STATE OF THE CURRENCY.

HL Deb 09 February 1826 vol 14 cc132-45

The Marquis of Lansdown

rose to call the attention of their lordships to one of the most important questions which could be brought under their consideration. He intended to submit to them a series of motions, the object of which would be to reach the source of that embarrassment, which had prevailed, and still prevailed in commercial affairs. In doing this he was desirous of offering a few observations for the purpose of expressing the opinion which he entertained on the subject. He was the more desirous of submitting these few observations to their lordships, because he entertained an apprehension, that in the opinions he had formed on the subject, he had the misfortune to differ, respecting the causes of the present crisis, from some persons in that House, and also out of it, for whose opinions he entertained the highest respect. Before he proceeded further, he begged it might not be understood, that he intended to suggest, or that he expected, through any of the documents for which he should move, to reach any thing like a remedy for the existing evil. His opinion, founded upon what he conceived to be the nature of the evil, was, that it must be allowed to work its own cure. The state of the currency had turned the exchanges against the country, and gold disappeared. There was an accumulation of stock, and the consequence was, that any man who purchased at a maximum, and sold at a minimum was ruined or injured. The embarrassment would continue until, going through the whole community, it should be corrected by that increased demand which would be produced by the reduction of prices. Then would return, not that artificial prosperity, which had been witnessed, but that real prosperity which the country was capable of attaining, under its present state of taxation. He believed it was the opinion of the king's ministers themselves, that no adequate remedy could be applied to the evil. Concurring in this opinion, he thought that no time should be lost by parliament in investigating the cause, and if no remedy could be found, to endeavour to prevent the recurrence of one of the most tremendous and searching convulsions ever experienced in any country, and that in a time of profound peace. There were two classes of evils, both of which might be referred, in some degree, to the same cause, and yet they were in their consequences essentially different. The first was the state of the currency, which, running into excess and causing the exportation of the precious metals, affected prices and the state of the exchanges. These constituted a class of evils by itself, but one which it was the duty of parliament strictly to investigate, in order to prevent its return. Another evil attending the state of the currency was, the insecurity with which it visited the lower orders of the community, by depriving them of the value of their labour and the profits of their industry. Important as the first class of evil was, this was by far the most serious grievance of the two. When he recollected the important prerogatives of the Crown—and all prerogatives of the Crown existed only for the benefit of the subject—none appeared to him more valuable or more efficacious than that of coining money, which, interposed as a shield between ignorance and fraud, protected those persons, and secured to them their humble earnings. Those who depended upon their labour ought to be protected from being involved in the ruinous consequences of speculation. The state of the currency, however, exposed those classes of persons to ruin who had no share in speculation, and who ought not to be placed within the reach of the evils which it occasioned. He would ask any of their lordships who had happened to be in a country town when one of those failures had taken place, whether he could bring to mind the scene of complicated misery, and distress which he must have witnessed, without feeling that it was incumbent on him to do all in his power to prevent a recurrence of the most dreadful calamity to which a community could be exposed. If one of the hundreds of thousands who had been exposed to this evil had been stopped in the highways and robbed of his property, such an event would have fixed the greatest stigma on the energy of government and the foresight of the legislature. And, where was the difference between being thus robbed, and being despoiled of property by the operations of an excessive paper currency? There was said to be this difference between the two cases—that the persons attacked on the highway would have the means of defending themselves from attack whilst the community had no means of escaping from that which, sooner or later, was sure to fall upon them, in the shape of one of the greatest evils which it was possible to be subjected to. The evil consequences of the system to which he alluded were felt in all their severity by the labouring classes. In country towns local paper was usually the only currency in which they were paid for their labour. If they refused to receive the paper in payment, they must go without the reward for the labour to which they were entitled. The state of the currency as connected with the issue of small notes was, therefore, a