John Haslam

“ And when a single bank of issue fails to meet its liabilities, it always tends to throw a partial discredit over the whole paper circulation of the kingdom.
Whatever may be the other qualities desirable in a paper currency, it appears to us to be almost axiomatic, that it should, if possible, be rendered as secure as a currency purely metallic—as stable as the Government itself. But this we contend can never be accomplished, so long as the privilege of issue is conceded to any very considerable number of separate banking companies. ”

“ At present, the privilege of issuing paper money, unrepresented by bullion, is a highly profitable and closely protected bank monopoly. Now the undisturbed enjoyment of a monopoly, as is well known, has sometimes the effect of impressing its possessors with a conviction, that they hold their privilege by a sort of inalienable right, irrespective of the public welfare. ”

“ The events of the past twelve months, indeed, have indubitably proved that it lies within the competency of a foreign country at any time, when the bullion is at a minimum, to buy up all the marketable English bills on the Continent at a trifling monetary sacrifice, and by transmitting them for discount, entail so sudden a demand for gold upon the Bank as may completely exhaust the treasure in the coffers of that establishment. ”

“ There is no evil that may befall the public from the circulation of base coin, that may not arise to an equal, if not aggravated, extent from the issue of counterfeit paper. Indeed the issue of paper money is liable to risks exclusively its own and which require far more ingeniously devised safeguards than the issue of coin. The person who receives gold or silver in payment may sometimes be under the necessity of employing a few easy tests in order to prove its genuineness, but if he apply these with the most ordinary circumspection, he can successfully protect himself from loss by imposition. ”

“ And as the superabundance of money must have already produced a considerable decline in the rate of interest, and a corresponding rise in the scale of general prices, and must have thereby given an impetus to the spirit of undue speculation, so this disastrous competition of the Bank of England for an extended share of business, must not only induce a still further depreciation in the one case and enhancement in the other, but must inevitably impart a very powerful incentive to the rapid progress of speculation. ”

“ The advantages resulting from this periodical revision of our currency code with respect both to the public generally and to bankers in particular are very considerable. The investigation of the laws of monetary phenomena forms undoubtedly the most abstruse and intricate department in the whole range of political economy. In no other section of the science are the ultimate conclusions more liable to be vitiated by any error in the leading principles, or any false step in the process of deduction ”

“ One of the chief defects of a purely metallic currency consists in the very circumstance that it does not contract and expand with the decrease and increase of marketable commodities requiring to be exchanged for each other, but that, on the contrary, through the operation of an influx or efflux of gold, it not unfrequently contracts or expands in a far greater proportion than the state of the markets would justify, thereby producing an excessive depreciation or appreciation in general prices ”

“ The evils requiring to be guarded against, have been shown to be two-fold; the circulation of counterfeit notes, and the insolvency of some of the banks of issue. The former of these, in such a case, appears to admit of no infallible means of prevention; the latter can only be provided for by the State’s becoming the guarantee of all the paper money in the hands of the public. But this is a course which few, even of the most sanguine advocates of a plurality of issuers, would be bold enough to recommend. ”

“ There is one case indeed in which they might not unfairly consider themselves aggrieved, and that is, if the privilege were withdrawn so suddenly as to cause any serious depreciation in the value of their property. And in order to avoid such a result, it would certainly be expedient that sufficient time should be allowed them to contract their issues, and replace them by Bank of England notes, with the smallest disadvantage both to the public and themselves. ”

“ By the currency theorists it is still maintained that a paper currency ought to contract and expand exactly as a currency purely metallic would do in the like circumstances. But this is palpably equivalent to asserting, that whatever evils are inseparable from a metallic currency ought to be, not avoided, but perpetuated in a mixed currency. ”

“ It is a well known fact, that in the course of trade there are certain periods when it is desirable that the currency should expand to meet unusual requirements, and certain other periods when it should contract, in order to prevent undue speculation. The former case in general presents but little difficulty. At such times the rate of interest is usually high; and as it is for the pecuniary advantage of the banks of issue to enlarge their circulation as much as possible, the desire to increase their profits will induce them to extend their issues to the highest limits. ”

