Thus the Legislature has manifested its fixed determination to suppress banking obligations payable to bearer on demand; and when certain parties had discovered what they thought a loop-hole in the Act, Parliament immediately took care to stop it up. Now, is it likely that when the Law Officers of the Crown and the Chancellor of the Exchequer are fully aware of the inevitable consequences which will, sooner or later, follow the operations of this Bank, they will suffer it to exist? Cheque Bank cheques are nothing more than accepted cheques, which have already been put down by law. The express purpose of Parliament is to suppress unlimited issues of circulating Banking Credit, and is it likely that they will permit their fixed determination to be set at nought by the paltry quibble that these Bank Notes are not payable to bearer on demand, but to bearer's agent on demand? The ingenious gentlemen who devised the Cheque Bank have laid a cockatrice's egg, which, if suffered to come to maturity, will inevitably devour the Bank Charter Act

27. This circumstance will, no doubt, tend to accelerate what statesmen of all parties are so anxious to avoid, a thorough and searching investigation into the whole of our Banking system. But, however they may try to stave it off, such an inquiry will inevitably come. For each succeeding crisis will be more severe than its predecessor. In 1847, the first crisis after the Act of 1844, the Credit system was comparatively small; it had greatly increased in 1857, and the crisis was more severe; in 1866 it had greatly increased, and the crisis was far more terrible; and so it will be in future. Every year the system of Credit is attaining more colossal dimensions, and, like a huge octopus, it now grasps all classes, and almost all persons, in its embrace. And, like the throes of Enceladus, it will periodically convulse the world, until it is settled on true scientific principles

CHAPTER XVII

ON THE RISE AND PROGRESS OF JOINT STOCK BANKING IN ENGLAND

1. It is very commonly supposed that Joint Stock Banks were not permitted by law in England before 1826, nor in the metropolis till 1833, but the preceding narrative shews that this idea is incorrect. By the common law Joint Stock Companies of all sorts, including, of course, banks, are perfectly legal, and consequently, if we wish to have a correct idea of the matter, we must observe this, and then ascertain what changes and modifications were made in the common law by successive Acts of Parliament

2. Although the first joint stock mania in England took place in 1694, no one, at that time, thought of getting up a joint stock bank, in fact, joint stock bank shares are the very last thing any one would think of getting up as a mere speculation. When the Bank of England was founded, it received no monopoly in its favour, and it was only in 1697, after the disastrous failure of the Land Bank Scheme, and the ruin of public credit, that the Bank was enabled to obtain a monopoly. But even that did not affect the common law right to establish such institutions, it only said that no rival bank should be erected or countenanced by Parliament. None, however, were formed; but, in 1708, another Company began doing banking business by issuing notes. The Bank then, in 1709, obtained the clause in the Act of that year, prohibiting any company of persons, exceeding six in number, from "borrowing, owing, or taking up money on their bills, or notes payable to bearer on demand," which, we have shewn, was the well understood meaning of the word "banking" at that

time. This clause was effectual up to 1742, when, in the Act of that year, it was re-enacted in much more full and explicit terms. But still the restriction was confined to borrowing, or owing, money on their bills, or notes. Consequently, the method of creating liabilities by means of entries and cheques, which was borrowed from the Dutch by our bankers, was not affected by the restrictive words of the Act. When, therefore, the London bankers discontinued their issues of notes, and restricted themselves to entries and cheques, there was no law whatever to prevent joint stock banks being formed, and carried on by that method. This, however, completely escaped observation, and we can have very little doubt that if this flaw in the monopoly had been discovered, and an attempt made to take advantage of it, Parliament would immediately have put it down, and there can be no possible doubt but that it was their manifest intention to create a complete and effectual monopoly on behalf of the Bank, and protect it from any rival banks of any sort whatever. The effects of this monopoly, however, were most disastrous. Bank of England notes had no circulation beyond London, and it would not establish any branches in the country. No other powerful and wealthy banks could be formed, the consequence was, that when enterprise awoke in the country, in the last quarter of the last century, and there was a great demand for an increased Currency, all sorts of petty tradesmen in all directions, grocers, linen-drapers, cheesemongers, tailors, &c., started up and turned "bankers," i.e., issuers of promissory notes, so much so, that, in 1793, there were about 400 of these country" bankers." But, of course, this Paper Currency was of a most rotten description, and on the occasion of any great commercial crisis they failed by dozens. In the great crisis of 1793, no less than 100 stopped payment, and double that number were greatly shaken. In 1810 about a similar number stopped, a great number in 1812, and in the three years, 1814-15-16, ninety-two commissions in bankruptcy were issued against banks, and, allowing the usual proportion of four suspensions to one bankruptcy, in those three years alone about 360 banks stopped. In twenty-eight years, from 1791 to 1818, the official return shews that 273 commissions were issued against bankers, or we may fairly assume that upwards of 1000 banks stopped payment during that period. The intolerable hardship of the monopoly of the Bank Charter may be

