§ Act 7 and 8 Vic. c. 32, read; to be considered in Committee:—
§ Queen's Speech referred.
§ Paper relative to Bank Issues [presented 3rd December] referred.
§ Matter considered in Committee.
§ (In the Committee.)
§ Moved—That the Chairman be directed to move the House, that leave be given to bring in a Bill to indemnify the Governor and Company of the Bank of England in respect of certain issues of their notes, and to confirm such issues, and to authorise further issues for a time to be limited.
THE CHANCELLOR OF THE EXCHEQUER
I rise for the purpose of bringing under the attention of the House the question which, as has been stated in the extract from the gracious Speech from the Throne, has led to the assembling of Parliament before the usual time. In order that the Committee may fully understand the nature of the act of Her Majesty's Government which has induced the Directors of the Bank of England to infringe the provisions of the statute, and thus rendered it obligatory upon me to ask the House to give its consent to a Bill of indemnity, it will be my duty to call their attention to the existing state of the law.
Sir Robert Peel, in the course of his long political career, induced the Legislature to agree to two important Acts relating to the currency, which were in 146 point of time separated from each other by a quarter of a century. The first of these Acts, as is well known to the Committee, was passed in 1819. It restored the currency to its proper metallic basis, put an end to the state of things existing during the war—a state of suspension of specie payments,—and established the convertibility of the bank-note After that Act had been passed the power of the Bank of England to issue notes was unlimited in point of extent. They were only subject to the condition of being payable in gold on demand. The power of establishing country banks in England was also unlimited, subject to the privilege which then existed in favour of the Bank of England with reference to partnerships of more than six partners. These banks when established could create any quantity of bank-notes. The same power existed both in Ireland and Scotland. Any person could under that law establish a bank and issue notes payable to bearer on demand, provided only that those notes were paid in specie upon presentation at the bank which issued them. Such was the state of the law from 1819 to 1844, the date of Sir Robert Peel's second important Act on the currency. That second Act, as he stated to the House, was to be considered as a complement of the first; he intended it to secure, in fact, that convertibility of the note which was made legal only by the Act of 1819. The provisions which he introduced were to the following effect:—In the first place, he enabled the Bank of England to issue notes on securities to the extent of £14,000,000, together with any further sum which might be required from the lapsed circulation of the English country banks, as to which some detailed provisions were introduced into the Act. An Order in Council under those provisions was passed about two years ago, authorising the Bank to add to that portion of its issue which rests upon securities the sum of £475,000. Therefore at present the issue which the Bank of England can make upon securities,—and it is not allowed to make any issues except upon Government securities,—is £14,475,000. In addition, the law allows the Bank of England to make an amount of issue equivalent to the bullion which may be in its coffers. Under the Act then of 1844, which was intended as a complement to the Act of 1819, the issuing powers of the Bank of England are limited as I have described. The Act of 1844 further makes provision upon a subject which, as it seems 147 to me, is scarcely of the same character as the other clauses, although it is closely connected with its general subject-matter. I mean, that for dividing the Bank of England into two departments, the issue and the banking departments. Gentlemen who are familiar with the mode in which the weekly returns of the assets and liabilities of the Bank are published, are aware that they are always classed under those two divisions. I shall presently have to call the attention of the Committee to the practical working of this system with reference to the measure to which I am about to ask their assent. I should add that with regard to English country banks the Act of 1844 contained important provisions—it prohibited any bank which might after the passing of that Act be established in England from issuing bank-notes. It limited, also, the note issues of the existing bunks to the amount which was then in circulation. It contained no provision requiring them to issue notes on securities, and it did not allow them to exceed the fixed limit by issuing notes against bullion. Therefore, under the Act of 1844, the condition of the English country banks is this:—No new country bank can issue bank-notes at all, and the country banks existing at the time of the passing of that Act are limited in their issue to the circulation which they then possessed. In the following year was passed an Act with respect to Scotland and Ireland, which was intended as a part of the same measure. Its effect was to limit the existing banks of Ireland and Scotland to their then issues, as in the case of the country banks of England. It did not require that those issues should be guarded by securities of any kind, but it authorised them to make issues in excess of their certified circulation against a deposit of bullion. Therefore, in Ireland and Scotland there is a certain amount of paper which is limited under the Act, in addition to which the banks issue a certain portion against sovereigns. The Committee ought to bear in mind the practical result of this compound system upon the circulation as it exists at the present moment. On the 11th of April last the notes of the Bank of England in the hands of the public amounted to £19,752,045. At the same date the note circulation of
148 Adding that amount to the circulation of the Bank of England, we may take the paper circulation of the United Kingdom to be in round numbers about £38,000,000. Of that £38,000,000, the only portion which is strictly covered by bullion is that which is issued by the Bank of England in addition to the £14,475,000 which they issue upon securities. The whole of the circulation of the English country banks and the chief part of the circulation of the Bank of Ireland and the Scotch and Irish country banks is, so far as the law is concerned, not represented by bullion. The security which the law takes for that portion of the circulation is the legal convertibility of the note—the liability of the banker to pay in specie when the note is presented. Such is the existing state of the circulation under the different Acts which regulate our currency. Now, it is essential to bear in mind, with reference to the solvency of the Bank of England and the importance of keeping a large bullion reserve in that central establishment, the considerable amount of the provincial issues. When Sir Robert Peel introduced the measure of 1844, he stated that one of the main objects which he had in view was to provide a security against the excessive issue of paper, and thereby to guard against the recurrence from time to time of those commercial panics under which the country had at different intervals suffered previously to 1844. At the same time he stated that he did not propound his measure as a panacea, or as an infallible guard against such panics; because, he said, the issue of bank paper was only one of their causes, and he recognised the fact that commercial panics might arise from causes which did not he within the scope of his legislation. But in 1847, during the commercial crisis of that year, when it became requisite for the Government to authorise the Bank, if the necessity should arise, to exceed the limits fixed by the Act of 1844, Sir Robert Peel, in the discussion which arose, delivered his opinions more fully on the subject than he had previously done, and he gave a definition, corrected by experience, of his own views as to the objects of the Act of 1844, which, as it contains an authentic exposition of his opinions, I trust the Committee will permit me to read. Sir Robert Peel upon the 3rd of December, 1847, said:—
The English country banks was £6,920,000 The Scotch banks was 3,832 000 The Bank of Ireland 3,557,000 And other banks in Ireland 3,596,000 Total £17,905,000I say, then, that the Bill of 1844 had a triple object. Its first object was that in which I admit it has failed, viz., to prevent, by early and gradual, severe and sudden contraction, and the panic and confusion inseparable from it; but the 149 Bill had two other objects, of at least equal importance;—the one to maintain and guarantee the convertibility of the paper currency into gold, the other to prevent the difficulties which arise at all times from undue speculation being aggravated by the abuse of paper credit in the form of promissory notes. In these two objects my firm belief is that the Bill has completely succeeded. My belief is that you have had a guarantee for the maintenance of the principle of convertibility such as you never had before; my belief also is, that whatever difficulties you are now suffering, from a combination of various causes, those difficulties would have been greatly aggravated if you had not wisely taken the precaution of checking the unlimited issue of the notes of the Bank of England, of joint-stock banks, and private banks." [3 Hansard, xcv. 657.]This was Sir Robert Peel's definition of the Act after he had become aware of the events of 1847. I may also call attention to the remarks that my right hon. Friend near me (Sir Charles Wood), who then held the office which I now hold, made upon the measure then brought before the House, as showing that in his view the Act was never considered as a specific against commercial panics. He said:—A complaint has been made that this Act has not preserved us from commercial convulsion. I think that those who expected such an effect from it much miscalculated the motives by which persons engaged in commercial transactions are actuated. Certainly, for one, I never held out any such expectations to the country. I stated most distinctly that I did not contemplate that such would be the effect of the Act The same effects precisely might have occurred under a metallic circulation as have occurred under our mixed currency; and the advocates of the Act of 1844 never professed that its operation would produce any other result than that which might have happened under a metallic circulation." [3 Hansard, xcv. 410.]I think that these references will satisfy the Committee that the authors of the Act of 1844 did not contemplate its proving a complete guarantee against the occurrence of commercial crises, which are produced by a variety of causes upon which no legislation, and certainly no legislation confined to the currency, could operate—but they regarded it as a security against panics arising from an over-issue of Bank paper.
I will now, Sir, briefly advert to the crisis of 1847. It was described by my right hon. Friend (Sir Charles Wood), in moving for a Committee on the subject, as having been caused by the absorption of available capital for the purchase of corn and the construction of railways, acting upon a very unsound state of commercial credit. It arose from internal causes—from an internal demand for a large and extraordinary amount of capital—mid had no connection, as in the 150 case which we are now considering, with our foreign trade. In 1847, as in the present year, Her Majesty's Government, considering the urgency of the commercial crisis, came to the conclusion to issue a letter to the Directors of the Bank, authorising them in certain contingencies to exceed the limits fixed for their issues by the law. The cause of issuing that letter was stated in it to be the want of confidence which then prevailed among the commercial classes, and its object was also stated to be to restore confidence to the mercantile and manufacturing community. Although the cause of the panic in 1847 was different from that of the panic of this year, yet the object aimed at by the issuing of the Government letter in those two years was identically the same. In that case, from circumstances which I need not now dwell upon, the letter was not issued until an advanced state of the crisis: and the Bank Directors, did not find themselves under the necessity of overstepping the law. Confidence was re-established by the issuing of the letter; its influence upon the commercial classes was immediate, and the Bank Directors were enabled to navigate their ship through their difficulties without exceeding the limits of the law. Nevertheless, Parliament was assembled before the usual time. The attention of Parliament was called to the matter by Her Majesty's Speech, but as no Indemnity Bill was required the direct assent of Parliament to such a measure was not, of course, obtained. A Committee of Inquiry into the Act was appointed upon the motion of my right hon. Friend. That motion gave rise to a debate, though it was unanimously assented to by the House. In this debate Sir Robert Peel, who was the author of the Act, expressed himself, in terms the most unambiguous, in approbation of the sanction which had been given by the Government to the suspension for a time of the limits fixed by the Act. I shall quote some of his words on that occasion; and I think it is of importance that the Committee should bear them in mind, inasmuch as the distinctness with which he spoke proves that he, who was certainly better qualified than any other person either in or out of this House, to speak with authority upon the policy of the Act, was satisfied of the propriety of the step then taken. He said:—But when there occurs a state of panic—a state which cannot be foreseen or provided against by law—which cannot be reasoned with—the 151 Government must assume a power to prevent the consequences which may occur. There is the necessity for a discretion which I think was properly exercised in the present instance. It was bettor to authorise a violation of the law than to run the risk of the consequences which might have ensued if no intervention on the part of the Government had taken place.….. Sir, I think that the Government were justified in issuing that letter. I think that, having issued it, they acted with the strictest regard to constitutional principle in forthwith summoning Parliament." [3 Hansard, xcv. 668.]Such was the judgment, if I may use the expression, which Sir Robert Peel pronounced upon the question. But the matter did not rest merely with the appointment of a Committee, and the approbation by individual Members of Parliament of the step taken by the Government. On the 17th of February, 1848, Mr. Herries, moved two resolutions in a Committee of the Whole House, the first of which confirmed in a most distinct manner, the policy of the step. It was in these terms:—That, looking to the state of distress which has for some time prevailed among the commercial classes, and to the general feeling of distrust and alarm by which the embarrassments of trade have been aggravated, it is the opinion of this House that Her Majesty's Ministers were justified, during the recess of Parliament, in recommending to the Bank of England (for the purpose of restoring confidence) a course of proceeding at variance with the restrictions imposed by the Act of the 7th and 8th of Victoria, cap. 32. That this House will resolve itself into a Committee upon the said Act." [3 Hansard, xcvi. 803.]The first Resolution was put and carried without a division; from which it is manifest that the House, upon a consideration of the subject, explicitly approved the act of the Government. But a Select Committee was appointed to inquire into the Act of Parliament, and several most able and competent witnesses gave evidence before them. In their first Report, dated the 8th of June, 1848, they said:—The issue of that letter was no doubt an extraordinary exercise of power on the part of the Government, but the House has decided that in the peculiar circumstances of the period they were justified in taking that step.Therefore the Committee—perhaps, it is a solecism to say so—adopted the resolution of the House; at all events, the Committee, after great consideration and inquiry, referred to the previous Resolution of the House as embodying their own opinion.
Having thus stated what took place in 1847, I will now, Sir, with the permission 152 of the House, call their attention to the events which are immediately under our consideration—the commercial crisis into which we have lately entered, and from which we can scarcely be said yet to have emerged. With regard to this crisis, it may be observed that no symptom of an alarming or even of a threatening character (if we compare the bullion and note reserve of 1856 and 1857) manifested itself until about the 10th of October. From that day a perceptible deterioration began. The bullion in the Bank fell between the 10th of October and the 18th of November from £10,110,000, to £6,484,000; while the reserve of notes fell during that period from about £4,500,000, to about £1,400,000. But before the middle of October, it cannot be said that anything occurred which could create uneasiness in the course of affairs at the Bank. The immediate cause of the crisis was unconnected either with the management of the Bank or with any issues of paper money in this country. It grew out of the derangement of the American trade, supervening upon some previous inconveniences created by the Indian revolt, the disturbance of the Indian trade, and, to a certain extent, speculation upon the Continent. However, the almost exclusive cause of the commercial distress was the derangement of the American trade. For some months previously to November, the foreign drain of bullion was accompanied by an adverse state of the exchanges and a high rate of discount at the Bank. On the 2d of April the rate of interest was at 6½ per cent, on the 18th of June it was six per cent; on the 16th of July 5½ percent; on the 8th of October it was raised to six per cent; on the 12th of October to seven per cent; on the 19th of October to eight per cent; on the 5th of November to nine per cent; and on the 9th of November to ten per cent. These figures show that high rates of discount had prevailed, the natural consequence of an adverse state of the exchanges. But the operations of the Bank and of the discount houses in this country had been successful in reversing that state of things, and in producing a favourable state of exchanges before the issue of the Government letter. At that time the foreign drain of gold had been checked, and the exchanges were favourable. Although, therefore, some uneasiness might still exist as to the state of the Bank, nothing at that moment seemed to indicate an immediate proba- 153 bility of the Government being called upon to exercise any extraordinary powers; and as the right hon. Gentleman (Mr. Disraeli) referred yesterday to the state of our trade during the month of October as a circumstance which ought to have induced Her Majesty's Government to hesitate before they advised the prorogation of Parliament until the end of December, I would beg leave to remind him, that even if the state of trade had been more unfavourable than it actually was, there was no symptom of commercial distress which would have rendered it necessary for the Government to resort to any extraordinary act. It was only in the event of their being called upon by an urgent and unforeseen necessity to authorise a suspension of the law that it was likely to be necessary that, upon merely commercial grounds, they should advise Her Majesty immediately to assemble Parliament; and even in the event of that improbable contingency—as we thought it—arising, a constitutional power existed, which could be exercised at any moment, of summoning Parliament by proclamation to meet in fourteen days. This is an explanation in reference to the charge of want of caution and foresight on the part of the Government brought forward by the right hon. Gentleman. Well, Sir, the first event which precipitated matters in the late commercial crisis was the failure of the Borough Bank of Liverpool. I wish to call the attention of the Committee to the fact that this Bank was not a bank of issue. The amount of its liabilities was, however, very considerable—viz., about £5,000,000. As far, therefore, as this establishment was concerned the consequences produced by its failure cannot in any way be traced to an excess in the issue of bank paper. That failure took place about the 27th of October, and the next event of importance was the failure of Messrs. Dennistoun on the 7th of November. This house was extensively engaged in the American trade. I believe that it was a house conducted with prudence, and possessed of large capital, but it was suddenly forced to suspend payments by the misfortunes arising out of the convulsion that had taken place in America, which was attended with much greater distress than had occurred in this country and was accompanied by a general suspension of cash payments. The house of Messrs. Dennistoun failed for upwards of £2,000,000. Two days afterwards, on the 9th of No 154 vember, a large joint-stock bank in Scotland failed—the Western Bank—which had numerous branches. Within a day or two another large joint-stock bank—the City of Glasgow Bank—also failed. The joint circulation of these banks was about £800,000, of which about one-half was the certified circulation they were authorised to make upon securities., and the remaining half upon bullion. Their deposits were about £9,000,000; showing that it was not their note circulation, but the magnitude of their other transactions and liabilities which led to their failure. I may mention with regard to the Western Bank of Scotland that there had been no run upon it previous to its failure, and that when its doors were closed not a single note had been presented for payment out of the usual course: thus showing that it was not the discredit of the notes of the bank, but a failure to meet its large engagements of other descriptions which led to its fall. The first sign of pressure more immediately affecting the mercantile classes in London, and approaching nearer to the Bank of England, was the failure of the house of Messrs. Sanderson and Co., bill-brokers, which took place on the 10th of November. Its liabilities, I understand, upon deposits were £3,000,000, besides other liabilities. Such an event could not occur without exercising a serious influence upon the credit of other similar establishments in this city. The publication of the Bank Returns for the week ending Wednesday the 4th of November, which showed a reduction of the Bank reserve to £2,155,000, was a circumstance which, combined with the other facts I have mentioned, could not but create uneasiness and alarm, and call attention to the diminishing resources of the Bank. The alarm increased in London, and I cannot adduce a clearer or more compendious proof of the existence and extent of that alarm than by referring to the increase of the bankers' deposits at the Bank of England in the week from the 4th to the 12th of November. It may at first sight seem somewhat paradoxical to the Committee to refer to the increase of bankers' deposits in the Bank of England as a proof of alarm; but it must be borne in mind that the Bank of England is the Bank in which the London and other bankers keep their deposits, and therefore when they increase those deposits suddenly and extensively it is a proof that they are guarding them- 155 selves against a run upon their funds, and that they expect demands from their customers. The increase of bankers' deposits at the Bank of England is, therefore, a recognised test of the existence of alarm; and as such it is to be noted that in the week from November 4 to November 12 these deposits increased by no less than £1,970,000. But there was another decisive proof of the existence of alarm in this city—namely, the general cessation of all discounting except by the Bank of England. At that time it was scarcely possible to obtain an advance, even upon bills which were undoubtedly good, from bill brokers; their operations were for the moment universally suspended, and the Bank of England was the only establishment in London at which discounts could be obtained. That circumstance may be referred to as a tolerably conclusive proof of the general prevalence of alarm. I may mention that at that time a single discounting house paid in one day £800,000—£700,000 to depositors, and £100,000 to discounters—a sum, I apprehend, almost unparalleled in operations of that kind.
