§ On Motion that the Bill be now read 2°
§ MR. GLADSTONE
said, there were two points to which, as they had escaped notice in the previous debates, he wished to call the attention of his right hon. Friend the Chancellor of the Exchequer; a course which, the House would see, was perfectly consistent with the beneficial understanding arrived at on Friday night as to the general discussion of the measure. One of them was a question which might be said to relate to the wording of the Bill; but it was one which it would be most convenient his right hon. Friend (the Chancellor of the Exchequer) should have the opportunity of considering between this time and going into Committee, rather than postpone its consideration until the House was actually in Committee. It respected the manner in which the first clause of the Bill had been drawn. That first clause was intended to confirm all the issues of Bank of England notes made by the Governor and Company of the Bank, and it went on to provide that all acts done in relation to such issues, and to the acquiring and taking securities in the issue department, should be confirmed and made valid. He spoke subject to correction, of course, if it could be shown that there was a stream of authority 275 the other way; but there appeared something anomalous, and which under given circumstances might prove inconvenient, in a direct indemnity from this House to the Governor and Company of the Bank, so framed as to include acts in regard to which the House knew nothing, the Governor and Company of the Bank not being a public body in the sense of being responsible to this House. The objection, which he took, seemed to be founded on principle, and if it were founded on principle, the mode of carrying it out was one that might be adopted without the slightest inconvenience. He would suggest that they should interpose a public body, responsible to the House between Parliament and those neccessarily undefined Acts—undefined, so far as the Bill was concerned; and the object sought would be gained, if, instead of indemnifying the Bank in regard to all those acts of which the House had no evidence before it, Parliament were to provide that the Bank should be indemnified in regard to all acts done by them in this matter which should have received the certified approval of the Commissioners of the Treasury. The Commissioners of the Treasury were a public body, were responsible to Parliament, and to give an indemnity for that which they should approve would, he thought, he both regular and convenient. The other point he wished to mention was one to which he was afraid it was unfashionable to refer, for in these days the representatives of a great commercial people seemed to stoop, when they asked a question relating to money. This, however, was one of that kind, and he certainly did not wonder that it had escaped the attention of the Chancellor of the Exchequer in the discussion on Friday night, considering the many other grave and important questions then before the House. But the question he wished to put, and which his right hon. Friend would probably be kind enough to answer, either now, or to-morrow, or on a future stage of the Bill, as might be most convenient to himself, related to the profits of the issues which had been made. The question divided itself into three parts. The first was, whether, in principle, it was understood that the profits of those issues would go, not to the Bank of England, but to the Government. In his opinion, those issues were, strictly speaking, public money, resting upon the security of the public faith. And he confessed he was even sorry that the form had been observed of 276 transferring securities against these monies in the issue department of the Bank, because it rather tended to oh scure the truth of the case, which was, that these were monies issued just as much as Exchequer bills themselves, upon the faith of Parliament. The first question then was, were the profits of those issues the profits of the public? The next question was, how these profits were to be computed, because there had been a great deal of discussion upon that subject, and he was anxious to know, on principle, though the amount was not large, whether the public were to receive the profits of issue or of discount. The profits of issue were generally computed by the Bank of England at about 1 per cent., whilst the profits of discount stood at 10 per cent. It was a matter of some interest, therefore, to know which of those rates it was whereof the public were to have the benefit. The only remaining portion of his inquiries was this. In his speech the other night he understood his right hon. Friend the Chancellor of the Exchequer to say that strictly speaking the amount of the issue made was the amount of issue which had gone forth to the public. He (Mr. Gladstone) confessed that he was rather disposed, taking that as a verbal proposition, to question its terms. It appeared to him, on the contrary, that 3trictly speaking the amount of the issues was the amount which proceeded from the issue department; and when the question of profits came to be settled, he should wish to know whether those profits would be calculated on the amount of the issues made from the issue department, or only on that part of the issues which had gone forth into circulation amongst the public over and above the whole of the legal issue. He was afraid that a measure of this kind was, as had been said of strife, "like the letting out of water," and that none of them could tell to what extent the practice might go; at any rate, it was their duty, as representatives of the people, to have a clear understanding with regard to these profits.
§ SIR HENRY WILLOUGHBY
said, he was aware that some understanding had been come to at the conclusion of the debate on Friday night, and although he had no share in it, yet knowing the very little good to be derived from a lengthened currency debate, he, for his part, had no wish to depart from the arrangement then made. Leaving the general question of the currency law, he was anxious to make an observation or two, which were sug- 277 gested by the Bill which the House was now called upon to read a second time. They were about to pass a Bill of Indemnity upon what he thought was very slender evidence. That evidence was, in fact, what was, certainly, a very clear and lucid statement of the Chancellor of the Exchequer and certain correspondence between the Government and the Bank of England. What were they called upon to do by the Bill? He did not understand that either the noble Lord at the head of the Government or the Chancellor of the Exchequer had committed any offence. All he gathered was, that they had written a letter requesting the Governor and Company of the Bank of England to violate an Act of Parliament and commit a misdemeanor, and for which they were entitled to indemnity. Now, he did not question for one moment that they were entitled to an indemnity; but what he wished to ask the Government was, whether they were in possession of information to show that there had been any unfair action upon the currency of this country? He did not ask this question without very good reason. There was evidence upon the table of the House, given by a gentleman than whom no one was more competent to give it—he meant Mr. Chapman—to the effect that it was very possible that an improper action might be produced upon the currency by a speculator, and at page 471 of that gentleman's evidence he mentioned an instance where a capitalist was described as selling Consols to the extent of one or two millions sterling for bank-notes, and that at a moment when the circulation was low—a circumstance which it was clear might well aggravate the pressure on the Bank of England. What he wanted to know, then, was whether anything of this kind had come to the knowledge of the Government as having recently occurred, and whether there had been fair play on the Bank throughout the whole of the recent panic? He put this question with the more determination, because it did happen that in one of the ablest journals of the day there appeared, on the 17th of November, a letter, written by one of those anonymous correspondents who had so much influenced the Government, and the real value of whose opinions he should be better able to measure if they attached their names to them, in which it was distinctly averred that certain provincial joint-stock banks, acting in concert with some great bill discounters in London, had produced such an action on the currency. 278 It was most desirable that the House should be informed what that action had really been during the months of October and November, and he believed the evidence was to be easily procured. He held that before sanctioning a Bill of Indemnity, it was the duty of this House through a Committee to ascertain the facts of the case, in order that Parliament might thereby be enabled to exercise a full and fair judgment upon the subject. It was impossible to exaggerate the importance of the matter, if there were any foundation for the statements that had been made. He had no wish to press for a Committee upon the currency question generally; but he did think that if through the medium of a half-dozen Members of the House they could obtain a record of the facts, such a measure would be exceedingly advisable. Already they had upon the table the evidence of able men to show the possibility of such occurrences as he had referred to taking place. He asked the House, therefore, to pause before they passed a Bill of Indemnity without inquiring how this pressure had been induced on the Bank of England. Had that institution received fair play? Had there been any attempt made to place it in such a position that the Government, seeing what had happened, had no other alternative than to pursue the course they had adopted, and recommend a violation of the law? Sufficient was known to justify him in saying that very great pressure had been brought to bear upon the Bank of England by individual houses. True, that might have been in the course of business; but it was, no doubt, in the power of two or three great capitalists to avail themselves of their finances, at the critical moment when the circulation was low, to act upon the Bank, and do great injury to the interests of the public. He repeated that he would not enter upon the general question of the currency; he contended, however, that they were about to pass a Bill without an accurate knowledge of the precise circumstances which had rendered a suspension of the law necessary. A mere statement on the part of the Chancellor of the Exchequer, let that statement be as lucid as it might, was certainly not sufficient ground, because the right hon. Gentleman was one of the parties who required indemnity. In like manner the statement of the Governor of the Bank, clear as it was, did not go into the circum stances which had induced the pressure. He therefore called upon hon. Members to 279 ask themselves the question, whether, if there were the slightest suspicion of anything like unfair action upon the currency by means of combination or conspiracy of any kind, it was not their duty to inquire and ascertain the facts. Perhaps the right hon. Gentleman the Chancellor of the Exchequer would not object to some evidence being taken upon the subject before the Bill passed through Committee, for a more important question could scarcely require his attention.
