Heft „London 1868“. IX. The Money Market Review 1866, September–Dezember

Nach der Handschrift, MEGAdigital (MEGA² IV/19).¹ Traducción al español

1 Sept. 1866. N. 326.

Paper of Leone Levi (Prof.) read at British Association at Nottingham. (Rate of Interest.)

Abolition of Usury Laws in 1839. Levi shows that during the last 20 years since Act of 1844 the average rate of interest has been progressively rising.

It is not the higher average, but the sudden, frequent, and extreme fluctuations that constitute the evil of Act of 1844.

Aber Levi giebt no sufficient reason: besonders auch nicht für difference in der Rate der B.o.E. und der of France. Principal Reason: Act of 44?

Die Reasons of Levi für den rise des Average in England sind:

1. Large Increase in English Trade: 1849 Exports: £63 Mill., 1865 £165,860,000 1854. Imports: 152£ Mill. 1865. 271,000,000.

Shipping has increased in the same proportion. Levi forgets, that with this increase of trade, concurrent increase in profit, wealth and amount of loanable capital. Die Advocates of the Bank Act say, that an increase of trade necessitates no increase of currency, but only an increase of capital. In one sense they are right. The same amount of currency will be sufficient, if currency eked out by an expansion of credit, and the holders of „loanable capital“ be thereby enabled to command higher rates of discount for the temporary use of it. That is the object of the arbitrary limitation upon the banknote issues, and it has answered, as shown by the higher average rate, and the extreme fluctuations. As to the increase of trade per se, so French trade in last 20 years increased in the same proportion. Dennoch in France 4%, while in England 10%, in France now 3, while in England 6%.

2. Annual Export of precious metals for the East. Zeigt nichts für den average der last 15 or 20 years. Silver did not return, but we obtained, in exchange for it, something else, which we exported to other countries for equal or greater amount of silver and gold, and, therefore, the temporary abstraction of those amounts will not account for a permanent rise.

3. Immense Number of Joint Stock Cos: In 1864 and 1865 were 832 Cos. formed mit authorised capital of £362,935,000, much of that capital invested or prepared to be invested in public works. But, the capital of a Joint Stock Co. is not so much capital taken out of the country, nor so much currency taken out of circulations; it is only so much money transferred from the names of the respective subscribers to it, at their bankers, to the credit of the Co. as their bankers. The formation of a new joint stock Co., and the aggregation of their capital, differs in no material respects, from the formation of a new firm of bankers, merchants, or traders, and the combinations of their capitals.

„Great Authorities“ on the Bank Act of 1844. Money or Capital wanted? (in Crisis)

One authority Bonamy Price (in Economist und Daily News). Dieß Vieh entdeckt, daß Notes nicht Kapital sind, und daß in den Crisen nicht money, sondern capital was wanted.

The capital, bankers deal in, is in the shape of money. Money not only represents, but commands capital; therefore, the term used as synonymous with capital. If it be commodities or capital which traders want during a crisis, and not gold or banknotes, perhaps Mr. Price will tell us how it happens that gold and banknotes and not capital or commodities are always found to be the appropriate remedy? When banknotes are issued, commerce relieved, panic at end.

Great Eastern Railway. Ditto London, Chatham and Dover.

Great Eastern expended during past year on capital account more than £800,000, its receipts of capital were nearly £700,000 less at 30 June 1866 than 30 June 1865. On 30 June 1865 cash balance of more than £400,000 in hand, at 30 June 1866 cash account in debt more than 1 Mill. Money crisis had its effect upon Great Eastern. They have not been able to renew their debentures as they fell due, and found the utmost difficulty in paying off that part of their mortgages which fell due in the late crisis. The preference charges are this half year not met from revenue; charges have been made to capital for calling stock etc and by such means dividends, never earned, have been paid. This last half year no dividends paid, because capital account never so much overdrawn.

For last half year: Increase of Expenses £150,911 (£103,454 in Preference Charges, 47,452 in working expenses) Increase in Gross Revenue: £14,151. Balance against Dividends: £136,760.

If the Great Eastern could only banish all lawyers, contractors and engineers from their domain, they might do very good.

Was die London, Chatham und Dover angeht, so haben sie, instead of applying the earnings of the Beckenham and Dover Line (the socalled „general undertaking“) to the debentures of that particular section, to which they belong, applied them to the loss in the Kent Coast of the Metropolitan Extensions, the Lease of Sevenoacks Line and other matters with which the Debenture holders on the Beckenham and Dover line have nothing to do.

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8 September 1866. N. 327.

English Capacity.

English Gvt the most costly in the world, and the worst.

If we look to our legislation and administration, as affecting national defense, national finance, army and navy, Bk.o.E., railways etc, in all we shall see the same lamentable indications of utter incapacity. The „ruling families“ have lost the art of ruling, and the leading political parties the art of legislating and governing.

Besides the great leading parties of Liberal and Conservative, which manage to impede and obstruct all legislation on general topics, the House is split up into smaller sections, representing the particular rights of some private interest, which in general means some special wrong affecting the public interest. We have the great landed interest, and the Church party, the Irish party, and the railway interest, and the banking interest, and the director interest – comprising the directors of the water, and gas, and other jointstock Cos; and these sections, by occasional combinations for the protection of each other, can generally manage to defeat any attempt to protect the public against their wrongdoings. We have a deficient watersupply in India, and a defective water supply in London; both urgent evils for years, remain urgent evils, and in consequence we have at this moment 100dns of 1000ds dying of starvation in India, and of 1000nds either dying or subject to disease from the foul and pestilent water supplied by unscrupulous water Cos. in London. We want roads and railroads and canals for transit and for irrigation in India, and we have been spending millions of money to obtain them, but we have not obtained them, nevertheless. Our army and navy the most costly in the world, and yet we have scarcely a ship to send to sea to impede the passage of an invader. Sir John Pakington, one of the great mismanagers, startled the H.o.C. by telling us that, although we have been spending 10 mill. a year for the last 10 years, we have no naval reserve nor ships sufficient to relieve the vessels coming home from foreign stations! „There is“, says Mr. Scholefield, „an amount of incompetence and almost imbecility, of confused accounts and reckless extravagance to be found in the Navy Department not to be found perhaps (!) in any other part of the Gvt. Administration.“

Blödsinnige Jointstock Cos. Legislation. We cannot have them worked in an honest and business-like way when they are formed; nor get them wound up without an enormous amount of trouble and expense when they fail. Promoters can job and manage pretty much as they please until the Co. is fully formed, and the directors can job and mismanage the funds of the shareholders pretty much as they please afterwards, and the shareholders and public are comparatively helpless against both of them. The same remarks apply to our Bankruptcy Laws.

For a man to purchase a seat in the H.o.C. by the most extravagant bribery and corruption is no shame to him or disgrace to the House, but he forthwith becomes an „honourable member“ of that assembly. For merchants, and bankers, and directors, and managers of joint stock Cos to embark in the wildest speculations … with the money of others is no longer morally or commercially wrong, provided only they succeed in making themselves rich by the process. Success covers the „multitude of sins“ which the achievement involved.

U. States Bonds.

5-20 bonds. Their price now 73%, rate of interest 6%, payable in specie in New York, yielding to the buyer more than 8% upon the purchase price guaranteed by the Gvt. of the U. St. The principal too is redeemable at 100 at the option of that Gvt. either in 5 or 20 years from the date of issue, but at the expiration of the 20 years the redemption is compulsory upon the State. Therefore, in addition to the 8⅓% interest which the purchase price of 73 yields to the buyer, there remains the difference between 73 and 100, or 27%, to be made good to the buyer within perhaps 15 or 17 years. Altogether 5-10 bonds yield the investor, at present prices, a minimum of 10%.

Agra and Masterman’s Bank.

Cause of its failure a run upon the Indian branches, consequent upon a telegram sent by a clique of speculators in London to India stating that the parent bank in London had stopped payment. Subscribed capital 3 Mill. St, in 60,000 shares. The last price at which business was done, 4£ p. 50£ share, upon which 25l. paid, also still liability of £25 p. share. The 4 last dividends paid 18, 22, 16, and 16% p.a., and, after the last dividend, there was stated to remain a „rest“ or surplus of undivided profits, of £510,254.

Paying amongst new limited Cos.

• Gloucester Co, £10 shares, all paid up. Dividend 8 to 12% p.a., market price about 11¾.

• Birmingham Waggon Co. Dividends from 6½ to 10%, 10£ shares paid up; market value par or fractional premium.

• Scottish Waggon Co. 10 to 12½% dividend. 10l. share paid up, market price about £14.

• Railway Carriage Co 10 to 20% dividend, of £10 shares 3£ paid, market price about 4 3/11.

• Hopkins, Gilks and Co (lim.) 10% div., of 15£ share 8l. 10s. paidup, market value £6, 10s.

• John Crossley and Sons (lim.) 15% div., price 18l. für 15l. share, with 10l. paid.

• Avonside Engine Co (lim.) pays 12½ to 15%, price of £10 share mit £7 paid, 8£. p. share.

• Patent Shaft and Axle Co (Lim.) 15% p.a. from commencement, 10£ share fully paid, market price £16.

• Runcorn Soap et Alcali Co (Limit.) 15% p.a., 25£ share, 20£ paid, market price 17½.

• Patent Nut and Bolt Co (lim.) 15%, £10 share, fully paid, market price £9.

• British et Foreign Co (lim.) 10 to 15% p.a., 20£ shares, (2£ paid) worth 2¾. Reserve: £207,667.

• London and Provincial Marine Co (Lim.) 10 to 15%, 20£ shares, 2£ paid, worth 2¼. Reserve £125,000.

• Thames and Mersey: 10 to 20%, 20£ share, 2£ paid, with 7¼, Reserve: £527,394, or more than double the capital paid up.

Cotton Trade. (Prices)

Price of middling Orleans cotton at the close of August (1866) by contrast with 12 months past, now lb 14d., then 25¾d. Decline of nearly 1sh. a lb in one month. Before the American war price was 5d. or 6d. a lb … The quantity of cotton consumed by our own mills have averaged 45,610 bales per week throughout the first 8 months of this year, by contrast with 36,227 bales p. week in the same months last year, and thus far we may assume that the demand for cotton fabrics has been unusually large. Spinners bought cautiously upon a declining market, from „hand to mouth“. Questionable whether this scale of consumption will continue. Fact deserving notice, the decline in the prices of manufactured cotton goods, in which there is little or no speculation, has exceeded that in raw cotton during the last month.

