In the end, no doubt, an efflux of the former was sure, by rendering money and all sorts of pecuniary accommoda tion scarce in the metropolis, to affect the country banks as well as the Bank of England ; and then the injury to industry, occasioned by the withdrawal of their accustomed accommodations from a great number of individuals, was severe in proportion to the too great liberality with which they had previously been supplied. This was especially the case in 1836, when the Bank of England, by bolstering up the Northern and Central Bank, averted, though but for a while, the bankruptcy of that establishment, which had no fewer than forty branches, and, by doing so, is said to have prevented the occurrence of a panic that might have proved fatal to many other joint-stock and private banks. Still, however, the shock given to industrial undertakings, by the revulsion in the latter part of the year, and in 1837, although unaccompanied by any panic, was very severe. All sorts of commercial speculations were for a while completely paralyzed, and there were but few districts in which great numbers of individuals were not thrown out of employment. In Paisley, Birmingham, and most other towns, the distress occasioned by the revulsion was very general and long-continued. And owing to the Bank of England having delayed, in 1838 and the earlier part of 1839, to take efficient measures for ths reduction of its issues, despite the unmistakable evidence of their being redundant, the bullion in its coffers was reduced in September 1839 to 2,406,000 ; and, but for the efficient assistance obtained from the Bank of France, its stoppage could hardly have been averted.
Act of 1844—Objections to and Defence of that Act—Suspensions of in 1847, 1857, and 1866.
This perilous experience having again forcibly attracted the public attention to the state of the banking system, Sir Robert Peel was induced to attempt its improvement. The clause in the Act 3 and 4 Will. IV. c. 9, which renewed the bank charter in 1833, gave Parliament power to revise or cancel it in 1845, and thus afforded a legitimate opportunity for the introduction of the new system. It was indispensable, in attempting to obviate the defects inherent in our currency, to proceed cautiously, to respect, as far as possible, existing interests, and to avoid taking any step that might excite the fears or suspicions of the public ; but the measures which Sir Robert Peel introduced and carried through Parliament in 1844 and 1845, for the improvement of the English banking system, were so skil fully contrived as to provoke little opposition, at the same time that they effected most important and highly beneficial changes.
The measures in question consisted of the Act 7 and 8 Viet. c. 32, which refers to the Bank of England and the English country banks ; and the Acts 8 and 9 Viet. c. 38, 37, referring to the banks of Scotland and Ireland. These statutes were intended to obviate the chances of over-issue, by limiting the power to issue notes payable on demand, and by making the amount of such notes in circulation vary with the amount of bullion in the possession of the issuers, and this object has been perfectly attained. The statutes have as completely failed to attain a second object con templated by their author that of preventing great and rapid fluctuations in the rate of discount ; and the truth is now recognized, that the power of over-issuing notes is one of many causes which may conduce to variations in the rate of discount and by no means the most efficient of them. In dealing with the Bank of England, Sir Robert Peel adopted the proposal previously made by Lord Overstone,[1] for effecting a complete separation between the issuing and banking departments of that establishment, and giving the directors full liberty to manage the latter at discretion, while they should have uo power whatever over the other.
The notes of the Bank of England in circulation for some years previously to 1844 rarely amounted to twenty, or sunk so low as sixteen millions. And such being the case, Sir Robert Peel was justified in assuming that the circula tion of the bank could not, in any ordinary condition of society, or under any merely commercial vicissitudes, be reduced below fourteen millions. And the Act of 1844 allowed the bank to issue this amount upon securities, of which the 11,015,100 lent by the bank to the public was the most important item. Inasmuch, however, as the issues of the provincial banks were at the same time limited in their amount, and confined to certain existing banks, it was further provided, in the event of any of these banks ceasing to issue notes, that the Bank of England might be empowered, by order in council, to issue, upon securities, two-thirds, and no more, of the notes which such banks had been authorised to issue. Under this condition, the total secured issue of the bank has (1875) been increased from 14,000,000 to 15,000,000. But for every other note which the issue department may at any time issue over and above the maximum amount (15,000,000) issued on securities, an equal amount of coin or bidlion must be paid into its coffers. And hence, under this system, the notes of the Bank of England are rendered really and truly equivalent to gold, while their immediate conversion into that metal no longer depends, as it previously did, on the good faith, the skill, or the prudence of the directors. And these important results have been attained without imposing any burden of which any one has any right to complain. Our currency rests on the fundamental principle, that all debts above forty shillings shall be paid in gold. But individuals and associations, including the banking or commercial department of the bank, have the option, if they prefer it, to exchange gold for bank-notes, and to make use of the latter in their dealings with the public. Hence, if A or B goes to the issuers of paper, and gets 100 or 500 notes from them in exchange for an equivalent amount of gold, it is his own convenience he has exclusively in view. He was at full liberty to use gold, but he pre ferred exchanging it for notes because he could employ the latter more advantageously. This is the way in which paper is issued under the Act of 1844 ; and such being the case, it is contradictory to say that it is productive either of hardship or inconvenience.
It is alleged that the new system is injurious by shackling the bank in the use of its credit, and the answer is, that it does this in order to prevent the greater injury of over issues of paper. The Act prevents the bank from issuing substitutes for money which do not represent money. It does not absorb or lock up a single sixpence worth of capital, nor does it interfere in any manner of way with its employment. The gold in the issue department of the bank was not purchased by the bank, and does not belong to it. The bank is its keeper, but not its owner. It belongs to the public, or to the holders of bank-notes, who deposited it in the bank in exchange for notes, with and under the express stipulation, that on paying the latter into the bank they should receive back their gold. Any interference with these deposits would be an interference with property held in pledge for others, that is, it would be an act precisely of the same kind with that which exposes private bailees to penal servitude.
on the property of the public, the bank, it is obvious, has at this moment the same absolute command over its entire
capital and credit, that it would have were the Act of 1844- ↑ In tracts published in 1837 and 1840, and in his evidence before a committee of the House of Commons in the latter year.
