manner as the London bankers did. For very many years, however, this escaped observation. But about 1822 some writers discovered this loophole in the monopoly clause, and maintained that it was perfectly lawful to form joint stock banks which did not issue notes. No effect, however, followed for some time from this discovery. After the crisis and panic of 1825, an Act was passed to allow joint stock banks of issue at a distance of more than 65 miles from London. But in 1833 steps were taken to act upon the flaw in the monopoly clause, and form a joint stock bank in London. When the Government first entered into negotiations with the Bank in 1833 concerning the terms of the renewal of the Charter, they believed, as well as the whole mercantile community, that the monopoly forbade banks of any description whatever, with more than six partners, being formed. In the course of the negotiation, however, this new plan was brought under the notice. of the Government, who took the opinion of their law officers upon so important a point. The opinion of the Crown lawyers was, that the clause did not prohibit joint stock banks of deposit being formed. The directors and proprietors of the bank were much disturbed at finding this flaw in their monopoly: and requested the Government to have it rectified; but Lord Althorp said that the bargain was that their privileges should not be diminished, but he would not agree to any extension of them. In order to remove all doubts upon the subject, the solicitor-general brought up a clause by way of rider, declaring the right to form. such banks. He said that the basis of the contract with the Bank was, that they were to enjoy whatever monopoly they already possessed, but nothing beyond it. He had examined the case with the utmost care, and there was no pretence for saying that such banks were an encroachment upon the monopoly of the Bank. The Bank, as originally founded, was a bank of issue, and the monopoly first granted in 1697 must be held to refer only to banks ejusdem generis. Such had been the uniform language of all the subsequent Acts. The clause upon which their monopoly rested was strictly confined to the issue of paper money. Banks of deposit were lawful at common law, and it rested with those who said it was forbidden, to point out the Act which prohibited them.

By this Act, Statute 1833, c. 98, § 4, Bank Notes are made legal tender of payments for all sums above £5, by all persons

except by the Bank itself, or any of its branches; so long as the the Bank pays its notes in legal coin on demand. Hence a £5 Bank Note is not legal tender for a debt of £5.

One-fourth of the debt due to the Bank by the public was to be paid off; and the proprietors might reduce the capital stock of the Bank by that sum if they pleased.

In the following year the first joint stock bank was formed in London; and thus the foundation was laid of a new system, which will, no doubt, ultimately transform the whole system of English banking.

19. We have seen that the Bank professed to adopt the principles of the Bullion Report, and, in order to carry them out, their plan was to keep their "securities" as nearly equal as possible; their cash and bullion at one half the securities; and, consequently, equal to one-third of their "liabilities." Having got the Bank into this position when the exchanges were at par, to throw any action either of the increase or decrease of their notes on the public, either by means of the foreign exchanges, or by an internal extra demand for gold. The Bank was got into an approach to this normal condition in October, 1833, when its "liabilities," i. e., its notes and deposits, were £32,900,000; the "securities were £24,200,000, and the cash and bullion £10,900,000. But the following figures, taken at intervals, shew how completely their practice varied from their Theory :

Thus in May, 1835, the specie was little more than a fourth part of the securities, instead of one-half; and only one-fifth of the liabilities, instead of one-third.

During 1836 and 1837, there was a severe monetary pressure owing to over-speculation and various other causes which we need not detail. But in 1838 the Bank was got again into its normal position. On the 30th March its liabilities were £31,573,000 ; its securities, £21,046,000, and its specie £10,527,060. But about the end of 1838, another period of disorganisation commenced, as shewn by the following figures :

The Bank then seemed suddenly to wake to the fact that it was rapidly drifting into bankruptcy. It took some feeble measures, which had no effect; and among others it got the Bank of France to discount its own notes to the amount of £600,000. But when its notes fell due, it was in no position to meet them; and consequently it had to organise measures of a larger nature. A credit on Paris was created in its favour to the amount of £2,000,000, and on Hamburg to £900,000, This, after some time, arrested the drain of gold. The operations ensuing from this foreign credit extended over nine months, from July, 1839, to April, 1840.

20. The figures we have quoted, shewing the proportions between the bullion and the liabilities of the Bank, are sufficient to shew, either that there was some natural impossibility in adhering to the rule the directors had laid down for their guidance in 1832, or that they had not sufficient firmness to contract their securities in time of pressure to maintain it. The flagrant disproportion which these figures had assumed, which would scarcely be safe in an ordinary banking house, but which were to the last degree perilous in the Bank of England, which was known to be the last resource of every bank in the kingdom in times of difficulty, turned the attention of writers to devise some plan, by which, if possible, the Bank should be compelled to maintain the proper proportions between bullion and liabilities. Colonel Torrens appears to have been the originator of the idea, which was eventually adopted, of dividing the Bank into two distinct departments, independent of each other; one for the purpose of issuing a regulated amount of notes, and the other for carrying on the business of banking. This plan was first started in 1837, and was much canvassed and discussed by several eminent writers on the subject, such as Mr. Tooke, Mr. Norman, and others; and we shall see was afterwards one of the most

prominent features in Sir Robert Peel's Act of 1844. The great commercial and monetary 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 language and 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 a 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," which we have fully explained above.

21. The incorrigible mismanagement of the Bank of England, and the ability of the witnesses, Mr. Norman and Mr. S. J. Loyd, now Lord Overstone, examined before the Committee of 1840, had the effect of converting Sir Robert Peel to their views; and

being in power in 1844, when the Charter of 1833 might be terminated, he determined to reorganise the Bank on their principles.

On the 6th May, 1844, he brought in a resolution to continue, for a limited time, the privileges of the Bank of England. He said "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 exchange, in which other forms of paper credit do not stand." And after quoting some cases of the derangement of the exchanges from the Bullion Report, he said "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 has 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."

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Now we have simply to refer to the last chapter, where we have set forth the judicial exposition of the meaning of the word Currency," in which it will be seen that Peel's new opinions were an innovation, and contrary to all Law and Philosophy. But that does not affect the incorrectness of his last assertion, that some said that they could not be dealt with on any separate principle, because it was quite possible to deal with them separately. 1 Hansard. Third Series, Vol. 64, p. 270.