Sect. V.—: Act of 1844. Objections to and Defence of that Act. Suspensions of in 1847 and 1857.

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. 98, 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, in as far as possible, existing interests, and to avoid taking any step that might excite the fears or suspicions of the public; the grand difficulty being to reconcile such a course with the adoption of any plan that would obviate in any considerable degree the defects complained of. Happily this difficult problem was satisfactorily solved. The measures which Sir Robert Peel introduced and carried through Parliament in 1844 and 1845, for the improvement of our banking system, were so skilfully 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 Vict. c. 32, which refers to the Bank of England, and the English country banks; and the Acts 8 and 9 Vict. c. 38, 37, referring to the banks of Scotland and Ireland. These statutes were intended to obviate the chances of over-issue, and of sudden fluctuations in the quantity and value of money, 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. In dealing with the Bank of England, Sir Robert Peel adopted the proposal previously made by Lord Overstone, 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 no 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 circulation of the bank could not, in any ordinary condition of society, or under any mere commercial vicissitudes, be reduced below fourteen millions. And the Act of 1844 allows the bank to issue this amount upon securities, of which the £11,015,100 she has lent to the public is 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 (1857) been increased from £14,000,000 to £14,475,000. But for every other note which the issue department may at any time issue over and above the maximum amount (£14,475,000) issued on securities, an equal amount of coin or bullion 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 preferred 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 has sometimes been proposed to increase the issue upon securities from fourteen to fifteen or sixteen millions. But though a measure of this sort would in nowise affect the amount of the currency, it would in some degree, perhaps, diminish the security for its conversion in periods of difficulty; and the advantage that would result from setting free one or two millions of bullion is too trifling to be gained by exposure to such a contingency.

We may, perhaps, be allowed, in connection with this part of our subject, shortly to observe, that it was suggested to the late Committee on Banks (1857), that the currency might be improved by issuing some fourteen or twenty millions of inconvertible notes. (Min. of Evidence, pp. 441-449). The deserts of this proposal may be easily appreciated; and it would not have been worth notice had it not been one of the few practical measures recommended by the opponents of the Act of 1844. It is plain that inconvertible notes, supposing them to be issued in moderate quantities, or to the extent of fourteen millions or thereby, would not serve all the purposes, nor be of the same value as those that are convertible; and if they circulated, it would only be at a fluctuating rate of discount, as compared with other notes and coins. And while the greatest confusion and disorder would thus unavoidably result from their issue, nothing whatever would be gained by it beyond what is gained by the present system. All notes are now payable in gold on demand; but as it is abundantly certain that fourteen millions of notes will be at all times retained in the pockets of the public, that amount is allowed to be issued on securities. It is obvious, therefore, that while we avoid its endless inconveniences, we should realise nothing by the issue of fourteen millions of inconvertible notes, beyond what is realised under the Act of 1844. These, however, though sufficiently conclusive, are inferior considerations. If once we begin to issue such notes, it is impossible to say where we shall be allowed to stop. The principles, if so we may call the crude and contradictory assertions of the proposers of this notable scheme, would justify an issue not merely of fourteen or twenty, but of forty or fifty millions, or any greater sum. But it is not conceivable that it should meet with any countenance from any portion of the public, much less that it should be adopted. If it were, it requires little prescience to foresee that its results would be alike speedy and disastrous. What has repeatedly happened under the like circumstances would no doubt happen again. Gold would be driven from the country; all contracts would be upset, and we should be fortunate indeed if we escaped a national bankruptcy and revolution. If we take to dealing in assignats, we need not hope to escape its inevitable results.

But, dismissing such crotchets, it is alleged that the new system is injurious by shackling the bank in the use of her credit. But it must be clear on the least reflection that it does nothing of the sort. It merely 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 her capital; nor does it interfere in any manner of way with her employment either of it, or of her credit. The gold in the issue-department of the bank was not purchased by her, and does not belong to her. She 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 deservedly subjected Strahan, Paul, and Co. to transportation for fourteen years. The authority of Mr. Sheffield Neave, the present governor of the bank, may be quoted in corroboration of this statement:—“The issue department is put out of our hands altogether. We are mere trustees under the Act of Parliament, to see that those securities are placed there and kept up to that amount; and in no case can any creditor of the bank touch that which is reserved for a note-holder. We are in that respect merely ministrative; we are trustees to hold that amount in the issue-department, and our banking department has a totally separate function, which has no relation whatever to the issue-department.”—(Min. of Evidence, 1857, p. 99.)

