BRITISH COMMERCE AND FINANCE 

London, Sept. 14, 1858 

In reviewing the Report on the Crisis of 1857-58 of the 
Committee appointed by the House of Commons, we have, first, 
shown the ruinous tendencies of Sir Robert Peel’s Bank act,? and, 
secondly, done away with the false notion, attributing to banks of 
issue the power of affecting general prices by an arbitrary 
expansion or contraction of the paper currency.” We arrive, then, 
at the question, What were the real causes of the crisis? The 
Committee state that they have established “to their satisfaction, 
that the recent commercial crisis in this country, as well as in 
America and in the North of Europe, was mainly owing to 
excessive speculation and abuse of credit.” The value of this 
solution is certainly not in the least impaired by the circumstance 
that, to find it out, the world have not waited upon the 
Parliamentary Committee, and that all the profit society may 
possibly derive from the revelation must at this time be fully 
discounted. Granted the truth of the proposition—and we are far 
from contesting it—does it solve the social problem, or does it but 
change the terms of the question? For a system of fictitious credit 
to spring up, two parties are always requisite—borrowers and 
lenders. That the former party should at all times be eager at 
trading upon the other people’s capital, and endeavor to enrich 
themselves at other people’s risk, seems so exceedingly simple a 
_ tendency that the opposite one would bewilder our understanding. 

- The question is rather how it happens that, among all modern 
industrial nations, people are caught, as it were, by a periodical fit 

a The reference is to the English Bank Act of 1844.— Ed. 
b See this volume, pp. 3-7.— Ed. 

of parting with their property upon the most transparent 
delusions, and in spite of tremendous warnings repeated in 
decennial intervals. What are the social circumstances reproducing, 
almost regularly, these seasons of general self-delusion, of 
over-speculation and fictitious credit? If they were once traced out, 
we should arrive at a very plain alternative. Either they may be 
controlled by society, or they are inherent in the present system of 
production. In the first case, society may avert crises; in the 
second, so long as the system lasts, they must be borne with, like 
the natural changes of the seasons. 

We consider this to be the essential defect not only of the recent 
Parliamentary Report, but of the “Report on the Commercial 
Distress of 1847,”* and all the other similar reports which 
preceded them—that they treat every new crisis as an insulated 
phenomenon, appearing for the first time on the social horizon, 
and, therefore, to be accounted for by incidents, movements and 
agencies altogether peculiar, or presumed to be peculiar, to the 
one period just elapsed between the penultimate and the ultimate 
revulsion. If natural philosophers had proceeded by the same 
puerile method, the world would be taken by surprise on the 
reappearance even of a comet. In the attempt at laying bare the 
laws by which crises of the market of the world are governed, not 
only their periodical character, but the exact dates of that 
periodicity must be accounted for. The distinctive features, 
moreover, peculiar to every new commercial crisis, must not be 
allowed to overshadow the aspects common to all of them. We 
should overstep the limits and the purpose of our present task, 
were we even to give the faintest outline of such an inquiry. This 
much seems undisputed, that the Commons’ Committee, so far 
from solving the question, has not even put it in its adequate 
terms. 

The facts dwelt upon by the Committee, with a view to illustrate 
the system of fictitious credit, lack, of course, the interest of 
novelty. The system itself was in England carried on by a very 
simple machinery. The fictitious credit was created through the 
means of accommodation bills. The latter were discounted 
principally by joint-stock country banks, which rediscounted them 
with the London bill brokers. The London bili brokers, looking 
only to the indorsement of the Bank, not to the bills themselves, in 
their turn relied not upon their own reserves, but upon the 

a Report from the Select Committee on the Bank Acts..., London, 1858 and First 
Report from the Secret Committee on Commercial Distress, London, 1848.— Ed. 