§ MR. CAYLEY
said, that, although he had been no party to the arrangement which had been come to a few nights ago,—namely, to postpone all further discussion upon the subject of the currency to Friday next, he by no means wished to disturb that arrangement, which he had no doubt was a very proper one; but he wished to direct attention to some of the grounds which had been put forward by the Bank of England as rendering necessary the suspension of the Act of 1844. He entertained no objection to the letter which had been issued to the Bank by the First Lord of the Treasury and the Chancellor of the Exchequer sanctioning that suspension. On the contrary, he thought with the right hon. Gentleman the Member for Oxfordshire (Mr. Henley) that Government would have deserved impeachment if, under the terrible circumstances which had come to their knowledge, they had not come forward and used all their power for the protection of public credit. He must complain, however, that both in Her Majesty's Speech and in the correspondence with the Bank unjust imputations had been thrown upon the banking and commercial classes of this country with reference to the causes which had produced the monetary crisis. It had always been the custom of leading public men, who had had a share in the establishment of the present law, to attempt, under circumstances like the present, to throw the onus of responsibility upon the commercial classes; but it was really the system that was to blame, and he protested against the commercial classes, who had difficulties enough in the ordinary course of business to contend against, being made responsible for the vices of the system to which these periodical convulsions were to be attributed. The Directors of the Bank of England stated in their second letter that they thought it worth while to enter into a history of the events which had transpired in the fortnight previous to the issue of the Government letter, and 280 accordingly they began with the 24th of October, and observed that the failure of the Liverpool Borough Bank had produced a state of great commercial discredit. Now, he (Mr. Cayley) did think that it was hardly fair, in furnishing a history of these transactions, to give the go-by to the events which had immediately preceded this fortnight. Thus, there had been a long-continued drain of bullion to the East and to the Continent, the effects of which were aggravated by the general suspension of cash payments in, and prospective drain of bullion to, the United States of America. Liverpool was connected closely with the trade of the United States; and therefore, without knowing anything whatever about the management of the Liverpool Borough Bank, he must say that, instead of the conduct of the commercial classes constituting a cause of these commercial convulsions, he was only surprised, considering the close connection of Liverpool with the United States, that the catastrophe was not greater than it had been. Coming to the 5th of November, the Directors stated that the condition of things was such that they felt themselves obliged to raise the rate of discount to 9 per cent, and on the 10th of that month to 10 per cent. Surely such a condition of things as this was calculated to give rise to alarm in the commercial world. Had there been, for a considerable time previous, undue speculation, the Gazette would have demonstrated it by individual over-speculators and those who traded upon insufficient capital going to the wall. Every week, in ordinary times, we were in the habit of seeing in the Gazette a certain number of failures of the sort. But the state of things which prevailed under a drain of bullion, and consequent diminution in the Bank reserves, showed that some general, not individual, cause was in operation, and was such that if the drain went on long, as it did in November, it was impossible for any commercial man to be free from apprehension and danger: for when that state of things once began, under our present system, no one could say where it would stop. Such was the apprehension felt under these circumstances, that on the 10th of November, and a day or two before, a rush and demand for money | were made by all the first banking and commercial establishments, which rendered it impossible for any source of currency to supply it to the ordinary class of traders. Was the House aware of the extent of the call for the legal tenders by the depositors of the various banks and other holders of 281 money? A calculation had been made which showed that the money virtually at call in this country amounted to something like £200,000,000 sterling. If, then, the Government had not written their letter of the l2th of November, he should like to know what commercial house or bank, not excepting the Bank of England itself, could have stood against the pressure; for who could pretend, when the pinch came, that £200,000,000 could be paid by the £8,000,000 or £10,000,000 in the Bank vaults. The whole system was based on sufferance and confidence, and yet the law was such, that confidence was perpetually shaken or undermined and destroyed by it. After detailing all these circumstances, which were sufficient of themselves to create a panic in the public mind, the Bank Directors went on to state that the continental drain for gold had ceased, the American demand had become unimportant, and there was at that time little apprehension that the Bank issues would be inadequate to meet the necessities of commerce within the legalised sphere of their circulation; but that upon this state of things the failure of the Western Bank of Scotland and the City of Glasgow Bank, and a renewed discredit in Ireland, supervened, causing an increased action upon the English circulation by the abstraction in four weeks of upwards of two millions of gold. This was on the 10th of November, two days before the issue of the Government letter, when, as the Chancellor of the Exchequer had told them, there was no one discounting but the Bank of England; and was not that a state of things sufficiently pressing to cause a suspension of really solvent firms? For his part he did think that the House ought to sympathize a little more than they did with the commercial classes of the country, who had always plenty of difficulty to contend against in the regular course of business without their calamities being made responsible for a system under which, at times, trade could not be carried on, as had been proved on two or three occasions by the suspension of the law. The Bank Directors also spoke of the failure of the Scotch banks as if it were not to have been expected, and was a matter of surprise But he would ask whether the Bank of England had no notice at all that the Western Bank was in a critical position. He apprehended rumours must have reached the Bank Directors full ten days before to that effect. They then 282 went on, in a remarkable passage, to observe that the drain to meet the demand from Scotland and Ireland was in its nature sudden and irresistible, and acted necessarily in diminution of the reserve. Sudden and irresistible! What would a Court of Bankruptcy say to such an excuse from a merchant? What would this House say? What would the Chancellor of the Exchequer say? He (Mr. Cayley) would like to know how the merchants trading with the United States of America could have expected the entire suspension of cash payments in a great country? No doubt the suspension of cash payments throughout the United States had acted upon them in a manner sudden and irresistible; and he contended that that suspension would have formed a better, a more business, a truer plea than the language used by the Bank Directors and by Ministers in the Speech from the Throne, for the disasters which had occurred lately in this country. Under existing circumstances, however, the noble Lord was perfectly justified in issuing the letter to the Bank; indeed, it would have been infatuation in a Minister to have adopted any other course. The impossibility of working the present system, when confidence was once disturbed, as he had said, arose from the fact that there were loans at call upon the banks and others, through their deposits and notes, to the amount of probably two hundred millions which all stood engaged to be converted into legal tender, but which could not be done, because there might be no gold in the country, or because the gold might be diminishing so fast that panic supervened, and a state of collapse threatened, while the system was ruthlessly running its course. And while attempting to arrest this state of things, which the Bank did with as much skill and courage as mortal could do, what happened? During the few days before the Government interfered, many commercial firms of high standing were brought to ruin. In the present instance it was said that eighty-five commercial houses, representing a capital to the extent of £45,000,000, had been brought to a suspension of their business. Now, as his right hon. Friend the Member for Buckinghamshire (Mr. Disraeli) asked the other night, why should there be a distinction drawn between those houses that had failed before the issue of the Government letter, and those that would have failed probably in the course of the 283 following week had the Government letter been delayed so long? For it was quite clear by the progress of events, that these victims had been held to an impossibility. But the victims had always been made the scapegoats by the ruling powers on these occasions. The crisis of 1817 was said to have been occasioned by the transition from war to peace in 1815, as if peace brought want instead of plenty in its train. Mr. Tierney, in 1817, said that the national miseries had arisen to a point wholly without precedent since the Norman Conquest; but he (Mr. Cayley) could not understand why that should have been the state of the country when we had ended a great war, or why as great calamities had periodically occurred since, unless there was something erroneous in our system. A crisis at another period was attributed to over population by one party, and to over production by another, as if these two causes were not calculated to neutralize each other. The crisis of] 825 was attributed by the noble Lord the Member for London to the failure of some 700 or 800 private banks. He believed that not more than about 125 private banks failed in that year, and it should be remembered that they paid 17s. 6d. in the pound. In order to get rid of these banks we had joint-stock banks established. Then, the crisis of 1836 was attributed to joint-stock banks; but a remarkable man who arose at that time, Mr. Cobden, stated in his evidence before the Bank Committee of 1839 that the Bank of England was answerable for it, and he was loud in his denunciations of a state of things which made the Bank of England the arbiter of every man's fortunes. The Bank of England, however, was a mere instrument of the law. He did not think that the Bank of England was to be blamed for the course which it had pursued during the last few months. They were told by Sir Robert Peel that the Bank of England was a private bank. He (Mr. Cayley) knew not whether it was a private or a public bank, but if it was a private bank, and its circumstances were such as they were represented to be by its own Directors, in a late return, namely, a reserve reduced to something like £900,000, on the 11th November, and about £500,000 on the 12th, for all its branches, with deposits exceeding £19,000,000, it was not for the Bank of England to throw stones at joint-stock banks. The crisis in 1847 was attributed to railroads and over specu- 284 lation, while for that of the present year the joint-stock banks and over speculation were said to be responsible. Over speculation was always thrown in as a plausible makeweight. The commercial classes were told that they ought not to enter into the adventures in which they were engaged; but what was trade itself but an adventure? If profits were certain, all then would trade. The position in which the commercial classes were placed by our present monetary system might well be compared to that of a party engaged in a round game of cards, a given number of counters being provided to each player, who, at the end of the game, was forced to make up his full number of counters. But suppose the master of the house suddenly snatched away half the counters, and still compelled the players to make up the full number—which was physically, impossible—was not that the state of things under a drain of bullion? They were continually hearing praises in that House of the present system, and declamation against paper; but he defied them to act upon it strictly at all times. He was ready to admit that the Bank had acted on the present occasion both generously and vigorously, and that they fully deserved the thanks of the country. But he would ask, was a system which insisted upon all the gigantic liabilities of the country being convertible into bullion, when no bullion might be there, a correct one? He (Mr. Cayley) wanted no expansion of the legal tender; he should be satisfied with less than on the average existed, provided it was uniform in its amount. All the various crises which had ever happened in this country arose from oscillations in the base of our currency and contractions in its quantity, which necessarily made the superstructure totter. At any rate, if the system were correct, it ought to be carried out to its fullest extent; if not, it ought to be altered. He must complain of words introduced by Ministers into the Speech from the Throne, in which it was stated that the Government letter was issued on account of the distress occasioned by the recent failure of