Salomons 
 Defense of the Joint-Stock Banks
 
 THE LIBRARY 
 
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 THE UNIVERSITY 
 
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 A DEFENCE 
 
 JOINT- STOCK BANKS; 
 
 AN EXAMINATION OF THE CAUSES 
 
 PRESENT MONETARY DIFFICULTIES, 
 
 HINTS 
 
 FUTURE MANAGEMENT OF THE CIRCULATION. 
 
 By DAVID SALOMONS, Esq. 
 
 SECOND EDITION. 
 
 LONDON : 
 PELHAM RICHARDSON, 23, CORNHILL. 
 
 1837.
 
 MARCHANT, PRINTKR, INGRAM-COURT, FENCHC'RCH-STRF.r.T.
 
 mi 
 
 A DEFENCE 
 
 JOINT-STOCK BANKS, 
 
 ETC. ETC. 
 
 No subject can be more interesting tlian that of 
 the circulation of the country. The welfare of 
 the whole commercial body depends upon it, and 
 if any thing occurs to interrupt the usual steady 
 course of a healthy currency, the derangement 
 does not alone affect commerce, but it extends 
 itself to the body Politic. It thus becomes an 
 object of great National importance to guard it 
 by legislative enactments from all frequent and 
 sudden changes ; and it is therefore desirable 
 that the question should at this moment be tho- 
 roughly examined, and the causes of the present 
 derangement of the circulation investigated. 
 
 A 2 
 
 fyipiir^ -—• r-~ r^
 
 In approaching this subject, I am anxious 
 not to introduce any speculative theories, re- 
 garding the means by which the periodical de- 
 rangements of the circulation may be avoided. 
 Nor can any thing be more pernicious, than 
 that so grave a question, should assume the 
 features of a mere contest between the Joint- 
 Stock Banks and the Bank of England, in which 
 the public at large have not a direct and 
 immediate interest. Much, however, may be 
 gained in having the question thoroughly dis- 
 cussed, its reputed causes examined, and by in- 
 quiring whether the accusation, that the present 
 state of things is caused by the over issue of the 
 Joint-Stock Banks, be w^ell or ill founded. 
 
 That accusation is stated to be, that the present 
 difficulties of our monetary system, and the low 
 amount of the bullion at the Bank of England, 
 and consequent danger to that national establish- 
 ment, are caused by the mismanagement and over- 
 issue of the Joint-Stock Banks. This charge has 
 been brought against them for months past, it 
 has been proclaimed throughout the country, it 
 has been reiterated in the House of Commons, 
 and by repetition it has become as it were an
 
 admitted fact. Attempts have also been made 
 to excite the public feeling against the Joint- 
 Stock Banks, by quoting the official returns which 
 exhibit an increase in ilieir circulation, and a di- 
 minution of that of private Country Banks, and by 
 representing the great increase in their issues com- 
 pared with that of private country Banks, as evi- 
 dence of their mismanagement. This charge can 
 be refuted by stating, that many of those private 
 Banks merged their interest in Joint-Stock Banks, 
 by either forming new banking companies, or 
 disposing of their business to banks already esta- 
 blished ; and therefore, to arrive at the truth, 
 and to be able to form an accurate opinion of 
 the state of the country circulation, it would 
 be useful to ascertain, how many banks have 
 actually done so. _j 
 
 Whatever further may be said of the mis- 
 conduct of some, or the mismanagement of any 
 of the Joint-Stock Banks, the evidence of 
 figures still appears against the Bank of Eng- 
 land, and the Directors of that establishment 
 will themselves find it hard to escape from the 
 charge, which the authentic evidence of their own 
 published account brings against them. For, 
 strange to say, in looking at the ivhole country
 
 6 
 
 circulation as exhibited by the Stamp- Office re- 
 turns, it does appear somewhat astounding that 
 the whole addition to the currency by the issues 
 of Country and Joint-Stock Banks during a period 
 of three years amounts to less than two millions. 
 The whole country circulation being 
 
 In December 1836 £12,011,697 
 
 1833 10,152,104 
 
 Increase £ 1 ,859,593 
 
 whilst the returns of the Bank of England 
 exhibit in December, 1833, a circulation of 
 £18,216,000, and bullion £9,948,000, and in 
 January 1837 a circulation of £17,422,000, and 
 bullion £4,287,000.* How can the Joint-Stock 
 Banks be made accountable for this state of 
 things? The question which must always pre- 
 sent itself in referring to these published ac- 
 counts is, how does it happen that the circulation 
 of the Bank of England is nearly of the same 
 amount, with a stock of bullion of only foia^ 
 millions, as when there were ten 7nilUons in 
 its coffers. If it be said that the Country and 
 Joint-Stock Banks are in fault, the reply is that 
 
 * Vide Appendix.
 
 a reference to figures implies the impossibility ; 
 for if we turn to those unerring guides, it will 
 appear that in three years the addition to the 
 country circulation is below two millions, whilst 
 the Bank of England's stock of gold has been 
 reduced nearly six millions. 
 
 In vindicating the Joint-Stock Banks from the 
 sweeping charge made against them, that they 
 are the cause of the present derangement of the 
 circulation, I must not be understood as defend- 
 ing the vicious system on which some of those 
 Banks are founded, or as desiring to shield the 
 Government from that portion of blame which at- 
 taches to them, for having permitted Institutions 
 so vitally affecting the welfare of the country to 
 exist, unless under proper limitations and restric- 
 tions. No system of country banking can be 
 safe, that does not compel a statement of issues 
 periodically made up and published by autho- 
 rity, sufficiently clear to convey information 
 even to the most superficial observer; for to 
 leave the public to guess the sum actually in 
 circulation, by the circuitous mode of an average 
 amount, made up and published quarterly, and 
 calculated through the Stamp-Office returns, is
 
 necessarily inefficient. Not to have extended to 
 the country circulation, the same protection for 
 the public that is required from the Parent Esta- 
 blishment, was indeed in some measure indemni- 
 fying the Joint-Stock Banks for any abuse of the 
 power conferred on them ; and it is rather to be 
 wondered at, that more mischief has not been 
 caused by their instrumentality, than at the dis- 
 asters which the admitted mismanagement of 
 some of them may have occasioned. 
 
