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 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 RIVERSIDE
 
 
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 EVIDENCE 
 
 LOED OVEESTONE IN 1857.
 
 THE EVIDENCE, 
 
 LORD OVERSTONE, 
 
 BEFORE THE SELECT COMMITTEE OF THE HOUSE OF 
 COMMONS OF 1857, 
 
 BANK ACTS, 
 
 WITH ADDITIONS. 
 
 LONDON : 
 LONGMAN, BROWN, & CO. 
 MDCCCLVIII.

 
 PREFACE. 
 
 Some explanation is necessary of what may otherwise 
 have the appearance of presumption in publishing in 
 this separate form, the evidence given by me before the 
 Committee to which the subject of the Bank Charter Act 
 was referred in the last Session, and which has already 
 appeared, in common with the evidence given by several 
 other witnesses, in the Parliamentary Report. 
 
 In the year 1833, I was summoned for the first time, 
 before a Parliamentary Committee, in reference to the 
 Banking and Monetary arrangements of the country. 
 
 Bearing in mind the instructive events of 1825, and 
 the extravagant proceedings of the Country Banks so 
 intimately connected with the excitement, and ultimate 
 convulsion of that period, I then expressed my opinion. 
 
 1. That inconvenience and difficulty must arise from 
 any multiplication of the issuers of paper money 
 (Question 3448). 
 
 2. That, upon general principles, one bank only of 
 issue throughout the country would be the best system 
 (Question 3455). 
 
 3. The essential importance of a full and regular pub- 
 lication of the accounts of the Bank, including the bullion 
 (Questions 3382-3-4). 
 
 4. The expediency of repealing the Usury Laws.
 
 Yl PREFACE. 
 
 In 1840, 1 was again called before a Committee of the 
 House of Commons on Banks of Issue. 
 
 The perilous position into which the monetary system 
 had been brought in the preceding years, 1837 and 1839, 
 was then fresh in the recollection of the public, and the 
 necessity of some further protective measures, by which 
 the recurrence of similar danger should be effectually 
 obviated, was very generally recognized. A careful con- 
 sideration of the subject at that time led me to the con- 
 clusion that adequate security for maintaining the power to 
 pay the notes of the Bank in specie, under all contingencies, 
 must be sought in some further provisions supplementary 
 to those contained in the Act of 1819. The discretionary 
 power over the amount of their issues vested in the Bank 
 Directors by that Act, and upon which the public reliance 
 had hitherto rested, was proved by the course of events 
 to be an insufficient security. It appeared to me essential 
 that the privilege of issuing Bank notes, that is of creating 
 money, should be separated, distinctly and entirely, from 
 the business of banking, that is dealing in money. 
 
 I therefore advocated before that Committee, the 
 separation of the departments of the Bank of England, 
 and the establishment of such further regulations as 
 should secure perfect coincidence at all times between the 
 fluctuations in the amount of Bank notes, or paper money, 
 and the fluctuations in the amount of the metallic money, 
 as indicated by the state of the bullion. 
 
 Those opinions were very distasteful to some parties ; 
 and 1 was subjected to a protracted and hostile cross- 
 examination, which necessarily drew from me a full state- 
 ment of the principles by which my judgment had been 
 guided.
 
 PREFACE. Vll 
 
 A few years subsequent to this, the Act of 1844 was 
 passed, subjecting the monetary system to regulations 
 which seemed to me to rest upon sound principles, and 
 which I felt great confidence would, under any trial to 
 which they might be subjected, prove sufficient for the 
 protection of the bullion reserve, as the means of main- 
 taining the convertibility of the Bank note. 
 
 In 1848, Parliament was again called upon to deli- 
 berate on this subject. The very peculiar events of 
 1847 had led to a temporary suspension of one of the 
 main provisions of the Act of 1844. 
 
 Being called before Committees of each House of 
 Parliament I endeavoured to show that the events of the 
 preceding year, when properly understood, aiforded no 
 evidence of failure in the Act of 1844 to accomplish its 
 real purpose. On the contrary, I maintained that the 
 effectual protection of the bullion reserve, through all the 
 pressure and convulsion of that remarkable year, was 
 attributable exclusively to the provisions of the Act; 
 whilst the difficulties of that period were the result of 
 extensive mercantile insolvency, further complicated by 
 an unnecessary public panic, generated by ignorant and 
 unfounded apprehensions respecting the operation of the 
 Act. 
 
 Ten more years having elapsed, it has now become 
 competent for Parliament to revise the Act of 1844 to 
 repeal or to modify any or all of its provisions. 
 
 Before the Committee to which this question has been 
 referred, objections of a novel and rather extraordinary 
 character have been urged against the fundamental prin- 
 ciples of the Bill. It has been my endeavour, in the 
 evidence which I have given, to show the fallacious and
 
 viii PREFACE. 
 
 untenable character of these objections, and at the same 
 time, to draw attention to the confirmation of all the 
 main principles of the Act, which may be derived from 
 the practical experience of its operation, during the 
 thirteen years of its existence. 
 
 All the important parts of the evidence given by me 
 before previous Committees, have already been printed 
 in a separate form: to that I now venture to add the 
 evidence given before the Committee of last session ; 
 being desirous that the grounds upon which I originally 
 advocated the principles on which the Act is founded, and 
 the reasons by which I have steadily endeavoured to 
 defend it against the ever-varying objections of its 
 assailants may appear in an uninterrupted and complete 
 form. 
 
 To the evidence as delivered before the Committee, I 
 have made some subsequent additions, with the view 
 either of stating more fully the reasons upon which an 
 opinion is founded, or of supporting that opinion by refer- 
 ence to those which are universally recognized as the 
 highest authorities. These additions are placed between 
 brackets, and it will be seen that they in no respect alter 
 the purport of the evidence, as given in the first instance. 
 I now take final leave of this protracted discussion, with a 
 painful consciousness of my incapacity to do justice to the 
 importance of the subject. The principles which are at 
 issue were first brought to light, and established as scientific 
 axioms by really great minds : my more humble endeavour 
 has been to assist in defending those principles against 
 the transient objections of the clay, and in maintaining a 
 great public measure, which is a direct and legitimate con- 
 sequence of those principles. To one test of truth, and
 
 PREFACE. IX 
 
 and that not an unimportant test, I confidently submit 
 the evidence which I have given on consecutive occasions, 
 through a period of more than twenty years. The opinions 
 which I have given, and the reasons by which I have sup- 
 ported them have been consistent throughout. It would 
 have involved no discredit if the instruction to be derived 
 from the varied course of monetary events, and the 
 accumulating experience of this long period, had necessi- 
 tated the abandonment or modification of some of the 
 views urged in the earlier stages of the discussion. I am 
 not aware, however, of any principle once maintained in 
 my evidence or in my publications which has not been con- 
 firmed by the ordeal to which it has been subjected, nor 
 of any anticipation which has not been realised by the 
 subsequent course of events. 
 
 Previously to 1844, the store of bullion had been reduced 
 on several occasions to a very low amount, and great 
 public alarm as to the power of maintaining specie pay- 
 ments had ensued. The mere convertibility of the note 
 had proved wholly insufficient as a protection against this 
 danger, and reliance upon the discretion of the Bank 
 direction had been found in the hour of trial to be delusive. 
 This fact admits of no denial. The Act of 1844 was 
 resorted to. The supporters of that Act in recommending 
 it to public confidence ventured to make two predictions. 
 That under the provisions of the Act, the extreme and 
 dangerous exhaustion of the bullion would become impos- 
 sible ; and further, that this result would be accomplished 
 without in any respect interrupting or checking the 
 development of national prosperity. It is undeniable 
 that both these prophecies have been fulfilled. During 
 two periods of monetary pressure which has severely tried
 
 X PREFACE. 
 
 every trading country in the world, the store of bullion 
 in this country has been effectually maintained whilst the 
 trade of the country, during the time in which the Act has 
 been in force, has increased possibly with too much 
 rapidity. 
 
 Carlton Gardens, 
 
 December, 1857.
 
 EVIDENCE, &c. 
 
 Tuesday, 7 th July, 1857. 
 
 MEMBERS OF COMMITTEE PRESENT. 
 
 Mr. Cayley. 
 
 Mr. Ennis. 
 
 Mr. Fergus. 
 
 Earl of Gifford. 
 
 Mr. Gladstone. 
 
 Sir James Graham. 
 
 Mr. Hankey. 
 
 Mr. Hildyard. 
 
 Mr. Hope Johnstone. 
 
 Mr. John Lewis 
 
 Ricardo. 
 Mr. Spooner. 
 The Chancellor of the 
 
 Exchequer. 
 Mr. Tite. 
 Mr. Weguelin. 
 Mr. Wilson. 
 Sir Charles Wood. 
 
 The Right Hon. The Chancellor of the Exchequer 
 in the Chair. 
 
 The Right Honourable Lord Overstone, attending by 
 permission of the House of Lords, Examined. 
 
 3640. Chairman.^ I think that your Lordship gave 
 evidence before the Select Committee of the House of 
 Commons in 1840 on Banks of Issue? I did. 
 
 3641. In that evidence did you express opinions with 
 respect to the question of currency, similar to those upon 
 which the Act of 1811 was founded? I did. [In the
 
 evidence which I gave at that time I endeavoured to 
 establish the importance of the following principles : 
 
 First. That nothing will secure the permanent con- 
 vertibility of paper money but a constant regulation 
 of the amount of that paper money in conformity with 
 the variations in the amount of the bullion (Questions 
 2867, 2870, Evidence before Committee of House of 
 Commons, 1840). 
 
 Second. That if the amount of paper money be duly 
 contracted as the metallic money goes out of the country, 
 the convertibility of the paper money will be effectually 
 maintained, through the continually increasing value of 
 the quantity of money which still remains in the country 
 (Question 2676). 
 
 Third. The importance of separating the function of 
 issuing (or creating) money, from the function of banking, 
 which consists in the use of, or dealing in, money (Ques- 
 tions 2732, 2737). 
 
 Fourth. That one of the inconvenient consequences 
 arising from the union of issue with banking is found in 
 the fact that there can under that system be no distinct 
 knowledge of the reserve in the till of the Bank of 
 England, and of the fluctuations of amount which that 
 reserve may undergo (Questions 3482-3). 
 
 That the money of the country consists of the aggre- 
 gate of the notes out of the walls of the Bank of Eng- 
 land, and of the notes really existing in the till of the 
 Bank of England (Question 3481). 
 
 Fifth. That the Bank of England has no real power 
 to regulate the rate of interest. That temporary fluc- 
 tuations in the rate of interest may arise from an in- 
 crease or contraction of the amount of money in the
 
 country ; but that the rate of interest essentially depends 
 upon the proportion between the supply and demand for 
 capital (Questions 2794, 2797)]. 
 
 3642. Under those circumstances, perhaps, I need 
 scarcely ask you whether you approve of the policy of the 
 Act of 1844 ? I have always approved of the policy of 
 the Act of 1844, and that approval has year by year 
 gained strength by the strong verification of the sound- 
 ness of its principles, which has been derived from the 
 consecutive course of public monetary events. 
 
 3643. You also gave evidence before the Committee of 
 Commercial Distress of this House in 1848 ? Yes. 
 
 3644. You probably retain the opinions now which you 
 expressed before that Committee with respect to that par- 
 ticular crisis ? I have never seen any reason to alter any 
 of the opinions which I have ever expressed upon the subject 
 of the monetary affairs of the country, from the commence- 
 ment in the year 1837 down to the present time ; every 
 opinion which I have expressed consecutively, appears to me 
 to have been fully verified by the course of public events. 
 
 3645. Confining ourselves at present to the period 
 since 1847 and 1848, do you think that subsequent expe- 
 rience has confirmed your views with respect to the sound 
 policy and beneficial operation of the Act of 1844? Un- 
 doubtedly; the whole course of events since 1847 has 
 year by year strongly confirmed in my judgment the 
 opinions which I have always expressed respecting the 
 principles upon which the Act of 1844 is founded, and I 
 have the strongest grounds for saying that those opinions 
 have year by year been growing greatly throughout the 
 whole mass of the public, and that the course of events 
 during the last two or three years has created a very strong 
 
 n 2
 
 feeling in favour of the Act of 1844, where there was pre- 
 viously considerable misgiving respecting it. I think that 
 a strong practical proof of that fact is to be found in the 
 opinions which are now before the Committee on the part 
 of the whole body of the Bank Directors, persons who are 
 entrusted with the administration of that Act ; who have 
 had to administer it during a period of peculiar trial, sin- 
 gularly calculated to draw out the merits or the defects of 
 the Act whichever they might be; and the Committee 
 have now before them, what may fairly be called the 
 unanimous declaration of the whole body of the Bank 
 Directors, that they think that that Act has worked bene- 
 ficially, that it is sound in principle, and that it ought 
 to be renewed ; an opinion in which I entirely concur. 
 
 3646. Is it a correct description of the principles of 
 the Act of 1844 to say that, with respect to the Bank of 
 England, the main principles are the limit as to the 
 14,000,000/. of issues against securities, with the ulterior 
 issues against bullion, and the separation of the depart- 
 ments ; and with regard to country banks of England, 
 the limitation of their issues according to the average of 
 their circulation up to a certain time, and the prohibition 
 of the establishment of new country banks. Do you 
 conceive those to be the three main principles of the Act ? 
 I understand the great principle of the Act of 1844 to 
 be this to make the amount of paper money in the 
 country conform in its variations to what would be the 
 variations in the amount of a metallic currency, and that 
 all the other* provisions of the Act are ancillary to the 
 carrying out of that great principle. The main ancillary 
 provision I understand to be the separation of the depart- 
 ments. The first object of that separation I understand
 
 to have been to effect, with regard to paper money and 
 banking business, that complete separation, both in ac- 
 counts and in fact, which necessarily exists in reason and 
 in principle. The second object of that separation I 
 understand to have been, to protect the public from those 
 misconceptions and errors which are necessarily gene- 
 rated by a suppression of the banking reserve, and of all 
 knowledge of the fluctuations in the amount of that re- 
 serve. The third object of the separation of the depart- 
 ments I understand to have been to compel both the Bank 
 of England and the public to form a more definite and 
 correct estimate of the true limits of the legitimate re- 
 sources of the Bank of England ; and upon these three 
 great principles to found a rational and honest administra- 
 tion and management of paper money, rendering the 
 separation of the departments ancillary to the great prin- 
 ciple of the limitation of the amount of paper money in 
 conformity to the fluctuations of the bullion. Those I 
 consider to have been the objects of the separation of the 
 departments; and those objects I conceive to have been 
 completely effected by the separation of the departments. 
 
 3647. Do you consider the separation of the Issue and 
 Banking Departments of the Bank of England to be 
 founded upon the principle that the business of issue and 
 the business of banking are in their nature distinct? 
 Undoubtedly : it is impossible to entertain any other view 
 of the matter. 
 
 36 A8. What in your Lordship's view are the main 
 causes of the fundamental distinction between the busi- 
 ness of issue and the business of banking ? That ques- 
 tion necessarily raises the great question, what is the 
 principle upon which the management of the paper money 
 of the country ought to be regulated. When I first heard
 
 f) 
 
 that it was intended to call me before this Committee, I, 
 for my own satisfaction, endeavoured to commit to writing 
 a few of the heads of the subject as they presented them- 
 selves to my mind, and in the form in ;which I thought 
 they must necessarily come under the consideration of this 
 Committee. With the permission of the Committee, I 
 will read those heads to them, because I think they are 
 calculated to open the whole subject, and in the form in 
 which, I think, it ought to have come under the considera- 
 tion of this Committee. I have stated them shortly : 
 " First, the supply of the current coin, that is, the money 
 of the realm, ought to be entirely separated from banking 
 business, which is simply trading in money, borrowing at a 
 low rate andlending at a higher rate. Second. Banknotes 
 should be treated as tokens or representatives of the cur- 
 rent coins, that is, of the metallic money of the country. 
 A 5/. bank note is, in fact, a token or certificate repre- 
 senting five sovereigns; and no banker or private indi- 
 vidual ought to be allowed to issue such tokens or 
 certificates any more than they are permitted to issue the 
 coins of the realm. The notes or certificates ought to be 
 issued as the money, whether copper, silver, or gold, is 
 coined, under strict provisions of law, and by an authority, 
 such as the Mint, established by law, and subject to strict 
 regulations laid down in that law." Upon this point I beg 
 to quote a passage from the celebrated sub-treasury speech 
 of Mr. Daniel Webster, the American senator, and an 
 authority in the United States, the very highest that can 
 be referred to upon questions of this nature. It is this : 
 "The circulation of paper tends to displace coin; it may 
 banish it altogether. At this very moment it has banished 
 it." I would ask the Committee to mark well that fact. 
 There is a distinct statement of the entire banishment of
 
 coin from the United States by paper money, payable to the 
 bearer on demand, and issued in obedience to what were 
 deemed to be the wants of the public. ' ' If others may drive 
 out the coin, and fill the country with paper which 
 does not represent coin, of what use is that exclusive 
 power over coins and coinage which is given to Congress 
 by the constitution ? Wherever paper is to circulate, as 
 subsidiary to coin, or as performing in a greater or less 
 degree the function of coin, its regulation naturally 
 belongs to the hands which hold the power over the 
 coinage. This is an admitted maxim by all writers ; it 
 has been admitted and acted upon on all necessary occa- 
 sions by our own Government, throughout its whole 
 history." I go on : " Third. The coins are maintained 
 at their proper amount and value by virtue of the intrinsic 
 value of the metal of which they consist. The paper notes 
 or certificates ought to be preserved at their proper value 
 by making them, under all cimimstances, conform in 
 amount to the coins or metallic circulation which they 
 represent. Fourth. The sole privilege of coining money, 
 whether copper, silver, gold, or paper, ought to be vested 
 in one institution, established for that exclusive purpose, 
 and subject to strict regulations of law. No share of 
 such privilege ought to be conceded in any form to banks 
 or to private individuals. Fifth. All profit arising from 
 the issue of paper certificates, that is bank notes, in place 
 of coin of intrinsic value, ought to be appropriated to the 
 public exchequer, and ought not to be diverted to the 
 benefit of banks or any other concerns. Sixth. Perfect 
 freedom of competition should be established in the 
 business of banking, correctly understood, and effectually 
 distinguished from the function of coining or from that of 
 issuing paper tokeus or representatives of coins, that is
 
 8 
 
 bank notes, which, in fact, is coining under a form pecu- 
 liarly susceptible of abuse, because the undue issue of 
 paper notes is not restricted by that intrinsic value which 
 effectually regulates the issue of metallic money. In 
 support of this principle it is satisfactory to be enabled to 
 appeal to the authority of Mr. Tooke, an authority held 
 in peculiar estimation by many who dissent from my 
 views." These are his words : " The privilege of issuing 
 paper money is a delegation of that which is universally 
 considered as a privilege residing in the State." Again, he 
 says, " It strikes me to be a most extraordinary circum- 
 stance connected with the country issue of paper money, 
 that whereas Government invests with a number of sanc- 
 tions the privilege of issuing coin upon the intrinsic 
 metal, by which nothing is to be gained, it should allow 
 individuals the privilege of coining it upon a material 
 which in itself is worth nothing, and consequently upon 
 which there is a very great gain, by the substitution of it 
 for the other, which is of intrinsic value." [To this may 
 be added the authority of Mr. Ricardo, very distinctly 
 stated in his Reply to Mr. Bosanquet, p. 92, " A bank note 
 is of no more intrinsic value than the piece of paper on 
 which it is made. It may be considered as a piece of 
 money on which the seignorage is enormous, amounting 
 to all its value ; yet if the public is sufficiently protected 
 against the too great increase of such notes, either by the 
 indiscretion of the issuers, or by the practices of false 
 coiners or forgers, they must in the ordinary operations of 
 trade retain their value.] " Having arrived at a distinct 
 and correct understanding of the true character and func- 
 tion of paper money, i. e., of bank notes, that they are 
 certificates or representatives of bullion, to be kept at 
 their proper amount by positive regulation of the quantity
 
 issued, as the coin would be necessarily preserved at its 
 proper amount by the regulation which arises from its 
 intrinsic value, the next important point for consideration 
 is the extent to which this principle is recognised and 
 carried out in the provisions of the Act of 1844. By that 
 Act a positive limit is fixed to all the country issues. The 
 fluctuations therefore in the amount of paper money are 
 necessarily thrown upon the notes of the Bank of England 
 exclusively, and the amount of the issues of Bank of 
 England notes is made to vary with the bullion. By this 
 means effectual security is obtained that the amount of 
 paper money in the country shall at all times conform to 
 what would be the amount of a metallic circulation. Of 
 this there can be no doubt. The paper money of the 
 country, under the Act of 1844, conforms strictly in 
 amount, and consequent value, to a metallic circulation ; 
 those fluctuations of amount, and those only, which would 
 occur under a purely metallic circulation, can and will 
 occur under our present mixed circulation of gold and 
 paper, as regulated by the Act of 1814. This being the 
 case, it only remains to consider what has been the prac- 
 tical result of the adoption of these principles. The 
 effectual protection of the bullion reserve was the primary 
 object and purpose of the Act ; this has been fully accom- 
 plished. The bullion has been subjected to two severe 
 drains, in 1847 v and again in 185657 ; but in neither 
 case has it been reduced to an unduly low amount at no 
 time, I believe, bas it fallen below 8,000,000/. Has this 
 result been accomplished by an improper injury or sacri- 
 fice of our trading and commercial interests? For an 
 answer to this question we may turn to the reports of the 
 Board of Trade, showing, during the 13 years in which 
 the Act has been in operation, an increase of imports and
 
 10 
 
 exports from 45,000,000Z. to 120,000,000/. We may also 
 appeal to the universal recognition that the last year, 
 although dedicated to the adjustment of heavy war expen- 
 diture, and exposed throughout to severe pressure by 
 adverse exchanges, has been nevertheless a period of 
 prosperity almost without example. But some useful and 
 very pointed instruction may be derived from a short 
 retrospect of the progress of our monetary legislation. 
 In 1819 cash payments were resumed, that is, the bank 
 note was declared to be at all times convertible. But the 
 means of securing that convertibility were left to the 
 free discretion of those who were entrusted with the 
 management of the Bank of England. No positive regu- 
 lations were laid down for their guidance, or for the 
 security of the monetary system. Under this state of the 
 law three successive crises occurred, each of them charac- 
 terised by the reduction of the bullion to a very low 
 amount, by imminent danger to the convertibility of the 
 notes, by universal alarm on this point, and by a generally 
 disgraceful state of the monetary system. The public 
 became dissatisfied, and very reasonably so ; some more 
 definite aud scientific system for the regulation of the 
 paper money of the country was demanded. That practi- 
 cal and sagacious statesman Sir Robert Peel applied his 
 mind to the subject. He at once grasped the true 
 character of the paper bank note. He saw that if it was 
 to be convertible at all times into gold, it must be treated 
 as the direct representative, or I may say as the shadow, 
 of the gold coin ; and from this it followed as a necessary 
 consequence, that it must at all times be preserved at 
 what would be the amount of a gold circulation. To 
 secure this purpose, it became obviously necessary to 
 separate the accounts, that is, to establish an effectual
 
 11 
 
 distinction between the regulation of the amount of paper 
 money, and the conduct of banking business ; to render 
 them as separate in form of account, and in fact, as they 
 are really separate in principle; to subject the paper 
 money to positive regulation by law as regards the fluc- 
 tuations of its amount, whilst the conduct of banking 
 business is left subjected to the principle of free competi- 
 tion, and personal discretion and responsibility. Upon 
 this principle, and with this view, the Act of 1844 was 
 passed. The great feature of this Act is the separation of 
 the accounts which regard issue of paper money from 
 those which regard banking business, for the purpose of 
 subjecting the fluctuations of the amount of paper issues 
 to positive regulation by law. The result has been already 
 described perfect success in protecting the bullion from 
 improper diminution of amount, perfect protection from 
 the evils and disgrace which marked former periods of 
 trial, 1783, 1793, 1825, 1837, 1839; and at the same 
 time progressive development of national prosperity to an 
 extent wholly unexampled. But from 1819 to 1844 there 
 existed a class of persons who on all occasions, and in 
 every possible form, bitterly denounced the principle of 
 the resumption of cash payments, and used every means 
 to effect the repeal of the Act of 1819. That position 
 having become utterly untenable through the progress of 
 public intelligence, the battle is now urged against the 
 Act of 1844, the measure which had become necessary to 
 give reality and practical validity to the Act of 1819. 
 The provisions of that Act we are told arc absurd and 
 useless. Bank notes, forsooth, cannot be issued in excess 
 by a bank ; restriction of the amount of paper notes 
 issued by a banking concern is impossible through the 
 mere will of the issuer ; separation of the accounts is
 
 12 
 
 deceptive, and all that relates to issues must again be 
 mixed up in one account with all that concerns banking ; 
 we must return to a state of monetary chaos. Each of 
 these fallacies, extravagant as they are, must, I suppose, 
 be subjected to a separate and full examination. It may 
 be sufficient now to observe, that these provisions, the 
 separation of the accounts and the positive restriction of 
 the amount of paper issues, constitute the only real and 
 effectual distinction between the monetary difficulties and 
 dangers which attended every period of drain previous to 
 1844, and the striking contrast which the subsequent 
 period presents. The proposal to repeal these provisions 
 is in fact a proposal to return to our former state ; to 
 substitute the exhausted bullion, the danger to converti- 
 bility, and the public alarm on the subject, which we too 
 often experienced previously to 1844, for the exemption 
 from these evils, and the undoubted security of the bullion 
 reserve which we have enjoyed under our present mone- 
 tary legislation." That expresses my view of the ques- 
 tion for the consideration of which I apprehend this 
 Committee is summoned. 
 
 3619. It is an undoubted fact that the bullion reserves 
 of the Bank since 1844 have been greater than they were 
 in an equal period before 1844, whether we look to the 
 average, or whether we look to the minimum. Different 
 opinions have been expressed to this Committee as to the 
 cause of that increase. Some persons have expressed 
 an opinion that it has been owing to the operation of the 
 Act of 1844, and others that it has been due to natural 
 causes, and particularly to the increased production of 
 gold. What is your Lordship's opinion on that subject? 
 You will allow me to remark at the very outset of 
 that question, that I do not consider the bullion as lying
 
 13 
 
 in the Bank of England. The bullion now lies in the 
 Issue Department, which is nothing more than a depart- 
 ment of the State, worked mechanically and clerically by 
 the clerks of the Bank of England ; but it is essentially a 
 department of the State. The bullion in the Bank of 
 England I apprehend to be altogether a deceptive form of 
 expression, against the use of which I must, at once, as 
 preliminary to the whole of this examination, enter my 
 protest. With regard to the facts of the direct effect 
 upon the amount of bullion in the Issue Department 
 produced subsequently to 1844, and previously to 1844, 
 the object of the regulations of 1844 was not to secure 
 the maintenance generally of a much larger amount of 
 bullion than there was before ; but to protect the bullion 
 from the possibility, under any circumstances whatever, 
 [arising out of a foreign drain,] of falling below a safe 
 amount. That effect has been completely produced. I 
 understand (and I confess I cannot suppress the expres- 
 sion of my astonishment at hearing it) that it has been 
 stated that that effect is attributable entirely to the 
 gold findings, and not to the provisions of the Act 
 of 1844. I apprehend that to be one of those random 
 assertions, of which many are frequently thrown out 
 upon the subject of currency questions, unsupported by 
 any general reasoning, and unsupported by any appeal to 
 facts. The phenomenon before us is this, that under two 
 separate periods of trial, the bullion in each case has 
 been reduced to the lowest amount which the Act will 
 permit, [in so far as regards the action of the foreign 
 exchanges,] and that amount on both occasions proves 
 to be somewhere about 8,000,000/. Now, if that had 
 been the result of the gold-findings, I apprehend that 
 those amounts would have been very different. The
 
 14 
 
 gold-findings in 1847 had not been developed to anything 
 like the extent to which they have been in 1857 ; and if 
 the gold-findings are the true cause of our bullion never 
 sinking below 8,000,000/. in 1847, by parity of reasoning 
 they ought to have prevented its sinking below double 
 that amount in 1857, the gold-findings having been doubled 
 in their extent in the meantime. But in the next place, 
 these gold-findings have not protected this country from 
 two very severe drains of bullion. Upon what ground of 
 reason can it be asserted that whilst they fail entirely to 
 protect the country from a severe drain of bullion, yet 
 they are the efficient cause of a considerable store of 
 bullion being preserved in the country ? Again, if you 
 assign a cause, you must expect phenomena as widespread 
 as the action of the cause. These gold-findings are 
 operating over the whole world. Have they produced a 
 great augmentation in the bullion reserve of all the 
 countries in the world? I apprehend the phenomenon to 
 be directly the contrary of that fact, that there has been 
 a very severe pressure upon the store of bullion in all the 
 other great exchange countries of Europe ; and I cannot 
 conceive a fact more overwhelmingly conclusive, if it be 
 a fact, than that which has been stated, as I understand, 
 before this Committee by one of the favourite witnesses 
 of this supposed doctrine. He has stated, I must say, 
 I think with great boldness of assertion, but he has stated 
 before this Committee that the Bank of France was com- 
 pelled by artificial means, and by purchases at an excessive 
 price, to force 70,000,000/., 80,000,000/., and he expresses 
 his confident opinion, as much as 100,000,000/. of gold into 
 the stores of Paris ; not put there by gold-findings, but 
 put there, according to his statement, by very extraor- 
 dinary and unusual processes on the part of the Bank of
 
 15 
 
 France ; and he concludes by saying that at last the store 
 in the Bank of France was less than it was at the 
 beginning ; and this he illustrates by the old simile, 
 that it was putting water into a bucket with a hole in it. 
 Where were the gold-findings then ? If the gold-findings 
 are the true cause of the safety of our bullion reserve in 
 this country, how came they not to have protected the 
 bullion reserve in other countries? I apprehend the 
 statement to be altogether a random assertion, with neither 
 facts nor reasoning to support it ; and that the plain, clear, 
 and distinct principle of the question is this, that by having 
 limited the paper money, so that it has fluctuated with 
 the bullion, as the bullion has gone out the money of the 
 country has been diminished, until it reached a certain 
 point below which the national wants and necessities 
 of the country would not permit it to be further dimi- 
 nished. By that means the money of this country was 
 increased in value, so that it no longer became advan- 
 tageous to send commodities to this country ; but money 
 was the best remittance to send to this country, and by 
 that means the store of bullion was immediately re- 
 plenished. It is the plain result, from the operation of 
 the principle with regard to the interchange of the pre- 
 cious metals throughout the world, which has been recog- 
 nized and acknowledged by every authority which has 
 ever written upon the subject. [Money is exported from 
 this country in preference to commodities only because 
 money is in excess, and is therefore cheaper here than in 
 other countries. But this excess of amount is soon cor- 
 rected, and the money of this country restored to an 
 equality of value with the money of other countries, by 
 the export of gold, provided the place of the gold thus 
 exported be not supplied by new issues of paper money.
 
 16 
 
 It is to a firm adherence to this principle, and not to any 
 accident connected with gold-findings, we are indebted 
 for the steady maintenance of our bullion reserve at a 
 minimum amount of 8,000,000 under the most trying cir- 
 cumstances. The subject has been fully explained, and 
 the principle clearly established by Mr. Kicardo : " It is 
 only after a comparison of the value in their markets and 
 in our own of gold and other commodities, and because 
 gold is cheaper in the London market than in theirs, that 
 foreigners prefer gold in exchange for their commodities. 
 If we diminish the quantity of currency, we give an 
 additional value to it ; this will induce them to alter their 
 election, and prefer the commodities. If I owed a debt 
 in Hamburgh of 100/. I should endeavour to find out the 
 cheapest mode of paying it. If I send money, the . 
 expense attending its transportation being, I will suppose, 
 5/., to discharge my debt will cost me 105/. If I pur- 
 chase cloth here, which, with the expenses attending its 
 exportation, will cost me 106/., and which will in Ham- 
 burgh sell for 100/., it is evidently more to my advantage 
 to send the money. If the purchase and expenses of 
 sending hardware to pay my debt will take 107/., I should 
 prefer sending cloth to hardware, but I would send neither 
 in preference to money, because money would be the 
 cheapest exportable commodity in the London market. 
 But if the Bank " fearful for the safety of their establish- 
 ment," and knowing that the requisite number of guineas 
 would be withdrawn from their coffers at the mint price, 
 should think it necessary to diminish the amount of theii 
 notes in circulation, the proportion between the value of 
 money, of the cloth, and of the hardware, would no longer 
 be as 105, 106, 107; but the money would become the 
 most valuable of the three, and therefore would be less ad-
 
 17 
 
 vantageously employed in discharging the foreign debts. 
 Pamphlet "High Price of Bullion, proof of Deprecia- 
 tion of Bank Notes," p. 15.] 
 
 3650. In your evidence in 1848, in answer to Ques- 
 tion 5142, you make this remark in contrasting the state 
 of things before the Act of 1844 and the subsequent 
 state of things ; you say, " Under the former system the 
 Bank was under no necessity of taking any precautionary 
 measures until the bullion was reduced to a very low 
 amount. Under the Act of 1844 the Bank is obliged to 
 take precautionary measures when the banking reserve is 
 reduced to a low amount. Now the banking reserve is 
 reduced to a low amount at a much earlier period than the 
 bullion is reduced to a low amount ; and therefore the 
 Act of 1844 places the Bank under the necessity of acting 
 protectively at a much earlier period than it was compelled 
 to act under the previous system. In so far the Act of 
 1844 has compelled an earlier action, and in addition to 
 its compelling an earlier action, as that earlier action must 
 necessarily take place with a higher amount of gold, it 
 protects you from all those further inconveniences which 
 attended the feeling of apprehension with regard to a 
 deficiency in the actual store of gold. That seems to me 
 to be the difference between the Act of 1844 and of the 
 previous system." Does that statement appear to you to 
 describe correctly the manner in which the Act has 
 operated since the time when you gave your evidence ? 
 Perfectly. If I had to state the case over again I should 
 beg to be allowed to read those words : I see nothing 
 whatever to be altered in any shape or form. As it 
 appears to me, it is only reiterating the same statement in 
 other words to say that previously to the Act of 1844, as 
 bullion went out, the place of that bullion was taken by 
 
 c
 
 18 
 
 paper notes issued. The consequence of that was, that the 
 circulation, in other words the money, of this country was 
 kept at an undiminished amount, when the action of the 
 exchanges required the decrease of it. Under those cir- 
 cumstances gold would continue to go out, and would 
 have continued to go out, until it was finally exhausted, 
 had it not been that when it became known that the gold 
 was reduced to a very low amount, then the public became 
 alarmed, and the Bank became alarmed, and through 
 that alarm they resorted to precautionary and corrective 
 measures. Under the Act of 18J.4, which has developed 
 that most essential feature in the monetary system of the 
 country, the banking reserve, Ave now all know that as 
 the bullion goes out, either the notes, which are not in 
 the Bank till, or the notes which are in the Bank till, 
 must undergo a corresponding decrease ; and that being 
 the case, the corrective influence upon the action of the 
 Bank, and upon the feeling of the public, is brought into 
 play at the very commencement of the evil. 
 
 3651. Then according to your view, the effect of the 
 present Act is to induce the Bank of England to take 
 precautionary measures earlier than they might do if the 
 Act did not exist ? I think that that is rather an objec- 
 tionable mode of stating the operation, though I do not 
 mean to say that it is absolutely incorrect. The opera- 
 tion of the Act of 1811 is this, that the Bank notes, 
 in other words the money, of the country must de- 
 crease as the drain of bullion goes on. That decrease 
 in the money of the country must augment its value ; 
 that augmentation of its value must produce two effects ; 
 one is, that it causes a temporary rise in the rate of in- 
 terest to which the Bank must conform ; and the other is, 
 that it induces the bullion merchants of this country to
 
 19 
 
 write to their correspondents abroad, to say, " Money in 
 relation to all other things has become more valuable in 
 this country than it was, therefore in your transactions 
 with us, remit money in preference to other things," and 
 in that way the exchanges are soon rectified. 
 
 3652. It is perhaps scarcely necessary to ask your 
 Lordship whether you accede to the .opinion that the 
 Bank has the power of regulating the rate of discount by 
 its own action ; whether it can, in fact, be said to make 
 the rate of discount ? If we are to go into the question 
 of the rate of discount, it will, perhaps, involve many 
 considerations and explanations. The rate of discount is 
 the value of money, and that is regulated by one of two 
 things. Generally in all its great and permanent fluctua- 
 tions, it is really an alteration in the value of capital, in 
 some of its minor fluctuations, minor as to extent and as 
 to duration ; it may be the result of a decrease in the 
 quantity of money. All great fluctuations in the rate of 
 interest (and I am sure the more the question is watched 
 and examined and sifted in detail, the more strongly 
 that fact will come out), whether as to extent or as to 
 duration, are really the result of an alteration in the 
 value of capital. The alterations in the rate of interest 
 which arise from any alteration in the quantity of money in 
 the country are small, as regards their extent and more 
 especially as regards their comparative duration. That 
 they are very frequent, which I understand has been one 
 of the objections raised, is in reality the very essence of 
 their utility. The fluctuations in the rate of interest pro- 
 duced by changes in the amount of money in the country, 
 are practically like the incessant oscillations of a tight rope 
 dancer, by which he keeps the balance of his position 
 apparently undisturbed, and that is really the character 
 
 c 2
 
 20 
 
 of the slight out very continuous oscillations in the rate 
 of interest arising from the alterations in the quantity of 
 money in the country. All the great fluctuations in the 
 rate of interest have reference to an alteration in the 
 value of capital. [As this is a very important question, 
 and many erroneous opinions arise from a mistaken view 
 of it, I am glad to be enabled to support my state- 
 ment by the joint authority of Ilicardo, Adam Smith, 
 and David Hume. " It is contended that the rate of 
 interest, and not the rate of gold or silver bullion, is the 
 criterion by which we may always judge of the abundance 
 of paper money ; that if it were too abundant, interest 
 would fall, and if not sufficiently so, interest would rise. 
 It can, I think, be made manifest, that the rate of inte- 
 rest is not regulated by the abundance or scarcity of 
 money, but by the abundance or scarcity of that part of 
 capital, not consisting of money, &c. It is maintained by 
 Adam Smith, that the discovery of the mines in America, 
 which so greatly increased the quantity of money, did 
 not lessen the interest for the use of it ; the rate of interest 
 being regulated by the profits on the employment of 
 capital, and not by the number or quality of the pieces 
 of metal, which are used to circulate its produce. " High 
 Price of Bullion, &c." p. 57. 
 
 In his Essay on Interest, Hume says, " High interest 
 arises from three circumstances : a great demand for 
 borrowing; little riches to supply that demand; and 
 great profits arising from commerce. Low interest, on 
 the other hand, proceeds from the three opposite circum- 
 stances : a small demand for borrowing ; great riches 
 to supply that demand ; and small profits arising from 
 commerce. " 
 
 The aggregate amount of money in the world must
 
 21 
 
 have been largely augmented by the increased production 
 of gold during the last ten years, yet the rate of interest 
 throughout the world is unusually high. The operations 
 of trade have been expanded with excessive rapidity, 
 the demand for capital has proportionally increased, and 
 a high price, that is, a high rate of interest is paid 
 for it. More capital is required than can be imme- 
 diately supplied ; those, consequently, who have relied to 
 the greatest extent upon borrowed capital are involved in 
 embarrassment.] 
 
 3653. I think Mr. Newmarch and Mr. Mill have 
 expressed an opinion to this Committee that the separa- 
 tion of the departments of the Bank of England has been 
 the cause of more frequent and more inconvenient 
 variations in the rate of discount than would have 
 occurred if that separation had not existed ; do you see 
 any force in those arguments ? No, I see no force what- 
 ever in any of those arguments; I believe them to be 
 not arguments ; they are assertions, and I believe that 
 they are assertions directly in the teeth of, and incon- 
 sistent with, the facts of the case. It is a question more 
 of absolute fact than of reasoning ; I have already stated, 
 but perhaps it is better to restate, that the fluctuations in 
 the rate of interest arise from one of two causes; an altera- 
 tion in the value of capital, or an alteration in the amount 
 of money in the country ; all great fluctuations of interest, 
 great, either in their duration or in the extent of the 
 fluctuation, may be distinctly traced to alterations in the 
 value of capital ; two more striking practical illustrations 
 of that fact cannot be furnished than the rise in the rate 
 of interest in 1847, and during the last two years; the 
 minor fluctuations in the rate of interest which arise from 
 an alteration in the quantity of money are small both in
 
 22 
 
 extent and in duration. They are frequent, and the 
 more rapid and frequent they are, the more effectual they 
 are for accomplishing their destined purpose without 
 serious inconvenience to the public; with regard to the 
 fact that the fluctuations in the rate of interest have been 
 greater subsequently to 1844 than they were previously 
 to 1844, I can only appeal to facts to settle that question; 
 and the facts I am perfectly ready to lay before the 
 Committee, and to trace the fluctuations of interest for 
 a very long period, from the commencement, I may say, 
 of our monetary system, to the present time. I begin 
 with 1783, and quote the authority of Mr. Tooke : "This 
 contraction of the currency was attended with a great 
 rise in the rate of interest ; consols fell from 68 to 54 ; 
 omnium from a premium of 8 per cent, to below par. 
 Every one, says Chalmers " (therefore there is Chalmers' 
 authority as well as Tooke's), "must remember how 
 impossible it was to borrow money on any security for 
 any premium." The next period was 1793, and upon 
 that subject I quote from Macpherson's well known 
 Annals of Commerce. " Many houses of the most 
 established credit failed. Houses of undoubted solidity, 
 possessing ample funds, which actually did in a short 
 time enable them to pay every shilling of their debts 
 were obliged to stop payment. Some bankers, who, 
 almost immediately on recovering from the first panic, 
 resumed the regularity of their payments, were obliged 
 to make a pause. Many, whom the temporary assistance 
 of even a moderate sum would have enabled to surmount 
 their difficulties, could not obtain any accommodation." 
 In 1797, I quote again Mr. Tooke, "The effect of this 
 extreme contraction was felt chiefly in the money 
 market ; Exchequer bills bearing S^d. per day, were sold
 
 23 
 
 at 60s. and 70s. per cent, discount, and it was said, that 
 in some instances sales were made at 51. discount. Navy 
 and victualling bills were also at an enormous discount, 
 and the 3 per cent. Consols fell below 50. Mercantile 
 bills, excepting such as came within Bank time and 
 regulations, were hardly negotiable at all, or were subject 
 to heavy commissions, by way of evading the operation 
 of the Usury Laws." Of course in measuring the rate 
 of interest previously to the repeal of the Usury Laws, it 
 will be borne in mind that the rate of discount avowedly 
 could not exceed 5 per cent., but practically, it went far 
 beyond it. In 1799, " the rate of discount at Hamburgh 
 rose to 15 per cent., at which only the best bills, and to 
 a very limited amount, could be made available." That 
 is from Mr. Tooke' s History of Prices. Now we come to 
 the year 1825. The first evidence is a letter from an 
 eminent merchant in New York, quoted by Mr. Tooke in 
 his pamphlet, in 1826: " No bill of exchange can be sold 
 here but on credit of two, three, or four months, and 
 such is the precarious state of commerce, that such pay- 
 ments are hazardous in the extreme, and papsr discounted 
 at from 1^ to 3 per cent, per month." That is at a rate 
 of from 18 to 36 per cent, per annum. This, the Com- 
 mittee will observe, occurred under a system of free 
 competition of issuing banks, subject only to the obliga- 
 tion of payment in specie. Again, Mr. Tooke says in 
 his pamphlet, " the operation of the Usury Laws may be 
 distinctly traced in a great aggravation of the distress 
 among merchants and bankers during that critical period. 
 Numbers who would gladly have given an advanced rate 
 of 8 or 10 per cent." (" gladly have given," observe) 
 " were driven to sell stock and goods at a loss of 20 or 
 30 per cent, for cash, compared with the price for time.
 
 24 
 
 It is a matter of notoriety that extensive sales were 
 actually made of stock at that difference, and it is within 
 my own knowledge, that sales of goods for immediate 
 money were made at a still greater sacrifice." Again he 
 says, " One of the great difficulties which the Directors of 
 the Bank of England have experienced in the regulation 
 of their issues has arisen from the uniformity of the 
 Bank rate of discount, while the market rate of interest 
 has been subject to frequent and sometimes great varia- 
 tions." That is from Mr. Tooke's pamphlet of the year 
 1826, page 75, and I see that I have made a note, " Read 
 the whole of this passage." He says again, " The only 
 mode of obviating the inconvenience hence arising and 
 of regulating the circulation upon correct principles, 
 would have been by frequent and sometimes great altera- 
 tions in the rate of discount." That is Mr. Tooke's 
 own recommendation at page 78. Then again in the 
 third volume of Mr. Tooke's History of Prices there is a 
 whole section devoted to the dissection and exposure of 
 the fallacies of a speech of Mr. Hume, who complained 
 of the high rate of discount, and of the variations by the 
 Bank. It would take too much of the time of the 
 Committee to read it now ; but I should really like to 
 have the whole of that section put on the minutes ; it is a 
 very remarkable section, in which Mr. Tookc in his usual 
 off-hand and summary manner disposes, with a consider- 
 able expression of contempt, of the whole speech of 
 Mr. Hume ; the purport of which was to complain of the 
 fluctuations in the rate of interest and the rate of discount 
 by the Bank. It is an important section, and well worth 
 putting on the notes of the Committee. Having traced 
 the fluctuations of the rate of interest so far, I took some 
 pains to get as far as was possible the rate of interest
 
 25 
 
 in the city, and I have here a statement of the fluctua- 
 tions in the . rate" of interest allowed by brokers upon 
 loans at call, and I think the Committee will see that the 
 fluctuations before 1814 were, to say the very least of it, 
 quite to the extent of anything since 1844, and I believe 
 much greater. This is extracted from my own concern. 
 In 1821, the latter part, the rate of interest upon loans at 
 call was 5 per cent. ; in 1 822, the early part, it was 
 2\ per cent.; again, in 1824, in the early part, the rate of 
 interest was 2 per cent.; in 1825, in the early part, it was 
 5 per cent.; in 1826, in the middle part, it was 5 per 
 cent.; and again, in 1827, in the middle part, it was 
 down to 2 per cent.; in 1838, in the middle part of the 
 year, it was 2| per cent.; in 1839, in the latter part, it 
 had risen to 5 g per cent. ; then th.e partial suspension of 
 the Usury Laws had begun to come into action. In 
 1810, the latter part, it was 5 per cent.; in 1843 it was 
 2 per cent.; and Mr. Hubbard himself has given a state- 
 ment in his evidence, which I believe to be perfectly 
 correct, that the value of money in 1843 fell quite as low 
 as 1| per cent. I can state, of my own personal expe- 
 rience, that I have discounted millions of bills under 
 2 per cent. Then again, that is perfectly in harmony 
 with the price of Exchequer bills. I have a statement 
 of the fluctuations in the price of Exchequer bills. The 
 price of Exchequer bills in L825, in January, was 62s. 
 premium ; in December it was 85s. discount. Now the 
 Committee will remember that the premium and the 
 discount upon an Exchequer bill are in reality the rate 
 of interest for a small portion of the year; because at the 
 end of the period for which the bill runs it commands par 
 from the Government. In 1826, in April, it had gone up 
 again to 10*. premium ; then again in 1838, in October,
 
 26 
 
 Exchequer bills were at 70*. premium ; in 1839, in 
 October, they were at 6*. discount; and in 1844, in 
 October, they had again gone up to 79s. premium. I 
 apprehend that, in the teeth of those facts, it is quite 
 idle to talk of increased fluctuations in the rate of interest 
 caused since the Act of 1844, as compared with the state 
 of things which occurred in every period of pressure 
 previous to 1844. 
 
 3654. If a speculative spirit is rising, and there is a 
 demand for capital greater than the means of satisfying it, 
 and the consequence is that the rate of discount rises, and 
 thereby causes a pressure upon trade, is it at all clear that 
 that pressure is an evil and not a good ? It is perfectly 
 clear that that pressure is salutary in its influences, if there 
 be an undue tendency to enter into transactions beyond 
 the extent to which capital will support them; the in- 
 creased demand for, and therefore the increased value of, 
 capital which so arises, ought to be left to produce its 
 natural effects, which natural effects are necessarily 
 salutary and wholesome effects. 
 
 3655. If that pressure did not arise at an early period 
 the result might be that there would be a commercial 
 crisis, might it not? Undoubtedly; that is a principle 
 intimately connected with all our great commercial crises ; 
 first of all, from some of those circumstances which affect 
 the sympathies of mankind, a speculative spirit arises ; 
 that creates a demand for money, money being merely the 
 special instrument of obtaining capital. If that money is 
 allowed to rise in value, in proportion to the demand for 
 it, the correction follows in a gradual and natural and 
 wholesome form ; but if that demand for money is 
 met by increased issues of paper, and when I speak of 
 increased issues of paper, I hope I shall be clearly
 
 27 
 
 undei stood to mean either an absolute increase in the 
 amount of money in the country, or the maintenance of 
 the existing amount when the drain of the precious metals 
 out of the country requires a decrease of the amount, for 
 they are precisely the same in principle, if that demand 
 for money is to be supplied by the continuous putting out 
 of paper money, then the corrective influences are delayed 
 in their operation, and in proportion to the delay of their 
 operation the ultimate evil, and difficulty in correcting the 
 evil, are greatly augmented. 
 
 3656. Those who complain of the Bank for keeping 
 up a high rate of discount assume that a high rate of 
 discount is necessarily an evil, do they not ? I cannot at 
 all say what they assume, for they seem to me to assume 
 anything that suits them at the moment, one thing being 
 contradictory to the other. 
 
