THE NELSON EXAMINER. Nelson, October 30, 1847.

Nelson Examiner and New Zealand Chronicle, Volume VI, Issue 295, 30 October 1847, Page 135

THE NELSON EXAMINER. Nelson, October 30, 1847.

Journal! become more necessary as men become more equal and individualism more to be feared. It would be to underrate their importance to suppose that they terre only to ••care liberty : they maintain civiiication. DC TOCQUCTILLB. Of Democracy in America, rol. iv., p. 200. Lord Grey's Currency Bill, which he has instructed the Governor to pass through the Auckland Council, has created a great deal of excitement both there and at Wellington, and a great deal of discussion both in the Council and in the newspapers. The general feature of this discussion is a praiseworthy modesty on the part of those entering upon it, in frankly avowing that the Currency question is far beyond their depth, a candid acknowledgement (which after reading their expositions we are not at all prepared to dispute) that none of them is sufficiently master of the subject to enlighten his neighbours upon it, or to decide on the merits of the proposed measure. The only party who really appears to understand it, is a writer in the New Zealander, under the name of Viator, who it

evidently not ill-informed on the subject, and has hit the right nail on the head on several of the, leading points of the case. Nearly all the other writers and speakers, including the Attorney-General, after modestly avowing their own ignorance, join in condemning Lord Grey's measure.

It is not however our intention to examine their various arguments in detail. We shall perhaps make better use of our pen if we proceed at once to state our own views upon the subject — only premising that they are based upon the opinions of Parliamentary committees, of eminent statesmen, and of the most distinguished of the liberal political economists of the day.

The principal features of Lord Grey's measure are, first, the establishment of a Government bank of issue ; secondly, the making its notes a legal tender between private parties for all sums above £2 ; thirdly, that the Government notes are payable in cash on demand at the bank ; fourthly, that private paper money is prohibited.

The leading objects of this measure are, 1, public security ; 2, the maintenance of an equal standard of value ; 3, public economy.

1. To such as are acquainted with the history of banking in Great Britain for the last three-quarters of a century, no argument can be necessary to prove that the system which has there existed has entirely failed to give the requisite security. On the contrary, it is to that system that the sudden fluctuations, the fearful panics, and awful crashes of the period referred to are attributable.

Previously to the termination of the first war with the United States, the number of private banks in England was extremely limited. When, however, peace returned, manufacturing and commercial speculations, stimulated by the recent inventions of the steam-engine and spinning-jenny, assumed an unusual activity, and had they been based upon no other foundation than that of those great inventions, and the increased demand for British manufactures which then arose in America, such speculations, being limited by legitimate bounds, would have tended to nothing but national prosperity. The great anxiety however to obtain credit, which existed among the speculators, gave rise to an immense number of new provincial banks, all issuing their own notes, and among whom the greatest competition existed, leading to a system of undistinguishing discount, which was doomed to have a speedy and calamitous termination. In 1792 the panic began ; the value of the provincial paper was tested by a run ; it was fpund to have no solid foundation — to represent for the most part neither gold, silver, goods, nor estates, and a general crash was the result. Above one hundred provincial banks failed, upwards of fifty of these were totally destroyed, and a degree of misery and monetary confusion before unknown was the consequence.

It might have been thought that the lesson inculcated by these events would not have been thrown away. But the mania of speculation is a periodical intermittent. The burnt fingers of one generation of bankrupts are unfelt and unregarded by the next, and not even those scalded dogs who have themselves been in the hot water always learn prudence by it. In 1813, the provincial banks had increased in number from about 4GO to 922. An immense quantity of -provincial paper was in circula-

tion, and such was the greediness of the private banks to increase their individual circulation, that they actually employed people on commission to visit the markets and buy up the notes of rival banks. From 1814 to 1816 inclusive, 240 provincial banks stopped payment, eighty-nine of which were wound up by bankruptcy. The misery, public and private, which ensued, may be conceived ; we trust it may never be experienced in New Zealand.