 It seems to be still more surprising, that the 
 Legislature did not at least require fi'om Banking 
 Companies, a definite amount of paid-up capital 
 in proportion to their nominal capital, some stated 
 qualification for directors, some means of ascer- 
 taining before a bank opens, that it is actually 
 what it pretends to be; a bank with a real and 
 bona fide paid-up capital, having directors to 
 superintend the management of it, and share- 
 holders to be responsible for its solvency. Ought 
 we not rather to be thankful, that this univer- 
 sal-liberty-system has not produced more loss, 
 inconvenience, and ruin? But with all these 
 admitted disadvantages, it will require an ex- 
 traordinary degree of ingenuity on the part of
 
 9 
 
 those who contend for the infallibility of the 
 Bank of England, to show how the increase 
 of less than two millions of paper by the 
 Country Banks, could have abstracted nearly 
 six millions of bullion from the coffers of the 
 Bank of England. 
 
 These observations are not made in a spirit 
 unfriendly to the Bank of England — far from it. 
 No one is more convinced than I am of the use- 
 fulness of a controlling establishment, which 
 by its superintending care shall regulate the 
 circulation of the country, by its high repu- 
 tation give a tone to commercial credit, by its 
 power grant assistance to every legitimate un- 
 dertaking, and by its well-conducted system, 
 serve as an example to all other institutions. 
 Neither do I wish to underrate the difficulty, 
 which the Directors of the Bank of England 
 occasionally encounter in their efforts to control 
 the circulation. They must frequently strive to 
 resist the solicitations of the Government, for 
 assistance to carry into effect some favourite 
 financial project, and have difficulty in denying 
 the importunities of individuals in seasons of 
 danger and commercial discredit. The aid
 
 10 
 
 wliicli they afford to Government, is very often 
 inconsistent vv^ith their other duties as controllers 
 of the circulation, and becomes a source of much 
 subsequent trouble. 
 
 A charge having been made against the 
 Joint-Stock Banks that their proceedings have 
 caused the present difficulties, the question 
 should be examined closely, not for the pur- 
 pose of indulging in a useless recrimination, 
 but rather to determine how errors can be t 
 guarded against for the future : for the Joint- 
 Stock Banks do not hesitate to repel the charge, 
 and to accuse the Bank of England of 
 having caused the mischief, vt^hich they at- 
 tempt to lay to the account of the Joint-Stock 
 Banks. It has already been shewn that figures 
 make against the accusation of the Bank of 
 England, and there is no doubt that a more de- 
 cided and active course of conduct, on the part of 
 the Bank of England for controlling the circula- 
 tion, might have averted much of the present 
 evil. That some of the Joint-Stock Banks by 
 mismanagement, and the introduction of a loose 
 system of credit in the provincial districts, have 
 aggravated the adverse circumstances in which
 
 11 
 
 the country has been unfortunately plunged must 
 be allowed, and trade must ever be subject to ex- 
 traordinary fluctuations, until means be adopted, 
 to control and regulate those establishments. 
 Measures must also be taken either within, or 
 without the Bank -parlour, to improve the system 
 of the Bank of England by which the circula- 
 tion may be more speedily acted on, in case of 
 any adverse state of the exchanges. 
 
 To attempt to limit the freedom of trade, by 
 interfering- with the unrestricted transfer of 
 foreign funds, seems to me most imprudent ; 
 and, notwithstanding the opinion of Mr. Hors- 
 ley Palmer, whose sentiments are entitled to 
 very great attention, — I have no hesitation in 
 saying, that he is quite mistaken in his views 
 regarding the effect which the foreign stock trans- 
 actions have on the country. I will not go into the 
 question of the policy either of the introduction 
 of foreign stock into England, or of the invest- 
 ments that may have been made in them, but 
 I will venture to assert, and I speak advisedly, 
 that the country has gained enormously by the 
 investments, that have up to the present time 
 been made, in the debts of the various solvent
 
 12 
 
 European Governments;* nay, I go still further, 
 and assert that their transmission has on the 
 whole been favourable to commerce, that they 
 have tended to regulate the exchanges, instead 
 of having had an injurious effect on them ; 
 and many most important payments could not 
 have been made, without the powerful assis- 
 tance derived from the export of foreign stock, 
 as the most ready means of payment. It will be, 
 indeed, difficult to shew how such descriptions of 
 foreign funds, for which a ready market exists 
 on the Continent as well as in London, could 
 at all injuriously affect the exchanges. Such 
 funds are, in truth, a universal currency, and 
 payments, either at home or abroad, can be made, 
 by their transmission, and the balance of trade 
 as readily adjusted, as by an import or export 
 of the precious metals. 
 
 It should be anticipated, that whenever the 
 interest of money becomes reduced to a low 
 rate in this country, some individuals will then 
 look to foreign funds, as a mode of investment 
 
 * Portugal is of course an exception ; its payments, once 
 suspended, although since resumed, are well known to have 
 been furnished by loans raised in this country.
 
 13 
 
 paying a higher rate of interest, than can be 
 obtained at home ; and an export of bullion 
 may in consequence take place to pay for such 
 foreign funds. But after all this ought to be re- 
 garded only a symptom of an overflowing cur- 
 rency, and should also exhibit an excess of bullion 
 in the coffers of the Bank of England. When- 
 ever an opposite state of things arises, and money 
 becomes more valuable in this country than 
 abroad, an export of foreign funds usually takes 
 place, and essentially contributes to set the 
 exchanges right. 
 
 How was the large importation of corn in 
 the years 1829 and 1830 paid for, except by 
 the means provided by the export of foreign 
 funds ? During those years the sales of French 
 Stock by English holders amounted to a most 
 enormous sum. The unfortunate events that 
 preceded the change of Government in France 
 were in progress ; they had, however, no bad 
 effect upon the price of the public funds of 
 the European States. Whether the English 
 holders of French Stock, were alarmed at the 
 pertinacity of the Polignac administration, or 
 whether they were contented with the great ad- 
 vance in the price of the French funds, which in
 
 14 
 
 those years had attained their maximum, sales of 
 securities were made to an extensive amount ; 
 and notwithstanding the very large importation 
 of corn which took place at that period, it seems 
 by the high rates of exchange which were then 
 current, that the proceeds of those sales paid for 
 the importation of corn, and also increased the 
 bullion in the coifers of the Bank of England. I 
 may also say with confidence that during the 
 whole of the year 1 836, the amount of export of 
 foreign European funds, and remittances to this 
 country for the dividends due on them, greatly 
 exceeded the import of such securities, and thus 
 assisted the exchanges at a most important and 
 eventful period. 
 
