The Sun.
London, England, 1857-02-07 00:00:00

tual circulation was 21,000,0001., leaving unemployed notes
to the amount of 13,000,0001. The rate of discount was 3
per cent. Everything rose in price ; great facilities
were given to trade; many new undertakings were
launched upon the world ; but the inevitable crisis soon
arrived, and traders suddenly fouls(' themselves over-
whelmed with interest at the rate of 6,7, and 8 per cent.
That was the rate of discount at the Bank of England ;
the amount actually paid by traders was much higher.
When spending his Christmas vacation in the country he
met a banker, doing considerable business, and asked him
what his rate of discount was. His reply was, " I charge
three per cent. more than the Bank of England," indicat-
ing a state of things fraught with ruin to the trading com-
munity. (Hear, hear.) The readers of the "city articles"
of the journals must have observed the panting anxiety
with which this country waited the arrival of a vessel with
300,0001. in gold, as if the nation actually depended upon
it to save it from bankruptcy. What was the meaning of
that anxiety, and how was it to be accounted for ? The
answer was that it was not gold that the country wanted,
but bank notes. He would endeavour to make this clear.
There was in the coffers of the Bank of England 10,000,000/.
in gold, and the notes in circulation were 20,000,000/.
Now, the minimum circulation of notes for the 10 years
previous to 1841 was 15,000,000/. ; during the 10 years
between 1844 and 1851 it had never gone so low for any
duration as 18,000,000/. ; and he ventured to say that it
would be impossible by any process now to reduce the
circulation below that amount. In order to take the
10,000,000/.of gold from the Bank, however, the circulation
must be reduced, not to 18,000,0001., but to 10,000,0001.
The public had in hand fat the present moment—say.
20,000,000/. of notes ; and if the whole British community
were to present those notes at once the Bank of England
must necessarily stop payment, because the much vaunted
systetn which, according to the Chancellor of Exchequer,
it was impossible to improve, permitted 20,000,000/.
of notes to be in circulation when there was only
10,600,000/. of gold to meet them. Sir R. Peel, however,
knew that the circulation never would fall so low, and
he assumed that it would never be reduced to less than
14,000,0001.; and therefore he allowed that number of notes
to be issued upon imaginary security, every note being
payable in gold, although there was no gold to meet it.
(Hear.) It was impossible at this time to reduce the notes
in circulation to below 18,000,0001. ; but, as the Bank was
possessed of 10,000,000/. of gold, the Bank could never be
inconvenienced, unless the circulation were reduced to
10,000,000/. ; and therefore it was not gold but bank notes
that the country wanted. Then, as the Bank of England was
compelled to buy geld at the rate of 31. 17s. 9d. an ounce,
people were anxious for the arrival of ships with gold, in
order that they might take it to the Bank, and thus com-
pel the issue of additional notes. His assertion that it was
the deficiency of bank notes which led to commercial dis-
aster was borne out by what occurred in 1847, when we
were upon the eve of a national bankruptcy. On the 25th
Octeber in that year, when the celebrated letter was writ-
ten, the gold in the Bank was 8,000,0001., and the circula-
tion was 21,000,000/. It was impossible that there could
have been any stoppage of the Bank, therefore, unless the
circulation had been reduced to 13,000,000/. Thera was
no fear of that ; but this difficulty might have arisen—that
while there was 8,000,000/. of gold in the Bank, the direc-
tors might not have a single note to issue. The unem-
ployed notes were then reduced to 1,500,000/., and repre-
sentations were made to the then Chancellor of the Exche-
quer (Sir C. Wood) that unless something were done there
would be a national bankruptcy. Something was done ;
the Bank was authorised to issue notes beyond the
14,000,000/. to the additional extent of the quantity of
gold in the Bank, and by that means the difficulty was sur-
mounted. A relaxation took place, and the rate of discount
rapidly fell. He was surprised that the Chancellor of the
Exchequer, with that example before him, should say that
there should he no relaxation now, but that it would be
better to leave these cases always to the extraordinary
intervention of Government, preferring, as it seemed
to him (Mr. Malins), the transgression of the law to
leaving the remedying power within the law itself.
It was said of those who did not approve the act of 1814
that they were in favour of an inconvertible issue. Now
he for one could not be included in that list, for he did not
see any occasion for the inconvertibility of the bank-note,
for during the year 1847, and during the past year, the
gold iu the Bank had never been exhausted. The effect of
creating two departments, as the act of 1844 had done,
had been to lock up the gold, and to make the rate of dis-
count to depend on the quantity of reserve notes, and the
result had been that the commercial transactions of this
country had never been in a satisfactory state when the
reserve notes fell below 5,030,000/. ; for if they fell below
that amount up went the rate of discount, for the increase
in the rate of discount was not occasioned by any scarcity
of gold, but by the diminution of the reserve notes. The
effect of those changes in the rate of discount, and the un-
certainty with regard to them, was highly injurious to
commercial transactions, for transactions commenced when
the rate of discount was 3 per cont. might not be concluded
before it had risen nominally to 7, but in reality to 10 per
cent., and so commercial men were deprived of the power
of making accurate calculations before embarking in any
enterprise. It was of the greatest importance to commer-
cial men that the rate of discount should be well known,
and that there should net be much fluctuation. Before
the act of 1841 it appeared from the evidence of Mr. Pal-
mer, given before the committee, that the maximum rate
of discount seldom exceeded 5, and never was below 4 per
cent., whereas in the 10 years ending at Christmas, 1855,
there had been no less than 40 variations in the rate of
discount, and in the year 1856 alone there had been 9
or 10 variations from a minimum of 3 to a maximum of
7 per cent.—a circumstance highly injurious to commercial
transactions. The subject was one of the greatest import-
ance to a commercial community, and he trusted that the
committee would not enter into the inquiry with fore-
gone conclusions, but that they would remember that even
Sir R. Peel himself did not consider the act of 1841 a
perfect measure, and that they would not, like " Merca-
tor"—the language of whose letters was most clear, but
whose ideas appeared to be as confused as they possibly
could upon the subject—start by looking upon all those
who did not view the act of 1344 as a perfect act as mere
idealists. (Hear, hear.)
