THE BILL CURRENCY OF THE UNITED KINGDOM.—No. I.

A VERY elaborate and interesting paper, on the "Magnitude and fluctuations of the amount of Bills of Exchange, inland and foreign, in circulation at one time, in Great Britain, in England, in Scotland, in Lancashire, and in Cheshire respectively, during each of the twenty years, from 1828 to 1817, both inclusive,' was recently read before the Statistical Society of London, by William Newmarch, Esq., a respected and valuable contributor to our Magazine, by whom we have been favoured with a copy of the first part of the paper, printed for private circulation from the Transactions of the Society.'

Mr. Newmarch has conducted the inquiry with great ability, and may fairly claim the honour of being the first statician who has collected data from actual observation, sufficient to inspire confidence in the results of his calculations. The late Mr. Leatham, of Wakefield, had previously endeavoured to determine the average amount of bills in circulation at one time, from the official returns of the number and amount of bill stamps issued from the Stamp Offices during a definite period. But, as Mr. Newmarch shows, the amount of bill stamps can only furnish part of the information required in order to obtain correct results. The average amount of the bills drawn on each description of stamp, and the average usance of the bills, can only be satisfactorily determined by the examination of a considerable amount of bills actually in circulation at a definite period; and this information Mr. Newmarch has obtained. Through the kindness of Mr. Tooke, he was introduced to five eminent firms in the City, distinguished for the extent of their business as bankers and bill-brokers, by whom the particulars of 4,367 bills, in their bill cases, drawn for a total sum of £1,216,974 were furnished to him, and he was thus supplied with a sound basis on which to found his calculations. We shall give the results of these calculations in another article, as we purpose here to lay before our readers a portion of his remarks on the system under which the negociation of bills of exchange is carried on in this country, more particularly in London, which will suitably introduce the elaborate and interesting facts relating to the bill currency which Mr. Newmarch has now established.

OUTLINE OF THE HISTORY OF BILLS OF EXCHANGE SUBSEQUENT TO 1770; SMALL BILLS OF LAST CENTURY.

It is stated by Mr. Chitty, that bills and promissory notes were not assessed with stamp duty in England before 1782, when the special exemption which had been created in their favour by the statute of 5th William and Mary, cap. 2 I

VOL. XI.

21, sec. 5, was repealed by the Act of 22 Geo. III., cap. 33, and a scale of duties was imposed, which was very rapidly increased by a series of Acts of Parliament, of which the last became law in 1815 (55 Geo. III. cap. 184).

Previously, however, to the date of the first Revenue Act relative to bills and notes (22 Geo. III. cap. 33), the attention of the Legislature had been directed, in a somewhat special manner, to certain abuses of this species of paper credit, alleged to exist principally in the north of England.

For some time previously to 1775, when the number of country banks was exceedingly small, and the facilities afforded by their operations, and by the issue of local notes, had scarcely any existence, a practice seems to have gradually grown up, which led dealers and tradesmen of reputed substance to pay the wages of their servants, and some portion of the daily demands against them, in promissory notes of very trifling amount. When this custom had become in a measure established, abuses crept in, and considerable frauds were committed by the surreptitious introduction into the form of the instruments of conditional clauses, which very greatly impaired the remedy of the holder of the note against the issuer, in the event of its dishonour.

On the 27th March, 1775, the subject was brought before Parliament by Sir George Saville, who at that time represented the county of York; in the course of his speech he stated several facts which, if they had come down to us in a less authentic form, we might with great reason have received only after some hesitation. In the short abstract of the speech of Sir George Saville, given in the Parliamentary History, he is said to have exhibited specimens of these notes, as low as a shilling and eighteenpence. I had heard it stated in Yorkshire that he actually exhibited a promissory note, with several endorsements, for sixpence. The record in the Parliamentary History is as follows:-"A.D. 1775, 27th March.-Small Notes Bill-Sir George Saville moved the House to go into Committee to consider of the evil arising from the circulation in payment of notes of small value. Two witnesses were examined, and several of the notes were exhibited. Some of them so low as a shilling or eighteenpence. The evil seemed to be confined to certain trading parts of Yorkshire, where it had been productive of the most iniquitous consequences. A Bill was accordingly ordered to be brought in on the facts stated, to correct the evil complained of." (Parl. Hist., vol. 18, p. 74.)

