The Sun.
London, England, 1857-06-04 00:00:00

THE BANK CHANTER ACT.

"`!'hat the Bank Charter Act of 1844 makes money dear
iS not a fallacy but a reality, is not a fancy but a fact",

, -
TO THE EDITOR OF THE ECONOMIST.
Sir,—Begarding you as one of the highest autho-
rities on the subject of the currency, and the first
in point of influence, from your political and offi-
eial position, arid you being a member of the com-
mittee appointed by the House of Commons to in-
quire into the operation of the Act of 1844, I was
somewhat dismayed on reading the article in the
Economist of the 16th May (which being on the
Continent on account of health, I have only just
had the opportunity of doing), to find that you ab-
solve that Act from being in any degree instrumen-
tal in making money dearer. Such an opinion
would be " a heavy blow and great discourage-
ment" to those who consider that Act to be a curse
to the country, were it as sound as your published
views on the currency usually are—so clear that
those who run may read—hut, with all deference,
I would submit that on this point you are mis-
taken, and trust you wilt allow me to state a few
reasons for differing from you—explained more at
length in a pamphlet I sent you, entitled "The
Bane and Antidote of our Monetary System."
Is it correct to attribute, as you do, the rate of
discount entirely to the supply of floating capital ?
If Bank of England notes, constituting the bulk
of our legal tender money, and the supply of
which in proportion to the demand determines the
rate of discount, were issued solely against gold,
truly representing capital, then such an asser-
tion would be correct. But if we examine
into the charactet- of Bank of England notes, we
shall find that when the circulation is twenty
millions, about fourteen millions are issued against
Government securities and six millions against bul-
lion, i.e., fourteen millions representing the credit
of the nation, the capital having been borrowed
and spent long ago by the Government, and six
millions representing capital (bullion). The basis
then of our monetary system, our legal tender
money, is not capital alone, but capital and credit.
Now, ae. the Act of 1844 not only restricts but
actually curtails the quantity of notes issued
against credit, and prevents any addition to those
issued against bullion, inasmuch as the Bank of
England gains nothing by such issues—is it not
evident that, as the expansion of trade requires more
bank-notes, the rates for their use must advance
and money become dearer? You infer that be-
cause the notes in circulation in June and Octo-
ber, 1855, were nearly the same in amount, whilst
the bullion had diminished some seven millions,
and the rate of discount had advanced from 3i to
7 'per cent. ; that the' withdrawal of bullion was
the cause of the advance in the rate—true enough,
because the legal tender notes issued against bul-
lion were diminished to that extent, but the effect
on the rate of discount would have been just the
same had no decrease of gold taken place, if the
same amount of notes issued against securities had
been cancelled by some arbitrary law, like that of
1844; the supply of legal tender money would have
been equally diminished either way, and on the
demand and supply of legal tender money, and
net on that of capital alone, I submit, depends the
rate of discount.
With countries having a different monetary basis
no just comparison can be made ; take Hamburg
for example, to which state you refer. The mone-
tary
basis there, upon which their rate of discount
depen is, is silver alone ; this is deposited in .the
vaults of the Bank by parties opening accounts,
and discount transactions are effected by written
transfers from one to another without touching the
silver. Should, however, the silver, from any ex-
traordinary rise in price, be abstracted from the
vaults, the fund for discount is diminished, and the
rate rises. The same with Holland, whose mone-
tary basis is also silver, whilst ours is a legal
tender money based on credit tenfold. In France
the notes of the Bank of France are not a legal
tender, but being convertible into gold or silver
on demand; the public receive them voluntarily
in discharge of debt. The monetary basis, there-
fore varies in different countries, and experience
I think will show that the broader and sounder
the basis in proportion to the transactions, the
steadier and lower will be the rate of discount.
In support of these arguments, to show that the
rate of discount does not depend solely on the de
mand and supply of floating capital, I would ad-
duce the fact that for 140 years previous to the Act
of 1844, the Bank of England, notwithstanding the
great vicissitudes in the supply and demand of
capital which must have occurred during that
period never raised their rate above 5 per cent.,
and, again, that when the Government letter in
the panic of 1847, authorised an additional issue
of notes against securities, the rate of discount fell
without any increase whatever of floating capital
in the country. Let me add to these arguments
and facts the opinion of Mr. Tooke, than whom no
hier authorit on prices exists, who says in his
"History of Prices," vol. 5, page 573. "Indeed,
looking at the circumstances of the whole period
from January 1848, to the autumn of 1855, I am.
strongly of opinion that the uniform rate of
4 per cent. might have been preserved greatly to
the convenience not only of . the mercantile and
banking community, but of the _public generally."
I cannot conclude without expressing my grati-
fication at the protest in the money article of your
journal of the 23d May, against the needless pro-,
tection to currency, and having myself for years
tried in vain to rouse the attention of the mercan-
tile community to the advantages of the trade in a
sound currency, adopting as a maxim, "Take care
of the quality, insuring the convertibility of the
note into gold, but leaving the quantity to take
care of itself," I shall with pleasure anticipate
greater success from your powerful advocacy of
that principle.
I am, Sir, your obedient servant,
HAMER STAN SFELD.
Burley, near Otley, May, 1857.