# The „Money Market Review“. Jahrgang 1866.

## Saturday. May 19. 1866. N. 311. Panic. Bank o. E.

### Money Market.  Zusatz von Marx. Schließen (Reserve of B.o.E.)

On Friday evening (11. May) Gladstone stated in the H.o.C. that the reserve of the B.o.E. fell that day from close upon 6 millions to 3, and the Bank Return shows that in the course of the entire week it has fallen from nearly 6 millions to one. The demand for loans, after removal of Bank Act ⦗a few hours more of intense panic would have absorbed this reserve altogether⦘ during the week more than 10 millions, greater than ever known in any previous week of the Bank[’]s history.

### The Recent Panic and Bank Act Suspension.

On Thursday, the 10, the panic, which till then might be said to be still „looming in the distance“, fairly set in: at 1/2 4 o’clock had culminated in the stoppage of Overend, Gurney, et Co. News flew like wildfire in all directions, in an instant telegraphed to all parts of the country. Dense masses congregated in the streets around the doors. It was clearly perceived that this Overend stoppage would be the signal for the commencement on the following morning of a „run“ upon every other banking and financial establishment, whose credit had been called into question. „Not even in the panics of 1847 and 1857“, said the Daily News, „was the apprehension shown this day equalled. The circulation of mercantile bills, however good, is completely paralysed. Merchants who have the most |188 undoubted paper find themselves under the risk of inability to meet their engagements by reason of the partial or complete collapse of the money market.“ Even the Times City Editor declared that „unless prompt steps were taken, the close of that week would be marked by disasters such as had never been equalled in our commercial history“. Means must be devised, he urged, for stemming the insane torrent of the panic, or it „would not only affect the metropolis and all the great provincial centres of our commerce, as well as our Indian colonial and the foreign markets, but would at once lead to a suspension of public works throughout the kingdom, and in every district throw thousands of people out of employment.“

The time for action had arrived. The only action possible was, in the first instance, a deputation to Gladstone (Chancellor of the Exchequer) composed of representatives of the leading institutions and firms of the City, to urge him, not in terms to suspend the Bk. Act again, but in fact and in effect to supersede it. Friday Morning (11 May) came the anticipated run upon the other banks and financial institutions, and such a pressure upon the discount Department of the B.o.E. as had never been experienced before. Under this pressure the Bk. raised the rate of discount from 8 to 9%, and as regards advances on stock to 10%, and even upon those exorbitant terms it was only on the most unexceptionable bills that money could be obtained. Partially known on Thursday evening the closure of the Joint Stock Bank, its liabilities only about 8 Mill. £. This announcement was followed on Friday Morning (11 May) by the suspension of (mit liabilities to £4,000,000) and of W. Shrimpton, railway contractor, for £200,000. In the course of the day it became known that Imperial Mercantile Credit Association had succumbed, the Consolidated Discount Co. has suspended. Several banks severely pressed, but the „run“ was well met. Lombard-Street was thronged in a most extraordinary manner by crowds and gazers, watching the movements at several banks. So great these crowds that the streets almost impassable … constant streams of depositors and customers with anxious faces as they passed and repassed through the doorways of the banks …

Several informal communications from the bankers of the City made to Gladstone during the day, urging the immediate suspension of the Bank Act, but the Bank (o. E.) Directors had made no application, nor expressed any desire on that subject, and Gladstone unwilling to determine anything without some formal application. In the meantime the pressure upon the Discount Department of the Bank such as without parallel in all its previous history. In that single day the Bank extended its loans and discounts to a sum of more than £4,000,000, so as to reduce the reserve from 5 millions and 3/4 mill. to about 3 millions. These facts communicated to Gladstone on Friday evening, and on that evening Gladstone was waited upon by a deputation representing the Joint Stock Banks in the City, who were more urgent for a suspension of the Act. Gladstone then decided to send suspensory letter to Governor and Deputy Governor of the B.o.E. He announced this to the H. o. Commons on Friday (same day of 11 May) night. … Thus the Bankact for 3d time suspended.

