HC Deb 31 July 1866 vol 184 cc1706-61

٭ rose to move— That an humble Address be presented to Her Majesty, praying that She will be graciously pleased to issue a Royal Commission, directed to the investigation of the causes which have led to the late severe and protracted pressure in the money market, and to the continuance for a long period of a minimum rate of discount of 10 per cent at the Bank of England; and also to investigate the Laws at present affecting Currency and Banking in the United Kingdom, and to report what (if any) alterations have become expedient therein; and further, that it be an Instruction to the Commissioners to present their Report and the Evidence taken by them on or before the 1st February, 1867. He said: Sir, the right hon. Gentleman the Chancellor of the Exchequer informed his hearers, in a speech made a short time ago at Aylesbury, that all that was required to rescue us from the difficulties which everybody deplored, was time, peace, and an abundant harvest. Now, Sir, time has elapsed since the speech of the right hon. Gentleman—peace has been, we trust, restored, and as far as the harvest is concerned, from all the indications around us we have every reason to indulge the hope that an abundant yield is almost within our reach. Yet notwithstanding these circumstances, the minimum rate of discount at the Bank of England is still 10 per cent, while the rate of discount in Paris is 3½ per cent; at St. Petersburg, 5½ per cent; at Berlin and Brussels, 6 per cent; at Amsterdam, 7 per cent; and at Vienna, 5 per cent. Addressing myself to the question of inquiry—for it is inquiry only that I ask for—I may say at once that I need not alarm those hon. Gentlemen who represent great monetary interests by holding over them the danger that I shall either advocate the Birmingham theory, the theory of Scotch banking, or any other of those general theories which some of them seem to be so much, if not so needlessly, afraid of. But I think I may say that the opinion of this House, and of the monetary and commercial interests of the country, may be divided into four classes. The first consists of those who think with myself that inquiry, being desired by the country, ought to be initiated by this House. The next class is composed of those who consider that past inquiries have sufficed to give us almost all the information we need, in order to amended legislation, and therefore that we ought to legislate at once. Then, again, there are those who consider that neither inquiry nor legislation is required—those whom we may, perhaps, call believers in the absolute perfection of our present banking and currency arrangements; and the fourth class consists of those who may be looked upon as some-what inimical to, and perhaps even afraid of, inquiry. With regard to the last class, so far as they represent the great banking institutions of this country, they must be treated as to some extent upon their trial; because the late Chancellor of the Exchequer, with, I think, the consent of this House, gave the Bank of England enormous powers to deal with an emergency, and I think it is only fair to themselves, as far as they are concerned, that instead of opposing inquiry—instead of obstructing the fullest investigation into the manner in which they have performed the trust reposed in them, they should be foremost in demanding inquiry and offering those explanations which a great portion of the commercial and manufacturing interests certainly do demand. Sir, unanimous consent attributes recent difficulty to financial and commercial operations under certain laws. We have had great distress, great difficulty, and great embarrassment, and our writers and speakers in public have attributed them mainly either to errors of legislation, or to the misuse of beneficial legislation on the part of the commercial, banking, and trading classes. But in either case, and in both cases, we ought, as legislators, as those who make the laws, who watch their working and correct them where amendment is requisite, to bottom and probe those difficulties in every way, in order that if further or amended legislation is necessary, we may next Session initiate it and carry it through. This House is always anxious to find precedents for anything it pro- poses to do, and I am bound to quote such as exist. After the deep distress and panic of 1837, we had a Committee of this House, presided over, if I remember rightly, by the present Lord Halifax; after the panic of 1847, we had a Committee presided over by Sir Francis Baring; and after 1857 we had a Committee presided over by the right bon. Gentleman the late Secretary for the Colonies; so that in every case where commercial difficulty, leading to panic, and those disarrangements which have recently again appeared, has arisen, this House has stepped in to inquire into the facts, and to inquire into those facts while they were fresh in the memory of everybody, and when, therefore, the best and surest evidence could be obtained. Some friends of mine have said to me, "All this may be very true, but why do you propose a Commission and not a Committee?" My answer is, that I had hoped that the late Government would have proposed a Committee on the operation of the Banking and Currency Laws at an early period of this Session. I think they gave almost a pledge to this House that they would do so; but we have now arrived at such a period of the Session that the appointment of a Committee would simply mean the shelving of the question till next year, and next year we should have a Committee which would occupy the whole of the Session; so that instead of legislating in 1867, if it should be found necessary to legislate, the whole question would be hung up until 1868, which may possibly be a period of prosperity, and if so, would be again forgotten until brought to our minds by a commercial panic, say in 1876. Under these circumstances, I think, if we are to inquire at all, those who are in favour of inquiry will say we ought to inquire now. We cannot inquire now by a Committee, but we may inquire by a Commission. To meet the objection of those who say that this House ought not to delegate its powers, that, in point of fact, these inquiries are so important that they ought to be in the custody of the House itself, I say that it is quite in the power of Her Majesty, by the advice of her Ministers, to order that the Commission that may be appointed shall consist exclusively of Members of this and the other House; and if this be so, if we can have a Commission so composed, I want to know what objection there can be to the appointment of a Commission instead of a Committee, for in this sense a Commission is practically a Committee of this House, except in name, and of course would have all the powers necessary to elucidate the question. But I should not leave this part of the subject without repeating to the House the pledge that we received from the late Chancellor of the Exchequer last year. The right hon. Gentleman introduced a Bill which was called the Bank Notes Issue Bill, and in withdrawing it he said— Her Majesty's Government, however, do not propose to abandon their intention of prosecuting the subject; and, in the absence of such an agreement as I have referred to, they may conceive it to be their duty to take up the question on a future occasion upon broader grounds, and they reserve to themselves the power of determining whether it would or would not be right that on the first convenient opportunity, which I am not prepared to say will occur during the short remainder of the Session, they should invite the assistance of Parliament to investigate this subject by means of a Committee."—[3 Hansard, clxxix. 1123.] I and others thought that that statement conveyed a pledge that the whole subject should be investigated, because it is clear you could not investigate the question of the country issues without inquiring into the operation of the issues of the Bank of England; and you could not go into that without discussing the whole position of the Bank as a bank of issue on the one side, and a bank of recourse on the other. It is stated that on occasions of this kind the House should have a certain amount of pressure put upon it on the part of the public. So far as I am concerned, I may state, that since giving notice of this Motion I have received letters from almost all parts of England, and from many parts of the Continent, and the whole mass of the correspondence urgently pleads for inquiry. In addition to this, we are aware that the right hon. Gentleman opposite received au important deputation from Scotland a short time ago, and he enunciated, by the way, to that deputation some very sound doctrines in reference to the impossibility of an over-issue of strictly convertible bank notes. Besides this, the Chambers of Commerce of Leeds, Manchester, Birmingham, and other places, have taken action, memorializing the Government, or instructing their members to move in the question. If the slightest hint had been given by those Members of this House who are connected wth commerce, that pressure was required to be brought to bear upon Parliament, I am bound to say, and I think I shall be cor- roborated by many who are connected with large manufacturing and commercial constituencies, that the table of this House would have been loaded with petitions in favour of searching investigation. Look to the language of the public press, and you will find that it contains considerable complaint and remonstrance. I will only trouble the House with one or two quotations out of scores. For instance, the Economist, which is looked upon as representing the monetary and commercial classes, said on the 30th June— It is alleged that the Bank Directors do not reduce the rate because 10 per cent was fixed in the Treasury letter, and because they are still held to that letter. They reason, it is said, 'that a large sum must in the ordinary course of the quarterly payments go out to the public—that may reduce our banking reserve to £5,000,000 or thereabouts, and if a drain of gold should then set in, the banking department would be in danger, and we should want another letter. But supposing this to be the reasoning of the Bank Directors, it only transfers the blame from them to Mr. Gladstone; it does not prove that the rate ought not to be reduced, it only shows who is the obstacle to reducing it; and it is matter of grave regret, that owing to the present interregnum we cannot search into this matter at once, or discuss it, or obtain upon it the judgment of Parliament. That interregnum is now over, and we are now in a position to obtain the judgment of Parliament on this question. Then, again, the paper which is called the leading journal of this country, in an article which appeared on the 13th of July, says—and the passage is somewhat remarkable, and I quote it because of another remarkable article which has appeared in The Times of this morning— We sometimes read with surprise of districts in the East, separated only by a few hundred miles, where the populations are respectively in abundance and starvation; but the fact that money should be seeking employment at 3 per cent in a country separated from us by only twenty miles of channel, while here it is eagerly sought at 10 per cent, argues some still more fatal deficiency of contrivance. Of course, nothing can prevent the consequences of rash and dishonest speculation; but when those consequences have been thoroughly worked out, there ought to be some power to prevent the needless extension of mischief and anxiety such as has been witnessed during the last five or six weeks. Speculation was hopelessly crushed in the middle of May, and no devices of all the most practised operators in London could have availed to restore it for several years to come. Since that date the effect of the pressure has simply been to break down the value of properties that were not inherently unsound, to embarrass all the regular trading transactions of the country, and to pave the way for that future accumulation of unemployed capital which will bring all the evils of a discount rate equally abnormal in the other direction. In ordinary times the mutual relations of credit between England and the Continent, work sufficiently well to preserve some approach to an equality in the terms for money; and when this desirable condition is accidentally interrupted, it is a reproach that no means are found to remedy the difficulty. I go, therefore, so far as to say that that is strong evidence at all events in favour of an inquiry into those evils which are so ably and forcibly described. The great panic through which we—I will hardly say have passed, but are passing, is rendered peculiar by two or three circumstances. The one is, by the longer continuance of this excessive rate of discount than the commercial history of the country has under any previous circumstances shown. The second is, that the Directors of the Bank of England, who are assumed to possess more knowledge than the ordinary average of commercial men, seem to have been entirely taken aback and by surprise. The third is, that the Bank of England during that pressure, if public report be true, did what they had never done before in our commercial experience, they actually refused to lend money upon Consols. [Mr. HUBBARD gave a gesture of dissent.] Yes, I say, I repeat the Bank of the nation refused to lend money on the national security. Give us a Commission and I have no doubt it can be proved. If you had visited the Bank parlour last February, I believe you would have been told—I have no doubt this was the language held—that the idea of such a panic as that of 1857, and of another letter being required from the Government to suspend the Bank Act, was absolutely impossible, so well was the diagnosis now known. You would almost have been laughed out of the premises if you had ventured to express such a suspicion; and yet, coming as it were almost like a clap of thunder, they found themselves in the middle of a difficulty, and the Bank was obliged to come again to the late Chancellor of the Exchequer, and, besetting him throughout the whole of the day, they managed at last, at twelve o'clock at night, to induce him, very reluctantly no doubt, to consent to their committing this breach of the Act of Parliament. We all of us remember that remarkable Friday night. I happened, fortunately for myself and for my nerves, to be down in the country at the time. When I returned at eleven o'clock at night, the first thing I did was, as usual, to pay my duty to the gentleman who occupies a little room at one side of the door. I went to one Mr. Brand to report myself to him as an effective vote in this House, but I was ordered immediately away from the door by the messenger, who looked more horrified than any one ever saw him look before or since. I was informed that there was no admittance to the room, because the noble Lord then at the head of the Government and the right hon. Gentleman the late Chancellor of the Exchequer were "sitting on the Bank." I thought that was a rather odd phrase, but looking around I saw a group of Directors of the Bank of England, with my hon. Friend the Member for the City of London in their midst, who appeared to be inspiring them with the greatest possible confidence, and in another corner a group of directors of joint-stock banks, with the hon. Member for Greenwich amongst them, looking with as much hopefulness as his genial and hopeful nature would enable him to assume. I asked what all this meant, and I was told that these gentlemen had come to apply to the Chancellor of the Exchequer to void this Act of Parliament. While the Bank of England Directors attacked the right hon. Gentleman in the front, the directors of the joint-stock banks assailed him in the rear, almost, I say, from midday to midnight; and the result was that they at length succeeded in constraining the right hon. Gentleman to allow them for the third time to break this law in pieces. But that was not all, because, having issued a letter holding out promises to the commercial interests of the country which gave them great encouragement, and which promises were not carried out by the Bank of England, as I shall now show, a most remarkable despatch was written by the noble Lord the Secretary of State for Foreign Affairs. The noble Lord did then what I believe no foreign Secretary has ever done before. He issued a letter to all the representatives of England on the Continent of Europe, and in that letter, which is certainly an able document, he said that the inhabitants of this country had for some time been overtrading—that they had been endeavouring to accumulate fortunes without going through a sufficient process of labour—that the stoppage of Messrs. Overend and Gurney, a company founded on the limited liability principle, was the great culminating point of disaster, and that the