TOPICS OF THE DAY.
RESULTS OF THE BANKING DEBATE.
GRIEVOUS would be the disappointment if one were to seek the conclusions of last week's debate on Banking and Distress in the express declaration of opinions. There was in notable instances, even individually, no opinion ; and collectively there was such a conflict of opinion, that each was neutralized by the rest, as all colours combined make up one blank. But out of the effervescent heap of opposite notions some results of tolerable distinctness may be collected.
Endless, for example, is the diversity on the subject of "cur- rency" : relaxation and restriction, extension and contraction, Bank Charter Act and repeal of it, paper and gold, convertibility, inconvertibility, modified convertibility, unlimited issues con- vertible, limited issues convertible, unlimited inconvertible, limit- ed inconvertible, part convertible part inconvertible, fewer banks,
more banks, Scotch system, Irish system Enough ; the brain whirls with the confusion of counsel. All this would be very unsatisfactory, but that in the seeming chaos there is a principle of gravitation, and common sense evidently tends towards one com- mon instinctive negative conclusion—that the question of "cur- rency " has had very little to do with the matter ; that currency is best when simplest and most tangible ; and that practically the principle of the law regulating our currency is tolerably correct, requiring less to be altered than to be more strictly applied. Through an utter confusion of the terms "money," "capital," "currency,' " circulation," and the like, there is evidently a feel- ing that money is not always capital, and that currency is still less so. The very persons who clamoured for more notes, felt, and confessed, that notes were not the thing which they lacked, when they told Sir Charles Wood, " If we know that we can get bank-notes, we shall not want them." This paradox is not the nonsense which it would seem. It evinces the instinctive sense of the real case. With active industry, with goods abundant courting exchange—that is, with the productive power and the material products for trade—it is obvious that commercial men would fall upon some convenient mode of facilitating barter by a represen- tative medium of exchange ; but it is evident that the medium of exchange, as such, is not a constituent part of the wealth. Adding to the medium adds nothing to the material wealth. It is not a material, but a mere mode : the substance selected as the tangible form for that medium is only a tool, an instrument. With its extension or contraction the substantial wealth will not be augmented or diminished, except indirectly : it may be in- creased by the facility of interchange; a source of increase which has always followed as a necessary consequence of commercial energy, and is by no means susceptible of arbitrary or unlimited extension at the hands of central authority. Real wealth will be no more augmented by an extension of currency than the aggregate bulk of goods in the market would be increased by the extension of any other instrument used in commerce—an extension of hogsheads, of canvass for bales, or of steel pens. Nor will the interchange depend on any particular medium: if there be the goods to be exchanged, and people want them, they will be ex- changed by some means, bad or good. It is, no doubt, most im- portant to have a sufficient medium of exchange—sufficient both in amount and in the qualities necessary for such a medium— portability, verification, and unvarying uniformity of standard— so that the endless variety of values may be referred to one com- mon measure. Of all currencies yet devised, from cowrie shells and assignats to bullocks or diamonds, none has so completely sa- tisfied the requirements of a commercial medium as gold coin. It is not so portable as some others; and in that respect, representa- tive paper, strictly convertible into gold coin, may be considered as an auxiliary that imparts to our currency absolute perfection— the convenience of the cheapest and most portable currency in the world, with the sterling qualities of a defined, verified, and uni- form standard.. It is the duty of the Executive Government to see that the general convenience of all be consulted—that arrange- ments dependant on common observance be simplified, facilitated, and maintained ; but it is no part of Executive duty to increase individual wealth. It is the duty of the Executive to provide the best form of currency, because that can be best performed by the central authority ; but it is no part of the duty of the Executive to provide capital, "accumulated labour," which is the product .ef individual industry and enterprise. It is not the duty of the State, therefore, any more than it is its faculty, to provide capital for merchants in time of crisis, by relaxation', extension, the loan of credit, or any other means; but only to maintain the currency * For distinctness, it may be noted that the substance gold used in the forma- tion of coin is "capital," as any other goods are capital; and that in regard to its gross tangible substance as an article of manufacture, " money " is capital; yet that in its operation as a medium of exchange, money is not capital, but it may indif- ferently represent any purchaseable commodity—labour, capital, time, or any other term of value. In the economical sense, gold is capital only while it is the ma- terial in some process of production; as a medium of transfer, it is only the re- presentative of capital, carrying with it a substantial guarantee in its own intrinsic value. An addition to the gold in a country, therefore, in respect of its currency, is only of importance in so far as it supplies the solid basis which imparts the guarantee to the currency; but in the sense of currency, no extension of gold can add to the wealth or capital of a nation: it will only affect nominal " price"— that is, the nominal ratio of value between the coin and all other articles what- soever; not real "price," that is, the mean ratio of exchangeable value between each article and all other articles; which is determined by the higgling of the market, and only nominated by the currency.
inviolate against attempts to tamper with it, by bankrupt traders as well as common forgers and " smashers." It is the instinctive sense of these facts which makes both Houses of Parliament en- ter into an " inquiry " as wide as the chaos of notions is confused, with the evident foregone conclusion that the main subject of in- quiry, the law securing a strictly convertible standard, must be maintained with closer rather than less strictness.