 3657. When they complain of the Bank as exercising 
 an improper discretion in raising the rate of discount 
 unnecessarily, is not the very essence of that complaint 
 the assumption that a high rate of discount is a public 
 evil ? We must of course clearly distinguish between an 
 arbitrary action on the part of the Bank, and a real rise 
 in the rate of interest ; a real rise in the rate of interest, 
 whether it be convenient or inconvenient, must be the 
 natural and necessary course of things, and any artificial 
 interference with it must produce evil. If the Bank 
 arbitrarily raises its rate of interest, that can exist only 
 for a very short period. The Bank is not the governor 
 f public events, it is the servant of public events. The 
 fault that the Bank has usually committed has been not 
 conforming to the natural fluctuations in the rate of 
 interest. When the rate of interest has naturally been 
 rising on former occasions, the Bank has been slow and
 
 28 
 
 tardy in conforming to that natural increase in the value 
 of money, and mischief has ensued from it; but the 
 Bank would always best serve the public, if it were to 
 conform as strictly and as speedily as is possible to the 
 real market value. [Ricardo makes the following im- 
 portant and, indeed, conclusive statement, with respect to 
 the supposed influence of the Bank of England over the 
 rate of interest : " The rate of interest is not regulated 
 by the rate at which the Bank will lend, whether it be 
 five, four, or three per cent., but by the rate of profit 
 which can be made by the employment of capital, and 
 which is totally independent of the quantity and of the 
 value of money. Whether a bank lend one million, ten 
 millions, or a hundred millions, they would not per- 
 manently alter the market rate of interest ; they would 
 alter only the value of the money which they thus issued. 
 In one case ten or twenty times more money might 
 be required to carry on the same business, than what 
 might be required on the other. The applications to the 
 Bank for money, then, depend upon the comparison 
 between the rate of profits that may be made by the 
 employment of it, and the rate at which they are willing 
 to lend it. If they charge less than the market rate of 
 interest, there is no amount of money which they might 
 not lend ; if they charge more than that rate, none but 
 spendthrifts and prodigals would be found to borrow of 
 them. We accordingly find, that when the market rate 
 of interest exceeds five per cent., at which the Bank 
 uniformly lends, the discount office is besieged with appli- 
 cants for money ; and on the contrary, when the market 
 rate is even temporarily under five per cent., the clerks of 
 that office have no employment." " Ricardo's Principles 
 of Political Economy," 1st edit. p. 511.]
 
 29 
 
 3658. What I understand Mr. Newmarch, and, I 
 believe, Mr. Tooke to object to as respects the Act of 
 1844 is, not so much the high rate of interest, as the 
 variations in the rate, which they attribute to the Act, 
 and Mr. Newmarch even suggested that the Bank ought 
 never to use a lower rate of discount than 4 per cent. 
 What do you think of that proposition? I think it 
 wholly unreasonable and untenable; I can give no other 
 answer. [In the present advanced state of public intelli- 
 gence it is surely impossible that any well-informed person 
 can seriously recommend the attempt by arbitrary and 
 violent measures to resist the natural course of things. 
 The remedy for any supposed evil can be found only in 
 measures which are founded upon some clear and intel- 
 ligible principle. If there be a natural tendency to a 
 fall in the rate of interest, this will not be corrected by a 
 refusal on the part of the Bank to conform to the natural 
 price of money. Such a step Avill not obviate the evil, 
 if an evil it be. But it may, and in all probability it will, 
 cause much mischief by interrupting and delaying the 
 timely and gradual application of the true, because the 
 natural, correction. Regularity of supply and consequent 
 steadiness of price is in all cases more promoted by the free 
 competition of the public than by any arbitrary or artificial 
 measures. This is true of money, as of all other things.] 
 
 3659. What, in your view, would be the result of an 
 attempt on the part of the Bank to act upon any such 
 maxim as that of never establishing a lower rate of dis- 
 count than 4 per cent. ? The result of course would be, 
 that whenever the natural value of money or of capital 
 was below 4 per cent., all the discount business of the 
 Bank would pass away, and capital would be obtained 
 through other channels, at a lower rate.
 
 30 
 
 3660. Would not the Bank then be induced to lend by 
 other means, so as practically to avoid its own maxim ? 
 No doubt. The Bank, if it could not lend its money 
 by discount, would seek to lend it through other means. 
 We have had that phenomenon occurring before. The 
 Bank would be lending money upon railroad bonds ; it 
 would be purchasing stock; it would be using every 
 means by which it could lend its money. Therefore the 
 supposition in that form amounts to nothing ; it is a mere 
 transference of the form of advance from a discount to 
 some other mode of advancing. If you try the supposi- 
 tion at all, you must suppose that the .Bank ceases to 
 employ its capital ; a supposition which, I think, it is not 
 worth while discussing, because it is a pure gratuitous 
 theory which has no practical reality. 
 
 3661. It was stated by, I think, Mr. Newmarch, that 
 the operation of the present Act in cutting the bullion into 
 two parts, the larger part of which was in the Issue Depart- 
 ment, and the smaller part in the Banking Department, had 
 a mischievous effect in increasing the \ariations of the 
 rate of discount. Do you recognise the connection be- 
 tween cause and effect? I think I might safely leave it 
 to the Committee to judge of the value of that observa- 
 tion ; I do not wish to criticise such statements as those. 
 
 3662. You do not attribute any value to that remark? 
 Certainly not. [The bullion in the Banking Depart- 
 ment is of very small amount. It is held by the Bank 
 for the daily convenience of fractional payments, as the 
 small change is held in the till of every private concern, 
 or in the pocket of each private individual. It can in no 
 way affect any question of principle. But the case would 
 not be different were the bullion in the Banking Depart- 
 ment of much larger amount. It matters little where the
 
 31 
 
 bullion lies. If it be dormant in the Issue Department, 
 then it is represented by an equivalent amount of notes 
 active in the Banking Department. If, on the other 
 hand, the bullion be transferred to a state of activity in 
 the Banking Department, then an equal amount of notes 
 previously in a state of activity, must be returned to lie 
 in a cancelled state in the Issue Department. The Bank 
 notes are merely the representatives of the bullion, and it 
 cannot be a matter of any practical importance whether 
 the Banking Department hold a certain amount of coined 
 gold, or an equal amount of Bank notes representing that 
 gold.] 
 
 3663. Following up your view as to the importance of 
 the separation between the two departments of the Bank, 
 does it appear to you desirable that the law should remain 
 in its present state, or that any attempt should be made 
 to separate the Issue Department more completely from 
 the Banking Department ? I think that the Issue De- 
 partment is now effectually and completely separated from 
 the Banking Department. The only consideration which 
 bears upon that question is, that, from the mere fact of 
 their being carried on under the same roof, a certain por- 
 tion of the public cannot yet divest their minds of the 
 impression that there is some union between them. 
 Whether any further separation would be desirable, for 
 the purpose of medicating to that weakness, I really can- 
 not undertake to say, but I think that, upon the whole, 
 the thing is in a satisfactory state. You have obtained all 
 the great results at which you aimed ; you have obtained 
 those results with perfect consistency with the uninter- 
 rupted development of the prosperity of the country ; you 
 have had the approval of those who have had to watch the 
 operation of the Act in their declaration, that they see no
 
 32 
 
 reason for disturbing it, and that they wish to have it 
 continued in its present form ; and I think, under those 
 circumstances, that as respects any further disturbance of 
 the department by moving it elsewhere, the considerations 
 are not sufficiently powerful to make that at all desirable. 
 3664. Let me call your attention to two questions 
 which were put to you in the Committee of 1848, by Sir 
 William Clay ; they are Questions 5282 and 5283. Sir 
 William Clay asked you : " Do not you think it might 
 tend to a more wholesome state of feeling in the public 
 mind, if the issue of notes were separated from the Bank, 
 and taken out of their hands ?" To which you replied : 
 " Yes, I think so." Then he proceeded to say : " It 
 might be made a department of the State, or some 
 department connected with the State, and kept wholly 
 free of the Bank, leaving to the Bank of England their 
 functions as the bankers of the State, but taking wholly 
 out of their hands the issue of notes ?" Your answer was : 
 " I think the more the management of the circulation is 
 separated from the banking business, not only in reality, 
 but in appearance, the more beneficial it will be to the 
 public interest." In that answer you do not express any 
 opinion in favour of a State Bank, but merely give a 
 general opinion in accordance with what you have stated 
 to-day in favour of the separation of the functions of 
 banking, and of issuing paper. With respect to Sir 
 William Clay's question as to making the Bank of Issue 
 a department of the State, what is your present opinion, 
 from your experience ? I think it is rather unfortunate 
 that we have the term " Bank" associated with the Issue 
 Department ; and I think that some vague impressions 
 arise in the public mind from that form of expression. I 
 certainly think it quite essential that the issue of paper
 
 33 
 
 money should be kept entirely separate and distinct from 
 everything connected with banking business. The objec- 
 tion to putting it more avowedly and distinctly in the 
 hands of the Government than it is at present, I think is 
 of this nature, that so long as there exists in the public 
 mind an impression that pressure upon the trading 
 world is associated with the management of the monetary 
 system of the country, it might be very inconvenient to 
 place that monetary system more avowedly in the hands 
 of the Government ; and I must also observe, that I 
 think the interposition of some responsible body, be- 
 tween the Government and the management of paper 
 issues, might be exceedingly convenient in strengthening 
 and assisting the Government to resist pressure which 
 might come upon it at certain periods, to do that which 
 it ought not to do. 
 
 3665. On the whole, you would not be disposed to 
 recommend any change similar to that contemplated in 
 the question referred to, namely, the withdrawal of the 
 business of issue from the Governor and Company of the 
 Bank of England, and the placing it in the hands of a 
 body nominated by the Government or by Act of Parlia- 
 ment ? I must again say, that I dislike the expression of 
 the business of issue being in the hands of the Governor 
 and Company of the Bank of England. I consider the 
 business of issue to be in the hands of the Issue Depart- 
 ment, and in the hands of the law of the country. The 
 Governor and Company of the Bank of England have no 
 power in the matter of any sort or kind ; they are merely 
 the clerks who have to do the business which the law has 
 ordained. 
 
 3666. Still the Issue Department requires some ma- 
 nagement, and the law vests that management in the 
 
 D
 
 34 
 
 Governor and Company of the Bank of England, does it 
 not ? Yes j but I think it very important to distinguish 
 that it vests in the Governor and Company of the Bank 
 of England, the mechanical duties which must be dis- 
 charged ; but it invests them with no discretionary 
 management whatever with regard to the issues, and 
 therein it is that the whole essence of the distinction 
 consists. 
 
 3667. Surely the amount of bullion which may be in 
 the Issue Department must in some degree depend upon 
 the discretion of the Directors of the Bank? Not in the 
 slightest degree. That brings us at once to the very 
 pith and heart of the whole of this question. It is 
 quite the reverse of that. The whole community are per- 
 fectly free, according to their own discretion, to deposit 
 bullion in the Issue Department, and against the bullion 
 so deposited in the Issue Department, the Issue Depart- 
 ment is bound, and has no discretion in the matter, to 
 issue notes. The Bank of England have no discretionary 
 power whatever over the bullion in the Issue Department. 
 
 3668. You do not hold that the Bank of England have 
 any power of increasing the bullion in the Issue Depart- 
 ment by any act of theirs? They have no power of 
 increasing the bullion in the Issue Department by any 
 direct act of theirs. The Bank by those various actions 
 which influence the exchanges, may draw more bullion 
 into the country, and so increase the bullion in the Issue 
 Department ; they have no other power than that. 
 
 3669. Do not you hold that they have a power of 
 diminishing the quantity of bullion in the Issue Depart- 
 ment by their acts ? They have no more power to do it 
 than I have, or you have. They may take notes to the 
 Issue Department and may demand bullion in exchange
 
 35 
 
 for those notes, as anybody else may do ; but they have 
 no other power than that. 
 
 3670. At all events it would be possible by Act of 
 Parliament to put an end to the present law which regu- 
 lates the issue of Bank notes from the Issue Department, 
 and to transfer that issue to a body, either appointed by 
 the Government, or constituted under the direct authority 
 of an Act of Parliament, would it not ? According to my 
 view of the matter, that would be no transference at all ; 
 it would be merely a change of name ; instead of the Issue 
 Department, you chose to put the word " Mint," or " The 
 Chancellor of the Exchequer," or any thing else that you 
 like. It seems to me that it is at present in substance 
 entirely separate, and that the whole question is merely a 
 question of form. You may alter the form, but the sub- 
 stance is accomplished already. 
 
 3671. Then your view is, that the present law has 
 subjected the Issue Department to the power of mecha- 
 nical laws, if one may say so, and that any transfer of the 
 nominal managing authority would be formal, and not 
 real? I apprehend that is not a matter of opinion; there 
 can be no doubt of that fact. 
 
 3672. Assuming that the issue remains as at present, 
 would it be, in your judgment, desirable to extinguish the 
 right of issue by country banks, and to provide for the 
 whole paper circulation of England in the first instance, 
 by Bank of England paper ? There can be no doubt that 
 that is a state of things which all principle would lead to. 
 The present system of country issues which exists in the 
 United Kingdom is undoubtedly a complete anomaly. We 
 have it, and we do not very well know how to get rid of it ; 
 but I apprehend that no intelligent person can say that 
 he likes the system, or that he approves of it. At the 
 
 d 2
 
 36 
 
 time when the Act of 1844 was passed, there were 
 two modes of dealing with the subject, which might have 
 been taken. One would have been, to have endeavoured, 
 by a sort of bold act at the time, to eliminate the whole 
 of that anomalous system of country issues, from the 
 monetary system of the country ; the other course was, to 
 trust to the absorption of them by the gradual process of 
 natural causes. Sir Robert Peel thought the latter the 
 wise course to take, and I certainly think, that as a prac- 
 tical statesman, he exercised a sound discretion upon the 
 subject. I should, myself, be disposed to follow out his 
 policy. Of course, following out his policy involves this, 
 that nothing must be done in any degree to extend or to 
 strengthen those country issues, but that all the tendencies 
 of your law must be, to carry out that policy of gradually ab- 
 sorbing this system through the operation of natural causes. 
 
 3673. The Act of 1844 contains within itself evidence 
 that the extinction of the country bank circulation of 
 England was then contemplated, does it not? I think 
 that it contains evidence of a desire to see that circulation 
 controlled and ultimately extinguished, but I think that 
 it contains clear evidence that the putting a fixed limit to 
 the amount of that circulation was deemed by Sir Robert 
 Peel to be the accomplishmont of the main and great 
 object respecting it, and that after that was effectually 
 accomplished, the evil of the country circulation was so 
 greatly mitigated, that it was not necessary to be over 
 anxious with regard to its further progress. 
 
 3G74. The composition clause appears to have had for 
 its object the gradual extinction of the country bank issues 
 by voluntary means? Certainly. 
 
 3675. Then Section 25 is to this effect : " Be it 
 enacted, that all the compositions payable to the several
 
 37 
 
 bankers mentioned in the Schedule hereto marked (C), 
 and such other bankers as shall agree with the said Gover- 
 nor and Company to discontinue the issue of their own 
 bank notes as aforesaid, shall, if not previously determined 
 by the act of such banker as hereinbefore provided, cease 
 and determine on the first day of August, One thousand 
 eight hundred and fifty-six " that has passed, " or on any 
 earlier day on which Parliament may prohibit the issue 
 of bank notes/' Do not those latter words appear to you 
 to show that when this Bill was drawn, the framers of it 
 had in contemplation the possible prohibition of the issue 
 of country bank notes even before the 1st day of August 
 1856 ? I have not particularly attended to the meaning 
 of those words ; the Committee are much better capable 
 of judging of the real import of them than I am, but I 
 think it highly probable that it was in the mind of Sir 
 Robert Peel that circumstances might require some deter- 
 mined action with regard to the country issues, 
 
 3676. The operation of the composition clause has 
 hitherto not been considerable ? No. 
 
 3677. Do you think that its operation has been in any 
 way arrested by the war, and by the high rate of interest 
 during the last two years ? I am hardly competent to 
 give an opinion upon that point ; I should think that it 
 must have been a very slight influence, if any. 
 
 3678. In fact, few compositions took place even during 
 the period of low interest and previously to the war? I 
 apprehend that the country issues are quietly subsiding, 
 that the public are losing their attachment to the country 
 issues ; that they are becoming more and more convinced 
 of the reasonable character of the Act of 18 14, and of the 
 truth and soundness of the great principle upon which 
 that Act is founded. I believe that the country issuers
 
 38 
 
 themselves are learning to appreciate their issues at a much 
 lower point than they used to do, and consequently the 
 whole of those issues are becoming year by year less 
 efficient in their action as a portion of the money of the 
 country, and that they may be safely left to die away; it 
 is the flickering of the candle which is going out. 
 
 3679. Then you would not recommend any legislative 
 measure to accelerate the extinction of the country 
 issues ? I entirely agree in the principle clearly set 
 forth by Sir Robert Peel, when he was planning the 
 Act of 1844, that these discussions upon the subject of 
 the monetary system and the banking regulations of 
 the country are exceedingly inexpedient and mischievous, 
 and that they should be avoided by every possible means ; 
 and I certainly think there is no good to be derived from 
 now dealing with the country issues at all comparable to the 
 evil that may arise from disturbing existing arrange- 
 ments. [This opinion is perhaps stated too strongly, and 
 requires some qualification. It is " not advisable unneces- 
 sarily to agitate questions affecting the banking interests 
 and the currency of the country," because all such dis- 
 cussions must tend to unsettle the public mind and to 
 encourage it to look for changes in the existing system, 
 with respect to which change, unless absolutely requisite, 
 is very inexpedient, a feeling of stability and per- 
 manence in the system being essential to its efficiency. 
 This appears to have been the view of Sir Robert Peel 
 and Mr. Goulburn. And this view is not inconsistent 
 with the recognition of the principle that free and full 
 discussion is essential to sound legislation, as the only sure 
 means by which we may get rid of bad laws, or secure 
 the amendment of those which are imperfect. In the 
 present instance the Act of 1844 might, I think, have
 
 39 
 
 been safely renewed without the present preliminary 
 discussions; at the same time the expectation may be 
 reasonably entertained that the effect of these discussions 
 will be to diffuse more widely a correct understanding of 
 the principle of the measure, and thus to strengthen and 
 consolidate the public confidence in its policy.] 
 
 3680. One of the proposals which have been made 
 with respect to the country issues, and one of the peti- 
 tions which the parties themselves now make is, that they 
 may be allowed to issue against bullion in excess of their 
 present limits, upon the same principle as is adopted in 
 the case of the Scotch and Irish banks ; what would you 
 think of that change ? My answer to that question is 
 involved in the answer which I have already given, that I 
 think it would be entirely inconsistent Avith the whole 
 principle upon which Sir Robert Peel proceeded to do 
 anything which should directly or indirectly strengthen or 
 foment the country issues. The principle is to extinguish 
 them gradually and quietly without making a disturbance; 
 but constantly to keep your eye upon the ultimate 
 object in view, namely, the extinction of the country 
 issues. 
 
 3681. Do you think that we are making at our present 
 rate of change any considerable advance towards the 
 extinction of the country issues ? I think we have pretty 
 nearly extinguished all the serious evils which arise from 
 them ; I do not at all mean to say that there are not still 
 some very serious objections to them ; but upon the whole 
 the result of my judgment would be that it is better to let 
 things go on as they are. 
 
 3682. It appears that in October 1811 the total issues 
 of the country banks were 8,058,611/.? Yes. 
 
 3683. In May 1857 they were 6,93i,62K ? Yes.
 
 40 
 
 3684. That shows a diminution of about 1,000,000/. 
 If you will cast your eye down the pages, you will see that 
 the variation since 1844 has not been very considerable; 
 it has been about 1,000,000/. in 13 years ? Yes. 
 
 3685. Then it cannot be said that we are making any 
 very rapid progress towards the extinction of the country 
 bank circulation ? That is a question which the Com- 
 mittee can judge of as well as I can. I think that the 
 progress is much more decided towards the extinction of 
 the inconveniences which attend the country issues, than 
 it is to the extinction of their absolute amount. But at 
 the same time I perfectly admit that there are many, and 
 I think some very serious objections still to be urged 
 against the existence of the country issues. The two 
 objections which I should urge, are not those which I 
 think have generally been urged. The two objections 
 which strike me against the continuance of the country 
 issues are these, first, that in the returns which we have 
 of the country issues, the vital defect still exists, that 
 with respect to them the banking reserve is suppressed ; 
 and, secondly, that the whole action of the foreign ex- 
 changes falls exclusively upon the Bank of England, and 
 in no degree whatever reaches the country issues. Upon 
 those two grounds I think that objection may be 
 raised to the continued existence of the country issues, 
 and if as a matter of practical expediency the financial 
 department of the Government can see their way to extin- 
 guish the country issues, without violent offence to feeling 
 and to ancient habits, and to supposed vested interests, I 
 shall be glad to see them extinguished. 
 
 3686. "Would you apply a similar remark to the Scotch 
 and Irish issues ; do you think it would be desirable to 
 take any means for substituting the Bank of England
 
 41 
 
 paper for those issues? My remark is founded upon 
 general principle, and therefore is" universally applicable ; 
 but I have not said, nor am I prepared to say, that I 
 think it desirable to take strong measures for the purpose. 
 If the Government can see their way to do it without 
 raising indirect difficulties of a formidable character, I 
 shall be glad to see it done ; but that is a question 
 of practical detail which the Government must judge of. 
 
 3687. We require that the Bank of England should 
 issue to a certain point against securities, and beyond that 
 point against bullion, but with regard to the banks of 
 issue in the country no similar security is taken, there is 
 merely a limit placed upon their issues. Would it in 
 your judgment be desirable to require any security for the 
 issues of the country banks of England ? J think, that 
 if you are prepared to deal with the country banks in so 
 serious a matter as that, you had then better go a step 
 further and endeavour to extinguish the country issues. 
 My feeling is, that the evils to be corrected are not so 
 great as to justify you in encountering the formidable 
 difficulties which I apprehend to stand in your way. But 
 as I said before, the extent and importance of those 
 difficulties is a matter of practical estimate, which it 
 belongs to the financial department of the Government 
 to form its judgment upon, rather than any particular 
 individual. 
 
 3688. There is a question on which various witnesses 
 have expressed opinions to this Committee, perhaps it is 
 rather a theoretical than a practical question ; but we 
 should be glad t^o know r your view upon, it is this ; sup- 
 pose two country bankers to be in the same neighbour- 
 hood, with no law limiting their issues, except that of the
 
 42 
 
 note being convertible, would they have the power, by 
 competing with one another, to increase their issues at their 
 own will and without the action of the public? If that 
 question is intended to raise a discussion upon the whole 
 of that extraordinary doctrine which has been propounded 
 to this Committee; namely, the inability of banks which are 
 banks of deposit, as well as of issue, to exercise any regu- 
 lating control emanating from themselves over their own 
 circulation, of course we must go into it in a very com- 
 prehensive form. If it is limited to the simple question 
 whether two country issuers competing with each other 
 can, through that competition, force out more issues than 
 they had before, I think the answer which I should give to 
 it is this; that I should look upon the issues of the 
 country bankers as likely to be increased, not so much by 
 direct competition with each other, as by the disposition 
 of the country bankers to support the speculative or 
 expansive tendency pervading their district by increasing 
 issues to meet that speculative or expansive tendency, 
 those increased issues not being warranted by any increase 
 in the money of the country in the form of import of 
 bullion. 
 
 3G89. The practical question with regard to this matter 
 is, how far the tendency of the control of bankers over 
 issue is dangerous, and therefore requires to be restrained 
 by positive law? I have no hesitation in giving my 
 opinion upon that point, that the bankers entrusted with 
 the power of issue, are entrusted with a power of a very 
 dangerous character ; one that has been repeatedly abused, 
 and by the abuse of which, the public has repeatedly 
 suffered serious injury. 
 
 3G90. To return to the question of the Bank of Eng-
 
 43 
 
 land, the Act of 1844 first introduced the rule with 
 respect to the 14,000,000/. and the issue of everything in 
 excess upon hullion, it has been suggested that the limit 
 of 14,000,000/. is at present too low; would you be in 
 favour of in any way altering that limit ? I am not myself 
 at all prepared to recommend any alteration of that 
 amount ; I think the call for an increase, as far as I am 
 able to judge, is founded upon a very erroneous view ; I 
 believe that those who call for the increase of issue upon 
 securities from 14,000,000/. to 16,000,000/. anticipate 
 from that step an increase in the total amount of the 
 money of the country and great facility to trade and com- 
 merce to arise from that increase; if it be so, they are 
 acting under a complete delusion. The quantity of money 
 which any country can retain for the adjustment of its 
 transactions is a matter not within the control of any law 
 or of any particular body, it is determined by the great 
 events of the world, which assign to each respective 
 country a certain quantity of the money of the world; 
 those laws aisign to this country a certain quantity of 
 money, and ti at is entirely beyond the control of the 
 Legislature. It is within the power of the Legislature to 
 determine o lhat given quantity of money what propor- 
 tion shall be paper money issued upon security, and what 
 proportion shall be paper money issued against bullion ; 
 and if you choose, it is undoubtedly within the power of 
 the law to authorize an increase of the paper money issued 
 against security from 14,000,000/. to 10,000,000/.; but 
 the inevitable and immediate result of that would be a 
 decrease in the quantity of paper money issued upon 
 bullion, so that the final result would be that whatever you 
 suppose to be the minimum amount of bullion which we
 
 44 
 
 now retain under severe pressure, say, 8,000,000/. under 
 that alteration of the law, it would be 2,000,000?. less, 
 therefore it becomes a mere practical question whether it 
 is safe to trust the monetary system to rest upon a 
 minimum basis of bullion 2,000,000/. less than that upon 
 which it rests now; I think some serious doubts may be 
 entertained whether that would be perfectly safe ; but at 
 all events, I think that the advantage of being more than 
 perfectly safe, the advantage of being beyond the reach 
 of all question, and beyond the possibility of any doubt, 
 however foolish or unfounded, arising in the public mind 
 as to the adequacy of our store of bullion, is so valuable 
 and so important that the little benefit to be gained from 
 the issue of 2,000,000/. of notes upon securities is not to 
 be weighed for one moment against it. 
 
 3691. You entertain no doubt that the practical effect 
 of enlarging the limit from 14,000,000/. to 16,000,000/. 
 would be not to add 2,000,000/. to the paper currency, 
 but to diminish the bullion reserve of the Bank by 
 2,000,000/. ? No person who understands the elements 
 of the subject can entertain a doubt upon that point. It 
 would cause an increase of 2,000,000/. in the amount of 
 paper notes issued against securities, at the same time it 
 would cause a decrease of 2,000,000/. in the amount of 
 paper notes issued against bullion. There would be no 
 absolute increase in the aggregate amount of paper money. 
 There would be in the Issue Department an increase of 
 securities, and a decrease of bullion in each case to the 
 extent of two millions. [The quantity of money which 
 can be retained in this country is determined by circum- 
 stances which we cannot arbitrarily regulate by our 
 legislation. If we increase the quantity of money autho-
 
 45 
 
 rized to be issued upon securities, the effect must be an 
 export of an equal amount of bullion, causing a corre- 
 sponding decrease in the amount of paper money issued 
 against bullion. The total amount of money, other 
 things being unaltered, must remain the same, whatever 
 changes may be made in the proportion issued upon 
 securities and in that issued upon bullion. This funda- 
 mental principle is clearly set forth by Mr. Ricardo, in 
 his reply to Mr. Bosanquet, p. 93; "I have endeavoured 
 to show, that previously to the establishment of banks, the 
 precious metals, employed as money, were necessarily 
 distributed amongst the different countries of the world 
 in the proportion that their trade and payments required ; 
 that whatever the value of the bullion so employed for the 
 purposes of currency might be, the equal demands and 
 necessities of all countries would prevent the quantity 
 allotted to each from being either increased or diminished, 
 unless the proportions in the trade of countries should 
 undergo some alteration, which should make a different 
 division necessary ; that England, or any other country, 
 might substitute paper instead of bullion for the uses of 
 money, but that the value of such paper must be regu- 
 lated by the amount of coin of its bullion value, which 
 would have circulated had there been no paper/' 
 
 Again, " If, whilst the Bank paid their notes on 
 demand in specie, they were to increase their quantity, 
 they would produce little permanent effect on the value 
 of the currency, because nearly an equal quantity of 
 the coin would be withdrawn from circulation and ex- 
 ported." Ricardo's Pamphlet, " High Price of Bullion, 
 &c." p. 53.] 
 
 3692. You consider that as certain as anything which
 
 46 
 
 cannot be made a matter of mathematical demonstration, 
 do you not ? I consider it to be as fundamental in dis- 
 cussing this subject as a definition of Euclid is in dis- 
 cussing any of the works of Newton. 
 
 3693. Supposing that the bullion of the Bank was 
 diminished by that 2,000,000/., probably it would be 
 exported, or at any rate it would be diffused over the 
 bullion circulation of the whole world ? Undoubtedly. 
 
 3694. Whatever relief was afforded to trade would 
 merely be momentary? The relief afforded to trade, 
 I think, may be thrown out of the question; it clearly 
 does not touch the principles which we are discussing; 
 one may fairly say, that there would be no relief afforded 
 to trade ; it would be temporary to so slight a degree that 
 it is not worth speaking of. 
 
 3695. With regard to the operation of the clause in 
 the Act as to replacing abandoned country note circula- 
 tion by Bank of England issues, at present, when a cer- 
 tain sum has been abandoned, the Bank of England may, 
 by order in Council, be permitted to issue to the extent of 
 two-thirds of that sum ; it has been suggested that the 
 Bank of England might be permitted to issue to the whole 
 amount ; does that appear to you to be a change of any 
 importance? I think it is not worth talking about; I 
 think it is a matter of no consequence at all. 
 
 3696. On the question of 1/. notes, you are, of course, 
 aware that the law is different in the three kingdoms ; 
 that is to say, that in England it is different from the law 
 in Ireland and Scotland ; would it be, in your opinion, 
 advantageous to assimilate the law in the three kingdoms, 
 either by introducing 1/. notes in England, or by sup- 
 pressing them in Scotland and Ireland ? I have no hesi-
 
 47 
 
 tation in giving a decided opinion against introducing 
 1/. notes into England. With respect to suppressing 1/* 
 notes in Scotland and Ireland, there may be practical 
 considerations creating some difficulty; of the force of 
 those I am a very incompetent judge. As a general prin- 
 ciple, I think that the system established in England is 
 unquestionably the right one ; that it is desirable that the 
 smaller moneys of the country should be in a metallic 
 form, and principally for this obvious reason, that alarm 
 and panic are liable to arise amongst those classes where 
 intelligence and education are the least, and that there- 
 fore as respects the money which those classes principally 
 deal with, it is desirable to have it in that form which is 
 not susceptible of the mischievous consequences arising 
 from alarm. 
 
 3697. You are doubtless well acquainted with the state 
 of the circulation in the manufacturing district of Lan- 
 cashire. Is there any country bank paper in circulation 
 in that district ? There was not when I was more actively 
 engaged in the business of banking, and had more per- 
 sonal knowledge of the state of things in Lancashire. 
 
 3698. There are no country banks of issue in that 
 neighbourhood ? I believe not. 
 
 3699. In what manner are the vast commercial trans- 
 actions of that district carried on ; are they conducted as in 
 London ? ;Yes, as in London, with the exception that of 
 course there is a little difference in the mode of doing 
 business in the provinces from what is the case in London, 
 where you have immediate access to the great central 
 source of issue, but there is no difficulty of any sort or 
 kind ; it is as easy and as simple as anything can pos- 
 sibly be.
 
 48 
 
 3700. Is the paper money in circulation in that part of 
 the country exclusively Bank of England paper ? Exclu- 
 sively Bank of England paper. 
 
 3701. There is nothing in the law which discourages or 
 prevents the existence of country banks of issue in that 
 district of England more than in other parts of the 
 country? No. How it has originated I do not know, 
 but it has undoubtedly been continued by the good sense 
 of the community there. I remember one occasion, many 
 years ago, on which there prevailed an idea of the great 
 advantages to be derived from country issues, and a very 
 strong pressure was put upon us to put forth a paper issue 
 of our own, and we were so pressed that we were obliged 
 to make preparations for so doing very much against our 
 own will. However, on further discussion we found that 
 that feeling subsided a little, and we gladly availed 
 ourselves of that circumstance to stop the whole thing, 
 and I certainly have from that time to this, always 
 rejoiced that that measure was stopped. 
 
 3702. The credit operations of that district are very 
 large, are they not ? They are very large indeed. 
 
 3703. Has it ever been suggested that greater accom- 
 modation would have been given to trade, if there had 
 been numerous banks of issue in that part of the country? 
 Undoubtedly, at different times that idea has been 
 thrown out, but the people of South Lancashire are a very 
 intelligent, and a very thoughtful class of people, and 
 the higher classes have always, on reflection, come to 
 the conclusion that they are much better and safer 
 without those issues. 
 
 3701. I think the result of your opinion seems to be, 
 that whatever argumentative and logical anomalies may
 
 49 
 
 be discoverable in the Acts of 1844 and 1845, yon are 
 not disposed to suggest any material alteration in them? 
 No. I subscribe entirely to the opinions which are 
 now before this Committee from the Bank Directors. I 
 believe that the Act was founded upon sound principles. 
 I believe that it has fully verified all the beneficial results 
 anticipated from it, and I believe that the wise course 
 would have been to have proceeded at once to renew the 
 Act, without involving the country in the evils and the 
 inconveniences of these discussions. 
 
 3705. Still the Act seems to contain within itself 
 evidence that it was intended not to be a final measure, 
 but to lead to some ulterior changes. One of the ques- 
 tions which we now have to consider is, whether it would 
 be desirable to develop the policy of that Act, and to carry 
 its provisions to a further point. Your opinion seems to 
 be that at present it is not desirable to make any material 
 change? Of course that depends a good deal upon the 
 measure submitted for that purpose. That there are fur- 
 ther advances towards the true state dictated by principle, 
 is certainly true, and if any body submits a measure of a 
 practical character for the purpose of making a further 
 advance, I shall be glad to exercise my best judgment 
 upon it. I myself am not prepared to submit, or to 
 suggest, any measure of that sort; I think that all the 
 practical results which we have now before us would, as 
 addressed to a sensible and practical people, lead them to 
 the conclusion that it is better to go on as we are, and to 
 be content with the enormous proportion of good which 
 we have obtained; and I feel confident that that is an 
 opinion strongly and universally growing throughout the 
 intelligent portion of the community, and that nothing 
 
 E
 
 50 
 
 could be adopted by the Government or the Legislature 
 at this moment which would be less in harmony with the 
 feelings of the people, than any proposal seriously to 
 interfere with the provisions of the Act of 1844. 
 
 3706. Taking the last 10 years, from 1847 to the 
 present time, do you believe that the currency of this 
 country, both the Bank of England circulation and that 
 of the country banks, and the Irish and Scotch banks, 
 was ever in a sounder, or in as sound a state ? There can- 
 not be a question about it ; it is in a far more satisfactory 
 state than it was at any time within my recollection, or of 
 which I have ever read. 
 
 3707. Then if we are to address our legislation to the 
 removal of practical evils, you do not discern any prac- 
 tical evils in the state of the currency which would justify 
 an alteration in the law ? None whatever. 
 
 3708. Has not the currency of the country been sub- 
 jected to very trying influences during the progress of the 
 late war? Undoubtedly to a very severe trial. 
 
 3709. The necessary effect of a foreign war is to lead 
 to large exportations of bullion, is it not ? The occur- 
 rence of a foreign war necessarily leads to a very large 
 foreign expenditure, namely, an expenditure on the part 
 of this country to an immense amount in other places than 
 in the country itself. That expenditure must be met by 
 some means or other. Of course if it cannot be met by 
 any other means, it must be met by the export of bullion; 
 but the object and purpose of a sound and safe construc- 
 tion of the monetary system of the country is to take 
 care that that expenditure shall be met by other means 
 than by the total loss of its bullion. 
 
 3710. Inasmuch as a war gives rise to a large and
 
 51 
 
 sudden demand, it may be in a barren and comparatively 
 uncommercial country, is it not almost an inevitable con- 
 sequence that a foreign war leads to an export of bullion ? 
 It leads to an export of bullion in a particular direction; 
 but the question I apprehend to be whether it leads to a 
 large export of bullion upon the general balance. 
 
 3711. That is to say, to a greater export of bullion 
 than would have taken place, if the loan had not occurred? 
 The question at the bottom of that is this, whether 
 the foreign expenditure shall be met by the export of com- 
 modities to provide for it, or by parting with your bullion. 
 
 3712. That expenditure can only be met by the 
 export of commodities, in the event of a sudden increase 
 of trade to the extent of the sudden increase of expendi- 
 ture caused by the war ? It may be met in a variety of 
 ways. In the very complicated relations which now exist 
 between the civilized countries of the world, it may be 
 met by an increased export of commodities ; it may be 
 met by a decreased import of foreign commodities for our 
 home consumption; it may be met by various actions 
 upon the credits that exist throughout the world ; or it 
 may be met by the export of securities. So complicated 
 are our relations now throughout a vast variety of places, 
 that the payment of a sudden debt, as I may call it, con- 
 tracted in a particular place, may be adjusted by other 
 means than by the absolute export of bullion. 
 
 3713. In point of fact, during the late war a con- 
 siderable export of bullion did take place to the Black 
 Sea, for our payments, and the Turkish Loan was also 
 remitted in bullion ? Yes. 
 
 3714. Therefore, that export of bullion necessarily 
 deranged the exchanges, and affected our currency at 
 
 e 2
 
 52 
 
 home ? It necessarily affected the exchanges ; and then 
 other circumstances must be brought into play to rectify 
 those exchanges; so that, upon the whole, we may not 
 part with bullion upon the balance. 
 
 3715. The return to a natural state of things, the 
 adjustment which has taken place since the peace, has 
 been another cause which has had a material influence 
 upon the state of our currency ? Yes : it necessarily acts 
 with considerable power over the various circumstances 
 which affect the currency. 
 
 3716. Therefore, the experience of the last 10 years 
 with respect to the operation of the Act of 1844, has 
 been more important and more trying than the experience 
 of ten years of peace, without any revulsions of trade ? I 
 think that, from the period of the passing of the Act in 1844, 
 down to the present time, the Act has been subjected to a 
 very complete and a very thorough trial ; and I think that 
 the Act has met that trial by realising every expectation 
 which was entertained with regard to it. It has protected 
 your bullion reserve from any diminution in amount, such 
 as to create the slightest apprehension or alarm with 
 regard to your specie payments, and it has at the same 
 time admitted of a development of prosperity in the 
 country which I need not characterise. 
 
 3717. Therefore if the operation of the Act is tried, 
 not by general arguments, but by the test of experience, 
 you think that there is no ground for any material altera- 
 tion in its provisions ? I do ; and there is no doubt that 
 it is that test of experience which is operating upon the 
 public mind, and bringing new converts and new sup- 
 porters to the Act, year by year, and day by day. 
 
 3718. The main practical objection to the operation of
 
 53 
 
 the Act at present, is in respect of the variations in the 
 rate of discount, and the high rate of discount, which the 
 public are inclined to attribute to the operation of the 
 Act. You have already expressed your opinion, first, that 
 a high rate of discount is not necessarily an evil; and 
 next, that it is not to be attributed to the operation of the 
 Act? I have. I can only restate my opinion, that the 
 frequent minute variations in the rate of interest which 
 arise from an alteration in the quantity of money are 
 exceedingly useful. The more frequent they are, the 
 more minute they will be, and the more effectually they 
 will accomplish their object. With regard to a great rise 
 in the rate of discount, that is a circumstance entirely 
 arising from the increased value of capital, and the cause 
 of that increased value of capital I think any person may 
 discover with perfect clearness. I have already alluded 
 to the fact that during the 13 years this Act has been in 
 operation, the trade of this country has increased from 
 45,000,000/. to 120,000,000/. Let any person reflect 
 upon all the events which are involved in that short state- 
 ment ; let him consider the enormous demand upon 
 capital for the purpose of carrying on such a gigantic 
 increase of trade, and let him consider at the same time 
 that the natural source from which that great demand 
 should be supplied, namely, the annual savings of this 
 country, has for the last three or four years been con- 
 sumed in the unprofitable expenditure of Avar. I confess 
 that my surprise is, that the rate of interest is not much 
 higher than it is; or, in other words, my surprise is, that the 
 pressure for capital to carry on these gigantic operations, 
 is not far more stringent than you have yet found it to be. 
 3719. You have pointed out to the Committee, that
 
 54 
 
 the Bank Directors may be said to be almost unanimous 
 in favour of not interfering with the provisions of the Act. 
 What, according to your belief, is the prevailing opinion 
 among commercial men on the subject : are you aware 
 of any general wish among commercial persons for any 
 alteration of the Act? Of course I am not so well pre- 
 pared to answer that question now, as I should have been 
 some years ago, when I was more immediately mixed up 
 with the commercial world ; but I keep up a very active 
 intercourse with my former commercial friends, and cer- 
 tainly I have been struck, and very powerfully struck, 
 with the unequivocal evidences of the daily-growing 
 feeling in favour of this Act. Many of my own friends, 
 who in the year 1847 would hardly speak to me, because 
 they considered me in some way or other connected with 
 this Act, have come to me within the last two years to 
 say that they are perfectly convinced that they were wrong, 
 for they see now that the measure is doing great service 
 to the country, and that statement has come from men in 
 a very high station in the city. 
 
 3720. "Whatever feeling against the Act exists among 
 commercial men, is owing to the belief that it in some 
 way limits the supplies of what is popularly called cheap 
 money, is it not ? I suppose so ; I really cannot pretend 
 to say. [Some remarks were made by Mr. Haldi- 
 mand, in his evidence before the Committee, 1819, 
 (pp. 67-8) which deserve attention. " "When people feel 
 distressed they will always say that they want money; at 
 the same time if you doubled every man's money, they 
 would all remain relatively in the same situation, and 
 equally distressed." Is not the nature of the distress to 
 which you have alluded, that which is generally talked of
 
 55 
 
 in the city as a scarcity of money ? It is undoubtedly 
 in the city talked of as a scarcity of money, but people in 
 the city mean by that, that they have not as much money 
 as they would wish, compared to what other classes 
 possess ; and that, therefore, they cannot hold their 
 goods, so as to command the prices which they desire to 
 obtain." Adam Smith observes, that " no complaint is 
 more common than that of a scarcity of money. Money, 
 like wine, must always be scarce with those who have 
 neither wherewithal to buy it, nor credit to borrow it. 
 Those who have either, will seldom be in want of the 
 money or of the wine, which they have occasion for. 
 This complaint, however, of the scarcity of money, is not 
 always confined to improvident spendthrifts ; it is some- 
 times general through a whole mercantile town and the 
 country in its neighbourhood ; over trading is the common 
 cause of it. Sober men, whose projects have been dis- 
 proportionate to their capitals, are as likely to have 
 neither the wherewithal to buy money, nor credit to 
 borrow it, as prodigals, whose expenses have been dispro- 
 portionate to their revenue. Before- their projects can 
 be brought to bear, their stock is gone, and their credit 
 with it. They run about everywhere to borrow money, 
 and everybody tells them that they have none to lend."] 
 
 3721. That, in other words, is a complaint, that the 
 rate of discount is higher than is convenient to those who 
 wish to borrow ? I believe it is altogether founded upon 
 that very common fallacy, that money and capital are the 
 same thing. They think that whenever they want capital, 
 if there can be only a further issue of notes, notes are 
 capital, and that anything which puts those notes under 
 a system of regulation, is really producing some regulation
 
 56 
 
 by which they are to have a less command of capital than 
 they had before. I believe that to be the fallacy at the 
 bottom of it all, and that there is a class of mind out of 
 which that fallacy cannot be forced by reason, but out of 
 which it may be forced by experience ; and I believe that 
 the last three years have cleared away an enormous quan- 
 tity of that error. 
 
 3722. Where a trade is essentially sound, and is only 
 to a small extent carried on by means of borrowing, a 
 merchant's profits are not seriously diminished by occa- 
 sional loans, even at a high rate of interest, are they ? 
 That idea of the profits of trade being destroyed by a 
 rise in the rate of interest is most erroneous. In the first 
 place, a rise in the rate of interest is seldom of any long 
 duration ; in the second place, if it is of long duration, 
 and of great extent, it is really the consequence of a rise 
 in the value or productiveness of capital ; which is in 
 other words a rise in the rate of profit. 
 
 3723. The rate of interest has been high in this 
 country during the last two years, has it not ? Yes. 
 
 3724. But yet Ave see from the returns of the Board 
 of Trade, that the trade of the country proceeds without 
 any diminution, notwithstanding the unfavourable in- 
 fluence of the war? The rise in the rate of interest has 
 been in consequence of the great increase in the trade of 
 the country, and the great rise in the rate of profits ; and 
 to complain of the rise in the rate of interest as being 
 destructive of the two things which have been its own 
 cause, is a sort of logical absurdity which one does not 
 know how to deal with. 
 
 3725. In the United States, where trade and industry 
 are so flourishing, the rate of interest is very much higher
 
 57 
 
 than it is in this country, is it not ? Yes ; in the United 
 States there are two causes for that. It is comparatively 
 a young country with a less accumulated capital, and with 
 a very extended field for the employment of capital. The 
 consequence is, that you have both the phenomena which 
 exist in this country more strongly developed there, 
 namely a generally high rate of interest, and a greater 
 amount of fluctuation in the rate of interest. 
 
 3726. The recent fluctuations in the rate of discount 
 in England have been accompanied by corresponding fluc- 
 tuations on the continent ? Yes ; the fluctuations in the 
 rate of interest at Hamburgh and at New York have been 
 greater than the fluctuations in the rate of interest in 
 England, and I believe you will generally find that the 
 fluctuations in the rate of interest are to a great extent 
 coincident with the rapidity with which wealth is created 
 and prosperity developed. 
 
 3727. Confining ourselves to Europe, have not the 
 recent fluctuations in the rate of interest in London been 
 common to Paris, Amsterdam, Hamburgh, and other seats 
 of commerce on the continent ? The recent rise in the 
 rate of interest in this country is a phenomenon arising 
 from one great cause, to which we have already alluded, 
 namely, the vast and rapid development of the trading 
 operations of the world, accompanied by the destruction of 
 savings which has taken place during the last war. That 
 is a cause operating over the whole of Europe, and you 
 find the effect equally universal. 
 
 S728. Mr. Cayley.'] You have stated that the rate of 
 discount is of no material moment you think to the mer- 
 chant ; will you be kind enough to state what you con- 
 sider the ordinary rate of profit to the merchant? It is 
 quite impossible to state what the ordinary rate of profit
 
 58 
 
 is ; it is a matter varying in different trades, varying in 
 different countries, varying at different times. 
 
 3729. Supposing the average rate of profit to be, say, 
 from 7 to 10 per cent., a variation of from 2 to 7 or 8 
 per cent, in the rate of discount must materially affect the 
 rate of profit, must it not ? In the first place parties will 
 not pay a rate of discount which seriously interrupts their 
 profits ; they will discontinue their business rather than 
 do that. What is the meaning of discount? Why does 
 a person discount a bill ? He discounts a bill because he 
 wants to obtain not money, for its own sake ; it is useless 
 in itself; he discounts a bill because he wants to obtain 
 the command of a greater quantity of capital : and why 
 does he want to obtain the command of a greater quantity 
 of capital ? because he wants to employ that capital ; and 
 why does he want to employ that capital ? because it is 
 profitable to him to do so ; it would not be profitable to 
 him to do so if the rate of discount destroyed his profit. 
 
 3730. Merchants being engaged in business, must 
 they not for a certain period carry on their operations in 
 despite of any temporary increase in the rate of discount? 
 There is no doubt that in any particular transaction, 
 if a person can get his command of capital at a low rate 
 of interest rather than at a high rate of interest, taken in 
 that limited view of the matter, that is convenient to 
 him; but I do not see that any important consequence 
 arises from that. If the rate of discount becomes incon- 
 veniently high, it can only be because the persons who 
 seek to borrow capital through the means of discount do 
 so, because they find that they can employ that capital 
 even obtained upon those terms in a manner which is 
 advantageous to themselves. 
 
 3731. I observe that your Lordship said that the
 
 59 
 
 higher rate of discount for the last two years was owing 
 to the increase of trade, and to the general prosperity of 
 the country; is that your view? Yes; what I stated was 
 this, that during the last few years there has been an 
 immense development of the trading operations of the 
 country, and of the world, and that that great develop- 
 ment of the trading operations of the world has created 
 a very great demand for capital, and that the very great 
 demand for capital necessarily creates a higher price for 
 the command of that capital, and that therefore the high 
 rate of interest is the result of the great extent of 
 trading operations. 
 
 3732. With reference to the Act of 1844, can you 
 state what has been about the average rate of interest in 
 proportion to the amount of bullion in the Bank; would 
 it be a fact that when the amount of bullion has been 
 about 9,000,000/. or 10,000,000/, the rate of interest 
 has been 6 or 7 per cent., and that when it has been 
 16,000,000/., the rate of interest has been, say from 3 to 
 4 per cent. ? I do not apprehend that that is so ; I have 
 no idea that that would appear to be the result of the 
 examination of the statistics ; but if it is, then I think 
 we must take still more stringent measures than those 
 adopted by the Act of 1844, because if it be true that 
 the greater the store of bullion, the lower the rate of 
 interest, we ought to set to work, according to that v'ew 
 of the matter, to increase the store of bullion to an inde- 
 finite amount, and then we shoul 1 get the interest down 
 to nothing. 
 
 3733. If that be so, suppossing that 5,000,000/. of 
 bullion was to be restored to the Bank, in the course of 
 the next six months the bullion then would amount, say
 
 60 
 
 to 16,000,000/., and supposing that the rate of interest 
 was thus to fall to 3 or 4 per cent., how could it be stated 
 that that fall in the rate of interest arose from a great 
 decrease of the trade of the country ? I must have a 
 great many other facts added to that supposition ; when 
 we are supposing a great many phenomena, we must beg 
 the person making the supposition to explain all the 
 causes of the phenomena which he so supposes to have 
 occurred, because until we know the causes of the pheno- 
 mena, we cannot pretend to draw any useful or instructive 
 conclusions from them. I said that the recent rise in the 
 rate of interest, not that the fall in the rate of interest, 
 was closely connected with the great increase in the trade 
 of the country. 
 
 3734. In the ordinary state of things, if the Bank 
 was to fortify its store at the rate of 300,000/. or 400,000/. 
 per week, and in the course of six months that was to 
 amount to 5,000,000/., making in the whole from its pre- 
 sent amount 16,000,000/., judging from previous expe- 
 rience, the rate of interest probably would fall to at least 
 4 per cent.; would that fall in the rate of interest be then 
 necessarily consistent with a decline in the prosperity of 
 trade? We must understand clearly whether we are 
 speaking of a fall in the rate of interest of a very tem- 
 porary character, or of one which has some duration in 
 it. A low rate of interest prevailing for any continued 
 length of time, I apprehend, is a pretty clear indication 
 of a low rate of profit. 
 
 3735. But if the rate of interest was to fall in conse- 
 quence of the accession of 5,000,000/. of bullion, in the 
 course of the next six months would that be accompanied 
 in your Lordship's estimation, by an increase or a decrease
 
 61 
 
 in the prosperity of trade? I do not apprehend that 
 they are intimately connected with each other in the 
 relation of cause and effect. If the bullion in this 
 country increases, that increase of the bullion must pro- 
 ceed from some cause. Before I go further, I must beg 
 to have the cause of that increase explained. I can 
 only revert to the general principles that the rate of 
 discount is the price paid for the command of capital, 
 and that when the profits of trade are high, it stands to 
 obvious reason that persons will be willing to pay a high 
 rate to obtain the capital which is necessary to carry on 
 that trade; that when profits are low, they will not pay 
 that high rate ; they will allow the capital to go away 
 rather than pay that rate, and they will only pay a lower 
 rate; again, whenever profits are high, and there is a 
 demand for capital, because great profit is to be made of 
 it, persons pay for the use of that capital a price propor- 
 tionate to the profit which they can get in the employ- 
 ment of that capital. 
 
