 affOTd one the numcrous matters daily taking place, all this seems 
 
 po'Sto.'"^'" a maze ; and when the Bank of England either raises 
 
 the rate of interest to a high pitch, or lowers it to 
 
 as extreme an extent, he is apt to suppose that all 
 
 this is due to natural causes, however grievous may be 
 
 the effects, however loud and continuous the complaints 
 
69 
 
 made as regards the very excessive movements in the 
 value of money. Yet there are one or two simple con- 
 siderations which will open the way into the under- 
 standing of these matters. Beginning with the extreme 
 movements in the Bank rates of interest, by what are 
 they caused ? 
 
 Are they caused by scarcity of current money, i.e. 
 a diminution in the circulation of coin and Bank dueTtf ^ 
 
 ,'-•- -I T-_ t p enormous 
 
 notes arismg from losses, or a sudden demand for ajvergen- 
 
 c ' ciea in tno 
 
 more money ? Popular delusion often ascribes the Surest? 
 mischief to these, though it is a fatal mistake — for 
 the causes do not even exist. The mass of coin and 
 Bank notes in circulation is firmly held ; the Bank is 
 as unable to withdraw several milhons from the 
 circulation as it is unable to cram several millions 
 into it. And in this matter of circulation all is 
 comprised that concerns what is termed " accom- 
 modation " to commerce, for the sums current show 
 what that accommodation amounts to practically. Thayarn 
 
 '■ *' not due 
 
 Thus the Bank of England note circulation, which ^,SSicaA 
 
 T,T IT' T j_ •!_ 1 ' increase of 
 
 overhes the soid com, and corrects its movements, is circulation 
 
 *-^ or actual 
 
 more or less regular, and although capable of gradual money?"™ 
 extension or contraction, does not vary spasmodically 
 within 3 and 4 millions. Those famUiar with the 
 circulation returns will confirm this. In a later 
 chapter I shall submit to you the proof of figures. All 
 other considerations as to events in our own special 
 market and their consequences can be dismissed, for 
 the Bank of England stands aloof from these. Lastly, 
 it must be clearly understood that, as all the world 
 knows, we are never short of money, the amount is The amount 
 
 ' •'of money 
 
 always there, the question merely concerns the rate of "'mains th« 
 interest that is asked for it. The chief., if not the ?Srf " 
 
 interest 
 
 sole cause, of the great divergences in the rate of ^^^f> 
 interest is owing to the mability of the Bank to maintain 
 a due proportion of bullion against the note issue, and 
 
70 
 
 The only 
 causes are 
 the extreme 
 variations 
 in the stock 
 of ballion 
 which the 
 Bank 
 fails in 
 preventing. 
 
 The task 
 and the 
 instru- 
 mental 
 power to 
 perform it. 
 
 The rate of 
 
 interest 
 
 is the . 
 
 automaton 
 
 ajid 
 
 unfailing 
 
 power. 
 
 The Bank is 
 absolutely 
 free in 
 exei'Oising 
 this power. 
 
 the extent of tliia matter will at once be made clear if 
 you bear in mind that bullion has been as low as 6, 
 and as high as 27 millions, within a range of 
 from 22 to 25 millions of circulation. This chief 
 cause is now well recognised as such, so much even 
 that financiers arise who, now and then, not under- 
 standing the question, propose that we should do 
 away with bullion altogether. The reader and the 
 writer are probably agreed upon the point that 
 bullion cannot be set aside, and that the Bank of 
 England must maintain the supply of this material. 
 
 The question of ability or inability to perform a 
 certain task naturally involves the use of instrumental 
 power and its proper application. The task here set to 
 the Bank is that of maintaining a stock of bulhon pro- 
 portionate to a certain amount of bank notes, the instru- 
 mental power by which this is to be done is the rate of 
 interest. If the Bank of England raises the rate of 
 interest, bullion is attracted; if the rate is lowered, 
 bullion is repelled from this country. It must now be 
 distinctly understood that the efficiency of this power 
 is beyond question. Not only does the Bank practise 
 ib, not only has it never failed in its effects, not only is 
 it provable by all that concerns international exchange 
 matters, but it is regarded as that valuable automaton 
 factor, which moderately or ruthlessly used, regulates 
 the supposed automaton action of the issue depart- 
 ment of the Bank of England in a manner superior to 
 all consideration, as the corrective of all real or 
 imaginable faults committed. Thus, when the rate of 
 interest is raised from Z^ or 4-1 per cent, to 7, 8, or 10 
 per cent., bullion always responds to the call. 
 
 Further, it must be distinctly understood that this 
 power of raising and lowering the rate is absolutely 
 and solely at the discretion of the Bank of England, 
 that no outside influence can act directly upon it, the 
 
71 
 
 public being absolutely powerless in determining the 
 rate. No objection on tbe part of the market can deprive 
 the Bank of its right to discount bills, or to state at 
 what rate it is prepared to furnish money against 
 securities. That being so, the Bank holds the posi- TOgSng 
 tion of the steersman, who need but direct the rate ex^S * 
 
 with due 
 
 of interest, so that bullion will be attracted or, at all ^gfa;""'' 
 events, maintained, and the simple mechanical law 
 here involved might, for argument's sake, be compared 
 to Mr. Bessemer's plan of counteracting the effect of 
 the movements of sea-waves by the hydraulic appa- 
 ratus manipulated at the will of the man in charge of 
 it. All and every other consideration can be fully 
 dismissed, for here is a plain natural problem with 
 which common sense can deal. The lamentable Snentawe 
 failure of the Bank, in respect to fixinsf the rate of the Bank in 
 
 'I a this respect, 
 
 interest for this purpose, need scarcely be pointed out. 
 In the midst of seeming quiet, there suddenly arises 
 an export of bullion : up goes the Bank-rate to 8, 9, 
 and 10 per cent. Hardly has this been done, when 
 bullion comes pouring in, not only sufficient, but in 
 excess. Down then goes the rate again, often more 
 rapidly than it had gone up ; excessively cheap interest TheBankis 
 
 , ._ . _ too late in 
 
 prdvails, until, at a certain stage, the game commences J^^'^^s the^ 
 over again. Few people can deny that the move- SwSi^it. 
 ments in bullion at the bank make this impression upon 
 the beholder ; as a matter of fact, the violent ups and 
 downs in the , rate are evidence that it cannot be 
 otherwise. It is undeniable, then, that the Bank of 
 England is alioays too late in raising the rate, and too 
 quick in lowering it. To what must be attributed this ^°g^°t™°a 
 want of adjustment? If it be said that the Bank Sfkf^n' 
 
 -, . - - . . . ^ contingea- 
 
 cannot foresee these things, that this is not in the "i^^- 
 liature of business, you must admit that between 
 extreme ups and downs a margin, on the principle of 
 insurance would fully suffice to absorb differences, 
 
72 
 
 and every prudent business man would provide such 
 a" margin if he felt himself in the dark ; — he avouM 
 secure such margin before going too low, as a set-off 
 for the future. Nor can the blame be laid on the 
 wisdom] of the Directors of the Bank, as is so often 
 done by certain writers. 
 
 The whole and sole cause why the Directors of the 
 Theitiio Bank are unable to poise the rate properly, lies in the 
 
 and useless ■»■ 11./' 
 
 noto7aro* system of Reserve of Banlc notes, which accumulate from 
 cause of the time to time, and which are absolutely useless, for 
 
 impossi- ' i7 ^ 
 
 keop^ *" any purpose whatsoever, save for that of lowering the 
 
 intoreet at . , , 
 
 proper fate of interest so much below its natural level, that 
 
 levels, *^ ' 
 
 the contracts for, and the actual export of bullion 
 itself, are continually going on. And when bullion has 
 thus been contracted for, and reaches a certain delicate 
 level, the effort to recover it must be made with more 
 than double force. With the exception of a moderate 
 portion of it, this Reserve is — 
 
 1st. Useless for the purpose of circulation. 
 
 2nd. Useless for advances to the public, for they 
 are comprised in the circulation. 
 
 Srdly. Useless as Reserve for the safety of the 
 Bank, for withdrawals of deposits from the Bank mean 
 nothing but changes of account from one banking 
 establishment to another, and do not increase the 
 currency. It follows that any sum of note Reserve 
 beyond actual need can perform no other office than 
 that of uselessly and unduly lowering the rate. 
 
 It has frequently happened that the Bank held an 
 Biampie {(jie notc rescrvo of 14 to 15 millions. At such times 
 
 snowing 
 
 pl?Mmt° the amount of bullion is equal to notes in circulation, 
 works. amounting, say, to 26 millions, giving, with the 15 
 millions credit notes, a total issue of 40 millions. The 
 rate of discount then stands, say, at 2 per cent. Now, 
 when by exports of bullion, the stock is reduced from 25 
 millions to 20 millions, the total issue is also reduced 
 
73 
 
 to 36, and the reserve of notes to 9 or 10 millions. 
 The bank then raises the rate of discount to, say, 
 4 per cent., and when bullion falls to 15 or 10 millions, 
 giving but 30 and 25 millions of money respectively, 
 the Bank raises interest very high, in order not only 
 to stop further export of bullion, but also to recover 
 it, for only through bullion can it regain the note 
 Reserve ; the whole action turning so far upon the 
 amount of available issue. That is to say, we find that 
 when the total amount of money in the Issue Depart- 
 ment is at 40 millions, money stands, say, at 2 per 
 cent., when at 35 millions it is, say, 4 per cent., at 30 
 millions 8 or 9 per cent. Now, inasmuch as the cir- 
 culation of, say, 25 millions deducted therefrom, leaves 
 15 or 10 or 5 millions of Reserve, the Bank arranges 
 the rate of interest in accordance with such Reserve. 
 
 That such is the case you need not be told. The 
 sayings, the Bank is strong, because it has a large ^E^^a 
 Reserve, or the Bank is getting weaker, because the Kin""' 
 
 , . , accordance 
 
 Reserve is dimmishmg, are familiar to you. It is called ^o^t^of 
 the •' barometer " of the money market, and when the ™t3 
 
 , . ReBorve. 
 
 barometer is high, at 15 millions, interest is at 2 ; when 
 low, at 5 or 6 millions, interest goes to 9 or 10 per cent. 
 The high, medium, or low state of the barometer, being 
 solely due to either an over supply, or a satisfactory 
 status quo, or an abnormally low and diminishing stock 
 of bullion. 
 
 It may now strike you as singular that when there 
 is Say a stock of 23 or 25 millions of bullion, when the The 
 
 «* ' diminntaon 
 
 Reserve stands at 13 or 15 milHons, we should be so pfadn^ 
 little able to keep that amount of gold ; but you will oftheAied 
 see that when we lower interest to 2 per cent., we 
 actually inviije and encourage its export. You will 
 then say, " why don't we hold interest at 4 or 5 per 
 cent., if these rates will protect it against exportation !" 
 Now this we cannot do, because the Reserve is at 13 
 
74 
 
 or 15 millions, and it consists of full valued legal tender 
 money, created by the Act of 1844, by the mixture of 
 16 millions of fiduciary Bank notes and accidental 
 amounts of bullion. This legal tender money has the 
 same right and might in all that concerns supply and 
 demand ; it is not a mere matter of account, but an 
 absolutely independent money element ; you may even 
 go so far as to say that you do not know whether the 
 large surplus is owing to too much bullion, or to too 
 Will much fiduciary issue. If the authorities at the Bank 
 
 regulate *> 
 
 intereBt,and wcre to toU you that it is too much bullion, you 
 ?e™'ltothe ™ig^^ hang your head, and acknowledge that you 
 bumon.' regretted your imprudence in making any suggestion ; 
 but should you be a clear-headed man, you might say, 
 " Nonsense, let us keep the bullion, and rather diminish 
 the fiduciary issue for the time being." So that if, with 
 a Reserve of 15 millions of notes, interest is at 2 per 
 cent., if, with a reserve of 10 millions, interest would be 
 at 4 per cent., and we think it right, for the protection 
 of bullion, that such a rate should be maintained, let 
 us abolish, or set aside for a time, 5 millions of the notes 
 created by the Act. The Reserve will then be at 10 
 millions, and interest at 4 per cent. You will be ready to 
 admit that certain arrangements with the Government 
 debt can easily be made, in order to suit the cases of 
 such diminution or increase. 
 
 In putting the matter to yoii in this light, I have 
 Thepiaineat uot treated it theoretically or scientifically, nor is the 
 
 intelligence ^ ^ 
 
 therigtoof plf'iJi common sense which you would show in endorsing 
 this matter. ^^^^ ^ Suggestion anything extraordinarily meritorious. 
 Many occasions in daily life compel us to seek for 
 original sources of confusion, and to connect them, and 
 this method of search, from effect to cause, guides the 
 schoolboy in his arithmetical problem, and the cook in 
 the concoction of her pudding. 
 
 The insufficient action of the Bank of England in 
 
75 
 regard to poisina; the rate of interest will now be Thepod 
 
 " J. o /arfo action 
 
 patent to you. It is almost entirely post facto — the present 
 actual forcible absorption by exports of bullion must ^'"'™" 
 precede a rise in the rate before, under the present 
 system, the remedy is used. 
 
 Bid if instead of luaiting for this forcible reduction ^ije^^ ^^ 
 hy exports of bullion, the Bank reduced the total issue theiaauc?- 
 
 , ary issue 
 
 voluntarily, by setting aside 5 millions of the note ^.riffecrof 
 reserve, thus creating beforehand (as far as the money buiu?"^ 
 
 . , , , . in its stead. 
 
 market is dependent on the notes available is con- 
 cerned) precisely the same effect as if 5 millions of 
 bullion had been withdrawn, and making the same 
 moderate rise in the rate of interest at once, would 
 they not retain the 5 millions of bullion ? No one can 
 deny that this is correct, and that under the operation 
 of the effective laws here at work, 5 millions of bullion 
 would be retained in place of the 6 millions of idle 
 note reserve voluntarily withdrawn. 
 
 I have chosen 15 millions of reserve, 25 millions 
 of bullion, and 5 millions of reduction, for the sake of ™u™\®o 
 convenient illustration ; the same principle applies tions°Snd 
 
 ^ ^ states of the 
 
 to whatever other figures or situations that may «"''^i^8'- 
 occur. You will now understand the fatal policy 
 involved in the present system, and you may admit 
 that the economical error involved in the seemingly 
 " prudent " (?) notion of the fixed limit leads to an 
 almost hopeless demoralisation of the groundwork 
 necessary to arrive at true practice. 
 
 You will then begin to appreciate the difficulty 
 under which almost all the writers on the Bank of i^atcrmf ' 
 England are labouring. They cannot get rid of the quentesof 
 
 ° o ./ <=> ^ thisEeserve 
 
 idea that when the Government (which is but the "'"o'^s- 
 nation itself) has created 15 millions of note issue on 
 Government securities, it has done a wonderful thing 
 both as regards the circulation and the Reserve. Mr. 
 Micawber's I U's, at all events, have the advantage 
 
76 
 
 of being harmless instruments ; but tbe fixed issue of 
 the 1 5 milUons of Bank of England notes remains not 
 only intentionally unpayable and practically unpaid, 
 is not only almost useless, but drives away bullion 
 from uSj and finally destroys itself. 
 
 No wonder that with this fallacy, in which 
 So lone aa the maioritv of our Economists appear to be hope- 
 
 thiB fallacy J J if r 
 
 filed fiduoi- lessly entangled, it seems impossible almost to come 
 e3Lto,T to an understanding and to an intelligible solution 
 
 Bettlcment *-' " 
 
 Sbtefau'a of the difficulty. It is this point, then, of the 
 poiio/ia controversy to which I call your attention, as the 
 hidden fault in the whole magnificent machinery of the 
 Bank of England, and there is no hope whatever of 
 any reform until it is recognised that this kind of 
 Reserve is false, and that all the policy founded upon, and 
 all the false cravi/iig for more of it, are but the conse- 
 quence of the deep error involved in the fixed limit of 
 16 millions. The reduction of the fixed issue must 
 have precedence in this question ; without it a solution 
 is impossible. In saying this I again remind you that 
 I am no BuUionist, repudiating all fiduciary issue, 
 advocating, in despair, a mere issue on Bullion alone. 
 ^oipie of On the contrary, I shall show that a fiduciary issue must 
 mnTt'have be made, but I maintain that it must be subservient to 
 
 precedence 
 
 "norease BuUiou, that it must vary, and on the proper system, 
 fiduciary issue of a few millions may at other times 
 reach fifteen or twenty millions with absolute safety 
 — so long as it is accompanied by the compensating 
 action of all the factors concerned. 
 
 On the 2nd July 1873 I ventured to address to the 
 Directors of the Bank the following memorial (pub- 
 lished in the Daily News, 7th July 1873) : — 
 
 To the Honourable Court of Directors of the Bank of England, 
 The undersigned begs most respectfully to submit to the 
 Honourable Court of Directors of the Bank of England the follow- 
 ing remarks on the question of the amendment of the Act of 1844. 
 
tho Bank or 
 England, 
 
 11 
 
 The Chancellor of the Exchequer's proposal, and Sir John Lubbock's Sealed 
 amendment thereto, contemplate an alteration of the limit of ^^Slt\a^ of 
 15 millions in the one-sided direction of extension only. Almost all 
 parties agree as to the extreme danger involved in -this measure. 
 They see in it a disturbance of the principles of prudence which, 
 rightly or wrongly, are involved in the strict limitation established 
 by Sir Robert Peel ! and altogether a violation of the whole Act 
 under which the Bank has hitherto been managed with such con- 
 sideration and conservatism. Permit me, therefore, to point oat to 
 you that this violation of the Act, so repugnant to the sense of 
 caution, can be entirely avoided, for the Act itself contains the 
 provisions necessary for a better adjustment of the issue. In clause 
 2 of the Act, the one on which the system principally rests, there 
 is the following sentence : — " But it shall be lawful for the said 
 Governor and Company to diminish the amount of such securities, 
 and again to increase the same to any sum not exceeding in the 
 whole the sum of £14,000,000 ; and so from time to time as they 
 shall see occasion." This sentence shows that Sir Robert Peel, 
 whilst absolutely debarring increase, left a door open for decrease 
 of the issue. In all probability he contemplated such reduction as 
 applicable to the three millions (now four millions) of " other 
 securities," these being subject to the direct action of the Bank ; 
 whereas the State debt of eleven millions could not be so raised 
 without other preceding arrangements. The 8th clause of the Act 
 provides for the annual payment, or credit, to the State of 
 £180,000 (now £195,000), in lieu of profit on the issue of fourteen 
 millions, without making any reference to the " decrease " of such 
 issue as contemplated in clause 2. Here is the conflict between the 
 two clauses ; and if clause 8 had been amended in conformity with 
 clause 2, you might deem it expedient occasionally to reduce the 
 issue by four millions, for you would thereby effect an annual pro- 
 portionate saving on the total sum now. paid to the State. If 
 consequently, you could now induce the Chancellor of the Exchequer 
 to amend clause 8, and to forego that portion of the annual profit 
 for the State, you might be inclined, from time to time, to lower the 
 issue of 15 millions to 11 millions (notably when your reserve has 
 accumulated to 14 or 15 millions), retaining the right of reissuing 
 the four millions. The point here to be decided is this : — If at any 
 time there are say 20 millions of bullion on hand (or more or less 
 as the case may be), and if it is desirable that such status quo of 
 bullion should be maintained, you will be better able to do so with 
 only 11 millions than 15 millions of note reserve. A denial of 
 this proposition cannot be made, unless it be said that the reserve 
 
78 
 
 is of no value at all, and unless it be declared that 15 millions of reserve 
 have no more influence than eleven or five, or less. It is but 
 necessary that you should continue the measures and policy requisite 
 to uphold the supposed status quo of 20 millions of bullion and 
 eleven millions of reserve, in order to retain four millions of bullion 
 in place of the four millions of notes temporarily withdrawn, when 
 the latter would become a free' and available reserve within the 
 range of the Act. I claim that this proposition as to the upholding 
 of any desirable status quo (i.e., as to the maintenance of a due 
 proportion of bullion) can be submitted to the test of logic and 
 practice. You may be disposed to perceive that if the evident 
 intentions of the Act were thus carried out, you would forestal the 
 necessity of the proposals of the Chancellor of the Exchequer and 
 Sir John Lubbock. These proposals, based upon the experience of 
 1857 and 1866, may contemplate the temporary extra allowance of 
 a couple of millions beyond the 15 millions ; but if you had 
 previously reduced the issue by the four millions, and then defended 
 the status quo based upon the reduced issue of 11 millions 
 (i.e., protected bullion as effectually as you have done hitherto), you 
 would still retain four millions of free reserve standing against 
 crisis — a sum more than sufficient to meet the contingencies hitherto 
 known. No violation of the Act need thus take place. The key of 
 the whole mystery is contained in the simple amendment of clause 
 8 in conformity with clause 2. I venture to call your attention to 
 this point, because it involves a plain practical matter which is easily 
 appreciated, and can be quickly amended. If so amended, our money 
 market would be relieved from occasional " plethora " in favour of 
 future free reserve, and although the range as thus provided by 
 the Act is but four millions, yet it will have the effect of modifying 
 extremes to that proportionate extent. At some future time, when 
 we have made more advance in the appreciation of the real value 
 and use of fiduciary note issues, you might be disposed to take into 
 consideration the system of issue which I have explained at length in 
 recent publications on the subject, the recommendation herein 
 contained being the first step towards the final adoption of such 
 complete system. — I remain, your obedient servant, 
 
 1a Princes Street, 2nd July 1873. Ernest Setd. 
 
 To most economists of real freedom of thought, the 
 hints here conveyed would be suflBcient not only for 
 the purpose of explaining all the unaccountable 
 anomalies under which the Bank and the public have 
 
79 
 been labouring, but for the suggestion of a remedy. flSar"*'''' 
 
 -r~% I 1 given in th© 
 
 But, masmucli as this pubHcation is written also for '■"^j^j^^Sj 
 others, and inasmueh as I can bring forward a series ""^ '""'''• 
 of substantial facts confirming the evil effects of the 
 present system. I propose to lay before you in succes- 
 sion — 
 
 The effect of the 15 millions of fixed issue on the 
 stock of bullion at the Bank of England. 
 
 The evil of the variations in the Bank rate of 
 interest, the international and market rate. 
 
 The circulation of the country, and of Bank of 
 England notes : their connection with requirements of 
 Reserve. 
 
 The influence of the 15 millions of fixed issue on 
 our money market and bankers' Reserves. 
 
 The influence of the 15 millions of fixed issue on 
 speculation and overtrading. 
 
 The direct loss suffered by the Bank of Ecgland 
 itself by the issue. 
 
 And these matters will give me groundwork for the 
 consideration of an amended system of issue in Part II. 
 of this book. 
 
 THE EFFECT OF THE 15 MILLIONS OF 
 FIXED ISSUE ON BULLION AND THE 
 INTERNATIONAL EXCHANGES. 
 
 In the previous chapter we have ascertained that 
 the inability of the Bank of England to maintain a fair "^^1^.' 
 status quo of bullion is due to the low rate of interest ?icSgeas 
 
 -^ connected 
 
 induced by the heavy reserve of idle notes, and I have ^'^^J^f 
 stated that the undue export of bullion is the natural S'preof. 
 consequence. Few people unacquainted with the laws 
 of international exchanges can understand " why that 
 should be so." An explanation of the operation of 
 t]aese laws will, therefore, be useful, and will reveal 
 
80 
 
 the cause why the rebounds from extremely low to 
 extremely high rates of interest must take place. 
 
 But before I enter upon this matter, it is expedient 
 aiiegltiotiB that certain other allegations should be disposed of 
 
 as to the , _ 
 
 Sf"^th- which are falsely put forward in order to account for 
 
 of MUoii. these extraordinary movements. 
 
 It is frequently said — " We are the principal 
 holders of Gold, through the Stock at the Bank of 
 England. All other nations come to the Bank of 
 
 d^^sM?** England for gold, and this establishment must defend 
 
 come to the _. 
 
 iS^todfor i^^self by rates of interest." This is a great error. It 
 
 ^°'*' is quite true that our market has the greatest transit 
 
 of gold, but that is quite another matter; for the 
 
 Bank of England is one of the factors which can 
 
 supply itself from the stream of gold in our market just 
 
 like everybody else can do who bids for it, its stock being 
 
 SS^kSli"" ^^^ ^ moderate one comparatively. In the foot note 
 
 bS of ° which I have herewith annexed, the exports and imports 
 
 England ' ^ '■ 
 
 asweuas gf ggj^ pf England and France are given, and you can 
 form some opinion as to the relative importance of the 
 markets. In this same foot note I also make allusion 
 to the demand for gold in Germany and America, and 
 show the real extent of the dangers to which we are 
 open. The British public is so often and so willingly 
 deceived by extravagant estimates of its own great 
 overwhelming force, or alarmed by statements as to 
 
 other 
 nationB are 
 
 t^Sers ^d its danger, that these figures will be useful in order to 
 
 dealers in *-* ^ 
 
 Sfoo"'nd» show the real and practical limits here involved, and I 
 
 shows. 
 
 give these in the foot note below, so that they may bo 
 referred to separately without breaking the chain of 
 this chapter.* 
 
 * The following is a table of the Exports of Gold and Silver 
 Bullion and Coin, from 1850 to 1872, and of the Imports into the 
 United Kingdom from 1858 to 1872 (the registration of the Imports 
 of bullion at the Custom House commenced only in 1858.) 
 
81 
 
 It is also frequently said, " For^igrlers prey tipdn 
 uSj export sovereigns, and do other dishonest things 
 to cheat us i Bismarck among the rest." This sugges- J^i^e^^j.^ 
 tion as to our wealth and . ability to patronise the foreigners 
 fordiffner may be flatterina; to the ienorant, but it is the <>'« eoid 
 
 CD */ (DO-' coinage is 
 
 most vulgar prejudice imaginable. In the first place, anToL^*'^^ 
 we are far too prudent to part with gold unless we 
 obtain a proper equivalent for it ; secondly, foreigners 
 are not such rogues as we are too often inchned to 
 
 Table 5. 
 
 Impokts and Exports of Bullion and Coin of England, 
 
 from 1850 to 1872 inclusive. 
 
 
 IMPOETB. 
 
 
 EZPOBIB. 
 
 Tear. 
 
 Gold. 
 
 Silver. 
 
 Tear. 
 
 Gold. , 
 
 Silver. 
 
 1850 
 
 
 
 1850 
 
 2,574,568 
 
 4,365,779 
 
 1851 
 
 
 
 1851 
 
 3,975,364 
 
 5,084,187 
 
 1852 
 
 The Imports 
 
 of Bnllion 
 
 1852 
 
 4,325,824 
 
 5,969,640 
 
 1853 
 
 into England 
 
 were not 
 
 1853 
 
 12,751,778 
 
 6,154,975 
 
 1854 
 
 registered before 1858. 
 
 1854 
 
 16,552,845 
 
 6,033,723 
 
 1855 
 
 
 
 1855 
 
 11,847,213 
 
 6,980,965 
 
 1856 
 
 
 
 1856 
 
 12,038,299 
 
 12,813,498 
 
 1857 
 
 
 
 1857 
 
 15,061,500 
 
 18,505,468 
 
 1858 
 
 22,793,126 
 
 6,700,064 
 
 1858 
 
 12,467,040 
 
 7,061,836 
 
 1859 
 
 22,297,698 
 
 14,772,458 
 
 1859 
 
 18,081,139 
 
 17,607,664 
 
 1860 
 
 12,584,684 
 
 10,393,512 
 
 1860 
 
 15,641,578 
 
 9,893,190 
 
 1861 
 
 12,163,937 
 
 6,583,108 
 
 1861 
 
 11,238,372 
 
 9,573,276 
 
 1862 
 
 19,903,704 
 
 11,752,772 
 
 1862 
 
 16,011,963 
 
 13,314,228 
 
 1863 
 
 19,142,665 
 
 10,888,129 
 
 1863 
 
 15,303,279 
 
 11,240,671 
 
 1864 
 
 16,900,951 
 
 10,827,325 
 
 1864 
 
 13,279,739 
 
 9,852,561 
 
 1865 
 
 14,485,570 
 
 6,976,641 
 
 1865 
 
 8,493,332 
 
 6,599,192 
 
 1866 
 
 23,509,641 
 
 10,777,498 
 
 1866 
 
 12,742,059 
 
 8,896,552 
 
 1867 
 
 15,800,159 
 
 8,020,888 
 
 1867 
 
 7,889,030 
 
 6,435,487 
 
 1868 
 
 17,136,177 
 
 7,716,418 
 
 1868 
 
 12,708,308 
 
 7,511,706 
 
 1869 
 
 13,770,812 
 
 6,730,179 
 
 1869 
 
 8,473,699 
 
 7,903,829 
 
 1870 
 
 18,806,728 
 
 10,648,940 
 
 1870 
 
 10,013,521 
 
 8,906,169 
 
 1871 
 
 21,618,924 
 
 16,521,903 
 
 1871 
 
 20,698,275 
 
 13,062,396 
 
 1872 
 
 18,469,442 
 
 11,138,570 
 
 1872 
 
 ] 9,748,916 
 
 10,586,945 
 
 
 £269,384,218 
 
 £150,448,405 
 
 
 £202,950,250 
 
 £148,455,702 
 
 (According to this Table, 67 millions of Gold and 2 millions of 
 Silver were retained in this country. But it is known that at least 
 6 millions of Silver must have remained, and the difference of 3 
 millions is accounted for by the fact that a great deal of Gold shipped 
 from here is declared as Sihier, in order to save freight. Accordingly 
 we must deduct at least 30 millions from the balance of Gold, leaving 
 37 millions since 1858, which corresponds with the increase ia 
 Sovereigns, and the greater use of Gold in Arts and Industry.) 
 
 The table then shows that from 1858 to 1872 no less than 270 
 
 6 
 
82 
 
 assert. And as to the export of sovereigns, supposed 
 to be coined free of cliarge, this involves a fallacy 
 which has long since been disposed of. Not only are 
 sovereigns dearer than bar gold, and are exported only 
 by a few foolish people who do not know better, but, 
 as far as the melting down by foreigners is considered 
 a charge against them, it is rather the other way. 
 Of the masses of foreign coin melted down here in 
 England, American eagles alone amounted to 70 
 
 millions of gold passed by the Bank of England, besides 150 
 millions in silver, whicli served us in lieu of gold for payment to 
 foreign nations. In 1852 the Bank held a stock of bullion of 21 
 millions, in 1857 it fell to 6 millions, in 1871 it reached the highest 
 point of 26 millions, in 1872-3 it fell to 18 millions. Considering 
 no-w that between 1852 to 1872 there Hes the period when the great 
 historical discoveries of gold in California and Australia were 
 developed, doubling the stock of gold in the world, does it not seem 
 strange that the Bank of England should not only have been unable 
 to obtain more bullion, but that out of i^he hundreds of millions 
 passing, it should not have been able to retain at all events the few 
 millions required to keep its stock, once obtained, at a more regular 
 average ? 
 
 But it will be said : " All the world comes to the Banh of Bnglomd 
 for gold. We are so rioh!" &c., &c. Without wishing to dispa,rage 
 our wealth, permit me here to observe that the dry figures and 
 facts are preferable to the bombastic declaration by which the 
 British public is so frequently and willingly misled. The Bank of 
 England stock of bullion has never exceeded 26 millions (this 
 amount ^as reached in 1871 for three weeks), the stock of bullion 
 in the Bank of France in 1870 stood at 62 millions, so that as 
 far as amount is concerned, the latter institution is in advance, 
 and even at this moment, in spite of the great indemnity paid by 
 France, the bullion exceeds 30 millions. The stock at Berlin of 
 bullion is £36 millions, and all these accumulations and stocks are 
 quite as much subject to the operations of the demand by arbitrations 
 of exchanges as the Bank of England stock. Although steamships 
 carry more bullion to us in transitu, and ours is the larger market, 
 yet the foreigners have their fair share, as you will see f roen the ■ 
 following table on the exports and imports of bullion of France. 
 (This table is of value, having been obtained by the writer through 
 
83 
 
 millions sterling from 1860 to 1872 — far in excess of 
 the export of our sovereigns to all other countries ever 
 since sovereigns were coined. 
 
 The great movements in bullion which affect our 
 market seriously are conducted by bankers connected 
 with international trade, and the operations so 
 carried on are in strict accordance with the laws 
 of exchange, which, like a great clearing system, are 
 inexorable and automaton in their action. Any sug- 
 
 the courtesy of the Bank of France, and having never before 
 been published.) 
 
 Table 6. 
 
 Impoets and Expoets of Bullion and Coin of France, from 
 
 1860 to 1872 inclusive. 
 
 The great 
 interna- 
 tional 
 movements 
 of bullion 
 rest upon 
 the purest 
 basis of 
 arithme- 
 tical truths. 
 
 
 iMrOBTB. 
 
 
 
 £X?0IITS. 
 
 
 Year. 
 
 Gold. 
 
 Silver. 
 
 Tear. 
 
 Gold. 
 
 Silver. 
 
 1850 
 
 2,511,429 
 
 6,231,882 
 
 1850 
 
 1,848,339 
 
 3,300,913 
 
 1851 
 
 4,660,108 
 
 7,155,453 
 
 1851 
 
 1,284,067 
 
 4,117,669 
 
 1852 
 
 2,407,049 
 
 7,207,830 
 
 1852 
 
 1,710,093 
 
 7,841,190 
 
 1853 
 
 13,485,976 
 
 ■4,523,317 
 
 1853 
 
 1,195,183 
 
 9,248,646 
 
 1854 
 
 20,250,529 
 
 4,002,402 
 
 1854 
 
 2,585,474 
 
 10,723,179 
 
 1855 
 
 15,920,920 
 
 4,957,282 
 
 1855 
 
 6,449,778 
 
 12,898,447 
 
 1856 
 
 19,814,980 
 
 4,397.912 
 
 1856 
 
 3,555,987 
 
 16,134,537 
 
 1857 
 
 23,478,808 
 
 8,964,089 
 
 1857 
 
 4,876,607 
 
 18,742,424 
 
 1858 
 
 22,758,471 
 
 6,422,664 
 
 1858 
 
 8,686,288 
 
 7,338,397 
 
 1859 
 
 80,063,372 
 
 8,385,505 
 
 1859 
 
 7,440,954 
 
 15,884,088 
 
 1860 
 
 19,451,436 
 
 5,219,580 
 
 1860 
 
 6,391,413 
 
 11,976,138 
 
 1861 
 
 9,720,937 
 
 6,889,441 
 
 1861 
 
 10,794,520 
 
 9,582,607 
 
 1862 
 
 12,571,922 
 
 5,293,935 
 
 1862 
 
 9,513,646 
 
 9,077,153 
 
 1863 
 
 14,916,225 
 
 6,484,767 
 
 1863 
 
 14,451,327 
 
 9,581,349 
 
 1864 
 
 18,737,513 
 
 10,853,336 
 
 18G4 
 
 13,526,854 
 
 12,814,405 
 
 1865 
 
 16,925,842 
 
 9,721,780 
 
 1865 
 
 10,828,112 
 
 6,84,5,414 
 
 1866 
 
 32,206,817 
 
 9,902,050 
 
 1866 
 
 12,476,099 
 
 8,120,442 
 
 1867 
 
 28,507,819 
 
 10,077,056 
 
 1867 
 
 6,663,112 
 
 2,563,403 
 
 1868 
 
 19,540,436 
 
 7,645,057 
 
 1868 
 
 11,110,862 
 
 3,317,777 
 
 1869 
 
 18,002,024 
 
 7,635,464 
 
 1869 
 
 7,138,387 
 
 3,223,087 
 
 1870 
 
 12,289,507 
 
 4,199,177 
 
 1870 
 
 7,546,786 
 
 2,794,704 
 
 1871 
 
 5,357,168 
 
 5,971,620 
 
 1871 
 
 13,601,406 
 
 7,340,088 
 
 1872 
 
 5,181,372 
 
 9,903,878 
 
 1872 
 
 7,234,730 
 
 5,260,987 
 
 £3 63,330,610 157,044,977 
 
 £165,859,984 £198,227,044 
 
 Accordingly France retained 200 millions in Gold, but exported 
 40 millions in . Silver (to. India) . - This fully agrees with the 
 anticipations formed. 
 
 You will perceive that the amounts here represented as passing 
 in and out of France render that country quite as important a 
 market for bullion as England. The following table gives the 
 imports and exports between England and France of Gold, showing 
 
84' 
 
 gestion that speculation in gold can be conducted in 
 countries where it is the legal tender money is per- 
 fectly absurd, for speculation requires advances of 
 money, and you cannot advance money on money with 
 profit. The value of gold can be ascertained exactly 
 to half a farthing in a lump of £1000; no hocus 
 pocus is possible in this respect, and persons only tho- 
 roughly ignorant of the unfailing laws of arithmetic, 
 or the pure, logical, and refined operation of interna- 
 
 that out of the 363 millions of Gold imported by France, 143 
 millions came from England. 
 
 Table 7. 
 Gold Exports and Imports between England and Feancb. 
 
 v<,„. Imported from 
 ^^^ France. 
 
 Teax 
 
 imported from 
 France. 
 
 Year 
 
 ilzported to 
 France. 
 
 Year 
 
 Exported to 
 France. 
 
 
 B.fd. 
 
 £4,436,217 
 
 
 
 B.fd. 
 
 £89,198,877 
 
 1850 
 
 1862 
 
 91,980 
 
 1850 
 
 1,367,864. 
 
 1862 
 
 6,356,200 
 
 1851 S'Sfloo 
 
 1863 
 
 187,546 
 
 1851 
 
 1,211,191 
 
 1863 
 
 3,502,829 
 
 1852 g|,§| 
 
 1864 
 
 573,913 
 
 1852 
 
 685,639 
 
 1864 
 
 7,775,111 
 
 1S53 .^.-S-IS 
 
 1865 
 
 307,765 
 
 1853 
 
 5,327,993 
 
 1865 
 
 4,263,288 
 
 1854 ^^^S 
 
 1866 
 
 2,843,356 
 
 1851 
 
 13,388,293 
 
 1866 
 
 8,465,243 
 
 1855 g.i"<2 
 
 1867 
 
 387,319 
 
 1855 
 
 9,865,459 
 
 1867 
 
 6,034,340 
 
 1856 Boa^ 
 
 1868 
 
 280,170 
 
 1856 
 
 9,657,145 
 
 1868 
 
 7,189,646 
 
 1857 
 
 1869 
 
 695,851 
 
 1857 
 
 10,863,818 
 
 1869 
 
 4,191,430 
 
 1858 654,001 
 
 1870 
 
 315,767 
 
 1858 
 
 10,530,095 
 
 1870 
 
 8,505,44S 
 
 1859 936,546 
 
 1871 
 
 3,708,203 
 
 1859 
 
 14,902,467 
 
 1871 
 
 1,569,171 
 
 18«0 341,177 
 
 1872 
 
 2,116,557 
 
 1860 
 
 10,400,604 
 
 1872 
 
 1,040,448 
 
 1861 2,504,493 
 
 
 
 1861 
 C.fd. 
 
 998,304 
 
 i 
 
 
 cm. £4,436,217 
 
 £15,944,644 
 
 £89,198,877 
 
 n43,095.029 
 
 This Table is useful also in order to show the effects of the lat& 
 war indemnity paid to Germany on the Bullion question in England. 
 For whereas the French from 1850 to 1870 took Gold from us at the 
 rate of , 7 millions per annum, they re-imported to us in 1871 and 
 1872 (deducting export) 3| millions, and from 1870 to the present 
 time the stream was directed to Germany, as appears from thft 
 following : — 
 
 The export of England to the Hanse Towns from 
 
 1858 to 1870, was only £3,700,000 
 
 Or per annum 800,000 
 
 During the war 1870 180,000 
 
 1871 8,480,000 
 
 1872 8,050,000 
 
 And during 1873 it may amount to about - - 10,000,000 
 
 A ieyf extra sums may have gone "by way of " other countries," 
 
 btit the substance of the statement is this — that whereas we used t» 
 
■85 
 
 tional exchange matters can have the impudence to 
 make assertions as to the possibility of unfair 
 deaUngs in bullion. The transfer of bullion from this '^1^^^"° 
 country to another takes place in accordance with the the rS^" rf 
 
 exchange, 
 
 balances of trade indicated by the rates of exchange 
 in our favour or against us. From certain countries 
 they are permanently in our fayour, notably those which 
 are international debtors to us and other nations, and 
 who, by additional state loans, only now and then, for 
 
 Bend Gold to France, we now send it to Germany ; our own position, 
 as far as tMs settlement is concerned, is not much altered. It is 
 ■worth while to bear this in mind, in view of the extreme alarm 
 raised that the Bank of England must furnish the Germans with 
 Gold exclusively from its own store. 
 
 It is further said that when France resumes specie payments, 
 she will drain gold from the Bank of England. In the first place 
 France can well afford to maintain a larger fiduciary issue, and if 
 the present 90 millions of such notes are reduced by 50 millions of 
 bullion, within 8 or 10 years, she will do well. In the second place, 
 the Germans do not take the 200 millions in gold, a large portion 
 will be invested in securities and transferred in commodities. The 
 world's supply of 16 millions of gold per annum will be sufficient to 
 enable France to resume specie payments (for there are yet 120 
 millions of gold in France), and to square Germany also, and if we 
 continue to supply 7 or 8 millions of gold per annum, for our part, 
 not from the Bank, but from the usual arrivals in our market, we 
 do nothing more than what we have done from 1850 to 1870. 
 
 It is again said that America will resume gold payments, and 
 that much gold will be required from the Bank of England for this 
 purpose. Here the question of balance of trade arises, for unless 
 the United States turn the balance of trade in their favour, they 
 cannot obtain an ounce of gold from us. In order to afford you 
 some points for judging of the probability of this event, you 
 will find that the United States, from 1850 to 1870, imported £11 
 millions of gold from us, and exported £89 millions ; further, that 
 they exported to Europe about 800 million dollars, or £180 millions 
 of their debt, receiving besides, say £40 millions capital for rail- 
 ways. Further that emigration to them is valued at £6 millions 
 per annum in cash imported, or about £184 millions for the 23 
 years, besides which their mines of gold produced £7 miUiona per 
 
86 
 
 a short term, turn the Exchange the other way. 
 Austria, Italy, Turkey, and, South American Repubhcs 
 belong to this category. Australia is not interna- 
 tionally indebted, but its gold production ' must be 
 exported. The United States of America are large 
 exporters of gold to us ; but now and then, by a short 
 spasm, they turn the Exchange in their favour. 
 France, Germany, Belgium, and Holland, hold almost 
 equal rank with us in international financial independ- 
 ence, and up to 1870 our exports of gold to France 
 
 annum, and from the silver mines no less than £24 millions were 
 sent here since 1850. Bear now in mind that the United States 
 have immense ^iches in produce, cotton, com, &c., which hy them- 
 selves ought to be sufficient to balance trade, and then reckon up 
 the above sums exported to us as extra settlement of the balance of 
 trade against them, viz. : — 
 
 From 1850 to 1872 balance of gold exports - - £78 millions. 
 „ „ Exports of U. S. Loan to 
 
 Europe - - - - 180 „ 
 „ „ Capital for Railways, &o. - 40 „ 
 
 „ „ Imports of Cash by emigration 84 ,, 
 
 Gold produce of California ores, 
 is included in the above Ex- 
 ports 
 „ „ Silver produce ... 24 „ 
 
 £406 „ 
 
 Or nearly £20 millions per annum Used Up, by an equivalent of 
 imports of commodities and luxuries, by the people of the United 
 States; squandered in wild, reckless social extravagance. If now you 
 bear in mind that the debt thus incurred to Europe adds its annual 
 weight of dividends in our favour, without calculating on the con- 
 tingenoies that the capital of the debt held in Europe must be 
 repaid, you can estimate what social changes, what reforms in 
 political and personal economy must take place before the United 
 States people can recover their balance of trade, and so as to become 
 a permanent claimant for gold bullion. The present and the rising 
 generations must die before such a change in the morality and 
 economy of a nation can be expected, or dire misfortune and 
 bankruptcy must crumble the whole edifice to pieces, The French 
 
87 
 
 were very large (see foot note p 84) ; they have since 
 changed their course to Germany. 
 
 The mere turning of the Exchange in favour of one 
 country does not immediately bring about actual 
 bullion shipments. These' take place only when the ^ns'™" 
 so-called arbitrations of Exchange have exhausted precede 
 their effect. In order to explain this, you must o'^'^o"- 
 imagine, say, England indebted to France, Erance 
 indebted to Holland, and Holland indebted to Eng- 
 land. Instead of making three shipments of bullion, 
 the account is settled by England remitting her Dutch 
 bills to France, the margins in the prices of exchange 
 at each Bourse making this profitable, and the prin- 
 ciple here brought into operation is that the status 
 quo of bullion in each country remains undisturbed, 
 kept free even ffom the demands of discount. This 
 magnificent clearing system, when finally it resolves 
 itself into bulUon shipments for unsettled balances, 
 is often misunderstood by ignorant local financiers, 
 who fancy that the bullion merchant "is a mischievous 
 man." In reality this business is conducted on the 
 most refined and infinitesimal differences ; it involves 
 profits of from i-q^Ii ^o so^^ P^^ cent,, or £100 to £20 
 
 are a people of a muoh higher sense of national as well as personal 
 economy, and will recover the balance of trade in a much shorter 
 time, gradually increasing their metallic means oat of what becomes 
 naturally available. 
 
 I make the above remarks so as to enable you to estimate the 
 alarm sounded by many of our economists in reference to these 
 matters at its proper value. We have nothing to fear from these 
 probabilities, but what we can guard against easily. I admit how- 
 ever, that the question of demonetisation of silver throughout Europe, 
 will tend to make money dear, and that the Bank of England has 
 done well in holding interest higher generally. It wiU do well in 
 continuing to uphold an average rate sufficiently high, the best 
 remedy for which would be the reduction (temporary) of the fixed 
 fidiioiary issue of 15 millions, which now competes with bullion. 
 
88 
 
 Their 
 
 refinement <^^ transactioiis of £100,000 ; wHereas, the shipments of 
 
 and 
 
 delicacy buUioii -would cost, in charges alone, ten times as much. 
 
 M the 
 
 greaent _^^^ nowra-dajs, with telegraphic communications, 
 with the number of competitors, this business has 
 become so delicate and instantaneous, that ordinary 
 contingencies in the European balances of trade are 
 thus frequently cleared by telegraphic orders in the 
 forenoon of a day. 
 
 I show the extreme delicacy of this arbitration of 
 exchange, in order now to make you perceive the 
 The action importauco of the rate of interest in regard to 
 iIrega?d'to infinitesimal differences, for next to the balances of 
 trade, the value of money or interest guides the busi- 
 ness of transmission of bullion. The rate of interest 
 in one country may be lower than in another, for the 
 real sohd reason that the industry and commerce of the 
 one has accumulated more money than it can use. In 
 that case, the surplus goes away in return for plaims on 
 the other country and for valuable equivalents. That is 
 f ^[■equently our case, and we accordingly invest the sur-p 
 plus of our wealth- in foreign securities. But, and 
 this must now be clearly borne in mind, when these 
 ipvestnaents are completed (and their completion by 
 The regular arbitration of exchanges and the stock markets, is often 
 ict&not^ the question of a day), the balance of trade is aqain re- 
 
 traeratesof ^ "' ^ . . "^ " 
 
 interest. stoTed, SO that for the time being, as far as the supply 
 of solid money itself is concerned, we stand again on a 
 level with others. This thoroughly legitimate opera- 
 tion of the rate of interest concerns the questions of 
 valuation, prices, and general international financial 
 relationship, as a matter totally distinct in principle 
 and practice from the violent spasmodic movements in 
 our Bank rates. 
 
 These spasmodic rates of interest are created by 
 over supplies of money through artificial means, such 
 as arise in our case with the fixed issue of 15 million^, 
 
89 
 
 It is immaterial wiietlier the surplus is due to too much '^^^^^ of 
 Bullion (as the admirers of the system allege), or to too ofinter^t? 
 much credit issue, so long as the surplus does exist, re- 
 lieved only by excessive scarcity as the best proof of its 
 frequent existence. Such artificial surplus, entirely 
 useless for foreign, if not for all kinds of business, 
 must necessarily bring about very low rates of interest, 
 such as we experience in England. 
 
 The absolute force of the rate of interest enables 
 us to attract bullion whenever we require it ; its action ^^j^^ium 
 is just as absolute when France, Germany, and other e9tabiifh*a 
 
 , - rato. 
 
 states raise the rate, and we, on our part, lose 
 bullion when we lower the rate below others in just 
 as an automaton and certain a manner, independently 
 of the balance of trade. Imagine that the rate of 
 exchange for the time being, between England and 
 France, is at par, indicating that neither country owes 
 money to the other, interest in both countries being 
 at, say, 4 per cent. Now, if we in England lower the 
 rate to 2 per cent., the 2 per cent, difference on the 
 three months' bill on us will give a profit of ■§■ per 
 cent. ; the Frenchman then offers the bill in his 
 market, and the short par of exchange settles with a 
 clear difference of ^ per cent, against us. The more ^gtaions 
 immediate effect of the change then concerns our dis- anundSiy 
 
 ^ low rate of 
 
 count market. The Frenchman, able to discount "^terest. 
 home bUls or foreign bills, except ours, at 4 per cent., 
 sends the English bill to London, obtaining money 
 for it at 2 per cent. ; the English holder of French 
 bills also takes up money here in order to hold French 
 and foreign bills at 4 per cent.; thus our discount 
 market suddenly has a double demand upon it. All 
 this can take place, as you see, whilst the balance of 
 trade remains at par — to the disturbance of our money 
 market — untU, at a certain stage of balance of trade, 
 , the J per cent, profit is amply sufficient to lead to the 
 
90 
 
 rfbSn'' exportation of many millions of bullion. And, inas- 
 of the muct as bills of three or six months can be renewed, 
 
 balance of 
 
 trade. ^ serios of engagements can thus be kept hanging over 
 our market which may burst upon us at any time. 
 Accordingly it happens frequently that for many 
 months our market remains with low interest, lulling 
 us into false security, until the cloud breaks and bullion 
 suddenly flows away. 
 
 Up then goes our rate to an alarming extent, stage 
 TOMequent ^7 ^tago, untU a maximum is reached, suflB.cient to 
 forlffin turn the exchanges not only back to par, but much 
 risS^onr °^^^ ^^^ V^^' ^^ Order to bring bullion back to us — 
 '***■ efforts, which foreign Banks partly counteract by cor- 
 
 responding temporary heightening of their own rates. 
 That these movements in our rates of interest are 
 so spasmodic, and altogether distinct from any effects 
 which our gradually accumulating wealth can possibly 
 have, is proven by their great frequency and their 
 excessive ranges, and also by the fact that during 
 certain months we aUow bulhon to leave our market, 
 until within a few weeks afterwards we are compelled 
 The to make efforts to get it back again. That this 
 
 extreme 
 
 MqS^edfor drivlug away and drawing back bullion increases 
 fluot^ttfns the great divergences immeasurably, beyond the 
 estremes. efforts required merely to maintain a reasonable 
 status quo, you will see at once. It pits one extreme 
 against another. First, bulUon is sent away by the 
 low rate of interest, but before it can leave, the 
 exchanges must be forced down, so that freight and 
 charges are covered. "When, having settled to that stage, 
 we require it back, the exchanges must not only be 
 restored, but the charges for reshipment must be 
 overcome as well. This can only be done by corres- 
 pondingly extravagant rates of interest which are 
 rendered higher still by the resisting continental rates. 
 And so, in the endeavour to regulate its stock of 
 
moderate 
 
 91 
 
 bullion, the Bank of England rates of interest range ^^« 
 from 2 to 10 per cent, without such regulation being te^^ea for 
 
 the main- 
 
 properly effected, whereas, for the purpose of main- ^^^"^^^"^ 
 taining merely a status quo (once reached and satis- 
 factory) a moderate range of from 3-| to 6^ per cent., or 
 from 4 to 6 per cent., or probably less, would suffice. 
 What I have explained to you so far concerns only the 
 international and bullion aspect of the matter, apart 
 from any other effect on our own local interests. As 
 regards bullion, the 16 millions of fixed credit issue do 
 not only cause the violent fluctuations in interest, but 
 they exercise a permanent prejudice against bulhon. 
 It is a one-sided thing — a positive without a negative, The breaks 
 and logicians will understand what this means. Hence pomeMia 
 we have been unable in this country to maintain an noteissS. 
 amount of bullion at the Bank adequate to our larger 
 trade, and the benefit of the Bank of England note itself 
 has been restricted, because, besides the permanent 
 pressure against it, the chain of progress (as regards 
 bullion) has been so frequently and ruthlessly broken. 
 
 THE INTERNATIONAL RATE OF INTEREST, 
 THE MARKET RATE, AND THE BANK 
 RATE. 
 
 Variations in the rates of interest are not only 
 unavoidable, but they are positively necessary for the variations 
 adjustment of the proportions arising between supply m^S^toiub 
 and value of money, and supply and prices of com- ° °"'°*''^" 
 modities. The supply of the precious metals— which, 
 when all considerations as to paper money, cheques, 
 and clearing systems are duly appreciated, constitute 
 the real basis of value— is a matter of universal or 
 international importance. It is immaterial whether instancing 
 
 ■*■ the supply 
 
 f precious 
 letals since 
 1818. 
 
 this supply arises, in the first instance, in California, mSs 
 Australia, oi' elsewhere; or whether it subsequently 
 
92 
 
 tThe effect 
 on 
 
 increased 
 production. 
 
 The counter 
 effect of 
 increased 
 production. 
 
 The 
 
 changes 
 in the 
 valuation. 
 
 finds its way to specific channels or is generally dis- 
 tributed, the first efiect of the supply is a lowering of 
 the rate of interest all over the world. This was the 
 case manifestly when, as in 1860 to 1863, consequent 
 upon the Oalifornian and Australian gold discoveries, 
 interest ruled low almost in all countries. 
 
 The stimulus given by prices to production — if 
 Custom House statistics are a guide"-ha3 three-folded 
 the latter ; and this is all the more remarkable, 
 because the total addition to the stock of current 
 metallic money in the world — estimated at 900 millions 
 sterling (viz., 650 millions of silver and 360 millions of 
 gold) in 1848 — has been increased by 400 millions of 
 gold only, to the present total of 1,300 millions : an 
 increase of only 45 per cent, being accompanied by an 
 increase of trade of 300 per cent. Now, when the level 
 of production has thus risen or distanced the supply of 
 money, a disproportion of numbers arises in the other 
 direction, and money must become dearer, as it has 
 done since. There is yet another distinct cause 
 influencing the international rate — that of the change 
 in the systems of valuation. The demonetisation of 
 silver, which England commenced in 1816, which 
 Germany is about to introduce, so that all European, 
 nations must foUow their example, threatens an 
 enforced decline in the value of that metal, under 
 which its use as money cannot be continued, even 
 on the token system ; and if some international agree- 
 ment as to the maintenance of silver as money is 
 not arrived at, the stock of metalho money in the 
 world may be reduced by 400 to 500 millions.* Prices 
 
 * Tke gravity of this matter cannot be overrated. It forms 
 the substance of the controversy between " the single gold " and 
 the " double," or " gold and silver " valuation, in which we in 
 England appear to have less interest than other nations, and have 
 not much considered the point. Our interests, however, are so 
 
93 
 
 and production must therefore decline, to suit tlie 
 numerical stock of gold remaining, and interest rule 
 high until the adjustment is completed. 
 
 It ■will readily be admitted that these variations 
 in the international value of money, as dependent on wiations 
 a certain per centage of fresh supply to the world, or '^^^"^^ 
 on the corresponding slower increase of production, are graduS."" 
 not of a violent spasmodic character. They may at 
 times, as they did in the period of 1850 to 1866, 
 produce strongly visible effects ; but these involve 
 months and years. It is not in their nature that 
 they should, like the rates of the Bank of England, 
 vary from day to day, or week by week, or jump 
 within a period of a few weeks between three and ten 
 per cent. It would accordingly seem reasonable that 
 any country having a share in international commerce 
 should be able to maintain its share of gold by fol- 
 lowing the international rate of interest, as it can be 
 ascertained from time to time by practice of business, 
 or protected by certain conservative margins, and for 
 the latter purpose that country which has the greatest 
 wealth and investments, is placed in the most favour- 
 able position. 
 
 England is that country ; yet nowhere do the 
 rates of interest differ so widely, so spasmodically, ^^^**'°* 
 and so frequently from the international rate than the toe^t™. 
 Bank of England rates ! Our market rate, which is rates and 
 
 ° the Bank of 
 
 determined in the first place by the amount of money miT"^ 
 falling due from expiring contracts, and the amount 
 of fresh contracts offering every day, has to compete 
 
 much bound up with the world at large that any detriment caused 
 in universal trade would strike us indirectly, but possibly with 
 greater effect than we now perceive. Mr. Disraeli, in his speech at 
 Glasgow University, in November 1873, alluded to this matter — a 
 hopeful sign that English statesmen are beginning to understand 
 this gigantic question. 
 
94 
 
 The 
 
 annexed 
 table shows 
 the result. 
 
 ■witli tlie large idle reserves at the Bank ; you may 
 further infer wliy tlie market rate of interest is tlius 
 placed between two combatant elements, in wbicli it. 
 is perfectly powerless to follow the true guide (the 
 international rate), and must bow and succumb to 
 what the Bank of England, proud of its accumulated 
 reserve, may choose to dictate. 
 
 In order to enable you to appreciate this best, I 
 herewith give a table, placing in juxtaposition the 
 rates of interest from 1844 to 1873 of the Bank of 
 England, the Bank of France, the Bank of Prussia, 
 These three States are "internationally" wealthy, and 
 efficient competitors with us in commerce. Belgium 
 and HoUand might also be included, but their influence 
 is not sufficiently jDaramoimt, France and Germany 
 holding the overwhelming competitive power. States 
 like Russia, Italy, Spain, Turkey, the United States, 
 and others, are internationally poor, and continually 
 indebted to us and these four States. They are in a 
 chronic state of dear money, and any bid of higher 
 interest on their part does not only affect us, but also 
 by way of arbitration, the four States placed alongside 
 of England. 
 
 Table 8. — Showing the Variations in the Banh Bates of Interest in 
 Bnglamd, France, and "Prussia, from September 1844 to December 
 1873, inclusive. 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 England, 
 
 France, 
 
 FmsBia, 
 
 England, 
 
 France, 
 
 Prussia, 
 
 1844. 7c 
 
 7o 
 
 7„ 
 
 1857. 7o 7o 
 
 7.. 
 
 7 Sept. 2J 
 
 1 Sept, 4 
 
 1 Sept. 4 
 
 16 Jan. 3i 
 
 l<t Jan. 5 
 
 1 Sept. 4^ 
 
 
 
 16 Oct. 4i 
 
 23 „ 4 
 
 J) 
 
 _ 
 
 
 
 
 10 April 5 
 
 
 
 
 1845. 
 
