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[-253-] CHAPTER V.
BANK OF ENGLAND.
Historical sketch of the Bank-Its capital-Success of its profits, &c.-Bank notes-Forgeries on the Bank -Dividends on stock-Recent alterations in the charter-Miscellaneous observations.
THE Bank of England, from the great influence it exerts on the monetary system of the country, is at all times a subject of deep importance to the community. At the present moment it is peculiarly so. The parliamentary investigation, a few years since, into the extent of its resources and the manner in which it manages its
affairs, in conjunction with the existing crisis in the money-market, conspire to invest it with [-254-] a degree of importance it never before possessed.
In order that a subject of such commanding interest to all classes of the community may be properly understood, I shall briefly advert to the origin, constitution, history, and present position of the great establishment in Thread- needle-street.
The individual who projected the Bank of England was Mr. William Paterson, a native of Dumfries-shire. In planning the establishment, he was materially assisted by Mr. Michael Godfrey, an intelligent and respectable merchant in London. The object of the institution was, to use the projector's own words, "to save the ministerial people the disgrace of stooping so frequently to solicitations to the London Common Council, for the borrowing of only 100,0001. or 200,0001. upon the credit of the land-tax, as the common-councilmen did to the private inhabitants of their wards, going from house to house for the loan of money." It is not known when the idea of the Bank of England first occurred to Mr. Paterson; but it [-255-] was not until after repeated applications for the sanction of government, and much discussion in the privy-council on the subject, that a charter was obtained. This was in 1693. The charter was limited to eleven years' duration, after which it was to cease and determine on twelve months' notice. The charter was obtained in consideration of the company advancing a loan to government, of 1,200,0001. The interest on this loan was fixed at eight per cent., with an additional allowance of 4,0001. per annum in lieu of expenses incurred in apportioning the interest among the subscribers. The charter prohibits the company borrowing under their common seal, unless with the special sanction of parliament; " nor are they to trade or suffer any person to trade for them in any goods or merchandise. The company, however, were authorised to deal in bills of exchange, in buying or selling bullion, in foreign gold and silver coin, &c.
Such are the circumstances under which the Bank of England originated.
[-256-] The charter appoints that the management be vested in a governor, deputy-governor, and twenty-four directors, all of whom are to be elected by the proprietors possessing the requisite qualifications to vote. The possession of stock to the amount of 4,0001. is necessary to being chosen governor; 3,0001. to being chosen deputy-governor; 2,0001. to acting as director; while those only are eligible to vote in either of these cases who are shareholders to the amount of 5001.
By an act of the legislature passed in the eighth and ninth of William and Mary, the company were authorised to enlarge their capital stock to the extent of an additional 1,100,171l. l0s.; making their entire capital 2,201,1711. 10s. The interest on the additional capital was also fixed at eight per cent. It was at the same time enacted, that bank stock should be a personal and not a real estate; that no contract, either verbal or written, for buying or selling bank stock, should be legal, unless registered in [-257-] the books of the establishment within seven days of the transaction, and the stock had been duly transferred within fourteen days; and that it should be felony without benefit of clergy to counterfeit the common seal of the bank, or any sealed bank bill, or any bank-note, or to alter or erase such bills or notes. About the same time the charter was extended till the 1st of August, 1710.
In the seventh of Queen Anne, 1708, parliament empowered the Bank to double its capital stock ; for which favour it made a further advance to government of 400,0001. without interest; thereby reducing the interest on the whole to six per cent. In return for this liberality, parliament further extended the charter to the 1st August, 1732. In 1714, the Bank made an additional advance to government to the extent of 1,500,000l. This last loan was most probably made in consideration of a still further extension of the charter for the 1st of August 1742, at this time agreed on by the legislature. At every new extension of the charter it was distinctly [-258-] specified that it would be terminable at the expiry of a specific period, on twelve months' notice.
The Bank agreed in 1717 to cancel 2,000,0001. of exchequer bills, accepting in return an annuity of 100,0001. The total advances now made to the state were, 5,375,0271. 17s. 10½d. To enable the Bank to make these advances, the directors were empowered to call from the subscribers, in proportion to the amount of their respective shares, such sums of money as in a general court should be deemed necessary. The penalty of non-compliance, on the part of the proprietors was, in the first instance, stopping the dividend of such persons, and the applying it to the payment of the money in question; and if the requisite advance was not made in three months, then the directors could sell such person's share to make up the amount required. The interest on the last loan of 2,000,0001. was afterwards reduced to four per cent.
In 1727, another act of parliament was passed authorising the Bank to purchase stock of the
[-259-] South Sea Company to the extent of 4,000,0001. The interest on this sum was, in the first instance, five per cent., but in 1729 it was reduced to four per cent. To enable the Bank to effect this purchase, 4,400,0001. were allowed to be added to its capital stock, making the total advances it had made to government 9,375,0271. 17s. 10½d. while its undivided capital only amounted to 8,659,995l.12s. 8d. This was the first occasion on which the Bank received interest from the public for a sum above its capital, and it has continued to do so, as will be afterwards seen, ever since.
In 1738, the Bank made another advance to government to the extent of 1,750,0001. The interest agreed on was four per cent. No consideration in return for the favour was made by government, either in the way of empowering the Bank to add to its capital, or by a further extension of its charter. In the year following, a yet further loan of 1,251,1001. was made to government at the same rate of interest as the preceding.
[-260-] An act was passed in 1746 authorising the funding of exchequer-bills, issued in anticipation of the duty on licences for retailing spirituous liquors, to the amount of 986,8001. The rate of interest was four per cent. per annum. The Bank was at the same time empowered to increase its capital to the extent of ten per cent. The total amount of the advances now made to the state was, 11,686,8001.; while the undivided capital of the Bank was only 10,780,000/.; 3,200,0001. of the entire sum advanced to government now bore the reduced rate of interest of three per cent. the remainder bore four per cent.