Government were compelled to step in to enable that accommodation to be given to commerce by the Bank, which under the strict reading of the Act could not be afforded. There is one incident which it is necessary to ascertain in this inquiry — namely, under what circumstances and upon whose prompting was it that this letter of the Foreign Minister was written—a letter couched in language not calculated to allay, but to excite alarm in the commercial world abroad. That letter held out hopes to people abroad which to some extent were delusive, because the noble Lord said that though the pressure was excessively severe, yet the causes of it were of such an unusual character, that the Government were satisfied that the commercial and monetary classes would pass out of the peril of this panic with greater ease and much less difficulty than they had ever done under previous pressures. I say those hopes have not been realized. If the information upon which that letter was written were correct, I say that the act of the Bank of England in retaining so long this rate of 10 per cent discount cannot be justified. If, on the other hand, the circumstances known to the Government and the Bank were more grave than the country at large believed, then I think that in a diplomatic document of that kind so hopeful a view of the case ought not to have been taken. It is hardly to be believed that the Bank of England suggested such a despatch, still less such representations. I now beg the House to consider for a moment what this infliction of 10 per cent really means. I have no sympathy with those who have been guilty of wild and reckless speculations. I condemn them; and say that those who embark in such ventures must take the chances of their fortune; but, on the other hand, my sympathy is, I admit, with the great mass of the hard working capitalists of this country of the second and third class, who are careful, substantial, and prudent men, and who, whenever these things occur, are brought down, from no fault of their own, to share in one common disaster, and are made the victims of circumstances for which they are in no way accountable. What, I say, is the effect of 10 per cent discount? It means a tax of more than double the usual amount upon 300 million of current bills, or a transfer of many millions of trade and manufacturing profits to money-dealing profits. It means a general derangement of business, an ex- cessive and unhealthy fall of prices, the ruin of some who deserve to be ruined, but the ruin of far more who have committed no offence whatever. It is estimated that the fall in the prices of commodities and securities since the 11th of May is above £100,000,000. This loss, perhaps, does not affect so much the large capitalist who can afford to hold; but it is obvious that smaller men, deprived of their ordinary banking accommodation, are compelled to realize, and of course lose their proportion of this vast sum. Worse than all, it means a large reduction of employment, and great privation amongst the labouring people. It is a remarkable fact, and I recommend it to the attention of those who follow me, that while commerce is taxed in this way, and a large number of labourers are thrown out of employment, the profits of the Bank of England are larger than usual. The amount of "rest" in the Bank two days before the issue of the Government letter was £3,237,000, and on the 25th July, being the date of the last Return, it was £3,740,000. That means an excess in the shape of profit put by and available to the amount of upwards of £500,000, or 3½ per cent in eleven weeks, or 17 per cent per annum on the whole capital of the Bank of England. Take another view of the matter, which bears also on the past and the permanent operation of the Act of 1844. In 1847 the price of Bank Stock was 180; in 1865, after two panics, it had risen to 250. It is perfectly clear, therefore, that whatever may be the effect on the commerce of the country, the operation of the Act of 1844 on the interests of the Bank is largely to increase the resources of its stockholders. I do not blame the Bank of England for this—I blame the system. The Directors are bound to make a dividend for their stockholders, and they are men of the highest capacity and standing in the country, for whom every one entertains the greatest respect. Under the operation of the present law, the first duty of the Directors is to make a dividend for their stockholders, and their second is to take care of the interests of the public. The result is, that if they commit an error of prudence it is naturally one that goes in favour of the stockholders and against the public, rather than the opposite. There is another remarkable circumstance. Within the last twenty years we have had three panics—one in 1847, another in 1857, and a third in 1866, and in every succeeding period the severity of the pressure, as shown by the rate of discount, increased over the preceding one. In 1847 the penal rate fixed under the Government letter was 8 per cent, and it endured for a period of four weeks, and was followed by a rate of 3 per cent within three months of the date of imposing 8 per cent. In 1857 the penal rate was 10 per cent for a period of six weeks, and within three months of the date of imposing that 10 per cent the Bank rate was down to 3 per cent; while in 1866 we have had a minimum penal rate of 10 per cent, which has lasted for nearly three months already. It is obvious from these facts that some cause, some law of aggravation, is at work producing this gradually increasing severity of pressure, and I venture to maintain that it is the duty of this House to trace out that cause, and to apply if possible a remedy. It is contended that severe pressure is salutary, because it represses undue speculation and diminishes the disposition of men to venture on dangerous paths of trade, and because, also, it checks the undue advance in the price of labour. There may be something in that; but the Report of the Committee of the House of Lords in 1857 contained a remarkable paragraph in reference to labour. The Lords' Report of 1848 said— The working classes are the heaviest sufferers from monetary derangements, in consequence of the destruction of that credit and confidence on which commercial transactions are based, and by which the employment of labour is sustained. The working classes have obviously most to lose by an unsound, and most to gain by a sound, system of banking and currency; and they cannot protect themselves. I contend that the labour of a country can never be too fully employed, for labour is the main source and origin of wealth, and wealth is capital. Labour, it is true, may be over-employed in one class of production and under-employed in another; as, for instance, it has recently, perhaps, been over-employed in constructing public works and buildings, and under-employed in developing the resources of the soil. But who will venture to contend, when it is alleged that capital is scarce, that the cure for such an evil can be found in throwing labour out of employment, and thus checking the production of wealth? Yet that appears to be the favourite remedy of the moment—certainly it is the logical and inevitable result of 10 percent. Can a financial system be sound which can only correct itself in times of distrust by stopping the production of wealth? Some of our authorities of finance, interested no doubt in high prices of money, seem to regard commerce and manufactures as if made for the Bank of the nation. But why should we grant special banking privileges? Not to subordinate industry to the privileged Bank, but to support and assist and facilitate industry through it. We establish the Bank for commerce—the life-blood of our country—not commerce for the Bank; and when the latter becomes antagonistic to the former it is certainly time to inquire.

In discussing these questions, the House must not overlook some of the special grievances springing from this long-continued penal rate of discount, and which deserve inquiry. Take, for instance, the case of those who borrow money at what is called "the Bank rate." That rate has been taken heretofore to represent an average rate of not exceeding 5 per cent; and in the case of loans contracted a few months ago, both lender and borrower expected and meant some such average rate. But when a penal rate of 10 per cent is inflicted upon commerce by the Bank of England, and continues long after the rate outside the Bank has been reduced to 6½ or 7 per cent, clearly the action of the Bank alters the whole position of such loans against the borrower and in favour of the lender, neither of whom could foresee the policy of the Bank. I believe, Sir, that this exceptional grievance applies to loans of many millions in amount; and I say again that such a grievance merits inquiry. If we delegate to the gentlemen in Threadneedle Street the power of hoisting at the right time the storm signal, there ought to be some means of protecting those who suffer damage from that signal being kept flying needlessly long. Another class who suffer are the second and third-rate houses, who chiefly carry on our foreign trade, and many of whose operations are entirely suspended by the continuance of this 10 per cent discount. Take the case, for instance, of a firm trading with Hayti, with whom I am acquainted. They have a fair capital of their own, which has sufficed for a safe and steady business for forty years; but as their returns take nine months generally to come home, they are obliged to obtain advances. For these advances they pay 5 per cent, or the Bank rate, and a commission. So long as money can be obtained at 5 per cent they can go on at sufficient profit; but the moment money is at 10 per cent it is positive destruction to their trade profit, because they cannot stand competition with merchants in France, who are enabled to get discounts at 3½, 4, and 4½ per cent. Again, they can usually sell their cargoes of coffee and sugar "to arrive." But during the recent state of the discount market they have often been unable to do so; and in the case of this house, cargoes have been sent on to Continental ports and sold there instead of coming, as usual, into the port of London for the profit of our merchants at home. But I contend, Sir, that the action of the Bank is defeating its professed object of attracting money back again to the Bank, and thereby increasing its reserves and enabling it to do more business at a more moderate rate. I will quote a case as to which I have no doubt the hon. Members for Liverpool and Birkenhead will corroborate me. It applies to the cotton trade done at Liverpool with the manufacturing districts of Lancashire and Cheshire. A correspondent from Liverpool, a gentleman of undoubted position and experience, writes to me as follows. He says— The cotton of Liverpool is ordinarily sold for ten days' payment in three months bankers' bills; now, under the 10 per cent rule cash is required, and this alone keeps some £3,000,000 of notes needlessly in the provinces. This effect is injurious to the Bank of England itself, because these notes are kept in the provinces for circulation instead of reverting to the Bank. In fact, a currency of bills has to be substituted by a currency of bank notes. The cotton consumer has to find cash in place of credit, and he draws down into Lancashire the money for that purpose. Sir, we have been told by the Chancellor of the Exchequer, on a recent occasion, that our difficulties have arisen "from want of capital and not from want of credit." [The CHANCELLOR of the EXCHEQUER: No, not from want of currency.] Very well. Want of capital and not want of currency. Then, Sir, I must show where the currency has gone, and that it is hoarded and not in circulation; that it is passive when it should be active. Now, I contend that this country never was so rich as it is at this period; and if riches constitute capital, then that in the length and breadth of England, Wales, Scotland, and Ireland, we never had a larger capital. Take improved land, houses, ships, railways, all that can be classed under the word property — we never had so much. Take production. We never were producing commodities at so rapid a rate as at the date of the late Chancellor's letter to the Bank. Take capital in the sense of the medium available for the discount of bills—we never had more. Take our trade. Take the savings of the working classes. Take the private deposits at the Bank of England; these, Sir, are at this moment between £7,000,000 and £8,000,000 in excess of the usual average. Take again the bank notes in circulation—here we find an excess of £5,000,000 beyond the usual amount. In fact, the country was never richer than it is at present; it never owed so little nor had so much owing to it. The amount of notes issued by the Bank and in circulation by the last return was £28,000,000, and every one admits that this is a time when there is less trade and fewer transactions than heretofore. This circulation is evidently not active. Why then, I repeat, is it passive? I believe it arises mainly in consequence of the alarm on the Continent of Europe, and at home, caused by the letter of the late Foreign Secretary, and the action of the Bank of England. The Continent, alarmed, would have your money and not your bills, and bankers and merchants at home are protecting themselves by holding a much larger reserve of notes than they ever held before in anticipation of another storm. You persist in threatening them with that storm; you keep your signal flying, and they believe you. It is contended that evil causes have been at work inevitably producing severe pressure. It is true I make those who follow me a present of the admission. But, Sir, I contend that these evil causes may be mainly traced either to the direct consequences of erroneous legislation, or to the abuse outside of legislation in itself defensible; and that they have been aggravated and driven into panic by the other causes which I have asked the House also to investigate. One of the causes has been our railway legislation. Parliament passed last year 300 Railway Bills, and nearly 400, with a nominal capital of £176,000,000, have been proposed this year. Let us look at the way in which this authorization of outlay has been permitted. The old-fashioned plan was this: If a company wished to promote a Railway Bill, they had first to present a subscription contract, containing the names of all the subscribers to the project, who were individually responsible for the amounts set down opposite their names; and, in addition, the promoters were bound to show that the undertaking would pay at least 5 per cent. If a scheme will not pay, the money laid out upon it is only a waste of so much of the National capital. All that is now thrown overboard. Noble Lords and hon. Gentlemen are naturally anxious to have railways through their properties, and great facilities are now afforded to any persons to bring forward Railway Bills. The result has carried with it a stigma on the honour of Parliament and of this country. The system has bred a class of men who trade upon obtaining Acts of Parliament, who, when they obtain them, either sell the projects to established companies under threat, or carry them out themselves upon a system of finance which has had a great deal to do with the ruin and devastation which we have seen in various quarters. This is an Act of Parliament cause; but then there is the action of individuals, under powers given by what is called limited liability—powers which every one will admit have been grossly and shamefully abused. I will take the case of Overend, Gurney, and Co. Every banker in London knew that for years that firm had done a class of business which was in every sense bad and rotten, and had entered into speculations which did not form any part of the legitimate business of bankers. When the concern was made over to the limited liability company, representations were made to the deluded public which were afterwards shown to be in no way founded in fact. The list of such companies is unfortunately a long and discreditable one. If the abuse of the Limited Liability Act produces such results, surely that fact ought to form a good ground for inquiry. Well, then, wherever I look, I must say that I think inquiry is needed, and, therefore, is the duty of this House. But everybody must admit, after making every allowance for these and other causes of pressure and disturbance, that the panic of 1866 has been pre-eminently and exceptionally a credit panic. The letter of the late Foreign Secretary so describes it: he says that for the first time the banking stability of the country has been brought into discredit. Then, Sir, let me ask the House to consider for a moment what credit is. It is not solely a matter of arithmetic—of imports and exports, of revenue and expenditure, or of balances in banks. It is