§ Order for Second Reading read.
§ SIR JOHN HAY,
in moving the second reading of the Bill, said, he would not delay the House long in explaining its object, which was a very simple one. The House was aware that by the Bank Act of 1844–5 the Scotch banks then existing (twenty-three in number) were permitted to resort to a fixed issue as against their credit; and, in addition to the issue of notes so granted against their credit, they were further allowed to issue notes as against the amount of gold which they might have from time to time in their coffers. This issue was totally independent of the fixed issue, and could not be changed save by the action of the Legislature. Since that time, several of those banks had either joined together or had completely passed away. The Western Bank of Scotland, for instance, had completely disappeared from public business. But the issue of notes by the Scotch banks had not consequently diminished, because the gold having increased, and the issue of notes being dependent on the amount of bullion in the bank coffers, the issue has not diminished to any very great extent. This Bill did not in any way apply for a fixed issue as against credit for new banks which might in future he established. The commercial necessities of Scotland required, however, an extension of the banking system, which had been curtailed, while the commercial transactions of the country had considerably increased. The simple proposal of the Bill was that any person or persons carrying on the business of banking in Scotland should have power at any time to issue notes as against the gold they might have in their coffers. His sole reason for proposing this measure to the 1728 House was the fact that it was all but impossible for any banking house in Scotland to carry on business with advantage to the commercial interests of the country if they had not the power of issuing notes. All business persons in Scotland preferred as a rule to receive the £1 note to the sovereign, and all commercial business was, in fact, carried on through the medium of notes of that description. It might be said that any bank establishing itself in Scotland could avail itself of the notes of the existing banks. But the gold must be in the cellars of the particular bank accommodating, and this would be equivalent to refusing to any new bank the custody of their customers' money. He did not at all interfere with the right of the fixed issue; what he desired was, that any bank should have the power to issue notes against gold.
§ Motion made, and Question proposed, "That the Bill be now read a second time."
§ MR. BLACK
Sir, this Bill is certainly rather remarkable. For two reasons it is remarkable—first, for what it says; and secondly, for what it does not say. By this measure we are told that the Act of the 8 & 9 Vict, was passed with the view of regulating the monetary system of the United Kingdom. The Bill then says that by that Act provisions were made for limiting the amount of issue of bank notes in Scotland; as if it were only in Scotland that the issue of these notes was limited. The Bill further says, that the population, trade, and banking requirements have considerably increased of late years in Scotland. This is equivalent to saying that all these things have taken place in Scotland while they have not done so elsewhere. Now we may, I think, reasonably suppose that population and commerce have increased in England, at all events, as much as in Scotland. The whole object of this Bill may be said to be contained in its third clause, which in effect says: "It shall be lawful for any company carrying on banking business to make an addition to their own bank notes in Scotland." The real meaning of the clause is this: that means must be taken to procure a greater issue of paper money in Scotland. Sir, the monetary system for the United Kingdom was settled in a wise and intelligible manner in 1844–5, and under that general system the trade and commerce of the whole 1729 kingdom have greatly increased. We enjoy the very greatest prosperity under that system. But this Bill proposes that any seven men may join together for banking purposes, and may manufacture and issue bank notes. Doubtless, it is stated that those persons must have bullion to meet these notes; but have we not had ample experience that a number of unprincipled men, in spite of all precautions in the way of cheeks and regulations, have before now conspired together to commit frauds which they may do on a gigantic scale, under the pretence of banking or other commercial pursuits? Now, what I will this Bill lead to if we pass it? I am convinced it will inevitably lead to greater frauds and failures than we have as yet experienced. But that is not the main point. The main question is whether you are really willing to alter or in any way to interfere with the monetary system of the kingdom? whether you desire to alter the law as regards only one particular section, or as it relates to the whole? I appeal to the House, is it right to alter the law for Scotland in this respect, and not for the other parts of the United Kingdom? I should like to know whether the people of Scotland have so managed or mismanaged the business of their banks as to reduce the value of the currency; or have they injuriously affected the f general prosperity of the kingdom by the improper manner in which they have conducted their business? But if, as I believe it will be admitted, there is not the slightest reason for casting a doubt upon the security or solvency of their commercial establishments generally, or for finding fault with the manner in which they as a rule conduct their business, does the House think it would be wise to interfere with their banking system? Sir, I consider that this frequent meddling with the commercial institutions of Scotland is not only undesirable, but is absolutely injurious to the general interest of the country. If we are at all dissatisfied with the working of the statute passed by Parliament in 1844–5—a statute the provisions of which, I think, were so admirably constructed as to be of great benefit to the public at large—if, notwithstanding, we are still displeased with the machinery of that statute, and if we deem that some modification of it would be desirable, let us, instead of the fragmentary interference that is now proposed, apply our legislation to the whole kingdom, and not to any 1730 particular part of it. Since 1845, thirty-six banks in England have failed to meet their engagements, and caused fearful misery in the districts in which they were established; but, I am proud to say, that not one pound has been lost by the public out of all the millions they have intrusted to the different banks of Scotland, and every one of their notes have been paid as regularly as presented. It is quite true that two