 A better founded cause for the derangement 
 of the currency than the issues of the Joint- 
 Stock Banks may be shewn to be the trans- 
 action between the Government, the public, 
 and the Bank of England, connected with the 
 West-India Loan. This measure, which required 
 very skilful treatment, was managed with a 
 most reckless haste. At first, the Bank seemed 
 determined not to interfere, but, either not proof 
 against the solicitations of the Government, or 
 having unfortunately listened to evil advisers,
 
 15 
 
 they permitted themselves to lend money on all 
 descriptions of securities, and thus themselves 
 gave the impulse to those speculations of which 
 they and the public are now the victims. Joint- 
 Stock Banks were multiplied all over the country ; 
 rail-road and other schemes covered the land ; 
 the means for setting these projects on foot, in 
 many cases, came from the proceeds of the 
 West-India Loan, and although it was not yet 
 assigned to the various claimants, the funds paid 
 in for that loan on account of the Government, 
 were poured out in masses from the coffers 
 of the Bank of England, who advanced money 
 to all applicants, both on the deposit of that 
 Loan and on all other Government securities. 
 Whether the Government stimulated the Bank 
 to act thus, I do not inquire; my business is with 
 the facts of the case, and with these 1 must deal. 
 An event of some importance, in connexion 
 with the derangement of the circulation of the 
 country, and which appears to have escaped 
 observation, is the death of the late Mr. N. M. 
 Rothschild. It is well known with what dexte- 
 rity that eminent individual managed the ex- 
 changes : how he prided himself in distributing
 
 16 
 
 his immense resources, so that no operation of his 
 own should abstract for a lengthened period, the 
 bullion from the Bank of England ; and although 
 it may be urged that he kept the exchanges in 
 an artificial state, and therefore produced no 
 ultimate good, yet the sudden withdrawal of 
 this artificial aid at an inopportune moment, has 
 tended to aggravate evils which his energy and 
 promptitude might have checked. The difficulties 
 which have been experienced since his death 
 induce me to think, that no one ever displayed 
 greater ability than he did in equalizing the 
 exchanges ; and I attribute much of the late 
 embarrassment, to the loss of that activity, zeal, 
 and enterprize, which he always displayed in 
 times of financial difficulty ; and although the 
 operations of his important house are still con- 
 tinued, it is impossible at once to replace that 
 moral influence, which the acknowledged good 
 judgment of the head of that opulent firm had 
 established for himself, not only in Great Britain, 
 but throughout the whole of the Commercial 
 World. 
 
 Believing, as I do, that the first impulse to 
 speculation came/rom London, and not from the 
 
 I
 
 17 
 
 country, I am inclined to assert, that if the Joint- 
 Stock Banks had not been in existence through- 
 out the country, and by the instrumentality of 
 the shareholders dispersed in all directions, who 
 were both individually and collectively interested 
 in the support of public and private credit, we 
 should have had as severe a bank and commer- 
 cial crisis in 1836 as we had in 1825, and in 
 both instances produced by excessive specula- 
 lations fostered by the improvident conduct of 
 the Bank of England. _j 
 
 The important advantage of a system of Bank-^ 
 ing, founded on the broad basis of an extended 
 proprietary, may be shown by adverting to the 
 fact that the Report of the Committee of the 
 House of Commons on Joint-Stock Banks, pub- 
 lished at the close of the last Session of Par- 
 liament, exhibited one of these Banks engaged 
 in a most pernicious and extended system of 
 over-trading in every department of banking, 
 yet that very bank existed and carried on 
 business several months after this exposure, and 
 when at last forced to seek assistance of the 
 Bank of England, it has stood alone in its mis- 
 fortune, and did not affect injuriously the credit 
 
 B
 
 18 
 
 of any other establishment of the same kind, 
 either in its own immediate neighbourhood, 
 or in any other part of the country. Could any 
 system of Private Country Banking have sustained 
 a similar shock ? I believe not ; — and no stronger 
 case need be produced, to shev^^ the confidence 
 of the population of the country districts, in the 
 solidity and security of the Joint-Stock system. 
 The existence of this confidence is of the utmost 
 importance in a National point of view, as sup- 
 porting commercial credit in times of difficulty, 
 and thereby containing the very essence of 
 national prosperity. 
 
 The system affords also great advantages as 
 a means of payment at home and abroad ; a joint- 
 stock bill of exchange is a negociable instru- 
 ment, carrying on its face without inquiry 
 the security that enables it to become immedi- 
 ately discountable, and it thus serves as an im- 
 portant agent in commercial transactions. Mer- 
 chants engaged in foreign commerce daily receive 
 from the Continent, Joint-Stock bills of exchange, 
 drawn by the various banking establishments 
 in Great Britain on their agents in London. 
 These bills are remitted to all parts, to pay
 
 19 
 
 for commodities purcliased in many cases by 
 the humbler class of merchants, who have 
 thus in their possession a mode of payment 
 of a most convenient nature, negociated entirely 
 on the credit of the Joint-Stock Bank that 
 originally issued it. 
 
 I venture to throw out the following sugges- 
 tions for the future regulations of Joint-Stock 
 Banks. 
 
 1. That no Joint-Stock Bank of issue have a 
 less nominal capital than £500,000. 
 
 2. That no share be of less value than £50, 
 and that at least 25 per cent be paid up before 
 the Bank issue any notes, and within two years 
 it be increased to 50 per cent. 
 
 3. That no Bank issue more than the amount 
 of its paid-up capital. 
 
 4. That no Joint-Stock Bank of issue be 
 allowed to lend money on mortgage. 
 
 5. That every Bank not of issue may commence 
 business with 10 per cent of their nominal ca- 
 pital, and must within two years increase the 
 same to 20 per cent. 
 
 6. That the proceeds of any premium received 
 on shares either sold or issued be carried to a 
 " premium fund," and never form any part of the 
 
 B 2
 
 20 
 
 dividend payable out of the current " profit and 
 loss" of the bank. 
 
 7. That no Joint-Stock Bank be permitted to 
 carry on business of any kind until the amount 
 of capital and the names of Directors be ad- 
 vertised in the London Gazette, and put up also 
 in a conspicuous part of the Bank. 
 
 8. That within three months of a Bank com- 
 mencing business the proprietors be registered, 
 and a copy of the register kept in a book open 
 to inspection on demand. 
 
