For several preceding weeks the Economist reported the Money Market to be as tight as it could well be. But on the 29th of December, it said—

"The Money Market continues as stringent as it can well be, and no bills can be discounted under the Bank rates. Paper at long dates cannot be discounted on any terms. The great extent of our trade, as indicated by the returns for November, confirms the suspicion awakened by the continued demand for money, that trade has received no serious check from the advance in the rate of discount, and is still more extensive than prudence warrants, or in the end will be justified."

40. This most judicious conduct on the part of the Bank, which merited nothing but the most unqualified commendation, excited a great clatter amongst a certain number of people who think that money is to be created ad libitum by writing "promises to pay" on bits of paper, when there is no money to pay them with, and who think it possible to send one's money abroad and also to have it at home. The papers were filled for weeks with letters and articles exhibiting all the rank follies which were once prevalent on the subject of the price of corn, and which have been so admirably exposed by Adam Smith. But in this respect a most marked and healthy change has been of late years most manifest in the majority of public writers. The great majority now understand that the rate of discount is the true regulating power of the paper currency, and, instead of assailing the Bank with howls and execration when it does its duty in raising its rate, they, with a few exceptions, now universally commend it. This is great, real, and sound progress in the spread of true Economic science.

41. At the end of this year the Queen exercised the power reserved in the Act of 1844, to enable the Bank of England to extend its issues to not more than two-thirds of the amount of those of any banks of issue that might cease to issue notes. From the passing of the Act up to this period forty-seven banks, whose authorised issues amounted to £712,623, ceased to issue their own notes, and, on the 13th December, 1855, the Queen in Council issued an order authorising the Bank of England to increase its issues to the amount of £475,000 upon public securi

ties. But this is not the bona fide increase to the issuing power of the Bank. For in the year 1854 the Clearing House was organised on a better plan, and whereas before that an average amount of £200,000 of bank notes was required to adjust its transactions, by the new system these were totally dispensed with, and no notes at all are now required. Moreover, by the admission of the joint stock banks to the Clearing House, they are saved from keeping an enormous amount of notes to meet the "bankers' charges," which may safely be calculated at £500,000. These notes, therefore, are now available to the Bank to use for commercial purposes, and, consequently, are to be considered as so much additional power of issue to the Bank, which has thus in reality acquired an increased power of issue to the amount of £1,175,000 since the Act of 1844. Up to February, 1857, seven other banks, whose aggregate issues amounted to £111,020, have ceased to issue notes, but no further power was granted to the Bank to extend its issues until 1866.

42. For several months after the beginning of 1856, the Money Market continued in a state of great "tightness," and the bullion in the Bank scarcely varied. The lowest was on the 26th April, when it stood at £9,081,675; after that it gradually rose, and the rate of discount fell in summer to about 44 to 4, but in October the bullion fell very considerably again, and discount rose to 7 and 8 per cent., and a pressure followed of about the same severity as in 1855, and continued with very little variation to the end of the year.

The Crisis of 1857.

43. The crisis we have just been considering was the inevitable termination of a multiplicity of derangements of the proper course of commerce. No one conversant with commercial history could fail to foresee that the entanglements of so large a portion of the public with railway speculations, and the losses caused by the failure of the harvest must produce a crisis. We have seen that this crisis gave a fatal blow to the prestige of the Bank Act of 1844, which was enacted in express contradiction to the opinions of the most experienced authorities of former times, whom it professed to follow. They had always protested

against imposing a numerical limit on the issues of the Bank. The experience of the crisis of 1847, amply confirming that of 1793, 1797, and 1825, shewed that such restrictions cannot be maintained in the paroxysm of a great crisis without endangering the existence of the whole mass of commercial credit.

The crisis we are now going to describe was of a very different nature. It burst upon the world in the most unexpected manner. It gave no premonitory symptoms which were apparent to any but very watchful and experienced eyes; and, when it did come, it revealed a depth of rottenness in the commercial world which appalled every one, and proved to be of much severer intensity than that of 1847.

44. The supporters of the Act were much crestfallen by its failure in 1847, but they took courage again after the Crimean war. The Act had been subjected to the test of a great commercial crisis and had failed. It was now subjected to the test of a war, and many of its opponents predicted that it would fail again; but it did not. Its effects during the Crimean war were probably salutary; but the war did not proceed to such a length as to test its powers severely. Peace was restored before the resources of the country were in any manner strained.

We have said above that the rate of discount in the Autumn of 1856 was 7 and 8 per cent. It was gradually reduced, and on December 4th it was 6, and on the 18th, 6 per cent., and continued so till the Autumn of 1857.

