§ The House having, on the motion of the Chancellor of the Exchequer, resolved itself into a committee on the Bank Restriction act, and on the act for the regulation of Private Bank Notes,
The Chancellor of the Exchequer
rose to submit to the committee, the propositions of which he had given notice. The right hon. gentleman observed, that he had waited with great anxiety, and had postponed the discussion of the question to a period of the session as late as was consistent with the expectation of a full attendance of members, in the hope that some events might arise of a nature so decisive as to enable him either to declare to parliament that the Bank of England was so situated as to be enabled, with propriety, at once to resume cash payments, or that circumstances had taken place which left no room for doubt as to the necessity of a farther continuance of the restriction. The result of all his inquiries, however, on the subject was, that, under all the circumstances of the case, he was not able to state a case of so distinct and positive a nature; while he yet felt that he could not, with a view to the public interests and to the safety and convenience of commerce, but submit to the committee a proposition for still extending, although for a very limited period, the act of restriction.
In order to render what he had to say as intelligible as possible, he begged the committee to revert to the state of things under which the Restriction act had been originally passed, and under which it had subsequently and at various periods been renewed; which, at the last renewal of that act for two years, in 1816, took place with the understanding that the Bank should employ that period in providing for the resumption of cash payments at its expiration. It would also be indispensible to advert to the course of exchange during a considerable portion of the period to which he had alluded. The committee would recollect that, prior to the retreat of the French army from Russia, at the close of the year 1812, the price of gold bullion was 5l. 12s. an ounce, and of silver dollars 6s. 6d. an ounce. At that time, therefore, any attempt to restore the metallic currency of the country would have been utterly unavailing, as the coin would have been collected and melted as fast as it issued from the coffers of the Bank. But when the French army 1231 retired into Germany and was beaten there, and when a prospect arose of a successful termination of the war, gold fell to 5l. an ounce; and subsequently, when the allies got possession of Paris, to 4l. 6s. 6d., and there was every indication of its speedily falling to so low a rate as to enable the Bank to resume their payments in cash. The unfortunate events, however, which took place in the spring of 1815, and which were too notorious to render it necessary for him to particularize them, and which again involved Europe in the calamities of war, prevented this pleasing prospect from being realized. After the return of Buonaparte to France, in March, 1815, gold rose from 4l 6s. 6d. to 5l. 7s. an ounce. It was obvious that, as long as a state of hostility continued, any attempt at a resumption of cash payments would, for the reasons that had operated in preceding cases, prove wholly futile. From the period, however, at which hostilities ceased, it was but justice to the Bank to state, that they had adopted every measure of precaution which might enable them to resume cash payments with safety. Their collection of specie had been very rapid and to a large amount; indeed, to an extent beyond what he should have supposed possible in so short a space of time. Another preparatory' measure of the Bank was an experiment which was first tried by them in January 1817.—He alluded to their notice that they were ready to make payments in cash of a certain description of outstanding notes. The amount of the notes for which, under that notice, payment in cash might have been demanded was about one million sterling. The result of the experiment might be considered indicative of what would take place on a general resumption of cash payments. It was found that, so far were the public from being anxious to obtain payment of those notes which were thus rendered immediately payable in cash, that a very inconsiderable, if any demand whatever, was made for that purpose on the Bank. No preference whatever of metallic currency to paper was shown by the holders of those notes. At that time gold bullion, which had been continually sinking during the preceding year, was reduced to 3l. 18s. 6d. and silver to 4s. 10d. the ounce. It was therefore probable, that if at that time the Bank had returned generally to cash payments, scarcely any would have been demanded. It was in the recollection of 1232 several hon. gentlemen who heard him, and who had had peculiar opportunities of being acquainted with those transactions, that the facts were precisely as he had stated them. He did not wish to enter into any detail on the subject, but he might mention one circumstance as peculiarly illustrative of the feeling of the country with respect to it. When the exchange of the old silver currency for the new took place, a large quantity of the new coin was sent down to the banks in Scotland for the purpose of being exchanged. After all the required exchanges were made, a sum of about 7,000l. remained in one of them (he believed the Royal Bank of Scotland), the directors of which stated, that it was desirable that this sum should be retained for the convenience of the country; and requested, as a favour, that they might be allowed to pay for it in gold rather than in bank notes. He could mention to the committee other incidents of a similar nature, but that which he had already related might perhaps be deemed a sufficient illustration of the opinion of the country.
In October last, the Bank of England, having experienced no inconvenience from their former experiment, were induced to try another on a more extensive scale. A regular notice was issued, in pursuance of the directions of the act of the 37th of his present majesty, and of the several acts since passed for continuing and amending the same, that on and after October 1st, the Bank would be ready to pay cash for their notes of every description, dated prior to January 1st 1817. But the result of that experiment varied considerably from that of the former. Payment in cash was demanded to a large amount; not for the purpose of internal circulation (for this he hardly apprehended was the opinion of any person), but for the purpose of being remitted to foreign countries. To the causes which produced that situation of things he should presently advert. It appeared from a return made to the other House of Parliament, that the Bank issued under their last notice a sum not less than 2,600,000l. Of that large sum hardly any part remained in circulation in this country.