 9. That a report of the issue of every Bank 
 be transmitted weekly to the Chancellor of the 
 Exchequer for periodical publication. 
 
 10. That a ready means be afforded to the 
 public for the recovery of debts against the 
 Bank and its partners. 
 
 Whether there can be suggested any system of 
 limitation of the issue of Country Banks, that shall 
 not be subject to occasional irregularities, and 
 perhaps bring on disadvantages even to the 
 Banks themselves, more than equal to any gain 
 that can be obtained by their exercising the privi- 
 lege of issue, may be questionable. On the other 
 hand, it must be admitted, that the Joint-Stock 
 system has not yet been fairly tried, and un-
 
 21 
 
 doubtedly the existing institutions in all parts of 
 the country ought to have a trial, under such limi- 
 tation as Parliament shall determine, in regard to 
 the amount of shares, the sum to be paid on them, 
 and the proportion that that sum should bear, to 
 the nominal amount of the capital of each Joint- 
 Stock Bank, before any hasty conclusions are 
 adopted. Whenever these important objects 
 shall be determined by Act of Parliament on a 
 definite and well-arranged basis, the action of the 
 Banks on the circulation will be improved, and 
 their usefulness promoted, by the confidence they 
 will have in themselves, and in the stability of 
 their own resources. 
 
 I am firmly convinced that no principle of 
 banking, can provide such protection to the public 
 as a well-regulated system of Joint-Stock Banks. 
 Security against loss, must ever be the primary 
 object both of banking, and of any other impor- 
 tant commercial undertaking; and whatever adds 
 to the undoubted solvency of such Banks, by wise 
 legislative enactments, must tend to strengthen the 
 system on which they are founded, and to make them 
 more useful to the wants of the community at large.^J 
 
 It may hereafter become a very proper sub- 
 ject of inquiry whether the Legislature cannot
 
 22 
 
 by some salutary enactments aid the Bank in 
 the most delicate and difficult task of providing 
 a healthy paper-circulation. If it can be proved, 
 that the very power of the Joint-Stock Banks 
 enables them, by issue of notes payable on de- 
 mand, to continue a system of accommodation, at 
 such times when the actual state of the country 
 would require a diminution of the currency, 
 it may become a matter for consideration 
 whether it shall not be prudent to prohibit 
 the issuing' of paper altogether except by the 
 Bank of England. There seems to be no Na- 
 tional or important object to be gained, in allow- 
 ing to Banking Companies the right of issuing 
 notes payable on demand, if it can be shown that 
 the public safety is thereby endangered. The 
 right of issue is at best but an abstract right, 
 of which even allowing this power to be well 
 exercised, its policy may well be doubted, and in 
 1825 most disastrous results were produced by 
 
 J the imprudent issues of the private Country Banks. 
 
 r Admitting, therefore, that some mismanagement 
 at the Bank of England did originate the present 
 difficulties, they became necessarily much aggra- 
 vated, by the errors of the head establishment 
 being multiplied throughout the country by the
 
 23 
 
 various issuing Joint- Stock and other Banks. j 
 Besides, it appears to me that the issue of notes ^ 
 is not of so much importance to the Joint-Stock 
 Banks, as to be of great consequence to them 
 whether they give up issuing or not: if at times i 
 this privilege be profitable to them, it subjects 
 them at others to difficulty and loss, by com- 
 pelling them to press, in times of adversity, for 
 the repayment of those loans, that may have 
 been too readily and too liberally afforded in 
 more prosperous seasons ; and above all, the 
 Banks will be relieved from the responsibility 
 of watching the foreign exchanges and regu- 
 lating their conduct according to the influx or 
 efflux of bullion, as well as providing for their 
 issues either in gold or Bank of England notes. 
 
 What is of more importance to them is that the 
 Bank of England should not interfere with them 
 as a banker in their own district, and thus enter 
 into a direct competition in carrying on their own 
 business, and dividing with them the profit derived 
 from the trade of their own neighbourhood. The 
 advantage of local Banks, must be in the know- 
 ledge the directors possess of the district, and 
 the persons carrying on trade therein ; and 
 the superior knowledge tliey must be in pos-
 
 24 
 
 session of, enables them to supply the wants 
 of trade in those parts of the country in which 
 they are established. The branches of the Bank 
 of England are, as regards the local banks, 
 merely interlopers, carrying on business which 
 in my opinion, could be more advantageously 
 conducted by the Joint-Stock Banks. It may be 
 worth while to consider, whether a voluntary agree- 
 ment mio-ht not be made between the Joint-Stock 
 Banks and the Bank of England, that the former 
 give up the right of issue, and the latter refrain 
 from transacting any business that interferes with 
 the business of the Joint-Stock Banks ; — that the 
 branches of the Bank of England should merely 
 exist in the provinces as banks of discount and 
 transmission, and to facilitate the circulation of 
 the Bank of England, giving up every other de- 
 scription of business whatever. An arrangement 
 of this kind might be easily made without any 
 Legislative enactment, and would produce amity 
 and concord between parties who ought to be on 
 the most friendly terms. 
 
 The writer of these observations, impressed 
 with the parallel that exists between the period 
 of 1825 and 1836, is inclined to attribute the 
 difficulties of both periods to the same causes,
 
 25 
 
 viz. tlie derangement of the currency caused by 
 the assistance given by the Bank to the Govern- 
 ment in order to enable them more easily to 
 carry into effect financial measures. At the for- 
 mer period they aided the Government to pay off 
 the Four per Cents, and at the latter they ad- 
 vanced money on the West-India Loan, and 
 on other Government securities. Although it 
 may be asserted that no great permanent addition 
 to the circulation took place since the Bank did 
 contrive to keep its securities even, yet the ordi- 
 nary channels of the circulation being changed, 
 a derangement of the currency must be pro- 
 duced ; and the consequences that have fol- 
 lowed the interference of the Bank on several 
 occasions, might be quoted to prove the correct- 
 ness of these remarks, were not the facts them- 
 selves sufficiently obvious. 
 