Mr. HEADLAM considered that if an investigation did
take place it ought to be a most careful and complete one,
and, judging from the strong and discordant views which
had been expressed, it must necessarily occupy a consider-
able period of time. He wished to press upon the Govern-
ment the propriety of not mixing up with the investigation
any inquiry with regard to joint-stock ,banks for if they
did speedy legislation up )n that subject woulri be impos•
Bible. As regarded joint-stock banks there were two q nes-
tions to be considered. The one was as to the application
of the principle of limited liability to those banks, and he
confessed that he did not see why they should be made an
exception to the general rule ; and the other related to the
legislative machinery for winding them up in case of fai-
lure. For his own part, he did not see the slightest neces-
sity for referring either of these questions to a select com-
mittee, and he believed that Government would best deal
with the subject by, on their own responsibility, bringing
in a clear and definite measure relating to it, which would
put a speedy end to the inconveniences which, as had been
shown in the case of the Royal British Bank, at present
existed. (Hear, hoar.)
Mr. LAING said that when the hon. and learned mem-
ber for Wallingford advocated an unlimited issue of bank
notes. [Mr. Malins—" I did not."] The argament of the
hon. and learned gentleman was that the pressure In the
money market arose from the small circulation of bank
notes, and yet he was in favour of their convertibility.
Now, he could not understand how both those propositions
could hold. If there had been a continually increasing
drain upon the bullion, and more bank notes were issued,
how could that drain be resisted if the notes were conver-
tible? This was no theoretical question ; for had they not
seen only recently in the neighbouring country no less than
2,000,000/. of bullion disappear from its coffers in a single
month ? If that process had gone on for a short time in this
country it would have brought us completely to the end of
tourh labouringe aggregatetether,
iloanfnd
the
et:a
note?oeun deficiencyn
oiftf b
at onoukf
waslb,
ni havenotes
truetke s
n comeotwthst,
thnh
now
wwf c 0 thewu an st
irtythat incon-
vertibilitypositively
was
greater than at several former periods when money was a
drugin the market at '2 per cent ? The total amount of the
circulation in the hands of the public towards the close of
last year was 40,000,000/ and the circulation of the Bank
of England alone was 21,000,000/. Let the house look
back towards the close of 1846, when speculation was
rampant, and the rata of interest was unprecedently low.
What, then was the circulation of Bank of England, notes ?
Why, in Sept. of that year it amounted to 21,465,000/ , or
within a mere fraction of what it was now. The hon. and
learned gentleman had been led into error by his interpre-
tation of the term " money." In one sense money meant
capital. It meant that portion of the capital of the country
which was available for commercial purposes ; but that was
a very different thing from the total capital of the country
the great bulk of which was invested in the funds or on
mortgage, and the owners of which would never lend it in
Lombard-street at 6/. per cent., knowing, as they did, that
in 12 months that might mean 2?. per cent. Tarn it as they
would, there was no way of dealing with the subject except
upon the principle of adjusting the supply to the demand.
If the demand for money exceeded the supply, money
world be scarce in spite of any expedient they might adopt
to make it otherwise. When the money market was dear
there was no way in which they could restore the equili-
brium except by diminishing the demand or increasing the
supply. How could they do that? Why, manifestly by
increasing their rate of interest. That, he believed, wes
the whole art and mystery of banking—(hear)—namely, to
regulate the supply according to the demand. Although
he agreed with the Chancellor of the Exchequer in the
main in the soundness both of his principles and his con-
clusion, he thought the right hon. gentleman had hardly
shown a sufficient case for going into committee in one re-
pect. The right hon. gentleman described the act of 1844
as having been passed simply and solely for the purpose of
insuring the convertibility of the paper money issued by
the Bank. That might be tree if they looked merely at
the letter of the Act of Parliament, but it was not true if
they looked at the circumstances under which the act was
introduced. It was introduced on the theory that if they
regulated their circulation by a self-acting process the sim-
ple effect of the regulation of the circulation would be to
keep them right on all other points. Of that theory Lord
Overstone was the most distinguished advocate, and every
one wished it to be true, but unfortunately it was not true
("Hear, hear!" from Mr. Malins) ; it was contradicted by
fact. If they looked to any of the returns of the circulation
in periods of great pressure on the money market they would
find there was absolutely no connexion between them. The
period of 1817 was a remarkable one. It was proved in evi-
dence before the committee that between Oct. 1846, and
Sept. 1817, upwards of 7,00,000/. had been drained away
while the amount of notes in the han,is of the public remained
almost exactly the same. He contended therefore that the
theory wascontraelicted by fact, and the reason was, that it
overlooked the operation of the reserve of gold existingin the
Bank. The effect of the act of 144 undoubtedly was, that
it provided for the convertibility of the circulatiou, bat it
thisr moment,adenoi other provision for the banking reserve. That, at
depended upon the sound discretion of the
Directors of the Bank of England as much as it did before
the act of 1814 was passed. In 1,447 it had a inischievoes
effect, in that it induced a false confidence on the part both
of the Directors of the Bank of England and of the public,
which prevented recourse being ha,l to restrictive Immures;
but he thought that error had been completely exploded by
subsequent experience, for latterly the Directorsof the Bank
had exercised a sound discretion, and had carried the
country through a period of great difficulty and trial. That
error, he thought, was now so perfectly well known and
understood by all men of business that, in looking now at
the act of 1844, the house might, leave out of view the
erroneous theory on which it was founded, lie had said
that the whole question resolved itself into one of
the banking reserve. It was desirable that the bank-
note should be always convertible, and that, he thought,
was effectually done by the act of 1844. One point
to be observed was to secure the solvency of the Bank,
and insure its power to meet its notes. It was also
desirable that while maintaining its reserve to secure its
solvency the Bank should also have the power of sup-
porting the credit of the country in times of emergency.