But though she may not lay violent hands on the property of the public, the bank, it is obvious, has at this moment the same absolute command over her entire capital and credit, that she would have were the Act of 1844 non-existent. In her banking capacity she is free from all restraint, and is in precisely the same situation as other banking or mercantile establishments. She may lend or not lend as she pleases, and may lay down such conditions as she pleases in regard to the interest and the terms of her loans and discounts. In short, she may do whatever she likes with her own. But farther she is not permitted to go. She may not substitute shadows for realities. She cannot, whether to assist others, or to relieve herself from embarrassment, issue a single note except upon a deposit of bullion. But this rule does operate on herself only. It applies to all individuals and associations. And to relax it in any degree would be—disguise it as you will—to authorise an issue of fictitious or spurious paper, and consequently to vitiate the currency and to abuse credit in the way that is sure to be in the end the most disastrous.

This statement shows the groundless nature of the charge which is often made against the Act of 1844, that under its operation the bank runs the risk of being brought to a stop, though she may have some five, six, or even eight millions bullion in her coffers. For it is plain that two things are confounded in this charge, which are quite distinct, and have no necessary connection with each other, viz., the proceedings of the bank in her capacity of issuer of notes, and her proceedings in her capacity of a banking company. In her former capacity it is all but impossible that she should be brought to a stop; and if such a thing should happen, there would not then be an ounce of bullion in her coffers. It is not, however, impossible, nor even very improbable, that the bank should be brought, in her mercantile capacity, into difficulties, while there may be a large amount of bullion in the issue-department. But, though such should be the case, is that any reason why she should be permitted to draw on funds that do belong to her, and over which she has no control? Strahan, Paul, and Co. were in difficulties when they sold the bonds and other securities intrusted to their care. And supposing the bank were in difficulties, is she to be allowed to right herself by setting aside the principle of meum and tuum, and seizing on what belongs to others? Her directors would be the first to repudiate such a doctrine. It may be popular among the founders and managers of the Royal British Bank, and their associates and admirers here and elsewhere, but it will be contemptuously rejected by all men who have any sense of honour, or regard for character.

We have already seen that the facility with which fictitious paper might be issued previously to 1844 was, on many occasions, greatly abused, and that by giving a powerful stimulus to speculation and over-trading, it promoted in no ordinary degree, even when it did not originate, those periods of artificial prosperity that never fail to terminate in bankruptcy and ruin. But though such stimulus can no longer be applied, it is alleged that the Act of 1844 has increased industrial vicissitudes by increasing the number and intensity of fluctuations in the rate of interest. But this charge is no better founded than the others. Previously to the modification of the usury laws in 1839, the bank could not charge more for loans than 5 per cent.; and for some considerable period after the restriction had been removed, the directors, influenced in part at least by their accustomed habit, permitted on several occasions the bank to be involved in difficulties which might have been averted by their sooner raising the rate of discount. But everybody who knows anything of the matter, must know that the measures of the bank do not determine the general rate of interest. She of course fixes the rate at which she will lend; but her rate is one thing, and the market rate another. Generally, she regulates her proceedings by the fluctuations in the latter. If, on the one hand, the rate of interest fixed by the bank were above the market rate, none but fools, or persons in desperate circumstances, would resort to her for discounts; while, on the other, if it were below that rate, the demands upon her would be so very great that her means would be speedily exhausted. Whether, therefore, there have been more or fewer fluctuations in the rate of interest since 1844, than in any previous period of equal duration, it is difficult to say, and the fact, were it ascertained, would be wholly immaterial to this question. Fluctuations in the market rate of interest seldom depend, in any degree, and never to any considerable extent, on the proceedings of those whose paper, like that of the bank, is equivalent to, and may be immediately converted into, gold. They are brought about by widely different means; by fluctuations in the rate of profit depending on the negociation of loans; the greater or less demand for capital caused by the opening of new and the shutting up of old commercial channels; the increased efficiency of industry; the undertaking of new projects; and so forth. Fluctuations originating in such widely different causes, must necessarily be of frequent though uncertain occurrence. There can, however, be no manner of doubt, as has been already seen, that their frequency and violence are uniformly and greatly increased by the revulsions consequent on over-issues of paper. At this very time (November 1857) in the United States, which are sufferers from a recoil of this sort, the rate of discount on first class bills varies from 20 to 30 and 40 per cent., while inferior paper cannot be negociated on any terms. The Act of 1844 has made such ruinous fluctuations, or anything approaching to them, impossible in this country, and on that ground alone, were there none else, it is entitled to the support of all save the merest gamblers.