 It concerns the public as much that the 
 channels through which the circulation is sup- 
 plied, should not be suddenly and frequently 
 changed, as that its amount should not be fre- 
 quently and hastily augmented. Let us sup- 
 pose the Bank of England suddenly to change 
 the channels through which its notes circulate, 
 and instead of a definite part of its issue repre-
 
 26 
 
 senting; an advance in the ordinary course of public 
 business, as the fountain from which the circula- 
 tion of the country is supplied, the Bank should 
 change the nature of its investments by issuing a 
 similar amount upon Government stock: although 
 the securities may remain even, yet the change 
 of tliem must have an immediate effect on the 
 circulation of the country, by supplying in masses 
 to a more active class of persons, that money 
 which was formerly distributed throughout the 
 community, and performing the duties of a ne- 
 cessary and healthy circulation. 
 
 If the Bank of England, as the chief circu- 
 lator of paper, were to augment its issues to 
 any great extent in the country, through their 
 branches, and were to diminish, in the same 
 proportion, their circulation in London, although 
 the total amount of circulation would be the 
 same, and the amount of securities representing 
 that circulation, and held by the Bank, be also 
 the same, would not the effect be, at least for a 
 time, to make money plentiful in the country 
 and scarce in London ? 
 
 If we suppose the converse proposition, money 
 would become scarce in the country, and plenti- 
 ful in London.
 
 27 
 
 An operation, producing equally important re- 
 sults, may be carried on in London itself, without 
 any great variation either in the amount of no- 
 minal circulation, or in the amount of securities. 
 For let us suppose that an agreement be made 
 with the Government, in reference to some 
 pending loan-transaction, that the Bank shall 
 either lend or issue on some particular class of 
 securities, a part of its circtdation, which would 
 otherwise be employed in the ordinary course of 
 their transactions. Would not that also, " pro 
 tanto," have its effect upon the price of money, 
 by changing the channel through which the 
 circulation of the Bank flows for the supply of 
 public wants ? 
 
 It then appears evident that the public are 
 interested, as much in preventing the changes 
 which affect the channel as those which affect the 
 quantity. Whenever the Bank lends money to 
 the Government out of the usual course, it affects 
 the channel of the circulation. The assistance 
 afforded by the Bank in the West-India Loan, 
 must have affected the channels of the circula- 
 tion as well as the quantity. As regards the 
 quantity, perhaps the Bank may have been 
 enabled, after a time, to reduce the quantity so
 
 28 
 
 as to keep their securities and the circulation to 
 their ordinary level. But the bad effects result- 
 inof from a chanofe in the channel are not so 
 easily remedied. 
 
 It must be here observed, that the transactions 
 such as those to which I have alluded seldom 
 take place, except in times of great confidence 
 and security : at such periods, too, a smaller 
 quantity of circulation may suffice than at periods 
 of distrust and insecurity. On the latter occa- 
 sions, much of the active circulation of the 
 country is locked up ready to meet contingencies, 
 which may never arrive, but for which prudent 
 men must be prepared. On the other hand, in 
 quiet times, no reserve of capital whatever 
 takes place, but is kept available for all the de- 
 mands of regular business. Advances, there- 
 fore, made to Government on these occasions, 
 derange the circulation, by bringing suddenly 
 into action, a quantity of circulation more than 
 the ordinary wants of the community require, 
 and however dextrously the Bank may try to 
 counteract the effect of these advances, that pro- 
 duced on the money-market is of a very serious 
 nature. Let us carry the subject still further. 
 To whom are these advances usually made ? To
 
 29 
 
 the most active class of persons, to those who 
 either have already made engagements, or who 
 would enter into some for the purpose of employ- 
 ing the new money thus brought into circulation. 
 Great circumspection is therefore necessary to 
 counteract the bad eifect of even a temporary 
 addition to the circulation of the country, and 
 the amount of securities held by the Bank should 
 be reduced befare these payments are made, by 
 which any evil attending the new issue would be 
 either entirely avoided or very much mitigated. 
 
 These alternations in the circulation invariably ' 
 affect the exchanges, by reducing the rate of 
 money, which has a tendency to encourage specu- 
 lation, create an advance in prices, a consequent 
 import of commodities, and an export of the 
 precious metals. _j 
 
 In tracing the effect of the action of the Bank 
 of England on the currency, viz. that of aiding 
 the Government to carry some favourite financial 
 scheme into operation, the writer always supposes, 
 that the measure could not have been attempted, 
 unless the exchanges were favourable, and the 
 circulation full. The sum issued to the public is 
 therefore presumed to be in excess, and must 
 either return to the Bank of England, be employed
 
 30 
 
 in new enterprises, or be sent abroad. In gene- 
 ral, however, this money does not return to the 
 Bank, unless no other means for its effectual em- 
 ployment be presented ; but as the issue of this 
 money is always anticipated, there are persons 
 ready to offer inducements to those who have it, 
 or what is the same thing, schemes are pre- 
 pared in order to engage a part of this money 
 about to be circulated. As the engagements 
 made by the Bank to the Government, to pay a 
 sum of money to the public on their account, 
 are generally made, several months before the 
 payment actually takes place, it may happen, that 
 the issue arising from this payment, is made at a 
 season of commercial embarrassment and dis- 
 credit. This action of the Bank is then not inju- 
 riously felt, for such periods are not propitious 
 to speculation. The difficulties of the times make 
 men cautious, and the new issue is usually ab- 
 sorbed by the legitimate demands of the public. 
 The accommodation afforded by the Bank, pre- 
 viously to the payment of the dividends is of a 
 very useful nature, the loans being for a definite 
 period, the securities limited to Bills of Exchange, 
 Exchequer Bills, and East India Bonds, and the 
 advances thus made, when the circulation is
 
 31 
 
 usually at the lowesi, are returnable immediately 
 after the payment of the dividends, when the 
 circulation is at the highest. The certain know- I 
 ledge that a supply of money can be always 
 obtained at the Bank of England, has a direct 
 tendency to cheapen the price, because the or- 
 dinary reserve of Bankers and other dealers in 
 money, would of course be smaller, from the cer- 
 tainty that a supply can be got at any moment. 
 
 Almost all the speculations are so timed, as 
 to absorb a part of the new issues which are 
 brought into existence, whenever the Bank makes 
 a large payment to the public on account of the 
 Government, and an abundance of projects, 
 either of domestic or foreign growth, are pre- 
 pared, according to the prevailing taste, to in- 
 tercept the money after it has passed into the 
 new channels, and before it has time to find its 
 way back to the Bank of England. 
 
 It should be remembered that the speculations 
 of the year 1825 followed the reduction of the 
 four per cents to three and a half per cent, and • 
 the payment to the dissentients in the autumn of 
 1824. 
 
