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This then was the state of affairs in 1823 :-The country had been under-supplied with currency in 1821 and 1822; but no sooner had the Act prolonging the period for the circulation of small notes been passed in the latter, than the bankers, relieved from the necessity of providing for the withdrawal of any portion of their paper, were enabled to fill up the vacuum by increased issues; while the Bank of England, having reduced the rate of interest on discounts, from 5 to 4 per cent, * a measure in which she was either preceded or followed by the other banks, the rate of interest was universally lowered. All the most powerful incentives to speculation were thus called at once into action. The unusually depressed state of prices in 1822 and 1823 would have justified a considerate person in anticipating a considerable advance in most articles; and this, joined to the peculiar and unprecedented facilities afforded by the new state of the money-market, induced a very large proportion of our merchants and manufacturers to enter on the most gigantic speculations, and led ultimately to such a display of folly and infatuation, and so complete an abandonment of all sober, practical, views of trade, as we have the authority of Mr Tooke for saying, has never been exhibited except perhaps during the famous South Sea delusion in 1720.

The reduction in the rate of interest had a double effect. It tempted those, who had previously been in the habit of getting accommodations from the banks, to borrow larger sums; and it tempted individuals possessed of monied property, and not engaged in business, to embark in projects which they were taught to believe would yield them a greater return for their capital. In addition to these stimuli, the long dates at which bills were now freely discounted by almost all the Scotch and by many of the English banks, added new force to the spirit of spe culation. Those who procured discounts at four, six, nine, and, as was sometimes the case, even at twelve and eighteen months, were consequently enabled to withhold their produce from market, in order to speculate upon a farther advance, and were also led to adventure in time-bargains, or to buy goods at an advanced price that were not to be delivered for some considerable period. The quantity of produce brought to market was thus, on the one hand, artificially diminished, while, on the other, the rise of prices caused by this diminution and the increase of money, and the eagerness of the speculators

* Government is understood to have approved and recommended this reduction—a circumstance which Lord Liverpool would do well to recal to his recollection the next time he puts in his favourite claim to a prescience of the late revulsion.

to enter into time-bargains, or contracts for goods to be delivered at a distant term, gave an extraordinary encouragement to the production and importation of the articles that were the principal objects of speculative demand. The rise of prices that took place in 1824, and the first half of 1825, was thus rendered vastly greater than any that could have been occasioned by the mere additions, great as they were, that were then made to the currency. A large proportion of the transactions that were entered into during the period in question, were effected by means of bills on private individuals; and comparatively few of the time-bargains, or of the transactions that had been partially effected by means of bills at long dates discounted by the bankers, had been completed when the recoil took place. The moment the test of real payments began to be applied, the unsubstantial fabric fell straightway to the ground; involving the speculators, and those who had been engaged in the production and importation of commodities on their account, in one common ruin.

Undoubtedly, however, nothing contributed so much to bring on the late crisis, and to render it so fatally destructive, as the power that has been so absurdly given to every individual, however ignorant, poor, or unprincipled, who chooses to dub himself a Banker, to issue paper money. Those qualities in a banker which excite the public confidence, and which consequently obtain a greater or less degree of circulation for his notes, are of the most deceitful and treacherous description; and numberless instances have occurred in the history of British banking within the last few years, in which the notes of individuals without any real capital, and who were from the beginning in a state of insolvency, have continued to circulate for a long period in company with the notes of the best established houses, and to enjoy an equal degree of credit. It is obvious, too, inasmuch as the profits made by a banking company, by the issue of notes, must depend on the excess of the paper they have afloat over the dead stock they are obliged to keep in their coffers to meet the demands of the public, that such country banks as have little capital, must, generally speaking, be extremely anxious to get their paper into circulation. Rich and old established houses have their choice of business; and can afford to be cautious as to the bills they discount. But those who depend for support on the profits to be derived from the number of their notes abroad, and who have little or nothing of their own to lose, are necessarily less scrupulous. It is to them, therefore, that speculators, engaged in hazardous adventures, uni

formly resort; and during periods when confidence is high, and prices on the advance, the most worthless paper is sure to be negociated. Many of the English country bankers, who failed during the late crisis, were not only in the habit of discounting the paper of those engaged in the wildest projects, but of paying a high commission to persons employed to circulate their notes! In fact, their only object seemed to be, to get themselves indebted to the public. Nor, when establishments, conducted on such principles, and enjoying an unlimited degree of credit, were to be met with in every district of the empire, and when individuals, who never were masters of any real capital of their own, frequently succeeded in obtaining, by their means, the command of immense sums, can we be surprised that every sort of wild and profligate adventure should have abounded, that incipient delusion should have been converted into absolute insanity,'* or that the most dreadful recoil should have been experienced, when a shock was given to the system?