joint-stock banks in Scotland and elsewhere, instead of stating, as it ought to have done, that it was in consequence of the drain of bullion to the Continent and to America, which had raised the rate of discount at home, and thus produced general alarm, and which, if it had been allowed to go on, would have ended in the total suspen- 285 sion of cash payments. He saw several Directors of hanks present, and he asked them if they admitted the truth of those serious aspersions which had been thrown upon joint-stock banks, not that he wished to stand up altogether for the mode in which those banks transacted their business. It had been said in another place that those joint-stock banks now held deposits on call, or at such short notice as to be virtually on call, to the extent of £35,000,000 sterling, the greater part of which was out in the discount of bills of exchange. Now, this statement, if true, and he believed it was true, was calculated to produce serious alarm; but he did not think the Directors of the Bank of England were exactly the parties to complain, unless it was that, as they paid no interest upon their deposits, they might perhaps have conceived some animosity against the joint-stock banks who did, and so attracted some of their depositors from them. But he would like to know, if the directors of the joint-stock banks had not offered a high rate of interest on deposits during the last three months, how many more bank-notes and sovereigns in this country would have gone to hoard? Nothing could be more disastrous in a monetary pressure than a system of hoarding; and if there was one thing more than another which had prevented a part of the circulation of this country from going to hoard, it was the high rate of interest which all through this panic had been offered by the joint-stock banks. He did not know that he need go into the general subject here; he understood they were to have another discussion upon it, and he would reserve his views on the general question for that opportunity; but he had risen to testify his disapprobation of the course which had been pursued of throwing the blame of the recent criais, and other monetary crises, upon the mode of conducting the commercial affairs of the country; as if the merchants and manufacturers of this country had lost that astuteness for which they were so famed; and seeing so many commercial men present he wondered that none of them had risen before this time to disclaim the insinuations that had been thrown upon their class. For himself he wished to state that he did not want an extension of the currency. He did not care whether the limit of the legal tender was £14,000,000, or £16,000,000, or £20,000,000. What he wanted was, that something should be 286 made a legal tender that would be available at all times to the commercial classes of the country as a medium of domestic interchange. But they told him that that would be inconsistent with the convertibility of the bank-note. No doubt it was, according to the present system. They adopted a system which obliged the Bank to buy gold, however plentiful it might be, at a given price. The Bank took a large quantity, and then the consequence was, that it had an immense amount of notes in reserve—sometimes as high as £14,000,000 or £15,000,000. What was the Bank to do, if they were to consider themselves only in the light of private bankers? They went into the market and competed with the other banks in thrusting accommodation upon trade, and a very few months had elapsed after the passing of the Act of 1844 when the rate of discount was actually lowered to 3 per cent by the competition of the Bank of England with the other banks. Now, what was the natural course of things under those circumstances? The low rate of discount made money easy, and the manufacturers and others finding money easy entered into great speculations and gave great employment to labour, and raised the rate of "wages. High wages increased consumption—that raised the price of food; that again gave a stimulus to imports; the increase of prices raised an obstacle to the increase of exports, and then, when the country had got into the unsatisfactory state of a diminution of exports and an increase of imports, a drain of gold was the natural consequence, and how was that to be stopped? Under the present system there was no means of stopping it but by ruining our manufacturers and commercial men. Foreign merchants found our goods too dear, but gold was always at the same price; and, therefore, they took away the gold, and when it was away it could only be brought back again by forcing our manufacturers to part with their goods at prices which were absolute ruin to them, as the only means of obtaining the means of meeting their engagements. The country ran through this vicious circle every eight or ten years, but still men cried up the system, though he believed it was the system, and the system only, that was to blame. It was not to be supposed in these boasted days of intellectual advancement that our commercial classes, or bankers, were not as intelligent and sagacious in the pursuit 287 of their calling as they ever were. They would not trust now more than they ever did any man without some security. He believed Lord Overstone stated to the Committee of last Session that he had, as a banker, been in the habit of trusting men without security, and that he had made his fortune in that mariner; but he would like to know what the Chancellor of the Exchequer would say to any firm that came to him for assistance in a monetary crisis, who it appeared had been lending its money without security? He must say that, having paid long and anxious attention to this subject, he felt heartbroken to see these periodical convulsions taking place, not from any inherent failing in the high qualities of that Anglo-Saxon race of which our commercial classes were composed, but which arose—it might be seen as plain as the sun at noonday—from that vicious circle in which the low rate of discount which shortly supervened after a monetary crisis stimulated speculation, and the employment and temporary prosperity of the working and commercial classes, the increased consumption arising out of which drove the gold abroad, and then, with malicious forethought, was brought about commercial ruin in order to get it back. He had seen that circle run over and over again of late years; and he had repeatedly in Committees put the question to the Governors and Deputy Governors of the Bank. Did not the system mean this, that if the gold had gone abroad, the only means of getting it back again was, by putting on (he screw, to compel the English manufacturer to sell his goods at a ruinous price in order to induce the foreigner to buy them with the gold which was thus brought back again? He thought it was really high time now that they should substantially inquire into the system rather than into the mere mode of working it. Were these catastrophes necessary? His firm belief was that they were not, but perfectly gratuitous. Right hon. Gentlemen opposite always appealed to gold as a natural standard of value. But was gold at £3 17s. 10½d. per ounce such a natural standard? A standard of value was in nature; but gold had nothing in it by nature to constitute a standard. The only natural standard was explained centuries ago, by no less a man than Aristotle, who laid it down that the real standard of value was want, necessity, or the demand for things arising out of human craving or taste. Thus the general 288 demand for food, clothes, or shelter, constituted value, and the degree of value consisted in the rates of the demand or necessity for them; at least of all such things as Providence did not gratuitously supply. Demand was thus the origin of trade and standard of value. Such being the standard, labour was the measure; for it depended upon the amount of labour employed in producing objects of demand what should be given for them, that is, how many days' labour. Of this measure—labour—gold was the conventional representative merely. But in this country it had only been so since 1816, when Parliament prescribed that the pound sterling should always consist of so many grains of gold. Anterior to this, that is, before the Bank Restriction Act of 1797, the pound sterling was constituted of the coin of the realm—gold or silver—and if worn, it was seldom, if ever, exported; and thus a legal tender was preserved. But now this coin was nothing; and, the sovereign being of full weight, the slightest change in the foreign demand for it caused it to flow out, and leave us without a base for our currency. Trade, we were told, was a state of barter. It was all very well to say so, and it was true as regarded our foreign transactions; foreigners cared nothing for our coin or currency. But at home we had an artificial and complicated credit system, which required always the presence of a legal tender to liquidate them. Let it not be supposed he wanted to expand the amount of the legal tender. He wanted nothing more than this, that we should have a legal tender that did not vary in quantity, one on which our commercial classes could always depend on finding when it was required. Now, when most wanted, it had gone to some other country. What we really wanted was a steady unfluctuating base for our credit system, which our present law did not afford; at times we had virtually no base of value. In easy times our system worked well enough; paper floated freely, our manufactures went out, and gold came back; but directly an adverse exchange arrived it became difficult, and next to impossible, to realize the liquidation of transactions for want of a medium to do it. He was far from wishing to dogmatize or to dictate on those points, but really those convulsions now happened so periodically and so frequently that he thought they ought to arrest the attention of every man in the country. It was so far satisfactory, that neither the noble 289 Lord the Member for London, nor the noble Lord the Member for Tiverton, was prepared to push this system to its extremest limits. But there were men in the country who held very different language. There were writers in powerful public prints, supporters of the general policy of the noble Lord, who held different language, and who were discontented with the noble Lord because he had not carried out their principle to the full; they wanted a rate of 20, 30, or even 50 per cent to be exacted before the noble Lord interfered. Indeed, they would not have the noble Lord to give way at all—perish commerce rather than yield up a crude pragmatical dogma. Now, suppose such a man had been at the head of affairs in the recent crisis—Mercator, for instance—was it right the country should be left to such a chance? There would have been one universal collapse over the whole country, and not the Bank of England only, but every commercial establishment, would have been compelled to suspend amidst immense real wealth, in the vain effort to make the minor comprehend the major. That was the reason why he was opposed to the present system—it was impracticable; it could not be carried out, but in the attempt to carry it out, hecatombs were fruitlessly sacrificed. His own opinion was, that it was not the banking system which produced these periodical convulsions, but the system by which the banks were governed. They asked the commercial classes to do that which, when the commercial atmosphere was clear, they could do; but the moment there was "a cloud no bigger than a man's hand," then came the difficulty—then came the pressure and the panic, and the commercial classes could not do that in the hurricane which was possible in the calm. What he wanted was, that all liabilities in the country should be convertible into some legal tender. He did not care whether it was gold or not—they might make it dearer if they liked; but he insisted that the counters should not be allowed to disappear at the very moment when they were wanted to fulfil the conditions of the game. Therefore it was that he was opposed altogether to the present system. With regard to the present Indemnity Bill, while he approved of its object, he should have been better pleased if the interference could have been earlier, and if more sympathy had been shown towards the commercial classes, and if the 290 convulsions had not been entirely charged upon them and the joint-stock banks, seeing that this terrible visitation had been more probably proximately brought about by the frightful state of mercantile suspension in that country which was our largest customer; coming, as that suspension did, at the heels of a long-continued drain of bullion, which had previously created alarm from the dread of the base of our circulation being entirely withdrawn, and of there being left no legal tender wherewith to liquidate our hundreds of millions of commercial and other liabilities. We had got our notions so embedded in the groove of the virtues of a metallic currency, that we had come to take for granted that it was a virtue in a metallic currency to fluctuate in quantity, instead of a vice, which it was; just as it would not be a virtue, but a vice, in a standard measure of capacity or length, to expand or contract with every variety of temperature. And we must needs persuade ourselves that it was necessary to imitate that vice in our mixed paper and metal system. Whereas it was nothing but a vice so far as trade was concerned, and so great a one as to make it doubtful how far the metallic system, as at present constituted, was worth the price this vice made us pay for it. It was this vice that lay at the bottom of all our present trouble, and it was worth the best attention of the House to correct it.
