DIAGRAMS 
 
 EXHIBITING THE POSITIONS AND SYSTEMS OF 
 
 NOTE ISSUE 
 
 OF THE PRINCIPAL 
 
 European State Banks, 
 
 WITH SPECIAL REFERENCE TO THE NOTE ISSUE 
 SYSTEM OF 
 
 THE BANK OF ENGLAND. 
 
 BY 
 
 ERNEST SEYD, F.S.S. 
 
 Reprint of Paper read before the Statistical .Society, with Discussion 
 thereon, on the 18th December, 1877 . 
 
 LONDON: 
 
 38, LOMBARD STREET, E. C. 
 
HARRISON AND SONS, 
 
 PRINTERS IN ORDINARY TO HER MAJESTY, 
 ST. MARTIN’S DANE, LONDON. 
 
 SeM 
 
PREFACE. 
 
 The diagrams and paper submitted to the Statistical 
 Society on the 18th December, 1877, together with the 
 discussion thereon, as published in the Journal of the Society 
 of March, 1878,. are here reproduced. 
 
 Besides furnishing the accounts of the central or note¬ 
 issuing banks of the various States in the form of diagrams, 
 which enable the inquirer to estimate at a glance the relative 
 positions of the banks, both as regards their importance 
 as bankers and as issuers of notes, the principal object is 
 that of showing the anomaly under which the Bank of 
 England note issue is being conducted. The effects of this 
 anomaly upon the affairs of the Bank of England itself and 
 upon the English money market, can all be traced to the 
 same subtle source of error which underlies the practice 
 under Sir Robert Peel’s Act. The Act itself is not at fault, it 
 contains the very principle which has liitherto been over¬ 
 looked, in distinct and clear terms, the application of which 
 would render the operation of the Act perfect. It cannot, of 
 course, be expected that so subtle a subject as that involved 
 in this case should at once strike the intelligence of each 
 reader, and although it is founded on rules of common sense, 
 the author’s appeal on behalf of this principle is addressed 
 chiefly to those who can bring to their aid the finer logical 
 reasoning with which problems of this kind should be 
 treated. To many of his friends abroad, to whom the 
 author sends copies of this paper, the reasoning will no 
 doubt appeal, as they can judge of the matter without bias. 
 Many of them are aware of the influence of the Bank of 
 England system on the money markets of the world, and of 
 the conflicts which it engenders by its too frequent and 
 extreme changes in the rates of discount. The modification 
 of these changes would be a great boon to England, and 
 would render its connection with foreign money markets 
 more secure. The question is: Is monetary science suffi¬ 
 ciently advanced for the recognition of the plain practical, as 
 well as the simple logical case here brought under considera¬ 
 tion 
 
DIAGRAMS 
 
 EXHIBITING- THE 
 
 POSITIONS OF THE BANK OF ENGLAND, 
 
 AND 
 
 VARIOUS OTHER NATIONAL BANKS. 
 
6 
 
 Diagrams Exhibiting the Positions of the Bank of England, the 
 Bank of France, the German Reichsbank, the National Bank 
 of Austria, the Netherlands Bank, the National Bank of 
 Belgium, the National Bank of Italy, and the State Bank 
 of Russia; with Remarks thereon and References to the Note 
 Issue System of the Bank of England. By Ernest Seyd, Esq., 
 F.S.S. 
 
 [Read before the Statistical Society, 18th December, 1877.] 
 
 The first set of diagrams which I have the honour of submitting 
 to you, illustrates the accounts of the Bank of England, the Bank 
 of France, the German Reichsbank, the National Bank of Austria, 
 the Netherlands Bank, the National Bank of Belgium, the National 
 Bank of Italy, and the State Bank of Russia for one year. 
 
 The diagrams are constructed upon the following plan:— 
 
 The faint upright lines, of about one-eighth of an inch apart, 
 represent weeks, and the accounts are strung on each line. The 
 horizontal fine lines represent one-fifth of a million sterling, each 
 million being three-quarters of an inch apart, and every 5 millions 
 being furnished with a number and a thicker line.* 
 
 I have adopted the principle of separating the banking business 
 of each institution from its issue of notes, and the strong black and 
 red line of demarcation drawn across the accounts has, below it, 
 the issue; above it, the banking; the former running in millions 
 downwards, the other in millions upwards. Whether, as in the 
 case of the Banks of England and Russia, the banking and issue 
 departments are separated by law, or whether they form one 
 account, the method adopted is alike suitable for either. 
 
 The diagrams compelled me to make a slight change in the 
 constellation of the accounts of the Bank of England. The weekly 
 statement issued shows— 
 
 * T ] 1C diagrams exhibited before the meeting were on a large scale; those 
 attached to this Journal are so much reduced in size that it was found imprac¬ 
 ticable to reproduce the faint weekly lines, and the horizontal lines for millions 
 lollow the reduction. 
 
Seyd —Diagrams Exhibiting the Positions of the Panic, 8fc. 7 
 
 LIABILITIES. ASSETS. 
 
 Issue Department. 
 
 Notes issued. 
 
 Government securities .... 
 
 Other securities . 
 
 Gold bullion . 
 
 Silver „ .^ 
 
 £ 
 
 Capital . 
 
 Rest . 
 
 Public deposits . 
 Other „ 
 Seven daps’ bills 
 
 Banking Department. 
 £ 
 
 Government securities .... 
 
 Other securities . 
 
 Notes in reserve . 
 
 Gold and silver coin . 
 
 £ 
 
 As this official form does not show the amount of notes in 
 circulation in a direct manner, and as the repetition of a sum as 
 liability on one, and at the same time as asset on the other side, 
 is obviously unsuitable to a diagram, and as other items were 
 required, I have adopted the following order. 
 
 Reading the diagram of the Bank of England from the bottom 
 of the issue upwards under— 
 
 Liabilities, 
 
 The Issue Department, 
 
 Total Issue, 
 
 extends from the lower black and red line to above the line of 
 demarcation, the upper red and black line corresponding with the 
 reserve of notes on the asset side of the hanking department. The 
 actual amount of notes in circulation is coloured in grey, the lower 
 line- showing its variations. 
 
 The Banking Department reads— 
 
 From the demarcation line upwards. 
 
 Capital ■) 
 
 Best i co l° ure( * 9 r een. 
 
 Seven days’ bills, coloured pink. 
 
 Bankers’ balances (coloured dark red ) as portions of 
 
 Other deposits, coloured pink. 
 
 Public deposits, coloured pink. 
 
 Exchequer balances, coloured dark red. 
 
 The items of hankers’ balances and exchequer hills are not 
 given in the weekly accounts of the bank, but are taken from 
 parliamentary returns. The diagram reads under— 
 
8 Seyd —Diagrams Exhibiting the Positions of the Panic 
 
 Assets, 
 
 The Issue Department, 
 
 Bullion, coloured yellow, 
 
 Government and other securities, 
 
 the latter being coloured blue up to the line of demarcation , thus 
 showing at a glance to what extent the circulation is covered by 
 bullion, whilst that portion which lies above is left in white, as 
 representing also— 
 
 In the Banking Department, 
 
 The reserve of notes. 
 
 Although this is left in white, it must be borne in mind, that in 
 reality it is covered by interest-bearing securities in the issue, but 
 for the purposes of the banking department it is a non-interest 
 bearing asset. Then follow— 
 
 Gold and silver coin, coloured yellow. 
 
 Government securities coloured blue, and 
 Other securities, also coloured blue. 
 
 With the exception of 
 
 Temporary advances, coloured blue with a violet margin, and 
 Bills discounted, coloured violet, and I may at once say that it is 
 this latter item which is chiefly worthy of attention. 
 
 The same reading upwards, and the same colours, apply to all 
 the foreign banks, with such slight variations as may be pointed 
 out. The note circulation as grey, the capital and reserve as green, 
 the deposits and other liabilities as red and pink on the one side, 
 the reserves white (or with a red margin), the bullion as yellow, 
 Government and other fixed or purchased securities as blue, 
 advances, as with a violet margin, and bills discounted as violet, 
 on the other side, will enable you at a glance to estimate the rela¬ 
 tive positions of the various banks. The diagrams being hung so 
 as to bring the separation line on a level, you can at once appre¬ 
 ciate the relative extent of what belongs to the so-called banking 
 from the issue. 
 
 All the accounts are of the year 1876, excepting that of the 
 Netherlands Bank, which runs from the first quarter 1876 to 1877, 
 and the Back of England, the account of which represents the 
 year 1875. I was compelled to choose that year of the Bank of 
 England for the following reason. 
 
 The bills discounted and the temporary advances are not given 
 in the weekly balances, but in separate returns made to Parliament. 
 The Royal Commission inquiry, after the crisis of 1857, obtained 
 from the Bank of England extra returns, including bills and advances 
 from the year 1844 to 1857. Subsequently the late Mr. J. B. Smith, 
 member for Stockport, moved for and obtained a continuation of 
 the same from 1857 to 1872, since when Mr. J. Backhouse, member 
 
of England and Various other National Banks. 9 
 
 for Darlington, lias regularly moved for their production every 
 year, and those for 1873, 1874, and 1875 have been given. During 
 last session he moved for those of 1876, and certain items have been 
 published, excepting bills and advances. The Bank of England 
 was understood to object to publish these items again, and they had 
 not been asked for. 
 
 The policy of the Bank of England in not giving information, 
 is in strange contrast with all other great banks. Every one of these 
 furnishes voluntarily a yearly report, in shape of a more or less 
 extensive volume, in which the proceedings and accounts are set 
 forth with great detail. These reports are most valuable and most 
 instructive to the economical sense of the community. 
 
 In extenuation of these proceedings, the Bank of England pleads 
 that it is not, like the other foreign banks, a State bank, but a 
 mere private institution. The plea is wrong in theory, and still 
 more wrong in practice. With the exception of the Bank of 
 Russia, which is avowedly a State bank, all the other banks are 
 entirely independent of the State, and have their independent 
 shareholders. It is true that foreign Governments have a voice in 
 the appointment of the governors and directors of their banks, but 
 this does not in any way interfere with the public and private busi¬ 
 ness of these institutions. 
 
 In truth, there is no bank which has more practical connection 
 with the Government than the Bank of England itself. Not only 
 does it manage the national debt, keep the Government accounts, 
 and among public deposits are matters under the State’s guardian¬ 
 ship, but its bank note issue has the privilege of legal tender 
 expressly enforced upon the public by the State. The Bank of 
 France only acquired this right in 1871, the German Reichsbank 
 and other banks entirely lack this most important faculty, which 
 alone is more than sufficient to give to the Bank of England the 
 character of a State bank above all others, if a discussion on the 
 exact meaning of that term should arise. 
 
 The publication of the accounts of the Bank of England would 
 be a great boon to the community and an advantage to share¬ 
 holders. That it ought to be a matter of pride to both the bank 
 and the public, may be admitted. The errors and misconception 
 to which the present secrecy leads, can be shown in one notable 
 example. 
 
 Those who look at the bank’s weekly accounts find in the assets 
 of the issue—• 
 
 £ 
 
 Government debt . 11,01000 
 
 Other securities . 3,984,900 
 
 the latter consisting also of Government securities. 
 
10 Seyd — Diagrams Exhibiting the Positions of the Banh 
 
 Then they find in the banking department— 
 
 £ £ 
 
 Government securities, say . 14,000,000 to 15,000,000 
 
 and, again, Other securities, say . 22,000,000 
 
 besides notes and coin in reserve. 
 
 The bank thus holding from 29 to 30 millions of Government 
 securities, the natural inference is, that as it is the leading discount 
 institution in the world, the 22 millions Other securities at least 
 must be bills discounted. This is an error. Besides the property 
 in premises and other matters of this kind, the greater portion of 
 the Other securities c 6 nsists of investments made by the bank in 
 interest-bearing securities, such as railway debentures, colonial 
 securities and others. What the precise nature of these securities 
 is, has never been published, they might include mortgages or other 
 unsaleable matters, but it is surmised that they are mostly bonds 
 as mentioned, purchased by the bank. But for the Parliamentary 
 returns the public would never have known that the other securities 
 are not bills. 
 
 At various times, the bills discounted have amounted to between 
 2 or 3 millions, and the advances to between half and 1 million. 
 At other times they are higher, and in case of bullion withdrawals 
 reach a sum equivalent to these, but the total average of bills thus 
 held by the bank since 1844, scarcely reaches 6 millions. In the 
 year 1875, the Other securities amounted at one time to 20 millions, 
 of which only 2 millions were bills, and 2 millions temporary, 
 advances. In the diagrams before you, the bills discounted by the 
 Bank of England accordingly form but a loose fringe at the top, 
 whereas in all the other banks they form the most important item. 
 
 Referring now to the diagrams, I ask permission to postpone 
 the comparison between the Banks of England and France until I 
 come to the second more extensive set of diagrams, in which the 
 accounts for several years are given. 
 
 Meantime I proceed with the Beichsbanh of Germany. The year 
 represented is the first of its existence under the new law, and the 
 deposit business has made a very fair beginning. The upper red 
 portion are deposits at interest; the bulk, in pink, are balances of 
 current accounts without interest. Almost all the States in 
 Germany, Bavaria, Wiirtemberg, Saxony, &c., have their chief 
 banks, and there are other joint stock banks and bankers which 
 come into competition with the Reichsbank. In course of time the 
 latter will, no doubt, much increase its business. As you see, the 
 note issue and bullion (all in gold) are already larger than those of 
 the Bank of England. On the asset side of the banking business 
 you will perceive that the greater portion of the assets consists of 
 
11 
 
 of England and Various other National Banks. 
 
 bills discounted. A small part only are advances. The Reichsbank 
 holds no, or only very few, Government securities or other stocks 
 whatever, neither in its banking nor in its issue business. Now, 
 this is not due to the fact that there are not sufficient Government 
 and Other securities in the German market; although our English 
 national debt is larger, yet there are plenty of imperial and other 
 State debts in Germany besides securities similar to those held by 
 the Bank of England. But the management of the Reichsbank (as 
 direct proof of its total independence of Government influence) 
 says to itself: — 
 
 “ We know that the aggregate securities floating in, or to be had 
 “ in the market, consist of Government stocks, railway debentures, 
 “ securities to advance upon and mercantile bills, in which all 
 “ banks must share. We will take our share in bills. If anybody 
 “ wants notes from us, he must either bring gold or good short 
 “ mercantile bills.” 
 
 Nothing can be more plain and logical. It does not involve a 
 mere matter of policy, but recognises a distinct right. The note 
 circulation is wanted less for the purposes of credit (for the large 
 percentage of cover by bullion precludes, as a rule, this suggestion), 
 but because it is a necessity on the ground of convenience, as well 
 as for the equalisation of the currency; and in all countries where 
 specie payments prevail, the bank-note circulation forms a regular 
 element and a steady percentage of the total currency. And by 
 insisting upon its right of choosing bills as security, the Reichsbank 
 compels the other banks to take in more Government and other 
 securities by way of reserve. The bills thus acquired are the 
 “finest” endorsed, or short bills, and by the organisation of its 
 clearing system all over the country, bring the Reichsbank into 
 continuous connection with the currency generally. Moreover, the 
 Reichsbank obtains these bills at its own rates of interest, although 
 the market rates are frequently § or i per cent, below the bank 
 rate, as they are here. On the whole, however, the market remains 
 in accord, the bank being, by its action, the tranquillising factor. 
 During 1876 its rates were respectively 5 , 4 , 3 ^, and 4 per cent, for 
 bills. For advances on public securities the Reichsbank charges 
 1 per cent, more, so as to discourage the habit of borrowing money 
 upon a contract already made. 
 
 For the issue of notes of the Reichsbank, the old outward limit 
 of a minimum of 33 ^ per cent, of bullion has been maintained, but 
 the bank has to pay a rate of interest or penalty of 5 per cent, per 
 annum on such fiduciary issue above the sum of £ 12 % millions 
 which it has free. This penalty betrays the rough economical pro¬ 
 ceeding of the Government, but the principle, carried out in a 
 more scientific method, is worthy of attention. For all practical 
 
12 
 
 Seyd —Diagrams Exhibiting the Positions of the Bank 
 
 purposes, however, the free limit of £i 2 | million (since increased 
 bj issues resigned bj other banks, to about £132 million), contains 
 precisely the same principle as Sir Robert Peel’s Act with the 
 £15 millions of. the Bank of England, viz., the limitation by 
 amount. But there is this very important difference, the Bank of 
 England at once makes use of its issue right, as both minimum and 
 maximum at all times, and holds what is called a reserve of notes, 
 whilst the Reichsbank only issues as much of the £ 12 ^ millions 
 as actually wanted, keeping the rest as issue in reserve , and treating 
 the limit as maximum only. Hence whilst the note reserve in the 
 Bank of England is a non-interest-bearing asset in the banking 
 department, as the diagrams show, the issue reserve of the Reichs¬ 
 bank stands apart from the accounts, as indicated by the margin at 
 the end of the circulation line, called Free Reserve. 
 
 The Reichsbank issues weekly statements, and also an ample and 
 elaborate yearly report on its doings, expenses and profit. It also 
 issues a book containing some thousands of names of its customers 
 who keep current accounts at the head office and the branches, and 
 thus enables firms to “clear” accounts with each other all over the 
 country without cost. The question whether this freedom of publi¬ 
 cation is an advance in the science of banking might be decided 
 by ourselves, who like to be at the head of advancement generally. 
 The free fiduciary issue of other banks in Germany amounts to 
 £ 5 ! millions, of not less than 5 1 . per piece; the Government issues 
 £6 million in smaller notes. The Reichsbank must take these notes 
 in payments. 
 
 The National Bank of Austria has the next largest capital to the 
 Bank of England, but if you look at the accounts you will find that 
 the deposits are but very small. Their place is taken by mortgage 
 letters (coloured dull red), which the public take almost as certifi¬ 
 cates of deposits bearing interest, against which the bank has 
 granted loans on mortgage of land, &c. (coloured brown). In 
 other countries, mortgages by banks are deemed unsuitable, for 
 more than one reason, but in Austria, where borrowing on every¬ 
 thing is the rule, the system is still maintained. The Bank of 
 Austria probably holds the comparatively safest of this class of 
 precarious security. The question of abolishing these mortgage 
 items has been mooted more than once. 
 
 The bills discounted, and advances, form important parts of the 
 assets, and considering the state of the valuation, the Government 
 securities are moderate, the circulation of notes being covered to 
 more than 50 per cent, by bullion (gold and silver in about equal 
 proportions), and about £1 to £2 million of bills payable in metal 
 (viz., bills on England). The Austrian par of exchange is florins 
 xo '2 per 1 at which rate the accounts are converted, although the 
 
of England and Various other National Banks. 13 
 
 actual exchange has run between florins 12 to i 2 f per il. But as 
 the bank states its bullion at par, which adds about 20 per cent, 
 more to the metallic cover on the present value of tbe bank notes, 
 it seemed fair and suitable to convert the whole accounts at the par 
 of exchange. This makes them larger by 20 per cent, than they are 
 in actual sterling exchange, but as the accounts could otherwise not 
 be balanced, and as the bank has so fair a portion of bullion, it 
 seems entitled to the parity. Indeed, the depreciation of the 
 Austrian exchange is not due to the issue and the management of 
 the National Bank of Austria, but to the uncovered and uncertain 
 note issue which the State itself makes separately. The fiduciary 
 limit of the bank until now is 200 millions of florins, and the 
 margin at the bottom of the diagram represents its reserve. The 
 rates of interest in 1876 were 5 and 4 ^ per cent. The impending 
 change in the bank in relation to Hungary is about to take place. 
 
