§ The CHANCELLOR OF THE EXCHEQUER
* I rise, Sir, for the purpose of submitting to the House a Motion which stands first in order upon the Paper for to-day'—That a Select Committee be appointed to inquire into the Causes of the recent Commercial Distress, and how far it has been affected by the laws for regulating the issue of Bank-notes payable on demand.And, in pursuance of the promise which I made on the first night of the Session, I shall avail myself of this opportunity, not only of stating the reasons which induced Her Majesty's Government to give that recommendation to the Bank of England which was contained in the letter of the 25th of October, signed by my noble* From a report published by Ridgway.375 Friend and myself, but I shall also state the views which they entertain of the causes which have given rise to the recent commercial distress. I need hardly say that it was from no unwillingness either on the part of the Government or myself, that this statement was not made at an earlier period of the Session. Considerable misapprehension has prevailed as to many things which have taken place, and it was no less the interest of the Government than its duty to lay such a statement at an early period before this House and the country. Sir, that duty devolves now upon me, and I feel very sensibly the responsibility which attaches to me in the performance of it; for it is no light matter to have given our sanction to a possible violation of the law of the land, although, in fact, that law has not been infringed. It is not necessary for us to apply for any Bill of Indemnity; but we do stand here amenable to the judgment of Parliament, and we felt it to be our duty to call Parliament together at an earlier period than usual, in order that we might be enabled to apply for a Bill of Indemnity, if necessary; and, at any rate, to submit ourselves to the judgment of Parliament for the course which we have taken. It is also impossible not to feel that when men's interests have been so seriously affected, and their feelings so much excited, the time is hardly arrived when an impartial judgment can be passed upon what has taken place. I feel, further, that I may have some difficulty in carrying with me the attention of the House in the statement which it will be necessary for me to make in order that all the circumstances may be laid fairly before them; and I hope, therefore, that I may ask from the House even more than that share of indulgence which I have so often experienced at their hands. Sir, in taking the course which we have pursued, we were prepared to be blamed upon both sides. Independently of that blame which usually attaches to persons who take a middle course, it was obvious that the views which Gentlemen would be likely to take of our conduct would be influenced to a considerable degree by the opinions which they entertained of the Act of 1844—that those who approve of that Act were likely to blame us for sanctioning any deviation from its provisions; whilst those, on the contrary, who entirely disapprove of it, were likely to blame us for not having more completely, and at an earlier period, departed from the spirit of its enactments. Accordingly, 376 since Parliament has met, we have been told, on the one side, that we ought not to have interfered, and that we have done no good by our interference: whilst we have been told, on the other, that we ought to have interfered sooner, and that we are answerable for the misfortunes which Gentlemen taking that view attribute to our non-interference. We have been told, further, that we ought entirely to have given up the principle of the Bill of 1844, and to have adopted a system diametrically opposed to it. Sir, these are heavy charges. It is a heavy charge to have sanctioned a violation of the law to no purpose; but I may appeal to those who are conversant with commercial affairs in this city and in this country, whether the most beneficial results did not ensue from that interference. With respect to those who say that we ought to have interfered sooner, it will be for them to prove that an earlier interference would not have been mischievous instead of beneficial; and I hope to show, before I sit down, that no interference, by authorising the issue of a few more bank notes, could possibly have averted or prevented the heavy pressure which has existed during the autumn. In answer to those who say that we ought to have departed still further from the principles of the Act of 1844, I say, that if we had done so we should have acted directly contrary to our firm convictions; because the Government believe the principles for regulating the circulation of bank notes embodied in the provisions of that Act to be sound, and that the operation of that Act has been during the course of the year salutary and beneficial to the country. But, Sir, while I profess my confidence in the principle of that Act, I am not one of those who say that this or any other principle—any other principle, I mean, founded upon human wisdom alone—is, under all circumstances, at all times, and at all hazards, to be carried into practice. That there are principles—eternal principles—of right and wrong, from which no circumstances can justify a deviation, I believe as firmly as any man; but I attach no such inviolability to principles which are the result of human wisdom. I say this, not only of the Act of 1844, but of other laws embodying principles more sacred still. What can be more sacred than the trial by jury? What can be a more sacred palladium of liberty than the Act of Habeas Corpus? And yet it is notorious that at various times these laws have been sus- 377 pended temporarily with advantage to the country. So it is in other sciences as well as that of legislation. It is notorious, for instance, that while in medical science a given course of treatment is proved by experience to be the best for certain disorders, yet, in singular instances, a departure from that principle—a course of treatment diametrically opposed to the ordinary practice—has been perfectly successful. But does any one suppose that on this account the ordinary principle is to be set at nought? Success justifies the exceptional course of treatment in such a case, but in no respect impugns the general principle. As I say, Sir, of these laws, so I say of the Act of 1844, that it is one which it is not indispensable to carry into strict execution under all circumstances; and I say this more especially, when it was first brought into operation under such peculiar circumstances—under a combination of adverse circumstances so peculiar, that they have been unprecedented for years past, and I trust will be unparalleled for years to come. I believe that we have not seen for years such an unexampled extension of credit; so heavy a drain upon the available capital of the country, for the purchase of corn, and for the construction of permanent works; we have not seen so general an inability throughout large branches of our trade to meet their immediate engagements; we have not seen so general a distrust pervading the commercial world; we have not seen that distrust rising into so universal a state of alarm and of panic as that which prevailed some six weeks ago. And I would ask, what legislation and what system can provide against the effects of alarm and panic? All legislation—every system—proceeds upon the supposition that men will be actuated by the ordinary motives of human action; and against the consequences of their conduct, when it is influenced by other motives, no system and no legislation can provide. It is no fault of the principle of the Act of 1844 that it was unable to provide against that state of things against which no other principle and no other system that has ever yet been advocated for the regulation of our currency could have protected us. Some Gentlemen have advocated a depreciation of our standard: if the standard had been depreciated in 1819—if a pound had been of less value than it is—that would have been no safeguard against what has taken place. If they would have advocated a depreciation 378 now, let them remember that the debts to be discharged in the autumn of 1847 were contracted in money of the same value, and that snch a depreciation now would but have enabled the debtors to cheat their creditors of part of their due. A system, which is called free trade in banking, was advocated by many able persons in 1844; and what is the principle of that system? That notes should be issued in proportion to increased transactions and the legitimate demands of commerce; that when prices are high, and transactions numerous, a large issue of notes is required; that when prices, on the contrary, have fallen—when there is a stagnation or cessation of trade—a smaller amount of notes is needed. But is it not notorious that the prices of goods and of agricultural produce have been low; that commerce was stagnant; that upon the principle so advocated a smaller amount of bank notes would have been required for carrying on the transactions of commerce during last autumn even than that which the Act of 1844 allowed? No system that I know of, except that—if system it can be called—of an issue without due provision for convertibility—an issue limited only by the discretion of the Directors of the Bank, would have allowed of a larger issue under recent circumstances. Differing, as they did in many points, all parties in 1844 concurred in one opinion, and that was in condemning an issue of notes regulated only by the will of the Directors of the Bank of England. I hold, therefore, that it is no condemnation of the Act of 1844 that it was unable to provide for a contingency of this description, which it was equally foreign to any legislation, or any system, to provide for beforehand, and against which none of the systems hitherto advocated could have protected us more than that of 1844. But, although no provision was made for circumstances of this kind, it is not because they were unforeseen. I am about to quote from a pamphlet written by Mr. Jones Loyd, one of the most distinguished advocates of the principles of the Act of 1844, and whose authority, therefore, is high upon this subject. The pamphlet was written in 1840, but not published till 1844; and he, as the House will see, distinctly and plainly points to an occurrence of such a character as that which we have recently witnessed. He quotes, in the first place, from a pamphlet of Mr. Huskisson, who says—The consequences of sudden alarm cannot be measured. They baffle all ordinary calculation. 379 Cash is then withdrawn, not because the circulation is excessive, but by the country banks and the town bankers, for the purpose of meeting possible demands upon them, and by the community at large, either directly from the Bank, or indirectly through the former channels, for the purpose of hoarding, from the dread of some imaginary or contingent danger. In such a crisis, every reduction in the amount of Bank paper is so far from checking the drain, that it agravates the general distress.In such a case, Mr. Huskisson states the probable need of interference, and then continues—The possible cases, however, which may call for such an intervention of power, are not capable of being foreseen or defined by law. The necessity may not occur again; if it should, the application of the remedy must be left to those who may then be at the head of affairs, subject to their own responsibility and to the judgment of Parliament.Upon these words of Mr. Huskisson, Mr. Jones Loyd proceeds to observe:—These remarks of Mr. Huskisson furnish the true answer to the memorial of the London bankers, in which they urged the introduction of a special clause to facilitate the suspension of the operation of the Bill in periods of peculiar pressure on the money market. To accede to such a request would be virtually to destroy the efficacy of the measure. The commencement of a drain of bullion, and consequently of pressure on the money market, is the period at which the provisions of the Bill become practically important; and unless they are then strictly adhered to, the whole measure becomes a nullity. For all contingencies which can be reasonably anticipated, and which are susceptible of being previously defined by law, the firm application of the provisions of the Bill is essential, and against the occurrence of those contingencies which are not capable of being foreseen or defined by law, but which are not altogether impossible, the Bill itself affords the best protection that can be obtained. Should a crisis ever arrive 'baffling all ordinary calculation,' and not amenable to the application of any ordinary principle, the remedy must be sought, not in the previous provisions of the law, but, quoting Mr. Huskisson's words, 'in the discretion of those who may then be at the head of affairs, subject to their own responsibility, and to the judgment of Parliament.'Sir, believing that such a state of things had arisen, when the circulation was rendered inadequate in consequence of a state of alarm and of panic, upon the principle contained in the quotation which I have just read from Mr. Huskisson, confirmed by Mr. Loyd, Her Majesty's Government felt it to be their duty to act. But, undoubtedly, in stating this, I admit that it is our duty to justify the course we took by the peculiar circumstances which existed at that time; and I hope to be able to show to the House that the circumstances in which we did take that step were such as 380 have not existed in this country for the last quarter of a century. We interfered, not because we thought that we could provide capital for those who had it not—not because we thought that we could enable those to borrow who had no good security to offer for repayment, but because we believed that the circulation was paralysed by a state of alarm and panic. From that alarm and that panic we endeavoured to relieve it. I think that what occurred on our letter to the Bank being made known, proves that it was alarm and panic, which had rendered insufficient for the purposes of trade, an amount of notes in the hands of the public perfectly adequate for these purposes but for the panic which prevailed. In restoring activity to the circulation, we succeeded in the object which we had in view. The causes of the pressure, I apprehend, are far different, and far more deeply seated, than a question of the issue of a million or two of bank notes; and I think that those who attribute the occurrences of the autumn to so inadequate a cause as that, have but little appreciated the gravity of the circumstances which have taken place. To state in a few words what we believe to be the cause of the pressure—although it may ultimately have been aggravated by the apprehension of the effect of the Act of 1844—I believe that there began in the summer of 1846 an unexampled and unprecedented drain of available capital, partly for the purpose of the purchase of corn, and partly for the purpose of permanent investment in the construction of railroads; and that this acted upon a state of credit unduly developed beyond all legitimate bounds, in which the capital was already utterly inadequate to the superstructure of credit which was raised upon it. I do not doubt that the country might have sustained, without any very great pressure, the demand for the purchase of corn, heavy though it was; it might perhaps have sustained the pressure from the demand for investment in railroads, although among those best able to form a judgment it has been thought—and in that view I concur—that such an abstraction of available capital could not take place without sooner or later causing serious pressure. Whether it might have stood them both or not, I know not; but there was, besides, that state of—I hardly like to use so strong a word as insolvency—but that inability to meet immediate demands which so extensively prevailed in the commercial world; and when this element was added 381 to those which I have mentioned, the combination was more than the country could bear without great suffering and great misfortunes. It is remarkable how strong a contrast the events of this year present to what took place in 1837 and 1839. In 1837 there was severe commercial pressure, though not to be compared to that which has existed this year; in 1839 there was the severest drain for the purchase of corn known for years, though not to be compared with that of 1846–7; but the two came separately; the one was over before the other began, and the consequence was, that, although the amount of the notes with the public, and the amount of the accommodation afforded by the Bank of England, were far less in the autumn of 1839 than in the corresponding period of this year, there was not at that time any severe pressure upon the commercial and mercantile interests. I do not mean to say, that a comparison of the amount of notes in the hands of the public at different dates, affords a precise test of comparison between the respective periods. Changes of a permanent description, such for instance as a considerable suppression of country issues, may have altered the amount of bank notes required under any circumstances; at the same time, when I state the amounts in 1839 and 1847, I think hon. Gentlemen will admit that no such circumstances have occurred since 1839 as would account for so large a difference as appears between that year and 1847. I am anxious to refer to documents, as far as I can, in possession of the House, and I shall therefore take as a test of the accommodation afforded by the Bank, the private securities. This, again, is not an accurate test, but sufficiently so for the present purpose. On the 1st of October, 1839, the circulation, that is, as this word was then used, notes in the hands of the public, and Bank post bills, was 16,800,000l. On the 2nd of October, 1847, the whole amount of notes in the hands of the public, together with the Bank post bills, was 19,577,000l., being an increase of near 3,000,000l. The private securities held by the Bank amounted on the 1st of October, 1839, to 13,290,000l.; but on the 2nd of October, 1847, the amount was 21,260,000l.; making, so far as that is a test of the accommodation afforded by the Bank of England to the mercantile and commercial interests of the country, an increase of 8,000,000l., in the amount 382 of accommodation afforded in the year 1847, as compared with the year 1839. In the autumn of 1839 there was no severe pressure whatever upon the commercial world; and why? Because then trade was in a sound and healthy state; the events of 1837 had removed those houses which had unduly extended their credit. Persons at that time were carrying on a prudent and steady trade; and the diminution in the amount of notes with the public, and in the amount of accommodation afforded to them by the Bank, entailed no pressure upon them, because they were in that sound state. This seems to me, I will not say a conclusive proof, but a strong ground for the inference, that in the autumn of this year the pressure was caused not from the mere want of notes, not from the mere want of Bank accommodation, but by other circumstances, of which the unsound state of trade was not the least. I will now trace, very rapidly, the course of events up to the present time; and in doing so, I will refer very shortly to the state of trade and of the affairs of the Bank in the summer of 1846, because I believe that time to have been the turning point in the condition of the country. There was in the summer of 1846 an unlimited expansion of credit. It is true that in 1845 the Bank of England discounted at a lower rate, viz., 2½ per cent. They raised the rate to 3½ per cent in the autumn of 1845; but in the summer of 1846, with an enormous amount of bullion, and an enormous amount of reserve, they reduced the rate of interest to 3 per cent. They had at that time 16,300,000l. of bullion in their coffers, and a reserve of about 9,500,000l.; proving even from the state of the Bank the existence of 5,000,000l. or 6,000,000l. of capital in the shape of bullion, not wanted as a commodity for the purpose of trade, and forming the basis of an amount of issue beyond what was required by the public. I believe that there was an accumulation of deposits of railway money in the hands of the London bankers, which enabled them to add in some degree to the facilities of the money market. From that time the state of things changed. The harvest of 1846 was not very abundant; the crops of spring corn were very short; the potato crop failed; and it became necessary to import food largely for the relief of the people; and, as I stated to the House on Friday evening, it was also in the summer of 1846 that the great increase of demand 383 for the purposes of the railroads took place. Then I believe for the first time the demand for capital overtook the supply. The price of cotton rose in the autumn of 1846 from the deficiency of the crop; and I believe that the high price which persons in this country had to pay for their food diminished the demand for manufactured goods. From the end of the summer a steady drain of gold took place. Up to January, 1846, no step was taken by the Bank of England which might act as a warning to the country. The stock of bullion was so large, that the Bank were able to allow the drain to operate upon their own coffers alone, without feeling themselves obliged to take any step in any way affecting the public. In January, however, they raised their rate of interest first to 3½, and then to 4 per cent. But the drain of capital for the railroads and for corn increased most rapidly from this time; the importations of corn became infinitely larger in the earlier months of the year 1847; and the usual effect of a demand for capital was perceived in the rise of the rate of interest, not only of the Bank of England, but in the commercial world. I cannot give a better proof of it, than by mentioning that notice was published early in April by the chairman of one of the best railroad companies in England, the North-Western, announcing that the company were prepared to pay 5 per cent for all the money they borrowed—the highest amount which by law they were enabled to pay. About the same time the Bank of England, though too late in my opinion, raised their rate to 5 per cent. Then came what was called the panic of the spring. I stated at the time from what causes I believed that it arose. I stated, and I have seen no reason since to change the opinion I then formed, that it was mainly, I may say entirely, caused by the imprudence of the Bank, who, having been warned of the demand there would be for the payment of the dividends, and having provided themselves with funds for that purpose, imprudently lent out over the period when the dividends became payable, the money which they had provided, so that they were not in possession of adequate funds when the money was required. They let out the money, not to be repaid till May, and consequently when the dividends had been paid they found themselves without an adequate reserve. The statement of the Bank accounts which was published one Saturday early in April, it is notorious, 384 spread considerable alarm in the commercial world. The Bank then took the severe step of restricting the amount of discounts; they pulled up as suddenly as they had unwisely let out their reserve before; and the consequence was the alarm which we all remember. The panic was increased at the time by the state of the Exchequer-bill market. The Government then took measures which they deemed calculated to meet the emergency; and it will be in the recollection of the House, that after a period of considerable apprehension, the state of monetary affairs generally resumed its ordinary course. But I well remember that in June I saw in more than one newspaper, in the London and also in the country press, warnings against the speculative tendency which was again developing itself, in railroad shares, and in other ways. Now, upon referring to the accounts in the Gazette of the state of the Bank, I find that the notes in the hands of the public at that time, in the early part of June, were about 18,250,000l., and the Bank rate of discount was 5 per cent. The dividends were paid in July, when the same state of things prevailed. On the 30th of July the amount of notes in the hands of the public was, in round numbers, 18,900,000l.; the Bank still discounting at 5 per cent. I do not know how it is possible to say that there was a deficiency of notes to meet the wants of the country at that period, so far as the Bank was concerned. There was no extra demand on the Bank for discounts, no pressure for advances, while the amount of notes in the hands of the public was larger than when a speculative tendency had been denounced in June. On the 5th of August the Bank increased their rate of discount to 5½ per cent; and this was the only step taken of a restrictive tendency before the failures commenced. The first great failure took place on the 10th of that month, when the house of Messrs. Leslie, Alexander, and Co. stopped payment. It is to be observed that most of the early failures were of houses engaged in the corn trade, with the exception of the firms of Messrs. Reid, Irving and Co., and of Messrs. Saunderson and Co., the bill brokers. Of course it is impossible that any number of firms, in any branch of trade, can fail without entailing serious consequences on houses in other branches also; but, speaking generally, the whole of the early failures were in the corn trade. I see no reason to justify the assertion 385 that these failures were occasioned by the operation of the Act of 1844. I believe that it has uniformly happened that when a considerable fall has taken place in the price of any article in general demand, failures have occurred amongst those who trade in that particular article. Hon. Gentlemen will remember that between the month of May and the month of September the price of corn fell no less than 50 per cent. In May the average price was 102s. a quarter, and in September it was 48s. Those, therefore, who purchased at the prices of May, and sold at the prices of autumn, could not but experience very severe losses. However great were the failures, it is impossible to be surprised at them. Except for a few days in May, I never remember a better prospect of a good harvest. The importation of foreign corn also was very large. It was no part of my duty to warn those who were engaged in the trade; but I never omitted an opportunity of stating to this House the extraordinary amount of importation of corn which was carried on during the first six months of the year, in order that the parties might, at any rate, be aware of the fact. Whatever expectations I may have entertained, those whose interests were more immediately concerned calculated otherwise. Under other circumstances the parties engaged in these transactions might have proved great benefactors to the country: far be it from me, therefore, to blame them. It is sufficient to say that they made a great miscalculation, the consequences of which have unfortunately fallen on their own heads. I came to town early in September, immediately afterwards, and found the general impression to be that the failures were to be accounted for by the change of circumstances in the corn trade; and there was a belief that the failures would be confined to those houses which had been engaged in that trade. It was in this hope that I used the expression which has been a good deal commented upon, viz., "that the worst was over." This, however, was not only my impression. An hon. Friend has put into my hand a circular issued by a well-known firm in Liverpool, that of Messrs. Littledale and Co., early in October, in which they state—"By our monthly circular of the 21st of September, we expressed a hope, based on our London correspondence, that 'the worst was over; but, we regret to say, that, far from this being the case, every day has brought 386 some new failure." It appears that the correspondents of these parties had arrived at the same conclusion to which I had been led by the information placed before me; and I think that the House will see that I had at least some ground to justify my anticipations. I regret that these anticipations proved to be erroneous, and that failures of a far more extensive nature very soon occurred. Throughout the month of September failures of houses engaged in various branches of trade took place in rapid and melancholy succession. But, were these failures to be attributed to a deficiency in the amount of bank notes then in the hands of the public? I think that such an opinion is not borne out by the facts. Early in September the Bank of England announced that they would make advances at 5 per cent up to the 14th of October, when the dividends became payable. It was, I think, unfortunate that they adopted that low rate, because parties in the city appear to me not so much to attend to the published accounts of the Bank, as they do to the acts of the Bank and the rate of interest charged by them. I do not think that this determination on the part of the Bank produced any great practical effect on the amount of the advances actually made; but I do believe that it did produce a very considerable effect in other respects, by encouraging for a longer period an undue confidence in the money market. Fixing this low rate of interest was, therefore, in its result an unfortunate proceeding. The real nature of the transaction was this: It is notorious that previous to the payment of the dividends every quarter, Government balances accumulate in the Bank; and it is equally notorious to everybody conversant with these matters, that the practice of the Bank is not to allow these balances to lie in their till unemployed, thereby depriving the public of the extent of the accommodation which they usually enjoy, but to lend them for short periods in sums to be repaid previously to the time when the dividends become due. This was the course adopted by the Bank in September and October last. They made advances out of the Government balances repayable before the dividends became due in the month of October. It is also equally true, that upon former occasions the practice of the Bank has been, that when they made a loan to be repaid within a limited period, determined, not by the wish, of the borrower, 387 but by the convenience of the Bank, they generally made them at a rate lower than that at which they were discounting. The discount rate on this occasion was 5½ per cent, and the loans were made at 5 per cent. It is important for the point now under consideration to mark the effect of this proceeding of the Bank in regard to the amount of bank notes in the hands of the public. In the early part of June the amount of notes in the hands of the public was 18,250,000l. On the 30th of July the amount was 18,892,000l. Now, it is notorious that between the periods of the payment of the dividends the amount of notes in the hands of the public usually decreases. Accordingly, on the 11th of September, the amount had gone down to 17,840,000l.; but on the 2nd of October, when the advances of which I have just spoken had been made, it was 18,712,000l.; Therefore, the amount of notes in the hands of the public at the time when this pressure existed, which has been attributed to a deficiency of bank notes, was only less by the sum of 200,000l. than it was on the 30th of July before the pressure—was higher by nearly half a million than in the early part of the month of June, when everything was going on prosperously—and was rapidly increasing during the period when the most serious failures took place. I will now state the amount of accommodation afforded by the Bank of England to the commerce of the country. I will refer again to the test which I before mentioned—I mean, the amount of private securities. It appears that the private securities held by the Bank on the 24th of July, 1847, amounted to 15,300,000l., and on the 2nd of October they amounted to 21,265,000l.—that is to say, during the two months, August and September, the accommodation of the Bank to the public on private securities was increased about 6,000,000l. The amount advanced on private securities at corresponding periods in former years stands thus:—
and on the 2nd of October, 1847 (as I stated before), the amount was 21,259,000l. It seems to me, with these facts before us, utterly impossible to say that there was such a diminution of the notes in the hands of the public up to the beginning of October as to account for any degree of pressure, or that the Bank of England was prevented, by the provisions of the Act of 388 1844, from affording accommodation largely to the commerce of the country. Another strong proof of the absence of any cause of pressure at this time arising from the amount of notes, is to be derived from the state of the country circulation, which in the months of August and September was very little below its amount in the corresponding months of 1846, and was much below its limit in this country. The country notes in England and Wales, in circulation in those months, were only about 250,000l. less than in the same months of the preceding year, and they continued at about 1,000,000l. below their limit; whilst there was no reason why they should not have been increased to the amount of that million if there really had been a demand for an increased circulation. In Scotland there was little or no difference in the amount of the notes in circulation in those months between 1846 and 1847. The only one of the three kingdoms in which there was any considerable difference was in Ireland; and in Ireland comparatively few failures have occurred. I must here also remark—and the fact ought always to be borne in mind—that during all the time of the pressure on the money market, the Bank of England never refused to discount any bill which they would have discounted at other times and under other circumstances, and before any depression existed. They discounted all the bills which came within their rules, only charging a higher rate of interest. They did not refuse a single bill of this description. I think I have now shown that, up to the month of October, there was no deficiency of notes—no deficiency of discounts—and no deficiency of accommodation in any respect whatsoever. From what cause, then, it will be asked, did the pressure upon the commerce of the country arise? I believe, as I have already said, that it was mainly caused by the absorption of available capital, partly for the purchase of corn, and partly by its application to the construction of railroads, acting upon a very unsound state of commercial credit. I will endeavour to explain the manner in which the capital was absorbed, and how I conceive that this operated upon trade. In the first place, large sums were sent out of the country for the purchase of corn; and I must remark with respect to this outlay (as well as to that for railways) that not only were the sums for both purposes, which were abstracted from trade, of a large amount, but that they increased 389 rapidly in the course of the last few-months. I have a return of the cost to the importer of the corn imported since the summer of 1846, and this will show how large an amount of capital the purchase of corn alone has absorbed. The account is one which has been corrected by Mr. Porter with great care. By this return it appears that the cost of corn imported, without any allowance for profit, from June, 1846, to January, 1847, was 5,139,000l.; from January to July, 1847, the amount was 14,184,000l.; but the fact which I am now about to mention shows, as I have remarked, how the absorption steadily and continuously increased. During the three months from July to October, the sum paid for corn imported was no less than 14,240,000l. It will be seen that the cost in the three months ending the 10th of October was greater than that for the preceding six months. But during those three months the pressure in the money market was the greatest; and may not this extraordinary amount of money paid for foreign corn in that period account, in a great degree, for that pressure? No less a sum than 33,563,476l. has been expended for foreign corn within the space of fifteen months. I now come to the other cause, which, as I have already remarked, I went on in like manner increasing in extent as it advanced. Before I say anything further on the subject of railways, I may, perhaps, be permitted to correct a mistake into which I fell on a former night when speaking on this subject. I stated that the amount of capital the expenditure of which was sanctioned on railways, in the year 1841 was 1,500,000l., and in 1842 was 2,000,000l. It appears that I understated the amount for those two years, though the difference does not affect the argument which I used. In 1841, 1842, and 1843, the amount sanctioned was, in each year, about 4,500,000l.; in 1844, it was 6,105,000l.; in 1845, it was 14,135,000l.; in the first half of the year of 1846 it was 9,815,000l.; in the last half of that year it was 26,670,000l.; in the first half of the year 1847, it was 25,770,000l.; and if the expenditure had proceeded as it had gone on in these years, the amount to be expended for the half-year ending the 31st of December, 1847, would have amounted to 38,000,000l. From these sums must be deducted about one-fifth for preliminary expenses and the purchase of land. The money expended for these purposes cannot be said to be 390 converted into fixed capital. The amount of available capital, however, expended on the construction of railways, after making the above deduction, and in the purchase of corn, and thus abstracted from other purposes, during the last fifteen months, is no less than 80,000,000l. or 90,000,000l. I need not on this occasion repeat what I said the other night on the subject of railways. I am not inclined to disagree in opinion with my hon. Friend the Member for Sunderland, as to the advantage which railways confer upon the country. I do not question the utility of the railways, or the advantages which are produced in the course of their construction, by the increase of the comforts of the labourers and of the consumption of excisable articles. I admit that such works are greatly beneficial to the public. Let him say, if he will, that the expenditure on railways is more advantageous to the country than the usual employment of floating capital in commercial pursuits. That is not the question for us now to consider. The question is—what is one cause, at least, of the pressure which the commercial world has experienced? What is it which has abstracted from those engaged in trade a large portion of that capital which they have hitherto always been able to obtain, and by which they have been enabled to carry on their commercial transactions? I say that one main cause has been the absorption of a large portion of the floating capital of the country, hitherto employed in commercial dealings, and the investment of it in the construction of railways, thereby converting floating and immediately productive capital into fixed, and for a time, unproductive capital. Nor am I indisposed to agree with my hon. Friend (Mr. Hudson), that it might have been well for the commercial world if they had not accepted bills so largely, and had not carried on their commercial transactions to so great an extent upon credit. But that again is not the question. The fact is, that that capital which the commercial world had heretofore been accustomed to command was taken from them. They were deprived of the means on which they calculated to carry on their commercial transactions; and again I ask by what means was this effected? It was by abstracting some fifty or sixty millions from the floating capital of the country, and giving to it a fixed and permanent character. That appears to me the most important element in solving the question as to the cause of the pres- 391 sure under which commerce has laboured during the period to which I have been adverting. I will now advert to the state of trade, from which the facility hitherto enjoyed was thus taken. It is painful to speak of the insolvency which has recently taken place among many parties, with several of whom many of us have been personally acquainted, and for whom we entertain sincere sympathy and respect. I deeply regret their inability to meet their engagements. I will give no opinion of my own on this subject, but I will quote the opinion of a gentleman well known in the commercial world, differing with me in his views on most subjects of trade, who, in a printed letter which has been sent to me, avows his belief that few of the houses which have failed, were possessed of sufficient capital to carry on their trade.
