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deal wholly in such notes, and yet have deposits to the amount of millions, and not a note remaining in its till, having loaned them as fast as received. Is there any difference between deposits arising in this manner, and for the discharge of which the Bank has no other means than its securities, and deposits arising from the discount bills, their proceeds being placed to the credit of the borrowers? If not, then the function of the Banking Department is a much more comprehensive one than Lord Overstone would allow. But restricting it to dealing solely with the notes of the Issue Department, why should it not be allowed to repay obligations incurred by receiving notes on deposit, by notes of its own creation, if the depositors prefer to receive in this manner what may be due them? The nature of its indebtedness would not be changed thereby. This would merely take a different form. In either case, it would be payable on demand, in coin. Neither the Bank, its creditors, nor the public could be any worse off in one case than in the other. Why not, then, let the parties to the transactions solve them in any way they choose? Whatever the manner, the currency would not be potentially increased.

Bank-notes, not deposits, according to Lord Overstone, constituted money, circulation, for the reason that "their amount is determined by the laws which apportion the precious metals to the different countries of the world, and by the fact, that, in every country, they are the common measure of the value of all other commodities, - the standard by reference to which the value of every other commodity is ascertained, and every contract fulfilled, the common medium of exchange for the adjustment of all transactions equally, at all times, between all persons, and in all places; and they have the further quality of discharging these functions in endless succession. Now, I conceive that neither deposits nor bills of exchange in any way whatever possess these attributes." Deposits, certainly, do not possess such attributes; although it might be supposed that those in the Bank of England arising out of, and the equivalent of, its notes, might at least possess qualities as exalted as the notes issued by "small tradesmen, cheese-mongers, shoemakers, and butchers," so graphically described by Lord Liverpool in 1826, who had the same right of issue in 1840, and whose notes, according to Lord Overstone, possessed everywhere, and in endless succession, all the potency of coin.

It is to be feared that Lord Overstone possesses no exemption from the danger common to all who undertake to give reasons. With him, the notes of the Bank differed wholly from deposits, even when the latter arose out of the former, for the reason that (as in his answer to question 3109) "the amount which the Bank of England, or any other Bank, holds, is worked by that concern with a certain reserve of bank-notes, which reserve is measured in its extent by what that concern considers to be the average quantity of demand that will be made upon it. By that means, that reserve is entitled to perform. an amount of business which, without the process of banking deposit business, it would have required an amount of circulation equal to the whole deposits to have performed." That the notes of the Bank, but for the deposits, would have to be increased by the amount of the latter, can hardly be held to prove, beyond cavil, a radical difference between the two. The inference from the statement, on the other hand, would seem to favor their perfect identity in principle. Lord Overstone himself appears to have entertained some misgivings: for in the same paragraph he proceeds to say, that "deposits are business worked; the reserve in the banking till is the instrument by which they are worked; and the business by which your instrument is worked is the currency of the country"! The conclusion to which he finally comes, that both forms of paper are equally circulation, money, is very satisfactory, whatever may be thought of the process by which it was reached, and however unintelligible it may be to those not familiar with Aristotle, Adam Smith, and the Schoolmen. it was, "his wit was too courtly" for the simple natures of the Committee;" and they rested." It must, however, be remembered that question 3109 was the 457th that had been asked him consecutively. By that time he had them in a state of mind as wild and incoherent as his own.

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The next extension of the charter of the Bank was the occasion of giving a legal sanction to Lord Overstone's schemes. On the 14th of May, 1844, Sir Robert Peel, then at the head of the government, moved a resolution that it was expedient to continue, for a limited time, the privileges enjoyed by the Bank of England, subject to such conditions as Parliament might think fit to impose:

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"I must state, at the outset," he said, in introducing the measure, "that in using the word 'money,' I mean to designate by that word the coin of the realm, and promissory notes payable to bearer on demand. In using the words 'paper currency, I mean only such promissory notes. I do not include in these terms bills of exchange, or drafts on bankers, or other forms of paper credit. There is a natural distinction, in my opinion, between the character of promissory notes payable to bearer on demand, and other forms of paper credit, and between the effects which they respectively produce upon the price of commodities, and upon the exchanges. The one answers all the purposes of money, passes from hand to hand without indorsement, without examination, if there be no suspicion of forgery; and it is, in fact, what its designations imply it to be, currency, or circulating medium. . . . I think experience shows that the paper currency, that is, the promissory notes payable to bearer on demand, stands in a certain relation to the gold coin and the foreign exchange, in which other forms of paper credit do not stand. There are striking examples of this adduced in the Report of the Bullion Committee of 1810, in the case both of the Bank of England and of the Irish and Scotch Banks. In the case of the Bank of England, shortly after its establishment there was a material depreciation of paper, in consequence of its excessive issue. The notes of the Bank of England were at a discount of 17 per cent. After trying various expedients, it was at length determined to reduce the amount of bank-notes outstanding. The consequence was an immediate increase in the value of those which remained in circulation, the restoration of them to par, and a corresponding improvement in the foreign exchanges. In the case of Ireland, in 1804, the exchange with England was extremely unfavorable. A Committee was appointed to consider the causes. It was denied by most of the witnesses from Ireland that they were at all connected with excessive issues of Irish notes. . . . In the spring of 1804, the exchange of Ireland with England was so unfavorable that it required £118 10s. of the notes of the Bank of Ireland to purchase £100 of the notes of the Bank of England. Between the years 1804 and 1806, the notes of the Bank of Ireland were reduced from £3,000,000 to £2,410,000; and the effect of this, taken in conjunction with an increase of the English circulation, was to restore the relative value of Irish paper, and the exchange with England to par. In the same manner, an unfavorable state of the exchange between England and Scotland has been more than once corrected by a contraction of the paper circulation of Scotland. In all these cases, the action has been on that part of the paper credit of the country which has consisted of promissory notes payable to bearer on demand. There has been no interference with other forms of paper credit; nor was it contended then, as it is now contended by some, that promissory notes are identical in their nature with bills of exchange, and with checks on bankers, and with deposits, and that they cannot be dealt with on any separate principle."

