Lords Sitting of 27 February 1826

SCOTCH BANKING SYSTEM.
Lord Melville presented a petition from Edinburgh, praying their lordships not to consent to any measure for altering the system of the currency in Scotland.
The Earl of Roseberrycould not allow the petition to be read, without stating, not only that there had been not one dissentient voice at the numerous and respectable meeting when this petition was signed, but also that there had not been one dissentient voice at any meeting which had been held, and he believed there would not be a single dissentient voice at any of the meetings about to be held. There was in Scotland an unanimous, but not clamorous opposition to the proposed measure of extending to Scotland the bill for suppressing small notes. Men of all parties, who had never agreed on any one subject before, were united in this, and had stated, in the strongest way possible, that no project ever thought of was so

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likely to derange, not merely the currency, but the whole transactions of the country.

CORN LAWS.
Lord Kingsaid, he had several petitions to present against the landlords' act—the bread-taxing act—which in the petition, was described by the more common name of the Corn-laws. The first petition wag from the ladies boot and shoemakers of London and Westminster. It generally happened with respect to all grievances which were petitioned against, that it required a quarter of a century, before parliament would listen to complaints, and set about correcting an evil. Such had been the case with the city job, the Bank Restriction act. That grievance had lasted a quarter of a century, and he was afraid this bread-taxing act, which had been in force since 1815, would last as long. The subject was allowed to be one which ought to be considered; but then it was very doubtful when the day of consideration would come. Last year it was said the subject would be taken up this year; and this year their lordships were told the consideration was to be taken up the next. But if the time of consideration was doubtful, it was still more doubtful how far the interest of those who gained by the law would not be suffered to prevail against the public interest. Perhaps his majesty's ministers might be divided on this, as they were on some other questions; and in that case, if ever they did come to a decision, the time of coming to it must be very doubtful indeed. On this subject the noble lord opposite and his friend acted a part of a nature something like what the dissenters described as "backsliding," or at least were resolved to be only "occasional conformists" In fact, he believed they were now busy looking out for the strongest side. In another place they had been compared to the devil of the metaphysicians; but they might, with more propriety, be compared to the ass of the metaphysicians placed between two bundles of bay, and so equally attracted by the flavour of each, that he did not know how to turn. He thought, however, that they moat of all resembled the common as, which always yielded to the heaviest blows. They were now well basted on one side by the landed interest, and unless the manufacturers and other parts of the population could thump them harder,
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he was afraid there would be little chance of any alteration of the Corn-laws.
The Earl of Limerickdid not rise to oppose the petition from so distinguished a body, but to express his satisfaction at finding himself agreeing in opinion, for once, with the noble lord. He was glad to hear that a quarter of a century was likely to elapse before the Corn-laws were repealed; because he was persuaded that before that time expired, the petitioners themselves would alter their opinion on the subject.
The Earl of Lauderdale, when he beard from the reading of the title of the petition that it came from ladies' boot and shoemakers, he thought it must be against the corns which they inflicted on the fair sex, and from which the latter had much need of relief. That was a practice in which a reform would be very desirable.
Ordered to lie on the table.

BANK CHARTER AMENDMENT BILL.—BANK ADVANCES ON GOODS.
The Marquis of Lansdownrose, before the order of the day was read, to say a few words on a subject of much importance, which he could not so conveniently introduce on the report of the committee on the Bank Charter bill being brought up, when he intended, pursuant to the notice he had given, to move a clause compelling banks or branches of the Bank of England to pay in coin at the places where their notes might be issued. His motive for rising at the present moment was, to ask the noble earl opposite a question, the answer to which might save trouble, by rendering unnecessary observations on the subject in the future discussion of the bill. What he wished to ask was, whether applications had been made by government to the directors of the Bank, with the view of inducing them to engage in a new plan of system—new at least in practice to them—by which money was proposed to be advanced on goods pawned or pledged to the Bank? If he did not receive a satisfactory answer to his question, he should take the opportunity of bringing under their lordships' consideration a new principle, which, if it corresponded with the representation given of it, he could not help thinking was most important and most alarming.
The Earl of Liverpoolhad no hesitation in answering the noble marquis, that a communication had taken place between some of the members of hid majesty's