He would now call the attention of the committee to the circumstances which had occasioned the difference in the result of the two experiments made by the 1233 Bank, in order to show how unadvisable it would be, under existing circumstances, that the Bank should resume cash payments at the present moment. Those circumstances appeared to him to be, in the first instance, the deficient harvest of 1816, and the harvest of last year not being more than an ordinary one, the consequence of which was, that the quantity of corn that it had become necessary to import, had taken a great deal of specie out of the country. The sums drawn out of the country by emigrants from it was another of the causes which operated to produce the effect in question. At the same time it was necessary to observe that those sums were not so large as perhaps some persons might imagine. He held in his hand an account of the number of persons who had embarked at Dover for the continent, and who had returned from the continent to that port. Dover was so much the most considerable port, at which persons embarked from this country for the continent, that all the emigration from the other ports might be considered as unimportant; and the committee might therefore assume the emigration from Dover, as affording a tolerably correct criterion of the numbers of our emigrants. It appeared then, that the whole number of persons, who, from the year 1814 to the 21th of February last, had embarked at Dover for the continent] amounted to 90,230; exclusively of aliens, whose number amounted to somewhat above 11,000. The number of English, who, during the same period, had returned to Dover, amounted to 77,530. He did not mean to deny that many persons might be included twice in the return; having gone and returned twice within the period which it comprehended, but that did not affect the conclusion that might be drawn from it. The difference between the two numbers which he had stated was 12,700; so that it. might be safely affirmed that the number of English residing abroad did not exceed 13,000. If it were assumed that these 13,000 individuals expended on the average 200l. a year each (which, as a number of them were servants, might be deemed a sufficiently high estimate) the account of their annual expenditure would be somewhat above two millions and a half. but in addition to that the committee must take into their account the large sum expended by our army abroad; for although it was true that the French government provided for the sup- 1234 port of the troops, still it was notorious that great private expense was incurred by the officers.
The two circumstances to which he had just adverted—the importation of foreign corn, and the residence of a large body of English abroad, although they were certainly not of a permanent nature; might recur from time to time, and were well worthy of consideration in discussing the question before the committee. But there was another circumstance of a very extraordinary nature, which required the most serious attention, and which had materially contributed to the change in the state of things. He alluded to transactions which had taken place in the course of the last two years—namely, the negotiation in this country of large loans for foreign powers. In June 1816, the French government negociated a large loan in this country. The provision was six millions of francs of rentes; and the sum borrowed amounted to about five millions sterling. In the Budget of 1817, a provision was made by the French government of thirty millions of rentes, or a capital of 600 millions of francs, amounting to about 24 millions sterling of stock, or about 15 millions of money at the then price of the French funds. This sum was, indeed, raised in three several loans. The first amounted to about ten millions of rentes. That operation took place in February, 1817; the second of eight millions of rentes in March 1817, and a farther sum of nine millions of rentes was raised in July, 1817, leaving still 3 millions to be realized in the present year. The sums raised in 1817, amounted in-the whole to about twenty seven millions of rentes or 540 millions of capital in 5 per cent stock, equal to about 22 millions sterling of stock, and from 13 to 14 millions in money. If the committee would compare the dates of those loans with the periods at which the rate of exchange began to be unfavourable towards this country, it would be found that the exchange began to fall soon after the conclusion of the first French loan. Gold which in May, 1816, was as low as 3l. 18s. 6d. an ounce, rose in the succeeding month, and had continued to rise until February in the present year. He was very far from wishing to throw any blame on the individuals who had contracted for those loans. It was but justice to them to say that he firmly believed, if they had thought that by contracting for loans with 1235 foreign powers they would do any injury to their own country, they would on no account have entered into them. At the same time it ought also to be remembered, that these were subjects with which government ought not to interfere. Every man had a leg d right to the disposal of his own property; and there were political advantages of great importance connected with those loans; for they had contributed to support the French government, and to enable it to make good its engagements with foreign powers Under those circumstances it would have been impolitic as well as unjustifiable on the part of the British government to prevent any voluntary transactions of its own subjects with the French government. The effect, however, of these transactions had been such as he had described. The two millions and a half of cash issued by the Bank in payment of their notes had immediately gone out of this country, and had enabled the contractors for the French loans to make good their engagements. The loan which the French government had in the present year contracted for, was 12,000,000l sterling; but he should hardly have thought that this was a subject sufficiently important to influence parliament in its legislative operations, were that the only loan that was to be made. But there was at present a negotiation on foot which might probably end in the raising of a much larger sum.
