Heft „London 1868“. VIII. The Money Market Review 1866, Mai–August

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

The „Money Market Review“. Jahrgang 1866.

Saturday. May 19. 1866. N. 311. Panic. Bank o. E.

Money Market. (Reserve of B.o.E.)

On Friday evening (11. May) Gladstone stated in the H.o.C. that the reserve of the B.o.E. fell that day from close upon 6 millions to 3, and the Bank Return shows that in the course of the entire week it has fallen from nearly 6 millions to one. The demand for loans, after removal of Bank Act ⦗a few hours more of intense panic would have absorbed this reserve altogether⦘ during the week more than 10 millions, greater than ever known in any previous week of the Bank’s history.

The Recent Panic and Bank Act Suspension.

Kein solcher Panic seit 1825. For a long time previously, day after day, and week after week, persistent endeavours in the Times to bring all the financial associations into disrepute. Continual repetition of damaging insinuations could not fail to prove injurious to the credit of these Cos. and depreciate to some extent the value of their shares, as well as the value of the securities on which their advances had been made. When the favourable moment arrived, therefore, when the disreputable doings of the Joint Stock Discount Co. and the Contract Corporation had excited a large amount of public suspicion and distrust, and the imminence of a great Continental War was added, the speculators for a fall in the Stock Exchange had every inducement to extend immensely their operations, and every reason to calculate upon their success. These operations, it is said, have resulted in the realisation of large fortunes by many of the adverse speculators. For the Cos which were at all „financially weak“ – the effect was crushing. The depreciation in the market price of their shares was certain to be accompanied by a corresponding depreciation in the market value of the securities on which their investments had been made, and the depreciation of both led their customers to a withdrawal of deposits. This the result calculated upon by the speculators, and enforced. But as the conduct of these unscrupulous gamblers, that of some directors of these Cos has been infinitely more reprehensible. It is freely said that some of these directors, like certain animals which are known to follow in the trail of other beasts of prey, more savage and courageous than themselves, for the chance of partaking of the offal that may be left behind, have been following the lead of the Bears, and selling on Speculation the shares of their own Cos. These have been attempted to justify or palliate on the shallow pretext. Feeling certain that the operations of the „bears“ must frighten the public and induce them to sell, and a fall of prices must therefore ensue, they have followed the movement and have sold also, thereby accelerating and increasing the fall. Suchten dieß to justify or palliate on the shallow pretence that, by subsequently buying back their shares at the reduced prices and whilst pocketing the profits – or, in other words, sharing with the bears in the plunder of their own shareholders they have been sustaining the market.

On Thursday, the 10, the panic, which till then might be said to be still „looming in the distance“, fairly set in: at ½ 4 o’clock had culminated in the stoppage of Overend, Gurney, et Co . News flew like wildfire in all directions, in an instant telegraphed to all parts of the country. Dense masses congregated in the streets around the doors. It was clearly perceived that this Overend stoppage would be the signal for the commencement on the following morning of a „run“ upon every other banking and financial establishment, whose credit had been called into question. „Not even in the panics of 1847 and 1857“, said the Daily News, „was the apprehension shown this day equalled. The circulation of mercantile bills, however good, is completely paralysed. Merchants who have the most undoubted paper find themselves under the risk of inability to meet their engagements by reason of the partial or complete collapse of the money market.“ Even the Times City Editor declared that „unless prompt steps were taken, the close of that week would be marked by disasters such as had never been equalled in our commercial history“. Means must be devised, he urged, for stemming the insane torrent of the panic, or it „would not only affect the metropolis and all the great provincial centres of our commerce, as well as our Indian colonial and the foreign markets, but would at once lead to a suspension of public works throughout the kingdom, and in every district throw thousands of people out of employment.“

The time for action had arrived. The only action possible was, in the first instance, a deputation to Gladstone (Chancellor of the Exchequer) composed of representatives of the leading institutions and firms of the City, to urge him, not in terms to suspend the Bk. Act again, but in fact and in effect to supersede it. Friday Morning (11 May) came the anticipated run upon the other banks and financial institutions, and such a pressure upon the discount Department of the B.o.E. as had never been experienced before. Under this pressure the Bk. raised the rate of discount from 8 to 9%, and as regards advances on stock to 10%, and even upon those exorbitant terms it was only on the most unexceptionable bills that money could be obtained. Partially known on Thursday evening the closure of the Joint Stock Bank, its liabilities only about 8 Mill. £. This announcement was followed on Friday Morning (11 May) by the suspension of Peto, Betts, and Co (mit liabilities to £4,000,000) and of W. Shrimpton , railway contractor, for £200,000. In the course of the day it became known that Imperial Mercantile Credit Association had succumbed, the Consolidated Discount Co. has suspended. Several banks severely pressed, but the „run“ was well met. Lombard-Street was thronged in a most extraordinary manner by crowds and gazers, watching the movements at several banks. So great these crowds that the streets almost impassable … constant streams of depositors and customers with anxious faces as they passed and repassed through the doorways of the banks …

Several informal communications from the bankers of the City made to Gladstone during the day, urging the immediate suspension of the Bank Act, but the Bank (o. E.) Directors had made no application, nor expressed any desire on that subject, and Gladstone unwilling to determine anything without some formal application. In the meantime the pressure upon the Discount Department of the Bank such as without parallel in all its previous history. In that single day the Bank extended its loans and discounts to a sum of more than £4,000,000, so as to reduce the reserve from 5 millions and ¾ mill. to about 3 millions. These facts communicated to Gladstone on Friday evening, and on that evening Gladstone was waited upon by a deputation representing the Joint Stock Banks in the City, who were more urgent for a suspension of the Act. Gladstone then decided to send suspensory letter to Governor and Deputy Governor of the B.o.E. He announced this to the H. o. Commons on Friday (same day of 11 May) night. … Thus the Bankact for 3d time suspended.

The Panic and its Remedy.

If the Bankact had not been suspended then, the B.o.E. itself would have forthwith suspended payment. Three millions out of a reserve of less than 6 mill. went on Friday, and, with a panic becoming more intense every hour as the reserve attenuated, there is no doubt that before the close of banking business on Saturday the B. o. Egd. must have closed its doors. If the leading members of Gvt had been out of the way, as is sometimes the case when Parliament is not sitting, … the B.o.E. would have stopped payment. It certainly seems strange that the commerce of a great commercial nation should be paralysed because a Minister or two might not be at their posts; but the law, as it stands, may entail a catastrophe thus momentous for a cause so insignificant.

Jezt sagen die defenders des Act of 1844: its peculiar advantage is that it will stop any Panic as soon as the Act is defunct. … The speculation in cotton, in produce, in iron; the institution of Finance Cos., „Lloyds Bonds“, and contractors’ loans, are certainly not the inventions of the Act of 1844. The „phantom“ Reserve of B.o.E. Notes had suddenly fallen to such a panic point as induced a scramble for the Remnant. … Attempt to limit the supply of money, when it was most needed.

What to do with the Act of 1844?

It does no harm so long as it is doing nothing; it never does any good; it never comes into actual operation without producing evil. It is raising the Bank rate of discount that checks a foreign drain upon our gold reserves, and checks and moderates undue speculation, when it is to be checked … . It is most humiliating to reflect – that the whole of the banking, and financial, and trading interests of this country should hang suspended in the feeble grasp of a body of bank directors, supposed ⦗by the defenders of the Act⦘ to be perpetually oscillating between abject fear and reckless indiscretion. … Banks and bankers imagine that the Bank Act works well for them, and for all the money-lending community, however hardly it may operate upon the money-borrowing public, by keeping up and raising to a permanently higher level the value of loanable money. … The tendency of these frequently recurring periods of pressure and panic is to convert the industrious and enterprising classes into speculative and reckless gamblers …

The landed interest owns less than ⅙ of the national wealth, and pays less than ⅙ of the national taxation.

The Times and the Panic.

Influence that Journal can exercise in bringing about a panic.

On Thursday evening (10 May) frightened by the Panic wants something official being done, urges deputations from leading banks and firms to press at once upon the Chancellor of Exchequer, warns the Gvt etc.

Friday night (11 May) Bank Act suspended. Saturday Morning (12 May) Times declares that the suspension was not necessary, „and if, as we expect, confidence be speedily restored, we shall attribute it to natural causes rather than to the interference of the Executive Gvt … The Panic would have subsided of itself.“ „The suspension of the Act coincided with the Restoration of Confidence. Confidence would have been surely and speedily restored had the law been preserved in all its integrity.“

Monday Morning (13 May) ⦗in point of fact, already in its evening edition of Saturday⦘: „To suppose that the panic could have subsided of itself, especially when the news of the condition of London, and of the State of the Bank Reserve had reached the provinces, would have been tantamount to waiting for a miracle.“ And in its leader columns on the same day: „The panic far exceeded the proportions to which delicacy and discretion reduced it in the newspapers, though even they told a sad tale.“ „The concession of the Chancellor of the Exchequer came not an hour too early.“

It was falsely announced that the Ambassadors of Prussia and Austria had mutually withdrawn. Hence perturbation on the Stock Exchange. Then the Times announcement that „there was not one word of truth in the announcement“.