By that expression he did not mean to convey that the
Bank should be bound to step in to support every large
house which had traded imprudently, or had locked up its
capital iu unavailable resources ; but he meant that the

Bank of England, possessing privileges which no other
bank had, and being the hankers of the Government, it had
a peculiar power which made it the last resort and founda-
tion of that large superstructure of commercial credit in this
country. All the operations of the private banks were based
in a great measure upon the conviction that in times of
difficulty or pressure they could obtain assistance from the
Bank of England by the deposit of securities. If the Bank
permitted its reserve to run too low it created panic, be-
cause persons in trade perceive the risk, not of an exces-
sively high rate of interest, which they could hear and
which cannot be prevented, but they fear an absolute
stoppage, and that a period may arrive when the Bank of
England will not be able to make advances upon the best
private or Government securities. That was the state of
things in 1847, when the Bank of England, having suffered
its reserve to run too low, it was compelled in self-defence,
to avoid a complete stoppage, to curtail the accom-
modation which it usually afforded to trade. The
great problem was how to prevent a recurrence of
that state of things. A suggestion had been made that
there should be an increase in the issue of notes beyond
the fixed limit of 14,000,0001., but he could not see how the
mere creation of paper would increase the amount of avail-
able capital to be employed in the business of the country
It would simply displace so much bullion, which would
then find its way abroad. Some allusion had been made to
the limit of 14,000,0001. to which the Bank was restricted,
and some hon. members could not see why that amount had
been chosen in preference to any other; and the reason was
that in practice that amount had been found to be suffi-
ciently below the minimum point to which the circulation
could be contracted to give valid security without risking
inconvertibility. It had been said that 14,000,0001.
was too little at one time and too much at another,
and if there were 20,000,0001. of hellion in the Bank
and notes were issued to the full extent, there
would then be 31,000,000'. in notes ; but, in fact, that
was not so, as the Bank could not keep out more than
20,000,0001., and the practical result would be a smaller
reserve. Such a state of things might affect the rate of
interest, but, practically, there could be no over issue of
notes—a circulation bona fide convertible could not be in
excess. The whole question hinged upon being able to keep
up the reserve to the highest point possible. In 1817 the
difficulty really arose from that cause—that, in a period of
pressure when the reserve had fallen inconveniently low,
n c i portion
there
for of
the act of 1-41 prevented recourse being had to the issue
t e department,
bullion, andwh takingioh
was,fr oam.
itt were,
h e e c
pawnede rtan
specie purposes. The true remedy appeared to him to be
to accumulate, in times of prosperity, a larger reserve, and
when pressure came, to adopt measures of contraction
earlier and more energetically, so as not to allow the re-
serve to fall too low. The real difficulty was that the in-
terests of the public and of the Bank of England were not
always identical. (Hear, hear.) It was the interest of
the Bank, with a view to ehe dividend for its shareholders,
to work with the minimum reserve compatible with its
own security, while the interests of the public was that a
large reserve should be accumulated in prosperous times,
and not suffered to fall too low in times of pressure. The
object to be desired could not be obtained without some
understanding between the Bank and the Government, as
it would not be reasonable to ask the shareholders of the
Bank, without compensation, to make the sacrifice which
would be entailed by keeping up a larger reserve for the
national benefit. If some plan could be devised to meet
that difficulty it would be most valuable. Something had
been said about a discretionary power to relax the rule
affecting the reserve, but he feared the knowledge of that
p _weer would afford a temptati on to allow the reserve
to sink too low, and thus diminish the security of the
Bank. If anything was to be done in the way of creating
an extraordinary reserve, it must be by accumulating a bona
fide reserve upon securities or bullion, to be brought out in
times of pressure by a temporary arrangement between the
Bank and the Government. It was important to go into
committee, if only to see whether some arrangement could
not be made by which the Bank might consent to the sacri-
fice of keeping up a larger reserve for the benefit of trade
ani commerce. There were other questions—such as the
management of the Bank—which could be well considered
ie committee. At present, if there was a good governor
or deputy-governor, there was no certainty that he would
remain in office above two years. It was desirable that a
committee should be appointed, and if it did nothing but
adopt some resolution upon that point it would not be
valueless.
Mr. JAMES MACGREGOR said he did not understand
how the Bank should have a large reserve except by having
a larger amount of bullion or of securities. He trusted that
some means would be adopted to avert the horrible state of
things which existed in 1847. It was a domestic panic, and
the moment it was known that notes could be had at the
Bank of England the panic ceased. He was of opinion that
limited liability would be better both for the joint-stock
banks and the public. He hoped the Chancellor of the
Exchequer would agree to appoint a separate committee
on the joint-stock back question.
