about 400: the great majority being grocers, tailors, drapers, and petty shop-keepers. In the autumn of 1792 very numerous failures took place in Europe and America. In January, 1793, the general alarm was greatly increased by the rapid progress of the French Revolution. Some great failures occurred in London in February: and soon the panic spread to the banks. Of these 100 stopped payment, and 200 were much shaken. The pressure in London was intense; and this naturally produced a demand on the Bank for support and discounts. But the Bank being thoroughly alarmed, resolved to contract its issues: bankruptcies multiplied with frightful rapidity. The Government urged the Bank to come forward to support Credit, but they resolutely declined.

In the meantime the most alarming news came from Scotland. The public banks were quite unable, with due regard to their own safety, to support the private bankers and commerce. Unless they received immediate assistance from Government, general failure would ensue. When universal failure seemed imminent, Sir John Sinclair remembered the precedent of 1697, when the public distress was allayed by an issue of Exchequer bills. A Committee of the House of Commons was appointed, who reported that the sudden discredit of so large an amount of bankers' notes had produced a most inconvenient deficiency in the circulating medium; and that unless a circulating medium was provided, a general stoppage must take place. They recommended that Exchequer bills to the amount of £5,000,000 should be issued under the directions of a board of commissioners appointed for the purpose, in sums of £100, £50, and £20.

No sooner was the Act passed than the Committee set to work. A large sum, £70,000, was at once sent down to Manchester and Glasgow, on the strength of the Exchequer bills, which were not yet issued. This unexpected supply, coming so much earlier than was expected, operated like magic, and had a greater effect in restoring credit than ten times the sum could have had at a later period.

When the whole business was concluded, a report was presented to the Treasury. It stated that the knowledge that loans might be had, operated, in many instances, to prevent them being required. The applications granted were 238, and the sum advanced was £3,855,624. The whole sum advanced was repaid;

two only of the parties assisted became bankrupt; all the others were ultimately solvent, and in many instances possessed of great property. A considerable part of the sum was repaid before it was due, and all the rest with the utmost punctuality. After all expenses were paid, the transaction left a clear profit to the Government of £4,348.

Contemporary writers all bear witness to the extraordinary effects produced. Macpherson says, that the very intimation of the intention of the Legislature to support the merchants, operated like a charm over the whole country, and in a great degree superseded the necessity of relief by an almost instantaneous restoration of confidence. Sir Francis Baring concurs in this view, and adduces the remarkable success of the measure as an argument to shew the mistaken policy of the Bank. After careful deliberation, the Bullion Report warmly approved of it; censured the proceedings of the Bank; and especially cite it as an illustration of the principle they laid down, that an enlarged accommodation is the true remedy for that occasional failure of confidence to which our system of Paper Credit is unavoidably exposed.

This occasion, therefore, is a most important example of the beneficial effects of the EXPANSIVE Theory in a monetary panic.

30. Towards the end of 1794 the exchanges began to fall rapidly, and in May, 1795, were so low that it was profitable to export bullion. While, however, the exchanges were so adverse, the issues of the Bank were immensely extended, from circumstances which are too long to state at length here, but which we have given elsewhere, and which there is no necessity to detail, because the simple fact is enough that the issue of Bank Notes was greatly increased while gold was rapidly leaving the country. The Directors now became seriously alarmed for the safety of the Bank, and took the most rigorous measures to contract their issues. In April, 1796, the exchanges became favourable, and they continued to be so till February, 1797.

The excessive contraction of its issues by the Bank caused the greatest inconvenience to commerce, and a meeting of bankers and merchants was held to devise some means of relief. The 1 Theory and Practice of Banking, Chap. VII., § 103-125.

failures among the country bankers in 1793 had caused an immense diminution of the country issues, and Thornton says that in the last three months of 1796 the issues of the Bank were no higher than they had been in 1782, with an amount of commerce many times larger than in that year. As the public could not get Notes, they made a steady and continuous demand for guineas and, although the exchanges were favourable to the country, and gold was coming in from abroad, there was a severe drain on the Bank for gold. Political circumstances added to the alarm, and about the middle of February a stoppage of country banks became general. The panic reached London, and a general run began upon the bankers. Before this the Directors had used the most violent efforts to contract their issues. In five weeks they had reduced them by nearly £2,000,000. On the 21st January they were £10,550,830, on the 21st February they were £8,640,250. But even this gave no true idea of the curtailment of mercantile accommodation; for the private bankers were obliged, for their own security, to follow the example of the Bank. In order to meet their payments, persons were obliged to sell their stock of all descriptions, at an enormous sacrifice. The 3 per cents. fell to 51!