Another main branch of the great investigation so laxly con- ducted by the honourable and right honourable assemblies, is the effect of the railway expenditure. The general tendency is to make a dead set at railways. Sir Charles Wood charges them with abstracting a vast amount of capital from the " floating" state to make it " fixed " ; an accusation so abstract in form that it scarcely satisfies the popular mind. One set of economists go to such an extreme that they almost reckon railways among the cardinal vices—crimes which are male in se, and the investment of capital as sheer waste. This indiscriminate vituperation begets a reaction ; and others, with Sir Robert Peel, ma •e light of the railway drain. Sir Robert observes that there always has been exaggerated speculation; some kinds might have been worse than railways—as speculation in wasteful foreign enterprises ; railways will ultimately be reproductive—there they remain for the money, and they will be instruments in augmenting our wealth ; so that although the draught of that capital happened, by the coincidence of other demands, to be inopportune, it is in itself meritorious rather than otherwise. Such we take to be the pith of some vo- lumes spoken and written on the point. Perhaps it is an answer to the vulgar class of censure on railway speculators; but it does not touch the real difficulty,—which lies, we think, in a point that economists have not kept steadfastly enough in view. The pri- mary end of all industry is to supply the workers and their de- pendants with the necessaries of life. The division of employ- ments greatly increases the productive power of human industry. But although employments may be divided, a certain portion of them ought to be devoted, immediately or mediately, to thepro- duction of necessaries—food, raiment, and lodging, above all food, However removed the individual worker may be from the plough, the first object of his labour is to secure to him his portion of food ; and however multiplied the processes of exchange between him and the tiller of the earth, all those exchanges constitute the channel by which his labour is vicariously applied to the soil, and the product, food, is conveyed back to him. Multiplied, there- fore, as employments may be, a certain proportion of them ought to be devoted, within a given time, either to the production of food, or to the production of articles readily exchangeable for food sufficient to make up the supply selithin that given time. Now, in the minute division of employments and the multiplica- tion of intermediate exchanges, that channel has a chance of being greatly confused—possibly broken off. In the crowd of employments, it is not possible to keep in view which are they that retain that faculty. The more they are multiplied the greater will be the chance that an undue portion of industry will be di- verted from employments that produce food or food-purchasing goods. Active industry in any paid labour begets an appearance of prosperity which may mislead if that enterprise be not avail- ably productive. It increases the diversion of industry, betrays the workers who are so " prospering" into habits wasteful of those necessaries which they do not replace, and fosters the growth of a population not employed availably for the immediate pur- poses of subsistence. This is one reason why we see such shoals of people of the gentry class competing for employments impos- sible of attainment. But the more gigantic the operation, the more disastrous will the error become before it be found out. This is no fanciful theory, but is merely an historical statement of the facts experienced in the railway fervour. Whether that ac- tivity was excessive or not in regard to the ordinary aggregate amount of speculative investment, or the true ultimate demand for railway accommodation, is not the question that determines its mischievous effects in the view that we are now unfolding. It is said, and perhaps with truth, that railways abstracted no labour from our own soil. England had a sufficient harvest. But other parts of the United Kingdom had not. It became necessary to send for food from abroad ; and there was a lack of food-pur- chasing goods. No doubt, the price of cotton was unusually, not to say artificially, raised ; no doubt, the demand for corn was sud- den ; but it is the fact, that, concurrently with those checks on the production of exportable goods, our manufactures were also stinted by the diversion of capital to railway enterprise. In- dustry had been diverted from the production of food-purchasing goods to the production of works not available for that purpose. Railways may at some future time increase our facilities of pro- duction; but "while the grass is growing," &c. We had ne- glected the rule of keeping a sufficient portion of our industry employed on the production of food or food-purchasing goods. The Legislature cannot plead exemption from blame in this matter, since its encouragement of railway speculation—its crea- tion of? the speculating bodies with peculiar and gigantic powers —was a direct and active diversion of industry into this ques- tionable channel.