While, however, the commercial vicissitudes which take place in this country are trifling compared with those that take place in the United States, they are also much less severe than those which occurred prior to the Act of 1844. But no one ever said or supposed that that Act, or that any other possible Act, would free us entirely from such vicissitudes. Its object was to insure at all times the equality of gold and paper, and to redress an adverse exchange. But though these great ends be completely effected, we are still necessarily left to contend with such evils as may result from the revulsions and contingencies inseparable from our enormously extended credit and commercial systems. Speculation, and the miscalculation inseparable therefrom, will continue; credit will be given to those from whom it should be withheld; bad harvests will no doubt recur; American and other extensive importers of our produce, will sometimes fail to make good their engagements; great corporations will sometimes be mismanaged; and mistaken views will sometimes prevail amongst the public. And the distress occasioned by the occurrence of these and other contingencies, may be severe, long continued, and widely diffused. But while, on the one hand, the bubble of unnatural prosperity is no longer inflated, as was formerly the case to a vast extent, by issues of spurious paper, so, on the other, the suffering and distress caused by the subsequent revulsion, are no longer inflamed and aggravated by their withdrawal or destruction.

The truth is, that no commercial crisis has been, or can be, averted by making issues of fictitious paper. On the contrary, by improperly bolstering up parties not entitled to credit, and by preventing that timely contraction of the currency which is necessary to correct an adverse exchange, they invariably tend to increase the mischief they are meant to alleviate. To tamper with the currency, except under the exigency of internal discredit or of a panic, is a totally inexcusable proceeding. Having adopted gold for the standard of our money, it is our bounden duty to keep such paper as is substituted for gold, on a par with it. Indeed it would be quite as correct to say that a commercial crisis may be mitigated by a change in our measures of length, capacity, or weight, as by a change in our measure of value.

It is further objected to the Act of 1844, that it “limits the currency;” that it makes no provision for the increasing demands of the public; and confines us, in 1857, when the exports will probably exceed 120 millions, to the same amount of money as in 1844, when the exports did not exceed 581/2 millions. But though this statement has been made by parties who ought to have known better, the reader can hardly require to be told that it is completely destitute of foundation. The £14,000,000 issued on securities, is the only thing that is limited in the Act; every thing else varies with the varying condition and circumstances of the country, including the means by which the use of money may be economised. In the week ended the 29th of August 1857, the issue department of the bank had issued notes to the amount of £25,323,965, being no fewer than £11,323,965 over and above the amount authorised to be issued on securities. And if the country had really required a larger supply of money, that is, if more coins, or paper equivalent to coins, could have been absorbed into the circulation without rendering the currency redundant, and depressing the exchange, the additional quantity would have been forthwith supplied. For, under such circumstances, merchants, bankers, and money-dealers, would have realised a certain and immediate profit by carrying bullion to the mint or the bank, that they might obtain coins, or notes, or both, with which to increase the currency. It is one of the chief merits of the Act of 1844, that, under its agency, the supply of money is not to any extent or in any degree regulated or influenced by the proceedings of the bank, or the government. They have nothing to do in the matter, unless it be to coin the bullion which individuals or firms carry to the mint for that purpose, and to exchange, when called upon, notes for coins, and coins for notes. The supply of money, like that of all nonmonopolised articles, is wholly dependent upon, and is determined by the free action of the public. It would, indeed, be quite as true to say, that the Act of 1844 limits the amount of corn, of cloth, or of iron produced in the country, as that it limits the amount of money. It maintains the value of the notes issued by the bank on a level with the coins for which they are substitutes; but beyond that its effect is nil. It has nothing whatever to do with the greater or less amount of the currency. That depends entirely on the estimate formed by the public of its excess or deficiency, an estimate which, when wrong, is sure to be corrected by the exchange.