§ MR. CONINGHAM
said, he did not rise to oppose the Bill of Indemnity—far from it; he thought the country was highly indebted to the noble Lord at the head of the Government for the manner in which he interposed at a critical conjuncture, and relieved the country from a crisis which threatened it with a frightful convulsion. He regretted only one thing, and that was, that the Government had not gone beyond a mere Bill of Indemnity, and proposed to abrogate the law of 1844, which, though not the cause of the recent commercial distress, had yet most seriously increased its severity. He listened attentively, the other evening, to the clear and lucid statement of the Chancellor of the Exchequer—the diagnosis of the disease; and he thought the right hon. Gentleman gave up the whole case for the Act when he admitted that the panic was produced by the attempt to limit the issues of the Bank. The argument of the noble Lord the Member for the City of London, who had the other night declared himself to be the warm advocate of the Bill 291 of 1844, and indulged in some declamation upon the great principles of the currency, was surprising. He referred to the three great panics of 1825, 1847, and 1857. In 1825 he admitted that the Bank was run out to within £100,000 of its last sovereign. But what was the remedy applied then? Why, the noble Lord admitted that it was the issue of paper. That restored confidence, and gradually brought back the gold to the coffers of the Bank. In 1844, the Bill of Sir Robert Peel passed. That illustrious statesman took up the theory upon which it was based too hastily; but that theory was based on a fallacy, which sooner or later must be exploded. Well, three years after, in 1847, another panic occurred, and what again was the remedy for it? Not the restriction of the paper circulation, but its extension. Again, on that occasion the remedy did not fail. In 1857 another panic occurs, and again there was no restriction, but an extension of issues, and he for one only regretted that there should have been any check placed on the larger and further extension of the paper issues of the Bank by depriving the Bank of the profits arising from it. To show to what extravagance theories might be carried the Chancellor of the Exchequer had quoted the opinion of a Governor of the Bank, who stated in his evidence before one of the Committees, that the remedy for panic was—what? why, not relaxation, but the contraction of the issues, though he doubted whether it was worth while to apply the remedy. He (Mr. Coningham) thought it behoved the country to take this matter into its most serious consideration. It was not merely the truth or falsehood of a theory that was at stake, but it was the very existence of a large number of fellow-subjects which was compromised by the attempt to carry out a theory, which, he repeated, was based on a fallacy. It was perfectly certain that the only check, the only necessary check, to limit the issues of the Bank was, that the notes should be for not less than a certain sum and payable on demand. It had been clearly shown that while such a security was enforced, bank-notes did not necessarily influence exchanges or prices, and that being so it was of the utmost importance to the trade and commerce of the country that, in times of panic, there should be a large extension of its issues from the Bank of England.
§ MR. MALINS
said, the Bill met with 292 his cordial approbation, and he thought Government deserved great, praise for having issued their letter of the 12th of November. He only regretted they had not done it sooner; and he could not omit taking this opportunity of expressing his regret that the Government had failed in the great duty they owed to the country, by allowing Parliament to separate last Session without arming themselves with the power of meeting this emergency, which to his mind was, even at that time, clearly impending. His professional engagements did not permit of his giving the same attention to those questions which might well be exercised by commercial men. Yet he did warn the Government of what was coming so early as February last, and again in May, at a time when the reserve of notes was reduced to about £3,500,000, and the rate of discount was at 6½ per cent. He then pointed out to the right hon. Gentleman opposite, that if the gold went on diminishing a stoppage was inevitable. How was he met? He was told, as we were always told, that the worst was past—that the danger was over—and that no cause existed for alarm. He was, however, so far from being satisfied that he pledged himself to submit a Resolution on the subject to the House before the prorogation, if, in the meantime, there was no amendment. In June the rate of discount was reduced to 6 per cent; in July to 5½ and the reserve had risen from £3,500,000 to £5,000,000. The consequence was, that, as he knew the apathy with which these subjects were always received in the House, when there was no immediate pressure, be felt that it, would be useless to make his Motion. But now that the disaster had occurred, and general attention was riveted to the question, he hoped the result would be to put a final end to the present system. The right hon. Member for Buckinghamshire (Mr. Disraeli) had already pointed out how heavily the blow fell upon those who had not been relieved in time, compared with those who would have fallen too but for the relief afforded by the Government letter. He, for one, confessed that he was surprised the Government had not thought it proper to interfere earlier. Long before the 12th November there existed sufficient cause for the interference of the Government, and his belief was, if they had not issued that letter, beyond all possibility of doubt the Bank of England would have been obliged 293 to stop payment. It was said they might have saved themselves by stopping discounts; but to stop discounts would be equivalent in the commercial world to the stoppage of the rising of the sun in the natural world. His immediate object, however, in rising was to express his regret at one portion of the contents of this Bill. It was provided that the Bank Charter Act should be suspended for twenty-eight days after the next meeting of Parliament; but then it was accompanied with this reservation, that the rate of discount should be continued at 10 per cent. If the rate fell below 10 per cent then the limit fixed by the Act of 1844 was to be resumed. Now, did the right hon. Gentleman consider what an amount of misery this threw, not upon the large commercial houses, but upon the moderate tradesmen and small farmers who in the course of their business required accommodation? The rate of 10 per cent had reference only to first-class paper; but men with moderate capital and straitened in their means would be required to pay from 15 to 20 percent, and yet their paper, although not first rate, might be perfectly safe. With such a rate of discount, as Mr. Chapman had informed them, no new commercial speculation would be undertaken in any quarter; and what were the small farmers and tradesmen with moderate capital to do? If it was right to have any limit at all, why not preserve the Act of 1844 intact? But now that the attention of every man in the country had been directed to that measure it was seen that the present state of things could not be maintained, and he trusted, therefore, that the right hon. Gentleman would reconsider this part of his proposition and not clog his useful measure with a proviso which would make the Bill no boon whatever to the middle traders in the community.
