A consideration of all the circumstances induced the Bullion Committee to condemn the Restrictive Theory in the most emphatic terms: and all the greatest mercantile authorities of that period, including Peel himself, as we have shewn, in 1819, entirely concurred in these doctrines: and they said that no limitation of the Bank's power of issue could ever be prescribed at any period, however remote. That period, however, came in 1844 The next great crisis was in 1825. Ever since the beginning of 1824 there was a continual drain of bullion, which the Bank took no means to stop. It fell from 133 millions in March, 1824, steadily and continuously, to barely 3 millions in November, 1825, when every one felt a crisis to be impending. The papers discussed the policy of the Bank, and it was generally expected that it would rigorously contract its issues. The panic began on Monday, the 12th of December, 1825, with the fall of Pole, Thornton & Co., one of the principal city banks, which drew down with them forty country banks. A general run began upon all the city bankers. For three days the Bank pursued a policy of the most severe restriction. Mr. Huskisson said that during 48 hours it was impossible to convert into money, to any extent, the best securities of the Government. Exchequer bills, Bank Stock, East India Stock, as well as the public funds, were unsaleable. At last, when universal stoppage was imminent, the Bank completely reversed its policy. On Wednesday the 14th, it discounted with the utmost profuseness. Mr. Harman said— "We lent by every possible means, and in modes we had never adopted before; we took in stock as security; we purchased Exchequer bills; we made advances on Exchequer bills, we not only discounted outright, but we made advances on deposits of bills of exchange to an immense amount in short by every possible means consistent with the safety of the Bank, and we were not, on some occasions over-nice; seeing the dreadful state the public were in we rendered every assistance in our power." Between Wednesday and Saturday the Bank issued £5,000,000 in Notes, and sent down to the country a large box of £1 notes which they accidentally found. This bold policy was crowned with the most complete success; the panic was stayed almost immediately, and by Saturday was over : The circumstances of this crisis are the most complete and triumphant example of the truth of the principles of the Bullion Report, and the Expansive Theory and signally vindicate the wisdom of Peel in 1819, when he refused to adopt the Restrictive Theory, and impose a numerical limit on the Bank's issues The next crisis was in 1837: but the Bank, foreseeing it, judiciously anticipated it, and made the most liberal issues to houses which required it. By thus adopting the Expansive Theory in good time, nothing more occurred than a severe monetary pressure, which was prevented from deepening into a crisis entirely by the judicious conduct of the Bank The Bank Act was passed amid general applause, but, as said above, on the very first occasion on which its powers were tested, in April, 1847, it completely failed to compel the Directors to carry out its principle, and one-third of its bullion ebbed away, without any appreciable diminution of the amount of its notes in circulation But, in October, 1847, a far severer crisis took place. The Bank made immense advances to other banks and houses, to prevent them from stopping payment. But numerous Banks and Commercial Houses did stop payment, and the resources of the Bank were exhausted. At last, after repeated deputations to the Government to obtain a relaxation of the Act, and with the stoppage of the whole commercial world imminent, the Government authorised the Bank to issue at discretion. And what was the result? The panic vanished in ten minutes! No sooner was it known that notes might be had, if necessary, than the want of them ceased. The whole issue of Notes, in consequence of this letter, was only £400,000, and the legal limits of the Act were not exceeded Thus, on this occasion again, the Restrictive theory wholly failed; and the Expansive theory saved the country, and was the only means of saving the Bank itself from stopping payment The next great crisis was in November, 1857, which was far more severe, as regards the Bank itself, than that of 1847. On ᎪᎪ 2 the 12th November, 1857, the Bank closed its doors with the sum of £68,085 in notes; £274,953 in gold; and £41,106 in silver; being a total sum of £387,144! Such were the resources of the Bank of England to begin business with on the 13th! Truly, said the Governor, it must entirely have ceased discounting, which would have brought an immediate run upon it. The bankers' balances alone were £5,458,000. It is easy to see that the Bank could not have kept its doors open for an hour On the evening of the 12th the Government sent a letter to the Bank, authorising them to issue Notes at their discretion, but not at a less rate than 10 per cent. ; and next morning the panic, as before, passed away Thus, on this occasion, again, the Restrictive theory wholly failed and the Expansive theory saved the country: and was the only means of saving the Bank itself from stopping payment The next great crisis was in 1866, which was still more severe. Unfortunately, no investigation was held respecting it, so that there is no reliable account of its circumstances. But speculation had