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issues of paper accordingly, there is danger that the value of the paper will not correspond with the value of the coin. The difference may not be immediately perceived, nay, the first effect of undue issue by increasing prices may be to encourage further issues; and as each issuer, where there is an unlimited competition, feels the inutility of individual efforts of contraction, the evil proceeds, until the disparity between gold and paper becomes manifest, confidence in the paper is shaken, and it becomes necessary to restore its value by sudden and violent reductions in the amount, spreading ruin among the issuers of paper, and deranging the whole monetary transactions of the country. If we admit the principle of a metallic standard, and admit that the paper currency ought to be regulated by immediate reference to the foreign exchanges-that there ought to be early contractions of paper on the efflux of gold-we might, I think from reasoning, without the aid of experience, argue that an unlimited competition in respect to issue will not afford a security for the proper regulation of the paper currency.' Here we have the whole of the premises upon which the scheme was founded.

It should be observed that Sir Robert Peel designated as money both the coin of the realm and promissory notes payable on demand, and that by the word paper currency he meant promissory notes only, not including bills of exchange, drafts on bankers, and other forms of credit. But there is a material difference between money and paper currency. As Mr. Huskisson said, the one possesses intrinsic value, the other has none intrinsically, and represents value in so far only as it is an undertaking to pay in money the sum for which it is issued. Lord Liverpool nowhere sanctioned the definition of money as including bank notes. Nor does Mr. Tooke. It is true that Bank of England notes are legal tender, but that is only an exception which does not affect promissory notes of other bankers not so privileged. Sir Robert made no such distinction; he dealt with the whole in the same scheme of legislation, and after much explanation he summed up as follows: It is proposed that the Bank of England shall continue in possession of its present privileges--that it shall retain the exclusive right of issue within a district of which sixtyfive miles from London as a centre is the radius. The private banks within that district which now actually issue notes will of course be permitted to continue their issues to the amount of the average of the last two years.3 Two departments of the Bank will be constituted, one for the issue of notes, the other for the transaction of the ordinary business of banking. The bullion now

The private bankers asked for the average of the previous five years; the joint-stock banks asked for the maximum of the previous two years; but Sir Robert Peel ultimately determined to take the average of the previous twelve weeks.

in the possession of the Bank will be transferred to the issue department. The issue of notes will be restricted to an issue of 14,000,000l. upon securities, the remainder being issued upon bullion and governed in amount by the fluctuations in the stock of bullion. If there be, under certain defined circumstances, an increase in the issue of securities, it shall only take place with the knowledge and the consent of the Government, and the profit derivable from such issues will belong to the public. Bankers now actually enjoying the privilege of issue will be allowed to continue their issues, provided the maximum in the case of each bank does not exceed the average of a certain prescribed period. A weekly publication of issue will be required from every bank of issue; the names of shareholders and partners will be published. No new bank of issue shall be formed, and no joint-stock company for banking purposes shall be established, except after application to the Government and compliance with various regulations which will be hereafter published to the consideration of Parliament.' Such is the outline of the measure as sketched to Parliament by the great statesman. It is much to be regretted that, notwithstanding the immense importance of the measure, it failed at the time to excite any great interest. Few were ready to follow Sir Robert Peel in the difficult and intricate inquiries which he broached, or to discuss with him the basis of monetary science. Mr. Hawes made an ineffectual attempt to open up a discussion by moving as an amendment, That no sufficient evidence has been laid before the House to justify the proposed interference with the banks of issue in the management of their circulation;' but the amendment was lost by 30 to 185, and although the bankers made strong representations on the subject, the measure went through the House with the greatest ease, and the Bank Charter Act passed into law.1

Nor did legislation terminate then. The year after, a similar measure was introduced for the banks in Scotland and Ireland with slight variations, such as that they might continue their issues of notes under 5l., and that, whilst country bankers in England were not allowed in any case to issue notes beyond their average issue for the previous thirteen weeks, the banks in Scotland and Ireland should be allowed to exceed that amount, provided they kept the excess in gold. Again Sir Robert Peel found a most compliant House. His doctrines were accepted with the greatest readiness, and having answered the slight objections, and explained some points to the apparent satisfaction of the House, he succeeded in gaining a complete triumph, and another section of the banking legislation was duly registered in the statute book." We shall not attempt any formal criticism on Sir Robert Peel's measures, but to our mind the question is a simple one. It is not the function of the

7 & 8 Vict. c. 32.

58 & 9 Vict, cc. 37 & 38.