Mr. POLLARD URQUHART remarked that there were
two separate questions to consider with regard to the act
of 1 -44, namely, was the act sufficient to maintain the
convertibility of the notes; and next, did the act contain
provisions embarrassing to commerce. Lord Ashburton,
in a pamphlet published in 1343, said no act of Parliament
could give perfect convertibility to the bank note. He
believed, however, that the act had made the converti-
bility of the note morally certain. The crisis of 1817 af-
forded some experience as to what the present act enabled
the Bank to do. The convertibility of the note would
have been in some danger of the Bank had not put on the
screw as early as April, 1837. In 1839 he believed the Bank
would have been in danger of suspending payments if it
ha I not received assistance from the Bank o France. An-
other crisis occurred in 1825, which was caused mainly by
an internal demand for gold. If a similar crisis had occurred
in 1847 he believed the convertibility of the note would
have been in danger. It appeared to him that the act of
1344 had no more to do with the panic of 1847 than Tenter-
den steeple had to do with the Goodwin Sands. That panic
choaorlvde sot.
more be said to have caused the panic of 1847 than a ,
potatof gcorlodp . aTutisee actcd bye
f a118)114d
andv ras canedtho
failure
bo yr
e thein
tdhrea drain o
moon-
light shadow at which a horse might start could be said to
make the way impassable. The act of 1841 might in fact
be said to put the horse on the back, and to make it feel that
there was nothing to fear. lie was aware that many people
objected to the act of 1841, because they thought it had
created a great number of minor panics in 1817 ; but it
was in reality no small merit of that act that it
wade the public sensitive on the subject of their
credit. It instantly informed them when a screw was
loose in their transactions or in the state of the ex-
changes. On the other hand a system of credit which
would enable them to tide over periods of crisis without
taking any steps to put their affairs on a sounder footing
might last for a time, but it must in the long run bring
about disaster and ruin. While he thus approved of the
principle of the Bank Act, he did not pledge himself to
the support of all its details. If, for instance, the minimum
of the circulation had increased since 1811, he thought the
limit of 14,08 ),0001. might also be enlarged. Nor was the
observation of the Chancellor of the Exchequer, namely,
that such a step would only enable the Bank to keep a
smaller amount of gold in their coffers, any answer to such
a proposal; because if, while they secured the perfect con-
vertibility of the note, they could add a couple of millions
to the circulation of the country, they would be conferring
a benefit upon the mercantile community. At the same
time he trusted that the Government would never consent
to any material alteration in a measure which had been
found in practice to answer the purpose for which it was
designed remarkably well. (Hear.)
Mr. NEWDEG,..ITE said it was generally admitted that
the operation of the act of 1844 had been to deprive the
Bank of England in a great measure of its power of acting
as a bank of support. That fact had been strikingly illus-
tratedinterference of the Government, the Bank would have been
operations, by the experience of 1847 ; when, but fur the
obliged to cease although it had 8,000,0001.
of gold in its coffers. (Hear, hear.) If they gave the
Government the great and important privilege of infringing
the Bank Act, some provision ought to be made for calling
Parliament together within a reasonable time, to pass an
act of indemnity.
(Hear-) It would also be highly advi-
sable to assign some limit to the issue of notes on securities.
When, for instance, the issue reached a certain point, the
rate of interest ought to advance paid passu with the dimi-
nution of gold. (Hear) The great vice of the act of
18x4, however,
was,that instead of making a payment to
the Bank for conducting the financial business of the
country, they placed the reserve in their hands, and told
them to go and trade with it. (Hear, hear.) By that
means they gave the Bank enormous power in the market,
and enabled it practically to regulate the rate of interest.
They took no moans to prevent it from making use of its
reserves, when they were very large, to depress the rate of
interest as to create an undue tendency to speculation.
Thera lay the great vice of the present system. (Hear,
hear.) The Bank was, in fact, expected to create various
rates of interest—first, when the amount of bullion in its
possession was large it was expected to stimulate that spe-
culation, and then when the reaction took place it was re-
quired to revenge it upon the public. (Hear, hear.)
Sir C. WOOD lam anxious to set the house right
upon one or two points of fact which have not been accu-
rately stated by hon. gentlemen who have preceded me.
It seems to me that while hon. gentlemen opposite protest
that they are advocates for the convertibility of the bank
note, yet that the doctrine they put forward is inconsistent
with the contain maintenance of that convertibility. (Hear.)
I am not quite certain as to the precise plan of the hon.
gentlemen (Mr. Newdegate), but I have little doubt that
if the course he advocates had been adopted the security
for the convertibility of the note would have been very
seriously diminished. Let the house remember how the
question of the "little shilling" arose. After the suspen-
sion of cash payments, when the question arose of restoring
the convertibility of the note, the question also arose as to
the standard. Any course that renders paper inconvertible
may lead to a state of things in which that question must
be again urged, of not restoring the standard to the point
at which it had before been, and of paying a less amount
of gold than had been promised to be paid. That was the
doctrine of the "little shilling." The hon. member for the
Wick burghs told us what was the purpose of the act of
1814. Now, this is not the first time that gentlemen have
undertaken to describe the objects of this act, but I do
not think it fair to say what the objects of the bill were,
except in the words of its authors. The hon. gentleman
says that this bill was to be the remedy for all possible
evils, and that it was to prevent not only an over issue of
paper, but also any excess of speculation. I say that no
tsl.o3l:ghaendpyoacbrttirlilinnettowhedasedaei
deal with
:phi
or
nor
rash
professed
ne
speculation,dt
hbt thosebill,
a
the bill of 1844, whonadli advocateddisitti
with
ctt
hl distinctly
(Hear, hear.) 1 happened to take a
remember what every one said was, that it was impossible
mismanagement of banking concerns ; but that there had
been superadded to those evils the mismanagement of the
circulation, and for that the bill would be an adequate
remedy. The evils of •
exceseive credit and mismanagement
of banking concerns haveoccurned iu all countries—in Hol-
land, where every note was represented by silver or gold in
the bank ; in —is
cgiutn, and even in countries where no
paper circulation existed. It is not necessary in order
that banking mismanagement should exist that there
should be any notes in circulation. The bill of 1844 regu-
lated the circulation of the country, and its object was to
put a proper limitand check to thepossible mismanagement
of the circulation. We are apt in discussing measures of
this kind to forget the evils that were complained of when
they were past. Iu old times many complaints were
made that the management of the hank was left to the dis-
cretion of the Bank directors. It was thought essential by
almost every one that there should be some limit or check
or rule by which the circulation should be managed. The
hon. member for Kendal has laid down a rule which I will
not now discuss, bat that some rule should be laid down has
been the opinion of almost all persons who held the con-
vertibility of the note. It was necessary to take care, in
order to secure the convertibility of the note, that the note
eircula.tion should vary exactly as the metallic circulation
should vary. Tho
Mode of attaining this object was by
issuing a certain number of notes ou security, and taking
care that the rest shall be represented by an amount of gold
in the hands of the issuing parties. iron. members have
asked why the Bum of 14,00,00 W, was fixed upon. I be-

lieve that the minimum amount of notes that bad ever been
in the hands of the public had been somewhere about
15,000m0i., and the sum of 14,000,0001. was taken as an
amount below which it was improbable, if not impossible,
that the notes in the hands of the public should sink.
