[PDF]The Theory And Practice Of Banking

THEORY AND


OF

BANKING


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CONTENTS


THE SECOND VOLUME


CHAPTER X

FFwOM THE RENEWAL OF THE BANK CHARTER IN m)0,
TO THE ACT FOR THE RESUMPTION OK CASH PAY-
MENTS IN 18X9

, X, Great failure of the harvest in 1800 • « * . , 1

2. Opinions held in 1696, respeeting the depreciation of paper . 2

3. Opinion of Adam Smith reepocting Uie market price of

Bullion . .

4. After the restriction prices estimated in Bank paper • • 3

5. Sudden rise in the market price of Gold in IKOl . « . 3

6. Bisoovory of the truth that a rise in the market price of gold

Bullion was a proof of the depreciation of the paper cur¬
rency . .

7. This discovery duo to Mr. Boyd, I^ord King, and Mr. Thorn¬

ton . .

8. Peace of Amiens — continuation of the restriction ... 4

0. Mr. Fox first declares the cause of the adverse exchange in

the House of Commons . .

10. Declaration of War in 1803— Lord King's principles of a

paiH'r currency . . .

11. The issues of country banks baswl ui)on Bank paper • . $

12. Par of Exchange between England and Ireland . , , a

13. The Bank of Ireland directed to suspend {myincnts in cash . 9

14. Extraordinary depression of tlie Exchange between London

and Dublin 9

15. Appointment of a Committee to inquire into the state of Ui«

Irish Currency g

16. First investigation into the theory of the papi^x currency by

Parliament . . , 10

17. Opinions of the Direotors of the Bank of Iroland • » * 10


VI


CONTENTS


PAGE


18. Their description of the extraordinary debasement of the

Irish Currency . 11

19., Exchange with Belfast favourable to Ireland, while that with

Eubhn adverse . 13

20. Dif erence of 12 per cent, between Exchange with Dublin and

with Belfast . . 14

21. The fact proved that a balance of payments was due to

Ireland, while the Exchange was so depressed . . .14

22. First declaration of the opimon that gold had risen, and paper

had not fallen . 14

23. Opmion of Mr. Marshall that Irish Bank notes were depre¬

ciated . ..... 15

24. His evidence on the subject . . 16

25. The Theory of the Directors of the Bank of Ireland as to the

regulation of the paper currency . 17

26. Eeport of the Committee . 18

27. The Committee report that the Directors should regulate

their issues by the price of gumeas and the foreign Ex¬
changes . 19

28. Very debased state of the coinage . 19

29. The Committee do not discuss the new theory of paper

currency . 20

80. They recommend an assimilation of the English and Irish

currencies . 20

81. Mr. Fox declares it to be a fantastical opinion that paper was

not depreciated, and that gold had risen . . , .20

82. First declaration by a Parliamentary Committee that the

paper currency should be regulated by the Foreign Ex¬
changes . 21

33. Renewal of the Bank’s loan to Government . . .22

34. Circumstances which lead to the great depreciation of the

British Currency . 22

35. Perfidious conduct of Prussia in 1805 . 23

36. The Berlin decree against British commerce in 1807 . . 24

37. Immense speculation in 1808, and subsequent years . . 25

38. Great multiphoation of country banks in 1809 . . .25

39. Great rise in the market price of gold . 26

40. Appointment of the Bullion Committee . , .26

41. Eeport of 1810 identical in principal with that of 1804 . 26

42. Names of the Committee . 27

43. Identity in sentiment between the witnesses examined before

both Committees . 27

44. Remarks upon some of the evidence . 28

45. State of facts agreed upon ....... 29

46. Issues maintained by one party . 29

47. Issues maintained by the other party . 30

48. Discussion of the points of dif erence . • • • . 31


CONTENTS


Evidence ot Mr. Ghambera
Bomark of Mr. Huskiason

Fallacy of Mr. Ohambais’s opiniojis .....

Another illustration .

Olio argument to show that there was no difference in value

between guineas and hank notes .

Bisoussion on second point of diJOferouce between the two

parties .

Opinion of a foreign merchant .

Bisoussion of the third point of diflerenco between tlie parties
Bisoussion of tlio fourth point of difference reserved .
Analysis of tlie Bullion Report ....

The same continued . ,

The same continued .

The same continued .

The same continued

The same continued ........

Tho same continued

The same continued .