From this time unti1 1764 there was no further alteration in the terms of the charter, or in the Bank's accounts with the government; but in that year, agreeably to act of parliament, the Bank advanced 1,000,0001. for a term of years without interest, and also gave a bonus of 110,0001. to the exchequer, on condition of a further extension of the charter to the 1st of August 1786.
[-261-] In 1781, the charter was again extended to August 1, 1802; on which occasion the Bank made another advance to government of 2,000,000l. at three per cent. interest. That it might be enabled to make this advance without any serious inconvenience to itself it was empowered to increase its capital stock 862,400l.
Another extension of the charter to the 1st August 1834, was conceded to the Bank in 1800, as a ministerial expression of gratitude for an advance of 3,000,000l. in exchequer bills, the bills to be discharged without interest in 1806.
In 1816, a further advance of 3,000,000l was made by the Bank to government; and in 1823 the Bank bound itself to advance the state the enormous sum of 13,089,419l. in thirteen irregular instalments, between the 5th April of that year, and the 6th July,1828. The return for this was to be an annuity of 585,740l, terminable at the end of forty-four years, from 1823. This is what is called the "dead weight [-262-] account". The entire amount of debt due by the state to the Bank at the expiry of the last charter was 14,553,000.* (*It will be afterwards seen that a fourth part of this sum has been since repaid by government.)
So much for the gradual augmentation of the capital stock of the Bank, and the several advances it has made to the government. Its peculiar privileges are generally known. One of the most important of these is, that it has the sole right of issuing paper in London. Consequently, all other banking establishments in the metropolis must carry on their business with its notes. And in order still more effectually to protect the Bank from even the semblance of rivalry in the country as well as in town, an act was passed at an early period prohibiting all and every banking company within sixty-five miles of London from consisting of more than six partners; while no banking establishment in England can draw bills on London, or make its notes payable there, for less than 50l.
The Bank of England has, on several occa-[-263-]sions, been threatened with ruin from a want of public confidence in its stability. So early in its history as 1696, its tallies were at a discount of twenty to forty per cent. against its sealed notes, while the latter were at a discount of twenty per cent. against the standard coin of the country. The Bank was then saved from ruin, as it has been in more recent times, only by the interposition of government. At the time of the rebellion of 1745 it had to undergo another severe ordeal. A run was then made on it, and in order to gain time it resorted to the device of paying in shillings and sixpences. The retreat of the rebels and the interference of the merchants in London on its behalf, soon restored confidence.
But a more remarkable era in the history of the Bank was that of 1797. The progress of the French revolution, together with the then commercial position of our own country, seriously affected public credit; and the consequence was an unprecedented run on the Bank, That run was so great, and the quantity of gold [-264-] in the coffers of the establishment was so limited as to. cause the greatest alarm in the minds of the directors. They clearly saw that if the demand for gold continued but for a few days longer - and it was then daily increasing- bankruptcy must be the inevitable consequence. They communicated their apprehensions to the Chancellor of the Exchequer. Government saw that the ruin of the Bank would of necessity be attended by the immediate destruction of public credit. What was to be done? There was no time for deliberation. Nothing but an instant suspension of cash payments could save the Bank or the nation. The remedy was a desperate one, but there was no other. Accordingly, on Sunday the 20th of February, an order in council was issued prohibiting the Bank from any longer paying in specie, until the sense of the legislature could be obtained on the subject. The subject was immediately brought before parliament, and the resolution of that body, including both Houses, was confirmatory of the expedient resorted to by the [-265-] privy-council. This was what is called the Bank Restriction Act, which continued in force until the bringing in of Peel's bill in 1819. Of the narrow escape the Bank had at the period in question some idea may be formed from the fact, that two days before the Restriction Act was passed, the whole amount of gold in its coffers was only 1 ,272,000l., while its notes in circulation exceeded 8,640,000l. By the time the order in council was issued it is supposed the specie in the Bank could not have been more than 100,000l. or 200,000l. The alarm and consternation which followed the Restriction Act baffles all efforts at description.
The Bank was again on the verge of ruin in December 1825. With the circumstances connected with that frightful commercial crisis, most of my readers must be familiar. The run for gold which then took place continued for ten days, and so nearly were the coffers of the Bank being drained, that when confidence began to return, its exchequer did not contain 1,000,000l. in specie. It is a striking fact, [-266-] and one which ought to be made use of by the public, that while the gold in the coffers of the Bank did not thus amount to 1,000,000l., its obligations to the country, in the shape of notes alone, exceeded 20,000,000l. It was admitted by some of the leading directors themselves, in their late examination before a committee of the Commons, that the stability of the Bank, at the period in question, appeared to be at Least "suspicious. One of the then leading ministers of the crown spoke on the subject in yet more decided terms. He declared, in his place in parliament, that on the 18th December, the day on which confidence began to be restored, the country was within twenty-four hours of barter.
The profits of the Bank of England are derived from a variety of sources. The profits for the year ending February 1832,* (*This is down to the latest period which I have access to official information.) and the principal sources whence derived, are as follows ... Interest on commercial bills, 130,695l - in[-267-]terest on exchequer bills, 204,169. -annuity for forty-five years, (the "dead-weight account," ) 45l,415l,-interest on capital in the hands of government, 446,502l.-allowance for management of the national debt, 251,896l -interest
on loans on mortgages, 60,684l.-interest on the stock in the funds, 15,075l.-interest on private loans, 56,941l.-and lastly, profits on bullion, commission, rent, receipts on discounted bills unpaid, management of the business of the banks of Ireland, of Scotland, &c. &c., 71,859l., making the total amount of its profits for the year ending February 1832, 1,689,176l.
The expenditure during the same period was: Salaries and pensions, 218,003l.losses by forgeries and bankruptcies, 89,274l..house expenses, 39,274l.-rent, 40,000l. sundry allowances, 8000l.-expenses at eleven branches arising from the banking department, 5,702l.- expenses attending the circulation of 2,000,000l. of the eleven branch Bank of England notes, 28,508l.-payment for stamp duties, 70,875l., making the entire charges to be set off against [-268-] the above income, 499,549l., and consequently making the net profit during the year, to be 1,189,627l. Of this sum, 1,164,235l. was divided among the proprietors at the rate of 8 per cent.; the balance of 25,392l. being carried to what is technically termed the "rest account", in augmentation of their surplus profits. This "rest amounted at the end of 1836 to 2,825,000l.
