HC Deb 23 February 1865 vol 177 cc608-32

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a second time."—(Mr. Chancellor of the Exchequer.)


said: The present Bill contemplates no object of sufficient importance to compensate for the disappointment that will be felt, when it is known it is all that is to be expected as a substitute for a larger measure of banking reform. It may have been a mistake; and, if so, I do not wish to attach undue importance to it, but certainly, in the discussion on Scotch banks last Session, it was understood to have been announced by the right hon. Gentleman the Chancellor of the Exchequer, that the banking system of England would be reconsidered and amended, preliminary to similar measures applicable to Scotland and Ireland. Since that announcement was made, much interest has been excited in various quarters, and particularly in the burgh which I have the honour to represent. It was seen that no beneficial change in the banking of Scotland could be made, except in conformity with any change of law and system to be adopted in England. Hence the whole policy of the Acts of 1844 and 1845 have been keenly canvassed, and more especially the important question has been raised— should there be one bank only invested with the exclusive privilege of issue, or should there be various competing banks? It is a disappointment, and will be felt as such in many quarters, that, instead of a comprehensive measure, this small, and in some respects, objectionable Bill, has been introduced. No doubt it provides a remedy for restrictions and disabilities under which banks of issue are now placed. There can be no objection in principle to such companies being allowed to pay their notes in London, and to issue them again within three miles of the same centre; nor, so far as those companies themselves are concerned, can there be any objection to their allowing to the Government whatever percentage on their issues they may consider to be a fair equivalent for their extended privileges. But in the interest of the public an important question arises—Are bank issues a fit subject for taxation? and if they are to be held as a right or privilege which the State may confer or refuse at its pleasure, and therefore may sell at such a price as can be obtained, is there not incurred a correlative obligation that the State shall guarantee the issues which it taxes? In regard to the expediency of the proposal, it is obvious enough that taxing hank issues, though primarily a tax on bankers, is in reality a tax on the trade and industry of the country. It is a fundamental principle of our commercial legislation that the raw materials of manufacture should not be charged with import duties. On the same principle, capital, which may be regarded as the indispensable raw material of all commercial undertakings, and which according to its value affects the cost of whatever is produced, should be exempted from taxation. But the question of principle is more important still. If Parliament consents to a Government tax on issues, it admits that such issues are a property belonging to the Stale—that they may be withheld or conferred at the sole pleasure of the Minister—who is thus invested with the absolute control of the banking system of the country. According to his pleasure he may contract or expand issues, and thus affect the value of all property. Such a power is not only capable of abuse, but is contrary to every sound economical principle. Something may be said for the interference of Government with banks of issue, so far as to require them to give security for notes issued to the public by a deposit of Consols or other Government stocks, and perhaps some other regulations; but it is contrary to all experience to assume that the rigid, unintelligent, unscientific rule of State agency can be advantageously substituted for the free action of competing banks. Free competition is the only security that the public will be fully, cautiously, and economically supplied with bank notes, and these notes based on many stocks of gold, instead of one only, would be more certainly convertible in a period of alarm than they can be regarded to be at present. If the principle is wrong it ought to be resisted. It almost seems that the small gain to the Exchequer has been the leading object of the right hon. Gentleman. He is anxious to introduce the thin end of the wedge, and step by step to subject all bank issues to taxation. Now is the time to resist the principle. No doubt the Act of 1844 has provided that the profits on lapsed issues of country banks taken up by the Bank of England should be accounted for to the State; but notwithstanding of that precedent in a Bill which was avowedly only temporary in its provisions, the right of the State to make a charge on issues has not hitherto been admitted, and the present Bill fairly raises the question. At all events, if the State is to derive profit on issues, it should certainly afford a guarantee to the note holders. In so far as the present Bill bears on the principle of the Act of 1844 it is inconsistent with the objects of that statute. Without doubt, and almost by distinct admission, the framers of that Act contemplated that there should ultimately be only one bank of issue throughout the kingdom, and that by degrees the privileges of all other banks should be withdrawn and vested in the Bank of England. But the present Bill is a step in the opposite direction. Issuing banks in competition with the Bank of England are now to be brought into London for all purposes of banking except issue, and, as regards issue, they may now approach within three miles of the same centre, instead of sixty-five miles as at present. Country banks may also unite and amalgamate, and private banks may increase their number of partners, retaining their respective authorized issues. There is thus a machinery provided by which large banks may be enabled to compete with the Bank of England, in so far as that can be done at a distance of three miles from London. This will be no objection to those who dislike the Act of 1844; but, whether intended or not, the policy of that Act is assailed by the provisions of the present Bill. It almost seems as if all other consequences have been disregarded in the eager desire to tax issues. But the greatest objection to this Bill is, that it must be regarded as postponing the consideration of the general policy of our present Bank Acts. Banks of issue are empowered to take leases of their privilege of issue till January, 1890. No doubt, there is a provision for granting compensation, should that right be withdrawn at an earlier period. But to a considerable extent the present Bill will obstruct new arrangements, raise questions with the metropolitan joint-stock banks, and complicate the anomalies which already exist to such an extent as will probably result in the postponement of all improvement in our banking system for a quarter of a century. To many that prospect is alarming. A large and increasing number of persons, whose experience entitles their opinions to weight, regard the present Bank Acts as most injurious to the public interest. They believe that the experience of twenty years has condemned these Acts, and that a reconsideration of the principles on which they are based is urgently demanded. The state of the world is different from what it was twenty years ago. The movements of commerce are not only greater but much more active. Steam and the telegraph have made Europe, India, and America one and the same for financial purposes; and no demand for capital arises within that wide area, but the impulse is communicated to its centre from its farthest extremity. Are the few millions of gold in the Bank of England equal to bear these constant demands? What wonder is there that its directors, tied up by an Act of Parliament, and with their capital invested in a Government loan, should be in constant alarm, and communicate their fears to the public by spasmodic action in their rates of discount? But this is not all. Those adverse exchanges which frequently arise, and which the bank directors are expected to redress, proceed from causes over which they have no control. The joint-stock banks and the large discount houses issue credit money to ten times the amount of the Bank of England, and their cheques and bills as effectually stimulate prices and depreciate the currency as an over issue of notes. But those parties who thus derange the exchanges are relieved from all responsibility for their own acts. A drain for gold causes them no inconvenience. They devolve that on the Bank of England and the public. The obvious remedy for this evil would be many banks properly constituted, each provided with stocks of gold sufficient for its own liabilites; and, as sure as there is economical truth in the doctrines of free trade, a sufficient remedy would be found for existing evils. I would much rather that some other Member of the House should take action in this matter, but I think it my duty to move, an Amendment to the second reading of this Bill— That it is expedient to inquire into the working and effect of the 7 & 8 Vict. c 32, and the 8 & 9 Vict. c. 38, for regulating banks of issue in the United Kingdom, and that in the meantime the second reading of the Bill now before the House be postponed.