 The Netherlands Bank , as the diagrams show, is a moderate and 
 compact institution, holding no Government and other securities, 
 but using its capital and deposits in bills and in advances. The 
 careful Dutchman does not deposit in banks, but prefers investing 
 his capital in international stocks of all kinds. The issue of the 
 Netherlands Bank is covered with bullion to about 90 per cent., 
 mostly gold, and partly silver. The law provides that the king 
 shall determine the limitation of the issue, and in accordance 
 therewith, it has been determined that for the liabilities in de¬ 
 posits, &c., and note issue combined (a junction between the two 
 not found elsewhere), there shall be a minimum cover of 40 per 
 cent, of bullion. The margin of reserve at the bottom of the 
 diagram shows the issue which this solid institution had to spare 
 during 1876. The rates of discount in 1876 were 3 ! and 3 per 
 cent. No other bank in Holland has the right of issue. 
 
 The National Bank of Belgium resembles the Bank of Holland 
 in extent, and holds mostly bills discounted, and very few Govern¬ 
 ment and other securities. But as regards bullion there is a great 
 difference, the bank holding a smaller proportion. The law deter¬ 
 mines that the issue of notes shall be covered by a minimum of 
 33 j per cent, of bullion, but tbe finance minister has power to 
 allow a further extension. The bank goes very close to this first 
 liberal limit, and exceeded it at the end of the last, as well as during 
 the present year. M. Malou, the present finance minister, informs 
 me that he has no hesitation to allow such further issue, because 
 among the bills discounted there is a considerable amount of bills 
 on foreign countries, which in case of need have the same effect 
 as bullion. This is true, but at the same time the actual amount of 
 such bills ought to be continually stated, and on the whole, according 
 to our notions and practices, the amount of bullion seems too small 
 
14 Seyd — Diagrams Exhibiting the Positions of the Bank 
 
 in any casG. Tlie National Bank alone lias tlie right to issue notes. 
 The rates of interest were in 1876, 4 ^, 4 , 3> 2 i 3i 2 2 P er cerL f- The 
 people in Belgium have great facilities of investing small sums in 
 all sorts of small bonds of sound local and other undertakings. 
 
 The National Bank of Italy has a fairly large capital, of which a 
 small portion is still unpaid. The deposits are small, but it must 
 he borne in mind that it is a comparatively young institution, and 
 that the former old banks of the divided States, such as the 
 National Bank of Tuscany, the Bank of Naples, the Roman Bank, 
 the Bank of Sicily (which also have note issues), and others, are 
 powerful institutions in their way. The necessities of the State 
 have caused a large over issue of paper, and the bullion held is 
 small, but as this bullion is stated at par, I have, in spite of the 
 depreciation of exchange, converted the accounts at the par value, 
 as in Austria. The law of issue of bank notes in Italy has lately 
 been altered to the following effect: The State, together with the 
 National Bank and the six other issuing banks, withdraw their 
 special notes, and “ consort together for a total issue of 60 million 
 “ pounds of notes. These notes are Biglietti consorziali.” The 
 National Bank may make a total issue of these to £40 millions 
 sterling, the others divide the balance. It will be seen that the 
 National Bank has so far, in 1876, issued from £13 millions sterling 
 to 16 millions, having the balance to spare by way of what may be 
 called reserve of issue. The process of changing these notes is now 
 going on; meanwhile a portion of the State notes or Biglietti con- 
 sorziali appears as assets in the issue department against the special 
 notes of the bank to be withdrawn. The rates of discount in 1876 
 were 5 and 4 per cent. 
 
 The State Bank of Russia looks large, like everything in Russia, 
 swollen up by several unaccustomed items, and I have been sorely 
 puzzled how to treat its accounts. These are published from time 
 to time, sometimes with the accounts of the head office alone, then 
 with that of the branches added, and sometimes the latter are 
 debited by the former in a curious way. But what is most extra¬ 
 ordinary, is the fact that the Russian Bank, instead of taking its 
 bullion at the metallic par (like the other over-issuing banks of 
 Austria and Italy), seems to take it at its paper value, and so 
 increases the amount apparently. Having no means of verifying 
 these rates, I have been obliged to convert the whole of the 
 accounts at the London rates of exchange on Russia, so that the 
 extent appearing represents the presumed metallic value of the 
 accounts. The contraction in the accounts towards the end of the 
 year is therefore due to the fall of the exchange. I must state, 
 however, that this is not reliable, and altogether claim exemption 
 as to absolute accuracy of these accounts, for the statements are so 
 
15 
 
 of Fvgland and Various other National Bantes. 
 
 complicated, and bear so much the appearance of what we call 
 “ cooking,” that I had no other means of arriving at a fair repre¬ 
 sentation of ■ the case than by doing a little cooking myself as 
 regards certain odds and ends. 
 
 The capital of the bank is the smallest of all great banks. It 
 bears a superstructure of certain other liabilities (coloured pink) ; 
 bills to order (dark red). At the top the State balances (dark 
 red) show a rapid decline towards the autumn of the year; then 
 follows downwards a strip of pink, as deposits without interest; 
 another dark red, as deposits with interest. Below these, and above 
 bills to order, follow about £30 millions (coloured dull red) marked 
 “ Accounts Bearing Interest,” and “ Special Accounts.” What 
 these are I do not know, and have been unable to ascertain. One, 
 who ought to know Russian finances well, told me he believed they 
 were fancy work, but I can hardly imagine what motive there 
 could be for assuming such a liability for nothing. They may be 
 loans by other banks or other institutions and persons; it is a pity 
 that they are not more openly described. Besides the bills and 
 advances shown in the diagram as assets, the whole balance consists 
 of advances to the State, and State securities for the issue with 
 4 per cent. State notes, the bullion at the end (even if it has an 
 actual existence) being but about 20 per cent, on the circulation. 
 The rates of discount in 1876 were 6 |, 6 , 7 ^, 9 , 7 , and 8 per cent. 
 The Bank of Russia divides its accounts into issue and banking 
 departments, like the Bank of England, but states no express 
 reserve, as the issue is at the will of the Government. There is a 
 third department, concerning State and liquidation accounts, con¬ 
 ducted for account of the State, independently of the former, from 
 which a balance due to the bank is debited to the State in the 
 banking department. This latter set of accounts is not included in 
 the diagram, but the balance due appears as advances to the State. 
 
 I now come to the accounts of the Bank of England and 
 France as specially represented by the second set of diagrams, giving 
 these accounts from the year 1868 to 1876. In these, as shown, I 
 give the assets chiefly, the liabilities of capital and deposits being 
 indicated only by the red and black lines. The line of liability of 
 circulation is the same as the lower line of bullion. 
 
 In glancing at these diagrams, it is needless for me to say much; 
 you can all see what power the Bank of France has displayed. In 
 1868 to 1870 the principal assets were bills discounted. The bank 
 makes advances on securities, but generally at a higher rate. Of 
 Government securities, the bank held a sum of £ 6 ^ millions, 
 of which 4 millions were an advance to the State treasury, for 
 which, however, no actual need existed then for either party. The 
 
16 Seyd —Diagrams Exhibiting the Positions of the Bank 
 
 bullion held before tbe war amounted to £52 to 55 millions against 
 the Bank of England’s stock of £17 to 23 millions. Shortly after 
 tbe outbreak of war in 1870, and on tbe first reverses, there was a 
 withdrawal of bullion to the extent of £3 5 millions within a few 
 days, the bank paying out without any hesitation. Then came the 
 interval of the sieges when no accounts were published, until, 
 when in 1871 peace was restored, the accounts opened with an 
 immense circulation on a bullion basis of £27 millions. The large 
 amount of first class bills then taken in, shows what amounts 
 other bankers must have held. After the war and sieges the loss 
 on these bills amounted to about quarter per cent., a proof of 
 'their quality. Specie payments had been suspended, but the term 
 does not apply in its full meaning; all that was done was that 
 legal tender rights were given to the notes, which hitherto they 
 had not had, but which Bank of England notes always enjoyed, 
 the practical difference being that the issue department of our 
 bank is compelled to pay notes in gold, or suspend payment, and 
 by so doing annul the legal rights, whilst the issue of the Bank of 
 France was not compelled to do so. In reality, the suspension of 
 specie payment was nominal, and when for a short time in 1873 
 the exchange in London was against France, plenty of gold came 
 over, the premium lasting only a short time. For all the rest of 
 the time there has been no opportunity of testing the suspension 
 of specie payments, for the simple and most effective reason that 
 the exchange has always been in favour of France, that gold 
 streamed in and was not called upon for export, such export being 
 the only real cause of suspensions of cash payments. 
 
 Mark, now, how the Bank of France, at first making large 
 advances to the State for payment to Germany, and to satisfy the 
 demands for replenishing the amount of currency by notes, 
 gradually and steadily diminishes the Government securities and 
 acqu ires bullion; until, at the present time, it has reduced the 
 former to a comparatively moderate sum, and has covered its 
 enlarged issue with 90 per cent, of bullion (one-fourth of which, 
 by-the-way, is silver). During all this time, notice how it has 
 assisted bankers and the community at large with discount of 
 bills ; and if you desire evidence of the contract and deposit power 
 of the French, note how in 1872, when the large loan was brought 
 out, the deposits suddenly increased by £34 millions, apart from the 
 amounts paid in by the public to other bankers. 
 
 I say to you emphatically, that this astounding result ought to 
 teach us a grand lesson. ISTo plea concerning our peculiarities, no 
 preconception as to the validity of certain economical doctrines 
 twisted out of shape by practice, hold good against the facts here 
 shown to you. That in the event of war, this country could do a 
 
17 
 
 of England and Various other National Banks. 
 
 great deal, as it has done before (but it would be a painful struggle 
 between the Bank aud the commonwealth), I will allow. In 
 France, the law simply fixed a limit of £128 millions to the total 
 issue, and left the bank to carry out the great tacit principles of 
 firstly : not issuing more, either to the public or to itself (as the Bank 
 of England does from the issue to the banking department) than 
 absolutely required for circulation, keeping the balance of issue in 
 reserve (as shown in the diagrams) ; and secondly: of reacquiring as 
 much bullion as possible by poising the rates of discount, so as to 
 affect prices in favour of export, and in discouraging imports. The 
 import of bullion was the direct consequence of this action. And 
 this result has been achieved by rates of interest of 5 , 6 , 5 , 6 , 7 , 6 , 5 , 
 from 1871 to 1873, whilst in 1874 the rate fell to 4^ and 4 per cent., 
 last year to 3 per cent., and this year, for the first time in the history 
 of the bank, to 2 per cent., for no other reason than that the bank 
 has really acquired too much bullion. 
 
 I think that if you take into account our greater wealth and 
 productive power, our greater solidity in social matters, you may 
 allow me to start the broad suggestion, that the Bank of England 
 ought to be a more powerful and effective institution than the 
 Bank of France. I chafe at the fact that it is not so, and if you 
 now look at the diagrams of the Bank of England for the same 
 period you will see the case. 
 
 The Bank of England since 1844 has made scarcely any progress. 
 In 1844, the total exports and imports of this country amounted to 
 125 millions; in 1873 they were 682 millions, or fivefold as much. 
 In almost every branch of trade here and abroad, this fivefold pros¬ 
 perity has been responded to, excepting only the Bank of England, 
 whose business is but little larger now than it was in 1847. This 
 singular fact cannot be explained by such phrases as, the bank has 
 become the bankers’ bank, and kindred suggestions. The power of 
 its 18 millions capital and rest is the same as that of other banking 
 capital; the principles of the issue were in 1844 the same as now. 
 It is said the competition of other banks and bankers has brought 
 about the result, and “ the Bank of England is more conservative.” 
 Conservatism must always be honoured ; but here we find that our 
 other banks and bankers have gone on increasing in accord with 
 general prosperity. We may ask then whether this concurrence 
 between them and the public is not rather the true conservative 
 principle. When, however, as the case of the Bank of England 
 shows, this conservatism is pleaded as an excuse for non-develop¬ 
 ment, another term must be substituted for it. You may agree 
 with me that when in any commonwealth such an important factor 
 remains behindhand in the measure the Bank of England has done, 
 
18 Seyd — Diagrams Exhibiting the Positions of the Banlc 
 
 it must drag general progress, in spite of all protestations as to its 
 other merits. The want of progress does not concern the bank’s 
 shareholders only, bnt is a matter of the highest public impor¬ 
 tance. 
 
 Sir Robert Peel, as his speeches show, anticipated a different 
 state of things, a considerable increase in the bank’s affairs, as the 
 commerce of the country increased. I am of opinion that this 
 want of development in the affairs of the Bank of England cannot 
 be explained away by mere assertions, that it has a distinctly 
 traceable cause. 
 
 I must now tell you that in submitting to you these diagrams 
 for the purpose of giving information on the relative position of the 
 great foreign banks, it is my special object to utilise them also, in 
 order to demonstrate to you the cause which places the Bank of 
 England into the abnormal position which it seems to occupy. 
 
 This cause arises in the issue department of the bank. We all 
 know that Sir Robert Peel, by limiting the issue of notes on 
 securities, intended to modify the fluctuations in bullion held by the 
 bank, which led to the monetary disturbances before 1844. Strange 
 to say, since then these fluctuations have been much more violent. 
 We all know that ever since 1844 the Bank Act has been under 
 discussion, that Royal Commissions have set upon it, that the 
 literature on the question is most extensive, and that no result has 
 been obtained. The conflicts which manifest themselves in our 
 money-market and the frequent and violent changes in the rate of 
 discount (those of the last nine years being more than one hundred), 
 are subject to all sorts of explanations, more or less secondary in 
 their nature. The impression prevails that nothing can be done 
 with the Bank Act, that the Royal Commission inquiries and 
 general discussion have exhausted the subject. You may therefore 
 be prejudiced against me if I open the matter again, but permit me 
 to state this: The point I am going to bring before you has never 
 been mentioned before in any of the Royal Commission inquiries, has 
 never been alluded to in the vast discussions and correspondence on 
 the subject, and yet it forms an integral part of the Act itself. 
 
 The Bank Act provides that the Bank of England shall issue 
 bank notes on gold, and on £15 millions of Government securities. 
 The principle of such limitation by a definite amount of so much 
 fiduciary issue is acceptable, and we may take it as agreed upon. 
 
 But how should this fiduciary issue be made ? Should the 
 £ 15 millions be issued at once, as the bank does now ? I say no ! 
 and allege that “ the present permanent issue of these notes is the 
 “ sole cause of all the anomalies from which the bank and our 
 “ mone y market are suffering. The issue of these notes should 
 
19 
 
 of England and Various other National Banks. 
 
 “ only be made pro rata, as the occasion demands, and should be 
 “ lessened again when the necessity for its use has ceased.” 
 
 My first appeal in confirmation of this yiew must be addressed 
 to the educated logician. In any combination between two factors, 
 where the object is that of bringing about equal, or somewhat equal 
 proportions, it is evidently wrong to use one of the factors at all 
 times at its maximum or so to express it: as minimum and maximum 
 continually; the very object in view must thereby be defeated, 
 and the fluctuations in the other factor intensified. The logician 
 requires no more in order to see my case. 
 
 I explain this more familiarly by stating that Sir Robert Peel 
 established the limit of 15 millions of such issue, in order to secure 
 the greater convertibility of the note, and a larger proportion of 
 gold. In this the Act succeeded, although at certain times the so 
 called suspensions, on account of insufficient bullion, took place. 
 But this was not his only object. What troubled him more were 
 the violent contractions in the bullion, and the high rates of 
 interest, and he dwelled specially on his anticipation that the 
 fiduciary limit would modify them. In 1847 he confessed that this 
 was his chief object. Why has it failed ? Common sense should 
 tells us that if in this combined bullion and fiduciary issue it is the 
 bullion which is subject to conkradion and expansion, it is surely wrong 
 to keep the issue of notes on Government securities at the fixed figure. 
 On the contrary, it is this fiduciary issue which ought to contract 
 and expand (within the limi ts assigned), so as to give bullion the 
 better chance to remain. 
 
 Did Sir Robert Peel himself say that this issue of 15 millions of 
 notes on Government securities should remain permanent, and are 
 the directors of the bank bound thereby ? One of the most 
 remarkable cases of neglect or misunderstanding of written law 
 can here be shown to you. Clause 2 of the Act, that which 
 determines the principle and practice of the issue, says :— 
 
 “ And be it enacted, that upon the 31 st of August, 1844 , there shall be 
 transferred, appropriated, and set apart to the issue department, securities to the 
 value of 14 millions, whereof the debt due by the public to the bank shall be 
 deemed a part; and there shall also be transferred to the issue department so 
 much of the gold com and gold and silver bullion then held by the Bank of 
 England as shall not be required by the banking department; and thereupon 
 there shall be delivered out of the issue department into the banking department 
 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 department as aforesaid, 
 shall be deemed to be issued on the credit of such securities, and coin and bullion 
 so appropriated to the issue department; and from thenceforth it shall not be 
 lawful to increase the amount of securities for the time being in the issue 
 department, save as hereinafter is mentioned; but it shall be lawful for the said 
 
20 Seyd —Diagrams Exhibiting the Positions of the BanJc 
 
 governor and company to diminish the amount of such securities, and again to 
 increase the same to any sum not exceeding on the whole the sum of 14 millions, 
 and so from time to time as they shall see occasion, &c. 
 
 Here then is a distinct and clear authority for the Bank of 
 England to reduce any plethora of money, by a diminution of the 
 “ securities,” and the diminution, I contend, means the re-transfer 
 of these securities from the issue to the banking department, by 
 such portions as the bank may choose, or even by the whole amount, 
 if expedient, from time to time. 
 
 Why has it not been acted upon ? 
 
 That the provision in question has not hitherto attracted the 
 attention of the public, I have already mentioned. There are few 
 people who have ever read this Act. And I may not be far wrong 
 when I say that the listeners to or readers of this treatise, among 
 whom may be several who have written and thought of the Bank 
 Act, have never done so. At the Bank of England itself, it 
 appears that the proviso has been considered, and that the conclu¬ 
 sion as to its meaning was: that Sir Robert Peel contemplated 
 this diminution to come into operation in the event of a total reduc¬ 
 tion of the circulation to the figure of 15 millions or thereabouts. 
 In Sir Robert Peel’s speeches there is no evidence whatever to this 
 effect, but plenty to the contrary; he stated distinctly, when chal¬ 
 lenged on the point of future circulation, that he anticipated a large 
 increase in it. A decrease of circulation would also be a gradual 
 effect, to which the phraseology is quite unsuited, for this, in the 
 words “diminish,” “ again to increase,” from “time to time,” is 
 distinctly applicable not only to the frequent recurrence of the 
 event, but also to its continual observance. 
 