I will now call the attention of the Committee to the state of the Bank on the day before the recent Government letter was issued, and to its state on the day previous to the issue of a similar letter in 1847; and the Committee will see that with regard to every point indicative of the strength of its resources the position of the Bank in 1857 was less favourable than its position in 1847. The inference to which I wish to lead the Committee is that, if the Government were justified by the opinion of Parliament, of the public, and of competent judges, in issuing the letter in 1847, then a fortiori they were justified this year in issuing a similar letter. The following is a statement of the position of the Bank of England in October, 1847, and November,
Therefore the Committee will perceive that whatever were the grounds for the in- 156 terference of the Government in 1847, the grounds were still stronger in the present year. There is another most material point of difference between the two cases, which perhaps even still more justifies the interference of the Government in the present year. In 1817 the turning point had been reached before the issue of the letter—the state of things had begun to improve. It is true that the issue of the letter, in the opinion of competent judges, accelerated that process; but the improvement had already manifested itself, and the worst had been seen before it was issued. Now, in the present year the direct contrary was the fact. We had not reached the worst when the letter was issued; and, whatever opinion may be formed as to the beneficial effects of the letter, there is no doubt that if it had not been issued, if this authority had not been given, we should have seen a worse state of things after the 12th of November than before it. Now, the fact which seems to me material as constituting the difference between the two years is the progress of the London discounts at the Bank in 184.7 and 1857. On the 23d of October, 1847, the London discounts of the Bank were £7,762,000. The amount remained stationary till about the 4th of November, when it fell to £7,500,000; and a few days later it sank even lower. Therefore in a given number of days the discounts had fallen; but a different result will be found to have taken place in the present year. On the 9th of November these discounts amounted to £7,256,000. They went on regularly increasing, till on the 27th of November they reached £12,022,000 and on the 1st of December they still stood at £11,961,000. This shows that the sum under discount at the Bank of England was greater at the end of that period than at its commencement, whereas in the corresponding period of 1847 that amount had considerably diminished. From these facts I infer that, whereas the worst of the crisis had been overcome before the letter of 1847 was issued, the evil had not reached its culminating point when the letter of this year was addressed to the Bank.
October 23, 1847. Nov. 11, 1857. £ £ Bullion 8,313,000 7,171,000 Reserve of Notes In Banking Department 1,547,000 957,000 Reserve of Coin 447,00 504,000 Deposits (Private) 8,580,000 12,935,000 Private Securities 19,467,000 26,113,000
I trust, Sir, that I have established to the satisfaction of the Committee that the course taken by the Government in 1847 was maturely considered and deliberately approved by Parliament, that the authors and promoters of the measure sanctioned this proceeding, and that thus it constituted a precedent by which 157 subsequent Governments could with propriety regulate their conduct. In the present case the causes of the panic were, no doubt, different, but the result was the same; the circumstances with which the Government had to deal were similar, the urgency was greater, and whatever reason justified the resort to extraordinary measures in the year 1847 will be found to apply with greater cogency and greater conclusiveness to the case of the present year. But the existence of a precedent has not grown out of mere accident from the occurrence of circumstances which had not been foreseen when the original measure was prepared. I have the evidence of Mr. Cotton, the Governor of the Bank at the time when the Bill of 1844 was under consideration, and that gentleman stated to the Committees of both Houses of Parliament that the precise contingency which occurred in 1847 as also in the present year, was foreseen by Sir Robert Peel, who appears to have contemplated a mode of meeting it exactly identical with that which has been adopted in both years. This seems to me an important part of the case; and I will therefore read an extract on this point from Mr. Cotton's evidence before the Committee of this House which sat in 1848. Similar evidence was given by him before the Committee of the House of Lords. Mr. Cotton was thus examined:—In the case of a panic do you think that a contraction of the circulation is any cure for it—I think it is, inasmuch as it increases the value of money and induces people who have hoarded money to part with it.Do you think, even in the case of an internal panic, the proper mode of cure is a contraction of the circulation?—The proper mode of cure is the contraction of the circulation; whether it is worth while to submit to the remedy is another question. I can easily conceive that there may be monetary crises when it is necessary for the Government to interfere, and to do as was done in October.You contemplate, as I understand you, that under the operation of the Act circumstances may arise which will call for the interference of Government?—I did contemplate it, and I believe that I shall not be guilty of a breach of confidence if I state that the subject was discussed very fully with the First Lord of the Treasury and the Chancellor of the Exchequer during the consideration of the provisions of the Bill, and when the subject was again pressed on him Sir Robert Peel expressed his opinion to me in these terms:—' My confidence is unshaken, that we are taking all the precautions which legislation can prudently take against the recurrence of a monetary crisis. It may occur in spite of our precautions, and if it does, and if it be necessary to assume a grave responsibility for 158 the purpose of meeting It, I dare say men will be found willing to assume such a responsibility.' "It was contemplated that circumstances might occur which would render it necessary to suspend the limit of the Act of 1344. Can you state what were the sorts of events that you had then in contemplation?—I should say events similar in effect to the events of 1825, when there was entire discredit of all the country bank circulation, and a panic which brought down, not merely an immense number of bankers, but others who were men of undoubted property.I think that passage ought to convince this Committee that, in referring to the proceedings of 1817 as constituting a Parliamentary precedent of the utmost authority, we have every security that the subject was fully considered both in its character and its consequences, and that legislation was left in its present state upon mature deliberation.
The right hon. Gentleman (Mr. Disraeli) put a question last night which he had a perfect right to ask, and to which he is entitled to have an answer. It was:—"Whether the issue of this letter was called for by the Bank Directors, and whether pressure was applied to the Government in order to obtain it? Now, Sir, I state distinctly that the issue of that letter was the spontaneous act of Her Majesty's Government; that they proceeded upon their own deliberate view of the circumstances of the case; that they were not urged by deputations, or by the representations of mercantile bodies, nor were they implored to interfere by the Directors of the Bank of England. No men invested with a public and official responsibility could have acted in a more honourable and conscientious manner than the Directors of the Bank of England. They showed themselves throughout ready to carry into effect all the obligations which the law cast upon them, and they merely said that they were willing to act upon any advice which the Government might tender to them, but that they were prepared to obey the provisions of the law. Sir, the Government were guided by their view of the facts which I have disclosed to the Committee—facts the corresponding circumstances to which were deliberately reviewed by the Parliament of 1847, and were considered by them as constituting a legitimate ground of interference. These facts existed in a far more intense degree in November, 1857, than in October, 1847. Our justification therefore is, that we acted in consequence, not of the pressure 159 of the mercantile body, but in consequence of the pressure of facts, and that we should have been guilty of a grave dereliction of duty, if in so urgent a state of circumstances we had hesitated to take upon ourselves the responsibility which was assumed by the Government. I do not at all seek to screen myself under the existence of mercantile pressure. If the act which we have done is right, let the House indemnify the Bank Directors, let them indemnify those who advised them. If it is wrong, let them refuse that indemnity. We do not desire to shelter ourselves under any pretence of having been coerced into the act.
The Committee is in possession of a numerical return from the Bank fully exhibiting the state of things on each day from the 11th of November, and it is unnecessary that I should trouble them with a minute analysis of these figures. I will only say that, unlike what occurred in the year 1847, the Bank Directors immediately found themselves compelled to act upon the authority given by the Government, and to make issues in excess of the limit fixed by the Act of Parliament. They first issued £1,000,000 of notes from the issue to the Banking Department, placing against that sum an equal amount of securities; and on a subsequent day they made a similar transfer. The first issue took place on the 12th of November, and the second on the subsequent day. The effect of that proceeding, technically, is that the Bank of England has infringed the provisions of the Act to the extent of £2,000,000 sterling; but the Committee should bear in mind that, although owing to the peculiar manner in which the accounts of the Bank are kept the law is technically infringed to that amount, at no time has the Bank issued so much as £2,000,000 to the public. It has merely passed £2,000,000 from one department of the establishment to another. I have before me a statement of the amount in excess which was from day to day issued to the public. On the 13th of November, for instance, the excess of notes in the hands of the public was £186,000, on the following day £622,000, and so on until the 20th of November it reached the maximum of £928,000. If the Committee will deduct the amount of the reserve of notes in the Banking Department from the £2,000,000 transferred from the issue department they will see that the difference is the figures which I 160 have given. That is the real amount which has reached the public. On the 21st of November that amount was £617,000; on the 23rd £397,000; on the 24th £317,000; on the 25th it had fallen to £81,000 in excess of the law; on the three following days there was an increase, but on the 30th of November it had fallen to £15,000; and on the 1st of December the note reserve was more than £2,000,000; therefore strictly speaking, there was then no issue in excess of the limit. I need not, however, remind the Committee that the operations of the Bank being now divided into two departments it was impossible to work the banking department without an issue of notes from the issue department, and that this transfer was technically a violation of the law; but the Committee should bear in mind that the real and essential violation of the Act has been confined to the amounts which I have just read.
It may be asked what would have been the result if the letter of the Government had not been issued. That is a matter about which we can only form conjectures. The actual result of issuing that letter must, I think, be admitted to have been favourable. It diminished alarm and restored confidence; and it did not in the smallest degree endanger the convertibility of the note, because a favourable turn of the exchanges had taken place, and there was at the time no fear of a foreign drain of gold. Therefore I cannot think that at that moment the convertibility of the note was endangered by the step which was authorised by the Government. If that authority had not been given, it is certain that the only measure to which the Bank could have resorted for its own protection would have been the immediate and total cessation of discounts. Indeed, could they have for seen the impossibility of the Government taking such a step, they might, perhaps, have diminished their discounts a day earlier. At all events, they must at the time the letter was issued have entirely stopped their discounts. Whether so decided a step as that on the part of the Bank of England might not have led to the extension of discredit among establishments of a similar nature engaged in similar operations of banking, I leave it to the Committee to determine. It is not for me to give any positive opinions upon such a subject, but if such discredit had arisen the Committee must see that it would have affected the bank, 161 ing department of the Bank of England by leading to the withdrawal of deposits. Now, as by law the two departments of that Bank are segregated the one from the other, and the assets of the issue cannot be applied to the relief of the banking department, the Bank of England might have found itself in the painful position of postponing payment to depositors, or of applying a portion of the assets of the issue department—because its assets would undoubtedly have been sufficient—to the discharge of the liabilities of the banking department. I think it probable that such a contingency might not have arisen; nevertheless, it was within the range of possibility. Events, as I have learned from painful experience—events march very rapidly during a commercial crisis. Persons who are loaded with the responsibility of action in moments of that sort must be prepared for adverse circumstances, and I leave it to the Committee to judge whether, with such a contingency before them, Her Majesty's Government would have been justified in withholding the letter which they sent to the Bank. I am fully conscious of the gravity of the step which the Government took. The deliberate infraction of a fundamental law governing the currency is, as this Committee will readily believe, a step which no persons responsible for their acts would lightly take. I do not in the smallest degree seek to extenuate the importance of the proceeding resorted to by Her Majesty's Ministers; at the same time, let it be remembered that the actual transgression hitherto committed by the Bank has been limited to the amount which I have stated, and that the effect of the authority which was given was simply to enlarge the amount of the issues upon securities. Now, if the entire circulation of this country had been metallic, I could have understood any objection which might have been entertained to an authority being given to a corporation like the Bank of England to issue £2,000,000 of bank-notes; but inasmuch as they were authorised by the Act of 1844 to issue £14,000,000 upon securities, and as that Act contained a provision for further increasing that amount, in accordance with which it has by an Order in Council been increased to £14,475,000, the only effect of the authority given by the Government was, in a guarded manner, under the close observation of the Government and of Parliament, and for the sake 162 of meeting a momentary emergency, to increase the issues of that description. No new principle was introduced by that authority.
It has been said that the Government have authorised the Bank to commit an act equivalent to a depreciation of the currency, that what we have done amounted almost to permitting a repudiation of contracts, and that the sanctity of property was invaded by this additional issue of bank notes. I entirely dispute the correctness of that view. The additional notes issued by the Bank under our authority were, like their other notes, payable on demand. If any doubt had arisen as to their instantaneous convertibility, there would have been some ground for the charge which has been made against the Government. All we said to the Bank was, that whereas the original limit of notes based on securities was £14,000,000, increased by an Order in Council to £14,475,000, they might for a limited time, and for a limited object, increase their issues of that class. But, inasmuch as the additional issue by the Bank was not sufficient to affect the value of the notes, and each note was convertible into gold upon demand, it cannot be said with justice that the Government have depreciated the currency, authorised the repudiation of contracts, or struck at the security and sanctity of property. I wish I had it in my power to say that this commercial crisis is definitively terminated, and that we can look forward with entire confidence to the Bank having no further occasion to avail itself of the authority which we have given to it. I think it highly probable that the Directors may not further exceed the statutory limit; but, at the same time, I cannot assure the House that no such contingency can be expected to occur. Perhaps, in some respects, it would have been more convenient to Parliament if it could have looked back upon a completed commercial crisis, and been enabled to judge of its extent and effects before it was called upon to indemnify the Bank Directors. The Government thought, however, that it was their duty, having authorised an infraction of the law, at once to lay the matter before Parliament, and hence the celerity with which the Legislature has been assembled. But the pressure still continuing, the wounds caused by the crisis being yet unhealed, and the whole crisis being yet undeveloped, it will be necessary for me to propose in the Bill a prospective 163 power to the Bank to exceed the limits of the Act for a period of 28 days after the meeting of Parliament which will occur immediately subsequent to the recess. I have taken this as a convenient period, inasmuch as it admits of their making provision, should such provision be necessary, for any emergency that may arise; and I trust that if the House should be willing to pass the Indemnity Bill it will not refuse to allow me to insert a clause to the effect I have stated. I shall also ask the House in the course of the evening to agree to the reappointment of the Committee on the Bank Acts which sat last session. That Committee examined many important witnesses, but its inquiries were not completed, and at the end of the session it presented the following Report to the House—Your Committee have agreed to report, to the House the evidence which they have received; and, as their investigation of the subject referred to them is still incomplete, they beg leave to recommend that a Select Committee be appointed to resume the inquiry in the ensuing session of Parliament.We should, as a matter of course, have acted upon that recommendation and have moved the reappointment of the Committee, if nothing extraordinary had happened; and can it be said that what has occurred during the last month has weakened the reasons for that course? It-seems to me, on the contrary, that the commercial crisis and the act of the Government have strengthened rather than weakened the reasons for the reappointment of the Committee. It must be obvious that if the House is desirous of reconsidering any of the details of the Act of 1844, it cannot do so with greater advantage than after a full inquiry before a Select Committee, and after the examination of competent witnesses upon all the different branches of the subject. The general portion of the subject, as regards the Bank of England was fully investigated last Session, but so much of it as relates to the country banks of England, and the banks of Scotland and Ireland was not entered upon, and it must be obvious, after the events of the last few months, that there is a great deal in connection both with the country banks of England, and the banks of Scotland and Ireland which well deserves careful investigation. Moreover, I confess I doubt whether it would be prudent, when men are smarting under the painful embarrassments of a commercial crisis, when that 164 crisis is still incomplete, when its consequences have not yet been fully developed, to select this particular moment for revising our currency laws. Whether the proposal for legislation was made by the Government or by independent Members, I cannot think that we should deliberate upon a most difficult subject, a subject which has perplexed the minds of some of the ablest men whom this country has produced, under circumstances likely to lead to a safe and beneficial conclusion. Therefore, as I should have moved the reappointment of the Committee of last year under ordinary circumstances, it seems to me that the extraordinary circumstances under which we are now assembled render such a step still more advisable.
By what I have said the House, I think, must be led to the inference that the commercial crisis has not arisen from any abuses of the currency—from any excessive issues of bank paper in this country. Whatever its causes may be, they stand wholly aloof from the proper and direct policy of the Act of 1844. Let us first take the Bank of England, the most important of all the banking establishments. Can it be said with truth that the Directors of the Bank of England have shown any want of foresight, any want of prudence, any want of sagacity, or any want of firmness during the past year? I confess it appears to me, having had occasion to watch their proceedings with vigilance, that they have not failed in any of the duties that properly attach to them. Let us compare, as a test of excessive issues on their part, their notes in the hands of the public with their private securities during the years 1856–7. The following is a statement of their notes with the public, including Bank post-bills, at various periods of 1856:—
For the present year, when as we are told commercial discredit has been caused by excessive issues of Bank paper, the returns are as follow:—
Oct. 4. £21,884,000 Oct. 25 £21,412,000 Oct. 11 21,501,000 Nov. 1 21,483,000 Oct. 18 22,140,000 Nov. 8 21,149,000
So that, in point of fact, the amount of notes in the hands of the public has been actually less this year than in 1856. Let us now compare with the issues of notes and Bank post-bills the private securities 165 of the Bank at corresponding periods of 1856–7. The following is a return of the private securities at the latter end of each of these years:—
Oct. 3 £20,824,000 Oct. 31 £21,184,000 Oct 10 20,862,000 Nov. 4 21,079,000 Oct 17 21,052,000 Nov. 11 21,036,000 Oct 24 20,585,000
It appears, therefore, that although the private securities increased immediately before the late crisis, no corresponding increase took place in the active circulation. With respect to the country banks, can it be said that any portion of this discredit is traceable to their over issue? Take the banks that have failed. In the first place, there is the Borough Bank of Liverpool. It is not even a bank of issue. Then the large joint-stock bank which has lately unfortunately fallen—the Northumberland and Durham District Bank; that, though a bank of very extensive operations, and though it has failed for a large sum of money, was likewise not a bank of issue; and, therefore, whatever its imprudences or misfortunes, they were in no way connected with an abuse of the power of issuing paper. With respect to the Scotch banks which have failed, both of those undoubtedly were banks of issue; but their notes bore a very small proportion to their entire liabilities, and about half were covered by gold; and no person aware of the facts, or who will make himself acquainted with them, can fail to come to the conclusion, that the failure of these banks is wholly independent of all questions relating to paper currency. Therefore, as far as the direct operation of the Act of 1844 is concerned, as far as its object was to prevent the excessive issue of paper either by the Bank of England or by the country banks of England, or by the banks of Scotland and Ireland, it must be admitted that the policy of that Act, and of the Act of 1845, was successful. Those who impugn the policy of those Acts must say that they were inoperative, or that in spite of them the currency was in a sound state; and those who are friendly to the policy of those Acts will attribute the healthy 6tate of the currency to their direct operation. But whatever these parties may think, the main fact cannot be disputed, that our paper currency was and has remained up to the present moment in a perfectly sound state. It is quite conceivable, as my right hon. Friend (Sir Charles Wood) remarked in 1847, that a commercial panic might arise if the circulation were purely metallic. There might 166 be undue credit and unsound speculation, and these causes might produce the same effects as are observable at the present moment in the town of Hamburg, where there is no paper circulation, where the only circulation is metallic, and where there exist all the acute symptoms of a commercial crisis. It is clear then that a commercial crisis may arise from causes entirely independent of an unsound paper currency.
