THE EARL OF EGLINTON rose to call the attention of Her Majesty's Government to the Expediency of issuing a Royal Commission to inquire into the Operation of the Laws which regulate the Currency of the United Kingdom. He feared that, perhaps, many of their Lordships might have viewed the notice he had placed upon the paper with some feeling of alarm, since the subject was one difficult to understand, and from which many men naturally shrunk; but he would assure their Lordships that he would abstain from indulging in any vague theories or long calculations of figures; he would not conduct them back to the time of William the Conqueror, or even of Henry the Eighth or Elizabeth; he would not inquire whether corn, or gold, or what other article should be the standard of value. He merely wished to convince the House, as he was convinced himself, that a searching inquiry into our system of currency was, if not necessary, at all events very desirable at the present moment. There were several reasons why this was the proper time for such an inquiry, and the first of these was the position in which the Bank Charter now stood. The existing Charter was granted to the Bank in 1844 for ten years, after which time it was liable to be terminated by the Government giving a year's notice. The time had, therefore, elapsed which was laid down for the Charter, and the Bank might now he said to be going on from hand to mouth, waiting for a new Charter; and he thought there were few, if any persons, who would wish to sec a new Charter granted, unless the subject first underwent a most searching investigation. Another reason, and a very important one, which
made him think that this was a proper time for instituting this inquiry was, that we were now entering upon a peace which was likely to be an enduring one, both from the prostration of the aggressor and the intimate alliance of the great countries of Europe, and this country was probably on the eve of a career of considerable commercial enterprise, and of internal tranquillity and content almost without a parallel. In the Session of 1848, in consequence of the severe monetary pressure of the preceding year, Committees were appointed of both Houses of Parliament to inquire into the causes of the distress which had spread ruin all over the country. Both Committees were equally anxious to do their duty; but the result of their investigation was, that they came to conclusions diametrically opposite; and whilst the Committee of this House reported strongly in favour of the abrogation or relaxation of the Act of 1844, the Committee of the House of Commons came to the conclusion that no change whatever should be made. He might also remark that, in each case, the decision was arrived at by a very narrow majority. He apprehended, therefore, that the difference in the conclusions come to by the two Committees, and the narrowness of the majorities by which those conclusions had been arrived at, constituted fair and sufficient ground why the subject should be now taken up by a Royal Commission, which would investigate the subject free from the prejudices or party spirit which in some degree necessarily attached to Parliamentary Committees in matters of this kind. Further, he was rather unexpectedly fortified in his opinion that an inquiry ought to be instituted, by the statements of Gentlemen who had hitherto been regarded as the staunchest advocates of the Act. In the course of the late debate in the House of Commons the Chancellor of the Exchequer was reported to have said—
I, nevertheless, fully admit that the operations of the Bank Act of 1844 is a fit subject for investigation by a Committee of this House, when the proper time shall arrive, and when the circumstances shall appear favourable for the prosecution of such an inquiry. I quite admit that there are many parts of its operation which not only deserve, but require full inquiry before a competent authority, and I shall be quite willing, when the proper period arrives, to assent to the appointment of a Committee."—[3 Hansard, cxl. 1533.]
