Front Page Titles (by Subject) 298.: THE BANK CHARTER QUESTION  MORNING CHRONICLE, 26 APR., 1844, P. 4 - The Collected Works of John Stuart Mill, Volume XXIV - Newspaper Writings January 1835 - June 1847 Part III
Return to Title Page for The Collected Works of John Stuart Mill, Volume XXIV - Newspaper Writings January 1835 - June 1847 Part III
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
298.: THE BANK CHARTER QUESTION  MORNING CHRONICLE, 26 APR., 1844, P. 4 - John Stuart Mill, The Collected Works of John Stuart Mill, Volume XXIV - Newspaper Writings January 1835 - June 1847 Part III 
The Collected Works of John Stuart Mill, Volume XXIV - Newspaper Writings January 1835 - June 1847 Part III, ed. Ann P. Robson and John M. Robson, Introduction by Ann P. Robson and John M. Robson (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1986).
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The online edition of the Collected Works is published under licence from the copyright holder, The University of Toronto Press. ©2006 The University of Toronto Press. All rights reserved. No part of this material may be reproduced in any form or medium without the permission of The University of Toronto Press.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
THE BANK CHARTER QUESTION 
See No. 297 for the political background of the question of policy examined here and in Nos. 299-300. The unheaded leader is described in Mill’s bibliography as “A second leading article on the Bank Charter Question in the Morning Chronicle of 26th April 1844”
(MacMinn, p. 57).
the evils to which a paper currency is liable are two in number—one is the insolvency of the issuers, the other is fluctuation and consequent uncertainty in value.
Propositions for the improvement of the paper currency of a country must be directed against one or other of these two inconveniences. They must be intended to secure either the actual holders of the paper against loss from the inability of the issuers to meet their engagements, or the community generally against the inconvenience and risk of having their receipts, their payments, and their engagements calculated in a medium of no fixed or certain value.
In the first requisite, security against loss by insolvency, the currency of England was, until a late period, singularly defective. While any adventurer might issue notes of so low a denomination as to be the habitual medium for the small savings, if not for the weekly receipts, of the better paid portion of the labouring classes, the Legislature, in its wisdom, had subjected this power of individuals over the national instrument of exchange to one remarkable restriction: individuals might issue notes; associations, if they exceeded the number of six persons, could not.1 This curious piece of legislation, which was in perfect harmony with the spirit of the British Government up to a comparatively recent period, did not ground itself upon any crotchetty notion, or freak of fancy respecting the superiority of the engagements of individuals over those of companies. The Legislature knew better. They were quite aware that the united credit of fifty or a hundred individuals was a better security than the credit of one, or five, or six. It was because they knew it to be a better security that they determined that one body—the Bank of England—should have the exclusive power of supplying it. They erected it into a monopoly, for the benefit of that body. They enacted that the nation should have no safe paper currency, except the paper of the Bank of England. Unsafe paper money it might have, as much as it pleased. Even this did not content them. Not only in the business of issue, but in ordinary banking business, the Bank of England obtained a similar monopoly. Not only was no other association, of more than six partners, permitted to issue promissory notes, but the public were not even allowed to lend money to any such body, or merchants and agriculturists to borrow from it. No such association was permitted to transact banking business at all. For these restrictions no reason of public utility was so much as pretended. They were erected avowedly for the benefit of a certain corporation, which, beyond lending a part of its capital to Government at a low rate of interest, and assisting the national finances in an occasional emergency by temporary advances on the ordinary banking terms, gave no equivalent.
By this abuse of its powers, the Legislature inflicted upon the country the most unsafe paper currency which, perhaps, ever existed along with professed convertibility into coin. Whenever the vicissitudes of the markets brought on a period of extensive commercial distress—and of what regular recurrence such periods are every one knows—the evil was heightened by numerous failures of bankers, and, among the rest, of many who were issuers of notes. The consequences to the unfortunate holders, many of whom, especially in the rural districts, were of the class to whom small losses are great ones, were most distressing. This, indeed, was the principal means by which the evils of a commercial crisis were extended beyond the class directly affected, the merchants and dealers, to the community generally. Of the misery thus occasioned, vicious legislation was the direct cause. Every labouring man or woman whose small reserve, provided by painful self-denial for unforeseen, or, perhaps, for expected emergencies, was swept away by one of the commercial hurricanes which periodically prostrated the weak money-dealing establishments which alone the Legislature suffered to exist, might with strict justice have claimed compensation from the two Houses of Parliament by individual subscription among their members.