subject which called for the serious attention of parliament. The motion with which he should conclude, was not intended to attack in any way the measures which government were about to propose for the consideration of parliament. With regard to the proposed measures respecting the issue, or rather the prevention of the issue, of small notes, he thought it would be more difficult for ministers to show good grounds for having authorized the continuance of that issue, at a time when the benefit of a metallic currency had been obtained, than to prove the necessity of putting an effectual stop to any further issue. He trusted, therefore, that their lordships would second the views of government by repealing a measure, which in an ill-advised hour, parliament had been induced to adopt. He concurred in the desire expressed by the noble earl opposite, to check the issue of small notes; and he believed there was no person who had read the papers on their lordships' table, but must be of opinion that the excessive issue of small notes had had the effect of driving the precious metals out of the country, as well as of raising prices during the last two years. This observation applied more particularly to the notes of country bankers. The effect produced by an excessive issue of small notes had been correctly described in a pamphlet which had already been noticed in terms of great praise in that House, and which proceeded from a gentleman who united in an eminent degree practical knowledge with theoretical accuracy. He meant Mr. Tooke. That gentleman had justly stated, that the effect of such an excessive issue of small notes was not only to form an addition to the general capital of the country, but to operate immediately as an addition to that part of the capital which was employed in speculation; and, in proportion as it operated to swell the amount of capital devoted to speculation, it had a direct tendency to raise prices in an artificial degree. The only circumstance which had surprised him, and doubtless many of their lordships, in the progress of the evil was, that under a state of law which provided for a metallic circulation, and for the convertibility of paper into specie, the check presented by that conversion had not sooner operated. That, perhaps, was to be accounted for by this circumstance—that a large artificial addition to capital having been created by an excessive issue of paper, a considerable time must elapse before the cause of the increase could be correctly ascertained. The first effect of an issue of country bank paper was, to create an artificial abundance of capital; the accumulation of capital caused a reduction of the rate of interest; by the reduction in the rate of interest facilities were afforded for speculation; speculation produced an effect upon prices; the alteration in prices checked the progress of mercantile exports, and that caused the precious metals to be sent out of the country. Then ensued that lamentable distress which arose from an accumulation of stock purchased at high prices being obliged to be sold at greatly reduced prices under the Influence of alarm. That he believed was a correct statement of the train of events which was always liable to proceed from a paper currency, such as that which was permitted to exist until 1833. He therefore thought it was the duty of parliament to check the issue of small notes as speedily as was consistent with safety; and the mode in which the noble earl proposed to effect that object was, as far as he understood it, extremely proper. He understood that the noble earl intended to propose, that no more one and two pound notes should be allowed to be issued, and that the currency of those already in circulation should be limited to three years. He must, however, take that opportunity of stating, that whilst he concurred with the noble earl as to the expediency of stopping the issue of small notes, he had heard with great surprise, of a step taken by government which he conceived to be unnecessary, and unconstitutional, for the purpose of defeating an existing law. What made the matter worse was, that this proceeding had taken place during the sitting of parliament, without any communication having been made to it. He could not see why, if government had the power to dispense with an existing law without the intervention of Parliament the same dispensing power might not be applied to other laws, and though perhaps judiciously exercised in the first instance, grow up into a system of interference with established laws on the part of the government, which would have the most dangerous results. It was therefore the duly of parliament to reprobate the first instance of the exercise of such a power. He must deeply regret, if ministers considered it necessary to suspend an existing law, that they had not communicated the fact to parliament, and at least obtained the sanction of a resolution for the course which they had pursued. He hoped that ministers would come to parliament for a bill of indemnity, for having done that which, however expedient, was constitutionally wrong. With respect to the measure of stopping the issue of small notes, he entertained no apprehension from it. It was, he knew, the opinion of many, that a paper