The Online Library of Liberty

A project of Liberty Fund, Inc.

• Advertisement.
• Life and Writings of Mr Ricardo
• Principles of Political Economy and Taxation.
• Advertisment to the Third Edition
• Preface
• Chapter I.: On Value
• Chapter II.: On Rent.
• Chapter III.: On the Rent of Mines.
• Chapter IV.: On Natural and Market Price.
• Chapter V.: On Wages.
• Chapter VI.: On Profits.
• Chapter VII.: On Foreign Trade.
• Chapter VIII.: On Taxes.
• Chapter IX.: Taxes On Raw Produce.
• Chapter X.: Taxes On Rent.
• Chapter XI.: Tithes.
• Chapter XII.: Land-tax.
• Chapter XIII.: Taxes On Gold.
• Chapter XIV.: Taxes On Houses.
• Chapter XV.: Taxes On Profits.
• Chapter XVI.: Taxes On Wages.
• Chapter XVII.: Taxes On Other Commodities Than Raw Produce.
• Chapter XVIII.: Poor Rates.
• Chapter XIX.: On Sudden Changes In the Channels of Trade.
• Chapter XX.: Value and Riches, Their Distinctive Properties.
• Chapter XXI.: Effects of Accumulation On Profits and Interest.
• Chapter XXII.: Bounties On Exportation, and Prohibitions of Importation.
• Chapter XXIII.: On Bounties On Productions.
• Chapter XXIV.: Doctrine of Adam Smith Concerning the Rent of Land.
• Chapter XXV.: On Colonial Trade.
• Chapter XXVI.: On Gross and Net Revenue
• Chapter XXVII.: On Currency and Banks
• Chapter XXVIII.: On the Comparative Value of Gold, Corn, and Labour In Rich and Poor Countries.
• Chapter XXIX.: Taxes Paid By the Producer.
• Chapter XXX.: On the Influence of Demand and Supply On Prices.
• Chapter XXXI.: On Machinery
• Chapter XXXII.: Mr Malthus's Opinions On Rent.
• The High Price of Bullion a Proof of the Depreciation of Bank Notes.
• High Price of Bullion.
• Appendix.
• Reply to Mr Bosanquet's Practical Observations On the Report of the Bullion Committee.
• Chapter I.: Preliminary Observations—mr Bosanquet's Objections to the Conclusions of the Bullion Committee Briefly Stated.
• Chapter II.: Mr Bosanquet's Alleged Facts, Drawn From the History of the State of Exchange, Considered.
• Chapter III.
• Chapter V.
• Chapter VI.
• Chapter VII.
• Chapter VIII.
• Chapter IX.
• Appendix.
• An Essay On the Influence of a Low Price of Corn On the Profits of Stock
• Proposals For an Economical and Secure Currency; With Observations On the Profits of the Bank of England As They Regard the Public and the Proprietors of Bank Stock.
• On Protection to Agriculture.
• Plan For the Establishment of a National Bank.
• Essay On the Funding System,
• Essay On the Funding System,
• Observations On Parliamentary Reform.
• Speech On the Plan of Voting By Ballot

PROPOSALS FOR AN ECONOMICAL AND SECURE CURRENCY; WITH OBSERVATIONS ON THE PROFITS OF THE BANK OF ENGLAND
AS THEY REGARD THE PUBLIC AND THE PROPRIETORS OF BANK STOCK.

SECOND EDITION.

LONDON. 1816.

INTRODUCTION

The following important questions concerning the Bank of England will, next session, come under the discussion of Parliament:—

1st, Whether the Bank shall be obliged to pay their notes in specie at the demand of the holders?

2dly, Whether any alteration shall be made in the terms agreed upon in 1808, between Government and the Bank, for the management of the national debt?

And, 3dly, What compensation the public shall receive for the large amount of public deposits from which the Bank derive profit?

In point of importance, the first of these questions greatly surpasses the rest; but so much has already been written on the subject of currency, and on the laws by which it should be regulated, that I should not trouble the reader with any further observations on those topics, did I not think that a more economical mode of effecting our payments might be advantageously adopted; to explain which, it will be necessary to premise briefly some of the general principles which are found to constitute the laws of currency, and to vindicate them from some of the objections which are brought against them.

The other two questions, though inferior in importance, are, at these times of pressure on our finances, when economy is so essential, well deserving of the serious consideration of Parliament. If, on examination, it should be found that the services performed by the Bank for the public are most prodigally paid, and that this wealthy corporation has been accumulating a treasure of which no example can be brought—much of it at the expense of the public, and owing to the negligence and forbearance of Government—a better arrangement, it is hoped, will now be made; which, while it secures to the Bank a just compensation for the responsibility and trouble which the management of the public business may occasion, shall also guard against any wasteful application of the public resources.

It must, I think, be allowed, that the war, which has pressed heavily on most of the classes of the community, has been attended with unlooked-for benefits to the Bank; and that in proportion to the increase of the public burdens and difficulties have been the gains of that body.

The restriction on the cash payments of the Bank, which was the effect of the war, has enabled them to raise the amount of their notes in circulation from 12 millions to 28 millions; whilst, at the same time, it has exonerated them from all necessity of keeping any large deposit of cash and bullion, a part of their assets from which they derive no profit.

The war, too, has raised the unredeemed public debt, of which the Bank have the management, from 220 to 830 millions; and, notwithstanding the reduced rate of charge, they will receive for the management of the debt alone, in the present year, 277,000l.,∗ whereas, in 1792, their whole receipt on account of the debt was 99,800l.

It is to the war that the Bank are also indebted for the increase in the amount of public deposits. In 1792 these deposits were probably less than 4 millions. In and since 1806 we know that they have generally exceeded 11 millions.

It cannot, I think, be doubted, that all the services which the Bank perform for the public could be performed by public servants, and in public offices established for that purpose, at a reduction or saving of expense of nearly half a million per annum.

In 1786 the auditors of public accounts stated it as their opinion, that the public debt, then amounting to 224 millions, could be managed by Government for less than 187l. 10s. per million. On a debt of 830 millions the Bank are paid 340l. per million on 600 millions, and 300l. per million on 230 millions.

Against the mode in which the public business is managed at the Bank no complaint can be justly made; ability, regularity, and precision, are to be found in every office; and in these particulars it is not probable that any change could be made which would be deemed an improvement.

As far as the public are bound to the Bank by any existing agreement, an objection on that score will be urged against any alteration. Inadequate as, in my opinion, was at that time, and under the circumstances in which it was granted, the compensation which the public received from the Bank, for the renewal of their charter, I shall not plead for a revision of that contract, but permit the Bank to enjoy, unmolested, all the fruits of so improvident and unequal a bargain.

But the agreement entered into with the Bank in 1808, for the management of the national debt, is not, I think, of the above description, and either party is now at liberty to annul it. The agreement was for no definite period; and has no necessary connexion with the duration of the charter, which was made eight years before it. Applying to the state of things existing at the time of its formation, or such a state as might be expected to occur within a few years, it is not any longer binding. This is declared in the following passage of Mr Perceval's letter to the Bank, dated the 15th January 1808, on accepting the scale in respect to the rate for management proposed by the Bank. “Under this impression,” says Mr Perceval, “I am strongly inclined to give way to the suggestion of the Bank in the minor parts of the arrangement, and will therefore accede to the scale of allowances therein proposed for the management of the public debt, so far as it applies to present circumstances, or to such as can be expected to occur within any short period. “Eight years having since elapsed, and the unredeemed debt having, in that time, increased 280 millions, can it be justly contended that it is not in the power of either party, now or hereafter, to annul this agreement, or to propose such alterations in it as time and circumstances may render expedient?

To Mr Grenfell I am very materially indebted; I have done little more on this part of the subject, than repeat his arguments and statements. I have endeavoured to give my feeble aid to a cause which he has already so ably advocated in parliament, and in which I trust success will crown his future efforts.

PROPOSALS FOR AN ECONOMICAL AND SECURE CURRENCY;

section I.

In the Medium of Circulation—Cause of Uniformity is Cause of Goodness.

All writers on the subject of money have agreed that uniformity in the value of the circulating medium is an object greatly to be desired. Every improvement, therefore, which can promote an approximation to that object, by diminishing the causes of variation, should be adopted. No plan can possibly be devised which will maintain money at an absolutely uniform value, because it will always be subject to those variations to which the commodity itself is subject, which has been fixed upon as the standard.

While the precious metals continue to be the standard of our currency, money must necessarily undergo the same variations in value as those metals. It was the comparative steadiness in the value of the precious metals, for periods of some duration, which probably was the cause of the preference given to them in all countries, as a standard by which to measure the value of other things.

