John Tilden Prince.

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le Ministry. It is hard to believe that the latter can be the case,
sed as this letter is in almost every respect to all previous legislation
lis subject ; but if the Chancellor really expresses the deliberate opi-
of the Ministry, this letter will be very important as marking a new
Murture " from our currency legislation— to be followed, presumably, a



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304 Cofnm unicationa.

no yery distant date, by legislative action in order to carry these new
principles into effect. With a Ministry, however, presided over by
one who was a disciple of the statesman who brought forward the
Acts of 1844 and 1845 for regulating note issues in the United King-
dom, it is more reasonable to suppose that the letter contains simply
Mr. Lowe's own views on a matter connected with his own department,
and that his colleagues are not responsible for it. Two points in the
letter are, no doubt, qaite true — namely, that a simple repeal of the Act
of 1845 would not afford a remedy for the evils of which the memorialists
complained, and that a paper currency to be in a sound condition must be
payable in gold on demand. It does not, however, appear that the memo-
rialiftts asked for the establishment of banks with power to issue incon-
vertible notes, neither does it clearly appear that they intended, even if
they asked for, a simple repeal of the Act. They may not have oon-
sidered it their province to dictate to the Chancellor the conditions on
which banks should be permitted to issue notes, but probably left it to the
Government to impose whatever conditions might be necessary to ensure
the perfect convertibility of the notes— their object being to break down
the monopoly which they alleged the Act of 1845 conferred on those
banks in existence at the time of its passing. It is not necessary, however,
to defend the proposal of the Glasgow Chamber. It need only be pointed
out that on the only two points on which Mr. Lowe is sound, they are
not necessarily unsound ; while in all the rest of his letter he appears,
when judged by all our existing currency legislation, to be completely in
error.

This letter is useful, as indicating the shape which any legislation on this
subject would take if brought forward under Mr. Lowe's auspices. It is
further interesting as showing that the great fallacy, known as " the
currency principle," has at length been adopted by, at least, one statesmim.
If carried into effect, however, it would not only be a toiil subversion of
our present system, but would put an end almost entirely to the trade and
commerce of the coimtry.

One is reminded, in reading this letter, of the strong demand that is
just now being made for Government interference in matters purely
commercial, which business men should especially resist, unless private
enterprise is to be abolished altogether.

The Government already undertakes, through the Post Office, a large
money order, savings bank, assurance, and annuity business, for whiph
it competes unfairly with banks and insurance companies, in that it pays
nothing for postages, license, or stamp duty.

The Electric Telegraphs have also recently been absorbed by this
department, and proposals are constantly being made Uiat iiie Govern-
ment should further acquire and work the whole of the Railways of the
United Kingdom.

If the Government is now to setup as the national banker as well, why
not set up national workshops and national cookshdps, too ? Or why stop
short of perfect Communism, which makes the Government a terrestrial
Providence, doing everything for the people, but, at the same time,
destroying the independence and commercial enterprise of the nation?
With reference, however, to Mr. Lowe's letter, he lays down —

1. That the issue of notes is the creation of money, and the creation of
money is the business of the State.

2. That hence it follows that the issue of notes by private banks, or
trading associations, is rather an anomaly which may be tolerated than
a right which ought to be extended.



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Communications. 303

. TljAt for a paper currency to be in a sound condition, it must fulfil
three following conditions :— (a.) It must be convertible into gold on
land. (6.) The issuer must hold sufficient security to provide for the
payment of his notes, (c.) A mixed currency of paper and gold
[t be at all times of the same amount as a purely metidlic currency
Id be.

B to the first condition, that the issue of notes is the creation of money,
the creation of money the business of the State.

o speak of " creating money " is a loose term, and is liable to cause
iusion. The French Republic tried to ** create money " by means of
gnats, with what result is too well known. The present is, however,
first time that such a proposition has been authoritatively brought
rard in this coimtry by any one in Mr. Lowe's position.
Lr B. Peel, when introducing the Bank Act of 1844, stated that *' some
contended — and he was not prepared to deny the proposition— that, if
bad a new state of society to deal with, the wisest plan would be to
n for the State the exclusive privilege of the issue of promissory notes."
however, did not say that he adopt^ this view — ^he simply said he was
»t prepared to deny it."