One source of the profits of the Bank has of late years comparatively dried up. I allude to that derived from the deposits made by government. What the amount of these was during the war, and what it has been since the peace, will be seen from the following tabular view of the balance of the public money in the hands of the Bank, from 1807 to 1831, viz.:-
1807 £12,647,551 1816 £10,807,660 1824
1808 £11,761,448 1817 £8,699,133 1825 £5,347,314
1809 £11,093,648 1818 £7,066,887 1826 £4,214,271
1810 £11,950,047 1819 £4,538,375 1827 £4,223,867
1811 £10,191,854 1820 £3,713,442 1828 £3,821,697
1812 £10,390,130 1821 £3,920,157 1829 £3,862,686
1813 £10,393,404 1822 £4,107,853 1830 £4,761,952
1814 £12,158,227 1823 £5,526,653 1831 £3,948,102
[-269-] The amount of deposits from private individuals during the same period, were as follows
1814 2,374 910
It will he seen from these tables that while the deposits of government have so materially decreased during the above period, those of private individuals have greatly augmented. On the deposits thus made with the Bank no interest is allowed.
From parliamentary documents recently published, I am enabled to give the following statement of the issues of the Bank, in notes and bank post bills, for upwards of a century past. It is of importance to premise, that the
[-270-] amount of bank post bills is not above a twelfth of that of the notes.
The average amount of coin and bullion in the coffers of the Bank from 1815 to 1832, will be seen from the subjoined table. The disparity between the amount of specie in the exchequer of the Bank, and that of its notes in circulation, cannot fail to strike the reader.
1815 2,179,147 1821 8,174,419 1827 6,607,976
1816 3,399,114 1822 11,631,090 1828 10,201,253
1817 7,504,284 1823 10,254,698 1829 9,640,000
1818 11,109,381 1824 12,606,963 1830 7,285,000
1819 6,721,647 1825 11,858,595 1831 10,322,000
1820 3,969,528 1826 4,521,702
[-271-] It is of importance to observe that the above table only exhibits the average amount of gold in the Bank during the years which are mentioned. In the course of a very short period the fluctuation in its specie is often very great. For example, it will be seen, that in one part of 1825 the amount of gold in the possession of the Bank was as much as 11,858,559l., while towards the close of the year it was, as before stated, reduced to less than 1,000,000l.
The position of the Bank at the commencement of 1 832,* (* I shall afterwards refer to its position at the present time) will be easily understood from the following statement:-
Exchequer bills £6,834,940
Amount advanced to government towards "dead-weight" £10,897,880
In return the Bank is entitled to receive from government annually till 1867 £585,740
Government 3 per cent, stock purchased by the Bank £764,000
The bank holds of government 3 per cent. stock . . .£14,686,800
While there is due by the Bank to its proprietors, only £ 14,553,000
Leaving a surplus of . ---- £133,800
[-272-] Brought forward
City bonds . .£500,000
Mercantile bills and notes under discount £2,951,970
Lent on mortgages £1,452,100
Lent to the London Dock Company £227,500
Advanced on various securities £579,690
Coin and bullion in bank .£5,293,150
Total of disposable assets £29,626,030
Responsibilities of the Bank at the same period.
Bank notes in circulation . . . . £18,051,710
Ditto, deposited in the Bank by government . . . . . . . £2,034,790
Ditto, by bankers and other individuals . £5,738,400
Due to government for balance of Audit Roll Exchequer bills deposited, and unpaid annuities . .£1,163,940
Surplus in favour of the Bank £2,637,160
I have mentioned in a previous part of the chapter the principal sources of the profits of the Bank. Another, though a very trifling one, is in the destruction of its notes by accident or
otherwise* (*The value of notes lost or destroyed may be recovered from the Bank, twelve months after notice,
on giving a description of the numbers and dates on affidavit and an approved indemnity.)
It is also worthy of mention that [-273-] the Bank derives a small profit-though a very small one-through the eccentricities of some of the parties who hold its bank post bills. It is not long ago since an eccentric gentleman residing in Portland Street framed and exhibited in one of the apartments of his house, for five consecutive years, a bank post bill for
30,0001. It was only taken down and converted into money by his heirs, when he himself had crossed the well-known bourne of
Shakspeare. It may at first sight appear strange that he should thus have exposed to the risk of being stolen an instrument representing so much money. But the fact was, that the circumstance of its being so exhibited was well known at the Bank, and any person, other than himself, presenting it in Threadneedle Street, would have been immediately pounced upon as a thief. Another bank post bill, from the concealment of which the Bank derived no inconsiderable profit, was discovered some years ago under very singular circumstances. In a house looking into Hyde Park, and now the town residence of a
cele-[-274-]brated noble lord, a dispute chanced to occur one evening among a party of noblemen and gentlemen, respecting the meaning of a certain passage of Scripture. One of the party, repeating the passage, asked its meaning of a Dean of the Church of England who happened to be present. The clergyman, who had devoted fully as much of his time to the gaieties of the world as he did to the study of the scriptures, said there was no such passage in the Bible. A second difference of opinion among the party arose on this point, when the gentleman who introduced the subject said that if a Bible were given him he would at once point out the passage in one of the historical books of the Old Testament. The Bible which chanced to be nearest at the time was a quarto one which the mother of Lord R-----, in whose house the party were, had been in the habit of daily reading, but which had been laid among other old religious books on a shelf out of the way, and had not been opened since her death some years before. On the sacred volume being opened, a piece of
[-275-] paper was found in it which, on examination; turned out to be a bank post bill to the amount of
40,0001. These bank post bills, when paid at the Bank, are cancelled by the signature being torn off, and deposited in one of the apartments of the establishment appropriated for the custody of such instruments. The amount of money which
some bank post bills represent maybe inferred from the fact, that the author of "The American in England" states that when he visited the Bank in 1835, one of the servants put into his hand bank post bills which a short time before had represented the immense sum of five millions sterling. A friend of my own had shown to him, some years ago, when in the leviathan establishment in Threadneedle Street,
8,500,0001. in bank post bills; and, so limited was their bulk, that he put them all, with the greatest ease, into his waistcoat pocket.
