Page:Encyclopædia Britannica, Ninth Edition, v. 3.djvu/340

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324
BANKING

non-existent. Apart from the practice of issuing transfer able notes, the bank is free from all restraint, and is in precisely the same situation as other banking or mercantile establishments. Its directors may lend or not lend as they please, and may lay down such conditions as they please in regard to the interest and the terms of loans and discounts. In short, they may do whatever they like with their own ; but farther they are not permitted to go. They may not substitute shadows for realities. They can not, whether to assist others, or to relieve themselves from embarrassment, issue a single note except upon a deposit of bullion. But this rule does not operate on the bank only. It applies to all individuals and associations. And to relax it in any degree would be disguise it as one may to authorize an issue of fictitious or spurious paper, and con sequently to vitiate the currency and to abuse credit in the

way that is sure to be in the end the most disastrous.

This statement shows the groundless nature of the charge which is often made against the Act of 1 844, that under its operation the bank runs the risk of being brought to a stop, though it may have some five, six, or even eight millions bullion in its coffers. For it is plain that two things are confounded in this charge, which are quite distinct, and have no necessary connection with each other, viz., the proceedings of the bank in the capacity of issuer of notes, and its proceedings in the capacity of a banking company. In the former capacity it is all but impossible that it should be brought to a stop ; and if such a thing should happen, there would not then be an ounce of bullion in its coffers. It is not, however, impossible nor even very improbable, that the bank should be brought, in its mer cantile capacity, into difficulties, while there may be a large amount of bullion in the issue department. But, though such should be the case, is that any reason why the bank directors should be permitted to draw on funds that do not belong to them, and over which they have no control 1 Supposing the bank was in difficulties, is it to be allowed to right itself by setting aside the principle of meum and tuum, and seizing on what belongs to others 1 The directors would be the first to repudiate such a doctrine, which must be rejected by all men who have any sense of honour or regard for character.

One of the most plausible objections to the Act of 1844 is that it " limits the currency ;" that it makes no provision for the increasing demands of the public j and confines us in 1875, when the exports will probably exceed 220 millions, to the same amount of money as in 1844, when the exports did not exceed 58i millions. The simple truth, however, is that the Act allows money to be imported and exported, to be retained or sent elsewhere, just as it is wanted, and what it does limit is the uncontrolled issue of paper representatives of money, which experience proved were too often emitted without any reference to the reserves of money kept to maintain the convertibility of the paper issued, The 14,000,000 (now 15,000,000) issued on securities is the only thing that is limited in the Act; everything else varies with the varying condition and cir cumstances of the country, including the means by which the use of money may be economized. In the week ending the 7th July 1875, the issue department of the bank had issued notes to the amount of 41,029,955, being no fewer than 26,029,955 over and above the amount authorized to be issued on securities. And if the country had really required a larger supply of money, that is, if more coins, or paper equivalent to coins, could have been absorbed into the circulation without rendering the currency redundant, and depressing the exchange, the additional quantity would have been forthwith supplied. For, under such circumstances, merchants, bankers, and money-dealers, would have realized a certain and imme diate profit by carrying bullion to the mint or the bank, that they might obtain coins, or notes, or both, with which to increase the currency. It is one of the chief merits of the Act of 1844, that, under its agency, the supply of money is not to any extent or in any degree regulated or influenced by the proceedings of the bank or the Government. They have nothing to do in the matter, unless it be to coin the bullion which individuals or firms carry to the mint for that purpose, and to exchange, when called upon, notes for coins, and coins for notes. The supply of money, like that of all non-monopolized articles, is wholly dependent upon, and is determined by the free action of the public. It would, indeed, be quite as true to say, that the Act of 1844 limits the amount of corn, of cloth, or of iron produced in the country, as that it limits the amount of money. It maintains the value of the notes issued by the bank on a level with the coins for which they are substitutes ; but beyond that its effect is nil. It has nothing whatever to do with the greater or less amount of the coin and notes of trustworthy convertibility put into circulation. That depends entirely on the estimate formed by the public of its excess or deficiency, an estimate which when wrong is sure to be corrected by the exchanges.

We may add, that no inference can ever be safely drawn from the number of notes or coins, or both, afloat in a country, as to whether its currency be, or be not, in excess. That is to be learned by the state of the exchange, or by the influx and efflux of bullion. If the imports of bullion exceed the exports, it shows that the currency is in some degree deficient ; while, if the exports exceed the imports, it shows that the currency is in excess, and that no addi tions can be made to it without farther depressing the exchange and increasing the drain of bullion. When the imports and exports of bullion are about equal, then of course the currency is at about its proper level. These are the only criteria by which anything can ever be correctly inferred in regard to the deficiency or excess of currency. Its absolute amount affords hardly even a basis for conjec ture. Wlien there is little speculation or excitement, an issue of 25 or 27 millions bank-notes may be in excess ; while, at another time, and with a different state of trade and speculation, an issue of 35 or 37 millions of notes may not be enough. Except in periods of internal commotion, or when we are disturbed by alarms of invasion, the state of the exchange is the only, as it is the infallible, test of the sufficiency and insufficiency of the currency. We may further state, that those who are in the habit of complaining of the limitation of the currency by the Act of 1844, almost uniformly underrate its amount. We have already seen that, in the week ending the 7th July 1875 the notes issued by the issue department of the bank amounted to 41,029,955, and of these 12,453,415 were in the banking department of the bank, leaving a balance of 28,570,540 in the hands of the general public ; and this latter sum is, we are told, the real amount of the issues. But this is falling into the rather serious blunder of mistaking a part for the whole. The notes in the banking department of the bank make not only a part, but a most important and active part, of the currency of the country. They consti tute the means, along with the bullion in the same depart ment, with which the bank carries on her banking business, and are as evidently a portion of the currency as the notes in the tills of private bankers and the pockets of indi viduals. The notes in the banking department of the bank must therefore never be omitted in estimating the amount of notes in circulation. The latter, and the notes out of the issue department, are identical ; and, in a general point of view, it matters not a straw whether they are in the hands of the banking department of the bank or of individuals.