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powers, and to leave the development of banking free to private enterprise.

To the establishment of a great State Bank in India similar to the constitution of the Bank of England I am invincibly opposed. It is sufficient to say that the present constitution of the Bank of England is founded on a mass of dogmas which are utterly erroneous, and which in a series of commercial crises which have taken place since 1844 would infallibly have brought about the stoppage of every bank in the kingdom if the Act had not been suspended. It is absolutely certain that if a great commercial crisis took place in India with a State Bank founded on the model of the Bank of England, it would cause the stoppage of every bank in India, and make the Government itself bankrupt.

No doubt the Bank of England exists as a great fact, but its monopoly is utterly contrary to the fundamental principles of Free Trade. No other English-speaking race tolerates the existence of a dominant bank. Scotland from the very first energetically protested against a monopoly in banking. Her system of banking was freely developed by practical men of business, and was never interfered with by legislation till 1845, and it is universally acknowledged that her banking system is the best in the world, and the system of credit is more fully and perfectly developed there than in any other country.

The United States had a dominant bank, which by the testimony of the ablest American economists inflicted incalculable evils on the country, and was finally suppressed by President Jackson. Neither Canada nor Australia will tolerate a dominant bank-in fact, it is just as erroneous to grant a monopoly in banking to a single body of persons as to grant a monopoly of any sort of trading to a single body of persons.

It is impossible to give any account of the history of the monopoly of the Bank of England here, but it is sufficient to say that it has been the cause of millions and millions of

losses to the country, and already it is seen that the period of its dominancy is coming to an end, and cannot possibly survive the next great commercial crisis and monetary panic which is sure to come. I am happy to say that Sir Henry Fowler, in the Indian Currency Committee, expressed a hope that the debt of the State to the Bank of England would be paid off, and so leave the field clear for the reorganization of the banking system of England. It would therefore be a vital error to institute a system of banking in India which is doomed to extinction in England.

In my opinion, the only true system of banking to institute in India is to reorganize the Presidency banks, and to permit the free extension of banking by private enterprise. But whichever system be adopted, there is one thing indispensable-that there should be no limit imposed on the banks in their power to issue notes.

When, about 1809, the extravagant issues of the Bank of England had seriously depreciated the value of the banknote, one of the measures proposed was to impose a limit on its power of issuing notes. But the Bullion Report, which is a great landmark in the history of economics, emphatically condemned the plan of imposing a limit on its power of issuing notes, because it said that there were times of commercial crisis in which it was indispensable that the bank should have the power of issuing notes to support houses which could prove themselves solvent, though their assets might be temporarily unavailable. This doctrine received universal approval from the highest commercial authorities. Sir Robert Peel said in 1819 that he would never consent at any period, however remote, to impose a limit on the bank's power of issue. Mr. Thornton, one of the most eminent bankers in London, and one of the authors of the Bullion Report, said in 1804 that if an Act were passed similar to what was afterwards enacted in 1844, it would lead to universal failure, and this was fully verified in 1847, 1857, and 1866.

The fact is that Sir Robert Peel had conceived the extraordinary idea that all commercial crises were due to the excessive issues of bank-notes, and that if he could only impose a limit on them, it would prevent commercial crises from arising. But Peel did not seem to be aware that the most terrible commercial crises and monetary panics in the last century took place in countries where there were no bank-notes at all.

Everyone who is conversant with the organization and mechanism of banking, into the details of which it is impossible here to enter, knows that imposing a limit on the issue of notes is no protection at all against the creation of excessive and unsound credit, whereas when a great commercial crisis takes place there is no possible means of assuaging it except by banks having the power to issue notes to support commercial houses who can prove themselves to be solvent, but whose assets are not immediately realizable. Amateur writers on economics and legislators who never had the faintest notion of the organization of banking have had bank-notes on the brain.

In the monetary crisis of 1855 I was in the direction of a bank, and circumstances came under my observation which have never been mentioned in any book nor in any discussion on the subject in Parliament, which showed me that the true supreme control of credit and paper currency is in the rate of discount. In 1856 I said in my work on banking that the true supreme method of controlling credit and paper currency is by adjusting the rate of discount by the state of the bullion in the bank and by the state of the foreign exchanges. This principle is now universally acknowledged and recognised to be true, and every bank in the world is now managed by this principle.

In the Committee of the House of Commons of 1858 which sat upon the great monetary panic of 1857, Mr. George Ward Norman, who was one of the keenest supporters of the Bank Act of 1844, acknowledged that the Bank of England found that this principle was amply sufficient for all their purposes.

At a meeting of the Political Economy Club, Sir John Lubbock observed to me that it was the greatest discovery of the age. As this principle is now fully understood and acted upon by all bankers, it is perfectly unnecessary to impose a limit on the issue of notes by banks, which was utterly condemned by all the highest authorities on banking at the time it was proposed, and the experience of the Bank of England since 1844 has shown that in times of commercial crisis it can only produce universal disaster.

The Indian Government has declared its intention of instituting a thorough and exhaustive inquiry into the whole question of banking. It has now a tabula rasa. It has the opportunity of instituting a system of banking to last for all time, and it is to be fervently hoped that it will carry out its declared intention, and that it will adopt that system which is proved to be the best by solid reasoning and ample experience.

It would be quite out of place here to enter into greater detail, which would not interest lay readers; it is sufficient to lay down certain broad general considerations. But if any person cares to go more deeply into the subject, I may mention that I have exhibited the whole of the scientific principles and organization of modern banking in my "Theory of Credit,"* to which I to which I may refer any readers who may wish for fuller information.

* Publishers: Longmans and Co.



ONE of the most difficult problems which the British Government will have to solve in the near future is that relating to the Eurasians of India. The question is daily growing in importance by the increase in numbers of those who belong to this community, and it will require most delicate handling. Claiming to be of the same flesh and blood as the ruling race, and at all events a direct result of the occupation of India by the British nation, they, with some show of reason, seem to think they ought to receive some special consideration and exceptional treatment. That they are loyal to the country from which they or their ancestors derived their birth may be admitted as a matter of course; in fact, they are proud of their connection, be it ever so remote. They have in times past rendered most valuable aid in upholding the power and prestige of the Government, and at present contribute very largely towards making up a volunteer force, whose services may be requisitioned in the event of any foreign aggression or internal disturbance. But of late there have been indications that a spirit of discontent is moving amongst them-a feeling that they are receiving, neither at the hands of Government, nor of non-official European employers of labour, that consideration to which they imagine themselves to be entitled. Some do not hesitate to assert that the Government is loosening the tie that binds them to it by withholding from them what they consider to be their just claims. It is thus quite within the bounds of possibility that they, without becoming actively hostile, may make themselves very troublesome and create a cause of anxiety to the Government.

So far back as 1860, Lord Canning, the first Viceroy of India, fully realized the peculiar significance of the

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