Were a system of this kind to establish itself, it would form a double check to unhealthy trading. Consciousness that its rashness would become known to its chief clients, would prevent the bank-management from being rash; and consciousness that his credit would be damaged when his large debt to the bank was whispered, would prevent the speculator from contracting so large a debt. Both lender and borrower would be restrained from reckless enterprize. Very little inspection would suffice to effect this end. One or two cautious depositors would be enough; seeing that the mere expectation of immediate disclosure, in case of misconduct, would mostly keep in order all those concerned.
Should it however be contended, as by some it may, that this safeguard would be of no avail—should it be alleged that, having in their own hands the means of safety, citizens would not use them, but would still put blind faith in directors, and give unlimited trust to respectable names; then we reply that they would deserve whatever bad consequences fell on them. If they did not take advantage of the proffered guarantee, the penalty be on their own heads. We have no patience with the mawkish philanthropy which would ward-off the punishment of stupidity. The ultimate result of shielding men from the effects of folly, is to fill the world with fools.
A few words in conclusion respecting the attitude of our opponents. Leaving joint-stock-bank legislation, on which the eyes of the public are happily becoming opened; and returning to the Bank-Charter, with its theory of currency-regulation; we have to charge its supporters with gross, if not wilful, misrepresentation. Their established policy is to speak of all antagonism as identified with adhesion to the vulgarest fallacies. They daily present, as the only alternatives, their own dogma or some wild doctrine too {355} absurd to be argued. “Side with us or choose anarchy,” is the substance of their homilies.
To speak specifically:—They boldly assert, in the first place, that they are the upholders of “principle;” and on all opposition they seek to fasten the title of “empiricism.” Now we are at a loss to see what there is “empirical” in the position, that a bank-note-circulation will regulate itself in the same way that the circulation of other paper-currency does. It seems to us anything but “empirical,” to say that the natural check of prospective bankruptcy, which restrains the trader from issuing too many promises-to-pay at given dates, will similarly restrain the banker from issuing too many promises-to-pay on demand. We take him to be the very opposite of an “empiric,” who holds that people’s characters and circumstances determine the quantity of credit-memoranda in circulation; and that the monetary disorders which their imperfect characters and changing circumstances occasionally entail, can be exacerbated, but cannot be prevented, by State-nostrums. On the other hand, we do not see in virtue of what “principle” it is, that the contract expressed on the face of a bank-note must be dealt with differently from any other contract. We cannot understand the “principle” which requires the State to control the business of bankers, so that they may not make engagements they cannot fulfil, but which does not require the State to do the like with other traders. To us it is a very incomprehensible “principle” which permits the Bank of England to issue £14,000,000 on the credit of the State; but which is broken if the State-credit is mortgaged beyond this—a “principle” which implies that £14,000,000 of notes may be issued without gold to meet them, but insists on rigorous precautions for the convertibility of every pound more. We are curious to learn how it was inferred from this “principle” that the average note-circulation of each provincial bank, during certain twelve weeks in 1844, was exactly the {356} note-circulation which its capital justified. So far from discerning a “principle,” it seems to us that both the idea and its applications are as empirical as they can well be.
Still more astounding, however, is the assumption of these “currency-theorists,” that their doctrines are those of Free-trade. In the Legislature, Lord Overstone, and in the press, the Saturday Review, have, among others, asserted this. To call that a Free-trade measure, which has the avowed object of restricting certain voluntary acts of exchange, appears so manifest a contradiction in terms that it is scarcely credible it should be made. The whole system of currency-legislation is restrictionist from beginning to end: equally in spirit and detail. Is that a Free-trade regulation which has all along forbidden banks of issue within sixty-five miles of London? Is that Free-trade which enacts that none but such as have now the State-warrant, shall henceforth give promises-to-pay on demand? Is that Free-trade which at a certain point steps in between the banker and his customer, and puts a veto on any further exchange of credit-documents? We wonder what would be said by two merchants, the one about to draw a bill on the other in return for goods sold, who should be stopped by a State-officer with the remark that, having examined the buyer’s ledger, he was of opinion that ready as the seller might be to take the bill, it would be unsafe for him to do so; and that the law, in pursuance of the principles of Free-trade, negatived the transaction! Yet for the promise-to-pay in six months, it needs but to substitute a promise-to-pay on demand, and the case becomes substantially that of banker and customer.
It is true that the “currency-theorists” have a colourable excuse in the fact, that among their opponents are the advocates of various visionary schemes, and propounders of regulations quite as protectionist in spirit as their own. It is true that there are some who contend for inconvertible “labour-notes;” and others who argue that, in times of {357} commercial pressure, banks should not raise their rates of discount. But is this any justification for recklessly stigmatizing all antagonism as coming from these classes, in the face of the fact that the Bank-Act has been protested against by the highest authorities in political economy? Do not the defenders of the “currency-principle” know that among their opponents are Mr. Thornton, long known as an able writer on currency-questions; Mr. Tooke and Mr. Newmarch, famed for their laborious and exhaustive researches respecting currency and prices; Mr. Fullarton, whose “Regulation of Currencies” is a standard work; Mr. Macleod, whose just-issued book displays the endless injustices and stupidities of our monetary history; Mr. James Wilson, M.P., who, in detailed knowledge of commerce, currency, and banking, is probably unrivalled; and Mr. John Stuart Mill, who both as logician and economist, stands in the first rank? Do they not know that the alleged distinction between bank-notes and other credit-documents, which forms the professed basis of the Bank-Act (and for which Sir R. Peel could quote only the one poor authority of Lord Liverpool) is denied, not only by the gentlemen above named, but also by Mr. Huskisson, Professor Storch, Dr. Travers Twiss, and the distinguished French Professors, M. Joseph Garnier and M. Michel Chevalier?[36] Do they not know, in short, that both the profoundest thinkers and the most patient inquirers are against them? If they do not know this, it is time they studied the subject on which they write with such an air of authority. If they do know it, a little more respect for their opponents would not be unbecoming.
[36] See Mr. Tooke’s “Bank Charter Act of 1844,” etc.
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PARLIAMENTARY REFORM: THE DANGERS AND THE SAFEGUARDS.
[First published in The Westminster Review for April 1860.]