banks did fail; but the public did not suffer. The sufferers were the proprietors of the banks themselves. It is now stated that we ought to have free trade in banking. Now, what does free trade in banking mean? The proposition involved in this Bill is that there ought to be free trade in banking, and issuing paper money in Scotland, because certain parties in that part of the kingdom are empowered to issue bank notes. But if you limit the power to three millions of the population, I ask if you can call that free trade? You have in England 20,000,000 of people, and 6,000,000 in Ireland, and I therefore ask if it would be free trade to limit the powers now sought to be obtained to 3,000,000 in Scotland. If your object is free trade, it is necessary that you should apply it to the whole of the United Kingdom. The population of London is about as large as that of the whole of Scotland; while it possesses a much larger amount of property. Then why should you not introduce the same system into London? The banks of London ought to have free trade as well as those in Scotland; and, if that is to be the principle, I contend that its adoption would subvert the whole system which was settled some years ago. What is the cause of all this agitation? We are told that poor old Scotland has lost no less than £300,000 in lapsed capital—as if a box containing 300,000 sovereigns had slipped overboard into the deep sea—and that there has been such a contraction of the currency in consequence that legislation upon the subject is now absolutely necessary. Now the fact is, that the whole thing is moonshine. There has not been one single sovereign lost, and there has not been the contraction of one single shilling of currency in consequence of this lapse. When people come here and relate this lamentable story with regard to our unhappy country, it is quite clear that there is something behind which does not appear above-board. I am uncharitable enough to suspect so, at any rate. In my opi- 1731 nion this is merely an attempt to accomplish by a side-wind, by a public Bill, that which never would have been obtained by private legislation. With regard to free trade in banking we have the lessons of experience. Free trade in banking did once exist in this country. Before the year 1800 there were 280 country banks in existence; but they increased so rapidly that in 1813 they amounted to 900. During the years 1814–15–16 no less than 240 of these banks stopped payment, spreading ruin around them; and during the time of these excessive issues the depreciation of bank paper was rapid and unbroken, sinking from 2½ to 25 per cent. I do not think it would be desirable to return to those glorious days of banking. Some people tell us that the existing banks of issue possess a monopoly. This is a favourite expression; but I must be permitted to say that free trade in banking is at present complete. Any man might commence the business of banking to-morrow if he chose. But what they really want is, free trade in coining — that is, of coining paper into money. It appears to me that that would be a most dangerous licence, because if free trade in that sense were established, the consequences would be disastrous. It is alleged that certain Scotch banks have a monopoly. Now, I am quite prepared to admit that if a monopoly existed it would be a very bad thing; but I contend that there is abundance of competition at the present moment. I have in my hands a Return showing the number of banks in Scotland, England, and Ireland, with the different populations and value of property, and I can show the House how many individuals there are to a bank in each of the three countries. The number of banking offices in England is 1,406, in Scotland, 635, and in Ireland 220. The population of England is 20,066,224, the number of the banks 1,406, and that gives one bank to every 14,271 of the population. In Ireland, the population is 5,764,543, the number of banks is 220, giving a bank to every 26,202 of the population. In Scotland, the population is 3,062,294, and yet it has no less than 635 banks, giving one bank to every 4,822 of the population. In whatever mode you apply a test, the result is the same. Take the income tax. The amount assessed to that tax in England is £282,000,000, and with 1,406 banks we have a bank for every £200,000. In Scot- 1732 land, the amount assessed to income tax is £30,000,000, which gives one bank for every £47,244. In Ireland the amount assessed to the income tax is £23,000,000, and this gives one bank for every £104,545. The principal hanks in Scotland have branches all through the country, so that even in small parishes with a thousand inhabitants you will find a banking establishment. A few years ago I happened to be in Buxton, and although possessing a population of upwards of 2,000, when I enquired for a bank I was unable to find one. In Scotland, the circumstances are very different. In Inverary, with scarcely 1,000 inhabitants, there are two banks. I cannot help thinking, therefore, that the outcry about the want of banks and of circulation in Scotland is altogether moonshine. I say there is no want of circulation. If any man who complains of our banks will give us good security, I will engage that he shall have as much paper money as he likes. We will supply him with the money if he will give us the security; but if he wants a large loan upon a doubtful security, and wishes to keep the money lent to him a great deal longer than is consistent with good banking principles, then I must confess that the transaction is one of which we do not approve, and I am afraid he will not be accommodated. No doubt if abundant accommodation could be procured by the manufacture of an old shirt-sleeve into thousands of pounds, it might be very convenient for the speculator, but disastrous to the country. I maintain that the people of Scotland are perfectly satisfied with their banks; so much so, indeed, that they prefer the Scotch bank note to the gold; and, at the same time, the country is continually prospering under this system. If you are going to change it, I contend that you cannot with propriety accomplish your object unless you are prepared to deal with the whole monetary system of the kingdom. I want to know why Scotland should be always held up as if there were something rotten in that state; whereas I believe that our banking establishments especially are thoroughly sound, and I believe I should be able to show that not only are our operations simple and advantageous, but that they are better than those carried on in any other part of the kingdom. I beg to move, as an Amendment, that the Bill be read a second time this day six mouths.
§ Amendment proposed, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."—(Mr. Black.)
§ Question proposed, "That the word 'now' stand part of the Question."