The Bill here referred to became, in the course of that Session, the Statute 15 Geo. III., cap 51 (1775), subsequently continued by 17 Geo. III., cap. 30, and made perpetual by 27 Geo. III., cap. 16. The title of the first Act of the series in 1775, was "An Act to restrain the negotiation of Promissory Notes and Inland Bills of Exchange under a limited sum, within that part of Great Britain called England;" and a few sentences from the preamble are worth quoting. For example-" Whereas various notes, bills of exchange, and drafts for money, for very small sums, have for some time past been circulated or negotiated in lieu of cash within that part of Great Britain called England, to the great prejudice of trade and public credit, and many of such bills and drafts being payable under certain terms and restrictions, which the poorer sort of manufacturers, artificers, labourers, and others cannot comply with, otherwise than by being subject to great extortion and abuse." And the Act then proceeded to prohibit all notes and bills for less than twenty shillings under a penalty of £20, and the utter illegality of the instrument.

The next Act (17 Geo. III., cap. 30) extended the like prohibition from £1 to £5, and recited that "the former Act had been attended with very salutary effects."

These measures of the Legislature were effectual in the accomplishment of their objects, and we find no more complaints of the prevalence of infinitesimal bills of exchange.

The comparatively small bills of exchange for sums ranging from £10 to £30, and higher sums, which were so numerous in Lancashire and Yorkshire during the early part of the present century, had nothing in common with their somewhat discreditable predecessors. These bills were in great favour among the small manufacturers, and among dealers in wool, cattle, and corn. They were proverbial for their dirty appearance, the profusion of their endorsements, and for the much more valuable quality of being very rarely unpaid.* Such is a very concise outline of a somewhat curious state of things in the early period of our modern and highly polished system of paper credit. I cannot here pursue the topic further; but it is every way deserving of a careful investigation. Nor can I do more in this place than merely refer to the very able and, considering the period when it was published, extraordinary treatise by Mr. Thornton on paper credit, which appeared in 1802.† If my space had permitted me to indulge in extracts from that treatise, I think I could have shown that Mr. Thornton, even in 1802, had arrived at conclusions with reference to a considerable portion of the paper currency of this country, and especially of bills of exchange, so accurate and comprehensive as, in a great measure, to anticipate fully many of the results which have been subsequently established by elaborate inquiry and discussion. I would also refer very markedly to the critique on Mr. Thornton's book, contributed by Mr. Horner to the first number of the 'Edinburgh Review.'

DESCRIPTIVE OUTLINE OF THE MANNER IN WHICH THE CIRCULATION OF BILLS OF EXCHANGE IS REGULATED AND PROMOTED BY THE BANKING SYSTEMS OF LONDON AND THE PROVINCES.

I will now endeavour to give some account of the delicate and widelyramified system which regulates the distribution and modifies the influence of the bill currency. In the first place, however, it may be desirable to say a few words on the general principles of the question.

If we consider with care the peculiar functions of (1) a bank note, (2) a cheque, and (3) a bill of exchange, we shall find that the fund against which the bank note and cheque are issued is in such a form that the bank note and cheque can be discharged in legal money at the moment of their presentation; and that the fund against which the bill of exchange is issued is not in such form, but in a form which will only admit of the liquidation of the bill of exchange after the lapse of a certain period of two, three, four, or six months, or perhaps longer. The foundation of the bank note and cheque is a portion of floating capital in a perfectly ready state, if I may be permitted to use that word; and the foundation of the bill of exchange is a portion of floating capital in an unready state, more or less. Further, the portion of ready capital, which is the foundation of the bank note and cheque, consists of actual lodgments of coin and of ordinary bankers' deposits, that is, of capital which we can only express in terms of money, and which, by a convenient but somewhat bewildering fiction, is supposed to be always in the form of actual money. On the other hand, the portion of floating capital, which is the foundation of bills of exchange, consists most commonly of commodities which are in course of

"It is in the recollection of many persons that all the woollen business of the West Riding was conducted by bills of exchange at two months' date, as low as £5, drawn without stamps, with gold for wages, without the intervention of bank notes previous to the last war."-Leatham's Second Series of Letters on Currency, 1840, p. 38.

† An Inquiry into the Nature and Effects of the Paper Credit of Great Britain,' by Henry Thornton, Esq., M.P. London, 8vo., 1802,

p. 320.

transit to the consumer, and out of the proceeds of the sale of which commodities the liquidation of the bill of exchange is to be accomplished.

If we carefully attend to these distinctions, I think we shall not hesitate to adopt some such classification of the constituent parts of the whole volume of negotiable instruments at present in use in this country, as the following:4. Bills of Exchange. 5. Ledger Accounts.

1. Coin.

2. Bank Notes.
3. Cheques.

And to admit the substantial correctness of a doctrine which teaches, in effect, that (1) coin is the small change of bank notes, (2) bank notes the small change of cheques, (3) cheques the small change of bills of exchange, and (4) bills of exchange the small change of transactions of barter, the record of which is contained in a ledger, and the adjustment of which is accomplished mainly by the process of set-off: That, in point of fact, cheques are bank notes drawn against deposits, and bills of exchange are cheques drawn against commodities.

