BOOKS.

MACLEOD'S THEORY AND PRACTICE OF BANKING..

" QUIDQIIID agunt homines " is as apt for the historian as the poet. The progress of society from poverty to riches—the sordid

avarice of the few, the cupidity and luxurious aims of the many —may as fittingly be traced in their practical struggles as in their final results, when success has raised a man to wealth, or failure plunged him into beggary, or the community has become cor- rupted by love of money. What the historian wants in con- junction with the satirist, is the power of broad generalization strikingly illustrated by individual examples. What he requires in addition, is the faculty of clearly expounding abstruse subj eats, as well as le art of handling minute details, so as to inform or convince the reader without fatiguing him. In some sections of his history of Banking in England, Mr. Mac- leod frequently imparts the interest of human character and

action to his narrative ; especially in the earlier period, as when Charles the First seized the merchants' money deposited in the Tower, or his son shut up the Exchequer. The historian might have infused this living spirit into the greater portion of his work, but for a limitation of his subject in reference to his own views. The history of banks of deposits is only noticed very incidentally after the establishment of the Bank of England ; private banks of issue are hardly touched upon. The monopoly and consequent power which the Bank possessed by law, and the prestige derived from its connexion with Government, are the features in banking his- tory which chiefly occupy Mr. Macleod's attention. Unless when natural circumstances, aggravated by the mistakes or misconduct of the Bank Directors, force him to describe scenes of widespread distress and ruin, he mainly confines himself to an exposition of the monetary principles contained in the doings of the Bank. Ex- cept during the pressure of financial derangement at the outset of its career under William and Anne, not mach of this illus- trative nature occurred for nearly a century. The great Tower and the great mischief-doings of the Bank originated with Pitt and the French Revolutionary war. From that time the illus- tration of monetary or currency principles is more the object of the writer than the statement of facts or the narrative of conduct. The Bank Restriction Act and the causes which led to , _it the rapid over-issue and consequent depreciation of notes in Ireland, with the able but little-known Report of the Committee of In- quiry which sat upon the subject in 1804, are investigated. The depreciation of Bank-of-England notes—the celebrated Bul- lion Report of the Committee of 1810, the debates on the subject, and the strange absurdities which the Government through their mouthpiece Vansittart moved in opposition to the resolutions of Horner--are fully explained and commented on. The economi- cal condition of the country that followed the peace—the discus- sions which distress and the Bullion Report gave rise to—the force of influential opinion that carried the Act of 1819 for the restora tion of cash payments—are handled with similar fulness. The history of the Bank is continued to the Act of 1844, and indeed to the present time ; the different panics, including' the great convul- sion of 1825, being exhibited, as well as the various changes in the law. It will be seen from this account that the " Rise and Progress of Banking in England " is for a large portion of the time limited to the great bank of issue, and shuts out the social pictures and personal characters Which the founders of private banks of deposit might furnish. It is also scientific in its nature, and thus self-removed from another curious subject, the personnel of the principal officers and managers of the Bank of England, except in so far as some of the Directors may show themselves under examination before Committees, or during the early, days of the institution, when Deputy-Governor Godfrey was

killed by the side of King William at the siege of Namur. Banking, whether as regards banks of issue or of deposit, is a business of late growth in a country, because various causes must combine to produce it. As soon, however, as wealth accumulates, places of deposit, rendered secure by some prestige of religion or honour, will be sought for. Such were the temples in ancient Pagan times, and churches or monasteries when Christianity was established. Latterly, in England, the Tower was used for this purpose, from its military security in those days of daring robbery and no police. But thieves break through and steal, if only meta- phorically. After Charles the First had dissolved the Parliament which preceded the Long Parliament, his financial difficulties grew upon him.

" He opened a voluntary loan ; and in less than three weeks 300,000/. were paid into the Exchequer, chiefly by the Catholics. But this was quite inadequate to his necessities, and he resorted to other more discreditable means of raising money. He bought up an immense quantity of pepper from the merchants on credit, and immediately sold it at a heavy loss for ready 'money. It was debated for several days at his Council to coin 300,000/. of base money, with 3d. of silver in the shilling ; but the plan was finally rejected, owing to the speech of Sir Thomas Bowe,—a noble argument, which might have been studied with advantage nearly two centuries later. Besides this, the King seized the merchants' bullion and cash in the Tower, to the amount of 120,000/.