### The Panic and its Remedy.

If the Bankact had not been suspended then, the B.o.E. itself would have forewith forthwith suspended payment. Three millions out of a reserve of less than 6 mill. went on Friday, and, with a panic becoming more intense every hour as the reserve attenuated, there is no doubt that before the close of banking business on Saturday the B. o. Egd. must have closed its doors.

Jezt sagen die defenders des Act of 1844: its peculiar advantage is that it will stop any Panic as soon as the Act is defunct. … The speculation in cotton, in produce, in iron; the institution of Finance Cos., „Lloyds Bonds“, and contractors’ loans, are certainly not the inventions of the Act of 1844. |189 The „phantom“ Reserve of B.o.E. Notes had suddenly fallen to such a panic point as induced a scramble for the Remnant. … Attempt to limit the supply of money, when it was most needed.

### What to do with the Act of 1844?

It does no harm so long as it is doing nothing; it never does any good; it never comes into actual operation without producing evil. It is raising the Bank rate of discount that checks a foreign drain upon our gold reserves, and checks and moderates undue speculation, when it is to be checked … . It is most humiliating to reflect – that the whole of the banking, and financial, and trading interests of this country should hang suspended in the feeble grasp of a body of bank directors, supposed ⦗by the defenders of the Act⦘ to be perpetually oscillating between abject fear and reckless indiscretion. … Banks and bankers imagine that the Bank Act works well for them, and for all the money-lending community, however hardly it may operate upon the money-borrowing public, by keeping up and raising to a permanently higher level the value of loanable money. … The tendency of these frequently recurring periods of pressure and panic is to convert the industrious and enterprising classes into speculative and reckless gamblers …

The landed interest owns less than 1/6 of the national wealth, and pays less than 1/6 of the national taxation.

### Die unter dieser Überschrift versammelten Exzerpte verwendete Marx ausführlich im Brief an Collet Dobson Collet vom 13. November 1868. Schließen The Times and the Panic.

Influence that Journal can exercise in bringing about a panic.

On Thursday evening (10 May) frigtened frightened by the Panic wants something official being done[,] urges deputations from leading banks and firms to press at once upon the Chancellor of Exchequer, warns the Gvt etc[.]

Friday night (11 May) Bank Act suspended. Saturday Morning (12 May) Times declares that the suspension was not necessary, „and if, as we expect, confidence be speedily restored, we shall attribute it to natural causes rather than to the interference of the Executive Gvt … The Panic would have subsided of itself.“ „The suspension of the Act coincided with the Restoration of Confidence. Confidence would have been surely and speedily restored had the law been preserved in all its integrity.“

Monday Morning (13 May) ⦗in point of fact, already in its evening edition of Saturday⦘: „To suppose that the panic could have subsided of itself, especially when the news of the condition of London, and of the State of the Bank Reserve had reached the provinces, would have been tantamount to waiting for a miracle.“ And in its leader columns on the same day: „The panic far exceeded the proportions to which delicacy and discretion reduced it in the newspapers, though even they told a sad tale.“ „The concession of the Chancellor of the Exchequer came not an hour too early.“

It was falsely announced that the Ambassadors of Prussia and Austria had mutually withdrawn. Hence perturbation on the Stock Exchange. Then the Times announcement that „there was not one word of truth in the announcement“.

Times City Article of 25 May. In that article it is said: „The authority to suspend the Bk. Act has not allayed the panic … the state of embarrassment at the present moment seems to have reached a much worse point than before.“

In another article the Times has the impudence to represent the „distressed“ London bankers as begging assistance from the B.o.E., while they were calling for „their“ money at the Bank. Speaks of „bankers in distress“, while the B.o.E. was the Bank „in distress“.

(on occasion of Mr. Watkin’s motion for a Royal Commission of Inquiry into the Bank Act) the Times .

