31. Up to this period Sir Robert Peel had passed through two phases of opinion with regard to the Currency Question. When comparatively a young man, he had formed one of that famous majority of the House of Commons which had contumeliously rejected the Bullion Report, and voted that a £1 note and 1s. were exactly equal to £1 and 7s., or that 21 was equal to 27. In 1819 he was appointed Chairman of the Committee of the House of Commons, and he then completely adopted the doctrines of the Bullion Report, and became a disciple of the school of Horner, Huskisson, Thornton, and Ricardo. But in 1840 a new school of Currency Theorists had arisen, of whom the most distinguished were Mr. Jones Loyd, now Lord Overstone, Colonel Torrens, and others. These influential persons saw that notwithstanding the undoubted truth of the doctrines of the Bullion Report, there was some incurable vice in the management of the Bank of England, which had, beyond all dispute, greatly conduced to prepare the way for the great commercial crisis of 1825, by its extravagant over-issues of notes. They found that the Bank was totally unable to manage itself on the principles it professed to be guided by. They traced the original source of all Commercial Crises to the excessive issues of Notes by banks. They adopted the definition of "Currency" as being Money and Bank Notes, payable to bearer on demand only, to the exclusion of all other forms of Paper Credit, and they maintained that the only true principle of issuing notes was that when notes were issued they should be exactly equal in amount to what the specie would be if there were no Notes.

These doctrines being stenuously urged by a number of able and influential persons, completely converted Sir Robert Peel, who now entered upon a third phase of opinion with regard to the Currency Question, and by the Bank Act of 1844 he endeavoured to give effect to these doctrines.

Sir Robert Peel, therefore, determined now to adopt the RESTRICTIVE Theory, and to impose by law what every eminent authority of former times, including himself, had solemnly condemned-a numerical limit on the issues of the Bank.

"Sie 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."

The Bank Act was passed amid general applause, but, as said above, on the very first occasion on which its powers were tested, in April, 1847, it completely failed to compel the Directors to carry out its principle, and one-third of its bullion ebbed away, without any appreciable diminution of the amount of its notes in circulation.

But in October, 1847, a far severer crisis took place. The Bank made immense advances to other banks and houses to prevent them from stopping payment. But numerous Banks and Commercial Houses did stop payment, and the resources of the Bank were exhausted. At last, after repeated deputations to the Government to obtain a relaxation of the Act, and with the stoppage of the whole commercial world imminent, the Government authorised the Bank to issue at discretion. And what was the result? The panic vanished in 10 minutes! No sooner was it known that notes might be had if necessary, than the want of them ceased. The whole issue of Notes, in consequence of this letter, was only £400,000, and the legal limits of the Act were not exceeded.

Thus, on this occasion again, the RESTRICTIVE Theory wholly failed; and the EXPANSIVE Theory saved the country, and was the only means of saving the Bank itself from stopping payment.

The next great crisis was in November, 1857, which was far more severe, as regards the Bank itself, than that of 1847. On the 12th November, 1857, the Bank closed its doors with the sum of £68,085 in Notes; £274,953, in gold; and £41,106 in silver; being a total sum of £387,144! Such were the resources of the Bank of England to begin business with on the 13th! Truly said the Governor, it must entirely have ceased discounting, which would have brought an immediate run upon it. The bankers' balances alone were £5,458,000. It is easy to see that the Bank could not have kept its doors open for an hour.

On the evening of the 12th the Government sent a letter to the Bank, authorising them to issue Notes at their discretion, but not at a less rate than 10 per cent.; and next morning the panic, as before, passed away.

Thus on this occasion, again the RESTRICTIVE Theory wholly failed and the EXPANSIVE Theory saved the country: and was the only means of saving the Bank itself from stopping payment.

The next great crisis was in 1866, which was still more severe. Unfortunately, no investigation was held respecting it, so that there is no reliable account of its circumstances. But speculation had exceeded all due bounds. On the 10th of May there was a general run upon all the London banks. It was said, but we cannot say with what truth, that one great bank alone paid away £2,000,000 in six hours. After banking hours it became known that the great discount house of Overend, Gurney & Co. had stopped, with liabilities exceeding ten millions-the most stupendous failure that had ever taken place in the city. The result of such a catastrophe was easily foreseen; not another bank could have survived the next day; and that evening the Government again authorised the Bank to issue at discretion, at not less than 10 per cent. The Bank advanced £12,225,000 in five days: but the panic passed away.

Thus again the RESTRICTIVE Theory wholly failed: the EXPANSIVE Theory saved the country, and was the only means of saving the Bank itself, as well as every other bank, from stopping payment.

