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in deposit chiefly with bankers in the cities of London or Westminister, who do not issue notes. In a district in the country, also, where there are a number of bankers issuing notes, who divide with each other the circulation of the district, it is the interest of each to prevent his rivals from encroaching upon the general circulation. But bankers in the city of London or Westminster have no interest in limiting the issues of the Bank of England, but the contrary ; for an increase of issue tends to increase the amount of their deposits

In the county of Lancaster *, again, where at first sight the currency used there appears to be the most expansive of all, because it seems to have no limit but the wants of the issuers, it is, nevertheless, very effectually limited in two ways:- 1. No one will grant a bill of exchange without receiving present value. 2. The circumstance of its being payable in London imposes a loss upon him, if he has not funds there to make the payment.

A similar consequence restrains bankers in other parts of England, from over issuing; because wherever they do they have consequently a balance to pay to a rival banker, who will insist upon having either gold or bank notes, or a draft

upon London.

* See the nature of its currency stated, p. 27.

CHAP. III..

EXCHEQUER BILLS.

33

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But the mode by which the Bank can most conveniently extend the issue of its paper, the purchase of Exchequer bills ; because such bills also enable the Bank to contract its circulation, whenever it pleases, to the whole amount of the Exchequer bills which it holds. Its notes, which it gives in exchange for Exchequer bills, go into the hands of other bankers; and the Exchequer bills which it purchases with its notes, go in deposit with the bank, in place of the notes it may have had in store; but, whenever the Bank sells Exchequer bills, the whole of the notes which it receives in exchange for them are received by the Bank itself, and immediately destroyed.

Every over issue by the Bank of England produces a corresponding increase of issue by bankers in the country, where more currency is required, in proportion to the fall in the changeable value of money through the over issue of the Bank; which, however, is not ostensible until it produces an effect upon the foreign exchanges, and then the Bank contracts the issues of its paper, in order to prevent a drain of gold.*

* With two exceptions, every director of the Bank, who has been examined before the Secret or Select Committees which have sat on the affairs of the Bank, has shown himself altogether ignorant of the nature of exchanges. They have said, they cannot see how the issues of the Bank of England

D

The operation and consequences of the over issue are most mischievous. Mercantile men are induced by the apparent plentifulness of money to extend their transactions, and for a time they are encouraged by the free discounts of the Bank, and of other bankers from the increased amount of their deposits; but when the consequence follows, which sooner or later must attend an over issue of paper currency, then mercantile men suffer distress and loss through the contraction of discounts, consequent upon the Bank contracting its issues; and such distress is the greater that it is sudden and unexpected.

can have any effect upon prices, or upon foreign exchanges. Mr. Ricardo has well expressed himself upon this point :A circulation can never be so abundant as to overflow, for “ by diminishing its value, in the same proportion you will “ increase its quantity, and by increasing its value, diminish “its quantity.” — Principles of Political Economy, third edition, p. 422. The directors bring into the board-room a knowledge of the business in which they are engaged, but they know little else. Like other traders, they know the practice, but little of the principles, of trade, and even little of the practice beyond their own trade.

CHAP. IV.

OF THE EXCLUSIVE PRIVILEGE.

35

CHAP. IV.

THE REMOVAL OF THE EXCLUSIVE PRIVILEGE.

If this exclusive privilege were at an end, the personal liability of shareholders in joint stock companies, which ought not to be removed, would probably render slow the formation of such companies for the purposes of banking in England. But the fear of competition would immediately induce caution and circumspection on the part of the directors of the Bank. Some of the banking companies in the country would probably coalesce, and, having a head establishment in the most convenient situation, would have branches in the places where they now carry on business, and, in other places also. Coalitions, perhaps, would also be formed among the bankers of London and Westminster, who would have a head office for the issuing of notes, and preserve their present establishments for receiving deposits.

The receipt of deposits, which now constitute the chief source of the profit of bankers, was not contemplated at the formation of the Bank. Mr. Godfrey, who was the able assistant of Mr. Paterson in the institution of this great establishment, observes, in his “ Brief Account of the Bank of England.”—“If the Bank can “ circulate their foundation of 1,200,0001. with“out having more than 300,000l. lying dead at “ one time with another, the Bank will be, in “ effect, as 900,0001. fresh money brought into “the nation." But the Bank now receives deposits to a larger amount than its foundation or its now subscribed capital, not less than three fourth parts of which, perhaps, it may use in discounting bills of exchange (by doing which it best assists industry), or in the purchase of Exchequer bills, or in temporary advances to the state.

If the deposits made with bankers in the cities of London and Westminster could be ascertained, the aggregate would be found much to exceed the amount of deposits made with the Bank of England. Deposits spring from Banking and form the most beneficial part of it. The sum of deposit which each person makes is as useful to him, and more safe, in the hands of his banker, than it would be in his own; while by means of these deposits a fund is created, which is rendered useful to the purposes of general industry, , without in the least degree impairing the use of any part of it to the persons by whom it is made. But the security for such deposits is lessened by the exclusive privilege of the Bank

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