We may add, that no inference can ever be safely drawn from the number of notes or coins, or both, afloat in a country, as to whether its currency be, or be not, in excess. That is to be learned by the state of the exchange, or by the influx and efflux of bullion. If the imports of bullion exceed the exports, it shows that the currency is in some degree deficient; while, if the exports exceed the imports, it shows that the currency is in excess, and that no additions can be made to it without farther depressing the exchange and increasing the drain of bullion. When the imports and exports of bullion are about equal, then of course the currency is at about its proper level. These are the only criteria by which anything can ever be correctly inferred, in regard to the deficiency or excess of currency. Its absolute amount affords hardly even a basis for conjecture. When there is little speculation or excitement, an issue of 25 or 27 millions bank notes may be in excess; while, at another time, and with a different state of trade and speculation, an issue of 35 or 37 millions of notes may not be enough. Except in periods of internal commotion, or when we are disturbed by alarms of invasion, the state of the exchange is the only, as it is the infallible, test of the sufficiency and insufficiency of the currency.

We may farther state, that those who are in the habit of complaining of the limitation of the currency by the Act of 1844, almost uniformly underrate its amount. We have already seen that, in the week ending the 29th August 1857, the notes issued by the issue department of the bank amounted to £25,323,965, of which £5,999,790 were in the banking department of the bank, leaving a balance of £19,324,175 in the hands of the general public; and this latter sum is, we are told, the real amount of the issues. But this is falling into the rather serious blunder of mistaking a part for the whole. The notes in the banking department of the bank make not only a part, but a most important and active part, of the currency of the country. They constitute the means, along with the bullion in the same department, with which the bank carries on her banking business, and are as evidently a portion of the currency as the notes in the tills of private bankers and the pockets of individuals. The notes in the banking department of the bank must therefore never be omitted in estimating the amount of notes in circulation. The latter, and the notes out of the issue department, are identical; and, in a general point of view, it matters not a straw whether they are in the hands of the banking department of the bank or of individuals.

We have seen that bills of exchange, about which so much is said, though they serve some of the purposes of money, are not money. But whether the amount of them in circulation be great or small, and whether they be drawn at long or short dates, though highly important in other respects, has no reference to, or bearing upon, this question. When from any cause, whether from an excess in the amount of bills, or notes afloat, the currency becomes redundant, the exchange is depressed, and notes are sent to the issue department of the bank to be exchanged for gold, which is forthwith exported. And it is by the immediate action of the adverse exchange upon notes, and the consequent influence of the contraction of the latter upon bills, that the amount of the currency is lessened, its value raised, and the exchange brought to par. At such periods there is usually more or less of mercantile pressure, and a greater demand for discounts and pecuniary accommodation. This leads to a rise in the rate of interest; but no change in this rate has any influence over the currency, except in so far as its rise may diminish, and its fall may increase, the demands upon the bank for loans. A system of this sort effectually prevents any great excess of bills from ever getting into the market; and thus checks, in limine, what would otherwise be the most copious source of wild speculation, overtrading and bankruptcy.

The operation of the present system during the late war with Russia, was in all respects eminently satisfactory. It stood in the way of no legitimate transaction, of no fair exercise of the credit, either of the state, or of individuals. But as it was a powerful obstacle to the creation of artificial credit, it was eminently unpopular with those who supposed they would profit by such abuse. It is doubtful, indeed, had the war continued for two or three years longer, whether government might not have been compelled to resort to an inconvertible paper, and consequently to place the property of the public, and of every individual, at the mercy of its issuers!

It is, therefore, wholly untrue to say that the Act of 1844 aggravates the severity of any mercantile pressure that may occur. Its practical effect is to do what other Acts professed but failed to do, that is, to make paper and gold precisely of the same value, and to insure the immediate conversion of the former into the latter. This is what the Act of 1844 really does. And to say that this aggravates either pressure or distress, is equivalent to saying that it would be aggravated by employing a purely metallic currency, or by maintaining a practically invariable measure of value, which is absurd. A gold currency interposes no obstacle to the free transfer of capital from one party to another, and has in truth no influence of any sort over its distribution, its employment, or the rate of profit. How, then, can it either occasion distress, or add to its pressure. It is not difficult to discover, in the stimulus given to emigration and industry by the discovery of the Californian and Australian gold fields, in the destruction of capital occasioned by the late war, in the hoarding now going on in India, China, and other countries, in the improvement of industry and the extension of commerce, and in the various schemes afloat, the causes of the present high rate of interest. But whatever they may be, the equality of gold and paper in England cannot be one of them. Neither can it be said to be occasioned by a scarcity of gold, for we have exported it to all parts of the continent; and interest is more than three times as high in California, and more than twice as high in Australia, in both of which gold is comparatively cheap, as in the United Kingdom.