 The question may here be asked: Why did not Sir Robert 
 Peel himself insist more explicitly on this principle ? Sir Robert 
 Peel had been told that an average circulation above bullion before 
 1844 was about 11 millions, and I can quite believe that he 
 imagined this ratio would continue, as generally he anticipated 
 more regularity. He therefore attached less importance to the 
 proviso, but I am satisfied that if he were now alive, he would, in 
 five minutes’ time, recognise the importance of the point, already 
 provided for by what may be called at all events his instinctive wisdom. 
 
 In justice to the directors of the Bank of England, it is, how¬ 
 ever, requisite here to state that Clause 8 of the Act is, if not in 
 conflict with Clause 2 , at least incomplete. Clause 8 has no direct 
 connection with the principle of the issue, it provides merely for 
 the share of profit which the State is to derive from the privilege 
 of issuing the 14 millions of notes on securities. It is worded 
 
 “ Clause 8.—And be it enacted, that from and after the said 31 st day of 
 August, 1844 , the payment or reduction of the annual sum of izo.oooZ., made by 
 
of England and Various other National Banks. 21 
 
 the said governor and company under the provisions of the said Act passed in the 
 fourth year of the reign of 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 consideration ot 
 the privileges of exclusive banking, and the exemption from stamp duties given 
 to them by this Act, shall, during the continuance 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 a hundred 
 and eighty thousand pounds, anything in any Act or Acts of Parliament or 
 in any agreement to the contrary notwithstanding: Provided always, that such 
 deduction shall in no respect prejudice or affect the rights of the said governor and 
 company to he paid for the management of the public debt at the rate and accord¬ 
 ing to the terms provided in an Act passed in the forty-eighth year of the reign 
 of his late Majesty King Geoi’ge III, intituled ‘ An Act to authorise the advancing 
 for the Public Service, upon certain conditions, a proportion of the Balance remain¬ 
 ing 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 Manage¬ 
 ment of the National Debt. 5 55 
 
 Tlie essence of tins clause is that for the privilege of the issue 
 of 14 millions, the bank shall give to the State a fixed sum of 
 180 , 000 /. per annum. (As the sum has since been increased to 
 15 millions, the fixed sum is now 195 , 000 /. per annum.) It must be 
 evident to all, that this compromise, although perhaps agreeable to 
 the Chancellor of the Exchequer as a regular item, is wrong in prin¬ 
 ciple, for either the State or the bank must lose by it, and that the 
 pro rata rule ought to prevail, especially in matters where nice 
 adjustment is required. But as Sir Robert Peel, as before mentioned, 
 imagined that the average sum of fiduciary issue in circulation 
 would range at 10 to 11 millions, he did not deem it worth while to 
 alter the amount. I am convinced that under the experience since 
 gained, which shows that the fiduciary issue has ranged from 
 minus 2 (1857) to plus 21 millions (1876), within a total range of 
 23 millions, he would have recognised the necessity of varying the 
 profit of the State in accordance therewith. But as the Clause 8 
 now stands it is incomplete. The 180 , 000 /. apply to the supposed 
 full issue of 14 millions in Clause 2 . Clause 2 , however, contains 
 also the proviso for a diminution of the issue on securities. Now 
 whether this proviso bears the construction which the directors of 
 the bank put upon it, as before mentioned, or that for which I 
 contend, it is perfectly obvious that Clause 8 ought also to provide 
 for a reduction of the State’s profit with such possible reduction of 
 the issue on securities. The omission is probably due to the 
 draftsman of the Bill, and is more of the nature of a clerical error, 
 which might be easily rectified. The matter might be so arranged 
 that on the average the exchequer would receive the same sum, a 
 suggestion to that effect lies near at hand. 
 
 And I say, that this rectification in Clause 8 is all the alteration 
 
22 Seyd — Diagrams Exhibiting the Positions of the Bank 
 
 required in the Act of 1844, that everything else can stand as it is. 
 Upon this the bank wonld, as a matter of interest no less than as a 
 direction, act in accordance with the wording of Clause 2. 
 
 I bring the case at once so far in its theoretical and practical 
 legal aspect, and doubt not that many require no more in order to 
 lead them to the recognition of the truth. But there are others 
 who will sa j, firstly, “ If you thus reduce the issue on Government 
 “ securities, where is our reserve ?” In order to show what ought 
 to be done, let me here give you a pro forma account of the Bank 
 of England, say at a time when the bullion is of the same amount 
 as the notes in the hands of the public, and its full 15 millions of 
 notes in reserve. 
 
 Liabilities. 
 Notes issued . 
 
 1 . Issue Department. 
 
 £ Assets. 
 
 Government securities .... 
 
 43,000,000 Other securities . 
 
 Gold and silver bullion .... 
 
 43,000,000 j 
 
 £ 
 
 11,015,100 
 3,984,900 
 28,000,000 
 
 43,000,000 
 
 Banking Department. 
 
 £ 
 
 Capital. 14,533,000 
 
 Rest. 3,467,000 
 
 Public deposits . 5,500,000 
 
 Other ,, 21,000,000 
 
 Seven days’ bills. 500,000 
 
 45,000,000 
 
 £ 
 
 Government securities .... 15,500,000 
 
 Other securities . 14,000,000 
 
 Notes . 15,000,000 
 
 Gold and silver coin . 500,000 
 
 45,000,000 
 
 Here we find that 15 millions of Government securities are in 
 the issue, and 1 j millions of notes in reserve. 
 
 These notes are actual legal tender money created by the Act, 
 and have all the attributes of an unemployed surplus of cash. 
 
 By diminishing, as Clause 2 allows, the “ securities ” to the 
 full extent, the account would become, 
 
 Liabilities. 
 Notes issued . 
 
 2 . Issue Department. 
 
 £ 
 
 28,000,000 
 
 Assets. 
 
 Government securities .... 
 
 Other securities. 
 
 Gold and silver bullion .... 
 
 £ 
 
 Nil 
 
 28,000,000 
 
 28,000,000 
 
and Various other National Banks. 
 
 23 
 
 Capital . 
 
 Best. 
 
 Public deposits . 
 Other „ 
 Seven days’ bills 
 
 Banking Department. 
 
 
 £ 
 
 
 £ 
 
 14,533,000 
 
 Issue, Government se- \ 
 curities .J 
 
 11,015,100 
 
 3,467,000 
 
 5,500,000 
 
 21,000,000 
 
 500,000 
 
 Issue, other securities .... 
 Government „ 
 
 Other securities . 
 
 3,984,900 
 
 15,500,000 
 14,000,000 
 500,000 
 
 Gold and silver coin . 
 
 45,000,000 
 
 
 45,000,000 
 
 But, it will be said, by tbis mere change of account you take 
 away the reserve of notes. Yes, tbe mere change of account has 
 this effect, as the Act on the 1 st day of September, 1844 , created 
 that reserve of notes, and this shows that such a change of 
 accounts has a definite, and not a fanciful effect. But although the 
 reserve of notes has disappeared, there remains under Clause 2 , 
 
 The reserve of issue of 15,000,000 1 ., 
 under which the Bank of England has the right “ again to 
 “ increase ” the issue of notes, within the limit assigned, or to 
 “ diminish again.” And I recommend that this issue be made only 
 to the extent required for filling up the amount between the notes 
 actually in the hands of the public and the amount of bullion held, 
 and that the balance of the 15 millions be kept in unissued reserve. 
 Thus, on the supposition, for instance, that there are but 
 22 millions of bullion to 28 millions of notes in active circulation, 
 requiring £6 milli ons of the £15 millions of issue securities, the 
 account would be— 
 
 £ 
 
 6,000,000 
 22,000,000 
 
 28,000,000 
 
 3 . Issue Department. 
 
 £ 
 
 Notes issued . 28,0 
 
 Assets. 
 
 Government and other "I 
 
 securities.J 
 
 Gold bullion . 
 
 Capital .. 
 
 Best. 
 
 Public deposits . 
 Private „ 
 Seven days’ bills. 
 
 Banking Department. 
 
 £ 
 
 1 4 > 533) 000 
 
 3,467,000 
 
 5,500,000 
 
 21,000,000 
 
 500,000 
 
 Issue, Government and 1 
 
 other securities .J 
 
 Government securities .... 
 
 Other securities . 
 
 Gold and silver coin . 
 
 £ 
 
 9,000,000 
 15,500,000 
 20,000,000 
 500,000 
 
 45,000,000 
 
 45,000,000 
 
 leaving reserve of issue, 9,000,000 1 . 
 
24 
 
 Seyd — Diagrams Exhibiting the Positions of the Bank 
 
 The “other” securities in the banking department have 
 increased by 6 millions, let us say by “ bills discounted.” And so, 
 whether there be i, or 2, or 6, as here assumed, or 8 or io millions 
 of the 15 mi llions of issue on securities required, would the account 
 alter, and by increase or diminution it might be so carried on, and 
 change from week to week, or day by day, always leaving the 
 same margin of reserve of issue as is now done by reserve of notes. 
 
 The question may now be asked, what difference will this 
 make, whether the securities are held in the issue or the banking 
 department of the bank, they bear the same rate of interest or 
 profit in either ? The matter of method of investment and profit 
 will be considered later on, in connection with the banking depart¬ 
 ment, and the above question should rather be : 
 
 What difference will it make, whether the bank has reserve of 
 actual notes or a reserve of issue? The difference is this: the 
 reserve of notes now created consists of actual legal-tender money, 
 in excess of what is required for circulation, and the low rates of 
 interest adopted on account of its existence are the causes which 
 drive away bullion. A reserve of issue, not consisting of actual 
 legal tender notes, would not have this effect. 
 
 What is the use of the present often excessive reserve of notes ? 
 We hear so much of banking reserve, either as being too small or 
 found wanting in some way or another, that we should at all 
 events closely examine what is the truth, for there is no subject in. 
 regard to which such great errors exist as this. The phraseology 
 current says: “We have so many liabilities, our business is so 
 “ large, so many imprudent investments are made, and we have 
 “ but the small reserve of notes at the Bank of England.” This 
 phrase shows how thoroughly the subject of investment and reserve 
 is misunderstood. The contracts which are made in the market in 
 capital or banking money are entirely apart from the question of 
 currency or bank notes and their circulation. No amount of actual 
 cash in reserve can prevent the incurring of such bad contracts; 
 they do not consume, nor do they require, circulating money, even 
 in the event of crisis. The total amount of money circulating is, 
 for the time being, a definite one. We here in England, after 
 settling a great portion of our business by banking, bills, cheques, 
 and clearing systems, require a currency, which is composed for 
 the time being as follows:— 
 
 £ 
 
 105,0 millions of gold coin. 
 
 18,0 „ silver and copper coin. 
 
 15,8 „ country notes. 
 
 2 7>5 » Bank of England notes, against which (sayl 22 mil¬ 
 
 lions bullion are held. 
 
 166,3 
 
25 
 
 of England and Various other National Banks. 
 
 The country can use no more or less currency, unless by the 
 natural expansion or contraction of population, prices, and business 
 generally. In this composition of the currency, the Bank of 
 England notes are the most variable, because not only does the 
 bank virtually employ the mint, and its notes act as temporary 
 stop-gaps, whilst gold is being coined, but the Scotch, with provin¬ 
 cial banks, make well-known periodical demands for and returns of 
 gold. Tet in spite of this greater variability, the circulation of the 
 Bank of England note is fairly regular, increasing gradually, as 
 from 1844 it has increased, from 21 to 29 millions in 1876 . And 
 what is more important than all, and perhaps not sufficiently 
 known, is that even in times of crisis the public do not require 
 more bank notes. In 1847 and 1857 the circulation remained on 
 the same level. The panic, as far as it concerned the Bank of 
 England note issue, was not due to more money required by the 
 public, but to the loss of bullion by the bank. In 1866 , during the 
 extreme panic, it rose suddenly by 3 millions, but they returned 
 immediately. If you have understood me in regard to the reserve 
 of issue, you will perceive that variations of two or three or more 
 millions of notes might easily be met by carrying out the true 
 meaning of Clause 2. It will then seem singular to you that the 
 Bank of England should keep reserves of idle notes, of 10, 15, or 
 more millions, in the vague anticipation that some crisis may occur 
 in ten years, especially when, as you will presently perceive, these 
 heavy reserves are themselves the cause of the crisis in bullion. 
 
 Why should the bank, when the circulation of its notes for 
 local purposes is limited to 21 or 29 millions, create notes issued of 
 36, 45, or even 50 millions ? What is the use of making an “ issue 
 “ of notes” of 50 millions, when only 29 millions can possibly be 
 used ? 
 
 In order to show the whole case, I herewith give you the 
 lowest and highest amounts of notes in circulation, and notes 
 issued from 1845 to 1876 :— 
 
26 Seyd —Diagrams Exhibiting the Positions of the Bank 
 
 Table showing the Highest and Lowest Amounts of Bank of England Notes 
 in Circulation, and Notes Issued from 1845 to 1876. In Millions. 
 
 
 Notes 
 
 in Circulation. 
 
 Notes Issued. 
 
 1845 . 
 
 £ £ 
 
 20 tO 23 
 
 £ £ 
 
 27 to 30 
 
 ’46 . 
 
 20 „ 22 
 
 27 „ 30 
 
 ’47* . 
 
 l8 „ 21 
 
 22 „ 28 
 
 ’48 . 
 
 17 „ 20 
 
 26 „ 29 
 
 ’49 . 
 
 18 „ 20 
 
 27 , 
 
 , 30 
 
 1850. 
 
 IO to 21 
 
 28 to 30 
 
 • ’51. 
 
 19 „ 21 
 
 27 , 
 
 , 31 
 
 ’52. 
 
 22 „ 25 
 
 31 „ 36 
 
 ’53. 
 
 21 „ 25 
 
 28 „ 34 
 
 ’54 . 
 
 20 „ 23 
 
 26 „ 30 
 
 ’55 . 
 
 ip „ 22 
 
 24 , 
 
 , 31 
 
 ’56 . 
 
 19 „ 21 
 
 23 „ 27 
 
 ’57* . 
 
 18 „ 21 
 
 21 , 
 
 , 27 
 
 ’58 . 
 
 19 „ 21 
 
 27 „ 33 
 
 ’59 . 
 
 20 „ 22 
 
 30 , 
 
 , 34 
 
 1860 . 
 
 19 to 23 
 
 27 to 30 
 
 ’61 . 
 
 19 „ 20 
 
 25 „ 30 
 
 ’62 . 
 
 19 „ 22 
 
 29 „ 32 
 
 ’63 . 
 
 19 „ 22 
 
 27 , 
 
 , 29 
 
 ’64. 
 
 19 „ 21 
 
 26 „ 28 
 
 ’65. 
 
 19 „ 22 
 
 27 „ 30 
 
 ’66* . 
 
 21 „ 26 
 
 26 „ 33 
 
 ’67. 
 
 22 „ 24 
 
 33 „ 38 
 
 ’68. 
 
 22 „ 24 
 
 32 , 
 
 , 37 
 
 ’69. 
 
 22 „ 24 
 
 30 , 
 
 , 35 
 
 1870. 
 
 22 tO 24 
 
 33 to 37 
 
 ’71. 
 
 23 » 25 
 
 34 , 
 
 , 42 
 
 ’72. 
 
 24 » 27 
 
 36 „ 40 
 
 ’73. 
 
 25 » 27 
 
 35 , 
 
 , 40 
 
 ’74. 
 
 25 „ 28 
 
 34 „ 39 
 
 ’75. 
 
 26 „ 29 
 
 35 „ 45 
 
 ’76. 
 
 26 „ 29 
 
 35 , 
 
 „ 50 
 
 * Years of crisis. 
 
 I trust that you will understand what I have here shown as 
 regards the absolute requirements for notes, and the principle upon 
 which the comparative regularity of this requirement rests. The 
 absolute uselessness of the surplus may then be manifested to you. 
 But does the evil rest there ? Were it hut this absolute useless¬ 
 ness the public could afford to laugh at it, but the Bank of 
 England, having this “money” on hand, lowers the rate of interest, 
 even down to 2 per cent., in the vain endeavour to employ it. 
 
 That this endeavour is vain, that the bank obtains less business 
 the lower the rate goes, we all know, and if it placed the rate at 
 i per cent., or less, it would be the same. And you will understand 
 
27 
 
 of England and Various other National Banks. 
 
 that this curious position arises from nothing else than the rule 
 tinder which currency matters stand, viz., the inability ot the 
 country to absorb more notes than it wants. And as the full 
 measure of this ability must be reached at times of low rates, it 
 follows that the very name of “reserve of notes” implies an 
 absurdity. Yet the bank poises its rates in accord with it. 
 
 You will bear in mind that the above remarks refer to the 
 use of the reserve of notes for internal purposes, those of our 
 general home circulation, or home trade if you like; but there is the 
 second, more important use, for the purposes of international trad . 
 We may have to pay money abroad for loans granted by us, or for 
 balances of trade, and gold may be withdrawn from the bank 
 heavily. It is just upon these natural contingencies existing, for 
 and between all nations, that the establishment of a quasi national 
 bank, carried on under a public law a note issue on bullion and 
 securities combined, becomes a necessity. Obviously then, in order 
 to meet such more or less severe or temporary variations in the 
 bullion there must be a reserve, i.e., something which for the time 
 being can replace such bullion. Now if the present surplus of idle 
 notes at the Bank of England is deemed to be such a reserve, I 
 may possibly be abused as a heretic when I say to you: This reserve 
 of notes is not only no reserve at all , but it is the cause which ruins 
 our reserve of bullion, and it is in reality the opposite, the destroyer 
 of reserve ! 
 
 I appeal to common sense, if I ask you the following 
 questions:— 
 
 1. Can the reserve of notes not wanted for circulation at home 
 be used for exportation? You will agree that it cannot; what 
 then is its use ? Pray bear in mind we have already settled that 
 it cannot be used for home purposes. 
 
 2. Does the reserve of notes preserve the bullion held in the 
 bank, or does it attract bullion ? You may not see any reason why 
 it should do the former, but as regards the latter you may, at all 
 events, have your suspicions. 
 
 I, therefore, tell you that this idle reserve does not only fail in 
 preserving bullion, is the cause why bullion can never come to an 
 equable level at the issue department, hut it deliberately compels 
 bullion to leave. Not only is this in accord with what I have said 
 before this as to the principles of adjustment, not only can the 
 simplest reflection on how contraction and expansion must be 
 regulated, lead to this conclusion, but the actual operation itself is 
 practically carried out by the rates of interest. Hitherto the Bank 
 Act has caused discussion and inquiry when interest rose to 8 or io 
 per cent., when the mischief was done. Nobody seems to think that 
 this inquiry ought rather to take place when there is this plethora 
 
28 Seyd —Diagrams Exhibiting the Positions of the Bmlc 
 
 of notes, when the rate is at 2 per cent. Yet then the foundation 
 for the higher rates is laid. 
 