1856. 1857. Oct. 4 £21,582,000 Oct. 3 £21,835,000 Nov. 8 18,626,000 Nov. 11 26,113,000
Now, with respect to the operation of the Act of 1844, I am desirous of drawing the attention of the Committee to the distinction between the ordinary operation of the Act in those circumstances which, were contemplated by its authors, and its operation at a moment of panic or crisis. If we take its operation under ordinary circumstances, the limit imposed on the Bank of England, and on the country banks, and on Irish and Scotch banks, operates in the way of prevention. It does not check the ordinary habitual transactions of commerce, but it is like a punishment in the criminal law which by its preventive consequences determines men's conduct, but is not actually inflicted. But when we come to a state of panic all these circumstances are reversed. Men's minds are then in a state of excitement and alarm. Mutual distrust prevails through the community, and a law which may be perfectly suited to the ordinary conditions of trade, which may operate beneficially when men are left under the influence of ordinary motives, may at a time of panic be found to produce effects the reverse of beneficial. The question then arises whether some extraordinary power is not required to suspend the operation of such a law when such, circumstances arise. The present law does two things. It imposes a limit on the issue of the Bank of England, and it exhibits the accounts of the Bank of England in a peculiar form; it likewise requires that those accounts should be published once a week. Now, wherever you impose a limit, there is no question that the existence of that limit, provided it makes itself felt at a moment of crisis, must increase the alarm. People feel at the moment that a limit presses on them, they begin to calculate how much remains of that fund to which they look for assistance in times of commercial difficulty; and in whatever way you fix the limit, whether by Act of Parliament as at present, or, as Mr. Tooke proposed, by a sort of usage, 167 or, as in France, by the discretion of the Government acting on the Bank of France, there is no doubt that in a moment of crisis the existence of the limit must aggravate the alarm. I can bear witness, from my own observation, that such has been its operation in 1857. There is no doubt, in my opinion, that when a crisis once sets in, when you have an extraordinary state of distrust quite different from the state in which men ordinarily live (because it is by mutual trust and confidence that commerce is carried on), when you get into a state of apprehension, and every man suspects his neighbour, then any limit which is imposed on the paper circulation must increase the alarm. In that way I distinguish between the ordinary and the extraordinary operation of this Act. Well, then, the manner in which the assets of the Bank are distributed, by which the whole bullion is set against the paper issue of the Bank, and by which only a small reserve of notes is placed in the banking department in a very conspicuous manner against its deposits, concentrates the attention of the commercial public upon the amount of notes in reserve. They watch its diminution from day to day, and when it has reached a certain point each person desires to get a share of it as long as it lasts. These circumstances appear to me to show that, in its extraordinary operation this Act may tend to aggravate panic, though in ordinary times it tends to promote a sound state of circulation, and, so far as the state of the currency is concerned, to avert panics; but when a panic arises from other causes, at that particular crisis, though the panic may only last a few days, its certain tendency is to aggravate the alarm. It appears to me that at moments of that sort we can only resort to the discretion of the Government for the time being; though I shall be happy to hear if any gentleman has any other remedy to offer for those rare, I am happy to say, but, nevertheless, recurring occasions. Now, this is a question on which the Government have carefully deliberated, and on which after deliberation they have not thought it their duty to make any legislative proposition to the House. The subject is one which will be considered by the Committee to be appointed, I hope, by this House. The question is, whether it is preferable to leave the power of dealing with these emergencies vested in the executive Government for the time being, to, be exer- 168 cised by them on their responsibility to Parliament, subject to the duty of assembling Parliament at an early period after the exercise of the power, of submitting to it the whole facts of the case, and asking for an indemnity,—the question, I repeat, is whether we should, in conformity with the opinion of the Commons Committee of 1847, leave the matter in that state which undoubtedly involves an infraction of the law, though the wound which may he done to the constitution is healed by constitutional and Parliamentary means, or whether we should adopt the conclusion of the Committee of the House of Lords in the same year, who thought it irregular and unconstitutional to grant such a power to the executive Government, and that Parliament ought to engraft into the Act itself a power of suspension. That is a question which we leave to the Committee about to be appointed to determine. The Bill, the introduction of which I hope the House will sanction, to be introduced at a time when the events which have called for it are still recent, while the crisis in its consequences is "not fully developed, will not contain any distinct provision upon that subject. We have thought we were adopting a more respectful course by not submitting such a proposition to the House. It appears to me indeed, that the question is one interesting in a constitutional point of view rather than as involving any great difference in its practical results. After the proceedings which took place in 1847, and the adoption (if it should be adopted) of the Bill now proposed, it is likely that the Government hereafter acting under the influence of two such precedents might find their course facilitated and guided. On the other hand, if a clause were inserted in the present Bill authorising the Government in cases of emergency and in times of panic to relax the limit, but containing a clause similar to that contained in the Act which enables Government to embody the Militia, which provides that they shall call Parliament together within fourteen days—I think the practical result of such a state of things would be the same as those of the other system, because a Government would be apt to look upon the distinction as a merely formal one, and would feel the same reluctance to act upon the power afforded them, except in cases of extreme emergency. While, therefore, I regard the question as more important on consti- 169 tutional grounds than from any difference in the practical result of the two systems, there are other reasons why I think that a clause conferring such a power upon the Government ought not to be introduced into the present Bill. Two Select Committees have sat to inquire into the subject, one a Committee of this House, and the other a Committee of the House of Lords, and after fully hearing and considering evidence on the subject, those Committees arrived at diametrically opposite conclusions. It is a subject therefore with regard to which we may anticipate a great difference of opinion, and the Government would be glad to hear the views entertained by leading Members of this and of the other House of Parliament before they can consider it their duty to submit any measure respecting it to the House.
Sir, there are questions relating to the operation of the law in Ireland and Scotland which are worthy of notice, and it may become the House to consider whether some amendments in the existing law may not be made with advantage; to consider, for example, whether there could be any objection to providing that the Bank of England note should be a legal tender over the whole of the United Kingdom. Also, it might become us to consider whether, in order to prevent the inconvenience arising from drains of gold from this country—such as has lately taken place—it might not be advisable to allow the Irish and Scotch banks to issue notes against Bank of England notes instead of against bullion only. There is another subject to which I adverted last year in moving the appointment of the Committee to inquire into the operations of the Act of 1844 which has been the subject of much popular discussion at the present period,—I mean the policy of permanently enlarging for the future the limit of the issues of the Bank of England. It may be said that this crisis merely involved an extraordinary issue of £2,000,000, and if the limit of issue had been increased by this amount, no extraordinary interference would have been requisite. But the question is, whether if the Bank of England had been authorised by law in the beginning of November to issue £16,500,000 instead of £14,500,000—and to give them such a power does not involve any difference of principle from the Act of 1844, for it was quite within the views of the promoters of that Act—the crisis might have been got 170 over without any extraordinary step being taken by the Government. If the bullion reserve of the Bank of England had been what it was at the commencement of the crisis, and if the Bank of England had been empowered by law to issue £16,500,000 instead of £14,500,000, undoubtedly no extraordinary interference might have been necessary. But if the Bank of England had not kept the same bullion in reserve which the law now requires, if it had merely issued £2,000,000 more upon securities and diminished the reserve of bullion by £2,000,000, which under such a state of the law, it would be enabled to do, the effect would have been that while the notes in the hands of the public were at the same amount, it would have had £2,000,000 less of bullion:—and practically the Bank of England would have had no greater power of issue than it has now had, and the reserve of notes in the banking department would have been the same. This consideration must tend to convince gentlemen who hold that view that the resource of increasing the credit issues of the Bank from £14,500,000 to £16,500,000, might not be quite so effectual a remedy in times of panic as they imagined.
I regret, Sir, that I have been compelled to trouble the House at such length upon this subject, but inasmuch as this question was the occasion which induced the Government to recommend Her Majesty to call Parliament together at this early period, inasmuch as it has occupied a great amount of public attention, inasmuch as it has grown out of important causes and must lead to important results, inasmuch as the step which has been taken by the Government was an extraordinary and extra-legal step—and we consequently stand before Parliament, I will not say in the position of culprits, but in the position of having advised the Corporation of the Bank of England to make a departure from the existing law—inasmuch also as we now call upon Parliament to indemnify the Bank of England and ourselves, I trust that I may be forgiven if I have felt it my duty to make to the House a full statement of the reasons that have induced us so to act. The right hon. Gentleman concluded by placing in the hands of the Chairman the following Resolution.That the Chairman be directed to move the House, That leave be given to bring in a Bill to indemnify the Governor and Company of the Bank of England in respect of certain issues of 171 their notes, and to confirm such Issues, and to authorise further Issues for a time to be limited.
§ MR. GLADSTONE
As far, Sir, as I am concerned, I think that my right hon. Friend, instead of having to ask the indulgence of this House upon account of the length at which he has thought it his duty to explain the views of the Government upon this important subject, has, upon the contrary, conferred upon us an obligation. On the other hand, I am by no means sure that the same duty is incumbent upon me, or that it likewise attaches to other Members of this House. At all events, for my own part, I do not think that this is an opportunity upon which I should feel it necessary to trespass upon the attention of the Committee at any length; but, at the same time, I wish to make a few remarks upon what has fallen from my right hon. Friend in respect to the subject now before the Committee, and likewise with regard to the ulterior Motion which he intends to make with regard to the reappointment of the Bank Charter Committee. As regards the Bill of Indemnity, for which my right hon. Friend asks, I, for one, am not prepared to offer any opposition to it. I can easily conceive that a question may arise—and the speech of my right hon. Friend appears to me to indicate a similar consciousness on his part—as to whether the moment chosen by the Government for interference was opportune, whether the letter of the 12th of November was written at the right time; or even there may be some question as to whether any other measure might have been adopted in lieu of that measure with the view of averting the difficulties and dangers which threatened the country. However that may be, I think that my right hon. Friend has been perfectly justified in arguing from the transactions which took place in 1847, for, mutatis mutandis, according to the variation of circumstances, a similar course has been adopted in 1857. It is the duty of this House to consider, when Her Majesty's Ministers are presenting a justification for this proceeding, what vast force—I almost venture to say what immeasurable force—attaches to a precedent of this kind. My right hon. Friend, in speaking of occasions of this kind, has justly called them recurring occasions. Unhappily they cannot, as the present controversy proves, be spoken of in the past tense—we must still look forward to the recurrence of these occa- 172 sions; but if there has been an unsound system of trading,—I don't enter now into the question as to what particular description of trading, I don't ask now whether it is not the trade in money that has been dangerous and unsound,—but if there has been a state of unsound trading in the country, and especially if it has had reference to money, we must consider the enormous force of the precedent set in 1847, which we are repeating now, and the duplication we are thus giving to that precedent. I say we must consider the consequences of that precedent, not in order to cast blame on what has been done, but to ascertain what further duties may devolve upon us in reference to the state of the law as it now exists. I, for one, am not here to impugn the letter of the Government; but with respect to the reappointment of the Bank Charter Committee I wish to represent to hon. Members how that matter appears to stand. My right hon. Friend thinks it is better to reappoint the Committee than to legislate, and his reasons for that course, as I understand them, are these two; first, that you have got a Committee with an incomplete inquiry, which has recommended that it should be re-appointed; and, secondly, that at a time when men's minds are warm and smarting under the commercial crisis we could not expect the fruits of wholesome legislation. With regard to the first of these arguments I confess I think it ought to have very little weight with the Committee. There are constantly precedents occurring,—not mere precedents and naked authorities, but founded on the reason of the cases,—where, in periods of quiet, when you have had plenty of time at your disposal, you have appointed Committees of this House to investigate the most important subjects; but when urgent circumstances have intervened, which have taught far more in weeks than your Committees will ascertain in a year, you have interposed to check the interminable proceedings of those Committees by the decisive action of the Government. Now, I venture to tell my right hon. Friend and the Committee, that this Committee, if it be re-appointed in the terms and in the manner he proposes to reappoint it, will be an overburdened Committee, and that the probable effect of that reappointment will be—and let us realize that to ourselves—to prevent the practical resumption of the consideration of this question by the House until, at the 173 very least, the year 1859, and more probably until 1860. Now, if that is the obvious or probable effect of my right hon. Friend's proposition, it is not, I apprehend, a satisfactory one. Let us consider what it is which he calls on us—I don't say improperly, calls on us—to do. We are not met here, as we were in 1847, to consider the violation of the law—or rather its contingent than its actual violation; we are not met here even to give an indemnity for a past violation of the law; but for a purpose no less than this—namely, by a vote of this House prospectively to suspend the Bank Act. Is it or can it be satisfactory? I must confess it is not according to my own view of the manner in which the Government and Parliament ought to deal with this question. Will it tend to settle the public mind if, after the experience of 1847, after the repeated inquiries of Committees, after the recurrence of a far graver crisis in 1857, we are ready to do no more than suspend the Bank Act and reappoint a Committee of inquiry? I think the speech of my right hon. Friend was lacking in the recollection of a distinction of the utmost importance, and that was the practical distinction between the question of banking and the question of the law as it regulates issues. Now, the Committee which sat during the last Session was appointed, not merely to consider the state of banking, but also to consider the laws which regulate issues. They had two subjects referred to them, both of them of an immensely comprehensive character, namely, the laws of issue—the issue by the Bank of England, the issue by the country banks, and the issue by the Scotch and Irish banks. Of that subject, after a laborious Session, the Committee has positively only exhausted the first department—that is to say, the question of issue as regards the Bank of England. It has still to consider the question of the issue by the country banks and by the Scotch and Irish banks; and then this enormous postscript remains,—it was to be the duty of that Committee to examine at large into a question which, in my opinion, requires the attention of the Government and the House as much as any question can do—namely, the superannuated and antiquarian state of the relations between the Government and the Bank of England. That most important and novel subject with all the freshness and purity of youth upon it, in reference to inquiry 174 has never been touched. It has yet scarcely been approached by this Committee, such is the progress which it has made. The right hon. Gentleman the Member for Buckinghamshire (Mr. Disraeli) said last night the evidence to be taken by that Committee would be nothing but a repetition of ancient and well-known doctrines about which every man had made up his mind. If the right hon. Gentleman thinks that the discussion of the currency is an exhausted discussion I quite agree with him, but although it is an exhausted discussion it is likewise an interminable discussion. There is yet life in it, life too of such a character that when you cut off one head another springs up in its place; there is, in fact, an attraction, a charm, a fascination about the currency which sometimes drives men to madness; and I really believe it has made as many lunatics in England as love itself; and I am not sure whether there ought not to be established a special asylum in which that particular mania could receive the best and most effectual mode of treatment. I think, therefore, if this Committee be reappointed, it will go on in 1858 discussing a subject which was exhausted in 1847, and at the end of 1858 will report the result of its inquiries to the House, and recommend its reappointment in order to pursue them still further. Can, then, my right hon. Friend be seriously apprehensive of hasty legislation on the subject of the currency? My right hon. Friend has nothing to recede from; the question was an open one; they had all the same objects in view, and the question then before the Committee gives my right hon. Friend the best opportunity of taking further time to consider the announcement which he made the night before. We have in this House two or three gentlemen, if not more, who have paid great attention to this subject, and every one of whom is in possession of a particular nostrum which he thinks calculated, once and for all, to dispose of all its inherent difficulties. Will all these gentlemen be struck dumb at a proposal for immediate legislation? My right hon. Friend may dismiss his fears, for, in the event of his introducing a Bill for giving effect to the deliberate views of the Government on this question, such a proposal would receive the diligent and eager attention of this House; it would be canvassed and criticised with ability and interest, and there would be no chance of its virtues, and less of its faults, escaping 175 observation. Now, what it appears to me we ought to do is to recognise the distinction between the question as it relates to the issue, and the question as it relates to banking. So far as the Act of 1844 is concerned, which touches the subject of issue only, and has nothing to do with banking, it is impossible we could have a better time than the present for giving some distinct intimation to the country of the views of this House on that great subject. For years past it has been obvious that the public mind has been running abroad on the subject. Differences of opinion there will always be, but there is a want of central authority which is a great evil with respect to such a question as the currency, and it is an evil which will increase if the people of this country see that the Government has no decisive sentiments upon the subject, and that Parliament has no decisive sentiments upon it, and that all that the Legislature can do is to refer it to a Committee. We have had ample experience of the working of the Act of 1844, and I must say I am not so much disposed as my right hon. Friend (the Chancellor of the Exchequer), to maintain that Act in all its length and breadth, because I think the time has come when we ought fairly to go to issue on the questions upon which we are divided. I look around me and see gentlemen opposite, and among them I take the liberty to appeal to my hon. and excellent Friend the Member for North Warwickshire (Mr. Spooner). He is going into the Committee. Now, I ask him as an honest man is he going into that Committee to learn or to teach? I hope my hon. Friend will forgive me the personality involved in