On the same occasion Sir Charles Wood admitted that he was far from saying that
such an inquiry was undesirable. He was aware that those Gentlemen had guarded themselves against pledging themselves as to time, but they both admitted that inquiry was desirable. He pressed this matter upon their Lordships' attention, because these opinions admitted that the present system had been tried and failed. The Act of 1844 had not worked well. It had failed alike in preventing over-speculation, and had proved inefficient when the danger had arisen. Under its operation there had occurred the most serious commercial crises, and the greatest fluctuations in the rate of interest that had ever been known in this country. He would not go into the question of the country banks, or into the subject of the Scotch and Irish banks, but would confine himself solely to the case of the Bank of England. By the Act of 1844 the Bank was authorised to issue £14,000,000 in notes, on the security of the debt owing to it by the State, unrepresented by gold in their coffers, and every note which they issued beyond that sum had to be represented by gold. The banking and issue departments were divided just as much, according to the statement of the Governor before the Committee of 1848, as if one were in Threadneedle Street and the other at Whitehall; and thus the gold in the issue department, to answer the notes in circulation over and above the £14,000,000, was unavailable for any of the requirements of the banking department. One of the clauses in the Act empowered the Directors of the Bank to issue notes to two-thirds the amount which had been issued by country banks ceasing to be banks of issue, and this clause had been acted upon to the extent of nearly half a million, thus making the authorised issue to amount to £14,500,000. The Directors were expressly told by the promoters of the Act that they were to consider themselves merely as bankers; that, as such, they were to look to their own interest only, without any reference to the affairs of the State. On the one hand, they were to keep gold in their coffers sufficient to represent the issue of notes above £14,000,000; and on the other, they were obliged, in justice to their own interests and those of their constituents, to make the best profits they could for their capital. Accordingly, when gold became plentiful, they lowered the rate of interest in order to get their notes out amongst the public; and when it became scarce
they raised the rate of interest in order to retain it. The faults of the present Act were not mere matters of theory, for he had in favour of his arguments the results of several years' operation of the Act of 1844. During the last eleven years there had been no less than forty fluctuations in the rate of interest, which had varied from 2 to 8 and 9 per cent; whereas, during the previous century there had been hardly any fluctuations at all, and these of a very trifling nature. He regretted to say, too, that those fluctuations, instead of being on the decrease, appeared to be on the increase; for during the last four years there had been no less than eighteen fluctuations; while even within the last year there had been eight. At the commencement of the railway mania, previous to 1847, the rate of discount was only 2½, 3, and 3½ per cent, and this low rate greatly encouraged over-speculation. The result was of course such a drain on the Bank for gold, that in 1847 the amount of that metal left in the banking department was considerably under £2,000,000. So great was the pressure at that time that the rate of discount was raised to 8 and 9 per cent; and they had it in evidence from Mr. Samuel Gurney that even his solvent house had to pay 9 per cent for an advance of £200,000; and such was the panic, that Mr. Horsley Palmer told them in evidence, that had the Bank at that time endeavoured to lessen its difficulties by a sale of Consols, to the extent of £2,000,000, these securities would have gone down to £60. Undeterred by this experience the Directors, when money again became plentiful, in 1852, reduced the rate of interest to the ridiculously low rate of 2 per cent. The same result followed this proceeding; and there was again a drain of gold, followed as before by the raising of the rate of discount, which was so high last year that there was very great commercial difficulty, and numerous bankruptcies occurred. However, much as he objected to the lowering the rate of interest to a ridiculously small figure, he should admit that under the present system it was absolutely necessary to raise the rate of interest when gold became scarce; there was no resource but "to put on the screw," and let them see what "putting on the screw was." To the Bank it was a measure of commercial policy; but to the country it was a measure of ruin. The Governor of the Bank of England in
The means of getting back the gold is by making money dear, and causing a fall generally in the price of commodities, which will bring back gold. Prices will fall in consequence of the increased value of money.
The effect, therefore, of putting on the screw was, not only to overthrow houses that were tottering, but to depreciate, perhaps cue-half or more, the entire property of the country. And this, very often, not because of any undue speculation, but because of the act of the Bank itself fostering speculation by lowering the rate of interest. The Act of 1844 had also falsified the predictions of its promoters in another point. The noble Lord opposite (Lord Overstone) one of its chief promoters, and generally supposed to be its author, upon the question of the note circulation keeping pace with the increase or decrease of gold, said—
The issues of the Bank of England will, under the provisions of that Bill, be made to conform strictly to the fluctuations of the bullion. Thus it appears that the contractions of the circulation in correspondence with the decrease of the bullion is the only measure that can afford effectual security for stopping the drain of bullion.