As the necessity of the proposition which he should submit to the committee in some measure arose from that negotiation, he should state the precise object of it. The committee were aware that by the treaty of Paris, the allied army might either leave France in the course of the present year, or remain there two years longer. If it should be the case, that the allied army left France in the course of the present year, and that the French should consequently fulfil their pecuniary engagements in the present year, in addition to the sum of twelve millions, for which he had already stated a loan had been concluded, a farther sum of twenty millions sterling would probably be wanted by the French government to enable it to liquidate all the claims upon it. He would leave the committee to imagine what the effect of a loan to such an amount would necessarily he. He had already stated, that in so far as regarded our internal situation, there could be no danger in the 1236 resumption of cash payments by the Bank, for that there existed but little disposition on the part of the public to call for the payment in cash of any large proportion of the notes of the Bank. But when so large a drain might be made from this country, as would be occasioned by the French loan in contemplation, he would put it to the committee, whether the danger of attempting the operation of resuming cash payments at an undue time, would not more than overbalance any disadvantage which might arise from the temporary prolongation of the restriction? He could not suppose that any hon. gentleman would think it advisable for the Bank to resume its payments in specie, under circumstances extremely similar in their nature to those which existed when the restriction was originally imposed. That nothing could be stronger than the resemblance between the two periods, was evident from the tenor of the report of the committee of that House, on which the proposition for restricting the payments in cash, was, in the first instance, founded. The opinion of the Bank itself, too, was of great importance in deciding the question originally. In the resolutions of the company of directors of the Bank of England, dated the 3d December 1795, it was declared, "That the court of directors, after a very solemn deliberation, adequate to the importance of the subject, are unanimously of opinion, that should the proposed loan to the Emperor take place, they are but too well grounded in declaring (from the actual effects of the Emperor's last loan, and the continued drains of specie and bullion, they still experience), that they have the most cogent reasons to apprehend very momentous and alarming consequences." On the 11th of February 1796, the directors came to still stronger resolutions. They then declared, "That if any farther loan or advance of money to the Emperor, or to any other foreign state, should in the present state of affairs take place, it will, in all probability, prove fatal to the Bank of England; and they therefore most earnestly deprecated the adoption of any such measure: and solemnly protested against any responsibility for the calamitous consequences that may follow therefrom."* Thus similar were the circum-* See Parliamentary History, Vol. 33, pp. 322, 323.§1237 stances of the two periods. Every one must be aware of the difficulty with which the changing of a long-established order of things must be attended: and more particularly in the case of currency and circulation.
He should, perhaps, be asked whether the nature of our currency was to depend on the operations of foreign powers? He should reply—certainly not.—If we could really return to a state of permanent and secure circulation with safety, we ought to return to that state of things without delay. But surely the moment would be ill-chosen for making the attempt when we were under the influence of circumstances very like those which took place when the suspension was first proposed. He should, perhaps, be told, that the restriction was first proposed in a time of war and danger, and that the measure was rendered necessary, in consequence of the advances made to a foreign power, under the guarantee of government. He was aware of the force of this remark, but still it did not counterbalance the greater extent of the operations at the present time. For the imperial loan amounted only to four millions and a half—a farther loan of three millions was in contemplation, but it was stopped by those resolutions of the Bank to which he had already adverted. Now, besides the loan of last year to France, thirty millions might be necessary for that country in the present year, and five millions had, besides, been raised for Prussia. Even if all those loans were to be negociated abroad, there was no reason for supposing that capital was so abundant on the continent that a large proportion of the money would not come from this country. This would occasion a drain on the resources of this country to a much greater amount than that of 1795.
He wished it to be distinctly understood, that he did not propose to continue the restrictions in consequence of any circumstances in the internal state of the Bank, which he believed was fully prepared to make good its payments; but on account of those external circumstances which would render such an operation extremely unpropitious and dangerous at the present moment. He hoped, however, that another measure which he should have the honour to propose, might have the effect of considerably alleviating the evil of the restriction—a measure which, he trusted, would place a great 1238 part of our paper currency on a more secure footing than ever. On the resumption of cash payments, it would be proper that our paper currency should return as nearly as possible to what it had been. For himself, he could assure the committee, that he was very desirous that the Bank should resume its payments in cash; and the committee might rely upon it that, if they were anxious for the return of that state of things, the bank directors were as sincerely desirous of bringing it about. They were most willing to adopt every measure which might be thought necessary for the effecting of that object, and for confirming every regulation which parliament might wish to propose.
But he was now to direct the attention of the committee to the other part of the subject to which he had alluded, and which he should endeavour to explain as shortly as possible. He had to propose a plan, which, in the course of no long period of time, would give the public such a security for a considerable part of our paper circulation, as it never before possessed. It was his intention to propose, that the Restriction act should be continued for another year, namely, to July 1819, and that in one year from that period the operation of this new plan should commence.—There could be no doubt, that the most perfect and desirable currency for any country, was a mixed one of specie and paper. It might be advisable, that there should be a paper circulation to a large amount, but it was certainly advisable at the same time, that it should always be convertible into specie, so that the holders might have the most complete reliance, that whenever they pleased they could convert the paper into a metallic currency. Many plans had at different times been in contemplation, respecting the best means of security from the abuse of paper currency. It had been proposed, that paper should be issued on the security of various deposits—on the security of landed property, and of other property. The great objection against issuing paper on the deposit of property was, that, whatever value the property deposited might possess at the time the deposit was made, it could be converted into money only under favourable circumstances, and, that when attempts were made to convert it into money under other circumstances, it often fell so much in value, as not to realize the sum advanced on the security 1239 of it. All land banks were particularly subject to this inconvenience From the many difficulties attendant on the conveyance of landed property, and on raising money on landed securities, land banks had generally been unsuccessful. This sort of uncertainty however, did not exist with respect to another description of property which existed in this country to a great extent—he meant funded property. It was not indeed free from fluctuation, but it might always be considered available to a certain extent. If at the time when funding was first introduced, a paper currency bad been founded on it, and such currency bad grown up with it, we might have possessed a paper currency as perfect as could be wished for. If on the deposit of a certain amount of stock, a certain amount of paper might have been issued, such paper would have been free from the insecurity of the paper currency that we have hitherto possessed. At present our paper currency was not of equal security in different parts of the kingdom. Scotland, from the nature of its currency, and the extent of the capital of the persons engaged in banking (which in that part of the kingdom were not subject to the same restrictions in point of number, which existed in England under the charter of the Bank), had had no considerable failures, and enjoyed great advantages in the security of her paper circulation. No inconveniencies could be charged against it. In England, however, and still more in Ireland, that was not the case. But all the inconveniencies, of however serious a nature, arising out of the insecurity of the paper of private bankers, might be prevented by the adoption of the plan that be was about to propose. In that plan, be wished to keep in view the difference between that part of the paper currency, which might be considered as the immediate representative of cash, and notes of larger value, which in some respects answered a different purpose. He meant, that he should be directed in his views, by those which the legislature took, when they prohibited the circulation of any notes under five pounds in value. It was when the metallic currency was first suspended by the act prohibiting cash payments by the bank of England, that permission was given to circulate notes under five pounds, and of not less than twenty shillings value. This permission had been renewed from time to time, and the period now fixed for the circulation of those notes, was one 1240 year after the expiration of the term at which the suspension of cash payments should terminate. The suspension act would expire on the 5th of July, 1818; but, as he should propose, the continuance of the suspension for another year, it was his intention also to propose, that the alteration with respect to the circulation of private bankers should not take place before the 5'.h of July, 1820.