§ MR. CROSSLEY
said, the hon. Member for the North Riding (Mr. Cayley) had asked why the commercial men had not risen to express their opinions on this subject. Though he had been engaged in commercial affairs all his life, yet he approached this question with great diffidence, because he felt all its difficulties. It was easy enough to find Gentlemen who professed to understand all the ins and outs of the question, but he had not yet reached that climax. He was not, however, ashamed to confess that he was only a learner, and it was very possible that he might hear arguments in the course of 294 this discussion which would induce him to change his mind. From the tone of the speech of one right hon. Gentleman, the Member for Buckinghamshire, it would appear that he supposed that he had got the Government into a regular fix, from which there was no escape, and that because they had violated the laws of the realm without the consent of the Governors and Directors of the Bank of England. What was the Bank of England? It was a joint-stock bank, with certain privileges, and it was very unlikely that that bank would come to Government and ask them to issue more notes when their gold was low. He thought that great credit was due to the Government in having determined to suspend the operation of the Bank Act without compulsion from without. The Government were indeed more awake than the commercial men, for in the north it was never expected that the crisis would have proved so severe as it had done; and all the merchants and manufacturers he knew felt very much indebted to the Government for stepping in at such a critical time and saving the country from the disasters with which it was threatened. It was important to observe that the right hon. Member for Oxfordshire (Mr. Henley), who was a colleague of the right hon. Member for Bucks, was so far from thinking the Government deserved to be impeached for what they had done, that he said they would have deserved to be impeached if they had not broken the law. Hon. Members of all sides of the House were agreed that whatever paper currency we had must be convertible into gold. He did not approve of all the details of the Bank Act of 1844, but he would admit that in the main it had accomplished its objects. It had prevented the excessive issue of paper, and had insured its convertibility into gold—two most important objects. It was said that it lit the candle at both ends, because it restricted the issue of paper when gold went out of the country. This was an evil, but the least of two evils. Suppose that when the gold went out the Bank went on issuing notes. It was quite clear that no alteration in the rate of discount would take place in this country while it was advancing elsewhere, and the drain would go on until we had not a sovereign left. A good deal had been said as to the quarter in which a discretionary power of suspending the Act of 1844 should be vested. Some persons 295 proposed to leave the power of authorising an issue of notes above £14,500,000 with the Government. The hon. Member for Kendal (Mr. Glyn)—no mean authority'—would give it to the Directors of the Bank of England. He had a strong dislike to leaving so much power in the hands of any men, and it would be for the House to consider whether some elasticity might not be given to the Act so as to make it self-acting. It was a great evil that money should be too cheap, as well as too dear. A few years ago discounts were at 2 per cent. Now 5 per cent was about a medium rate, and it might be worthy of consideration whether, instead of leaving the relaxation with the Government or the Bank of England, the issues of £14,500,000 should not be reduced when discounts came below 5 per cent, and increased when the rate of discount rose above that amount. If, as was but too probable, a time should come which no Act of Parliament could provide against, the Government would still be able to resort to the extreme remedy of relaxing the law. He thought that Parliament ought not to allow this opportunity to pass without making Bank of England notes a legal tender in Scotland and Ireland. It was a great evil to see gold leaving London for want of such a provision, on the foolish errand of preventing a run upon the Scotch and Irish banks. There ought to be only one bank of issue, and the Bank of England might as well have that privilege as any other bank, under proper regulations. The Directors of the Bank of England ought to be paid for the trouble they incurred in transacting the Government business; but the entire profit arising out of the note circulation ought to go to reduce the taxation of the country, and should not be enjoyed as a monopoly by any body of men. He was in the United States two years ago, and when a thousand miles west of New York, at Chicago, he found that a short time before there were only eighty-five miles of railway west of that city, but it was expected that within two or three years it would be increased to 5000 miles. He was convinced from what he saw there that too much capital had become fixed in railroads, a great deal of which had gone from this country. The same construction of railroads had gone on in Europe, and it was this absorption of capital faster than it was made which had to a great extent caused the recent crisis. In the long run 296 things would come round, but it was the duty of Parliament as far as possible to remedy the evil and provide against its recurrence.
§ MR. PHILIPS
said, that he differed from many persons, inasmuch as he regretted that the letter of the Government to the Bank had been issued, although he believed that in doing so they did what they thought best to alleviate the commercial distress which prevailed, in discussing this question they ought to look to the causes of what occurred. To him it appeared that the causes of the commercial distress were three in number. First, the action of the wars in Russia and in India on commerce; secondly, the conduct of certain banks at Liverpool and Glasgow; and lastly, the conduct pursued by the great bill-broking houses of the City of London. He, as a commercial man, was grateful to the Bank of England for what they had done in raising the rate of discount a year and a half ago, and he believed that if they had been allowed to pursue that stringent line of policy it would have diminished a great deal of the suffering which now existed. Contrast the conduct of the Directors of the Bank now and in 1847. They never raised the rate of discount in 1847 till the last moment, and even then they did it in a very sudden manner; and what was the result? No less than six of the Directors of the Bank succumbed in 1847 to the difficulties of the times. The Bank, however, stood in happy contrast in 1857 to its condition in 1847. If the conduct pursued by the banks of Liverpool and Glasgow was considered, he believed that the commercial world had good grounds of complaint against them for lending out their means to men of capital, and thus enabling them to enter into all kinds of speculations to the infinite detriment of those who were seeking an honest livelihood and carrying on a sound trade in the same lines of business. He regretted to see the banks in Glasgow calling public meetings in that city, and saying that their misdeeds were only accidents. He only trusted that by no accident would those banks be restored to a position to pursue the same course of conduct. Then look at the system of bill-broking in the City of London. Who and what were the bill-brokers? They were a class of men who received and used the surplus capital of bankers. He (Mr. Philips) did think bankers ought to take care where they placed the money of persons who com- 297 mitted it to their care, or at any rate to keep such a reserve by them as would suffice to meet all demands that might be made upon them. The money pressure in London became so great in the last two months that the bankers felt it would be dangerous to go on any further in this system; but the moment the news was known that the Government had taken a step to relieve the commercial interests, all the speculations in produce received a fresh impetus, and he, as a manufacturer, felt whatever took place that affected the working-classes and those who supported them. He admitted that there had been a fall in silk, wool, and cotton; but had a different course been pursued the effect would have been that instead of mills in Lancashire working short time, prudent manufacturers would have got their produce cheap, and so have been enabled to work their mills full time. But the act of the Government had prevented this, and manufacturers were in a state of uncertainty whether prices would be higher or lower. He was aware, however, that there was only a choice between two evils, and he made these remarks in no spirit of hostility to the Government, who did what they thought best for the commercial interests. With regard to the currency, he held to the opinions of Lord Overstone. He wished to see the working-classes paid in sovereigns, and that there should be no issue of notes except by the Bank of Eng-land, with a reserve of sovereigns for every note. He remembered an incident which took place in Manchester in 1819. Some of the most respectable bankers determined to issue their own notes. On this a meeting of merchants took place, presided over by the late George William Wood, Esq., and a resolution was passed by the merchants of Manchester, that they would return the notes of those banks daily. The consequence was, that the banks did not issue their notes, and although at the time the bankers were annoyed by the conduct of the merchants, in 1825 thanks were given to Mr. George William Wood by the bankers, for the efforts he made to prevent the issue of notes, the effects of which would have been severely felt. He hoped that the banks of Glasgow would see the effect of the course which Manchester had pursued and follow their example respecting the local issue of notes, as, in a country like this, everything depended on the strictest mercantile honour.
