The Sun.
London, England, 1847-08-17 00:00:00

THE INFLUENCE OF THE BANK

ACT IN PRODUCING THE PRESENT PRES-
.SURE.—No. I.

TO THE EDITOR OF THE MORNING CHRONICLE.

Sir,—ln considering the present difficulties which
oppress the money market, and interfere so prejudi-
cially with the commerce of the country, it is exceed-
ingly important to draw a strong and a conspicuous
line of distinction between the radical and the acces-
sory causes out of which the evils have arisen. An
impatient and indiscriminate vehemence, which should
expend itself in animadversions upon the Bank Char-
ter Act as the exclusive parent of the severe incon-
venience from which the country suffers, would not
in any sense be creditable either to the candour, the
reason, or the discretion of those who gave it the be-
nefit of their concurrence. There can hardly be a
question among dispassionate observers, that the influ-
ence of this supererogatory law has been most per-
nicious, and that it has added very seriously to the
difficulties of a crisis which certainly did not require
the aid of any extraneous complication. It is most
desirable, therefore, that the faults of vicious legisla-
tion should not be palliated or obscured by an intem-
perance of accusation unable or unwilling to discrimi-
nate between inevitable and artificial causes of
commercial disturbance. If we can fairly apportion
the results upon this basis, and with this object, we
may conclude with some confidence, that a judgment
so obviously impartial and so sedulously just will not
pass unheeded by a community distinguished by an
habitual respect for fair argument and an honourable
sensitiveness to its force.

It may very readily be conceded, that the competi-
tion raised by the railway companies for the use of
capital, both as direct calls upon the proprietors, and
as loans negotiated with the public, has become so
extensive as to exert a powerful influence upon the
market rate of interest. If the rate of interest was,
say four per cent. before a railway demand of the
magnitude of thirty millions per annum came upon
the country, the fact of that demand is an intelligible
reason why the rate of interest should advance to a
higher figure. But it is scarcely an intelligible reason
why the general advance of the rate of interest should
produce the same violent effects as the measures of
coercion which are connected with the last stages of
an adverse exchange.

A feeling is very prevalent, which with some in-
consistency appears to be equally alarmed at the oc-
currence of one of those gluts of capital when 1 or 2
per cent. is obtained with difficulty, and at the revival
of a demand which again restores a more natural
relation between the lending and borrowing portions
of the community. There is a general uniformity
of opinion as to the ultimate mischief of capital
over-easily and cheaply obtained; but there is no
well defined test as to the position in the scale of
advance of that line of distinction which separates a
period of exuberance from one of healthy facility,
or which, again, distinguishes this latter condition of
the money market from a period when the rates
of discount have attained a degree of inflation ruinous
to the successful prosecution of the ordinary branches
of trade. It is not in the nature of the phenomena
that there should be such a certain and definite test.
Nor in this country is it probable that we ever suffer
from a state of things when the quantity of loanable
capital in existence is positively inadequate, except at
ruinous prices to meet the legitimate demands for its
use. The derangements of our money market are
those of panic and alarm. We encounter periods when
in the words of the late Mr. Rothschild, " the appre-
hensions of capitalists are excited, and they withdraw
themselves altogether until quiet is restored." The
exorbitant prices paid for accommodation during
these seasons of excitement are not so much a correct
index of the relative scarcity of money, as premiums
fairly due to the lender for the augmented risk with
which circumstances have suddenly surrounded nearly
all the branches of his business. lam far froni say-
ing that extremities do not sometimes occur, when, as
the condition of avoiding a greater and more per-
manent evil, there is no escape from one of
these desperate and disastrous disturbances of
our whole commercial economy. It is the duty, as
most assuredly it is the interest, of our legislation to
establish regulations which, as far as possible, shall
diminish the frequency and mitigate the violence of
these unhappy disruptions of all the rules of ordinary
sagacity and circumspection. This is the species of
merit which, before long, will be held paramount to
ail others in the consideration of schemes of cur-
rency management ; and it is precisely because the
existing law, so far from giving us any better protec-
tion against these exacerbated crises, does, in point of
fact, promote their multiplication and intensity, that
it is so obviously and so justly obnoxious to the
severest tone of criticism.
There is abundant evidence that the elevation of
the rates of interest at the Bank of England on the
2d August inst. was a measure almost totally unex-
pected by the commercial community. During the
preceding week the abundance of money in Lom-
bard-street, at the then existing rates, was quite
adequate to the applications for it, and there was no
symptom of uneasiness until the publication of the
return of the 24th July excited an apprehension that,
with so small a reserve in the banking department,
and with the improbability that it would receive any
important increase from a further decline in the out-
standing circulation, the directors might feel it neces-
sary to adopt some measures of restraint. The acute
sensation produced by the events of April has not
yet been much impaired by lapse of time, and it can
excite no surprise that any reasonable fear of the
repetition of similar difficulties and perils should
bring the principle of self-preservation into most '
active exercise, and at once place the money market
under the influence of one of those alarms when, as
I have endeavoured to explain, the rate of interest
ceases to be the true index of the quantity of capital
in existence, and becomes a premium of insurance
against an imminent but undefined hazard of losing
the principal advanced. It appears to me, there-
fore, that altogether apart from the general question
as to whether the demand for advances had
come so far to preponderate over the supply
of capital as to lead naturally to a rise in
the rate of interest, the rise which has oc-
curred, supposing it to be legitimate, has been accom-
panied by a suddenness and severity of tension and
excitement altogether disproportionate to the occa-
sion—and that this suddenness and severity are
wholly and exclusively the consequences of the pre-
sent Bank Act. By this Act the directors are mere
passive instruments for giving audible utterance to
the effect of a numerical rise or fall of the reserve of
the banking department. When that reserve has
fallen to a certain depth of exhaustion, the functions
of the establishment cease and determine. The public
in April last had an opportunity of beholding a partial
reduction of this theoretical outline into bond fide
practice. The lesson has not been thrown away, and
no merchant can now be accused of nervous timidity
who feels himself in the midst of perils when the
Bank directors, in obedience to the present ruth-
less legislation, have intimated in the usual form
that it is only a narrow margin which separates them
from the positive rejection of all further discount
business.
In a few words, then, we are indebted to the Act
of 1844 for the sudden and unexpected interference
of the Bank with the course of the money market,
and for the association with that interference of a
degree of perplexity and alarm such as, under other
circumstances, would be reserved for the extreme
stages of a foreign drain of bullion.
There are two objections which may be started to
this conclusion—it may be said, first, that in the ab-
sence of the present stringent laws, the Bank would
have permitted its treasure to descend to a most
hazardous point of exhaustion; and secondly, that to
the same influence we are beholden for an action
upon the money market so decisive as to impose an
effectual barrier to the further progress of no small
portion of the railway expenditure.
With your permission these topics may form the
subject of another letter.—l am, Sir, your obedient
servant, LOUIS D'OR.
Aug. 14, 1847.