 These low rates deliberately invite, as before stated, the country 
 itself to take notes, and at the same time the foreigner to take 
 bullion. The former is futile, the latter only takes place. It can 
 be shown to you by reference to the exchanges, that the low rates 
 often take away bullion from us, in spite of the foreigners’ indebted¬ 
 ness to us. At other times both the home and foreign trade resist 
 the temptation, until the manifold contracts in both home and 
 foreign commerce, enforced by such low rates, culminate and 
 become tainted with speculation. Then, when a couple of millions 
 of bullion at last go, comes the alarm, up goes the rate, losses on 
 good and speculative business are incurred, and the noise of mutual 
 recrimination and moralising begins over again. But it is not the 
 extremely low rates alone which cause this mischief, they are 
 founded on say 14 or 15 millions of idle notes, almost all the rates 
 formed on lesser amounts must also be wrong in either direction, 
 as those who understand the principle involved will readily admit. 
 Hence the continual want of peace and the nervousness of our 
 markets. 
 
 And it is thus that the Bank of England reserve of idle notes 
 not only plays with the market at all times, but that it drives 
 bullion away; and then when the reserve of notes itself might be 
 wanted, it is found to have disappeared with it. 
 
 But, it will now be said: these variations in the rate of 
 interest occur according to the rules of supply and demand, and 
 further: bankers and other lenders not only follow the bank rates, 
 but are generally offering to do business below them. The blind 
 obedience to what are supposed to be legitimate and infallible 
 results of supply and demand, has had a great deal to do with the 
 errors committed. Formerly, also, the subject of money was not so 
 well understood as it is now by our economists. We have begun 
 to recognise that “money” may mean “coin or currency,” or 
 “ capital, banking money,” and that these are totally different 
 things in contract as well as in substance. The connection between 
 them is but conditional and indirect. Here, as regards the Bank of 
 England issue, the rate is raised on behalf of a portion of one-sixth 
 of our currency ; viz., say 27 millions of Bank of Engl an d notes out 
 of the total of 166 millions current, irrespective of bankers’ deposits 
 and investments in the market. In order to show this, I submit 
 the following statement:— 
 
of England and Various other National Banks. 29 
 
 Accounts of Nine Joint Stock Banks at the End of June, 1866 and 1867 . 
 
 
 30th June, 1866, Bank-rate ] 
 
 :o per Cent. 
 
 
 Liabilities. 
 
 Reserves. 
 
 Bills and Advances. 
 
 Loudon and Westminster.... 
 
 Union. 
 
 Joint Stock. 
 
 London and County. 
 
 National. 
 
 City. 
 
 Consolidated . 
 
 Alliance . 
 
 Imperial. 
 
 £ 
 
 22,637, OOO 
 
 2I,26l,000 
 
 2 °> 39 °,ooo 
 14,114,000 
 10,570,000 
 6,130,000 
 4,363,000 
 2,734,000 
 1,786,000 
 
 £ 
 
 3 , 465,000 
 
 1 , 800,000 
 
 1 , 191,000 
 
 2 , 149,000 
 
 1 , 382,000 
 
 561,000 
 
 1 , 404,000 
 
 423,000 
 
 244,000 
 
 £ 
 
 16,578,000 
 
 16,817,000 
 
 18,129,000 
 
 10,410,000 
 
 4,615,000 
 
 5,224,000 
 
 3,138,000 
 
 2,213,000 
 
 1,518,000 
 
 
 103,922,000 
 
 12 , 619,000 
 
 78,642,000 
 
 
 30th June, 1867, Bank-rate 2 % per Cent. 
 
 
 Liabilities. 
 
 Reserves. 
 
 Bills and Advances. 
 
 London and Westminster ... 
 
 Union. 
 
 Joint Stock.. 
 
 London and County. 
 
 National. 
 
 City. 
 
 Consolidated . 
 
 Alliance . 
 
 Imperial. 
 
 £ 
 
 23,531,000 
 
 19,702,000 
 
 16,299,000 
 
 14,955,000 
 
 8,073,000 
 
 4,690,000 
 
 3,231,000 
 
 2,477,000 
 
 1,709,000 
 
 £ 
 
 2 , 718,000 
 
 1 , 700,000 
 
 1 , 600,000 
 
 2 , 284,000 
 
 869,000 
 
 503,000 
 
 492,000 
 
 317,000 
 
 273,000 
 
 £ 
 
 17,160,000 
 
 14,173,000 
 
 13,569,000 
 
 8 ) 937 ,ooo 
 
 5,700,000 
 
 3,819,000 
 
 2,428,000 
 
 2,060,000 
 
 1,360,000 
 
 
 94,667,000 
 
 10 , 756,000 
 
 69,206,000 
 
 Accordingly, when the rate was io per cent., these hanks had 
 more “ money ” and more “ reserve ” than when it stood at z\ per 
 cent. 
 
 Then why does the market follow the bank-rate, why does it 
 not hold a nniform rate of its own, independently of the Bank ? 
 Ton may be aware that the majority of onr country bankers adhere 
 to a uniform rate of 5 per cent, at all times, but it is not my 
 purpose to say that London bankers should do the same, the rate 
 of interest must vary according to several contingencies; what I 
 contend for is, that as far as the market is concerned, it would not 
 vary so extravagantly and suddenly if the bank did not take the 
 lead in this. The market must follow the bank, for this reason: 
 whenever the latter raises its rates, bankers are not only naturally 
 disposed to make larger profits, but they are forced to follow. For 
 if one of them held lower rates, he would of course be soon over¬ 
 whelmed with business. And so it has become an axiom, one like 
 so many which are had recourse to in the confusion, that bankers 
 
30 Seyd —Diagrams Exhibiting the Positions of the Bank 
 
 must follow the Bank of England’s rising rates. Hence it has 
 become an axiom to say: the rise and fall in the rate of interest is 
 a matter of common natnral agreement or “ market value,” against 
 which it is useless to say anything. Latterly, however, we have 
 seen that whilst the bank raised the rate to 5 per cent., the bankers 
 combined so as to remain at 3 per cent., and thus by combination 
 the above axiom has received its practical denial. 
 
 As far as low rates are concerned the market is still more 
 bound to follow the Bank of England. Then the bank competes 
 against the whole banking community. If at such time bankers 
 endeavoured to hold a rate as high or higher than the bank, 
 it follows that the latter would discount the day’s bill, say for 
 argument’s sake 3 millions. It would pay for these with 3 millions 
 of its sole note reserve, but would this bring 3 millions of notes 
 into circulation ? By no means, the bankers, having missed the 
 bills, would have 3 millions to spare, and pay them into the 
 bank, ergo, the circulation would remain at its level, and the 
 Bank of England would have discounted 3 millions with the addi¬ 
 tional bankers’ balances. Among the many matters which prove 
 that the public have an interest in the affairs of the Bank of 
 England, this has a special claim, and bankers should reflect upon it. 
 
 The fact that the bankers and others at all times hold their 
 rates below the bank rate, is explained through the same cause. 
 Unless they do so they are at all times subject to have their 
 deposits captured by the bank. This unnatural process could not 
 take place if the reserve of notes were converted into a reserve of 
 issue. Other causes for the fact that rates of interest in the market 
 must naturally be somewhat under the rate of the central issue 
 bank of a country, lie in the competition to which the market, apart 
 from the bank, is subject. There is also always a stratum of money 
 coming in, or seeking employment, which is offered before it is 
 incorporated with bankers’ balances. This is the case also in the 
 banking centres of France, Germany, and elsewhere, but the central 
 banks always maintain a standard for the time being, and the 
 market falls back upon this when this intermediate stratum has 
 been exhausted. 
 
 From 1844 to 1876 the number of changes in the rate of 
 interest have been 245—those during the last seven years being 
 95. The range of these rates may be stated as from 2 to 10 per 
 cent. In raising and lowering these rates, the management of the 
 bank is influenced occasionally by other considerations, by failures, 
 wars, and, as at this time, for instance, the demands of Gera •*"' , 7 
 for gold; but on the whole, the “Reserve of Hotes” commands 
 the situation. This command seems to be so imperative, that it 
 actually defeats the action of the bank in regard to the above- 
 
31 
 
 of England and Various other National Banks. 
 
 mentioned contingencies. During the first years after 1 M,■ 
 bank allowed a little more latitude, but experience seems to have 
 led to greater severity, until at this time, the with rawa 
 a-million of gold, or 2 to 3 per cent, on the stock on hand, lead 
 to a rise of i or 2 per cent, on the rate—as recently, fro 3 > 
 
 a,nd j to C per cent, in a few weeks. 
 
 Throughout these oscillations, it will be found that the low ra es 
 are the initiating ones, either in their extreme of 2 per cent, or m 
 their intermediate stages. If they could be modified, we should 
 have a better hold on bullion on the one hand, and on the other 
 hand, by avoiding extremely high rates, avoid also the too abun¬ 
 dant attraction of bullion, which always takes place ; besides which 
 the number of changes would be less than now. 
 
 That we must have variations in the rate for the purpose of 
 regulating the bullion in the bank, no one knows better than myself. 
 One well acquainted with the laws of exchanges, and watching daily 
 what goes on, can measure the infallible mechanical effects of these 
 forces, and regrets that they should be so utterly perverted and 
 actually turned “ against” the object in view, as is the ca,se under 
 this false and destructive system of reserve. The practice shows 
 that with the utmost variations in the rate (for 2 per cent, and 
 10 per cent, may be regarded as such), there are still the utmost 
 possible variations, and that there is just an escape with occasional 
 suspensions of the Act. But if this system of reserve is altered, it 
 will be found that the movements in the rate, and with them the 
 level of bullion, will become more steady—and if, by way of general 
 proposition—an extremely low rate of 2 per cent, initiates a large 
 number of variations up to to per cent., I may be entitled to state 
 that a minimnm rate of 3 per cent, will cause less variations up to 
 5 or 6 per cent. 
 
 I am of course prepared to hear again : What is the difference 
 whether the amount of reserve left is in notes, or in reserve of 
 issue, and how will this latter bring about a lower minimum rate ? 
 Having convinced you, as I trust, of the destructive nature of the 
 reserve of notes, permit me here now to say : 
 
 That the reserve of notes is created by a transaction entered into 
 many yea/rs ago on Government and other securities, say at 3 per cent, 
 interest; and that the interest value of 11 money ” thereby created, is no 
 longer a matter of much consideration, but under the reserve of issue, 
 requiring the transfer of Government securities to the issue department 
 at the time of the demand, the immediate consideration involved would 
 be fiuu of a higher rate of interest than that attached to the issue 
 
 Those who understand the connection between these matters, 
 and are willing to construct Clause 2 as it ought to be constructed, 
 
32 Seyd— Diagrams Exhibiting the Positions of the Bank 
 
 will at once see this point; but in the following portion of this 
 paper, the subject may be made more evident. 
 
 I now come to the banking department of the Bank of England. 
 You are aware that by the Act, it is separated from the issue. 
 You are also aware that a great deal of discussion prevails on this 
 “ separation.” The one party says that the separation is complete ; 
 that the issue is the “ public,” the banking the “ private ” depart¬ 
 ment ; and certain axioms are formed on the notion that the one 
 has nothing to do with the other. Sir Robert Peel himself did not 
 say this, although he provided for the separation of the accounts. 
 Other people say the separation is a mere matter of fancy, and that 
 .the two accounts might be merged into one. 
 
 I agree with the latter, and as I have shown in the diagrams, the 
 foreign banks (excepting that of Russia) follow this plan. [Never¬ 
 theless I say that the separation of accounts between issue and 
 banking may well be maintained, if Clause 8 of the Act is carried 
 out as here suggested, for it would then always show the exact 
 state of the issue, namely, the notes actually in circulation against 
 bullion, and the requisite amount of securities for the difference 
 between circulation and bullion. Any discussion then as to this 
 separation is superfluous. 
 
 I now submit to you the account of the Bank of England of the 
 1 st September, 1875 , which happens to represent the state of things 
 with the 15 millions of notes in reserve. This account is interesting 
 also for the purpose of showing again the play with bullion. You 
 will see by the diagram that at the beginning of the year the rates 
 were 5 and 4 and 3^ per cent., the bank and bullion rose, the bank 
 then went down to 2 per cent., and bullion disappeared again 
 rapidly. The account is as follows :—• 
 
 Weekly Statement of Bank of England, 1 st September, 1875 . 
 
 4 . Issue Department. 
 
 £ Assets. £ 
 
 Government securities .... 11,015,100 
 
 Other securities . 39,84,900 
 
 Gold bullion . 28,332,500 
 
 Silver „ . — 
 
 Liabilities. 
 
 Notes issued . 43,332,520 
 
 43 , 332 , 52 * 
 
 43 5 3 3 2 , 52 0 
 
 Capital .. 
 
 Rest. 
 
 Public deposits . 
 
 Other „ . 
 
 Seven days’ bills, &c. 
 
 Banking Department. 
 
 £ 
 
 1 4 , 533 ,°°° 
 3,680,640 
 4 ,° 93,998 
 25,010,195 
 362,296 
 
 Q-overnment securities .... 
 
 Other securities . 
 
 Notes in reserve. 
 
 Gold and silver coin . 
 
 £ 
 
 i3,59Gi39 
 
 18,369,782 
 
 15 , 043 , 43 ° 
 
 695,778 
 
 47 , 700,129 
 
 47,70°,i29 
 
33 
 
 of England and Various other National Banks. 
 
 There were accordingly in circulation 28,289,090/. of notes, and 
 according to the last parliamentary returns, on the 1 st September, 
 1875 , the bankers’ balances were 12,515,000/. Of the Other 
 securities in the banking department on that date, 4,467,000/. were 
 bills discounted, and 1,990,000/. temporary advances. 
 
 I must mention that in this account the bills discounted and 
 temporary advances are somewhat larger than they have been at 
 previous occasions when the 15 millions were in reserve, when bills 
 were as low as 2 millions, and temporary advances at half-a-million. 
 I much regret being unable to give an account of 1876 ; but as 
 already stated, the Bank of England has refused to Parliament to 
 give the returns of bills discounted for that year. 
 
 I will now restate this account (in round figures for con¬ 
 venience). The Other securities in this issue are also Government 
 securities, and may be joined to the debt into the one amount of 
 15 millions. The bankers’ balances and bills discounted and 
 advances (as taken from parliamentary returns on that day) will be 
 stated separately. The account would then be:— 
 
 Notes issued 
 
 5 . Issue Department. 
 
 G-overnment and other 1 
 
 securities.J I 5>°oo,ooo 
 
 Bullion . . . z8,300,coo 
 
 Banking Department. 
 
 £ 
 
 Capital . 14,553,000 
 
 Best... 3,667,000 
 
 Public deposits . 4,100,000 
 
 Other „ . iz,400,000 
 
 Bankers’ balances . iz,600,000 
 
 Seven days’ bills. 400,000 
 
 47,700,000 
 
 £ 
 
 Government securities .... 13,600,000 
 
 Other securities . iz, 100,000 
 
 Bills. CM 4,400,000 
 
 Advances...,. 1,900,000 
 
 Notes in reserve. 15,000,000 
 
 Coin. 700,000 
 
 47,700,000 
 
 I may now ask your permission to set aside the item of 
 15 millions of notes, as assets in the banking department, and to 
 deduct 15 millions of the “notes issued” as liability in the issue 
 department. We are of course all aware of the discussion as to 
 liability on one side being made an asset on the other, but we may 
 for once look at the real liabilities and assets in one account, 
 especially as you are aware that I myself shall recur to the separa¬ 
 tion of issue from banking. 
 
 The Government securities in the issue department would then 
 
34 Seyd —Diagrams Exhibiting the Positions of the Bank 
 
 be joined to those in the banking, and as capital and rest may also 
 be tbns added together, the account would be :— 
 
 6 . Issue and Banking Departments. 
 
 Beal Liabilities. £ 
 
 Notes in circulation . 28 , 300,000 
 
 Beal Assets. 
 Bullion . 
 
 Capital and rest ... 
 Public deposits ... 
 Other 
 
 Bankers’ balances 
 Seven days’ bills... 
 
 18,200,000 
 4,100,000 
 12,400,000 
 12,600,000 
 400,000 
 
 Government securities .... 
 
 Other securities . 
 
 Bills. 
 
 Advances. 
 
 Coin. 
 
 £ 
 
 12,100,000 
 
 1,900,000 
 
 700,000 
 
 The notes balancing against bullion, a look at the other assets 
 may lead us to think that 28,600,000/. of Government securities 
 is rather a large item. Of these Government securities the 
 15 millions from the issue were acquired or purchased long ago; 
 of those in the banking department a small portion is said to 
 consist of exchequer bills, the rest are also purchased. But 
 large as the amount seems, it is not all. The 12,100,000/. Other 
 securities are also purchased. A small portion may represent 
 the house properties of the bank, all the rest are stated to be 
 colonial, railway debentures, or other stock, including perhaps 
 mortgages. No information whatever is afforded on the point, 
 and the bank must not wonder if people think that there may be 
 even more unsuitable banking securities than mortgages. But let 
 the 12,100,000/. consist of such stocks as above mentioned, and let 
 them be almost as “ good” Government securities themselves, what 
 I want to show here is that they are not current securities such as 
 bills and advances. And I am consequently entitled to call the 
 whole of the Government and other securities (not bills and 
 advances) purchased stock, by way of distinction. 
 
 Against the following liabilities of the Bank of England there 
 
 would be the following assets : — 
 
 £ 
 
 Liability to shareholders . 18,200,000 
 
 „ depositors . 29,100,000 
 
 „ on seven days’ bills. 400,000 
 
 Against 
 
 Asset of purchased stock . 40,700,000 
 
 „ bills discounted . 4,400,000 
 
 „ temporary advances . 1,900,000 
 
 Jy coin . 7oo a ooo 
 
 We find accordingly that the Bank of England not only invests 
 its capital and rest in stocks, but of the 29,100,000/. of other 
 people’s money, including 12,600,000/. bankers’ balances, no less 
 
of England and Various other National Banks. 35 
 
 than 22,500,000 1 . are also so invested. And against this the bank 
 offers to the public the 15 millions of notes in reserve, which, as I 
 have shown you, are utterly unacceptable and unnecessary for the 
 circulation. This is so when the hank, according to the above 
 account, is at its best as regards strength, but when even this 
 reserve diminishes by withdrawal of bullion, say to one-half, we see 
 high rates of interest and approach panic, which now-a-days would 
 be at its height with 5 millions of this kind of reserve. 
 
 I do not belong to the class of pessimists who by way of 
 grievance are fond of predicting a coming failure of the bank, for 
 as we all know, the bank would not only pay 20 s. in the pound 
 to noteholders, depositors and shareholders, but the Government 
 would come forward as it has done before; but the question is 
 whether “ such things should be.” 
 
 I hold that in the first place, banking capital should not be 
 invested, or appear invested in Government securities. Now we 
 know that the State has borrowed £ 11 millions from the bank, and 
 that this forms a part of the security for the £15 millions of note 
 issue above bullion. Although this violates the principle, and 
 although it is often recommended that the State should pay back 
 this debt, let us nevertheless pass over this item and accept this 
 £11 millions as a fait accompli confined to £11 millions only. 
 
