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' uniform rate of interest,' or that it can adjust the market rate at its pleasure, or that it can prevent that rate from settling at the point which the relation between the demand for disposable capital on loan, and the supply of it, may determine. No one who understands the mechanism of commercial operations can, for a moment, advocate any of these absurdities. What I contend for is, that the Bank should fix a minimum rate, below which it ought not to go, but above which it might and ought to raise its terms when circumstances required it; that, though it cannot prevent fluctuations in the market rate, they will become less violent if it forbears to aggravate them; and that the mode in which it is to operate is not by disregarding the state of the relation between demand and supply, but through that relation, which it can materially alter by holding back at certain seasons its own portion of the supply.

"You meet me at once by denying the power which I attribute to the Bank, and here issue must be joined.

"I will make no appeal, though I think I might do so, to the almost unanimous opinion of mercantile men as to the fact of the Bank's great power. Mistaking an effect for a cause, they have erred in attaching importance to variations in the amount of the bank-note circulation; but I believe they were frequently right in attributing monetary fluctuations to the Bank, even when they misapprehended the mode of its action. In many of the old pamphlets on the state of the money market, it is enough to strike out the phrases 'increased issues' and 'contractions of the circulation,' and to substitute 'increased loans' and 'diminished discounts or contractions of credit,' in order to render the reasonings, which at first sight seem neither cogent nor clear, perfectly logical and intelligible. But every one of those productions shows the most intense conviction of the fact that the power of the Bank was enormous. However, I will not rest my argument at all on an appeal to such authority.

"To estimate the positive power of the Bank, before comparing its resources with those of other dealers, look at the facts. Its reserve is £13,000,000. The most exaggerated caution would consider £8,000,000 sufficient. Practically, £5,000,000 are now lying idle, because the Bank has not yet lowered its rate enough to make that sum tell as fully as it might upon the market. But sanction unlimited competition, let the Bank use that surplus reserve as Mr. Gurney would use it, and I think it would be sufficient to reduce the current rate to one per cent. I need not urge upon you the effect of even a small addition to a fully-supplied market."

After a calculation already referred to (page 21) as to the amount of capital available for discounts in London, the letter proceeded :-"I proceed to show that, whatever be the supply in the hands of private bankers and brokers, the addition which the Bank of England, with its spare capital and its perfect credit operating like capital, could make to it, would be sufficient to lower the rate of interest to almost any assignable point.

My first proof is one of which I have your own admission. The Bank, by using its spare funds to buy stock, might raise consols ten or twenty per cent.' Unquestionably it might; but can that be an insignificant addition to the capital in

the market, which would add a value of at least eighty millions to the whole mass of the Government debt? How is it possible to deny the power of the Bank over the rate of interest, if it could operate with such prodigious effect upon the public funds? It would be as reasonable to contend that additional fire will not increase the warmth of a room, although it sends up the mercury in the thermometer.

"As a second proof, I will use another fact which has also your sanction. 'There is only a certain amount of good bills to be had at any time, and a reduction of the rate of discount will not materially increase that amount.' Precisely, and for that very reason, a little additional competition for those good bills is sufficient to reduce the terms of discounts. You have suggested reasons why the Bank should not or would not press that competition; that is an after question with which I am ready to deal. But the first point to be settled is the power of the Bank, and I submit that the limited amount of bills to be had is a decisive reason why the competition of the Bank, instead of being unfelt, should be sufficient to press down the rate in a falling market to any point it pleases.

"But if the principle of unlimited competition with the brokers, which is now only creeping into the practice of the Bank, is to be encouraged and established, what is there in the mere pecuniary interest of the proprietors of Bank stock that should prevent such a violent reduction of the rate of discount as would drive weaker rivals from the market, and thus leave a clearer field for the operations of the more wealthy dealer? This is the way in which strict competition elsewhere adjusts matters when the business to be done is not enough for all who are ready to do it. Coach proprietors and steam companies occasionally gain their ends by carrying their passengers for nothing. Why, I say, upon the principle of unlimited competition, should not the Bank of England break the backs of some dozen of its rivals, and, by forcing the surplus capital out of the money market, enhance the value of what it has to dispose of? At present it shows itself

'Willing to wound, but yet afraid to strike.'

It competes timidly, and the less hesitating brokers secure the prize. But it may be said to be against the interest of the Bank to provoke an actual crisis. Looking simply to its profits, I am not so sure of this. It has, indeed, some reason to fear that another crisis may be fatal to its charter; but, upon the whole, I apprehend that the crash of 1847, and every similar disaster, had no unfavourable effect upon the profit and loss balance of the year's transactions. As to its safety, the experience of that year tends to show that at the worst it can always protect itself. It has only to dash resolutely through the universal wreck of mercantile credit, and mercilessly thrust every clinging victim back into the water, in order to secure its own safety.