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Sept. 15, 1866. N. 328.

Bankact of 1844. (Raising Rate of Discount.) (Bonamy Price) Want of Capital or Money?

Was Gladstone, „Economist“ etc an dem Bankact rühmen ist: »The Policy of raising the Bankrate of Discount in the case of a foreign drain«, aber dieß nicht »the limitation of the Banknote issues in that case«. Nun, was der Akt wirklich vorschreibt, ist die limitation des Banknote issue, während das raising of discount mit drain etc »is not a specific policy or mode of proceeding prescribed or imposed by the Bank Act, but is left entirely in the discretion of the directors, as well under the provisions of the Act of 1844 as it was before that Act was passed, and as it would be if that Act were now repealed.« Seit der Crise von 1783 (incl.) never any danger from apprehension as to convertibility of note!

Great Authority – the blockhead Bonamy Price (!), as a director of the Turin and Savona Railway Co., of the Aberama Iron Works, and several other Joint Stock Cos. He set himself up to maintain that „the cause of the pressure in the money market was a deficiency not of sovereigns and notes, but of capital, commodities, or the products of human industry.“ He was called upon to explain, therefore, how it was that, if commodities were deficient, in relation to the demand, they did not rise in price, instead of falling in price? He is asked to say of what use commodities, instead of banknotes or sovereigns, would have been on the great day which followed the fall of Overend etc?

Bullion Drain. (Reversion of Current)

The current of the precious metals suddenly reversed. It was recently, and has been for many years, from West to East, and it is now from East to West. The accustomed „drain of silver for the East“ is at an end, and from the East we now receive gold; while to the Unit. States we now export gold. Probable causes: 1) that our remittances for Indian cotton have exceeded what was required, especially as so large a store of raw cotton has been discovered in the U. St., and that the money is coming back again from India; 2) that our active purchases of American cotton, and of American securities „for gold by next steamer“, necessitate a preponderance of cash payments to the West.

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22 September, 1866 N. 329.

Profits of Panic to the Bk.o.E.

13% p. annum dividend (20 Sept. ’66) von 1706 to present time, with single exception of 1708, when it was 12½% p.a., the dividend had never exceeded 11% p.a., and for many years not 4½%. If the industrious classes have lost a million, the Bankproprietors have gained it; but what of that? „they are both citizens of the same country.“ Ausser der Bk.o.E., other lenders gained many millions; but the sum total of these gains falls very short of the sum total of losses incurred. These „variations in the currency“, and the transfer of these few millions involve the depreciation and destruction of property to the amount of 100dns of millions. As these „variations“ the result of an artificial and unjust law, they are „gigantic robberies“. The plan (by Hubbard) of common citizenship would be as good in the mouth of the pickpocket and the burglar. The plundered and the plunderers are in both cases citizens of the same country.

Abuse and Use of Bankers’ Deposits.

An increase in the deposits of 9 joint-stock banks in London von £8,850,774 in 1847 to £43,100,724 in 1857 was one of the prominent causes assigned by the Committee on Bank Acts for the panic of November, 1857. Of course, this the doctrine of the Bank Parlour (B.o.E.) and the private banking circles opposed to the modern plan of allowing interest on deposits.

In 1866, 5 of our London Joint Stock Banks held, instead of 9, more than 78 millions deposits.

The ready cash of the multitude has been accumulating gradually for some years in the hands of bankers, and by them has been utilised instead of lying idle as before. The practice has become quite an institution … The history of the recent failures among the receivers of deposits may be written in a few words. They have either lent them on insufficient securities, or in securities which cannot be realised in time of need – that is, the borrowers of deposits bound themselves to pay principal on demand or at fixed dates, and employed that principal in securities which either were not worth the money borrowed, or not realisable when most wanted – locked up.

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29 September 1866. N. 330.

Reduction of Minimum Rate to 4½% (27 Sept. 66’)

There is very little difference between the wealth and capital of 2 months, but the difference in the value of money by which wealth and value are expressed is more marked and sudden than at any previous period of like duration. Vor 2 months 10%, now 4½.

With very dear money for more than 2 years, we had an enormous speculative business in Stock exchange securities, in produce of all sorts, besonders cotton, but now, with an unprecedentedly rapid fall in the value of money, promising almost nominal rates, there is an extreme absence of speculative business.

We must not have B.o.E. notes of the present character palmed off upon us as national banknotes.

Losses by Shares in Liquidation. (Bankrupt private Concerns converted into Cos. Losses upon them.)

After a few years of Company-making and promoting, we have entered now upon a like period of company destruction and liquidation. There are many more calls to come (from the liquidators appointed by the Court of Chancery), and this is only an early stage of much suffering. The share mania through which we have passed has been extreme, and the other extreme of depression and exhaustion is present and in prospect. Zu many new Joint Stock Banks founded; dann Finance Cos. Dann: With the aid of the share mania, numerous insolvent undertakings, perhaps otherwise doomed to bankruptcy at the next money crisis, were foisted upon the public by ingenious proprietors as solvent and prosperous; and credulous shareholders now awake to the conviction, not only that they have been deceived, but, perchance, are ruined. Daher auch Confidence in really sound jointstock shares is wanting. There was too much confidence, now too little, but much of the distrust is fully justified.

As a speciemen of a few cos. in course of liquidation:

Here is an absolute loss to shareholders of nearly 8 millions, and they have still much more to pay. Yet, there is not one of these Cos. that did not either spring from private undertakings of reputed wealth and prosperity, or commenced business under favourable circumstances. The distress which followed the railway mania of 1845 and 1846 was intense, and, whatever the amount of calls paid, it was, for the time, swept away in depreciated market value; but these calls were represented by some value; there was the freehold of the land, upon which the rails were laid, and the rails, the lodgings, and a certain monopoly of traffick which must belong to every railway. But in this share crisis of 1866 the money called up under liquidation is utterly lost to the contributories. It all goes to pay for losses which can never be recovered, and against which there is no asset. It is gone, too, in several cases, to pay losses long concealed, and artfully made to wear the aspect of gains, or almost wilfully contracted by reckless management. The share crisis of 1866 is, therefore, peculiarly disheartening, und daher all new shares distrusted. If the Rothschilds, the Barings, and the Glyns were now to attempt to convert their firms into limited Cos, they would scarcely find bona fide subscribers. The share of such conversions has been too palpable, and the heavy blow under which credulous shareholders now suffer has been too stirring for confidence in anything „limited“.

Depreciation of shares and Railway stock (this week).

Even London and Westminster, London and County, Alliance and Union Bank have each fallen 1£.

The most marked feature fall of railway stock. Railway directors, by recklessly expending the enormous sums which the public as recklessly entrusted them in Parliamentrary contests, and by undertaking schemes simply recommended by their extravagant magnificence, have forfeited all confidence which in the time of cheap money was reposed in them. Ferner: public sees that it not only exposed to mismanagement, but to chances of fraud. The system of a huge floating debt altes Uebel, must lead to the consolidation of all the floating railway debt. The issue of fictitious promises to pay will then be rendered impossible. Distrust of public promoted by announcement der North British railway Co. that they have not sufficient funds to pay the 1% dividend recently announced, and that the shareholders are to receive deferred dividend warrants in lieu of cash. The fall has been rapid and disastrous, and the stocks in good and bad repute have suffered alike.

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October 6, 1866. N. 331.

The English Joint Stock Bank Lim. Disclosures.

Into this concern 5 old unlimited banks, with all their branches, were merged, premiums paid for the acquisition of all. After 18 months’ existence, proved that the old banks valueless, or worse than valueless. Concern now hopelessly bankrupt. During its 18 months published 3 Reports, with statements of account, showing great prosperity, with good dividends, endorsed by a directorate composed of most respectable gentlemen.

The Co. formed in 1864 as the South Eastern Banking Co (lim.) in order to take over the business of Messrs Mangles, carried on at Guilford and other places, and established in 1836. Capital first fixed at £500,000, in 20,000 shares of £25 each, and £5 p. share was paid up. Directors were:

James Abbiss (Alderman, City), Sir Charles W. Blunt, Baronet, Sussex, (Director of the Imperial Gas Co.), J. Canham (Ramsgate, late Burgess, Canham and Co. bankers), W. Coningham (Director of London, Brighton and South Coast Railway ), A. Lawrie (Director of the City Bk.), Captain Mangles (Chairman of London and South Western Railway, and the Royal Mail Steampacket Cos.) Th. Bradshaw, Esq. (Hampton Court), Charles D. Manning (Mssrs Manning et Anderson, Lothbury), E. G. Swann (Director of the Oriental Commercial Co.) G. Young (Mssrs Begbie, Young and Begbie.)

Shortly after formation of that Co. the business of the Ramsgate Bank, carried on by Burgess and Canham, taken over. First general meeting held on 6 Feb. 1865, there announced that 15 new branches and 3 agencies had been opened, making in all 26 places of business; that the capital paid up was £95,365, Gross profits £14,118, net profits £3,364, dividend 6% p.a., leaving rest of £977. June 1865 the name of English J. St. Bank taken. July 1865 business of the Bideford Bank taken over. August 1865 second general meeting, profit declared of half year, including premiums on new shares, at £24,965, second dividend at 6% p.a declared. Sept. 1865 business of the Nottinghamshire Bank taken over, belonging to Hart, Fellows et Co, and Fellows joined the board of directors. Feb. 1866, 3d general meeting, directors declared that, in order to transact their own London business, they had acquired the old established business of Olding, Osborne et Co, and that this together with the other acquisitions „proved highly advantageous“. Gross Profit of the half year stated £46,437, dividend of 6% p.a. declared. Capital paidup at 31 Dec. 1865, was £168,525, Reserve £6,000, Deposits £901,469, Cash in hand £197,901, Securities 747,395, and other property £140,897.

On 11 May (’66, „Black Friday“) Bank stopped payment. In June a committee of shareholders made report to the effect that Co. was solvent at time of stoppage, and arrangements would be made to continue business. Last month the liquidators under the Court of Chancery announced first dividend of 8sh. in £; 1 October meeting for »resuscitation«, but then came the disclosures.

