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note currency, the remainder of the notes which may be required being left to be supplied either by one or by a number of private banking establishments. Or an establishment like the Bank of England might supply the whole country, on condition of lending fifteen or twenty millions of its notes to the government without interest; which would give the same pecuniary advantage to the state as if it issued that number of its own notes. The reason ordinarily alleged in condemnation of the system of plurality of issuers which existed in England before the Act of 1844, and under certain limitations still subsists, is, that the competition of these different issuers induces them to increase the amount of their notes to an injurious extent. But we have seen that the power which bankers have of augmenting their issues, and the degree of mischief which they can produce by it, are quite trifling compared with the current over-estimate. 3. remarked by M. Fullarton,” the extraordinary increase of banking competition occasioned by the establishment of the joint-stock banks, a competition often of the most reckless kind, has proved utterly powerless to enlarge the aggregate mass of the bank note circulation; that aggregate circulation having, on the contrary, actually decreased.) In any case it appears desirable to maintain one great establishment like the Bank of England, distinguished from other banks of issue in this, that it alone is required to pay in gold, the others being at liberty to pay their notes with notes of the central establishment. The object of this is that there may be one body, responsible for maintaining a reserve of the precious metals sufficient to meet any drain that can reasonably be expected to take place. By disseminating this responsibility among a number of banks, it is prevented from operating efficaciously upon any : or if it be still enforced against one, the reserves of the metals retained by all the others are capital kept idle in pure waste, which may be

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dispensed with by allowing them at their option to pay in Bank of England notes.

§ 6. The question remains whether, in case of a plurality of issuers, any peculiar precautions are needed to protect the holders of notes from the consequences of failure of payment. Before 1826, the insolvency of banks of issue was a frequent and very serious evil, often spreading distress though a whole neighbourhood, and at one blow depriving provident industry of the results of long and painful saving. This was one of the chief reasons which induced Parliament, in that year, to prohibit the issue of bank notes, of a denomination below five pounds, that the labouring classes at least might be as little as possible exposed to participate in this suffering. As an additional safeguard, it has been suggested to give the holders of notes a priority over other creditors, or to require bankers to deposit stock or other public securities as a pledge for the whole amount of their issues. The insecurity of the former bank note currency of England was partly the work of the law, which, in order to give a qualified monopoly of banking business to the Bank of England, had actually made the formation of safe banking establishments a punishable offence, by prohibiting the existence of any banks, in town or country, whether of issue or deposit, with a number of partners exceeding six. This truly characteristic specimen of the old system of monopoly and restriction, was done away with in 1826, both as to issues and deposits, everywhere but in a district of sixty-five miles radius round London, and in 1833 in that district also, as far as relates to deposits. It was hoped that the numerous joint-stock banks since established, would have furnished a more trustworthy currency, and that under their influence the banking system of England would have been almost as secure to the public as that of Scotland (where banking was always free) has been for two centuries past. But the almost incredible instances of reckless and fraudulent mismanagement which these institutions have of late afforded (though in some of the most notorious cases the delinquent establishments have not been banks of issue), have shown only too clearly that, south of the Tweed at least, the joint-stock principle applied to banking is not the adequate safeguard it was so confidently supposed to be: and it is difficult now to resist the conviction, that if plurality of issuers is allowed to exist at all, some kind of special security in favour of the holders of notes should be exacted as an imperative condition.



§ 1. IN the phraseology of the Mercantile System, the language and doctrines of which are still the basis of what may be called the political economy of the selling classes, as distinguished from the buyers or consumers, there is no word of more frequent recurrence or more peril. ous import than the word underselling. To undersell other countries—not to be undersold by other countries—were spoken of, and are still very often spoken of, almost as if they were the sole purposes for which production and commodities exist. The feelings of rival tradesmen, prevailing among nations, overruled for centuries all sense of the general community of advantage which commercial countries derive from the prosperity of one another: and that commercial spirit which is now one of the strongest obstacles to wars, was during a certain period of European history their principal cause.

Even in the more enlightened view now attainable of the nature and consequences of international commerce, some, though a comparatively small, space must still be made for the fact of commercial rivality. Nations may, like individual dealers, be competitors, with opposite interests, in the markets of some commodities, while in others they are in the more fortunate relation of reciprocal customers. The benefit of commerce does not consist, as it was once thought to do, in the commodities sold ; but, since the commodities sold are the means of obtaining those which are bought, a nation would be cut off from the real advantage of commerce, the imports, if it could not induce other nations to take any of its commodities in exchange; and in proportion as the competition of other countries compels it to offer its commodities on cheaper terms, on pain of not selling them at all, the imports which it obtains by its foreign trade are procured at greater cost. These points have been adequately, though incidentally, illustrated in some of the preceding chapters. But the great space which the topic has filled, and continues to fill, in economical speculations, and in the practical anxieties both of politicians and of dealers and manufacturers, makes it desirable, before quitting the subject of international exchange, to subjoin a few observations on the things which do, and on those which do not, enable countries to undersell one another. /\ ** One country can only undersell another in a given / market, to the extent of entirely expelling her from it, on \ two conditions. In the first place, she must have a greater ) advantage than the second country in the production of the s article exported by both ; meaning by a greater advantage (as has been already so fully explained) not absolutely, but in comparison with other commodities; and in the second place, such must be her relation with the customer country \ in respect to the demand for each other's products, and such \ the consequent state of international values, as to give away to the customer country more than the whole advantage possessed by the rival country; otherwise the rival will still be able to hold her ground in the market.) Let us revert to the imaginary hypothesis of a trade between England and Germany in cloth and linen: England being capable of producing 10 yards of cloth at the same cost with 15 yards of linen, Germany at the same cost with 20, and the two commodities being exchanged between the two countries (cost of carriage apart) at some intermediate rate, say 10 for 17. Germany could not be permanently

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