§ MR. NEWDEGATE
remarked, that 298 the hon. Member for Bury, who had just sat down, had expressed the opinions of a high authority in favour of the Act of 1844, as tending to depress the price of manufacturing produce. He should have thought that the Manchester men must have found from experience that a forced reduction of price tended to limit production. Great anxiety had been expressed as to the production of cotton. For himself, he could not condemn the act of the Government, if it prevented an unnatural depreciation of the price of cotton, and if it did not tend to check the production of that staple article. He wished, however, to call the attention of the right hon. Gentleman the Chancellor of the Exchequer to the question of the hon. Member for Evesham (Sir Henry Willoughby). The hon. Member had asked whether there had been any direct interference on the part of large capitalists, who, by demanding notes for the purpose of speculation, and then shutting them up, had affected the markets by their operations. The Bank of England deserved great credit for the manner in which it had conducted its business during the pressure, and it was important to know whether it had had difficulties to contend with which it had not formerly had. In the present state of circumstances, when there were enormous masses of capital accumulated in few hands—when it had been proved, by probates of wills and otherwise, that instances were not uncommon of individuals being able to command £2,000,000 or £3,000,000—when there were joint stock banks able to command vast amounts—when there was the one house of Rothschild, with five houses on the Continent, said to be capable of jointly commanding £30,000,000 for acting on the Exchange, it was essential to the public safety that there should be some establishment like the Bank, which, actuated by motives of public spirit and supported by the Government, should be able to meet cases like the present, and thus prevent the monetary and financial position of the country being tampered with by extraneous action. The House ought to know whether any difficulty with reference to these large capitalists had arisen, for if it had, that would be a double justification of the Government for issuing the letter in question, He approved of the issuing of that letter, and thought that the circumstances in 299 which the country was now placed fully justified the course which had been pursued. He thought this question was now ripe for legislation, and he concurred with Mr. Chapman that something of the nature suggested in the evidence he had given before the Committee ought to be done. He thought also some understanding must be come to with the Bank, which should prevent the reduction of the rate of interest at that establishment below 8 per cent. Whatever amount of bullion and of reserved notes they might at any time hold, he was convinced that when the rate of interest was reduced below 3 per cent, that very speculation was stimulated which every commercial man now condemned, and which the monetary laws so severely avenged in periods like that of the present crisis. The reserve of notes ought not to be used by the Bank, if it could be avoided, to reduce the rate of interest to so low an amount as to stimulate undue speculation. Now that capital was accumulating in such large masses, if, according to the proposal of Lord Overstone, the Bank were further limited and the banking and issue departments totally separated—which indeed he (Mr. Newdegate) held to be impossible under our present system of mixed circulation—but if such a separation were effected, and the Bank Directors regulated their discount transactions purely with a view to the interests of their own proprietary, the result would be, one or two of the great capitalists could absolutely command, at all periods of pressure, the rate of discount, and the supply of currency for the country. There could not be a more important question than the state of the currency, because the value of all kinds of property was affected by it The Bank ought to be supported in the course it had pursued, but the Government ought to devise means to guard against the recurrence of circumstances which would give large capitalists an undue command over the currency. He believed that they might safely introduce into the Act of 1844 a principle of elasticity which would probably obviate the necessity of interfering with it in future. It was most unbecoming and most unconstitutional to have a law on the Statute-book which frequently required the unauthorised and extraneous interference of the Government, more especially when it was a law which so deeply affected the 300 value of every man's property as the Act in question.
§ MR. BUCHANAN
said, he would not have interfered in a currency debate if reference had not been made to what had taken place at Glasgow. He hoped the House would grant him its indulgence for a few moments while he endeavoured to put himself and his constituents right with regard to some imputations made against them. He should not have thought it necessary to notice what had appeared in the public prints, but when the noble Lord the Member for London, in the debate on Friday last, said that the people of Glasgow held wild and revolutionary opinions on the subject of the currency, it was high time for him shortly to state what those opinions were. He believed that the opinions of the Chamber of Commerce of Glasgow had been more particularly alluded to. He might inform the House that that chamber was the oldest establishment of the kind in the kingdom; it was founded by gentlemen who were the friends of Adam Smith; it had become a Chamber of Commerce at his suggestion, and it had always been distinguished for the soundness of its opinions on trade and commerce. He felt hound, therefore, to defend it when it was attacked in that House for opinions it was supposed to hold. The noble Lord was too just and too generous to have made such an attack if he had not thought he had grounds for it; but he had taken his facts from the public prints, which was not always the best way of getting at the truth. The first principle which the chamber held on the subject of the currency was, that the paper issue ought to be convertible into gold. They also held that there could be nothing more injurious than an over-issue of paper; and went even further, and held that paper, being convertible into gold, could not be issued in excess. They also drew a distinction, very often lost sight of, between currency and capital. No doubt the derangement of the currency had affected the circulation during the suspension of cash payments, but during the suspension of the Act in 1847, and also in 1857, the circulation remained uninjured, and had not been affected by a rate of discount of 10 per cent. They must, therefore, regard the commercial crisis as one that had arisen from causes affecting credit, and not at all connected with currency. He believed the Act of 1844 had been most bene- 301 ficial so far as it had ensured the convertibility of the note, and had prevented an excess of paper money. To that extent every one must approve of it. He must, however, admit that he agreed with the hon. Member for Kendal (Mr. Glyn), that it had aggravated the present panic, if it had not caused it, and that credit and confidence had been very much affected by the action of the Bank. Men looked at the hand of the dial, they saw the catastrophe coming, and every one prepared himself to meet it, as best he could, by drawing his resources together. Such were the opinions of the Glasgow Chamber of Commerce on the subject of currency and the present crisis. He wished to take that opportunity of noticing the position which had been assumed by Glasgow in reference to the banks which had suspended payment. He did not mean to attempt to vindicate the conduct of the managers of those banks. He admitted that their management had been exceedingly defective, and that they had been imprudent in the highest degree; and if he should have the honour of having a seat in the House when the question of Scotch banking and provincial banking generally was to come under discussion, he would have much pleasure in giving his assistance in amending the system. He felt that there were abuses to be remedied in the Scotch banking system, as, for example, the practice of rediscounting in the London market, the lending on the security of their own stock, the giving excessive accommodation to persons who were not deserving of it, and, above all, the system of keeping very small reserves, or no reserves at all, with their London bankers. He did not feel ashamed of having taken part in a meeting which had been convened in Glasgow, not for the purpose of supporting the Western Bank, but for the purpose of restoring public confidence, and putting an end to a panic in the West of Scotland, which the stoppage of that bank had produced. That was, he felt assured, the object contemplated by the noblemen and gentlemen who had assisted at that meeting. He for one should be glad to see that bank reestablished, because he knew that such a step would be productive of a vast amount of benefit to a large class of individuals. The Members of that House were not, perhaps, generally aware of the many branches of that bank scattered over Scotland, but be felt interested in its fortunes mainly on account of its being the depository of a 302 great amount of family money and family settlements belonging to the widows and orphans who would be affected by its overthrow. He believed that, inasmuch as the partners in that bank were men of undoubted wealth, and considering the severe lesson which its directors had recently received, it would, in all probability, be henceforward conducted on prudent principles, and a vast amount of good might be accomplished by its restoration. It had been made a subject of accusation against him that he had said the ruin of that bank had been brought about by an accident. But it was to the stoppage of the City of Glasgow Bank, and not to that of the Western Bank, that he had applied that language. He should add that he still believed that the former had been overthrown by an accidental combination of circumstances which might have overtaken any banking establishment, and by which almost any such establishment must have been compelled to stop payment. He believed, too, that that bank was perfectly solvent. He would next address a few words to the House on the subject which they had then under their immediate consideration. He thought that the regulation of our currency under the Bank Act of 1844 was attended with great advantage to the country. In his opinion a great public benefit was gained by the convertibility of the bank-note, and the certainty that that convertibility would be maintained. But the process by which that object was obtained was occasionally worked out at the cost of severe suffering to the mercantile community. That would be evident to any one who considered the rate of discount at such a period as the present, and what were the average profits of trade? He believed that those profits were not as high as the present rate of discount, which stood at the minimum of 10 per cent. All permanent investments in this country were made at a rate of about 4 or 5 per cent interest. Now, if they were to have those frequent returns of high rates of discount, it appeared to him that it would be necessary to reconsider the fundamental conditions of all the monetary arrangements of the country. It was impossible that trade could be profitably conducted on its present terms and with the rates of interest which had prevailed during the last few years. It would be worthy of a statesman to invent some 303 means by which the constant recurrence of—he might almost say—ruin might be warded off. Many palliations might be found, and one of these, he believed, was about to be proposed by the right hon. Member for Buckinghamshire—that was, to allow the Bank Directors to step in and relax the stringent provisions of the Act of 1844 whenever they might think it desirable. If that power were committed to the Government it was most probable that it would not be employed until after some of the most eminent firms in the country had succumbed, when the Government might be led to believe that they would be justified in interfering. But if such a discretion were confided to the Directors of the Bank of England, there would exist this great chance for its proper exercise, that the Directors would be in constant communication with the mercantile community, and would be thoroughly acquainted with their position and their requirements.