RAILWAY ACROSS THE ISTHMUS OF PANAMA.—M.
Klein, who was sent to Bogota to treat with the Go-
vernment of New Granada for the establishment of a
railway across the Isthmus of Panama, has returned to
France. lie has completely succeeded in his mission,
having obtained most advantageous conditions for the
company he represented. The works will shortly be
commenced.
The following arrangements have been effected in
consequence of the vacancy of the collectorship of cus-
toms at Inverness :—Mr. J. Waters, now collector at
S
fllie.ws Clark,prpe
Boston, to be collector at Inverness ; Mr. W. Delap,
comptroller at Sligo, to be collector at Boston ; Mr.
circumstance is
iOs bosneervoe
fr .
many.
eoi!g,.I;EMyr.OJR.CBE ento:tt,hciollGlercisTtoArnaotN Bridlington, to be
rseothllaetetor at Malden, to be comptroller at
able trifle
any publicity, notwithstanding the
re-
ceived from
T
reolelnnes t.r
hhei
rs
thatw roundsaytahi
the difference
i n
finding IMAGINATION.—The
Upon tal:tnn
of
the are ready to snap up every occurinconsider-
he
number without
following
of
Capta):. Corbin. The captain, as is his
two ladies, one of them taping
wont,sthhee i
wasr We relate the fact as it was
ong the passengers to receive
the amount demanded from
to
Ramsgate,
in consequence, that
to Margate. Captain Corbin,
and not, as she thought,
, seeing her sudden alarm,
assurefwd
no-
thing, as the weather was finea was comparatively
glass. She, however, expressedndhthe sea as smooth as
North Foreland. Captain Corbin heard
dread of the
fur-
ther on the subject, naturally imagining
ie.rd but little
time she would laugh at her ill-grounded
that in a little
being told by her companion that she ears.
Upon
was "i ff the
North Foreland," the lady in question fell back e • into a
fainting fit, from which she never recovered. She Was
removed from out the steamer (the Little Western
its arrival at Ramsgate, and placed in a fly by) upon
order of
the captain, who himself obtained apartments for the i
n-
sensible lady and her distracted sister. Every care
and
attention was paid her, but she died the same evening
an extraordinary instance of the folly of allowing the
mind to be overcome by horrors of its Own .-
creattng,......
, Canterbury Journal 41 OAttirdaY•