The Press. — London, England, 1857-12-26 00:00:00

THE PRESIDENT Or THE UNITED STATES ON BANKING. THE partisans of the Bank Act of 1841 con stantly avail themselves of the confusion of the public mind to take credit for their spe cial crotchet on the ground of common and admitted principles on which they and their only formidable assailants are entirely agreed. At one time they identify all their opponents with the inconvertible-paper party ; at another they speak of them as the " advocates of un " restricted circulation," although there is not one of their ablest opponents who does not recog nise at once the necessity of adhering to the convertibility of the bank-note, and the obli gation of the State to take some special mea sure securing the note-holder of any banker's notes against the result of the bank's failure. In the Times of Tuesday we have a remark able example of this disposition of the Bank Charter party to take credit for the views which their opponents hold in common with themselves, and to misrepresent the true bear ing of the whole question at issue. " The " principles on which the Bank Act of 18-t4 is " founded," says our contemporary with some what unscrupulous inaccuracy, " have lately " received the acquiescence of all parties in " this country We have now a tribute " to our monetary system from the first magis " trate of the other great commercial country "in the world." Any one reading this para graph would suppose, as we did on our first perusal, that Mr. BUCHANAN had committed himself to the principle that so long as the State secures the note circulation against the danger of temporary inconverti bility, the trade and credit of a country are comparatively secure, or at least as secure as sound banking could make them. It was, therefore, with no little astonishment that on turning to the President's Message we found not only that he did not endorse this princi ple, which is of the very essence of Sir ROBERT PEEL'S Act, but that he practically admitted to the full extent the principle for which the opponents of that Act have always contended —that the bullion reserve must be kept against the general and total liabilities of the Bank, not against any one element—(least of all, as we should say, against the least variable and least elastic element)—and that no legislation can be effective at all which does nut treat those liabilities as a whole. No doubt Mr. BUCHANAN says there has been a great deal )1 bad banking in the States, and a very insufficient bullion reserve kept against the paper . money. But how the Times regards this as any tribute to the Act of 1844 it is certainly difficult to see, since the very charge brought by its antagonists against that Act is that it does nothing, and worse than nothing, while it confines its attention only to the note circulation ; in short, while it attempts to remedy evils of much deeper origin by an artificial strain on the class of liabilities which are least responsible for the general embarrass ment and least capable of sudden contraction. Mr. BUCHANAN is intelligible and consistent, which the supporters of the Bank Charter Act certainly are not. He does not in any way propose to apply the drag to that pat t of the Bank machinery which is least in danger of slipping, and has least power to check the slippery movements of the other parts. He would legislate for the banks as a whole ; he would provide a reserve against deposits and notes taken together, nut for their issue department only: and this is a. hue of thought we can well understand. "If they "will require," says Mr. BUCHANAN, speaking of the State Legislatures, " that the banks " shall at all times keep on hand at least one " dollar of gold and silver for every three dollars "of their circulation and deposits, and if they " will provide by a self-executing enactment " which nothing can arrest that the moment " they suspend they shall at once go into " liquidation, I believe that such provisions, " with a weekly publication by each bank of " a statement of its condition, would go far "to secure us against future suspensions of " specie payments." THE PRESS, DECEMBER 26, 1857. Now, is the Bullionist party that defends Sir R. PEEL'S Bank Act willing to extend it thus far? If so, we would at once admit that they have some ground to go upon, and that they aim at a desirable end, though we do not believe that that end can be efficiently secured by any sort of legislation. But while they attempt to remedy a general deficiency of bul lion by a provision which only tends suddenly to contract the circulation, we say that they are aiming at an end which is not only insufficient, but absolutely hurtful, because it throws all the strain on to the least elastic element, and adds the evil of panic to the other evils at work. The public now know that it is useless, and worse than useless, positively injurious, to at tempt to meet a state of general excitement and discredit by forcibly contracting the circula tion ; and they know that it cannot be done by legislation so long as the much more influ ential element of discounts and advances on loan is left entirely uncontrolled by legisla tion. All we maintain, all that the intelligent opponents of the Bank Charter Act ever main tained, amounts to this,--that if the bullion reserve has been allowed to get too low in pro portion to the Bank's liabilities, it is folly to attempt to contract those liabilities by a sudden tug at the note circulation. The circulation is more than anything the fixed and permanent element in the Bank's liabili ties. Times of poor trade do not aggravate, but, except in the last crisis of panic, rather alleviate the demand for circulating medium. So long as you take adequate Government security for your note circulation, that element will neither foster, nor in any ircpor;.ant degree affect, a commercial crisis. The bullion reserve should be held against general liabilities, wherein the notes will be found to constitute the least variable item. Any law which affects to secure a bullion reserve for notes only, directs the banker's mind to the wrong anxiety. And this Mr. BUCHANAN'S Message clearly admits. In fact, it is easy to show that if the issue of bank-notes is permitted only against a deposit