crisis the country had passed through, within the few preceding years, attracted much public attention, and several petitions were presented to Parliament; and in March, 1840, the Government determined to institute an inquiry into the whole system of paper issues. On the 10th of that month the Chancellor of the Exchequer moved for a Committee for that purpose. He reminded the House that the Bank Charter would terminate in 1844, and he thought it expedient that they should not postpone inquiry into the subject till the last moment. That whatever might be the difference of opinion among the most intelligent men, as to what part of the difficulties they had gone through were to be attributed to the Bank of England, or other Banks, still they were very strongly of opinion that the present system required revision and alteration. Leaving out of consideration. former transactions, the difficulties and embarrassments which the country had gone through, within the last few years, had led the most important bodies, and the largest of the manufacturing towns, to make complaints-in calm and temperate languageand to express an anxiety that the House should institute an investigation into their complaints, and endeavour to provide adequate remedies. The chief points of interest connected with the report and evidence are―

1. That the principle propounded in 1832 for the management of the Bank, for the purpose of conforming with the principles of the Bullion Report, was totally condemned.

2. The great modern heresy, that bills of exchange form no part of the circulating medium, or currency, which was first asserted before a Parliamentary Committee in 1832, was now maintained by the great majority of the commercial and banking witnesses.

3. This seems to have been the first adoption by mercantile men of the theory, which is the reigning banking fallacy of the present day, which is now known by the name of the "Currency Principle." The principle shortly stated is this-That when Bank notes are permitted to be issued, the number in circulation should always be exactly equal to the coin which would be in circulation if they did not exist. The advocates of this principle maintain that it is the only true mode of regulating a paper currency, and preserving the paper of equal value with the gold. coin. This theory sounds remarkably specious and plausible

and, from the eminence of the persons who have been converted to it, has acquired much importance. Nevertheless, we affirm that there never was a greater delusion palmed off upon the credulity of mankind, and that it never could have emanated from, or be believed in by, any one who had the slightest knowledge of banking accounts.

77. The rule for managing the Bank so as to conform to the principles of the Bullion Report, which had been considered as the acme of wisdom by all the witnesses before the Committee of 1832, was thus spoken of by Mr. S. J. Loyd, now Lord Overstone

"The rule of keeping a fixed amount of securities, it is true, has been suggested by the Bank herself for her guidance: but the folly has consisted entirely in the suggestion of such a rule, and not in the departure from it." (Q. 2904.) And again (Q. 2907) "First for the simple and exclusive purpose of regulating the circulation of the country, it leaves us without any rule whatever: and accordingly we find by the published returns that no fixed relation exists between the amount of bullion and the amount of circulation. Second, the circulation may decrease while the bullion is increasing, or it may increase whilst the bullion is decreasing. We have had practical examples of each kind within the last few years. Third, the bullion, through the demands of the depositors may leave the Bank coffers in large amounts; IN FACT

IT MAY BE WHOLLY DRAINED OUT WITHOUT ANY CONTRACTION

OF THE CIRCULATION, and, therefore, without any effect being produced on prices or foreign exchanges, by means of whick the drain may be checked."

This passage deserves the closest attention, because the Bank Act of 1844 was expressly devised for the purpose of preventing such a thing, and we shall see shortly how far it was effectual for this purpose.

78. Nothing can be more wearisome than to read through the enormous mass of heterogeneous questions heaped upon one another, without aim or drift, tending to no result, and capable of producing none. Nothing can be more humiliating than the contrast between the Bullion Committee of 1810 and the Committee of 1840. The Bullion Committee were masters of the science; they knew how to govern the direction of the

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inquiry, to cross-examine the witnesses, and make them expose their own fallacies, by involving them in contradictions and inconsistencies. And, when the witnesses had given their opinions, the Committee were able to judge and decide upon the value of the testimony, and the result was the complete demolition of the opinions of the great majority of the witnesses. But, in the Committee of 1840, the want of a presiding mind is painfully conspicuous. They were totally destitute of any knowledge of the principles of the science of banking; and after having protracted the inquiry through two Sessions, they were obliged to come to the humiliating confession of their own incompetence to frame a report on the evidence given, and to suggest to Parliament the expediency of appointing a commission for that purpose!

