The Sun.
London, England, 1859-02-11 00:00:00

TO THE EDITOR OF THE SUN.

Sin,—Your readers will be glad to have your
opinion as to the legality and equity of the con-
duct of the Bank of England, in selling off the
silver bullion deposited in the issue department on
the passing of the Act of 1844, for the expressed
purpose of being a security against which legal
tender bank notes were to be issued ; the effect of
which prcceeding having been to raise the rate of
discount for the benefit of the Bank at the expense
of the public, and by reducing the Bank reserve to
an extremely low point during periods of drains of
gold, to create alarm, generate panic, and depreciate
the value of all other property.

It appears from the report and appendix of the
committee of the House of Commons on the Bank
Act :

Firstly. That on the-passing of the Act there was
:ransferred to the issue department silver bullion
:o the value of £1,604,087.

Secondly. That notes were issued to the banking
department to the same amount.
Thirdly. That on the 12th November, 1857, the
day on which the Government letter suspending
the Act was issued, there was no silver bullion in
the issue department, and consequently no notes
issued against silver.

Fourthly. That on that day there was gold
bullion in the issue department to the amount of
£6,524,000, and as by the third clause of the Act
silver bullion might be held to the extent of one-
fourth of the gold bullion, and notes be issued
against it, additional legal tender money might have
been issued to the amount of £1,666,520.
Fifthly. That on the same day the Bank reserve
was reduced to £581,000, rendering the raising of
the rate of discount to 10 per cent., and the suspen-
sion of the Act, necessary.
Sixthly. That had the silver bullion not been
sold, and had notes been issued against it, con-
formably with the provisions of the Act, the Bank
reserve would have been X 2,247,500, instead of
£581,000, and the consequent alarm and panic
created by the reduced state of the Bank reserve,
and the advance in the rate of discount, with the
ruinous depreciation in the value of property
which naturally followed, would have been alle-
viated in a great degree, if not entirely averted.
It may be said that the silver would have to be
bought with the gold, and therefore the more silver
there was, the less gold there would be ; and, con-
sequently no increase of notes could take place.
But this by no means follows. Just as notes for
£2,000,000 were issued under the authority of the
Government letter, against securities, without in-
fringing on the stock of gold, so might the extra
quantity of notes have been issued against silver.
What was wanted in the critical month of Novem-
ber was not so much gold to be sent abroad as in
Bank of England notes for home payments, to
enable our bankers and merchants to protect them-
selves against their liabilities to provide legal
tender money. Bank of England notes were the
things needful in the panic of 1857 as well as
1847, when, as Sir Charles Wood stated in his
speech, parties of all descriptions applied to the
Government and said, "-Let us have notes ; charge
10, 12 per cent. for them. We don't care what the
rate of interest is. We don't mean, indeed, to take
the notes, because we shall not want them ; only
tell us that we can get them, and this will at once
restore confidence."

The cry of distress was the same in both panics,
and when heard and responded to the panics ended.
Throw a short supply of food amongst a starving
crowd, and they will run to devour it; give them
plenty and there will be neither alarm nor anxiety
—the fixed limit is the plague spot of the Act of
1844.

It also appears from the evidence that, except for
the sake of convenience, the issue department
might as well be kept in any Government office at
the West-end as at the Bank in the City. The
Governor, S. Neave, Esq., says, in answer to ques-
tions 944 and 945, " We are not an issuing body ;
we have nothing to do with the currency. The
Bank, in their own capacity, have nothing to do
with the issue department ; they are merely the
agents to carry out an Act of Parliament." And
to question 474, " My view is that we have no
claim on the issue department at all, that the bank
department is perfectly separate from the issue de-
partment, and we can no more bring it (the bullion)
into the banking department than we can take any
other person's money."
On referring to the Act of 1844 (of which the
2d and 3d clauses are appended) no poi er is given
to the directors to dispose of the silver bullion,
so transferred, appropriated, and set apart for the
express purpose of providing the country with legal
tender money.
Should it be arguedthat as there is no prohibition
against selling the silver, the law permits it,
neither is there against selling the gold, and can-
celling the corresponding amount of notes ; but it
cannot, surely, have been the intention of the
legislature to empower a joint-stock company
(whose capital, by the way, is less than some rail-
way companies) to decrease the quantity and in-
crease the value of the legal tender money of the
country at their will and pleasure, to their own
advantage, and to the detriment of the com-
munity. If so, the interests of the two were
sure to be, as experience proves them to be, dia-
metrically opposite—the community requiring a

greater quantity of ready money, to carry on an
increasing trade, the Bank (as also the Act itself)
operating to make the quantity less. On the
passing of the Act the total amount of bank notes
in England was £36,982,942; in November, 1857,
it was reduced to £27,823,232. With a wholesale
trade more than doubled, the ready money basis
was diminished one••fourth !