Times City Article of 25 May. Again an article, full of „deliberately false and grossly exaggerating representations of the affairs in the City“, with the transparent purpose to „write up“ the Panic, and set it again a-going. In that article it is said: „The authority to suspend the Bk. Act has not allayed the panic … the state of embarrassment at the present moment seems to have reached a much worse point than before.“

In another article the Times has the impudence to represent the „distressed“ London bankers as begging assistance from the B.o.E., while they were calling for „their“ money at the Bank. Speaks of „bankers in distress“, while the B.o.E. was the Bank „in distress“.

On the 1st August (City article) (on occasion of Mr. Watkin’s motion for a Royal Commission of Inquiry into the Bank Act) the Times declares all Inquiry useless, and the Act perfect.

On the 2nd August it says: (Leading Article) „The fortunate possessors of capital and credit, whether in Threadneedlestreet or Lombardstreet, sit aloof and administer their power upon purely selfish principles. When money is abundant, they underbid one another, and the B.o.E. lends at 2%, thereby encouraging speculation. When the evil tree is beginning to bear its evil fruit; when enterprise has gone to its utmost limits; when money is gone and ordinary credit falls into suspicion, then the Bank of England trafficks upon the fatal excesses it has provoked, and exacts 10% from its own victims. The other moneylenders do the same, but it is the Bank that sets the example. As a public institution it realises the questionable maxim that private vices are public benefits, for it thrives upon the folly of private speculators, and the 10% which accumulates the Bank ‚Rest‘ and raises the price of Bankstock to £250 means universal difficulty and general disaster. Certainly, there is something invidious in being the chief example of a trade the profit of which is founded upon misfortune.“

Investors Losses from „Bear“ Frights.

Recently the current of speculation in the Stock Exchange has set all one way. Prices have fallen – in some instances on merits; z.B. für die Joint Stock Discount shares und Contract Corporation Shares. But upon this comparatively small basis the Stock Exchange „bears“ have erected a huge structure intended to crush all finance and discount Cos. … The bears of the hour not only sell as the old „bears“ were wont to sell, but they combine, and sell in masses, and they back up their sales by endless rumours. If one Co. makes a call, all are reported to be likely to make calls. If „Lloyd’s Bonds“ are held largely by One Co., all are said to hold „Lloyd’s Bonds“. If one Co. has railway contractors for creditors, all are reported to „be in“ deeply with railway contractors. In the peculiarly sensitive condition of the market at present a few rumours of this description, coupled with a smart decline in the price of the shares, bring real and frightened sellers into the market; whereupon depositors get frightened also, and a complete panic sets in. … There has, during the last week, been a dead set against the Alliance Bank, the Agra and Masterman’s Bank, the Credit Foncier and Mobilier of England .

The Stock Markets of the Week.

Gvt. Stocks have had a great rally, despite the immense sales forced by banks in hourly fear of a „run“. That investment has been rapidly absorbed by the public, and Consols are restored to a very fair price for a 3% security. … The public have eagerly taken all the Railway Stock which a pressure from the North had thrown upon the market. London Chatham and Dover stock has risen. The German sales of American Stocks seem for the moment suspended, while the American demand continues, so that 5-20 Bonds have shared, although very meagrely, in the general rise.

The variations in Agra and Masterman’s Bank shares tremendous, but after touching 20, the price seems now recovering. In London and County Bank Shares recovery of £10. Speculators for a fall in Consolidated Bank shares were forced last „account“ to pay 10s. „backwardation“.

The Limited Liability Act of 1862.

So far, indeed, it seems passed for the especial benefit of clever promoters, financiers, and liquidators to the injury of the real investors. The liability, in many instances, has operated as a share. The bona fide shareholder has practically no protection against either unscrupulous directors or against a wholesale system of nominees or „men of straw“, put up as his co-partners in Cos. which have only a trifling amount of capital paid up. Thus the so called Reserve of unpaid capital may be no reserve at all. No real audit. There are some figures which must be published at least once a year; but, in some instances, if not absolutely false they have been grossly deceptive, and in nearly all cases, they are grouped under a few heads in such a way as to convey little or no information – not even to the most acute accountant in the world – as to the real character, or the extent of the commitments of the Co. The securities held against advances sometimes actually involve a liability, and may, in fact, become heavy liabilities instead of securities, without the shareholders having slightest idea of such a risk. … On the creditor side of the account should be given the amount of advances on securities not fully paid up, on securities of works in progress, and on securities representing fully paid up shares in Cos. or Loans brought out by the Co. distinct from those of other cos., also, the amount of cash at call, at interest, also that at the B.o.E., and in hand.

The shareholders selbst grossen Theils am Dreck Schuld. They blindly support directors who admit having transacted such a description of business that secrecy is actually necessary to preserve the Co. as well as the client. Shareholders are led away by plausible observations from the directors as to the evils of exposing details to the public or their rivals; recent disclosures have proved that secrecy allows unprincipled directors and managers to carry on abominably reckless transactions, of which the shareholders are in ignorance until the Co. is ruined. Even when it is ruined, a balance-sheet in accordance with the requirements of the present Act can at the very last moment be issued, showing a profitable position, as was the case with the Joint Stock Discount Co . With regard to the appointment and re-election of directors (the latter being a ceremony which has almost degenerated into a mere form) they are selected because of their names being prominent as guinea-pigs, oder weil sie political, municipal, official, und mercantile duties have in combination with the responsibilities of a directorship over 5, 10, 15 other cos of varying nature with the most diversified objects. There should also be an end to reserve funds being used as capital. If it be clear profit, and is yet wanted for use in the business, let it be added to the paid up capital or invested so as to prove a real reserve fund in case of need.

Railways. (don’t pay)

In these 25 years we have more than doubled our wealth. Sicher the securities which represent about 450 millions of Railway properties would not realise at the existing market rate their original cost. The investors in British railway property are losers. For many years past subscribers for new railways could not be found. There were, however, lawyers, contractors, and promoters. Devices invented whereby, by „Lloyd’s Bonds“ and Finance Cos., and the issue of railway securities at enormous discounts, and the payment to contractors of prices for their work and materials far in excess of the value, some railways have been made, or partly made. But, as Lord Redesdale said in the H. o. Lords last Monday, the system has fairly broken down.

The Reports of the Asiatic Banking Co., and the Bank of Hindostan, China and Japan (Limited.)

The disastrous crisis at Bombay last year (1865) has told upon the balance sheets and dividends of the various Indian Banks. All have suffered, some severely. Mit Numerous failures amongst firms of the highest standing and greatest repute, and prolonged depreciation of all description of Indian produce the Banks could not escape heavy losses. So sehr bedeutende losses der „Commercial Bank Corporation of India and the East“, ebenso, obgleich nicht so groß, in den beiden oben genannten Banks. Losses of Asiatic Banking Co: £142,000 against profits realised of £61,494. Hatte aber, fortunately, reserve fund of £175,000.

Net profits of the Bank of Hindostan etc for the year £23,485, whole swallowed up by the losses, which have also absorbed £87,794 transferred from the reserve fund. In addition, £70,000 loss anticipated. Sonst sound.

The Economy of B.o.E. Notes. 1000£ Notes.

The B.o.E. directors suchen constantly economy of banknotes, so as to keep as small an amount as possible in the hands of the public, and as many in the reserve as they can contrive. A large amount of the whole circulation, perhaps  1/10 (say 2 mill. £. St.) consists of notes of £1000 each, and nearly all these are in the tills of bankers within half a mile of Lothbury. They are of little or no use, except to settle balances among the banking houses themselves, or occasionally for lawyers to pass when they sell real estate.

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May 26, 1866. N. 312.

The Bank of England and the London Bankers in the Panic.

Friends of the Bankact of 1844: If it has been suspended, it has not failed; if it has failed, it was good, very good, that it should have failed; and that it fails as beautifully and beneficently as it operates. Economist selbst muß aber sagen: „Indeed if it had not been broken this month it must have been repealed next month. The panic took the matter in its own hands.“

In the letter of the Governor and Deputy Governor of the Bank to the Chancellor of Exchequer , on the 11. May, they have the impudence to state: „We commenced this morning with a reserve of £5,727,000, which had been drawn upon so largely that we cannot calculate upon having so much as 3 Mill. £. St. this evening, making a fair allowance for what may be remaining at the branches, and unless the money taken from the Bank is entirely withdrawn from circulation there is no reason to suppose that this reserve is insufficient.“ Dieß als »Troops of bankers were coming up from all parts of the country in order to provide themselves with gold and banknotes.« The balances of the London Bankers, lodged in the B.o.E., usually from 3 to 5 Mill., and it was clear that, had the Bank Act not been suspended, they would have been compelled to withdraw every 6d. of those balances to meet a tremendous „run“. All those balances must have come out of the Bank reserve of 3 Mill. £.

