It may, therefore, we think, be laid down as an important practical rule, that the Bank should be required to render the equivalent on the principle of proportioning its payment to the amount of unrepresented notes in circulation, and that the rate imposed should increase as that circulation increased. The only difficulty appears to consist in devising a simple natural plan for accomplishing this result; a plan that would be readily comprehended by the public, and that would involve no very complicated system of calculations on the part of the Bank. Now, it so happens that this difficulty can be easily surmounted as will appear from the following explanation. The authorized circulation of unrepresented notes has already been shown to consist of two parts, viz. about £11,000,000 issued upon the Government debt, and £3,000,000 issued upon other public securities. Upon the £11,000,000 lent to Government the Bank receives interest at the rate of 3 per cent.; and there can be no question that this is not so great a profit as the Bank could obtain from those £11,000,000 if employed in ordinary banking operations It may fairly be considered therefore that the Bank is entitled to derive a higher share of profit out of those £11,000,000 than out of the other £3,000,000, which have not been lent to Government, and which, as pointed out above, the Bank should be set at liberty to withdraw from the issue department, and incorporate amongst the working capital. In like manner, when the Bank is allowed to increase its unrepresented issues, for the purpose of replacing the country notes, the additional notes so issued, as well as the £3,000,000 just mentioned, being so much over and above the £11,000,000 lent to Government, and the Bank therefore rendering no actual service to the State in return for the privilege of issuing them, it would be perfectly legitimate that the State should require something like an equitable participation of the profits derivable from their issue. During the next ten years, under the operation of the plan proposed, these additional notes would increase annually, according as the country notes diminished, viz as follows:—
| 1856 | £000,000 |
| 1857 | 800,000 |
| 1858 | 1,600,000 |
| 1859 | 2,400,000 |
| 1860 | 3,200,000 |
| 1861 | 4,000,000 |
| 1862 | 4,800,000 |
| 1863 | 5,600,000 |
| 1864 | 6,400,000 |
| 1865 | 7,200,000 |
| 1866 | 8,000,000 |
so that at the expiration of the ten years the country issues would be entirely replaced, and we should have an authorized issue of £11,000,000 upon the Government debt, to be issued at a moderate charge, and a second £11,000,000, either issued or allowed to be issued at an equitable charge. These £22,000,000 are the maximum amount of unrepresented notes, which can be issued in any circumstances under the operation of the Act of 1844; they may therefore be assumed to constitute the present normal requirements of the country, and any issue of unrepresented notes in excess of these, might very fairly be charged with so high a rate as would render the recourse to them an extremely exceptional case, to be resorted to exclusively in periods of grave necessity. This plan therefore would provide a gradation of three advancing rates of charges: a minimum rate upon the £11,000,000 of unrepresented notes, allowed to be issued in consideration of the loan to Government; a medium rate on the amount of notes required for completing the total normal issues of £22,000,000; and a maximum rate on whatever notes might at any time be required in excess of those £22,000,000.
Now to this plan of regulating the issues of the Bank of England we are altogether unable to foresee any valid objection, practical or theoretical. There are certainly very conclusive reasons why the Bank of England should be allowed to issue £11,000,000 of unrepresented notes on the £11,000,000 lent to Government at a lower rate than the second £11,000,000, for which otherwise the Bank would render no equivalent; and there are no less forcible considerations why the Bank should be charged a lower rate upon the second £11,000,000 which form a part of the normal requirements of the public, than upon the notes which might at any time be issued in excess of the total £22,000,000. Nor can there be any difficulty in the practical application of such a principle. For, if an account be kept from day to day, or from week to week, of the total number of notes, both represented and unrepresented, in actual circulation, and if the number of bullion notes in circulation be deducted from this gross amount, the remainder will be the total amount of unrepresented notes; and whatever may be the number of these, the first £11,000,000 will be charged with the minimum rate, the second £11,000,000 with the medium rate, and the remainder, if any such there be, will be subject to the maximum rate. Thus, supposing the gross circulation to consist of £30,000,000, and the bullion notes to comprise £14,000,000 of these, the rates would be imposed as follows:
| Issued on bullion, | £14,000,000 |
| ” at the minimum rate, | 11,000,000 |
| ” at the medium rate, | 5,000,000 |
| £30,000,000 |
or, supposing the gross circulation to be £40,000,000, the bullion notes remaining as before, there would be
| Issued on bullion, | £14,000,000 |
| ” at the minimum rate, | 11,000,000 |
| ” at the medium rate, | 11,000,000 |
| ” at the maximum rate, | 4,000,000 |
| £40,000,000 |
but this, as we shall see hereafter, is a case that would be very unlikely to occur under any ordinary circumstances.
During the operation of the ten years’ arrangement with the country banks, the system would necessarily undergo a slight alteration with each successive year, and would not therefore be altogether so simple as the preceding; but it would present no very peculiar complexity. For, a reference to page [38] will show the number of notes which the Bank would be allowed to issue in addition to the £3,000,000 at the medium rate, together with the first £11,000,000 to be issued at the minimum rate; and if the Bank should at any time exceed the total of these three items, whatever notes might be issued in excess would be liable to the maximum rate. For example, in the year 1860 the number of notes allowed to be issued at the medium rate would be £3,200,000, added to £3,000,000, together £6,200,000; if, therefore, the gross circulation in that year should at any given time amount to £33,000,000, the bullion notes being £14,000,000, the unrepresented notes would be charged in this way:
| Issued on bullion, | £14,000,000 |
| ” at the minimum rate, | 11,000,000 |
| ” at the medium rate, | 6,200,000 |
| ” at the maximum rate, | 1,800,000 |
| £33,000,000 |