TOPICS OF TIIE DAY.
THE MONEY-MARKET AND THE " DEPOSITS."
Tax English are a commercial people, and a commercial people only. Banking and currency are, and have been for the last twenty years, their constant themes ; facts and figures their only
food. By this time1 therefore, they ought to have arrived at
pretty sound conclusions. But here we are with a payment of ten, twenty, or thirty millions, more or less, to provide for in the course of four or five weeks, and one half the nation are loudly asserting that it is the simplest operation in the world, while the other half believe it is to be the cause of a universal crash ! There must be grievous delusion somewhere. In what way is it to be detected ?
To undertake a review of the entire arguments on both sides, is out of the question. They are at all events overwhelming in mass, if not in logic. So the only plan is to look at the matter in an elementary way—just as if nothing had ever been written about it—and to see if independently, we can come to a con- clusion.
We start then with the fact, that within fourteen days after the meeting of Parliament a deposit of five or ten per cent, ac-
cording to their period of registration, is to be paid by all those Railway Companies who may intend to apply for bills, into the hands of the Accountant-General of the Court of Chancery. The total amount thus to be paid has been estimated at forty-five or fifty millions, supposing all the companies should apply who have professed their intention of so doing. But, although a great majority have kept up the appearance of carrying out this in- tention by depositing the required plans and specifications with the Board of Trade, no one supposes that any large proportion will ultimately go forward. Let us assume that, by the with- drawal of a majority of these companies, including all those most recently formed, the amount really contemplated to be paid to the Accountant-General is reduced to fifteen millions, or even to ten ; and then, proceeding upon this moderate assumption, let us inquire how the process is to be completed. The companies from whom this payment may be expected will, of course, consist of the better class,—those, for instance, which came into the field before the mania reached its climax. It is reasonable to suppose that the required deposit has already, for the most part, been paid up by the shareholders, and lodged by the companies with their bankers, or invested in Consols or Ex- chequer Bills. Let us say that eight out of the ten millions have in this way been paid up by the shareholders, (which, looking at the indisposition manifested by most of the companies to publish the state of their affairs, seems an unduly favourable estimate,) and that consequently they have only to raise two millions upon the reserved shares which they still hold, and to draw upon their bankers, or sell Stock or Exchequer Bills for the remainder. Now this " drawing " upon their bankers is a very simple process ; but what are the results it will produce? When the bankers received the deposits on account of the respective companies, it was not with the view of locking up the money in their iron safes and taking the profitless responsibility of its custody, but of employ-
ing it until it was likely to be called for. Of course, therefore, a large proportion of the amount thus placed in their hands found
its way into the discount-market, and contributed to that abundant supply which not many months back brought the rate of accom- modation down to It per cent. This was the natural course for them to take, and also the proper one, supposing them to have discounted only first-rate paper. Aware, however, that the sums thus intrusted to them would be called for immediately on the meeting of Parliament, they have, we may feel sure, taken care to make advances only on commercial bills falling due before that period ; and as the discharge of these bills now takes place each day, instead of letting out the money again in
discounts, they will hold it in reserve to meet the approach- ing demands of the companies by whom it was placed in their.
hands. Thus, a large amount, which for months has been appli- cable to commercial purposes, is now withdrawn from the money- market day by day, and to an extent which will gradually increase as the time approaches when it must pass to the credit of the Accountant-General. Under these circumstances, the value of money rises : the merchant and trader must have the
accommodation they require ; and this they can only get by bidding such a rate for it as shall induce those who may have balances, which owing to the low rate of interest have hitherto been permitted to lie idle at their bankers, to bring their funds into the discount-market. In this way the deposits held by the various bankers are reduced gradually as the pressure increases ; and consequently, the reserves of bank-notes which those bankers deemed it prudent to hold (generally about one-third of the amount) to meet any sudden call for such balances, are brought into active use. To the extent, therefore, or nearly so, by which the circulation is at present reduced by the locking up of bank- notes on the part of the bankers to meet the coming demand from their railway depositors, it is increased by the amount of the reserves held by them while their ordinary deposits were large, being thrown into the market. When, however, the pressure has reached that point at which these reserves have found thew way into circulation as far as they are likely to do so, there are then no means whatever of raising money except by sales af pads to foreigners, and thus bringing in gold. People talk about the aggregate property of the country amounting to six thousand millions; but all this property is of no use to those who want money. If ten millions of the circulating medium are re- quired to be paid to the Accountant-General in Chancery at a certain period, this ten millions must be withdrawn from its present uses • and if there are not more than three, four, or five millions of the same circulating medium at present lying idle in the strong rooms of the banks, and which could be made available towards filling up the gap caused by the absorption of the ten millions, by what means are the commercial world to get the remainder? They have their engagements coming due, and these engagements must be met not m property but in money. It will be said, they must sell their property, and so raise the money. But a sale of property under such circumstances will not" raise" money. The man who buys the property, having, it must be remembered, now no balance lying idle at his banker's, must sell something himself to enable him to make the purchase ; and the man who buys what he sells must also in his turn become a seller ; and so on in one endless round, till we find that no money has been " raised " after all. If, therefore, the present circulation of the country is required to enable our present current payments to be carried on, and we ab- stract ten millions from that circulation, and the effect of this abstraction is to draw but five millions from other quarters to supply its place, payments to the extent of the balance must re- main unsatisfied; or, if we are to rely on the "property of the country" to enable us to make them, they must be made by barter, or by sales to foreigners, such sales bringing in gold,— or, in other words, that which we talk so freely about "raising," namely, money!