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government, and some of the directors of the Bank, on the subject to which the noble marquis had alluded. But he was not then able to say what the decision of the Bank would be on the subject.
The Marquis of Lansdownexpressed his regret, that any application of the kind had been made to the Bank of England to induce it to adopt so questionable a measure; and he earnestly hoped that the application would be re-considered by government; or, if the government were resolved not to re-consider it, that the directors would not lend themselves to any such measure. He was the more inclined to express this hope, because, without arguing whether it was proper to make application to the Bank to give relief, but assuming that such application was necessary, he was prepared, if the proposed plan were adopted, to contend that that mode of relief was by far the most objectionable which could be resorted to. It was a doctrine admitted on all sides, that the proper and salutary course for the Bank, was to leave that body, in its transactions with the public, in as free and unembarrassed a state as possible; because they would then be able to regulate their issues according to the rise or fall of the foreign exchanges. Now, with respect to the exchanges, nothing was more likely to tie up, and embarrass the Bank more than the measure which seemed now to be proposed; namely, that of making advances to a great extent on deposits of goods. At the time of the commercial distress in 1793, this subject had been forced on the consideration of the legislature; and both Mr. Pitt and the late lord Melville were decidedly against any proposition for advances on goods, which were then unsaleable. Both these statesmen had laid down, in the strongest terms, the principle, that it was not proper to induce the Bank to depart from the regular course on which its affairs hid been conducted. He should quote their words. On its being suggested in the, debate, that the management of the relief should be left to the Bank, Mr. Pitt observed, "that from the nature of the business, the Bank bad declined interfering, because the species of the security to be given was not such as the Bank had been accustomed to receive. The measure now proposed was of a temporary nature. The practice of the Bank upon discount was permanent. The Bank took securities for what business they transacted in this
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way, at two months. The security to be given here was not determinable at that time, and the deposit was of a nature which the Bank had not been accustomed to act upon." What lord Melville said upon the subject was still stronger, and was particularly important, as his view of the cause of the distress of that period was similar to that attributed to the distress of the present time since he connected it with over-trading. On that occasion Mr. Secretary Dundas "begged leave to enter his protest against any declaration, that the present embarrassment of the merchants and manufacturers was the effect of the poverty of the country. He considered it as precisely the reverse, and would maintain, however odd it might sound, that it was occasioned by the uncommon prosperity of the nation—a prosperity which had induced some individuals to push their speculations beyond the extent of their own private capitals, but by no means beyond the capital of the nation. To call upnn the Bank of England to deviate from that line of conduct which it had proposed to itself, and under which it had flourished, he deemed by no means prudent. The Bank discounted upon certain securities; but discounted on the principle of having its returns in two months. The measure, now proposed admitted of a more extended period for repayment, and was entirely different from what was the usage; of that corporation." Now, if there were reasons then for not inducing the Bank to deviate from its usual practice of discounts, how much more did all those considerations on which that opinion was founded, apply now, when, by the common consent of all men who reflected on the subject, it was agreed that it was to the state of the exchanges that the Bank had to look for the regulation of their issues. He believed there was no man bold enough to deny this doctrine. But, if this attention to the stale of the exchanges was at all times to be observed by the Bank, how much more would it be necessary now, if a deficient circulation, was to be followed by a great and sudden supply. Nobody could tell what effect such a course might have on the exchanges, by which it was the particular duty of the Bank to regulate issues. Could it then be safe to induce the Bank to increase to a large extent their issues at a time like the present, on securities of a kind on which it had been not customary to make

