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

ordered to be granted to her Majesty in accordance with
the terms of her Majesty's speech.
THE BANK CHARTER.

The CHANCELLOR of the EXCHEQ UER —I rise to
make the motion of which I have given notice for the ap-
pointment of a select committee to inquire into the opera-
tion of the Bank Act of 1844, and of the Bank Acta for Ire-
land and Scotland for 1815 ; and also to inquire into the law
relating to joint-stack batke. In order to understand the
operation of the act of 1814 it is necessary to go back to the
time of bank restriction, and to consider the policy of the
act proposed by Sir R. Peel in 1819. By that act the value
of the currency was restored after a long period of suspen-
sion of cash payments during the French war, and the cur-
rency was fixed upon a firm and legitimate basis. The
principle established by that act was the convertibility of
bank notes for gold at a certain fixed value, and I trust
that the time will never come when that principle will be
called in question by this house or by the country. (Hear,
hear.) The question has sometimes been asked —What is
the meaning of a pound-note ? and it has been thought
that some difficulty exists in finding an answer
to that question. But it appears to me, with great defer-
ence to the various able and accomplished persons who have
discussed the matter, that no interrogatory admitting of a
more simple and satisfactory answer ever was asked. What
is the meaning of a pound-note ? It is simply a promise to
pay on demand to the bearer, at the place where the note is
issued, the sum of one sovereign. No mystery is involved
in the answer to that plain question. A bank note is a pro-
mise to pay a definite sum in coined money of a known
weight and value, and if that promise is not fulfilled a con-
tract is brolien and a fraud is committed. I think, therefore,
it cannot be denied with truth that the convertibility of a
bank note is a plain question of contract, that it rests upon
principles of honesty which must be recognised not only
by every speculator, not only by every political economist,
but by every man of plain sense and understanding;
and I cannot believe that the time will ever come when
any large, when oven any small portion of this house,
or when any considerable portion of the people of this
country will contest the validity of those principles. I can
conceive that a Government may overcome a temporary de-
ficiency by issuing, for a time inconvertible paper, by dis-
charging its engagements in promises to pay, which pro-
mises it does not fulfil, but I confess I am at a loss to un-
derstand the opinions of those persons who believe that
the wealth of a country can be increased, and that the
trade of a country resting, as it does, upon credit, can be
benefited by the increase of mere promises to pay, which
promises the issuer is not bound to fulfil. I trust therefore
that the principle upon which the act of 1819 is founded, of
the convertibility of paper for gold, will never be seriously
contested by any party or person in this house. But in the
course of time it was found that the act of 1819, although
it established this important principle, did not in all cases
provide effectual securities for its enforcement. Excessive
issues of paper were made from time to time by country
banks, and although notes were always convertible by law,
it happened in many cases, upon the failure of country
banks, that they were not convertible in fact. The creditor
the Bank of England was never in troth impeached, but it
was contended that its issues were sometimes excessive,
that its reserves of bullion were not always sufficiently great
to support public confidence, and accordingly Sir R. Peel,
acting under the advice of a committee presided over by
my right hon. friend the First Lord of the Admiralty, pro-
posed in 1844 the act which I am about to ask the house to
refer to a select committee. The policy which Sir R. Peel
annomeced that he intended to enforce by that act was not
merely the convertibility of bank notes and the legal liabi-
lity of their issuers to pay them, but also, by imposing cer-
tain conditions al to their issue, the provision of effectual
securities against their depreciation. I freely admit that, in
proposing the restrictions embodied in the act. of 1844, Sir
R. Peel sought to establish a principle upon which the pre-
sumption lay against him. He attempted to impose restric-
tions upon the banking trade, and I concur with those per-
sons who hold that any one who seeks to impose limits and
restrictions upon the banking trade comes forward with a
presumption against his policy, and is bound to establish a
strong case of expediency or necessity. In my opinion Sir
R. Peel did establish a strong case. His view, I apprehend,
was this, when a bank such as the Bank of England is em-
powered by the Legislature to issue notes, when those notes
circulate freely from hand to hand, when they are invested
by Act of Parliament with the attribute of being a legal
tender, when the Legislature, in fact, confers upon the bank
the power of issuing paper which, whatever theorists may
say, practically discharges the functions of money, the Le-
gislature is justified in imposing certain conditions upon
the exercise of that power. That was the principle by
which Sir H. Peel justified the restrictions he imposed by
the act of 1844. A subtle discussion has been raised on the
question of what is money—whether bills of exchange and
commercial instruments of that nature are to be considered
money—whether the term should be confined to paper in-
struments such as bank notes, and whether even the title
of money should be refused to bank notes, being
legal tender. It would be quite out of place
for me in a practical assembly such as the House of
Commons to occupy time upon the discussion of such
questions ; and, I trust, the house in debating this subject
will not think it necessary to go into questions of the
theory of currency, with respect to which I need scarcely
inform hon. members a very large collection of volumes
exists. But I may be permitted to say that it seems to me
a practical question whether or no a banknote does not de-
serve the name of money. If a banknote enables a person.
