The Sun.
London, England, 1844-01-30 00:00:00

THE SUN, LONDON, TUESDAY EVENING, JANUARY 30, 1844.

CURRENCY.
TO THE *EDITOR OF THE SUN.
SIR—In a letter published by you some time ago,
you invite the attention of all parties to the conside-
ration of the renewal of the Bank charter; and you
dwell upon the dismal effects which have proceeded
from its management. Upon the almost incalculable
importance of a system of money, at once abundant
and secure, in its bearings upon the capital and in-
dustry, the agriculture and commerce, the revenue
and debt of the country, there is not, I suppose, any
doubt, in any quarter. But whether the fault of the
present system proceed from the mismanagement Of
the Bank Directors, or from the wrong position in
which they are placed, is a point of some consequence
to be sure of. I will state, without much formality,
and as shortly as I can, wherein, as it appears
to me, the evil consists, and what will be
the remedy. The evil proceeds from the depend-
ence of the circulation of commerce upon the precious
metals. The remedy will be in causing it to depend
upon fixed capital. By the circulation of commerce,
I mean that business which passes betwixt dealer
and dealer, so long as any commodity continues to
form a part of the circulating capital of the country.
What passes between dealer and consumer—the cir-
culation of consumption, is another affair. But it is
from not duly conceiving of the essential difference, in
principle, between those two branches of circulation
that the evils of which you speak have arisen. In
the circulation of consumption it is essential that the
buyer, or consumer, give to the dealer, or seller, a
real equivalent—something of equal value to the
article to be consumed, as gold or silver coin, or notes
convertible into them ; because that is the only
safe condition upon which the dealer can carry on his
business for any length :of time. A shopkeeper who
sold all upon credit would soon have done. The
articles he deals in being placed in the stock set aside
for immediate consumption, no longer form any part
of the circulating capital of the country ; and, there-
fore, cease to be articles of commercial exchange. So
far every man is instructed by common experience.
But, in the transactions between dealer and dealer,
that is in the circulation of commerce, the case is es-
sentially different. In that the commodities, al-
though changing hands, are not consumed, and they
do in themselves form the true basis of commercial
circulation. The proper idea of it is the transfer from
one man's obligation to the shoulders of another, as
the commodities themselves change hands. This is
done by the operation of credit. And the instrument
of commercial credit is an acceptance by the party re-
ceiving the commodity, or a draft upon a third person.
So long as the idea of the commodity and responsibi-
lity shifting together is preserved in the mind, there
can be little difficulty in apprehending how the com-
modity is the real basis and equivalent of the respon-
sibility—and that, as often as the commodity changes
hands, the responsibility should shift with it—which
is, as has been said, the proper notion of commercial
circulation. But, as in the variety and complication
of mercantile affairs the certainty of the two being
together cannot be known, it is necessary,in relieving
one man's responsibility, to bring forward a third
party, who will certify that all is right—which is
meant by discounting. Still it is, if properly under-
stood, an operation of credit, and not of money. Nor
is there any need of money appearing at all in a
well arranged commercial circulation. That this is the
fact will appear, even from considering the present
mode of business, faulty as it is in one particular.
When a merchant of Liverpool provides for his ac-
ceptances, whether directly or through his banker, it
is not with money—gold and silver, or bank notes—
that he provides, but with other paper, the -circulat-
ing credit of other men. Perhaps, if all the gold, and
silver, and bank notes were forwarded by railway at
once, they would not be sufficient to meet the en-
gagements of Liverpool in London for a single day.
Yet its engagements are fulfilled ; its bills are paid,
without the provision of one farthing !! ! How, then,
are the London bankers to liquidate the thousand
millions which they have yearly to pay, when it
forms no part of their system to make advances at
all ? How is the enormous wheel of circulation kept
in motion, but by the impelling power of credit ?
But perhaps the London bankers do advance the
money. They do so in part, and only in
a small part. The far greater part of
the business is settled by means of what
may be not inaptly termed that fiction in com-
merce, the clearing house, where one banker, at the
close of the day, sets off his claims against another.
