Original Correspondence.

New Zealander, Volume 3, Issue 130, 28 August 1847, Page 2

Original Correspondence.

To the Editor of the Neva Zealander, Silt,— An unavoidable absence, precluded an earlier notice of the leading article, in your journal of the 7th Instant, relative to the currency. You have painted in faithlul colours, the commercial revulsions, the effects upon prices produced thereby, but you have altogether omitted from your enumeration,' the causes cf these effects. I stated, in a previous letter, that in the commercial crisis of 1836, and 1837, the Directors of the bank of England, at the very time when the specie in its coffers was reduced below its ordinary proportion, increased its issue of paper ; that this increase did create a rise in prices, and that the Directors caused this expansion of notes in order to advauce their own individual inteiests. If we direct our attention to the United States of America, during the same period, we find the same causes at work, producing similar effects. There was, however, this marked difference,— that there, the Batiks overstepped altogether the hounds of prudence, and many became involved in the vortex which they had created. £o excessive was the overissue of notes— so great was the advance in land, cattle, in short in every production, that the Banks were compelled to repudiate their notes, or to speak more plainly, to suspend altogether, the payment of them in s>pei'ie. Oppressed with the evils attendant upon this system, Mr. Dauiel Webster, the American senator, proposed to Congress, the establishment of a National Bank— the proposal failed—* not because the soundness of its policy was disputed-*

not because it was wanting in the support of all disinterested people, but because it militated against the vested interests of the shareholders of the private Banks. " If these facts are not sufficient, let us assume, that in a small community a Bank possesses circulating medium, and for a series of years discounts paper to the amount of ; afterwards a spirit of speculation is afloat, and discounts to the extent of £150,000 are required. Is it likely, that if £10,000 capital suffices only for the discount of billi, that the same capital can provide for .'150,000, except by an increased issue of paper i Is J t uot likewise clear, that by an adherence to a fixed rule, by refusing to discount to a greater extent than £100,000, this spirit of speculation would have beeu checked in the commencement ? The same Bank afterwards reduces its discounts to £75,000. The deductions I draw from such transactions, are these*, that by deviating from a prescribed rule, in the first instance, prices were unnaturally enhanced ; that, as a consequence of this deviation, discounts were curtailed, and prices were unnaturally lowered, therefore it follows, that if the directors had not enlarged discounts, they would not have been obliged unnaturally, to curtail them ; aud that if the circulating medium had remained at one fixed amount^ both extremes would, and might, have beeu avoided. This was the course which the Bank of England pursued in 1836*. It was this course which raised the price of cotton wool, in October, 1536, to 13d. per lb., anil in six months alterwards, reduced the price of the same description of cotton, to s|d. per lb. So glaring were the abuses, and so disastrous the consequences, that the separation of the issue depaitment of the Bank of England, from the general business thereof, is of itself, a sufficient guarantee of their existence. Amongst practical wen of business in England, in 1837, there was very little difference of opinion as to the cause of the commercial crisis in that year, however violently theorists might differ. That any abuse, however glaring, should meet with able supporters, is uo novelty ; have we not seen the DukeoJ Wellington diclare in his place in parliament, thai the system of the English representation, before the Reform Bill was the most perfect that the ingenuity of man ever invented ? When I see too, a ck'ar aud comprehensive historian, like David Hume, commit such an egregious blunder, as to assert, thai the trade with France was unprofitable, because we imported from France, double the value of what we exported— a doctrine .which the merest tyro in commerce could account for. I cannot wonder that an able theorist, like Mr. Charles Buller, should have advocated the abuses of the Bank of England. You state, that "a double standard of value isenough to bristle up the hair," I am at a loss to conceive that any danger could arise from gold and silver being received in lieu of notes, so long as the obligation exists on the part of the Bank, to pay its notes only in silver, which has a less standard value, there can be no risk in the Bank taking irt payment, gold, which has a greater standard value. You likewise ask, " What is to oblige a Sydney merchant to take dollars as remittances, at the prices assigned among us ?" So long as the government fix the circulating value at 10 per cent, under the general Loudou price, it matters little, whether the Sydney merchant takes them or not. The Bankwould always have the alternative of shipping dollars to London, realising, upon such shipment, a small profit. If dollars bad varied materially in. price, there would be some risk in such a course; but the experience of the past 20 years, proves that the maximum variation has uot exceeded 5 per cent. I am not sanguine enough to believe, that any profit can accrue from a Government Bank of^lssue, for the next five years. To obtain confidence lor tlie first year, it would be necessary to retain at least, one halt the specie to redeem the notes ; afterwards, as the notes eutered into more general circulation, and as confidence in the operations of the Bank became more confirmed, one-third perhaps, might suffice. If such a Government Bank is introduced, I cau see no reason why It should not become a Bank of Deposit for all sums exceeding £50, or £100, the depositors payiug one-half per cent, commission for the trouble of receiving aud paying the money, and keeping the accounts. In Liverpool, for such transactions, \ per cent, commission is charged. If a Government Bank of Issue is uot established, legislative measures ought at least to be enacted, to compel Private Banks to maintain a fixed proportion, between the notes in circulation, and other specie in their chests ; to compel them, likewise, to publish monthly accounts of such proportions— >io appoint inspectors to examine such accounts, and clearly to ascerta n that the proportion exists in reality, and not in name only. Were this course adhered to, uo excessive over issue of notes could be effected — no improvident Bank accommodation could ensue. The effects aiising from these two causes— excessive speculations, and extreme fluctuation in prices of . goods, would be avoided, and commerce would be lelt to the natural and healthy causes of supply and demand. But, if in forget fulness of the lessons of experience, we are to remain in a stale of apathy, and say, let the evil of over-issue come, let us experience its effects, and afterwards legislate for its removal, can we be astonished, that in some years heuce, when there may be a few private Banks established, that the Directors of these Banks, when they break no faith, violate no contract, and commit no dereliction of duty, will wield the power vested in them to advance their own supposed or real interests, unless checked by legislative enactments ; I for one should not have selfdemal to resist the temptation. The resu.ts of Banking operations in England aud in the United States, in 1836, give convincing proof that the seductive spirit of private speculation is more powerful than the well being of a community. Are we then to believe, that without legal restrictions in Banking, New Zealand will form a solitaiy exception to this general rule ? Credat Judeeus, non ego I I have thus stated lacts, and the preceding suggestions have arisen from the contemplation ot these facts. Whether they meet with any attention, or whether they meet with utter neglect, is to the writer a matter of the utmost indifference. lam, Sir, your most obedient* VIATOR,