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

rHE SUN LONDu

banks was ales unlimited, subject to the privilege which '
then existed in favour of the Bank of England from the
practice in reference to 6 partners. These banks when es-
tablished could create any quantity of hank note!. The
same power existed both in Ireland and Scotland. Any "
person could under that law establish a bank and issue
notes payable to bearer on demand, provided only that.
those notes were paid in specie on presentation at the
bank. That was the state of the law from 1819 to 1844,
the date of Sir R. Peel's second important Act on the
currency. That second act, he stated to the house, was
to be considered as a complement of the first ; he in- `I
tended it to secure, in fact, that convertibility of the
note which was made legal only by the Act of 1819 ; and
the provisions which he introduced were to the following
effect :—ln the first place, he enabled the Bank of Eng-
land to issue notes on securities to the extent of
14,000,0001. together with any further sum which might
aecrue from the lapsed circulation of the English coun-
try banks, as to which some detailed provisions were in-
troduced into the Act. An order in Council under those
provisions was passed about two years ago, authorising
the Bank to add to that portion of its tissue which rests
upon securities the sum of 475,040/. Therefore at pre-
sent the issues which the Bank of England can make,
upon securities—and it is not allowed to make any issues
except upon Government securities—is 14,475,0001. In
addition, the law allows the Bank of England to make
an amount of issue equivalent to the bullion which may
be in its coffers. The Act of 1844 further introduced a
provision which seems to me, although in some manner
connected with them, yet to be essentially different in
its character from the other provisions—l mean that for
dividing the Bank of England into two departments, the
issue and the banking department. Gentlemen who are
familiar with the mode in which the weekly returns of
the Bank are published, are aware that the assets and
liabilities are always classed under those two divisions.
I shall presently have to call the attention of the Com-
mittee to the practical working of that system with
reference to the measure to which I am about to ask
their assent. I should add that with regard to
English country banks the Aot of 1844 contained
this important provision,—it prohibited any bank
which might after the passing of that Act be established
in England from issuing bank-notes. It limited, also,
the note issues of the existing banks to the amount
which was then in circulation, It contained no pro-
vision requiring them to issue notes on securities,
nor did it allow them to exceed the fixed limit by
issuing notes against bullion. Therefore, under the Act
of 1844, the condition of the English country beaks is
this :—No new country banks can issue bank-notes at
all, and the country banks existing at the time of the
passing of that Act are limited in their issue to the cir-
culation which they then possessed. In the following
year was passed an Act with respect to Scotland and
Ireland, which was intended as a part of the same mea-
sure. Its effect was to limit the existing banks of
Ireland and Scotland to their then issues, as in the case
of the country banks of England. It did not require
that those issues should be guarded by securities of any
kind, but it authorised them to make issues in excnss of
their certified circulation against a deposit of bullion.
Therefore, in Ireland and Scotland there is a certain
amount of paper which is limited under the Act- iu
addition to which the banks issue a certain portion
against sovereigns. The committee ought to bear in
mind the practical result of this compound system upon
the circulation as it exists at the present moment. On
the 11th of April last the notes of the Bank of England
in the hands of the public amounted to 19,752,0451. At
the same date the note circulation of
The English country banks was ...........
The Scotch banks 3,832,000
The Btnk of Ireland
And other banks in Ireland