To justify the proposed measure, Sir Robert had to go farther

than Lord Overstone, and assert, not only the distinction in kind between notes and deposits, but that notes were the great cause of the commercial and financial disasters that were constantly occurring, and were to be subjected to a rigid restraint; while the influence exerted by deposits was so wholly innocuous as to require no legislative interposition whatever. If, however, according to Lord Overstone, the notes of Banks by their inherent qualities supplanted an equal amount of coin, — if “ they were standards of value in all transactions, between all parties, and at all times, and in endless succession," — what need of legislation in reference to them that coin did not require? Sir Robert's refinement of Lord Overstone's distinction is as absurd as the distinction itself. He might, with equal propriety, have based his measure upon the influence that the color of the notes of the Bank exerted upon the rates of exchange: those printed upon paper of a certain tinge of green having a tendency to put up the rates of exchange, while those that had a certain tinge of blue tended to put them down. His illustrations, when examined, will be seen to have no better foundation than his assumptions. In 1697, the notes of the Bank were at a discount; for the reason that, during the recoinage of 1696, it issued them in considerable amounts in exchange for debased coin then in circulation. This coin went out of use, so that all contracts entered into previous thereto had to be made good in coin of standard value. The Bank further embarrassed itself by making large loans to government, in order to aid it through the period of the recoinage. It also suffered discredit in being unable to get standard coin in sufficient abundance to meet its wants, from the inability of the mint to turn it out. A variety of causes, therefore, operated to depreciate its notes; among them, the want of adequate means. To provide such, it was compelled to make two calls of 20 per cent. each upon its stockholders. With their proceeds it was enabled to take in its notes at par. No reduction in their amount would have increased the price of those outstanding, unless it had been attended by an increase in value. With Sir Robert Peel the question was one of quantity, not of quality. He assumed, with the Bullion Committee, that all that was necessary to raise the value of depreciated notes to par was to reduce their amount. The depreciation of the notes of the Irish and Scotch Banks could only be remedied

by increasing their value. They had, undoubtedly, too many notes out; but no amount of reduction would have brought up their price, unless attended with an increase of their value. In all the examples referred to, the value of notes and deposits in Bank was always the same, as they were always convertible the one into the other. The Banks could not bring up the price of one without bringing up the price of the other. Both were in excess, and both had to be reduced as a means of bringing up the value of either one remaining outstanding. Sir Robert's illustrations, therefore, are nothing to the purpose; or, if they prove any thing, they prove the exact opposite of that sought to be proved.

Sir Robert Peel enforced his argument as to the necessity of government taking the currency under its control, so far as related to competition or freedom of issue, from the experience of banking in the United States:

"It appears to me," he said, "that the conclusions of reason against unlimited competition of issue are amply confirmed by the admissions of the advocates for it. Are the lessons of experience

at variance with the conclusions we are entitled to draw from reason and from evidence? What has been the result of unlimited competition in the United States? In the United States, the paper circulation was supplied not by private bankers, but by joint-stock Banks established on principles apparently the most satisfactory. There was every precaution taken against insolvency; unlimited responsibility of partners; excellent regulations for the publication and audit of accounts; immediate convertibility into gold. If the principles of unlimited competition, controlled by such checks, be safe, why has it utterly failed in the United States?

it be shown that the experiment was not fairly made in that country?"

In the debate which followed, he was sustained by Sir Charles Wood, now Lord Halifax; who, in reference to American Banks, said:

"We are not without experience as to the value even of convertibility as a safeguard for the preservation of the standard. . . . In America, the convertibility of bank-notes is a fundamental article of the Constitution; provisions more stringent than in this country are enacted to enforce it in practice; every precaution is taken to render the Banks safe and sound. They are all joint-stock Banks, with limited liability, and restrictions on issues, paid up capital, and whatever other precaution can be devised for this purpose. What has been the result?”

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