 
 
 7 Aug. 5| 
 
 J) 
 
 
 > 
 
 18 Oct. 3 
 
 )) 
 
 19 March 4 
 
 11 Sept. 5 
 
 „ 
 
 
 
 8 Nov. 3i 
 
 J) 
 
 9 Oct. 5 
 
 16 Oct. 5i 
 30 „ 8 
 
 
 
 ' 
 
 1846. 
 
 
 
 27 Nov. 7 
 
 
 
 , 
 
 29 Aug. 3 
 
 >j 
 
 2 March 4 
 1 July 5 
 
 4 Dec. 6 
 5 
 
 28 Deo. 4 
 
 
 ' 
 
95 
 
 Table 8. — continued. 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 England. 
 
 France 
 
 , 
 
 Prussia. 
 
 England. 
 
 France 
 
 , 
 
 Prussia. 
 
 1848. 
 
 7o 
 
 
 7o 
 
 
 7o 
 
 1858. 
 
 7c 
 
 
 '°L 
 
 7c 
 
 29 Jan. 
 
 4 
 
 28 Deo. 
 
 4 
 
 27 March 
 
 5 
 
 4 Feb. 
 
 34 
 
 18 Feb. 
 
 4 
 
 6 Feb. 4^ 
 
 17 June 
 
 3i 
 
 
 JJ 
 
 15 July 
 
 44 
 
 11 ., 
 
 3 
 
 10 June 
 
 34 
 
 11 Oct. 5 
 
 4 Nov. 
 
 3 
 
 
 )l 
 
 
 )i 
 
 9 Deo. 
 
 24 
 
 23 Sept. 
 
 3 
 
 X5 „ 4 
 
 1849. 
 
 
 
 
 
 
 1859. 
 
 
 
 
 
 IDeo. 
 
 2i 
 
 
 t) 
 
 20 Feb. 
 
 4 
 
 28 April 
 
 : 4 May 
 
 34 
 
 44 
 
 3 May 
 
 it 
 
 4 
 
 5 May 5 
 
 1850. 
 
 
 
 
 
 
 2 June 
 
 34 
 
 
 » 
 
 „ 
 
 S8 Deo. 
 
 3 
 
 
 if 
 
 
 i) 
 
 9 >■ 
 
 14 July 
 
 3 
 
 24 
 
 4 August 
 
 it 
 34 
 
 18 July 4 
 
 1851. 
 
 
 
 
 
 
 
 
 
 
 
 1 Jan. 
 
 3 
 
 
 " 
 
 
 a 
 
 1860. 
 
 19 Jan. 
 
 3 
 
 
 a 
 
 }j 
 
 1852. 
 
 
 
 
 
 
 31 „ 
 
 4 
 
 
 a 
 
 ]r 
 
 IJan. 
 
 2i 
 
 
 (> 
 
 
 )t 
 
 29 March 
 
 44 
 
 
 a 
 
 jf 
 
 24AprU 
 
 2 
 
 6 March 
 
 3 
 
 
 )> 
 
 12 April 
 10 May 
 
 5 
 
 44 
 
 
 
 » 
 ff 
 
 1853. 
 
 
 
 
 
 
 24 „ 
 
 4 
 
 
 ,, 
 
 it 
 
 9 Jan. 
 
 2i 
 
 
 if 
 
 
 )> 
 
 8 Nov. 
 
 44 
 
 
 »i 
 
 It 
 
 22 ■■ 
 
 3 
 
 
 „ 
 
 . 
 
 » 
 
 13 .„ 
 
 5 
 
 12 Nov. 
 
 44 
 
 i» 
 
 4 June 
 
 3i 
 
 
 „ 
 
 
 J» 
 
 16 „ 
 
 6 
 
 
 a 
 
 II 
 
 3 Sept. 
 
 4 
 
 
 1) 
 
 
 )) 
 
 29 „ 
 
 5 
 
 
 a 
 
 II 
 
 17 ,, 
 
 4i 
 
 
 » 
 
 
 J) 
 
 31 Deo. 
 
 6 
 
 
 „ 
 
 >t 
 
 1 October 
 
 5 
 
 7 October 
 
 4 
 
 JO Sept. 
 
 5 
 
 1861. 
 
 
 
 
 
 1854. 
 
 
 
 
 
 
 7 Jan. 
 
 7 
 
 2 Jan. 
 
 54 
 
 It 
 
 13 Itny 
 
 51 
 
 20 Jan. 
 
 5 
 
 
 „ 
 
 14 Feb. 
 
 8 
 
 8 „ 
 
 7 
 
 tt 
 
 5 August 
 
 5 
 
 12 May 
 
 4 
 
 UMay 
 
 4 
 
 21 March 
 4 April 
 
 7 
 6 
 
 14 March 
 21 ,. 
 
 6 
 
 5 
 
 It 
 
 11 
 
 1855. 
 
 
 
 
 
 
 11 .. 
 
 5 
 
 
 ») 
 
 II 
 
 7 April 
 
 4i 
 
 
 it 
 
 
 )) 
 
 16 May 
 
 6 
 
 
 )) 
 
 II 
 
 6 May 
 
 4 
 
 
 1) 
 
 
 » 
 
 1 August 
 
 5 
 
 
 }) 
 
 II 
 
 16 June 
 
 3is 
 
 
 )) 
 
 
 *» 
 
 15 ,, 
 
 44 
 
 
 »» 
 
 II 
 
 8 Sept. 
 15 „ 
 
 4 
 
 
 »» 
 
 
 JJ 
 
 29 „ 
 
 4 
 
 26 Sept. 
 
 54 
 
 II 
 
 4i 
 
 
 )) 
 
 
 >» 
 
 19 Sept. 
 
 34 
 
 1 October 
 
 6 
 
 II 
 
 29 „ 
 
 5 
 
 4 October 
 
 5 
 
 
 »» 
 
 7 Nov. 
 
 3 
 
 21 Nov. 
 
 5 
 
 II 
 
 6 October 
 
 5i 
 
 11 
 
 6 
 
 6 Nov. 
 
 44 
 
 • 1862. 
 
 
 
 
 
 1856. 
 
 
 
 
 
 
 ■ 9 Jan. 
 
 24 
 
 21 Jan. 
 
 44 
 
 II 
 
 24 May 
 
 6 
 
 lAprU 
 
 5 
 
 7 Jan. 
 
 5 
 
 22 May 
 
 3 
 
 6 Feb. 
 
 4 
 
 )i 
 
 31 „ 
 
 5 
 
 
 » 
 
 6 May 
 
 4 
 
 10 JiUy 
 
 24 
 
 27 March 
 
 34 
 
 1) 
 
 28 June 
 
 44 
 
 
 „ 
 
 
 )* 
 
 24 „ 
 
 2 
 
 
 »» 
 
 II 
 
 4 October 
 
 5 
 
 26 Sept. 
 
 6 
 
 3 Sept. 
 
 5 
 
 30 October 
 
 3 
 
 6 Nov. 
 
 4 
 
 11 
 
 11 
 
 64 
 
 
 9) 
 
 !2 „ 
 
 6 
 
 
 
 
 
 
 15 Nov. 
 
 7 
 
 
 » 
 
 
 J» 
 
 1863. 
 
 
 
 
 
 6 tec. 
 
 64 
 
 
 Jf 
 
 
 )) 
 
 15 Jan. 
 
 4 
 
 15 Jan. 
 
 5 
 
 ji 
 
 20' „ 
 
 6 
 
 
 1} 
 
 
 )} 
 
 29 „ 
 19 Feb. 
 
 5 
 
 4 
 
 12 March 
 
 » 
 
 44 
 
 II 
 
 1857. 
 
 
 
 
 
 
 29 AprU 
 
 34 
 
 26 „ 
 
 4 
 
 
 2 April 
 
 64 
 
 
 JI 
 
 9 March 
 
 5 
 
 6 May 
 
 3 
 
 7 May 
 
 34 
 
 »> 
 
 18 June 
 
 (! 
 
 26 June 
 
 54 
 
 
 )> 
 
 16 „ 
 
 34 
 
 11 June 
 
 4 
 
 II 
 
 16 July 
 
 54 
 
 13 October 
 
 64 
 
 8- August 
 
 54 
 
 21 May 
 
 4 
 
 
 )) 
 
 it 
 
 8 October 
 
 6 
 
 20 
 
 741 
 
 9 Sept. 
 
 6 
 
 : 2 Nov. 
 
 5 
 
 8 Oct. 
 
 5 
 
 3 Nov. 4^ 
 
 12 
 
 7 
 
 10 Nov. 
 
 9 
 
 3 October 
 
 64 
 
 5 „ 
 
 6 
 
 6 Nov. 
 
 6 
 
 II 
 
 19 
 
 8 
 
 26 „ 
 
 8 
 
 
 )) 
 
 2 Dec. 
 
 7 
 
 12 „ 
 
 7 
 
 Ji 
 
 5 Nov. 
 
 9 
 
 6 Dec. 
 
 7 
 
 7 Nov. 
 
 74 
 
 ':3 „ 
 
 8 
 
 
 ^, 
 
 
 9 „ 
 
 10 
 
 17 „ 
 
 6 
 
 
 3} 
 
 21 „ 
 
 7 
 
 
 a 
 
 II 
 
 21 Dec. 
 
 8 
 
 29 „ . 
 
 5 
 
 6 Dec. 
 
 64 
 
 1864. 
 
 
 
 
 
 1858. 
 
 
 
 
 
 
 20 Jan. 
 
 8 
 
 
 » 
 
 ., 
 
 7 .Ian. 
 
 6 
 
 
 )» 
 
 5 Jan. 
 
 54 
 
 11 Feb. 
 
 7 
 
 
 3J 
 
 ij 
 
 14 „ 
 
 5 
 
 
 J, 
 
 10 „ 
 
 5 
 
 25 „ 
 
 6 
 
 
 „ 
 
 91 
 
 28 „ 
 
 4 
 
 6 Feb. 
 
 44 
 
 2 Feb. 
 
 4 
 
 16 April 
 
 7 
 
 24 March 
 
 6 
 
 
96 
 
 TABiiii 8. — eontintied. 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 Bank of 
 
 England, 
 
 France. 
 
 Prussia. 
 
 England, 
 
 France 
 
 
 Fmssia. 
 
 
 7o 
 
 
 °/o 
 
 
 7o 
 
 1870. 
 
 7o 
 
 
 7o 
 
 
 7. 
 
 2 May 
 
 8 
 
 OMay 
 
 7 
 
 3 May 
 
 5 
 
 21 July 
 
 3i 
 
 18 July 
 
 8i 15 Feb. 
 
 4 
 
 6 „ 
 
 9 
 
 9 ,. 
 
 8 
 
 
 J, 
 
 23 „ 
 
 4 
 
 21 „ 
 
 4 
 
 15 July 
 
 6 
 
 19 „ 
 
 8 
 
 20 „ 
 
 7 
 
 
 
 28 „ 
 
 5 
 
 30 „ 
 
 5 
 
 18 „ 
 
 8 
 
 20 „ 
 
 7 
 
 26 „ 
 
 6 
 
 
 
 4 August 
 
 6 
 
 9 August 
 
 6 
 
 
 >i 
 
 16 June 
 
 6 
 
 
 ft 
 
 
 
 11 » 
 
 5i 
 
 
 it 
 
 
 1* 
 
 20 July 
 
 7 
 
 9 Sept. 
 
 7 
 
 
 JI 
 
 18 
 
 4i 
 
 
 it 
 
 19 August 
 
 6 
 
 4 August 
 
 8 
 
 13 October 
 
 8 
 
 
 
 23 
 
 4 
 
 
 „ 
 
 
 
 8 Sept. 
 
 9 
 
 3 Nov. 
 
 7 
 
 8 Sept. 
 
 6 
 
 1 Sept. 
 
 3i 
 
 
 ^^ 
 
 6 Sept 
 
 6 
 
 10 Nov. 
 
 8 
 
 ^1' „ 
 
 6 
 
 6 October 
 
 7 
 
 15 „ 
 
 3 
 
 
 it 
 
 
 
 24 „ 
 
 7 
 
 3 Deo. 
 
 6 
 
 
 J, 
 
 29 „ 
 
 2i 
 
 
 7J 
 
 
 
 16 Deo. 
 
 6 
 
 22 ., 
 
 4i 
 
 6 Dec. 
 
 6 
 
 1871. 
 
 
 
 
 
 
 1865. 
 
 
 
 
 
 
 2 March 
 
 3 
 
 
 
 20 Feb. 
 
 4i 
 
 5i 
 
 5 
 
 4i 
 
 4 
 
 4i 
 
 4 
 
 
 
 
 
 13 April 
 
 2i 
 
 
 
 6 March 
 
 4 
 
 12 Jan. 
 26 „ 
 
 Sitarcli 
 30 „ 
 
 4 May 
 
 9 Feb, 
 9 March 
 
 11 
 
 4 
 3i 
 
 14 Jan. 
 
 15 Feb. 
 
 5 
 
 4 
 
 »> 
 
 15 June 
 13 July 
 21 Sept. 
 27 ,. 
 7 Oct. 
 
 24 
 
 2 
 
 3 
 
 4 
 
 5 
 
 20 July 
 
 Jt 
 
 6 
 tl 
 tl 
 
 
 a 
 it 
 
 it 
 it 
 a 
 
 25 „ 
 
 
 a 
 
 
 » 
 
 16 Nov. 
 
 4 
 
 
 " 
 
 
 
 1 June 
 
 3i 
 3 
 
 1 June 
 
 3 
 
 
 it 
 
 30 „ 
 
 3i 
 
 3 Not. 
 
 6 
 
 
 
 16 „ 
 
 
 j» 
 
 
 'a 
 
 14 Deo. 
 
 3 
 
 
 
 
 
 27 July 
 
 3i 
 
 
 )j 
 
 
 it 
 
 
 
 
 ft 
 
 
 a 
 
 3 August 
 
 4 
 
 
 i> 
 
 
 
 1872. 
 
 
 
 
 
 
 2S Sept. 
 
 4i 
 
 
 „ 
 
 4 Sept. 
 
 5 
 
 4 April 
 
 3i 
 
 4 
 5 
 4 
 
 27 Feb. 
 
 5 
 
 
 
 2 October 
 
 5 
 
 5 October 
 
 4 
 
 3 October 
 
 6 
 
 11 .» 
 
 
 
 
 * 
 
 6 » 
 
 7 „ 
 
 6 
 
 7 
 
 9 
 28 „ 
 
 5 
 
 4 
 
 10 „ 
 
 7 
 
 9 May 
 30 „ 
 
 
 tt 
 
 
 j» 
 a 
 
 23 NOT, 
 
 6 
 
 
 „ 
 
 
 
 13 June 
 
 3i 
 3 
 
 
 " 
 
 
 it 
 
 28 Deo. 
 
 7 
 
 
 „ 
 
 
 » 
 
 20 „ 
 
 
 ft 
 
 
 it 
 
 1866. 
 
 4 Jan. 
 
 8 
 
 4 Jan. 
 
 6 
 
 
 SJ 
 
 18 July 
 18 Sept. 
 26 „ 
 
 3i 
 4 
 
 4i 
 5 
 
 
 a 
 
 16 Sept. 
 
 it 
 
 5 
 
 22 Fel). 
 
 7 
 
 15 Feb. 
 
 4i 
 
 22 Feb. 
 
 6 
 
 3 Oct. 
 
 
 " 
 
 
 it 
 
 15 March 
 
 6 
 
 22 „ 
 
 4 
 
 
 
 10 „ 
 
 6 
 
 7 
 
 
 " 
 
 
 tl 
 
 3 May 
 
 7 
 
 22 March 
 
 3i 
 
 4 May 
 
 7 
 
 9 Not. 
 
 
 " 
 
 
 it 
 
 8 „ 
 
 8 
 
 
 it 
 
 
 J» 
 
 21 „ 
 
 6 
 
 
 }> 
 
 
 It 
 
 11 •> 
 
 9 
 
 11 May 
 
 4 
 
 11 „ 
 
 9 
 
 12 Dec. 
 
 5 
 
 
 it 
 
 
 " 
 
 12 „ 
 
 10 
 
 26 July 
 
 3i 
 
 13 July 
 
 8 
 
 
 
 
 it 
 
 
 If 
 
 16 August 
 
 8 
 
 7 
 
 
 f> 
 
 IS „ 
 
 7 
 
 1873. 
 
 
 
 
 
 
 23 „ 
 
 
 J» 
 
 26 „ 
 
 6 
 
 9 Jaa. 
 
 4i 
 
 
 
 
 
 SO „ 
 
 6 
 
 30 August 
 
 3 
 
 3 August 
 
 5 
 
 23 „ 
 
 4 
 
 
 
 
 
 6 Sept. 
 
 5 
 
 
 J» 
 
 
 ») 
 
 30 „ 
 
 «i 
 
 
 a 
 
 20 Jan. 
 
 4i 
 
 27 „ 
 
 4i 
 
 
 *> 
 
 29 October 
 
 4i 
 
 26 March 
 
 4 
 
 
 It 
 
 7 Feb. 
 
 4 
 
 8 Nov. 
 
 4 
 
 
 JJ 
 
 
 )) 
 
 7 May 
 
 4^ 
 
 
 fi 
 
 1 April 
 
 5 
 
 20 Deo. 
 
 3i 
 
 
 " 
 
 13 Pee. 
 
 4 
 
 10 „ 
 17 „ 
 
 5 
 6 
 
 
 it 
 
 3 May 
 
 6 
 
 1867. 
 
 
 
 
 
 
 4 June 
 
 7 
 
 
 it 
 
 
 11 
 
 a 
 
 7 Feb. 
 
 3 
 
 
 » 
 
 
 JJ 
 
 12 „ 
 
 6 
 
 
 
 
 
 So May 
 
 2i 
 
 3lMay 
 
 2i 
 
 
 »J 
 
 10 July 
 
 6 
 
 
 it 
 
 
 a 
 
 iJnly 
 
 2 
 
 
 >^ 
 
 
 ') 
 
 17 ,. 
 
 4i 
 
 
 It 
 
 
 )> 
 
 1868. 
 
 
 
 
 
 
 24 „ 
 31 „ 
 
 4 
 3i 
 
 
 a 
 
 28 July 
 
 8 August 
 
 6 
 
 4i 
 
 10 Not. 
 
 2i 
 
 
 ,, 
 
 
 J} 
 
 30 August 
 
 3 
 
 
 
 
 
 3 tec. 
 
 3 
 
 
 ji 
 
 
 
 26 Sept, 
 29 „ 
 
 4 
 6 
 
 
 it 
 it 
 
 
 it 
 
 1860. 
 
 
 
 
 
 
 14 October 
 
 6 
 
 U October 
 
 it 
 
 6 
 
 27 October 
 
 5 
 
 1 April 
 
 4 
 
 
 >• 
 
 
 Jt 
 
 18 „ 
 
 7 
 
 
 
 
 
 6 May 
 
 4i 
 
 
 ») 
 
 
 
 INov. 
 
 8 
 
 8 Nov. 
 
 'j 
 
 28 Nov. 
 
 7 
 
 10 June 
 
 4 
 
 
 »j 
 
 
 ^, 
 
 7 „ 
 
 9 
 
 20 „ 
 
 6 
 
 
 
 24 „ 
 
 3i 
 
 
 J) 
 
 
 JJ 
 
 20 „ 
 
 8 
 
 27 ,. 
 
 5 
 
 
 JI 
 
 15 July 
 
 3 
 
 
 j» 
 
 
 tl 
 
 27 „ 
 
 6 
 
 
 
 
 " 
 
 19 August 
 
 2i 
 
 
 It 
 
 
 it 
 
 4 Dec. 
 
 g 
 
 
 " 
 
 10 Deo. 
 
 l> 
 
 6 
 
 4 Not. 
 
 3 
 
 
 If 
 
 89 October 
 
 4i 
 
 u „ 
 
 4i 
 
 
 » 
 
 20 „ 
 
 5 
 
97 
 
 A noticeable feature in this table is the fact that 
 many of the movements in the rates of the banks of ^tinontai 
 the continent are consequent upon the movements in protecting 
 
 „ ... . action ig 
 
 England, these banks finding it necessary to protect ^Jf^^^ 
 themselves against any sudden demands of bullion the 
 Bank of England may make. In 1866 only, when the 
 balance of trade in favour of France was so strong, 
 gold went there in spite of our high rate. But in 
 none of the cases were continental rates obliged to 
 be raised to our pitch, nor on the other hand did they 
 fall so low. I do not mean to say that the system 
 followed by the great continental banks is a most 
 perfect one ; on the contrary, they all sufi^er more or 
 less from defects in their practices of issue ; never- 
 theless, it will be evident to you that they do not only 
 succeed in holding their own bullion in better control, 
 but that they are able to do so with more equable 
 rates of interest. Some of the disturbances in conti- 
 nental rates are due to revolutions and wars, but by 
 far the greater divergences are consequent upon our 
 own temporarily extreme variations, which are the chief 
 contributors of confusion. 
 
 The original cause for these frequent and extreme 
 changes in England are the unduly low rates of The key- 
 interest ; and the keynote of the reform is struck when o^°™ t°em 
 you reflect on the following : — " The Bank holds rates this tawe. ^ 
 low when the Reserve of notes is 13 or 15 millions, 
 the rate then falling to 2 per cent. Now, if with a 
 Reserve of 8 or 10 millions, interest rules at, say 4 per 
 cent., it follows that if we voluntarily reduced the 
 Reserve of 13 oi- 15 millions to 8 or 10 millions, we 
 should be able to maintain the rate of 4 per cent." 
 
 The following tables show the variations and the 
 number of weeks for each change, under each rate of . 
 interest, from 2 to 10 per cent., of the three Banks, 
 f^-om September 1844 to December 1873 inclusive :— 
 
 7 
 
98 
 
 Table 9. — Showing the number of Changes in the Bates of Interest, and the 
 number of Weelis dv/ring which the Rates lasted, of the BanJes of England, 
 France and Prussia, from 1st Septemher 1844 to 31s< December 1873. 
 
 BANK OP BNGLAWD. 
 
 Rates of Intekest and Weeks of Ddeation. 
 
 2 
 
 2i 
 
 3 
 
 Si 
 
 4 
 
 4i 
 
 5 
 
 5i 
 
 6 
 
 6i 
 
 7 7i 8 8i 
 
 8 
 
 9i 10 "^ 
 
 87 
 
 57 
 
 3 
 
 1 
 
 11 
 
 2 
 
 17 
 
 g 
 
 3 
 
 31 
 
 1 - 
 
 4 — 
 
 2 
 
 — 7 
 
 14 
 
 20 
 
 42 
 
 20 
 
 20 
 
 4 
 
 5 
 
 2 
 
 1 
 
 5 
 
 3 
 
 8 
 
 9 
 
 14 
 
 69 
 
 57 
 
 55 
 
 13 
 
 2 
 
 2 
 
 6 
 
 12 
 
 15 
 
 2 
 
 1 
 
 2 
 
 2 
 
 
 14 
 
 16 
 
 53 
 
 12 
 
 6 
 
 12 
 
 31 
 
 2 
 
 4 
 
 11 
 
 6 
 
 5 
 
 
 
 
 2 
 
 19 
 
 1 
 
 1 
 
 4 
 
 36 
 
 12 
 
 1 
 
 
 2 
 
 3 
 
 
 
 
 20 
 
 43 
 
 1 
 
 1 
 
 2 
 
 1 
 
 2 
 
 1 
 
 
 1 
 
 4 
 
 
 
 
 27 
 
 6 
 
 1 
 
 9 
 
 2 
 
 4 
 
 1 
 
 2 
 
 
 3 
 
 1 
 
 
 
 
 19 
 
 1 
 
 7 
 
 24 
 
 4 
 
 2 
 
 
 1 
 
 
 2 
 
 1 
 
 
 
 
 2 
 
 9 
 
 1 
 
 8 
 
 3 
 
 2 
 
 
 1 
 
 
 2 
 
 6 
 
 
 
 
 8 
 
 7 
 
 1 
 
 1 
 
 1 
 
 4 
 
 
 11 
 
 
 3 
 
 2 
 
 
 
 
 1 
 
 11 
 
 2 
 
 9 
 
 5 
 
 1 
 
 
 3 
 
 
 2 
 
 7 
 
 
 
 
 11 
 
 2 
 
 1 
 
 28 
 
 4 
 
 4 
 
 
 7 
 
 
 3 
 
 1 
 
 
 
 
 22 
 
 6 
 
 7 
 
 5 
 
 1 
 
 5 
 
 
 5 
 
 
 6 
 
 1 
 
 
 
 
 9 
 
 16 
 
 8 
 
 1 
 
 1 
 
 2 
 
 
 4 
 
 
 1 
 
 1 
 
 
 
 
 
 18 
 
 2 
 
 8 
 
 2 
 
 4 
 
 
 1 
 
 
 3 
 
 1 
 
 
 
 
 
 5 
 
 2 
 
 6 
 
 1 
 
 1 
 
 
 5 
 
 
 1 
 
 
 
 
 
 
 37 
 
 1 
 
 S 
 
 1 
 
 5 
 
 
 7 
 
 
 3 
 
 
 
 
 
 
 2 
 
 1 
 
 2 
 
 8 
 
 3 
 
 
 1 
 
 
 2 
 
 
 
 
 
 
 6 
 
 8 
 
 2 
 
 
 5 
 
 
 2 
 
 
 1 
 
 
 
 
 
 
 1 
 
 8 
 
 1 
 
 
 3 
 
 
 4 
 
 , 
 
 
 
 
 
 
 
 16 
 
 3 
 
 2 
 
 
 1 
 
 
 2 
 
 
 
 
 
 
 
 
 4 
 
 
 2 
 
 
 2 
 
 
 2 
 
 
 
 
 
 
 
 
 3 
 
 
 4 
 2 
 2 
 1 
 6 
 1 
 1 
 1 
 
 
 4 
 1 
 
 1 
 2 
 2 
 
 
 4 
 1 
 1 
 
 
 
 
 
 
 134 
 
 271 
 
 864 
 
 96 
 
 162 
 
 54 
 
 153 
 
 36 
 
 89 
 
 49 
 
 46 - 
 
 - 41 — 
 
 13 
 
 — 21 
 
 Number ofWeeka 1,529 
 
 Nmnbor of Cbangea 212 
 
 Range of Interest from 2 to 10 per cent. 
 
 (The Bank has actually ciono busineBs as low as 1" per cent., and as high as 12^ per cent.) 
 
99 
 
 BAKE OP FRANCE. 
 
 Rates of Interest and Weeks of DaRATiON. 
 
 ai 3 3i 4 4i 5 5i 6 6i 7 7^ 8 8i 9 % 
 
 163 83 15 124 2' 50 16 25 1 2 3 1 — 2 
 
 9 1 
 
 19 3 
 
 1 
 1 
 5 
 3 
 2 
 
 83 
 
 15 
 
 124 
 
 2' 
 
 50 
 
 16 
 
 25 
 
 32 
 
 66 
 
 217 
 
 7 
 
 16 
 
 1 
 
 39 
 
 18 
 
 32 
 
 15 
 
 2 
 
 1 
 
 1 
 
 2 
 
 39 
 
 5 
 
 72 
 
 2 
 
 25 
 
 
 1 
 
 
 12 
 
 16 
 
 7 
 
 6 
 
 
 7 
 
 
 7 
 
 13 
 
 1 
 
 28 
 
 
 1 
 
 
 5 
 
 7 
 
 
 9 
 
 
 6 
 
 
 1 
 
 10 
 6 
 
 18 
 4 
 1 
 
 10 
 4 
 
 10 
 1 
 2 
 
 
 8 
 4 
 3 
 2 
 6 
 1 
 15 
 85 
 3 
 
 
 15 
 
 1 
 
 49 
 
 17 
 
 s 
 
 1 
 
 163 172 143 530 21 262 18 167 1 42 3 6 — 
 
 Number of Weeks 1,62B 
 
 Number of Changes 83 
 
 Bange of Interest 2| to 9 per cent, 
 
 BANK OP PRUSSIA. 
 
 Rates of Interest and Weeks of Duration. 
 
 4i 5 5^6 6i 7 7i 8 8i °/, 
 
 7 
 
 22 
 
 21 
 
 5 24 
 
 5 8 
 
 29 
 
 81 
 
 9 
 
 2 2 
 
 2 19 
 
 17 
 
 82 
 
 15 
 
 4 
 
 1 
 
 240 
 
 22 
 
 19 
 
 6 
 
 1 
 
 78 
 
 26 
 
 17 
 
 1 
 
 1 
 
 18 
 
 6 
 
 3 
 
 10 
 
 
 86 
 
 2 
 
 23 
 
 6 
 
 
 20 
 
 3 
 
 2 
 
 1 
 
 
 =«224 
 
 11 
 
 9 
 
 3 
 
 
 28 
 
 
 11 
 
 12 
 
 
 142 
 
 
 18 
 
 
 
 21 
 
 
 S 
 
 
 
 80 
 
 
 4 
 
 
 
 7 
 
 
 12 
 
 19 
 
 24 
 
 18 
 
 5 
 
 2 
 
 4 
 
 4 
 
 
 
 6 1—9 
 
 4 
 
 9-17 205 214 7 69 7 30 
 
 Number of Weeks 1,529 
 
 Number of Oh&nges ... ... 68 
 
 Bange of Interest 4 to 9 per cent. 
 
100 
 
 The number of changes in the rate of interest since 
 1st September 1844, were accordingly 
 
 At the Bank of England . . .212 
 „ Bank of France . . . .83 
 „ Bank of Prussia. . . .68 
 But a reference to the preceding statement in the years 
 when our rates varied most, shows that the two.foreign 
 Banks were obhged to follow ours to some extent so 
 as to protect their exchanges. This, after making due 
 allowance for counter effects, is clearly traceable in 28 
 instances as regards the Bank of France, and in 19 in- 
 stances for that of Prussia, so that their actual changes 
 may be reduced to the number of 55 and 49 respectively. 
 The following exhibits the. rates and numbers of 
 weeks for each of the three banks enumerated : — 
 
 7„ 2 2i 3 Si 4 4i 5 6J 6 6i 7 7i 8 8J 9 9i 10 
 
 England 134 271 364 96 162 54 153 36 89 49 46 — 41 — 13 — 21 
 
 France — 163 172 143 530 21 262 18 167 1 42 3 5 — 2 
 
 Prussia — — — — 947 205 244 7 69 7 30 6 5 — 9 
 
 Taking the range of from 3^ inclusive to 6 inclusive 
 as already a pretty wide one for variations, it would 
 appear that out of the total of 1,529 weeks there were 
 comprised within this range — 
 
 ForEngW ... 590 weeks { Jfo 'T aW ? ^ "f 
 
 For France ... 1141 „ { ^g '; ^^^f 
 
 For Prussia ... 1472 „ [-- » l^^J 
 
 Or if 4, 4^ and 5 per cent, are taken as fair mercantile 
 rates, it would appear that this range prevailed — 
 
 In England ... 369 weeks [ 295 ^^""^ abo°JI 5 P^"" ''^''** 
 
 I-^--^ - «13 " JSs ;: aW5 
 
 In Prussia ... 1396 „ j °°"^ >' ^1^°^ t 
 
 \ 133 „ above 5 
 
101 
 
 In looking at these figures, and speculating on the 
 probable causes of this restlessness of our rates, the me Bant 
 
 of England 
 
 old argument may again be used, " Everybody comes to "Sfe^'tJ^^lp 
 England for gold, hence the Bank of England' wwsi S?"^* 
 make greater movements in the rate." The exact con^ ^°^^ 
 trary should he the case. The bullion which comes to 
 England, and is offered in the market, is not only just 
 as available to the Bank of England as to other foreign 
 banks, but more so, for the Bank of England has 
 the first offer of the copious arrivals, of which it need 
 but retain a small per centage, so as to keep the stock 
 in the Issue Department at a fair level. A reference 
 to table 5, on page 81, will show you that the 
 annual passage of gold through this country is like 
 a continual stream, from which the Bank can help 
 itself before anybody else. And whereas the Bank 
 of England need but poise the rate of interest so 
 as to obtain its share of the current flowing by, or of 
 maintaining, at the least, its own stock already in hand, 
 the foreign exchanges must overcome the charges 
 for transmission before they can take away from that 
 which is on our market, and which our Bank would 
 not require. The foreign banks are bound, accordingly, 
 to make greater efforts by greater bids, or they must 
 wait until the Bank of England has served itself. I 
 appeal to your common sense for the justice of this Tie reverse 
 
 ^J^ ^ •' being the 
 
 view, and if you agree with me in this, the extra- prt^^pie'" 
 ordinary divergences in our rates will come into reversed, 
 stronger relief. The claptrap argument as to the 
 undue drafts of bulhon on the Bank of England must 
 give way to the thought that there is an error some- 
 where in the Bank's system which totally reverses sound 
 reasoning, and that the correction of this error neces- 
 sarily involves the reversal of the present practice. 
 In this conflict between the international and Bank 
 rate (to which latter the market rate must submit), 
 
bullion alone is in question, i.e. the due proportion 
 fttothwe of Bullion to be maintained by the Bank on the 
 b&iuo?oniy note circulation. With the latter, our home trade 
 
 as subject 
 
 t?oSa™m- deals without having any immediate concern in the 
 ™r^.' precise amount of bullion which the Bank of England 
 Cteest. should keep. 'Ihe Bullion question itself is entirely an 
 international one. In the competition for bullion 
 among nations of equal, or nearly equal, rank of pros- 
 perity, that which bids the highest rates obtains the 
 most, even to surplus ; that which maintains the most 
 regular rates keeps the most regular stock; whilst 
 that which loses most, and is obliged to recoup its 
 losses, suffers from the greatest divergences in its rates 
 of i/)iterest. That is our case; and if you want to 
 discover where the error lies, you must decide between 
 cause and effect, tte cart and the horse. Should 
 bullion guide the rate of interest, or should the rate 
 of interest guide bullion ? It is hardly requisite to 
 teU you that interest must be the active factor, and 
 the avowed intention of the Bank in using its force 
 pitched -^0^ ^^® ^®^J purpose needs no comment. It follows 
 .fa?M** that the bad practice which the Bank makes with 
 
 England is . p -i n 
 
 concerned, the rate of interest — causes this utter failure of 
 its guardianship ; and if you bear in mind the 
 Bank's exceptionally favourable position in regard 
 to the facility of obtaining bullion at its own doors, 
 and then refer to the facts, as they present themselves 
 before you, both by the extreme fluctuations in the 
 Bank of England stock and the rates of interest, you 
 must come to the conclusion that the error which leads 
 to this must be a very wretched and economically con- 
 temptible one indeed. 
 
 If these struggles for bullion on the part of the 
 Bank of England affected but the estabhshment itself, 
 or foreigners) we might leave the Bank to do as it 
 
103 
 
 liked. But, unfortunately, the brunt of the mischief 
 
 falls upon the legitimate trade and industry of the Theconse. 
 
 ^ *^ >J quences fall 
 
 country. Tor the sake of a few millions of bulHon Sn'' 
 — which the Bank is incapable of maintaining: — thou- '^^ 
 
 i- o commerce. 
 
 sands of millions of transactions current, and contracts 
 incurred, must suffer by the spasmodic changes in the 
 value of money. Hence, Manchester, Yorkshire, and 
 all our manufacturing centres, whose business is that 
 of a purely mechanical nature, which, with our 
 advantages in resources and industrial ingenuity, is 
 bound to be profitable, are subjected to the changes of 
 prices in raw and ready goods brought about by 
 these abnormal jumps in interest. In the world's 
 great market, and our own, the ordinary conditions 
 between supply and demand do not warrant these 
 movements in the value of money, nor give them a 
 natural character, free of suspicion of error. And 
 where such error exists, manifesting itself by such 
 abnormal results, most of the evil, including the 
 suffering of the industrial classes, falls to its charge, 
 notwithstanding the dogma which taunts commerce 
 with speculation. If the variations in supply and 
 demand, as far as the world's trade is concerned, 
 give a field for speculation, how much more exten- 
 sive must that ground become under the spasmodic 
 changes in the rate of interest, and lay our other- 
 wise regularly constituted industry open to an unjust 
 charge ? 
 
 The effect of these variations in the rate of interest 
 in reference to one branch of business alone, exceeds in The losses 
 
 occurred on 
 
 seriousness the original cause. Of the 300 millions of ^^^^°' 
 bills current (see Mr. Palgrave's book alluded to on 11X1!!^°^ 
 
 exceed the 
 
 page 25), about 160 are local bills ; so that any to°edbRck. 
 change in discount chiefly affects local interests. 
 About 140 millions are foreign drawn bills, of which a 
 change of interest may fall back on foreigners for a small 
 
104 
 
 portion, say 50 millions ; the rest concern contracts 
 completed, or running, for which, we have accepted 
 definite terms. A change of interest from 4 to 8 
 per cent., on 250 millions of bills, involves 2^ millions 
 clear loss to the discount market, and the loss in 
 other branches of trade may be still larger. All the 
 bulhon lost by the Bank may not be more than 3 or 4 
 millions, and to get this back again the above losses 
 MnfuS^ must be incurred by other parties. The angry confusion 
 
 and just ,....,,. , _ -,. ^, 
 
 to wwoh'° ° which this gives rise, the extraordinary and mex- 
 ^ gives piicable dealings in our discount markets, the singular 
 policy of the Bank, and the trumpery yet variable 
 discount business of that iustitution, find their expla- 
 nation in this miserable and unjust conflict, and loudly 
 call for a reform which will separate the interests 
 here concerned. 
 
 Indeed, among the hundreds of remedies proposed, 
 Stealth ^^ ^^^ even been suggested that the Bankers should 
 e^edSs emancipate themselves from the Bank of England, and 
 '""'"' form a new institution to take charge of their Reserves. 
 Independently of the waste of force and economy 
 impHed in this suggestion, the Bank of England, 
 would be able to override any such scheme of oppo- 
 sition, by means of the fixed issue of 16 millions, 
 itself." It has also been suggested that the Bank 
 of England should not publish its rates, or make no 
 rate, that it should make advances or discounts at 
 whatever rate it pleased. Independently of the im- 
 possibility of keeping rates secret, of the immorality 
 involved in charging different rates at the same time 
 on securities of equal rank, the principles of the valua- 
 tion require, at all events, some prevalent rate, for 
 otherwise our dealings in exchange and the settle- 
 ment of international accounts would be impossible. 
 The Bank of England cannot hold itself aloof from 
 this rate ; as the issuer of notes^ by a contiact with 
 
The London 
 
 105 
 
 the State, it is bound to bring this issue in connection 
 with current business, and must state the terms upon 
 ■which it is prepared to do so. The Ufe of our com- 
 merce depends upon the firmness of the factors for 
 the calculation of profits and insurances, and the 
 principles of our valuation require the Bank of 
 England to contribute to its firmness by declaring 
 its rates of interest. 
 
 Of the advantages which the foreigner derives 
 from the undue and frequent variations of our rates exohaSge" 
 
 , market has 
 
 of mterest, I have already spoken. Our special dis- p^Xiess 
 advantage is our loss of influence on rates of exchange. want?f 
 
 true rates of 
 
 As the wealthiest nation, with perhaps more than "»•«"«'■ 
 1,000 millions invested abroad, with the command 
 almost of the bullion market, it is we who ought 
 to guide exchanges so that they benefit us first ; but 
 the London exchange market has ceased to be a 
 guiding one, it is made utterly subservient to the 
 exchanges as they are quoted abroad. Every exchange 
 broker will confirm this fact, but we cannot blame 
 the foreign banker who follows up the profit ofifered 
 to him by the thoroughly legitimate arbitrations of 
 exchanges, the buying in the cheapest, and seUing in 
 the dearest, market, which the variations of interest 
 with us afford him. The foreigner thus takes money 
 from us at one time, and returns it to us at another, 
 appearing as if he came to our reKef. Although 
 in the course of international business, we may occa- 
 sionally become temporary debtors, we need no such 
 assistance from foreign countries. Persons who 
 pride themselves upon the fact that foreigners do 
 lend us money as a sign of confidence in us, are 
 just as ready to blow the other way if the argument 
 suits; they forget that we should not allow the 
 foreigner who thus favours us, to do so at heavy cost to 
 
106 
 
 bTlrselves, for this must be firmly borne in mind, tte 
 greater intensity of the movements in our rates of 
 interest, the greater are the chances of profit made 
 abroad, Not only will the banker abroad take a profit 
 on the transaction, by which he receives Bullion, 
 but he will take a second profit on what he sends 
 back. 
 
 The wide mouthed argument, that in trade nothing 
 
 AH • • -I • 
 
 reciprocity is doue that does not suit either party, that we in 
 
 ceases in j. ■/ ^ ^ 
 
 thiaoase. England obtain set-off's of equal value, entirely fails m 
 a one-sided case like this. The whole comfortable 
 thought of equivalents, all the pretty arguments about 
 reciprocity, break down when under crises and panics 
 and the terror of the moment, we must, nolens volens, 
 take every accumulated evil into the bargain, and 
 thank our stars it was not worse. 
 
 THE GENERAL CIRCULATION AND THAT OF 
 THE BANK OF ENGLAND NOTE. 
 
 l^he foregoing chapter will have shown that this 
 
 question of matter of due proportion of bullion is one standing by 
 
 mon'^yhy itsolf, dependent only on the proper rates of interest, 
 
 TOm1i^.'''° turning simply on the Bank's ability or inability to 
 
 manage such rates for the efficient protection of its status 
 
 quo. To what extent now is the commerce of the country 
 
 guilty of the movements in the money market and the 
 
 distresses caused to the Bank of England ? During 
 
 the confused controversies in times of crisis, you 
 
 hear of failures, loss of confidence and credit, scarcity 
 
 of money, of high rates of interest, and of ruin and 
 
 panic. 
 
 Your first impression will probably be that the 
 commerce of the country, or the speculators in it, 
 or somebody else, has wrongfully and wilfully made 
 
107 
 
 away witli, say, several tnillions of good money — that The falsa 
 these have disappeared, and that the high interest demands of 
 
 ,, ■ 1 , !) -vr 1 1 1 trade cauBB 
 
 'serves us right. You may near that we have scarcity of 
 
 ° <J money. 
 
 something hke 170 miUions of money in circula- 
 tion in the country, and imagine the scarcity is due to 
 the fact that, say, 10 millions have been made away 
 with. You may think that the great variations 
 in interest from 2 to 10 per cent, are hardly 
 justified with a change of per centage of about 6 per 
 cent, in the total amount of money on hand, nor 
 can you probably account for the rapidity with 
 which 10 millions of money are thus destroyed and 
 brought back again. Still, looking at what takes 
 place, you may think that no other explanation of 
 the enigma of the extreme dearness of money can 
 be given than that our commerce is most extravagant 
 and irregular in its use and demands for money. 
 Accordingly, as the money is employed for the pur- 
 poses of circulation, the state of the circulation is that 
 by which the matter must be tested. 
 
 On investigating the returns of the total circula- 
 tion, you will then find that you are completely in the The 
 wrong in thinking that money had been made away ^j^g^- 
 with in the manner suggested, or that too much oiSiSSon. 
 has been used. You will find not only that the 
 divergences in the circulation, within the periods 
 comprising the enormous changes in interest, do not 
 vary by anything like 10 millions, but that in the 
 times of the most severe crisis the variations in 
 total circulation are comparatively insignificant, show- 
 ing that commerce is not guilty of the charges 
 alluded to. The circulation maintains this regularity 
 even in spite of mercantile failures; for the very 
 natural reason that such failures do not involve 
 destruction of currency, but ai-e mere mattery of 
 aocount. 
 
108 
 
 In order to make you understand this clearly, the 
 The gross foUowinsf analvsis of the elements of our circulation 
 
 amount of <^ •/ 
 
 Se»^^. is worthy of your attention :— 
 
 At the present time we have in England — 
 
 £105 millions in coined gold, C'^^feX'^te'.') 
 
 18 „ of silver and copper coin, 
 
 37 „ of Bank of England &Z^^'"^ 
 notes. 
 
 16 „ of country notes, (^1?^!'*) 
 
 say £176 ,, in money. 
 
 Of the 37 millions of Bank of England notes, 
 there are at present, say, 22 millions issued against 
 bullion, so that our total stock of gold, coined and un- 
 coined, amounts to 127 millions. I take these figures, 
 together with the 22 millions of bullion at the Bank, 
 as occasional facts — their state, when this is read, may 
 not agree — my purpose being to show that, out of the 
 total of 176 millions of money, after deducting these 
 Reserves, there are, say, 161 firmly engaged m circu- 
 Partly in Idtion, whUst, Say, 10 millions of Bank of England 
 Siyii™ notes and 5 millions of country notes, together 16 
 millions are held in Reserve, i.e. not in circulation. 
 Accordingly we have : — 
 Money in circulation . . 161 millions; 
 do. in Reserve . . 15 millions. 
 
 The characteristics of each of these constituents of 
 Character- the cvTCulation wiU show their mutual relationship to 
 
 istica of 
 
 Btttuenw. each other and to the whole : 
 
 1st. Coined gold. The greater part of the gold 
 Firmness of coiu is iu the pockcts of individuals (a limited pro- 
 
 thegold ^ _ ^ \ 
 
 portion hoarded), in tradesmen's and bankers' tills. 
 Portions of it are held by country bankers against 
 increased issue of notes. Parcels of sovereigns go in 
 and out of the Issue Department of the Bank of 
 England, notes and gold substituting each other in 
 
 coin in 
 circulation. 
 
109 
 
 circulation. The sovereigns in the tills of London 
 bankers are not required as Reserve against invest- 
 ments, such Reserve being kept at the Bank of England, 
 but they ser.ve principally as stock for the daily wants 
 of customers. The whole of this stock of gold coin is 
 accordingly firmly engaged in the circulation, and any 
 sudden fresh addition to it, or any sudden subtraction 
 is impossible. If five millions of sovereigns were Asnciden 
 imported fresh to-day and spent in the purchase of J^on^Sf^t 
 goods, the whole amount would, in the evening or the 
 next day, find its way to the Bank of England. A 
 considerable time would elapse before the country 
 could absorb one or more millions of gold coin, a 
 corresponding change in prices and production, or 
 some other contingency, must manifest itself be- 
 fore the circulation would engage such an addition. 
 A few hundred thousands of pounds are periodically 
 required for harvesting time in exchange for notes ; 
 they return in due course. 
 
 Equally impossible is any sudden forcible subtrac- 
 tion from the gold currency. In times of crisis, when jh* sub- 
 
 O •' ' traction of 
 
 the Bank of England bids high for money, certain &omS?n- 
 
 ,..T 111111 •! 1 lation ia ro- 
 
 hmited amounts held by bankers may come m, but the »^>^- 
 overwhelming portion held by the public remains firm 
 in service. In times of panic, the disposition to hold 
 gold coin instead of notes, and a tendency to increased 
 circulation show themselves, and make subtraction quite 
 impossible. Nothing but a governmental Act, by way 
 of forced taxation, could wrench the gold coia so 
 engaged from circulation. This fact must be clearly 
 borne in mind, any ordinary exchange of gold against 
 notes, or vice versa, does not afiect the existing basis 
 of gold coin as a whole. 
 
 But whilst sudden additions and subtractions are 
 
 A general 
 gradual 
 increase ha, 
 
 circulation nevertheless takes place. In 1850 there 'ai'e^pi*™- 
 
 thus impossible, the gradual increase of the gold coin graaSIT 
 
 ■*■ increase has 
 
110 
 
 were but between 60 to 70 millions of sovereigns 
 current in Great Britain ; in 1872 there were between 
 100 to 110 millions.* What I want to impress upon 
 you here is, the difFerence between the gradual increase 
 concurrent with production, prices, population, and 
 other compensating effects, as against any sudden 
 expansion or contraction, as the spasmodic movements 
 of the Bank rate would presuppose. In twenty years 
 time another 40 millions may have come into use, but 
 for* the time being, the 105 millions stated maybe 
 considered as being ihu's, firmly engaged. 
 
 2. The amount of silver and copper coins, of a 
 Silver and Comparatively small per centage to gold, is even less 
 ^ liable to sudden movements. These coins are not 
 legal tender money (beyond £2 for silver and Is for 
 copper), and although a portion now and then is held 
 by bankers, above what they may want, they can 
 neither give it to the Bank, nor when silver is in 
 request, when even a demand arises, can they obtain a 
 sudden supply. A general increase in these coins in 
 circulation has nevertheless taken place, especially 
 dui-ing recent years, and at this time an amount of 
 18 millions (according to the best estimates) is j^rmZy 
 engaged in circulation. 
 
 * This satisfactory evidence of the greater life in our interior 
 intercourse is noteworthy, if only for this reason : many people 
 think that the banking and clearing house systems in this country 
 save currency, and that in time they may diminish it. That these 
 systems save currency, is no doubt true, but however large this 
 saving may be, and become, it will never actually diminish the 
 metallic currency. The progress in clearing is immense, and it is 
 one of the rules of progress, that all the useful factors of an organisation, 
 should share in it. Hence, to the astonishment of many people, our 
 gold circulation has also increased. Tlie Jaw of mutuality is again 
 in operation here, like in so many political and social matters of 
 progress, in which this country has made similar experiences, 
 
Ill 
 
 3. Country Bankers' notes, of wliicli the authorised 
 issue amounts to 15f millions sterling. When Scotch "aS- 
 bankers issue more than this aggregate, they must 
 
 hold gold coin against them. Such gold coin, ex- 
 changed for notes, is practically part of that in 
 circulation out of the Bank of England, re-exchangeable 
 into coin on notes being drawn on it. The absorption 
 of coin by these banks does not alter the amount of 
 circulation ; the gold is merely temporarily replaced by 
 notes, and the note holders have the first claim on it. 
 It is necessary to say this, for such gold coin in issuing 
 country banks, is often miscalled " cash reserve." The 
 consistent general element to be considered in country 
 issue is the 15|- millions authorised issue clear 
 above the gold coinage. Country notes are not legal 
 tender money, their influence is confined to the imme- 
 diate neighbourhoods of the issuing Banks, and although 
 they "replace" a certain amount of sovereigns, they 
 do not directly afiect the London market. Their efiect 
 on the valuation is not beneficial to the country as a 
 whole, however useful £1 notes may be. Country 
 bankers keep a certain proportion of reserve, the circu- 
 lation, above sovereigns, exhibiting this singular cha- 
 racteristic, that in times of crisis it diminishes (in 1866 
 by If millions). The Bank of England is then called 
 upon to supply notes instead. For the practical pur- 
 poses of this enquiry the 5 millions of country notes, 
 which on page 108 I have assumed as being in Reserve, 
 can be set aside. 
 
 4. The Bank of England note circulation is the 
 superior or supernatant constituent of our circulation. ^|i^^°* 
 By it are absorbed all the possible vagaries to which Mio^*"^' 
 gold, silver, and to a certain extent country notes, may 
 
 be subject. Thus gold coin may be in request for 
 Ireland, or other districts, at harvest time ; notes in 
 circulation are surrendered for it, the total circulation 
 
112 
 
 remaining pretty much the same, and subsequently the 
 
 gold coin returns. We are accustomed to attach much 
 
 importance to such temporary withdrawals of gold coin 
 
 sup6?nat«mt from the Bank ; in reality they are, on the part of the 
 
 oonatitaent -r>ii tt • t t •^• • t-i 
 
 "inOTlioir-- ■''^^J^j hut assets surrendered against liabilities. For 
 eniatioii.j ^yi this kind of business in sovereigns, and also silver 
 coin, the Bank of England acts as the regulating and 
 absorbing factor; it manages this matter, especially 
 the control over the state of the coinage, most ad- 
 mirably. That the Bank of England cares for the 
 coining of sovereigns through the Mint, we all know ; 
 but the gradual increase of our gold circulation, since 
 1850, of 40 milhons, would just as well have taken 
 place if the public itself dealt directly with the Mint, if 
 the present preventative arrangement (contrary to the 
 spirit of the coinage laws, but defensible I admit) did 
 not make the sale of bar gold to the Bank more 
 convenient. 
 
 Now, since the Bank of England, as we all know, is 
 ttoM^nhe the regulator of the gold and silver currency through 
 
 total circu- , • « i i ■ i • i 
 
 TOntA,teS ^'^^ issue department, if the general circulation thus 
 DepS-taent concontrates its possible variations in that department 
 
 of the Bank -r. i • 
 
 of England, ©f the Bank, it is evident 
 
 That the circulation of the Bank of England 
 notes is the barometer by which 
 
 the greater or lesser steadiness of the whole cir- 
 culation can be measured. Accordingly, any variations 
 which take place in the Bank of England note circulation 
 not only indicate the greater or lesser amount of general 
 circulation, but all the other variations which take 
 place in the exchange between Bank of England 
 notes on the one, and coin and country notes on the 
 other hand. 
 
 The table, which I now submit to you, contains the 
 extreme variations in the circulation of Bank of 
 
113 
 
 England notes from 1845 to 1871, in tlie respective 
 quarters, from 1st of January each year. 
 
 Table 10. 
 Showing the Extreme Vai-iations of the Bank of England Note 
 
 Circulation in each QxM/rter {from 1st January) of the TaWeshow- 
 
 Years 
 
 184^ to 1871 (in millions £ sterling). 
 
 
 ing the 
 limited 
 variations 
 , in Bank of 
 
 Teaxs. 
 
 First Quarter. 
 
 Second Quarter. 
 
 Tliird Quarter. 
 
 Fourtli Quarter. 
 
 England 
 circulation. 
 
 1845 
 
 20—21 
 
 21—22 
 
 21—22 
 
 21—23 
 
 
 1846 
 
 20—22 
 
 20—21 
 
 20—21 
 
 20—22 
 
 
 1847* 
 
 20—21 
 
 21—19 
 
 19—18 
 
 19-21 
 
 
 1848 
 
 20—18 
 
 19—18 
 
 19—18 
 
 19—17 
 
 
 1849 
 
 19—18 
 
 20—18 
 
 20—18 
 
 19—19 
 
 
 18S0 
 
 20—19 
 
 21—20 
 
 22—20 
 
 21—19 
 
 
 1851 
 
 21—19 
 
 20—19 
 
 21—20 
 
 21—20 
 
 
 1852 
 
 22—22 
 
 23—22 
 
 23—25 
 
 25—23 
 
 
 1853 
 
 25—23 
 
 25—23 
 
 25—23 
 
 24—21 
 
 
 1854 
 
 23—22 
 
 23—20 
 
 21—20 
 
 21—20 
 
 
 1855 
 
 , 21—20 
 
 20—21 
 
 22-20 
 
 21—19 
 
 
 1856 
 
 19—20 
 
 20—20 
 
 21—20 
 
 21—19 
 
 
 1857* 
 
 19—18 
 
 19—18 
 
 19—20 
 
 21—19 
 
 
 1858 
 
 19—19 
 
 20—19 
 
 20—21 
 
 20—19 
 
 
 1859 
 
 20—20 
 
 22—20 
 
 22—21 
 
 22—20 
 
 
 1860 
 
 21—20 
 
 21—23 
 
 21—22 
 
 21—19 
 
 
 1861 
 
 20—19 
 
 19—20 
 
 20—19 
 
 20—19 
 
 
 1862 
 
 20—20 
 
 20—21 
 
 22—20 
 
 21—19 
 
 
 1863 
 
 20—19 
 
 20—20 
 
 21—20 
 
 22—19 
 
 
 1864 
 
 20—19 
 
 21—20 
 
 21—20 
 
 21—19 
 
 
 1865 
 
 20—19 
 
 21—20 
 
 22—21 
 
 22—20 
 
 
 1866* 
 
 21—20 
 
 22—26* 
 
 25—23 
 
 23—22 
 
 
 1867 
 
 23—22 
 
 23—22 
 
 24—23 
 
 24—23 
 
 
 1868 
 
 24—23 
 
 24—23 
 
 24—23 
 
 24—22 
 
 
 1869 
 
 24—22 
 
 23—22 
 
 23—23 
 
 24—22 
 
 
 1870 
 
 23—22 
 
 23—22 
 
 24—23 
 
 24—22 
 
 
 1871 
 
 24—23 
 
 24—23 
 
 25—24 
 
 25—24 
 
 
 This table shows that the variations in the circula- 
 tion -within one quarter never exceeded 3 nulUons, with ^^ 
 the exception of 1866, when it was 4 millions, and from of^f^'^ 
 
 circulation 
 
 1845 to 1865 the range is pretty equal. In the crisis "ot^f^thin 
 of 1847 the issue actually declined by 1 million ; in 1857, mimonB. 
 the more severe of the crises, during which the Bank 
 
 * Tears of crises and panic. 
 
114 
 
 made 2 millions extra issue, the increase was but 1 mil- 
 lion. From 1866 there is an average general rise of 
 6 millions, tte variations on ■which, are even less than 
 2 millions. The variation in 1866 of 4 millions (nearer 
 3^), is due to the fact that the country bankers* issues 
 declined by If millions, and herein lies part of the evil 
 perpetrated by these issues on the Bank of England. 
 If you make allowance for this, and for the probable 
 hoarding of gold during the panicj for the facihty 
 with which the Bank (on the authority for an extra 
 issue) suddenly parted with notes, and the quick decline 
 shortly after, you may possibly come to the conclu- 
 sion that this solitary instance of 3-g- millions of 
 increase of note circulation was due to other causes 
 than the direct demands of commerce. 
 
 A reference to the table on last page accordingly 
 
 In spite of shoWS I 
 
 all 
 
 Mto^sT' That although the Bank of England circulation is 
 panics. the regulator of all the divergences in the other con- 
 stituents of our general circulation, which concentrate 
 their effects there and express them by proportionately 
 greater divergences in that portion of the circulation ; — 
 
 although there is at times great scarcity of money, 
 at another time great plethora ; — 
 
 although the public are charged with overtrading, 
 although losses and failures follow, with crises, panics, 
 and a host of evils ; — 
 
 yet— 
 
 the Bank of England circulation, remains pretty 
 regular. 
 
 This cannot mean that the public makes an undue 
 dMSM^"" "S^ °^ ^^ circulation by overtrading, by losing or 
 
 make 
 
 ^aywith destroying money. The extent of the "accommodation" 
 
 money, or 
 uses too 
 mucti of it. 
 
 money, or • « t 
 
 macii'o°fit w^hich the public requires from the Bank is precisely 
 
 identical with the amount of notes which the public 
 uses, all other matters are matters of clearing account, 
 
115 
 
 and as far as the so-called scarcity or plethora of money 
 is concerned, you will see that they do not in any way 
 affect the actual use of more or less money, and that 
 the commerce of the country cannot be charged either 
 with destroying money or with using too much of it. 
 On the contrary, in spite of the panics and crises ^^^^ 
 which are caused by the Bank's inability to hold bullion, keeps^^hit 
 the circulation remains firm. But what is more signi- steadfastly 
 
 ° resists all 
 
 ficant still, and shows clearly that the merit of this S^atiSn."'' 
 regularity is entirely due to the public, and not ascrib- 
 able to the virtuous conduct of the Bank, the public 
 resists every effort made by the Bank to cram more 
 notes into use. "Whenever the Bank is in that " safe 
 state " of having ample bullion, say 23 millions on a 
 circulation of 25 millions, leaving, say 13 millions of 
 notes m Reserve, over and above what the circulation the 
 
 continual 
 
 can possibly use, what does the Bank do but tempt the lank-s*''' 
 circulation by lowering the rate, for no other purpose laie notes. 
 than to invite the use of this Eeserve ? Nothing is 
 more significant, in the whole of this enquiry, than the 
 absolute indifference with which the commerce of this 
 country refuses to have anything to do with these con- 
 tinual attempts to inflate the circulation. 
 
