Lords Sitting of 3 July 1828

SCOTCH SMALL NOTES BILL.
The Duke of Wellington The Duke of Wellington moved the second reading of this bill. He stated, that the object of it was, to carry into complete execution the law of 1826; its intention being to prevent the circulation of Scotch bank notes under the value of 51., within the kingdom of England. This measure came recommended to Parliament by two committees; and those committees went so far as to say, that if the circulation of those notes in England could not be prevented, it would be better to put an end to their circulation in Scotland altogether, notwithstanding the inconveniences which would attend the impediment of such circulation. It was quite obvious, that if such circulation of 1l. notes were to be permitted within this country, it ought to be the circulation issued by bankers residing in the north of England, and not in Scotland, It was obvious, that it was a hardship upon the people of England, who were under the necessity of receiving them if circulated, to be obliged to go and seek for their metallic value beyond the frontier. That was, however, not all; for they must not only go and seek for this metallic value from the Scotch banker, who was good security, but if that system was not prohibited, bank establishments would be set up in all parts of the frontier, for the purpose of circulating those notes within England; and thus defeating the object of the measure of 1826.—He did not found the necessity of this measure upon any theories. He did not found the measure of 1826 upon any such theories; but he must say, that the experience of the last few years had proved the falsity of another, which was stated in a former committee—he meant the theory, that all was safe, provided notes were convertible into gold. The experience of recent years had proved that theory not true. But that experience had proved
1598
likewise the truth of another theory— lamely, that l. notes and gold sovereigns could not circulate in this country at the same time. If you are to have gold in circulation, you cannot have 1l. notes.— Under these circumstances, the measure of 1826 was a proper measure to be adopted. It was contended by his noble friend, (the earl of Carnarvon) the other day, that the measure of 1826 had inflicted great evils on the country; that the people had been thereby deprived of facilities of trade, and subjected to numerous other disadvantages; but he had left out of the question all the evils which had flowed from the breaking of the banks. His noble friend ad lost sight of the fact, that paper was but a fictitious capital; and that it was the evils which it entailed that had obliged parliament to put it down. Why should they have recourse to paper, when there was no want of capital, no want of currency in England? That there was no want of capital, was proved by the state of the funds, and by the readiness to embark in any scheme, however distant the scene of its proposed operations, which promised to return any profit. Now this capital would be employed in this country, if that confidence existed; which could only be induced by placing the currency on a secure foundation. It had been asked, if the measure in question was good for England, why not extend it to Scotland? But there was a great difference between the circumstances of the two countries. In the first place, the banks in Scotland were on a much more secure footing than those in England. In Scotland, all the banks were a check on each individual establishment. The system had worked for the prosperity of that country, and he should be sorry to take it from it. But, then, could that establishment be so carried on in Scotland, if there were not a well-established metallic currency in England? If they could not procure gold, from time to time, from the Bank of England, they could not carry it on. Then the only question that remained was, were there the means of executing the measure of 1826, of which he was now proposing the completion? It appeared, from the number of stamps issued, that the quantity of 1l. notes put into circulation in the four years, 1822, 1823, 1824, and 1825, was 9,075,500 l. Out of that sum 1,075,000 l. circulated in Scotland, leaving in circulation in England 8,000,000 of 1l. notes.