There was an act now in force, permitting the issue of notes under the value of five pounds of the Bank of England. It was not his intention to interfere with that circulation, as it might be considered to rest on good security, the Bank giving in fact, that very security, which he now proposed to demand from the private bankers; for they had advanced fifteen millions of capital to government, and they always necessarily held in their hands a considerable amount of floating government securities.—It was his intention to propose, that after the 5th of July, 1820, no private banker should issue notes in England or Ireland (for he would except Scotland, as the objection against the paper circulation of the private bankers of England and Ireland did not apply to Scotland) for any sum under five pounds without having made a sufficient deposit of government securities, consisting either of stock or of exchequer bills.—He proposed therefore, that it should be enacted, that every private banker should transfer into the names of the commissioners, for the reduction of the national debt an amount of stock double that of the nominal value of the notes of that description issued by them, or deposit in the hands of the commissioners exchequer bills of equal value to that issue. The cause of the difference which he recommended in this respect was, that from the frequent fluctuation in the price of stock, the nominal value of the notes in stock might turn out to be a very inadequate security. The interest arising on the stock transferred, or on the exchequer bills deposited, would of course be paid to the owners after the deduction of charges for management.—With respect to the notes to be issued on this credit, he meant to propose, that before they could be so issued they should be carried to the stamp-office, and stamped in a way that should denote they were so secured. Some farther collateral security against fraud or forgery, might perhaps be deemed expedient; but that would be a mutter for future consideration.
1241 This was the general outline of his plan, which, he hoped he had rendered sufficiently intelligible. The details would of course be matter of much deliberation. There were, however, two objections that might be made to the plan, which he was desirous of anticipating. One was, that the measure proposed would tend to produce a great and unlimited paper circulation. It would be said, that as this paper was founded on the immense amount of the funds, it might be considered as co-extensive. The answer to this objection was short, but he trusted satisfactory. It was impossible that there could be a greater temptation to an over issue in the case of a paper founded on security, than in the case of one founded on no security; and the limit of which depended on the will of the banker, and of those among whom it was to be circulated. There was no limitation at present but the will of the banker, and the will of those among whom the paper was to circulate. So long as the paper does not return upon the banker to an inconvenient amount, he has no inducement to limit his circulation; he may therefore issue as much paper as he finds the public disposed to receive; but should the proposed plan be adopted, the banker would feel a considerable restraint in his issues from the necessity of depositing a valuable consideration. The other objection might be, that the circulation of paper under the value of five pounds, was not so profitable to the banker as to induce him to continue it under the circumstances of a deposit—that he might consider the deposit so great an inconvenience in addition to the other charges on banking, that he might not engage in the proposed plan. To this he would answer—undoubtedly, if the banker had his option to issue notes with or without security, there could be no question which he would choose. As issuing paper without security was more advantageous to him than issuing it with security, he would naturally prefer it. But supposing that the safely of the public required that a security should be afforded, he felt persuaded that the banker had a sufficient interest in continuing his operations, subject to such security. It was perfectly certain that it was necessary for every banker to have a large sum in his possession to answer the demands upon him; and this sum was now kept in cash or bank notes which constituted an unproductive capital. But, under the pro- 1242 posed security, he could make the payment of demands upon him in his own stock notes, which would be received as cash in paying off his large notes. He would be left without restraint in all issues of notes beyond five pounds in value. He would have all that parliament thought it proper he should have before the passing of the Bank Restriction act. Nothing would be taken from him to which he could be considered as having a well-founded claim. There would still therefore be left to him a very sufficient profit. Many private bankers were already stockholders to a very large amount. In their case, where would be the inconvenience of- depositing in the hands of the commissioners a certain portion of that stock? The only difference was, that the amount deposited would be available only to the holders of the notes secured upon it, instead of being available to their creditors in general. But the safety which those among whom the notes were circulated would receive, would far outweigh any inconvenience to the private banker. Strictly speaking, a banker at present had hardly occasion for any capital. But one consequence of the proposed plan would be, that it would have a tendency to engage men of large property in banking concerns, and to exclude those who did not possess an invariable security for their creditors. The leaving out all that part of the circulation which exceeded five pounds, would continue the operation of banking as advantageously to the banker as was compatible with the safety of the public. They were placed here in an option of difficulties. No man would say that they ought to prohibit the circulation of all paper under five pounds in value. Such an opinion might indeed be entertained, but at all events it was very rare. Those, however, who had any acquaintance with the commercial affairs of this country, could not but be convinced that such a system was impossible. A metallic currency was so cumbersome for mercantile dealings, that we could never conveniently return wholly to it. The question therefore was, whether, as it might not be desirable to return to a metallic currency, but as it was desirable to have a paper as near in value to a metallic currency as possible, we would allow an issue of paper without such a deposit as might secure the creditor against the danger of improvident speculation on the part of the banker, and the banker himself against the temptation to it?