 No solution of this question of the Bank of England 
 note issue is possible unless it be distinctly recog- ^r^mount 
 nised that the circulation is thus regular. And one ofthifact. 
 of the express objects of this treatise is that of 
 bringing this matter into the prominence which it 
 deserves. Understand, then, that the circulating 
 mediums of this country consist of (at the present 
 time) 106 millions of gold, 18 millions of silver and 
 copper, 12 millions (4 in Eeserve) of country notes, 
 
 being 135 millions, to which 
 must be added 26 „ of Bank of England notes ; 
 
 together 161 millions. 
 
116 
 
 The 
 
 inexorable 
 firmneea 
 of the 
 circulation. 
 
 There is 
 practically 
 no scarcity 
 of money, 
 nor use for 
 anysurpluB. 
 
 ■which amount is subject only to gradual increase or 
 decrease, but not to spasmodic additions and subtrac- 
 tions. Whatever divergences (excepting gradual 
 increase or decrease) may take place, consist principally 
 in the exchanging of sovereigns for notes, and vice versa, 
 showing their effects in the supernatant bank-note cir- 
 cidation, and these effects themselves, as seen by the 
 table on page 113, remain within such limited bounds 
 that they cannot possibly have any serious and really 
 legitimate influence on the rates of interest. 
 
 All that concerns scarcity or surplus of money is 
 disposed of by this simple and inexorable- fact ; it is 
 utterly idle to talk of priactical scarcity when the 
 supply is there, and it is utterly useless to maintain a 
 surplus of money when such surplus cannot possibly 
 be used. 
 
 The lessons 
 to be 
 derived 
 from this 
 fact. 
 
 The misuse 
 
 of the term 
 
 elasticity. 
 
 It concerns 
 
 ^adnal 
 
 mcrease 
 
 only. 
 
 The free- 
 dom of 
 supply of 
 gold and de- 
 Telopment 
 of the 
 demand. 
 
 Several important lessons can be derived from the 
 fact of this inexorability of our circulation. 
 
 It shows, in the first place, that the circulation is 
 not elastic in the sense of schemers who require what, 
 in their meaning of the term, they call elastic currency. 
 The elasticity of the circulation is confined to its 
 gradual increase (and perhaps decrease also), and for 
 this purpose nothing stands in its way. The freedom 
 with which gold flows into this country, the firmness 
 and closeness of the prices at which gold is sold and 
 bought (thus giving the merchant the exact point 
 upon which he can reckon his profit), brings us this 
 valuable international medium in abundant supply. 
 The country may retain as much of this as it pleases, 
 and through this freedom of choice the demand for, 
 and use of money is capable of the highest development. 
 The great rule of free supply, as that essentially neces- 
 sary for the encouragement and development of the 
 demand for gold coin, is operative here, and the total 
 
117 
 
 thus accummulating in the country, or rathei' the 
 balance used after cheques and clearing systems have 
 modified it in their respective ways, is in full accord 
 with the principles of valuation* on which our prices 
 are held for the supremacy of our position in interna- 
 tional commerce. Our industrial classes may suffer 
 some injustice from the token system by which our 
 silver coinage becomes so restricted — but the whole 
 mass of gold money in the country stands, and JSc^m^th 
 must stand, in due numerical relationship to the pies of m- 
 number of commodities and their prices. valuation. 
 
 AU the talk about elasticity, " to correspond with 
 the demand, with crises and difficulties," is mere ^di^yof 
 twaddle. Still more absurd must now appear the pro- mdeflniteor 
 posal of schemes for all sorts of additional Bank note sSik'noMB. 
 issues. Could 70 or 100 millions of" national currency" 
 be crammed into our circulation, or, to notice the pro- 
 posal of Mr. Anderson, made in Parliament, for the 
 issue by certain banks on Government securities, 
 what would be the effect if these banks did make an 
 aggregate issue of 20 or 30 milhons of such notes ? 
 The present merit of our system, as far as the term 
 elasticity applies, lies in the fact that under the supply 
 of gold (the fruits of our commerce with the world) 
 we can continually increase the stock of coin by 
 the most natural process. This, in the first 
 instance, is done through the Bank of England 
 stock of bullion, which wiU also bring about an 
 increase of the notes in legitimate use. The tension ^^^o^j^a* 
 thus at work would be utterly broken down if, by ^tei^ 
 some act of the legislature, 10 or 20 or more millions 
 of notes were suddenly brought out alongside of the 
 161 millions of money now in use, and tried to force 
 
 * They would be still more so if the 15 millions of fixed issue 
 were not in the way. 
 
 true elastic 
 our 
 currency. 
 
118 
 
 their way into circulation. Or, if it were proposed to 
 dribble tlio amount into circulation at tbe rate of 
 1 million a year only, tbis would only weaken the true 
 elastic power, viz. the gradual increase, and replace 
 bulUon to that amount. This elasticity and reciprocity 
 between our trade and bullion are already weakened by 
 the fixed issues of 15 millions of the Bank of England 
 and the 16 millions of country issues. Every addi- 
 tional million would widen the gap, and in its 
 endeavours to find a place in the circulation, would 
 compete with, and keep away, so much bullion. And 
 ^wtaT^ all other minor schemes, such as one lately proposed, 
 Sisuoh viz.j to give, in the event of crisis, the right of issue 
 imorant to tho cxtout of 2 or 3 milhons to certain banks 
 
 Of and 
 
 Stag'faotef in London, belong to the same category of error. 
 All these suggestions, however moderate they may 
 appear, originate in the minds of financial cooks, who 
 are totally ignorant of the real state of the case, who 
 fancy that the public has made away with money, that 
 the " scarcity " can be restored by additional notes. 
 The most remarkable of the wise sayings current 
 
 A current when a crisis sets in is uttered by certain defenders of 
 
 fallacy as ** 
 
 dSsafOT the Bank's system, who whine away in this style : — 
 it "vyhy should the Bank of England be called upon to 
 come to the assistance of speculators by coming for- 
 ward with Iwrge sums of ready money ? Why should 
 the Bank of England, any more than other banking 
 institutions, be compelled to furnish the mercantile 
 community with more Banlc notes, to save it from ruin, 
 and from the natural consequences of that imprudence, 
 by which merchants have squandered away money 
 entrusted to them for the carrying on of business, 
 in spite of warnings and previous crises ?" That such 
 is the current talk in times of Crisis you will admit ; 
 but if you refer to the facts here laid before youj 
 you will clearly see the flagrant perversion of truth. 
 
119 
 
 It is untrue to say the public has made away with 
 money, and that it requires additional sums of notes "na'Jh?'^"^ 
 to rescue it from ruin. The Bank is not called 
 upon to furnish them, as the facts show. It is, on 
 the contrary, the Bank of England which loses 
 bullion, by its inability to protect and maintain its 
 stock. This is the chief and only original difficulty, 
 — all the others are but the accessory consequences. 
 If, from what I have said respecting the conflict 
 between the international rate versus the Bank rate, 
 and the facts here shown as regards the comparative 
 regularity of our circulation, you rightly understand 
 this matter, you will be able to appreciate the degrees 
 of *' childishness " involved in the current saying 
 quoted above, and in the present system of the Bank. 
 
 The true causes of that undefinable event, a panic, 
 will also now clearly appear. I have stated before, that ca'Jfsfof 
 the circulation is firmly engaged in the business of the ^°'"°" 
 intercourse between individuals, that it is impossible 
 suddenly to cram money into it, and equally impossible 
 suddenly to curtail it, the Bank of England circulation 
 forming the supernatant portion. Now, when at any 
 time there are 21-J millions of Bank of England notes 
 in circulation, as on 18th November 1857, and 
 Bullion declines, as it did, to 6 millions, giving, with 
 the fiduciary issue of 14^ miUions, but 20^ of issue, 
 there is consequently not only no reserve, but the 
 circulation is actually attacked to the extent of 1 mil- 
 lion. Hence, before the evening's accounts were closed, 
 there would have been ruin, and an almost indescrib- 
 able state of confusion and panic, if the Government 
 had not stepped in and allowed 2 millions extra issue. 
 You may often have heard that the "fate" of the Bank 
 and others depended upon the few minutes which the 
 Government had for decision. Since the circulation 
 
120 
 
 of the notes has increased to 25 and 26 millions, the 
 panic points are necessarily shifted to 10 and 11 
 millions of bullion, together. with the 15 millions of 
 fixed issue. 
 
 A panic, then, means nothing less than a state of 
 ^e^of bullion so low that the issue no longer fits the circula- 
 ^storation tiou, and so giving a prospect of a general scramble 
 ^"^ for money. That this is entirely the fault of the 
 Bank, and not that of the public, you will infer 
 from what you have now learned. That under such 
 circumstances the suspension of the Act for more notes 
 allays the panic is quite true ; but the restoration of 
 matters beyond this, for which the three examples of 
 crises are quoted, is not due to the issue of more notes, 
 but to the very high tension of interest, which, con- 
 current with the permission to give out more notes, 
 began to tell upon the return of bullion to us, and so 
 restored the level required for circulation, through the 
 force of a factor, which is otherwise opposed to, and 
 made practically powerless through, the over-issue of 
 notes. 
 
 THE AVAILABILITY OF THE RESERVE OF 
 THE BANK OF ENGLAND. 
 
 The idea of the necessity to maintain " a large 
 The Reserve" is so much in accordance with what seems 
 
 difficulty of 
 
 prudent and wise, and the recommendation to " keep 
 
 discuBBion 
 
 Etfi to 
 
 Reserve" is so continually uttered, that any writer 
 on this subject must well guard himself against the 
 suspicion that he does not recognise the necessity 
 of Reserve. This suspicion might arise if, in the 
 course of my remarks, I criticise the requirements 
 for, and the true character of, the present Reserve, 
 Abolition and recommend its abolition. I must accordingly 
 mesent guard mysclf by telling you that, in substitution 
 for the present system of Reserve, I . shall propose 
 
121 
 
 another, more effective and certain in its nature; 
 but I postpone its explanation to Part II. of this 
 book ; for it is, above all, necessary that the ground ^bstitntion 
 should be cleared, and that you should first perceive the system. 
 
 «' '■ explained in 
 
 gi'eat errors which are inherent in the present system, ^"*°- 
 so that, by way of contrast, the other better system 
 may be easier understood. 
 
 We have now ascertained — 
 
 Firstly. That the circulation of the country is 
 regular by far within the range of the violent fluctuations The .oon- 
 
 o J o nection 
 
 to which the Bank of England total issue is subject. cL'Suon 
 Secondly. That it is capable of gradual increase, and Keserve. 
 
 that this is effected principally by the free supply of gold. 
 The circulation being thus regular — say, at the 
 
 present period amounting to 161 miUions — neither definition 
 
 sudden additions nor sudden withdrawals therefrom purpoBeaor 
 
 Reserve. 
 
 being in the nature of things possible— any Reserve 
 of money above this (absolutely idle) must have a 
 distinct purpose, a raison d'etre for its existence which 
 we can clearly understand. If by any system of 
 issue, in addition to the stock of money in circulation, 
 the whole amounts to, say, 170 or 175 milhons, and if 
 but 161 millions are actually used, neither more nor 
 less, what is the extent of the " availability " of the 
 10 or 15 millions of Eeserve ? 
 
 However laudable may appear the desire for a large 
 Eeserve, implying as it does the sense of accumulation ^lecon-""' 
 and caution, you may probably admit that it is a bywMch 
 subject which may nevertheless be quietly and cooUy cantl°^"' 
 considered ; that it can be measured by fair and "'^"^ • 
 reasonable standards of facts, and that when it is 
 proven as not in accordance with such facts, we have 
 the right for further search into its character. 
 
 For the sake of order, I propose then to commence Thereqnire- 
 
 ^ ^ mentBoftho 
 
 with the usefulness of the Reserve on behalf of the eSS>^. 
 Bank of England itself. 
 
i22 
 
 ^he Bank of England requires Reserve : — ■• 
 Firstly, For the accommodation of its customers 
 (the public ?) 
 
 Secondly, For the safety of its own position, against 
 liabilities. 
 
 Thirdly, Tor the purpose of set-off against with- 
 drawals of BuUion in the Issue Department. 
 
 Firstl/y, Accommodation to the public. The invest- 
 ttie*Se?Jo ments made by the Bank, and the advances and 
 aocommo- disoounts wMch the Bank grants to the public, are 
 tiiepubuc. medsurable by the circulation, that is to say, their 
 sum total over and above capital, rest and deposit 
 — as far as it depends on the actual use of money — is 
 in accord with the amount of Bank notes which the 
 public use. The Issue Department and Bullion have 
 nothing to do with this, for although the importer of 
 gold receives notes, these are either brought into the 
 Banking Department at once, or find their way there 
 during the day. Increase or decrease of deposits, 
 according to which the Bank invests in or disposes of 
 Government or other securities, are but matters of 
 account. The numerical amount of the total circu- 
 lation remains the same, and the Bank of England 
 cvrculation represents the transactions which have 
 passed through the Bank by way of advances 
 and discounts. The discounts made by the Bank 
 vary considerably, but when they decline they 
 are replaced by Government and other securities 
 offered to the Bank, their owners discounting bills 
 instead of the Bank. This involves but one form of 
 accommodation for another, the sum total passing for 
 pri^edin them, and ultimately reaching the circulation, remains 
 wHhat the same. The question of accommodation generally 
 ciroHiation.: ^j, ^^^ ^y^^Q ^g therefore included in the returns of ihe 
 
123 
 
 circulation^ so that the supposed usefulness of the 
 " Reserve " for that purpose is thereby determined 
 and settled. 
 
 It is of the utmost importance now, that this matter 
 must be clearly understood. In whatever state the to^portanda 
 money market may be, however short other people andits 
 may be of money, and however great the disturbances m^t'^fevert 
 may be, the Bank's action in accommodating the 
 public rests upon the numerical test of the circula- 
 tion. It may be admitted that the most Severe tests 
 / to which this could be put are the crises and panics 
 which in 1847, 1857, and 1866, exceeded in violence 
 all that ever happened in any country. And nothing 
 less could be expected from the average of our gigantic 
 trade, which, with its incoming and outgoing, but 
 steadily increasing thousands of elements, is like a 
 regular clockwork, producing an average whose firm- 
 ness is evidenced by solid profits, no less than by the 
 very fact of the regularity of the circulation itself, 
 absorbing and equalising with comparative ease all 
 that is charged against it, justly or unjustly, in the way 
 of irregular trading. It is unnecessary then to tell 
 you that any large Reserve at the Bank of England 
 cannot possibly serve the purpose of additional accom- 
 modation. 
 
 You will see then that the sound commerce of this 
 country, by the regularity of the circulation, which ^^^^ 
 includes the accommodation required by it from the Stolltto 
 
 tomakensS 
 
 Bank, utterly refuses to have anything to do with the °^fogof 
 frequent 10 or 15 millions of Reserve, consisting of a fmwf^ 
 surplus of fiduciary issue, which is virtually debarred 
 from acting as money. And if you bear this fact in 
 mind, and refer to the want of progress of the Bank, 
 its insufficient participation in the discount business of 
 the country (see pages 23 to 37), you may here perceive 
 the indication of a reason for this remarkable state of 
 
The 
 
 124 
 
 things, for against this useless issue the Bank of 
 England cannot possibly obtain a proper equivalent. 
 
 Second, The use of the Reserve for the safety of the 
 
 Reserve of Banlc noiu rcquives attention. The Bank of England 
 
 a^^amst i^ag liabilities, and, like any other banker, it must keep 
 
 dep^stta." a cash Reserve in order to guard against any possible 
 
 sudden withdrawals of deposits. 
 
 Having shown you before that the Bank of England 
 SJfuSf tato ^^^^ °-°^ ^^^P * large Eeserve for the circulation 
 ^^wma er ^^^ accommodation therein comprised, the question 
 
 reasonaUe 
 
 method. narrows itself to the simple point : "How much 
 Reserve does the Bank require for protection against 
 withdrawals of deposits ?" Although the Directors of 
 the Bank may tell you, "that is our affair and not 
 yours," yet nothing can prevent you from searching 
 into the matter, for the accounts are published. You 
 will concede, in the first place, that a Reserve must 
 bear some reasonable proportion to liabilities. Rough 
 economy might say : keep 40 or 60 or 80 per cent. 
 You wlE agree that such suggestions would put an 
 end to all banking, and that we may as well look to 
 the actual facts, and the reasonable standards which 
 they afford. 
 
 The Bank of England holds, say at any given 
 Mdre^'rf period, 25 millions of deposits, which it invests in 
 oH°e?oTOr. securitics of the first class. The value of the capital and 
 
 whelming 
 
 security. j-Qg^ of 18 miUions (whether fully invested or not, their 
 value is there), gives a total of security of 43 millions of 
 assets, against 25 millions of deposit liabilities. Now 
 when the subject of reserve held by other banks is 
 ' spoken of, such banks holding say 20 millions of deposits 
 on a capital and reserve of 1 or 2 milhons only, the 
 uppermost question is not that of enabling such banks 
 to make further advances out of their larger or smaller 
 reserve ; it is rather that of security, for if, by some 
 
125 
 
 means, the great mass of the assets held should suffer 
 any serious depreciation, the amount of capital and 
 rest might be deemed insufficient to cover the losses 
 incurred. As far as the Bank of England is concerned, 
 this danger need not be feared, for the capital and 
 rest of the Bank of 18 millions, with 25 millions of the 
 safest investments, are an overwhelming Reserve in 
 account. 
 
 The question of realising this Reserve in account 
 into currency in order to meet gradual withdrawals of ^th^''^ 
 deposits is often solved by other Banks, who do not aeposite^e 
 
 . „ . met by 
 
 possess the privilege of an issue as a stop-gap, and "^"^1^°^ 
 the natural liquidation of assets of 43 millions in first "''°^' 
 class realisable securities, against a gradual decline 
 in 25 millions of liabilities, would probably be far in 
 advance of withdrawals. Such a gradual decline of 
 the bank's business in deposits presupposes loss of 
 confidence, and a kind of demoralisation of the bank's 
 affairs, which is probably the most remote of all con- 
 tingences that, under its well-known management, can 
 possibly be imagined. 
 
 The question of sudden withdrawals of deposits 
 now arises. These may be caused, either by any wMf.'" 
 imaginable further demoralisation of the bank's affairs, depoSte." 
 and this we may either entirely dismiss or lump in 
 the absurd notion of a general smash, or they may be 
 caused by the capricious action of depositors. An esti- 
 mate of the nature of these deposits here becomes 
 legitimate. Of the deposits of 25 milhons, those made 
 by the State and on behalf of quasi public interests, 
 are not liable to such caprice. Let us assume however 
 that one-half of the amount, 12-^ millions, might be 
 subject to instantaneous claims, and that the Bank 
 some day would be called upon to pay down 5 or 6 
 millions. It has indeed been suggested that the 
 London bankers, who keep aggregate balances of from 
 
126 
 
 6 to 9 millions at ^lie Bank, might suddenly take it 
 
 into their heads to withdraw 5 or 6 millions. In 
 
 making this suggestion, let us ignore the fact that, 
 
 o^rioioua ^J the arrangements of the Clearing House, the 
 
 and T-k 1 
 
 ^e"n^ure" -"^^^ ^^ England is made the final liquidator, 
 suppoii. engaging all the interest of the bankers in its main- 
 
 tion, _ , , , 
 
 tenance, that any capricious action against it must 
 therefore break up the whole system, and a precon- 
 certed substitute found. We may further ignore that 
 both interest and honest dealing make such a caprice 
 an almost punishable matter, punishable at all events 
 by public opinion. Ignoring also, that public opinion 
 in its turn would approve of any measure which the 
 Bank might adopt without forfeiting the confidence 
 of right-thinking men (for in the trust which the 
 Bank undertakes in a business of this kind, which on 
 account of this supposed liability to capricious with- 
 drawals, is presumably not a paying one, and one 
 which the Bank, but for the high public considera- 
 whatwouid tions involved, would otherwise do better to decline), 
 effectB? -vfiiat would be the efiect of such a course of sudden 
 withdrawals of deposits from the Bank by bankers and 
 others ? 
 
 The answer is simple enough. Upon the actual 
 ha7^n* circulation such sudden withdrawals would have no 
 
 effect on the rv n n t • • i • i 
 
 amount of ettect, thov would not enter into it, the money so with- 
 
 money •* */ •■ i/ 
 
 required. (Jra-wn wouM bo on the market seeking investment, 
 and thus give to the Sank the readiest means for 
 realising quickly its valuable assets, and for receiving 
 back its notes. Virtually a mere transfer of accounts 
 would take place, in no way relating to amount of 
 currency at work. The Bank of England has fre- 
 quently, at sudden emergencies, when depositors were 
 short of money, realised several millions of assets, and 
 you will perceive that when it actuallyhands back money 
 to ita depositors, these must in their turn find employ- 
 
127 
 
 ment for it. The sudden creation of 5 or 6 or mors 
 millions of new securities is quite as impossible as 
 it is to cram into, or to withhold from, circula- 
 tion equal amounts of money, and the bankers could 
 but take up the securities with which the Bank of 
 England would part. 
 
 Considering now the severe tests which this matter 
 of actual money in Reserve has undergone, there ^I^Sln 
 remains but one final suggestion — that of a general bantruptoy 
 " smash " in the commerce of the country. The 
 indefinite feeling that against such an event a Reserve 
 is useful, is erroneous. It is hardly necessary to say 
 that such a smash need not make us fear for the supre- 
 macy of the assets of the Bank of England and other 
 Banks over their liabilities ; what concerns us here is 
 the amount of currency which might be required in addi- 
 tion to what we have. A general failure of business 
 of this kind would have the simple result of converting 
 the whole then existing claims into matters of arxount, 
 to be liquidated oflScially or otherwise. The hqui- 
 dators would give cheques in settlement, to be passed 
 through the usual channels, and this expresses a view 
 in accord with both the practical earnestness and the 
 theoretical joke here involved. Not only would no fve°ntwouia 
 additional currency be required, but the stoppage of p°ethorain 
 business would free so much of what had been ^™*iyf 
 engaged, as to cause an almost immediate plethora of 
 money. If hoarding were resumed, such hoarding 
 would certainly not apply to the Bank of England 
 note, for great as is our faith in its safety, when under 
 the above supposed calamity it has ceased to be con- 
 vertible, it would lose its legal tender value by law. 
 
 The far-fetched contingency alluded to in the abo ^ 
 paragraph, and the improbable events discussed bef' re 
 that, can now be set against a practical fact w"' ich maltake 
 
128 
 
 i^reMfcff deprives them, if not of their theoretical, at all events 
 times of"' of their practical basis: the supposed withdrawals of 
 
 pressure. 
 
 deposits in the events of crisis and panic. For when 
 pressure and crisis threaten, when money is in demand, 
 when the depositors of the Bank might be supposed to' 
 make withdrawals — we find that, on the contrary, there 
 is a sensible increase in the deposits instead ! The 
 crises of 1847, 1857 and 1866 show this distinctly. 
 This remarkable fact covers and overlies the whole 
 subject of reserve. Although this feature of our 
 money market has created much surprise, it is never- 
 Demon- thcless a most natural thinar, and so loner as this 
 
 Btrating the _ " ° 
 
 Btrmgthof nation continues in its present state of moral strength, 
 ^6^ epoai- ^^ stall see the same phenomenon repeated as the 
 occasion arises. 
 
 The ex- Now, if you should still have some lineferinff 
 
 tremeirre- ' -J o o 
 
 ^J aB%?^e suspicion that the present reserve is useful for the 
 failure. purposcs enumerated, you will, at least, admit one 
 thing : — 
 
 Tor the purpose of guarding a bank by way of 
 Eeserve it is requisite that the amount of the same 
 should be some regular per centage on the direct 
 liabilities or deposits. If the present Reserve is 
 supposed to be useful for this purpose, it ought to 
 have shown some such regular average at the disposal 
 of the bank — but what is the fact ? There have been 
 times when the Reserve of the Bank not only declined 
 to nothing, but when 2 millions extra issue had to be 
 made by the suspension of the Act — at other times the 
 Reserve exceeded 15 miUions I With such a reserve, 
 you win admit, it is impossible to satisfy legitimate 
 requirements, or to conform to the reasonable dictates 
 o", business ideas — it defies and nullifies them all. 
 
 ipne last purpose for which the present Reserve of 
 
12-9 
 
 tlie Bank might appear useful remains to be consi- '^^^^^^ 
 dared. If 160 millions of money are in regular cir- fh^Bele?ve 
 culation at any given time, and if, including the fixed ^^^^^ ^^ 
 note issue of 15 millions we have, say, 170 or 176 ^'^™' 
 millions of money, or 10 or 15 millions of idle Eeserve 
 at the Bank, you may deem this amount useful for the 
 replacement of hdlion which might he toithdrawn. 
 For inasmuch as the amount of money in the Issue 
 Department of the Bank depends on the presence of 
 bullion and the 15 millions — ^if thus at one time there 
 are, say, 20 millions of bullion, giving 35 millions 
 of notes for a circulation of 25 (or 10 'millions more), 
 but if at another time there are but 10 millions of Jelmingiy 
 bullion on the same circulation, you would think that appuoation. 
 the 10 millions of Eeserve would come in and supply 
 the gap. This might seem most natural. Yet nothing 
 can be more monstrous and fallacious than this idea. 
 It is the maintenance of this idle Reserve, which, 
 long before it can perform the office of filling such gaps, 
 drives bullion away from this country, and causes its real 
 almost all the diflficulties under which we labour. It If^^oi '^'^ 
 is this surplus of "Eeserve" of legal tender money dmouiaeB. 
 which gives to our money market the false appearance 
 of strength and plethora, and forces the Bank to 
 lower interest unduly, entailing all the consequences 
 which I have illustrated, and leading to the conflict 
 between the international value of money and the 
 Bank and market rate. And, as you will have gathered, e.°r&^us\t. 
 
 , the object 
 
 the principal object of this book is that of breaking o-ti^Book. 
 through the network of error created by this false 
 idea, and to suggest a remedy. For this purpose the 
 following chapters will strengthen my case, and pre- 
 pare the way for a reform. 
 
130 
 
 FALSE SOGGESTIONS FOUKDBD ON 
 RESERVE. 
 
 The statements and remarks laid before you may 
 ^^- enable you to come to the conclusion that the total 
 
 made bofor© *_ n -p • i n ii '1j_' 
 
 estatiiBh amount 01 ready money required for the circulation — 
 ?acto dr^' °^ indeed for all practical purposes — is a factor of some 
 reliability, and in itself quite independent of Reserve, 
 Whatever more or less Reserve we may hereafter keep 
 must be considered as a matter resting on its own 
 merits, and not in direct connection with the circula- 
 tion and business generally. 
 
 These facts are also useful in order to dispel » 
 Mre«8«oiiB number of suggestions with which the controversy is 
 ItoCTvI^ now embarrassed. Among these the most in vogue ia 
 that of attributing the difficulty we are in to the insuf- 
 ficiency of the Reserves held by Bankers throughout the 
 country. Estimates are made of the total liabilities of 
 Bankers in London and elsewhere ; — they are roughly 
 guessed at from 400 to 600 millions. With these their 
 " own Reserves " and that of the Bank of England are 
 compared. It is declared not only that Bankers' 
 Reserves are quite " out of proportion" to the " over 
 investments," but that Bankers have na right to. call 
 upon the Bank of England to keep Reserve for them 
 Fai»e at its own expense, &c., &c. In these suggestions 
 bS?^^ it is entirely overlooked that the scarcity of money 
 againBt™ Originates at the Bank of England— that this is a 
 Heserve. matter connected exclusively with international trade, 
 and that the local trade has nothing whatever to do 
 with it, save in suffering from the struggles of the 
 Bank in trying to draw money -from all quarters 
 to replace the bullion it has lost. After what I 
 
131 
 
 have said before, it must be plain to you now ^j^°:^^^g 
 that such talk is of no value in all that concerns "^"^^'^^ 
 the use of actual money. If these Banks did keep 
 an aggregately larger Reserve in cash, they would 
 do nothing more than hoard money, and as money 
 cannot be permanently kept out of circulation, 
 without being replaced from elsewhere, and cannot 
 re-enter it at will, such Reserves could only serve as 
 security to those who have claims upon Bankers, and 
 against such claims the Banker may just as well hold 
 Government securities. 
 
 Altogether, this subject of over-trading and over- 
 investment by Bankers in its relation to the currency ^•/°J\j^ 
 is misunderstood. It is the character of the securities iStek- 
 invested in that is in question ; and the demand for 
 cash reserves is made on the supposition that, in the 
 event of such securities proving non-realisable, the 
 Banker should have " money in hand " to pay with. It 
 might be said, " A cash Reserve will make him more 
 careful in his investments, for fear of losing it, he 
 must not mind the profit forfeited." If thus the 
 question of caution only arises, a Reserve in Govern- 
 ment securities ought to be as safe an investment as 
 can be desired. The fear of losing, either on cash or 
 Government securities, is aUke powerful; but if the 
 banker held Government securities, which bring him a?""™ 
 in three per cent, interest, he would gain some equiva- Ita^ 
 
 '■ . iuveatments 
 
 lent, for the sake of which he might sacrifice the larger "***• 
 profits he is seeking in the supposed " over-invest- 
 ment" business — i.e. he would, and could, be more 
 careful in regard to it. 
 
 But you will say, " There may be failures, entail- 
 ing loss of confidence, and all that sort of thing — ana want of 
 money will be missed, and the banker may be in ?™uit1n'^^ 
 
 ./ ' .1 matters ol 
 
 matters of 
 
 jeopardy, the country in danger ! " Failures no doubt "5°^°' 
 are disagreeable things to bankers, but they concern 
 
1^ 
 
 Spy*"""' oin,mtMb(in}c&rs' accmmts. They do not destroy eurrerCfyi 
 ''*™'"'^' or Set it aside, 01? ^ut it awa;yj- or fail in furni^liiiig it. 
 To tli6se who have claims Ott him it is immaterial 
 whether the banker obtains th6' currency frbm' the 
 contracts which failed hfm, or from other securities' j 
 and in this simple matter lies the key to the mystery 
 between falilures, loss of oonffdencej and supposed 
 loss' of " money." The latter is the just warning 
 " not to do it again ;" and if a banker refuses to 
 coMmue the transaction in question— if, in other words, 
 a " stoppage of business " occurs— it hais as little to 
 do with the amount of currency as the refusal to 
 clear a fcheqile has reference to the capacity of the 
 Ldndon Clearing House. 
 
 In other respects, ho prescribed amount of Reserve, 
 ^lisiafcion '^^ Bank Act, can induce Bankers to deal in " better " 
 "^oKot securities, provided even the country did afford thein. 
 
 Judgment , - , 
 
 mbanidiiK. Ju Qur couutry, whoso manifest prosperity should make 
 us presuppose that the securities which have furthered 
 it must somehow have been respectable, the Bankers 
 cannot, On the average, go wrong ; where they do go 
 wrong there are special demerits of Bmission and 
 commission which, like all matters of this kind, 
 ultiniatbly require the services of a liquidator. If bad 
 
 Reliance on ludges of Credit had a comfortable cash reserve to 
 
 express: i ii ii 
 
 k^CTeasM ^^V °^' *^®y 'W'Ould probably enter mtd transactions 
 TO^Sston resulting in a stiU greater mess, and the ultiniate losses 
 
 of greater . , „■ i i< • i o • 
 
 errors. ansmg from engagements on the faith of it might 
 exceed the proportion of presumable extra dividend 
 from such cash Eeserve. 
 
 It is true, however, that the false system of the 
 
 The Bank of England itself may contribute to speculation 
 
 supposed , . , i , 
 
 ^f'raSSfcts and over-trading, inasmuch as it renders pernicious 
 traoedto^ita the existeuce of, and the entrance into, contracts by 
 
 realsraginal , ■ •' 
 
 source. reason of the violent rates of interest which it is 
 obliged to make for the recovery of bullion ; because, 
 
1S3 
 
 for the sake of a few millions of gold, many iliun- 
 dreds, if not .thousands, of millions of contracts are 
 continually placed on an altered value of money. Hhe 
 unwary are caught by this, the chances of failure for 
 those, whose. deep experience has not taught them the 
 necessary lessons are thereby enhanced. It is the secret 
 fear, that among the mass of contracts running there are 
 thus insecure ones, insecure as if by some undefinable 
 fate rather than by actual error of contract, which makes 
 certain economists anxious on behalf of some of the 
 Bankers in the country and in London. Hence, " large 
 cash Reserves " are recommended, and if these recom- 
 mendations are not attended to, as they cannot be in the 
 nature of things, the would-be moralist indulges in 
 blaming the whole banking and mercantile world. 
 It is so easy and costless a process to utter such warn- 
 ings, or to recommend " Reserves " and " Measures," 
 and then to abuse a whole community. It is more 
 painful to investigate facts — and only by doing this 
 can we bring about a reform, in accordance with the 
 rights of the legitimate commerce of the country, 
 thereby placing aU illegitimate business in a more 
 distinct and more recognisable category. 
 
 The term " Banking Reserve " has obtained cur- 
 rency, and most of the writers on the subject of the if^^g^g 
 Bank Act make use of it. It is a pompous and ^*^°'^^-' 
 "implying " sort of expression, but does it really 
 imply anything practical ? You may admit that, 
 when the circulation is suppUed, when banking has 
 done all that it can do in order to estabUsh or to 
 equalise proportions between business and currency, it 
 cannot in any way whatsoever make available the so- 
 called "Banking Reserve." The expression, as we 
 use it now in reference to the present Reserve, is in 
 reality a meaningless term, which may hint at some- 
 thing, but is incapable of intelligent definition, The 
 
134 
 
 true Banking Reserve of a country is furnished by, and 
 lies in, the strength and convertibility of its invest- 
 ments, and its claims on others, which, under a proper 
 system of issue, become immediately available ; whereas 
 the present " Banking Reserve " is just that which 
 prevents the realisation of the true Reserve. 
 
 Of all the attempts to solve this problem of the 
 
 to TOMMt B^^k of England Note Issue, those which endeavour 
 
 Li^iiity ^Q effect a combination between the direct liabilities 
 
 and the Reserve of notes at the Bank are the most 
 
 noteworthy. Several economists have of late entered 
 
 upon this task, and flounder in the mire of its errors. 
 
 The purposeless nature of these attempts will appear 
 
 from the following : — If at any time the Bank held 
 
 25 millions of Deposits, the Reserve being 10 millions, 
 
 the proportion would be 40 per cent. Of the Deposits, 
 
 whicb the Bank invests in securities, an amount of — 
 
 say 10 millions — belongs to Bankers and others, and it 
 
 is perfectly immaterial whether this 10 millions be 
 
 used by tlie Bank or through the Bankers themselves, 
 
 our Money Market would be in precisely the same 
 
 position whether the securities be held by the Bank or 
 
 by others. Now if the 10 millions of Deposits be thus 
 
 pXooeieBii ^^^ aside, the Bank being left with 15 millions and 10 
 
 ttesT"' millions of Reserve, the proportion would be 60 
 
 eabimates. 
 
 instead of 40 per cent., and we would "congratulate 
 ourselves on the safer position," without the least 
 change being effected in the market, or in the amount 
 of money used. 
 
 Independently of all this the present actual practice 
 dwerenCTB '^^ ^^^ Bank offers no principle upon which a rule could 
 BaSf's be enunciated. I have tested this matter in two 
 different ways — firstly, by taking the proportion of 
 Reserve to Liabilities at each change of interest; 
 secondly, by taking the highest cmd lowest Reserve in 
 
 Eeeerve. 
 
135 
 
 each half year ; and ranging these under the respective 
 rates of interest the following results appear : — 
 
 Table 11. 
 Table showing the Highest and Lowest per centage of Beserve 
 (including Coin) to Liabilities (including 7 days Bills) of 
 the Bank of England for each rate of Interest. 
 
 (By Changes of Intereet. By Highoat and Lowest Reserve in Half Tear). 
 
 Date. Tear. 
 
 Sept. 25 1852 
 
 May 6 1868 
 
 March 20 1852 
 
 June 14 1871 
 
 March 24 1849 
 
 Deo. 2 1868 
 
 Aug. 5 1848 
 
 Jan. 31 1846 
 
 March 18 1848 
 
 Sept. 16 1863 
 
 Jane 16 185S 
 
 Jnne 13 1860 
 
 Feb. 18 1854 
 
 April 17 1847 
 
 Jan. 18 1865 
 
 May 6 1854 
 
 Dec. 18 1847 
 
 Oct. 11 1865 
 
 Jnne 13 1857 
 
 Oct. 18 1856 
 
 Dec. 14 1864 
 
 Aug. 8 1864 
 
 March 20 1861 
 
 Oct. 23 1847 
 
 Sept. 7 1864 
 
 Nov. 4 1857 
 
 Tear. 
 1852 
 1862 
 
 Date. 
 April 24 
 July 23 
 
 Proportions 
 of Reserve. 
 
 64 1 
 
 45 J 
 
 Rate. 
 2 7, 
 
 Proportions 
 of Reserve. 
 
 f65 
 
 i.4a 
 
 1849 
 1868 
 
 Nov. 
 Kov. 
 
 24 
 18 
 
 68- 
 40. 
 
 2i7o 
 
 (66 
 I 43 
 
 1843 
 1868 
 
 Nov. 
 Dec 
 
 4 
 2 
 
 61" 
 39 . 
 
 3 7, 
 
 f 66 
 (38 
 
 1855 
 1865 
 
 June 
 July 
 
 16 
 
 26 
 
 63" 
 33. 
 
 Si7, 
 
 (62 
 (.26 
 
 1855 
 1865 
 
 May 
 Aug. 
 
 5 
 
 2 
 
 52' 
 
 31 : 
 
 4 7o 
 
 f66 
 (.33 
 
 1855 
 1869 
 
 April 
 May 
 
 7 
 6 
 
 50" 
 36. 
 
 4i7, 
 
 (63 
 
 (.40 
 
 1854 
 1856 
 
 Ang. 
 Oct. 
 
 2 
 
 4 
 
 50") 
 23. 
 
 8 7, 
 
 ■54 
 
 ;.23 
 
 1857 
 1855 
 
 July 
 Oct. 
 
 18 
 6 
 
 42" 
 81. 
 
 647, 
 
 f42 
 (33 
 
 1864 
 1856 
 
 Deo. 
 Oct. 
 
 14 
 U 
 
 48| 
 21. 
 
 6 7, 
 
 f45 
 l24 
 
 1856 
 1857 
 
 Deo. 
 April 
 
 6 
 
 4 
 
 36 
 23 
 
 6i7e 
 
 f37 
 (20 
 
 1866 
 1865 
 
 Feb. 
 Oct. 
 
 21 
 11 
 
 45 1 
 23) 
 
 7 7, 
 
 i"48 
 ' 28 
 
 1864 
 1847 
 
 Nov. 
 Oct. 
 
 9 
 
 23 
 
 SI 
 
 8 7, 
 
 }S 
 
 1864 
 1857 
 
 Sept. 
 Nov. 
 
 7 
 4 
 
 35") 
 16) 
 
 9 7, 
 
 35 
 .15 
 
 1857 
 1866 
 
 Not. 
 May 
 
 11 
 16 
 
 7) 
 6) 
 
 10 7, 
 
 (.20 
 
 30 1866 
 Aug. 1^ 1866 
 
 This table, "which gives varieties from two different 
 
 . The 
 
 points of test, will show you how that no combination ^^°^^^- 
 between Reserve and Liabilities is possible. In 1862 ^^g* 
 
136 
 
 suoh°'ro^^ the Reserve is 42 per oerit., with, interest at 2 'p6Y 
 portio™". ggj^^_^ ^^^ .^ T^QQ^ 1^ .g ^^ pgj, .gg^^_ ^-^j^ interest at 
 
 8 per cent ! Between the extreme limits here given there 
 are all sorts of odd variations which makes the discovery 
 of a principle inipossible, and which prove conclusively 
 that the question of liabilities of the Banking Depart- 
 ment has little or no connection with that of Reserve. 
 The economists who vainly endeavour to bring about 
 such combination have discovered generally that 
 Interest rises when the Reserve is small; what this 
 amounts to, for a rule, the above figures will show. 
 That the Reserve diminishes when the Bullion is with- 
 drawn we know, and that is the sole and simple 
 reason of the phenomenon. Under the present system 
 of issue this only original cause would remain in 
 force whether the liabilities of the Bank be 10, 20, 30, 
 or 40 millions. 
 
 A writer,* who is a fair type of this class, of 
 tti?^^^^s°' " Reserve " economists, in his letters to the Times, in 
 
 metliod, toy -t nt^n 
 
 Professor Decembcr 1873, says — 
 
 "I have called a reserve of 36 per cent, of 
 the liabilities a point of full safety. Will any one 
 challenge the assertion? One-third of the liabilities 
 was long ago proclaimed to be the rule of sound 
 banking." 
 
 This writer' talks of analysis and science — where 
 does he furnish the former ? or, is the latter contained 
 in assertions and proclamations made " long ago ? " Of 
 the circulation and its incapacity for absorbing Reserve, 
 
 ralaeneas of the rate of interest and the office which it performs 
 
 of these . n t-» m- 
 
 Buessea. xu reference to BullioUj as one of the constituents of the 
 monetary system, and of the relationship between, them, 
 no notice is taken by this school of writers— -all is 
 "lumped" in the "Reserve." How this Reserve is 
 
 * ProfossQr 33otiamy Price, 
 
157 
 
 to be maintained, by what it must be preceded, whether 
 
 that ivhich it precedes has any force or not — of all this S'lump au' 
 
 we hear nothing. It will be found that when struggling SotoraMp. 
 
 intellects of this class have succeeded in finally fixing a 
 
 per centage of "reserve," to " liabilities " of the JBank, 
 
 that as a further solvent they will suggest the ''issue of a 
 
 certain amount of government paper money," and some 
 
 definite sum, 10, 20, 30 millions, is likely to be pitched 
 
 upon. I do not say that the writer of these letters 
 
 to the Times will be guilty of such coarse financial 
 
 alchemy, but it is just on the cards that the school 
 
 will resolve to adopt this expedient ; that, forgetful of '^^^^_ ^^^^ 
 
 the several factors whose rights must be considered, thCTetom. 
 
 they select one, succeed in combining it with the next, 
 
 but are unable to fit these first results with the 
 
 variations of the following factors, and then take 
 
 refiage in deliberate assertion and guesswork. I refer 
 
 to my remarks on the controversy in the preface of ™„^^ 
 
 this book, and the above quotation seems to verify the Sbwuou. 
 
 prediction, for the question, " Will any one challenge 
 
 the assertion ? " tops the matter. 
 
 If, as I have endeavoured to show you before, the 
 action of the Bank in making bullion, or tantamount The 
 
 " ignoring of 
 
 decline of Reserve, guide the rate of interest, instead of ^q^'. 
 making interest guide bullion, resembles the putting of SSion!* ° 
 the cart before the hors^, this proceeding . of making 
 Reserve guide both, is best designated as an attempt to 
 make the load drag both cart and horse. It must be 
 evident to you that in deahng with the circulation, 
 consisting of a definite amount of coin and Bank of 
 England notes, as the supernatant portion, the first 
 thing required is that the amount of bullion must be 
 kept up to its level. When that is done, aU is done that 
 we want, the practical use of -Reserve is then at an 
 end, or rather, if then we wish to keep a Reserve of 
 notes, we can indeed realise the agreeable proposition 
 
138 
 
 of keeping such a Reserve* at a continuously regular 
 amount, for it need not be encroaclied upon, and might 
 be laid by for a remote "rainy day, " so as not to in- 
 fluence the rate of interest. I do not herewith wish 
 to say that we should keep no Reserve, or one of a 
 regular large amount, you will see hereafter what is 
 the nature of the Reserve I have to propose. In calling 
 your attention to this first requirement, viz., the keeping 
 up the level of bullion to circulation of notes, I show 
 ra^?wLn 7°^ *l^e absolutely clear result which would foUow, and 
 qiirement upou wMch wc Can build a superstructure. And you 
 
 is provided ■*■ ± t/ 
 
 **"■■ may agree with me that the attention of our economists 
 
 should be directed to this first point. Hence the fallacy 
 of commencing with the superstructure of Reserve 
 before there is a foundation. The, at present, fashion- 
 able method of attempts to solve the problem, by 
 guess-work as to proportions between Habilities and 
 Reserve, will soon see its day. It is to be hoped that 
 the writer of the letters to The Times wUl succeed 
 in finding more definite items for enquiry and reform ; 
 the circulation generally, the circulation of the Bank 
 of England note, and the due proportion of bidUon 
 thereto must have precedence over Reserve. 
 
 THE DESTRUCTION OF BANKERS' AND 
 OTHERS' SOLID CASH RESERVES BY THE 
 PRESENT BANK OP ENGLAND RESERVE. 
 
 One climax in my charges against the present 
 The real Resorvo of the Bank of England system will now 
 
 des^^er of o .^ 
 
 be reached, if I tell you that when times of crisis 
 appear, the Bcmk of Englcmd alone is in jeopardy. It 
 is the public which, instead of withdrawing money, 
 
 all Beserve. 
 
 * Of 10, 15, 20, or more zaillions. 
 
139 
 
 actually strengthens and helps the Bank by more 
 deposits, increasing its Reserves, it is the Bank of 
 England which does not onVu use up its own large Byusmgup 
 
 •f -I- t/ herownand 
 
 Resei-ves, dervvahle from free deposits and the issue people's 
 of 15 millions, but whi&h uses up the Reserves of 
 hankers and others placed in its care, until, after having 
 drawn all into the vortex, it obtains for its relief a sus- 
 pension of the Act, and an extra allowance of credit 
 issue ! It is not the public which has kept too little 
 reserve, or made away with that of the Bank ; on the 
 contrary, I repeat, the public in times of crisis 
 actually increases its Deposits, and strengthens the 
 Bank — the Bank absorbing all. 
 
 Whoever has watched the controversy of the Bank 
 of England during the last two or three decades must Theaueged 
 
 InBoffl- 
 
 be aware of the assertion made, that the pubUc does ^^°^. 
 not keep sufficient reserve; that if they did so, we t^^S'of 
 should get over our troubles. These assertions are 
 made either in laudation of, or in order to shield, the 
 Bank of England; not purposely perhaps, but because 
 there are few people prepared to believe that this 
 institution can be wrong. The strongest facts are 
 consequently required in order to break through this 
 prejudice and the injustice thereby committed. 
 
 For the full understanding of this matter it is not 
 necessary here to discuss the amount of Reserve which irrespectivB 
 
 •' . of the 
 
 Bankers should keep, nor whether, having reference to ^^^. 
 the character of the currency, these Reserves should ' 
 be cash, or held in Consols. Nor is it necessary to 
 mention that (as a reference to the table on page 11 wiU 
 show) such bankers' Reserves have materially increased 
 with increase of commerce. What concerns us here 
 is the destruction by the Bank of England system TteBani-B 
 of Reserve, of the Cash Reserves of the country, l^Z^"^^ 
 whether they are large, just sufficient, or too small, oonoSuua 
 or deposited at the Bank before, during, or after 
 
140 
 
 the event. If tlie Reserves alluded to were small and 
 insignificant, the Bank of England, with, its enormous 
 resources, ought to be all the more careful of -their 
 preservation. An analysis of the Bank of England 
 accounts as they appear in ordinary times of pros- 
 perity, with ample "Reserye, will show this matter by 
 way of -contrast with times of crisis. 
 
 The following pro forma of weekly statement re- 
 present such a case of ordinary prosperity : — 
 
 JS^UE iRIJPABTMENT. 
 
 Example of 
 ordinary 
 
 ^°e^,mt. ^°*es issued 
 
 Liabilities. 
 
 . £36,000,000 
 
 ;£36,000,00,0 
 
 Assets. 
 Governineiit ^eou- 
 
 .ri^ies . . . . i611,015,10,0 
 Securities . . . 3,984,^00 
 Gold coin &biillion 21,000,000 
 
 .£86,(?j00,0q0 
 
 There beiiig) say, 2S millions qf nQtes in ci/p.qv>latiqni, 
 -the di^ereii<?ef)3f 13 milUons , parses into |ihe Bankinjg 
 department. 
 
 BANKING DEPARTMENT. 
 
 JLUBJUTIBS. 
 
 Capital £14,600,000 
 
 3,500,000 
 
 8,000,000 
 
 15,600, OQO^ 
 
 SOO.QOO 
 
 Rest .... 
 
 Pnblio deposits. 
 
 Other deposits . 
 
 ,. Seven days' ,bills 
 
 .£42,000,000 
 
 .Assets. 
 Government Secu- 
 rities . . , . 
 Other Securities . 
 :Bieserve;N(jtes . . 
 Coin 
 
 £13,500,000 
 
 15,000,000 
 
 , 13,f)e0,Q00 
 
 6Q0,fi00 
 
 £42,000,000 
 
 Analysing the account of the Banking Department, 
 so as to show the proportion of Bankers' balances, bills 
 discounted, and temporary a,dvaijces, the following 
 appears ; — 
 
14i 
 
 ANALYSED ACCOUNT OF THE BANKING DEPARTMENT. 
 
 Liabilities. 
 
 , Analysed 
 
 Assets. account. 
 
 Capital £'14,500,000 
 
 Government secu- 
 
 Eest 3,500;000 
 
 nties . . . .£13,600,000 
 
 Public deposits . . 8,000,000 
 
 /Other secm-ities . 9,OO0,OO& 
 
 (Other deposits. . 10,000,000 
 LBcmkers' halcmoes . 5,500,000 
 
 Bills discomnted . 4,500,000 
 
 Temporary ad- 
 
 Seven days' bills . 600,000 
 
 . vances . . . 1,500,000 
 
 
 Beserve of Notes. . 13,000,000 
 
 
 Goim, 500,000 
 
 £42,000,000 
 
 £42,000,000 
 
 Bank rate of disc 
 
 ount 2| per cent. 
 
 Suek a pdsition 'would Accordingly appear " safe,'* 
 and of the two items liere tinder consideration the 
 Beserve of the Bank of 13 millions exceeds the Banlcers' 
 balcmces of 6^ millions by 7^ millions. 
 
 Watch now what occurs when this "safe" position, 
 by way of large useless Reserve, begins to tell upon the 
 export of bullion. When a few millions of bullion are 
 withdrawn, and times of pressure arise in consequence, 
 the Ecserve being diminished to 6 or 7 millions, you 
 would suggest that at the least the Banlc should Iceep 
 intact the Banlcers' 6^ millions I But these you find are 
 also attacked, the Reserve diminishing, until the issue, 
 the deposits, including hankers' Beserve, and all available 
 resources, are swallowed up ; the Bank of England being 
 left, as in 1857 and 1866, with nothing, and forced to 
 ask for the suspension of the Act for extra issue. 
 Further, in the meantime, before this low stage is 
 reached, the deposits and Bankers' balances increase ; 
 nevertheless they do not stop the storm. The absolute 
 Nothing and Minus which the Bank thus brings about 
 are entirely owing to the previous large Reserves, the 
 consequent unduly low rates, the enforced export of 
 bullion, and the inability of the Bank to keep its stock. 
 For even when the rate is raised at first on a moderate 
 
 Bopposed 
 
 safe 
 
 position. 
 
 Departure 
 of bullion 
 and utter 
 disappear- 
 ance of 
 Issue, 
 Bankers' 
 Beserve and 
 deposits in 
 the T0rt«x. 
 
 The 
 
 absolute 
 JJotliing 
 andMiauB. 
 
142 
 
 amount of Eeserve, it is that Reserve of whatever 
 amount which interferes with a just rate, and no bullion 
 comes in until the very highest rates are reached. 
 
 At such times of crisis then the weekly statement of 
 the Bank's aflFairs may be given as — 
 
 ISSUE DEPARTMENT. 
 
 LUBILITIES. 
 
 ^A°' Notes issued. . . £25,000,000 
 
 no Reserre. 
 
 Assets. 
 Government Seonr. £11,015,100 
 Other Securities . . 3,984,900 
 Gold Coin & Bullion 10,000,000 
 
 £25,000,000 
 
 £25,000,000 
 
 The circulation, before 23 millions, having for the 
 moment risen to 2^, the Reserve in Banking Depart- 
 ment is reduced to ^ million. 
 
 The account of the Banking Department made up 
 by items which experience confirms, analysed as before, 
 would then appear as : — 
 
 BANKING DEPARTMENT. 
 
 EankCTB' 
 
 Eeserves 
 
 SimiUioDB, 
 
 Bank's 
 
 Beserve 
 
 } million. 
 
 Liabilities. 
 
 
 Assets. 
 
 Capital . . . .£14,500,000 
 
 Government Secu- 
 
 Rest 3,600,000 
 
 rities £12,000,000 
 
 Publio deposits . . 9,000,000 
 
 /Other Securities . 10,000,000 
 
 -f Other deposits . 10,000,000 
 ' .Bankers' halanees . 8,500,000 
 
 
 Bills discounted . 18,000,000 
 
 
 Temporary ad- 
 
 Seven days' bills . 500,000 
 
 V vanoes . . . 5,000,000 
 
 
 Reserve of Notes . 500,000 
 
 
 Coin 600,000 
 
 £46,000,000 
 
 £46,000,000 
 
 Rate of interest, 10 per cent. 
 
 You will see, by this account, that whereas the 
 Banker's Reserves entrusted to the Bank of England 
 are 8^ millions, the Bank's total Reserve is but half a 
 million. 
 
 Can you deny that the Bank has swallowed up the 
 Issue, the deposits, the Bankers' Balances, the increased 
 deposits, and extra issue ? Is it not a matter of 
 
The sndden 
 increase in 
 the Bank 
 
 143 
 
 absolute fact as well as of account ? You will find 
 that the crises of 1857 and 1866 represent the features 
 of this case, with the difference that in 1857 circula- 
 tion was 20 millions, and Bullion could fall as low as 
 
 6 millions, whilst in 1866 the circulation was 26 mil- 
 lions, and Bullion fell to 11 millions. 
 
 Next to the disturbances, the crises and panics to 
 which such a state of the Bank's account gives rise, 
 the most striking feature has always been the almost 
 instantaneous increase in the Bank's investments, rising securiaes. 
 in the above accounts, from 29^ to 45 millions, followed 
 by a rapid decline. A reference to pages 10, 11 and 27 
 of this book will show you that in 1857 the Bank's bills 
 under discount suddenly rose from 8 to 17 milhons, 
 with temporary advances included to 20 millions, 
 whereas three months before both amounted to but 
 
 7 millions, and a month before to 10 millions, the rise 
 being nearly J.4 millions. Again in 1866, whereas in 
 February the total of bUls discounted and advances 
 were 8 millions, they rose during the crisis to 24 millions, 
 besides 1 million increase in Government securities ! 
 
 The current explanation of this action on the part 
 of the Bank is this : " In times of crisis, when other 
 people have made money, the Bank of England alone Soneo™ 
 
 current 
 
 can help the public — because it has money ! " whereas "^J^° 
 the truth of the matter is this : " It is not the public 
 which has made away with the money, for the 
 circulation remains regular. It is the Bank itself 
 which has lost Bullion (the basis of its issue). It is 
 the Bank which, having lost its Keserve, then attacks 
 and makes use of the Deposits and. Reserves of 
 Bankers held in trust, and increases its investments TheBankof 
 
 England 
 
 by additional deposits." And yet, although these 'Soiana 
 additional deposits plainly prove that the pubhc and °°'^"' 
 the Bankers have not only not made away with 
 
i44 
 
 money, but actually furnish more, it is said, " The 
 Bank is the only factor in our market which knows 
 how to keep Reserve!" 
 
 In reality then the Bank of England, after Iqsing 
 Replacing Reservo EKid Bullion, which it is its own business t-o 
 
 them by ' 
 
 al^ofite maintain, replaces these losses by the deposits belong- 
 toDkera' ing to the public, and engages these, Bankers' balances 
 and fresh deposits, to the last farthing, Requiring 
 extra issue besides. The danger to which this exposes 
 the real solid Reserves of the country belonging to 
 the depositors would long ago have manifested itself, 
 were it not for the large capital and rest of the Bank, 
 The danger Under the shadow of which this proceeding goes on, 
 
 to the 
 
 deposite. _4ii(j should an honest Government refuse again to 
 
 suspend the Act, should, through decline of bulhon 
 
 below panic point, the Bank of England note remain 
 
 once unpaid (and thereby lose its legal tender rights), 
 
 a state of confusion would arise, in which the solid 
 
 elements of deposits might have to bear the bnint. 
 
 "Remote as this may be, large as may be the Bank's 
 
 capital, there comes the higher consideration as to 
 
 The . just treatment of these deposits, and their equitable 
 
 v^^^! employment. In all that concerns the Bank of Eng- 
 
 the Bank's laud's sorrv discount business you will here discern 
 
 nerrous- "^ ** 
 
 nes^and reasous wMch-may explain to you the nervous state of 
 progress. ^^^ institution, for the deposits appear to be destined 
 to serve only as a refuge, to take the place of bullion, 
 when the much vaunted Reserve of notes has de- 
 stroyed bullion, and disappeared itself with this 
 performance. 
 
 Imagine now what would take place if, instead of 
 Imagine a an incrcase of deposits, a decrease took place. The 
 
 percentage ^ ... 
 
 dlpoliis deposits being free, it is immaterial, as far as supply 
 
 vo awa. ^^ money is concerned, whether the Bank uses them 
 
 for advances, or the depositors themselves do so. If at 
 
 such times of crisis, when, under the extremest pressure 
 
145 
 
 only, bullion just turns back — the depositors withdrew 
 their deposits to discount bills with them, the mercan- 
 tile community would be just as well served, there 
 would be the same supply of money — no alteration in 
 the currency — but the Bank of England would certainly 
 be unable to meet its engagements. This extreme 
 contingency may never occur, but the gigantic mis- 
 conception which maintains that the Bank is safe and 
 others are unsafe, which, whilst theory and practice 
 prove that the Bank's inability to hold bullion causes 
 the mischief, nevertheless accuses the pubhc, involves 
 a shortcoming of intelligence that should be protested 
 against as immoral and undignified. 
 
 The charge of over-trading at such times accord- 
 ingly lies at the door of the Bank of England. This ''>''|^^°^j 
 will appear to you, if you bear in mind that any ttechlS-ge 
 
 of ovGr 
 
 ordinary Banker whose right to invest capital first is iavestment. 
 not disputed, is called upon to keep free out of, say 
 12 millions of deposits, 2 millions of cash, investing 
 but 10. The Bank of England, on a presumed note 
 Reserve of 9 millions, with deposits of 25 millions, 
 would make investment of 46 millions, but whereas the 
 private Bankers' Reserve consists of actual cash, the 
 Bank of England Reserve consists of paper money — of 
 a cash value in proportion only to the bullion held on 
 the whole issue — a kind of Reserve which, moreover, 
 ruins itself by operating against bullion. 
 
