THE GOVERNMENT AND THE BANK. (Hansard, 2 June 1854)

§ LORD MONTEAGLE
I propose to ask your Lordships to call for the production of two separate classes of papers, both tending to explain the present relations between the Government and the Bank of England. The first of these is the correspondence between Sir Robert Peel and Mr. Goulburn, acting on the part of the public, and the Governor and Deputy Governor of the Bank, representing that corporation. These papers are explanatory of the engagements entered into in 1844, with respect to the amount of the balances which, on the revision of the charter, was agreed to be kept at the Bank, and the conditions under which such balances was agreed to be maintained. This correspondence was public, and has been officially referred to in the other House of Parliament; it has, I believe, been already laid before the Commons, and therefore I do not anticipate any objection which can be raised to its production here. The second class of papers is of a different description, and as it is possible that its production at the present time, whilst the subjects which it involves are still unsettled and in controversy, I have called the attention of my noble Friend (Earl Granville) to the question, that if it be inconsistent with the public interest that such documents should be had before Parliament for the present, he might be enabled to state his objections to my Motion. If he does so on these grounds, I shall fully admit the force of his objection. In matters of financial, as well as of diplomatic negotiation, I am aware that whilst questions are still in controversy, it would be unwise to produce, and therefore it would be improper to call 1216 for this information prematurely. We have also been told that the opinions of Crown lawyers have been asked for in relation to the legality of a given mode of proceeding. We are bound to wait till that opinion is given. It is far from my wish to precipitate any disclosure on which hereafter the opinion of Parliament may require to be taken. On the contrary, if it be stated, on the responsibility of the Executive Government, that such information cannot for the present be furnished, I shall withdraw that part of my Motion, being quite willing to concede to our financial department the same confidence which we are accustomed to grant willingly to the Foreign Office. Important as the papers for which I move may be at any time, I consider them to have a peculiar value at the present moment. I shall frankly state to your Lordships my strongest reason for seeking to draw your attention to the subject. New, and, in my mind, most dangerous doctrines have been publicly broached—doctrines which ought not to be allowed to pass without refutation. It has been strongly urged that, as by a notice served on the Bank, in 1855 Parliament becomes entitled to reconsider and modify the existing Charter Act of 1844, the present opportunity should be seized, with a view of enabling us to alter the arrangements existing between the Treasury and the Bank of England. It is proposed that this should be done in order to prepare us for an experiment which I am persuaded would be attended with the utmost danger, both to public credit and to private interests. We are told that "the best remedy that we should look to is that the State should manage its own business itself, that is, by its own servants;" we are told that "no Government should think of borrowing whilst it has an unexceptionable and facile means of making money;" we are further informed that the principle involved is "that of the propriety of transacting the business of the Government through the agency of a joint stock company in preference to the agency of a public department;" and the concession to the Bank of England of the power of issuing a paper circulation is described as "an alienation from the Crown of one of its highest prerogatives." These suggestions seem to amount to no less than this, that not only should the Government sever all connections whatever with the Bank of England, and constitute a Banking Department within itself, but that to this new Government Banking Department should 1217 be entrusted the executive public functions of paying the dividends and the various services, civil and military, and the far more delicate duties of issuing a paper currency, and thus acting on the monetary system in its relations with the whole commercial transactions of the British community. I must confess that I view such a proposition with indescribable alarm. I am not aware that history can furnish us with one single instance in which such interference on the part of any Government, at any time or in any country, has been unattended with results the most calamitous—results fatal to the Government which tried the experiment, and to the community whose interests were affected by it. Even in the exercise of one of the obvious and legitimate duties and functions of a State, the coining of precious metals as a circulating medium, it is well known to your Lordships that temptations have often been held out to the rulers of States which they have not been able to withstand. It can be shown that innumerable instances have occurred in which those possessed of authority, when unprincipled and lavish, have made the depreciation of the coin a source of wide-spread calamity, danger, and fraud. Whilst this has been the case, almost universally, throughout the Continent of Europe, it is a just cause of national pride that in this country, since the reign of Elizabeth, England has exhibited a noble example of good faith by adhering to the legal standard of value. If the danger of violating this principle is great in the case of coined money, how much greater and more imminent would it be if the Government should ever be induced to undertake the fatal responsibility of becoming bankers and issuers of paper money? Let us not deceive ourselves into a belief that our free Government would afford us any protection whatever against the probable