THE BANK CHARTER ACT OF 1814.
TUE position of the Bank of England attracts weekly more attention, and imparts an apparent plausibility to proposals to tamper with or subvert the system established by Sir Robert Peel. The difficulty of the subject of the currency is partly real, and to a much greater extent imaginary. An unspeakable spirit of absurdity seems always to come over men otherwise rational whenever they meddle with this matter ; and opinions and arguments pass unquestioned, as though they were fenced with a sort of divinity which forbade the impious application of common sense to their exrosure. We, however, intend to adopt this profane method of examining certain theories, for propounding which the present state of the money- market seems to be thought to afford a favourable occasion.
It is represented, that so long as Government had rarely need to borrow, they pitilessly enforced the Act which hindered the borrow- ings of others; but that now the Chancellor of the Exchequer has learned sympathy in the school of misfortune, and will be ready to facilitate loans to the commercial public for the sake of transacting his own business smoothly with the Bank. The stern power of necessity is expected to put Ministers on considering whether it be reasonable for the State to pay higher interest upon a loan because the Bank of England has less gold in its vaults than it had three months ago ; and it is confidently assumed that this question will be answered on reflection in the negative. That confidence we do not share; on the contrary, we look to Government fairly to meet the difficulties of their position, and to show that their belief in the soundness of the principles on which the Bank Act rests is unshaken, and that they will maintain them firmly, even to their own embarrassment. We have been lately warned against one great temptation of a costly war, that of evading the burden of tax- ation by too ready resort to loans. Another plan, equally al- luring, is that of depreciating the currency by issuing incon- vertible paper-money. This, in plain words, is the meaning of the various schemes for infringing the Bank Act ; and the shortest way of dealing with its assailants will be to show that every fresh plan, however dressed up, is reducible into depreciation, which few persons are at present willing to advocate without disguise. Gold is flowing out of the Bank of England because it bears a higher price abroad than at borne, and the only cure for the efflux is to raise the price here. This remedy is so simple and obvious, and has so little novelty to recommend it, that it is always in danger of being cast aside for some newer and more showy specific. Our remedy is also easy of application ; indeed, the process is now going on ; and if it be allowed to operate without interference or alarm, we have no doubt whatever of the result. It must not be concealed that the country has a period of hard trial to go through. Unless we can master the powers of nature and the passions of man, we cannot escape the recurrence of times of national distress. Neither citizen nor state can reasonably hope to enjoy unbroken prosperity; and the only wise course is to shorten sail in good time and make all snug for the storm which is surely coming.
Business, we are told, is still increasing, and the figures which exhibit its dimensions are larger for the first quarter of this than
of the previous year; but the aggregate circulation of bank-notes has declined. To this we say, that, according to theory and ex- perience, the decline of the circulation must sooner or later di- minish business transactions, and the change will be gradual or sudden according as prudence does or does not govern our com- merce. Until there is a certain and near prospect of a good har- vest, very great caution in business is absolutely necessary, and the effect of that caution -will probably be seen in lessening the figures which are usually taken to measure the extent of the trade of the country. Unless this result be soon apparent, we shall be- gin to look with very great anxiety for signs of severe commercial embarrassment.
It is no doubt true, that since the Bank Act passed business has been, with the exception of one great reverse, uniformly in- creasing and successful. It is also true that this increase is not
the consequence of the Bank Act, and we should think that no sane person ever pretended to say that it was. But, with or without the Act, a change must sometimes come; and, 'when it does, there is the Act to compel us to meet it fairly, and not ag- gravate the evil by attempts at evasion and delay. A generation has grown up in peace and prosperity that shrinks from facing trou- ble and war, and that is apt too eagerly to catch at any expedient that may seem to hold out hopes of escaping the effect of inevitable laws. Harder times may at least bring this good, that they will train up a more patient and manly race to follow us. The late rise in the Bank rate of discount may, we trust, be taken as a sign that now, at least, the Directors will be wise in time, and that they will not fear to take, promptly and resolutely, all such steps as may be needed to secure the Bank, and to warn the trading world against relying too far on aid which it may become impos- sible to furnish.
It must not be understood that we contend for the finality of the Bank Act, or of any other device of the shortsighted wisdom of man. We believe that the sum of fourteen millions, which the Bank is allowed to issue on securities, was not too high when the Act passed, and that the circumstances of the country have of late years been such that a somewhat wider margin would have been left if the point had remained open longer. If, after further ex- perience, it appear that no great reaction from the present state of matters is to be apprehended, it may then be proper to consider whether some further issue upon securities may not take place,— always keeping in view, however, the principle upon which the original limit of fourteen millions was fixed, and not extending the issue beyond what the fair application of that principle to altered circumstances will warrant. Under the present Act, Government has power to authorize the Bank to make a further issue on securities to the extent of two-thirds of the issues of provincial banks which from various causes have become extinct. This further issue might now be made, to the amount of nearly half a million ; and strong reasons might be given why the step is worthy of consideration. We do not, however, concur in the view that the Chancellor of the Exchequer has thus the means of obtaining a loan of nearly half a million in perpetuity and without interest. The Act certainly provides that the profit upon the further issue shall go to the nation; but the Bank is under no restriction in disposing of the principal, and late events do not seem to favour the notion that the Chancellor will get more from the Bank than he can legally claim. We do not think that he will have the use of this half million without some consideration moving directly or in- directly to the Bank ; and it is not easy to see why the Bank should act upon the authority if they are to gain nothing by so doing.