 But when we find that besides this £11 millions as original 
 Government debt, and a further £4 millions of so-called Other 
 securities (but also Government securities) in the issue, there are 
 further much larger amounts in the banking department; when out 
 of £29 millions of deposits, no less than £22^ millions are virtually 
 invested in such fixed securities, I say that this is a most improper 
 and dangerous state of things. In a trading community like this, 
 the current balances and reserves should not be locked up in this 
 way. Sarcasm might say that if the bank can do no more than 
 this, the depositors might so invest their funds themselves and earn 
 the interest thereon, instead of the bank. It might be suggested, 
 for instance, that bankers who keep £122 millions of balances, 
 which the bank invests chiefly in fixed' securities, should withdraw 
 these and keep them at the clearing house, investing £6 millions in 
 consols, and keeping £6f millions in cash. It would certainly pay 
 them well, and give them a reserve of their own. I say deliberately, 
 that the Bank of England, by its present system, utterly perverts 
 the banking reserves of this country. I presume that it is not 
 necessary here to enter into a discussion as to the relative goodness 
 or safety of Government securities and stocks versus bills. Our first 
 class bills occupy the first rank; and if this country should ever 
 suffer from a general decline, the Government securities will have 
 become inferior long before bills. Bills continually discharge them- 
 
36 Set d—D iagrams Exhibiting the Positions of the Bunk 
 
 selves, and a bank having a good stock of them can always rely 
 upon a cash income from them day by day; they are also contracts 
 for definite amounts. G-overament and other stocks “lock up ” 
 money, and this can only be released by a spasmodic contract for 
 their sale, involving inconvenience and loss. And in the event of a 
 crisis and generally depressed market, their realisation is most diffi¬ 
 cult or even impossible. 
 
 Permit me now to say this to you: We have, since 1844 , 
 witnessed many surprises as regards the Bank of England. What¬ 
 ever may have caused the crisis of 1844 and 1857 , we were 
 amazed at the rapidity with which the bank lost bullion, and the 
 suspensions of the Bank Act. Matters were then brought to the 
 “verge,” and the situation was just saved by high rates of interest, 
 acting on bullion from abroad. In 1847 , the bankers’ balances 
 ranged between i to 2 millions ; in 1857 between 2 and 3 millions. 
 In 1866 we had greater difficulty in obtaining bullion, for France 
 had become a powerful holder; bankers’ balances were then at 
 from 4 to 6 millions. Even then the question was mooted whether 
 bankers and others, instead of keeping their balances at the bank 
 and actually increasing them, should not withdraw them. At the 
 present time Germany has joined the claimants for gold, and other 
 States are going to do so. In the event of a great crisis here, these 
 countries will defend themselves, and I anticipate that it will be 
 more difficult for us to obtain gold from abroad than before. I 
 foresee that in the next coming conflict or crisis for gold, the Bank 
 of England may again put the rate at so high and impracticable a 
 figure, that the market is bound, as was recently the case, to dissent 
 from it. At such a time, bankers instead of allowing the bank to 
 invest their balances in Government securities, may really withdraw 
 them, so as to act independently of the bank. What the effect of 
 this will be on the bank, when at the same time that institution is 
 in distress for bullion, I must leave you to judge. Do not let us 
 plead here in an indefinite way, the bank will not let it come so far, 
 or some means will be found to avert this. What I have said to 
 you, may not only appear probable to you, it is, in my opinion, 
 inevitable before long. 
 
 It cannot be said that this over-investment in Government securi¬ 
 ties and other stocks, is a matter of deliberate policy on the part of 
 the bank. It is true, allowance must be made for the bank’s habit of 
 dealing in Government securities before 1844 ; and for the acquisi¬ 
 tion of Other securities which are not bills and advances, the bank 
 may plead that it has the duty and the right to support certain 
 other interests. Although other great banks abroad do not hold 
 this view, and think that banking capital and resources ought to be 
 
of England and Various other National Banks. 37 
 
 employed in bills, yet we may here concede to the Bank of England, 
 that to a certain extent it can plead its old habits and policy, 
 We need not therefore forbid the bank not to invest in Government 
 securities and other stocks, but when we see the over-investment in 
 them is so prodigious, we can no longer admit such a plea. That 
 this is not a question of superior goodness of such securities over 
 bills and advances, the Bank of England itself admits. It is always 
 ready to take bills, and in times of crisis even, when bills are not 
 quite so reliable, will take very large amounts. It has frequently 
 reduced, or attempted to reduce, the Government securities in order 
 to be able to take bills. It has actually sold them at a loss, and 
 has even borrowed money on them, so as to be able to discount 
 bills. 
 
 That this is not a question of scarcity of bills is proven by these 
 very transactions. One of the governors of the bank, in answer to 
 a question as to the paucity of bills held by the institution, led the 
 questioner to infer that this was a mere matter of supply and 
 demand, and that bills were scarce. The fact is, the bank cannot 
 take the bills excepting against bullion, for it is crammed with 
 these stocks. It need only succeed in selling, or in borrowing on the 
 latter in order to obtain the means of discounting, and that this 
 is not a matter of supply of money in the market is evident, for if 
 the capitalist had not advanced his money to the bank on the fixed 
 securities, he might have discounted the bills himself. 
 
 Our market offers a choice of all sorts of securities, the greater 
 portion being bills. Deducting from the national debt and colonial 
 and other stocks such portions as are held by public institutions, 
 families, and individuals by way of investment of fortunes, which 
 absorbs the great bulk of the total, there remains a residuum afloat 
 in the market held by bankers, by the Stock Exchange, and others, 
 for what may be called purposes of business. This residuum is 
 available together with the general mass of bills and advance busi¬ 
 ness, and with it forms an aggregate of a more or less definite 
 amount. Including what is held by the Bank of England, the 
 amount of such Government securities in the open market may 
 be stated at 75 millions. The bills current, even at the present 
 depressed time, may be stated at 150 millions. How whether these 
 figures are strictly correct or not, it must be evident to all, that the 
 latter are by far the more frequent and the more suitable security. 
 I then may state nothing extravagant, if I say that the Bank of 
 England, instead of holding 40 millions of Government and other 
 stocks, and but 4 millions of bills, should hold say 20 millions of the 
 former, and 22 millions of the latter, or more or less. 
 
 What then is the cause which seems to force the bank into this 
 over-investment in Government and fixed securities P The true 
 
38 Seyd — Diagrams Exhibiting the Positions of the Bank 
 
 cmse is again to be found in the extremely low rates of interest engen¬ 
 dered by the present system of reserve of notes. 
 
 When the rate is at 2 or 2%, and Government securities at 3 per 
 cent., and Other securities at higher rates up to 4! per cent., are 
 available, it follows that the bank prefers to invest in them. The 
 market being always below the rate, the bank even invests 
 increasing deposits in more Government securities. A reference 
 to the accounts will show that the Government and Other 
 securities (not bills) have thus gradually increased, keeping pace 
 with the deposits, whilst the margin left for bills has scarcely 
 altered. There are certain variations in the amounts, dependent 
 on movements in Exchequer bills and other claims. The bank, 
 as before stated, has also from time to time sold Government 
 securities, and for the purpose of meeting dividends and other 
 payments, a certain degree of movability has been maintained, but 
 throughout, the general increase of these purchased securities holds 
 good. It is obvious also that the various more or less serious 
 attempts of the bank (influenced no doubt also by the varied 
 views of successive changes in the court of directors), to part with 
 a portion of such purchased securities, were defeated by the 
 extreme variations in the rate, as it involves contradiction. For 
 when the rate is at 2 and 2 \ per cent., the proper time for selling 
 Government securities at a good price, the 3 per cent, interest 
 they bring, deters the bank from selling. On the other hand, 
 when the rate rises, Government securities fall in price and their 
 sale entails losses. Although the bank has submitted to them on 
 several occasions, it must necessarily object to them. The whole 
 business has therefore drifted into its present position, and is 
 accepted as a matter of fate. 
 
 A secondary cause arises from this position. The Bank of 
 England loses control over the discount market, or rather, such 
 control as it is entitled to, because it is such a weak participator m 
 the business. As I have stated, the small stock of bills of a couple 
 of millions frequently consists only of discount granted to current 
 account customers which are not strong enough to discount outside, 
 and for weeks and months the bank is separated from the great 
 discount business of the market. From this generally limited 
 stock, 60,000/. to 100,000/., may fall due per day, and this is so 
 small, that bankers and others may take it up from the odds and 
 ends in their bills, from the “between stratum” of money before 
 mentioned. But if the bank held a stock of 22 to 25 millions of 
 bills, of which 800,000/. to 1,000,000/. fell due per day on the 
 average, its control and influence would be quite a different thing. 
 The bank could then insist upon parting again with the cash 
 received on its own more effective and independent terms only. 
 
39 
 
 of England and Various other National Banks. 
 
 I trust that I have succeeded in showing to you that the two 
 great anomalies from which the hank suffers, viz., the insecurity of 
 the bullion in the issue, on the one hand, and the peculiar method of 
 investment of the deposits in the banking department, are due, in the 
 first instance, to the extremely low rates of interest. Connected 
 with these two anomalies are a variety of other incongruous matters 
 which confuse our market, but space is wanting here to trace them. 
 I contend now that in the same way as the carrying out of 
 Clause 2 according to its wording will cause a more equable state 
 of bullion level in the issue, so will it give a different complexion to 
 this business of the banking department. You will recollect that 
 under this clause the reserve of notes would disappear, the issue 
 liabilities would be simply the amount of notes in circulation against 
 bullion, and such of the securities as would be required to fill up 
 the difference. I now repeat the previous account, but ask permis¬ 
 sion to leave out bills and advances, on the assumption that the 
 bank had invested everything in Government securities and Other 
 securities. The account would be :— 
 
 Notes in circulation 
 
 7 . Issue Department. 
 
 £ 
 
 Government securities .... 
 28,300,000 Bumon . 
 
 28,300,000 
 
 £ 
 
 28,300,000 
 
 Capital. 
 
 Rest. 
 
 Public deposits . 
 Other „ 
 Seven days’ bills. 
 
 Banking Department. 
 
 £ 
 
 14,533,000 
 
 3,667,000 
 
 4,100,000 
 
 25,000,000 
 
 400,000 
 
 Government securities .... 
 
 Other securities. 
 
 Coin. 
 
 47,700,000 
 
 JReserve of issue, 15,000,000 1. 
 
 £ 
 
 28,600,000 
 18,400,000 
 700,000 
 47,700,000 
 
 It will be readily admitted that if with this position the ban 1 " 
 is not anxious to get rid of bullion by putting the rate down, 
 there is no need whatever for going below the rate of 3 per cent, 
 which is that of the Government securities. Supposing then that 
 more notes were required for circulation, or what is practically a 
 similar thing, that bills were offered for discount for the with¬ 
 drawal of bullion to the extent of 3 millions. Having a reserve of 
 issue of 15 millions, of which, according to Clause 2, it can make 
 use by increasing or diminishing the securities in the issue, the 
 bank would say: We have invested our funds in securities at a 
 
40 Seyd —Diagrams Exhibiting the Positions of the Bank 
 
 minimum rate of interest of 3 per cent., if you will give us more than 
 that rate, we will bring our reserve into action, place 3 millions of 
 securities into the issue, and take your bills into the banking depart¬ 
 ment. 
 
 The account would then appear, i.e., in the event of redaction 
 of bullion, as:— 
 
 Notes in circulation 
 
 8 . Issue Department. 
 
 £ 
 
 Government securities .... 
 *8,300,000 BuUion . 
 
 28,300,000 
 
 £ 
 
 3,000,000 
 
 25,300,000 
 
 28,300,000 
 
 Banking, Department. 
 
 Capital. 
 
 £ 
 
 . 14,533.000 
 
 Government securities ... 
 
 £ 
 
 25,600,000 
 
 Best. 
 
 
 Other securities . 
 
 O 
 
 O 
 
 O 
 
 Public deposits . 
 
 Other „ . 
 
 . 25,000,000' 
 
 Bills discounted. 
 
 3,000,000 
 
 Seven days’ bills. 
 
 
 Coin. 
 
 700,000 
 
 
 47,700,000 
 
 
 47,700,000 
 
 Reserve of issue, 12,000,000 1* 
 
 But now the problem may be started, suppose a banker with¬ 
 draws say £3 millions of his balances. This would mean a decrease 
 of 3 millions in the Other deposits and an increase of £3 millions in 
 the circulation of notes, the one liability would be given up against 
 the other, and the account. The bank would simply transfer 
 £3 millions more of its securities to the issue, and pay the banker. 
 It is needless to say that the latter, unless he wants to amuse him¬ 
 self by holding £3 millions of notes idle in his till, would not pass 
 these notes into circulation, ergo, it is likely that he would soon pay 
 them back again. The case would be simply one of temporary 
 increase of circulation, and be treated on the same principles. 
 
 How whether there is an increase in the circulation simulta¬ 
 neously with a decrease in bullion or withdrawal of deposits, 
 whether there are already bills discounted and temporary advances, 
 so as to render the account say as follows :— 
 
 9 . Issue Department. 
 
 £ 
 
 , . Government securities 
 
 Notes m circulation . 29,300,000 Bullion 
 
 £ 
 
 6,000,000 
 
 23,300,000 
 
 29,300,000 
 
 29,300,000 
 
of England and Various other National Banks. 
 Banking Department. 
 
 41 
 
 Capital. 
 
 Rest. 
 
 Public deposits . 
 Other „ 
 Seven days’ bills. 
 
 £ 
 
 i 4i£33j 000 
 
 3,667,000 
 
 4,100,000 
 
 23,000,000 
 
 400,000 
 
 Government securities .... 
 
 Other securities . 
 
 Bills discounted. 
 
 Temporary advances . 
 
 Coin. 
 
 £ 
 
 21,900,000 
 
 12,100,000 
 
 9,000,000 
 
 2,000,000 
 
 700,000 
 
 45,700,000 
 
 45,700,000 
 
 Reserve of issue, 9,000,000 1., 
 
 I contend that the 9 millions of bills- and the 2 millions of tem¬ 
 porary- advances, should not have entered the banking department 
 unless at a rate higher than 3 per cent., that all contingencies, with¬ 
 drawal of bullion or increase of circulation through discount of 
 bills or withdrawal of deposits, might hinge upon this minimum 
 rate. And this contains the principle and the true practice under 
 which an issue so constituted ought to be handled. 
 
 Examine now whether there are any contingencies which 
 would induce the bank to lower the rate below 3 per cent. The 
 first is the suggestion that bullion might exceed even the amount 
 in circulation, as has been the case occasionally. As the deposits 
 cost the bank nothing, and as this surplus bullion does not increase 
 the expenditure of the issue, I do not see that the bank need lower 
 the rate, it may as well allow the bullion to drift away, as surely 
 it will, without pressure. But, it will be said here, the bank 
 should not allow the bullion even to be at the level of the circula¬ 
 tion, for then it makes not only no profit on the issue, but loses 
 the expenditure. This question must now be closely examined. 
 It can be shown that now the bank loses more than 120,000/. on 
 the issue. But if Clause 8 is amended in the way I suggest, 
 there would be, at the full cover of bullion, no fiduciary issue, and 
 consequently the payment to the State of 195,000/. would be sus¬ 
 pended for the time. There would remain then the technical 
 expenditure of the issue, which may be stated at 180,000/. per 
 annum. Several items are included in this 180,000/. which do not 
 properly belong to it, and the arrangement generally confers great 
 economy on the banking department, which would not otherwise 
 be the case. Assuming that 150,000/. be the true cost, it would 
 follow that the bank thus has at its disposal a reserve of 15 millions, 
 which cost it 1 per cent, per annum. And this in itself is a 
 prodigious advantage over all other banks, with which the Bank of 
 England might be well satisfied. 
 
 I am well aware it might here be said, the Bank of France has 
 adopted the rate of 2 per cent., and maintained it,for a long time. 
 True, but the Bank of France’s position is a most exceptional one. 
 
42 Setjd —Diagrams Exhibiting the Positions of the Bank 
 
 It held upwards of 90 millions of bullion (against the 27 millions 
 of the Bank of England), and besides this, the exchanges continue 
 so strongly in favour of France, the loss on its note issue becoming 
 so serious, that bullion had to be got rid of at all costs. Were we in 
 England in the same position, I do not mean to say that we might 
 not also adopt a lower rate than 3 per cent., but in the ordinary 
 practice this should not occur. The question involved is in reality 
 one of fair bullion level to be arrived at. It must be borne in mind 
 that in the above accounts I have assumed the full amount of 
 bullion for the circulation, in order to simplify the matter. I take 
 the xoo per cent, bullion, as a starting point, it is the safest level of 
 bullion, but it may be conceded that 90, or 80, or 75 per cent, are 
 practically as safe for the conversion of the bank note. It would 
 be for the bank itself to determine the point at which, from time 
 to time, it may deem it prudent to uphold the percentage of bullion. 
 Those who watch the accounts must be aware, for instance, that 
 during the last two or three years the bank, in view of the German 
 demand and general doubt in the market, has wisely aimed at a 
 comparatively higher level than before. At a level of 75 per cent., 
 for instance, in a circulation of 28 millions, would give a margin of 
 7 millions, and the interest earned on this would be amply sufficient 
 to cover the expenditure. And as we all know, the bank is not 
 actuated by sordid motives, and as other great advantages will 
 arise from this to both bank and the public, I have no doubt but 
 that the bank will prefer some surplus of bullion. 
 
 On the whole, however, it will be understood that if the very 
 low rates are avoided, there will be no need for extremely high 
 rates. These high rates, by their violent action, cause the violent 
 over attraction of bullion, although at other times (as at present) 
 slackness of international trade may contribute to the return of 
 bullion here. Under the less spasmodic action which the proposed 
 practice will engender, these extremes will be also avoided, and a 
 better general level can be relied upon. 
 
 Whether then, as I have assumed above, the bullion be 100 per 
 cent, or less, the rule that 3 per cent, should be the minimum rate 
 remains the same. 
 
 The open market may then go to any figure of interest below 
 3 per cent, without the bank being in the least compelled to follow 
 it. I have explained why the market rates must always be some¬ 
 what below the bank-rate; why, according to the intermediate 
 stratum of money, the market rate may fall lower by competition 
 among the lenders. When this stratum is exhausted, they must 
 revert to the bank. But, it may here be asked, when the bills held 
 by the bank run off, how will it obtain new bills when the outside 
 rates are lower ? Here the difference between borrowing and 
 
43 
 
 of England and Various other National Banks. 
 
 banking money will become more than ever apparent. You are 
 aware that the circulation of Bank of England notes for the time 
 being is an absolute factor in the general system which brooks no 
 diminution. A certain definite amount must be had. Now if out of 
 the bank’s stock of bills, say 3 millions fell due, and notes to that 
 extent came into the hands of the bank, out of a circulation of 
 28 millions, leaving 25 millions, the 3 millions would again be . 
 required a tout prix. The bank would consequently say: “ If you 
 “ want the 3 millions of notes back again, you must give me first- 
 u class bills, and you must pay me at least 3 per cent, interest.” In 
 fact, the bank might say : “ You outside people make all sorts of 
 “ contracts in money’s worth, whether such money’s worth be in 
 “ stocks, in goods, in ships, in apples, or oranges, and call this the 
 “ money market. By certain arrangements, I am made chief agent 
 “ for the supply of current money, and especially privileged by law 
 “ for the supply of notes. I am the contractor for British currency; 
 “ you may do what you like among yourselves, but if you want 
 “ British currency (gold for export or notes for circulation), you 
 “ must give me at least 3 per cent, interest for it, and as much 
 “ more as I may deem proper for its protection.” 
 