the question, but I might with equal justice put it to any other member of the Committee. We go into Committee, so far as the currency is concerned, to propound our own theories, to extort them if we can from the mouths of witnesses, and to set them forth in questions the length of which generally exceeds that of the answers. On the whole it would be rather a just description of the operations of a Committee on currency if I were to say that it was a machine constructed on a principle opposite to that of all other machines, which is the saving labour; that it was a machine the object of which was to endeavour invariably to get that said in ten words that might otherwise be said in two. The appointment of a Committee is an adjournment sine die of this question. If that question 176 has relation to issue, then I say that, so far as issue is concerned, we have had ample experience in the Act of 1844. I am bound to say, having been originally a party to the passing of that Act, that while I think it admits of improvement—I may say of completion, because the alterations I meant would be a completion of its object—I at the same time think that, as regards the main purpose for which it was passed, the Act has perfectly succeeded. You had in 1847 a most formidable foreign drain, and again in 1857 a most formidable foreign drain, and on both occasions you acted against that drain upon the principle of raising the rate of interest, and in both cases by virtue of the provisions of the Act you succeeded in rectifying the state of the exchanges. I feel grateful to my right hon. Friend for having shown us so distinctly, and with so much chronological fidelity, the operations that took place on these occasions. I say that, considering the Act of 1844 as an Act for the regulation of issues, we are in a ripe and mature state to entertain whatever propositions the Government is prepared to make. I do not venture now to enter upon the subject, but I hope that when we meet at the usual period for the despatch of public business it will not be considered irrational to expect—the pressure of this crisis being then, I trust, over—that the Government will be able to lay before us some proposals relative to the Act of 1844. But while I say this I must add that you have another question to consider, and one which; I admit is a most fit subject for inquiry, and that is the question, what have been the commercial causes that have led to this crisis. We have heard to-night from the authentic facts laid before us by my right hon. Friend, that this is not a question of American trade. It is not a question of American trade—I mean operating by causing a demand for gold in that country. That demand for gold was one that it was right should be met by the legitimate operation of the laws of commerce; and if the operation of those laws caused an increase in the value of gold in this country it was right that it should be met by the action of the Directors of the Bank of England in raising the rate of interest. All that has been done, and it shows that if the Act of 1844 failed in correcting, or the Directors of the Bank failed in correcting the evil, and in meeting the effects of that foreign drain of gold, then the case will 177 stand very differently with reference to the Act of 1844. But the thing had been done by the Bank Directors prudently and wisely acting on the principle of the Act. Since that we have had a crisis, although the foreign exchanges were rectified, and it is to be noted that the crisis has been tenfold more formidable since the exchanges were rectified than when they were in an uncertain and unsatisfactory state. Now, what were the causes which produced this? There is a prevalent opinion that it is connected with the state and condition of banking. I do not presume to give an opinion, but I think it is a fit subject for inquiry. I want to have that subject inquired into by a Committee of this House, and it is because I want to inquire that I beg you not to throw the burden of it on a Committee that you are going to instruct at the same time to go over and over again the same perpetual circle of inquiry into the subject of the currency and the law of issues. If you appoint a Committee to go over the whole scheme and operations of the Bank of England, you will postpone useful legislation upon a subject for which the country is perfectly ripe, and you will choke and stifle Parliamentary inquiry into the commercial causes of the crises, which is a worthy, and legitimate, and necessary subject of investigation. That is the scope of the representation which I am anxious to make to my right hon. Friend—I hope I have not made it in a spirit of antagonism—in the hope and desire that we may seize an opportunity which I believe we have of converting a public difficulty and disaster into an occasion of public advantage for the permanent settlement of a great and important question. Is it not an immense advantage to a Government desirous to settle a great public question to be able to take it up at a moment when the mind of the community is alive and ready to assist them? Is it not often a hopeless task for a public man to endeavour to draw the mind of the community—occupied and distracted by a thousand calls upon it—to subjects that he knows to be of the greatest importance? Take a familiar instance and illustration. But a year ago, how many Gentlemen could be brought together in this House to listen to a debate on Indian affairs? And shall we now, because we are smarting under our losses, and from a fear of hasty legis- 178 lation, postpone the practical consideration of that great question till the time comes when the public mind will again relapse into carelessness and apathy? Unless it can be shown that our experience of the law of issues is inadequate, and that there are facts that have not been brought to our knowledge, this is the time at which we ought to deal with this great question. When Parliament has given a full and definitive judgment on the subject of the law of issues, then you will be in a position to consider the laws of banking in such a way as you can never otherwise attain. I will just advert in the way of illustration to a topic that will not, I trust, give offence to the Gentlemen from Scot-laud. I must say that, so far as regards the long-vexed question of cheap, easy, and safe system of circulation of banknotes in Scotland, and perhaps in Ireland, I never expected to have lived to see the day when Parliament would be in such a position of advantage for dealing with that question as it is now. That £2,000,000 of gold should have been sent to Scotland to enable people in that country to go on with a system of investing their capital in securities, instead of employing gold which would not be profitable to them, was indeed a singular state of things. It was, no doubt, extremely satisfactory to them; but I hope the intellect of England is not so entirely in the background, but that they understand at whose expense this has been done. As an explanation of the present state of things, I may say that no doubt the system that exists in Scotland is an extremely cheap and easy system of living for a private individual who can prevail upon his friends in that way to pay his debts. The present is the right moment to consider these questions, as in 1859 or in 1860 we cannot answer for the public mind being at all favourably disposed towards the subject. We have before us other questions of a most gigantic character, and, from their accumulation and the unpreparedness of our minds for them, the most overwhelming and appalling that I ever remember as a public man to have had in view. You have to consider the manner in which we are to govern 200,000,000 of men of another race, of another religion; an ancient nation, which you thought you could treat as if they were so many figures of wax, but who have their own institutions, their own ideas, their own history, their own 179 civilization, and with respect to whom we thought we had nothing to do hut to walk into their country and proclaim the superiority of the Anglo-Saxon race. Sir, in 1859 and 1860 we shall probably not have settled these questions, and they are questions indeed which ought not to be precipitately settled. Great changes may be looked for in this country and in the management of Indian affairs, and we can by no means feel assured that in the midst of these gigantic subjects it will be very easy to turn the public mind to Scotch banks and to the question whether they ought to support their circulation by means of a fund of which the whole cost is to be defrayed by you. There cannot be much doubt that Parliament is quite competent to entertain that question, and to go into an examination before a Committee would only be to let slip the golden opportunity when you could insure the attention of all the most competent men in the community, and when you may be certain that the effect of referring these subjects to an overburdened Committee will be twofold—first, the postponement of useful and, I trust, final legislation for properly completing the Act of 1844 in regard to the laws of issue; and, secondly, the postponing, perplexing, and confusing that inquiry which is most essential, and which I think you should institute, into the commercial causes of the recent panic, and, I grieve also to say, of the present embarrassment.
§ MR. SPOONER
said, that as his right hon. Friend had appealed to him he begged to state that if a Committee were appointed, and if he were upon it, he should not enter it with any wish to propound his own plans, but with the desire that the Committee should be instructed to inquire what had caused the present distress and what remedy ought to be applied. He agreed that if the Committee entered upon a similar inquiry to that embarked upon by the last Committee, there would be no end to the investigation. It was true that many of the questions put by the last Committee were longer than the answers; but one witness in answer to a question delivered in a positive essay, a great deal of which had been printed in a pamphlet, and which he had no desire to hear. A noble Lord who was examined before the Committee of last Session, who was a man of great knowledge and experience, and was supposed to be better able than any 180 one else to advise the Committee—he referred to Lord Overstone—gave, no longer ago than last July, the following opinion as to the working of the Act of 1844:—Suffice it to say, that by strict and prompt adherence to the principles of the Act of 1844 everything has passed off with regularity and ease, the monetary system is safe and unshaken, the prosperity of the country is undisputed, the public confidence in the wisdom of the Act of 1844 is daily gaining strength, and if the Committee wish for further practical illustration of the soundness of the principles on which it rests, or of the beneficial results which it has ensured, the true and sufficient answer to the Committee is, look around you, look at the present state of the trade of this country, look at the prosperous condition of the revenue of the country, look at the contentment of the people, look at the wealth and prosperity which pervade every class of the community, and then, having done so, the Committee may be fairly called upon to decide whether they will interfere with the continuance of an Act under which those results have been developed.He would reverse the picture of prosperity drawn by the noble Lord, and he would ask the House to look at the present state of the country—the failures daily taking place and the numbers of workmen out of employment. The House would then, he thought, be ready, not simply to amend, but to abolish an Act which had been completely delusive, which had not answered any one of the expectations held out by its framers, and which, so far from being regarded with confidence, was condemned by every manufacturer and mercantile man with whom he was acquainted. He believed that hon. Members had hardly seen the beginning of the dangers which threatened the country from the operation of the Bank Act. What would they do when all the persons out of employment looked to them and clamoured for support? He was afraid it would not satisfy their hunger to tell them they must wait until things came round of themselves. Sure he was that the Act of 1844 was wrong in principle, dangerous in practice, and that there would be no safety for commerce until they were prepared to repeal it. It must not be lost sight of that the Act of 1819 had never yet been carried out. Whenever that Act had been in full operation a state of distress always arose that compelled Parliament to mitigate it. In 1819 the Act was passed. In 1822 Parliament was obliged to mitigate it in order to relieve the distress that then existed. Lord Castlereagh told the House of Commons in 1822 that the Act of 1819 181 was right in principle, but that it had been too hastily carried out, and he brought in Bills having for their end to counteract the operation of the Act of 1819. This they did, and thereby restored prosperity to the country, but the prosperity was hollow, and always would be until Parliament put the currency upon a sounder footing. In 1825 the King's Speech boasted of the great prosperity of the country, and the Chancellor of the Exchequer of that day told the House of Commons that they who doubted it could only be displeased at the means by which it had been attained. In July of the same year, when Parliament was prorogued, the Chancellor of the Exchequer repeated his boast of the prosperity of the country. He (Mr. Spooner), although not a Member of that House, happened to be within hearing of the right hon. Gentleman's voice, and he remembered his turning round to Mr. Brougham, who had a Motion on the paper for Parliamentary reform, and saying, "All this has been dispensed through the portals of our ancient constitution to a grateful and generous people." In 1826 the same right hon. Gentleman had to deplore the state of almost every interest in the country. He could not account for the revulsion which had then taken place except through the imprudence of the country banks. There had been a great many palliative measures, yet panics had followed one after another, and it was very singular that almost every panic had been preceded by a declaration of perfect prosperity, such as he had read from the evidence of Lord Overstone. There were debates in 1810 and 1811, and a Resolution was passed, with the approbation of the noble Lord at the head of the Administration, who was then a member of the Government, that a pound-note and a shilling were as good as a guinea, in opposition to a Motion that there had been great depreciation which ought to be arrested. A great authority with gentlemen on the other side of the House, Mr. Horner, said that if they continued much longer without arresting the depreciation, it would be impossible to arrest it. The national debt was then under £400,000,000. The depreciation was stated to be 15 per cent. The national debt was raised to £800,000,000, audit was said the depreciation was more than 30 per cent. Yet from the year 1819 they had endeavoured to do that which Mr. Horner said was impossible. Another authority, Mr. Henry Thornton, told both parties they were 182 wrong; that "the Government was wrong in denying the depreciation, and that Mr. Horner was wrong in desiring to fix a day on which they should return to the ancient standard of value. He (Mr. Thornton) doubted whether they could ever return to the old standard of value, and he doubted more whether the question of justice had not passed to the side of depreciation." They had tried palliatives in every shape, and they had only relieved themselves for the moment to aggravate the evils, until, if they went on, they would find a panic come which would break up the whole social fabric of the country. Nominally they might have, but practically they never had, and never would have, a currency redeemable in gold sufficient to carry on the commercial enterprise of this country. If they examined the evidence given before the Committee which sat last year and before previous Committees, they would find this principle laid down—that the Bank was permitted to issue £14,500,000 notes on securities, bearing on their face that they were to be paid in gold, because the country never could bear to be brought into that state in which gold would be demanded. Therefore, he repeated, it was not convertible into gold currency; it was a fraud upon the face of it, and it was a system which they were not justified in supporting. They did not pay in gold, but they took away from the people the power of asking payment in gold. It was said that the Act of 1844 was beneficial because, by raising the rate of discount, they turned the exchanges in our favour. That meant that a man who wished to get gold must pay a minimum rate of 10 per cent, and often 13 per cent, for discount, so that having property, and dealing on the faith of a continuance of the state of prosperity, which was said to exist in June, a man found suddenly he could not meet his engagements because he could not sell his goods, and had to suffer a penalty of 13 per cent before he could pay his debts. It was a case which it was almost impossible to explain in that House, because of the knowledge of details which was required to make it intelligible; but if the Committee were formed, they ought to be instructed to inquire how far the Act of 1844 had enabled them to carry out the Act of 1819. What was the cause of the present distress? They had been told that there had been no over-issue. They had been told that there had been no general over- 183 trading. They had been told that certain joint-stock banks had entered into engagements far beyond what they ought to have undertaken, and therefore they had brought discredit on the system and shaken public confidence in it. No one would justify the conduct of one or two of those firms which had been alluded to; but it must be a very doubtful system if a want of prudence in two or three large establishments could produce such a general want of confidence as to justify the Minister in advising the Bank Directors to disobey the law. It was not a proper state of things. They would soon have petitions from all parts of the country for inquiry, and if they did not inquire they would neglect a very important duty. The cause of the evil was the Act of 1844. The Act of 1844 compelled the Bank of England to buy gold and to increase the circulation by the issue of notes, whether an increase of circulation were wanted or not. The consequence was a reduction in the rate of interest, even to two per cent, leading to speculation in foreign securities, which were worth nothing, or at least could not be realised for a long time. If it were a question of loss or gain to individuals the House would have nothing to do with it; but it was another matter when the currency was in such a state that a few great failures affected the whole community to such an extent as to fully justify the Government in advising the Bank to break the law. The eyes of the country were opened, and the people were perfectly aware that the present monetary law was the cause of all the evils. They did not wish an inquiry into the question of banking, but a solemn and serious investigation into the cause of the present state of things, and what would be the best remedy to meet the present difficulty and prevent its recurrence. But if that were to be put off until after the usual time of meeting in February, they might find that which was a great deal worse than a foreign drain, namely, an internal drain going on, and a wholesale looking up of money from total want of confidence in the monetary system. He should give his cordial support to the Bill of Indemnity now proposed, believing that the Minister would have neglected his duty had he suffered the state of things existing at the time to continue without doing that which certainly for the moment has mitigated the panic. But if matters were to remain in their present position the evil would un- 184 doubtedly increase, and a still greater difficulty would have to be met. The wound was for a moment slightly healed over, but without further relief it would break out again, and with greater danger to the country. There must be a full and calm investigation as to the real origin and nature of the crisis, which must be entered upon without any foregone conclusion, and without any desire to press forward a particular theory. He was supposed to belong to a school which supported an unlimited and inconvertible currency, but in truth he had never advanced nor given his support to any such doctrine. He would have a limit, and that limit should be the amount of debt owing by the Government to the Bank, instead of the Bank having Government securities locked up in their chest, and putting out a quantity of notes professing to be convertible, but of the payment of which in gold there was not the slightest chance. He would have a national paper to the extent of £20,000,000 a legal tender, and administered by the Bank; and he would allow the Bank to issue notes of their own, payable on demand in gold. In this way the country would have the benefit of a double currency. The plan, it would be found, would be more beneficial and more consistent with the best interests of the country, and would furnish a regular and steady circulating medium, about the amount, as it appeared, which the regular wants of the country demanded. It would put an end to fluctuations, which were destructive of the proper way of managing business, and though, of course, it would not abolish foolish speculation and foolish systems of banking, it would prevent the imprudence of individuals becoming a national evil. He had a strong objection to the provision which the Chancellor of the Exchequer proposed to insert in the Bill, giving the Bank or the Government power in future to break the law. The country would scarcely be willing to leave this power in the hands of any Corporation, still less of the Government of the day. The best mode would be to fix the currency on such a basis that it would never need any interference whatever. Every panic which had occurred had been more severe than its predecessor, and every panic which occurred in future would be more dangerous than any which we had ever yet experienced.
said, he had not understood the right hon. Gentleman the Chancellor 185 of the Exchequer to propose the insertion of any Clause giving such a power as that which the hon. Gentleman opposite had just mentioned. The right hon. Gentleman had said that it was a matter which might be fairly taken into consideration by the House, but the Clause which he had proposed to introduce was quite of a different character. ["No, no!" from Mr. SPOONER.]