We agree that the great increase of business transactions since the year 1844 is chiefly due to two causes,—the repeal of the Corn- law, and the discoveries of gold. Some opponents of the Act think they make a great point by asking where we should have been if the extension of business caused by the increase of gold had taken place without that increase to support it. This is a fair sample of a currency argument which we shall simply state, to be dealt
with by our readers. Again, we are asked, what would have become of the Act if the pressure upon it by the enlarged transactions of free trade had not been relieved in 1850 by the discovery of gold ? To this we answer, that the amount of currency permitted by the Act, economized as it has been by the further use of banking ex- pedients, was sufficient for the transactions that took place ; and that the Act was strong enough to confine business within limits warranted by the genuine resources of the country. As soon as the increase of gold was felt, the circulation spontaneously ex- panded so as to be adequate to larger transactions. The Bank Act is sometimes compared, as a measure of restriction, with the Corn-law : but it would be more properly classed with the repeal of that law as a rejection of artificial means and a return to a simple and natural method. It is said that the Bank Act has had the effect of keeping the currency stationary or curtailing it ; and that this effect is the more remarkable because during the same time the whole quan- tity of gold in circulation and in the Bank has been much in- creased. Now, as all the gold in the Bank is represented by notes out of the Bank, and therefore if the gold in the Bank increase the currency must necessarily increase also, this effect, if real, would be very remarkable indeed. But, on looking to the evidence of its existence, we find that the facts relied on are, that in Tilly 1852 there was in the Bank 21,977,000/. bullion, and in October 1852 there was an aggregate circulation of 40,808,5101.; but in December 1853 the circulation declined to 39,567,852/. These figures are brought forward without the slightest hint that the bullion also diminished during the eighteen months following July 1852; and a novice would never guess that the decline in the circulation was directly caused by the diminu- tion of the stock of bullion. How is it possible ever to come near the truth when the plain facts and figures of the case are thus distorted ?
Another late contribution to the entanglement of this question is an attempt to account for the present efflux of the precious me- tals from this country in the following way. In France, pay- ments may be made either in gold or in silver, and since the re- cent discoveries have made gold comparatively cheaper than silver, it is more advantageous for debtors to pay in gold. Hence, throughout France, gold is supplanting silver as the medium of exchange. Meanwhile, a substitution of silver for gold is taking place in the currency of India, the authorities having repealed the law which made gold a legal tender in common with silver. Eng- land, therefore, exports her gold to supply France ; and exports the silver received in return to supply India. The Bank of England is now feeling the effect of this double drain. Now, assuming the facts to be as stated, they still furnish no explanation of the cause of the present drain, because it is plain that there must be one more fact to add,—namelv, that the gold displaced in India by silver comes back to England in return for the silver. Directly or circuitously this must be so, unless the whole theory of the distribution of the precious metals over the world is a delusion. We must look else- where for the causes of the drain of gold. Some powerful agencies are at once manifest, and others perhaps time and observation will discover. We suppose the chief cause of the drain to be the ne- cessity of paying for large importations of corn; another cause is the demand for hard money to pay troops, and to make prepa- rations for sending them into the field and keeping them there.
So far we have been dealing with the fallacies of men who are honestly opposed to the Bank Act : but there is another party among whom the measure stands sufficiently condemned by the fact that it was framed by Sir Robert Peel and is likely to be sup- ported by his friends. Mr. Disraeli has laid the ground for an attack by working into his Life of Lord George Bentinck an elabo- rate misrepresentation of the effects of the Act in the last commer- cial crisis, and we fear that his book may have found believing readers, whom no antidote will reach. We should say that its au- thority for the year 1847 is about as high as that of any other his- torical novel for the time therein treated of. One good point has been missed—we mean, that the Act was passed in the very year in which the Czar visited England ! We suggest to Mr. Disraeli, that it is still open to him to show that the Bank Charter Act was concocted between the Russian Emperor, Peel, and Aberdeen.
* A very complete though quiet exposure of the fallacies and misstate- ments on this subject, invented by Mr. Disraeli, or found by him ready- made, was lately published in a pamphlet, entitled "The Bank Charter Act in the Crisis of 1847; with an Examination of certain Passages in Mr. Dis- raeli's Life of Lord George Bentinck."
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