 And here I bring back to you the important principle of “ con- 
 “ sideration ” involved, which under the present system, was lost 
 long ago by the immediate investment of the 15 millions in the 
 issue, whereas, by the proposed plan, this “ consideration ” would be 
 continually alive, and would be used so as to suit the reality of the 
 moment, and the possible altered state of the times generally. 
 
 The statement of accounts which I last submitted to you shows 
 
 that there were as assets:— 
 
 £ 
 
 Government securities . 23,900,000 
 
 Other securities . 12,100,000 
 
 Bills discounted. 9,000,000 
 
 Temporary advances . 2,000,000 
 
 Coin. 700,000 
 
 with a reserve of issue amounting to 9,000,000?. 
 
 Now, although this shows an improved state of things as 
 regards bills, yet it may appear to some that a total amount of 
 36 millions of purchased securities is still very large, and there 
 would be (referring to Account No. 9 ) 6 millions Government 
 securities in the issue. In fact, as you recollect, the statement was 
 founded on the assumption that almost the whole of the assets were 
 of this character. The suggestion might now be made, that the 
 bank should sell say 5, or 10, or more millions of such fixed securities 
 when prices are suitable. Having done so, what would the bank 
 get back again ? Would it be obliged to offer cheaper rates for 
 
44 Seh) —Diagrams Exhibiting the Positions of the Bank 
 
 bills ? I maintain, upon wbat I bave shown before, that through 
 the right of issue the bank could insist upon having bills at 3 per 
 cent, or at such a rate above it as it would deem expedient. 
 
 The question then arises, how. much in Government and other 
 securities shall the bank keep ? I trust no one thinks me pre¬ 
 sumptuous enough to prescribe anything of the kind, but I may be 
 permitted to point out that if we adhere to the limit of 15 millions 
 of notes not founded on bullion, and that these should be covered 
 by Government security, a total amount of 15 millions would 
 practically suffice. That the bank would hold more occasionally 
 results from its dealings with the State. The bank’s investments 
 in colonial, railway, and other matters are a delicate matter to deal 
 with, but I should say that the amount might be reduced. Permit 
 me, therefore, to suggest that an account as follows might represent 
 what I may call a “ fair ” state of matters :— 
 
 10 . Issue Department. 
 
 
 £ 
 
 
 £ 
 
 
 
 Grovernment securities ... 
 
 . 5,000,000 
 
 Notes in circulation .. 
 
 
 Bullion. 
 
 . 23,000,000 
 
 
 28,000,000 
 
 
 28,000,000 
 
 
 Banking Department. 
 
 
 
 £ 
 
 
 £ 
 
 Capital. 
 
 . 14,533.000 
 
 G-overnment securities ... 
 
 . 13,000,000 
 
 Rest. 
 
 . 3,667,000 
 
 Other securities . 
 
 . 10,000,000 
 
 Public deposits . 
 
 . 5,400,000 
 
 Bills discounted. 
 
 . 23,000,000 
 
 Other ... 
 
 . 26,000,000 
 
 Temporary advances . 
 
 • 3.300,000 
 
 Seven days’ bills.. 
 
 . 400,000 
 
 Coin.. 
 
 700,000 
 
 
 50,000,000 
 
 
 50,000,000 
 
 Reserve of issue, 10,000,0001. 
 Rate of interest, 4 per cent. 
 
 It is understood of course that this account may greatly vary. 
 There may be more notes in circulation, more or less deposits, &c. 
 I am satisfied that besides the greater peace in our money market, 
 the Bank of England itself would make much larger profits. 
 
 For the purpose of showing the altered state of things in a 
 graphic form, I have prepared a diagram headed 
 
 Illustrations of Action. 
 
 Under the present interpretation I Under the proposed interpretation 
 of Clause 2. I of Clause 2. 
 
 and ranged a number of accounts under cash heading. On the 
 left side, No. 1 represents a fair state of matters at the bank with 
 
45 
 
 of England and Various other National Ba/nks. 
 
 9 millions of idle notes, and interest at 4 per cent. No. 2 shows 
 how increase of deposits leads to a partial increase in purchased 
 securities and bills. No. 3 shows an increase in bullion and reserve, 
 a corresponding decline in bills, and a rate of 2 per cent. No. 4 , 
 the rapid decline in bullion and spasmodic increase of bills with 
 interest at 10 per cent. No. 5 shows how, at such times, the bankers’ 
 (and other) deposits increase, and how the bank itself discounts 
 more bills with their balances. No. 6 shows the rapid accumulation 
 of bullion, the sudden great rise in the reserve, and the decline 
 of interest again to 2 per cent., and the withdrawal of the 
 assistance the bank has had through more deposits. No. 6, shown 
 as a broader strip, then shows the state of account, when the whole 
 15 millions are in reserve, and the bills at their usually low state, 
 and interest again at 2 per cent. Under “ Proposed Interpreta- 
 “ tion of Clause 2 ,” the broad strip No. 8 now represents the state 
 of accounts, showing the issue securities in the banking department. 
 This real state shows the overwhelming mass of purchased secu¬ 
 rities in blue, and the small margin of bills and advances at the top. 
 This is the state when the rate of interest ought not to be below 
 3 per cent. At the bottom, the red line shows the reserve 
 of issue, apart from the account, as the extra item of asset 
 above the others, for the case of need or “ occasion.” No. 9 
 demonstrates how the disposal of 10 millions of fixed securities, 
 out of the 42 millions, and the withdrawal at the same time 
 of 5 millions of bullion, would place the same amount of 
 Government securities into the issue, increasing bills, on a rate 
 possibly of 4 per cent. Nos. 10 and 11 show the disposal of 
 another 10 millions of fixed securities, leaving 22 millions, and 
 carries the action on with more deposits. No. 12 shows a rise of 
 bullion to full level and diminution of bills, the rate reaching its 
 minimum of 3 per cent, again. No. 13 shows a presumed with¬ 
 drawal of bullion, a rate of 6 per cent, and more bills. No. 14 
 finally shows the increasing business, and a fair state of future 
 accounts at rates between 3 and 4 per cent. A thorough investiga¬ 
 tion of what is at work in all this may show that these diagrams do 
 not rest on mere assumptions. They give a fair representation, 
 although rates and amounts may differ in actual practice, and accord¬ 
 ing to the circumstances of the moment; but they clearly show the 
 margins of independent reserve of issue left, the more regular 
 state of bullion and interest, and the naturally larger acquisition of 
 active business in bills and advances, still leaving a good stock 
 of Government and Other securities. It is my opinion that if 
 Clause 2 is acted upon, there will be even better results than are 
 here hinted at by these diagrams. 
 
 It may be necessary for me here to allude to the transfer of 
 
46 Seyd —Diagrams Exhibiting the Positions of the Panic 
 
 the securities between the issue and banking department, so as to 
 avoid this matter being made a point to cavil at. Originally these 
 securities were “ transferred ” from the banking to issue, and their 
 diminution and “ increase again” within the limit of 15 millions 
 naturally implies the same process. I do not know whether the 
 bank keeps the 3,987,100?. “ Other ” issue securities in a special 
 cupboard, but the 11,015,100?. Government debt is a book-debt, and 
 cannot be so locked up. Many people have suggested that the 
 Government should repay this debt, or convert it into consols. 
 Neither is necessary; it is not a vital point at all, and as we agree 
 that some such amount as 15 millions might be kept in Government 
 securities at the bank, the “ passing ” of the whole, or part of them, 
 becomes a matter of book-keeping in such a form as will satisfy the 
 “ separation ” of the issue from the banking department. 
 
 Those who are willing to understand the whole case, may now 
 also see that although the limit of £15 millions of note issue on 
 securities is assumed here as being sufficient, yet that there might 
 be no harm, if in accordance with increase of population and other 
 matters, that limit was increased to £17 or £20 millions: not that 
 this is asked here, for the whole Act is to remain as it is, Clause 8 
 only requiring amendment, but at some future time the question of 
 more allowance might be raised. The great secret lies in the 
 words: Do not use your issue allowance at once, from the very 
 beginning , but only so much of it as is absolutely required, holding the 
 rest intact as issue in reserve, and when this principle is acted upon, 
 the “limit” is in reality a matter of secondary consideration. 
 
 I now venture to ask you to review what I have laid before you 
 in reference to the Bank of England, and whether I have with some 
 degree of consistency, concentrated my case upon the nice point 
 involved. The whole problem of the Bank of England issue has 
 been fought over ever since 1847 . The wildest schemes have been 
 suggested by way of substitute for it. Painful inquiries having 
 led to no result, and the principles of the Act, in its limitation of 
 the issue, being thoroughly sound, the majority of thinking and 
 prudent men, in their faith in these principles, have come to the 
 conclusion that nothing more can be done, whilst the practice of 
 the directors of the bank has settled into a distinct form, wherein 
 their wisdom does the best that can be done. Yet every day shows us 
 that there is something that does not fit. It is the case of a splendid 
 piece of machinery with a flaw in one apparently unimportant part. 
 I take this stand-point, and instead of proposing some heroic 
 revolutionary remedy, I say to you: the Act is perfect in its way— 
 amend only Clause 8, so as to set free this hitch as to Clause 2 . I 
 am satisfied that the logician and mathematician will at once under- 
 
47 
 
 'of England and Various other National Banks. 
 
 stand that which is involved in the fault of keeping an allowance 
 intended to regulate its accompanying factor at the same amount 
 at all times, as minimum and maximum combined so to speak. 
 Others may appreciate this matter from what I have said respecting 
 contraction and expansion. As to the practical effects, the 
 “difference this would make,” both as to bullion, and the different 
 results in the banking department, I may have furnished material 
 enough to convince others of the validity of the matter. 
 
 Supposing then that this validity were recognised to some 
 extent, and that Clause 2 itself required amending. Leaving the 
 limit at 15 millions, would it not be a prudent thing to say : This is 
 our limit, we cannot go beyond it, for at certain times even this limit 
 may be too much, and utterly defeat the object aimed at ? Let us 
 therefore amend Clause 2, so as to make the issue pliable, as a still 
 greater safeguard. But as I have shown, this amendment is not 
 necessary, for Clause 2 already contains this proviso for li dimi¬ 
 nution,” and “increase again” in distinct words, which cannot bear 
 any other construction than that here put upon them. I then point 
 out to you that Clause 8 is in conflict with Clause 2, and ask that 
 this be amended only. And even if you ignore all that has been said 
 in reference to the principles involved, I claim that this ought to be 
 done as a mere point of order, so as to supply what may be called 
 a clerical omission on the part of the person who drafted the Act, 
 for the “ diminution ” in Clause 2— however remote it might appear 
 —whatever different construction others may put upon it, ought to 
 be followed by a proviso for diminution in Clause 8. I suggest 
 then that for the words of Clause 8, beginning with “ And be it 
 “ enacted, &c.,” and ending with “the annual sum of 180,000/.,” 
 there be substituted, “ And be it enacted that from and after the 
 “ day of , the payment of the annual sum of 180,000/., 
 
 “ made by the said Governor and Company under this clause here- 
 “ tofore, shall cease, and in lieu thereof, in consideration of the pri- 
 “ vilege of exclusive banking, and during the continuance thereof, 
 “ but no longer, the said Governor and Company shall 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 debt, a sum of money equal to the rate of per cent, per 
 “ cmrwm on such amounts of notes issued on securities from the issue 
 “ to the bemking department, under the provisions of Clause 2 of this 
 “ Act, from week to week (or day by day?)." Any other rate than 
 2 \ per cent, might be determined upon. 
 
 This then is the point which in this splendid machinery 
 requires adjustment. The question might be asked: Is there any 
 absolute need for this; cannot the bank carry out Clause 2 without 
 reference to Clause 8 ? It would be most unfair to demand this, 
 
 G 
 
48 Seyd — Diagrams Exhibiting the Positions of the Bank, Sfc. 
 
 for there should be a clear motive of interest in all such matters. 
 But there is a more weighty reason why Clause 8 should be so 
 amended. Be it frankly stated, that among the directors of the bank 
 there are several leading gentlemen, who during the thirty years of 
 existence of the present system have become so orthodox as to the 
 personal and other practices involved, that they are likely to refuse 
 to “see” this case, and if asked by the Government, may pooh- 
 pooh the matter. If the Government rose superior to this, and 
 amended Clause 8, it would not in the least lay itself open to the 
 charge of interfering with the policy of the bank directors; it 
 would leave them the option, and it is but reasonable to suppose 
 that they would see the profit and loss, and act in accordance there¬ 
 with. The Government would do no more than set right a law, and 
 by so doing it would perform a legal and easy, but also a graceful 
 service, for the purpose of helping the whole of this business over 
 the style. The budget would not suffer from this change, but 
 would derive more from the average of its share, and the bank’s 
 greater profit would soon be manifest. But far beyond this, our 
 money market would become more peaceful, the mutual relations 
 would be better understood, and our commerce become more re¬ 
 gular. Indeed, as our money market leads that of the world, there 
 would be greater peace and greater regularity in the foreign 
 markets, to the better advantage of our own interests. I conceive 
 that at this time especially, when the international valuations are 
 undergoing a kind of revolution, when the conditions under which 
 balances of trade have hitherto arisen, appear to operate in different 
 directions, we ought to apply all our fair science and common sense 
 towards the refinement and better adjustment of the important 
 subject here under consideration. 
 
Discussion on Me. Seyd’s Paper. 
 
 Mr. R. B. Martin said lie should like to ask Mr. Seyd whether 
 any of the foreign State hanks, whose statistics were exhibited, 
 received money on deposit at interest, because if they did so, it 
 would make a very great difference in comparing their position with 
 those banks that did not do so. Of course eveiybody was aware 
 that there were two great functions of banking : the one was the 
 keeping the current accounts for customers, paying the amount of 
 their balances against cheques, and making a profit out of the 
 average amount of permanent balance. The other, which had 
 sprung up in England in comparatively late years, was that of 
 largely receiving money on deposit at interest. The convenience of 
 this system was very great, and enabled persons wishing temporary 
 employment of a sum of money to receive back the identical sum 
 with a certain amount of profit on it, without finding that it was 
 like stocks, or even Government security, liable to fluctuation in 
 value; so that the interest his money had earned him might bo 
 taken away by depreciation of the capital when he wished to 
 realise his security. All joint stock banks had developed this to a 
 very large extent. The Bank of England had not done so; and 
 of course this consideration would make the greatest difference in 
 the figures in any comparative table of the Bank of England, 
 whether compared with joint stock banks in England or with the 
 foreign State banks, if they receive money at interest or trans¬ 
 acted business of a decidedly different character. There was 
 another question he should like to ask: that was, as to the profits 
 made by the Bank of England, compared with those of other 
 similar banks. He would ask whether the Bank of England had 
 given its shareholders an equal, a greater, or less profit per cent, 
 than banks of a similar class in other countries. 
 
 Mr. Newmarch, E.R.S., delivered a speech of some length in 
 reply to Mr. Seyd’s paper. Mr. Newmarch most fully admitted the 
 labour and ingenuity displayed by Mr. Seyd, but he dissented 
 entirely from the argument and conclusions of the paper. Mr. 
 Newmarch did not consider that the Act of 1844 in the least 
 admitted the new reading proposed. And supposing the new 
 reading to be admitted, ,Mr. Newmarch was quite unable to see 
 that it would give the relief which Mr. Seyd set forth so 
 elaborately. (Eor a further account of Mr. Newmarch’s speech, see 
 “ Additional Remarks” at the end.) 
 
 Mr. Doxsey, referring to the difficulty pointed out by Mr. New¬ 
 march, that a bank in a time of panic would have in meeting a cheque 
 for 3 \ millions, when it had only 500,000 1. of bullion, said that if he 
 understood Mr. Seyd aright, he would meet the difficulty by 
 transferring 3^ millions of the 15,000,000?. Government securities to 
 the asset column in the issue department; and upon that he would 
 
50 
 
 Discussion 
 
 have a right to issue 3,500,000/. of notes. He would then transfer 
 them to the banking department; and instead of Government secu¬ 
 rities he would put as one of his assets, 15,000,000/. of notes. There 
 would then be no difficulty in meeting the cheque for 3-^ millions, 
 which would be obtained in notes. If the notes were wanted to 
 obtain bullion, they could be sent back to the issue department, and 
 the gold and silver bullion would be exchanged for notes and 
 cashed out of the 28,000,000/.; so much as was necessary being 
 transferred from the issue department to the other department. It 
 seemed to him that Mr. Newmarch’s admirable speech had not in 
 this point invalidated Mr. Seyd’s conclusions. The course he had 
 indicated would furnish the reply he would adopt if he were in 
 Mr. Seyd’s position. 
 
 Mr. Giffev said that the last speaker had overlooked that in the 
 case supposed the bank would be dealing with the account as if it 
 remained in the old form, whilst Mr. Seyd was arguing for a new 
 state of things. He wished to call Mr. Seyd’s attention to one or 
 two points which he desired to be cleared up in reference to the 
 diagrams. One was with reference to the Bank of England refusing 
 information as to its discounts and advances. He thought that 
 Mr. Seyd had attacked the Bank of England very severely on this 
 point. There was also an impression abroad that the Bank of 
 England had not given to iffie House of Commons that information 
 which Mr. Seyd alleged had been asked for many years, and he also 
 assumed that that information had been asked for last year; but— 
 for what reason he (Mr. Giffen) could not tell—last year the House 
 of Commons did not ask for the information as to those discounts 
 and advances. The Bank of England may say, “We made a return 
 as far as the House of Commons wanted, although not a complete 
 return of the discount and advances: it has not asked for them.” 
 Mr. Seyd conveyed the idea that the Bank of England had refused 
 to obey the order of the House of Commons ; but this was not the 
 fact. The other point he wished to remark upon was Mr. Seyd’s 
 comparison of banking in this country -with that of foreign countries. 
 He had represented quite truly that the amount of wealth in the 
 respective countries was not to be measured by the extent of bank¬ 
 ing. So far, there was a much larger amount of money in pro¬ 
 portion in the hands of banks in this country than there was in 
 foreign countries ; but Mr. Seyd held that in foreign countries there 
 was much more banking as compared with banking in this country 
 than was sometimes supposed. In one part of the paper it was stated 
 that in London there were eighteen joint stock banks, with 14 mil¬ 
 lions of capital and thirty-six private bankers : in Paris there were 
 twenty-one joint stock banks, with 16 millions of capital, and twenty- 
 six large private bankers. He should like to ask Mr. Seyd whether 
 those figures really gave any idea whatever of what banking was in 
 London at the present moment. Did he include in these eighteen 
 joint stock banks any of those numerous Anglo-foreign and Anglo- 
 colonial banks ? There were between twenty and thirty such, 
 many of them having large deposits and doing a large business. In 
 a comparison between England and France and other countries, that 
 
T 
 
 on Mr. Seyd’s Paper. 
 
 wonderful growth of provincial banking which obtained in this 
 country, and to which there was nothing similar in continental 
 countries, ought to be taken into account. The other curious point 
 was, that there were no statistics in the paper as to the banks in the 
 United States. Although there might not be in tho States a State 
 bank, there were certainly national banks, as to which a great deal 
 of information was obtainable from the comptroller of the currency. 
 The national banks in New York, according to tho American bank¬ 
 ing law, were in a special position, and the aggregate of them might 
 be treated specially for this purpose. He thought that Mr. Seyd 
 would have added very much to the value of his diagrams if he had 
 given some information as to these American banks. Ho had only 
 to add the expression of his admiration as to the manner in which 
 Mr. Seyd had given his information. 
 