On the 5th Oct. 1844 … 10,510,000l. On the 4th Oct. 1845 … 15,188,000l. On the 3rd Oct. 1846 … 15,086,000l.Go (says Sir John Gladstone) over the list of East India failures, or of foreign traders, and point out one who has not been long without adequate capital or means.Many of the most serious failures have taken place in the East India trade. I find that it is stated in another printed document—and I fear there is too much truth in the statement—with regard to the trade of India, that in many cases business was carried on less with a view to profit and loss than to the creation of bills—that ten months credit, for instance, was usually given on the purchase of goods in India—and that the bills drawn to pay for these goods were sent home by the overland mail to be discounted and re-discounted, as the means of providing immediate funds for London houses eight months before the drafts against those goods fell due. I fully admit that the trade of this country can only be carried on partly by capital and partly by credit; but there must be some due proportion between the capital possessed by the parties and the credit which they seek to establish upon it; there must be an adequate basis of capital for the superstructure of credit; and if parties have overstepped that due proportion, when an adverse state of circumstances comes round, my opinion is, that no issue of paper money can prevent or avert such a catastrophe as that which we have lately had to lament. Recent occurrences have, I think, afforded strong illustrations of this state of things. I believe that large houses have failed because the produce brokers would no longer accept their bills. The produce brokers 392 failed because they were overburdened by their previous acceptances. But the system was essentially unsound. The bills drawn on these brokers were not only drawn against goods arrived in this country, and deposited in their hands, but against goods yet in India or elsewhere, as soon as shipped. Money was raised upon produce not even ready to be shipped or to be brought to market. In these latter cases when the bills became due, and the drawers were unable to pay them, there were no goods at hand, by the sale of which money could be raised, and consequently no available foundation for the credit thus created. I cannot say that the practice is totally new; but it has been of late carried to an extent altogether unexampled and unprecedented; and I believe that no small portion of the failures which have recently occurred have been owing to this system. It was facilitated by means of a practice which was reprobated by the Banking Committee, of which I had the honour to be chairman, and which is disclaimed by many of the oldest and steadiest banking concerns, and by the banks in Scotland, though practised by some of them—I mean the re-discounting by bankers the bills which they have discounted for their customers. It is a common practice with joint-stock banks in commercial places. It was, I believe, the failure of this resource, which was the immediate cause of the suspension of the Royal Bank of Liverpool. The mismanagement of that establishment was very great. Nearly the whole of its paid-up capital, to the extent of more than half a million, had been lent to one house. If banks thus dispose of their own resources, and rely in ordinary times for the means of carrying on their business on re-discounting their bills in London, it is obvious that their means will be curtailed in any time of pressure, precisely at the period when their need of additional means is the greatest, The facility, again, for this course is given by a system practised to a great extent in the metropolis, in spite of the exceeding danger attending it, namely, the system of bankers and others placing large sums of money "at call," as it is termed, with bill brokers in London. It is true that country bankers hold deposits at call to very large amounts; but the safety of that proceeding, on their part, consists in this circumstance, that whatever may be the aggregate amount of deposits, the number of depositors, and the variety of interests 393 which influence them, render it extremely improbable that all, or even a considerable proportion of the deposits, should be drawn out at one and the same time. But the practice which prevails in London is different, and possesses none of the safeguards to which I have just adverted. The London bankers, for instance, place large sums of money with the bill brokers; but it unfortunately happens that the same circumstances which cause one banker to withdraw his money from the bill brokers, usually operate upon all other London bankers at the same time; and the consequence, therefore, is a simultaneous abstraction from the bill brokers of their means of discounting bills. When we find that more than half the means with which some bill brokers carry on their business are deposits at call, it must be obvious that when circumstances arise which deprive them of their usual means of affording accommodation to their customers, the result must be an extraordinary effect upon the credit which exists in the shape of bills of exchange. In must also be borne in mind, that when a certain number of great houses fail, from their own imprudence and over-trading, the inevitable consequences is to involve other houses in difficulties, whose own concerns have been managed with reasonable prudence. In the ordinary course of trade, the latter might properly rely on the bills or acceptances of the former class, as an available means towards meeting their own engagements; and if these bills and acceptances suddenly become worthless, they can hardly escape suffering from misconduct not of their own, but of others. The evil is not confined to those by whose fault it was originally caused. I will not advert to circumstances which have come to my knowledge within the last few weeks, showing a state of things in commercial matters, by which I was myself astonished; and I have also been informed by persons long and intimately acquainted with trade, that they too have been appalled by the reckless character of the transactions with which recent events in the commercial world have made them acquainted. I am unwilling to go into any details on this subject; but I hope the House will give me credit for not making statements of this kind without having had such information as would fully bear out what I have said. I think, Sir, that after what I have stated, that the House is now in a condition to judge to which of the 394 causes before adverted to, the failures that took place in August and September ought to be referred. On the one hand, it is asserted that those failures were occasioned solely by the stringent operation of the Act of 1844, which prevented the Bank from issuing an adequate amount of bank notes for the purpose of carrying on the commercial transactions of the country, and from giving assistance to persons engaged in trade; whilst, on the other hand, I believe that they resulted in a great degree from the abstraction of floating capital from trade, and from an undue extension of credit, which the capital of the country was unable to support. I have shown that there was no material reduction of the amount of bank notes in the hands of the public. I have shown the extent of additional accommodation afforded by the Bank. I have shown to how great an extent available capital was withdrawn from commercial operations to be otherwise applied. I have referred to the state of many commercial houses; and I now appeal with confidence to any impartial and reflecting man to declare to which of the two alleged causes the numerous and heavy failures which occurred up to October, ought to be attributed. In the beginning of October an occurrence took place which caused a considerable change in the state of public feeling, and from which time matters assumed a totally different aspect. I have already mentioned that early in September the Bank made, for a limited time, advances from the Government balances in their hands. Of course, that could be done only for a limited period, because the money would be required, at a given time, for the payment of the dividends. The Bank accordingly announced that they would lend the money only till the 14th of October. They made advances to such an extent as they deemed prudent; and the application for loans had nearly ceased, when, on the last two days of September, an extraordinary increase in the demand took place. The usual demand had not exceeded 20,000l., 50,000l., or 70,000l. a day for the preceding week; but on the 29th September the loans amounted to 149,000l., and on the 30th to 362,000l. On the 2nd October the Bank announced, not that they must prematurely withdraw any of the advances which they had made, but that they could not increase the amount of their advances, and that the loans must be repaid within the specified time, in order 395 that the money might be ready to be applied to the payment of the dividends. The effect of this announcement was to spread the greatest dismay through the city of London. The whole commercial world seemed to have been surprised at this announcement, and to have looked upon it as being one of the most unjustifiable steps which ever was taken; but I hope that gentlemen in the city will forgive me for saying that it appears to me extraordinary that any man who considered for a moment, should be surprised by it. It was known that these Government balances could be used by the Bank of England only for temporary accommodation, until the time for paying the dividends arrived. It was a matter of notoriety that the money would be wanted for that purpose, at a fixed time. That time was known long beforehand, by everybody. I would beg to remind Gentlemen also, that last spring I stated as a probable case, precisely what has now occurred. When the pressure felt in April last was attributed to my having had recourse to borrowing from the Bank on deficiency bills, I stated that this was not the cause of the inconvenience complained of, because whether the Government borrowed on deficiency bills, or drew their balances from the Bank, the accommodation which the Bank had previously afforded to parties must be temporarily withdrawn from them at the time the dividends became due. The Bank were not likely to leave large Government balances unemployed: they would naturally use them for temporary advances; and these advances could not be continued during the payment of dividends. It must be obvious to any person who will consider the matter, that this must necessarily be the case. What I mentioned in May, came to pass in October, and therefore the announcement issued by the Bank ought not to have taken any person by surprise. An impression prevails very generally that the advances made by the Bank were withdrawn to a considerable extent, at the period of this announcement; but that is not the case. The aggregate advances of the Bank on the 25th of September were 4,725,000l., and on the 9th of October they were 4,544,000l., showing a diminution of not quite 200,000l. In truth, the Bank, in the transaction in question, and in the position in which they found themselves, did only what was necessary in order that they might be prepared for the payment of the dividends. However, when 396 I came to London on the 2nd of October, I found the whole city in a state of the greatest excitement and alarm. For one day, the continuation was at the rate of 60 per cent per annum. I certainly never passed through so painful and anxious a period as the three weeks which succeeded that day. My time was occupied in seeing persons of all descriptions from the moment I came down in the morning until I went to bed at night. Parties came to me and represented that it was perfectly impossible that the loans could be repaid to the Bank; that if the Bank relied upon such repayment for the payment of the dividends, they would be disappointed; that the Bank dared not sell the securities on which the advances had been made, and, consequently, that it was impossible that the public credit could be maintained during the next week. What, however, was the fact? The next week came, and the loans were repaid almost without an exception. During the whole of this period, the Governor and Deputy Governor of the Bank acted with extreme prudence and discretion in dealing with these loans; and it is satisfactory to know that, on the whole, they were very punctually paid. It is also a most remarkable thing, that at this period to which I am alluding, the bank notes taken out of the Bank in the first four days of the payment of the dividends exceeded only by 300,000l. the amount taken out in the four corresponding days of the preceding year. It is an extraordinary fact, that in such a crisis, when the need of additional bank notes is represented to have been so extreme, parties who might have claimed 7,000,000l. from the Bank during these four days, drew only 300,000l. more than had been drawn in the four corresponding days in 1846. Thus ended the week of the dividends. On the following Monday the failure of the Royal Bank of Liverpool took place; and the intelligence reached London just at the moment when a better state of things was beginning to exhibit itself. The failure of that bank is obviously attributable to gross mismanagement. With a paid-up capital of little more than 600,000l., they lent, if I remember correctly, no less than 500,000l. to one house. Great apprehension was entertained also respecting an eminent broker at Liverpool, who, however, succeeded in obtaining assistance from the Bank of England. On the Thursday of this week, so far as London alone was con- 397 cerned, there was every appearance of a somewhat better state of things; but there was a very great change in the character of the accounts from the country. The country had always been the greatest cause of apprehension; and on the Thursday, Friday, and Saturday, the accounts were very alarming. Another bank at Liverpool called, I think, the North and South Wales Bank, failed; and much anxiety was felt respecting others, more especially those in commercial districts; for, except in one or two instances, the banks in agricultural districts were comparatively easy. A bank at Abingdon, and another in the West of England, however failed, the latter of which it appears will be unable to pay more than a small dividend. Other failures also occurred elsewhere. Intelligence of the failure of a large bank, the Union Bank at Newcastle, was received on the Thursday, and this caused a severe run on the district bank in that town. Allusion was made on a former evening to the manner in which it is supposed that this bank obtained assistance in consequence of the interference of the Government; but I can only state that Mr. Richardson, the manager of that bank, came up to London to solicit assistance from the Bank of England, and returned without having obtained it. That in itself is sufficient to satisfy any person that the case of that establishment was not recommended to the favourable consideration of the Bank of England by the Government. It is true that the bank was assisted to a large amount by the Branch Bank of England at Newcastle, the manager of which was Mr. Grote, the brother of the gentleman of that name whom many Gentlemen remember with pleasure as a Member of this House. Mr. Grote, fearful of the ruin which the possible suspension of the district bank might cause in the neighbourhood, took on himself the responsibility of affording it, to a very large extent, by advances on the securities which they placed in his hands, the means of meeting a formidable run which was made upon it on Friday and the early part of Saturday. The measure was quite successful, and in the afternoon of Saturday many of the parties who had drawn out their money came to the bank and tendered it again in deposit; and the credit of the Bank, of whose ultimate solvency there never could be a doubt, was re-established. About this time the sense of danger was seriously aggravated by an application for 398 assistance to the Bank of England from some Scotch banks. It has always been supposed that the banks in that country rested upon so safe a footing that they were able to take care of themselves, and that, consequently, it would never be necessary for them to seek for assistance from the Bank of England; but on this occasion the application was made, and certainly the statement laid before the Bank was of a nature to excite alarm; because, looking to the enormous amount of the deposits in the Scotch banks, however solid and sure may be the ultimate security of those establishments, the temporary embarrassment of any portion of them could not have failed seriously to aggravate the existing pressure in this country. The Bank of England was pressed directly for assistance from all parts of the country, and indirectly through the London bankers, who were called upon to support their country correspondents. The country banks required a large amount of notes to render them secure against possible demands, not so much for payment of their notes, as of their deposits. Houses in London were applying constantly to the Bank for aid. Two bill brokers had stopped, and the operations of two others were nearly paralysed. The whole demand for discount was thrown upon the hands of the Bank of England. Notwithstanding this, the Bank, as I before said, never refused a bill which it would have discounted at another time; but still the large mass of bills which under ordinary circumstances are discounted by bill brokers, could not be negotiated. During this period we were daily, I may say almost hourly, in possession of the state of the Bank. The Governor and Deputy Governor at last said that they could no longer continue their advances to support the various parties who applied to them—that they could save themselves, that is, they could comply with the law—but that they could not do so without pressing more stringently upon the commercial world. At this crisis a feeling as to the necessity of the interposition of Government appeared to be generally entertained; and those conversant with commercial affairs, and least likely to decide in favour of the course which we ultimately adopted, unanimously expressed an opinion, that if some measures were not taken by the Government to arrest the evil, the most disastrous consequences must inevitably ensue. Evidence was laid before the Government which proved not only the exist- 399 ence of severe pressure from the causes which I have stated, but also that it was aggravated in a very great degree by the hoarding on the part of many persons of gold and bank notes to a very large extent, in consequence of which an amount of circulation which, under ordinary circumstances, would have been adequate, became insufficient for the wants of the country. It was difficult to establish this beforehand; but the best proof of the fact is in what occurred after we interfered. As soon as the letter of the 25th of October appeared, and the panic ceased, thousands and tens of thousands of pounds were taken from the hoards, some from boxes deposited with bankers, although the parties would not leave the notes in their bankers' hands. Large parcels of notes were returned to the Bank of England cut into halves, as they had been sent down into the country; and so small was the real demand for an additional quantity of notes, that the whole amount taken from the Bank, when the unlimited power of issue was given, was under 400,000l. The restoration of confidence released notes from their hoards, and no more was wanted, for this trifling quantity of additional notes is hardly worth notice. I think, therefore, that I am fully borne out in the assertion, that the notes in the hands of the public were amply sufficient for the purposes of trade, but that their circulation was paralysed by panic; and this was the general purport of the representations which we received. Parties of every description made applications to us for assistance, with the observation, "We do not want notes, but give us confidence." They said, "We have notes enough, but we have not confidence to use them; say you will stand by us, and we shall have all that we want; do anything, in short, that will give us confidence. If we think that we can get bank notes, we shall not want them. Charge any rate of interest you please, ask what you like." [Mr. SPOONER: No, no!] I beg pardon of the hon. Gentleman, but I may be permitted to know what was actually said to me. I say that what I have stated was the tenor of the applications made to me. Parties said, "Let us have notes, charge 10, 12 per cent for them; we don't care what the rate of interest is; we don't mean indeed to take the notes, because we shall not want them; only tell us that we can get them, and this will at once restore confidence." We have been asked, what was 400 the change of circumstances which induced us to act on Saturday, when we declined acting a day or two before? I reply, that the accounts which we received on Thursday, Friday, and Saturday, were of a totally different description from those which had been previously brought to us; and we were convinced that at length the time had arrived when, in the words of Mr. Huskisson, in the pamphlet to which I have already referred,—"the stagnant and straitened circulation of the country wanted life and aid, and became every day more embarrassed, whilst each new calamity produced by such a state of things contributed to spread and increase the general apprehension.It was on Saturday, and not before, that this conviction was forced upon us, and it was not till then that we felt it necessary to sanction a violation of the law. I took the greatest pains to sift the accuracy of the statements which were made to me. I do not wish to deny that I was most unwilling and reluctant to interfere; but I felt that I should be utterly unworthy of the office which I have the honour to hold, if when the conviction was forced upon me that interference was for the public good, I had hesitated for one instant to do what I believed to be right in consequence of any opinions which I might have formerly expressed. Having determined to act, there was, of course, the question in what mode we should carry our intentions into effect. I do not mean that this question had to be considered after we had determined to act; for very soon after my arrival in town it became my duty to consider the matter; and we—that is, my noble Friend and myself—had made up our minds as to the best course of action. I should have been glad if we could have taken any course which would have been equally efficacious without running the risk of infringing the Act of 1844. One of the courses recommended to us, by the parties whom we saw, was to advance Exchequer-bills upon goods; but Exchequer-bills were not an easily negotiable security, and I have my doubts as to whether it would not have been as advantageous to advance goods upon Exchequer-bills as Exchequer-bills upon goods. Many other plans were proposed. One mode suggested was the advance of notes upon Consols; but neither did that expedient, nor the issuing of some description of Government note, appear to us likely to be sufficient to meet the evil. It would, have been most absurd to act at all unless in a way which, we felt 401 really certain, would effect our purpose. We had therefore determined on giving the power of issuing more bank notes. The parties who applied to us, generally speaking, told us that, in sanctioning an issue of bank notes, it was essential that there should be a limit to the amount. The limit proposed was 2,000,000l., 3,000,000l. or more, and sometimes with a rate of interest rising as the issue was increased. But in the state of alarm which then prevailed, it appeared to us that it would be unwise to fix any limit of the kind, because, whether the limit was 2,000,000l. or 3,000,000l., parties would naturally have possessed themselves of the limited amount as soon as they could; and when apprehension was again aroused, the same thing would have occurred with a circulation of 21,000,000l., as with 18,000,000l. or 20,000,000l. Another and a better suggestion was, that a limit should be put on the rate of interest. This was the course on which we had determined, of fixing no limit on the amount of notes, but imposing a limit through the rate of interest. We considered it essential, that on the discounts, or advances to be made by the Bank, a high rate of interest should be charged; not so much regarding whether it was 7, or 8, or 9 per cent, but that it should be comparatively high. Unless this was done, there would have been no limit whatever on the issue of notes, and there would have been great risk of a most mischievous result, namely, giving a cheek to the importation of bullion into this country. The question, then, was, what rate would attain this end? As I said before, we had been continually told by mercantile men—"If we can get notes, we do not want actually to take them; and we do not care, therefore, how high a rate of interest you impose, provided we know that we can obtain notes." But I was as anxious as any person not to impose too high a rate of interest. Such a rate is prejudicial in many ways. Beside pressing upon trade generally, it often creates alarm which ought not to exist. Instead, therefore, of adopting the suggestion of 10 per cent, we named 8 per cent. The lowest rate suggested by anybody, was 7 per cent. But such a rate would not have answered the purpose. Hon. Gentlemen who complain on this score, ought to remember what was the rate of interest generally charged immediately previous to our recommendation, not by the Bank, but out of doors. It was notoriously much higher, 402 when the commission charged by bill brokers, but which the Bank does not charge, is included. At the time in question, the rate of interest in Hamburg was 7 per cent. I have here a letter from our Consul at Hamburg, dated the 22nd October, in which he states that interest there was from 6 to 7 per cent, and that the rate was not much lower in any part of Germany. The same was the case at New York. At a time when they could not be aware of the extent of the difficulty on this side of the Atlantic, the rate of interest in the United States was upwards of 7 per cent per annum, and in some cases still higher rates were charged. Even the rate of interest charged by the Bank of England up to that time was greater than is commonly supposed. The minimum rate of 5½ per cent was not charged on any considerable portion of the bills which they discounted. That was the rate at which they discounted some bills which had but a short time to run; but the average amount of their rate of discount was 7½ per cent. The real amount, therefore, of the rise in the rate of interest recommended by us was, at any rate, not much, more than ½ per cent, and was only 1 per cent above the rate of interest in parts of the Continent and in America. If it is desirable, as every one must admit it to be, that capital should be attracted to this country, this object can only be attained by the circumstance of foreigners obtaining a higher rate of interest for their money here than they can get in their own country. It is for these reasons that I conceive that the mode in which we acted was that which was best calculated to attain the end which we had in view—the removal of panic, the restoration of confidence in trade and commerce, at the same time guarding against any check to the influx of capital from abroad. The permission to issue without limit attained the first object; the high rate of interest attained the second. It is said that we ought to have left the Bank of England to fix the rate of interest; but I think it was but fair that we should name the rate ourselves. I had no desire, any more than my noble Friend, to shrink from the responsibility which fairly belonged to us; and we thought it better that we should state fully in our communication to the Bank the whole nature of the measure which we proposed. We thought it essential that there should be a high rate of interest, and we took it upon ourselves to say what, in our 403 opinion, under the circumstances, was for the time the proper amount. We would not take for ourselves the grace of removing the restriction, and leave to the Bank the responsibility of imposing the check. It has been said that