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advances? Issues on deposits of goods were far mere objectlonable than on stock, because the former were not so available. By extensive issues on goods for which returns could not be obtained, the Bank would unavoidably be greatly embarrassed. The action of the revolving machine would be clogged by these issues, and, taken together with the dead weight, the Bank would be found to have more unavailable resources, than, at such a time, ought to be locked up. In such a state of things, any diminution which the Bank might have to make in the currency on account of the state of the exchanges must be made in the ordinary discounts to persons in trade; and thus the whole burthen and mischief of the measure would be thrown on that part of the community which was most immediately affected by a decrease in the circulating medium. If any artificial interference with the trade of the country was really called for, he must say, that a direct issue of Exchequer-bills, in the manner in which that object was accomplished in 1793, would be preferable to the plan now proposed. Indeed, if that were true which was asserted—and if it was not true, the measures adopted could do no good—namely, that it was not money but confidence that was wanted by the merchants, nothing could answer the purpose better than Exchequer-bills; for those bills would serve to create the confidence which was wanted, and would create it without adding to the currency; whereas, by the intended course, every sum advanced would make an addition to the currency, and that in the most dangerous way, without reference to the state of the exchanges. The Bank, lie supposed, must have already brought the currency up as far as the state of the exchanges authorized it to be carried. If that were the case, he would request their lordships to consider how great the risk must be of inviting the Bank to issue great additional sums, which could not fail to place the exchanges in an unfavourable state. If the Bank should be led into a mistake in this way, and make an increase of issues to the extent he had supposed, that improper increase would render it infinitely more difficult to get back to wholesome state of currency. Then all the principles upon which their lordships' had been legislating, with respect to the circulation would be counteracted, and the difficulty of bringing back the country to a metallic Standard would, by the
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unfavourable situation of the exchanges, be augmented in a most alarming degree. He felt it of great importance that the Bank of England should not, by any thing like a manœuvre, be induced to make an undue increase of issues, at a time when it was necessary that that body should be particularly on its guard. He considered it highly objectionable that the Bank should advance money on goods at all; and that it was equally for the interest of the Bank and the public that the plan should not be adopted.
The Earl of Liverpoolregretted that he was not prepared fully to explain all the circumstances of the transaction; but he was warranted in saying, that the noble marquis had been greatly misinformed on the subject, and that the whole of his observations were founded on a complete mistake. He entirely agreed with the noble marquis in all the principles he had laid down: they were, indeed, the same principles which he himself had repeatedly avowed in that place. He perfectly agreed with him, that if any proposition were to be made to the Bank which might tend to embarrass that establishment—which might prevent it from exercising a free discretion over its issues—that such proposition would be by no means consistent with good policy. He likewise agreed with him as to the difficulty of any measure which might be suggested; for there were serious objections to any interference with a view to commercial relief. Having stated this much on the general principles, he would proceed to the immediate subject to which the noble marquis had called the attention of their lordships. In the first place, as to the Bank, it now possessed the legal right of advancing money on goods. He would own that he himself, and several of his friends, who acted with him, were not aware of this state of the law. The Bank, however, had a legal right, under their charter, to make advances on deposits of goods. This right was regulated by bylaws, made by the directors, and it was governed by the same principle as the issues of money on discounts. The very same clause of the Bank charter which prohibited buying and selling, permitted discounts and advances on goods. Butt the by-laws regulated the mode of the advance, and the manner in which the goods were to be disposed of, if not redeemed. He thought it right thus to clear his way on the question of the legal right of the

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Bank, either to issue money on discount of bills or on goods. Now, it certainly did not follow, that because the right existed, it should therefore be exercised; but if the circumstances of the country were such as to make special relief to the commercial part of the community indispensable, then he would say that it was through the Bank that it ought to be granted. This course was obviously preferable to that to which he had always so seriously objected; namely, to the converting the government into a Bank, and inducing the merchants not to look to themselves, or to the banks of the country for assistance, which they otherwise would naturally do. His view of the subject concurred with that of those who thought that nothing justified the interference of the government in mercantile embarrassments, unless the distress was occasioned by some great public calamity inflicted by the hand of God, or some political event of a very extraordinary nature. And here he wished the noble marquis to recollect, that the evils of 1793 were very different from those of which the country at present complained. That period was the commencement of a war of a very extraordinary nature and so unforeseen, that the highly-gifted individual then at the head of his majesty's government declared, that there was then a prospect of a longer peace than the history of the country at any former time afforded. He must then say, that at present it was the Bank which ought to be looked to by the merchants, and not the government; since the distress had not been brought about by any political events whatever, or by any public calamity, by over-trading and other causes, respecting the nature of which there was a pretty general agreement of opinion. Upon these grounds, he must repeat, that if relief was to be granted, it was through the Bank it should come. Whether or not the Bank would grant it, was for the Bank to decide. He readily admitted that there was a degree of evil in the course proposed, but all the objections which could be made against advances by the Bank on goods, applied with tenfold greater force to any attempt to give relief by issues of Exchequer bills. In the present state of the market it was perfectly visionary to talk of relief by an issue of Exchequer-bills. Unless the Bank were to cash these, there could be no relief. But the Bank could not render those bills available, like goods, on which it would be
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most imprudent to make advances for a longer period than on discounted bills—that was, a period of two or three months. There was, then, a material difference between advances on goods which most be paid within two or three months, and on Exchequer-bills, which might be out a year, or even several years. The Exchequer-bills of 1798 were not paid off within the year, and there was afterwards another issue of Exchequer-bills, which had not been wound up for twenty-two years from the date of the issues. If advances on deposited goods was a course likely to take from the Bank the control which that establishment ought always to have over its issues, he would consider it most objectionable; but it must be apparent that no advances could be made without the consent of the Bank. This plan, therefore, left the Bank in a tenfold degree more in possession of its resources than any other mode of relief which had been suggested.
The Marquis of Lansdownconceived, that the supposed advantages of the measure were all founded on the assumption, which he thought could not be correct, that the goods which were unsaleable now, would be saleable in two or three months. If, at the end of that terra, no market was found for the goods, the Bank must renew the loan, or the relief would be of no avail. If it did not renew the loans from time to time until a revolution in the markets had taken place, the measure would have no advantages; and if a portion of the Bank capital were to be locked up in goods until that revolution was completed, would any man say, that while it was going on, the exchanges might not be in a state to compel the Bank to restrict its issues, and bring again on the country that calamity which their lordships were then endeavouring to remedy?
The Earl of Liverpoolre-stated his opinion, that the same principle ought to apply to advances on goods as to discounts. Discounts were made for a limited time, and so would be the advances on deposits. This was the mode in which, according to the by-laws, the business would be conducted. With regard to discounts, a great mistake appeared to prevail. Many persons supposed that they were made on mere personal security, but in reality they were always made with a view to goods. He would ask his noble and learned friend on the woolsack whether, from the transactions