[r. Ix)we, on the other hand, now lays it down as a proposition
nerally recognised," that it is the business of the State to maJce such
B8, in the present state of society.

submit, however, that the business of the State in this matter is simply
rotect itke receivers of such notes by requiring the issuers to give security
bheir convertibility. This condition being satisfied, any further inter-
nee would be mischievous.

otes and all forms of paper currency are simply instruments of credit,
the development of ciedit is the business of a banker. If the State
trarily restricts a banker in any legitimate branch of his business, it
ails his profits, and by thus reducing the inducements to continue in
ness, causes an injury to the public by limiting the competition which
althy and an unfettered system supplies.

Mr. Lowe now proposes to interfere in the '^ creation " of (paper)
ey to any greater extent than he interferes as Master of the Mint in
'* creation " of coins, he will make a serious mistake,
t the Mint his sole duty is to stamp certain pieces of gold, brought to
by the public, to certify that they are of a certain weight and fineness.
Y were simply pieces of bullion before, but by stamping them they
me coins. This operation, however, does not create their value — ^it
' certifies that they possess that value.

B it is thus the ^ business of the State " to *' create money," so far as
stamping of the pieces of bullion converts them into coin, and thus
)le8 them to pass current in the discharge of debts, <Src., so it may equally
he business of the State to ^' create (paper) money " by stamping all
s issued by bankers, requiring them first of all to deposit sufficient
rities to ensure their convertibility in case of bankruptcy, <S;;c. This
iping of the notes would have the same efiect as the Mint stamp upon
soins, enabling them to pass current, and certifying that they are of the
e they represent.

he issue of notes was formerly not only, as Mr. Lowe says, ^' regarded
le business of a banker," but was in fact apart of the business of every
cer, except of some carrying on business in London, who were pro-
ted from issuing, in order ^to protect the monopoly of the Bank of
[land,
was because the privilege of issue was abused that restrictions were



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30& CanmunietUions.

placed upon it by the Act of 1844, in the interest of the public, not to pro-
tect the rights of the State. The right of banks then in existence to
continue their issues was distinctly lecognised. But in the event of any
of their issues lapsing, no provision was made for the State to issae notes
to supply their place ; but power was given to the Government to autharise
the Bank of England, '^ a private tradmg association,'' to increase its iasoeB
upon the deposit of further securities.

As we have thus shown that Mr. Lowe is quite wrong in his doctrine
about the creation of money, this, at the same time, effectually disposes of
the inference he draws from it, that ** hence it follows that the issue of
notes by private bankers is an anomaly which may be tolerated rather
than a right which may be extended."

3. Witi^ reference to the conditions laid down as necessary for a safe
paper currency, the first (a) is undoubtedly sound— namely, that all such
notes be payable in gold on demand. If Mr. Lowe had stopped hetre he
would have correctly indicated the one indispensable condition for a sound
paper currency. He, however, goes further, and requires (b) that the issuers
should hold sufficient security to ensure the due payment of his notes.
This is an '' Irish " idea of security, certainly. Mr. Lowe, at a recent
Scotch banquet, expressed a wish that he were a Scotchman, but this Irish
idea of " security" would lead to the inference that, despairing of being
received into brotherhood by the canny North, after his refund of this
request he was " hedging " for the Qreen Isle ; for his idea of " security "
just fits the popular notion of what would suit the convenience of Padayy
who would like to take his garment to his '' uncle " as a pledge, and be
allowed to retain the security along with the loan. Let Mr. Lowe ojpea a
pawnbroking establishment on this principle, and let every customer who
wants a loan take back his pledge along with his money. He will hava
plenty of business as long as his money lasts, and he will be the most
popular ^' imcle " that ever dangled the three golden balls in the sight
of the public.

In business, however, we do not ask a man who incurs a liability to us
to ''hold" the security necessary for its redemption. If he did it would
be no security for us at all. We ask, in such cases, that the seouriW be
deposited in our ofjon hamdsy or, at the least, in the hands of some toiid
party in whoni we have cood&dence. So, as to bank-notes, the banker who
issues them i^icurs a liability to the public, and should be required to
deposit with trustees speciaJly appointed for that purpose, sufficient
securities to provide for the redemption of his issue.

