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Page 50
During this eventful period there were large numbers of provincial banks
of issue created in England and Ireland. These were managed mainly with
a view to private profit, while the public interests have suffered
severely from the frequent expansions and contractions of the volume of
the currency through such private management, and from the numerous
failures of these concerns. The evils of this system were for many years
the subject of discussion in Parliament and among prominent journals. In
1826 the Edinburgh _Review_ expressed the opinion that
'So long, therefore, as any individual, or association of
individuals, may issue notes of a low value, to be used in the
common transactions of life, without lodging any security for their
ultimate payment, so long is it _certain_ that those panics which
must necessarily occur every now and then, and against which no
effectual precaution can be devised, must occasion the destruction
of a greater or smaller number of banking establishments, and by
consequence a ruinous fluctuation in the supply and value of
money.' (_Edinburgh Review_, February, 1826.)
This was a period of great speculation in England. In the year 1823 no
less than 532 companies were chartered, with a nominal capital of 441
millions sterling. These speculations were fostered by the increasing
volume of bank paper. The evil increased, and was allowed to exist until
the year 1844, when a stop was put to the further increase of the volume
of bank circulation, and to the further incorporation of joint stock
banks.
We learn one lesson here, which may have a good effect upon us if we
will bear it in mind in our future legislation, and take warning from
the experiences of our contemporaries. We allude to the obvious
necessity in a country like ours, and, indeed, in any country, of
maintaining a national moneyed institution as a check upon the
vacillation, expansions, and contractions which mark the policy of small
banks of issue. This national institution, while free from individual
profit, and without power to grant individual favors, should create and
perform the functions of a national currency, and execute all the
details required by or for the national treasury. Its chief utility
would be as a check upon the excess to which all joint stock banks are
liable--a sort of controlling and conservative power to prevent that
mischief which our past experience shows has been the result of paper
money when issued merely for private gain.
The advantage, the convenience, we may say the _necessity_, of a
national circulation of paper money, are fully demonstrated by our own
past history, and by the history of European nations. This circulation
should be dictated by the wants of the National Government, and
convertible, at the will of the holder, into specie. With these obvious
restraints it would accomplish its ends and aims.
The Bank of England, in its early stages, was endangered by various and
extraordinary circumstances. Within three years of its establishment it
was compelled to suspend payment to its depositors in cash, and issued
certificates therefor payable ten per cent. every fortnight. In 1709 the
Sacheverell riots occurred in London, and fears were felt that the bank
would be sacked; but this violence was obviated by well-trained troops.
In 1718 John Law's bank was established in France, and for two years
kept the people in a ferment. This was followed by the South Sea scheme
in England, in 1720, 'a year (the historian Anderson says) remarkable
beyond any other which can be pitched upon for extraordinary and
romantic projects.' The bank, of course, suffered by these speculative
measures, and was repeatedly exposed to a run upon its specie resources.
In 1722 the _rest_ (or reserve fund) was established by the bank, as a
measure to cover extraordinary losses in the future, and to inspire more
confidence among the public as to the ability of the bank to meet
reverses. This fund, in July, 1862, had accumulated to �3,132,500
sterling, or about twenty-one and a half per cent. of the capital.
The first forged note of the Bank of England was presented in the year
1758, or sixty-four years after the bank was established. In 1780 these
forgeries became more numerous, and were so well executed as to deceive
the officers of the bank.
Let us now recur to some of the incidents connected with the bank in
early ages. Of these, the author, Mr. Francis, furnishes numerous
instances.
Among other frauds upon the bank was that of clipping the guineas, by
one of the clerks employed in the bullion office. This occurred in 1767.
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