A currency may be considered as perfect, of which the standard is invariable, which always conforms to that standard, and in the use of which the utmost economy is practised.

Amongst the advantages of a paper over a metallic circulation, may be reckoned, as not the least, the facility with which it may be altered in quantity, as the wants of commerce and temporary circumstances may require: enabling the desirable object of keeping money at a uniform value to be, as far as it is otherwise practicable, securely and cheaply attained.

The quantity of metal, employed as money, in effecting the payments of any particular country, using metallic money; or the quantity of metal for which paper money is the substitute, if paper money be partly or wholly used, must depend on three things: first, on its value;—secondly, on the amount or value of the payments to be made;—and, thirdly, on the degree of economy practised in effecting those payments.

A country using gold as its standard would require, at least, fifteen times less of that metal than it would of silver, if using silver, and nine hundred times less than it would of copper, if using that metal,—fifteen to one being about the proportion which gold bears in value to silver, and nine hundred to one the proportion which it bears to copper. If the denomination of a pound were given to any specific weight of these metals, fifteen times more of such pounds would be required in the one case, and nine hundred times more in the other, whether the metals themselves were employed as money, or paper was partly, or entirely, substituted for them. And if a country uniformly employed the same metal as a standard, the quantity of money required would be in an inverse proportion to the value of that metal. Suppose the metal to be silver, and that, from the difficulty of working the mines, silver should be doubled in value,—half the quantity only would then be wanted for money; and if the whole business of circulation were carried on by paper, of which the standard was silver,—to sustain that paper, at its bullion value, it must in like manner be reduced one half. In the same way it might be shown, that, if silver became as cheap again, compared with all other commodities, double the quantity would be required to circulate the same quantity of goods. When the number of transactions increase in any country from its increasing opulence and industry—bullion remaining at the same value, and the economy in the use of money also continuing unaltered—the value of money will rise on account of the increased use which will be made of it, and will continue permanently above the value of bullion, unless the quantity be increased, either by the addition of paper, or by procuring bullion to be coined into money. There will be more commodities bought and sold, but at lower prices; so that the same money will still be adequate to the increased number of transactions, by passing in each transaction at a higher value. The value of money, then, does not wholly depend upon its absolute quantity, but on its quantity relatively to the payments which it has to accomplish; and the same effects would follow from either of two causes—from increasing the uses for money one tenth—or from diminishing its quantity one tenth; for, in either case, its value would rise one tenth.

It is the rise in the value of money above the value of bullion which is always, in a sound state of the currency, the cause of its increase in quantity; for it is at these times that either an opening is made for the issue of more paper money, which is always attended with profit to the issuers; or that a profit is made by carrying bullion to the Mint to be coined.

To say that money is more valuable than bullion or the standard, is to say that bullion is selling in the market under the Mint price. It can therefore be purchased, coined, and issued as money, with a profit equal to the difference between the market and Mint prices. The Mint price of gold is 3l. 17s. 10½d. If, from increasing opulence, more commodities came to be bought and sold, the first effect would be that the value of money would rise. Instead of 3l. 17s. 10½d. of coined money being equal in value to an ounce of gold, 3l. 15s. might be equal to that value; and therefore a profit of 2s. 10½d. might be made on every ounce of gold that was carried to the Mint to be coined. This profit, however, could not long continue; for the quantity of money which, by these means, would be added to the circulation, would sink its value, whilst the diminishing quantity of bullion in the market would also tend to raise the value of bullion to that of coin: from one or both these causes a perfect equality in their value could not fail to be soon restored.

It appears, then, that, if the increase in the circulation were supplied by means of coin, the value both of bullion and money would, for a time at least, even after they had found their level, be higher than before; a circumstance which, though often unavoidable, is inconvenient, as it affects all former contracts. This inconvenience is wholly got rid of, by the issue of paper money; for, in that case, there will be no additional demand for bullion; consequently its value will continue unaltered; and the new paper money, as well as the old, will conform to that value.

Besides, then, all the other advantages attending the use of paper money; by the judicious management of the quantity, a degree of uniformity, which is by no other means attainable, is secured to the value of the circulating medium in which all payments are made.

The value of money and the amount of payments remaining the same, the quantity of money required must depend on the degree of economy practised in the use of it. If no payments were made by cheques on bankers, by means of which money is merely written off one account and added to another, and that to the amount of millions daily, with few or no bank notes or coin passing; it is obvious that considerably more currency would be required, or, which is the same in its effects, the same money would pass at a greatly increased value, and would, therefore, be adequate to the additional amount of payments.

Whenever merchants, then, have a want of confidence in each other, which disinclines them to deal on credit, or to accept in payment each other's cheques, notes, or bills: more money, whether it be paper or metallic money, is in demand; and the advantage of a paper circulation, when established on correct principles, is, that this additional quantity can be presently supplied without occasioning any variation in the value of the whole currency, either as compared with bullion or with any other commodity; whereas, with a system of metallic currency, this additional quantity cannot be so readily supplied, and when it is finally supplied, the whole of the currency, as well as bullion, has acquired an increased value.

section II.

Use of a Standard Commodity—Objections to it considered.

During the late discussions on the bullion question, it was most justly contended, that a currency, to be perfect, should be absolutely invariable in value.

But it was said, too, that ours had become such a currency, by the Bank restriction bill; for by that bill we had wisely discarded gold and silver as the standard of our money; and, in fact, that a pound note did not and ought not to vary with a given quantity of gold, more than with a given quantity of any other commodity. This idea of a currency without a specific standard was, I believe, first advanced by Sir James Steuart,∗ but no one has yet been able to offer any test by which we could ascertain the uniformity in the value of a money so constituted. Those who supported this opinion did not see, that such a currency, instead of being invariable, was subject to the greatest variations,—that the only use of a standard is to regulate the quantity, and by the quantity the value of the currency—and that without a standard it would be exposed to all the fluctuations to which the ignorance or the interests of the issuers might subject it.

It has indeed been said that we might judge of its value by its relation, not to one, but to the mass of commodities. If it should be conceded, which it cannot be, that the issuers of paper money would be willing to regulate the amount of their circulation by such a test, they would have no means of so doing; for when we consider that commodities are continually varying in value, as compared with each other; and that when such variation takes place, it is impossible to ascertain which commodity has increased, which diminished in value, it must be allowed that such a test would be of no use whatever.

Some commodities are rising in value, from the effects of taxation, from the scarcity of the raw material of which they are made, or from any other cause which increases the difficulty of production. Others again are falling, from improvements in machinery, from the better division of labour, and the improved skill of the workman; from the greater abundance of the raw material, and generally from greater facility of production. To determine the value of a currency by the test proposed, it would be necessary to compare it successively with the thousands of commodities which are circulating in the community, allowing to each all the effects which may have been produced upon its value by the above causes. To do this is evidently impossible.

To suppose that such a test would be of use in practice, arises from a misconception of the difference between price and value.

The price of a commodity is its exchangeable value in money only.

The value of a commodity is estimated by the quantity of other things generally for which it will exchange.

The price of a commodity may rise while its value falls, and vice versâ. A hat may rise from twenty to thirty shillings in price, but thirty shillings may not procure so much tea, sugar, coffee, and all other things, as twenty shillings did before, consequently a hat cannot procure so much. The hat, then, has fallen in value, though it has increased in price.

Nothing is so easy to ascertain as a variation of price, nothing so difficult as a variation of value; indeed, without an invariable measure of value, and none such exists, it is impossible to ascertain it with any certainty or precision.

A hat may exchange for less of tea, sugar, and coffee, than before, but, at the same time, it may exchange for more of hardware, shoes, stockings, &c., and the difference of the comparative value of these commodities may either arise from a stationary value of one, and a rise, though in different degrees of the other two; or a stationary value in one, and a fall in the value of the other two; or they may have all varied at the same time.

If we say that value should be measured by the enjoyments which the exchange of the commodity can procure for its owner, we are still as much at a loss as ever to estimate value, because two persons may derive very different degrees of enjoyment from the possession of the same commodity. In the above instance, a hat would appear to have fallen in value to him whose enjoyments consisted in tea, coffee, and sugar; while it would appear to have risen in value to him who preferred shoes, stockings, and hardware.

Commodities generally, then, can never become a standard to regulate the quantity and value of money; and although some inconveniences attend the standard which we have adopted, namely, gold and silver, from the variations to which they are subject as commodities, these are trivial, indeed, compared to those which we should have to bear if we adopted the plan recommended.

