HC Deb 16 June 1828 vol 19 cc1380-92

The Chancellor of the Exchequer moved the order of the day for going into a committee on this bill.

Mr. Hume

said, that the object of the bill was to restrain Scotch Bank Notes from circulating in England. This must lessen the circulating medium of England. He had objected to putting an end to the small notes, in 1826; and he had seen nothing since to induce him to change his opinion. Did the right hon. gentleman mean to make any difference in principle, between a paper circulation of 1l. and a paper circulation of 5l. notes? if so, he thought the right hon. gentleman wrong in principle; since there was as much chance of losing by a 5l. note as by a 1 l. note. He would also contend, that this was against the sound principles which ought to regulate the currency. Those who thought that currency ought of itself to be of any value, might prefer that it should be in one article rather than in another—in gold, for instance, because it had an intrinsic value. But if Adam Smith's principle were to be allowed—that the currency was of no value, but that it was merely a means of commerce, then he would contend, that the currency should be as economical as possible. In proportion as the currency was expensive, in that proportion was the country impoverished; and he therefore contended, that the medium of exchange ought to be the cheapest possible. With regard to a guinea and paper, a guinea was not necessary for the internal operations of the country, but only for the external operations. If, therefore, they mixed the two, they ought to have as much paper as possible, and as much gold as might be necessary for transactions abroad. If this view were correct, he put it to the House, whether it was right to reduce the paper currency. If the object of the bill was to prevent panic, it would not be found to answer. The panics which had taken place were not attributable to an excess of paper currency, but to the great and important changes in our commerce, and to the sudden demand for gold to answer our exchanges.—If it was intended to put banking on a secure fooling, let security be demanded of bankers, and let no persons without capital be allowed to coin money. But the right hon. gentleman had left the bankers on the same footing, and had suffered a system to continue which was pregnant with panic and loss. The true foundation for the security of a paper circulation lay, not in the denomination of the notes issued, but in the instant convertibility of those notes, of whatever denomination, into gold. What the country wanted was, simply a good system of banking. The United States of America formed a singular illustration of the truth of this principle. In that country the banking system was different in different provinces. In the state of Massachusetts, the law was, that every bank should publish an account of all its transactions, the amount of its assets of every description, and the extent of its issues, on a given day in the year. Besides this security, any bank that refused to give bullion for its paper was deprived of its charter. In Massachusetts, notes were issued in abundance of as low a value as a dollar; and yet, such was the force of these regulations, that not a single bank in the province had failed. On the other hand, in Kentucky, where the system of banking was nearly the same as in England, bankruptcies and panics were common, and the paper often at from 15 to 20 per cent discount. In France, again, where banking affairs were understood, alarms were unknown. The effect of any bill which was to cripple or restrain the circulation of paper in Scotland must necessarily be to produce effects the most detrimental to that kingdom. No man could be more hostile than he was to a paper currency not readily convertible into gold: but because he believed that it was a paper system founded upon a safe and regulated basis that the country wanted, and not a measure which would still farther restrict a currency already too far diminished, he should oppose the going into a committee, and should move that the bill be further considered on that day three months.

Lord Howick

said, he would oppose the present bill, simply upon the ground of the excessive mischief which it must produce in the north, when the same money which was current on one side of a given line, would now be forbidden to be received on the other. The effect of such a law could only be, that it would be violated, whenever men's interests were concerned in setting it at defiance; and a system of informing would grow up: men would take a Scotch note from their employer one day, and inform against him the next.

Mr. Alderman Thompson

believed that the chancellor of the Exchequer had estimated the small-note currency of the kingdom too low. The right hon. gentleman had put the whole amount under two millions and a half. But there were six-hundred and sixty-eight bankers in England; more than five hundred were issuers of one-pound notes; and, supposing each to have only 10,000l. out in such notes here was an amount of 5,000,000l. The effect of the policy now pursued must necessarily be to withdraw this sum from the circulation; and he did not believe that such a course could fail to be attended with considerable mischief. He was un- able to see any security in a metallic currency, which the country might not just as well derive from a well-regulated paper system.