"The merchants were in consternation, as this cash was the provision they had made to meet their bills. They immediately met, and drew up and presented the strongest remonstrance to the Council. They pointed out the flagrant iniquity and impolicy of such a proceeding ; and after the matter had been debated a whole day at the Council, they finally agreed to • The Theory and Practice of Banking ; with the Elementary Principle* of Car. rency, Prices, Credit, and Exchanges. By Henry Dunning Macleod, Seq., Bar. rister-at-Law, Fellow of the Cambridge Philosophical Society. Volume II. Pub- lished by Longman.

let the King have 40,0001., upon receiving adequate security for its repay- ment with interest. The security was given, and the whole of the principal and interest was ultimately repaid to them. But although they had suc- ceeded in this instance in saving their property, the prestige of the Royal honour was gone ; they were too wise to trust their money again to such precarious custody."

The bolder and less scrupulous shutting-up of the Exchequer by Charles the Second is well told by Mr. Macleod. The con- clusion of the case is less generally known. It is curious not only in itself, but as furnishing another instance of Macaulay's care- lessness, or error in statement—of the all but certainty that if you go to the original authorities you will find perversion or gross exaggeration ; unless in this case we are to put a factious interpretation upon his words that " no redress was granted the sufferers till a new dynasty had established a new system." The new dynasty was worse than the old. Charles had some terror, shame, or compunction, and promised to pay : William resisted payment as long as he could; when fairly beaten he only paid part.

" In April 1676, the King [Charles] was obliged to order the accounts of the creditors to be examined- by the Chancellor of the Exchequer. This having been done, in April 1677, the King issued letters-patent, granting to each of the goldsmiths, their heirs and assigns, and for the benefit of their creditors, in lieu and satisfaction of their debts, a yearly rent, part of the hereditary excise, equal to 6 per cent upon the debt, with a clause of redemp- tion, upon the King paying the principal and arrears of interest. These letters were printed and made public on the 23d of May 1677; and a bill to ratify them was passed by the House of Lords on the 10th July 1678, but, unfor- tunately, was not presented to the Commons before the end of the session, and never became law.

" The interest continued to be paid till Ladyday .1683, when it ceased. Those were times of fiery trial. The recoil of the crimes and cruelty of the Popish Plot had struck down the fomenters of that horrible delusion. The blood of the hostile parties alternately flowed like water from the scaffold. The Royalists had obtained the undisputed ascendancy, and payment of the interest due to the bankers immediately ceased. None was paid during the reign of James II. At length, in 1689, when the creditors were worn out with despair, some of them determined petition the Court of Exchequer to make an order for payment of their claims. The Crown determined to resist payment, and the case was argued at great length ; two years were occupied in the arguments and the deliberations of the Judges. At length, in 1691, the Court gave judgment in favour of the petitioners, and made an order on the Exchequer for payment. The Court appealed to the Exche- quer Chamber. At that time the Lord Chancellor, or the Keeper of the Great Seal, sat in the Exchequer Chamber, and was accustomed to receive the assistance of all the Common Law Judges. Lord Somers was Keeper of the Great Seal. In 1697 the case was argued before the whole of the Judges. There were two points to be decided. 1. Whether the letters- patent were good and valid to bind the Crown. 2. Whether the remedy taken by the petitioners was the proper one, and if it was in the power of the Court of Exchequer to order paymentfrom the Treasury of the sums due to the claimants. On the first point the Common Law Judges unani- mously held that the letters-patent were good and valid to bind the Crown. On the second point, they all, with one exception, held that the petitioners had adopted the proper course in petitioning the Exchequer, and that that Court had power to order payment. The Chief Justice of the Common Pleas alone held that they had not adopted the right remedy, that the Court of Exchequer had no power to order payments out of the Treasury, and that the claimants ought to have petitioned the King himself. The aesistant Judges having thus all delivered their opinions, the case remained for the final judgment of Lord Somers. It is one of the most famous cases in Westminster Hall. The Lord Keeper is said to have expended several hundred pounds in collecting books and pamphlets for his judgment. He carefully abstained from pronouncing any opinion as to whether the grant was good and bound the Crown; but, after going over all the precedents with extraordinary care and minuteness' and reviewing the history and powers of the Court of Exchequer, he held that the petitioners had adopted a wrong remedy, and that the Court had no power to order payment as it had done. It was doubtful whether the Keeper of the Great Seal had power to give the judgment of the Court against the opinion of the majority of the assisting Judges. Three Judges held that he had not this power, but seven held that he had ; he accordingly reversed the judgment of the Court of Exchequer.