 But it is not in times of crisis alone that this over- 
 tradinsr on the part of the Bank manifests itself, these At other 
 
 o I. ' occasions 
 
 only just show the utmost possible point, to which, JSeBan?'' 
 short of an absolute minus, such over-trading can upon the 
 
 ^ Bankers* 
 
 possibly be stretched. At other times similar en- ^''="^- 
 croachments upon Bankers' Reserves take place. The 
 following table will illustrate this. It gives the total 
 of the Bank's Reserve and Bankers' balances, the 
 differences showing the result : — 
 
 10 
 
146 
 
 Table 12. 
 
 Table showing the Reserves of Notes at the Bank, selected from 
 each half-year, with Bankers' Balances as included therein, 
 and consequent Bank Reserve tvithout them. 
 
 (In MillionB and Deoimala. 00,000 omitted.) 
 
 Tear. 
 
 m 
 
 li 
 
 h 
 
 1^ 
 
 Tear. 
 
 
 In 
 
 
 1845, Mar. 22 
 
 9-6 
 
 0'8 
 
 8'8 
 
 1859, Mar. 23 
 
 13-3 
 
 3-3 
 
 100 
 
 Not. 1 
 
 5-2 
 
 1-5 
 
 3-7 
 
 Oct. 19 
 
 83 
 
 3-6 
 
 4-7 
 
 1846, Jan. 24 
 
 5'4 
 
 4-6 
 
 0-8 
 
 1800, April 11 
 
 4'9 
 
 4-2 
 
 0-7 
 
 Oct. 10 
 
 8-3 
 
 0-9 
 
 7'4 
 
 Oct. 24- 
 
 6-7 
 
 5'6 
 
 1-2 
 
 1847, Mar. 6 
 
 5-7 
 
 10 
 
 4-7 
 
 1861, July 17 
 
 7-4 
 
 3'7 
 
 37 
 
 Oct. 30 
 
 11 
 
 1-9 
 
 tO'8 
 
 Dec. 25 
 
 100 
 
 3-7 
 
 63 
 
 1848, Mar. 25 
 
 10-9 
 
 1-7 
 
 9-2 
 
 1862, Mar. 26 
 
 10-3 
 
 3-9 
 
 6-4 
 
 Oct. 28 
 
 80 
 
 3-3 
 
 4-7 
 
 Oct. 29 
 
 8-3 
 
 5-9 
 
 2-4 
 
 1849, Mar. 25 
 
 109 
 
 1-0 
 
 9-9 
 
 1863, Mar. 25 
 
 91 
 
 40 
 
 51 
 
 Deo. 22 
 
 12-4 
 
 1-4 
 
 110 
 
 Nov. 11 
 
 60 
 
 4'7 
 
 1'3 
 
 1850, Mar. 30 
 
 11-8 
 
 1-6 
 
 10-2 
 
 1864, Mar. 23 
 
 8-4 
 
 2-8 
 
 66 
 
 Sept. 21 
 
 10-3 
 
 1-3 
 
 100 
 
 Nov. 16 
 
 7-5 
 
 6-8 
 
 0-7 
 
 1851, Mar. 22 
 
 9-2 
 
 11 
 
 81 
 
 1865, Mar. 22 
 
 9-5 
 
 4-5 
 
 50 
 
 Deo. 20 
 
 12'1 
 
 1-5 
 
 10-6 
 
 Oct. 25 
 
 5-2 
 
 4'7 
 
 0-5 
 
 1852, Mar. 20 
 
 131 
 
 2-7 
 
 10-4 
 
 1866, May 30 
 
 0-4 
 
 7-8 
 
 t7'4 
 
 Jnne 26 
 
 14-2 
 
 24 
 
 11-8 
 
 Dec. 26 
 
 11-3 
 
 65 
 
 4-8 
 
 1853, Mar. 19 
 
 111 
 
 1-8 
 
 9-3 
 
 1867, Mar. 20 
 
 11-5 
 
 5-3 
 
 6-2 
 
 Oct. 22 
 
 4'2 
 
 30 
 
 1-2 
 
 Sept. 11 
 
 14-4 
 
 6-8 
 
 7-6 
 
 1854, Mar. 18 
 
 7'2 
 
 2'0 
 
 5-2 
 
 1868, Mar. 18 
 
 11-9 
 
 5'5 
 
 6-4 
 
 Oct. 21 
 
 5-9 
 
 3-9 
 
 20 
 
 Nov. 4 
 
 8-9 
 
 5'7 
 
 3-2 
 
 1855, Jan. 23 
 
 11-8 
 
 31 
 
 8-6 
 
 1869, April 7 
 
 7-2 
 
 70 
 
 0-2 
 
 Oct. 13 
 
 4-5 
 
 3-4 
 
 11 
 
 Sept. 22 
 
 111 
 
 5-6 
 
 5-5 
 
 1856, Mar. 15 
 
 5-8 
 
 2-8 
 
 30 
 
 1870, Jnne 22 
 
 130 
 
 5-6 
 
 7-4 
 
 Oct. 18 
 
 2'5 
 
 31 
 
 tO'6 
 
 Deo. 14 
 
 14-1 
 
 6-4 
 
 7-7 
 
 1857, Sept. 12 
 
 61 
 
 2-4 
 
 3-7 
 
 1871, Jnne 21 
 
 17-8 
 
 7-1 
 
 10-9 
 
 Nor. 11 
 
 09 
 
 4'6 
 
 +3.7 
 
 Oct. 25 
 
 10-8 
 
 12-1 
 
 tl'3 
 
 1858, Mar. 24 
 
 13-0 
 
 4'1 
 
 8-9 
 
 1872, Mar. 20 
 
 130 
 
 6-8 
 
 6'2 
 
 July 14 
 
 99 
 
 5-4 
 
 4-4 
 
 July 13 
 
 100 
 
 130 
 
 30 
 
 The fixed isBnes to 1855 was 
 
 
 
 14,000,000. 
 
 
 From 1855 to 1861 was ... 
 
 
 14,475,000. 
 
 
 „ 1861 to 1866 
 
 , 
 
 ... 
 
 14,650,000. 
 
 
 „ 1806 to 1872 
 
 , 
 
 ... 
 
 15,000,000. 
 
 
 Extra issue in 
 
 1867 
 
 , 
 
 
 2,OC0,O30. 
 
 
 
 
 Also conce !c I i 
 
 ilSliand ^r-C.G. 
 
 
 
 
147 
 
 The items witli a f denote the times when the 
 Bank thus encroached upon the Bankers' Eeserves, 
 entirely absorbing in 1857, 3"4 millions out of 4-6 
 millions, and in 1866 7-4 millions out of 7-8 millions. 
 The " differences " in Reserve generally show how 
 variable are the Bank of England's own Reserves 
 when those of the Bankers are set apart. 
 
 Setting aside Bankers' Balances as definitely 
 belonging to bankers, the 56 instances given in this 
 table show that the Bank over-exceeded its invest- 
 ment, so as to stand there 
 
 In 1 instance with a minus of 7'8 milKons showing 
 
 tho frequent 
 1 Q . "7 minus and 
 
 ■*■ 5> )J >> O t ,, vai'ililiility 
 
 - _ of tho 
 
 1 » » " 1-3 „ ^^^ 
 
 2 ,, „ ,, under a million 
 
 5 „ „ plus less than a million 
 
 6 „ ,, ,, 1 to 2 millions 
 11 » „ „ 3 to 4 „ 
 
 10 „ „ ,) 5 to 6 „ 
 
 11 „ ,> „ 7 to 9 
 8 „ „ „ 10 to 11 
 
 Rescivc. 
 
 5J 
 55 
 
 If you should be of the opinion not only that the 
 Bankers' balances ought to be kept intact, but that 
 besides this tho Bank ought to keep a Reserve of 
 its own of no less than 7 millions, you will see that 
 out of the 56 instances quoted there were 32 under 
 the mark, excluding the 5 of absolute " minus." 
 
 It may now be surmised that when these rare and m,, , 
 
 *' Ine heavy 
 
 extraordinary occasions occur, the Bank of England iSmacie 
 makes good profits. They are indeed good harvest 
 times ! 
 
 The following are tlie sums of gross interest earned 
 fron;i tho 15 millious of fixed issue, calcuLited i:i 
 
 by the Bank. 
 
148 
 
 accordance with the proportion actually used, and the 
 respective rates of interest : — 
 
 
 £ 
 
 
 £ 
 
 
 £ 
 
 1845 
 
 167,000 
 
 1854 
 
 379,000 
 
 1863 
 
 310,000 
 
 1846 
 
 204,000 
 
 1855 
 
 300,000 
 
 1864 
 
 576,000 
 
 tl847 
 
 485,000 
 
 1856 
 
 549,000 
 
 1865 
 
 347,000 
 
 1848 
 
 188,000 
 
 +1857 
 
 675,000 
 
 +1866 
 
 690,000 
 
 1849 
 
 121,000 
 
 1858 
 
 103,000 
 
 1867 
 
 88,000 
 
 1850 
 
 86,000 
 
 1859 
 
 113,000 
 
 1868 
 
 92,000 
 
 1851 
 
 166,000 
 
 1860 
 
 285,000 
 
 1869 
 
 186,000 
 
 1852 
 
 38,000 
 
 1861 
 
 426,000 
 
 1870. 
 
 111,000 
 
 1853 
 
 222,000 
 
 1862 
 
 138,000 
 
 1871 
 
 59,000 
 
 The average of 24 of the 27 years is £222,000, the 
 remaining three, the years of crisis of 1847, 1857 and 
 1866, stand with respectively £486,000, £675,000 and 
 £690,000, and you must bear in mind that the actual 
 high pressure and duration of crisis lasted but a few 
 weeks in each of these years. 
 
 But it would scarcely seem necessary to give 
 
 figures — the inference is too natural, and we know 
 
 The hMTest that at such times of crises the Bank makes sudden 
 
 of the Bank 
 
 whentthaa g|;a,rtg {^ discouutiug largely. We accordingly find, 
 panic. that when the Bank of England is unable to check ' 
 the egress of bullion by poising the rate (as it can 
 do, without hindrance or fetter), when consequently 
 it has lost bullion, used up its own reserve and that 
 of the Bankers, and subjects the industry and com- 
 merce of this country to losses and excitement, and 
 by its attempted encroachments upon the circulation 
 to panic — then is the time for the Bank to do a 
 roaring business ! 
 
 Business men will agree with me that such a thing 
 Contrary ig not in accord with reason, even if the Bank of 
 
 to fan: ' 
 
 weaeT England profited by the distress of the country with- 
 out participating in its cause at all, if it were but 
 laying in wait, so to speak, for these good roaring 
 times. A business man would shake his head as much 
 at their sudden increase as at their equally rapid 
 
149 
 
 decline. But when the Bank is not only a participator 
 in the trouble, but as far as bullion is concerned, the 
 first and principal instigator of the mischief, the 
 thing becomes serious ; finally, when the Bank is 
 enabled to perform this feat of unusual discounting 
 with other people's money, and still obtains more, all 
 rhyme and reason appear to be lost ! 
 
 Submitting, as we seem to do, to such anomalies, 
 I may here be told, " This is all very true and bad tw" 'uaa 
 
 Denial that 
 this is th< 
 unavoid- 
 
 but we suppose the Bank cannot help it — circum- B^quenw'of 
 
 Bequeoce c 
 
 circum- 
 
 stances are in its favour, and we have overtraded ! " bSS'. 
 I deny that circumstances force the Bank to this 
 course, for on several occasions, when interest was 
 high, under the very same conditions, the Bank 
 followed a different policy. The most noteworthy of 
 these cases occurred in December 1863, when the Bank 
 preserved 13 millions of bullion and 8^ millions of note 
 Eeserve with 8 per cent,, and kept its discounts at the 
 level of 8 millions. Again in 1872 the rate rose to 7 per 
 cent, to protect 19 millions of bullion and 11 millions 
 of notes, the discounts being 7 millions. Although, Exampiesot 
 in both cases the interest rose to nearly crisis '"'""°- 
 points, the Bank parted with no more money, the cir- 
 culation remained unaltered, and yet trade went on, 
 simply for the reason that the regular balances coming 
 in were just as available for the business of the country 
 direct through the hands of bankers and depositors, as 
 if they had passed through the Bank of England. And 
 you will understand this reasoning : "If the Bank 
 of England is losing bullion because people present 
 notes to the Issue Department, so as to withdraw 
 bullion, why does the Bank part with more notes 
 against discounts, so that more bullion may be with- 
 drawn?" 
 
 You may now ask still : " Is this action of the Bank whythe 
 
 "I Bank is abU 
 
 of England, as regards sudden varying discounts, deli- 
 
150 
 toriotMs bei^ate and malicious, or what is its cause? I have 
 
 will be 
 
 nex™''' stated before that the high character of the Directors, 
 and their public spirit, does not admit of any such sug- 
 gestion. Nevertheless the Directors have the undoubted 
 right to do the best for their proprietors, and any- 
 plainly offered chance for gaining money, especially 
 when, although falsely, it takes the form for relief to 
 commerce, must not be refused by them; it may be but 
 a consequence of the system. That is the case; and 
 there is a distinct minor cause which, occasionally, 
 enables the Bank to obtain a momentary hold on the 
 market. This cause is rare, and in itself unimportant, 
 but inasmuch as an explanation of the relationship 
 between the Money Market and the Bank Eeserve is 
 required for its appreciation, I postpone its considera- 
 tion to the next chapter. 
 
 So far however I have shown you the fact that 
 ?';° ., . the present Bank's note Reserve destroys the true 
 nef/of the' Ecservcs of this country. ISTor can it be otherwise, for 
 Illustrated ^"^^ ^^ ^^ inherent characteristic of the system, which 
 by example, j ^^^ illustrate to you in the following way: Supposing 
 the Bank of England's Reserve fell to 6 millions, and 
 interest stood at 10 per cent. Supposing that at this 
 juncture the London Bankers made up their minds to 
 strengthen the Bank by a deposit of gold o/ 10 millions. 
 This 10 millions they would not, and could not, with- 
 draw from the circulation, for reasons already given, 
 they would have to import it from abroad, by realising 
 foreign stocks and other claims ; a task not difficult, for 
 we as a nation hold perhaps more than 1,000 millions 
 of claims, and 1 per cent, from that is not much for 
 turning the exchanges in our favour, The Bankers 
 would accordingly deposit the 10 millions of bullion at 
 tlie Bank, increasing their balances from, say 6 to 15 
 millions. Very noon after the Importation of this 10 
 
151 
 
 millions of gold, the Bank of England would drive them '^snJ\yom 
 out of the country again, -with almost mathematical every 
 
 J a ' att-erapt to 
 
 force. For under the present issue system, when fiSuoif 
 these 10 millions had passed from the banking to the ^raiof 
 issue department, there would be a "Reserve of notes" 
 of 16 millions, and the rate of interest would go down 
 from 10 to 2 per cent. Hence the artificially cheap 
 market would lead again to the almost immediate export 
 of bullion by the arbitration of exchanges and to 
 engagements by speculation of the false surplus of 
 money. The Bank itself would obtain securities as 
 assets against the increased Bankers' balances, i.e. home 
 securities which their holders would sell for the use of 
 re-investment in foreign securities, and so the gold 
 would go back again. The Bank would do 10 millions 
 worth more business with 10 millions more of Bankers' 
 property, that would be all the result. The bullion difii- 
 culty would remain as before, the same process would 
 be repeated. Indeed, by collecting this Reserve of gold 
 and giving it to the Bank under the present system of 
 maintenance of the fixed fiduciary issue of 15 millions 
 the catastrophe would be hastened ! 
 
 I ask you to ponder over this, in order to show you the 
 destructive force of the present Reserve of notes, and the The mathe. 
 impossibility of our obtaining a bullion Reserve, so long "ree°orthis 
 as the fixed fiduciary issue exists. Not that a positive fi™''"''^ 
 clear idle bullion Reserve is either desirable or maintain- f™th™^' 
 
 Facriflce 
 
 able, but what is in question here is the level of bullion ™^^- 
 for which the Bank struggles, and which it can never 
 reach, as long as the 15 millions of fixed issue remain. 
 Be the extra importation of bullion 5, 10, or 20 miHions, 
 be the sacrifice which the public makes to " strengthen" 
 the Bank ever so great, it is all useless and futile, the 
 present system of issue will drive away such Reserves 
 and counteract every effort in this direction with 
 something almost like contempt. But if the fiduciary 
 
152 
 
 Reserve were reduced when bullion comes in, it is 
 obvious tbat bullion -would be retained in tte precise 
 measure of sucb reduction. You understand, of 
 course, that I am only speaking of temporary 
 reduction (and not of the abolition of fiduciary issue), 
 and that it may increase again; and what I have 
 said respecting such Reserve, holds good in showing 
 the absurdity of all schemes as to more issue by other 
 Banks, or by the State. The true Reserve must arise 
 from a practice the reverse of the present system. 
 
 THE MONEY MARKET AND ITS SPECIAL 
 PHASES APART FROM BULLION WITH- 
 DRAWALS AT THE BANK. 
 
 Although the movements of bullion at the Bank are 
 Certain the principal disturbers of the value of money in our 
 
 pbaseB in ^ *■ '' 
 
 market!*' market, yet, as we-have seen, they do not affect the 
 cdrculatiou, nor consequently the actual supply of 
 money, until the panic point is reached. It never- 
 theless frequently happens that we hear there was a 
 " strong demand for money to-day," or " there was no 
 demand for discount to-day ;" and these indications of 
 apparently varying supply and demand occur when there 
 is no abstraction of bullion going on, when there are no 
 failures or disturbances by foreign loans — when all is 
 quiet and fair. Even the 4th of the month (the due date 
 of many bills) can b^ excepted, for it is usually specially 
 provided for ; the above phases of seeming scarcity or 
 
 ^cOTto supply appear quite independent in their character. 
 
 be inde- m n i • • 
 
 tbe'^^tion To-day there is scarcity or strong demand, to-morrow 
 of bullion, ^j, ^]^g ^g^y. ^fi^gj.^ jjQ demand; occasionally the former 
 
 lasts a week or longer, to be followed by an equal 
 period of flatness. 
 
 These phases you find noticed in the daily reports, 
 and although they seem to be but transitory, and 
 
153 
 
 therefore not of great importance, yet tliey give you 
 tlie idea that there is something else, besides BulHon, S'nltnra 
 which causes certain contingencies in the money market. Influence. 
 The full appreciation of this matter will be much 
 facilitated by clearly defining the points which 
 show the relationship between our money market 
 and the currency. You hear of Stock Exchange 
 transactions, foreign loans, financial enterprises, com- 
 panies being formed, of discounts, exports and imports, 
 our engagements, the circulation, the Bankers' Clearing 
 House, and all the great mechanism by which our com- 
 mercial and social intercourse is carried on. In what 
 manner are they connected with the currency of which 
 we make use, and on the supply of which we are made 
 dependent ? 
 
 It will first be necessary to separate from this mass 
 of business all matters of international relationship, 
 which find their final settlement, not in the instant tSn™' 
 
 , , contracts 
 
 abstraction or addition or actual currency, but m the fXTwai 
 stock of Bullion at the Bank of England. Foreign loans, ™'''™'"^- 
 railways, banks and other establishments abroad, for 
 which we find the money or incur engagements, include 
 their effects in the balances of trade and consequent 
 rates of exchange, which upon the great international 
 arbitration and clearing system to which they give rise, 
 involve the shipment of actual Bullion for any balance 
 of account which may remain, and this principle carries 
 any transaction to completeness, whether it is an 
 instantaneous one, or contracted for by " our engage- 
 ments." Hence the great transactions in loans, of 10 
 of 15 millions at a time, making a large aggregate 
 during a year, for which many persons expect that we 
 should part with equivalent sums in gold, are carried 
 out with great facility. The annual balances of trade 
 in oihT favour (the balances between imports and 
 exports, shipping, &c., which the accumulated income 
 
154 
 
 from previous investments continually enlarge) cover 
 tion^**™" whatever we do in regard to foreign loans or foreign 
 STesi^ta ^^''^^P^ses, their immediate or prospective results 
 oFbuUioaS concern the buUion at the Bank only, when the entire 
 set-off of accounts and exchanges including gold and 
 silver passing through our market, is finally balanced 
 for or against us. The contracts concluded on behalf 
 of matters of that kind, by way of calls or bills, 
 may be lighter or heavier, but any gap or space for 
 more is soon filled by those who watch the market, 
 and have new loans and enterprises waiting their 
 turn, so that on the whole these engagements are 
 of a more or less regular character. For any great 
 specific loan (such as the late French loans), we can 
 always modify its spasmodic effect by selhng a pro- 
 portion of other securities on foreign " Bourses." In 
 other respects, our " engagements " for international 
 purposes of this kind, amalgamate with the great 
 business of exchange and bills of exchange, which as 
 I have described on pages 87 and 90, are held by foreign 
 Bankers when interest here is high, or sent in for 
 tSinS"^' discount when it is low. The amount of currency of 
 haveno'' thc couutry remains unaffected by these movements ; 
 
 direct 
 
 mfluenceon the scarcity of supply, or the state of plethora of 
 rfa™°^ money (as part of the considerations on the money 
 market, arising when foreign business or engagements 
 are under discussion) concerns the amount of Bullion 
 m the Bank exclusively, and all and everything that 
 relates to foreign business, you can regard as entirely 
 separate from the actual amount of currency in the 
 hands of the public. The acceptances which we have 
 undertaken for foreign business, as soon as they are 
 sent here, become converted into, and form part of 
 the mass of local contracts. 
 
 The "local" contracts remain then as the con- 
 stituent with which the mass of current money has to 
 
 moment. 
 
155 
 
 deal. The transactions of a local nature, wMcli do not 
 definitely absorb currency for their settlement, include Looaicon- 
 Stock Exchange business (through which the Clearing ^e"'""^ 
 House returns are so enlarged on settling days), aU 
 kinds of payments in the special markets for goods on 
 " prompt " days, and a variety of other matters for 
 which the use of the banking and cheque system has 
 been adopted. So much of the currency as may 
 occasionally be used for these purposes, finds its way 
 back to the Bank ; the extent to which it is thus used Loans ana 
 
 diEcoonts. 
 
 lies much within the variations which take place in the 
 note circulation. As far as advances, loans, or dis- 
 counts are concerned, it is immaterial whether these 
 are made on securities, acceptances, or open credits. 
 They are the factors of demand versus those of supply 
 of money, all other transactions are capable of 
 exchanging themselves, even when the network of 
 the due payment of advances and discount has been 
 disturbed. Of the money required for advances and 
 discounts, a very large proportion is also " cleared " 
 in account, or for money's worth, but that which 
 comes into direct contact with actual money, involves 
 a question between units or numbers, independently 
 of all considerations as to capital, money's worth, 
 cheques, and clearing, 
 
 (It is impracticable, therefore, to estimate the 
 amount of actual money furnished day by day, or 
 used day by day, by the Clearing House returns, 
 because small actual differences in money are often 
 settled by the exchange of very large cheques and 
 discount accounts). 
 
 The actual source of supply is accordingly derived The cmrent 
 from the money coming in every day, from time bills BaK^y." 
 and contracts falling due every day. 
 
 And this, as the source of supply, 
 
156 
 
 Is met by the daily offer for the incurring of 
 The current fresJi sets of coTitracts, as the demand. 
 
 demand. —_ 
 
 You must not confound with this a fresh supply of 
 money, such as from gold mines, or from other 
 sources which also arise in connection with interna- 
 tional trade, and are partly exported, partly retained 
 by the Bank ; their incorporation into the circulation 
 is a gradual process. The supply here spolcen of is that 
 arising from the stock ■ of money actually on hand as, 
 day by day, payments are made. 
 
 The special phases now which arise in our money 
 The differ- market (to which allusion is made in last chapter) are 
 
 ences m v i / 
 
 dailysupply j , 
 
 and demand t-lUtJ uU ■ 
 
 conBtitute • 
 
 *hmi°'*' ^^® warii of agreement between the sums of 
 
 money discharged from contracts (loans and 
 
 discounts) every day, and the amount of fresh 
 
 contracts offering for its re-employment. 
 
 For the better understanding of this matter, it is 
 
 ^stbe''*' necessary again to separate all supposed effects on 
 
 narrowed "*" 
 
 rantraota ^^® moncy market caused by failures, loss of confidence, 
 S^e^oHon and all the dark mysteries presumed to exist in con- 
 
 with actual 
 
 money. ncction therewith, I have already stated that failures 
 and loss of confidence are matters of account, causing 
 no difilerence in the currency, for the bankers must 
 come forward with other securities if they want to 
 obtain currency for the discharge of claims, or the 
 incurring of fresh business. I can quite understand 
 that you will have some suspicion as to such mysterious 
 connection, because so very large a portion of business 
 is settled by clearing, and the amount of currency does 
 not seem large enough for all. Bear in mind, then, 
 that whether we used 300 or 500 millions of actual 
 money, instead of the 160 now in the country, the 
 question of non-agreement between the daily supply 
 and demand, is not a pro rata or per centage matter, 
 but concerns a definite amount of difference in the 
 
157 
 
 money market and its range. Finally, in order to 
 enable you entirely to separate the question of 
 failures, loss of confidence and other mysteries, let 
 me remind you that the phases in question occur 
 principally in ordinary quiet and seemingly prosperous 
 times. 
 
 According to Mr. Palgrave's " Notes on Bank- 
 
 The 
 
 ing," the bills in which we deal amount to 1,100 presumable 
 
 ^ _ ' clear 
 
 millions per annum, or to averages of 300 to 350 amomtof 
 millions in existence at any one time, running at a movementB 
 
 ^ ** *-* per day. 
 
 mean time of 90 days, giving 3 to 4 millions per day 
 in bills alone. To this must be added a large amount 
 of business not carried on by bills, and if the daily 
 average total is taken at from 6 to 8 miUions, it may 
 possibly be found to agree with the business the nation 
 does for international account, and for the production 
 and consumption of commodities throughout the 
 country itself.* 
 
 It is immaterial whether this average amount is 
 strictly correct or not, but it must now be further TheirMtaai 
 
 •/ ' connectioa 
 
 modified so as to show how much of this is connected '''""'^''• 
 with actual money. The true office performed by these 
 instruments of contract and exchange is that of 
 drawing in, and sending forth again, smaller mediums 
 of actual money into the great industrial and com- 
 mercial channels. So much of the biUs and loans as 
 are connected with orders from abroad or from home, 
 whether they are contracted for post facto, or on the 
 cash basis, or on credit for future delivery, must leave 
 an ag^jregate of Bank notes, gold and silver coin, to go 
 into the country for continuous payments on account 
 of the business contracted for. In due time, having done 
 
 * Bills ■between tradesmen and customers, and many other 
 transactions, may be designated as subsidiary, made on commodities 
 which have passed on the larger contract before. 
 
158 
 
 its office, it returns through the channels of home trade 
 to collect again in Bankers' hands — to be sent forth 
 again on its round, thus connecting the money market 
 with its supply. This connection does not iuYolve the 
 actual sending forth by railway of all the money coming 
 in, the greater portion is arranged for in account with 
 country bankers, but it is well known that in certain 
 of our great industrial districts the Bankers require a 
 regular weekly supply from London, and in special c'ases 
 large amounts are sent. 
 
 The actual sum of cash thus involved, not in for- 
 warding from London alone, but in the accounts con- 
 
 Compara- , 
 
 liTirif ■ cerned, may amount to' from 2 or 3 millions per day, or 
 and^?^» some such sum, which, when allowance is made for the 
 wages funds present on the various spots, is required 
 afresh for replenishing it. On the whole, when not 
 disturbed by war, or by some other cause of mischief, 
 the regularity and the gradual increase of this office 
 of the currency in connection with industry and 
 home trade, in a country Hke ours, is a matter 
 of course. The great process of production is 
 not liable to extensive spasmodic movements. The 
 production, whether by agriculture or industry, of 
 all kinds, is a matter of growth, and in its milhon-fold 
 constituents presents an aggregate in which the 
 utmost possible stimulation that can be responded to, or 
 exceeded, in one or more special branches, enhances the 
 whole mass by but a small per centage. No contingency 
 can enforce large deviations in the course of a day. 
 Degrees of In the Same way the demand is of far greater 
 
 regularity , 
 
 wr^aemaiid regularity than the extreme fluctuations in the 
 SweMe. rate of interest in our market would lead us to 
 suppose. It also rests on a gigantic system of average, 
 and the stimulation coming from certain special quar- 
 ters is but fractional as regards the whole. The gold 
 discoveries of California and Austraha, for instance, 
 
159 
 
 oflfered inducements for large shipments of goods, but 
 after deducting the speculation wMoli took place during 
 these contingencies, the solid equivalent balanced the 
 account, and brought production to its level. The 
 experience which we have made with our circulation, not 
 only as regards its regularity, but also its increase 
 contemporary with general prosperity, fully bears out 
 this unshakable, though expanding, character of our 
 trade, even in face of the attempts which the Bank of 
 England make against it by long periods of offer of idle 
 Reserve, and the terrible and short assaults, when it has 
 lost the proper proportion of bulhon. 
 
 The principal cause of the agreement or non-agree- 
 ment between the daily incoming and outgoing currency ^^^^^^45^,^ „, 
 will now appear. It may so happen, that when '^^^"^"^ 
 
 * n ' 1 ' 1 industrial 
 
 the commerce of the country is nounsmns', when aiBtricta a 
 
 */ o ' Bource of 
 
 there are plenty of long orders on hand, that the »''«f'"'«<'°- 
 currency sent from the money market remains longer 
 in the industrial districts, showing that it is kept there, 
 by serving a larger range of local contract business ; a 
 sign of greater prosperity.* As a set-off against this it 
 follows that the aggregate of contracts (loans and dis- 
 counts) incurred on behalf of this business is of a longer 
 date than usual, and that there are consequently days 
 or short periods, when the average of hills falling due "^l^^™^' 
 is less than usual, when the regular current supply eoSets 
 
 and smaller 
 
 falls somewhat short of the requirements for fresh |^f^^f 
 business, and so the announcements of temporary 
 " demand for money " or " abundance of money " 
 changing from day to day will be understood by you. 
 
 On the supposed requirements of from 2 to 3 
 millions a day, there may, accordingly, on certain days, 
 
 * It is just this continued tension of increasing trade wLicb 
 has brought about an increase of 40 to 50 millions in the circulation 
 of sovereigns within the last 20 years. 
 
160 
 
 be say £100,000, £200,000, or £500,00ft^ort supply, 
 
 and money be in demand in corresponding degrees. 
 
 ^because That tlio Variations are not in excess of this we know, 
 
 dS?y di-°^ for a demand of £500,000 on the Bank is an unusual 
 
 vergences. _ , 
 
 tmng, and if it lasted three or four days, would be re- 
 garded as a serious matter. The nervousness under 
 which the market labours now, as regards these com- 
 paratively small requirements, is shown by the close 
 attention paid by the Press to every £100,000 going in 
 and out of the accounts at the Bank. We are also 
 aware that these extra temporary demands often 
 change, the next day even, to extra temporary over 
 supply, when there is abundance of money, although 
 the range of such abundance may not exceed a 
 hundred thousand or two. I must again impress 
 upon you that matters of account or any vague sup- 
 position as to the fitness and willingness of the factors 
 of supply and demand in the money market genei'aUy 
 are not concerned in this. The divergences here before 
 us have reference solely to the actual bodily presence 
 of cash, gold, or notes, and all the surmises and antici- 
 pations formed, turn on nothing but actual money, 
 our attention being centred even on what, in a powerful 
 market like ours, would seem to be but insignificant 
 sums. 
 
 On such occasions then the discount market comes 
 Intimate, ^0 ^^^ Bank for money. The amounts so requii-ed, as 
 ^"''"' stated before, may be but from £100,000 to £500,000. 
 
 beneficial 
 
 Mud^ -^d here the true availability of the Reserve of 
 JS ^" Bank notes shows its range. The differences which 
 
 apparent, 
 
 I have pointed out to you (see page 113) in the Bank 
 note circulation, as confined within 1 or 2 millions, 
 are owing to this cause. The range of perfect legi- 
 timacy, as well as the true office, of fiduciary issue, 
 are also here made apparent; for if, with this con- 
 tinuously moderate advance in demand for money, the 
 
161 
 
 circulation was so supplied by fiduciary issue — whilst, 
 at tlie same time, the rate of interest was poised so as 
 to retain so much bullion in the country for regular 
 absorption, by improved home trade, — the accord 
 between the factors would become evident and 
 regular. 
 
 But what does the Bank of England do ? In its 
 nervous state, not able to draw a distinction, and ^^S^!™' 
 fixing its attention solely on the Reserve as the guide market. 
 for the rate of interest, the Bank is alarmed at the 
 temporary withdrawal of a few hundred thousands of 
 sovereigns for the country, or an equivalent increase 
 of circulation. A detnand on its resources of half-a- 
 milHon is a very serious item, and up goes the rate ! 
 Discussions as " to what wiU be the rate " arise ; ' 
 Bankers take precaution hy increasing their Reserves. 
 At first, certain discount brokers, in anticipation 
 of the rise, require advances on biUs, and appa- 
 rently increase the demand ; a further rise may 
 follow, until, when the turn comes, when Bankers have 
 so much enlarged their Reserves at the Bank that the 
 Bank begins to do a pleasant business with them, the 
 thing collapses again, and the discount brokers are 
 caught. Whoever studies our money market will 
 admit that the play and speculation on the rate of 
 interest often has this result. 
 
 You may agree with me that this nervousness of 
 the market, caused by such temporary requirements. This siiouw 
 should not exist. "We are so rich, our investments 
 abroad are so enormous, that any serious discussion 
 as to £100,000 or £200,000 within one day, appears 
 an almost ridiculous matter. If, in addition to 
 this, you bear in mind that these temporary require- 
 ments are chiefly connected with increasing trade 
 and circulation, the inimical action and uncertain 
 policy respecting them, will strike you all the more. 
 
 11 
 
162 
 
 In these remarks on the money market, I trust I 
 ^cy°S''" have succeeded in showing what are the special phases 
 phases in and causes of disturbances apart from the bullion 
 
 the money ^ 
 
 market. question. Beyond these special phases there is nothing 
 whatever that can create upsets or difficulties, excepting 
 internal revolutions, war, or bad Government schemes. 
 This does not only hold true for England, but for any 
 other fairly prosperox\s nation. The currency present 
 in the country performs the office here described, viz. 
 that part of it, which is not in the purses of private 
 people, travels through the hands of workers, until it 
 concentrates again through retail and wholesale trade 
 into the main channels. There it is taken up by fresh 
 contracts which send it out again, and all this takes 
 place over and above the clearing and banking system-s. 
 It is in the nature of things, and you will find this con- 
 firmed not only by the known character of these phases, 
 
 moderation, but by the practical figures of the total circulation, 
 
 and the 
 
 ^rithwhTch ^^^^ ^^®y should not be spasmodic or violent, though 
 they should ^-^^^ circulation may be subject to gradual increase 
 
 equalised. t , . . . - 
 
 caused by the profits realised m international trade. 
 Here the true office of the Bank note circulation, which 
 can be made pending the coining and distributing of 
 gold, as well as that of the fiduciary Bank note for the 
 equalisation of the valuation, may become evident to 
 you. It may also strike you that such temporary or 
 regularly increasing requirements might be met by 
 a regular equalising system. 
 
 In ,any case you will now recognise what these 
 
 coni^lt phases are, and mark their complete distinction from 
 
 of with- the incapacity of the Bank of England to keep bullion, 
 
 bniuon. ^tich as I havo shown you is a matter resting entirely 
 
 upon the international valuation, determined solely by 
 
 the rate of interest which the Bank adopts. The effects 
 
 of the error which cause this incapacity are the real 
 
 terrible disturbers of our money market. They may 
 
163 
 
 be said to be the only cause. That the fearful de- 
 ception and convulsions to which they lead, disorganise 
 all other interests, intensify the phases above described, 
 and tend to tear asunder many regular connections, to 
 the loss of one and advantage to the other, you may be 
 able to infer. 
 
 The confirmation of this fact will be found on refer- 
 ence to the last chapter, where, on page 150, 1 refer to ^ecoin- 
 these special phases in our money marhet. in connection reqS" 
 with the spasmodic discount business of the Bank. For thisHna 
 
 ■'■ •' and bullion 
 
 although, as shown, these contingences mostly take Sawais. 
 place in prosperous times, they are not only occasion- 
 ally matters of accidental disagreement, but when the 
 weight of idle Reserve has led to low interest and 
 speculative contracts, there is, shortly before crisis, a 
 state of deception as to prosperity which requires that 
 more currency should be given out. When, coincident The 
 
 miflufiO of 
 
 with this, there is also a rapid withdrawal of bullion, ^^^^^^^ 
 when there are high rates of interest, when failures Luaden' 
 
 businesB at 
 
 occur, and Bankers not only hesitate to realise other tiieBaiik. 
 securities at a possible loss, but in view of the gene- 
 rally uncertain anticipations, increase their Reserves ; 
 then is the time for the Bank of England to do the 
 roaring trade I have spoken of in the last chapter, to 
 use up its capital, rest, issue and all the deposits — 
 and to do business with the increasing Bankers' Reserves 
 itself! Hardly has the crisis been thus completed, 
 when the sudden collapse of business at the Bank, to 
 the usual low level, sets in, almost giving the impression 
 that these roaring times were but a " frightful vision." 
 The connection between this subject and the over- 
 trading by the Bank, as exhibited before, is thereby 
 established, 
 
Bupply. 
 
 164 
 
 THE COMPETITION BETWEEN THE BANK 
 OF ENGLAND'S NOTE RESERVES AND 
 THE DAILY SUPPLY OF THE MARKET. 
 
 It must now be shown to you wliat are the mis- 
 mmpetitk^' ehievous effects of the surphis of heavy note Reserves 
 B»ppiTj"tii at the Bank of England in the money market generally. 
 ^^g' What need is there for keeping at the Bank 10, 12, or 
 fixed issue. 15 milHons of notes — clear above all possible require- 
 ments of the demand for notes ! waiting there, day by 
 day, in competition with the current supply ? 
 
 That the heavy surplus so arising is in continual 
 continual Competition with the current supply, the lowering of 
 ^^^""^ the rate of interest proves — the Bank endeavouring to 
 rairrent hold out iuducemeuts for the use of the Reserve by 
 the public. This would be right and fair, if the Bank 
 did succeed so to place the Reserve but (as a reference 
 to the returns show) that will continue for many months 
 at a time without moving. The contradiction and 
 the enigma here involved will appear clear to you, if 
 you reflect upon the position of the Bankers versus the 
 Bank. The Bankers come into possession of the current 
 resupply day by day, and if it were not for the unduly 
 large Bank of England Reserve, they would be able to 
 re-invest this resupply at whatever rate of interest 
 they might deem proper. Not that they could ask any 
 high rate they pleased, for the natural countercheck 
 of decline of demand, and the supply from arbitration 
 of Exchanges from abroad would effectually prevent 
 any capricious action; but you may admit that they 
 would be able to take an independent stand in asking 
 a fair rate. 
 
 But along with the 2 or 3 millions daily available 
 there stands the Bank of England with 10, 12, or 15 
 
 The 
 
 UBelCSSDCSS 
 
 SSraimess miUious of mouey, claiming its share, so that there are 
 
166 
 
 16 to 21 millions of money offering for the supply of of this 
 the 2 or 3 millions actually required. Can anything '''"'■ 
 like a fair competition be expected, or a proper adjust- 
 ment of the rate of interest ? 
 
 The market rate of interest, which, according to 
 what we have discussed on page 91, should be in Submission 
 accord with the international rate, here becomes utterly market rate 
 
 *' enforced. 
 
 powerless. When the idle note Reserve at the Bank 
 reaches a certain figure, down goes the Bank rate, 
 under the supposition that the circulation will make 
 use of it. The Bankers miust follow this first attempt 
 at competition and lower their rates, so as to retain 
 their business in hand. The Bank, finding that the Theconse- 
 
 *-* quent rapid 
 
 Reserve does not move, goes lower still, the Bankers deoi^e'^S"* 
 again follow. Yet the Bank obtains nothing for a interest." 
 long period, however low the rate may be placed, 
 however rapid may be its decline. The reason for this 
 is obvious. If the Bankers allow the Bank to obtain 
 bills to invest part of its idle Reserve, say 6 millions, 
 and clear the market for the day — it is they, the 
 Bankers, who are left in the lurch with their current- 
 supply — which, in that case, is added to their Reserve, 
 and paid into the Bank of England as additional 
 deposit and additional means for investment by that 
 institution. 
 
 " But," it will be said, " it is not always the Bank 
 of England which commences lowering the rate ; it is, ,^^bi?Td°' 
 on the contrary, the market rate which begins, and h'aSdwIt™' 
 leaves the Bank no option but to follow." Here the Reaerye. 
 whole mischievous influence of the idle Reserve beyond 
 the concerns of the Bank will be made manifest to 
 you. The above remark would lead to the supposition 
 that the market had means of supplying itself with 
 fresh money, apart from that comprised in the range 
 of general operation of the circulation. That cannot 
 be the case, for if such fresh money were imported by 
 
166 
 
 way of sovereigns or bullion, the Bank of England's 
 store of gold and tlie Eeserve would be increased : 
 such gold could not he forced into circulation without 
 replacing notes. The Bankers have no right of issuing 
 notes, and cannot " create " money apart from the 
 method described, and this good feature of our valua- 
 tion remains intact. The whole of the supposed 
 greater supply in the hands of the Bankers can only 
 arise from within the range of the present circulation 
 (in which the cash in Bankers' tills is included), and 
 this tem-porar J plus, as I have shown to you, cannot 
 be large or permanent. But just inasmuch as the 
 The ^^^^„ peculiar phase of minus in the market described in 
 n^ket."''* the last chapter, when concurrent with withdrawals of 
 bullion, gives the Bank the chance of fastening on the 
 discount market, so does the phase of temporary plus 
 in the market, together with the accumulation of 
 bullion, utterly deprive the Bank of discount business 
 (excepting the small portion done with regular account 
 current customers), and leaves it with the large Reserve. 
 The competition for first-class bills is as keen, 
 TheshaiT if uot keener, than rivalry in other trades ; and 
 
 competition -i ^ t ^ 
 
 Sitioi ation knowmg how large the supply of money is at the 
 
 of practice, gg^jjj^^ ^j^g discouuters must be beforehand in lowering 
 
 the rate, or else they will have idle Reserve instead of 
 
 the Bank. Not only must they be beforehand day by 
 
 day, but they must be in advance for any future lower 
 
 change. It is not the Bank alone which is guided by 
 
 the state of this idle Reserve — the public can just as 
 
 well, and perhaps better, appreciate the situation; 
 
 and, knowing what is the practice of the Bank, take 
 
 time by the forelock. The destructive force of the 
 
 pa^tice ^^^^® system of supply, not only as regards bulUon but 
 
 knmfa'^n also as regards the rate of interest, will appear on 
 
 the market, ■*■ ■*■ 
 
 hedeparted refereuco to the Bank s accounts in January 1874, 
 ^'^- The Bank of England, then holding 11| millions of 
 
167 
 
 idle notes — a state of Eeserve whicli by previous 
 practice and inexorable rules made interest 2i to 3 per sibu%on" 
 
 the part of 
 
 cent. — then endeavoured to keep the rate at 4 per *^^l^'^l^° 
 cent., a thins: most desirable on account of the pendin? thf practice 
 claims for gold from Germany and the generally higher ^Xve 
 state of international interest. But it was useless to "'"'*'*^- 
 do so : the market vfas at 3^ and 3 per cent. ; and so 
 the Bank was obliged also to lower its rate. You will 
 see by this that the idle Reserve does not only involve 
 the Bank of England, but that, as legal tender money 
 pressing on the market in overwhelming excess of re- 
 quirements, it ruins and destroys equitable adjustments. 
 
 Hence, without the slightest disturbance in the 
 amount of circulation, there are here the elements of ™ntoniy 
 a wantonly destructive conflict. The purposeless butuseiesa 
 destruction of the basis of money value, which is 
 thus almost continually going on, is not only damaging 
 to the interests of the Bankers, but it is absolutely 
 useless to the Bank, for no effort of the Bank can force 
 this Reserve into circulation. 
 
 These matters form a theme worthy of the closest 
 attention of our Bankers. Indeed, the suggestion has "^^^^^ 
 already been started that Bankers should form some a^e'tha 
 
 purpose of 
 
 central establishment of their own for guarding their Bankers. 
 Reserves. Such suggestions are impracticable; the 
 Bank of England has the note issue, the control of the 
 gold coinage, and any opposition to it is not only 
 mischievous to all interests, but contrary to eco- 
 nomical necessities. Moreover, the Bank of England 
 is a great convenience to Bankers themselves, as the 
 centre of the Clearing House system. Many Bankers, Siesta 
 
 _- _ _ demand 
 
 no doubt, will say " the Bank has answered our pur- a reform. 
 pose," and that is all we want. If by that is meant 
 that the ups and downs of interest are beneficial to 
 them J they are in error, Not only do the generally 
 lower rates of interest absorb the spasmodic profits made 
 
menta. 
 
 168 
 
 at other times, but, when the Bank of England loses 
 its bullion, and Bankers, for no tangible fault of their 
 own, but on account of the alarm, increase their 
 retomwui Eeserves, they are virtually forced to surrender their 
 enhance qwu resourccs, which enable the Bank to deprive them, 
 convenience £^^ ^^^ ^-^^ being, of discouut busiuess. "When, as 
 arrange- Jiere showu, the interests of the Bankers, their 
 Reserves, their want of control over the market rates, 
 with all the mischief wide and far, are so completely 
 subject to the vagaries of a vicious system, the plea 
 of " answering the purpose," made for want of con- 
 temporary comparison, should not prevent a reform 
 which can be made without disturbing the convenience 
 of the mechanical arrangements now in force. 
 
 THE INFLUENCE OF THE IDLE NOTE RE- 
 SERVES ON SPECULATION AND MER- 
 CANTILE MORALITY. 
 
 It is now fit that the well-known dogma uttered by 
 Theaogma the admircrs of the Act whenever a crisis occurs, and 
 epeouiation. ^q which I have made allusions in the first chapter of 
 this book, viz. that " Speculation is the cause of all 
 this, the Bank is free from all blame ; — it is the Bank 
 which holds things together, and if people will speculate 
 they must suffer the consequences ; it serves them 
 right ! " — should receive consideration. 
 
 It must firstly be clearly understood that I do not 
 The undertake to defend speculation, but that, like every 
 
 tendency *".,..,, • , ^ ■,^ -r 
 
 StoS""^ individual acquainted with commerce, 1 recognise; 
 Bweeptog the existence of a speculative tendency as almost a 
 
 charge must ^ _ . ^ _ 
 
 "otorts"' matter of course. I admit further that any seemingly 
 too rapid development in investments, be it in finan- 
 cial undertakings, in the shipping of goods, or other 
 enterprises, is subject to the suspicion of being specu- 
 
169 
 
 lative ; that prudent financiers are right in their con- 
 servatism as regards this matter. 
 
 But when you are told that that which is in ques- 
 tion here concerns one immaculate establishment against 
 a whole community, you acquire the right of protesting 
 against such a dogma. For if you bear in mind what The 
 
 , . ^ _ morality of 
 
 a crisis (such as those of 1867 and 1866) really means, S'adlLg"'^ 
 you may probably be struck with what may be called S^SS. 
 their wide-spread and general effect, leading one to 
 suppose that, with the exception of those excessively 
 prudent, the whole British trading community is 
 thoroughly demoralised. If the failures happening 
 were confined to speculators whose wrongdoings and 
 over-trading are evident, or to improvident merchants, 
 we might be satisfied with the result,* but not only 
 does the ruin afiiect small, honest, and industrious 
 concerns, with moderate means, bringing great losses 
 to wealthy commercial houses, but it seriously inter- 
 feres with our industrial power, and finally throws 
 thousands of people and ten thousands of workmen 
 into pauperism. The whole conflict between the with the 
 
 immaculacy 
 
 Bank, with its dogma of its own purity, agaiust the ^tobiish- 
 trading community and its speculation, involves a '"™' 
 charge against the character of the British people, its 
 industrial and mercantile pursuits, to which, as 
 matters now stand, we seem to bow with resignation 
 and meekness, accepting, as a matter of fate, the 
 decree of the wise men who tell us their system is 
 immaculate, not only above all considerations of 
 morality, but that it is a just and wholesome coirective 
 by way of smash and ruin and crisis. 
 
 What can be said to weaken the force of this 
 dogma ? The British pubhc can say : " "We have been Againatthis 
 prosperous, we have fourfolded our business — You, the British 
 
 r i. ' ' pubhc can 
 
 the Bank of England, have made but little progress, ^ST^und" 
 you stand now nearly as you were twenty-five years 
 
its own 
 
 assets, but 
 uses up the 
 
 belonging 
 
 170 
 
 ago— the same agitation as to the good or evil 
 effects of your system, goes on. This shows we 
 know ovir business — ^you, the Bank, do not know yours 
 so well." 
 
 Should the admirers of the present system attach 
 no value to this common sense view of the thing, the 
 British public can go farther, and say : — " Agreed 
 
 TheBank that you, the Bank, need not make any progress, that 
 this is a matter not concerning us, why should you be 
 unable to guard yourself against the effects of specu- 
 
 to otiierBr lution ? Why should you, in the event of crisis, not 
 only be unable to keep your own assets, among them 
 principally Bullion, not only use up the whole of your 
 powers of Reserve conferred upon you by the privilege 
 of the note issue ; but swallow into the bargain the 
 deposits, including the Bankers' reserves whose 
 keeping you undertake, and require suspension of the 
 Act, and more issue to crown all ! " The British pubHo 
 might further say : — " The business of banking, as 
 far as its machinery, account keeping, calculations of 
 interest and other mechanical matters are concerned, 
 is plain enough — the art of Banking consists of the 
 
 The art of f aculty of keeping ^/owr own, that is the very least of 
 
 tai°o°^n/' what might be expected of that powerful institution 
 
 how to 
 
 gnard of the most wealthy powerful nation, the Bank of 
 
 assets. ./ i 
 
 England, leaving altogether aside the question of its 
 general progress in accord with the nation's progress, 
 and that of the world at large. You, the Bank of 
 England, fail miserably in both requirements, and if 
 you turn round upon us, and say tjiat we have brought 
 you to this by speculation, you must either be weak 
 in your management or, admitting that wise and 
 earnest men govern you, you must labour under a 
 bad system." 
 
 Take now the most general view of the case : — 
 Admit that a certain degree of speculation is 
 
m 
 
 inherent in any mercantile community, that to a '^^^^^°^ 
 certain extent it is the consequence of prosperity, lejlttolte 
 
 , , 5, influence in 
 
 that it involves the " never venture, never won, contromng 
 
 ' ' Bpeoulation. 
 
 ■which, fairly conducted, enforces progress. Eecog- 
 nise, nevertheless, that an institution like the Bank 
 of England should not only stand aloof from all 
 connection with it, but that by its own action it 
 should exercise a beneficent influence against its ex- 
 cesses — when, knowing that the only means for exer- ^^4^,^^ 
 cising this influence is the rate at which money is Sf vataa of 
 
 money. 
 
 offered and obtained, that the Bank of England, by 
 the presumed automaton action of its present arrange- 
 ments, is supposed to be directed by the plainest rules 
 of supply and demand — you would probably imagine 
 that but little intelligence be required so as to exercise 
 this natural beneficent control. 
 
 The system, you might think — 
 should be able to counteract the effects of specu- 
 lative tendency, so as to limit Us effects, in fair pro- 
 portions, to its original force. In imagining this you 
 would say : this must be done by the Art of Banlcing, ^^^^llby 
 but finding, as we do, that the Bank has no such Se^reten't 
 
 ByBtem. 
 
 influence, you would expect, at least — that speculation 
 should be left to take its own course, and grow by 
 itself, to its own ruin, and without involving others, 
 especially the Bank of England. 
 
 And you may now be more or less surprised to hear, 
 when I assert: That the Bank of England system is onthe 
 
 contrary 
 
 not only powerless to exercise this controlling influence, Byltem^^"' 
 utterly unable to guard itself against the inroads of encon^es^ 
 speculation, but that it is the principal cause why 
 speculation flourishes and thrives to a degree with 
 which the cropping weed would thrive when, instead 
 of lopping its growth, it is, on the contrary, tenderly 
 nursed and manured in the most liberal manner. And 
 all that the Bank can do is, that when this growth 
 
172 
 
 trntii in the has readied a certain stasre of hoiarht and visible cor- 
 
 desperato " " 
 
 oS^t^"^ ruption, along with legitimate business, and brought 
 good and the establishment itself low, is to break down violently 
 
 bad 
 
 buamess. ^^^^ desperately the whole sound growth of ow com- 
 - merce, in the anticipation that the foul trees among 
 them will be destroyed. Unfortunately the roots 
 remain, and when all is down, when sound trade has 
 been weakened — which is always the case after the 
 desperate struggle of crisis,-— our "Reserve" again 
 
 The manures the vicious roots, with quicker results perhaps 
 
 periodical ' ^ *■ ^ 
 
 the'^ame than beforo, as the whole periodical return of the same 
 events seem to demonstrate. 
 
 Measuring the scope of this matter by figures, if 
 fcmths speculation has an original force of 1, which by the 
 effects of reasonable and natural art of banking misfht be reduced 
 
 epeculation *-* " 
 
 fyltem''^ to ^, or at least left as 1, the Bank of England system 
 encourages the growth of its power threefold or more, 
 so that three-fourths of the charge of immorality 
 hurled against the speculative portion of the British 
 public should properly be placed to the account of the 
 
 Theehowof prcsent system of the Bank. If vou bear in mind 
 
 reasons ■'■ ... ' 
 
 apparent what I havo Said in previous chapters, the fact of the 
 regularity of the circulation and all that the Bank 
 does, you may, if you do not fully agree with me in 
 the above estimate of proportion, see some show of 
 reason in favour of this view of the case. 
 
 But without these previous reasons your common 
 
 Tie sense wiU be able to deal with the facts, that whereas 
 
 unavoidable i j_ i i ii i • 
 
 general our monoy market depends upon the regular mcommg 
 
 6ff6Ct of Si 
 
 ^'^u^m and outgoing of money, of say 2 to 4 millions a day, 
 doiSgs!""* there is at the same time oflFering the reserve of the 
 Bank of 8, 10, 12 or 15 millions of money. It has 
 equal rights with all the legal tender money in circula- 
 tion, and the fact of its being perfectly superfluous 
 for circulation intensifies the might with which it 
 forces itself against outlets less firm and callous than 
 
173 
 
 the circulation. What is the consequence ? When 
 that reserve reaches say 12 or 14 miUions, merchants 
 and others are deliberately told there is an "abundance" 
 of money on the market. Bankers tell you " The 
 Bank is exceptionally strong." The force of this ^pe^lnce 
 
 . , T nr. 1. n • byitselfof 
 
 deception, with the offer of 2 per cent, interest, thesurpiua 
 
 cannot have any other effect than that of lulling 
 people into false security, and making them undertake 
 matters with resources already in hand, without at 
 first involving the actual use of the Eeserve. But 
 after the Reserve itself has thus been rehed upon, 
 when it is called upon to show its availability in prac- 
 tice, it disappears, substance and shadow, proving a 
 veritable snare of the worst character, and leaving 
 nought behind but wise sayings and mutual recrimina- 
 tions. 
 
 Besides the general effect here described, the 
 natural laws of valuation ruling commerce are thereby ^i„JJJJ/ 
 violated. Before this, I have illustrated to you in what nfJro^tae" 
 
 matters. 
 
 manner the unduly low rates of interest caused by the 
 false plethora of money affect the exchanges — how, by 
 the law of arbitrations, the 16 milhons fixed issue 
 keep bullion from the market in a certain per- 
 manent way — and how the whole action, adverse, 
 to us, takes place, as dependent on simple natural proce'?^" 
 
 n't • rrn ■ • 7 'T • 77 arbitration 
 
 laws of arithmetic. The same m-mcvpie prevails m all assj 
 dealings in commodities, whether such commodities are °^ ™™°^" 
 bonds, shares, or produce and manufactures, — the 
 inducement of profit turns upon the terms upon which 
 the moving material, money, can be obtained in ad- 
 vance or by discount. The same law of arbitration 
 becomes effective, with this difference only, that 
 whereas in exchanges the operation is purely mechani- 
 cal, resting on fixed rates, and instantaneous, there 
 remain, in regard to commodities, the questions of 
 price, of estimate, of shipping time, of credit, and 
 
174 
 
 several other, considerations which a mercfeant must 
 take into account, and through which the contracts 
 made, between their commencement and ending, absorb 
 a longer period in their general liquidation. The price of 
 ms price of money remains the principal basis of these contracts, and 
 conSi whatever field for moralising there may be in warning 
 merchants and others against contingences of price, 
 false estimates of supply, in enjoining them to be 
 prudent — it is upon this contract basis of money, that 
 the whole matter, including prices, finds its raison 
 d'etre. 
 
 Watch now what occurs ! "Whenever a crisis with 
 contracts high ratcs has swept the market — when the rapid 
 
 based on 
 
 Sx°dSy regaining of bulhon throws the fixed issue into 
 cheap. Reserve — down tumbles the rate of interest to 2|- 
 and 2 per cent. For six months or a year it so remains, 
 too many links are broken^ and commerce is too 
 depressed to exhibit demand. The plethora continues, 
 and capitalists obtain but small returns. Grradually 
 foreign enterprises are ofiered, money being so cheap in 
 England — domestic schemes are started. At first the 
 public is shy of these matters, the calculations do not 
 seem to leave enough margin for a crisis, the cry to "pre- 
 serve margin for the future " still ringing in their ears. 
 The plethora continues, and as other people have begun 
 to realise actual profits on the transactions proposed, one 
 after the other capitahst takes part in them, until the 
 "securities" thus at first rejected become familiar, 
 obtain a market value, and actually find their way — 
 as legitimate subjects to advance upon — into the hands 
 of Bankers, and perchance the Bank of England itself. 
 The history of the Atlantic and Great Western Railway 
 matters, the London, Chatham and Dover dividends, 
 and other similar securities, plainly prove this. 
 
 In the same manner the general industry and 
 commerce of the country are affected. The nianufag^ 
 
175 
 turer abstains for a time from making enffaejements The general 
 
 CJ o o commerce 
 
 in the purchase of raw material, for there is not margin Xormaiiy 
 enough, but one of his neighbours commeiices — makes moaey. 
 profit — and the other must follow, or be idle. Tell the 
 merchant in Calcutta, or some other port, not to ship 
 goods unless he sees a certain per centage of profit. 
 He is a good, honest and clever man, with a moderate 
 capital, and abstains for a time. Others commence, 
 he follows, and when the rate of interest is flung 
 upwards, down go margins and prices to boot, and he 
 is ruined. Nor is this necessarily the merchant's 
 fault. He himself may have secured his margin, but 
 the Indian or intercolonial Banker, who calculates his 
 profit on the rate of discount at which he disposes of 
 the six months' bill, cannot afibrd to remain without 
 business until the rate rises — he is bound to foUow the 
 market, and give a better exchange. 
 