But this was not insanity enough for one short half century. In 1824, the periodical mania for speculation again breaking out, was again stimulated to the utmost by the competition of the provincial banks. The most worthless paper was readily negotiated. " Many of the country bankers," say M'Culloch, " seemed to have no object but to get themselves indebted to the public." There was no scheme so absurd, no individual so worthless, but found countenance among them. It was estimated that the amount of provincial paper afloat in 1825, was double what it had been only two years before. The end of this could not be far off. The avenging angel was on this occasion most prompt in his retribution. The crash came, and in less than six weeks above seventy provincial banks were destroyed. So great was the destruction of provincial paper, that even in the period of depression and caution which ensued, it required an issue by the Bank of England of from eight to teu millions to make up the deficiency in the currency of the country. Ten years more, and the country was on the eve of another such crash. The same causes were again in operation — the same over-speculation, stimulated in the same manner by the same competition among the provincial banks. The greatest distress prevailed in manufacturing and commercial circles. One bank, the Northern and Central, which had no fewer than forty branches, was on the point of failing, when the Bank of England, appalled at the prospect of the commencing ruin, came to its rescue, and by this and similar means the recurrence of evils of the magnitude of those of 1825 were averted, but they would have ensued but for the Bank of England, and as it was, the greatest distress, depression, and dismay, existed.

Nor is it to the experience of Great Britain alone that we may refer for historical evidence of our position. The United States, in' which the British system of Banking exists, has presented a precisely similar spectacle. Between 1811 and 1830, one hundred and sixty-five banks became bankrupt, many of which paid scarcely any dividend ; but in 1836-7, a sirailiar mania of over-issues to those which have occurred in Great Britain arose, and on that occasion every bank of the United States stopped payment. The general distress was incalculable. Nearly every mercantile house in New York, and the other commercial cities of America, were in the same predicament. Liverpool, Manchester, and even London, reeled with the shock.

Now all these evils, the magnitude of which in a country like Great Britain it is not easy to compute, have arisen from the simple fact of provincial banks being allowed to issue their own notes. If any means could be devised which should prevent their issuing more than they actually have bullion, specie, goods, or estates to represent when presented for payment, they might be safely permitted to issue their own paper. But history, that safest guide fot futurity when rightly read, has proved beyond all dispute that private banks are incapable of resisting the temptation of putting into circulation more paper than they have the means of meeting. And what is worse, they do so at the very time when, instead of increasing, they ought to be restricting the amount of paper currency. In these seasons of over-speculation to which we have alluded, long after the rate of exchange has turned against the country, proving the paper currency to be redundant, long after the Bank of England has raised its rate of discount for the purpose of diminishing its issues, the provincial banks

have continued forcing their paper into the market, tempted by the temporary profit which they ate making, and carried away by the current of competition and the spirit of speculation, of which they who ought to be the controllers are the chief instigators and the main partakers in. " Certainly," says Mr. M'Culloch, " the legislature will most strangely neglect its duty, if it allow a system productive of such fatal consequences to continue to spread its roots and scatter its seeds on all sides. As long as any individual or set of individuals may usurp the royal prerogative, and issue money without let or hindrance, so long will it be issued in excess in periods when prices are rising and confidence high, and be improperly withdrawn when prices are falling and confidence shaken. If it be wished that the country should be kept for ever under an intermittent fever— now suffering from a hot and now from a cold fit, now in an unnatural state of excitement, leading to and necessarily ending in unnatural depression, the present money system is the best possible. But we believe that the reader will agree with us in thinking, that a fever of this sort is not more injurious to the animal than to the political body. So dangerous a disorder is not to be trifled or tampered with. If a radical cure be not effected, it will go far to paralyze and destroy the patient."

Two checks on over-issue have been proposed: official periodical returns by each bank of its liabilities and assets, and an obligation to keep a certain amount of specie always in hand sufficient to meet its circulation. As to the first, it is evident that there are no means of preventing false returns ; besides which, the great mass of people who take provincial notes, would never know anything of the returns, or how far they corresponded with the actual ability of the banks to meet the admitted issues. The obligation to keep an amount of specie or bullion sufficient to meet the issue, was tried in the United States before the crash, and proved utterly inefficient. The same bags of dollars have been known to be carried about the country from bank to bank, in advance of the innocent Government inspectors, who supposed that they duly represented in each instance the amount of "safety-fund notes," or other worthless trash which was in the hands of the public. The ingenuity of private rogues is always more than a match in matters of this sort for the inquisitorial power of a Government department.