The primary object of the bill was to secure that the
amount of circulation of silver and gold should vary pre-
cisely as the circulation of the notes of the Bank should
vary. I agree with my right hon. friend the Chancellor of
the Exchequer and other hon. members in thinking that
not much benefit would be derived from raising the sum of
14,000,0001. Any other sum of about that amount would
equally attain the object. The sole advantage would be
that an increased amount would set loose so much gold,
which might be used in other ways. Whatever advantage
and economy there are in issuing notes instead of gold will
be attained by fixing the amount a little higher, but I do
not think that hon. gentlemen opposite would find that any
greater laxity of circulation would be attained. Hon. gen-
tlemen having entered upon the question of the rate of in-
terest, I must beg leave to say that the rate of interest does
not depend upon the amount of notes in circulation. That
was shown when we went into committee by numerous
witnesses, and it was stated repeatedly in the discussions
which afterwards took place. The floating capital of the
country is sent up to London to be used as discount. If
there is an abundance of such floating capital, the rate of
interest is low ; if, on the contrary, it is scarce, the rate of
interest rises ? The rate of interest therefore must depend
upon the abundance or scarcity of available capital. (Hear,
hear.) I am almost ashamed to state what, in my opinion,
is such a truism, but I am obliged to do so, because, when-
ever there is a discussion in this house, the proposition is
denied by some hon. gentleman. lam rather astonished
at the argument of my hon. friend the member for Kendal
(llr. Glyn) upon thie point, for he altogether excludes
from his consideration the reserves of the Bank. Hon. gen-
tlemen, on the other hand, take a contrary view, and look
at nothing but the reserves; but I do not know what dis-
tinction can be drawn between the notes in circulation and
those reserves. The banking department of the Bank,
acting like a banker, keeps a reserve of notes in its till,
just as a country banker keeps a reserve of gold or silver.
That reserve is a portion of the circulation quite as much
as the sovereigns of the hanker. A good deal has been
said about the effects of the act of 1844, which, it has been
contended, produced the crisis of 1847. It was, however,
shown before the committee that a baseless system of credit
had sprung up previous to that crises, by which bills were
drawn and discounted and re-discounted, until after a
time, as they could not be met, several failures took place.
But what was the case with regard to the notes of the
public? At the beginning of October, when the crisis began
to be severe, the notes of the public were not diminished
by more than 200,C00/. from the amount at which they
stood in July, when there was no pressure. How, then,
can it be said that the act of 1844 produced the crisis of
1847/ Again, in the three months preceding Oct., 1847,
the amount of accommodation afforded to the public in the
shape of discount to pi ivate persons was between 6,000,000/.
and 7,000,0001. The act of 1844 could not therefore have
produced the crisis of 1847, either by diminishing the
amount of notes held by the public, or by diminishing the
power of the Bank of England to assist private trade. The
hon. member for Wick (Ur. Laing) said that the word
" money" was used in two senses, and half the discussions
which took place respecting the currency would be avoided
if those two senses could be properly distinguished. `Money
used as floating capital available for discount is a different
thing from money used for circulation. It is true that gold
is money in both senses, and it is equally true that the gold
sent to the Bank of England in the shape of deposits is a
portion of the fund available for discount. When, there-
fore, gold is exported from this country, when there is a
drain of gold, the amount of capital available for discount
is diminished. People accordingly look, as an hon. gentle-
man has observed, at the reserves of the Bank as an index
of the amount of floating capital available at a particular
time (although they do not contain the whole of that capi-
tal), because it is the practice of merchants to deposit their
gold in the Bank, and the amount withdrawn from the re-
serves is used for circulation in the country. The rate of
interest of the Bank is also an index of the rate of interest
elsewhere, but the Bank cannot raise or lower it at plea-
sure. In ordinary times, as the rate of interest required by
the Bank is high, people in want of accommodation go where
they can obtain it at a lower rate, but at periods when accom-
modation is limited they have recourse to the Bank. I be-
lieve that the act of 1844 is the best and the least stringent
of rules that can he laid down, but I do not wish to enter
into the discussion of that topic now. The variety of
opinions which have been expressed is in my mind a suffi-
cient reason for the appointment of the committee, where
the subject would be far better sifted than by a discussion
in this house. A select committee, composed of gentlemen
of conflicting opinions who examined the witnesses brought
before them, is a fitter engine for the extraction of the
truth in this matter than this house, and therefore my
right hon. friend has done wisely in proposing the appoint-
ment of a committee. With respect to the last part of the
motion, relating to joint-stock banks I think there is great
force in the objection to referring that to the same com-
mittee as the one which would have to consider the Bank
Acts, especially as joint-stock banks are not banks of issue,
and I do not believe that my right hon. friend would be
disposed to insist on that part of the motion, if it should be
the wish of the house that it should be omitted from the
present motion. (Hear, hear.)
