different. The Bank paid over the money to Government, who put it into circulation. The Bank received the annuity, and was also permitted to create £1,200,000 in Bank notes, and trade with them, by discounting bills of exchange, or otherwise. Thus the Bank had not only sold its cash to Government, but it was also allowed to have it as well in the form of notes, to trade with and make a profit.

3. Now can any one fail to see that this proceeding augmented the Currency by the amount of £1,200,000, and that the Bank made a double profit; first, the interest on the cash paid to the Government, and, secondly, the commercial profit made by trading with the notes?

Therefore, so far as this went, this was clearly an example of LAWISM.

4. In 1697 the Bank was authorised to increase its capital by upwards of a million. Of this sum, above £800,000, was received in Exchequer tallies, then at a discount of 50 per cent., and £200,000 in its own notes, then at a discount of 20 per cent. Both the tallies and the Bank notes were counted as specie at their full nominal value; and upon this augmented capital of tallies and notes they were permitted to create an equal amount of new notes to trade with!

Law only proposed to issue paper money based upon the security of land, or some other solid article of value. But the Bank of England was permitted to create paper currency based upon the security of its own depreciated credit!

In 1709 the Bank was allowed to double its capital, and to create an equal amount of notes to trade with.

Now, is it not as clear as the sun at noon day, that each of these issues of notes was so much increase of Currency, and an example of Lawism?

5. Now, if the same principle had been carried out to the present time, is it not clear that all the public funds would have been Bank stock, and that the Bank notes would have equalled the amount of the National Debt, or about £800,000,000? Some persons even now seem to think that this is a good principle. They seem to think, that if they carry stock to the Bank, they

have a right to have it coined into notes to any amount. It is clear that this principle could never be carried out to its full extent. For, if it were true, Government might go on creating public debt ad infinitum, and then the Bank would create an equal amount of notes. If this principle be true, what would be the use of going to California and Australia for gold? Is not this principle more mad than any thing Law ever wrote? Law's issues of paper were limited by the value of the land, but this plan has positively no limits whatsoever.

6. Up to 1711 the issues of the Bank were strictly limited to the amount of their capital; and it was declared that if the Directors exceeded that limit they should be liable in their personal capacity. Afterwards they were released from this limitation, and they were allowed to issue notes to any extent they pleased, provided always that they were payable in specie on demand.

And so the Bank went on till 1797, when it stopped payment, and committees were appointed by Parliament to investigate its affairs, who reported it to be in the most solid and flourishing condition, and that they had a surplus of assets above liabilities of nearly 4 millions, besides the Government debt amounting to £11,686,800.

The reason of this was plain. The notes it had issued were given in exchange for mercantile securities, and, therefore, the Bank had as security for the payment of its notes, both the commercial bills and the Government debt.

This no doubt amply secured the solvency of the Bank and the payment of its notes, but it played utter havoc with the CURRENCY PRINCIPLE.

7. The Bank possessed the power of unlimited issue till 1844. On several occasions it had been most recklessly mismanaged. Proposals had been made to limit its powers of issue; but such a plan had been expressly condemned in the Bullion Report, and among numerous other authorities, by Sir Robert Peel in 1819, in 1826, and in 1833. In 1824 and 1825, in 1837, and 1839 an immense outflow of bullion took place, without the Bank taking any means to stop it. The consequence was that it was brought to the very verge of stopping payment.

VOL. II.

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8. We have seen that all Banking consists in creating and issuing Rights of action, Credit, or Debts, in exchange for Money or Debts. When the banker had created this Liability in his books the customer might if he pleased have this Credit in the form of the Banker's notes. London bankers continued to give their Notes till about the year 1793 when they discontinued this practice, and their customers could only transfer their rights or Credit by means of Cheques. But it is perfectly manifest that the Liabilities of the Bank are exactly the same whether they give their own Notes or merely create a Deposit.

Soon after the renewal of the Charter in 1833, certain writers of influence adopted the Currency Principle. They maintained the doctrine that Bank notes payable to bearer on demand only are Currency to the absolute exclusion of all other forms of Paper Credit-and that when Bank Notes are permitted to be issued, they ought to be exactly equal in quantity to the Bullion they displace, which we have shewn elsewhere1 is a doctrine invented in China, and was the principle upon which the Banks of Venice, Amsterdam, Hamburg, and others were constructed. They maintained that all Paper Currency created in excess of this is a depreciation of the Currency.