THE CHANCELLOR OF THE EXCHEQUER
What I said was, that I would insert in the Bill a Clause authorising the Bank to exceed their legal limits for 28 days after the meeting of Parliament which would occur immediately after the recess.
said he was glad he had drawn that statement of his intentions from the right hon. Gentleman. There was also another point on which he could not agree with his hon. Friend who had just sat down, namely—the effect of the Act of 1844 upon the commercial crisis through which the country was passing. He could not help thinking that the hon. Gentleman had mixed up two entirely distinct questions—the question of capital and the question of currency. No man reflecting calmly on the events of 1847 and 1857 could fail to see that in each case the crisis in the monetary world was primarily brought about by much the same causes acting upon the capital and credit of the country. In 1847 the commercial crisis was mainly brought about by the overtrading of this country with India, by large speculations, with the continent of Europe in the corn trade, which utterly failed; and these, added to the internal pressure on the Bank which arose, were primarily the causes of the crisis of 1847. If the causes of the present crisis were traced, it would be found that although the parts of the world from which the pressure arose were different, yet the causes were identical with those which produced the crisis of 1847: We were now suffering from the action upon this country of the terrible overthrow of our commercial relations with the United States. We were also affected by a new feature which has hitherto not been felt in our commercial affairs—the total destruction of commercial houses connected with the North of Europe. This was the first time that it had been discovered that the trade between this country and the North of Europe was carried on upon the same system as that between this country and 186 the United States,—a system of credit. There had been a thorough break down of the credit system, on which the trade with the North of Europe was conducted, the results of which were to be seen in their disastrous effects at Hamburg, and were acting also on this country The other important cause of the crisis, which had been alluded to by the right hon. Member for the University of Oxford (Mr. Gladstone), was also a new cause—extraordinary over-banking in Scotland. That, added to the over-banking in some parts of England, had produced the internal pressure which had led to the disastrous results from which the country was now suffering. But those results could, in his opinion, not be traced up to the Act of 1844 in any way which was at all consistent with just reasoning. He entirely agreed, however, with the hon. Member for North Warwickshire (Mr. Spooner), that the country having arrived to this point of pressure, the Act of 1844 was entirely inefficient to relieve it. He agreed also with those who, though they found some advantage in the Act, yet saw in it a restriction which was attended with the most disastrous effects. The principal provisions of the Act of 1844 might be summed up under three heads. First, there was the separation of the banking and issue departments; next, the restriction on the amount of paper circulated upon securities; and, thirdly, the regulation of the country circulation. As to the first, the separation of the two departments, which in 1844 was looked upon as a great discovery, but which, it was now known, the Bank Directors had for some time previous to the introduction of the Bill of that year adopted as a departmental arrangement for book-keeping purposes—that division was no doubt a wholesome plan so long as it was confined to the circle of that establishment, and as carried out by the Directors themselves; but when it was made by statute a regulatory part of the Act it was attended by most disastrous effects. As to the restrictions upon the country bank circulation, there was not much difference of opinion that the Act of 1844 had been highly beneficial. With respect to the other point, the limitation of the circulation on securities to £14,475,000, there he confessed he found the great difficulty of the question. He thought no person who had watched the progress of the crisis in 1847, and again in 1857, could fail to arrive at the conviction that, although the pressure was 187 not caused by the Act, yet, the pressure existing, the limitation of power of issue upon securities became in itself a primary cause of evil. The existence of pressure tended to reduce the reserves of the Bank, and then what did every prudent person do? Seeing the reserves diminishing, he acted not in a moment of panic, for he (Mr. Glyn) denied that there had been any panic in England. There had been violent pressure, but no panic. In such a time a man with engagements to meet, honourably determined to make every sacrifice to meet them, whatever the rate of discount might be, would acquire currency. Not being a reckless speculator, but a man who knew that on him and men like him the credit of the country depended, at any sacrifice he would obtain a supply of currency. He would purchase currency at 10 or 20 per cent, in short at any cost, for the fulfilment of his honourable engagements, and therefore his proceedings and those of others, who acted likewise, still more reduced the Bank reserves. What was the inevitable consequence?—and he used the word "inevitable" advisedly, for he would like to see the man who would say that such persons as he had described should not have the means of obtaining currency for their securities and property. That being so, the issue of a suspensory letter became a matter of course. He was bound to say that both in 1847, and again in 1857, the Governments of the day had exhibited great judgment, especially in 1847, which, being the first occurrence of difficulty, required a degree of moral courage which could not be too much appreciated by the country. Nothing could exceed the promptitude and wisdom in selecting the period for the issue of the letter that had been evinced by the Government upon the present occasion, and he might remark, from his own knowledge, that it had been issued without any pressure from commercial bodies upon the Government, although upon that very day a deputation was ready to come up from Liverpool to press for the issue of such a letter, but they were informed by a telegram from London that their wishes had been anticipated by the act of the noble Lord. It was reduced to a simple matter of fact, that when a time of pressure came a letter, or some such instrument, must be issued to relieve the Act of 1844, and he hoped the Government of this country would never fall into the hands of any individual 188 hardy enough to carry out what were called the first principles of the Act. If any person should attempt to do so he would speedily be hurled from power, not by any vote of the House, but by the physical power of the country. ["Oh!"] That statement seemed to give rise to some difference of opinion, but did hon. Members who cried "Oh!" suppose that all the people connected with the mill power of this country, with the mining interests, that the mass of operatives thrown out of employment, would be content to remain without wages or means of existence, simply because a principle, so called, was to be maintained? Therefore he did not believe that any public man would attempt to uphold the Act under such circumstances. The facts being as he had stated, then there came the question which the House had to determine, whether that relaxing power should remain as at present in the hands of the Government without any certainty or positive knowledge of when or how it could be effected? It appeared to him that the power should be lodged in the hands of a responsible body like the Directors of the Bank of England, and he could see no reason why, under certain Parliamentary control for the regulation of the bullion, that body should not be invested with that power. Either this course must be adopted, or they must have recourse to the alternative of a pure metallic currency. He did not believe the country was prepared for this latter course, and with the example of Hamburg before them he thought few persons would be rash enough to advise it. The position in which the matter stood at present was one which the country could not be expected to tolerate longer. It was constitutionally wrong that the power should remain as it was acted upon without any certain rules, and depending entirely upon the feeling of those who for the time were intrusted with the administration of the affairs of the country. The present was not the proper occasion to enter into details, but before he sat down he felt it his duty to offer his testimony to the manner in which the Bank Directors had acted during the recent pressure. He thought their conduct had been beyond praise; they had shown a degree of firmness, of vigour, and he might add discretion, which entitled them to the warmest thanks of the country.
§ MR. HENLEY
said, he wished to remind the Committee that the question 189 immediately before it was the introduction of a Bill of Indemnity to the Bank of England, but they had got into a somewhat desultory discussion, owing in a great measure to the right hon. Gentleman the Chancellor of the Exchequer having lumped two questions into one speech—the Committee to inquire into everything, and the Bill of Indemnity. He (Mr. Henley) agreed with the hon. Member for Kendall (Mr. Glyn), that there would be no difficulty about the Bill of Indemnity; for if the Government had not placed themselves in a position to ask for it they would, if they had not been torn to pieces in the meantime by the exasperated people, have certainly exposed themselves to the danger of having to meet a Bill of impeachment. If they had acted differently a popular commotion would probably have become inevitable, and it would be impossible to defend the conduct of a Government which had caused such a calamity. He should, therefore, give his cheerful support to the proposed Bill of Indemnity. But then there pressed upon his mind the question of why was there any need for an Act of indemnity at all? What was the state of the law? Twice within fifteen years a great banking corporation which had endured for more than 150 years, possessed of enormous capital, publishing its accounts weekly, showing a "rest" of some £3,000,000 or £4,000,000 above all its engagements, was placed by the state of the law in such a position that the Government of the day had been compelled to come to Parliament to ask for an Act of indemnity for doing that without which that great corporation would have been unable to pay a shilling of its obligations. It was true the Bank Directors said afterwards, that the measure was forced upon them in 1847, and that they did not want it. That was a matter of opinion, because what the state of things would have been had not that letter been published in 1847 men might venture to differ about. Upon the present occasion the right hon. Gentleman the Chancellor of the Exchequer had turned the screw a little tighter than in 1847 before he applied the relief that was required. The hon. Member for Kendal (Mr. Glyn) had given credit to the Government for their spontaneous action upon the matter, and, under the circumstances which had been stated by the right hon. Gentleman the Chancellor of the Exchequer, there could be no doubt upon the subject. But the 190 hon. Member for Kendal had stated something which seemed to cast a doubt upon that opinion. The hon. Member stated that there was no pressure in London, but that there was a deputation coming up from Liverpool who were only stopped by the receipt of a telegram acquainting them with what had happened. It was said that "coming events cast their shadows before," and perhaps the Government might have been aware that such a deputation was about to visit them. He entirely differed from his hon. Friend behind him (Mr. Spooner). He (Mr. Henley) wished to see the bank-note convertible into sovereigns at the will of every man who held it, and he could not conceive any system of currency to be safe without that. Then the next question was, what was convertible. His notion of convertibility was, that let a man go to the counter of the Bank when he might he should be sure to receive sovereigns for his note. Then came the question how far the Act of 1844 secured that object. The Chancellor of the Exchequer stated that the late distinguished individual, who had brought that Act forward, had described its objects as being—first, to prevent panics; secondly, to maintain convertibility; and thirdly, to prevent undue speculation by the issue of paper. Sir. E. Peel had himself admitted that the Act had failed to prevent panics. Then, having failed to prevent panics, had it secured convertibility? Would any man say that if the Act had not been suspended a short time since the notes in circulation could have been paid in sovereigns by the Bank? That was a plain and simple question. What had the Bank got to pay them with? In ordinary times the Bank of England had in circulation £20,000,000 of notes, £14,000,000 of which were issued on securities, and the residue on gold, which was not in coin. Therefore, if in the present instance the Act had not been suspended by the Government letter, he asked how long it would have been, the Bank being unable to pay its deposits over the counter, before people would have gone there and have demanded payment for their notes in gold? It was said that people would never be so foolish as to go to the Bank for such a purpose; but it was the confidence which they felt which alone prevented them from doing so, and if that confidence were destroyed they would not be slow in demanding gold in exchange for their 191 notes. They must rely on keeping up that con6dence after all, because it was the foundation of all banking operations, unless they fell back as the hon. Gentleman, (Mr. Glyn) had said, entirely upon a metallic circulation. Everything beyond that rested on confidence. No banker could keep every shilling that was confided to him in his coffers ready to be repaid—he must trust to being allowed to keep a portion of it on securities. At the same time he must have a certain proportion always ready to meet the probable demand of his customers. So it was with what was called this mixed circulation. If they chose to sanction issues on securities nothing but keeping up the confidence of the country would enable that circulation to become equivalent to a circulation in coin. If it carried with it a limit, they laid a foundation for a want of confidence, and that want of confidence, if they tried to maintain the law in a period of pressure, would necessarily prevent bank notes being exchanged for gold. A good deal had been said in the course of the debate upon the subject of panics, and Sir Robert Peel had been quoted as stating that provision must be made for panics, because they were things against which reason was of no avail. He (Mr. Henley) should like to know what ground there was for calling the difficulties of 1847 and of the present time "panics"—whether, in fact, the apprehensions which were experienced were founded on reason, or whether they were idle and in the nature of a panic? That was the real question before them, and if any hon. Member thought otherwise he (Mr. Henley), had a right to demand an answer. The hon. Member for West Kent (Mr. Wykeham Martin) who moved the Address on the previous evening, had quoted, and had so far adopted, the opinion of Mr. Hubbard the Bank Director, upon the subject of panics; and he (Mr. Henley) should wish to examine a little more closely not only the opinion of Mr. Hubbard, but also of Mr. Weguelin, the then Governor of the Bank of England, upon the subject of panics. Both gentlemen agreed in blaming the public in 1847; one said that they were "excessively ignorant," and the other stated in milder terms that they were not well acquainted with the true principles of the Act of 1844. Both contended that it was the panic that had occasioned all the mischief, and they went on to explain that that panic arose from the public not 192 understanding what they were pleased to call "the normal state of the decrease of the reserve at a particular time." It was fortunate for those gentlemen that the decrease in the reserve in 1847 took place in the month of October, because it afforded an excellent opportunity for constructing a little history to show that the public had been unreasonable; and it would have done perfectly well if those gentlemen had kept clear of figures. But they had gone into figures, and he (Mr. Henley) confessed that he had a weakness for figures; and he trusted the House would excuse him if he troubled them with a few extracts from the opinions expressed by Mr. Hubbard and Mr. Weguelin. Mr. Hubbard said—But the chief difficulties were occasioned by the excessive ignorance of the public generally with regard to the action of the Bank, and especially its action periodically; and when the publication of the reserve of the Bank showed it in a very declining state in the commencement of October the public mind was alarmed, and the alarm, of course, became what is called a panic.Now, the difference between an "alarm" and a "panic" depended upon whether there were any reason for the apprehension which existed. That was the whole case. What was called a "panic" was, according to Mr. Hubbard, an "unreasoning apprehension," so that if there were reason for the alarm it ceased to be a panic. Mr. Hubbard went on—An unreasoning apprehension, which forced people to lock up what money they had got, and try to get more, in order to avert some impending calamity.That was exactly what the hon. Member for Kendal (Mr. Glyn) said; and he (Mr. Henley) contended that for an honest man to look about him in the time of difficulty to see what money he had got, and to try to get more, to pay his debts and save his pledged honour by discharging the obligations he had contracted, was to exercise prudence, and was not yielding to a panic. But Mr. Hubbard did not stop there. He ascended next into the region of prophecy, and he said—I believe, therefore, that the experience of 1847, so far from showing that the Bank Charter Act is untenable in times of difficulty, proves that it did operate with thorough success—a success which would be greater under future trials by reason of the Bank feeling more confidence in their own position. But, what is more important still, the bankers and mercantile community will know that they must exercise a little individual prudence, and not consider the Bank of England to be always the dry nurse in the hour of necessity.193 That was a prophecy which was given in July of this year. We were now at the end of 1857, and how far, he asked, was the prophecy of Mr. Hubbard justified by the experience of the present moment? We have banks and we have a so-called panic, and had there been any advantage from the instruction of the public, because it was not altogether a matter of experience, but a matter of instruction also. He should next call the attention of the House to the opinion of Mr. Weguelin, as given in evidence before the Committee. The question which had been put to him was,Supposing that in 1847 in the month of October the Bank accounts and the various effects of regular domestic causes and the export of bullion had been as correctly understood by the public as they are now, do you think that the same amount of panic would have accrued?The answer was, "I think not:" that was to say, that he thought if the public had understood the matter as correctly in the winter of 1847 as in the summer of this year, the same panic would not have occurred. He went on to say—The lowest amount of reserve in that quarter of 1847, and consequently, the highest amount of active circulation with the public, corresponded exactly with the period at which you might expect the lowest amount of reserve and the highest active circulation; consequently, if the public had been aware that it was nothing more than a mere normal action of the reserve and the active circulation they would have concluded that from that period the active circulation would begin to decline to the benefit of course of the reserve of notes at the Bank.Mr. Weguelin had then proceeded to quote figures in support of his views, but in what did the nature of those figures consist? It appeared that at the commencement of October, 1847, the amount of reserve notes in the Bank had been £3,852,000, and that by the 23rd of that month it had sunk down to £1,194,000, thus causing a difference of £2,658,000, or a diminution of 68 per cent. Mr. Weguelin had contrasted that state of things with the position of affairs in 1856, and had gone on to state that in September, 1856, the amount of reserve notes was£6,818,000, while upon the l8th of the following month it had fallen to £3,080,000, thus causing a diminution of £3,738,000. He then drew from the circumstance that in 1847 the reserve notes in the Bank had only been diminished by a sum of £2,658,000, while in 1856 the amount of the diminution had been £3,738,000, the inference that the public alarm in 1847 had been a panic, 194 because in 1856, with a larger depression in the reserve, the people of the country had not been at all alarmed. It appeared to him (Mr. Henley), however, not a little odd that such a man should suppose it to be the same thing to take £2,658,000 from a reserve of £3,852,000 as to take by no means a proportionately great quantity from a much larger sum. Prudent men of business did not consider the amount which was withdrawn so much as that which remained behind, because that was the important point with persons who were in a position to require assistance from the Bank. So far, therefore, as the statement to which he had just called the attention of the Committee went, there was fair evidence afforded by the last figures to prove that, so far from the derangement of 1847 having been caused by panic, it was the result of a reasonable alarm. He was therefore of opinion that the ground was quite cut away from under the feet of those who asserted that the provisions of the Bill of 1844 were always to be relied upon, except in cases of panic. There was, however, another question connected with the Bill of 1844 with respect to which he held opinions which were not generally entertained. His opinions upon the point were not shared in by the hon. Member for Kendal (Mr. Glyn), but he had, nevertheless, the satisfaction of knowing that they were supported by no less an authority than the late Governor of the Bank of England. He had never been able to understand why it was that when the Bank was issuing as large an amount of notes as its Directors deemed fit in 1844—some£20,000,000, or thereabouts—a law should be passed to the effect that they might if they pleased, in addition to those notes which were represented by their £15,000,000 of bullion, issue to the extent of £14,000,000 more. The immediate effect of such a proceeding he believed to be to inflate the currency of the country and to produce to a certain extent extravagant traders. The late Governor of the Bank of England had, however, in a confidential communication which he had addressed to the Chancellor of the Exchequer, elucidated that point much more ably than he (Mr. Henley) could hope to do, and he should therefore take the liberty of reading a portion of his letter, which was published in the Blue Book to the Committee. The hon. Member for Southampton (Mr. Weguelin), after dealing with various matters, remarking on 195 some objections and adducing some advantages of the Act, in that letter went on to say—But, on the other hand, the Act, and more especially the reasoning of its supporters, encourage a dangerous theory that the Bank of England may in its banking department in all respects act as would a private banker in the management of his deposits. It thus favours the competition with private money lenders, which in periods of large deposits is apt to produce an unwarranted inflation of credit. But here no distinction is drawn between a drain for exports, which is the consequence of an inflation of credit, and a drain for the internal accommodation of the country, which may be caused by discredit, or which may represent the natural oscillation of the currency. The limitation of issue which in the former case is salutary, in the latter would add to and intensify the difficulty; or in the natural oscillation of the currency leads to erroneous conclusions in the public mind as to the true position of the Bank in times of difficulty.Now, that was a strong assertion to come from such an authority; it was an assertion, moreover, from a gentleman who professed himself to he a friend to the Act. He was pressed upon the matter, and candour would compel him (Mr. Henley) to state that the whole matter was handled very gingerly. It was not a question that exactly suited a gentleman who was a great supporter of the Act. The hon. Member for Southampton answered, if he (Mr. Henley) recollected his statement correctly, he did not mean to express so much his own opinion as the opinion of others. He did not mean to apply it to the limit. Be that as it might, it was brought forward at all events, and the hon. Member must have thought that the reasons of the supporters of the Bill were very important, if it was necessary to introduce them concerning an opinion given in a confidential communication between the Governor of the Bank of England and the Chancellor of the Exchequer; and, therefore, the least that could be said was, that in that opinion the reasoners in support of the Bill concurred. He (Mr. Henley) looked immediately to see whether there were anything to support that opinion, because after all it was an opinion, and whether it was right or wrong was much more important than whether it was the opinion of any particular individual, however high an authority be might be. He had ascertained that in the year 1843 the amount of notes issued by the Bank was £19,000,000; that the private securities which were said to be the best index to the discounts of the Bank, had been £5,900,000, and the amount of bullion £12,000,000, while up 196 to the 31st of August, 1844, the amount of notes issued was £21,000,000, and the private securities £6,000,000; such was the state of things previous to the passing of the Bill of 1844; but what was the condition of affairs relative to another circumstance to be considered—the rate of discount? The rate of discount at the Bank of England in those two years was 4 per cent. What was the market rate at that time? Mr. Chapman, a gentleman, he believed, well known as being connected with a great monetary firm, laid before the Committee a tabular statement of the rate of discount at the house of which he was a member. In 1843 and 1844, when the Bank was discounting at 4 percent, Mr. Chapman's house, of which he believed the common name was Gurney's, discounted in 1843 at £2 3s. 4d. per cent, and in 1844 at £2 2s. 6d per cent. Therefore, before the Act of 1844, the rate of discount at the Bank was 4 per cent, while in the great money house it was considerably less. He would now come to 1845 and 1846 In 1845 the notes issued by the Bank, instead of £21,316,000, amounted to £28,250,000; the bullion was £15,600,000, instead of £16,000,000; the private securities, instead of being £6,854,000, jumped up to £11,760,000. In 1846 things were much about the same, with the exception that the notes were £28,400,000, but the private securities had jumped up to £17,900,000. That he thought was some little evidence of an inflation of credit. But what was the rate of discount? He had shown that in 1843 and 1844 the Bank rate of discount was £4 per cent, while the rate at a private discount house was only £2 3s. 4d. and £2 2s. 2d. But in 1845 the Bank rate of discount was £2 13s. 4d., while at Gurney's it had risen to £ 2 19s. 3d. That was a rather important alteration. The quantity of notes in the Bank till was no doubt very great, and he supposed that, like other people, they wanted to shove out their goods, and the shoving of them out naturally produced some sort of inflation of credit. To what extent that inflation was responsible for the crisis of 1847 he knew not. The facts, however, to which he had adverted certainly seemed to give some weight to the allusions referred to by the hon. Member for Southampton (Mr. Weguelin) that the Act had a tendency to produce an unwarrantable inflation of credit. He would now, to use a vulgar expression, take the other end of the stick, and he 197 was glad that the hon. Member for Kendal (Mr. Glyn) would agree in what he was about to say. The hon. Member for Southampton said, "But here no distinction is drawn between a drain for exports, which is the consequence of an inflation of credit, and a drain for the internal accommodation of the country, which may be caused by discredit, or which may represent the natural oscillation of the currency. A limitation of the issues which in the former case is salutary, in the latter would add to and intensify the difficulty." That was the opinion of the then Governor of the Bank. It was not very easy to find out any period at which there was a very long drain, from whatever cause, without distress. When money went out of the country in great quantity it was pretty soon followed, if not accompanied, by distress. He would read the history of our country with very little discrimination who did not perceive that when great foreign drains took place, even unaccompanied at the moment by distress, they were almost invariably followed by pressure, and thereupon by internal discredit; and when a limitation of issues succeeded, it was very likely to add to and intensify existing distress. The evidence, therefore, of the hon. Member for Southampton was a rather strong case against the Bill. It was rather a strong circumstance, and he could not say that anything which he had heard in the debate relieved his mind from the effect of it, that by the operation of the Bill they had been brought into that state twice, and within ten years the Government had been obliged to come to the House for a Bill of indemnity for preventing the necessary mischief that must result. He was not willing to trespass much longer on the time of the House; but he must refer to the question which had been raised as to what they must do under the circumstances. No one had yet ventured to say in that House that the Act ought to have been maintained in its integrity, although it appeared that some person had said elsewhere that the Act ought to have been maintained, and that everybody ought to have been crumpled up. How they were to distinguish between good and bad—how they were to winnow the wheat from the chaff in that universal crumpling up, he could not say; nor did any one in that House venture to say that they thought any such proceeding desirable. One reason, perhaps, was because they had con- 198 stituencies to answer to, and therefore they might not be so hard-hearted as to propose to adhere to a strict principle, the adherence to which would cause ruin to thousands, as a person who was accountable to no one but himself. However that might be, he did not think that anybody in that House had ventured to recommend such a course. The next question for consideration was this, Was it safe or desirable to leave this matter to the discretion of the Government? The House ought to require that there should be some definite mode of relaxing the Act or that it should be altogether repealed. In speaking of its repeal he alluded only to that part of it which related to the limitation of the issue by the Bank of England. That part which dealt with the country banks was a very different question. He always thought that the part of the Act of 1844 relating to those banks was based on a sound, while that relating to the Bank of England was based on an unsound, principle. Opinions had somewhat altered during the last few months with regard to the Act. In July the hon. Member for Southampton expressed himself thus:—The result, I think, was satisfactory. In no case has the reserve gone below £3,000,000, and on the whole there has been no anxiety in the public mind with regard to the state of our reserve.The gentleman to whom he had already alluded, viz, Mr. Chapman, did not seem to be quite of that opinion. In answering a question which was put to him, he said—I carried on business in 1856 under circumstances of great anxiety, On the 23rd the reserve notes were £2,500,000.In answer to a question put, he believed, by the right. hon. Gentleman the Member for the University of Oxford, he said—You can easily understand that we must all be living in very great anxiety indeed. Unless they are asleep, all must be in a state of great anxiety.But that was not all. It was clear from the testimony of not an uninfluential member of the monetary world, that in the autumn of 1856 great anxiety existed, and Mr. Chapman made a most remarkable statement on that occasion. He said—We carried on our business under a tacit understanding from the Government that we should be relieved.He (Mr. Henley) begged to call the attention of the Chancellor of the Exchequer to that statement.