who is unknown, to offer wherever he goes in the country
a legal tender without reference to his individual credit or
character, it appears to me that such an instrument de-
serves the name of money, and practically discharges the
same functions of sovereigns. If that be the character
of the banknotes issued by the Bank of England, a
justification arises for the Legislatnra to impose such
restrictions as the public advantage may demand on the
extent to which such banknotes may be issued. Sir R.
Peel, by the act of 1844, for the first time placed on the
discretion of the Bank of England certain limits with re-
spect to the issue of banknotes. The Bank was by that act
restricted to the issue of 14,000,000!., represented by
securities, and so much more as might be equal to the
qhantity of bullion in possession of the Bank. Beyond
these limits the Bank of England under the present act is
not entitled to go, with the exception of a small addition
which I shall afterwards mention. The policy of the Act
of 1811 was, therefore, in general to impose such restric-
tions on the discretion of the Bank of England as would
practically secure its maintaining such a reserve of bullion
as should at all times be equal to the demands of the pub-
lic for the conversion of its notes into gold. I think a fairer
test cannot be taken of the practical success of that act
than by comparing the quantity of gold held in reserve
by the Bank of England for 10 years prior to 1844, and
for 10 years subsequent to that act. If the house should
find that there has been a great increase in the average
quantity of gold held by the Bank of England in reserve
since 1844—if the house should find that the maximum
quantity and the minimum quantity and the averages
also have been greater, the conclusion must naturally
be arrived at that that act had accomplished the
object for which it was designed. The contrast is so decided
and immediate on the change of legislation that it could
not be attributed in any considerable degree to an increased
supply of the precious metals, and of gold principally, in
late years. It was quite conceivable that, though the sup-
ply of gold increased, the Bank might not have thought it
necessary to keep a larger reserve unless the legislative re-
striction, to which I have already alluded, had been in ope-
ration. I hold in my hand a statement of the highest,
lowest, and average amount of bullion in the Bank of Eng-
land from the year 1834 to the present time, and I will read
to the house some of the principal results. In 1843, the
average amount was 11,700,0001. in round figures, being
the highest amount during the 10 years prior to the act of
1844. The average amounts for the other years were in
1831, 8,000,000!. (omitting all the figures after the millions),
in 1835, 6,000,000/. • in 1836, 6,000,0001.; in 1837,
5,000,000/. ; in 1838:9,000,0001.; in 1839 and 1840,
4,000,000 e ; in 1842, 8,000,000!.; and in 1813, 11,000,0304
Well, in the first year after passing the act to which I have
referred the average amount of the bullion in the Bank of
England was 15,003,0001., and in 1855 it was 14,000,000!.