Mr. Hudson Gurney

said, he wished to call the attention of the House to the bill before them, which was one of the most absurd pieces of legislation ever introduced into that House. It granted a great boon to Scotland, and imposed a great privation on England. If he read its provisions rightly, they amounted to this—If an Englishman took a Scotch note of 20s., he would be liable to pay a penalty of 20l. under this act, if he attempted to exchange it for money. It was already difficult enough to get money from the other side of the Tweed, but this would enhance the difficulty. There was no mode by which an Englishman, who took a Scotch note, could obtain the money for it, unless he went all the way to Edinburgh to receive it in person. The hon. member read a clause of the act making it punishable by a fine of 20l. to transfer or exchange a Scotch note. He wished to call the attention of the House to the Bill, and not allow it to wander into a discussion of gold and paper currency, and all the other important questions with which the project was connected. It was impossible that the right hon. gentleman could carry such a measure into execution. All that he could do to prevent Scotch notes circulating in England would be to prohibit Scotch Bankers from having agents in England, which would make the business of circulating their notes in England so expensive, that it would not be advantageous. He did not by any means say, that it was desirable to do this; but it was the only thing which could be done by legislation, to prevent Scotch notes from circulating in England. On the whole, it was impossible that the bill should pass in its present shape: whatever might be its fate, it must be modified.

Mr. Baring

said, that the objection of the hon. member would most properly come before the House when the bill was in committee. As on the general question of restricting the circulation of the one-pound notes, there might be a difference of opinion; but it having been agreed that the issue of such notes in England should cease, to forbid the circulation of Scotch notes of the same description on this side the border seemed to follow as patter of course. If this bill were not passed, it would be merely taking away the right of issue from one set of men to give it to another set. Establishments would at once be formed in Scotland to issue notes for circulation in England. Indeed he was acquainted with an opulent person, who, if the bill were not passed, would take that course immediately. What was there to prevent a banker in Newcastle, who was not allowed to issue notes at his own bank, from putting his name into a Scotch firm, and circulating notes in England? With respect to the general question, he saw little in the position of Scotland, to exempt her from the same rule which was made applicable to this country. The system of cash credits in the Scotch banks, of which so much had been said, only gave the same advantage which was given in England in another way. There was nothing in the circumstances of Scotland to entitle her to any peculiar indulgence upon the paper question; except that the paper issue was an old part of her arrangements, instead of being, as with us, by comparison, a matter of novel introduction. The evidence of the system being of long standing in Scotland, determined the government to allow the one-pound note circulation to go on in that country; but, if they consented to this, he did not see why they should refuse a law to prevent the circulation of those notes in England. If they delayed it till next session, they would only increase the difficulty which, at some time, must be settled. He understood the difficulties which would arise on the Scottish border from the proposed system. What would be good payment in one country, would not be so considered in another. It was no doubt an anomaly which would occasion some distress and inconvenience; but when they had the anomaly of having a one-pound note circulation in one country and not in the other, they must expect such inconvenience wherever they drew the line. In looking at the question, whether they should return to the small-note circulation, he did not wish to undervalue the difficulties which the abolition of that circulation would create. He was of opinion, at the time of the panic, that the too hasty removal of the small-note circulation must create difficulties. But then we had only a choice of difficulties, for it was clear we had no security in paper currency; for if it was general, its necessary effect would be, to displace the metallic currency. The question then, at last, came to be one of present convenience against permanent security. That the loss of the small-paper currency would be a sacrifice he had admitted; but it was one which we were called upon to make, for the general benefit and security of the country. They had been told of the horrors of an inconvertible paper currency; but when paper was circulated to an immense amount, it would so drive out the gold that we should not have any from one end of the country to the other. If, in this state, a sudden demand for foreign corn should arise, so as to render it necessary to send gold out of the country for it, what should we do with the mass of rags in circulation? Would they be of any use in settling our foreign accounts? Undoubtedly not. We should find, that the only paper on which we could rely was that which was founded on a metallic basis. It must, however, be recollected, that to have that system we should go back. Were they prepared then to go back to an entire paper currency? Or would they be satisfied to go on, from year to year, in a state of uncertainty; undoing one session what they had done in the preceding? In looking at the difficulties of a return to paper, let them recollect, that one-half of the country banks had already made preparation for the intended measures of government; therefore parliament would not support its character, if it did not maintain a steady course.—He would not say more on the subject of a silver standard at present, than that one great object of a silver circulation would be that of laying the broadest basis for our paper currency. We were the only country which had not this circulation as the standard; and hence arose the difficulties which we had to encounter, when the Bank found it necessary to give a turn to the screw and limit the circulation; the inconvenience was severely felt by the public, and often ended in a panic. This would not be the case, if we adopted that which was the standard of all other countries. The hon. Bank director had told them, that if they watched the exchanges, they would know when the Bank meant to turn the screw; but he would contend, that they could not, in the present state of the metallic standard, ever limit the circulation without inconvenience to the country. He took the case of the bank of France as an illustration; for there, where silver was the standard, gold came in its aid, and no difficulties were experienced by a temporary limitation. The same might be observed of Holland. But it was said, that where silver and gold were circulating together, there would be variations from the value of one rising above the other. To this he answered, that there was nothing in that variation which could practically prevent their circulating together, and for proof of this he would refer to practice, which was better than a thousand theories. In France the thing was proved to be practicable. To return to the question. He would repeat, that if they rejected the present measure, they must repeal what they had already enacted respecting the small-note currency. That course he supposed they were not prepared to take; but if they were not, on what principle could it be contended, that the small-note circulation, being restricted in England, but permitted in Scotland, the Scotch bankers should be allowed the advantage of it in this country as well as their own?

