CHAPTER XVIII. ON THE ORGANISATION OF THE BANK OF ACT OF 1844. 1. We are now, at length, in a position to take a comprehensive survey of the organisation of the Bank of England, and of the Bank Act of 1844. Of all the Acts in the Statute book, there is none which comes home to every man, which so nearly affects every man's interest, as this Act. Few persons are aware of its extremely complicated nature. We hear sometimes of the principle of the Act of 1844, as if there were but one principle involved in it! or as if the object of it were the same thing as the principle; the object it aims at, the same thing as the theory it adopts to obtain that object. Whereas, in truth, it is founded upon a multiplicity of theories-it is a combination of several theories of currency, and, moreover, devises a particular machinery for carrying them out. When, therefore, we consider its very complicated nature, we see what a boundless field of controversy it may give rise to; for each of the several theories it embodies may be partially or totally erroneous; and even if they be correct, the machinery devised for enforcing them may be imperfect, or erroneous, and insufficient for its purpose. We think, however, that we are now in a position to examine the theories upon which it is founded-to test them by the fundamental principles of monetary science established in the preceding chapters, and to point out those principles-if any -which it violates. In the first chapter we obtained the great fundamental conception, which is the basis of monetary science, that money is the representative of debt, or services due; that, where there is no debt, there can be no money. In the preceding chapter we found that the fundamental error of Law's Theory of Paper Money is, that it creates currency where there is no debt for it to represent. The consequence of which is, that an additional quantity of material is poured into the channel of circulation, as it is called; that is, a greater quantity of material is required to do exactly the same duty as a smaller quantity did before; the consequence of which is a depreciation of the whole, which may proceed to any length; and we have given several examples of the practical results of this plausible and wide-spread, but delusive, theory. We must now examine the organisation of the Bank of England, and we shall find that it, too, is based upon Lawism. But furthermore, we have said that the Bank Act of 1844 is based on a peculiar definition of the word CURRENCY; and is expressly devised for the purpose of carrying into effect a peculiar Theory of Currency. In the last chapter we have examined the meaning of the word CURRENCY, and shewn the entirely erroneous doctrines of those writers from whom the scheme emanated which was embodied in that Act. We have now to examine the THEORY upon which it is founded; and to see how far it really carries out the THEORY it is intended to do; and the consequences it has produced. We may say a few words regarding the origin of the Principle which we are now going to explain. 2. We have shewn that the Roman lawyers had brought the Theory of Credit to absolute perfection; but it is somewhat strange that so practical a people never appreciated the convenience of recording Credit or Debts on written instruments till a very late period. Although debts were permitted to be freely sold like any other article of property, it was necessary for the Creditor, the Debtor, and the Assignee to meet together and agree orally to the transfer of the debt. The only written documents of debt which the Romans used were cheques; there is no trace of their having invented bank notes. Bank notes were invented by the Chinese. About 807 A.D., in the reign of Hian-tsoung of the dynasty of Thang, there was a great scarcity in the country, owing to political troubles and their usual concomitant, a debasement of the coinage. The Emperor ordered all the merchants to bring their specie to the Treasury; and in exchange for it gave them Bills of Exchange or Notes, called fey-tsien, or flying money, payable at the principal towns of the provinces. The convenience of these bills was so great that their use became very popular; but for some reason or another they were discontinued for a time. In 970 A.D., however, in the reign of Tai-tson, there was again great monetary disorder, and the expedient of the fey-tsien was revived. Merchants were invited to deposit their specie in the Imperial Treasury, and they received bills or notes payable in the principal towns of the Empire. These were called pien-tsien, or convenient money. The plan was received with the greatest favour; the specie flowed in, and the issues of paper greatly increased. Similar banks were established in the provinces, and soon became very large. The pien-tsien were made legal tender in commerce. In 997, the Government had received in deposit 1,700,000 taels of silver. In 1021 the sum had increased to 2,830,000 taels, equal to about 21,225,000 francs. These issues were made by the Government, and we see that they were merely in exchange for an equal amount of bullion. This was, therefore, an example of the "CURRENCY PRINCIPLE.” But, about the same time, the first issue of private circulating paper took place. A certain Tchang-yang seems to have been the inventor of this terrible engine. In the province of Chu, which is the modern Sse-tchuen, the money was made exclusively of iron, and was, of course, very inconvenient. Tchang-yang, issued bills called tsy-tchy, and also kuen, to represent this iron-money. Under the reign of Teking-tsong, from 997 to 1022, this invention spread greatly. Private bank notes, called kiao-tseu, payable every three years, were allowed to be current for