The nature and extent of the pressure is thus described by the Governor and Deputy- Governor of the Bank of England: -
"The panic began by the failures in the corn trade. The price of wheat had risen to about 120s. Large arrivals of grain from the continent of Europe and from America, coupled with the prospect of an early and abundant harvest, caused a sudden fall in price to about 60s., with a corresponding decline in Indian corn. The failure of most of the corn speculators followed this great reduction in price, and their failure caused the stoppage of an eminent discount broker having a large country connection. This latter failure, by closing one of the principal channels of discount between the country and London, caused distrust to extend into the country. Credit became affected by these failures, and several London firms of high standing also failed. Then followed in rapid succession the failure of the Royal Bank of Liverpool, the Liverpool Banking Company, the North and South Wales Banking Company, some private country banks, and the Union Bank of Newcastle, followed by a tremendous run upon the Northumberland and Durham District Bank. To these disasters succeeded alarm, and an almost total prostration of credit. The London bankers and discount brokers refused to grant the usual accommodation to their customers, and necessarily obliged everyone requiring assistance to resort to the Bank of England. Money was hoarded to a considerable extent: so much so, that notwithstanding the notes and coin issued to the public, in October it exceeded by £4,000,000 or £5,000,000 the amount with the public in August; still the general complaint was of a scarcity of money Credit was so entirely destroyed, that houses trading to distant countries, carrying on their business through the means of credit by a renewal of their acceptances as they became due, were no longer able to meet their engagements, and were forced to stop payment. This was the state of things previous to the issuing of the Government letter in October." l
The Committee of the House of Commons delivered a Report in favour of the continuance of the Bill without alteration - in opposition to the opinions of by far the majority of the witnesses who were examined.
Those witnesses who are friendly to the Act contend that it has secured the convertibility of the Bank of England note - that this convertibility was endangered in 1825, in 1837, and in 1839, and would have been endangered in 1847 but for this Act.2
By the phrase "securing the convertibility of the note," it is not meant that the issue department of the Bank of England held a sufficient amount of gold and silver to pay off all the notes it had issued. It is obvious that the gold and silver in hand must always be fourteen millions less than this amount, inasmuch as fourteen millions of notes are issued against securities. By "securing the convertibility of the note," is meant, that the issue department of the Bank of England were in a condition to pay off any amount of notes of which payment was likely to be demanded for the purpose of exporting the gold - the issue department was always in a condition to meet any foreign demand for gold. This is called, "securing the convertibility of the note."
It has been contended, that the Act has retained in the vaults of the Bank of England a larger amount of gold and silver than would otherwise have been retained. And as this amount is set apart for the express purpose of paying the notes, their payment is so far additionally secured. On the other hand, it has been maintained that, by thus reserving all the gold to pay the notes, we endangered the payment of the deposits. And had the banking department stopped payment, a domestic run would have taken place upon the issuing department, and thus the payment of the notes would still have been endangered.
1 Lords, No. 12.
2 See the Evidence before the Committee of the House of Lords. Questions No. 1406 to 1409, and No. 3169.
The following is the evidence of a director of the Bank of Liverpool upon the subject:
"With regard to securing the convertibility of the notes, what is your opinion of the bill?
"I do not think it has secured the convertibility of the notes at all. The notes remained convertible up to the suspension of the Bill; but I believe that, if the Bill had not been suspended then, or some similar measure adopted, notes would have ceased to be convertible. Looking to the general state of things throughout the country, and to what I know to have been the state of things in London, and the position of trade generally - to the alarm that was spreading rapidly through the country, and to the fact that the power of the bank had been reduced to such a point, that if there had been any apprehension of the failure of the country banks, it could not farther support them, and that very little might have occasioned (I might perhaps go further, and say, would have occasioned) the failure of banks in large towns and in the country - believing that if one or two country banks of any magnitude had failed, alarm would have spread throughout the kingdom, or if one or two London banks had failed, consternation would have been general - seeing, also, the considerable amount of reserve in the hands of the country bankers and joint-stock banks, and the necessity that there would have been of having that reserve as early as possible converted into gold if the bank was obliged to stop - seeing that a reserve of £20,000 for each of 300 country banks would have taken six or seven millions, or of £15,000 each would have taken five millions - and that if the run for gold had once begun, it would probably have gone on till the treasury was drained - seeing all this, my firm opinion is, that the Bill of 1844 has not secured convertibility, and I state the grounds on which that opinion is formed."1
It seems useless at present to speculate upon such a state of things, as we now know that before the pressure arrived to such a height as to cause the banking department to stop payment, the Act would be suspended. But it seems fair to ask, whether the precautions of the Act are not disproportionate to the danger? We ought to consider not merely the greatness of the evil, bat also the probability of its occurrence; and is it wise to inflict upon ourselves a vast number of serious evils merely to guard against a danger that may never occur? It may farther be asked, whether the stringent measures that were necessary to keep the banking department from stopping payment, would not have been equally effectual under the previous state of the law in preserving the convertibility of the notes?