 3736. I observed your Lordship to say, that money 
 was the instrument for obtaining capital. Under a drain 
 of bullion, is not the great strain, on the contrary, for 
 capitalists to obtain money ? No, it is not the capitalists ; 
 it is those who are not capitalists who want to obtain 
 money; and why do they want to obtain money? not to 
 keep it in their pockets, but they want to obtain money, 
 because through the money they obtain the command of 
 the capital of the capitalist to carry on the business of the 
 persons who are not capitalists. 
 
 3738. Are not the parties who draw bills of exchange 
 capitalists ? The parties who draw bills of exchange may 
 be, or may not be, capitalists.
 
 62 
 
 3738. As a general rule, is it not the custom of the 
 merchants of this country to carry on their business by 
 means of bills of exchange? No doubt about it. 
 
 3739. Are not bills of exchange the representatives of 
 the goods manufactured or dealt in? I hardly know the 
 meaning of that expression. Bills are drawn very often 
 in consequence of sales of goods made, very often in 
 consequence of credits granted ; they are sometimes 
 drawn as arising out of Exchange transactions, some- 
 times out of dealings in commodities. 
 
 3740. Are they not as much the representatives of the 
 stock of the merchant or the manufacturer, as the bank 
 paper which you stated was the mere representative of gold, 
 or the shadow of gold? No, I do not think they are. 
 The bank paper is the representative of gold, because it is 
 the certificate of gold placed in deposit against it ; but a 
 bill drawn is by no means the certificate of goods in that 
 sense of the word. 
 
 3741. The merchant draws a bill on the faith of 
 goods which he is either making or has sent abroad ? 
 Take any particular transaction, there is no doubt about 
 what the fact is : a person ships goods abroad, and draws 
 a bill upon the person abroad to whom he ships those 
 goods, or he draws a bill upon the merchant at the port 
 through whom he ships them ; that bill, no doubt, has a 
 commercial relation to the commodities so shipped ; but 
 it has not a relation similar in its nature, nor in its 
 effects, to that which the bank note has to the bullion 
 deposited. 
 
 3742. Is not his object to get money? No; getting 
 money is not the object in drawing the bill ; getting 
 money is the object in discounting the bill.
 
 63 
 
 3743. What is the great desire of the mercantile 
 community, under a pressure or panic such as you state 
 to have occurred in 1825, 1837, and 1839 ; is their object 
 to get possession of capital or the legal tender ? Their 
 object is to get the command of capital to support their 
 business. 
 
 3744. Will you be good enough to describe what you 
 actually mean by the term " capital " ? I am afraid that 
 that is going into a question which is a little beyond such 
 a body as this fully to enter into. If you want me to 
 define capital, I shall beg leave to decline entering into 
 scientific definitions. If you wish me merely to give a 
 general indication of what I understand by " capital," I 
 am quite ready to do it. Capital consists of various 
 commodities, by means of which trade is carried on ; there 
 is fixed capital, and there is circulating capital. Your 
 ships, your docks, your wharves, your roads, your bridges, 
 your mills, warehouses, machinery, &c, are fixed capital ; 
 your provisions, your clothes, and things which are 
 necessary to sustain week by week, the labourer, all raw 
 materials, cotton, wool, silk, iron, &c, are circulating 
 capital. 
 
 3745. Is the country oppressed under a drain of bul- 
 lion ? Not in any rational sense of the word. I must 
 again resort to the elementary view of the subject. In 
 the natural state of things, the money of the world is 
 distributed amongst the different countries of the world 
 in certain proportions, those proportions being such that 
 under that distribution the intercourse between any one 
 country and all the other countries of the world jointly 
 will be an intercourse of barter; but disturbing circum- 
 stances will arise to affect that distribution, and when
 
 64 
 
 those arise a certain portion of the money of any given 
 country passes to other countries. During that process of 
 passing, there is some little inconvenience and pressure, 
 but it is an inconvenience and pressure which is necessary 
 for the rectification of things, and is therefore wholesome, 
 and is, in fact, unavoidable. That pressure, under a 
 proper regulation of things, will be but slight ; of course 
 more or less slight, according to the nature of the cause 
 which acts upon it, and whatever the cause may be, that 
 cause must be corrected, and the more early you resort to 
 the measures of correction, the less will be the pressure 
 and the inconvenience. 
 
 3746. Your Lordship now uses the term " money." 
 I understood you before to say that it was a loss of 
 capital ? That what was a loss of capital ? 
 
 3747. The export of bullion? No, I did not say so. 
 If you treat bullion as capital, no doubt it is a loss of 
 capital ; it is parting with a certain proportion of those 
 precious metals which constitute the money of the world. 
 
 3748. I understood your Lordship to say that an 
 alteration in the rate of discount was a mere sign of an 
 alteration in the value of capital ? I did. 
 
 3749. And that the rate of discount generally alters 
 with the state of the store of bullion in the Bank of 
 England? Yes; but I have already stated that the fluc- 
 tuations in the rate of interest which arise from an 
 alteration in the quantity of money in a country, are 
 small, both as regards their extent and their duration, and 
 that all really important alterations, in reference either to 
 extent or duration, in the rate of interest are distinctly 
 and directly connected with some alteration in the demand 
 for or in the productiveness of capital. [The productive-
 
 65 
 
 ness of capital, that is, its capacity when invested to yield 
 10 or 12 or 20 per cent, surplus is the permanent and ulti- 
 mate regulator of the rate of interest, and finally over- 
 rides all accidental causes of variation, whether fluctuations 
 in the demand and supply of capital or any other cause.] 
 
 3750. Then, does your Lordship mean that there is a 
 less capital than there was, when there is a more con- 
 tinuous yet temporary increase in the rate of discount than 
 usual ? Less, in one sense of the word. The proportion 
 between capital and the demand for it, is altered ; it may 
 be by an increased demand, not by a diminution of the 
 quantity of capital. 
 
 3751. What is the capital which you particularly 
 allude to ? That depends entirely upon what the capital 
 is which each person wants. It is the capital which the 
 country has at its command for conducting its business, 
 and when that business is doubled there must be a great 
 increase in the demand for the capital with which it is to 
 be carried on. That increase of demand for the capital 
 with which the business must be carried on, must create 
 an increase in the price of it. Capital is like any other 
 commodity, it will vary in its price according to the 
 supply and demand. 
 
 3752. The changes in the rate of discount are gene- 
 rally connected with the changes in the amount of gold 
 which there is in the coffers of the Bank. Is it that 
 capital to which your Lordship refers? No. I have 
 already stated that the great changes in the rate of dis- 
 count are not so connected. I have stated that the small 
 fluctuations in the rate of interest may be connected with 
 an alteration in the quantity of money in the country, 
 but that all the great and important fluctuations in the 
 
 F
 
 66 
 
 rate of interest have reference to the relation between the 
 supply and demand of capital. [Temporary circumstances, 
 such as the negotiation of loans, mercantile pressure in 
 other countries, a disturbed state of the exchanges, or 
 sudden demands for capital from whatever cause arising, 
 must no doubt exert a temporary influence over the rate 
 of interest; but it is the productiveness of capital, i.e., 
 the rate of profit, which finally regulates and determines 
 the rate of interest.] 
 
 3753. Can your Lordship point to any instance in 
 which there has been a large store of capital in the Bank 
 of England connected with a high rate of discount ? The 
 Bank of England is not a place for the deposit of capital, 
 it is a place for the deposit of money. 
 
 3754. Your Lordship has stated that the rate of 
 interest depends upon the amount of capital ; will you be 
 kind enough to state what capital you mean, and whether 
 you can point to any instance in which there has been a 
 large store of bullion in the Bank, and at the same time a 
 high rate of interest ? It is very probable that the accu- 
 mulation of bullion in the Bank may be coincident with a 
 low rate of interest, because a period in which there is a 
 diminished demand for capital is a period during which, 
 of course, the means or instrument through which you 
 command capital may accumulate. 
 
 3755. Then you think that there is no connection 
 between the rate of discount and the amount of bullion in 
 the coffers of the Bank ? There may be a connection, 
 but it is not a connection of principle, there may be a 
 coincidence of time. I can only repeat that the rate of 
 discount is really an indication of the value of capital, and 
 that whenever discount is for any length of time high, it
 
 67 
 
 is because there is a great demand for capital. [A drain 
 of bullion in this country is very frequently the result of 
 an increased demand for capital in some other quarter. 
 A large loan contracted in another country, which is in 
 fact a peculiar and extraordinary demand for capital in 
 that country, will produce a pressure upon our exchanges, 
 an export of bullion and a consequent rise of interest in 
 this country. Take another example of recent occurrence. 
 The trading spirit and enterprize of the United States 
 exceeds its due bounds ; transactions are entered into 
 beyond the amount of capital requisite to sustain them. 
 More capital is required for that purpose than the country 
 can supply. A crisis, ending in a panic, ensues. The 
 rate of discount runs up to 20 per cent., and even still 
 higher. What is the unavoidable effect which this extra- 
 ordinary demand for additional capital in the United 
 States produces upon our monetary condition upon the 
 bullion and upon the rate of interest in this country? 
 Every payment due to us from America is as far as pos- 
 sible suspended special credits upon this country are 
 eagerly sought, and drafts upon England drawn against 
 them the price of public securities in the United States 
 suffers a great depreciation and English capitalists 
 tempted by the favourable opportunity invest in these 
 securities; and thus their capital is drawn from this 
 country to the United States. The inevitable consequence 
 of these processes is a drain of bullion followed immedi- 
 ately by a rise in the rate of interest. The circumstance 
 immediately preceding the rise of interest, the apparent 
 proximate cause of that rise, may be the drain of bullion. 
 But it is a very short-sighted philosophy which stops at 
 that stage of the inquiry. The drain of bullion is an effect 
 
 f 2
 
 68 
 
 rather than a cause. The decrease of bullion and the rise 
 of interest are simultaneous effects of a common cause, 
 viz., the sudden demand for further capital in the United 
 States, which reacts in the manner already stated upon 
 the money market of this country disturbs the exchanges 
 and renders a rise of interest in this country prudent and 
 useful as a measure of protection, and inevitable as being 
 the result of circumstances altogether beyond our 
 control.] 
 
 3756. I should be very much obliged, as one of the 
 Committee, if your Lordship would define more distinctly 
 the difference between money and capital ? Perhaps the 
 better way is to take a practical illustration. Go into any 
 great district of this country ; go into Lancashire, and go 
 to one of the persons who are undertaking very large 
 manufacturing processes, and say to him, u Now here is 
 100,000/. of money to go on with ; but mind you must 
 keep it as money ; you must keep it in your pocket ; now 
 carry on your business ; the money is capital ; you must 
 not go and hire a warehouse ; you must not go and hire a 
 quantity of labourers and pay them their wages, which is 
 in reality paying them in the form of provisions and 
 clothing, and so on ; you must keep it as money." Of 
 what use would the money be ? It is only as an instru- 
 ment for commanding capital that money is useful to 
 anybody. [This principle may be confirmed by endless 
 references to the highest authorities. " In order to put 
 industry into motion three things arc requisite materials 
 to work upon, tools to work with, and the wages or recom- 
 pense for the sake of which the work is done. Money is 
 neither a material to work upon, nor a tool to work with ; 
 and though the wages of the workman are commonly
 
 69 
 
 paid to him in money, his real revenue, like that of all 
 other men, consists not in money, but in money's worth ; 
 not in the metal pieces, but in what can be got for them." 
 Adam Smith, quoted and adopted by Ricardo. 
 
 "When anyone borrows money for the purpose of enter- 
 ing into trade, he borrows it as a medium by which he can 
 possess himself of materials, provisions, &c. to carry on that 
 trade; and it can be of little consequence to him, provided he 
 obtain the quantity of materials, &c, necessary, whether 
 he be obliged to borrow a thousand, or ten thousand 
 pieces of money. If he borrow ten thousand, the produce 
 of his manufacture will be ten times the nominal value of 
 what it would have been, had one thousand been suffi- 
 cient for the same purpose. The capital actually em- 
 ployed in the country is necessarily limited to the amount 
 of the materials, provisions, &c, and might be made 
 equally productive though not with equal facility, if trade 
 were carried on wholly by barter. The successive posses- 
 sors of the circulating medium have the command over 
 this capital ; but however abundant may be the quantity 
 of money or of bank notes ; though it may increase the 
 nominal prices of commodities ; though it may distribute 
 the productive capital in different proportions ; though the 
 Bank, by increasing the quantity of their notes, may enable 
 A to carry on part of the business formerly engrossed by 
 B and C, nothing will be added to the real revenue and 
 wealth of the country. B and C may be injured, and A 
 and the Bank may be gainers, but they will gain exactly 
 what B and C lose. There will be a violent and unjust 
 transfer of property, but no benefit whatever will be 
 gained by the community." Ricardo, " High Price of 
 Bullion, &c." p. 56.]
 
 70 
 
 3757. Did I rightly understand your Lordship to say 
 that the money was the capital ? No, I said just the 
 reverse ; I say that with money, retained as money, and 
 not used as the means of obtaining capital, you can do 
 nothing ; you might just as well have a parcel of old iron. 
 When I was a child, a sovereign was given to me, with a 
 grave admonition, that as long as I kept that sovereign in 
 my pocket I should never be without money ; but I soon 
 found that no good came to me from keeping the sove- 
 reign in my pocket. [" Gold produces no benefit to the 
 holder as gold ; he cannot eat it, nor clothe himself with 
 it ; to render it useful, he must exchange it either for 
 such things as are immediately useful, or for such as pro- 
 duce revenue." Ricardo, "Reply to Bosauquet," p. 83.] 
 
 3758. Do I rightly understand you to say, that the 
 difficulty of merchants in this country, under a state of 
 pressure, in consequence of a high rate of discount, is in 
 getting capital and not in getting money? You are 
 putting two things together which I do not join in that 
 form ; their difficulty is in getting capital, and their diffi- 
 culty also is in getting money ; but it is in getting money 
 not to keep it as money, but merely as the means through 
 which they are to get the capital. The difficulty of 
 getting money, and the difficulty of getting capital, is 
 the same difficulty taken in two successive stages of its 
 progress. 
 
 3759. Money is merely a means whereby capital is 
 obtained ? Now we have got to a common locus standi. 
 
 3760. But a higher rate of discount is an increased 
 difficulty of getting money ? It is an increased difficulty 
 of getting money, but it is not because you want to have 
 the money ; it is only the form in which the increased
 
 71 
 
 difficulty of getting capital presents itself according to the 
 complicated relations of a civilised state. 
 
 3761. Is your Lordship of opinion, that when the ex- 
 pression is used that there is less capital in the country, it 
 is not gold which is meant, but capital generally ? That 
 expression is very frequently used very loosely and inaccu- 
 rately ; T am quite aware of that : but if used in a rational 
 and proper sense, it either means that there is a greater 
 demand for capital, a desire to carry on more enlarged 
 operations, or it means that there is an absolute diminu- 
 tion of capital ; it is the same thing in reality, namely, 
 that the relation between the supply and demand of capital 
 has been altered. 
 
 3762. Is that demand from persons who have no 
 capital, or from persons who have capital ? It may be 
 from either. [It may be a demand on the part of those 
 who have no capital of their own and wish to borrow from 
 others the capital with which they may be enabled to 
 carry on business. Or it may be a demand on the part 
 of those who having capital, find it insufficient for their 
 purposes, and therefore wish to add to their own capital 
 a further amount of capital borrowed from others.] 
 
 3763. But, generally speaking, persons who have no 
 capital have very little opportunity of raising money, have 
 they ? That is certainly not so. The whole principle of 
 banking is to afford capital ; to transfer it from the 
 inactive accumulator of capital to the active and energetic 
 person who wants the capital ; the banker is the go- 
 between who receives deposits on the one side, and on the 
 other applies those deposits, entrusting them, in the form 
 of capital, to the hands of active, energetic persons, who 
 he thinks will make a good use of it.
 
 72 
 
 3764. Who have no security to give ? Who have, in 
 many instances, no security to give, except their cha- 
 racter, and skill, and talents, of which the banker forms 
 his judgment. 
 
 3765 Is that the ordinary practice of banking in this 
 country ? Yes ; it is the mode in which I have carried 
 on banking to a great extent. 
 
 3766. To persons of character, who have no other 
 security to give ? To persons of character, who in some 
 cases have no security to give ; but who, in all cases, have 
 no security to give equal to the amount advanced to them, 
 except that best form of security, their character, their 
 energy, and their prudence. 
 
 3767. Your Lordship gave the rate of discount at various 
 periods; could you add to that interesting information, by 
 giving us the rate a little further back, namely from 1797? 
 I gave it from 1783. 
 
 3768. Your Lordship stated that there was a very high 
 rate of discount in 1783, in 1793, and in 1797? Yes. 
 
 3769. And in 1825, in 1836, and in 1839 ? Yes. 
 
 3770. Your Lordship also gave the oscillations in the 
 rate of interest, from 1821 downwards? Yes. 
 
 3771. Could you carry those oscillations a little further 
 back in the same way ? ]\ T o : I have not got that return 
 beyond 1821. 
 
 3772. You do not remember what oscillations took place 
 between 1797 and 1821? No; but I know that they 
 were enormous. 
 
 3773. Could you furnish the Committee with them ? 
 I doubt very much whether I could. The fact is perfectly 
 notorious, that the rate of interest during the French war 
 was very high indeed.
 
 73 
 
 3774. The commercial rate? Yes, the rate in all 
 respects. 
 
 3775. The Bank rate was not? The Bank rate was 
 limited by law ; the result of that was, that instead of 
 money being employed in the discount of commercial bills, 
 it was forced into employment in other ways, especially 
 the employment of lending it upon stock to enable the 
 speculators to carry over the great Government loans. 
 
 3776. Could you furnish the Committee with those 
 rates, do you think ? No, I do not think I could. In 
 the first place you could not get them quite specifically, 
 because they were in a peculiar form; it is perfectly 
 well known, that it was what was called " continuation," 
 that is to say, it was virtually lending money upon 
 the security of stock, but it was lending money in the 
 form of purchase and sale ; there is no doubt at very high 
 rates indeed ; 7, 8, 9, 10, and 12 per cent., were continually 
 obtained in that way. 
 
 3777. Between 1797 and 1816? During the French 
 war, and subsequently to the French war also ; till the 
 matter subsided in the course of a few years. 
 
 3778. When people complain of the Act of 1844, do 
 you understand them as complaining that the Bank is com- 
 pelled to act more in conformity with the Act of 1819 than 
 it did before 1844? I must leave those who complain of 
 the Act of 1844 to explain for themselves the reason of 
 their complaint. 
 
 3779. Is not it the object of the Act of 1844 to oblige 
 the Bank in its business to conform more entirely to the 
 state of the bullion in the coffers of the Bank ? The object 
 of the Act of 1844 I have already stated in the early part 
 of my examination in detail. The final object of it is to
 
 74 
 
 establish such a regulation as shall effectually secure that 
 the paper money of the country shall fluctuate in amount, 
 in correspondence with the fluctuations in the bullion. 
 
 3780. And it does so more precisely than it did in the 
 period antecedent to 1844 ? Certainly. 
 
 3781. That may, perhaps, in some degree account for 
 the greater number of changes in the rate of discount, if 
 they have been greater? That is compelling me to go 
 over the explanation again. In the first place, I very 
 much doubt the fact of the greater number of changes. 
 
 3782. I said, if they have been so ? If they have been 
 so, I must again go into the analysis of them. The great 
 changes are distinctly attributable to the increased demand 
 for capital, and its increased productiveness. The great 
 development of the trade of this country and of the trade 
 of all the world, during the 13 years that the Act has 
 been in force, is an abundant explanation of the immense 
 increase in the demand for capital, and therefore of the 
 high rate of interest. But with regard to the mere 
 fluctuations which are connected directly with an alteration 
 in the quantity of money, that they are very frequent is 
 probably true, but they are small in extent, and the fre- 
 quency of them, as I have said before, is the essential 
 principle of their utility. It is their vital principle, that 
 they should commence at the very moment when the 
 drain upon the bullion begins ; and that by commencing 
 at that very moment, they should restrict the drain of 
 bullion within moderate limits; the frequency of their 
 occurrence is the vital principle of their utility. 
 
 3783. Then the Act of 1811, by obliging the Bank to 
 conform more precisely to the amount of its metallic store, 
 which is constantly varying in amount, will in some degree
 
 75 
 
 account for the more frequent changes in the rate of dis- 
 count? When we come to the Act of 1844, I cannot 
 admit anything about the Bank and its metallic store. 
 After the Act of 1844 the Bank has no metallic store. 
 
 3784. What I mean by the metallic store is, the store 
 in the Issue Department of this country. The fact of 
 the Bank of England being obliged by the law of 1844 
 to conduct its business more in relation to the metallic 
 store in the country, will in some degree account for the 
 frequent changes in the rate of discount ? The effect of 
 the Act of 1844 in that respect I understand to be this : 
 that the moment any diminution in the money of the 
 country takes place, in consequence of an adverse drain, 
 then, under the Act of 1844, the money of the country 
 being absolutely diminished, a rise in the rate of interest 
 immediately takes place. Previously to the Act of 1844, 
 the occurrence of that rise in the rate of interest was 
 delayed in consequence of the Bank continuing to put out 
 notes to take the place of the bullion which had gone 
 abroad, the effect was a delay as to the period at which the 
 rise of interest would take place ; but in consequence of 
 that delay, the rise in the rate of interest in the end was 
 greater than is now necessary when it takes place at an 
 earlier period. 
 
 3785. But as the rate of discount is only temporarily 
 high, according to your Lordship, if the Bank is stimulated 
 to appreciate more nicely the different changes in the value 
 of money, and to raise its rate in proportion to the metallic 
 store, that will tend to a more frequent change in the rate 
 of discount, although under the previous system the rate 
 might be higher? I have already stated, that the object 
 of the Act of 1.844 being to make the paper money of the
 
 76 
 
 country sustain a diminution, both in amount and in period, 
 precisely the same as would be sustained by the metallic 
 money of the country, of course an increase in the value of 
 money arises the moment the money begins to undergo a 
 decrease of amount. Therefore, under the provisions of 
 the Act of 1844, the rise in the rate of interest, which 
 indicates the increase in the value of the money of the 
 country, from the diminution of its amount, will take place 
 earlier. In consequence of its taking place earlier, it will 
 check the drain sooner ; it will therefore permit the drain 
 to go to a less extent, and, by so doing, it will limit the 
 fluctuation in the rate of interest by making the occurrence 
 of it earlier than it otherwise would be. 
 
 3786. But the oscillations will be more frequent. If 
 every change in the state of the bullion reserve is appreci- 
 ated and acted upon by the Bank, must not it necessarily 
 lead to more frequent changes of the rate of discount ? 
 The changes in the rate of discount may probably be more 
 frequent, but on that very account they will be less violent ; 
 and I have already stated that I think that the frequency 
 of the oscillations is really an essential principle in their 
 utility; and I have given an illustration which seems to 
 me in point. It is like the rapid and multiplied oscilla- 
 tions of a tight-rope dancer ; if you allow him to go on for 
 some time, instead of righting his position the moment it 
 is disturbed, he will lose his balance and tumble over; and 
 it is precisely so with your monetary system. [To these 
 frequent changes in the rate of interest caused by an imme- 
 diate and strict accordance of the paper notes with the 
 fluctuations of the bullion, may be applied the happy 
 expression of Sir John Ilerschcl, used with respect to a 
 very different subject " those ever-varying and never
 
 77 
 
 over-stepping, those inherently-equipoised and self-bridled 
 oscillations." Delay in contracting the paper-money, 
 cotemporaneously with the first symptoms of the efflux of 
 the metallic money will certainly increase the severity of 
 the action in a later stage. "By whatever causes a drain 
 for gold on the Bank may be occasioned, its continuance is 
 a conclusive proof of the redundancy of the currency ; and 
 if, under such circumstances, the Directors delay contract- 
 ing their issues, they may depend upon it they tv ill greatly 
 aggravate the mischief they are seeking to avert. Sooner 
 or later, the propriety of making a reduction in the amount 
 of their issues, will cease to be optional with them ; and 
 they will be compelled, in order to prevent the total 
 exhaustion of their coffers, to take that step which they 
 ought in all cases to take, the moment the drain begins to 
 set in." Macculloch Art. "Money," pp. 106-7.] 
 
 3787. You have stated that the paper of the country 
 should be regulated in precise proportion to the metallic 
 money ? Certainly. 
 
 3788. Could the commercial operations of this country 
 be carried on if there were no paper money at all ? They 
 could be carried on with perfect case in every respect, except 
 the mechanical difficulty of carrying about a cumbrous and 
 weighty instrument, instead of a light and convenient 
 one. 
 
 3789. You think that there is quite sufficient metallic 
 money in this country to carry on all its commercial opera- 
 tions without the assistance of paper money ? Perfectly ; 
 that is, a sufficient quantity of metallic money will imme- 
 diately come into the country, if paper money be with- 
 drawn. I cannot conceive how any person can entertain 
 a doubt for a moment upon the subject. What is it with
 
 78 
 
 which the commercial operations of the country are carried 
 on ? they are carried on with capital ; the issuing of paper 
 money does not alter the capital of the country. [If the 
 amount of money in the country is not sufficient for car- 
 rying on its commercial operations, the sense of this insuf- 
 ficiency will cause bullion to be brought into the country. 
 Money, in the form of bullion will be a more profitable 
 form of import than any other commodity ; and thus the 
 money in the country will be increased by the only legiti- 
 mate and effectual means. If bullion is not so brought in, 
 that fact affords conclusive proof that the demand for more 
 money in the country is not so strong as the demand for 
 other forms of import that is for other commodities. If, 
 at a period when there is no legitimate increase of the 
 money in the country through the means of imported 
 bullion, an attempt be made to increase the amount of 
 money by a further issue of paper notes, the inevitable 
 effect must be to displace an equal amount of the metallic 
 money. This is the very process by which the store of 
 bullion has been exhausted on many occasions previous to 
 1844; and by putting a stop to the power of thus issuing 
 paper notes, not founded upon a corresponding increase of 
 bullion, the Act of 1844 has rendered the recurrence of that 
 exhaustion of the bullion impossible.] 
 
 3790. Supposing that there is no metallic money at all, 
 when we cease from a state of barter, is not some legal 
 tender necessary for the interchange of commodities ? If 
 you assume that you cease from a state of barter, of course 
 there must be something to take its place ; but a state of 
 barter is the real state at any time; money is only the 
 means of carrying on that barter. 
 
 3791. Our transactions with foreign countries are car-
 
 79 
 
 ried on entirely by barter ? Yes ; all transactions are at 
 the bottom barter, and must be so ; they cannot be any- 
 thing else. 
 
 3792. There is the instrumentality of a medium of 
 exchange in a domestic currency, which does not exist in 
 our interchange with foreign countries ? The existence of 
 money renders the transactions of barter far more conve- 
 nient, but it does not essentially alter the thing at the 
 bottom ; commodities must be given for commodities ; that 
 must be the bottom of the subject. 
 
 3793. With respect to the three drains, from 1819 to 
 1844, you have stated that they involved three great alarms 
 for the convertibility of the note. Can you give any proof 
 of that, that the alarm at that time was for the converti- 
 bility of the note ? It is like asking me to give a proof 
 that the sun rose this morning. It is universally known 
 and recognised by everybody who lived in the commercial 
 or monetary world during that period. It is perfectly noto- 
 rious that in 1825 the bullion was drained out, and that 
 if there had not been found some 700,000/. or 800,000/. 
 worth of 1/. bank notes, the Bank must have avowed that 
 they had no more sovereigns to give. Then again, as to 
 1837 and 1839, you have only to look at the returns among 
 your own documents, and you will see the very low point 
 to which the bullion was reduced. It is quite notorious 
 that the public became very much alarmed upon the 
 subject. 
 
 3794. The question did not relate to the amount of 
 alarm, the question was as to the cause, and your Lordship 
 has stated that in the midst of the panic of 1825, when it 
 was known that there was a great drain of bullion, the Bank 
 issued a number of 1/. notes. Were those 1/. notes dis-
 
 80 
 
 credited in that state of things ? No. A drain of bullion 
 had taken place through an adverse state of the foreign 
 exchanges, and the omission to correct that by a proper 
 management of the circulation. In the early part of 1825, 
 the store of bullion which remained was reduced to a very 
 low amount, to an amount improperly low in two senses : 
 in the first place, it was so low that it created great alarm 
 among the public with regard to the insufficiency of its 
 amount to meet any further demand which might arise 
 through the state of the foreign exchanges ; and, secondly, 
 it was so low that it was not sufficient to meet the wants 
 and demands of internal purposes in the country, those 
 wants and demands being created by a very extraordinary 
 phenomenon at that period, namely, the enormous 
 increase which had previously taken place in the country 
 issues, which were subsequently suddenly discredited, they 
 being principally 11. notes, and the Bank of England 
 was called upon to find the means of paying those 1/. notes. 
 The sovereigns were all exhausted, but there happened to 
 remain this lot of 1/. notes of the Bank of England which 
 took their place. 
 
 3795. Then, under the most adverse circumstances of 
 a drain of bullion, when it was stated that the Bank was 
 within 24 hours of a state of barter, these 17. notes which 
 came out of the Bank, so far from being discredited, staved 
 off the panic ? They were not discredited in the slightest 
 degree. 
 
 3796. I understood your Lordship to state that on 
 those three occasions the convertibility of the note was 
 suspected ? Yes ; the bank note was not discredited for 
 internal purposes, but it was very seriously discredited 
 for external purposes. A person holding the Bank of
 
 81 
 
 England note as a means of obtaining bullion to remit 
 abroad, felt exceedingly anxious as to its command of 
 bullion, but a person holding 100,000 11. notes for the 
 purpose of internal payment of wages in the country felt 
 no difficulty at all ; he said, " They will answer my pur- 
 pose in that respect." 
 
 3797. There is no fear of the convertibility of the 
 note, so far as the domestic exchanges are concerned, 
 provided they are limited in quantity? There is no fear 
 of the convertibility of the note with regard to the 
 external or domestic exchanges, if they are properly limited 
 in quantity. 
 
 3798. Do you trace any connection during the last 
 10 years between the amount of circulation by the public 
 and prices ? No, I should think probably not much. 
 Prices of what ? 
 
 3799. Prices generally ? If you mean by that to raise 
 the question, what is the effect of the quantity of money 
 in the country upon prices, it is no doubt raising a ques- 
 tion of some difficulty. I apprehend that the prices of 
 commodities is the last thing which is reached by fluctua- 
 tions in the amount of money, and it is perhaps very 
 seldom reached, because the other effects produced by 
 fluctuations in the amount of money will correct those 
 fluctuations before you are compelled to resort to the 
 final principle of effect upon prices, always meaning the 
 prices of commodities; the prices of securities are quite a 
 separate question. 
 
 3800. What is the object of raising the rate of dis- 
 count in relation to the correction of the foreign ex- 
 changes? A great deal of fallacy lies in that term 
 " raising the rate of discount." You talk of the Bank
 
 82 
 
 raising the rate of discount, that is the technical mode of 
 expressing it, but it is not the correct one. The Bank 
 does not raise the rate of discount; it is much more 
 correct to say that the rate of discount is raised upon the 
 Bank. The fact is, that the diminution in the quantity 
 of money in the country raises the value of the money 
 that remains, and the Bank is obliged to conform to that 
 rise in the value of money. The Bank has no power 
 per se of raising the rate of discount. 
 
 3801. That diminution of the money in the country 
 being instanced in the Bank's own store of bullion ? No 
 doubt; but again I must say, that the Bank of England 
 has no store of bullion under the Act of 1844. 
 
 3802. The store of bullion which we see in the issue 
 department ? Yes ; when the money of the country is 
 diminished by a foreign drain, that diminution is indi- 
 cated by notes paid into the issue department, and can- 
 celled, and bullion taken out against those notes and 
 exported. 
 
 3803. Then the rate of interest does depend upon 
 the store of bullion? I am very sorry to trouble the 
 Committee with the constant repetition of the same 
 explanation. 
 
 3804. I understood your Lordship rather to deny that 
 proposition before? No; the proposition which 1 have 
 laid down is thi*, that small fluctuations of frequent occur- 
 rence probably do arise from variations in the amount of 
 money; but that great fluctuations, great in amount, or 
 great in duration, are almost entirely connected with 
 alterations in the relative demand and supply or in the 
 productiveness of capital. 
 
 3805. Does the Bank ever proceed to raise its rate of
 
 83 
 
 discount except under an apprehension of a decrease of 
 the store of bullion in the issue department ? The Bank 
 of England can only raise its rate of discount from two 
 causes, one from an actual alteration in the value of capital, 
 and the other from an alteration in the amount of money. 
 When the money in the country is diminished by a drain, 
 its value increases, and the Bank of England must conform 
 to that alteration in the value of money which it does 
 by raising the rate of interest. 
 
 3806. What is the effect of a rise in the rate of dis- 
 count upon the prices of securities and of goods? It is 
 very direct and very simple. When the money of the 
 country is diminished, the remaining quantity becomes 
 more valuable ; the rate of interest rises ; that rise in the 
 rate of interest acts upon public feeling ; the public become 
 more cautious, credit and confidence are more or less 
 affected, the remaining money performs its functions more 
 slowly, and in that way the value of money in the country 
 is increased, and increased to whatever extent may be 
 necessary to check the farther export of it, and to bring 
 back again that which has gone. 
 
 3807. How does it do so ? It does so in this way. 
 The value of money is increased ; the price of interest- 
 bearing securities is affected ; it falls more or less. Then 
 the foreign merchants in the country begin to perceive its 
 effect ; they write to their correspondents abroad, ' c Money 
 is becoming more valuable with us here ; do not send us 
 other things, send us money ; that is the best form of 
 remittance to us now." That money is sent, and that is 
 the very way in which a small rise in the value of money 
 here produces its natural and legitimate correction. The 
 diminished amount cf money is by that process cor- 
 
 g 2
 
 84 
 
 rected, the money is brought back, and everything is put 
 straight. 
 
 3808. If that were not so, there would be no object 
 in raising the rate of discount? I object to the term 
 " raising" the rate of discount. The value of money rises 
 by natural circumstances. The Bank of England have no 
 more power of raising the rate of discount than you or I 
 have; they must conform. As long as they had an 
 unlimited power of issue, they might delay that operation 
 by improperly increasing their issues. The moment they 
 are put under legitimate and wholesome regulations on 
 that point, their power over the rate of interest is gone ; 
 they must conform to it. 
 
 3809. The expected effect of raising the amount of 
 discount is to lower the prices of securities and of goods ? 
 It is a recognition that money has become more valua- 
 ble in this country, and in proportion as money has 
 become more valuable, the further export of it will be 
 arrested, and there will be various means taken to get 
 money remitted from abroad, in preference to other things, 
 until that disturbed relation of the value of money in this 
 and other countries is rectified. 
 
 3810. The natural effect of money being more stringent 
 is to lower the price of goods ? Yes, that is the principle 
 at the bottom. [Upon the subject to which the preceding 
 questions refer, namely, the effect of fluctuations in the 
 amount of money upon the rate of interest and upon the 
 prices of interest bearing securities and of commodities, it 
 may be useful and instructive to refer to the opinion of 
 Mr. Tooke, as given in a note to his Pamphlet, 1826, 
 p. 23 : " During the progress of an increase of the cur- 
 rency there is a fictitious increase of monied capital which
 
 85 
 
 comes in competition with the pre-existing monied capital ; 
 and it is while in this state of increase that it both re- 
 duces the rate of interest, and diminishes the value of 
 money. The additional currency, in whatever way it 
 comes into circulation, and whether it is in the form of 
 gold or paper, or mere credit, must eventually raise the 
 price of commodities and labour. But as almost every 
 increase of paper, excepting what is paid by the Bank for 
 bullion, is issued in the way of loan, either to Government 
 or to individuals, it is likely to affect the rate of interest 
 in the first instance before it comes in contact with com- 
 modities. This may account for an observation which I 
 have heard made, and which appears to me to have some 
 foundation, and that is, that the effects of an increased 
 circulation are perceivable in an advance of the funds and 
 other securities bearing interest, before they can be traced 
 in the prices of commodities ; and the converse holds with 
 regai'd to a diminution of the currency while in progress. 
 "When the amount of the currency has become settled for 
 any length of time, at a particular level, it is immaterial 
 as relates to the rate of interest, whether the level of the 
 currency be at one- half or at double of its former value; 
 the rate of interest will then be governed entirely by the 
 supply of, and tiie demand for, capital, as resulting from 
 circumstances independent of the currency. But it can- 
 not be too constantly borne in mind, that every alteration 
 in the amount of currency produces a temporary effect 
 upon the rate of interest/'] 
 
 3811. The present principle of currency is built upon 
 that assumption, I presume ? I am hardly prepared to 
 say yes or no to that question. The present system of 
 currency is built upon a very plain and simple principle,
 
 86 
 
 namely, that a certain portion of the precious metals is 
 the proper money of this country, and that paper notes 
 are merely a mechanical contrivance used for con- 
 venience in lieu of that metal. There is an end of the 
 matter; all the rest are consequences, not causes. [The 
 monetary system of this country as regulated by the Acts 
 of 1819 and 1844, is based upon the principle of leaving 
 the distribution of the precious metals amongst the differ- 
 ent countries of the world to be determined by natural 
 causes. Under such distribution the amount of the pre- 
 cious metals allotted to each country that is the amount 
 of money in each country, will be such that the transac- 
 tions of commerce between country and country will 
 maintain the character of barter. Money will pass from 
 one country to another only under peculiar circumstances, 
 during short periods, and to a comparatively limited 
 amount. When money does so pass from country to 
 country, the decrease in the amount of remaining money 
 in the country from which it passes will cause a rise in 
 the value of money in that country, whilst the increase in 
 the amount of money, in the country to which it goes, 
 will cause a fall in the value of money in that country ; 
 and thus the transmission of money will be speedily and 
 effectually checked, and the transactions of commerce be 
 restored to their natural state of barter. But it is essen- 
 tial that this progression and wholesome action of natural 
 causes should not be disturbed or checked by any artificial 
 issues of paper notes, by which the amount of money in 
 any given country may be rendered different from what 
 would have been the amount of metallic money in that 
 country.] 
 
 3812. Supposing that notes were issued by the
 
 87 
 
 Exchequer to the extent of 14,000,000/., and that 
 14,000,000/. was the base of the credit issues instead of 
 14,000,000/. of Bank of England notes, do you conceive 
 that the system which you advocate would act either 
 better or worse if, under those circumstances, the debt to 
 the Bank was paid off, and the Bank had its entire capital 
 free ? I do not think that it is a matter of the slightest 
 importance, the Bank having what is called its entire 
 capital free. It has quite as much capital free as it 
 wishes to have, or could use properly. 
 
 3813. Is it the usual method of a banker conducting 
 his business to have his capital locked up ? Not to have 
 his capital improperly locked up, but I apprehend that 
 the Bank has a superabundant capital at its command for 
 the proper discharge of all its banking functions. 
 
 3814. In my former question I meant 14,000,000/. of 
 inconvertible Exchequer notes ? I protest against any 
 inconvertible notes. 
 
 3815. Is it your Lordship's opinion that oscillations 
 in the rate of discount are an advantage or a disadvantage 
 to commerce ? I do not think they are of any conse- 
 quence one way or the other. [There are always two 
 parties to a loan ; and if the borrowers lose by a rise in the 
 rate of interest the lenders must gain, and conversely.] 
 
 3816. They are oscillations m point of fact, in the 
 value of the legal tender? They are, as I have said 
 before, mainly oscillations in the value of capital. In 
 their smaller character they are oscillations in the value 
 of the money of the country. 
 
 3^17. AVhen you pay 7 per cent, for money, you pay 
 7 per cent, for the legal tender? Yes. Money and the 
 legal tender, I suppose, are to be considered synonymou
 
 88 
 
 terms. You pay it for that, but you pay it for that only 
 as an instrument to an end, just as you carry an umbrella 
 over your head, not for the pleasure of carrying it, but to 
 keep the rain off; so you get your money, not for the 
 sake of carrying it in your pocket, but for the sake of 
 commanding the .possession of capital. 
 
 3818. The rate of discount has reference to the price 
 at which the legal tender can be obtained ? I think you 
 had better keep to the word " money." I do not know 
 what may be meant by " legal tender." 
 
 3819. Will your Lordship be kind enough to define 
 what you mean by "money," because at times I observe 
 you use the word " money" in relation to our foreign 
 transactions, and at times you use the word " capital" ? 
 I never confound those two. I shall be very glad to refer 
 to any answer in which I have confounded them, in order 
 that I may correct it, but I do not believe that I have 
 done so. Money I apprehend to be this : it is necessary 
 for carrying on the relations of civilised communities, 
 that there should be some one universal equivalent which 
 is taken as such by all countries, and the precious metals 
 are taken and adopted in that character. Then the 
 various conditions of different countries assign a certain 
 portion of the precious metals of the world to each coun- 
 try, and the portion so assigned to each country for the 
 purpose of acting as the universal equivalent, is the money 
 of that country. 
 
 3820. I was induced to ask the question, whether you 
 considered the oscillations in the value of money to be a 
 good thing or a bad thing for commerce for this reason. 
 If 14,000,000/. of Exchequer notes would lead to less 
 variation in the rate of discount, what would be your
 
 89 
 
 opinion respecting them ? They would not create any 
 difference in that respect. I understand the 14,000,000/. 
 to mean 14,000,000/. of notes not payable in specie on 
 demand. [Oscillations in the value of money, as distin- 
 guished from fluctuations in the rate of interest caused by 
 some change in the value of capital, can never be injurious 
 to commerce. Such oscillations in the value of money, 
 are the natural and legitimate means by which the due 
 distribution of the precious metals amongst the nations of 
 the world is maintained and the true character of com- 
 merce as an intercourse of barter is preserved. The 
 temporary fluctuations in the value of money, by means of 
 which the intercourse of nations in their commercial 
 relations is thus prevented from deviating to any serious 
 extent from its normal and healthy state, must be favour- 
 able, and not antagonistic, to the true interests of commerce. 
 
 The issue of any amount of notes, not convertible on 
 demand, would not restrict the variations in the rate of 
 discount. The temporary decrease of the amount of 
 money in the country which causes these variations in the 
 rate of discount, will still fall upon the convertible notes. 
 The effect would be the same variations in the rate of dis- 
 count, because there would still be the same decrease in 
 the amount of money, in the country. But we should 
 have two sets of notes, the convertible and the inconver- 
 tible notes, circulating at different values, one class of 
 notes being at a discount as compared with the other class. 
 It is obvious that great inconvenience and confusion would 
 be the consequence. J 
 
 3821. Yes; I wish to know what would be their effect? 
 If I understand the question, it is this : how would 
 things work under a system in which you had 14,000,000/.
 
 90 
 
 of notes not payable in specie on demand, and a further 
 amount of notes equal to the amount of bullion, whatever 
 it might be, which were payable on demand. 
 
 3822. The Exchequer notes would be payable in taxes, 
 and would constitute a legal tender ? As a mere practical 
 question, let us try to trace it out, and to see how it would 
 work. How would those two different sorts of notes, 
 different in their character, different in the privileges 
 attached to them, circulate at par value with each other. 
 It is quite clear that there would be a discount upon 
 these notes in the first place ; they would not answer the 
 purpose of a circulating medium ; it would throw every- 
 thing into confusion in the very first stage of the process ; 
 that would be the first difficulty. The next difficulty 
 would be this : the moment a drain of bullion takes 
 place, of course it must take place by the paying in, and 
 the cancellation of all the ordinary notes payable on 
 demand. So far as that is concerned, it would be exactly 
 the same as now. You would have two sorts of notes cir- 
 culating in the community different in their character, and 
 therefore there would be some premium between one and 
 the other. It would create a state of confusion which 
 Avould be exceedingly inconvenient, and which I am quite 
 sure would not be tolerated by the community for three 
 months. 
 
 3823. I understood your Lordship to say that there 
 was no difficulty in the Bank note circulating in the 
 country irrespectively of its convertibility; that it had 
 done so in 1825, at a time when its convertibility was 
 virtually endangered ? No doubt. It is quite true that 
 the privilege of convertibility will not be called into 
 action in every ense : but when once you put forth into
 
 91 
 
 the community two sets of notes, one carrying with them 
 convertibility, and the other not carrying with them 
 convertibility, depend upon it those two notes will not 
 circulate indiscriminately with the public ; the public are 
 very shrewd, and will very soon draw a distinction 
 between the two. 
 
 3824. Suppose that there was a limit in the quantity ? 
 Even if there was a limit in the quantity it would not 
 alter the matter, because there would be no limit in the 
 aggregate quantity of the two together. 
 
 3825. Supposing, the average of the circulation having 
 been, say from 22,000,000/. to 25,000,000/. the last few 
 years, upon that there was a limit to the power of the 
 Bank to issue bullion, do you still think that those notes 
 would be inexpedient ? They would generate a state of 
 utter confusion which could not be tolerated for three 
 months. 
 
 3826. Do you remember what has been the average 
 active circulation of the Bank of England for the last 
 three or four years, from 1853 ? They have issued upon 
 securities 14,000,000/. I suppose the amount of bullion 
 may be put down at about 10,000,000/. or 12,000,000/. 
 
 3827. That would be their power to issue? No; that 
 is their actual issue. 
 
 3828. What is the active circulation? That is the 
 active circulation. 
 
 3829. There is so much in reserve ? Where ? 
 
 3830. In the Bank? So there is in a great number 
 of other banks. 1 cannot speak of the reserves. That is 
 the quantity of notes put out for performing the active 
 business of the community. 
 
 3831. When there is 20,000,000/. of gold making
 
 92 
 
 34,000,000/. of circulation, does your Lordship mean to 
 say that the reserve then of the Bank is what the Bank 
 actually requires as reserve ? Yes ; under the circum- 
 stances of the case, it is what is required as a reserve. I 
 mean to say that every note put out against bullion in the 
 Bullion Department, is in reality in all principle a metallic 
 circulation. The bullion would not be placed in the Bul- 
 lion Department, except for the purpose of money; it is 
 only represented outside the Issue Department in the 
 form of notes for mechanical convenience; it is to all 
 intents and purposes, when you are inquiring about 
 principles, a metallic money. 
 
 3832. Still, supposing the active circulation is 
 22,000,000/., that is, a circulation in the hands of the 
 public, and not in the Bank of England ? You mean the 
 inactive circulation. The notes in the Bank of England 
 are far more active in meeting the necessities of the pub- 
 lic and the requirements of trade, than those which are 
 anywhere else; it is the most active part of the circu- 
 lation. 
 
 3833. Will you describe how? I will give you a prac- 
 tical illustration : suppose that this Committee was to-day 
 to issue an order for destroying all the notes now lying in 
 the Bank reserve, and that that order was made known in 
 the city of London to-morrow morning, what would be 
 the result; what would the bankers do? They would 
 every one of them go into the city in a state of perfect 
 panic, and would say, " God bless me, I have lost my 
 
 "balance at the Bank of England ; it is all gone ; it is de- 
 stroyed by an order of a Committee of the House 
 of Commons." What would they do ? they Mould 
 every one of them send their Exchequer bills to their
 
 93 
 
 brokers : they would say, " Take my Exchequer 
 bills ; sell them ; take my stock ; sell it ; bring me 
 bank notes ; I do not know what is going to happen ; but 
 the Bank reserve is destroyed ; I must have Bank notes 
 immediately to put me in a proper and safe position. " 
 In the meantime their customers -would get Avind of what 
 was happening, and the next thing w r ould be that they 
 would come to the Bank and say, " I want my bills dis- 
 counted ;" they would be met with the reply, " Excuse 
 me; have you not heard what has happened, that the 
 reserve at the Bank of England is all gone, and the reserve 
 of every other bank in London? We cannot discount 
 bills ; our bills which we hold must be paid ; we must 
 collect Bank notes as fast as we can/' What woidd the 
 Bank of England do ? They would do the same thing ; 
 they would say, " You must sell our securities." What 
 would be the state of the security market ? Prices would 
 go down immediately, everybody would be alarmed. 
 What would then take place ? The next day you would 
 have the foreign post. What would the foreign merchant 
 do ? He would write to his correspondents abroad imme- 
 diately, and say, " We are in a dreadful state here ; the 
 Bank reserve is destroyed ; you must send us money ; do 
 not send us commodities ; do not send us bills of exchange ; 
 do not send us securities; you must send us money." 
 The consequence would be, that money would come; the 
 exchanges would be turned, and money would be brought 
 into the country. Iu that way this Bank reserve, this 
 inactive thing would operate, and the money would be 
 brought into the country. That is an instance of the 
 effect of the destruction of the Bank reserve. Now, what
 
 94 
 
 is the effect of a very large increase of the Bank reserve ? 
 You have a practical illustration of it of the most striking 
 kind. Look to the Government letter of 1847. What 
 was the Government letter of 1847? It was virtually an 
 indefinite increase of the Bank reserve. What was the 
 effect ? Not one note was put out into what is called its 
 active state. Not one additional note passed out of the Bank 
 in consequence of it, but the Bank reserve was indefinitely 
 augmented. What was the result ? A miracle was instan- 
 taneously worked. The want of confidence was removed, 
 and everything was made smooth and easy. The whole 
 machinery of the credit system of the country, which had 
 been brought to a dead lock, was immediately put in order, 
 and everything went on with perfect ease, solely from the 
 increase of the Bank reserve. Therefore, to hold the doc- 
 trine that the Bank reserve is an inactive portion of the 
 circulation is absurd. For all the purposes, and for the 
 conduct of all the business of the country, the reserve of 
 the Bank of England, and the reserve of all subordinate 
 bankers, is a most important and efficient power. 
 
 3834. The panic of 1847 we have understood you to 
 say was commenced by a loss of capital ? No, not the 
 panic of 1847; the great pressure in 1847 arose from a 
 great increase in the demand for capital caused by a 
 variety of circumstances; caused to a great extent by 
 the extensive transference which had taken place of 
 floating capital into fixed capital in the form of railways ; 
 caused also by the great destruction of the crops which 
 had taken place, and the very large sum which had to be 
 paid, which was in point of fact capital, for the supply of 
 the necessary provisions of the country. In that way the
 
 95 
 
 very great pressure for capital was created in 1847 ; the 
 panic in the last stage arose from other and peculiar 
 circumstances. 
 