These rates were, of course, very much higher than the average ones of former times, and they were one ground of accusation brought by many against the Act. But, in truth, they were its very merit. The directors had now learnt from experience, and it was these very variations which preserved the security of the Bank.

In August nothing seemed amiss to the public eye. "Things were then pretty stationary," said the Governor of the Bank"the prospects of harvest were very good; there was no apprehension that commerce at that time was otherwise than sound. There were certain more far-seeing persons who considered that the great stimulus given by the war expenditure, which had created a very large consumption of goods imported from the East and other places, must now occasion some collapse, and

still more those who observed that the merchants, notwithstanding the enhanced prices of produce, were nevertheless importing as they had done successfully in the previous years. But the public certainly viewed trade as sound, and were little aware that a crisis of any sort was impending, far less that it was so near at hand."

The bullion at this time was £10,606,000, the reserve £6,296,000, and the minimum rate of discount 5, when on the 17th August the Bank entered into a negotiation with the East India Company to send one million in specie to the East.

45. Things were in this state when, about the middle of September, news came of a great depreciation of American railroad securities. It was found that for a long time they had been carrying on an extravagant system of management, and paying dividends not earned by the traffic. The system had at last collapsed, and, of course, an enormous depreciation of their stock followed, to the amount of nearly 20 per cent. It was supposed that as much as eighty millions of this stock was held in England, and that the effects of this fall would be very serious. On the 25th August the Ohio Life and Trust Company, with deposits to the amount of £1,200,000, stopped payment. The panic spread throughout the Union. Discount rose to 18 and 24 per cent. On the 17th October news came that 150 banks in Pennsylvania, Maryland, Virginia, and Rhode Island had stopped payment. The drain was then beginning to be severe on the Bank of England. On the 8th the bullion was £9,751,000, the reserve £4,931,000, and discount was raised to 6 per cent. On the 12th the rate at Hamburg was 7, and bullion was flowing towards New York; discount was then raised to 7 per cent. About this time rumours strongly affecting the Western Bank of Scotland were abroad. On the 19th discount was raised to 8 per cent. The commercial disasters were increasing in America. In one week the Bank of France lost upwards of a million sterling. The bullion in the Bank had sunk to £8,991,000, and the reserve to £4,115,000. Discount was raised to 7 in Paris, and to 9 per cent. at Hamburg. On the 26th a deputation from the Western Bank of Scotland applied for assistance, but the Bank was afraid to undertake so enormous a concern. The Borough Bank of Liverpool was also

in difficulties, and after some time the Bank agreed to assist them to the amount of £1,500,000 on condition of their winding up. But the arrangements fell through in consequence of the Liverpool Bank closing its doors before it was completed.

46. On the 13th October a general run took place on the New York banks, in consequence of the severe measures of restriction they were obliged to adopt to protect themselves. Eighteen immediately stopped, and soon afterwards, out of 63 banks, only one maintained its payments. This immediately reacted on Liverpool and Glasgow, which were much involved with American firms. By the 19th October the failures began to be numerous in this country. Uneasiness greatly increased in London. On the 28th the principal discount house applied to the Bank for an assurance that they would give them any assistance they might require. On the 30th an express came for £50,000 (sovereigns) for a Scotch bank, part of £170,000, and £80,000 for Ireland. On the 5th November discount was raised to 9 per cent. The great house of Dennistoun, with liabilities of nearly two millions, stopped payment on the 7th, and the Western Bank of Scotland closed its doors on the 9th. Failures in London were rapidly on the increase. Purchases and sales of stock were enormous, much beyond what they had ever been before. The bullion in the Bank had sunk to £7,719,000, and the reserve to £2,834,000. On the 9th discount was raised to 10 per cent. On the 10th November a large discount house applied to the Bank for £400,000. The Bank of France raised its rates to 8, 9, and 10 per cent. for one, two, and three months. Another English bank was assisted. The City of Glasgow Bank then. stopped. On that day the discounts at the Bank were £1,126,000. On the 10th and 11th upwards of one million sterling in gold was sent to Scotland, and there was a great demand from Ireland. On the 11th Sanderson and Co., the great bill brokers, stopped payment, with deposits of 3 millions. On the 12th the discounts at the Bank were £2,373,000. On the 11th, in consequence of these sudden demands for Scotland and Ireland, the bullion was reduced to £6,666,000, and the reserve to £1,462,000.

47. As the failures in London became more tremendous, discounts became more and more contracted. The stunning