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words it is expedient to inquire into the working and effects of the Acts 1 & 8 Vic. c. 32, and 8 & 9 Vic. c. 38, regulating Banks of Issue in the United Kingdom, and that, in the meantime, the Second Reading of the Bill before the House be postponed,"—(Mr. Buchanan,) —instead thereof.

Question proposed, "That the words proposed to be left out stand part of the Question."


did not rise for the purpose of discussing the various provisions of this Bill, but rather to put a question to the Chancellor of the Exchequer. He certainly understood the right hon. Gentleman last year to say that he would be prepared this Session to bring forward a comprehensive measure, or, at all events, to enter on an investigation of a comprehensive character. The hon. Baronet opposite could not have forgotten the speech delivered by the right hon. Gentleman on the second reading of the Bill introduced by him (Sir John Hay). They were then told that the whole system of the law with respect to banking required consideration and amendment, and that the right hon. Gentleman objected to that Bill on the ground that it legislated for Scotland before there had been any legislation for England or the United Kingdom; and that the time was fast approaching when the attention of Parliament would necessarily be directed to this important subject. The right hon. Gentleman concluded his speech in these words— 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. He wished to know whether they were to consider this Bill as the fulfilment of that promise. If the measure now submitted to the House was the only one he was prepared to produce after the declaration made last year there would be a feeling of very general disappointment among a very large portion of the mercantile community of Scotland. With regard also to this Bill, he hoped, if the second reading were passed, which he supposed it would, the right hon. Gentleman would reconsider the 13th clause, giving compensations in cases of bankruptcy, and which he thought liable to very great objection, before going into Committee.