Mr. Chatters, one of the liquidators declared, that the West Surrey branches ought never to have been purchased for £16,000 goodwill, and that on the day the bank stopped, or on the following day £12,000 worth of bills were abstracted from the Bank. Guilty parties not yet discovered. Half Year preceding the stoppage there was a loss on the Aldershot branch of £630, besides £6000 more in consequence of the fraudulent conduct of their manager; at Eastbourne branch 100l., and 6000 locked up as a loan to a building society etc etc. Total loss of the half year: £63,348. Ferner: the bank holds as security property found to have been previously mortgaged. The managers had given acceptances for £2000, of which no notice was taken. One director owed the Bank 8000£ which he could not pay. The liquidators now hold bills dishonoured for more than £100,000. Ueber 200,000£ loss, leaving out of the question the „goodwills“, for the Ramsgate, Bideford, Nottinghamshire, and London banks. Impossible to understand, how so late as last February, the capital of the Co. was in official document represented as intact, gross profit declared £46,437, dividend of 6% p.a., £3,688 written off from the cost, £5000 added to Reserve Fund, and £4,180 carried over!

Spirit of Cotton Circulars. (False American Rumours.)

On 1st Oct. cotton crop always underestimated. Mssrs. Ellison and Haywood remark in their circular: „Americans never admit, and of course never publish, the probability of a good harvest, until the arrivals at the ports have placed the matter beyond doubt of contradiction; and even when the receipts are heavy, they cry out that we shall soon witness a heavy falling off. During the season they ‚seriously damage‘ and sometimes ‚almost destroy‘ the crops 3 or 4 × over. The plant is punished in a variety of ways; the rain drowns it, the weeds choke it, the drought parches it, the worms devour it; or, if it escape all these and sundry other disasters, the frost kills it.“

Commercial Credit and Commercial Debt Insurance.

In London alone it is estimated that 6–8000 merchants and wholesale dealers carry business on, more or less, upon credit, and in the provinces and country towns, at least 30,000 more. The losses sustained by these 36–38,000 merchants and traders immense; they are computed to amount in London to at least 30 Mill. £. a year, and in the country to at least 30 Mill. a year more, making a total loss from bad debts of 60 Mill. l. Mr. Moffatt in his recent publication on the Bankrupt Act of England says: „The cost to trading community in losses by insolvency, were estimated in 1849 at 50 Mill. St.; but, considering etc and the frauds facilitated by the existing laws, as shown by the Parliamentary Returns, probable annual net loss of 100 Mill. £. St., more than 3 × the cost of the National Debt.“

From pamphlet of John Bath public accountant („On the Insurance of Merchants and Wholesale Traders’ Commercial Debts“, London 1866) , we learn that different attempts made to establish Insurance Offices for such losses. They failed all. „One Co., and then another and another was formed for this purpose; but, after very few years’ experience, found that established upon false principles, and thus serious loss was accruing.“

These Cos., for premium of say 10s. Per Ct. upon the total of the annual sales of the mercantile House, undertook to pay all the losses from bad debts. The creditors, therefore, were left free to trust anybody to any amount, and the imprudent firms entailed terrific losses upon the Cos, paid out of the premiums contributed by the more careful and competing neighbours. The natural result followed. The prudent firms declined to pay premiums to be expended in paying the losses of their reckless competitors, and the Cos. themselves soon obliged to wind up.

Indian Banks and Banking.

Joint Stock Banking in India more than quadrupled its original value since the sudden impetus it received from the cotton famine. Originally its growth slow. Previous to 1833, the old East India Co. kept back. The Banks of Bengal, Madras, and Bombay brought out under the auspices of the East India Co. The Banks holding Charters from the crown are merely tolerated by the Indian Gvt, and not permitted to designate their offices in India as branches, but agencies. Their business is also restricted to exchange, deposit, and remittance. It is questionable, in a legal point of view, whether the Charters are strictly applicable to India, as limiting the liability of the shareholders to double the amount of their shares.

1809: First Joint Stock Bank established in India, viz … the Bank o. Bengal. East India Co. patronised it, took shares to a certain extent, and had the nomination of 3 members of the board of directors, such members being civil servants of the Co. 1809 dann established Bank of Madras und Bank of Bombay, in 1840; both constituted on the same principles as Bank o. Bengal, holding charters from the East India Co., limiting the liability of the shareholders to amount of their respective shares. Durch den transfer des East India Co’s property to the Crown, the latter got also the partnership in the 3 Gvt. Banks, which continues to this day; jedoch Gvt. only responsible to the amount of its shares in the Banks.

Agra and United Service Bank in 1833, and the Union Bank of Calcutta about the same time. The latter bank, having advanced a great portion of its capital upon Indigo and Sugarfactories, was obliged in a few years to succumb. The Delhi Bank (now Delhi and London) formed in 1836. In 1842 the Bank of Western India (now the Oriental Bank Corporation) was established at Bombay; in 1846, the Commercial Bank of India, in 1852, the Chartered Bank of India, Australia, and China, in London; in 1853, the Mercantile Bank of India, (Bombay, now the Chartered Mercantile Bank of India, London, and China); 1860, the Central Bank of Western India; 1862 the Bank of Hindustan, China, and Japan, in London; 1864, the Asiatic Banking Corporation (originally the Bombay Joint Stock Bank), and the National Bank of India, with which the Scinde, Punjaub, and Delhi Bank is now being amalgamated. During the „golden age“ of cotton, and exciting times of high prices, a great variety of large and small banking and finance Cos. sprang up, the majority of which gone or in course of being wound up.

Without the great banking element, money, no banks; yet what blindness and infatuation is it to suppose that banking profits can be made without trade and commerce! There may be an accumulation of money to superabundance, and banks may be established ad libitum under such circumstances; but the possession of such resources without employment for them will not pay a dividend; and when safe and legitimate employment cannot be obtained, all kinds of expedients involving risk and ruin are resorted to. Bombay, by squandering the immense money wealth poured into it, has derived little substantial benefit from it. A few years ago a modest but flourishing port of Western India, it bade fair to become, in an incredibly short space of time, as by the stroke of the magician’s wand, a City of Palaces, ambitious enough to arrest the progress of the mighty ocean itself. Back Bay under a costly scheme of reclamation, is soon doomed to be brought under the subjection of a moneyed Co. of speculators. Speculative mania in that city. All classes more or less imbued with it. New houses and public buildings crowd up in rapid succession. Gay and glittering equipages within the reach of the once most humble and servile. Increase in price in all articles of daily consumption, and necessaries of life. Those dependent upon fixed incomes encumbered by high house rents and other additions to their expenditure. Still additional wealth teeming in, and, in imitation of England, gigantic credit and finance Cos spring into existence, shares of which soon attain a high premium, and enable men holding Gvt., Bank, and other appointments, on a few 100 rupees a month, who have the good fortune to realise, to a mass large fortunes, and either retire altogether, or go into business on their own account. The money amassed both by European and native speculators in, and shippers of cotton during the period of high of high prices, amounted to fabulous dimensions, taxing ingenuity to discover ways and means of employing it.

At last the commercial hurricane came, swept away many of the recent Indian banks, including now the Asiatic Banking Corporation , leaving with a few exceptions the old Banks only. This state of things traceable to the unexampled acquisition of wealth in Bombay, in particular, consequent upon the civil war in America, the high prices to which Indian cotton attained, and the misappropriation of the wealth derived therefrom. Article – cotton – 4 years ago only 4 to 5d. p. lb – rose gradually to 4 or 5 × this value. India was the largest participator in such advance, Bombay export place of the bulk of this cotton. Thus inundated with money. Such an influx of capital, within so short a period of time, never fell to the lot of any place or country. One of the first applications of this superabundant capital was to manufacture banking and finance Cos of every possible character and name, and to work with the resources so lavishly bestowed in the way most likely to dissipate and render them unproductive. The native disposition for speculation and restless trading has lasted too long, and is too well known to be wondered at. Aber leading European merchants enroll themselves as directors of speculative land and finance Cos., managers and other officers of banks give up their appointments to take part in such concerns, and banks spring up in connection with them for the purposes of making advances on their shares. A Gvt bank even is tempted to depart from the rigid conditions of its charter to foster such unsound and hazardous schemes.

The banks which have held their ground have had severe trials to pass through, and having losses to contend against, consequent upon the failure of many East India houses long established, of high character and credit. Indian banking has its seasons of profitable opportunity, as well as drawbacks and disadvantages. A bank, with its head office and board of directors in London, cannot be alive at the moment to what is going on at a distance of 10,000 or 15,000 miles; much to be left to the executive on the spot, which, in many of the bank branches, consists of an inexperienced, halfdespotic manager. Much must [be] left to their judgment and discretion. Then, nearly all our enterprising men who have founded and successfully managed Indian banks, want to return as soon as possible home. No sooner a bank set up in Bombay or Calcutta bidding fair to become a prosperous concern than it must have its head office established in London, and run away, as it were, from the most important part of its business and most legitimate sphere of operation. A tempting salary is held out as the London manager’s income. An influential board of directors has to be got together at London, and attractive place of business rented or purchased.

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13 October. 1866. N. 332.

The Case of the Shareholders in Overend, Gurney et Co.

Deficiency des old concern, when converted into Limited Liability Co. of 3 mill. The old firm had received 250,000£ in cash since the transfer of the business, besides cash to a large amount on the sale of shares at a premium, yet „when the lim. Co. stopped payment, the books showed still the deficiency at upwards of 3 Mill. £. St.“ Alle faulen Schulden figurirten as assets „to pay the liabilities transferred to the limited Co.“ Den faulen Schulden unter denselben Rubriken noch zugefügt durch die limited liability Co.

Journal des Débats on Act of ’44.

„That system renders a panic inevitable, as soon as the public perceives that the limit (of the quantity of banknotes) is being approached. Then bankruptcies accumulate … and the entire commerce of the most opulent nation in the world struck with discredit on all the Exchanges to such a point that hardly any one at Paris, Amsterdam, Frankfort, or Hamburg will buy paper on London.“

Limited Liability as Applied to Banking.

