1. It appears from the accounts laid before the Committees upon the Bank affairs in 1797, that for several years previous to the year 1796, the average amount of Bank Notes in circulation was between 10,000,000l. and 11,000,000l. hardly ever failing below 9,000,000l. and not often exceeding to any great amount 11,000,000%. The following abstract of the several accounts referred to your Committee, or ordered by your Committee from the Bank, will shew the progressive increase of the Notes from the year 1798 to the end of the last year. may be pointed out to check and control | of England paper, your Committee will its consequences, such as are indicated by explain the reasons which induce them to the effect of an excessive issue upon exthink that the numerical amount of that changes and the price of gold. The di- paper is not alone to be considered as rectors of the Bank of England, in the decisive of the question as to its excess; judgment of your Committee, have exer- and before stating the amount of councised the new and extraordinary discre- try Bank paper, so far as that can be tion reposed in them since 1797, with an ascertained, your Committee will explain integrity and a regard to the public in- their reasons for thinking, that the amount terest, according to their conceptions of it, of the country Bank circulation is limited and indeed a degree of forbearance in by the amount of that of the Bank of turning it less to the profit of the Bank England. than it would easily have admitted of, that merit the continuance of that confidence which the public has so long and so justly felt in the integrity with which its affairs are directed, as well as in the unskaken stability and ample funds of that great establishment. That their recent policy involves great practical errors, which it is of the utmost public importance to correct, your Committee are fully convinced; but those errors are less to be imputed to the Bank directors, than to be stated as the effect of a new system, of which, however it originated, or was rendered necessary as a temporary expedient, it might have been well if parliament had sooner taken into view all the consequences. When your Committee consider that this discretionary power, of supplying the kingdom with circulating medium, has been exercised under an opinion that the paper could not be issued to excess if advanced in discounts to merchants in good bills payable at stated periods, and likewise under an opinion that neither the price of bullion nor the course of exchanges need be adverted to, as affording any indication with respect to the sufficiency or excess of such paper, your Committee cannot hesitate to say, that these opinions of the Bank must be regarded as in a great measure the operative cause of the continuance of the present state of things. IV. Your Committee will now proceed to state from the information which has becen laid before them, what appears to have been the progressive increase, and to be the present amount of the paper circulation of this country, consisting primarily of the notes of the Bank of England not at present convertible into specie; and, in a secondary manner, of the notes of the country bankers which are convertible, at the option of the holder, into Bank of England paper. After having stated the amount of Bank Average amount of Bank of England Notes in circulation in each of the following years: 1798 1799 1800 1801 1806 1807 Notes of £. 5. and Notes under £5. Total. £. £. £. 11,527,250 1,807,502 13,334,752 12,408,522 1,653,805 14,062,527 13,598,666 2,243,266 15,841,932 13,454,367 2,715,182 16,169,594 13,917,977 3,136,477 17,054,454 12,983,477 3,864,045 16,847,522 12,621,348 4,725,672 17,345,020 12,697,352 4,544,580 17,241,932 12,844,170 4,291,930 17,135,400 13,221,988 4,183,013 17,405,001 13,402,160 4,132,420 17,534,580 14,133,615 4,868,275 19,001,890 Taking from the accounts the last half of the year 1809, the average will be found higher than for the whole year, and amounts to 19,880,310. The accounts in the Appendix give very detailed returns for the first four months of the present year, down to the 12th May, from which it will be found that the amount was then increasing, particularly in the smaller Notes. The whole amount of Bank Notes in circulation, exclusive of 939,990. of Bank Post Bills, will be found on the average of the two Returns for the 5th and 12th May last, to be 14,136,610. in Notes of 51. and upwards, and 6,173,380. in Notes under 51. making the sum of 20,309,990l. and, in cluding the Bank Post Bills, the sum of 21,249,9801. By far the most considerable part of this increase since 1798, it is to be observed, has been in the article of small notes, part of which must be considered as having been introduced to supply the place of the specie which was deficient at the period of the suspension of cash payments. It appears however that the first supply of small notes, which was thrown into circulation after that event, was very small in comparison of their present amount; a large augmentation of them appears to have taken place from the end of the year 1799 to that of the year 1802; and a very rapid increase has also taken place since the month of May in the last year to the present time; the augmentation of these small notes from 1st May 1809 to the 5th of May 1810, being from the sum of 4,509,470l. to the sum of 6,161,020l. The notes of the Bank of England are principally issued in advances to Government for the public service, and in advances to the merchants upon the discount of their bills. Your Committee have had an account laid before them; of advances made by the Bank to Government on land and malt, Exchequer Bills, and other securities, in every year since the suspension of cash payments; from which, as compared with the accounts laid before the Committees of 1797, and which were then carried back