It is quite true, that if the check on the issue of paper were less cogent than at present (1857), parties might, perhaps, be tempted to lend it at less than 6 or 5, or even 4 per cent. But, down to a very late period, the currency, as shown by the exportation of gold, was really redundant; and hence it is obvious, that the issues now referred to, supposing they had been made, would, by making it still more redundant, have depressed the exchange to a still greater extent, and proportionally increased the drain for gold. Every device of this sort, that is, every attempt to obviate a foreign drain by encroaching on the integrity of the currency, is sure to lead to mischief. It may, like drams administered to a person with a broken-down constitution, have a momentary effect, but the collapse is inevitable, and is sure to be ruinous in proportion to the previous abuse of the stimulant.

It may be said, perhaps—for there is no end of apologies for whatever is vicious—that if the issue of notes were in the hands of government, the entire profit accruing thereon would belong to the public. But supposing such to be the case, the difference between that profit, and that which is or may be realized under the present system, would either be nothing at all, or so inconsiderable as to be wholly unworthy of attention. It will be afterwards seen that at this moment the public receives by far the greater part of the profit made by the bank on the fixed issue of £14,000,000, and if it be deemed expedient, that part may be still further increased, or turned into the lion’s share. Assuming, therefore, for a moment, that the power to issue notes is vested in government commissioners, it is not pretended that these notes are to be legal tender. Nothing so monstrous as that could be thought of, or at all events, durst be proposed. The notes issued by the commissioners, like those issued by the bank, must be paid on demand. But to do this, a stock of bullion must be provided; and unless the plan now followed were adopted, and all issues above the amount of £14,000,000, or thereby, were made upon deposits of bullion, the public would not have that perfect security which is given them by the present system, and which is worth more than ten times all the profits arising out of the fixed issue. Even under the old system, or that which existed previously to 1844, the rule of the bank was to keep a stock of bullion on hand equal to a third part of her issues. But this rule was not, and in truth could not, be acted upon. It is plain, however, had it been bona fide carried out, that the profits on the issue of notes would not have been materially, if at all different, from what they are at this moment. Nothing, therefore, can be more completely futile than the talk about the large profits that would accrue to the public by vesting the power to issue notes in commissioners appointed by government. With the same security as at present for the conversion of the notes into coin, nothing would be gained by such appointment; and if, as would most likely be the case, it lessened the security referred to, and added to the chances of over-issue and mismanagement, the injury to the public hence resulting might be enormous. We, therefore, are disposed to believe, that of the various proposals in regard to the currency, that which proposes to vest the issue of notes in the hands of government commissioners, is one of the most objectionable. The chances are ten to one that they would act as directed by the government of the day; and this, at all events, would be popularly assumed to be the case. Supposing, however, that they did nothing of the sort, but were perfectly independent, still it is obvious, that whatever they did more or less than is done at present, would be mischievous. And such being the case, it is not easy to see what advantage would be gained by their appointment; while it would have the serious disadvantage of making government directly responsible, in the public estimation, for whatever inconvenience might at any time be supposed to result from the limitation of the currency.

Another class of opponents to the Act of 1844, though but a small minority, take a different ground from most of those already noticed, and contend not that the Act is too strict, but that it is not strict enough. According to their view of the matter, no notes should be issued on securities. And they propose, conformably to their theory, that the issue of notes should be transferred from the bank to the mint, and that none should be issued except upon the deposit of a corresponding amount of bullion. This project, however, were it adopted, would not be productive of any advantage of any kind whatever, while it would abstract more than fourteen millions of capital from useful purposes. There is not, as already seen, the smallest chance that, under ordinary circumstances, or in the absence of internal commotion or panic, the issue of bank-notes will ever be reduced so low as £14,000,000; and it is therefore quite enough for every purpose of security, that the notes above that limit should be issued on deposits of bullion. How invaluable soever, it would be absurd to make greater sacrifices in favour of security than what are sufficient to obtain it in its most perfect state; and these are fully realized by the Act as it now stands.