 3835. Then the pressure of 1847 was caused by a 
 paucity of capital in relation to the demand for it ? 
 Certainly. 
 
 3836. The Government letter then increased the 
 capital, did it ? No ; the rate of interest did not fall in 
 the rapid manner in which the other changes that I have 
 spoken of took place; the Government letter was the 
 medium of medicating to the state of things ; it was the 
 medium of relieving that state of panic which had really 
 brought everything to a stand still; and what was the 
 cause of that state of panic? the impression that the 
 Bank reserve was actually exhausted; and what was it 
 that restored things to their order in that respect ? it was 
 the simple letter of the Government, the effect of which 
 was to give an indefinite augmentation to the Bank 
 reserve; therefore it shows the extraordinary efficiency of 
 the Bank reserve with regard to the operations of the 
 country. 
 
 3837. That increase of reserve was to be purely bank 
 paper ? It was bank paper to be issued only under the 
 strict limitation that not a note was to go out under 
 8 per cent. ; had it not been for that limitation, the 
 measure would have been pregnant with great danger. 
 
 3838. In fact the public look at the reserve of the 
 Bank of England more than at any other part of the 
 return? They do now, certainly. 
 
 3839. They are very much comforted by the increase 
 of the reserve, and they are very much disquieted by the 
 decrease of the reserve? Yes; because that increase or
 
 96 
 
 decrease of the reserve of the Bank of England is taken by 
 them as indicating an increase or a decrease in the quantity 
 of money in the country. 
 
 3840. Are not they also imagining that the rate of dis- 
 count depends very much upon the state of the reserve? 
 The immediate effect upon the rate of discount, hut not 
 any permanent effect. 
 
 3841. Do not the changes in the rate of discount by 
 the Bank invariably follow more or less the state of the 
 reserve ? The variations in the rate of discount have no 
 doubt a very close relation to the state of reserve, because 
 the state of the reserve is the indicator of the increase or 
 the decrease of the quantity of money in the country ; and 
 in proportion as the money in the country increases or 
 decreases, the value of that money will increase or 
 decrease, and the bank rate of discount will conform to 
 that change. 
 
 3842. And the state of the reserve follows more or less 
 the state of the bullion in the issuing department ? There 
 is an intimate connection between them. 
 
 3843. Chairman.] Before the Committee of the House 
 of Lords on Commercial Distress in 1848, you were asked 
 this question. Question 1G34: "Now we see in these 
 Returns before the Committee, that the Bank have varied 
 their interest at different periods from If per cent, in 
 October 1844, to 9 per cent, in January 1848; and the 
 Committee have had evidence that the Bank has actually 
 demanded 10 per cent, from persons applying to it, with the 
 best possible securities. Now, do you consider that the 
 business of any great commercial country can ever be pro- 
 perly carried on with a variation in the rate of interest 
 
 between If and 10 per cent.?" This was your answer:
 
 97 
 
 " I apprehend, in the first place, that the Bank of England 
 has not the power of controlling the rate of interest ; that 
 if circumstances occur naturally, producing very violent 
 fluctuations in the rate of interest, the Bank of England, 
 like everybody else who has money to lend, must conform 
 to those rates. The Bank of England is in no way what- 
 ever responsible for those rates, and if it were to attempt 
 to control them, the effect would be to make the variations 
 much greater. To the question whether the com- 
 merce of the country can be carried on under such 
 fluctuations of interest as those described, I answer with- 
 out the slightest hesitation, yes. I have no doubt 
 whatever, that, notwithstanding such fluctuations as 
 those which have actually occurred in this country, 
 the commerce of this country will continue to prosper; I 
 have no doubt that the commercial prosperity of this 
 country will be restored, and even be placed on a firmer 
 foundation by the events of last year. I answer further, 
 that such fluctuations of interest do take place frequently 
 in the most prosperous commercial countries in the world. 
 If the Committee will refer to the published monthly 
 circular respecting the rate of interest in the United 
 States during the last year, they will find fluctuations 
 much greater than that ; yet the commerce of the United 
 States, there is not the smallest doubt, has been and will 
 be carried on successfully. If the Committee will refer 
 also to Hamburgh, they will find that it is precisely the 
 same there, and I believe they will find that in Holland 
 also, though not to the same extent as in the United 
 States and at Hamburgh, great fluctuations in the rate of 
 interest periodically take place." Looking back to that 
 answer, does your Lordship see anything which you would 
 
 ii
 
 98 
 
 wish to alter, or do you consider that that has been 
 confirmed by subsequent experience ? I am very glad to 
 find that I gave so sensible an answer at that time; I 
 have nothing whatever to add to it, and I see nothing in 
 it which I wish to modify; I think all subsequent expe- 
 rience has confirmed it, and I am quite certain that, let 
 the world last as long as it may, all future experience will 
 tell the same tale. 
 
 3844. You were asked in the year 1848 whether the 
 variations in the rate of interest were not such as to 
 render it almost impossible that the trade of the country 
 could be carried on ; is not that the same sort of question 
 which we are now asked with respect to the operation of 
 the Act of 1844 ? No doubt; the idea of the trade of 
 this country being seriously interfered with by any fluc- 
 tuations in the rate of interest is entirely unfounded. 
 [Variations in the rate of interest often arise from an 
 increase or decrease of the quantity of money in the 
 country caused by an importation or exportation of the pre- 
 cious metals. But these variations are necessarily transient 
 the very purpose of them, the maintenance of the equi- 
 librium of the value of the money of this and of other 
 countries, gives security that they will not be of long 
 continuance. Variations of a more permanent character 
 must be connected with circumstances which affect the 
 productiveness of capital. The average rate of profit 
 in different countries must determine the average rate of 
 interest in those countries. In England the rate of in- 
 terest is at the present moment unusually high. This arises 
 partly from a pressure upon the exchanges, and a tendency 
 to export a portion of the metallic money of the country. 
 The very process will produce the necessary correction ;
 
 99 
 
 and the present high rate of interest, so far as it is con- 
 nected with this cause, will be temporary. The universal 
 expectation that it will be so is evidenced by the fact 
 that the rate of interest is much higher for advances for 
 short periods, such as loans, discounts, &c, than it is 
 for advances of a more permanent character upon mort- 
 gage or investment in the public funds. The rate of 
 interest in Holland is permanently low as compared with 
 the rate of interest in the United States, because the rate 
 of profit in Holland is low compared with the rate of 
 profit in the United States. Bat this fact affords no 
 ground for the inference that the prosperity of the United 
 States rests upon a more precarious foundation, or that 
 the probability of its further progress is less than that of 
 Holland. The high rate of interest, arising from the 
 high rate of profit in America is the main cause of its 
 progressive prosperity, and so long as it continues it 
 will insure its future prosperity, notwithstanding tem- 
 porary interruptions, inasmuch as it gives to that country 
 a proportionally great power of accumulation. The idea 
 that a generally high rate of interest is disadvantageous, 
 though entertained by many, is wholly erroneous. It 
 infers that high profits, of which high interest is a con- 
 sequence, are injurious, which is the reverse of true 
 In regard to this subject, Mr. M f Culloch has the following 
 statement : " No certain conclusion respecting the pros- 
 perity of any country can be drawn from the magnitude 
 of its commerce or revenue, or the state of its agriculture 
 or manufactures. Every branch of industry is liable to 
 be affected by secondary or accidental causes. They are 
 always in a state of flux or reflux ; and some of them are 
 frequently seen to flourish when others are very much 
 
 ii 2
 
 100 
 
 depressed. The average rate of profit would seem to be, 
 on the whole, the best barometer the best criterion of 
 national prosperity. A rise of profits is, speaking gene- 
 rally, the effect of industry having become more produc- 
 tive ; and it shows that the power of the society to amass 
 capital, and to add to its wealth and population, has been 
 increased, and its progress accelerated. A fall of profits, 
 on the contrary, is the effect of industry having become 
 less productive, and shows that the power to amass capital 
 has been diminished, and that the progress of the society 
 has been clogged and impeded. However much a par- 
 ticular, and it may be an important, branch of industry is 
 depressed, still, if the average rate of profit be high, we 
 may be assured that the depression cannot continue, and 
 that the condition of the country is really prosperous. 
 On the other hand, though there were no distress in any 
 particular branch though agriculture, manufactures, and 
 commerce were carried to a greater extent than they had 
 ever been carried before though a nation had numerous, 
 powerful, and well appointed armies and fleets, and the 
 style of living among the higher classes was more than 
 ordinarily sumptuous; still, if the rate of profit had 
 become comparatively low, we might pretty confidently 
 affirm, that the condition of such nation, how prosperous 
 soever in appearance, was bad and unsound at bottom ; 
 that the plague of poverty was secretly creeping on the 
 mass of her citizens; that the foundations of her greatness 
 had been shaken ; and that her decline might be antici- 
 pated, unless measures were devised for relieving the 
 pressure on her resources, by adding to the productiveness 
 of industry, and, consequently, to the rate of profit." 
 [" Principles of Political Economy," last edition, p. 110.]
 
 101 
 
 Friday, 10th July, 1857. 
 
 MEMBERS PRESENT. 
 
 Mr. Blackburn. 
 
 Mr. Cayley. 
 
 Mr. Fergus. 
 
 Mr. Gladstone. 
 
 Sir James Graham. 
 
 Mr. Hankey. 
 
 Mr. Hildyard. 
 
 Mr. Hope Johnstone. 
 
 Mr. John Lewis Bicardo. 
 
 Mr. Martin Tucker Smith. 
 
 Mr. Spooner. 
 
 The Chancellor of the 
 
 Exchequer. 
 Mr. Vance. 
 Mr. Weguelin. 
 Mr. Wilson. 
 Sir Charles Wood. 
 
 The Right Hon. The Chancellor of the Exchequer, 
 in the Chair. 
 
 3845. Chairman'] Have you any explanation to give 
 with reference to your evidence of last Tuesday? I 
 wish to refer to a passage in my examination on the last 
 occasion, in which, speaking of the various fluctuations 
 in the rate of interest, and the imputation that the Bank 
 had resorted, under the compulsion of the Act of 1844, 
 to fluctuations in the rate of interest which had not ex- 
 isted previously, I made a reference to a long section in 
 Mr. Tooke's book upon that subject, in which he criticised 
 a charge of that nature when urged by Mr. Hume. I 
 have now brought with me the volume in which that 
 section is found, and the section itself is so interesting 
 and so important, that I should be glad to read it to the 
 Committee. At the same time, as it occupies 13 or 14
 
 102 
 
 pages, I can hardly venture to ask leave to do so, but 
 perhaps I may be allowed to put it in the hands of the 
 Chairman, with the discretionary power on his part to 
 append it to the evidence if he thinks fit. The section 
 begins in the following words, sarcastically alluding to 
 this charge on the part of Mr. Hume. He says, "Mr. 
 Hume throughout the whole of his speech seems to be 
 impressed with, and to inculcate, the opinion that the 
 Bank of England, by its several notices of the rates at 
 which advances on loans would be made, or bills dis- 
 counted, really could or did originate or cause the varia- 
 tions in the rate of interest and discount, upon the extent 
 of which variations he descants, as being productive of the 
 most injurious consequences/' That is the opening of the 
 section, and it closes with these words : " A country like 
 this having an extensive foreign commerce, extensive beyond 
 any of which there is an example in history, and beyond 
 any which the most sanguine anticipations could some 
 years back have contemplated as within the bounds of 
 probability," (this, you will observe, is with reference to 
 the commerce of the country before the expansion subse- 
 quent to 1844), " must by its intimate relations of capital 
 and credit abroad, participate more or less in the ten- 
 dency to over banking and over trading, and in the con- 
 sequent revulsions which may occur in the countries with 
 which we arc commercially most intimately and most 
 oxtensively connected. Considering, therefore, the enor- 
 mous variations in the state of credit and in the rate of 
 interest which have occurred in the United States of 
 America, and the variations also which have taken place, 
 although not on so extended a scale, on the Continent of 
 Europe generally, it ought surely not to be a matter of
 
 103 
 
 wonder that some variation, and an inconvenient degree 
 of it, should have occurred in this country." 
 
 3816. Mr. Wilson.] Do you understand that Mr. 
 Tooke has contended since that time against the policy 
 of a variation of interest ? I am perfectly aware that in 
 the later works of Mr. Tooke, with which I am not so 
 conversant as I am with his earlier works, because I do 
 not entertain for his later the same respect that I do 
 for his former opinions, there is a very great dissidence 
 of opinion. 
 
 3847. But so far as Mr. Tooke's opinions have been 
 represented to this Committee by a witness who has ap- 
 peared before it, I am not aware of anything that he has 
 said which should induce the Committee to suppose that 
 he entertains any opinion that the rate of interest should 
 not vary from day to day, or from month to month, as the 
 demands of capital may increase or diminish. I believe 
 the only limit which he has placed upon it (in which I 
 do not agree with him), as appears by the evidence here, 
 is that the Bank should observe the minimum rate of 4 
 per cent. I believe that is the full extent to which the 
 evidence of Mr. Newmarch went before this Committee. 
 
 I think there is nothing inconsistent with that in the 
 passage which you have just read, so far as variations in 
 the rate of interest above 4 per cent, may take place ? 
 My remarks recently made had reference to the examina- 
 tion in the latter part of the last day, in which I referred 
 to the variations in the rate of interest. I understood 
 that it was imputed as a great fault in the Act of 18-14, 
 that it had caused much more violent fluctuations in the 
 rate of interest than had existed previously, and that 
 those fluctuations were a great national calamity. My
 
 104 
 
 reply to that was, first of all, a denial of the fact ; and, 
 secondly, the statement which I endeavoured to support 
 by the opinion of Mr. Tooke, that great variations in the 
 rate of interest had occurred previously to 1844; that 
 they were inevitable under any management of the paper 
 money of the country; and that they really are pheno- 
 mena necessarily connected with a country of extended 
 capital and great enterprise, and especially a country in 
 which a rapid creation of wealth is going on. 
 
 3848. Do you happen to remember the year in which 
 the usury laws were repealed ? No, I do not remember 
 the exact date of it ; there was a partial repeal at first, 
 and a total repeal subsequently. I do not remember the 
 exact dates. [They were substantially repealed in 1839.] 
 
 3849. Prior to 1835, I believe they were repealed. Did 
 not the existence of the usury laws very much interfere 
 w r ith the power of the Bank of England to regulate its rate 
 of interest according to the state of the market? It inter- 
 fered, of course, with the power of the Bank of England 
 to regulate its rate of discount. 
 
 3850. So far as the banking operations of the Bank of 
 England went, it interfered with its power to regulate 
 the conditions upon which those banking operations were 
 conducted ? I do not fully understand the drift of that 
 question. I know of no operations of the Bank of Eng- 
 land but its banking operations. There is no doubt that 
 the effect of the usury laws was to render it impossible 
 for bills to be discounted avowedly and directly at a 
 higher rate than 5 per cent., but they did not interfere 
 with various other modes of affecting the state of the 
 money market ; for instance, that of shortening the 
 echeance as it is technically called, of the bills which were
 
 105 
 
 discounted, and that of refusing to discount for parties 
 more than a given amount, not upon the ground of the 
 want of credit, but because the Bank could not discount 
 more than a given amount for the whole community, and 
 it must be divided amongst the different members of the 
 community. Neither did the usury laws deprive the 
 Bank of the power to lend money in other forms which 
 might yield a higher rate of interest than 5 per cent. 
 
 3851. But so far as regards either the discount of bills 
 or loans upon securities, which constitute the great busi- 
 ness of the Bank of England, it was limited in its opera- 
 tion to 5 per cent. ; and therefore, so far its discretion 
 with reference to varying the rate of interest, was limited 
 by the usury laws with regard to its transactions? The 
 facts of the case are perfectly clear. You could not 
 avowedly charge more than 5 per cent, upon any advance 
 of money, but there were various ways and forms in 
 which money might be advanced and was advanced at a 
 higher rate than 5 per cent. 
 
 3852. Those forms could only be, as far as the Bank 
 of England was concerned indirectly by the purchase of 
 securities at a depreciated rate ; and as far as other bankers 
 or brokers were concerned, by adding a commission to 
 the rate of interest which they charged ? As I have 
 already said, there were various indirect modes of acting 
 upon the state of the money market; that is to say, of 
 raising the rate of interest. There was the mode of 
 charging a commission upon the bills discounted. Then 
 there were various other modes of lending money; in 
 reality, lending money, but under the form of purchase 
 and sale. 
 
 3853. But there is no doubt, is there, that the usury
 
 106 
 
 laws did operate as an impediment to the free and conve- 
 nient operations of loans through the Bank of England, 
 which was not in the habit of charging commission, and 
 did only charge a rate of interest ? There can be no 
 doubt that the existence of the Usury Laws was a very 
 serious and a very impolitic impediment to the free dis- 
 tribution of capital by the channels and through the forms 
 which it would otherwise naturally have assumed. 
 
 3854. Is it a fair definition of the rate of interest, to 
 say that it is the price paid for the use of floating capital 
 for the time being? I am always afraid of expressing, 
 without a great deal of consideration, definitions upon a 
 question of scientific principle. No doubt, speaking 
 generally, not being bound to the exact accuracy of the 
 very words used, the rate of interest is the price paid for 
 obtaining the command of capital. 
 
 3855. And there is no reason whatever, that you are 
 aware of, why the price for the use of capital should be 
 fixed, any more than the price of any other commodity 
 which is subject to the fluctuation in its supply and 
 demand? None whatever. 
 
 385G. Is it not the best scrity against scarcity, that 
 in proportion as an article is scarce, the price should rise, 
 in order not only to encourage economy in it use, but 
 also to encourage further supplies from extraneous 
 sources? The question is now assuming the shape of a 
 discussion upon the subject of the primary principles of 
 political economy. That free trade in an article is the 
 best mode of securing all the results with regard to it 
 which you desire, is a principle which I fully adopt. 
 
 3857. Is it not advantageous to the country at large, 
 if there is a scarcity of loanable floating capital, that the
 
 107 
 
 price of it, that is to say, that the rate of interest should 
 rise in proportion as that scarcity is experienced? Capital 
 is like everything else : the regulation of the proportions 
 between the supply and demand is best accomplished by 
 leaving it to the free action of the market. 
 
 3858. And the only sound principle with regard to 
 the price of capital, like anything else, is the relation 
 which supply and demand preserve to each other? 
 Yes. 
 
 3859. A question was asked on the last day whether, 
 if the profits of business were 5 or 7 per cent., it would 
 not make a great difference in the operations of the mer- 
 chant whether he paid 4 per cent or 6 per cent, discount 
 for his bills ; must it not be taken into account that the 
 discount of a bill refers only to a short period (I suppose 
 we may take the average of the period of bills as not 
 exceeding three months), and that therefore any increase 
 in the rate of interest would really bear the proportion to 
 the profits of the transaction which the period that the 
 bill had to run bore to a whole year ? The question, of 
 course, involves a great number of points ; if a person 
 has to discount his bill for the purpose of finding capital 
 for business, in all probability he has to go through a 
 series of such discounts successively ; therefore we must 
 first consider whether we are dealing with a single act of 
 discount or with an act of discount forming a link of 
 a long chain of similar transactions ; but there is no doubt 
 about this, that if you can assume a state of high rate 
 of profit accompanied by a facility of obtaining capital at 
 a very low rate as the means of making that profit, that is 
 an exceedingly desirable state of things to the person who 
 borrows capital to trade with ; but it is a state of things
 
 108 
 
 which is inconsistent with itself; a high rate of profit 
 will always create a great demand for capital; a great 
 demand for capital will raise the value of it. 
 
 3860. But the rate of interest in point of fact is in the 
 long run governed by the rate of profit ? Yes ; the rate 
 of interest is governed by the proportion between the 
 demand and the supply of capital, and the rate of profit, 
 no doubt, is an important ingredient in settling that 
 question. [In the long run it is the principal if not 
 the sole consideration in determining the rate of in- 
 terest.] 
 
 3861. Suppose that a merchant sells his goods for 
 1000/., and, instead of receiving cash, he receives a bill 
 at three months, which he has to discount. Suppose that 
 he receives 6 per cent, profit upon the goods, and has to 
 pay 4 per cent, upon the bill, the difference between the 
 rate of 4 per cent, which he would pay for the discount 
 in the one case, and 6 per cent, which he would receive in 
 the other, would be only i per cent, upon the transaction, 
 would it? I dare say that is a correct calculation; it 
 may be considered to be so. 
 
 3862. Therefore, so far as affects profits, the differ- 
 ence in the rate of discount by no means represents the 
 difference in the rate of profit ? The rate of profit is de- 
 pendent upon other circumstances no doubt than the rate 
 of discount ; the only thing is, that if a person is trading 
 with borrowed capital, if you assume a given rate of 
 profit, of course the ultimate result to him will be affected 
 by any variations in the rate which he has to pay for the 
 borrowed capital. 
 
 3863. But if his profit be 6 per cent, upon the trans- 
 action, and he has to discount his bill at three months, the
 
 109 
 
 discount for the three months only represents the interest 
 for a fourth of the year, and therefore the difference be- 
 tween the two rates of interest will only be one-fourth of 
 the apparent difference of the rates ? No doubt, if you 
 assume that capital is employed for a year to make 6 per 
 cent, profit, and that for one-fourth part of the year he 
 has to pay a certain rate of interest for borrowing the 
 capital, any fluctuation in the rate of interest which he 
 pays for that one-fourth part of the year, produces 
 only one-fourth part of the effect upon his ultimate 
 profit that it would do if he had to borrow it for the 
 whole year. 
 
 3861. I think you have stated that a high rate of 
 interest indicates a high rate of profit ? No ; I have not 
 stated that. I have stated that a high rate of profit has a 
 strong tendency to produce a high rate of interest. I 
 have not stated that a high rate of interest is always 
 indicative of a high rate of profit, but they have a very 
 intimate relation to each other; there are other circum- 
 stances which will affect it. 
 
 3865. Could a high rate of interest be permanently 
 maintained in the face of a very low rate of profit? I 
 should think not. 
 
 3866. Therefore, a high rate of interest permanently 
 maintained, indicates a high rate of profit ? I should 
 think that a high rate of interest and a low rate of profit 
 could not permanently co-exist. 
 
 3867. Therefore, a permanently high rate of interest 
 would indicate a high rate of profit ? Other things being 
 assumed to be unchanged. 
 
 3868. Therefore, supposing that a man is carrying on 
 his business partly with borrowed capital and partly with
 
 110 
 
 his own capital, a high rate of interest will be to him, so 
 far as his own capital is concerned, an absolute advan- 
 tage ? I do not quite see the drift of the question ; a 
 high rate of interest to a man trading upon his own 
 capital, I think would not affect the question of that 
 capital, because the return for his capital would depend 
 upon the profits of business ; the high rate of interest 
 would affect only that portion which he borrowed. 
 
 3869. A high rate of interest is indicative of a high 
 rate of profit ? We must take care of the full force and 
 meaning of the expression " indicative." [The demand for 
 capital is not always for reproductive or profitable employ- 
 ment. In such cases the rise of interest caused by the 
 increased demand for capital does not necessarily indicate 
 an increased rate of profit. The recent rise in the rate 
 of interest has had its origin in an increased demand for 
 capital partly for the purpose of supporting the vast 
 expansion of trade throughout the world, and so far it is 
 directly connected with an increase in the rate of profit 
 but partly for the purpose of supplying the calls of the 
 various countries of Europe for the unproductive expen- 
 diture of war, and so far it has no direct connexion with, 
 and therefore affords no presumptive evidence of, any 
 increase in the rate of profit.] 
 
 3870. If a permanently high rate of interest is indi- 
 cative of a high rate of profit, would it not be the case 
 that a person trading with his own capital would have the 
 advantage of the high rate of interest, plus the ordinary 
 profit beyond the rate of interest ? If the rate of profit 
 is high, a person trading with his own capital gets the 
 benefit of that high rate of profit ; if the rate of interest 
 is high, so far as he trades with borrowed capital, he has
 
 Ill 
 
 to pay that high rate. The thing is perfectly simple. I 
 do not see the drift of the questions, nor do I see the 
 difficulty of them. 
 
 3871. Then, so far from its being a ground of com- 
 plaint on the part of those who are trading with their own 
 capital, or, in a great measure with their own capital, that 
 the rate of interest is permanently high, it ought rather 
 to be a source of congratulation ? It not only ought to 
 be, but I do not suppose the world ever presented such a 
 phenomenon as a man trading entirely with his own 
 capital who complained of a high rate of interest. 
 
 3872. The question also assumed the case of those 
 trading partly with their own capital and partly with bor- 
 rowed capital ? Then you have to take the proportions ; 
 the person is a sufferer, so far as he trades with borrowed 
 capital, and a gainer so far as he trades with his own 
 capital. 
 
 3873. He would not be a sufferer if the rate of profit 
 was sufficient to compensate him for the high rate of 
 interest ? No doubt ; the answer is involved in the 
 question. 
 
 3874. In your Lordship's last day's evidence, in answer 
 to Question 3646, you stated that you understood the 
 main principle of the Act of 1844 to be, to make the 
 variations in the amount of paper-money conform to 
 the variations of the metallic currency; you are not 
 of opinion that the convertibility of the note alone would 
 effect that object? No, certainly not: the experience 
 of the history of this country in an endless series of 
 instances is directly contradictory of that. [Every 
 occasion on which the paper money of the country
 
 112 
 
 has been maintained at an undiminished amount during 
 a progressive drain of bullion is a case in point, 
 and affords an example of the amount of paper money 
 failing to conform to the variations of the metallic cur- 
 rency, notwithstanding the convertibility of the note. 
 
 Take the state of the circulation from 1834 to 1837, 
 as set forth in the examination of Mr. (Weguelin Ques- 
 tion 1045 to 1054). 
 
 Circulation. Bullion. 
 
 1834 Jan. 37,855,958 9,952,500 
 
 1837 Jan. 38,549,195 3,990,600 
 
 Thus it appears that the aggregate circulation rather 
 increased during a period in which the bullion sustained a 
 diminution of six millions. It is clear then that the 
 convertibility of the note was wholly insufficient to make 
 the variations in the amount of the paper money conform 
 to the variations of the metallic currency. 
 
 The lesson thus taught by the course of monetary 
 events in this country is confirmed by similar experience 
 in the United States. To this we have the valuable 
 testimony of Mr. Daniel Webster. " I lay it down as an 
 unquestionable truth, that no paper can be made equal, 
 and kept equal to gold or silver, but such as is convertible 
 into gold or silver, on demand. But I have gone farther, 
 and still go farther, than this. I contend that even con- 
 vertibility, though itself indispensable, is not a certain 
 and unfailing ground of reliance. There is a liability to 
 excessive issues of paper, even while paper is convertible 
 at will ; of this there can be no doubt." Sub. Treasury 
 Speech, March, 1838, p. 12. 
 
 Mr. Tooke, in his pamphlet, 1826, pp. 53-4, distinctly
 
 113 
 
 attributes the inflated state of prices during the preceding 
 years, to an excess of paper, although convertible; and 
 the subsequent fall of prices he considers to have been 
 the inevitable consequence of the efflux of bullion, produc- 
 ing a great contraction of the currency previously issued 
 in excess, notwithstanding the check of convertibility. 
 " There could be little doubt that the rise of prices, in 
 every case in which it could not be distinctly accounted 
 for and justified by scarcity, was delusive, and must have 
 been connected with excess of paper. It was evident that 
 this excess of paper could not be retained much longer, 
 while subject to the check of convertibility ; and that 
 when the efflux should take place the great contraction of 
 the currency which would ensue, must inevitably entail a 
 fall of prices to, or possibly below, the level from whence 
 they had risen, accompanied with great commercial 
 reverses, and with every appearance of gloom and depres- 
 sion, succeeding to the excitement and apparent prosperity 
 which had marked the preceding twelvemonth." 
 
 Again p. 66. " In July, 1824, there was a considerable 
 decline in the continental exchanges, and an evident efflux 
 of gold. Here, then, was a warning not to be mistaken, 
 even supposing the amount of the circulation justifiable 
 down to that time. But instead of attending to this infal- 
 lible criterion of excess, the directors made at that precise 
 time, the great increase to their issues, compared with the 
 preceding January, which has been stated in the previous 
 section, when a drain upon their treasure had actually 
 begun/' 
 
 It would only be to accumulate superfluous proof 
 were we to adduce further considerations to show that the 
 convertibility of the note will not alone secure the cer- 
 
 i
 
 114 
 
 tainty that variations in the amount of paper money shall 
 conform to the variations of the metallic money.] 
 
 3875. When you say, conform to the metallic cur- 
 rency, do you mean conform in value ? I mean conform 
 in amount ; and the value of the paper currency results 
 from its being kept at the same amount as the metallic 
 currency would have been. 
 
 3876. Are you of opinion that as long as the converti- 
 bility of the paper is maintained there can be any differ- 
 ence in the value between the paper portion of the cur- 
 rency and the metallic portion of the currency ? None, 
 so far as internal purposes are concerned. 
 
 3877. Of course the paper portion of the currency is 
 not applicable to external purposes at all ? Clearly not. 
 
 3878. But for all purposes of internal circulation the 
 paper, as long as it is convertible, must be identical in 
 value with the coin? No doubt it must; but we must 
 remember that the great principle of the Act of 1844 had 
 reference to the question of the value of the currency of 
 this country with reference to the currency of all the 
 other countries of the world ; in other words, that they 
 had reference to the circumstances and considerations 
 which affect the state of the exchanges. [" Although an 
 over issue of convertible paper is not indicated by any fall 
 in its value, as compared with gold, in the country in 
 which it is issued, it is notwithstanding clearlv indicated 
 by a fall in the exchange, and an exportation of gold. 
 The fact of the exchange being depressed and of gold 
 continuing for any considerable period, to be demanded 
 from the Bank and exported, is, independently of all 
 other considerations, a conclusive proof that the currency 
 has become relatively redundant or depreciated, as com-
 
 115 
 
 pared with the currencies of other countries." Macculloch, 
 Art. * Money," p. 55.] 
 
 3879. What do you include in the term u currency ;" 
 do you include the notes and coin in the hands of the public 
 only, or do you include the coin in the Bank of England 
 as well ? I consider the Bank of England as a very im- 
 portant personage amongst the public ; I know no differ- 
 ence between the Bank of England and my own bank, so 
 far as that is concerned. 
 
 3880. Do you include the bullion in the Bank of Eng- 
 land as part of the currency ? Precious metal in the 
 Banking Department I consider to be currency, but not 
 bullion in the Issue Department ; because, against that, 
 notes have been issued as representing it. 
 
 3881. The uncoined bullion? Coining has nothing 
 whatever to do with the question. Coining or non-coining 
 is a mere question of mechanical convenience. 
 
 3882. But bullion is not a legal tender; coin is? 
 That is a mechanical question. Suppose I have an ingot 
 of gold, and I tender it in payment of 10,0007. of bank 
 notes and the holder of the notes says, " That is not a 
 legal tender/' and I have to coin it, that is a mere me- 
 chanical question ; it has nothing to do with the principle 
 with reference to the distribution of the precious metals, 
 which is the real principle at the bottom of this subject. 
 
 3883. Then you consider that the whole of the bullion 
 and the supplies of coin and of notes constitute the entire 
 circulation of the country ? I think that if we were to 
 substitute the word "money' 1 for the word "circulation," 
 it might perhaps assist us in keeping our ideas clear. I 
 consider that to be the money of the country which is held 
 
 I 2
 
 116 
 
 in a state of readiness at all times to be used as the great 
 universal equivalent ; that which will purchase and pay 
 for everything else. 
 
 3884. Would you include bullion in the hands of a 
 private party ? No ; I apprehend that any person im- 
 porting bullion into this country, if he intends it to be 
 held in readiness for the purpose of discharging the 
 functions of the universal equivalent, will, as a matter 
 of course, deposit it in the Issue Department of the Bank 
 of England, and assuming that to be true, I look upon 
 none as money except the bullion which is so deposited, 
 and that bullion is represented by notes issued against it. 
 If a merchant retains the bullion in his own possession, 
 I conclude that he retains it for other purposes than to 
 act as the great universal equivalent. 
 
 3885. But so far as principle is concerned, an ingot 
 of gold in the hands of an importer would be as much a 
 legal tender, and as easily converted into coin as in the 
 hands of the Bank of England ? No, not whilst held in 
 the hands of the merchant. The moment he deposits it 
 in the Bank of England, or the moment he takes it to the 
 Mint, then he converts it into part of the great 
 universal equivalent, which constitutes money, 
 
 3886. I understood your Lordship to say that the 
 reason why an ingot was the same as coin was, that if it 
 was offered in payment of a debt and refused, because it 
 was not a legal tender, it would only require the mecha- 
 nical operation of coining it. AVould not that apply as 
 much if it was in the hands of a private person as if it was 
 in the hands of the Bank of England? It is not a 
 question of the party in whose hands it is ; the question
 
 117 
 
 is, in what character, and for what purpose it is retained 
 and held. If I have a piece of gold plate on my dinner 
 table,, that is not money ; but no doubt I might send that 
 gold plate and have it melted down into an ingot, and then 
 deposit it in the Bank of England ; then I should convert 
 it into a part of the great universal equivalent, that is 
 into money, by that process. The question is the pur- 
 pose for which it is held. 
 
 3887. You are aware of course that the Bank of Eng- 
 land pay 37. 17s. 9d. per ounce for bullion, and sell it at 
 3/. 17s. I0d.? Yes. 
 
 3888. Has it not been the case since bullion has be- 
 come so large an article of commerce, that private indivi- 
 duals, during the last two years, have for a short period 
 held bullion without taking it to the Bank, in expectation 
 of a foreign demand at the full price at which they could 
 purchase it from the Bank ? I am not conversant with 
 those facts ; I cannot say whether that is the fact or not ; 
 but it is quite possible that it may be the fact. We 
 must, first of all, in discussing a question of this sort, lay 
 down clearly and distinctly the principles upon which it 
 depends ; then, no doubt, facts may always be discovered 
 which lie upon the border of those principles, and you 
 may put facts which are in such an equivocal position, 
 that it may be almost a matter of doubt whether they 
 come within the principle or whether they do not ; but 
 that docs not shake or invalidate the great principles ; 
 we never can come to any rational conclusions upon 
 a subject of this sort unless w t c eliminate from our minds 
 all reference to those equivocal facts, and fix our minds 
 clearly and distinctly upon the great and plain principle
 
 118 
 
 which underlies the whole subject. In the supposition 
 put, the bullion is imported and exported by the private 
 merchant as any other ordinary article of commerce ; it 
 does not assume the unequivocal character of money, or 
 the universal equivalent. 
 
 3889. Is it not part of the great and plain principle, 
 whether bullion is money or not, and not merely whether 
 it is money in the hands of the Bank of England or in 
 the hands of any other banker in London ? Bullion may 
 or may not be money, just as paper may or may not be a 
 bank note ; it depends entirely upon the form and purpose 
 for which it is retained and held in readiness. 
 
 3890. Then you do not at all agree with those 
 witnesses who have been before this Committee who con- 
 sidered that the circulation consisted of the notes and coin 
 in the hands of the public, as distinguished from those in 
 the Bank of England ? No ; I think that is quite alien 
 from all sound and rational views of the subject. [When 
 notes are put forth by the Issue Department, they at once 
 become part of the money of the country, and of that 
 character they cannot be deprived by any process except 
 that of returning them into the Issue Department. The 
 notes may be in the pocket of an individual, in the drawer 
 of a tradesman, in the till of a private banker, or in the 
 till of the Bank of England. In whichever of those con- 
 ditions the note may be, it is equally held in readiness to 
 perform all the legitimate functions of money, and may at 
 any moment be used for that purpose at the free discretion 
 of the holder. It is therefore in every rational meaning 
 of the word part of the money of the country. But when 
 the note has been returned to the Issue Department, the
 
 119 
 
 case becomes altogether different. The note then loses 
 its readiness to perform the functions of money, it is no 
 longer capable of being used for that purpose at the free 
 discretion of any person. To redeem the notes from the 
 Issue Department, and again put them into circulation as 
 money it is necessary that an equivalent amount of bullion 
 be first paid into the Issue Department.] 
 
 3891. Prior to the Act of 1844, what did you consider 
 as the paper circulation of the country? That at once 
 leads to the question, whether bank notes lying in the till 
 of the Banking Department of the Bank of England are 
 part of the money of the country ; if you raise that 
 question, I have no objection to discuss it. I have no 
 hesitation in saying that they are not only a part, 
 but a most important and vital part of the money of the 
 country. 
 
 3892. In your evidence before the Committee in 1840 
 you gave in a paper to the Committee which showed cer- 
 tain variations between the circulation of paper money of 
 the Bank of England and the bullion held by the Bank ; 
 do you remember that paper? I do not. 
 
 3893. In that paper a comparison was made between 
 the notes of the Bank in the hands of the public and 
 the bullion held by the Bank; and it was contended, 
 not only by your Lordship but by other witnesses, that 
 those notes in the hands of the public ought to fluc- 
 tuate in the same way that the bullion in the Bank 
 fluctuated ; was not that so ? There is no doubt that 
 when there were no means whatever of knowing what was 
 the Bank reserve, we were obliged to discuss the subject 
 upon the facts and data which we could obtain, and the 
 only knowledge which we could then obtain was the
 
 120 
 
 amount of notes out of the Bank of England ; but I 
 stated, in reply to your questions on a former occasion, 
 that when the accounts were reduced into a correct and 
 rational form, the notes in the till of the Bank of England 
 would form part of the circulation, and that it would be a 
 very satisfactory thing when we arrived at a clear and 
 distinct knowledge of that important part of the circulation. 
 [It may be right to quote at length the question and 
 answer here referred to. 
 
 Question (5195) by Mr. Wilson. I think that all the 
 evidence which was given before the Bank Committee of 
 1840, and all the discussion which preceded that Act, in 
 arguing upon the circulation, were confined to the notes 
 actually in the hands of the public? 
 
 Answer. You will find many answers in my evidence 
 in the year 1840, in which I distinctly referred to the 
 notes which are in the Bank till, and in which I stated 
 that it was an unfortunate circumstance attending the then 
 existing system, that we had no means of knowing what 
 the amount of these notes was, and therefore we were 
 obliged to reason upon uncertain data ; there was cer- 
 tainly no possibility of dealing with anything but the 
 notes in the hands of the public; but I stated that the 
 notes in the Bank till constitute a part of the circulation, 
 and that when the accounts were separated, they would 
 so appear. " Evidence before Committee on Commercial 
 Distress, 1848."] 
 
 3894. I think you held it then as conclusive of misma- 
 nagement on the part of the Bank if the notes in the hands 
 of the public were not contracted in the same measure as 
 the bullion in the hands of the Bank ? The principle is 
 perfectly obvious and distinct. We saw the very impro-
 
 121 
 
 per and unsatisfactory state of the monetary system of the 
 country; we maintained that that unsatisfactory state 
 consisted essentially in the nonconformity of the paper 
 money of the country to the fluctuations of the bullion. 
 The only means that we had of judging of the quantity of 
 paper money in the country was by looking at the paper 
 money outside the walls of the Bank of England; and 
 therefore we reasoned with regard to it; but it was always 
 accompanied with the qualification that the paper notes 
 in the till of the Bank of England must be an important 
 part of the matter, and it was very unfortunate that we 
 had no knowledge of it. [As this is an important point, 
 it may tend to a more full elucidation of it, if the very 
 words of the questions and answers referred to be quoted, 
 as given in evidence in 1840. Question 2656. "Do you 
 include in the circulation of the Bank of England the 
 reserves held by the Bank of England against its deposits? 
 As the accounts are at present kept this is not included 
 in the circulation ; but under a proper separation of the 
 accounts I conceive that it would be included. The cir- 
 culation now includes only those notes which are out of 
 the walls of the Bank of England ; under a proper sepa- 
 ration of the accounts, it would include all notes that are 
 out of the walls of the currency department, and, there- 
 fore, of course would include the notes that are in the till 
 of the banking department. 
 
 "2657. In case of a separation of the business of the 
 Bank of England into two departments, one of issue, and 
 the other of ordinary banking, would not the reserve held 
 by the banking department be a reserve in notes? I 
 understand the word Reserve to refer to the notes which 
 the Bank of England, as a bank, holds in its till, for the
 
 122 
 
 purpose of meeting the current demands of its banking 
 business. 
 
 " 3479. You are of opinion that it is in the power of the 
 Bank to regulate the amount of their circulation? I am. 
 " 3480. Do you mean that they can contract or increase 
 as they please that portion which you call circulation, and 
 which appears as such in the '' Gazette ?" I mean, that I 
 conceive the Bank of England has the power of increasing 
 or diminishing the number of notes which it has out. 
 
 "3481. And the number of notes which are out are 
 limited, in your opinion, to that which is included in the 
 return of circulation ? The explanation of my meaning 
 on that point is contained in the early part of my first 
 day's examination. I consider circulation to be, notes out 
 of the walls of the Bank of England, and also the amount 
 that is in reality reserved in the till of the Bank, to meet 
 the demands of the banking business. 
 
 " 3483. You have stated that there has been an increase 
 of reserve in the till of the Bank ; is there any publication 
 by the Bank, that shows the amount of that reserve ? 
 None whatever ; and that is one of the inconvenient 
 consequences arising from the connexion of issue with 
 banking. 
 
 " 3614. Suppose your plan of separating the Bank into 
 two departments, one of issue, the other deposit, were 
 carried into effect, would not the whole currency, as 
 reported by the bank of issue, appear as circulation? 
 Upon the supposition of the separation of the departments, 
 the whole amount of bank notes, either in the hands of 
 the public, or in the till of the banking department, 
 would appear as circulation.]" 
 
 3895. Taking the correspondent element now, namely,
 
 123 
 
 the notes in the hands of the public, since the Act of 
 1844 can you discover any coincidence in the fluctuations 
 of the notes in the hands of the public out of the Bank, 
 and the fluctuations of bullion ? I have not looked into 
 it specially with that view, because I do not think it is a 
 matter of the slightest importance. We know this, not 
 as a matter of reasoning or of induction, but as a matter of 
 positive fact, that, under the operation of the paper money 
 of this country, as regulated by the Act of 1844, we have 
 effectually accomplished those results which we wished to 
 accomplish ; and those results, the non-accomplishment 
 of which constituted all the evils and grievances of pre- 
 ceding crises of our monetary system. It is very possible, 
 indeed it is very natural, that during the early part of a 
 period of pressure and drain the notes outside the walls of 
 the Bank of England should not diminish ; and it is upon 
 that very fact that I ground distinctly and emphatically 
 my maintenance of the principles of the Act of 1844, and 
 my declaration of their absolute necessity for the safety of 
 the monetary system. What is the natural course of 
 things ? When a pressure arises, every banker (the Bank 
 of England is nothing more than a banker upon a large 
 scale) is desirous, as far as he properly can, to meet the 
 wants of his customers, and to satisfy their expectations. 
 To do that he strains his banking reserve as far as he thinks 
 he can safely do so ; and when he finds that he can do so 
 no further, then he must either contract his accommoda- 
 tion to his customers, or he must realise other securities 
 to strengthen his means of assisting them. That is 
 the natural and obvious course of things. Now, pre- 
 viously to the Act of 1844, whilst that principle was 
 in operation upon the Bank of England, the reserve
 
 124 
 
 of the Bank of England was undefined and unlimited ; 
 the Bank of England had the power of supporting 
 its accommodation to its customers by an unlimited issue 
 of notes. When I say an unlimited issue of notes, I 
 mean limited by no other restraint than the final and 
 ultimate obligation of paying them in gold. The Bank 
 went on doing this, no difficulty arising with regard to 
 the extent of its banking reserve, and it went on making 
 these advances of its notes, until by that process the 
 bullion in the Bank of England was reduced to an extent 
 which created great alarm and panic amongst the 
 public, and then through that action upon the public a 
 correction very possibly took place, but not always. Since 
 the Act of 1844 has been passed, the Bank reserve is dis- 
 tinctly defined and limited, and instead of allowing the 
 pressure to come upon the reserve of the bullion, the pres- 
 sure comes upon the reserve of the Bank of England, 
 which everybody knows, and everybody watches. It 
 therefore produces its moral as well as its direct, and what 
 I may call its mechanical effect, and by that means, from 
 having defined and made known to the public the state of 
 the reserve in the Bank of England, we are enabled to 
 exercise an influence upon the exchanges, and to protect 
 the bullion from that extreme exhaustion to which on 
 all occasions previously to 1844 it was exposed. That is 
 the very fact upon which the merit and the efficiency 
 of the Act of 1844 rests. When persons bring forward 
 that fact as an objection to the Act, they are in the 
 situation of persons who come to curse, but the very force 
 of truth compels them to bless. 
 
 3896. Do I correctly understand your Lordship, that 
 you give up the argument which you used in 1840, that
 
 125 
 
 the fluctuations in the notes out of the Bank of England 
 ought to conform to the fluctuations in the amount of bul- 
 lion ? I give it up so far as this, if that is the meaning 
 of giving up, it is really completing the statement, in no 
 respect giving it up that now with the means of informa- 
 tion which we possess, the notes out of the Bank of Eng- 
 land must have added to them the notes which are in the 
 banking reserve of the Bank of England. 
 
 3897. Are you not aware that for some time before the 
 passing of the Act of 1844, a separation of the depart- 
 ments in the Bank of England was made as a matter of 
 account, in the same way as has been done since ? I have 
 not had my attention drawn to it for a great number of 
 years, but I have a general recollection that previously to 
 adopting the Act of 1844, when the principles upon which 
 that Act was subsequently founded were brought under 
 serious discussion, and were recommended, the authorities 
 of the Bank very naturally and properly began to try by 
 a private memorandum account of their own how they ex- 
 pected that this matter would work ; but it was an act 
 entirely amongst themselves ; it was an act not laid before 
 the public, and therefore in no respect exercising any in- 
 fluence over the public mind, or the action of the public. 
 
 3898. It was a plan which they voluntarily adopted of 
 managing their business ? No ; I do not apprehend that 
 it was a plan for managing their business at that time, but 
 a tentative account for their private information. I am of 
 course speaking ignorantly, because I was not in the Bank 
 direction. My impression of it is, that it was an account 
 made out for the purpose of trying, before it had the 
 validity and obligation of law given to it, how such an 
 account would work, and how under such an account the
 
 126 
 
 Bank directors could undertake to be responsible for the 
 management of their concern. It was a very natural 
 process, very simple and intelligible. 
 
 3899. You do not hold the opinion that the notes in 
 the hands of the public ought to fluctuate now in relation 
 to the fluctuations of the bullion in the Bank? The opinion 
 which I hold is perfectly plain and distinct, that bank 
 notes are nothing more than certificates of bullion in 
 deposit, and that they ought to fluctuate exactly as the 
 bullion fluctuates. 
 
 3900. I speak of the bank notes in the hands of the 
 public ? But I never do speak of them in that sense of 
 the word, because I maintain distinctly that the Bank of 
 England is itself a most important portion of the public. 
 
 3901. Still you admit that the whole of the evidence 
 prior to 1844 proceeded upon the notes in the hands of 
 the public only ? Yes ; it proceeded upon the notes in 
 the hands of the public only, because that was the only 
 knowledge which we then possessed. But I repeat, what 
 I have stated over and over again, and what you will find 
 I gave in answer to you on a former examination, that we 
 always said that whenever the accounts were put into a 
 correct, and intelligible and honest form, we should then 
 have some knowledge of the Bank reserve, and that that 
 Bank reserve was a very important part of the question. 
 [The confusion and ambiguity which this and the pre- 
 ceding questions are calculated to create will be effectually 
 cleared up by reference to a very lucid statement on this 
 point, by Mr. Arbuthnot, in his recent publication in 
 vindication of the Act of 1814 (p. 81). 
 
 " If any argument were wanting to show the wisdom 
 of the measure of separating the functions of issue and
 
 127 
 
 banking, it would be afforded by the pertinacity with 
 which the opponents of the Act of 1844 refuse to recog- 
 nise the arrangement. The proposition is, that, if the 
 issue of notes be kept distinct from the business of bank- 
 ing, and every note issued beyond a certain limit be issued 
 only in exchange for bullion, every note so issued is a cer- 
 tificate of value actually held in deposit, and any day 
 reclaimable; and that the total amount of notes issued 
 must vary with the amount of bullion in deposit. No 
 proposition can be more plain or undeniable. It is evaded 
 by mixing together the accounts of the issue and banking 
 department, and striking out of the account the reserve of 
 notes held in the latter department. The whole train of 
 sophistry which we have had under consideration hangs 
 upon this expedient. The word ' circulation' is applied 
 by these writers, as we have observed already, to that por- 
 tion only of the notes of the Bank of England which is in 
 the hands of the public, excluding the reserve in the 
 banking department. 
 
 " They then state that the scheme of the Act of 1844 
 is founded on the theory that a note circulation, as regu- 
 lated by that Act, must fluctuate in amount, as a pure 
 metallic currency would fluctuate ; they prove by figures 
 without end that the circulation, according to their limited 
 acceptation of the term, does not so fluctuate, and they 
 conclude that the theory of the Act is disproved. The 
 answer to this reasoning is, that it is founded on a quibble 
 about the interpretation of a word, which substitutes a 
 part of the thing meant for the whole. The thing meant 
 was, a note issued in exchange for bullion deposited in the 
 issue department, and the aggregate quantity of notes 
 issued from that department, which may be designated as
 
 128 
 
 circulation, paper money, or any other name that may be 
 agreed upon ; and the theory was, that such aggregate 
 quantity must vary with the amount of bullion deposited. 
 Preserve the separation of departments, and that theory 
 is worked out in a way that makes its truth palpable to 
 any mind of ordinary capacity ; revert to the old form of 
 account, and that confusion must arise which is only 
 favourable to fallacy.] 
 
 3902. Then it does not necessarily follow that the 
 charges brought against the Bank of mismanagement 
 prior to 1844, simply because the notes in the hands of 
 the public did not conform to the variations in the bullion, 
 were quite correct ? No ; but then it was for this reason 
 the notes in the hands of the public then were the only 
 means by which, with regard to the regulation of the paper 
 issues, we could act upon the exchanges. We had then 
 no knowledge of the state of the banking reserve, and 
 whilst the public had no knowledge of it, the fluctuation 
 in the banking reserve was of no efficiency in the manage- 
 ment of the circulation. But the Act of 1844 has given 
 the public the means of knowing the fluctuations in the 
 banking reserve; and we now obtain through that Act, those 
 means of regulating the paper issues of the country which 
 previously to 1844 we had not. Therefore previously to 
 1814 there were no means of acting upon the exchanges 
 except two, one of which was alarm with regard to the 
 exhaustion of the bullion, and the only protection against 
 that, under those circumstances, was the other means, 
 viz., the absolute reduction of the paper issues outside 
 the walls of the Bank. 
 