On the it says: (Leading Article) „The fortunate possessors of capital and credit, whether in Threadneedlestreet or Lombardstreet, sit aloof and administer their power upon purely selfish principles. When money is abundant, they underbid one another, and the B.o.E. lends at 2%, thereby encouraging speculation. When the evil tree is beginning to bear its evil fruit; when enterprise has gone to its utmost limits; when money is gone and ordinary credit falls into suspicion, then the Bank of England trafficks upon the fatal excesses it has provoked, and exacts 10% from its own victims. The other moneylenders do the same, but it is the Bank that sets the example. As a public institution it realises the questionable maxim that private vices are public benefits, for it thrives upon the folly of private speculators, and the 10% which accumulates the Bank ‚Rest‘ and raises the price of Bankstock to £250 means universal difficulty and general disaster. Certainly, there is something invidious in being the chief example of a trade the profit of which is founded upon misfortune.“|

### Investors Losses from „Bear“ Frights.

Recently the current of speculation in the Stock Exchange has set all one way. Prices have fallen – in some instances on merits; z.B. für die Joint Stock Discount shares und . But upon this comparatively small basis the Stock Exchange „bears“ have erected a huge structure intended to crush all finance and discount Cos. … The bears of the hour not only sell as the old „bears“ were wont to sell, but they combine, and sell in masses, and they back up their sales by endless rumours. If one Co. makes a call, all are reported to be likely to make calls. If „Lloyd’s Bonds“ are held largely by One Co., all are said to hold „Lloyd’s Bonds“. If one Co. has railway contractors for creditors, all are reported to „be in“ deeply with railway contractors. In the peculiarly sensitive condition of the market at present a few rumours of this description, coupled with a smart decline in the price of the shares, bring real and frightened sellers into the market; whereupon depositors get frightened also, and a complete panic sets in. … There has, during the last week, been a dead set against the .

### The Stock Markets of the Week.

Gvt. Stocks have had a great rally, despite the immense sales forced by banks in hourly fear of a „run“. That investment has been rapidly absorbed by the public, and Consols are restored to a very fair price for a 3% security. … The public have eagerly taken all the Railway Stock which a pressure from the North had thrown upon the market. London Chatham and Dover stock has risen. The German sales of American Stocks seem for the moment suspended, while the American demand continues, so that 5-20 Bonds have shared, although very meagrely, in the general rise.

The variations in Agra and Masterman’s Bank shares tremendous, but after touching 20, the price seems now recovering. In London and County Bank Shares recovery of £10. Speculators for a fall in shares were forced last „account“ to pay 10s. „backwardation“.

### The Limited Liability Act of 1862.

So far, indeed, it seems passed for the especial benefit of clever promoters, financiers, and liquidators to the injury of the real investors. The liability, in many instances, has operated as a share. The bona fide shareholder has practically no protection against either unscrupulous directors or against a wholesale system of nominees or „men of straw“, put up as his co-partners in Cos. which have only a trifling amount of capital paid up. Thus the so called Reserve of unpaid capital may be no reserve at all. No real audit. There are some figures which must be published at least once a year; but, in some instances, if not absolutely false they have been grossly deceptive, and in nearly all cases, they are grouped under a few heads in such a way as to convey little or no information – not even to the most acute accountant in the world – as to the real character, or the extent of the commitments of the Co. The securities held against advances sometimes actually involve a liability, and may, in fact, become heavy liabilities instead of securities, without the shareholders having slightest idea of such a risk. … On the creditor side of the account should be given the amount of advances on securities not fully paid up, on securities of works in progress, and on securities representing fully paid up shares in Cos. or Loans brought out by the Co. distinct from those of other cos., also, the amount of cash at call, at interest, also that at the B.o.E., and in hand.