The conclusion then to which the foregoing facts hare brought a large proportion of the best informed and most sagacious ecocomists is, that the only way to prevent the periodical recurrence of the great crashes which we have described, is to take out of the hands of those who have hitherto caused them the means by which they have been effected, that is, the power of issuing paper money without restriction. But as it is desirable and necessary that we should have paper money, and as no private individual or body of individuals can be trusted with the delicate office of issuing it, it is proposed to make it the duty of Government, and so to limit its operations that it can neither have the opportunity nor the desire to promote those unhealthy speculations which have caused so much misery. The Attorney-General makes an attempt in the Auckland Council to disprove the assertion that the disturbances of the money market have been attributable to the private banker, by quoting the opinions of one or two members of Parliament, delivered apparently in 1844. But what is the use of quoting the opinions of the minority ? The opinion of the majority is evident from the passing on that occasion of the Act, 7 and 8 Viet., c. 32, containing several enactments for restricting the issue of the private banks, and for encouraging them voluntarily to abandon their own notes for those of the Bank of England. The whole statute is based upon the assumption that the private issue is dangerous, and it goes as far to abolish it as the existing state of vested interests and powerful money opposition would permit.

2. The maintenance of an equal standard of value. Under the existing system of British banking, one of the great evils which has arisen, is the fluctuation in the value of the currency. At one time there is so much money itt the market that, like all other commodities, it falls greatly in value; at another, there is so much less than there is a demand for, that it rises to a great price. Now as money is the standard by which the relative value of all other things is fixed, the inconvenience of this is just as great as it would be to have a varying standard of length or capacity — a yard sometimes of three feet, sometimes of four, and sometimes of two ; or a bushel containing sometimes four pecks, sometimes three, and

sometimes five. The consequence of this is, that the prices of commodities differ without tny alteration having taken place in the supply or in the demand for them. This leads to a general disturbance of all bargains, and all deferred money payments. He who receives an annuity of £25, finds it worth only £20 when a depreciation takes place in the currency ; he who has agreed to pay £25 at three months, gets off with a payment which is to him equivalent to only £20, while his creditor of course loses the difference. Mr. Babbage has illustrated this with his usual felicity in his " Economy of Manufactures." A widow invests £100 in the purchase of an annuity of £20. Two mechanics, who have each saved £100, intend each of them to invest the amount in a calendering machine. One puts his money in a bank, to be drawn out in maintaining himself and other workmen while he constructs his own machine ; the other buys a ready made machine, paying £100 down, and giving his bill at twelve months for £100 more. In the course of the year the currency is depreciated, say for argument's sake one-half, and prices of course are doubled. The widow is reduced next door The first mechanic finds his means unequal to finish his machine, and is obliged to abandon it half done ; while the other, who gets his machine at the beginning of the year, intending to pay the second £100 out of the year's receipts of his trade, getting paid in that trade at double prices, does virtually obtain his machine for £50 less than he anticipated. And all this without any fault or merit on the part of the different individuals, but merely owing to an over-issue of money which has taken place in the interval. But the maintenance of an equal standard of value never enters into the speculations of the private bankers in issuing paper money, while it would be one of the chief businesses of a Government bank, and it could never be its interest to neglect it if it were debarred, as it ought to be, from all speculation. Of course, to ensure the two objects in view — sceurity, and the maintenance of an equal standard — the Government bank should be debarred from speculation of every sort. Its business ought to be limited to the simple process of providing and regulating the public currency. The currency of Holland was long kept in a most enviable state of equilibrium by the Bank of Amsterdam, the sole bank of issue. It acted also as a bank of deposit and kept merchants' accounts, but it gave no assistance either by way of discount or loan, and was pledged always to retain in its coffers the amount of all deposits for which it was liable on its books. Whenever its paper rose to a premium of five per cent., it went.into the, market as a purchaser of kfii^^W^o^te^^t it fell^to a premium of four percent., it purchased/buljion or specie w4th_A~-£t£«h-iMue of -paper. Thus the paper currency was kept always at a value relatively to bullion and specie, which might be termed par ; the premium, which never varied more than one per cent., representing the bank profit and the agio. In an evil hour the bank broke its pledge, and secretly effected a loan to Government, vhich, in a period of pressure, it was unable to recover ; and though it could and did hand over its Government securities to its creditors, its credit was destroyed by its having departed from its fundamental principle, and it was obliged to retire from the previous proud and useful position which it had occupied for 200 years. But let the bank be strictly limited to the business of buying specie with paper, and paper with specie, subject to the check of short periodical returns to the popular branch of the Legislature, and no danger need be apprehended. It is worthy of remark, as bearing upon the applicability of Lord Grey's measure to New Zealand, that at the time of the foundation of the Bank of Amsterdam, the metallic currency of Holland consisted of the coin of almost every nation, much of it worn and of uncertain value ; and the metallic capital with which it commenced operations was not Dutch money, but foreign (Spanish) dollars. 3. The third object which Lord Grey's measure is calculated to secure, is public economy, and this it is rather surprising should not have been more pointedly alluded to, either by any member of the Auckland Council, or the press. It is a point of the greatest importance with reference to the future ; second only in fact to the maintenance of an equal standard of value and the ensuring of public security, and it meets all arguments as to the inability to make the Government bank pay its own expenses. The actual amount of currency, both metallic and paper, employed in Great Britain, is computed to be not less than sixty or seventy millions, on the lowest estimate. Now one main advantage in having a paper currency at all, whethpf