there ought to have been a difference in the rate charged for advances made in consequence of the letter addressed by us to the Bank; but it would evidently have been impossible to distinguish them from the advances which they would have made without the letter. An objection has also been taken to the paragraph claiming for the Government a share in the profit arising from the high rate of discount charged. That paragraph was introduced with the concurrence of the Bank authorities, and was introduced on purpose to protect the Bank against the suspicion of being actuated by a view to their own profits. It is provided in the Act of 1844, that the profit of any further issue on security shall be carried to the account of the public. We acted in the spirit of that provision. I never did in fact anticipate any actual excess of issue. It has not taken place, and consequently Government has not received, and will not receive, any profit from the transaction. I have now stated what was the real object of our recommendation to the Bank. It was not to create capital, or to bolster up fictitious credit, but to release and unfetter the circulation of the country, which was frozen by alarm. That end has been attained. By the common consent of men of business, it is admitted that the desired effect was produced. I do not say that persons may not have been disappointed, who thought that they were to be extricated from the situation in which their own reckless speculation had placed them—who expected that something would be done to put money into their pockets, to enable them to carry on concerns for the support of which they had no means of their own. But I believe, that persons who had means of their own, though not immediately available, were enabled, through the assistance placed at their disposal in consequence of the measure authorised by the Government, to carry on their business without further difficulty. No doubt a pressure remains; but that is occasioned by those circumstances to which I have alluded before, and which still remain in operation. Failures have taken place since, and may take place still, for after the assurances which were made last summer as to the sound state of 404 trade, have been so singularly falsified, I cannot place much confidence in representations of a similar character now. What we prevented was, a general and contemporaneous failure, the consequences of which it would have been formidable to contemplate. And now, Sir, I am happy to state, upon what I consider good information, that there are symptoms of improvement. Orders from abroad are coming in. I hold in my hand a circular from a great cotton broker in Liverpool, stating that there is a decided improvement in trade. This is an extract from it:—There is every appearance of lasting improvement in the state of the manufactory. In proof of this, an increased number of mills are now working full time, and a disposition is shown to follow this example, more or less, in the other mills. The number of operatives unemployed is, therefore, constantly on the decrease; and we have good hope that the distress which was apprehended during the winter months will be averted, especially as provisions are now abundant and cheap. Indeed, it is generally admitted that our prospects in every department of trade are brightening. We have no longer to complain of insurmountable difficulties in money transactions, which, besides, are now done at the Bank of England at the minimum rate of 7 per cent interest, and at a still lower rate at other banking establishments. But the amendment in the cotton manufactory is mainly due to the low value of the raw material, which is unquestionably the best ground of extension and prosperity.This circular is dated the 26th of November. I think, Sir, that the House will share in my gratification at this prospect of increase in the employment of the working classes. I believe it to be true, also, that the exports to the United States are considerably increasing; and I hope that, as bullion is coming from thence, there is a great prospect of goods, and not gold, being sent to that country, in payment of any further supply of corn. Sir, I trust that this is a state of things very different from the "shame and national bankruptcy" alluded to a few nights ago by the noble Lord opposite (Lord George Bentinck). I may add, that the bills which have run off in the course of the last month have been punctually paid; and I believe that the general state of trade in the country—I do not say all—is healthy and sound, and that we may hope, with prudence and caution, that commerce will slowly, but steadily and surely, revive. It has been asked, why we did not interfere sooner. I believe that an earlier interference would have defeated its own end. It will be conceded to me, that it is no light matter to 405 overstep the provisions of the law—of a law, too, so recently sanctioned by an overwhelming majority of this House. It was indispensable that we should be fully convinced of an overpowering necessity, and that we should have the information upon which we were to act from the most unimpeachable authority. In April, representations were made by commercial men hardly less strong than those made in the early part of October. We were told that two or three millions sent down to Liverpool was the smallest sum that would save the whole of the commerce of that town from ruin. But what happened? No such sum was sent down; no failures took place; the alarm passed of; and it is clear that there was no necessity for our interference. Even many of the representations made in the early part of October were falsified by the result. Hazards and dangers held forth as imminent turned out to be chimerical. It was necessary before we were justified in acting, that we should be convinced that, in addition to the want of capital, which we could not supply, a degree of alarm and panic was acting upon the commercial world which reason could not dissipate, which threatened serious consequences, and to remove which our interference might be availing. It would have been absurd for us to have attempted what was impossible; it would have been unjustifiable not to have attempted what we believed to be in our power. Capital we could not provide; panic, we thought, we could remove. When we were convinced of the necessity and of the possibility of effectual interference, we did not hesitate to act, and I think I have shown that we have acted successfully. It is said further, that we ought to have abandoned altogether the principle of the Act of 1844, and to have adopted much more extensive measures. We are told that the Bank is bound to discount all good mercantile paper. It did so in every instance when the bills came within its ordinary rules. We are told that even this is not enough—that the Bank is not only bound to discount every bill, but to do it at a low rate of interest, not exceeding 4 or 5 per cent. We are told that it is unheard of that the Bank of England should not advance any sum of money that may be asked for on approved security, and that also at low interest; that to charge such rates as 7 or 8 per cent is scandalous usury. It is only necessary to state these demands to show that, if they 406 are complied with, it is useless to talk of a convertible currency. To those who advocate an inconvertible currency—who ask for a large issue of paper, with a view to their ultimate object of depreciation of the standard, it would be idle for me to address myself. I wish to address my arguments to those who are prepared to maintain the convertibility of the currency. They will admit, that at some time or another a check must be applied to any such issue at a low rate of interest as I have alluded to. Be it sooner or later, there is a time when, if we wish to preserve the convertibility of our paper, the Bank must take some decided stop for this purpose. This has been so ever since 1819; and, in truth, so long as we maintain a convertible paper currency, it must be so. The complaint in the present instance is, that the step taken was unnecessary, because there were at the time eight millions of money in the coffers of the Bank. But we owe much to that eight millions. We owe to it our present safety. The step we took was not adopted until the exchanges were decidedly in our favour—until the influx of bullion was well assured; and then, with eight millions in the coffers of the Bank, we felt that we were safe; for no run could materially affect the Bank with such an amount of gold in its vaults before the arrival of bullion from abroad would have replaced what was drawn out at home. But to what are we indebted for the possession of that eight millions, but to the operation of the Act of 1844? To what extent some Gentlemen would have relaxed the provisions of that Act I know not; but this I do know, that had they been altogether lost sight of, we should have had no security for the possession of any bullion at all. For nine months, from August, 1846, the Bank had suffered a drain of bullion without having taken any effectual steps for its protection. What would have been the result if no check had taken place in April, and if the Bank had gone on uninterruptedly in its previous course? It seems to me clear enough that an enlarged issue would have turned the exchanges against us, and the drain would have gone on without interruption. The demand for capital was heavy, and the exchanges were barely in our favour during the summer. Not above a quarter of a million of bullion was purchased during that period by the Bank. If it be maintained, that by the issue of notes the Bank can supply a want of capital and a deficiency of credit, then I should like to 407 know when, and how, any check would have been put upon the over-trading and over-speculation of the country. I have stated that thirty-eight millions would have been the amount required in the last six months of this year for railways, had there been no rise in the rate of interest, and no difficulty experienced in borrowing money. If, then, this demand for capital could have been supplied by an unlimited issue of bank notes, and the rate of interest at which they were advanced had been low, the railroads would have swept away more than the whole circulation of the Bank of England. I need not say that this could not really have taken place; but such a result is not inconsistent with a principle which confounds capital with circulation. The actual result would have been, that over-trading would have gone on for a much longer period; the demand for railroads would not have been checked so soon; but sooner or later the time must have come when stringent measures would have become necessary on the part of the Bank; and the longer this state of things had existed, the more sudden that check must have been. It is unnecessary to do more than to refer to the effect of the sudden check in April, to show what would have been the effect on the trade and commerce of the country of sudden and stringent measures when the necessity did arise. But the necessity would, too probably, have been very different from what we have seen. If the drain of bullion had gone on—if the amount in the coffers of the Bank had been diminished, as has been the case heretofore, to two or three millions—the publications of the state of the Bank stating accurately the facts week by week—does any body suppose that, under those circumstances, the alarm would not have taken the course of a run upon the Bank of England for gold? In order to preserve the convertibility of their paper, under such circumstances, the Bank must have had recourse to the very strongest measures. Commercial distress, much more extensive alarm, deeper and more widely spread than what we have experienced, must have ensued. The Government would then, as now, have been called upon to interfere; but instead of the measures to which we have actually had recourse, and which we have now withdrawn, with no disturbance of commercial confidence, we should, in all probability, have been in imminent danger of a suspension of cash payments, and Her Majesty's Go- 408 vernment might have been placed under the necessity of coming to Parliament or issuing an Order in Council for that purpose. I cannot but consider that such a necessity would be one of the most serious calamities which could befal the country. And if we have avoided that danger, it is to the operation, in the early part of the year, of the Act of 1844, that we are indebted for being saved from it. A pressure on the commercial interest was necessary and inevitable—that we could not prevent; but when that pressure was exaggerated into a panic, then we did not shrink from the responsibility of the course we adopted. I believe that by that course we did avert the evil consequences which were likely to have ensued. I am not prepared to say that all difficulty and pressure are over. I stated, at the close of the last Session of Parliament, that I thought we still had hard times to go through, and I think so still. Independently of other circumstances, so great a calamity as the destruction of the food of a large portion of the people of a country—so fearful a visitation of Providence—cannot occur without producing some pressure, in their turn, upon all classes of the community. I confess, however, I was astonished when I heard hon. Gentlemen regard the importation of food, in the last fifteen months, as at all analogous to importation under the ordinary operation of free trade. When we bear in mind that this importation has taken place under the pressure of famine, it is utterly unreasonable to say that the circumstances which we have recently witnessed are only the consequences always anticipated by some parties from an altered system of the importation of corn. It does indeed seem to me a most extraordinary delusion to attribute these consequences to free trade. We had pressure and panic under the protective system of 1829; we had pressure and panic under the mitigated protection of 1837; and we have now pressure and panic in the state of change through which we are passing from protection to free trade. I am not prepared to deny that any change is in itself an evil. The ultimate result may be beneficial, but it is difficult for a great change to take place without inflicting some transitory evil. I never held out any expectations that no evil would arise from the changes now in progress. We have seen the fair side of the picture in the prosperity of the last two or three years. But nobody contended that the whole of the prosperity of these 409 years was owing to free trade. They were marked by good harvests—by constant employment of the people, and by the development of our industry as applied to railroads. Now, we have the dark side of the picture. The harvest of 1846 was not abundant, and there was a failure in the potato crop, and a consequent rise in the price of corn; but as it is unjust to attribute the prosperity of the preceding years exclusively to free trade, so it would be just as unfair to set down our present reverses to the same cause. I am in no degree shaken in my opinion of the soundness of the principles of free trade, and I trust and believe, that when the system of free trade is firmly established, the basis of our prosperity will be strengthened and extended. It must not be forgotten, too, that for years we have had a falling rate of interest. The rate of interest has risen within the last year, and that is a state of things inconvenient to borrowers and to persons in distressed circumstances. It presses upon persons having charges upon their estates, and upon those who require borrowed capital for their business. This, however, is not the consequence of a diminished issue of bank notes. It is produced by the insufficiency of the supply of capital to meet the demand for it. Interest is the sum paid for the use of capital, and when capital is scarce, and the demand for it is increased, a higher rate must be paid for its use. Over these circumstances no banking expedient or issue of notes can exercise any permanent control. An additional supply of capital, and a reduction of the engagements based on fictitious credit, are the only remedies. The provident trader, who has confined his transactions within his legitimate means, has preserved himself from the calamity; and sorry should I be, even it were possible, to adopt any measure which would operate as a premium on improvidence. I am not at all surprised, however, when I hear all the misfortunes of the day attributed to the Act of 1844. We cannot forget that after the passing of the Act of 1819, there was hardly a calamity which affected the commercial, agricultural, or manufacturing interest, for some years, which was not in like manner attributed to that Act. On that point, however, we are wiser now. Those who attributed evil effects to the Act of 1819, are few in number; and I believe that the great majority of the public are convinced that it was an Act most beneficial to this country. In like manner, 410 I confidently anticipate that when the immediate pressure of the present time is over—when Gentlemen calmly and impartially look back on the events of the last few months—they will be inclined, as I am, to attribute a very small portion indeed of the evil to the effects of the Act of 1844. A complaint has been made that this Act has not preserved us from commercial convulsion. I think that those who expected such an effect from it, much miscalculated the motives by which persons engaged in commercial transactions are actuated. Certainly, for one, I never held out any such expectations to the country. I stated most distinctly that I did not contemplate that such would be the effect of the Act. I expressed my belief that speculation might be carried on, that prices might be forced up, and that persons might be ruined by the collapse; but I did say that this end might be attained by that measure—that we might prevent an additional stimulus being given to a rise of prices and undue speculations, by the influence of an ill-regulated currency, and that this was the duty of the Legislature to attempt. I will answer also for those who are absent. I hold in my hand the pamphlet published by Mr. Jones Loyd, from which I have already quoted; and what were his expressions as to the Bill of 1844?—To guard against commercial convulsions is not the direct or real purpose of the Bill. To subject the paper issues to such regulation as shall secure their conformity in amount and value with, and consequently their immediate convertibility at all times into metallic money, is the purpose to which the provisions of the measure are avowedly directed.Those were the objects for which the Bill was introduced, and I do not think that any reflecting person could believe that it would prevent commercial convulsions. I should have little faith in any system of currency which professed to accomplish more than to regulate the circulation. The object, then, of that measure, as I believe, was to insure a variation in the amount of our mixed currency of paper and coin, in the same manner, and at the same times, as a metallic currency would vary. But to bind down our circulation within these limits is represented as far too restrictive a system for a commercial country like England. The currencies of the two greatest seats of continental commerce—Holland and Hamburgh—are peculiarly metallic currencies. For every note issued, bullion must be deposited in the bank, and there- 411 fore the amount of their notes must vary exactly as a metallic circulation would vary. Did anybody ever hear that those States were free from commercial convulsions? Were these convulsions ever attributed to their systems of circulation? No person, so far as I know, ever attributed them to any other source than to those alternations of trade which occur in all commercial communities, under any and every system of currency. But our system is not more restrictive than theirs. We are told, indeed, that the Act of 1844 prevents any increase of bank notes; but, on the contrary, it enables any person to convert into bank notes any amount whatever of bullion which he may choose to carry to the Bank, and authorises the issue of notes to the extent of 14,000,000l. besides, on security. The Bank cannot refuse to give notes for gold; and it is therefore in the power of any one to increase the amount of bank notes, by demanding them in exchange for bullion. In the summer of 1846, and for some time before, the notes out of the issue department were more, by some millions, than the public required to have in their hands. It can hardly be said, that a system in which this could take place, prevents any possibility of an increase of circulation. The same effects precisely might have occurred under a metallic circulation, as have occurred under our mixed currency; and the advocates of the Act of 1844 never professed that its operation would produce any other result than that which might have happened under a metallic circulation. The system of our mixed currency is attended by greater convenience, and some economy; but as regards any possible influence on the transactions of the country, no one of its advocates, that I am aware of, ever professed that any other effect would be produced by it than would be the case if there was not a single bank note in existence. It is perfectly true that the amount of reserve in the Bank at the end of the summer of 1846, was such as not to render necessary any diminution of the notes issued to the public. It was perfectly consistent, I admit, with the provisions of the Act, and there was no legal obligation on the Directors of the Bank of England to act otherwise than they did. I think it would have been wiser and better if they had given a timely warning; but the option of doing so evidently rested simply on the discretion of the Directors. I do not think that, during this period, that discretion was 412 wisely exercised. It is utterly impossible that an establishment possessed of so large a capital should not exercise a most powerful influence either for good or for evil on the commercial interests of the country, and it is, therefore, a matter of vital importance that the management of the Bank of England should be conducted soundly and wisely. I am afraid that recent events have somewhat shaken the confidence of the public in the direction of that Bank. It may be difficult to suggest a mode of improving that management; but of this I am sure, it is a subject well worthy of consideration, and one, perhaps, that may form one of the most useful subjects of inquiry by the Committee for which I am about to move. I believe that although the Bank Charter does not expire for some years, we shall find that the Bank Directors will not be indisposed to concur in any measure which the wisdom of Parliament may devise. I understand they find some difficulty in inducing persons to undertake the heavy and responsible office of Governor; and I am certain they will gladly co-operate with the Government and the Legislature in any measure which may be calculated to improve the present system. I am anxious, now, not to go into any of the controverter points connected with the currency. I intended to have referred to them no further than was necessary to illustrate the view which the Government has taken of the present state of affairs; but I fear, Sir, I have stated those views at too great length, and I will trespass for a very short time longer on the patience of the House. I am not ignorant that there are many gentlemen of great authority, and of great experience, as well as of practical acquaintance with business and commercial affairs, who differ from us in their view of these matters; but I am aware also that they differ to no inconsiderable extent on those points among themselves. In the opinion of Her Majesty's Government it is most desirable that all these views—differing as they do one from the other on a subject of vital importance—should be well and carefully considered. We think it unadvisable that so soon after events which have excited so strong a feeling, any attempt at legislation should be made, because there is no subject in which the exercise of calm deliberation and impartial judgment is so indispensably required; but we do think it expedient that this inquiry should take place when all these events are fresh in the mind, and present 413 in the recollection of all those who conduct the inquiry, and of all those who may appear before the Committee as witnesses. Within the last year and a half events have occurred well calculated to throw light upon the subject, and to illustrate it practically in every point of view. There are few, perhaps, of those hon. Gentlemen whom I now address who can say they have not learned something from the experience of the last eighteen months; and, for my own part, I frankly confess, that I think it most desirable that a Committee should be appointed to investigate the various systems which are maintained on the subject, and that persons of every variety of opinion should be named on that Committee, so that by the collision of their different views additional light may be thrown on this most complicated and difficult question. Sir, this is not a party question. This is no subject for party feeling. There are many hon. Gentlemen in this House who have taken the most decided part against the Act of 1844, who voted for it three years ago. The noble Lord the Member for Lynn (Lord George Bentinck), the hon. Member for Huntingdon (Mr. Baring), the hon. Member for the city of London (Mr. Masterman), and the hon. Member for Oxford (Mr. Henley), voted for the Bill. [Mr. HENLEY said, that he had not voted for it. He voted for the Amendment of the hon. Member for Birmingham.] The hon. Gentleman voted for the second reading of the Bill. Hon. Members may have seen good reason to alter their opinion. I do not deny that circumstances have occurred which may have produced that alteration of opinion; but I do hope and trust that this measure will not he considered in any party spirit by any hon. Member of this House. For myself, I confess I shall go into Committee biased one way, certainly, by the result of the inquiry which took place in a former Committee, of which I had the honour to be the chairman; but I certainly shall also go into it, as I hope and believe that other Gentlemen will do also, with the fullest determination to weigh impartially all the evidence and all the considerations laid before us; and I trust and believe that this investigation, conducted before a fairly constituted and impartial Committee, will tend to promote the best interests of the empire. The right hon. Gentleman concluded by moving for a Select Committee, as above.
having made some observation to the Chancellor of the 414 Exchequer, which was not heard in the gallery,
§ The CHANCELLOR OF THE EXCHEQUER
again rose and said, I have been reminded by an hon. Friend behind me, that I had promised to state the intention of Government with respect to any immediate alteration or suspension of the law. I beg to inform the House, therefore, that it is not the intention of Government to propose any measure of this kind. I believe that there is not the slightest probability of any such circumstances occurring as have recently taken place, and as could render any such measure necessary. I also believe that the state of the Bank at present is such that no one can entertain the slightest apprehensions of its not being prepared to meet any demand upon it. I hold in my hand a letter containing the state of the Bank last (Monday) night. From this it appears that the amount then in reserve was 5,800,000l., in round numbers, and that the amount in bullion was 10,600,000l. The mere statement of these sums is quite sufficient warrant to the House that there is little probability of there being any occasion for any immediate measure of the nature contemplated by the hon. Gentleman being required. The Government have shown that they are not disposed to shrink from responsibility, if there is any need of interference; and whilst Parliament is sitting, we have the power of coming to the two Houses for legislative sanction to any measure which we may think is called for by any emergency. I trust that this statement will be satisfactory to the House, and will prove to them that there is no necessity for any immediate measure being adopted.