When gold, silver, and almost all other commodities were raised in price, during the last twenty years, instead of ascribing any part of this rise to the fall of the paper currency, the supporters of an abstract currency had always some good reason at hand for the alteration in price. Gold and silver rose because they were scarce, and were in great demand to pay the immense armies which were then embodied. All other commodities rose because they were taxed either directly or indirectly, or because, from a succession of bad seasons, and the difficulties of importation, corn had risen considerably in value, which, according to their theory, must necessarily raise the price of commodities. According to them, the only things which were unalterable in value were bank notes, which were therefore eminently well calculated to measure the value of all other things.

If the rise had been 100 per cent., it might equally have been denied that the currency had anything to do with it, and it might equally have been ascribed to the same causes. The argument is certainly a safe one, because it cannot be disproved. When two commodities vary in relative value, it is impossible with certainty to say whether the one rises or the other falls; so that, if we adopted a currency without a standard, there is no degree of depreciation to which it might not be carried. The depreciation could not admit of proof, as it might always be affirmed that commodities had risen in value, and that money had not fallen.

section III.

The Standard, its Imperfections—Variations below without Allowance of the countervailing variations above the Standard, their Effects—Correspondence with the Standard the Rule for Paper Money.

While a standard is used, we are subject to only such a variation in the value of money as the standard itself is subject to; but against such variation there is no possible remedy, and late events have proved that, during periods of war, when gold and silver are used for the payment of large armies distant from home, those variations are much more considerable than has been generally allowed. This admission only proves that gold and silver are not so good a standard as they have been hitherto supposed,—that they are themselves subject to greater variations than it is desirable a standard should be subject to. They are, however, the best with which we are acquainted. If any other commodity less variable could be found, it might very properly be adopted as the future standard of our money, provided it had all the other qualities which fitted it for that purpose; but, while these metals are the standard, the currency should conform in value to them, and whenever it does not, and the market price of bullion is above the Mint price, the currency is depreciated. This proposition is unanswered, and is unanswerable.

Much inconvenience arises from using two metals as the standard of our money; and it has long been a disputed point whether gold or silver should by law be made the principal or sole standard of money. In favour of gold it may be said, that its greater value under a smaller bulk eminently qualifies it for the standard in an opulent country; but this very quality subjects it to greater variations of value during periods of war or extensive commercial discredit, when it is often collected and hoarded, and may be urged as an argument against its use. The only objection to the use of silver as the standard is its bulk, which renders it unfit for the large payments required in a wealthy country; but this objection is entirely removed by the substituting of paper money as the general circulation medium of the country. Silver, too, is much more steady in its value, in consequence of its demand and supply being more regular; and as all foreign countries regulate the value of their money by the value of silver, there can be no doubt that, on the whole, silver is preferable to gold as a standard, and should be permanently adopted for that purpose.

A better system of currency may, perhaps, be imagined than that which existed before the late laws made bank notes a legal tender; but while the law recognised a standard, while the Mint was open to any person who chose to take thither gold and silver to be coined into money, there was no other limit to the fall in the value of money than to the fall in the value of the precious metals. If gold had become as plentiful and as cheap as copper, bank notes would necessarily have partaken of the same depreciation, and all persons, the whole of whose possessions consisted of money—such as those who hold exchequer bills, who discount merchants' bills, or whose income is derived from annuities, as the holders of the public funds, mortgagees, and many others—would have borne all the evils of such a depreciation. With what justice, then, can it be maintained, that when gold and silver rise, money should be kept by force and by legislative interference at its former value, while no means are, or ever have been, used to prevent the fall of money when gold and silver fall? If the person possessed of money is subject to all the inconveniences of a fall in the value of his property, he ought also to have the benefits of the rise. If a paper currency without a standard be an improvement, let it be proved to be so, and then let the standard be disused; but do not preserve it to the disadvantage solely, never to the advantage, of a class of persons possessed of one out of the thousands of commodities which are circulating in the community, of which no other is subject to any such rule.

The issuers of paper money should regulate their issues solely by the price of bullion, and never by the quantity of their paper in circulation. The quantity can never be too great nor too little while it preserves the same value as the standard. Money, indeed, should be rather more valuable than bullion, to compensate for the trifling delay which takes place before it is returned in exchange for bullion at the Mint. This delay is equivalent to a small seignorage; and coined money, or bank notes, which represent coined money, should in their natural and perfect state, be just so much more valuable than bullion. The Bank of England, by not having paid a due regard to this principle, have in former times been considerable losers. They supplied the country with all the coined money for which it had occasion, and, consequently, purchased bullion with their paper that they might carry it to the Mint to be coined. If their paper had been sustained by limiting its quantity at a value somewhat greater than bullion, they would, in the cheapness of their purchases, have covered all the expenses of brokerage and refining, including the just equivalent for the delay at the Mint.

section IV.

An expedient to bring the English currency as near as possible to perfection.

In the next session of Parliament, the subject of currency is again to be discussed; and, probably, a time will then be fixed for the resumption of cash payments, which will oblige the Bank to limit the quantity of their paper till it conforms to the value of bullion.

A well regulated paper currency is so great an improvement in commerce, that I should greatly regret if prejudice should induce us to return to a system of less utility. The introduction of the precious metals for the purposes of money may with truth be considered as one of the most important steps towards the improvement of commerce and the arts of civilized life; but it is no less true, that, with the advancement of knowledge and science, we discover that it would be another improvement to banish them again from the employment to which, during a less enlightened period, they had been so advantageously applied.

If the Bank should be again called upon to pay their notes in specie, the effect would be to lessen greatly the profits of the Bank without a correspondent gain to any other part of the community. If those who use one and two, and even five pound notes, should have their option of using guineas, there can be little doubt which they would prefer; and thus, to indulge a mere caprice, a most expensive medium would be substituted for one of little value.

Besides the loss to the Bank, which must be considered as a loss to the community, general wealth being made up of individual riches, the state would be subjected to the useless expense of coinage, and, on every fall of the exchange, guineas would be melted and exported.

To secure the public against any other variations in the value of the currency than those to which the standard itself is subject, and, at the same time, to carry on the circulation with a medium the least expensive, is to attain the most perfect state to which a currency can be brought, and we should possess all these advantages by subjecting the Bank to the delivery of uncoined gold or silver at the Mint standard and price, in exchange for their notes, instead of the delivery of guineas; by which means paper would never fall below the value of bullion without being followed by a reduction of its quantity. To prevent the rise of paper above the value of bullion, the Bank should be also obliged to give their paper in exchange for standard gold at the price of 3l. 17s. per ounce. Not to give too much trouble to the Bank, the quantity of gold to be demanded in exchange for paper at the Mint price of 3l. 17s. 10½d., or the quantity to be sold to the Bank at 3l. 17s., should never be less than twenty ounces. In other words, the Bank should be obliged to purchase any quantity of gold that was offered them, not less than twenty ounces, at 3l. 17s.∗ per ounce, and to sell any quantity that might be demanded at 3l. 17s. 10½d. While they have the power of regulating the quantity of their paper, there is no possible inconvenience that could result to them from such a regulation.

The most perfect liberty should be given, at the same time, to export or import every description of bullion. These transactions in bullion would be very few in number, if the Bank regulated their loans and issues of paper by the criterion which I have so often mentioned, namely, the price of standard bullion, without attending to the absolute quantity of paper in circulation.‡

The object which I have in view would be in a great measure attained, if the Bank were obliged to deliver uncoined bullion in exchange for their notes at the Mint price and standard; though they were not under the necessity of purchasing any quantity of bullion offered them at the prices to be fixed, particularly if the Mint were to continue open to the public for the coinage of money: for that regulation is merely suggested to prevent the value of money from varying from the value of bullion more than the trifling difference between the prices at which the Bank should buy and sell, and which would be an approximation to that uniformity in its value which is acknowledged to be so desirable.

If the Bank capriciously limited the quantity of their paper, they would raise its value; and gold might appear to fall below the limits at which I propose the Bank should purchase. Gold, in that case, might be carried to the Mint, and the money returned from thence being added to the circulation, would have the effect of lowering its value, and making it again conform to the standard; but it would neither be done so safely, so economically, nor so expeditiously, as by the means which I have proposed; against which the Bank can have no objection to offer, as it is for their interest to furnish the circulation with paper, rather than oblige others to furnish it with coin.