In 1847, which was the year in which the average was
lowest, the average amount was 10,600,000!., and the mini-
mum amount was never under 8,000,000/. After that year
the average amount rose to 14,000,000/., 16,000,000/.esand
in 1852 to 20,000,000!. In 1853 it was 17,000,0001., and in
1854 14,000,000!. Since 1843 the lowest average was
10,600,000/., and the highest 20,500,000/., whereas before
1843 the highest average was 11,700,0001., and consequently
the lowest average since 1843 did not very much differ from
the highest average before. These figures could not fail to
convince the house that, assuming that the act of 1844 was
to increase the average reserve of bullion in the Bank of
England, that object had been very completely attained.
There is another part of that act to which I must
advert briefly a separation of the issue and bank-
ing departments was then effected. That separa-
tion was an essential part of the act of 1814, and was
then introduced for the first time. The effect of that sepa-
ration is, that the accounts of those two departments are
kept separately, and that for practical purposes, while the
management of the Bank proceeds in its ordinary manner,
these two departments are managed independently of each
other. With respect, however, to the legal effect of the
act of 1844, I may as well in passing state,—though it is not
certainly al practical question,—that, inthe event of the
insolvency of the Bank of England,—a contingency not
very likely to occur,—it is held by those most competent to
form an opinion on the subject, that all the creditors, both
note holders and depositors, would have equal rights and
equal claims on the general assets of the Bank. In such a
contingency the funds of the Bank would be considered as
one, though, for the practical management of the Bank,
and for the purpose of measuring its issues, which was the
object the framers of the act had in view, the separation of
the two departments was made. I now come to the effects of
this act as developed in successive years since its
_ passingou
and, first, I will venture to call the attention of the se
to wha. enr.red in 1847. In that year the ope'ratiCt oh
distress of
this
act underwent an important trial. Commercial
and the
c
a very aggravated kind was then
experienced;
Bank of England was then subjected toa heavypressure for
the purpose of inducing it to extend its
b advanceyth the
and
n:Lidt ias
_-
counts. The Bank found itself restrained
tothe Government on
tions of the act of 1844, and applied
the subject. The noble lord, the inemledertfhooe
present London,
F wiress
then at the head of the Government, ati
Lord of the Admiralty filled the situation which I have the
honour to occupy now; and after much d e era c t
oathey
issued a letter authorising the Bank of England to increase
its advances upon approved securities, and assuring the
to
directors that if that course led any infringement of the
Government would apply to Parliament for an indraenity.
However, the provisions of the act were never infringed,
the Bank of England never being called on to extend
its issues beyond the limits settled by the act of 1844,
and the Government were never necessitated, conse-
quently, to apply to Parliament for a bill of indem-
nity. Nevertheless, on the meeting of Parliament a
committee of inquiry into the matter was proposed, and the
subject underwent a full discussion in this house for seve-
ral nights. A committee, composed of some of the ablest
members, eat and examined witnesses, and came to a report
to which I will refer. The committee reported as follows
Your committee have had under their consideration
whether it is advisable that powers should be conferred by
law upon the Government to enable them to meet the occur-
rence of any circumstances which may call for extraordinary
interference ; but they have come to the conclusion that,
looking to the possibility of foreseeing what the precise cha-
racter of the circumstances may be, and also what may be
the measure best calculated to meet theta, it is more expedient
to leave to those with whom the responsibility of the Govern-
ment may rest at the time to adopt such measures as may ap-
pear to them best suited for the emergency. Your commit-
tee, therefore, after a careful review of all the evidence, are
of opinion that it is not expedient to make any alteration in
the Bank Act of 1844."