 Moralise now as nauch as you like about these 
 matters, blame competition and the desire to sret rich Tte 
 
 ■^ " economical 
 
 to your hearts' content, but you must and cannot }n'^ai"s* 
 deny that the cheapness or dearness of money ofmor^^. 
 influence prices, that they give the true and legitimate 
 ground for calculating profits, that you cannot demand 
 that merchants should operate without reference to 
 them, and then ask yourself the question whether the 
 abnormally low and high rates which prevail in our 
 market are the consequence of the ordinary legitimate 
 contingences of commerce, or whether they are due 
 to the inability of the Bank to maintain bullion. 
 Rates of interest must vary, and merchants must 
 guard themselves accordingly ; but if you agree with 
 me as to the real cause of the extreme variations in 
 our rates, you cannot help the conclusion that the 
 Bank of England, by the plethora, largely contributes 
 to the encouragement of speculation, nourishes and 
 raises it so to speak, in order to stifle and destroy 
 
176 
 
 it at another ! It is the refinement of profits in 
 commerce, based upon our own firm gold valuation, 
 whicli has contributed to our supremacy in competi- 
 tion; railways and telegraphs have advanced this 
 immeasurably, and if, in following these dictates, the 
 charge of speculation or of immorality is levied against 
 the mercantile community by the admirers of the 
 Bank Act, you may well turn round and ask them 
 whether their own assumptions as to the fixed 
 issue of 15 millions does not involve a far greater 
 charge of untruth, of disorganised intelligence and 
 morality. 
 
 The contracts concluded upon such unduly cheap 
 aiiowedfor basis of iutercst are capable of passing through a 
 SfmntS seemingly prosperous period before they fall into the 
 SSS?y*^ stage of more or less definite decay. In enterprises of 
 all kinds, such as railways, the time of construc- 
 tion, delays, the denouement of false calculation, 
 and hopes of development, encourage and frequently 
 justify extended advances, which, but for the intervening 
 smash, would be perfectly legitimate and prove their 
 legitimacy thereafter. In mercantile and shipping 
 matters it is not the settlement of the first transaction 
 which brings ruin, time is taken by shipments, hopes 
 are held out that the next season will be better, only 
 a portion of the capital is lost, more credit is 
 asked for and given, until the hole is too large for 
 further hopes of filhng it up. Now, although all this 
 is mixed with all sorts of considerations, degrees of 
 speculation, from the more modest venture, to the 
 reckless dealing of the inexperienced or fraudulent, 
 and although rich and experienced houses, from 
 better experience, keep aloof, the same principle of fic- 
 titious contract basis underlies them all. It contributes 
 to the false prosperity of a few years, and entails their 
 contrary, the years of dearness of money and final 
 
177 
 
 break down. In this general struggle the honest 
 small man has long ceased to find a place, the business 
 centres in a few hands, but among the larger houses 
 even there are victims. Trace the history and rates 
 of interest between the crises of 1847, 1857 and 1866 
 through their course, and you will find that the denoue- 
 ment corresponds with the description here given. 
 
 That this system of encouraging and stifling enter- 
 prise and commerce, in so violent and spasmodic a The 
 
 ^ ■*■ enhance- 
 
 fashion, has its counter effects upon the original ten- ^ec'iMon 
 dency to speculate, by rendering variations more rearuon. 
 frequent, and chances more available, is evident. 
 Hence there are people who can profit by these events ; 
 hence there are phases in our manufacturing districts, 
 when speculation naturally interferes with what are 
 but plain mechanically profitable doings. Hence also 
 more complications arise in international as well as 
 local matters ; the great system of deception extends 
 its corruption to quarters where it would scarcely be 
 expected; hence, amongst other things, the case of 
 Overend, Gurney & Co., was not the cause of the crisis 
 of 1866, but the consequence of the whole play of ano- 
 malies and untruths which encouraged and upheld the 
 faults committed for a long period before the final crash. 
 
 I trust I have now succeeded in showing the 
 separate causes and effects on our money market, and ^^^^^"^''^J^ 
 you will bear in mind the points clearly established. ^*°°'^' 
 The chief disturbing effect, the withdrawal of Bullion 
 does not concern circulation nor speculation, but the 
 Bank itself — bullion being attracted or repelled by 
 highland low interest alone, yiz. that being the only 
 remedy. Its application is entirely in the Bank's 
 hands, and the failure of the Bank in maintaining its 
 stock can be due to no other cause than that the Bank 
 applies the remedy of higher rate too late, or allows 
 
 12 
 
178 
 
 interest to fall low too soon. Whatever the cause may 
 be it does not concern this plain fact, and you should 
 strongly refuse to listen to any twaddle . which 
 endeavours to mix other matters with this want 
 of mechanical adjustment. Consider now all that 
 happens in a crisis besides this — how the bullion is 
 reduced — ^how this endangers the circulation — ^leading 
 to panic — ^how the fearfully high rates destroy both 
 sound and unsound contracts — how failures, deserved 
 or undeserved, occur, entailing ruin and poverty, and 
 watch with what placidity and bold assurance the 
 admirers of the Act will tell you it is all the fault of 
 speculation. The other feature, that of the plight of 
 the Bank itself, which in spite of the limited influence 
 of the Bank in the active life of the country, exhibits 
 the institution as stripped of its bulHon, with its 
 Reserve of notes gone, with its deposits, the solid 
 wealth of the country, including the reserves of the 
 bankers kept up by their prudence, swallowed in the 
 vortex, and endangered with an appeal ad misericordiam 
 for more deposits or more issue. 
 
 The economist need not be told that in ques- 
 Forthe tions of supplv and demand of this kind, any grievous 
 eoonSLsts. ^^"^^ ^^ ^^^ systcm of supply multiplies its effect 
 day by day, by incessant repetition and recurrence, 
 and although but 15 millions are concerned here, 
 they represent a unit, whose evil effects must be 
 multiplied until it reaches the total represented by 
 the thousands of millions transactions, in the deter- 
 mination and valuation of which it plays so over- 
 whelming a part. 
 
179 
 
 THE DIRECT LOSS TO THE BANK ON THE 
 
 ISSUE. 
 
 The validity of the rule, that in legitimate commerce 
 and in progress nothing is done without profit or loss Thevaiidity 
 
 . . of the 
 
 to all parties concerned, will appear now when you ^^^^ 
 enquire what is the advantage which the Bank gains 
 by the issue. You no doubt think that the Bank of 
 England must make a large profit thereby. 
 
 The arrangement which exists is as follows : — The 
 Bank, in its issue department, holds invested 15 J„''ppo3(,4 
 millions of securities, on whicli it receives an annual profits 
 
 the issue. 
 
 interest of say 3 per cent., or £450,000. After de- 
 ducting the expenses of the issue and the share of 
 so-cailed profit which the State receives, there remains 
 a certain balance to the profit of the issue department. 
 Besides this, then, the Bank receives back its invest- 
 ment (to use this expression) in the shape of 15 
 millions of fiduciary notes, which it can use as money; 
 and you probably imagine that by this process of 
 investing money twice over — of killing two birds with 
 one stone — double profits must be made. Yet I am 
 prepared to show that the Bank loses a sum by 
 it, which on the average is equal to £100,000 per 
 annum. 
 
 In order to make this clear to you, you must bear 
 in mind the fact that the sum of notes issued on Noprofltoo 
 
 bollion, 
 
 bullion brings no profit whatever to the Bank of 
 England, although there is a slight profit from the 
 purchase and sale of that material. As far as interest 
 or profit on its use as portion of the issue is concerned, 
 it is immaterial whether the amount in bullion be 
 6 or 25 millions, or any other sum ; indeed it may 
 be said that the Bank, for the convenience of the 
 public, entirely bears the general charges which fall 
 
180 
 
 on the issue against bullion for the benefit of the 
 
 public. 
 
 The -whole merit of the case of profit and loss rests 
 SuiOTBof on the 16 millions of fiduciary notes, the use of which 
 are the as monev is supposed to cover the expenses on the 
 
 supposed K ^ ^ ^ 
 
 p?S!°' total issue, and to leave a profit besides. It is abso- 
 lutely necessary that you should agree to this as a 
 matter of account^ and thus bear in mind the purpose 
 of the 15 millions, not because I seem to you to be 
 opposed to these 15 millions, but because this method 
 of stating the case is the only true one. Before ascer- 
 taining this profit, we must first consider what are the 
 expenses attached to the issue department. 
 
 In a Parliamentary paper (Bank of England, 
 
 The 7th February 1861, No. 12, page 13), the Com- 
 
 expenses of _ . . 
 
 mittee makes the following report in reference to 
 the issue : — 
 
 the issue. 
 
 " Issue Depaetment. 
 Administra- " The expenses of tie issue department of the Bank of England 
 
 tive and r r & 
 
 technical have been returned to ns as follows : — 
 
 expenses. 
 
 £ 
 Wages , . - • 89,731 
 
 Pensions 8,063 
 
 Rent 25,600 
 
 Eepairs 8,568 
 
 Directors' allowance 2,926 
 
 Rates and taxes 2,300 
 
 Stationery 1,811 
 
 General charges 6,790 
 
 Bank note paper 11,623 
 
 Interest on cost of machinery . . 1,500 
 
 Compensation paid to bankers . . 20,493 
 
 Totals £179,405 
 
 Besides these actual expenses. Clause 2 of the Act 
 stamp dues of 1844 provides that the Bank of England shall pay 
 Ist"^''" £180,000 per annum to the State, viz. :— £60,000 for 
 
181 
 
 stamp dues and £120,000 for share of profits. The 
 Parliamentary statement then goes on : — 
 
 " The profits of the issae department for the year have been Account 
 
 T I n M furniahod to 
 
 returned to us as follows : — ParUamsnt. 
 
 £ 
 Interest on fixed securities ... . . 445,117 
 
 Gain on foreign coin and bullion . . . 10,811 
 
 465,928 
 Deduct expenses as above . . . 179,405 
 
 Profit 276,523 
 
 Of this sum the public receives from the Bank — 
 
 1st. Composition in lieu of stamps £60,000 
 
 2nd. For share of profits of the ) ■> no f^^o 
 circulation department . J ' 
 
 188,078 
 
 Net profit .... £88,445 
 
 I must further state that this return refers to a year The 
 
 ** variations 
 
 when the issue stood at £14,475,000. No returns of ^Z^^e, 
 expenses were pubHshed when the issue stood at Snountof 
 £14,000,000, or when, in 1861, it was raised to 
 £14,650,000, and finally, in 1866, to 15 millions. I 
 am obhged, therefore, to determine the expenses of 
 these other years according to the amount of issue ; 
 and when it is borne in mind that during recent years 
 bankers' compensation has increased, and rent or 
 other charges have risen, the proceeding would seem 
 fair, and serve as a set-offagainst any miscalculation of 
 previous years. I accordingly returned the expenses : — 
 
 £ 
 
 JProm 1845 to 1855 173,611 
 
 '55 „ '61 179,405 
 
 '61 „ '66 181,674 
 
 '66 ....... . 185,912 
 
 Besides the actual expenditure on the issue, the 
 Bank pays to the State the above-mentioned sum. in 
 composition of stamp duty and sj3-called profits on the 
 issue, which in the first period. 
 
 issue. 
 
182 
 
 £ 
 Trom 1846 amounted to ... . 180,000 
 
 '55 „ .... 188,078 
 
 '61 192,480 
 
 '66 195,078 
 
 So that the total expenditure may be given, 
 
 £ 
 Smoel845 353,511 
 
 '55 367,483 
 
 „ '61 374,054 
 
 „ '66 381,000 
 
 On the other hand, the investment of the " fixed 
 
 securities," which at theabove return were £14,475,000, 
 
 yielded ^£445,117 ; calculated at the same pro rata 
 
 manner — 
 
 £ £ 
 
 14,000,000 would have brought . 430,510 
 
 14,475,000 „ . 445,117 
 
 14,650,000 „ . 450,495 
 
 15,000,000 „ . 461,261 
 
 In the return submitted there also appears the 
 rabSuion i^®^5 " g^i'i OJ^ foreign coin and bullion, £10,811," as 
 from''^8. profit on the issue. I leave this item (which is some- 
 times larger) out here, for it has no immediate refer- 
 ence to the issue of the 15 millions of notes. It arises 
 solely in connection with the portion issued on bullion, 
 and the Bank can deal in that article without the 
 fiduciary issue. In this view I am confirmed by one 
 of the Directors of the Bank of England, who at the 
 Bank inquiry of 1857 (see Eeport 220, Sess. 2, p 36, 
 No. 360), said, " The profit upon bullion and coin is 
 entirely irrespective of the issue of notes, and, though 
 it comes to the profit of the same department, it is in 
 reality not a profit contingent upon the issue of 
 notes." 
 
 This gives the result that the investment of the 14 
 millions — (increased now tol5 millions) at the interest 
 
183 
 
 here set forth, less expenses — yields an annual balance 
 
 in favour of the issue department of — 
 
 £ 
 From 1845 76,999 
 
 '65 77,634 
 
 '61 7C,4i4.1 
 
 '66 80,261 
 
 That is to say, the Bank, having parted with 15 
 millions of money by way of investment in certain The net 
 
 •> •' •' profit of the 
 
 advances to the State and on other securities, receives, dlpartment. 
 when the expenses are deducted, an annual profit of 
 £80,261, equal to a rate of interest of ^, or a little 
 more than one-half per cent, per annum on the money 
 laid out. 
 
 Clearly understand then : So far the Bank has 
 advanced money to the State (11 millions*) and bought 
 (4 millions of) other securities for the issue depart- 
 ment, laying out a total of 15 millions of money at 
 interest of 3 per cent,, which, deducting expenses, 
 leaves the above profit of £80,000 per annum. This 
 then is one of the sources of profit. 
 
 The other source of profit now arises from the 
 use of 15 millions of Bank notes acquired by the The 
 
 i •/ BDppoBed 
 
 Banking Department (see clause 2 of the Act), If the iI^'m* 
 
 -in the 
 
 whole 15 millions were thus employed at, say, 4|- per ^f^^g^j 
 cent, (the average rate of interest), the Bank would 
 make, including the £80,261, a total profit of £717,761 
 per annum. 
 
 A reference to the state of the Keserves wiU show 
 
 * I here repeat that it is an error to say the Bank has lent its 
 capital to the Bank for notes, b'ecause the amount of capital rises 
 above that of the issue. It is immaterial how the Bank origiiially 
 parted with the 11 millions of money to the State whether from ' 
 capital or means, or whether the amount so authorised for issue is 
 supposed to form the Bank's capital. Equally immaterial is the 
 fact that the Slate owes the debt in account, it might just as well be 
 converted into Consols, or other negotiable securities of equal value. 
 
184 
 
 The faeavy 
 
 show that 
 this profit 
 cannot be 
 made. 
 
 CalcnlatioB 
 of these 
 profits. 
 
 you that this is impossible, for these 13 millions of 
 notes instead of being employed in circulation are 
 mostly held in Reserve, entering into use only at a 
 total average of about 6 millions (the circulation of 
 10 millions indicating danger, and that of the whole 
 meaning crisis and panic). 
 
 I have calculated the total interest -which the Bank 
 thus receives from the employment of that portion of 
 the fiduciary issue which it has been able to use, or, if 
 you like it better, of that portion of the total issue, 
 which, after deducting bullion, is put into circulation. 
 In doing so I have taken the Bank rates of discount as 
 they stood from week to week, and although the Bank 
 makes certain advances below that rate, in which the 
 employed proportion has a share, I have — seeing that 
 on rare occasions it makes a higher charge for long 
 bills* — adhered to the current rate. 
 
 Table 13. — Total of Interest Eanmed by the Bank on the Notes 
 in Circulation above, the Amov/nts of Bullion held. 
 
 1845 167,207 
 
 '46 204,769 
 
 '47 485,567 
 
 ^48 188,003 
 
 •49 121,351 
 
 1850 86,791 
 
 '51 166,005 
 
 '52 38,460 
 
 '53 222,956 
 
 '54 379,351 
 
 1855 300,721 
 
 '56 549,672 
 
 '57 675,227 
 
 '58 103,864 
 
 '59 118,902 
 
 1860 285,300 
 
 '61 426,930 
 
 '62 138,584 
 
 '63 310,108 
 
 '64 576,180 
 
 1865 347,814 
 
 '66 690,177 
 
 '67 88,984 
 
 '68 92,986 
 
 '69 186,611 
 
 1870 111,566 
 
 '71 59,053 
 
 7,118,148 
 
 The total for the twenty-seven years gives an average 
 of £263,635, and if you add thereto the so-called 
 
 * I am aware that the Bani: has of late years taken to the practice 
 of charging higher rates than it declares, notably in 1873 — but these 
 roaring times, happily, are short. 
 
185 
 
 profit of the issue department at the respective rates -^^p^^f^' 
 (according to issue), an average of £77,641, you leavefa 
 
 lOBS of 
 
 obtain £343,276, which, on the average amount of the ^loo^^^^j 
 issues, gives a return of interest of 2'B46 per cent, per 
 annum, or a Httle over 2-g^ per cent. That is to say, 
 the investment of the 14 fo 15 millions at '6 per cent, (or 
 a trifle more), after allowing for expenses, together with 
 the profit which the Bank makes on the 14 to 15 
 millions of notes — the two birds killed with one stone^- 
 the whole business yields but 2^^ per cent., equal to an 
 annual loss of £100,000 on the supposed first invest- 
 ment of the money at 3 per cent. 
 
 But the question has no great special reference to 
 the investment of the 15 millions in the first instance. onle^Ses 
 That investment is an accomplished fact, yielding, at toVsepS 
 
 . matter. 
 
 3 per cent., £450,000 per annum, and standing as a 
 mere security, the issue might go on, say under some 
 other form of guarantee, without taking into account 
 the rate of _ interest derived from the investment, 
 ladeed, if that were made a question, I have the 
 good right to say : the Bank might use this money in 
 commerce, at a free rate of interest, varying on the 
 average of 4|- per cent., without being encumbered by 
 the rate of interest imposed by the issue and the 
 expenses attached thereto. In that case the loss per 
 annum might be stated at £287,500, a matter for the 
 consideration of the proprietors. 
 
 The question may be narrowed simply to the 
 expenses of the issue on the one hand, and the profits The 
 
 ■*- question lies 
 
 of its productive element on the other hand, and then l^^^^ 
 according to the average expenditure of £263,635 per oSthe^s'* 
 annum, against the annual expenditure of £365,688, 
 the average loss per annum is £102,000, showing about 
 the same result. Putting together the annual expen- 
 diture as against the annual produce of interest, the 
 following profit and loss account can be made out : — 
 
 millions. 
 
X86 
 
 Table 14. — Showing the Annual Charge on the Issue, the Annual 
 Interest, and consequent Profit and Loss per Annum,* 
 
 YefirB. 
 
 The large 
 profits only 
 mfuie in 
 years of 
 panio and 
 crisis. 
 
 1845 
 ■46, 
 '47 
 '48 
 '49 
 '50 
 •^51 
 '52 
 '53 
 '54 
 
 1855, 
 '56 
 '57, 
 '58. 
 '59, 
 '60, 
 
 1861, 
 '62, 
 '63. 
 '64 
 '65. 
 
 1866. 
 '67. 
 '68. 
 '69. 
 '70. 
 '71. 
 
 Annual 
 Total Charge. 
 
 353,511 
 
 367,483 
 
 374,054 
 
 . 881,000 .{ 
 
 Annual 
 Interest Earned. 
 
 £ 
 167,207 
 204,769 
 485,567 
 188,003 
 121,351 
 
 86,791 
 166,005 
 
 38,460 
 222,965 
 379,351 
 
 300,721 
 549,672 
 675,227 
 103,864 
 113,902 
 285,300 
 
 426,930 
 138,584 
 310,108 
 576,180 
 347,814 
 
 690,177 
 
 88,984 
 
 92,986 
 
 186,611 
 
 111,556 
 
 59,053 
 
 Proflt. 
 
 132,056 
 25,840 
 
 182,189 
 307,744 
 
 52,876 
 
 202,126 
 309,177 
 
 Lobs. 
 
 £ 
 186,304 , 
 148,742 
 
 165,508 
 232,160 
 266,720 
 187,506 
 315,051 
 130,546 
 
 66,762 
 
 263,619 
 253,581 
 182,183 
 
 235,470 
 63,946 
 
 26,240 
 
 292,016 
 288,014 
 194,389 
 269,434 
 321,947 
 
 One of the remarkable facts shown by this table is 
 that the three years "when largie profits were made were 
 1847, 1867, and 1866 — the years of panic and crises ; 
 and I invite yoii to refer to page 147 of this book, 
 where this matter and the extra profits made on 
 increased deposits are discussed. A considerable 
 portion of the profits of the Bank during crisis are 
 thus owing to increased deposits, i.e. from assistance 
 entirely apart from the issue. 
 
 * The Bank also loses about £30,000 per annum in tlie Reserve 
 of Coin, This Reserve of Coin is not included in the Table. 
 
187 
 
 THE FALSITY OF THE SUPPOSED AUTO- 
 MATON OPERATION OF THE ISSUE AND 
 THE UNNATUEAL ACCUMULATION OF 
 RESERVE IN THE BANKING DEPART- 
 MENT. 
 
 I liave now furnislied you witli material sufficient 
 to enable me to dispose of one of the main errors by '^^ . , 
 which the method of defending the present system is mS"*"^ 
 principally conducted. The admirers of the Act will 
 tell you two things : — 
 
 Firstly. The issue department of the Bank 
 is a purely independent matter ; it acts like an The 
 automaton machine. The banking department as to the 
 
 o r purely 
 
 has nothing whatever to do with it; just as t^'^^ot 
 little as any other banker. The latter has its 
 own independent account. 
 
 Secondly. The accumulation of the large 
 Reserves is quite a natural thing, over which The 
 
 mvocation 
 
 the Bank has no control. It results from ""iieiawa 
 
 of supply 
 
 the free operation of supply and demand, demoua. 
 The same accumulations would take place 
 if the note issue were entirely removed, and 
 replaced, say, by gold coin (or as the favourite 
 expression goes, " if" the Government paid the 
 debt to the Bank, or undertook to pay the 
 notes /or the Bank). 
 
 When such formidable words as " automaton " 
 action, " and the laws of supply and demand," are The 
 
 ' rr ./ ' formidable 
 
 invoked by persons of authority, you begin to feel 1^^°^" 
 small, and, finally, you give in when you are shown ^^^' 
 the weekly statement, of which, pro forma, the follow- 
 ing is a representation : — 
 
188 
 
 ISSUE DEPARTMENT. 
 
 Liabilities. • 
 
 £ 
 
 Assets. 
 
 £ 
 
 Notes issued . . . 38,000,000 
 
 Government debt . 
 Otter securities 
 Bullion .... 
 
 11,016,100 
 
 3,984,900 
 
 23,000,000 
 
 £38,000,000 
 
 £38,000,000 
 
 BANKING DEPARTMENT. 
 
 Proprietors' capital 14,633,000 
 
 Best 3,447,000 
 
 Public deposits. . 8,000,000 
 
 Other deposits . . 17,600,000 
 
 Seven days' bills . 600,000 
 
 £44,000,000 
 
 Government secu- 
 
 
 rities .... 
 
 14,000,000 
 
 Other securities 
 
 17,600,000 
 
 Reserve of notes . 
 
 12,000,000 
 
 Coin ... 
 
 600,000 
 
 £44,000,000 
 
 the weekly 
 
 Bank 
 
 Btatement 
 
 Not only does this balance nicely, but you will be 
 blffiby^ told that " should you have any doubt in your mind 
 about the Bank's having given up, or somehow sacri- 
 ficed, capital and resources on behalf of the issue 
 department, look at the statement of the banking 
 department, where you will find the capital and rest 
 and the deposits in full numbers balancing with the 
 assets." After this you feel inclined to give in ; 
 and, in truth, most economists are thus dismayed and 
 deceived. 
 
 Yet nothing can be more false and deceptive than 
 But nothing tHs mothod of stating the case. Clause 2 of the Act 
 distinctly provides that the notes from the issue de- 
 partment shall pass into the banking department, and 
 thereby absolves the issue department from the 
 liability of holding notes which the circulation cannot 
 make use of, throwing the whole onus of the Eeserve 
 of idle notes on the Banking Department. You may 
 admit that this is contrary to an " automaton" action. 
 It may also strike you as natural that when atiy 
 system of issue is supposed to be automaton and inde- 
 
 can be more 
 false than 
 this method 
 of showing 
 the case. 
 
189 
 
 pendent, it should within itself contain the power of re- ^^^^^^f^^'^, 
 
 gulatingits status; and so the Issue Department ought Bep^° 
 
 to be able to supply itself with Bullion — i.e. bring into 
 
 action the motive power to attract Bullion. But this is 
 
 an office which the Banking Department performs for 
 
 it also. It is utterly idle to maintain the plea : the public 
 
 can bring Bullion, or exchange Bullion for notes, and 
 
 vice versa. That which is in question here is the actual 
 
 force to be exercised for the importation of Bullion, 
 
 and that force is entirely in the hands of the Banking 
 
 Department, which, by raising or lowering the rate, The Bank- 
 ing Depart- 
 
 causes the issue to be thus supplied. The automaton ^^^jj^"*® 
 character of the issue thus resembles the celebrated ^°"'°- 
 Chinese steamboat, which, perfect in all its parts, only 
 wanted provision for steam in order to move, and had 
 to be towed by another ship. 
 
 The pretence that the Issue Department has this in- 
 dependent character would best be shown if, as it has ^^^"Pf ■ 
 often been suggested, the Department was transferred S^'i'sS'"^ 
 to the State, to be carried on at Somerset House. If to the state. 
 the State there held say 22 millions against a total issue 
 of, say 37 millions, and on a circulation of 25 millions, 
 it could not maintain Bullion unless it had the power 
 of estabKshing a rate of interest, and trade would care 
 very little for the mere declaration of a rate. The 
 State might " consult" the Bank, but even the Bank 
 need not care for Government rates, as soon as it has 
 got rid of the present liability on the issue. The State without the 
 would be compelled to open a Banking Department of becoming 
 its own and turn Banker, so as to gain the practical a^itioL 
 means of influencing the issue, or the latter would 
 speedily come to an untimely end. 
 
 The transfer of the issue to the State could not Freed of the 
 
 , issue the 
 
 compel the Bank of England to hold large Reserves. fe^rrbSt* 
 The Bank would then stand with its Capital, Rest, and re^'^™'^ 
 
 * Beserre. 
 
 Deposits, and the whole and sole question of Reserve 
 
190 
 
 would have reference to possible withdrawals of 
 Deposits, Knowing that these do not, in case of pres- 
 sure, decline, but rather increase, the Bank of England 
 might say : we will keep 4 or 5 or 6 millions of Eeserve, 
 or more or less, and keep whatever per centage we 
 deem proper at a regular figure. As to keeping 15 or 
 16 millions of Eeserve against 26 millions of Deposits, 
 secured moreover by an additional 18 millions of 
 Capital and Eest, the Bank of England would be 
 unable to do so, and it would for the future avoid the 
 falUng of its cash Eeserve below the regular per 
 centage determined upon. 
 
 Any excessive Eeserve then, arising from the pre- 
 SpStmlnt sent system of issue, falls on the Banking Department, 
 c^'eof ^^*^ lessens its power of doing business to the extent of 
 B^erves such cxccss. It has often been said " the Bank has 
 
 in the * 
 
 Banwng Surrendered its Capital to the issue. If this Capital 
 were returned, or the State Debt paid off, matters would 
 be settled." I have before this stated that this paying 
 off of the State Debt makes no difference in the Issue 
 (unless 11 milhons of credit notes were abolished), and 
 that the fact of the Bank's Capital being 14^ milhons 
 and the Issue 1 5 millions is more or less accidental. 
 Nevertheless, it is true that the Bank's Capital, upon 
 which the Dividends must be paid, bears the brunt of 
 the anomaly, and, as the guarantor of the Deposits, 
 any discrepancy would fall upon Capital. The admirers 
 of the present system are unwilling to admit this. 
 They will persist in telling you " (1) the issue is self 
 acting; (2) the Bank's capital and rest are quite 
 intact, and invested against best securities ; (3) the 
 banking and deposit business of the Bank of England 
 is a matter standing entirely on its own merits, we can 
 pay these off at any time, and show the Bank's capital 
 fully invested." 
 
 The following is a pro forma statement with 23 
 
 Depart- 
 ment. 
 
191 
 
 millions Bullion in the Issue, and 26 millions in 
 circulation, putting Deposits at 26 millions, total 
 securities at 32 millions, and Reserve of 12 millions 
 in the Banking Department : — 
 
 ISSUE DEPARTMENT. 
 
 Notes issued 
 
 £38,000,000 
 
 £38,000,000 
 Notes in the hands of the public 
 
 Government debt .£11,016,100 
 Other securities . . 3,984,900 
 Bullion 23,000,000 
 
 Supposed 
 case of 
 liquidation 
 of Deposits. 
 
 Statement 
 showing 
 tlie effect 
 on the 
 Bank's 
 Capital. 
 
 £38,000,000 
 . 26,000,000 
 
 BANKING DEPARTMENT. 
 
 Capital . . . .£14,563,000 
 
 Rest 3,447,000 
 
 Deposits (Public and 
 
 Private) . . . 26,000,000 
 
 £44,000,000 
 
 Gov.& other sScurts. £32,000,000 
 Reserve of notes . . 12,000,000 
 
 £44,000,000 
 
 If, now, according to the above hint, the Bank paid 
 off its Depositors, how would the case stand ? The 
 Bank would j&rst use the 12 millions of Reserve of 
 Notes ; but as these cannot be incorporated tvith the 
 circulation, they would instantly return to the Reserve. 
 The Bank would simply loose the securities obtained 
 against the Deposits, and this is the legitimate way 
 in which all Deposits find their orderly Hquidation. 
 The account would then stand : 
 
 BANKING DEPARTMENT. 
 
 Liabilities. 
 Capital . . . .£14,553,000 
 Rest 3,447,000 
 
 £18,000,000 
 
 Assets. 
 
 Gov.&othersecnrts. £6,000,000 The asset 
 
 ' ' of Idle 
 
 Reserve of notes . 12,000,000 Eeserve of 
 
 ^_^__^ notes left. 
 
 £18,000,000 
 
 Bear in mind that 12 millions of Reserve are fre- 
 quently on hand ; but if there were but 7 or 8 milhons 
 the Capital would still be laid idle to that extent. 
 
 The strength of this position is undeniable, but 
 where is the Bank's profit ? 
 
192 
 Showing There "would be the £80,000 profit in the 
 
 tihe great ^ 
 
 slnkbythe issue, and 180,000 at 3 per cent. 
 
 on the 6 millions of 
 Government and other 
 
 securities, 
 
 or £260,000 gross 
 out of which the Bank would have to pay its banking 
 staff and expenses (probably equal to the whole sum) 
 before it could make a dividend on the capital. 
 
 I have here taken 12 mUlions as idle note Reserve, 
 
 With any but if that Reservc, either by decrease of circulation, 
 
 given 'J ' 
 
 ^8e™e.°' or by increase in'buUion, was augmented by 3 millions — 
 a thing that has happened frequently — the above small 
 gross profit would be diminished accordingly. And, as 
 on one occasion (1871), the Reserve amounted to more 
 than 17 millions, and may with the increased bullion 
 (not to speak of the cry for more Reserve uttered by 
 certain economists) some day amount to 18 millions, 
 the statement of the Department might be — 
 
 BANKING DEPARTMENT. 
 
 Proprietor's capital £14,553,000 
 Eest 3,447,000 
 
 £18,000,000 
 
 Goverment securities 
 
 Other „ 
 
 Reserve of notes £18,000,000* 
 
 £18,000,000 
 
 The That is to say, in order to hold such a note Reserve, 
 
 enforced . 
 
 pretence ^hc Bank would be obliged to sell all the securities 
 Bank% which it holds against the 18 millions of capital and 
 
 capital by "^ ^ 
 
 theReserTO, j,gg|. £qj, ^^^ ^^^ q£ holding a Rcservo of 18 millions of 
 notes coming from the Issue Department — absolutely 
 useless for the purposes of circulation — debarred from 
 all connection with the commerce of the country. 
 You will admit that whether we bring deposits and 
 securities back into this account, the effect, bo far as 
 idleness of resources is concerned, will remain the 
 same. 
 
193 
 
 This reasoning must prove to you that the Issue 
 Department is really carried on at the charge of the 
 Bank's capital. 
 
 Let me suggest that if in the weekly statements of 
 the Banking Department the following slight tranposi- 
 tion had taken place, upon the supposition that there 
 were, accidentally, 14^ millions Reserve, viz. — 
 
 BANKING DEPARTMENT. 
 
 Dr. 
 
 Proprietors' capital 
 Rest .... 
 Public deposits . 
 OtHer deposits . 
 7 days' bills . . 
 
 £14,500,000 
 
 3,500,000 
 
 8,000,000 
 
 17,500,000 
 
 600,000 
 
 £44000,000 
 
 Cr. 
 Beserve of notes . . £14,500,000 
 Government securi- 
 ties 14,000,000 
 
 Other securities . . 15,000,000 
 Coin 500,000 
 
 £44,006,000 
 
 the common sense of _ the proprietors would have dis- 
 covered the economical hocus pocus played with their 
 capital before this. 
 
 I need hardly carry the case of the large desirable (?) 
 Reserve to 20 or 22 millions ! "What would the Bank 
 do with a bullion Reserve over and above circulation ? The 
 
 ludicroua 
 
 is a suggestion frequently made. The Bank would be tK'a'tter. 
 quite unable to receive it ; it could only ask Parliament 
 to increase its capital, in order that such capital should 
 stand, pro forma, against a larger reserve of notes and 
 gold, perfectly useless. The ludicrous position here 
 arising is equalled only by its counterpart, viz., when 
 the low state of the stock of bullion threatens the 
 circulation, and causes that indescribable state— a 
 panic 1 (See pages 119-120.) 
 
 The true appreciation of these plain matters will 
 now show you that, by a diminution of the Reserve, the the 
 
 , ^ rt . Keriuction 
 
 Bank regams the power and proht on its capital and g',i^|f[^e^ 
 rest. For if that Reserve, from 15 or 12 milHons Sr*"'"'" 
 
 13 
 
194 
 
 be reduced to 5 or 6, it follows that the securities at 
 the Bank must increase in precisely the same ratio as 
 the Reserve decreases, and thus free the Bank's capital 
 from the odious obligation of being represented by a 
 useless and idle surplus of mere paper money. 
 
 What I here submit to you, you may deem con- 
 firmtory of, all that I have said in this book respecting 
 the want of progress of the Bank, its moderate divi- 
 dends, and its insufficient participation in the real busi- 
 ness of the country. Saddled with the unhappy reserves 
 of this nature, which the circulation cannot absorb, in 
 exchange for which its capital is bartered away and 
 rendered useless (or such equivalent of deposits, if, as 
 proprietors, you should give preference to your capital 
 over deposits), you cannot expect that the resources of 
 the establishment should be properly used, or that the 
 Bank should be able to hold its own without gigantic 
 struggles, resulting in its remaining behind the pros- 
 perity of the nation. 
 
 THE VIOLATION OF THE RULES OE SUPPLY 
 
 AND DEMAND, AND CONCLUSION OP 
 
 PART I. 
 
 The evidence which I have been able to lay before 
 ^gttment you on the whole case will enable you to dispose of one 
 sSppi^^ of the main diflBculties in the way of this enquiry, viz. 
 
 demand. * j. ./ 
 
 the tenacity with which the admirers of the Act assert 
 that the rules of supply and demand are effective under 
 the present system. "Whenever these large Reserves 
 are spoken of they wiU tell you " that their accumula- 
 tion rests upon the operation of the natural laws of 
 supply and demand, and that the same accumulation 
 of Reserve would take place, if the fiduciary issue 
 were replaced by gold coin. 
 
 The allegation that, if the fiduciary issue were 
 
195 
 
 abolislied and replaced by ffold coin, the same Tie undue 
 accumulations would take place, is refuted by the ooln"'^"''^ 
 fact that erold has an international value: that any prevented 
 
 ° ■' by its inter- 
 
 national 
 value. 
 
 surplus of it will find its way abroad against the 
 return of full equivalents in commodities and secu- 
 rities deliberately chosen. In order to narrow this to 
 the case of the Bank of England, with a presumed 
 surplus stock of, say 14 or 1 6 millions of gold coin, and 
 deducting therefrom 6 or 7 millions, which the Bank 
 would keep for its own purposes of Reserve (or any 
 greater or lesser amount), the surplus offering would 
 go abroad against foreign securities to be held by 
 bankers and merchants, who, in their turn, would sell 
 to the Bauk such home securities as that establishment 
 is in the habit of taking. This exchange of accounts 
 would be continuously in operation, and modify every 
 extreme, the Bank being guided solely by the level of 
 Reserve of cash which it might deem proper to 
 maintain as a regular per centage on liabilities. It is 
 just for the reason that the Reserve of notes itself is 
 not available for export, that it thus accumulates, and 
 thereby causes the overwhelming and unnatural export 
 of bullion itself. 
 
 In all that concerns supply and demand it is un- 
 questionably true that, where the constituents are left Freedom of 
 to their free operation, they must bring about a natural demand!^* 
 adjustment and an intelligible result, clearly traceable 
 and applicable. But when the factors operatkig together 
 are not free and pliable, either partly or on the whole. Arbitrary 
 when distinct characteristics can be shown that they uSotS^ 
 have an admixture of limit, or are subject to limits depending 
 
 " OQ Other 
 
 arising from distinct outside causes, the rules of Stoierein 
 supply and demand must fail in their presumed inex- agreement. 
 orable agreement, just for the reason that the outside 
 influences are also undeniable and inexorable facts. 
 This element of restriction is present, in the first 
 
196 
 
 The supply 
 of notes 
 mixed with 
 the fixed 
 limit of 16 
 
 Tnilll flTIH. 
 
 Other 
 factors 
 require 
 adjustment 
 
 Before the 
 
 system 
 
 becomes 
 
 truly 
 
 self-acting. 
 
 place, in the supply, as represented by tlie Bank of 
 England's note issue; the fixed limit of 16 millions 
 at once disturbs the legitimate operation, for its want 
 of assimilation to other matters and rights prevents 
 the true balancing of the factor supply within its own 
 sphere. 
 
 The other element — the circulation — is almost 
 wholly of a firm character, excepting only as far as 
 gradual increase or decrease is concerned. But, as 
 has been suflfiently shown, it cannot be moved at 
 will, and refuses to answer the appeals on behalf of 
 supply. And this characteristic is not loosely inherent 
 in it, it is the consequence of separate factorships, 
 which connects the circulation with the production 
 and consumption of commodities, and which require 
 to be led back to other original considerations. The 
 intelligent consideration of these matters is absolutely 
 necessary before any adjustment can take place, before 
 the whole system can be left to itself, before it prac- 
 tically realises the idea of inexorably true balance, 
 which must be accepted with all its consequences. 
 
 Before such an adjustment, or even an approach to it, 
 ereor^fthe ^aw talcc placc, it must he recognised that this 15 mil' 
 first be lions of fixcd issuc is the cause of all the mischief and 
 
 recognised. "^ '' 
 
 the sorry misfit between supply and demand. 
 
 Besumdof 
 the evidence 
 showing the 
 error. 
 
 In the course of this book I have shown you i— 
 
 1. The want of progress of the Bank of 
 England, compared to the great progress in all 
 other directions. 
 
 2. The insufficient dividends of the Bank 
 in juxtaposition to the profits reaKsed by all 
 other participators in the development of com- 
 merce duriDg the last thii'ty years. 
 
197 
 
 3. The comparatively insignificant and un- 
 satisfactory share of the Bank in the active life 
 of commerce and discount business. 
 
 Compare the fivefold progress in all other directions 
 with the figures concerning the Bank of England. 
 Make every allowance for the conservative tendency 
 of the latter for competition and other causes ; say 
 that the Bank need only have increased twofold, or, 
 go lower still, say it need only have doubled its 
 affairs ; but you will find that it has made no advance 
 whatever. The only increase that has taken place 
 concerns 3 millions of circulation since 1866, and an 
 equal amount of BanJcers' Balances, i.e. an accession 
 of strength by the competitors of the Bank who have 
 been abused for not keeping sufficient " Reserve." 
 No fairly intelligent and candid enquirer can avoid the 
 suspicion that this result is unnatural, and that it 
 forms prima facie evidence of a state of things which 
 ought not to be, even were the matter but one of 
 theory. But when the periodical returns of crisis 
 and distress set in, when the utmost mischief is done, 
 we find evils brought before us which cannot 
 practically be greater, unless they culminated in utter 
 destruction. 
 
 I have shown you further 
 
 4. That the seat of the error must be in 
 the Issue Department, and have explained 
 
 6. The state of the controversy, &c. 
 
 6. The origin and main principles of the 
 Act of 1844. 
 
 7. The demerits of the fixed issue as to its 
 computation. 
 
 8. The demerits of the idle note Reserve 
 arising therefrom. 
 
19S 
 
 9. The effect of the fixed issue on bullion 
 and exchanges. 
 
 10. The conflict between the Bank rates 
 of interest and the international rates. 
 
 The evidence laid before you, as regards these fre- 
 quent changes in the rate, proves their unnatural 
 character ; it cannot lead to any other conclusion than 
 the recognition of the undue influence on interest 
 by the superfluous note Reserve, and the conse- 
 quent violent rebounding of the rate, — such rebounds 
 being, after aU, scarcely effective. 
 
 11 . The general circulation and that of the 
 Bank of England note, showing their compara- 
 tive regularity. 
 
 12. The consequent non-availability of the 
 Bank's idle Reserve. 
 
 13. The false suggestions made in refer- 
 ence to it, and to proportions between deposits 
 and Reserve. 
 
 14. The destruction of the real Reserves 
 of the country by the Bank of England system, 
 as proven not only by the crises, but by many 
 ordinary positions of affairs. 
 
 15. The money market and its special 
 phases, explaining certain contingences. 
 
 16. The competition between the money 
 market and the Bank of England Reserve, and 
 the dangerous, useless and wanton conflict thus 
 brought about between the Bank and bankers, 
 
 17. The influence of the Reserve on specu- 
 lation, showing that it is the idle Reserve, and 
 the artificial low rate of interest which foster 
 and encourage speculation, and disorganise le- 
 gitimate business. 
 
199 
 
 18. The direct loss made by tlie Bank on 
 the Issue, in spite of the supposed double 
 source of profit from the arrangement. 
 
 19. The falsity of the supposed automaton 
 action of the Issue Department, the Banking 
 Department bearing its charge, and surrender- 
 ing its resources to the fiction of the Keserve. 
 
 20. The violation of the rules of supply and 
 demand therein involved. 
 
 And the succession of the evidence, thus laid before 
 you, forms a chain which possibly leads you to per- 
 ceive that aU these anomalies are due to the great 
 error pointed out. 
 
 If now you reflect upon what the Bank of England 
 really is, the magnificence of its proportion, the vast- ^Xcuon 
 ness and strength of the field it occupies, the manifest sank^a 
 
 T ^ • 1 1 • T -I Btrengfli 
 
 solid prosperity there present, the evident good mana- ^J^^^id 
 gership, you cannot but come to the conclusion that ""'"^""'^ 
 there must he some strange and singular error which 
 disorganises the concurrence between this wealth and 
 strength and wisdom. That error I trust you will now 
 recognise. To one who for many years has watched 
 the struggles under which our commerce sufiers, who 
 has studied other countries labouring under anomalies 
 in monetary matters, and their economical relation to 
 valuation, to industry and social life generally, this 
 error appears a most glaring one. Here he sees the 
 wealthiest and most industrious nation of the world, 
 constantly progressing and adding wealth. One esta- 
 blishment only, the central financial one, remains 
 behind hand ; but beyond this he sees that because 
 this establishment cannot perform a certain task 
 entirely its own, there are breaks in the progress of 
 prosperity, which bring ruin and distress not only to 
 the mercantile community but to the industrial classes, 
 and, consequently, drawbacks to the nation at large. 
 
200 
 
 The small 
 effort 
 required 
 for the 
 recognition 
 of the error 
 and the 
 remedy. 
 
 The 
 
 enbtlety, 
 yet 
 
 fiimplicity 
 of the 
 
 During the bitter controversies ensuing upon these 
 disturbances, one party appears which deems this all 
 proper, right and natural, and refuses to admit 
 enquiry. Another party is violently opposed to the 
 system, accusing it of doing great harm to the pros- 
 perity of the country, and pointing to the actual strife 
 and conflict as the best proof of the justice of its 
 complaints. This latter party he sees engaged in vain 
 endeavours to bring txhout amendment — for none of the 
 reformers appear to have the suspicion that the error 
 here pointed out is the real and sole caitse of all the mis- 
 chief. Simple as the point has now become, it will yet 
 be admitted that its subtlety required the consistent 
 and elaborate treatment here given to it, in order to 
 bring it into light, and in Part II., where suggestions 
 for the reform of the present system will be deve- 
 loped, the simplicity of the remedy will be shown. 
 
201 
 
 PART II. 
 
 th:e peinciplb of timely eeduction of 
 the fiduciaey issue. 
 
 THE facts and reasons ffiven in the first part of giveifmfsht 
 . lead to the 
 
 this book might lead to the natural inference ?ff™ence. 
 
 that we ought to reduce the mischievous fixed issue 
 of 15 millions whenever it reaches a state of 
 surplus hurtful to bullion, the money market, and the 
 Bank's resources. You may have formed the conclu- 
 sion that although the Bank can serve itself first from 
 the vast stream of bullion passing through our market, 
 yet it is not only unable to do so, by reason of the 
 very low rates of interest which it adopts, but it ^ethom 
 cannot even hold that which it already possesses. It Stsrestof 
 
 some years 
 
 is evident then that the unduly loiv rates of interest '^J^l ^^"^ 
 are at the bottom of this difficulty, and these, in their Scarcity and 
 
 high rates 
 
 turn, are due to the accumulation of a Reserve of idle """i^e™- 
 
 notes, which, as I have shown to you, is much in 
 excess of all possible wants. In determining the rates 
 of interest, the Bank of England is guided principally 
 by the amount of Reserve. But it is not only the Bank 
 which watches the Reserve, the general public, and "the 
 outside market," are just as able to judge interest by 
 the state of the Reserve, and to act in accordance with, 
 or in anticipation of it. This must be clearly under- "S"^^ 
 stood, so that the reaction of the market rate upon the of'the^ 
 
 Heserve. 
 
 Bank rate is placed in the proper light. It fi^equently 
 happens that the " market " is lower than the " Bank," 
 so that the impression, as if the latter were dependent 
 on the former, is created. Yet — and so the facts 
 g]iow — there is "no more money " in the " market ; " 
 any surplus there arising would at once find its way to 
 
202 
 
 It has the 
 initiative. 
 
 AmountB of 
 Beserve 
 and corre- 
 sponding 
 rates of 
 interest. 
 
 the Bank and its Reserve (see pp 165-166.) Under the 
 system as it now -works, the Bank may try to hold 
 interest higher, but the outside market is aware what 
 are the customary rates with certain amounts of 
 Reserve, and necessarily anticipates and defeats the 
 Bank, by going lower. The Bank cannot hold interest 
 at say 10 per cent, when the . market is at 4 or 5 per 
 cent., hut this much is certain, that differences of ^ to 
 1 per cent, are entirely at the option of the Bank ; that 
 within the limits of the concurrence between the Bank 
 and market, the Bank is absolutely free to make whatever 
 rate it pleases. Hence the Reserve guides both Bank 
 and market, giving to the former the real initiative. 
 
 For the purpose of ascertaining the proportions 
 between Reserve and interest, by which the Bank of 
 England is guided, I have prepared a series of tables 
 (too extensive for insertion here) showing the amount 
 of Reserve, first and. last, during each separate period 
 of interest, and the average ; which, after making 
 due allowances for the three changes in the amount of 
 the issue, show the following results : — 
 
 
 Minmrnm Rates. 
 
 Mange of Reserve. 
 
 Eesult of 
 tables 
 
 10 per 
 9 
 
 cent. 
 
 - minus 
 
 to 
 
 5 millions 
 
 showing the 
 
 
 1 
 
 
 6 
 
 ranges of 
 
 
 
 Efiserve 
 
 with the 
 
 8 
 
 
 2 
 
 
 7 „ 
 
 correspond- 
 
 7 
 
 
 3 
 
 
 8 
 
 ing rates of 
 
 
 
 interest. 
 
 6 
 
 
 4 
 
 
 8 
 
 
 5i 
 
 
 4 
 
 
 9 
 
 
 5 
 
 
 6 
 
 
 9 
 
 
 4i 
 
 
 6 
 
 
 9 
 
 
 4 
 
 
 6 
 
 
 10 
 
 
 3i 
 
 
 7 
 
 
 11 
 
 
 3 
 
 
 8 
 
 
 12 
 
 
 2i 
 
 
 9 
 
 
 14 
 
 
 2 
 
 
 11 
 
 
 16 
 
 The difference arising here in the ranges of the 
 Reserve as against the corresponding rates of interest 
 are due partly to the regard which the Bank of 
 
203 
 
 England has to the state of " other securities " 
 (although that is entirely lost in crisis), partly to 
 presumable error,* partly to changes of pohcy — for 
 "whereas before 1847 the Bank was more liberal, it 
 has during recent years been more severe. But the 
 whole ranges do not differ by more than 5 millions, 
 which is the amount I have before this (see page 113) 
 accounted for as that within which the circulation and 
 the general business of the Bank finds ample play. It 
 also appears that during recent years the Bank has 
 kept a slightly increased B,eserve, so as to protect 
 bullion against German demands. The variations in 
 deposits have no distinct influence, and a reference to 
 pages 134 and 135 will show why all calculations as to 
 proportion between Liabilities and Reserve are useless. 
 The above table exhibits the principle of progressive 
 decrease of interest with progressive increase of Re- 
 serve ; and whether we take the lower as for previous, 
 or the higher figure, or their average, for present 
 practice, the result is pretty much the same. Since 
 the circulation has now increased a few millions, and 
 the Bank is not likely to allow the the Reserve to 
 fall as low as 6 millions without making the rate 
 at once 10 per cent., the higher range is the more 
 appropriate. This appears accordingly, and for the 
 purpose of illustration may be given, as : — 
 Interest. Reserve. 
 
 10 per cent. 
 9 „ 
 8 „ 
 
 - 
 
 - 
 
 5 miUi 
 6 
 
 7 
 
 ons. 
 
 Definite 
 proportions 
 of Reserve 
 and interest 
 by way of 
 illustration. 
 
 7 
 
 . 
 
 - 
 
 8 
 
 
 
 6 „ 
 
 . 
 
 . 
 
 8 
 
 
 
 5 „ 
 
 _ 
 
 . 
 
 9 
 
 
 
 4 „ 
 
 . 
 
 . 
 
 10 
 
 
 
 3 „ 
 
 _ 
 
 . 
 
 12 
 
 
 
 2 
 
 - 
 
 - 
 
 15 
 
 
 
 * Of sucli presumable errors, for instance, may be quoted — 
 August 1865, wlien witli 6 millions Reserve, the Bank held the 
 
204 
 
 The common sense of the reader must Tio-w be 
 
 Eiperiencs appealed to in the following question :— What amount 
 
 sluB?fcctory of Ecserve ought the Bank of. England to keep in 
 
 favpno order to represent that fair state of business which is 
 
 J^er^rentT deemed desirable? In answering this question, all 
 
 the various suggestions made, that there should 
 
 always be 15 or 16 milHons of Eeserve, or that there 
 
 should be 35 or 50, or any other per centage against 
 
 liabilities, may be set aside. What we must ascertain 
 
 here should be taken from reasonable practice, and if, for 
 
 argument's sake, I assume a Eeserve of 10 millions, 
 
 with interest at 4 per cent., I presume that a great 
 
 many financiers would say : — " Such a Eeserve, with 
 
 interest at 4 per cent., appears to indicate a healthy 
 
 and fair position; the amount is large enough to 
 
 answer requirements, and we need not be alarmed 
 
 when we have so much !" They may add : " Perhaps 
 
 it is better that there should not be more than 10 
 
 millions." 
 
 Now if at any time the Eeserve in hand should be 
 The plain 15 milHons, and interest lowered to 2 per cent., both 
 
 principle or ■' ■*■ 
 
 sSSiM^f being unnecessary and quite in excess, the dullest 
 somrsuch intellect might suggest that we should reduce the 
 Eeserve to 10 millions, so as to be able to keep the 
 rate at 4 per cent. This setting aside of 5 millions of 
 the fiduciary issue, at least for a time, need not imply 
 any alteration in the present limit of the Act, the 
 5 millions thus temporarily withdrawn might be 
 brought forth again, if at any time they were wanted ; 
 but their removal, when there is sufficient bullion, 
 would unquestionably have the efi"ect of enabhng the 
 Bank to retain 5 millions of bullion in their stead. 
 The secret of ov/r present difficulties, and that of the 
 
 rate at only 3 per cent., and a few weeks later, with, the same 
 Reserve, at 7 per cent. ; and 1 873, when in September the rate 
 was 3|, and in November 9 per cent. 
 
 leirel. 
 
205 
 
 absolutely unfailing remedy, are thereby laid open to ^ewetof 
 
 "tiLB whoU 
 
 the 
 
 you ; and if this fails to meet with recos:nition, the difficulty, 
 
 ■' ' . and the 
 
 amendment of the present Act is impossible, whatever ^^^wla 
 other experiment may be tried. I have chosen the reduction, 
 respective sums of 15 and 10 millions of Eeserve and 
 4 and 2 per cent, interest, for the sake of illustration ; 
 the principle itself will verify itself with any other 
 amount of Reserve or rate of interest that hes within 
 range. And it must be distinctly understood that 
 this matter is not one of account, the Reserve consists 
 of surplus money, of bank notes, which have the full 
 weight and right of legal tender currency, and which, °uVXsof 
 as such, are offered and held ready for use at any given notes. ° 
 moment. The denial, or an attempted modification 
 of this force of legal tender rights, would be a denial 
 of all the anticipations and calculations by which we 
 are now guided. 
 
 The timely reduction in the issue would accordingly 
 lead to a more steady and less abnormally low rate of ^naMe'^f 
 interest, and this, prima facie, would prevent bullion pwuTereby 
 
 ' _ ' -^ -/ ' r jm,4g easy. 
 
 from leaving the Bank. The status quo would be 
 maintained with greater regularity, and whereas of 
 the three stages, 1st, of maintaining the status quo ; 
 2nd, of replenishing it from current supply; 3rd, of 
 forcibly restoring it by violent rises in the rate, the 
 Bank is now totally unable to respond even to the first 
 and able only to act " forcibly " for the purpose of the 
 third ; it would be enabled by the timely temporary 
 reduction to cover at once the first and second stagcj 
 and the third necessity might never occUr againj 
 although recoiirse to it could still be had. 
 
 The natural law of compensation involved in this 
 action will not only determine a suitable, or what may *^^pmsai 
 be called a normal rate, kept in accord 'Oiith the vtthi& of involved 
 money in the outer world, but will rendef the departures ollnoreMB 
 from that rate less violent and less frequent. The 
 
206 
 
 market rate will consequently maintain itself, without 
 being dragged down by the Bank rate, but both will 
 be able to act in concert, influencing each other by the 
 legitimate indications of real supply and demand. At 
 Muoiary tho Same time the fiduciary issue will regulate itself 
 
 Reserve *^ ^ 
 
 ^Sng in such a way, that that which is withdrawn at one time 
 can, when necessity demands it, be added at another 
 with perfect safety, leading to a system of Reserve of 
 a more regular nature, under which bullion can be 
 protected and atf-racted by means with which the weight 
 of fiduciary Eeserye will not interfere. By thus 
 " saving " in time the fiduciary issue, we would not only 
 save bullion in the first instance, but the notes set 
 aside would become the real 'Reserve, laid aside in accord 
 with what prosperous times are supposed to do for the 
 benefit of less favourable periods. The system of 
 fiduciary issue will thus enter into its proper and only 
 true use, and when so used, its first efiect will be that 
 of regulating and modifying all the present difficulties, 
 so that extreme necessities are not likely to arise again. 
 
 Will be The reduction and increase of the issue will accordinsrly 
 
 moderate ^ "^ 
 
 at'aiukita. Carry its own Reserve power, and instead of the Reserve 
 
 now varying between below zero and 15 or 17 milhons, 
 
 the amount will remain near a range, both moderate 
 
 and ample, but much within the present extremes. 
 
 Among the great variety of the controversialists on 
 
 Theconser- the Bank of England question, the vast majority of 
 
 mtare of q^j. leading writers on the money market (notably the 
 
 ttoeiy'°°* Times, as well as experienced bankers and merchants), 
 
 reduction. . , . . 
 
 is thoroughly conservative, strongly objecting to any 
 increase of issue, or any suggestion as to more or less 
 discriminate issue by Bankers and others. If not 
 quite content with the results of the present Bank Act, 
 this party defends at all events the principle of strict 
 limit as absolute bar against excess. These prudent 
 authorities must recognise that the timely reduction 
 
207 
 
 of the present limit is of a still more conservative 
 nature, and if they would carefully investigate the 
 proposal here made, bearing in mind at the same time 
 the three occasions when the present limit of 15 
 millions was exceeded, they might come to the con- 
 clusion that timely reduction would have prevented 
 these events, and that this proposal would conse- 
 quently remain all the better within the Umit allowed 
 by law. 
 
 THE PRINCIPLE OF DECREASE AND IN- 
 CREASE OP PIDUCIARY ISSUE, AND 
 THE LATE PROPOSALS FOR INCREASE 
 ONLY IN TIMES OF CRISIS. 
 
 On reference to pages 45 and 49 of this book you 
 will find that the practical ground on which the con- ^^j^^j 
 troversy rests is occupied by the proposals made tS°™ 
 
 proposals. 
 
 during the Parliamentary session of 1873 for an 
 increase only of the issue in times of crisis, and by the 
 proposal here made, which recommends both decrease 
 and increase.* 
 
 The nature of the proposal as to increase of issue ^lo^g^ 
 only is to this effect : — ' .proposal for 
 
 , , increase of 
 
 The present limit of 15 millions of fixed issue is to '^'^^ 
 be maintained ; but when crises occur, and when 
 interest is at 10 per cent,t the Bank shall be authorised 
 temporarily to issue more notes. 
 
 * I have already stated that Mr. Lowe's Bill, withdrawn by 
 Mr. Gladstone later in the session, and Sir John Lubbock's amend- 
 ment, were essentially of the same nature as the proposal made by 
 Mr. Forster. 
 
 t Mr. Lowe's Bill actually proposed that the rate should be 
 12 per cent., and that the " foreign exchanges should be in our 
 favour " before the extra issue should take place ! 
 
208 
 
 And the origin of tlie suggestion must be led back 
 to the -well-known fact that at previous crises (1847, 
 1857, 1866) the Bank Act was suspended, more issue 
 allowed, when as the argument goes : 
 
 The suspension of the Act, the mere announce- 
 ment that more issue could be had, "restored con- 
 fidence, bullion returning to the Bank." 
 
