We found that the Bank had the power to lend money on deposit of goods. In 1899 the Secretary of State wrote to the authorities in India:—“I see no objection to your lending to the Presidency Banks, on the security of Government paper, at such rates of interest from time to time and for such periods as you think best. A paper circulation is begun by the banker, and requires no effort on the part of the public; on the contrary, it needs an effort of the public to be rid of notes once issued; but deposit banking cannot be begun by the banker, and requires a spontaneous and consistent effort in the community. On the other hand, money easily becomes a ‘drug,’ as the phrase is, and there is soon too much of it. There are facilities, too, for engaging a good banker to be a manager such as there never were before in the world. The detail of the business of a small private bank was moderate enough to be superintended effectually by the partners.
Some evidence bearing on these points was laid before the Fowler Committee of 1898, but such facts are now fifteen years old. The defeat of the experiment of 1900–1901 was due to a variety of causes, but mainly, I should suppose, to the long habituation of the Indian public to the use of silver, and to the unsuitability of the sovereign, by reason of its high value, for so poor a country as India. It makes an immense profit, but then its capital is immense too. This leads us to the next chapter of the history. But I do not think it certain that this sum would be adequate to the necessities of two successive bad years. The available evidence does not suggest that the average rate in India is at all unduly high for a country in India’s stage of economic and financial development. Unless the London Money Market has collapsed as well as the Indian, it is always open to the Secretary of State to borrow by means of India Bills. The forces are greater and quicker than they used to be, and a firmer protection and a surer solicitude are necessary. This is only a single additional instance beyond the innumerable ones given, which shows how deeply our system of banking is fixed in our ways of thinking. More cheques are drawn year by year; not only more absolutely, but more by each person, and more in proportion to his income. Accordingly, Bank directors, when first chosen by the board, are always young men. But if the ‘securities’ really secure him in a time of difficulty, he will not like to give them up, and take a bit of paper–a mere cheque, which may be paid or not paid. They failed in time, and the theory upon which they were defended was nonsense; but for a time their operation was powerful and excellent. In English political offices, as was observed before, the evil of a changing head is made possible by the permanence of a dignified subordinate. There is no fair argument between an inferior who has to exhibit respect and a superior who has to receive respect.
To pay what was necessary the ‘Gurneys’ had to sell their estates, and their visible ruin destroyed the credit of the concern.