Under such a system, and with a currency so regulated, the Bank would never be liable to any embarrassments whatever, excepting on those extraordinary occasions, when a general panic seizes the country, and when every one is desirous of possessing the precious metals as the most convenient mode of realizing or concealing his property. Against such panics, Banks have no security, on any system; from their very nature they are subject to them, as at no time can there be in a Bank, or in a country, so much specie or bullion as the monied individuals of such country have a right to demand. Should every man withdraw his balance from his banker on the same day, many times the quantity of bank notes now in circulation would be insufficient to answer such a demand. A panic of this kind was the cause of the crisis in 1797; and not, as has been supposed, the large advances which the Bank had then made to Government. Neither the Bank nor Government were at that time to blame; it was the contagion of the unfounded fears of the timid part of the community, which occasioned the run on the Bank, and it would equally have taken place if they had not made any advances to Government, and had possessed twice their present capital. If the Bank had continued paying in cash, probably the panic would have subsided before their coin had been exhausted.

With the known opinion of the Bank Directors as to the rule for issuing paper money, they may be said to have exercised their powers without any great indiscretion. It is evident that they have followed their own principle with extreme caution. In the present state of the law, they have the power, without any control whatever, of increasing or reducing the circulation in any degree they may think proper; a power which should neither be intrusted to the State itself nor to any body in it, as there can be no security for the uniformity in the value of the currency when its augmentation or diminution depends solely on the will of the issuers. That the Bank have the power of reducing the circulation to the very narrowest limits will not be denied, even by those who agree in opinion with the Directors, that they have not the power of adding indefinitely to its quantity. Though I am fully assured that it is both against the interest and the wish of the Bank to exercise this power to the detriment of the public, yet when I contemplate the evil consequences which might ensue from a sudden and great reduction of the circulation, as well as from a great addition to it, I cannot but deprecate the facility with which the State has armed the Bank with so formidable a prerogative.

The inconvenience to which country banks were subjected before the restriction on cash payments, must at times have been very great. At all periods of alarm, or of expected alarm, they must have been under the necessity of providing themselves with guineas, that they might be prepared for every exigency which might occur. Guineas on these occasions were obtained at the Bank in exchange for the larger notes, and were conveyed by some confidential agent, at expense and risk, to the country bank. After performing the offices to which they were destined, they found their way again to London, and in all probability were again lodged in the Bank, provided they had not suffered such a loss of weight as to reduce them below the legal standard.

If the plan now proposed, of paying bank notes in bullion, be adopted, it would be necessary either to extend the same privilege to country banks, or to make bank notes a legal tender, in which latter case there would be no alteration in the law respecting country banks, as they would be required, precisely as they now are, to pay their notes when demanded in Bank of England notes.

The saving which would take place from not submitting the guineas to the loss of weight from the friction which they must undergo in their repeated journeys, as well as of the expenses of conveyance, would be considerable; but by far the greatest advantage would result from the permanent supply of the country, as well as of the London circulation, as far as the smaller payments are concerned, being provided in the very cheap medium, paper, instead of the very valuable medium, gold, thereby enabling the country to derive all the profit which may be obtained by the productive employment of a capital to that amount. We should surely not be justified in rejecting so decided a benefit, unless some specific inconvenience could be pointed out as likely to follow from adopting the cheaper medium.

Much has been ably written on the benefits resulting to a country from the liberty of trade, leaving every man to employ his talents and capital as to him may seem best, unshackled by restrictions of every kind. The reasoning by which the liberty of trade is supported is so powerful, that it is daily obtaining converts. It is with pleasure that I see the progress which this great principle is making amongst those whom we should have expected to cling the longest to old prejudices. In the petitions to Parliament against the corn bill, the advantages of an unrestricted trade were generally recognised, but by none more ably than by the clothiers of Gloucestershire, who were so convinced of the impolicy of restriction, that they expressed a willingness to relinquish every restraint which might be found to attach to their trade. These are principles which cannot be too widely extended, nor too generally adopted in practice; but if foreign nations are not sufficiently enlightened to adopt this liberal system, and should continue their prohibitions and excessive duties on the importation of our commodities and manufactures, let England set them a good example by benefiting herself; and instead of meeting their prohibitions by similar exclusions, let her get rid as soon as she can of every vestige of so absurd and hurtful a policy.

The pecuniary advantage which would be the result of such a system would soon incline other states to adopt the same course, and no long period would elapse before the general prosperity would be seen to be best promoted by each country falling naturally into the most advantageous employment of its capital, talents, and industry.

Advantageous, however, as the liberty of trade would prove, it must be admitted that there are a few, and a very few exceptions to it, where the interference of Government may be beneficially exerted. Monsieur Say, in his able work on Political Economy, after showing the advantages of a free trade, observes,∗ that the interference of Government is justifiable only in two cases; first, to prevent a fraud, and secondly, to certify a fact. In the examinations to which medical practitioners are obliged to submit, there is no improper interference; for it is necessary to the welfare of the people, that the fact of their having acquired a certain portion of knowledge respecting the diseases of the human frame should be ascertained and certified. The same may be said of the stamp which Government puts on plate and money; it thereby prevents fraud, and saves the necessity of having recourse on each purchase and sale to a difficult chemical process. In examining the purity of drugs sold by chemists and apothecaries, the same object is had in view. In all these cases, the purchasers are not supposed to have, or to be able to acquire, sufficient knowledge to guard them against deception; and Government interferes to do that for them which they could not do for themselves.

But if the public require protection against the inferior money which might be imposed upon them by an undue mixture of alloy, and which is obtained by means of the Government stamp when metallic money is used; how much more necessary is such protection when paper-money forms the whole, or almost the whole, of the circulating medium of the country? Is it not inconsistent, that Government should use its power to protect the community from the loss of one shilling in a guinea, but does not interfere to protect them from the loss of the whole twenty shillings in a one-pound note? In the case of Bank of England notes, a guarantee is taken by the Government for the notes which the Bank issue; and the whole capital of the Bank, amounting to more than 11½ millions, must be lost before the holders of their notes can be sufferers from any imprudence they may commit. Why is not the same principle followed with respect to the country banks? What objection can there be against requiring of those who take upon themselves the office of furnishing the public with a circulating medium, to deposit with Government an adequate security for the due performance of their engagements? In the use of money, every one is a trader; those whose habits and pursuits are little suited to explore the mechanism of trade are obliged to make use of money, and are no way qualified to ascertain the solidity of the different banks whose paper is in circulation; accordingly, we find that men living on limited incomes, women, labourers, and mechanics of all descriptions, are often severe sufferers by the failures of country banks, which have lately become frequent beyond all former example. Though I am by no means disposed to judge uncharitably of those who have occasioned so much ruin and distress to the middle and lower classes of the people, yet, it must be allowed by the most indulgent, that the true business of banking must be very much abused before it can be necessary for any bank, possessing the most moderate funds, to fail in their engagements; and I believe it will be found, in by far the major part of these failures, that the parties can be charged with offences much more grave than those of mere imprudence and want of caution.

Against this inconvenience the public should be protected, by requiring of every country bank to deposit with Government, or with commissioners appointed for that purpose, funded property or other Government security, in some proportion to the amount of their issues.

Into the details of such a plan it is not necessary to enter very minutely. Stamps for the issue of notes might be delivered on the required deposit being made, and certain periods in the year might be fixed upon, when the whole or any part of the security should be returned, on proof being given, either by the return of the cancelled stamps, or by any other satisfactory means, that the notes for which it was given were no longer in circulation.

Against such a regulation no country bank of respectability would object; on the contrary, it would, in all probability, be most acceptable to them, as it would prevent the competition of those who are at present so little entitled to appear in the market against them.

SECTION V.

A Practice which creates a great Mass of Mercantile Inconvenience—Remedy proposed.

After all the improvements, however, that can be made in our system of currency, there will yet be a temporary inconvenience to which the public will be subject, as they have hitherto been, from the large quarterly payment of dividends to the public creditors,—an inconvenience which is often severely felt, and to which, I think, an easy remedy might be applied.

The national debt has become so large, and the interest which is paid quarterly upon it is so great a sum, that the mere collecting the money from the receivers general of the taxes, and the consequent reduction of the quantity in circulation, just previously to its being paid to the public creditor in January, April, July, and October, occasions, for a week or more, the most distressing want of circulating medium. The Bank, by judicious management, discounting bills probably very freely, just at the time that these monies are paid into the Exchequer, and arranging for the receipt of large sums immediately after the payment of the dividends, have, no doubt, considerably lessened the inconvenience to the mercantile part of the community. Nevertheless, it is well known to those who are acquainted with the money market that the distress for money is extreme at the periods I have mentioned. Exchequer bills, which usually sell at a premium of five shillings per 100l., are at such times at so great a discount that, by the purchase of them then, and the re-sale when the dividends are paid, a profit may often be made equal to the rate of 15 to 20 per cent. interest for money. At these times, too, the difference between the price of stock for ready money, and the price for a week or two to come, affords a profit, to those who can advance money, even greater than can be made by employing money in the purchase of exchequer bills. This great distress for money is frequently, after the dividends are paid, followed by as great a plenty, so that little use can for some time be made of it.

