The Liverpool Standard and General Commercial Advertiser.
Liverpool, Merseyside, England, 1848-02-01 00:00:00

LETTER TO SIR R. PEEL ON THE CURRENCY.

BY ADAM HODGSON, ESQ.*

The views of a gentleman possessed of the great mer-
cantile experience of Mr. Adam Hodgson, upon the
important question of the currency, and the effect of our
present banking system in producing the recent commer-
cial disasters, will naturally be regarded with great Wen.;
tion by the whole commercial community. Mr. Hodgson
is known to be a clear-headed and impartial observer of
events. He has no crotchets to bias him in the verdict
which he may give on this or any other subject which
may come under his investigation ; and we may depend
upon his giving his decision " according to the evidence."
There is, moreover, a peculiar weight to be attached to
Mr. Hodgson's conclusions as to the working of the act
of 1844, and its influence in producing or aggravating the
severity of the recent commercial crisis. He has been for
some time, and was during the whole pressure, one of the
confidential directors of the Bank of Liverpool—an esta-
blishment second in the magnitude of its operations to
few, if any, private banks ; and, necessarily, the whole
series of events and their causes, which resulted in the
suspension of that bank, and the commercial stoppages
which followed, came under his minute notice. He may
say of all its struggles to avoid such a calamity and their
failure, " quorum pars magna fui" ; and very reasonably
claim to be as much an authority on the part of the com-
mercial public, as any Bank Director or Chancellor of the
Exchequer can be an authority on the part of the Bank
of England or the act of 1844.
Mr. Hodgson commences his letter by recalling to the
recollection of Sir Robert Peel the opinions expressed by
the right hon. baronet at an interview with him in April
last, when it was allowed by him that although " the
state of the exchanges admitted of no increased issues by
the Bank, he thought the policy of the directors should
be to ease off as much as possible, as particular cases
arose ; and thus, as far as practicable, to mitigate the
pressure." Similar opinions were expressed at the same
time at interviews had with the Chancellor of the Exche-
quer and Lord John Russell ; and, at their intervention,
the Bank consented not to diminish discounts to the ex-
tent and with the rapidity which had been announced.
The premature alarm was thus checked ; and Mr. Hodg-
son stated, in a note addressed on the 15th May to Lord
John Russell, that by such concession " many stoppages
of rich houses (in Liverpool), well provided with bankers'
bills, were averted." He stated further, in that letter,
" Had no relaxation taken place, an extensive and most
gratuitous crash would have occurred a fortnight since."
Mr. Hodgson proceeds to canvass the assertions of Sir
Robert Peel in his speech of the 3d December last, that
the act of 1844 had succeeded in two out of the three
main objects for which it was enacted. We give Mr.
Hodgson's views upon this part of the question in ex-
tenso

" You assume, in your argument, that the Act of 1844
prevented the suspension of specie payments ; but this is
to assume, that the balance of trade and of payments
would not, under such a degree of pressure as the dis-
cretion of the Bank might suggest, have been restored by
the ordinary operations of commerce before the whole of
the treasure in their vaults had been demanded for export.
It is to assume, that when the exchanges had been already
turned by the stringency of previous measures, a moderate
increase of issues would again have deranged them,
instead of merely repairing, in some slight degree, the
confidence which had been shattered ; would have acted
as a dangerous stimulant to an inflammatory constitution,
instead of merely reviving expiring vitality in the last
stage of exhaustion. It is to assume, that while in De-
cember, 1825 the Bank was saved by an increase of issue
of £7,600,000, in fourteen days, the additional issue of
two or three millions in September, 1847, would have
been fatal.

" This is to beg the whole question at issue ; and
although it is possible you may be right, it is possible also
that you may be wrong.
" The opponents of the Bill assume, that if the Bank
had been left to its discretion, it would have acted on the
currency with sufficient force to rectify the Exchanges,
and secure the safety of the Bank, without inducing that
intolerable pressure which has paralysed industry and
enterprise; overwhelmed solvent houses in the common
ruin, by forcing down prices with an intensity and con-
tinuance wholly gratuitous ; broken up the channels of
commerce, and fatally interfered with that export of our
manufactures by which the balance of trade with foreign
countries is maintained or restored. _ . _

__"This assumption begs the question on the other side,
and I am strongly of opinion that no evidence that can
be brought before the committee can substantiate the
assumptions on either side. They are founded on antici-
pations of the future, as well as on experience of the
past ; on what it is taken for granted would have taker,
place, in contingencies which have not happened, and
under hypothetical combinations of circumstances which
have not occurred.

'lam also of opinion that, whatever be the merits of
the Bill on the whole, (and on this subject thoughtful
and intelligent men of experience arc much divided,) its
affirmation, or modification, or repeal by Parliament, is
of less importance, than the adoption of other and
broader measures, connected with the currency and its
administration. Few persons who have attended to the
subject are disposed to question the soundness and value
of the general principles on which your Act was founded.
They had been admitted, in theory at least, by the most
influential Directors of the Bank of England, but practi-
cally they had often been violated by that institution
before the Act of 1844, and practically have been, till too
late, as little regarded under the operation of that Act ;
for I entirely agree with you, ' that it was in the power of
the Bank, had it taken early precautions, if not to pre-
vent all the evils that have arisen, at least greatly to
mitigate their force.'