The largest amount of a bank note in current circulation is for 10001. But it is said, though I cannot pledge myself for the accuracy of the statement, that some time ago two notes [-276-] for 100,0001. each, and other two for 50,0001. each, were engraved and issued. It is added, that a plain butcher who had amassed an immense fortune in the time of the war, went one day with one of the 50,0001. notes to a private banking establishment, and asking the loan of 5,000l, proposed depositing the note in the banker's hands as security; adding he had had it beside him for years. The 5000l. were of course forthcoming at once; but the banker hinted to the butcher the folly of losing the interest on so large a sum as 50,0001. by keeping a note for that amount in his drawers. "Voy, werry true, sir," said the latter, who was quite an illiterate man, "but I bikes the look on't so werry veil that I has got a t'other one of the same kind at home." Both the notes had somehow or other come into his hands, and he had determined not to part with them.
The next note under 10001. is for 5001.. There are others for 3001. 2001.., 1001., 501., and so on down to 51.., which last amount is now the lowest. Previous to 1759, the Bank never [-277-] issued any notes of less value than 201.. That year it put a great number of 101.notes into circulation, in 1793, 51. notes were first issued, and in 1797, 11.. and 21. notes were also brought into use when the Bank of England stopped cash payments. The currency of the latter ceased in point of fact in 1823, and in 1829 they were formally prohibited by act of parliament.
I have stated in a former part of this chapter that the Bank pays an annual average sum of 70,0001. to the Stamp Office, in the shape of composition for the stamp duty on its notes. Other banks pay a certain sum for every note as stamped, which renders it a much heavier tax on them than on the establishment in Thread- needle Street. While, therefore, the Bank of England never re-issues, but destroys all its notes on their return to it, the country banks re-issue theirs time after time until they have been worn to tatters. A gentleman largely connected with money and mercantile matters mentioned to me, a short time since, that on one occasion, when in the Bank of England, one of [-278-] the officers of the establishment showed him the remains of 40,000,0001. of notes which had recently been burned. This all that remained' of so large a sum was formed into a sort of solid substance. Its appearance was that of iron ore, of an irregular shape, and it was nearly as heavy. Its length was about three inches, its breadth two, and its weight, as far as he could guess, from ten to twelve ounces.
While the small notes were in circulation the Bank lost considerably by prosecutions for forgeries of those notes. In 1820, no fewer than 352 persons were convicted for this offence. Since their extinction its losses from the forgery of its notes have been quite trifling. It is otherwise with the forgeries committed on the public funds, for which the Bank, as being entrusted with the management of the national debt, is held liable. It transpired before the- Select Parliamentary Committee in 1832, that the yearly losses of the Bank, from this source alone, average upwards of 40,0001.. Its losses in 1803, from the frauds and forgeries of its principal
[-279-] cashiers alone, were 340,0001..; and it is supposed that the forgeries committed by Fauntleroy must have cost the Bank a still larger sum. Some of the forgeries committed by the latter individual were equally characterised by their boldness and ingenuity. I may mention one communicated to me in December last, and which I have never seen in print.
Anticipating that a gentleman who employed him to transact his business for him, would call at his banking-house in Berners Street on a given day, he had prepared himself with a power of attorney to draw an immense sum the gentleman had in the Bank of England. Instead, however, of forging the signature of the gentleman before his arrival, he waited until he called and had seated himself on a chair. While so sitting, and eagerly engaged in familiar conversation with Fauntleroy, the latter adhibited the party's name to the forged power of attorney, and step-. ping into an adjoining apartment with the instrument in his hand, laid it down with the gentleman's forged signature wet upon it, on the desk of two [-280-] of his clerks to receive their signatures as attesting witnesses. Knowing the party was in Fauntleroy's apartment, and seeing the signature wet as if it had that moment proceeded from his own pen, suspicion of a forgery was of course out of the question. The principal clerk, on the attesting witnesses having put their names to the paper, dried the three signatures at once by the application of a piece of blotting-paper to them, and handing the instrument thus completed to Fauntleroy, the latter put it into his pocket on quitting the clerks' apartment. The gentleman had no sooner left the establishment, than Fauntleroy proceeded to the Bank of England and at once received the amount.
I have already mentioned that the yearly dividends on the capital immediately after the establishment of the Bank, was eight per cent. Since then the dividends have fluctuated considerably. In 1767, the dividend reached nine per cent. It afterwards gradually fell until, in 1729, it was as low as five and a-half per cent. From 1780 until 1747 it fluctuated [-281-] between six and five per cent. In 1753, it had fallen from five to four and a-half per cent, which is the lowest dividend ever paid. The highest was twelve per cent, which the shareholders received in 1805-6. From 1807 to 1823 the rate of dividend was ten per cent. For many years past there has been no variation in the amount of the dividends; they have been eight per cent. from 1823 up to the present time. These, however, are not the only profits the proprietors have derived from their stock. They have at various times received bonuses to - the amount of nearly 7,000,0001.. or 57 per cent on their subscribed capital. I may here mention that to the original capital of 11,642,4001.there was added, in 1806, twenty-five per cent from accumulated profits, making the capital what I have before stated it to be, namely 14,558,0001.