The first step out of this vicious régime was made in 1826, under the pressure of the strong popular excitement caused by the crisis of the preceding winter, one of the most distressing ever before experienced, and which had made peculiar havoc among banking establishments, both in London and in the country. Under these peculiar circumstances the Legislature partially repealed the prohibition against joint-stock banks and banks with numerous partners.2 The exclusive privilege of the Bank of England was not abrogated, nor could it be so before the expiration of the charter, without compensation; but it was narrowed, with the consent of the Bank itself, to a circle of sixty-five miles round London. Within that distance, the Bank was still secured against the rivality of any other banks as secure as itself; but beyond the limit safe banks were now permitted to exist and a safe paper currency to be provided. Along with this relaxation of the monopoly, Parliament adopted the further precaution of suppressing all notes under five pounds. In thus interfering with the liberty of private contract, Parliament proceeded on what appeared the still more important principle of protecting the poor and those who could not protect themselves. It was affirmed that the working classes were not, and in the nature of the case could not be, free agents in such transactions. They were practically compelled, it was said, to take one pound notes of any sort which were tendered by their employers. It was, therefore, thought indispensable to limit the issue of notes to denominations too high to be made the instruments of paying wages, and such as could not often come into the hands of labouring people. On the necessity of this precaution there were then, as there probably are now, differences of opinion; but it has, at least, been effectual for its end. Whoever may now suffer by the failure of banks, the poor cannot. Losses by paper currency are now nearly confined to the classes who can better afford to lose, and who, as depositors or as dealers, cannot be prevented from suffering by failures, whether of bankers or of any other persons with whom they have transactions.
In 1833 the privileges of the Bank of England expired, and in renewing them a further encroachment was made on the monopoly.3 The limit of sixty-five miles was now, to a certain extent, removed, and companies of any number of partners were tolerated in London for all banking purposes except the issue of notes, or other transferable securities equivalent to them. The Bank of England has still, in the supply of currency to London and sixty-five miles round, a monopoly against all other issues except unsafe ones. Joint-stock banks cannot issue paper within that limit; though any adventurer, who succeeds in obtaining temporary credit, may and does.
This, then, is the present constitution of the currency, that is to say, in England; for in Scotland and Ireland notes of one pound still exist as the ordinary medium of circulation, and exist without danger. Under the system of joint-stock banks which there exists, and which in Scotland is as old as paper-money itself, the failure of a bank is unknown. So far as the evil of insolvency is concerned, no reason can be imagined for now interfering with the currency of Scotland or of Ireland.
In England also, since the establishment of joint-stock banks, the currency has approximated, so far as the security of the holders is concerned, to the perfect safety of that of Scotland. Between 1826 and the present time several epochs have intervened of commercial distress, bankruptcies, and severe pressure on the money market. Formerly no such period ever passed over without a crash among country bankers, accompanied by all the evils proverbially consequent upon the nonpayment of their notes. Since the change in the law such failures have been rare, and have ceased to be an ordinary accompaniment of distress among the trading classes. The reason is obvious. When numerous banking companies existed, no private banker, whose fortune and credit were not on a par, or nearly so, with those of a company, could succeed in getting his notes into circulation. During the infancy of joint-stock banks, several of them, from improvident management, were unsuccessful in their business, and have been obliged to wind up their concerns. But, even in these cases, we believe there has not been an instance in which the holders of notes, at least, have been ultimate losers. The present currency, therefore, is already sufficiently secure against the evils arising from insolvency, and bids fair soon to attain the perfect and unimpeachable security, not only beyond failure, but beyond all apprehensions of failure, which has long distinguished the monetary system of Scotland.