said, he thought piecemeal legislation on this question altogether inexpedient. The time had arrived when they ought to address themselves to a full inquiry into the Banking Acts affecting not only England, but Ireland and Scotland. He quite admitted that the 5th clause of the proposed Bill dealt with a real grievance; that the restriction on the number of partners, in the case of banks of issue, was a premium on unsoundness, and that the prohibition from having a house in London or within sixty-five miles was a piece of exceptional legislation which should be removed; but after the declaration of the Chancellor of the Exchequer last year that the whole question should engage the early attention of the Government and the House, he thought they should postpone legislation to a more fitting period, or rather till a full inquiry had taken place into the operation of the Bank Acts of England, Ireland, and Scotland. When he said this, he was quite aware that the present Parliament was so near the term of its legal duration that it would not be expedient that a Committee of that House should be appointed. And, indeed, with all respect for that House, he was scarcely of opinion that a Select Committee of that House was the best body for conducting the inquiry. He should prefer that a Royal Commission should be appointed, and he thought there would be a peculiar fitness in issuing a Commission of Inquiry now, seeing that the Government of France had just appointed a Commission to. inquire into the same subject. He could assure the Chancellor of the Exchequer that there was a popular belief that the operation of the Currency Act tended to make the rich richer and the poor poorer. When the last Committee sat there was but a partial inquiry, but he would read the following extract from the Report of that Committee:— Without entering into any question respecting the issue of small notes on the credit of the State, the Committee desire it to be understood as their opinion that the subject of the issue of small notes in Ireland and Scotland and of private Issues generally in the United Kingdom should be reserved for the future consideration of Parliament without prejudice. That was on July 30,1858. Nearly seven years had elapsed since that period, and no inquiry whatever had taken place. Again, since that period the principle of limited liability had been sanctioned by legislation, not only in banks but in other industrial undertakings. He need not Bay that this was a novel feature, and the effect which it might have on our monetary relations certainly demanded investigation; besides which there had risen up gigantic financial corporations, both in England and the Continent, which made an inquiry the more urgent. The supporters of the Banking Act of 1844 told them that the object of it was to prevent fluctuations in the value of money; but what had been the effect? Last Session Lord Overstone moved for a Return of the minimum rate of discount charged by the Bank of England from the passing of the Bank Act of 1844 to the 5th of May in last year, and from that Return he found that in 1858 there were six changes in the rate, which varied from 2½ per cent to 6 per cent; in 1859 there were five changes, and the rate varied from 2½ per cent to 4½ per cent; in 1860 there were eleven changes, and the variation was from 3 per cent to 6 per cent; in 1861 there were eleven changes, and the variation was from 3 per cent to 8 per cent; in 1862 five changes, from 2 per cent to 3 per cent; in 1863, there were twelve changes, and the variation was from 3 per cent to 8 per cent. The year 1864 opened with the rate of 7 per cent and closed at 6 per cent, and during the year there were the unprecedented number of fifteen changes in the minimum rate of discount charged by the Bank of England. In the first quarter the rate varied from 6 per cent to 8 per cent; in the second, from 6 per cent to 9 percent; in the third from 6 per cent to 9 per cent, in the fourth, from 6 per cent to 8 per cent. No one of these changes was less than 1 per cent, whilst the average rate of the year exceeded 7 per cent. No Act of Parliament could prevent fluctuations in, or determine the value of money; but still he did think when a law had been put to the test and had signally failed that the time had arrived when it should be inquired into. In his opinion it was entirely owing to the remarkable sagacity displayed by the Bank of England last autumn, that they did not have a recurrence of the disasters of former panics; but then they could not always he sure that the same wisdom and foresight would prevail in the management, and hence the necessity for some other security. It had been said that the Act of 1844 was intended to check speculation. ["No!"] At any rate, whatever the intention of the Act, it was undeniable that speculation is now more rampant than ever. When they reflected on the wealth and inexhaustible resources of the country, they must see that matters were not in a sound state when the transfer of a few millions produced, if not a panic, at least uneasiness and distress. It was clearly an unhealthy symptom that the purchase of a million of gold should raise the rate of loanable capital 1 per cent. In support of his views he might cite the opinion of Mr. Thomas Tooke, the founder of the Political Economy Club, and a high authority on such questions who said that the Act of 1844 was one of the most wanton, ill-advised, pedantic, rash pieces of legislation he ever knew, and that in its consequences it had proved a lamentable failure. Mr. John Stuart Mill's opinion was also on his side. His own conviction was that any legislative interference with banking was unjust and injurious. There were no reasons why banking should be exempted from the operation of those principles of free trade which had been so successful in other cases. A former Secretary of the Treasury, Mr. James Wilson, used to say he could never understand how persons calling themselves free traders could think of excluding banking from the application of their favourite principle. The banking abuses which occurred in the first quarter of this century were not attributable to anything inherently wrong in the system, but to the legalized and long continued suspension of cash payments (from 1797 to 1821) by the Bank of England, and to legislative restrictions as to the number of partners in each bank, and other obstructive enactments. In Scotland, banking before 1845 was conducted on the principle of unrestricted competition and without any Government interference whatever; and it was for that system he pleaded now. In China there was perfect free trade in banking, and the Government had found that the less they meddled the better it was for all concerned. The consequence was that there were thousands of bankers in China. In Shanghai alone there were probably three or four times as many as in London. Nobody ever heard of a British merchant losing money by the notes of a Chinese banker; but of course a selection was made of paper for acceptance. In Scotland the system he advocated had been found to work well, and, as had been truly said, although two joint-stock Scotch banks had failed, the creditors all received 20s. in the pound. He held that the time had arrived for a fair, full, and comprehensive inquiry into the subject; but in asking for that he wished it to be understood that he did not seek to alter the convertibility of our paper Issues. He was a bullionist in the strictest sense.