Mr. MALINS in explanation, said he had not recom-
mended an extra issue of six millions, but argued that the
circulation should not be brought down.
Mr. SPOONER was happy to hear that these questions
were to be referred to separate committees. The discussion
must be in committee, where there could be an interchange
of opinion. (Hear.) Reference had been made to 1819;
and he contended that the contract then made was an un-

just one ; it had never been carried out, and never would
be. The evidence of what had happened since proved it
to have been an unjust contract. He remembered Mr.
Liorner proposing his resolutions in 1810, declaring that
there was a largo depreciation in the currency. This was
denied by Mr. Vansittart and the Chancellor of the Ex-
chequer, who maintained that the one pound bank note
and the sovereign were, for all practical purposes, the same.
The effect of this on the country was to induce persons of
property to deal with it, and to make engagements o❑ the
faith of there never being a return to cash payments. But
we had done more : we had returned to a far more strin-
gent system than existed before 1819. Previous to that
time there were restrictions on the melting and exporting
of coin. Now, gold was made both an article of commerge
and an article of currency; and thus its fixed character as
a real currency was destroyed, and it was thrown into the
markets of the world. He repeated that the contract of
1819 was an unjust one, which never could be acted up to;
and the bill of 1841 was an abortive attempt to bolster up
the former measure. Immediately after 1819 great distress
ensued, which continued till 1822. Lord Castlereagh then
brought in three bills, whose object was to increase the
currency. The result was a period of prosperity, which
was afterwards checked by restriction; and this had been
going on ever since— alternate depression and elevation.
He believed it was possible to establish a currency which
should do justice to every one, and not be subject to the
fluctuations which had occurred of late years. As to the
rate of discount, he contended that it depended on the
supply of notes in the market, including those held by the
Bank i❑ reserve. Immediately the public saw that the re-
serve was getting low there was an increased demand for
discounts. This was proved by what occurred in 1847. The
moment it wasknown that the restriction had been removed
from the Bank the demand suddenly ceased. He remem-
bered what passed between the late Sir It. Peel and his
father on occasion of the bill of 1819 being introduced, and
he (Mr. Spooner) was convinced, despite Sir Robert's elo-
quence, that his father's arguments were the most cogent.
He was convinced that no real relief would be obtained
until the bill of 1844 was remodelled. Since then 157
millions of gold had been imported into this country.
Where would the currency have been without it? Under
the present arrangement, he defied any man to say what
a pound was, or what it would be a month hence. What
was wanted was something which would secure equability,
which was the foundation of all trade. His wonder was,
that the Bank of England managed so well under the pre-
sent law. He hoped the right hon. gentleman would not
go into the committee with his mind made up, but with a
mind open to conviction. If the committee was impartially
formed, he had no doubt as to the conclusion they would
come to. The report of the committee on the bill of 1844
was only carried by twelve to ten, and, to his knowledge,
the two members of that committee who were unavoidably
absent on the division would have voted with the minority.
The House of Lords' committee was a,gaiust the act of
1844. The balance of opinion, therefore, could not be said
to be in favour of that act. The right hon. gentleman
(Sir C. Wood) assigned this as the reason for ordering the
suspension of the act in 1847—" Considering the enormous
amount of the deposits of the Scotch banks, the shortness
of the notice, and that the gia titer part of the securities
could not be realised, their application for assistance be-
came a very alarming one."
Sir C. WOOD—It was not an application to the Govern.
ment.

Mr. SPOONER—It was an application to the Bank of
England, but no set of bankers had such large autos of money
in the public funds, and they were at that period unsaleable
without such a loss that insolvency must have been the rose] t
of converting them into money. And what was the state
of things now? The reserve in the Bank was 4,000,000 C. ;
the deposits 9,000,0001 If only half of them came and
asked the Bank forthuir money, what became of its solvency?
(Hear, hear.) Not that the Bank was insolvent because
the Government owed it 14,000,0001. The Bank would
say, let the Government find the gold fur me. But where
could the Government find it ? The appointment of a
committee was, iu his opinion, the only way of properly
investigating the question.
Mr. WILKINSON, in reply to the question where they
should be if the gold of Australia and California hat not
been discovered, said they should be a great deal better
without it. It added nothing to the real wealth of the
world. (Hear, hear.) On the contrary, it would be in-
jurious for a lung time to the labouring classes, because the
price of commodities in reference to gold would rise.
There were two points necessary to be clearly known in
discussing this subject. One was that nothing was to be
gained by a paper currency but the economy and conve-
nience ; and the other, that interest was paid for capital,
and not for the circulating medium. The hon. member
' (Mr. Spooner) said that the rate of interest rose when the
reserve was low, and fell when the reserve was high. In
saying that, the hon. gentleman put the cart before the
horse, for the reserve depended on the rate of interest, and
not the rate of interest on the reserve. If interest was paid
for capital and not for the circulating medium, there was
an end of the whole question. The complaint was that the
operation of the act of 184 t was to raise the rate of inte-
rest, but if the rate of interest was not affected by the
circulating medium at all, how could the act of 1814 have
that effect ? The right hon. gentleman truly observed
that the rate of interest rosa in countries where the act of
1841 did not exist. It was the system of credit which led
to panics, and, tha,t, being so, lie did not believe that pe-
riodical panics could be prevented. If gentlemen could be
only persuaded that the circulating medium had nothing
to do with the rate of interest, it would put an end to a
great deal of confusion. (Hear, hear.)