If this reasoning be correct, it is plain that, when we speak of the discount of a bill of exchange, we mean that a portion of the floating capital of the country, in its ready form, has been advanced to, say A. B., upon the security of another portion of the floating capital of the country, in its unready form. And it is clear that, in the progress of national wealth, the unready form of capital precedes that which I have ventured to call ready; and that the ready is the surplus of profit accruing upon the unready, and of the portion of increase arising out of fixed capital not consumed by the recipients of that increase.

It is also clear that the extent to which advances can be made upon bills of exchange-in other words, the extent to which bills of exchange can be discounted-at any given time, is governed by two principal causes: (1) by the total amount of ready capital in existence; and (2) by the extent of the demand for ready capital for other purposes, such as loans to governments and landholders, the construction of railways, houses, and so on.

If we examine the system of banking, especially of country banking, as it has grown up in Great Britain during the last sixty or seventy years, we shall be able to divide the functions of country bankers into two very distinct classes. (I.) In the first place, we shall find that the country bankers are very intimately connected with the control and supply of the requirements of their local circle for ready capital; that is to say, that, in the majority of cases, the most important part of the business of a country bank arises out of the demands for advances and discounts of applicants in its immediate neighbourhood; and this may be called the internal part of the country bank system. (II.) In the second place, we shall find that a scarcely less important part of a country banker's business consists in aiding the distribution of ready capital over the country, carrying such capital from the districts where it abounds, or rather where it is in excess of the local demand, to districts where the local demand for ready capital exceeds the local supply; and we may call this the external part of a country banker's functions.

Now, it has happened that what I have here ventured to call the internal province of banking has received more attention from the public, and from writers on the currency, and I believe is generally much better understood, than the external province; and yet I am by no means sure that, as an auxiliary to the progress of public wealth and industry, the external is not a more important part of the general credit system of the country than the internal functions of a banker.

A country bank, enjoying a high degree of credit, and skilfully administered, may be said, with great justice, to be the centre of the movements of ready

capital within its local circle; and it may be also said, with equal justice, that what the country bank is to its immediate neighbourhood, the bill-brokers and city bankers of London are to the whole of the banking institutions of the United Kingdom. And there cannot be any doubt that the early establishment in London of a central focus, from which the whole banking economy of the island was, in a great measure, preserved in harmonious action, by the skilful adjustment of opposite wants, through a common mediurn, has been one of the principal causes of the rapid development of our trade and resources during the present century.

Now, for our present purpose, it is interesting to know that a very considerable-I may say the most considerable—part of the operations connected with the external functions of country bankers, is conducted through the medium of bills of exchange, in a mode which I will endeavour to describe as briefly and plainly as possible.

In certain parts of the country, chiefly the agricultural counties, the deposits, that is, the ready capital lodged with bankers by local constituents, very greatly exceeds the demand for advances and discounts of a legitimate character by the same local constituents. Then, in these districts, there is a surplus of ready capital over and above the local requirements; and of this surplus, if the country banker cannot find employment for it elsewhere, it is plain that he cannot profitably take charge-at all events, that he cannot pay any interest for its use.

In certain other parts of the country-namely, those counties and towns conspicuous as the seats of manufactures, mining, and commerce-the local deposits of ready capital with the bankers are insufficient to satisfy the local demand for advances or discounts. Here, therefore, the inconvenience is of a character exactly the opposite of that which we have seen to prevail in the agricultural districts.

Now, by what means are the wants of these different parts of the country easily, completely, and profitably satisfied?

By a very simple, but a very perfect, arrangement.

There are in London certain large dealers in money, called Bill-Brokers, who act as bankers of deposit for all the country bankers, and for most of the London regular bankers; who also receive in deposit the floating funds of insurance companies; and generally the funds of any person or persons having the command of considerable amounts of ready capital, or, to use the incorrect phraseology of the day, of large amounts of "ready money." These billbrokers are also in constant communication with the merchants whose bills they discount, and whose legitimate wants it is their business, in a great measure, to supply.

Now let us observe the way in which the bill-brokers conduct their business. B, a banker at Lincoln, for example, has a surplus of £50,000 over and above the local demands of his circle. He is also in the constant habit of requiring bills of exchange of certain usances, and of certain amounts to meet the applications of some of his customers, who employ bills of this description in the course of their trade. It is true that B may have in his bill-case a great number of bills of exchange fulfilling these conditions of date and size, and these bills may have been received by him from his local constituents, to whom he may have advanced the amouut in one form or another. They are, therefore, fully his property; and legally there is no reason why he should not immediately re-issue them, if he finds occasion to do so. But against this re-issue there are two conclusive banking reasons: (1) it would, in the first place, indicate that he was poor, because he could not afford to wait until the bills became due; and (2), in the next place, it would disgust his customers by revealing their transactions to rivals in the same branches of business. The