On Central Banking “Rules”: Tooke's Critique of the Bank Charter Act of 1844

The main opponent to the Bank Charter Act of 1844 in the Currency-Banking School debates of the 1840s and 1850s was undoubtedly Thomas Tooke (1774–1858). As is well known, the 1844 Bank Act embodied the Currency School's plan for the institutional separation of the Bank's “public” function of issuing banknotes in exchange for coin (bullion) from its “private” business of banking, consisting of receiving deposits, buying and selling securities in the open market, and discounting bills brought to its door. The objective of this plan was to compel the Bank of England to issue its banknotes pari pasu with changes in its bullion reserves. The Bank Charter Act of 1844 was perhaps the first attempt to introduce central banking “rules.” Tooke's grounds for criticizing the Act are, therefore, of interest to contemporary monetary economists. From 1840 until his last publication in 1857, Tooke engaged in a relentless campaign against the institutional separation of Bank of England functions under the 1844 Act. Before the Act's inception Tooke criticized the Currency School's plan on theoretical, as well as policy grounds. After its inception Tooke mainly criticized the 1844 Bank Act for actually contributing to monetary instability. These criticisms stemmed from Tooke's long-established position on banking policy together with the Banking School theory he largely developed in the early 1840s.