the creation of joint-stock banks in England at a distance of more than sixty-five miles from London.1

The banks which were thus formed exercised from a very early period of their existence the privilege of issuing notes. payable on demand, or, as they would now be called, bank notes. In Scotland, as early as 1704, the Bank of Scotland commenced issuing 1 notes; in England, the Bank of England up to 1759, when £10 notes were issued, issued no notes of a smaller value than £20. But, from their first institution till 1775, the private English banks were in the habit of issuing notes of low value. In 1775 Parliament forbade the issue of any notes of less value than £1; in 1777 it raised the minimum to £5. When, however, the pressure of the war forced the Legislature to suspend cash payments, notes of a smaller value than £5 became necessary for the ordinary purposes of everyday life; the Act of 1777 was accordingly repealed, and the issue of £1 and £2 notes again became legal. The change which was thus made continued in force till 1826. Parliament, in that year, while sanctioning the formation of joint-stock banks, renewed the prohibition of notes below £5. It was, in the first instance, intended that the prohibition should apply to the entire kingdom. The zeal of Sir Walter Scott was instrumental in preventing its extension to Scotland, and the Scotch banks retained the privilege, first exercised in Scotland in 1704, of issuing £1 notes.

Banking legislation, therefore, in Great Britain had from 1704 downwards proceeded on distinct principles. In England, from 1704 to 1826, companies of individuals had been precluded from forming joint-stock banks. In Scotland, on the contrary, such companies had always been legal. In England the privilege of issuing notes had been the constant subject of legislative restrictions; in Scotland no such restrictions had been enforced.

1 Liverpool, Huskisson, and Baring wished the new banks to be formed on what would now be called Limited Liability. But this course was made impossible by the opposition of the Bank of England. Hansard, vol. cv. P. 141.

The forma tion of joint

stock banks.

The Act of 1826 led to a diminution of private banks and the formation of joint-stock banks in England. The former diminished from 554 in 1825-26 to 411 in 1834-35. The latter gradually increased in numbers, till 55 were registered in 1834-35. In the latter year fresh encouragement was given to joint-stock banking. The Grey Administration availed itself of the opportunity, which the expiration of the charter of the Bank of England afforded, to revise the banking system, and to repeal the provision in the Act of 1826 which had prevented any joint-stock bank approaching within sixty-five miles of the metropolis. A new impulse was thus given to the formation of joint-stock banks. While only 55 of these banks had been registered up to 1834-35. 100 were registered in 1835-36, and 118 in 1841-42. These figures, moreover, only imperfectly illustrated the extent of the change. Most of the new banks had many branches, and one bank, therefore, frequently, or even usually, represented a large number of local banks.

So startling an alteration naturally excited much attention. In a short period of fifteen years the whole banking system of the community had been altered. An inconvertible currency had been superseded by notes convertible into money, the

1 Althorp, in 1832, moved for a Committee of Secrecy to report on the expediency of renewing the Bank charter. Hansard, vol. xii. p. 1356. The Committee was unable to agree upon a report. Spencer, p. 468. But, on the 31st of May 1833. Althorp himself explained the terms on which he proposed that the charter should be renewed. He paid off one-fourth part of the debt due from the Government to the Bank, reducing the amount of the whole to about £11,000,000; he renewed the charter till 1855, with a proviso that it might be terminated on or after the 1st of August 1845, after twelve months' notice; and he made the notes of the Bank legal tender everywhere except at the Bank itself. The effect of this provision, which was opposed by Peel, was to enable country bankers to cash their notes in bank paper and not in coin. At the same time he repealed the restriction which had previously prevented the formation of joint-stock banks within sixty-five miles of London, though it was provided that banks within that distance of the metropolis should not be banks of issue; he subjected every bank to a payment of 75. (in lieu of the stamp duties previously payable) on every £100 of notes issued; and he provided for the periodical publication of the accounts of the Bank of England and of all banks of issue. For the Act see 3 & 4 Will. IV. c. 98. The chief debates on it are in Hansard, vol. xviii. p. 169; vol. xix. pp. 82-109; vol. xx. pp. 452, 764, 839.

The Committee of 1836.

monopoly of private bankers had been destroyed, and jointstock banks had been everywhere instituted. Speculators formed new companies, prudent persons trembled at the possible consequences of unlimited speculation, and economists doubted whether directors, ignorant of the elements of banking, were likely to conduct the business on approved principles. These fears led in 1836 to a motion for a committee to inquire into the joint-stock banks. The Committee reported that the law imposed no adequate restrictions on the formation of banks, that it laid down no definite regulations for their capital, their paid-up capital, their shares, or their accounts; and it expressed a strong opinion that the stability of these institutions deserved the serious consideration of Parliament. The same conclusion had been forced on the public by the financial disasters which occurred at the time. The feverish speculation of 1836, to which reference has already been made, necessarily produced some pressure on the money market. At this precise moment the financial policy of the United States created a considerable demand for gold, which, in consequence, flowed steadily from England to America. The bullion in the Bank, which had amounted to nearly £10,000,000 in January 1834, declined to about £4,000,000 in January 1837.3 The Bank, with this pressure upon it, took no adequate steps to restrict its circulation, and the private and provincial banks slightly increased their issues. The Bank of England had only £4 of bullion in its coffers at the last of these dates for every £10 at the former, and the paper money in circulation, nominally convertible into gold, had actually increased in the interval from £28,368,000 to £29,433,000. Such a state of things was full of peril. The