Government to demand security for the payment of common debts, or to guarantee the right working of the foreign exchanges. The making of Bank of England notes legal tender in 1832, a measure which expediency alone had prompted, strengthened the erroneous assumption that bank notes are money. It would have been better to have retraced that step, and to have left the question of securing the convertibility of bank notes into cash just as the Bullion Committee left it in 1810, on the responsibility of the issuers themselves. This was the only safe and intelligible position for the legislature to take. As to any attempt to regulate the circulation by law, it must be practically useless, for we are not agreed on what the circulation consists of; and certainly it is useless to deal with one species of credit, such as bank notes, whilst others, such as deposits, cheques, and bills, which are of much greater magnitude, remain untouched. To fix the amount of the uncovered issue of the Bank of England at any sum which perchance happened to be due by Government to the Bank, or at the amount of capital of the Bank, or at the sum below which it had not fallen for a number of years, was altogether arbitrary and unphilosophical. To fix the amount of the uncovered issue of country banks, or of the Scotch and Irish banks, at the sum which happened to have been issued on a certain number of weeks in 1844, was likewise based on no solid foundation. Having once dismissed the idea of having only one bank of issue throughout the country as impracticable, there was no reason why the Bank of England should have had the sole privilege of issue in London. It would have been far better to have abolished the privileges and monopoly of the Bank of England, to have paid the debt due to the Bank, and to have placed the Bank of England on the same footing as any other bank. In the long run, it will be found that free banking will prove quite as beneficial as free trading.

CHAPTER III.

ON SCOTCH AND IRISH BANKING.

Economic Condition of Scotland and Ireland.-Formation of the Bank of Scotland.-Progress of Banking in Scotland.-Extent of Banking Facilities. Special Features of Scotch Banking. History of Banking in Ireland. The Bank Charter Act of 1845.

No better illustration of the beneficial action of banking in promoting the development of national resources could be afforded than the present advanced condition of Scotland. With only a small portion of her otherwise vast area capable of cultivation, a scanty population, and a geographical situation not nearly so advantageous as that of England, whence her wonderful prosperity and her abounding progress, except from the soundness of the means she has ever used for economising every fraction of her resources, and utilising them in the best manner possible? At the union, Scotland had a population of about one million of people, and a public revenue amounting to one hundred thousand pounds a year. Now, she has three times the population, or more than three millions of people, and a public revenue of some eight million pounds sterling a year. At the end of the war in 1815, Scotland was taxed for property valued at three millions per annum. Now, she is taxed for property valued at eighteen millions per annum, and that is, after all, an imperfect view of the property of Scotland or rather of the Scotch, since a large amount of property within England is owned by them, just as certain portions of property within Scotland is owned by the English. The unification of the Kingdom of Great Britain and Ireland is far too perfect to admit of any correct analysis of the Scotch, Irish, and English element, in the chief enterprises and industries of the country, but from the prevalence of Scotch names, and other distinctive characteristics of the Scottish character, it is too apparent that a considerable portion of the banking, commerce, and manufacture in the United Kingdom is in Scotch hands, whilst it is well known that the insurance companies of Scotland have overrun England, that many of the foremost places and ranks in every department of the economic and political life of the nation are filled by Scotch people, and that even in the British colonies and dependencies the Scotch occupy a distinguished

position. For a success so marked there must be greater and deeper reasons than chance and good fortune, but they may be easily found in the solidity of the Scottish character and the excellence of the Scottish banking system.

Very different has been the case with Ireland. Be it the fault of the race inhabiting it, or of the physical condition of the country-especially from the absence of coal and iron, which have played such an important part in the economic progress of Great Britain or of the political circumstances which attended her union with England, or of the narrow sea which divides Ireland from the rest of the kingdom, whatever be the cause, the fact remains that Ireland has not participated in anything like the same degree in the prosperity of Great Britain, and that just as in England and Scotland the progress has been rapid and well sustained, so in Ireland it has been slow and fitful. An essentially agricultural country, her wealth is more dependent than that of England on the uncertain elements of rain and sunshine, whilst the unhappy failure of the potato crop in 1845, on which the subsistence of the people so largely rested, suddenly produced famine and disease to an extent seldom, if ever, experienced. Political discontent and agrarian crimes have discouraged the investment of capital in the country, and have kept the people in a constant state of ferment. Difference of religion has prevented a greater mingling of races and people, Ulster and Connaught having but little affinity with one another; whilst difference of character, resulting from the phlegmatic temperament of the Scotch and English, and the impulsive disposition of the Irish, could not fail to manifest its influence in the working of political and economic institutions. Witness their effects on banking. The Irish are constantly alternating between the extremes of confidence and distrust. At one time they will avail themselves in the most inconsiderate manner of any facility of credit. At another, and immediately as credit is in any degree checked, they fall into a total want of confidence. In Scotland, a sound public opinion respecting the currencies operates even more efficiently than any bank restriction Act in economising the use of gold. A person who asks for gold in payment of a note acts, in the eye of the community, in a most unpatriotic manner, and contrary to the interest of the country. In Ireland, the great body of the peasantry have upon the lightest rumour a desire to possess themselves of gold in preference to paper. In Scotland, hoarding is never heard of, and has not been resorted to for, we may say, generations. In Ireland, in the memory of living persons, farmers used to hide their guineas behind the bricks of their chimneys. Yet notwithstanding all these hindrances Ireland has considerably improved of late years. True, she has 3,000,000 of people less now than she had twenty-five years ago, but the existing popula

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