I rise now to remove a misapprehension from the mind of the hon. Member for Glasgow. He says that last year I, as well as some other Members, and in particular a Gentleman of high authority on such matters—the Governor of the Bank of England, whose absence to-night we all regret—expressed the opinion that it would be desirable for Parliament, at a period which was approaching, to revise the Acts of 1844 and 1845, with a view to the further development of some of their provisions. My hon. Friend says these words excited an expectation in Scotland that the Government would this year propose to legislate on the currency. Now, in the first place, my words, as they are reported, contain no reference whatever to the present year. In the second place, what I said was not construed at the time by any hon. Member as having reference to the present year, and if such a construction had been put on them I should at once have pointed out, what must be obvious to all, that there could not possibly be a worse season for legislating on the currency than the last Session of an expiring Parliament. That being the case, it is plain that the present Bill is not the fulfilment of any supposed pledge made by me last year. The present Bill arose out of a proposal essentially practical. Certain parties, being in possession of a portion of the privilege of issue, proposed, that upon placing their issue on terms more favourable to the State, and agreeing to hold it for a limited instead of, as at present, an indefinite period, they should be released from certain restrictions upon their business. My hon. Friend the Member for St. Ives (Mr. Paull), who communicated with me on the government of the National and Provincial Bank, would, I apprehend, have been perfectly justified in submitting a proposal of that kind to the House, quite irrespective of the wider considerations involved in the question of issue. It must not be forgotten that at this moment, by the Act of 1844, the freedom of the banking trade is restricted, in a certain degree, on account of the privileges held by various parties in regard to issue. There I have drawn a distinction that my hon. Friend who last spoke will scarcely admit. My hon. Friend says there ought to be perfect freedom of trade in banking. I agree with him; but when my hon. Friend explains what he means by perfect freedom in banking, we learn that, as he understands it, it implies that every banker ought to be allowed to issue as many promissory notes as he pleases. My answer is (whether my hon. Friend be right or wrong, and as to that I have a very decided opinion)—my answer is that this is not a question of free trade in banking. Banking is one thing, issue is another thing. Half of the misunderstandings that prevail on the subject arise from that inexplicable confusion in the minds of men which leads them to suppose that the issue of promissory notes is essentially and properly part of the business of a banker. I do not, of course, deny that there is some connection between the two, or that in Scotland they are so closely united in the minds of the people that it will be long before they separate them even in the abstract. But legislation in this country has proceeded—the Act of 1844 proceeded—all who understand the subject proceed on the principle that issue is one thing and banking another. With respect to the speeches of my hon. Friends the Members for Glasgow and Brighton (Mr. Buchanan and Mr. White), I may be allowed to say that I hope I may be permitted to deprecate any general discussion on this occasion on the working of the Act of 1844, or the manner in which that Act has withstood the strain and pressure of last autumn. I do not at all object to take a discussion on that subject in this House if it be the pleasure of hon. Members to entertain it, and I do not know that such a discussion would not be attended with benefit, since I believe it would show that the Act of 1844, being as it was admirably administered by the Bank during the crisis, rendered essential service to the country. That, however, is not the question at the present moment. The question now is whether we are justified in refusing the application of bankers, who are issue bankers, but who desire to obtain freedom in banking which they do not, under existing circumstances, possess, and who are willing, in consideration of the freedom, to fix the term at which their right of issue shall absolutely cease, and that the renewal of that right, if it take place at all, shall be the result of the deliberate action of Parliament. I, for one, do not think we should be justified in refusing an application so made. I am of opinion that bankers who are disposed to act on a plan of that kind ought to be permitted to do so, and that it is much better if this is to be done that it should not be done for one bank alone, but that that which is desired by particular banks should be open to others. Why do we desire this Bill should pass? To promote freedom of trade in banking, not to promote freedom of trade in issue. Is it desirable when an almost absolute necessity drives banking establishments throughout the country towards this great centre of the money operations of the world that those establishments should be hampered by arbitrary provisions, and should be obliged to pass their business through the hands of agents? The main question is whether permission required to transact their business shall be given to banks now holding the privilege of issue— and if given—being good in itself,—on conditions good—in themselves. I do not say that Parliament is bound to any particular policy in future in regard to the issues placed under the operation of this Bill, but Parliament will have its hands untied in respect to those issues. The effect of the conditions will be that as regards all issues placed under the operation of the Bill Parliament shall, after a fixed period, become perfectly free to deal with them on consideration of public policy alone, without being bound and restrained by a number of undetermined questions, having relation to the nature of the rights possessed by particular parties. I think it is better that I should, on this occasion, avoid entering into the details of the Bill. My wish is that ample opportunity should be given to the country and to those persons more especially interested in its provisions to consider well its scope and object before it goes into Committee. With that view, after the Bill has been read the second time, I should propose that the Committee on the Bill should be postponed for four weeks. It is within my knowledge that the attention of bankers and others have been drawn to the Bill from the moment of its introduction, and I feel certain that within the period I have just named we shall be placed fully in possession of the views of those persons who are best qualified to give us counsel on the subject, and to point out whether they think their own interests or those of the public are likely to be beneficially or injuriously affected by the operation of the Bill. My hon. Friend the Member for Glasgow (Mr. Buchanan), while admitting that the principle of the Bill is sound, objects to it on the ground that it would continue the system of having a large number of banks of issue instead of one. There are those who think that it is the tendency of a measure of this kind to stop the extinction of private issues which is sensibly advanced under the operation of the Act of 1844, and it is desirable that the House should know what has been the operation of that clause of the Act which, no doubt, did contemplate the extinction of private issues in England and Wales. Taking, then, three periods of seven years each between the years 1844 and 1865, I find that in the first period of seven years £440,000 of private issues were absorbed; the amount in the second seven years being £214,000, and in the third £166,000. If, then, the absorption of those issues were to proceed at the same rate, they would be disposed of in England and Wales in about 250 years from the present time; but inasmuch as private issues are disappearing at a rapidly decreasing rate, I think it more likely that 400 years must elapse before Parliament would find itself in a position to approach the subject with hands perfectly free. My hon. Friend the Member for Brighton (Mr. White) is very anxious for legislation on this question of the currency, but his own good sense points out that not only we cannot legislate in the present Session, but that we cannot even inquire. He deprecates the appointment of a Committee, and urges the issue of a Commission to examine into the question, and I confess I was rather startled at the proposal. I have great doubts whether in the case of such a subject as the currency, the adoption of so novel a course as to withhold even partially from this House the investigation of so delicate a question would be acceptable to Parliament or the country, and whether it would not retard those prospects of legislation which my hon. Friend desires to advance. My hon. Friend referred particularly to one of the clauses of the Bill, that which relates to banks being enabled to avail themselves of the provisions of the Bill in respect of their leasehold interests in the event of bankruptcy. Now, that is not a clause to which I feel myself particularly bound. I look upon it as a fair and equitable clause, but it is not one which is pressed for by the parties interested, and if hon. Members should deem it unnecessary to retain it, they may by all means dispense with it in Committee if they please. But the main object of the Bill is to set the business of banking free, and to place the issues on an improved footing until such period as Parliament may entertain on purely public grounds the important question which has never been decided on its merits—whether it is desirable to concentrate the whole of the issues of England and Wales in the hands of the Bank of England, or to make use likewise of the agency of other banks. I quite concur with my hon. Friend the Member for Glasgow, that if the issues are taken in hand by the Bank of England it becomes its duty to lodge security in respect of them. It does not appear to me, I may add, in the present state of things, and in the present condition of Parliament, possible to propose a final and absolute settlement of this question. It must depend upon the degree of willingness amongst all parties interested to come to a settlement on the subject; but I am not warranted at the present moment in proposing any measure of that kind on the part of the Government. Under the provisions of this Bill the private issues of the country will be better secured than at present; for the Bill admits the transfer of issues from one bank to another. The sellers will be the banks that are weak, and the purchasers the banks that are strong and able to manage the issues with the greatest effect and the greatest benefit to the country. I propose, Sir, a Bill that meets fairly and in a manner beneficial to the country, the just claims of certain parties—claims so just that it is difficult to refuse them— and meet them in a manner that does not effect a final solution of the question respecting the private issues, yet leads the way to such a solution without prejudicing the opinion of Parliament. As to whether the Government takes a right view of the percentage to be paid, or the particular lease to be given, these and other questions are matters of detail for consideration; but I should be sorry if the House should pass the Bill in a form less favourable to the parties interested than that in which it now stands. It will be perfectly compatible with the general aim of the Bill that its particular provisions should be considered by the House, and,'if thought desirable, should be modified in a fair and beneficial direction, At any rate, I should wish, for my own part, to have the advantage on a question of this kind of all the consideration that can be given to the details of this Bill during the interval that will elapse between the second reading and the time at which I shall move that the House resolve itself into Committee upon the Bill; and I would propose such an interval as shall afford a most convenient opportunity for ample consideration by all the parties interested. SIR EDWARD COLEBROOKE must express his disappointment that his right hon. Friend had not kept the promise he was understood to have held out of his readiness to consider the question of the Bank Act. He was within the recollection of the House whether the Chancellor of the Exchequer did not last Session state his willingness to consider boldly the whole question of the Bank Act. That considerable disappointment should be felt at so meagre a measure was, therefore, inevitable. He regretted that the right hon. Gentleman had not taken notice of the important question on which his hon. Friend the Member for Glasgow had spoken—namely, the taxing of issues upon the principles of this Bill. He thought the second reading ought not to have been moved until the public had had more time to consider the bearings of the question. It should be remembered in the discussion of this subject that the relation of these banks to the Government was very different from that of the Bank of England. Nearly the whole of its capital being lent to the Government, its relation to the Government was so close that if the Bank fell into difficulty the Government would feel a degree of responsibility. In placing small banks under the proposed restrictions, Parliament would be putting the Government in a position of obligation towards them. If the Government taxed the issues of any private bank they debarred it from holding a proportional amount of securities which it could realize in time of difficulty. He would advise his hon. Friend (Mr. Buchanan) to reserve the question he had raised for separate discussions, but could he not do so should be prepared to support him.