1599
Out of that sum it was calculated that one-fifth was kept in reserve. It was true, moreover, that one-fifth of the banks broke in 1825, and their notes must therefore be taken to be out of circulation.— Adding, then, to that 2,500,000 l., the amount withdrawn at that period, the sum not then in circulation amounted to 5,700,000 l. deducting which from 8,000,000 l., left 2,300,000 l. at present in circulation. Now a part of that sum must have been in circulation since 1822. This was the nearest approximation to the truth that could be arrived at. Now, then, what was the amount of the circulation of the country, besides the 1l. notes?— It appeared, from the returns, that the Bank issued between the years 1821 and 1828, 78,813,000 sovereigns, of which they had received back 50,447,000, leaving 28,366,000 still out. From August, 1824, to December, 1825, there had been exported 6,000,000, leaving in circulation at that time about 20,000,000 of sovereigns: and since then there had been issued 2,300,000, making altogether, 22,475,000 sovereigns now in circulation. In addition to that, there were 8,000,000 l. of silver, 20,000,000 l. of Bank of England notes of 5l. and upwards, and 13,000,000 l. of country banknotes of 5l. and upwards. So that, besides the 1l. notes, there were no less than 13,000,000 l. of country bank notes in circulation in this country. Now, to show the abundance of metallic currency which existed, there had been coined, since the commencement of 1810, not less than 40,000,000 l, in gold, and 10,000,000 l. in silver; so that there was 50,000,000 l, of metallic currency still in the country, except the 6,000,000 l. which had been exported. Feeling, then, that the country possessed the means of obtaining a currency upon such a solid basis, he had no difficulty in coming to the conclusion, that they might safely adopt the measure now proposed.
The Earl of Carnarvonsaid, he had no doubt of the resources of the country being in the condition in which the noble duke had stated, but he wished they had been applied to a better purpose than carrying into effect the bill of 1826. The resources of the country were equal to the measure, he doubted not, but they would be exhausted by applying them to that purpose. After fifteen years peace, the country was more burthened with debt than at the termination of the war,
1600
Though several taxes had been abolished, the taxation was positively greater now than at that period. He was not one of those who advocated the Bank restriction; but, having gone on for so long a period, under a system, it was unjust to attempt to return to that obsolete practice. The noble duke had spoken of the Scotch one-pound notes, as though it would be better to put an end to them entirely, than let them circulate in England. He seemed to dread something from the Picts and Scots like an invasion; but his apprehensions were groundless. The discretion of our northern countrymen would suggest to them to take care of their own interest. The charter of the Bank of England had only four years to run; and, before that period had expired, something might be clone advantageous to the country. The evils of the system were felt. Many country bankers were withdrawing their five-pound notes, to enable them to meet the run to which they would be subjected. Among the agriculturists great inconveniences had already arisen: in addition to what they had suffered from other causes, a diminution in the circulating medium was sensibly felt among that class. It had been said, that the panic and distress of 1825 was attributable to the circulation of bank notes. Now, he did not believe that any diminution of bank notes would prevent the recurrence of such a crisis. Scotland had her one-pound notes; and yet she had not been visited with such a crisis. It was not, therefore, the want of a wholesome currency which occasioned panics of this description; and it was, therefore, not necessary to draw a cordon sanitaire round the frontiers of England. She did not require it at the periods to which he had alluded, and why should she require it now? Nothing could be more absurd or unjust than to enact a law for the purpose of closing the Scotch markets against the English farmer; which was, in point of fact, the effect of this bill. It was therefore inflicting a great local grievance. But, even admitting that the panic and distress of 1825 had been occasioned by excessive paper credit, the one-pound notes bore a very small proportion to other descriptions of paper. Even if there were an increase of three or four millions of small notes, there was also an increase of many millions in bills of exchange and other paper securities. Then why wage war against the small notes, as

1601
being the cause of all the mischief? But perhaps he should be told, that all paper security should be put down. Let their lordships do so: let them have no security but gold. But, if so, they would soon reduce the country to a state of absolute poverty. What would then become of credit? And, destroying credit, they would also put an end to all speculation, and to all trade, which could not be carried on without credit. But, of all descriptions of paper credit, the one-pound and two-pound notes were the most impotent to produce any great national crisis. A number of causes concurred to produce it, great in their united effect; but amongst them all, the small notes had the least to do with it. He again contended, therefore, that the small notes ought not to be suppressed. It would be easy to enter into an arrangement, allowing the Bank of England to issue one-pound notes during the four years for which their charter had yet to run, and leave the country notes as they were. The noble duke said, that a metallic was the safest, because the most certain, medium of circulation. But he was prepared to show that gold was liable to greater fluctuation than the notes which they were now so anxious to guard against. Gold was liable to be affected by the state of the exchanges with foreign countries; but, if a few Scotch banks were the objects of a run, there was a general concurrence, on the part of the others, to take their notes, and so guard against any loss to the public. If, however, the noble duke conceived that fluctuations rendered credit unsafe, let him look to the national debt,—that enormous fictitious debt which, it seemed, was now to be paid off in capital of gold, but which was more than this country could ever do. It might destroy us; but we never could annihilate it.—He called upon government, and parliament to look its real situation in the face and now, while peace continued, to guard against being involved in fresh difficulties. —As to this bill, he could not believe that there was any great danger of Scotch notes driving English gold out of circulation. It was the duty of the legislature to guard the standard, but not to make it the sole currency. The prosperity of the country was always diminished in proportion as its circulation was contracted; and its prosperity increased as its circulation was expanded. On these grounds he deprecated this completion of the measure of 1826.
Lord Godericksaid, he had heard with great satisfaction the speech of the noble duke, not only for the grounds on which he had rested the policy of the measure, but on account of his declaration of the unequivocal adherence of government to those principles on which the measure of 1826 had been founded. The noble earl who had just sat down gave a decided preference to paper over a metallic currency, and he would not even have paper convertible into gold. The noble earl had stated, that the measure of 1826 had been adopted in a hurry, and without due caution. Now, he had never said, that the one-pound notes were the cause of the great convulsions which had then taken place; but the mischief was, that when convulsions did arise, the one-pound notes brought the great body of the public into jeopardy. The noble earl said, that they were a great convenience He knew they were, because they were the medium of the poor; but that was the very reason why they were the more dangerous. When panic arose, who were the crowd around the banker's door? Was it not composed of poor people, of agricultural labourers, and they it was who broke the banks. Thus, though the small notes were not the cause of the convulsion, yet, when it took place, they were the means of inflicting misery upon the poor. The measure bf 1826 was founded on a practical proof of the mischief. He therefore did not think that, in taking this course, they were acting under a delusion; neither did he believe that this country was in so crippled a condition, that if a foreign power threatened us, we should be obliged to bow our heads in shameful humility. From what he had seen of the resources of the country, he did not think there was a nation in the world whose power and means were less shaken than those of England. As to the bill itself, he thought it absolutely necessary; because he conceived it would be unfair if the English banker was not allowed to issue his notes, while, in his own immediate circle, he was met by the Scotch notes.
Lord Redesdaledefended the Bank restriction act of 1797, which was founded on the principle of retaining a supply of metallic currency within the country. It arose out of the most extraordinary event that ever occurred in the world. He meant the French Revolution. What was the effect of that revolution? It was, that the