for 20 years, it will appear that the yearly advances of the Bank to Government have upon an average, since the suspension, been considerably lower in amount than the average amount of advances prior to that event, and the amount of those advances in the two last years, though greater in amount than those of some years immediately preceding, is less than it was for any of the six years preceding the restriction of cash payments. With respect to the amount of commercial discounts, your Committee did not think it proper to require from the Directors of the Bank a disclosure of their absolute amount, being a part of their private transactions as a commercial Company, of which, without urgent reason, it did not seem right to demand a disclosure. The late Governor and Deputy Governor however, at the desire of your Committee, furnished a comparative scale, in progressive numbers, shewing the increase of the amount of their discounts from the year 1790 to 1809, both inclusive. They made a request, with which your Committee have thought it proper to comply, that this document might not be made public; the Committee therefore have not placed it in the Appendix to the present Report, but have returned it to the Bank. Your Committee however have to state in general terms, that the amount of discounts has been progressively increasing since the year 1796; and that their amount in the last year (1809) bears a very high proportion to their largest amount in any year preceding 1797. Upon this particular subject, your Committee are only anxious to remark, that the largest amount of mercantile discounts by the Bank, if it could be considered by itself, ought never, in their judgment, to be regarded as any other than a great public benefit; and that it is only the excess of paper currency thereby issued, and kept out in circulation, which is to be considered as the evil. But your Committee must not omit to state one very important principle, that the mere numerical return of the amount of Bank notes out in circulation, cannot be considered as at all deciding the question whether such paper is or is not excessive. It is necessary to have recourse to other tests. The same amount of paper may at one time be less than enough, and at another time more. The quantity of currency required will vary in some degree with the extent of trade; and the increase of our trade, which has taken place since the suspension, must have occasioned some increase in the quantity of our currency. But the quantity of currency bears no fixed proportion to the quantity of commodities; and any inferences proceeding upon such a supposition would be entirely erroneous. The effective currency of the country depends upon the quickness of circulation, and the number of exchanges performed in a given time, as well as upon its numerical amount; and all the circumstances, which have a tendency to quicken or to retard the rate of circulation, render the same amount of currency more or less adequate to the wants of trade. A much smaller amount is required in a high state of public credit, than when alarms make individuals call in their advances, and provide against accidents by hoarding; and in a period of commercial security and private confidence, than when mutual distrust discourages pecuniary arrangements for any distant time. But, above all, the same amount of currency will be more or less sure upon that of London. The Bank of England did not think it advisable to enlarge their issues to meet this increased demand, and their notes, previously issued, circulating less freely in consequence of the alarm that prevailed, proved insufficient for the necessary payments. In this crisis, parliament applied a remedy, very similar, in its effect, to an enlargement of the advances and issues of the Bank; a loan of exchequer bills was au thorized to be made to as many mercantile persons, giving good security, as should apply for them; and the confidence which this measure diffused, as well as the increased means which it afforded of obtaining Bank notes through the sale of the exchequer bills, speedily relieved the distress both of London and of the country. Without offering an opinion upon the ex-pediency of the particular mode in which this operation was effected, your Committee think it an important illustration of the principle, that an enlarged accommodation is the true remedy for that occasional failure of confidence in the country districts, to which our system of paper credit is unavoidably exposed. adequate, in proportion to the skill which the great money-dealers possess in managing and economising the use of the circulating medium. Your Committee are of opinion, that the improvements which have taken place of late years in this country, and particularly in the district of London, with regard to the use and economy of money among bankers, and in the mode of adjusting commercial payments, must have had a much greater effect than has hitherto been ascribed to them, in rendering the same sum adequate to a much greater amount of trade and payments than formerly. Some of those improve. ments will be found detailed in the evidence they consist principally in the increased use of bankers drafts in the common payments of London; the contrivance of bringing all such drafts daily to a common receptacle, where they are balanced against each other; the intermediate agency of bill-brokers; and several other changes in the practice of London bankers, are to the same effect, of rendering it unnecessary for them to keep so large a deposit of money as formerly. Within the London district, it would certainly appear, that a smaller sum of The circumstances which occurred in money is required than formerly, to per- the beginning of the year 1797, were form the same number of exchanges and very similar to those of 1793;—an alarm amount of payments, if the rate