It is argued, indeed, by those who have brought forward this scheme, that it would greatly improve the conduct of the bank, and that there would henceforth be fewer fluctuations in the rate of interest, and so forth. But every one must see that those who make such statements confound the proceedings of the bank as issuer of notes, with her proceedings as a great banking association. In truth and reality, however, the former have no connection with the latter; and are conducted precisely as they would be were the suggestion now under consideration to be adopted. In her proceedings as a great banking company, the bank is necessarily affected by all those circumstances which affect the trade and industry of the empire and the world, the state of the exchange, the demand for discounts and loans, and so forth. She must act accordingly, and adapt her measures to the varying wants and exigencies of society. But it is indifferent to the banking department of the bank, whether the notes which are used by it are obtained by carrying an equivalent amount of gold to the issue department, or to any other place. And such being the case, it is clear that the proposed plan, were it adopted, would obviate none of the inconveniences, if such there be, that attach to the present system, while it would introduce others which at present have no existence. For it would occasion a waste of the national resources by unnecessarily locking up fourteen millions of gold; and it would place the issue of paper, where it never ought to be placed, in the hands of government officers. But it is needless to enlarge further on a scheme which is sure to be repudiated by all parties.

The objections to the Act of 1844 are so various and so opposite that they are not easily recollected. Sometimes we are told that it is inconsistent with itself and incomplete, and that it deals stringently with the Bank of England, while it hardly interferes with the country banks. But this is an unfair representation. In dealing with the country banks the Act may not have gone quite so far as it was desirable it should have gone, or as Sir Robert Peel wished it to go; but it notwithstanding effected, even in that respect, a very great improvement, and really left but little to be wished for.

To prevent future over-issues of country paper, it was enacted, that from and after the passing of the Act, no new bank for the issue of notes should be established in any part of the United Kingdom. And it was farther enacted, that the maximum issue of notes by the existing country banks should, in future, be limited to the average amount which they had respectively in circulation during the twelve weeks preceding the 27th April 1844; and various penalties are imposed on those whose issues exceed that fixed amount. It was then, also, ordered that the names of the partners, in joint-stock and other banks, should be periodically published.

These are most important regulations. No doubt it would have been better had provincial issues been entirely suppressed, and Bank of England notes been made the only legal substitute for coins. But in matters of legislation what is practicable is of quite as much importance as what is absolutely just and proper. Sir Robert Peel knew what he could carry through Parliament. Had he attempted more he would not only have failed of his object, but would, most likely, have endangered the success of the other and far more important portion of his measure which related to the Bank of England.

Under the operation of the Act of 1844 the extinction of the country issues is being gradually effected, partly by some of the issuing banks finding it to be for their advantage to use notes of the Bank of England instead of their own, and partly by the winding up of some concerns and the bankruptcy of others. But, owing to the limitation of the issues, comparatively little inconvenience has resulted to the public from the latter circumstance.

On the whole, therefore, there does not appear to be much ground on which to object to the existing arrangements in regard to the country banks. Though not theoretically perfect, their practical deficiences are unimportant. To attempt to obviate them might imperil other and more important arrangements. And we incline to think that the notion that such would be the case has had not a little to do in making them be pressed on the attention of the public.

But it is said, “that even the best system cannot always be carried to an extreme. The Act of 1844 has had to be suspended in 1847, and again in 1857; and machinery for its relaxation in periods of difficulty should be introduced into it!”

We beg, however, to express our dissent from this doctrine. It would be easy to show that the embarrassment of the banking department of the bank in 1847 was mainly a consequence of the injudicious proceedings of the directors; and it is to be hoped that the experience they acquired on that occasion may not be forgotten. But in whatever way the crisis may have originated, there can be no question that the suspension of the Act in 1847 was a measure of doubtful policy. The exchanges had already become favourable, and it was the prevalent opinion in very well-informed quarters, that the panic which had begun to show itself would speedily have disappeared without the intervention of government. It should never be forgotten that, apart from internal panics, the time when the Act is said to be working harshly and oppressively, is the very time when it is most for the public advantage that it should be honestly carried out.