1243 He was persuaded, however, that it was expedient in every respect that full time should be given to private bankers before the system should be carried into compulsive operation, and that time he thought he had given. During the two years after which this measure was to take complete effect, the country bankers would be enabled to reduce their transactions within the amount which might be convenient to them. Besides this, two years formed a convenient period, as the notes of country bankers are generally by themselves calculated to wear out in about that time; and they would thus have due notice not to incur any unnecessary expense by the provision of stamps, and the issue of notes, the farther circulation of which would be prohibited before they were worn out. The restriction on the Bank of England being to continue one year longer, one of the inconveniences which had been anticipated from that measure was, that it would cause an inordinate issue of country notes. But by the measure which he had just detailed, the bankers would be restrained from issuing largely, as they would be obliged, at a certain time, to draw in all for which they could not give security. A secure and permanent paper circulation would thus be provided, after the resumption of cash payments, which would afford a relief to the public that could not be effected by a complete return to metallic currency with all the incumbrances attending it.
He had thus briefly stated the measures he had to propose; the latter of which he should have thought desirable, even if he had not recommended the continuance of the restriction. Considerable preparation would be necessary before the plan relating to country bankers could be brought into operation. Inquiries must be made as to what species of stamp ought to be put upon their notes to afford the most effectual security against imposition. The public would thus have a double guard against forgery—that which the country bankers might adopt, superadded to all that a public office could do: which together would be as perfect a security as the nature of the case would admit of. As soon as these preparatory arrangements were made, every banker who was willing to issue small notes on the security of stock transferred, or exchequer bills deposited, might do so; and it would no doubt be the wish, as he was persuaded it would be the interest, of many bankers to do this 1244 before the period (July 1820) which he had mentioned Many of the country bankers were holders of stock; and they might thus perhaps add two or three per cent to the interest of that stock. It might be said that it would be inconvenient to them to transfer double the amount of their issues; but they had the choice of depositing exchequer bills merely equal to those issues. He would not detain the committee any longer, but would conclude with moving,
"That leave be given to bring in a bill for further continuing an act of the 44th year of his present majesty to continue the Restrictions contained in several acts of his present majesty on Payments of Cash by the Bank of England."
§ Mr. Tierney
said, that the statements of the right hon. gentleman, so far as they went, were intelligible enough. He was far, however, from being convinced by his arguments. At present he would not go into them at any length: he would only beg of the House to consider the state in which they were placed: no matter whether the proposed plan was a good one or not. It went to produce quite a new system of currency, and that in a time of peace; and this was to be done merely upon the suggestion of the chancellor of the exchequer, without any previous committee, and without examining a single witness. After the confident predictions which they had heard some time back from the right hon. gentleman they were to be now called upon to continue the Bank Restriction for another year, and to introduce a total change in the principle of private bank. paper. Upon the latter subject he would not offer any opinion: he could not trust his judgment with it at present. It seemed doubtful whether it was intended by this plan to sweep away completely the circulation of all private paper, and place it in the hands of the Bank of England, or greatly to enlarge the issue of such paper. It might lead to either of the two effects. At all events, it would throw a great hardship upon the private bankers. In the first place, their character would, after this proposal, stand tainted for the next two years. What could be the use of proposing the bill at present? The only motive he could see was, to put men upon their guard against the country bankers. He was no friend to an extended issue of their paper. They had, however, been of great service to the public, 1245 and however desirous he might be to confine their circulation within proper bounds, he would not wish to bring odium upon them in this manner, or to hold them up as persons not to be trusted. No man, he believed would be willing to commence the business of a private banker upon the proposed principle of stock security. The principle, as he understood, was, that for the issue of every 100l. in notes, a security, of 200l. in stock would be required, or as it stood at present, of 160l. Now was it to be expected that any person would issue paper upon such terms as those? The answer would perhaps be, that if he did not like to give security in stock, he might go to the exchequer and have 100l. in bills for every hundred pound of his own. But what would this be but an issue of exchequer bills? The right hon. gentleman showed a great deal of reading. He had read all the plans which had been suggested for some years. This was one of them, and a very hopeful one it was! There was an observation which he could not help making upon the subject. It was, that, according to this measure, the five-pound notes were to rest entirely, as before, upon the personal security of the banker and his individual credit. In such a state of things would any man be such a fool as to take five-pound notes at all from a private banker while he could get one pound notes with good security? No person in his senses would do it. Was this the well-digested measure which the chancellor of the exchequer had had in contemplation for some months? Would he pretend that he had not a much more extensive plan if he had not been corrected by others? Of the debentures, however, which were not issued he should say nothing—de mor-tuis nil nisi bonum. But the plan which was actually proposed was deserving of a thorough investigation, which it could not have in a discussion in the House. However clear the statement of the chancellor of the exchequer, or the speeches of those who might follow him, they could not be satisfactory