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 Front Page arrow Titles (by Subject) arrow 300.: THE BANK CHARTER QUESTION [4] MORNING CHRONICLE, 30 APR., 1844, PP. 5-6 - The Collected Works of John Stuart Mill, Volume XXIV - Newspaper Writings January 1835 - June 1847 Part III

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Collection: The Collected Works of John Stuart Mill

300.: THE BANK CHARTER QUESTION [4] MORNING CHRONICLE, 30 APR., 1844, PP. 5-6 - John Stuart Mill, The Collected Works of John Stuart Mill, Volume XXIV - Newspaper Writings January 1835 - June 1847 Part III [1835]

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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).

Part of: Collected Works of John Stuart Mill, in 33 vols.

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300.

THE BANK CHARTER QUESTION [4]

MORNING CHRONICLE, 30 APR., 1844, PP. 5-6

For the background, see Nos. 297-9. This unheaded leader is described in Mill’s bibliography as “A fourth leading article on the Bank Charter Question in the Morning Chronicle of 30th April 1844”

(MacMinn, p. 57).

we gave, on Saturday, a concise statement of the doctrines and arguments of those who, thinking it necessary that a paper currency should exactly conform in its quantity to what would be the amount of a purely metallic circulation, are of opinion that this can only be secured by confining the powers of issue to a single body, compelled by law to regulate its issues strictly by the exchanges.

But these opinions, though plausibly supported by writers of high authority, are opposed by arguments at least as forcible, and by authorities equally high. The case on the other side of the question may be rested upon the pamphlet entitled An Inquiry into the Currency Principle, lately published by Mr. Tooke,1 a writer who has long been considered one of the highest, if not the very highest, of living authorities, on all questions which require the combination of a knowledge of the scientific principles of commerce, and a familiarity with its practical details.

In the first place, granting the truth of the fundamental principle contended for, that the variations in the amount of a paper currency ought to be precisely conformable to those which would take place in a currency wholly metallic, it is denied that this conformity would exist under the system proposed. The doctrine assumes that if the circulating medium consisted exclusively of coin, all gold exported would be taken from the currency; whenever imported, it would all be added to the currency; and that the paper, therefore, should be made to vary in the same manner. But this assumption is not tenable. There is at all times, in every commercial country, a large amount of bullion, as a common article of merchandise, waiting for a market; and this is applicable, and is continually applied, to the payment of international balances, without trenching upon the currency. Doubtless, if the circumstances of the country, in regard to foreign trade, became such as to produce a permanent diminution of its stock of the precious metals, involving, as this would do, a permanent rise in their value, the amount of coin in circulation would eventually diminish in the same ratio. But the mere transportation of bullion from country to country, in the ordinary course of trade, going out one month or year and returning the next, according to the accidents of the markets, would have no such effect. Such transfers would often occur under a purely metallic system, without diminishing the currency in the one case, or adding to it in the other. A metallic currency, therefore, would not necessarily, and in all cases, be affected by the exchanges; and if a paper currency were strictly regulated by them, it would be subject to variation in cases in which a metallic currency would not vary. Under a paper system, as often as the precious metals are wanted for exportation, the banks, being by profession dealers in them, are usually had recourse to. Suppose a balance due to a foreign country. The gold required for making the payment is obtained from the Bank of England in exchange for its notes. These notes, under the proposed system, the Bank would not be permitted to re-issue, until the course of trade again brought in gold, to be offered for sale. In the intermediate period, the currency, consisting of paper, will have been artificially contracted; when if it had consisted wholly of the metals, it would possibly, and even probably, have remained unaltered in amount.

The object, therefore, to which so much importance is attached—that of keeping the amount of paper issues precisely identical with the amount of coin which they displace—would be as often frustrated as promoted by the means proposed. But the objection taken to the theory is still more fundamental than this. The principle itself is denied. The necessity or advantage of conformity between the amount of a paper currency, and what would have been the amount of a metallic, is not admitted. It is denied that the temporary augmentation of issues, which is the only augmentation possible under a convertible currency, has the injurious effects ascribed to it; that it tends to raise prices, or to promote speculation.

