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The Pamphlet Collection of Sir Robert Stout: Volume 4

Bank Inflation in England

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Bank Inflation in England.

To the Editor of the Press:—

The entire stock in trade of the American bullionist, the thing with which he frightens people who are wholly ignorant of finance, the means he uses to perpetuate his power as the great middleman, the parasite par excellence as a dealer in credit, is "Inflation." The only inflation, however, which he pretends to see himself, or wishes others to see, is that of the little monetary instrument—the circulating note, the people's rivulet that irrigates the whole land, and brings peace and prosperity in rills to all classes, rich and poor alike, and with these results, power to the State. He wholly ignores inflation of the great monetary instrument, bank and other credit, the Mississippi of currency, an inferior substitute which men are forced to use when the law places an arbitrary limit upon the one of superior quality, the "current money of the realm."

In no other country in the world has the bullionist held such supreme control during half a century as in England, in none other has he as a credit monger so nicely "feathered his nest" at the expense of the people; in none other is the yawning gulf which divides rich and poor more steadily widening, and the most potent instrumentality in producing this state of affairs has been the contraction of the volume of the little monetary instrument, "the current money of the realm," and the inflation of the great monetary instrument, bank credit. How this great middleman interest is worked, what immense power it wields, and what profits it realizes from insignificant means, are clearly shown by the statement of The London and County Banking Company, of London, December 31, 1874 :—
That institution had a capital of Reserve £1,200,000
But its loans were as follows :—
On call £3,050,922
Discounted bills and advances 14,113,465
Drafts accepted 2,780,005
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What a grand system of "inflation"! An irresponsible private institution, with £1,800,000 of capital and reserve, adding £19,944,392 to the purchasing power of those who borrowed its credit, precisely as much so as would an addition of £19,944,392 to the circulating medium of the country add to the purchasing power of the whole people! But this was not all. This institution hold cash on hand to the amount of £2,461,448, being almost equal to the full amount of its capital, reserve undivided profits, and subscriptions paid on account of new shares. Still further, it held government and other stocks and securities, and real estate to the amount of £2,506,547.

Now how have these results, as magical as those which came from Aladdin's lamp, been accomplished? Why, by lending an ever-increasing volume of credit, which is based on a fixed sum of money or credit called capital, and receiving it, or that of similar English banks, in deposits, in the aggregate amounting to the almost unparalleled sum of £19,892,586, which deposits are, by means of checks and the clearing-house, kept floating round in a circle among these banks—the balances between the banks being settled without the use of a single pound sterling of money, but by cheeks on the Bank of England.* Be it remembered, too, that this London and County Banking Company has no circulation of its own, but that where it does use notes they are those of the Bank of England.

The result of the business of the bank for the past year, after paying large salaries and other expenses, was dividends amounting to 20 per cent., that too, in a land where the public fund-holder is content with a trifle over 3 per cent., and the small depositor in the Postal Savings Bank with 2½ per cent.

Is it not high time that the British government ceased to limit the volume of the "current money of the realm," and thus to legislate in the interest of such a set of vampires as the London and County Banking Co.? The English reformers have now been at work for half a century, and they have really accomplished nothing of material advantage to the

* To show how very small an amount of banking deposits are made in the form of money we give the following statement, made by Sir John Lubbock before the Statistical Society in June, 1865, in which he analyzed a sum of £19,000,000 paid into his bank by customers :—

Checks and bills £18,395,000 or 97 per cent.
Bank of England notes 408,000 3 per cent.
Country notes 79,000 3 percent
Coin 118,000 3 per cent.

From which statement it appears that only 3 per cent, of banking deposits are paid in the form of money, that is, notes and coin together, and a little more than ½ per cent, in specie.—Patterson's Science of Finance, pp. 5, 6; Edinburgh, 1868.

page 4 people. Let them concentrate their whole effort upon monetary reform. Let them demand that current money of the realm shall take the place now held by an inflated bank credit, and they will find that the power of the people over the accumulations of the past will soon show itself, and will bless and prosper the many instead of the few, as at present.

The great, insolvable problem of the public debt of Great Britain awaits in the near future an easy solution. Let the government take from the Bank of England and all other banks the right to issue circulating notes, and issue them itself in exchange for consols, allowing the people full liberty to decide upon the volume of such notes, and making them at all times interconvertible with consols. These notes will take the place of mere unsubstantial bank credit, and flowing out among the people will disseminate the force now centralized in the hands of a few bank officers, stockholders, and borrowers, and enable the people, the real source of national wealth and power, to contribute almost immediately, at least as much toward the payment of the public debt as they did from 1816 to 1822, before resumption of specie payments, or £16,000,000 per annum; besides which the debt will certainly be carried at 2 per cent, per annum interest, instead of 3 per cent., and this alone will rapidly lighten its burden.* In addition to all of these advantages credit, misnamed "financial crises," will soon be a thing of the past, and the great body of the people of Great Britain will clearly see, as many do now among us, that "in the interchangeability (at the option of the holder) of national paper money with government bonds bearing a fixed rate of interest, there is a subtle principle that will regulate the movements of finance and commerce as accurately as the motion of the steam-engine is regulated by its 'governor.' Such paper-money tokens would be much nearer perfect standards of payment than gold and silver ever have been or can be." That all of these things will come to pass, and even in Great Britain, in the not very distant future, and that they will finally and forever drive pauperism from those islands, is my firm conviction.

Henry Carey Baird

* The public debt of Great Britain is now £779,283,245 = $3,787,316,570, and consequently a reduction of 1 per cent. per annum interest would give an immediate annual relief of $37,873,165. In fifty years, however, there would be a saving to the people and the State of $6,409, 654,563, being the difference between $16,603,217,111, the amount of the debt at the expiration of that time, at compound interest, at 3 per cent., and $10,193,562,548, its amount at 2 per cent.