to some extent ideal. It is affected as much by moral as by material considerations. It is influenced by the hopes and fears—often the prejudices—of mankind. In our case our credit in the world at large has hitherto stood high not simply because we are rich, but because of the conviction that this country is the greatest and the richest, the most honest and the most honourable, and that our Government and our people are prudent and sagacious as well as honest, rich, and honourable. Then that being so, it is a question of serious moment to inquire whether the action taken by the late Government had a tendency to perpetuate that idea abroad, or to crush it out of the minds of the people of the Continent. Sir, I much fear that it had the latter effect. What happened in Madrid? A well-known gentleman from Liverpool wrote to me— Our credit in Europe is so damaged that I hear of bank notes sent from Madrid to Liverpool to be sold 'at best,' and proceeds to be remitted. Foreigners arrived at this conclusion because the Foreign Minister had spread it abroad everywhere in Europe, in an official despatch, that it was necessary to break an Act of Parliament; and they believed that an act of bankruptcy had been committed, or that there was a danger of it. I think now, Sir, we should inquire what the Bank has done with the authority intrusted to them after so much representation and pressure by the late Chancellor of the Exchequer on the 11th of May last. I hope that to this I shall get a distinct and specific answer, and also have the opportunity of laying it before a Commission of Inquiry. I want to know why the precedent of 1857 was not followed in 1866. Our trade, I need not say, is double the volume of 1857, and our operations in every direction are more and more extended; therefore, of necessity, when pressure comes, it must be more extensive. Being so, it must require a larger amount of assistance on the part of the Bank of Recourse, which the Bank of England claims to be. And yet, notwithstanding there was greater need for assistance—notwithstanding that the panic was one affecting banking credit, and despite the necessity that the banking capacity of the Bank of Recourse should be equal to the difficulty, nothing was done. The Bank in 1857, the moment it received the letter of the Chancellor of the Exchequer, transferred £2,000,000 from the issue department and lent it to the banking department for use, and did not repay it till the 24th of December. In 1866 the Bank never transferred one shilling. The Bank Directors even sent round and borrowed bank notes from their customers to prevent their infringing the Act, and it was not infringed. They have not given the accommodation which, under the circumstances, we had a right to expect would have been rendered. What was the object of the letter? To aid the business of the country. What right had they to keep the letter unless it were to enable them to relieve the commerce of the country? The Government letter indicated clearly that their intention in giving it was to relieve commerce—not a few large firms, but the commerce of England and Scotland—commerce in general, so far as the Bank found the securities sound and good. The comparative figures on this part of the case are very remarkable. First, as to the circulation of the Bank. In 1857, the day before the letter of the Government—the 12th of November—the circulation was £21,000,000; on the 9th of May, 1866, the circulation was £22,810,000. On the 23rd of December, 1857, when there was a reduction of the rate to 8 per cent, the circulation was only £20,130,000; in 1866, now, after three months at 10 per cent, the circulation is £27,890,000. Now, as to the issue reserve of bullion. In 1857 it was £5,710,000; whereas in 1866 it was £7,340,000 at the dates of the Government letters. There was nearly £2,000,000 more gold in the issue department when the strain came in 1866 than in 1857. In November, 1857, the banking reserve of bullion was £2,700,000; and now the reserve of bullion in that department is £12,890,000. In November, 1857, the banking reserve was £1,460,000; in 1866 it was £5,810,000; but it was reduced, according to the statement of the Bank, when they got the authorization to break their Act, to £3,000,000. But in December, 1857, when the rate of discount was reduced to 8 per cent, the banking reserve was £7,970,000; it fell the next week to £6,610,000; and the week following it stood at £7,620,000, when the rate went down to 6 per cent. The Return of last week showed this re- serve to be only £3,440,000. In 1857, when the rate of discount was reduced to 8 per cent, the total stock of bullion was £10,750,000; at the date of the last Return it is £13,770,000, or nearly £3,000,000 more. But, Sir, we find that the Bank, regarded as one concern, is able to afford, still, enormous assistance to trade; but we find that, separated as it is, it fails us in the hour of need. It comes to this, that if the Bank of England were conducted as it was before 1844, when there was no separation of the two departments—if the Bank of England were conducted as the Bank of France is now—for, apart from the appointment of the Governor of the Bank of France by Imperial authority there is small difference—if these two departments, the issue department and the banking department, were combined in one, the Bank having a reasonable discretion to fall back upon its large stock of bullion in the issue department, would use that discretion, and these panics would be met by the easy operation of ordinary arrangement. But the Bank, instead of this, are always looking to the amount of their banking reserve, which they cannot increase out of the issue department, and the result is that they lock up their resources. The figure is now only £3,440,000, and this with an export and import trade of £500,000,000, with £30,000,000 in the savings banks, and a revenue of £70,000,000! If they had used their power the relief, I believe, would have been almost instantaneous. Suppose they had taken a bold course, and had at the period of the late panic transferred £5,000,000 from the issue department to the banking department, which would not have been out of proportion to that which was done in 1857 — suppose, in point of fact, they had increased the banking capacity of the Bank £5,000,000, only £5,000,000, with a total export and import trade of £500,000,000—that, I believe, would have been sufficient to turn the scale. Instead of Continental nations laughing at us, their faith in us would have returned, confidence would have been restored, and we should have been able to tide over our difficulties. Everything which has taken place was predicted long ago by one of the most eminent financial authorities in the country, the hon. Member for Kendal (Mr. Glyn). In the debate of December, 1857, the hon. Member said— He agreed also with those who, though they found some advantage in the Act, yet saw in it a restriction which was attended with the most disastrous effects… First, there was the separation of the banking and issue departments… That division was, no doubt, a wholesome plan so long as it was confined to the circle of that establishment, and as carried out by the directors themselves; but, when it was made by statute a regulatory part of the Act, it was attended by most disastrous effects. … With respect to the other point, the limitation of the circulation on securities to £14,475,000, there, he confessed, he found the greatest difficulty of the question. He thought no person who had watched the progress of the crisis in 1847, and again in 1857, could fail to arrive at the conviction that, although the pressure was not caused by the Act, yet the pressure existing, the limitation of power of issue upon securities became in itself a primary cause of evil. The existence of the pressure tended to reduce the reserves of the Bank, and then what did every prudent man do? … In such a time a man with engagements to meet, honourably determined to make every sacrifice to meet them, whatever the rate of discount might be. … He would purchase currency at 10 or 20 per cent, in short, at any cost, for the fulfilment of his honourable engagements, and therefore his proceedings, and those of others, who acted likewise, still more reduced the Bank reserves."—[3 Hansard, cxlviii. 186.] I hardly need contend, Sir, for I think everyone must agree, that there is a proportion, be it what it may, or however irregular or easily affected, between the trade and transactions of a country and both its circulation and its banking facilities. And that being so, there must be a proportion between the issue and accommodation capacity of the Bank of England and the demands for currency and accommodation from other bankers and trade at large. And I ask the House whether, now, in 1866, after an interval of twenty-two years, and in view of so enormous — and, so far as 1844 is concerned, unexpected—augmentation of the business of the country, it is not expedient to inquire whether these proportions, whatever they be, are in operation. Is the limitation of issue upon securities of 1844 wise in 1866? Is the limit of its power of accommodation which that issue and the amount of its proprietary capital together give, enough or not enough in 1866, with three times the trade and trade necessities of 1844? Does it not seem, primâ facie at all events, that the channel is now too narrow for the flood? And should the House refuse to inquire whether it is or is not expedient to revise the Act of 1844 in the interests of industry and commerce? A good deal was formerly said about the Bank of France; and I remember a noble Lord in another place, who is considered the great apostle and advocate of the Act of 1844, when examined before the Lords Committee, said he looked on the action of the Bank of France as quackery, and that it was not based on any scientific principle. If the action of the Bank of England is scientific while that of the Bank of France is not, all I can say is, that science has rendered, recently, very little service to the commerce of this country. There were three objects which Sir Robert Peel proposed to accomplish by the Act of 1844—first, to secure the convertibility of the note, which really has never been endangered; secondly, to check undue speculation; and thirdly, to prevent panics. Now, the last two objects have not been attained, for speculation at times since 1844 has been more rife than it has ever been since 1825, and a steady rate of discount, essential as this is to the proper carrying on of business, has not been secured. In fact, since 1844 there have been 133 changes in the rate of discount, and the fluctuation has been no less than 500 per cent, for on several occasions it has been reduced to 2 per cent—thus fostering undue speculation, and calling forth the strong condemnation of the House of Lords Committee in 1848, while the Commons Committee resolving at the same time by a majority of only two that an alteration of the Act was inexpedient. From 1858 to 1866 the changes have been 85, and during that period the Government has three times been obliged to authorize a suspension of the Act. The Bank of France, on the other hand, has only made 34 changes, and the rate has seldom been more than 4 or 5, and at present is 3½ per cent, while the reserve of bullion is £25,000,000. The operation of the Act of 1844 is such that the issue department may be rich to repletion, while the banking department is almost bankrupt. This effect was predicted at the time by one of the highest authorities, for in Mr. Tooke's Inquiry into the Currency Principle we find these words—(March, 1844)— While the circulating department would still have £6,000,000 of bullion, the deposit department would have no alternative but to stop payment—a most absurd, however disastrous, state of things. But it would be too disastrous and too absurd to be allowed to take its course. If such a crisis were to happen, as most probable it would, at the time when the dividends on the public funds became due, the Government would be imperatively called upon to interfere and prevent so ridiculous, however lamentable, a catas- trophe, and the only interference that could meet the emergency would be to authorize a temporary transfer of coin from the issuing to the banking department. Perhaps the highest authority in France, M. Michel Chevalier, not long ago wrote a letter in which, after observing that undoubtedly the English were their own masters, and were free not only to make a bad law, but also to keep it, he passed the following opinion on the Act of 1844:— The arrangement is vicious; it is an erroneous one. It offends the soundest ideas in regard to credit; it entirely prevents the use of the invaluable auxiliary of credit in surmounting difficulties. What is still more surprising, it still exists in all its rigour, although at two periods, in 1847 and 1857, it has brought ruin on the country to such an extent that the Government, roused by so many unexpected bankruptcies, deemed it necessary to suspend the law, and on its own responsibility authorize the Bank to issue notes beyond the law. It would be difficult to instance a law which has proved less successful than the Act of 1844. M. Chevalier goes on to say— It was the belief of Sir Robert Peel that it would render crises more rare. On the contrary, they have become more frequent and severe. They have become so by Act of Parliament. Never has experience confuted more energetically the provisions of legislation. But I need not rely upon Mr. Tooke and M. Chevalier; I can call as witnesses both the present and the late Chancellor of the Exchequer. The present Chancellor, in 1857, was of opinion that immediate legislation was required, and unless he now prefers an inquiry, the right hon. Gentleman will I hope now be able to reassure the commercial world by stating what kind of legislation he intends to propose. Speaking on the 11 th of December, 1857, the right hon. Gentleman said— Believing as I do that the law by its enactments forcing the Bank to treat a foreign and a domestic drain by the same means, not only occasions, but aggravates distress and distrust among the commercial classes of this country, I think we should endeavour to meet that difficulty by remodelling the law in that respect. With these remarks I entirely agree, except that with the new facts before us I wish inquiry to precede legislation. The late Chancellor, speaking in the same debate, used these words— But I do feel that there is great force in what has been said by my hon. Friend the Member for Kendal, whose great experience in these matters, as well as his natural ability, give much weight to the judgment which he has delivered in this House. My hon. Friend says that the existence of a limit, as it is determined by the Act of 1844, has a decided and powerful tendency to create an apprehension gradually deepening into panic, which panic increases the commercial pressure, and finally brings about a suspension of the law itself, so that the very rigour of its provisions in certain states of public feeling and of the public mind becomes an operative cause of the irregular relaxation of the law."—[3 Hansard, cxlviii. 647.] The right hon. Gentleman went on to remark that even Lord Overstone, always a strenuous defender of the Act of 1844, had admitted the desirability of vesting some dispensing power either in the Government or in the Directors to check this "rigour" of the law. Another distinguished man, the late Sir George Lewis, is quoted by the Economist, and no doubt correctly, as having said— Peel's Act did great good, except for a week once in ten years, but in that week it did so much evil as almost to counterbalance the good which it had effected before. Now, I think, Sir, I have called witnesses enough against the laws affecting the Bank of England. I have shown that they are not approved by the present Chancellor of the Exchequer, nor approved by the late Chancellor of the Exchequer, that they are not approved by the hon. Member for Kendal, who is at the head of one of the largest banking establishments in the world, and I might go on to quote the head of the house of Baring. I believe also that the hon. Member for Westminster and the present professors of political economy at Oxford and Cambridge are opposed to the limitation of the issue; and, in point of fact, I have hosts of authority to show the evils of our present legislation. No Director of the Bank of England will tell me that if he had the power without making all the disturbance of coming to the Chancellor of the Exchequer, without the necessity of a letter from the Foreign Secretary to every Court of Europe—that if without that there had been some self-acting power which would have enabled him to cope with the difficulty as men do cope with difficulties, the emergency would not have been more easily met and the panic would not have arisen.