A. committee was also appointed by the other House of
Parliament, which did not, I,
believe, recommend any
alteration of the act. The question, at all events, was con'

sidered by the other House of Parliament, and the whole
matter underwent their full consideration when those cir-
cumstances occurred. .I have taken the liberty of recur-
ling to the% events for the purpose of suggesting to the
house that, .oasmuch as the effects of the crisis of 1. 47
were very fully investigated at that time, there seems no
occasion at present for the appointment of a cumin tee
which lam about to move to reinvestigate the circum-
si aloes of that period, or to do anything more than to con-
sider the operation of the act at that time, as shown in the
reports of that period in estimating its general policy. The
subject that will more justly engage the detailed attention
of the committee is the operation of the two acts of 1844
and 1847 up to the present time. During that interval we
have had an arduous war, which has led to great exportations
of bullion for foreign service. We have hada transition from
war to peace. We have also had to encounter changes in
the
which mo
unetarsystem in some of the continental countries,
have ited n fgold for a silver currency. The
failure of the silk crop
.in China, Italy, and France this
year has led to a great increase in the importations of silk
from the East, and has rendered necessary a great increase
in the /exportation of bullion. All these were disturbing
causes of the first magnitude, and yet we have found that
the currency of this country under the tutelary influence of
the act of 1844 has remained in a sound state, that the
credit of the Bank has never for a moment been in question,
and that it has not experienced any real or pressing dem.
culty in maintaining the large reserve of bullion which I
have already stated to the house. In estimating the effect
of that act I trust that the house and the committee will
bear in mind that it has had no ordinary difficulties
to contend with—(hear, ]rear)—that this has not been what
is called a rormal period; that it has not been an ordinary
state of peace, but that our currency has not been exposed
to severe trials, and that out of those trials it has
emerged triumphant. (Hear, hear.) Now, sir, having in
view the renewal of the privileges of the Bank of England
for another period in the course of the present session, and
the expediency of either allowing the provisions of the act
of 1844 to remain unchanged, or of introducing certain
amendments in those provisions, in the course of the autumn
I placed myself in communication with the Governor of the
Bank of England, in order that I might scertain whether
he or his colleagues were of opinion that any amendments
should be made in the existing act. Being themselves
practically acquainted day by day with the working of the
act, and especially of its restrictive provisions, they cannot
be considered as other than fair and competent judges of
its operation. With the exception of, I think, not more
than -one director, they have given their opinion that it
is not expedient to make any•material alteration in the
provisions of the act. I therefore, Sir, assume that the
principle established by that act—via., the imposing
of some legislative limit upon the issue of the Bank
of England, is taken as established. Those who contest
the policy of the act admit in general terms that prin-
ciple. I may refer particularly to a gentleman of whom I
speak with very sincere respect, Mr. Tooke, the author of
the well-known book on prices, which is a most valuable
economical history of this country. Well, Mr. Tooke is a
strong opponent of the act of 1841. He proposes, it is true,
a principle of limitation upon different data from those re-
cognised by law, but still he is in favour of a restraint being
put upon the discretion of the Bank. And lam unable to
find that there is any considerable number of practical
persons engaged in banking or mercantile affairs, and ac-
quainted with the operations of the act, who propose to de
away with all legislative limit, and to return simply and
without qualification to the act of 181.9. Well, then, if we
assume that that principle is granted, there are certain
other points which are fairly open to consideration before
the privileges of the Bank of England are renewed for
another period. It has been said that through the indis-
cretion of the Bank directors, or in consequence of the
operation of the act, there has been an inconvenient
fluctuation in the rates of discount, and that that has
been produced by circumstances which legislation could
have prevented. Now, sir, I must be permitted to state
my very confident opinion that the Bank of England direc-
tors are not answerable for the inequalities in the rate of
discount— (hear)—that the rate of discount is regulated by
causes over which they have little control ; and that in