"The Bank does not act thus injuriously to the public interest, simply because it does not yet carry out the principle of unlimited competition. In its case, as in that of every old mercantile establishment, competition is largely qualified by custom. It loves to stand upon its ancient ways. Its usages and traditions still exercise a great power; but the whole tendency of the system, of which you are one of the most distinguished supporters, is to break down those restraining usages, and to promote

a state of things in which, when capital is plentiful, we may come to see Bank agents jostling bill-brokers in every leading counting-house in the city.

"I know well that the mere approach to such a state of things would be found intolerable, and would only lead to some new banking experiment, or, what would be far worse, to some empirical tampering with the currency. But if upon grounds of public policy, or from any reasons distinct from the pecuniary interest of the Bank, competition is to stop short, it is better to place the limit where it will be most useful.

"I therefore contend for a minimum rate, and not for that alone, but also that, when capital is plentiful, the Bank should refrain from every act tending to throw its own surplus funds upon the market. As to the purchase of stock under such circumstances, it would be evidently worse than the reduction of the discount rate. The latter may not attract any additional borrower, but the purchase of consols or ex chequer-bills absolutely forces the equivalent which is given for them into the mass of capital actively seeking employment. It would take up far too much of your space to advert now to the conduct of the Bank on former occasions, or this would suggest my answer to your argument for the inefficacy of a minimum rate in 1824 and 1835. In the former year, as you are well aware, the Bank commenced its large payments for the dead weight annuities 1; and in 1835, being troubled just as it now is with a superfluity of cash, derived from the West India loan and the assets of the East India Company, it made a special bargain with the discount brokers, by which it obtained the employment of those funds in the market. In other words, it did not then, by reducing its rate, help to render the community inflammable, but, seeing them to be actually in a state almost as explosive as gunpowder, it flung out a lighted torch upon the dangerous mass.

"You deny that the reduction of the bank rate in autumn, 1844, had any influence upon the market. The question is too large for full discussion now. I will only say that your figures for the year which followed show a rising market rate, and therefore a growing scarcity. During that critical period, however, the Bank increased its loans on private securities by no less than £4,000,000. To my mind it seems incredible that that addition, and the impressions which it produced on other lenders, did not help greatly to heighten the speculative fever which was then raging; and I believe that both then, and still more decidedly in autumn, 1846, the wholesome tendency which appeared towards a rise in the market rate was checked by the movements of the Bank, which movements, however, looking to the position of the Bank at both periods, if we are to judge of it as a purely private concern, do not deserve a syllable of censure.

"Before concluding, let me add a word upon your parallel between the trade in money and other branches of commerce. The whole question, is whether there are not special circumstances affecting the former trade, as conducted in England, which take it out of the common category. I maintain that the peculiar and unexampled power which law and custom have given to the Bank of England, constitute such

See Tooke, vol. ii. p. 179, and the Evidence of 1832.

a circumstance. If, owing to those causes, it commands a very large proportion of the whole amount of capital disposable for mercantile loans in London, there is good ground for maintaining that that great weight should be always thrown into the monetary scale in such a way as to limit rather than aggravate its fluctuation. How the interest of every branch of commerce would be served by this means, supposing it practicable, I need not insist. The general principle of free trade assumes that the fairness of competition is not interfered with by unequal privileges. There is nothing in that principle to prevent Parliament from fixing the fares of a railway, or enforcing regulations on the mercantile navy. There is nothing in it, as I think, to prevent the public interest from fixing a limit to the Bank rate of discount."

CHAPTER IX.

THE NEW GOLD.

"Mammon led them on,

Mammon, the least erected spirit that fell

From heav'n, for e'en in heav'n his looks and thoughts
Were always downward bent, admiring more

The riches of heav'n's pavement, trodden gold,

Than aught divine or holy else enjoy'd

In vision beatific; by him first

Men also, and by his suggestion taught,

Ransack'd the centre, and with impious hands
Rifled the bowels of their mother earth

For treasures better hid. Soon had his crew
Open'd into the hill a spacious wound,
And digg'd out ribs of gold."-MILTON.

Three Ways of receiving New Gold.

WITHIN a comparatively short period, ten millions of new gold have come into England. It is important to examine through what channels any part of that gold has found or can find its way into the currency. There are three modes in one or more of which it may have arrived in this country.

1. It may have been brought by owners intending to spend the whole at once as income.

2. It may have been brought by, or transmitted for, account of owners intending to invest the amount as capital, and to spend only the annual proceeds.

3. It may have come directly to merchants, or indirectly through exchange dealers, in payment for English exported goods.

It is scarcely worth while to speak of any gold that can have come in the first mode, although it would be that of most direct

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