Now the question is, what in reality will be the amount of circulation withdrawn ; and what is the amount of reserves of bank-notes held by the banks and available to supply its place ? The extent of the coming pressure or panic—for panic there will be—must of course depend entirely upon this. Under any cir- cumstances, however, it is quite certain that a great rise in the value of money must take place where much is to be withdrawn ; and that this rise must cripple those who have entered into under- takings requiring large capital, and who have made their cal- culations of getting this capital at somewhere about 2 per cent. Even supposing that no more money will be paid into the Chancery Court than could be supplied to the market by banking deposits now dormant, it must be borne in mind that the very reason why these deposits are dormant is the fact that the present rate of interest is not high enough to tempt their owners to em- ploy them, and that they would not come forth to their fullest ex- tent until the rate reached a point to present temptation too strong to be resisted.
There can be no doubt, also, that it will only be the excessive pressure for money that will reduce the amount actually paid to the Accountant-General within anything. like the limits we have assumed. Attempts will be made by each company that possesses any character whatever, to raise the required sum to enable it to go forward ; and it will only be from the total failure of all their efforts that their retirement will take place. The effect of these desperate efforts—the pressure on the shareholders—the applica- tions from other quarters for temporary assistance, at a time when "temporary assistance" is sought by all—must inevitably produce a state of turmoil and disorder, to which the sudden occurrence of one or two startling failures would give an impetus productive of all the consequences of headlong terror. But it is said that although the payments in question have to be made to the Accountant-General, they will not cause a with- drawal of their amount from circulation, since, although the bankers by whom the deposits are now held will have to part with them and will thus be prevented to that extent from affording accommodation to the commercial world, they will go to increase the deposits in the Bank of England, (to which establishment they will be paid in, to the credit of the Accountant in Chancery,) and that the Bank of England will thus be enabled to increase its dis- counts just to the extent to which other banks have been obliged to make a reduction. But this would argue a degree of improvi- dence on the part of the Bank not very likely to be exhibited. It will be out of the question for that establishment to form any opinion when these deposits may be called for. According to the Standing Orders' the companies on whose behalf they may have been made will have the right to require their investment in Stock or Exchequer Bills ; and it is to be remembered, moreover, that the deposit of each company will be set free so soon as they get through Parliament. With the uncertainty on the one hand as to when these amounts may be called for, and the certainty on the other that sooner or later they must be called for, and be withdrawn from the discount-market to pay labourers and to meet the turning exchanges consequent on increased national expenditure, (which, for some years at all events, must be an unproductive expenditure, and must withdraw us from other manufactures and such as would be exportable,) it would be suicidal for the Bank to lose their hold upon them to any extent. It is asserted, and on careful authority, that the calls made from the 1st October to the 30th November upon the shares of lines now in progress amount to 3,000,000/., and that of this not one-hay has yet been paid; while from the 1st December to the 1st January at least 1,300,000/. More will fall due ; making then due 2,800,000/. And when to these calls are added subsequent ones what will then be the state of the money-market/ sod what would be thought of the Bank of England, if, while at this moment it is asserted tha drawal of ten millions might produce a financial crisis theywire advance that ten millions upon discount, with the kiio they would have to call it in eventually, at a time when in affltio" to the natural pressure of such a call further sums would have been absorbed for works now going on, and the nation would also stand committed for an additional expenditure of one hundred millions in three years, or at the rate of about three millions per month ? It is of no use to say that this outlay can take place without evil "because the money is not withdrawn from the country " : a large proportion of it is temporarily withdrawn from the money- market, since it becomes distributed in the pockets of thousands of labourers, where no " fructification " takes place. No doubt, it eventually filters back again ; but this is a slow process, and meanwhile the industry of the country being diverted to a con- siderable extent from the manufacture of articles for home and foreign consumption to the manufacture of articles which will not come into use for several years, our foreign sales necessarily be- come reduced and our foreign purchases extended. Then comes a drain of gold, a suspension of railway works, and finally, as the remedy, a return to manufactures of those kind of articles which are different from railways inasmuch as they admit of exportation and enable us to turn the exchanges. Besides all these considerations it must be remembered, that, to add to the pressure to be looked for some few months hence, we must take into account the drain for several millions for which we stand committed for railways on the Continent and in India. However deplorable, therefore, may be the evils close at hand, it is be hoped no palliative will be attempted, or even listened to. Just to the extent of the coming pressure will be the check given to the further progress of these insane schemes. Every million which the promoters of these companies are enabled to raise at the present moment will commit their shareholders to the ultimate expenditure of ten times that amount. It were surely better, that, at whatever cost, the evil should be nipped immediately, than be suffered to grow to proportions so gigantic. We shall hear, of course, all sorts of complaints and denunciations against the Government from those who are doomed to suffer : but these things were predicted six months back, and the warning was un- heeded. The sufferers must recollect that they owe their present position entirely to their own unscrupulous cupidity ; that no great immoralities can be wiped out without a certain amount of dis- tress; that in the present case no new law has been made to harass them or to interfere with their plans ; and that if they sink into ruin in consequence of conditions now to be completed, it will not be because those conditions were at all obscure at the time when they undertook the fulfilment of them.