§ MR. JAMES WILSON
Sir, I am sure, in rising to address the House for the first time, I shall not in vain claim your indulgence, for several reasons obvious to all. Not only must I claim it on account of this being the first time I have had the honour of addressing you, and on account of the important subject to which I am about to apply myself, but because I have been recently suffering from indisposition. I certainly agree with the right hon. Gentleman the Chancellor of the Exchequer in the necessity there exists for granting an inquiry into the question; and it is because I do so that I have thought it necessary to move the Amendment to the Motion of the right hon. Baronet which I intend to submit to the House. It does 415 appear to me, Sir, that the right hon. Baronet the Chancellor of the Exchequer has made his Motion inconveniently extensive, and that from the terms in which it now stands the time of the Committee may be occupied by various matters foreign to its purpose; and the only object I have in moving my Amendment is, if it should obtain the sanction of the House and be eventually carried, that the objects for which the Committee shall be appointed may be more confined than by the Motion of the right hon. Gentleman. As the Motion stands now, it would introduce into the consideration of the question before the Committee any subject which any hon. Member might conceive to be the cause of the recent commercial crisis. If I understand rightly the object of Government in proposing this Committee, the views of the right hon. Baronet in moving for it, and the desires of the country at large, their great object at present would be to confine the consideration of the Committee to the question of banking and currency. It would not be difficult, as we have seen, Sir, to conceive that many hon. Members may think it necessary to introduce to the Committee a variety of topics completely different in their nature from those which the right hon. Gentleman the Chancellor of the Exchequer wishes the Committee to discuss. Sir, there never was a period when the question of currency and banking at large claimed anxious attention on the part of the country to such an extent as at present. I observe that a great portion of those Gentlemen deeply interested in commerce and banking, whose opinions have been laid before the Government, have been materially shaken in their views during the last few months by the events of the past; and by none of them more than by the necessity which was found to exist for interfering with the operation of the Act of 1844. That interference, necessary as it might have been—and I, for one, will not deny that it was—has produced on the public mind a want of confidence in the existing law which cannot be removed until you have sifted the subject to the bottom, and have given a deliberate opinion with respect to the operation of that law. The questions which every one connected with trade or commerce—every one with obligations to undertake, and future responsibilities to meet—the questions, in fact, of all others, which every one with interests at stake asks, are these: Is the law of 1844 to be 416 maintained in all its integrity? is it to be subjected to such modifications as the pressure of circumstances may call for? or, if not, is it to be abandoned altogether and a new law framed in its place? I believe, until some definite answer is given to those three questions, that that confidence will not be restored which existed in the public mind previous to the last three months. But, Sir, I apprehend there are good reasons why the Committee should be confined strictly to the subject of banking and currency. Are hon. Members aware of the position in which the question was left in 1841 by the very last Committee appointed to inquire into it? In 1840 a Committee was appointed to inquire into banking and currency, rather, however, in reference to the effect of the Bank Charter, than to the question at large. The result to which the Committee came after two Sessions of laborious investigation was, that they were unable to present any report to the House, as there was a sudden interruption to their labours by the dissolution of Parliament in 1841. Of that Committee the right hon. Baronet the Chancellor of the Exchequer was the very efficient chairman, and the right hon. Baronet the Member for Tamworth (Sir R. Peel) one of the most efficient members; but will the House allow me to read the conclusion to which they came, and which they presented to the House? The last two paragraphs of it are as follows:—With regard to the evidence which your Committee have taken, they, in the first instance, examined several witnesses, who stated generally the evils which in the last few years had, in their opinion, been caused by the management of the circulation. They then called before them two of the Directors of the Bank of England, who have given detailed information as to the management of the affairs of the Bank. It was their intention to have proceeded in the next place with the examination of such witnesses as might have afforded similar information respecting the management of other banks of issue. Towards the close, however, of the examination of the witnesses on the part of the Bank of England, it became evident that it would be impossible, during the present Session, to conclude the evidence of the witnesses connected with the other banks of issue; and under these circumstances your Committee thought it more advisable to postpone the examination of this class of witnesses, and to summon one or two persons who were known to have paid particular attention to the management of the Bank of England, and whose evidence upon this point it was, therefore, desirable to have before them. Your Committee trust that this statement will sufficiently account for their not reporting any opinion to the House on the main subject of their inquiry; and they feel that they shall best discharge their duty by merely sub- 417 mitting to the House the evidence which they have taken, although they ore fully aware of the imperfect character of that evidence, arising from the circumstance of their having been prevented, by the approaching termination of the Session, from examining witnesses whom they had proposed to call on other important branches of their investigation.This was the way, Sir, in which this long and protracted inquiry, which sat from day to day for so long a period, terminated. No further inquiry was instituted into the subject. Parliament proceeded to legislate without further inquiry; and when I turn to the evidence taken before that Committee, and find the strong difference of opinion expressed by various parties of equal experience and intelligence, I cannot but feel that Parliament did not do all that was necessary, before the Act of 1844 was passed, to ascertain the principle on which it should be based. I think the fact of the question having been left in this unfinished way is one of the very best reasons why it should be taken up in a Committee on banking only. But there are other considerations which will render a Committee on banking peculiarly apt and necessary at the present time. I do not think we can say that public opinion has become more uniform on this question. I think we must admit there are as many different opinions, supported with as much strength and spirit, and by as large parties, as ever there were; and I think we must also admit that the operation of the Bank Bill of 1844 is now undoubtedly a question on which the public mind is exceedingly anxious, and is a fit subject for inquiry. We cannot say that even the law of convertibility is more generally admitted than it was in 1841. This, however, is a question I do not intend to go into at present; but there is another view which has been started since, and which has become popular, being entertained, as I have reason to know, by many hon. Members of this House. There are many who say we admit the necessity of a fixed standard of value, and the convertibility of notes into this standard; but we ask, why should we have a fixed price of gold? I believe this is a question which is more generally asked than before, and which is demanding more attention from the public in consequence of the regard paid to commercial subjects of late years. If it were attempted by this House to fix the price of gold, or of any other commodity, I could not conceive a more futile or foolish attempt. I think the discussions of late years which 418 took place in this House show how futile and foolish have been the attempts to fix the price of corn, or to regulate the price of any commercial article. To those Gentlemen who ask, then, why we fix the price of gold, I simply say that in the ordinary meaning of the word "price" we do not fix the price of gold. But when we say that we fix the price of gold, all that is meant is, that we determine the quantity of coin that shall be made from an ounce of gold; that we simply determine that from every ounce of gold shall be coined 3l. 1s. 10½d.—that is, three sovereigns, and 17s. 10½d. towards a fourth sovereign. We no more attempt, in fact, to fix the price of gold, than we attempt to fix the price of wheat, by saying that a quarter of wheat shall always represent eight bushels. And this opinion had been prevailing in the public mind to an extent which I could scarcely believe possible were it not for the evidence of the journals—a circumstance to which the unfortunate term of "fixed price" has no doubt contributed. But when it is contended that we do not fix the price of gold, Gentlemen turn round and say, "You have two prices for gold—the Mint price, at 31. 17s. 10½d, and the Bank price, at 31. 17s. 9d. If you take a quantity of gold into the Bank, they give you 31. 17s. 9d an ounce for it, and charge you 1½d. an ounce for their time and trouble in coining it. If you go to the Mint, you receive 31. 17s. 10½d. for your solid bars of gold; so that you must submit to pay the Bank 1½d. an ounce for the convenience of receiving coined money in exchange, and to remunerate them for their loss of interest and time. It is not uncommon to advert to another subject that interests the public even in the present day, to find gentlemen of some influence advocating a recurrence to the usury laws; but I believe this Committee will rather have to report to the House that it is extremely inconvenient that any portion of the usury laws should have been left in existence; and I am sure that many hon. Gentlemen can bear me out in saying that the usury laws have been a great evil, and can bear witness to the inconvenience to which landlords have been exposed by having retained what they thought would be a privilege to themselves, while they permitted merchants and traders to pay more than 5 per cent for accommodation. I know that recently very much inconvenience has been experienced in Scotland by the impossi- 419 bility of obtaining money on heritable bonds. I know that a man may evade this law, and go to his banker with a bill of exchange, and pay 10 per cent, leaving an heritable bond as collateral security; but is that a proper mode of obtaining money by evading the law—is that a position in which the great interests of the country should be placed? As the legislation on this subject stands, we are obliged to recur to evasions of the law, in order to follow out the mercantile affairs of the country. But, Sir, I feel confident that the result of the inquiry by this Committee will be—not that there should be a re-establishment of the usury laws—for I believe nothing has done so much to save credit and commerce during the recent crisis as the repeal of those laws—but a recommendation that the last remnant of them shall be swept away. The next thing we find occupying the public is a subject having the high authority of a noble Lord—justly high from his character and opportunities of knowledge on a commercial question—the establishment of a double standard of currency. There is nothing in my estimation so astonishing as to find any one with the experience in commercial life of large monetary transactions possessed by the noble Lord (Lord Ashburton), advocating the theory of a double standard of value. I do not know how the Bank could discharge its liabilities if we permitted it. If it were adopted, I believe that during the late distress, and now, there would have been no complaint so popular among the public as that the Bank had the power of paying its notes in a different metal from that for which they were issued, and that they might at one time, when gold and silver were dear, purchase them by issuing their notes, and could at another time redeem those notes by the cheapest metal they had. There is nothing so conclusive as that you should be ready to maintain the standard you adopt. There are many people who speak of the great inconvenience that has been felt during the last year by merchants who import the precious metals from abroad, being unable to convert silver into notes; and therefore it is becoming, particularly in the city of London, a most popular proposition that the Bank should be allowed to issue notes for silver, but that it should be obliged to redeem them in gold. It appears to me most unreasonable to ask the Bank to issue notes in any commodity, except that in which they are bound to redeem them. 420 Why, Sir, this proposition is equivalent to asking the Bank to issue notes on sugar, which may change in price from day to day, and to redeem them in gold. It is quite clear that to purchase gold is as easy for the Bank as to purchase silver. When the Bank had 16,000,000l. in its coffers it was not necessary for its convenience to hold silver; and when the bullion was drawn out to correct foreign exchanges, it was equally convenient to take silver as gold. I do not see, therefore, any reason why the Bank should hold any portion of silver, except that which is confined to the purposes of supplying the subordinate silver coinage of the country. It is quite clear, that whatever bullion is held, is insomuch an abstraction of the capital of the Bank for the purposes of banking, and that this capital may be as conveniently invested in gold as in silver. I therefore believe the more we inquire into the subject, the more we shall be disposed to think that to hold against the notes in circulation anything but the bullion in which the Bank is compelled to pay them, is not desirable. But there is another reason why commercial gentlemen who advocate this view are in error, and that is, that the silver bullion which comes into this country is more efficient in the hands of private persons, for the purpose of regulating the exchanges, than if it were in the hands of the Bank. I believe, if we import silver from South America, or elsewhere, be the importer Baron Rothschild or not, we make as good use of it in his hands, for the purpose of correcting the exchanges against us, as if it were all under the control of the Bank. Another subject which is also obtaining considerable favour in the city is, that the Bank, in order to have a greater power of correcting the foreign exchanges, should always hold as a portion of its securities a considerable amount of the stock of foreign States; so that in case the exchanges were against us, it could send them into the market to check this effect. But to this proposition I give the same answer as to the last, for I believe this stock is much more useful for this purpose when it is in the hands of private individuals. The fact is, that the country does hold a large portion of such securities; and that when the exchange is against us, they are the very first means sent into the market, because the prices here are lower than they are at Paris or Amsterdam. Foreign securities, therefore, are, as I said before, much safer in the hands of private merchants than in 421 those of the Bank. I believe the less you make the Bank a commercial establishment, and the more closely you confine it to its simple object of banking, the more you render it fit for its real purposes, the more simple its management, and the more certain its operations. But, beyond these general objects of inquiry, I cannot but feel what has occurred with respect to the Bank Act of 1844 presents in itself an ample field for investigation. It is impossible to deny that there has been very great disappointment with respect to the operations of that Act. I do not say that the public did not exaggerate the expectations that were reasonably to be founded of its operations for good; but I must admit that hopes were distinctly held out, not only by the right hon. Baronet who proposed it, but by every one of the Gentlemen who supported it, that the effect would be materially to lessen speculation—to diminish the fluctuation of prices—to check those changes which had taken place in the currency—and certainly to lessen the chances of panic and distress. I am quite free to admit, that the right hon. Baronet the Chancellor of the Exchequer, as well as the right hon. Baronet opposite (Sir R. Peel), did materially modify his observations on this point; and the very eminent writer to whom the Chancellor of the Exchequer has referred, has also materially modified the expectations he at one time expressed with respect to the measure; but I must also say, that the same eminent writer (Mr. Loyd), in the pamphlet to which the Chancellor of the Exchequer referred, in remarking on the previous state of the currency, did most distinctly hold out similar expectations. [The hon. Gentleman read an extract from Mr. Loyd's pamphlet, in which the writer comments on the distresses of 1825, 1837, and 1839, as being the fruit gathered under the old system of currency, and proceeded to say, "We are now about to adopt a different course."] But, Sir, the new system has been three years in operation, and we have had panics more extensive, fluctuations more extreme, and all the phenomena which resulted from crises in an aggravated form, since then; so that I cannot see why we are entitled to say that the Bank Act of 1844 has had the slightest tendency in reducing speculation, or in confining it to narrower limits. The former eminent writer had also referred to a pamphlet written at the time by Colonel Torrens, in which this passage occurs:— 422Legislation will preserve the circulating medium from any greater fluctuations than those which would take place were the currency exclusively metallic, and will effectually prevent the recurrence of those commercial revulsions—those cycles of excitement and depression, which, as Mr. Loyd has so felicitously explained, result from the alternate expansion and contraction of an ill-regulated circulation.I am bound to admit that whatever the opinions of the hon. Gentlemen who proposed and supported this measure were at the time, and whatever the sentiments of the most eminent writers of the day, the public opinion was strong that we had thus obtained a degree of safety which had never been connected with any former Act; and I can bear witness personally to the fact, that I have heard many most eminent merchants in the city during the mad mania of 1845 congratulating themselves in the belief that, notwithstanding its influence, they were quite safe from any commercial convulsion in consequence of the operation of that Bill. I have heard some of the most eminent men at the head of some of those great houses which have fallen recently during the last crisis, console themselves by the belief that from its self-acting principle the Bill would save them from the revulsions which had formerly happened, so that they did not think it necessary to exercise the same degree of care and discretion that they would otherwise have felt bound to observe. I believe, Sir, the expectations that have been expressed of such a power on the part of the Bill have been modified to a great extent; but I have no hesitation in declaring that they did much mischief by inducing the public to rely too much on its operation, and not upon their own prudence and discretion. I think, Sir, that to this Act may be attributed (and in saying so much I shall go no further, but rest content with the assertion) those inconveniences which have been justly attributed to every interference made by the Legislature with the commerce of this country, for the purpose of protecting and guarding it. I believe that every law affecting to protect commerce, and to supply to the public those advantages which should be the result of care and prudence, thus have pro tanto the effect of throwing them for reliance, in seasons of distress, on the provisions of an Act of Parliament which professes to regulate commerce and banking. What, I may ask, is the fundamental principle of the Act by which the currency is now regulated? After looking to the evidence taken 423 before the Bank Committee of 1840 and 1841, as well as to the speech of the right hon. Baronet the Member for Tamworth, who introduced that Bill, I believe I may safely say that the principle on which it is founded is, that the circulation of notes should be regulated by the foreign exchanges. Now, Sir, I have taken the greatest pains to discover, by the examination of the evidence taken before the Committee, by a close examination of the speeches made in favour of the Bill, and of everything written in its favour; and I must say, that to this day I have been able to discover no one reason to induce me to believe that you either could or should attempt to regulate the internal circulation of the country by the foreign exchanges. But, Sir, on that account is it to be inferred that I would have bankers neglect the state of the foreign exchanges? By no means. There are other reasons why bankers—not only bankers of issue, but bankers of deposit as well—should watch the state of the foreign exchanges, just as closely as a merchant watches the state of imports and exports with regard to the commodity in which he deals; because the foreign exchanges are indications of the increasing plentifulness or scarcity of the commodity in which the banker deals. But whilst I disagree with the right hon. Baronet the Chancellor of the Exchequer in believing that the internal exchanges of the country can be regulated by the state of the foreign exchanges, I am at least glad to find that I agree with the right hon. Gentleman, and all those Gentlemen who concur with him in supporting the Act of 1844, to a very great extent at least in the principles they profess. First of all, I agree as to the preservation of convertibility; next, as to the preservation of the integrity of the single standard of value; next, in preserving the principle you lay down, that whatever a currency may be, be it a metallic currency, or a mixed currency of metals and paper, that currency cannot be based on a sound principle unless in all its fluctuations and changes it conforms to what a metallic currency would be. That principle I maintain in its fullest extent, and unless I can maintain that, I maintain nothing. Paper should not be admitted as circulation, unless we can show that the changes of its quantity and value would conform precisely to the changes which would take place were the currency purely metallic; that I entirely give to your side of the question. More- 424 over, I go further, and say that the object of your banking regulations should be to throw a pressure over a longer period, and to make the pressure of scarcity felt at an earlier period in order to prevent its greater intensity at a later period; and upon that part of the question I most cordially agree with the observations made by the right hon. Baronet the Chancellor of the Exchequer this evening. I think his observations were most sound. He showed to my satisfaction, and I believe to that of most who heard him, that had the intensity of the late pressure been longer delayed by retaining the rate of interest at a low price, it is impossible to conceive the extent of the disturbance to which this country might have been exposed. And, therefore, whilst I do not agree with you that you can regulate the internal circulation, or that if it were possible it would be desirable to do so by the foreign exchanges, yet in all the great and essential parts of your argument, I most cordially do agree. Now, what is the theory on which the Bank Act of 1844 is framed? As far as I understand that theory, it is, that as the exchanges fall you should contract the circulation—that with the contraction of the circulation prices will fall—that with a fall of prices an exportation of commodities will take place, the importation of commodities will be suspended, and thereby your foreign adverse exchanges will be rectified. I believe, I state truly the principle on which that Act is founded, when I make use of these words. Now, Sir, this theory implies a power on the part of the Bank to contract or expand the circulation of its notes at pleasure. That, Sir, is a power on the part of the Bank which I utterly deny. I deny that it can be shown by any kind of reasoning that the Bank of England has the power either to expand or contract its circulation at any specific moment when it may wish so to do; or that if it does expand or contract its circulation, it can only be by the substitution of coin for notes in the one case or the other; and I, for one, am at a loss to know how the Bank of England would be benefited if, in the attempt to contract its circulation forcibly, it were obliged to do so by the issue of sovereigns from its vaults. I deny that the Bank of England has power to contract its circulation of notes, unless by substituting coin for them. Before I go further, I will allude to a remark made by the Chancellor of the Exchequer this evening, when he 425 stated what in his estimation constituted the circulation. It is essential that we should agree what the term circulation means. I know there are some Gentlemen who have latterly maintained that the circulation of the Bank of England consists in the quantity of notes issued to the banking department; but I was glad to hear the right hon. Baronet admit that, in his view, the word circulation meant the quantity of notes in the hands of the public. [The CHANCELLOR of the EXCHEQUER: Together with Bank post bills.] I certainly did understand the Chancellor of the Exchequer to mean, that by the word circulation, he understood the notes in the hands of the public; and I must, at all events, maintain, whether I have the privilege of agreeing with him on this question or not, that you can attach no other meaning to the word circulation than the notes in the hands of the public; and if you come to look to the action which you assert circulation to have upon prices, that, to my mind, is conclusive that you can mean nothing else. Will any one pretend to say, even on the theory maintained by Mr. Loyd, that notes lying quiescent in the drawers of the Bank can have any influence on prices? When we talk of circulation under the new Act, we must mean something analogous to what circulation was under the old law. The whole of Mr. Loyd's argument, in his pamphlet of 1841, alludes to what the circulation was under the old law; and under that law there never was any pretence for saying that circulation meant anything else than notes in the hands of the public and bank post bills. Therefore, when I use the word "circulation," I shall be understood to mean notes in the hands of the public, and not to include those quiescent in the hands of the Bank. I say, then, I think it impossible