Paid plan that followed till now (last 10 years) to have only a small proportion of the capital paid up. It was done: 1) to attract shareholders by the expectation that on their part no further advance would be required; 2) by the unpaid reserve to afford a ground of confidence to creditors.

Kömmt nun call, oder its prospect, many (schlechtbeschlagne shareholders) rush to the broker. Shares are pressed on the market; the price falls, and drops lower day by day. Simultaneously, another process commences. As the value of the shares drops, the depositors and customers become alarmed. As fast as they withdraw their money the shares decline lower and lower, till the final catastrophe arrives. In some cases, such was the alarm which the mere idea of raising more capital excited, that it became impossible to make a call, however imperatively required, the directors avowing that, by such a course, more money would be frightened away, on the one hand, than obtained, on the other. Where, then, to these Cos. the advantage of the uncalled margin? It has only been prejudicial to the shareholder. Depositor, perhaps secured from ultimate loss, but the long delay of liquidation etc. If Capital paid up in full , the prospect of a call could never be employed to depreciate the share. Directors and managers, knowing to be without reserve, obliged to be entirely careful in the conduct of their business. Mit a reserve, an absolutely rotten concern – da jeder, der mit ihm handelt auf die Reserve rechnet – may be patched and supported for a time by trading on the credit of others. Should a banking Co. trade on its capital, or on the credit of its shareholders?

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20 October, 1866. N. 333.

Overend, Gurney et Co. Fraudulent Misrepresentation.

There have been concealment, frauds and misrepresentations. The public would never have become shareholders, if they had even suspected the true state of the affairs at the time of the transfer. The old firm was at that time absolutely and irretrievably insolvent; it was worth several mill. St. less than nothing; for several years it had carried on business without any profit, at a very heavy annual loss; a large proportion of the assets they had to transfer was composed of the fictitious debts of bankrupts and insolvents and men of straw. The public believed, and were induced to believe by the prospectus, that the old concern prosperous; the goodwill cheap at ½ mill. St.; and that, after paying that price, the business was such „in the opinion of the directors could not fail to insure a highly remunerative return to the shareholders“. The shareholders are now seeking to be relieved from the liabilities they incurred. Contracts obtained by frauds and false representations not binding in equity. The Co. failed in May. Till now (October) the official liquidators did not disclose the true state of things, although this a necessary preliminary before settling the list of contributors. These official liquidators appointed as their solicitors, and, until within the last few days, have been acting under the legal advice of, the firm who were the solicitors also, to the old firm of Overend etc.

Three of the directors who put forth the prospecting (der new Co.) were three of the acting members of the old firm, they knew the insolvent condition of business which the Co. were purchasing; the other 4 directors ought to have ascertained it. How could they take the bad debts of the bankrupt Howard, David Leopold Lewis, and Mssrs. O’Beirne and others as assets? One paragraph of the prospectus is, indeed, to the effect that „the vendors guarantee the Co. against any loss on the assets and liabilities transferred“; but the guarantees were insolvent. Among the assets there were merely nominal debts based upon the accommodation bills of men of straw.

Joint-Stock Discount Co. Scandals. Necessity for Public Official Audit of the J. St. Cos’ Accounts.

Not even the „unprotected female“ so helpless as jointstock cos. shareholders. Greedy and unscrupulous promoters dig their pitfalls and lay their traps to catch them, – prospectuses. The haunters of the Stock Exchange, in the guise of bulls, and bears, and stags, „make game of them“, and job them, and mercilessly slaughter them in detail as in murderous battues. Boards of directors possess themselves of their properties and funds, and use and appropriate them as they, in their ignorance and incapacity, or their cupidity and self-seeking, may please. The shrewdest adept in „artful dodging“ and „hocuss-pocussing“ is generally made the chairman and spokesman of the board; or a tinsel lord „in need of tin“ … is caught and put in the chair to keep the turbulent shareholders in order, and by timely address to repress any rising disposition to make impertinent questions about the business of the Co. or the proceedings of the board. Clever managers conceal the true position of the co. in mystifying and unmeaning reports or unintelligible balance-sheets, and accommodating auditors are very ready to certify that „all is right“ and perfectly satisfactory. At the public meetings of the Co. every shareholder who attends is expected to „conduct himself as a gentleman“; and then he learns that to be a gentleman he must be silent, submissive, and confiding, and that the most ungentlemanly conduct of which anyone can be guilty is to exhibit a curious or distrustful disposition, or to put obtrusive questions about the business of the Co., or the conduct or management of the honourable board. The shareholder knows nothing of the secret articles and private arrangements made with the promoters of the Co., and he wants to know 50 other things about its origin, progress, and prospect, but he must not inquire about them. They are all matters in the hands of „the board“, and sure to receive their best consideration. He must be content, therefore, with such information as the board may vouchsafe to give him, and the board takes care to give him as little as possible. If the shareholder becomes urgent he is treated as rude. The chairman rises with dignity, and asks if the honourable gentleman means to insinuate etc, or means to impute etc, and he is expected to shake in his shoes when told that the board would feel compelled to regard his motion as a vote of censure or of want of confidence. If he should not be sufficiently awed by this threat, there are 20 hands in the meeting ready to „bonnet“ him, or to „shut him up“ by some other summary process, lest his impertinent inquiries should lead to impolitic disclosures and unfavourable rumours which might damage the property of the shareholders in the market. If he goes to the offices of the Co, he is probably snubbed by a supercilious manager, a flippant secretary, or an impudent clerk. They are the humble servants or subservient tools of the magnificent board, he is only one of the shareholders. It may be true that the board, the manager, the officials, and the Co. itself are but the creatures of the shareholders; but all power and authority are concentrated in the board; the individual shareholder is but one of many; and, therefore, even his servants and subordinates will scarcely deign to recognise him.

The general result of all this is, that the great body of j. st. co. shareholders – the owners of the 100dns of mill. £. invested in joint-stock enterprise – are entirely without any efficient control over the use, employment, expenditure of these vast funds. A comparatively small number amongst them, who occupy the position of directors, arrogate to themselves the entire management, and exercise a virtually irresponsible power and authority over the whole. The consequence, in but too many lamentable instances – grossest mismanagement, most unscrupulous perversion of the funds to other purposes than the proper business of the Co., most reckless jobbing and extravagant expenditure, and an almost total subordination of the property and interests of the shareholders to the primary objects and designs of the directors and their associates. Hence the scandalous disclosures brought to light by the failure of the Joint-Stock-Discount-Co , in which the directors had recklessly misappropriated the capital which the shareholders had subscribed for the discounting of commercial bills to advances on so called financial securities. Hence the Overends scandals only revealed in October, months after the failure occurred. Hence the complicated commercial and financial abuses for years carried on by London Chatham Dover Railway Co .

If shareholders cannot manage their own affairs themselves, and cannot get honest and capable boards of directors to manage for them, which it is clear they cannot, the Legislature ought to provide some kind of supervision over the conduct and accounts of joint stock Cos. Independent Public Auditors, appointed by Gvt for the audit, at stated intervals, of the accounts of all joint st. Cos. Professional accountants – appointed by directors or the shareholders – as the Times City Editor remarked – have acquired „such a confirmed habit of putting affairs in the light most agreeable to their clients that their reports and certificates are no longer deemed trustworthy, and are now usually received with a certain degree of allowance“.

The accounts of the Joint Stock Disct. Co. were „duly credited“. Thus the accounts of the London, Chatham and Dover Railway , down to the last period, and by one of the most eminent professional accountants in the City. It is absolutely necessary that we should have some competent and thoroughly independent body of auditors, to whom should be committed the audit and supervision of all the railway and other joint-stock cos. in the kingdom. Board of Trade ought to nominate the auditors. „The Audit Office of the Board of Trade.“

Would, with such an office, the directors of the notorious West Hartlepool Harbour Railway Co. have been able to issue 2 millions of debenture bonds in excess of their borrowing powers without detection?

In Australia the directors of all the banks and branches thereof have to deposit, quarterly or halfyearly, at the Gvt. office, a balance sheet setting forth a summary account of the assets and liabilities of the bank, the cash in notes and gold, amount of deposits, advances on bills etc, and increase or decrease in these items during the quarter or half-year just ended. These asccounts, having been audited and found regular and correct, are forthwith published in the papers of the respective locality, where the bank or its branch established.

The Gain to India by our Cotton Famine.

The American civil war raised the price of cotton, shut up the Lancashire mills, starved the Lancashire operatives, caused a huge speculation, and prodigious drain of the precious metals from Gr. Brit., gave a vast National Debt to U. St. – and it has given to British India a new commercial existence. Our high prices great incentive to Indian cotton production. Bombay, the great centre of cotton dealing in India, with such comparatively small aid as the railways terminating at Bombay now confer, made huge fortunes upon the opportunity, and then Bombay lost much of what had been made. … Bombay and India have found a great necessity in Liverpool and Manchester … .

The great speculation at Bombay began in the 2nd year of the American war when the Lancashire spinners were fairly roused to a true appreciation of their position and their pressing wants. Our high prices and our urgent needs gave fabulous profits to the intermediate traders between the ryot producer, and the Manchester consumer, and Bombay and Liverpool grew nominally rich. Here (England) not only the cotton speculation, but speculation in various other forms ran riot, and collapse has followed.

At Bombay, relatively to the population, the mania set on foot by our cotton wants was of giant proportions compared to our own. Finance Cos., Banking Cos., Reclamation Cos., sent for their shares by the million to eager all others, and the quantities of shares, the premiums, and the scale of apparent gains during 3 years dwarfed our own experience of such matters into insignificance. One poor Gvt. clerc won 2 millions £ in a few months. Other poor Gvt. clercs became great directors and financiers, with millions upon millions under their control. Even the poor ryot, who always had lived from hand to mouth, and could never raise a crop without the aid of the money lender, bought his horses and his vehicles, and loaded himself and his belongings with costly jewels and ornaments of the precious metals. His crops bought and the money paid almost as soon as he sowed the seed. For fully 3 years we have paid little short of a 100 millions a year for raw cotton, and our Board of Trade returns show us that about ½ of that supply came from British India, which in effect signifies Bombay.