To propose that the issuer of the notes should himself retain the securi-
ties to cover them in his own possession is too ridiculous for disonssioiL by
commercial men.

The next condition (c) adopts the great fallacy known as the ^ currency
principle," brought forward by some of the witnesses examined by the
Committee of the House of Commons, on the system of paper issues, in
1840. It was not, however, adopted by that Committee, nor by the Govern-
ment in bringing forward the Act of 1844 ; and, iiiough many well-known
men have since been converted to it^ this is the first time that it has been
authoritatively laid down by a Minister of the Crown.

Mr. Lowe, however, must fully believe in it, as he expressly states that
it is because the plan of the memorialists does not fulfil this condition that
it appears to him inadmissible.

To require that '^ a mixed currency " of paper and gold ''shall be at all
times exactly of the same amount as a purely metallic currency " wonid
be to require an impossibility.



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Communicaiiam.

rhe Bank of England itself, whose notes Mr. Lowe suggests shoulc
Ae a legal tender in Scotland, issues £15,000,000 notes upon seouri
liout holding any gold against them. Coontiy bankers who have isi
are not required by law to keep any gold to provide for the due p
nt of their notes, and banks in Scotland and Iceland have large aul
9d issues without being required to keep gold against them. Such ba
no doubt, keep a certain quantity of gold for this purpose, but f
tter of business merely, not of regidation by law, and any new ba
Id equally do the same.

t is impa<»ible to lay down any other rule as to the amount of no
legal tender, in circulation, than that they shall **be convertible i
d on demand," without imposing imnecsssary, unsoimd, and arbiti
frictions on business.

Ir. Lowe would seem to consider that the currency of the country c
8 (besides gold) of bank-notes only ; and appears to indicate a wisht
aotes, excepk those of the Bank of England, should be issued for
ire, until he can bring out his grand scheme of a national pa
rency.

(ank-notes, however, form but a very small portion of the currency
lulating mediiun of this country. All banks have, in spite of the .
844, as large— or nearly as large— a circulation as they require by me
iheques, &c., which circulate freely in the discharge of debts, and are t]
nuch money as bank-notes are. To demand that the currency sho
exceed the amount of gold in the country shows, to say the least
it of appreciation of the requirements of business hardly to beezpec
n a Chancellor of the Exchequer.

f oreover, if Bank of England notes are to be made a legal tender
bland, as Mr. Lowe suggests, he must contemplate an increase in tb
>unt, as those now issued are not more than sufBcient for the
rements of trade in England and Wales.

nch an increase could only be made by notes based on securit
fold could not be retained permanently to provide for a definitely
ksed amount of notes. Mr. Lowe woidd thus give to a ^' private tradi
oiation " (for the Bank of England is no other) what he has him&
ed belongs to the State—** the power to create money ; " and would g
n this power without reference to the amount of gold available to mi
r increased issues, thus authorising them to issue legal tender not
ch ** could not be in a sound condition," as they would exceed i
»ant of gold in tibe vaults of the Bank.

a w. 0.



BANKERS' NOTES "NOT" PAYABLE IN LONDON.
IB, — By your kind permission I will avail myself of your large!
ulated Magazine among the banking profession, to draw attention
,t I consider a great inconvenience to a large class of that body, a
ibject in which, I think, all bankers should co-operate to put a stop
ome way.

he facts are simply these. Many of our banks in England, chiefly
North, issue " notes " not payable in London ; consequently, su
tes " have to be sent direct to the bank of issue. I only menti
i when I say that, to my own knowledge, I have' seen £400 of the
tes " drawn on different establishments, being remitted by a bank
day direct, which entailed the writing of numerous letters, each bel



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308 Communications,

stamped and registered. Most banks daily despatch a registered remittance
to their " London ageats," and were the " notes " referred to payable
in London, they would be included. It is not once in a way I have
Witnessed the grievance complained of, knowing many banks who are put
to this trouble every week ; and I must say it is most unfair that any
bank's postages should be so unreasonably augmented.