to the mass of the country without a reference of the subject to a committee, by which the various speculative opinions would be received, compared, and digested—But he would ask, why was the measure proposed two years before it was to take effect? Here was a new principle, which, for some reason or other, the chancellor of the exchequer wished them to admit two years before it 1246 was acted upon. The only reason which had been given was, that the private bankers might have fair play—that they might not issue notes which would be drawn in before they would be worn out. Now where would be the necessity for incurring any additional expense upon this account? Any notes, which after the lapse of the next two years might not be too old to be kept in circulation, could have a new stamp affixed to them, according to the intended plan. This would answer just as well as if the paper was new [No! from the chancellor of the exchequer]. Perhaps so. An old note might be stamped as well as a new one. However that was quite a matter of taste. This was the only reason given for proposing such a bill two years before it was intended to carry it into effect. He would beg the House not to adopt such a principle upon the mere visionary expectations of what was to be the state of things two years hence. He did not fully understand the bearing of the thing. There was perhaps no man in the House who did. For this reason a committee would be necessary, and if no other person in the House moved for it, he would. The next subject offered to their consideration was the continuance for another year of the Bank Restriction. The right hon. gentleman said, it was with the greatest unwillingness he felt himself called upon to propose it. Nothing but the strong necessity of the times could induce him to do it. He appeared in the utmost despondency. The right hon. gentleman one or two sessions back, had said that he did not entertain the smallest doubt that the Bank would be able to resume their cash payments in July next. If the right hon. gentleman expected really that they would be resumed, he could assure him that he was the only person who entertained any such hope. The right hon. gentleman told them that the directors were fully prepared and willing to pay in cash, and that the restriction would only continue for one year more. The right hon. gentleman must forgive him if he did not believe one word of it. When July 1819 arrived, it would be then said, that they might as well continue the restriction for another year—that it would throw every thing into confusion to resume cash payments until the other fine plan began to operate. Sure no man of decent habits of life could then find in his heart to refuse such a proposal [a laugh]. The thing 1247 was no joke; it was a matter of the highest importance. In this manner for one year, and for many other years, would the Bank Restriction be continued. The chancellor of the exchequer had said that he WHS most sincere in his wish to resume cash payments, and he answered for it that the Bank was just as sincere. In this, he believed him. The Bank and the chancellor of the exchequer were just as sincere the one as the other. The system of finance on which the chancellor of the exchequer proceeded, was irreconcileable with the system of cash payments; and as the Bank lived on their profits, which they could not increase indefinitely if they were obliged to pay in cash, they thus agreed together perfectly well. The chancellor of the exchequer trembled at the very idea of the Bank resuming their payments in cash. He knew what the consequences of it would be—that it would raise the interest of money, that it would produce an immediate change in the price of all articles, and that there would be an end to all his fine speeches about lowering the interest of money.—It was said, that the Bank had done every thing in their power to prepare themselves for the resumption of cash payments at the time provided by parliament. Quite the contrary. They had done every thing in their power to avoid it by increasing their notes in circulation They were allowed two years to make provision for this event, but in place of doing so, they had augmented their issues by two millions and a half. Could the Bank think that people were "such dolts and ideots," (to use the phrase of a right hon. gentleman opposite) as to believe that they had thought of preparing themselves for the resumption of their payments? They and the chancellor of the exchequer managed the matter thus between them. They went on talking to the right hon. gentleman in private about resuming their payments, while they were totally silent upon the matter in the House. He was prepared to admit, that the resumption of cash payments in July next could not but be attended with a great revulsion, a great change both in the domestic and foreign pecuniary relations of the country. Knowing that such must be the effect, was it not a grave charge against the Bank, that they had neglected those preparations which they should have made, and that instead of it they had increased their issues. But how had this increase of issues 1248 taken place? By purchases of exchequer bills, or by advances to government on exchequer bills. Of the ordinary securities—bills which they had discounted—they had hardly any, as bills could be discounted by others at so much lower a rate. Here was the mutual accommodation; the Bank by purchasing government securities, raised the price of them, and enabled the chancellor of the exchequer to make flourishing speeches; and while he was making flourishing speeches, they were making flourishing profits. The chancellor of the exchequer having brought forward this proposition in the teeth of his solemn assurance, had given, in the way of an argument, an account of the state of things 27 years ago; but for any reference to the present question, he might as well have stated what had happened in the time of king William.