that the Bank can either contract or expand the quantity of notes at pleasure; and for this simple reason, that so long as you have convertibility that determines the amount. I believe we are indebted solely to the right hon. Baronet's Bill of 1819 for the principle to which I am going to allude. I believe the reasoning which Mr. Loyd has used in his pamphlet, has arisen altogether from a singular misconception of the effect of a convertible currency. I believe that with an inconvertible currency the issuer has the power either to contract or expand its amount. But with a convertible currency, the measure of the quantity is that which the public require. Every 426 person will admit that, as a rule, no one holds a larger quantity of notes in his possession than is convenient for the general purposes of his trade, and, therefore, if the Bank wanted to contract its circulation, it could only do so by withdrawing from circulation a portion of those notes which are absolutely necessary for performing the internal transactions of the country. Let us try its effect by supposing that the Bank is determined to contract its circulation; what means will it take to do so? We shall suppose the Bank determines to sell 500,000l. of Exchequer-bills or any other securities. The Bank sends to its broker 500,000l. of Exchequer-bills; he goes on the Stock Exchange to dispose of these securities; he sells them to five individuals, we shall suppose. He receives from those five individuals a chock for 100,000l. each on their banker; very possibly it may be on the Bank of England itself; but whether or not, it will make no difference in the operation. The bank broker takes the five checks into the Bank of England; if the parties who draw those checks hold deposits with the Bank, the simple operation that takes place is, that their account is debited with the check; the deposits in the Bank become less by that amount, and the cash in the Bank reserve becomes more; but the circulation of the country is not affected. Not a single bank note is taken out of the hand of its possessor by that operation. On the other hand, if the checks are taken to bankers in Lombard-street, the agent of the Bank of England receives notes in exchange for the checks he places in their hands. These bankers have not held a larger amount of notes in reserve than was necessary for carrying into operation the transactions of their business; if they find the demand larger than can be spared with convenience to themselves, they send over to the Bank of England and obtain 500,000l. in bank notes in exchange for their own checks. Take it which way you will, the transaction ends simply in a transfer of 500,000l. from the securities to the reserve of the Bank; it converts securities into reserve, but it does not affect the circulation of the country in any way as far as I can discover. The same would take place if the Bank determined to increase the circulation. If they were to decree an increase of the circulation, they would purchase securities to the amount fixed upon—say half a million. They would send their broker on the Stock Exchange to purchase 500,000l. worth of 427 securities, and the seller would go to the Bank and get bank notes to that amount. It is quite true, that for a few hours 500,000l. in notes are out of the Bank of England more than were in the morning; but it is just as true, that the parties who sold those securities place those 500,000l. of notes with their own hankers, or perhaps in the Bank of England, that same afternoon; and as the bankers of London hold no larger reserve for their transactions on that day than on the day before, they return to the Bank for their own account the 500,000l. notes given for the purchase of securities; so that in that case, all you hare accomplished is to add to the securities in the Bank by the sum of 500,000l., and diminish the reserve to the same amount. The theory, then, on which this Act has been founded is, that convertibility on demand is not a sufficient guarantee against depreciation. And I have yet to see produced any evidence whatever, either in this or any other country, that a note which was perfectly convertible at all times at the pleasure of the holder has ever been depreciated. I have yet to learn how it is possible that such a note can be depreciated; and until I see some reason why a man holding a 5l. Bank of England note, and finding it not equal in value to five sovereigns, but having the privilege of going across the street and exchanging it for five sovereigns, should be content to part with it for less, I cannot consent to believe that a 5l. Bank of England note can possibly be depreciated. I am glad to be supported in that view of the case by such eminent men as Mr. Horner, Mr. Huskisson, Lord Liverpool, Mr. Ricardo, and every writer of eminence prior to the year 1844. Therefore, if I prove that a bank note being convertible cannot be depreciated, I think I have done sufficient to prove that the bank note cannot be issued in excess. It is quite true that the right hon. Baronet the Member for Tamworth, in introducing the Bill of 1844, did quote several instances where he believed that depreciation had taken place notwithstanding convertibility. The first of these cases which he quoted was that of the Bank of England in 1696, where bank notes were depreciated 17 per cent. That, I believe, is easily explained—[Sir R. PEEL: I merely quoted the report of the Bullion Committee of 1810, where the hon. Gentleman will find these statements made.] I beg the right hon. Gentleman's pardon, but in the 428 copies of his speech which I have seen—I had not the honour of hearing it—I do not see the passage made a quotation. But whether the right hon. Baronet made use of these expressions as his own opinion, or quoted them from a document as the opinion of others, it is quite necessary I should refer to them in order to explain how this apparent anomaly arose. In 1696, it is quite true that bank notes were depreciated to a large amount; but it is also quite true, that, at the very moment when that depreciation took place, a suspension of cash payments had occurred, and the notes were no longer convertible. Again, it is said that, in 1804, it required 118s. 10s. in the notes of the Bank of Ireland to purchase 100l. of the Bank of England, showing a depreciation to the amount of 18½ per cent. But it is also true that at that time a suspension of cash payments had taken place both in England and Ireland, and notes were then no more convertible than they were in 1696. It has also been stated, that unfavourable exchanges between Scotland and England have been rectified by the contraction of the circulation; but it should be recollected that, at the periods alluded to, notes in Scotland were not notes payable on demand; they were payable on demand, or, at the option of the issuers, six months subsequently; therefore they were precisely in the position of Exchequer-bills; they became depreciated like Exchequer-bills, and therefore are not analogous to notes payable on demand. The American banks have also been referred to, to prove that convertibility is not a sufficient check against depreciation. But I must say that a more unfortunate reference could not be made in support of this opinion. The condition of the American banks at the period referred to was analogous to nothing on earth; for their banking arrangements were as loose and unsatisfactory as they well could be. However, since the year 1840, when the banking system of New York was placed on an intelligible and sound footing, there has been no more depreciation since the law was passed securing convertibility at the pleasure of the owner. I must refer to the state of the monetary system in Russia in proof of the view I am endeavouring to advocate. Before the Russian Government made their notes convertible, they had declined gradually from 39d. for the rouble note, till they came down so low as 10½d. But in that country, for some years, these notes have 429 been convertible at the will of the holder in silver of the standard rate; and from that day to this, there has been no instance of a rouble note having been depreciated a single fraction. To my mind nothing can be more clear than that the law of 1819 is the most perfect security against depreciation which it is possible for any Government to enact. I want now to show that it is utterly impossible for the Bank of England, in the case of an adverse exchange, to contract its circulation. Suppose it arose from a diminished harvest, an increased price of food, an importation of grain, and exportation of bullion. What takes place at home? The circulating medium of the country is measured by the quantities of commodities that you have to exchange, and the amount of the transactions you have to perform. If, then, your prices are rising at home, how, I will ask, is it possible for banks to contract their circulation at the very moment when your increased prices and increased transactions require a larger proportion of that circulating medium than they did when prices were lower and transactions fewer? I say, therefore, that the anomaly complained of so much by those who advocate the currency theory, that the currency has been frequently observed to be increased rather than contracted at such a time by the Bank, is one of the consequences necessarily arising from the state of your internal transactions; the fact being, that the wants of the public must be supplied, and an amount equal to the price of the commodities they have to exchange at any given time must be issued. Another reason why the Bank cannot contract its circulation is, that were they to take notes out of circulation the vacuum would be immediately supplied by checks drawn on the deposits of the Bank. Therefore, as long as the Bank of England is ft bank of issue, as well as deposit, it is quite impossible that it can withdraw its notes from circulation as long as there is a large amount of deposits on which the public have the power of acting simply by drawing a check. In order to show how impossible it is for the Bank to perform this assumed operation, I will call the attention of the House to what took place between the autumn of last year and the spring of this year. On the 29th of August last the bullion in the Bank amounted to 16,366,000l., whilst the circulation in notes, including bank post bills, Was 21,311,000l., and the securities 24,804,000l., of which only 12,500,000l. 430 consisted of bills of exchange, or what are denominated private securities. Now, at that particular period, from causes which have been well described by the right hon. Baronet to-night, a strong adverse exchange set in against this country. Week after week and month after month, until the following April, the bullion in the Bank gradually and rapidly declined, until at last, on the 3rd of April in this year, the bullion had sunk from 16,366,000l. to 10,246,000l.; the circulation of notes had sunk only from 21,311,000l. to 20,815,000l.; but the securities had risen from 24,804,000l. to 30,000,000l.; and at the latter period there consisted of these, in bills of exchange, or what are termed private securities, an amount of 18,607,000l. Keeping our eye on those two periods, during which the bullion sunk no less than 6,119,000l., we find that under the operation of the Bank Act of 1844 the circulation had only sunk by 496,000l., whilst we find that the securities had increased by 5,260,000l., and that the increase of bills on discount or private securities was no less than 6,000,000l. But the whole of tins increased discount of bills represented in the first instance an issue of bank notes. Every one of those bills carried into the Bank from August to March represented an immediate issue of bank notes. But it is quite clear from these figures, that though an immediate issue was made, just as immediate a return of notes was made to the Bank, and bullion was taken out of the issue department in exchange for the notes given for the discount of bills. So that in fact the circulation, instead of having fallen by the decrease of bullion during the operation of the Act, remained stationary, or nearly so, during the whole period; whilst the diminution of bullion was represented by the increase of the discount of bills or of private securities. Now, Sir, I believe that in these facts we see the fundamental error which, at least in my opinion, was committed in the Act of 1844. I believe that those who framed the Bill, in common with those who supported its principles, made a great error in confusing circulation with capital. I believe their error lay in supposing that the available means of the country consisted in the amount of circulation in the hands of the public, and not in the amount of capital within the command of the public by means of discounts and advances at various periods. And, therefore, I believe that the restric- 431 tions which that law imposed upon the circulation of the country were unnecessary, so far as that the convertibility of the notes in circulation was, in my opinion, a sufficient guarantee against excess or depreciation, and that they thereby withdrew public attention, and especially the attention of bankers, from what I believe a far more important subject—the condition of their reserves of capital, and not of their circulation in notes. Now, Sir, this brings me to the last topic to which I shall advert. I shall now shortly attempt to show wherein I think that Bill was deficient, and to what alone I think the banking community of this country must direct their attention, in order more safely for the future to conduct their transactions, and to prevent the intensity of those crises under which we have recently so painfully suffered. Unfortunately the attention of the Legislature has never been called sufficiently, in my opinion, to the state of the deposits in banks. I believe that had half the attention been paid to the deposits of banks that has been paid to their circulation, the public would have been enlightened on this subject to such a degree that we should have had an amount of prudence in the arrangement of private affairs which, if it would not have prevented, would certainly have materially mitigated the crises through which we have passed. Now, fortunately, we have two means, and as far as I know, but two means, of knowing the fluctuations which have taken place in the deposits of the banks of this country at a recent period. The Bank Committee of 1840 collected some very important and useful documents; it obtained from the Bank of England and from the Bank of Ireland a return of the weekly state of their deposits for a number of years concurrently. In those two returns I find evidence of the most convincing character of the extraordinary changes which have taken place in the condition of the deposits, quite sufficient in my mind to account for any derangement of our commerce which has occurred; and if the House will allow me, I will call their attention to one or two extraordinary examples which occur in those returns. The returns furnished by the Bank of England divide their deposits into, first, the public deposits, and next the private, comprehending those belonging to the London bankers, those of the East India Company, those of the Bank of Ireland, and the Royal Bank of Scotland. Another item is that designated 'other de- 432 posits,' which includes the private deposits of merchants and private companies; and the next item embraces the deposits of their branches in the country. For obvious reasons, I reject from consideration the Government or public deposits, because their amount is regulated by considerations not connected with the state of commerce at any particular moment, or at least not immediately connected with it. I also reject the deposits of the East India Company, as not following the same fluctuations with, those more immediately appertaining to trade. I also reject those belonging to the Bank of Ireland and the Bank of Scotland, because they will have been included in the deposits of those banks. The period I have chosen for eliciting the fluctuations which took place in this department at particular periods, is that of 1838–1839. The year 1838 was one of good ordinary prosperity. We had recovered entirely from the panic of 1837; the bullion had increased, from January to the end of the year, from 4,000,000l. to 10,000,000l.—the rates of discount had fallen to their ordinary pitch—the revenue was improving—and in every respect I should say that it presented as fair a specimen of a prosperous year as any you could select. But I will remind you, that, in the early part of 1839, in consequence of the bad harvest of 1838, a large importation of grain took place, and an efflux of bullion ensued; and towards the middle of autumn, a period of extreme depression came on, when the Bank of England was obliged to have recourse for assistance to the Bank of France. I have selected the state of the deposits during the last quarter of 1838, as representing a period of fair average prosperity, and the last quarter of 1839, as representing a period of pressure and distress. I do not think it fair to take any specific weeks; I think it fairest to take the average on whole quarters. I have taken the average deposits of each of those quarters, and I find the following result. In the Bank of England, the average weekly deposits of the London bankers for the last quarter of 1838 were 812,000l.; for the last quarter of 1839, under the pressure of the crisis, they had sunk to 615,000l. The private or other deposits in the Bank during the last quarter of 1838, represented in their weekly average a sum of 3,020,000l.; in the last quarter of 1839, under the pressure, they had sunk to 2,122,000l. In the branch banks of England, the private deposits 433 amounted, in the last quarter of 1838, to 592,000l.; and in the last quarter of 1839, to 451,000l. In the Bank of Ireland, the private deposits amounted, in the last quarter of 1838, to 2,234,000l.., and in 1839, to 1,834,000l.. The agency deposits, in the last quarter of 1838, amounted to 480,000l.; and in the last quarter of 1839, to 391,000l.—making a total in those different items in the last quarter of 1838, of 7,144,000l..; and in the last quarter of 1839, of 5,413,000l.. Here they had a reduction on the last quarter of 1839, as compared with the corresponding quarter of 1838, of 25 per cent on deposits, valuable as giving public accommodation to the commerce of the country. Now I ask, what was the character and nature of the bankers' trade, and how they were to distinguish between its operation in a crisis like the past, and in more favourable seasons? In a period of prosperity, the merchant finds that he can easily get his bills discounted, and money advanced on security at a moderate rate of interest; whereas in a period of pressure, he either cannot get them discounted at all, or he only obtains this accommodation at a very high rate of interest. The funds from which banks can discount bills, are divided into three classes. They have their own capital; next, if they are banks of issue, they have their circulation; and, last of all, they have their deposits. The two first classes are necessarily nearly of a uniform amount, or at least vary very little in one period as compared to another. The only great variation is in the third class, and from the deposits alone can customers be accommodated. Now, if it be found, according to the view I have given the House, a difference of power to the extent of a million and a half takes place in the ability of the Banks to accommodate customers—if they found that the sum of 7,000,000l.. had in another year been reduced to 5,400,000l..—what must have taken place in the deposits of all the banks throughout the kingdom? What must have taken place in the banks of Scotland, in which, under ordinary circumstances, the deposits are considered to exceed 30,000,000l.? Why, in the same proportion, there would be a reduction of not less than 7,000,000l. in the Scottish banks at that period. Then, if they extended the calculation from the Scottish banks to the 1,600 banks in the United Kingdom—if they considered that the same reduction had taken place in the amount of the de- 434 posits of all these banks—then they might perhaps conceive the cause of the extensive pressure which had been felt in consequence of the reduction in the power of the banks to accommodate their customers. But if an effect like this were produced only by the bad harvest of 1839—for the panic in that year was attributed to this solitary cause—every one who referred to the pressure of 1839 ascribed it to the bad harvest—if this, then, I repeat, were the effect in 1839, what might they not conceive the reduction to have been in this year, when, in addition to a more severe drain on the floating capital of the country, than any they had before experienced, they had, in addition, a railway expenditure greater than had been known before; when they found that to the one cause of 1839, was superadded another and a greater cause, what difficulties might they not expect to find from the reduction of the banking accommodation of the country? Should this Committee be appointed, I hope it will furnish the House with the comparative statement of deposits in all the banks before the period of this pressure, and the decrease which took place in them from that time. You may estimate the number of banks throughout the country at 1,600, and suppose, which is the least you can assume, that these had deposits to the amount of 200,000,000l. taking the average deposits in the Scottish banks at 70,000l., and taking the 400 banks with their branches at 30,000,000l., which will yield, as the House will perceive, the average I have assumed of 70,000l. for each bank. I am willing to admit that the amount of deposits is larger in Scotland than in any other part of the kingdom, because they are not only banks of issue, but a medium of investments, and are permitted by law to receive trust monies, which is not allowed in England, these sums being authorised to be placed only in the public funds of the country. But I beg to call the attention of the House to the fact that the number of the banks in Scotland is larger in proportion than in any other part of the kingdom. Four hundred banks! If we take a fair proportion, considering Scotland with reference to the 1,600 banks, the aggregate number in the country, then the proper number of banks for Scotland will be only 166; but allowing that Scotland had a greater number of banks than England, I do not believe that the average amount of deposits in each bank is greater. I 435 believe rather that taking the average amounts, the deposits in the English are greater than in the Scotch banks. Therefore, I believe that the error into which the framers of the Act of 1844 fell was in confining their attention to the subject of circulation, and not directing their consideration to the subject of capital also; that capital being represented by the amount of deposits in the hands of the Bank. I may be asked, what purpose I intend to carry out by asking the banks to keep an eye on the state of the foreign exchanges? The purpose is obvious, that the banks may know, by keeping their eyes on the state of the foreign exchanges, what is likely to be the drain on their deposits, and what is likely to be the demand on their capital. If the Bank Directors look to these points; if they look to the rate of foreign exchanges; if they regard their money like any other commodity, and raise the rate of interest at an early period without looking at all to their circulation, but merely to the loans and discounts which they are required to make, I believe that they may, by thus raising the rate of interest at an early period of the drain, induce the most beneficial results, and altogether prevent the recurrence of that pressure which the country has already felt so disastrous. I believe that if the Bank of England, instead, as in the month of August last, of leaving the rate of interest at 3 per cent, raising it in the month of January to 4 per cent, and only in the month of April still further increasing it, when week after week their capital had been diminishing until it was reduced by the amount of 6,000,000l.—if, I repeat, the Directors of the Bank had raised their rate of interest at an earlier period, I believe that the commercial interests of the country might have got through the crisis with much less inconvenience—a rate of interest perhaps high, but not nearly so high as it was afterwards necessary to fix, in order to restore the exchanges. I believe by that means they might have prevented an immense amount of injury to the country, if they did not actually provide what might be felt to be material relief. I am not sufficiently sanguine to believe that anything the Committee can do will entirely prevent the recurrence of such a crisis; for as long as we have variations of seasons, as long as hope and fear prevail in the human heart, and as long as we have speculative excitements and prosperity at one time, so long shall we have periods of depression 436 and of distress at other times. I am not sanguine enough to suppose that anything this House can do will entirely prevent a recurrence of these periods; but I am sanguine that we can give the public the fullest information that can be given. Thus, much more than by Acts of Parliament, they will be taught to regulate their commercial transactions; they may have placed within their reach the information which will teach them to mitigate the evils of these periods of pressure; but I do not think that the House can hold out a hope that by anything it can do it can materially alleviate the sufferings of the present time, or change for the better the existing state of things. These evils may be alleviated gradually; indeed the operation is now going on for their gradual and entire removal. I do not say that that removal would be rapid or immediate; I cannot forget the extraordinary expenditure which has been going on within the last three years; and if the measure which we are obliged this Session to entertain, if the Bill which the right hon. Baronet introduced the other night, is to be considered one of the means of checking the present large consumption of capital, that Act, however necessary it may appear, will, in the first place, have a bad effect on the commerce of the country. It will have the effect of throwing many persons out of employment who have been engaged during the last few months, and in receipt of large wages arising from a large expenditure, during the construction of large works; but immediately that these works cease, and the expenditure is withdrawn, then the reaction will be felt in all the branches of commerce, and we may look forward to a period of considerable depression. I trust that the information that Committee will bring forward will aid in restoring confidence, and that the country, by acts of prudence and by individual efforts, will gradually restore itself to that state of prosperity which I am confident we shall yet see to an extent unequalled at any former period. I have the honour to propose an Amendment to the Motion of the right hon. Baronet, namely—That all the words after the word 'inquire' be omitted, for the purpose of inserting the following words, 'how far the recent commercial distress has been affected by the Laws for regulating the Issue of Bank Notes payable on demand.'