sixtyfive years. They were for a tael of pure silver. A joint-stock company of sixteen of the richest merchants was formed, with power to issue such notes. The company at first succeeded very well, but new and inexperienced members having replaced the older ones, the company became bankrupt, and caused much misery and litigation. The kuen or tsy-tchy were payable in a different place to where they were issued. They thus resembled Bills of Exchange in their origin. The kiao-tseu were like bank notes, but only payable once in three years. This bank, the first joint stock bank of issue, failed in 1017, but the invention was found to have so many conveniences, that a Commission was appointed to report whether the State might not found a bank of kiao-tseu. The Commission reported in favour of the plan, and in 1023, a State Bank was founded at Y-tcheon, the capital of Chu. It issued notes payable every three years, as the former ones, and all private issues were forbidden. In 1032, it was found that its issues were 1,256,340 taels, or about 9,422,550 francs. The edict founding it ordered that it should. have a capital of 360,000 taels in specie. The pien - tsien gradually disappeared before the kiao-tseu. In 1060 punishment of death was enacted against forgers of kiao-seu. In 1069, the Government established a Bank of kiao-tseu, at Lou-tcheou, in the province of Ho-tong. In 1070, it founded a similar one in Chen-sy to pay the army contractors in kiao-tseu instead of tchao, or short dated bills, as they had been used to. The contractors were so discontented that the Government had to give up the plan, but the bank was kept up. The kiao-tseu were redeemable in three years. The holder might have specie or new bills at his option. They seem to have been so popular, that in 1072, when seventeen of the twenty-two terms had expired, only 6,340 taels of paper had been paid off, and it was decided to create a new series of kiao-tseu of twenty-five terms, to the amount of 1,250,000 taels, to redeem the old series. In 1076, on pretence that the merchants made too great profits at the expense of the Government, the issue of kiao-tseu was suspended in Chen-sy. In 1094, it was observed that trade had drawn a large number of kiao-tseu to Chen-sy, and the province where they were issued was in want of them. To remedy this a creation of 150,000 taels for one term of three years was allowed. In 1102, issues of kiao-tseu were resumed in Chen-sy. In 1107 those of Sse-tchuen were replaced by other obligations, called tsien-yn. About this time the abuses of paper money, which have been so frequently practised in modern times, began. The Tartars were now invading the country; and the Chinese Emperors had no resource except to create immense issues of kiao-tseu. A new series were created, payable every year, of which one of the new was equal to four of the old. The kiao-tseu were replaced by tsien-yn of forty-three terms, payable every year. In all commercial payments above 10,000 tsien one-half was ordered to be paid in tsien-yn, and one-half in copper. These orders created great discontent among the people. Each tsien-yn of 1,000 tsien had fallen to 100. In 1107-1121 the banks for the issue of tsien-yn were relieved from the necessity of cash payments, and the issues were enormously increased. The min of 1,000 tsien had now fallen to 10 tsien. Shortly after this they were sup pressed. They never circulated in Fo-kien, Kiang-tche, or Hou-Kouang; but chiefly in King-tong-si, Hoai-nan, and Caifong-fu, where the Court was, and the northern provinces, where there was always a scarcity of money to carry on the war. In 1131, after the Tartars had conquered the northern provinces, the money was in the greatest disorder. To pay the troops new bills, called kouan-tseu, were created, which were payable in the interior. But when the time for payment came, the Government could only pay one-third part of their value, and so they fell to a heavy discount. In 1133 new issues were made. In 1158, under the same Emperor, the copper vessels of private persons and of the religious sects were confiscated. In 1160 the officers of State were not allowed to have more than 20,000 min or 150,000 francs in money, and private persons half as much. All gold and silver was ordered to be brought to the Treasury; and in exchange bills for tea, salt, and other things were given. In 1159, new State bonds, called kouan-tseu and kong-kue were created, the former for three years, and the latter for two. The provinces of Hoai-sy and Hon-kouang received 800,000 taels, or 6 million francs, of the former; Hai-tong received 400,000 taels of the latter. They were divided in notes equal to 750 and 7,500 francs. In 1160 new bills, named hoei-tseu, were issued on bullion in the Treasury; and the Government declared that they would only use them in the purchase of the annual supplies of salt and other necessaries, and not for State expenses. In 1162 death was denounced against forgers of these bills. Each bill was for 1,000 pieces (or 7.50 francs), and was called a tao. Their circulation was at first limited to Liang-tche, but it was soon extended to Tche-kiang, Hon-kouang, and Pe-king-sy. The Government paid half in specie, and half in hoei-tseu, and ordered the same in private payments. In 1163, the new Emperor Hiao-tsong created hoei-tseu of 500, 300, and 200 pieces (or 3.50, 2.50 and 1.50 francs). No term of payment was mentioned, and so they rapidly fell to a heavy discount. In 1166, the Emperor issued 1,000,000 ounces of silver to buy them up. In 1137, a report stated that in Chu or Sse-tchuen, which was the parent of paper money, there was a mass of 37,800,000 of taels in circulation, or 284 millions of francs. In 1160, it had |