The very great perfection to which our system of economizing the use of money has arrived, by the various operations of banking, rather aggravates the peculiar evil of which I am speaking; because, when the quantity of circulation is reduced, in consequence of the improvements which have been adopted in the means of effecting our payments, the abstraction of a million or two from that reduced circulation becomes much more serious in its effects, being so much larger a proportion of the whole circulation.

On the inconvenience to which trade and commerce are exposed by this periodical distress for money, I should think no difference of opinion can possibly exist. The same unanimity may not prevail with respect to the remedy which I shall now propose.

Let the Bank be authorised by Government to deliver the dividend warrants to the proprietors of stock a few days before the receivers general are required to pay their balances into the Exchequer.

Let these warrants be payable to the bearer exactly in the same manner as they now are.

Let the day for the payment of these dividend warrants in bank notes be regulated precisely as it now is.

If the day of payment could be named on or before the delivery of the warrants, it would be more convenient.

Finally, let these warrants be receivable into the Exchequer from the receivers general, or from any other person who may have payments to make there, in the same manner as bank notes, the persons paying them allowing the discount for the number of days which will elapse before they become due.

If a plan of this sort were adopted, there could never be any particular scarcity of money before the payment of the dividends, nor any particular plenty of it after. The quantity of money in circulation would be neither increased nor diminished by the payment of the dividends. A great part of these warrants would, from the stimulus of private interest, infallibly find their way into the hands of those who had public payments to make, and from them to the Exchequer. Thus, then, would a great part of the payments to Government, and the payments from Government to the public creditor, be effected without the intervention of either bank notes or money, and the demands for money for such purposes, which are now so severely felt by the mercantile classes, would be effectually prevented.

Those who are well acquainted with the economical system now adopted in London throughout the whole banking concern, will readily understand that the plan here proposed is merely the extension of this economical system to a species of payments to which it has not yet been applied. To them it will be unnecessary to say anything further in recommendation of a plan, with the advantages of which in other concerns they are already so familiar.

SECTION V.

The public services of the Bank excessively overpaid—Remedy proposed.

Mr grenfell has lately called the attention of Parliament to a subject of importance to the financial interests of the community. At a time when taxes bear so heavily on the people, brought upon them by the unexampled difficulties and expenses of the war, a resource so obvious as that which he has pointed out will surely not be neglected.

It appears by the documents which Mr Grenfell's motions have produced, that the Bank have, for many years, on an average, had no less a sum of the public money in their hands, on which they have obtained an interest of 5 per cent., than 11 millions; and the only compensation which the public have derived for the advantage which the Bank have so long enjoyed is a loan of 3 millions from 1806 to 1814, a period of eight years, at an interest of 3 per cent.,—and a farther loan of 3 millions, without interest, which the Bank, in 1808, agreed to afford the public till six months after the definitive treaty of peace, and which by an act of last session was continued without interest till April 1816 From 1806 to 1816, a period of ten years, the Bank have gained 5 per cent. per annum on 11,000,000l., which will amount to . . £5,500,000

3,820,000l. will have been gained by the Bank in ten years, or 382,000l. per annum, for acting as bankers to the public, when, perhaps, the whole expense attending this department of their business does not exceed 10,000l. per annum.

In 1807, when these advantages were first noticed by a committee of the House of Commons, it was contended by many persons, in favour of the Bank, and by Mr Thornton, one of the directors, who had been governor, that the gains of the Bank were in proportion to the amount of their notes in circulation, and that no advantage was derived from the public deposits further than as they enabled the Bank to maintain a larger amount of notes in circulation. This fallacy was completely exposed by the committee.

If Mr Thornton's argument were correct, no advantage whatever would have resulted to the Bank from the deposits of the public money—for those deposits do not enable them to maintain a larger amount of notes in circulation.

Suppose that, before the Bank had any of the public deposits, the amount of their notes in circulation were 25 millions, and that they derived a profit by such circulation. Suppose, now, that Government received 10 millions for taxes in bank notes, and deposited them permanently with the Bank. The circulation would be immediately reduced to 15 millions, but the profits of the Bank would be precisely the same as before; though 15 millions only were then in circulation, the Bank would obtain a profit on 25 millions. If, now, they again raise the circulation to 25 millions by employing the 10 millions in discounting bills, purchasing exchequer bills, or advancing the payments on the loan for the year for the holders of scrip receipts, will they not have added the interest of 10 millions to their usual profits, although they should at no time have raised their circulation above the original sum of 25 millions.

That the increase in the amount of public deposits should enable the Bank to add to the amount of their notes in circulation, is neither supported by theory nor experience. If we attend to the progress of these deposits we shall observe, that at no time did they increase so much as from 1800 to 1806, during which time there was no increase in the circulation of notes of 5l. and upwards; but, from 1807 to 1815, when there was no increase whatever in the amount of public deposits, the amount of notes of 5l. and upwards had increased 5 millions.

Nothing can be more satisfactory on the subject of the profits of the Bank, from the public deposits, than the report of the committee on public expenditure, in 1807. It is as follows:—

“In the evidence upon this part of the subject, it is admitted that the notes of the Bank are productive of profit; but it appears to be assumed that the Government balances are only so in proportion as they tend to augment the amount of notes; whereas your committee are fully persuaded that both balances and notes are and must necessarily be productive.

The funds of the Bank, which are the sources of profit, and which constitute the measure of the sum which they have to lend (subject only to a deduction on account of cash and bullion) may be classed under three heads.

First, The sum received from their proprietors as capital, together with the savings which have been added to it.

Secondly, The sum received from persons keeping cash at the Bank. This sum consists of the balances of the deposit accounts, both of Government and of individuals. In 1797, this fund, including all the balances of individuals, was only 5,130,140l. The present Government balances alone have been stated already at between 11 and 12 millions, including bank notes deposited in the Exchequer.∗

Thirdly, The sum received in return for notes put into circulation. A correspondent value for every note must originally have been given, and the value thus given for notes constitutes one part of the general fund to be lent at interest. A note-holder, indeed, does not differ essentially from a person to whom a balance is due. Both are creditors of the Bank; the one holding a note, which is the evidence of the debt due to him, the other having the evidence of an entry in the ledger of the Bank. The sum at all times running at interest will be in exact proportion to the amount of these three funds combined, deduction being made for the value of cash and bullion. “∗

Every word of this statement appears to me unanswerable, and the principle laid down by the committee would afford us an infallible clue to ascertain the net profits of the Bank, if we knew the amount of their savings,—their cash and bullion, and their annual expenses, as well as the other particulars, are known to us.

It will be seen by the above extract, that in 1807 the amount of the public deposits was between 11 and 12 millions, whereas, in 1797 the amount of public and private deposits were, together, only equal to 5,130,140l. In consequence of this report Mr Perceval applied to the Bank, on the part of the public, for a participation in their additional profits from this source, either in the way of an annual payment or as a loan of money without interest; and, after some negociation, a loan of 3 millions was obtained without interest, payable six months after a definitive treaty of peace.

The same report also notices the exorbitant allowance which was made to the Bank for the management of the national debt. The public paid the Bank at that time at the rate of 450l. per million for management; and it was stated by the committee, that the additional allowance for management in the ten years ending in 1807, in consequence of the increase of the debt, was more than 155,000l., whilst the “whole increase of the officers who actually transact the business, in the last eleven years, is only 137, whose annual expense may be from 18,449l. to 23,290l., the addition to the other permanent charges being probably about one-half or two-thirds of that sum.”

After this report, a new agreement was made with the Bank for the management of the public debt.

450l. per million was to be paid if the unredeemed capital exceeded 300 millions, but fell below 400 millions.

340l. per million if the capital exceeded 400 millions, but fell below 600 millions.

300l. per million on such part of the public debt as exceeded 600 millions.

Besides these allowances, the Bank are paid 800l. per million for receiving contributions on loans; 1000l. on each contract for lotteries; and 1250l. per million, or 1/8th per cent., for receiving contributions on the profits arising from property, professions, and trades. This agreement has been in force ever since.

As the period is now approaching when the affairs of the Bank will undergo the consideration of Parliament, and when the agreement which regards the public deposits will expire, by the payment of the 3 millions borrowed of the Bank without interest, in 1808; no time can be more proper than the present to point out the undue advantages which were given to the Bank in the terms settled between them and Mr Perceval in 1808. This, I apprehend, was the chief object of Mr Grenfell, for it is not alone to the additional advantages which the Bank have obtained since the agreement in 1808 that he wishes to call the attention of Parliament, but also to that agreement itself, under which the public are now paying, and have long paid, in one shape or another, enormous sums for very inadequate services.