§ MR. T. BARING
rose to assure the House that he deeply felt his own incompetency to take part in the debate on this 437 important subject; but feeling strongly as he did upon the question now under consideration, he was unwilling that this debate should close, even for the present evening, without offering a few observations in reply to what had fallen from the right hon. the Chancellor of the Exchequer, with regard to that portion of the distress which had occurred during the present year, and which he attributed to the reckless over-trading of commercial men. He, for one, did not deny that there had been over-trading, and that many errors had been committed; but he would say that it was not to that cause alone that they ought to attribute that great pressure which had weighed so heavily upon every portion of the commercial world, whether Sound or insolvent, and that it was not fair to rest the cause of the pressure entirely upon over-trading, or upon the want of capital. He could not deny that great errors had been committed; for he believed they could not examine into the affairs of even the most opulent houses without finding proof of that. He did not believe that they could examine the affairs of the most powerful and wealthy establishments—they could not examine the proceedings of the Bank of England itself—without being able to discover that errors had been committed. The right hon. Gentleman himself said that the Bank had over-traded with the Government deposits. He would go further, and point to the Exchequer, and to the right hon. Gentleman himself, and he would show that in the spring of the year the right hon. Gentleman had over-traded On his credit by leaving an amount of Exchequer-bills in the market for which there was no demand, and which were consequently kept at a disgraceful state of discount. He thought the right hon. Gentleman had himself committed several blunders, which, if he had been a small trader, Would have put him in the Gazette. The right hon. Gentleman blamed the Directors of the Bank of England that they did not before the month of August look to the state of the exchanges, to the state of trade, and to the amount of bullion in their possession. But what did the right hon. Gentleman himself do? Why, he made no provision for the Exchequer-bills which fell due in March, and though various intimations had been given him that they were already vastly too many for the demands of the market, the right hon. Baronet refused—though he was then aware of the high rate of interest which was de- 438 manded—he refused to allow the anticipated payments to be made at 3 per cent discount, though he was soon after obliged to beg that these same payments should be made at 5 per cent discount. He said, therefore, that want of foresight was shown, not alone by the merchants of England—not alone by the Bank of England, but that it pervaded the Exchequer, and that it was true of the right hon. Gentleman himself. The right hon. Gentleman said that he attributed this great pressure, in the first place, to the fact of there having been a great over-trading in corn. He agreed with the right hon. Gentleman that there had been over-trading—that there had been over-speculation in corn, because he never felt otherwise than satisfied that the wants of the country in this respect had been greatly exaggerated, and that the power of this country to supply its wants, even though we had to compete against the whole of Europe, had been vastly underrated. But he would ask who were the individuals who encouraged these exaggerated alarms? He could not say that the right hon. Gentleman or that the Government were free from blame, because he must say that the measures which were taken by the Government were sufficient to persuade the commercial men of the country that there were no available means by which they could bring a sufficient supply of food into the country. In 1847, the noble Lord said that the failure of the potato crop amounted to a loss of 16,000,000l. sterling. What were the measures taken to supply this deficiency? The navigation laws were suspended—their suspension was prolonged in June—and what individual, therefore, could imagine but that those who had access to the best sources of information were the parties who best knew what were the wants of the country, and therefore they risked their all, and bought what corn they could, even at the most enormous prices, that they might be able to meet the demand which, as they supposed, the Government had so wisely foreseen. The right hon. Gentleman next said that the failures had mostly taken place in those commercial houses which were engaged in the colonial trade. Now, he thought that these houses had not shown much foresight in relying upon the speedy improvement of the colonies. His own impression had been, for many years, from the course of policy which this House had followed, that colonial prosperity was doomed. But, at the same 439 time, he could not forget that those houses had been urged on by their friends—that Government had urged them on—that everybody had urged these houses to persevere—the colonies, it was said, were in a state of transition—in a state of trial—and therefore they ought to persevere, to get labour, to lay out capital, and they might rely upon it that British colonies, while they were British colonies, would continue to be prosperous. He, therefore, thought it was a heavy accusation of the right hon. the Chancellor of the Exchequer, when he said that all this great pressure had been produced by over-trading, because it must be borne in mind that those who really suffered were not those who over-traded—not those who had not sufficient capital—the real fact was, that the sufferings had been shared among the solvent portion of the community as well as among those who had traded without capital. What the commercial body asked was, not that they should be saved from the consequences of their own errors, whether by over-trading or any other cause—what they asked was, that the property which they undoubtedly possessed might have facilities afforded by which it could be made available to meet those engagements which the misfortunes of the country had brought upon them. What was the real nature of their complaint? By the present Bill, as it stood, it was impossible that the Bank, however it might foresee the course of trade, could advance loans upon the most undoubted securities, or continue its rate of discount. That was the great difficulty. But that was a difficulty which insolvent houses did not feel—because if they had no securities to offer, the refusal of loans on securities could not touch them. It was those who had securities—the more prudent or thrifty men, who had invested their capital in securities, which might yield them a less profit indeed, but which, at least, they imagined could be rendered immediately available—the men who kept a reserve fund of Exchequer-bills and internal securities, because, at any rate, they thought these would be at all times available and safe—it was these who suffered most in such a crisis as commerce had recently passed through. The right hon. Gentleman said that the Exchequer-bills were at a discount of 16 per cent. Surely this was not a satisfactory state of things—surely the commercial body had a right to complain of this, without regard to the question of over-trading or of want of capi- 440 tal. He was not surprised to hear the right hon. Gentleman pass a eulogium upon the Bill of 1844, because he knew that the right hon. Gentleman was one of the ablest supporters of the Bill—because he had pledged his reputation as to the safe working of the Bill—because he had predicted the important benefits which would arise from the passing of the Bill; and he was sure that the right hon. Gentleman, feeling the principle of the Bill to be right, would be ready to carry it out, and would feel sanguine as to its ultimate results. But he certainly was surprised to hear that with all this faith and confidence in the working of the Bill, the right hon. Gentleman should be the individual to come forward and move for a Committee of Inquiry into the effects of this Bill. But his surprise disappeared at the conclusion of the right hon. Gentleman's speech, when he found that, after all, the real object of the inquiry was to effect a reform in the constitution of the Bank Parlour. He must say that all he could gather from the speech of the right hon. Gentleman was this, that he wanted a Committee composed of men of every variety of opinion, because it was most likely that from such a body he would get no opinion at all. But the only evil on which the right hon. Gentleman put his finger, as wishing to correct it, was the present composition of the government of the Bank. He must say that that was a very minor grievance. It might be open to criticism; but this at least was evident, that while several of those who had a share in the government of the Bank had been unfortunate in trade, no improper aid had been afforded to them—and it was plain, therefore, that they had not abused their powers to wrong purposes. He must say that he had himself voted for the Bill of 1844. He had voted for it because he had confidence in its authors and proposers—he had voted for it as an experiment, and because one of the great arguments used by the promoters of the Bill was, that by separating the banking from the issue departments, the machinery of the establishment might be conducted, and that without any pernicious effect upon the commercial concerns of the country. He did not mean to say that it was argued the Bill of 1844 would prevent all future misfortunes in the country. But it was held out that by the separation of these departments, and by following the rules which were laid down, that the arrival of these crises would be foreseen—that being foreseen, they 441 would in a great degree be prevented—that their severity would be much mitigated; and when some one talked of the propriety of lodging somewhere a power of relaxation, he well recollected that the right hon. Gentleman said that it was much wiser to prevent a paroxysm than to propose to have the power of relieving it when it occurred. Experience had shown to his mind that this measure had failed—that this Bill of 1844 had not prevented the arrival of the crises—that it had not mitigated its severity when it arrived—and that in order to stop the crisis, the infringement of the law of 1844 was absolutely necessary. The right hon. Gentleman himself, in speaking of this Bill of 1844, had pronounced the strongest criticism upon it, because while at one moment he blamed the Bank Directors, at the next he said that the crisis was on the increase up to the 23rd of October—that he resisted it till he could resist it no longer—that at last he broke through the regulations of the law, and instantly the whole panic ceased, and the bank notes, instead of going out, came in. The common opinion certainly was, that if there was an issue of bank notes, gold would go away. But in this case, the result was that the gold had come in; and, remember, it did not come from foreign countries, for in the second letter of the right hon. Gentleman it was expressly said that the influx of gold was from the internal deposits. Therefore, the effect of the infraction of the law had been altogether magical in restoring confidence, and far from rendering necessary an issue of more notes. The gold came back and the notes at the same time. If, therefore, there was any benefit in the relaxation of the law, there could not be a better proof of it than the trial that had now been made. But then, said the right hon. Gentleman, let us have a Committee that shall embrace every imaginable subject of inquiry—over-trading, want of capital, free trade, and another subject which a noble relative of his own proposed to add in another place—the question of the wisdom of repealing the usury laws; a Committee was to be proposed embracing men of some dozen different opinions. And now he would ask the right hon. Gentleman what he supposed would be the result? Did he not know that the probability was that evidence only would be reported to the House, leaving it to the right hon. Gentleman during the recess to consider what Motion he should found upon the evi- 442 dence, while the country was left for the next year and a half to the strict action of the law, which had been tried, which had been proved, and which in one particular had been evidently found wanting. Why, the country had already sat as a Committee upon it. The pressure and the suffering endured by the country were the witnesses, and the letter of the 25th of October was all the report that was necessary; and yet now they were to go into a Committee, which would last for the next eighteen months, and God knew what would come of it. That was the measure. Who were the parties who proposed it to the country? If he mistook not, the right hon. Gentleman concurred with the right hon. Baroronet the Member for Tamworth in his resolution, that all inquiry was exhausted—that their business was to act, and not to inquire. There was no Committee in 1844, though there was then no call for change; but now, when there was everywhere heard a call for decision and for action, the right hon. Gentleman came forward and proposed a Committee of Inquiry. [The CHANCELLOR of the EXCHEQUER made an observation.] The right hon. Gentleman might be better informed as to the wishes of the commercial body than he was; but he believed that what they wished to know was if the power which had lately been exerted on their behalf would never be exerted again till ruin was complete—never till deputation after deputation were sent to the Government—never till failure after failure had occurred—some of which he (Mr. Baring) believed, notwithstanding the opinion of the right hon. Gentleman, never would have occurred but for the Act of 1844. If there were to be no relaxation and no hope until some dozen bankers were to go up to the Chancellor and tell the right hon. Gentleman that if something were not done there was not enough of reserve notes in the Bank of England to meet the deposits, then the same calamities that had now happened would be repeated. When the Bank of England could do nothing—when it was in a condition to do worse than nothing—then the right hon. Gentleman said was the time, but not a moment before, to give relief. The commercial body wish to know if that system is to be continued. He had no doubt that with or without the Bill of 1844 there was ample power in the Bank of England to save itself and its gold, while it spread ruin and desolation around. But he did 443 not call that working a measure—he did not consider that a practical, or even a practicable measure; and what he required was, a measure which, while it did not foster speculation, nor encourage overtrading, would yet have the power of rendering available the means that were in the hands of men possessed of solvency and of capital. The right hon. Gentleman seemed to think very lightly of his letter of the 25th of October. He certainly did not give money to those who before had none, nor did he do anything to promote overtrading; but what he did give was this—he gave to persons possessed of property—if their property was vested in securities—he gave them the means of rendering that property convertible into money; at a high rate of interest it was true, but still he pointed out a place where they could get it. Was not the evidence of the success of this very trifling measure the severest criticism that could be imagined upon the stringency of the Bill? What did the letter do? The letter alluded to the events of April; and the right hon. Gentleman boasted that though there was a pressure in April, yet there were then no failures. Undoubtedly that was so; but let him ask if that pressure in April was not productive of vast sacrifices of property, which led to the failures in autumn, and made them more numerous and severe? But how was the crisis in April stopped? If he was not much mistaken, the Bank, on that occasion, reverted to its old plan of advancing money on Exchequer-bills, and in that way the panic was stopped. There could not have been a stronger warning to the right hon. Gentleman than what had occurred in April that we were not in a safe position, and that what had happened then might happen again with increased severity and disturbance through every portion of the commercial body. The right hon. Gentleman, in his letter, had given the Bank permission to discount, but at a very high rate of interest. He agreed in the necessity of the measure which the Government had been forced to adopt. They felt that the pressure had become more than usually strong, and that some measure of the kind was quite necessary. But he did not agree in the time at which it was done; and he was satisfied that, if the letter had been written three weeks before, they should have had, instead of dismay, and discredit, and distrust—which, whatever might be thought of them here, produced an injurious effect 444 abroad—they should have had case and confidence, without any increase in speculation. But the right hon. Gentleman said that everybody he saw told him they did not know what he could do, but that he must do something; that all they said was, give us money and we shall be satisfied, even though it is at a high rate of interest. Undoubtedly there was an advantage in pointing to a place where they could get money; but instead of fixing the rate of interest at 8 per cent, he believed the right hon. Gentleman would have done better in fixing only the rate of loans, while he left the rate of discounts to the discretion of the Bank of England. The experience of the Bank of England would satisfy any man that they were not likely to fix it too low. But the fact of fixing the rate of interest at 8 per cent minimum, while he fixed no maximum, did alarm a great portion of the industrial community. If it was expected that the sole remedy for all our evils was in retaining a high rate of interest, they must then expect to see a great diminution of their trade, and particularly of that export trade on which they relied not only to pay for the gold they brought from abroad, but for that increase of the foreign debt which had arisen from the greater facility they had given—he referred to this without giving at present an opinion upon the policy of the measures—by the removal of duties upon the importation of foreign commodities. No doubt by that change in their policy they had become to a greater extent than before debtors to foreign countries; and it would be for the manufacturer to say whether he could undertake to pay for these foreign commodities, while the rate of interest was at 8 per cent. They must recollect that in settling this foreign debt, they had entered into great competition; all the benefits which were usually considered to arise from the peculiar institutions of this country had been much diminished since the peace; and they had even given away the advantages which were understood to arise from the command of machinery. What were the advantages that were still left to them? Why, it was only the cheapness of money, and the low rate of interest. If, then, by this measure they were to prevent the manufacturers from obtaining money at a cheaper rate of interest than they could obtain it in foreign countries, they would sacrifice the only advantages that still remained to the manufactures of this country. He must say, that he, for 445 one, would not go willingly into this Committee, without, if possible, obtaining some assurance from the Government of what they intended to do in case a similar crisis occurred—as to what length they would allow it to go before they would apply a remedy. He, for one, desired that, along with this resolution to go into Committee, there should be appended a resolution that that portion of the Bill of 1844 which restricted the issue of notes upon the securities to 14,000,0001., and in proportion to the bullion in the vaults of the Bank, should be suspended, and the issue of notes left to the discretion of the Bank and of the Government united, until the inquiries before the Committee should have closed. Everything showed that their present state was unsatisfactory; and while no legitimate hope could be entertained that this Committee would close its labours soon, the commercial world would be left in a state of uncertainty until the report was made, unless some such measure as that which he had suggested was adopted, or some declaration was made by the Government as to the course they intended to pursue in any similar crisis to the present. There was one other observation he was anxious to make. The hon. Gentleman who spoke last, had alluded to the question of a double standard. Into that question he was not at present prepared to enter; but he could not allow the hon. Gentleman to say that a double standard was found to be inadmissible in every commercial country. A double standard was permitted in the United States—that was a great commercial country; it was used in Holland—that was another great commercial country; the fact was, that a double standard in these countries was the basis of their circulation; and it was found to make very little difference, though, of course, the debtor paid always in the cheapest metal, and in that which most suited him; but that was of less importance than the differences which they had seen this year in the value of money and capital, which was enough to ruin the whole commercial world. He did not pretend to speak with authority; but he must say, looking at the practical working of the Bill of 1844, that it would not be satisfactory to its promoters, or to its authors, or to the country at large—he did not believe that it was satisfactory to this House; and he trusted, therefore, that the House would not think it could shelve the consideration of the matter by the country, by consenting to the appointment of 446 such a Committee as the right hon. Gentleman proposed.
§ MR. G. ROBINSON
thought the Motion and the speech of the right hon. Chancellor of the Exchequer was a tacit admission that the existing law required revision; and he considered it also as an admission that the measure of free trade, to which he attributed a great portion of the present distress, was a complete failure. He agreed with his hon. Friend who had just sat down, that to go into a Committee of Inquiry without any restriction as to the questions to be inquired into, was one that would lead to no practical good. He, for one, would much rather see one Committee appointed to inquire into the currency and the Bill of 1844, and another Committee appointed to consider the effect of the free trade measures of the Government. He had listened attentively to the speech of the right hon. Chancellor of the Exchequer, when he promised, in the early part of his speech, to point out the causes of the existing distress, and he was disappointed to find at the close that the right hon. Gentleman attributed the distress almost entirely to over-trading. Now, he had been a merchant in the city of London for upwards of forty years, and he had been an anxious and attentive observer of the late melancholy events; and while he could not deny that much of the distress and the failures had arisen from the imprudence of parties embarking in speculations for which they had not sufficient capital, he felt that the Government had all along stimulated, as it were, the merchants to enter into those speculations which had led to such unsatisfactory results. The reproaches against over-trading, therefore, did not come with a good grace from the Government. So long back as 1832, when he had the honour of a seat in the House, he foresaw the impossibility of their going on with their then currency, though the Bill of 1844 had not then passed; and he also, at the same time, foresaw the effect of those measures of free trade which were then for the first time introduced by the late Mr. Huskisson and Lord Wallace. At that time he moved for a Committee to inquire into the state of the trade of the country, and to suggest a remedy for the evils under which it suffered. He now found that the Government which refused his Motion at that time—he now found them coming forward and suggesting inquiry. He would state to the House what had occurred when the present Earl of Ripon was Chancellor 447 of the Exchequer, when he came down to the House boasting of the surplus of revenue over expenditure, and inquiring what he was to do with the funds. He wished the present Chancellor was in that position now. He would read to the House the observation which Mr. Huskisson made at the time, and what struck him as not a little extraordinary, especially when they looked at the existing state of things. Mr. Huskisson stated—this was in 1825, and in allusion to the free-trade measures which, in a very limited sense, had been introduced at that time—Mr. Huskisson said, that—When foreign countries saw him (the Chancellor) coming forward, year after year, largely remitting the public burdens; and, at the same time, exhibiting a prosperous Exchequer, he had no doubt that when the Governments of the Continent had contemplated for a few years the effects of the system on which they were proceeding, thair eyes would then be opened, he believed—for at present he admitted it was not so—to the fact that this country was acting upon sincere and consistent principles, and that it would be for their interest to imitate us in the same liberal career.Mr. Huskisson had predicted this so long ago as 1825. He would ask the noble Lord whether these results which had been so confidently predicted, together with the results of other departures from the principles of protection, whether they had not issued in bitter and lamentable disappointment, for the country was in a worse condition now than it was then? He would not maintain for a moment that they were to keep up precisely the same commercial system which they enjoyed previously to the war, because he knew that not only at the end of the war was the condition of this country materially changed, but that foreign countries had also put forth their energies, and become formidable rivals to us in our manufactures. But there was a great difference between the cautious and prudent policy of Mr. Huskisson, and the throwing open of the foreign and colonial trade without limitations, according to the fashion of the present day. The manufacturers of this country had been the great promoters of the recent changes, and he believed that they would be the greatest sufferers by them. When the noble Lord the Member for Lynn had spoken of the large importations of corn as one of the causes of the present commercial crisis, he did not understand him as expressing any regret at that importation, because the failure of the potato crop, and the circumstances of the country, rendered it necessary; but the 448 noble Lord had very justly remarked, how much they had become indebted to foreign countries by the importation of other articles for which the same necessity had not existed. He did not deny that some inquiry might be necessary; but he should have preferred a proposal to divide the Committee into two, so that the currency might have been kept separate and distinct from the other parts of the question. After the many predictions of national prosperity which had been heard, he believed that they were now at the commencement of great financial difficulties which had been created during the last war. At that time England occupied a position which justly rendered her the envy of all other nations; but, by a series of errors in legislation since that time, all those advantages had been thrown away, and her position was certainly no longer to be envied. During that time they had been living in a kind of fool's paradise—for all the free-trade measures had been based upon the hope that, if they were steadily followed up, foreign countries would be driven to imitate our example. It was true that the right hon. Baronet (Sir R. Peel), who had changed his opinions in a manner so extraordinary, and he believed so disastrously to the country, had gone so far as to say that he was prepared to follow out those measures, whether foreign countries adopted that principle or not; but he was convinced, that if they did not stop in that mistaken career of so-called liberal policy—if they did not adopt the principle of a moderate and reasonable protection for the great interests of the country, which could not be sustained without protection, and upon which the employment of the people depended—not only would they have the Chancellor of the Exchequer coming down to ask for Committees of Inquiry, but they would find it become very questionable whether the revenue of the country could be sustained. Already they had thrown away large portions of the revenue, which were derived from articles of import, without being felt by the community at large; and this in the hope of acquiring advantages from foreigners, which they had determined not to give. What had been the consequence? Although at the end of the war they had been able to reduce considerably the national debt, and 18,000,000 of taxes, including the income-tax and the malt-tax, had been repealed, yet, at the end of thirty-two years of peace, they 449 were now in the position of having, he believed, a deficient revenue, and were threatened with a permanent and increased income-tax. He recollected well, that when he had proposed to substitute an income-tax for some taxes which pressed heavily on certain branches of commerce, and on the people's subsistence, the right hon. Baronet (Sir R. Peel) had told him and the House that the income-tax ought to be reserved for the exigency of war; and yet he had lived to see the right hon. Baronet himself introduce an income-tax in the time of peace. He did not blame the right hon. Baronet for that measure, because he was no doubt driven to it by the failure of indirect taxation; and he was on principle favourable to an income or property-tax, or both; but if, during the present Session, the Government should propose any addition to the income and property-tax, he should feel it his duty to oppose it, unless accompanied by a return to sound protectionist principles. By the present system, the capital of the country was being wasted; and when the Government asserted that none of the difficulties of the commercial world could fairly be attributed to free trade, he would ask, whether the alteration of the sugar duties had had no share in bringing down some of the great houses in that trade? Sure he was, that it was nothing but those free-trade measures which had brought to ruin those great commercial establishments. He was no advocate for monopoly; but he considered that protection to the agricultural, to the West Indian, and to the manufacturing interests was essentially necessary, in the present burdened state of this country, in order to afford employment for the people. Notwithstanding all their discussions upon the complicated subject of currency, that was the great question, how to find employment for the people—such remunerating employment as would add to their comforts, and enable them to become contributors to the large expenditure of the State, instead of being a burden to the country, and involved in misery and destitution. The hon. Member for Stockport's prediction as to the necessary consequence of repealing the corn laws had remarkably failed; for, looking to the accounts from Manchester, Bradford, Stockport, Leeds, and other great manufacturing towns in England, and from Paisley, in Scotland, there never was in the history of this country so much distress in the manufac- 450 turing interest. It was melancholy to see how much people had been deceived; and yet the same principles and the same measures were urged upon their adoption. That, however, was not the opportunity for entering fully into that question; but he had adverted to it, because if the proposed Committee was to be essentially a Currency Committee, as from the turn which the debate had taken he was led to fear, and the past and future alterations of policy to which he had alluded were to be overlooked, he was satisfied that it could lead to no satisfactory result. With regard to the commercial difficulties of the present moment, he was not one of those who blamed the Government for their interference with the Bank; but he could not help thinking that inquiry on the subject was almost useless, because the Act of 1844 was condemned by every one. He trusted that if there was to be a Committee, its constitution would be satisfactory; but he had not yet heard any one Member of that House get up and defend the Act of 1844. The Bank of England had been placed in a very difficult position, and he was far from saying that they had not taken the prudent and proper course under the circumstances; but the fact was, that they had a currency totally inadequate to the great demands of their commerce, and until something was done to enlarge it and adapt it better to the necessities of the country, they must continue subject to periodical crises in the monetary and commercial world he considered that a great error had been committed in 1819, when Parliament adopted an exclusively gold standard. He should have wished to sec a standard, consisting of gold and silver; but if an exclusively gold standard had, as he contended, been productive of injury, how much more must that injury have been increased by the entire suppression of small notes in this part of the kingdom. He never could understand why small notes should be allowed to circulate in Ireland and Scotland, and yet be prohibited in England. The danger of an excessive circulation he could understand; but that was no reason for their entire suppression, though it might be a reason for their regulation. Still less could he understand why, having thus restricted the circulation, they should have had recourse to the Bank Charter Act of 1844. These were the measures which, in his opinion, had brought about that state of things which they were now seek- 451 ing to remedy. In his opinion they ought to restore the standard of value to the rate at which it stood before the Bank Act of 1797, which made the gold standard 31. 17s. 10½d. per oz., and the silver 5s. 2d. per oz.; and if they also repealed that part of the Bank Charter Act of 1844, which divided the Bank into two departments, he believed that they would do all that they could for the regulation of the currency. But as to the commerce of the country, England possessed resources with which no other country could bear the least comparison. Let them look to their immense trade at home; to the extent of their colonial possessions; to their uncontrolled dominion in India, both in time of peace and war. He asked the House to support, to cherish, and protect—however unfashionable the word might be—protect those great interests, as was their undoubted duty, and then they would have nothing to fear from the policy of foreign nations. After a trial of thirty years, it was absurd any longer to suppose that foreign nations would make any concessions to this country or receive its manufactures, however much disposed we might be to make concessions to them. Over and over again during thirty years had they been told that, if they would only take another step in the same direction, foreign nations must follow their example, He remembered that that was said of France by Lord Al-thorp, when he proposed to alter the duties on wine, so as to assimilate the duties on French, Portuguese and Spanish wines. But the contrary had been the effect; for very recently they had seen, that notwithstanding the influence of some parties in Franco in favour of free trade, the Chamber of Commerce at Paris had passed a resolution, declaring their determination not to take any steps which could encourage the introduction of foreign manufactures. Again, in Germany, what was the Zollverein? Was not that for the purpose of maintaining their own trade and encouraging their own manufactures, to the exclusion of those of other countries? Let the House also consider the effect of the speech of the King of the Belgians. That speech expressed a great anxiety for foreign trade. And what did that mean, but the encouragement of the manufactures of Belgium? Even within the last day or two he understood that the English Ambassador at Madrid had been obliged to remonstrate with that Government on the subject of some decree hostile to our commerce. 452 These were the indications which foreign countries gave of their intention to follow our example; and he thought that the last thirty years of trial were sufficient to show that we must adopt a national policy of our own, wholly irrespective of that of foreign countries, unless we were determined to sink into a position of far greater difficulty than any we had yet encountered. Something had been said the other night of the intention of the United States; but he called upon any hon. Gentleman to point to a single alteration in the tariff of the United States which could encourage a belief that she was about to abandon the principle of protection. The reverse was the case. Every change that America had made, every change that France had made, had been directed to the end of encouraging their own manufactures, or promoting their own revenue, The hon. Member for Stockport's amateur trip to the Continent had been referred to. See, it had been said, the extraordinary effect produced by that man! But what was the fact? In every one of the large commercial towns which he had visited he no doubt had found a number of willing auditors; he had been received and fêted; but by whom? By a body of merchants who were interested in obtaining access to our markets, but who had no influence in inducing their Governments to adopt any new principle of policy; and also by a number of very amiable philanthropists, who were living in a world of their own creation. What was the answer which had been given by the French Minister when Lord Whitworth applied to the French Government to enter into a treaty of commerce? He said—You are half a century in advance of us, and therefore it is not reasonable to ask us to enter into such a race of competition with you; but if you will wait till we are on equal terms, then we may consider the subject.From that time to the present successive attempts had been constantly made to attain similar objects. The hon. Member for Bolton and others had been employed on the same service; but all such attempts had utterly failed, and he would challenge the noble Lord the Secretary for Foreign Affairs to produce a single paragraph from all his correspondence with foreign countries indicating any intention to relax their restrictions in favour of the manufactures or commerce of this country. He knew that no such paragraph could be found; and he implored the House to abandon the 453 absurd policy which was based upon so unfounded a hope. It was not hostility to this country, but self-defence, which induced this course of policy in other countries; for there was not one of these commercial States which did not see that our object was to supplant their manufactures and introduce our own. Although, therefore, it had been the policy of the last and the present Government to throw aside all protection, and to expose all classes of the community to a most unequal and ruinous competition, burdened as they were with a large national debt and a very expensive Government, other countries still considered it the first duty of every State to protect the interests of its own subjects. This country possessed great energy and great resources; but unless its energy and its resources received some assistance from the Government, he was afraid that no long time would elapse before they were entirely exhausted. He begged pardon of the House for trespassing so long upon its indulgence; and he would conclude at once by repeating his wish that the two branches of the subject should be considered by two separate Committees.