Sir H. Parnell

said, his hon. friend had himself supplied an answer to his own case, by admitting the difficulties which would be experienced by the limitation of the currency. The argument assumed was, that the Scotch notes would, if permitted to cross the border, spread over England. Now, if we were to resort to practice instead of theory, we were supplied with it by the experience of what occurred in 1797. In the inquiry with respect to Scotch banks, it was proved that no Scotch notes found their way to England; so that any supposed injury on this ground was to be left out of the question. Where notes were circulated in the counties adjoining each side of the border, the English bankers might take the notes of their Scottish neighbours, and have theirs taken in the same way; but the more distant inland bankers, who had not the same connexion with Scotland, would not be in the same situation; and therefore the apprehension of a general circulation of Scotch notes was groundless. But the case of 1797 was the best proof that there was no ground to justify the course now proposed. The truth was, that his hon. friend and the right hon. secretary, had made up their minds, that the best currency they could have was a large metallic circulation. This was the fallacy on which they went. But what was it that constituted the security of the Bank paper? Its solvency; and not the amount of the precious metals in circulation. Instead, therefore, of resting on the amount of the metallic currency, they should devise measures to ensure the solvency of the banks, and that would answer every purpose. As to what had fallen from his hon. friend (Mr. Baring) respecting a silver standard, he must own he was rather surprised at it, and still more at his reference to France. He had lately been in that country, and it was his opinion that the effect of the attempt to run the two currencies together had been, that the gold was driven out. There was an agio on gold; and persons who did not wish to receive cumbrous parcels of silver were glad to pay a certain premium for gold, which often occasioned a considerable loss. The same thing took place in all other countries where silver was made the standard. The only country where the currency was on a proper basis, was this, where a very different system was adopted. His hon. friend had said, that unless we could have large quantities of gold, we should, in certain cases, such as a demand for foreign corn, be exposed to a great panic. Now, no fact was better proved than this—that, where importation was necessary, it did not require to be paid for in the precious metals. In the period of the Austrian loan, the exports of bullion were small, and those of goods large, in proportion to the loan. Merchants would prefer sending off that commodity which left the most profit: and the profit on the export or import of gold was much smaller than that on goods. The great secret of the security of our currency was in the solvency of the bankers. Until that was provided for, it could not be said to be on any fixed or firm foundation.