of prices of invasion, a run upon the country Banks had remained the same. It is material for gold, the failure of some of them, and also to observe, that both the policy of the a run upon the Bank of England, forming Bank of England itself, and the competi- a crisis like that of 1793, for which pertion of the country bank paper, have haps, an effectual remedy might have been tended to compress the paper of the Bank provided, if the Bank of England had had of England, more and more, within Lon- courage to extend instead of restricting its don and the adjacent district. All these accommodations and issue of notes. Some circumstances must have co-operated to few persons, it appears from the Report of render a smaller augmentation of Bank of the Secret Committee of the Lords, were of England paper necessary to supply the this opinion at the time; and the late godemands of our increased trade than might vernor and deputy governor of the Bank otherwise have been required; and shew stated to your Committee, that they, and how impossible it is, from the numerical many of the directors, are now satisfied amount alone of that paper, to pronounce from the experience of the year 1797, that whether it is excessive or not: a more sure the diminution of their notes in that emercriterion must be resorted to; and such agency increased the public distress: an criterion, your Committee have already shewn, is only to be found in the state of the exchanges, and the price of Gold Bullion. The particular circumstances of the two years which are so remarkable in the recent history of our circulation, 1793 and 1797, throw great light upon the principle which your Committee have last stated. In the year 1793, the distress was occasioned by a failure of confidence in the country circulation, and a consequent pres opinion in the correctness of which your Committee entirely concur. It appears to your Committee, that the experience of the Bank of England in the years 1793 and 1797, contrasted with the facts which have been stated in the present report, suggests a distinction most important to be kept in view, between that demand upon the Bank for gold for the supply of the domestic channels of circulation, sometimes a very great and sudden one, which is occasioned by a temporary failure of confidence, and that | If an excess of paper be issued in a coundrain upon the Bank for gold which grows out of an unfavourable state of the foreign exchanges. The former, while the Bank maintains its high credit, seems likely to be best relieved by a judicious increase of accomodation to the country: the latter, so long as the Bank does not pay in specie, ought to suggest to the directors a question, whether their issues may not be already too abundant. Your Committee have much satisfaction in thinking, that the directors are perfectly aware that they may err by a too scanty supply in a period of stagnant credit. And your Committee are clearly of opinion, that although it ought to be the general policy of the Bank directors to diminish their paper in the event of the long continuance of a high price of bullion and a very unfavourable exchange, yet it is essential to the commercial interests of this country, and to the general fulfilment of those mercantile engagements which a free issue of paper may have occasioned, that the accustomed degree of accommodation to the merchants should not be suddenly and materially reduced; and that if any general and serious difficulty or apprehension on this subject should arise, it may, in the judgment of your Committee, be counteracted without danger, and with advantage to the public, by a liberality in the issue of Bank of England paper proportioned to the urgency of the particular occasion. Under such circumstances, it belongs to the Bank to take likewise into their own consideration, how far it may be practicable, consistently with a due regard to the immediate interests of the public service, rather to reduce their paper by a gradual reduction of their advances to government, than by too suddenly abridging the discounts to the merchants. 2. Before your Committee proceed to detail what they have collected with respect to the amount of country Bank paper, they must observe, that so long as the cash payments of the Bank are suspended, the whole paper of the country bankers is a superstructure raised upon the foundation of the paper of the Bank of England. The same check, which the convertibility into specie, under a better system, provides against the excess of any part of the paper circulation, is, during the present system, provided against an excess of country Bank paper, by its convertibility into Bank of England paper. try district, while the London circulation does not exceed its due proportion, there will be a local rise of prices in that country district, but prices in London will remain as before. Those who have the country paper in their hands will prefer buying in London where things are cheaper, and will therefore return that country paper upon the banker who issued it, and will demand from him Bank of England notes or bills upon London; and thus, the excess of country paper being continually returned upon the issuers for Bank of England paper, the quantity of the latter necessarily and effectually limits the quantity of the former. This is illus trated by the account which has been already given of the excess, and subsequent limitation, of the paper of the Scotch Banks, about the year 1763. If the Bank of England paper itself should at any time, during the suspension of cash payments, be issued to excess, a corresponding excess may be issued of country Bank paper which will not be checked; the foundation being enlarged, the superstructure admits of a proportionate extension. And thus, under such a system, the excess of Bank of England paper will produce its effect upon prices not