 Materials also were prepared for employ- 
 ing the money of the dissentients from the four
 
 32 
 
 per cents, reduced to three and a half per cent 
 in the spring of the year 1830, and paid off 
 in the month of October of that year. But the 
 change of Government in France, the revolu- 
 tion in Belgium, and the prospect of a conti- 
 nental war made all persons cautious, and one 
 foreign loan made in that year, to be in readiness 
 to employ some part of the money issued by the 
 Bank into new channels, was unsuccessful. The 
 change in political affairs depressed all funded 
 securities, and disappointed the expectation of 
 those who were prepared to intercept the new 
 circulation before it returned to the Bank of 
 England. These political occurrences were of 
 great service to British commerce : large orders 
 for merchandize were received, money was lodged 
 in this country for security, and investments 
 made in our funds. The uncertain state of 
 France and other European countries, pushed 
 trade into British channels, and accumulated an 
 abundance of treasure in the Bank of England, 
 until this state of full currency produced again 
 its reaction, and consequent export of the pre- 
 cious metals. 
 
 The violent speculation in Spanish and Por- 
 tuguese bonds during the latter part of 1834,
 
 33 
 
 and at the beginning of the year 1835, which 
 abstracted such large sums of bullion from the 
 Bank, was in great measure produced by the 
 payment in October 1834, of the dissentients to 
 the reduction of the four per cents., which had 
 been reduced to three-and-a-half per cent, in the 
 spring of that year. 
 
 The means for all the mischief of the last 
 year, were abundantly supplied by the advances 
 of the Bank of England to the public on account 
 of the West India Loan in 1835. These ad- 
 vances increased the circulation as well as 
 directed it into new channels, and laid the 
 foundation of much future difficulty and distress. 
 
 It is thus clearly proved, that although on 
 a three months' average, the Bank may get 
 both its circulation and its securities within 
 their ordinary limits, its account with the public 
 is not so easily made up : for large sums 
 of money issued in masses, cheapen the rate of 
 interest, alter the price of commodities, and give 
 the grand impulse to every kind of speculation. ^ 
 
 Let us hope that the time of strait and diffi- 
 culty is passing away, and that, as the shipping 
 season approaches, trade may revive, and an 
 
 c
 
 34 
 
 export of goods consequent on the fall in prices 
 may enable the Bank of England to replenish 
 its coffers, and the money-market to be re- 
 lieved from the pressure under which it has 
 been labouring. Then must be the time for the 
 Bank of England to revise its system and to free 
 itself from a mass of securities which are en- 
 tirely unavailing for the correction of the circu- 
 lation of the country. Experience during the 
 last year has proved that sales of Exchequer- 
 bills cannot be made without injuring the na- 
 tional credit by depressing them to a discount, 
 for these bills being held as a mere temforary 
 investment, and bearing also a lower rate of 
 interest than the current value of money, all 
 persons would be inclined to buy sparingly, 
 when the Bank of England appears in the 
 market as a seller of such securities. Other 
 means must therefore be provided to enable 
 the Bank to act decisively, by bringing into 
 the market securities of a more current descrip- 
 tion, and the readiest means of effecting this ap- 
 pears, for the Bank of England to exchange with 
 the Commissioners of the Savings' Banks, a por- 
 tion of their annuity for an equivalent amount of
 
 35 
 
 government stock. Tlic stock to be replaced by 
 the Bank whenever the Commissioners require it : 
 neithe?' the stock nor annuity to change oivnerSy 
 but to continue respectively the property of the 
 Commissioners and of the Bank of England. 
 By this means the Bank of England will have a 
 security always marketable and available for the 
 correction of the currency, much more efficient 
 for their purposes than Exchequer-bills. The 
 Commissioners of the Savings' Banks will still 
 have the stock under their control, and in safe 
 custody, demandable at pleasure, and for which 
 they are secured by the transfer to them of an 
 equivalent amount of annuity by the Bank of 
 England. 
 
 This arrangement would give the Bank much 
 more freedom of action, and a more decided 
 and active power over the circulation of the 
 country ; and if unexpected circumstances should 
 ever require the Bank Directors to apply a quick 
 remedy, they will be able to do so on a larger 
 scale than they could by any sale of Exchequer- 
 bills. 
 
 The further probable abstraction of gold, from 
 Europe to the United States of America, is a subject 
 that requires great circumspection on the part of 
 
 c 2
 
 36 
 
 the Bank of England, and it will become a matter 
 for consideration, whether some change in our 
 currency may not be required, to meet a change 
 of so much importance, in a country with 
 which we are so intimately connected. I have 
 great hesitation, in touching upon a subject of 
 so much delicacy and difficulty, as an alteration 
 in our currency, by the introduction of silver con- 
 jointly with gold, as a measure of value at some 
 fixed proportion, that may assimilate it more nearly 
 to the coinage of France and other countries. But 
 in commenting on the various circumstances, that 
 have led to the derangement of the circulation, 
 it is impossible not to have introduced, at least a 
 passing observation, on the change of the cur- 
 rency of the United States, by the alteration of 
 the proportion between silver and gold in that 
 _ _ country. 
 
 But the transactions between the Government 
 and the Bank, appear more than any thing else, 
 at all times, to have had the greatest influence, in 
 effecting changes in the circulation of the coun- 
 try, and periodical " embarrassments" have in- 
 variably followed every Government operation, 
 where the aid of the Bank has been required. 
 These operations have in general added suddenly
 
 37 
 
 to the circulation of the country, and lowered 
 the value of money, have given an impulse to 
 speculations, and have caused an export of the 
 precious metals ; this again produces a re- 
 action, by which many individuals become great 
 sufferers. The assistance to the Government is 
 the true cause of all the subsequent mischief, 
 and although the Joint-Stock and Country Banks 
 have aggravated it on the present occasion, the 
 original sin must be divided between the Govern- 
 ment and the Bank of England. --i 
 
 In the remarks I have ventured to make on 
 the conduct of some of the Joint-Stock Banks, 
 I hope that I shall not be thought to have pressed 
 too severely upon them. I have not allowed my 
 position as Director of a Joint-Stock Bank to 
 blind me to the defects of a system which, good 
 in itself, nevertheless requires some regulation 
 to enable it to maintain the high character 
 claimed for it by its advocates. — It may be that, 
 jealous of the reputation of my favourite Institu- 
 tions, I have been too lavish of my censure, 
 and somewhat uncharitable in my observations, 
 but no one should forget the duty imposed on 
 him as a member of society, and all private
 
 38 
 
 feelings sliould merge into the consideration of 
 what is duo to the general good. 
 
