of gold during that interval; and that, too, at a very high rate of exchange.

"But when the drain upon the Bank for gold arises from the unfavorable state of the foreign exchanges, and bullion is wanted for exportation, then the Bank would wait, under ordinary circumstances, until the exchanges should take a turn the other way, before it would replenish its coffers. If, however, an extraordinary demand arose, and continued to go on increasing, the Directors, in order to provide for the safety of the Bank, would have recourse to operations for the contraction of the circulation. Thus, for instance, if they foresaw a bad harvest, or any other circumstance likely to turn the exchanges against the country, they would, even if the exchanges were at the moment favorable, anticipate their becoming unfavorable, and make their preparations accordingly. They would, in such a case, proceed to shorten the amount of the currency in this way. The Bank is possessed of a certain number of securities, always coming into it. A considerable amount of these arises from the annuities, the dead weight, and other assets of that description. These moneys they would not reissue. If they had silver at their disposal, they would, perhaps, as a further measure, send it to Paris, and draw against it; and, finally, if the extraor dinary necessity of the case required it, they would sell all their Exchequer bills, and reduce the amount of their other securities. They would not thus forcibly contract their issues in anticipation of uncertain events, or of events not likely to be of any magnitude. Their object in taking such precautions would be to prevent sudden jerks in the currency, and to provide against the extraordinary demand they saw coming, before it was actually at their door. If they did not thus anticipate the period of the exchanges becoming unfavorable, they would have to buy gold at a very high price, and to furnish those who demanded it in exchange for notes at a low price; the Bank losing the difference upon the transaction.

...

"But, when matters assume this momentous character, the conduct of the Bank becomes a question of State policy and it is but justice to that institution to remember, that when it was within a few hours of losing all its gold, in consequence of the panic of 1825, instead of separating itself from the interests of the country, it was deliberately identified with them; and the resolution was taken, that the interests of the Bank and the nation should fall or stand together. It should never be forgotten, that all the principles of management upon which the Bank ordinarily acts were flung to the winds upon that occasion; and that their discounts and advances upon all kinds of securities were swelled to upwards of fifteen millions, at an hour when their bullion was reduced below

one.

"If, therefore, an emergency should arise, in which, referring to their general rules, the Directors might deem it prudent to contract their circulation, they would probably recollect that no state of commercial alarm has ever yet affected the character of the Bank; but that, on the contrary, the credit of that establishment has risen above the common credit of other bodies of individuals,

at such periods, higher than at any other time. There is little doubt that, under such circumstances, the Governor would communicate with his Majesty's ministers, and consult with them as to what would be the most expedient course for the Bank to adopt, with a view to the general welfare of the kingdom. There is no resolution recorded on the point, whether the Directors shall wait until the demand for gold actually arises, before they contract the currency, or whether they shall anticipate the period of such demand. But there is not one person in the Directors who does not consider it a sacred duty to do always the very best that can be done, in order to preserve the principle of the currency.

"During the last two years, the Directors of the Bank have spontaneously taken no measures for the purpose of contracting the circulation. Whatever diminution has occurred, has been effected almost entirely by the return of notes for gold. Their policy is to keep in view the foreign exchanges and the state of the bullion market; and to be prepared for the increase of their issue when favorable, as well as for a diminution of it when they are unfavorable, seeing that such increase and diminution would take place if there were no notes in existence. With the exception of the special circumstances above alluded to, the principle of the Bank is, when the currency is full, and the exchanges consequently at par, to invest and retain in securities bearing interest the proportion already mentioned of the deposits, and the value already received from the notes in circulation, the remainder to be held in coin and bullion; the circulation of the whole currency of the country, so far as the same may depend upon the Bank, being sub.. sequently regulated by the action of the foreign exchanges. Whatever power the Bank may have in reference to the currency, they are very desirous not to exercise it, but to leave individuals to use the right which they possess of returning bank-notes for bullions. The exchanges are in due season corrected, when left wholly in the hands of the community. If the Bank be adequately supplied with bullion, as they usually are, when the exchanges are full they experience no inconvenience by waiting to have the exchanges corrected by the operations of the public.'

Such is a picture of the management of the Bank from the time that it fairly surmounted the effects of the Act of Restriction to 1844, and in reality from that to the present time. The Bank, in possession of great sums from depositors, used them in the purchase of securities, wholly regardless of the consequences. Loans of deposits made in the purchase of governments do not necessarily cause an inflation. None, certainly, would be caused, if depositors, instead of putting their money into the Bank, had invested it in the