1 The substance of the Report was reprinted in the earlier edition of M'Culloch's Commercial Dict., ad verb. "Banks (English and Provincial)."

2 The circumstances under which the American demand for gold arose are clearly explained in Tooke's History of Prices, vol. ii. p. 285.

3 Ibid., p. 326.

4 Mr. Courtney, in his article on "Banking" in the Encyclopædia Britannica, has laid the chief blame on the joint-stock banks, which largely increased their issues between December 1835 and December 1836. But he seems to have laid no sufficient stress on the facts (1) that the issues of the joint-stock banks repre

failure of a great bank in the autumn of 1836 brought the danger home to every observer. The speculation was at once checked. Industry generally staggered under the The crisis shock; commerce suffered from the fall of prices of 1836. which panic had produced; the labouring classes found themselves without employment. The agitation which consequently arose has already been related in this work, and the Chartist riots of 1842 and the prosperity of the Corn Law League may thus, with some approximation to truth, be ascribed to the crisis of 1836.

There was one prominent politician to whom such a crisis appealed with a voice of thunder. Peel was the leader of the Conservative party, and he was the author of the Act of 1819. He had succeeded in 1819 in substituting a convertible for an inconvertible currency, and he saw with consternation that the policy of the Bank of England and the provincial banks had brought a second suspension of cash payments within appreciable distance. When the Bank had only £4,000,000 of bullion in its coffers, and £29,000,000 of notes were circulating in the country, it was impossible to contend that the paper currency was, in any true sense of the term, based on gold. This general conclusion must have been pressed home to him by the ruin which burst on the United States in 1837. Something like free banking had been established in America, and in seven years the currency of the United States increased from $66,000,000 to $149,000,000. In 1837 every bank in the Union stopped payment; 180 banks were totally destroyed; and society in the States was temporarily prostrated by the ca'amity.1

sented only a small proportion of the provincial issues; (2) that during the period of extreme pressure the country banks contracted their issues, while the Bank of England increased its issues. See Tooke's History of Prices, vol. ii. pp. 311-17. The increased issues of the joint-stock banks were partly due to the circumstance that many private banks were turned into joint-stock banks in the beginning of 1836. It seems, however, certain that in 1825 and 1839 the provincial issues increased concurrently with a considerable decrease in the bullion in the Bank. See Peel's speech, Hansard, vol. lxxiv. p. 1341.

1 Mr. Courtney is responsible for these figures. Encyclo. Brit., vol. iii. p. 339. But many of his statements-indeed, the greater part of his article-are

of Peel.

In two capacities, therefore, Peel had reasons for desiring a fresh reform. As the leader of a great political party, he distrusted a commercial system which had been directly reThe attitude sponsible for distress and indirectly productive of disturbance. As the author of the Act of 1819, he disliked a policy which enabled paper money to circulate in increasing quantities while the supply of gold in the country was diminishing. The terms of the Act of 1833 afforded him an opportunity for revising the Bank charter, and he seized the occasion to supplement the labours which he had accomplished a quarter of a century before, by reforming the currency of the kingdom. In the first instance, he had the prudence to confine his measure to England and Wales. For that portion of the kingdom he desired to institute one great bank of issue. The issue business and banking business of the Bank of His bill of England had been hitherto conducted in the same department, and the issues had been regulated on what were technically known as banking principles. Peel decided on separating the banking from the issue department, and on regulating the issues by what were commonly called currency principles. The issues were to be determined, not by the demand for paper money, but by the amount of bullion in the coffers of the Bank. The Bank was to be at liberty to issue £14,000,000 of notes on the security of the debt due to it from the Government and of Exchequer bills. But all issues above this amount were to be based on bullion, threefourths of which were to consist of gold.

1844.

It was Peel's wish to go still further, and to prohibit the issues of country bankers. But he did not venture on carrying out this policy in 1844. He contented himself with prohibiting new banks from issuing notes, with limiting the issues of old banks to their existing amount, and with insisting on the publication of weekly accounts by the banks of issue. This

founded on, or enlarged from, M'Culloch's article in his Commercial Dict., which was republished in the earlier editions of the Encyclopædia under the title "Money." Wood said the increased American circulation in seven years was from $61,000,000 to $186,000,000. Hansard, vol. lxxiv. p. 1354.