 3903. Had we not before 1844, as perfect a knowledge 
 of the fluctuations in the bullion in the Bunk as wc have
 
 129 
 
 had since ? I do not now remember what the state of the 
 accounts was before 1844. 
 
 3904. Did not the monthly accounts before 1844 give 
 the amount of bullion in the vaults of the Bank ? I am 
 not sure whether they did or not. The subject to which 
 these questions are directed, of the effect before 1844 of 
 keeping a blended account, and the effect subsequently to 
 1844 of keeping a separate account, is really a very im- 
 portant one. This morning before I came down, thinking 
 over the subject of my probable examination, I sat down, 
 and remembering the great maxim of Bacon, that writing 
 makes an accurate man, I spent an hour in writing down 
 the heads of my view upon that subject. If the Com- 
 mittee will excuse me, I will endeavour from those notes 
 to make a statement upon the subject. 
 
 3905. Perhaps you will allow me to ask you one or 
 two preliminary questions. In a recent answer you 
 stated that prior to 1844 you were obliged to argue only 
 upon the notes in the hands of the public, because there 
 was no knowledge of the reserve in the Bank ; upon which 
 I asked whether it was not the case that the amount of 
 bullion in the Bank was published in the periodical ac- 
 counts of the Bank? We will assume that it was. 
 
 3906. Was not the bullion the real reserve of the Bank 
 of England to meet its liabilities ? The Bank of England 
 before 1844 had an unlimited power of issuing notes. 
 
 3907. That is to say, as far as the public would take 
 them ? The public will take the Bank notes ; that is, the 
 public will call for and take money to any extent ; there 
 is no fear of that. 
 
 3908. You have stated on the former day, that if the 
 Bank of England had the power to-day to issue
 
 130 
 
 2,000,0007. more upon securities, it would be unable to 
 get those notes into the hands of the public ? If I have 
 so stated, I have made a great mistake ; I hope and 
 believe I have not so stated. 
 
 3909. You were asked this question, No. 3G91 : " You 
 entertain no doubt that the practical effect of enlarging 
 the limit from 14,000,000/. to 16,000,000/. would be, not 
 to add 2,000,000/. to the paper currency, but to diminish 
 the bullion reserve of the Bank by 2,000,000/. ?" It 
 would be to add to the paper currency, and to diminish 
 the bullion to the same extent. 
 
 3910. The answer is, u No person who understands 
 the elements of the subject, can entertain a doubt upon 
 that point." Therefore you say that it would not add to 
 the paper currency? I do not know whether the word 
 " not " has crept in improperly or not, but the thing is 
 perfectly clear. The principles which I laid down show 
 what the answer is. The question is, " You entertain no 
 doubt that the practical effect of enlarging the limit 
 from 14,000,000/. to 16,000,000/. would be, not to add 
 2,000,000/. to the paper currency, but to diminish the 
 bullion reserve of the Bank by 2,000,000/. ? No person 
 who understands the elements of the subject, c;m enter- 
 tain a doubt upon that point." The answer was given 
 upon the understanding and supposition, that in- 
 creasing the issue upon securities from 1 1,000,000/. to 
 16,000,000/. would add 2,000,000/. to the whole money 
 in the country. To which my answer is, No; and I am 
 quite sure that all my other answers will show it. My 
 answer is, No; it will not add one farthing to the money 
 in the country. It will make an alteration in the re- 
 lative amounts of money advanced upon bullion, and
 
 131 
 
 money advanced upon securities. Instead of 14,000,000/. 
 advanced upon securities, you will have 16,000,000/. upon 
 securities ; and instead of whatever amount the bullion is, 
 assuming it to be 10,000,000/., you will have 8,000,000/. 
 advanced upon bullion. [The principle here alluded to 
 has been stated in the shortest and clearest form by 
 Mr. Ricardo : " It will be readily admitted that whilst 
 there is any great portion of coin in circulation, every 
 increase of Bank notes, though it will for a short time 
 lower the value of the whole currency, paper as well as 
 gold, yet that such depression will not be permanent, 
 because the redundant and cheap currency will lower the 
 exchange, and will occasion the exportation of a portion 
 of the coin, which will cease as soon as the remainder of 
 the currency shall have regained its value, and restored 
 the exchange to par." " High Price of Bullion, &c./' 
 p. 83.] 
 
 3911. Then may I take it as your opinion, that if the 
 Bank of England had the power to issue that additional 
 2,000,000/. of notes upon securities, and they wished it, 
 they could get that 2,000,000/. into circulation? I have 
 not the slightest doubt of it. But then the additional 
 issue of 2,000,000/. notes upon securities would cause a 
 redundancy of money to that extent ; the effect of this 
 would be an export of bullion to that extent, and a cor- 
 responding cancellation of notes. Thus the paper money 
 would be brought back to its original amount, but during 
 the process we should have lost two millions of our 
 bullion. 
 
 3912. Then you do not agree either with the late 
 Governor of the Bank, or with the former Governor ot 
 the Bank (Mr. Hubbard), as to the inability in the issue 
 
 k 2
 
 132 
 
 of notes to get their notes out beyond the limit of the 
 demand which the public may make upon them? I 
 would rather not undertake to say whether I agree with 
 Mr. A. or with Mr. B. I am quite ready to state my 
 own opinions, and leave the Committee to form a judg- 
 ment how far they coincide or not with the opinions of 
 other persons. I have no hesitation in saying that the 
 Bank of England can put out any quantity of its notes 
 that it thinks proper; that the effect of that will be to 
 drive gold out of the country; that the notes will take 
 the place of the gold in the circulation, and that will go 
 on until the whole of the gold has been driven out of the 
 country. And if you want a practical illustration of that, 
 I refer you to the passage from Mr. Webster's speech, 
 which I quoted in the early part of my evidence the other 
 day, in which he stated distinctly that the paper through- 
 out the whole of the United States had entirely banished 
 the gold. That you may do, and you may go still further ; 
 after you have banished the whole of the gold, then of 
 course you come to a suspension of specie payments, and 
 you may go on after that putting out your paper to any 
 extent you think proper there is no limit. [It is really 
 surprising, after the many discussions it has undergone, 
 that there should be any doubt . about this matter. 
 Suppose that a bank is established for the first time in a 
 country which has its proper supply of a gold currency, 
 and that it proposes to issue notes. The question is, how 
 will they get into circulation? Partly because they are 
 in various respects more convenient than coins, and partly 
 because, in order to bring them into circulation, the bank 
 discounts bills and makes advances at some half per cent., 
 or one per cent., under the ordinary rate of interest at the
 
 133 
 
 time. In this way, her notes will be readily taken into 
 circulation, and the coins which they displace will be 
 exported. When the bank thinks that her circulation 
 is sufficieutly extensive, she will raise the rate of discount, 
 and the further issue of notes will cease ; or, if desired, 
 the quantity afloat may be diminished. Other banks, 
 were they afterwards established, might, by following the 
 like tactics, get their notes into circulation. They might 
 discount at somewhat lower rates than the existing banks, 
 or they might make advances upon paper of an inferior 
 class, or at longer dates, and so on. In short, it is plain 
 that they might, by competing with each other, occasion 
 such an over issue of paper as would banish gold entirely 
 from the circulation, and thus lead in the end to their 
 universal stoppage. This result has in fact happened over 
 and over again.] 
 
 3913. Is not the paper currency of this country limited 
 
 to 51. and upwards? Yes. 
 
 3914. Would it be possible, in your opinion, to dis- 
 place the gold circulation with 5/. notes? No; not alto- 
 gether to displace the gold circulation with 51. notes. 
 That of course is simply this question, whether I think 
 that 5/. notes can be made to perform all the functions 
 and duties of 1/. notes certainly not. [But at the 
 same time it is most probable, under the supposed circum- 
 stances, that the supply of coins to make small payments 
 would be very scanty, and that various devices would be 
 resorted to to enable them to be dispensed with. And it 
 is not unlikely, too, that they would be deficient in 
 weight and purity, like the silver coins in the reign of 
 George III.] 
 
 3915. Do you think that the Bank of England, by 
 any power of its own, could induce its customers to take
 
 134 
 
 5/. notes, instead of sovereigns, if sovereigns were re- 
 quired for their convenience? Really this is hair-split- 
 ting, which is not worth the time of the Committee. The 
 Bank can persuade the public to take 5/. notes instead of 
 sovereigns, in every case in which the public use the 
 sovereigns in masses, or lots of five each ; but they can- 
 not persuade the public to take the 5Z. notes to perform 
 the functions of smaller change than 51. 
 
 3916. Is it not absolutely necessary for the public to 
 have a currency in such denominations as suit the con- 
 venience of trade? We are now mixing up two different 
 things. The practical convenience of currency in its 
 small fractional parts for internal purposes is one thing, 
 but that is not the question which this Committee ought 
 to discuss ; they have to discuss the great question of the 
 relative value of the money of this country with regard to 
 the money of other countries, and the effect of disturb- 
 ances in that relative value upon the action of the 
 exchanges. 
 
 3917. You have stated that you differ in opinion 
 from the two Governors of the Bank of England, who 
 have been before the Committee, and that you think that 
 the Bank of England has the power of its own will to 
 issue to the public notes to any extent it pleases, and to 
 such an extent that it may displace the whole metallic 
 currency of the country; surely it is a most important 
 point to know whether an opinion of that kind is well 
 grounded or not? No doubt it is very important to 
 know it. 
 
 3918. "Would it be possible in the present state of the 
 currency of this country for the Bank of England, if it 
 had an unlimited power of issuing its rotes, so long as 
 those notes were limited to 5/f. and upwards, to displace
 
 135 
 
 any material portion of the metallic currency of this 
 country ? It is perfectly possible to displace sufficient, 
 speaking upon general principles, to justify me in saying 
 the whole metallic currency of the country ; I do not 
 mean by that, that it would drive out that small portion 
 of the metallic currency of the country which is required for 
 the purposes of small change, but it would drive out all 
 that portion of the metallic money of the country which 
 is held in readiness to meet the demand of foreign 
 exchanges when they turn against us; that is quite 
 consistent with the fact that it does not displace the small 
 change of the country. 
 
 3919. From what source is the bullion derived to 
 meet an adverse exchange and a drain of bullion ; do you 
 suppose that it is from the circulation of the country, 
 from the coin in circulation in the hands of the 
 public ? That, perhaps, would be an ultimate re- 
 source, but ordinarily speaking, and except under a 
 severe and extraordinary strain, it is the bullion lying 
 in the coffers of the Issue Department of the Bank of 
 England. 
 
 3920. The reserve of bullion in the Bank? The 
 reserve of bullion in the Issue Department. 
 
 3921. In the Bank of England? Take my words as 
 I give them, and do not alter them, if you please ; the 
 reserve of bullion in the Issue Department. 
 
 3922. I think you stated in your last day's evidence 
 that the bank with which you had been long connected, 
 had not been a bank of issue ? I did. 
 
 3923. But a bank of deposit only? A bank not of 
 issue. 
 
 3924. Therefore, in offering an opinion to the Com-
 
 136 
 
 mittce that the Bank of Issue has no power either to 
 extend or to contract its notes without substituting other 
 circulating medium, you have not given that opinion as a 
 matter of experience? I have not given that opinion 
 at all. 
 
 3925. I thought you stated just now, in contradistinc- 
 tion to evidence which has been given to the Committee, 
 that the Bank of England had power to extend its issues 
 of notes at pleasure ? Yes. 
 
 3926. You did not give that opinion as a matter of 
 experience, as having been connected with a Bank of 
 Issue? I have never myself been an issuing banker; 
 perhaps, however, no man in England has had more inti- 
 mate relations and connection through life with important 
 issuing bankers than I have had, or has had greater means 
 of observing the course of their proceedings. 
 
 3927. Still, with regard to the particular practice of 
 issuing notes, you have not had equal experience to two 
 successive Governors of the Bank of England, who have, 
 been governors during the operation of the Act of 1844 ? 
 I decline giving any answer to that question. 
 
 3928. Your Lordship has stated that the Act of 1844, 
 the object of which was to make paper money conform to 
 the variations in the metallic currency, has been suc- 
 cessful? I have. 
 
 3929. What would be the effect supposing we had an 
 entire metallic currency ; assuming that the circulation of 
 coin in the country is now 70,000,000/., as has been stated 
 before this Committee, and that the notes now in circula- 
 tion are 40,000,000/., and, to take your own view of the 
 matter, namely, that bullion in the Bank of England is 
 also part of the currency of the country, fiat the bullion
 
 137 
 
 is 15,000,000/.; 70,000,000/. of coin and 40,000,000/. of 
 notes will make 110,000,000/., and 15,000,000/. of bullion 
 will make 125,000,000/. altogether; suppose that there 
 was a drain of 5,000,000/. of bullion in this country, the 
 effect of that would be to reduce the reserve of the Bank 
 of England to 10,000,000/., would it not ? I cannot go 
 on with the calculation, unless I have it down on paper 
 before me ; I dare say that would be so ; I am willing to 
 assume it. 
 
 3930. If the reserve in the Bank of England is 
 15,000,000/., and you have a drain of 5,000,000/., it will 
 reduce it to 10,000,000/., will it not ? We need not go 
 into particular figures ; the principle is perfectly clear. If 
 there is a drain of bullion, that bullion is obtained only by 
 paying notes into the Issue Department ; those notes are 
 cancelled, and to that extent the money of the country is 
 diminished. 
 
 3931. Will your Lordship be good enough to inform 
 us in what respect the money of the country now, notes 
 and gold together, varies in relation to a metallic currency 
 differently from what it did before 1814? Now, the 
 quantity of notes out must necessarily vary in every case 
 with the quantity of bullion ; and if 1,000,000/. of bullion 
 is taken out of the Issue Department of the Bank of Eng- 
 land for foreign export, there must be 1,000,000/. of notes 
 cancelled. Before 1844 that was not necessary. 
 
 3932. There must be 1,000,000/. of notes cancelled in 
 the Bank of England ? Cancelled in the Issue Department. 
 
 3933. But having no relation to the notes in the hands 
 of the public out of the Bank? Yes, having a very great 
 relation ; you cannot cancel 1,000,000/. of notes in any 
 form whatever which will not affect most powerfully the 
 action of the circulation throughout the whole kingdom.
 
 138 
 
 3934. Out of the Bank of England ? Everywhere. 
 
 3935. Supposing that we had a purely metallic cur- 
 rency, and no notes at all, and that there was a drain of 
 bullion, which in the same manner would be satisfied from 
 the reserve of the Bank of England, would it in any way 
 act upon the metallic coin in the country ? If you assume 
 that the whole money of the country is metallic, and if you 
 assume that a certain portion of that metallic money is 
 taken out of the country, then there is a diminution of the 
 money of the country to that extent ; if that diminution 
 takes place entirely out of the reserve existing in any bank- 
 ing establishment, provided the condition of that reserve is 
 made known to the public, the action will be very power- 
 ful and very salutary. 
 
 3936. But the quantity of coin circulating in the 
 hands of the public will not be diminished by a drain 
 upon the reserve of the Bank of England in the event of 
 an adverse foreign exchange ? There is no doubt that the 
 bullion lying in the issue department of the Bank of 
 England is kept more immediately to meet the effects of 
 a foreign drain, to deal with foreign exchanges. No 
 doubt, the pressure through the foreign exchanges will in 
 the first instance be met by the bullion which is in the 
 coffers of the Issue Department of the Bank of England, 
 and it is only under a very severe drain, aud under 
 peculiar circumstances, that it will exercise a powerful 
 influence over the coined metal which is circulating 
 throughout the country ; but the diminution of the Bank 
 notes in the hands of the Bank of England paid in to the 
 Issue Department for the purpose of obtaining the bullion, 
 when known to the public, will produce all the effects 
 which are necessary for the due regulation and manage- 
 ment of the money of the country. The moment the
 
 139 
 
 public know that the money in the hands of the Bank 
 of England is diminished seriously, there is a very salu- 
 tary and very protective influence exercised upon credit, 
 upon confidence, and upon all those progressive stages 
 through Avhich rectification arises. 
 
 3937. The immediate effect will be to induce to an 
 increased rate of discount ? A diminution of money in 
 the country will tend to raise the value of it. 
 
 3938. But an increased rate of discount will not neces- 
 sarily diminish the amount of money in the hands of the 
 public, will it ? No ; I do not know that an increased rate 
 of discount will necessarily diminish the amount of money 
 in the hands of the public ; but I know this, that a diminu- 
 tion of the amount of money in the country will make the 
 remaining money more valuable, and that increased 
 value of the remaining money of the country will very 
 soon rectify the exchanges, and bring back the quantity 
 which we want in order to re-establish the monetary 
 equilibrium which has been disturbed. [The principle 
 cannot be more clearly stated than in the words of the 
 " Report of the Lords' Committee, 1819" p. 16. " As it 
 would be impossible for any person to draw bullion from 
 the Bank, except in exchange for bank notes, no demand 
 could be made upon the Bank to any great extent for 
 gold without occasioning a scarcity in the currency, which 
 would tend to raise the value of those notes, and to 
 remove the temptation to present them in exchange for 
 bullion."] 
 
 3939. That increased value may be seen by an increased 
 rate of interest? It may be seen by a hundred different 
 effects. 
 
 3910. The immediate effect will be an increased rate 
 of discount ? In all probability.
 
 140 
 
 3941. Practically, in the Bank of England that is the 
 way in which it exhibits itsefl? Yes. 
 
 3942. Therefore, although there will be a diminution 
 of the reserve of the Bank of England, and a consequent 
 increase in the rate of discount, there need nevertheless 
 be no diminution of money in the hands of the public for 
 the purposes of trade ? You had better meet the question 
 fairly and straightforwardly. The question really is, 
 whether a diminution of the money in the reserve of the 
 Banking Department of the Bank of England is intimately 
 connected with all the purposes which money performs in 
 the country. The money lying in the Banking Department 
 of the Bauk of England is essential for all the purposes 
 which money performs in the country, and any diminution 
 in the amount of money lying in that department pro- 
 duces all the effects which a diminution in the amount of 
 money in any form can produce. 
 
 3943. It will not contract the circulation of money in 
 the hands of the public ? Of course money taken out of 
 the reserve of the Bank of England is not money taken 
 out of any other place ; it is a truism which it is not neces- 
 sary to state or to discuss. But the fact of a diminution 
 ot the money in the Banking Department of the Bank of 
 England will produce, as regards all the circumstances 
 which are to regulate the exchanges, quite as great 
 an effect, and I believe a greater effect than if the money 
 were taken from any other part of the kingdom. 
 
 3944. "Will you have the goodness to inform the Com- 
 mittee what you regard as the reserve of the Bank of 
 England ? What is now published in the accounts as the 
 reserve ; that portion of the notes issued by the Issue 
 Department which is not elsewhere than in the Bank of 
 England.
 
 141 
 
 3945. Those notes represent merely a part of the bul- 
 lion in the Issue Department, do they not? They do 
 not represent the bullion in the Issue Department in 
 any other sense than any other notes represent it. 
 25,000,000/. is the amount of notes now issued by the 
 Issue Department ; and in the Issue Department there is 
 10,000,000/. or 12,000,000/. bullion. That 10,000,000/. 
 or 12,000,000/. of bullion represents, if you choose to 
 use that word, which is a very bad form of expression, all 
 the notes which are out, but it does not represent one 
 note more than another note. 
 
 3946. Do you conceive that Bank of England notes are 
 a legal tender in the Bank of England ? What they may 
 be legally, I do not pretend to know. I am no inter- 
 preter of Acts of Parliament; I know what they ought to 
 be in principle ; and I presume that the Act conforms to 
 the principle. The principle is quite obvious and clear. 
 A Bank of England note is intended to be a legal tender 
 between all parties except the party who issues it. The 
 party who issues it is bound to pay in gold whenever it 
 is required, and therefore it would be completely 
 destructive of the thing to say that on his part it was a 
 legal tender; but it is in principle a legal tender on the 
 part of everybody else. 
 
 3947. There is no doubt that it is a legal tender in 
 any other bank in London ? I am not going to discuss 
 a question of law, because I am no lawyer; but it is the 
 question of principle which I apprehend you are called 
 upon here to discuss. The principle is perfectly clear and 
 distinct ; bank notes are intended to circulate, and per- 
 form all the functions of money throughout the whole of 
 the kingdom internally, and they arc therefore made a legal
 
 142 
 
 tender, or ought to be made a legal tender on the part of 
 all persons inter se, except the issuer ; that issuer is the 
 Government acting through the Issue Department ; that 
 department cannot make the Bank note a legal tender 
 from itself, because it is bound to pay the note in gold to 
 any applicant ; but on the part of everybody else, it certainly 
 is, or ought to be, a legal tender. As regards the Bank, 
 ing Department of the Bank of England, the Bank note, 
 by established usage and custom, has beyond all doubt the 
 full efficiency of a legal tender, let the technical effects of 
 the words of the Act be what they may. 
 
 3948. There is no doubt whatever that any bank, 
 whether a bank of issue or a bank of deposit, except the 
 Bank of England, can at the present moment discharge 
 its obligations in Bank of England notes ? No doubt 
 about it. 
 
 3919. There can be no doubt that with country 
 bankers and with London bankers all their obligations can 
 be discharged by Bank of England notes ? None whatever. 
 
 3950. Does not it make a great distinction in the 
 character of the Bank of England note, looked upon as 
 the reserve of a banker, whether it be an instrument with 
 which he can discharge his obligations according to law, 
 or whether it be an instrument which he cannot offer in 
 discharge of those obligations? No doubt the note of the 
 Bank of England being a legal tender, is a much more 
 efficient means of discharging obligations than it would be 
 if it was not a legal tender. The Bank notes tendered by 
 the Banking Department will practically discharge every 
 obligation. This being the case, it matters little whether 
 the Bank note possess that power through universal and 
 undisputed usage, or through the distinct enactment of law.
 
 143 
 
 3951. Supposing that a creditor of the Bank of Eng- 
 land goes to the Bank of England, and makes a demand 
 for 500,000/. of deposit, are they not obliged to pay that 
 in gold if he requires it ? It is not worth while to raise 
 such a question. Legally, I do not know whether they 
 are bound to pay it in gold or not ; but practically it is 
 not a matter of the slightest consequence ; because it is 
 simply whether A. or B. shall require the gold. A person 
 goes to the Bank of England (when I speak of the Bank 
 of England, I always speak of it as a bank) with drafts 
 upon the Bank of England for 500,000/. ; the Bank of 
 England tenders 500,000/. in its Bank notes. The man 
 says, " No, I will not take those ; they are not a legal 
 tender." What is the difference ? If they are a legal 
 tender, the man is obliged to take the notes, and he goes 
 into the next room, and demands gold from the Issue 
 Department for them; if they are not a legal tender, 
 instead of his going into the other department, a clerk 
 of the Bank of England goes there, and gets the gold; 
 it is not worth discussing. 
 
 3952. Looking at the Bank of England, therefore, as 
 an establishment, is it not practically the case that the 
 bullion in the Bank of England constitutes the only 
 reserve which they hold against their liabilities? There is 
 no bullion in the Bank of England ; the bullion is all in 
 the Issue Department. 
 
 3953. To whom does the Issue Department belong ? - 
 The Issue Department belongs to the State. 
 
 3954. Who obtains the profit derived from the Issue 
 Department? It is not a question of profit. [The ques- 
 tion is with whom rests the legal power over the bullion 
 in the Issue Department, and with whom rests the right
 
 144 
 
 to draw it out and dispose of it? Clearly with the 
 holder of the notes and with no one else.] The Bank 
 of England, in a certain form, is paid for discharging the 
 mechanical duties of working the Issue Department as 
 the State has ordained that it shall be worked; it has no 
 discretionary power; it is a mere mechanical instrument 
 to do a mechanical duty in carrying out the positive pro- 
 visions of the law ; for that it is paid, and the form in 
 which it is paid, is by a certain proportion of the profit, 
 derived from the issue, the Government taking much the 
 larger portion, and leaving to the Bank, under a very 
 peculiar form of arrangement, the remaining portion. 
 
 3955. The whole risk connected with the holding of 
 bullion and the issue of notes is taken by the Bank of 
 England ? Yes, you may so state it ; I do not mean to 
 say that it is strictly correct, but I will say, generally, 
 that the Bank of England contracts to do the business of 
 the Issue Department on behalf of the State. 
 
 3956. It is the Bank of England which purchases bul- 
 lion at a fixed price, and obtains the profit of the pur- 
 chase? It is the Issue Department which receives the 
 bullion at 3/. 17s. 9d., and issues it at 3/. 17s. 10^d. 
 
 3957. And the differences goes to constitute part of 
 the profit of the Governor and Company of the Bank of 
 England ? The difference goes towards that fund, out of 
 which the expense of working the establishment is to be 
 paid, out of which the demands of the Government, on 
 behalf of the State, for a large share of the profit is to 
 be paid, and out of which the Bank of England is to be 
 remunerated for doing the mechanical business. 
 
 3958. If, by any accident, a portion of the bullion 
 were destroyed by fire or otherwise, would the loss fall
 
 145 
 
 upon the Governor and Company of the Bank of Eng- 
 land, as a Corporation ? I do not know. 
 
 3959. There is nothing, that you are aware of, in the 
 Act of 1844 which would so separate the Governor and 
 Company of the Bank of England from the Issue Depart- 
 ment as to release them from any loss of that nature ? 
 No; I have always looked at the Act of 1844, in its main 
 predominant character, as a measure for making the 
 paper notes conform in amount strictly to the fluc- 
 tuations of the bullion; I am not at all prepared to 
 discuss the Act of 1814 as having reference to anything 
 beyond that. 
 
 3960. You do not, then, agree with the witnesses who 
 have been before this Committee, that the real reserve of 
 the Bank of England is the bullion held by the Bank of 
 England ? If you ask me whether I consider the bullion 
 held by the Bank of England as its real reserve, my 
 answer is, that the Bank of England holds no bullion; the 
 bullion lies in the Issue Department, ready to meet the 
 demand of any person bringing notes there to claim it. 
 The Bank of England may itself go and claim it, if it 
 thinks proper, for the notes which it holds. [The 
 bullion in the Issue Department is held at the order and 
 disposition of the note holders. They, and they only, 
 have any right over it, or can claim it. The Bank of 
 England has no power over the bullion, except in its 
 character of a note holder.] 
 
 3961. With respect to the separation of the depart- 
 ments, which took place under the Act of 1814, it has 
 been already stated, I think, that the Bank kept its 
 accounts in that form prior to 1844; can you point out 
 any essential change, cither in the liabilities or in the 
 
 L
 
 146 
 
 means of meeting those liabilities, in consequence of the 
 altered form of accounts? Of course an alteration in the 
 form of account will not alter the absolute amount of 
 liabilities, or the absolute amount of assets ; but it may 
 be a most important and a most useful alteration in the 
 relations which exist between them, and in the mode of 
 management and regulation which arises out of those 
 relations. That is precisely what the Act of 1844 has 
 done, most fortunately for the interests and the safety of 
 the country. The form in which the accounts may be 
 kept at any time for the private information of the Direc- 
 tors of the Bank of England, is one thing; the form in 
 which the accounts may be published by authority, for the 
 instruction and guidance of the public, is a totally dif- 
 ferent thing. It is in this latter respect that the Act of 
 1841 worked so beneficial a change. 
 
 3962. The object of that separation was, as I have un- 
 derstood your former answer, to secure the convertibility 
 of the note, and its uniformity of value with the metallic 
 circulation? The object of the Act was to make paper 
 notes conform in all their fluctuations of amount to the 
 fluctuations in the amount of the bullion ; and through 
 that conformity it was confidently believed, and the result 
 has verified that confident belief, that a protection to the 
 bullion store, and to the capability of the country, under 
 all circumstances, to maintain specie payments, would be 
 effectually secured. 
 
 3903. You do not, then, agree with those witnesses 
 who have stated that the essential thing for the Bank of 
 England, or any other bank of issue, is to maintain a 
 sufficient reserve of bullion with which at all times to 
 secure the payment of their liabilities, without reference
 
 147 
 
 to the state of account in which that is placed? The 
 ambiguity of that question consists entirely in the word 
 " sufficient/' If you assume that the store of bullion is 
 at all times sufficient, you assume that every object is 
 accomplished. But the difference between the Act of 
 1844, and the state of things previous to the Act of 1844, 
 is this, that before 1844 you had no distinct and specified 
 means and processes by which that sufficiency was certain 
 to be maintained. Under the Act of 1844 you have a 
 clear and distinct provision of law which secures to the 
 country the absolute certainty that that sufficiency of 
 bullion will be maintained. That is the difference between 
 the state of things before and after the Act of 1844, and 
 constitutes the great merit of the existing statute. 
 
 3964. The merit of the Act of 1844, then, is, that 
 the Bank of England is obliged to maintain as much 
 bullion above the 14,000,000/. of securities as shall repre- 
 sent the amount of notes which it issues ? I again state 
 that the Bank of England, always understanding by that 
 expression the Banking Department, is not subjected by 
 the Act of 1844 to any such operation; the Bank of Eng- 
 land has nothing to do with the bullion ; the Act of 1844 
 has prohibited the Issue Department from issuing any 
 notes which are not conformable in their fluctuations of 
 amount to the fluctuations in the bullion. 
 
 3965. And therefore it is prohibited from issuing notes 
 beyond 14,000,000/., excepting to the amount of bullion 
 which it may possess ? Undoubtedly. 
 
 3966. That is the limit ? That is the limit. 
 
 3967. Therefore, the merit of the Act is, that it 
 renders it imperative upon the Bank to hold a certain 
 amount of bullion in relation to its circulation which it 
 
 l 2
 
 148 
 
 was not compelled to hold before ? I am sorry to trouble 
 the Committee with repetitions ; but the effect of the Act 
 of 1844 is this, that it compels the Issue Department 
 to put forth an amount of notes, which shall fluctuate as 
 the bullion in the Issue Department fluctuates, and not 
 to put out any further amount of notes. 
 
 3968. Would it not have the same effect if the regula- 
 tion which has been adopted with regard to the colonial 
 banks were imposed upon the Bank of England, that, 
 without separating the departments, the Bank of England 
 should be compelled at all times to keep a portion of 
 bullion which should bear a fixed relation (the same rela- 
 tion as at present, if it was thought proper) to its liabi- 
 lities, from time to time ? I am not quite sure that I 
 understand the effect of the question, but I totally object 
 to the mingling of the question of securities with the 
 question of bullion ; it is distinctly essential to the safety 
 of the monetary system that nothing should interfere in 
 the least to modify or dilute the plain and direct relation 
 between the amount of notes issued and the amount of 
 bullion deposited. You speak of the Bank of England 
 being compelled at all times to keep a certain portion of 
 bullion ; but how do you propose to compel the Bank to 
 do this ? What security shall wc have that this will be 
 done, if we abandon the security now provided by the Act 
 of 1811? [We have had abundant experience of the 
 unfortunate results, which must arise from the system 
 thus suggested of combining in one account all the liabi- 
 lities of the Bank ; those which arise from the issue of 
 paper money in common with those which arc connected 
 with its banking operations, and setting against these in 
 one item all its assets, the bullion, which ought to be a
 
 149 
 
 special reserve to secure the convertibility of the notea 
 in common with the ordinary banking assets. This fusion 
 of the departments suspends the direct and exclusive rela- 
 tion between the fluctuations in the amount of bullion and 
 in the amount of paper money, and affords full opportu- 
 nity for a prolonged drain of bullion without any corre- 
 sponding contraction of the amount of paper money. 
 This has been the practical effect of this system of 
 accounts on repeated occasions, and hence have arisen 
 almost all the monetary crises to which we have been 
 exposed. Nor is this result peculiar to this country. It 
 depends upon a great principle, and therefore it is univer- 
 sally true. Mr. Webster, drawing his conclusions from 
 the difficulties by which the monetary system of the 
 United States had been embarrassed, strongly expresses 
 his conviction of the danger which must arise from a 
 system of accounts which blends all the liabilities of a 
 bank, whether arising from an issue of notes or from 
 deposits in one total, and therefore necessarily subjects 
 all the assets, bullion as well as securities, to a common 
 obligation. " It is too common with banks, in judging 
 of their condition, to set off all their liabilities against all 
 their resources. They look to the quantity of specie in 
 their vaults, and to the notes and bills becoming payable, 
 as means or assets ; and with those they expect to be able 
 to meet their returning notes, and to answer the claims 
 of depositors. So far as the Bank is to be regarded as a 
 mere bank of discount, all this is very well. But banks 
 of circulation exercise another function. By the very act 
 of issuing their own paper, they affect the amount of 
 currency. In England the Bank of England and in the 
 United States all the banks expand or contract the
 
 150 
 
 amount of circulation, of course, as they increase or 
 curtail the general amount of their own paper. This 
 renders it necessary that they should be regulated and 
 controlled. The question is, by what rule? To this I 
 answer, by subjecting all banks to the rule which the 
 most discreet of them always follow by compelling 
 them to maintain a certain fixed proportion between 
 specie and circulation." "Sub-Treasury Speech," p. 12. 
 
 A certain fixed proportion, it will be observed, is to 
 be maintained between specie and circulation, not merely 
 between specie and liabilities generally. It is in this dis- 
 tinction that the value and efficacy of the rule consists ; 
 and it is for the purpose of maintaining and enforcing this 
 distinction that the separation of the accounts, which 
 regard circulation from those which regard deposit busi- 
 ness, becomes expedient, indeed essential to the safety of 
 the monetary system.] 
 
 3969. I understand you to be of opinion that the 
 Issue Department in the Bank of England at present is as 
 distinct from the Bank of England itself, as if it were a 
 Government department totally unconnected with the 
 Governor and Company of the Bank of England ? As 
 distinct, for all purposes which have reference to the prin- 
 ciples affecting the regulation of the exchanges. 
 
 3970. Then when you stated in your former evidence 
 that " no banker or private individual ought to be allowed 
 to issue such tokens or certificates," meaning bank notes, 
 " any more than they are permitted to issue the coins of 
 the realm." and that "no share of such privilege ought 
 to be conceded in any form to banks or to private indivi- 
 duals," and that " all pi'ofits arising from the issue of 
 paper certificates, that is, bank notes, in place of coin of
 
 151 
 
 intrinsic value, ought to be appropriated to the public 
 exchequer, and ought not to be diverted to the benefit 
 of banks, or any other concerns " do you consider that 
 those conditions apply to the Issue Department as at 
 present constituted ? I consider that those conditions 
 are fulfilled by the regulations of the Act of 1844. 
 
 3971. Then you do not consider the notes as being 
 issued by the Governor and Company of the Bank of 
 England, or the profit derived from those notes as being 
 received by them ? jS t o. I consider that the profit 
 derived from the paper issues of this country, is appro- 
 priated, first, to paying the expenses of managing the 
 business, and that the balance which remains over goes to 
 the Government. If the Government has not its fair 
 share of the profit, that is an affair of detail for the 
 Chancellor of the Exchequer to look to. 
 
 3972. Then you do not consider it a privilege con- 
 ferred upon the Bank of England to derive profit from 
 the issue of paper? I have already explained my view 
 upon that point, that the principle at the bottom of the 
 Act of 181-1 is quite distinct; that the profit arising from 
 the paper issue is appropriated by the Government. The 
 Government makes a certain bargain with the Bank upon 
 the basis of that principle, and it claims, and I believe 
 claims with perfect correctness, that in that bargain it 
 leaves of the profit of the paper issue only that portion to 
 the Bank of England which is a just remuneration for 
 the trouble and risk of working mechanically that 
 department. 
 
 3973. The Bank Act of 1811 refers as well to the 
 Bank of England as to the regulation of the country 
 banks ; do you conceive that notes unissued in the hands
 
 152 
 
 of a country banker, as notes unissued by the Bank of 
 England, constitute any portion of the circulation? I 
 have already stated that the whole issue of the country 
 banks is very anomalous ; it is very peculiar and unsatis- 
 factory. It is very easy to state the principles which 
 apply to the question, but no doubt some of the facts 
 will be in an ambiguous position. The power of issue 
 vested in the country banker ought to be compared with 
 the Issue Department, not with the Banking Department, 
 of the Bank of England. All the confusion arises from 
 not preserving, in thought as well as in account, a clear 
 distinction between the function of issue and the business 
 of banking. I consider, as a matter of principle, that 
 that constitutes the money of the country which the 
 issuer has the legal power of issuing. 
 
 3974. Whether it is out of his hands or not ? Yes. 
 
 3975. Then when the published issues of the countiy 
 banks are below their legal limit, you do not consider 
 that, in consequence of that, the circulation of the 
 country is contracted? As a matter of principle, I 
 think that we must hold that the quantity of notes 
 which a banker has the power of issuing, constitutes 
 part of the money of the country. But no doubt the 
 state of the country circulation is so anomalous, that 
 that principle is placed in an ambiguous position with 
 regard to that amount of the power of issuing which the 
 country bankers do not issue, just in the same way as if 
 any foolish person chose to lock up 1,000,000/. of bank 
 notes, or to paper his walls with them, we must still hold 
 them to be a part of the circulation or money of the 
 country, until we had some authentic record that they 
 were deprived of the power of acting in that capacity.
 
 153 
 
 3976. The country circulation constitutes about one- 
 half of the whole 40,000,000/. of the aggregate paper 
 circulation, does it not, including Scotland and Ireland ? 
 It possibly may do so; I do not know. 
 
 3977. Then, so far as the Act of 1844 carries out your 
 views with regard to the Bank of England, as you have 
 described it, it is defective, inasmuch as it does not apply 
 that pressure in any respect to the remaining half of the 
 circulation ? No doubt the law is defective, in so far as 
 it does not bring all the country paper issued under one 
 general regulation, but it is not defective in its essential 
 principle. It has placed a positive limit upon the amount 
 of those issues, and therefore it has fully accomplished its 
 main and grand purpose, namely, that all the fluctuations 
 in the amount of the paper money of the country should 
 be in strict conformity with the fluctuations in the amount 
 of the bullion ; that being accomplished, any subordinate 
 omission I think of very secondary consequence. 
 
 3978. It has done nothing to secure the convertibility 
 of the country notes ? We must take care of the meaning 
 of the word " convertibility." Do you mean the certain 
 convertibility into bullion, or do you mean the solvency of 
 the issuers generally? 
 
 3979. I mean payment on demand ? Payment in 
 gold? 
 
 3980. Payment in gold on demand ? It has secured 
 it in the form which I have already stated ; that it has 
 secured such an amount of paper money in this country as 
 shall render it impossible for the bullion reserve to be 
 drained out of the couiitry. But no doubt it is quite 
 possible that a country banker may fail, and not be able 
 to pay his notes.
 
 154 
 
 3981. You stated that the imperfection of the Act 
 in respect of the country issuers you thought was 
 gradually becoming less and less, by the diminution of 
 the issues of the country bankers? I stated that I 
 thought it was becoming Jess in a variety of ways ; that 
 I believe that their issues are gradually, though slowly 
 diminishing, and I am inclined to. think that the efficiency 
 of the notes which are out is undergoing a diminution ; 
 that the public are becoming less fond of them ; that they 
 do not perform their functions of money with that 
 activity, and universality, and rapidity, which attaches 
 to the Bank of England note. They are under a sort of 
 paralysis, and that paralysis is, I think, increasing in its 
 effect upon them. 
 
 3982. Have you any reason to believe that country 
 notes in local districts circulate less freely than they did 
 before 1814? I must admit that I have no very positive 
 knowledge upon the subject; that is my impression, but 
 it may not be so ; I cannot say. 
 
 3983. Your attention was called upon the former day 
 to the fact that the diminution in the circulation of 
 country notes had been about 1,000,000/. since 1844 ? 
 That was alluded to. 
 
 398k The greatest portion of that amount, namely, 
 800,000/., has arisen from bankruptcy. You have not 
 seen the paper which contains that information? I have 
 not. 
 
 3985. If that be so, as is .shown by a paper before the 
 Committee, the gradual diminution of country notes is 
 through the medium of insolvency ? A bad medium, no 
 doubt ; I am glad to get rid of them in any way. 
 
 3986. While the Bank Act of 1814 with regard to the
 
 155 
 
 issues of the Bank of England took every security for the 
 convertibility of the note and the safety of the public, it 
 took no security whatever with regard to the other half 
 of the circulation, namely, that of country banks ? I 
 consider that the main object and purpose of the Act of 
 1844 had not reference to the security of the note between 
 the different members of the country, but that it had 
 reference to the security of the note in the sense of taking 
 care that the aggregage amount of the paper money of the 
 country should never be carried to such an extent that 
 it could admit of the bullion being drained out. All the 
 other considerations were quite subordinate to that, and 
 undoubtedly with regard to the country issuers there is 
 no security for the solvency of the issuers taken by the 
 Act of 1844, any more than there was previously; it has 
 not dealt with that branch of the subject. 
 
 3987. You expressed an opinion on the former day, 
 and you have expressed it on former occasions, that the 
 different periods of crisis and commercial convulsions have 
 been very much attributable to an abuse of the powers of 
 bankers in issuing their notes ? Yes ; I have no hesita- 
 tion in saying that I am prepared to trace every monetary 
 crisis which this country has gone through, crisis by crisis, 
 and I shall be very much surprised (if the Committee will 
 give the time necessary to listen to it) if it does not become 
 a matter of absolute demonstration, that in every instance 
 the absence of the provisions of the Act of 1844 was inti- 
 mately connected with all the evils and dangers which 
 arose ; and that since the Act of 1844, the escape from 
 those dangers may be distinctly traced to the provisions of 
 that Act. I am quite prepared to go into that question, 
 if the Committee think that it is really important in the
 
 156 
 
 matter; it will take a considerable length of time, but 
 the evidence in support of the successful operation of the 
 Act of 1844 seems to me to be perfectly clear, distinct, 
 and overwhelming, without going into that question; it 
 seems to be only accumulating evidence, of which there is 
 an abundant weight already. 
 
 3988. Do you consider that it was in consequence of 
 injudicious confidence given by banks of issue through 
 their notes, which they would not have given if they had 
 not issued notes, that speculation was encouraged? I 
 mean that it was the omission to contract the paper money 
 as the bullion went out, which brought about the crisis of 
 1 783, and which brought about the crisis of 1 797. I mean 
 to say, that it was a distinct absolute increase of the amount 
 of the circulation which brought about the crisis of 1825, 
 and to a considerable extent that from 1833 to 1837, and 
 that in every one of them the non-diminution of the paper 
 money as the bullion went out, was the immediate and 
 intimate cause of those crises ; and that the Act of 1844 
 has rendered it impossible that those evils arising from 
 that cause can again recur. And I mean to state dis- 
 tinctly, and I am prepared to prove it, so far as that which 
 depends upon moral considerations admits of proof, that 
 the non-suspension of specie payments in the spring of 
 1847 may be distinctly traced to the provisions of the Act 
 of 1814; and that had the blended accounts which are 
 now contended for been then in existence, there is the 
 strongest ground to believe that we should certainly have 
 suspended specie payments in the spring of 1847. 
 
 3989. In consequence of an abstraction of bullion? 
 Of course we should not suspend specie payments except 
 through an abstraction of bullion.
 
 157 
 
 3990. Then you are of opinion that it was by the 
 issue of notes rather than by an advance of capital, inde- 
 pendent of notes, that these periods of speculation were 
 fomented, and the injurious consequences arising there, 
 from produced? I do not think that any very great 
 mischief is ever fomented or produced by real advances of 
 capital. [Excessive speculation, and the injurious conse- 
 quences arising therefrom, are generally the result of a 
 fictitious state of credit, produced, or at all events sup- 
 ported or prolonged by an undue issue of paper money, 
 or an improper extension of banking credits. It is 
 hardly possible that general or extensive mischief can 
 arise from real advances of capital. The advance of 
 capital in any particular case may be injudicious and 
 involve loss to the parties immediately concerned ; but 
 that appears to be the limit of the mischief. The incon- 
 venience arising from the misapplication of real capital 
 must be particular and limited ; general embarrassment 
 in trade is invariably connected with a preceding expan- 
 sion of fictitious credit in its various forms, one of which 
 forms, previous to 1844, was the issue of paper money 
 not founded upon a cori'esponding increase of real money, 
 that is, of bullion. But it is necessary to draw a clear 
 distinction between commercial pressure and the dangers 
 to which our monetary system is subjected. The manage- 
 ment of the circulation, or the proper regulation of the 
 amount of the pnper issues, with the view of maintaining 
 under all circumstances the true metallic value of the 
 paper note, is the real purpose of the Act of 1811, 
 The state of speculation in the trading world, and the 
 consequences arising therefrom, are only indirectly con- 
 nected with this question ; in so far as a proper regulation
 
 158 
 
 of the amount of paper money must tend, more or less, 
 to exercise a wholesome restraint upon the undue expan- 
 sion of credit, and the spirit of speculation which arises 
 from it. Commercial pressure usually has its origin in 
 over- trading j and this over-trading seldom proceeds from 
 the excessive application of real capital to commercial 
 operations, but from undertaking those operations to an 
 extent beyond that which there is sufficient capital to 
 support. Monetary danger arises from maintaining the 
 money of the country, through the process of paper issues, 
 at a higher amount than could be maintained if the 
 money were exclusively metallic, until the exhaustion of 
 the metallic portion of the money is carried to a point 
 which endangers the convertibility of the paper money. 
 During the process of issuing more paper money to fill 
 up the void created by the continual export of metallic 
 money, a fictitious state of credit, no doubt, is created, 
 and the trading world is misled by a false appearance of 
 an abundant command of capital, the delusive character 
 of which at once becomes apparent, as soon as the con- 
 vertibility of the paper issues is brought to the practical 
 test.] 
 
 3991. Are you aware that in some of the crises to 
 which you have referred, particularly in 1825, the failure 
 amongst bankers was as much amongst banks of deposit 
 as amongst banks of issue ? Yes, there were very exten- 
 sive failures of both classes. 
 
 3992. And are you aware that in point of fact the 
 crisis commenced by the failure of London banks which 
 were not banks of issue ? It is perfectly possible. 
 
 3993. In that case it must have been caused by inju- 
 dicious advances of capital, and not by any action upon
 
 159 
 
 the issue of notes ? I am speaking now of the exhaustion 
 of the bullion. I say that whatever was the extent of 
 injudicious banking, or whatever was the extent of 
 mercantile failure, had the Act of 1844 been in operation, 
 it would have been impossible that the bullion could 
 have been exposed to the diminution which took place 
 in 1825. 
 
 3994. Failure might nevertheless have taken place 
 amongst bankers ? I do not at all say that under the 
 Act of 1844 you are not exposed to failures amongst 
 bankers, or amongst the mercantile community; but I 
 say that, whatever be the extent of failure, whatever be 
 the extent of misconduct or mismanagement by bankers, 
 or by the mercantile community, the maintenance of 
 specie payments can never be endangered; that is my 
 defence of the Act of 1844, which I defy your ingenuity 
 to impugn. [My opinion upon this point was clearly 
 stated in the year 1840, and now, with the additional 
 experience to be derived from seventeen eventful years, 
 I see no reason to modify that opinion in any respect. 
 " It is not intended to countenance the opinion that there 
 can be no commercial pressure, except in connexion with 
 a faulty state of the circulation. The truth probably is, 
 that if the paper varied with the bullion, there would be 
 no danger of non-convertibility, except from internal 
 discredit ; and that commerce, though still exposed to 
 fluctuations, would on the whole be less exposed to fluc- 
 tuations than under the present system/' "Thoughts on 
 Separation of the Departments, 1840.'"] 
 
 3995. Do you think that the same consequences would 
 have happened in 1847 which did happen, if the Bank of 
 England bad followed the same discreet course in their
 
 160 
 
 business which they have in the last two years, and had 
 raised the rate of interest at an earlier period? The 
 practical merit of the Act of 1844 is that it compels the 
 right course to be pursued ; it renders it inevitable. If you 
 assume that under a discretionary action the same right 
 course would have been pursued then under that assumption 
 the consequences would be identical ; but the very basis of 
 the legislation of 1844 is, that universal experience in this 
 country and all other countries has shown that with regard 
 to the regulation of paper money discretionary action can- 
 not be safely trusted. 
 
 3996. In 1847 a great decline took place in the early 
 part of the year in the amount of bullion, without any 
 corresponding increase in the rate of interest! Did not 
 that lead to a great aggravation of the drain in the latter 
 part of the year ? If we are going into the discussion of 
 1847, I am quite ready to go into it. I should have liked 
 to have treated it as the last in a long series, because it is 
 the last link in the chain of evidence, though it is the 
 strongest link. But I am perfectly ready, in order to save 
 the time of the Committee, to take the question of 1847 
 by itself. What I say of 1817 is this, that during the 
 spring of 1847 there was a heavy drain upon the bul- 
 lion, in the Issue Department of the Bank of England ; 
 that notwithstanding that drain upon the bullion, the 
 Bank kept up its advances; that this was effected by 
 a continuous decrease of the Bank reserve, and that that 
 process would have gone on until the whole bullion was 
 exhausted, or had approached so nearly to exhaustion, that 
 public panic would have arisen, had it not been that in 
 1847, consequent upon the separation of the departments, 
 we fortunately had an additional item in the published
 
 161 
 
 accounts, which set forth the state of the banking reserve, 
 and the public, seeing the rapid exhaustion of the banking 
 reserve became alarmed. I myself, seeing that exhaustion 
 remonstrated personally with several of the Bank Directors, 
 at their not raising their rate of interest, and I put letters 
 into the newspapers reiterating those remonstrances ; and 
 at last it was raised, but it was only raised because the 
 public became frightened at seeing the exhausted state of 
 the banking reserve; the whole course pursued at that 
 time clearly showed that had there not been the positive 
 provisions of the Act of 1844 behind the Bank Directors, 
 they would not have had the moral firmness to resist the 
 demands and wants of customers, which we are told are to 
 be the safe regulating principle of a banker ; they would 
 not have had the moral firmness requisite to resist that 
 pressure, and we should have been carried actually to the 
 suspension of specie payments. As it was, the drain of 
 bullion was permitted to continue without the proper 
 check too long, the rise in the rate of discount was too 
 long delayed, and had there not been at that time that 
 account which the Act of 1844 has rendered necessary, 
 viz., the accouut of the state of the banking reserve, there 
 would have been nothing whatever to preserve us from 
 the suspension of specie payments. 
 
 3997. You have stated in the former part of your 
 answer, that that which created your anxiety was the 
 rapid diminution of bullion ? I meant banking reserve. 
 
