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The 1844 Bank Act

according to Sir John H Clapham, Director and rival to Keynes for Provost of King’s; The Bank of England, vol II, 1944

I am grateful to Mr Michel Moor for this information on the state of the economy in the 1840s. His initial email read:

Even in 1913, in "Indian Currency", Keynes pointed out that governments claimed they were seeking stability while in fact they were all trying to "improve the exchanges" at the same time. An impossibility, as the attempt is the difference between famine and prosperity, I think it is important to remember "by their deeds shall ye know them", and emphasise Keynes charge, for which Clapham gave so much evidence in "Bank of England".

P. 138 In the 1830s “the country was used to more elastic, more discriminatory or accommodating, treatment from its bankers than this.”
P. 145 The “after effects” of the lending in 1832-35 “involved the Bank in heavy private lendings to crippled firms [started] before and during a boom for which its critics held it responsible".
Note: J. B. Smith, President of the Manchester Chamber of Commerce, before the S[ecret] C[ommittee] on Banks of Issue, 1840.
P. 146

“harvests were so good that the price of wheat . . . 35/4d for December 1835, cheaper than it had been for fifty years.”
Horsley Palmer, who held that the Bank should not discount much except in difficult times, no doubt welcomed this slackness”, but it changed when “the court of Directors and its executive officers apparently saw no danger whatsoever in a policy of generous lending” to canal and railway builders..

P. 147 In 1834, the East India Company, a client of the Bank lost its “monopoly of the China market.”
In 1835 the Bank floated a loan for £15m to compensate slave owners, the West India Loans. There was 12% inflation.
P. 149 “All of which only shows that bankers and statesmen, full of their memories of the great wars, thought too much and too completely of the mere number of notes out, neglecting the rapidity of circulation and other forms of purchasing power.”
There was much lending to US banks. “It was in April 1837 that a memorial from Liverpool to the Chancellor of the Exchequer had referred to distress ‘intense and beyond example’ in the cotton world ‘involving the prudent with the imprudent’”.
P. 175 In 1841 “correspondence about the renewal of the Charter begins with Goulburn at the Exchequer.”
P. 176 “prices fell continuously and far from 1839 to 1843” though “bread kept high. The whole country was distressful and discontented, never more so.”
“When Peel came into power in 1841 his much needed financial medicine” of tax increases. Peel “had the opinions of Jones Loyd on which he is often thought to have relied.”
P. 178 Cotton and Heath, Governor and Deputy, “without consulting any other Director, sent a long memorandum” to Peel, “here is the whole skeleton of the Act of 1844 plus one bone for which it would be better.
Note: The suggestion in an emergency three ministers might sanction an excess issue to the £14million limit set by the Act.
P. 182 “John Masterman, Member for the City, who, ‘living as he did among bankers and merchants’, feared that the rigid limit of issue might actually increase anxiety and lead to panic when times were difficult. It did.”
“The Earl of Radnor; the Act would not check a bullion drain resulting from a bad harvest, but it would check the very course of action-openhanded issue and lending-by which the Bank had restored confidence in 1825.”
P. 185 James Wilson, who had recently founded The Economist, said that if Peel’s objective had been ‘to increase the intensity of . . . a crisis’ he could not have adopted a more certain plan.”
P. 196 “Market rate was driven up to a nominal 5 in February of 1846, not because of Peel’s recent change of front over the Corn Laws but because there was difficulty in finding cash to meet the calls on the new railway shares: the country was deep in the railway jungle.” “Fortunately the harvest of 1845 had been satisfactory, and Irish potatoes had not failed so badly that year as Peel had feared.”
“By the end of [January] the bill-brokers are ‘refusing all discount’; bankers and money dealers will advance nothing on trade bills’.”
“But the crest of the railway and trade wave had passed. Irish potatoes had failed again, and worse. So had the much less vital English crop; and so had the now very vital crop of Western Europe. English wheat proved not bad but short, continental crops even shorter. Wheat prices rocketed from” 45/1d in 1846 to 94/10d.
P. 198 “It was the fourth quarter not of 1846 but of 1847 that saw more bankruptcies than any quarter since 1826.” One was of Robinson the Governor.
P.206 “Outside London, Liverpool was hardest hit. There as everywhere else merchants suffered most, but a few manufacturers also went down, principally in the Lancashire cotton industry.”
P. 213 “The Bank had not whistled for the wind [corn and railway failures] that brought up the storm, though it had carried on too long with no reef in its topsails, and by example had encouraged others to do the same.”
P. 214 “More bankruptcies were recorded in the first quarter of 1848 than in any previous quarter whatsoever.”
And “it was the year of the European revolutions [and] the special constables and the Duke of Wellington’s troops were standing to when the Chartists gathered on Kennington Common in April”.

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