Issued on bullion£8,000,000
” at 1 per cent.11,000,000
” at 2 per cent.11,000,000
” at 4 per cent.4,000,000
£34,000,000

and as the bullion withdrawn by such an operation should be rapidly recovered, the additional pressure would be very soon relieved, and would pass over without entailing any abatement of confidence in the perfect security of the unrepresented issues[E].

[E] We have not alluded in the text to the effect of our proposed system, in reducing the enormous fluctuations in the rate of discount produced by the operation of the Act of 1844; but this is a feature of the question too important to be altogether passed over without reference. In his examination before the Committee of the House of Lords on Commercial Distress, Mr. J. H. Palmer, a very competent authority, declared, that in his whole experience he had never known such vicissitudes in the rates of interest and discount as since the passing of the Act; and the greater number of the witnesses were unanimous in deploring the excessive injury inflicted on the community by those vicissitudes. Now, one essential part of the operation of the governmental charges of 1, 2, and 4 per cent. would be the reduction of those violent oscillations within more salutary limits; as we have just now seen that 3½ to 4 per cent. would be the probable minimum, and 6 to 7 per cent. the probable maximum, at which the Bank of England would ever grant accommodation, and that moreover it would only be in extraordinary cases that the range of variation would exceed from 4 to 6 per cent.

We have now contrasted the operation of the present and the proposed systems, in the cases in which there is an excess and in which there is a deficiency of circulating medium. But the contrast would not be complete if we did not consider a third case, somewhat intermediary to the other two; viz. that in which an occasional or only temporary expansion of the circulation is required by the domestic transactions of the country. The principal case in which this occurs, is at the payment of the dividends. At such times, whenever the reserve in the banking department happens to be small, through a low stock of bullion or through some degree of pressure, the effect of the restrictive clauses of the Act of 1844 is to render the payment of the dividends a matter of considerable difficulty, except at the expense of a serious temporary contraction in the amount of accommodation afforded to the public. In both the cases of April and October, 1847, already referred to, this was one of the circumstances which contributed to aggravate the pressure.[F] But other cases not unfrequently arise, in which advances are requisite for some temporary purpose, and which the Act of 1844 has rendered almost impracticable. A striking illustration of this occurred in the beginning of the year 1846, when Parliament required that all Railway companies which intended applying for an Act, should lodge 10 per cent. upon their capital, within fifteen days after the meeting of Parliament. It may well be doubted whether, if Government had been fully enlightened as regards the difficulty of performing such a condition, this measure would have been insisted on; but however that may be, it is indisputable that had the reserve in the banking department been small at that period, or had not the Bank lent out the notes as fast as they were received, the effect of the restrictive clauses of the Act of 1844 was such, that the lodgments could not possibly have been made at all; and even as it was, the difficulty of effecting then occasioned great anxiety in the public mind.[G] And similar cases may at any time arise, in which the operation of the Act must necessarily produce considerable inconvenience to the public.

[F] “About the same time the Government had occasion to borrow of the banking department about £3,500,000 to pay the April dividends. The banking department, consequently, for a while, limited their discounts; and even refused to grant loans on Exchequer bills. Great pressure was consequently felt, though it did not last for a long time. Now it is alleged that if the Act of 1844 had not existed, the Directors would have allowed the gold to be exported without immediately contracting the notes in circulation. They would have lent the money required by the Government, without refusing the loans and discounts to the public: and the contraction of the circulation, by being extended over one or two months, instead of a few weeks, might have produced no inconvenience,”—Practical Treatise on Banking, by J. W. Gilbart. F.R.S. Fifth Edition. Page 129.

[G] “Had the Act of 1844 not been in existence, the Bank of England (as in the case of the West India loan, and of previous loans) might have lent out the money before the time of payment arrived, and no apprehensions would have been entertained. The notes in circulation would have been largely increased for a few days, and then again have subsided to the former amount. As it was, the payment was not made through any virtue in the Act; and had it been required under different circumstances, or when the banking department had a smaller reserve, it could not have been made at all.”—Practical Treatise on Banking, by J. W. Gilbart, F.R.S. Fifth Edition. Page 128.

Now very few words will suffice to show that our proposed system would be as well adapted to the exigencies of those occasional advances, as to the more normal requirements of the circulation. It must, we think, be conceded, that if an advance be made for some definite individual purpose, such as those referred to, the money so advanced will not continue any length of time in circulation, but will return into the Bank without producing a sensible effect on prices or on credit. But this being granted, it clearly follows that a system which is only intended to prevent such an over issue as would have the effect of raising prices, ought not to interfere with some indispensable advance which would necessarily be temporary, and would therefore exert no influence on prices. Be that as it may, however, our system would be equally applicable to both cases. For, if the advance be really for a permanent purpose, its effect will be precisely similar to any other advance of equal extent; if considerable, it will raise the rate of interest and thereby diminish the amount of accommodation required in other quarters; so that the currency in the hands of the public will still be preserved at an expedient level. On the other hand, if the advance be made for some individual application, the governmental charge will only be imposed for the few days during which the money will be actually in circulation, and will therefore cause no sensible inconvenience to the Bank; while the necessary effect of its imposition, will be either to recover the money at the termination of that period, or else, by inducing the Bank to raise its rate of interest, to produce a contraction equivalent to the amount of expansion. In short, the operation of the proposed system, will be such that unless the amount of notes advanced in such circumstances be really required for the purpose of currency, they will not continue in circulation, but will inevitably return to the Bank at the earliest possible period.

