industry which might ensue in consequence. What was CHAP. alleged on both sides was in part the truth, but on neither was it the whole truth. Neither party seemed to be aware of other effects resulting from the measure under discussion, which subsequent experience has nevertheless completely brought to light, and which have caused the paramount importance of the decision now taken, as bearing on future times. XXI. 1826. 21. overlooked sides. The first of these is the consideration that small notes, from their adaptation to small, and therefore the great Vital points bulk of transactions, are the ones which can chiefly be on both relied on as likely to remain in circulation; and upon the plenty or scarcity of them, with the public, the ease or tightness of the money market is mainly dependent. Every banker knows this; if any private person doubts it, let him reflect whether he most frequently has several £5 notes, or an equal amount in sovereigns or £1 notes, in his pocket. The second is, that the plenty or scarcity of these notes, or of sovereigns, in circulation, determines not merely the amount of credit which persons engaged in either commercial or agricultural speculations are to receive at the time, but also the price of the articles in which they deal for a couple of years, and consequently whether their business is to be a gainful or a losing one for a long period. Invariably it will be found that a contraction of the currency is followed, not only by a great and most distressing diminution of accommodation, and destruction of credit to persons engaged in business, at the moment it takes place, but by a lasting reduction of prices, often continuing for years together, and which occasions the destruction of a large proportion of these persons. The third is, that a currency, consisting, below £5, entirely of gold and silver, is liable to be entirely withdrawn at times by the necessities of war or the changes of commerce; and, consequently, if there is no other currency equally adapted to ordinary operations to supply its place, entire ruin to credit and industry may at any time be induced, without XXI. 1826. CHAP. the possibility of human wisdom or foresight guarding against it. A campaign on the Rhine or the Danube, three weeks' rain in Great Britain during August, a potato rot in Ireland, a great demand for gold in America, may at any time bring ruin upon the whole industry of the country, when most wisely conducted, and in the most prosperous state, and sap the very foundations of our national existence, by driving some hundred thousand of our most industrious and valuable citizens annually, for a course of years, into exile. This is exactly what happened in 1847, and from the effects of which the nation is still (1854) suffering in the annual decline of its population; and the same effects may be confidently expected to return from the same cause, as long as the ordinary circulation of the country is rested entirely on a metallic basis. 22. have been the currency. What the Legislature should have done in 1826 on this What should all-important question is sufficiently obvious, and had done with been so clearly pointed out by experience, that had not a small but influential portion of the community, who, from their wealth, got the command of the public press, been interested on the other side, it was impossible that the proper remedy could have been mistaken. What brought on the crisis was the entire dependence of the circulation on gold, which inflamed speculation as much in 1824 and 1825, when the precious metals were plentiful, credit was high, and prices of everything were rising, as it starved industry and ruined credit in the end of 1825, when twelve millions of sovereigns were drawn away to South America. What rendered it so eminently disastrous, and the ruin it induced so widespread, was the great number of failures among the country bankers, and the destruction of industry which took place by the sudden withdrawal of all credit from their customers. Induced by the abstraction of twelve million sovereigns, it was stopped by the issue of eight million additional Bank of England notes, when the Bank had only £1,000,000 in specie to XXI. 1826. meet notes to the amount of £25,000,000! What should CHAP. have been done, therefore, was to guard against the ruinous effects of an exportation of the sovereigns, by providing an issue of notes to the amount of the gold withdrawn, not convertible into specie, and therefore not liable to disappear, and to have averted the worst effect of the country bankers' failures, by issuing small notes of the Bank of England to the amount required by the country, or compelling the country bankers to deposit Government securities with the Bank of England to the full amount of the notes they issued. Instead of this, they continued the entire dependence of the currency on gold, and suppressed small notes in England altogether the very measures best calculated to insure a recurrence of the disasters of which the nation had so recently experienced the bitterness. 