§ MR. KIRK
said, he was glad to perceive that every one who had spoken upon this subject had agreed on two points—that the bank-note should always be pay able in gold, and that the Act of 1844—having been twice broken—could no longer be maintained. The convertibility of the note, it must be remembered, was not dependent upon the Act of 1844, but upon the Act of 1819. The introduction of the Act of 1844 had not in any way added to the convertibility of the note; and when it was proposed to confer upon the Bank Directors the power of relaxing the operation of that Act whenever they thought necessary, it appeared to him that it would be very much better to abandon the Act at once. He (Mr. Kirk) contended that the Act of 1844 was founded on two fallacies. In the first place it was intended to stop over speculation and over trading—an object which it had signally failed to accomplish; because it was under the operation of that very Act that all the undue speculation and over-trading to which the present panic was to be attributed had occurred. The other fallacy was the supposition that but for some such Act as that of 1844 there would be an over-issue of bank-notes. That that was a fallacy was proved by reference to Ireland. In that country there was a perfect freedom of trade with respect to the issue of banknotes, the only limit being that no note should be issued for sums under £1, or for any fractions of a pound. Was there 304 therefore, however, any over-issue of notes in Ireland? Quite the contrary. It would be as impossible for any bank in that country to issue and to maintain in circulation an undue quantity of notes as it would be to force a quart of water into a pint bottle. The moment an over-issue was made by any one bank the notes passed into the hands of other banks, who immediately called for gold, and insisted upon the convertibility of the notes. Any overissue, therefore, was out of the question. There was one remarkable failure of an Irish bank—namely, the Tipperary Bank; but hon. Members should bear in mind that that was the only bank in Ireland that issued notes not its own. It issued notes of the Bank of Ireland only. That, therefore, was no argument against the position which he had laid down. Although, no doubt, there had been some over-trading in Ireland, there had been no such thing as a crash, and the only reason that gold was required in that country was from the fact of the Scotch banks failing, and that some of their notes had found their way into the North of Ireland, thus creating distrust and a slight run on some of the Irish banks. When capital was abundant encouragement was, as everybody knew, given to speculation; but it did not necessarily follow that the currency increased. The returns of the Bank of England and of the joint-stock banks of England and Ireland showed that when the greatest amount of trade was being carried on (and during the last year trade was carried on to an unprecedented extent), there was little or no increase in the currency, for currency was one thing and capital another. The grand error of the Bank Act of 1844 was to apply an unyielding and invariable rule to that which was of a most fluctuating nature—namely, the currency of the country. Every person engaged in trade, as was well observed by the preceding speaker, took care to limit his transactions whenever he observed a decline in the Bank reserves, upon which he kept a watchful eye. It was supposed that the tendency of the Bank Act of 1844 was to retain the gold in the Bank of England. He spoke in the presence of some of the Directors of the Bank, and they, he believed, would admit that it was by the raising of the price of discount, and not by means of the Act, that that object was effected, because by that process money in England was made as dear as in any other country, or 305 dearer. If the Bank of England had continued to charge a low rate of discount, such as 5 or 6 per cent, when the rate at Hamburg was 9 or 10 per cent, the consequence would have been that the gold in this country would have gone over to Hamburg. The raising of the rate of discount to 10 per cent was the only mode by which it was possible to retain the gold in this country, and the Bank of England acted very properly in raising it to that amount. He thought the Government acted wisely in issuing their letter to the Bank, for if they had delayed that measure for twenty-four or forty-eight hours longer, the Bank of England could not have paid its deposits any more than any other bank in the country. He hoped, therefore, that this Indemnity Bill would receive the cordial and unanimous approval of the House. In reference to what had been said as to the depreciation of Bank of England notes, he would remark that at no time within his memory had there been any such depreciation. He had paid close attention to these matters for several years, and had found that the Act was harmless as long as it was inoperative, and mischievous whenever it was acted upon. He knew that in 1847 it stopped the whole trade of the country, and, in fact, aggravated all the evils under which the country was then suffering. The question seemed to be this,—would the Bank Directors use the necessary caution without the compulsory enactments of the Act of If 44? He, for one, believed they would, and that any Act similar to that of 1844 must necessarily do harm rather than good. He was aware that it was thought to be dangerous to permit joint-stock banks to receive deposits and re-lend them. He was of exactly the opposite opinion. He thought that under good regulations and good management the greatest been to a country was a well-regulated and sound joint-stock bank; because it received the savings of the people which they could not use in trade, and re-lent them at a profit to those who could. That process made the whole capital of the country available for manufactures, agriculture, and commerce. He believed that to undue speculation and over-trading alone was the present crisis to be attributed. That speculation and over-trading began in America, and was fostered in this country. After having given much consideration to the question how it could be best allayed, an idea, which he certainly sug- 306 gested with some degree of doubt, had occurred to him. He thought that, as they put the words "value received "on every bill of exchange, wherever a bill of exchange was drawn, and no value received or accepted, the party so drawing or so accepting should be liable to a charge of fraud. Accommodation bills were a fraud upon the community, and gave the man without any capital at all an unfair advantage over the man who had capital, and who traded honestly. He would require, in addition to the words "value received" at present placed on bills of exchange, that there should he inserted the words "by the drawer," or "by the acceptor," and that all drawers and acceptors to whom no value had really been given should be liable to be prosecuted for the fraud they had committed. He believed that by that measure a check would be put to the issue of a large quantity of those bills known as "kites;" and that the honest trader and sound capitalist would meet with a greater amount of fair play than he had hitherto received.
THE CHANCELLOR OF THE EXCHEQUER
I will first answer the question which was put to me by the hon. Baronet the Member for Evesham (Sir Henry Willoughby), inasmuch as it involves the important question raised by him whether a preliminary inquiry, to be conducted, I presume, by a Select Committee, or by the examination of witnesses at our bar, ought not to be instituted before the second reading of this Bill shall be agreed to. The hon. Baronet asked me whether it was within the knowledge of the Government that there had been a conspiracy or confederacy of certain bill-brokers, bill-discounters, and other persons in the metropolis for the purpose of intimidating and influencing the Bank of England with the view of embarrassing their operations to such an extent as to render necessary the interference of the Government. The answer which I have to make is, that I have no knowledge of the existence of any such combination or confederacy, and, moreover, that having had occasion during this crisis to watch with great closeness all the successive events as they occurred—having had access to authentic information, and having availed myself of it to the best of my ability—I have no belief in the existence of any such conspiracy:—and therefore, unless the House shall have placed before it some more specific and detailed information than the 307 hon. Baronet was able to bring forward, it does not seem to me that it would be called upon, or, indeed, justified, upon a mere suggestion or surmise of that sort, without any authentic testimony to rest upon, in instituting a solemn inquiry at the bar of this House. Unless, then, the House shall receive some information of an authentic character in that respect, I hope that it will accede at once to the second reading of this Bill. I will now proceed to advert to the questions put to me by my right hon. Friend the Member for the University of Oxford (Mr. Gladstone). He objected in the first place to the manner in which the first clause of this Bill is drawn. He said that the Bank of England not being an official department of the Government, it would not be regular to confirm its acts, and that the only acts which the Legislature could confirm must be those of some Member of the Executive Government. Now, in answer to that remark, I would state that the Bank of England, though certainly not a part of the Executive Government, is entrusted with important functions which are partly of a public nature. It possesses a Charter granted by the Crown, and certain duties are imposed upon it by Parliament and the Government with respect to the currency. One obligation of the Bank of England—an obligation by force of a statutory enactment—has been violated at the suggestion of the Executive Government, and it is on account of that infraction of the law that we have brought forward the Indemnity Bill which is now under the consideration of the House; and I apprehend that there is nothing in the smallest degree irregular or improper in this House confirming the acts of the Bank of England, which involve a departure from the Act of 1844. These are acts of the Company and Governor of the Bank of England which are not in conformity with the statutory obligations imposed upon that corporation; and in framing this Bill the Government were advised that it would be proper to take as a precedent the Act by which the Bank of England was legislated for in the year 1797, when a departure was made from its then statutory obligations. At that time when Mr. Pitt was Prime Minister, cash payments having been suspended by the Bank under a Minute of Council, this departure from their obligations was confirmed by an Act of Parliament, in which there was a clause 308 which referred to the Minute of Council, and which provided "that all acts done by the said Governor and Company of the Bank of England by the direction of, or in pursuance of the said Minute in Council, shall be and are hereby ratified and confirmed." Well, Sir, that, I think, is a sufficient precedent for the phraseology which we have adopted in the present Bill. There is another point which has been raised by my right hon. Friend. My right hon. Friend referred to the issue of the Bank of £2,000,000 from the issue department to the banking department, and he likened that issue to a Government loan, and said that it was of the nature of an issue of Exchequer bills. Now, I confess, with great deference to the accuracy and knowledge of my right hon. Friend, that I cannot quite accede to that doctrine. It seems to me that it is of the nature of an issue wholly different to an issue of Exchequer bills, which are instruments issued by the Government under the authority of Acts of Parliament, and which have attaching to them particular legal incidents; whereas, in this case, all that the Bank has done has been to make an issue of £2,000,000 upon securities, as it is already authorised to do by Act of Parliament. I am aware that these £2,000,000 are in excess of the limit imposed by law, but they are in their nature precisely analogous to the £14,500,000 which the Bank is authorised to issue by Act of Parliament, and therefore I do not see the justice of my right hon. Friend's comparison. My right hon. Friend again wishes to know whether the Government intend to make any and what arrangement with the Bank with regard to the interest upon the over-issues, and whether that interest will be brought to the public account. Now, Sir, as the matter is still in progress, and as the Bank has not yet announced that the excess has been withdrawn, I have not thought it my duty to form any definite conclusion upon the subject, and I think that the House will agree with me that it would not be desirable to come to a final decision until the day shall arrive when the Bank can announce that the issue has returned to the limit which has been fixed by law. These, Sir, are my answers to the questions of my right hon. Friend. But there are one or two other points upon which I wish to make a few brief observations. The hon. and learned Member for Wallingford (Mr. Malins) has expressed an opinion that the 309 rate of discount ought not to have been fixed at so high a rate as 10 per cent, and he appeared to suggest that it would be desirable to allow the Rank to diminish the rate of discount without putting an end to the present relaxation. Now, in answer to that suggestion, I wish to remark that when the first letter was issued the rate of discount was 6 per cent, and the Government of the day made a condition, in granting a relaxation, that the rate of discount should not be less than 8 per cent. [Mr. MALINS: It was a very bad precedent.] Very well, but I was going to remark that we have not quite followed that precedent, and that the element which the hon. and learned Gentleman condemns is excluded from the present Bill, because the Government have not themselves fixed any rate of discount, but have simply adopted that which they found in existence—a rate which was caused by the spontaneous act of the Bank, without any suggestion whatever upon the part of the Government, and which was in existence before the issuing of the letter. All, therefore, that the Government did was to adopt the rate of discount which they found in existence. I certainly will admit that 10 per cent is a very high rate of discount; but when we bear in mind the great importance of arresting the foreign drain of gold, and preventing its renewal, I think that this House and the Government would not be exercising a sound judgment if they did not insist upon a condition that the existing rate of discount should be maintained until a more favourable state of things shall have arrived. There is now only one other point to which I wish to call the attention of the House, and that is to a repetition of a statement which I have heard in other quarters, but which I should never have expected to hear from the mouth of the hon. Member for North Warwickshire (Mr. Newdegate). The hon. Gentleman says that the effect of this issue of £2,000,000 is to alter the value of every man's property in the country.
