Blackwood's Edinburgh Magazine—Volume 62, No. 386, December, 1847

by Various

In 1844, the restriction year, the railway system was, so to speak, in its infancy. No doubt many works had been constructed and much surplus capital embarked, but the tide of enterprise or of speculation, if you so choose to term it, had not at that time set in nearly so vigorously as it did afterwards in the new channel. Still there were distinct indications of what was to come. Notice had been given of a multiplicity of works that were to be undertaken, involving in the aggregate an enormous expenditure of capital; and Parliament had pointedly constituted itself the censor and approver of these projects. It was not a period of private unguided speculation. Parties were not left as in former years to throw their capital rashly and without guarantee into American mining and canal adventures, for the purposes of foreign improvement and the employment of an alien population. Each railway bill was first considered by a ministerial body expressly constituted for that function: it then underwent the scrutiny of committees of both Houses of Parliament; and finally, when transformed into an act by receiving the royal assent, it bore within its preamble an express acknowledgment that it was a work of great advantage and benefit to the country at large. Nay more, by a notable act, authorising the government, whenever a railway should exhibit a certain amount of remunerative traffic, to purchase it at a statutory rate for the profit of the nation, the ministry were as deeply pledged as they could be to the maintenance, of the system; and if there has been in fact any excess in the number of works undertaken, the private promoters of these are far less chargeable with the blame than the ministry, who, with their eyes open, and the amount of pledged capital declared, yet suffered the system to go so far without interposing a decided and unsurmountable barrier to its progress.

Be that as it may—and we shall have a few words to say upon the point hereafter—it is impossible to suppose that Sir Robert Peel, or any other competent minister, can have failed to form the conclusion that altered circumstances must per force hereafter effect a vast change on the surface of our monetary transactions. Indeed Sir Robert now takes full credit for such prescience. He tells us that he foresaw what was about to happen, and that he framed his banking measures with a direct view to that result. A more humiliating confession, in our opinion, was never uttered by any man laying claim to the character of a statesman. It is in fact tantamount to an acknowledgment that he was then legislating for the prospective benefit of the moneyed interest exclusively, and not for that of the nation. For we hold it to be perfectly clear, upon every principle of honour and justice, that government, having allowed these railway bills to pass, and so far sanctioned their commencement, were bound to interpose no artificial impediment to their completion. Nay more—they were bound, before introducing any act for the future regulation of the currency, to take into consideration the changes which so vast an expenditure of capital at home was likely to cause in the adjustment of the different national interests, and the facilities which ought to be granted to each in the development of their several industry. But the Banking Acts of which we complain were framed upon a totally different principle.

Sir Robert Peel, in 1844, was, as it were, standing upon an elevation from which he could look backward upon the past condition of the country, and forward to the new state of things which was now certain to occur, and which he did not intend to prevent. On the one hand, he saw that, for a certain average of years, not distinguished by any great enterprise, nor shaken by any great convulsion, a certain quantity of currency had sufficed for the wants of the nation. This currency consisted of two things, gold and paper, for we drop the smaller change. The gold was principally, if not altogether, confined to England, where it circulated from hand to hand; and, issuing from the fountain of the Mint at a fixed rate of price, it was accessible to all parties, and always exchangeable for paper. Being exportable at fluctuating values abroad, the amount of gold at any time in the country could not be accurately ascertained, but it was acknowledged as the nominal basis of the circulation.

In Scotland and Ireland the system was different. Both of these were poorer countries than England, and had been unable either to dispense with the smaller one-pound note circulation, or to provide gold, the most expensive and cumbrous representative of property. The currency of these countries, therefore, was paper, based directly upon property; and, in Scotland at least, secured by an admirably-devised system of interchange amongst the native banks, which effectually prevented the possibility of any over-issue. In consequence the circulation was extremely regular and steady, save at the two great terms of the year, being settling days, when a large expansion of the currency was required, to be, however, again withdrawn on the succeeding week.

On the other hand lay the more dubious prospect for the future. Parliament had already recognised the railway system, and numerous projects were waiting for the imperial sanction. These necessarily and avowedly involved an enormous expenditure of capital, and the active and lucrative employment for several years to come of a large class of persons throughout the three kingdoms. The railway system might indeed be said to have created a new class, whose necessary share in the currency would fall to be calculated in any future monetary measure. Add to this, that the population of the empire was rapidly and steadily increasing.