§ MR. FINLAY
As my name appears on the back of this Bill, perhaps I may be allowed to state my reasons for supporting the second reading. I do not approve of all the details of the Bill; I merely approve of its principle, which I consider is the establishment of free competition in banking. In Scotland the existing banks have an exclusive privilege of issue. I do not say that those banks have used that exclusive privilege oppressively. They did not ask for that privilege — it was forced upon them—and, upon the whole, they have used it fairly. But still it is found by experience that exclusive privileges of any kind are contrary to the interests of the public. My hon. Friend the Member for Edinburgh (Mr. Black) states that there is plenty of free trade in banking. But let me remind him that, until all banks are placed on an equal footing, there can be no such thing as free competition. If one bank has a privilege over another it necessarily has an advantage over that bank to the extent of that privilege. If he desires to place the whole of them on the same level he must give to all the right of issuing notes, or else enact that none of them shall have that right. In either case the result is the same, they would be on the same footing. If Parliament gives to none of them the privilege of issuing notes, then they must return to a metallic currency, or have notes issued by the State. There are insuperable objections, as every practical man knows, to a return to a metallic currency, not only on account of the expense, but also on account of the impossibility of at all times procuring the necessary coin to meet the exigencies of trade. It is hardly necessary, therefore, to say anything upon that subject, because I imagine no one in this House will advocate the adoption of a system of pure metallic currency. I am aware that the plan of having notes issued by the State is popular with some persons; but the more one considers the subject, the more insuperable do the obstacles to the working out of that principle appear. 1734 I should, in the first place, like to ask the supporters of that proposal who are to issue these notes and to keep them in circulation? The State, it is evident, cannot do it. It can only be done by those who have to make frequent payments to a large amount. If this circulation is to be kept up by the banks, who are to guarantee the notes? If the State guarantee the payment of the notes, then the State undertakes the duty of a trader without a trader's profit. But if the banks are to be responsible for the payment of the notes, then the public are in the same state as they were before, and have no additional security. Besides, there are constitutional objections to such a measure. At present it is not necessary that I should go at length into that part of the question; but I am anxious to quote a statement of Lord Monteagle's, which is contained in the Appendix to the Report of the Commission of 1858. He says—Let us not deceive ourselves into a belief that our free Government would afford us any protection whatever about the probable abuse of such a power.… I venture to suggest that a free Government might furnish the most active and dangerous agency for forcing on the Treasury to rash and fatal resolves if it should unadvisedly undertake the functions of a bank of issue. I believe a Government in such a position would be driven onward to the very measure which wisdom and experience would most strongly deprecate and condemn.Sir Robert Peel himself was in favour of free trade in banking. In 1844, he said—The principle of competition, though unsafe in our opinion when applied to issue, ought, we think, to govern the business of banking.My hon. Friend the Member for Edinburgh stated that free banking in England had been attended with very bad results. He said that about 200 banks had failed in the course of three years. But free banking was not the cause of that lamentable overthrow of English banks. What was the position of English banks at that time? Six partners only were allowed to each bank. It was, in point of fact, a system which necessarily created, weak banks, for it enabled persons with very little capital to issue notes to a great extent, and prevented the formation of powerful banks with large paid up capitals. You cannot call such a system a system of free banking. I should prefer taking a better example—one which we fully understand in Scotland. Let us go back to the old banking system in Scotland before it was 1735 destroyed by Sir Robert Peel's Act of 1845. What was the Report of the Committee appointed to investigate the working of that system in 1826? I would beg to remind the House that the Committee was one hostile to the Scotch system of banking. I will read an extract from their Report. They say—The Committee are unwilling, without stronger proof of necessity, to incur the risk of deranging from any cause whatever a system admirably calculated in their opinion to economise the use of capital, to create and cherish a spirit of useful enterprise, and even to promote the moral habits of the people by the direct inducements which it holds out to the maintenance of a character for industry, integrity, and prudence.Such was the old Scotch system of banking before Sir Robert Peel interfered with it by the Act of 1845. They go on to say—During the civil commotion of the last century, in the rebellion of 1715 and 1745, the confidence in paper securities in Scotland was not shaken. The Scotch banks maintained their stability, and were not called upon for any extraordinary issue of gold in exchange for their notes during the shocks to which mercantile credit was exposed in this country in the years 1793, 1797, and, more recently, in 1825. It cannot be assumed, therefore, that a circulation of specie is necessary in Scotland for the purpose of guarding against the effects of sudden panic.…So far as the interests of the Bank of England are concerned, it will be seen that the directors of that Bank, who were examined before your Committee, urge no objection to the continuance of the present system in Scotland, provided that the paper circulation in Scotland can be effectually retained within the limits of that country.Sir Robert Peel did not contradict that statement when he introduced the Bank Act in 1845, nor did he deny that the Scotch system was an admirable system. But what were his objections to that system? I think it is necessary that the House should know exactly what his remarks were; and, not to weaken this argument, I will read the remarks which he then made. He said—The security of the system which prevails in Scotland rests in the amount of gold in England, and it is this which enables Scotland to dispense with the amount of bullion in proportion to its circulation, which, and not the solvency of the banks, ought to be the foundation of the promissory notes. I am not surprised that Scotland should wish to be exempt from this—I am not surprised that Ireland should wish the same; and I do not say that it may not be possible, by taking the whole expense of maintaining a gold currency upon this part of the empire, that another system may not succeed in other parts; but I do say that it is just that the burden should be borne in equal proportions by all parts of the empire."— [3 Hansard, lxxxi. 