Total
Adding that amount t• the circulation of the Bank of
England, we may take the paper circulation of the
United Kingdom to be in round numbers about
38,000,0001. Of that 38,000,0001. the only portion
which is strictly covered ty bullion is that which is
issued by the Bank of England in addition to the
14,475,0001. which they issued upon securities. The
whole of the cironlition of the English country banks
and the chief part of the circulation of the Bank of Ire-
land and the Scotch and Irish country bank■ is, so far
as the law is concerned, not represented by bullion.
The security which the law takes fcr that portion of the
circulation is the legal convertibility of toe note—the
liability of the banker to pay in specie when the ncte is
presented. That is the existing state of the circulation
under the different Acts which regulate our currency ;
and it is essential to bear in mind, with reference to the
solvency of the Bank of England and the importance of
keeping a large bullion reserve in that central etabli-h-
-mento the considerable amount of the provincial issue.
When Sir R. Peel introduced the mea.ure of 1344, he
stated one of the main objects which he bad in view was
to provide security against the excessive issue of paper, '
and thereby to guard against the recurrence from time
to time of those commercial panics under which the coun-
try had at different intervals suffered previously to 1844.
At the same time he stated that he did not propound his
measure as a panacea, or as an infallible guard against
such panic, because he said that the issue of bank paper
was only one of their causes, and he recognised the fact
that commercial panics might arise from causes which
did not lie within the scope of his legislation. But in
1347, after the commercial crisis of that year, when it
became requisite for the Government to authorise the
Bank, if the necessity should arise, to exceed the limits
fixed by the Act of 1344, Sir R. Peel, in the di,cussion
which arose, delivered his opinions more fully on the
subject than he had previously done, and he gave a
definition, corrected by experience, of his own views as
to the objects of the Act of 1844, which, as it contains
an authentic exposition of his opinions, I trust the Com-
mittee will permit me to read. Si► R. Peel, upon the
3d of December, 1847, said :

" I say, then, that the Bill of 1844 had a triple object.
Its first object was that in which I admit it has failed,
viz., to prevent, by early and gradual, severe and sudden
contraction, and the panic and confusion inieparablo
from it ; but the Bill had two other objects, of at least
equal importance—the one to maintain and guarantee
the convertibility of the paper currency into gold, the
other to prevent the difficulties whim arise at all
times from undue speculation being aggravated by the
abuse of paper credit in the form of promissory notes.
In these two objects my belief is that the Bill has
completely succeeded. My belief is that you have
had a guarantee for the maintenance of the principle of
convertibility such as you never had before ; my belief
also is, that whatever difficulties you are now suffering,
from a combination of various senses, those difficulties
would have been greatly aggravated if you had not wisely
taken the precaution of checking the unlimited issue of the
notes of the Bank of England, of joint-stock banks, and
private banks."

That was Sir Robert Peel's definition of the act after he
had become aware of the events of 1847. I may also call
attention to the remarks that my right hon. friend near
me (Sir C. Wood), who then held the office which I now
hold, made upon the measure then brought before the
house, as showing that in his view the act was never
considered as a specific against commercial panics. He
said :

" A complaint has been made that this act has not pre-
served us from commercial convulsion. I think that those
who expected such an effect from it much miscalculated
the motives by which persons engaged in commercial trans•
actions are actuated. Certainly, for one, I never held out
any such expectations to the country. I stated most dis-
tinctly that I did not contemplate that such would be the
effect of the act. . . The same effects precisely might
have occurred under a metallic circulation as have occurred
under our mixed currency, and the advocates of the act of
1841 never professed that its operation would produce any
other result than that which might have happened wider a
metallic circulation."