The collapse came of course. With it, Bombay speculators who had been millionaires in name failed en masse, together with the banks, and the finance, and all other cos. Western India is clearly roused from the lethargy of centuries. The Parsee and Hindoo are, after the cotton mania, more productive beings than they were, and have learnt to be producers, not alone for immediate wants, as of old, but to supply the wants of other nations.

Wilson saw that railways India’s greatest need, and forthwith drew up that agreement between the State and the railway cos. which has inaugurated a railway system in India.

Bombay is built on a narrow peninsula joined to the mainland by a still narrower isthmus, which, combined, constitutes one side of the spacious harbour. The commerce of the place is at present conducted in what is called „The Fort“ and, in a word, the commerce of the few narrow streets of the Fort of Bombay is the commerce of Western India. The shipping discharge their cargoes in the Bay into lighters, and again discharge them at the wharves, which are inadequate for the trade. The only extension of Bombay possible is either by building beyond the isthmus on the mainland, or by filling in shallow portions of the harbour for the erection of warehouses and wharves; and it is the supply of these pressing necessities which has called forth the various reclamation projects in which so much money has been won and lost. The reclamation of the waste lands in the harbour of Bombay is, therefore, a great want, with corresponding profits, if judiciously executed.

Lance. Letter (Third) on American Railways. (Published Oct. 1866)

Lance gives the following survey of the American Railways:

Was die Atlantic and Great Western angeht built by capital raised in anticipation of the issue of the bonds and shares. Calculations zunächst baffled by American Civil War, and the bad credit into which American railway securities had fallen by the diversion from their professed objects of various subscriptions in the London market. The Atlantic and Great Western, at present in its infancy, only opened since a year; but its traffick receipts far exceed expectation.

As the different sections of the Atlantic and Great Western Railway were constructed, the money was for the most part borrowed in this country upon the bonds issued, and thus in the recent money-famine there was an undue pressure of sales by the lenders tending to a ridiculous depreciation of the bonds. Steady investors too became frightened, as the bonds fell, and added to the general panic by their sales.

Foreign Loans. and Panics

Now that money is getting plentiful, rumours of foreign loans, due to the leviathans of the money market and the whole fry of premium hunters. No doubt, it is a fine thing for certain millionaire firms to take this opportunity of palming upon us loans for foreign Powers to the tune of several millions, for if they but get the English public committed to such transactions by a stiff deposit of, say, 20%, they are secure of their commission of 2½% on the nominal amount of the said loans, of an annual percentage on payment of dividends, and of being for several years to come well in hand from the funds of their „royal“ and „imperial“ constituents, not to mention other pickings. Then cry of overtrading, panic – a period most favourable for our plutocracy to lay out at high interest the fortunes made by financing for kings and emperors, and to make the most exorbitant demands in the way of securities. A panic follows, then a plethora of money, and then fresh loans. During all the late crisis these millionaires of European celebrity had no difficulty in getting from the continent whatever money they wanted at 3 or 4%, so that, whichever way the wind blows, it blows in at their barn door.

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27 October 1866. N. 334.

Overend, Gurney et Co. (Shareholder and Creditor.)

Mr. Denton, of firm of Maynard et Co., the new solicitors of the liquidators, depreciated any delay, mentioned that, „on recently going into a conveyancing office, he had seen a deed conveying £300,000 to 3 children in consequence of enormous liabilities to Overend, Gurney et. Co.“ … The Capital of £1,500,000 raised by the shareholders, entirely gone and entirely absorbed by the creditors; to that amount they have already benefited from the fraud upon the shareholders. The legal question not between these 2 parties. The right of the creditor is against the Co. and the Co’s Assets only. The sole question is, whether the shareholder was really a lawful member of the Co.

How is Money to be employed.

The mania of 1864 and 1865 and the attendant panic of 1866 are over. Investors some months back sold Consols and Exchequer Bills, and all the good prudent things, and bought finance and bank share and almost any „limited“ shares which appeared to promise fabulous rates of interest upon the purchase prices. There was, for a time, a vision of sudden wealth which a few months have utterly destroyed. As a rule, the mania in other shares has extended to railways. Even now, the minimum both of dividend and market value has not yet been attained in a number of cases. For the time very little railway debenture money is forthcoming from the public, as the overdrawn balances at the bankers show in the lately published accounts; and it seems quite a question whether, in some instances, revenue will not be absorbed to meet capital engagements in the absence of that constant supply of capital upon debentures.

There is little field for speculation except Indian and Colonial Railway Shares, and U. States Stock.

Influence of the Weather upon the Money Market.

Since 1st August bad weather, prospect of bad harvest, and consequent depression of Stock Exchange. Why should the crops, during harvesting, depend on the atmosphere? Farmers will say that the Corn, when out, must go through a certain drying process in the open air, and if the open air will not admit of that preparation, the corn must be spoilt A coffee grower from Ceylon wrote to the Times that when his coffee crops liable to risk from rain, he placed them under cover, provided especially against such emergencies.

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10 November. 1866. N. 336.

North British Railway. (Imitated from Hudson)

Report of Committee of Investigation. Dividends systematically paid out of capital, with the connivance of 1 or 2 subordinates, and under the direction of one guiding spirit, who has presided over all the proceedings in Parliament, all the contracting for new lines, all the manipulations of accounts, whereby dividends have been provided;

In April 1849, a Committee of Investigation upon the affairs of the Eastern Counties Railway Co. made the following statement: „It is evident that no accounts of the half year, which did not terminate until 4 January 1846, could have been completed by the 22d Dec. 1845 … when the accounts were made up in accordance with the books, they did not show that any such dividend had been earned; and, in order to justify the foregone conclusion of the Board, the traffick accounts were altered, and the expenses squared to suit the dividend, not the dividend to suit the expenses.“

Again, in April 1849, the assistant accountant of the Eastern Counties Co declared „it was a generally understood thing that capital was to bear what revenue could not.“

Again, there was a traffic manager of the Eastern Counties Co who took the half years’ account ended 4 July, 1848, to Hudson at Albertgate, and who stated to the Committee of Investigation: „Mr. Hudson directed me to tell them at the office to carry £10,000 to the ensuing half-year; that is to say to make the expenditure in the printed report appear to be £10,000 less than was actually incurred.“

Thus 20 years ago, and now the almost ridiculous reproduction of the same thing. Although not earned, dividends of the North British Railway paid for years at the dictation of the chairman Hodgson .

In January 1865, July 1865, Jan. 1866, July 1866, the same system of account cooking to bring out the dividend wanted. Mr. Walker, the secretary, wrote to Hodgson on 21. Febr. 1866, that the members of the Finance Committee „charged with the duty of providing the ways and means for the Co.“ ought to be informed of the real state of things. To him, Hodgson, in true Palmerston Style, replies:

„As to the knowledge of the Finance Committee, a little knowledge is a dangerous thing, and in some cases much knowledge would be more dangerous. I think they know quite enough.“ They were thus designedly kept in the dark.

„Keep their eyes bandaged, Martin“, was the memorable trust committed by one chairman of the South Eastern Railway to the deputy chairman when he desired the shareholders should not understand the position of their property, but that hardly comes up to this bandaging of the Finance Committee of the North Brit. Railway .

Other parallel between the administrations of Hudson and Hodgson. They both have had a remarkable propensity for leases, amalgamations, and extensions. In Hudson’s case the personal motive was apparent enough. The Bristol and Birmingham, the Leeds and Bradford, the Great Northern of England, and the NewCastle and Berwick, and the Hull and Selly, were all leased and amalgamated with at, perhaps, 3 or 4 times their value; but, if so, the enhanced value of the lease or amalgamation went to someone. Mr. Hudson himself was found tolerably well charged with the shares in most of these good things before any lease or amalgamation was contemplated, excepting by himself.

The Committee of Investigation remark that the North Brit. Railway in 1844 a mere project for 58 miles of line, with capital of 1 million; it is now a system of 781 miles open for traffic, und 147 miles partly under construction, with an authorised share and loan capital of £22,210,713. The Edinburgh, Perth, and Dundee have been absorbed, ditto Edinburgh and Glasgow, and other lines, and branches in all directions constructed or partly constructed. Contractor influences among the directors. In einem Brief an Hodgson der Secretary insists f.i. that money would be thrown away on the Forth Bridge; that no possible traffic would compensate for the outlay; and yet the outlay was to have been made in the interest of some one, by Hodgson’s command. The directors of the Edinburgh and Glasgow Section of the North Brit. Co. resolved at recent meeting „That the Reports by the Committee of Investigation … discloses a course of systematic and fraudulent deception and deliberate falsification of accounts on the part of the chairman of that Co., by means whereof he induced this board and the shareholders of the Edinburgh and Glasgow Railway Co. to agree to an amalgamation of the two Cos., to the great detriment of the Edinburgh and Glasgow Co. … call the attention of the Lord Avocate to the report etc.“

Great Eastern Railway.

Turner, present chairman, one of the Investigation Commissioners that drove out the old directors. Now he wants 4¼ mill. £ in 6½% preference stocks and debentures, at such a moment of general railway distrust, and of special Great Eastern discredit. Points to conclusion that, in direct antagonism to the interests of shareholders, some one or some clique has a positive interest in promoting Parliamentary Bills, and in the construction of new railways.

Joint-Stock-Discount-Co.

A suit has been instituted by the official liquidator against the directors to hold them personally responsible, as for a breach of trust, for the loss sustained by the Co. by the investment of £30,000 in the shares of Barned’s Banking Co. The bill alleged that the Discount Co. established for carrying on the business of a bill broker and scrivener. Barned’s Bkg. Co. was formed for taking over the business of 2 old banking firms at Liverpool, and the Joint Stock Disc. Co., to aid in bringing it out, agreed to subscribe for 10,000 shares, and had 3000 shares actually allotted to them. On these shares they had paid for deposits and call £10 per share, or £30,000, and by a subsequent arrangement they agreed, in consideration of 500 shares by way of bonus, not to sell any of their shares under a certain premium before July, 1866. These transactions concealed from, and never sanctioned by, the Co. Hence the suit against the directors.

Zugleich der unglückliche Mr. James F. Wilkinson , the late managing director of the Co., charged mit misdemeanor. (Verurtheilt später to penal servitude, später frei als unschuldig.)

Cardigan and Carmarthen Railway Co.