currency, subject to all the evils to which it was liable, was nevertheless a species of accommodation, of which the country with its existing amount of taxation stood in need. That was a most important point for consideration. But it would become their lordships, before they concurred in the continuance of that great evil, to weigh well the value of the accommodation which it was calculated to afford. After the most attentive consideration, he could not bring his mind to believe, that it was at all advantageous to enable a person to do that without capital which should only be done with capital—that it could be beneficial, by throwing artificial capital into the market, to produce a rise of prices, which must, upon the artificial capital being withdrawn, be followed by a corresponding fall. He knew of no system of legislation which would prevent such an artificial rise of prices from being followed by a revolution, bringing ruin and destruction along with it. It being admitted, that the effect of an issue of paper was to raise prices for a time, it remained to be considered, whe- ther the average of prices might not be as great under a metallic currency. Suppose a commodity which, under a paper currency, sold at one time for 100l., and at another for 50l., should, under a metallic currency, sell at two different periods for 90l. and 60l.; the average was the same, and it was certainly more advantageous to the interests of the community, that a steady scale of prices should exist, than that a constant fluctuation of price should take place, occasioned by a system of paper issues, which had the effect of driving the precious metals out of the country, and thus producing a sudden vacuum, under the influence of which prices fell much lower than they ever could under a metallic circulation. The alarm which some persons felt at the proposed limitation of the paper currency was, he was convinced, perfectly groundless. A great deal of the apparent prosperity of last year, by which many persons were deceived, was manufactured for the occasion. As was the case with all articles of spurious manufacture, its acquisition proved to be a loss rather than an advantage. This was not the case with prosperity founded on a solid basis—the result of real capital in the market, capable of being immediately realized in the form of a metallic currency. The subject of the currency branched out into many different parts, with respect to each of which a variety of opinions was entertained. One of the most extraordinary opinions he had ever heard was that which some persons entertained; namely, that this, the most opulent country in the universe, could not procure such a share of the precious metals, distributed through the world as would enable her to carry on her commercial transactions. He knew that such an opinion was contrary to fact, and he derived his knowledge from accounts on their lordships' table, and from others which were within the reach of every one. It was proved by experience, that when any occasion for it existed, a flow of gold into this country never failed to take place. In deference to that species of mystery with which the Bank of England liked to surround itself to a greater degree, perhaps, than was expedient, he would not particularize dates; but he would confidently state, that on one occasion the Bank was able in the course of two years to increase a treasure of less than three millions of gold to one of fourteen millions. He therefore felt no apprehension of a scarcity of the precious metals. He, however, wished it to be understood, that he reserved himself with respect to the question of the effect of the amount of taxation taken in connexion with a metallic currency on the general means of the country. Whilst he entertained the opinion which he had expressed, of the propriety of checking the issue of small notes of country banks, he was equally desirous to see the Bank of England deprived of the power of circulating notes of the same kind. And this brought him to the consideration of the share which the Bank was supposed to have had in contributing to the crisis of last year. Having arrived at that part of his subject, it would be most unfair to pass by the opportunity of stating, that in the recent transactions between government and the Bank, with respect to the surrender of part of the privileges of that body for the purpose of facilitating the formation of solid banking companies, and the readiness which they had displayed to meet the public necessities, did them great honour. Giving them praise on that account, he was disposed to go further, and say that the Bank directors deserved great credit for the promptitude with which they endeavoured to arrest the effects of the late panic by a great issue of small notes. But, having said thus much, it would be uncandid in him not to add, that the Bank, in the first instance, so far from having arrested the progress of the late evils, had increased them by the extent of its issues of paper. He believed it would appear that in 1825, but more particularly in 1824, whilst the country-bank paper was increasing, considerable additions were made to the issues of paper and discounts of the Bank of England. After the language which was held by the highest