Had the country bankers been compelled, as every banking company, whether it consists of ten or ten thousand partners, ought to be, to give full security for the payment of their notes, such a state of things, as we have just described, could not possibly have taken place. Banking companies possessed, as those who give security for their issues must necessarily be, of ample capitals, would have exercised a proper degree of caution in the discount of paper; and although it is possible that the currency might, even under such a system, have become redundant, the redundancy would have been limited to the degree in which the exchange was depressed, and each and all of the banks would have had the means, without laying themselves under the least difficulty, of withdrawing such a portion of their paper from circulation, as would have restored the currency to its proper level, and the exchange to par. But under our present system-a system which, to use the just and forcible expressions of Lord Liverpool, allows a cobler or cheesemonger to usurp the Royal prerogative, and to issue Money without 'check or control,' † the paper of a large proportion of the country banks cannot be withdrawn. And when the exchange becomes unfavourable, and the Bank of England is in consequence obliged to narrow her issues, all confidence immediately ceases; and the run which then takes place upon the country banks is not limited to the withdrawal of such a por


* Tooke's Considerations on the Currency, 2d Ed. p. 48.
↑ Lord Liverpool's Speech, 17th February 1826.

tion of their paper as might be required to bring the country currency to the same level as that of London,-which would most certainly be its full extent if the banks gave security for their issues-but is converted into a panic, by the suspicion of insolvency, that must necessarily attach, more or less, to almost every banking company organized under the present sys


It should be observed, that a very slight fall in the exchange is at present sufficient to cause an exportation of gold coin. Previously to 1819, the exportation of coin, or of bullion formed out of coin, was forbidden under the severest penalties; and though there is abundant evidence to show, that this prohibibition was altogether ineffectual to retain the coin at home when the exchange afforded a sufficient profit on its exportation, still it is quite clear, that the trouble, expense, and extra-risk incurred in consequence of this prohibition must have had the effect to render a considerably greater depression of the exchange necessary to occasion such an exportation, than will now suffice for that purpose. We have been assured by some of the best informed bullion merchants, that a difference of one eighth per cent. in the price of gold in Great Britain and the Continent, is quite enough to occasion its instant exportation: And as our coin is at present in a state of very great perfection, and Government has chosen to burden itself with the expenses of coinage—a regulation just about as wise, as if it were to manufacture tea-pots and vases, or hats and pantaloons gratis, to all who have a demand for such articles-it has become a desirable article of traffic, and its exportation takes place in very large quantities, under circumstances when no part of it could formerly have left the country.

It is, therefore, quite evident that if the late contraction of the currency had been confined to the removal of such a portion of the superfluous paper of the metropolis and the provinces, as might have been required to restore the exchange to par, and consequently to dry up the drain for gold on the Bank of England, it could not possibly have reached to a tenth part of the magnitude to which it actually attained. But when a shock had been given by the reduction of the issues of the Bank of England to the paper system, and suspicion had been in consequence awakened from her trance, there were no longer any limits to the run. Paper was not carried to the banks to obtain gold, in the view of exporting it as a mercantile adventure to the Continent, but for the purpose of escaping that bankruptcy and ruin, in which it immediately became evident that a very large proportion of the hold

ers of country notes would be involved. The best established houses did not escape imputations. Sauve qui peut, was the universal cry. And the reduction of country paper was so sudden and excessive, that, in less than six weeks, a vacuum was created, which has absorbed from eight to ten millions of additional issues by the Bank of England; at the same time that myriads of those private bills that previously served to swell the amount of the currency, and to add to the machinery of speculation have been swept off.

It is, we take leave to say, the merest drivelling possible to suppose that the measures proposed during the late Session, for the amendment of the currency, afford any real or substantial remedy for the abuses inherent in the system on which it is now issued. It is true, that Lord Liverpool has proscribed the 17. notes of his friends the coblers and cheesemongers of England, though he has apparently forgot that the 5., 10., and 201. notes, which these worthies are still allowed to issue, without check or control of any sort, are about as difficult to withdraw from circulation as those of 17.; and that, in point of fact, a FULL THIRD of all the country banks of England stopped payment in 1793, though no ll. notes, or notes for less than 5l., were then in circulation! It would be a libel on the good sense of Parliament and the country, to suppose that they should continue to tolerate a system productive of so much misery. Its unavoidable effect is to render every industrious undertaking as much of a gambling transaction, as if its success depended on a throw of the dice. We believe, indeed, that the late measures were well intended; but it is not too much to say, that they were proposed without due consideration, and are altogether ineffectual to the grand object that ought to be kept constantly in view,—that of establishing the currency on a solid foundation, with the least expense and inconvenience to the country, and to all parties concerned. To effect this object, it is essential that no paper of any description whatever should be allowed to be issued, except by those who are both able and willing to give full security for its payment: And, as the same means which are necessary to establish five and ten pound notes on a secure basis, may be equally applied to one pound notes, the currency of the latter may be continued without loss to any individual; which will save the country the heavy, and, under the circumstances of the case, we scruple not to say, wanton and unnecessary expense, attending the supplying of their place with gold,

Though it is certainly true that the late revulsion was wholly unexpected by the vast majority of the public, it cannot be said that there were no previous signs or indications of its approach, or

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