was ready to admit that it was impossible during the present Session to appoint a Committee to investigate the operation of the currency laws. But when he found Gentlemen from the north, and gentlemen from the south, united in their opposition to the present currency law, yet widely differing from one another, he could not but feel that it would be desirable that the question should be fully discussed. He trusted that the subject would be thoroughly investigated in the ensuing Session, and that the hon. Members for Glasgow and Brighton would find seats in the next Parliament, and thus have an opportunity of testing their opinions and reconciling their differences. The hon. Member for Glasgow had uttered a dogma with which he entirely agreed— namely, that there was nothing more important than to determine whether it was right or not to tax private bank issues. Upon whom was the assumed tax supposed to fall. He thought it was levied upon the noteholders; and, if so, the tax of £2 5s. per cent proposed in this Bill would be levied upon those who were paying a heavier tax at the present moment. There was, however, this difference between the existing and the proposed tax. The tax that was proposed would be paid to the State for the advantage of the entire community. But who had the advantage of the tax that was now levied? So far as the issue of Scotland was concerned, the tax levied upon the community through the issues of paper money was levied for the advantage of Scotch banks. This discussion raised the important question—in whom resided the right of levying or creating a revenue by the issue of paper—that was to say, by converting an article valueless in itself into an article of very great value? It bad always appeared to him that if it were the proper function of the State to provide the people with a safe and convenient currency it ought not to be limited to one form of currency. If it were the duty of the State to provide a safe currency of gold, silver, and copper, why not also of paper? When they converted gold into coin they merely gave a form and name to that which was of equal value previously. When they converted silver into coin they gave it an additional value of 10 per cent; when they coined copper they added 100 per cent to its value. But when they issued paper, they created a positive value out of that which was intrinsically valueless. Now, supposing the paper currency of Scotland to be £3,000,000, and supposing the bankers to lend it at £5 per cent, they would levy £150,000 a year upon the community. That was, in fact, the tax which the Scotch bankers levied upon the Scotch community. Now, if that currency had been subject to the tax proposed in this Bill, half of that sum would have gone into the Exchequer, and would have formed part of the accruing surplus which would have been available in diminishing the duty on tea, coffee, sugar, and even malt. If the question was ever to be brought to a satisfactory issue, Parliament must affirm the right of the State to provide a valid and convenient currency, and to secure for the public advantage whatever profit may accrue upon the public circulation of credit paper money. There would then he no longer any confusion between banking and coining paper money, and banking would be free to every one. He did not on this occasion want to go into a discussion of the currency laws, or of the working of the Bank Charter Act of 1844; but whenever a Committee should be appointed to consider the operation of the Act he looked forward with confidence to the result of the inquiry, being convinced that it would establish not only the wisdom of the law, but also the discretion and judgment with which it had been carried out. With regard to the measure before the House, if he had any scruple it did not arise from any difference with the Government as to the principle that ought to he at the bottom of a currency Bill. All he feared was that the Chancellor of the Exchequer was deviating from those principles which ought to guide him upon the question of the currency. The compromise which the right hon. Gentleman proposed might have the effect of postponing, and possibly of frustrating, the inclusion of the whole paper money of the country in one uniform character and expression. There was a positive inconvenience in the use of conflicting expressions of value—an inconvenience which was daily felt in the clearing-house in Lombard Street, where they had not only to deal with gold and Bank of England notes, but with the notes of various country banks and bills of exchange. The country notes differed from the Bank of England notes, and the Lombard Street banks occupied a considerable portion of the time appointed for the clearing in sorting the various country notes and including them in the adjustments of the day. Moreover, these private notes were much more capable of being the subject of theft. Bank of England notes were registered, and it was easy to trace them—but there was no registration of these, and if a man slipped one in his pocket it could be as easily stolen as a sovereign, for it could not be followed. This brought him to what appeared to him to be the principal defect of the measure before the House. It was said that the country banks of issue had hitherto been working under certain disabilities from which they should be relieved. But on what terms? One would suppose by giving security for the payment of their notes, but they were not to be asked to do so, they were only asked to pay a certain percentage upon their circulation. The Chancellor of the Exchequer was willing to be a partner in their profits, but he would not participate in their promise to pay. He thought that if any measure was proposed on the subject of the currency laws, it should be directed to rendering it more secure. In saying this he would be understood as not throwing the slightest shadow of suspicion either on the notes of the Bank chiefly concerned in the Bill before them, or on those of other powerful corporations who exercised the privilege of issue. What he wished to convey was his opinion that unquestionable security should be given for the redemption of notes which circulated as the equivalent of coin. The Bill repealed the restrictions with regard to the number of partners, and with regard to the establishments of banks within the sixty-five miles distance from Loudon. This would be advantageous to those coming within its operation; but, looking at the distinction which the right hon. Gentleman himself had drawn in so very prominent a manner between issue and banking, he doubted whether in a measure for granting banking facilities they ought to insert provisions for sanctioning and perpetuating the practice of private issue, even for the sake of a share of the profit. He thought that the two subjects ought to be kept distinct from each other. Again, there was a provision for permitting banks to be merged into each other. Now, as it ought to be the object of the Legislature to bring our currency to the most secure and perfect form, he was opposed to facilities being given for the amalgamation of banks of circulation, because the circula- tion of those banks fell from various causes, and the weakest of them would die away under the present system; but if the law allowed the privilege which they now enjoyed to be made a matter of barter and sale, the more uncertain the position of any of them holding that privilege the more certainly would they endeavour to turn it to account by effecting a sale; and therefore the more precarious of those banks, which in a few years might die away, would be perpetuated by this power of amalgamation. The position of the country banks at the present moment was hardly one of so fixed and stable a character as the right hon. Gentleman would represent it to be. On reading the Act of 1856, he did not think it put them in a better position as regarded permanency of their privilege than that which they had enjoyed under the Act of 1844, for the second and last section of the enactment of 1856 stated that the composition should be continued for the future, "unless Parliament should otherwise provide." Therefore "the will and pleasure of Parliament" was before the eyes of the country issuers as that which at any time could terminate their powers. He should not say more on the subject at present, for if the House went into Committee on the Bill the time would then come for commenting on the various clauses; but he trusted that an Act introduced apparently for a very different purpose might not become the medium of effecting such consequences as those to which he had just referred. If his right hon. Friend persevered with the Bill in its present shape, instead of providing what was so desirable—an uniform system of currency—it would be the means of perpetuating a system which, however advantageous to the private issuers, was, as regards the community, defective both in security and convenience, and deprived the public of the gain derivable from the circulation of paper based on public credit.