merely in the ratio of its own increase, but in a much higher proportion. It has not been in the power of your Committee to obtain such information as might enable them to state, with any thing like accuracy, the amount of country Bank paper in circulation. But they are led to infer from all the evidence they have been able to procure on this subject, not only that a great number of new country Banks has been established within these last two years, but also that the amount of issues of those which are of an older standing has in general been very considerably increased: whilst on the other hand, the high state of mercantile and public credit, the proportionate facility of converting at short notice all public and commercial securities into Bank of England paper, joined to the preference generally given within the limits of its own circulation to the paper of a wellestablished country Bank over that of the Bank of England, have probably not rendered it necessary for them to keep any large permanent deposits of Bank of England paper in their hands. And it seems reasonable to believe, that the total amount of the unproductive stock of all the coun try Banks, consisting of specie and Bank | [although in the second class there is a of England paper, is much less at this considerable number of 201.] and even period, under a circulation vastly increased omitting altogether from the comparison in extent, than it was before the restric- the notes of the three last classes, the issue tion of 1797. The temptation to establish of which your Committee understands is country Banks, and issue promissory notes, in fact confined to the chartered Banks of has therefore greatly increased. Some Scotland, the result would be, that, excluconjecture as to the probable total amount sive of any increase in the number of notes. of those issues, or at least as to their recent under 21. 2s. the amount of country bank increase, may be formed, as your Com- paper stamped in the year ended the 10th mittee conceive, from the amount of the of October 1809, has exceeded that of the duties paid for stamps on the reissuable year ended on the 10th of October 1808, notes of country Banks in Great Britain. in the sum of 3,095,340l. Your ComThe total amount of these duties for the mitttee can form no positive conjecture as year ended on the 10th of October 1805, to the amount of country bank paper canappears to have been 60,522l. 15s. 3d. and celled and withdrawn from circulation in for the year ended on the 10th of October the course of the last year. But consider1809, 175,129l. 17s. 7d. It must, however, ing that it is the interest and practice of be observed, that on the 10th of October the country bankers to use the same notes 1808, these duties experienced an aug- as long as possible; that, as the law now mentation somewhat exceeding one-third; stands, there is no limitation of time to the and that some regulations were made, im- re-issuing of those not exceeding 21. 2s. ; posing limitations with respect to the reand that all above that amount are reissue of all notes not exceeding 21. 2s., the issuable for three years from the date of effect of which has been to produce a their first issuing; it appears difficult to much more than ordinary demand for suppose that the amount of notes above stamps or notes of this denomination within 21. 2s. cancelled in 1809, could be equal the year 1809. Owing to this circum- to the whole amount stamped in 1908: stance, it appears impossible to ascertain but even upon that supposition, there what may have been the real increase in would still be an increase for 1809 in the the circulation of the notes, not exceeding notes of 51. and 101. alone, to the amount 21. 2s., within the last year; but with above specified of 3,095,340, to which respect to the notes of a higher value, no must be added an increase within the alteration having been made in the law as same period of Bank of England notes to to their re-issue, the following comparison the amount of about 1,500,000l., making affords the best statement that can be col- in the year 1809, an addition in the whole lected from the documents before the of between four and five millions to the Committee, of the addition made in the circulation of Great Britain alone, deductyear 1809 to the number of those notes. ing only the gold which may have been Number of Country Bank Notes exceed- withdrawn in the course of that year from ing 21. 2s. each, stamped in the years actual circulation, which cannot have been ended the 10th of October 1808, and very considerable, and also making an al10th of October 1809, respectively. lowance for some increase in the amount of such country paper, as, though stamped may not be in actual circulation. This increase in the general paper currency in last year, even after these deductions, would probably be little short of the amount which in almost any one year, since the discovery of America, has been added to the circulating coin of the whole of Europe. Although, as your Committee has already had occasion to observe, no certain conclusion can be drawn from the numerical amount of paper in circulation, considered abstractedly from all other circumstances, either as to such paper being in excess, or still less as to the proportion of such excess; yet they must remark, that the fact of any very great and rapid 1808. No. Exceeding £.2 2, and not ex ceeding £.5 5 666,071 Exceeding £.5 5, and not ex ceeding £.20 198,473 Exceeding £.20, and not ex ceeding £.30 Exceeding £.30, and not ex ceeding £.50 Exceeding £.50, and not exceeding £.100 1809. 922,073 380,006 2,425 674 2,611 Assuming that the notes in the two first of these classes were all issued for the lowest denomination to which the duties respectively attach, and such as are most commonly met with in the circulation of country paper, viz. notes of 51. and 10. |