23. posed by Govern ment. How strongly wedded soever the Government and great majority of the House of Commons were to the cheapening Measures of system, and however resolute to face all imaginable dan- relief proger, in order to carry it out by enhancing, by every possible means, the value of money, the necessities of the country drove them into some measures of an opposite tendency, and which in a considerable degree relieved the general suffering. The first of these was a bill allowing private bankers to have an unlimited number of partners, instead of six, to which they were by law restricted-a just and wise measure, and which the jealousy and influence of the Bank of England alone had prevented being earlier adopted. The second was an Act authorising the establishment of branches of the Bank of England in the country towns-a wise measure also, and which tended to introduce in a wider degree the circulation of small notes of the Bank of England during the three years they were allowed to remain in circulation. Finally, upon the most urgent petitions from Manchester, Liverpool, Glasgow, and all the other manufacturing towns, setting forth the necessity of some assistance from Government, Ministers XXI. 1826. CHAP. agreed to guarantee advances by the Bank on goods and other securities, to the extent of three millions. This was deemed a better mode of proceeding than issuing exchequer bills themselves, to which they were strongly urged, as Government, it was said, had nothing to do with the currency or the banking operations of individuals. But although that principle might be well founded in the general case, it assuredly was not so in this, when the crisis which had ensued had been caused entirely by the Government itself resting the currency entirely on 1 Ann. Reg. a metallic basis, and then going into measures connected with South America which caused that basis to be cut away.1 1825, 30, 41. 24. Banking system in Scotland and Ireland. The bill for the suppression of small notes was not by its provisions extended to Scotland or Ireland, in both of which countries a different banking system had long prevailed, subject to none of the objections stated against the English country banks, and to the existence of which the rapid progress both countries had made in wealth and industry of late years was mainly to be ascribed. In Scotland, in particular, a system of banking had been in existence for above a hundred and thirty years, which, combining prudence with liberality, was established on so firm a footing that it had stood with entire success the storm which had proved so fatal in the southern part of the island. There were thirty banks in the country, nearly all of which issued notes which were in universal circulation, and had entirely superseded gold in the ordinary transactions of business with all classes. These notes amounted in general to about £3,500,000; and to this issue, which gave to a country not as yet possessing it all the advantages of realised capital, the extra2 Ann. Reg. Ordinary progress which the country had made both in 1825, 26, agriculture and manufactures was, beyond all question, to Parl. Deb. be chiefly ascribed.2 Only one failure had occurred in the 27, 31; xiv. 237, 249. memory of man, and that was of a country bank doing little business, during the crash of 1825; and Scotland, in consequence, had suffered greatly less than England at that CHAP. disastrous epoch. XXI. 1826. 25. Scott pre suppression Scotland It was not proposed, in the first instance, to extinguish small notes in Scotland, but the known opinions of Gov- Sir Walter ernment, and the course of examination by the adherents vents the of Administration of the witnesses who were questioned of small on the subject in committees of both Houses of Parlia- notes in ment, left no room for doubt that, in the next session at and Ireland. latest, the law would be made the same in both ends of the island, and that the fate of Scotch and Irish notes would be sealed. In this extremity was seen what can be effected by the vigour and patriotism of one man, As soon as it was known in Edinburgh that the Scotch notes were seriously threatened, there appeared in the columns of the Weekly Journal, a paper conducted by the Messrs Ballantyne, a series of papers on the subject, signed "Malachi Malagrowther," in which the public soon recognised the vigour, sagacity, and fearless determination of SIR WALTER SCOTT. Albeit closely connected both by political principle and private friendship with the Administration, that great man did not hesitate a moment to break off from them on this momentous question, and to sacrifice both a sense of past obligations and the hopes of future preferment on the altar of patriotic duty. His efforts were crowned with entire success. Scotland rose as one man at the voice of the mighty enchanter; petitions against the threatened change crowded in from all sides and the most influential quarters. Ireland followed in the wake of its more energetic and far-seeing rival; and in the end Ministers gave a reluctant consent. The decisive words were at length wrung from Mr Huskisson, " Well, let them keep their rags, since they will have them." The rags were kept; the small-note currency was saved in Scotland and Ireland from destruction, and has ever since been enjoyed by both countries; and the consequence has been, that, excepting in so far as they have been affected by the monetary crises of England, or have been chastised by the VOL. IV. E |