147.]1736 I quite admit the force of his assertion, that the stability of the issue of the banks ought to depend upon the gold that the bank holds. But the question arises, who is to determine the amount of gold required? It seems to me that the bank directors should not only know, but should always be careful to provide that the bank under their charge should at all times be in a position to pay its own promissory notes in gold? We know, from the experience of a great many years, that Scotch banks founded on that principle never failed to meet their engagements. The reason that induced Sir Robert Peel to alter the Scotch system was simply this. He believed, and asserted, that the stability of the Scotch system depended upon the amount of bullion in England, and he thought it was unfair to put England to the whole expense of maintaining a gold currency for Scotland. That was the ground of his opposition to the old system of banking in Scotland, and at first sight it is a plausible objection; but when we subject it to a close examination, it does not appear deserving of much weight. I deny, in the first place, that the Scotch banks are responsible for the expense of maintaining the gold necessary to be kept in London. London is the centre of all the pecuniary operations not only of England, but of the whole world, and as it obtains all the emoluments incident to that position, it would be unfair for it to shirk the responsibilities. One of the responsibilities of a banker is to provide sufficient cash to pay his balances. The Scotch mercantile community hold large balances in London, and why should they not have the right of withdrawing those balances when it suits them? France and America withdraw their balances whenever they desire to do so; and if the Bank of England is sometimes called upon to pay gold at a moment when it may not be convenient, it is no fault of the Scotch system. The law which imposes that obligation on the Bank of England was not made by the Scotch people. On the contrary, the Bank of England undertook the duty voluntarily, and is it relieved in any way from that inconvenient obligation by the Bank Act of 1845? I believe quite the reverse. Since that Act passed, there can be no doubt that the demand upon the Bank of England for gold for the Scotch banks has greatly increased. The fact is, that the stability of the Scotch system does 1737 not depend on the gold in England at all. At least, it did not previous to the year 1845. It was maintained for 150 years without any support from the gold in the Bank of England. As a remarkable proof of that fact, I may mention what occurred on the suspension of cash payments in 1797. Cash payments were suspended in England for twenty-five years, and during that time the whole of the Scotch banks paid their notes in gold on demand. Cash payments were never suspended in Scotland, and how could they then depend on England for gold? England could not have supplied the gold if Scotland had required it. If we could find out the quantity of gold transmitted to Scotland previous to 1845 and since that year, we should discover that the amount has very much increased during the latter period. Sir Robert Peel, in order to get rid of an imaginary evil, introduced a much greater one, for there never had been any great demand for gold from the Scotch banks on the Bank of England previous to 1845. What was the evidence in reference to the interests of the Bank of England before the Committee of 1826? The Directors of the Bank, when examined before the Committee, urged no objection to the continuance of the then existing system in Scotland. Mr. Richards, the Governor of the Bank of England, was asked—Do you think the existence of a paper currency in Scotland at the time there was a gold currency in England might lead to any inconvenient demand upon the Bank of England for gold for Scotland.His answer was—Scotland could not reach the gold of the Bank of England by getting possession of the paper of the Bank of England. She could only do that by discounting bills through her agents in London, or by the sale of stock or any public securities that she might hold; but, by her own paper, she could not touch us.It is undoubtedly the fact that, if there were no bank notes in Scotland at all, and nothing but sovereigns, the Scotch people could withdraw their balances from London in gold quite as easily as they do now. It is quite a mistake to suppose that the issue of bank notes is the cause of the withdrawal of gold from the Bank of England; and that perfect freedom in the issue of promissory notes, such as existed in Scotland previous to 1845, can imperil the solvency of the Bank of Eng- 1738 land. I trust that the Chancellor of the Exchequer will turn his powerful and logical mind to the question, and that having been instrumental in removing many restrictions to free trade, he will support freedom in banking. I hope he will feel it not inconsistent with his duty to consider the subject with that spirit of fairness, and with that ability, which characterize him; and, in that case, I have no doubt that before long we shall have a very great and beneficial reform in our monetary system.
§ THE CHANCELLOR OF THE EXCHEQUER
Sir, in answer to the appeal which has been made to me by my hon. Friend (Mr. Finlay), I am bound to say that I cannot respond to it in a favourable manner, if it implies that I shall vote for the present reading of this Bill. On the contrary, I intend to support the Motion made by my hon. Friend the hon. Member for Edinburgh. The grounds upon which I shall give that vote are not grounds connected with inveterate hostility to the principle upon which the measure rests; on the contrary, I think that the principle of the extension of issues against gold is one that, under favourable circumstances, I might fairly form the subject of consideration by Parliament. I think the hon. Baronet (Sir John Hay) who has brought in this Bill is entitled to claim certain admission at our hands. It is not primâ facie unreasonable or incredible that there may be a demand for an augmentation of issue in Scotland. At the same time, that demand for augmentation for issue may be founded not so much upon the proof that the issues of Scotland are deficient in quantity, as upon the connection which, owing to the habits and ideas of the people, is found to exist there between issue of notes and the business of banking. I do not believe that a sounder principle was ever enunciated by Sir Robert Peel than that which has been quoted to-night, when he said that in his judgment issue ought to be subject to strict regulation by the State; whereas the business of banking ought to be made as free as any other business, and ought to depend entirely upon the principle of competition. But in Scotland there appears undoubtedly to exist a feeling in regard to the nature of the circulating medium which they are accustomed to use, and which lies at the foundation of this Bill. It cannot be said that in principle there is anything dan- 1739 gerous or unsound in issue against gold. The question which would at first sight suggest itself to those who might be disposed to criticise the proposal would be, where could be the economy of a system of issuing paper against gold? It is well known that there is a very considerable economy in an issue of that description. But I will state to the House why, looking to all the circumstances of the case, I think it is impossible to accede to the demand for the second reading of this Bill. In the first place, I think that the parallel and analogy which the hon. Baronet drew between the law now existing in behalf of the old Scotch banks and the case of the new banks are fallacious. The existing provisions which authorize the old Scotch banks that existed before 1845 to issue notes against gold, are not to be considered as founded upon any permanent principle. They are part of a set of provisions adopted by Sir Robert Peel as being well calculated for the circumstances of the time, and suitable upon the whole to further the general principles of policy of which he desired to secure the introduction and the permanent and solid extension in the country. That being the case, it would be a most hasty and precipitate inference to select from among them provisions adopted upon grounds more or less of a transient and temporary character, and make them without further consideration the basis of any extended system. We are not justified in arguing that, because in the Act of 1845 we find power given to the existing Scotch banks to issue notes against gold, we may without consideration extend the exercise of that power to any other banks that may seek to do business in Scotland. The truth is that when we come to consider a permanent system with regard to the issue of notes against gold, it will not be enough to say, as is stated in this Bill, that any bank that is so minded may issue promissory notes to the extent to which it shall be proved to have gold in its possession; because, although it may have the gold, the question immedately arises—in what way is that gold appropriated so as to become a basis of security to the paper issue? It is impossible to avoid that question if we are to consider any permanent system of that kind. Here, of course, I might be met by an argumentum ad hominem. It may be argued that I have presented to the House a Bill which proposes to deal with a certain 1740 portion of what is called lapsed issue, and to authorize the resumption of that issue, without making any provision for its security. Undoubtedly, that so far is true; but this has been proposed with reference to a particular part of the old Scotch banking system, because we think we may truly rely on the general condition