1 Quinn's Trade of Banking in England, pp. 4-6, 85–96.

2 The following statement will show the character of the loans of the Bank,

same manner as the Bank. The same amount would be in circulation after as before. It would only have changed hands. Sales and purchases made by individuals produce little disturbance, for the reason that they do not usually act in mass, in one direction. It is not when the Bank purchases governments, but when it seeks to sell them, that the mischievous character of the transaction shows itself. When it wishes to sell, it cannot. To go into the market with its securities in seasons of great pressure, or in a panic, would only serve to increase the run upon it. Should it attempt this, it would only be an additional competitor for money which it would have to pay out again as soon as received. It might be utterly powerless, from inability to convert its means. In such a crisis, the public do not want securities, but money, -that which will instantly discharge their liabilities. If, on the other hand, its loans were made wholly in the discount of bills, no panic, or run upon it, could arise, that could not be speedily checked by a refusal to make further discounts. There can be no considerable inflation, so long as the currency is symbolic, for the reason that the public, in such case, deal in actual values, in equivalents, whose real, or representative, equals their nominal value. A panic arises only when it is seen or feared that, in the exchanges that have taken or are taking place, equivalents are not exchanged, that the currency does not entitle its holder to a corresponding amount of capital. If such fear or suspicion become a conviction, there

and of its assets, other than its share capital, as they were on the 29th of February, 1832.

Of its advances on various accounts, only one tenth was in commercial bills. Its liabilities of the same date were: notes, £18,051,710; deposits, £8,937,160: total of £26,988,870. Its rest, or accumulated earnings, equalled £2,637,760.

is a contest of speed to see who shall secure to himself whatever reserves the issuer of the currency may hold. If this be issued in large amount, the panic may become excessive and general, involving issuers whose currency was purely symbolic, as well as those whose currency was wholly fictitious. As a rule, no issuer of currency, no matter how legitimate, will be able to liquidate all his liabilities upon the instant. As the parties to whom the issues upon bills have been made are the very ones who undertake to return them, they will, so long as they are solvent, seldom or never seek to draw coin for what they may hold, when they must speedily return it to the Bank in payment of their bills. The danger arises when there are no reciprocal obligations between the issuer and holder of currency. If the Bank were to make an issue in the purchase of government stock, for example, against a large amount of gold which it might happen to hold, it might have to provide all the means for taking it in; and it would be almost certain to have, not the support, but the opposition, of the public, who would not only refuse to purchase its securities, by the sale of which it must replenish its means, but present all the notes they held for payment in coin. What adds to the peril is, that the Bank must, as a "manager of the currency," issue to all parties who come within its rules in the matter of security, rules that were established, very likely, when the demand for money was far below the supply. The public, in such case, not the Bank, are the judges of the amount of money required. Its only means of defence is in its power to raise the rate of interest to a point that shall render it unprofitable for them to borrow, a most impotent defence, as the catastrophies of 1847, 1857, and 1866, abundantly prove.

The state of the exchanges is a wholly inadequate test whereby to regulate the issues of the Bank, for the reason that the causes which are to render them unfavorable may be in most active operation at the very time they are in the highest degree favorable-when every thing wears the appearance of the greatest prosperity. The currency may be, and often is, excessive in amount- more than full-long before the exchanges become unfavorable. Such, indeed, is usually the case. To take them as a rule for the regulation of the currency has the same and no higher wisdom than to lock the door after the horse is stolen. Gold is not exported, as Smith and the Econo

mists assume, the moment an excess of paper is issued; but only when the paper has been expended in the purchase of that which can be paid for only in gold. The final payment in gold, with the facilities which now exist for renewing and extending banker's credits, may be put off for years; so that the state of exchanges may not, for years, sufficiently indicate the financial condition of a country. A rule or test, to be worth any thing, must be that which shall prevent the possibility of an adverse exchange, which shall put it out of the power of a people to consume more than they possess or produce. This can only be done by restricting the currency to the amount of merchandise fitted for consumption; the instruments, to the means of expenditure. This done, exchanges could never be long unfavorable, and never excessively so. In the ratio that such rule is not followed, in the ratio that the currency is not symbolic, will the exchanges be unfavorable; the degree of aberration in one case measuring very accurately that in the other.

The agreeable picture drawn by Mr. Palmer and his associates of their happy lot as managers of the Bank, having nothing to do but to allow the oscillations in the amount of its circulation and coin to regulate themselves with a certainty and uniformity far transcending human skill, was soon to give place to a very different one. The oscillation which carried gold into the Bank in 1832 and 1833 began, in 1834, to carry it in an opposite direction. The amount held by it on the 31st of August, 1833, was £10,870,000. This was reduced, on the 31st of August, 1834, to £7,303,000; on the 31st of August, 1835, to £6,255,000; and on the 21st of February, 1837, to £4,077,000, the last-named sum equalling only oneseventh of its liabilities, instead of one-third, according to the rule claimed to have been laid down for the management of the Bank. The reduction in the amount of specie in the three and a half years equalled £6,798,000. In the same period its note circulation was reduced from £19,925,000 to £18,165,000; its deposits from £11,927,000 to £10,040,000: the total reduction being only £3,647,000,-a sum equalling only about half of the reduction in the amount of its coin. The balance of the coin lost, that is, £3,146,000, must have been paid out in new loans; these being increased