The Sun.
London, England, 1853-09-21 00:00:00

OUR COMMERCIAL PROSPECTS.

-

The unsettled state of the Russo-Turkish ques-
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et, hl
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a; the continuous
e
ing topics of conversation in commpainrpe
Notwithstanding the enormous su
from
oCwnalifionrnlBia46a,noduAr
pursetrasenlita erl oicetfi
hsagle ooalfdb circlessfgor oroblmd:
,mweht
metallic
aminesssets
owerely
exceed those of that year by the paltry sum of
147,2201., for on the 12th September, 1846, the
Bank held 16,353,8461., and on last Saturday
16,500,0681. The drain has continued without in-
termission since the 2d of July, the average weekly
decrease being 216,5221., the aggregate during that
period amounting .to 2,165,221/. Hence the rise
in the rate of discounts, and as no immediate cessa-
tion is the efflux is expected, it is highly probable
that the rate will be still further increased. Whe-
ther we are to have a renewal of the disasters of
1847, or are fated to escape the desolating scourge
of panic, we venture not to predict ; but it may be
well to remind our readers that in that most cala-
mitous year from 250 to 300 millions were sacrificed
in order to recover from foreigners some four mil-
lions of sovers which had been exported. This was
the practical result of our monetary legislation, and
that legislation still remains in full force.
The active circulation of Bank notes at the last
return was 22,465,945 ; in other words, these notes
were in the hands of the public, and to that
amount the public were creditors of the Bank.
Now what bad the Bank in gold to redeem these
promises to pay on demand ? Just 16,162,6401. ;
the deficiency therefore was 6,303,3051., so that
of the theory propounded by the bullionists,
-on which the Act of 1844 is based, were ho-
nestly acted upon, the Bank would at this moment
be insolvent, since it could not redeem its promises
in the precious metal. When Sir Robert Peel in-
troduced this measure he made the following re-
marks :--`• The whole foundation of my measure
rests on the assumption that, according to practice,
according to law, according to the ancient mone-
tary policy of this country, the meaning of a pound
is neither more nor less than a certain quantity of
gold, with a mark upon it to determine its weight
and fineness ; and that the engagement to pay a
pound means nothing, and can mean nothing else,
than to pay to the holder on demand, when he de-
mands it, a definite quantity of the precious metals."
In the terms of this definition it is clear that the
Bank is now insolvent ; but Sir Robert Peel dis-
carded his own definition when he began to legis-
late. It so happened that the country owed the
Bank of England eleven millions of permanent
debt, and always required advances to the extent
of three millions on Exchequer bills, so that the
permanent and floating debt amounted to fourteen
millions. Now against that amount the Bank is
allowed by the Act of 1844 to issue notes without
any metallic basis whatever ; it is only when that
sum is exceeded that it is bound to hold bullion in
its cellars. The whole scheme is composite and
contradictory ; it asserts a principle only to violate
it, and repudiates in practice what it affirms in
theory. If the Legislature had not intended to mys-
tify the subject, it ought to have decreed that the
inconvertible notes should have on their face some
distinctive mark, so that the public might know that
promises to pay on fourteen millions of notes were
mere moonshine. The rule laid d.ownby Lord Over-
stone that the notes are to contract or expand as bul-
lion leaves or enters the coffers of the Bank would be
rational if the whole circulation were based on the
theory ; but it is absolutely absurd in a mixed
currency partly convertible and partly inconver-
tible.

