They must issue a Special Commission to investigate the solvency of those merchants who ask for assistance. Such a Commission would never be appointed until matters had become very severe, and much suffering would be caused by the unnecessary delay.

But such a thing is the ordinary and every day business of the Bank. The merchant simply goes in the ordinary way of business to the Directors, satisfies them of his solvency, gives the necessary security, and receives the assistance without delay.

These considerations, as well as others that might be adduced, shew that the proper source to have this power is the Bank of England, and not the Government.

35. Some persons, however, might suppose that such an issue of notes might turn the Foreign Exchanges against the country. It was formerly supposed, and the idea pervaded Sir Robert Peel's speech, that the Foreign Exchanges are mainly influenced by the numerical amount of Notes issued. But in modern times it has been proved that the Rate of Discount is an infinitely more powerful method of acting on the Exchanges than the amount of Notes. And this may be said to be a new discovery since Sir Robert Peel's speech; for there is not a trace of the principle to be found in it. In former times, certainly, when there were multitudes of Banks issuing torrents of Notes, these Notes lowered the Rate of Discount, and drove bullion out of the country. But under the modern system, when these issues have been happily suppressed, all danger on this score has vanished: and under present circumstances no issues are excessive which do not lower the Rate of Discount.

The doctrine laid down in the Bullion Report, and by all the most eminent authorities of that period, was, that. the true criterion of the proper quantity of Paper Currency was not its numerical amount, but the state of the Foreign Exchanges and the Market Price of Gold Bullion. This doctrine was true so far as it went but unfortunately they never investigated the correct method of keeping the Paper Currency in its proper state. The principal method thought of until after Sir Robert Peel's time, was simply diminishing its numerical amount. It is true that raising the Rate of Discount was reckoned among the subsidiary

methods of curbing it, but so little was its true importance understood, that it was not even mentioned by Sir Robert PeelSince his time, however, it has been demonstrated by argument, and proved by conclusive experience, that it is the true SUPREME POWER OF CONTROLLING THE EXCHANGES and the PAPER CURRENCY, and that all other methods are insignificant compared to it. And since the Directors now thoroughly understand and act upon this principle, they may be entrusted with unlimited powers of issue.

36. Some able authorities, however, are of opinion that the Act should be maintained, as it strengthens the hands of the Directors of carrying out this principle, and enforcing the rule. That without the Act, commercial pressure upon them might sometimes be too strong to resist. Whatever force there may be in this argument, it will be found that the other arguments completely outweigh it; and in fact such an argument naturally leads us to consider the constitution of the Directorate itself.

By a remarkable custom, professional bankers are excluded from the Directorate of the Bank, which is exclusively composed of merchants. It has long been recognised that Commercial Credit and Banking Credit are of two distinct natures, and in many respects essentially conflicting and antagonistic. The same persons should not carry on both kinds of business; great bankers should not be merchants, and great merchants should not be bankers. The DUTY of a banker frequently conflicts with, and is antagonistic to, the INTEREST of a merchant. A banker's duty is to keep himself always in a position to meet his liabilities on demand: and when there is a pressure upon him it is his duty to raise the price of his money.. But the INTEREST of a merchant always is to get accommodation as cheap as possible. Hence, as the Directors emanate exclusively from the Commercial body, the INTEREST of the body from which they come, has been frequently opposed to their DUTY as Directors of the Bank. And, formerly, it cannot be denied, that their sympathy for the body to which they belonged has interfered with their proper course of action as Directors of the Bank, and has been the cause of many

errors.

The whole principles of the subject have now been brought to strictly scientific demonstration. If, therefore, the Directors find

themselves unable to withstand Commercial pressure, and fulfil their undoubted duty, it would seem to raise the question whether some modification of the constitution of the Directorate might not be desirable, and whether a certain portion of them, at least, should not be as unconnected with commerce, as private bankers are. There are very good reasons why they should not be exclusively taken from the Commercial body.

The overwhelming weight of practical considerations is in favour of restoring the Bank to its original condition, and abolishing the separation of the two departments; which has been shewn was intended to carry out a particular THEORY, but which it wholly fails to do. For while times are quiet, or even during a tolerably severe monetary pressure, the Act is wholly in abeyance, it is utterly inoperative. But when a real commercial crisis takes place, and it totally fails to prevent these, as it was expected to do -and when the crisis has deepened beyond a certain degree of intensity, then the Act springs into action with deadly effect. It prevents by Law the only course being adopted, which the unvarying experience of 100 years has shewn to be indispensable to avert a panic, namely, a timely and liberal assistance to solvent houses then follows wild panic; and if the Act were rigorously maintained, then universal ruin.

