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NATURAL SAFEGUARDS PREVENTED.
stituted kind, in virtue of its novelty and irregularity, likely to be a more unsafe kind ? See, then, the predica
Over all the bills of exchange, cheques, etc., which constitute nine-tenths of the paper-currency of the kingdom, the State exercises, and can exercise, no control. And the limit it puts on the remaining tenth, vitiates the other nine-tenths, by causing an abnormal growth of new forms of credit, which experience proves to be especially dangerous.
Thus, all which the State does when it exceeds its true duty, is to hinder, to disturb, to corrupt. As already pointed out, the quantity of credit men will give each other, is determined by natural causes, moral and physical-their average characters, their temporary states of feeling, their circumstances. If the Government forbids one mode of giving credit, they will find another, and probably a worse. Be the degree of mutual trust prudent or imprudent, it must take its course. The attempt to restrict it by law is nothing but a repetition of the old story of keeping out the sea with a fork.
And now mark, that were it not for these worse than futile State-safeguards, there might grow up certain natural safeguards, which would really put a check on undue credit and abnormal speculation. Were it not for the attempts to insure.security by law, it is very possible that, under our high-pressure system of business, banks would compete with each other in respect of the degree of security they, offered-would endeavour to outdo each other in the obtainment of a legitimate public confidence. Consider the position of a new joint-stock-bank with limited liability, and unchecked by legal regulations. It can do nothing until it has gained the general good opinion. In . the
way of this there stand great difficulties. Its constitution is untried, and is sure to be looked upon by the trading world with considerable distrust. The field is al
ready occupied by old banks with established connections. Out of a constituency satisfied with the present accom modation, it has to obtain supporters for a system that is apparently less safe than the old. How shall it do this? Evidently it must find some unusual mode of assuring the community of its trustworthiness. And out of a number of new banks so circumstanced, it is not too much to suppose that ultimately one would hit on some mode. It might be, for instance, that such a bank would give to all who held deposits over £1,000 the liberty of inspecting its books-of ascertaining from time to time its liabilities and its investments. Already this plan is frequently adopted by private traders, as a means of assuring those who lend money to them; and this extension of it might naturally take place under the pressure of competition. We have put the question to a gentleman who has had long and successful experience as a manager of a joint-stock-bank, and his reply is, that some such course would very probably be adopted : adding that, under this arrangement, a depositor would practically become a partner with limited liability.
Were a system of this kind to establish itself, it would form a double check to unhealthy trading. Consciousness that its rashness would become known to its chief clients, would prevent the bank-management from being rash; and consciousness that his credit would be damaged when his large debt to the bank was whispered, would prevent the speculator from contracting so large a debt. Both lender and borrower would be restrained from reckless enterprise. Very little inspection would suffice to effect this end. One or two cautious depositors would be enough; seeing that the mere expectation of immediate disclosure, in case of misconduct, would mostly keep in order all those concerned.
Should it however be contended, as by some it may,
THE CHARGE OF EMPIRICISM.
that this safeguard would be of no avail—should it be alleged that, having in their own hands the means of safety, citizens would not use them, but would still put blind faith in directors, and give unlimited trust to respectable names; then we reply that they would deserve whatever bad consequences fell on them. If they did not take advantage of the proffered guarantee, the penalty be on their own heads. We have no patience with the mawkish philanthropy which would ward off the punishment of stupidity. The ultimate result of shielding men from the effects of folly, is to fill the world with fools.
A few words in conclusion respecting the attitude of our opponents. Leaving joint-stock-bank legislation, on , which the eyes of the public are happily becoming opened, and returning to the Bank-Charter, with its theory of currency-regulation, we have to charge its supporters with gross, if not wilful, misrepresentation. Their established policy is to speak of all antagonism as identified with adhesion to the vulgarest fallacies. They daily present, as the only alternatives, their own dogma or some wild doctrine too absurd to be argued. “Side with us or choose anarchy," is the substance of their homilies.
To speak specifically :-They boldly assert, in the first place, that they are the upholders of “principle;” and on all opposition they seek to fasten the title of "empiricism.” Now, we are at a loss to see what there is “empirical” in the position, that a bank-note-circulation will regulate itself in the same way that the circulation of other papercurrency does. It seems to us any thing but “empirical," to say that the natural check of prospective bankruptcy, which restrains the trader from issuing too many promisesto-pay at given dates, will similarly restrain the banker from issuing too many promises-to-pay on demand. We take him to be the opposite of an “empiric,” who holds
that people's characters and circumstances determine the quantity of credit-memoranda in circulation; and that the monetary disorders which their imperfect characters and changing circumstances occasionally entail, can be exaoerbated, but cannot be prevented by State-nostrums.
On the other hand, we do not see in virtue of what “principle” it is, that the contract expressed on the face of a bank-note must be dealt with differently from any other contract. We cannot understand the “principle” which requires the State to control the business of bankers, so that they may not make engagements they cannot fulfil, but which does not require the State to do the like with other traders. To us it is a very incomprehensible “principle” which permits the Bank of England to issue £14,000,000 on the credit of the State, but which is broken if the State-credit is mortgaged beyond this—a “principle” which implies that £14,000,000 of notes may be issued without gold to meet them, but insists on rigorous precautions for the convertibility of every pound more. We are curious to learn how it was inferred from this “principle" that the average note-circulation of each provincial bank, during certain twelve weeks in 1844, was exactly the note-circulation which its capital justified. So far from discerning a “principle,” it seems to us that both the idea and its applications are as empirical as they can well be.
Still more astounding, however, is the assumption of these “currency-theorists,” that their doctrines are those of Free-trade. In the Legislature, Lord Overstone, and in the press, the Saturday Review, have, among others, asserted this. To call that a Free-trade measure, which has the avowed object of restricting certain voluntary acts of exchange, appears so manifest a contradiction in terms, that it is scarcely credible it should be made.' The whole system of currency-legislation is restrictionist from
THE CLAIMS OF
beginnwg to end : equally in spirit and detail. Is that a Free-trade regulation which has all along forbidden banks of issue within sixty-five miles of London ? Is that Freetrade which enacts that none but such as have now the State-warrant, shall henceforth give promises-to-pay on demand ? Is that Free-trade which at a certain point steps in between the banker and his customer, and puts a veto on any further exchange of credit-documents? We wonder what would be said by two merchants, the one about to draw a bill on the other in return for goods sold, who should be stopped by a State-officer with the remark that, having examined the buyer's ledger, he was of opinion that ready as the seller might be to take the bill, it would be unsafe for him to do so; and that the law, in pursuance of the principles of Free-trade, negatived the transaction! Yet for the promise-to-pay in six months, it needs but to substitute a promise-to-pay on demand, and the case becomes substantially that of banker and customer.
It is true that the “currency-theorists” have a colourable excuse in the fact, that among their opponents are the advocates of various visionary schemes, and propounders of regulations quite as protectionist in spirit as their own.
It is true that there are some who contend for inconvertible "labour-notes;" and others who argue that in times of commercial pressure, banks should not raise their rates of discount. But is this any justification for recklessly stigmatizing all antagonism as coming from these classes, in the face of the fact that the Bank-Act has been protested against by the highest authorities in political economy? Do not the defenders of the "
currencyprinciple” know, that among their opponents are Mr. Thornton, long known as an able writer on currency-questions; Mr. Tooke and Mr. Newmarch, famed for their laborious and exhaustive researches respecting currency and