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But does the policy pursued by the banks attain the object of the Mercantile System, antiquated and condemned as that system is? It does not. It has revived the defects of the old system without attaining its object, and at the same time it inflicts upon the community injuries from which the old system was free. We repeat,-if the effect of this international war of the banks, of the raising of the bank-rate, were to increase the exports of the country while reducing its imports, the policy would at least be intelligible. But it does nothing of the kind. It reduces exports as well as imports: it kills trade all round. In fact, it kills the export trade first. Orders for the import of foreign goods must be issued from two to six months before the goods reach our ports. Hence when the bank-rate is raised suddenly—such as usually, we may say always, occurs-it has no effect in immediately checking our import trade. But it tells immediately upon our export trade. Merchants and manufacturers engaged in the export trade of the country at once contract their operations. The commission-merchant (or broker) at once lessens his orders, the manufacturer puts his men upon half-time; and the consequence is, that the amount of our exports is instantaneously diminished, and this at the very time when an increase of our exports, as a means of bringing in specie, is the very thing wanted. What more need be said? The only practical effect of the present policy of the banks is to kill trade—and to kill the export-trade first, an expansion of which would be the best and most natural means of bringing in the extra amount of specie which at such times we need, or at least are supposed to need.

Such, in its international aspect, is this War of the Banks. It is a war most profitable to those who declare it; it is a game most profitable to the banks. In proportion as they raise the rate of discount, their dividends increase. Why, then, it may be asked, do they ever halt in the process? Since, when they raise the rate from 5 to 8, 9, and even 10 per cent., their profits steadily increase, why should they not go on, and charge rates more exorbitant still? As well ask a farmer why he does not shear his sheep twice over. A point comes, in this war of the banks, when trade can no longer stand the pressure; a point comes when the profits of trade are swept away into the coffers of the banks, and when trade collapses under the pressure brought to bear upon it. Of late years we have been threatened, by the upholders of the present system, with a rise of the bank-rate to "15, 20, or 30 per cent. ;" but these are, as it were, the ravings of a madman. Experience, by repeated and lamentable facts, shows that a bank-rate of even 9 or 10 per cent. is more than our trade can stand. It is killed; and thereafter the Bank has to reduce its rate because it has impoverished those who deal with it. When the best and shortest-dated bills cannot be discounted under 10 per cent., it

is easy to conceive what rates are charged for second-class bills, or for the best bills that have to run for four or six months. A 10 per cent. bank-rate means wide-spread ruin and failures among our commercial and manufacturing classes, and loss of employment and actual want to tens of thousands of our working classes. It is strange, too, to observe that this collapse of trade occurs first, and to the most serious extent, in the very country which provokes this bootless international strife. As the bank-rate all over Europe goes up and upthe Bank of England always taking the initiative-the event which at length stops the process is a break-down of trade in England itself. The trade of our own country collapses first, partly because it is subjected to the severest trial, partly because it is far more extensive than that of any other country. Hence, we repeat, the evil which we sow we are the first to reap. The war which the Bank of England is the first to declare-which but for it, indeed, might never be waged-inflicts its losses most speedily and most heavily upon ourselves. Is this wisdom? is it civilisation? It is barbarism and folly-practised, too, chiefly at our own expense.

How we shall be pitied and laughed at by future generations! How they will mock at our vaunted civilisation! how they will deride our boastful self-gratulation! When reform is the great cry and work of the day-when we have Parliamentary reform, Administrative reform, Law reform, Bankruptcy reform, all on our hands, engaging our minds and exercising our throats-not a word of Monetary reform! When "Progress" is our watchword, what will be thought of us when in one of the most vital elements of national well-being we not merely stand still, but actually have retrograded ? When free trade is the cry and boast of the times-when we have indeed done a great work in that respect, and when we still more greatly boast of it-when every trifling customs-duty struck off, or every great customs-duty slightly diminished, excites the vociferous applause of our journals of progress-when the remission of so much duty upon foreign wines, or ribbons, or gloves, is hailed as a triumph of statesmanship-what will future times, future generations of Englishmen, think of us when a far greater reform is never thought of, is ignored, is scouted—and when the principle of Monopoly, the system of restriction, is permitted to flourish in one of the most important departments of national life, and, like a upas-tree, to spread its malign influence over every branch of our industry? When trade is ever expanding—when it is the grand aim of our legislation to foster that expansion more and more-what will be thought of us when we leave the means of supporting that expansion totally undeveloped?—nay, not only undeveloped, but when we actually check it, and impose upon it restrictions unknown before? What will be said of us when one of the most vaunted of our legislative measures

(the Bank Acts), not merely prevents the expansion of our monetary system so as to keep pace with the growth of trade, but imposes upon it fetters borrowed from an antiquated past, and subjects it to a régime of monopoly and restriction such as we have scouted and repudiated in every other branch of our legislation? While making trade free by our commercial legislation, we keep it all, every branch of it, fettered and in bondage by our monetary enactments. While trade expands when we desire above all things that it should expand— we contract the means by which alone it can be carried on. Can anything more absurd be conceived? No wonder that year by year our monetary difficulties and commercial disasters become more frequent. What else can we expect but convulsion and damage when we combine with an ever-expanding trade a contracted and inelastic currency? Our folly is like that of a man who should plant a growing oak in a vase of iron. He carefully waters and manures the tree, desiring that it should attain its amplest proportions; and he wonders why ever and anon the tree droops or the vase is shattered. So is it with our present incongruous and incompatible systems of Trade and Banking. Trade is ever and anon strangled by the banks; and when, as sometimes happens, our restrictive monetary system is shattered in the struggle, our legislators complacently replace the broken fetters, and leave our monetary system to strangle Trade