Tho same continued .

The same continued . .

The same continued . ,

The same continued .

Tho same continued . .

Tho same oontinuod .

The same oontinuod ........

The same oontinuod .

The same oontinuod
The same continued
Tho same continued

The same continued ........

The same continued ... • . • . !

Tho same continued . [ ]

The Bullion Eeport is tlie standard by which ainogislation
regarding tho paper currency should bo regulated .
Eesolutions of Mr. Horner

Mr. Bobo'h reply to Mr. Homer ... I * [

Bpoeoh of Mr. Thornton . I !

Mr. Vansittart’s resolutions

Historical untruth of tho doctrine that the coinage never was
intended to contain any fixed quantity of bullion
Frevalenoe of a pa|)er price and a cash price for goods*
Examples of this given by Mr. Sharp . . . . ’

Instances given by Sir Francis Burdett ... *

Theory of tho opponents of tlie Bullion Beport !

Eejection of tho Bullion Beport— Mr. I’oel votes with the
majority . .


CONTENTS


Eesohitions of Mr. Vansittart .

Mr. Canning tries to persuade Mr. Vansittart to abstain from
pressing his lesolution .......

Great absurdity of the law regarding the sale of guineas

Letter of Loid King .

Lord Stanhope’s Act in 1811 .

Opposed by Lord Grenville .

Observations of Lord Stanhope . .

Absurdity of these opinions

Lord Stanhope’s Bill passed .

Remarks upon overtrading of 1809 reserved

Alleged injustice of inaldng the Bank buy gold at the market

price . .

High price of corn in 1812 .

Great speculations and increase of country banks m 1818 .
Very abundant harvest of 1818, and revulsion of credit in

1815-16 .

Great destruction of country bank paper in 1816 ; rise in the
foreign exchanges, and fall in the market price of gold
Which is an example of the truth of the principles of the

Bullion Report .

Partial resumption of cash payments in 1810 .

Restiiction prolonged till July, 1818 . . • • .

^Lsmanagement of the Bank in 1818 .

Great drain of bullion in 1818-19— appointment of Com¬
mittee by both Houses of Parliament to enquire into the
expediency of resuming cash payments ....

Names of the Committee .

Great change m the opinions of the mercantile world regard¬
ing the principles of the Bullion Report ....
Opinion of Mr. Dorrein, Governor of the Bank .

Opinion of Mr, Pole, Deputy-Governor of the Bank
Opinion of Mr. Haldimand, Director of the Bank .
Opinion of Mr. Ward, Director of the Bank
Opinion of Hr. Samuel Thornton, late Director of the Bank.

Opmion of Mr. Irving .

Opinion of Mr. Holland . . .

Opinion of Mr. Thomas Tooke ......

Opinion of Mr. Ricardo . . •

Opinion of Mr, Baring .

Opinion of Mr. John Ward .

Resolution of the Bank of England in oxiposition to the

evidence of the mercantile witnesses .

Reports of the Committees to both Houses • • . •

^ Ministerial resolutions .

Speech of Lord Liverpool

Speeches of Lord Lauderdale and Lord King • • .


CONTENTS


ix


PAOB

129. Speedbi of Lord Grenville • . . • . • 83

130. The speeches of Lords Liverpool and Grenville deserve to he

carefully studied . . . . 86

181. Speech of Mr. Peel in the House of Commons . • .86

182. Speeches of various members . 89

138. Chief provisions of the Act . 90

134. Act to prohibit the Bank making advances to Government . 91

136. Enthusiastic adoption by Parliament of the principles of the

Bullion Report m 1819 . 91

136. The Bank of England resists the principles of the Bullion

Report for eight years longer, but finally adopts them in
1827 . 92

137. Cause of the fallacy which so long deceived the public on

this subject . 92

138. The principles of the Bullion Report are not matters of

Opinion but of Demonstration . 93

Table shewing the chief variations in the market-price of
Gold Bullion from 1790 to 1819, and the real value of the
£1 Bank note during the restriction . 95