I feel, Sir, that the House has extended to me an unusual indulgence, and I refrain from doing more than suggesting that the whole question of issue, the state of joint-stock banking, and the anomalies and differences in the constitution and action of the banks of England, Ireland, and Scotland, are subjects which should be included in any inquiry by this House. And now, Sir, thanking the House for its patience and kindness, let me repeat, that all I ask for is inquiry. I ask for it because there is much to be inquired into—evils of legislation, evils which amended legislation may cope with, evils in the practice of the Bank of England. I ask for it because the press and the public opinion of the country demand inquiry with a view to legislative remedy. Sir, let me ask the House this question—assuming that the ruling price of discount in this country were to be 10 per cent and that of France 4 per cent, how long would the commercial supremacy of our country continue? For how long would competitive commerce be possible? Let the House, then, measure the evils of to-day by that test, extreme as it may be. Unnaturally high discount can only mean reduced profits and lower wages; for the interest of money is an element of cost, and the more the passive partner in transactions receives, the less is available for profits and wages. I have endeavoured to avoid the discussion of abstract questions; and I trust that that inquiry which on every previous occasion of panic the Government have volunteered, may now be granted, for it would, indeed, be unfortunate if an impression should go abroad, erroneous as it would be, that this House is indifferent to the embarrassment and suffering which have prevailed during the last few months, and which still afflict us.


in seconding the Motion, said, he could not imagine a stronger or a more severe condemnation of the existing law than to allow it to be assumed that the present state of the money-market was the natural and normal consequences of the Bank Charter Act of 1844, because if that were so they must lay at the door of that Act a state of things unprecedented in this country. He laboured under the disadvantage of prejudice, which seemed to exist against any private Member undertaking to find fault with the existing state of our monetary system; but notwithstanding that prejudice he ventured to second the Motion, and, in doing so, to briefly state his reasons. The cases for inquiry rested primarily on the fact that the late Chancellor of the Exchequer had set aside an Act of Parliament, and he should like to know if the present Chancellor of the Exchequer endorsed the sanction so given, because he considered it was no slight matter for any Government to set aside an Act of Parliament without the House instituting an inquiry into the cause of it. An inquiry followed the suspension of the Bank Charter Act in 1857; but there was this difference between the crisis of 1857 and the present one, that in the former year the Bank Directors exceeded their authorized issue by £2,000,000, which they had not done since the recent suspension. It appeared to him that the Report of the Committee of Inquiry which followed the crisis of 1857 distinctly contemplated further inquiry. It alluded to the question whether the Act of 1844 should remain intact or be subject to revision in times of pressure. It was evident that the time was ripe for further inquiry, and that they must now deal with other branches of the question, though it would be for the House to consider the mode of the inquiry, whether by Royal Commission or Special Commission. There were several additional reasons which tended to the same conclusion, and one of them was that the French had last year instituted an inquiry by an Imperial Commission into the same subject. That inquiry was of a most searching character, and was even extended into this country. At the time it was being carried on he had the honour of holding the position of Chairman of the Halifax Chamber of Commerce, and he remembered some of the questions under consideration by the French Commission were addressed to that Chamber. Among the questions they asked were the following:—What were the causes of the monetary crises of 1863 and 1864? What was the effect of a limited issue on a monetary pressure? Did the Bank of France fulfil all the functions of a bank of issue?— and, if not, what alterations should be effected in its constitution? Did the existence of a high rate of discount tend to bring back bullion into the Bank? This last question raised a very important point for inquiry in this country. For the first time a high rate of discount had failed to restore the stock of bullion held by the Bank of England, although it had ruled for some time past at 10 per cent. That high rate, indeed, had, as he (Mr. Akroyd) thought, tended rather to aggravate the prevailing distrust, for they had even heard of discredit attaching to English securities in the Continental money-markets. The demand for inquiry arose not only from the mercantile and trading classes, but also from the recognized organs of public opinion, which specially devoted themselves to the consideration of these questions. In the ordinary state of commercial credit bills of exchange formed the basis of mer- cantile currency, and there was little need for bank notes in business transactions, the proportion of these to bills not being one-twentieth part. But in times of panic, when credit was disturbed, there was more call for bank notes, and it was certainly very unfortunate that at the moment when Bank of England notes were most in request, the Bank Charter Act should step in and prevent the Directors of the Bank front augmenting their issues. In making these remarks he was far from intending to pass any censure upon the Directors of the Bank of England, especially as they constituted a joint-stock bank, not a national bank, and were bound only by the terms of their charter. He did consider, however, that they ought to possess a certain discretionary power similar to that which had been exercised by the Bank of France. He hoped that Her Majesty's Government would be disposed to assent to the Motion for an inquiry. The Government of this country showed a general desire to give what relief it could to suffering classes of the community, as had been conspicuously shown of late in the calamities which had fallen upon the agricultural body. Yet the mercantile community were now in a much more grave position, and he trusted the House would give the Motion of his hon. Friend the Member for Stockport its favourable consideration.

Motion made, and Question proposed, That an humble Address be presented to Her Majesty, praying that She will be graciously pleased to issue a Royal Commission directed to the investigation of the causes which have led to the late severe and protracted pressure in the money market, and to the continuance, for a long period, of a minimum rate of discount of 10 per cent at the Bank of England; and also to investigate the Laws at present affecting Currency and Banking in the United Kingdom, and to report what (if any) alterations have become expedient therein; and, further, that it be an Instruction to the Commissioners to present their Report and the Evidence taken by them on or before the 1st February, 1867."—(Mr. Watkin.)


Sir, I think no one can be surprised that this question should have been brought under the notice of Parliament. Indeed, I may go further and say that I think we should have been surprised if the question had not been brought before the attention of Parliament before its prorogation; for, undoubtedly, nothing would be more unfortunate than that an idea should be allowed to go forth to the country that Parliament or the Government were indifferent to the serious circumstances which we have recently witnessed. Most assuredly there is no feeling of indifference on the part of the Government, and equally certain is it that there is no indifference on the part of this House. When so serious a state of affairs arises, and when such large interests are so gravely affected, it is, of course, natural that the attention of the House of Commons should be directed to those circumstances. But still more natural and still more imperative is it, when a measure has been taken by Her Majesty's Government pointing towards the suspension of an Act of Parliament, that some inquiry should be made in Parliament as to the grounds on which the Government of the day had thought it right to give their sanction to a suspension of the law, and that some question should be raised as to how far legislation can be held to be satisfactory and right with respect to which it is necessary from time to time to have recourse to so very serious a measure as that which was resorted to by the late Government with reference to the possible suspension of the Bank Act of 1844. Therefore the Government do not at all complain of the course which the hon. Member for Stockport (Mr. Watkin) has taken in calling their attention to the subject, and demanding, in the name of the country, an investigation into the circumstances in which we are placed, and into the state of the law as bearing upon the commercial distress and banking currency of the country. I may say at once, on the part of the Government, that they respond entirely to the feeling of the country and to the wish—which is obviously the wish of the House—that an investigation should take place into the position in which we stand, and into the causes, as far as it is possible to investigate them, of the commercial distress and the prevalence of the present high rate of discount. But as to the manner in which that investigation should be conducted, I hope I shall be able to satisfy the House—at all events, I shall have to state on the part of the Government—that in their opinion the measure recommended by the hon. Member for Stockport, the issue of a Royal Commission at the present time to inquire into these matters, with an Instruction, as he says, to report before the 1st of February next, would not be the best measure they could take. I am bound to ask the hon. Member for Stockport what exactly are the functions which he thinks this Royal Commission of Inquiry should undertake. Is it to be a Commission which is to inquire into facts, or is it to be a Commission which is to inquire into principles? I think he will see that there is very great difference between the two. If we are to investigate a number of facts, requiring a great amount of time to ascertain and bring together, undoubtedly a Royal Commission may be, and very often is, a very convenient instrument for the purpose; but if we are to discuss principles, and if we are to investigate the principles upon which our legislation is founded, I do not myself think that a Royal Commission ought to be considered a proper substitute either for the action of the Government or for that of Parliament. If you were to appoint a Royal Commission in this case, for the purpose of investigating all the principles of legislation which affect our currency and banking, the first question that would arise would be, how is that Commission to be constituted? We know perfectly well that different opinions prevail, and are ably maintained by the different schools of opinion, on all the questions that bear upon this subject; and if a Royal Commission were to be appointed it would be necessary to place upon that Commission men in whose skill and intelligence, and in whose experience also, the country would have confidence. We also know that when it should become our duty to make a selection of the gentlemen—few in number as they necessarily must be—to be placed in that important position, we could not select gentlemen who were merely known to be gentlemen of intelligence and experience, but we should have to select gentlemen whose views upon these questions were perfectly well known and familiar to the world, and probably it would not be very difficult, as soon as they were named, and the object of the Commission made public, to foresee what the general verdict of that Commission would be upon some of the main principles which would have to be brought before it. If that were the case, at once the authority of a Commission, and therefore the use of a Commission as far as the investigation of principles is concerned, would be at an end. Those who were satisfied with the opinions of the gentlemen who might be the majority in the Commission would, of course, anticipate the proceedings, and foresee that their opinions would be well brought for- ward, well argued, and very ably, no doubt, elaborated; while, on the other hand, the minority, who would not be satisfied, would say, "Because you have constituted the Commission on this or the other basis, you have failed to obtain a fair verdict. We dispute, and have always disputed, the doctrines of those gentlemen forming the majority of the Commission, and we also dispute the conclusion at which they have arrived." This being the case, we should not be much forwarder when we got the Report of the Royal Commission than we are at the present time. I do not think it would be possible to obtain the Report of the Royal Commission if it were appointed at the early date named by the hon. Member for Stockport; but even when you had got the Report it would be necessary that the Government of the day should prepare measures of legislation founded upon or arising out of it, and it would be for the Government, after all, to consider whether they were able to adopt all the recommendations, or some of them, or whether, indeed, they should propose something entirely different from the Report of the Commissioners. I think we should be only preparing embarrassments for ourselves, and not forwarding any useful solution of this difficult question, by deputing a Royal Commission to go and look for a policy on the question of currency and banking. Now, the hon. Member for Stockport has said that it was not his wish to lead the House into a general discussion on the principles of our currency laws, and as far as it is possible in discussions of this nature he has kept to his pledge, and he has avoided leading us into many of those discussions on details which perhaps might have arisen upon this subject. He has said that all he desires is that a Commission should be appointed to investigate the facts bearing upon the causes of the present state of things. It is obvious, however, that when you come to investigate causes it is not sufficient merely to collect facts, but to collect them with a view to certain conclusions, and select them upon some kind of principles. When you investigate facts, the question of causes necessarily arises. But even were it possible for us to establish a Commission merely to investigate facts, I venture to ask the hon. Gentleman whether it is possible that the facts which would have to guide us to legislation could now be efficiently investigated. The hon. Member has said that to a great extent and primarily the existing commercial distress esults from the action of individuals and the imprudent conduct of certain firms. He says also that the consequences of the proceedings to which he refers are aggravated by the state of our currency laws. Well, then, the first thing would be to inquire into the details of these individual transactions. It would be necessary to ascertain how it has happened that the firms whose failures have led to such considerable embarrassment have got into these financial difficulties. I ask him whether, at this moment, when we have the remains at all events of the panic still upon us, and with a number of houses and firms still feeling more or less the shock of the panic—how far it would be possible to carry on the investigation so as to get at the truth of the facts? Would it be possible to go from this firm to that and to ask them, "What are the circumstances in which you find yourself placed? At what period was it that you began to find yourselves in a position of difficulty? What failures most materially affected you? Under what circumstances did you find it necessary to apply to the Bank of England for assistance, and under what circumstances did the Bank of England consider it necessary or prudent to refuse your application?" It would be impossible to expect answers to such questions as these, unless, indeed, the Royal Commission pursued its inquiry in secret. I ask the hon. Gentleman does he mean that the inquiry should be conducted in public or in secret? If the Commission is to inquire into such matters as those that I have referred to the common sense of every one of us will convince us that it would be necessary that its labours should be conducted in secret. But in that case the Report of the Royal Commission would be very materially impaired, because you would only have its conclusions, and in the absence of the evidence upon which those conclusions were founded the public would give to them just that weight which their former opinions predisposed them to give. I am bound to say that, in this case, and under these circumstances, it does not appear that a Royal Commission would be the best mode of carrying on such an investigation as is desired; and, even if it were the best mode, I think that just now, when we are still labouring under the effects of the recent commercial distress, the time would be particularly inappropriate for the issue of such a Commission. There is one other circumstance, bearing upon the present state of things, to which I would for a moment advert, because I think I gathered from my hon. Friend the Member for Halifax (Mr. Akroyd) that he considers it a reason for inquiry at the present moment, though it seems to me to be a reason against immediate inquiry. I refer to the inquiry now going on in behalf of the French Government into many of the questions which bear materially upon the subject which we are now asked to issue a Commission to investigate. I confess I cannot altogether see the force of the hon. Gentleman's argument, that because the French Government has issued a Commission, therefore it must be a peculiarly appropriate time for us to do the same. I think the hon. Gentleman would have been nearer the truth if he had said that at a moment when we are expecting the results of that Commission, we should wait and see what are the conclusions at which it arrives, before we ourselves plunge into a similar inquiry. The inquiry directed by the French Government was begun nearly two years ago. The Commission