Now, no doubt, the amount of notes in circulation was regulated by the amount of gold in the Bank; but the anticipation of the noble Lord had not been fulfilled; because in 1847, when there were £9,000,000 of gold in the Bank of England, there was within a fraction the same amount of notes in circulation as in 1846, when there were £ 16,000,000; in 1852 there was a note circulation of £22,000,000, with £19,000,000 of gold; in the end of 1853 there was a note circulation of £24,000,000, with £15,000,000 of gold; in the early part of 1855 there was a note circulation of £20,000,000, with £18,000,000 of gold; and in the October of that year there was a note circulation of £21,000,000, with only £11,000,000 of gold. He thought that, whether their Lordships agreed with the Motion or not, they would agree in thinking that he had made out a fair case, showing the propriety, if not the necessity, for a searching investigation into the matter by the most competent tribunal that could be obtained. He had troubled the House with no opinions of his own; he had brought forward no theory; but had stated only undeniable and incontestable facts. It was a fact that could not be disputed, that during the last eleven years there were in this country greater fluctuations in the rate
of interest than during any similar period before the passing of the Act; it was a fact that the greatest over-speculation ever entered into had been carried on since the passing of that Act; and it was a fact that the greatest monetary crisis that had ever arisen in this country had happened under this Act. It was admitted by even the warmest supporters of the Act of 1844 that some inquiry into its operation was necessary. It might be said that though it was not altogether effectual, it would be difficult to suggest anything better. Now, he thought that if the Act of 1844 were to be preserved there were many points in which it could be improved, though he thought it would be better to abrogate it altogether. If the Act were to be retained, he considered that a great benefit would be effected by enlarging the circulating power of the Bank of England by permitting it to issue £1 notes. It was urged that as much gold as it was possible to retain should be kept in the Bank, in order to insure the convertibility of these notes. No man could be more impressed than he was, of the necessity of providing for the convertibility of Bank notes into gold; but by prohibiting the Bank of England from issuing small notes they forced into circulation every day a number of millions of sovereigns, which would remain in the coffers of the Bank if they allowed it to issue £1 notes; these notes would circulate on the security of the gold without increasing the liability of the Bank; they ought to be issued upon the same footing as the larger notes; they should be a legal tender and convertible into gold. It was the generally received opinion that the Bank of England was, in 1825, saved from a great difficulty by the issue of £1 notes. Many of their Lordships would recollect, that in 1848 Lord Ashburton stated in conversation in the Committee that having been (in 1825) called in to advise the Bank in their difficulty, he was one of those who recommended an issue of £1 notes, and that he did not know what would have been the consequence, but for the fact that they accidentally happened to have about £2,000,000 of these notes in their safe. One of the objections to those small notes was, that they would increase the number of Bank-note forgeries; but he could not understand why they could be more easily forged than notes of a larger amount. It had not been the case in Scotland, where they
were in circulation. Again, it was urged that the feeling of the people was against them. He again pointed to Scotland; and he asked noble Lords acquainted with that country, was it not a fact that the Scotch not only preferred notes to sovereigns, but had a distrust of gold? There was no doubt at all of the fact, and the reason of it was, the people knew that however dirty or defaced a £1 note might be, it represented 20s., while a sovereign might be light. In 1826 and 1828 there was no feeling in the minds of the people of England against those notes. So far from that being the case, the Ministers of the day themselves declared that the people all preferred notes to gold. In 1828 there was an Act passed (7 Geo. IV), by which, under a penalty, Scotch notes were prohibited from being circulated across the border; for these notes, though not in this country a legal tender, had found their way across the borders into Lancashire and Yorkshire. Another point in the present system might be advantageously changed without infringing upon the main principles of the Act—he meant the constitution of the Bank direction. The management of the affairs of the Bank was entrusted to a Governor, a Deputy Governor, and twenty-four Directors, elected annually; the Deputy Governor always succeeding to the governorship, and eight of the Directors being ineligible for re-election till the next year after that succeeding their year of office. He thought it objectionable, that eight of the Directors should be turned out of office just when they were beginning to know something of their business, and should be "sent to grass" for a year to forget it. He was also opposed to the system by which matters of great importance to the country and the Bank were decided by a mere majority of the Directors. He thought there should be some sort of Government inspection or control; and in that opinion he was borne out by very high authority, indeed—the evidence of Mr. Glyn and Mr. Browne before a Committee of the House of Commons in 1848. The Bank of France was conducted on that principle of Government control, and he believed very well conducted. There were in connection with that establishment, a Governor and two Deputy or Sub-Governors, and those two officers were appointed by Government, and received a large salary, and their offices were permanent. He did not quarrel with the system of raising the interest when gold was