The shareholders selbst grossen Theils am Dreck Schuld. They blindly support directors who admit having transacted such a description of business that secrecy is actually necessary to preserve the Co. as well as the client. Shareholders are led away by plausible observations from the directors as to the evils of exposing details to the public or their rivals; recent disclosures have proved that secrecy allows unprincipled directors and managers to carry on abominably reckless transactions, of which the shareholders are in ignorance until the Co. is ruined. Even when it is ruined, a balance-sheet in accordance with the requirements of the present Act can at the very last moment be issued, showing a profitable position, as was the case with the Joint Stock Discount Co. With regard |191 to the appointment and re-election of directors (the latter being a ceremony which has almost degenerated into a mere form) they are selected because of their names being prominent as guinea-pigs, oder weil sie political, municipal, official, und mercantile duties have in combination with the responsibilities of a directorship over 5, 10, 15 other cos of varying nature with the most diversified objects. There should also be an end to reserve funds being used as capital. If it be clear profit, and is yet wanted for use in the business, let it be added to the paid up capital or invested so a as to prove a real reserve fund in case of need.

### Railways.  Zusatz von Marx. Schließen (don’t pay)

In these 25 years we have more than doubled our wealth. Sicher the securities which represent about 450 millions of Railway properties would not realise at the existing market rate their original cost. The investors in British railway property are losers. For many years past subscribers for new railways could not be found. There were, however, lawyers, contractors, and promoters. Devices invented whereby, by „Lloyd’s Bonds“ and Finance Cos., and the issue of railway securities at enormous discounts, and the payment to contractors of prices for their work and materials far in excess of the value, some railways have been made, or partly made. But, as Lord Redesdale said in the H. o. Lords last Monday, the system has fairly broken down.

### The Reports of the Asiatic Banking Co., and the Bank of Hindostan, China and Japan (Limited.)

The disastrous crisis at Bombay last year (1865) has told upon the balance sheets and dividends of the various Indian Banks. All have suffered, some severely. Mit Numerous failures amongst firms of the highest standing and greatest repute, and prolonged depreciation of all description of Indian produce the Banks could not escape heavy losses. So sehr bedeutende losses der „Commercial Bank Corporation of India and the East“, ebenso, obgleich nicht so groß, in den beiden oben genannten Banks. Losses of Asiatic Banking Co: £142,000 against profits realised of £61,494. Hatte aber, fortunately, reserve fund of £175,000.

Net profits of the Bank of Hindostan etc for the year £23,485, whole swallowed up by the losses, which have also absorbed £87,794 transferred from the reserve fund. In addition, £70,000 loss anticipated. Sonst sound.

### The Economy of B.o.E. Notes. 1000£ Notes.

The B.o.E. directors suchen constantly economy of banknotes, so as to keep as small an amount as possible in the hands of the public, and as many in the reserve as they can contrive. A large amount of the whole circulation, perhaps 1/10 (say 2 mill. £. St.) consists of notes of £1000 each, and nearly all these are in the tills of bankers within half a mile of Lothbury. They are of little or no use, except to settle balances among the banking houses themselves, or occasionally for lawyers to pass when they sell real estate.

## May 26, 1866. N. 312.

### The Bank of England and the London Bankers in the Panic.

Friends of the Bankact of 1844: If it has been suspended, it has not failed; if it has failed, it was good, very good, that it should have failed; and that it fails as beautifully and beneficently as it operates. Economist selbst muß aber sagen: „Indeed if it had not been broken this month it must have been repealed next month. The panic took the matter in its own hands.“

In the letter of the Governor and Deputy Governor of the Bank to the Chancellor of Exchequer , on the 11. May, they have the impudence to state: „We commenced this morning with a reserve of £5,727,000, which had been drawn upon so largely that we cannot calculate upon having so much as 3 Mill. £. St. this evening, making a fair allowance for what may be remaining at the branches, and unless the money taken from the Bank is entirely withdrawn from circulation there is no |192 reason to suppose that this reserve is insufficient.“ Dieß als »Troops of bankers were coming up from all parts of the country in order to provide themselves with gold and banknotes.[«] The balances of the London Bankers, lodged in the B.o.E., usually from 3 to 5 Mill., and it was clear that, had the Bank Act not been suspended, they would have been compelled to withdraw every 6d. of those balances to meet a tremendous „run“. All those balances must have come out of the Bank reserve of 3 Mill. £.