authority of the Bank some time ago, he had a right to state, that the period to which he had alluded was not the proper time in which such issues should have taken place. It was a time when an efficacious check upon paper circulation might have been administered by the Bank, and could not have failed to produce a most salutary effect. He would explain the allusion which he had made to the words of an individual connected with the Bank. During the progress of that inquiry in which their lordships were engaged some time back, and the result of which was, known by the name of the Bullion report, one of the highest persons connected with the Bank, when asked what he considered to be the criterion (independently of the exportation of the precious metals) of an excess in the issue of paper currency, replied, "a state of trade in which money is hawked about every-where, and many persons are induced to undertake uncertain and imprudent speculations." He would ask whether, independently of the exportation of the precious metals which was actually taking place in 1824 to South America, a more accurate description could be given of the state of trade and speculation in England at that period, than was to be found in the words which he had just quoted. Money was then hawked about every-where, and the most imprudent speculations were going on. He had a right, therefore, to say, that it was deeply to be lamented that the Bank did not at an earlier period adopt measures for narrowing their paper-currency, and diminishing their discounts. His object was, to obtain an account of the amount of issues of small notes from the Bank during the last two years, in order to show the effect which those issues had produced upon prices. He was inclined to hope much from the abandonment of part of the Bank's privilege. With respect to the measure which would require country bankers to give security, it appeared to him to be attended with so much difficulty in its application, that he doubted whether it could be carried into effect. He thought that much more good would be effected by giving publicity to the transactions of public banks than by requiring securities. This would operate as a check upon improper conduct, whilst it would leave them in full possession of their funds, which would, in a great degree, be tied up under the proposed system of securities. He hoped, therefore, that the noble earl would abandon that part of his plan. He ventured to suggest, that it would be expedient, that wherever country-bank notes should be issued, there they should be made payable. Such a provision would remedy the inconvenience which had been found to result from country banks establishing branch banks in different towns, which issued notes payable only at the fountain head, or original bank.—He had now stated the observations which occurred to him with respect to the measures which it was the intention of ministers to propose. Many persons, he was aware, were of opinion that the effect of those measures would be to bring back the currency to the state in which it was placed by Mr. Peel's bill, and that it would, in that event, be impossible for us, with the existing load of taxation, to fulfil our pecuniary obligations. These same persons approved of the artificial paper currency, because they considered that it enabled them to fulfil those obligations which otherwise they could not do. He was unwilling to admit the possibility of the country being incapable of fulfilling all its engagements. If he could entertain such an opinion, he would say, in God's name declare the fact, and adopt a system of policy applicable to the situation in which we were placed. Proceed upon fixed principles, but abandon a system which caused perpetual revolutions, creating at one moment a state of artificial prosperity, and at another plunging the interests of the country into a state of unnatural depression—a system which scattered ruin through every part of the community, depriving every man of the means of knowing the value of the currency, and making him liable to have the produce of years of industry almost valueless. He hoped and believed that the measures to be proposed by ministers would have the effect of putting an end to a system which produced such calamitous effects, and of placing the banking establishments of the country on a solid foundation. The intended measures would not, he understood, apply to Scotland or Ireland, but he trusted to see, at a future period, some measures founded on similar principles applied to those parts of the country. The noble marquis concluded with moving for, "1. An account of the number of Bank of England notes in circulation on the 15th of February, May, August, and November in each year, from 1819 to 1825, distinguishing the notes for 5l. and under; and a like account of notes of the banks of Scotland and Ireland. 2. An account of all the notes issued by country bankers in England, Scotland, and Ireland, from 1819, up to the latest period. 3. An account of the number of bankrupts in England, Scotland, and Ireland, from 1819 to the latest periods at which the return could be made, distinguishing those who were bankers. 4. Copies of all charters granted to banking establishments during the same period."