 Anything more perverting of logic and real causes 
 perversion canuot wcU be imagined. In the first place, the object 
 caMesheie of Contemplated reform in the Bank Act must be that 
 
 made -•■ 
 
 manifest, oi preventing crises and panic, and the rise of the rate to 
 10 per cent., as far as legislation is able to do so, by 
 the application of a timely remedy ; but in the proposal 
 made, the very crisis itself and the rate o/ 10 jper cent. 
 must first take place, before the remedy is to be 
 applied. The case of the stolen steed and the stable 
 door would seem a natural proceeding alongside of this 
 method of curing an evil. That the extra issue has 
 the tendency of replacing and preventing bullion to 
 come in, will be admitted. 
 
 The perversion of the facts betrays an equally 
 
 pCTveraion flagrant statc of false appreciation. The three suspen* 
 
 facts. "^"^ sions of the Act took place at a time when the very 
 highest tension of interest and state of alarm began 
 to bring bullion back in a copious measure, and it would 
 so have returned without extra, issue. The so far 
 
 accidental accideutal characters of these coincidences, of return 
 
 nature. 
 
 of Bullion and suspension of the Act, is shown by the 
 fact, that in 1857 only a portion of the extra issue 
 was used, and that in 1866 the rate continued at 10 per 
 cent, for a number of weeks without any extra issue 
 being required, the return of confidence being owing 
 entirely to the fact that the turning point in the return 
 of bullion was coincidental with the permission to 
 •The . make the e^itra issue. And as to the loss of confidence, 
 
 testoratibn 
 
 confldonoe. I trust I havc made it clear to you that it is caused by 
 
209 
 
 mercantile failures, tliat it does not do away witli cur- 
 rency, nor alters materially the circulation at one 
 moment. 
 
 We may disregard this curious mixture of false 
 logic, the confounding of coincidence3, absurd ex- naturrof 
 
 this one- 
 
 pedients and general indistinct phraseology, m order ^^^^^^ ^f 
 seriously to consider what the result would be, ''°"*' 
 if the present fixed issue, whilst remaining in force, 
 were to be extended only when crisis sets in, with- 
 out the set-off of previous reduction in times of 
 plethora. Instead of curing the evils from which 
 we now suffer, viz., the heavy withdrawals of bullion, 
 the temporary increase of the issue would only 
 enhance them, and in a measure probably, against 
 which the present difficulties are but child's play. 
 If, as I may have succeeded in showing you, the Theianiy 
 present fixed issue is the cause why the Bank therauy" 
 of England cannot maintain a stock of bullion, 
 there still lurks in the system, at all events, that 
 apparent sense of caution which says, " You shall 
 not go farther, for when you have gone so far you 
 must make every effort to obtain bullion, at what- 
 ever sacrifice may bo necdSsary for the purpose." 
 This is a distinct declaration as to our valuation, which, 
 although erroneous, so far binds all matters of inter- 
 national exchange within limits to which they must 
 shape themselves, and to which they must respond by 
 the mere force of arithmetical law. A reference to 
 what I have laid before you on page 89 will show 
 you how with what unfailing exactitude these demands 1^*°^^ 
 are responded to. But if, when these demands wo^uid'Se. 
 
 _ , to respond 
 
 for bullion are made, we at the same time make '°™''^ 
 
 ' demands 
 
 it a practice to create extra issue in its stead, the ^"'"^°"- 
 connection is rendered practically useless, and we 
 shall fail in obtaining bullion. Already, during 
 the crisis of 1866 (the third suspension of the Act), 
 
 14 
 
^10 
 
 the Frenoli holders of Bngiish bills preferred to 
 deal at once at the exchange for England of full 10 
 per cent, (although money in Paris was at 4 per cent.), 
 and sent bills for discount here, rather than submit to 
 the contingency of rapid declines from 10 to 3 per 
 cent., as in 1857. These and other matters, which 
 concern the return of bullion to us, the proposers of 
 the scheme appear unable to grasp. 
 
 Whilst buUion would thus be debarred from re- 
 Thcj^- turning to us, it would, in the first instance, leave us 
 Saiaof with greater facility. The new valuation, for such it 
 would actually be, could have no other effect than 
 increasing the action of certain floating operations 
 (see page 87), ■rtrhich, when culminating so suddenly, 
 tell upon the Bank's bullion. These operations would 
 be extended to ranges which need not involve the rate 
 of 10 per cent., but float as near to lesser rates as 
 expediency suggests, when at the cumulating point 
 the withdrawal of bullion would become overwhelm- 
 ing. 
 
 We should then witness the spectacle of still more 
 M^OTw-^'" sudden rises in the rate, and our money market would 
 
 nes» of the ' , . , . . 
 
 Smket become far more desperate and changing than it is now. 
 Periods would happen in which the Bank would fre- 
 quently go to 10 per cent., only to drop down again 
 as suddenly. If you bear in mind all that I have said to 
 you respecting the conflict between the country's real 
 resources, the deposits, &c., and the evident tem- 
 porary advantages which the Bank derives from such 
 a state of confusion, you may estimate to what a 
 wersaiof dcgrco Uncertainty would prevail. That all this 
 SlETerienca. wiU upset our previous "experiences of crises and 
 the suspension of the Act," as a supposed foundation 
 for a remedy, every one but the proposers of the 
 scheme will admit. 
 
 The money article of the Times, and other econo- 
 
211 
 mists, object to the increase because they see in it the Eaecton 
 
 ^ *^ speculatioxL 
 
 danger of encouraging overtrading. The common ^^g?" 
 sense or rough method of expressing this danger is 
 this : — " The present limit of 15 millions of fixed issue, 
 at all events, has the merit of compelling people not to 
 exceed bounds, to be prudent ; if they are imprudent 
 now, in spite of this -warning, they will be stiU more 
 imprudent when they know that more money will still 
 be afforded to them. This change in the contract 
 basis will be taken advantage of " for more dangerous iiie 
 
 " *-' commoti 
 
 speculations." This common sense view of the matter objection. 
 is perfectly correct, and in accordance with all the 
 experience made and the ordinary instincts of mercan- 
 tile prudence. 
 
 In my opinion nothing more dangerous could be 
 invented than such a scheme, and that it has been proposal as 
 
 ' to mcrease 
 
 started and admitted into Parliament is a sign of the Sniyt^a 
 demoralisation of true intellis'ence, into which the demoraiiea- 
 
 o ' ■ tion of 
 
 leaders of the English people have drifted in regard to St^e 
 this matter. Eather than admit so one-sided, dangerous, 
 and ill-conceived an expedient, it would be better to 
 listen to the wild schemers who want to create " 70 
 millions of national currency," or, who, like Mr. Ander- 
 son, wish to enable bankers to " issue more notes on 
 the deposit of Government securities." For in that case 
 the Glasgow bankers, as well as the Bank of England 
 and others throughout the country, could maintain itwouidbB 
 
 ° . better to 
 
 over investments, and in the general scramble which IgP^^^i""^ 
 would inevitably follow, everybody would have an »"™'"^- 
 equal chance.* 
 
 * Among the host of suggestions, one has lately been made 
 that, in the event of a panic, the Joint Stock Banks of London 
 should acquire the right of making issues of legal tender notes of 
 a few millions. All this shows the want of true appreciation of 
 facts and principles under which " financial alchemy " of this kind 
 
212 
 
 The 
 
 proposal 
 
 as to 
 
 temporary 
 
 inci-easd 
 
 liavo 
 
 however 
 
 broken the 
 
 ground for 
 
 enquiry. 
 
 The 
 
 acknow- 
 ledgment 
 of the 
 necessity 
 of reform. 
 
 The introduction of these proposals into Parlia- 
 ment for a temporary increase of the fixed issue 
 ■ has nevertheless produced important results ; it 
 has broken the ground for inquiry, and advanced 
 tlie question itself to within a small turn for satis- 
 factory solution. The infallibility of the present 
 form of issue has hitherto been fiercely upheld, 
 in spite of the recurring disasters ; but during the 
 last Session several of the defenders of the Act, 
 including Directors of the Bank, have conceded the 
 necessity of reform. The dictates of economical intelli- 
 gence and honour demand that they should not recede 
 from this acknowledgment. Yet another advantage 
 has been gained thereby, as to the possibility of framing 
 legislative enactments suitable to the case. Under the 
 feeling of ultra-conservatism, which the whole subtle 
 subject has created, people have gone so far as to 
 believe that the 15 millions once fixed by law could 
 not be altered, excepting by a continuous direct action, 
 or by special resolutions, of Parliament. Among those 
 who, suspected the unsuitability of the present fixed 
 issue, there were one or two who, in forming their first 
 crude notions as to a remedy, suggested that Parlia- 
 ment should from time to time determine the amount 
 of issue. Apart from the impossibility of gathering 
 evidence for proper Parliamentary discussion, and the 
 dissensions likely to arise in questions of momentary 
 
 produces so many sliort-lived but utterly sterile blossoms, in the 
 beauty of which the authors ezpect others to revel. Another sug- 
 gestion is that, during a crisis, " Exchequer Bills " should be created 
 and declared legal tender ! This suggestion comes from one of the 
 leading Directors of the Bank. It is to be hoped that the 
 high intellect of the gentleman will perceive tho real causes of the 
 withdrawals of bullion and the consequent crisis. 
 
213 
 
 or rapidly changing situations, Parliament does not 
 sit all the year, and the trouble of thus regulating 
 money matters could not be undertaken by any such 
 assembly. 
 
 The proposals of Mr. Lowe, of Mr. Fowler, and Sir 
 John Lubbock, now distinctly prove that a clause can 
 be introduced into the Act, to the effect that upon cer- ^'^^y*'^"" 
 tain contingences, viz. : the rise of the rate of interest to ?fre?ulS 
 10 per cent., there shall be a temporary increase of matter by 
 
 -^ ' J- J clauses of 
 
 the issue; it is therefore equally practicable to provide *''°^'"- 
 a clause determining that upon 2^ per cent., or any 
 other rate of interest, there shall be a temporary 
 decrease of the issue. The close relationship between 
 the proposals for a temporary increase only of the issue 
 above 15 millions, and tjiat . for a temporary decrease 
 below 15 millions, by way of compensation, is thereby 
 shown. In many questions of this kind, the final decision 
 may either lead to an increase of the mischief, or 
 to a proper settlement. So in this case, if the exten- 
 sion only is admitted, the speed for further ruin 
 of the interests concerned -is only increased, 
 but if in addition to extension the reduction is 
 made to precede, the whole subject is at once 
 placed on the way of its absolutely satisfactory 
 conclusion. 
 
 And you will now perceive how all that I have said, 
 respecting the small subtle error at the bottom of the 
 mischief, has become verified in the closeness of the pSntof the 
 position between the two practically contending pro- teoTOisy!"' 
 posals, temporary increase only against temporary reduc- 
 tion and increase. It is merely necessary that the 
 promoters of the former, instead of awaiting until the 
 issue is gone, and interest at 10 per cent., looking back- 
 wards only, should endeavour to turn the other way 
 for a moment, and take the wise precaution of diminish- 
 ing the issue when not wanted, in the same way as 
 
214 
 
 they propose to diminish the extra issue above 15 
 
 millions when it has done- its office. The whole 
 
 secret of the difficulty, and the simplicity of the 
 
 solution may then be revealed to them"; the practica- 
 
 biUty of the adjustment resting upon precisely the 
 
 same grounds which they have adopted for their own 
 
 scheme. As in the case of the error shown in Part I. 
 
 ^|ht«8t of ■fcliis book, so is the application of the remedy now 
 
 economical brought to a head, or fine point, where the slightest 
 
 ^oVidethe ^11^^ *o ecouomical intelligence or awakening of 
 
 reme y. gommon scnse is required to turn the scale from 
 
 still much greater evil to definite good. In the next 
 
 chapter it will be shown to you that the present Act 
 
 contains the principle here advocated, and why it has 
 
 not been available. 
 
 THE TBMPORAEY DECREASE AND IN- 
 CREASE OF THE FIDUCIARY ISSUE 
 PROVIDED FOR IN THE PRESENT ACT, 
 AND WHY IT COULD NOT BE PUT IN 
 PRACTICE. 
 
 The practicability of a reform of the Act in 
 accordance with what has been said before, and the 
 validity of the statements made will be made more 
 
 provided evident to you by a reference to the present Act. 
 
 JftoTi^Bae. Clause II. of that Act establishes the great principle 
 of the issue, and is worded as follows, the sentences 
 in italics referring to the temporary diminution of the 
 issue : — 
 
 Clause II. — And be it enacted that, upon the 31st day of 
 August 1844, there shall be transferred, appropriated and set 
 
 ClaiueZ 
 of tlie Act 
 distinctly 
 
215 
 
 apart by the said Governor and Company to the Issue Depart. Wording of 
 ment of thB Bank of England, securities to the value of £14,000,000, 
 whereof the debt due by the public to the said Governor and 
 Company shall be and be deemed a part; and there shall also, at the 
 same time, be transferred, appropriated and set apart by the said 
 Governor and Company to the said Issue Department, so much 
 of the gold coin and gold and silver bullion then held by the Bank 
 of England as shall not be required by the Banking Department 
 thereof; and thereupon there shall be delivered out of the said Issue 
 Department into the said Banking Department of the Bank of 
 England such an amount of Bank of England notes as, together 
 with the Bank of England notes then in circulation, shall be 
 equal to the aggregate amount of the securities, coin and bullion 
 so transferred to the said Issue Department of the Bank of 
 England; and the whole amount of Bank of England notes then 
 in circulation, including those delivered to the Banking Depart- 
 ment of the Bank of England as aforesaid, shall be deemed to be 
 issued on the credit of such securities, coin and bullion so appro- 
 priated and set apart to the said Issue Department ; and from 
 thenceforth it shall not be lawful for the said Governor and Com- 
 pany to increase the amount of securities for the time being in 
 the said Issue Department, save as hereinafter is mentioned ; but 
 it shall he lawful for tlie said Governor and Company to dininiah 
 the amount of such securities, and again to increase the same to 
 
 anil sum not exeeedinq in the whole the sum of £14,000,000 * Distinct 
 ' •' ^ J ' ' ' provision 
 
 and so from time to time as they shall see occasion; and j™? y 
 from and after such transfer and appropriation to the said Issue °^ *'^ '°™'' 
 Department as aforesaid, it shall not be lawful for the said Governor 
 and Company to issue Bank of England notes, either into the 
 Banking Department of the Bank of England, or to any persons or 
 person whatsoever, save in exchange for other Bank of England notes, 
 or for gold coin or for gold or silver bullion received or purchased 
 for the said Issue Department under the provisions of this Act, or 
 in exchange for securities acquired and taken in the said Issue 
 Department under the provisions herein contained: provided 
 always, that it shall be lawful for the said Governor and Company 
 in their Banking Department to issue all such Bank of England 
 notes as they shall at any time receive from the said -Issue Depart- 
 ment or otherwise in the same manner in all respects as such issue 
 would be lawful to any other person or persons." 
 
 * Since increased to 15 millions. 
 
Such 
 
 diminution 
 to be " from 
 
 216 
 
 Although the above terms as to diminution of the 
 issue form an integral part of this important clause, 
 yet in the thousands of pamphlets and articles 
 written on the controversy, you will find no allusion to 
 them, and many of the readers here, of which several 
 may have themselves written on the subject, will 
 acknowledge that they were not aware of, or have 
 paid no attention to this special part of the clause. 
 
 But here it is clearly and distinctly stated that it 
 
 shall be lawful to diminish "from time to time," and 
 
 ti'meto""'" " aqain to increase," in exact accordance with the spirit 
 
 time, and •/ ' j. 
 
 taoflSe/'' of the views expressed by the author. 
 
 What was the object of Sir Robert Peel in intro- 
 ducing this provision ? 
 
 Why has it not been acted upon ? 
 
 That the above sentence is not an idle one, that 
 wh^the ^^ ^'^'^ ^^^ crept in by accident, will be admitted. 
 q™at?ondia There can be no doubt that Sir Robert Peel had a 
 
 not meet 
 
 Ilifficient distinct object in view by placing it there. The 
 considera- gi^gpigion may have arisen in his mind that by the 
 combination of the fixed issue with bullion, it might 
 at times be expedient to reduce the former for the 
 sake of the latter. In the heat of the discussion 
 however, under the novelty of the strict limit, in 
 which rough economy delighted, the further considera- 
 tion of this point has been overlooked ; and Sir 
 Robert Peel himself, under the impression that the 
 issue of 14 millions would actually be used, according 
 to the previous avei^ago (see pages 69 to 64, and 
 table 4, page 62), to the extent of 11 millions, 
 leaving but 3 millions margin, may have attached 
 less importance to the matter. This is confirmed 
 also by the fact that the 11 millions. of Government 
 debt were left as a debt in account, and not repre- 
 sented by Consols or negotiable bonds of the State, 
 whereas the 3 millions were to consist of " other 
 
217 
 securities" at the option of the Bank. Again, Sir sirEobert 
 
 ^ ° Peel would 
 
 Robert Peel expressed, from the commencement, the g°^XaeB 
 opinion that the Act should be tested, and be made imiiortanca 
 
 . . of this 
 
 subject to repeal or amendment within a year (see matter. 
 clause 27) ; hence — if he was now alive, and the test 
 reapplied — there can be little ~ doubt but that this 
 matter of timely reduction would now appear to him 
 as. a cardinal principle of the Act, the only one wanting 
 to render his work perfect. 
 
 Why has the Bank of England not acted, or rather The 
 
 inability of 
 
 why has it been unable to act upon the thus expressed "^t^f""'"" 
 intention of the Act itself? The reason will become ^rith'^th™"^ 
 
 1 . . T T T'^^rt of the 
 
 manifest to you, when you bear m mind that, under o^'^^"- 
 the Act of 1844, the Bank of England has virtually 
 entered into a contract with the State, in which the 
 latter takes a large share of the profits by a regular 
 annual payment, as clause 8 of the Act prescribes : — 
 
 Clause 8. — And be it enacted, that from and after the-said 31st cian?e8of 
 
 day of August 1844, the payment or deduction of the annual sum Proviaino- 
 
 of £120,000, made by the said Governor and Company under the share of 
 
 profit to the 
 provisions of the said Act passed in the fourth year of the reign of State. 
 
 his late Majesty King William IV. out of the sums payable to them 
 for the charges of management of the public unredeemed debt shall 
 cease, and in lieu thereof the said Governor and Company, in con- 
 sideration of the privileges of exclusive banking, and the exemption 
 from stamp duties given to them by this Act, shall, during the con- 
 tinuance of such privileges and such exemption respectively, but no 
 longer, deduct and allow to the public from the sums now payable 
 by law to the said Governor and Company, for the charges of 
 management of the public unredeemed debt, the annual sum of 
 £180,000, anything in any Act or Acts of Parliament, or in any 
 agreement to the contrary, notjyithstanding : Provided always, that 
 such deduction shall in no respect prejudice or affect the rights of 
 the said Governor and Company to be paid for the management of 
 the public debt at the rate and according to the terms provided in 
 an Act passed in the forty-eighth year of the reign of his late 
 Majesty King George III., intituled " An Act to authorise the 
 advancing for the Public Service, upon certain conditions, a proper- 
 
218 
 
 tion of the Balance remaining in the Bank of England for the 
 payment of Unclaimed Dividends, Annuities, and Lottery Prizes, 
 and for regulating the Allowances to be made for the Management 
 of the National Debt." 
 
 This annual payment of £180,000 to the State has 
 Of £196,000 since increased to £196,000 a year (in consequence of 
 the additional 1 million). In the return given (see 
 page 181) the sum of £60,000 is stated as composition 
 in lieu of stamp duty, the balance being described 
 as " For share of profits of the circulation depart- 
 ment." 
 
 On pagesl79 to 186 I have demonstrated the actual 
 The actual results of this arrangement as far as the Bank of 
 by the England's profit is concerned, and the figures there 
 given show that the actual profit made on the circula- 
 tion of the fiduciary issue (after deducting that of notes 
 founded on bullion), is not sufficient to cover the tech- 
 nical expenses of the issue, together with this regular 
 annual share of profit which the State receives, 
 the yearly average loss to the Bank being £100,000. 
 A reference to these pages may probably lead to the 
 inference that this so-called profit of the issue is not 
 fairly divided, that the State obtains too much. There 
 can be no doubt that the sum of £180,000 annual share 
 was computed upon the assumption that a regular cir- 
 culation of 11 millions of fiduciary issue would be 
 maintained, and if that had been the case, the charge, 
 equal to If per cent, per annum, would not be an 
 extravagant one, for the State is entitled to share in 
 the profit made by such issues. 
 
 But when, as experience shows, the fiduciary issues 
 The great Vary from nothing to 15 or more millions, with the 
 most incongruous sums at other times, when for years 
 at a time 9, 11, and 14 millions are in Reserve, i.e. 
 not used in circulation, when, further, the use of 
 11 millions reduces the Reserve to 4 millions, 
 
 variatiou in. 
 the actual 
 use of the 
 issue. 
 
219 
 
 creating alarm and foreshadowing danger, you may 
 probably admit that this regular payment of 
 " profits " to the State is riot in accordance with 
 facts. In all matters which are thus compounded SXmaas 
 for in a rough anticipatory manner, one of the parties regular 
 
 cj J. .y •*■ charge, 
 
 must suffer an injustice, and this injustice becomes 
 increased when the future does not verify the anticipa- 
 tions, or produces new features. Where such large 
 public interests are concerned, and in a money market 
 so delicate as ours, this rough and uncouth method of 
 compounding is a most unfair thing, and although, as 
 far as direct profit and loss are concerned, the Bank 
 of England bears the first brunt, yet as the nucleus of 
 our monetary system it is influenced thereby, and in 
 its turn influences the interests connected with it. 
 
 Further — when this nucleus, as one of the two The sank 
 
 , ■•■ITT • 1 ^*** ^® 
 
 contractmg parties, is bound at the same time to have inanoement 
 
 or ' to reduce 
 
 regard to the interests of its own proprietors — it *»''™*- 
 cannot, in spite of the desire to act in a public-spirited 
 manner, make sacrifices of money or principle beyond 
 a certain range. There must be some inducement, 
 some mutual advantage, before any extra voluntary 
 action can be fairly expected. Hence, if instead of 
 insisting ujpon the regular payment of £195,000 per 
 annum, the State had consented, from time to time, to 
 receive less, when the fiduciary circulation was low, 
 and more again when it was high, the Bank might 
 have reduced the overweight of issue in accordance 
 with the words "as it should see occasion" in clause 2. 
 The Bank of England already bears the high 
 technical charges attendant upon the issue, and must itabeady 
 
 bears the 
 
 recover these, as well as the annual payment, from g^^,^, 
 the use to be made of the 15 millions of issue. The ''^"**'' 
 matter will again be made clear to you if you review 
 the position. The Bank has placed 15 millions of 
 securities in the Issue Department, for which it 
 
220 
 
 ^tHtemrnt™' ^GCeivcs 3 per cent, per annum- These securities 
 Repeated, have absorbed 15 millions of money, wtether this 
 be taken from capital or from resources, or in 
 exchange of bullion. The Issue Department, in its 
 turn, obtains the 3 per cent, on the 11 millions of 
 State debt and the 4 millions of other securities, it being 
 immaterial whether the debit or credifc pass first to the 
 Banking Department or not, both departments belong- 
 ing to the same institution. So far, then, the account 
 is balanced. In considering this matter, you must not 
 allow yourselves to be confused by the Parliamentary 
 account, which credits the Issue Department with the 
 interest derived from the securities bought with the 
 ^aocomta* resources of the Banking Department, and thus shows 
 M regards ^ fictitious profit. Nor must you allow this matter to 
 
 securities ^^.^ ,. •i-ni* 
 
 dVartmeut ^® oiixed up With the Eeserve arising m the Banking 
 Department in consequence of the inability of the Issue 
 Department to pass the surplus into circulation. The 
 best method for disabusing your minds from the hocus 
 pocus here involved, is that you should imagine there 
 was no Issue Department attached to the Bank, or that 
 it were conducted by some other concern. In that 
 case you must decide whether the Bank of England, 
 instead of investing the 15 millions in the Issue Depart- 
 ment, would not do better by holding, securities in the 
 Banking Department — say 10 millions in Government 
 stock and 5 millions in cash . reserve — rather than 
 submit to the holding of Reserves of from less than 
 nothing up to 15 and 17 millions. 
 
 Next comes the produce of the 15 millions as 
 employed in circulation, from which must be deducted, 
 firstly, "the expenses," leaving the balance available 
 for "division of profits." The net produce- and 
 expenses are as follows : — 
 
221 
 
 Table 15. — Showing the Gross Produce of the Fixed lasae, less 
 Technical Expenses, and the Supposed Balance of Profit for 
 Division hetween State and Batik, and Loss. 
 
 Technical 
 Expenses. 
 
 £173,511 
 
 Zears. 
 
 GroRS 
 Profits. 
 
 1845 
 
 .. £167,207 
 
 1846 
 
 201,769 
 
 18)7 
 
 485,567 
 
 1818 
 
 188,003 
 
 18)9 
 
 131,351 
 
 1850 
 
 86,791 
 
 1851 
 
 166,005 
 
 1852 
 
 88,460 
 
 1853 
 
 222,955 
 
 1854 
 
 379,351 
 
 1855 
 
 300,721 
 
 1856 
 
 519,672 
 
 1857 
 
 675,227 
 
 1858 
 
 103,864 
 
 1859 
 
 113,902 
 
 1860 
 
 285,300 
 
 1861 
 
 426,930 
 
 1863 
 
 138,584 
 
 1863 
 
 310,108 
 
 1861 
 
 576,180 
 
 1865 
 
 347,814 
 
 1866 
 
 690,177 
 
 1807 
 
 88,984 
 
 1868 
 
 92,986 
 
 1869 
 
 186,611 
 
 1870 
 
 111,566 
 
 1871 
 
 59,053 
 
 179,405 
 
 181,574 
 
 185,913 
 
 Balance remiiinin? 
 
 for Division between 
 
 State and Bank. 
 
 £5,304 
 
 Loss. 
 
 31,258 
 
 Profit. 
 
 312,056 
 
 ,, 
 
 14,492 
 
 )> 
 
 62,160 
 
 Loss. 
 
 86,730 
 
 ,, 
 
 r.d06 
 
 ,, 
 
 135,051 
 
 it 
 
 49,445 
 
 Profit. 
 
 205,840 
 
 t> 
 
 121,316 
 
 t) 
 
 370,267 
 
 It 
 
 495,822 
 
 ",. 
 
 75.541 
 
 Loss. 
 
 68,603 
 
 tt 
 
 105,895 
 
 Profit. 
 
 245,356 
 
 » 
 
 42,990 
 
 Loaa. 
 
 128,534 
 
 Profit. 
 
 394,606 
 
 I» 
 
 165,240 
 
 „ 
 
 508,603 
 
 „ 
 
 92,690 
 
 Loss. 
 
 88,583 
 
 jj 
 
 5,037 
 
 Profit. 
 
 70,008 
 
 Lose. 
 
 122,521 
 
 ti 
 
 "Whether there be a loss or profit on the year, the 
 State enacts a regular annual sum, now amounting to ^^^"1^" 
 £195,000 — designated as "its share" — and it has anmmu" 
 
 *-* irreconcil- 
 
 thus received, since 1845, a sum of no less than pr^cTpia 
 £2,900,000 in excess of the balances between actual practica. 
 profit and loss from the issue.* You may admit that 
 
 * It will of course be said : The Bank gains £450,000 per 
 annum on tlie 15 millions of securities. This investment is a 
 matter standing on its own merits, and if the above excess to the 
 State be deducted, the whole arrangement, investment and note issue, 
 still leaves a loss of more than £100, OQP to the Bank (see page 185), 
 
222 
 
 this method of drawing profit on the part of the State 
 is utterly wrong and indefensible in principle, and 
 cannot but act as an odious tax on prosperity. 
 
 This will now show you why the Bank has no 
 rf'bad"""' inducement for a timely reduction of the issue, why 
 raents hero rather, considering this heavy charge, it is only natural 
 
 operate ' O JO' J 
 
 s^MMt' that the Bank should obtain as much from the use 
 practice. of the fiduciary notes as it can. This does not mean 
 that the Bank deliberately sets aside dictates of 
 prudence and pits its interest against the public 
 weal, but the force of circumstances and the arrange- 
 ment itself cannot have any other tendency. The 
 whole effect of the anomaly concentrates itself upon 
 cheapening interest, driving bullion away, and leading 
 to all the extraordinary results and conflicts which I 
 have set forth in the first part of this book. 
 
 The remedy to he applied can easily be inferred. 
 
 Bhonw"'* ^^^ State should take its share of profit in accordance 
 
 Bhaleof with the real principles upon which profit is divided 
 
 profits. periodically. This may occasionally give less, at other 
 
 times more, per annum, and therewith the matter 
 
 reduces itself to the consideration whether the Budget 
 
 of this mighty nation can afford to substitute for a 
 
 trifling fixed income one that, like other estimated 
 
 incomes, may vary. Indeed, considering the gigantic 
 
 interests at stake, and the subtlety of the matter, the 
 
 question might well be asked, " Why should the State 
 
 not give up altogether the £195,000 per annum ? 
 
 Much larger sums are deliberately spent for purposes 
 
 Whieh with of inflnitely less importance, and in this case the ad- 
 
 the reform •' •*■ 
 
 be& vantage to the welfare of our commerce, would much 
 regoiar, it euhauce the taxable power of the country, recouping 
 pMsenl the Budget manifold I " But this is not asked for, 
 because a share of profits in bank note issues legiti- 
 mately belongs to the State ; all that is required here 
 is that the share should be real, and when this principle 
 
2^3 
 
 comes into action, the whole business will be regulated 
 so that the gross profits themselves will be more 
 regular and larger, perhaps, than they are now. 
 
 THE PRACTICAL SOLUTION OF THE QUES- 
 TION CONTAINED IN THE AMENDMENT 
 OF CLAUSE 8 OF THE PRESENT ACT. 
 
 From the foregoing remarks you may now be able 
 to perceive that clause 8 of the Act, which in itself is The subject 
 
 ■*■ ... reduced to 
 
 but a subsidiary provision, seemingly distinct from the fo'^'f'P''^' 
 great features of the case, is the real obstacle to the 
 immediately practicable reform of the Act, such reform 
 being foreshadowed in clause 2 itself. If you have 
 carefully followed the course of matters as I have opened 
 it before you, you will not only see the coincidental 
 agreement between the views I advocate and the simple 
 ground here prepared for you by the Act itself, but 
 you may admit that the method which I have adopted 
 for guiding you out of the labyrinth of darkness to the 
 appreciation of this point was necessary. Simple 
 as this matter now seems to become, it is just such 
 simple considerations, which in subjects surrounded 
 with so much mystery and controversy are most diffi* 
 cult to bring to the surface, excepting by the most 
 consecutive course of ample analysis. 
 
 You will then see that the solution of the matter is 
 entirely dependent on clause 8, and that is the only The 
 amendment required in the whole Act as far as it concerns of clauses 
 
 -'■ gives the 
 
 the Bank of England issue.* The problem before the L'Sm! 
 legislature is therefore one that can be disposed of by a 
 very short Act only, little expenditure of violent dis« 
 
 * The clauses concerning the cotintry bankers' issues may be 
 subjected to a reform hereafter {see page 282). 
 
422 
 
 cussion, and without mutual accusations and conflicts 
 
 between vested interests. 
 
 All other clauses respecting the Bank of England 
 elapses on ^'^.V remain absolutely intact, and require no alteration 
 of Enghffld whatsoever ; the great determining clause 2 need not be 
 
 may remain 
 
 absolutely altered at all, unless it be for the conversion of the 
 
 mtaot. ' 
 
 State debt of account into a negotiable form. But even 
 this is not absolutely necessary — the transfer from the 
 issue to banking department, and vice versa, is a matter 
 which Bank and State may settle. If but a portion 
 of the State debt were converted into Consols, sufficient 
 to respond to any possible or experienced reduction in 
 the Government securities of the banking department, 
 for immediate negotiation if need be, the Bank of 
 England might transfer Consols from the banking to 
 the issue, and take the State debt into the former de- 
 partment. 
 
 The great main points in this contemplated reform, 
 Itnmte^' which should not only satisfy the admirers of the 
 and Reserve strict limit of 15 milUons, but also the advocates of 
 
 satisfied. 
 
 large Eeserves, are these ; 
 
 The limit of 15 millions as determined by clause 2, 
 Thoiimitof the har to overtradina, may remain in force nominally. 
 
 15 millions i^ ' ti j 
 
 canjemain rpj^g ^^^ difference in its availability concerns a tempo- 
 ono. rary timely reduction, and'the extra conservative nature 
 
 of this proposal might be approved of without further 
 question. The " regulating" forces, thus set to work, 
 will not only definitely oppose the accumulation of too 
 much "offer" of money, but per co^iira, prevent the 
 reaction for excessive absorption of bullion, and as this 
 excessive absorption to 15 millions has only happened 
 three times (1847, 1857, and 1866) it is reasonable 
 to infer that with a better regulation it will not occur 
 again, and that the fiduciary circulation will fluctuate 
 less in either direction, giving an average withim, the 15 
 millions. If at any future time more should be wanted. 
 
225 
 
 the matter can be considered. It will be found however 
 that it is immaterial whether the nominal limit be 
 made 15 or 20 or 25 millions, so long as effective pre- 
 cautions are taken against the undue accumulation of 
 an actually offering, but otherwise idle surplus, of 
 issue, and that can only be done by changing the 
 fixed actual issue of 15 millions into a nominal limit. 
 
 The admirers of large heavy reserves might also be 
 satisfied. For it is not proposed here absolutely to ^If^lf^' 
 abolish the 15 milUons of fiduciary issue which are ma^llm- 
 supposed to assist (?) us m maintaining Reserve ; all 
 that is proposed is, that for the moment they should be 
 set aside, to be just as available again the next. The 
 only change thus made is that these Reserves should no 
 longer serve as an inducement for overtrading, or for 
 pressing down the rate of interest, and driving away 
 bullion. The attempt to satisfy the requirements of the ^^^^^^^ 
 circulation, and the proper proportion of bullion must ciroulation 
 
 . . andbulliom 
 
 be made without our being obliged to take the ^^"^^"^ 
 Reserves into calculation. If that succeeds, i.e. if referenoa 
 
 to it. 
 
 the action of the rate of interest by the Bank of 
 England is amended so as to maintain bullion fairly in 
 accord with requirements of circulation and our inter- 
 national relationship, we may contemplate the existence 
 of a large Reserve with satisfaction. It will then fioat, 
 so to speak, over the substrata of circulation, without 
 weighing upon, or influencing the factors which regu- Pf,™"'* 
 late the market. As long as it does not do any mis- substrata 
 chief we may choose to increase it even beyond what t°°i'™ 
 
 ■ -I ■ J? j_i • 1 * without 
 
 we are accustomed to see now, tor there is no harm m haim. 
 the further creation of fiduciary Reserve, provided it 
 does not enter the market, i.e. provided that no neces- 
 sity for its use arises. That necessity cannot arise 
 when the circulation and its connection with bullion, 
 lying below it, are effectually adjusted by proper rates 
 of interest. 
 
 15 
 
226 
 
 The full truth and satire of what all this means in 
 reality will be manifest to those who can appreciate 
 the habits and errors into which we have fallen as 
 regards Reserves arising out of the present system. 
 
 The availability of the Reserve thus made subject 
 continual to temporary reduction and corresponding increase, as 
 ofthia -well as the advantages which the Bank would acquire 
 
 Eeserre ^ ^ 
 
 emp*^y- iu the recovery for the banking department of its real 
 
 ment of tlie _ _ , 
 
 Bank's real resources, wiU appear from the following, in iuxta- 
 position to what I have shown on p 191. In order to 
 appreciate this, we must first agree as to the amount 
 of Reserve actually required by the Bank for sudden 
 contingences. I have shown you before that there are 
 no sudden contingences of circulation, because the cir- 
 culation cannot be suddenly augnaented or decreased, 
 it is regular, and increases but gradually. I have also 
 shown you that the Bank, instead of suffering from 
 withdrawals of deposits in times of pressure, rather 
 finds them increase. These contingences of both 
 departments are consequently of a nature requiring 
 but small Reserves. Nevertheless, let us say, " The 
 Bank must keep at least 5 millions of regular Reserve 
 for these purposes — you don't know what may 
 happen ! " Assume, now, that the Bank had 14 
 millions of Reserve, and that we set aside 9 of these, 
 reducing it to 5 millions. But bear in mind, if this 
 sum should seem insufficient to you, that we merely 
 set aside for the moment the 9 millions ; the 5 millions 
 Reserve are therefore but a go-between, for at any 
 moment we can call again upon the 9 millions kept 
 apart. 
 
 Comparing, then, the position of 14 millions of 
 Reserve, without reduction of the total issue by 
 9 millions, with that of 5 millions of Reserve after 
 reduction of the total issue (assuming that there are 
 
227 
 
 22 roillious of bullion and 23 millions in circulation), 
 
 the two accounts of the issue and banking departments Examples 
 would appear as follows : — 
 
 1. Without* reduction of total issue — 
 
 ISSUE DEPARTMENT. 
 
 showing 
 the 
 
 diflerenca 
 to the 
 Banking 
 Depart- 
 ment, 
 
 Liabilities. 
 Notes issued . . £37,000,000 
 
 £37,000,000 
 
 Assets. 
 Govemment Debt £11,015,100 
 Other Securities . 3,984,900 
 BuUion .... 22,000,000- 
 
 £37,000,000 
 
 Actual circulation ... £23,000,000. 
 •BANKING DEPARTMENT. 
 
 [Liabilities. 
 Capital .... £14,533,000 
 Rest 3,467,000 
 
 Private^'^°''*' } 25,500,000 
 Seven Days' Bills . 500,000 
 
 £44,000,000 
 
 Assets. 
 Gov'ment Securities £15,000,000 
 Other Securities . 14,500,000 
 Notes in Reserve . 14,000,000 
 Coin 500,000 
 
 £44,000,000 
 
 2. With the reduction of the total issue by 9 
 millions — 
 
 ISSUE DEPARTMENT. 
 
 Liabilities. 
 Notes issued . . £28,000,000 
 
 £28,000,000 
 
 Assets. 
 Government Debt . £6,000,000 
 Bullion .... 22,000,000 
 
 £28,000,000 
 
 BANKING DEPARTMENT. 
 
 Liabilities. 
 Capital .... £14,533,000 
 
 Rest 3,467,000 
 
 Public Deposits 
 
 Private ,, ) 
 
 Seven Days' Bills 
 
 25,500,000 
 500,000 
 £44,000,000 
 
 Assets. 
 Government Secu- 
 rities and Debt . £20,015,100 
 Other Securities . 18,484,900 
 Notes in Reserve . 5,000,000 
 Coin 500,000 
 
 £44,000,000 
 
 The diflference in the two sets of accounts would 
 accordingly be this : — 
 
228 
 
 Through the temporary reduction of the fiduciary 
 issue by 9 miUioas : 
 
 1 . The liabiHties of the issue department would be 
 reduced from 37 to 28 milHons, and bullion remaining 
 at 22 millions in both cases, the convertibility of the 
 note would thereby be improved. 
 
 2. No change would occur in the amount of liabili- 
 ^o&tmale ties and assets of the banking department, but in lieu 
 Bank. of the 9 millions of idle Eeserve withdrawn, the Bank 
 
 would receive back from the issue, say £5,015,100 
 Government debt, and £3,984,900 other securities, sg 
 that these items in the banking account would he 
 increased by 9 millions, giving to the banking depart' 
 ment, at 3 per cent., £270,000 more income. 
 
 3. The Reserve in the Banking Department woulc 
 be reduced to 5 millions, but at any time, by a retransfe3 
 of the 9 millions withdrawn, or a portion thereof, thai 
 Eeserve would be replenished or enlarged, and the 
 spirit of clause 2 of the present Act carried out. 
 
 In representing the matter to you by these simple 
 examples, bear in mind that this improvement cannot 
 be carried out, so long as clause 8 of the Act remains 
 in force, for the sum of £195,000 enacted by the State 
 is equal, at 3 per cent., to the use of 6-^ millions of 
 margin, the technical expenses of £185,000 to another 
 6 millions, together 12^ millions, and it is perfectly 
 indifferent to the Bank whether this margin is kept in 
 the issue or included in the present Reserve. 
 
 On behalf of the vast interests concerned, the 
 B°re«»tioii author ventures to suggest the following arrange- 
 
 arrange- , 
 
 ment. meut : — 
 
 The first 5 millions of the fiduciary issue should be 
 considered as requisite to cover the technical expenses 
 of the issue. These now amount to £185,000, but 
 they may be capable of a reduction which will enable 
 
229 
 
 the Bank of England to accept the advantage of the 
 use of 5 millions by way of set-off against them. 
 
 On aU the rest of fiduciary issue above 5 millions, 
 the interest earned should be set aside as clear profit ■ 
 to be divided between State and Bank every year. 
 
 It might be left to the option of the Bank to place 
 this 5 millions into the Banking Department as Reserve. 
 In that case the Bank would be enabled to take full 
 advantage of its deposits and 18 millions of its capital 
 and rest, and at the same time satisfy the public 
 consideration for the existence of such Reserve ; 
 or the "whole produce of the fiduciary issue might 
 be credited year by year to an account, out of which 
 the Bank's expenses should be paid, and profits 
 divided. 
 
 THE CONTROL OF INTEREST REGAINED BY 
 THE REDUCTION OF LARGE RESERVE 
 TO A TEMPORARY SMALL INDICATING 
 RESERVE. 
 
 The advantages which the timely reductions of a p^ndpai 
 large Reserve would confer on the Issue Department, gfven^by^' 
 
 reduction 
 
 and- on the better use in the Banking Department of Kegerveof 
 the Bank's real resources, are exceeded in importance 
 by the effect which they would have on the rates of 
 interest, on which the maintenance of the stock of 
 bullion depends. I have before described to you (see 
 pages 79 and 97), how these heavy Reserves drag 
 down the rate much below the average of international 
 interest, how, in the determination of the rates, the 
 Bank is guided by their amounts (see page 203). 
 It will now be evident to you that as the temporary 
 removal of a large surplus can be accomplished not 
 by destroying it, but by merely setting it aside for 
 a time, and if consequently the indicator can be reduced 
 
230 
 
 to give correspondingly higher rates, all danger of 
 imduly low interest, and its effects upon undue with- 
 drawals of bullion is set aside therewith. 
 
 That is to say, the Bank will regain full liberty to 
 woSid"^ uphold whatever rate of interest it likes, subject only 
 liberty of to the iufluence of the market rate, which, in its turn, is 
 
 action. 
 
 connected with the international rate of interest. The 
 Bank need not talce the initiative in lowering the rate, 
 thus spoiling the market rate to no purpose. The 
 market rate will accordingly be that with which the 
 Bank will remain in accord. Not only will this bring ' 
 accordance in more busiucss to the Bank, but it will do aWay with 
 
 ■mtti the ' •' 
 
 markotrate. ^j^g uselcss. Competition between the Bank's Reserve 
 and that of Bankers, through which the latter must 
 submit to any low rate which the Bank may determine, 
 without being able to employ the Reserve so offered 
 (see pages 164, &c.). 
 
 This then removes, prima facie, the principal and 
 
 wShdrawais almost oulv cause of disturbances in our monev 
 
 ofBvdlion •' ■' 
 
 rtopped market, the undue withdrawals of bullion, for what- 
 ^^ ^' ever bulhon may after that be withdrawn, it must be 
 taken by full equivalents in exchange, or can only 
 be a positive surplus in our possession, to be dis- 
 posed of by the natural laws which rule the price of 
 money and determine the value of commodities. 
 
 The door for undue withdrawals being thus stopped, 
 Sdethi" what are we to do when the attraction of bullion never- 
 rate'?'' *** thclcss bccomcs a necessity r The question is appro- 
 priate, because it involves that of : By what rules shall 
 the, Bank be guided in raising the rate ? For, if the 
 Bank regains full liberty of action, it would seem 
 almost that it had such liberty under the old Act, or that 
 Mi^'^ it would assume a position. similar to that of the Bank 
 ra&ho of France and Prussia ! Under the old Act (see page 
 52), the Bank of England did not make the mistake 
 of letting interest go too low, but it allowed too much 
 
231 
 
 fiduciary issue without raising the rate high enough, 
 and lost buUion subsequently; whereas, under the f^^^f" 
 present Act, it deliberately drives away bullion, and oSisSon 
 then makes great efforts to recover it. Under the old Mmmitted. 
 Act, errors of omission, under the present Act, errors 
 of commission took place. 
 
 And recollect that the banks of France and thb Banks 
 
 of Prance 
 
 Prussia do not suffer from heavy withdrawals of aSbett^"'* 
 bullion like we do, because they never go so low p^feo^*'"' 
 in the rate (see pages 98 to 100). They need not go 
 so low, for they do not include a large idle 
 Eeserve (useless for the purposes of circulation), in 
 their accounts of money on hand, but alloio the 
 fiduciary surplus to go bach in the same measure as 
 bullion has refilled any gap in what is proper for 
 the circulation ! From this it does not follow that the 
 systems of the Banks of France and Prussia are 
 perfect, for they leave much to discretion, whilst we, in 
 England, endeavour to work by rules which leave as 
 little room as possible to errors of discretion. 
 
 I may now succeed in showing you what were pro- sir Robert 
 bably Sir E. Peel's intentions, when in his endeavour to t?c«IS" 
 effect a combination between limit, increase, andreduc- aotioa. 
 tion, as prescribed by clau^ 2, he imagined that some 
 fairly correct automaton arrangement would be the 
 result. The reading of clause 2 will bring out the fact 
 that, by the proviso for reduction. Sir Robert Peel Bymcrea«B 
 had no other object in view than that of regulating SeTsue.i 
 the matter in accordance with circumstances. The 
 strict limit of 15 milhons, to cover both circulation 
 and Reserve, must have arisen from the thought that the 
 country should provide itself with bullion, and that the 
 15 millions should form a standard, by which the 
 liberty of the Bank should be restricted, in the first 
 place. In the second place, this standard should serve 
 as the basis of calculation in favour of higher rates of 
 
232 
 
 interest, for the rnaintenance of the circulation and 
 
 p^tondardV reguUv Iteserve, and such regular Eeserve would 
 
 ^^""' become the true indicator. Hence, to make the 
 
 regularity of the Eeserve possible, red/action and 
 
 increase were provided for within the limit of the 15 
 
 millions allowed. If the maintenance of a regular 
 
 Eeserve by these simple means had been accomplished, 
 
 the natural result would have been a proportionate 
 
 IStidprto^ higher level of buUion— the strict maintenance of the 
 
 • '°"'' average would have enforced a system of interest in 
 
 which that average would have to be taken as a 
 
 negative element, as a Eeserve first to be cared for, 
 
 and the rates would have been anticipatory. 
 
 Instead of this, the Eeserve has not been taken 
 
 The action ^^ something to be first secured and held intact, but it 
 
 intopo.* has served as a positive element, additional to supply, 
 
 extremes, ^iid SO engendered the practice not only of unduly 
 
 low rates, as the first stage, but the tardy or post facto 
 
 action as the second stage — the insufficiency of both 
 
 to be corrected by the final efibrt. 
 
 Now, if in future the principle of reduction and 
 Servf"'" increase eflFects the maintenance of a fairly moderate 
 sirSana Eeserve, it will be evident to you that any movement 
 
 serves only ^ ^ ^ . ,« 
 
 te hSr°'^ in the market will tell with greater proportionate efiect 
 rates. upon 5 miUious than on 15 millions, hence the 
 indicator will be much _ quicker in its action. This 
 does not mean that changes in the rate will be more 
 frequent — on the contrary, they will be much less, but 
 more consistent in their durance. The strict main-, 
 tenance of the moderate Eeserve, you must recollect, 
 will do away entirely with the low extremes, and what 
 we have to look to in reference to the inviolability of 
 such Eeserve concerns only higher rates. 
 Kiv™° ^ The essential difference between the present prac- 
 
 to^l°Ser ^^^®' ^^^ '^^'^ '^^^' ^^^ *^® arrangement foreshadowed 
 Sator. in Clause 2 of the Act, will now be seen; the former 
 
233 
 
 compels the Bank to lower the rates unduly, and, per 
 contra, enforces measures increasing in violence as the 
 Reserve progressively diminishes ; both the others give 
 the Bank full .Hberty to uphold rates, unencumbered 
 ■with Reserve, but the old Act entirely failed in giving 
 a guide for higher rates, thus disorganizing, by the 
 reaction, the fair liberty to moderate rates. Clause 2 
 of the present Act however, affords this standard for 
 guiding the rates, and Httle doubt need be entertained 
 but that Sir Robert Peel, if alive, would now 'so con- 
 strue that clause, and give effect to the reduction. 
 
 The necessity of affording standards and figures 
 in preference to a mere haphazard liberty, need not be Atme 
 
 ^ -T J ^ indicator 
 
 discussed here. Without them no regular action is f™"dr" 
 
 ■1 1 • -r • (. AT discretion 
 
 possible m the construction of any system. And "ghtiy. 
 when we have ascertained that our monetary affairs are 
 composed of certain factors, viz., the circulation, the 
 Bank of England issue, the proportion of bullion and 
 the rate of interest, all definable by figures, affording 
 proportions in somewhat like mechanical relationship 
 to each other, the necessity to measure and control 
 them by a numerical agency is obvious. And when 
 true principles are adopted for this purpose, the dis- 
 cretion of wise and experienced men cannot go wrong. 
 The Bank of England is now guided by the Reserves 
 arising from the misapprehension of, or from the 
 inability of carrying out the spirit of Clause 2 ; and 
 the endless muddle and strife into which this throws 
 the whole practice and controversy, its defiance to 
 almost aU. the efforts of experience and discretion, I 
 have described to you before. But if Clause 2 is made n» cioar- 
 
 •^ nea3 and 
 
 effective, as it ought to be, a natural indicator will be <=»''™'y- 
 found to arise from the practice, with which the direc- 
 tors of the Bank of England can deal, with a clearness 
 of purpose and unfailing certainty, " as they may see 
 occasion," in the words of Clause 2 itself. 
 
S34 
 
 I repeat, therefore, that in the whole of this ques- 
 p?ohiem tion of the Reform of the Bank of England, little more 
 theameud- is required than the amendment of Clause 8, so as to 
 
 meut of -"^ 
 
 Sthf give effect to Clause 2, which may remain unaltered, 
 and when that is done the whole problem is solved, as 
 far as the pressing necessity for doing so is concerned. 
 Further improvements are subject to separate con- 
 sideration. 
 
 THE SYSTEM OF COMPENSATING INTEREST 
 AND INCREASING RESERVE. 
 
 Although the amendment to the Act spoken of last 
 for°adjus? will furnish the practical solution of the question, yet 
 rules. it may be worth while to consider whether a more 
 
 certain system, founded 'on the principles enunciated, 
 can be established, without involving any more essen- 
 tial disturbance of the Act. The idea, that from the 
 factors in operation in this matter some automaton 
 action is deducible, prevails in the minds of economists, 
 and several attempts have been made in this direction. 
 fOTWMtof Some of these seek an adjustment of the issue upon 
 aiiSSs. a general notion of elasticity, unaware of the dis- 
 tinction between elasticity and variability, and of the 
 various degrees of firmness of the several factors. 
 Others, better informed, succeed in fitting the varia- 
 tions of one factor to another, but fail with the third 
 and fourth, when they have recourse to arbitrary 
 assumptions.* 
 
 * The most notable example of this kind is furnished in a pub- 
 lication on the Bank Act, lately issued by one of the most prominent 
 of our economists. The following passages occur therein : — 
 
 " It is so manifestly desirable that the variations of the rate of in- 
 terest should proceed, if possible, upon some well-defined and simple 
 basis, that many minds have been directed towards the discovery of 
 a rule. Mr. Tooke always advocated most strongly the maintenance 
 
235 
 
 In the course of this book sufficient information 
 may have been given for the clear appreciation of the '^y^wL 
 constituents of our monetary system, and their reduc- reXoSon ^ 
 tion to the adjusting points. When these are reached, ^o^te!"^ 
 there ought to be no difficulty about the rule to be 
 
 of a large bullion reserve, and in order to prevent undue depletion 
 of the reserve he suggested that the Bank should never follow a 
 falling discount market lower than 4 per cent. — that is to say, that 
 for ordinary discount business the Bank should cease to compete at 
 4 per cent. As a matter of fact, the Bank would lose very little by 
 such a rule, for when the rates in the open market are really falling, 
 they always keep so far below the Bank minimum as to divert 
 nearly all discount business from it. The effect of the Bank 
 stopping at 4 per cent, would be, of com-se, that a certain part of 
 the bills held would mature and be collected, and the cash reserve 
 proportionately increased ; such accession of strength being available 
 to moderate the extent of the rebound in the rate of interest when 
 the money market again became active and rising. 
 
 " Proceeding further in the development of this principle, it has 
 been suggested by some eminent persons, well entitled to be con- 
 sidered as practical authorities, that a sound and simple rulo might 
 be found by having it understood, not in obedience to any positive 
 enactment of the Legislature, but as a general principle : — 
 
 " (1.) That the minimum rate of discount at the Bank of England 
 should be regulated by the rise and fall in the total amount of 
 bullion reserve stated in the weekly published return. 
 
 " (2.) That, by way of example, as regards the application of this 
 rule, it might be laid down that when the total bullion is, say 15 
 millions, the rate shall be 5 per cent, per annum ; that the rate 
 shall fall half per cent, for every rise of 1 million in the total 
 bullion, being therefore 3| per cent, when the bullion was 18 millions, 
 and never descending below 3^ per cent., whatever elevation the 
 bullion might attain. On the other hand, that the rate should rise 
 half per cent, for every fall of half a million in the bullion below 
 15 millions ; the rate rising, therefore, to 7 per cent, when the 
 bullion had fallen to 13 millions : and if the bullion stiil continued 
 to diminish, the rate to rise 1 per cent, for every loss of half a 
 million below 13 milHons ; so that with 11| millions of bullion the 
 rate would be 10 per cent., and with 10 millions of bullion it would 
 be 13 per cent, per annum. 
 
 •' These figures are given as illustrations of the possible applies- 
 
236 
 
 observed. The factors wliicli must be borne in mind 
 are: — 
 
 1. The amount of money required for the 
 business of the country itself — Le. the cir- 
 culation. 
 
 2. The increase in our commerce and 
 population. 
 
 3. The circulation of the Bank of England 
 TheBii note as the supernatant portion of the general 
 
 factors of . ^ . 
 
 the system : CirCulatlOU. 
 
 Circulation, 
 
 Ba^k'notls, 4. The amouut of bullion requisite in due 
 
 Eese^e proportion of such circulation. 
 
 5. The rates of interest to be effective for 
 the maintenance or completion of such bullion. 
 
 6. The amount and character of the Re- 
 serve necessary for certain contingences. 
 
 tion of the rule. The sum of 15 milKons as the nominal point, and as 
 representing 5 per cent, per anmirnj might, perhaps, on full investi- 
 gation, be found to be too small an amount, but upon that point of 
 detail no positive opinion need at present be expressed. The merits 
 of the suggestion are great. It sets forth a rule of management 
 simple, obvious, intelligible and practical, and it rests upon the solid 
 scientific truth that in the highly-developed banking and credit 
 system of the United Kingdom at the present time, the ultimate 
 and almost the sole regulation of the money market — that is, the 
 market for investments, for dealings in property, and adventures 
 in commodities — is the rate of interest, and the pressure placed on 
 credit by elevations of that rate. 
 
 " All notions about ' regulating the currency ' (whatever that 
 obscure phrase may really mean) in any other way are delusive, and 
 entirely destitute of support from experience." 
 
 In the paragraph marked (2) the attempt is made to regulate 
 the rate of interest by bullion ; the two factors are brought into 
 some kind of mutual play by a kind of fixed sliding scale more stifE 
 and arbitrary than the present limit of 15 millions. This is all the 
 more singular, because the author himself pleads a reform chiefly 
 on the ground that the "altered circumstances" demand it. The 
 plan proposed by him takes no notice of further increase of trade, 
 of consequent increase in circulation, and this alone would be 
 
237 
 
 Of these factors the first two, viz., the general 
 circulation in accord -witli our trade and population, sw^^rm 
 
 to the 
 
 stand prima facie in direct relationship without ^?^^°^on' 
 reference to the other four more immediately concern- 
 ing the Bank of England. The circulation, i.e. the 
 coin which it has absorbed, and which it holds, has 
 nothing to do with the Bank ; it is only through the 
 note issue that it becomes connected therewith. It 
 happens to supply itself with sovereigns through the 
 agency of the Bank, because that institution manages 
 this business in accord with a truly practical and 
 econonomical method. The circulation never lacks 
 
 sufficient to destroy the value of the arrangement. But the most 
 extraordinary part of the suggestion concerns the factor interest. 
 He coolly assumes the rate of 5 per cent., without the least sus- 
 picion as to the existence of an international rate of interest, or the 
 universal value of, money, as I have described it on pages 91 to 105. 
 And Mr. Tooke, who suggested that the Bank should never follow 
 a falling discount market below 4 per cent., that the Bank for 
 ordinary dis'count should cease to compete at 4 per cent., in spite 
 of his high standing, laid himself open to the charge of unmitigated 
 financial alchemy. The confusion as to Bullion Reserve (when 
 such bullion is in circulation by way of Bank notes) is obvious. 
 The author is seemmgly unaware of the existence of the " fiduciary " 
 portion of the issue, or the meaning of that word, else he would find 
 that under "the effect of the Bank stopping at 4 per cent.," the 
 accession of strength would not consist of a cash Reserve, but a 
 fiduciary or mixed one. He would find that such a Reserve is 
 utterly beyond the requirements of circulation and banking accom- 
 modation, that its only effect ■ is that of driving away bullion. The 
 reading of the paragraphs shows that their author is compelled to 
 have recourse to arbitrary figures, assertions and declamation. 
 He overlooks the existence of the variations in other factors be- 
 yond bullion and interest, and, although admitting that interest 
 must regulate the whole system, he makes the rate of interest 
 solely dependent on the rise and fall of bullion. He does not seem to 
 be aware that this would engender the same system of post facto 
 action under which we now suffer, and that another factor is 
 required to secure the independence of the force of interest. 
 
The 
 
 enoonragS' 
 meut of the 
 
 238 
 
 gold coin. The Bank always holds a stock, and pre. 
 pares in time ; and not only is the demand instantly 
 FSnFi responded to, but the offer of supply is continually in 
 i^ii'°' operation. And this oflFer of supply, to the extent of 
 one or two millions, is one of the most valuable matters 
 in our system. For whoever has worked for, or pur- 
 chased, an equivalent, realisable according to the rights 
 of commerce, is instantly able to obtain the legal 
 metallic value for it. He need not wait for money 
 because money is not there, on the contrary, it is 
 oflPered to him beforehand. All who understand the 
 true operation of the rules of supply and demand, the 
 vivifying effects of the former upon the latter, will 
 admit that upon the premises as to real equivalent, the 
 gold circulation is not only done justice to, but that every 
 expanse is encouraged by such a system, in accord with 
 aam^^ne the true principles of valuation. The schemers for 
 ?rithout the various forms of bank note issues — whether they 
 
 equivalents. " 
 
 represent wild democracy or Scotch banks, whether 
 they have no equivalent at all, but desire to enjoy its 
 fruits nevertheless, or are desirous of keeping unsatis- 
 factory matters in the hope that they will become 
 equivalents — all overlook this plain fact, as well as the 
 injustice and the folly of all attempts to acquire the 
 right of incorporating "issue" so obtained with the 
 circulation at large. 
 
