| London
3 Oktober
2 November
1868
My dear Sir,
I was not yet able to discover in a mountain of manuscripts, the State Paper
referring to the Czar’s title. I hope to get at it in a few days. Meanwhile,
allow me some remarks on
Peel’s Act of
1844
, and its working in 1866.
1)
Gladstone
’s
letter
, of 11 May
1866
,
suspended the Act on the following conditions:
Firstly
: that the minimum rate of discount be raised to
10%;
Secondly
: that if the Bank overstepped the legal
limitation of its note issue, the profits of such overissue should be
transferred from the Bank to the Government.
Consequently, the Bank raised its minimum rate of discount to 10% (which means 15
to 20% for the common run of merchants and manufacturers), but
did not
infringe
the letter
of
the Act in regard to the
note issue
. As I told you, they
collected in the evening notes 
| from their banking friends and other
connexions in the City, to reissue them in the morning. They infringed, however,
the spirit of the Act by allowing, under the Government letter, the
Reserve
to dwindle down to zero, and
that reserve
, according to the contrivances of the
Act of 1844
, forms the
only available assets of the Bank as against the liabilities of its banking
department.
Gladstone
’s
letter
, therefore,
suspended
Peel’s Act
in such a way as to perpetuate and even artificially exaggerate its worst
effects. Neither
C.
Lewis
’s
letter of 1857
, nor
Russell
’s
letter of
1847
, lay open to the same censure.
The Bank maintained the 10% minimum rate of discount for more than 3 months. This
rate was regarded by Europe as a danger signal.
2) The most morbid sense of distrust in English solvency having thus been created
by
Gladstone
, out comes
Clarendon
, the man of
the
Paris conference
,
with an
explanatory letter
, published in the
Times
, to the English embassies on the
Continent
. He told the continent in so
many words that the
Bank of
England
was
not bankrupt
(although it was
really so
, according to the Act of
1844), but that, to a certain degree,
English industry and
commerce were so
. The immediate effect of this letter was a “
run
”, not of the Cockney upon the Bank, but
“
a run
(for money)
of Europe upon England
.”
(That 
| expression was used at
the time by Mr.
Watkins
in the House of Commons.) Such a thing was quite unheard of in the annals of
English commercial history. Gold was shipped from London to France, while,
simultaneously
, the
ban
official
minimum rate of discount was
10% in London
and
3½ to 3% at Paris
. This proves that the withdrawal
of gold was no regular ‘commercial’ transaction. It was simply the effect of
Clarendon’s letter.
3)
The 10% minimum rate of discount having thus been
kept up for more than 3 months, there followed the inevitable reaction.
From 10% the minimum rate receded by quick steps to 2%, which is still
the official bankrate
. Meanwhile all
English
securities, railway shares,
bankshares,
mining shares, every sort of home investment
was
had become
ext
utterly
depreciated and was anxiously shunned. Even the consols declined. (On
one day, during the Panic, the Bank
declined
making
advances upon Consols!) Then the hour had struck for
Foreign
Investments
. Foreign Government Loans were contracted, and are still
being contracted, under the most facile conditions on the London market.
At their head stood
a Russian Loan
for 6 Mill. L. St.
This Russian loan which, a few months ago, had miserably 
| broken down at
the Paris
b
Bourse, was now hailed as a godsend on the
London stockexchange.
Last week only Russia has again
come out with a new loan for 4 mill. l. St.
Russia was, in 1866, as she is now, almost breaking down under financial
difficulties which, consequent upon
the agricultural
revolution
she undergoes, have assumed a most formidable
aspect.
This, however, is the least thing
Peel’s Act
does for Russia—to keep the English money
market open for her. That act puts England, the richest country in the world,
literally at the mercy of the Moscovite government
,
the most bankrupt government in Europe.
Suppose the Russian government had had lodged, in the name of a private firm,
German or Greek, 1 to 1½ mill. l. St., on the beginning of May 1866, in the
banking department of the
B
ank
o
f
Engl
an
d
. By the sudden and unexpected
withdrawal of that sum, she might have forced the banking department to stop
payment at once, although there were more than 13 mill. l. St. of gold in the
issue department. The bankruptcy of the B. o. Engld might then have been
enforced by a telegram from
St.
Petersburgh.
What Russia was not prepared for in 1866, she may make ready to do—if
Peel’s Act
be not
repealed—in 1875 or 1876.
Yours sincerely
Karl Marx