conceived, when the Bank, doing no business itself at such places as Bristol or Liverpool, no powerful bank could be formed at these places on account of it. These enormous failures among the country bankers, spreading ruin and desolation throughout whole districts of territory, naturally turned public attention to the Scotch system of banking, where, with the single exception of the Ayr bank, there had been no failure of a joint stock bank. Mr. Joplin is the earliest person that we are aware of, who discovered that the Charter of the Bank of England did not prevent banking companies being formed which did not issue notes. In a pamphlet, entitled Supplementary Observations to the Third Edition of an Essay on Banking, &c., 1823, he says, p. 84-"That public banks have not hitherto existed, more especially in London and Lancashire, seems to have risen from the want of a proper knowledge of the principles of banking, rather than from the Charter of the Bank of England, which, I find, does not prevent public banks for the deposit of capital from being established. That banks

ought to be the permanent depositories of the capital of the country, is an idea which no writer has hitherto entertained, and the silent operations of the Scotch banks have eluded observation. It has, in fact, always been hitherto considered that the proper business of a bank was to issue notes and discount bills at short dates. This is very strikingly exemplified by the clause in the Charter of the Bank of England, which restricts other banks to six partners." (Mr. Joplin then quotes the clause, and says-) "It is quite evident that the framers of the above clause considered the business pursued by the Bank of England the only proper banking. It appeared to them that preventing banks with more than six partners from issuing bills at short dates, or notes payable on demand, was altogether conferring on the Bank the privilege of exclusive banking as a public company. This it did, no doubt, according to their definition of the term, but it still leaves the most important part of banking open to the public. There is at this moment no legal impediment to the establishment of joint stock companies for trading in real capital. Both the letter and the spirit of the Charter has reference to the circulation of bills and notes alone. A bank which traded only in capital would not in the least trench upon the monopoly of the Bank of England, nor be any infringement of its charter." Thus Mr. Joplin has, as far as

we are aware, the merit of perceiving the loop-hole in the Act, by means of which, ten years later, the first joint stock bank was established in London

3. An attempt, in 1823, to gain the consent of the Bank of England to give up the privileges of their Charter, so far as to permit joint stock banks to be formed in the country, having failed, even though a bribe was offered, nothing further took place till 1826, when the disasters of the preceding year being very generally attributed to the improper management of the country banks, the Ministry were powerful enough to compel the Bank to give up its unjustifiable monopoly, and at length agreed to permit joint stock banks to be formed beyond sixty-five miles from the metropolis. The Statute 1826, c. 46, was passed for this purpose. Its chief provisions are

I. That banks of an unlimited number of partners may be formed, and carry on all descriptions of banking business by issuing notes and bills payable on demand, or otherwise, provided that such corporations, or partnerships, should not have any house of business or establishment as bankers in London, or at any place within sixty-five miles of London; and that each member of such corporation, or partnership, should be liable for all its debts of every description, contracted while he was a partner, or which fell due after he became a partner

II. No such banking company was to issue, or re-issue, either directly or indirectly, within the prescribed distance, any bill or note payable to bearer on demand, or any bank post bill, nor draw upon its London agents any bill of exchange payable on demand, or for any less sum than £50, but they might draw any bill for any sum of £50, or upwards, payable in London or elsewhere, at any period after date, or after sight

III. Such banking companies were expressly forbidden, by themselves or their agents, to borrow, owe, or take up in London, or at any place within sixty-five miles of London, any sum of money on any of their bills or notes payable on demand, or at any time less than six months from the borrowing thereof, but they might discount in London, or elsewhere, any bill or bills of exchange, not drawn by, or upon themselves, or by, or upon, any person in their behalf