said, that he agreed in much that had fallen from the hon. Gentleman who had just spoken. He concurred in the main principle of the Bill. Entirely excluding the issue of paper money, there were difficulties affecting those who carried on the trade of joint-stock banks; and he thought that, as far as possible, all those difficulties ought to be removed. But he could not see why a measure for their removal should be accompanied by a provision continuing what he regarded as a mischief for a period of twenty-five years. He would give every man the power of establishing a bank wherever he pleased for conducting all banking operations, properly so called, but making an exception as regarded the power of issuing notes, which he did not look upon as a necessary part of banking operations. He objected to Parliament being asked to shackle itself with an engagement to last over twenty-five years, which would prevent the possibility of any action being taken by Parliament during that period, even though it should be thought desirable. He would create no new lease in the case of issuing banks, but would leave Parliament free to put an end to issues of promissory notes whenever it might be thought desirable to do so. The more he considered the subject the more convinced he became that the principle of the Bill of 1844 was a sound one— that principle being that there should be no issue by any company unless such issue was based upon sound security. On that very basis let them extend the principle in any way they could; and let the Government get any profit they could get by a new arrangement, if their arrangement with the Bank of England did not give them profit enough. He believed, however, that their arrangement with the Bank of England was a profitable one, and that any other would be a greater expense to the State. But, be that as it might, there was no good reason for confirming the existing rights of issues for a period of twenty-five years—a measure which would interfere with the action of Parliament hereafter. He did not think the country banks had any locus standi when they asked for such a provision, because in previous legislation it had been contemplated that it should be competent to Parliament to take the matter into consideration whenever it thought fit; and those banks would have no right to complain if Parliament put an end to the privilege altogether. He hoped the Chancellor of the Exchequer would reconsider this portion of his Bill which, if passed, would put this matter beyond the control of Parliament for twenty-five years, and, therefore, prevent it from being debated hereafter by many in that House who took a great interest in the subject.