Mr. Bankes

said, he was no friend to a paper currency, for its own sake: as far as he could avoid it he would; but it was frequently necessary. That he believed to be the case in the present instance, and that was one objection to this bill. Another was, that the bill was wholly unnecessary. He was speaking of the circulation of small notes in a certain portion of England, and of their not going beyond it. This was found to be a great convenience. Why, then, should the chancellor of the Exchequer wish to disturb it? He spoke not of the advantage of the system to a few bankers, but to the whole community; but if it had been found necessary to deprive one part of the country of this benefit, he did not see why the disadvantage should be extended to another. It was said, that the notes of the Scotch banks would find their way to the south. He would admit that fact; and that was one reason why he thought the proposed measure objectionable, for he considered the circulation of the south would be too much limited, and if the Scotch notes should be received here, it would be so much the better. What cause was there for this disturbance of the currency? Were the exchanges against us, or was the gold going out of the country? No such thing. There never was a period when our currency was in a more satisfactory state. Was this, then, a time when it should be disturbed? He contended that the attempt was absurd. It might be asked, whether he would renew an unlimited circulation of one-pound notes? He answered, no: he would leave things as they were. If a man brought his one-pound note, he should get another in exchange for it from the banker by whom it was issued; but he would not increase the issues. That would be enough. If the amount of gold in the country should be sufficient to extirpate the paper, let it do so of itself, but let not the thing be done with violence. The measures adopted in 1826 were unwise, and the sudden contraction of the circulation had been productive of much mischief. As to the measure respecting the Scotch banks, the exception in their favour had not been obtained by the exertions of the forty-five Scotch members, as had been said, but by the evidence brought in support of the system. He contended, that the continuance of the present amount of one-pound notes in circulation would not be injurious to the country; and that the removal of that amount of circulation would be highly injurious. Could he have foreseen the effects which had resulted from the measures begun on this question a few years back, he never would have been a party to them.