raising and lowering of the rate of discount the Bank di-
rectors follow and do not lead. They are not the regulators
of the rate of discount in this town. The amount of bills
discounted by them is in the aggregate less than those dis-
counted by private houses. They have it not in their power
either to increase or diminish the rate of discount. It is
something which is governed by a cause which is peculiar
to itself. It does not vary according to the general rate of
the interest of the country, as some persons suppose. If
anybody will take the trouble to compare the price of Con-
sols with the Bank rate of interest he will find that when
Consols remain stationary, when the rate of money lent
upon real securities remains quite stationary, the Bank
rate of discount and the general rate of interest in this
town may undergo very considerable fisctuations. It is a
mode of employing money which is liable to certain influ-
ences ; it h,s a territory of its own which is governed by
causes, I will not say independent of, but to a great extent
unconnected with, those which regulate the general rate
of interest in this country. I have before me a very de-
tailed account of the fluctuations in the Bank rate of dis-
count. It is impossible for me to read the whole of it to
the house, but I will state what appears to mo to be the
general result, which is that when the Bank rate of dia•
count is the highest the amount of bills under discount is
for the most part: very large ; and when the Bank rate of
discount is low the amount of bills under discount at the
Bank is for the most part less considerable—a fact which
shows that pressure is male upon the Bank when its rate of
discount is high, and that far less pressure is made upon it
when its rate of discount is low. The result seems to me
clearly to establish that the Bank is not the regulator of
the rate of discount. If the greatest number of applications
are made to it when its rate of discount is highest., it is clear
that it is because the general rate of discount is high, that
persons desirous of having their bills discounted cannot get
more favourable, or as favourable, terms elsewhere, and
therefore they crowd to the Bank of England. When the
Bank of England rate is low the rate elsewhere finy perhaps
be even somewhat lower. The fact, I think, must be con-
eidered as conclusively exonerating the Bank from the
charge of having augmented commercial distress by their
indiscretion with respect to the management of the rate of
discount. It shows that, whatever faults the present aot
may have to bear, it cannot be justly blamed for having
created any unnecessaryhardship with regard to the fluctua-
tions of the rate of discount in those times. The next ques-
tion which ought to engage the attention of the committee
is that of the precise limit which should be fixed upon the
issue of notes on demand. The limit was originally fixed
at 14,000,000/. ; but since that time an order of Coun-
cil has been made, under a clause in tho act, by which
the Government is empowered to authorise the Bank to
issue an addition to the 14,000,000/. upon securities two-
thirds of the amount abandoned by the country banks.
The additional sum which the Bank can issue in conse-
quence of that order of December, 1855, is 475,0001. ;
therefore it is at present empowered to issue notes to the
amount of 14,475,0001. It has been suggested that this
limit is too narrow, and that it might be increased or en-
larged, Now, sir, with regard to the point at which nu-
merical limits are fixed, it is very difficult to give an
answer which shall be conclusively in favour of any pre-
cise amount. (Hear.) When it is once admitted that a
limit is to be adopted it is necessary tojfix upon some sum
at which the line shall be drawn, but it would be very
difficult to give a reason why it should not be a little more
or a little less. In the case of a duty of ls., it would gene-
rally be difficult to show why it should be that precise
amount, and not either lid, or 13d. LI the present instance
the amount of 14,030,000/. was taken as representing the
lowest amount to which it was thought the currency might
descend, and I believe it has, in the operation of the act,
been found not an inconvenient amount. Those persons
who desire to raise this limit to about 16,000,000/. have it,
I apprehend, in view that such an alteration would enlarge
the issue of the Bank and the paper currency of the coun-
try by the amount of about 1,50J,0007. My belief is that
an extension of the limit to that evtent would have no
such effeetee-Thear)—but would simply enable the Bank to
keep a million and a half less gold. The issues would not be
increased, because they are already sufficient to meet the
wants of the trade of the country. In any measure which
I have now in contemplation it is not my intention to pro-
pose any alteration of the limit which is now fixed by law,
and which may, in round numbers, be taken at 14,500,000/.