 3998. That was accompanied by a corresponding dimi- 
 nution of bullion ? Yes ; I presume it must have been. 
 
 3999. There was nothing in the operation of the Act 
 which compelled the Bank of England to act discreetly in 
 the early part of the year, when the drain first coin- 
 
 M
 
 162 
 
 menced, and to raise their rate of discount at a time 
 when it Avould have been wise to have done so ; but I 
 understand you, that it was from the repeated demands 
 on the part of the public, that the Bank of England took 
 that precaution at last ? There was not in the Act that 
 which compelled the Bank necessarily to begin raising its 
 rate of interest as soon as it was desirable and right that 
 it should be done ; but there was in the Act that which 
 compelled it to raise the rate of interest much sooner 
 than it would have been compelled to do in the absence 
 of the Act of 1844. The difference is this, that the pres- 
 sure under the Act of 1844 comes upon the banking 
 reserve, and the trial is taken upon the diminution of 
 the banking reserve, instead of being taken upon the 
 exhaustion of the bullion; and in addition to that, the 
 regulation is, by necessary force of law, clearly and dis- 
 tinctly denned ; whereas before the Act of 1844, it was a 
 regulation springing out of a panic feeling on the part of 
 the public, which was irregular as to the time of coming 
 into operation, uncertain as to the extent or intensity of 
 its operation, and most dangerous in its consequences. 
 
 4000. I find that the banking reserve as early as the 
 10th of April had fallen as low as 2,833,000/. ? Yes. 
 
 4001. The bullion having fallen at the same time to 
 9,876,000/. ? Yes. 
 
 4002. And I find that the Bank of England had up to 
 that moment, in the face of a rapid drain, to that point 
 maintained the rate of discount at 4 per cent., and only 
 at that moment raised it to 5 per cent. ? If I might 
 become the examiner, I should like to ask what compelled 
 the Bank, which had evidently shown a great previous 
 reluctance to raise its rate of interest, then to raise its rate
 
 163 
 
 of interest ; what would there have been to have compelled 
 the Bank to that rise in the rate of interest if the Bank 
 reserve had been a suppressed item in the account? It 
 was the fact that the Act of 1844 had added to the pre- 
 vious accounts the Bank reserve, and it was the knowledge 
 that the Bank reserve had fallen from about 10,000,000/. 
 to about 2,530,000/., which produced such an effect upon 
 the public mind that the Bank were then enabled to take 
 courage, and to raise their rate of interest. 
 
 4003. Will your Lordship observe that at the same 
 time, from the end of December down to April, the bul- 
 lion itself had fallen from 15,000,000/. to 9,000,000/. ; was 
 that not a sufficient indication to the Bank of a severe 
 drain upon its reserves, and a warning that it ought to 
 take some means to arrest the progress of that drain ? It 
 ought to have been a sufficient warning ; but we know, by 
 all preceding experience, that it never had been ; we know 
 by all preceding experience that the Bank had uniformly 
 allowed its bullion to be reduced to a much lower amount 
 than that before it took the necessary steps of protection. 
 4C04. If your Lordship has the accounts before you, 
 you will observe that the Bank allowed the drain to pro- 
 ceed with very little intermission until the month of 
 August before any advance was again made in the rate 
 of interest ? I have not the account in details ; I will 
 state my case, and if it is not a clear and a safe one, it can 
 be pulled to pieces ; but, as I understand it, in September 
 1846 the bullion stood at 16,000,000/., and the Bank 
 reserve at 10,000,000/. ; in April 1847 the bullion had 
 come down to 9,000,000/, and the bank reserve to 
 2,700,000/. Now, I say, in the face of that account, that 
 that diminution of bullion, if it had stood alone before 
 
 m 2
 
 164 
 
 the public, would not have excited apprehension on the 
 part of the public, nor would it have compelled the Bank 
 to measures of precaution ; and I make that assertion 
 founded upon all past experience to that effect. But what 
 did compel the Bank and the public to measures of pre- 
 caution? It was the instruction conveyed by the 
 new item in the account, and produced by the Act of 
 1844, viz., the Bank reserve, which showed that that had 
 undergone a diminution from 10,000,000/. to 2,700,000/. 
 In the face of that fact the public became alarmed, confi- 
 dence was shaken, credit was diminished, the efficiency of 
 the existing circulation was diminished, the Bank had 
 moral courage given to it, and, under all those circum- 
 stances, at a late hour no doubt strong protective measures 
 were resorted to, and the bullion was protected from fur- 
 ther diminution. I say that is distinctly traceable to the 
 provisions of the Act of 1844, and that without those pro- 
 visions, if we are to believe that what had invariably taken 
 place before would again have taken place then, we should 
 have been carried on until the bullion was exhausted. 
 
 4005. Is not your Lordship aware that from the time 
 which I have just quoted, in the month of April, when 
 the bullion was reduced to 9,800,000/., and the reserve to 
 2,800,000/., and when the advance in the rate of interest 
 was made at 5 per cent,, the Bank reserve, instead of 
 diminishing after that period, rose very considerably ; and 
 that when the rate of interest was raised to 5^ per cent, 
 the Bank reserve of notes was 3,946,000/., and subse- 
 quently advanced to 4,476,000/., while the bullion had 
 suffered a further diminution to 8,915,000/., and it was 
 found necessary to raise the rate of discount, in the face 
 of that increased reserve, but diminished bullion to 5
 
 165 
 
 per cent. ?-*- 1 am not aware of those facts ; but that is 
 perfectly possible. The Bank may have allowed its 
 banking reserve to be reduced to a very improper and 
 exhausted condition, and in the measures necessary to 
 replenish that banking reserve, and to restore it you may 
 be undoubtedly compelled to go on raising your rate of 
 interest, although your bullion may be coming in. Bul- 
 lion now and then comes in under a very precarious and 
 doubtful state of the exchanges. 
 
 4006. When the rate of discount was raised to 5 per 
 cent., the banking reserve was 2,800,000/., and the bullion 
 9,800,000/. ; that was on the 10th of April, 1847. The 
 reserve of notes increased from 2,800,000/. to 3,900,000/. 
 and subsequently to 4,400,000/. in the face of a further 
 diminution of bullion to 8,900,000/., when the rate of dis- 
 count was raised to 5^ per cent., notwithstanding the 
 increase of reserve; but in the face of a decrease of bul- 
 lion, you consider the notes in the Banking Department 
 as a safe indication of the policy of the Bank in raising 
 or diminishing its rate of interest for the amount of 
 bullion in the Issue Department? I think there is a 
 great ambiguity arising from the phrase of the Bank 
 raising or lowering its rate of interest. The Bank has no 
 arbitrary power of raising or lowering the rate of interest ; 
 the Bank is obliged to conform to the natural rate of 
 interest -, when the amount of money is diminishing, there 
 will be a tendency to an increase in the rate of interest, 
 and it is the necessary condition of the Bank to conform 
 to that. She may hold out a little too long, in which case 
 she makes a great mistake, but it is of a very temporary 
 kind, generally speaking ; the Bank must conform to the 
 rates of interest, and many fallacies arise from the assumed
 
 166 
 
 power of the Bank of her own discretion to raise or lower 
 the rate of interest ; she has no such power. 
 
 4007. Admitting that it is perfectly true that the Bank 
 has no power to raise the value of money, or the rate of 
 discount in the market, yet its own act following the rate 
 sooner or later, it must be by its own act raising its own 
 terms of business for the purpose of protecting its own 
 reserve, though it may be in conformity with the general 
 value of money in the market? The Bank in some 
 respects is in a peculiar position ; I believe it will be very 
 often found that the demands for discount upon the Bank, 
 rather increase upon a rise in the rate of interest ; but that 
 is only because the demands for discount in other places 
 very likely have diminished. The real principle, however, 
 at the bottom is, that as the money in the country is 
 diminished by a foreign drain, the value of what remains 
 is increased, and that increase in the value of what remains 
 will check the drain, and ultimately bring back the money 
 of the country to its proper equilibrium with that of other 
 countries. 
 
 4008. Then do you think that if the Bank of England 
 in 1847 had taken earlier precautions, and raised the rate 
 of interest much sooner, and much more decidedly, than 
 it did, it would not have averted in a great degree the 
 crisis which followed in the months of September and 
 October of that year? I think that if the Bank had 
 conformed immediately to the rise in the rate of interest 
 which was taking place through the abstraction of money, 
 she would have obviated a groat deal of the pressure which 
 took place in the spring of 1847. 
 
 4009. And the subsequent greater pressure in the 
 autumn of 1847? The pressure in the autumn of 1847
 
 ]Q7 
 
 was very intimately connected with extensive mercantile 
 disasters, and the destruction of confidence in that way. 
 
 4010. Still it showed itself by a great demand upon 
 the resources of the Bank? Yes. 
 
 4010*. During the last two years we have had a period 
 ordinarily existing of pressure upon the capital of the 
 country, and a great demand upon our monetorial re- 
 sources. If the same policy had been pursued during the 
 last two years which was pursued in 1847, do you believe 
 that we should have got through so well ? I believe that 
 the Bank during the last two years has been managed, as 
 nearly as human affairs can be, perfectly, and that if there 
 had been the same firmness in 1847, it would very mate- 
 rially have mitigated some of the evils of that crisis. On 
 the other hand, I believe that had the Bank, during the 
 recent period of pressure, delayed in raising her rate of 
 discount, as she did in 1847, considerable inconvenience 
 might have arisen. 
 
 4011. Then you agree in the opinion that the timely 
 rise in the rate of interest in the last two years, in the 
 early part of the drain, prevented the drain going to an 
 inconvenient extent, as it did in 1847? I have not the 
 slightest doubt about it. 
 
 4012. Then the difference between the circumstances 
 in 1847 and those of the last two years is very much to be 
 traced to a better management on the part of the Bank of 
 England ? It is to be traced to better management on 
 the part of the Bank of England, to greater intelligence 
 on the part of the public respecting the principles of 
 monetary management, and to the fact that in 1847 the 
 mercantile community were found in a state not so well 
 prepared to meet the pressure as they have been in 1857.
 
 168 
 
 4013. Then it is not to any provision of the Bank Act 
 of 1844 that you attribute either the disasters of 1847, 
 or the more successful management of the last two years ? 
 We must always distinguish between the effects upon 
 the state of our bullion reserve and the safety of our 
 specie payments, and the effects upon the general state of 
 the commercial world. The Act of 1844 was directed 
 exclusively to the protection of the bullion reserve as a 
 certain security for specie payments. At the same time 
 I believe that a due and wise regulation upon that point 
 does tend to mitigate some of the evils which may attend 
 a period of mercantile disaster, but it certainly cannot 
 altogether obviate them. 
 
 4014. But the security of our transactions does de- 
 pend upon the maintenance of our bullion reserve ? The 
 security of our monetary system does. 
 
 4015. Chairman.'] With reference to the phraseology 
 which you consider inaccurate, will you allow me to call 
 your attention to the wording of the Act of 1844 : the 
 Act declares, " That from and after the 31st day of August, 
 1844, the issue of promissory notes of the Governor and 
 Company of the Bank of England payable on demand 
 shall be separated, and thenceforth kept wholly distinct 
 from the general banking business of the said Governor 
 and Company ; and the business of and relating to such 
 issue shall be thenceforth conducted and carried on by the 
 said Governor and Company in a separate department, to 
 be called ' The Issue Department of the Bank of Eng- 
 land.' " The Act speaks afterwards of the two departments, 
 one the Issue Department and the other the Banking 
 Department, as two departments of the Bank of England. 
 It appears to contemplate the Bank of England as formed
 
 169 
 
 of those two departments. The language occurs in various 
 sections, and at the end of the Act there is a schedule in 
 which the form of account is set out ; it is headed " Bank 
 of England/' and there are two subordinate heads, one 
 the " Issue Department," and the other the " Banking 
 Department." Under those circumstances, does it not 
 appear to you that the Act of 1844, which is the authentic 
 instrument on this subject, contemplates the Issue De- 
 partment as a department of the Bank of England, and 
 under those circumstances is it not correct to say that the 
 bullion in the Issue Department is bullion in the Bank of 
 England ? The whole thing seems to me to be a play 
 upon words. It is quite possible, and it is not uncom- 
 monly the case, that an individual may carry on two 
 businesses quite separate and distinct in their character, 
 in their nature, and in the principles upon which they 
 ought to be regulated. If that person so carrying on 
 those two businesses was to blend into one account the 
 transactions in those two businesses, he would be guilty of 
 a most improper act. It would lead first of all to con- 
 fusion ; in the second place it would give great facility for 
 fraud, and if such a confusion of accounts was brought 
 before any legal tribunal in this country, they would take 
 ' it as a necessary presumption that it must have been done 
 from some improper motive, and it is a very just pre- 
 sumption ; it is a wrong act, and it is assumed that it is* 
 done for a wrong purpose, because it facilitates wrong pur- 
 poses. The wrong purpose in this case is perfectly obvious. 
 Why are we recommended to abolish the separation of 
 the accounts, and to blend them into one ? For no other 
 purpose than to give facility for issuing paper notes which 
 do not strictly, faithfully, and honestly correspond with
 
 170 
 
 the fluctuations of the bullion, and for the purpose of 
 having, at given times, a quantity of paper money afloat, 
 greater than would be the quantity of metallic money 
 afloat, although we call it a paper money convertible into 
 metallic money. Look at the last paragraph in that very 
 clause which you have quoted. "Provided, nevertheless, 
 that the said Issue Department shall always be kept 
 separate and distinct from the Banking Department of 
 the said Governor and Company." It is a mere question 
 of the phraseology of an Act of Parliament. The Governor 
 and Company are to carry on these two different busi- 
 nesses, one with free discretionary power on their own 
 part, and subject to their own personal responsibility 
 as to the consequences, viz., in the Banking Department, 
 but in the Issue Department they are merely mechanical 
 instruments ; they have no discretion vested in them ; 
 there is a positive order by an Act of Parliament what 
 they are to do ; they cannot depart from that order, and 
 they are distinctly enjoined to keep the whole thing 
 separate and distinct; and in that Issue Department, so 
 kept separate and distinct from the Banking Department, 
 they are to do nothing but strictly to execute the distinct 
 provisions and orders of the law. I cannot conceive 
 things more thoroughly distinct. 
 
 4016. But in discussing the policy of the Act of 1814, 
 can it be said that we used inaccurate language, if we use 
 the very language of the Act of Parliament, which Act of 
 Parliament describes the Issue Department as the Issue 
 Department of the Bank of England? In one sense we 
 do not use inaccurate language, if we use the language of 
 the Act of Parliament ; but I apprehend that we use the 
 language in a sense in which the Act of Parliament did
 
 171 
 
 not intend that it should be understood. The Act 
 of Parliament distinctly contemplates, and distinctly 
 ordains, that these two things shall be kept as separate 
 and as distinct as any two different concerns can possibly 
 be; that they shall be managed and regulated upon 
 different principles; that in one there shall be free discre- 
 tion given to the Bank of England, and personal respon- 
 sibility ; that in the other there shall be no free discretion 
 given to it, and a responsibility only to conform strictly 
 to the provisions of the Act. I cannot conceive things 
 in substance, in reason, and in principle more thoroughly 
 and completely distinct, and the only semblance of union 
 of any kind is, that these two concerns are to be adminis- 
 tered by the same body. 
 
 4017. Still the Act of Parliament considers these two 
 departments as together constituting the Bank of England, 
 as being two departments of the Bank of England. 
 Under these circumstances can it be inaccurate to describe 
 the Issue Department as a portion of the Bank of 
 England ? I do not really wish to discuss a question 
 of language. I mean to say, that it is inaccurate to 
 consider or treat the Issue Department as subject to 
 any principles or any system of regulation at all similar 
 or analogous to that of the Banking Department; that 
 they are to be conducted quite separate and distinct from 
 each other, and that they are to be conducted upon prin- 
 ciples perfectly distinct, I might say antagonistic to each 
 other, and that the only appearance of similarity is 
 founded upon the fact that the two businesses are to be 
 carried on by the same body of persons. 
 
 4018. I understood you to object to the expression 
 "the bullion in the Bank of England;" whereas you
 
 172 
 
 said that it was not in the Bank of England, but in the 
 Issue Department? You will recollect that I prefaced 
 all those observations by saying that in my phraseology 
 the Bank of England always means the body carrying on 
 the banking business, and that whenever I speak of any- 
 thing in the Issue Department, I always speak, or intend 
 to speak, of the Issue Department. 
 
 4019. Sir James Graham.'] I wish to put a question 
 to your Lordship for which, if it is impertinent, you will 
 pardon me, and if you wish me not to press it, I shall not 
 do so. The late Sir Robert Peel was the responsible 
 author of the Act of 1844? Yes. 
 
 4020. Might I ask whether you were politically con- 
 nected with Sir Robert Peel? I am exceedingly glad 
 that the question has been put, because it enables me to 
 give an explanation which may be desirable. I had no 
 connexion, political or social, with Sir Robert Peel. I 
 never exchanged one word upon the subject of this Act 
 with Sir Robert Peel in my life, neither directly nor 
 indirectly. I knew nothing whatever of the provisions 
 of this Act until they were laid before the public, and I 
 am happy to state that, because I believe that what 
 little weight may attach to my unbiassed conviction of 
 the high merits of this Act, and the service which it has 
 rendered to the public, may be diminished by the im- 
 pression that I am influenced by something of personal 
 vanity in this matter. I have no feeling whatever of the 
 kind. The Act 4s entirely, so far as I know, the Act of 
 Sir Robert Peel, and the lasting gratitude of this country 
 is due to him for the service rendered to it by the passing 
 of that Act. He lias never been properly appreciated; 
 but year by year the character of that statesman upon
 
 173 
 
 this subject will be appreciated. By the Act of 1819, 
 Sir Robert Peel placed the monetary system of this 
 country upon an honest foundation, and he was exposed 
 to great obloquy for having so done. By the Act of 1844 
 he has obtained ample and efficient security that that 
 honest foundation of our monetary system shall be 
 effectually and permanently maintained, and no inscription 
 can be written upon his statue so honourable as that he 
 restored our money to its just value in 1819, and secured 
 for us the means of maintaining that just value in 1844. 
 Honour be to his name. 
 
 4021. Then, though there is a great coincidence 
 of opinion between you and the late Sir Robert Peel with 
 reference to the principle upon which the Act of 1844 is 
 founded, before its introduction there was no private 
 communication between you and him ? None whatever. 
 I have never communicated with Sir Robert Peel in any 
 form whatever upon the subject of this Act. My support 
 of the Act is entirely and purely from a genuine conviction 
 that it is founded upon the soundest principles, and that it 
 has produced to this country inestimable benefits. 
 
 4022. In the interval between the passing of the Act 
 and Sir Robert Peel's death in 1850, no communication 
 passed between you and him with reference to its effects, 
 or the future policy of upholding it ? None whatever. 
 
 4023. Mr. Spooner.~\ Will your Lordship be kind 
 enough to look at the Question No. 3757 in your evidence 
 on the last clay ; the question is this : " Did I rightly 
 understand your Lordship to say, that the money was the 
 capital? No, I said just the reverse; I say that with 
 money, or with capital in the form of money, you can do 
 nothing, you might just as well have a parcel of old iron/'
 
 174 
 
 Will you be kind enough to state what idea it was that 
 you meant to convey ? I understood the examiner to be 
 speaking of money as desirable for itself, and not for its 
 power of putting the owner of the money in the possession 
 of real capital. I said that the mere possession of money for 
 itself was as useless as the possession of old iron, and that 
 it was only when it was used as a means of obtaining capital 
 that it became useful to the trader or the man of business. 
 
 4024. Your Lordship, in another part of your evidence, 
 has stated that the Bank note is nothing more than a cer- 
 ficate that so much bullion is deposited, and which bullion 
 is to pay that note when demanded ? I stated that the 
 Bank note is a certificate issued against bullion. Of course 
 we cannot say that 26,000,000/. of Bank notes are the 
 certificates of bullion actually deposited, when there is 
 only 10,000,000/. or 12,000,000/. of bullion deposited. 
 
 4025. You have frequently made use of the expression 
 that the Bank note is nothing more than a certificate for 
 so much bullion? It is a certificate of that amount of 
 bullion which would be in circulation as money if there 
 was no paper note. 
 
 4026. What do those notes represent which are issued 
 upon the 14,500,000/. securities? I hardly know, when 
 we come to strict reasoning, what is meant by the word 
 " represent" : the actual state of the fact is clear and is 
 intelligible. The total amount of notes issued is that 
 which would be the total amount of bullion in circulation 
 if we had only a metallic currency ; but of the amount 
 of bullion carried into deposit, in consequence of the sub- 
 stitution of paper notes, a certain portion is taken out 
 by the authority of the Government, and invested in a 
 profitable security, the remaining quantity of bullion
 
 175 
 
 being conceived to be such, that the exhaustion even of 
 that can never take place, because the country will never 
 bear a decrease of its aggregate amount of money to so 
 low an amount. 
 
 4027. Then that quantity of notes cannot be said to 
 represent bullion, but they are issued to that amount, 
 which is utterly impossible for the country to demand 
 payment of? They represent that amount of metallic 
 money which would be circulating if the notes did not 
 exist ; and their capability of being exchanged into bullion 
 depends upon the fact that there is such a quantity of 
 bullion held in reserve that the country will never bear a 
 reduction of its notes to so low an amount as to exhaust 
 its bullion. 
 
 4028. The country never can be in a situation to be 
 able to demand the payment of the notes? It depends 
 entirely upon the sense in which you use the words "be able 
 to demand." Of course, every holder of the 26,000,000/. 
 has the power of demanding that bullion ; but the arrange- 
 ment is founded upon the assumption, and I believe a 
 very safe assumption, that the country never will bear 
 such a diminution of money as would be involved in carry- 
 ing in the notes for cancellation down to 14,000,000/. ; 
 and that before you reach that point such will be the pres- 
 sure from the decrease of the quantity of money, and the 
 increase of the value of money, that more bullion will be 
 brought in to supply the place of the suppressed notes. 
 
 4029. How would that bullion come in? It would 
 come in by a very simple process. When the money 
 of the country undergoes a diminution of amount, its 
 value increases; there is a general feeling of a want of 
 money in the country. Then all the persons who have
 
 176 
 
 foreign correspondents will be very soon placed in such a 
 situation that they will write to their foreign correspon- 
 dents : " Whatever remittances you have to make to this 
 country, send them in money ; it is the most advantageous 
 remittance that can be made here. Do not send us bills 
 of exchange, do not send us securities, do not send us even 
 commodities ; at present the most advantageous remit- 
 tance is bullion ; send us bullion." 
 
 4030. Suppose that your correspondents are not in a 
 position to send you bullion ? We must not discuss the 
 arrangements of the world upon the supposition that the 
 world is to stand still. A certain quantity of bullion is 
 appropriated, by the wants of the different countries of the 
 world, to. perform the functions of the money of the world : 
 and the only question is of that money, what proportion 
 shall each country possess, and when one country possesses 
 less than her due proportion of money, other countries will 
 be induced to transmit to her a certain portion of what they 
 have, because it is the best remittance under the deficiency 
 of that country. 
 
 4031. Is it not possible that there may have been 
 exports from this country calculated upon receiving back 
 again the produce of other countries, and that therefore 
 the debt owing by the correspondents abroad is created 
 upon the principle that as we have sent our manufactures, 
 we are to receive their goods in return ; and if upon any 
 change of affairs here, we write to them, " We cannot have 
 your goods, but you must send us bullion," and they 
 have not the bullion to pay ; what will then be the result 
 of the great drain of which you have spoken as having 
 been brought down to the lowest point which the country 
 could bear ? The first answer to that question is, that the
 
 177 
 
 supposition is an impossible one. All the other countries 
 of the world cannot be in a situation in which they have 
 no bullion to send us ; it is a mere question of relative 
 value. There is a certain quantity of money distributed 
 through the different countries of the world in relative 
 proportions ; when the proportion is in any respect dis- 
 turbed in any given country, then there is a tendency to 
 draw money from the other countries to supply the defi- 
 ciency in that country ; and to suppose that there is no 
 money in other countries to be drawn, is to suppose a 
 total suspension of the whole state of things existing 
 throughout the world, with reference to which state of 
 things you are putting the supposition. 
 
 4032. I do not put the question as against all the world, 
 but as against the particular nation with whom that trans- 
 action has taken place? But you must take in all the 
 world; the transactions of this country are not with any 
 one country exclusively, but they are with all the countries 
 of the world. Our receipts in payment for exports come 
 through various circuitous and indirect channels ; perhaps, 
 if we send goods to The United States, the payment for 
 those goods may come to us from China or from Australia. 
 The transactions circulate from country to country, but 
 the principle at the bottom is, that the money of the world 
 is distributed in certain proportions, which proportions 
 are such that the normal state of things between the dif- 
 ferent countries of the world will be a state of barter ; 
 but there may be a temporary disturbance of that equili- 
 brium, so that for the moment it ceases to be a state of 
 barter, and becomes a transmission of money, and by 
 that transmission of money the equilibrium is very soon 
 restored.
 
 178 
 
 4033. But the state of things supposed is that in which 
 the particular country to which exports may have been 
 sent has not the money, in which case your Lordship 
 contemplates that it will draw the money from other parts 
 of the world, and send it to us; would not that opera- 
 tion take a very considerable time ? The operations are 
 so multiplied, that they are taking place every day. I 
 am now stating things only to illustrate the principle ; 
 very often it will assume a different form. It may assume 
 the fcrm of preventing any more money going out of this 
 country. A very remarkable circumstance of that sort 
 occurred in the spring of 1847. I detailed its history in 
 my evidence in 1848; the very thing which you suppose, 
 occurred; that is to say, when a rise in the rate of interest 
 by the Bank at last took place, many persons said, " It is 
 too late ; the mischief is done ; there are orders in this 
 country from America to send bullion to America, and the 
 bullion is actually on board the ships at Liverpool." I 
 remember having that constantly pressed upon me : to 
 which my answer was, " It looks formidable ; it is an 
 awkward crisis ; but the more difficulties you are sur- 
 rounded with, the more necessary it is to adhere firmly to 
 principle ; keep up your rate of interest, and do not fear 
 the consequences." What was the result? Not one of 
 those orders was executed ; and the bullion on board the 
 ships at Liverpool was taken out, and brought back and 
 deposited in the vaults of the Bank of England ; not one 
 farthing of it ever left the country. You cannot have a 
 stronger instance ; that was the crucial instance by which 
 the validity of the principle was effectually tested. 
 
 4031. It was in consequence of raising the rate of 
 interest that the money was brought back again? It was
 
 179 
 
 in consequence of such a diminution of the money of this 
 country as raised its value so high, that actually the orders 
 from America to send gold to America, were not executed, 
 and the money never went. 
 
 4035. Was the gold for which the orders were sent to 
 go in payment of debt in America, or in purchase of com- 
 modities or securities ? That does not affect the question 
 at issue ; the whole thing is the result of a complicated 
 balancing and counter-balancing of transactions. The 
 order was an order merely founded upon the state of the 
 exchanges, which showed an apparent profit in the trans- 
 mission of bullion to America. But when the orders came 
 over here, it became clear, from the increased value of 
 money on account of its diminution of amount, that that 
 profit was gone, and that there would be so large a loss 
 upon the transmission, instead of profit, that the parties 
 did not even venture to execute the orders which they had 
 received, but returned the bullion to the Bank. 
 
 4036. Then those orders to send the bullion for the 
 payment of debt were not complied with ? They were not. 
 
 4037. Suppose the case which you have put to lead to 
 that result, namely, that there is a demand for bullion in 
 cousequence of the value of money in this country being 
 raised by the draining of bullion, and that you desire the 
 Americans to send you bullion, but that they refuse to do 
 so, what will be the result ? You are putting a set of 
 suppositions inconsistent with one another. The first 
 supposition is, that the money goes out of this country, 
 because it is an advantageous remittance to make to 
 another country, and that that raises the value of money in 
 this country above the value of money in other countries, 
 and that therefore orders go out from this country, saying, 
 
 n 2
 
 180 
 
 " Send us bullion," Then you make another assumption 
 contradictory of the first, namely, that the value of money 
 in the other country has become such that it will not 
 allow it to come. If that is the case, then the money in 
 this country is not in deficiency as compared with the 
 money of that other country. 
 
 4038. I am afraid I have not made myself intelligible. 
 I am not putting the two circumstances as being simulta- 
 neous. If I understood you rightly, you said this : that 
 there was a time when there came great orders to this 
 country to remit gold ? Yes. 
 
 4039. Whether that was for the purchase of commo- 
 dities or for the payment of debt, is of no consequence 
 whatever, as your Lordship says, to the real fact. The 
 fact was that money was worth more in this country than 
 in America; therefore the orders were not executed, and 
 the bullion was retained in this country ? Yes. 
 
 4040. The question which I put afterwards was this : 
 supposing the same state of things to exist, as your Lord- 
 ship stated, a few answers back, that by raising the rate 
 of interest here, you raised the value of the money here. 
 You then write to your correspondent abroad, and say to 
 him, " Do not send us goods or securities, but send us 
 bullion." I suppose that at that time the nation with 
 whom you are corresponding, is in the same situation as 
 your Lordship has described us to have been in, when the 
 orders came from America, and that they can no more 
 fulfil our orders upon them, than we fulfilled the orders of 
 America upon us ? Upon that supposition, bullion would 
 be drawn from all the other countries in the world to 
 supply the deficient state of it in the two countries which 
 you have instanced.
 
 181 
 
 4041. Would not that take a considerable time? 
 No ; a very short time, 
 
 4042. I may be told, that the case which I am about 
 to put, is an extreme case, but I believe that the best way 
 to try the soundness of any principle, is to put extreme 
 cases, if they are possible ? Provided you take care to 
 put a case which is really a possible case. 
 
 4043. I will put a succession of very bad harvests, and 
 that we are importing very largely corn into this country : 
 that importation, must be met by bullion to a very large 
 extent ? No, I do not admit that. 
 
 4044. Do you believe that we could maintain a very 
 large importation of corn into this country without a drain 
 of bullion to a very large extent ; I do not say the whole 
 extent? If you will give me 12,000,000/. of bullion in 
 the coffers of the Bank of England, and assume that we 
 want to import 40,000,000/. of provisions, if you will only 
 regulate the paper issues according to the fluctuations in 
 the bullion, I will undertake to say that we shall get the 
 40,000,000/. of provisions, and not part with more than 
 4,000,000/. of bullion. 
 
 4045. How would that transaction take place ? In 
 this way. The first import of provisions would very pro- 
 bably be paid for in bullion. I will assume that it is paid 
 for at once, to the extent of 4,000,0006. ; the effect of 
 that is, that 4,000,000/. of notes are cancelled ; the money 
 of this country is diminished 4,000,000/. in amount. 
 What is the effect of that? The effect of it is that all 
 persons holding a foreign correspondence, say, first of all, 
 to their correspondents abroad, " Money has become ex- 
 cessively valuable here; you must send us money, and 
 nothing but money." In the second place they say,
 
 182 
 
 beyond that, " We send you bills of exchange ; we send 
 you interest-bearing securities, all of which you must 
 realise in your different countries, and for that you must 
 remit us money. " Then again the effect of it would be 
 that our consumption of other articles than provisions 
 from every part of the world would be diminished ; 
 and again, that our exports of one kind or the other 
 to some other countries in the world would be increased; 
 and through all those various processes we should 
 obtain the remaining balance of 36,000,000^. with which 
 to pay for our provisions. [A case very similar to this, 
 identical indeed as far as regards the principle upon which 
 they both depend, is alluded to by Mr. Haldimand, in his 
 evidence before the Committee of 1819 (Question 93), 
 " France has at this moment nearly twenty millions ster- 
 ling to pay to foreign powers. My opinion is that a very 
 small portion of this large payment will be made in specie 
 or bullion : when a certain amount of the circulating 
 medium has left France the remainder will rise in value, 
 and goods fall in price, when consequently it will become 
 more advantageous to France to remit the remainder in 
 its produce and manufactures, from time to time." The 
 principle here relied upon has been fully explained and 
 established in the writings of Mr. Ricardo "A void in the 
 currency, occasioned by the annihilation or limitation of 
 paper currency, would speedily be filled by importations 
 of bullion, which its increased value, in consequence of 
 the diminution of circulating medium, would infallibly 
 attract to the advantageous market. However great the 
 scarcity of corn might be, the exportation of money 
 would be limited by its increasing scarcity. Money is in 
 such general demand, and in the present state of civilisa-
 
 183 
 
 tion is so essential to commercial transactions, that it can 
 never be exported in excess." " High Price of Bullion, 
 &c," p. 13.] 
 
 4046. You think that the result of those various pro- 
 cesses would be obtained in time to meet the payment for 
 our extraordinary demand ? Yes ; it is very easy to post- 
 pone many of those payments through exchange transac- 
 tions and credits, and a variety of processes. The thing is 
 not a mere supposition ; the thing has happened over and 
 over again. 
 
 4047. That is done through raising the value of money 
 in this country ? Yes. 
 
 4048. Of course then that would create an increased 
 difficulty, pro tanto, in paying for the corn ? You must 
 remember this, that if you are supposing such a failure of 
 harvests as imposes upon us the necessity of importing 
 40,000,000/. of provisions, it is quite impossible that it 
 should not be accompanied with very considerable pres- 
 sure and sacrifice on the part of this country ; no arrange- 
 ment whatever of the monetary affairs can possibly obviate 
 it. The loss of 40,000,000/. in the harvest of this 
 country, of necessity involving 40,000,000/. of foreign 
 supplies to be paid for by this country, must place a very 
 severe and heavy pressure upon this country that is quite 
 unavoidable. 
 
 4049. Your Lordship was asked on the last day, 
 whether it would not be possible in a great degree to 
 mitigate such difficulties as I have endeavoured to pour- 
 tray by having two sorts of notes, one of them payable 
 in bullion, but the other, if I may use the expression, a sort 
 of I O U note between the Government and the public ; 
 whether inasmuch as the Government owes 6,000,000/. 
 or 7,000,000/. every quarter in the shape of dividends or
 
 184 
 
 expenses/ and the country owes 6,000,0007. or 7,000,0007. 
 of taxes, it would not be possible to arrange that there 
 should be two sorts of currency afloat ; one the common 
 banking note, payable in bullion, and applicable for all 
 general purposes, and the other a note applicable in the 
 more limited sense ? Our affairs would then go on very 
 much in the way that a man would walk with one of his 
 legs six inches shorter than the other. One set of notes 
 would circulate at a depreciation compared with the other 
 set of notes ; hence great inconvenience and confusion 
 would arise. 
 
 4050. What would be the real effect of it? The 
 effect would be, that you would have paper money of two 
 different characters in the country, not of equivalent 
 value; not circulating indiscriminately each for all purposes, 
 but some useful for one purpose, and some useful for the 
 other, and that there would be intolerable confusion. A 
 man would have Government notes, and he would present 
 them to another man in payment ; that man would say, 
 " I do not want Government notes ; I want to make a 
 remittance abroad ; I cannot get bullion for those Govern- 
 ment notes ; I will not take them ;" are they both to be 
 a legal tender ? 
 
 4051. They would both be a legal tender as far as the 
 Government is concerned, but the Government note would 
 not be a legal tender between individuals ? Then what is 
 that individual to do ? The other man says to him, 
 " You must go and get me the other notes. Either you 
 or I must pay a premium for them/' 
 
 4052. What would be the harm of that? The harm 
 would be, enormous injustice and intolerable confusion. 
 
 4053. Why injustice; it would be a voluntary trans- 
 action; nobody would be compelled to take those notes?
 
 185 
 
 Then, if nobody was compelled to take them, nobody- 
 would take them, and there is an end of them. 
 
 4054. That is a question of opinion. Do you believe 
 that if any person had notes which ensured to him the 
 payment of all the Government demands upon himself, 
 though he had no demands upon him directly, he would 
 not find numbers of persons who would exchange those 
 notes for him at a premium or a discount ? Then, you 
 would have a certain proportion of the monetary system 
 of the country circulating at a discount; I cannot con- 
 ceive a greater state of monetary disorganization than 
 that. 
 
 4055. Do you conceive that to be so great an evil as 
 your Lordship has been describing, namely, that when 
 you are obliged to import very largely, great distress and 
 mischief will fall upon the community? Bat your proposed 
 circulating medium would increase all those evils, and not 
 diminish them. 
 
 4056. In what way? You would not bring about 
 that state of things which would enable the payment for 
 the 40,000,000/. of provisions to be made in other things 
 than in money. According to your system, you would 
 have to pay it all in money, and you would have no 
 money to pay it with ; you would get into utter confusion, 
 and it would end in the people being starved. [The 
 plan suggested in the preceding questions, would be in 
 fact an attempt to maintain the paper money of the 
 country at an undiminished amount, whilst the state of 
 the exchanges and the progressive export of bullion clearly 
 showed that the money of this country is in excess of the 
 amount which could be maintained if the money were 
 exclusively metallic. So long as this plan was successful 
 in maintaining this condition of our monetary system,
 
 186 
 
 the export of the metallic portion of our money would 
 continue, until it was exhausted, and we were brought to 
 suspension of specie payments. This would speedily 
 occur; long before we had paid for the whole 40,000,000/. 
 of provisions. What is then to be done ? how is the remain- 
 ing portion of the imported provisions to be paid for. The 
 discussion of all such plans brings us in the end to the 
 same conclusion. The trading intercourse of nations must 
 be in fact an intercourse of barter ; an interchange of the 
 products of each nation for the products of other nations. 
 Upon no other principle can the foreign trade of a country 
 be continued ; and when money begins to be exported 
 instead of commodities, that export of money must be 
 checked by the diminution of amount and consequent 
 increase of value of the remaining money, and thus the 
 export of commodities, rather than money, be revived. 
 Confusion and monetary difficulty must be the inevitable 
 result of any scheme which attempts to interfere with, 
 or to modify this natural and legitimate mode by which 
 international trade is maintained in a state of permanent 
 equilibrium.] 
 
 4057. What docs your Lordship suppose to be the 
 amount of bullion in circulation in this country now, in 
 the shape of coin ? I am net aware ; a very considerable 
 amount. 
 
 4058. Has your Lordship turned your attention to it? 
 No. 
 
 4059. Suppose the idea of persons who have turned 
 their attention to it, to be a right one, that we have not 
 less than 00,000,000/. of bullion in this country, would 
 not the effect of such a paper as I have described be to 
 let loose that bullion to go in payment of the corn, and to 
 use this new description of currency, which would be con-
 
 187 
 
 vertible for everything but bullion, for our social purposes? 
 It is a long and complicated discussion, but you would 
 get into an infinite series of difficulties . In the first place 
 you would want that which is the most legitimate, certain, 
 and wholesome mode of paying for the provisions, namely, 
 by diminished imports or increased exports of other arti- 
 cles, commodities or securities ; you must come to barter 
 in the end ; if you want 40,000,000/. of provisions from 
 other countries, you must get into a state in which you 
 can give those other countries 40,000,000/. of value of 
 some kind or other, and all your conundrums about these 
 Government notes would not get over that difficulty. See 
 the enormous inconvenience which it would involve to part 
 with the whole or nearly the whole of your bullion ; and 
 when you had parted with it you would very soon find 
 that it was insufficient to pay for the provisions, that your 
 exhausted bullion exposed you to the danger of suspending 
 specie payment, and that you remained subject to all the 
 pressure necessary for drawing the bullion back to the 
 country. 
 
 4060. But that parting with bullion would be to meet 
 the immediate necessary pressure, and the course of trade 
 would relieve that pressure? The proposed plan would 
 produce infinitely greater pressure ; money is only the 
 medium through which barter is established, and you bring 
 us back to a state of real barter by allowing your money 
 to increase in value as the quantity of it is diminished 
 through the action of the exchanges. The other course 
 of proceeding is perfect quackery. 
 
 40G1. Mr. Hildyard.] You stated, if I understood you, 
 that it was your belief that if the Act of 1844 had not 
 existed in the spring of 1847, there would have been a 
 danger that the Bank would not have been able to give
 
 188 
 
 gold for its- notes ? It is my firm belief that that would 
 have been the result. 
 
 4062. Am I then to understand your belief to be, that 
 except for the operation of the Act of 1814 the bullion 
 drain would have gone on to the extent of exhausting, 
 after April, the sum of 9,000,000/. of money, 7,000,0007. 
 having gone out within a very short time to meet the drain 
 which had set in ? Yes, that is my belief, certainly. 
 
 4063. You think that the balance against this country 
 was at that period so great, that 9,000,000/. would have 
 gone out if the Bank had not been driven to measures, 
 to which the Act of 1844 compelled them? Yes, 
 and a great deal more than 9,000,000/. The money 
 of this country was at that time depreciated in its relation 
 to the money of other countries, and if no steps were 
 taken to correct that depreciation, money would continue 
 to go out of this country to an indefinite extent. [The 
 question depeuds not upon the supposed balance against 
 this country that is upon the money value of the excess 
 of imported commodities over exported commodities it 
 depends upon the relative value of money or of commodi- 
 ties as the most advantageous means of paying for all our 
 imports. If money is exported in payment for imported 
 commodities, that fact proves that money affords a more 
 advantageous means of payment than goods, and unless 
 the value of money be increased by the contraction of its 
 amount, foreign payments will continue to be made in 
 money rather than in commodities, until all the exporta- 
 ble money, that is all the bullion, has gone out of the 
 country.] 
 
 4061. We will look at the rate of interest which the 
 Bank were charging. You have told us that one of the 
 means of checking a drain is to raise the rate of interest,
 
 189 
 
 and thereby to cause all parties to write to their corres- 
 pondents to send money over to a country where it has 
 become dear ; to stop shipments to this country, and so 
 forth. Do you know what was the rate of interest charged 
 by the Bank from the period when that drain commenced 
 up to the period when the bullion had actually increased, 
 namely, from August the 29th, 181-6, up to July the 10th, 
 1847? What was the highest rate of interest which the 
 Bank had demanded as a mode of checking so formidable 
 a drain ? If I understand the real drift of that rather 
 lengthened question, it is founded upon an assumption, 
 which I have several times denied, namely, that the Bank 
 has an arbitrary power in itself of raising the rate of 
 interest. The Bank has no such power; the Bank cannot 
 raise the rate of interest except from two causes, one a 
 real alteration in the relative demand and supply of capital, 
 and the other a diminution in the quantity of money in 
 the country. Now that is the very basis of my argument 
 on this subject. So long as the banking reserve is not set 
 forth, there is no evidence whatever of a diminution of 
 the quantity of money in the country. There being no 
 evidence to show a diminution of the quantity of money 
 in the country, there is no ground for a rise in the rate of 
 interest ; but the moment you set forth in the accounts 
 the banking reserve and show that it has undergone a 
 great diminution, that is really a decrease in the quantity 
 of money in the country, and that decrease in the quan- 
 tity of money in the country raises the value of the re- 
 maining money, and the Bank does not raise its rate of 
 interest by an arbitrary act, but it conforms to the 
 increased value of money produced and caused by the 
 conviction in the public that there is a diminution in the 
 amount of money.
 
 190 
 
 4065. I understood your Lordship to state that you 
 had several times remonstrated with the Bank because 
 they had not raised their rate of interest. If the rate of 
 interest is not in any way whatever dependent upon the 
 movements of the Bank, why did you make a remon- 
 strance with the Bank for not doing that which you say 
 would have been inoperative inasmuch as the rate of 
 interest fixes itself? What I remonstrated with the Bank 
 about was, that they did not raise their rate of interest so 
 as to make it conform to the rise which had taken place 
 generally in the rate of interest ; that they kept their rate 
 of interest below the market rate, and that consequently 
 there was a very heavy demand continually going on upon 
 the Bank, and thus reducing the Bank reserve. 
 
 4066. Though the accounts had not been kept in the 
 way in which they are under the Act of 1844, the Bank 
 Directors would have been perfectly cognizant that a drain 
 had been going on upon the bullion of the Bank from 
 16,000,000/. to 9,000,000/. of money, would they not? 
 Yes. 
 
 4067. Then why would they not have been just as 
 much cognizant of the drain which was then going on as 
 they were made cognizant by the particular form in which 
 their accounts are now kept ? They would have been 
 cognizant of the continuous drain of the bullion as they 
 were cognizant of the continued drain of the bullion 
 during 1824, and the early part of 1825. But in 1824-25, 
 they did not take measures necessary to stop that drain 
 of bullion, but they allowed it to go on until it was 
 exhausted, and I see no reason whatever, and no reason 
 whatever has been assigned by anybody, why that process 
 would not have been repeated in 1847 had it not been for 
 the existence of the account setting forth the state of tho
 
 191 
 
 banking reserve. The state of the banking reserve was 
 such, that the Bank were left without an alternative ; 
 there the heavy hand of the law came upon them ; they 
 could go no further. Therefore it compelled them to do 
 that which their moral courage otherwise probably would 
 not have led them to do, and with no great blame attach- 
 ing to them, because it is the moral pressure of the com- 
 munity which has acted upon them. Previously they 
 would not have been sustained by the public in such a 
 contractive action, but with this published knowledge of 
 the state of the banking reserve, the public were put into 
 a right state of mind upon the subject of the banking 
 reserve, and by that means our monetary system was 
 saved. 
 
 4068. Still, with all that heavy pressure of the law, 
 the conduct of the Bank, so far as regarded their action 
 upon the rate of money, was, that the discounts which 
 they charged never extended beyond 5| per cent,, and 
 that only for a short period in the autumn of 1847? I 
 am speaking of the spring of 1817. 
 
 4069. In the spring of 1847 the rate of interest was 
 lower. Up to the 3rd of April the Bank had charged no 
 higher rate of interest than 4 per cent. ; from that period 
 up to the 31st of July they had charged no higher rate 
 than 5 per cent. ; from that period up to the crisis, in the 
 end of October, they had charged 5^ per cent. ; never, 
 during the whole period, having gone higher than 5-| per 
 cent., and for a great period not higher than 5 per cent. ? 
 The less the Bank raised its rate in the spring of 1847, 
 the stronger is the proof of the value of the provisions of 
 the Act of 1841 in setting forth the state of the banking 
 reserve. What was it that stopped the continuous drain
 
 192 
 
 which was going on ? The knowledge of the exhausted 
 state of the banking reserve produced alarm on the part 
 of the Bank, and alarm on the part of the public, which 
 materially affected credit, confidence, and the efficiency of 
 the circulation. To show how very easy it is to draw false 
 inferences from mere statements of figures, it appears that 
 the Bank, in the spring of 1847, did not raise its interest 
 above 5 per cent. ; but there is one fact which I can state 
 of my own knowledge (and I believe everybody who was 
 conversant with the state of things in the money world at 
 that period will verify that fact), that the Bank Directors 
 themselves, from seeing the state of their banking reserve, 
 became panic-stricken, and some of them very incau- 
 tiously said to the public : " The Bank has done all that it 
 has the power to do; it can go no further; it can do 
 nothing more for the mercantile world ; they must now 
 take care of themselves." That produced a state of panic 
 and alarm which had the most contractive effect upon 
 credit, and upon the efficiency of the circulation. 
 
 4070. That assumes that a continuous drain is going 
 on. You have told us that the effect of a drain is felt, 
 first and principally, upon the bullion in the Bank ; is not 
 that so ? No doubt of it. 
 
 4071. So far from a continuous drain going on, it 
 appears that the drain had been checked, and that there 
 was a rise from the 10th of April from 9,500,000/. to 
 10,170,000/., and that that check continued until the 10th 
 of July ? No doubt. 
 
 4072. Therefore why do you speak of a continuous drain 
 going on, when it appears that the drain was checked, and 
 that there was a slight increase in the treasure of the 
 Bank? I speak of the continuous drain during the pro-
 
 193 
 
 cess of reducing the bullion from 16,000,000/. down to 
 9,000,000/. Then, that being a process continuous for a 
 great length of time, I ask how comes it in April to be 
 stopped ? I say that it was stopped by this circumstance ; 
 that the publication of the state of the Bank reserve 
 showed that the Bank had exhausted all its means, and 
 that it could go no further. And I add a fact, which does 
 not appear upon the papers, but which is perfectly noto- 
 rious to everybody who was in the city, that the Bank 
 Directors very incautiously made the declaration to the 
 public that the Bank had done all it could, and could go 
 no further; that it must now take care of itself, and that 
 the public must take care of themselves. That produced 
 a temporary panic, well known proverbially as the spring- 
 panic of 1847. That panic so produced, and which re- 
 sulted from the state of the banking reserve, produced an 
 effect upon credit, confidence and the value of money, 
 which very soon stopped the drain; and from that time, 
 whilst that panic feeling existed, and had not totally 
 subsided, the drain was corrected and stopped, and the 
 bullion began slightly to increase again. But that was the 
 result of the publication of the banking reserve. 
 
 4073. It is very important in these matters to keep to 
 facts, and these facts are brought before us in the shape of 
 papers submitted to us. When there was 16,000,000/., 
 the Bank were discounting at 3 per cent., and then the 
 drain which I have already adverted to, to the extent of 
 7,000,000/., took place; upon which the Bank began to 
 take alarm, and raised their discount to 1 per cent., and 
 then to 5 per cent., the drain having then reduced the 
 bullion from 16,000,000/. odd to 9,000,000/. Beyond 
 
 o
 
 194 
 
 that they did not raise their rate of interest, and yet, by 
 their continuing at that same rate of interest, which I un- 
 derstood from you you thought they ought not to do, so 
 far from the drain continuing, the drain was checked, and 
 there was an augmentation at one period in June, 
 amounting to 1,000,000/. in addition. In the face of 
 those facts why do you tell me that but for the Act of 
 1814, the drain which was going on would have ex- 
 hausted those 10,000,000/., and put in danger the con- 
 vertibility of the note? I will give a very simple answer 
 to the question; I say so, because on all former occa- 
 sions, both in this country and in other countries, such 
 has been the result; and I say that what stopped the 
 drain in April was the knowledge derived from an account, 
 the publication of which account was first ordained by the 
 Act of 1844. 
 
 4074. I am quite aware that the Bank began adapting 
 other restrictions which this paper does not enable me to 
 go into? I am willing to take it upon the paper; there 
 is no doubt that other restrictions were adopted, but there 
 is no occasion to take other restrictions into the account. 
 
 4075. If you will allow me, I will draw your attention 
 to your answer 3833 ; you were asked whether you con- 
 curred with those witnesses who spoke of the active circu- 
 lation as that portion of the circulation which is issued 
 from the Bank without including the notes in the Issue 
 Department, but unissued, and you stated that you did not 
 do so, and that you considered the notes in the Issue 
 Department unissued as the most active part of the circu- 
 lation? Yes, the notes in the Banking Department. 
 Notes cannot remain in the Issue Department ; they are
 
 195 
 
 necessarily put forth by that department as the bullion is 
 brought in ; they may remain in the Banking Department, 
 forming part of the Bank reserve. 
 
 4076. You gave an illustration of that by showing 
 what was the effect when those notes were exhausted? 
 Yes; what would be the effect if they were exhausted, 
 and what was the effect when they were suddenly aug- 
 mented. 
 
