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couple of individuals, the drawer and accepter. Nevertheless this currency of bills is by far the largest and the most widelycirculating of any in the world. Now note—although it is superfluous to say so—the immense superiority of these international bank drafts over the best possible kind of commercial bills. In the first place, they would be secured, not by the credit of individuals, nor even solely by the credit of the bank which issues them, but also by the credit of the Bank of Europe itself—that is to say, of all the great banks of Europe to the extent of their subscribed share of the capital of that bank. Secondly, these bank drafts would be immediately convertible into money everywhere throughout Europe: they would be payable in cash on demand in every capital of Europe, and in every place where the national bank of the country had branches. And each holder of these drafts would receive the amount exactly in the kind of money which he required. Suppose a Frenchman or a Russian receives £100,000 in sovereigns from an English debtor,—these coins will not circulate either in France or Russia: he must take them to a bank or money-dealer, and get them. exchanged for the money of that country. The international drafts, the cheques upon the Bank of Europe, will be payable in every country, and in the money of the country. In Russia they will be payable in roubles; in France, in francs and napoleons ; in England, in sovereigns, or in legal tender bank-notes to a like amount.

While economising the use of specie as international currency, these bank-drafts, it is needless to say, would create no demand for specie on any of the associated banks to which they may be taken. Suppose a French merchant received one of those drafts issued by the Bank of England, he would take it to the Bank of France or to one of its branches, and there he would either place it to his account as a deposit, or, if he wished money, would take payment in bank-notes. Specie (except as small change) is never needed, save to make payments abroad; and the country to which such drafts upon the Bank of Europe would be sent would, of necessity, be one to which specie was flowing, and where, of course, no export of specic is conceivable. The drafts would only be issued when more money has to be sent to a particular country than there are bills upon that country; in other words, when the exchanges indicative of the balance of trading and financial transactions) are in its favour--when specie is flowing in and accumulating, and when there is no need to send it out.

While lessening the pressure upon banks in exceptional times (now unfortunately becoming more frequent than ever), and furnishing the public with a more convenient process of making payments abroad, the new system which we propose—this development and completion of the banking system of Europe—would impose no limitation upon the free action either of the banks or of the community. The banki



would not be compelled to issue these international drafts, neither would the public be compelled to receive them. If the Bank of England, or any other of the associated banks, had a surplus stock of specie on hand, instead of giving drafts upon the Bank of Europe, it would pay out that specie. It would only issue these drafts when its stock of specie was likely to be reduced below its normal quantity. The public, on the other hand, could always demand specie from the bank, just as at present. As such drafts would be more convenient and less expensive than taking specie for export, they would always be in favour. Nor is it easy to conceive any circumstances which would induce a man to demand specie from the bank for the purpose of export to any part of Europe if he could get an international draft instead. Suppose, for example, that a person in this country had to pay £100,000 to a French merchant, and that the French merchant had to make a similar payment to a person in Russia ; then the international draft received from England would be forwarded by the French recipient of it to Russia, and the affair would be settled : the Russian cashing the draft at the Bank of St. Petersburg, or one of its agencies, and the amount being thereafter transferred at the Bank of Europe from the account of the Bank of England to the Bank of St. Petersburg's. The latter bank would then hold a larger portion of the capital of the Bank of Europe than usual, and the Bank of England would hold less. In other words, the power to draw upon the Bank of Europe and to share in its profits (i.e. the interest on its Government securities, minus the cost of management) would be temporarily increased as regards the Bank of St. Petersburg, and lessened as regards the Bank of England.

Were such a Bank of Europe established, there can be little doubt that the banks of New York and of India would also join in it: so that its operations would virtually include the whole sphere of commercial and financial transactions. Ebbs and flows of specie, of course, would still take place, but they would be greatly lessened. Specie, for example, will always flow to India and the East generally, as long as these countries continue to export largely and to import little. It is the transient, the almost ephemeral, drains of specie which at present occasions our ever-recurring monetary difficulties. In a few months at most the difficulty is over—the current of the precious metals resumes its old channels, obedient to the normal condition of trade. But in that brief interval, what calamities befall trade under the present system-under the policy of war and isolation at present adopted by the banks! Such drains, such transient ebbs of specie from the banks of a particular country, would be greatly lessened by the establishment of a Bank of Europe. The transient ebb would in great part be neutralised, and in natural course the equilibrium would be restored.



To what magnitude and variety of operations such a Bank of Europe might attain in course of time we need not attempt to discuss. Of course other banks besides the great national banks (if they had an adequate motive for doing so) might likewise join in it. It would be a bankers' bank. It would be to banks what banks are to private individuals. Its deposits would be exclusively those of banks—of the leading banks of Europe. But considered merely in its simplest form, such as we have above described, the advantage of the establishment of such a bank would be very great. To the Associated Banks it would be a boon, inasmuch as a portion of their reserve of Government securities would then exist in a form equivalent to specie, whereas at present it is virtually useless, and is certainly never employed, as a means of providing specie. In fact a larger portion of their reserve might then be kept in the form of interestbearing securities (deposited with the Bank of Europe, and thereby convertible into the money of all countries), and a lesser portion in the form of unprofitable bullion. To Trade also it would be a boon ; firstly, because the international drafts would be a cheaper and more convenient means of making payments abroad than is the export of specie. But secondly, and chiefly, because it would lessen the banking embarrassment occasioned by the transient drains of gold which so frequently afflict us, and thereby enable banks to carry on their business during these exceptional times safely and profitably, without having recourse to the exorbitant rates of discount which ever and anon cause trade and industry to collapse, bring down good firms by the score, throw thousands of the working-classes out of employment, and check the otherwise steady progress of our national wealth and prosperity.