According to the views which we are now stating, it is not every increase of the quantity of money in the hands of the public which tends to raise general prices; but only an increase of the money which is in the hands of those who are purchasing for their own consumption: in other words, an increase in the aggregate money incomes of the community. If an addition were made to the currency in such a manner as to be at once paid away in wages, or added in any other form to the funds destined to be expended as revenue, this would raise prices. And any increase of the currency which could be kept permanently out would, no doubt, in time permeate all the channels of circulation, and ultimately add to the funds intended for personal expenditure. But the issues of the banks do not take place in this manner. They are made, not to consumers, but to dealers, to be employed, not in their expenditure for consumption, but in their pecuniary transactions with other dealers. An increase of money in the hands of dealers cannot tend to raise prices as between consumer and dealer. But will it not raise prices as between dealer and dealer? To this it is answered, no; for the following reason:—all purchases by dealers are made with a view to the consumer. The consumer is to pay everything at last. It is from the price which the consumer pays that the dealer is to be indemnified for what he has paid, and to derive a profit. A dealer, therefore, will not consent to pay an advanced price unless he sees a prospect that the price will also rise to the consumer, who is to reimburse his advances. A speculative rise of prices in the great transactions between dealers is always grounded upon some expected deficiency of supply, or increase of the demand for consumption, by which, if it takes place, the consumer will be forced to pay a higher price; and if the speculative rise goes beyond what turns out to be the actual rise to the consumer, the speculation fails.

On these grounds it is contended that an increase of paper, as it takes place in this country, and so long as the paper is convertible, does not tend to raise prices, and does not constitute a new and independent source of demand. Increased issues, made by banks in advances to dealers, are, it is affirmed, an effect, not a cause, of demand. If unusual activity of trade increases the number of transactions, or if, from circumstances affecting the cost of production or the supply of commodities, those transactions take place at higher prices, this will naturally lead to an increased issue of bank notes, if bank notes happen to be the most convenient medium for the purposes in view. But supposing any increased issue of bank notes to be prevented, this would not prevent the transactions: if they could not take place by bank notes, they would be effected by bills of exchange; if this also was made impracticable, they would take place by checks, and transfers of credit in bankers’ books. The vast majority of transactions among dealers are already effected in these modes, and all might be so. The whole of the mercantile transactions of Amsterdam and Hamburg were formerly (at Hamburg they are still) liquidated by simple transfers of credit in the books of the Amsterdam and Hamburg banks, with whom every merchant kept an account. The speculative transactions of commerce, which are supposed to be affected in such an extraordinary degree by variations in the amount of bank notes, are, in truth, entirely independent of any such medium, and would take place to exactly the same extent if bankers’ paper did not exist. What they really depend upon is credit; in what particular shape credit is given is immaterial. To alter, therefore, the whole banking system of the country, to sacrifice all the existing interests concerned in banks of issue, and impose new restrictions upon the free agency of the community, for the purpose of averting dangers entirely chimerical, and of discouraging speculations to which the change proposed could not oppose the slightest obstacle, would, according to the views we have now stated, be uncalled for and indefensible.

On this controversy we do not take upon ourselves to pronounce any decision. The question is still sub judice. The minds of the most competent thinkers are not yet, generally speaking, made up. There is room and necessity for much further discussion. The views promulgated by Mr. Tooke have yet to be maturely weighed, and due regard paid to what will doubtless be urged in contradiction to them. As yet, no answer to his pamphlet has appeared. In the meantime the Legislature, in such a state of the subject, can have but one rule—Dans le doute, abstiens-toi. While the question is unsettled in the greater number of thinking minds, however positively decided in many foolish ones, let it alone. Renew the present Charter of the Bank of England, with little alteration, for a brief period; five years would be sufficient; more than ten are not to be thought of; and reserve to Parliament an opportunity of reconsidering the subject, when the opinions of the best judges shall have become sufficiently unanimous.

[1 ]Thomas Tooke, An Inquiry into the Currency Principle; the Connection of the Currency with Prices, and the Expediency of a Separation of Issue from Banking (London: Longmans, et al., 1844). It and Torrens’s Inquiry were reviewed by Mill in the Westminster for June 1844, in “The Currency Question” (CW, Vol. IV, pp. 341-61).