of the Scotch banking system as a sufficient security for a limited arrangement of that kind. And I am not sure that we are justified in arguing from that Bill as if it had been accepted by the House. For, on the one hand, it is a Bill which, if I may judge from the notices that have been given, is not likely to meet with unanimous acceptance; and, on the other hand, it is a Bill which, as I have stated from the first, aimed at nothing but an arrangement for temporary convenience. It does not attempt to lay down any new principle to govern banking in Scotland. It is not a Bill of that character; and it is a measure which I would not think it right to press forward in the face of any considerable difference of opinion. But it stands widely distinct from such a measure as that which we are now discussing, which enters into a much deeper question, and which we can evidently see is permanent in its application, and is capable of wide and general extension; and I would therefore suggest to the hon. Baronet, that if the time has really come when we can fairly deal with the subject of banking in Scotland, and authorize the extension of issues of promissory notes against gold, it would be necessary for us to devise, in addition to the provisions that he has inserted in his Bill, a set of very important collateral provisions. It is quite evident that gold itself will not form directly a security for the notes. It is also quite evident that the gold could not be held on general grounds to form indirectly a guarantee for the solvency of the banks. If that be so—if we could not make sure by those provisions, either directly or indirectly, that those of which we are authorizing the issue would be worthy of the confidence of the public—I think it is quite plain that we must resort to other provisions, and that those other provisions would require to be made the subject of careful consideration. It is not possible, in point of fact, to avoid seeing that the Bill of the hon. Baronet, although it appears to be comparatively limited in the direct scope of its clauses, entails and draws after it the 1741 consideration of a very extensive question—because, as I have just said, if you authorize the issue of notes against gold in Scotland, we must have a carefully constructed system of collateral provisions; but if we proceed to establish such a system of provisions, it is clear that we must take into our consideration the position of the old banks. When the time comes to establish such provisions for authorizing the issue of notes against gold, that will evidently be the time for considering the provisions of the present law, which authorizes the issue by the old banks of notes against gold. I take it that the legislation of 1844–5 proceeded on the general principle of the confidence which the Legislature reposed in the old banks of Scotland—a degree of confidence which it would not be safe to assume with respect to new banks; but I do not consider it possible for Parliament to construct this new system for the issue of notes against gold in respect of new banks, without considering the question whether the provisions of the law regarding the issue of notes against gold by the old banks do not also require consideration and revision. If that be so, it is plain that the Bill of the hon. Baronet entails and necessitates a full consideration of the entire banking system of Scotland. I am speaking with no adverse prepossession. I should be very sorry, upon merely selfish grounds, to take any step which would arouse the angry shade of Malachi Malagrowther. I should be sorry if any man occupying the position which I have the honour to hold should, within any period to which we can reasonably look forward, feel disposed to raise the question in an adverse sense of the small note currency of Scotland. If that system be effectually limited and guarded, I think it may be made as safe as any other; but I should be misunderstood if it were supposed that I intended to imply that rules which are good for this country are without modification or alteration equally good for Scotland. On the contrary, I hold that the circumstances of Scotland, and the customs and usages of that country, are to be taken into our view, as well as the state of the Scotch law, before we can argue that what we do for England the same should be done for Scotland. Having thus guarded myself against being supposed to contemplate the application of a new system of uniformity with respect to the currency of the three king- 1742 doms, I must nevertheless say, that I do not think the House could, with wisdom or safety, proceed to the consideration of the general subject of banking and currency for Scotland until it has fully considered the state of the law on this subject in respect to this country. It is quite clear that London—which is the centre of the monetary operations of the world—and being at the head of the whole monetary system of England, we must regard England as à fortiori the centre of the whole monetary and banking system of the United Kingdom. I consider it essential, before we proceed to consider any new proposal involving that principle with respect to Scotland, that we inquire whether our legislation for England has been brought into a state which expresses and corresponds with the permanent view of Parliament. My answer to that question is, that our legislation for England has not yet been brought to that state. However, it is far from my desire to say one word that can be construed into a disparagement of the legislation of 1844. Whether it be approved of or disapproved of, I have no hesitation in saying that in my opinion essential service has been conferred upon the country by that legislation so far as all fundamental principles are concerned. But the Act of 1844, besides its permanent and fundamental principles, contained many provisions that were partial, temporary, and provincial. It left the right of issue, other than those of the Bank of England, in such a state as to require re-consideration at the hands of Parliament at some future period. That being the case, the question arises and offers itself to the minds of all who have considered the subject of this measure, whether we can be ripe for legislation founded on this new principle for Scotland before we have considered and arrived at a definite conclusion with respect to the state of currency legislation in England. I do not hesitate to say, from various circumstances, that I think I the time is approaching when the attention of Parliament ought to be given to several matters connected with the provisions of the Act of 1844; and on this account, I would venture to express a hope for the assent of the hon. Baronet to my main proposition, that we are not yet ripe for entertaining his view. If he asks when there will be a commencement of the general legislation which I have indicated, I can only say that I make the ad- 1743 mission that circumstances have ripened in a considerable degree for such, legislation, and that when we see a fitting opportunity for introducing the question to the notice of Parliament, we shall feel it our bounden duty to lose no time in doing so. But if the Government were to introduce a general measure, their first proceeding must be to endeavour to ascertain the opinion of Parliament with respect to the banking system of England; and it is quite clear that it could not be possible to adopt such a process as that, and likewise approach the consideration of the important conclusions that might be arrived at in the course of the present Session. I therefore feel obliged to vote against the present Bill; but I hope the House will not think that that vote implies an intention to proceed to immediate legislation on the subject, because it could not be possible for us to do justice to it under present circumstances. I have not professed any indiscriminate hostility to the principle of the Bill of the hon. Baronet, which, so far as I can gather, appears to be a correct one, and I cannot say that the status quo should be permanently maintained. On the contrary, my opinion is that from the state of the law of issue in England and the restrictions upon banking which the present law imposes in consequence of the possession of exclusive privileges by certain banking establishments, the time must come when it will be necessary for the Government to propose the adoption of some well-considered scheme for the further development and advancement of several of the provisions of the Acts of 1844 and 1845.