This week a large amount of Lloyd’s bonds of said Co. are declared to be fraudulent and valueless.

Food Supply.

High price of flesh meat. Now bad prospects of bread supply. In America no surplus available, wheat being, on the contrary, dearer at the present moment in New York than in Europe; and the latest reports represent the spring wheat as fully ⅔ damaged in a greater or less degree. French have deficiency of 4 Mill. qrs. wheat, are now, with Belgian, Dutch, and others, competing with us in the Baltic and Black Sea. Cereal harvest everywhere bad except in Southern Russia. French have had the start of us, as they have been enabled, by means of the system of agricultural statistics which they possess, to learn the probable deficiencies in their crops, and take prompt measures for obtaining supplies when prices were comparatively low; while we, in absence of such statistics, in being obliged to pay much higher prices, the rise in price of grain within the last 3 months 45 to 50%.

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17 November 1866. N. 337.

Railway difficulties.

Railway collapse of 1866 scarcely less memorable than that of 1845. In 1845 a railway bond holder believed he had, as security for his money, the mortgage of the freehold of a railway. In 1866 bonds not the securities they were supposed to be in 1845. Then have turned up „Lloyds Bonds“, which did not exist in 1845. In 1866 it is discovered that not one, but many railway cos. have issued bonds without any legal authority. Then have arisen question of priority; debentures, Lloyds bonds, Preference shares, ordinary shares. Lloyds bonds are only „acknowledgements of indebtedness“ (mostly paid to the contractors.) Die Carmarthen and Cardigan Railway Co. issued bonds (Lloyds) to 200,000l., in duplicate numbers. Which are legal and which not?

Large Uncalled Capitals in Limited Liability Cos.

Disadvantage of large uncalled capitals. The practice, from 1862 to 1864, to fix the shares of the leading Cos. then formed at a high denomination, 50 to 100£ each. With a large uncalled capital you buy or sell not an asset, but a liability, with a small uncalled capital, not a liability, but a property.

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24 November, 1866. N. 338.

The Overends. (Their Guarantee Account)

The suspense and guarantee account amounts to £4,213,896. 16s. 4d. Darunter parties, wie Atlantic Royal Mail Steam Packet Co (for £839,344), Millwall Iron Works Co. and C. J. Mare (£422,565), East India and London Shipping Co (£397,653) Thomas Howard (£331,765) „Greek and Oriental Steam Navigation“ Co (144,144), David Leopold Lewis (£341,559), Nelson, Tritton and Co (291,391), J. E. C. Koch (railway accounts, actually belonging to the firm but under the care of Koch) (243,069), Lawrence and Fry (148,543), T. and G. Garraway (190,977), Charles Joyce and Co (78,728) Halliday, Fox et Co (34,628) und Z. C. Pearson (35,693) – firms that had failed previous to the transfer of the business, and whose estates were then being, or had been, wound up, either in bankruptcy or arrangement. Besides these bad debts thus transferred to the new Co. as assets, the old firm were under liabilities on bills rediscounted, bills payable, credits granted, and guarantees, to the extent of £8,808,699, 8s. 3d. for which no provision was made in the arrangement. Many of these liabilities were on account of parties who had at that time failed, and upon which, therefore, it must have been well known that an ultimate loss would arise, and in respect to these the new Co. has been called upon to pay a large amount, for which no provision had been made.

Railway Debentures.

Increase in debentures outstanding during half year = £1,455,133, more than 4½%. These 5 Cos. – specimen of their class – have enormous floating debts, the principal of which is continuously falling due. The collective debts of the 5 Cos nearly 33 mill., – that is, each Co of the five has on the average an unfunded debt nearly equal to the unfunded debt of Great Britain now outstanding in Exchequer bills … The total unfunded debt der Railways perhaps 150 to 200 millions, 20 × or 25 × the unfunded debt of Gr. Britain.

Directors’ Fees.

Many Cos. only brought out for the benefit of promoters and directors. The General Credit and Finance Co fairly illustrates this. Directors davon, by the articles of association, entitled to  1/10 of the net profits. Under this clause they took £15,000 for 1864, and £20,000 for 1866 for themselves. In May last, when panic, their management unequal to the occasion, and soon after call, the shares being quoted at 5 to 7sh. each. Now the directors invite the shareholders into the new Co., and ask them, by proxy (indirectly) to bind themselves to new articles of association. In diesen, N. 67 makes beyond the  1/10 of the net profits, nämlich a provision for the directors „of all travelling expenses, and other actual outlay, a fixed salary of 3000l. p.a. and  1/10 of the ultimate surplus profits“.

The Russian Anglo-Dutch 5% Loan for £6,000,000.

It is said that the English applications alone for this loan amount to between 20 and 30 millions. Where then is Disraeli ’s want of capital? There cannot surely be a want of capital or money upon such evidence.

Ein Foreign Bondholder schreibt über dasselbe Thema in diese Nummer: No sooner have we an easy money market, and no sooner do dividend paying foreign stocks, from their absolutely low prices, begin to attract the attention of people who are seeking investments, than forward come intimations of fresh foreign loans – as if enough of British Capital had not already been lent to foreign States. We thus help to depreciate the Foreign Securities we hold.

The Russian Gvt. now seek a new Five P.Ct. Loan of 6 Mill. £, at the nominal price of £86. Now Russian Five P.Ct. of the 1822 Loan were once as high as 115. Why have they fallen to 88£, their present price? There has never been any doubt as to a dividend; on the contrary, to the everlasting Credit of the Russians, the dividends were punctually paid even during the Crimean war. The reason is this, that from 1850 Russia has been continually borrowing, and instead of the one Five P.Ct. Loan of 1822, we have now no less than 5 other Russian stocks quoted on the London Stock Exchange! The same may be said of the Brazilian, Ejyptian, Peruvian, and Turkish bonds.

If this Russian Loan be floated at 86, what security is there that another will not be introduced next year at 80? And so from time to time are existing interests deteriorated. An attempt was made not long ago by Mssrs. Barings to introduce a Six p.Ct. Loan for the Argentine Republic at 75, when Buenos Ayres Six P.Ct. were at about 88. What was the consequence? Down went the price of the latter stock, because there was a rush to sell by subscribers to the new loan; but, after all, it proved to be a failure, and but a small portion of it could be floated. … It is not the thing for any State to come to us for new Loans whilst their old debts are below the prices at which they were issued, and it is too bad to seek to borrow on terms below the market value of bonds of former loans, as is the case now with Russia.

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December 1. 1866. N. 339.

Estate Investment Co. Misrepresentation in Prospectus.

Nach judgment des Vice Chancellor Sir W. Page Wood „the plaintiffs contract to take 10 shares rescinded, deposit money returned to him, his name removed from the register of the Co, the defendants to pay the costs of the suit“.

This Co. promoted by one Sarl. Purpose set forth in Prospectus to buy Land for building near metropolis etc. The capital of the Co was to £250,000, in 10,000 shares of £10 each, the prospectus stating that the first issue would be of „5000 shares of which more than half has been subscribed“; that upwards of 70,000£ had been expended upon the Selhurst Estate (at North Norwood) by the vendor Sarl; and that a binding contract had been entered into for the purchase of the Leyton stone Estate (within 6 miles of London etc). Alles dieß gelogen. Sarl himself (promoter und agent der directors) had agreed to take 2,510 shares. The directors told the public that they had got rid of, while Sarl was afterwards found pushing these 2,500 shares in the market, and inducing the public to buy that which they were assured by the prospectus had been already taken up.

The New Russian Loan.

The returns of the Banks of England and France show a glut of money … yet, so thoroughly the basis of public confidence sapped, that prices (on Stock etc Share markets) without any sign of animation. Dulness and distrust prevail, in face of the fact that the Board of Trade returns show the commerce of the country in more active condition than is generally believed. Holders of money are afraid – afraid, at least of all the old channels of investment, and capital is only to be tempted for the moment by foreign or colonial loan. Of this the enormous applications for the Russian, and the marked success of the New Zealand, Victoria, and Queensland Loans are proofs. Employment of this kind will not long be wanting for our capital. The Lombardo-Venetian Railway Co are about to issue bonds for £3,600,000, and doubtless several needy Governments will not delay following in the wake of the Russian. It is a gain, at all events, that there is at length some renewal of investment, and we must continue to wait patiently until the need for interest shall make itself sufficiently felt to force into employment the unremunerative hoards which are now accumulated in bankers’ vaults.

Der oben citirte Foreign Bondholder schreibt in dieser Nummer über die New Russian Loan:

The New Russian Loan „a success“; that is to say, before allotment, it has been dealt in largely at a premium, as was the case invariably a year or 2 ago with all the limited liability Cos now being wound up under the orders of the Court of Chancery. I predict, this new loan will go to a discount, as the monthly instalments of £15 become due … Its introduction has had the effect, not only of checking the rise, which was general, in all foreign stocks, but of causing a fall in Consols, and a fall of 2 to 3% in all classes of Russian bonds. It is now stated that various other foreign loans are about to be introduced, Austria is in need – also Brazil, Portugal, Italy, and, as John Bull’s coffers are once more filling, there will be no end of applications for the surplus wealth of the nation … The public for the moment care little about foreign stocks as investments, yet send in their applications for a slice of the New Russian Loan, tempted, as in the days of the late mania, by the hope of realising a premium on the scrip.

1915. On the Overends.

The personal guarantee was expressly given, not as against the 4 millions and upwards of the secret instrument at all, but solely against the 19 mill. and upwards of the comparatively public deed of transfer. Even the pledge of the private estates of the old firm was not to be redeemed before 31st Dec. 1868.

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8 December 1866. N. 340.

John Benjamin Smith, M.P. An Inquiry into the Causes of Monetary Panics etc. Letter addressed to Malcolm Ross, President of Manchester Chamber of Commerce. London. (1866)

Nach Smith „the currency question“ is „the only question which is incomprehensible“.

(Smith was the first chairman of the Anti-Corn-Law League, and von 1839–1841, President of the Manchester Chamber of Commerce.)