Mr Grenfell probably thinks, and if he does I most heartily concur with him, that a profit of 382,000l. per annum, which is the sum at which the advantages of the public deposits to the Bank, for a period of ten years, may be calculated, as will be seen, page 412, very far exceeds the just compensation which the public ought to pay to the Bank for doing the mere business of bankers; particularly when, in addition to this sum, 300,000l. per annum is now also paid for the management of the national debt, loans, &c.; when, moreover, the Bank have been enjoying, ever since the renewal of their charter, immense additional profits, from the substitution of paper money in lieu of a currency consisting partly of metallic and partly of paper money, which additional profits were not in contemplation, either of Parliament which granted, or of the Bank which obtained that charter, when the bargain was made in 1800, and of which they might be in a great measure deprived by the repeal of the bill which restricts them from paying their notes in specie. Under these circumstances it must, I think, be allowed, that in 1808 Mr Perceval by no means obtained for the public what they had a right to expect; and it is to be hoped that, with the known sentiments of the Chancellor of the Exchequer as to the right of the public to participate in the additional advantages of the Bank arising from public deposits, terms more consonant with the public interest will now be insisted on.

It is true that the above sums, though paid by the public, are not the net profits of the Bank; from them a deduction must be made for the expenses of that part of the Bank establishment which is exclusively appropriated to the public business; but those expenses do not probably exceed 150,000l. per annum.

The committee on public expenditure stated in their report to the House of Commons in 1807, “that the number of clerks employed by the Bank exclusively or principally in the public business, was

whose salaries, it is presumed, may be calculated at an average of between 120l. and 170l. for each clerk: taking them at 135l., which exceeds the average of those employed in the South Sea

Either of which two last sums would be sufficient to provide a superannuation fund.

Allowing, then, the very highest computation of the committee, the expense of managing the public business in 1807, including the whole of the salaries of the directors, incidental expenses, additional buildings and repairs, together with law expenses and loss by frauds and forgeries, amounted to 119,500l.

The committee also stated, that the increased expenses of the Bank for managing the public business, after a period of eleven years, from 1796 to 1807, were about 35,000l. per annum, on an increased debt of 278 millions, being at the rate of 126l. per million. From 1807 to the present time the unredeemed debt managed by the Bank has increased from about 550 millions to about 830 millions, or about 280 millions,—little more than from 1796 to 1807, and therefore at the same rate of 126l. per million, would be attended with a similar expense of 35,000l.: but, “as the rate of expense diminishes as the scale of business enlarges,” I shall estimate it at 30,500l., which, added to 119,500l., the expenses of 1807, will make the whole expense of managing the public business amount to 150,000l. The auditors of public accounts in 1786 estimated that 187l. 10s. per million was sufficient to pay the expenses of managing a debt of 224 millions. The estimate which I have just made is about 180l. per million, on a debt of 830 millions, which will appear an ample allowance when it is considered in what different proportions the debt itself increases, compared with the work which it occasions.

Supposing, then, the expenses to be about 150,000l., the net profits obtained by the Bank by all its transactions with the public this year will be as follows:—

Of this vast sum, 372,000l. probably arises from the deposits alone, an expense which might almost wholly be saved to the nation, if Government were to take the management of that concern into their own hands, by having a common treasury, on which each department should draw, in the same manner as they now do on the Bank of England, investing the 11 millions, which appears to be the average deposits in exchequer bills, a part of which might be sold in the market, if any unforeseen circumstances should reduce the deposits below that sum.

The resolutions,‡ proposed by Mr Grenfell, and on which Parliament will decide the next session, after briefly recapitulating the facts contained in the documents which his motions have produced, conclude thus:—“That this House will take into early consideration the advantages derived by the Bank, as well from the management of the national debt, as from the amount of balances of public money remaining in their hands, with the view to the adoption of such an arrangement, when the engagements now subsisting shall have expired, as may be consistent with what is due to the interest of the public, and the rights, credit, and stability of the Bank of England.”

Mr Mellish, the governor of the Bank, has also proposed resolutions to be submitted to Parliament next session. These resolutions§ admit all the facts stated by Mr Grenfell's; they mention also one or two trifling services which the Bank perform for the public, one without charge,∥ and another at a less charge than is incurred by employing the ordinary collector of taxes. But the 8th and 9th resolutions advance an extraordinary pretension,—they appear to question whether on the expiration of the loan of 3,000,000l.in 1816, Government will be at liberty before 1833, the time when the charter will expire, to demand any compensation whatever from the Bank for the advantages they derive from the public deposits, or to make any new arrangement respecting the charge for management of the national debt. These resolutions are as follows:

8th. “That by the 39 and 40 Geo. 3. c. 28. s. 13, it is enacted, ‘That during the continuance of the charter, the Bank shall enjoy all privileges, profits, emoluments, benefits, and advantages whatsoever, which they now possess and enjoy by virtue of any employment by or on behalf of the public.

That previously to such renewal of their charter, the Bank was employed as the public banker, in keeping the cash of all the principal departments in the receipt of the public revenue, and in issuing and conducting the public expenditure, &c.

9th. That whenever the engagements now subsisting between the public and the Bank shall expire, it may be proper to consider the advantages derived by the Bank from its transactions with the public, with a view to the adoption of such arrangements as may be consistent with those principles of equity and good faith, which ought to prevail in all transactions between the public and the Bank of England.’∗

That the Bank should now for the first time intimate that their charter precludes the public from making any demand on the Bank for a participation in the advantages arising from the public deposits, after all that has passed since 1800 on that subject, does indeed appear surprising.

The charter of the Bank was renewed in 1800 for twenty-one years, from its expiration in 1812; consequently it will not now terminate till 1833. But since 1800, so far from the Bank asserting any such claim of right to the whole advantages of the public deposits, they in 1806 lent Government 3,000,000l. till 1814, at 3 per cent. interest, and in 1808 they lent 3,000,000l. more till the termination of the war, without interest, and in the last session of Parliament the loan of 3,000,000l. was continued without interest till April 1816. These loans were expressly granted, in consideration of the increase in the amount of the public deposits.

The committee on public expenditure, in their report (1807), to which I have already referred, speaking of the loan of 3,000,000l. to the public in 1806, at 3 per cent. interest, observe, “But the transaction is most material in another view, as it evinces that the agreement made in 1800 was not considered either by those who acted on the part of the public, or by the Bank Directors themselves, as a bar against further participation, whenever the increase of their profits derived from the public, and the circumstances of public affairs, might, upon similar principles, make such a claim reasonable and expedient. “And what is Mr Perceval's language at the same period, when, in consequence of this report, he applied for and obtained a loan of 3,000,000l. till the end of the war? In his letter to the governor and deputy governor of the Bank, dated the 11th of January 1808, he says, “I think it necessary to observe, that the proposal to confine the duration of the advance, by way of loan, or of the annual payment into the Exchequer, to the period of the present war, and twelve months after the termination of it, is by no means to be understood as an admission on my part that, at the expiration of such period, the public will no longer be entitled to look to any advantage from the continuance of such deposits: but simply as a provision by which the Government and the Bank may be respectively enabled, under the change in the state of affairs which will then have taken place, probably affecting the amount of public balances in the hands of the latter, to consider of a new arrangement.” On the 19th of January, Mr Perceval's proposals were submitted to the Court of Directors in a more official form,—they conclude thus: “And it is understood that during the continuance of this advance by the Bank, no alteration is to be proposed in the general course of business between the Bank and the Exchequer, nor any regulation introduced by which the accounts, now by law directed to be kept at the Bank, shall be withdrawn from thence.” These proposals were recommended for acceptance by the Court of Directors to the Court of Proprietors, and were, without comment, agreed to on the 21st of January.

Mr Vansittart, in his application to the Bank in November 1814, relative to continuing the loan of 3,000,000l., which would have become due on the 17th of December following, till April 1816, uses these words: “But I beg to be distinctly understood as not departing from the reservation made by the late Mr Perceval, in his letter to the governor and deputy governor of the Bank, of the 11th January 1808, by which he guarded against the possibility of any misconstruction which could preclude the public, after the expiration of the period of the loan then agreed upon, from asserting its title to future advantage from the continuance or increase of such deposits,—and as adhering generally to the principles maintained by Mr Perceval, in the discussion which then took place.”