§ MR. DUNLOP
said, he had heard with much gratification the disavowal by the Chancellor of the Exchequer of any feeling of general hostility to the principle of the Bill, as well as his admission that Scotland stands in a peculiar position in consequence of the peculiar prejudices which in Scotland make the right of issuing notes essential to the establishment of a bank. When his hon. Friend the Member for Edinburgh (Mr. Black) talked of 800 banks, he ought to have said 800 offices, for the number of banks did not exceed thirteen in the whole country; and so long as the right of issue is confined to those banks, there must be a practical prohibition upon the establishment of any new bank. It was, in fact, a monopoly enjoyed by the bank of which the hon. Member was a governor, and a dozen others, of 1744 so regulating the terms upon which they will make advances to the community as to make the largest possible profit for themselves. It was to give the right of issue against gold to any new bank that might be established, and so to put an end to the present monopoly, that this Bill was supported. The right hon. Gentleman the Chancellor of the Exchequer said, that the provisions of the Acts of 1844–5 were temporary, and had reference to the peculiar circumstances of the then existing banks; but these banks had a privilege of issue which went far beyond what was asked for by this Bill. They had a right of issue to the extent of the average of their issue in 1845 without any security whatever. They also had a right to issue against gold over and above the amount of the issue under the statute. So far from the issues of banks established under this Bill being placed in a weaker position than the old banks, they would rest on a much stronger foundation, inasmuch as the old banks had a large issue that was altogether unsecured, whilst the new banks would provide ample security for all their issue, whatever the amount might be. The Bill did not propose to interfere with the monetary system at all. It simply allowed the extension of a privilege which was now enjoyed by the existing banks, but on a more permanent footing, because it required that the new banks should have gold to the full extent of the issue of their notes, whilst the existing banks were only required to possess gold for their issue over and above the amounts which they were authorized to issue by the Act. This Bill could in no respect prevent the introduction of a general measure on the subject of banking.
§ SIR EDWARD COLEBROOKE
said, he admitted that this Bill proposed legislation of a somewhat exceptional character; but, after the speech of the Chancellor of the Exchequer, no doubt can be entertained as to the justice of the principle on which it was founded. The right hon. Gentleman had not said one word in defence of the monopoly of the present banks; on the contrary, he confessed that there existed a practical evil, because the present system rendered it impossible for a new bank to be established in Scotland without the power of issue. The principle of the Bill was strictly in accordance with the Act of 1845, by which the Scotch banks had a power of issue con- 1745 ferred upon them which no bank in England was allowed to enjoy. They were permitted to exercise that privilege so far as their issues had extended; but if they exceeded that, it was provided that gold should be deposited against any further issue. The question is, why should that privilege be confined to a small number of banks? He contended with the hon. Baronet (Sir John Hay) that a privilege of that kind ought to be common to all banks, without restriction. He had no desire to reverse the legislation of 1844–5—so far from it, he desired to support it. But when that Act was applied to Scotland it was upon a different principle from that which was applied to England. The Acts applicable to England were consistent in themselves, and there was an absolute restriction upon all new issues on the part of the country banks. That legislation provided for the extension of the banking and currency of the country, and the principle upon which it was applied by Sir Robert Peel was justly quoted by the hon. Member for Argyleshire (Mr. Finlay) that, while drawing a distinction between the power of issue and of banking, he wished to make banking free. Sir Robert Peel said—Our general rule is to draw a distinction between the privilege of Issue and the conduct of ordinary banking business. We think they stand on an entirely different footing. We think that the privilege of Issue is one which may be fairly and justly controlled by the State; and that the banking business, as distinguished from Issue, is a matter in respect to which there cannot be too unlimited and unrestricted a competition. The principle of competition, though unsafe in our opinion when applied to issue, ought, we think, to govern the business of banking."—[3 Hansard, lxxiv. 743.]In Scotland, however, the Act of 1845 had operated as a positive bar to the establishment of new banks, and when banks had failed, their business and the profits arising therefrom had been divided amongst the old banks, which were now reduced to thirteen. Of course, concurrently with this, these establishments had considerably extended their branches and operations, and enjoy very great advantages. In a paper on the laws of currency in Scotland, by Mr. Gilbart, whose opinions on the subject were entitled to the greatest weight, and which was read before the British Association at Glasgow in the year 1856, ten years after Sir Robert Peel's measure had been in operation, there was this passage— 1746The Act of 1845 has produced several practical effects in the management of the banks of Scotland. Had not the Act of 1845 been passed, it is probable that new banks of Issue would have been framed in Scotland during the speculations of the year 1846, and there might have been great competition between the old and the new banks. There is now among the banks a less spirit of competition than formerly. There are fewer attempts to attract customers by the offer of increased accommodation. There is a less disposition to grant cash credits, and less anxiety to obtain those accounts that put into circulation a large amount of notes. Some advances too have been made upon banking charges. The banks have attempted to reimburse themselves for the increased expense of keeping gold by charging a commission upon the amount of the cash credits, and upon payments made in London, thus confirming the doctrine that statesmen are slow to learn that restrictions on banks are a tax on the public.He protested against leaving the question for an indefinite period in its present state, or until it should please the English Members of this House to agree to a change in respect of their own system. He looked upon the system in Scotland as an exceptional system, to which a special remedy can be applied if the Government and the House thought proper, without prejudice to the consideration of the entire subject of banking as it affected the United Kingdom. If, however, the general question must be entered upon in the first instance, he trusted that it would be done with the least possible delay.