That such is the case is admitted by the highest authorities, and among others by Mr Hubbard, late governor of the bank. “As limitation of credit paper is,” says he, “of the very essence of the Act of 1844, and as limitation operates sensibly only under circumstances of pressure, it is obvious that to evade its stringency because a pressure is felt, is simply to stultify the Act; while again, to admit a provision for extending the credit issue in the event of difficulties arising from any possible or prospective contingency, would be to encourage overtrading, and foster in the banking community an unwarrantable dependence upon the Bank of England, while they make immoderate engagements, and neglect to maintain an adequate reserve for their own protection.”

In regard to the late suspension of the Act, we are, perhaps, too near the occurrence to be able to judge dispassionately of its policy. Owing, in no inconsiderable degree, to the prudence with which the business of the bank has been conducted of late years, there has not been, until very recently, any material amount of mercantile distress. Credit, indeed, is apt at all times to be incautiously and improperly given, and there is uniformly a good deal of overtrading and unwarranted expenditure. But except when a revulsion, or something else occurs to deprive parties who are overtrading of their accustomed accommodations, a system that is rotten at the heart may wear an imposing appearance, and seem to be possessed of that solidity of which it is wholly destitute. When, however, the hollowness of such a state of things is laid bare, it would be a gross abuse to attempt by forced measures to bolster up a parcel of mismanaged, bankrupt or ricketty concerns. Such a proceeding is unjust to all those parties who have conducted their businesses soberly and cautiously; and it tempts others to engage in reckless courses, from believing that government will, in the event of their speculations breaking down and being on a sufficiently large scale, volunteer to keep them on their legs.

This last is a most important consideration. In business matters, as in every thing else, individuals should be taught to rely exclusively on themselves. Those who rely on others are necessarily less industrious, cautious, and provident, than if they had no such dependence. They believe that, when the evil days come, they will be helped out of their difficulties; and they therefore make no provision against them, or none that is adequate. It is not easy to estimate the pernicious influence of the statements that are so frequently put forth, of this, that, and the other house, being in difficulties, and of their having obtained large advances from the bank, or other great associations. In nine cases out of ten these difficulties might have been avoided; and had the parties not been pretty well assured that assistance would be granted, they would not have needed it. They would have confined their engagements, and still more their expenditure, within reasonable limits; and their solvency or bankruptcy would not have depended on the judgment or caprice of any set of men. All applications for relief should be rigorously scrutinised; and those best qualified to form a just opinion on such subjects, are of opinion, that there are but few cases in which it is for the public advantage that they should be complied with. “An avowed system,” said the most distinguished merchant of his day, “of leaving things to take their own course, and of not listening to the interested solicitations of one class or another for relief, whenever the imprudence of speculation has occasioned losses, will, sooner than any artificial remedy, reproduce that equilibrium of demand and supply which the ardour of gain will frequently derange, but which the same cause will, when let alone, as infallibly restore.”

But, however important, even these principles are not to be carried out at all hazards. The salus publica is the first consideration, and to it all others must give way. And if, at any time, it can be shown that that grand principle would be compromised by abiding by the Act of 1844, or by any other Act, then undoubtedly it ought to be suspended. But the necessity for interference must be clearly made out.

The late revulsion, which grew out of the stoppage of the American banks, is said to be an instance of the kind now referred to. The real value of the exports from this country to the United States amounted in 1856 to £21,476,000, of which a large portion was unpaid when the banks stopped payments; and a further and very large sum was due to us on account of dividends on state, railway and canal stocks, and so forth, held by parties in England. The sudden cessation of so large an amount of payments could not fail to occasion a good deal of distress among the merchants and others dealing with America. And it was among this class, or those intimately connected with it, that the greatest overtrading and abuse of credit had taken place. Some firms in Glasgow, which had been notoriously overtrading for a number of years, were the first to give way. And their failure being on a very large scale, the banks by which they had been principally supported became the objects of suspicion. And from suspicion to distrust there is but a step. Notwithstanding the numbers and wealth of the shareholders responsible for the banks in question, they were subjected to a run on the part of the inferior class of note-holders and depositors, and their resources being either anticipated or locked up, they were obliged to suspend payments. And had they only failed, none could have regretted the result. On the contrary, it would have been nothing more than they deserved, for they had for a lengthened period grossly abused the ample resources at their command, and resorted to the most questionable means to bolster up the speculators with whom they had become identified. But the mischief is, that the disastrous effects of such proceedings cannot be confined to the guilty parties. A fire originating in a pig-stye may destroy a palace. The suspension of the offending banks, by generating uneasy feelings and suspicions in the public mind, led to a run on some of the other banks. And to provide for their own safety these establishments immediately began to sell securities, and to adopt other means, by which to obtain supplies of gold. Large amounts of it were in consequence carried to Scotland. And, in addition to the demand for gold, that for discounts, notwithstanding the high rate of ten per cent. charged by the bank, continued undiminished, so that the reserve in her possession was reduced on the 11th of November to £1,462,153; and it was the general belief, that this inadequate reserve would be forthwith either much reduced or wholly swallowed up. To avert the possibility of such an event occurring, the directors were authorised, on the 12th of November, to issue notes without being bound by the conditions of the Act of 1844.