 4077. I think you will find that you spoke of what was 
 the effect, because you alluded to the state of things in 
 1847, when that reserve, though not actually exhausted, 
 was nearly so? No; the effect in 1847 was the effect 
 arising from a peculiar increase in the amount of 
 the reserve; I mean the effect of the Government 
 letter. 
 
 4078. But you spoke of the state of things which 
 existed previously to the issue of that letter, that state of 
 things growing out of the fact that it was notorious that 
 the Bank reserve was nearly exhausted? That had refer- 
 ence to the spring of 1847; do not mix the two periods 
 together. 
 
 4079. I have referred you to your answer, and let me 
 see whether I am in error or not ; you say, " What was 
 the Governmeet letter of 1847? Why, it was an inde- 
 finite increase of the Bank reserve. What was the effect ? 
 Not one note was put out into what is called its active 
 state ; not one single note passed out of the Bank in con- 
 sequence of it, but the Bank reserve was indefinitely 
 augmented. What was the result?" Now, I draw your 
 attention to these words : " The want of confidence was 
 removed, and every thing was made smooth and easy. 
 The whole machinery of the credit system of the country, 
 
 o 2
 
 196 
 
 which had been brought to a dead lock, was immediately 
 put in order?" Yes. 
 
 4080. You were speaking then manifestly of the state 
 of things which existed just before the Government letter 
 isssued ? No doubt. 
 
 4081. You are aware that at that period the exchanges 
 had turned, and were in favour of this country? They 
 turned just about that time : I do not know the fact 
 but from the circumstances; I know that they must 
 have turned. 
 
 4082. And we find that by the end of December the 
 bullion had increased from that minimum point of 
 8,400,000/. to 12,237,000/.? Yes. 
 
 4083. The exchanges, you say, had turned just at that 
 point; what was the actual bullion? I am not now 
 speaking of the bullion, distributed as it is by the Act of 
 Parliament, but what was the actual amount of bullion 
 lying in the coffers of the Bank of England at the time 
 when that letter was issued? I should presume about 
 8,400,000/. or 9,000,000/., but I do not know. 
 
 4084. Then, with the exchanges having turned in our 
 favour, and with 8,000,000/. or 9,000,000/. of bullion in 
 the coffers of the Bank, a state of things existed which is 
 properly represented by yourself, I have no doubt, when 
 you say that " the whole machinery of the credit system 
 of the country had been brought to a dead lock;" was 
 that the operation of the Act of 1841, or was it not? It 
 was not the necessary operation of the Act of 1844; it 
 was the operation of a very violent and unreasonable 
 panic feeling seizing the public mind ; that panic feeling 
 was intimately connected with the enormous mass of 
 mercantile failures which then took place, and it was
 
 197 
 
 further increased by very ignorant apprehensions existing 
 in the mind of the public from their not under- 
 standing the real character and operation of the Act 
 of 1844. 
 
 4085. But you have described that state of things as 
 growing out of the knowledge which had transpired that 
 the Bank reserve was nearly at an end? No; you are 
 jumping backwards and forwards from one period to the 
 other; that description had reference to the spring of 
 1847. 
 
 4086. I humbly submit to your Lordship that I am 
 not jumping backwards and forwards, and I put your own 
 language before you, and shall be ready to be bound by 
 it. Had you not in the early part of that answer been 
 describing the state of things which would result from 
 the Bank reserve being at an end ? I do not understand 
 what is the purport and drift of the question. So far as 
 I understand it, it relates to this, that, in the spring of 
 1847 a great alarm sprang up about the exhausted state 
 of the banking reserve ; that that assumed a sort of semi- 
 panic character, the effect of which was to correct the 
 drain, and to stop it, and a moderate degree of replenish- 
 ment of the bullion in the Bank took place ; then, in the 
 autumn of 1847, there sprang up a very violent panic 
 feeling, arising from the two causes which I have already 
 spoken of, namely, the enormous extent of mercantile 
 failures, the thoroughly rotten condition of a large portion 
 of the trading world which was then developed, and the 
 apprehensions entertained by many persons with regard 
 to the Act of 1844, founded upon an ignorant view of its 
 real provisions and effect. 
 
 4087. Do I rightly understand the answer which you
 
 198 
 
 gave to Question 3833 ? Will you read the part of my 
 answer to which you refer ? 
 
 4088. You had been asked whether you agreed with a 
 particular definition of the words, " active circulation." 
 You said that you entirely differed from it, and you 
 illustrated your meaning by this answer ? That is quite 
 true. 
 
 4089. You said that the reserve was the most active 
 part of the circulation ; you were asked, " Will you de- 
 scribe how ?" you answered, " I will give you a practical 
 illustration : suppose that this Committee was to-day to 
 issue an order for destroying all the notes now lying in 
 the bank reserve, and that that order was made known in 
 the city of London to-morrow morning, what would be the 
 result ; what would the bankers do ? They would every 
 one of them go into the city in a state of perfect panic, 
 and would say, f God bless me ! I have lost my balance 
 at the Bank of England; it is all gone, it is destroyed by 
 an order of a Committee of the House of Commons/ 
 What would they do? They would every one of them 
 send their Exchequer bills to their brokers : they would 
 say, ' Take my Exchequer bills, sell them ; take my stock, 
 sell it ; bring me bank notes, I do not know what is 
 going to happen ; the Bank reserve is destroyed ; I must 
 have bank notes immediately to put me in a proper posi- 
 tion/ In the meantime their customers would get wind 
 of what was happening ;" and so you proceed, and then 
 you illustrate that which you say would be the result by 
 telling us that when the Bank reserve in 1817 was 
 destroyed, the whole machinery of the credit sj'stem of 
 the country had been brought to a dead lock. I again 
 ask you, if that state of things took place when the
 
 199 
 
 exchanges had turned with us, and the external drain 
 therefore was stopped, and when the Bank of England 
 had 8,000,000/. or 9,000,000/. of bullion actually in its 
 coffers, was not that state of things the result of the Act 
 of 1844, which had precluded the Bank from using the 
 whole of its actual reserve ? There are so many parts in 
 that question that I think it should be broken into several 
 questions, and taken seriatim. I can only again go over 
 the ground over which I have gone before ; that I describe 
 the spring of 1847 as being a state of panic alarm, created 
 by the knowledge of the exhaustion of the banking re- 
 serve. When I was afterwards questioned about the 
 importance of the banking reserve, I illustrated its 
 importance by the supposed case of a sudden and absolute 
 destruction of the banking reserve, and showing what 
 strange confusion would take place throughout the whole 
 trading world in consequence of that event. With regard 
 to the autumn of 1847, there is no doubt that a very 
 great panic feeling then sprang up : a panic feeling, as I 
 must state again, arising from enormous mercantile 
 disasters, fomented further by a misapprehension and all 
 the alarm produced by ignorance with regard to the true 
 action and effect of the Bank Act of 1844. Then, again, 
 with respect to the 8,000,000/. or 9,000,000/. of bullion 
 which was then lying in the Bank, I believe the existence 
 of that amount of bullion at that time was a most 
 fortunate circumstance, because it prevented another 
 very formidable ingredient being thrown into the 
 cauldron of our disasters, namely, alarm with regard 
 to our specie payments : that being a form of evil from 
 which the Act of 1844 protected us at that time, and 
 for the first time in the history of our monetary panics
 
 200 
 
 did we escape from that being mixed up with the other, 
 difficulties of similar periods. It must further be ob- 
 served, that the 8,000,000/. or 9,000,000/. of bullion lying 
 at that time in the Issue Department was represented by 
 a corresponding amount of Bank notes, put forth by that 
 department for the use of the public. 
 
 4090. Assuming that Parliament had then been sit- 
 ting, that we had set aside the forms of Parliament, and 
 had passed a Bill repealing the Act of 1844, instead of 
 issuing that letter, which issued upon the responsibility of 
 the Government, do you believe that the same result 
 would have followed ? The Government letter was, in a 
 certain form, a temporary suspension of the Act of 1844. 
 
 4091. Do you believe that if we had repealed the Act, 
 the same result would have followed ? The same in what 
 respect ? 
 
 4092. As far as regarded the immediate effect upon 
 credit, and the restoration of confidence in the city? 
 If it had been understood that the repeal of the Act only 
 involved an unlimited power of issue by the Bank of Eng- 
 land it would have had the same effect, but not otherwise. 
 
 4093. Then why do you object to my question, which 
 infers that the evil resulted from the Act of 1844, if its 
 repeal would have restored confidence? The repeal of 
 the Act of 1844, if it had admitted of an unlimited issue 
 of paper, would have medicated to the evil at that mo- 
 ment, but it would have involved the country in all the 
 dreadful consequences of an excessive issue of paper, and 
 would probably as the final result have substituted for what 
 took place the suspension of specie payments altogether. 
 
 4094. Are you correct in saying that the letter of 
 1847 did indefinitely augment the reserve of the Bank ; did
 
 201 
 
 it absolve the Bank from paying its notes in specie ? No, 
 it did not absolve the Bank from paying its notes in specie, 
 but it did enable the Bank to issue any amonnt of notes that 
 it thought proper. No doubt those notes were still payable 
 in specie, and the letter was accompanied with a clause 
 directly applicable to that subject ; for though it placed an 
 indefinite amount of bank notes at the command of the 
 Bank of England, yet, to protect us against that very 
 danger, this permission was accompanied with the restric- 
 tion, " You must not let any one of those notes go out 
 under an interest of 8 per cent." 
 
 4095. And not a single note, according to your own 
 statement, Mas issued on those terms ; confidence was 
 restjred, the drain was at an end, and in December we 
 find that the bullion in the coffers of the Bank had 
 increased from 8,000,000/. to 12,000,000/. of money ? 
 Yes, that is quite true. 
 
 4096. Your Lordship spoke of the enormous advan- 
 tage which had resulted to this country from the Act of 
 1844 during the long drain which has now been going on; 
 and I think your Lordship again stated your opinion that 
 we should have been unable to meet the convertibility of 
 the note if it had not been for the Act of 1844? I do 
 not know that I used that expression with regard to the 
 last two years, because I do not believe that the facts 
 come out quite in such a form ; but there is no doubt that 
 during the last two years this country has been subjected 
 to a very heavy drain of the precious metals ; that heavy 
 drain of the precious metals has been met by the Bank of 
 England strictly and efficiently discharging its duty ; it 
 has conformed immediately in its rate of interest to the 
 real rate of interest produced by the decrease of the
 
 202 
 
 quantity of money in the country. The result has been 
 that, under a very protracted and a very heavy pressure, 
 arising from a variety of causes, everything has gone on 
 safely and smoothly, and every principle upon which the 
 Act of 1841 was founded has been verified, and every 
 argument used by those who support it, has been con- 
 firmed by actual experience. 
 
 4097. As you ascribe the whole of this satisfactory 
 action to the Act of 1844, let me draw your attention to 
 France; France, as regarded the war, was subjected to 
 heavier external payments than this country was, by 
 means of the larger number of troops that she main- 
 tained; is not that so ? I believe she has been subjected 
 to heavy demands. 
 
 4098. Had she not also to encounter the evil resulting 
 from most fearful inundations? I dare say she had. 
 
 4099. Was there not also a failure of the silk produce, 
 which we will call the silk crop ? Very probably. 
 
 4100. Has not also the production of the vineyards in 
 France for the last three or four years been very much 
 indeed below their average ? Very probably. 
 
 4101. Have not the two or three last harvests in 
 France been rather below the average ? Very probably. 
 
 4102. France, I believe, pays her obligations in specie; 
 it is a convertible currency, is it not in France ? Yes. 
 
 4103. Has France been able to meet her obligations, 
 or has she been obliged to declare that she cannot convert 
 her notes? France has not suspended her specie pay- 
 ments; but France has been driven to very extraordinary 
 measures for the purpose of supporting them, and very 
 unnatural measures. The exact character of those mea- 
 sures I believe it has puzzled the most observant persons
 
 203 
 
 in this country to discover. You have next to you a 
 gentleman who has had great means of knowledge upon 
 that subject ; and there is another gentleman here who, 
 from having been in the management of the Bank of 
 England, must have paid great attention to it; you had 
 better examine them as to what their opinion is of the 
 measures which the Bank of France has been driven to for 
 the purpose of maintaining by artificial means the neces- 
 sary amount of bullion in the country. I do not know 
 how far it is permissible for me to allude to evidence given 
 previously before the Committee, but it has been inti- 
 mated to me that some very strong statements indeed 
 have been made before this Committee of the pumping in 
 by the most violent processes of one hundred millions of 
 bullion into the Bank of France, and that at the end of 
 it the store of bullion in the Bank of France was less 
 than it was at the commencement of that forcible and 
 unnatural process. 
 
 4104. We have already examined the gentlemen to 
 whom you advert, and, if I am correct, I think they 
 stated that they believed that the means resorted to were 
 perfectly futile, and did not accomplish their end ? That 
 does not mean that the means were futile, that is to say, 
 that the one hundred millions of gold was not thus pumped 
 into the Bank of France; they were futile because they 
 were not sufficient to keep it there, according to that 
 statement; I do not adopt the statement; I think it a 
 most extravagant one. 
 
 4105. Assuming, however, that artificial means had 
 been resorted to, and therefore we will assume expensive 
 means, upon whom would that loss have fallen ? Upon 
 the country.
 
 204 
 
 4106. Whom do you mean by the country? I mean 
 that the country at large must in the end pay for it. 
 
 4107. In what way would it fall ; immediately upon 
 the Bank of France? I presume the Bank of France 
 must in the first instance pay for that very unnatural 
 process. 
 
 4108. And it would then fall upon the community at 
 large? Through them upon the community at large. 
 
 4109. Convertibility of the note is a matter in which 
 the community at large is interested, is it not ? Yes. 
 
 4110. Every creditor in the country is equally inte- 
 rested in the convertibility of the note, and the preserva- 
 tion of the standard ? Yes. 
 
 4111. Then it is inequitable that the expense of the 
 means by which convertibility is secured should fall upon 
 the whole community who are benefited ? It cannot be 
 inequitable at all. [The expense necessarily incident to 
 maintaining the convertibility of the paper money pro- 
 perly falls upon the community at large, for the benefit 
 of whom it is deemed necessary that the convertibility 
 should be maintained. But the expense which may arise 
 from the omission to adopt the legitimate means of 
 maintaining the convertibility and the consequent neces- 
 sity of resorting to artificial and costly means of securing 
 that end, ought to be borne by those who are responsible 
 for such omission. If the Bank of France, or any other 
 bank, by not cancelling its notes as they are paid in for 
 bullion, and thus checking the drain by a natural process, 
 is driven to the necessity of pumping in bullion by arti- 
 ficial and costly means the expense thus incurred pro- 
 perly falls upon the bank through whose negligence it has 
 arisen.]
 
 205 
 
 4112. Will you tell me how, under the operation of 
 the Act of 184-4, convertibility is secured? Convertibility 
 is secured by a very simple process, and by one which 
 certainly does throw the burthen upon the whole commu- 
 nity generally ; it is secured by the simple process that 
 as the money goes out of the country, the quantity in the 
 country is diminished ; that diminution of the quantity 
 remaining in the country produces an increased value of 
 that money, and that increased value of what remains 
 stops the exit of money, and is kept up until it has 
 brought back that quantity of money which is necessary 
 to restore the equilibrium. 
 
 4113. Have we been incorrectly informed when we 
 have been told that one of the most effective means of 
 checking a foreign drain is to refuse to discount bills 
 beyond a particular length of date ? I do not at all 
 know what you have been told ; the most efficient means 
 and the most proper means to correct a foreign drain is 
 this, to allow the money of the country to diminish in 
 quantity in proportion to the extent of the drain ; to 
 allow that diminished quantity of money to cause a rise 
 in the value of that money, and to cause the rise in the 
 value of that money so created to be distributed by the 
 fair and free action of natural causes over the whole 
 community. 
 
 4114. Is it not within your knowledge that in practice 
 one of the modes by which the Bank do check a foreign 
 drain is to refuse to discount bills beyond a particular 
 date? I think that a very awkward and incorrect form 
 of scientifically stating the case. The fact is this : that 
 the money being diminished in amount increases in value ; 
 that increase in value is exhibited in the form of an
 
 206 
 
 increased rate of interest, and the Bank, like every other 
 body, conforms to that increased rate of interest which 
 arises out of the regular action of natural circum- 
 stances. 
 
 4115. Is it within your knowledge that one of the 
 means resorted to by the Bank, when they find that a 
 drain has set in, is to refuse to discount bills beyond a 
 certain date? I believe the ordinary course of the Bank 
 is, when it finds that the rate of interest generally 
 has risen, to raise its own rate in conformity to that 
 general rise. The Bank, of course, must exercise 
 discretion as to which of its means of action it is most 
 prudent, under the circumstances of each particular case, 
 to resort to. There is a mode of checking the advance 
 of capital, not so much through an actual rise in the rate 
 of interest as by shortening the period for which the 
 Bank will lend, a very natural course, generally accom- 
 panying the other ; but the cause of it is either an 
 increased want of capital or a diminished amount of 
 money. 
 
 4116. But is it not within your knowledge that, during 
 the very drain which has been taking place for some 
 time, the Bank has partially refused to discount bills 
 beyond a certain date, and has put a higher rate of 
 interest upon long bills where it has discounted them at 
 all? There is no doubt that when there is a pressure for 
 money, the value of that money will rise ; that the money 
 lent will be lent at a higher rate, and that the disposition 
 to lend will be checked ; that checked disposition to lend 
 may exhibit itself very probably in lending it ifor a shorter 
 period than before. It is all perfectly natural, all perfectly 
 legitimate, and exceedingly wholesome in its effects.
 
 207 
 
 4117. But practically it is not within your know- 
 ledge that the means which the Bank must have recourse 
 to in order to check a drain, fall upon a section of 
 the trade of this country, and do not fall upon the whole 
 commuuity ? It is quite inevitable that any cause which 
 acts must fall in the first instance upon that particular 
 class of persons who, from the accidents or circumstances 
 of the case, are most exposed to its action ; it is the 
 natural and legitimate course of things. When there is 
 a diminished quantity of money in the country, those 
 persons who are the most immediately in want of money 
 must feel the first effects ; and it is only through time 
 and a prolonged continuance of that state of things that 
 those effects permeate through the various classes of the 
 community. 
 
 4118. Then you object to the course of action adopted 
 by the Bank of France, which you represent falls upon 
 the community at large, and you prefer the course which 
 results from the Act of 1844, or at all events from the 
 action of the Bank, which casts the loss upon a section 
 of the community ? I object to the course adopted by 
 the Bank of France, because it is what I call quackery ; 
 it is not founded upon any scientific principles. I 
 approve of the course adopted by the Bank of England 
 for exactly the opposite reason, because I think it is 
 founded upon scientific principles, and produces the 
 desired result in the most legitimate and therefore in the 
 most beneficial manner. 
 
 4119. And yet the Bank of France, under all the 
 peculiar and adverse circumstances which I have men- 
 tioned, have not only secured the convertibility of the
 
 208 
 
 note, but have done so without raising their rate of 
 interest beyond 6/. per cent. ? The rate of interest in 
 France, and its fluctuations, are subject to many con- 
 siderations different from those iu England. But if you 
 will examine those gentlemen in your own Committee 
 who have had the management of the affairs of the Bank 
 of England, and ask them whether the result of their 
 observation is such that they would recommend that the 
 monetary system of this country should be upheld and 
 maintained in its security and efficiency by the processes 
 which the Bank of France has resorted to during the 
 last eighteen months, rather than by the processes which 
 have been in operation here, I shall be perfectly ready to 
 leave this question to be decided by their answer. 
 
 4120. You have stated that you had no sort of com- 
 munication with Sir Robert Peel with respect to the Act 
 of 1814, and that therefore so far as you are concerned, 
 that Act may have been the spontaneous suggestion of Sir 
 Robert PeePs own mind? Yes. 
 
 4121. Did I rightly understand you to state that you 
 had been examined in 1810? Yes. 
 
 4122. I thought that I remembered you to have said 
 that the Bill of 1844 was framed in entire accordance 
 with the views which you entertained when you were 
 examined in 1840; was I right in that or not? Essen- 
 tially right. There is no doubt that the Act of 1844 was 
 framed in such a manner that I have always given to it 
 my most cordial and thorough approval and support. 
 
 4123. Was not the principle of the Act of 1844 
 chalked out very much by the evidence which was 
 adduced by certain parties in the investigation of 1840?
 
 209 
 
 There is no doubt about it; the Act of 1844 has been, 
 framed in conformity to the views which were advocated 
 by many persons who had watched the various disastrous 
 periods through which we had passed in our monetary 
 affairs, and who had traced, as they conceived, those 
 disasters to the want of a proper and scientific regulation 
 of the monetary system, that want of a scientific regula- 
 tion being understood to be this ; viz., that the Bank of 
 England notes had previously been issued at the free 
 discretion of the Bank, instead of being issued in direct 
 reference to the fluctuations of the bullion. 
 
 4124. Therefore, though you had no private commu- 
 nication with Sir Robert Peel, yet you and other witnesses 
 having suggested a measure entirely in harmony with the 
 provisions of the Act of 1844, we need not assume that 
 that Act was Sir Robert Peel's own measure, inasmuch 
 as these suggestions had been offered to him in the most 
 formal way in which they could be offered to him, viz., 
 in the shape of evidence given before a Parliamentary 
 Committee? I take it that the Government of that 
 day acted in the way in which almost every free and 
 intelligent Government acts, namely, by watching the 
 previous discussions, and applying its own intelligence 
 and experience to ascertain from all the discussions 
 which have taken place where the safe view and the 
 sound principles lie. Undoubtedly I feel complimented 
 by the fact that Sir Robert Peel's clear, acute, and 
 practical mind should have led him to the same con- 
 clusions as I have always been led to upon this subject, 
 as shown in the Act of 1841, which I am perfectly con- 
 vinced are sound in science, and equally useful in their 
 practical results. 
 
 p
 
 210 
 
 4125. Mr. Vance!] From your experience of the Act 
 of 1844, is there any suggestion which you would make 
 to the Committee which would improve its minor enact- 
 ments, and not interfere with its principles ? No ; I have 
 not looked at it with that view. I think that as regards 
 all the great and essential principles of the monetary 
 system of this country, the Act is sound and efficient, and 
 I certainly agree with the views which were intimated by 
 Sir Robert Peel, in the correspondence with the Bank of 
 England, upon which this Act was founded, in which he 
 distinctly states that he thinks that discussions, such as 
 those now taking place in this Committee upon the subject 
 of banking and currency, are exceedingly detrimental to 
 the public interests, and that his object in the way in 
 which he framed some of the provisions of that Act was 
 specifically and distinctly with the hope that it would 
 render such discussions in future unnecessary. 
 
 4126. I allude to one enactment of the Act; it parti- 
 cularly gives the Bank of England the power, under an 
 order in council, to resume the lapsed issues of the 
 country banks to the extent of two-thirds. Would you 
 be in favour of allowing them to resume the whole ? 
 I do not think it a matter of the slightest consequence. 
 I am neither in favour of it, nor against it. [It is 
 too small an item to become a matter of importance 
 in a discussion which has reference to the effect of 
 general principles. But it must always be remembered 
 that whatever be the extent to which we increase the 
 issues upon securities, to the same extent we necessarily 
 diminish the metallic portion of the money of the country. 
 If the lapsed issues of country bankers be replaced by 
 Bank of England notes, to the amount only of two-thirds,
 
 211 
 
 the remaining third, we may presume, will be replaced by 
 an increase to that extent of our metallic money. But if 
 the whole amount of lapsed issues be replaced by the notes 
 of the Bank of England, in that case there will be no 
 increase in the metallic portion of the circulation ; that is, 
 in that portion of the paper money which is represented 
 by an equal amount of bullion actually retained in the 
 issue department. 
 
 " If while the Bank pay the notes on demand in specie, 
 they were to increase their quantity, they would produce 
 little permanent effect on the value of the currency, be- 
 cause nearly an equal quantity of the coin would be with- 
 drawn from circulation and exported." Bicardo, " High 
 Price of Bullion," p. 53.] 
 
 4127. Your Lordship stated, that you considered that 
 the rate of profit generally rose with the rate of interest 
 in this country, or something to that effect ? I should 
 rather put it the other way, that the rate of interest, all 
 other circumstances remaining unaltered, would conform 
 to the rate of profit. 
 
 4128. I understood you to say that when the rate of 
 interest was high, the rate of profit generally was also 
 high ? I would rather again put it the other way, that I 
 think when the rate of profit is high, there must be a very 
 strong tendency to a rise in the rate of interest. 
 
 4129. Do you consider that, for instance, the Man- 
 chester warehousemen or manufacturers make a larger 
 profit upon their transactions when the rate of interest is 
 high, or when it is low ? I cannot split up things quite 
 into that form, for this reason : no doubt if you assume all 
 other things to be fixed a rise in the rate of interest must, 
 so far as a man pays interest, diminish the advantages of 
 
 r 2
 
 212 
 
 his business ; but what I mean is this, that in a country 
 where the rate of profit is high, there will be a disposition 
 to obtain money as the means of obtaining capital with 
 which to secure that profit. In order to obtain that 
 capital, parties will pay an increased price. Therefore I 
 think that the mere fact of a high rate of interest in a 
 country is anything but presumptive that that country is 
 in an unsatisfactory state. The most progressive country 
 in the world at this moment is the United States, and 
 that is a country in which the steady normal rate of 
 interest is the highest of any country in the world, and 
 for very obvious reasons. With respect to the case put by 
 the question, the Manchester manufacturer, in proportion 
 as his profits are high, will be willing to pay a high rate 
 of interest for the loan of the capital by which he may be 
 enabled to make those high profits. 
 
 4130. I will take the case of a London or Manchester 
 warehouseman who turns 100,000/. a-year. Suppose that 
 he turned the same amount in 1857 which he turned in 
 1852, the rate of interest being in one case very low, and 
 in the other very high ; do you consider that his profits 
 on the transactions, taking them in a general way, would 
 not be less considerable in 1857 than in 1852? If he 
 pays more interest upon his borrowed capital, of course so 
 far his profit and his advantage is diminished; but the 
 question is whether there are not a great variety of other 
 considerations. How comes it that he pays a larger 
 interest upon his borrowed capital now ? It must pro- 
 bably be that the demand for capital has increased, that is 
 to say, that the trade of the country has been expanded; 
 and that, I believe, to be the state of things to which 
 your question refers. During the past year there has
 
 213 
 
 been a great expansion of the trading energies of this 
 country : I believe that to be a very great benefit 
 to this country ; but all human affairs have their little 
 accompanying inconveniences. You cannot have an 
 enormous demand for more capital to carry on an in- 
 creased trade without being obliged to pay a higher sum 
 for the use of that borrowed capital. 
 
 4131. Do you consider that Ireland and Scotland 
 are injured or benefited by their having a paper issue of 
 17. notes ? I have no personal practical knowledge of 
 the detail of affairs in Ireland or in Scotland. Upon 
 general principles, I believe it is much better for a country 
 that the smaller transactions of the country, those below 5/. 
 should be all discharged in metallic coin. 
 
 4132. But you have no knowledge that there is any 
 inconvenience or injury affecting the trade of Ireland, or 
 of Scotland, by the circumstance of their circulation being 
 in 11. notes to a great extent? No, I have no local know- 
 ledge on the subject ; as a general principle I think it very 
 desirable that all the money transactions of the country 
 below 5/. should be in the substantial metal of intrinsic 
 value, and not in the mere paper representative. 
 
 4133. Sir James Graham.~\ I understand that you are 
 reconciled to the continued issue of paper money by 
 country bankers, by the greater security, as it appears to 
 you, of the monetary system under the Act of 1811. Sup- 
 posing the issue of the country bankers in England to remain 
 unchanged, what would be your opinion of extending to 
 the country bankers in England the principle of limited 
 liability which the Legislature Las sanctioned with regard 
 to all other commercial transactions ? I am afraid that I 
 am a bad person to be examined upon the subject of
 
 214 
 
 limited liability ; I disapprove of the principle of 
 limited Liability; I believe it to be founded upon a 
 dishonest view of the nature of pecuniary obligations. 
 I believe it to be a weak yielding to that which is always 
 a predominant power, viz., the pressure of the debtor in- 
 terest, and that the Government, in givirg up the prin- 
 ciple of unlimited liability, has made an improper con- 
 cession to the debtor interest, and has not extended that 
 protection which it ought to have extended to the creditor 
 interest. But when you have once established the prin- 
 ciple of limited liability, and applied it to other concerns, 
 I confess I do not understand upon what principle of con- 
 sistency you are to withhold it from banking concerns. In 
 the first place, banking concerns are not so easily distin- 
 guishable from other concerns. There are many concerns 
 at this moment which, according to all rational definition, 
 are banking concerns established for the purpose of trad- 
 ing in money, and which have obtained limited liability 
 by the Act as it exists. I remember that in the 
 House of Lords I put it distinctly to the Government, to 
 define the distinction between a bank and some other 
 concern to which the principle of limited liability is now 
 applied. The answer was, that the distinction of banks 
 had existed in Acts of Parliament from time immemorial, 
 and that to ask such a question as that was virtually to stop 
 legislation; that was the only answer which I could get; 
 not a very clear or satisfactory answer, as it appears to me. 
 4131. Assuming the principle of limited liability to 
 remain fixed and unchanged with reference to all other 
 commercial transactions, the law being to that effect at 
 present, what would you say, on the whole, to the exten- 
 sion of it to banks of issue in England ? As a general
 
 215 
 
 principle, I should say that the extension of it to banks 
 was consistent ; that you should either have limited 
 liability or unlimited liability : I have no notion whatever 
 of having it for one class of concerns, and not for another 
 class of concerns ; but when we consider that this question 
 of the creation of paper money is involved in the matter, 
 that, I admit, introduces a new feature into the case of a 
 very peculiar kind. I do not think that it would be 
 amiss, if we are going to apply the principle of limited 
 liability to banks, that it should be upon the condition of 
 their surrendering their privilege of issue. 
 
 4135. My question pointed to the supposition of con- 
 tinuing the right to issue paper money if the limited 
 liability were extended to banks? I am assuming that, 
 upon the whole, you are bound in consistency to extend 
 limited liability to banks; I think it would be a very 
 desirable thing to make the condition of it the surrendering 
 their issues. 
 
 4136. You would hesitate before you consented to the 
 extension of the principle of limited liability to banks 
 issuing paper, on account of the peculiarity of the circum- 
 stances of that issue ? The question has come upon me 
 by surprise ; I have not sat down deliberately to consider 
 the subject; but my present impression would be, that if 
 I were going to extend the principle of limited liability to 
 banks, I should make the surrender of the issue the con- 
 dition of that extension. 
 
 4137. Mr. Hankey]. It has been stated that the export 
 of bullion has been very frequently made by the abstrac- 
 tion of so much bullion from the Issue Department of the 
 Bank ; are you aware of any rule applicable to the export
 
 216 
 
 of bullion which does not equally apply to the export of 
 any other article of general use in this country ? No ; I 
 presume that bullion is perfectly free to pass backwards 
 and forwards as any other article is. Bullion, which is 
 specially appropriated to perform the functions of the 
 universal equivalent, is to a certain degree taken out of 
 the general character of an article of trade, but still, as 
 money, it is perfectly free to pass backwards and forwards. 
 
 4138. Can any one export bullion without either 
 having it in his own possession, or going and buying it 
 at the Bank of England; are you aware of any other 
 usual way in which the export of bullion takes place ? 
 No, I am not aware of any other. 
 
 4139. If bought at the Bank of England, must not 
 the buyer bring an equivalent in bank notes ? Yes. [It 
 must be observed that the Issue Department is under an 
 obligation, at all times, to sell gold at a certain fixed 
 price, viz. 3/. 17s. 10^d. per oz. It has no free discretion 
 in that matter. It is therefore more correct to speak of 
 the note-holder as entitled to demand gold, than to treat 
 the transaction as an ordinary case of purchase and sale. 
 In cases of purchase and sale, a right of free discretion on 
 the part of the seller as well as the purchaser is under- 
 stood to exist. No such free discretion exists in the 
 case of the Issue Department ; it must sell the gold to 
 every applicant, and to an unlimited amount, at a fixed 
 price.] 
 
 4140. Would not those bank notes have formed ne- 
 cessarily a part of the capital of the purchaser of the gold ? 
 The use of the word " capital" is very dangerous. 
 
 4141. Mould they not have formed a part of his
 
 217 
 
 property previously to the purchase of the bullion? 
 There is no doubt that the bank note is the representative 
 of bullion; a man cannot have both. 
 
 4142. Then the subsequent export is nothing more 
 than the export of so much of the capital or property of 
 that individual ? Just so. 
 
 4143. But as far as the Bank of England are con- 
 cerned, the only effect produced is, that the amount of 
 their bullion in their Issue Department is so much dimi- 
 nished, and the amount of their notes is also diminished 
 to an equivalent degree? No doubt. The whole working 
 of the Issue Department is, that they put forth Bank 
 notes; the Bank notes perform all the purposes of money 
 internally in this country ; but if you want any portion 
 of the money of this country to be used for external 
 purposes, Bank notes will not perform those purposes, and 
 you convert it into bullion, paying in the notes which 
 are cancelled, and in place of them drawing out the 
 bullion which is used as money for export. 
 
 4144. Must not the export of gold necessarily be 
 limited to the power of individuals to bring Bank notes 
 to pay for that gold, unless they have already a stock 
 of that gold in their own possession ? No doubt. Bullion 
 cannot be obtained from the Issue Department, but by 
 paying in Bank notes. 
 
 4145. And when that poAver is exhausted the export 
 must stop ? No doubt of it. By paying in the Bank 
 notes you diminish the quantity of money in the country ; 
 there is a limit of the extent to which the country will 
 bear that diminution; when you reach that limit the 
 drain is stopped, and the increased value of money brings 
 back the money into this country.
 
 218 
 
 4146. It is exactly the same as the export of any 
 other commodity ? Yes. 
 
 4147. Cannot you conceive a position in which a con- 
 siderable export of bullion might take place without in 
 the least affecting the reserve of notes in the Banking 
 Department, which are held by them as prudent bankers 
 for the management of their business? No doubt the 
 notes taken in for bullion may be taken in without a 
 diminution of the Bank reserve, or if the Bank reserve be 
 affected, it may be replenished by sale of securities, or 
 by some other means of drawing notes into the Bank 
 reserve. 
 
 4148. Then is it a necessary consequence of the export 
 of bullion, that the banking business is in any way 
 affected, or at least to any greater degree than the export 
 of bullion, or the abstraction of capital from this country 
 affects every banker and those who have any large 
 dealings in monetary affairs? The export of bullion 
 from this country is a diminution of the quantity of 
 money in this country, and a diminution of the quantity 
 of money in this country must of course create a pressure 
 upon the money market generally. 
 
 4149. Are you aware of any way in which the Bank 
 is affected by the export of bullion different from that in 
 which every other banker and every other dealer in money 
 is affected? Persons will never get a correct or simple 
 view of these things until they accustom their minds to 
 look at the Bank of England as they would look at the 
 bank of Messrs. Smith Payne or Messrs. Jones Loyd, or 
 any other firm upon a large scale; they conduct their 
 business with the money existing in the country like 
 everybody else. If the money in the country is dimi-
 
 219 
 
 nished, the Bank of England and all other bankers, and 
 everybody else, must feel the effect of it. If any pres- 
 sure comes upon the Bank of England, they must realise 
 their securities to meet that pressure, as all other bankers 
 must. I have already stated in an early part of my 
 evidence, that the Bank of England is only an ordinary 
 banking concern on a large scale; its business must be 
 conducted and regulated upon ordinary banking prin- 
 ciples. 
 
 4150. Alluding to the question with respect to the 
 legal tender of Bank notes, do you not think that the 
 Bank would have discharged their duty perfectly when 
 they had paid the dividends upon Government stock in 
 Bank notes? The question whether you pay in Bank 
 notes or in gold seems to me to be puerile altogether : 
 I am always speaking of the Bank of England as a 
 banking concern, and I should say that the Bank of 
 England ought to be authorised to use the Bank note as 
 a legal tender in all cases, except as respects the Issue 
 Department, that merely meaning that there must be an 
 ultimate power of demanding gold for the note. Subject 
 to the reservation of that ultimate power, all the other 
 transactions of the country ought to be adjusted by the 
 Bank note as a legal tender, and are so, in fact ; if it is 
 not the strict law, it is the established usage, which is 
 better than the law. 
 
 4151. If the Bank of England were directed to make 
 any large payment in the country, say 300,000/. or 
 400,000/., Co you think that, practically, any person 
 would be entitled to refuse to give a receipt for such 
 money when that money was tendered in Bank notes, on 
 the ground that they were not a legal tender by the Bank ?
 
 220 
 
 Of course, that is purely a legal question upon the 
 construction of the Act. If it is not a legal tender by the 
 Bank of England in its banking business, I think it is 
 an imperfection in the state of the law, and an imperfec- 
 tion so clear that universal usage has corrected it. The 
 Bank of England note, practically, for all purposes is a 
 legal tender everywhere throughout the country,, except 
 by the Issue Department. 
 
 4152. Mr. Fergus.'] Are you aware that Bank of 
 England notes are not a legal tender in Scotland or in 
 Ireland ? I do not know how that is. 
 
 4153. Do you think it would be advisable that they 
 should be made a legal tender in Scotland and in Ireland ? 
 Certainly ; I think the Bank of England note ought to 
 be made as universal in its character, and as universal an 
 equivalent as it is possible to make it. I think that the 
 Bank note should be treated and used as the sovereign. 
 
 4154. Sir James Graham.'] And yet the Bank of 
 England, being a bank of issue, subject to the limitation 
 on which you rely with respect to the separation of the 
 two departments is a bank of limited liability, is it not ? 
 Do not let us mix up the question of issue. The Bank 
 of England, cariying on a great banking business, is a 
 chartered concern, and has limited liability ; but that has 
 regard to such an amount of property and security that 
 it is a theoretical limitation, and one which can never by 
 any reasonable supposition come into practical effect.
 
 221 
 
 Tuesday, \Mh July, 1857. 
 
 MEMBERS PRESENT. 
 
 Mr. Ball. 
 
 Mr. Blackburn. 
 
 Mr. Cayley. 
 
 Mr. Enriis. 
 
 Mr. Fergus. 
 
 Earl of Gifford. 
 
 Mr. Gladstone. 
 
 Mr. Glyn. 
 
 Sir James Graham. 
 
 Mr. Hankey. 
 
 Mr. Hildyard. 
 
 Mr. Hope Johnstone. 
 
 Mr. Martin Tucker Smith. 
 
 Mr. Spooner. 
 
 The Chancellor of the 
 
 Exchequer. 
 Mr. Vance. 
 Mr. Weguelin. 
 Mr. Wilson. 
 Sir Charles Wood. 
 
 The Right Hon. The Chancellor of the Exchequer 
 in the Chair. 
 
 4155. Sir Charles Wood.'] Will your Lordship be 
 good enough to refer to the Question and Answer 3953 ; 
 in that answer you stated that the Issue Department 
 belonged to the State, and you rather treated it as if it was 
 no part of the Bank of England ; will you explain exactly 
 what you meant by that? It seems to me that that 
 resolves itself into a technical question of words more than 
 of substance. There can be no doubt of the fact that the 
 Issue Department is placed under the management (if it 
 can be called management) of the Bank of England ; it is 
 conducted within the walls of the Bank of England; it is 
 managed by the clerks of the Bank of England ; and the 
 Governor and Company of the Bank of England are 
 responsible to the State for their obedience to the distinct
 
 222 
 
 provisions of the Act, which they have mechanically to 
 carry out. So far, undoubtedly the Issue Department is a 
 department under the charge and management of the 
 Governor and Company of the Bank of England ; but what 
 I meant by that answer was, that the Issue Department is 
 under the management and control of the Bank of England 
 in a sense, and to an effect, totally and entirely different 
 and distinct from the sense and effect in which the banking 
 business of the Bank of England is under the control and 
 management of the Governor and Company of the 
 Bank of England. The banking business is subjected to 
 their free discretion, and they bear all the responsibility of 
 the consequences of the exercise of a wise or an unwise 
 discretion in the management of it ; but not so, in the 
 slightest degree, with regard to the Issue Department; 
 it is subjected to their management merely to carry out 
 mechanically the positive provisions of the Act of Par- 
 liament; and they are subject, in that matter, to no 
 responsibility out that of faithfully obeying those orders. 
 The separation of the Issue Department, completely and 
 entirely, in every sense of the word, is the fundamental 
 object and principle of the Act of 1844. Nothing can be 
 more distinct or clear, than the words of the Act itself 
 upon the subject, which are, that the Issue Department 
 " shall be separated, and thenceforth kept wholly distinct, 
 from the general banking business of the said Governor 
 and Company," and at the end of that clause in the Act, it, 
 ex majori cauteld, reiterates the assertion: "Provided never- 
 theless, that the said Issue Department shall always be kept 
 separate and distinct from the Banking Department of the 
 said Governor and Company." Those are the words of the 
 Act itself; but the meaning and purport of those words is
 
 223 
 
 still further illustrated, if we refer to the language used by 
 the Treasury in its correspondence with the Governor and 
 Company of the Bank of England, upon which that Act 
 was founded. There you will find that they actually refer 
 to the possibility that this Issue Department may be 
 transferred elsewhere, and conducted by some other body; 
 but they decide not to take that course, not, however, 
 because they wish in any degree to modify the actual 
 separation of the two departments, but simply from other 
 considerations, and from the desire of not making the 
 change greater than is absolutely necessary for the purpose 
 in view. These are the words of the correspondence of 
 Sir Robert Peel and Mr. Goulburn with the Governor 
 and Company of the Bank : " It appears highly desirable 
 that any new arrangement should be founded on the basis 
 of an entire separation of the business of the issue of notes 
 from that of banking. This measure might be effected 
 by the establishment of a public department for the issue 
 of notes, independent altogether of the Bank. But Her 
 Majesty's Government are willing, in the first instance, to 
 consider whether this can be effected by a division of the 
 Bank into two distinct and separate departments, to con- 
 duct exclusively, one the business of issue, the other that 
 of banking." It is on the ground of those terms, both of 
 the Act, and as explained by the correspondence, that 
 I say, looking to all rational meaning of the words, 
 that the Issue Department is thoroughly and entirely 
 separate and distinct from the Bank of England; always 
 meaning by that the conduct of the banking business; and 
 that it is so is shown by this very obvious fact : Suppose 
 that the Issue Department was removed altogether from 
 the walls of the Bank of England; suppose that it was
 
 224 
 
 carried to the Mint, or carried to the Exchequer-office, or 
 carried to the National Debt-office; or suppose that a 
 separate and Special Commissioner was appointed for the 
 purpose of conducting it, that would alter the form and 
 appearance as to the hands in which it was placed, but it 
 would not produce the slightest alteration of any sort or 
 kind as to the actual progress of affairs in the Issue Depart- 
 ment ; and therefore, looking at the substance and reality 
 of the thing; looking at the manner in which reasonable 
 people would reason upon the subject, it is perfectly correct 
 to say that the Issue Department has nothing whatever to 
 do with the banking business of the Bank of England. 
 
 4156. It is, in point of fact, entirely removed from any 
 control on the part of the persons who manage the banking 
 business of the Bank of England ? The Bank of England 
 have a full discretionary power in managing the bank- 
 ing business of the Bank of England; they have, with 
 regard to the Issue Department, no discretionary power 
 whatever. The law has provided for the management of the 
 Issue Department, and the Bank of England is the simple 
 mechanical instrument, the one wheel between the Act of 
 Parliament and the result; nothing else whatever. 
 
 4157. Supposing it were removed from the Bank of 
 England and placed under some other establishment, do 
 you apprehend that that establishment would necessarily 
 be paid in some way or another by the State? The 
 expenses of that establishment must of course be defrayed, 
 and if it be an establishment separate from the Govern- 
 ment, some profit to the person managing it must be 
 awarded for his own remuneration. That is precisely the 
 case with respect to the Bank of England. The mode of 
 paying the Bank of England is complicated, because it
 
 225 
 
 arises out of a great number of ancient habits and regula- 
 tions which it was thought unwise to disturb, provided you 
 substantially accomplished your result without it. 
 
 4158. So far as the management of the Issue Depart- 
 ment or its effect upon the money of the country goes, it 
 is perfectly immaterial in what shape it is paid for, whether 
 by salary or by the profits of issue ? It is perfectly imma- 
 terial to everybody except the Chancellor of the Exchequer, 
 who has to make the best bargain which he can. 
 
 4159. Does not the Bank of England perform other 
 duties for the Government, such as the payment of divi- 
 dends ? The Bank of England performs a variety of 
 duties : all the various duties which can be included under 
 the general term of transacting the banking business of 
 the country. 
 
 4160. And for the performance of those duties of course 
 it is only fair that it should receive some remuneration ? 
 No doubt it is perfectly clear that the Bank of England (I 
 am now speaking of it in its joint capacity as a bank of 
 issue, and as conducting banking business) must be paid 
 for the various duties which it performs; the form in which 
 it is paid is a mere matter of detail, not in the slightest 
 degree affecting any of the principles which we have to 
 discuss upon this subject. 
 
 4161. In point of fact, the form in which it is paid is a 
 remnant of the old system, and not perhaps that which 
 would be established if it were to be begun afresh, and put 
 upon what you would cousidcr a better foundation? No 
 doubt ; it is now in a complicated form, arising from a 
 variety of successive bargains between the Government and 
 the Bank, and they have never been simplified into one 
 direct payment for the whole business. 
 
 Q
 
 226 
 
 4162. You do not conceive that it at all affects this 
 question of the separation of the departments, that the pro- 
 fits, such as they are, of the Issue Department are blended 
 with the allowance for the payment of dividends, which 
 constitute, in point of fact, the principal part of the remu- 
 neration allowed by Government to the Bank of England? 
 The accidental form in which the Bank is remunerated 
 for all the business which it does, really does not touch, in 
 the slightest degree, the question between the Issue Depart- 
 ment and the Banking Department. The clear distinct 
 separation of those two departments in principle must be 
 obvious to every reasoning person, and I cannot understand 
 the meaning of persons who attempt to raise any compli- 
 cation or difficulty respecting it. 
 
 4163. Will your Lordship be good enough to refer to 
 Question 3929 ? From that question and answer does it 
 not appear that the whole coin in circulation of the country, 
 together with the amount of paper circulation in the country, 
 and the bullion which happens to be in the Issue Depart- 
 ment of the Bank of England, are taken together as the 
 currency of the country ? Is that really your opinion, or is 
 there some confusion from the use of the words " Bank of 
 England" there ? I am exceedingly glad that my attention 
 is drawn to that question and answer. I think that it is 
 calculated to illustrate the difficulty to which witnesses are 
 subjected who are called upon extemporarily to assent to, 
 or to dissent from, every successive assumption which is 
 placed before them, and that I was aware of that danger is 
 clearly shown by the answer which I gave, namely, that I 
 should like to have the calculation before me on paper, 
 before I went into it. However, that request was not com- 
 plied with, and 1 had to answer the question as it stood.
 
 227 
 
 The next remark which I should make upon this question, 
 is the extreme danger which arises to a witness from having 
 assumptions introduced into the question, which assumptions 
 are thoroughly inaccurate. As an instance of what I mean 
 by that statement, I refer to this part of the question ; " and 
 to take your own view of the matter, namely, that bullion 
 in the Bank of England is also part of the currency of the 
 country." Now, so far from that being my view of the 
 matter, it is diametrically and distinctly opposed to all the 
 principles which I have always advocated, and especially to 
 those principles which I had pertinaciously repeated in my 
 examination before this Committee. I had uniformly 
 stated, that the bank notes out of the walls of the Issue 
 Department were the representatives of the bullion lying 
 in the Issue Department. I had again called them the 
 shadow of the substance, and therefore it was not right in 
 putting a question to me, to involve in that question the 
 assumption, that it was my view of the matter, that the 
 bullion in the Bank of England is also a part of the cur- 
 rency of the country. The bullion in the Issue Depart- 
 ment, and the Bank notes issued against that bullion, 
 cannot both be taken as part of the money of the country. 
 4164. Bullion in the Issue Department ? It means the 
 bullion in the Issue Department ; there is no bullion in the 
 Bank of England. It is quite clear, that here " bullion in 
 the Bank of England," means the bullion in the Issue 
 Department. Now, I have uniformly stated, and repeated 
 it almost to tediousness, before this Committee, that in my 
 view of the matter, whilst the notes issued against the 
 bullion are out of the walls of the Issue Department, the 
 bullion which is in the Issue Department is not part of the 
 money of the country; that the notes arc the representatives 
 of the bullion; that they are the shadow of the substance* 
 
 Q 2
 
 228 
 
 and that so long as those notes are out of the Issue Depart- 
 ment, you cannot take the thing twice over, and consider 
 the bullion which is in the Issue Department as part of the 
 money of the country. The bullion in the Issue Depart- 
 ment cannot be brought into the condition or functions of 
 the money of the country, except by paying in the notes 
 which represent it, cancelling those notes, and thus con- 
 verting the bullion into part of the money of the country. 
 4165. If you treated the bullion in the Issue Depart- 
 ment, and also the notes out of the Issue Department, 
 issued upon that bullion, as both constituting a portion of 
 the circulation of the country, would you not, in point of 
 fact, reckon the same amount twice over, and add to that 
 which would be the amount of money, in the event of a 
 purely metallic circulation, the whole amount of notes 
 issued upon that bullion? There is no doubt of the 
 accuracy of the principle involved in that question. The 
 notes are the mechanical convenient representatives of 
 the bullion in deposit, and you may cither consider the 
 notes, whilst they are out, as the money of the country, or 
 if you choose to pay in the notes, and get the money which 
 they represent, namely the bullion; by so doing, you make 
 the bullion the money of the country, but you cannot use 
 them both ; it is using the same thing twice over. Now, 
 it is this very fallacy which misleads that class of persons 
 who, when there is a monetary pressure, complain, and, as 
 they think, with obvious reason, that any pressure should 
 be permitted to fall upon the monetary system, whilst there 
 is 8,000,000/. or 10,000,000/. of bullion lying in the Issue 
 Department. They are misled solely by not considering 
 and understanding that if the bullion is lying in the Issue 
 Department, that which represents the bullion is circulating 
 amongst the public, and that you cannot bring out the
 
 229 
 
 bullion without putting into its place its representative, 
 the Bank note. You cannot by any contrivance whatever 
 have the same thing twice over. 
 
 4166. The bullion, in point of fact, cannot be brought 
 into the circulation of the country, unless the notes are 
 first sent into the Issue Department, and bullion is taken 
 out thereupon ? Precisely ; there is no doubt of that fact. 
 