concurred in the observation of the hon. Member for Buckingham (Mr. Hubbard) that all money—all gold, silver, and copper—ought to be issued by the State; and, on the same principle, he thought no paper money should be issued except on the authority of the Government, they making themselves responsible. In other words, anything issued to the public in the way of money should be certain and fixed, and the public should not be inconvenienced by the failure of private banks. The hon. Member for Brighton (Mr. White) had done a public service by drawing attention to the working of the Act of 1844. Now, if it was the duty of the State to provide money, it was also its duty to provide it in sufficient quantity, and the great question as to the Act of 1844 was whether it did provide useable money in sufficient quantity. Nobody pretended that there was any want of wealth or of capital. The experience of last year had confirmed the experience of former years in which there were periods when there was an absolute scarcity of useable money, or the apprehension of it. The hon. Member for Brighton had drawn attention to the fact that, under the Act of 1844, there had been constant fluctuations in the rate of discount. He told them that in 1864 there were fifteen changes in the rate of discount by the Bank of England, and the question naturally arose, what was the cause? The principle of the Act of 1844 was to have a perfectly convertible bank note. There was not gold in the Bank at all times to insure that convertibility, and therefore the Act authorized the issue of £14,000,000 of notes not represented by gold, upon the faith of the debt due by the public to the Bank of England. Now, how did it happen that, in the autumn of last year, the rate of discount was at 9 per cent, which was practically a panic. How could the Chancellor of the Exchequer account for the fact that in September and October the rate of discount was at 9 per cent, when the gold in the Bank averaged £12,000,000, generally £13,000,000, and sometimes £14,000,000, and the reserved notes£7, 000,000; and, under the same circumstances, on former occasions, the rate was never higher than 6 per cent? Was the panic of last autumn created by the public wants, or by operations in the Bank parlour? He had heard an hon. Gentleman declare that the conduct of the Bank last autumn was singularly wise, cautious, and discreet, and yet there was a great public disaster. He had a strong opinion, which was participated in by many, that the uneasiness which had prevailed throughout the country had been caused by what had been done in the Bank parlour. Though not a commercial man himself he had watched those matters very closely, and he asked himself why should England, the greatest commercial country in the world, have its rate of discount 1½ per cent on an average higher than that of any other country? Why, when corn was so ruinously low, was the rate of discount so high? Why in England should money be dearest, the effect being to make the rich richer, and the poor poorer? The Act of 1844 gave the rich the power of grinding the poor. ["No, no!"] He repeated it. Every small trader was distressed last year, while the rich could obtain abundant interest. The greatness of England was not made up by its large traders, but by its general prosperity, and general prosperity could not exist unless the small traders were prosperous, and that could not be under these perpetual fluctuations. There was not a small capitalist who did not take up the newspaper with fear and trembling. But the Bank of England never seemed perfectly happy unless they were varying the rate. He saw a phalanx of bankers and bank directors opposite, and they knew very well that the public had been kept last autumn in a state of intense anxiety. He had met the hon. Member for the City of London one morning last autumn in Hyde Park, where they all resorted, and he had taken the liberty to tell him that the Bank of England had been most reprehensible for not having lowered the rate of discount, which was at 8 per cent at that time. Was it a small thing that in a commercial country like this we should have those frequent changes? Hon. Gentlemen opposite were free traders in everything but money. The principle of the Act of 1844 might be the soundest in the world, but there was a defect in its provisions, and he would venture to tell the Chancellor of the Exchequer that he would not discharge his duty unless he took an early opportunity of remedying it. In 1847, and again in 1857, the Act had been violated; the Government authorized its violation, and empowered the Bank to issue notes beyond the £14,000,000, and when the limit was passed the excitement and alarm of the public at once passed away. Directly the famous letter of the 25th of October, 1847, was issued, the rate of discount went down from 8 per cent to 5. In 1857 the Bank Act was again suspended; and again the pressure was relieved, and the rate within a few months went down, he believed, to per cent. When Parliament was sum- moned in 1857, he (Mr. Malins) urged the Chancellor of the Exchequer to take a power authorizing the Bank of England to go beyond £14,000,000. Last autumn, when the rate of discount was 9 per cent, there had been a power of doing by law if at which upon two emergencies had been done contrary to law, the late panic would have been prevented. But as long as the law remained in its present state we should have a recurrence of those panics, which might come on next month, or at any time this year. A man may enter into an engagement when money is at 4½ per cent, but when he has to fulfil his engagement he may have to pay 10 per cent. Every one knew when money was abundant, if a man went with a bundle of bills to be discounted the banker would gladly take them, but if the rate was at 8 or 10 per cent he would turn back perhaps half of them. If the bank had the power of going beyond the £14,000,000 plus the gold, then the continuous apprehensions in the commercial world would cease. In reading the City article in The Times or any of the newspapers one might light upon such an announcement as this: "Yesterday £100,000 of gold was taken out of the Bank." Was it not ridiculous, was it not contemptible, that a great country like this should have its commercial men frightened at the thought of £100,000 in gold being taken out of the Bank, just as if all their operations were to depend on whether there were one or two millions more or less in the Bank? He could not understand why Sir Robert Peel fixed upon the magical number of £14,000,000; but if there was magic in it at that time he asked how it could be sufficient in 1865, when the commercial transactions of the country had nearly doubled? It was the duty of the State to provide a sufficient quantity of money—paper money equally with coin—for the exigencies of society, and if at any time it was found that the quantity was not sufficient, the State ought to take steps to secure that it should be so. He did not contend for the inconvertibility of the note; the deficiencies of the Act of 1844 might be remedied without touching on that point. However right that Act might be in principle, experience showed that the working of its machinery was continually putting the country into a state of distress, and the time had come when it was the duty of the Government to take measures which would secure its relaxation in times of pressure.


