CHAP. 1833. 64. the Bank May 31. training of her statesmen to public life and duties. But for this wise and patriotic course of the leaders on both sides in the House of Commons, it may safely be affirmed that the constitution and liberties of England would inevitably have perished as those of France did in 1789, during the first transports consequent on the passing of the Reform Bill. The first great measure which was brought forward Renewal of was that of the BANK CHARTER, which expired and Charter. required to be renewed this year; and this led to a change attended with the most important political effects in the currency of the country. Lord Althorpe brought forward the Government plan on the subject on the 31st May, and in so doing he stated correctly" that the principle on which the Bank has hitherto acted in the management of its affairs, and which seems to have been fully approved of, is this, to keep one-third of bullion in proportion to its liabilities; to allow the public to act on the currency, and not to force it by artificial means; to allow their circulation gradually to diminish when the exchanges were against this country, and the drain of bullion became great; and when the exchanges turned in our favour, and the bullion came back, to let the circulation gradually expand in proportion. There was reason and experience in favour of this principle, and the regular publication of the Bank accounts would always show whether it had been adhered to. The Bank, therefore, was to be required to make a weekly return to the Treasury of the amount of bills and notes in circulation, and also of deposits, and that the average of such issues and deposits should be published quarterly. The monopoly of the Bank was to extend to sixty-five miles round London-that is to say, no bank of issue consisting of more than six partners was to be permitted within that distance. The Charter was to be renewed for twenty-one years, with power to the Government at the end of ten years to break it off. Bank of England notes were to be made a legal tender XXXI. 1833. everywhere, except at the Bank itself and branch banks. CHAP. The usury laws were to be repealed, to the effect of withdrawing all bills at less than three months from their operation. One-fourth of the debt due by the country to the Bank, which amounted to £14,000,000, was to be paid off, and £120,000 a-year cut off from the allowance made to that establishment for carrying on the public Ann. Reg. business, and royal charters were to be granted for the 168; Parl. establishment of joint-stock banks in the country beyond 31, 1833. the limits of the Bank's monopoly." 1 1 1833, 167, Deb. May against the R. Peel. So little was the vital importance of this subject under- 65. stood in the country, that these proposals passed into law Argument without any very serious opposition from any quarter. bill by Sir The leaders of the cheapening party, however, were alive to the tendency of the clause declaring bank-notes a legal tender, as a virtual departure from the principle of the bill of 1819. It was argued by Sir Robert Peel: "This is an incipient departure from a metallic currency, and a large stride towards a paper one. It will augment the circulation of the Bank of England notes, as they are declared a legal tender to all practical purposes; and diminish that of the country bankers, as they cannot on demand be converted at the offices from whence they have been issued as heretofore. It may be true, that in the case of an internal commercial panic arising from the temporary discredit of country bankers, there would be a great benefit in their being able to meet a run with Bank of England paper; but that is not a sufficient argument for so great a change, so entire a departure from the established principle of a legal tender. Is there any man who can contemplate without alarm the conversion of the right of the holder of a bank-note to get it converted into gold, into a right merely to get Bank of England notes? Any law which compelled a man to take the notes of a bank which he distrusted in lieu of gold is an act of tyranny. Can an act of Parliament give people confidence in a banking establishment? Can it make XXXI. 1833. CHAP. people regard a bank-note equivalent to gold? Why is it now that cheques to a large amount are more frequently paid by London bankers by cheques on the Bank of England than by gold? Simply because they are not declared by act of Parliament a legal tender. Declare them such, and they become assignats, and may be depreciated as such. Burke expressed this well when he said, 'Your notes are current on the Royal Exchange because they are not so in Westminster Hall.' The doctrine always maintained hitherto has been, You may issue what paper you please, provided you will undertake to pay it on demand in the precious metals.' To take one 1 Parl. Deb. particular species of paper and give it a value above 1833; Ann. every other sort, is the most extraordinary mode of in170, 174. creasing public confidence in a paper currency that ever was devised." 