The Deputy Governor of the Bank was exceedingly reluctant at the conference with Gladstone to admit that there was any necessity whatever for the suspension of the Act, until he was curtly reminded by one of the joint-stock bank directors present that „they could draw a couple of cheques to-morrow morning, which would compel the B.o.E. to close its doors“. Gladstone interposed, „but you will not do it“.

Lord Clarendon on the Panic.

The panic of 1866 possesses one essential characteristic which did not belong to its predecessors. Continental capitalists have in this instance become alarmed, and, contrary to all precedent, on the seeming verge of a colossal European war, withdraw their money from London as a measure of security, instead of sending it to London for safety, as in previous periods of convulsion. Clarendon, on the morning after the issue of the Gvt. letter, indited his circular to the British embassies and legations throughout Europe, with the view of staying undue panic on the Continent as to British solvency.

We have been taught to think that the withdrawal of a million or two of bullion from the Bank of England is a very serious affair, and that the addition of a million or 2 is the occasion for national congratulation. … The precious metals always have and always will flow backwards and forwards from one country to another, and all law is powerless to stem this natural course … Clarendon tells Europe that long-continued prosperity in commercial affairs and the general wealth consequent on it have produced their ordinary results in encouraging speculation, especially of a monetary and financial character, and in fostering hopes of acquiring wealth by more speedy means than are presented by ordinary methods of commercial industry. …

Transfer of Business of the Bank of London to the Consolidated Bk.

The London Bank Reserve Fund in its last balance-sheet upwards of £300,000. In April 1864 it paid dividends at the rate of 15% p. annum, price of its shares £122, or £72 premium und damals addition of £200,000 made to the capital by the creation and issue of 2000 new shares. These shares issued to the then existing shareholders at premium of £70 p. share, and the £140,000 realised by these premiums was carried to the reserve funds. At its last half yearly meeting paid dividend of 20%. Came to deadlock by dabbling in financial transactions. Dummes arrangement mit der Consolidated Bank. Transfer ihr 22 May, evening, the current and deposit accounts of their customers mit ample assets to cover them. Consolidated Bk. undertook the charge of these accounts, but assumed no responsibility für die acceptances der B. o. London. Diese daher unpaid return. ⦗Dieß ungesetzlich; giving one creditor privilege gegen den other.⦘ Der Fehler to invest Banking Funds, which may be any day withdrawn, upon Railway Contracts or Lloyds Bonds, or other securities based on public works in a progressive but unfinished state. These works may be long in progress, the capital to complete them may not be readily obtainable, the works may never be finished. Until their completion all such securities not only liable to great fluctuation in value, but extremely difficult to deal with as available securities, even if they can be dealt with, as such, at all.

It is the business of a financial association to lend money, or lend its credit for the raising of money, upon securities not immediately convertible, and repayable at longer dates than those at which a banker justified in lending his money. The financial association, lending at longer dates, and on less marketable securities, incurs therefore greater risk, and obtains therefore larger profits than the banker. If the business well managed, higher profits cover the larger possible losses, and enable it to pay higher interest and dividends to the shareholders. But the financial association ought not to take deposits repayable on demand, or at short notice, because their investments not immediately convertible, in case of emergency for the repayment of these deposits. The mischiefs of intermingling the system of the Banking institution mit financial operations lamentably illustrated in the cases of the Joint Stock Discount Co. and the Bk. of London, the London Financial and the Imperial Mercantile Credit Associations .

Loss in Investments since beginning of 1866 – May 26.

The recent failures and the general depreciation in the value of joint stock investments, since the commencement of the present year, has involved loss at 130 mill. £. St.

The Stock Markets of the Week.

A steady drain of bullion to the Continent continues, partly to pay for the stock with which Continental holders have lately loaded our market, and partly because the machinery of the Foreign Exchanges is out of gear. Consols are weaker, but only to a trifling extent.

The speculators for a fall have altogether had a good harvest this week. Individuals or cliques sell in combination large quantities of shares in an undertaking whose very existence depends upon its credit, and then comment on the depreciation in price which they have caused, in a way to bring the credit of such concern into question, and cap the whole proceeding by circulating false and defamatory reports. It is said that men of high standing in the City of London are not ashamed to pocket the profits of these transactions. Such men pick out a high priced bank as their next victim, and repurchase with glee the stock out of which they have frightened timid shareholders.

With the exception of Italian, which seems to have fallen as low as it well can go, Foreign Stocks are all weaker. The fall in Railway Stocks very severe. London and Northwestern have been the greatest sufferers.

The great interest of the week has centered in the market for Bankshares, where the fluctuations have been terrible. The crisis under which India is still suffering afforded a pretext for heavy sales of Agra and Masterman ’s shares, touched at one time 10l. per share, or 15 discount; but a great rebound has taken place, and they close at £20.

Persons who have locked up their property in their cash-boxes can so invest mit immense profits.

What is a Five-Twenty Bond? (Neue Art Convertibility for paper currency)

The Gvt of the U. States have the option of redeeming this part of their debt at par, or 100, after 5 years from the date of issue, and at any period between 5 years and 20 [years] from the date of issue; but, at the expiration of the 20 years, the holder of five-twenty bonds can claim the principal or par value. Similar condition für die ten-forty Bonds, the option of the State continuing in this case after the first 10 years up to 40 years. On both these kinds of bonds the interest is payable in gold, on the former at 6, on the latter at 5% p. annum.

Seventy-thirty Bonds: Interest on them payable in greenbacks, at the rate of 7 3/10% p. an. (say 7$ 30 cents p. 100 dollars). These bonds exchangeable, at the option of the holder, after 3 years from the date of issue, into five-twenty bonds. By the last advices the relative prices of five-twenty and ten-forty bonds in New York were 102 und 96. Before long – das scheme schon brought forward by McCulloch, the Gvt. will issue a 5% stock at par, and thus exercise the option they have of paying off the five-twenty 6% or substituting a 5% in their place. Chase gave the holders of „greenbacks“ the option of conversion into five-twenties. He could not make his „greenbacks“ equal in value to gold, but to five-twenties, and that he did; and so he paid for the greatest and the most costly war the world ever knew. This is a form of convertibility for paper currency never before devised. But the money was raised at war rates. A „greenback“ issued in payment for cannon and gunpowder when gold was at 100% premium was, when converted into five-twenties, virtually raised at 12%. The purchase-power of the „greenback“ was only 50 p. 100, and upon that 100 6% interest was payable p. annum. Um später dieß to correct hielt Chase dem Staat die option der Rückzahlung etc vor. Mr. Chase’s option of redemption in 5 or 10 years, will be found supremely economical; in the course of a few years we may see a 4½ or 5% stock substituted for the existing 6% five-twenties and ten-forties.

The Annual Circular of the American Commercial Agency. (Vehmgericht)

Issued from New York. The American Commercial Agency erstreckt sich nicht nur auf U. States, sondern auch British North American Provinces. The review takes the form of an everyday ledger account, the substance of what is known in favour of and against all large merchants and shopkeepers being regularly entered up. This Agency has long proved a terror to mercantile evil doers. In no large American town is it possible for anyone to embark in business without receiving an early call from a representative of the Agency, who puts questions about the previous place of business of the members of the firm, their capital, and their expectations. Into the ledger of the Agency the answers are duly posted, and beneath them such corroboration as the Agency may think proper to obtain. All the entries, in the name of any firm, are accessible to the other firms connected with the Agency, but inaccessible to the firm concerned. (Der Economist hat aus diesem Annual Circular Zahlen über die American failures genommen.) The considerable increase of failures in 1865, compared mit 63’ und 64’, is chiefly to be accounted for by the depreciation of the Currency.

The circulation, in England, as in New York, of a kind of Lloyd’s register of the seaworthiness of firms, would provoke proceedings in the Courts of Law. But as long as we resist the supervision of the Agency, and America submits to it, wir haben keinen Grund für our aspersions on American credit.

In diesem Augenblick great Consignments von Liverpool to New York. Diese consignments are stored in the bonded warehouses, for payment of duties; and the large amount of those duties keeps the market itself bare of stocks. Where realisations are demanded, such consignments take precedence of other sales, and a slight advantage in price – i.e., a moderate discount – universally attracts the jobbers. It is absolutely prejudicial to the standing of a firm to realise on terms of sacrifice; and no house of respectability will obey such instructions. Das Circular sagt u.a: „From all points of view, the prospect warrants the conclusion that the entire production in the U. States in 1866 will be nearly, if not quite double that of 1865.“ Dießmal, nach Ende des Kriegs, very few „drummers“ (commercial travelers) have been sent from the North to the South, sondern der South has gone to the North. Southern buyers have revisited the North, and made their own proposals to sellers. To new and unknown men sales have chiefly taken the form of cash or produce, or collateral security of some kind – the assignment of planters’ notes, or mortgages, or of merchants’ notes, or mortgages. Old and known men well received, when they appeared with proposals for immediate or partial liquidation of old claims; but there has been no pressing of sales, as in former days.