In 1833, after a lengthened parliamentary discussion, the charter of the Bank was renewed for the term of twenty years, subject to the = right of parliament to withdraw its exclusive [-282-] privileges, on payment of the debt the public owes it, after the year 1844, on twelve months' notice. This renewal, however, was accompanied by certain conditions disadvantageous to the Bank. It was stipulated by parliament that in consideration of the continuance, for the term in question, of its exclusive privileges, the sum of 120,0001.. should be annually deducted from the sum allowed it for the management of the public unredeemed debt. It was also provided, that all promissory notes of the Bank, issued at any place out of London, shall be payable at the places where they are issued. Before this time the Bank had the right, which right the directors always took special care to exercise, of preserving an entire secrecy as to the state of its affairs. It was then decreed that the Bank should hereafter be compelled to transmit to the chancellor of the exchequer, weekly, an account of the amount of bullion and securities in its possession, and also the amount of its notes in circulation, together with that of the deposits. The legislature further rendered it [-283-] obligatory on the Bank to consolidate such accounts at the end of each month, in order that an average state of its accounts for the preceding month should, for the information and satisfaction of the public, be published every month in the London Gazette.
Among the other leading circumstances connected with the renewal of the Bank Charter, one was that one fourth of the debt due by the public to it, should be repaid in the year 1834. The sum of 3,938,2501.. was accordingly repaid that year by an assignment of three per cent. stock, previously held by the commissioners for the reduction of the national debt. The sum thus rendered available to the proprietors has not been divided amongst them, but has been left in the hands of the directors as capital. The debt now due by the public to the Bank is 10,914,7501..
Parliament,. in renewing the charter of the Bank, conferred some new advantages on that establishment. It has made bank notes a legal tender everywhere except at the Bank itself, and [-284-] its branches. It has also repealed the usury laws in so far as regards all bills of exchange and promissory notes, not having more than three months to run. The Bank has likewise gained by the act of 1883, by certain alterations in the law restricting any other banking establishment with more than six partners, from issuing notes payable to bearer within 65 miles of London.
In a previous part of the chapter 1 brought down the position of the Bank to 1832. Not having access to official documents for the intermediate years, I pass them over and come to the state of matters in the last quarter of the year just ended.* (*This was written in January last) The stock of bullion* (* The amount of silver held by the Banks is usually about one fifth of that of gold.) was then 4,545,0001., the circulation 17,861,8001. and the deposits were 13,830,0001. I have no means in this case of distinguishing between the private and public deposits. As the latter part of the year 1836 was a period of unusual pressure in the money market, the de-[-285-]crease in the stock of bullion, as compared with the stock in hand at the end of 1835, is 2,081,0001., and the falling off in the deposits, as compared with the returns for the last quarter of 1835, has been no less than 3,339,0001. In the amount of circulation the variation has been remarkably small. It shows an increase of 40,0001.
The directors are hound down by the constitution of the Bank not to deviate from certain regulations in the administration of its affairs. They are prohibited from purchasing houses or lands, or investing any part of the stock in property of that or a similar nature. Their transactions on behalf of the Bank must be strictly of a monetary nature.
It is a very common but very erroneous notion, that the Bank of England is a bank of discount. It professes to be nothing of the kind, though it does discount bills to a certain extent. It represents itself to be only a bank of support; that is, an institution to support other banking establishments in times of difficulty and danger,
[-286-] and through them the commercial credit of the country. How far it realises the object it professes to have in view, is a question on which a difference of opinion prevails. My own impression is, that though it has doubtless often acted beneficially for the commercial interests of the country, by the support it has afforded to other establishments when suffering severe pressure, it has, on the whole, either through the ignorance or caprice, or both, of the directors, inflicted the deepest injury on the trade and commerce of Great Britain. But on this point I shall afterwards have occasion to make some observations.
The average discounts of the Bank to mercantile men are extremely limited, considering the magnitude of the establishment. They have not, for the last twenty years, exceeded 2,000,0001.. The largest extent to which the Bank ever discounted commercial paper, was 20,070,6001..; this was in 1810. The lowest amount of commercial paper under discount in Threadneedle Street, was 919,9001..; this was in [-287-] 1830. In less than two years the Bank, on one occasion, reduced its mercantile discounts to the enormous extent of about 11,000,0001.. This was in the crisis of 1816-17, when its aid was most needed. In 1815 the amount of commercial paper under discount was 14,947,1001..; in 1817 it was only 3,960,6001.. The average annual losses of the Bank on its mercantile discounts, do not exceed 40,0001.
One principle theoretically laid down by the directors in managing the affairs of the Bank, is that they shall always have a stock of bullion on hand, equal in amount to one-third part of their liabilities. From this principle, however, they often find themselves obliged, by the force of unexpected circumstances, to deviate. The pressure on the money market in the latter end of last year, coupled with the unfavourable state of the exchanges, drained the coffers of the Bank to such an extent, that at one period the stock of bullion was only equal to about one eighth, or one-seventh, part of its engagements. At other critical periods of the monied and com[-288-]mercial markets, the gold in the coffers of the Bank has borne a still greater disproportion to the Bank's liabilities. To some of those periods I have already referred in detail; but though the amount of gold in the Bank often bears no proportion to the extent of its arrangements, and though the Bank be consequently exposed to the danger of stopping payment in periods of great monetary excitement, its ultimate solvency, is a matter beyond all doubt, if we could suppose it possible,-which, however, as I will afterwards show, we cannot do,-that its stoppage would not be followed by a total destruction of public credit.
Ever since the riots of 1780, when the mob contemplated an attack on the Bank, it has been constantly guarded by soldiers. With a view to the security of the establishment from fire or other casualties, the greatest possible precautions are taken.
The proprietors meet four times a year, when an abstract of the existing state of matters is submitted to them. Those, as formerly men[-289-]tioned, who possess 5001. of stock, are entitled to speak and vote on all questions which may be brought forward for discussion. Three of the directors sit daily in what is called the parlour of the Bank. On Wednesdays a court of ten directors always sit to decide on all London applications, in the shape of notes or bills, for discounts. On Thursdays the whole court meet, when all notes exceeding 2,0001. are brought under consideration. All matters of importance are decided by a majority of the directors. Their number, I have already stated to be, exclusive of the governor and deputy-governor, twenty-four.
