ART. VII.-1. Report from the Select Committee on Promissory Notes in Scotland and Ireland. London. fol. 1826. 2. The Currency Question freed from Mystery. Lond. 8vo. 1830. NOTHING can be more unfair and uncandid than the impu tations which are thrown upon those who call for the revision of our monetary system; while their motives are unjustly impugned, their objects and views are wilfully and grossly misrepresented. They are accused of wishing to lower the present standard of the pound sterling; and, by that means, to commit a fraud upon the public creditor. That, among the mass of those who desire the re-consideration of the laws affecting the currency of this country, there may be some persons who go to this extent, we will not undertake to controvert: but, be this as it may, we feel quite certain that the great majority of them are actuated by very different views and opinions. They will not consent to be ranked behind their antagonists in the desire to do what is just and equitable but while they are willing that every creditor, either of the public or of individuals, should receive the full amount of what he is entitled to claim, they are equally determined, as far as in them lies, to protect the whole body of debtors against unjust exactions. But those who call for the re-consideration of our monetary system do not require any change in the standard of value; they do not desire that the weight of the sovereign should be diminished, or that the metal of which it is fabricated should be debased all they propose is, the emancipation of the circulating medium from the fetters by which it is now cramped; they merely ask that the principle of freedom which has been applied to other trades should be allowed to regulate the money system of the country; and that every individual should be at liberty to use either gold or paper, according to his own discretion. They ask government to place the system of banking upon a secure basis, and to permit establishments of undoubted solvency to circulate, at least, a limited amount of one-pound notes. If it be practicable to frame arrangements which secure the holders of these notes from every chance of loss from the insolvency of the issuers, we conceive that the only tenable objection to the measure must be at once removed. It has not, as far as we know, been contended that the circulation of one-pound notes is an evil in itself. It is, then, only an evil when it exposes the holders to a probable loss; but if means can be devised to remove this insecurity, every reasonable objection to this species of circulation will, we apprehend, entirely vanish. An idea seems, indeed, to be prevalent in some quarters, that a one one-pound note circulation has a necessary tendency to encourage rash speculation, and to produce commercial panics. In this, however, we apprehend there is much misconception. The history of every commercial community affords abundant evidence that speculation can be pushed to a vast extent, in places where this species of currency does not exist: speculation depends upon the enterprise and credit of traders, and not upon the medium of exchange which they may use in their transactions. It must, indeed, be acknowledged, that where the paper money in circulation rests upon the mere credit of individuals, and not upon deposits of capital of equivalent amount, it will greatly aggravate the evils of any panic brought on by over-speculation. But to obviate this inconvenience, it is not necessary to dispense altogether with the use of paper money: the proper remedy is, to strengthen the foundation on which the credit of this paper money rests. Under the system of banking which prevails in this country, the evils arising from commercial alarms are necessarily much enhanced by the existence of every species of bank paper payable on demand. Those persons, therefore, who contend that the suppression of our one-pound note circulation is calculated to render panics less frequent and less injurious, stop short of the point to which their argument should unquestionably conduct them. In order to be consistent, they ought likewise to call for the suppression of all other negotiable notes payable on demand; for, in times of commercial distrust, the holders of these larger notes are as likely to create what is called a run upon the banks which issued them, as those who hold one-pound notes. If, however, the privilege of issuing negotiable notes were granted to banks only on terms which would remove all doubt from the public mind as to the solvency of these establishments, a run never would practically take place; the holders of these notes, knowing that they ran no possible risk of loss, would be no more disposed to rush with them into the different banks to be converted into cash, than to run with a sovereign into the Mint to have it exchanged for bullion. The cause of every run upon banking establishments is the fear which, from whatever unforeseen cause, seizes the public mind that they may not be solvent. Let the ground of this fear be effectually removed; assure the public that, as far, at least, as concerns the notes circulated by a banking establishment, it cannot prove insolvent, and these runs would never take place. That a system of banking might be organised in this country, which would practically remove every danger and inconvenience attendant upon the issue of one-pound notes, is a fact capable of being demonstrated by the evidence of actual experience. It has already been put to the test in one part of his Majesty's domi nions, and has been found to stand its ground, unaffected by the violent and sudden fluctuations which, at various periods, have taken place in the transactions of trade and commerce. We need not tell our readers that we allude to Scotland, where the circulating medium (with the exception of silver for change) consists wholly of paper, and where a sovereign, as a current coin, is rarely if ever seen. But although it be well known that paper-money forms the whole circulating medium of Scotland, we are inclined to suspect that the principles and effects of the banking system of our northern neighbours are not generally understood, or, at least, not generally appreciated, in this part of the empire. Nothing but the want of adequate information as to this subject could have led to the attempt which was made, in 1826, to meddle with the banking system of Scotland, and deprive the inhabitants of that country of institutions, under the protection of which they had reached, and continued to enjoy, a high degree of public as well as private prosperity. Our wary neighbours, however, led on by the redoubted Malagrowther, successfully resisted the attempts of the Treasury to force upon them the use of a metallic circulating medium, and, by that means, secured themselves (in as far as the intimate connexion of the two countries could permit) against the difficulties and inconveniences which the change effected at that period in our monetary system has entailed upon the inhabitants of this part of the island. An