scarce, because, as he had before observed, he believed that under the Bank Act of 1844 it was unavoidable; but he deprecated the unduly low rate of interest to which the Bank resorted when money was plentiful. He believed that the difficulties of 1847 had, to a very great extent, been brought on by the lowering of the rate of interest the previous years to 2½ and 3 per cent. He held that the Bank of England ought to be either a State bank, or altogether separate from the State. If it were a State bank, it ought to be under Government supervision, and ought to be conducted with reference to the interests of the country. He would also be disposed to resort—though on this point he spoke with some donbt—to some minimum rate of interest. Previously to the Act of 1844 the fluctuations had been very few, and the rate had seldom exceeded 4 or 5 per cent. Another measure of improvement would be raising, by a mere stroke of the pen, the amount of notes which the Bank was authorised to issue over and above the amount which must be represented by gold. It was clear that if, in 1844, £14,000,000 in these notes were not considered more than sufficient for the then wants of the country, that amount could hardly be sufficient now, when, as compared with 1844, it had advanced so much in population and wealth. Much would be done in the way of avoiding fluctuations in the rate of interest, if the circulation of those notes was extended from £14,000,000 to £18,000,000 or £20,000,000, or some amount that would meet the present demands of the country. He disapproved of the main principle of the Act of 1844—by the main principles he meant the restrictive clauses, and the separation of one department of the Bank from the other—and coincided in what was said by Mr. Tooke in the conclusion of his pamphlet on the "Bank Charter Act." Mr. Tooke said—
That the greater or less liability to variation in the rate of interest constitutes, in the degree next only to the preservation of the convertibility of the paper and the solvency of banks, the most important consideration in the regulation of our banking system. That a total separation of the business of issue from that of banking is calculated to produce greater and more abrupt transitions in the rate of interest and in the state of credit than the (present) system of union of departments.
No man, however bigoted an advocate of a metallic currency, would say that the Bank ought to be deprived of the power of issuing
any notes whatever that were not represented by gold. If England had been governed upon suck principles for the last two centuries she would now be a small third-rate State, and if they were adopted now universal ruin would ensue. There could be no doubt about the expediency of issuing notes that were not actually represented by gold in the coffers of the Bank, and the only doubt was as to the limit. For himself, he objected to naming a particular amount of notes beyond which no issue should take place, because whenever there was a prospect that that amount would be reached, distrust and discredit began. He believed there would not have been half so severe a crisis in 1847, if the Bank had had the power of dealing with the £9,000,000 of gold which it then possessed. In the last year when there were great difficulties there was £12,000,000 of gold in the Bank of England, which would have warranted a larger issue of notes, and would greatly have relieved the pressure. If the provisions of the Act of 1844 regulated the proceedings of the Bank of France, instead of now meeting all its engagements, and having a stock of £8,500,000 of gold in its coffers, the Bank of France would be £2,000,000 minus in its banking department. Within the last four years there had been only two changes in the rate of interest charged by the Bank of France, while within the same period there had been eighteen changes in the rate of interest charged by the Bank of England. The late Lord Ashburton, in his evidence respecting the Bank of France, said—
There has been at no time any suspension of its payments, or any material difficulties of any kind; and it seems to have answered perfectly well the object for which that Bank, like our own, was instituted—namely, as a bank to give proper facilities to the circulation and commerce of the country, and at the same time to be the bankers of the Government, and to give every proper and legitimate facility to the operation of the Government,
In conclusion, he would observe that, although he would rather have inquiry by Committee than no inquiry at all; yet, as it was almost impossible to separate the subject from the influence of party feeling, he thought the appointment of a Royal Commission would be the preferable course. He would not presume to name the Members of the Commission, but would humbly suggest that persons should be selected who were not pledged to any particular
views on the question. He would therefore move—
That a humble Address be presented to Her Majesty, praying Her Majesty to issue a Royal Commission to inquire into the Operation of the Laws which regulate the Currency of the United Kingdom.