To render the assurance even more perfect, it has often been suggested that all banks of issue should be required to give security, for instance, by the deposit of stock, for the indemnification of the holders of their notes in the event of their insolvency.4 To this precaution, if it were really necessary, the objections are not such as to be insuperable; but in so far as any portion of the capital of bankers is compulsorily locked up in a permanent investment, the equivalent of which does not necessarily come back to them in deposits, they are to that extent disabled from performing their regular business of making advances on mercantile security. Nor would it be easy to make out a necessity for imposing this inconvenient obligation, when the evil against which it is intended to provide is non-existent in Scotland, and in England, notwithstanding the novelty of the joint-stock system, is evidently in rapid progress towards extinction.
Another suggestion has been made, of which the effect would be to establish a restriction directly the reverse of that which was formerly in force. It has been proposed that the issue of notes should be prospectively confined to companies, no new licenses being granted to individual bankers.5 This seems, however, a needless interference with freedom of action. It is impossible that private bankers, except those of the firmest credit, should long sustain themselves against the competition of joint-stock banks. Even in London, new private banks are now scarcely ever commenced, while not a few of those previously established have been quietly discontinued. It may be predicted that without any interference of Government, in a few years no private bankers, or small banking partnerships, will exist, except those which, from their resources and high character, are quite worthy to compete for public confidence with the aggregate wealth of joint-stock companies. Some private banks of this high character exist even in Scotland, and are practically quite as secure as the larger associations.
There is, however, one extensive portion of this island in which, with respect to currency, the old monopoly subsists; in which individuals may create, without restriction, as much paper money as they can induce any person to take, while no joint-stock bank of issue is permitted to enter into competition with them. We allude not to London, where the notes of the Bank of England exclusively circulate, but to the large circle of sixty-five miles radius round London as a centre. There can be no reason why the inhabitants of this large district should remain exposed to the dangers from which it has been thought necessary to protect the rest of their countrymen. The evil, perhaps, is not great, since the district does not include any of the great seats of production and commerce, while the circulation of Bank of England notes, through its whole extent, restricts practically the issue of notes by private bankers to rather narrow limits. Such, however, as it is, this anomaly should be swept away.
That there should be but one bank of issue for the metropolis, where the pecuniary transactions of the whole country are balanced and settled, is by many considered advisable, on grounds with which danger of insolvency has nothing to do.6 To enforce this monopoly of the currency circulating in London, it may be necessary to superadd a small circle, say of ten miles round it. But beyond some such limited distance, and in districts where the notes of country bankers already circulate, it is a perversion of reason to enact that these notes shall be exclusively of the worst kind. Either all issues, except those of a single body, should be prohibited, or the liberty which is allowed to individuals should be extended to associations of any number of persons. Among the minor changes which may be proposed in the currency by the ministerial project, or in the course of the discussions to which it gives rise, there is no one which seems to us less liable to any well-grounded, or even plausible objection, than the restriction of the monopoly of the Bank to the small but important district which it already exclusively supplies, leaving the larger circle beyond to the free competition of companies and individuals.
[1 ]The provision (excepting the Bank of England,which thus got a monopoly) is in Sect. 61 of 7 Anne, c. 7 (1708).
[2 ]A nation-wide wave of speculation in 1825, which resulted in suspension of payment by seventy-three of the main banks (of which thirty-seven eventually became bankrupt), led to 7 George IV, c. 46 (1826).
[3 ]For earlier discussion, see Nos. 208, 209, and 212.
[4 ]See Remarks upon Some Prevalent Errors, with Respect to Currency and Banking (London: Richardson, 1838), pp. 102-3, by George Warde Norman (1793-1882), a director of the Bank of England.
[6 ]E.g., John Ramsay McCulloch, Historical Sketch of the Bank of England: with an Examination of the Question as to the Prolongation of the Exclusive Privileges of That Establishment (London: Longman, et al., 1831), pp. 42-57.