' The Bill, however, in fact, has not preserved us from
a pressure and panic unprecedented in their intensity.
" It has not secured the practical adoption by the Bank
of England of the sound principles which it embodies, at
least, till the moment when to adopt and adhere to them
was so perilous that Government was compelled to inter-
fere.

" And, not the Bill, but the suspension of the Bill,
has in all probability alone prevented the Bank from stop-
ping payment ; for if (as at one time appeared probable,)
the convictions of the Government had yielded to the
evidence of the irresistible necessity of interference,
twelve hours too latc,—if the bankers had withdrawn
their deposits, and the Bank had been driven to force its
securities on the market, by violent sales at any price, a
rush for gold would almost certainly have taken place,
partly from general panic, and partly from the impulse of
self-preservation, urging the bankers, and others through-
out the country, to hurry to the Bank while yet there was
time, to exchange their large reserves of bank-notes
which would have ceased to be a legal tender the moment
the Bank had stopped, for that gold by which alone, in
that case, their obligations could be legally discharged."

After remarking upon the danger of a sudden drain
upon the Bank thus occasioned, which he thinks has been
too lightly regarded, Mr. Hodgson proceeds to contend
that the committee ought not to confine its inquiries to
the effects of the Bill during the late panic, but ought to
extend them to the best means of placing the currency
upon a sounder foundation than it has hitherto possessed.
We must give also his views as to what that system ought
to be, in his own words :

" The radical defect of our system appears to be, the
narrowness of our metallic basis. 'You justly observe,—
' In this country you choose to erect a greater superstruc-
ture 'of paper currency, and paper credit, upon a smaller
metallic basis than in any nation of Europe.' And you
add, know you will not go to the expense of greatly
widening the basis of your currency.'
" But why should this conclusion be hastily adopted ?
The opinion is rapidly gaining ground, that no reasonable
extension of our metallic basis would, comprehensively
considered, and on an average of years, be so expensive
as these frequent panics and their consequences ; and that
although no legislation can prevent individual imprudence
and wanton speculation, and occasionally, perhaps, a too
general extension of credit, that system can neither be
economical nor wise, which, on every occasion of a con-
' siderable export of the precious metals, leads to derange-
ment and wide-spread ruin throughout the commercial
community. lam quite aware, that when an extensive
failure of our crops requires an import of grain, the
balance of our trade, with the countries from which we
receive it, must be disturbed, unless we have something
beyond our ordinary exports, wherewith to settle the ac-
count ; but I think the school of Political Economists,
with which 1 generally agree, push their conclusions too
far, or err in the application of their principles, when they
assume that we have only to beat down prices by a vio-
lent action on the currency, and that we shall create an
increased and almost simultaneous demand for our ma-
nufactures and native productions. commensurate with
our newly created want of grain.
" I think, also, that the effort to rectify the Exchanges
at once, by a forcible and violent action on prices, has
been productive of mischief purely gratuitous, in cases
where, with moderate restriction, they might have been
restored, in a reasonable time, by the ordinary operations
of commerce, without a commercial convulsion.
" It is surely deserving of deep and anxious enquiry,
whether the loss occasioned by the providential visitation
of a bad harvest does really involve the necessity of en-
tailing on the country twenty or thirty times the amount
of that loss, by the derangement of 6ur currency, or
whether the plan of an adequate reserve against contin-
gencies is not the cheaper plan of the two. At least, let
-the subject of the comparative expense of a wider metallic
basis, and of commercial indulgencies, be fairly investi-
gated, before it is assumed that the country .will not bear
the expense of a metallic basis more nearly approximat-
ing to that of the currency of other countries ; and at all
events let us try what the Bank can really do, when Go-
vernment has restored to it the actual use of its capital.
Had the Bank had in its vaults the eleven millions lent
to Government when the late very unusual export of gold
became necessary for the payment of grain, the balance
of trade might have been adjusted with little degrange-
ment of our ordinary commerce, and our exchanges kept
in order, with a very moderate action on the currency ;
or, had two millions of that capital been invested in foreign
funds in 1839, we should have been spared the humiliation
of owing the safety of our National Bank to the Bank of
France."

After expressing his concurrence in the expressed sen-
timents of Lord John Russell, as to the anomalous con-
stitution of the Batik of England, whose directors have
on the one hand to protect the public interests, and on
the other to advance the profits of. the holders of Bank
stock, Mr. Hodgson concludes his very, able letter by
thanking Sir Robert for hiS efforts to preserve the me-
tallic, standard of our currency, and expressing.a hope
that' the principle of the Act of 1819 will never be vio-
lated, but that, by enlarging our metallic basis,. much of
the misgiving reverting the Act of 1844 will be removed.-

PubliOled by W. Webb, Costae-street..