has been carrying on a very minute and a very extended inquiry from the commencement of 1865, and as yet their labours have had no result. If, then, we are considering how we shall most rapidly deal with this question, I do not think we shall be greatly encouraged by the result of this Commission to plunge into another inquiry of the same character. It will be surely wiser to wait for the result of the French Commission before deciding whether we shall refer the whole question of the principles of our currency and banking system to a Royal Commission. With regard to the practical position of affairs, I think there can be no doubt whatever that it is one which requires the serious attention of the Government and of Parliament. If we look back to all that has taken place since the passing of the Bank Act of 1844, it is impossible for us not to be struck by the fact that there have now been three periods at which the operation of that Act has been found to jar upon the commerce of the country so sensibly that its provisions were of necessity suspended. That is evidently in itself a fact well deserving of investigation. Twice, indeed, already it has been made the subject of inquiry; and twice the Committees which have sat upon the subject—once in the House of Lords, and once in the Commons—have failed to produce any recommendations which have been accepted by Parliament as indicating the mode of getting out of the difficulties that were attributed to the working of the Act. Now, again, for the third time, something of the same kind has happened. But upon the present occasion, as the hon. Member has pointed out, there are circumstances which distinguish the panic from the panics of 1847 and 1857. We have new facts before us, and it is undoubtedly reasonable to inquire how far the experience we have of the practical working of the Act renders it important and necessary, if we are to maintain the principle of the Act, that we should attempt to improve the machinery by which it is carried into effect. It would be most unwise and unreasonable if the Government were now to say, "We adhere with such tenacity to every detail of the Act of 1844 that whatever may be the experience of its working, whatever may be the inconveniences which are sustained at periods like the present, we will not permit or give our assent to a single alteration in a single provision of the Act." At the same time, if the Government were to assent to the inquiry, which points, or appears to point, to the Act of 1844 as one of the main causes of the difficulty under which we have lately laboured, and are now labouring to a certain extent—if we were to do this, I think the Government would be acting falsely and wrong, and would be creating an impression which they do not entertain that the commercial pressure and inconvenience may be traced to the principle of the Act of 1844, and that we must look to the repeal or material alteration of the Act, or the abandonment of its principle, for the cure of the evils which we find occurring periodically. I am bound to say that though the present Government are in no particular sense bound to defend the Act of 1844—that is to say, have no particular parental interest in that Act — yet, upon the whole, they do believe that the principles upon which the Act of 1844 is based are the sound and true principles upon which our currency should rest. Whether, however, consistently with that general doctrine, it is possible to introduce into the machinery of that Act any improvement which may render its working smoother and less inconvenient—whether the experience of the past panics and present crisis may suggest measures which may from time to time render financial pressure less severe, or which may give effect to the principles of the Act without producing the distress which sometimes accompanies its operation —upon this point the Government can only say that they will give the matter their most serious consideration, will endeavour to investigate carefully all the circumstances which have attended recent panics, and especially the present crisis, will bestow earnest attention upon the details of the working of the Act throughout the present time, and if they find that it is in their power at the commencement of the next Session to propose any measure which, in their opinion, will improve its working, they will do so with the greatest pleasure. If, on the other hand, they find it is not in their power to propose anything likely to be satisfactory, then the Government will not object, but, on the contrary, will think it perfectly fair and reasonable that a Committee of this House should be appointed to inquire into the circumstances of the case and to investigate the position in which we stand. Should that course be adopted I think our position will be a far better one than if we were now to issue a Commission; because it must be obvious to every one that if any inquiries of this sort are to be of real use they ought to be guided by some general principle upon which we are tolerably agreed, and this is especially true of a subject like this, upon which so much controversy and difference of opinion has existed. Upon such a subject a mere fishing Commission which is to go and look for a policy without any decision by the house as to the principles upon which it is to proceed, is likely to do very little good and indeed to bear no fruit at all. We hope that we may be able to investigate the subject during the recess, and if we are able to introduce any measure next Session, that measure may be referred to a Committee of this House for examination. If, on the other hand, the Government, upon full consideration of all the circumstances of the case, think it impossible, without doing more harm than good, to introduce a change in the law, then the Gentlemen who are dissatisfied with that conclusion will challenge it in this House, and the Government will be perfectly ready to assent to the appointment of a Committee to consider the decision at which they have arrived, and before that Committee they will be prepared to justify the views which they may entertain. As I have thus stated the views of the Government upon this matter, and as I hope the House will believe that the matter is one which will receive our earnest, candid, and impartial consideration, I might, perhaps, abstain from saying anything more upon this subject. But there are one or two observations which I feel it important to make in order that our position and our views may not be misunderstood. The hon. Member (Mr. Watkin) has called attention to the fact that this is what is called a credit panic, and the hon. Member for Halifax has very correctly, I think, described what the peculiar features of a credit panic are, and how, at the moment when what is called the credit currently of the country collapses, there is a pressure upon the ordinary currency of the country, and the Bank Act of 1844 to a certain extent prevents the expansion of currency just at the moment when such an expansion is most desired by the public. I do not know whether the hon. Member infers that there should be such an expansion of the currency as should supply the want which the collapse of credit has occasioned. It is no doubt one of the peculiar and distinguished features of the commerce and adventure of England that it is so largely supported by the wonderful system of credit. It is impossible to exaggerate the immense value of the services which this system of credit has rendered to the industry of England. It has enabled us with a large capital to perform the work which otherwise would have required an enormous capital, and with a moderate amount of capital to do the work of a much larger amount. I understand the nature of the case to be something like this:—A manufacturer or merchant, carrying on business and having the command of a certain amount of capital, is enabled to invest the whole of his own capital in business, and to live, during the time his capital is out, and before it returns to him, upon the assistance which he derives from the unemployed capital of others. He is able, to a certain extent, to borrow the unemployed or loanable capital of others, in order to enable him to await the return of investments he has made. At a moment of pressure, when loanable capital becomes scarce, and must therefore be supplied at a higher price, no doubt the merchant or manufacturer who is living on the expectation of being able to borrow at a reasonable rate of interest finds his operations seriously embarrassed by the great rise in the rate of interest, and the difficulty of obtaining money. Nothing can be more natural than that such a state of things should cause distress and inconvenience to the soundest and most legitimate business of the country. But we must remember that although the loanable capital of the country is large, it is not unlimited; and if a demand is made for loanable capital out of proportion to its amount, great as that may be, it is impossible it should not become scarce, and, being scarce, that it should not be high in price. That is, I believe, the real explanation of what has recently taken place. The hon. Gentleman says the capital of England is enormous, and he finds fault with the Chancellor of the Exchequer for saying that there is at the present moment a deficiency of capital, but it is perfectly possible that both these two propositions may be equally true, and that the capital of the country may be enormous and yet deficient. My right hon. Friend was speaking not generally of the capital of the country, but of that portion of the capital which is available for the purposes of loans and discounts. If you choose to lock up an enormous amount of capital in investments and securities, however excellent the undertakings themselves may be, if you cannot immediately and at pleasure withdraw it, of course the capital available for loans and the daily business of life is proportionately restricted. Setting apart altogether for a moment any question about imprudence or unsound speculation, that is in itself, I believe, the explanation of the circumstances in which we are placed, that an enormous proportion of the capital of this country, and a yearly increasing proportion, is locked up in securities from which you cannot immediately withdraw it. Look at the enormous sums raised for railways and for foreign undertakings in which the money of this country is invested. Look also at the immense amount invested in trade itself. I will not weary the House with statistics, but a Return which has been moved for by the hon. Member for Manchester shows that the amount of capital authorized to be raised by the railway and other Bills which have been passed this year and last is £176,000,000. The savings of the country are sometimes estimated at not more than £100,000,000 a year. Obviously the capital to be raised must come out of the savings of the country; and such large investments, however sound, which you cannot immediately withdraw, and the securities of which you cannot immediately realize, must necessarily produce a pressure upon the money-market, from which commercial interests expect to be supplied. The whole question, therefore, comes to this:—If you find there is such a pressure, if it is the case that the commercial interests cannot supply themselves, if money is not at the rate of discount which they think they have a right to expect and upon which they have reckoned, because of the large amount invested in permanent securities which cannot be immediately realized, the question arises, ought anybody, and, if anybody, who is it that ought, to provide the trading interests with money to meet their demands? The question is, can you, and if you can, ought you to make money when money is scarce? I believe that is the real question at the root of these difficulties. It is a question upon which there are two opinions. People are divided into two hopelessly antagonistic schools upon the subject. There are those who say that the money which there is in the country represents the capital, the loanable capital, or gold, or this, that, and the other, for there are different theories as to what money exactly is. They say that when there is little you must cut your coat according to your cloth; and that if you have little money you cannot expect to be able to get a great deal of money cheap. There is the other school which says that when this is the case you ought to look to your credit, that money is only a form of credit, and that you ought not to attempt to cut your coat according to your cloth, but that you ought to make your coat of the size convenient to you, and that if you cannot get the cloth you ought to get something which looks like it. These are, I believe, the real differences which exist between opposite schools upon this question, and it is hopeless for you to investigate practical questions tending to legislation unless you have made up your mind on which of the two theories you intend to proceed. I have no hesitation in saying, on the part of the Government, that they are not of opinion that it is possible, or, if possible, that it is desirable, to meet the difficulties which arise when money has been used up and there is not a sufficiency of loanable capital in the country by any fictitious creation of money. That being so, in the inquiries they may institute into the practical working of the law as it now stands they will be guided by that principle, and they will endeavour to ascertain whether the details of the Act of 1844 can be so far modified as to enable the country to adhere to that principle without the inconvenience which at present arises. Unquestionably the inconveniences are such as no man looking at the subject impartially can fail to recognize. It is impossible to deny the truth of what has been stated by both the hon. Gentlemen who have addressed us, that at the present moment this peculiar kind of panic affects the credit of England, and that the operation of the law and the necessity for authorizing the suspension of an Act of Parliament have had a serious and prejudicial effect upon the credit of England. There is, in fact, so to speak, a run upon England which is not altogether justified by the circumstances of the case. It cannot be denied that as a run upon a bank may be occasioned by a small accidental circumstance, so a run upon a country like England may be occasioned by a matter which to those who understand it, and understand the working of our system, may appear small and insignificant, but which to foreign countries is a serious and alarming matter. When they hear of the suspension of a law they naturally think that there is some peculiar reason for withholding confidence from England; and it cannot be doubted that at this moment there is in foreign countries a want of the confidence which was formerly felt, and which we desire should be always felt, in the solidity and the credit of England. When we admit that to a certain extent that want of confidence is occasioned or aggravated by the action of the law and by the action of the Government supervening upon the law, do not let it be supposed for a moment that that is the whole explanation of the matter. Do not let it be supposed for a moment that by altering the law or getting rid of that anomalous state of things you will really restore the credit of England. If I have ventured upon these observations and this discussion, which may seem somewhat unnecessary at the present moment, it is because I am anxious to impress upon the House and the country that the Government does not believe, and we earnestly hope the country will not believe, that the difficulties under which our credit labours and the want of confidence that has been engendered is to be removed, or is capable of being removed, by any tampering with your currency and banking laws. Admitting, as I do, that there are inconveniences in the law as it stands, and that it is desirable, if you can do it, to alter the law, so far as to get rid of those inconveniences, I think those inconveniences are as nothing compared with the disaster which would result from its being held out to the world and the commercial public of this country, that it is possible by any remodelling of those portions of our law to obviate the consequences of the imprudence or unsound trading, of which, unfortunately, we must admit there has been too much. If we are to go upon the principle of softening as far as possible the consequences of men's imprudence to themselves and others, we must beware that we do not encourage that imprudence and over-speculation which we have so much reason to lament. In the great success of our commercial enterprize there is something that is fascinating to us, and we are easily carried away by the great power we have of making our large capital do the work of a much larger capital; and, therefore, it is particularly necessary we should impress upon the people of England now that, if we were everywhere to unshackle and set no limits to enterprize, there is too much danger of enterprize rapidly growing into insane speculation. If the Government were indifferent to the sufferings of the commerce of this country, no doubt they would be greatly to blame. If they were unwilling to investigate the possible application of remedies, so far as these sufferings were occasioned or aggravated by legislation, no doubt they would be greatly to be blamed. In my opinion, they would be still more to blame if they were by any action or language of theirs to encourage the mischievous belief that it is possible to avert the consequences of reckless, imprudent, and unsound speculation by any measure tampering with our banking or our currency laws. In assuring the hon. Gentleman that the Government will look into this matter most carefully, and that it is their earnest desire, if possible, to legislate on the subject, or to invite the attention of the House to the subject, at the first moment at which they can give practical effect to their views, which cannot be earlier than the commencement of the next Session, I would venture to press upon him the importance of allowing us time to consider this matter, and to legislate calmly; and after due consideration, I would press him to withdraw the Motion he has now brought forward upon that assurance, and upon the ground, more especially, that if we now issued a Commission, we should be raising false expectations, and producing not good, but most serious evil, mischief, and danger to the country.


