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THE CURRENCY AND ITS REFORM.

"THE Currency"-dismal word! and yet involving for weal or woe the material welfare of every civilised community. Word synonymous with dreary debates in Parliament, and with still drearier pamphlets which issue ceaselessly from the press. It seems as if the more there is written on the subject, the less is known. Yet again and again the subject is forced on the notice of the community, and each time with increased urgency. During the present year, the trade of the country has been subjected to a monetary burden unequalled in intensity and duration by any that has gone before. As a natural consequence, from all the great towns-Liverpool, Glasgow, Manchester, Birmingham, Leeds-loud complaints have been made and influential deputations have been sent up to the Government, asking for inquiry and reform.

It is time that a serious effort should be made to clear the subject from the confusion of ideas and ignorance of facts which pervade the existing controversy. What is especially wanted is, that men should look more to Facts, and less to the metaphysical webs which they spin in their closets, and designate "theories." Theories are most useful as a help to understand a group of facts not yet wholly discovered; but they are unutterably baneful when they are allowed to interpose between us and the facts, and to maintain their existence only by ignoring three-fourths of the subject they profess to explain. Owing chiefly to this practice of imperfect theorising-each writer building his theory upon a single point of the case, without informing himself of the facts as a whole-the public mind has become confused. For the last twenty years the currency has been a mystery, enveloped in Cimmerian darkness. And, at the present time, hardly can there be found two disputants who agree even in the meaning which they attach to the commodity whose functions they discuss. True, the currency itself, as by law established in this country, has since 1844 become a veritable chaos. Let a merchant empty the contents of his purse, and there will be turned out, probably, some sovereigns, silver coins, and bank notes. A sovereign is royal currency-coin of the realm; its weight and purity are guaranteed by the stamp of the Mint, and it is indefeasibly a legal tender in payments alike to the State and between man and man. The silver pieces likewise are coins of the realm, but they are not a legal tender in payments above the amount of £2. Bank notes are more diverse still in their character as currency. The notes of the Bank of England are legal tender, but not absolutely,-only so long as the Bank con

tinues to give gold-coin in exchange for them on demand. The 210 other banks of issue in the kingdom have no such privilege; their notes are not a legal tender under any circumstances, however amply their convertibility may be secured, and however perfect the credit of the bank which issues them. Moreover, there are no less than three different bases upon which the note-circulation of the country is allowed to be issued. The authorised circulation of the Bank of England is based, on the average, more than one-half upon Government securities, and rather less than one-half upon specie. The present note-issues of the Scotch banks are based one-half upon gold, and one-half (so far as legislation is concerned) simply upon the credit of these banks. The present note-circulation of the Irish banks is issued almost wholly upon their own credit-that is to say, without the law compelling these banks to keep any special security for their issues. The notes of the 190 English provincial banks of issue are not based upon any special security at all; neither are they bound to pay specie for their notes on demand,-the notes of the Bank of England having been made legal tender, instead of coin, in payment alike of the notes of these banks and of their deposits.

Such is the chaos of currency which has been established in the United Kingdom by the existing monetary laws. Moreover, in addition to these startling anomalies, a vicious system of Monopoly, and an unworkable system of Restriction, have been superimposed; so that our whole banking-currency has become unintelligible in principle and retrograde in spirit.

When banking was first adopted in this country, by the establishment of the Bank of England and the Bank of Scotland, very clear ideas prevailed as to banking currency, and the basis upon which it should be issued. The Bank of England was constituted as follows:-Firstly, it was a joint-stock company, consisting of a number of shareholders of good repute, both as regards wealth and character, each one of whom was liable to make good the obligations of the bank to the full extent of his means. Secondly, the notes of the bank were issued upon Government security,-i.e., to the amount of the coin (£1,200,000), which the Company had lent to the State. The substantial value of the notes being thus secured, the State imposed no other condition on their issue. The Company was bound to pay coin of the realm (then chiefly silver) in exchange for its notes, when required to do so; but it was left to its own judgment as to the amount of coin which should be kept on hand to ensure the convertibility of the notes. Thirdly, there was no compulsion laid on the public to receive the bank's notes: the community was left free to accept them or not, as seemed to them best. The founders of the bank knew that the notes of a sound establishment, enjoying the confidence of the public, require no "legal tender" character, no extra

neous aid from the Government, to obtain circulation. Even the Bank of France, at the present day, although the only bank of issue in that country, does not ask for le cours forcé for its notes. Fourthly, when the Bank of England was established, no monopoly of any kind was granted to it-the principle of monopoly, indeed, was expressly repudiated and condemned by its founder. Any company was free to establish itself as a bank of issue upon similar conditions. To supply a safe and acceptable substitute for metallic money, and thereby keep the currency adequate to the requirements of the community-such was the object of the founders of the Bank of England, and such was the ground upon which Parliament proceeded at the establishment of the Bank.