§ THE EARL OF HARROWBY
, who was very indistinctly heard, said, that it was the intention of the Government, as had been stated by the Chancellor of the Exchequer in the other House, to appoint a Committee to inquire into the operation of the Bank Act of 1844 before any revision was attempted in the present arrangements. He admitted that there were some subjects more fitted to be inquired into by a Commission than by Committees of that or the other House; but he considered this was an inquiry peculiarly belonging to the Houses of Parliament to undertake. He did not think it desirable to enter into any discussion of the points suggested by the noble Earl, but would merely say that it was the opinion of the Government that inquiry should be made before notice was given to the Bank to terminate the operation of the Act of 1844.
THE LORD CHANCELLOR
said, that according to the rules of the House, the noble Earl (the Earl of Eglinton) should have given notice of a Motion so important as this, but the notice put on the paper by the noble Earl conveyed no idea of such a Motion as that now before the House.
§ THE EARL OF EGLINTON
said, he would not press his Motion if there was any irregularity in it; but he thought he had a right to expect something more satisfactory from the Government than the statement of the noble Earl opposite.
§ THE EARL OF HARROWBY
said, he thought that after the statements made on previous occasions by other Members of the Government, there was nothing in the noble Earl's statement requiring observation on his part, except his preference for inquiry by Royal Commission rather than by Committee. On that point he had expressed his opinion. He thought, indeed, that a Commission would only add to the investigation, and would not supersede inquiry by Committees of both Houses.
§ THE EARL OF DERBY
said, that as he understood his noble Friend (the Earl of Harrowby), he stated that the Chancellor of the Exchequer had in another place given it as his opinion that there should be an inquiry into this Act of 1844 by a Committee. His noble Friend who brought 561 forward this Motion proposed an inquiry under a Royal Commission in preference to an inquiry by a Committee of this or the other House of Parliament. He stated that a Royal Commission appointed by the Crown would he above all party considerations, and would, therefore, be a more efficient tribunal of inquiry; and, in support of this proposition, he alluded to the fact that two Parliamentary Committees had arrived at opposite conclusions on this subject. Now, he (the Earl of Derby) thought the important question was—what was the intention of the Government with regard to inquiry at all? As he understood it, the answer of the Government was that an inquiry would be desirable at the proper time and in the proper mode; but had they not a right to ask—when will the proper time arrive, and what will be the proper mode? The term of the Bank Charter had expired—that was, it only existed subject to the power of the Government to terminate it on twelve months' notice. Now, it might be extremely desirable that the Bank should not be left in that condition; and it would be very well that the conditions of any new Charter should be deliberately considered by the Government. His noble Friend opposite (the Earl of Harrowby) said, "We do not intend to give notice of terminating the Bank Charter this year; but when we give notice we will have an inquiry." Surely the proper time for inquiry would be before the Government gave such a notice. Whether the inquiry be by Royal Commission or by Committee, it was clear that it ought to precede this notice; for the inquiry would be as to whether the Charter of the Bank, as it existed under the Act of 1844, should be terminated or renewed? As his noble Friend did not intend to press his Motion, he of course had nothing more to say on the subject. He thought, however, that they had a right to expect from the Government a more distinct declaration of their opinion as to the working of the Act of 1844, and more definite information as to the course they intended to pursue, with regard to instituting an inquiry into its operation, in order that the country might deliberate and fully consider and judge of the question before the Government proceeded to negotiate with the Bank.