1 June 4, Reg. 1833, 66. the Gov ernment. On the other hand, it was maintained by Lord Althorpe Answer of and Mr Baring: "The objection to the declaring banknotes a legal tender, arises from a misconception of the object for which it is intended. The object is not so much to meet the demands on country bankers for their notes, as those for their deposits. The amount of notes issued by country bankers in general bears but a very small proportion to their engagements, on account of deposits for meeting which they are obliged, in times of pressure, to apply to the Bank of England for bullion. It is to guard against that pressure on the Bank that it has been deemed advisable to make the bank-note a legal tender; for in a case of commercial panic, as was the case in 1825, the country bankers sent up to London, not only for sovereigns to pay their notes, but likewise for gold to meet their other engagements. The Bank might then be called upon to drain its coffers, not merely for the purpose of supplying the real demands upon the country bankers for their notes, but also for meeting the entire demand for the amount of their deposits. Many country bankers, who maintained only a £15,000 or £20,000 note circula XXXI. 1833. tion, required as high a sum as £100,000 for the latter CHAP. purpose. The Bank of England was placed, therefore, in this situation, that they must have gold enough to deal out for these two purposes, and it is that which renders it advisable that Bank of England notes should be declared a legal tender. Country bankers are now obliged to deposit securities say Government stock-with their correspondents in London, to meet their issues; so that the only difference will be, that they will bring back gold in the one case, and Bank of England notes in the other. Any measure tending to support the credit of the Bank of England was a general benefit to the country, for if the Bank were shaken, all other credit would at once be destroyed." Upon this debate the Government proposals were carried by a majority of 214 to 156, with the slight change that £5 notes were to be paid in gold, if demanded 169, 174. by the country bankers, but not notes above that sum.1 1 Parl. Deb. 1833; Ann. June 1, Reg. 1833, 67. on this de This debate is very remarkable, both as ushering in an important change in the monetary system of the country, Reflections which was ere long attended with the most important bate. effects, but as affording a most extraordinary instance of the shortsighted views entertained at that period, even by the ablest and most experienced men, on this subject. The bill was evidently a step, and a most important one, towards the restoration of a paper currency, and as such it was no wonder that it excited the alarm of Sir R. Peel and the cheapening party. It obviously tended, by enlarging the circulation, to stimulate industry of every kind, and in consequence elevate prices. But the extraordinary thing is this: the promoters of the bill saw clearly the pressure to which the Bank of England was frequently exposed, in consequence of the demands made upon it to meet those of every kind upon the country bankers, and they thought they sufficiently guarded against this danger by making bank-notes above £5 a legal tender, and bank-notes only payable in gold at the Bank itself. But they did not see, what the event XXXI. 1833. CHAP. ere long too fatally proved, that this postponed the danger only to increase it, and that the augmented transactions and engagements to which the change would of course give rise, could issue in nothing, when a drain from external causes set in upon the gold of the country, but augmented embarrassment to the Bank and danger to the country. The protection afforded by bank-notes above £5 being declared a legal tender, great as long as there was no enhanced demand for gold, became worse than nugatory when such a demand grew serious, and the increased paper of the country was all poured, as through a funnel, upon the Bank of England for conversion into gold. This is exactly what took place in after-times, as the sequel of this History will abundantly demonstrate ; and then this change in the monetary system, while the ultimate principle of convertibility into gold was adhered to, is to be regarded as one of the main causes of the transient prosperity of 1835 and 1836, the railway mania of 1845 and 1846, the terrible monetary crises of 1838 and 1847, and the final adoption of Free Trade, with all its incalculable consequences, as the basis of the commercial policy of the country. 68. question: on it. The approaching termination of the Charter of the Fast India East India Company, which expired at the same time as teeling of that of the Bank of England, rendered it necessary at the country this time for Government to meet the great question involved in our Eastern dominions. On this subject a very strong feeling existed in the country, founded, as most of such feelings are, on anticipated advantages to the majority. The great body of the merchants and traders of Great Britain beheld with envious eyes the vast trade to India and China now monopolised by the East India Company, and indulged in warm and exaggerated expectations of the boundless streams of wealth which would flow into the coffers of the country generally, and their own in particular, if that trade were thrown open to the vigour and activity of private enterprise. These |