I think that this reference will satisfy the committee that
the authors of the act of 1844 did not contemplate its
proving a panacea or a cimplete guarantee against the
occurrence of commercial crisis, which are pro iuced by a
variety of causes on which no legislatiou,and certainly no
legislation confined to the currency, could operate. I will
now briefly advert to the peculiar crisis of 1347. It was
described by my right hon. friend in moving for a com-
mittee on the sabject as being caused by the ab;erp•
tion of available capital for the purchase of corn and the
construction of railways acting upon a very unsound
state of commercial affairs. It arose from internal cau:ee,
from an internal demand for a large and exr.raordirary
amount of capital, and had no connection, as iu the
case which we are now considering, with our foreign
trade. In 1847, as in the present year, her Majesty's
Government, considering the urgency of the commercial
crisis, came to the conclusion to issue a letter to the
directors of the Bank, authorising them in certain con-
tingencies to exceed the limits fix-d by the law. The
cause of issuing that letter was stated to be the want of
confidence in the commercial classes which then existed,
and its otject was also defined to put an end to the
present alarm. Although the cause of the panic in 1347
was different from that of the panic of this year, yet the
object aimed at by the issuing of the Gavereineet litttr
is thte.e two years was identically the same. The Banlc
directors, however, did not find themselves under the
necessity of overstepping the law of 1847. Confidence
was re-established by the issuing of the letter. Its in-
tl tierce upon the commercial classes was lam:ladle' e, and
the Bank directors were enabled to navigate their ships
through their difficulties without exc?edieg the limits of
the law. Nevertheless, Parliament was assembled before
the usual time. Toe at teetion of Parliament was celled
to the matter by her Maje:ty'a Speoee La: as no Indern-
n.ty Bill was required the direct aesetit of Parliament
to a bill was not obtained. Nevertheless, a committee
of inquiry into the Act was appointed upon the motion
of my right hon. friend. That motion gave ri e to a
debate, but I believe it was unauinaouly asseoted te by
the House. Sir Robert Peel, who was the author of
the Act, expressed himself iu terms the most uriatn-
bigueus, in approbation of the sanction which bad been
given by the Government to the suspension for a time i.f
the limits fixed by the Act. I sha 1 quote some of his
words on that oNiasion, azid I think is is of imporlacce
that the committee should bear them in mini, inasmuch
aii,the distinctness with which ha spoke proves that be,
upon the policy
Nevi
either
as certainly better qualified than any other pt r on
ott:t,hieluiallttewoprh t:ni;ettnho
there
arthis
n occurs.ll oluiasees,staatitode speak with authority
of the Act, was satisfied of the pri,priety
not b 3 reasoned witt -zee 12g
cannot he foreseen or :
hen panic --a state which
power to prevent the cense tinst by law—which or n •
Government must asinine a
There is the necessity for a dilcureett'ces which may occur.
wthaisnkbotwtears
properly
eion which I xercised in the present inataiica• It
to authorise a violation of the law than to ruu the risk of

the consequences which might have ensued if no
tion on the part of the Government had taken pla,
Sir' I think that the Government were justified in
that letter. I think that', having issued it, they actou
with the strictest regard to constitutional principle in
forthwith summoning Parliament."
That was the judgment,tif I may gay so, that Sir li. Peel
pronounced upon that question. But the matter did not
rest merely with the appointment of a committee, and
the approbation by individual members of Parliament of
the step taken by the Government. On the 17th of Feb.
1848, Mr. Herries, who was then a member of this house,
moved two resolutions in a committee of the whole
house, the first of which confirmed in a most distinct
manner, the policy of the step. It was in these terms :
" That looking to the state of distress which has for
some time prevailed among the commercial classes, and to
the general feeling of distrust and alarm by which the eni•
barrassments of trade have been aggravated, it is the opi-
nion of this house that her Majesty's Ministers were justi-
fied, during the recess of Parliament, in !recommending to
the Bank of England (for the purpose of restoring confi-
dence) a course of proceeding at variance with the restric-
tions imposed by the Act of the 7th and Bth Vic., cap. 52.

" That this house will resolve itself into a committee
upon the said act."
That resolution was put and carried without a division,
from which it is manifest that the house, upon a consi-
deration of the subject, explicitly approved the act of
the Government:l:But a select committee wag appointed
to inquire into the act of Parliament, and several most
able aid competent witnesses gave evidence before them,
In their first report, dated the Bth of June, 1848, they
said :

" The issue of that letter was no doubt an extraordinary
exercise of power on the part of the Government, but the
House has decided that in the peculiar circumstances of
the period they were justified in taking that step."

