MEASURES PROPOSED FOR RELIEVING COMMERCIAL DISTRESS.
On the 10th of February the whole house having resolved itself into a committee on the Bank charter bill, the chancellor of the exchequer brought forward the proposition for prohibiting the circulation of small notes. In doing so he said that though fluctuations were inseparable from trade, in defiance of any precautions which ingenuity could invent, yet their effects were often aggravated by a state of currency, and a facility of speculation like those produced by the existing issues of paper. The small notes especially carried the consequences of these changes among those on whom they pressed most severely. These notes were chiefly in the hands of the labouring classes, and a few of them constituted a poor man’s fortune; consequently when a panic took place he hastened to save his little store by withdrawing it from the banker. As the alarm spread, the more wealthy imitated this example, and a sudden run brought with it the downfall of the bank. From this he argued that if these notes were replaced by a metallic currency, the security of the banks would be ensured, and the misfortunes which their failures would otherwise produce limited. This measure, he said, was not a novelty, but had been the regular policy of the country; for an act had been passed in 1775 prohibiting the tissue of bank-notes, and in 1777 another act had prohibited their issue under the sum of five pounds. The chancellor of the exchequer argued that any apprehensions of injury to commerce from the proposed measure must be founded upon this—that the prohibition of small notes would diminish the circulation by the amount of these notes; that their absence could not be supplied by gold; and, that, therefore, manufactures and trade would, to this extent, be left without their necessary and legitimate purposes. He went on to show that these apprehensions were visionary; that the withdrawal of the small notes, while it gave security to the bank which issued, and to the party who held them, would not operate injuriously on the currency, or on the trade and manufactures of the country. There were two ways, he said, of effecting this withdrawal: one by enacting that no small notes should be stamped after a certain period; the other by allowing those already in circulation to run a certain course till a fixed period, and prohibiting any new ones to be created. In three years the first of these modes might lead to unsatisfactory results; for if the power of stamping were to remain unlimited during that period, so considerable a number might be stamped as to subject the country, in its ultimate endeavours to get rid of them, to all its present evils. It was intended therefore to propose, that no new notes should be stamped, and that those in circulation should cease to circulate at the end of three years. In conclusion, the chancellor of the exchequer moved the following resolution:—“That it is the opinion of this committee, that all promissory notes payable to the bearer on demand, issued by licence, and under the value of five pounds, and stamped previous to the 5th of February, 1826, be allowed to circulate until February 5th, 1829, and no longer.” Mr. Baring took the lead in opposition to the measure, objecting to it as being inadequate to meet the evils complained of, and ill-suited to the present state of the country. He could not agree, he said, in attributing the existing embarrassments either to speculation or over-trading: much of it had been owing to the conduct previously pursued by the Bank. The resolution was likewise opposed by Sir John Wrottesly, Alderman Thompson, Alderman Heygate, and Mr. Wilson, who were adverse to it on various grounds: that it would be wholly inoperative to give any effectual relief; that it would be positively mischievous; and that the present state of the country required the postponement of such a measure. The scheme of increasing the number of partners in a bank by way of security was treated by opposition as visionary, since it was not on numbers, but on prudence, and their mode of conducting business, that their credit depended. Sir J. Wrottesly maintained that the country bankers, instead of exciting the mad spirit of speculation, were the only persons who had not speculated; and, in reality, were obliged, from a regard to their own safety, to discourage such a practice on the part of their customers. He asked, where did this spirit of speculation commence? It first showed itself in Manchester and Liverpool, where no local notes circulated. The cotton speculations, in these two places were the first heard of, and yet in neither of them was a single note circulated. The next point at which this spirit was manifested, and at which it had led to its un-happiest results, was not in the country where the notes in question circulated, but on the stock-exchange of London. It was further urged by the opponents of the measure that the very essence of the present pecuniary embarrassments consisted in the curtailed state of the currency; and that the direct tendency of the proposed measure was to increase them by limiting it still more. Taking the currency at twenty millions, it was argued, and the deduction to be made on account, of the recent failures at three millions and a half, the effect of the scheme in contemplation would be to cause a still further deficiency, and reduce it to about ten