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of his court, he was not aware that this wag the case? The Bank credited individuals, but it was because those individuals were possessed of property. Discount was a more convenient mode than advances on goods; but objections which applied to the latter practice before the warehousing system was adopted, did not apply now. Since the bonding and warehousing system was brought to its present perfection, and merchandise was placed under the king's lock, the inconvenience of advances on deposits were, in a great degree, removed, and issues on goods might now stand on nearly the same footing as issues on the discount of bills. The money advanced, it might be presumed, would be but a portion of the value of the merchandise deposited, and thus the return of the loan made upon the goods could always be commanded. The noble marquis doubted whether an advance for two or three months would be of any use. In answer to this objection, he could say, that he had conversed with persons from different parts of the country, all of whom agreed that advances for the short period he had mentioned would be of the greatest advantage; because they considered that there was no want of money in the country, and that the cause of the distress was the money being locked up in consequence of that panic, the effects of which would, he trusted, soon cease to be felt.
The Earl of Lauderdalethought that the merchants of the country were entitled to look to the government for relief, though the noble earl opposite wished to throw ail the responsibility of any thing which might be done in that way on the Bank. The noble earl had argued, that the distress of 1793 differed from the present, because it arose out of political events; but he could not admit the existence of that difference, for the present evils were also the consequence of political measures. He agreed with the noble earl in believing, that the wealth of the country was not impaired. Indeed he was of opinion, that if all the transactions of the late period of speculation were wound up and balanced, it would be found that the country was not a loser to the extent of 100,000 l.; but the property had changed hands. The evil proceeded chiefly from this noble earl's speeches and measures. He had taught the country to believe that it was rotten to the foundation, and that the great cause of the mis-
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chief was the one and two pound notes When Mr. Pitt declared war in 1793, he was not a more active agent in bringing on commercial distress than the noble earl had been. He could not conceive how any person could expect to restore confidence by the means to which the noble earl now resorted. Measures more fatal could not be adopted than those which he had ventured on. Two or three months advances would afford no essential relief to the merchants. The only way to give relief was that open and manly way which was adopted in 1793, in 1811, and 1814. That was a way much better calculated to restore confidence than the course which the noble earl had chosen to adopt. He would therefore say, let them tread the path which had been trodden before, and confidence would be restored. It seemed, however, that now-a-days old and tried measures were not palatable; some novelty must be served up; some experiment must be made; any thing, rather than travel in the beaten path of experience. He protested his belief, that the noble earl had brought the country into such a state, that the open and direct course of affording relief by Exchequer-bills was the only expedient likely to restore confidence.
The report of the Bank Charter Amendment-bill was then brought up. Upon its being read, the earl of Liverpool moved the introduction of his clause respecting the discretionary power to be vested in the branch-banks.
The Marquis of Lansdown The Marquis of Lansdown moved, that a proviso be added to the clause, compelling the Bank of England to pay its notes in coin in any part of the country in which they had been issued through the medium of its branch-banks. He moved this in consequence of the strong opinion he entertained that both with respect to branch-banks of the Bank of England, and the provincial beaks throughout the country, it was most expedient that their paper should not only be convertible into coin, but so convertible with the least delay possible, which would not be the case if the holders of them could not obtain payment of them in the place in which they had been issued. Another ground upon which he had been induced to propose this proviso was, what bad taken place in, Ireland. After that arrangement had been made, in pursuance of which the Bank of Ireland