There are few sights, perhaps, better worth seeing in London than that of the interior of the Bank of England. However enlarged may have been the stranger's ideas of the extent of the establishment, the actual thing itself is sure to exceed them; he fancies, when taken from one apartment to another, that he is never to see the whole place; and he wonders as he goes from one part of it to another, and sees so many persons busily employed in them all, how there [-290-] can be occupation for so many. But that department of the Bank which, as might be expected, strikes the stranger with the greatest astonishment, is the large room, where the ordinary transactions of paying in and taking out money occur. The number of individuals employed in this department of the Bank alone, is, I should suppose from a rough guess, from seventy to eighty. Then there is the everlasting hustle caused by people coming in and going out, on the outside of the counters. This department, indeed, has all the appearance of a market-place. There is a crowd of persons constantly present, and they are always moving about as if on the open streets. But the most interesting sight of all, and that which is sure to rivet the stranger's eye as fixedly as if there were some charm in it, is the quantity of gold he sees lying scattered on all parts of the counters, coupled with the large bundles of notes he sees in the hands of the payers and receivers. Sovereigns lie here and there in heaps, like so many mountains in miniature. Addison de-[-291-]scribes in his own simple but expressive language, the annoyance which the poor peasants in the South of Europe must feel, when they see the oranges growing in such numbers on the trees around them, and yet dare not touch one of them. I have often thought the feeling of a person with an empty purse, who sees sovereigns in such abundance on the counters of the Bank of England, and yet dare not finger one of them, must be something similar; and, as if to aggravate this feeling, he sees the clerks throwing them about with an air of as much seeming indifference as if they were mere lumber. The extent of business done in this department of the Bank in the course of a day, is great beyond what any one could previously imagine within the bounds of probability. I am assured by one who has been many years in the establishment, that in the article of sovereigns alone, keeping out of view bank notes, a quarter of a million will sometimes exchange hands between the Bank and its creditors, in the course of the eight hours the establishment is open. I have heard [-292-] the entire amount of money, including bank post bills, &c. which is turned over, on an average, in one day at the Bank, variously estimated. The lowest estimate is 2,000,0001., and the highest 2,500,0001. The quantity of business arising from private accounts is very great; the number of these varies as a matter of course. I believe it is at present between twelve and fourteen thousand.
I have spoken of the surprise amounting to bewilderment, which a stranger feels on his first going through the Bank of England. Those who visit the establishment to receive the dividends on the public funds, are so bandied about from place to place before they finger the money, that they feel the necessity of a guide as sensibly as if they had lost their way in some unknown region. It is quite common to see persons asking the way from one particular department to another, just as a stranger in the metropolis does the way from one street to another.
I have said that on all occasions the principal apartment of the Bank is crowded with persons [-293-] busily engaged in paying away and receiving money; but to see the business done at the Bank to the greatest advantage, it is necessary to visit the establishment on the first day on which the half-yearly dividends are payable. The scene which is then exhibited is indeed worth seeing. All the apartments for the various kinds of stock, and the passages leading from one part of the establishment to another, are crowded with persons of both sexes and of all classes. One may, on such occasions, philosophise to some advantage on human nature. A large proportion of those who draw their dividends on the first day on which they are payable, are persons who live up to their incomes, if not above them, and who choose rather to get into debt than to touch their stock. There are others who are misers, and whose sole delight consists in adding one sum to another. Such persons usually make a point of drawing the amount of their money the moment it becomes due; their eyes feast on the very sight of gold. Then, see the diversity of characters, and the [-294-] varied circumstances of those that have money in the funds. Nou may, on dividend day, see persons receiving their interest on large sums, for whose entire wardrobe you would not give six- pence, and whom, had you met them outside, your first impulse, if you have any feeling of compassion in your bosom, would have been to give them a few pence to preserve them, as you would have fancied, from absolute starvation. Who would believe it, yet such is the fact, that among those who have large sums-in some cases two or three thousand pounds-in the funds, are the sweepers of the crossings in our leading London thoroughfares? The circumstance of a black man, who for many years swept the crossing at the Fleet-street end of New Bridge-street, having at his death left a large sum of money to one of the late Alderman Waithman's daughters, because she had been in the habit of giving him something every time she passed,-is well known to many. A more recent case of the money- accumulating propensities of these crossings sweeps, occurred a few months ago. If a para-[-295-]graph which appeared in most of the public journals was to be credited, the old man who swept the crossing for the previous twenty-five years at the Scotland Yard part of Whitehall, left behind him 1,6001. Let not the mention of these two cases of rich sweepers of the crossings, have the effect of leading any one to the conclusion, that all these gentry must have saved money. Perhaps nineteen out of twenty of them barely contrive to live from hand to mouth. I only allude to these instances as being apposite illustrations of my position, that on dividend day you will see at the Bank of England, drawing the interest of large sums, persons generally supposed to be in the most indigent circumstances.
I have sometimes endeavoured to form an estimate of the number of persons who receive their dividends on the first day of every halfyear on which they are payable; but it is difficult to come to any very confident conclusion on the subject. I am satisfied I am under the mark when I say it exceeds ten thousand; perhaps [-296-] should not be far wrong, were I to compute the sum paid away by the Bank on that day as dividends, at 500,0001.; but of course nothing like certain data to go on in such a case exists, so that this is only to be regarded as a rough guess.
The number of persons employed in one way or other in the Bank of England is so great, that they may be said to form a little community of themselves. The number of clerks alone, though occasionally varying, is never under 900. The number of engravers, and printers of notes, in the constant employment of the Bank, is 38. The salaries of the clerks vary from 5001. down to 751. per annum. The entire amount paid to the various servants of the establishment, about 1,000 in number, is upwards of 200,0001.
Every one has his own department in the Bank, and no one knows what any of his colleagues are about. Two clerks may have stood for years next to each other, as regards the locality of the establishment, and yet know no more of one another's business than if they were in [-297-] the service of different employers. Perhaps there are few establishments in the world which afford a better exemplification of the accuracy and regularity which may be secured in the most extensive and most complicated concerns, by the adoption of a proper system of business.
