This section is from the "The Science Of Wealth" book, by Amasa Walker.
From 1844 to 1859, inclusive (sixteen years), the average circulation of all the banks — English, Irish, and Scotch — was thirty-seven millions sterling; average specie, eighteen millions.
We have not at hand any account of the deposits in any of these banks, except the Bank of England. In that, the average of deposits, public and private, was about sixteen millions, while the circulation was nearly twenty-one. It is well known that the deposits of the United Kingdom are made chiefly in those joint-stock banks which do not issue currency, but are confined to the operations of legitimate banking. In addition to this, we have the consideration that the Bank of England receives very largely of public deposits, which go to make up the sum already stated. We shall therefore be safe in estimating that the deposits of all the currency banks of the United Kingdom are less in proportion to their circulation than are those of the Bank of England. If, then, we assume the deposits to be on the average, in all the remaining banks, fifty per cent of the circulation, we shall have the following result for the currency of Great Britain : —
Bank of England's circulation........ 21,000,000
„ „ deposits......... 16,000,000
Other Banks' circulation.......... 16,000,000
„ „ deposits (estimated)....... 8,000,000
61,000,000 Total specie, as before...........18,000,000
This would be equal to nearly thirty per cent against eighteen per cent in the currency of the United States, showing a considerable superiority in quality.
But this is only a partial view of the matter. The Bank of England issues no notes of less denomination than five pounds. The banks of Ireland and Scotland issue none less than one pound (or five dollars); while, in the United States generally, bank-notes are issued as low as one dollar (or four shillings sterling). This makes a vast difference in the amount of specie in the hands of the people.
All small transactions are made in gold. A traveller may pass months in England, and expend thousands of dollars, without ever seeing a bank-note in the hands of anybody.
Probably it would not be extravagant to suppose, that there was, on an average, a sum equal to two pounds to each inhabitant. It has, indeed, been estimated much higher; but allowing only two pounds each, equal to ten dollars, we should have, on a population of twenty-six millions, fifty-two millions sterling, equal to, say, two hundred and fifty million dollars.
From the foregoing statements, it will be seen how much greater is the stability of the currency of Great Britain than that of the United States.
The currency of Scotland approaches more nearly to that of this country than any other section of Great Britain. One-pound notes are issued to the extent of two-thirds of its whole circulation; and the proportion of specie held by the banks is smaller.
The consequence is, that monetary affairs are more fluctuating, and the number of bankruptcies greater, than in the other part of Great Britain.
There are no reliable statistics by which to determine the relative proportion of failures in each of the different mixed-currency countries of the world; but, had we. the data, it would undoubtedly appear that the proportion of failures in each country was governed strictly by the character of its currency.
In the United States, where the currency for the last thirty-five years has been weaker than any other in the world, the proportion of failures are well known to be greater than anywhere else. The common estimate has been ninety in one hundred. There is nothing mysterious in this result. It is the natural consequence of a fluctuating and unreliable currency. Notwithstanding this greater stability of the English currency, as compared with that of the United States, it is still so essentially defective, so alloyed or adulterated with the element of credit, that it produces in degree, though not in extent, the same evils suffered in the United States. The commerce of the vast empire of Great Britain is kept in a state of continual perturbation. The "reserve" of the Bank of England is watched with the greatest solicitude: as it rises or falls, so every business man in the nation is affected. This has become more strikingly apparent within the last twenty years. The fluctuations in the bank rate of interest have been more frequent and violent than previously, and seem to be growing worse from year to year.
We annex a Table VIII., showing the bank reserve for each year from 1844 to 1858, and the corresponding rates of interest charged by the Bank of England, together with a diagram, No 10, representing the same.
Table VIII., showing the Rates of Interest each Year in the Bank of England, with the Amount of the Bank Reserve at the corresponding Date, from 1844 to 1858, inclusive, and the Suspensions of the Bank Act.
Observe the correspondence between Diagrams No. 9 and 10. The rate of interest in both countries is evidently affected by the same disturbing force, though in different degrees.