It may be considered necessary that we should make a brief reference to some of the schemes that have been recently proposed, for the regulation of the currency. The only one of these that appears to have met with much attention, is that suggested by Mr. Glyn, in his examination before the Committee of the House of Lords on Commercial Distress. His proposal was, that the whole responsibility of the circulation should be left in the hands of the Bank of England, but that the Bank Court should include certain persons appointed under Act of Parliament, who should have, not an absolute veto upon the proceedings of the Court, but the right, when they dissented from the majority, to submit the reasons for that dissent in writing, or even lay them before Parliament from time to time. To this he would not add any regulations with respect to the management of the currency, with a view to the exchanges, or to any other circumstances, but would leave that entirely to the determination of the Court and the Commissioners. As coming from a practical banker of such experience as Mr. Glyn, this proposal is certainly entitled to an attentive and respectful consideration. To us it appears, however, that several weighty objections oppose themselves to its adoption. To one of these we assign great practical influence, independently of all considerations of principle. We apprehend that the adoption of such a measure would almost inevitably establish very undesirable relations between the Bank and the Parliament or Government of the day. It is not to be assumed that Commissioners appointed by Act of Parliament, are necessarily more likely to be infallible than Directors selected by the proprietors of the Bank; but even if this were assumed as probable, it would not still follow that it would be at all expedient that such Commissioners should be invested with the power of becoming public accusers of the Directors, on any occasion in which the latter might not assent to their recommendations. The ultimate effect of such a measure could hardly fail to be, that the Commissioners, if men of large abilities, would come to be regarded in the light of dictators whose proposals the Directors would often shrink from negativing, through a natural aversion to have their proceedings investigated, and perhaps condemned, by Parliament.

But there are higher considerations than even this, on which we should mistrust the expediency of such a plan. It does not appear, so far as we recollect, whether Mr. Glyn would repeal the provisions requiring the Bank to purchase all gold which may be presented at £3 17s. 9d. per ounce, and recur entirely to the measure of 1819; but we cannot see why, if the Bank Court are to have the sole responsibility of the amount of unrepresented notes to be held in circulation, they might not also be entrusted with the complete management of the issues on bullion, and, therefore, why the above provisions might not be altogether repealed. Now, whatever may be the defects of the Act of 1844, it is, we believe, disputed by few whose opinions are entitled to respect, that the operation of this part of the system has been in the main beneficial, and that on the whole the measure of 1844 has been a very great advance upon that of 1819. If however, Mr. Glyn only contemplated the issue of unrepresented notes, when he recommended entrusting the whole responsibility to the Bank Court, there still appear very serious objections to his proposal, taken even with this limitation. Amongst others we may again repeat what we have already strenuously insisted on, that it is time that the Bank of England should render some better equivalent than at present for the privilege of issue. But independently of this consideration, we do not consider that the course which the Bank Court has adopted at various periods throughout the past half century, has been sufficiently judicious to justify our entrusting so unfettered a capacity for good or evil to its care, even though guided in its decisions by the advice of any number of Commissioners appointed under Act of Parliament. A very considerable discretionary power must undoubtedly be confided to the Bank Directors, but we cannot perceive that past experience would justify the extension of that discretion to the absolute control either of the unrepresented issues or of the rate of interest. Thus, while we would place no absolute restriction upon the Bank, either with regard to the amount of its issues or to its rate of interest, we would certainly endeavour to devise such measures as would prevent the Bank, on the one hand, from exerting itself to keep too large an amount of unrepresented notes in circulation, and on the other, from loaning and discounting at too low a rate of interest, and thereby directly contributing to stimulate excessive speculation. And both of these objects we believe would be completely and judiciously effected through the adoption of the scale of charges already described; as the imposition of the minimum rate would necessarily prevent the rate of interest from falling too low in speculative periods, while the operation of the three ascending rates, as a whole, would produce a rise in the rate of interest directly proportionate to the efflux of gold and the increased demand for accommodation in times of pressure.

We are far from certain, however, that Mr. Glyn intended to express himself so forcibly against the adoption of any regulations, as the tenor of his language might appear to indicate. In several other parts of his evidence before the same Committee, we may very fairly refer to him in striking corroboration of our views. For, not only does he unite with us in reprobating the effect of the low rate of interest at which the Bank accommodates the public when money is abundant, in stimulating excessive speculation, and not only does he advocate the essential importance of maintaining a more equable rate of interest than has hitherto been the case, but he even expresses his entire approval of the plan of imposing a governmental charge upon the £3,000,000 of unrepresented notes which the Bank is allowed to issue on securities. “I am not aware of the terms upon which it is advanced to the Bank of England, but my idea was, that the additional three millions ought not to have been advanced to the Bank of England by the issue department, except upon such a rate of interest as would have regulated the amount of notes out; that whenever money was worth only 3½ per cent. they should not have had the whole of that three millions issued; thus acting upon the circulation and lowering the value of money.” Now, in this important passage is contained the most essential feature of the system we propose; the only difference of any moment consisting in this, that the principle which Mr. Glyn would apply to a certain portion of the circulation, we should desire to see extended, with the necessary modifications, to the total amount of the unrepresented issues.