« PreviousContinue »
effect produced on the minds of the committee, by seeing the fact of the over-issue in direct opposition to the arguments of the directors, their opinion seems to have been influenced by an assumption in their own argument which every mercantile man must at once see to be wholly erroneous, namely, page 23 : The committee assume that on the discount of a bill, the merchant receiving the Bank notes uses them in the purchase of such articles as he wishes, and that in his hands this sum received by him may be properly termed capital, but when it is disbursed by him in different purchases, or is distributed into other hands, these same notes then become currency and remain in constant circulation until the discounted bill by which they were issued comes due, and that they are by the payment of it taken again out of circulation, being in the interim a permanent addition to the mass of circulating medium -- upon the foregoing assumptions the entire argument of the committee is founded, and when these assumptions are shown to be erroneous, the whole superstructure falls to the ground.
Now the fact is notorious to all mercantile men that in 99 cases out of 100 the object of applying for discount is to provide for engagements falling due, and therefore the notes received are immediately paid into bank again. The same may be said as to all sales which are made for cash; the object of the seller is to provide the means of fulfilling engagements which cause the money to find its way immediately again into bank, or to be hoarded until the period when those engagements become due. There is no truth whatever therefore that the net proceeds of each bill discounted remains an addition to the amount of the circulating medium until the said bill becomes due, and the
whole argument proves to be fallacious. For the detailed reasoning on this subject, see No. 58, where this matter is specially considered; should any person dissent from the view thus taken, it is open to him to point out any way in which after the currency is full, according to the term and rate of discount adopted (No. 60 towards the end), the issues can be extended so as to produce an over-issue, nor should it be lost sight of that the check on over-issue which liability to pay in gold affords, merely extends to the Bank of England issues, for to all other issuing bodies the liability to pay in Bank of England notes was just as great a check to over-issue as liability to pay in gold, the procuring of the one being equally difficult as the other in a mixed currency, and this same check would exist under a single bank of issue and an inconvertible currency with more decided effect than it has ever done heretofore, because it would impose the same check on the Bank of England as on all other Banks. I beg to conclude this review by stating my hopes that the confirmation afforded to the principles I advocate by the Bullion Report in so many particulars in which its correctness is undisputed, will tend to remove the prejudice against an inconvertible currency now existing, and that in the calm investigation of the arguments in its favor which I trust will take place, the error pointed out in the Bullion Report in regard to discount will be so well understood that it will be perceived the steady adherence to the term and rate of discount, coupled with an inconvertible currency and a single issuing establishment, affords a more certain security against fluctuations in the currency, whether of depreciation or appreciation, than any which the nature of a mixed cur
rency is capable of conferring, either by the liability to specie payment or otherwise.
Remarks on the Bill now before Parliament for renewing
the Bank of England Charter, and the opinions expressed in the Debates thereon in reference to the principles advocated in the foregoing.
It has been long a matter of reproach to the science of Political Economy, that it possesses no correct definitions of the terms it makes use of, nor yet any acknowledged axioms or admitted propositions upon which to ground its doctrines, and in no branch of the science is this deficiency more remarkably exemplified than in that which relates to the currency question.
Whoever may have turned his attention to what has been passing in the investigation of this subject must have observed that the different witnesses examined before the Parliamentary Committees appointed to examine evidence thereon, and the different writers who have embarked in its discussion, have frequently used the same words in totally different senses; and likewise that they have not been able to refer to any principles or propositions as universally admitted to be true, by which to prove the correctness of what they advanced, so that the entire mass of all that has been either said or written may per
haps be more justly characterized as a collection of contradictory opinions and assertions rather than any logical inquiry into the essential requisites a currency ought to possess, in order perfectly to discharge its functions ;-and this, it must be acknowledged, is the information first to be sought for, in order to decide upon what system possessed the strongest claims for adoption.
Under this state of things, therefore, it is to be hoped the public will look with a favourable eye upon the attempt made in the foregoing pages to supply this deficiency by furnishing definitions of those terms which seem most to require it, and by submitting to general consideration certain axioms and propositions which, if admitted to be true, would serve as tests to determine the correctness or incorrectness of any opinions, to the elucidation of which they might be applied.
Until, however, their truth may have been fully established, it would not be admissible for me to use these axioms and propositions as tests in the manner above proposed; but there can be no objection to make use of some of them hypothetically, in order to exemplify the benefit to be derived by having acknowledged data to refer to. For this purpose I shall take, in the first instance, No. 21, in which the principle is asserted, that “ the amount of the circulating medium in any country should always be in proportion to its capital and commercial transactions.” Now, supposing this to be an acknowledged truth, (and it is a principle which seems not likely to be disputed, being in conformity with the Bullion Report of 1810, and confirmed by the evidence of most of the witnesses examined by the last Committee on Banks of Issue,)-see how it will affect the opinions ex. pressed in the late debate on the renewal of the Bank Charter, and the principles which seem to be sanctioned by the provisions of the Bill subsequently introduced ; the most important of which seems to be, that our mixed currency should be made to fluctuate precisely as if purely metallic.
It is here at once made evident that if this axioin is true, namely, that the circulating medium should always be in proportion to the capital and commercial transactions of the country, the principle adopted in the Bill must be untrue, for it is quite notorious that the fluctuations of a metallic currency can never be made steadily to correspond with capital and commercial transactions, or the wants of trade, which is the short mode of expressing it.
The panics in 1793 and 1797, and more lately the American panic in 1836-37, in all which the subtraction of specie took place without any regard to the wants of trade whatever, and led to consequences the most ruinous, suffieiently prove this.
The two first cases are generally considered to have arisen from domestic alarm; and the last Mr. Horsley Palmer distinctly attributes to the financial operations of the Government of the United States, in which matter he is perhaps the best authority the case admits of: and later still it appears, even the negotiation of a foreign loan was of importance enough to excite the greatest apprehension, the truth of which may be seen by the following extract from the city article of the Times newspaper. “ MONEY-MARKET AND CITY INTELLIGence.
“ Monday Evening. “The great feature of the money-market is an apprehension that the Bank, under alarm about the possible effect