"Under such circumstances it was scandalous and disgraceful in the Crown to contest the matter any longer. Every one affirmed the justice of the case, the objection was purely technical. The claimants appealed to the House of Lords ; the Crown persisted in a strenuous and disgraceful opprisition ; but on the 23d January 1700, the Lords finally gave judg- ment i,n favour of the bankers and reversed the judgment of Lord Somers. One would have thought that after such aggravated wrong and injustice Par- liament would have hastened to repair the injury done to these unfortunate men. But the strangest part of the case is yet to come. The judgment of the Court clearly established their right to all arrears of interest, but they were not paid one farthing of it. An act was passed in 1700, that after the 26th December 1701, the hereditary excise should be charged with inte- rest at the rate of 3 per cent on the principal, until payment was made of one-half of the debt. Thus ended this monstrous iniquity. The principal never was repaid, but was afterwards consolidated with the South Sea An- nuities, and still forms part of the National Debt. It has been calculated that the loss to the bankers and their creditors, from arrears of interest and retention of the principal, was nearly three millions, to say nothing of the frightful expenses of such protracted litigation."

So that in point of fact the National Debt began with Charles Stuart and robbery.

Mr. Macleod sometimes mixes theoretical observations with his narrative or the expositions connected with it. Pure discussion he reserves for the Introduction and some chapters that follow the His- tory. He still adheres to the doctrines propounded in his first vo- lume,—as that credit is not a mere means of transferring capital al- ready existing, but is capital in itself ; and that currency or " circu- lating medium " represents debt, and bills of exchange and checks are the mode of transferring or "circulating" it. There is also a somewhat dogmatic manner of enforcing his own ideas and of elm- raoterizing distinguished *en who differ from him, which is not only " strong," but hardly consistent with his own position as an authority. But whatever his peculiar theories, or his manner of urging his opinions, he is sound enough on the fundamental princi- ples of the currency. The standard of value, he holds, must be fixed and definite, not arbitrary and fluctuating. It must consist of some commodity of value, and the common consent of civilized nations adopts the precious metals. The basis of all money must be metallic, and the state must take care that the creditor shall be always paid in metal of the quantity and fineness he stipulated to receive. On the gross misconduct and folly of the Bank in depreciating their notes during the Restriction days— on, the gross dishonesty of those who would have reduced the metallic standard in 1819 to the once depreciated state of the paper, or who would do it now—he holds opinions of the strait,est orthodoxy. He equals the stoutest opponents of the Bank in his censure of their management of the currency to the last panic, in 1847: since that time their conduct has been prudent. He ob- jects to the Act of 1844, that it permitted the Bank to issue fourteen millions of notes against securities," [the debt due from the public]. He maintains that when once you begin to issue money against the value either of land or funds or coramo- • dities, you are adopting the principle of Mississippi Law's Land Bank, or of the French assignats, however much you may stop short of them in degree. We have formerly intimated that, pro- perly speaking, the fourteen millions of vacuum, left by Peel's Act, ought to have been filled up with bullion. We do not think that the amount was adopted on any theoretical idea of coining stock. It would have been very unpopular to force the Bank to procure gold to the full amount of its issues in 1844, even had it been practicable without severe pressure. Inquiry was made as to the lowest amount of notes that might be issued on a vacuum as regards gold, and fourteen millions was calculated to be a safe or at least a sufficient figure. Safe in a political panic, arising from invasion or rebellion, it would not be : no one with a note would rest till he had presented it for payment ; and the Bank would most likely stop to the tune of fourteen millions. That it is suirwWnt in a commercial or baseless fright, seems clear from Mr. Macleod's concluding criticism on the panic of 1847.