British Commerce and Finance 35 

facilities afforded to them by the Bank of England. The principles 
of the London bill brokers may be understood from the following 
anecdote, related to the Committee by Mr. Dixon, the late 
Manager Director of the Liverpool Borough Bank: 

“In incidental conversation about the whole affair, one of the bill brokers made 
the remark that if it had not been for Sir Robert Peel’s act the Borough Bank need 
not have suspended. In reply to that, I said that whatever might be the merits of 
Sir Robert Peel’s act, for my own part I would not have been willing to lift a finger 
to assist the Borough Bank through its difficulties, if the so doing had involved the 
continuance of such a wretched system of business as had been practiced, and I 
said if I had only known half as much of the proceedings of the Borough Bank 
_ before I became a Managing Director, as you must have known, by seeing a great 
many of the bills of the Borough Bank discounted, you would never have caught 
me being a stockholder.” The rejoinder to which was: “Nor would you have caught 
me being a stockholder; it was very well for me to discount the bills, but I would 
not have been a shareholder either.” 

The Borough Bank in Liverpool, the Western Bank of Scotland, 
in Glasgow, the Northumberland and Durham District Bank, into 
the operations of which three banks the Committee instituted the 
strictest inquiry, seem to have carried the palm in the race of 
mismanagement. The Western Bank in Glasgow, which had 101 
branches throughout Scotland and connections in America, 
allowed to draw upon it for the mere sake of the commission, 
raised its dividend in 1854 from 7 to 8 per cent, in 1856 from 8 to 
9 per cent, and declared a dividend of 9 per cent, still in June, 
1857, when the greater part of its capital was gone. Its discounts 
which in 1853 were £14,987,000 had been increased in 1857 to 
£20,691,000. The rediscounts of the bank in London, amounting 
in 1852 to £407,000, had risen in 1856 to £5,407,000. The whole 
capital of the bank being but £1,500,000, the sum of £1,603,000 
appeared on its failure, in Nov. 1857, to be owed to it by the four 
installment houses alone of McDonald, Monteith, Wallace and 
Pattison. One of the principal operations of the bank consisted in 
making advances upon “interests,” that is to say, manufacturers 
were provided with capital, the security for which consisted in the 
eventual sale of the produce to be created through the means of 
the loan advanced. The levity with which the discount business was 
managed, appears from the circumstance that McDonald’s bills 
were accepted by 127 different parties; only 37 being inquired 
about, the report on 21 of which turned out unsatisfactory or 
positively bad. Still McDonald’s credit continued undiminished. 
Since 1848, a substitution was made in the books of the bank, by 
which debts were turned into credits, and losses into assets. 

3* 

“The modes,” says the Report, “in which this kind of disguise can 
be accomplished, will perhaps be best understood by stating the manner in which a 
debt called Scarth’s debt, comprised in a different branch of the assets, was 
disposed of. That debt amounted to £120,000, and it ought to have appeared 
among the protested bills. It was, however, divided into four or five open credit 
accounts, bearing the names of the acceptors of Scarth’s bill. These accounts were 
debited with the amount of their respective acceptances, and insurances were 
effected on the lives of the debtors to the extent of £75,000. On these insurances, 
£33,000 have been paid as premiums by the bank itself. These all now stand as 
assets in the books.” 

Lastly, on examination it was found that £988,000 were due to 
the bank from its own shareholders. 

The whole capital of the Northumberland and Durham District 
Bank amounting to £600,000 only, nearly £1,000,000 were loaned 
by it to the insolvent Derwent Iron Company. Mr. Jonathan 
Richardson, who was the moving spring of the Bank, in fact the 
person who managed everything, was, although no direct partner 
in the Derwent Iron Company, very largely interested in that 
.unpromising concern, as holding the royalties upon the minerals 
which they worked. This case presents, therefore, the peculiar 
feature of the whole capital of a joint-stock bank being eaten up 
with the single view to improving the private speculations of one 
of its managing directors. 

These two samples of the revelations contained in the Commit- 
tee’s report reflect a rather dismal light on the morality and 
general conduct of joint-stock trading concerns. It is evident that 
those establishments, the rapidly growing influence of which on 
the economy of nations can hardly be overvalued, are still far 
from having worked out their proper constitution. Powerful 
engines in developing the productive powers of modern society, 
they have not, like the medieval corporations, as yet created a 
corporate conscience in lieu of the individual responsibility which, 

by dint of their very organization, they have contrived to get rid