“ For every unrepresented note that can prudently be issued, there is a clear addition of an equal amount to the productive capital of the nation; while for every note issued on bullion, there is no other saving than the wear and tear of the metal that is lodged in the coffers of the Bank. But, on the other hand, while unrepresented notes cannot prudently be issued so far as to infringe upon the metallic reserve required for foreign and domestic purposes, there is no such limit to the prudent issue of bullion notes ”

“ For, not only does he unite with us in reprobating the effect of the low rate of interest at which the Bank accommodates the public when money is abundant, in stimulating excessive speculation, and not only does he advocate the essential importance of maintaining a more equable rate of interest than has hitherto been the case, but he even expresses his entire approval of the plan of imposing a governmental charge upon the £3,000,000 of unrepresented notes which the Bank is allowed to issue on securities. ”

“ Now every addition to the deposits, is really an addition to the unemployed reserve of unrepresented notes in the Bank; in proportion, therefore, as money becomes abundant with the public, the Bank reserve increases; so that it very speedily exceeds the amount which the ordinary rules of sound banking would hold to be necessary for discharging the functions of a reserve. In such circumstances it becomes the immediate interest of the Bank to force the superabundant notes of the reserve again into circulation ”

“ Any considerable increase of bullion notes, therefore, would require that that increase should be effected by means of paper of a smaller denomination than five pounds. And accordingly we deem it a matter of high expediency that the legal restriction upon such issues should be at once removed.
We are fully aware that some eminent public men in England have long been, and perhaps still are, averse to the issue of small notes; but we cannot discover much force in the reasons which they advance for justifying their apprehensions. ”

“ But in England, where, as has been said, the number of issuing banks amounts to about 250, and where at least 150 of14 these are private banks, it is obviously impossible that adequate safeguards can be provided against either the occasional dissemination of fictitious paper, or the not unfrequent infliction of severe pecuniary losses, through the failure of some of the banks of issue. We are fully aware of the high reputation which a vast majority of the country banks in England deservedly bear, both for stability and integrity ”

“ Unfortunately, however, it is the peculiarity of the present system, that whenever the money market is tending either to an excess or a deficiency, the inevitable effect of the Act of 1844 is to aggravate and not to neutralize the tendency. It may at first sight appear extraordinary, if not incredible, that the same system should at different periods produce results apparently so opposed to each other ”

“ We should not be doing justice to our proposed system if we did not subject it to a test still more severe than any of the preceding, and one which could not arise under the present currency laws without entailing upon the nation a very serious difficulty in meeting its engagements. We refer to the very possible contingency already alluded to, of our being obliged to discharge some heavy foreign liabilities through the failure of some important article of domestic consumption, or through any other cause, while already embarrassed by an excessive military outlay. ”

“ The ultimate result therefore of the low rate of interest is in both respects an exportation of gold, and this exportation of gold is so serious an evil that it becomes an essential object, in currency legislation, to adopt every possible precaution against any occurrence that might unnecessarily induce or aggravate it. ”

“ For should some of the issuing banks postpone their own advantage to that of the public, and contract their issues, there will always be found some other banks, which, instead of following their example, will embrace so favourable an opportunity of enlarging their transactions at the expense of their more conscientious rivals, and fill up the vacancy by an increased issue of their own notes. ”

“ Now, he who receives paper money, is often placed under circumstances precisely the reverse.13 For, where the number of banks of issue is considerable, and the varieties of paper money in corresponding proportion, there are no valid tests within the reach of an average capacity, by means of which he may verify the genuineness of every note which he may happen to receive in the course of his transactions with the public. ”

“ It not unfrequently happens, therefore, that some plausible fallacy becomes generally accredited, and is adopted by our statesmen as a basis for legislation, either before the materials have been collected for its successful exposure, or before the knowledge of such exposure has had time to circulate through all the channels of the public mind. ”

“ In Ireland, where the number of issuing banks is only eight, all of which are public banks, the cases of forgery are comparatively few, and a very high degree of confidence in the currency, is entertained by the public generally. ”