On Saturday, the 25th February, 1797, the specie in the Bank was reduced to £1,272,000, with the drain becoming severer every hour. The Directors now felt that they could hold out no longer : and on Sunday a Cabinet Council was held, and an order in Council issued directing the Bank to suspend payments in cash until the sense of Parliament could be taken on the subject. Accordingly, on Monday, the 27th, the cash being then reduced to £1,086,170, the Bank suspended payments in cash, and did not resume them partially till 1816, and completely till 1821.

But immediately this was done, they enlarged their accommodation liberally; within a week they increased their issues by two millions, and the relief was very great. A meeting of 4,000 merchants and bankers agreed to support the credit of the Notes.

The most eminent authorities afterwards severely censured the management of the Bank. Thornton said that the excessive contraction of Notes had shaken public credit of all descriptions, and had caused an unusually severe demand for guineas: that the

Bank ought to have extended its issues to supply the place of the country Notes which were discredited. Boyd was clearly of opinion the excessive restriction of Notes was the chief cause of the forced sale and depreciation of the public securities. In 1810 the Governor of the Bank said, that after the experience of the policy of restriction, many of the Directors repented of the measure and the Bullion Committee explicitly condemned the policy of the Bank, both in 1793 and 1797.

Nothing, in short, could be more unhappy than their regulation of their issues. When the exchanges were violently adverse, so that it was very profitable to export gold, they enlarged them to an extravagant extent: and when the exchanges were extremely favourable, so that gold was flowing in, they contracted them with merciless severity. The issues, which were £14,000,000 when the exchanges were against the country, were reduced to £8,640,250 when they had been for several months eminently favourable. The entire concurrence of the evidence shews that it was this excessive restriction of credit which caused the severe demand for gold.

And now we see the practical results of the two policies: when all commercial and banking credit was on the verge of universal ruin, it was saved and restored by the EXPANSIVE Theory in 1793 in 1797 the RESTRICTIVE Theory was carried out to the bitter end, AND THE RESULT WAS THE STOPPAGE OF THE BANK.

A consideration of all these circumstances induced the Bullion Committee to condemn the RESTRICTIVE Theory in the most emphatic terms; and all the greatest mercantile authorities of that period, including Peel himself, as we have shewn, in 1819, entirely concurred in these doctrines: and they said that no limitation of the Bank's power of issue could ever be prescribed at any period, however remote. That period, however, came in 1844.

The next great crisis was in 1825. Ever since the beginning of 1824 there was a continual drain of bullion, which the Bank took no means to stop. It fell from 13 millions in March, 1824, steadily and continuously, to barely 3 millions in November, 1825, when every one felt a crisis to be impending. The papers

discussed the policy of the Bank, and it was generally expected that it would rigorously contract its issues. The panic began on Monday, the 12th of December, 1825, with the fall of Pole, Thornton & Co., one of the principal city banks, which drew down with them forty country banks. A general run began upon all the city bankers. For three days the Bank pursued a policy of the most severe restriction. Mr. Huskisson said that during 48 hours it was impossible to convert into money, to any extent, the best securities of the Government. Exchequer bills, Bank Stock, East India Stock, as well as the public funds, were unsaleable. At last, when universal stoppage was imminent, the Bank completely reversed its policy. On Wednesday, the 14th, it discounted with the utmost profusepess. Mr. Harman said"We lent by every possible means, and in modes we had never adopted before; we took in stock as security; we purchased Exchequer bills: we made advances on Exchequer bills: we not only discounted outright, but we made advances on deposits of bills of exchange to an immense amount in short, by every possible means consistent with the safety of the Bank, and we were not, on some occasions overnice; seeing the dreadful state the public were in, we rendered every assistance in our power." Between Wednesday and Saturday the Bank issued £5,000,000 in Notes, and sent down to the country a large box of £1 notes, which they accidentally found. This bold policy was crowned with the most complete success; the panic was stayed almost immediately, and by Saturday was over.

The circumstances of this crisis are the most complete and triumphant example of the truth of the principles of the Bullion Report, and of the EXPANSIVE Theory: and signally vindicate the wisdom of Peel in 1819, when he refused to adopt the RESTRICTIVE Theory, and impose a numerical limit on the Bank's issues.

The next crisis was in 1837: but the Bank foreseeing it, judiciously anticipated it, and made the most liberal issues to houses which required it. By thus adopting the EXPANSIVE Theory in good time, nothing more occurred than a severe monetary pressure, which was prevented from deepening into a crisis entirely by the judicious conduct of the Bank.