§ MR. NEWDEGATE
was understood to explain that he considered the issue a relief, inasmuch as it prevented a rise in the rate of interest, which obviously affected the value of capital.
THE CHANCELLOR OF THE EXCHEQUER
As I understood the argument of the hon. Gentleman, it was, that this issue would depreciate the currency, and would thus affect the value of every man's 310 property, and I was astonished to hear that statement from the hon. Gentleman, because I always considered that both himself and colleague were eminently favourable to a large issue of paper not always guided by the convertibility of the note. [Mr. NEWDEGATE: No.] Well, at all events I believed that both the hon. Members for North Warwickshire desired large issues of paper money, which they appear to think will, in some mysterious manner I cannot at all understand, greatly increase the wealth of the country; and I confess that having made some progress in satisfying those views by authorising the Bank of England to issue in excess for a temporary object, I am disappointed at meeting with so little gratitude from those hon. Gentlemen. When we are told that we are altering the value of every man's property in the country, I presume that it is meant that we are altering it for the worse; because if for the better, then it is not a charge against the Government; and therefore, if I understand the hon. Gentleman correctly, he charges us with depreciating the value of every man's property. [Mr. NEWDEGATE: No.] Well, if that be not the meaning, what is?
§ MR. NEWDEGATE
said, he had thanked the Government for having acted as they had done, and stated that a rise in the rate of interest must affect the value of capital; but he had not stated that a rise in the rate of interest would enhance the value of other property.
THE CHANCELLOR OF THE EXCHEQUER
said, he still thought he had not misunderstood or misinterpreted the hon. Gentleman. That was no question as to the rate of interest, but a question as to the effect of an issue of an extra amount of bank-notes. The hon. Gentleman had distinctly asserted that that issue had altered the value of the property of every man in the country. [Mr. NEWDEGATE and Mr. SPOONER: Had improved it.] But if it had improved it, then I presume that the gratitude of each of the hon. Members to the Government will be unbounded; and that so far from being open to any charge, their conduct will be held to be entitled to the highest commendation Perhaps the House will allow me to explain a matter in relation to an argument which has been used by an hon. Member this evening with regard to which there has been as it seems to me some misunderstanding. It was suggested the other evening that the effect of the issue of these 311 £2,000,000 would be a depreciation of the currency. I said I could not understand how it could be alleged that the currency was depreciated when the notes so issued were receivable at their full value—when every £5 note so issued was received in exchange for five sovereigns at the Bank of England, or when any person in the country is willing to take it at the value it purports to represent. What I understand by the depreciation or debasement of a paper currency is, when the value at which such paper circulates is less than the value which it purports to bear. That seems to me to be the commonly understood meaning of a depreciated currency. I remember once having a conversation with a gentleman who was at Paris during the French Revolution, and who told me that the value of assignats was so much depreciated that on going into the theatre you took an assignat of 300 or 400 francs out of your pocket and gave it to the check-taker, and you did not think it worth your while asking for the change. These were depreciated assignats. If an assignat of 300 or 400 francs passed for only 3 or 4 francs, one understands the meaning of depreciation. That is the sense in which I deny that the issue of this extra £2,000,000 of notes has depreciated or debased the currency. But then, it is said, there is another meaning of the word depreciation, and that when the exchanges are adverse—when the value of gold falls in this country, and there is consequently a motive for its exportation to foreign countries, the value of the entire currency falls, and in that sense the currency is depreciated. I do not mean to dispute that the word may be used in that sense. But, then in that sense, be it remarked, the gold of the currency is depreciated just as much as the paper. There is no inequality in the values of the gold and the paper; and that is an alteration to which all currencies are liable in the fluctuation of the values of the precious metals in different countries. It may be an inconvenience, but it is not an evil against which the law can provide. But the depreciation of the currency, in the common acceptation of the term, by which the paper does not pass at its true, legal, and proper value—at the value which it nominally bears—is an evil against which legislation can provide. It seems to me that to confound these two ideas is to confound things essentially different in their nature, and when I denied 312 that these£2,000,000 of notes caused a depreciation of the currency, I used the expression in the commonly received, and not in the other sense.
§ MR. SPOONER
repudiated on his own part and on that of his hon. Colleague (Mr. Newdegate), the advocacy of an unlimited issue of inconvertible paper. He maintained, however, that every note which promised to pay in gold ought to be made to pay in gold. We had a currency purporting on the face of it to pay in gold; and yet everybody knew that that profession was a perfect fraud. [" No, no!'] No, no, was a negative argument, and had no effect on his (Mr. Spooner's) mind. He repeated that the issue of notes professing to pay in gold and trusting that they never could be asked so to pay them was a fraud upon the face of it, and ought never to be continued. He had always argued and still maintained that we could not have a sufficient currency for carrying on the trade of this country by means of paper convertible into gold; and, instead of such a currency, he said, let us openly issue for home purposes a national paper money convertible into everything necessary for home purposes, and a legal tender, enabling every man to pay his debts and his taxes—a paper issued from the public Exchequer, and received again in payment of taxes. Our currency should not be one which foreign events could completely overturn, breaking the terms of every man's bargain without our having any power to control it. Formerly, when our currency was payable in gold, it was payable in gold coin not liable to be exported. It was not a marketable commodity free to be exported, but it was coin stamped and set apart, the exportation of which was prohibited by heavy penalties. That restriction had, however, been since taken away; and hence the essential difference between our gold currency now and the system adopted when that great statesman Mr. Pitt declared that gold should not be our master but our servant, and came forward to adapt the currency to the wants of the country. England was now in the midst of a great Indian crisis, and was she to allow her efforts to be crippled by a question of gold? Let the national security be turned into a currency sufficient to maintain our own local arrangements. Let the Bank issue notes according to their own discretion, and let those notes be payable in gold, and then we should be sure to find a way of preventing a drain of 313 gold from this country. That would be a much more legitimate mode than the high rate of discount now adopted to check the drain, and which not only prevented the gold from going abroad, but broke every current engagement between man and man at home. He could not conceive how it had entered anybody's head that the issue of the extra,£2,000,000 of notes had depreciated the currency. He cordially thanked the Chancellor of the Exchequer for what he had done, although his course had been attended by two drawbacks, namely, that it was not taken half soon enough, and that it was accompanied by the limitation regarding the 10 per cent. The latter point ought to have been left to the discretion of the Bank.
§ MR. INGRAM
thought, that if the Treasury had fixed the minimum of interest at 8 instead of 10 per cent it would have been quite high enough. If they wished to draw more gold into the Bank of England they ought to legalize the issue of £4,000,000, or £5,000,000 of £1 notes. He hoped that the Chancellor of the Exchequer would give these two suggestions his best consideration, and take the necessary steps for their adoption.
§ Bill read 2°, and committed for tomorrow.