§ MR. KIRKMAN HODGSON
said, that the principles of the Act of 1844 were correct, and ought to be made permanent. It had effected all that it was intended to effect—the convertibility of the bank note; and if it had not averted panics it was not intended for that purpose, which, indeed, was beyond the reach of legislation. The time was not fur distant when the restrictions and privileges conferred by the Acts of 1844–5 would have to be re-considered; and when the time did come, he was of opinion that the English question ought, following the precedent of 1844, to precede the Scotch question. As to the Bill now before the House, if the hon. Baronet the Member for Wakefield persisted in his Motion, he should feel obliged to vote for the Amendment of the hon. Member for Edinburgh; but he hoped the hon. Baronet would consent to withdraw his Motion, and that the hon. Member for Edinburgh would also withdraw his Amendment, upon the understanding that the consideration of the question is only deferred for consideration and settlement, and that 1747 the Government will be shortly prepared to introduce a measure upon, the subject.
§ MR. BUCHANAN
Sir, as I represent a large commercial constituency, I must say that I have heard with some pleasure the statement of the right hon. Gentleman the Chancellor of the Exchequer, to the effect that he is prepared, on a future occasion, to take the whole question into consideration. I can assure the right hon. Gentleman that the opinions entertained by very many persons of the operation of the Act of 1844 are very different from those expressed by hon. Members who have addressed the House this evening. Sir Robert Peel when he introduced his Bill said, that his purpose was to give something like stability and certainty to the value of money; and I put it to the right hon. Gentleman whether that has been the result produced? Are we not at the present time exposed to perpetual vacillations in the value of money? I will not, however, enter into that question. Various and conflicting opinions as to how any Bill, which the right hon. Gentleman might introduce, would work, would no doubt be entertained. I am anxious to learn whether there would be a probability of our having a Report from any Committee to whom that Bill might be referred in a moderate space of time, and also whether that Report would likely be of such a nature as to satisfy the House. I cannot, for my part, see why we should defer legislation upon this question for an indefinite period, and I wish to remind the right hon. Gentleman the Chancellor of the Exchequer, that the main grievance of which we complain has not yet been brought forward. Issue and deposit banks are mixed up together, not only in the minds of the Scotch people, but as a consequence of existing legislation. The evil is, that there is no competition in banks of deposit, and that the trade of banking is unnecessarily narrowed. I think I could from papers in my hand supply the House with information which it is hardly prepared to receive. Is the House aware of the change which has taken place since the Act of 1845 was passed? We had twenty-four banks in Scotland in 1844. At present they are reduced to thirteen. We had shareholders in these banks holding £12,000,000 stock in 1844, and now we have only £9,000,000 of banking capital. 1748 And, in point of fact, although we have at present thirteen banks, only eight of them are of any consequence or extent. If any hon. Member will look at the schedule of the Bill introduced by the Chancellor of the Exchequer, he will see that the authorized issue of five out of the thirteen banks is so small as to be scarcely worth consideration. One of them is limited to £33,000, another to £42,000, while the average of the authorized issue of the five is £55,000. The remaining eight banks have an authorized issue of £2,476,000. Therefore, there are only eight real banks in Scotland for the purpose of bank accommodation, which, in my opinion, is quite inadequate. Nor is that the worst of it, for I am prepared to show that nearly all those banks are in Edinburgh. I do not object to their being located there, any more than I should to their being in Glasgow, except in so far as it gives them facilities for acquiring a monopoly which they would not otherwise have. Of these eight banks five are essentially Edinburgh establishments—one belongs partly to Edinburgh and partly to Glasgow, only one is a Glasgow establishment, and one belongs to the north of Scotland. There are thus five banks which are exclusively to Edinburgh, and you can easily see how they could work together if they felt so disposed. One or two will rule the rest; and as the managers are constantly meeting together, it is easy to see how small a number would pull the strings of this large banking machine. But that is not the worst of it. The Act of 1845 seems to contemplate the amalgamation of banks. So far from there being anything to prevent it, there is a clause inserted in the Act of 1845 facilitating such arrangements; so that, instead of there being eight banks, it is possible that there may soon be only half that number, and that we shall find a monopoly so far completed that one or two banks may control the whole banking and monetary system of Scotland. It appears to me that it is no argument to the objection as to the small number of banks of issue to say that there are numerous branches in different parts of Scotland. No doubt great practical conveniences and advantages have arisen from the establishment of those branches—no one can deny that; but, on the other hand, the machinery of those branch banks has tended to establish a monopoly. These bank agencies have worked so successfully that whereas, in 1843, £30,000,000 repre- 1749 sented the amount of deposits in Scotland, there are now £60,000,000 of deposits. All this immense sum is under the control of one or two men in Edinburgh. I do not think that that is a position of I affairs which we should be desirous of continuing. We have cast off the trammels of monopoly in other respects, and I think if the question were fairly put to the House, there are few who would say that the whole banking business of Scotland should be under the control of one or two men in the capital. The evil is so great that it ought not to be allowed longer to exist, and I shall be happy to hear when the Chancellor of the Exchequer is prepared to deal with the subject. I am not prepared to say that this Bill is one which in all its provisions I would be willing to adopt; but its main feature; is to extend a principle which has already been introduced. Against gold there may be any extent of issue, and I cannot see what objection there can be made to the extension of that principle. As there may be much discussion of doubtful principles, and long delay, before we can arrive at a conclusion upon any Bill of the Chancellor of the Exchequer, I think we are justified in dividing in favour of the second reading of this Bill.