said, he would not enter into a consideration of the Bank Act of 1844, because that would lead to an interminable discussion. But in reply to his hon. Friend the Member for Wallingford, he would observe that his hon. Friend had held it to be the duty of the State to provide a sufficient quantity of useable money. But it was plain that by useable money his hon. Friend meant money that somebody wanted to borrow. The State, therefore, according to his hon. Friend, was to supply all the money which anybody wanted to borrow. But he would put it to the serious consideration of hon. Members whether this was not a monstrous proposition. Any two men might sit down in a room and draw half a million sterling in bills, and then his hon. Friend said it was a great hardship if they could not get ready money for them. His hon. Friend failed to draw the necessary distinction between money and capital. Now, the circulating medium was the only thing with which the Government had anything to do. It was monstrous to suppose that the State was to supply capital. His hon. Friend had talked of the numerous fluctuations in the rate of discount. His (Mr. Goschen's) wonder was that the fluctuations were not even greater than they were. The fact was that the rate of discount depended solely on the demand for loanable capital. If the number of borrowers exceeded the number of lenders, the rate of interest rose; if it was less, the rate fell. The fluctuations were not in the circulating medium, but in the value of loanable capital. It was a mistake to suppose that with that state of things the State had anything to do; and he regretted to hear an hon. Member of position in the House affirm that the effect of the Act was to make the rich richer, and the poor man poorer. It would be a public misfortune if small, traders who could not go deeply into these matters should get an impression that the Act had that tendency. There were difficulties in the question, no doubt; but he thought it was a fundamental principle that the price of an article must depend upon the laws of demand and supply. The principle of free trade was to give the greatest freedom to the means of supply. The Bank of England had no more power to control the rate of discount than any other establishment. If it asked too high a rate it would, of course, lose its business. What the hon. and learned Gentleman seemed to be asking for was that what was scarce should be made cheap. The Bank had no power to establish the rate of discount; and the advocates of change who wished to make money artificially cheaper in times of scarcity, simply opposed themselves to a natural law. If an article was scarce, the natural remedy was to put a dear price upon it, and thus attract supply. When money was scarce, the capitalist came in and equalized the demand. It followed, therefore, that fluctuations must occur, and the more these fluctuations followed their natural course the better. When the hon. Member spoke of ten changes, he (Mr. Goschen) only wondered there were not twenty or thirty in the same period. If the Bank of England had no maximum limit of issue, did anybody suppose that money would always be at 4 or 5 per cent? The rate would fluctuate much more than it did now, and perhaps it would be better that it should do so. He thought it most essential that the question of the circulating medium, which was the sole object of the duty of the State, should be kept separate from that of capital, with which the State had nothing to do, and nothing could be more lamentable than when talented Members of the House informed the public that the Act of 1844 pressed severely upon the poor of this country.


agreed and disagreed with much that had been said on both sides. He did not agree with his hon. and learned Friend below that money should be furnished to everybody who wanted it, nor did he agree with the opinion expressed by his hon. Friend opposite as to the fluctuations in the value of money. His hon. Friend said it was right that the interest of money should vary like the price of any other commodity, but the rise and fall in the value of money regulated the value of every other commodity. There was nothing so important for a commercial community as to have the rate of interest permanent and stable, because upon that people could only base their calculations. A variation in the rate of what his hon. Friend called loanable capital was different from a variation in any other commodity. A variation in the price of cotton did not affect other articles, but the value of money acted upon every other commodity. He confessed that he did not believe the Act of 1844 to be perfect, for nothing human was perfect. At the same time, he should be sorry to see in an Act of this kind changes made which you could not base upon previous experience or adopt upon evidence of their necessity. His hon. Friend the Member for London seemed to see great advantages from these constant variations and commotions, but he believed that a constantly varying rate of money was a positive disadvantage to the progress of trade in any country. Yet under what measure had the rate of currency ever varied more than under the Act of 1844? The convertibility of the note had been maintained under other Acts, but it had been sometimes endangered under the Act of 1844, and a prominent defect in the Act was that it had been necessary to repeal it twice within twenty years. With regard to the present Bill, as the Chancellor of the Exchequer said it would be advisable to consider the necessity of changes in the Bank issue department, he asked whether it would be well to adopt a measure which in certain cases could not be altered for twenty-five years, and whether it would not be better to let the Bill stand over until the whole subject was considered, and as the right hon. Gentleman seemed to think it would be, in the first Session of the new Parliament.

Amendment, by leave, withdrawn.

Main Question put, and agreed to.

Bill read 2°, and committed for Thursday, 16th March.