 Mr. Seyd, in reply to the several questions, stated that the 
 diagrams exhibited the various amounts of deposits on which the 
 banks either paid interest or not. The greater part of the deposits 
 of the Reichsbank are balances free of interest. The Austrian 
 bank has but few deposits, the mortgage letters issued, on which 
 interest 'is paid, take their place. The Bank of Russia does not 
 state what portion of the accounts to its debit carry interest. As to 
 the profits of these banks, they were, generally, larger than ours. 
 In 1856 and 1857 the Bank of France paid a dividend of 27 per 
 cent. It was the most independent of all banks, and paid a tax on 
 the issue of notes, but the State does not otherwise share in the 
 profits. On the note issue there is now a loss. The Reichsbank 
 first pays a fixed rate of 4^ per cent, to the shareholders, then after 
 adding 20 per cent, of the balance to reserve fund, the rest is divided 
 between shareholders and the State. In the United States there 
 was no central bank, and although some kind of statement might 
 have been made from taking all the banks together, yet nothing 
 like unity of action, so important in the question of valuation, 
 could be demonstrated therefrom. The American treasury had its 
 own sphere of action apart from the banks. To give the example 
 of a single State bank, whose issue was nnder the Federal law, 
 could serve no purpose. As regards the refusal of the Bank of 
 England to give the amount of bills discounted, Mr. Giffen was 
 right in saying that the return had not been asked for by Parlia¬ 
 ment, but the matter amounted to almost the same thing. The 
 member of Parliament who last moved for the returns, was told by 
 the Chancellor of the Exchequer, that the bank would refuse to 
 give these items in future, and that he could not compel it to do so, 
 unless by bringing the matter specially before the House. What¬ 
 ever construction might be put upon this, it remained a singular 
 fact that the bank should act in this way. As regards the main 
 question here under consideration, viz., the Bank of England’s issue 
 under the Act of 1844 , and that which he had laid before them, 
 the only strong opponent seemed to be Mr. New march. Mr. 
 Newmarch did not seem to follow his meaning, but if he (Mr. Seyd) 
 had had the opportunity of reading the rest of his paper, he would 
 have explained many matters which must now remain in abeyance 
 
52 Discussion on Mr. Seyd’s Paper. 
 
 rntil the paper had been fully read, and several of the points alluded 
 to would have been made clear. He trusted that those present 
 would not be influenced by the mere sayings, complimentary or 
 otherwise, uttered by Mr. Newmarch: phrases such as “ finding a 
 mare’s nest,” and “ going on a wild goose chase,” prove nothing, 
 and are not statistical; figures must be used. Mr. Hewmarch had 
 endeavoured to back such phrases by going into figures, and as they 
 had heard, and as he (Mr. Seyd) had anticipated, Mr. Hewmarch 
 had got himself into a muddle. The gentleman opposite, Mr. Doxey, 
 whom he had not the pleasure of knowing previously, seemed to have 
 fully understood the case, and had practically rebuked Mr. Hewmarch 
 for him. In reference to the quotation from the paper made by 
 the latter gentleman, as to the distinction between a reserve of 
 notes, and a reserve of issue, which many seemed to have misun¬ 
 derstood, he (Mr. Seyd) maintained that the great evil from which 
 the banking interest suffered, was the great variation in the rates 
 of interest caused by the difficulty which the bank had in retaining 
 a sufficient or more regular level of bullion in the issue, and that 
 this was chiefly owing to the unduly low rates of interest and the 
 general uncertain effect of the totally useless and mischievous 
 surplus of notes, falsely called “reserve,” which drove bullion 
 away. Mr. Newmarch had stated that the whole of the Act of 1844 
 had been considered over and over again in Sir Robert Peel’s time, 
 and since. Ho doubt it had ; but in all the discussions at the time 
 and after, there did not appear, beyond that which he (Mr. Seyd) 
 had referred to, any allusion whatever to that part of Clause 2 
 referring to the diminution of the issue when occasion arises. That 
 Sir Robert Peel himself was not very clear in his mind on this point, 
 had already been stated, and he was obviously misled by the suppo¬ 
 sition that the circulation of notes on securities would not depart 
 greatly from an average of 11 millions. Mr. Newmarch was not 
 entitled to say that the subject had been fully discussed, and as the 
 reports were available, he ought to have furnished evidence to that 
 effect. However, we had to deal with the law as it stood, and 
 whether it was Sir Robert Peel’s doubt which originated the words 
 in question, there they stood in Clause 2 , as evidence at all events 
 of his instinctive wisdom. They bear no other construction than 
 that here put upon them, and he (Mr. Seyd) earnestly requested the 
 full reading of his paper so as to bring this point out and its effects 
 more clearly. In conclusion, Mr. Seyd again urged the full reading 
 of his paper and the consideration of the diagrams upon those 
 present. The point was a subtle one, but the whole problem 
 appeared to depend upon some such subtlety. 
 
53 
 
 ADDITIONAL REMARKS BY MR. SEYD. 
 
 In the foregoing account of the discussion, the speech made by 
 Mr. Newmarch appears in a small and insufficient paragraph for 
 the following reason :—It is the custom of the Statistical Society 
 to forward the shorthand writer’s notes to each speaker for the 
 correction of his speech to be printed in the Journal. It would 
 seem that Mr. Newmarch has elected not to have his speech 
 reported at length as he uttered it, and it is likely therefore that 
 the reader may not understand the full raison d'etre of tin 
 remarks made by Mr. Doxsey and by myself in answer thereto. 
 Mr. Newmarcli began paying compliments to the diagrams and 
 paper, and then declared that the proposal contained therein 
 involved the finding of a “mare’s nest ” and a “ wild goose chase.” 
 This style of argument is very much in vogue among London 
 economists—of its statistical value I need not say anything. It 
 might be admitted as legitimate, if the speaker in the course of his 
 speech proved by distinct figures and arguments that the author is 
 in the wrong. Mr. Newmarch endeavoured to do this by putting 
 the problematical case of a withdrawal of £3^ millions of deposits, 
 with the object of showing that under the plan suggested by me, 
 there would be no reserve available for such a purpose. Preparing 
 for this result with all the partly jocose by-play with which a 
 facile speaker and highly respected authority can ornament his 
 words, he developed the case of the withdrawal of the £3^ millions, 
 but, arriving at the final point, stopped short rather suddenly. In 
 other words, Mr. Newmarch got into what I subsequently called a 
 “muddle.” He probably saw that the very point he wanted to 
 make was my point, namely, that by the transfer of £3! millions 
 of securities from the Banking to the Issue, out of the £15 millions 
 allowed, the case would be fully met, and that it was applicable to 
 withdrawals of deposits, of notes, or of bullion, or any case that 
 could possibly arise. 
 
 The criticism which Mr. Newmarch thus passed upon the paper 
 submitted, would seem all the more extraordinary, because in 
 principle, as well as in practical effect, the course recommended 
 by Mr. Newmarch himself does not greatly differ from my sug¬ 
 gestion. Mr. New march endeavoured to show that under my plan 
 there would be no reserve of notes, and in putting his proposal as 
 to the sudden withdrawal of £3! millions of deposits or notes, he 
 put precisely the same case that would occur under his own sug¬ 
 gestion. Mr. Newmarch recommends that the old form of account 
 
54 
 
 Additional Remarks by Mr. Seyd. 
 
 should be readopted, the two divisions of issue department and 
 banking department being joined into one. The present method of 
 account being for example ( 1 st September, 1875 ) :— 
 
 Notes issued 
 
 Issue Department. 
 
 £ 
 
 Government securities .... 
 Other „ 
 
 Bullion .. 
 
 43,000,000 
 
 £ 
 
 11,015,100 
 
 3,984,900 
 
 28,000,000 
 
 43,000,000 
 
 Banking Department. 
 
 Capital. 
 
 Best . 
 
 Public deposits . 
 
 Private „ 
 
 Seven days’ bills. 
 
 47,700,000 
 
 £ 
 
 Government securities .... 13,600,000 
 
 Other 18,400,000 
 
 Notes in reserve. 15,000,000 
 
 Coin . 700,000 
 
 47,700,000 
 
 £ 
 
 ...14,533,000 
 ... 3,467,000 
 ... 4,000,00c 
 ...25,300,000 
 400,000 
 
 Here there would be the “ Notes in Reserve,” but if Mr. New- 
 march’s method of reuniting these accounts into one be adopted, 
 the above would stand as follows :— 
 
 Liabilities. 
 
 £ 
 
 Notes in circulation . 28,000,000 
 
 Capital . 14,533,000 
 
 Best . 3,467,000 
 
 Public deposits . 4,000,000 
 
 Other „ 25,300,000 
 
 Seven days’ bills. 400,000 
 
 75,700,000 
 
 Assets. 
 
 £ 
 
 Bullion . 28,000,000 
 
 Government securities .... 24,615,000 
 
 Other „ .... 22,384,900 
 
 Coin . 700,000 
 
 75,700,000 
 
 There would then be no “ Notes in Reserve,” but the bank 
 would have the right of issuing 15 millions of notes on Government 
 and other securities, or as much of them as might be required, 
 keeping the balance unissued of the 15 millions altogether apart 
 from the accounts, precisely as it is in the form I recommend, and 
 whether deposits are withdrawn, or notes required, or bullion asked 
 for, either and all could be done within the limit of the 15 millions 
 at any moment. 
 
 My proposal only differs from Mr. Newmarch in so far as it 
 continues to separate the items of notes issued and the bullion 
 from the banking, as follows:— 
 
Additional Remarks by Mr. Seyd. 
 
 Issue Department. 
 
 £ 
 
 Notes circulating . 28,000,000 
 
 Bullion . 28,000,000 
 
 Government securities .... — 
 
 Banking Department. 
 
 £ 
 
 Capital. 14,533,000 
 
 Rest . 3,467,000 
 
 Public deposits . 4,000,000 
 
 Other .. f.... 25,300,000 
 
 Seven days’ bills. 400,000 
 
 47,700,000 
 
 £ 
 
 Government securities .... 24,61 5,000 
 
 Other „ .... 22,384,900 
 
 Coin . . 700,000 
 
 47,700,000 
 
 the issue right of the 15 millions being held apart just as in the 
 case of the joined account, and available in the same way. When 
 the circulation is fully covered by bullion, as in the above case, 
 there would be no Government securities in the issue, but as with¬ 
 drawals of deposits or bullion, or increase in circulation take place, 
 so would Government securities enter the issue department from 
 the banking, and return when no longer required there. 
 
 Whilst thus alike in principle and effect, I hold that my proposal 
 has the advantage of corresponding exactly to the terms and inten¬ 
 tions of Sir Robert Peel’s Act, and would require no alteration 
 whatever in the essential parts (Clause 2 and others), but Mr. New- 
 march’s proposal would necessitate the remodelling of all these 
 clauses. The separation of the issue from the banking department, 
 deprived of its present mystic, illogical and injurious character, is 
 nevertheless a perfectly feasible and reasonable thing, as I have 
 endeavoured to illustrate by the diagrams submitted, as applicable in 
 all cases. And when this more truthful form as to actual circulation 
 and actual assets is adopted, the right of issue of 15 millions being 
 held apart, subject to “ increase and diminution,” as Clause 2 of the 
 Act directs, it will be distinctly recognised that Sir Robert Peel had 
 a wise intention in making this separation. On page 32 I said, 
 “ You are also aware that a great deal of discussion prevails on this 
 “ separation of accounts. The one party says that this separation 
 “ is complete, that the issue is the ‘ public,’ and the banking the 
 “ ‘private’ department, and certain axioms are formed on the 
 “ notion that the one has nothing to do with the other. Sir Robert 
 “ Peel himself did not say this, although he provided for the 
 “ separation of the accounts. Other people say that the separation 
 “ is a mere matter of fancy, and that the two accounts might be 
 
56 
 
 Additional Remarks by Mr. Seyd. 
 
 “ merged into one. I agree with the latter, and as I have shown in 
 “ diagrams, the foreign banks (excepting that of Russia) follow 
 “ this plan. Nevertheless, I say that the separation of accounts 
 “ between issue and banking may well be maintained, if Clause 2 
 “ of the Act is carried out as here suggested, for it would then 
 “ always show the exact state of the issue, namely, the notes 
 “ actually in circulation against bullion, and the requisite amount 
 “ of securities for the di ff erence between circulation and bullion. 
 “ Any discussion then as to this separation is superfluous.” I quote 
 this paragraph of my paper to show how I was prepared to meet 
 Mr. Newmarch’s remarks on the point. 
 
 It is gratifying to find that Mr. Newmarch himself recognises 
 that the practical evil in the case of the Bank of England lies in 
 the form of account. There are people who will insist upon 
 saying that a mere form of account cannot have such an effect, but 
 Mr. Newmarch seems to be fully aware that in this case the form 
 of account involves the unhappy principle of action under which 
 our money market experiences so many anomalies. In the paper 
 submitted I have fully entered into all this, and the rates of interest 
 involved; and I trust that there are among us men of calm and logical 
 judgment, who will assist in settling this most vexed question. I 
 leave it to them to perceive how close the remedy lies at hand, in 
 accord with all the principles admitted and the practical situation. 
 The true interpretration of Clause 2 of the Act is the missing link 
 in this problem. The amendment of Clause 8 is a subsidiary 
 matter. 
 
 Gentlemen of such high standing as economists might give 
 more consideration to what I have pointed out here, and in respect¬ 
 fully inviting Mr. Newmarch to do this, I am satisfied that he would 
 ultimately speak more kindly of this paper. For, with the excep¬ 
 tion of the difference as to the simple separation of Issue from 
 Banking, my point verifies the same principle and the same 
 practice for which Mr. Newmarch has contended. 
 
Diagrams n? 1 
 
 BY 
 
 .£55 
 
 BANK OF ENGLAND 
 
 exchequer ralances] 
 
 PUBLIC DEPOSITS! 
 
 SKETCH SHOWING THE METHOD 
 OF CONSTRUCTION OF THE DIAGRAMS 
 ON THE BANK OF ENGLAND MODEL 
 
 UTILITIES ASSETS 
 
 LIABILITIES ASSETS] 
 
 OTHER DEPOSITS! 
 
 BANKERS BALANCES. 
 
 7 DAYS BILLS! 
 
 REST 4 
 
 CAPITAL -j 
 
 TOTAL ISSUE 
 
 CIRCULATION OF 
 
 BAN 
 
 KM N C 
 
 DEPAFi 
 
 ISIS 
 
 jsiL 
 
 TMENT 
 
 DEPAFj TMENT 
 
 IJE 
 
 i 
 
 L-~i 
 
 BANK OF FRANCE 
 
 LIABILITIES ASSETS 
 
 TEMP. ADVANCES 
 
 . OTHER 
 SECURITIES 
 
 ^GOVERNMENT 
 
 GERMAN 
 
 £ REICHSBANK 
 
 LIABILITIES ASSETS 
 
 T836- 
 
 SECURITIES 
 
 COIN 
 
 NOTES 
 
 {(in reserve) 
 
 LINE S iPARATINC BANKING FROM Cl 
 
 .GOVERNED Iujons 
 OTHER SECURITIES 
 
 Bullion 
 
 The items in larger type are taken from the j weekly accounts 
 of the Bank of England, those in smaller type (Exchequer and 
 Bankers’ Balances, Bills Discounted, and Temporaijy Advances) are 
 found in Extra Parliamentary Returns. The diagrams show the 
 variations week by week, and may be read from the bottom upwards; 
 but for the purposes here in view, the order of thel weekly accounts 
 has been slightly altered. The strong black and red line separates the 
 Issue from the Banking matters; in the above sketch, however, the 
 Issue department shows above this line. In the actual diagram this 
 is not repeated : the liability of the Issue over and above the amount 
 of notes in circulation being an asset in the Banking department, as 
 notes in reserve, the diagrams are made to show the actual liability 
 of the Issue on circulation (in grey), and the reserve of notes (in 
 white). The extent of the Issue department above the line of separa¬ 
 tion is indicated thereby. 
 
 The Bank of England is allowed to issue notes on bullion, and 
 on £15 millions of securities (originally £14 millicns). The terms 
 of Clause 2 are :— 
 
 “And be it enacted, that upon the 31st of August, 18441 there shall be 
 transferred, appropriated, and set apart to the issue departsdL*, securities to 
 the value of 14 millions, whereof the debt due by the public to the Bank 
 shall be deemed a part; and there shall also be transferred to the 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; 
 and thereupon there shall be delivered out of the issue department into the 
 banking department 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 department as aforesaid, shall be deemed to be issued on the credit 
 of such securities , and coin and bullion so appropriated to the issue depart¬ 
 ment ; and from thenceforth it shall not be lawful to increase the amount of 
 securities for the time being in the issue department, save as hereinafter is 
 mentioned; but it shall be lawful for the Baid governor and company, to 
 diminish the amount of such securities, and again to increase the same to any 
 sum not exceeding on the whole the sum of 14 millions, and so from time to 
 time as they shall see occasion,” &c. 
 
 According to this Clause, the Bank of England may not only issue 
 £15 millions of notes on securities, but may diminish the issue when 
 occasion requires it. Contrary to this distinct authority so to diminish 
 the Issue when expedient, the Bank at once issues the whole amount, 
 whether required or not. It is contended in the Lecture coimected with 
 these diagrams that this practice is at the root of the fatality to which 
 the Bank of England is subject (See the Lecture referred to). 
 
 Ernest Seyd, F.S.S. 
 1878. 
 
 The Foreign Banks render their accounts with more detail than 
 heads with which we are familiar for the Bank of England, for e 
 shows at a glance the respective extent of Banking matters above, a 
 like the Bank of England (excepting, nominally the Bank of Rus 
 England accounts shows how all the accounts can thus be assi 
 
 The Bank of France does not 
 create a Reserve of Notes. The law 
 gives it power to issue 3,200 million 
 francs, but of this allowance it only 
 uses as much as is absolutely re¬ 
 quired to fill the gap between the 
 level of bullion and the actual cir¬ 
 culation. As securities for such 
 issue above bullion, there is a suffi¬ 
 ciency of Government Stock, 
 besides all the rest of the assets, 
 
 No express Reserve of Notes, 
 in its accidental surplus, weighs 
 down the market in an irregular 
 manner, or is complicated with the 
 accounts, as in the Bank of England. 
 Instead of this there is an unused 
 Reserve of Issue right, available 
 when required, but neutral in the 
 meantime, as indicated at the bottom 
 of the diagram. 
 