The ruled laid down by the Bank itself for raising
and lowering discounts is not based on national
policy, but is determined altogether by the pecu-
niary interests of that establishment. In the Lords'
Report on Commercial Distress, referring to the
panic of 1847, it is stated that the earlier practice
of the Bank of England had been to discount at a
rate nearly fixed and uniform. From 1704 to the
16th May, 1839, this rate never exceeded five, nor
was less thanLfour, per cent. In the pressure of
1839, the rate was raised for some months to six
per cent., but it was reduced to five per cent. in
January, 1840, and remained at four to five per
cent., as before, till after passing the 7th and Bth
Vict. cap. 32, which is the Bank Charter Act of
1844. During this long period the object was to
ensure steadiness in the value of money, and avoid
violent fluctuations. Now this rule was abandoned
after the monetary legislation of 1844, and the fol-
lowing explanation, given by the Governor of the
Bank, is printed in the Lords' Report :
" In regulating the rate of interest we look, of course,
to the state of the reserve. We are either to increase
or diminish the amount of the reserve, as may be re-
quired, by raising or lowering the rate interest, or by
the sale or purchase of securities. Supposing the de-
mand upon the Bank, for instance, was considerable,
and more than the Bank were able to afford, it would
be necessary to put up the rate of interest. On the
other hand, if the reserve of the Bank was increasing,
and it was not thought advisable to purchase securities,
naturally the rate would be put down. The putting up
or the lowering the rate would be guided by the state
of the reserve, reference being had to the rate of interest
in the market."
It is evident that such a system is hostile to the
best interests of commerce, as the whole trade of
the country is made subordinate to the profits of a
privileged corporation. By raising or lowering
discounts at its caprice, the Bank can lower or
raise prices generally, and thus derange the whole
business of the country, just as it may operate on
the dividends of its own shareholders. Now it
transpired in evidence before the Lords' Committee
that during the railway mania the Bank invested
2,481,0001. in railway securities ; and when the
Governor and Deputy-Governor were asked by the
Committee what, in their judgment, were the
causes of the distress, they answered, " One of the
causes of it is, that many of those parties have been
dealing in railway shares. The capital which they
ought to have kept in their business they have put
out in expectation of realising at a profit, but rail-
way shares have become nearly unsaleable, and
their capital has been locked up." So here we
find the Bank assisting to create the very mischief
of which the Governors afterwards complained. So
long as they made a profit for their establishment
they encouraged the speculation ; but when the
profit ceased, they turned round and set up a
lachrymose whine about overtrading.
The Bank has avowed that the state of the re-
serve determines their conduct in fixing the rate
of discount. The management therefore is based
on selfishness. When the reserve is large, it dis-
counts freely even at 2 per cent., and thus en-
courages traders to extend their business. An
abundance of money raises prices, merchants be-
come
enterprising, and both profits and wages are
remunerating. he condition of all classes is im-
proved, and the population is loyal and orderly.
This is a state of things that wisdom would per-
petuate ; but it is always of short duration, for,
with rising prices, a new element is introduced
which prevents the Bank from continuing to act
on the reserve policy. Foreigners then begin to
take gold in payment of what is due to them in-
stead of manufactures, and the Bank puts on the
screw. As in the first case it lowered discounts to
employ its reserve at a profit, so now it raises dis-
counts to check the escape of its bullion. Thus
the Bank causes prosperity or adversity at its plea-
sure, and the whole trading community are at the
mercy of the establishment. Now we are very far
from saying that the Bank is wholly or solely to
blame for these commercial derangements ; for the
Bank itself is coerced by the stringency of the act
of 1844, and may be bankrupt with millions in its
coffers—a fact that would be incredible had it not
been proved in evidence. This is owing to the
separation between the Issue and Banking De-
partments. For instance, in October, 1847, when
the panic was at its height, the Bank had only
1,600,000/. in the banking department to meet its
liabilities, while the total deposits were 14,500,0001.,
the deposits of the London bankers being more
than 2,000,000/. at that time. The Governor was
asked, in reference to these facts, " if anybody had
?ad,,
"Yes
called upon you for anything beyond that million
and a
whaelf,myuos.,,
utmu,s,tNhevaevrethsetloepssp,e” added thed payment
Governor, "we should have had 8,500,000/. iu
our vaults." We have little evidence here of Par-
liamentary wisdom, for the Bank was solvent in
one room and insolvent in another in the same
building. Nothing saved it from destruction but
the Treasury Minute, which suspended the Act of
Parliament that had caused all the mischief.
Now in reference to our commercial prospects so
far as they are affected by the contraction of the
currency and the rise in discounts, this important
question arises—Why do foreigners take our gold
instead of our goods in payment of the commodi-
ties they sell to us ? Of course this is not done
capriciously ; there must be a strong motive for
it ; this then is the point to be explained, for it
involves the best interests of all who live on
wages and profits.
It is easy to distinguish between the intrinsic
value of commodities and their taxation value.
The former is strictly limited to the labour ex-