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CHAP. II.

Arrangement with the Bank of EnglandBill brought into the House of Lords to enable private Banks to have an unlimited Number of PartnersClause introduced authorising the Bank of England to establish Branch BanksDiscussion on the Propriety of relieving the existing Distress by an Issue of Exchequer BillsThe Bank agrees to advance Money upon SecurityBill to enable Factors holding the Documents of property in Goods, to pledge them to the Bank as effectually as if they were the real OwnersAppointment of a Committee on Emigration.Corn Laws: Mr. Whitmore's Motion—Bill to allow the admission of Bonded Corn into the MarketBill to authorise Government to Import a limited quantity of Foreign Grain during the RecessMr. Ellices Motion on the State of the Silk TradePetitions concerning the Navigation LamsMr. Huskisson's Statement of the Effects of the recent Alterations in these LawsRelaxation of the Navigation Laws in favour of the new South American States.

THE measure for suppressing the circulation of small notes had been conjoined, in the statements of ministers at the opening of the session, with another expedient, the purpose of which was, to render unlimited the number of partners who might legally unite as partners to form a bank. To gain this end, it was necessary to interfere to a certain extent, with the charter of the Bank of England; for, by the privileges of that corporation, no private banking company could consist of more than six partners, a limitation which had sprung from apprehensions that large co-partnerships might tend to exclude the Bank from its paramount influence in the pecuniary transactions of the country, and which rested on the same principle that had induced the incorporated insurance companies to purchase from parliament the power of preventing the formation of any rival

company for similar purposes. The consent of the Bank, therefore, was required, even to the introduction of this measure; for parliamentary omnipotence is never more imprudently, and, in most instances, more unjustly, exerted, than when it violently wrests legal rights from the unwilling. Accordingly, in the month of January, government had entered into a negotiation with the Bank-directors, stating generally the wish which they entertained to restore a metallic circulation, and to establish private banks on a more solid foundation. One measure, the directors were informed, by which the former object might be in part attained, was the establishment, by them, of branch-banks in different parts of the country; but government stated their conviction, that such establishments could not be erected in sufficient numbers to answer the demands of the community. There

remained another expedient, that of allowing private banks to increase the number of their partners indefinitely, and thus to establish them on a basis so broad as to give the country, at all times, a confidence in their solidity, like that which had so long existed in Scotland. The minister pressed earnestly upon the directors, how little they would lose, and how much the public would gain, by the surrender of their particular privilege. Their notes, they were told, did not circulate beyond a certain limited space round the metropolis, excepting, perhaps, in Lancashire. So long as the country establishments continued upon their present footing, a smaller or greater degree of temporary difficulty, and of necessity for temporary exertion, must always be experienced by the Bank, whenever the exchanges were unfavourable; and, therefore, by giving increased stability to the former, it would secure itself against much occasional embarrassment.

The answer of the directors was unfavourable. It bore, that they could not consent to recommend to the proprietors the surrender of any privileges sanctioned and confirmed by to many acts of the legislature. In return, the Treasury would not admit the right of the Bank to ask compensation in the shape of new privileges, for what they were required to give up; and, at the same time, informed the directors, that, if conditions were to be proposed, it was from them that they must come. The directors now required, that the Bank of England should be placed upon the same footing as the Bank of Ireland, by extending its exclusive privileges to the distance of sixty-five miles round the metropolis. This stipu

lation was agreed to; and, on the day after parliament had assembled, a general meeting of the proprietors was held, for the purpose of confirming or rejecting the proposed arrangement. Opinions were much divided. One party strongly maintained, that the proposition had nothing equal in it: that the anxiety of government to obtain the concession proved it to be of value, and that therefore it ought not to be made without some acknowledgement; that all the benefit would accrue to the country at the expense of the Bank, and that, when thus required to lay open their charter, and surrender their rights for the public good, it was unjust to call upon them to do so without compensation. Those who, supported the arrangement, rested chiefly on the ground, that all the exertions of the directors to bend government on the point of compensation had been, and would be, unavailing; that the concession would not affect the real interests of the Bank; and that, if, at any future period, they should apply for an extension of their charter, they would be enabled to do so with a better grace, and on the ground of stronger merits, if they yielded now. At the close of the discussion, the arrangement was approved of almost unanimously.