impression prevails very generally on this side of the Tweed, that the superior stability of the Scottish banking system rests upon the proverbial sagacity and wariness of the inhabitants of Scotland, and not upon any peculiarity inherent in the system itself. From this it is inferred, that a circulating medium which has been found safe among our northern neighbours, would be attended with danger and insecurity if adopted here. This, however, appears to us a mistake. The security of Scottish banking arises from the general principles on which the system has been organised, and. not from anything which is peculiar either to the character or the habits of those by whom its operations are conducted. If adopted elsewhere, these principles would, we feel persuaded, be attended with similar results: hence it becomes important to point out their nature and trace their effects. The necessity of calling public attention to the true principles of banking will now become every day more urgent; inasmuch as the approaching termination of the charter granted to the Bank of England will present the legislature with a favourable opportunity of revising and re-modelling at least the banking branch of our monetary system. No reasonable man can doubt that the imperfection of the system system of banking, as practised in this kingdom, has been occasioned by the impolitic monopoly conferred upon the Bank of England. Under the original provisions of the charter granted to that great company, no bank could be formed in this country which consisted of more than six partners. This restriction is perfectly indefensible in point of principle; and in practice it has proved, in a high degree, detrimental to the interests of the public; while it has not probably been productive of any real advantage to the proprietors of bank stock. In 1826, the Bank Directors were induced to wave this exclusive advantage, so far as to allow banks consisting of any number of partners to be established in any part of the kingdom distant, at least, sixty-five miles from the metropolis. We take it for granted that those who represented the interests of the Bank on this occasion meant to act fairly by the public: having secured a continuance of their monopoly in London, and throughout a district extending sixty-five miles every way, they were, we presume, willing that the trade and business of banking should be at once set free from all shackles in every other part of the country. That this was the spirit and intention of the arrangement then entered into between Government and the Bank we cannot for a moment doubt. The object of the minister was to encourage the formation of joint-stock companies with large paid-up capitals, and, by that means, to put banking, throughout the country, upon a safer and more permanent footing. It was, therefore, expected that, in the larger provincial towns, capitalists would eagerly avail themselves of the opportunity which was thus opened to them for entering upon the business of banking. But the anticipation then formed has been but very inadequately realised; the intentions of the legislature have been frustrated by certain impolitic clauses, which were allowed to creep into the act passed for the relaxation of the Bank charter: very few joint-stock companies have been subsequently established for the purposes of banking; and consequently the public have hitherto derived but little practical advantage from the concession then made by the Bank of England. The clause which has chiefly contributed to render this act nugatory, is that which enacts that every partner in a joint-stock company, formed for the purpose of banking, shall be responsible, not only to the extent of the shares for which he subscribes, but likewise to the whole amount of his private fortune. This clause was introduced no doubt with the best intentions, -its object being to render joint-stock banks as stable and worthy of public confidence as possible. But there can be no doubt that, however well meant, its practical operation has been highly injurious: it stands as a bar in the way of forming such institutions; and until it be repealed, we see no ground to to expect that many joint-stock banks will be established in this country. Few persons are likely to be found, who, for the sake of a small dividend on shares held in a joint-stock company, will place in jeopardy the whole of their fortunes. The premium in this case is by no means adequate to the hazard. Where the number of partners in a bank is limited, and the amount of profit falling to the share of each is consequently large, individuals will be found willing to incur this responsibility: the advantage to be expected being of sufficient magnitude to counterbalance the risk. The public would, perhaps, be in some cases more secure, if jointstock companies for banking could be formed of a large number of shareholders, jointly and severally responsible for the engagements of the establishment, to the full amount of their fortunes; but the question here is, not what is best in theory, but what is attainable in practice. To a joint-stock company so constituted, we have no possible objection. Our objection is to making this principle a condition, without which such institutions cannot be established, because we feel a conviction that this throws a very great, and, as we conceive, unnecessary obstacle in the way of their formation. Experience has rendered it abundantly clear that a joint-stock company, possessing a paid-up capital of adequate amount, offers to the public an ample warranty for its solvency. If the subscribed capital of such an institution be fully sufficient to guarantee its creditors against every chance of loss, the public can derive no advantage from involving the shareholders in any additional responsibility. There are five banks in Edinburgh. In two of these (the Commercial Bank and the National Bank of Scotland) the partners are responsible for their engagements to the whole extent of their fortunes. The former possesses a paid-up capital of 600,000l.; the latter has a capital of 500,000l. The other three banks have been established by charter, and the partners are absolved from all responsibility beyond the amount of capital actually subscribed and paid up. Two of these chartered banks (the Bank of Scotland and the Royal Bank) have a capital of more than a million sterling each, while the third (the British Linen Company) has only half a million. It is notorious to every person acquainted with the transactions of these institutions, that these three chartered banks enjoy as much credit and public confidence as either of the two other banks, in which the united properties of the partners, amounting probably to ten millions sterling, are responsible for their engagements. It deserves also to be mentioned, that although the British Linen Company appears to offer the least security to the public, still it enjoys as much credit, and transacts proportionally as much business, as any of its four rivals. The experience of a long series of years has |