The opening words of the Annual Circular state that last year (1865) was one of remarkable success in all commercial pursuits, or that seldom or ever has the increase in the surplus of merchants been so considerable or so universal.

Act of 1844 and Bank of England.

Our trade £500,000,000 p.a., und amount of capital held on deposit in Bank, payable at demand, not less than 400 Mill. £. St. Surely of greater moment that convertibility should be preserved for such a mass of capital than £7,000,000 should be locked up in the B.o.E. as security for the note.

Nach der Theory des Acts von 1844 the value of money should fluctuate and depend on the variations in the currency. 2 August 1865 Bankreserve £6,461,318, rate of discount 4%. On 9 May 1866 Bankreserve £5,811,745, rate of discount 8%, showing a reduction of £649,573 in the amount of reserve, and an advance of 100% in the value of money. The theory, therefore, of regulating the value of money by the amount of reserve admits of the most capricious exercise.

A Pluralist Director.

Thomas Dakin , alderman of the City of London, is a director und auditor in some 20 or 30 Cos, was a druggist, but left that to go to the directories, derives some 1000£ a year from it.

The Directors of failed Cos.

The bears may make a dead set at the shares of the Bank of London and the Agra and Masterman , but they know that some of the directors of both these banks are directors of the Imperial Mercantile Credit Association , who managed in January last to carry forward a supposed sum of £100,000 undivided profit; in April to make a call equal in amount to the paid-up capital; and in May to wreck the Co.

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June 2, 1866. N. 313.

John G. Hubbard, M.P. On the Bank Act and the Currency. (Letter to the Times on 14 May.)

He brings the pretentions of the Act down to one single principle „that of securing the convertibility of the banknote“. Aber dieß is no principle at all. Die absolute practical convertibility nur to be secured by limiting the issues of notes to the amount of gold available for the purpose; whereas the Act of 1844 authorises the issue of 14 mill. £ Notes (jezt 15) beyond that amount. Hubbard avows that the promoters of the Act „confidently affirmed that, with the enactment which limited all the credit issues of the country, and secured the convertibility of the notes of the B.o.E., would result an immunity from speculations, crises, and panics.“ Aber, sagt Hubbard, in fact: „The Act professed to quiet panics only where panic arose from suspicion as to the validity of the B.o.E. note.“ What necessity, then, for passing the Act? Was the note „suspect“ in 1844? No panic ever did arise from such suspicion. Hubbard sagt: „Men now transact business to 10 × and 20 × the measure of their means; in banking the uninvested deposits are committed on interest to a money broker, who, gathering the surplus of many bankers, lends them against higher interest, and without reserve, so that, when the depositor calls upon the banker and the banker upon the broker, the broker is unable to refund.“

It is the limitation of Bank note issues which causes and aggravates panics, and it is not that limitation which stops a drain of gold, whether internal or external, which is the main object Hubbard has in view. It is the rate of discount which effects that object now, und it can do it without the limitation of issues. The rate of discount, regulated by the reserve of gold, is sufficient.

The Theory of Panic etc.

All traders require a reserve of ready cash; this reserve[, instead] of being kept about the person or in some hiding place, is put into a bank. The banker can afford to pay the possessor something for the use of it, and makes a profit upon lending it again. Those to whom the banker lends again make use of the money and again make profit; and so it goes on, and the first deposit with a banker is used over and over again. This is credit. Upon this credit basis our trade has increased and wealth accumulated. A cheque upon a banker answers the purpose of banknotes; and the substitution of cheques for banknotes during the past 20 years has enabled us to dispense with banknotes. There are „banking facilities“. In a word, increased banking is increased currency. The restricted currency of the Bankact of 1844 has been corrected by increased banking faculties. … In the ordinary course bankers can calculate with tolerable accuracy the average deposits of their customers. If the balance of one customer is smaller than usual, that of another is larger, and the medium average is fairly calculable. Bankers, therefore, as a rule, lend again the loans of their depositors, retaining as a reserve for emergencies 10 to 12% of the whole, and thus, in an average condition of credit, the same deposits of a banker are used over again performing the functions of currency by cheques equally with banknotes. … In Zeit of discredit, wie jezt: Our currency, as expressed by bankers’ balances, is thus, or has been, in process of contraction, and, in proportion as deposits are withdrawn by timid customers, bankers have less and less to lend. Moreover, if some depositors draw out money from banks, others may; and bankers must be more cautious than usual, and must increase their reserves by holding more notes and gold. The whole credit machine has been put out of gear … The deposits mit British bankers probably 200 mill. or more. What portion of this currency of credit is now practically extinguished by the panic no one can tell … The 20 or 25 Mill. of Bk.o.E. notes nominally constituting the chief paper currency of the country, is a mere bagatelle by comparison mit other forms of credit fulfilling the functions of currency … Destroy this banking system by impaired credit, and the chief part of this form of currency is swept away. This is panic. … In France the credit-structure is diminutive by comparison with our own, and consequently there is much less open to destruction when discredit comes, and much less room for discredit …

By law of 1844, in this country, the basis of all our credit is made the accidental cash balance at the Bk. of England. By this law, and the usages of that law, cash balance of 20 mill., or so much gold und silver at the Bank o. E., is considered more than ample for any superstructure of credit, and British bankers lend 100, 200, or 300 mill. of deposit freely, and the rate of discount low. It is a question [of] how borrowers can be found. On the other hand, metallic cash balance at B.o.E. of only 10 Mill. £, instead of 20, is regarded as ruinous, and the credit fabric vanishes. British bankers lend nothing, call in their outstanding debts, lose their deposits, and make panic; then the question arises where lenders are to be found of any money on any security. The bankers cannot lend. Both ridiculous extremes, they belong alone to the law of 1844.

French commerce has not been educated by law to build much upon a purely accidental stock of bullion, whether large of small. Our banking facilities are virtually a system of currency, open to extreme expansion and contraction. Its expansion within reasonable terms assists national progress; undue contraction of credit checks it. Under law of 1844, the expansion and contraction of credit and currency are made to rest chiefly upon the accidental stock of the precious metals at the Bk.o.E.

A paper pound sterling is not a pound sterling if not convertible into a coined piece of gold such as it professes to represent; and, therefore, the price of gold must continue to express the precise value of the paper promise. But it is a question whether this ought to be more than an expression of value.

Board of Trade Returns.

The anomaly is that, while we are receiving enormous quantities of cotton from America, we are also drawing heavy amounts of gold from her.

The Consolidated Bank (limited)

Stopped foolishly payment after the transfer to it of the Bank of London .

Consolidate Bank formed of amalgamations at different times between the Bank of Manchester, a Joint Stock Bank, and the private firms of Heywood, Kennard et Co (Manchester) and Messrs. Hankey et Co.

Bank of Manchester established 1829, stopped payment in 1842, suspended business. Reopened in 1852, carried on with profit. In 1860 adopted itself to the Liability Act of 1858 , nearly doubled its shareholders, increased largely current and deposit account. Shares of £10 each, on which £4 paid. 1 Jan. 1863 fusion mit Heywood, Kennard et Co, Lombardstreet. The business of Hankey, established nearly 200 years, was amalgamated in August 1863. Neue shares. Branch established in Norwich. The partners of the private banks became directors of the „Consolidated“. In Sept. 1863 Mr. Brone selected as manager. Die Bank zahlte seit June 1863 10% for year, 1864 16¼% und 1865 16¼%. The deposits held nach last return £3,037,436 und die acceptances £780,564. 22 May 1866 announced on the doors of the Bk. of London that the Consolidated Bank (lim.) had taken possession, and would „protect“ the current and deposit accounts of the B. o. London. Step led to difficulties. Shut on May 27.

American Exchanges and Grain Trade.

Owing to the backwardness of the American spring, the influence of the American Grain Trade will not be felt upon the exchanges until middle or end of June. In other words, until then there will not be any considerable amount of grain bills offering in New York on London, either to operate as set-offs against our shipments of merchandise, or against our transfer of U. St. and other securities for realisation at the other side … This year Canada comes in direct trade mit England, durch abolition des reciprocity treaty mit den U. St. Under that treaty, the bulk of the produce of Canada passed into consumption in the U. St, and was paid either in cash or by draft on New York, daher in former years stets numerous Canada bills in New York …

In the course of last season the oldest fashioned goods – goods of all kinds which had been unsaleable for years – were cleared out in Canada for cash at high prices to American buyers.

From best information, probable that the American grain trade of 1866 will fall below the usual average. … it is stated in New York that shipments of flour from the French ports to New York are either in contemplation or in progress. … the wet weather, during and after last harvest, destroyed large quantities of wheat; in consequence, good wheat is scarce, and sought for eagerly at the moment and for future delivery; Ohio and Indiana, in former years extensive shippers of wheat, are this year buyers in Wisconsin and Illinois. The reason of so much interest at the other side of the Atlantic to the grain trade is, that it is a new and appreciable element of disturbances in the exchanges. If sterling bills are to be sold low, gold will decline; if sterling bills are to rise, gold will rise.