The Earl of Liverpool

said, he did not feel it necessary to trouble their lordships with more than a few words on the present occasion; first, because it would be his duty at a very early period to submit to the consideration of the House one of the measures of which he gave notice on the first day of the session; and secondly, be cause, having listened with the utmost attention to what had fallen from the noble marquis, there was hardly a sentence which he had uttered, with which he was not disposed entirely to agree. So long as the Bank of England continued under restriction, parliament had a right to call, from time to time, for the accounts of the Bank, in order that they might be fully acquainted with the proceedings of that body; but the restriction having expired, and the Bank being under no control, he did not conceive that parliament was entitled to call for information from them as a matter of course. The information which the noble marquis sought for might, however, be obtained, though perhaps not so completely, from the Stamp-office. But though he did not consider the motion a matter of course, yet, connected as it was with a great legislative measure about to be submitted to parliament, with the concurrence (with respect to one of its branches) of the Bank itself, he thought their lordships had a claim to any information which might enable them to form a correct judgment on the subject; and he thought it would be most ungracious on the part of the Bank to throw any unnecessary obstruction in the way. He was happy to say, however, that the Bank directors entertained no such disposition. They thought that, under the special circumstances of the case, parliament ought to have the information which was sought for. The noble marquis had alluded to a transaction with respect to which he felt that a considerable degree of responsibility attached to his majesty's government. He alluded to the stopping for the present of the stamping of any one or two pound country-bank notes. The measure was not adopted, until notice had been given to parliament of the intention of government to effect such an object by legislative enactment; and it was only resolved upon in order to prevent the views of parliament from being defeated whilst the bill was in progress. The proceeding was not adopted upon light grounds. Government had positive information that there existed an intention of doing that which would have thrown considerable obstacles in the way of the measures which it was the object of ministers to recommend to parliament. If he were asked, why he had not adopted the course of applying to parliament for a short bill to sanction the proceedings which had been adopted, he would reply, that that step could not have been taken without the greatest partiality and injustice. The bankers near the metropolis would have got their notes stamped whilst the bill was passing, an advantage of which the bankers at a more distant part of the country could not avail themselves. Under these circumstances, it was considered advisable to adopt the measure without any previous application to parliament. It was done to prevent the desirable object which government had in view from being defeated.

The Earl of Lauderdale

denied that the issues of small notes had the effect of driving the metallic currency out of the country. The present distress, in his opinion, was not occasioned by the currency so much as by the spirit of extravagant speculation which lately prevailed throughout the country. The withdrawing of nineteen millions, which was the amount supposed to be withdrawn from the circulation of the country, was the true cause of the calamity. That these speculations had been indulged in was no fault of his. He had done all that lay in his power to warn the public from entering into these rash and hazardous enterprises; as had also the noble and learned lord, whom he regretted not to see now on the wool-sack. As to the Scotch banks, they were certainly found by experience to be established on principles of perfect security; but he was apprehensive, if the intelligent persons who introduced the system of Scotch banking were brought up to the bar of this House and examined, that they would admit that the Scotch system was, in many respects, incompatible with the commercial transactions of this country, and unfit to be introduced into England.

