The Discrepancy between the Designed Function and the Actual Function in the Bank Charter Act of 1844

Abstract

The investigators of the Bank Charter Act of 1844 (Peel's Bank Act) have not paid careful attention to the fact that the Act did not work in the way designed, which was-suggested by Thomas Tooke before the enforcement of the Act. If we will study about the Act from the point of view that the actual function was discrepant from the designed function, we will be able to bring the issues missed hitherto into existence. When the Act of 44 was put in force, it was expected by almost every man except writers of the Banking School that the note-issue and gold reserve were centralized to the Bank of England, and that notes in circulation were regulated by the bullion reserve of the Bank. The purpose concealed in this expectation was to keep the bullion reserve (to secure the convertibility). Actually, under the Act of 44, the centralization of the note-issue and gold reserve was achieved to some extent, but the regulation of the notes in circulation by the bullion reserve was never realized. Because the Bank of England was becoming a central bank not only as the single bank of issue but also as the bank of bankers beyond the Currency School's understanding. Although the Act of 44 did not work in the way designed, it does not mean that the Act had no function. The Act worked in the different way from designed, namely as the system of the credit control by the bullion reserve. And, as a result of this actual function, independent of the legislator's expectation, the Act contributed to keeping the bullion reserve, while intensified panics. When we understand the Act of 44 as above, we would be able to remember the significant theoretical problem brought forward by T. Tooke and K. Marx, and also the historical roles of the Act.