No comment whatever appears to have been made by the Bank on these observations: a General Court of Proprietors was called, and the loan of 3 millions was continued till April 1816.

It surely will not come with a very good grace now from the Bank, to insist that the agreement of 1800 precludes the public from demanding any compensation for the advantages which the Bank have derived from the increase of the public deposits since that period, when, on so many occasions, the right of participation has been so expressly claimed on the part of Government, and acceded to by the Court of Directors.

In addition to these strong facts, by a reference to the basis on which the agreement for the renewal of the charter was founded, as detailed by Mr Thornton in his evidence before the committee of public expenditure in 1807,∗ it will still further appear that the Bank have no claim whatever to shelter themselves under their charter, in refusing to let the public participate in the profits which have accrued from the augmentation of the public deposits.

It must be recollected that Mr Thornton was, in 1800, the governor of the Bank,—that he was the negotiator, on the part of the Bank, with Mr Pitt, for the renewal of the charter,—and that, in fact, the idea of renewing the charter so long before its expiration originated with him. Mr Thornton told the committee, that the only sums of public money on which the Bank derived profit, and which were referred to by him and Mr Pitt, with a view to settle the compensation which the public should receive for prolonging the exclusive privileges of the Bank, were those lodged at the Bank for the payment of the growing dividends, and for the quarterly issues to the commissioners for the redemption of the national debt.

Mr Thornton expressly states, that all other public accounts were of trifling amount, and “the probable augmentation of the balances of public money from the various departments of Government was not taken into the account,”—“that such augmentation was neither adverted to nor provided for.”

If, then, it is acknowledged by the very negotiator on the part of the Bank that the probable augmentation of the public balances formed no part of the consideration in settling the pecuniary remuneration which was given to the public for continuing to the Bank their exclusive privileges, how can it now, with any justice, be contended by the Bank, that the profits derived from those augmented balances, which were “neither adverted to nor provided for,” belong of right exclusively to the Bank, and that the public have no claim either to participate in them, or to withdraw the balances to any use to which they may think proper to apply them.

It is to be observed that Mr Thornton, in his evidence before alluded to, represented all the other public accounts, excepting the two before mentioned, as of trifling amount; but, by accounts which were last session presented to Parliament, it appears that in 1800, the year to which Mr Thornton's evidence refers, when the charter was renewed, the public balances of all descriptions deposited with the Bank amounted to 6,200,000l., exceeding the aggregate amount stated by Mr Thornton by 3 millions, which he would, if he had been aware of this fact, hardly have called “a trifling amount.”

If, then, the fact of this large additional deposit did not come under the consideration of Mr Thornton and Mr Pitt, at the time of renewing the charter,—if no part of the remuneration which the public then received was founded on this fact, the large amount of public deposits in 1800, so far from entitling the Bank to retain the whole profits arising from the still larger deposits at the present period, binds them in justice to be particularly liberal in any new engagement they may now make with the public, as affording a remuneration for a profit so long enjoyed, which, it is to be presumed, they would not have been allowed to enjoy, if the facts had been clearly known and considered at the time of settling the terms on which the charter was renewed.

But, whether known or not known, must have been of little consequence in Mr Thornton's estimation, whose opinion, that the profits of the Bank were not increased by the augmentation of the public balances, otherwise than as they contributed to increase the amount of bank notes in circulation, is so emphatically given.

Is it not lamentable to view a great and opulent body like the Bank of England exhibiting a wish to augment their boards by undue gains wrested from the hands of an overburthened people? Ought it not rather to have been expected that gratitude for their charter, and the unlooked-for advantages with which it has been attended,—for the bonuses and increased dividends which they have already shared, and for the great undivided treasure which it has further enabled them to accumulate, would have induced the Bank voluntarily to relinquish to the State the whole benefit which is derived from the employment of 11 millions of the public money, instead of manifesting a wish to deprive them of the small portion of it which they have for a few years enjoyed?

When the rate of charge for the management of the national debt was under discussion, in 1807, Mr Thornton said “that, in a matter between the public and the Bank, he was sure nothing but a fair compensation for trouble, risk, and actual losses, and the great responsibility that attaches to the office, would be required.”

How comes it that the language of the Directors of the present day is so much changed? Instead of expecting only a fair compensation for trouble, risk, and actual losses, they endeavour to deprive the public even of the inadequate compensation which they have hitherto received, and appeal now, for the first time, to their charter for their right to hold the public money, and to enjoy all the profit which can be derived from its use, without allowing the least remuneration to the public.

If the charter were as binding as the Bank contend for, a great public company, possessing so advantageous a monopoly, and so intimately connected with the State, might be expected to act on a more liberal policy towards its generous benefactors.

Till the last session of Parliament, the Bank were also particularly favoured in the composition which they paid for stamp duties. In 1791, they paid a composition of 12,000l. per annum, in lieu of all stamps either on bills or notes. In 1799, on an increase of the stamp-duty, this composition was advanced to 20,000l., and an addition of 4,000l., raising the whole to 24,000l., was made for the duty on notes under 5l., which the Bank had then begun to circulate. In 1804, an addition of not less than 50 per cent. was made to the stamp-duty imposed by the act of 1799 on notes under 5l., and a considerable increase on the notes of a higher value; and, although the Bank circulation of notes under 5l. had increased from one and a half to four and a half millions, and the amount of notes of a higher description had also increased, yet the whole composition of the Bank was only raised from 24,000l. to 32,000l. In 1808, there was a further increase of 33 per cent. to the stamp-duty, at which time the composition was raised from 32,000l. to 42,000l. In both these instances the increase was not in proportion even to the increase of duty, and no allowance whatever was made for the increase in the amount of the Bank circulation.

In the last session of Parliament, on a further increase of the stamp-duty, the principle was for the first time established, that the Bank should pay a composition, in some proportion to the amount of their circulation. It is now fixed as follows. Upon the average circulation of the three preceding years, the Bank is to pay at the rate of 3500l. per million, without reference to the classes or value of the notes of which the aggregate circulation may consist.

The average of the Bank circulation for three years, ending 5th April 1815, was 25,102,600l., and upon this average they will pay this year about 87,500l.

Next year the average will be taken upon the three years ending in April 1816, and if it differs from the last, the duty will vary accordingly.

If the same course had been followed now as in 1804 and 1808, the Bank would have had to pay, even with the additional duty, only 52,500l., so that 35,000l. per annum has been saved to the public, by Parliament having at last recognised the principle which should have been adopted in 1799, and by the neglect of which the public have probably been losers, and the Bank consequently gainers, of a sum little less than 500,000l.

SECTION VII.

Bank Profits and Savings—Misapplication—Proposed Remedy.

I have hitherto been considering the profits of the Bank as they regard the public, and have endeavoured to show that they have greatly exceeded what a just consideration for their rights and interests could warrant.—I propose now to consider them in relation to the interests of the proprietors of Bank stock, for which purpose I shall endeavour to state a basis on which the profits of the Bank may be calculated, with a view to ascertain what the accumulated savings of the Bank now are. If we knew accurately the expenses of the Bank, and the amount of cash and bullion which they may at different times have had in their hands, we should have the means of making a calculation on this subject which would be a very near approximation to the truth.

The profits of the Bank are derived from sources which are well known. They arise, as has been already stated, from the interest on public and private deposits,—the interest on the amount of their notes in circulation, after deducting the amount of cash and bullion,—the interest on their capital and savings,—the allowance paid them for the management of the public debt,—the profits from their dealings in bullion, and from the destruction of their notes.—All these form the gross profits of the Bank, from which must be deducted only their expenses, the stamp-duty, and the property tax, in order to ascertain their net profits.

Under the head of expenses must be included all the charges attending the management of the national debt, as well as those incurred by the proper business of the Bank. In estimating the former of these charges, I have already stated my grounds for believing that it could not exceed 150,000l. In the management of the public business, it was stated by the committee on public expenditure, that 450 clerks were employed in 1807, and it is probable that the number may now be increased to between 500 and 600.

It has also, I understand, been stated from the best authority in Parliament, that the Bank employed in the whole of their establishment about 1000 clerks; consequently, if 500 are employed exclusively on the public business, 500 more must be engaged in the business of the Bank. Supposing now the expenses to bear some regular proportion to the number of clerks employed, as 150,000l. has been calculated to be the expense attending the employment of 500 clerks in the public business, we may estimate a like expense to be incurred by the employment of the other 500, and therefore the whole expenses of the Bank to be at the present time about 300,000l., including all charges whatsoever.∗

But although this large sum is now expended, it must have been of gradual growth since 1797; when, probably, the whole expenses of the establishment were not more than one-half the present amount. In the first place, since 1797, the amount of bank notes in circulation has increased from about 12 millions to 28 millions, but the expenses of their circulation, instead of increasing in the same proportion only, have at least, increased as one to ten.