It would be well, in order to test the legality of
the selling of the silver bullion, if one of the many
innocent sufferers by the panic were to bring an
action against the Bank for damages. Supposing
the proceeding even to be warranted by law, can
it be justified in equity, considering that the Bank
derives from the country (according to a paper
delivered into the committee by Sir G. C. Lewis)
"an average nett profit on the management of
issues and of the national debt of £247,000 P" and
much more in times of monetary pressure, when,
the rate of discount being above the average, they
are enabled to increase their dividend from 7 to 11
per cent:

To conclude—if the Bank of England bas nothing
to do with the currency, and nothing to do with
the issue department, as stated by the governor,
what right, legal or equitable, had the directors to
abstract silver from the issue department to the
value of £1,666,520, to cancel legal tender notes to
that amount, and deprive the country of so much
currency ?
Your opinion will be looked for with interest.—
I am, sir, your obedient servant,

\ HAMER STANSFELD.
The Grange, Burly, near Otley,
Feb. 10, 1859.

CLAUSES 2 AND 3 OF THE BANK CHARTER ACT OF 1844

Sec. 2.—On the :31st of August, 1844, " There shall be
transferred, appropriated, and set apart by the governors
and company to the issue department of the Bank of Eng-
land, securities to the value of £14,000,000, whereof the
debt due by the public to the said governor and company
shall be and be deemed a part ; and there shall also, at the
same time, be transferred, appropriated, and set apart by
the said governor and company, to the said issue depart. -
ment, so much of the gold coin, or gold and silver bullion
then held by the Bank of England, as shall not be required
by the banking department thereof ; and thereupon shall
be delivered out of the said issue department into the said
banking department of the Bank of England such an amount
of Bank of England notes as, together with the Bank of
England notes then in circulation, shall be equal to the
aggregate amount of the securities, coin and bullion, so
transferred to the said issuo department of the Bank of
England ; and the whole amount of Bank of England notes
then in circulation, including those delivered to the banking '
department of the Bank of England, as aforesaid, shall be
deemed to be issued on the credit of such, securities, coin,
and bullion, so appropriated and set apart to-the said issue
department; and from thenceforth it shall not be lawful
for the said governor and company to increase the amount
of securities for the time being in the said issue depart-
ment, save as hereinafter is mentioned, but it shall be law-
ful for the said governor and company to diminish the
amount of such securities, and again to increase the same to
any sum not exceeding in the whole the sum of 44,000,000,

and so from time to time as they shall see occasion; and
from and after such transfer and appropriation to the said
issue department, as aforesaid, it shall not be lawful for the
said governor and company to issue Bank of England
notes either into the banking department of the Bank of
England, or to any person or persons whatsoever, save in
exchange for other Bank of England notes, or for gold
coin, or for gold or silver bullion received or purchasedr r
the said issue department, under the provisions of this
act, or in exchange for securities acquired and taken in the
said issue department, under the provisions herein con-
tained, provided always that it shall be lawful for the said
governorand company, in their banking department, to
issue all such Bank of England notes as they shall at any
time receive from the said issue department or otherwise, in
the same manner in all respects as such issue would be
lawful to any other person or persons.
Sec. 3 fixes the proportion of silver bullion to be SY'
tamed in the issue department, and on which bank notes
may be issued at one-fourth part of the gold coin and bul-
lion, and not to exceed that proportion.

THE GLASGOW _REPORT ON THE
PANIC, WITH COMMENTS.

TO THE EDITOR OF THE SUN.