§ MR. HENLEY
Let the right hon. Gentleman rise and say where it had been contradicted. It was endeavoured to be explained away in this manner. Mr. Chapman said—It was no Member of the Government, no Member of Parliament, and no member of the Bank of England; but the statement came to me from an individual whose position was such that I believed the Government would relieve us.That was the result of what was called the contradiction; he did not know what it was worth. But now as to the question where this power ought to be lodged: for himself, he confessed that he saw no place where it could safely be lodged. He believed there ought to be no limit. That was his opinion, and he thought it was proved almost to demonstration by what had fallen to-night from the Chancellor of the Exchequer. The right hon. Gentleman—who had argued as though he were going to be hanged and it was necessary to make out a strong case for a Bill of indemnity, said, "Don't run away with the notion that the law has been infringed to the extent of £2,000,000;" and he went through an endless array of figures to show how little the law had really been broken, squeezing the extent of infringement down to £900,000 or a million. Would any person, however, tell him (Mr. Henley) that if the issue of that £000,000 would have prevented all the trouble, alarm, and mischief which had prevailed, the convertibility of the Bank of England note in consequence would have been one jot less secure than before? The fact was, that it was confidence which secured the convertibility of the note, and he believed that a limit of £16,000,000 or £17,000,000, or any other number of millions, would do no good whatever, and would land us in the same mess, with perhaps a worse chance of meeting it, than with this particular limit of £14,000,000. It was the having a limit at all which did the mischief. The Bank Directors declared in their evidence before a Committee of that House that they should have acted in precisely the same manner, and taken the same steps to arrest the drain of gold whether the Act was in operation or not, and that they should have raised the rate of discount, in which they would have done quite right, for it was impossible to keep up one uniform rate at all times. Why then, create these alarms by insisting on a limit? As to leaving this power in the hands of the Government, he was very glad to have the 200 weight of the opinion of the hon. Member for Southampton (Mr. Weguelin), together with that of the right hon. Member for Oxford (Mr. Cardwell) on this subject. In the Committee the point was raised whether it would be desirable to leave the question of issue in the hands of the Government, whereupon Mr. Cardwell asked, "Either, therefore, a weak Government would yield, or if a strong Government resisted, it would incur a great amount of unpopularity?" To which the witness (Mr. Weguelin) replied,—"I think that would be the effect." He should like to know from hon. Gentlemen who sat on the Ministerial benches whether they thought the Government a "weak" one for having yielded in this instance? Now, however, that a double precedent had been established, the Government would never be without pressure. What was Mr. Hubbard's opinion as to the relaxing system? In his letter to the Chancellor of the Exchequer this gentleman observed—As limitation of credit paper is the very essence of the Act, and as limitation operates sensibly only under circumstances of pressure, it is obvious that to evade its stringency because a pressure is felt is simply to stultify the Act; while, again, to admit a provision for extending the credit issue, in the event of difficulties arising from any possible or prospective contingency, would be to encourage overtrading, and foster in the banking community an unwarrantable dependence upon the Bank of England, while they make immoderate engagements, and neglect to maintain an adequate reserve for their own protection.Now what, as far as they could judge, had been the operation of the Act of 1844, keeping in mind the maxim, of which he was perfectly aware, that post hoc was not always propter hoc? Now, a very pertinent question was put in the Committee to the then Governor of the Bank by the right hon. Baronet the Member for Carlisle (Sir J. Graham). The question, too, was not put to the Governor alone, for close to him sat the Deputy-Governor, and the reply, therefore, might be regarded as possessing the combined authority of these Siamese twins, with a double head, a double body, but one voice. Sir James Graham asked, with reference to the bills brought to the Bank for discount,—" Your primary considerations, when paper is presented to you for discount, are the solvency of the parties, and the state of your bullion and reserve?" By putting this and other questions the right hon. Baronet thought he should elicit that the Bank Directors had some regard to the character of the paper 201 they were dealing with; but the Governor and Deputy Governor spoke out like men, and said, "We have no regard for anything of the sort. All we look to is—' Rem, quocunque modo rem.'" Their answer to the question he had quoted was, "Those are"—not the primary but—" the only considerations which affect our action." Now, Gurney's house did not seem quite so loose-waisted, but the old lady in Threadneedle Street appeared to have got into rather queer habits if the representation of what she did was a correct one. Mr. Chapman, the managing partner of Gurney's house, was asked the same question, and replied, "There is a certain description of paper which we won't touch; if we know it, we won't touch any re-discounted bills." [See Dec. 11.] He saw some hands held up in astonishment and denial. This was, however, in Mr. Chapman's evidence. Whether it was true or not he (Mr. Henley) could not tell. But he cared not whether it was true or false. It was perfectly clear from the upheld hands which he had just seen that there was a certain description of paper in the market, no matter who dealt in it. This consideration then, arose,—had the existence of this Bank restriction had anything to do with the creation of such a kind of banking "facilities," if they liked to call them so? Every one must see that since the passing of the present Act there had been a wonderful development of all these queer sorts of proceedings, and this very questionable paper. The veil which generally hid these transactions was now and then accidentally lifted up in our courts of justice, and that was all he knew on the subject; but he saw enough in this way to warrant him in asking whether the restriction which existed on the one hand, and the inflation prevailing on the other when the bullion flowed into the coffers of the Bank had had anything to do with the practices which had lately grown up? When the Directors of the Bank of England were obliged to exercise their own discretion such transactions as those to which he had been referring were unknown. He did not think that if, thirty years ago, a Governor and Deputy Governor of the Bank had been subjected to examination, they would have stated that they paid no regard to the character of the paper with which they dealt.. He believed that at that time the Bank frequently exercised a very salutary check upon speculative transactions, and he had always felt that that portion of the 202 existing law to which he had particularly alluded had been productive of consequences most prejudicial to the interests of the country. They had now what they called "slaughter houses;" they had unlicensed pawnbrokers; they had dealers in warrants; they had sellers and buyers of cargoes for arrival; none of whom were heard of some years ago. By such means as these the quieter traders of the country were actually "chawed up," they died away, and people shrugged their shoulders and said, "Oh, they can't keep pace with the times." The new mode of rediscounting had, however, been established, and they now saw men beginning upon a couple of thousand pounds, and presently failing for £300,000. Their affairs went into the hands of Mr. Coleman or somebody else. A long array of figures which scarcely anybody could understand appeared in the newspapers, and yet it was said that by means of the wonderful Act of 1844 any undue extension of credit and of speculation upon paper had been prevented. He questioned the accuracy of that assertion. The effect of the law had been to prevent the issue of a particular kind of paper called bank-notes, but he believed it had encouraged the use of many other "kites" which were ten thousand times more mischievous. He had gathered from the statement of the Chancellor of the Exchequer, that he thought it might be desirable that the Scotch circulation should be payable in Bank of England notes. He did not know whether he had correctly understood the right hon. Gentleman.
THE CHANCELLOR OF THE EXCHEQUER
said, he had suggested that, instead of a reserve of gold, Bank of England notes should be held.
§ MR. HENLEY
continued: The reserve of gold was only a security for the additional issue of paper based upon it, but if the Scotch bank-notes were to be paid by Bank of England notes, the difficulty now experienced with regard to English country bank-notes would simply be aggravated. So eager had Parliament been to have notes which should be always convertible, and so anxious to put a limit upon issue, that they had given to a favoured number of individuals, who happened at the time to have banks of issue, a monopoly of £8,000,000 of notes without their possessing one farthing of security in coin or anything else in their tills that the Legislature was aware of. It was at the same time provided that these country issues 203 should be paid by Bank of England notes,' and the consequence was that the amount of £8,000,000 formed a portion of the aggregate circulation of the country. The addition of £8,000,000 to £20,000,000, showed an aggregate circulation of £28,000,000. But, under this wonderful machinery, the instant there was any pressure for gold they found, on the one hand, that the reserve of the Bank of England lessened exactly in proportion to the diminution of bullion; and on the other hand, the reserve notes of the Bank of England were drawn upon by the country bankers, who, if there was any alarm, must necessarily obtain some £2,000,000 at least in bank-notes to enable them to meet the demands of their customers. Therefore, in a kind of inverse proportion, the whole circulation was reduced; and that, he thought, was one of the great faults of the present law. He should be sorry to see the principle extended to the whole circulation of Scotland, for he did not understand the right hon. Gentleman to confine his proposition to that portion of notes which was issued in excess of the amount fixed. At the same time he should be glad to see the circulation of the whole kingdom put on the same footing; for at the present moment Scotland and Ireland stood on the footing of foreign States, so far as their currency was concerned.