Pressure and securities.

Pressure in monetary circles forces even the best securities on the market; in fact, none but the least are available at such periods, and the shares of the Ocean Marine Co. have doubtless suffered with many others from this cause.

Variations between Prospectus and Articles. The Russian Iron Works Co. (lim.)

In den Articles der Russian Iron Works Co power der directors to increase, without the shareholders, the capital of the Co. to the extent of £500,000. Nichts davon im Prospect. Daher illegal. Und shareholders repudiate the shares. Ausserdem the objects in Memorandum und Articles differ materially from those stated in Prospectus.

America. U. St. (Trade)

All English capital which can be withdrawn from U. St. recalled, because wanted, and value of money is greater here than there. The same cause has led to the return to New York for realization of a large proportion of the 5-20 bonds, railroad shares, and other American securities held here and in Germany since the war. With the exception of some £30,000 of petroleum per week, their present exports very light, not exceeding £100,000 per week, all told. Their cotton shipments are over, the stocks left not exceeding the wants of their own manufacturers. Price in New York higher than in Liverpool und 30 May large purchases made at Liverpool for American account. Till now the proceeds of the stock of cotton on hand at the conclusion of the war, über 2 Mill. bales, furnished them the means of paying their debts to Europe. That being now exhausted, shipments of gold have commenced, schon £2 Mill. already shipped.

Bearing.

Times says in City Article: „Circulars have been sent to all parts of the country with the words: ‚withdraw your deposits from – – bank‘, the name of the bank inserted being that of any special establishment to be attacked on a particular day. Papers with a similar inscription have been freely scattered in the streets and public places; and letters with forged signatures have been addressed to brokers ordering them to sell 500 shares of such and such Co etc.“

These conspirators furnish themselves with a list of the shareholders in a respectable Co, paying 10, 15, 20% p.a., examine carefully how many of the shareholders are women, clergymen etc who know nothing of commercial affairs – estimate continually how many of these poor creatures can be terrified into selling their shares at any conceivable price, calculate with precision what effect this will have on the Co. itself, and if the shares on which £25 have been paid are now fairly worth £50, undertake to deliver, a fortnight hence, a given number of these shares at £40 p. share. This will probably produce the effect of inducing  1/10 of the widows, orphans etc who are proprietors to sell at £20 p. share. This reduction frightens another  1/10 into selling at £10 p. share. This further reduction brings in another tenth thankfull to sell at or below par and this will stop the concern absolutely, and reduce to beggary the remaining shareholders. Thus the „bears“ will be able to re-purchase the shares at a profit of £50 or upwards per share. The Times acquits them of all „moral delinquency“.

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July 21, 1866. N. 320.

The Bank Rate and Bank Act. Deputation to the Chancellor of the Exchequer.

Watkin moved address for the appointment of Royal Commission of Enquiry into the pressure, the 10% discount etc. Deputation from Glasgow Chambers of Commerce to Disraeli mit memorial, on 18 July. Sie sagen u.a. „Only last week £200,000 shipped to France. Here 10% rate, dort 4%.“ Mr. Graham, one of the members for Glasgow said: „There was a widespread opinion that the present system favoured the monied interest rather than mercantile.“

Neither want of capital, nor want of currency, but want of credit.

The Gvt. Debt to the Bank of England a Legalised Fraud upon the Country.

The Bk. commenced its career as a „Government convenience“ by lending the whole of its capital, £1,200,000 to the State at 8% interest, with an allowance of £4000 yearly towards the cost of managing its own business. The Bank empowered to raise an equivalent amount of capital (to that lent to the State) to trade with, by the issue of B.o.E. notes, and the Gvt. contracted to pay in addition to the 8% interest on the loan, £4000 towards defraying the expenses attending the issue and management of the notes on which, in fact, the loan had been raised by the Bank. Such origin and first transaction of the B.o.E., and origin of the Gvt. Debt to the Bank, 170 years ago. This first advance has never been paid off; country, through all its vicissitudes, paying interest on that £1,200,000 to the present day and upon a number of other loans advanced from time to time by the Bank to the Gvt., together £11,015,100, the present amount of the Gvt. Debt to the Bank. Now all these advances or loans made by the Bk. to the Gvt. were raised and made by the issue of banknotes, which the Gvt. authorised and empowered the Bank to issue, and to the validity of which the credit of the Gvt. itself has always, virtually stood pledged. Without that Gvt. sanction and authorisation, and the monopoly of banking and metropolitan banknote issues, the Gvt. secured to the B.o.E., that establishment could not have raised those amounts and lent them to Gvt.

The Gvt. of the country was, therefore, really raising and borrowing money from its own people, and upon its own credit; but through the medium and instrumentality of a banker, from whom it nevertheless received it as a loan, to whom accordingly it acknowledged itself indebted, and to whom it has ever since paid interest upon the amount for periods varying from 170 to 50 years, the last advance having been made in 1816. The banknotes whereon the Bank raised the money which it advanced to the Gvt have never been paid, but remained outstanding in the hands of the public upon the credit of the Bank, but virtually endorsed and guaranteed by the Gvt, down to the present moment. The banknotes actually issued in the first instance, have, of course, come in for payment, but they have all been paid only by the issue of other banknotes for the like or other accounts, in perpetual succession, and have never in any other sense been paid or redeemed. The Bk.o.E. have, therefore, received 20s. in the pound upon those notes; and the Gvt. is still liable to pay them 20s. in the pound upon the whole amount, to the extent of 11 mill. and upwards. The country wanted 11 mill. and upwards of currency beyond the „current coin of the realm“ in circulation, and having obtained these B.o.E. notes, indirectly guaranteed by Gvt., they have constantly held and retained them in circulation, and not a single note in that amount has ever been paid off. The whole has remained in permanent circulation, in the hands of the public until the present moment. The B.o.E. receives the interest upon those 11 mill. of money to which it has no claim. The Bk. can only say that they did raise and pay over to the Gvt. 11 mill., in the sense as it would be true for a billbroker or commission agent to say that he had raised and paid over the amount of the bill he had negotiated for his principal. The credit of the Gvt. gave the B.o.E. notes its currency and provided for its payment … ensured its perpetual currency without payment. Zudem during 20 years Bank expressly relieved by Gvt from that liability to pay by a special law. Shortly after the B.o.E. note was made a legal tender. By this the notes placed upon a par with the current coin of the realm. This entirely superseded all question as to their payment or convertibility. From this moment they were the inconvertible notes of the Gvt. Schon hiedurch the „Gvt. Debt to the Bank“, if it had existed before, was cancelled. It is true, that the Bk. is still nominally liable to payment on demand. But even that nominal liability does not attach to the notes issued in respect of these 11 mill., because they never come to the Bk., and cannot come in for payment, for the most disastrous pressure has never reduced the circulation so low as 11 millions, not lower than 15 or 16. Why, therefore, still claims the B.o.E. to hold the Gvt. to be its debtor to 11 mill. and upwards? Of the whole of that sum the B.o.E. did not advance one single 6d. out of its own moneys. The whole of it was raised upon its bank or promissory notes, every one of which still remains, down to the present moment, wholly unpaid and unredeemed. But received interest from Gvt. upon them, as if it had really paid the whole of them. Its note circulation has never been less than the Gvt. debt, but, on the contrary, it has at all times been greater than that debt. The credit, which held them in continuous circulation and exempted them from payment, was the Gvt. credit; and of legislature Acts.

Bears.

Among the winners by panics the banking and money lending class, und that wary and wealthy fraternity who keep their resources at command when the storm threatens, and use them freely when the hurricane comes.

We have seen quite enough lately of the infamous prostitution of the Court of Chancery by nominal shareholders in joint stock Cos to feel certain that it has been abused, not in the interest of shareholders, but to swell the illgotten gains of gamblers upon falling markets at the cost or ruin of shareholders.

A real fright, cleverly contrived, can scarcely fail to bring down the most trustworthy joint stock bank under the existing system of time bargains.

The writer of ‚Profits of Panics‘ has substantially written the truth … there is no doubt whatever.

Joint Stock Co. Promoting and Financing. Bernard Salomon Bernard.

Lord Chief justice of the Queen’s Bench und Special Jury occupied 3 days in case, wo der plaintiff swindler. Bernard Salomon Bernard – his original name Salomon only – had heard of a certain iron mine, at St. Columb, in Cornwall, of which Carter, banker at St. Columb, was the principal owner. He had heard also of one Gill, supposed to be a gentleman „of great influence“ in certain quarters in London. He conceived the idea of introducing the one to the other, getting up a jointstock Co., and getting himself a handsome sum from the transaction. Bernard saw Gill, represented him the mine especially rich in a species of iron called „spathose“, peculiarly adapted for making steel.