The Earl of Carnarvon

said, he approved highly of the plan of extending the number of partners in banking establishments, and agreed also in the propriety of each of the partners of such establishments being made liable, in the whole amount of his property, for the concerns of the Bank. This would create a class of merchant bankers who would have an interest in attending to the affairs of the Bank, and would operate as a check against over-issues. Accompanied with these measures, he would be glad to see the country return to silver as the stand- ard of the currency, such as silver was at the old Mint-price. This would, in his opinion, place the currency on the most satisfactory footing. As to the proposed measure of withdrawing the one and two pound notes from circulation, it was, in his opinion, by no means calculated to remove the evils by which the country was afflicted. The adoption of this measure would operate injuriously to the farmer, and to the humble class of agriculturists and dealers, who principally carried on their business by means of the one and two pound notes. Great injury would be done generally to the community by withdrawing so large a sum as six or seven millions from the circulation of the country. This inevitable evil would follow from it, that it would contract the circulation of the country at a time when it required an extension. Whatever might have been the evil consequences of over-issues, the distress under which the country laboured must be augmented to an incalculable degree, unless parliament went to the root of the evil. That the withdrawing the one and two pound notes from circulation, and the substitution of a metallic currency, did not go to the root of the evil appeared from the letter of the first lord of the Treasury, and the chancellor of the Exchequer, to the Bank directors. It was there stated, that, "though a recurrence to a gold circulation in the country, for the reasons already stated, might be productive of some good, it would, by no means, go to the root of the evil." Here then, upon the acknowledgment of these gentlemen, the withdrawing of the one and two pound notes would not be an effectual remedy for the distresses. The letter proceeded thus:—"We have abundant proof of the truth of this position, in the events which took place in the spring of 1793, when a convulsion occurred in the money transactions and circulation of the country, more extensive than that which we have recently experienced. At that period nearly a hundred country banks were obliged to stop payment, and parliament was induced to grant an issue of Exchequer bills to relieve the distress. Yet, in the year 1793, there were no one or two pound notes in circulation in England, either by country banks or by the Bank of England." As the distress prevailed, therefore, when one and two pound notes were not in circulation, the House ought to pause before it gave its assent to a measure which would with- draw so large a sum from circulation. At the period of the South-Sea scheme, there were no one or two pound notes, yet then there was distress. In 1793 was there not distress? And at various other periods, was not distress as great and even greater, than at present? As, then, these evils existed when small notes were not in existence, he was unwilling to give his assent to the abolition of the small notes, without some further information. For his part he did not see the great evil of a paper-currency. At the time of the Bank restriction in 1797, the business of the country was chiefly transacted in paper, and during the subsequent progress of the war, down to the resumption of cash payments, a paper currency was maintained, without our experiencing such distress as we did at present. To prevent over-issues, means should be devised to prevent a greater circulation of paper than there was metal in the country to meet it; and if this were done, he saw no objection to the circulation of notes whether of great or small amount. As to extravagant speculations, at present, there was no very buoyant spirit of that kind afloat. The calamity now complained of was, not that there was too much gold, or too many notes, but that there was neither one nor the other, and the currency of the country was at a stand. An objection had been made to small notes, that by extending our circulation, they had a tendency to diminish the interest of money. Now, even if that were the case, it did not weigh as an objection with him; for in all states in prosperity, and where there was much money and much commerce, money was held at a low rate of interest; whereas, the interest of money was always high where there was little money, In all the proposed alterations of the currency, we should never omit to bear in mind that enormous weight upon the country—the national debt. When it was considered that the interest of that debt was to be paid, the effect of withdrawing six or seven millions from circulation must be most injurious. The effect of such a contraction of the currency must be, that the chancellor of the Exchequer would next year be obliged to state that the revenue of the country was not sufficient to discharge the interest on the national debt, and the expenses of the establishment. We were now in the tenth year of peace, and there was no likelihood of our being able to do more, during the probable period we might continue at peace, than supply and relieve our immediate exigencies. The currency of the country had gone through every variety of fluctuation—it had been over and over again tried in the crucible—paper was converted into gold, and gold again into paper, and still a new change was found necessary. In Scotland, an approved system of Banking had been brought to the test of experience. This was admitted in the letter of the noble earl opposite. "In Scotland there are not more than thirty banks; and these banks have stood firm amidst all the convulsions in the money-market in England, and amidst all the distresses to which the manufacturing and agricultural interests in Scotland, as well as in England, have occasionally been subject." And it was not a little extraordinary, that whilst ministers were inducing the people of England to abandon a system which sanctioned a small note circulation, they admitted the efficacy of such a system in Scotland; He would wish to see banking establishments of equal solidity in this country. He was persuaded that in returning to a metallic currency, every relation between landlord and tenant, and between man and man, would undergo a considerable change. When their lordships assembled next year, he should be happy to find that the government had funds sufficient to meet the yearly expenditure. In order to embrace the whole of the question, he would move for a return of all the notes issued by the Bank of England and the country banks since the year 1790.

The said motions were agreed to.