CHAPTER XI

FROM THE ACT FOR THE RESUMPTION OF CASH PAYMENTS
IN 1819, TO THE BANK ACT OF 1844

1. Great disturbance in the proportions of supply and demand

in several articles after 1819 ...... 96

2. High prices of corn in 1818 . 96

8. Market-price of gold at par with Mint-price in 1819 . . 97

4. Great fall in the price of corn at the end of 1822 . . , 98

5. The Bank resumes cash payments 1st May, 1821 . . .98

6. Corn Act of 1816 to secure price of wheat at 80». a (quarter . 99

7. Committee on agiicultural distress in 1822 .... 100

8. Prolongation of the issues of the £1 country bank notes . 100

9. Mr. ■Western’s attack on the Currency Act of 1819, in June,

1822 . 101

10. Proposal for the “ equitable adjustment ” of contracts . . 102

11. The piico of agricultural produce more depressed on the Con¬

tinent than in England . 108

12. The Currency Act of 1819 produced no con¬

traction of the Currency . 103

13. Sir Itobcrt Peel is entitled to neither the merit nor the blame

of the Currency Act of 1819 104

14. Fallacy of the supposition that the increased prices of agri¬

cultural produce in 1823 wore owmg to increased issues . 104
16. Second attack by Mr. Western on the Currency Act, in June,

1823 . 105

18. Speech of the Marquis of Xitchficld • « • • . 106


X CONTENTS

§ 17. The ^larquis of Titclifield’s description of “ Currency ”

18. Fallacy of alleging that tlie currency was depreciated
during the whole of the restriction from 1707 to 1810
9. General revival of prosperity in 1823 .

20. Origin of the disaster in 1825 began at the close of 1821 •

21. Great speculation caused by the recognition of the inde¬

pendence of the South American oolomes of Spain by
Groat Britain in 1824 .

22. Groat apparent prosperity at the beginning of 1825 .

23. Description of the speculative mama of 1825

24. Fatal conduct of the Bank of England at this period .

25. Collapse of Credit in the autumn of 1825 ....

26. Eapid efilux of Bullion from the Bank of England in 1821

and 1825

27. Banking panic in the autumn and winter of 1825

28. General run upon the London and country bankers

29. Description of the great crisis of December ....

30. Policy of the Bank .

31. The great pressure in the money-market turns the exchanges

in favour of England .

32. Sudden change of policy by the Bank— profuse issue of

£5,000,000 Bank Notes m four days .

83. Issue of £1 notes by the Bank, which stays the panic in the
country . .

34, The crisis an example of the truth of the principles of the

Bullion Itoport .

35. The speculative mania not attributable to the Bank or to

the country banks .

86. Speculative manias have occurred both before and after¬

wards, not attributable to the Bank .....

87. The bold pohey of the Bank saved it from bankruptcy

88. Determination of Government that the monopoly of the

Bank must be modified .

89. Discussion in Parliament on the oommorciol crisis in

1826 .

40. Abolition of £1 and £2 bank notes • . . . !

41. Mr. Baring’s condemnation of the small notes .

42. Speech of Mr. Huskisson .

43. Opinion of Sir John Newport . [

44. Speech of Sir Bobert Peel

45. Provisions of the Act suppressing small notes in England .

46. Intention of the Government to suppress the small notes in

Scotland abandoned, in consequence of the rooommeuda-
tion of Comxmtteos of both Houses .

47. Adoption by the Bank of England of* the*

Principles of the Bullion Report— Tho Beso*
lution of 1819 expunged from their books


PAOB

lOS

109

110
111


111

111

112

113

113

111

115

116
116
116

117

117

118

118

120

120

121

121

121

122

123

123

125

126
127


128


128


CONTENTS Xt

Tlio circulation of Scotch £1 notes in England forbidden . 3.21)*
4&. Run on the Bank in 1832, during the discussion on the

Reform Bill . . 120


50. Committee of the Commons on the Bank Charter . . 130

51. The inquiry left incomplete . 130

52. Principal points inquired into ...... 130

53. Mr. Horsley Palmer’s description of the method adopted by

the Bank, to carry out the principles of the Bullion Report 131

54. Opinions of the witnesses . 181

55. First appearance of the heresy that bills of exchange form

no part of the circulating medium . 132

56. Mr. Attwood’s attack on the Currency Law of 1819 . . 132

57. Resolutions of the House of Commons, renewing the Bunk

Charter . 132

58. Definition of the Bank’s exclusive privilege of banking . 133

59. The Bank’s privilege held not to exclude the formation of

Joint Stock Banks of deposit . 13 i

CO. Provisions of the Act renewing the Bank Charter in lb33 . 135
Cl. Doiiression of the price of wheat in 1834-35-30 . . . 130

C2. Rise of bpeculatiou, and Joint Stock Companies • • , 13r>

03. Position of the Bank m 1833-34-35 . . * , , 13hj

01. Decline of bullion in the Bank in 1836 .... 139

05. Negotiation of American securities in England , . . 139

60. The Bank of England refuses to discount any bill indorsed

by a Joint Stock Bank of issue . ,139

67. Difficulties of the Agricultural and Commercial Bank in

Ireland . .