§ SIR W. MOLESWORTH
Three questions had been raised by the Motion of the right hon. Baronet the Chancellor of the Exchequer: first, as to the causes of the pecuniary embarrassment of the country and of the late panic; secondly, whether that embarrassment or that panic had been produced or aggravated by the provisions of the Bank Charter Act, or by the conduct of the Directors of the Bank of England; and, thirdly, whether Her Majesty's Ministers had deserved praise or blame for the advice they had tendered to the Directors of the Bank of England. With regard to the causes of the pecuniary embarrassment of the country, he disagreed with the hon. Gentleman the Member for Poole, who attributed it to a want of currency; he attributed it to a want of capital. There was a deficiency, not of the instruments by which exchanges were made, but of the exchangeable things themselves. There was a deficiency in the supply of capital as compared to the demand for it. The floating capital of the country, that portion of the capital of the country that was annually consumed and annually reproduced, out of which wages, profits, rents, and incomes were paid, was deficient; on the other hand, the demand for it was excessive. The deficiency of the supply was occasioned partly by causes over which they have had no 454 control, partly by their own folly and imprudence. The disease in the potato had destroyed, or rather prevented, the reproduction of an amount of floating capital equivalent to the sum paid for the food imported to supply the place of the potato. That sum had been estimated at twenty millions and upwards. The greater portion of it had come out of the income of the country; and the payment of it had produced, for the time, a much greater pressure upon the resources of the nation than the destruction of a much larger amount of fixed capital would have done. Besides the failure of the potato crop, the expenditure of vast sums of money on railroads had diminished the floating capital of the country. It was true the floating capital had not been diminished to the whole amount of that expenditure: some portion of that amount—for instance, the sums required in the purchase of land—had been merely transferred from one individual to another, and may have continued to be floating capital; but a large portion of it had been paid in wages, and consumed in food, and the labour given in return had not reproduced floating capital, but created fixed capital in the shape of railroads. It was true, likewise, that the money so expended would ultimately increase the productive powers of the country, and facilitate accumulation; but meanwhile the returns were trifling as compared with the expenditure; and the pressure occasioned by the sudden conversion of so large an amount of floating capital into fixed capital was intense. In fact, the nation was very much in the position of a man who, over eager to improve his estate, had expended upon planting, draining, farm-buildings, roads, and the like, not merely the accumulations of past years of thrift and industry, but even the money with which he should have provided food and clothing for himself and his children, and then he had endeavoured to procure the necessaries of life, and the means of completing his improvements, by borrowing at a high rate of interest from his neighbours. The want of funds to complete the railroads, and the attempt to borrow them, had created the demand for capital. From that excessive demand for capital, combined with the diminished supply of it, arose the pecuniary embarrassment of the country. It was evident, on a moment's reflection, that they stood in need, not of currency, but of capital. What, he asked, for instance, did the directors of railroads 455 want? They wanted to complete their works and to pay their labourers. They wanted wood, iron, stone, and other materials for their works. They wanted bread, beef, beer, sugar, tea, tobacco, and other commodities for their labourers. The whole question resolved itself, therefore, into the means of obtaining these commodities. If they had existed in abundance in the country, there would have been no difficulty about exchanging them; but they did not exist in sufficient amount in the country, and they could not be obtained from other countries merely by augmenting the number of bits of paper in circulation. To obtain them from other countries they must be paid for in gold or other commodities; but there was neither the gold nor the other commodities to spare; in short, capital was deficient—thence the embarrassment of the nation. The only remedy was on the one hand to diminish the demand for capital, on the other hand to increase the supply of it. To diminish the demand for capital, expenditure must be curtailed; to increase the supply of capital, it must be tempted to come from other countries. To curtail expenditure, the calls upon railroad shares must be diminished as much as possible. To tempt capital from other countries, they must be content to pay a high rate of interest, and to sell their best securities cheap. Therefore, any attempt on the part of the Legislature, either to facilitate the construction of railways, or to raise the price of securities, or to lower the rate of interest, would only prolong or augment the embarrassment of the nation. He utterly disagreed, therefore, with those hon. Gentlemen who had attributed the embarrassment of the country to a want of currency; and who had likewise ascribed the supposed want of currency to the conduct of the Directors of the Bank, of England, and on that account had cast great blame on those Directors. He thought it very difficult, if not quite impossible, for the Directors of the Bank of England to reduce the currency below that amount which was actually required for transacting the business of the country. It appeared to him, if the exchangeable things were in existence, and men wanted to exchange them, they would soon find the means of so doing. Suppose, for instance, he said, that the Directors of the Bank of England had the power, and were to exercise the power, of unduly contracting the amount of their notes in circulation; then, he be- 456 lieved, that bankers' checks and bills of exchange would soon supply the deficiency, especially of notes above the value of ten pounds; and notes above the value of ten pounds constituted one-half of the circulation of the Bank of England. In fact, it was well known that by far the greater portion of the business of the country was transacted by means of bankers' cheques and bills of exchange; and that Bank of England notes formed only a small portion of the real currency of the country. As long, however, as the Bank of England held any large amount of private deposits, any attempt on the part of the Directors unduly to contract the amount of their notes in circulation would only cause a drain on those deposits, until the public obtained the amount of notes required. Therefore, such an attempt would soon be defeated. On the other hand, he believed it to be equally difficult for the Directors of the Bank of England to unduly increase the currency of the country. For, if they were to attempt to do so, either by purchasing securities, or by increasing their loans to the public—if they were thus to endeavour to increase the amount of their notes in circulation, beyond that which was required for the business of the country, then the notes so issued in excess would not be idle; they would either be returned to the Bank to be exchanged for gold, or they would be employed in discounting bills; thus a portion of the business of the Bank would be intercepted; in both cases the circulation of notes would be reduced, and speedily brought within due limits; and the result would be, not an increase of circulation, but a loan or investment of the capital of the Bank. He believed that the power of the Bank to affect the monetary interests of the community, arose not from any power the Directors possessed of unduly increasing or decreasing the currency of the country, but from the vast capital they held as bankers. By lending that capital, they could at one time encourage enterprise and foster speculation; at another time, by suddenly refusing to lend, they could occasion great inconvenience and loss to those who were accustomed, properly or improperly, to rely upon them for assistance. In both cases they would affect public credit, not in their capacity of directors of a bank of issue, but as ordinary bankers. A charge had been brought against the Directors of the Bank of England, to the effect that they had consulted the interests 457 of their proprietary at the expense of the public. Suppose, he said, that charge were true, then the question arose—were the Directors of the Bank of England public functionaries, or not? Were they bound to consult the interests of the public, or those of their proprietary? It had been generally understood that the object of the Bank Charter Act was to relieve the Directors of the Bank of England from all obligation to consider themselves public functionaries. By that Act they had been deprived of their former power of issuing notes; and they had been told over and over again that they never had been public functionaries except with regard to their issues; but that with regard to their deposits they were just like other bankers. If this position were correct, on what grounds were the Directors of the Bank of England to be blamed for consultingly exclusively the interests of their proprietary? If the position were correct, that the failure of the potato crop, with the consequent loan to Ireland, that the vast expenditure on railroads, that the demand for capital to complete those railroads, that the large exportation of gold to pay for food for Ireland, and for the augmented consumption in England caused by the expenditure on railroads—if those causes had produced the pecuniary embarrassment of the country, it followed that that embarrassment could not be fairly attributed to the provisions of the Bank Charter Act. For that Act could no more have produced speculation in railways, than it could have produced the failure of the potato crop. The Act of 1844 merely determined the numerical relation that was to exist between the amount of notes that the Directors of the Bank of England might issue, and the quantity of bullion in the Bank. It was certain that that Act did not require the Directors of the Bank of England to keep a less amount of bullion in store than they would otherwise have done. Consequently it could not have increased the power of the Directors to encourage speculation. On the contrary, it has probably compelled the Directors to keep a larger amount of bullion in store than they would otherwise have done. Thus it must have diminished the capital that the Bank could lend to the public, and it must have thus diminished the power of the Bank to encourage speculation, especially at the time when over-speculation was most dangerous, namely, when gold was going out of the coun- 458 try. An hon. Gentleman had attributed the embarrassment of the country party to free trade and to a repeal of the corn laws; but what could a repeal of the corn laws have had to do with the antecedent events of the failure of the potato crop and railway speculation? On the contrary, it appeared to him that, if a system of free trade had been long ago established, food would have been regularly grown and imported from the food-growing countries, and regularly paid for in the manufactures of England; then the increased demand for food would have been followed by an increased demand for manufactures, less gold would have been exported, and less embarrassment would have ensued. He maintained, therefore, that the pecuniary embarrassment of the country could not be justly attributed either to any defect in the currency, or to the operations of the Bank Charter Act, or to free trade, or to the repeal of the corn laws; but it could be traced entirely to a deficiency of capital, partly caused by over-speculation. What, he asked, were the causes of the over-speculation? He believed that they could easily be assigned; that they were of periodic recurrence; that no Act of the Legislature could prevent them, and no prudence on the part of the Directors of the Bank of England, or other constituted authorities, could avert their evil effects. He said that it could not be doubted that, under ordinary circumstances, capital in England increased more rapidly than the means of profitably and safely employing it. After a time, therefore, there arose a fierce competition between the owners of capital for the means of investing their capital; every branch of industry became overstocked; the prices of all securities rose; the rate of interest fell; large classes of the community (especially the middling classes, and those who lived upon the profits of small capitals), found their incomes reduced; they became uneasy, impatient, inclined to listen to every now and plausible project that held out some prospect of higher profits; eagerly, rashly they embarked in such schemes; a few, the more cautious and more cunning, might realise fortunes, but to the majority the speculation failed; a large amount of capital was destroyed; and great misery ensued. After a time the storm passed by, prosperity returned, fresh capital was rapidly accumulated, the means of safely investing it again became deficient, the past was forgotten, it bequeathed no lesson to prosperity. The same cycle of events 459 was repeated, and in the words of the poet, another Argo carried another band of heroes in search after the golden fleece—Alter erit tum Tiphys, et altera quæ vehat ArgoDelectos heroas; erunt etiam altera bella;Atque iterum ad Trojam magnus mittetur Achilles.The Mississippi scheme was revived, and another "Law" returned to the speculating world. He said, that two or three years ago, the commercial affairs of the country had been in the most flourishing condition. Trade had been thriving, the labouring classes had been fully employed, capital had been steadily flowing into the country, the treasure of the Bank of England had reached a greater amount than had ever been anticipated, Consols were at par, the rate of interest for short periods on the best securities did not exceed two and a half per cent; in fact, money was a drug. At that moment the success of one or two great lines of railroad directed public attention to railroads as profitable investments for capital; their power of facilitating production and economising capital; the lightning-like speed of their passenger trains; the certainty that they must ultimately cover the face of the country, that every town of any importance, and every district possessing either agricultural or mineral wealth must sooner or later have its railroad—all this had engendered such a fever for railroad speculation, that but few had escaped the contagion; one-half the community had been occupied in forming projects for railroads, calculating imaginary traffic tables, and surveying the length and the breadth of the land; the other half had busied themselves in buying and selling scrip. Men and women of every class and grade in society, from the peer to the peasant—one-half the House of Lords, three-quarters of the House of Commons, had engaged in these transactions. Men with small capitals had embarked in them, in the hope of increasing their scanty incomes—men without capital, expecting rapidly to acquire the fortunes they never could obtain by honest and patient industry; and men with broken fortunes, crippled with debt, traders on fictitious capital, swindlers in the garb of merchant princes, impostors and deceivers of the public, had clutched at these speculations, in the hope of putting off the day of reckoning, and postponing for a time the inevitable crash. It mattered not where the railway was to be. Railroads over desolate moors, through 460 decayed towns, to harbours without commerce; railroads up impracticable gradients, and through impassable tunnels; railroads in Spain, railroads in India, railroads in Canada—all had found eager purchasers for scrip at a premium. Successful speculators had been crowned and worshipped. Thousands and thousands of pounds had been subscribed to their honour. They had been travestied into statesmen, and a network of iron had been prescribed as the remedy for the famine and misery of a starving people. In that wild and universal worship of the demon of speculation, a large portion of the community had undertaken to provide within a limited period of time a greater amount of capital than they themselves possessed, or than the country could have immediately spared for permanent investment. The efforts to meet engagements, the competition to obtain capital by means of loans or by the sale of securities, had first produced the pressure on the money market; then the rate of interest rose, the price of all securities fell, capital became scarcer and scarcer, it was withdrawn from the deposits, especially of country bankers, in order to pay up railway calls and to purchase railway debentures; the bankers were thus unable to furnish their usual supplies to the bill brokers; the bill brokers were in consequence unable to discount the paper of the merchant; and the merchant, who had been trading upon borrowed capital, or upon insufficient capital, or whose capital had been engaged in foreign plantations or in other objectionable securities, failed to meet his engagements. In that struggle, therefore, the most reckless and the most deeply involved had first failed, and among them had been some who had been unjustly hold in the highest repute; for instance, joint-stock banks had failed with enormous paid-up capitals, their directors had disregarded every sound principle of banking, and had squandered the funds of their proprietary in a betting the wildest speculations. Again, long-established houses had failed, that never had been solvent within the experience of the existing partners. Those partners had ranked among the chiefs of the mercantile world; with hundreds of thousands of liabilities they would pay a few shillings in the pound. They had gone on year after year fraudulently contracting engagements with the public which they never could have hoped to discharge, recklessly accumulating debts, careless of the ruin and misery they must produce. Hardly 461 one of these failures had deserved a regret; but the sudden exposure of their rottenness had shaken public confidence, and had given birth to the panic. With regard to that panic, he would now ask, whether it had been aggravated by the conduct of the Directors of the Bank of England? Whether the Directors had been compelled to do so by the provisions of the Bank Charter Act? And, lastly, whether the Government had, therefore, been justified in authorising the Directors of the Bank to disregard the provisions of that Act? To answer those questions, he would state, very briefly, what appeared to him to be the plain facts of the case. Prom the return of the accounts of the Bank of England, published under the Bank Charter Act, it appeared that every year, in the months of April and October, there was a diminution in the deposits of the Bank of England to the extent of between four and five millions. That diminution always took place in the public deposits; it arose from the payment of the dividends, and had generally been counteracted in a slight degree by a small increase of the private deposits. To pay those four or five millions, the Directors of the Bank of England had usually reduced their reserve of notes to the extent of a million or a million and a half. They had likewise always diminished their other securities (that is, their accommodation to the public) to the extent of between two and four millions, and sometimes they had parted with a portion of their Government securities. They had acted precisely in that manner in October last. According to the return of the 9th of October, at that period they had in the banking department a reserve of notes and bullion which did not exceed 3,800,000l. As they would in all probability have to pay a sum of between four and five millions, their reserve would have been exhausted if they had departed from their usual course of reducing the amount of their private securities. They had, therefore, signified their intention of not renewing loans, and during the ensuing week there was a reduction in the other securities to the extent of two millions and a half, precisely the same amount by which those securities had been reduced in the corresponding week of October, 1846. But as that had occurred in the middle of the panic, occasioned by the failures to which he had referred, it had greatly aggravated the panic. For when private bankers found that they could not obtain advances 462 at the Bank of England, even upon Government securities, they had been compelled to adopt every means of securing themselves, to refuse all accommodations to their customers, and to keep their notes in reserve to meet the probable run upon their deposits. Thus money had become scarcer and scarcer, and the panic had increased. Meanwhile the reserve of notes had gradually diminished. At the period of the return of the 23rd of October, the reserve of notes and bullion had been reduced below two millions, whilst the liabilities of the Bank on account of private deposits alone amounted to eight millions and a half. In the midst of a panic, that was a most alarming disproportion between those liabilities and assets. For if the panic had continued, and had gone on increasing, the country bankers would have become alarmed, the alarm might have spread to Scotland and Ireland, and all parties, even the most solvent, would have endeavoured to secure themselves by obtaining notes or gold. The demand would have fallen entirely upon the banking department, and a drain of less than a couple of millions would have exhausted the reserve. The possibility of such a drain upon the private deposits was by no means an extravagant supposition; for he found that in the course of one week, in August, 1836, there was a reduction in the private deposits to the extent of 1,700,000l. He believed that there was no doubt that at the period when the Government interfered, the reserve of notes did not exceed 1,100,000l. More than half of that sum was distributed among the branches of the Bank of England. The remainder, amounting to about 500,000l., was the whole reserve of notes in the Bank in London; and it was said, that that sum could have been reduced to 100,000l. by the check of a single London banker. Therefore, if the Government had determined not to interfere, the Directors of the Bank of England would have been compelled to adopt still more stringent measures to guard their reserve. Not only must they have peremptorily refused all advances and discounts, but they must have endeavoured to sell securities at any sacrifice. If they had acted in that manner, it was difficult to imagine how low the funds might not have fallen, and how high the rate of interest might not have risen. In fact, money would have been unattainable on any terms—the panic would have increased tenfold—there would have been an end to all 463 credit—many bankers would have stopped payment—large masses of the population would have been thrown out of employment—riot, misery, and confusion would have ensued. And, after all, the efforts of the Directors might not have been successful in securing the Bank; if not successful, then the banking department of the Bank would have stopped payment with eight millions in the coffers of the issue department. To avert such a calamity, to put a stop to the panic by enabling every really strong house to feel confident that it could raise money in case of absolute necessity, the Government had interfered, and had authorised the Governors of the Bank of England to disregard the provisions of the Bank Charter. On the other hand, it had been said that those apprehensions were unfounded; that the Bank of England had never been in any real danger; that the Directors could have obtained any amount of notes they might have required, either by selling securities, or by refusing to renew loans; that if by so doing a few more bad houses had been broken, so much the better for the public interest. It had been asserted, that when the Government interfered, the storm had abated, the danger had gone by; and that subsequent events had proved that interference to have been unnecessary. It had likewise been said that that interference was a very bad precedent; that on all future occasions, either of agricultural or commercial distress, the Government would be called upon to interfere, and would have great difficulty in refusing, even when the most disastrous consequences might follow such interference. And, lastly, it had been said that that interference would unsettle the whole of the currency question so happily settled before, would let loose a torrent of nonsense, which might produce an inundation of inconvertible paper he acknowledged that there was great force in many of those arguments; he deeply lamented the necessity of that interference—he thought that great vigour and determination would be required to prevent the evil consequences of such a precedent. In his opinion, the question had been, on which side was the balance of evil? Whether, at the period when the Government interfered, it was proved that greater harm would have been done by letting things take their course, than would be done by that interference? He asked what had been the opinions of those persons who ought to have been and were the most 464 competent to pronounce an opinion in such matters? He answered, that among the most eminent men in the city the weight of authority had been decidedly in favour of the interference of the Government, and in their opinion the most disastrous consequences would have ensued if the Government had refused to interfere. Under these circumstances he thought that no blame could attach to the Government for the course which they had pursued. It had been said by some who approved of the interference of the Government, that the Bank had been recommended to charge too high a rate of interest. He thought, on the contrary, that that high rate of interest had alone prevented any immediate danger from the interference of the Government. The danger had been lest the Bank, by increasing its loans and discounts, should have revived speculation and encouraged imports, which might have caused a turn in the exchanges and an exportation of gold, which might have exhausted the treasures of the Bank. The high rate of interest had prevented the Bank from increasing to any extent its loans and discounts; yet, at the same time, in consequence of the recommendation of the Government, every person who possessed unquestionable securities felt certain that he could obtain money in case of need. This had allayed the panic. To restore confidence had been the sole object of the Government. They could not have wished to lower the rate of interest, for they could not create capital, and a high rate of interest was necessary to diminish the demand for capital, and to entice capital from foreign countries. He would not trespass upon the patience of the House by discussing at any length the question of merits or demerits of the Bank Charter Act. He would merely observe, that if, as some persons had maintained, the object of that Act had been to prevent over-speculation, and to render a crisis impossible, then it could not be denied that in that respect the Act had not been successful. But if, as some persons (in his opinion much more correctly) had asserted, the only object of that Act had been to secure the convertibility of the bank note, and to prevent all apprehensions on that head during the period of a crisis, then it must be acknowledged that in that respect the framers of the Act of 1844 had attained their object; for neither in April nor in October last, had any one entertained the slightest apprehension with regard to the 465 convertibility of the currency—though, in every crisis that had preceded the Act of 1844 such apprehensions had been prevalent, and not altogether ill-founded. Having rendered this service to the community, it was deeply to be regretted that there should have been a necessity for suspending its operation. Whence that necessity arose, was a question well deserving the consideration of a Committee of the House. Some persons had cast great blame on the Directors of the Bank of England for not having commenced at a much earlier period to raise the rate of interest on loans and discount. It had been said that the Directors of the Bank of England belonged individually to the class of borrowers; that some of them had been needy borrowers, as had been proved by their failures; that, as borrowers, it was for their advantage that the rate of interest should always be as low as possible; consequently, in a period of monetary pressure their private interest was opposed to the public interest, which required that the rate of interest should increase with the scarcity of capital. It had been maintained that if the Directors of the Bank of England had gone on gradually increasing the rate of interest from the commencement of the pressure in the money market; if they had been the dearest instead of the cheapest of money lenders, there never could have been any necessity for them to refuse loans, on unquestionable securities—the panic would never have reached the height it did—and the interference of the Government would not have been necessary. He had no doubt that this was the correct view of the course which the Directors of the Bank of England ought to have pursued, if it had been their duty to consult the public interest exclusively. But he doubted whether such a course would have been the best for the pecuniary interests of the proprietary of the Bank of England. It should be remembered that the Directors of the Bank of England had a large and gradually increasing sum of money in their hands, which they could use only for a short period of time. In order to ensure customers they had lent it at a moderate rate of interest, and they had made the most money they could. It might be said that by so doing they had brought the banking department of the Bank into the danger of stopping payment; but the Bank of England was not like an ordinary bank. No Government would let the Bank of England stop payment when they could 466 prevent such a calamity, by simply suspending the operation of an Act of Parliament. Therefore he thought that, acting under such an hypothesis, the Directors of the Bank of England had pursued the course best calculated to promote the immediate pecuniary interests of their proprietary. For so acting the Directors were not to blame, for they were not public functionaries, and they had been told over and over again in that House that the Bill of 1844 relieved them from all obligations to consider themselves as anything more than private bankers. It was quite a different question whether a banking corporation with the enormous power and capital of the Bank of England should be permitted to exist. It had, without doubt, the power of doing great injury to the community. He would, however, leave that question for the consideration of the Committee to be appointed by the right hon. Baronet the Chancellor of the Exchequer. In conclusion, he said that it appeared to him that the pecuniary embarrassment of the country could be traced partly to physical causes, partly to their own folly and imprudence. That that embarrassment had nothing to do with the currency of the country, nor could it be justly attributed to the provisions of the Bank Charter Act, nor to the conduct of the Directors of the Bank of England; but he said that when, in consequence of the unforeseen and disgraceful failures of so many of the merchant princes, a panic had seized upon the nation, then such had been the position of the Bank of England, that its Directors had been compelled by the provisions of the Bank Charter Act to act in a manner that would have placed the community in imminent peril. One word from the Government had allayed the panic and restored confidence. That interference was inevitable, but deeply to be regretted. Might it never be drawn into an evil precedent! And he entreated hon. Members not to suppose that any act of the Legislature could at once relieve the nation from the present pecuniary embarrassments, for those embarrassments had their origin in causes over which Parliament had no control, and they must suffer with patience, like men who had lived beyond their means, until they could retrieve their fortunes by prudence and economy.