Before concluding, I wish to allude to a practice some banks have
(whose '^ notes" are payable in London) of omitting to insert the name of
their *' London agent " on the face of them, which necessitates its being
done by the remitting bank, thereby giving a great deal of unnecessary
labour and trouble. I hope in future these banks will make this
amendment.

Can any of your numerous readers suggest any means that would
suppress the practice of issuing " notes " not pay Me in London f A friend
of mine suggests charging a commission for cashing all such *' notes,"
and I think if such a plan were universally adopted, it would surely tend
to diminish the number of banks still adhering to the grievance so much
felt. If, on the other hand, it should prove ineffectual, I think all bankers,
bank directors, and managers should then petition Parliament to legis-
late in the matter.

Yours obediently,

7th February, 1873. Peter Andrew Smith.



NOTE ISSUES.

Sib, — ^Your correspondent, Mr. Croft, after declining further to discuss
my scheme for note issues, returns to the subject with more vigour than
consistency.

He states that I have evaded his question as to what would be done " if,
at the height of a panic, there was a rush for gold in exchange for these
legal tender notes ?" I have not evaded the question, but have replied that
there would be an Order in Council, not for the first time, suspending cash
payments, so as to prevent the long catalogue of unheard-of disasters which
his distorted vision had conjured up.

By an Order in Council I meant, of course, the action of the Legis-
lature under the proposed law, similar to the action of the Legislature
under the existing Bank Act of 1844. The law would be suspended in its
action, before the utter ruin predicted by your correspondent would be
permitted to take place.

But then he is sorely puzzled to know how an Order in Council, suspending
the proposed Act, could avail to stop a panic caused by the distrust of legta
tender notes ; and this, evidently, arises from the erroneous views he enter-
tains on the subject.

A legal tender note, he says, is inconvertible^— '^ legal tender means, if it
means anything, that there shall be no person of whom gold can be de-
manded.'' It has not been my intention to make notes inconvertible : the
dauses of my Bill expressly provide for the contrary ; and the result of sach
an enactment would be to make them, in every sense, convertible.

Is Mr. C. right in his statement that legal tender notes are incon-
vertible ? Are Bank of England notes convertible ? If so, according to
this oracle, they are not legal tender ; but who does not know that a bank-
note is legal tender, and yet convertible, as between buyer and seller, into
every conceivable commodity or security, and into gold at the place of i^ae,
or at the central establishment " here or in London " ?



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Commun ications. 309

'. have argued that country bankers' issues, being fuUy secured, should be

stituted legal tender in order to render the banker independent of

ank."

^ing fully secured, it is inconceivable that there could be any panic

sing from a d istrust of them. Does Mr. C. consider what distrust of such

168 would imply ? First of all, confidence must be entirely lost in the

iker issuing the notes, notwithstanding his deposits with (rovemment, to

) maximum of his issues ; secondly, the National Exchequer, whose

urance the notes would bear, must be regarded as bankrupt.

'. think your readers wiU agree with me that with the security which

Bill provides, a general distrust could not arise ; or if it did, and a panic
3 the result, causing a contraction of the note currency to an enormous
cunt, rendering it necessary for the Chancellor of the Exchequer to
tvert large sums of Consols into gold at a time when such assumed
amities existed, the only thing to be done would be to suspend cash
^ments.

Vir. Croft makes his argiunent of distrust to rest upon his argument of
^r-issues.

[ thought I had "settled" him on this point "months ago" by a
erence to the depreciated issues of bankers at the present time ; but he
w says my remarks thereon were a fallacy, and proves it, much to his
n satisfaction, doubtless, by saying that any " tyro in banking " could
1 me that bankers' issues must of necessity be within the limit given in
i4, and further shows, or attempts to show, your readers, that the actual
Loimt of country issues is the result of vigilance on the part of bankers
keep within lawful limits.