§ LORD JOHN RUSSELL
Sir, whatever may be the opinions which are entertained in the Committee upon this difficult and much-debated subject, I think all hon. Members will agree that the Committee are very much indebted to my right hon. Friend the Chancellor of the Exchequer for the clear and able manner in which he has laid before us the present position of the question and the proposition of the Government. I am in the singular—I will not call it the unfortunate—position of being very well satisfied with what has been done, being very tolerably satisfied with the Act of 1844, and being entirely satisfied with the proposal for the appointment of a Committee which is to follow the proposition now under our consideration. I will say only one word with regard to the immediate question before the Committee, because I think both sides of the House are agreed that the measure taken by Her Majesty's Ministers was a right use of their discretion, that they have contributed to save the commercial credit of this country from very severe disasters, and that indemnity ought to be given by Parliament for any 204 violation of the law which may have taken place. But, that question disposed of, the further questions naturally arise—whether the Act of 1844 was rightly suspended in 1847; whether it has been rightly suspended in 1857; whether it is the only law which ought to be maintained; whether, supposing it to be maintained, some very extensive alteration in its provisions may not be requisite; and, lastly, whether it is not necessary to give some dispensing power either to the Crown or to the Bank of England in order from time to time to suspend its operation. These questions are naturally raised by the state in which this subject comes before us. But I think that in discussing this question in this House, and still more in discussing it out of doors, Gentlemen fall into the error against which they were warned both by the Chancellor of the Exchequer and by my hon. Friend the Member for Kendal (Mr. Glyn)—namely, that of confounding the two very distinct matters of national currency and commercial credit. I believe the Act of 1844 was intended to secure our national currency from depreciation and from debasement, and that it has accomplished that end. But as to commercial credit, which some extravagant supporters of the Act of 1844 seemed to think was to be saved from all danger and all panic by that statute, it runs its own course, and all that any Act of Parliament can do is to endeavour, as far as possible, that the national currency may not be imperilled, or run the risk of being swept away by the torrents which occasionally desolate the field of commerce. With regard to national currency, I think every one must on a moment's reflection be satisfied with the Act of 1844 as a supplement to the Act of 1819. I remember perfectly well returning from the Low Countries in 1815 with a number of twenty-franc pieces, for every one of which I got a £1 Bank of England note. The Bank of England £1 note was then worth sixteen francs. Any one who goes now with a £1 bank-note will find that he can get twenty-five francs, or more for it in Paris than in London. Well, then, there is an end of that depreciation. That has been cured by the Acts of 1819 and 1844; and I do not think that at either of the periods of commercial panic, in 1847 or 1857, there has been the smallest doubt or question as to the convertibility of the bank-note. Every merchant and every individual in the 205 country felt satisfied that his £5 note would obtain for him its equivalent in gold; and therefore there has been no depreciation of the currency. The exchange, as my right hon. Friend says, has been corrected. But when we come to the other question of commercial credit, I think everybody who looks at the history of the country, even from a date no further back than the commencement of the present century, will see that there have always been these changes, first of the springing up and growth of trade, next of great prosperity, then of inflation, then of distress and distrust, and finally the bubble has burst and we have had to begin the cycle again. That was the case before the passing of the Act of 1844. I lament, I confess, to have heard so much blame cast upon that Act by so high an authority as the hon. Member for Keadal (Mr. Glyn). Does the hon. Gentleman recollect what occurred in 1825, long before the adoption of the Act of 1844? Seven hundred private country banks broke. There was the greatest distress throughout the kingdom; there was the greatest distrust of country bank paper; and a period of unexampled distress ensued. In 1847, again, the particular causes to which my hon. Friend alluded were in operation. There was a great demand for corn—a very natural and necessary demand indeed; but it occasioned a great exportation of specie. There were other speculations which contributed to produce distress, and another period of depression then ensued. We have had a recurrence of these events in 1857; and when the right hon. Gentleman opposite (Mr. Henley) reads a number of passages from the evidence of merchants and bank directors to show that trade is in a wholesome condition, he forgets that these only apply to the answers given at the time; because everybody, whether engaged in trade or otherwise, must know that revulsions, and very often sudden revulsions, take place in commerce, and that owing to some unlooked-for cause—perhaps the inflation of particular speculations—the country finds itself all at once involved in a state of uncertainty and distress, extending even to the most healthy portions of trading operations. Now let us look at what has been done with regard to the currency at these different periods; because, while I would wish to support the Act of 1844, and while I think that that Act has been very much over blamed, on the other hand 206 it has also been greatly over praised. I believe that it is an additional security—an improvement upon our former laws; but in the action of trade upon currency, and of currency upon trade, I don't think the course of things has very much varied since the passing of that law. In 1825 we had the testimony of Lord Ashburton in this House, who stated that the Governor and Deputy Governor of the Bank, Mr. Huskisson, and himself, met to consider what was to be done; that there was then a very small amount of gold in the Bank—perhaps some 100,000 sovereigns; and very great alarm prevailed. Whether it was "panic" or merely" alarm," and whether the one is a very sound feeling and the other very unsound, I don't pretend to decide. That appears to me to be more a question of philology than of finance. But, at all events, there was very serious apprehension, and, as I have said, these very able men, actively engaged in the business of the country, met to consider what was to be done. After some hours of consultation Lord Ashburton stated they were all agreed that, whatever might be the cause, relaxation and the expansion of credit, not further restriction, was the remedy required. They advised the Governor of the Bank to issue more paper. This was on the Saturday or Sunday. On Monday morning the Bank declared that they were ready to discount. Confidence was restored, and, so far from the Bank being drained of its last sovereign, its coffers were speedily replenished, Well, now that happened before the Act of 1844. In 1847, also, from causes which I will not again enumerate, there was a return of difficulty and alarm. The case was represented to my right hon. Friend the present First Lord of the Admiralty (Sir Charles Wood) and myself; and for several days we sat in anxious consultation on the state of affairs, advising with Mr. Cotton, the Governor of the Bank, the Directors, and other persons very competent, to enlighten us on what occurred from day to day; and then, on our own responsibility—not at the request of the Bank any more than on the present occasion—not for the purpose of saving the national currency, which was not in any danger, but for the sake of the commercial credit of the nation—for the sake of many large firms which, though perfectly solvent themselves, were threatened by others—and for the great interests of the country, we resolved to recommend the Bank to issue bank-notes, if necessary, 207 beyond the limit imposed by law. I believe we were justified in that course; and if I remember rightly, the late Mr. Herries, then a Member of this House, moved a Resolution approving the conduct of the Government in that instance. Well, in 1857, the state of things described to us by the Chancellor of the Exchequer occurs. The Government meets, and the First Lord of the Treasury and the Chancellor of the Exchequer issue a similar letter. I am sorry to see that the effect is not so immediate as was that of our letter in 1847. It may have been that the disease had spread its roots deeper; it may have been owing to some other cause, existing, perhaps, in foreign countries; but, according to the highest authority, we have not yet recovered our former state of healthy trade and sound commercial credit. As far, however, as it has gone, that letter has been effective; it has saved many parties from ruin, it has saved the general interests of the country from great disaster. And, for my part, I hope, with my hon. Friend the Member for Kendal, that we shall never see a Minister of this country so infatuated in favour of an abstract principle, sound enough in itself, as to refuse in these cases of emergency to incur the responsibility of relaxing the Act of 1844, and thereby preventing what may be a fearful convulsion. But is it true that this Act, having been twice suspended, is altogether worthless, and ought to be replaced by some other system? I think I have shown you, that as far as the national currency is concerned, it is an Act which does not require to be amended. And with regard to commercial credit, I venture to say that no one authority that I have ever heard or read of has proposed a scheme by which you shall have a national currency fitted for all times of commercial distress and panic,—a scheme which shall preserve convertibility and yet be of sufficient force to prevent the effects—the most natural and inevitable effects—be it of over speculation, of excessive trade, or of the misfortune of the particular time. In order to show that I do not wish to cast blame upon those who, in some instances at least, have been unfortunate in these transactions, I cannot but call to mind a remark of Mr. Tierney, who, in allusion to one of these periods of commercial distress, said, "You may talk of wild speculation and rash trading, but the men accused of this rashness and wild speculation would, if they 208 had succeeded, have been enterprising British merchants." It is very often the case that a few have pushed their credit too far, that circumstances have turned against them, that their failure leads to other failures, and thus great discredit is thrown upon the community, when perhaps but few—a very few—persons, are to blame. But, Sir, if there are any persons to blame for giving too great facilities to individual traders, whether connected with the Bank of England, the Western Bank of Scotland, or any other banking or commercial company, it seems to me that the appointment of a Committee is exactly the manner in which the Government ought to deal with this question. If such has been the case it cannot but be useful to the country to learn what errors have been committed, and to obtain some warning not to repeat them in the future. My right hon. Friend the Member for the University of Oxford (Mr. Gladstone), protests against the reappointment of the Committee to inquire into banking operations, but he says, that he should quite approve the appointment of a Committee to inquire into the causes of the commercial distress. I, Sir, am not very particular about the title of this Committee, or the exact form in which it is appointed. I am quite sure that if appointed as a Committee to inquire into banking operations, it would inquire into all the causes of commercial distress, and into the conduct of those who are carrying on the trade of the country. Besides, I am equally sure that if appointed to consider the causes of commercial distress, it would inquire into banking and the operation of the Act of 1844. It is impossible to bind down a Committee not to consider these two subjects together, and, therefore, I think it is quite right that it should be appointed in such terms as my right hon. Friend the Chancellor of the Exchequer shall think fit. Well then, Sir, with what view is this Committee to be appointed? The right hon. Gentleman the Member for Buckinghamshire (Mr. Disraeli) asked a question last night, which I think was quite right in spirit, but which he made rather more stringent than was necessary. He asked—"Is the Act of 1844 to be maintained? If it is to be maintained, why should you have the Act of Indemnity? If it is not to be maintained, let the Act of Indemnity be passed, and let the measures of Her Majesty's Government be produced." Now, Sir, I understand—I do not know that I correctly 209 understand, the intentions of the Government, but, as far as I understand them, it seems to me that they are prepared to stand by the general principles of the Act of 1844. If they were not prepared to stand by those general principles—if they intended to throw the whole question of the currency loose before the Committee—if we were to have the plan of the hon. Member for North Warwickshire (Mr. Spooner), which seems to me, if not so dangerous as I have apprehended, yet—I will not use an unusual phrase—more unreasonable than I had expected—if we were to have our currency divided into two parts, one of which is to rest on the security of the three per cents, and the other upon gold, and if we were to have other projects of that kind coming out of the Committee—then I should say that its appointment by the Government would be a very unadvisable step. But if we are to have a Committee, which shall keep in view the principles of the Act of 1844, and seeing whether that Act should be either amended or in any way expanded, I think that is very fair question to be laid before a Committee, and that it would be more prudent on the part of the Government to say that when the evidence taken by that Committee is before us, and not till then, will they tell the House at what conclusions they have arrived with regard to amendments in harmony with the spirit of the Act, but making its provisions still more effective. Various ways are suggested in which that Act might be amended. There is one to which the Chancellor of the Exchequer alluded, and with regard to which I do not quite agree with him, although I confess that there is some reason in what he says concerning it. He says that if you give to the Government or to the Bank a discretionary power of relaxing this Act from time to time, you will not make much practical alteration, but you will raise a constitutional question whether or not it is right to give such a power by Act of Parliament. Now, I beg pardon of my right hon. Friend, but I think you raise not only a great constitutional but a great practical question besides; because, while I should be very unwilling to give to Ministers this power of dispensing with an Act of Parliament on constitutional grounds, I think that there are moral reasons and reasons of practical utility which are still more forcible against the adoption of such a course. I feel convinced that if the Minister and the Bank 210 of England, or the Bank of England alone, had this power, we should have these occurrences more frequently than after a lapse of ten years; besides it would give great encouragement to wild and unsound speculation. Every one would then say, "We can go to the Government and tell them that they have got the power, and that this is the very case in which it was intended that they should exercise it;" whereas it is now a great inconvenience and a great responsibility for a Minister to say, "1 think this Act is at present so obnoxious to the community that I will undertake to suspend it and will immediately call Parliament together to lay my conduct before it." I think that that is a considerable check upon the conduct of the Minister, and therefore also upon those speculators who would wish for the frequent suspension of this Act. Let us see what has happened with regard to the Act. In 1844 it was enacted; in 1847 it was suspended for a time. That occurred only three years after it was passed, and I think men might then reasonably say that an Act which within three years was found to be unavailing and had broken down ought not to remain upon the Statute-book. But since 1847 we have for ten years had a sound state of the currency; we have had no complaints of the working of the Act; and it may be five years, or it may be twenty, before there is another occurrence similar to that which we are now considering. I would therefore leave the future to the future. I would allow it to be decided by experience whether or not another ten years may not elapse without the adoption of such a course, and, if the inconvenience is then no greater than has been sustained in 1847 and 1857, I should think that there would be reason not for repealing, but for maintaining the Act. For, considering that your primary object is to maintain a national currency convertible into gold, and that your next object is as far as possible, without endangering that currency, to give help in times of commercial distress and disaster, I think that an Act which performs those functions as they have been performed by the Act of 1844 in 1847 and in the present year is one which deserves to be supported. My hon. Friend the Member for Kendal (Mr. Glyn) says that when distrust begins the sight of the Bank returns aggravates the alarm. That may be so, but is that the working of the Act of 1844? I re-member before the passing of that Act asking a friend of mine who was very well 211 conversant with these subjects, the late Lord Sydenham, what ought to be done if we had a commercial crisis and a state of discredit. He said, "Let the Bank go on and pay to its last guinea." But would not that be a time of distrust and distress? Suppose that you had the Act of 1819 alone, without that of 1844, and there came a time at which the reserve of bullion in the Bank was reduced to £1,000,000, to £500,000, to £100,000—would not that produce great alarm? Would there not be people as anxious to obtain gold as they now are to obtain bank-notes? Would there not be the same discredit and distrust as now exist? Therefore, as I believe, it is not the Act of 1844, it is the very nature of a currency convertible into gold, operating with a diminution of commercial credit and the spread of alarm, which produces that state of things to which my hon. Friend referred. If that be so, let us see what is the actual working of this Act, It is, I confess, not that which you would expect upon the face of the measure. The Act says that there are £14,500,000 which the Bank may always issue, but that any notes issued beyond that amount must be the representatives of gold and silver bullion in its cellars. If that were literally carried into effect when the Bank had £16,000,000 of bullion it would issue £30,000,000 of bank-notes; when it had £7,000,000 it would issue £31,000,000. But that is not the operation of the Act, because we all know that there is no such demand for notes as to induce the Bank to go beyond some £22,000,000 or £23,000,000, and we know also that it is quite impossible for them to go on issuing notes with safety to the extent of £7,000,000 when there is only that amount of bullion in re-Serve. Immediately that the reserve of bank-notes is reduced to £1,000,000 or £1,500,000, still more when it is reduced to less, then comes that desire to obtain bank-notes which the Chancellor of the Exchequer has described. Every one sees that the reserve of notes will soon be exhausted and makes a rush to obtain what proportion he wants, and thus the Bank becomes endangered long before the notes representing £7,000,000 of gold are actually issued. The Act of 1844, therefore, is more restrictive than appears on the face of it. It hardly allows the issue of £14,500,000 and the whole stock of bullion to be represented: there must be a reserve of notes in order that the Bank may be at all secure. The question 212 may fairly be discussed, whether any change should be made in that respect. I doubt the utility of any change; but of this I am quite sure, that if it should appear to a Select Committee that a change might safely and beneficially be made, it ought to be made by Act of Parliament, and not by giving any discretion either to the Minister of the day or to the Bank of England. It should be plainly laid down in your Act what further relaxation might be allowed. I believe myself that the Act of 1844 has tended to secure the currency, and has not tended to aggravate commercial distress. We have heard with some apprehension the views entertained by the right hon. Gentleman the Member for Oxfordshire (Mr. Henley). He complains that the Act of] 844 has encouraged the great evil of over-speculation, and has led to the circulation of a great deal of worthless commercial paper in the country. Now, that I consider is a somewhat inconsistent complaint, and the right hon. Gentleman proposes accordingly a somewhat inconsistent remedy, because he says there should be no limit to the issue of paper by the Bank. He complains of the limit: but I wish to know from him and from the other Gentlemen who denounce the Act of 1844, what is the real extent of their demands? Are they satisfied or are they not with the Act of 1819? Are they satisfied or are they not that notes should always be convertible into gold? Are they satisfied with the standard of the currency as laid down in ancient times, and as affirmed soon after the Revolution, and again in still more recent times by Lord Althorp when he was Chancellor of the Exchequer? When these Gentlemen complain of the special provisions of the Act of 1844, do they not, in fact, mean a great deal more? Do they not want us to adopt a paper currency which shall not be convertible into gold? Do they not really mean that there shall be an issue which shall not be founded upon bullion, but which shall be so extensive, so expansive, that it must necessarily become greatly depreciated in value, requiring for the safety of its credit the application of a Bank Restriction Act? If that be their intention, let them plainly declare it. Do not let them complain of the special provisions of the Act of 1844, but let them tell us whether they mean to maintain the currency in its integrity. We shall then know how to meet such a proposition. Such views are not openly avowed in this 213 House, but they have been openly avowed in some recent meetings; and in one meeting especially which took place in Glasgow it was stated without disguise that your paper currency should be commensurate with the demands of trade, and that if trade was not satisfied with a certain amount of currency, more currency—that is to say, more paper—must be issued. Is it intended, I ask, that there should be any basis for this currency, or is it to be mere worthless paper producing periodical convulsions worse than any we have heretofore witnessed? In defending the Act of 1844, in admitting that there may be some alterations in its principles, but maintaining that there ought to be none in its provisions, I think I am in fact standing upon the Act of 1819 and the laws which regulate our currency. I believe that those evils from which we have lately suffered, and from which we are still suffering, are incidental to a very great and extended commerce. We all know that the laws passed of late years, beginning in 1842 and ending with the repeal of the Navigation Act in 1848, have tended greatly to increase the trade of the country; and we know also that while increasing legitimate trade, while making many men wealthy and giving general prosperity to the country, they have, on the other hand, produced at the same time the concomitant evils of unsound speculation, rash adventures by men without capital, and bubble companies eager to share in the riches of the world. We are a great commercial country, prosperous beyond any that ever existed on the face of the globe. But we must not expect too much. We must not calculate on that security which may be found in a Swiss canton with a small commerce. To those who thought they could have the advantages of a great commerce without some of its accompanying disadvantages, I would only say, Non est mortale quod optas. That is the warning given to those who soar beyond hope; and rightly given to those who wield human destinies and conduct human affairs. I believe that the general principle on which the Act of 1844 is founded is the right principle, and the one on which we ought to proceed. I believe the Government on this occasion pursued a course which entitles them to the gratitude of the country. I wish nothing to be altered in the general law, and I hope this House, at all events, will not tamper with the great principles of a sound currency.