The amount of notes of 5l. and upwards has been raised from 12 to 18 millions, and if the average value of notes, of all descriptions above 5l., be even so low as 15l., a circulation of 12 millions would consist of 800,000 notes, and a circulation of 18 millions of 1,200,000 notes, an increase in the proportion, as one to one and one-half; but the 9 millions of notes under 5l., which are now in circulation, have been wholly created since 1797, and if they consist of 5 millions of notes of 1l., and 2 millions of notes of 2l., a number of 7 millions of notes has been further added to the circulation, and the whole number of notes has been raised since 1797, from 800,000 to 8,200,000, or as one to ten, and at an expense ten times greater than was incurred at that time, the expense being in proportion to the number, and not to the amount of notes. It is probable, too, that the notes of 1l. and 2l., which are so constantly used in the circulation, are more often renewed than notes of a higher value.

The public debt, too, under the management of the Bank, is more than doubled since 1797, and must have added considerably to the expenses of that department. These expenses have been already calculated to have risen since 1796, from 84,500l. to 150,000l. or 65,500l.∗

The public deposits, too, are at least double what they were in 1797, from all which I have a right to infer, that the expenses of the Bank in 1797, could not have exceeded 150,000l., and that they have been gradually increasing since that period; perhaps at the rate of 7000l. or 8000l. per annum.

The next subject for consideration, is the amount of cash and bullion in the Bank, which at no time has been laid before the public;—that, and the amount of their discounts, were the only material facts which the Bank concealed from the public in the eventful year 1797. They stated in the account laid before Parliament, that their cash and bullion, and their bills and notes discounted, amounted together to 4,176,080l. on the 26th of February 1797. They gave also a scale of discounts from 1782 to 1797, and a scale of the cash and bullion in the Bank for the same period. By comparing these tables with each other, and with some parts of the evidence delivered before the Parliamentary Committees, an ingenious calculator discovered the whole secret which the Bank wished to conceal. According to his table the cash and bullion in the Bank, on the 26th of February 1797, was reduced as low as 1,227,000l., and 4 millions was about the sum which the Bank considered as fair cash; to which it never attained after December 1795, though previously to that year it was on some occasions more than double that amount.

For the first year or two after the suspension of cash payments, the Bank must have made great efforts to replenish their coffers with cash and bullion, as they were then by no means sure that they should not be again required to pay their notes in specie. We find, accordingly, by accounts returned to Parliament by the Mint, that the amount of gold coined in 1797 and 1798, was very little less in value than 5,000,000l.†

Whatever might have been the amount of cash and bullion, which the Bank had acquired in the first two years after the suspension of cash payments, it is probable that their stock has been decreasing since that period, as they could have no motive for keeping a large amount of such unproductive capital, when they must have been quite secure that no call could be made on them by the holders of their notes for guineas, and that before they were again required to pay in specie, they would have ample notice to prepare a due store of the precious metals.—It does not appear possible, then, under all the circumstances of the case, that the Bank can have added to their stock of bullion, since the great coinages of 1797 and 1798; but it is highly probable that they have considerably reduced it.

In estimating the profits of the Bank, as far as those profits are influenced by their stock of cash and bullion, I shall be justified in considering them greater since 1797 and 1798, as since those years they would naturally keep a less part of their capital in that unproductive shape, and, consequently, more in exchequer bills, or in merchants' acceptances, securities which pay interest, and are productive of profit.—On an average of the whole eighteen years, from 1797 to 1815, the cash and bullion of the Bank cannot be estimated as amounting to more than 3 millions, though, probably, for the first year or two, it amounted to 4 or 5 millions.

These circumstances being premised, it will not be difficult to calculate the profits of the Bank, from 1797 to the present time, all the facts necessary to such calculation being known to us excepting the two I have just stated, viz. the amount of expenses and of cash and bullion, but which cannot differ much from that at which I have calculated them.

Proceeding, then, on this basis, it appears, as will be seen by the accounts in the Appendix, that the profits and surplus capital of the Bank for a series of years, after paying all dividends and bonuses, have been as follows:—[For Table see next page.]

If in the accounts referred to, it should be thought that I have estimated the expenses of the Bank too low, it may on the other hand be remarked that I have not allowed for any profit from the deposits of individuals. Those deposits may not be very large, as the Bank do not afford the same accommodation to individuals as given by other bankers. Some profit must, however, be made from this source, as well as from the loss and destruction of notes, which it may be presumed, after a time, are not included in the amount stated to be in circulation. By the purchase of silver, and coinage of tokens, the Bank must, on the whole, have been gainers; for the value of the token has been generally lower in the market, than it has passed for in circulation at the time of its issue.

In point of fact, too, the Bank receives more than five per cent. interest for their money; for exchequer bills paying 3½d. per day, pay 5l. 6s. 5½d. per cent. per annum; and in discounting bills, the interest being immediately deducted, is employed as capital, and is instantly productive of profit; at the same time it must be observed that during a part of the time for which these calculations are made, exchequer bills bore an interest of only 3¼d. per day, which amounts to 4l. 18s. 0¼d. per cent. per annum, rather less than five per cent.

In March 1801, when a bonus of 5 per cent., in navy 5 per cents., was divided amongst the proprietors of Bank stock, Mr Tierney said in the House of Commons, “that when the affairs of the Bank of England were investigated by the House of Commons in 1797, the surplus profits were considered by some as a security for the engagements of the Bank to the public.” To which Mr Samuel Thornton, then governor of the Bank, replied, that “he could assure the honourable member, that the security of the public would not be lessened from what it was in 1797, by the division of the sum of 582,120l. voted at the general court, on the 19th instant, as exclusive of that sum, the surplus profits of the Bank were more now than they were in 1797.”∗

On an inspection of the account in the Appendix, it will be seen, that, after paying all the dividends and bonuses to the proprietors, the Bank had accumulated in April 1801 savings to the amount of 3,945,109l., exceeding the savings of 1797 by 118,219l., an increase not inconsistent with the declaration of Mr Thornton, and therefore tending to confirm the correctness of the basis on which these calculations are made.∗

It will appear on an examination of the accounts in the Appendix for the subsequent years, that the profits of the Bank for every year since 1801 have exceeded the annual dividend paid to the proprietors, and that in 1815, the surplus for that year only must have amounted to 1,066,625l, so that the Bank could have paid a dividend for that year of 19 per cent. instead of 10 per cent.

It will appear, too, that if the Bank affairs have been only mode-rately well managed, they must now have an accumulated fund of no less than 13 millions, which, in defiance of the clearest language of an act of Parliament, the Directors have hitherto withheld from the proprietors.

With such an accumulated fund, the Bank could make a division of 100 per cent. bonus without infringing on their permanent capital; and if they could maintain their present profits, with a deduction only of 523,908l. per annum, the interest (less income tax) on the surplus capital proposed to be divided, they would still have an unappropriated income of 542,000l., which would enable them to increase their permanent dividend from 10 to 14½ per cent in addition to the bonus of 100 per cent.

If they divided only a bonus of 75 per cent., they would retain a surplus capital exceeding that of 1797, and might, on the above supposition, have an unappropriated income of 673,000l., —they might therefore raise their permanent dividend from 10 to 15½ per cent. in addition to the bonus of 75 per cent.

But it cannot be expected that the Bank will, during peace, have the same opportunities of making profit as during war, and the proprietors must prepare themselves for a considerable reduction in their annual income. What that reduction may be will depend on the new agreement now to be entered into with Government, on the future amount of public deposits, and on the conditions on which the restoration of metallic payments may be enforced. It is evident that if the plan which I have recommended in the fourth section of this work be adopted, the Bank profits from this last item will not be materially reduced.

Supposing, however, that the reduction of the annual income of the Bank should, from the falling off of their profits in all these departments, be as much as 500,000l., the profits of the Bank would nevertheless be equal to the payment of the present permanent dividend of 10 per cent., even after a division of 100 per cent. bonus to the proprietors of Bank stock; for, if my calculations be correct, the profits of the Bank, after the payment of the annual dividend of 10 per cent. to the proprietors, were, for the year ending January 1, 1816, . . . . . £1,066,625

If, instead of 100 per cent., 50 per cent. bonus only were paid to the proprietors, the annual surplus profit of the Bank, after paying 10 per cent. dividend, would be 304,671l., a sum equal to a permanent increase of dividend of 2½ per cent.

And if no bonus whatever were paid, but the savings were considered as part of the