XXI. 1826. classes of the community-those to whom the possession CHAP. of a one-pound note is comparative riches. And when, from the scanty earnings of hard labour and persevering economy, they have amassed three or four pounds, how can they now lay it by but in that kind of money? We have been told, and told truly, that in many districts these notes constitute the whole circulating medium. what, therefore, must the poor man put his trust but in In that paper; 10. "Till small notes are suppressed, this most desirable result never can take place. Experience has proved that, Continued. however plausible in theory that pari passu circulation of notes and specie may be mutually exchangeable, in practice it cannot exist. The one inevitably destroys the other. People all prefer notes to coin; for what reason it is difficult to say, but the fact undoubtedly is so. If crown notes and half-crown notes were issued, crowns and half-crowns would disappear; and if one-pound notes are to be allowed to continue to circulate, sovereigns will XXI. 1826. CHAP. speedily become a rarity. There never was a gold circulation in general use in the country, except in Lancashire, where no country notes existed; and when, in 1822 and 1823, the Bank of England was most anxious to supply the country with gold, the sovereigns sent down by one coach returned by another. Great sacrifices had already been made to effect the introduction of even a partial metallic currency in the country, and these sacrifices had been made in vain. A large supply of gold had been obtained at a great expense, and it was got only that we might see it depart, and be compelled to purchase it again at a double expense. The currency of the country can never be placed on a solid basis unless country banks are prohibited from issuing notes, except such as are of a considerably higher denomination than the current coin, so as to save it entirely from the competition of the paper currency. 11. "The principle of the measure, therefore, can be Concluded. resisted only by those who maintain that the pecuniary interests will be best secured by proscribing a metallic currency. Its necessary effect will be to give solidity to the banks themselves, by compelling them to maintain a portion of their circulation in gold instead of worthless paper, and thus avoid those ruinous runs which have proved fatal to so many of the most respectable establishments. It will prevent the widespread misery which such failures now induce, for the savings of the working classes will be laid by in specie; and as it will form the chief medium of circulation, the greatest panic cannot produce a run. Let the Bank of England retain in its coffers as much gold as may be necessary for the ordinary circulation of the country, for the exigencies of Government, and to enable it to adjust an unfavourable state of foreign exchanges. Let every country bank Ann. Reg. be governed by the same rules, and compelled to keep an 1826, 9, 11, amount of gold proportioned to its operations; and this will not only give them security, but occasion a sensitive 1 Parl. Deb. xv. 170, 174, 218; 13, 15. XXI. ness to occurrences likely to cause a pressure on the CHAP. country banks, which will tend to the security of the whole kingdom. The issues will be kept within due bounds, and the gold will be kept within the kingdom." 1826. 12. against the measure. On the other hand, it was argued by Mr Baring, Mr Heygate, and Mr Gurney, all great mercantile men- Argument "The proposed measure is alike inadequate to meet the proposed evils complained of, and ill suited to the present state of the country. What is the cause of the embarrassment now so generally felt by all classes? Is it not the sudden contraction of the currency, and consequent destruction of credit at the close of last year? And what remedy does Government propose for the evil? To contract it still more. Taking the currency at £20,000,000, and the chasm produced by the recent failures in it at £3,500,000, the proposed measure will produce a further chasm to the extent of £7,000,000, with which it will be impossible to carry on the commerce of the country. The postponement of the suppression of small notes for three years is no alleviation, but rather an aggravation of the evil, for it is the nature of the human mind to exaggerate impending evils: nothing is so bad in reality as it appears in prospect. The country bankers, having the suppression of small notes hanging over their heads, must, as a matter of necessity, contract their issues, and this can only be done by refusing accommodation to their customers, and calling up such advances as they have already made. This will of necessity stop industry in numberless channels. This stoppage is what is now going on, and the proposed measure will seriously tend to aggravate it. The extent to which this evil is spreading no man living can estimate, and it will probably lead to consequences which none can contemplate without horror. How is the gap which is to be made in the circulation to be filled up and if it is not supplied, how is the industry of the country to be supported? As a measure of present ? XXI. 1836. 13. CHAP. relief, the proposed measure is unwise and inappropriate; as a measure of prospective security it will be nugatory. "The country bankers, of whose improvidence and Continued. mad speculation so much is said, are in truth the only persons who have not speculated, and who have exerted all their influence to arrest the spirit of speculation among their customers. A prudent regard for their own safety forced this course of conduct upon them. Where did the extravagant speculation which has been attended with such ruinous consequences originate? In Manchester and Liverpool, a district in which, as well as all Lancashire, no small notes at all were in circulation. Where did it next spread, and assume its most dangerous aspect? In the Stock Exchange of London, a city in which, and for sixty-five miles around, no bankers' notes can be issued. In 1720, the only year in which wild speculations at all similar to those of the last year prevailed, there were no country banks or bankers' notes; and in 1797, when the run took place upon the banks, which rendered the suspension of cash payments a matter of necessity, there were not only no country small notes, but no Bank of England small notes in circulation. It was the failure of the seven great bankers in London, in whose hands the bills of more than a hundred country bankers had been placed, which occasioned the greater part of the country failures; and had it not been for the solidity of the country bankers, the catastrophe would have been far greater than it actually was. So far from the country bankers having begun the mischief, and their notes having been the means of spreading it, it was the merchants and capitalists of Liverpool, Manchester, and London, without small notes, who began it, and the small notes of the country bankers were only brought in at the close of the day to arrest its devastation. 14. "The embarrassments which have been experienced Continued. are always ascribed to over-trading; but there is a great deal of injustice in this imputation. By far the greater part of it is to be ascribed to the fluctuations in the currency, which no prudence on the part of the mercantile classes could avert, and no wisdom foresee. In 1823 and 1824, the Bank had accumulated a very great treasure, amounting at one time to £14,000,000, in their coffers; and their circulation was proportionally extended, which, as a matter of course, led to a proportionate increase of the country bankers' issues, which always increase with those of the Bank of England. In consequence of the quantity of money thus thrown into the market, interest fell to 4 and 3 per cent; and of course, as it could be got on such easy terms, speculations of all sorts were proportionally extended. This ere long led to a run, as such a state of things must always in the end do, on the Bank for gold to carry on the immense undertakings thus set on foot, great part of which were in distant countries, and could be conducted with nothing else; and then the Bank, in its own defence, was compelled suddenly and violently to contract its issues. The banks were compelled to do so, for the first duty of the directors is to look after their own interests; but still the consequences were the same. The London bankers, hard pressed themselves, called upon their correspondents in the country, who again called upon their customers, and soon every creditor came to take his debtor by the throat. Then came the panic, which in such circumstances was inevitable, and the Bank was too much fettered by its engagements with and advances to Government to be able to afford the public any relief. That is the simple account of the whole catastrophe, and what had the country bankers to do with inducing it? So far from their having had any share in bringing it about, they were its first victims; and the real cause is to be found in the monetary operations of the metropolis, where their notes did not circulate, and with which they had no concern whatever. "The distress which the crisis produced, and which CHAP. XXI. 1826. |