by issuing Exchequer bills, adopted the EXPANSIVE Theory, and commerce was saved.

In 1797 the RESTRICTIVE Theory was carried out to the end, and the result was the stoppage of the Bank.

In 1825 the RESTRICTIVE Theory was adopted for three days, and when commerce was again on the brink of ruin, it was suddenly abandoned; the EXPANSIVE Theory was adopted, and commerce was instantly saved.

In 1836 a great crisis was imminent,: the Bank, foreseeing it, adopted the boldest measures before it came on, and made immense advances to sustain commercial credit: the policy was successful, and averted a general panic.

Peel, in introducing his measure of 1844, said that we must never again have such discreditable occasions as 1825, 1836, and 1839 but since 1844 we have had 1847, 1857, and 1866. On each of these occasions the RESTRICTIVE Theory was enacted by Law and on each occasion the Government was obliged to come forward and authorise the Bank to break the Law, to abandon the RESTRICTIVE Theory, and adopt the EXPANSIVE Theory. And by so doing universal ruin was averted, and the Bank itself saved from stopping payment.

:

Experience, therefore, has indisputably proved that the Bullion Report was framed with truer wisdom and scientific knowledge of the Principles of Paper Currency than the Bank Act of 1844. The only deficiency in the Report was that it failed to point out the proper means by which the Paper could be kept at par with gold. But the true principle of controlling the Paper Currency is now well understood to be by adjusting the RATE OF DISCOUNT by the Foreign Exchanges, and the state of the bullion in the Bank.

Examination of the Arguments alleged for maintaining the Bank Act.

34. It has now been clearly shewn that the Bank Act has completely failed both in THEORY and PRACTICE. It has been shewn that it is based on a DEFINITION of the word "Currency," which is entirely erroneous in Commercial Law, and in Philosophy -that it professes to adopt a Theory of Currency, which it has entirely failed to enforce that if the Directors choose, they can mismanage the Bank quite as casily under the Act as before

it, and that the pretended "Mechanical " action of the Act wholly failed to prevent them doing so that the Act was expressly framed with the expectation that it would prevent commercial panics, and that it has wholly failed in doing so: and hitherto panics have recurred with the same regularity as before-and furthermore, although the Act is in no sense whatever the original cause or source of these crises, yet when they do occur, and they reach a certain degree of intensity, the operation of the Act, by visibly limiting the means of assistance, deepens a severe monetary pressure into a panic, which can only be allayed by its suspension, and a violation of its principles.

In every one of these respects the Bank Act has completely failed and in regard to these things its credit and reputation is utterly dead and gone. It is, therefore, necessary to examine fairly the arguments alleged in its favour, and the reasons urged why it should still be maintained.

The supporters of the Act, allowing that it has failed in some respects, yet maintain that the Directors having committed the same mischievous, errors as they had done before it, it arrested their mis-management much sooner than would otherwise have been the case; and that when the panic did occur, it was only through the Act that the Bank had 6 millions of gold to meet the crisis; and that by this means the convertibility of the Note was secured.

So far as regards the crisis of 1847, it must be admitted that there is much force and truth in this argument. The Directors at that date shewed that they had not yet acquired the true principles of Banking, and it must be conceded that it was entirely owing to the Act that they were checked in their mistaken policy while there was still six millions of gold in the Bank.

But the same ground of censure did not apply to the crisis of 1857. In the interval between 1847 and 1857, the Directors really at last grasped the true method of controlling the Paper Currency by means of the Rate of Discount. The truth of this principle was probably more enforced upon their attention by the limitation imposed by the Act than it would otherwise have been. It has never been alleged that the crisis of 1857 was in any way due to the Act: But it is a matter of positive certainty that since that date the Bank has fully recognised and adopted the

the principle of governing the Paper Currency by means of the Rate of Discount. The same rule has been adopted by the Bank of France, and this is now the recognised principle by which every Bank is managed. Certainly since 1857 there has not been a breath of blame on the general management of the Bank. Granting every merit which can fairly be due to the Act, that it has compelled the recognition and adoption of this principle some years earlier than it otherwise would have been, it may be said that the Act has now fulfilled its purpose. It has done all the good that it can do. The Directors now perfectly understand, and have for the last 17 years conducted the Bank with the greatest success on sound principles. Having, therefore, accomplished this great purpose, the Act has done its work, and has ceased to be necessary: and its operation at other most important times being proved to be injurious by the most overwhelming evidence, it may now be safely and advantageously repealed-so far at least as regards the limitation of its power of issue. And the reason for the expediency of this change is this

Under the present system of Commercial Credit, there must be some Source with the power of issuing undoubted Credit to support solvent Commercial Houses in times of Monetary Panic.