THE DUKE OF ARGYLL
said, that the noble Earl had unintentionally somewhat misrepresented the opinion expressed by the Chancellor of the Exchequer in the 562 House of Commons, and repeated in that by the noble Lord behind him (the Earl of Harrowby). The Chancellor of the Exchequer distinctly announced that the Government had no intention of making any change in the Bank Charter Act of 1844; but he added that, if any hon. Gentleman was extremely anxious for inquiry into the subject, the Government would not be disposed to throw any impediment in the way. The Chancellor of the Exchequer did not say that inquiry was desirable, but that it might be demanded. Such was the gist of his speech, and he was certain it was all he intended to say. If the Government had made up its mind to alter the Bank Charter Act, it would have been its duty to move for an inquiry. But the intentions of the Government were precisely the opposite. Yet the Government, as had been already stated in the other House, and also in this, would not be disposed to stand in the way of any proposition for inquiry which might be made by a Member of either House. The proposal of the noble Earl (the Earl of Eglinton) was, however, of a very different character; because, if the Government were to issue a Commission, it would intimate that they were dissatisfied with the present state of the law, and attributed to it evils which they wished to remedy. But that was not the case. Such had been the statement of the Chancellor of the Exchequer in the other House, and of the noble Lord behind him in this; and he thought their opinion, as stated, carried reason upon the face of it.
§ THE EARL OF DERBY
said, that unless he had entirely misunderstood what fell from his noble Friend (the Earl of Harrowby), he began by admitting that inquiry, at a proper time and in a proper mode, was desirable.
§ THE EARL OF DERBY
What did the noble Duke mean? If he was to take him to be the exponent of the Ministry, the Government had made up their minds that an inquiry was not necessary, because they had no intention of altering the Charter; while the noble Earl (the Earl of Harrowby) said that there should be an inquiry at the proper time. Then, what were they going to do? Were they prepared to renew the Bank Charter as it stood? Did they think it was desirable that that Charter should go on from year to year, with a perpetual liability to be put an end 563 to at the expiration of twelve months? Was no fresh arrangement to be made between the Government and the Bank? If this were the intention of the Government, it seemed to him very like an intention to tide a difficult question with which they did not know how to deal, and to throw upon others a responsibility which ought to fall upon themselves.
THE DUKE OF ARGYLL
said, that it was the intention of the Government to "tide" over a difficult question because the present was a time most unsuited for dealing with it.
§ EARL GREY
said, that if there were to be an inquiry, he did not see how there could be any time which would be better for that inquiry than the present. By the Act of 1844 there was a time fixed before which the Bank Charter could not be revoked, and beyond that period the Act gave to the Bank an indefinite tenure of its privilege terminable twelve months after the giving of a certain notice. The fixed period was now passed, and we could never get any nearer to the actual termination of the Bank privileges until the notice had been given. He could have understood the Government saying that the Act of 1844 had worked perfectly, and that, therefore, no inquiry was necessary; or that that measure was an incomplete one and required amendment; that, therefore, they proposed to inquire, and that the earlier the inquiry was commenced the better. Although he differed from the noble Earl opposite (the Earl of Eglinton) as to the faults which he attributed to the Act of 1844, he was ready to admit that that Act was imperfect, because it did not carry to their full extent the principles on which it was founded, and, therefore, he believed that an inquiry into its operation would be a very proper measure. He was, however, quite at a loss to understand the line now taken by Her Majesty's Government. They said that inquiry was desirable at a proper time and in a proper manner, but he could not conceive how there could be a better time than the present. He thought also there was much soundness in the arguments used by the noble Earl opposite (the Earl of Eglinton) as to the advantages possessed by an inquiry by a Royal Commission over one by a Committee.
§ LORD RAVENSWORTH
said, that public attention was greatly excited upon this subject, and men of great ability were lecturing upon it through the country. In Newcastle-upon-Tyne a very able lecture 564 had been given, which was followed by a petition, signed by the mayor and the most eminent merchants of the town, and presented to both Houses of Parliament, in favour of an inquiry. He thought that the proper time had arrived for the Government to enter upon this inquiry.
§ Motion, by leave of the House, withdrawn.
§ House adjourned till To-morrow.