It does not appear whether Carter ever authorised or empowered him to sell the mine, but Bernard assured Gill that he could get a contract for the sale of it. Gill thereupon saw Captain Blakeley respecting it, and as Blakeley was largely invested in the making of steel guns, and as the one of this mine was adapted for the manufacture of steel by the Bessemer process, the captain readily agreed to become party to the acquisition of the mine with a view to forming a jointstock Co. and working it in connection with his Ordnance Company. Bernard entered into a contract to sell, as the agent of Carter, agreed to sell the property to himself and Gill for £75,000. According to Bernard, £60,000 was to be paid to Carter, and 15,000 was to belong to himself. A Co. was then to be formed, with a nominal capital of £250,000, and a working capital of £125,000, to which Co. the promoters were to resell the mine for £125,000, and thus realise a trifling profit of £50,000 for themselves. The names of Blakeley and Bessemer were relied upon to float the Co., a financial Co. would find the money, and, as the cost of raising the iron would be only £2 p. ton, which, when converted into Steel by the Bessemer process, would be worth £100 a ton, the profits of the shareholders must be ‚prodigious‘. But, when the lawyers come to look into the matter, small difficulty discovered. Carter not the sole owner, had not solely power to sell, had never empowered Bernard to enter into contract on his behalf, and there were other parties, some of them ladies, who had never been consulted on the matter. Fresh negotiations for the sale of the property by all the parties interested at £110,000. Bernard insisted now that the name of his brother Salomon should be inserted into the contract with that of Gill, which Gill would not consent to. Captain Blakeley and the Finance Co., it was said, would not have anything to do with the concern until wholly in Gill’s hands. Gill willing to bring out the Co. in 3 months upon 3 conditions. 1) that the contract for sale be made to him; 2) ditto the negotiations for resale through him; and 3) that „we shall share the profits in equal moieties – half to me and the other half to you“. To these terms Salomon, the brother of Bernard consented, but Bernard, the brother of Salomon, refused to assert, and therefore wrote to the Finance Co. to put a stop to the arrangement. Gill thereupon declined to have anything more to do with the matter. Nothing more of the contract of sale. Nevertheless, Bernard Salomon Bernard, the plaintiff, brought action against Carter to recover „the sum of £23,750 for services in connection with the Perron Iron Mines“. Das Vieh was of course non-suited. Er hatte nur acted in the character of a purchaser, nicht an agent for the seller. Im lezten case, sagte der Chief Justice „his conduct would have been scandalous in stipulating for a share of the profits on the resale of the mine, for in that case he would have a direct interest in keeping down the price, in order to increase the difference“.

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28 July 1866. N. 321.

Banking Act of 1844 etc. (No Royal Commission, discussion in Parliament)

Erst Watkin’s motion postponed from Friday last to Monday, Monday he was again foiled.

Reason for no Royal Commission of Inquiry „that a time of panic is not a fit one for such an investigation“. In fact, on some pretext, the inquiry is to be shirked. B. o. France does not find it necessary … to impose upon commerce ⅓ of the changes in discount as the B.o.E.

Report of the Associated Chambers of Commerce in their annual meeting in London (Febr. last) gegen den Act. Vgl. British Quarterly Review. (July 1866)

Bk. o. Fr. has reduced its interest von 4 to 3½%. 6½ und 7% Market Rate of Discount (Bankrate 10%) für best bills in London.

The Drain of Capital for New Investments.

Nach Table sent von Spackman et Son to Times:

Company making is thus shown to be, for the time, almost extinguished.

The figures of the past 3½ years are thus given by Spackman:

Diese figures stellen nicht allen drain upon the resources of the country in the shape of new investments dar; for they do not comprise foreign and colonial loans raised partly or wholly in England, some new issues of shares created entirely, and some new Companies omitted by the illustrious Spackman.

Also zuzufügen, ohne auf 63’, 64’, 65’ Rücksicht zu nehmen, nur für First Halfyear 1866.

• Argentine £500,000.

• Two Egyptian: £6,321,700.

• Queensland Debentures.

• Cape of Good Hope Debentures.

• Chilian.

• New Zealand etc

• Reuters Telegram Co.

• North Eastern Railway

• Great Northern Railway

• London, Brighton etc Railway

• San Paulo debentures.

• Hercules Insurance Co.

• City Discount.

• London and North Western Railway

• Great Eastern Railway

• London and South Western Railway

• Smyrna et Cassaba Railway Debentures.

• London Meat Consumers.

• National Coal.

• London and Suburban Land.

• Staffordshire Wheel and Axle.

• United English and Scottish life.

• South Buckley Coal.

• South Cornwall Mines.

• Buckley Mountain Co.

• Terras Open Workings Co.

• Ehehardt’s Gunpowder, Montpellier Mining.

• North Eastern Waggon.

Putting all this together, the drain upon the investment resources of U. Kingd., nominal or real, nearly as follows:

For Half Year ended 30 June last.

As regards Foreign Loans, a large portion of the proceeds is remitted in arms, ships, munitions of war, machinery, and railway iron; while of the ostensible amount of capital for new Cos only a percentage ever raised and paid upon.

American Money Matters. (Specie Drain)

A New York Bankers’ Circular d.d. July 6 says: „The heavy specie shipments to Europe, which were going on at the date of our last circular, June 6, suddenly ceased at the close of the succeeding week, and have since been not only moderate in amount but less than the current receipts of gold and silver bullion from Australia.“ In other words, the specie drain from the U. St. to Europe has been checked by the changes in the price on gold, which on 5 June was 146, and on 5 July 153%. A fluctuation of 7% apparently separates the two periods – one of efflux, the other of stagnation – with no contraction of notes, no action on prices, and no parliamentary or other generalship to balk the enemy. The recent specie movement from the U. St. dates from 1st May. On that date, it may be fairly assumed, the first notes of alarm were sounded in private letters from England. But the U. States Treasury was then well stocked with specie, so that 35 Mill. dollars were thrown on the market, in response to the demand. Parting with that sum, the U. States Treasury withdrew from the „Gold-room“ and left the continuing wants of commerce to be provided on the usual terms of demand and supply. From 125½, at the opening of the „Gold-room“ on May 1st, the price was carried to 168½ on June 18, to recede, however, as stated, to 153 on 6. July. Thus the precious Metals were acted on in the U. St. as mere articles of commerce. Prohibitory Acts, 1st passed by State of New York (Feb. 18, 1863) prohibited loans on gold coin or bullion, 2nd , passed by Congress, (March 3, 1863) restricted the sale and price of gold; the 3d , passed by Congress (June 17, 1864) absolutely prohibited in certain cases the sale of gold. It so defeated its intended object, that formally repeated on 2nd July, 1864, 15 days only after its enactment. At no period whatever have banknotes and coin in the U. St. stood in anything like the relation maintained in this country. So, obviously, the exchanges control themselves in the U. St. The banking in New York has been deliberately accepted by the Congress as the model for the national banking system.

Coal Export from Port of Newcastle von 1854 to 1864. (in Tons)

Nur in 1858 und 1861 decrease, diese years periods of strife between masters and men in regard to wages. 1864 rendered memorable in the coal trade of Australia Colonies as the year of the great „lock out“, when the whole of the mines were laid off for a period of 8 weeks.

Demand for Money and Demand for Capital.

An increase of the monetary requirements of the country is by no means synonymous with an increased demand for capital. The former does often coexist with a decrease in the demand for capital. Notably during every commercial crisis. (sc. panic.) When large failures or suspensions take place, demand für capital diminishes, demand for currency increases. These events diminish the amount of business, hence for the use of capital on loan. The suspended firms cease business, the distrust occasioned induces other forms to contract their operations. Hence demand for capital lessened. But the monetary requirements of the commercial classes increase. Bills, by means of which trade is carried on, become temporarily distrusted. The bills of all merchants connected in business mit den suspended firms are looked upon with distrust both by the banks and by the public. The parties dealing with such firms refuse to accept bills from them and require payment in banknotes. Hence increased supply of banknotes required, although the ordinary amount of business is diminished. But such increase of banknotes only to be obtained from the B.o.E. But when increased demand for its notes, Bank raises the rate of discount. Legal limit of notes, decrease of reserves points to the approximation to that limit. Hence raising of rate of discount. The Bank says not: „we cannot lend so much capital“; it says: „we have not enough of notes wherewith to transfer the capital“ to make the loans. Thus rate of interest rises contemporaneously with a diminished demand for capital throughout the country. Every rise in the rate of discount depresses the markets, at once depreciating the value of goods of all kinds, and still further contracting credit. Hence failures and suspensions multiply, and, with every new failure, bills become more distrusted, and banknotes are more called for in payment. Another diminution in the Bank reserve of notes, up again goes the rate of discount. Thus a momentary commercial difficulty aggravated into a serious crisis, mercantile firms go down in scores, the trade of the country is immensely diminished, 10 of 1000nds of the working class thrown out of employment. The legal limitation of Banknotes has totally upset the natural course of things, and made the rate of interest to depend, not so much upon the supply of capital, and the demand for it, as upon the artificially made fluctuations in the amount of the medium (banknotes) by which capital is transferred.