It was in this position, and with these prospects, that Sir Robert Peel fabricated his restrictive acts, which have since wrought a total change on the financial dispositions of the country. We do not think, and nothing has been brought forward to prove, that there was any call whatever for a change at that particular juncture. Certain it is, that the change was generally unpalatable, but was yet peremptorily forced on and effected in spite of the ominous looks of those whose experience entitled them to a hearing. And no wonder that the veterans of commerce should have received these measures with disapprobation. For, according to all rules of reasoning, an increased trade, an increased demand, a new population, and a new channel of industry, were so many additions to our former state which required additional facilities. The same amount of currency which had sufficed in former years to carry on our domestic arrangements, could not surely be expected to exercise a double function, and to meet the demand occasioned by the novel element of accretion. The money that, in prosperous times, barely answered the calls of manufacture and commerce, could not be converted from those streams to flow into another, without occasioning, at the same time, the greatest pinching and inconvenience. Yet, strange to say, Sir Robert Peel, instead of basing his calculations upon the future imperative demand, legislated as if no new element at all had appeared in our social position. And he further committed, what we maintain to be a great and inexcusable error, even had the railways not then been in actual progress, by utterly destroying all possible expansion of the currency, so as to bar us from the power of obviating any temporary difficulty or accident to which commerce is constantly exposed.

Thirty-two millions, therefore, of paper, whereof fourteen was apportioned to the Bank of England, was the bountiful allowance counted out for the daily augmenting wants of the first commercial nation of the world. All paper issue beyond that had to be represented by unfructifying bullion, stored up in bank vaults and cellars, as far away from profitable employment as if it had been buried beneath the ruins of Nineveh, with some tutelary demon as its guard. And it is a fact, which we do not remember to have seen stated elsewhere, but which, nevertheless, is notorious to all commercial people, that a vast deal of gold is constantly forced into the Bank to represent and occupy the place of paper which is absent from the country. In the Continent and in America, Bank of England notes are an extremely common tender, and are often actually at a premium; and each of these so circulating withdraws, under Peel's system, an equivalent amount of gold from the national use.

We do not mean to assert, for the point is immaterial to our argument, that this thirty-two millions, plus the gold, might not at one time have sufficed for the country, and it may be that it shall again suffice. When we speak of expansion, we also give credit to the counter-state of contraction; and our experience of Scottish banking has gone far to prove, that a low rate of circulation is by no means incompatible with a healthy state of trade. But then, experience equally teaches us, that the low rate must be left to adjust itself. Expansion is not, as is commonly supposed, an inevitable sign of prosperity. On the contrary, it is too commonly a token of want of commercial confidence, and all indisposition to receive that far larger but uncalculated species of currency, by means of which the great transactions of the country are carried on, and to which the whole coinage and bank paper of the realm bears a mere fractional proportion—we mean the commercial bills of exchange. The ordinary currency of the country, the bank paper and all the gold which could possibly be imported, even were it all thrown into circulation, would be utterly insufficient to supply the place of that commercial paper which has for its basis nothing more than mutual confidence and credit; but then that paper must be realisable as it becomes due, and it is for that purpose that a large proportion of the ordinary currency is required.

Whenever a want of confidence is generated in the country, the merchant and manufacturer are immediately compelled to have recourse to the bank in order to have their bills discounted. The facility of these discounts, of course, depends upon the amount of money in circulation, and also very much upon the rapidity of its return in the shape of deposits or otherwise. A banker cannot, any more than a private person, discount without having money, and where no money is procurable, the ultimate result must be a stoppage. And so it is, as we know full well from the experience of the last two months, during which we have witnessed the unparalleled spectacle of houses suspending payment, and exhibiting at the same time a large excess of assets beyond all their liabilities. Want of confidence, therefore, however brought about, is the great evil against which, in this country, we ought especially to guard, since it seems almost apparent that, when it occurs, human ingenuity is not equal to provide a remedy.

Let us, however, look a little more closely into the present posture of affairs, and endeavour to ascertain whether the want of confidence which at present undoubtedly exists is the result of external and uncontrollable causes, or whether it is not in some way connected with, and occasioned by these restriction acts, which are just now affording so plentiful a harvest to the cautious and wary capitalist.