news of the stoppage of so many banks created a banking panic. Private banks stopped discounting altogether. The only source of discount was the Bank of England. The public, however, and the directors knew that the precedent of 1847 must be followed, and, though they made no direct application to the Government for the suspension of the Act, they laid the state of the Bank continually before them, and continued to discount as if they knew the Act must be suspended. At last private persons, being unable to obtain discounts, began to make a run for their balances. When universal ruin was at last impending, the Government, on the 12th November, sent a letter to the Bank to say, that if they should be unable to meet the demands for discounts and advances upon approved securities, without exceeding the limits of their circulation prescribed by the Act of 1844, they would be prepared to propose to Parliament a Bill of Indemnity for any excess so issued. In order, however, to prevent the temporary relaxation of the Act from being extended beyond the necessities of the case, the rate of discount was not to be reduced below their present rate, 10 per cent.

48. The issue of this letter immediately calmed the public excitement. But, on the evening of the 12th, the total banking reserve of the Bank and all its branches was reduced to £581,000. Truly, said the Governor of the Bank, to the question 132, "Supposing the letter in question had not been issued on that day, would the Bank, on the morning of the 13th, have been in a condition to continue its discounts?-No; certainly not.

"133. Would it not have been compelled to announce it could not discount any more commercial paper?-Yes, or nearly so.

"138. Is it not likely that the announcement of the cessation of discounts at the Bank of England would have increased the alarm of the mercantile public in London ?-Materially.

"139. Would not an increased alarm on the part of the mercantile public have naturally led to an increased demand upon the bankers?—It would have led to immediate failures, and would so far have lessened the quantity of bills coming for discount by the number of bills which were actually rendered unavailable.

"140. Without reference to bills, do you not think it likely that there would have been increased demands upon the bankers,

which would have compelled them to withdraw a portion of their deposits from the Bank of England ?—I think certainly that in part there would have been."

To shew the state the Bank was reduced to, the Governor gave in a paper to the Committee with the following figures, shewing its reserve on the 11th and 12th November—

On Wednesday, November 11th, the reserve consisted of

On Thursday, November 12th, at night, the reserve con

That is to say, the total reserve in London on the evening of the 12th was £384,144. Such were the resources of the Bank of England to commence business with on the morning of the 13th! Truly, said the Governor, it must have entirely

ceased discounting, which would have brought an immediate run upon it; and the bankers' balances alone were £5,458,000. It is easy to see that the Bank could not have kept its doors open an hour.

49. The Governor of the Bank said that the panic of 1857 was not so great as that of 1847, but the real commercial pressure was more intense. This is proved by the fact, that while in the former year the issue of the letter immediately allayed the panic, and by that means stopped the demand for notes, and there was only required an issue of £400,000 in notes to surmount all difficulties, which did not exceed the statutory limits; in 1857 the issue of the Government letter produced no cessation of the demand for advances. The statutory limit was £14,475,000 of notes issued on securities, and there were issued in excess of these

On the meeting of Parliament an Act was passed permitting a temporary suspension of the Bank Act till February 1st, 1858, provided the directors did not reduce their discount below 10 per cent. On the 24th December they reduced it to 8 per cent., thereby reviving the operation of the Act.

In 1858 the inevitable consequence followed from the great crash of 1857. The enormous mass of false trading being cleared away money naturally flowed into the Bank, and the quantity of bullion gradually and steadily increased up to the end of the year. The Bank now learnt to adopt much higher rates of discount than formerly. In 1847 it kept the rate at 5 per cent. while the bullion was under £10,000,000; in 1858 the rate of 5 per cent. was maintained till the bullion exceeded £15,000,000-a great advance in sound principle.

50. In our Dictionary of Political Economy, Art. Banking in England, § 254, published not long after this great crisis, we said "This year (1858) passed away in great tranquillity, persons not yet having forgotten the lesson of 1857. But we cannot doubt, judging from all former experience, that an uneasy spirit will soon be abroad again; we cannot doubt that the brood of speculators are now anxiously casting about to see if they can plant the seeds of the next crisis, and it is the duty of those who are now at the head of monetary affairs to be on the watch to counteract all such attempts as they can detect; and, in the meantime, the most interesting question at the present time, in a banking point of view, is-What is to be the next mania?"

Time has given an answer to this question. There is nothing special to arrest our attention during the next few years. The rates of discount continued generally moderate through 1859 and 1860. In February, 1861, it rose for a short time to 8 per cent. but soon subsided again. The unhappy civil war in America then being imminent, created natural apprehension as to our cotton supplies, and most persons could foresee that this would lead to monetary complications. These, however, were for the future. Through 1861 and 1862 the Money Market was. generally speaking, extremely easy, the issue of paper money by both the belligerent Governments having the inevitable effect of driving bullion over to this country; consequently trade flourished amazingly, and the price of money was very easy.

51. And so things went on till October, 1863, when every one began to foresee a disturbance in the Money Market. In the first place, the rapid rise in the price of cotton, from the failure of the supply from the Southern States of America, forced up the price to a great height. The world had to be searched to produce the supply. Immense quantities came from the East Indies, from Egypt, and from the Brazils, besides other quarters. This vast trade being suddenly created, had to be paid for in cash, as we have explained in the chapter on Exchanges. Consequently a great drain of silver began towards the East, which was obtained from Paris and Hamburg, the great marts for silver, as London is for gold. The Italian Government, too contracted a loan at this period.

The law of limited liability began to operate at the same time, and the number of new companies being formed under it inspired uneasiness. The Bank of France lost great quantities of specie. The Bank of England raised its rate twice in one week, from 5 to 6, and then to 7. The Bank of France also raised its rate to 7, and spoke of issuing 50 franc notes; on the 2nd of December the Bank raised its rate to 7, and on the 3rd to 8. At the same time a great fall took place in the Russian Exchange, in consequence of certain Government measures not having succeeded. In consequence of these circumstances, the reserves of the Bank were considerably strengthened after a short time. But in January, 1864, a fresh export of specie began and continued with great severity till the middle or end of May, so that discount varied from 8 to 7, and 6, and again up to 9. In May the Bank again raised its rate twice in one week to 9. With a few fluctuations this great pressure continued all through the summer. Having fallen to 6 per cent in June, it gradually rose again to 9 in September. After that it gradually fell to 3 per cent. in June, 1865.

52. Already in March, 1864, the numbers of new companies formed under the limited liability principle gave great uneasiness. Up to that time it appeared there were 263 companies formed with a nominal capital of £78,135,000, out of which 27 were banks, and 14 discount companies. In August, 1864, the longdated acceptances of the new financial companies began to press on the market, and lay the foundations of the crisis of 1866. In April the Bank of England joined the Clearing House, thereby still further economising the use of Bank notes.

On the 8th of September the Bank raised its rate to 9 per cent., and this measure stopped the foreign drain, lowered the price of foreign commodities, and strengthened their reserves. The price of cotton was greatly lowered owing to the expected peace in America, and this rise in the rate of discount, striking on a falling market, produced an immense curtailment of business in all directions.

The Great Crisis of May, 1866.

53. On the 20th June, 1865, the rate of discount reached its minimum, 3 per cent. On the 5th August it was raised to 4,