abuse of such a power. I am not one who doubts the invaluable blessings of free institutions, but I venture nevertheless to suggest as a possibility that a free Government might furnish the most active and dangerous agency for forcing on the Treasury to rash and fatal resolves, if it should unadvisedly undertake the functions of a bank of issue. I believe a Government in such a position would be driven onward to the very measures which wisdom and experience would most strongly deprecate and condemn. Events in our own time lead to this conclusion. It is notorious that when great commercial 1218 difficulties have arisen, examples are shown where a pressure from without has compelled the Government of the day to depart from the principles by which they ought to have been guided, and to sacrifice their highest practical duties to some temporary expediency, or to the conciliating of some exigent but partial interest. But the Government might also be influenced by other motives more peculiarly acting on themselves. Many banking and commercial cases of crisis have sprung from political events in which the State, as a State, is directly involved. Such was the case at the time of the Scottish rebellion of 1745. It was again the case, at the outbreak of the war of the French Revolution in 1792 and 1793. It was the case still more strikingly in 1797 at the fatal period of the Bank restriction. These successive dangers and calamities were far more directly connected with political events, than with any acts of the Bank of England. It may be said, and perhaps said with truth, that the Bank had in 1797 by its subserviency made itself a culpable instrument in the hands of Mr. Pitt; but it should also, in justice, be recollected, that the Bank soon perceived the dangers and difficulties which beset its path, and entreated to be relieved from the disgraceful restriction of cash payments. The Government of the day, however, fully appreciated the potency of the instrument it had been permitted to wield; Mr. Pitt was reluctant to surrender the power he had gained, and the Bank restriction was continued. But how much more facile, how much more certain, would such events have been had Mr. Pitt been the banker, as well as the Minister of the State! I therefore must repeat that to permit, or to encourage a Government to issue, and to dispense the circulating medium, could not fail to be productive of incalculable danger. Far is it from me to suggest that it may not be expedient on the part of the Treasury to revise from time to time its money engagements with the Bank of England for the transaction of the public business. If the terms demanded by the Bank can be proved to be exorbitant, let that be discussed as a money question, and let the Government refuse to pay more than is justly claimable. But beware of applying, in the place of a just economy, a new and a dangerous principle, by the establishment of a State bank, a measure dangerous in itself, and which seems, at 1219 the present time, to be threatened rather as an instrument of vengeance against the Bank, than as a remedy for any proved abuse. Do not expose to risk both public and private credit, because you are offended with the Bank for dealing with you less favourably than you think you have a right to expect. Dangerous as such a step must be in any country, it is in England that its consequences will ever be the most destructive. It is in the richest and most commercial communities, that the greatest amount of transactions will be carried on by the means of credit. It is in such countries, likewise, that the State is frequently deeply indebted; these are the very circunstances that make any tampering with the currency and the standard of value most fatal in its results; and the power and the responsibility of a Government acting as bankers can only be exercised, as a measure of relief, by the sacrifice of all other classes. Yet this, I am astonished to think, has been advocated by persons who can scarcely have considered, or who fail in comprehending, the inevitable consequences of the measure they recommend.
To adopt such a measure on the ground of any money saving which it might produce. seems to me not merely a blind and mistaken, but a pitiful economy. We should sacrifice much more in our safety and our credit, than we could gain on the ways and means of the year. A saving even of many annual thousands on the interest of deficiency bills, would be far from justifying the adoption of a fatal principle. We are not driven to add to our resources by seeking to engross the profits of moneychangers. Adam Smith has in my mind conclusively disposed of this argument in the following observations, which not only state the principle at stake very accurately, but display a most deep philosophical knowledge of our people and our institutions:— A revenue of this kind has even by some people been thought not below the attention of so great an empire as that of Great Britain. Government, it is pretended, could borrow this capital at 3 per cent interest; and by taking the management of the Bank into its own bands, might make a clear profit of 269,500l. a year. The orderly, vigilant, and parsimonious administration of such aristocracies as those of Venice or Amsterdam is extremely proper, it appears from experience, for the management of a mercantile project of this kind. But whether such a Government as that of England, which, whatever may be its virtues, has never been famous for economy—which in time of peace has generally conducted itself with a slothful and negligent pro- 1220 fusion that in perhaps natural to monarchies, and in time of war has constantly acted with all the thoughtless extravagance that democracies are apt to fall into—could be safely trusted with the management of such a project, must at least be a good deal more doubtful. It has been the fashion of some of those persons on whose false reasoning I have taken the liberty of animadverting, to urge that because this country is, of all nations in