 The principles upon which Joint-Stock Banks 
 are founded are so excellent, that he who points 
 out the defects in the existing establishments, 
 and the means of avoiding past errors, should 
 be regarded as a friend, and whatever may be 
 the sentiments of those to whom these remarks 
 do apply, I have the satisfaction of knowing that 
 my observations are not intended to injure the 
 system, but to fortify and protect it against fu- 
 ture attacks from whatever quarter they may 
 proceed. A good system of legislative enact- 
 ments for the regulation of the Joint-Stock 
 Banks, will strengthen and establish them in 
 public opinion, and they have friends enough in 
 the House of Commons, to protect their interests, 
 and to guard them from the imposition of any 
 improper or impolitic limitations. 
 
 In conclusion, I venture to hope that no single 
 remark of mine, will be considered as levelled 
 / against any existing establishment. Having seen 
 in print, the opinions of others upon this very 
 important subject, which seemed to me to fall 
 short of the question, I have, with all humility,
 
 39 
 
 ventured to lay the preceding observations before 
 the public. 
 
 I have been principally anxious, to remove from ' 
 the Joint-Stock Banks, the obloquy it has been at- 
 tempted to fix on them, in placing at their door the 
 origin of the present difficulties. Many of them 
 have been imprudent, and the rude check they 
 have received v^ill, I trust, have a good effect on 
 their future conduct. The projected Parliamentary 
 regulations, will also tend to establish them in a 
 more firm and independent position. It is hoped 
 also, that a more friendly feeling will grow up 
 between them and the Bank of England, for it must 
 be confessed, that hitherto there has not existed 
 that cordiality, which should prevail between 
 parties in whose friendly cooperation the public 
 are so deeply interested. If the suggestion I have 
 made could be carried into effect — that the Joint- 
 Stock Banks should give up issuing, and the 
 Bank of England branches confine their business 
 to discount and transmission, the chief cause of 
 difficulty and collision would be avoided, and \. 
 thus one step taken, to promote between two 
 most useful and important bodies, a harmony 
 which seems essential to the prosperity of the 
 country. J 
 
 London, Feb. 22d, 1837,-
 
 APPENDIX.
 
 42 
 
 Average Quarterly Account of the Liabilities 
 
 
 LIABILITIES. 
 
 
 
 Circulation. 
 
 Deposits. 
 
 Total. 
 
 1834. 
 
 £ 
 
 £ 
 
 £ 
 
 Jan. 1 
 
 18,216,000 
 
 13,101,000 
 
 31,317,000 
 
 Fely. 4 
 
 18,377,000 
 
 14,086,000 
 
 32,463,000 
 
 March 4 • • • • 
 
 18,700,000 
 
 14,418,000 
 
 33,118,000 
 
 April 1 
 
 19,097,000 
 
 14,011,000 
 
 33,108,000 
 
 May 6 
 
 18,978,000 
 
 14,081,000 
 
 33,059,000 
 
 June 3 
 
 18,922,000 
 
 14,539,000 
 
 33,461,000 
 
 July 1 
 
 18,895,000 
 
 15,096,000 
 
 33,991,000 
 
 July 29 .... 
 
 19,110,000 
 
 15,675,000 
 
 34,785,000 
 
 Aug. 26 
 
 19,147,000 
 
 15,384,000 
 
 34,531,000 
 
 Sept. 23 . . . • 
 
 19,126,000 
 
 14,754,000 
 
 33,880,000 
 
 Oct. 21 
 
 18,914,000 
 
 13,514,000 
 
 32,428,000 
 
 Nov. 18 .... 
 
 18,694,000 
 
 12,669,000 
 
 31,363,000 
 
 Dec. 18 .... 
 
 18,304,000 
 
 12,256,000 
 
 30,560,000 
 
 1835. 
 
 
 
 
 Jan. 15 . . . • 
 
 18,012,000 
 
 12,585,000 
 
 30,597,000 
 
 Feb." 10 .... 
 
 18,099,000 
 
 12,535,000 
 
 30,634,000 
 
 March 10 
 
 18,311,000 
 
 12,281,000 
 
 30,592,000 
 
 April 7 
 
 18,591,000 
 
 11,289,000 
 
 29,880,000 
 
 May 5 
 
 18,542,000 
 
 10,726,000 
 
 29,268,000 
 
 June 2 ••.... 
 
 18,460,000 
 
 10,568,000 
 
 29,028,000 
 
 June 30 
 
 18,315,000 
 
 10,954,000 
 
 29,269,000 
 
 July 28 
 
 18,322,000 
 
 11,561,000 
 
 29,883,000 
 
 Aug. 25 
 
 18,340,000 
 
 12,308,000 
 
 30,648,000 
 
 Sept. 22 
 
 18,240,000 
 
 13,230,000 
 
 31,470,000 
 
 Oct. 20 
 
 17,930,000 
 
 14,227,000 
 
 32,157,000 
 
 Nov. 17 
 
 17,549,000 
 
 16,180,000 
 
 33,729,000 
 
 Dec. 15 
 
 17,821,000 
 
 17,729.000 
 
 35,050,000 
 
 1836. 
 
 
 
 
 Jan. 12. 
 
 17,262,000 
 
 19,169,000 
 
 36,431,000 
 
 Feb.9 
 
 17,427,000 
 
 18,366,000 
 
 35,793,000 
 
 March 8 
 
 17,739,000 
 
 16,966,000 
 
 33,705,000 
 
 April 5 
 
 18,063,000 
 
 14,751,000 
 
 32,814,000 
 
 May 3 
 
 18,154,000 
 
 13,747,000 
 
 31,901,000 
 
 May 31 ■.•■ 
 
 18,051,000 
 
 13,273,000 
 
 31,324,000
 
 43 
 
 and Assets of the Bank of England. 
 
 ASSETS. 
 
 Securities. 
 
 Bullion. 
 
 Total. 
 
