"4. If the currency were administered upon this principle, the bank would be unable to grant assistance to the commercial and manufacturing classes in seasons of calamity.
"Mr. Loyd exclaims, ' Let not the borrowers of money, Government and Commerce, approach, with their dangerous and seductive influences, the creator of money.' But, with all deference to Mr. Loyd, we contend that it is the province of a bank to afford assistance to trade and commerce in seasons of pressure. Mr. Loyd, as a practical banker, would no doubt afford assistance to his own customers in such seasons; and if this be the province and duty of a private banker, the duty is more imperative on a public banking company, and more imperative still on a bank invested by the legislature with peculiar privileges for the public good. Mr. Loyd says, 'Let the bank afford this assistance out of her own funds.' But, under Mr. Loyd's system, she could grant assistance only by selling securities; and what relief would she afford by selling securities with one hand, and lending out the money with the other? Besides, is it certain that, under such a pressure as Mr. Loyd's system must occasionally produce, these securities would be saleable at even any price? 'But,' says Mr. Loyd, 'individuals may afford this assistance.' In seasons of pressure few individuals have more ample funds than what are necessary for the supply of their own wants. . . . When the distress is caused by a contraction of the currency, it can only be removed by an increased issue of notes. And there are many cases, such for instance as that of the Northern and Central Bank, in which assistance can only be effectually rendered in this manner.
"We consider that any system of administering the currency, which prohibits the banking institutions of the country from granting relief to the commercial and manufacturing classes, must be unsound. We should condemn such a system at once, even if we could not detect the fallacies on which it was founded. In political economy we can judge of principles only by their practical effects - and any system which produces these effects must be unsound. When seasons of calamity occur, it is not for the national bank to exclaim, Sauve qui pent. They ought to co-operate with the Government in attempting to relieve the distress, and to preserve the tranquillity of the country."
These remarks, written in the year 1841, might, if put into the past tense, almost serve for a history of the year 1847. The Act of 1844 was formed upon the principle which is here condemned; and the effects described have actually occurred. There have been great fluctuations in the amount of the circulation, in the rate of interest, and in the prices of the public securities. There have been great speculations, followed by great distress. The Government funds have in large amounts been unsaleable; and the bank has been unable to afford relief to the commercial classes. A severe pressure has taken place; and, in consequence of this severe pressure, the Act was suspended. It has been denied that this pressure was produced or increased by the Act. But, how stand the facts? The Act was passed, and, as predicted, a pressure came: the Act was continued, and the pressure increased: the Act was suspended, and the pressure went away. These are not opinions - they are facts.
At the meeting of Parliament in the latter end of 1847, committees were appointed by both the House of Lords and the House of Commons, to "inquire into the causes of the distress which has for some time prevailed among the commercial classes; and how far it has been affected by the laws for regulating the issue of bank notes payable on demand." The following is an extract from the Report of the Lords' Committee as to the causes of the pressure: -
"A sudden and unexampled demand for foreign corn, produced by a failure in many descriptions of agricultural produce throughout the United Kingdom, coincided with the unprecedented extent of speculation produced by increased facilities of credit and a low rate of interest, and had for some time occasioned over-trading in many branches of commerce. This was more especially felt in railroads, for which calls to a large amount were daily becoming payable, without corresponding funds to meet them, except by the withdrawal of capital from other pursuits and investments. These causes account for much of the pressure under which many of the weaker commercial firms were doomed to sink, and which was felt even by the strongest. To these causes may be added a contemporaneous rise of price in cotton; and, with respect to houses connected with the East and West India trade, A sudden and extensive fall in the price of sugar, by which the value of their most readily available assets underwent great depreciation.
" Some of these causes are obviously beyond the reach of legislative control. But upon those which are connected with the extension of commercial speculation, encouraged or checked by the facility or the difficulty of obtaining credit by the advance of capital and the discount of bills, the powers and position of the Bank of England must at all times enable that corporation to exercise an important influence. The committee have consequently felt it to be their duty to inquire into the course pursued by the bank acting under the provisions of the 7 & 8 Vict. c. 32, and they have come to the conclusion that the recent panic was materially aggravated by the operation of that statute, and by the proceedings of the bank itself. This effect may be traced, directly, to the Act of 1844, in the legislative restriction imposed on the means of accommodation, whilst a large amount of bullion was held in the coffers of the bank, and during a time of favourable exchanges; and it may be traced to the same cause, indirectly, as a consequence of great fluctuations in the rate of discount, and of capital previously advanced at an unusually low rate of interest. This course the bank would hardly have felt itself justified in taking, had not an impression existed that, by the separation of the issue and the banking departments, one inflexible rule for regulating the bank issues had been substituted by law in place of the discretion formerly rested in the bank."