the world, that which is most deeply engaged in vast and varied financial transactions, it should therefore, and on that account, create a State bank for itself. My Lords, I hold, on the contrary, that it is for that very reason it should employ an agency safer and more independent than its own. No Government should undertake a task that can be as well accomplished by private agency, and in a simpler and inure natural manner. Still less should a Government venture upon functions which it is ill fitted to execute, in substitution for a commercial body, acting upon sound commercial principles. It has been on this ground, I presume, that the House of Commons has recently declined to permit the Ordnance to become manufacturers of small arms for Her Majesty's land forces. Whether the principle has been rightly applied in that particular instance, it is wholly immaterial that I should stop to inquire. But if it be contrary to public interest that the Government should manufacture Minié rifles, sabres, pistols, or muskets, it must surely be infinitely more disadvantageous that the Lords of the Treasury should appear in the commercial world as bankers, and undertake to perform duties heretofore safely executed by others, and I believe executed on economical terms. People are apt, for the purpose of their argument, to dwell on their estimate of what the Bank receives from us, rather than on the duties which the Bank is called on to perform; and this ignorance is carried to such an extent, that I have lately seen the amount struck off from the payments to the Bank on former settlements with Parliament, gravely set forth as the amount of their present emoluments. The author of the Wealth of Nations is more accurate land more just, in describing the functions of the Bank. He observes:— The stability of the Bank of England is equal to that of the British Government. All that it has advanced to the public must be lost before its creditors can sustain any loss. It acts riot only as an ordinary bank, but as a great engine of State. It receives and pays the greater part of the annuities which are due to the public; it cir- 1221 culates Exchequer bills, and it advances to Government the annual amount of land and malt taxes, which are frequently nut paid up till some years afterwards In these different operations its duty to the public may sometimes have obliged it, without any fault of its directors, to overstock the market with paper money. Against this latter danger it has been the object of our modern legislation to guard, but it is precisely to this danger that a Government bank would be most exposed. Over-issue followed by a restriction on cash payments would be the natural consequences of the establishment of a Government bank circulating its notes. The other privileges, such as that of the legal tender clause, though sources of profit I admit, have been conceded to the Bank of England less for its own benefit than for the benefit of the public. Take as another example, its exclusive power of issue in die metropolitan districts. What was the great principle on which almost all persons were agreed in 1844, however much they might differ on other points. It was on the expediency of approximating. as nearly as might be, to one central bank of issue, having the power of acting on an unfavourable state of foreign exchanges, and nut liable to be defeated by any rash or selfish proceedings on the part of competing establishments. It was felt impossible to apply this sound principle universally, or at once. But it was sought to approximate towards it. If the Government were now to set up a second and a rival bank of issue, how could that great principle be maintained. We should run the risk of undoing all that we have previously effected, and should lay down a principle the very reverse of that contained in the wiser and sounder parts of the Act of 1844. The same great writer (Adam Smith), whom I have already quoted, and to whom I allude with confidence and respect, estimates no insignificant portion of our public credit to have been the consequence of our connection with the Bank of England. Comparing the state of the unfunded debt of France with that of England, he attributes much of the difference of value between these French and English securities (which he states to have been no less than 60 per cent), not to our good faith only, bat to the useful agency and the independence of the Bank of England.
I have trespassed much longer on your Lordships' time and attention than I could have wished, or anticipated; but having seen the opinions, which I have endeavoured to refute, sedulously pressed upon 1222 public attention, and not without an appearance of claiming an official authority, I have not thought it unwise to call your attention to the principle at stake. I do not anticipate, On the part of this House, or of the Government, the expression of an adverse opinion, or even of one differing from my own. I rather expect an assent to principles which I trust are now very generally recognised, and supported by authority and experience. If there existed any intention, however remote, to interfere with the present Charter of the Bank, twelve months previous notice is required to be given, and, according to former precedents, this step would scarcely be hazarded, without an antecedent Parliamentary inquiry. As no such intention has at present been announced, I cannot apprehend any real or imminent danger or just cause for alarm, however active may be the agency by which this wild project is recommended. I now conclude, by moving— That there be laid before this House, Copy oldie Agreement entered into between The Right Honourable Henry Goulburn, as Chancellor of the Exchequer, and the Bank of England, respecting the Allowances made to the Bank for Public Services: And also— Copies of all Correspondence which may have taken place between the Government and the Bank in 1854, respecting the Advances required on Deficiency Bills and the State of the Public Balances.