—The only question now was—what would happen if the cash payments were resumed in July next? The chancellor of the exchequer had read two resolutions of the Bank in 1795 and 1796 declaring that this body would be in great jeopardy if the Austrian loan of four millions and a half was negociated. But, if his recollection was correct, the price of bullion was not at all affected by the remittances for that loan. But they must consider the different circumstances of the times. Men did not then demand gold to send it abroad, but to hoard it. A small body of French had shortly after contrived to throw themselves on the coast of Wales, and many timid persons thought it safe to have 100 or 150 guineas by them, in the dread that the Bank would not be able to fulfil its engagements. The sums of money which were brought forward at the conclusion of the war proved this. But at this time, according to the chancellor of the exchequer, there was a laudable abhorrence of the precious metals, and if there was one thing which Englishmen loathed more than another, it was the sight of gold. The commerce of the country was flourishing—but the chancellor of the exchequer, on the look out for arguments to support the restriction, had produced lists of the persons who had gone abroad. His first statement of 90,000 persons who had left the kingdom was very appalling. But he had happily shown them that all but 12,000 had come back again. These persons the chancellor of the exchequer had calculated drew from this country for their expenses about two millions and a half sterling. He himself 1249 had been certainly four times on the right hon. gentleman's travelling list, twice going and twice returning from France curing the last two years. The calculation of expense was, he thought, an exaggerated one—at least he hoped to be allowed to put in a protest against the average share of it, which on this amount he might be supposed to have incurred, for the proportion assigned was certainly above his mark [A laugh]. The foreign loans formed also a principal part of the reasons which dictated the right hon. gentleman's present measure. The English contribution to these loans could of course be ascertained; but how could the sums raised in France be ascertained? By an examination of the parties concerned, the British share in these transactions could be got at, and the House could then see the extent of their operation as affecting the currency of this country. It would then, he had no doubt, be seen that these loans would not furnish the slightest argument for one hour's farther continuance of the Restriction act. The whole secret lay in the transactions between the bank directors and the right hon. gentleman, who knew very well that the former were his masters. "I," said Mr. Tierney, "told him so two years ago; and I may use the words of the poet—I thought so then, and now I know it"[A laugh]. Without the Bank advances and dealings with the right hon. gentleman, half his bubbles would have burst while he was blowing them up.— He trusted that a committee would be appointed to inquire into the reasons for continuing the restriction in a manner so suspicious that it seemed as if it had been determined to continue it for ever. The Bank by their purchases of exchequer bills, were the masters of the chancellor of the exchequer. It was strange that the chancellor of the exchequer, who was alive to the danger of persons investing their money in foreign funds, should try to make our own as unproductive as possible. When he made that attack upon the sinking fund, which had reduced it to its present state, he had given as a reason, that if the sinking fund went on increasing it would lower the interest of money. Yet now the object of all his plans was, to effect this reduction of the rate of interest which he had before dreaded as an evil. At the present price of our stocks, how was it possible to prevent persons from embarking their money in the French 1250 funds, in which they got an interest of seven per cent; which, if the security was not so good, afforded an ample insurance against risk. Besides the 12,000 persons who were constantly abroad, there were many others who were continually making remittances of their capital for the sake of higher interest, and every step which the chancellor of the exchequer took tended to promote this. When the rate of interest fell in proportion to the prosperity of the country, it wa3 to be well-corned as a signal of that prosperity; but he deprecated the artificial system of raising the funds by the exertion of the government. Since the 25th of June last, every exertion of the chancellor of the exchequer had been directed to that end. He had been authorized to raise 300,000l. on the security of the woods and forests, but as he did not immediately want the money, he had put it in the funds. Luckily, the speculation had succeeded—but in a private individual this would have been called stock-jobbing. There was the clause also to augment the produce of the sinking fund in November and December last. By these acts, the price of stock had been raised, and the efficiency of the sinking fund had been consequently diminished. The expectation of reducing the 5 per cents had, however, failed, and they now remained just as they were, though, not long ago, the chancellor of the exchequer had not doubted that the interest of them could be reduced at least to 4 per cent. The fluctuations which had taken place in the funds had originated in the doubt, whether or no cash payments by the Bank would be resumed. That doubt had now been settled. The evil day was postponed, because the chancellor of the exchequer was afraid of facing it. There was reason for some fear that the return to the former system of the country would be attended with difficulty, and some danger; but this was a reason why it should not be postponed, as by every delay the difficulty and danger were increased. Every ground on which the resumption of cash payments had been formerly opposed was now entirely done away. The pretext of the foreign loans was now brought forward, and it was for the House to say, whether they would hold up to Europe the example of a paper circulation, merely because other countries took a different course. The drain on this country by French loans he was persuaded, would not be considerable. There 1251 was much unemployed capital in France; and he was persuaded that the consequence of the course that country now pursued, would be, that they would not need much pecuniary assistance from abroad. He again pressed on the House the necessity of a committee. Without some inquiry, who could affirm that the Bank might not be able to resume its payments? Perhaps six months might be time enough for it to prepare for resuming them. And above all, some enactments should be made to compel them to make preparations against the time fixed by law for the expiration of the restriction. This, too the chancellor of the exchequer would resist, more than all the rest. His object was to keep up a great paper circulation, to force up the stocks, and to reduce the 5 per cents. But the House, he hoped, would not lend itself to this project without examination. If the report was brought up on Monday, he should move to postpone it, in order to move for a committee. Without some inquiry, the right hon. gentleman could not with decency require the assent of the House to his plan; nor would Mr. Pitt, with all his confidence in himself, have ventured to demand it under such circumstances.