The Deputy Governor of the Bank was exceedingly reluctant at the conference with Gladstone to admit that there was any necessity whatever for the suspension of the Act, until he was curtly reminded by one of the joint-stock bank directors present that „they could draw a couple of cheques to-morrow morning, which would compel the B.o.E. to close its doors“. Gladstone interposed, „but you will not do it“.

### Lord Clarendon on the Panic.

The panic of 1866 possesses one essential characteristic which did not belong to its predecessors. Continental capitalists have in this instance become alarmed, and, contrary to all precedent, on the seeming verge of a colossal European war, withdraw their money from London as a measure of security, instead of sending it to London for safety, as in previous periods of convulsion. , on the morning after the issue of the Gvt. letter, indited his circular to the British embassies and legations throughout Europe, with the view of staying undue panic on the Continent as to British solvency.

We have been taught to think that the withdrawal of a million or two of bullion from the Bank of England is a very serious affair, and that the addition of a million or 2 is the occasion for national congratulation. … The precious metals always have and always will flow backwards and forwards from one country to another, and all law is powerless to stem this natural course … Clarendon tells Europe that long-continued prosperity in commercial affairs and the general wealth consequent on it have produced their ordinary results in encouraging speculation, especially of a monetary and financial character, and in fostering hopes of acquiring wealth by more speedy means than are presented by ordinary methods of commercial industry. …

### Transfer of Business of the Bank of London to the Consolidated Bk.

The London Bank Reserve Fund in its last balance-sheet upwards of £300,000. In April 1864 it paid dividends at the rate of 15% p. annum, price of its shares £122, or £72 premium und damals addition of £200,000 made to the capital by the creation and issue of 2000 new shares. These shares issued to the then existing shareholders at premium of £70 p. share, and the £140,000 realised by these premiums was carried to the reserve funds. At its last half yearly meeting paid dividend of 20%. by in financial transactions. arrangement mit der Consolidated Bank. Transfer ihr 22 May, evening, the current and deposit accounts of their customers mit ample assets to cover them. Consolidated Bk. undertook the charge of these accounts, but assumed no responsibility für die acceptances der B. o. London. Diese daher unpaid return. Der Fehler to invest Banking Funds, which may be any day withdrawn, upon Railway Contracts or Lloyds Bonds, or other securities based on public works in a progressive but unfinished state. These works may be long in progress, the capital to complete them may not be readily obtainable, the works may never be finished. Until their completion all such securities not only liable to great fluctuation in value, but extremely difficult to deal with as available securities, even if they can be dealt with, as such, at all.

It is the business of a financial association to lend money, or lend its credit for the raising of money, upon securities not immediately convertible, and repayable at longer dates than those at which a banker justified in lending his money. The financial association, lending at longer dates, and on less marketable securities, incurs therefore greater risk, and obtains therefore larger profits than the banker. If the business well managed, higher profits cover the larger possible losses, and enable it to pay higher interest and dividends to the shareholders. But the financial association ought not to take deposits repayable on demand, or at short notice, because their investments not immediately convertible, in case of emergency for the repayment of these deposits. The mischiefs of intermingling the system of the Banking institution mit financial operations lamentably illustrated in the cases of the Joint Stock Discount Co. and the Bk. of London, the London Financial and the Imperial Mercantile Credit Associations.|

### Loss in Investments since beginning of 1866 – May 26.

The recent failures and the general depreciation in the value of joint stock investments, since the commencement of the present year, has involved loss at 130 mill. £. St.

### The Stock Markets of the Week.

A steady drain of bullion to the Continent continues, partly to pay for the stock with which Continental holders have lately loaded our market, and partly because the machinery of the Foreign Exchanges is out of gear. Consols are weaker, but only to a trifling extent.

The speculators for a fall have altogether had a good harvest the this week. Individuals or cliques sell in combination large quantities of shares in an undertaking whose very existence depends upon its credit, and then comment on the depreciation in price which they have caused, in a way to bring the credit of such concern into question, and cap the whole proceeding by circulating false and defamatory reports. It is said that men of high standing in the City of London are not ashamed to pocket the profits of these transactions. Such men pick out a high priced bank as their next victim, and repurchase with glee the stock out of which they have frightened timid shareholders.