In 1840 charges der Manchester Chamber of Commerce against B.o.E. that, against her own acknowledged rule to hold a reserve of gold in the proportion of ⅓ to its liabilities, „the directors continually acted in direct violation of their own principle – fostered speculation and overtrading by large and injudicious loans, and then, by suddenly calling them in, produced a panic, a fall in the prices of all commodities, and serious losses to the whole commercial community“. In illustration he mentions, that in 1836 Bullion of the Bank reduced to 4 Mill. St., whilst its circulation and deposits 30 Mill. £. To replenish their stock of gold, a course of restriction was commenced, resulting in panic of 1837, by which losses of capital in the 5 great staples of cotton, woollen, silk, linen, and hardware, estimated at 40 Mill. £. The same thing occurred in 1839. To remedy these evils the Bank Act of 1844 was passed, but, says Smith „22 years have since elapsed, – and the evils now complained of … appear like a mere recital of the complaints of 1840“.

Now, nach Smith, reason davon, daß die London Joint Stock Cos. keep not large enough money reserve. But, Smith, great Smith, 1847 panic! but at that time deposits in the 9 leading joint stock banks less than 9 mill. Then, Smith, 1857, panic! and the Inquiry Committee of 1857 considered the increase of deposits in the Joint Stock Banks as one of its causes, but failed to adduce any evidence – because there was none. And, finally, Smith, immense Smith, according to thyself, in 1866 June 30, those Joint Stock Banks denounced not only not failed, but paid 25, 29, 50 p.ct. p.a. on their respective capitals. Smith utterly fails to show that the large deposits in the Joint Stock Banks, or the amount of their reserves had anything whatever to do with the last crises. But Smith feels it a hardship, that they should have drawn so largely, at such a time, on their own balances in the B.o.E. But, Smith, Smith!, couldst thou complain if thy creditor drew largely upon thine reserves at the time he wants his money?

Smith is evidently a damned and solemn and presumptuous ass!

Spirit of the Cotton Circulars.

Decline (gradual) in the price of raw cotton. Manchester manufacturers are losing money, have no confidence in current values, and begin to put their mills on short time.

Ebbw Vale Co. (Lim.)

Great Colliery owner und iron master; territorial magnate and powerful capitalist. Employs more than 15,000 persons, representing population of 50,000. 6 different collieries and iron works in Monmouthshire (3,254 acres of freehold land and mines; 9,352 acres of leasehold properties, besides properties in Gloucester and Somerset – the former in the Forest of Dean to the extent of 700 acres (inexhaustible coalfields), and the latter in Somersetshire to 3000 acres.) On its freehold and leasehold estates 2000 houses and cottages; its rental alone from lands, farms, and houses beyond 14,000 a year. 23 blast furnaces yielded 152,000 tons of pig iron annually, 100,000 tons of railway and finished iron turned out in the year. Collieries 850,000 tons of coal yearly, the mines 280,000 tons of ironstone annually. Besides, at the shipping ports there were ample appliances for a vast and increasing trade by sea. All this was private property when taken over by present Co.

The Co. among the first to apply the furnace gases to the saving of heat in the production of iron – applications that have since been carried to such perfection in South Wales, Staffordshire, and Cleveland.

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December 15, 1866. N. 341.

The Overends. „Justitia“ in „Times“ (11 December) „On Commercial Morality.“

Die Times indeed defender der Overends. Ausnahmsweis for sensation sale jener Artikel. Es heißt darin u.a:

The old firm saw ruin imminent, and they seriously set themselves to the task of averting the dreadful catastrophe. They had already wasted a great part of their own fortunes, and squandered in foolish speculation 3 millions of other people’s money; what were they to do? Craft and subtlety were to be employed to stave off the evil. Their own firm was ruined, but their name was still a potent spell, and that they believed they could persuade a credulous public to buy and so to save themselves. That by this process they might bring ruin upon thousands of helpless innocent people was apparently of no consideration to these „pious bankrupts in fortune and in honour“. They determined to obtain for themselves a large sum for their name and their goodwill, and then to transfer all liabilities to the new Co. To do this the public had to be deceived, „and this was done in a mode that in more savage times than ours would have brought to the gallows the perpetrators of the dead.“

In the prospectus issued by the directors of the new Co. no statement of the circumstances either of the old or new co.; nothing said of the 3 millions of liabilities; no hint of the actual insolvency of the firm for whose business they engaged to give £500,000. The public were cajoled into buying shares in a concern utterly bankrupt by persons thoroughly cognisant of the fraud they were committing. The private arrangement (secret article) contained a full description of the actual state of the old firm, and set forth in „damning figures“ all the liabilities and debts of the bankrupt sellers. Who, asks Justitia, are the criminals? The members of the old firm and the directors of the new Co. They concocted and executed the whole scheme, etc. „These“, he says, „are the criminals, and their crime is that of obtaining money under false and fraudulent pretenses – or swindling – and for that they ought to be placed on the criminal charge at the bar of the Old Bailey.“

The Crisis of 1866: A Financial Essay. By W. Fowler. (1866.)

Defends Peel’s Act, Overstone etc. A panic, he says, is invariably the result of the opposite extreme. Too much confidence – undue inflation of credit – invariably followed by distrust, but in all cases there must be one immediate cause – one culminating point – which precedes the crises. Before the panic of 1847 great railway mania which necessitated money borrowing to an extreme extent, then panic, with the attendant export of precious metals to buy food, which was the immediate cause of suspension of Peel’s Act. Before panic of 1857 extreme speculation in the Un. States, which extended to this country, and the immediate cause of the suspension of the Bank Act then was the failure of various banks and colossal commercial houses connected with the American trade. Before the panic of 1866, great speculation in cotton, finance Cos, banks, limited liability Cos of all sorts, and in merchandise of various descriptions, and pinnacle of the crisis stoppage of Overend etc , 11 May, necessitating for 3d time the suspension of Peel’s Act.

Fowler so far right, but fool when asserting: that the B.o.E. was prepared for the emergency because the Act of 1844 had compelled her to take the utmost caution in the management of her business, and that, guiding herself, by the state of her reserve, she maintained the high rate of interest which counteracted an adverse tendency in the foreign exchanges.

1. As to the necessity for a high rate of interest as a means of retaining gold in the country and of counteracting adverse foreign exchanges … B.o.E. minimum rate of discount 10% from 12 May to 15 Aug., and in that interval the Bank increased its stock of coin and bullion from less than 13 to less than 14 mill. In the same interval the B.o.F. minimum rate from 3 to 4%, but its stock of coin and bullion increased in those 3 eventful months from 20½ to 29¼ mill. Ten % brought the B.o.E. virtually no gold at all; 3 and 4% brought the Bank of France nearly 9 mill. From 15 Aug. to now (15 Dec.) the minimum bankrate of discount at the B.o.E. reduced from 10 to 4%, and from about 14 mill. on 15. Aug. B.o.E. holds now 18 mill. It is clear that a high interest does not always attract gold; and that, after the panic of last May, it was worse than inoperative. It was mischievous to all but the B.o.E. and some other banks. Rest and dividends of B.o.E. good.

2. Old, old theory that „the convertibility of the note“ secured by 10% rate for 3 months, that the 10% kept enough gold, and that convertibility was never in danger. Nonsense! The convertibility was more in danger from the 10% than from any other cause. Was the convertibility of the French note in danger from 3 to 4%, while ours was 10; or with 30 mill. of gold to back it, while B.o.E. could not get half the amount with 10%. If from 12 May to 15 Aug. the B.o.E. had acted up to the letter of the law, it must have stopped payment. And then the convertibility of the Note went to the wall. It was only by throwing the Act of 1844 overboard that the Convertibility of the note was preserved.

3. Fowler tells that there must be a limitation of notes, and that the power of relaxation must rest with the minister of the day. Where existed the power of limitation in the recent crisis? Country bankers would have big B.o.E. notes in their tills so long as the 10% rate lasted, as the return made to the H.o.C. at the instance of Alderman Salomons amply shows. It was not for the B.o.E. to choose. The B.o.E., during those fatal 3 months of 10%, had outstanding obligations to pay gold on demand to an amount far larger than it had gold to pay, and all these debts might have been demanded in full at short notice. If the B.o.E. had only been a little more obstinate and a little less accommodating, their gold creditors would have demanded prompt payments, and where would the B.o.E. have been then?

Fowler says that the Bank Act of 1844 points to a limit to the available supply of money, and thereby is a wholesome check to speculation. Might it not also be said that when the Bank coffers are full, as they are now, and will probably continue, the Act of ’44 stimulates speculation? This law has taught us that, with 18 millions of bullion and coin in the B.o.E., we may regard money as dirt cheap, and that with 12 mill. it must be at panic prices. Was there ever anything so supremely ridiculous in the shape of a law framed to regulate the commerce of the greatest commercial nation of the world?

4. Furthermore, we are told that the limitation of banknotes relatively to the accidental stock of bullion in the Bank vaults ought to exist by law, and that the law of 1844, therefore, a wise and expedient measure. Yet, nevertheless, that some relaxing power is necessary in times of emergency, but that the power of relaxation, meaning an extension of the paper money beyond the limits of the Act of 1844, should rest, as it now rests, with the Gvt. of the day, and not be an integral part of our Currency Law. This means, in fact, that our currency system ought to be regulated by a stringent law, but that, however stringent that law may be in easy times, it should invariably be abrogated in difficult times, and should no longer be law at all. We are told that on three occasions of 1847, 1857, and 1866, the Treasury Letter suspending the Bankact of 1844 has sufficed, „as by magic“, to stop all panic, and quickly to restore the normal state of monetary affairs; and that, as this magical suspension is sometimes imperative, a general power should be given to the First Lord of the Treasury and to the Chancellor of the Exchequer to give the needful authority to the Bank to suspend the law at their discretion. That is, in fact, that the law should be sustained upon the statute book, but that it should never be really put in operation. One of the aims and objects of the law of 44’ was to provide against those crises from one of which we have just emerged, and we are now told that whenever such emergencies arise there must be no such law at all. The law was meant to meet all such emergencies, but it is now argued by this most earnest advocate for the law that the emergency must be met by suspending the law.

Yet again we are told that a high rate of discount will not put a stop to speculative operations so long as it is profitable to pay it, but that the Act of 1844 will and does check such transactions, because it points out, in a way that cannot be mistaken, that there is a limit to the available supply of money in the country, and that, however good may be the bills offered, it is not certain that money will be procurable just when and to the extent required.