It is a general remark, that the stability of the Bank of England must be co-existent with that of the British government itself. The position can only be admitted with certain qualifications. it is true, that the holders of bank stock, whether in the shape of notes or otherwise, have in one sense the security of the state itself for cash payments, inasmuch as government is debtor to the Bank to an amount approximating to that of the obligations of the latter to the public. But then it is of importance to recollect, that though the holders of bank stock might, and probably would, at all hazards, eventually lose nothing, yet it were quite possible, indeed certain, in the event of the Bank stopping payment, that the entire credit of the country would be destroyed, long before government could dis-[-298-]charge its obligations; while the necessary consequence of this destruction of public credit, would be the interposing of new obstacles to the state meeting the claims of the Bank, or of the public through the Bank. Supposing, for the sake of still more clearly illustrating my views on this important subject, that there were to commence immediately such a run on the Bank as would in one little fortnight drain it of its last sovereign, what or where would be the use of its applying to government for the payment of either the whole or a part of the 10,954,7501., which the latter owes it? It is well known that government has not got an ounce of gold in its exchequer wherewith to meet any such demand. It is no less clear, that if in the assumed circumstances the Bank were to stop payment -which it must of necessity do, unless rescued from ruin by another Restriction Act-and that its creditors were to apply to government for the sum it owes the Bank, their application would be perfectly useless. Government in such a case, would like a private individual who may, [-299-] between debts due to him and other property he possesses, have more than would ultimately meet his obligations, though he cannot meet them at the moment,-government, in such a case, would require to ask time of the country. And how, let me ask, until some arrangement were come to, would the creditor of the Bank, and through the Bank, of the government, manage to carry on his own business? The stoppage of the Bank, it is clear as the sun at noon-day, would prove as completely destructive of public credit, and would as seriously derange the commercial relations of the country, as the failure of government itself,
As regards the way in which the Bank conducts its business, a considerable difference of opinion obtains. It is admitted on all hands that the directors are men of integrity, and are consequently actuated by the best intentions in all their measures; that is, that they are disposed to serve the public, where they conceive it can be done consistently with their own interests. The judgment with which the Bank [-300-] has acted on several most important occasions, is another question.
I hold that to the injudicious procedure of the Bank, was chiefly to be ascribed the frightful commercial convulsion of 1825-a convulsion which well nigh involved in one common ruin both the Bank and public credit. The conduct of the establishment in Threadneedle Street, some time previous to and during part of the appalling conjuncture of that year, was in direct violation of all the most obvious principles of banking. Over-trading, a spirit of speculation, &c., are usually assigned as the causes of that crisis? What led to this spirit of over-trading and reckless speculation? The abundance of money, and the consequent facility of obtaining discounts, is the obvious answer. Whence, then, this abundance of money? Why, principally from the excessive issues which the Bank of England made of its notes a short time previously. In the short space of two years,- namely, from February 1823 to February 1825, the Bank increased its issues to the enormous [-301-] amount of 3,200,0001. The country banks, which at that time invariably followed in the wake of the lady of Threadneedle Street, "went, as the scripture expression has it, "and did likewise. The precise extent to which these last increased their issues, we have no means of knowing; but it is understood that, on the most moderate calculation, it could not have been under from 30 to 40 per cent. Here then the currency of the country was clearly in excess; the consequence was, as already hinted, that any man with a tolerable coat on his back, whatever his character, found no difficulty in obtaining money; and it was with this fictitious capital that the mining and other joint-stock companies of the day were formed and carried on, until the bursting of the bubble. Another necessary effect of this excess in the currency, and one which contributed not a little to aggravate if not accelerate, the crisis of 1825, was the large exportations of British gold, which a little before took place to foreign countries In the short space of three months, namely, in April, May, [-302-] and June, of the year just mentioned, the exportations of our gold to other countries, entered at the Custom-house (not to mention what must have found its way out of Great Britain through other channels,) were to the almost incredible amount of 2,834,0001. This was the first intimation the Bank seems to have had, or rather the first intimation it understood, of the serious error it had committed by the excessive issues of its paper. The directors naturally took the alarm at this rapid exportation of gold, and immediately began a sudden contraction of their notes. They at the same time saw, with but too great clearness, that the failure of the joint-stock speculations of the day was matter of certainty. This induced them to call in their notes with accelerated speed. In a few months they contracted the currency of the country to the extent of 3,500,0001. The results were precisely what might have been expected; public credit all at once received a severe shock. The notes of the country bankers-that body were always the first sufferers in a time of panic - [-303-] were returned upon them; and when they am plied to the Bank of England for assistance in the hour of their difficulties-difficulties, be it recollected, as I have already mentioned, into which they were led by that establishment-it haughtily and peremptorily refused to afford them the most slender aid. It did more: not as yet aware of the full extent of the fiery trial which awaited itself, it actually converted their embarrassments-from which, with a little timely aid, they would soon have recovered-into the means of crushing them. Seventy of these establishments failed in a few weeks. The crisis which ensued spread over the width and breadth of England; and the country did hot for years recover from the shock its credit then sustained.
So far my remarks have been condemnatory of the procedure of the Bank. There was one very important step it took when the crisis of December 1825 was at its height, which deserves all praise. In a few days of that month it increased its issues from 17,000,0001. to 25,000,0001., making an addition to the cur-[-304-]rency of the country, in that short time, of 8,000,0001. On one of the days of the crisis, the Bank discounted mercantile bills alone to the number of 4,200. My praise of the Bank, on this occasion, however, must be qualified with this remark that it thus saved the country because it saw the impossibility of otherwise saving itself.