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There is also another circumstance of the greatest importance to be observed, but which has not obtained sufficient notice. By the Bank Act of 1833, Bank Notes are made legal tender only while the Bank pays its Notes in gold on demand. As soon as it ceases to do so, no one can be compelled to take them, any more than any other bank notes. Consequently, if the Bank were compelled to stop payment in a panic, by enforcing the Bank Act of 1844, to its last extremity, as it most certainly would have done in 1847, 1857, and 1866, its Notes immediately cease to be legal tender by the Bank Act of 1833, and their holders could not compel any one to receive them in payment of a debt.

37. In the debate on Mr. Anderson's motion in the House of Commons, on the 25th March, 1873, the Chancellor of the Exchequer seemed to turn commercial panics into ridicule. He said that we never hear of military panics or naval panics; why then should we hear of commercial panics? He seemed to consider English merchants as an inferior breed of men to English

soldiers and English sailors. For once the Right Honourable Gentleman's acumen was at fault. The analogy is wholly erroneous. It is the duty of military and naval men to face death; it is their profession. But it is not the duty of commercial men to face ruin with equal equanimity. Under the modern system of commerce, discount is as necessary to commercial existence as air is to the life of the body. When the whole commercial community sees the very means of their existence rapidly diminishing before their eyes, they naturally rush to obtain Notes while they can, and on such occasions no raising of the Rate of Discount can check the demand. If they cannot get Notes, they run for Gold. Such a state of things naturally and inevitably produces, and invariably will produce a panic. The analogy of the Black Hole of Calcutta is much more true. When 150 wretched men were

shut up for a whole night, in a tropical climate, in a room less than 20 feet square, with only one small window to admit air, they naturally fought and struggled to get near it to preserve their existence. Under such circumstances there was, and there always would be a panic. So in the commercial world, when they see the very means of their existence rapidly diminishing before their eyes, they naturally fight and struggle to get possession of it, and they always will do so under similar circumstances. If the "Currency Principle" were carried out to the last extremity in a Monetary Panic, the survivors of the commercial community would not be proportionately more numerous than the survivors of the Black Hole of Calcutta.

Mr. Gladstone also, in the same debate, said that the Government would consider the subject, to see if any amendment could be introduced into the Act. But he said that such an amendment would take the Act as its basis of departure, and would be to strengthen and carry out its principle. But no human ingenuity could do that. The Currency Principle is that 1 is equal to 1. If the present constitution of the Bank be supposed to carry out the Currency Principle, then 26 must be held to be equal to 1. There is no possible method of carrying out the "Principle" of the Act, except by taking away all the Bank's powers of making profits.

The true object of the Act is to insure the convertibility of the Bank Note. But the Principle of the Act, or the machinery devised for that purpose, is merely a means to that

end, and it has been proved to be defective. A better means of attaining the object of the Act has been ascertained and demonstrated to be true by the strictest scientific reasoning, as well as by abundant experience, since the passing of the Act, - which is acknowledged to be efficacious, and, therefore, the Act is no longer necessary. The necessity of passing the Act was a deep discredit to the Directors of the Bank. It was a declaration that they were not competent to manage their own business. But now that they have shewn that they are perfectly able to do so, it is no longer necessary. It may be sometimes necessary to put a patient into a strait waistcoat; but when the patient is perfectly recovered, and is restored to his right mind, the strait waistcoat may be removed-especially as it is found that, under certain circumstances, the strait waistcoat not only strangles the patient, but scatters death and destruction all around.

38. We thus see that Sir Robert Peel was greatly deceived in his expectation that the limitation of the Bank's power of issue would prevent commercial crises. On this occasion he erred, as so many others have erred, in Economics, by too limited a consideration of facts. It is true that on some occasions the Bank had fostered an over-spirit of speculation by too profuse an issue of notes. But commercial crises occur from other causes besides : they have occurred when there was no profuse issue of notes, and in places where there were no notes beyond bullion. Whenever there are expected to be great fluctuations in prices from whatever cause arising-either from great scarcity or from great abundance-from the transition from peace to war, or from war to peace-from the discovery of new profitable openings of every description-from great disturbance in the usual course of trade the speculative or gambling propensity is sure to be called forth, and lead to a pressure more or less intense. In 1694 the first joint stock mania took place, when there was no excessive credit. In 1720 there was no excessive issue of notes. In 1763 there was no excessive issue of notes, and the great commercial crisis of that year took place at Amsterdam, where the "Currency Principle" was in full operation. In 1772 there were excessive issues of notes, which greatly conduced to the crisis. In 1783 the crisis seems to have been due to the transition from war to peace. Before 1793 there were excessive