The following pamphlet was designed for insertion in a periodical devoted to industrial and commercial purposes, which was to have appeared on the 1st of January. As owing to unavoidable circumstances the publication of this journal has been postponed, the writer has thought it better to present his views to the public in their original form, than to incur the delay that would be necessary if he were to recast the essay and expand its scope so as to embrace the consideration of the Scotch and Irish issues. He trusts that this explanation will serve as an apology for the extreme compression which he has been obliged to exercise in treating of several departments of the subject, as well as for his having neglected to fortify his reasoning by citations from other writers, in many instances in which he might have done so with unquestionable advantage to the reader.

19, Cullenswood-avenue, Ranelagh,
Dublin, Jan. 1856.

THE
PAPER CURRENCY OF ENGLAND
DISPASSIONATELY CONSIDERED,
&c.

Amongst the many debatable clauses contained in the Bank Charter Act of 1844, there is one at least the practical expediency of which will scarcely be called in question. It is that which provides for the redemption of the privileges enjoyed by the Bank of England, “at any time upon twelve months’ notice, to be given after the first day of August, 1855.” A similar provision had been inserted in the Act of 1833, so that the decennial expiration and revision of the Bank of England Charter, may be regarded as a positive feature in the banking system of Great Britain. The advantages resulting from this periodical revision of our currency code with respect both to the public generally and to bankers in particular are very considerable. The investigation of the laws of monetary phenomena forms undoubtedly the most abstruse and intricate department in the whole range of political economy. In no other section of the science are the ultimate conclusions more liable to be vitiated by any error in the leading principles, or any false step in the process of deduction; and in no other is it more difficult either to trace an error through all its mazes to its real origin, or to present its refutation in a form adapted to the popular intelligence. It not unfrequently happens, therefore, that some plausible fallacy becomes generally accredited, and is adopted by our statesmen as a basis for legislation, either before the materials have been collected for its successful exposure, or before the knowledge of such exposure has had time to circulate through all the channels of the public mind. In such cases the experience of a few years’ operation of the measure, suffices to explode the fallacy, and when, at the succeeding expiration of the Bank of England Charter, the subject is presented to parliament for reconsideration, our legislators are enabled to disentangle themselves from the errors which had previously misled them, and to bring their enactments into greater conformity with the principles that should regulate a well conducted currency. And were it not for this arrangement, there is great reason to apprehend that our banking laws would present as many obstacles to their amelioration, as now unfortunately oppose themselves to the reform of so many other departments of our legislative system.

There is a second beneficial purpose no less eminently subserved by this arrangement. At present, the privilege of issuing paper money, unrepresented by bullion, is a highly profitable and closely protected bank monopoly. Now the undisturbed enjoyment of a monopoly, as is well known, has sometimes the effect of impressing its possessors with a conviction, that they hold their privilege by a sort of inalienable right, irrespective of the public welfare. And were it not for the provision which subjects our whole monetary system to a periodical investigation and revision, the existing banks of issue might naturally share in this feeling, and come to regard any interference with their privilege, as an unwarrantable exercise of state prerogative. Under the actual circumstances of the case, however, they can advance no valid plea for the retention of the right of issue, any longer than may be deemed consistent with the interests of the community at large. For if the Bank of England, which has advanced eleven millions of its capital to the nation, for fiscal purposes, is liable to have the right of issue withdrawn upon the single condition of repayment of the debt, with all arrears of interest, how much more is it incumbent upon those banks which have rendered no such service to the State, to hold themselves prepared for a similar surrender. And if they have neglected to make any provision for such possible contingency, it has not been for want of warning, that they do not enjoy their monopoly by any indefeasible claim to its possession in perpetuity.

We trust that the approaching session of Parliament will furnish a striking exemplification of both these advantages. The Bank Charter Act of 1844, is precisely one of those measures which have been based upon a fallacious interpretation of the principles of monetary science. A few of the more far-sighted of our economists and practical statesmen, were fully cognizant of the fact at the time of its enactment; but the principle on which it rested was extremely plausible, and a large majority of our public men assented to its adoption. That measure has now received its ten years’ ordeal, and it is time that the judgment of the nation should be formally pronounced upon its merits. Nor can there be much difficulty in arriving at that decision. Few measures have ever been condemned by a more general verdict. It is true, that the Committee of the House of Commons on Commercial Distress in 1848, delivered a report in its favour, by a majority of two; but, if so, that report was framed in deliberate opposition to the opinions of nearly all the witnesses examined; while even of the remainder the evidence, though intended to be affirmative was inadequate and self contradictory. The Acts of 1845, for the regulation of the paper issues of Scotland and Ireland, were supplementary to that of 1844, and more or less participate in all its imperfections; but neither of them was put to the crucial test, during the commercial difficulties of 1846–7; and further than by occasional reference for the sake of comparison and illustration, we shall not treat of them here, but shall confine ourselves exclusively to the laws which affect the paper circulation of England and Wales. It has long been desirable that all the United Kingdom should be subject to a uniform currency code; nor do any insurmountable obstacles appear to oppose the establishment of one consistent system; but the subject is too extensive for discussion in our limits; and, in any case, the pre-eminent importance of the English circulation, would justify a separate and exclusive treatment.

The leading provisions of the Act of 1844, are too well known to require much elucidation. They may in general be arranged under two divisions; those relating to the limitation of the right of issue, and those assigning the conditions under which that right should alone be exercised. The former have at least the merit of being extremely simple. They merely continue the privilege to all the issuing banks in existence at the passing of the Act, viz. about 250, and prohibit the formation of any new banks of issue. The latter, so far as the country banks of issue are concerned, are equally simple. They do no more than assign a maximum limit to the issues of each—that maximum being equal to the average issues, during a certain period, previous to the enactment, and amounting to nearly £8,000,000 in the total. The conditions imposed on the issues of the Bank of England, are more complicated. Those issues are divided into two classes—the issues on gold and silver, compactly denominated bullion notes, and the issues on the Government debt, and other securities; which, as they are not represented by any gold or silver in the coffers of the Bank, may properly be designated unrepresented notes. Of the latter, the authorized issue is limited to a maximum of £14,000,000, viz. £11,015,100 on the Government debt, and £2,984,900 on other securities; the bullion notes, on the other hand, are not restricted within fixed limits, but are subject to the single condition that the Bank must issue notes in exchange for all the gold (and a certain proportion of silver, not to exceed one fourth of the gold) that may be presented for purchase at the rate of £3 17s. 9d. per ounce, and must render gold for all the notes that may be tendered for payment, at the rate of £3 17s. 10½d. per ounce. Thus the total amount of unrepresented notes, which the united banks of issue in England and Wales are authorised to circulate, is about £22,000,000;[A] in addition to which, the Bank of England is allowed to issue bullion notes for every £1 of treasure which it may possess.

[A] Perhaps we ought to mention that under one of the provisions of the Act of 1844, in case any of the banks of issue cease to issue their own notes after the passing of the Act, the Bank of England may be empowered to increase its securities and issue notes against them to an extent not exceeding two-thirds of the amount so discontinued; and that within the last few months the Bank of England has been thus authorized to increase its unrepresented issues by nearly £500,000. This increase, however, is only intended to prevent the unrepresented issues from falling much below the £22,000,000, and leads to no important results.