Th»t the measure founded on this arrangement might go on simultaneously in parliament with the small-note bill, the act for enabling private banks to consist of an unlimited number of partners, was introduced in the House of Lords. The first discussion upon it took place, on the occasion of lord Liverpool moving the second reading (17th March); but the discussion, almost entirely forgetting the specific proposition before the House, was principally devoted to general disquisitions on the history and fluctuations of the currency, the sources of the existing distress, the other remedies which might be applied, and the conduct and influence of the country banks. Lord Liverpool, while he admitted that the measures which government was now carrying through were far from being perfect, and, in some individual details, might even be thought hard ones, begged the House to recollect, that the chartered privileges of the Bank of England stood in the way, and prevented government from going farther. Government, he had no hesitation in saying, ought to go farther, and would go farther, but, at the present moment, it could do no more. The law as to the constitution of banks was absurd and ridiculous in its nature, futile in its construction, and dangerous in its effects; but it had gradually grown up into what it was, and could be reduced only by time and trouble within reasonable dimensions or sound proportions. One of two systems might be adopted. One was, to allow only a limited number of banks, or to exact from such as were permitted to exist, securities for their solvency. This was in itself a wise and salutary system, and might be profitably followed, if circumstances would admit of its adoption. It prevailed in Massachusets, one of the most settled and best-established states of America. That state allowed only twelve chartered banks; and so soon as any one of them became unable to pay in specie, its charter was forfeited. The other system was one of unlimited liberty, which was thought to be less objectionable in itself, and to gain equally the same end; because, when aU re

striction was removed, the solid and more extensive banks would not fail, in time, to expel the smaller and weaker. In London, for example, no paper circulation existed, except that of the Bank of England. Yet this was not the effect of law, for no enactment prevented private bankers from circulating their own paper; but they knew, that, if they issued notes, these notes would immediately be presented for gold, or Bank of England paper, and, therefore, they declined the issue of them altogether. But in this country, the free and the restricted systems were united; we were in a state of restriction as related to every thing good and substantial—in a state of liberty as to every, thing rotten and bad. The law said to any shop-keeper, however limited his means, "you may establish a bank;" but, to persons of capital, willing to engage in a similar undertaking, it said, "your company shall not consist of more than six partners." We ought either to impose wholesome restrictions, or leave banking in full and complete liberty; and the present measure was an approach towards a system of the latter kind. It might, no doubt, be represented as a half measure. Imperfect it certainly was; and imperfect it must remain, till the country should be freed from its engagements with the Bank, or the Bank should step forward to release the country from such parts of its charter as impeded the establishment of a substantial system. It would be short-sighted in the Bank of England to imagine, that its interests were engaged in retarding this desirable consummation. If the Bank were to limit the circulation of its notes to London and the

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vicinity, no banks now existing, or hereafter to be created, could interfere with its prosperity; while such a step would be attended with incalculable benefits, and would enable government to place the banking system of the empire on a more secure foundation.

The Earl of Lauderdale opposed the bill, and said that it was impossible to trace the late, and the existing embarrassments, to any excess of paper currency, or to any speculations arising out of such an excess; and that there was no circumstance connected with them which might not as well have occurred, even if the circulation had contained as much gold as ministers now seemed to desire. Their true origin was in the state of the money market, and in the fall in the rate of interest, which, from the anxiety to employ money profitably, naturally led to speculation and overtrading. The commissioners of the Sinking Fund purchased annually about 5,000,000/.: every visit they made to the Stock Exchange threw additional capital into the market, created an increase of employment, and a rise of prices; for the inevitable effect of the operation of the Sinking Fund was, the noble lord maintained, to diminish the interest of capital. Such an influx of capital resembled the coming of a lottery prize of 30,000/. into a country town; it animated the whole district with a rage for scheming and speculation; and both argument and authority shewed, that to this cause the existing difficulties of the country must be, in a great measure, if not altogether, ascribed. The proposed remedy, therefore, by allowing banks to consist of an unlimited number of partners, would not be efficient, and was not necessary.

Vol. LXVIII.

It would not be easy to form such establishments; for people, in general, would be averse from engaging in speculations, in which every one would be liable jointly and severally to the last shilling of his fortune. It was natural that a bank consisting of a few partners, each of whom could attend to some department of the business, should be better conducted than a more unwieldy establishment, the most interested members of which were sleeping partners; and it could not be doubted, that, badlymanaged joint-stock banking companies would produce as much mischief and misery, as any system of currency, however vicious. The example of Scotland proved demonstrably how unnecessary it was to seek for security in a large number of partners. Scotland possessed thirty banks; of these seven were chartered banks; of the remaining twenty three, only seven were joint-stock companies, and the rest, with one or two exceptions, did not consist of more than four, six, or eight partners. Yet the solidity of the latter had never been more questioned than that of the former; their notes were as well established in circulation, and they had stood the storm with as much vigour. He could not conceive it, therefore, to be j ust, or necessary,or expedient, to interfere in the present state of the country, with the exclusive privileges of the Bank of England. Lord Ellenborough, likewise, could not anticipate much good from joint-stock companies; and expressed his apprehensions lest, in 1833, when the Bank charter would expire, great embarrassment, as to the course which it might be deemed advisable to pursue, should arise from the existence of thesq establishments.

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