most sincerely thanked the right hon. Gentleman who had just spoken for what he had said. He thought the Government had come to a most just wise, and proper decision upon the request of the hon. Member for Stockport. The Motion of his hon. Friend divided itself into three heads — an inquiry into the causes of the panic; an inquiry into the causes of the high rate of interest; and an inquiry into the effect of the Bank Charter Act; and by implication it was made clear that the Bank Charter Act had produced the crisis, and was at the present time responsible for the high rate of discount. Now, he considered that was a most unfortunate delusion, and he believed that if the Government had not stood firm and refused this Commission, they would most seriously have encouraged the unfortunate fallacy that the Bank Charter had produced or aggravated the crisis. His opinion had been alluded to, and he would at once frankly say that he was not one of those who had ever been a warm friend of this particular Act. He thought that when the Government came to investigate the subject they would discover that the Act could with great advantage be materially modified, and in such a way that there would not be a recurrence of the unfortunate anomaly that an Act of Parliament had occasionally to be suddenly and almost arbitrarily suspended. But let it not be supposed that he joined with those who thought that the Bank Act had produced the late crisis. The hon. Member for Stockport had told them with great truth that this was a credit panic; and, being aware of that, could any one of commercial experience who had witnessed what had gone on in this country during the last three or four years pretend for a moment to say that the Bank Act had produced the late commercial disasters? Those disasters had been produced by causes far deeper and more serious. A reckless spirit of gambling had spread itself over the commerce of this country. A new school had grown up who seemed to encourage the idea that wealth must not be made in the old-fashioned steady way — namely, by the careful and judicious application of capital to the employment of machinery and labour, but that a new discovery had been made by which even more than the dream of the alchemist of old had been realized, and wealth was to be produced by modern financing, or, in other words, by the skilful manipulation of bits of paper called bills of exchange. And this machinery went so far that he had heard it said that with only an enter-prizing engineer, an unscrupulous promoter, a spirited attorney, and a bountiful supply of Lloyd's bonds, a railway could be carried from one end of the kingdom to the other. The game went on merrily for a time. Promoters were collecting princely fortunes, and directors were realizing in one year almost more than they had been able previously to acquire by a life of steady industry. But any person who had the slightest acquaintance with the principles of finance must have been certain that the day of retribution was near at hand. Those who lent with recklessness were sure to find themselves in such a position that they were obliged to demand repayment with stringency and severity, and that was the time when the Bank was pressed for loans, and people came forward and said, "We ought to have an institution in this country which will supply us with an unlimited quantity of cheap money," and if the Bank did not do that, they said that the legislation which controlled the Bank was faulty and ought to be modified. In his opinion, and he had watched as an outsider as narrowly as he could every fact connected with this crisis, the collapse had not come one moment too soon, and if the day had been by any legislation postponed, the only result would have been that the ultimate crash would have been far more disastrous. There was a gratifying fact connected with all our commercial difficulties. They had had the gloomy side presented to them that day, but there was a brighter side to the picture. He asked any hon. Gentleman of commercial experience in that House to point out to him a single large commercial concern which, having done a legitimate business, had succumbed in this crisis? He threw out the challenge, and be believed it would not be accepted. An hon. Friend of his, the hon. Member for Bury, one of the great merchants of the country, was telling him the other night that the legitimate trade of the country at the present time was in a thoroughly sound condition, and he said that he, for one, did not regret that this high rate of interest had been maintained for so long a time, for in years past legitimate traders had had to carry on a severe competition with persons who borrowed money, and now that there was difficulty in borrowing money, the legitimate trader would be restored to his proper condition. When the mania was at its height attentive observers might have well felt alarmed for the industrial future of the country. They saw an unfortunate spirit of gambling spreading itself over the country, and that people were beginning to think there was a new mode of making money far faster than the old way which their fathers had been content to follow. He had heard more than one person say—and he heard it with fear and trembling—"During my life, although I have worked hard, I have never been able to make more than 10 per cent in business, and I have always considered that a fair trade profit, but if I only send my money to some stockbroker in London, there are numberless limited liability companies in which 12, 20, 30, and even 60 per cent can be realized, and why should I go on working as I have been doing?" This feeling had been spreading, and if it had spread much further, nothing more disastrous could have happened to the pre-eminent commercial greatness of this country. But the evil did not stop there. Money that was made without trouble or industry was spent recklessly, and a spirit of extravagance and luxury was spreading itself over the land, and its mischievous ramifications were penetrating into the heart of English society. He, for one, thought the Bank had been perfectly right in maintaining the high rate of discount. The hon. Member for Stockport told them that while this country had its rate of discount at 10 per cent, the rate in France was 3½ per cent, and in other countries 4 per cent and 5 per cent. If people would rather invest their money in France at 3½ per cent than in this country at 10 per cent, it implied, as the hon. Member for Stockport said, that our credit had been shaken, but he could not believe that it was the action of the Bank that had shaken our credit. If they looked at the proceedings of the Bankruptcy Court and the winding-up courts they could not be at much loss to see what it was that had brought about that result. Those who had shaken the credit of the country were the unprincipled promoters and the reckless directors who lent their names to a business which they never took the trouble for one moment of looking into. There was nothing bad in a moderately high rate of discount, for if the rate was high it showed that a high rate of profit was being realized, and a high rate of profit indicated that capital and labour were meeting with a bountiful reward. All that was required to restore our credit abroad, or, in other words, to make people abroad as willing to invest their money here as in their own country, to equalize, in fact, the rate of discount throughout Europe, was to re-establish the fair commercial name of England abroad; and the way to do that was not to rely upon changing our legislation, but for the commercial public to make up their minds that England's commerce should not be conducted in that spirit of recklessness which had characterized it during the last few years. Though he was not in favour of the Bank Charter Act, he did not wish it to be supposed that he looked for any great advantages from its alteration. If it could be modified, and he believed it could, so as to prevent the necessity of frequent suspensions, a great point would be gained. But, on the other hand, he did not sympathize with those who thought that any great or peculiar advantages had been derived from the passing of that Act. England's commerce would have gone on much the same whether that Act had existed or not. At any rate, he was convinced that even if they repealed that Act it would not prevent a financial crisis, and would do nothing even to lower the average rate of discount throughout the country. It was said that there was not sufficient currency in the country. He believed that the currency, instead of having been unduly decreased, had greatly increased. There was no doubt that, owing to the gold discoveries, the quantity of gold had been quadrupled, and the currency of this and other countries had been so much increased, that throughout the world there had been a depreciation of currency, or, in other words, a general rise of prices. When hon. Gentlemen talked about increasing the currency, they should remember that increase of currency did not mean decreased power of borrowing, for if they increased the amount of the currency in circulation just in the same ratio they increased general prices, and they increased the amount they had to borrow for any particular object. He would only say, in conclusion, that even if the Commission or the Committee had been granted, the fact would have been indisputably established that the Bank had been managed with singular firmness, wisdom, and prudence, and that the Bank Directors were a body of men of whom any commercial country might be proud. They had not produced, they had not aggravated the crisis, but the crisis had been produced because the old simple economic axiom had been forgotten, that wealth could only be made by the application of capital to labour and to machinery, and because it had been thought that wealth could be produced by a system called modern financing. Depend upon it wealth thus produced would soon prove to be illusory, and would fade away like a cloud before the summer sun.