issued by the Government or private bankerf, is the saving of the cost of a metallic one. If thirty millions of paper money are circulating instead of thirty millions of gold and silver, the cost of all that gold and silver is saved, and the capital which would have otherwise been employed in purchasing it, is employed in other and more productive ways. This saving is effected by means of credit; the people who want money being contented, instead of specie, to take certain scraps of paper, on which is written a promise to pay specie, while the parties who advance this paper currency actually keep their specie in their pockets, or employ it at a profit in other ways. Whoever issues the paper money has the benefit of this saving ; and as it is calculated that the private banks issue paper in the proportion of at least two-thirds to onethird issued by Government, it follows that the private banks have two-thirds of the profit effected by the substitution of paper for gold. Suppose the saving once effected by the substitution of paper to the amount of thirty millions, there is an annual saving of two or three millions of interest also upon that amount. The question naturally arises, Why should the private bankers be allowed the benefit of this, instead of the nation ? If it be answered, that the paper being issued on their credit, they are entitled to the profit, the reply is easy, that their credit is purely fallacious. On every occasion when it has been tested, as we have already shown, it has given way, and proved good for nothing. " The privilege of creating paper money," says one of the clearest headed of modern economists (Colonel Thompson), "is a pure perquisite of nationality, which nothing but a nation can acquire or possess. jA portion of risk too attends the gain, and I this the nation also takes. If ever there 'was a process by which the public has an Ixclusive right to profit, it is this. There i nothing in it like commerce or exchange ; ; is a simple exercise of internal economy n a national scale, like that by which an idividual replaces his silver vessels with lass. In the midst of this stands up an rder of men, and represents that it will be onvenient to them to take twenty or thirty lillions of the public profit, and that they aye a right to do it, because they will be at ie expense of issuing the paper. Which is recisely as if they should enter the house of an individual, and insist on carrying off his silver drinking vessels, on the ground (that they would leave glass ones in their room. It would be no use to try to persuade him that they were benevolent dealers, who established agencies in every town and village out of apprehension that any man should be in want of vessels. And it would be equally useless for them to assure him that the glass was just as good for the purpose of drinking. He would admit it ; but |he would aver that he, and not they, had a right to the difference. There is no reason Iwhy a single pound of the public, more than Ithe private saving, should he carried off by any but the owners. The Government has no more right to let the bankers do it, than to let them carry off the pitch and tar from the dock-yards, and apply it to their private use."

The question then for consideration under the head of economy is, shall we permit the private bankers of New Zealand to reap all the profit of substituting a paper for a metallic currency, instead of the colony itself doing so 1 It is true it is not at the present moment a question of great amount — it does not yet involve millions, but merely thousands, perhaps hundreds of pounds. But the evil is progressive. Every year of the colony's growth in prosperity adds to the magnitude of the wen which we are allowing to take root. Let it once become that stumbling-block of good legislation, a vested interest, and all hope of cure is gone, or can only be arrived at by buying up at an enormous cost the monster incubus.