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had established branch banks in different parts of the country, a number of their notes were presented at one of those branch houses for payment in coin; but the demand was refused, on the ground that they were only payable in Dublin. The party making the demand immediately resorted to legal proceedings, for the purpose of compelling the Bank to pay in coin where the notes had been issued; but after the suit had gone on for some time, the Bank put an end to the proceedings, after consulting their counsel, who very properly represented to them that, their notes being in the nature of a general contract, they ought to be paid wherever they had agents. Since then, however, the Bank of Ireland had made an alteration in their notes, by the introduction of the words "in Dublin;" in consequence of which, a party who took those notes in the country—no matter how remote the place—was now compelled to repair to Dublin, before he could obtain payment of them in coin. He had also bean informed that some of the country banks in this country had so altered their notes as to make them payable in London, and no where else. Upon these grounds, therefore, he moved, that a proviso be introduced compelling the Bank, in the event of their resorting to the establishment of branch-banks, to pay their notes in gold in those parts of the country in which they shall have been issued. He could not conceive any inconvenience likely to accrue to the Bank from this measure. They might, perhaps, be put to some inconvenience from being compelled to pay all their notes, if so required, at any of the places where they had appointed agencies; but they could experience none, or at least none which they ought not to endure, from being obliged to pay them in each particular place in which they had been issued.
The Earl of Lauderdalesaid, he had great doubts as to the effect of this clause in the way in which it stood now; for it would impose upon the Bank the necessity of issuing notes of different forms, so as to show at what particular branch-banks they were payable respectively. Then, if a person presented a note for payment at a particular place, which had issued at another place, be would be told that it could not be paid there; and the consequence of this might be to excite alarm in that part of the country. The question however was one of great difficulty;
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for he certainly would not take upon himself to say that all the Bank of England notes ought to be payable at the Bank of England alone, because that would oblige the Bank always to keep a great store of cash by them to guard against the possibility of a run, and consequently it would put them to great inconvenience. To show how necessary it would be for the Bank in that case to be always prepared to meet a run, his lordship stated, that he had been informed that a man had been lately going about the country, and displaying the greatest industry in collecting country bank notes, and presenting them at the respective banks (for what purpose God only knew), in Exchange for Bank of England paper. At last, however, a stop had been put to his career, by refusing to give him Bank of England notes, and paying him only in gold.
The Earl of Liverpoolagreed that this proviso was one of some difficulty; but still he thought it was founded on good principles. It would, he admitted, compel the Bank to adopt notes of different forms; but, so far from that being an objection, he thought it would be an advantage; for if, as had been said, the Bank of England notes were more liable to be forged than local notes, this measure, by confining the payment of the notes issued by the branch-banks to the particular places where they had been so issued, and thus rendering their circulation local, would operate as a check td that crime, and thus effect a benefit to the public. It would also throw an impediment in the way of any persons who, actuated by malice or any other feelings might be anxious, like the man to whom the noble earl had alluded, to produce a run upon the Bank of England here, or upon any particular branch in the country. He therefore thought that the Bank ought to adopt particular forms of notes. Besides, it would be invidious towards the country banks, to compel them to pay their notes in specie, if the branch banks of the Bank of England were not equally obliged to do so. The measure would, moreover, afford an amazing check to over-issues of paper. Upon the whole, therefore, he approved of the proposition of the noble marquis.
The Marquis of Lansdowncontended, that the absence of a compulsory provision for payment by the Bank of England of its notes in coin where they had been

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issued, would not only be invidious towards the country banks, but would put it in the power of the branch-banks to extinguish them altogether if they chose; seeing that they might collect all the notes in circulation of any bank they pleased and pour them in upon it at once, while the other would have no power to retaliate upon the branch-bank.
The clause, with the proviso, was then agreed to.