exceeded all due bounds. On the 10th of May there was a general run upon all the London banks. It was said, but we cannot say with what truth, that one great bank alone paid away £2,000,000 in six hours. After banking hours it became known that the great discount house of Overend, Gurney & Co. had stopped, with liabilities exceeding ten millions-the most stupendous failure that had ever taken place in the city. The result of such a catastrophe was easily foreseen; not another bank could have survived the next day; and that evening the Government again authorised the Bank to issue at discretion, at not less than 10 per cent. The Bank advanced £12,225,000 in five days: but the panic passed away Thus, again, the Restrictive theory wholly failed: the Expansive theory saved the country, and was the only means of saving the Bank itself, as well as every other bank, from stopping payment Thus we see the entire failure of Sir Robert Peel's expectations. He took away the power of unlimited issues from the Bank, and imposed a rigorous numerical limit on its powers of issue, under the hope that he had prevented the recurrence of panics. But the panics recurred with precisely the same regularity as before; and, therefore, in this sense too, the Act has failed: and when panics do occur, it is decisively proved that it is wholly incompetent to deal with them 17. It has been seen that it is a complete delusion to suppose that the Bank Act carries out the "Currency Principle." It might be supposed, perhaps, that if it did really carry out the "Currency Principle," it might prevent panics arising. General experience, however, entirely negatives this view. In 1764 the most terrible Monetary Crisis which had up to that time occurred, took place in Amsterdam and Hamburg, where the banks were really constructed on the "Currency Principle" A decisive example of this took place at Hamburg in 1857. A similar Monetary Crisis took place there, as here, and the Bank being constructed on the "Currency Principle," had no power to issue Notes to support Credit. The magistrates were obliged to issue City Bonds to support the Credit of the merchants, exactly as the Government had issued Exchequer Bills in England in 1793. Here, also, the Restrictive theory wholly failed, and it was found necessary to adopt the Expansive theory to avert universal failure These disasters took place where there was no Credit Currency at all, but what represented bullion and they are conspicuous examples that panics occur just as readily under a purely Metallic Currency as under a Paper Currency The experience of every other country exactly confirms the experience of England. At Turin the bank was constructed on some principle of limitation: but, in 1857, during a monetary panic, it was found necessary to suspend its constitution, and allow it to issue Notes to support Credit The very same thing was conspicuously proved in 1873. In Austria, in North Germany, and in America, the banks were all constructed on some analogous principle of limitation on their issues. But in the severe monetary panic in each of these countries, it was found necessary to suspend their constitutions, and authorise them to issue at discretion to support commercial Credit Thus, universally, throughout the world, it is proved by abundant experience, that the Restrictive theory cannot be maintained after a monetary panic has reached a certain degree of intensity; and that it is absolutely necessary to adopt the Expansive theory to avert universal failure 18. The supporters of the Act of 1844 strenuously maintain that it is the complement of, and in strict accordance with the principles of the Act of 1819, and the Bullion Report. But such statements are utterly incorrect and the following are the fundamental differences of principle between them : I. The Bullion Report declares that the mere numerical amount of notes in circulation, at any time, is no criterion whether they are excessive or not The theory of the framers of the Act is that the Notes in circulation ought to be exactly equal in quantity to what the gold coin would be if there were no Notes: and that any excess of Notes above that quantity is a depreciation of the Currency Is this principle of the supporters of the Act in accordance with the principle of the Bullion Report? II. The Bullion Report declares, and the supporters of the Act of 1819 maintained, that the sole test of the depreciation of the Paper Currency is to be found in the Price of Gold Bullion, and the state of the Foreign Exchanges Ricardo says"-"The issuers of paper money should regulate their issues solely by the price of bullion, and never by the quantity of their paper in circulation. The quantity can never be too great nor too little, while it preserves the same value as the standard" According to the supporters of the Act of 1844, the true criterion is whether the Notes do or do not exceed in quantity the gold they displace Is the doctrine of the supporters of the Act of 1844 in accordance with the principles of the Bullion Report, and of the Act of 1819? III. It was proposed to the Bullion Committee to impose a positive limit on the issues of the Bank, to curb their powers of mismanagement. The Bullion Report expressly condemns any positive limitation of its issues: and Peel, in 1819, and in 1833, fully concurred in this condemnation * Proposals for an Economical and Secure Currency, § 3. |