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August 4. 1866. N. 322.

Currency and Banking. (Watkin’s Motion. 31 July)

On Tuesday last (31. July 1866), Watkin (member for Stockport) moved for the issue of a Royal Commission to investigate die causes der late Pressure, the continuance for a long period of minimum Bankrate of 10%, and the loans at present affecting currency and banking in the U. Kingd., and to report what alterations had become expedient thereon. The Gvt. had previously determined not to assent to, and accordingly opposed it. Disraeli hatte der Recent Deputation (von Glasgow) gewissermassen diese commission versprochen. Aber dull Sir Stafford Northcote (President of the Board of Trade) opposed it. (On the part of gvt.) Obgleich der Act 3 × suspended, „there is no cause for inquiry“. Traders and manufacturers throughout the land are deprived of the ordinary means of transacting their businesses, and their businesses are declining; orders are being curtailed or withdrawn, and their workpeople in considerable number deprived of their employment. The B.o.E., meanwhile, is making a market of the general distress, though every 1000 pounds it makes cost the country a million. Watkin sagte u.a., daß nicht nur Disraeli und Gladstone (vor ihm) sich gewissermassen pledged for inquiry, sondern: „The Chambers of Commerce throughout the country, including those of Leeds, Manchester, and Birmingham, had associated themselves together, and memorialised the Gvt., and instructed their members to move in the matter … his sympathies were with that great mass of capitalists of the 2nd and 3d class, composed of substantial and respectable men, who, while these things were going on, were brought down to ruin from no fault of their own, and were, in fact, the victims of the laws for which they were in no way accountable.“ A 10% tax, he said, meant a tax of more than double the annual amount upon 300 Mill. £ St. It meant further, Watkin said, a depreciation in the value of commodities and securities, estimated über 100 Mill. £. St., and although that loss of course did not fall on the large capitalists who could afford to hold their property yet the smaller man, who had to meet his engagements without the power of holding them over, suffered very severely. The loss fell most heavily, not upon those most able to bear it, but upon those least able to bear it. He urged that during all this time when commerce taxes, prices depreciated, large numbers of the working classes entirely thrown out of employment, the profits of the B.o.E. largely augmented. The amount of the Rest on 9. May, 2 days before the panic, £3,237,587; whereas, on 28 July, £3,742,406, increase of no less than £504,819, being a profit of more than ½ mill. in 11 weeks. Ferner the advantage, für the B.o.E., shown in the improving value of Bank Stock. In 1844 the price of B.o.E. stock £195, 1847 £180, 1865, after the experience of 2 panics, no less than £250. Comments der Times hierüber on 2 August (sieh p. 189). Watkin said ferner: „during the last 20 years, 3 panics, in 1847, 1857, 1866; and if the House would look at the rates of discount and the times of their continuance at each of those periods … every succeeding panic was of greater severity than its predecessor. 1847, penal rate of discount fixed by the Gvt letter 8%, and endured for 4 weeks. 1857 the penal rate 10%, endured for 6 weeks; 1866 10%, had already endured for 3 months.“ Daher must be some cause or law at work, which, at every recurrence of these crises, aggravated their pressure. Nach Report des Committee des H. o. Lords von 1857 the labouring classes suffer most von der destruction of credit and confidence on which commercial transactions are based.

„What had the Bank done with the authority entrusted to them by Gladstone on May 11th? Our present trade was double its value in 1857.“ The Bank had not advanced one shilling beyond the fixed amount, während in 1857, they advanced 2 Mill. l. St. the moment they received the Gvt. letter. In order to avoid infringing the Act, they „sent round and borrowed banknotes from their customers“, and were thus enabled to defeat the object of the letter, and cheat the commerce of this country. Motion seconded by Mr. Akroyd; opposed by Northcote , Fawcett , Hubbard , (bk.o.E. director, früher governor of it) und Gladstone. Alle diese fellows admitted the necessity of inquiry.

Northcote’s main objection: that an inquiry now would be premature, would follow too close upon the panic itself, and »that it would«, if now constituted, »be necessary to examine the partners and investigate the transactions and affairs of the firms which had suffered from but survived the shock«. Flippant remarks of Fawcett , feeble and hacknied arguments of Gladstone . Wegen absence des graussen G. J. Göschen , Debatte adjourned. Elendes Argument der Times, daß banknotes merely the representatives of gold, or certificates for so much pounds of gold coined at the mint – and the 15 mill. not based upon gold? Diese legal issue must be expanding and contracting je nach den requirements of the public. Der City Kerl der Times giebt in demselben Artikel zu (30 July) daß „14 mill. £ St. notes not represented by gold.“

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11 August, 1866. N. 323.

Count out on Watkin’s Motion for Enquiry.

Pitiful exhibition of this country in the eyes of foreigners.

Merchants and traders who had nothing do with share speculations or financial shares have been compelled to countermand their orders, manufacturers obliged to discharge their workmen, trade and commerce paralysed throughout the country, because money could not be had to meet engagements and pay wages. Our Foreign minister wrote to our foreign creditors, telling them that we had been overtrading and speculating, and were in temporary difficulties. 10% rate cause of the protracted discredit. The adjourned debate, which should have been resumed by Mr. J. B. Smith , on 3 August, was met by a „count out“. Resolved to shelve all inquiry. Der würdige Northcote: „Can you, or ought you, to make money when money is scarce? … There are those who say that the money that there is in the country represents the capital, the loanable capital, or gold, or this or that or the other, for there are different theories as to what money really is … the other school says, that money is only a form of credit.“ A small amount of wit goes a long way in the H.o.C. These empty remarks excited the laughter of the H.o.C. „It is hopeless for you to investigate practical questions tending to legislation unless you have made up your mind on which of the 2 theories you intend to proceed“ (says Northcote). These different arguments secundum Northcote „arguments against inquiry“. Millions of money „labouriously“, says the Money Market Review „and honestly (!) acquired by the mercantile and industrious classes, periodically filched from their pockets to enrich the pockets of the moneylender“ . Gladstone (summus!) added that „whatever the nature of the report, he was quite sure, that so far as it dealt with principles and causes, it would not weigh with the H.o.C.“

Fawcett said that the „panic had been produced by the reckless spirit of commercial gambling which had spread itself over the country“. Gladstone (obgleich gegen inquiry) said „that commerce so far as he had observed, had been in a sound and satisfactory state. The charge of excessive speculation and recklessness was not applicable to the manner in which for some years past the general commerce of this country had been carried on.“ Gladstone further says: „we must recognise the great benefits derived from the working of this Act.“ „At any rate the convertibility of the banknote – the first object of currency laws – has been placed beyond the smallest question – not only beyond the absolute reach of dangers, but beyond the slightest taint of danger or suspicion.“ True? The suspension of the Bank Act has preserved the convertibility of the Note. The Banknote was endangered by the Bank Act during each of the 3 panics it has brought upon us, for it brought in view the bankruptcy of the Bank itself. If the doors of the Banking Department were once closed, as they would have been but for the suspension of the Act, how long does Gladstone imagine it would have taken to exhaust the gold in the issue department? When the 10 or 12 mill. of gold withdrawn, there would still be 14 mill. of notes to come in for gold, and there would be no gold to meet them. And the Bankact has preserved the Banknote!

Ministerial Opposition to any Change in the Bank Act.

The banking interest is powerful, and as a body is identified with the Act of 1844. The Bank has a plethora of gold, which cannot be touched, and thus it has so long maintained a 10% rate. Throw the 2 departments together! It is foolish to make the Bank promise to pay in gold, notes issued upon the Gvt. debt to it only!

Clearing Houses for Banking. (Country Clearing)

A few years back the private bankers of London alone used the Clearing House. Then, joint stock banks admitted, and, still more recently, established in London a „country clearing“, but only partial in its operations at present. A country banker having cheques upon another banker in the same place presents them over the counter for payment in notes or coin, and thus, in the settlement of the account between these bankers, notes and coins are required. The London bankers settle their accounts by an interchange of cheques and bills, and this economy of notes belongs alone to the Clearing House.