millions, with which it was impossible to carry on the trade of the country. It was further argued that although a respite of three years was ostensibly granted to the small notes, yet the adoption of the resolution would be tantamount to driving them out of circulation at once, inasmuch as every banker who entertained a due regard for his credit would be compelled to take measures for withdrawing his notes as quickly as possible. They had been issued, it was said, in reliance on the stability of the system, and on the faith of acts of parliament, which ought to be as inviolate as the charter of the Bank; and if these sources were now called in, the course of industry in various channels must be stopped. How, it was asked, was the gap made in the circulation of the country to be filled up? At the termination of the war there existed a strong desire to return to a metallic currency; and during the first years of peace there was a great facility of obtaining specie; but it was not so at the present time. No country could obtain it without giving its value in commodities. At the end of the war, our manufactures, still in their prime, commanded every market, and enabled us to obtain our gold: but at present the manufactures of the continent and America were springing up all around us, and every year we were more and more excluded from foreign markets. The inability to dispose of our commodities was, in fact, it was stated, one of the most aggravated features of the existing distress. In such circumstances, therefore, it was urged, that it would be most unwise to adopt a measure, which besides injuring an individual class, would tend to increase public calamity. The resolution was supported by Messrs. Huskisson, Peel, and Canning, who denied that to ascribe much of the distress which had prevailed to the issues of the country banks, was to attack the character of the country bankers, or that anything had occurred to justify the extreme sensibility which had been manifested on their behalf. With regard to the measure itself, they stated it was not intended so much a remedy for existing evils, as a preventative against their future recurrence, by bringing the currency, to a certain extent, to be a metallic one, and especially that portion of it which alone supplied the wants of the lower classes. All experience, it was urged, proved that this restoration of a metallic currency could not be effected so long as small notes were allowed to be circulated; a permanent state of cash-payments could never exist by their side. It was argued, that if crown notes and half-crown notes were issued, crowns and half-crowns would disappear; and that if the one pound notes continued to circulate, sovereigns would become rarities. There never was a gold circulation in the country except in Lancashire, where no country notes existed; and when, in the year 1822 and 1823, the Bank of England was anxious to supply the country with gold, the sovereigns sent down by one mail-coach returned with the next. Great sacrifices had been made to effect the introduction of even the partial metallic currency now in existence; and these sacrifices had been made in vain: the currency of the country could never be placed, on a solid basis unless country bankers were prohibited from issuing notes, excepting such as were of a considerably higher denomination than the current coin, so as to save it from the paper currency. The principle of the measure therefore could be resisted only by those who held that the pecuniary relations of the country were best secured by proscribing a metallic currency. But its necessary effect would 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, even where a failure took place, extensive misery, which such an occurrence produced among the lower classes, would no longer return. The security of the poorer classes in such cases lay in the absence of small paper. Let the Bank of England retain in its hands as much gold as might be necessary for the ordinary operations of commerce, for such demands as the exigencies of government might require, or to adjust an unfavourable state of foreign exchanges; let every country bank be governed by the same rules, and compelled to keep an amount of gold proportioned to its operations; and a sensitiveness to occurrences likely to cause a pressure on the country banks would be created, which would tend to the security of the whole kingdom; the issues would be kept within bounds, and gold would be kept in the kingdom. The expulsion of small notes, it was stated, could not operate injuriously to the country bankers. The number of country banks was about eight hundred, and the circulation of each of these would average about £8,000; could it be supposed that a stability which had stood the late shock would be shaken or destroyed by a gradual curtailment of paper, to the extent annually of two or three thousand pounds for three successive years? When the difficulty was thus reduced; when the means were so limited and humble by which a mighty principle was to be established; when, by an operation so minute, and a process almost insensible, the prodigious advantage could be obtained of placing the pecuniary concerns of the country on the broad and imperishable basis of a metallic currency; it would be as imprudent to let slip the opportunity as it would be unreasonable to deny the principle. The intended change was neither to affect the