It has been conclusively shewn in the preceding remarks, that it is entirely futile to expect that Commercial Crises can be prevented, and that they occur with precisely the same violence in places where there is a purely metallic currency as anywhere else. Hence the illusions in this respect, on which the Act was founded, are now completely vanished.

In all cases, houses which are clearly insolvent should not be supported; they ought to be compelled to stop without any hesitation. To support such houses is a fraud upon their creditors. But under our complicated system of commerce, the Credit of even the most solvent houses is so intertwined and connected with others, that no one can tell how far any house, even of the highest name, is solvent. Consequently, every one is affected by this universal discredit. Many houses which are really solvent, may have their assets locked up in some form which is not readily convertible. Under such circumstances it is absolutely indispensable, to prevent universal ruin, that there should be some source to

afford undoubted credit to houses which can prove their solvency. And there are but two sources from which such credit can be issued the Government and the Bank of England.

In 1793, the Bank resolutely refused to support Commercial Credit, and the Government were obliged to assist solvent houses with Exchequer bills, and this saved the commercial community from ruin. In 1797, the Bank also refused to support commerce, and the result was its own stoppage. After the stoppage, however, it largely extended its issues, and commerce was relieved.

In every commercial crisis since 1797, however sternly the Bank has adopted the RESTRICTIVE Theory at first, it has ultimately been driven to abandon it, and adopt the EXPANSIVE Theory. In 1825, while the Bank peristed in the RESTRICTIVE Theory, some eminent bankers stopped payment with assets worth 40s. in the pound. Two days afterwards the Bank changed its policy, and issued notes with the most profuse liberality, and the panic vanished. If the Bank had adopted this principle at first, and assisted those bankers who were really solvent, they would have been saved from stopping payment.

The very same principle was decisively proved in 1847, 1857, and 1866; the RESTRICTIVE Theory was in those years enforced by law. But no Government could maintain the Act and the RESTRICTIVE Theory to the bitter end, and face the consequences of producing universal ruin in pursuance of a Theory, which the most distinguished authorities of former times had unanimously condemned.

It is, therefore, irrefragably proved by the unanimous opinion of the most eminent commercial authorities, and the clear experience of 100 years, that the RESTRICTIVE Theory in a commercial crisis is a fatal delusion; and that when a commercial panic is impending, the ONLY way to avert and allay it is to give prompt, immediate, and liberal assistance to all houses who can prove themselves to be solvent; at the same time allowing all houses which are really insolvent to go. Universal experience proves that this is the only means of separating the sound from the unsound, and averting general ruin by preserving the former.

As a matter of fact it is perfectly well known to all bankers that an excessive restriction of credit produces and causes a run for gold.

2

Sir William Forbes, in his interesting Memoirs of a Banking House, says of the crisis of 1793:-"These proceedings, which obviously foreboded a risk of hostilities, were the signal for a check on mercantile credit all over the kingdom; and that check led by consequence to a demand on bankers for the money deposited with them, in order to supply the wants of mercantile men."

The Bullion Report expressly attributes the stoppage of the Bank in 1797 to the merciless restriction of Credit.

In 1857, discounts had ceased at the various banks, and a general run was commencing upon them, when the Treasury letter came this allayed the panic, and stopped the run.

In 1866, matters were a great deal worse. In consequence of the restriction on Credit, a most severe and general run took place on all the London bankers. The sum paid away during the panic can probably never be known, but it was something perfectly fabulous. And this general run upon the bankers was certainly caused and produced by the excessive restriction of Credit, caused by the Bank Act.

The result of such an Act was most distinctly predicted by Henry Thornton, one of the joint authors of the Bullion Report, in his treatise on the Paper Credit of Great Britain, published in 1802. He says:—

"Two kinds of error on the subject of the affairs of the Bank of England have been prevalent. Some political persons have assumed it to be a principle, that in proportion as the gold of the Bank lessens, its paper, or, as is sometimes said, its loans (for the amount of the one has been confounded with that of the other), ought to be reduced. It has been already shewn, THAT A MAXIM OF THIS SORT, IF STRICTLY FOLLOWED UP, WOULD LEAD TO UNIVERSAL FAILURE."

The Bank Act of 1844 was constructed on this precise principle, and Thornton's prediction has been strictly verified.

Seeing, then, that it is a matter of absolute demonstration that it is indispensably necessary that there must be some source having the power to issue solid Credit to support solvent houses in Monetary Panics, it only remains to consider whether that source should be the Government, or the Bank-and very convincing reasons shew that it ought to be the Bank rather than the Government.

Such a duty is quite out of the usual line of the Government.