MONEY-GOVERNMENT.
WHILE the commercial world, without any distinction of geo- graphical limits, may be said to be recovering, we observe a very remarkable and equally satisfactory tendency to healthy action especially in this country. Throughout the late crisis there was a certain vigour of discussion which proved at once the inde- pendence of the press and the confidence of the commercial classes in the sound part of trade. At the time great complaints were made because the journals did not abstain from °comment ; but they have some right to point, in justification, to the great and beneficial effects which both accompanied and succeeded the crisis. Although numbers of our countrymen were involved in the embarrassment,—although we are at the centre of commercial correspondence especially between Europe and the West, and are necessarily Much mixed up with foreign merchants—it was con- stantly remarked at the time that England remained in a con- dition safer and sounder than that of other countries. Since the crisis, many houses which were involved have paid or are in the high road to do so. Messrs. Dennistoun, whose liabilities we be- lieve, amounted to about two millions, have been anticipating their instalments. While this vigour is shown by the solid partof commerce, those who are responsible for leading and governing
the trade in money are resorting to a greater strictness in the ap- plication of principles. The Bankruptcy Court has been exposing an English merchant, whose conduct was none of the worst, to severe punishment for not keeping his accounts with sufficient exactness and clearness. The Bank of England has announced its intention to discontinue the practice of rediscounting bills presented to it by the great discount-houses. This last step is sim- ple and intelligible enough in itself, but it has been somewhat ob- scured by the discussion which it has raised. One journal, which objects to a rigid application of the princi- ples involved in the Bank Charter Act, approves highly of the new rule, as tending to good ends ; another journal, which has also in a modified degree objected to the Bank Charter Act, ap- proves of the rule, but hints difficulties in the application of it, and doubts whether it will be sustained.
"The Directors, it seems, virtually refuse to enter into further dealings with a customer of great wealth and credit, yet they will occasionally take, Without the security afforded by the indorsement of the great Lombard Street houses, paper which otherwise would have possessed that advantage." * * * • "In numerous cases the Bank of England have readily extended assistance to establishments really solvent but temporarily embarrassed : could they do so in the case supposed, knowing that the mere suspension of the house would involve the fall of hundreds of others, and infallibly pre- cipitate a general crash ? "
A subtile distinction is drawn here between rediscounting and direct discounting, which tends only to confuse where there is really a broad difference. What are the discounting-houses ? They are houses which take money that may be revoked "at call" ; and they pay interest on that money. The effect of this Operation is, that during times of commercial peace, money which would otherwise be idle for a week or so is lent out at short loans by this kind of agency, and pays its interest. But on the other hand, in times of commercial war, as crises may be called, when everybody is "pulled up short," everybody recalls his money from the discount-honse ordinary rules of payment and repayment are suspended, and the discount-house Which is generally full is as empty as a cab-rank in a squall of rain. Now when a man who is temporarily embarrassed but substantially solvent goes to the Bank of England, it is a comparatively simple matter to explain how he redly stands, the amount he wants, the effect which the assist- ance will have, the time for which he will require it, and the probable incoming of his own assets. But that which is simple, direct, and clear, in the case of a Morrison or a Dennistoun, be- comes a problem inextricable from multiplication, complication, and uncertainty, when the applicant, instead of having the books to show in his own business, must refer to the books of a hun- dred other people, the details of whose transactions it would be actually impossible to pursie. It is one thing to adopt a great risk, or to cover a grand suspension of payments, as the Bank has done in the case of millionaire merchants,—for such suspension of assets can be calculated,—and another to adopt in a time of storm a series of transactions originally based on the averages of incoming and outgoing in fine weather. The business of the great houses which discount paper with money held at call is essentially a fair-weather business, as riskful in times of crisis as it would be to go to sea in a Lord Mayor's gilt barge. This fact was peculiarly illustrated during the late crisis ; and the Bank of England, which ought of all establishments to be governed by men knowing that sound banking must practically exclude risks, is by the late regulation effectually severed from the business of discounting with money held at call. The Bank of England has in fact discontinued a practice that essentially invaded the sound principles of its government.
A kind of episode in this question has been raised by a corre- spondent of the Times Money department, " Veritas. ' A par- ticular deposit bank, which had originally been an insurance- company, has subsequently been enlarged for banking and dis- count purposes ; with a nominal capital of 500,000/. its pro- spectus promised a "first and only call of two shillings per share," and offered to depositors 6 or 7 per cent upon such secu- rity as effectually could save the depositors from loss, with the further assurance that by the deed of settlement "the responsi- bility of the shareholders is limited to the amount of their shares." High interest and absolute safety appear to be promised by this company, with which the Earl of Devon is connected as chairman. Lord Devon has explained in a letter to the Times, that he is satisfied as to the prudence of the company; and its chairman has explained that the rate of interest given now is only 5 per cent, the liability being limited by the regulations of the company and the moderate extension of its business. The intimation is, that the money is advanced on short loans, and that the profits in that business are so considerable as to cover any loss which may accrue. If so, the money must be employed in transactions which are in themselves essentially bankrupt transactions ; that is to say, the borrower must be engaged in raising money at a rate of interest which exceeds the rate of profit in trade. The man may or may not be solvent in his general business, but the individual transaction has in it the elements of bankruptcy as much as a piece of mortified flesh is the fraction of a corpse. The whole aggregate of such transactions forms one mass of bankruptcy mingled with the commerce of "the City" and of the country generally. It is a portion of trade which has received enormous expansion within the last few years. It must be materially checked by the discussion of the Times and by the new rule of the Bank of England.
There is another form of the same bankrupt dealing which has been lately pointed out i by the same able coadjutors in monetary discussion. It consists n the making of dividends by railway companies while a portion of expenses, repairs, enlargement of stock, or oilier forms of outlay, is "carried to capital account." In other words' the company continues to reckon its net income at a larger suinthan it really earns, by help of a perpetual bor- rowing, which "makes things pleasant" for the shareholders this year, but sows the seeds of disease and mortality in the body corporate. This is another form of bankruptcy ; for that species of commercial scrofula has many forms. It will not be remedied by covering up the disorder, or by palliatives ; exposure and ex- cision are the true processes ; and it is satisfactory to see public opinion going with the chief monetary establishment in turning from the irregular courses to the ways of health.
Previous page