paper circulation at large, nor to trench upon the great mass of paper currency, which was confined to notes of the higher denominations: these might be piled mountains high, provided the base be refreshed by streams of the metallic currency. To those members who, without objecting to the principle of the measure, wished it to be postponed, it was answered, that instead of coming too soon it had come too late. Mr. Brougham, who also supported the resolution, strongly urged the inexpediency of delay when the work was already half done, in consequence of the general want of confidence having of itself greatly limited the issues of the country banks. Mr. Baring moved as an amendment, “That it is the opinion of this house that, in the present disturbed state of public and private credit, it is not expedient to enter into a consideration of the banking system of the country.” This was negatived by an overwhelming majority; as was also an amendment moved by Mr. Gurney, to exclude the Bank of England from the operation of the resolution. A bill for carrying this resolution was immediately brought in by the chancellor of the exchequer; and, though much resistance was offered to some of its details, both in the commons and in the lords, the bill passed into a law. The Earl of Carnarvon, who moved, on the second reading in the lords, that the bill should be read that day six months, stated a new reason why an actual gold circulation ought to be kept as far from our doors as possible. A return of it, he said, would bring back the highwaymen of Bagshot and Hounslow heath.
There was a greater temptation to commit robbery in the case of gold than in the case of paper, because there were greater facilities for escaping detection. It was easy to understand that there could not be so strong an inducement to crime when the currency consisted in notes, numbered, and signed with a known name, as when it consisted of gold coin, which it was impossible to identify. Lord Liverpool, however, had no such fears of highwaymen as the noble earl. He once, when he was a boy, he said, lost all the money he had in his pockets by a highwayman; and it was natural that he should be as much alive to this danger as the noble earl. But still, with all his early associations, he could not help thinking that if danger must revive with a return to a metallic currency, it would have been felt during the last four or five years; for during all that time their lordships had been travelling about, not with notes, but with sovereigns in their pockets. The almost total extinction of highway robberies was to be attributed to the only thing that could check or extinguish them—the establishment of a powerful and effective police.
While this measure for annihilating the issue of small notes in England was making its way through parliament, the fitness of its application to Ireland and Scotland was discussed. In Scotland there was a great opposition even to the very idea of it. In every city and county public meetings were held to deprecate the destruction of the one pound and guinea notes, and men of all ranks and parties joined in one unanimous outcry against the threatened introduction of gold. During the discussion on the bill regarding England, indeed, the tables of both houses were loaded with petitions from Scotland, setting forth the benefits which that country so long had enjoyed from its banking system, and the evils which would arise from every attempt to give it a new and an untried form. Parliament rightly paid respect to the anxiety and unanimity with which these opinions were expressed, especially as they came from parties who were acquainted with the nature and practical effects of the system. Moreover, the difference between the two systems of the two countries, and the difference between the effects of the two systems, formed good reasons why parliament should pause before extending the plan to Scotland. Accordingly select committees were appointed by both houses to inquire into the state of the circulation of small notes in Scotland and Ireland, and to report upon the expediency of altering the laws regarding it. Many Scottish merchants, manufacturers, and bankers were examined by these committees; and the reports presented to both houses towards the end of the session justified the resistance made. The stability of the banking system in Scotland, the committee stated, did not justify any alteration; and they were apprehensive that a prohibition of small notes would injure one branch of the Scottish system which it was essential to preserve, namely, the giving of cash credits. Under these circumstances they recommended that the paper money of Scotland should not be meddled with. Sir M. W. Ridley, however, who, with others, was apprehensive that a metallic currency in England could not exist with a small paper circulation in Scotland, moved a resolution that the house would, in the course of next session, institute an inquiry as to how far the interests of England and Scotland were likely to be affected by the existence of different systems of currency in the two countries; and to ascertain whether any, or what means ought to be adopted to assimilate the currency in both. But this motion was negatived without a division; and thus Scotland was left for the present in possession of that system of currency under which her commerce, manufactures, and agriculture had so long flourished.