Will Mr. Croft risk his reputation for fair and honest criticism on such
itatement ? If so, let him proceed to prove that with a prescribed limit

£6,689,649 it is necessary as a precautionary matter to issue only
1,996,408. , And further, that some bankers are obliged to keep their cir-
Lation 50, ^0, and even 80 per cent, below the mark !
Your coiTespondent has gone back sixty years for the case in point to
ove that my system would result in clerks not worth £100 getting dis-
lints from bankers to the extent of £5,000 or even £10,000. I dispute
e inference which Mr. C. draws from the quotation he has given. Ue is
mparing things which differ essentially. Let a banker, if possible, com-
snce kite-flying, i.e., inflating his issues, imder the system proposed by
3, and he will find himself compelled to raise the wind in an adverse
rection. If he will overtrade with his notes, he must find capital to
posit with the Exchequer, as all his notes must be based upon cash.
Security to the public, in using and holding notes, is my object, and to
tain this, and at the same time to get rid of the anomalies which exist,
iiave propounded my scheme.

As to the form of note for which Mr. C. is so clamorous, and which, he
^es, must of necessity be payable nowhere— never, and yet contends at
e same time that the public would devour them greedily, even to ten times
e amount of all legitimate purposes — " if he really cannot discover from
y Bill what the form of the note would be," if he will ask " the merest
ro in banking," he will be informed that it would be payable to bearer
L demand at the place of issue, " here or at, &c., <bc. "

J. B.



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810

REFUSAL OF THE PAYMENT OF CHEQUES.

Sib,— Can a banker legally refufie payment of a cheque drawn upon
him, presented by another banker, on the grounds of the cheque not being
date^ if sufficient funds are in hand to meet it ? Can the banker ask
his brother banker to date such cheque and then honour it, well knowing
that his customer had not dated such cheque ?

12th Feb., 1873. X. Y. Z.

[A date is not generally essential to a bill of exchange, and as under
existing laws a cheque is assimilated to a bill of exchange, we do not
think a banker will incur any risk by paying a cheque wi&out a date. —
Ed. B. M.]



ENDORSEMENT OF CHEQUES.

Sir, — ^A cheque is presented to me for payment, payable to Mrs. A. B.
or order, and endorsed H. B., husband of A. B.

This cheque was given in payment of interest due to the lady, for
which the drawers held her receipt.

Can I legally refuse to pay the cheque ? Did not the money pass into
the possession of the husband after the receipt was given ?

Yours respectfully,

Sheffield, Jan. 2nd, 1873. A Bank Manaqbb.

[We think, if you are satisfied that H. B. is the husband of A. B., you
might Bfliely pay the cheque. — Ed. B. M.]



BANKERS' PRIVATE ENQXHRIES.

Sib, — The decision in the case of Swift «. Winterbotham having
finally gone acainst the Gloucestershire Banking Company, it behoves
bankers to look to themselves before they continue the absurd practice
of replying indiscriminately to enquiries as to the responsibility of their
customers.

As the general manager of a banking company, I have for some montha
required my branch managers to send me all letters from correspondents
desiring information &s to the responsibility of our customers ; and the
consequence was, that I had to answer about a dozen letters a day, some
of them enquiring as to the reBponsibility,''of parties for (what 7) £50 ! —
and the beauty of it is, that in the majority of cases no postage stamp
was enclosed for the reply. I find that this practice emanates chiefly from
the branches of two large establishments who have their head-office in
London.

Now, I ask, why should I run the risk of being mulcted in damages,
simply to assist (who ?) Tom, Dick, or Harry, who I have no interest in
whatever, but who, if perchance I should deviate in the least from plain
facts, would bring an action against me, and I should have the gratifi-
cation of bearing whatever loss may have occurred in a transaction of
which I had no knowledge or interest in the remotest degree 7

It might be said that some occasion may arise when information of this
description may be of exceedingly important service to myself, to which
I reply, that I make it a rule never to trust to another man's judgment.
If 1 have not sufficient confidence in my customer to grant him an^advanoe



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Com

snm required without be
>ther party, I don't make
a alight curtailment of ci
her to expand credit bej
ring a sendee to society
tdar, by setting at nou|
lioed in some cases and ii
%Ye on a former occasioi
fearful extent, and I sii
I have alluded will have
1 events, for the future
ries, but to refer my yari(
irbotham.



h Feb., 1873.



OHE<;

^, — ^I shall be much oblige
re, in your next issue, ho^
Brown or order, should b
Q ; is it sufficient that she
iy Margaret Brown with
) the ba^er drawn upon



Online LibraryJohn Tilden PrinceThe Bankers' magazine → online text (page 42 of 150)