A third section is the drain of bullion for corn. From what has gone before, we see how the diversion of capital to purchase corn was swelled to the enormous amount of 33,000,000/. ; while orders for food-purchasing goods could not be executed "for want of capital," so that it was necessary to make up the amount needed with bullion. Wanting goods, we were obliged to lay violent hands on our currency—to pledge our great tool of trade. The railway expenditure, therefore, was not only concurrent with the corn drain, but helped to swell it. And, sending away our in- strument of trade, we crippled our means of producing goods to pay the debt incurred ; so that every sovereign thus sent out of the country constituted a double loss. The deficiency, said some, might have been supplied with paper : but the apparent ease which that would have imparted would have removed thereat check on the export of gold, and would thus have helped the operation of adverse exchanges; and a drain of gold to any greater extent would have endangered the practical convertibility of our coin : the issue of paper to supply the place of the exported gold, therefore, would only have substituted for present " tightness " the risk of speedy public insolvency ; and that insolvency, by destroying the convertibility of all paper, and so depreciating its exchangeable value, would have brought on that real contraction of currency which exists when its worthlessness is disguised in the abundance of its material. We saw instances of that in France, and in the United States after the war of Independence, when depreciation had almost destroyed the worth of the currency, so that there was actually an absence of currency bidden under heaps of assignats. The fourth great Winch of the discussion relates to the conduct of the Bank of England. Amid all the conflict of judgments, a pretty general inclination to blame the managers of the Bank is visible ; a few feebly defending them. Lord John Russell and Sir Charles Wood cannot exonerate them. Sir Robert Peel ex- pected better of them. Some doubt whether the existence of such an institution is desirable. Violent people exclaim, "The Bank has done it all !" We do not perceive the sense or fairness of these diatribes. Let us be just as well as severe. Has the Bank broken its constituent law ? No—not even in the way it was ad- vised to do by her Majesty's Ministers. What has it done f It has disappointed an expectation entertained of it by the author of the latest Bank Charter Act. Sir Robert Peel says that "the ob- ject of the bill of 1844 was to impress, if not a legal, a moral obligation upon the Bank, to prevent the necessity of stringent measures by taking timely precautions "; and" that object was not carried out." Very true. The Bank has not acted uniformly in the spirit of the Bank Charter Act; and the act induced no mate- rial change in that part of the management which was left to the discretion of the directors. As early as the autumn of 1844, the Bank used its vast resources, augmented by the public deposits, to stimulate speculation, by reducing its discount from 4 to 24 per cent ; a spur to gambling, which, doubtless, had great influence on what followed. And at every subsequent stage, unchecked by any "moral obligation" implied in the Bank Charter Act, the Bank has regulated its discounts chiefly by its own interests, either in respect of credit, profit, or safety, down to the very last reduction to 6 per cent. But how is it that the Bank is able to adopt a course assumed to be so injurious to the public ? Be- cause, as the ostensible author of the act of 1844 confesses, an erroneous principle lay at the bottom of that arrangement. The error we would explain thus. The dominant and legitimate mo- tive in trade is self-interest : it may be more or less liberally con- strued, more or less intelligently ; but such it is. According to Sir Robert Peel's admission, the main object of the act of 1844 was left to rest, in part at least, on "moral obligation" ; a motive which is the dominant one in many relations of life—which may be relied on, to a certain extent, in intercourse between statesmen, in diplomacy, in ecclesiastical affairs; but it is not the primary and dominant motive in commercial operations, and therefore, not being the strongest motive in such affairs, it was not the one to be relied on. Either it should have been ascertained that the self-interest of the Bank would make it work always for the pub- lic interest, or self-interest should have been forced into the ser- vice by compulsory enactment. Sir Robert Peel admits that, for its main object, the act of 1844 rested on " moral obligation " : the Bank, being a trading community, has acted as traders act, and with the motives of traders,—either to secure a profit by some stroke of trade, or to " oblige a customer" by winking at some trading laxity ; but if the directors have neglected to secure to the country those benefits which are to be expected from sound statesmanship or sound executive administration in financial af- fairs, we must say that the Bank is less to blame than the states- men who left their own function to the voluntary performance of traders ; those traders having already shown, on every critical occasion, that they were traders, not statesmen—not even traders of perfect intelligence or the most expanded views. Of course it remains for real statesmen to supply this defect in the act of 1844. That act, then, though most usefully regulating the currency in particular respects—though supplying better guarantees for the essential qualities of acurrency than any previous law—is admitted to be inoperative in one great cardinal function. We are without an efficient exemplar and guide in the direction and control of com- mercial enterprise. In the absence of that guide, we have mis- calculated our investments, and have locked up an undue portion of our available capital. That present loss, and the continued absence of an effective guide until the hiatus of the act of 1844 be filled up, will suggest the safest course for the community—re- trenchment in speculation and expenditure of every kind.
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