The proposed system doea not in the least degree interfere with the legitimate business of private banks. Issuing, or coining money, is no part of their legitimate business. They do not possess that which ought to be the basis of such a proceeding — a sufficiently stable credit. None but a nation can possess this, as already observed. The true business of bankers is to hold deposits, honour checks, and discount bills. But there is not the slightest occasion that they should discount with their own notes. Not one bank in London, or within sixtyfife miles thereof, issues notes of its own, yet the discounts of that district are probably equal to those of all England besides. Nay, it is a fact, that even in those parts of England where banks are allowed to issue their own notes, they do not all do so. Several have of late years voluntarily arranged with the Bank of England to use its notes only, and issue none themselves ; yet

it is stated that they find their business pay. Of course, if the bankers can secure to themselves the saving which the public effect by a paper currency, they will, generally speaking, do it. But is there the least necessity for, is there the least propriety in Government allowing it ?

One objection raised against this measure by the Attorney- General and others, deserves a moment's consideration — the possibility of the Government, at some future day, passing a bank restriction act ; that is, discharging the Government bank from its obligation to pay its notes in specie on demand. Now this is certainly a possible contingency, but a very improbable one. Bank restriction acts become necessary in consequence Qf heavy runs, that is, extensive demands for specie, at a time when it has not specie to meet the demands. But these runs are caused by the depreciation of the paper money of the country — they never take place with the exchanges at par, or in favour. Under a well regulated Government bank system, being only a bank of issue, not of discount, with no other paper-money-makers existing, and with proper care exercised by the managers and controllers, no considerable depreciation would or ought to take place, no runs would or ought to occur. Like the Bank of Amsterdam, the variation in the currency should never exceed one per cent. But supposing through some unforseen cause (foreign invasion, or the like), a run should occur, and Government find it desirable to pass a bank restriction act, would the censequences be the thousandth part as bad as those of a general crash in a country where private banks of issue exist? Government paper might be depreciated by it, and the man who before held £1,000 worth of Government notes might find them worth only £700 or £800. But in the case of private issue, when a crash comes, a large portion of the paper is utterly destroyed, or pays so miserable a dividend as not to be worth notice. The holder of private paper goes to bed worth £1,000 ; he wakes next morning, like the holder of fairy money which turns to withered leaves, not worth a penny. Which system is best, even supposing a bank restriction act should ever be resorted to? That it will never be necessary, we are satisfied, if the bank be well managed, unless the threats of the Wellington merchants to resist the measure when passed, or the hints of got-up runs which are thrown out at Auckland should be resorted to. In such cases, it would be a wise measure, and the only one which could defeat the opposition.

The whole question is one on which it especially behoves Government not to limit its observation to existing conveniences or inconveniences, but to use " the large discourse of reason, looking before and after." The vast capital of the English banking establishment which has branches in Wellington and Nelson, and the great skill with which the present manager of the Wellington branch has conducted its affairs both there and here, may blind some to the possible disadvantages which the womb of time may contain within itself if the present system be allowed to spread. If the only banks we are likely to have in New Zealand were such, and so managed as that we have alluded to, the question would merely resolve itself into that discussed under our third head — public economy. But how long may this be the case ? How long may it be before, in a new country like this, we see a swarm of such establishments as plunged the United States into monetory confusion and ruin in 1837, or even such as passed through the Bankruptcy courts of England on the occasions of the different crises which have occurred there. Already, as Governor Grey states (in the course of what we shall by courtesy call a debate) in the Auckland Council, the local bank there has been indebted to the aid of Captain Fitz Roy's Government for its solvency. Is not that rather a sample of the sort of bank which is likely to spring up in the colony than the Union Bank of Australia? And if so, can too great precaution be taken to prevent the certainty of such evils as must follow in the train of such establishments?