§ MR. DISRAELI
Sir, I think that the great difficulties which attend the discussion of this subject are sufficient without the vague declamation which has occasionally been indulged in upon both sides of the House, and, I am sorry to say, the noble Lord who has just spoken is no exception to that remark, although I admit that many of his observations, like much that falls from his lips, were worthy of our serious attention. Now, Sir, what are we asked to do to-night? It is no ordinary demand that is made upon the House of Commons. We are asked to consent to a Bill of indemnity for an infraction of the law, authorised by the Government in consequence of the commercial distress and distrust that have prevailed, and that unfortunately still prevail. We have heard a great deal of Committees upon commercial distress being advisable. Permit me, though very briefly, to offer some suggestions as to what may be the causes of the present commercial distress and distrust. The distress is general. It is not confined to this country, although here it is extensive. All know that it prevails in the United States. But it is not peculiar to the United States, as some hon. Gentlemen who have addressed you would seem to infer. It is European. Its influence is felt in Germany, in Austria, in Prussia, in Denmark, in Sweden, and what is occurring in Hamburg at this moment must be fresh in the recollection and the fears of many Members of this House. Do not let us forget that the commercial transactions of Europe are carried on by an amount of capital that is not to be counted by millions, but by hundreds of millions. It is, therefore, a great error—and here I entirely agree with the noble Lord the Member for the City—to suppose that the management of a limited portion of the currency of England could have occasioned this immense disaster, and given rise to these wide-spread consequences, which really have originated, not from the mismanagement of the currency of this country, but from the mismanagement of the capital of Europe. Now, there is one important point which we must bear in mind in considering the Act of 1844. That Act is an Act to regulate the currency of this country. The purpose of it is in my mind irreproachable. Its object is one which every man ought to wish to secure. But is it or is it not the fact that this Act, which really is intended only to regulate the cur- 215 rency of this country, to establish and maintain the convertibility of the notes of the Bank of England, has nevertheless the effect—as I believe, the unintended effect—of greatly aggravating commercial distress and distrust when they are occasioned by the misapplication and mismanagement, not of the currency of England, but of the general capital of the world? Now, I apprehend that that point has never been met to-night, and yet it is a position which can be fully established. It can be shown that it is in consequence of the machinery of the Act of 1844, intended merely as a currency Act, and to have a limited application, that the managers of the currency of this country have been forced to treat in an identical manner and by the same means two circumstances totally opposite in their character, and both exercising a most powerful and injurious influence on the commerce and capital of this country—that is, a foreign drain and a domestic drain. I say that the Act of 1844, from the manner in which it is framed, forces those who regulate the currency of this country to apply to a domestic drain exactly the same treatment which is applied to a foreign drain; while, if there is anything which can be established by argument and an appeal to facts, it is that the two sets of circumstances should be treated in an exactly contrary manner, and be encountered by means exactly opposite. If that point be established, and if that be a sound position, then surely we may fairly consider a question of that kind without being accused by the noble Lord of wishing to tamper with the standard of value, to inundate the country with paper money, or of desiring to recur to obsolete modes of practice. The noble Lord has made a strong appeal to-night to the disastrous year of 1825, when he informed us that 700 banks were broken, and in the same morning, I believe. The noble Lord was not then Prime Minister of this country, and though no man is better acquainted with its history than the noble Lord, yet I think that on this occasion he has trusted too carelessly to his memory; for at that disastrous period, if my recollection be not at fault, not 700 country banks, but 73 banks altogether, in London and in the country, broke, and by no means were the majority of these banks of issue. Therefore I do not think that that illustrative warning bears very much on the question of this evening. But this year 1825—that phantom of ancient dis- 216 aster constantly raised in our debates—has really very little to do with the modern principles of banking, and the means by which the currency of this country is now carried on. It is very easy to abuse the Bank Directors of that day for what occurred, but we must remember that in 1825 it was quite impossible for the Directors of the Bank of England to avail themselves of the resources now at their disposal to guard their reserve by raising the rate of discount. In 1825 the usury laws prevailed, and it was impossible for the Bank then to have a higher rate of discount than 5 per cent. Therefore in referring to the year 1825 the noble Lord refers to circumstances which no longer prevail in our laws and manners, and I protest against the introduction of the year 1825 for the future in any currency debate. Now, to the point before us. We are in a state of great commercial distress and distrust. I entirely agree with the noble Lord on this head, that to suppose that the great commercial distress which now prevails could have been occasioned by the mismanagement of the currency of this or any other country is like supposing that a great nobleman could be ruined by the mismanagement of his pocket-money. The fact is, we are mistaking, and have for a long time too easily mistaken, in all these discussions, capital for currency. But though this state of commercial distress and distrust is entirely occasioned by the mismanagement and application in this country, in America, and in the European nations, of the great mass of floating capital which prevails, still, at the same time, we cannot conceal from ourselves that we have a law in this country intended only to act on our currency, and which, so far as the principle it asserts is concerned, I hope the vast majority of this House will maintain, but which, whenever commercial distress and distrust occur, is found entirely unendurable, oppressive, and impracticable, and on every occasion of emergency, we are obliged altogether to suspend it. The noble Lord who has just addressed the House, and who has addressed it with peculiar authority on this subject, since he was the very first Minister who recommended the violation of the statute, has referred to the two occasions in a brief space of time when this Act was suspended; but, if he would refresh his recollection from the evidence taken before the Committee of last year, to which constant reference has been made 217 during this debate, he will find that practically, or virtually at least, the suspension of this Act is not to be confined to those two instances, memorable as they are; because in the autumn of 1856 there was a very great pressure, and the precious metals were leaving this country—one of the causes, by the bye, of our present embarrassment, and consequent on the expenditure for the Russian war—the pressure on the money-market was extreme; the rate of discount was raised—and wisely raised—by the Directors of the Bank of England, and by the prudent and courageous manner in which in that instance, as subsequently, they managed their affairs, the danger for the moment was averted. But we have the evidence of Mr. Chapman, no inconsiderable testimony, as all acquainted with the subject will admit. Well, he by whom the force of a money-pressure is always felt, who represents the greatest discount house in Lombard Street, says that had it not been for some private information which reached him to the effect that in case of extremity there would be an interference on the part of the Government, he should at that moment have given up the idea of struggling against the pressure any further, and it was only on that tacit understanding that he went on with his business, and eventually surmounted the difficulties of the period. Remember who gave that evidence. He is the very individual whose representations, if I am rightly informed, in 1857 as well as in 1847, induced the Minister of this country to recommend the suspension of this Act. The question naturally arises, what is the effect of allowing the currency of this country to be regulated by an Act which we are in a continual state of being prepared to suspend? So entirely do I admire the object of that Act, so anxious am I myself to hope that a large majority of this House is prepared to uphold the practical and virtual convertibility of the note, that I should be most anxious to interpret the machinery of the Act in a manner the most favourable to its continuance, and to the non-necessity of alteration. I would pass over one crisis, in which its provisions had been suspended, with what I should consider a wise indulgence, but it becomes the Committee deeply to consider whether it will sanction a chronic state of suspension—whether we are to have a law of such a character that those who are acting 218 under it know that when an emergency arises it will not be enforced. Is that wise? "But," says the noble Lord, "on the whole that is the course I recommend." The noble Lord loves a precedent. He set a precedent in this instance himself, and I can easily understand the tender regret with which the noble Lord would witness that we had departed at any time from that precedent, and, as it were, passed some censure, mild, I am sure, on the sagacity of his conduct in 1847. But the noble Lord says that this Act is a considerable check on what he calls over-speculation and an inflated currency, which in times of prosperity abound. I am sorry to hear from the noble Lord that our periods of prosperity are always necessarily to be accompanied by such circumstances, but when the noble Lord so fairly tells us what are the consequences of inflated circulation—when he tells us that, unless we have these considerable checks, the currency will be greatly increased—there will he no check on the issues of the Bank—a crisis will arise, and there will, in fact, be no standard of value, I may be permitted to say to the noble Lord with all respect, that though these were opinions once held by persons of considerable reputation, and for aught I know may be still adhered to by persons of no mean repute, yet they are conclusions the authenticity of which is entirely impugned by authorities of a more novel nature than perhaps the noble Lord may be aware of, but of no less high a character than any to which the noble Lord could appeal. Many high authorities have held in opposition to those opinions which the noble Lord has so freely circulated and enunciated to-night, as if they were open to no controversy—many high authorities have held that the depreciation of a bank-note convertible at par is a simple impossibility, that it is quite out of the power of any bank to issue beyond the requirements of the country, and that no issue of bank-notes at any time has affected the prices of commodities. Nay, more, that we have conclusive evidence in our possession of the reverse. Now really, Sir, under these circumstances I must protest against the noble Lord so freely, and in that style of declamation which he can command even upon a currency question, lending his authority to a principle which I believe to be quite fallacious, and to conclusions which I believe he will find himself totally unable to substantiate. But, says 219 the noble Lord, "this Act is a check upon the over-speculation of the day, and although there may be some objection to the mode in which its suspension is occasionally enforced, still the benefit which results from the law is indubitable." But when the noble Lord talks of this Act operating generally as a beneficial check, while the Government may at their discretion violate its provisions, let me ask the House to consider one point which I think has not been sufficiently taken into consideration during the course of this debate. If the House be prepared to sanction the exercise of this dispensing power at the arbitrary will of the Minister of the day, how does it propose to reconcile the difference of position between those firms who fall victims before the dispensing power is exercised and those, who, holding on a favoured twenty-four hours, struck upon the clock of the Royal Exchange of London, are enabled to dominate over those with whom they ought to be fellow-victims? Let me remind the House that when we discuss this question and perhaps discuss it in too easy a manner as respects the feelings of those who have fallen, it might perhaps be as well to go a little into detail, for it is only through detail that the house can realise some idea of the consequences of this fear and distrust in London and the other great marts of commercial enterprise. Now, Sir, here is a document with which I have been furnished, and I will answer for its being correct and accurate, although I cannot answer for its being complete, because there are the names of many victims with regard to whom the amounts for which they have fallen have not yet been ascertained; but here is a document of desolation in my hand, the contents of which I think will surprise even those hon. Gentlemen connected with the commerce and monetary transactions of the country who have addressed us to-night. It is a return of the number of firms which have fallen between the 7th of September and the 12th of November, a period of little more than two months, and among those firms there are some of no inconsiderable importance, and some which ranked, as far as capital can be a test of position, in the highest class in mercantile repute. In that brief period I find that no less than 85 firms have fallen, with liabilities which represent a capital of £42,000,000 sterling, and with the exception of firms representing £8,000,000, those mercantile establish- 220 ments fell before the letter of November, some of them a few days, even hours, before that letter. Now if we are to leave the law in this state, I really think that it becomes us calmly, but earnestly and seriously, to consider the relations of the Administration of this country to those who conduct its commerce. I have heard statesmen to-night, and among them the noble Lord the Member for London, who do not shrink from the responsibility of exercising this dispensing power. I must say that the right hon. Gentleman the Chancellor of the Exchequer showed more modesty and displayed his reluctance to exercise such a responsibility, by intimating the possibility upon his part of making some suggestion which would avoid a responsibility so terrible. A man must have great confidence in himself, in his position, and in his character, who, under circumstances such as I have described, when 85 firms representing a capital of £40,000,000 had fallen within so short a period, would, as a Minister of the Crown have no reluctance in deciding when to interfere. I am deeply conscious that every English statesman is sincerely anxious to do his duty to his country, and I can readily conceive the terrible anxiety with which a Minister under such circumstances might consult some eminent capitalist, perhaps sitting behind him and one of his principal supporters, one whose mercantile knowledge and intelligence and valuable advice had been of great assistance, I won't say in preparing a Budget, but in furnishing details for the assistance of a Minister in framing his financial scheme. I can assure hon. Gentlemen, I am making no personal allusion—my remarks will apply equally to those who sit on either side of the House—I am only supposing the cruel, the terrible position in which an English Minister may find himself placed. Well, then, suppose the Minister to consult such an individual. It may be of the utmost importance to a man engaged in commercial pursuits that the suspending power should be delayed for 24 hours, or precipitated by that period. It may destroy a rival. It may save himself. The consequences of such a course I need not dwell upon. Such a case may not happen, but would it be wise in us quietly to sanction a law which might under any circumstances, lead to such consequences? I am sure that the House will reflect deeply upon the difficulty which now 221 surrounds us, that they will recollect the contents of the startling document to which I have alluded, and that they will feel that it is no child's play to bear responsibility upon such a subject—a subject which I say is the last with regard to which the responsibility of a Minister of the Crown ought to be exercised. It is a responsibility almost beyond the endurance of any individual, and one which is totally alien to the character of the constitution of this country. You have thought a dispensing power with regard to civil and political rights intolerable, and you have changed a dynasty rather than submit to it, and are you prepared now to extend to a Minister such a power with regard to a subject which in this country touches you, perhaps, more nearly than either civil or political rights? Where commercial and monetary interests are concerned, are you prepared to submit quietly to a dispensing power, exercised arbitrarily at the discretion of the Minister, the exercise of which, even when most virtuously employed, may be unjust in its application and ruinous in its results? I think, therefore, that it is most desirable that we should take some course to prevent a repetition of the letters of 1847 and 1857, and of that threatened suspension of 1856 to which reference is made in the evidence taken before our own Committee. I think that the time has arrived in which we ought to exert ourselves to solve a difficulty which may be great, but one which we ought not to evade, but endeavour to surmount, and I regret that I see no disposition on the part of the Government to undertake the task. That such appears the case I regret the more because I think that all that has been said upon the subject during the present Session might have tended to prove to Her Majesty's Ministers that there was every wish to assist them to a solution of the difficulty which would redound to their honour to surmount. We are tonight asked to agree to a Bill of indemnity for an act which the Government have recommended; now, I said yesterday, perhaps rather inadvertently, that my consent to that Bill would depend upon the line taken by the Government with respect to the Act itself. I forgot that the Bill was not a Bill of indemnity for Ministers alone, but also an indemnity for the Bank Directors. Now, I don't think that any one can for one moment impugn the conduct of the Bank 222 Directors. There is no evidence before us that the Bank Directors required this interference; and in 1847, not only did they not solicit the Government for a suspension of the Act; on the contrary, they did not avail themselves of its suspension, but disapproved the course which had been adopted, and were prepared to assert not only the convertibility of the note, but even guard their deposits. I have reason to believe that in the present instance the Directors of the Bank have acted in the same magnanimous spirit; and if, at the suggestion of the Government, they have consented to take an illegal step, I think, whatever may be our differences of opinion on the general subject, it would be cowardly and vindictive to throw any obstacle in the way of their indemnity; nor am I in a disposition, when I have conceded so much, to make a distinction between the Bank Directors and Her Majesty's Ministers. So far, therefore, as the Bill of indemnity is asked, I am prepared to accede to the request of the Government, but further than that I cannot afford my consent. I think the Government have taken an erroneous step, notwithstanding the high authority just expressed in their favour by the noble Lord, in recommending that the House should again appoint the Committee to consider this question and these circumstances. I must repeat what I attempted to express last night—my belief that there is no subject which can solicit the attention and consideration of public men, on which there exists even such a surplus age of knowledge and information as upon the principles on which the currency of this country should be established, and on which, it has of late years been carried on, and that any attempt to postpone the solution of the grave difficulties which surround it by further inquiry will lead to great public inconvenience, possibly to great public disaster. I think we ought to show no hesitation in meeting those difficulties, that we ought to give our best consideration not only to the passing, but the immediate passing, of some measure which will prevent the future necessity of appealing to this House for Bills of Indemnity to Her Majesty's Ministers. I have endeavoured to call the attention of the House to what I think the vital point in this Bill which requires our consideration. I am for supporting the spirit of the Bill so far as it maintains the convertibility of the notes which, the Bank issues. I 223 would do that completely, sincerely, and in no spirit of equivocation; but believing as I do that the law by its enactments forcing the Bank to treat a foreign and a domestic drain by the same means, not only occasions but aggravates distress and distrust among the commercial classes of this country, I think we should endeavour to meet that difficulty by remodelling the law in that respect. Let the House realise to itself one great difference between a domestic and a foreign drain. With a foreign drain we have learnt, from experience, efficiently to cope. We have never had a greater strain upon the resources of our country from the effects of a foreign drain than we have experienced of late years. We may have had a more sudden pressure, but never have we had such a continuous pressure from a foreign drain as during the last two years and a quarter. And yet that powerful arm which our emancipation from the usury laws places in the hands of the Bank of England enables us to cope with it triumphantly under the most menacing circumstances to the public fortunes; and I do not think there is a man who now fears any ulterior disastrous consequences from a foreign drain. But remember, that a foreign drain is a very unimpassioned calculating transaction that is founded upon a knowledge of our resources and a comparison of our own necessities with the necessities of those countries that require our aid; it is a mere matter of pounds, shillings, and pence; and, however inexorable may be the demand, it is regulated by the principles of reason and calculation. But the moment you have a domestic drain all the elements of the struggle become of quite a different character. Moral qualities, as well as material ones, enter into the nature of a domestic drain. Hope and fear govern mankind: the mart, and the manufactory are not exempt from these passions; when a whole nation is panic-struck, public terror cannot be controlled by an Act of Parliament or by the application of the most severe economic science. Now the existing law is deficient in this respect, and it is the duty of Parliament to remedy that deficiency. I hope that Parliament will take some step in this matter, but I do not believe there is any chance of an efficient remedy being obtained if you now consent to the course that has been suggested by Her Majesty's Ministers. In 1840 the whole question of banks of 224 issue was gone into by a Committee which, whether we look to the reputation of the members who formed it, or the high character of the witnesses called before it, produced a volume inferior in interest to none in this House. In 1847, after the disastrous panic of that year, you had a Committee to inquire into the same subject and into the operation of this very Act of 1844. At the beginning of this year a third Committee was appointed, and its transactions are before you in two folios. What more can you want? All the most distinguished writers of the day on public and political economy have favoured the country with their speculations on this subject. No new idea has been thrown out since the question was last before the country, and even if any new views had been started, they would have been exhausted by the Committee of this year. The time has come when we must call upon the Government to settle this question. What is the use of a Government if it cannot settle this question? What is the use of a House of Commons if it cannot—I will not say force the Government, but if it cannot animate and inspire the Government to settle this question? There are some men who think that Members of Parliament are only made to form Parliamentary Committees: but it is only a preparatory, though a very useful, process to accumulate intelligence in that way, to pursue research and to sift evidence. There is something higher and more necessary; and that something higher is, to recommend a policy. I think the time has come when we ought to recommend a policy; and, therefore, I wish to come to a clear understanding with the Chancellor of the Exchequer, and to consult his convenience and that of the House. The right hon. Gentleman wishes that there should be no great delay in passing the Indemnity Bill. I would meet him in a frank and a friendly spirit, and I hope the right hon. Gentleman will not prove by his conduct, if we give him his Bill of indemnity, that that is the only object for which Parliament was called together. If I were to take advantage of the various stages of the Bill of Indemnity, I might have availed myself of opportunities to take the opinion of this House with respect to the different opinions to which I have referred. But that would be an ungracious mode of trying the question, and I do not wish unnecessarily to adopt an ungracious mode. The right hon. Gentleman has a Motion 225 on the paper for a Committee. If he would only settle with me the night on which to take that Motion for a Committee I would move to that Motion an Amend-mend the purport of which would be, without, of course, pledging myself at this moment to its exact phraseology, to express the opinion of the House that it is expedient to legislate on the subject, and not to refer it to a Select Committee. If the right hon. Gentleman will say this day week for his Committee, I will assist him to the best of my power in carrying his Bill; and on this day week, if he will move the Committee, I will endeavour, with that temperateness which the subject demands, to ask the House to consider whether, under all the circumstances of the case, it is expedient that this question should be referred to a Select Committee, and whether it is not wiser to proceed at once to legislate on the subject.
THE CHANCELLOR OF THE EXCHEQUER
said, he could not but acknowledge the fairness with which the right hon. Gentleman had treated this subject, and the disposition he had shown to facilitate the business before the House. Undoubtedly, the passing of the Indemnity Bill was the main object for which Parliament had been assembled at this time, and formed the principal business which the Government wished to forward. If the House consented to allow the Bill to be introduced that evening, he would propose the second reading for Monday, and would bring forward his Motion for a Committee on Friday. He hoped that arrangement would suit the convenience of the House. Perhaps he would be permitted to refer for a moment to a question of fact which had been adverted to by the right hon. Gentleman the Member for Oxfordshire (Mr. Henley), and also by the right hon. Gentleman opposite (Mr. Disraeli). He alluded to the statement made before the Committee of last Session by Mr. Chapman, the managing member of the house of Overend and Gurney. At the present moment he had not the Report of the Committee before him, and therefore he quoted from memory; but his recollection of the evidence given by Mr. Chapman was, that on some occasion he had received an assurance from a gentleman on whom he placed reliance that in the event of their house discounting to a large amount they might rely on the support of the Government. A question was put as to the authority on which that statement was made, 226 and he did not assert that he had received any direct communication from the Government. It was possible that his (the Chancellor of the Exchequer's) recollection might not be very precise as to the words used; but, be that as it might, he thought it right to state that no such communication as Mr. Chapman mentioned was ever made by the present Government either to the house of Overend and Gurney or to any other similar discounting house whatever. He wished to assure the House in the broadest terms that could be used that the statement of Mr. Chapman, and the impression of the person to whom he referred, had no authority from the Government, and must have originated in an entire misapprehension.
§ MR. CARDWELL
said, the arrangement proposed by the right hon. Gentleman the Chancellor of the Exchequer led to the inference that the remainder of the discussion of the great question before them would be taken rather on the Motion for a Committee than on the Bill which was about to be introduced. He acquiesced in the wisdom of that arrangement, and would reserve any observations he had to make till Friday next.
§ Resolution agreed to.
§ House resumed. Leave given.
§ Bill ordered to be brought in by the CHANCELLOR of the EXCHEQUER.
§ Bill read 1°, and ordered to be read a second time on Monday next.
§ House adjourned at a quarter to Twelve o'clock.