And the practical effect of the clause went further:  it was believed to make the Bank of England the only joint stock company that could receive deposits, as well as the only company that could issue notes.  The gift of ‘exclusive banking’ to the Bank of England was read in its most natural modern sense:  it was thought to prohibit any other banking company from carrying on our present system of banking.  After joint stock banking was permitted in the country, people began to inquire why it should not exist in the Metropolis too?  And then it was seen that the words I have quoted only forbid the issue of negotiable instruments, and not the receiving of money when no such instrument is given.  Upon this construction, the London and Westminster Bank and all our older joint stock banks were founded.  But till they began, the Bank of England had among companies not only the exclusive privilege of note issue, but that of deposit banking too.  It was in every sense the only banking company in London.

With so many advantages over all competitors, it is quite natural that the Bank of England should have far outstripped them all.  Inevitably it became the bank in London; all the other bankers grouped themselves round it, and lodged their reserve with it.  Thus our one reserve system of banking was not deliberately founded upon definite reasons; it was the gradual consequence of many singular events, and of an accumulation of legal privileges on a single bank which has now been altered, and which no one would now defend.

CHAPTER IV.

The Position of the Chancellor of the Exchequer in the Money Market.

Nothing can be truer in theory than the economical principle that banking is a trade and only a trade, and nothing can be more surely established by a larger experience than that a Government which interferes with any trade injuries that trade.  The best thing undeniably that a Government can do with the Money Market is to let it take care of itself.

But a Government can only carry out this principle universally if it observe one condition:  it must keep its own money.  The Government is necessarily at times possessed of large sums in cash.  It is by far the richest corporation in the country; its annual revenue payable in money far surpasses that of any other body or person.  And if it begins to deposit this immense income as it accrues at any bank, at once it becomes interested in the welfare of that bank.  It cannot pay the interest on its debt if that bank cannot produce the public deposits when that interest becomes due; it cannot pay its salaries, and defray its miscellaneous expenses, if that bank fail at any time.  A modern Government is like a very rich man with very great debts which he cannot well pay; its credit is necessary to its prosperity, almost to its existence, and if its banker fail when one of its debts becomes due its difficulty is intense.