" While we have indicated the weak points of the Act of 1844, and ehowu how it fails to avert a crisis from its non-recognition of one of the moat mo- mentous principles of monetary science, we must not omit to say what it did really effect in that extraordinary year. While it failed to compel the Di- rectors to adopt a prudent course, it brought them up suddenly before they had run their full course of folly and imprudence. That a crisis would have certainly ensued in the summer we firmly believe ; and if the Act of 1844 had not checked them in April, they would have had the same crisis in sum- mer; with probably 2,000,0001. of bullioninstee.d of 8,000,0001. Then would have followed the disasters of the autumn. The Bank, already all but; drained by the mismanagement of the spring, would have had to meet a new and tenfold aggravated crisis with not more than two or three millions of specie in its vaults. We think it as certain as any event that never hap- pened can be, that the Act of 1844, imperfect as it is, was the only thing that saved the country from a suspension of cash payments in October—that when the crisis came, the Bank had 8,000,0001. of money to meet it with."

This looks clear enough ; yet we are unable to state whether Mr. Macleod would confine the issues of notes to the amount of bullion they represent. From several passages we infer that he would not. In a particular crisis of panic and difficulty, it ap- pears that he would freely issue notes without regard to balion- sf the foreign exchanges were favourable : a plan more lax than a suspension of the Act of 1844 by Government on their responsi- bility.

We have seen Mr. Macleod's opinion on the operation of this act in preventing the bullion from dangerously diminishing even to the point of insolvency, (as in December 1825, when the Bank was' reduced to little more than a million and a quarter-1,260,8901.) He approves of the object of the act in maintaining the esta- blished standard, and of its intention to prevent monetary panics. In this last purpose it failed, as was seen in 1847, because the power of regulating the discounts was left to the Bank, which it grievously abused, as has always been the case up to the present time. The true test of the value of money in England com- pared with other countries is shown by the exchanges. If in the face of a drain of gold the Bank persists in tempting foreigners to import stocks and other securities for sale by the lowness of discount, they aggravate the drain instead of at- tempting to check it. This conduct they have invariably pur- sued except during the present war ; and when the consequences of their misconduct have suddenly started up before them, they have, still more recklessly, suddenly raised the rate of discount and stopped accommodation, ruining whomsoever had been spe- culating without large resources, and more or less injuring every- body. Mr. Macleod would therefore, in renewing the charter, take away from the Bank all discretionary power in regard to discounts. They should be compelled to adopt tninimum rates determined by the amount of bullion in their possession. Mr. Macleod gives a scale as a sort of approximate idea—nothing more ; which we quote as low down as 8,000,0001. of bullion, the sum at which it stood in the panic of 1847, and 10 per cent, a rate which the Bank at that time demanded from Gurney's.

If the Bullion The minimum rate of die-

stood at count should not be less than £20,000,000 21 per cent. 17,000,000 16,000,000 14,000,000 13,000,000 12,600,000 12,000,000 11,600,000 11,000,000 10,500,000 10,000,000 9,000,000 8,000,000

3 17 31 r,

4

6 71 61

6 rt

61 /1

7 Ir 8 „

9 77 10 ,, The historical and disquisitional portions of Mr. Macleod's vo- lume are followed by an account of practical banking, and a view of the law, so far as it is necessary to be known by practical men. In the "business of banking," he reproduces the fallacy of bank- ers' accounts having the magic power of making a pound do double duty, and of being in two places at once. In fact, the account at page 402 goes beyond this ; the specimen 50001. is a pure matter of credit if the parties' affairs are sound, and a fiction al- together if they are not. The legal part of the book is useful and clearly explained. It may further be observed, that in addition to his qualities of extensive research, considerable shrewd- ness, great plainness and force of statement, Mr. Macleod exhibits throughout the activity of mind and prompt mastery of facts and documents that distinguish the trained lawyer.