said, the hon. Member for Brighton (Mr. Fawcett) had thanked the right hon. Baronet the Member for North Devonshire (Sir Stafford Northcote) for his speech, and in his turn he desired to thank the hon. Member for Brighton for his valuable contribution to this discussion. That speech made it unnecessary for him to enter as largely as otherwise he should have done into some of the arguments of the hon. Member for Stockport (Mr. Watkin), who had introduced this subject with much ability, and imparted to the discussion an interest which, under other circumstances, it would not have possessed. He could not, however, concur in the opinion of the hon. Member for Stockport that this was a moment when such an inquiry as he asked for could be conducted with advantage; because, as the monetary pressure still existed, the passions and prejudices of persons must necessarily be aroused by the manner in which their interests were affected. It could not be denied that while on the one hand the subject of the administration of the Bank and the laws of currency did affect the interests of tens of thousands of industrious people, on the other hand we might deal with the question in such a way as to impair and shake the confidence of the public in a matter of primary importance—namely, the integrity of our system of currency. He must agree with the hon. Gentleman the Member for Stockport in lamenting that the late Secretary for Foreign Affairs had thought it necessary to issue a manifesto on the state of our monetary affairs to the Governments of other countries. He believed that circular had encouraged rather than allayed the apprehensions existing abroad as to the internal condition of this country; and one could not be surprised that it should have had that effect. There was one point in connection with the management of the Bank which he ought to notice, and that was the contrast drawn by the hon. Member for Stockport between the suffering and ruin which had occurred in so many commercial and industrial circles, and the large profits and gain of the Bank of England. It must be clear that not only the Bank of England, but every other lending corporation and every individual having money to lend, must be a large gainer when the rate of interest was very high; but the profits of the Bank of England would appear small and diminutive as compared with those of other lending corporations when their relative capital and position were taken into account. And the House should remember that, although those who had borrowed had suffered, the lenders had gained, and that as both were citizens of this country, the gain as well as the loss would be felt throughout the Empire. He admitted that variations in the rate of interest were not desirable. The more equably we could maintain the value of money in loans, the better was it for the commercial community and the progress of industry. He concurred with the hon. Member for Stockport that considerable inconvenience must have resulted from the present high rate of interest to individuals who borrowed for the purpose of speculation; but when the hon. Gentleman said that those transactions had been entered into on the presumption that the Bank rate would not rise beyond 5 per cent he could not concur with him, because, to take that view, he must suppose that those persons had lost all remembrance of the many oscillations of the rate of interest which had taken place within the last few years. The high rate of interest might have many disadvantages; but when the hon. Member for Stockport charged the high rate of interest as the means of arresting the employment of labour, he must dissent from that proposition. There could be no doubt that to arrest the employment of large bodies of the labouring classes was a very great evil; but it was his conviction that there must be something exceedingly unsound in the adventure or business in which an employer was engaged if a rise in the rate of interest could occasion a sudden cessation of his operations; and he must take leave to confidently assert that no case could be found in which a high rate of interest was chargeable with producing such a state of things. It was not interest at the rate of 10 per cent on bills at short periods that would throw out of gear the operations of large labour establishments, and deprive of employment hundreds and thousands of men. That result was attributable to other causes. One of these causes was the operation of companies started with the expectation of gaining enormous profits by speculative business — obtaining popularity by disin- genuous and extravagant statements, but never satisfactorily carried out, and ending in ruin to the last shareholder. The hon. Member for Stockport had charged the Bank of England with being the cause of the existing pressure, and he said, "Look at your bank notes and cheques—in these matters the country is richer than ever; why should it be put to this inconvenience?" Now, he (Mr. Hubbard) was free to admit that the country was richer than ever—that its capital had increased, and that it was outstripping all past experience. But of those who were engaged in the race for wealth, many were men who, not being educated for commerce, desired to grow rich in a moment; they embarked all the capital they could command or borrow, and they maintained no reserve on which they could fall back in periods of difficulty. He applied that censure not only to the commerce of the country, he applied it distinctly and with deliberation to the way in which banking had lately been carried on. Competition up to a certain point was most useful and most salutary; but when carried to extremes was apt to drive men into measures which in their calmer and cooler moments they would have reason to regret. Private bankers had accepted the position of rivals to the joint-stock banks, allowing interest upon deposits not merely at a rate such as they could obtain themselves by holding Government stock or Exchequer bills; but driven by competition they allowed a rate of interest which could only be recouped by becoming themselves investors in railway securities, in foreign bonds, and in engagements of long date and difficult of negotiation. Hence, when the hour of pressure came, they were perfectly helpless, and obliged to apply to the Chancellor of the Exchequer. He did not wish it to be supposed that the difficulty which had arisen, and the existence of which he did not deny, were attributable either to the Bank of England or to the high rate of interest, and when the hon. Member for Stockport said the difficulties which they were labouring under were difficulties occasioned by legislation, he thought it would have been fair of the hon. Gentleman to describe more clearly what kind of legislation he meant. There were two kinds of legislation on the subject. If the hon. Member meant that legislation which had regulated with too little circumspection the promotion of railway companies, he (Mr. Hubbard) agreed with him, and if he meant the legislation which had given the utmost license to the propagation of limited companies, without subjecting them to that deposit of capital which would be a security for the fulfilment of their engagements, he also agreed with him. But if the hon. Member attributed the difficulties to the legislation which had taken effect with regard to the currency, he must venture to differ from him entirely. The hon. Member for Stockport, in a distinct and definite way, had addressed certain questions to the House affecting the finances of the Bank of England, and expressed a desire to receive a categorical reply to them. He had, also, addressed some very important and searching questions on the management of the Bank of England. The hon. Member asked why the management was so different in 1866 to what it had been in 1857? In 1857, when a moment of difficulty occurred, the Bank of England placed £2,000,000 of notes to the credit of their reserve, and that amount immediately became available for the relief of necessities. The hon. Member for Stockport was satisfied with what took place then, but he was dissatisfied with what had been going on now. He (Mr. Hubbard) would explain why those £2,000,000 of notes were carried to the credit of the Bank reserve in 1857. The notification from the Government to the Bank of England in 1857 was, he believed, identical with the notification made during the present year; but in 1857 the contingency provided for in the Government letter had actually occurred, and the Bank of England, in the exercise of their discretion in making loans, had passed the amount of credit notes permitted by the Act of 1844, so that it became necessary at once to add £2,000,000 of notes to the reserve. Now, however, this was not the case. In 1866 the Bank had not passed the ordinary limit of their issue, and therefore they had no occasion to create a specific amount of notes in order to replenish their reserve. If the hon. Member imagined from that, however, that the action of the Bank had been less liberal and less extensive on the present occasion, he was entirely mistaken. The hon. Member asked, "Why did you not make £5,000,000 of notes?" But if they had done so they would have had them all in hand to-day, and of what advantage would that have been? The circulation out of the Bank walls was, on the 9th of May, £22,345,000; on the 16th of May it was £26,121,000, that was to say, nearly £4,000,000 of additional notes had been issued up to that date. On the other hand, the securities indicating the actual amount of the advances made stood on the 9th of May at £31,778,000; and on the 16th of May at £41,780,000, that was to say, the difference, showing the extent of the action taken by the Bank and the Chancellor of the Exchequer, was not £5,000,000, with which the hon. Gentleman would have been satisfied, but £10,000,000 and upwards. He need hardly say more to show the extent of the relief afforded as the consequence of the letter placed in the hands of the Bank of England. The retention of the 10 per cent rate was very distasteful to the hon. Member for Stockport. The Bank reduced the rate of discount in 1857, when the reserve had increased to £7,500,000, but with what consistency could the Bank be asked to lower the rate of interest and relinquish the advantages of the Government letter, when, as the hon. Member himself stated, the reserve in the Bank was only £3,400,000? [Mr. WATKIN: They should have applied for another letter if it was necessary.] To relinquish a letter one day, and the next day ask to have it given back again, would have been a proceeding covering the Bank with ridicule, showing, as it must do, that they did not know their own minds. The hon. Member should bear in mind that the Bank had to consider not merely the state of affairs in Liverpool and London, but also on the Continent, which tended to create difficulties which not even the high rate of interest could effectually guard against. The hon. Member for Stockport had laid down what appeared to him (Mr. Hubbard) to be an exceedingly dangerous proposition, and that was that the supply of currency ought to bear some direct proportion to the progress of trade. Practically, the supply of currency, depending as it did on the influx of bullion, was unlimited. But he denied that any analogy such as was here sought to be sustained could be established between them; for greatly as our trade had been increased, and effectively as its various operations had been carried on, the multiplication and extension of banking expedients had more than counterbalanced that extension of trade. The general diffusion among all classes of the community of the use of banking accounts and cheque books had mitigated materially the necessity for holding a large amount of bank notes. And all these banking expedients, and the extension of all those economizing means, were to be hailed with gladness and satisfaction as long as they were not carried to any dangerous extreme, because they economized the use of that capital for which in our day so many means of employment existed. Many charges had been brought against the Bank Act, which was said to have failed on three distinct occasions. The hon. Member for Stockport was kind enough to inform the House what were the objects of that measure. According to the hon. Member one of the objects was convertibility of bank notes, another the convenience of trade, and the third, avoidance of panic. Let it for once be understood what the Bank Act really was. The Bank Act said not a word about panics—not a word about the convenience of trade. [Mr. WATKIN: No, but its supporters did.] Well, if the purpose of a measure were to be tested by what fell at any time from the lips of enthusiastic advocates, he did not believe any Act in the world had answered its purpose. He thought the Act ought rather to be allowed to speak for itself; its provisions were exceedingly brief and clear. It drew, not one day too soon, a legal separation between the two distinct offices of banking and of issue. It did this on the ground, which it was of primary importance to establish, that, while banking was an industry which ought to be as open as the day and as free as air to every one, the province of issuing or coining paper into money was an Imperial function. It was of the utmost importance that this truth should be established, and that they should not go back, as the hon. Member seemed inclined to do, to the old confusion between banking and issue as a way out of the difficulty. This was a point which he trusted no Government would surrender, but would preserve for the advantage of the whole country. Credit paper being in some degree of an arbitrary nature, but being at the same time based on experience, should always be a defined quantity. It was not capable of being treated with a lax discretion; the quantity must be limited and defined; and the Bank Act limited and defined it. That Act now provided that the Bank might issue on securities to the extent of £15,000,000 and no more, and that was the clause which was assumed now to have been abrogated. But he would ask the House to consider what that abrogation meant. The Act was intended for a cer- tain purpose, and it was found to be so perfectly master of its position, and so capable of bearing its own weight, that it had been burdened sometimes with a great deal more, and burdened successfully. That to his mind was not an abrogation of the principle of the Act. He would offer an illustration: a bridge might be thrown across a river, and to ensure that it should not be tasked above its strength, a limit might be placed upon the amount of traffic to pass over it. But some time afterwards another bridge in the neighbourhood having broken down, and it being certain from long experience that the remaining bridge would bear an additional amount of traffic beyond the amount to which the limitation applied, a further stipulated weight is permitted to pass over it. Surely the permission to carry this further traffic cannot be construed as a declaration that the bridge had failed to accomplish its primary purpose. The Bank of England was the bridge; the Bank Charter Act the regulation limiting the traffic. The Bank, under the Act, had been able to bear the whole burden imposed upon it, and with such ease and certainty that when a suspension of commercial credit had arrived, it was possible to impose upon the Bank the burden of issuing a subsidiary currency without that subsidiary currency being exposed to any risk of inconvertibility. His hon. Friend seemed to imagine that the going back to the state of the Currency Law antecedent to 1844 would put us in a happy and prosperous position; but what would have been their position when the collapse of credit arrived had the Act of 1844 not been passed? He presumed his hon. Friend would not say that the collapse of credit was the fault of the Bank Charter Act, and that to it was to be attributed the fact that bankers kept no reserve. He would endeavour to show the position in which the Bank of England and the country would have been if they had been proceeding under the old system. The average amount of bullion held in the last five years of the old system was no more than £6,700,000; while during the last five years the amount of bullion held was upwards of £15,000,000. if the reserve of the present year had not exceeded £7,000,000, and it had been subjected to the influences which had recently been brought to bear upon the Bank, the panic would not have been arrested by the additional issue of something less than £1,000,000 in bank notes; the inter- nal drain would have been much greater, and the occurrence of many bank casualties would probably have resulted in the suspension of cash payments by the Bank of England. He therefore ventured to affirm that the principle of the Bank Act had proved victorious, and that it had triumphed over the great difficulties placed in its path, and all he lamented was that the language used with respect to it had tended to throw an unfavourable gloss over its operations. The true description of the recent intervention would have been that it was a letter sanctioning, if need be, the creation of an additional amount of credit notes for a limited circulation. So far from the Bank being in danger it was because it was so strong that it could safely be intrusted with the power to issue more notes. He held very strongly, indeed, that any operation which had the appearance of interference with the nature of the credit paper of the country was a great evil, for the creation of which no justification could be found. But he did not deny that it was incumbent upon the Government to find a summary remedy in the emergency which had occurred; nor did he insist that pressure and panic would result only from our system of currency. In the town of Hamburg, with only a silver currency, a crisis occurred in 1847 which resulted in the failure of 140 commercial houses; and he was of opinion that no system of currency could avoid panic and failure. The first duty of the Government undoubtedly was to ensure under all circumstances the convertibility of that currency which was the basis of all monetary transactions; and when that was done then let them find some means of meeting the difficulties occasioned by the collapse of private credit. This was, perhaps, not the moment to say all that might be said on the subject; but he trusted that, whether the Government did or did not during the recess mature some plan which they might bring up for the consideration of the House next Session, at all events, when the House met again this might become a matter for investigation. He could assure the hon. Member for Stockport, on the part of the Bank of England, that they would cordially welcome any inquiry that might be instituted, for that nothing would be farther from their desire than to shroud themselves even for a time under a veil of secresy. His own impression was that the question should be treated in the same way as one of the great fundamental principles of the Constitution was dealt with. The Habeas Corpus Act had been suspended in Ireland; but no Act could be passed declaring under what circumstances the Habeas Corpus Act should be suspended in future; its suspension must be left to the discretion of the Legislature. The matter under discussion demanded attentive consideration, which might lead to some useful legislation; but in no case should encouragement be given to the banking world to assume that, in any emergency, they had a right to ask the Government to supply them at any price with a reserve which they should in common prudence have secured for themelves.