79. From 1838 there ensued a dismal series of four bad harvests in succession, which were attended with much suffering to the people; high prices of corn, and, as a natural consequence, large importations of foreign corn, and a very low amount of bullion in the Bank. In fact, the alleged rule of 1832 was a complete dead letter, and it was not till the 27th of August, 1842, that these proportions were again attained, when the liabilities stood at £29,022,000, and the bullion at £9,729,000. The crops of 1842-3-4 were prodigiously abundant-the latter more so than any for ten years preceding. The consequences of this, as well as other circumstances which happened at that time to economise the capital of the country, produced a cycle of years of great apparent prosperity, but which ended in the great revulsion of 1847. This latter part is beyond the limits of this Chapter. The bullion in the Bank continued steadily and rapidly to accumulate until, in December, 1843, it reached a higher limit than it had ever done before, being £14,982,000, and continued to increase after that until the passing of the Act of 1844.

CHAPTER X.*

FROM THE BANK ACT OF 1844 TO THE PRESENT TIME.

1. On the 6th May, 1844, Sir Robert Peel moved a resolution of the House, that it was expedient to continue for a limited time certain of the privileges then enjoyed by the Bank of England, subject to any conditions that might be passed by any Act for that purpose. In bringing this resolution forward, he gave a preliminary sketch of the evils of the paper currency as it then stood, and the methods he proposed for placing it on a sounder footing. After dwelling on the importance of a metallic standard, and exposing the absurdity of the theories which were so prevalent during the Restriction Act, and the advantage of having a single standard of value, he addressed himself to the more immediate subject for consideration-the state of the paper circulation of the country, and the principles which ought to regulate it—"I must state, at the outset, that, in using the word money, I mean to designate by that word the coin of the realm, and promissory notes payable to bearer on demand. In using the words paper currency, I mean only such promissory notes. I do not include in these terms bills of exchange, or drafts on bankers, or other forms of paper credit. There is a natural distinction, in my opinion, between the character of a promissory note payable to bearer on demand, and other forms of paper credit, and between the effects which they respectively produce upon the price of commodities, and upon the exchanges. The one answers all the purposes of money, passes from hand to hand without indorsement, without examination, if there be no suspicion of forgery; and it is, in fact, what its designations imply it to be, currency, or circulating medium.

I think experience shews that the paper currency, that is, the promissory notes payable to bearer on demand, stands in a certain relation to the gold coin and the foreign exchanges, in which other forms of paper credit do not stand. There are striking

examples of this, adduced in the Report of the Bullion Committee of 1810, in the case both of the Bank of England and of the Irish and Scotch Banks. In the case of the Bank of England shortly after its establishment there was a material depreciation of paper in consequence of its excessive issue. The notes of the Bank of England were at a discount of 17 per cent. After trying various expedients, it was at length determined to reduce the amount of Bank notes outstanding. The consequence was an immediate increase in the value of those which remained in circulation, the restoration of them to par, and a corresponding improvement in the foreign exchanges. In the case of Ireland, in 1804 the exchange with England was extremely unfavourable. A Committee was appointed to consider the causes. It was denied by most of the witnesses from Ireland that they were at all connected with excessive issues of Irish notes.

In the spring of 1804 the exchange of Ireland with England was so unfavourable, that it required £118 10s. of the notes of the Bank of Ireland to purchase £100 of the notes of the Bank of England. Between the years 1804 and 1806 the notes of the Bank of Ireland were reduced from £3,000,000 to £2,410,000, and the effect of this, taken in conjunction with an increase of the English circulation, was to restore the relative value of Irish paper, and the exchange with England to par. In the same manner an unfavourable state of the exchange between England and Scotland has been more than once corrected by a contraction of the paper circulation of Scotland. In all these cases the action has been on that part of the paper credit of the country which has consisted of promissory notes payable to bearer on demand. There had been no interference with other forms of paper credit, nor was it contended then, as it is now contended by some, that promissory notes are identical in their nature with bills of exchange, and with cheques on bankers, and with deposits, and that they cannot be dealt with on any separate principle."

2. There is no need now of saying anything more regarding the unhappy heresy with which Sir Robert Peel was then infected, that nothing but Bank notes are paper currency, because we have nothing new to say. But it is impossible to imagine anything more inaccurately stated as historical evidence