office in London, or at its branches, any interest on de posits, and many plausible reasons have been advanced in defence of this rule. They are well stated in the following extract from the evidence of Mr Weguelin, formerly governor
of the bank, before the Committee of 1857:—
" We," said he, "at the Bank of England, have always considered that the proper functions of a banker were to keep the spare cash of his customer, such cash as his customer required for his daily ex penditure, for the sudden demands of his business, and any acci dental accumulation which might happen before the customer had occasion to invest it. That is contrasted with the system pursued by the joint-stock banks. The joint-stock bank invites a large deposit by offering a certain rate of interest for the deposit ; hi point of fact, the joint-stock bank becomes the investor of the money in stead of the customer. The customer of a joint-stock bank does not himself invest his own money, but he employs the joint-stock bank to do it, taking the guarantee of the joint-stock bank, and taking, possibly, a lower rate of interest. Now, that system, if applied to the Bank of England, would be, I think, very prejudicial to the public interests. It would, in the first place, force upon the Bank of England to invest its reserves much more closely .than it does now. If it had to pay interest upon its deposits, it could only do so by investing them in some securities that would pay a higher rate of interest than that which it pays. Its deposits also are of that particular character which would render it still more inexpedient that they should be closely invested. They consist, in the first place, of Government deposits, which rise from a low rate at one period of a quarter up to five or six millions higher at another period of a quarter, and again collapse to a vt ; y low rate at another period. Again, the private deposits consist, to a certain extent, of the deposits of the bankers and the joint-stock banks of London. Those deposits are the amounts which those bankers require to work their own business. Consequently, they are not deposits which should be very closelv invested by the Bank of England. In times when there is a great accumulation of deposits in the Bank of England, it is because the public are not able at those times to find investments to their mind to employ those deposits ; and consequently, it is not at all likely that the Bank of England, if that is the case with the public generally, will be able to find investments which the public themselves have not been able to do. All these reasons combined would lead me to think, that to force a system upon the Bank of England by which it should be obliged to employ its deposits very closely much more closely than it does at present would be not only prejudicial and unsafe as regards the Bank of England, but would be prejudicial to the public interest." Quest. 159.
It is, however, obvious that this reasoning is quite incon clusive. Mr Weguelin shows clearly enough that the directors of the bank would be bound to exercise great caution in the choice and extent of their investments, but he says nothing to explain why they should not, as the managers of a joint-stock company, use every means of profitably extending their business, and it is incontestable that if the bank directors offered to receive deposits at interest, the reputation of the bank would enable them to defy the competition of the other joint-stock banks. The truth is, that the non-allowance of interest is a tradition, of no authority in itself, and operating injuriously in keeping up the delusion that the banking department of the Bank of England is an institution differing essentially in the character of its business from other banks.
Previously to 1786 the bank received an allowance for paying the dividends, superintending the transfer of the stock, &c., of the national debt, at the rate of 562, 10s. a million on its amount. In 1786 this allowance was reduced to 450 a million, the bank being, at the same time, entitled to a considerable allowance for its trouble in receiving contributions on loans, lotteries, <tc. This, though long regarded as a very improvident arrangement on the part of the public, was acquiesced in till 1808, when the allowance on account of management was reduced to 340 per million on 600,000,000 of the public debt, and to 300 per million on all that it exceeded that sum, exclusive of some separate allowances for annuities, <fcc. The impression, however, was still entertained that the allowances for management should be further reduced, and this has been effected in the interim.
Exclusive of its functions as public banker and manager of the public debt, the Bank of England is connected with Government through the circulation. We have seen that it is entitled to issue the sum cf 15,000,000 upon secu rities, that is, on the credit of the funds lent to Govern ment. But for these the bank receives about 3 per cent, interest, and such being the case, the public is clearly entitled to a portion, if not to the whole amount of the profits realised by the bank on the issue of these 15,000,000. It is difficult to say how much this ought to be. The issue department of the bank seldom re issues notes, but for the most part destroys them as soon as they are returned to it. This practice is said to be necessary to enable the bank to obviate fraud, by keeping a proper account of the numbers of the notes afloat. An opinion is, however, pretty generally entertained that this might be effected by a less expensive process than that which is now resorted to. And certainly, it seems to be a very wasteful proceeding, that a quantity of newly manufactured notes issued by the bank in the forenoon, and returned to her in the afternoon, should not be re-issued, but consigned to the flames. The Scotch banks are justly censurable for keeping their notes too long afloat, but this is running with a vengeance into the opposite extreme.
In 1861 a fresh arrangement was made between the Government and the bank, to endure for 25 years. Under this agreement the bank receives 300 per million on 600,000,000, and 150 per million on the amount of debt above that sum ; but from these allowances are deducted 60,000 for exemption from stamp duties and the whole allowance out of profit of issue, making together nearly 200,000.
It should be observed that the responsibility and expense incurred by the bank, in managing the public debt, are very great. The temptation to the commission of fraud, in transferring stock from one individual to another, and in the payment of the dividends, is well known ; and notwith standing the skilfully devised system of checks adopted by the bank for preventing this, it has frequently sustained very great losses by forgery and otherwise. In 1803 the bank lost, through a fraud committed by one of the principal cashiers, Mr Astlett, no less than 340,000; and the forgeries of Fauntleroy, the banker, cost it a still larger sum. At an average of the ten years ending with 1831, the bank lost, through forgeries on the public funds, 40,204 a year. (Report on Bank Charter, Appen. p. 165.)
on the 20th of March 1823, into an engagement with Government with respect to the public pensions and annuities, or, as they have been more commonly termed, the dead weight. At the end of the war, the naval and military pensions, superannuated allowances, etc., amounted to above 5,000,000 a year. They would, of course, have been gradually lessened, and ultimately extinguished, by the death of the parties; but it was resolved in 1822 to attempt to spread the burden equally over the whole period of forty-Jive years, during which it was calculated the annuities would continue to decrease. To effect this purpose, it was supposed that, upon Government offering to pay 2,800,000 a year for forty-five years, capitalists would be found who would undertake to pay the entire annuities, according to a graduated scale previously deter mined upon, making the first year a payment of 4,900,000, and gradually decreasing the payments until the forty-fifth and last year, when they were to amount to only 300,000. This supposition was not, however, realized. No capitalists were found willing to enter into such distant engagements. But in 1823, the bank agreed, on condition- of receiving an annuity of 585,740 for forty-four years, commencing on the 5th of April 1823, to pay, on account of the pensions,
<kc., at different specified periods, between the years 1823