My observations respecting the disastrous results which are from time to time entailed on the credit and commerce of the country, by the injudicious conduct of the Bank, have as yet been brought no further down than the crisis of 1825. Unfortunately, at the very moment I write, fresh proofs of my views on the subject are forcing themselves on the public attention under the most appalling circumstances. What is the state of credit in London at this moment? Is it not worse than it was ever known at almost any former period? There seems to be no such thing as confidence among commercial men. Houses which have undergone the vicissitudes of more than half a century, and which, so far from being enfeebled by the changes of that long [-305-] and eventful period, grew stronger and stronger every successive year, have either fallen within the last few weeks, or are understood to be in a tottering condition. I may be told that the blame of this does not lie at the door of the Bank. I maintain it does; and no one will hold a contrary opinion who understands the subject, and is not prejudiced by some means or other in favour of the establishment of Threadneedle Street. The Bank and its friends have sought to fasten the blame of the existing crisis on the joint stock banks. It is not for me to vindicate them from imprudencies; it were folly to pretend they are immaculate; but I am thoroughly satisfied that the joint stock banks, so far from having either produced or created our present commercial embarrassments, have been, taken in the aggregate, the means of averting still more disastrous results. Had they followed the Bank of England in its sudden and unexpected contraction of its issues, I am satisfied there would have been no such thing as public credit in the country at this moment. It is to the fact of the [-306-] joint stock banks continuing to afford that aid to commerce which they had been extending to it before the country was overtaken by the existing crisis, that we are to ascribe our escape from calamities of a still more fearful magnitude than we are now encountering. To me it is also perfectly clear, that whatever errors the joint stock banks have committed of late have, as in the case of the country banks previous to 1825, arisen from their following in the track of the establishment in Threadneedle Street. They were, undoubtedly, excessive in their issues in the latter part of 1835, and the first six months of 1836, but the reason why they were so liberal in their discounts was because the Bank of England had set them the example.
Are doubts still entertained as to the soundness of my position, that the present commercial convulsion is to be traced up to the imprudent conduct, to call it by no harsher name, of the Bank of England? Then, perhaps, the best way to remove those doubts would be to point to the situation of the great American houses at this [-307-] moment. Will any one pretend that the joint stock banks had anything to do with bringing about the difficulties with which these houses now find themselves surrounded? Will any one be bold enough to deny that the establishment in Threadneedle Street has been the sole architect of all the calamities which have befallen those firms? It may, it is true, be said that they had speculated far beyond the amount of their capital. And what firm, or merchant in an - extensive way, I should like to know, does not do this? There is not, perhaps, a commercial establishment of any note in the country, that does not, to a greater or less extent, at sometime or other, speculate beyond its available capital; and there are not many establishments in the country which could withstand the effects of such treatment as that which the American houses have received at the hands of the Bank. It is to this treatment, and not to any undue over-trading, though that perhaps was greater than was strictly prudent, that the American houses are to attribute the difficulties in which [-308-] they are now placed. Had the same facilities been afforded them as before for carrying on their business; had their paper been discounted as promptly as formerly, these houses would have gone on as usual, and we should never have heard a word, perhaps, of their spirit of over-trading. But so far from this, their paper, though as good as ever, was, from some caprice or other on the part of the Bank directors, scornfully rejected: and hence they were quite unexpectedly, and all at once, plunged into those difficulties which have proved fatal to some, and threaten to end in the ruin of the others.
I may be told that the Bank is now coming forward to their assistance. In doing so it is only, so far as regards those houses, adding insult to injury. The assistance of the Bank in this case may be useful to itself, and there can be no question it is beneficial to the public; but as respects the American firms, it deserves not the name. It is rather synonymous, considering the circumstances and the terms, with ruin. The conduct of the Bank resembles that of a man [-309-] who first breaks his neighbour's head, and then sets to work apparently to tinker it, but leaving it after all when done, so damaged that it never can be the same head it was.
This is not the place for anything in the shape of discussion on questions of political economy; but I may be allowed to remark, that the conviction is at length beginning to force itself on the minds of all reflecting, unbiassed men, that the currency and credit of the country cannot with safety be long entrusted to the irresponsible junto who preside over the destinies of the establishment in Threadneedle Street. Measures must be taken, and that ere the lapse of any lengthened period, to denude the Bank of its exclusive privileges. The monopoly it has so long had over the monetary affairs of the country must be broken up: until this is done, our trade and commerce can never be established on a solid foundation. The very knowledge that the extension or contraction of the currency is solely dependent on the caprice of a body of men, many of whom are ignorant [-310-] of the first principles of legitimate banking, is of itself enough to paralyse all mercantile enterprise. Were the conduct of the Bank guided by any fixed, well-defined principles, persons engaged in trade and commerce would know how to regulate their own affairs; but as no such principles, though laid down to a certain extent in theory, are embodied in practice, painful experience has taught mercantile men that they are completely at the mercy of the Bank, and that their best laid schemes of commercial enterprise may be completely frustrated in a moment and at a time least expected.
It is much to be regretted that the legislature should in 1833 have renewed the charter of the Bank at all, especially on the terms on which it has been extended to 1844. The fact of Parliament having granted a perpetuation of its monopoly to the Bank for the period in question, and on terms so advantageous to that establishments, show that either our legislators know very little or care very little about the public interests. But the question suggests itself, [-311-]whether, seeing that the public interests have been sacrificed to those of the corporation in Threadneedle Street, the charter of the Bank ought either to be withdrawn or modified? I confess that to me it appears it would be much more desirable, if it can be done without any serious injury to the public, to allow the Bank to enjoy its charter, without any alteration or modification, till the time of its expiry. A contrary course would only have the effect, unless some very peculiar emergency should arise, of lessening public confidence in acts of Parliament. The legislature having once granted certain privileges, for a specified time, to a body of men, ought to keep faith with that body, unless, as just mentioned, some very extraordinary circumstance should arise to justify a contrary course. But though it appears to me desirable in the highest degree, that whatever may be the errors of the Bank-provided always they be not absolutely and necessarily fatal to public credit-faith should be kept with it, yet government and the legislature would not only [-312-] be justified in affording every encouragement to such other establishments as are likely to act as a check on the abuse of the exclusive privileges of the Bank, but they are bound by considerations of their duty to the public to afford such encouragement to the establishments in question. The joint stock banks have been of unspeakable advantage in restraining the establishment in Threadneedle Street from doing yet greater injury to credit and commerce; and therefore, they are specially entitled to the protection of the government and the legislature of the country.
END OF VOL. I.
PR1NTED BY IBOTSON AND PALMER,
[nb. grey numbers in brackets indicate page number, (ie. where new page begins), ed.]