At the same time I quite admit that it is a subject fairly
within the consideration of tie committee, and I need not
say that if I am appointed a member of that committee I
shall be fully prepared to go into the inquiry with
the view of seeing whether any public benefit would arise
from the enlargement of the limit. (Hear, hear.) There is
another point which is referred to in the report of the com-
mittee of 1848, and which is generally mentioned in con-
nection with the policy of this act. I mean the question
whether, as a legislative limit is to be imposed upon the
discretion of the Bank with respect to the issue of paper,
power should not by law be vested in the Government to
dispense with the restrictions and enable the Bank in ex-
traordinary circumstances to depart from the provisions of
the act. I confess that I am entirely hostile to any such pro-
vision. It appears to me that not only is the Government
empowered, but it is required by the maxim "Salves po-
peli supreme lea"—by the duty incumbnat upon all govern-
ments to interfere at all critical moments—to depart from
the provisions of the law, and afterwards to come to Parlia-
ment for an indemnity=the course which was taken in the
year 1847. In support of that opinion I will take the liberty
of referring the house to a remarkable precedent in theln
year 1797 on the ocoasion of the Bank restrictions
consequence
for foreign loans
year, the bullion in the Bank was at
heaseerviceleoef e
commencement thethe
I ebb. The &man Is
of the year 1797 reduced to verya
ilow,otftbhuel let
dn defi ma int
eirethaeidn
upon the
the reserve
found that matters had become
,after communicating
week in that month it was
during theßmanokntihneorefeFseedbr;usry, unt
urgent. Parliament was sitting at the time, but Mr. Pitt
with the Bank authorities ththeat Saturday, he convened a
an order in Council was agreed to, restrain..
paying in specie ; and on the fellowing
thought the affair s o pressing
ea
Council on the Sunday. On a certain Sunday in the month
day, Monday, Mr. Pitt brought down a message from the
to
gF
0. ,
81e7n9k7,
from
Crown informing Parliament of the step which had been
taken, and explained it to the House. I think that prece-
iilhiesenputug,thte hdte—h leeapgnelion exampletc yy ofs) f wthhseiectßhbahynakus
rnr
e.e vpt er
Pitt,
tbt eewennh
who was
ae ssht
vei
eoe
nrn ey ,
au arealh-.
ful of constitutional precedents—must convince the house
that there does inhere in the executive Government a
epaolwieedr oufpmeneettein gexeemneiregeenucpieesnofthtehiirs krienedpewnehiihcilhittyl7yheawre.
ever painful that responsibility may be ; and it ap-
pears to me that it will be better to leave the matter in that
state than, by attempting to allow a discretion by the act
itself, to confer upon the executive Government a danger-
ous power of at any time interfering with its operation.
Therefore, although I fully admit that the subject is one
which may very properly be inquired into and considered
by this committee, it is not a provision which I should
ad-
vise them to recommend. Therefore, the course which
prepared to adopt is this, subject to any amendments of I
am
the
law which the committee should suggest for consideration,
aiat th
,
within the limits which I have sketched • I shall,
h period of 10
privileges of the Bank of England for an
proper season, be prepared to introduce a
ebtilelrrenewing the
and i
1846 in that countryn
years. There are also questions as teotohsenßoapnekathof larreplarivdi:
18
and the operation of the act of
Scotland. The Bank of Ireland possessor
of its corporate charac-
sss
leges; all that it seeks is a renew
ter, together with the removal of aarestric
restriction imposed upon
it by an act passed in the reign of George 111., which seems
to me quite unnecessary—viz.,
,ae prohibition
Bankbiti of England
is against
latehe
leading of money upon
is empowered by law to t
advance money upon real securi-
ties, which power it exercises up to a certain limit. Nis
well known that loans upon real securities are not in gene-
ral prudent investments for a Bank. The Bank of Ireland
does not wish to exercise this power to any large amount.
now
They seek relief from a restriction to which they are
e
and the demand seems to me to be A reasonable.
one provided that the amount which
such a manner should be limited by • With regard
the ant.
ith the &rec-
to the Scotch Banks, I have communicated w
Scotland, with
tors of the six principal joint-stock banks in
they should lend in
the view of ascertaining whether they can suggest any
from them
alterations in the law. I have nottt
receivedfind that the opera-
any material suggestion sealed do n
ti9ll QI the act has been complained of, I have now called