The Bank of Scotland, established a year later than the English bank-before the Union, and when the Scotch had a Parliament of their own-was founded in the main on similar principles, but in a somewhat bolder and freer spirit. Like the Bank of England, it was a powerful joint-stock company, every member of which was liable in full for the debts of the bank; but no condition, no legal restriction, was imposed upon its issue of notes, save that they should be payable in coin on demand. Its notes were not a legal tender: if people did not wish to have the bank's notes, they could refuse them at pleasure; if the public did want its notes, the bank was at full liberty to supply them. Being secured by a large paid-up capital, and by an ample proprietary in reserve, the notes of the Bank of Scotland circulated as freely as those of the Bank of England. Also, no monopoly was either given or asked for. Banking in Scotland, as at the outset in England, was left free. Any bank might be established, issuing banking currency. This system of freedom bore noble fruits. One after another, at considerable intervals, as the monetary requirements of Scotland increased, large banks arose-powerful companies whose capital and proprietary furnished an ample guarantee for the notes which they issued, and for the deposits which they received. This was the natural result of the system of perfect freedom. Left to themselves, the banks and the public settled the matter without difficulty or mistakes. Large banking companies were established, because the public naturally preferred to deal with them. Private banking was almost unknown, because it could offer no guarantee comparable to those of the joint-stock banks. What is the credit of a single individual, compared to that of a numerous company, every one of whose members is liable to the full extent of his property? Under this perfectly free system of banking, not a single note-holder or depositor in Scotland has ever lost a shilling by the failure of any bank'.

(1) Moreover the only case on record of the notes of any Scotch bank being in disrepute was for one day, in November, 1857 (twelve years after the old Scotch system of

While the free system was bearing such excellent fruits in Scotland, in England it was almost instantly supplanted by the opposite principle of monopoly. Banking in England speedily fell from the state in which it was created, and went to the bad. Within fourteen years of its establishment, the Bank of England used its powers and opportunities to obtain for itself special privileges. The Government was in want of money to carry on the war against the Grand Monarque, the Bank agreed to raise the required amount of coin, and lend it to the Government, on condition that no other joint-stock bank of issue should be allowed in England. The Government, pressed for money, assented; freedom in banking was summarily suppressed in England, and a monopoly established on behalf of the Bank, which rendered the growth of a sound system of banks absolutely impossible. The prohibition against the establishment of any banking firm consisting of more than six partners, was framed solely and avowedly to favour the Bank of England, in return for the loan to Government, by preventing the rise of any powerful bank which might compete with it. Thus, in return for getting a loan from the Bank, the Government of the day (A.D. 1708) inflicted upon the country a burden which, though little more than theoretical at the time, has inflicted again and again the most widespread disasters, and has done far more to checker the industrial career of this country than any cause which can be named.

That happened which always happens. If you prevent a community from supplying their wants in the best form, they will do sothey are forced to do so-in an inferior way. Joint-stock banks being prohibited, a number of private ones arose. Great banks being wanted, but prohibited, their place was of necessity taken by small ones. Private gentlemen, merchants, or little shopkeepers, started as bankers, in answer to the wants of their localities. In Scotland, the banks were established in the capital, or in one or two of the leading towns, from whence they extended their operations over the country by means of branches; so that a few great banks, with numerous branches, amply sufficed for the wants of Scotland. In England the case was quite otherwise. Private banks cannot spread over the country by means of branches. A private firm or individual may be well known and fully trusted in his own locality, but his name and credit are not generally known elsewhere. It is only large banks, whose capital and proprietary are widely known, that can successfully extend their operations over the country; and in England no banks of this kind were allowed to be established.

freedom had been abolished by the Act of 1845), when the Western Bank stopped payment, and when the other banks, by a mistake which they have since acknowledged, and which they immediately rectified, momentarily hesitated to accept the notes of the suspended bank, although they knew that all the liabilities of that bank were amply secured by its large and wealthy body of shareholders.

number of petty banks was the natural, the inevitable result. Every little district or little town had its little bank or banks, which, whether well managed or not, had not that first requisite of a bankan adequate capital, as a reserve and guarantee for its operations. These little banks, established in hundreds over England, being possessed of small resources, fell in scores on every occasion of panic or crisis. It was not their note-circulation which brought them down, or which brings down any bank: in all cases the chief and primary cause of their fall was a run for deposits-a sudden calling-up of the money entrusted to them. In fact, when a bank's credit is shaken, it is always the depositors who are the first to take alarm, and whose demands, being largest, it is most difficult to meet. Few persons have more than £10 in notes on hand hence note-holders are never so prompt and eager to make a run upon a bank as the depositors are, who have hundreds or thousands at stake. Having no large paid-up capital or reserves, these English banks, whenever a crisis of any kind occurred, gave way in scores, spreading loss and ruin over the country. Ever and anon, a number of these weak banks lost credit, -their notes, forming the chief part of the country currency, became useless, and the depositors in these banks lost still more heavily than the note-holders.

These repeated failures of the English banking system necessarily excited great attention. The evil was too momentous to be overlooked. But the Government did not discern the real cause and root of the evil. They failed to see the simple truth, that it is impossible to have a sound banking-currency without sound banks. And a sound system of banks could not be established, owing to the monopoly conferred upon the Bank of England. The Government let the root of the evil remain, and "meddled and muddled" with the currency. Like an ignorant physician, who has to deal with an eruptive complaint, they attempted to cure the disease by putting a plaister on some of the eruptive spots. They prohibited the further issue of small notes which small notes seemed to them to be the great cause of the malady. It never occurred to them to consider how it was that small notes, which formed a large portion of the banking currency of Scotland and Ireland, had not only produced no catastrophe in these portions of the kingdom, but had proved eminently beneficial. Small notes that was the only thing which the Government could imagine as the root of the evil and accordingly small notes were abolished in England. The evil, of course, was not cured: and in a few years afterwards (1833), the Government again attempted to improve the state of matters, by making Bank of England notes a legal tender. As a cure for the frail condition of the English banks of issue, they increased the system of monopoly which was the primal and fundamental cause of the unsoundness of the general banking-currency of

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