The Wellington merchants and storekeepers have, we observe, memorialized the Governor against the measure. We perceive some very respectable names attached to the document, but at the same time are not inclined to attribute much weight to it merely because it represents the opinion of a large proportion of the mercantile interest of the colony. The reasons which are assigned for their opposition, only affect the details of the measure, and the possible inconveniences of its introduction in its present form. They do not touch the principle. It is easy enough to suggest difficulties of detail ; it may also be easy

enough to remove some of them. But even if they cannot be got over, are any of the inconveniences pointed out in the memorial alluded to, to be compared in magnitude with those evils which in England and America have periodically resulted from the existing system ? That the opinions contained in the memorial are those of the principal mercantile men of the colony, is of little weight with us on a question of political economy of such magnitude. Practical men are generally the last to admit great improvements. It is said that not one medical man above the age of forty would adopt Jenner's discovery; it was left to the enthusiasts, the quacks, and the walkers of the hospitals. " The merchant's knowledge," says an able and well-informed - writer (Mr. Lowe), "is particular, not general ; he attains a habit of understanding individual character, and a dextetity in managing his own affairs ; but he has not, and cannot from the course of his occupation, acquire the power of reasoning comprehensively on the interests of trade. He is accordingly a very unfit adviser, or even a referee, for a minister or legislator, being accustomed to draw his deductions from his own particular branch of business, or apt, if he go out of it, to form a hasty judgment from first impressions. If he observe in war a tendency to raise prices, or to invigorate particular lines of trade, such as shipowning or insurance, he will probably be led to the general" inference that to a maritime country war is advantageous. * * Can it be necessary to add more to demonstrate the impolicy of being guided in general questions by mercantile men?" Questions of this sort are much more likely to be decided correctly by philosophers, having access to authentic documents of state, and being void of any particular bias in investigating them. The gamester often misses points of play which are obvious to the disinterested bystander. And it should be remembered that the merchants are in fact the associates of the bankers in producing the evils we have described. They speculate — the banker finds the means. The two together bring about the state of things which we wish to avoid. They are not by any means disinterested witnesses ; they have, probably unconsciously, an eye to those dangerous facilities from which it is the real interest of the nation, and their own interest if they knew it, that they should be debarred. We trust that the Governor and his Council will not be led away by the idea that the opinion of the mercantile interest is of weight in the matter. Lord Grey has no doubt had the advantage of consulting more disinterested, and, fortunately, less practical men. In conclusion, we shall only observe, that we cannot concur in the objection which has been raised by the Attorney-General and others in the Northern Island, to New Zealand being made the subject of political experiments. On the contrary, we are sincerely grateful to Lord Grey for giving us the chance of escaping those calamities which, under the old system, have so often befallen our fatherland. And not only on this, but on all questions of political improvement we are anxious to be made the field of trial. There are not one but many questions on which the great mass of the enlightened portion of society at home is agreed, but which the existence of vested interests, and the risk of extended experiments on so large a scale, prevent being put to the test. Here, we have as yet no vested interests ; and in 80 small a community the failure of an experiment can easily be provided against by the liberality and paternal care of the Home Government. How many schemes of education, of commerce, of landed tenure, of law and police reform, of sanatory regulations, and a hundred others, might be tested here with little risk to us, and infinite advantage to posterity if they proved successful. Shall the fear of failure, the dread of innovation, or temporary inconvenience, induce us to oppose obstacles to such attempts ? Rather let us endeavour to threw overboard those cumbrous portions of the machinery of the old country which weigh so heavily and oppressively on her locomotive powers, and be we the first to draw to ourselves all those advantages which the philosophy of the most enlightened men of Europe has for the last half century revealed as possible, but of which the conflicting interests of an old country have rendered the introduction at home inexpedient.

Intelligence of Mb. Brunner. — A Maori from Massacre Bay reports that a party of Araura natives have arrived at the former place, who state that Mr. Brunner (who left Nelson in December last, to explore the interior of this island) was at Araura a month ago (probably now two months), and that he sent word that he would be in Nelson by Christmas. We are not exactly able to account for Mr. Brunner being at Araura at the date referred to (though sincerely glad to hear of his safety down to so late a period), but it is probable that he has been further down the coast and has returned there with the intention of crossing to Port Cooper, as he originally intended, in case *he did not succeed in crossing from Cascade Point to Otago. Some circumstances mentioned by the natives lead us to believe that the report \% correct.