of Government securities to the full amount, as Mr. BUCHANAN seems to say is the case in most of the American States, and as we know to be the case in Sew York, then the note circulation is just the part of the banker's business which does not promote commercial speculation, while a free system of general advances on the part of a bank undoubtedly may, and often does, foster a system of un sound trade. If, indeed, bank-notes are issued against no adequate Government se curity—against nothing which must remain their full equivalent in value, after allowing fur all reasonable depreciation—then, of course, they give a false stimulus to the demand for commodities, because they directly increase the apparent property of the community until the time comes when the in sufficiency of the security and the impru denee of the banks' paper advances is de. tected. And so far as the several States banks have been guilty of this folly Mr. BuenAs.ts is quite right in saying that the over-issues of paper have stimulated demand unnaturally, and raised general prices, for a time, above their natural level. But in such States as New York, where the paper currency has all been amply secured on Government stock, the note circulation is just that part of the banks' opera tions which cannot have given a false stimulus to the market. This is obvious enough. The only way in which a banker can abso lutely increase the demanding power of the community above the point to which it could rise without the help of a bank, is by rely ing, as all bankers rely, on the permanent use of, say two-thirds of his depositors' money. Instead of keeping. these depusits in his till, lie advaaces them to those who need them, and thus becomes the medium by which his cre ditors lend to his debtors. In this way he no doubt really increases the demandintz power of the community, for he lends on private securities money that would otherwise he idle, to those who could not otherwise borrow at all. The banke►'s special experience gives him, or is at least supposed to give him, the opportunity of judging how far securities are good which few private persons could pro perly judge of at all ; and his command of other persons' money gives him the means 1243 of lenling on such security, if he is anxious to do so. But, so far as he merely issues notes on the deposit with the State of Government securities to the full amount of the Motes he receives, he does not thus avail him self either of his special command of his cu s tomers' money, or of his special knowledge of the value of securities : he merely deposits one kind of property with the State, and receives an equivalent in a more easily divisible property. He deposits the full value reckoned in bullion, and receives a right to issue promises to pay in bullion. He does not therefore add to the demanding power of the community as he does in lending his depositors' money on discount to a borrower, because the property on which he receives his notes has a known and gua ranteed value, and remains in hand as a pledge till the notes issued upon it are restored. Any possessor of such property could at any time exchange it for the value, or more than the value, of the notes received on it, and the ex change, therefore, is one of mere convenience . But the ordinary business of a banker—the use he makes of his deposits—is not of this nature ; it is a real addition to the demanding power of the community ;—whe ther an artificial or natural addition, de pends of course on the prudence with which he acts. Hence it is clear that, while the ordi• nary discount-business of a banker may, and often does, give a false stimulus to trade, the mere note circulation, under the wise limitations we have supposed, is just the element which cannot give this false stimulus. And any one who will look at the account of note circula tion and the specie returns of the New York banks for the last year, will see how utterly absurd it is to attribute the recent crisis to that cause. THE STAFF COLLEGE. THE establishment of a Staff College at Sandhurst is the first step of any conse quence towards effecting an educational reform in the army which has been achieved by the Council of Military Edu cation since their appointment in March last. The circular memorandum containing the regulations of the college will be found in another portion of our columns, and we are bound to say that the regulations in them selves appear to be excellent. The changes are important, the course of study recommended is comprehensive, and the advantages obvious to all. The old senior department "at Sand hurst, converted into a " Staff College,' will receive thirty students from the different arms of the service. Every candi date for admission must have been three years in the service, and, if a subaltern, must have passed the regimental examination for his troop or company. The admission into the college will be determined by the result of a competitive examination, and the successful candidate will be required to pursue a speci fied course of study fan• two years, with perio dical examinations. The names of those who have passed the final, or as it were " degree," examination will be arranged in three classes according to merit. " After the Ist January, NW—that is, after the first batch of students admitted in February next have completed their course—" no officer will be appointed to the staff who shall not have gone through " the Staff College, or passed the final exami " nation of that college (par. 13), with the ex " ception of those who shall have attained at that date the rank of lieutenant•colonel, and "in every case excepting officers of proved " ability in the field." This, of course, is the pith and point of the whole affair, and will, we believe, secure in future the services of a most efficient st.iff. The last exception in favour of officers of " proved ability" will, we feel sure, be approved by all, inasmuch as the man who shows practically that he is fitted for a certain service must at least be as eli gible as he who is judged to be so from his theoretical attainments. The first exception is probably made in consequence of the diffi culty which would be found in filling up the higher stall appointments by officers holding