These doctrines being maintained by persons of eminence and influence, and aided by the incorrigible mismanagement of the Bank of England, converted Sir Robert Peel, who now entered upon the THIRD state of his opinions upon the Currency question. It is frequently supposed that Sir Robert Peel had only two states of opinion upon the Currency question. But this is quite a mistake. In 1811 he repudiated the doctrines of Horner and the Bullion Report, and voted in the majority that 21 was equal to 27. In 1819 he became a convert to the doctrines which he had repudiated in 1811: and he expressly repudiated the doctrine of the Currency Principle and the principle of imposing a numerical limit on the issues of the Bank; which doctrine he held up to 1833. In 1844 he had completely repudiated the doctrines of the Bullion Report, Mr. Horner, and his own of 1819, and formally adopted those of Lord Overstone, Col. Torrens, and others, which maintained the doctrine of the Currency Principle: and naturally and justifiably irritated by the incorrigible misconduct of the 1 Principles of Economical Philosophy, ch. 18.

directors, he determined to impose a numerical limit on the issues of the Bank

"Sic volvenda ætas commutat tempora rerum;
Quod fuit in pretio, fit nullo denique honore,
Porro aliud succedit, et e contemptibus exit,
Inque dies magis appetitur, floretque repertum
Laudibus, et miro'st mortaleis inter honore."

In order to carry out this principle the Bank was divided into two departments-an issue department and a banking department. The Bank was to transfer to the issue department public securities to the value of £14,000,000, of which the original Government debt was to be a part, and also so much of the gold coin and gold and silver bullion as should not be required for the banking department. The issue department was then to deliver over to the banking department an amount of notes exactly equal to the securities, coin, and bullion so deposited with them. The Bank might diminish the securities as much as it pleased, cancelling the notes; and might increase them again, but not so as to exceed the preceding limit. In consequence of the lapsed issues of other banks, the securities upon which it may issue notes are now £15,000,000.

Thus the amount of notes issued by the Bank is strictly limited to £15,000,000 plus the amount of bullion held by the issue department.

9. It was supposed that these provisions secured that the quantity of notes in circulation, i. e., in the hands of the public, would be exactly equal in amount to what a Metallic Currency would have been, and that the outflow of bullion would, by its own natural operation, withdraw notes in circulation to an equal amount. Having made these provisions, the framers of the Act supposed that they had taken out of the hands of the Bank all power of mismanaging the currency, and that they might manage the banking department entirely at their own discretion.

To say that the amount of notes should only be equal in amount to what a metallic currency would have been, is a very intelligible proposition, and, as we have before observed, several banks had been conducted on that principle, such as those of Venice, Amsterdam, and Hamburg, but no Bank conducted on this principle ever did, or by any possibility could do, bank

ing business.

Those banks were pure banks of deposit, they did no discount business whatever; and if the Bank of England were forbidden to discount, there is no reason why it should not be reconstructed on this principle.

But if the framers of the Act of 1844 really believed that this Act carried out this theory into practice, no set of men ever committed a more manifest error. It is quite evident that the £15,000,000 of notes issued against public debt and securities are in direct violation of the "Currency Principle." How did the Bank obtain these securities? By purchase. Now, the purchase-money of these securities is in circulation, and the notes created on their security as well. Is it not clear that these 15 millions of notes are an augmentation of currency to that amount? If it be true that these 15 millions of notes are not a violation of the Currency Principle, then the very same argument would shew that the whole National Debt might be coined into notes, and then there would be no more paper in circulation than under a purely metallic currency!!

It is quite clear that this is pure and simple LAWISM; and, if we may coin the funds into money, we may just as well coin the land into money; and then where should we be?

10. Certainly, it is an excellent plan for every one to buy the funds with their cash, and then to be allowed to have it, too, in the form of notes. At all events, so long as this is permitted, let no one laugh at John Law.

But even this does not shew the full extent of the error of those who think that the Bank Act of 1844 enforces the currency principle. The banking department of the Bank does business like any other bank. That is, it purchases or discounts bills of exchange in the first instance, by creating credit in its books; that is, it increases its liabilities in another form besides notes. This credit is equally in excess of the metallic currency. The reserve of notes and gold being the basis of the Bank's power of creating credit, of course, they must use their own judgment, as to how far they may safely extend this, just as every other banker does. But any one who examines the Bank's returns will perceive that its liabilities payable on demand exceed its notes in reserve and gold many times.

Therefore, it is quite clear that those who seriously maintain