It is farther alleged, that the Act of 1844 requires an immediate contraction in the amount of the notes whenever gold is exported for merely a temporary or specific purpose. Between March 13 and April 24, 1847,
1 Lords, 1209, 1214. 2 Lords, 1209.
£2,237,200 was exported in payments for corn. An equal amount of notes was of course cancelled by the issue department. The notes must have been taken out of the hands of the public, or from the banking department of the Bank of England. About the same time, the Government had occasion to borrow of the banking department about £3,500,000 to pay the April dividends. The banking department, consequently, for a while limited their discounts, and even refused to grant loans on exchequer bills. Great pressure was consequently felt, though it did not last for a long time. Now it is alleged, that if the Act of 1844 had not existed, the directors would have allowed the gold to be exported without immediately contracting the notes in circulation. They would have lent the money required by the Government, without refusing the loans and discounts to the public; and the contraction of the circulation, by being extended over one or two months, instead of a few weeks, might have produced no inconvenience.
By the Act of 1844, the circulation of the country banks was restricted to a certain amount. The average of the twelve weeks ending the 27th of April, 1844, was fixed for the maximum. During some months in the year the country requires more notes than this maximum; and, as the banks can issue no more notes of their own, they obtain Bank of England notes from London. In the year 1845 Acts of Parliament were passed for the regulation of the notes issued in Scotland and Ireland. Beyond certain fixed amounts, the banks in these countries are required to hold gold equal to the amount of notes in circulation. In both countries this circulation fluctuates. In Scotland, the highest amount is in November. In Ireland, the highest amount is in January or February. In these months they require more gold, and this gold they obtain from the issue department in exchange for Bank of England notes. Before the Act of 1844, the circulation of the country parts of England, of Scotland, and of Ireland, expanded or contracted as required by the wants of the public, without affecting the London circulation of the Bank of England; but under this Act, the expansion of the circulation of the country banks, the banks of Scotland, and of Ireland, are attended by a contraction of the circulation of Bank of England notes in London. This may not be a matter of much consequence in ordinary times, when the banking department of the Bank of England has a large reserve; but in seasons of pressure, such as occurred in 1847, this drain on the London circulation may be more severely felt.
It may be farther stated, that the withdrawal or discontinuance of a certain amount of bills of exchange, through loss of credit or otherwise, would render a larger amount of bank notes necessary to fill up the space formerly occupied by those bills of exchange. But for such a circumstance no provision is made by the Act.1
Thirdly. It is alleged that the Act of 1844 tends to produce and to aggravate pressure, and at the same time deprives the Bank of England of the power of granting adequate assistance, even when the pressure is most urgent, and when assistance can be rendered without any danger of affecting the foreign exchanges.
This objection assumes that a pressure is an evil. It assumes, that to advance the rate of interest to a rate which no profit can afford to pay - to deprive solvent houses of the means of meeting their legitimate engagements - to cause a universal reduction of prices, and thus to baffle the calculations of even the most prudent - to reduce wealthy merchants to the condition of paupers - to deprive manufacturers of the means of executing their orders, and thus to throw thousands of industrious people out of employment - to sell to foreigners large amounts of goods and manufactures at less than the prime cost, thus causing a great national loss - to paralyze the national industry - to stop the progress of useful works - and to destroy confidence and credit - the objection assumes, that a pressure which produces effects like these is a national evil. And such must be the opinion of those who suspended the Act, and of those who approve of that suspension; for it was to prevent or to remove evils like these that the Act was suspended.
1 Lords. 232 - 235.
It is alleged that the Act tends to produce such pressures. By issuing notes against all the importations of gold, it causes abundance of money, lowers the rate of interest, and stimulates to speculative undertaking (thus the low rate of interest in 1844 and 1845 stimulated the railway speculations), and then, speculation is always succeeded by pressure. If, therefore, similar causes produce similar effects, and if the future shall resemble the past, the operation of the Act of 1844 will tend to produce pressure.
It is farther alleged, that when a pressure occurs without being produced by the Act, then the Act tends to aggravate the pressure. An unfavourable course of the exchange may be produced by a large importation of corn. The Act requires that the exchange shall be rectified by an exportation of gold, and that this exportation of gold shall be attended by a contraction of the domestic circulation (according to the present meaning of the word circulation) to an equal amount. It is hardly necessary to show that these regulations must aggravate a pressure.
It has been said, that the pressure of 1847 was produced by the railway speculations and the famine, and therefore it was not produced or increased by the Act of 1844. We do not perceive the soundness of this reasoning, and it seems to show a forgetfulness of the peculiar operation of the Act. The Act requires that the amount of notes in circulation shall fluctuate in exact accordance with the amount of bullion. Railway speculations, famine, foreign loans, or a hundred other things, may turn the foreign exchanges, and cause gold to be exported, but it is the Act which causes our circulation of notes to be contracted in proportion as the gold is withdrawn. So a hundred different circumstances may cause gold to be imported, but it is the Act which causes our circulation to be inflated in correspondence with this increased amount of gold. Herein, we think, is the injurious operation of the Act. When the exchanges are favourable, gold is imported. The gold is in bars and foreign coin, and could not pass as money. But the Act issues notes against this gold, thus increasing the circulation, lowering the rate of interest, and giving rise to speculations of all kinds. These speculations, co-operating possibly with other causes, turn the exchanges. Notes are then taken to the bank, and gold demanded, for the purpose of being exported. This contraction of the circulation of notes produces pressure, and the apprehension of farther pressure produces panic.