Sir John Lubbock , banker, honorary Secretary to the London Bankers, was the author of the country clearing, and in June (1865) read paper upon this subject before the Statistical Society . In diesem paper Lubbock took an amount of £23,095,000 , which passed through his bank in a few days, and found that it was made up as follows:

These figures taken at the close of 1864, approximately represented the general average of the transactions of all clearing banks, and, upon that assumption: 70% of the whole (£700,000 in each million £) passes through the clearing house. Of the second 5,394,000 – £3,603,000 included transfers made from the account of one customer to another, and the remainder, or £1,791,000, represented cheques and bills on banks which did not clear. Also: 70% of the whole passed through the Clearing House; 94% of the whole was done without the aid of what is usually termed money – notes and coin. 6% was done in notes and coins, in the following proportions:

These figures show the proportion of the transactions of bankers which passes through the Clearing House. Subsequently, he shows the proportions made in banknotes or coin by the public in London, and the following are the figures he supplies of payments by his customers into his bank:

Estimated by both tests, at least  9/10 of that large portion of English commerce, settled by London bankers is performed by methods of currency other than banknotes and coin. The country clearing, established by Lubbock, belongs only to a particular class of country bankers. To use Lubbock’s words: „the country banker, A, receiving a cheque drawn on another country Banker, B, sent the cheque by post direct to B. B then requested C, his banker in London, to pay the amount to D, the London correspondent of A.“ In 1858 Lubbock thought that the complication of this system might be avoided by the establishment of a central office in London, for the special purpose of clearing country cheques, established in November (1858) the Country Clearing House at London. But this economy does not yet attach to a very large proportion of provincial business. Liverpool should have its own Clearing House, for cheques and bills between Liverpool bankers, so should Manchester, Glasgow etc. The requirements of banknotes whereby commerce is expressed has been gradually reduced, relatively to the magnitude of our commerce, by the banking facilities we have described. If our commerce depended, in fact, at this moment, upon banknotes as much as in 1844, when Peel’s Act passed, it would be simply extinguished.

Glasgow Chamber of Commerce on Banking.

That the Bankact of 1708, limiting all banking cos., except B.o.E., to 6 partners, produced numerous weak banks, subject to failure in all times of difficulty;

the exclusive privilege of issuing banknotes in London obliges the B.o.E. – and this impracticable – to hold a stock of bullion not only for its own transactions, but for those of all other banks and financial cos;

It has led to the establishment of Great Joint Stock lending Cos., who issue credit, in all other forms, except banknotes, without obligation of holding stocks of bullion corresponding to their credit;

that, by abolishing monopoly, all banks would be on an equal footing etc.

In Scotland, proved by long experience, that the keener the competition among banks, the smaller has been the amount of banknote issues.

It is only issues of credits for 2, 3, or 6 months which, by exciting speculation, derange prices and the foreign exchanges.

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August 18. 1868. N. 324.

Reduction of Bankrate of Discount to 8% (16 August)

The Times said: that „as to the rate of discount, the circumstance of its being so high showed that a high rate of profit was being realised, and that again showed that both capital and labour were meeting with a bountiful reward.“ Herr Hubbard in der bisher erwähnten Debatte (gegen Watkin) in H.o.C.: „If the borrowers have suffered, the lenders have gained, and he begged the House to remember that, as both were citizens of the same country, the gain as well as the loss would be felt throughout the empire.“ Er läugnet, daß high rate of interest could impede large mercantile transactions and arrest the employment of labour. Schön, da: the avowed purpose and object of the currency school, by the high interest, consequent upon the operations of the Bank Act, to contract mercantile operations and diminish the employment of labour, and to force the sale of the stocks of commodities on hand at reduced prices. „throughout the past quarter (sagt Times of 17 August) trade has been working, so to speak, half time.“ „Everyone“, sagt die Times ib., „– bankers, merchants, manufacturers – gave as little credit, kept as small a stock, and did as limited a trade as possible.“

Misrepresentation in Prospectus of Joint Stock Cos.

Action brought by the Glamorganshire Coal and Iron Co. against Mr. Irvine, shareholder, to recover amount of call made upon him. The defendant pleaded that he had been induced to become a shareholder by the fraud and misrepresentations of the plaintiff … The Co. formed in June last for the working of a coal and iron mine. In »prospectus stated that the estimated quantity of coal in the mine was 7,000,000 tons, that the value of the mine was £48,000, that the probable annual produce of coal would be 93,000 tons; the annual profit upon the coal £14,000 and upon the iron £12,700; minimum dividend 10%, payable halfyearly.« These representations false and fraudulent. According to the report of a committee of inquiry, quantity of coal only 1,500,000 tons; the coal not worth the cost of raising, or at best inconsiderable profit; no profit to be made upon the iron, consequently impossible these could be any dividend payable to the shareholders. The defendant called evidence on those points, also showed that £10,000 had been paid to the attorneys for getting up the Co; that the whole concern was enormously in debt, and in fact insolvent; the only parties who had derived any benefit from the Co. were the attorneys and their friends, the directors; that „dummy“ shareholders had been got up to a large amount; and that by such means the shares had been worked up to a fictitious value when in fact and reality they were worth nothing whatever. Of course verdict for defendant against the Co. Letztre, durch ihren Secretair, gab zu, daß die £10,000 paid to the attorneys – for getting up the Co. A Mr. Baylis, who had been managing director, had got £1000 a year. Another director (auch evidence für die Co) was compelled to admit that he had also received £200 from somebody, though „he declared he had no idea where it came from“.

Royal Insurance Co. Incendiarism.

The Royal represents an unexampled rate of increase in the life department. The sums ensured in the last 5 quinquennial periods were respectively £272,796, £.733,408, £1,655,678 und £3,439,215. At this rate the business effected in the present quinquennial period will be more than ever on record in insurance office in this country. … Incendiarism is on the increase, and amongst the potent incentives to the crime the directors of the Royal very properly enumerate in their report the „irrational competition for business among new and unskilled officers“. … The average ratio of loss which fell in 1865 on several leading fire offices was no less than 87% of the premiums received; in many offices all the profits were swallowed up, and the reserve funds seriously encroached upon. The loss of the Royal, a prominent sufferer, was 77% of the premiums received, yet gain on the years’ transactions of nearly £10000. The actual outlay made by the Royal in the payment of claims amounted to £318,946. After declaring a dividend of 17½% on the original capital, the credit balance of the profit and loss account is found to amount to £62,076, in addition to the reserve fund of nearly 2 × that amount.

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25 August, 1866. N. 325.

Railway Debentures falling due in a Money Panic.

In a circular the directors of London, Chatham, and Dover Railway Co. announce that they are unable to renew debentures which have recently matured to the amount of £400,000, or to pay the interest last month on any of their debentures; also that the Court of Chancery has appointed, on behalf of the creditors, a receiver and manager, who take the entire income of the Co., and, after payment of the working expenses, hold the residue at the order of the court. All the rolling stock, plant, and movable chattels are assigned to other creditors, to prevent their seizure and appropriation by any special creditors.

Debentures of railway Cos. are always falling due, in good times as well as bad. When the times good, the renewal is easy, when bad, very difficult or impossible. Laing , when chairman of the Brighton Co., attempted to correct the evil by giving a higher rate of interest for long terms of years; but longdated debentures may fall due in bad times, even if the periods of their renewal are less frequent. Then arose the notion of debenture stock (originated with the Bristol and Exeter Co) whereby the debenture debt virtually converted into a permanent stock, requiring no renewal in good or bad times. The Great Northern Co. has made wonderful use of this method of converting debenture debt into a simple annuity, the principal of which can never be demanded by the creditor. The London and North Western and other cos. have also availed themselves of it to some extent. With all this, the amount of railway debentures payable at fixed periods and now outstanding, is very large, and in a crisis such as that from which we are now emerging, has been a grievous source of difficulty and discredit. Debenture stocks are generally at a discount, and the conversion from debenture bonds, the principal of which is guaranteed is, therefore, nearly impossible just now.

The Increase and Employment of Capital. (Cos) (Law of partnership)

Not overtrading in merchandise and manufactures, which enrich rather than impoverish, but overtrading in too numerous schemes and projects, many of which are crumbling to pieces every day.

Roads and railways lock up capital irrecoverably, since they are almost valueless except for the purposes for which they are used.

What an enormous amount of capital has been dissipated by many of the Cos. which of late years have sprung up. The public fail to see that many of such cos. have their foundation not on capital but on credit, and induce those of a speculative tendency to embark in schemes neither required nor calculated to become useful or productive. It is the business of such Cos. to foster and encourage credit. … Large sums divided among the directors of such Cos und der avarice of the shareholders for large dividends.

There is a wide difference between capital as originally drawn from various channels, and concentrated for and employed in legitimate purposes, and capital swelled out to enormous proportions by premiums on shares and exorbitant dividends. There is no increase of real capital to the country under such circumstances of fictitious value.

It may be thought, prima facie, that the best law of partnership, is the one which enables persons to associate themselves together for the purposes of trade and commerce with the least amount of restrictions as to the manner in which they choose to combine. This may be the case where private partnerships alone are concerned … But public Cos., dealing with vast interests, and in which a large body of shareholders are virtually governed absolutely by a board practically irresponsible for their acts, require a certain amount of organization, and at this point the law steps in, and defines the obligations of the Co. in a rigid manner. … Die directors, Governors, proprietors der B.o.E., which is a Limited Co., only responsible to the amount of the Bankstock they hold.

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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. ↩