The Press.
London, England, 1857-12-05 00:00:00

THE REAL PRESSURE OF THE ACT

OF 1844.
" MY belief," said Lord DERBY, in the House
of Lords on Thursday night, " with that of
" the Committee which your Lordships ap-
" pointed in 1848, undoubtedly is, that though
" certainly the Act of 1844, had no share in
" producing the calamities to which we are
" now, and were in 1847, subjected, yet that
" that Act has a very strong and important in-
" fluence in agg►avating such difficulties when
" they arise." This was exactly the position
which we strongly maintained last week ; and
to the more detailed explanation of the
manner in which the Act aggravates the pres-
sure of a commercial crisis we purpose to de-
vote the present article. There is a general
impression abroad that at such times of com-
mercial embarrassment more circulating me-
dium than usual is needed for the current
operations of the country. This, however, is
not the case. The additional pressure pro-
duced by the Act of 1844 is not from its in-
flexibility in resisting the demand for more
circulating medium, but in the imminent
danger that its provisions will forcibly con-
tract the actual circulation within its natural
and average supply. It is not the absence of
an elastic power in the Act of 1844—for there is
sufficient elasticity in it for all cases where

more circulating medium is, in fact, needed—
that is, for times of prosperity, when transac-
tions are multiplied,—it is the existence of a
contracting force in it, just at the very time
when credit is also contracted, that produces
the great embarrassment to which Lord DERBY
draws attention. " When," he goes on to say
" the country sees the publication of the Bank
" accounts, and that the Bank is approaching
" the period at which it will be necessary for
" them to contract their circulation," it not
unnaturally experiences the most vivid alarm.
A certain fixed circulation is needful for the
exchanges of the country—say about twenty
millions of bank-notes in addition to the
coin and country notes. Sir R. PEEL'S Act
provides that for all notes beyond the
14,500,000 for which Government securities aro
held—that is, for the 5.500,000 extra notes that
are almost always needed and for all in excess
of these—bullion shall be kept in the Bank
coffers. The bullion dwindles down to six
millions, which is close on the verge of the
minimum extra supply of notes needed. The
public know that within a week or two more
they may have much less circulation than they
actually need for their regular exchanges, and
panic begins.
We find the notion so rooted in many men's
minds that a much larger circulating medium
is needed at these times of commercial trouble,
that it is well worth while to go more minutely
into what actually takes place. Lord ASHLEY,
for instance, told his constituents the other
day that one great remedy for these troubles
would be for "the Bank of England, with
" the Chancellor of the Exchequer, to come to an
" agreement to hare a great circulation of bank-
" notes." This is certainly to treat the
subject with the wise and reverent gene-
rality of phrase which becomes the simplicity
of a childlike faith, nay to pay a sort of
idolatrous worship to the paper-symbol. And,
indeed, Lord ASHLEY represents a considerable
portion of the most intelligent population in
England when he thus oracularly hints that an
" agreement " to have " a great circulation of
bank-notes" would in some way satisfy the
yearnings of the mercantile world pining ob-
scurely under a sudden growth of passion for
paper money. Let us attempt to explain briefly
and clearly what it is that really takes place in-
stead of this imaginary demand for more
circulating medium—what it is that is the real
source of inconvenience to the Bank, and the
real cause of panic to the commercial world.

(1) It is true, then, that what the commer-
cial world fear, and what in the end causes the
panic, is want of the means of realising in
medium of exchange the value of property
over which traders have an undisputed title.
Many firms, no doubt, at such periods, stop
payment, and many more are in great fear and
danger of stopping payment, which are per-
fectly solvent and even in a satisfactory state
as regards their assets, but which, from some
cause or another, have difficulty in disposing
of such of their assets as would give them
sufficient floating capital to go on with. There
is, therefore, a dread in the mercantile classes
lest there should be no adequate means of
realising their property soon enough for the
purposes of trade. Now, this is a real cause
of commercial difficulty ; but it has nothing to
do with the amount of circulating medium—it
has to do only with the amount of credit. The
" accommodation " needed in this case is not
at all more likely to be got if the country is full
of convertible bank-notes than it would be if
there were only a metallic medium. The
obstacle here is the doubt as to the nature of
the security offered, not as to the power of
supplying a medium of exchange supposing
that security be good. The difficulty arises in
the affairs of the person to be accommodated, not
in the affairs of the accommodator. The money
value of the security inspires distrust, and this,
not the want of money, in return for the money
value causes the hitch. This difficulty of
accommodation, therefore, does not arise in a
straitened circulation, but in a straitened
credit.
But (2) a panic does no doubt ultimately
arise on the other side also. Not only do those
tremble who cannot produce perfectly trust-
worthy securities, but sometimes also those
who can, !not so much lest they should be
obliged to pay a yet higher rate of interest for