68. Failure of the Northern and Central Bank . . , .110

69. Position of the Bank in March, 183H . 112

70. Failure of the Bank of Belgium in 1838 . . . • 112

71. The Bank sends a million of Ho\creign8 to America . .113

72. Rapid drain of bullion from the Bank in 1839 , . . 1 13

73. The bank rato of discount much below the market rale - M i

74. On the 13th July, lH3i), the Bank olTcrs annuiticH for sale • 114

76. The Bank is obliged to create two foreign credits . .lit

76. Appointment of the Comimtteo on banks of issue in IHIO . 145

77. Lord Overstono pomts out the fundamental vice of tlie bank

principle of 1832 . .

78. Dnsatisfactoiy character of Uio iminiry , . , ,11/^

70. State of the country from 1838 to 1814 • , , , 119

CHAI’TBR XU

FROM THE BANK ACT OF 1844 TO TUB PRESENT TIME

1. Sir Robert Peel’s views regarding the Currency on introducing
the Bank Act of 1844 150


CONTENTS


xii


§ 2.
S.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.


20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.


31.

32.

33.

84.


Errors committed by lum ..-••••
Continuation of Sir Bobert Peel’s speech # • • •

Unfairness of his illustration . .

Opinion of President Van Buren regarding the Bank of the

United States .

Continuation of Sir Eobert PeePs speech • . • •

Purther proposals of Sir Bobert Peel . • * • «

He acknowledges the inconsistency of his measure of 1844

with his former views . . .

Extract from Sir Charles Wood’s speech . • • •

The Bill becomes law . . • •

Chief provisions of the Act . . • • • •

The Act authorises a violation of its own principle • •

Incorrect to say that the Act of 1844 is the complement of

the Act of 1819 .

The Act of 1844 is a combmation of two very erroneous

theories of currency .

Unusual accumulation of Capital in 1844 • . • .

Great error of writers who think that prices must vary
exactly with the amount of the Currency ....
Variations in the Bank rate of discount after the Act of 1844
Bapid drain of bullion in the Autumn of 1846 and Spring of
1847 .


FACS

151

153

153

53

155
150

156

157

157

158
160

161

161

161

162

162

163


The Bank Act shewn to be subject to the same radical vice
as the bank principle of 1832 ..*••. 165

Monetary pressure m April, 1847 . 166

Passes off after the first week of May . 1G7

Error of the Bank in keeping down the rate of discount too

long . 167

The Chancellor of the Exchequer notices the pressure in

Parhament . 167

Com speculations in the Summer of 1847 • • • , 167

Great failures in the Autumn of 1847 . . • • • 168

Unsound state of commercial credit in 1847 — the panic . 168

The Government letter authorising the Bank of England to
issue notes beyond the limits prescribed by the Act of 1844 170
Extraordinary aid afforded by the Bank of England to Com¬
mercial houses iji the Autumn of 1847 . . . . 171

Meeting of Parhament m November, 1847 .... 172
Speech of the Chancellor of the Exchequer on moving for a
Committee of Inquiry mto the commercial distress, 30th

November, 1847 . 172

Speech of Sir Bobert Peel . 175

The same continued ........ 176

Opmion of the Governor and Deputy-Governor of the Bank
of England on the Act of 1844 ...... 177

Mr. Gurney's opimon 178


CONTENTS


xm


35. Mr. Loyd^s opinion • • • • • « • ‘17^

36. Mr. Glyn’s opinion .«•••••• ISO

37. Reports of the Committees ..••••. 180

38. Mr. Herrics’ motion . ISO

30. Drain of bullion in the Autumn of 185,1 . • . , 180

40. Comparative view of tbc bullion, and the rate of discount of

the Bank of England during 1855 . 182

41. Judicious conduct of the Bank during this dram . . .183

42. The Bank of England allowed to increase its issues on
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