A reduction in the costs of banking ought always to be a proportionate gain to the community; just as a lessening of the cost of manufactures, or of the production of food, or the raw material of manufactures, is a gain to all classes. The introduction of machinery into manufactures, has greatly lessened the cost of clothing and furnishing of all kinds; and a similar introduction of machinery, and also of scientific appliances of manure, has likewise lessened the cost of producing food, and ere long will achieve still greater triumphs. But in order that the community may be benefited, there must be no legislative monopoly of these advantages. If only one great manufacturing firm were allowed by the State to use machinery, the community would not benefit from this reduction in the cost of manufacture. Why? Because every private firm or company naturally and invariably seeks to get the highest possible price for its goods—for the commodity in which it deals. If but one large manufacturing firm were allowed to use machinery, and all other such firms were prohibited by Act of Parliament from employing this means of cheapening production, this privileged firm would use its monopoly simply as a means of augmenting its rate of profits, and would charge as much as the other firms which were compelled to employ the more costly process of manufacture. They could not compete with it; they could not sell below their former price ; neither would the privileged firm sell below it-it would prefer to sell at the same price as the ordinary firms, and pocket all the increase of profits which its monopoly enabled it to secure. Or take another case. Suppose that three-fourths of all the arable land of the country were held by one man, and that, as under the corn laws, a

a restrictive duty were maintained upon foreign corn : what would be the consequence? This man would rule the market. Having nearly all the corn of the country in his hands, he could exact an abnormally high price for it; his selling price would not be regulated by the cost of production, but simply by the demand, the exigencies of the people—he would exact the highest price for his goods, the necessaries of life. And the few other farmers in the country, being too weak to compete with him, would willingly combine with him, and charge the same prices.

Now, what food and clothing are to the community, so is Money to , all, and especially to the trading classes. Money is as much a necessary of life to Trade as food is to the life of the community. Moreover, nowadays, without Trade we cannot get food. Yet, in this most important department—in our monetary system—the community can only get its wants supplied through the agency of a monopoly. A stringent monopoly is enjoyed by the existing banks of issue, which moreover are subjected to most mistaken and injurious restrictions ; and until this system is abolished, the value of money will never follow the natural law of supply and demand. Hence, whatever new advantages may accrue to banks, these will be of no use to the community as long as our banking system is subjected to a régime of monopoly. Even if, by the establishment of a Bank of Europe, the costs of banking were reduced, the public probably would not benefit one iota as long as the present monopoly of banking currency is permitted to exist. The Bank of England is a private establishment. In one respect, indeed, it is a Government Bank—it is entrusted with the keeping of the Treasury balances, and also with the management of the National Debt, and makes a profit upon both of these transactions; nevertheless no restriction is imposed upon the rate of interest which it charges upon the loans which it makes of the Government money, or of any other portion of its deposits. Its practice is simply that of an ordinary private establishment, and its only rule is to make as much profit as possible. Neither is it liable to any check in this respect by the competition of other banks, for there is no other bank of issue sufficiently powerful to compete with it. It has practically a monopoly of banking currency. Its note-circulation exceeds

three-fourths of the whole note-issues in England. Its note-issues amount on the average to 21 millions, while those of all the other banks of issue in England amount only to 7 millions. Moreover, these 7 millions are divided among no less than 200 banks—giving an average of only £35,000 of note-issues to each of the other banks. And not one of these other banks is allowed to extend its issues upon any terms. Hence, as is obvious, not one of them can compete with the Bank of England. Although many of those other banks of issue find that they could conduct their business (lend their capital) at a lower rate than the Bank of England frequently charges, each of them feels that it is hopeless to enter into rivalry with it: the natural consequence is that they follow its example, and exact the highest possible price for money, the special commodity in which all banks deal. And that price, we repeat, is a monopoly price.

This is an important matter even as an international question ; but it is of still vaster importance to our own community. Of all banks in Europe, it is the Bank of England which most frequently, suddenly, and exorbitantly raises the rate of interest. It is the Bank of England which, in nineteen cases out of twenty, declares war against the others—which commences the War of the Banks, the disastrous effects of which upon Trade and Industry, and the general condition of nations, we have already fully shown. The Bank of England rules the rate for money at home. All the other banks now follow its lead. Why should not they? They greatly increase their profits by so doing. If they had any fair chance of competing with the Bank of England, some of them would pursue an opposite course. They would say, “ We can well afford to lend at a lower rate, and by doing so we shall extend our business—we shall attract customers from the banks which follow the example of the Bank of England, and thereby get larger profits than at present, even though we charge less for our loans." Under the present law, however, no such competition is possible. The amount of bank-issues in England was rigidly fixed by the Act of 1844: no new banks of issue are allowed to be established, neither are any of the existing banks of issue in England (save the Bank of England) allowed to extend their note-circulation upon any

(1) The only difference which ever occurs between the rate charged by other banks, or rather by the discount houses, and that of the Bank of England, arises speculatively from the consideration whether or not the position of the Bank of England is improving or likely to improve. If the Bank's position is evidently improving, the other banks and the discount houses sometimes discount a little below the Bank rate. But if the Bank's position is not likely to improve, they always charge the full Bank rate. Moreorer, if the Bank's position be very bad, or threatens to become so, the other banks, and *puvially the discount houses, refuse to discount upon any terms. In fact, the position of the Bank of England, and its practice, is the sole thing now thought of by the other banks. They may, to use a technical phrase,“ discount” a prospective lowering of its rate, but that is all.

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