advances of capital, as lest they should not be 1
able to obtain them at any rate of interest'
from a deficiency of the medium of exchange.
Here, however, a most important question
arises. Whence does this dreaded deficiency
arise? Is it from the demand for an expansion
in the medium of exchange much beyond its
average limits at these times of pressure, or
from the fear of its contraction much within the
average limits? We reply without hesitation,
from the latter cause. The need for greater " fic-
" commodation" than usual among the mercan-
tile classesat large does not mean any need for a
greater circulating medium than usual. With
an unchanged amount of business transactions
there can be no addition—nor yet any need
for addition—to the mere exchange-medium
of the country. Nor is there any such need for
an extended exchange-medium, in point of
fact * When a merchant asks for and gains
accommodation—that is, when he gets a loan on
adequate security, or gets a bill of exchange
discounted—he either needs the money for im-
mediate use, or he does not need it immedi-
ately, and has only obtained it as a precaution.
Let us take each case individually. In the first
case, when be does need it for immediate use,
he needs it either for payments in this coun-
try, or as bullion to send abroad If wanted
for payments in this country, it will return to
some bark, and ultimately to the Bank of
England (where all other bankers keep the
bulk of their reserves) in the shape of deposits
from the persons into whose hands it has now
flowed. Unless the transactions of the country
have increased, no larger amount of circu-
lating medium can be made use of. It is not
wanted, and returns immediately into the
credit-account of the owner at his bank, passing
thence to the Bank of England. On this
point the evidence of the best authotities is
most explicit. In his evidence before the
Banking Committee of last session, Mr.
WEGUELIN, one of the highest authorities on
sucka point, is asked (question 654) :
No person has any inducement to retain a larger amount
of circulation, whether it ha metallic or whether it be
paper, than is actually necessary for the purposes for which
circulation is required ?—A. Certainly not.

And again (question 746) :
Then I understand you to say that whether as regards
the Bank of England or as rewards country issuers, the
amount of their circulation frotu time to time is not de-
termined by the will of the one or the other, but by the
wants of the public from time to time'—A. Certainly.
It seems clear, then, that any special accom-
modation given to a merchant for immediate
use in the country cannot go to increase the
active circulating medium in the country,
unless the transactions and trade in the coup•
try have increased so as to need it. It returns
through other hands to the Bank, whence it
came. But if, on the other hand, the mer-
chant need the advance for export as bullion,
then i►t is clear it is not wanted to increase the
circulating medium of the country, as it is
wanted to go out of the country. The demand
was not for inure circulating medium, but for
a special kind of capital suitable for export.
The want, then, cannot be caused by any
scarcity of the exchange medium at these
times of pressure—fur notes or mere currency
would have been of no possible use—but by
the state of the exchanges, which make it more
profitable to export gold than any other sort
of capital. It diminishes the Bank's reserve
of bullion, but adds nothing to the amount of
circulating medium.
Again, if the person accommodated does not
want the advances he gets for immediate use,

• This is remarkably shown by comparing the circula-
tion of any year of large business transactions, such as
1444 or 1452, with the present critical period. The circu-
lation is seen at a glance to be much larger, simply be-
cause more transactions are effected.
1,;52 Notes held by the public. 1657 Notes held by the public.
Oct. 2 1:22,214,000 Sep. 30 ;219,931,234
9 22,242,000 Oct. Y 20,824,714
10 23,660,000 14 ..
23 .. 23,160,000 21 21,0.52,315
30 23,813,000 24 20,58.5,707
Nov. 6 23,351,000 Nov. 4 .. 21,079,942
13 23,202,000 11 21.036,430
It is quite clear, however, that in the last crisis of a panic
there is an extra demand fur gold and notes. Thus the
circulation, including Bank post bills, was 22,235,9541. at
the highest point in this panic. This is not file, how-
ever, to any demani for circulating medium, but to the
dread of a " run" in the country banks. . .