Lloyd’s Bonds (Railway Debenture)

Lloyd’s Bonds are, or ought to be, an acknowledgement, under seal, of a debt due for work performed or materials supplied, and in that form are held to be lawful; but in cases in which they have been used as a means of borrowing, as distinguished from the discharge of debt incurred before their issue, they have been held invalid.

In the last session of Parliament Law was passed rendering compulsory the public registration, on and after January 1867, of railway debentures and all other loans; and this same Act requires that after 21st January 1867 every mortgage deed, bond, and certificate of debenture stock issued shall be endorsed by 2 directors and 1 officer of the Co., with a certification that the issue is made under Parliamentary Powers. These 2 directors and the officer are liable to fine and imprisonment if they certify falsely. Presently, 45% of the net revenue is the maximum of the debenture interest, while the minimum is 7¾%, and the average less than 23%. (Dieß nach Coles’ Tables.)

Mr. Coles has prepared tables for 26 Cos (the most important): In substance these figures amount broadly to the facts that the 26 Cos. have raised in all 348 Mill. St., of which 79 millions is, virtually, at this moment, in the form of debentures.

Bills of Lading. (Frachtbriefe) (Handelsschwindel)

At the bottom of all transactions there is money. In a rough kind of way the business community may be divided into 2 great sections, the one dealing with money and the other with merchandise. The 2 live by one another. The capitalist is always ready to lend, and the merchant willing to borrow, the fundamental basis of dealing being security. This is provided by certain well known contracts formulated upon acknowledged instruments of trade, such as bills of exchange, bills of lading, dock warrants, and the like, which pass current generally „to order“, and by simple endorsement from hand to hand. These, when complete, are recognised as valued transfers of value. Bills of lading, for convenience, are drawn in sets of 2, 3, 4, and sometimes 5 parts. The number of parts is stated upon the face of each, and the captain certifies that he had signed the number indicated. The important part of the contract between the captain and all other parties to the bill of lading is that he engages to deliver the merchandise in good order, „in witness whereof the master of the said ship hath affirmed to ―― bills of lading, all of this tenor and date; the one of which being accomplished, the others to stand void“.

Now the course of dealing is ordinarily after this fashion: A merchant in India buys a parcel of cotton for which he engages to pay. He ships the purchase to London, obtains the bills of lading, and negotiates with an Exchange Bank to draw on the correspondent to whom he consigns the cotton, and assigns the shipping documents as collateral security for the due honor of his draft. In return, the banker pays the amount agreed for, which enables the merchant to meet his engagements. In other words, the bank buys the bills of exchange, reserving power of recourse against all parties as well as against the goods in case of need. The bill is then remitted to the London office, and presented to the merchant’s correspondent, who, being duly advised, accepts the same. In due course the vessel arrives, and the agent sends his cotton to a storekeeper or to a dock warehouse. The storekeeper holds the cotton as bailee for the captain until payment of freight, and, after notice, for the bank who claim a lien for the advances made. The agent next pays the acceptance he has given and takes possession of the documents. He then lodges one bill of lading and a release from the captain’s claim for freight, and obtains from the storekeeper a dock warrant or wharf note, as the case may be. He then possesses a clear title to the goods, and if he should consider the markets unfavourable for immediate operation he can wait, when the certainty of being able to obtain a loan upon the document should need a rise. The storekeeper makes himself responsible for the delivery of the goods on receiving one only of the set of bills of lading, and he does this in virtue of the understanding that „one of which being accomplished the others to stand void“.

Nun schöner case of Meyerstein vs. Barber. J. C. Azemar et Co, respectable firm, lately transferred their business to one Abraham, formerly in their employ and known in London first as their manager, and afterwards as their successor. A parcel of cotton came to him drawn against in the usual manner. The cotton arrived and was landed under Abraham’s direction, but he appeared to lack the means to obtain the shipping documents. Consequently he could not deal with the merchandise, and had to contrive some scheme to meet the difficulty. He went to the bank and paid the bill by a cheque upon his own banker. He thus released the documents and immediately negotiated with Meyerstein for an advance upon them. This was successful, and, Meyerstein’s check being paid into Abraham’s credit, enabled his bankers to liquidate the cheque already given by Abraham. So far no harm done. The scheme was bold, but it had gone through, and all parties stood to come out right. But here the mischief begins. Abraham had deposited two bills of lading with Meyerstein, and one still remained in his possession. Meyerstein at this time was in the dark as to the arrival of the ship. Meanwhile, Abraham became active. He had been in communication with Mssrs. Barber as to a loan, in the first instance, but the negotiation had dropped, for want of agreement as to the amount. This was no longer of consequence, and the matter was resumed and concluded, eventually, upon Msrs. Barber’s first proposals. Every precaution was taken; the merchandise was inspected, and, being found free of all liens, the advance was made, the one bill of lading lodged, and the wharfinger issued the customary warrant. The mortgagees, being thus in possession of the cotton, sold it in their capacity of brokers and repaid themselves out of the proceeds. Part of the cotton was sold by order of Abraham, but somewhere about this part of the business he disappeared or absconded. His flight roused Meyerstein, who instituted inquiry, and finding how the case stood, made his claim on the Barber for the net proceeds of the sale, on the ground that the property in the cotton passed to him with the transfer of the 2 bills of lading.

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22 December, 1866. N. 342.

Overend, Gurney et. Co. (Times veering about.)

Times of 18 Dec. (’66) leading article sees nothing legally or morally wrong in the conduct of the partners of the old firm, nor of the new directors. Früher feebleness and indecision in its articles. „a disposition to wink at commercial delinquencies“, „shrinking timidity“, „moral cowardice.“ Then Justitia. Now: Fraudulent concealment and wilful and deliberate misrepresentation, for the purpose of taking the public in, if the public could not be taken in without them, are, according to the Times, neither legal crimes nor moral offences, but fair and allowable mercantile transactions. That is the orthodox commercial morality of the Times.

The Manchester Chamber of Commerce on the Bank Act and the Currency.

Motion was put into the recent crisis and the working of Act of 1844. President (Malcolm Ross) declared that he was an ass, that he had received 72 pamphlets and communications on the subject (one pamphlet proposing to allow banks to issue notes, taking pig iron as a basis) and daß ihm ward von all dem so dumm, als ging ihm ein Mühlrad im Kopf herum.

This the extraordinary commencement. Dann the resolution moved by Henry Ashworth, who stated he did not wish to address the meeting, not being in possession of sufficient knowledge to enable him to express any definite idea on the subject. His seconder, Mr. Bannermann seconded it, because he was of opinion the inquiry would be of „no practical use“, having made up his mind that „the crisis had been caused, not by the Bank Act, but by overtrading“. Ferguson supported because no investigation was necessary, because the public were able to judge for themselves as to the cause of the panic, the immediate cause being the failure of Overend et Co , the proximate causes the speculations of the public in the shares of the limited liability Cos, and the action of the financial Cos.

Mr. Wood thought the passing of the resolution would not be for the credit of the Manchester Chamber, for it would simply show that they in Manchester were „ignorant of the causes etc“. He and Ferguson full of encomiums upon the Bank Act. Dennoch he and Ferguson voted for the resolution. Wood denied that the Act had been suspended more than once. The same Wood gave the following anecdote of Lord Overstone: „On the first occasion“, he says, „he asked Lord Overstone whether the suspension of the Act was sought, and Overstone replied that the authorisation was undoubtedly right, for there existed at that period a state of panic which, if it had not been allayed, would have swept everything away before it, producing a run upon the Bank of England which might have endangered the payment of the notes in gold.“ And it is said that the Act has secured the convertibility of the note from all danger! The Act works well in raising the price of the capitalists’ money, and in lowering the price of the merchants’ and manufacturers’ goods.

Bazley , übrigens auch für den Act, said u.a: This year greater exports than ever before, but imports exceeded them by 30 Mill. £. But Bazley ought not to be ignorant of the fact that it is the balance of indebtedness, and not the balance of exports and imports which governs the exchanges, and that the balance of trade may be and frequently is against us, whilst the balance of indebtedness is greatly in our favour.

Bazley sagt selbst, daß „it was our industry that bought the gold from every market … The B.o.E. could not do it of itself; it might possibly depress prices, and compel English manufactures to be sold at very low prices, in order that gold might be bought at very high rates.“

Overends. (Gordon and Rennie)

From the affidavit of those men (Gordon and Rennie) follows, that the Gurneys had told these 2 directors (im Ganzen 7?) their damnable secret on the transfer of the business.

In the Joint Stock Cos. Act of 1862 it is laid down: „Any fraudulent statement or concealment of fact ⦗in prospectuses⦘ will subject the persons putting it forward to criminal proceedings.“

Is it in the power of any 8 persons, by means of the Limited Liability Act, to saddle unconscious individuals with the Debts of an insolvent firm, luring them by a flattering prospectus, whilst concealing the peril in which they are placed?

29 December 1866. N. 343.

Bank Act of 1844. (Reserve)

While we 10%, the B.o.F. 3½ to 4%. It had not one farthing of Reserve in our acceptation of the word. That is to say, the notes issued and payable on demand in coin were generally in excess of the State Securities held and the coin and bullion in possession. The B.o.F. cares nothing for what we call „Reserve“, and yet during these 3 months accumulated an additional share of upwards of 9 Mill. £. St. … Throughout the history of the B.o.E., the smaller the Reserve of notes, coin and bullion, the larger have been the deposits and the actual circulation … It was not that the commerce of Gr. Britain wanted more notes, but that it feared there might be a stoppage of the supply altogether.

The Railway Cos. Securities Act of 1866.

The money penalties against railway Cos. for non compliance with the Act singularly small, but two useful clauses. 1) the holder of a railway bond may demand a certificate from 2 directors and an officer of the Co (secretary or other officer registered at the office of the Registrar of Joint Stock Cos., authorised to sign the railway debentures of the Co.) that it is legally issued; 2) if certification wrongfully given, the directors and the officer may be imprisoned.

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1. Text nach MEGAdigital (Berlin-Brandenburgische Akademie der Wissenschaften), MEGA² IV/19, Lizenz CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0/); der editorische Apparat der MEGA ist nicht wiedergegeben. ↩