Mr. MUNTZ said that if a stranger were to come into the
house, and listen to the remarks of hon. gentlemen, ho would
conclude that in the midst of such various creeds this ques-
tion could not be solved. The object of his rising was to
know what the committee was for? What were they to do
or inquire into ? He believed it was sue of the greatest
shams ever palmed on the house. (Hear.) What was the
use of a committee to inquire into the act of 1844 when
they were told by the mover of the committee that it did
not require alteration or consideration? The only object
of the committee could be to shift the responsibility from
the Government and throw it upon the house. Unless it
was determined to go into the whole question,
with a
bona fide intention, it was an insult to the house and
Whatever country to appoint this committee, might be
the effect of the act of 1844, no one could deny that there
never wet() such variations in the cost and value of money
as since 1844. ( Hear, hear.) And
frequent or injurious to the never were they so
inquired
dutry of England. That
was the great thing to be inr
Mr. lIILDYA tt D said there wasinatgor.eat deal of truth iu the obseevations of the hon. member (Mr. Muntz). But as
y
it was agreed that they were a committee, and as
the right h,n. gentleman the Chancellor of the Exchequer

expressed an opinion in favour of the act of 1844, it was 1
incumbent on him to appoint a fair committee, because
the house would otherwise look with suspicion on the con-
clusions to which it might come. The fact that the act of
1844 was passed for only ten years showed that it was to
he adapted to the changed circumstances of the country. f
The act of 1844 might be well adapted to the circumstances
of 1814, and yet very ill adapted to the circumstances of
the present time, when the exports of the country were
nearly double the amount of what they were ten years ago.
His right hon. friend (Sir C. Wood) said that the active
circulation had not diminished in 1847. But was the right
hon. gentleman ignorant that, though it might appear on
paper that the active circulation was what it purported to
be, it was practically locked up by the apprehension that
existed ? Arid iu proof of that, he begged to mention that
in 1847 a wealthy man in London went to his broker'when
he thought the pressure was over, and handed him 10,000/.
in cut notes to invest, and when the broker asked him why
they were cut in halves, he said, " To tell you the truth.
I did not like to trust the whole notes to the Bank."
That showed the general distrust which prevailed.
Hon. gentlemen said it was now a recognised doctrine that
the best mode of checking a drain was to raise the rate o f
discount, and talked of the effect of this step since the bill
of 1e,44 ; but they forgot that before 1844 the Bank catild
not make use of this engine, for the usury laws prevented
it. Although he was not prepared to say that it was not
a most legitimate mode of action, yet the Bank had con-
trived to keep things steadier when it had no such power.
He hoped the Chancellor of the Exchequer would take care
that the committee was fairly constituted, and comprised
intelligent men of all interests ; if that was done, whatever
might be the result, it would give sa, isfaction out of doors,
but if not, whatever might be the report, it would not be
satisfactory.
Mr. INGRAM expressed & hope that if a committee
were appointed the present management of the public debt
by the Bank of England would be taken into.sconsidera-
tion. The allowance in that account for the last year was
247,0001., being on an average a charge of nearly 11. to
each person holding stock in the public funds, as, accord-
ing to the returns for the year 1850, being the last in his
possession, it appeared that the number was only 269,736,
the debt itself being under 800,000,000% It was true that
iu those returns the Bank of England did not appear to
receive so much for their management of the public debt ;
inasmuch as they refunded 180,000/. for the privilege of
issuing bank notes. He however, had no doubt that there
were plenty of banks in England who would be glad to pay
even four times that amount for the enjoyment of a simi-
lar privilege. The trouble and expense attendant upon the
system pursued in that establishment were enormous, and
it even led to considerable frauds. A person holding stock
must attend personally at the Bank of England, or in-
cur a large expense in giving a power of attorney to his
banker or agent to receive the dividend. Now, let them
but compare that system to the one adopted in respect to
similar monetary transactions. He would take, for ex-
ample, the payment of the dividends on railway stock. He
received from Mr. Watkin, the manager of the Manchester,
Sheffield, and Lincolnshire Railway Company, a statement
of thecoet of the payment of their dividends for the last year,
It amounted to 1251. 13e. 2d. The capital was about
9,000,0001., the number of shareholders 4,900. The expense
thereforelof the payment of the dividend averaged only 6d.
per shareholder ; and the mode of payment was much more
satisfactory to the shareholders. That expense, however,
did not include any of the charges attendant upon trans-
fer, which he calculated would be, on an average, ls. ad-
ditional ; therefore the whole charge to each person might
be put down at ls. 6d. He had also aiother return from
the Midland Railway which gave precisely similar results.
If any new arrangement were wade with the Bank of Eng-
land, he hoped that these facts.would be taken into consi-
deration, and a different system adopted for the payment of
dividends. He might observe, in conclusion, that he ob-
jected to the granting of a new charter to the Bank of
England. It was quite time, he thought, that the State
should take into its own management the issuing of its
notes, and the payment of its own debts. (Hear, hear.)
Mr. A. HASTIE said that the Chancellor of the Exche-
quer had referred to the operation of the Scotch and Irish
act of 1845, and stated that he had written five or six let-
ters to Scotland, and, as he received no answer, he con-
cluded the banks there approved of the act.