 125 
 
 MILLIONS 
 
 NATIONAL 
 
 BANK OF AUSTRIA 
 
 LIABILITIES ASSETS 
 
 IN POUNDS 
 
 STERLINCj _—^ 
 
 j£20 
 
 - IB 76 
 
 MILLIONS 
 
 15 
 
 10 
 
 MILLION!,, KATES % 
 
 4 %: 
 
 10 
 
 15 
 
 20 
 
 25 
 
 30 
 
 35 
 
 MORTGAGE 
 
 LETTERS 
 
 -RESERVE - 
 
 NOTES 
 
 IN 
 
 CIRCULATION 
 
 A 
 
 DISCOUNTED 
 
 MORTCACE 
 
 LOANS 
 
 BILLS 
 
 SECURITIES 
 
 A 
 
 V 
 
 BULLION 
 
 :R 1 
 
 ISSUE OF 
 
 STATE NOTES 
 
 ( approximate) 
 
 MILLIONS v ' 
 
 -£31 
 
 o£o 
 
 The Reichsbank, on a principle 
 similar to Sir Robert Peel’s Act, 
 has an original allowance of Issue of 
 Notes, not covered by bullion, of 
 £12^ millions. But unlike the Bank 
 of England, which makes its issue 
 of £15 milli ons at once, and there¬ 
 by creates the ruinous Reserve of 
 Notes, the Reichsbank only issues 
 as much of this allowance as is 
 wanted, keeping the balance as 
 Reserve of Issue, like the Bank of 
 France, and apart from its accounts. 
 
 Beyond this free Reserve (as 
 indicated in the above diagram), 
 of which it makes use, it may issue 
 more notes (if absolutely required), 
 paying* a tax of 5 % per annum on 
 such over-issue—the final limit of 
 which is on a minimum of one-third 
 of bullion. 
 
 il5 
 
 miluor 
 
 10 
 
 i’O 
 
 40 
 
 The National Bank of Austbia 
 may issue 200 million florins of 
 notes, but like the Banks of France 
 and the Reichsbank, retains a 
 Reserve of Issue apart from the 
 accounts. It will be seen that the 
 Bank maintains a fair percentage 
 of bullion, and its notes would no 
 doubt be at par, but for the Issue 
 which the Austrian Government 
 makes on its own account, apart 
 from the Bank. This Government 
 Issue is capricious, and not covered 
 by bullion. 
 
 A change in the constitution of 
 the Bank, to suit the demands of 
 Hungary, is impending, but the 
 affair is not yet concluded. 
 
 & 
 
 d] 
 
 of 
 
 L 
 
 tb 
 
 tk 
 
 wj 
 
 th 
 
 as 
 
 of 
 
 S r 
 
 to 
 
 hit 
 
 Re 
 
BY 
 
 ERNEST Seyd, F.S.S. 
 
 1878 . 
 
 " reign Banks render their accounts with more detail than the Bank of England, but for our better understanding they have here been consolidated under the 
 which we are familiar for the Bank of England, for easier comparison. The strong line of black and red running through the diagrams at the same level, 
 glance the respective extent of Banking matters above, and the state of the Issues below it. The foreign Banks do not expressly separate Issue from Banking, 
 knk of England (excepting, nominally the Bank of Russia); nevertheless this can be done, and the explanation of the method of constructing the Bank of 
 shows how all the accounts can thus be assimilated. The accounts have been converted at the metallic pars of Exchange, although in 
 
 Austria and Italy notes are at a discount. The National Bank of the former holds about 50 per cent, 
 of bullion, and the Italian Exchange is improving. The Russian Bank seems to follow the Exchange 
 
 in its accounts, and has been so converted at the variations. 
 
 iccounts 
 
 DISCOUNTED 
 
 RAMS N? 1 
 
 STATE 
 
 BANK OF RUSSIA 
 
 LIABILITIES ASSETS 
 
 -BILLS - 
 
 wy 
 
 BULLION 
 
 IN POUNDS 
 STERLINI 
 £‘20 
 
 MILLIONS 
 
 NATIONAL 
 
 BANK OF AUSTRIA 
 
 LIABILITIES ASSETS 
 
 - ^ 
 
 SERVE 
 
 NIMUM 
 
 RCENT 
 
 Cl ARY 
 
 OF 
 
 BANKS 
 
 10TES 
 
 15 
 
 LETTERS 
 
 HjEftSsiTS&cf 
 
 £o 
 
 MILLION!, hates ; 
 
 10 
 
 15 
 
 *20 
 
 25 
 
 50 
 
 35 
 
 MORTGAGE 
 
 RETSTRYET" 
 
 CAPITAL 
 
 LN 
 
 CIRCULATION 
 
 M 
 
 MORTCACE 
 
 DISCOUNTED 
 
 LOANS 
 
 BILLS 
 
 SECURITIES 
 
 £ 
 
 BUCOUTT 
 
 NATIONAL 
 
 BANKOFITALY 
 
 LIABILITIES ASSETS 
 
 _ 1876 _ 
 
 The extent of the Issues not covered by bullion by other 
 Banks in England, Germany, Austria and Italy, are indicated ; in 
 France, Holland, Belgium and Russia no other Issues are allowed* 
 
 £o 
 
 10 
 
 15 
 
 20 
 
 30 
 
 35 
 
 4-0 
 
 ISSUE OF 
 
 STATE NOTES 
 
 ( approximate) 
 
 -£31 
 
 £o 
 
 RAT £ S % 4~ 
 
 NOTES 
 
 “TTT~ ~ 
 
 -CIRCULATION 
 
 
 .RESERVE 
 
 )f : 
 
 RIAIE1NLLUNKNQIES 
 
 (B1GL1ETT1 
 
 DISCOUN 
 
 STATAHOn 
 
 7 ^ 
 
 -BILLS 
 
 GOVERNMENT 
 
 SECURITIES 
 
 jj F. ISSUE. . 
 
 CIINSORZIAU). 
 
 NETHERLANDS BANK 
 
 LIABILITIES ASSETS 
 
 3|ST MARCH 1876 h 
 
 NATIONAL 
 
 BANKOF BELGIUM 
 
 LIABILITIES ASSETS 
 
 1876 
 
 FIDUCIARY ISSUE ALLOWANCE 
 OF OTHER BANKS 
 
 (B1GUETTI CONSORZIALl) 
 
 £25 
 
 MILLIONS 
 
 The Netherlands Bank is bound 
 to keep a minimum of 40 per cent, 
 on all its liabilities of Banking and 
 Note circulation. According to law, 
 the King determines this proportion. 
 The measure is a very cautious one, 
 the Banking liabilities might as well 
 be left to their own assets. The 
 Reserve of Issue, consequently, ap¬ 
 pears smaller than it would be on 
 the circulation of notes alone. It 
 is kept strictly apart from the 
 accounts. 
 
 I NIMUM 33## BULLION* 
 
 FURTHER ISSUE AT THE DISCRETION OF 
 FINANCE MINISTER 
 
 The National Bank of Belgium 
 ought to keep a minimum stock of 
 bullion equal to one-third of the notes 
 in circulation. It has, however, ex¬ 
 ceeded this proportion, and trenched 
 beyond the Reserve of Issue thus 4-0 
 available. It appears that the 
 Finance Minister has power to allow 
 this, for, besides the small stock of 
 bullion, the Bank holds foreign bills 
 (chiefly English), looked upon as 50 
 good as bullion, to the amount of 
 
 several millions. 
 
 £21 
 
 
 
 
 
 
 £o 
 
 
 in a principle 
 rt Peel’s Act, 
 ice of Issue of 
 by bullion, of 
 mlike the Bank 
 lakes its issue 
 ice, and there- 
 us Reserve of 
 ik only issues 
 owance as is 
 balance as 
 the Bank of 
 n its accounts. 
 3 Reserve (as 
 ive diagram), 
 it may issue 
 :ely required), 
 per annum on 
 final limit of 
 n of one-third 
 
 The National Bank of Austria 
 may issue 200 million florins of 
 notes, but like the Banks of France 
 and the Reichsbank, retains a 
 Reserve of Issue apart from the 
 accounts. It will be seen that the 
 Bank maintains a fair percentage 
 of bullion, and its notes would no 
 doubt be at par, but for the Issue 
 which the Austrian Government 
 makes on its own account, apart 
 from the Bank. This Government 
 Issue is capricious, and not covered 
 by bullion. 
 
 A change in the constitution of 
 the Bank, to suit the demands of 
 Hungary, -is impending, but the 
 affair is not yet concluded. 
 
 The National Bank of Italy is 
 a comparatively young institution, 
 there being several stronger and 
 older Banks which had issue rights. 
 An arrangement has now been 
 effected, by which the Bank, to¬ 
 gether with the other Issuers, with¬ 
 draw their notes, and with the State 
 “ consort ” together for a total Issue 
 of 1,500 millions of notes, of which 
 1,000 millions fall to the share of 
 the National Bank. 
 
 It will be seen that the Bank 
 thus has a large Issue in Reserve, 
 whicli it treats in the same way as 
 the Bank of France. Among the 
 assets in the Issue are counted some 
 of the old State Notes now in pro¬ 
 gress of withdrawal. It is gratifying 
 to find that so moderate a use has 
 hitherto been made of the large 
 Reserve of Issue. 
 
 THE OBJECTS OF THESE DIAGRAMS 
 
 in connection with the Paper read before the 
 Statistical Society (March Journal, 1878) are : 
 Firstly, to show the relative extent of the affairs 
 of each Bank, and the respective Issue systems. 
 Secondly, to illustrate the logical and practical 
 error involved in the present practice of the 
 Bank of England system, under which the Issue 
 of Notes on <£15 millions of Securities is made a 
 permanent instead of a variable one; i.e., subject 
 to DIMINUTION and INCREASE WITHIN THE 
 LIMIT, as Clause 2 directs. In the paper 
 belonging to these Diagrams the matter is fuHy 
 explained. Diagrams No. 2. compare the Banks 
 of England and France for several years, and 
 show some of the anomalies whieh the present 
 practice creates. 
 
 55 
 
 60 
 
 65 
 
 70 
 
 75 
 
 80 
 
 30 
 
 35 
 
 £ 
 
 MILLIONS loo 
 
 IN 
 
 CIRCULATION 
 
 BULLION 
 
 The Bank of Russia is a State 
 Bank in the full sense of the word, 
 entirely managed and controlled by 
 the Government. The accounts are 
 not clear, the Issue is at the option 
 of the State, and the proportion of 
 bullion small. 
 
 MACLURE & MACDONALD. LITH?* TO THE QUEEN. LONDON. 
 
ILLUSTRATION OF ACTION 
 
 1) I AG RAMS N? 2 
 
 BY 
 
 Ernest Seyd, F. S.S. 
 
 L878. 
 
 1868 
 
 BANK OF ENGLAND ACCOUNTS 
 
 ASSETS (LIABILITIES INDICATED) 
 
 The Diagram here subjoined illustrates the action of the Bank of England under the present interpretation of 
 Clause 2 of the Act of Sir Robert Peel, with its effects on the state of Bullion, reserve of Notes, over investment in 
 paid Government and other securities, and the small amount of Bills and advances, in the varying stages of the 
 level of Bullion, as marked on the loft side, number 1 to 7, and on the right hand, number 8 to 14, the altered state of 
 matters, the more regular state of Bullion, the reserve of Issue, intact as apart from the accounts, with the improved 
 state of Assets generally. . The Lecture affords more detailed information on this diagram. 
 
 In these Diagrams the Assets of the Two 
 Banks are of chief interest, and are indicated by 
 colours. The Liabilities are indicated only by 
 the red lines, such as Capital and Rest and Total 
 Deposits at tho top, and line of circulation at 
 the bottom. 
 
 NOTE ON THIS DIAGRAM. 
 
 The comparison l)etween these accounts shows the power 
 of the Bank of France, how in 1871-1873, when France 
 had to pay £200 millions to Germany, the Bank was enabled 
 to issue no less than from £70 to £00 millions of bank notes 
 not covered by bullion, and how it has since steadily 
 diminished such issue! unfil a higher level of bullion than 
 previously has been obtained, at reasonable rates of interest. 
 But this is not the mam question, in case of such extreme 
 need we might, here in England, do a similar thing by special 
 legislation. The limitlof £15 million- of issue on securities 
 of the Bank of England is sufficient for all ordinary purposes, 
 provided that this were used only when wanted, or as much 
 of it as is currently required. Singular as it may appear to 
 those who believe in a reserve of notes (in its sufficiency or 
 non-sufficiency), it is this form of reserve which causes the 
 fluctuations in low and high interest, the irregularity in the 
 level of bullion, and its comparatively small stock as com¬ 
 pared with the Bank of Franee. 
 
 The Bank of France is altogether a larger institution 
 than the Bank of England. It has made great progress, 
 whereas the Bank of England has scarcely risen above the 
 extent it had in 1847. 
 
 It will also be seen that the Bank of France does a 
 much larger General Banking and Discount Business. The 
 Bank of England invests not only £15 millions in the Issue, 
 and £14 to £15 millions in the Banking in Government 
 Securities, but of the Other securities, the Bills discounted and 
 advances only amount to as much as indicated by the space 
 colored and margined in violet; the rest of the Other secu¬ 
 rities are various Stocks (Colonial, Railways, &e.) purchased 
 by the Bank, so that there is a total of from £38 to £40 
 millions of such purchased securities, and only a few millions 
 of Bills and Advances. It is alleged that all this is due to 
 scarcity of bills, or to more competition than what exists in 
 France and elsewhere, but the number and resources of 
 joint stock banks in Paris is proportionately larger than 
 in London, and private bankers much more numerous; so 
 that the competition, if anything, is sharper than here. 
 The present system of issue is the cause of this anomalous 
 position of the Bank of England (anomalous in spite of its 
 dividend). The delicacy and nervousness of our money 
 market, its many seemingly inexplicable mysteries, the cry 
 for more reserve in some indefinite form or other, are all due 
 to the illogical proceeding adopted, by which the £15 
 millions of Issue on securities are at once converted into a 
 surplus of legal tender notes, w hich are useless for the pur¬ 
 poses of circulation, and have no other effect than to drive 
 bullion away from the Bank before its time, 
 to be recovered again at higher rates. As 
 indicated in the diagrams, No. 1, and in the 
 lecture referred to, this is not the fault of 
 
 o 
 
 < 
 
 < 
 
 o 
 
 z 
 
 UJ 
 
 CO 
 
 UJ 
 
 cc 
 
 CL 
 
 Cd 
 
 UJ 
 
 O 
 
 o 
 
 the Act, for Clause 2 distinctly states that 
 the Issue should be treated as is here sug¬ 
 gested, viz., be subject to diminution and 
 increase within the limit; it is due to a 
 mis-interpretation or want of understanding 
 existing as regards this part of the letter, 
 as well as the true spirit of Sir Robert 
 Peel’s law ; and if the Issue were carried 
 on in accordance therewith, the rates of 
 interest would not fluctuate so much, bullion 
 would be retained more easily, and both the 
 stock of bullion and the circulation of the 
 note would increase. Our market would 
 be less nervous, and many of the present 
 misconceptions would disappear for want of 
 cause. At the same time, the Bank would 
 regain its liberty in being able to invest 
 more in bills and less in Government secu¬ 
 rities, as it ought to do, to its better profit, 
 and increase its business to the benefit of 
 all. 
 
 
 MACLURE & MACDONALD. LITH R ? TO THE QUEEN. LONDON 
 
Diagrams n? 2 
 
 BY 
 
 Ernest Seyd, F. S.S. 
 
 1878 . 
 
 5 
 
 station of 
 3tment in 
 ;es of tho 
 jd state of 
 improved 
 
 In these Diagrams tho Assets of the Two 
 Banks are of chief interest, and are indicated by 
 colours. The Liabilities are indicated only by 
 the red lines, such as Capital and Rest and Total 
 Deposits at the top, and line of circulation at 
 the bottom. 
 
 NOTE ON THIS DIAGRAM. 
 
 The comparison between these accounts shows the power 
 of the Bank of France, how in 1871—1873, when France 
 had to pay £200 millions to Germany, the Bank was enabled 
 to issue no less than from £70 to £00 millions of bank notes 
 not covered by bulHon, and how it has since steadily 
 diminished such issue unril a higher level of bullion than 
 previously has been obtained, at reasonable rates of interest. 
 But this is not the m^in question, in case of such extreme 
 need we might, here iii Englaw, do a similar thing by special 
 legislation. The limit of £15 million., of issue on securities 
 of the Bank of England is sufficient for all ordinary purposes, 
 provided that this wei|e used only when wanted, or as much 
 of it as is currently required. Singular as it may appear to 
 those who believe in a reserve of notes (in its sufficiency or 
 non-sufficiency), it is (this form of reserve which causes the 
 fluctuations in low and high interest, the irregularity in the 
 level of bullion, and its comparatively small stock as com¬ 
 pared with the Bank of Franee. 
 
 The Bank of France is altogether a larger institution 
 than the Bank of England. It has made great progress, 
 whereas the Bank of England has scarcely risen above the 
 extent it had in 1847. 
 
 It will also be seen that the Bank of France does a 
 much larger General Banking and Discount Business. The 
 Bank of England invests not only £15 millions in the Issue, 
 and £14 to £15 millions in the Banking in Government 
 Securities, but of the Other securities, the Bills discounted and 
 advances only amount to as much as indicated by the space 
 colored and margined in violet; the rest of the Other secu¬ 
 rities are various Stocks (Colonial, Railways, &c.) purchased 
 by the Bank, so that there is a total of from £38 to £40 
 millions of such purchased securities, and only a few. millions 
 of Bills and Advances. It is alleged that all this is due to 
 scarcity of bills, or to more competition than what exists in 
 France and elsewhere, but the number and resources of 
 joint stock banks in Paris is proportionately larger than 
 in London, and private bankers much more numerous; so 
 that the competition, if anything, is sharper than here. 
 The present system of issue is the cause of this anomalous 
 position of the Bank of England (anomalous in spite of its 
 dividend). The delicacy and nervousness of our money 
 market, its many seemingly inexplicable mysteries, the cry 
 for more reserve in some indefinite form or other, are all due 
 to the illogical proceeding adopted, by which the £15 
 millions of Issue on securities are at once converted into a 
 surplus of legal tender notes, which are useless for the pur¬ 
 poses of circulation, and have no other effect than to drive 
 bullion away from the Bank before its time, 
 to be recovered again at higher rates. As 
 indicated in the diagrams, No. 1, and in the 
 lecture referred to, this is not the fault of 
 
 the Act, for Clause 2 distinctly states that 
 the Issue should be treated as is here sug¬ 
 gested, viz., be subject to diminution and 
 increase within the limit; it is due to a 
 mis-interpretation or want of understanding 
 existing as regards this part of the letter, 
 as well as the true spirit of Sir Robert 
 Peel’s law; and if the Issue were carried 
 on in accordance therewith, the rates of 
 interest would not fluctuate so much, bullion 
 would be retained more easily, and both the 
 stock of bullion and the circulation of the 
 note would increase. Our market would 
 be less nervous, and many of the present 
 misconceptions would disappear for want of 
 cause. At the same time, the Bank would 
 regain its liberty in being able to invest 
 more in bills and less in Government secu¬ 
 rities, as it ought to do, to its better profit, 
 and increase its business to the benefit of 
 all. 
 
 MACLURE 8 . MACDONALD. LITH"? TO THE QUEEN. LONDON 
 
 MILLIONS 
 
 i