 £ 
 
 f 
 
 £ 
 
 23,596,000 
 
 9,948,000 
 
 33,524,000 
 
 24,762,000 
 
 9,954,000 
 
 34,716,000 
 
 25,547,000 
 
 9,829,000 
 
 35,376,000 
 
 25,970,000 
 
 9,431,000 
 
 35,401,000 
 
 26,691,000 
 
 8,884,000 
 
 35,575.000 
 
 27,312,000 
 
 8,645,000 
 
 35,957,000 
 
 27,593,000 
 
 8,695,000 
 
 36,252,000 
 
 28,502,000 
 
 8,598,000 
 
 37,100,000 
 
 28,679,000 
 
 8,272,000 
 
 36,951,000 
 
 28,691,000 
 
 7,695,000 
 
 36,386,000 
 
 27,840,000 
 
 7,123,000 
 
 34,963,000 
 
 27,138,000 
 
 6,781,000 
 
 33,919,000 
 
 26,362,000 
 
 6,720,000 
 
 33,082,000 
 
 26,390,000 
 
 6,741,000 
 
 33,131,000 
 
 26,482,000 
 
 6,693,000 
 
 33,175,000 
 
 26,657,000 
 
 6,536,000 
 
 33,193,000 
 
 26,228,000 
 
 6,329,000 
 
 32,557,000 
 
 25,764.000 
 
 6,197,000 
 
 31,961.000 
 
 25,562,000 
 
 6.150,000 
 
 31,712,000 
 
 25,678,000 
 
 6,219,000 
 
 31,897,000 
 
 26,244,000 
 
 6,283,000 
 
 32,527,000 
 
 26,964,000 
 
 6,326,000 
 
 33,290,000 
 
 27,888,000 
 
 6,261,000 
 
 34,149,000 
 
 28,661,000 
 
 6,186,000 
 
 34,847,000 
 
 30,069,000 
 
 6,305,000 
 
 36,374,000 
 
 31,048,000 
 
 6,626,000 
 
 37,674,000 
 
 31,954,000 
 
 7,076,000 
 
 39,030,000 
 
 31,022,000 
 
 7,471,000 
 
 38,493,000 
 
 29,806,000 
 
 7,701,000 
 
 37,507,000 
 
 27,927,000 
 
 7,801,000 
 
 35,728,000 
 
 27,042,000 
 
 7,782,000 
 
 34,824,000 
 
 26,534,000 
 
 7,663,000 
 
 34,197,000
 
 44 
 
 Average Quarterly Account of the Liabilities 
 
 LIABILITIES. 
 
 
 Circulation. 
 
 Deposits. 
 
 Total. 
 
 1836. 
 
 £ 
 
 £ 
 
 £ 
 
 Julyl 
 
 17,899,000 
 
 13.810,000 
 
 31,709,000 
 
 July28 
 
 17,940,000 
 
 14,495,000 
 
 32,435,000 
 
 Aug. 25 
 
 18,061,000 
 
 14,796,000 
 
 32,857,000 
 
 Sept. 22 
 
 18,147,000 
 
 14,118,000 
 
 32,265,000 
 
 Oct. 21 
 
 17,936,000 
 
 13,324,000 
 
 31,260,000 
 
 Nov. 17 .... 
 
 17,543,000 
 
 12,682,000 
 
 30,225,000 
 
 Dec. 15. .... 
 
 17,361,000 
 
 13,330,000 
 
 30,691,000 
 
 1837 
 
 
 
 
 Jan. 14 
 
 17,422,000 
 
 14,354,000 
 
 31,776,000 
 
 Feb. 12 .... 
 
 17,868,000 
 
 14,230,000 
 
 32,098,000
 
 45 
 
 and Assets of the Bank of England. 
 
 ASSETS. 
 
 Securities. 
 
 Bullion. 
 
 Total. 
 
 £ 
 
 £ 
 
 £ 
 
 27,153,000 
 
 7,362,000 
 
 34,515,000 
 
 28,315,000 
 
 6,926,000 
 
 35,241,000 
 
 29,345,000 
 
 6,325,000 
 
 35,670,000 
 
 29,406,000 
 
 5.719,000 
 
 35,125,000 
 
 28,845,000 
 
 5,257,000 
 
 34,102,000 
 
 28,134,000 
 
 4,933,000 
 
 33,067,000 
 
 28,971,000 
 
 4,545,000 
 
 33,516,000 
 
 30,565,000 
 
 4,287,000 
 
 34,652,000 
 
 31,085,000 
 
 4,032,000 
 
 35,117,000
 
 46 
 
 An Account of the Aggregate Average of Notes cir- 
 culated in England and Wales hy Private Banks 
 and hy Joint-Stock Banks and their Branches ; dis- 
 tinguishing Private from Joint- Stock Banks. (From 
 Returns directed hy 3^ and ^th Will. IV. c. 83. J 
 
 
 Private 
 
 Joint-Stock 
 
 
 Quarters ending 
 
 Banks. 
 
 Banks. 
 
 Total. 
 
 
 £ 
 
 £ 
 
 £ 
 
 December 28, 1833.- 
 
 8,836,803 
 
 1,315,301 
 
 10,152,104 
 
 March 29, 1834 .... 
 
 8,733,400 
 
 1,458,427 
 
 10.191,827 
 
 June 28, 1834 
 
 8,875,795 
 
 1,642,887 
 
 10,518,682 
 
 September 27, 1834 . 
 
 8,370,423 
 
 1,783,689 
 
 10,154,112 
 
 December 28, 1834-. 
 
 8,537,655 
 
 2,122,173 
 
 10,659,828 
 
 March 28, 1835 
 
 8,231,206 
 
 2,188,954 
 
 10,420,160 
 
 June 27, 1835 
 
 8,455,114 
 
 2,484,687 
 
 10,939,801 
 
 September 26, 1835 . 
 
 7,912,587 
 
 2,508,036 
 
 10,420,623 
 
 December 26, 1835-. 
 
 8,334,863 
 
 2,799,551 
 
 11,134,414 
 
 March 26, 1836 .... 
 
 8,353,894 
 
 3,094,025 
 
 11,447,919 
 
 June 25, 1836 
 
 8,614,132 
 
 3,588,064 
 
 12,202,196 
 
 September 24, 1836 . 
 
 7,764,824 
 
 3,969,121 
 
 11,733,945 
 
 December 31, 1836.. 
 
 7,753,500 
 
 4,258,197 
 
 12,011,697 
 
 THE END. 
 
 MARCHANT, PRINTER, INGRAM-COXJRT, FENCHURCH-STREET.
 
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