Page:Encyclopædia Britannica, Ninth Edition, v. 3.djvu/343

Rh undertaking to pay annually to tlie Exchequer a duty at the rate of 2 per cent, (altered in committee on the bill first to li and then to 1 per cent.) on their average issues, and that thereupon their privileges of issue should be assured to them until 1890 (altered in committee to 1875 and 1880), after which these privileges should cease and determine. The bill was purely permissive ; but it was thought by its author that a large proportion of the English banks of issue would place themselves under its operation, and further legislation would be practicable with respect to the rest. The bill, however, was less and less approved as it became better known, and it was ultimately withdrawn. From that time no legislation on the subject has been con templated until the session 1875, when the action of the Scotch banks in establishing head offices in London was followed by an agitation, described in the section on Scotch banks (p. 332), which has resulted in the appoint ment of a select committee on the law of banking and of note issues. The Select Committee thus appointed has received a vast mass of evidence on the law and practice of banking and of the issue of notes, but the session has been allowed to close without any attempt being made to report on the subject of the committee s inquiries, and no practical action is expected to follow the termination of its labours. It must be admitted that the obstacles to legislation, sup posing legislation to be desirable, are considerable. The bankers of the kingdom are largely represented on both sides of the House of Commons, and they are on the whole well contented with the present state of the law, while the great body of the public are profoundly ignorant and uninterested in it. The inaction to be overcome is so great, and the force available is so limited, that nothing will be done except under the influence of a commercial crisis, when almost anything may be done. The aim of economists and statesmen should be to produce a body of authority that may command respect even in the midst of universal agitation ; and the inquiries of the Select Com mittee to which we have referred might be useful for this purpose, if they had been pursued with any discrimination. As it is, the evidence received by the committee will probably serve as a quarry to which wisdom and unwisdom may equally resort for facts and arguments. At the risk of stating something that may appear too obviously true to require statement, we would submit that the question, whether bankers should be permitted to issue notes, must be determined upon a balance of opposing con siderations of expediency. Many of the advocates and supporters of Sir Robert Peel s legislation of lc&amp;gt;44 have said, apparently with a conviction that they w r ere express ing an axiomatic truth, that the issue of notes was no part of the business of a banker. Mr Gladstone has, within the past session, spoken in this sense. The force of assertions of this kind cannot be admitted. There is no law of nature limiting the action of a banker within the bounds sought to be prescribed ; and if we accept as the definition of a banker a person whose business it is to borrow and lend money, we cannot but recognize in the issue of transferable notes a most convenient process of carrying on this business. A banker who issues notes borrows so much from the persons from time to time hold ing them, and this money he has lent to the customers indebted to him. The reasons of convenience which justify a prohibition of the liberty of issue are, first, that experience has shown that this process of borrowing is too potent and too easily abused to the precipitation and aggravation of commercial crises ; and, secondly, that the great and almost insuperable difficulty of refusing to receive notes which have obtained general currency makes it most desirable that such notes should possess some better guarantee than can be always forthcoming of the solvency of private issuers. These are the reasons which prevail to uphold Sir Robert Peel s legislation, and which impel us to consider what means may be discovered of perfecting his policy by the unification of issues through out the kingdom. We believe the propagation of clear ideas on the subject of the note currency, and the acceleration of the time when one currency only shall be in circulation, would both be greatly facilitated by a mechanical and local separation of the issue department from the Bank of England. Much confusion of thought still prevails by reason of the fact that the Bank of England is used as the agtnt for manag ing whatsis now a state&quot; -issue, resting, so far as it is uncovered by specie, upon state security. If the business of issuing notes were removed bodily from the Bank of England and located in a Government office, and the name of the notes at the same time changed, it could not fail to be seen that the business left behind in Threadneedle Street differed in no essential particular from that of any other banker in Lombard Street, and much of the superstitious regard of the City for the Bank of England, and trust in its assistance in time of trouble, would be rapidly destroyed. It would then be understood that the cry for ministerial interference at the time of crises and of incipient crises was nothing more than a claim for the nation to cover with its credit those who had not been prudent enough to main tain adequate reserves for their own defence ; and, as this would be understood beforehand, it would induce the con sequence of greater circumspection on the part of dealers in money and a less temptation to rely on extraneous aid. The purely mechanical act of removing the issue of notes from Threadneedle Street would make the facts of the situation plain, and would bring about an alteration of conduct among London bankers, so that it should conform to the facts thus perceived. It has for some time past been clearly perceived that the delicacy of the condition of the money market in London has been much exaggerated, and the feverish tendency to crises materially excited, because the cash reserves kept by the London bankers are disproportionately small compared with the amount of their instantaneous liabilities. Competition has, of course, been a considerable element in causing this attenuation of cash reserves. Each joint stock bank has struggled after that increase of credit which follows an increase of dividends ; and the unproductive cash balances on hand have been kept down to the lowest limit. They would, however, never have been reduced to such narrow dimensions but for the reliance placed on the assistance of the Bank of England in the last extremity ; and if it were made plain that the Bank of England is itself nothing more than a big joint- stock bank, this reliance would disappear. Many schemes, equally ingenious and chimerical, have been recently put forth for compelling bankers to keep larger reserves of cash in proportion to their deposits. The true way to remove the danger always threatening us under the system that exists is to produce a conviction. among bankers that they must not expect help elsewhere if they become distressed through a default in their own reserves of cash. If the separation of the issue department from the rest of the Bank of England was completed by its transfer to a Government office under the management of State agents, the unification of the issues of the kingdom might be accomplished by legislation akin to that adopted by the United States in relation to the national banks. Each bank of issue might be required to withdraw its own notes and to receive and put out in exchange for them notes emanating from the State establishment, but bearing a statement on their face of the banks through which they were issued. Government securities should be deposited by 