The CHANCELLOR of the EXCHEQUER had stated
that he had received replies to the effect that the operation
of the act was considered favourable.
Mr. HASTIE in that case could easily understand what
parties were applied to. The right hon. gentleman must
have commuicated with the five chartered banks only, for
he (Mr. Hastie) was well aware that the other banks were
not at all satisfied a ith the act, and in 1853 they had pre-
sented a memorial against it. The act had confers ed several
privileges on the chartered banks, which he thought ought
to be extended to the others, for they were equally respec-
table and equally well managed. The people of Scotland
were not at all satisfied with the act—it had prevented the
establishment of any new banks, although from the great
increase of trade there was ample room for them. He
hoped that in the committee the Scotch and Irish banks
would be fairly represented.
Mr. CROSSLE Y was glad to find that the,Chancellor of
the Exchequer had consented to the appointment of two
committees instead of one : that on joint-stock banks would
require the legal members ; but for the Bank Charter they
would want commercial men. There were two reasons why
the charter ought to be investigated—first, the enormous
increase of trade since 1841 ; and next, that from this in-
crease the prices of all raw materals had risen immensely,
so that the same amount of business now required a much
larger capital. Some gentlemen seemed to think that an
alteration in the charter would be a panacea for all the
evils cetnpla.ined of, but as long as the Bank was bound to
pay sovereigns on demand, it would be obliged to raise the
rate of discount whenever the gold was going out of the
country. There was one remark of the hon. member for
Kendal which he thought worthy of consideration—viz.,
w. hether it would not be desirable to take away the power
issueot. from all banks. The Chancellor of the Exchequer
said that the Bank of England paid for the privilege ; but
on an issue of 14,300,0001., there was a profit of 840,0001.
per annum, which he considered ought to go to the reduc-
tion of the taxation of the country. (Hear, hear.)
Mr. CAY LEY expressed his satisfaction at the candour
which bad characterised the discussion ; for, formerly, only
one side was allowed to be heard. There were two parties
to this question ; the public were principally concerned,
and it was for them they ought to legislate. Money was
made for commerce, and not commerce fur money. The
Chancellor of the Exchequer said that the committee of
1848 had reported in favour of the act of 1844; but of the
seventeen witnesses examined before the committee, only
four, including Lord Overatone and the governor and de-
puty-governor of the Bank, were in favour of the act as it
stood. It was important to ascertain the reason why the
commercial world was so much embarrassed by these con-
stant changes in the value of money. The great desidera-
tum in a medium of exchange was to have it of an uniform
value, but that was impossible under the present system.
When a large amount of bullion accumulateti in the Bank,
it was compelled to go into the discount market and com-
pete with the brokers, in order to find employment for its
capital. The result was that in one instance since 1841,
money had fallen to 1 per coot. The necessary consequence
of this low value of money was that parties were driven to
speculate, in order to get sortie interest. This led to the
additional labour and increase of consumption. The im-
ports then increased, but as the exports were stationary
the balance of trade turned against us, and it became neces-
sary to send gold out of the country, and the rate of die-
count gradually increased. At five or six different periods
prosperity ha I driven the gold out of the country, and dis-
aster had brought it back. When the basks ceased to
accommodate their customers they became, in fact, the
chief holders of notes, and thus in times of difficulty the
banks, instead of aiding, increased the pressure felt by com-
mercial men. He thought at all events that sufficient had
been said to show that some inquiry ought to take place,
and that some remedy was needed. As to the nature
of that remedy, he would not venture at that time to ex-
press an opinion.
The CHANCELLOR, of the EXCHEQUER said that •he
would confine himself to meeting the objections which had
been made to the proposal to have a committee. The house
would boar in mind that the act of 1844 expired iu August,
1855, and that it had been extended on terms which rendered
the Bank liable to lose its privileges upon notice given by
motion in the House of Commons. During last session a
motion was made before Easter fora committee to inquire into
the subject of the Bank Act. He had opposed that motion,
feeling that a time when the nation was at war was not
the time when an inquiry upon such a subject could be most '
satisfactorily considered. At the latter end of the session, I
after the conclusion of the treaty of peace, he was asked r
whether he should object to the appointment f a committee. I
He then replied that he had no objection to such a course,
but ho suggested that at so late a period but little practical
good would come of the appointment. s o committee was
appointed, but on the last day of the session an lion. member
gave notice of his intention to move for a committee early in
the present session. Under these circumstances he had
thought:that it was a proper course to move for a committee,
instead of bringing in a bill, which would no doubt have been
referreclsto a select committee. lie would remind the house
that since 1810 there had been once in every ten years a
committee appointed to inquire into this subject. In 1810
the well known bullion committee sat with Mr. Horner for
chairman ; in 1819 the committee sat, of which Sir B. Peel
was chairman ; in 1830 and 1840 other committees sat, and
in 1848 the committee en Irish distress entered somewhat
upon the consideration of this question. He was, however,
willing to accede to the suggestion which had been made for
limiting the duties of the select committee to an inquiry into
the operation of the Bank Acts of 1844 and 1845. He there-
fore moved for a 44 select committee to inquire into the ope-
ration of the Bank Act of 1844 (7 and 8 Vic., c. 32). and of
the Bank Acts for Ireland and Scotland of 1845 (8 and 9
Vic., c. 37 and 38)."
The motion was agreed to.
PASSING TOLLS ABOLITION.

Mr. LOWE obtained leave t• bring in a bill for the aboli-
tion of passing tolls.

GENERAL COMMITTEE OF ELECTIONS.
The general committee on elections was re-appointed.
The house adjourned at twelve o'clock.

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