Therefore the committee—perhaps, it is a solecism to say
so—adopted the resolution of the House ; at all events,
the committee, after great consideration and inquiry,
referred to the previous resolution of the House as em-
bodying their own opinion. Having thus, I fear at too
great length, but with a minuteness which I thought the
importance of the subject required, stated what took
place in 1347, I will now, with the permission of the
House, call their attention to the events which are now
immediately under our consideration. With regard to
the commercial crisis into which we have lately entered,
and from which I think. we can scarcely be said yet to
have emerged, it may be observed that no symptom of
an alarming or even of a threatening character (if we
compare the bullion and reserve notes of 1856 and 1857)
manifested itself:until about the 18th of October. From
that day a perceptible deterioration began. The bullion
in the Bank fell between the 10th and the 18th of Nov.
from 10,110,000/. to 6,434,0001. ; while the reserve
notes fell during that period from about 4500,000/. to
about 1,400,000/. But before that time it cannot be
said that anything occurred which would create uneasi-
ness in the course of affairs at the Bank. The immediate
cause of the crisis was, as must be within the knowledge
of most of the hon. gentlemen who are now present, un-
connected either with the management of the Bank or
with any issues of paper money in this country. It
grew out of the derangement of the American trade,
supervenino: upon some previous inconveniences created
by the Indian revolt, the shipment of bullion, the dis-
turbance of the Indian trade, and, to a certain extent,
speculation upon the continent. However, it may be
said that the almost exclusivefcause of the commercial
distress was the derangement of the American trade.
For some months previously to November the foreign
drain of buil:on was accompanied by an adverse state
of the exchanges and a high rate of discount at
the Bank. On the 2d of April it was 64 per cent.,
on the 18th of June it was 6 per cent., on the 16:,12
of July 51 per cent., on the Bth Oct. it was raised to 6
per cent., on the 13th Oct. to 7, on the 19th Oct. to 8,
on the sth Nov. to 9, and on the 9th Nov. to 10 per
cent. These figures show that 1 igh rates of discount had
prevailed, the natural consequence of an adverse state of
the exchanges ; but the operations of the Bank and of
the discount houses in this country had been successful
in reversing that state of things, and in producing a fa-
vourable state of the exchanges before the issue of the
Government letter. At that time the foreign drain of
gel f bad been checked, and the exchanges were favour-
able. Well, although some uneasiness might still exist
as to the state of the Bank, nothing at that moment
seemed to indicate any immediate probability of the
Government being called upon to exercise any extraor-
dinary powers ; and as the right hon. gentleman (slr.
Disraeli) referred yesterday to the state of our trade
during the month of October as a circumstance which
ought to hare induced her Majesty's Government to
hesitste before they recommended the prorogation of
Parliament until the end of December, I would beg leave
to remind him that even if the state of trade had been
more unfavourable than it actually was there was no
symptom of commercial distress which would have
rendered is necessary for the Government b resort to
any extraordinary act. It was only in the event of Lheir
being called upon by any urgent and unforeseen neces-
sity to authorise a suspension of the law that it was
likely to be necessary that, upon merely commercial
grounds, they ghoul l advise her Majesty immediately to
assemble Parliament. In the event of that improbable
contingency—as we thought it—arising, a constitutional
power existed, which could be exercised at any moment,
of summoning Parliament by proclamation to meet in
14 days. Tnat is an explanation of the charge of want
of caution and foresight on the part of the Government
brought forward by the right hon. gentleman. Well,
the first event which precipitated matters iu the late
commercial crisis was the failure of the Borough Bank
of Liverplal. I wish to call the attention of the
conornittee to the fact that it was not a joint-stock
bank, and that it was not a bank of issue. I
believe that there is not a single bank of issue in that
town, but the Borough Bank was not a bank of issue ;
I it was a corporation of a general character, and the
amount of its liabilities was very considerable. As fur,
therefore, as that,eestablishment was concerned the con-
sequences produced by its fallsre cannot in any way be
traced to an excess in the issue of bank paper. That
failure took place about the 27th of October, and the
next event of importance was the failure of Messrs. Den-
nistoun on the 7ch of November. That heuse was ex-
tensively engaged in the American trade. I believe that
it was a house conducted with prudenoe, and possessed
of large capital, but it was suddenly forced to suspend
payment b; the misfortunes arising out of the convul.