Hitherto we have described this international conflict of the banks -so antiquated in its principle, so disastrous in its effects-as occasioned by a drain of specie from the country (usually England) whose banks originate the war. But the war is declared and waged also upon another and less intelligible ground. The Bank of England frequently declares war against the banks of other countries when there is no drain of gold from this country at all, but simply an increased demand for notes. In no other country but England do banks consider such an event as a casus belli. The war for the possession of specie-for the sake of keeping or acquiring a certain amount of international currency-is a policy adopted proprio motu by banks themselves. But the cause of war of which we now speak is not primarily attributable to our banks; it is a direct and necessary result of our existing legislation. This is a noteworthy difference. The one evil is occasioned by a natural, the other by a purely artificial cause. The latter cause is simply this, that our banks are no longer permitted to utilise their credit, by the issue of notes, to meet a temporary requirement for domestic currency. Such a requirement always arises whenever there is either a monetary or a commercial crisis. And a monetary crisis-that is to say, a difficulty (whether natural or artificial) on the part of banks to provide themselves with money-inevitably occasions a commercial

crisis likewise. At such times an increased demand for Currency takes place when the demand for Capital is actually lessened. It does not arise owing to more capital being wanted, because, when the bank-rate is raised to a very high point (9 or 10 per cent.), the operations of trade, the demand for capital, are greatly contracted. It happens (1) because commercial credit is thereby lessened, causing money to to be required in payment instead of bills; and (2) because, owing to the depression of the markets, caused by the high bank-rate, merchants prefer to cash a larger portion of their stock of bills than usual, rather than lose 20 or 30 per cent. by making forced sales of their goods. The position is, an increased demand, not for capital, but for currency. More of the currency issued by banks is wanted in exchange for, and also to replace the decrease in, the currency of trade-i.e. bills. A temporary increase of bank-notes is all that is wanted. And as these notes are not meant to be cashed, and never are cashed, such a transient addition to their circulation in no way creates a difficulty for the banks. At the same time, as these additional note-issues yield a good profit to the banks, irrespective any rise in the bank-rate, it would be profitable for the banks to issue them. But such a remedy for our ever-recurrent times of difficulty is now prohibited by the Bank Acts: and the consequence is, immense disaster to our national industry, and also an artificial cause for the Bank of England to commence that international War of the Banks which we have already described.


Putting aside this part of the question,-this purely artificial casus belli, let us deal with the War of the Banks as if it were occasioned solely by an exceptional demand for gold, and by a conflict on the part of banks for the possession of the yellow metal. And let us see

if this cause of strife among the banks-as disastrous to the people in all countries as was the wrath of Achilles to the Greeks before Troy -cannot be obviated, or at least greatly diminished. Let us consider a drain of specie as a banking difficulty under its two forms: namely, as produced either by an unusual export of gold, or by an increased demand for gold for home use. The doctrine which we preach—the economy of Capital in the form of gold which we advocate-will apply equally to both cases.


I. First, then, let us consider a drain of gold from banks as occasioned by an increased demand for metallic money for internal Such withdrawals of gold from the banks arise, under our present monetary system, from three different causes. (1.) The most frequent of those causes is, an increased demand for money in a form applicable for the making of small payments, such as weekly wages and the like. This occurs only in England, where there are no notes of less value than £5, and where, in consequence, gold in the form of sovereigns and half-sovereigns must

be withdrawn from the Bank whenever, owing to an increase of industrial employment, the operations of harvest, &c., more retail currency is required. This cause of the withdrawal of gold from banks would cease at once if there were an issue of £1-notes in England, as there always has been in Scotland and Ireland.

(2.) The second cause is, an increased demand for notes in Scotland and Ireland,-whether occasioned by an increase of trade; or by the wholesale currency of trade (i.e. bills) falling into temporary discredit; or (rare occurrence) by the failure of a bank of issue, which event necessitates an expansion of note-issues on the part of the other banks in order to fill up the vacuum in the currency produced by the lapse of the notes of the bank which has failed. However occasioned, this increase in the demand for notes (banking currency) in Scotland or Ireland produces a withdrawal of gold from the Bank of England, because the Acts of 1844-5 prevent any Scotch or Irish bank from extending its note-issues unless it first provides itself with an increased amount of gold. Here there is no withdrawal of gold from the banks, only a transference of it from one bank to others. This second cause is almost as artificial as the first. Legalise an issue of £1-notes in England, and the occasional demands for retail currency in the form of sovereigns would cease; remove the necessity imposed upon the Scotch and Irish banks to provide themselves with an equal amount of gold before they extend their note-issues, and the second cause of our present banking difficulties would likewise be at an end, or at least be greatly diminished.

(3.) The third cause is a failure of the credit of some bank, which bank thereupon is subjected to an unusual demand for gold in payment of its notes and deposits. This difficulty affects only the Scotch and Irish banks; it cannot arise in England, because Bank of England notes are there a legal tender, and any English bank which is run upon uses these notes in payment of all demands made upon it. It is an easy matter for a Scotch or Irish bank to meet all demands in connection with its Notes,-the greatest notecirculation of any Scotch bank barely amounting to £600,000, and that of the Bank of Ireland (whose note-issues are nearly equal to that of all the other Irish banks) is £2,500,000. But the run upon a bank for payment of its Deposits in gold (which always precedes the demand for payment of its notes) is a much more serious affair, and, if persisted in, will quickly cause the stoppage of any bank, however solvent and wealthy it may be. A Scotch or Irish bank thus run upon adopts the promptest method of supplying itself with gold-and this is, by selling its reserve of Consols, and withdrawing the amount in gold from the Bank of England. Such a process is the natural one, and may be expected more or less in all

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