Thus we see the entire failure of Sir Robert Peel's expectations. He took away the power of unlimited issues from the Bank, and imposed a rigorous numerical limit on its powers of issue, under the hope that he had prevented the recurrence of panics. But the panics recurred with precisely the same regularity as before; and, therefore, in this sense too, the Act has failed: and when panics do occur, it is decisively proved that it is wholly incompetent to deal with them.

32. It has been seen that it is a complete delusion to suppose that the Bank Act carries out the "Currency Principle." It might be supposed, perhaps, that if it did really carry out the "Currency Principle," it might prevent panics arising. General experience, however, entirely negatives this view. In 1764, the most terrible Monetary Crisis which had up to that time occurred, took place at Amsterdam and Hamburg, where the banks were really constructed on the "Currency Principle."

A decisive example of this took place at Hamburg in 1857. A similar Monetary Crisis took place there, as here, and the Bank being constructed on the "Currency Principle," had no power to issue Notes to support Credit. The Magistrates were obliged to

issue City Bonds to support the credit of the merchants, exactly as the Government had issued Exchequer bills in England in 1793. Here also the RESTRICTIVE Theory wholly failed, and it was found necessary to adopt the EXPANSIVE Theory to avert universal failure.

These disasters took place where there was no Currency at all, but what represented bullion: and they are conspicuous examples that panics occur just as readily under a purely Metallic Currency as under a Paper Currency.

The experience of every other country exactly confirms the experience of England. At Turin the bank was constructed on some principle of limitation: but in 1857, during a monetary panic, it was found necessary to suspend its constitution, and allow it to issue Notes to support Credit.

The very same thing was conspicuously proved in 1873. In Austria, in North Germany, and in America, the Banks were all constructed on some analogous principle of limitation on their issues. But in the severe monetary panic in each of these countries, it was found necessary to suspend their constitutions, and authorise them to issue at discretion to support commercial Credit.

Thus universally throughout the world it is proved by abundant experience, that the RESTRICTIVE Theory cannot be maintained after a monetary panic has reached a certain degree of intensity; and that it is absolutely necessary to adopt the EXPANSIVE Theory to avert universal failure.

33. The supporters of the Act of 1844 stenuously maintain that it is the complement of, and in strict accordance with the principles of the Act of 1819, and the Bullion Report. But such statements are utterly incorrect: and the following are the fundamental differences of principle between them

I. The Bullion Report declares that the mere numerical amount of notes in circulation, at any time, is no criterion whether they are excessive or not.

The Theory of the framers of the Act is that the Notes in circulation ought to be exactly equal in quantity to what the gold coin would be if there were no Notes: and that any excess of Notes above that quantity is a depreciation of the Currency.

Is this principle of the supporters of the Act in accordance with the principle of the Bullion Report?

II. The Bullion Report declares, and the supporters of the Act of 1819 maintained, that the sole test of the depreciation of the Paper Currency is to be found in the Price of Gold Bullion, and the state of the Foreign Exchanges.

Ricardo says "The issuers of paper money should regulate their issues solely by the price of bullion, and never by the quantity of their paper in circulation. The quantity can never be too great nor too little, while it preserves the same value as the standard."

According to the supporters of the Act of 1844, the true criterion is whether the Notes do or do not exceed in quantity the gold they displace.

Is the doctrine of the supporters of the Act of 1844 in accordance with the principles of the Bulllon Report, and of the Act of 1819 ?

III. It was proposed to the Bullion Committee to impose a positive limit on the issues of the Bank, to curb their powers of mismanagement. The Bullion Report expressly condemns any positive limitation of its issues: and Peel in 1819, and in 1833, fully concurred in this condemnation.

The Bank Act of 1844 specially limits the issues of the Bank.

Does the Bank Act of 1844 coincide with the principles of the Bullion Report and the the doctrines of Peel in 1819 and 1833?

IV. The Bullion Report, after discussing the most important monetary crises which had occurred up to that time, expressly condemns the RESTRICTIVE Theory in a monetary panic, and says that it may lead to universal ruin and recommends the EXPANSIVE Theory.

The Bank Act enacts the RESTRICTIVE Theory by Law: and prevents the EXPANSIVE Theory from being adopted.

Does the Bank Act of 1844 agree with the doctrines of the Bullion Report, and of Peel in 1819 and 1833, on this point?

In 1793 the Bank adopted the RESTRICTIVE Theory; and when all commerce was on the brink of ruin, the Government, 1 Proposals for an Economical and Secure Currency, § 3.