The currency question : considered in relation to the Act of the 7th & 8th Victoria, chap. 32, commonly called the Bank Restriction Act / by George Combe.

  • George Combe
Date:
1856
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Licence: Public Domain Mark

Credit: The currency question : considered in relation to the Act of the 7th & 8th Victoria, chap. 32, commonly called the Bank Restriction Act / by George Combe. Source: Wellcome Collection.

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    [From the Scotsman of February 19, 1856.] In our paper of the 14th February, we mentioned that Mr. Little maintains that an unlimited power of issuing notes, if payable in gold, does not enable banks to increase credit, “ because,” says he, “ banks cannot increase their circulation beyond the wants of the public; and whenever they exceed these limits, their notes are imme- diately returned to them.” It is quite true that banks cannot them- selves extend their circulation at pleasure, but by the aid of their customers they may do so, as far as the latter have the capacity to employ the notes in buying, building, improving, enlarging, etc.; and while confidence is unshaken, we know no limits to such evolu- tions. If currency notes be one of the means by which bankers are enabled to furnish loans and discounts, it is pretty evident that, while customers are willing to borrow7—if the supply of these notes be unlimited—the power of lending must be equally extensive. We are speaking chiefly of England, because the Scotch system of exchange, formerly explained, furnishes a valuable check against over-issues, at least on the part of individual banks. When the deposits are called up, the bankers pay them off in their own notes; and wrhen bills are presented for discount, they give their own notes in exchange for them. These notes must either continue to circulate as currency, or be returned to the banks in payment of debts or as fresh deposits; and while confidence is entire and dis- cretion asleep, there appears no limit to the extent of credit, and of speculation based on credit, which such a system may engender. But a time comes when a demand for gold for exportation, and the exaggerated extent of speculative transactions, excite alarm; no- body will now lend, while every creditor presses his debtors for payment. Suspicion attaches to the banks, and a run upon them commences for gold, which they cannot pay; and the public then discover that bank notes are not money, but only its representa- tives—that confidence is not security—and that excessive liberality in loans and discounts with depositors’ funds and bank notes is neither wise in banks nor beneficial to traders. It seems to us vain, therefore, to maintain that the legislative re- striction of bank notes to that amount which experience showrs corre- sponds to the healthy and normal transactions of the community is not, so far as these notes are sources of credit, a safeguard against excessive and indiscreet loans and discounts, which, as abeady remarked, lay the foundations of excessive credits, and end in panics and commercial convulsions. We do not enter into Mr. Little’s statistics, because the note- circulation of the Bank of England is only one of its sources of credit, and he has not given us an account of its deposits. More- over, he is not very exact in his reading of his own figures. He says that “from February 1844 to August 1847, the circulation remained constant.” But his table shows that in August 1844 the circulation was £21,148,000, and that in August 1847 it wras £18,485,000—showing a contraction to the extent of £2,663,000,