Mr. Secretary Peel

said, that of all the arguments which he had heard on this subject, that just delivered by his hon. friend was, without disrespect to him, the most ridiculous. He admitted, that our currency v"as never in a more prosperous state; and he urged that as a reason for continuing the paper currency, by a gradual departure from which he must have seen that the prosperity to which he adverted was produced. He would not increase the small-paper circulation, nor diminish it, but let it go on at its present amount ad infinitum: and, to whom would he give this privilege? To the issuers of the notes already out; as if they also were to be perpetual. Not to those who had prepared for the change, but to those who kept the largest amount of their notes in circulation. These, now and for ever, were to have the privilege of giving a new one-pound note to those who held their present paper. The arguments used by other hon. members might be dangerous; but this was perfectly absurd. He thought the present measure would in time produce a gold circulation within the Scottish border; and the result would be, that the bankers would have to provide gold for such of their notes as found their way into England. He looked forward to a period, when the paper system of Scotland might be made to undergo a change similar to that of England. He considered it most expedient to establish the currency of England on the secure basis of a metallic circulation, before they applied the same principle to Scotland.—An hon. member had held, that, provided banks were solvent, it muttered not what quantity of notes they issued. That position was rotten at its basis. He wished to allow banking companies to issue notes on the security of freehold property. Now, that would not be a sufficient security; for under it there might be a constant depreciation of the currency, creating a correspondent fluctuation and uncertainty in the value of property; and the only check would be a panic, which it was the tendency of an unstable banking system to produce. The very circumstance of the bankers knowing that they had sufficient security in land, or in the funds, would induce them to issue paper to an unlimited extent; but the country would no more endure the constant application of a stimulus than the human body. The time would come, when a want of confidence would arise, that would create a demand for gold; and the parties who had issued large quantities of paper, would find themselves unable to meet their engagements, although they might be perfectly solvent. In such a case, therefore, the mere fact of solvency would be of little value.—The hon. alderman had offered a proposition of rather a startling nature; namely, that no person should be allowed to carry on the business of banking unless they had received a certificate from the Board of Trade. Much was said about interfering with the free agency of commercial men; but it was a less violent act of interference to adopt a measure preventing the issue of all notes below the value of 5l., than to resort to the plan of the hon. member for London. The hon. member for Aberdeen said, "If you trust bankers with the power of issuing 5l. notes, why not allow them to issue 1l. notes?" It was necessary to place a limit somewhere. If bankers were allowed to issue one-pound notes, it might then be asked, why were they not permitted to issue notes for nineteen shillings, or even for five shillings or one shilling? With regard to the practicability of introducing a silver jointly with a god standard, he did not think that question was to be disposed of so easily as some members seemed to imagine. The proposition, however, ought not to be rejected without serious consideration. He considered any measure which tended to disturb the present currency objectionable. Gold was the standard of value, and the only legal tender in large sums; silver was only a legal tender in small sums; and experience had proved, that that application of the two metals had worked well. If silver were made a legal tender in large sums, creditors must, with the present seignorage, suffer a serious loss. In conclusion, it was his opinion, that the resumption of a gold currency could be effected at the present moment, with less pressure on the country than at any future period. If, now that the paper circulation was reduced to 3,500,000l., in the face of all the considerations which recommended an adherence to the original resolution of the House, they should depart from that decision, he should despair of ever seeing the resumption of a gold currency in this country. If the House should exhibit any vacillation, he should make up his mind to this—that hereafter all persons might issue paper to any amount, convertible into gold legally, but not practically.

Mr. P. Thompson

said, that if he could be persuaded to believe, that the Scotch notes would spread themselves from that country to Northampton, and from Northampton to London, he would have no objection to vote for the present measure. But he did not believe that any such thing would take place; they circulated just over the border, but there they stopped; nor would they ever get any farther. But this measure, according to the right hon. gentleman, ought to be adopted, on the score of consistency. Now, he must confess, that he saw no consistency in having a gold circulation in one country, and a paper circulation in the other. Did not the right hon. gentleman believe what had been stated by the chancellor of the Exchequer, that there were twenty-two millions of gold in circulation in this country? If he did, then it was evident, that there was nearly the same sum at the time of the panic; and, in that case, what became of the right hon. gentleman's argument, that a gold currency would be sufficient to do away with all fears on the score of insolvency and panic? He was astonished that, with his clear mind, the right hon. gentleman should maintain such an argument as that, if one-pound notes were allowed, one-shilling notes might as well be permitted. The advantage of paper over gold was, that it was a cheaper currency; but if one-shilling notes were to be issued, this would be reversed; with the risk of fraud, and the danger of ignorant persons being misled. If the matter were looked at in this point of view, it would soon be seen at what point it would be sufficient to draw the line to which the value of paper money ought to be restricted.

Mr. Manning

said, it was evident that the small notes now in circulation might continue in circulation for a considerable period after 1829. He thought that, having endured a great part of the inconvenience resulting from a return to a metallic currency, the House should not now undo its former labours. He had no objection to the circulation of small notes in Scotland, but as they occasionally circulated in the northern parts of England, he thought it desirable to adopt the proposition of the chancellor of the Exchequer.

Mr. Whitmore

said, that the country had passed the period of greatest pressure, in the progress of resuming a gold currency. He believed that, unless the bill passed, much mischief would be caused in England by the circulation of Scotch notes.

Lord Ebrington

believed, that the legislature, by requiring securities of the country bankers, would obtain all the advantages, without running the risk of any of the dangers to be apprehended from an over issue of paper.

The House divided: For going into the Committee 115; For Mr. Hume's Amendment 24: Majority 91. The House went into the committee, when several verbal amendments were agreed to