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The Pamphlet Collection of Sir Robert Stout: Volume 4

Bullionism and Bank Inflation. — How they travel hand in hand together

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Bullionism and Bank Inflation.

How they travel hand in hand together.

To the Editor of The Philadelphia Inquirer

My friend, Judge Kelley, having in a recent letter given some rather startling figures regarding the London and County Banking Company, of London, exhibiting the extent to which that institution carries the system of inflation of bank credits, I desire to place before your readers the evidence that those figures give but little more than a fair average specimen of the state of the London banks generally. To that end I have compiled from the supplement to the London Economist, May 15, 1875, the following:—

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Names. Capital. Reserve Fund (surplus). Loans, discounts, etc. Deposits. Cash, including deposits in the Bank of England. Public securities, etc. etc. Real Estate, etc. Alliance Bank £800,000 £180,000 £2,726,295 £1,890,068 £638,140 £80,953 Central Bank of London 100,000 20,000 591,507 769,039 186,039 81,859 £37,018 City Bank, London 600,000 170,000 6,211,396 3,287,862 787,950 329,027 54,351 City and County Bank 25,011 750 98,682 86,972 9,019 Consolidated Bank 800,000 106,575 3,089,100 3,072,641 807,102 208,944 180,752 Imperial Bank 675,000 80,000 3,325,174 2,115,416 596,555 72,370 23,680 London and County Banking Co.... 1,200,000 600,000 19,944,392 19,892,586 2,461,448 2,083,470 408,077 London Joint Stock Bank 1,200,000 505,283 18,895,531 20,527,276 2,296,901 1,080,000 126,290 London and Provincial Bank 150,000 24,110 926,106 1,319,098 198,253 339,718 22,119 London and Southwestern Bank.... 166,180 9,000 890,027 907,592 174,401 33,144 London and Westminster Bank 2,000,000 1,046,150 25,389,754 30,015,194 3,861,387 3,998,851 Merchants' Banking Co. of London 375,000 75,000 2,903,442 2,599,230 211,804 20,000 Union Bank of London 1,395,000 450,000 15,512,979 14,122,111 2,357,367 2,940,978 423,462 £9,486,191 £3,266,868 £100,504,385 £100,605,085 £14,586,366 £11,216,170 £1,328,893

Table shouting the leading items of thirteen London Joint Stock Banks, December 31, 1874.

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From the foregoing figures it would seem that in London, at least, they have learned how "to pay debts without moneys," a lesson that Andrew Yarranton, the father of English political economy, desired to teach to his countrymen at as early a date as 1677; to-day nearly all of the large debts in that city being paid by mere bank credits, which have absolutely little or no monetary foundation whatever.

With a capital and reserve or surplus of £12,753,059, of which nearly the whole, or £12,545,063, is invested in public securities, real estate, etc., these institutions have gradually accumulated a line of loans of £100,504,385, resulting in credits to the borrowers or their assigns, called deposits, almost wholly the out-growth of these loans, of £100,605,085. So long as there is no extraordinary demand for payment outside of it, these deposits are readily kept afloat through and by means of the clearing-house.

These deposits, which are worked through checks, become an instrument of payment as potent as would be the addition of £100,000,000 to the money of Great Britain. In other words, they are in their effect equal to the doubling of the gold circulation of the realm, which is now estimated by the highest authorities at £100,000,000, but with this difference, that the deposits being worked by the few, they become an instrument for the aggrandizement of those few and for the enslavement of the many These credit-mongers and those in our own country understand this full well, and when they cry out against "inflation" they pretend to be opposed to the very thing they are in favor of. What they are really opposed to, is having such a normal volume of "current money of the realm" as will obviate all necessity for that immense volume of bank credit, through the use of which they annually levy taxes upon the public to the amount of hundreds of millions of dollars.

The "cash" £14,586,366 held by the London banks above named, small as it is compared with their liabilities payable on demand, consists largely of mere deposits (credits) with the Bank of England, thus constituting the latter the almost exclusive base upon which rests this towering superstructure of bank credit. The Economist has recently, said "the reserve of the Bank of England is the only reserve the nation possesses, and has not been increased in proportion to the very great amount of the demands to which the bank is now exposed, as compared to those it had formerly to meet." The weight of these "demands" may be inferred from the fact that during October and November, 1874, the deficiency of the bank note reserve of the Bank of England, as compared with the mere bankers' balances in its hands, ranged from £734,000 to £2,478,000. The reason why the burden has so increased, is found in the fact that, while since 1844, the trade of Great Britain has increased many fold, the circulation of coin has increased but little, and that of notes not issued on coin or bullion actually in hand, not at all. Hence the growing trade has annually to call upon banks for an increasing page 14 volume of their inferior substitute, credit circulating through the London and other clearing-houses.*

Judge Kelley and the gathering hosts of which he is now the acknowledged leader, only demand that the people of this country shall no longer be placed under the tyranny of such legislation as limits the money of the country below the actual wants of business, to be followed by the creation of an inflated, expensive, and unstable bank credit system like that of England. To that end, they advocate a full volumed currency, at all times interconvertible with United States bonds bearing a fixed rate of interest, not exceeding 3.65 per cent. Such a currency will in time cause nearly all business to be done for cash as in 1864-5, and will save us from those desolating crises which, sooner or later, in Great Britain, here, or elsewhere, follow an inflated credit substitute for a sufficient volume of "current money of the realm."

Henry Carey Baird.

Philadelphia, August 2, 1875.

* In 1844 the deposits in the following banks were :—

London and County £1,231,000
London Joint Stock 2,245,000
London and Westminster 2,076,000
Union 1,593,000
In 1874 they were :—
London and County £19,892,586
London Joint Stock 20,527,276
London and Westminster 30,015,194
Union 14,122,111

The ticklish nature of the British system of inflated hank credit is well shown by the following from The Economist, the highest English authority on finance, July 10, 1875 :—

"There can be little doubt that we have very narrowly escaped a panic. The great mercantile disasters which have followed so rapidly one after another, the failure of two bill brokers, and above all, the very serious losses avowed by our joint stock banks, and especially by the London and Westminster (the one whose business is largest, and whose repute greatest) would, in former times, have nearly or quite shaken the foundation of credit. The mercantile disasters which primarily caused the panic of 1857, were certainly not much greater; perhaps they were even less. The main cause to which we owe our escape is the increase of the cash reserve in the banking department of the Bank of England. The panic of 1857 found the bank with a reserve of £2,700,000; the late events found it with one of £10,344,000, which had increased to £12,385,000 before the second group of failures came. And it is to this great improvement that we owe our present safety. As was natural, the great increase of the fund which we hold to give confidence in times of alarm, had the effect of creating that confidence. Even as it is, we, on a former occasion, showed that we have but narrowly escaped. If a war had broken out between France and Germany just before these events, when it was so much feared even by many who ought to know, and if, as is most likely, like the previous similar war of 1870, it had caused £3,000,000 to be taken from our banking reserve for the Continent, these great calamities would have found the bank with a probably insufficient reserve instead of a sufficient one. But, nevertheless, in comparison with such times as 1857, much praise is justly due to the present policy of the Bank. Though it did not provide for the contingency, which was near occurring, it did provide for the contingency which did happen, and we all have to be grateful to it."