I am afraid that the period of the Session is too far advanced to admit of the adequate discussion by all the Gentlemen who feel an interest in the subject of the numerous questions relating to the present state of our monetary affairs. For my own part, so anxious am I not to trespass unduly upon the time of the House, that I shall confine my remarks within a very few minutes. My main purpose in rising is to accept as far as it belongs to me a share of whatever responsibility may attach to the determination of the Government to decline to accede to the proposal of my hon. Friend the Member for Stockport for the appointment of a Royal Commission to inquire into the working of the Bank Charter Act and the recent or present monetary crisis. Not only in that portion, but in its whole scope and extent, the speech of my right hon. Friend the President of the Board of Trade was as eminently satisfactory as it was clear and interesting. With regard to the appointment of a Commission, I think that we ought never to ask a Government to undertake a function which it is impossible for them to perform with any approach to satisfaction. Now, in appointing a Commission to inquire into the question of the currency, they must take one of two courses, because there is no answer to the remark of my right hon. Friend, that an inquiry into the recent circumstances of the money-market absolutely involves causes and principles as well as facts. That being so, the Government must either select the members of the Commission from one particular school of politicians, united in principle, with a determination on the part of the followers of other schools to renounce and repudiate and discredit the whole of the proceedings of the Commission from the very first, or else the Government may proceed impartially by combining on the Commission the most eminent men of the different schools of currency, and in that case they must expect to receive three or four Reports from the Commission, because we are none of us sanguine enough to believe that the work of conversion and conciliation would go on amongst distinguished professors of the different schools. And I must say that, whatever might be the result of that Commission, I am convinced that, so far as it related to causes and principles, it would not weigh with this House. Charged as we have been for half a century with all the interesting discussions and considerations of the principles relating to the currency, it would be a great innovation to deliver over the prosecution of that subject into other hands, and the effect of that innovation would, I believe, be injurious and detrimental to the progress of the question itself. My right hon. Friend has stated that the Government will consider the question during the recess, that if they find themselves in a position to propose legislation to Parliament, they will do so on their own responsibility, and that if they should not, they will make no objection to the institution of a Parliamentary inquiry, if it should be desired. I think that that announcement is in both its branches perfectly fair; indeed, I am afraid that in one respect my right hon. Friend was disposed to go a little too far. I understood him almost to promise that if a measure was introduced by the Government, it should be referred to a Select Committee. Now, I do not think that a question of this magnitude and intricacy could with advantage be referred to such a Committee after it had once assumed the definite and determined form which it must have taken in order to be presented in the shape of a Bill to this House. Only recommending further consideration on that point, I think the Government have pursued the right and proper course, and exercised a wise discretion in the announcement they have made. My right hon. Friend has manfully asserted that, in his opinion, the success of the Act of 1844 has been general and unequivocal, although it may remain perfectly open to us to inquire with propriety and advantage what Amendments may be introduced into that Act. And certainly, I had thought that it was admitted, I will not say upon all hands, but generally amongst those who were practically conversant with monetary questions, and who have acquired the greatest authority upon those subjects, that in many respects at least we must recognize the great benefits derived from the working of this Act. At any rate, the convertibility of the bank note, the first object of a system of currency laws, has been placed beyond the smallest question—not only beyond the reach of absolute danger, but beyond the slightest taint of apprehension or suspicion. The whole system of meeting foreign drains has been so completely established, and is now so generally understood, that we may fairly say that so far as foreign drains are concerned there is no longer any apprehension or difficulty either in the present or the future. Well, but the solution of that problem is, of itself, a most important fact. The Bank Act of 1844, as has been stated by my hon. Friend who spoke last, likewise laid down a principle of great importance, and one which, I hope, will never disappear from our statute book, but will, on the contrary, acquire increased recognition as circumstances may permit—I mean this principle, that the whole business of issue is the business of the State—and that where that function is exercised by any body other than the State, it must be considered as exercised by delegation only. The profit of issues belongs to the State, and what is much more important than the profit is that the responsibility of issue also belongs to the State, and for my part I must confess I know not upon what principle we can justify—I speak now of the system of currency which prevails in England—I know not upon what principle we can justify, except as a provisional and temporary arrangement, the circulation of instruments under the name of promissory notes, which are intended to pass, and which do habitually pass, from hand to hand, unguaranteed, unsecured—resting solely on private responsibility, performing work which it is the duty of the State to perform, and yet without any security from the State sufficient to secure the holder of those notes from loss. And this leads me to remark upon a point which has not been noticed, I think, either by my hon. Friend the Member for Stockport or by any other hon. Member in the course of this debate. I must say that when this Parliamentary inquiry comes to be instituted, or when the attention of the Government is directed to this subject, I most earnestly trust it will not by any means be confined to the working of the system of the Bank of England with respect to the crisis in which we have been involved. The character of this crisis has been a banking crisis. I cannot help thinking that we have been somewhat too severe throughout this discussion upon the general commerce of the country. That commerce, so far as I have been able to observe, has been in a sound and satisfactory state. The charge of excessive speculation and recklessness is not applicable, I think, to the manner in which for some years the general commerce of the country has been carried on. It appears to be one of the satisfactory incidents of the transition we have made from a system of restriction to a system of freedom, that our commerce is not only vastly more extensive, but more sound and solid. As regards the banking business of the country—as regards the making of investments—as regards the holding, or I should rather say the non-holding, of reserves—as regards the practice of showing reserves upon paper, which reserves themselves have been lodged in investments—as regards the practice of making enormous advances, not upon the well-considered credit of individuals, but upon speculations and undertakings of every kind, enormous in extent, and often wholly unjustifiable in their quality and character, being in fact irrecoverable at the proper time, and illegitimate for bankers, even if they were legitimate for any other parties —as regards these, and more than these points, we have had for some time past a very unsound and unsatisfactory state of things. But now, with regard to banking, I hope hon. Gentlemen will not leave out of view the part which has been played by the unsecured and unguaranteed private circulation in this country during the present crisis. What have we been labouring under? Why is the rate of discount charged by the Bank kept up at 10 per cent? It is because of the limited condition of its reserve. And why is the reserve so limited? Because of the immense demand consequent upon banking discredit —the immense demand made upon the notes and coin of the Bank. Notes and coin have been called to supply this want. But what part has been played during this period by the country bank circulation? Has that circulation been found available for the wants of the country? There has been an immense demand for notes and coin, and under these circumstances, if the country bank circulation had been in a satisfactory state, it is evident that not only the notes and coin of the Bank of England but those of the country banks themselves would have been largely drawn upon. Instead of that, however, we have seen the country bank circulation actually diminished by not less than £1,000,000 at the very time of this drain on the Bank of England. And how has the place of this £1,000,000 been supplied? Why, by an enhancement of the drain upon the Bank of England. It appears to me, therefore, that we find this most unsatisfactory result—that that £1,000,000 of notes in the coffers of the Bank of England, which would have been such a valuable addition to its reserve, has been withdrawn in consequence of the position in which the country banks have been placed. I have not given, and am not going to give, utterance to an opinion, nor am I suggesting that any measure should be adopted that would savour of harshness to the issuers of country bank notes. Still less am I endeavouring to fix upon them or seeking to imply that the country bank issuers have acted either prudently or imprudently in the conduct of their business. Into that question I do not enter. But I think that the system upon which those issues are at present founded, is a bad system. It is a system entirely at variance with the spirit and intention of the Act of 1844, it is entirely at variance, I think, with the laws which ought to regulate our currency. I hold that no bank note ought to circulate in the country unless it is just as secure to the holder as a sovereign. I only wish further to say one word with respect to the letter of Lord Clarendon, which was written shortly after the Government letter to the Bank. My hon. Friend (Mr. Watkin) stated that the effect of that letter was to enhance apprehensions entertained in foreign countries on the subject of English credit. I know not whether that was the case. It is the first time I have heard the statement; but this I can say, the object of that letter was to remove that apprehension and alarm and discredit which already had been propagated abroad —I know not why, inasmuch as this was not the first occasion upon which a suspensory letter had been issued by the Government in reference to the Act of 1844. But undoubtedly it is a fact that that letter, acting on a more susceptible state of mind, was understood abroad as amounting to a suspension of cash payments. That was the construction put upon it; and I think that no later than by return of post there came an offer—a most friendly offer —from the French Government to assist us with a supply of bullion. Is was in consequence of that extraordinary misapprehension, which appeared to be doing great mischief, that it was thought wise by my noble Friend—and I confess I concurred in that opinion—to explain that nothing had occurred to alter the general character of English credit, and to point out the circumstances under which the crisis had arisen. I think, however, it is unnecessary now to enter more fully into those matters with regard to which the working of the Bank Act may be a fair subject of Parliamentary inquiry. Undoubtedly, although it may be said on the one hand that we have had many of those Committees—we have had them in 1832, in 1842, in 1847, and again in 1858 and 1859—yet this fact remains, that each crisis in succession developed new circumstances. The present crisis, in particular, has had a very novel and marked character of its own, in consequence of its being so much connected with the management of banking business, in fact, with the action of what, I think, my hon. Friend the Member for Brighton (Mr. Fawcett) in one of his interesting works calls the lending capitalists as distinguished from the industrial capitalists. It has been a crisis mainly connected, not so much with the conduct of commerce properly so called, as with the employment of money, and I think, upon that ground alone, the Government would be justified, if it should be the general desire of the House, and if, which I should prefer, they do not at once make any proposal of their own, the Government would be justified in bringing the whole case before a Parliamentary Committee; and I believe the House would not be indisposed to accede to such a proposal.


said, he had listened with some surprise to the statements made upon the subject in the course of the debate. He was not going to dispute the allegations of the hon. Member for Brighton (Mr. Fawcett), and still less those of his hon. Friend (Mr. Hubbard), that there had been a great amount of gambling, or what might very nearly be called swindling, going on in these companies, which had been the principal cause of all that trouble, and that the crisis had not been entirely occasioned by the existing state of the law. His right hon. Friend the President of the Board of Trade (Sir Stafford Northcote) had told them that it all arose from the short amount of loanable capital with reference to the demand upon it. He would not attempt to controvert either of those propositions. There was, however, one proposition that lay deeper than either, and that was that the difficulty arose from the vast increase of banking operations. They all knew that those operations had of late years been greatly extended—that every chandler's shop had a banker, and the use of a banker now was not to take care of money for people, but to lend them money. But a question which lay deeper than that was this — Had or had not the system which had grown up from extensive banking, and which was called "financing," been operated upon, and partially, if not mainly, increased by the working of the Act of 1844? That might seem a paradoxical question, but let them look at what immediately took place after the passing of that Act, and they would find from the evidence adduced before the various Committees which sat on that subject that the action of the Bank of England then changed—that whereas before that time the Bank of England was somewhat above the market rate of interest, after that period, directly money was cheap, they became such competitors in the open market, that they went below the market rate—their figures being under those of the great houses of Gurney and others. He saw an hon. Gentleman shaking his head, but he had the figures in his pocket, if there was any doubt about the fact. Not only was that stated, but the Governor and Deputy Governor of the Bank also stated that they did not at all look at the nature and origin of the transactions connected with the paper offered to them, but only to the security; and it was perfectly clear from the evidence that the great money houses which dealt in all that questionable paper, and upheld all those questionable finance houses, instead of being checked by the Bank of England, were so strong from the peculiar position of the Bank, that they took that paper to the Bank, and they were forced to discount it. All these facts stood upon the Reports of the various Committees, and therefore it might be a matter for inquiry how far the great immorality, as it had been called, which now existed, had been in a great degree, he would not say created, but left without any possible check by the great monetary body which up to that time had put a check upon it, and would not touch paper of a kind which it was not necessary to attempt to name. All these were questions which must arise. He was not at all prepared to say that the Government had not come to a wise decision as to a Commission; but if they had arrived at such a conclusion, he did not see the use of having a Committee afterwards, which would be quite an idle proceeding. He agreed with the right hon. Gentleman the Member for South Lancashire that, in matters of that nature, any change which was to be made should be proposed by the Government on their responsibility, and not sent to a Committee upstairs afterwards.


moved the adjournment of the debate.


said, he had no objection to the proposal, but all he could undertake to do was to give this question precedence of the Orders of the Day on Friday next.

Debate adjourned till this day.