1603
French nation confiscated to the use of government three-fourths of the property of the country, real and personal: they put an end to trade; and they also called out the whole of the population, who were capable of bearing arms. They at that time contemplated the conquest of Europe. And, what were the pecuniary means they employed? Why, they issued large quantities of assignats: but that species of paper did not answer, and their object then was, to withdraw from every country all the bullion that could be procured. They set about the attainment of that end in a very efficient manner. They purchased bills on this country at any price: for these they got Bank notes, which they ultimately changed for bullion. By this means they soon abstracted from the Bank almost every piece of gold it had, and they pursued the same course with other countries; So that bullion could not flow into England, as it otherwise would have done. To keep, therefore, a supply of bullion in the country, the Restriction-act was passed; if that measure had not been adopted, it would have been impossible to have carried on the war. So fat, therefore, from its being a measure of which he was ashamed, he should always glory in it as a great political measure. In the last session, he had introduced a bill for the regulation of banks; and he was convinced that if all bankers were compelled, once a year, to strike a balance sheet,—as, indeed, all careful bankers did,—there would be but very few failures amongst that class of people. If they looked through the history of banks, they would find almost universally that failures were owing to one of two causes—either extreme inattention to business, or fraud committed by one or more of the parties. It was therefore of the utmost importance, that they should frame some means of compelling partners to give an account of all partnership dealings, at least once in a year. If they put all banks under regulation, so as to compel their accounts to be regularly balanced every year, and any thing like fraud were practised,—if it were punished criminally, he believed they would find very few banks failing. In conclusion, the learned lord expressed his entire concurrence in the bill.
The Marquis of Buteconsidered this measure as one that would inflict great distress on those whom it was intended to
1604
serve. He did not think that the arguments adduced by the noble duke, and by the noble viscount, had gene far enough to show the necessity of this measure. This was an alteration from one extreme to another; and though the arguments of those two noble lords might be sufficient to prove that some alteration in the system was necessary, they by no means satisfied him of the propriety of thus suddenly hastening from one extreme to another. The noble viscount had told them much about the depreciation of the currency. From what he had said, the inference was, that there was no depreciation from 1797 to 1808; or, in other words, that for ten years, whilst there was an immense circulation of one-pound and two-pound notes, there was no depreciation. If that were the case, then he could not conceive why a continuation of a circulation of a similar nature might not be admitted now with equal security. If his anxiety on this subject was at all diminished, it arose from the confidence he reposed in the government pf the noble duke. If any of the anticipated evils really threatened the country, he did not doubt that the noble duke, with his wonted zeal and vigour, would step forward with a remedy.
Lord Calthorpesaid, be could not but consider the bill as the inevitable result of that passed in 1826. In point of fact, the bill agreed to in that year implied that it would be followed by such an act as the present. If such a measure was necessary, that necessity arose from the fact of parliament having determined to apply to the banking establishments of Scotland a different rule to that which it had already applied to the banking establishments of England. While he admitted the necessity of the present measure, he could not admit of the necessity or expediency of keeping up that distinction between Scotland and this country, of which he had just spoken. The continuance of that distinction did not appear to have been contemplated by the administration of 1826; for it originally made no part of the bill passed at that period. They had intended by that bill to put a stop to the circulation of one-pound notes both in England and Scotland. Owing, however, to the opposition which was raised in Scotland, and by the Scotch representatives in parliament, against that portion of the bill which went to put an

1605
end to the circulation of one-pound notes in Scotland, it was abandoned. Thus it appeared, that the portion of the measure which had been submitted to inquiry was not persisted in; and there were grounds afforded for the inference, that if the banking establishments of England had had a similar opportunity of resisting the portion of the bill which related exclusively to this country, the measure would have been abandoned. There was so much information required to arrive at an understanding of the currency question, that he was not disposed to hazard a decided opinion on the subject. He would recommend, however, that this question should be submitted to further investigation. He was by no means insensible to the inconveniences which might arise from the operation of this bill; yet, under all the circumstances, he (the marquis of B.) did not see how parliament could have taken a different part.
Earl Ferrerswished to know by what mode the government proposed to pay a paper debt in a metallic currency?
The Duke of Wellingtonsaid, he did not mean to be understood as expressing an unqualified approbation of the bill of 1826. A variety of reasons, and, in his opinion, good reasons, had influenced the decision that it should not extend to Scotland. As to the question of the noble earl, all he would reply was, that whether in specie or in paper, he hoped this country would perform all her engagements to the public creditor.
The bill was read a second time.