§ Mr. Grenfell
concurred in the sentiments which had been so ably delivered by his right hon. friend. He would not on the present occasion enter into details, but he could not refrain from making a few allusions to the many pretexts on which the restriction act had been prolonged, and which, if continued, would I have so injurious an effect upon all the property of the kingdom, and necessarily produce here the same mischiefs that such a system had uniformly produced in every country in the civilized world which was left to depend on a paper issue not convertible to a metallic currency. The right hon. the chancellor of the exchequer had stated something like three reasons for the continuance of the restriction act (that of the country banks he looked on as a minor consideration in comparison with this)—The first was, the state of foreign exchanges, and the prices of gold. Now, he recollected that in 1815 the reasons urged were, that the course of exchange was 11 per cent against us, and the price of bullion 14 per cent. But what had been done in the following year to redeem the solemn pledges made? The exchange was in 1816 in our favour; gold was only 3 per cent above par, and silver 1252 considerably below it. Notwithstanding this favourable change, nothing had been done by the right hon. gentleman, who said that it was better at such a moment to let matters subside and settle. The state of the harvest of 1816 was also alluded to, and also that of the following year; but the right hon. gentleman could not forget that for the whole spring and summer of 1817, the course of exchange was greatly in our favour, and the price of the precious metals at par. It was in the autumn of 1817 that these advantages ceased, and then, not on account of the harvest, but in consequence of the increased issue of bank notes which then took place. There was the index and the barometer by which the real cause and its progress could be distinctly explained. The last reason was, the foreign loans. This was equally futile. If a wealthy German merchant happened to settle in this country, and contract for a Prussian loan—and a rich English merchant should go over to Paris, and treat for a French loan, was it to be borne that for such a reason incalculable mischiefs should be endured by a whole people? He could not dwell without warmth on such flimsy pretexts; but he would at present restrain himself, and defer his observations until the bill was brought in. On the subject of the country banks, he would at present only put one question to the right hon. gentleman, and that was, whether the stock deposits were to be held as security for the 1l. and 2l. notes only, or for the 5l and higher ones also?
The Chancellor of the Exchequer
stated, that he had no intention whatever to cast any reflection upon country bankers, nor was such a supposition warranted by the character of the measure which he proposed to bring forward; for this measure was not suggested by any degree of distrust or suspicion in those individuals, but by a reasonable and proper solicitude for the interest and satisfaction of the public. With regard to the question of the hon. gentleman who had just sat down, he had to state, that the proposed deposit of stock by country bankers was to form a security for all notes under five pounds which these bankers might issue, but any surplus deposit would be deemed an additional security for their other notes. As to the assertion of the right hon. gentleman with respect to the influence of the foreign loans in 1795, upon the price of bullion, he should refer to the evidence 1253 of Mr. Abraham Newland, before a committee of that House. From this evidence it appeared that the price of bullion in 1797, was four guineas an ounce. To the observation of the right hon. gentleman respecting the issue of debentures upon the capital stock of the country, he could say, for the satisfaction of the right hon. gentleman and the public, that no such plan was ever in his contemplation. He had seen what had been written upon this subject by Mr. Dunn, by whom so much discussion as to this point had been excited in the public newspapers. He had also had some communications with this individual, and without meaning to say that no case could arise in which it might not be expedient to convert the capital of our debt into a floating security, he did object to the adoption of Mr. Dunn's plan at present, because he conceived that, while there were so many exchequer bills in the market, either those bills or the proposed debentures must fall in value. The idea of issuing a paper circulation upon the security of stock, was, it would be recollected, suggested many years ago in the pamphlet of Mr. Weston, a most respectable solicitor, but Mr. Pitt did not at the time think it expedient to act upon that suggestion. There was, indeed, a part of the scheme of Mr. Weston to which he (the chancellor of the exchequer) felt a strong objection, namely, that of rendering such paper a legal tender. This pamphlet of Mr. Weston's was, however, of considerable value, and he was free to confess, that a part of the plan which he had that night had the honour to submit to the committee, was taken from it. He hoped that this plan would serve to provide a remedy against the introduction of an insecure currency into the general circulation of the country. If it were said, as it had been urged in the course of the discussion, that this plan would leave the larger notes of country bankers comparatively insecure, he should answer, that that objection was of no importance, as such notes were always liable to be considered with more care, and received with more caution,
§ Mr. Grenfell
observed, that it was somewhat singular that a pamphlet published in 1800, and so much applauded, should only now come to be acted upon. He expressed his surprise, that although there were seven directors of the Bank present, not one of them had thought it 1254 worth while to favour the House with a single observation upon a subject so materially affecting the credit of the establishment with which they were connected. With respect to the evidence of Mr. Newland, he distinctly recollected the particulars of that evidence. Mr. Newland was asked, whether the price of gold in 1797 was not so high as four guineas, and that gentleman answered in the affirmative. But this, he (Mr. G.) could affirm, was not the market price of gold, as would indeed appear from an examination of the tables. It was, indeed, true, that the Bank paid four guineas an ounce for gold, but this expense was incurred upon gold imported in 1797 from Hamburgh, through the house of Eliason and Co., and this gold, when brought to the Bank, cost four guineas an ounce; that, however, was not the market price of the day.
§ The motion was agreed to. The House resumed, and leave was given to bring in two Bills; the first, "for farther continuing an act of the 44-th of the king, to continue the restrictions contained in several acts of his present majesty on payments of cash by the Bank of England;" the second, to authorize bankers in England and Ireland to issue and circulate promissory notes secured upon a deposit of public Funds, or other government securities."