signs that had taken place in America, which were at
tended with much greater distress than had occurred in
this country, and accompanied by a general suspension
of cash payments. The house of Messrs. Dennistoun
failed, as I have said, on the 7th of November for up-
wards of 2,000,0001. About two days afterwards, I
believe on the Otis of November, a large joiutestock bank
in Scotland failed—the Western Bauk, which had
numerous branches. Within a day or two afterwards
another large joint-stock bank—the City of Glasgow
Bank—also failed. The joint circulation of these banks
was about 800,0001., of which about one-half was the
certified circulation they were authorised to make upon
securities, the remaining half upon bullion. Their
deposits were about 9,000,0001., showing that it was not
their note circulation, but the magnitude of their other
transactions and liabilities which led to their unfortunate
failure. (Hear, hear ) I may mention with regard to
the Western Bank of Scotland that there had been no
run at all upon it previous to its failure, and that when
its doors were closed not a single note had been presented
fur payment out of the usual course, taus showing that
it was not the discredit of the notes of the bank, but
a failure to meet its large engagements of other
descriptions which led to its unfortunate fall. The
first sign of pressure more immediately affecting
the mercantile classes in London, and approach.
ing nearer to the Bank of England, was the failure
of the house of Messrs. Sanderson and Co., bill-brokers,
which took place on the 10th of November. Such
an event could not occur without exercising a serious in-
fluence upon the credit of other similar establishments
in this city. The publication of the Bank retorts for
the week ending Wednesday, Nov. 4, which showed a
considerable reduction of the Bank reserve, was a cir-
cumstance which, combined with the other facto I have
mentioned, could not but create uneaeines2 and alarm
and call attention to the diminishing resources of the
Bank. The alarm increased in London, and I think I
cannot adduce a clearer or more compendious proof of
the existence and extent of that alarm than by referring
to the increase of the bankers' deposits at the Bank of
England in the week from the 4th to the 12th of Nov.
It may at first sight seem somewhat paradoxical to
the committee to refer to tae increase of bankers deposits
in the Bank of England as a proof of alarm—(hear)—
but it must be borne in mind that the Bank of England
is the bank in which the London and other bankers keep
their deposits, and therefore when they increase those
deposits suddenly and extensively it is a proof that they
are guarding themselves against a run upon their fund',
that they expect demands from their customers, and are,
in fact, if I may so say, hoarding their resources. Thu
increase of bankers' deposits at the Bank of England is,
therefore, a recognised test of the existence of alarm. In
the week from Nov. 4 to Nov. 12 these deposits increased
by no less than 1,970,0001. But there was another
decisive proof of the existence of alarm in this city—
namely, the general cessation of all discounting except
by the Bank of Esgland. At that time it was scarcely
possible to obtain an advance, oven upon hills which
were undoubtedly good, either from bill brokers or
bankers ; their operations were for the moment ueiver•
sally suspended, and the Busk of England was the only
establishment in London at which discounts could take
place. That circumstance may be referred teas a tolerably
conclusive proof of the general prevalence of al trio. I may
mention that at that time a single discounting house
paid in one day 800,0001., 700,0001. to depositors, and
100,000/. to discounters—a sum, I apprehend, almost un-
paralleled in operations of that kind. I will now call the
attention of the committee to the state of the Bank on
the day before the recent Government letter was issued,
and t o its state on the day previous to the issue of a
similar letter in 1317, and I think the committee will
gee that with relent to every point indicative of ti.e
strength of its resources the position of the Thuds in
1857 was less fovouranle than its position in 1847. Tne
inference to which I wish to lead the committee is that,
if the Government were justified by the opinion of Par-
liament, of the public, and of competent judges, in i,su-
ing the letter in 1847, then a fortiori they were justified
this year in issuing a similar letter. The following is a
statement of the position of the Bank of Englaud iu
Oct. 1847, and Nov. 1857 :

Oct. 23, Nov. 11,
1847. 1857.
Bullion £8,313,000 ... £7,171,003
Reserve of notes in Banking
Department 1,547,000 ... 957,000
Reserve of coin 447,000 ... 501,000
Deposits (Private) 8,580,000 ... 12,035,00.
Private Securities......
Therefore 1 think the committee will see that whatever
were the grounds for the interference of the Governme 0
in 1847 the grounds were still stronger in the preeeLt
year. There is another most material point of different'
between the two cases, which perhaps even still tnorc