§ MR. CAYLEY
said, he was almost persuaded, by the speech of the hon. Baronet who had just sat down, that he could trace in it the hand of the writer of some of those 467 articles which had lately appeared in a leading journal, and which had given precisely the same solution of our commercial difficulties as the hon. Baronet had done. He was sure there were few persons in the country, except the writer of those articles, who would be so bold as to deny altogether the pernicious effects of the Act of 1844 upon our commercial system: and, he should be very much surprised if the public out of doors would lend their sanction to the opinion of the hon. Baronet, that that Act had been in no respect the cause of embarrassment. If anything could be a matter of surprise in these days, it would be that no attempt whatever had been made to answer the comprehensive and conclusive speech of the hon. Member for Huntingdon (Mr. T. Baring); and from the fact that the hon. Baronet had omitted to do so, he concluded that that speech was unanswerable. To him (Mr. Cayley) it was some consolation, after witnessing the inundation which had swept away so many mercantile houses of such long standing, to see one merchant left, and that the first merchant, not only of this country but perhaps of any other, presenting himself to the House, and generously standing up for his order, and boldly furnishing the true solution of our difficulties. The hon. Baronet had gone over just the same ground as the Chancellor of the Exchequer, and repeated the dogma that it was not a deficiency of notes that had been the cause of those difficulties. But who had stated that that was the cause? It was the real and not the nominal amount of notes that was the question. The argument of Gentlemen differing from the Government on this question had been that the limit of 1844, appearing imminent in April, when the reserves of the Bank were so low, created a panic in the mercantile mind at those reserves being so low, and at the palpable want of power in the Bank to assist commerce, and that that had been the cause of mercantile discredit, and of the consequent embarrassment. In summer it was true that some temporary abatement of the pressure took place; but the first casualty, such as the failure in the corn speculations, brought back the discredit and pressure in a greatly aggravated form. And it was quite clear that if commercial difficulties were caused by a real scarcity of notes, arising out of a hoarding of them, and not from a scarcity in their nominal amount, those difficulties would have been relieved if the Govern- 468 ment interference had come earlier. Then they had the same argument as that used by the Chancellor of the Exchequer, that a main cause of our difficulties had been the deficiency of capital. He should like to know, however, in what manner that assertion had been proved; for it had so happened that, though we had had this year a sudden demand made upon us for a supply of foreign corn, yet the Chancellor of the Exchequer had informed the House that we could raise 33,000,000l. to pay for it. That certainly did not show a deficiency of capital. Did the terms upon which the right hon. Gentleman contracted his loan in spring, viz., at 3l. 7s. 6d. per cent, prove the existence of a scarcity of capital? In the spring it had been stated that we had low stocks of all imported articles except silk and tobacco; at present we had average stocks of all these articles, except cotton, which was deficient in crop. Did that look like a deficiency of capital? Hitherto we had heard from the free-trade school no doctrine so often repeated as that of "buying in the cheapest and selling in the dearest market;" but what did the hon. Member for Southwark say? Why, that we had now to buy gold dear, and sell our best securities and our best goods cheap! He (Mr. Cayley) should like to know where was the profit which arose from transactions like that. But when the statement that there was a deficiency of capital was made, the real object must be to endeavour to account for the high rate of discount by an absolute deficiency of capital. What had taken place with regard to the reduction of the rate of interest? They had been 300 years, by the gradual accumulation of capital in this country, reducing the amount of interest from 10 per cent to about 4 per cent; and could any person think, after that experience, that scarcity of capital had caused a rise in the rate of interest of from 4 per cent in January, to 10 or 12 per cent in April? That while it took three centuries to effect a fall of 6 per cent in the rate of interest, it should take only three months to effect a rise of 6 per cent? It was arrant absurdity to suppose it. The present embarrassments arose not from a scarcity of capital, but from a scarcity of currency. They had been aggravated by the hoarding which had accompanied the general distrust. One thing fell from the hon. Baronet in which he perfectly agreed—the Chancellor of the Exchequer had no right to blame the discre- 469 tion or indiscretion of the Bank Directors for the present state of things. The right hon. Baronet had quoted the opinion of Mr. Jones Loyd on the matter; but he forgot to report to the House the expressions he himself used during the discussion on the measure of 1844. The right hon. Baronet then said, that the Act of 1844 would take away all discretionary power from the Bank. What right had he, then, to blame the Bank Directors, to whom, as he said, the Act left no discretionary power? Then there were the speculations in railways. These the right hon. Baronet had considered had materially assisted in bringing on the present crisis. Now he (Mr. Cayley) did not know any parties that had contributed more to the railway speculations than the Government of Sir Robert Peel, in neutralising that excellent report of the Board of Trade, which had been produced under the able auspices of Lord Dalhousie, and which entered into an investigation of each particular scheme, and into a subdivision of the various districts of the country the most immediately in want of railway accommodation. When that report was brought up, was it acted upon? No; it was thrown aside, and everything with reference to the multitude of schemes then afloat left to the lottery of Committees. Even after the potato failure in 1845, the right hon. Baronet the Member for Tamworth turned the first sod of the Trent Valley Railway; and in the performance of that interesting operation the right hon. Baronet took occasion to enlarge upon the immense benefit which must accrue from direct lines of communication. For that reason he said he had supported the Trent Valley project; and if another line were brought forward, still more direct, between London and Manchester, it also should have his best support. What could contribute in a more direct way to fan the flame of speculation than conduct such as this? The columns of every newspaper were filled with new schemes. The main speculation at that time was to procure a letter of allotment, and endeavour to sell it at a premium, before the next settling day. The moment there came a check upon this species of gambling—when parties who had paid money for these letters of allotment or for scrip found they were so much waste paper—a severe pressure and great distress existed amongst the middle classes. In the early part of 1846, when one-half of the Bills brought before 470 Parliament were rejected, of course the parties who had paid the deposit on their scrip sustained great and ruinous losses. Those were the parties who had the greatest reason to complain of railway speculation, and who had suffered most from it. But those in this House who now blamed railways had no right so to do; for at first there had been the greatest disinclination on the part of Parliament to encourage that kind of speculation. Some years ago, many hon. Members would recollect, a competing line was projected between Birmingham and Manchester. Sir Robert Peel espoused the cause of the new line, while Lord Stanley opposed it. It was a hard battle, and eventually Lord Stanley won. Lord Stanley had justice on his side. That noble Lord was anxious to sustain the London and Birmingham Company in their new and then rather doubtful speculation. It was only fair to allow some time, in order to see whether the first railway really would pay, before the convenience of the public was consulted by the construction of a more direct line. This was during protection times; before the non-interference principle became so generally adopted; and in this instance, at all events, he left the House to judge which had been the most prudent course. The railways, deficiency of capital, the potato failure, and the insolvency of merchants, were the scapegoats upon which the ruin of so many great houses was laid. He (Mr. Cayley) was used to the saddle being always put upon the wrong horse in this question, and therefore attached very little credit to the reasons assigned. It was to him a matter of anomaly, and must be to others, that houses which had stood so long, and weathered so many storms, should simultaneously all of them be compelled to suspend their operations, while every house had sustained immense loss. That did not look like individual imprudence, so much as some general overwhelming cause. But the merchants of the present day at ill] events had learnt their lessons in the modern school—they had boon gradually approaching perfection according to the doctrines of that school—and if they had failed, the school was to blame quite as much as they were. With regard to the statement of the right hon. Gentleman (the Chancellor of the Exchequer), able though he admitted it to be, he must say that, taking it as a whole, it did not give satisfaction to him (Mr. Cayley), nor did he think that it would give 471 satisfaction to the House. The Chancellor of the Exchequer considered that the two moving causes of the present monetary derangement were to be found in the deficiency of capital, and railway calls. But the Chancellor of the Exchequer was speaking for the Government when he made this statement; and how did it tally with the opinions already expressed by the only Members of the Government who had spoken on the question. His noble Friend (Lord John Russell) was a very material part of the Government; and he had said that he attached very little importance to railway calls as a cause of the commercial embarrassments. And what did the President of the Board of Trade say the other evening when the noble Member for Lynn mentioned something about "bankruptcy and shame?" The right hon. Gentleman said that he did not believe that the country was anything like in a state of bankruptcy. There was capital sufficient and energy sufficient left to speedily repair the late disasters. He (Mr. Cayley) should have liked to have heard the views of some other Members of the Government. With regard to the appointment of a Committee, under ordinary circumstances, such a course might have been satisfactory. But a Committee might mean many things. It might be formed for the purpose of giving the go-bye to an adverse resolution. The appointment of the Committee practically condemned the Act of 1844; and the House ought to insist upon the suspension of the obnoxious parts of that Act pending the sitting of the Committee. The pressure on the money market was not removed; the foreign importations were large; the balance of trade was really still against us. He feared they would have no immediate relief; that they would have to wait long and patiently for a reaction. The building was not indeed absolutely on fire, but the embers were still smoldering; and if the House did not suspend the Act of 1844 during the sittings of the Committee—likely to continue for ten or twelve months—the embers might again burst out into a flame, and they then would be something like philosophers looking calmly upon the work of destruction, while they stopped to scientifically inquire into the natural properties of the water which should be at hand to quench the flames. He should preserve the right of proposing or supporting a suspension of the Act during the sitting of the Committee. The Committee being appointed, he hoped that they would have a 472 fair and searching inquiry. We had had enough of packed Committees, and wanted no more concocted or preconceived plans, but a thorough investigation with a view to thoroughly ascertain the causes of the alternations of prosperity and distress which he (Mr. Cayley) attributed to nothing else than changes in the value of money. He had one ground of confidence: the Chancellor of the Exchequer in the present instance had assumed a much less confident air than his predecessors on similar occasions. On many previous occasions he had heard irrefragable principles laid down always destined to be disproved, and many final settlements of this question never destined to be final. Irony, and sarcasm, and ridicule, used to assail all those who ventured to dispute the infallible dogma; but now he was glad to perceive that experience had produced some effect, at all events, in the manner of discussing the question. With regard to the statement of the right hon. Baronet, that the commercial embarrassments could not have been anticipated, he would only say that those embarrassments, in their main features, had been clearly foretold in the memorial presented by the bankers of London in 1844, as the consequence of the passing of the Bank Charter Act. Mr. Jones Loyd, it is true, said in his pamphlet, that it was quite necessary that the country should experience cycles of convulsion, in order to preserve the standard of value. That doctrine he (Mr. Cayley) disputed. Mr. Jones Loyd was well known to be the author of the Bill; but Mr. Loyd was not a Member of Parliament. He was the author of the Bill out of the House, but not the author of the Bill in the House. Mr. Loyd, out of the House, said that the very essence of the Bill was the convertibility of the Bank issues. Sir Robert Peel, in the House, said it was no such thing. On the 13th of June, 1844, Sir Robert Peel said that the Bank could always govern its own notes, but only "by a tremendous sacrifice of the mercantile and other interests." He said "that was what he wished to prevent," and "that he would compel the Bank of England to conform to certain principles advantageous to the public." How far had these promises been realised? Instead of having the panic of 1837, and the panic of 1839, we had had the panic 1847 twice repeated within the space of a few months; and mercantile men told them that the last was more severe and more pressing than any previous panic. So 473 much for the authorities on which Parliament had been accustomed to rely on this subject, and which for the future he hoped it would be equally disposed to distrust. The Chancellor of the Exchequer had given as a reason for fixing the minimum rate of interest at 8 per cent, that its object was to draw foreign capital to this country. If the Government, however, only wished to attract foreign capital, they should have left the pressure alone, for that was rapidly bringing down the prices of goods lower than the manufacturer could produce them at. The first letter from the Government to the Bank of England he quite agreed with, except that the relaxation ought to have come earlier, and that no minimum rate of discount ought to have been suggested by the Government. But in withdrawing their first letter, they should have placed the public on the same footing as that in which it stood previous to the issuing of that letter. The rate of discount before the publication of the first letter, was from 7 to 7½ per cent. The immediate effect of the letter was to raise the rate of interest from 1½ to 2 per cent, generally throughout the country, that is, to 9 per cent. And now when the bullion in the Bank coffers amounted to 10,000,000l. sterling, the Directors still charged equally 7 per cent, although they were charging 7 per cent practically with only 8,000,000l. bullion in their coffers before the Government letter was issued. It was only fair that, as the Government suggested to the Bank the high minimum of 8 per cent in October, they should also have suggested a lower minimum than 5 per cent in November. The Government was probably not at all aware of the mischief which had been done by their suggestion of the 8 per cent. Everybody expected that the Bank under pressure might charge a high percentage on advances, but nobody ever before heard of Government fixing the minimum rate. This step afforded moneylenders the ready pretext for charging exorbitant rates, and tended greatly to increase and to continue the depression and difficulty. The rate of discount charged, had been as high, in some instances, as 25 per cent, and this he attributed to the countenance afforded by the Government to usury. But one thing was clearly proved by their suggestion of the 8 per cent minimum rate of discount, viz., that the Government could not have believed in a real deficiency of capital; because if they had they would have been too happy 474 to have had it come forth at 5 or 6 per cent, or at any price. His right hon. Friend told the House that the sums expended in railroads had caused the distress. In reference to this view he would venture to ask him one question: if the 7,000,000l. of bullion had not been exported, would the panic have arisen? No! Then what had the railways to do with it? But in relation to the expenditure on railways being the cause, did the Chancellor of the Exchequer intend by the expression of such an opinion to delude himself, or to delude the public? He attributed the pressure to the unusual amount of money sunk as fixed capital. Now what was the fact? If a manufacturer had 50,000l., and embarked 25,000l. in building a mill, he might be said to have fixed half his capital. The capital was fixed, so far as the manufacturer was concerned, but it was not fixed as to other persons. It still remained as floating capital to them. The difference between fixed and floating capital which seemed to haunt the brain of the Chancellor of the Exchequer, was merely an imaginary one; and for this reason it was that it had not taken by storm the masculine understanding of his noble Friend at the head of the Government. When a man built a house, or made a railway, or a canal, the floating capital which he embarked in those undertaking's was not buried and sunk and lost in them, and so disappeared altogether from view; but this floating capital was transferred from the party so embarking it to the party who constructed the house, the railway, or the canal; who in turn left with the first party, in exchange for his floating capital, a certain amount of labour, or labour's worth. So that instead of capital being really fixed, meaning by that term sunk, in a railway, canal, or house, it was, more properly speaking, labour that was fixed, realised, or embodied in it. This was the real truth on this subject; so long as the floating capital remained in the country. By all export of bullion, however, to correct the balance of trade, by investing it in foreign securities, or by Government expenditure out of the country, no doubt so much floating capital was really sunk to this country, until more favourable circumstances induced its return. Supposing 3,000,000l. were to be expended in railways per month, about one-fourth of the amount would be paid for iron and land. That immediately returned to the money centre. The other portion was 475 paid for labour, and passed through the baker, the butcher, and the general dealer, into a banker's hands. It might be two months going the round, but it then returned to float again through the country. If there had been really an absence of capital, as alleged by the right hon. Gentleman the Chancellor of the Exchequer, owing to an extensive outlay on railways, and this had been the cause of commercial embarrassment, it would have shown itself in this way. The labour employed in manufactures would have been in a measure supplanted by the labour employed on railways. The inevitable result of the withdrawing so much labour from the production of manufactures, would have been a scarcity of manufactured goods, ending in a rise in the price of such goods. Was that the case? On the contrary, the universal complaint was, that manufactures could not be sold except at a price ruinously low. So that the absence of capital in relation to manufactures, and the excessive outlay on railways, both proved insufficient causes for our commercial embarrassments. To illustrate the truth of the position that a deficiency of capital raised the price of an article, he (Mr. Cayley) would cite two instances which had occurred during the last few years in the United States. The two or three years previous to 1837 were years of great speculation in that country. Agriculture was neglected—almost deserted—and the result was a rise in the price of corn from four dollars the barrel to eight and ten dollars the barrel; which continued about thirty months. The other instance was that of cotton. Subsequently to 1839, from the great monetary pressure in England, the price of cotton had fallen in 1843 to about half what it was in 1838, so that it became more profitable to cultivate maize, sugar, and coffee rather than cotton. From this cause our cotton manufactures have lately been suffering from a scarcity of the raw material of these fabrics, and a rise in its price. The Chancellor of the Exchequer, therefore, had not given a satisfactory or a real solution of the difficulties with which the country had been surrounded. The cause of them had been much more truly and clearly traced in a memorial of the merchants, bankers, and traders of the city of London in June, in which it was stated, as was the fact, that whatever might be the effect of railways, no serious pressure existed in the country before April, when the Bank, owing to its resources being so low, and its fear of trans- 476 gressing the limit of the Act of 1844, had applied the screw so rigidly as that for a short time all accommodation was refused. This was the origin of the panic; and this pressure the Bank was compelled by the Act of 1844 to produce, when it had somewhere about 10,000,000l. of gold in its coffers—while at this very juncture it refused to advance its notes even upon silver, although applied to in two separate instances to do so. The short history of our difficulties was this. Gold left the country for corn so rapidly in the spring, that after supplying the Chancellor of the Exchequer for his deficiency bills in April, the Bank of England found its reserve of notes so low that it was compelled to borrow money. The moment, however, it was discovered on the Stock Exchange that the Bank was doing this, all confidence in the Bank to support mercantile credit was gone, and a general discrediting of commercial paper, and a panic ensued. This panic gradually subsided before the appearance of fine weather in May, which promised a plentiful harvest and a partial cessation of the drain of bullion. But the same cause produced such a fall of prices in corn during the summer, that the corn merchants, who had speculated in the expectation of corn sustaining its price, began to fail. This disaster, so slight was the confidence which had as yet been regained by the mercantile body, produced a repetition of the panic, which resulted in such a suspension of all confidence, that bills of exchange, which usually form about eight-tenths of the circulating medium, became unmarketable, bank notes were hoarded by all who could lay hold of them as a shield against unforeseen contingencies; while the limited amount of bank notes remaining in circulation, had also to do the work of bills of exchange, which had ceased to be current. No wonder then that the scarcity of notes was real and intolerable. The floating capital of the country, as represented by bills of exchange, was palsied as if by a passage of the electric fluid; the Bank reserves were again so low, that the limit of the Act of 1844—the Gorgon's head—again showed itself, and turned everything to stone: and what was yesterday living, active, buoyant, floating capital, was to-day turned to a lifeless, shapeless mass of unmeaning lumber. The pressure on the mercantile body might be illustrated in some degree by a round game at cards, where each person had, say, two dozen counters at the beginning of the 477 game assigned to him on the condition that he replaced the same number of counters at the end of the game. But in the middle of the game comes some strong man, and forcibly abstracts half the counters, leaving the conditions of the game the same, viz., that each person should replace his two dozen counters at the end of the game. It was clearly impossible that all could do this; but the richest could, at a great sacrifice, obtain their two dozen counters; the poorest must suspend payment: and yet all might have remained solvent if the original condition of the game had been fulfilled. Just so had it been with the mercantile body during the pressure—the counters which they had at the commencement of their adventures, were abstracted before the conclusion—how, therefore, could they be blamed for not fulfilling their engagements? It was only wonderful how many had stood their ground. Just as well might a Member of that House expect to make a fluent speech, who was told five minutes before he rose, that he would only be allowed the use of half the letters of the alphabet. Such had been the results of a system which was called sound and stable, and which to secure the convertibility of about 10,000,000l. bank notes into gold, had sacrificed about 300,000,000l. of property. Were we to suffer the possibility of a recurrence of so blighting a state of things? Was it unreasonable on the part of the mercantile community, to expect a suspension of the fatal limit of the Act of 1844, until the Committee reported? That suspension, in a substantive form, would by himself, or by some more competent party, be shortly moved. And he did trust that those Members who had really the interest of the productive classes at heart, would support that proposition: he thought in common justice, they could do no less than afford general grounds of confidence, that henceforth there should be secured to the productive classes an atmosphere in which commerce could breathe, in which industry could thrive, and labour live.
§ Debate adjourned to Thursday.