 The freedom with which gold is thus obtainable in 
 Independent tMs country has often been extolled as one of the 
 between valuablo featurcs of our system, and with iustice, 
 
 Reneral .; ' o » 
 
 cuTuitttion although this does not exclude the fact, that certain 
 other nations are quite as forward in this respect as we 
 are here.* Nor is the supply of gold to the circulation 
 
 * See " Seignorage and the Charge for Coining." — Effingham 
 Wilson, Royal Exchange. 
 
239 
 
 necessarily dependent upon institutions like the Bank 
 
 of England. In every country that has a balance of 
 
 trade in its favour and receives precious metals, the 
 
 importers, before undertaking the charges of shipping 
 
 it elsewhere, will first endeavour to give it to the Mint 
 
 for coinage, and thus keep up the principle of the of^l^^aSii 
 
 " offer " at home. The Bank of England, like those Sot '^^''^ 
 
 " absolutely 
 
 of France, Prussia, Belgium, Holland, and others, can l^^^^'^ '" 
 do so with less delay, and with greater economy, pro 
 bono publico, because they can at oncegive out Bank 
 Notes, whereas the coining process involves some 
 delay. As I have before said, the increase in gold coin 
 in circulation, concurrent with the increase of our 
 general trade and population, rests upon a perfectly 
 easy process, and results in a positive accession to the' 
 money current, when the proper proportion of the 
 increase has been absorbed by our Banking and Clear- 
 ing system. 
 
 We can, therefore, dismiss from consideration both ^^[ 
 
 1 T 1 * 1 J. • n J.1 • n these first 
 
 the general circulation and the increase oi commerce two factor. 
 
 as coDcen- 
 
 and population, for they are independent of the Bank {[I***™ 
 of England. The proportion of the total amount of England 
 circulation — viz., 161 milhons (see page 108) ' to <''r<!°ia'ion- 
 about 25 millions of Bank of England Issue (out of 
 which the holders can claim, say 20 millions of bullion 
 deposited by them) — indicates the proportion of pos- 
 sible connection between general circulation, com- 
 .merce, and. the Bank. We need not bear this in 
 mind as far as exact numbers are concerned; 
 the inexorable demand for a fairly regular amount 
 of Bank of England Notes indicates that the 
 general circulation holds sway over, and commands 
 the Bank. It follows that the circulation of its 
 notes is one of the factors by which the Bank must 
 be guided. 
 
 The four factors (see page 236) now remaining are — 
 
240 
 
 1. The circulation of the Bank of England 
 Note. 
 
 2. The due proportion of Bullion. 
 
 3. The rate of interest. 
 
 4. The Eeserve. 
 
 From these we may temporarily set aside the 
 lalrye^ Reserve. It may strike many that the very idea of 
 separata Reservo suggests an independence for this factor, that 
 it cannot be called a true Reserve, unless it has an 
 independent, if not inviolable existence, especially pro- 
 vided for. Postponing, then, this provision until we 
 have disposed of the three factors preceding it, we find 
 that they concern the duty of the Bank to maintain to 
 the amount of notes in circulation a proper proportion 
 of Bullion, by means of the rate of Interest. That is 
 prima facie, the simple aim involving the adjustment 
 of proportions through a lever which is perfectly 
 automaton in its action, but which the Bank is unable 
 to manage, although it alone has the fullest power to 
 apply it. 
 
 It is obvious that when there arises the question of 
 StofSw^ keeping due proportion, the factor to which these pro- 
 amoiSfo?' portions must be held becomes the indicator. Hence 
 
 circulation - , -, , j. 7 7-> 7 • ^ 
 
 of notes. ifie Circulation of the Bank note is the guidmg fac- 
 tor, and only by keeping it in view can we arrive at 
 a combination which will secure the proper proportion 
 of bullion, and so much margin by way of Reserve as 
 will secure the situation. All attempts, therefore, to 
 make interest act upon bullion only, are tantamount to 
 shutting the door when the steed is stolen. If bullion 
 is at, say, 16 million^ at one time, and the circulation at 
 »u8t°be 20 (assuming for a moment that such to be fair pro- 
 SPop™ portions), it is evident that for a circulation of 25 mil- 
 
 tion thereto. 
 
 lions there ought to be 20 millions of bullion, and in 
 the maintenance of proportions which can thus be 
 made to balance by a self-acting process, and which 
 
241 
 
 may result in a higher average or not, there lies the true Proportion 
 connection between our rate of interest and the inter- t™Suo™ 
 
 „ - tte tru8 
 
 national rate, the accord m the mutual system of valua- e^^^- 
 tion in which, through our better developed industry 
 and commercial supremacy, we can always hold a 
 balance in our favour. The majority of our economists 
 quite overlook this important guide (see the notable 
 example in foot note to page 284), unaware that the 
 sound trade of the country manifests itself in the 
 refusal to use the excess of issue now oflFered, but 
 demands the regular maintenance of a proportion of 
 bulhon within the ranges of the active Bank of 
 England issue. 
 
 O 
 
 The circulation, then, is the guide alongside of 
 which a level of bullion must be kept, by the simple ^ol'"?hl 
 means ot raismg or lowermg the rate of interest, mterestto 
 
 o o keep buUion 
 
 Knowing, as we do, from experience as well as theory, "'»'«"'• 
 that the operation of the rate of interest is inexorable 
 and infallible, nothing would'appear more simple than 
 that a rule should be found by which its automaton 
 action could be determined. And there are three ways 
 in which we might arrive at this rule. 
 
 1. Presuming that we had no previous ex- 
 perience whatever as to its operation, we might "^tt^^veu 
 at haphazard lay down a scheme of raising the 
 
 rate, in order to test it. We might commence 
 by putting the rate rather high, and inci'easing 
 it progressively. By so overdoing the test, the 
 only mistake to which we might be liable would 
 be the attraction of too much buUion — to that 
 few would object — and we might modify our 
 rates afterwards. 
 
 2. Having already had ample experience 
 
 with the Bank of England system, we might en- ^aoS ^^ 
 deavour to trace the errors which we know have 
 been committed, because they failed in keeping 
 
 16 
 
242 
 
 bullion. Or, inasmucli as, on the whole, the 
 Bank of England has finally succeeded in again 
 obtaining bullion, and as periods occur in which 
 the extremes are balanced, we might trace a 
 system of average from the practice of the 
 extremes which we find " will do." The mathe- 
 matician will understand this. 
 
 3. We might endeavour to find principles 
 tiieo^° either by independent logical reasoning, subject 
 
 to comparison with practice, or rules deduced 
 from experience to be also brought back to com- 
 parison with practice, and when good reasoning 
 thus seems to agree. with practical matters, there 
 is every chance of rendering the search suc- 
 cessful. 
 In the next chapter I shall lay before you certain 
 principles which may possibly answer this purpose, and 
 show their combination with Eeserve later on. 
 
 THE PEINCIPLES OF COMPENSATING 
 
 INTEREST IN THE COMBINATION BETWEEN 
 
 BULLION AND FIDUCIARY BANK NOTES. 
 
 It is necessary, firstly, that a minimum, medium, or 
 maximum rate of interest should be established, from 
 
 Arbitrary 
 
 SS?' which the variations must be led off. The danger of 
 r^Mare fixiug such a rate arbitrarily is one with which many 
 economists are unable to cope. Most of them make 
 o per cent, their favourite ; others fix upon 3 per cent., 
 as that which the State pays on Consols, because when 
 money is retiring from business, it has recourse 
 to this kind of investment. The late proposals in 
 Parliament fixed upon 12 per cent, and 10 per cent, as 
 standards for certain contingences. All these attempts 
 are fallacious, and have but little or no connection 
 
243 
 
 witli abstract truths. They are more or less " outside " 
 of the matter. 
 
 The true guide for arriving at such standard rate 
 must be taken from the working of the system itself, abstract 
 
 , gToimdfor 
 
 and the abstract ground therein contained is clearly ^'J°'^^™ 
 definable as part of the whole process of valuation. TtS*'''" 
 The problem before us suggests it. "We are called 
 upon to maintain a given amount of Bank of England 
 note circulation, by adjusting proportions between 
 issue on buUion and on securities. When bullion 
 diminishes, more fiduciary issue must go out, and 
 interest rises, the object of the rise in interest being 
 that of reattracting bullion. When bullion increases, 
 less fiduciary issue is required, and interest decHnes. 
 It is upon this plea of usefulness as money that fiduciary 
 issues are made, and justifiable. But, whenever the 
 amount of Bullion is equal to the amount of notes in cir- 
 culation, the need for fiduciary issue for the purposes 
 of the circulation (not Reserve) no longer exists. 
 
 If thus at any time there are 25 millions of bank notes 
 in the hands of the public, and but 14 millions of bullion agrelm^t 
 on hand, 11 millions of fiduciary issue must be used, amount of 
 
 ' </ ' bullion an 
 
 and on 20 millions of bullion, 5 millions of such issue ; SStiw 
 but when there are 25 millions of bullion, the fiduciary 
 issue might be set aside for the time without any 
 disturbance whatever to the circulation. This is a 
 cardinal point in the controversy which has nothing to 
 do with the question of Eeserve, but which represents 
 the great principle in our valuation of a perfect rest in 
 the demand foi' bullion, and the absence of necessity for 
 fiduciary issue. At such times (if the country bankers' 
 issues are set aside), the whole business of the country 
 is conducted on the pure unmixed metallic basis, at 
 £3 17s lO^d per ounce of standard gold, and so there 
 exists, for the time being, what, from the bullion 
 point of view, may be called a " normal " state. 
 
244 
 
 The truly normal character of such a position of 
 
 normal ^ thc Issuc "wiU bo moro evident to you when you reflect 
 
 character of , , _ . 
 
 rfbumo^'^ upon an increase of bxiUion beyond the circulation. 
 
 cSaaon. If 30 millions of bullion were at the Bank, but only 
 25 milHons of notes current, the position would not be 
 tenable. The 5 millions of bullion over and above the 
 25 covering the notes would, be absolutely idle — i.e. 
 they would resemble hoarded money, not unlike the 
 bullion locked up in the Prussian war treasury. No 
 bank, no private firm, nor a combination of them, would 
 or could maintain such an idle stock of money. It 
 would almost immediately disappear, to seek employ- 
 ment abroad, and serve as a means of investment. 
 Without such outlet, a plethora of gold of this kind 
 would prove almost as embarrassing to us as a scarcity, 
 and the inexorable laws of the valuation could not 
 sufier its existence. Throughout the whole history of 
 the Bank of England, such a surplus of bullion occurred 
 only in June and July 1871 (up to 2 millions), but 
 this was due simply to the French, who, during the 
 terror of the war, hoarded gold at the Bank of 
 England. Between this extreme of plethora, with the 
 absolute necessity to export it, and the contrary — the 
 absolute necessity for attracting bullion — lies the state 
 of rest arrived at when the amount of bullion covers 
 the issue in circulation, when there is no call for either 
 export or import of gold. 
 
 It is requisite that this should be clearly and 
 
 ^iSSteai' distinctly appreciated as the abstract or neutral 
 
 &"eby ground to which the matter must be led back. That 
 
 established. . . 
 
 it IS abstract in its nature so far (as a proposition that 
 can be made without using figures), may be admitted, 
 for it is immaterial whether these figures refer to 10, 
 20, 25 or 30 millions, the principle of the agreement 
 between bullion and circulation stands forth clearly as 
 a " neutral " one. 
 
245 
 
 The practice of the Bank of England system 
 now shows, that in several instances, this neutral point frequent 
 
 • T • • • p Tin MT occurence 
 
 was reached to withm a variation of one-halt a milbon. of this 
 
 agreement 
 
 In 1851, 1858, 1859, 1867, 1868, 1870 and 1871, Tins^ 
 the Bank of England Reserve of notes frequently 
 equalled the amount of the fiduciary limits allowed by 
 law, showing that the stock of bullion was equal to 
 the amount in circulation ; and if the special Reserves 
 of coin are taken into consideration, these instances 
 become much more numerous. Out of the 1,409 
 weeks from 1845*to 1871, there were— 
 
 36 where there was such agreement, and 
 68 where there was a margin between 1 
 and 2 millions ; whilst, when the Reserve of 
 coin is added thereto, there were 
 
 101 where the agreement was within half a 
 million. 
 It follows that at such times of perfect neutrality 
 and peace in the bullion stock of the Bank, an inde- aXotion 
 pendent and neutral rate of interest should arise in from^hL* 
 
 normal 
 
 perfect accord with our valuation. It follows also vSuatLS!' 
 that such a rate, if not undidy influenced by some such 
 overweight of Reserve as is then unnecessarily kept at 
 the Bank under the present system, can be held at a 
 figure which is nevertheless the lowest practicable 
 rate, and as such it is subject only to the effect of 
 changes in the international rate. The Bank of 
 England, whenever such phases occur in its issue, goes 
 down with interest to 2 per cent., and has even done 
 business at If per cent. If the Reserve had not 
 existed, its rates might then have been 3 or 4 per cent., 
 or higher, subject to the test of greater accumulation of 
 bullion. The setting aside, or partial abolition of the 
 Reserve, whenever such a phase of agreement between 
 bullion and circulation occurs again, would accordingly 
 enable the Bank to hold for a higher (though moderate) 
 
246 
 
 rate than hitherto, and to await the result, so that 
 the right rate can be found by a self-acting process 
 requiring but little discretion. (The suggestion that 
 the Bank's lowest rates, say If per cent., should be 
 taken as the lowest point is evidently wrong, for we 
 know that this extremely low rate is due to the 
 abnormal pressure of the present useless Reserves, 
 which deteriorate our valuation much below its natural 
 level.) 
 
 By another method this true neutral lowest rate can 
 too^'''* he deduced from the whole broad practice of the Bank, 
 the Bank, after balancing excesses in one direction against 
 excesses in the other. Logicians will admit that, 
 between the variations taking place, there must be a 
 central pivot of absolute steadiness for each occasion, 
 though more or less steady for all occasions ; and 
 when, through a series of occasions, a result has been 
 obtained which answers the purpose, the method by 
 which this has been done, and the extreme faults 
 thereby committed, rather confirm the existence and 
 tenacity of the normal point. This is just the case 
 with the Bank of England ; it has succeeded by gigantic 
 struggles, which bear the impress and absolute proof 
 of excesses in either direction, in recovering its stock 
 of bullion, and it follows that the true turning point 
 can be traced by testing the extent of the excesses. 
 The test of these excesses can be made in various 
 
 By testing n ■ i> 
 
 excesses w'ays. Btartmg from the ground that the agreement 
 between bullion and circulation gives the " neutral" or 
 " normal " or " lowest practical " (which ever term 
 may be deemed suitable) rate of interest, it is then 
 necessary to determine the ratio of increase in accord- 
 ance with what the Bank has been in the practice of 
 doing. This must be done for special periods, for 
 years, and for the whole tei'm, so as to prove the agree- 
 ment of the rule for each term ^Yith the whole. The 
 
247 
 
 amount of active circulation and the respective 
 amounts of bullion must be compared with the rate of 
 interest, so as to show what proportion of fiduciary 
 circulation the Bank permitted. The extreme ranges 
 which are brought about can be led back to the normal 
 state, i.e. when bullion is equal to circulation, viz., to 
 lower normal rates, of which that is the correct one, 
 from which the excesses in either direction are 
 equal in extent. It will then be found that between Tte 
 
 practical 
 
 the rates of 2, 2^ and 3 per cent., the first gives a ^V^^ 
 nominal excess according to which the Bank has made coat. 
 too little issue, the rate of 3 per cent, shows a surplus 
 of actual issue made, whilst 2-|- per cent, stands 
 just between the excesses. Now, inasmuch as 
 the regularity of the circulation does not admit of 
 actual over or under issues, the excesses committed 
 concern unduly low rates of interest, unjustifiable in 
 presence of the amount of circulation versus stock of whidf'h" 
 bullion, leading to extreme high rates afterwards, befow'' 
 The author has made this test in elaborate tables, <»>'»™'"«'i- 
 printed in one of his publications, and to these tables 
 he will later on refer again. The description here 
 given of this test will show that nothing arbitrary has 
 been attempted, for the whole proceeding rests again 
 on abstract proposition, and the deduction of the 
 normal rate is made from the whole result itself. It 
 will be found that neither deposits nor other matters 
 interfere with this rate, the only influence is that of Jhe 
 
 ' •' deduction 
 
 the international rate. It will hereafter be shown ^d^no^* 
 how, by a proper system of Eeserve, it can guide all °^' 
 necessary variations for increase of circulation' at home, 
 and demand for bullion for coinage, as well as inter- 
 national purposes. 
 
 The ratio of increase of interest must next be 
 determined. If the circulation is at 25 millions, bul- 
 
248 
 
 taore™e of ' lioii at the same amount, and interest 2^ per cent., 
 protect what rates of interest must be adopted when bullion 
 
 bollion. 
 
 falls to say 20, 15 or 10 millions, either so as to 
 recover the proper level or for its maintenance ? The 
 inference that some distinct — if not mathematically 
 correct — rule must prevail is natural, a decline of 10 
 millions of bullion evidently requires a definitely greater 
 proportion of force than one of 6 millions only, for the 
 able™"' recovery of bullion. If, like in the previous case of 
 
 experience 
 
 SSjS*** normal interest, we were quite ignorant of experience, 
 Stofeet? and chose to apply, at haphazard, the known range 
 of interest from 2^ to 10 per cent., within which 
 absurd extravagances are not likely to arise, selecting 
 5, or 6, or 8 per cent, for any comparatively moderate 
 reduction of bullion, we could not do wrong on the 
 mere score of obtaining more bullion. For the whole- 
 some and natural corrective, here acting in accord with 
 interest, is time. If interest at 8 per cent, is too high, 
 toe natural it Will act morc quickly, too quickly perhaps, and 6 per 
 ttoeoteMh cent., with more extension of time, might have the 
 " *"^*' same effect. Duration of time, involving perhaps days 
 only, can therefore proportionately expedite pr modify 
 the violence of attraction of bullion, and this is a most 
 important matter, not only as the ready and natural 
 corrective in any reasonably regular, or even strictly 
 mathematical scheme for the ratio of increase in 
 interest, but as guiding the whole case for the pre- 
 vention of extremes in either direction. 
 
 But, as we have already made sufficient experience 
 
 The practice with what the Bank of England does, in order to re- 
 ef tlie Bomk ° ' 
 
 dSct°' cover bullion from certain stages of deterioration in 
 guide. the stock of bullion, and can trace the proportions to 
 the rates of interest adopted in these special periods, 
 as well as for the purpose of general agreement between 
 them, we can take advantage of the experience already 
 gained. It will be found that the Bank's practice does 
 
249 
 
 result in an agreement between periods, and gives a 
 definite average which, under the corrective of time, may 
 be pronounced as operative, and, when free from the 
 overweight of Reserve, will become unfailing far within 
 the present extreme divergences of interest. 
 
 Before showing this, I propose herewith to demon- 
 strate a theoretical rule, and to show its general agree- of'taj'TO^ 
 
 •11 ■ C1T111 1 (»■ ment poinl 
 
 ment with the practice of the Bank when shorn of its ex- fa ^*^ 
 
 ■*■ rule. 
 
 tremes. In all matters requiring the restoration of an 
 equilibrium between two opposing but connected ele- 
 ments, the one element from which the action proceeds 
 must initiate the same with double force, so that it 
 may obtain the level by the equal division of the effect. 
 The most commonplace and familiar illustration of 
 this rule is afforded by buying and selling ; if the seller 
 asks 101 for his article, and the buyer offers 99, all 
 being clear of interference, the compromise takes place 
 at 100. In physical science, the law of level as repre- 
 sented, say by two upright tubes, connected at the Imueibu 
 base, demands that when the level of liquid in one tube {^^-^^^^^^ 
 is to rise 1 inch, 2 inches of addition are required. Most 
 marked is this rule in all that concerns exchanges, if in 
 one country the rate stands at say 25, and in another at 
 24, and either begin to operate, the final adjustment is 
 24|-. Investigate all other matters of supply and 
 demand, in their connection with prices and offers, and 
 you will find, that when left to themselves, the approach 
 will be made simultaneously from either side, until they 
 meet for settlement half way within the force origi- 
 nally put into activity. 
 
 The application of this rule of the double bid to 
 the case of attracting bullion can now best be illus- tmf|^a 
 trated to you when you imagine the following situa- atTrarting 
 
 •' ° bullion. 
 
 tion : — 
 
 Supposing there were 15 millions of bullion, in- 
 terest being at 5 per cent., but for some reason or 
 
^56 
 
 another 18 millions of bullion, or ^th more were 
 required, a rise of ^th in tlie rate of interest, from 
 5 to 6 per cent., would not suffice to produce it. 
 Against the demand, enhanced by -g-th, the supply 
 would resist in an equal measure, and instead of 3 
 millions of bullion, only 1^ would be drawn over. 
 Accordingly, the rate must rise by fths, from 5 to 7 
 per cent., in order to produce the one-half which is 
 ButoSaton 'W'auted as a whole. Of the mathematically paramount 
 Sto'dSuwo and absolute force of this rule, as it daily and hourly 
 
 bid. 
 
 demonstrates itself, not the least doubt need be enter- 
 tained. It reigns supreme through all difficulties and 
 contingences, unless these are of a nature to consti- 
 tute a third element ranged in support of one of the 
 original two, but the power of such third element can 
 never be anything more than a transitory and inferior 
 one, the original forces of supply and demand are the 
 powerful magnets approaching each other. Any dis- 
 turbance or hindrance caused by such third element is 
 counteracted by a fourth consideration, viz., the greater 
 or lesser duration of time, and consequent greater 
 tension at the disposal of the demand. Between these 
 equalising forces the action of the double bid must 
 become unfailing and almost truly automaton. 
 
 Eeferring back now to the state of the issue when 
 KMmpies bullion is at the same amount as circulation, say 24 
 working, millions, and interest rules at 2^ per cent., if 4 mil- 
 lions were withdrawn, the minimum rate would have 
 to rise at once to 3^ per cent, (or as much higher as 
 the state of the international interest, to be hereafter 
 referred to with the subject of Reserve, would justify). 
 Or, if with a state of bullion and circulation at 25 mil- 
 lions, the latter were to increase suddenly to 30 millions, 
 a rise of interest to 3-| per cent, would at once be 
 required. If there were, say, 20 millions of bullion, 
 upon a circulation of 24, and interest at B^, if 4 more 
 
251 
 
 bullion were withdrawn, or if the circulation increased 
 (without withdrawal of bullion) to 30 millions, the 
 rate of interest must at once be raised to 5 per cent. 
 If upon the same circulation bullion were to fall to 12 
 millions, the rate would be 7^ per cent. ; if, as it did 
 in 1857, bullion fell to 6 millions, upon a circulation of 
 21, interest would have to rise to 15 per cent. 
 
 The rule would simply involve this — that for every 
 •J per cent, rise on the rate of 2^ per cent., which S"'"^'* 
 accordingly is equal to 20 per cent., a proportion of 
 fiduciary issue may be made equal to 10 per cent, on 
 the existing stock of bullion until the level of the cir- 
 culation is reached. Accordingly, the lower the bullion 
 falls, the more intense becomes the pressure, because 
 for every 10 per cent, allowable for fiduciary issue 
 •J per cent, increase of interest is requisite, and the 
 lower the bullion falls, the smaller and the more fre- 
 quent become the 10 per cent, upon its amount, 
 required to fill up the gap to circulation. Upon this 
 system the following table may be constructed, 
 showing : 
 
 1. The extreme ranges of the Bank of 
 England circulation from 18 to 28 millions. yon'S*^" 
 (N.B. — It must be distinctly borne in mind showite 
 
 working. 
 
 that these are not spasmodic ranges, but gra- 
 dual increase since 1844 — 1845=21 millions — 
 1873 = 25 miUions). 
 
 2. The amount of bullion from 6 miUions 
 to 27 millions (referring only to bullion in the 
 issue and excluding coin in the Banking Depart- 
 ment). 
 
 3. The corresponding rate of interest. 
 
 In laying this table before you, I must ask you now, 
 ere you try conclusions upon it, to let me show you 
 how it agrees with the average practice of the Bank of 
 England when that practice is cleared of its extremes. 
 
252 
 
 Table 16. — Showing amownt of Circulation and Bullion, with 
 rates of Interest to correspond. 
 
 Bnllion 
 (Millions). 
 
 
 
 
 
 • 
 Circulation (Millions] 
 
 1. 
 
 
 
 
 
 
 18 
 
 19 
 
 20 
 
 21 
 
 22 
 
 23 
 
 24 
 
 25 
 
 26 
 
 27 
 
 28 
 
 
 
 
 
 Rates of Interest. 
 
 
 
 
 
 
 1 6 
 
 ')• 7 
 
 12i 
 
 13i 
 
 14i 
 
 15 
 
 
 
 
 
 
 
 
 lOi 
 
 lli 
 
 13 
 
 13i 
 
 14 
 
 
 
 
 
 
 
 8 
 
 9 
 
 9i 
 
 10 
 
 lOi 
 
 Hi 
 
 12 
 
 
 
 
 
 
 9 
 
 7i 
 
 8 
 
 9 
 
 9i 
 
 10 
 
 lOi 
 
 11 
 
 
 
 
 
 10 
 
 6i 
 
 7 
 
 7i 
 
 8 
 
 8i 
 
 9 
 
 9i 
 
 10 
 
 104 
 
 
 
 11 
 
 6 
 
 6i 
 
 7 
 
 n 
 
 7i 
 
 8 
 
 8i 
 
 9 
 
 94 
 
 10 
 
 104 
 
 n 
 
 5 
 
 5i 
 
 6 
 
 6i 
 
 7 
 
 7i 
 
 7i 
 
 8 
 
 84 
 
 9 
 
 94 
 
 13 
 
 4i 
 
 5 
 
 5i 
 
 6 
 
 6 
 
 6i 
 
 7 
 
 74 
 
 74 
 
 8 
 
 84 
 
 1 ^* 
 
 4 
 
 4i 
 
 5 
 
 5 
 
 5i 
 
 6 
 
 6 
 
 64 
 
 7 
 
 74 
 
 8 
 
 1 IS 
 
 3i 
 
 4 
 
 4i 
 
 4i 
 
 5 
 
 H 
 
 5i 
 
 6 
 
 64 
 
 7 
 
 74 
 
 1 16 
 
 3i 
 
 3i 
 
 4 
 
 4J 
 
 4i 
 
 5 
 
 5 
 
 54 
 
 6 
 
 6 
 
 64 
 
 •1 " 
 
 3 
 
 3i 
 
 3i 
 
 4 
 
 4 
 
 44 
 
 4i 
 
 6 
 
 54 
 
 54 
 
 6 
 
 1 18 
 
 2i 
 
 3 
 
 3i 
 
 3i 
 
 4 
 
 4 
 
 4i 
 
 44 
 
 5 
 
 54 
 
 54 
 
 19 
 
 
 2i 
 
 3 
 
 3i 
 
 3i 
 
 4 
 
 4 
 
 44 
 
 44 
 
 5 
 
 6 
 
 SO 
 
 
 
 2i 
 
 3 
 
 3 
 
 3i 
 
 3i 
 
 34 
 
 4 
 
 4 
 
 44 
 
 SI 
 
 
 
 
 2i 
 
 3 
 
 3 
 
 3i 
 
 34 
 
 34 
 
 4 
 
 4 
 
 SS 
 
 
 
 
 
 2i 
 
 3 
 
 3 
 
 34 
 
 34 
 
 34 
 
 4 
 
 33 
 
 
 
 
 
 
 2i 
 
 3 
 
 3 
 
 34 
 
 34 
 
 34 
 
 24 
 
 
 
 
 
 
 
 24 
 
 3 
 
 3 
 
 34 
 
 34 
 
 26 
 
 
 
 
 
 
 
 
 24 
 
 3 
 
 3 
 
 34 
 
 26 
 
 
 
 
 
 
 
 
 
 24 
 
 3 
 
 3 
 
 27 
 
 
 
 
 
 
 
 
 
 
 24 
 
 3 
 
 28 
 
 
 
 
 
 
 
 
 
 
 
 24 
 
 It is not necessary to carry interest higher in this table, but any higher 
 rates might be added. 
 
 The degree of agreement between the rates of 
 interest in the above table, and the practice of the 
 Bank of England, can be traced by comparing with it 
 the circulation, bullion, and rate of interest at the 
 Bank at any time ; and this will clearly show how, at 
 certain crisis points, or when otherwise the situation 
 
253 
 
 ■was intelligible, the theory here adopted agrees with 
 the practice. Of these I select as notable examples — 
 
 1857. 
 31 Got. 
 
 MillioDS and Decimals. 
 Circulation. Bullion. Bank Rate. 
 ... 20-3 8-1 , 8 % 
 
 'Actual 
 
 fiduciary 
 
 circulation. 
 
 12-2 
 
 Theoretical 
 fiduciary- 
 Circulation. 
 
 121 
 
 11 Nov. 
 
 ... 20-1 
 
 6-6 
 
 10% 
 
 13-5 
 
 13-2 
 
 1866. 
 
 IS April 
 
 ... 22-1 
 
 130 
 
 5% 
 
 91 
 
 91 
 
 30 May 
 
 ... 25-9 
 
 11-4 
 
 10 7o 
 
 17-5 
 
 17-0 
 
 26 Sept. 
 
 ... 230 
 
 15-6 
 
 6 7o 
 
 7-4 
 
 7-8 
 
 1870. 
 22 June 
 
 ... 22-4 
 
 20-6 
 
 3 7 
 
 1-9 
 
 20 
 
 1871. 
 31 May 
 
 ... 241 
 
 24-1 
 
 2 7 
 
 nil 
 
 nil 
 
 The exact agreement of the rule at the very dates 
 when the crises of 1857 and 1866 were at their height, 
 confirms its truth; whilst the periods quoted in 1870 
 and 1871 show its validity in the direction of plethora. 
 Numerous other instances may be shown wherein the 
 practice agrees. It is of course understood that at 
 other times there is complete disagreement, the Bank 
 going far too low in most of them, and frequently, by 
 way of rebound, too high. 
 
 A complete analysis of the practice of the Bank, 
 taking the respective changes of interest, and that at 
 the end of each year with the corresponding status of 
 circulation and bullion as manageable instances, has 
 been made by the author, in tables pubUshed in 
 " Eeform of the Bank of England."* To these tables 
 attention has already been made on page 247 of this 
 chapter. They are constructed so as to demonstrate 
 at the same time that the neutral rate lies at 2^ per 
 cent., and not at 2 or 3 per cent. 
 
 Of the 198 instances of changes in the rate of 
 interest from 1845 to 1871, so investigated, and placed 
 in comparison with systems based on 2, 2^, and 3 per 
 cent., the following results appear : — 
 
 * These are too extensive for republication here. Readers who 
 desire to investigate these tables can have copies of the above, 
 mentioned publication by applying to the author, at No. 1a, Princes 
 Street, Mansion House, City. 
 
o a 
 
 
 
 
 *> 5 
 
 
 
 
 iO 
 
 
 
 
 Tji m 
 
 
 
 
 21 
 
 
 tS 
 
 • 
 
 i ' 
 
 
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256 
 
 I may have succeeded before this in showing to you 
 The liberty that when the heavy Eesei've of the Bank is set aside 
 to keep for the time, the Bank ree^ains full liberty to hold 
 
 interest at a . '^ "^ 
 
 kvei to^in- whatever rate it likes, subject only to possible varia- 
 ratea. tious iu the market rate upon changes in the interna- 
 tional rate. The international rate, as far as the 
 participation in it of States like America, Russia, Tur- 
 key, Austria, and other borrowers are concerned, must 
 necessarily be above ours. The participation of States 
 like France and Germany, financially independent as 
 we are, need not go below our rate ; and, as a matter 
 of fact, it has been higher than ours. In Prussia it 
 was maintained at 4 per cent., even during the great 
 supply of money in the early times of Californian and 
 Australian gold shipments ; but if they should go 
 lower than ourselves, their surplus will find employ- 
 ment in borrowing states, the same as our own would 
 under similar circumstances. 
 
 The rate of 2^ per cent., as deduced from the 
 Si '"lowest abstract reasoning and the practical results laid before 
 ma^te'"^* you, may therefore be regarded as the lowest admis- 
 
 nanceofthe . ^ ^ . 
 
 isauo. aible ; but it must now be shown to you that the 
 
 conditions of the Issue and the interests of the Bank in 
 connection therewith, demand, as the lowest limit, a rate 
 by so much higher as will pay for the expenditure of 
 the issue. The rate of 2^ per cent, is the result of our 
 investigation as to what I have called the normal state 
 of agreement between bullion and circulation, and 
 represents the principle of the valuation then in force. 
 But as we have before ascertained, the nature of an 
 issue does not require this full measure of bullion, for 
 it would then virtually be a bulUon issue, and the 
 issuer would be unable to recover the expenses which 
 are now discharged from the fiduciary issue. 
 Snioai ^^® technical expenses of the Bank of England 
 
 rostoofthe igg^e jiQ-^ amount to £185,000. per annum (see page 
 
257 
 
 181). Eeducing this (by excluding matters not neces- 
 sarily appertaining to the issue itself) to £150,000 per 
 annum, the interest earned on fiduciary issue of 4 to 5 
 milHons might be regarded as sufficient to cover them, 
 and to leave a small margin. According to what is shown The fair 
 by the table on page 252, upon a circulation of, say 25 ^omftl 
 millions, consisting of 20 millions of bullion and 5 issue. 
 millions of fiduciary issue, the rate would be B^ per 
 cent. — that is to say, whether the circulation be 23 or 
 25, or 28 millions, or any other practicable amount, 
 with bullion in corresponding proportions, the rate to 
 be maintained as the lowest, need not be less than 
 3-| per cent. 
 
 The Bank, therefore, need never ffo below that nsaqoora 
 
 ' ' a With inter- 
 
 rate, because— ^^^' 
 
 (1) There is no need to go below the 
 international rate, and unless a very sudden 
 supply of fresh gold were to come into the 
 world's market, this international rate will 
 never be below ours. 
 
 (2) Because it is in the interest of the 
 Bank, at least as far as the mere recouping its fair levei 
 
 forthe issue 
 
 01 the expenses is concerned, to uphold 4 or 5 i'^^"- 
 millions of fiduciary issue, and for this purpose 
 to maintain the rate of interest at a fair level. 
 It cannot be sufficiently impressed upon you that 
 the market rate can exercise no direct commanding itsagree- 
 
 • n 1 n 1 T 1 mentwith 
 
 mfluence upon the Bank rate, unless through the rate°'°^''*' 
 international rate. No additional supply of gold can 
 come to this country without being first incorporated 
 with the Bank of England issue. The Bankers 
 (excepting the country Bankers authorised to issue) 
 cannpt create notes or actual currency. They cannot 
 make any addition to the stock of money. If, occa- 
 sionally, they have larger temporary reserves of actual 
 money, such larger reserves come from the country 
 
 17 
 
258 
 
 and industrial districts, and flow back again. These 
 phases I have described on pages 152 to 163. It is 
 evident when, with the dailj divergencies of a few 
 hundred thousand pounds, the Bank of England 
 stands there with 9, 12, or 15 millions of Reserve, 
 seeking use for it, that Bankers can forestall the 
 Bank itself in going lower, and (as already said 
 on pages 165 to 167) this explains the whole 
 enigma of the seemingly independent influence of the 
 On the market. EemoVe this idle Reserve, and both the 
 
 removal ' 
 
 te^^e. Bank and the market need not run this ruinous race ; 
 they can hold to fair, moderate rates without going 
 lower than the international rate or universal 
 valuation. 
 
 From this point we require nothing more than the 
 
 ratesof consideration of higher rates. The variations in inter- 
 
 mterest. national rates {universally dearer money), tell us to keep 
 
 a watchful eye on the rise and fall of the exchanges. The 
 
 Bank might watch these, but it is under no obligation to 
 
 do so, for it is our market rate which will tell the tale 
 
 first. This in its turn will cause demand at the Bank, 
 
 and the Bank need but follow the rise. In doing 
 
 so, any discrepancy of ^ per cent, or more, for a short 
 
 time, would not make much diflFerence ; nay, even if 
 
 the whole average of our rates were, say J to -^ per 
 
 cent, under the international rate (instead of the 
 
 present frequent 2 or 8 per cent.), it would not do 
 
 onraverage much harm. On the contrary, being a wealthy nation, 
 
 teiw''''^ and continually amassing gold, we must necessarily 
 
 part with a regular surplus, and this would be safely, 
 
 equitably, and profitably done by a rate slightly below 
 
 the rates of other nations. 
 
 This fair rate, the result of our supremacy, wiU 
 Tbe also be that which gives to our industry and commerce 
 
 legitimate ^ •' 
 
 ^vMtage ^^g naturally more advantageous contract basis, now 
 so frequently disorganised and destroyed by the violent 
 
259 
 
 movements of from 2 to 10 per cent., producing an 
 average mucli Mgher than wbat ought to be. Varia- 
 tions will, of course, occur, as the regulating force of 
 interest must be brought to bear upon the maintenance 
 of bullion; but besides the comparative peace estab- 
 lished by the proposed system, the average rate of 
 interest will be below the present one, and tend to 
 encourage our industry and commerce in a more 
 regular manner. 
 
 The proportion of bullion suitable to such rate of 
 interest, or that near to it, as the actual operation of ^opraff 
 the system will settle by itself, wotild, therefore, be ciroSatioS 
 
 With 25 millions of' circulation, 
 
 20 millions of bullion. 
 Giving 5 millions of fiduciary notes for expenses. 
 Or, with 30 millions of circulation, 
 
 25 or 24 millions of bullion. 
 Giving 5 or 6 millions of fiduciary issue for ex- 
 penses ; 
 and, in accordance with other changes (rise or fall) of 
 circulation, corresponding proportions of bullion should 
 be maintained.* 
 
 The main cause of the low rates through idle heavy 
 Reserve being removed (a fair minimum rate being the 
 
 * At the moment of this goiag to press the author's eye alights 
 ■upon an article in one of our principal papers, "wherein the 
 prospects of the money market are discussed. It so happens that 
 the " Reserve " of the Bank is 13 millions, and that the Bank rate is 
 3 per cent. The writer of the article says, " The Bank is now 
 strong, and money is cheap ; but should one of the seemingly 
 inexplicable foreign drains of bullion again occur, we must expect 
 the rate to rise to 6 or 7 per cent." It is most extraordinary that 
 the would-be wise men who write articles of this kind, although 
 they are aware that, when we force interest high, we attract bullion 
 (i.e. drain the foreigner), are unable to perceive that when we 
 unduly lower the rate we perform the contrary, and send bullion 
 
260 
 
 result of the natural features of the whole issue), 
 princ^'^^s ^11 that the Bank would be required to do is that it 
 evlSel should poise the rate at suitable, levels, so as to 
 
 self-acting. 
 
 maintain the proportion of bullion once reached, as 
 suflScient to answer the purpose. Now, if you investi- 
 gate the principles upon which this matter is laid 
 before you, and compare it to schemes which try to 
 establish some absolutely distinct or arbitrary rate of 
 interest, or some definite amount of bullion, utterly 
 at variance with practice, you will see that this system 
 provides for a complete self-adjustment, as far as cir- 
 culation, bullion, fiduciary issue, and rates of interest 
 Thsstarb- are concerned. The only starting point here taken by 
 
 ing point of ... 
 
 teres?(S- ■way of figures (indispensible when figures are con- 
 in aosfl^ cerned), is based upon the principle that it is deducible 
 
 tamitBelf. ' _ •*• *• '■ 
 
 by practice from that state of the issue, when the 
 amount of circulation is equal to the a/mount of Bullion, 
 a perfectly intelligible matter to which the expression 
 " normally lowest rate of interest" seems thoroughly 
 suitable. This starting point itself, as you will per- 
 ceive, dissolves again in the system, so that the rates 
 and figures with which I have dealt here, appear 
 only as illustrating the working of the principle. 
 
 You must decide whether the statements laid before 
 The order vou bcar out the more or less scientific nature of the 
 
 andcer- '' 
 
 raSimng proposed scheme of regulating interest. If you should 
 
 andltr"' think that it will give order and certainty upon self- 
 corrective. .... *j i. 
 
 acting principles, that, with seemingly hard figures, it 
 appears too strict, bear in mind that one of the great 
 
 away. Thej then charge the foreigner with causing " a foreign 
 drain " — the unhappy foreigner being all the while innocent of any 
 intention to drain our market. I hope that I have made this matter 
 clear to you — that the drain dnes not arise, but that it is deliberately 
 caused by our 'own imduly low rates, which send away, as if by main 
 force, the small proportion of bullion which the Bank of England 
 need but guard as status quo. 
 
261 
 
 correctives alongside of such figures, as already pointed 
 out to you, is tlie pliable subject of time — viz., tlie 
 greater or lesser length of periods for each rate, ^^jreoti^g, 
 determinable by the results as they are made manifest. La™° 
 
 reserve. 
 
 But there is yet another corrective, overlying the 
 self-acting process and its regulator as an extra 
 force, giving additional certainty to the system against 
 aU possible contingencies. This corrective is afforded 
 by the " Reserve " of the system, explained rathe next 
 chapter. 
 
 THE RESERVE OF THE COMPENSATING 
 SYSTEM OF BANK NOTE ISSUE. 
 
 There can be no doubt that, according to every rule 
 in Banking and matters of commercial intercourse 
 generally, a "Reserve" must be kept, but the object, necessityof 
 
 1 T • n p 1 Tj reserve and 
 
 extent, character and mnuence or such a Reserve must its dear 
 
 ' purpose. 
 
 be clearly definable and must not, as by the present 
 system, be subject to mere rough guesswork, or the 
 almost unmanageable haphazard which defies all efforts. 
 The character of the Reserve of the system proposed 
 by me, and its material difference from that with which 
 the Bank now works, will be made at once apparent to 
 you on reference to the table of composition between 
 circulation, bullion and interest, given on page 252. 
 In that table the' first guiding point is the circulation 
 of the Banh note. If, by means of the rate 
 of interest, the system aims at keeping the level "nS^'"' 
 
 secured in 
 
 of bullion in proportion to total amounts or the |"^^°p'"'- 
 circulation, the same automatic action is available to ttoSme°°" 
 
 • . , force can 
 
 keep the level up to total amounts of circulation and |S)^l£ 
 Heserve combined in one sum, the proportion of Reserve ^*^^"*- 
 thus to be kept and protected being entirely at our 
 option. The rates of interest given in that table are 
 deduced from the practice of the Bank, as far as it has 
 
262 
 
 succeeded in keeping bullion within the range of the 
 extremes. But inasmuch as the rates in that table will 
 not fall so low as the Bank allows them to fall now, 
 no extreme for the recovery of bullion thus wantonly 
 lost need take place. The practice, in accordance 
 with these rates, will consequently tend to keep 
 buUion at a proportionate level with the circulation. 
 If, then, we succeed fairly in keeping, say 20 millions 
 By proper- of buUiou with 25 millions of circulation, because we 
 
 tiomate 
 
 ratelT" point interest in the proportion of 25 to 20 (see the 
 double bid system explained on pages 249 and 250), it 
 follows that if beyond the 26 millions of circulation we 
 desire a Reserve of 5, 10, or 15 millions, we must point 
 interest in the respective proportions of 30, 35, or 40 
 to 20 of bullion — i.e. raise it successively so as to 
 secure such Reserves. 
 
 According to the table on page 252, and selecting 
 25 millions as the circulation at one time, let us as- 
 
 niustrating gumo that Reserves runninsf from 1 to 15 millions were 
 
 Its opera- " 
 
 *'™' required in addition to the circulation, giving totals of 
 
 from 25 to 40 millions of notes for the due proportion 
 of bullion, commencing with 25 millions of bullion 
 downwards. The operation is shown in the following 
 table. In the second column, under the head 
 Reserve 0, the rates correspond with the table on 
 page 252. For 1 million of Reserve above 25 millions 
 in circulation the rates would be ^ per cent, higher ; 
 for 4 millions from 1 to 1^ higher, and so on, until for 
 15 millions of Reserve they would rise higher by from 
 3^ to 6 per cent. It is scarcely necessary to say that 
 when bullion is in due proportion, and the fiduciary 
 Reserve available, that we can have no need for 15 
 millions of idle bulhon above them. The proper 
 balance will he between 1 and 15 millions, and the 
 table is carried so far only in order to show the strength 
 of the principle which it involves. 
 
263 
 
 Table 18, showing the Rates of Interest required to secure 
 Reserves from to 15 millions upon a circulation of £5 
 millions, commencing with SS millions down to 10 millio/is 
 ^of Bullion. {Millions, 00,000 omitted.) 
 
 Reserves required from to 15 Millions upon 25 Milliona of Oircnlatiou. 
 
 Reserves 12 3 4 6 6 7 8 9 10 11 12 13 14 15 
 <^'™g^'°*»^ 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 
 
 Bullion. Rates of Interest required. 
 
 25 2i 3 3 3i 3i 3i 4 4 4 4J 4i 5 5 54 5i 
 
 24 3 3 3i 34 3i 4 4 4 4i 4i 5 5 5i 5i 6 6 
 
 23 3 3i 34 4 4 4 44 4i 4i 5 5 5i 5i 6 6 64 
 
 22 34 34 34 4 4 44 44 5 5 54 54 54 6 6 64 64 
 
 21 34 34 4 4 44 44 5 5 54 54 6 6 64 64 7 7 
 
 20 34 4 4 44 5 5 54 54 6 6 64 64 7 7 74 74 
 
 19 44 44 5 54 54 54 54 6 6 64 7 7 7 74 74 8 
 
 18 44 5 54 54 54 6 6 64 64 7 74 74 74 8 8 8 
 
 17 5 54 54 6 6 64 64 7 74 74 8 84 '84 9 9 94 
 
 16 54 6 6 64 64 7 7 74 8 84 84 9 94 94 10 10 
 
 15 6 64 7 74 74 74 8 84 84 9 94 94 10 104 104 11 
 
 14 64 7 74 8 8 84 84 9 94 94 10 lOi 104 11 114 12 
 
 13 74 74 8 84 84 9 94 94 10 104 11 114 114 12 124 13 
 
 12 8 84 9 94 94 10 104 11 114 12 124 124 13 
 
 11 9 94 10 104 11 114 12 124 124 
 
 10 10 104 11 114 12 124 13 &o. &o. 
 
 You will see by this, that as more Reserve is 
 required, or as more bullion goes away, so interest Thepropor- 
 rises in proportion, the action of the latter necessity S^deSeMe- 
 bein_g confirmed, or " double-locked," by the former. 
 
 Every other state of the circulation below or above 
 the 25 millions, here assumed for illustration, can be so |S^^o^°s 
 arranged under one general table. Thus, if the rates aonf'"'"' 
 
264 
 
 given on page 252, deducted from present practice, 
 bring a fair average result, we need only add sucli 
 
 dSkabie amounts of Reserve as we may deem expedient to keep 
 
 in addition to circulation, in order to determine tte 
 
 correspondingly higher rates under whose infallibility 
 
 this Reserve must be attracted and collected with ease. 
 
 To make the matter more clear to you as far as 
 
 S^Sf the rate of interest is concerned, I submit a short 
 table, similarly constructed, placing bullion at the top, 
 upon a supposed circulation of 25 millions, with from 
 25 to 15 millions of bullion and respective Reserves of 
 2, 5, 7, 10 and 15 millions. 
 
 Table 19, showiiig the Effect on Rise in Rate of Interest by Suc- 
 cessive Reserves of 3, 5, 7, 10 and 15 millions on Circulation 
 of 25 millions. 
 
 tana, 
 
 
 Millions of Bullion i 
 
 apon Circulation of 25 Millions. 
 
 
 
 
 
 25 
 
 24 
 
 23 
 
 22 
 
 21 
 
 20 
 
 19 
 
 18 
 
 17 
 
 16 
 
 15 
 
 Bullion. ■ 
 
 
 Bates of Interest required. 
 
 
 
 
 
 Without Besarve 
 
 2i 
 
 3 
 
 3 
 
 3i 
 
 Si 
 
 3i 
 
 a 
 
 ^ 
 
 5 
 
 5i 
 
 6 
 
 With 2 millions 
 
 3 
 
 3i 
 
 H 
 
 8i 
 
 4 
 
 4 
 
 6 
 
 5i 
 
 5i 
 
 6 
 
 7 
 
 „ 6 
 
 ti 
 
 3i 
 
 4 
 
 4, 
 
 4i 
 
 4i 
 
 5 
 
 5i 
 
 6 
 
 6i 
 
 7 
 
 7i 
 
 „ t 
 
 a 
 
 4, 
 
 4 
 
 a 
 
 5 
 
 5 
 
 5i 
 
 6 
 
 6i 
 
 7 
 
 7i 
 
 8 
 
 „ 10 
 
 u 
 
 4i 
 
 6 
 
 6 
 
 5i 
 
 6 
 
 6i 
 
 7 
 
 7i 
 
 8 
 
 8i 
 
 9i 
 
 „ 16 
 
 it 
 
 6 
 
 6 
 
 6i 
 
 6i 
 
 7 
 
 n 
 
 8 
 
 84 
 
 9i 
 
 10 
 
 11 
 
 That is to say : As a usual thing the rates of interest 
 to be adopted "without Reserve " will sufl&ce to keep 
 bullion at the proper level, such rates ranging from 
 ^rS°^ ^ to 6 per cent. ; but if 2 millions of Reserve be 
 on Reserve required they will range from 8 to 7 per cent. Five 
 Millions of Reserve require a minimum of S^ per cent., 
 and so, with every additional million of Reserve 
 wanted, interest must rise until with 15 millions it 
 would range from. 6 to 11 per cent. 
 
265 
 
 The characteristics which distinguish the Reserve 
 so arising from that of the present system are the J^lntiai 
 rollowmg : — 
 
 1. The present Reserve not only competes with 
 bulhon and drives it away from the country, but setweenth 
 
 . . present 
 
 when, after haying done so, it is called upon to act Reserve 
 as Eeserve to show its supposed practical utility, it 
 causes, by its disappearance, the most violent com- 
 motions in the rate of interest. 
 
 2. The Reserve here proposed takes precisely 
 
 the contrary course. Its creation is dependent on the And the 
 
 •^ ■*■ proposed 
 
 rate of interest, which, at whatever amount the ^^^'^''■ 
 sum in Reserve is held, assists in attracting bullion 
 continuously, and when the rate of interest rises, the 
 Reserve increases in proportion with the danger. 
 
 This is the true office to be performed by a fiduciary 
 note Reserve, and all the suggestions as to our keeping The true uw 
 "larger Reserves," ("a regular Reserve of 16 or 16 '"»'y'«™°- 
 millions " as the author of " Lombard Street " wishes 
 it) are utterly idle and futile in face of the direct 
 " negative " implied in the present Reserve, but will at 
 once meet with realisation, if the course is taken of 
 rendering the Reserve a real "positive." 
 
 Whenever the present Reserve diminishes and 
 extreme danger threatens on that account — people are J^\ll°^^ 
 apt to wonder why we in England, with perhaps, ^o^ed™^ 
 £1,000 million of claims on abroad, should be unable of claims. 
 to .keep up our stock of gold. They naturally suggest 
 " why should we not sell or recall a few milHons of 
 such claims," for these investments appear to be the 
 true Reserve power of the country, and actually 
 increase our stock of money, even to a positive surplus 
 of bullion, whenever Ave make sudden and violent calls 
 on them. The sudden reahsation of such claims 
 cannot take place without great efforts and great 
 loss, but if we established this positive Reserve, we 
 
266. 
 
 should keep a contmual hold upon such portion 
 toaai'Soid of the investments whicli we may require to realise 
 m-oposed into goM — it being then entirely at our option to lower 
 
 Sia™"'' the rate of interest and the Reserve, if we find gold 
 come in too fast, and to keep them at such level as 
 will suit us. And the tension which would thus be 
 continually maintained need but a slight eflfort, in order 
 to give ns an actual bullion Eeserve, even over and 
 above our requirements. For, as those who can duly 
 appreciate the system will easily perceive, the deliberate 
 tucrease of fiduciary Reserve, concurrent with increase 
 
 hStmt'a-*" of interest, means nothing less than supplying the 
 
 action. cxtra forco for attracting bullion and holding it in 
 abeyance, subject only to almost instantaneous action. 
 Every increase in this Reserve must consequently 
 bring bulhon to a level, from which the next higher 
 step turns the scale instantly in our favour. 
 
 The present Reserve increases when interest falls, 
 
 dis-nuion both factors operate against each other with double 
 
 or uiuon of j. o 
 
 the factors, yioleuce, whcreas by the common-sense view of the 
 
 matter, they ought to act in unison, as they will do 
 
 by the system here proposed. Our economists must 
 
 try to appreciate this simple matter before they will 
 
 cease to make wild guesses as to " what proportion of 
 
 Reserve must be kept at the Bank," and steer clear of 
 
 all the irrelevant matters that now strew the road. 
 
 ^pucity That this is a simple matter nobody will deny ; it 
 
 matter. iuvolvcs a plain change in arithmetic — the substitution 
 
 of subtraction for addition, i.e. instead of adding the 
 
 present Reserve to the stock of money (falsely calcu- 
 
 sJtatitntion lating interest thereon, causing the simultaneous des- 
 
 tra^ioi truction of both bullion and Reserve), we ought to 
 
 addition, deduct the Reserve from the stock of money and poise the 
 
 rate of interest, not only so as if that Reserve did not 
 
 exist, but as if it required guarding first of all. No great 
 
 stretch of intellect is required to perceive that this is 
 
267 
 
 neither a complicated nor an ingenious matter, that its 
 discovery and application resembles many events in daily 
 and in household life, "where precisely the same plain 
 principles of common sense act with unfailing certainty. 
 To the mathematician, and to the plainest logician, this 
 problem ought to offer no diflSculty whatever. It is mons°ense 
 
 ■*■ .... andplain 
 
 absolutely true in its principle, for the timely and pre- J^folvea. 
 cautionary regulation of the rate of interest, is the main 
 point in the controversy, and the upholding of the cir- 
 culation, with its concurrent regularity of bullion, 
 is that of primary importance. You will now 
 understand what I have said in previous parts 
 of this book as regards the fallacy under which we 
 labour with the present Reserve, and the total change of The 
 
 ^ *^ ^ reversal of 
 
 policy required (seepage 152, line 9). This total change ISctfc'e 
 of policy lies in the turn from addition to subtraction ; safety 
 
 ■*■ *^ resulting, 
 
 both will give us Reserves of equal amounts, but the 'i^^''^*™'"- 
 added Reserve brings ruin and confusion; the sub- 
 tracted Reserve, regularity and absolute safety. 
 
 Of the degree of safety which the system gives 
 you may be able to judge if you bear in mind the of lS°e^!* 
 following facts : — 
 
 1. That it does away with the unduly low rates of 
 interest, and thereby removes the chief causes of ^i™i"w* 
 withdrawals of bullion, and the consequent future 
 unduly high rates. 
 
 2. That it provides rise and fall in the rate of 
 interest for the maintenance of bulhon in due pro- Provision of 
 
 ^ proven jpro 
 
 portion to circulation by a proven pro rata principle, '■'''»*=*'™- 
 to be compared with the Bank of England's own 
 successful efforts. 
 
 3. That " time " is the first extra corrective ele- 
 ment for any possible extra effort required, by greater its aist 
 
 correctiTe 
 
 or lesser duration of tension. of t™e. 
 
 4. That above this, the system of Reserve supplies 
 a third check or regulator, and this is of especial 
 
268 
 
 importance to what I have said on international interest. 
 Stln?^'" If that international interest should at any time rise 
 Ifi^s^ne. higher, the Bank of England need but increase 
 
 its Reserve in order to fully meet such a case, as it is 
 
 shown in the table on page 263. 
 
 For if, in ordinary times, the upholding of the 
 
 rates against the 25 millions of circulation without 
 
 special Reserve will already exercise the necessary 
 liiuBtrating] balancinsT effect, the successive additions of Reserve 
 
 Its absolute ^ 
 
 fl™"ea»- -wriU, with still greater firmness, enhance their power. 
 If international interest rose 2 per cent., 5 millions 
 more Reserve will meet the case. At the present time, 
 for instance, the German demands cause a general rise 
 in the bid for gold, and. other changes in the valuations 
 are in prospect, which may make gold universally 
 dearer. In order to meet all these contingencies, the 
 Bank need hut determine, at its own option, to create 
 more Reserve by simply raising the rate, and the 
 natural concurrence between the occasion and the 
 proper remedy will here strike you. 
 
 For all and every other possible cause or contingency, 
 
 ^ooSSI t^^ Reserve system so established will act as the positive 
 
 (oTOeof"S regulating force, remaining in existence and progressively 
 
 ces. increasing in power, not only leaving the circulation and 
 
 all other matters undisturbed, but protecting and guarding 
 
 them in their integrity. 
 
 The Reserve so arising will not be actually used — • 
 
 *hB on the contrary, it will be kept sacred, and eo do wn on its 
 
 wutyof own accord when the occasion disappears. Although, 
 
 as we know, the circulation will not absorb a large 
 
 sum of Reserve, nevertheless, if on any sadden emer* 
 
 gency 1 or 2 millions of it were required to temporarily 
 
 rtrlngthof supply ^o^e use, it would be granted without the 
 
 defensive slightost disturbailc6 to the rate of interest. The 
 
 Bttitnde. _ 
 
 strength and security of the defensive attitude lOould 
 
 BeaeiTe, 
 
269 
 
 enable us to do so. (Our present nervousness on the 
 "withdrawal of a few £100,000 for home use appears 
 so very ludicrous in comparison with this.) 
 
 What amount of such Reserve shall the Bank hold ? 
 Must it be 20 millions, 15 millions, 10, 5, or less, or presumed 
 more ? We are so much accustomed to the cry of ofsach 
 
 ■^ Beservo, 
 
 large Reserves, that the question in this extreme form 
 is by no means surprising. It may strike you that 
 when we have succeeded in maintaining bullion in due 
 proportion to circulation, and thereby have done all that 
 concerns Bullion and Banking Reserve (for the circula- 
 tion means Banking accommodation) , there is no great 
 need for 20, 16, or 10 millions of Reserve, even if, as 
 suggested by this scheme, the Reserve costs the Bank 
 nothing and does not appear in the accounts. It 
 will be obvious to you that if the circulation is 
 at 25 millions, and bullion at 20, and the Bank holds 
 interest, on 5 millions of Reserve, at 5 per cent., 
 (see Table at p 263), international interest being at 
 the same rate, the Bank would be foolish to go as high ^^rmined 
 as 7^ per cent., in order to secure an unnecessary SfaSfaSs. 
 Reserve of 15 millions. Not only would the market 
 counteract this, by competition, but this high rate 
 would speedily attract a surplus of buUion to be got 
 rid of by a correspondingly quick reduction in the rate. 
 Those who have no predjudice in favour of a large idle byraSf 
 Reserve, will have recognised, long ago, that the system 
 proposed here principally aims at the determination of 
 the suitable rates of interest, which in reality is all that 
 is required. 
 