SIR.,—At a recent meeting of the Glasgow Chamber
of Commerce a report on commercial crises was pre-
sented by the Committee on Banking Laws. It
contained the following useful remarks on the sys-
tem of allowing interest on deposits :
" The best security against commercial convul-
sion is to limit credit (a). The nearer we come to
a cash business (b) the sounder will be our trade.
The comparative security of French commerce
during the late crises was, no doubt, greatly owing
to the modified nature of its credits ; and, on the
other hand, the disasters which overwhelmed the
commerce of America were as. certainly the result
of an exaggerated credit system. Everywhere the
stability of commerce is in an inverse ratio (c) to
the development of credit.. But the abuse of
mercantile credit could not exist to any great ex-
tent were it not fostered by the abuse of banking
credit. In our commercial system the credit given
by one trader to another depends mainly on the
credit given by bankers to traders (d). Traders
could not give excessive credits unless bankers sup-
plied them with the means. Imprudent banking
is at the root of all unsound trading. The great
fault of modern banking is the insufficiency of
reserves. Bankers, like traders, are bound to pro-
vide for their solvency (e) ; they must reserve ample.
means to meet their obligations, and in their case
any departure from this rule is the more inexcu-
sable that the proper amount of reserve (f) for
them to hold may be ascertained with almost
mathematical precision. But the desire of profit
or the urgency of their customers induces bankers,
in too many instances, to invest their deposits more
closely than prudence warrants: safety is sacrificed
for an additional per tentage of profit, the reserve
is allowed to fall dangerously low, and when a
time of pressure comes the bank has nothing to fall
back upon (g). This insufficiency of banking re-
serves is the immediate cause of our panics. When
pressure occurs our great money lenders are the
first to take alarm ; with enormous liabilities and
inadequate reserves of immediately available re-
sources (h), they feel that their solvency is endan-
gered, and their violent efforts to regain a position
of safety are the chief cause of disturbance in the
money market (i). Instead of lending to others,
they become themselves the most importunate Of
borrowers. They who should sustain credit are the
chief authors of discredit ; they who should inspire
confidence are themselves panic-stricken (k).
not the needy depositor or ignorant note-holder of
the provinces who causes our panics ; it is the mil;
lionaire money lender (/) of our great centres 01
commerce. One great cause of insufficient reserves
is undoubtedly the high rate of interest allowed
upon deposits. Such rates can only be paid and a
profit realised by a close investment of deposits.
Our trading credits rest mainly on accommodation
from the banks. The provincial banks deposit a
great part of their reserves with London bankers
on call. The London bankers again invest their
deposits closely, and trust mainly to advances
from the Bank of England in case of need,
while the Bank of England (nz) itself allows
its reserve in times of pressure to fall to
a trifling fraction of its deposits. Thus the vast
superstructure of British commerce rests ulti-
mately (n) on a mere trifle of reserved capital. Our
whole credit system is an inverted pyramid. Your
committee does not look for any legislative remedy
for the abuse of credit. The cure must be found in
the more honest ',And intelligent appreciation 0':
their duties (o) by all who either give or take
credit."
(a) "To limit credit" is to limit trade to the OA
amount that can be paid for prompt in sovereigns of nu'
weight.
(b) "The nearer we come to a cash business," i.e., „sole-
reigns of full weight business, the smaller will be our traue;
. (o) "In an inverse ratio," because all trade which caull°'
be paid for in sovereigns of full weight is liable to destra"
tion from panic or a run for gold.
(d) " Credit given by bankers to traders" depends 01
credit given to them by the Bank of England, which ere&
is curtailed when sovereigns of full weight are exported. ,
(e) " Solvency of bankers" is, how many sovereigns (ii;
full weight have you in your drawers to meet depositors
they should come to-morrow in a crowd ?
(f) "Proper amount of reserve" means the same thing'
(g) "Nothing to fall back upon," in the shape of WO'
reigns of full weight in the drawer.
(A) " Immediate available resources" means, how rasa
sovereigns of full weight have you in the drawer ?
(1) " Disturbance in the money market" means, ey__,,,,°l/
one running for sovereigns of full weight, which have Dilva.
exported.
foT
(k) " Panic-stricken" means, depositors runnino.
sovereigns of full weight which have "been (vide ba
notes) promised to be paid."
(1) " Millionaire money-lender ;" rather say the Bank,
England, which cannot pay its "promises to pay,'
sovereigns of full weight.
(m) "The Bank of England" has out this day 43 tat
lions of promises to pay sovereigns of full weight, and 11*'
in drawer only 19 millions.*
(n) "Rests ultimately" on a vanished quantity of soya'
reigns of the full weight, which have been exported.
(oes
means,
) The more
cut d
own h
t r
adoen honest appreciationthe small
moofu
ntheir
that dcuati
done in prompt payments of sovereigns of full weight.
* Notes or promises to pay out
Less notes in l2 ~

21 ~
Liabilities—
Public deposits 6 milliong.
Private deposits
Seven-day bills 1 ,F
•

43 P t
Sovereigns of full weight in both depart-
ments

Note:which the Bank cannot pay in sove-
reigns of full weight
I would ask these Glasgow luminaries, whether
it were better to sacrifice trade to gold, or to have
a paper money (I speak to Scotchmen, and ono:
trymen of Malachi Malagrowther), or one pant:
Exchequer bills, not promising to pay gold, an
increasing in quantity as trade and population
increased ?