§ MR. KINNAIRD
said, he thought it would be wise on the part of the hon. Baronet opposite not to press his Bill at the present moment, and that it would be better that they should first dispose of the measure introduced by the Chancellor of the Exchequer. As a Member for Scotland, he must express his surprise at the attack which had been made on the Scotch system of banking—though he thought that the speech of the hon. Member had, in a great measure, answered itself; for he had admitted that the amount of deposits in the Scotch banks had increased from £30,000,000 to £60,000,000 since the passing of the Act of 1845. In point of fact, at that moment, there was hardly a Highland village that had not adequate banking accommodation. It could hardly be called a monopoly when all these banking agencies were in competition with each other. In his opinion the existing system gave ample banking accommodation to the people of Scotland; and he believed that the Scotch people themselves were exceedingly attached to the system as it at present existed. He greatly doubted the policy of the present Bill, and 1750 should certainly vote against the second reading. The speech of the Chancellor of the Exchequer had given great satisfaction to the people of Scotland; at all events, it showed that he had no objection to the introduction of improvements, though before introducing changes having that object in view, he was desirous that they should be well and carefully sifted.
§ MR. GOSCHEN
said, that the value of money could not be fixed by Act of Parliament, any more than the value of any other commodity. The Act of 1844 had conferred great benefits on the country, and the occasions on which it was supposed by some persons to have broken down were scarcely cases in point. It was not at the instance of the Bank of England that the Act had been suspended, but at the instance of the public, who demanded greater accommodation than the law allowed the Bank to give. He hoped that in any legislative alteration the great principle of the Act of 1844 would be upheld.
§ MR. H. BAILLIE
Sir I agree with the hon. Member for Perth (Mr. Kinnaird), that it would be an absurdity to call the banking system of Scotland a monopoly, for although banks for issuing paper are restricted, all of them have large establishments with branches in almost every village in Scotland. There is scarcely a village in Scotland with a thousand inhabitants that has not a branch bank. At present there was no limitation to the establishment of banks in Scotland, except this—that it must be on the express understanding that they have no permission to issue paper. The Bill of my hon. Friend, if I rightly understand it, proposes to repeal the Bank Act of 1845, and establish virtually an unlimited paper currency in Scotland. It is true that the banks to be established could only issue paper upon retaining the same amount of gold in their coffers; but this is not affording to the public any security for the value of the notes. Suppose a bank is established which issues notes to the value of £100,000, and that it retains 100,000 sovereigns as reserve — that I take to be the proposal of my hon. and gallant Friend — but the 100,000 sovereigns would be no security for the notes, because the bank might have £1,000,000 of deposits, and if there should be a run on the bank the depositors would get 1751 possession of the gold, and the burden of the notes would be left without security. That would be the natural operation of allowing an unlimited amount of paper issue if you were obliged to retain gold to meet it. On the whole, I do not think that the House is likely to agree to a proposition for repealing the Bank Act of 1844. I believe it to have been perfectly successful, and I should be sorry to give my support to any Bill which in my opinion is calculated to impair it.
§ SIR JOHN HAY
I wish to say a few words in explanation. After what has fallen from the Chancellor of the Exchequer, I think it would be wrong on my part to intercept the course of policy which he has indicated. I trust that at an early period he will endeavour to amend those parts of the Act of 1844 which press unduly on commerce. I do not accept the interpretation which the hon. Member for Inverness (Mr. H. Baillie), has placed upon the Bill; but throughout the debate, it seems to me that a fallacy has prevailed in the minds of some of the hon. Members who have addressed the House. They seem to think that a Bank of England note is a legal tender in Scotland. Such is not the case. It is there deprived of the character of a legal tender, which in England is a guarantee of its value. On the understanding that the Chancellor of the Exchequer intends soon to legislate upon this subject, gathering from his statement that his views concide very much with mine, feeling that on this occasion I have obtained from him everything but his vote, and on the understanding also that the hon. Member for Edinburgh will withdraw his Amendment, I am prepared to withdraw the Bill.
§ THE CHANCELLOR OF THE EXCHEQUER
The understanding of the hon. Baronet is rather large. That I will very soon introduce a Bill is more than I can undertake; and I do not think that the remarks I made justify the hon. Gentleman in placing that construction upon my language. What I said was that the whole question requires careful consideration with a view of introducing Amendments into the present system, and that 1752 at some subsequent period I shall be prepared to enter on the subject.
§ Amendment, and Motion, by leave, withdrawn.
§ Bill withdrawn.