With the exception of Italian, which seems to have fallen as low as it well can go, Foreign Stocks are all weaker. The fall in Railway Stocks very severe. London and Northwestern have been the greatest sufferers.

The great interest of the week has centered in the market for Bankshares, where the fluctuations have been terrible. The crisis under which India is still suffering afforded a pretext for heavy sales of Agra and Masterman[’]s shares, touched at one time 10l. per share, or 15 discount; but a great rebound has taken place, and they close at £20.

Persons who have locked up their property in their cash-boxes can so invest mit immense profits.

### What is a Five-Twenty Bond?  Zusatz von Marx. Schließen (Neue Art Convertibility for paper currency)

The Gvt of the U. States have the option of redeeming this part of their debt at par, or 100, after 5 years from the date of issue, and at any period between 5 years and 20 [years] from the date of issue; but, at the expiration of the 20 years, the holder of five-twenty bonds can claim the principal or par value. Similar condition für die ten-forty Bonds, the option of the State continuing in this case after the first 10 years up to 40 years. On both these kinds of bonds the interest is payable in gold, on the former at 6, on the latter at 5% p. annum.

## 28 December 1867. N. 395.

### Joint Stock Co. Law. Misrepresentation in Prospectus. Sir Edmund Lacon’s Case.

„Great Yarmouth Royal Hotel Co.“ (Lim.) promoted und got up by a certain Hawes, Febr. 1865, for the purchase, „upon very advantageous terms“ of most valuable properties on the Esplanade at Great Yarmouth, including the „Royal Hotel which for many years had been so well conducted by Mrs. Sizeland“. Capital £25,000 in 2,500 shares of £10 each; defendant named in the prospectus as one of the directors. Hawes was to receive £2,500 for promotion money, out of which, by arrangement mit den directors, he was to pay the first directors’ qualification in the shape of 10 fully paidup shares each, the qualification of the subsequent directors being stated in the articles at 30 shares. It was not „a bubble“. There was a good and bona fide business, but not successful; on 24 Febr. 1866 a winding up order was made. Present proceedings originated in Bill filed by Rev. Mr. Henderson, against Sir. E. Lacon et the other directors, to have his name removed from the list of contributories, and his allotment and deposit money repaid to him, on ground of misrepresentation in prospect, and through the subsequent stages of the Co’s career. Case came before Vice Chancellor Sir W. Page Wood. Wood decided for the plaintiff against Lacon et other directors.

Mercantile men frequently permit themselves to do, or participate in the doing of things, in their corporate capacity, which they would shrink from in their individual or personal capacity. This is the foulest blot, und the most pernicious und fatal drawback upon the progress and success of Joint Stock Enterprise in this country.

### Limited Liability. Joint Stock Cos. Parliamentary Return. (66’–67’) (1 June ’66 to 31 May 67)

Danach: von June 1, 1866 to May 31, 1867 (12 months since Panic ’66): England registered as limited 469, unlimited 5, 474 Cos, dazu 6, which existed prior to passing of Act of 1862, but subsequently registered under the Act as Limited. Nominal Capital about: £35,000,00 £35,000,000.

Scotland: limited Cos. registered 22, nominal Capital £897,800; Ireland 22, nominal Capital £400,400, thus making the total number of the Cos. registered under limited liability in U. Kingdom 524. Dazu 13 Cos. for working mines within jurisdiction of the Stannaries’ Court, nominal Capital of £221,000.

There is no longer any doubt that the principle of combination applied to the development of industrial wealth is far more powerful in its influence upon the progress of nations than that of mere individual enterprise. But, when exercised without any legitimate restraint, may be used for the worst of purposes. Under limited liability the nation has, during the last few years, been intoxicated with visions of rapidly acquired wealth. The eagerness, with which a number of speculative persons have sought to enrich themselves at the cost of others has carried with it the seeds of self-destruction, which only required time to develop their fatal results.