 The amount of Reserve must therefore be balanced 
 on more reasonable considerations, in fact, such is the b^lncmg 
 self-acting naturO of the whole arrangement that sesem 
 Circulation, Bullion, Interest and Reserve will find 
 their natural level by a self-acting process, and the 
 proper indicator which gives the initiative to this 
 
270 
 
 process will ultimately be the legitimate business 
 
 offering itself at the Bank ! Under such conditions 
 
 wiu give it ™ay then often suit the Bank to keep but 5 jnillions 
 
 legitimate or less Reserve, at another time to keep 10, for 
 
 scope for i ■ ^ 
 
 b^^thfBank fecollect this, if any other emergency should turn up, 
 the Bank can at any time enlarge the Reserve. The 
 power to do so lies yet behind all the regulators 
 provided for. And in the due management of this 
 raising and lowering of the Eeserve, thus supernatant 
 
 By superior ou firm activo factors, the discretion of the directors of 
 
 tions. the Bank of England finds its proper sphere. It will 
 engender that superior view of international and general 
 matters of commerce, which alone should guide the 
 policy of the Bank, freeing us from all the petty expe- 
 
 Doingaway dicuts to whlch we arc now compelled to have recourse. 
 
 fflJpe(£eSte. The scheme submitted, without reserve, will cover all 
 these, and secure us against errors ; with the supernatant 
 reserve, it will absolutely secure us over and above this 
 according to the degrees of Reserve chosen. 
 
 Of other sudden and indefinite contingencies, 
 Application revolution and terrible war alone could upset 
 
 ofthesys- ^ ^ 
 
 SSrgBMM* t^® financial strength of this country. But should 
 these occur (which Grod forbid) , the very system 
 here suggested would be applicable to maintain order 
 and regularity. Instead of making the wild at 
 random issues which States like Austria, America 
 
 Orderly and others have done, and setting aside bullion, the 
 
 expansion 
 
 to^tlonof principles of the system here submitted need only be 
 stretched upon some definite and perfectly intelligible 
 plan, which would hold together all the factors, as if by 
 a series of threads which only require drawing in again 
 in order to restore the original solidity of our valuation. 
 Political financial economists of all countries might be 
 willing to understand this, and to derive a lesson from 
 the hint. 
 
 expansion 
 and con- 
 traction of 
 its factors. 
 
271 
 
 THE AMENDMENT OF CLAUSES 2 AND 8 
 OF THE PRESENT ACT, IN ACCORDANCE 
 WITH THE PROPOSED SYSTEM. 
 
 On pages 217 to 224 I have sBown you tliat tlie 
 amendment of Clause 8 of the Act, would give to the The 
 
 T-i 1 1 !■ n • ... desirability 
 
 Bank the liberty of carrying out the evident intention ot.pres- 
 of Clause 2 ; and, if this were done, the principle of MUonf 
 reduction and increase of the issue would find its 
 natural application. No great error could be com- 
 mitted that would not at once show its effect and point 
 at the remedy ; nevertheless it might be advisable to 
 start at once with some such orderly and well-digested 
 plan as I have ventured to propose. The Bank might 
 take it as a guide of practice, and would undoubtedly 
 confirm its validity. 
 
 Indeed, the question might here be raised, " Why 
 should there be any alteration at all in the Act, for if The Bank 
 
 might 
 
 this system concerns principally the better, timely and itP^^jSJoaV' 
 precautionary rates of interest, the Bank need but the""." 
 practise it, and bullion will remain at the level." This 
 is undoubtedly true, and as regards the mere £195,000 
 per annum which the State exacts, the Bank itself 
 would not only be sufficiently liberal-minded to bear 
 this charge, but the improvement in matters generally 
 would be a counterpoise; nevertheless, no prudent 
 and honest-minded statesman would recommend this 
 course. The present gross profit of the issue of pSy ot 
 16 millions must first go towards expenses, for which suggestion. 
 less than 6 millions are scarcely admissible, and with a 
 proper levelling of bullion, the fiduciary issue above this 
 may not always be insufficient to yield the State's share, 
 whatever future increase might do. That share is 
 derived from the assumption of the full use of the fixed 
 15 millionSj and a serious conflict would arise if it 
 
The 
 
 • 272 
 
 were not modified in accordance with reduced issue. 
 More serious than this would be the conflict between 
 the two kinds of Reserve, — the present as a decHning, 
 the proposed as a rising one. It would be perfectly 
 impossible to reconcile these two principles without 
 annulling both, for they cannot act simultaneously. 
 The legal tender character of the supply thus created is 
 incianses. too dircctly poworful a lever to admit of so incomplete 
 an adjustment ; the very least thing to be done, on all 
 pleas of justice and true economy, would be the amend- 
 ment of Clause 8. 
 
 On the other hand, the positive incorporation of 
 o?ordOT^ this system into Clause 2 of the Act itself, is deserving 
 menf *' of attention, for the reason that, in this country, we 
 
 prevalent in _ ■ '' 
 
 iingiaad. a,re justly inclined to settle matters in an orderly 
 manner, without leaving more scope for discretion 
 than absolutely necessary, and all our endeavours as 
 regards the valuation and money matters generally 
 proceed upon a basis of practical refinement, which has 
 done so much real good in many directions. 
 
 The introduction of this system into Clause 2 offers 
 inoorpora. no difficulty. If the Government is willing to convert 
 cSF its State Debt to the Bank into Consols, or if the Bank 
 will take that Debt into the Banking department, and 
 put " Government and other securities " into the 
 issue as occasion may arise, a few words will suffice to 
 establish the system. The full wording of Clause 2 
 is given on page 215, the special passage to be 
 amended being : 
 
 " That it shall be lawful for the said Governor of the Bank of 
 ^voiTing England to diminish the amount of such securities, and again to 
 
 butremrvBl ° 
 
 oJ 6 words, increase the same to any sum not exceeding in the whole the sum 
 of 15 millions, as ihey marj see occasion, 8fc." 
 
 Instead of using the words, "as they may see 
 occasion," the clause might continue instead : 
 
273 
 
 " In the manner following, to wit : whenever the minimum 
 rate of interest charged by the Bank of England is 2| per cent., And substi- 
 the issne of notes shall not exceed the amount of bullion held in short sen- 
 the Issue Department ; but for every ^ per cent, rise above the rate 
 of 2| per cent, the issue may lawfully be increased in proportion of 
 10 per cent, on the amount of such bullion." 
 
 This sentence, in proper form, would accomplisli all, 
 
 and yet leave the Bank with much discretion. It 
 
 provides that upon every ^ per cent, rise the Bank 
 
 may make the issue, yet is not bound to do so. 
 
 It may either hold interest as high as it likes, or, what 
 
 is the same thing, keep such Reserve of the issue as it the""^" 
 
 may deem suitable. All charge of unduly high jnEeser™. 
 
 interest must therefore fall away, for it is this system 
 
 of Reserve, as explained to you in the last chapter, 
 
 which becomes the intelligible acting force. At the same 
 
 time it will be seen that the Bank cannot go down to 2^ 
 
 per cent, without losing the means of recovering the 
 
 expenses of the issue. Under ordinary circumstances 
 
 the rate need not go below 3|- per cent, although, 
 
 as before said, we may, now and then, find occasion 
 
 to lower our rates slightly below the international 
 
 rate.* 
 
 No objection can be made to the incorporation of 
 this sentence in Clause 2 on the score of legislative pr&ioipie of 
 
 " rates of 
 
 practice. The late Government and Parliament, through "'"^«' 
 the proposals made by Mr. Lowe and Sir John Lubbock, 
 in 1873, have themselves established the introduction byPar'^'' 
 of a rate of interest in the Act. They based the action ^^^^ ' 
 
 * As I have said before, any sudden discovery of fresh gold 
 fields might lower the international rate generally, but the discovery 
 of California and Australia are historical events, which do not repeat 
 themselves in centuries, and the earth is sufficiently explored. Fresh 
 gold fields can only be in the inaccessible ice-bound or the unhealthy 
 tropical countries. 
 
 18 
 
274 
 
 of their amendment on the rate of 10 and 12^ per 
 cent., contingent upon events stated in the most 
 arbitrary and assumptive manner. , 
 
 As regards the rate of interest of 2^ per cent., here 
 ofSw^r^ proposed as the " normal " one (see pages 246 to 256), 
 you must admit at least that it is deducted from ab- 
 stract proposals in financial science and confirmed by 
 practice ; and if I have demonstrated to you the 
 self-acting powers of the whole arrangement, you may 
 prefer the precautionary method to that based on 10 and 
 12|- per cent., which begins its action after the mischief 
 toa^' ** done. And here I come again to the point which 
 ter thkn^ ' marks the reduction of the whole of this controversy 
 
 post factors 
 
 action. to withiu narrow limits, for the relationship between 
 these proposals of Mr. Lowe and Sir John Lubbock 
 and that here made is evident ; all that is now required 
 is the slight turn in favour of the recognition of the 
 principle that the regulation of our issue system 
 should begin with the beginning and not with the 
 end. 
 
 It will be noticed also that this proposal does not 
 
 necessarily involve the abolition of the limit of 15 
 
 millions, although its abohtion might just as well take 
 
 necl'Sy'''^ placB. With ths regulatlug system prescribed (the 
 
 ofthe fixed true effect of which is nothing less than the main- 
 
 for maM. teuancB, at almost absolute level, of bulhon, prepared 
 
 for, carried out and strengthened by several additional 
 
 means), it is not at all likely that the sum of bulhon 
 
 of 20 millions, or thereabouts, will ever again vary by 
 
 15 millions, as it has done, so as to call into use all the 
 fiduciary issue which caused the withdrawal. The 
 level will be maintained, so that the utmost possible 
 divergence will not require more than a portion of the 
 
 16 millions. On the other hand, this very fact proves 
 that there is no need for fixing any limit, and it may 
 therefore as well be abolished. 
 
275 
 
 THE ADVANTAGES OF THIS REFORM TO 
 THE BANK OF ENGLAND AND THE 
 PUBLIC. 
 
 The Bank of England, if thus freed of its present 
 false and ruinous Reserves, and giving preference to ^m^^;, 
 true and rising Reserves, would be enabled to recover seciared. 
 the fuU use of its capital, rest and deposits. 
 
 On referring to pages 191 and 192, I have shown 
 you how, when the present Reserve stands at 12 or 16 
 millions, or indeed at any less amount, so much of the 
 Bank's other Reserves — viz., capital, rest and deposits 
 — are kept idle. It might possibly strike you that if, 
 by the adoption of the increasing issue, the Bank can 
 always create a Reserve, there is no necessity for any 
 specific sum being kept standing in the accounts. 
 The Issue Department need but state the amount of 
 notes in circulation, and the bullion and securities held 
 against it. The item of idle, profitless Reserve in the 
 Banking Department would therefore disappear, to be 
 replaced by active, interest-bearing securities, and the accoiSits 
 accounts on a presumed circulation of say 25 millions 
 and IS of bullion might be rendered as follows : — 
 
 Disappear- 
 ance of the 
 idle Reserve 
 
 Plainer 
 statement 
 of the 
 
 ISSUE DEPARTMENT. 
 Liabilities. 
 Notes in circulation . 25 millions 
 
 25 millions 
 
 A q«FT<! Example 
 
 .tt-SSlilb. -without 
 
 Bullion 18 millions ^^^°^_ 
 
 Securities 
 
 25 millions 
 
 BANKING DEPARTMENT. 
 
 Capital . . . 
 Rest .... 
 Public Deposits . 
 Other ,, 
 Seven Days' Bills 
 
 I4| millions 
 
 18i 
 
 44 millions 
 
 Gov'ment Securities. 16 millions 
 Other Securities . . 28-| „ 
 Coin i „ 
 
 44 millions 
 
 Thus showing all the real resources of the Bank fully 
 employed. 
 
276 
 
 The systems of the Banks of France and Prussia 
 do not involve any specific Reserve* But inas- 
 much, as we here are so closely wedded to a stated 
 Desirability Reservc, and inasmuch, as explained in the chapter 
 mXIte^ before last, the amount of express Reserve created 
 by this stjstem is the supernatant and really corrective 
 factor, the amount of which gives the extra tension, 
 upon perfectly intelHgible grounds, we may act quite 
 wise by maintaining such an amount of extra Reserve, 
 Assuming, then, that such temporary express Reserve 
 need not be of the extreme amounts of 12, 15, or 18 
 millions, but, for argument's sake, say 5 millions, 
 how should the accounts stand ? 
 
 Why should we not in the Issue Department state 
 d^paiZInt " Notes in circulation," and " Notes in reserve," as 
 circulation represeutins: the real meaning of the active issue ? 
 
 andReserve. i o o 
 
 You will admit that this can easily be done, that 
 the present method of lumping the whole issue is a 
 meaningless hocus-pocus, and that a more intelligible 
 statement is preferable. If this were done, and sup- 
 posing there were 25 millions of circulation and 25 
 millions of bullion, with 5 millions of such " first 
 temporary " Reserve in the Banking Department, the 
 accounts might appear as follows : — 
 
 ISSUE DEPARTMENT. 
 
 Assets. 
 
 Bullion 25 millions 
 
 Securities .... 5 „ 
 ^serre' Banking Departmt. 
 
 Liabilities. 
 
 2i 
 
 }' 
 
 Example Notes in circulation . 25 millions 
 
 with five . ■ -n 
 
 miUions „ m Keserve m 
 
 of "first 
 
 30 millions 
 
 Interest 3| per cent. 
 
 30 millions 
 
 * It might here be suggested that the two accounts should 
 be joined into one, as it is done by the Banks of France and 
 Prussia, who hold no special Reserves ; and many people scoff at the 
 present separation of accounts. I have already explained before 
 (see page 43) that I am in favour of the two accounts, and I con- 
 sider their separation a valuable and scientifically true matter, 
 provided it is done in an intelligible manner. 
 
277 
 
 BANKING DEPARTMENT. 
 
 Liabilities. 
 Capital .... 14| millions 
 
 Rest 3| „ 
 
 Public Deposits . . 7 ,, 
 Other „ . .181 „ 
 Seven Days' Bills . | „ 
 
 44 millions 
 
 Assets. ■ > 
 
 Reserve of notes . 5 millions 
 Gov'ment. Securities 13 „ 
 Other Securities . . 25| „ 
 Gold and silver coin . h ,, 
 
 44 millions 
 
 In looking at this situation, bearing in mind that there 
 
 is a full measure of bullion and everything " safe," o.^'y'??'^^^^ 
 
 Keaerve ' 
 
 you must first decide whether 5 millions of Banking &m' 
 
 T\ rr> • n • T T available. 
 
 Reserve are sufficient for accommodation to the public. 
 If you have regard to the fact that the circulation 
 means the extent of the accommodation, you may 
 think it ample, if not superfluous. If, in spite of the 
 fact that the deposits increase in times of pressure, 
 you desire to create some Reserve against their sudden 
 withdrawals, you may deem this sufficient for the 
 present, because at any time the Bank may increase it 
 by raising the rate of interest. 
 
 In the meantime, the Bank, by placing 5 millions 
 of securities into the Issue Department, would, by the The 
 
 -*■ ^ ./ expenBes 
 
 interest these produce, cover the technical expenses SyXs? 
 of the issue, and acquire the Reserve of 5 millions in 
 exchange, enabling it, as a set-oflf, to fully invest the 
 greater portion of capital, rest and deposits. I need 
 not point out to you that in the matter of safety of 
 account to the stockholders, you would have at any 
 time not only the " Reserve of notes in the Banking 
 Department" as assets against the corresponding ^^^^ff^^® 
 liabiUty in the Banking Department, but the 5 millions ^'^°^^^''- 
 of securities as double assets. If the Reserve were 
 increased from 5 to 10 or 15 millions, with rates of 
 interest of 4-| and 6 per cent., or more, you would be 
 in precisely the same position' of balance between 
 liabilities and assets. 
 
278, 
 
 The case must now be shown with less bullion 
 than equal to circulation, say 20 millions : — 
 
 Example 
 with less 
 bullion. 
 
 Liabilities. 
 Notes in circulation £25 millions 
 Reserve of notes in 
 Banking Departmt 
 
 :} 
 
 Assets. 
 Bullion . . . . £20 millions 
 Securities. ... 10 „ 
 
 £30 millions 
 
 Interest 5 per cent. 
 
 £30 millions 
 
 ISSUE DEPARTMENT. 
 
 Capital . . 
 Rest .... 
 PnbUc Deposits 
 Otlaer „ 
 Seven Days' Bills 
 
 Liabilities. 
 . . £14| millions 
 • ■ • ■ ^2 „ 
 8 „ 
 
 18i 
 
 £44 millions 
 
 Assets. 
 Reserve of notes . . £6 millions 
 Gov'ment. Securities 13 „ 
 Other Securities 
 Coin . 
 
 .261 
 
 £44 millions 
 
 Profit 
 on more 
 fiduciary 
 
 You see that although 10 millions of securities, instead 
 of 6, have passed from the banking to the issue, this 
 cto^tion. Tfvould make no difference in the amount of Banking 
 Department investments, and on these the interest 
 earned on " other securities " would be 5 per cent. 
 On the 10 millions of fiduciary issue the gross profit 
 per annum would be £500,000, from which the 
 expenses of £150,000 deducted, there would remain 
 a profit at the rate of £350,000 per annum for division 
 between the State and Bank. 
 
 We may further resolve to increase the Reserve, 
 say to 10 millions, 5 millions more of securities passing to 
 the issue. In this case the profit on the fiduciary issue, 
 made at 6^ per cent., would be at the rate of £976,000 
 per annum, leaving £825,000 for division between 
 the State and Bank. 
 
 Consequent 
 larger profit 
 to the State. 
 
279 
 
 If there were but 15 millions of bullion tlie account 
 
 might be — 
 
 
 
 ISSUE DEPARTMENT. 
 
 
 Liabilities. 
 
 Notes in circulation £2"i millions 
 
 „ in Reserve 10 „ 
 
 Assets. 
 Bullion .... £15 millions 
 Securities ... 20 „ 
 
 Example 
 with small 
 stock of 
 buUion. 
 
 £35 millions 
 
 £35 millions 
 
 
 Interest 9| per cent. 
 
 and the Government profit would increase accordingly. 
 
 In all these cases, the transfer of securities from 
 Banking to issue T^ill give room for the same amount 
 in the former, and this would be " naturally " filled, 
 for the Bank would receive either notes or securities 
 in exchange for bullion. For the time being, the total 
 in both departments will thus be in accord with the 
 rise of interest, i.e. serve as another natural guide 
 for determining rates. 
 
 Now if you can possibly be brought to recognise that 
 the large Reserves which we hold at present in spite of 
 ourselves are not proper, that the constant cry for more 
 is foolish, and if you admit that, by the use of the system 
 here proposed, we can create Reserve as we like, on 
 a perfectly solid and the most conservative basis, you 
 will also perceive that although we may go to any 
 amount, yet there is a wholesome check against ex- 
 tremes. The larger the issue is made, in divergence The check 
 
 on unduly 
 
 from bullion, the quicker will bullion come in, but the largeissues. 
 larger becomes also the State's share of profit. Hence 
 the Bank of England practice by this system, founded 
 on the proven effective rule of the poising of interest 
 as shown by table on page 262 ; made absolute by the 
 respective durations of rates, and finally held in superior 
 control by the power of Reserve, must engender a 
 judiciously balanced use of the latter. 
 
 The whole action will accordingly result in a net- 
 work of compensation, in which all the factors con- ^nsatSg 
 
 ... .-, action of 
 
 cerned must remain at averages as near as they can the whole 
 
28© 
 
 possibly become, witli fullest liberty for mutual 
 increase. 
 
 totteB^! ^ assert, without liesitatioii, that witMn a short time 
 after the introduction of this system 
 
 The Bank of England 
 
 1 . Will acquire a stock of bullion of an average 
 Bemiarity Sufficient to serve all purposes. The movements in 
 
 oltullion. r jr 
 
 this stock of bullion will be more controllable, and 
 not exceed one-third of the ups and downs to which 
 we are now accustomed. 
 
 2. The rates of interest, now varying between 
 hmser extremos of 2 and 12 at the Bank (and li to 15 in the 
 
 range of ^ ^ 
 
 interest. open market), will be more regular, varying, say 
 between 3 and 6 per cent, as utmost extremes. The 
 changes will be less frequent. 
 
 3. The Bank will be able to satisfy all the demands 
 Satisfaction of circulation, and legitimate accommodation to the 
 
 to 
 
 circulation, public without inflation of the circulation. 
 
 4. The Bank will be in a position to maintain 
 Regularity intact a regular Eeserve, required or supposed to be 
 
 of Reserve. • t p • • • t 
 
 required for certam contmgencies, and by means of 
 raising this Reserve and interest it will be able to 
 guard against aU possible contingencies that may 
 occur. 
 
 6. The Bank will be enabled to discount bills 
 Gtreater cutirelv ou the merits of the hills or securities them- 
 
 Bcope o£ " , 
 
 business, selves, and of the 200 millions of bills in the London 
 Market, it will obtain a regular share of much larger 
 dimensions than it has ever held. The Bank will thus 
 be enabled to take a much more active and steady part 
 in the great business of the country, and give to the 
 nation the real benefit of its immense resources, and 
 make better profits at the same time. 
 
 Increase in ^' '^^^ doposits and otlier business of the Bank are 
 
 deposits, liisely to increase considerably. 
 
28l 
 
 7. Larger dividends will be paid even without any J:«e|^g, 
 sensible increase in the deposits. 
 
 Bankers and Discount Brokers 
 
 8. will be able to carry on a more steady and satis- 
 factorv discount business. The larger business to be Advantages 
 
 *J o to bankers. 
 
 done by the Bank will not come into competition with 
 them, on the contrary it will expand and regulate the en- 
 tire field of discounts. The supposition that a larger dis- 
 count business to be done by the Bank will come into 
 competition with Bankers is a great mischievous fallacy, 
 that which the Bank would do more, can only be a 
 per centage on the whole and would leave ample space. 
 Moreover, the majority of bills taken by the Bank J'„'^%titio„ 
 will pass first through the hands of Bankers ^'"'^"°''- 
 and Discounters. Still more abominably false is 
 the supposition that Bankers and Brokers now profit 
 from the extreme variations in the rates of interest, 
 and do not care to see them modified. It can be shown Abetter 
 
 average of 
 
 not only that they sufi"er more from the unduly low "''«"='• 
 rates than they profit by higher rates, but that they 
 are compelled to follow the vagaries of the present 
 issue in all that concerns its effects on overtrading, 
 speculation and insecurity. 
 
 9. The discount brokers will be able to obtain Advantaga 
 legitimate advances from the Bank on first-class paper brokers, 
 in a more regular manner, but in most cases it will 
 
 suit both Bank and brokers at once to discount the 
 bills. 
 
 The General Public 
 in its turn will profit from this better state of things, Advantages 
 
 ^ to general 
 
 the crises and panics will cease, and the power of p"^"""- 
 taxation for the benefit of the nation and its Govern- 
 ment, will be enhanced. 
 
 Allegations and promises hke these may appeal* 
 venturesome to those who are hopelessly involved in 
 
282' 
 
 the petty expedients and the scepticism prevalent 
 to want™ under the present system. We are so much accustomed 
 
 of con- ■Pin 
 
 com^'SOT *^ ^^ practice oi the day, and have such unbounded 
 faith in the Bank of England and our great prosperity, 
 that many of us would look upon the strangest 
 anomalies as matters dictated by providence. But if 
 there were two Englands, running the same contem- 
 porary course, in every way identical, but the one with 
 the present, the other with this improved bank note 
 system, the latter would gain a greater advance in 
 prosperity. 
 
 In fact we do not Icnow what a better state 
 
 of things would mean, and those only who fully 
 
 realise the bad construction of the present system, 
 
 ^ausation can form an estimate of the harm done by it, 
 
 showIfa°'° which, were it not for our prosperity generally, 
 
 this book. 1 ■ 1 1 T 
 
 would have ruined the country long ago. In 
 the beginning of this book I have shown you 
 .the want of progress of the Bank, and that 
 since 1844 there has been but a slight increase, 
 (apparently 15 per cent.), whilst every other institution 
 in the country, and the commerce in home and inter- ' 
 national trade has four-folded, or increased by 300 
 per cent. Here is some standard to judge by, which 
 does not necessarily compel us to say that the Bank 
 should also have four-folded its business, but which 
 certainly entitles us to expect that, for argument sake, 
 the Bank might have partaken of one-half of this 
 increase. The diflFerence which this would make in 
 the accounts of the Bank would be considered a won- 
 derful thing, yet there is nothing to stop the Bank's 
 progress in that direction but the spirit of blind, if not 
 criminal, obstinacy, which refuses to give way to patient 
 investigation. If a proper reform is carried out, a 
 change will occur in the status of the Bank, in the 
 interests of our trading community, and the prosperity 
 
 Demon- 
 strating the 
 ^rave fanlt. 
 
283- 
 
 of the country of the most agreeable kind. The history 
 of the development and legislation of this country teems '^^^*'°'^ 
 with examples showing that reforms have almost always Sswith 
 exceeded sanguine expectations. Many of our most ^enSSai 
 valuable arrangements, of which, in the field of mono- re™m.° 
 tary matters, the Clearing House system is an example, 
 owe their origin to comparatively trifling hits of truth, 
 and are found fraught with unheard-of benefit. The 
 same thing may take place in reference to the matter 
 here considered. England, in adopting this true regu- 
 lating system, would not only be able to extend its 
 legitimate influence all over the world, but would 
 thereby secure its own legitimate supremacy. 
 
 THE COUNTRY BANKERS' ISSUES.* 
 
 The proposed reform of the Bank of England note 
 issue can take place without any pressing necessity for ^^^°^ 
 immediate reform in the provincial issues. Nevertheless, ataoTutSy 
 
 required. 
 
 at some time or another, the country Bankers' issues 
 
 * In the next Parliamentary enquiry upon the subject of the 
 currency the advocates of the issue of £1 notes will be strongly 
 represented. They may be divided into three classes. 
 
 Class 1 wants an issue of £,1 notes for the sake of their con- 
 Tenience, and not for the sake of the credit. They say, " Let the 
 Bank of England issue 20 or 30 millions of £1 notes against 
 sovereigns, the bullion Reserve of the Bank will then be stronger ! " 
 The fallacy of such a suggestion is obvious, the sovereigns would 
 belong to the note holders, and if the Bank, now unable to keep its 
 stock of bullion at a level, were to rely upon this extra 20 or 30 
 millions, the confusion would become all the greater. "But," say 
 the advocates of this plan, " the use of paper in lieu of sovereigns is 
 cheaper, the latter, if deposited at the Bank, will be saved from loss 
 by abrasion and wear, they will remain at full weight ! " 
 
 Here a striking example of the bold ignorance with which 
 financial schemers come forward, will be made manifest to you. The 
 
284 
 
 must be dealt with, as an anomaly whicli, at the present 
 ^maiy. ^^^^ of more refined ideas as to money, requires cor- 
 rection. The quasi-legitimate plea advanced in favour 
 of these issues is, that they furnish the convenient £1 
 note to the districts where they are current. It has been 
 alleged even that the Scotch people think the notes of 
 their banks safer than sovereigns. Idiosyncrasies of 
 
 technical expenses attending the manufacture and administration of 
 Bank note issues far exceed the loss per annum by abrasion of covn. 
 
 Professor Jevons lias calculated that on the average a sovereign 
 in circulation becomes light in eighteen years, i.e., that by that time 
 it loses the legal three-quarters grain and the right of tender. This 
 calculation I have verified by researches as to the sums coined by 
 the Mint since 1816, the light coin taken in at the Bank, the exports 
 and imports, and the proportion of light coins remaining in circula- 
 tibn. Substantially I agree with Mr. Jevons although I would 
 extend the period to twenty years. But I will go farther than he does. 
 Instead of assuming that on the 123-274 grains 0' 750 grain is lost, 
 I will take a whole grain, and allow one-quarter grain for costs of 
 recoinage, so that, within twenty years 1'232 grain, or, say, 1 per 
 cent, are absorbed. This would show that the annual wear and 
 tear on coin costs one-twentieth per cent. The issue of our Bank 
 notes cost £180,000 (exclusive of the £195,000 paid to the State) 
 on a circulation taken as high as 30 million pounds. Let us reduce 
 this, by economies, to £150,000, the annual cost of the issue would 
 accordingly be equal to one-half per cent. 
 
 The annual technical cost of the Bank of England note, the 
 lowest description of which is £6, is accordingly ten times as high 
 as that occasioned by the wear of gold coin. The use of 30 millions 
 of sovereigns would cost £15,000 a year, and the commonest 
 description of plain machine-made Bank note paper (not water 
 marked) for 30 millions of notes would cost that ; machine-made 
 water mark paper would cost more than double, and hand-made paper 
 five times as much. The engraving and printing must all be care- 
 fully done, and when actively used, the notes would require renew* 
 ing on the average at least every two years. Above this comes the 
 administration necessarily connected with such an issue, and if 
 anything like fair order is to be maintained, far from the great care 
 and attention now paid by the Bank to its notes, the administration 
 on so large a mass of £1 notes would cost muck more than the 
 
285 
 
 that kind must not be listened to, but the convenience 
 
 of £1 notes may be recognised apart from them. It pi^liStLir 
 
 has indeed been proposed that the Bank of England 
 
 should issue £1 notes, but there is no valid reason why 
 
 this should now be done ; the communities in and 
 
 around London are so much accustomed to the more 
 
 healthy system' of £5 notes and upwards, that the 
 
 present issue. The doings of the country and Scotch Bankers, with 
 their small individual issues (the expenses of which also exceed 
 wear on coin considerably), cannot guide us in this great national 
 issue. It is only through the admirable attention bestowed by the 
 proper departments in the Bank, and the fair expenditure incurred, 
 that we hear so little of forgeries. The technical expenses of the 
 Bank of France and the American issues are higher even than those 
 of the Bank of England, and the veriest rag-issue costs much more 
 in paper, printing and administration than the annual abrasion of 
 coin. 
 
 It is to be hoped that these facts, easily verified, will dispose of 
 the idea above-mentioned. In any reform of the Bank of England 
 issue provision might be made for a few millions of £1 notes, it 
 being distinctly recognised that this is not done for the purpose of 
 credit, or on account of cheapness, but the use of such notes would 
 be confined to convenient remittance by letter (in lieu of post office 
 orders). That is all that can be said in their favour, their heavy 
 cost, and the danger of letter stealing far outweigh even this plea. 
 For all and for every other purpose of the circulation the actual 
 sovereign remains the most natural, and for its maintenance the 
 most economical of the mediums of exchange of the value of £1 
 each. 
 
 Glass 2 of the advocates" of £1 notes, represented by several 
 English, and chiefly Scotch Bankers, want to issue 20 or 30 millions 
 (or more or less) of credit notes, or notes backed by the State 
 debt. In the eourse of this book I have several times alluded to 
 these schemers, but so persistent are their demands, that you may 
 well listen to stronger special arguments against them. As yon 
 have learned, our circulation now amounts to 161| millions — with 
 which the business of the country is done. Now if 30 millions of 
 credit notes forced their way into this circulation, either of the 
 following must happen : — 
 
286 
 
 introduction of a £1 note would be a novelty of no 
 particular merit. 
 
 For the country districts, habituated to the use of 
 
 tofafc^fy™ these notes, the plea of the convenience of the £1 note 
 
 remains valid, and, in order to satisfy this, it stands to 
 
 reason that the issuing Bankers cannot do so at their 
 
 own expense, viz., by issuing notes only against 
 
 (1.) Our circulation must either remain at 161| millions (for the 
 moment), when, in, order to give room for 30 millions of notes, 30 
 millions of gold must be exported, or 
 
 (2.) Our circulation must increase from 161J to 191J millions ? 
 What will be the consequence in this case ? Do you suppose that 
 this will give an impulse to our external trade ? Can our pro- 
 duction rise in the same proportions ? Certainly not. The only 
 effect then which such an illegitimate addition to our currency would 
 have, is that of raising owr internal prices artificially ! producing what 
 is termed " inflation." Nobody would be the better for it, but 
 we should certainly lose our power to compete with other 
 nations in manufacturing; our exports would cease, our imports 
 increase, the foreigner would take payment in gold. It is for 
 this reason that Austria, with its fine manufactures, is no inter- 
 national trader ; it is for this reason that the United States (see 
 foot note on pages 85, 86 and 87) are in the mire, and that in spite 
 of their splendid resources, the curse of pauperism invades the land ! 
 Think what this means, in a country where the over abundance of 
 soil need but be scratched to produce a crop ; where mechanical 
 ingenuity is at the highest pitch of development. The American 
 Government seems to have recognised now to what is due the drain 
 on the national resources, and that (although it has always held 
 a fair metallic reserve) the issue of notes, based on Government 
 security, must now be contracted. By no other means can the 
 present extravagant level of prices be reduced so as to moderate im- 
 ports of foreign goods, and promote the export of home produce. 
 That this makes trade flat, especially the import business, is obvious, 
 and the ordeal in the lowering of prices of American goods must also 
 be gone through, until, from this lower level, the industry and in- 
 genuity again increase, when the chance of mitigating against the 
 present minus balance, and that of ultimately liquidating it, will 
 arise. So far the United States have not much contracted the issue, 
 they have only refused to issue more than 400 milhons of legal 
 tender notes, dollars, and an equal amount of " national currency " 
 
287 
 
 sovereigns ; some allowance must be made to them for 
 credit issue sufl&cient to cover the expenses. The 
 ■whole of these credit issues amount to £15,800,000, a 
 sum which, at 4 per cent., would yield upwards of 
 £600,000 per annum profit to the Bankers; the 
 technical cost of printing and administering the issues 
 (conducted on a much cheaper plan than the Bank of 
 
 notes (the latter under some combination with " deposits " 
 which have no relation to the question of currency at all), 
 yet this limitation has already produced crisis and seemingly bad 
 trade. For it is in the nature of such issues to crave for more 
 and more notes and more inflation, the mere standstill already 
 produces violent reaction and conflict. Hence there are many 
 people in the United States who harass the Government to make 
 more issue, and according to latest accounts free Banking 
 is likely to be introduced. The ultimate unavoidable reaction 
 will now become far more violent, in geometrical degrees 
 of progression, without taking into account the delay of the settle- 
 ment, during which the present state of things would have continued 
 and become intensified. The cry for more issue in the United 
 States, as well as in other countries, naturally proceeds from those 
 who would have to make or to receive them in the first instance. 
 No true equivalent is at the bottom of such notes, even if made by 
 the State for State-payments. The first issuers or recipients make 
 the first large undue profit ; the second and third participate in lesser 
 degrees, until, finally, the circulation is forced to accept them at par 
 and to bear their influence on prices. That thissnitsthe bookof issuing 
 banks, contractors, financiers and others, is evident, and the immense 
 fortunes made thereby are proofs of this suitability. So in other 
 over- issuing States, there are large individual fortunes made through 
 the original and the subsequent play of prices. But, and all the 
 evidence shows this, although in America and elsewhere these large 
 accumulations take place, the drain on the resources of a country 
 goes on (see foot-note, on pages 85 to 87), until at last the goose 
 with the golden eggs can lay no longer, and the fortunes themselves 
 lose their vantage ground. The general principle here shown, holds 
 good in all degrees, whether the premium on gold be 10 or 50 per 
 cent., whether in America, Russia, Austria, Turkey or Hayti 
 (where 600 paper dollars are worth 1 dollar silver). The " return 
 to specie payments " becomes more and more difficult. England, 
 after her successful wars in 1816,- received large cash payments 
 
288 
 
 England issue) may not exceed £50,000 or £60,000. 
 Now, if these Bankers were authorised to issue on 
 credit, say, one-third of the present sum, or 5 millions 
 — ^yielding £200,000 per annum— they would not only 
 cover their costs, but gain a profit large enough* to 
 induce them to continue the present issues, under the 
 
 * Or temporary Reserve. 
 
 from France, her immense acquisitions and political superiority 
 enabled the fullest development to take place. Nevertheless, 
 without the spirit of abnegation, without that refined " respec- 
 tability " in household matters which yet distinguishes so large a 
 portion of English society, the recovery would have been scarcely 
 possible. So may French thriffciness soon recover the losses of the 
 late war. But neither the Americans nor other nations seem to be 
 aware of the great moral lesson which this matter involves, they 
 continue in extravagant imports and prices, neither the people nor 
 their leaders possess the healthy instinct which bound Englishmen 
 in their aims to balance the account, and then led to England's 
 " international wealth." In the coming struggle for "returning 
 to specie payments " of all the over-issuing States, the advantage 
 of England's position will become all the clearer. 
 
 In this country the recommendations to issue these notes come 
 chiefly from Scotland. They are profitable to Bankers, and with 
 the wholesome restrictions imposed by the law, these issues so far 
 appear to have done much good to the issuers. Fortunately, the 
 authorised issue of Scotch Banks is but 2| millions, or about If per 
 cent, on the mass of 161| millions in circulation. This small portion 
 does not affect us much, and it is even possible that, floating 
 on the strength of our whole national wealth, the system may 
 present a false appearance of superiority. Many people are of 
 the opinion that the thriftiness of the Scotch, the careful and 
 refined methods of banking in Scotland, and not its currency 
 system, are the cause of the fair appearance of matters. It is 
 also said that a Scotchman prefers a bank note to a sovereign ; 
 but Scotch idiosyncrasies are not those of the world at large, 
 and give no reliable foundation. Indeed it is just possible that 
 any mishap in the Scotch system will make the sovereign the 
 favourite for ever. Such rapid changes in popular conceptions 
 frequently occur when matters, sligbbly tainted with delusion, 
 break down once. And if the Scotch system were let out 
 of its bounds, or became the standard for England, we might 
 
289 
 
 proviso that, for the balances issued by them above 
 the 5 miUions, they ought to hold gold coin. The plea of gS^oSiS™ 
 having 16 millions of £1 notes would thus be satisfied. 
 The true meaning of this must be clearly under- 
 stood, for should this matter come under discussion in Z,^?'^"?.„, 
 
 ' meaning of 
 
 Parliament, the great cry of the defenders of this prov^'ent 
 
 ° ■' and the 
 
 system will be the plea of convenience of the £1 note ^1??°!'"" 
 
 experience this much quicker than we now think possible. It has 
 been alleged that the Scotch demand for a £1 note issue is owing to 
 the pressing needs of Bankers. There is no necessity to go this 
 length for reasons to combat the fallacies which the system involves, 
 for these culminate in — 
 
 Glass 3, also Scotch, which actually starts the proposition to do 
 away with gold, and to adopt pure credit notes of £1, "backed by 
 the government debt." There are many specimens of Scotch views 
 on this matter. I have now before me a publication on " The 
 Bank of England, the Bank Acts and the Currency," by " Cos- 
 mopolite," most ingeniously and forcibly written, analysing the 
 Bank accounts — giving figures and schemes — but all is treated from 
 one stand-point, expressed in the following sentences, casually 
 occurring : 
 
 " A metallic currency for internal purposes is one of the fallacies 
 which will disappear before long." 
 
 " The true basis of credit is the National Debt," " let the 
 Government Debt be the primary basis of the circulation ! ! " 
 
 " What objection is there to the use of such £1 notes ? " the 
 writer asks, and answers himself — " There are none." 
 
 The above remarks, which I have made on Class 1 and Class 2, 
 may state some of the objections as worthy of consideration — but 
 to opinions such as held by "Cosmopolite" they appear, no doubt, 
 
 trumpery. 
 
 " Cosmopolite ' ' must be told that his suggestions are not new. The 
 literature of all countries teems with precisely the same thing, and has 
 done so for many generations. Metallic currency has been con^ 
 demned, as only fit for fools, by thousands of writers before him, and 
 the world has not yet recognised " such truth. " Yet there can be but 
 ona truth, it is either Gold or Paper — one must be supreme by the 
 laws of nature. The assertion of a trath does not merely depend on 
 human resigtaiipe by way of human folly — where such a truth is 
 
 19 
 
290 
 
 to the population, to farmers, and others, in the 
 ranges of the respective Banks — a cry which may 
 overwhelm the interests concerning the valuation. 
 The mere convenience part of the matter can be met 
 by an allowance of 5 millions of issue (or less), and 
 for the purpose of satisfying this plea, in preference 
 to a total abolition of issue systems which have a 
 
 absolute (and nothing but absoluteness will do in this case), it asserts 
 itself with wiierrlng mathematical force, in spite of all endeavours to 
 prevent it, — and so such issues would have asserted themselves and 
 their superiority, even if they had never been tried before. To this 
 plain broad idea of truth as a natural principle, " Cosmopolite " 
 must first rise, before he is fit to descend again to practical trial.- 
 Descending to such practice, " Cosmopolite " will find that the thing 
 has been tried, over and over again, in many countries^ with the direst 
 results, and surely, after the many chances the system has thus had, 
 its truth ought to have asserted itself; men are not such outrageous 
 fools as to refuse so cheap and comfortable a method of conducting 
 monetary matters. 
 
 The proposition to make the National Debt the basis is also very 
 old. The Government of a country is nothing else but ourselves, 
 and all schemes of currency attempted on the sole " credit "of " our- 
 selves " differ in so far from Mr. Micawber's I. 0. U.'s as they lead 
 ultimately to bloody revolutions and social ruin. The worst of the 
 present issues admit at least that metallic money must be in the 
 mixture, and the proportion of fiduciary issue determines the degree 
 of the inferiority of the whole. " Cosmopolite " mistakes the 
 force of the one for that of the other (like many others have done 
 before him), and the limited field of Scotch experience he 
 takes for the great international world. Social democrats and 
 young economists, before they have learned the first elements of 
 financial science, are very prolific in similar ideas, and the proposals 
 made by " Cosmopolite," and many others, differ from the " young " 
 ones in so far only as they are accompanied by more or less ingenious 
 attempts at putting down and arguing with figures derived from a 
 practice with a small per centage, and the cobbling up of larger 
 figures based on the great practice of the whole, the very foundation 
 of which is to be utterly reversed. " Cosmopolite " attempts to lay 
 down figures for the circulation. How are these to be kept ? Will 
 the notes have the same par value as gold ? " Cosmopolite," 
 
remnant of vested right, this course suggests a com^ 
 promise to -which country Bankers must yield, whilst 
 the allowance of 5 millions of credit notes is not so 
 serious an element of disturbance in our valuation as 
 the present 16 millions (15.8). 
 
 In all other respects the authorised credit ?8^,|^'°' 
 
 , . - insult to 
 
 issue of these 15.8 millions is a blot upon our Peei. 
 
 himself, no doubt, mil be as pleased as Puncli with, them, take them 
 at par, and expect others to do so. But, alas for human folly, — for 
 many people may still prefer gold, — namely the unconditional cur- 
 rency (independent of Government Debt, and valuable abroad), called 
 "sovereigns; " hence they will ask higher prices in paper so as to 
 guard themselves against the changing condition of Government, 
 This is, unfortunately perhaps, an element which " Cosmopolite " 
 must take into account. More notes must accordingly be issued, 
 in order to meet the rights of these unbelievers in paper money, and 
 inflation will set in at once. But should the light of " Cosmopo- 
 lite " dawn upon these heathens, and all agree upon its brightness, 
 inflation would nevertheless take place. The natural neutral indi- 
 cator of gold, upon whose action depends the equalisation of trade 
 between ourselves and other nations, and the ultimate determination 
 and accord of prices by increase or decrease of our own 
 numerical store for internal business, being lost, what is to be the 
 guide for the requirements of the circulation ? Shall Government 
 refuse to grant more issue, or what shall guide it for the contingen- 
 cies arising ? The Government could not refuse the cry for more 
 notes, and the neutral standard being lost, other loose indications 
 must be adopted. What shall these indications be ? Increase of 
 population, increase of trade, of prices, occurrence of accidents, 
 or what ? Shall the Chancellor of the Exchequer or bankers 
 determine it ? Or shall the demand have its rights ? Any mis- 
 calculation would produce inflation, and if the demand had its way, 
 what a demand there would be ! ! When inflation has once com- 
 menced the craving for more cannot be arrested by natural laws 
 of supply and demand, on goes the absorption and the accumulation. 
 Whereas 161| millions of money now circulate in the country, of 
 which 145 are metallic money, there would be 200, 300, 400 or more 
 of paper money. The rise in prices would not only not benefit us in- 
 ternally, but would destroy our commerce outwards ; and ultimately 
 the system would break down to revert again to metal. Of all these 
 
292 
 
 legislation, and contrary to the spirit of tlie Act of 
 1844. The virtual repeal of the clauses concerning 
 their liquidation, by the Act of June 1856, is an insult 
 to the memory of Sir Robert Peel. Having (see pages 
 108 to 112) in circulation in this country 161 millions 
 of money, it stands to reason that the 16 millions of 
 country issue force their vray into it so as to drive 16 
 
 matters — plain in theory, confirmed in practical history, visible in 
 their due measure in the American and other issues at this day — the 
 proposers of schemes of this sort have not the slightest notion, nor 
 would they be likely to gain it, until we had gratified them with the 
 adoption of their happy conceptions, and the whole result was before 
 them. The game is not worth so large a candle, and the British 
 public may prefer to leave Cosmopolite and kindred spirits to lament 
 over its blindness. 
 
 In the Parliamentary enquiries it is to be hoped that the sound, 
 simple, English common sense, will not allow itself to be long ham- 
 pered with these very old, yet ever recurring, ideas, and in justice 
 to many Scotch economists and bankers, it must be mentioned that 
 they are also opposed to such absurd schemes. It is possible that 
 this book may strengthen the hands of the opponents of such false 
 suggestions by directing attention to the real fault in our otherwise 
 so healthy metallic currency system. 
 
 There is yet another set of proposals to be disposed of. Many 
 writers on the subject of issues recommend that the " Mint " should 
 issue notes or certificates or other documents. They make all sorts 
 of clever inventions as to the Mint's proceedings, advocate the estab- 
 ■ lishment of a " note department," and a " treasury department.' 
 Some of them want to convert the Mint into some kind of issuing 
 bank, in total ignorance that no issue can exist without connection 
 with actual current mercantile business, with all its attendant con- 
 tingencies and risks, and that neither the " Mint " nor " Somerset 
 House " can make issues of notes without becoming de facto 
 bankers. Others make some kind of combination between Bank and 
 the Mint as to " promises," " certificates " and hocus ipocus 
 generally. 
 
 All these absurd proposals originate in the ignorance as to prac- 
 tical facts, and the awe with which the ignorant regard the, to themj 
 mysterious doings and the supposed power at the Mint. Although 
 
293 
 
 millions of bullion out of tlie country. Nobody bas 
 tbe advantage of tbis but tbe country Bankers. Tbe 
 nation, as a wbole, loses 16 millions of gold, b^SJ 
 
 . . profit at 
 
 to regam •whica it must make struggles m times ^^^j^^^ 
 of pressure. If tbese issues were once abolisbed, 
 tbe regular industry and commerce of tbe coun- 
 try would soon replace tbem by gold, for 
 they are but a percentage on tbe several 
 bundred millions of our business, and a comparatively 
 sligbt turn in our favour of tbe Exchanges would 
 give us tbe gold instead. Vested rights and veslleirigM 
 privileges, granted to the disadvantage of others, do 
 not establish a principle for their maintenance ; on the 
 contrary, modern legislation adopts the principle of 
 
 certain mints issue mint- certificates against gold sent to them for 
 conTersion, which, when the Mint is busy, postpone the delivery of 
 coin for several days, such certificates are nothing more than all 
 ordinary contracts for a certain amount of money on a certain day* 
 In all and every other proceeding, the Mint is but a manufactoryj 
 which converts bar gold into coin. It differs from other manU" 
 factories inasmuch as it has no c xpital, no stock, no initiative what' 
 ever. Like the country miller, who grinds the farmers' corn into 
 flour for them, so it awaits its customers, but, unlike the flour 
 miller, it has not even the faculty to buy its corn, viz., gold, from 
 the customer. 
 
 Its sole aim and purpose is that of nsing the best mechanical 
 process for making regular coin from irregular quantities of rough 
 gold brought by the owner. The best machinery, the best work* 
 men and superintendent, is all that concerns the action of the 
 Mint. Some portion of our coinage is even made hj private firms, 
 to whom the State delivers the metal to turn into coin, under proper 
 control. If any hocus poous as to issue were possible with the 
 public Mint, it ought to be equally possible with the private firms, 
 whose machinery can make coins and medals by way of contract. 
 
 It is to be hoped that the many clever inventions and com- 
 binations brought forward in connection with the " Mint," will at 
 once be repudiated by the State — they are but the result of gross 
 ignorance of facts coupled with fanciful conceptions — a combination 
 which leads to the most obstinate " authorative " (?) suggestions. 
 
294 
 
 absolute abolition. What can otterwise be more 
 absurd than to give the right of such issues to 
 certain Banks and Bankers, and to withhold it from 
 others ? Are Banks and Bankers so distinct from 
 of tke° other trades — financial people, merchants, and workers 
 
 need of 
 
 reform. for profit — that the State should grant them privi- 
 leges, to which any firm or individual may be entitled, 
 because they choose to call themselves Bankers ? 
 
 The most serious thing connected with these issues 
 The^amage ig their baucful influeuce on the valuation. They give 
 valuation. ^^-^^^ prices, and when, in case of crises, they are sup- 
 posed to be available, just the contrary happens ; the 
 issuing Bankers draw in the notes, and thus increase 
 the embarrassment of the Bank of England. Imagine 
 what would take place if the right of issue were con- 
 ferred upon other Banks, Bankers, and individuals ! 
 How much should they issue ? It will be obvious to 
 you that our present 127 millions of gold (gold coin 
 and bullion) would leave the country to be replaced by 
 200, 300, or 400 millions of notes. What would be 
 their effect on prices ? Would any body work the 
 harder for it ? would our industry profit ? Nothing of 
 the kind. On the contrary, there would be more 
 laziness and more luxury at first, until the smash 
 set in. If the right of issue were confined to Bankers 
 and merchants alone ; there are more than 2,000 (in- 
 cluding branches) of the former, and upwards of 
 20,000 wealthy firms of the latter, so that if on the 
 average each one had the privilege of issuing but 
 £6,000 the aggregate would be 132 millions. If 
 Banks "and Bankers alone were to issue, they would 
 each put in circulation about £60,000, on which they 
 could certainly earn interest — would this earning of 
 interest by one set of men be a compensation for the 
 inevitable ruin of the whole nation ? Although there 
 are many persons who recommend such a course for 
 
295 
 
 England, there is happily no chance of their being 
 Hstened to. The principle, however, is maintained in 
 this country by allowing the issue of country. Banks 
 to continue. The mischief done by them is only 
 reduced in proportion ; its effects are nevertheless 
 visible in the many bitter struggles between our 
 vigorous prosperity and the system of valuation of 
 which these notes form a part. 
 
 You may possibly agree with me that the country 
 Bankers' argument in favour of their profits must give Enlightened 
 
 ID men must 
 
 way to the improvement in the valuation, whilst their fhr'^oie 
 plea for the convenience of the £1 note can be met by ^" ^°° ' 
 permitting them to issue an amount amply sufficient 
 to pay expenses. The recommendations which I have 
 made in this book concern principally the Bank of 
 England itself, and they can be carried out without 
 any sensible disturbance in the present Act. But if 
 the full subject of our banking law be brought 
 forward again, the whole Act might undergo a revision. 
 Enlightened statesmen must deal with this matter. 
 
 CONCLUSION. 
 
 I have received so much encouragement from all 
 quarters that, according to suggestions made to me, I here'"''"™ 
 have not hesitated to address this appeal to you — the fair subject 
 
 '■ ^ *' for inquiry, 
 
 stockholders of the Bank ; and I am in hopes that 
 there are among you gentlemen of high intelligence 
 able to appreciate the views here advanced, and of 
 influence sufficient to cause inquiry into their validity. 
 The stock of the Bank of England is a magnificent 
 property, whose value requires the application of the 
 most refined principles of just economy. Beyond this, 
 the action of the Bank of England is so identified with 
 the interests of the country, the crises and panics now 
 occurring are so injurious, not only to the mercantile 
 
296 
 
 classes, but to tte industrial classes at large (and con- 
 sequently injurious to the prosperity of all) tliat we 
 xniglit for once give up the blind admiration of the Act 
 of 184^, and the reverend contemplation of the Bank 
 of England, and subiect the system under which it 
 
 Enquiry t> ' J J 
 
 t^io^. works, with the results shown to you in facts and 
 figures, to a scrutiny unfettered by the traditions and 
 dogmas of bygone times. And when, as you see, this 
 investigation will lead to amendments which will not 
 upset the Act, but which can actually be reconciled 
 with one of its provisions, there should not be much 
 diffidence in entering upon this investigation. 
 
 If you review the whole of the suggestions made 
 
 since 1847 — their extreme divergencies of opinion, 
 
 necessity from " uo issuc " to " cvcry body's" issue, their ab- 
 
 exhaustive Surdity, &c., and all the useless endeavours made in 
 
 treatment. •' 
 
 Parliament — you will find that the principles laid 
 down here give a point of view which has hitherto 
 been overlooked, and you might feel disposed to ask 
 the Government for an investigation of the " fitness " 
 of what I have endeavoured to convey clearly to your 
 minds. You will now also understand that these 
 matters could not be brought out excepting by an 
 exhaustive treatise like this, although the subject 
 may now appear a very simple one, as it so often 
 happens when a deep error has been dug out. 
 
 Finally, I must ask you to refer again to the 
 preface of this work, wherein I repudiate all intention 
 PMitton^f to say anything unfavourable as regards the Directors 
 directors, of the Bank of England. The high position which 
 they hold lifts them above undue criticism, as well 
 as above the praise of a writer on the 
 Bank of England system. They frequently suffer 
 the wrong of abuse, whereas in reality the system 
 and its anomalies with which they battle should be 
 blamed. When such system is reformed it is quite 
 
297 
 
 bbvious that under the charge of the highest mercantile 
 authorities, representing, so to speak, the degree of ^Jst^aa 
 civilisation at which we have arrived^ it will become temcertaia. 
 perfect. This holds good, not only here in England, 
 but in all other countries where the commercial and 
 social financial interests centre in a leading institution, 
 under a council selected from the most prominent men 
 in commerce. 
 
 In the preface to this book I have also made 
 allusions to previous publications on this subject, other 
 
 One of these, " Reform of the Bank of England S^tte"""* 
 Note Issue," a Statistical Critique of the Operations 
 of the Bank Act of 1844," is the substance of a paper 
 read before the Statistical Society ; the other, " Letter 
 to Mr. Gladstone on the Reform of the Bank Act," 
 embodies the former by way of abstract. 
 
 The first publication treats the matter in a way more 
 suitable to a scientific society, where many things are contain 
 understood by common consent. Many of its readers Xp^rtS 
 thought that the want of progress of the Bank of 
 England had not been brought forward sufficiently, and 
 suggested to me to write the book now before you, 
 with the special view of bringing this matter into greater 
 prominence. Nevertheless, the publication above re- 
 ferred to, contains valuable tables, showing the averages 
 of circulation of fiduciary issue — the idle Reserves or 
 idle Deposits. The table of special interest is that 
 which demonstrates the validity of the rule as to the 
 lowest practical interest, spoken of on page 253. 
 In addition to these, complete returns of the Bank's 
 weekly statements from 1844 to 1872 are given, with 
 separate columns for bills discounted, temporary ad- 
 vances. Bankers' balances, &c., and rates of interest, 
 so that the inquirer will find ample and useful material 
 for the confirmation and examination of what has here 
 been advanced. 
 
298 
 
 Of these publications 300 copies have been reserved 
 
 by me, for the purpose of gratis distribution to readers 
 
 of this book, who wish further to follow up the subject. 
 
 They may apply to the address at foot, enclosing 
 
 cheauthor three stamps for postage. In conclusion, I declare my 
 
 rtS°o?mpi willingness to answer enquiries and to correspond with 
 
 ent parties. pg^j.^jgg competent to discuss the subject of the 
 
 Bank of England issue. 
 
 ERNEST SEYD. 
 
 1a Peinobs Steeet, Mansion House, 
 London, E.G. 
 
OTHER PUBLICATIONS BY THE AUTHOR. 
 
 " California and its Resources." 8vo. 168 pp. Triibner and Co., 
 Paternoster Row, London, 1858. 
 
 " On the Establisliment of an Anglo- Californian Bank and a Refinery .of 
 tlie Precious Metals in San Francisco." 8vo. 93 pp. (Private Issue.) 
 London, 1861. 
 
 " Bullion and Foreign Exchanges Theoretically and Practically Considered. ' ' 
 8vo. 700 pp. Effingham Wilson, Royal Exchange, London, 1868. 
 
 " The Question of Seignorage and Charge for Coining." 8vo. 59 pp. 
 Effingham Wilson, Royal Exchange, London, 1868. 
 
 '' The Depreciation of Labour and Property which would follow the 
 Demonitisation of Silver." 8vo. 109 pp. Effingham Wilson, 
 London, 1869. 
 
 " Letters to the Times." See the " Gold Coinage Controversy," repub* 
 lished for private circulation by the Bank of England, 1869. 
 
 " Universal Coinage and Variations in Foreign Exchanges." Read before 
 the Statistical Society. See Journal of the Society for March 1870. 
 
 " Enqu&te sur la Question Monetaire." Seance du 31 Mars 1870. 
 Evidence before the Imperial Commission, published by the French 
 Government. 
 
 " On Currency Laws, and their EfEects on Pauperism." Read 
 before the Statistical Society. See Jmcrnal of the Society for 
 March 1871. 
 
 " Die Miinz-Wahrungs und Bankfragen in Deatschland." 8vo. 204 pp. 
 Badeker, Elberfeld (Prussia), 1871. 
 
 " Bemerkungen ueber das neue deutsche Miinzgesetz. 8vo. 47 pp. 
 Badeker, Elberfeld (Prussia), 1871. 
 
 " Suggestions in reference to the Metallic Currency of the United States 
 of America." 8vo. 253 pp. Triibner and Co., Paternoster Row, 
 London, 1871. 
 
 " Improvements in the Process of Coining." Read before the Society 
 of Arts. See Journal of the Society for the 26th January 1872. 
 
 " The London Banking and Bankers' Clearing House System." 8vo. 
 68 pp. Cassell, Petter and Galpin, 1872. (Translation in French, 
 E. Guyot, Rue de Pacheco 12, Brussels.) 
 
 " Reform of the Bank of England Note Issue." Harrison and Sons, 
 St. Martin's Lane, London, 1873. 
 
 "Letter to the Right Hon. W. E. Gladstone, M.P., &o., on Reform of 
 the Bank of England Note Issue." 1873.