§ EARL GRANVILLE
said, the noble Lord having in his statement referred to him as the Peer whose duty it was to answer a question of this sort, he begged to offer a few remarks to their Lordships. He stated the other day the disadvantage he felt in being placed in answering questions of this kind from die noble Lord, whose past and present official position rendered him so intimately acquainted with all the details of the business of the Treasury. He did not complain of this in the slightest degree. The noble Lord, as a Peer of Parliament, had a perfect right to criticise the acts of any Government or of any noble Lord as he might think proper, but he (Earl Granville) felt that he had some ground for claiming from their Lordships more than their usual indulgence. But the difficulty he had to encounter was completely doubled when the noble Lord, not satisfied with going into what was past and what was present, night after night dived into the future. The speech of the noble Lord reminded him of a story he had heard some time 1223 since relating to a learned Judge on the Irish bench. It appeared that the learned Judge was complained against for frequently annoying counsel by interrupting their statements to the jury. On one occasion Mr. Curran was pleading before this learned personage, and was describing to the jury in very forcible terms how his own feelings had been annoyed when, coming through a neighbouring market, he saw a butcher in the act of killing a pig, when the pig, badly wounded, escaped from the butcher, who, with his weapon uplifted, rushed out of the door, when a child suddenly passed by—" And the man killed the child?" said the Judge. "No, my Lord," replied Curran; "your Lordship sometimes jumps too readily to a conclusion; it was not the child, it was the pig." Really, it appeared to him that the noble Lord jumped to a conclusion in a somewhat similar way. About a month ago the noble Lord made a severe attack not only upon the past policy of the Government, but also upon its future policy, and that before the Government had availed themselves of their undoubted right to make an exposition of their views, through the Chancellor of the Exchequer, in the other House of Parliament. Since then—and he (Earl Granville) presumed because the noble Lord-had seen that in another place the Chancellor of the Exchequer had stated that he was taking the opinion of the law officers of the Crown upon a point in dispute between him and the Bank of England—the noble Lord gave notice of the present Motion, by which he would urge their Lordships to order a correspondence to be produced which was of a perfectly private character, and that before the opinion of the law officers was known or even given, and therefore before, of course, the Chancellor of the Exchequer could adopt an opinion, whether in agreement with or in hostility to the Bank of England. The noble Lord began by saying that the first paper for which he moved had already been presented to the House of Commons. If it was thought necessary to reprint the document, of course there could be no objection. He was sure, from what the noble Lord had stated, he did not expect the Government to lay the other papers on the table. But then, said the noble Lord, "I think it necessary to state very shortly the Parliamentary grounds on which I found this Motion;" and then, for twenty-five minutes by the clock, the noble Lord took occasion to enter into the question 1224 whether the Government was about to embark in the dangerous experiment—which he, however, presumed they had no intention of doing—of issuing paper money without any condition and entirely on their own responsibility. He had given an answer to the Motion of the noble Lord, and the answer which he had to give to the speech of the noble Lord was, that he was perfectly ignorant of the plan, if any existed, to which the noble Lord had referred, and he believed his Colleagues behind him were equally ignorant of it.

THE MARQUESS OF CLANRICARDE
said, the answer which the Motion of his noble Friend had elicited from the noble Earl must be highly satisfactory to all persons in Parliament and out of it who took an interest in the important question to which his noble Friend had referred. He thought that from the noble Earl's speech it might be concluded that there was no intention whatever on the part of the Government to disturb the present excellent arrangement by which the Bank of England exercised the functions given to it by Act of Parliament, and that the scheme which had been very much ventilated and agitated out of Parliament had no sanction from the Government. He thought his noble Friend had done good service in bringing out that avowal, because undoubtedly there was—he would not say strong, he would not say grave—but there was some slight ground upon which a fabric was very speedily and very skilfully raised, with a view of showing that it would be a great advantage if the Government were to absorb what were termed the enormous profits of the Bank. He was of opinion that such a scheme would be most dangerous to the country, and most disadvantageous to all parties. But if these propositions were allowed to be agitated without any contradiction being given to them, supported, as it was alleged, by high official authority on the subject, there was no doubt they might spread throughout the country, and inflict great inconvenience, if not great danger, on the best interests of the State. He had a right to say that there was no intention on the part of the Government to alter the present state of the arrangements between the Government and the Bank of England.

§ EARL GRANVILLE
thought that the noble Marquess, notwithstanding his pledge, had jumped as rapidly to his conclusions as the learned Judge or the noble Lord. The noble Lord had given an elaborate descrip- 1225 tion of a plan for separating the Bank of England from the Government, which, he said, would lead to disastrous consequences, and he (Earl Granville) merely replied that he was totally ignorant of any such plan being in existence, or approved of by the Government. Upon this the noble Maquess jumped up and said that he was satisfied, from this formal declaration on the part of the Government, that they had not the slightest intention ever to disturb, in a greater or less degree, the existing arrangements between the Government and the Bank. Now, he (Earl Granville) begged to limit himself to the statement he had already made, and to leave unfettered the action of the Government in respect to any future arrangements that might be made for the public advantage.

THE MARQUESS OF CLANRICARDE
said, that, whatever might be the intentions of the Government at any future period, the clear terms used by the noble Earl gave him a right to conclude that at the present moment the noble Earl was not aware of any intention on the part of the Government to alter the existing arrangements between the Government and the Bank.

§ LORD MONTEAGLE
said, that he had not imputed to the Government the intention of altering the arrangements between them and the Bank, for he was perfectly convinced they never could have entertained such an intention; he had merely said that it had been imputed to the Government that they had some such intention, and his object was to show to those who urged upon the Government to take a step of that kind the inconvenience and danger of the course they recommended.