This, though a brief, is, we believe, a sufficiently accurate account of the circumstances that led to the suspension of the Act in 1857. The weight to be attached to them will be differently estimated by different individuals. The suspension is believed by some to have been, at least, premature, and others think that probably it might have been avoided. It is alleged that the panic in Scotland had begun to subside previously to the measure being adopted; and it was all but certain that when it had subsided, a considerable portion of the gold that had been sent to Scotland would speedily find its way back to London, and some considerable risk and inconvenience should have been encountered rather than that measures should have been adopted, the effect of which will be to protect speculators and money dealers without capital, and wanting alike in character and conduct, from the consequences of their unjustifiable proceedings. But, at the same time, we admit that the immediate exposure and punishment of these parties, however desirable, was not to be purchased at the risk of a general revulsion. And as the information laid before ministers made them believe that such a calamity was imminent unless the statute of 1844 was suspended, they were bound to act upon that conviction, and to provide ne quid detrimenti respublica capiat.

But whatever may be thought of these conclusions, it is at all events certain that the Act of 1844 had nothing whatever to do with the late revulsion. It did not occasion the American stoppage, and under its operation the foreign drain for gold had been entirely stopped; and though it could not prevent the abuses in banking, and the system of rediscounting and overtrading in which so many banks and firms have been engaged, it contributed in no ordinary degree, by preventing the issue of spurious paper, to confine them within comparatively narrow limits, and to lessen the violence of the crisis.

The Act of 1844 is a rule to be enforced in all but extraordinary and unforseen emergencies, the urgency of which cannot be appreciated beforehand, but must be determined at the moment. But when these occur, it may, like the Habeas Corpus Act, be properly suspended. It is mainly calculated to regulate our currency by the exchanges, or through our commercial intercourse with other countries; but it is not applicable, nor is any system of which the convertibility of paper into coin makes a part applicable to a state of internal discredit or panic. Had it existed in 1797, it must have been suspended; and its suspensions in 1847 and 1857 are only to be justified by the state of our domestic affairs making an adherence to principle inexpedient and impracticable. But, whenever the circumstances referred to, that is, when the panic and distrust that occasion the suspension of the Act subside, then it should be revived in its pristine vigour. The Habeas Corpus Act is not the less efficient at this moment that it has been repeatedly suspended in periods of danger and difficulty.

Inasmuch, however, as the Act of 1844 has been suspended in cases of emergency, and as there can be no doubt that it will be suspended, if occasion require, in time to come, it may be supposed, perhaps, to be indifferent whether such suspension should be effected as hitherto by the pro re nata interference of ministers, or whether a suspensive power should be embodied in the Act. We believe, however, that the present plan is much the best of the two. When government interferes to suspend the Act, the necessity under which they are now placed of applying to Parliament for an indemnity, and the discussions thence arising, are the best securities that can be obtained for the measure not being resorted to rashly, or without a reasonably good cause. But it would be quite another thing did the Act contain a clause authorising suspensions. This would show that they were expected, and, indeed, almost invited. Under such circumstances, they would soon come to be regarded as matters of course, and to be resorted to whenever a complaint or cry of monetary pressure was got up. And were such the case, it would be idle to suppose, that either the Act or the convertibility of notes should be maintained for any considerable period. The millennium of the paper-mongers would be at hand. When the checks which with difficulty restrain over-issue, depreciation, and fraud, are repealed or rendered inefficient, what are we to expect but that they should extend their baleful influence on all sides?

If we are right in these statements, it follows that the Act of 1844 should be indefinitely continued with little or no alteration. We are well convinced that all the most important interests of the country will be best secured by such a proceeding.