Although nineteen-twentieths of the commercial cir-
culation is so settled without the use of money, yet
there is not any part of it of which it can be abso-
lutely predicated that it will not be called for in
money. Money, therefore, to some amount, must be
provided. Whilst matters go on smoothly the pre-
sent system works well—every man of credit can
meet his engagements with comfort. But now comes
the'radical defect of the present system. The Bank
of England is liable to pay all its notes in gold and
silver. When, therefore, any cause reduces its
stock of bullion, it is driven to reduce its accommoda-
tion, until the scarcity of money, and the consequent
high rates of interest, make it for the interest of par-
ties to keep their money at home. All other in-
terests are put out of sight to secure the Bank's own
safety. The regular circulation of commerce is
thrown into disorder, and that frightful overthrow
of the best-laid schemes follows, of which you
speak. When the sum of Bank notes is diminished,
by the lessening of the stock of bullion, common
sense would suggest the propriety of increasing the
issue upon other securities. For it is no necessary
consequence, that the wants of commercial circu-
lation diminish as the stock of bullion diminishes.
Contrariwise, that is the time when the greatest spur
should be given to the productive industry of society,
the greatest facilities afforded to the wants of com-
mercial interprise, to increase and circulate at home
and abroad the. exchangeable produce of the industry
of the country, At present the order is reversed.
The Bank of England is most ready to accommodate
when accommodation is least wanted ; and when it is
wanted, she tightens the screw. Whether a com-
mercial circulation of more than a thousand millions
annually, shall proceed or not in its regular course, is
made to depend upon the presence or otherwise of a
few millions of the precious metals. If, indeed, they,
as a portion of the circulating capital of the commer-
cial world, were indispensible for the completion, for
the perfect working of its circulation, it might be im-
possible to get over the inconvenience of their absence ;
but when it is notorious that they do not, whether pre-
sent or absent, enter into such circulation, is it not worse
than folly to make the wholesome circulation of com-
merce depend upon them ? Still I presume not to
blame the Bank. The fault is not with it; but is
owing to the false position it is placed in. When the
stock of bullion is much reduced, no other course is
open to it, whatever individual suffering is entailed.
thereby. And so long
as the circulation of con-
sumption, which cannot be otherwise based, with
safety, than on the precious metals, so long as the
circulation with foreign nations, which must depend
altogether upon the precious metals, and the circula-
tion of commerce at home are carried for-
ward by the same way, the community will
be exposed to like periodical returns of those
evils which have occurred within the last fifty years.
Perhaps there was a time when the present systemof
money might have been adequate to the wants of the
country. Amidst the stupendous and almost bound-
less extent of its commercial relations at the present
.day, it is utterly defective. There is now wanting a
great commercial road, so to speak, capable of car
rying on it the whole internal commerce of this
great country always safe and always open. And
that road must be formed upon the solid ;ground of
its fixed capital, and not upon that unstable portion
of its circulating capital, its silver and gold, which is
here to-day and gone to-morrow.
My object and design is to introdtice and establish
a fresh system of discounting—that is, of circulating
commercial credit, whereby greater security and
greater facility shall be given than exist at present.
The end is the same, the mode different. I seek to
establish that power amongst themselves- which mer-
chants and manufacturers have now to seek for in
London, and often to seek for in vain, or under
most embarrassing and ruinous circumstances. I
seek to make their own fixed capital the instrument
of circulating their credit, instead of being dependent
upon the monied interest, as at present, for that pur-
pose. The circulation of commerce, implying the
transfer of one man's liability on to another, as the
commodities are transferred, all that is required for
that purpose is an establishment whereat each man's
credit, at the moment of transferring his own liability
on to his neighbour's shoulders, shall be as-
certained in an assay room, as it were, when
the value of every man's provision to Meet his
engagements shall be tested. Of such a nature
was the Bank of Amsterdam in its ori-
ginal intention, as- detailed by Adam Smith. A
certain portion of the circulating capital of Amster-
dam was converted into a fixed capital. The money
deposited in the vaults of the Bank circulated no
longer, no more than if the whole had been laid out
in a railroad. The intention of that Bank in issuing
its bank money, as it was called, was not to pay bills
in reality, but to furnish a standard of value, accord-
ing to which merchants having bills to pay had to
provide. Whatever might be the nature of that pro-
vision which satisfied the holder of Bank money, the
merchant payer having received the amount he
needed, was thereby enabled to meet his bill with
Bank money. But nothing was paid by the Bank.
The bill had been provided for out of the Bank, and
the transfer in the books of the Bank, or the pos-
session of Bank money, was a certificate that provision
had been made according to that standard by which
all bills were required to be paid. Perhaps the prin-
ciple of that Bank's operations has not been always
understood. However, it is enough for my present
purpose in showing how a fixed capital was made the
means of ascertaining the circulating commercial
credit of Amsterdam. Moreover, it is obvious that
the only use of the bullion, or coin, lying in the