 4167. Chairman.'] I understand you to complain of 
 your meaning having been misrepresented in Question 
 3929, where the question has implied it to be your view 
 of the matter that bullion in the Bank of England is a 
 part of the currency of the country ? Yes. 
 
 4168. Let me refer you to Questions and Answers 3879 
 and 3880 ; the first question is, " What do you include in 
 the term, ' currency ;' do you include the notes and coin in 
 the hands of the public only, or do you include the coin in 
 the Bank of England as well V The answer is, " I con- 
 sider the Bank of England as a very important personage 
 amongst the public; I know no difference between the 
 Bank of England and my own bank, so far as that is con- 
 cerned." The next question is, " Do you include the bul- 
 lion in the Bank of England as part of the currency ? " 
 The answer is, ,f Yes." That answer, taken by itself, 
 would naturally lead anybody to the inference that the bul- 
 lion in the Bank, according to your conception, is part of 
 the currency, would it not; and until your Lordship's lan- 
 guage came to be explained, namely, that the Issue Depart- 
 ment is not a department of the Bank, would it not natu- 
 rally create a misunderstanding? I prefaced my examina- 
 tion in a very early stage of it by stating, that I intended 
 uniformly, when I used the term " Bank of England," the 
 Banking Department of the Bank of England ; that when
 
 230 
 
 I meant to speak of the Issue Department, I should endea- 
 vour to use that expression. It is possible there may have 
 been some lapsus in some part or other of my examination, 
 but I am inclined to think not. Now, it is perfectly clear, 
 in Question 3929, that this question means, and has refer- 
 ence to the bullion lying in the Issue Department. When 
 you speak of the small quantity of metallic money which is 
 in the Banking Department, you speak of coin ; you do not 
 speak of bullion ; and it is so small a sura that it really is 
 altogether an evanescent quantity in discussing any prin- 
 ciple. It is like'the small change in each man's pocket ; it 
 really has nothing to do with a discussion of the principles 
 of the question. 
 
 4169. If a person says that the bullion in the Bank of 
 England is a part of the currency, does not that, without 
 further definition, naturally lead to the inference that the 
 bullion in the Issue Department is part of the currency, 
 inasmuch as, according to the language'of the Act, and 
 according to generally received language, the Issue Depart- 
 ment is a department of the Bank of England ? It might 
 mean that in the mouth of a person who had not begun his 
 examination by stating distinctly that when he spoke of 
 the Bank of England, he spoke of the Bank Department. 
 
 4170. Sir Charles WooclJ] Have the goodness to look 
 at Questions and Answers 3897 and 3898. Were you not 
 asked in those questions whether you were aware that it 
 was a fact that previously to the Act of 1844 the Bank of 
 England had kept an account in the same form as that 
 which has since been given to the public? Yes; these two 
 questions refer to some supposed course on the part of the 
 Bank of England of endeavouring to make out, for their 
 own information and guidance, an account of the transac-
 
 231 
 
 tions of the Bank before 1814, upon the principles subse- 
 quently laid down by that Act. I stated that it was very 
 possible and very natural that, as a tentative thing, the 
 Bank Directors might have made out such an account for 
 their own assistance and guidance; but any memoranda of 
 that sort which the Bank Directors, or anybody else, may 
 make out for their own guidance, have nothing whatever to 
 do with the discussion of a public question of this sort, and 
 of the practical results to flow from the principles. The 
 only account of importance is that account which is put 
 forth under authority, for the information and for the guid- 
 ance of the public. It is quite possible, perhaps not impro- 
 bable, that the Bank at this moment may be keeping, for 
 their own amusement and instruction, an account, in the 
 old blended form, to see how that account would contrast 
 with the accounts as now published ; that this perfectly pos- 
 sible, and I must say that I cannot come to any other con- 
 clusion than that some persons do, for their own guidance, 
 keep an account in that blended form now, for it is upon that 
 supposition only that I can possibly understand the extreme 
 confusion and obscurity which prevails in the minds of 
 some persons upon a subject perfectly simple and clear, if 
 they will look at the separate accounts. 
 
 4171. Would it not be perfectly possible for any one of 
 us, from the papers before us, to make out an account of the 
 Bank affairs for former periods, in the form which is now 
 given to the public? There is no doubt that a great deal 
 of instruction may be derived from making out accounts in 
 a form different from the published accounts, and seeing 
 the effect. As we go on with this discussion, I shall 
 make use of that process myself, and 1 think that I shall 
 be able to show that a great deal of instruction is to be
 
 232 
 
 derived from it. I shall apply the accounts published under 
 the Act of 1844 to the periods of monetary pressure and 
 embarrassment before 1844, and I think the Committee 
 will then very clearly see what would have been the benefits 
 which would have arisen to the country if the accounts, as 
 they are now made out, had then been made by authority, 
 and published to the country for their instruction. 
 
 4172. Would not, in point of fact, the addition of 
 14,000,000/. to the amount of bullion which at any time 
 appeared in the Bank accounts, give a correct account of 
 the amount of notes which could at that time have been out 
 of the Issue Department, upon the principle now enforced 
 by law, and shown in the account as now made out? 
 There is no doubt that that is the case ; and when we come 
 to discuss former periods, I shall be prepared to show the 
 practical application of it, and the advantage to be derived 
 from looking at the subject in that point of view. 
 
 4173. You stated in the evidence which you gave both 
 on the last occasion and on the preceding day, that in your 
 opinion the issue of the paper money of this country had 
 on many occasions been in a most unsatisfactory and dan- 
 gerous state previously to 1844? I did. 
 
 4174. You stated, I think, that you were prepared at 
 that time to go into the various instances, but your attention 
 was then directed to what took place in the year 1847 and 
 subsequently. Are you now prepared to state at what 
 times previously to 1844 you consider that the issue of paper 
 was in a very unsatisfactory state? I certainly stated to 
 the Committee that if the periods of monetary pressure 
 which this country has undergone on various occasions were 
 carefully examined, it would be found that those periods 
 present to the community very instructive lessons and
 
 233 
 
 very serious warnings; that the evils which then arose 
 would be found to be intimately connected with the absence 
 of the provisions of the Act of 1844; that it would be 
 clear that had the provisions of the Act of 1844 been then 
 in operation, the evils which occurred at tbose periods 
 could not have occurred ; and in the course of the same 
 investigation they would find abundant continuous instances 
 of excessive issues by banks, made at their own discretion 
 and will, in obedience to the supposed wants of customers, 
 over-issues in both senses of the word, namely, an abso- 
 lute increase in the amount of paper issues when the 
 bullion was undergoing a heavy diminution, and a main- 
 tenance of the paper issues at an undiminished amount, 
 whilst the rapid diminution of the bullion required a con- 
 traction of the paper issues. Those two are, both of them, 
 instances of over-issue, different in form, but substantially 
 the same in principle. In going into such an inquiry, I must 
 ask a little of the patience of the Committee, because it 
 necessarily runs over a lengthened period. I will make it 
 as brief as it can possibly be made, and I am quite certain 
 of this, that if it is not both interesting and instructive, the 
 fault rests entirely with me, and not with the matter. 
 
 4175. What are the periods to which you allude? The 
 periods to which I allude are 1783, 1793, 1797, 1800, 
 1808-9, 1825, and 1833 to 1837, contrasted with the state 
 of things subsequent to 1844. 
 
 4176. Will you state how the issues of paper money in 
 your opinion operated in the year 1783? In 1783 and 
 1795, a severe exhaustion of the bullion was surmounted, 
 and the exchanges were effectually stopped by a resolute 
 and extraordinary degree of contraction of the circulation. 
 My authority upon that point is Mr. Tooke, in the third
 
 234 
 
 volume of his " History of Prices," p. 71. These are his 
 words : " The large and long-continued balances against 
 us of foreign payments, which, on two memorable occasions, 
 previous to the Bank Restriction Act, nearly exhausted the 
 stock of bullion before the exchanges had turned, were plain 
 and palpable causes, and so obviously violent in their 
 operation, that it is matter of wonder they could be coun- 
 teracted and surmounted, for surmounted they were, and 
 the exchanges were effectually turned by a resolute and 
 extraordinary degree of contraction of the circulation. I 
 allude to the instances in 1782-3 and 1795-6." Now the 
 Committee will observe, that here is an emphatic declara- 
 tion of the contraction of issues effected by the will of the 
 issuer; here is clearly the principle of the Act of 1844 
 applied by anticipation ; namely, the contraction of issues 
 as a means of counteracting, and effectually counteracting, 
 a very severe drain of bullion ; and you find that by carry- 
 ing out those principles, which are the principles of the 
 Act of 1844, the drain was ultimately stopped. But these 
 principles in that case were carried out late and tardily, and 
 not in the early stage which the provisions of the Act of 
 1844 would enforce, and therefore, you had, previously to 
 the effectual stoppage of the drain, a severe exhaustion of 
 the bullion. That seems to me to be as regards those two 
 periods, a clear, distinct, practical proof of the power of a 
 bank to contract its issues ; of the exercise of that power, 
 and the stoppage of a drain by the exercise of that power, 
 perfectly coincident with the principles of the Act of 1844, 
 and at the same time a severe exhaustion of the bullion 
 l>efore you stop it, solely because the principles of the Act 
 of 184 1 were not in that case applied as early as they ought 
 to have been.
 
 235 
 
 4177. What is the next period to which you refer? 
 The next period to which I refer is 1793, in which a great 
 destruction of bank paper, occasioned by contraction of the 
 currency, consequent to its previous over-issue, took place. 
 Upon that point my authority is Mr. M'Culloch. In his 
 well-known article " Money/' appended to his edition of 
 Adam Smith, there is this passage. It is not quite so short 
 as I could wish it to be, but I really think it is very 
 instructive. " The first great reduction of country bank 
 paper, arising from a contraction of the currency consequent 
 upon its previous over issue, took place in 1793 ; and the 
 circumstances attending this crisis are so remarkable, and 
 afford so striking an illustration of what has now been 
 stated, that they deserve to be carefully investigated. Pre- 
 viously to 1759 the Bank of England had not issued any 
 notes for less than 20/. : but having then commenced the 
 issue of 10/. notes, its paper Avas gradually introduced into 
 a wider circle, and the public became more habituated to its 
 employment as money, in their ordinary transactions. The 
 commercial distress and embarrassment that grew out of 
 the American War, proved exceedingly unfavourable to 
 the formation of country banks, or of any establishments 
 requiring an unusual portion of credit and confidence. No 
 sooner, however, had peace been concluded, than every- 
 thing assumed a new face. The agriculture and commerce, 
 and still more the manufactures of the country, into which 
 Sir Richard Arkwright's inventions had been lately intro- 
 duced, immediately began to advance, with a rapidity 
 unknown at any other former period. In consequence, that 
 confidence -which had either been entirely destroyed, or, at 
 all events, very much weakened by the disastrous events of 
 the war, was fully re-established. The extended transactions
 
 236 
 
 of the country required fresh facilities for carrying them on ; 
 and, in consequence, a bank was erected in every market 
 town, and almost in every village. The prudence, capital, 
 and connexions of the individual who set up these establish- 
 ments, were but little attended to. The great object of a 
 large class of traders was to obtain discounts." Now mark 
 how far the regulation, by wants of customers, is a safe 
 principle. " And the bankers of an inferior description 
 were equally anxious to accommodate them. All sorts of 
 paper were thus forced into circulation, and enjoyed nearly 
 the same degree of esteem. The bankers, and those with 
 whom they dealt, had the fullest reliance on each other. 
 No one seemed to suspect that there was anything hollow 
 or unsound in the system. Credit of every kind was 
 strained to the utmost; and the available funds at the 
 disposal of the bankers were reduced far below the level 
 which the magnitude of their transactions required to 
 render them secure. The catastrophe which followed was 
 such as might easily have been foreseen. The currency 
 having become redundant, the exchanges took an unfavour- 
 able turn in the early part of 1792; and the Bank of 
 England having been, in consequence, obliged to narrow 
 her issues, a most violent revulsion took place in the latter 
 part of 1792, and the beginning of 1793. The failure of 
 one or two great houses excited a panic, which proved fatal 
 to myriads more. When this revulsion began, there were 
 it is supposed, about 350 country banks in England and 
 Wales, of which about 100 were compelled to stop pay- 
 ments, and upwards of 50 were totally destroyed, producing 
 by their fall an extent of misery and bankruptcy that had, 
 until then, been unknown in England. ' In the general 
 distress and dismay/ says Mr. Macpherson, ' every one
 
 237 
 
 looked upon his neighbour with caution, if not with sus- 
 picion. It was impossible to raise money upon the security 
 of machinery, or shares of canals ; for the value of such 
 property seemed to be annihilated in the gloomy appre- 
 hension of the sinking state of the country ; its commerce 
 and manufactures, and those who had any money, not 
 knowing where they could place it for safety, kept it 
 unemployed and locked up in their coffers. Amidst the 
 general calamity the country banks, which had multiplied 
 greatly beyond the demand of the country, for circulating 
 paper currency, and whose eagerness to push their notes 
 into circulation had laid the foundation of their own mis- 
 fortunes ' " (where was the regulating influence of the wants 
 of customers ?) " ' were amongst the greatest sufferers, and 
 consequently, among the greatest spreaders of distress and 
 ruin among those connected with them ; and they were also 
 the chief cause of the drain of cash from the Bank of 
 England, exceeding any demand of the kind for about 10 
 years back. Of these banks above 100 failed ; whereof 
 there were twelve in Yorkshire, seven in Northumberland, 
 seven in Lincolnshire, six in Sussex, five in Lancashire, four 
 in Northamptonshire, four in Somersetshire/ &c. Attempts 
 have sometimes been made to show that this crisis was not 
 really occasioned by an excessive quantity of unsubstantial 
 paper currency having been forced into circulation, but by 
 the agitation caused by the war which then broke out. 
 But there do not appear to be any good grounds for this 
 opinion. The natural and unavoidable consequences of a 
 previous overflow of paper, a fall in the exchanges, and an 
 exportation of bullion, took place early in 1792, or about 
 12 months before the breaking out of hostilities. And it is 
 distinctly stated by Mr. Chalmers, that none of the great
 
 238 
 
 houses that failed during this crisis had sustained any 
 damage from the war." " The efforts of the country 
 bankers" (this is Mr. Chalmers) " to force their paper into 
 circulation had principally occasioned the redundancy of the 
 currency ." I apprehend that that is quite sufficient upon 
 the subject of the state of the currency at that period. It 
 clearly shows the tendency of banks to over-issue in a 
 period of excitement, and the inevitable results which follow 
 from such over issues, if they are not subjected to such a 
 restraining principle as the Act of 1844 applies to them. 
 
 4178. What is the next period to which you refer? 
 The next period to -which I refer is 1797. Mr. Tooke dis- 
 tinctly states, referring to this period, that had the Bank 
 continued to suppress notes as the gold went out, the crisis 
 would have been got over. There, I apprehend, is a dis- 
 tinct statement of the principle of the power of a bank to 
 contract its notes, or, in other words, to cancel them as 
 they are paid in for gold ; and a distinct statement of the 
 principle that, had they been cancelled, which is the appli- 
 cation of the Act of 1844 to that period, the crisis would 
 have been got over. It seems to me to be a distinct state- 
 ment, that had the Act of 1844 been applied to the great 
 crisis of 1797, the crisis would have been got over. In 
 other words, we should have escaped the suspension of 
 specie payments. 
 
 4179. During all these periods the Bank note was by 
 law convertible into bullion ? During the whole of this 
 period the Bank notes were convertible at the will of the 
 holder; but I am bound to say that, with regard to that 
 period of 1797, there are circumstances which may make 
 it doubtful whether the Suspension Act was not a justifiable 
 measure. The pressure in 1797 was undoubtedly, to a
 
 239 
 
 considerable extent, connected with political alarm, with 
 the fear of foreign invasion, causing an internal demand for 
 the exchange of notes into coin ; under such circumstances 
 there is no measure founded upon principle which can pre- 
 tend to afford a sure protection. If, for instance, at 
 this moment this country were suddenly exposed to the 
 calamity of a very large foreign force occupying its soil, or 
 if it were exposed to the calamity of a very formidable and 
 serious civil insurrection, no doubt a state of panic alarm, 
 with regard to the paper money might arise, against which 
 no provisions of the Act of 1844, nor any provisions 
 founded upon principle, could possibly afford an adequate 
 protection. But from that view of the subject, again, 
 there is an inference to be drawn of a very instructive and 
 warning character, namely, to make this Committee very 
 cautious how they extend the issues upon securities. The 
 only protection against such contingencies is the existence 
 of a large amount of coin, or of bullion, in the country ; 
 and, therefore, when we are looking to contingencies of 
 that nature, we may very properly pause at the question- 
 able recommendation of increasing our issues upon securi- 
 ties, which is, in other words, diminishing our issues upon 
 bullion. [It was the opinion of Mr. Ricardo, that the 
 crisis of 1797 was the result of internal panic, against 
 which no measures for the regulation of the currency, 
 founded upon general principles, can afford any certain 
 protection. In all such cases, the only source of security 
 must be the retention of such an amount of bullion in the 
 country as shall be sufficient, not only to meet the demand 
 through the foreign exchanges, which is susceptible of 
 effectual regulation and restraint, but also the internal 
 demand which may arise from political alarm and domestic
 
 240 
 
 panic, and which can only be overcome by continuing to 
 pay out gold until the panic may subside. The only means 
 of preparation for such emergencies is a large metallic 
 reserve, which cannot be maintained unless the amount of 
 paper money issued upon securities be confined within 
 moderate and safe limits. u Are you of opinion that the 
 Bank could have permanently continued their payments in 
 specie from the year 1797, when they discontinued to do 
 so? It appears to me that all banks are subject to be 
 affected by panics, against which no prudence can guard, 
 and that in 1797 such a panic had taken place ; but I have 
 some doubts whether, if the Bank had resolved to pay to 
 their last guinea, that panic would not have subsided, and 
 the Bank have been able to carry on its transactions in the 
 way that it had done up to that period/' Ricardo's Evi- 
 dence, March 4, 1819, p. 140. 
 
 " On extraordinary occasions a general panic may seize 
 the country, when every one becomes desirous of possessing 
 the precious metals as the most convenient mode of realis- 
 ing or concealing his property. Against such panics banks 
 have no security, on any system. From their very nature 
 they are subject to them, as at no time can there be 
 in a bank, or in a country, so much specie or bullion as the 
 monied individuals of such country have a right to demand. 
 Should every man withdraw his balance from his banker 
 on the same day, many times the quantity of bank notes 
 now in circulation would be insufficient to answer such a 
 demand. A panic of this kind was the cause of the crisis 
 of 1797 ; and not, as has been supposed, the large advances 
 which the Bank had then made to Government. Neither 
 the Bank nor Government were at that time to blame; it 
 was the contagion of the unfounded fears of the timid part
 
 241 
 
 of the community which occasioned the run on the Bank, 
 and it would equally have taken place if they had not made 
 any advances to Government, and had possessed twice 
 their present capital. If the Bank had continued paying 
 in cash, probably the panic would have subsided before 
 their coin had been exhausted. Ricardo's Proposal for an 
 Economic and Secure Currency, p. 29.] 
 
 4180. What is the next period to which you refer in 
 illustration of the position which you laid down in your 
 early answer ? The next period to which I draw the atten- 
 tion of the Committee is 1800. It was at this period that 
 the first real fall in the value of Bank paper compared with 
 gold, arose ; and it was at this period that that experiment 
 was tried, which some persons have recommended to this 
 Committee, of meeting the drain arising from the payment 
 for imported provisions solely by paying out gold against it. 
 The authority to which I refer upon this subject is again 
 Mr. M'Culloch, in his article " Money," page 65. "The 
 first fall in the value of Bank paper, as compared with gold, 
 began in the latter part of 1800. The deficient harvest of 
 that year caused a considerable exportation of the precious 
 metals; but instead of contracting their issues, as they 
 ought to have done had they acted on sound principles," 
 (that is, on the principles of the Act of 1844 observe), 
 " and as they would have been obliged to do, had they 
 been paying in coin, the Directors added to the quantity of 
 their notes afloat, and the consequence was that they fell to 
 a discount of about 8 per cent, as compared with gold 
 bullion. But they soon after recovered their value; and 
 from 1803 to 1808, both inclusive, they were only at a 
 discount of 2/. 13s. 2d. per cent. In 1809 and 1810, how- 
 ever, the Directors seem to have lost sight of every prin- 
 
 R
 
 242 
 
 ciple by which their issues had previously been governed. 
 The average quantity of Bank notes in circulation, which 
 had never exceeded 17 millions, nor fallen short of 16 
 millions in any one year, from 1802 to 1808, both inclusive, 
 was in 1809 raised to 18,927,833*. and in 1810 to 
 22,541,523/. The issues of country bank paper were in- 
 creased in a still greater proportion." Now the Committee 
 will observe that this enormous extent of increase from \7\ 
 millions to 22^ millions, independently of the still greater 
 proportion in which the country issues are stated to have 
 been increased, applied entirely to issues put forth by the 
 will of the issuer in obedience to the supposed wants of 
 customers ; and that these issues were, notwithstanding 
 those supposed checks upon them, issues in excess, is clearly 
 proved by the depreciation of the Bank note which ensued. 
 Now it is perfectly true that during this period the Bank 
 note was not convertible, and no doubt upon a superficial 
 view of the question, you may think that it is an answer 
 to say that it is not a case in point ; because during this 
 period the note was not convertible upon demand. But so 
 far as regards the question of the demands or wants of 
 customers being a safe principle for regulating and limiting 
 the amount of issues, the convertibility of the note has 
 nothing whatever to do with the question. The demands 
 of customers are for that which will with them perform 
 the functions of money. The convertibility of the note 
 may be a restraint upon the issuer, because it leaves him 
 subject to a serious obligation, and may therefore make him 
 cautious as to the extent to which he puts out his issues. 
 But when we are speaking of the wants of customers, or 
 the demand of trade, as a safe regulator of issues, the con- 
 vertibility of the note has nothing whatever to do with the
 
 243 
 
 question. What they demand and want is, that which 
 will perform for them the functions of money ; they want 
 that which will be to them a universal equivalent; a 
 universal power of purchasing other things, and the con- 
 vertibility of the note does not, as regards that part of the 
 question, at all enter into it. 
 
 4181. To what period would you next refer? The 
 next period to which I should refer is one which I cannot 
 pass over, namely, the great period of 1819. At that time, 
 as everybody knows, the resumption of cash payments was 
 ordained ; it was then that Sir Robert Peel introduced 
 that Act by w T hich he restored the money of this country to 
 its honest value. Now, a large body of persons, who are 
 opponents of the Act of 1844, boast loudly of their un- 
 compromising approval and support of the Act of 1819. I 
 should be glad to have some of those persons as witnesses 
 in my situation, and to be allowed to put a few questions 
 to them. Upon what principle do they support the Act of 
 1819, and repudiate the Act of 1844? Upon what prin- 
 ciple does Mr. Tooke approve of the Act of 1819 ? That I 
 will give you in his own words : " The merit of this measure 
 consisted in the sanction which it afforded to the principle, 
 that the Bank has the power, by the regulation of its 
 issues, to preserve the value of its paper on a level with 
 that of gold." I submit to the Committee that that is as 
 plain and as emphatic a declaration of the power of a 
 bank, and especially of the Bank of England, to regulate 
 its issues by its own will, as can possibly fall from the lips 
 of man ; and I would ask those persons who are now main- 
 taining that the Bank has no power by its mere will to 
 regulate its issues, upon what ground they support the Act 
 of 1819 ? Do they support it upon the ground of the prin- 
 
 r 2
 
 244 
 
 ciple here laid down by Mr. Tooke ? If they do, how do 
 they reconcile that principle with the doctrines which they 
 are now endeavouring to enforce upon this Committee ? If 
 they do not support it upon the ground on which Mr. 
 Tooke has placed it, I should be then very glad to know 
 upon what intelligible ground they do rest their justifica- 
 tion of the Act of 1819, and their repudiation of the pro- 
 visions of the Act of 1844. It was with a view to making 
 that remark, and bringing that very rational and sound 
 passage of Mr. Tooke under the notice of the Committee, 
 that I referred to the period of 1819. [In all the discus- 
 sions and in all the evidence before the Parliamentary Com- 
 mittees which preceded the Bill of 1819, the power of the 
 Bank of England to regulate its issues, increasing or de- 
 creasing them at its own will, was assumed throughout, 
 and the great measure of that year for the resumption of 
 cash payments was founded on this principle.] 
 
 4182. What is the next period subsequent to 1819, to 
 which you would refer as an instance of mismanagement in 
 the issues of paper money in this country ? We now arrive 
 at the great crisis of 1825, and here we must come to close 
 quarters with our opponents. The amount of notes out of 
 the Bank in August 1823, has been compared with the 
 amount out in August 1825, for the purpose of showing 
 that between the time of depression and excitement there 
 was no increase whatever in the amount of Bank of England 
 notes out; the figures given are as follows : 1823, August, 
 Bank notes out, 19,231,0007., bullion 12,658,000/.; 1825, 
 August, Bank notes out, 19,398,000/., bullion 3,634,000/.; 
 and it is further added that there is no positive evidence of 
 the amount of country issues, but that there is presumptive 
 evidence that it must rather have diminished. I cannot
 
 245 
 
 refrain from expressing my utter amazement at this state- 
 ment ; it is erroneous, and calculated to lead to erroneous 
 conclusions in the fullest sense of the word. First, as re- 
 gards the issues of the Bank of England ; no reference in 
 this statement is made to the suppression of 1/. notes, and 
 the substitution of coin for the 1/. notes, which was then in 
 progress ; or rather this consideration is slurred over by the 
 astounding statement, that whether they are 5/. notes or 1/. 
 notes makes little or no difference as to the argument. The 
 Committee will not fail to observe, that it was not the sub- 
 stitution of 5/. notes for 11. notes, which was then going 
 on ; that was a process mechanically impossible, it was the 
 substitution of sovereigns in the place of 1/. notes ; the 
 substitution of metallic money in the place of paper money. 
 Upon this point Mr. Tooke has much clearer views than 
 those who boast of being his followers appear to entertain. 
 He could perceive a great difference in the argument, 
 whether they were 1/. notes or 51. notes. Speaking of 
 another period, but with reference to precisely the same 
 argument and the same kind of facts, he makes this 
 remark : " The amount of such issues, including the notes 
 under 51., as it stood prior to 1820, has been adduced in 
 comparison with the amount of the circulation at subse- 
 quent periods, minus the small notes, and without allowing 
 for the substitution." Does he say of 51. notes ? No ; 
 " and without allowing for the substitution of sovereigns, in 
 proof of the alleged great contraction of the currency and 
 its necessary consequence, the great fall of prices." There 
 is a clear and a perfectly rational distinction, that where 1/. 
 notes are under the process of suppression, their place is 
 taken by an increase of the metallic money of the country ; 
 and that, therefore, in taking any comparative view of the
 
 246 
 
 amount of paper money at two different periods, the amount 
 of 1/. notes at those two periods must be struck out, if those 
 1/. notes are under the process of suppression. Now, let us 
 look at this question fairly stated : 1821, August, Bank 
 notes out, 20,295,000/; 1825, August, Bank notes out, 
 19,398,000/. Here we have an apparent decrease of bank 
 notes between 1821 and 1825, of about 1,000,000/. But 
 Bank note 3 of 5/. and upwards, out in August 1821, were 
 17,747,000/. ; bank notes, under 5/. at that period, 
 2,548,000/. Bank notes of 5/. and upwards out in August 
 1825 were 19,000,000/. ; bank notes under 5/. were reduced 
 to 396,000/. The account, then, when fairly and candidly 
 analysed, shows an actual increase of Bank of England 
 notes of about 1,250,000/. This course of tilings, it is well 
 known, ended in the entire exhaustion of the bullion in the 
 Bank of England. How would matters have stood (and 
 to this I beg to draw the pointed attention of the Com- 
 mittee) if the provisions of 1844 had then been in force. 
 In August 1825 the bullion was 3,634,000/. ; the notes, had 
 the provisions of the Act of 1844 been then in force, which 
 would have been issued upon securities, would have been 
 14,000,000/., making the total issue of notes 17,634,000/. 
 But at that time the actual amount of notes out of the 
 hands of the Bank of England was 19,398,000/. Here 
 then we have nearly 2,000,000/. of notes actually out of the 
 Bank of England, beyond the amount which could have 
 been issued had the Act of 1844 been then in force ; and 
 this without making a reserve of a single bank note in the 
 till of the Bank for the conduct of its business. In this 
 stage of the discussion I must ask the permission of the 
 Committee to read to them a paragraph from the pamphlet 
 of Mr. Arbuthuot, a pamphlet which I cannot allude to
 
 247 
 
 without strongly recommending every member of the 
 Committee to give to it a careful perusal. I am sure 
 it will enable them to see through many of the fallacies, 
 and to estimate, with much greater correctness, the weight 
 which is due to many of the considerations which have 
 been urged upon their attention. "With these figures 
 before the writer, he has failed to observe the important 
 fact that the apparent diminution of tha circulation of the 
 Bank of England was owing to the withdrawal of 1/. notes," 
 (the statement " before the writer " is the statement which 
 I have recently made to the Committee) "and the substi- 
 tution for them of gold coin within the district of its 
 exclusive privileges, and that the circulation of Bank notes 
 and bills of 5/. andupwarJs, in 1825, the only point of just 
 comparison, shows an increase of 1,255,430/. over that in 
 the corresponding period of 1821. But this is not all; the 
 writer refers to a period of the year 1825, when a consi- 
 derable contraction of the circulation, the forerunner of 
 the impending crisis, had already taken place. The 
 returns of an earlier month, previously quoted, would have 
 afforded a more conclusive comparison," (I am obliged to 
 alter one or two words, because I am not allowed to refer 
 to the individual), " and he had before him a statement, 
 from which it appears, that on the 28th of February, 
 1825, the amount of notes of 5/. and upwards and post bills 
 issued by the Bank of England was 20,337,030/., being an 
 increase of no less than 2,889,670/. over the amount of 
 these instruments in the corresponding month of 1821." 
 Again, " an omission has been made, to bear in mind the 
 excessive issues by country banks in 1825, increasing 
 simultaneously with those of the Bank of England, to the 
 extent of about 33 per cent." Is it not clear, I would
 
 248 
 
 put it strongly to the Committee, clear to demonstration, 
 that had the provisions of the Act of 1844 been in force 
 during the period of 1824 and 1825, the correctives would 
 have been applied at a much earlier period, the drain 
 would have been checked long before the bullion had been 
 reduced even to 3,600,000Z., and monetary alarm and 
 difficulty would not have been superadded to mercantile 
 and trading embarrassment at that period. In the spring 
 of 1825, let me remind the Committee, Mr. Huskisson 
 emphatically warned the public that the exchanges were 
 then in an unsatisfactory and unsafe state ; but this warn- 
 ing from him passed unheeded as the sound of the wind. 
 Now this would have been impossible if the Act of 1844 
 had been then in force. A large share of the disasters of 
 1825 may thus be distinctly traced to the absence of the 
 early ana firm restriction which the Act of 1844 would 
 have imposed on the excessive issues of paper money at that 
 period as, on the other hand, the efficient operation of that 
 Act during recent pressure has preserved the bullion from 
 the exhaustion of 1825, and has saved the trading com- 
 munity from a large portion of the disasters which charac- 
 terised that period. But the case does not terminate here ; 
 far from it. We have yet the question of the country 
 issues to deal with. They, forsooth, were not increased, 
 but rather there is presumptive evidence that they were 
 diminished at that period ; such is the proposition inti- 
 mated by the course of examination which has been pur- 
 sued before this Committee; he must be a reckless man 
 who makes that assertion. Will any one, who had personal 
 knowledge of the state of monetary affairs at that period, 
 venture to say that there can be the slightest doubt as to the 
 immense increase of the country issues previously to 1825.
 
 249 
 
 4183. What account have you of the increase of coun- 
 try notes during that period ? It is well known that 
 Mr. Tooke estimated the increase of the country issues 
 at that period at 7,000,000/. Lord Liverpool formed the 
 more sober estimate of 4,000,000/. I will, however, in 
 answer to the question which has just been put to me, 
 read to the Committee the authorities upon that subject. 
 Mr. Tooke published an elaborate and well-known pam- 
 phlet for the purpose of proving, as I have stated, that the 
 issues at that time underwent an increase of 7,000,000/. ; 
 that probably was an over-estimate, though upon that 
 point there may be doubt. But the first person whom I 
 call as a testimony on that subject is the Prime Minister, 
 at that time, the late Lord Liverpool, a man well known 
 to have been peculiarly conversant with those subjects, 
 and of course, from the extraordinary events of that 
 period, he was called upon to apply to them the most care- 
 ful investigation. These are his words : " Speculations in 
 trade had been the origin of the evil, but it would not have 
 been so extensive if it had not been aided by the state of 
 the currency. Between 1824 and 1826 this species of cir- 
 culation (country issues) had been actually doubled ; this 
 was a most material fact, and proved the continuance of 
 the increased issues of the country banks alter the Bank 
 of England had contracted its issues to a very considerable 
 amount. Whatever reduction of the paper circulation 
 was effected by the Bank of England (in 1825) was more 
 than made up by the issues of the country banks." That 
 is the statement of Lord Liverpool, publicly, in the House 
 of Lords, in a debate upon the crisis of 1825, which oc- 
 curred on the 17th of February, 1826. The next autho- 
 rity to -which I appeal, is that of Lord Lansdowne ; Lord
 
 250 
 
 Lansdowne brought to the subject all the experience to be 
 derived from his having been Chancellor of the Exchequer. 
 He was placed at that time in a position of political oppo- 
 sition to Lord Liverpool, when his peculiar duty was to 
 watch every statement of the Minister with the most 
 suspicious vigilance, and to take care that no statement 
 open to question was allowed to pass unquestioned. Did 
 Lord Lansdowne dissent from this statement of his oppo- 
 nent ? On the contrary, he entirely confirmed it. These 
 are his words : " It was manifest that between the 
 currency and speculation there was a mutual action and 
 reaction. He found an issue from the Bank increasing in 
 the ratio of 8 per cent, from 1824 ; he afso found in 1825, 
 after the Bank issues had increased, that the issue of 
 country bank notes had been increased about 33 per cent.; 
 gold, in consequence rapidly left the country." The next 
 authority which I quote is the very highest mercantile 
 authority at that time, the late Lord Ashburton, then 
 Mr. Alexander Baring, at the head of the largest mercan- 
 tile concern in England. He declares that at this time 
 the country was saturated with paper money, for pushing 
 out which the country banks and the Bank of England 
 were answerable. The next authority which I appeal to 
 is the authority of history. I appeal to the " Pictorial 
 History of England " a work of considerable repute and 
 authority. What do they say, having investigated all the 
 evidence of that period, and formed a conclusion which 
 they can state as a matter of history ? " The Bank of 
 England went on increasing its issues through the whole 
 of 1824, and for three months of the next year. Between 
 June 1824 and October 1825, from ten to twelve millions 
 of coin and bullion were exported, and during the greater
 
 251 
 
 part of that time the Bank was still putting out its notes ; 
 and the provincial banks issued as many as they could, 
 till the country was deluged with paper money. In 1825 
 there was from 30 to 40 per cent, more paper money out 
 than in 1822/' I would only refer to one further au- 
 thority, and I refer to it because it may be thought a more 
 impartial authority, being that of a foreigner. I appeal to 
 the authority of Monsieur Gautier, who at that time was a 
 peer of France, also Deputy-Governor of the Bank of 
 France, and was a writer of considerable eminence on these 
 subjects. Of course, such a crisis as that of 1825 to a 
 person in that situation must have been the subject of 
 vigilant observation : and here is the result of his investi- 
 gation : " Une autre crise plus violente encore commenca 
 en 1824. I/annee precedente la speculation avait pris un 
 essor exagere et imprudent. Les banques particulieres, 
 toujours avides de s'arracher les unes aux autres les bene- 
 fices que des circonstances semblables font naitre pour elles, 
 s'etaient livrees a des emissions excessives. II en resulta un 
 trop plein dans la circulation, et le cours des changes 
 s'etant fort degrade, une tendance h epuiser la reserve en 
 or de la banque commenca a se manifester." Now, in the 
 face of the universally acknowledged notoriety of the fact 
 of the excessive state of the country issues at that time, and 
 in the face of all the authorities which I have now quoted, 
 publicly made in every possible way, and never disputed 
 by any one single person whatever at that period, we are 
 gravely told that we have no official return at this moment, 
 of the country issues in 1825 ; and, therefore, the Com- 
 mittee is advised by high financial authority, that it is 
 bound to come to the conclusion that upon the whole 
 there is presumptive evidence that they were even some-
 
 252 
 
 what diminished. This seems to me to he about as un- 
 reasonable as it would be were I now to tell you that we 
 are not sitting in the full light of day, but that there k 
 presumptive evidence that we are at this moment, not- 
 withstanding the notoriety of our position, really sitting 
 in the dark, because no one can produce before you the 
 official certificate of the Astronomer Royal that the sun 
 rose this morning at its proper hour. 
 
 [To these authorities I am glad to be able to add that 
 of Mr. G. TV. Norman, of no little weight, both on account 
 of his great intelligence and his extensive experience, at 
 that time, as an active Director of the Bank of England. 
 
 Do you apprehend that there was a great increase of 
 the notes of country bankers between 1822 and 1825? I 
 should think an immense increase. I have heard it com- 
 puted at about six millions or eight millions. 
 
 Would you ascribe to that a great part of the specu- 
 lation which accompanied that period ? Yes, so far as the 
 excitement may have depended on an increase of currency. 
 G. W. Norman's Evidence, 1832, Questions 2666-7.] 
 
 4184. Will you now be good enough to refer to the 
 period from 1833 to 1837, which I think was the next 
 monetary crisis which took place in this country? The next 
 period of great monetary importance is no doubt the period 
 from 1833 to 1839. The same argument has been pressed 
 upon the Committee with respect to this period as that 
 which we have been discussing with respect to the period 
 of 1825, and it has been accompanied with the same remark- 
 able omission of a most important fact. The case laid before 
 the Committee I believe is this : In January 1834, the 
 aggregate circulation of the country was 37,855,000/., the 
 bullion 9,952,000/. In January 1836, the aggregate cir-
 
 253 
 
 culation was 37,779,0007., and in January 1837 the aggre- 
 gate circulation was 38,549,000/., the bullion having been 
 reduced to 3,990,000/. The inference which it is proposed 
 that we should draw is this, that therefore an increase of 
 trade or an increase of speculation does not necessarily lead 
 to an increase of notes in the hands of the public. Such is 
 the reasoning which T have been given to understand has 
 been gravely presented to this Committee ; but what is 
 the suppressed fact ? In September 1833 the aggregate 
 circulation was 36,035,000/. ; in December 1837 it was 
 36,163,000/., therefore there was no material increase in 
 the aggregate circulation of the country during this period. 
 But what is the reply to this ? I will not give it to you in 
 my own words ; I will only repeat words which the Com- 
 mittee have already heard. "In April 1836 the aggregate 
 circulation went up to 39,500,000/., and in the interval 
 there had been failures and great discredit of those banks." 
 To this rather inconvenient fact a reply is set up that it is 
 attributable to the payment of the dividends in the month 
 of April : but Ithuriel's spear is again at work. " I see 
 that only 600,000/. of that increase is due to Bank of 
 England circulation." Now here I submit to the Com- 
 mittee that two extreme points are taken, at which the 
 aggregate circulation appears to have been pretty much 
 the same ; and the conclusion (wholly unfounded and 
 fallacious) is drawn, that there has been no variation in the 
 intervening time. If there has been excitement in that 
 intervening time, it is attributed to the date which gives 
 the figures that suit the arguments. Enough, I think, has 
 been said to enable the Committee to form a just estimate 
 of this mode of reasoning. But it remains for us now to 
 consider the events of this period, with reference to what
 
 254 
 
 would have been the effect of the Act of 1844 had it then 
 been in force. The periods of crisis were 1837 and 1839. 
 How would the Act of 1814, if then in force, have worked ? 
 And to this I draw the pointed attention of the Committee, 
 because really in it consists the whole question which they 
 have to decide. In February 1837, the bullion was 
 3,938,000/. ; the advance upon securities, had the A.ct of 
 1844 been in force, would have been 14,000,000/., making 
 a total issue, if the provisions of 1844 had been in force, of 
 17,938,000/. But the actual notes out of the Bank of 
 England, and without making any reserve in the till 
 with which the Bank should work its own business, were 
 18,535,000/. Again, in August 1839, the bullion was 
 2,444,000/. ; the amount issued upon securities by the 
 provisions of the Act of 1844, 14,000,000/., would have 
 made a total issue of 16,444,000/. ; but the actual issues 
 again at that time, with no reserve for the banking pur- 
 poses of the Bank of England, were 18,014,000/. From 
 these statements, I submit to the Committee, it is perfectly 
 clear that the Act of 1814 would have imposed an early 
 and most salutary restraint upon improper and mischievous 
 over issues, and would have rendered it impossible that 
 monetary affairs should have reached the disastrous 
 extremity to which, in the absence of the provisions of that 
 Act, the country was reduced. 
 
 [The probable effect of the application of the prin- 
 ciples of the Act of 1844 to the crisis of 1837 and 1839 
 was fully discussed, in my evidence given before the 
 Committee in 1840; and subsequent experience under 
 the operation of the Act fully confirms the anticipations 
 which I have ventured to express.] 
 
 " 272G. How would your rule for the management of
 
 255 
 
 the currency, making it expand and contract with the 
 increase and diminution of the bullion, have operated 
 during the period of the drain from 1833 to 1837, and 
 during the drain from 1838 to 1839? It appears to 
 me that it would have operated in the most eminently- 
 beneficial manner. In the first place, it would have 
 substituted a contraction in the early stage of the drain, in 
 the place of a contraction in a late stage of the drain ; it 
 would have produced a regulation that depended upon 
 principle, instead of a regulation that depended upon panic, 
 and therefore was incapable of being measured or regulated 
 by any fixed rule. The contraction, upon that supposition 
 would have commenced in the early stage of the drain, 
 before speculation and the rise of prices had reached 
 its full height ; and it would also have commenced before 
 the internal drain had sprung up. Now, it is a very remark- 
 able and very important phenomenon attending these 
 drains, that the drain always goes on for some length of 
 time, before prices, and speculation, and over-trading, and 
 over-banking have reached their maximum point ; and that 
 the last stage of the drain is always characterized by the 
 springing up of internal alarm, which gives rise to an 
 internal drain. Now, an internal drain is clearly one that 
 can be met by no principle ; there is no method of meeting 
 it but by paying out gold, till the drain ceases. It appears 
 to me that contraction applied in the early stages would be 
 applied when it could be borne without inconvenience to the 
 community, and that it would necessarily tend to counter- 
 act and check in their early growth those tendencies, viz., 
 to speculation, over-trading, excessive rise of prices, which 
 by their undue expansion under our present system, and 
 the consequent violence of the subsequent collapse, produce
 
 256 
 
 the extreme intensity which characterizes the commercial 
 crises of this country. I think that this view might be 
 confirmed very completely, by following the supposed ap- 
 plication of it through the period from 1834 downwards. 
 For instance, take even the very first year we know that 
 the mischief that subsequently arose in the year 1837 was 
 principally produced by three circumstances, namely, by 
 excessive credits given by this country to the United States, 
 by excessive investments made in foreign securities, and by 
 the very rapid and excessive expansion of the joint stock 
 bank system. Those were the three circumstances that 
 preceded the crisis of 1837, and tended to produce its mis- 
 chief. Now, tho^e three things were growing up during the 
 preceding years, and the question is, if, at the commence- 
 ment of the drain of bullion in the beginning of the year 
 1834, we had then applied contraction of the circulation, to 
 what extent the growth of those three circumstances would 
 have been arrested in their early stage, and the evils 
 which afterwards ensued would have been prevented or 
 mitigated. Ifcw, during the year 1834, the bullion under- 
 went a diminution of 3,200,000/., during the same time 
 the aggregate paper circulation underwent an increase of 
 600,000/. : if, during that year, the paper circulation had 
 been contracted in correspondence with the bullion, it 
 would have stood at about three millions and half lower 
 than it did stand at the end of the year 1834. That, of 
 course, is upon the supposition that the drain during 1834 
 would have gone, in the face of a contracted circulation, 
 to the extent to which it did go, which probably would 
 not have been the case ; but I apprehend that no person 
 can doubt that if that contraction, or any thing at all ap- 
 proaching to that contraction, had been resorted to in 1834,
 
 257 
 
 the great mischief that burst out in the year 1837 would 
 have been obviated. The drain would not have gone to 
 the same extent ; undue credits to America, undue invest- 
 ments in foreign securities, and the undue expansion of the 
 joint stock bank system would all have been limited in so 
 great a degree as to have reduced the events of 1837 to that 
 which characterized the events of 1832 : that, in fact, the 
 thing would have passed off in 1837, as it did in 1832, 
 without " discredit or distrust of any kind."} 
 
 4185. I understand you to mean by that answer that a 
 publication of the accounts of the Bank in the present form 
 would have shown at a much earlier period the rapid dimi- 
 nution of the reserve of the Bank of England, and would 
 therefore have called the attention of the public to that 
 fact, as well as have impressed upon the Directors of the 
 Bank the necessity of an earlier contraction of their circu- 
 lation ? Undoubtedly I mean that. In the first place, if 
 the accounts, as now published, had been published at that 
 time, the state of things here set forth could not have been 
 reached, because it would have appeared by the published 
 accounts long before matters reached this point, that the 
 reserve of the Bank of England was absolutely exhausted. 
 In the second place, this amount of notes could not have 
 been put out ; the Issue Department would not have issued 
 such a quantity of notes. In the third place, it is quite 
 clear that had the accounts been then published, as they 
 are now published, the public and the Bank would both 
 have seen the steady, and regular, and irresistible diminu- 
 tion of the banking reserve ; and seeing that, they would 
 have been compelled to resort to protective measures by 
 making their rate of interest correspond to the increasing 
 value of money; and in that way the reduction of bullion
 
 258 
 
 to anything like the amount here stated would have been 
 absolutely impossible ; in other words, we should, at that 
 period, have done what we have done in 1847 and in 1857. 
 We should have preserved the bullion at an amount never 
 below 8,000,000/. ; we should have introduced correctives 
 in an early stage of the business. The value of money 
 would have increased the moment the bullion began to go 
 out of the country, and that gradual increase in the value 
 of money would have produced a gradually increasing 
 pressure accompanied by all those circumstances which 
 are the true correctives of a drain. I do not know how 
 anything can be demonstrated if these facts do not demon- 
 strate, beyond all possibility of controversy, that the Act of 
 1844 would have protected us in every one of those periods. 
 This closes the chapter of monetary history previously to 
 1844. The review of this period has presented to us 
 instances of the absolute increase of the total amount of 
 paper issues during a drain of bullion; and other instances 
 of paper money maintained at its full amount, when the 
 great decrease of bullion clearly showed that a metallic 
 circulation would have been contracted. On this point I 
 beg leave to quote the words of Mr. Huskisson : " If the 
 currency consists partly of coin and partly of paper, the 
 excess of paper above what the currency would be if it 
 were coin must be an excess of currency, and naturally tend 
 to depreciation." That is from Mr. Huskisson's speech on 
 Mr. Horner's celebrated resolutions ; and I would further 
 support that, if it be necessary, by the authority of Mr. 
 M'Culloch, who says, " When a currency consists partly 
 of the precious metals and partly of paper immediately 
 convertible into them, any over issue of the latter depresses 
 not merely the value of the paper money, but of the coins
 
 259 
 
 which circulate along with it. Those coins, therefore, are 
 immediately converted into bullion or exported. The 
 ultimate effect of an over issue of paper in a country whose 
 currency consists partly of coin, is an exportation of coin, 
 or of bullion formed out of the coin." These principles are 
 perfectly obvious. They are the very elements of science 
 on this subject, and I confess I was very much surprised to 
 hear a statement from my excellent and highly intelligent 
 friend, Mr. Norman, who told me that in giving his 
 evidence here, when he first stated to this Committee that 
 an excessive issue of paper money, although not depre- 
 ciating the paper money with reference to the coin into 
 which it was convertible, depreciated the wliole money of 
 this country in comparison with the monies of other coun- 
 tries, there was great surprise in this Committee on the 
 part of some, who seemed to be perfectly astounded as if a 
 ghost had appeared. I am prepared to say, that this prin- 
 ciple is one of the most simple and most distinct ; univer- 
 sally recognised by every writer of any authority who has 
 ever written upon the subject; in fact, the very elementary 
 principle of the whole question. To show how familiar 
 every writer is with that principle, and how astonishing it 
 is that any person should take a prominent part in the 
 discussions of this Committee who is not perfectly familiar 
 with that principle, I quote another very short passage 
 from Mr. M'Culloch again : " When the currency of any 
 particular country, as of England, consists partly of the 
 precious metals, and partly of paper convertible into them, 
 the effects produced by an over issue of paper are the same 
 as those resulting from an over issue of gold or silver. The 
 excess of paper is not indicated by a depreciation or fall in 
 the value of paper as compared with gold, but" (and those 
 
 s2
 
 260 
 
 words are in italics in his own book) " by a depreciation 
 in the value of the whole currency, gold as well as paper, 
 as compared with that of other states." Without a full 
 and clear understanding of that principle it is impossible 
 to understand any part of this subject. Convertible notes 
 may be issued, continually depreciating the currency, 
 until the metallic portion of the currency has been 
 entirely banished from the country; and then the notes, 
 now become inconvertible, may be further issued until all 
 the transactions of society have been brought to a state of 
 utter confusion. To this process the wants of customers 
 will oppose no obstacle or salutary restraint ; these will be 
 found as urgent, probably more urgent and extravagant, 
 at the end than at the commencement. 
 
 [In further illustration of this, and of some other 
 questions which have come under discussion in the course 
 of my examination, I am glad to draw attention to a very 
 remarkable article which appeared in the Scotsman in the 
 month of August 1825, and which I append at the end 
 of this volume. I believe it is well known to have pro- 
 ceeded from the pen of Mr. McCulloch; and the truth of 
 the principles which it enunciates receives the most con- 
 clusive confirmation from the clearness with which the 
 writer, in reliance upon those principles, was enabled to 
 foresee and predict, so early as the commencement of 
 August 1825, the disastrous events which marked the close 
 of that year.] 
 
 41 86. The necessary result of such a state of things is, 
 the exportation of that portion of the circulation which 
 consists in gold which alone has a value in a foreign 
 country? No doubt; for internal "purposes, the paper and 
 the gold circulate at equivalent values, but the moment
 
 261 
 
 you bring the circulation into such a state that there must 
 be a portion of the money exported, that portion only will 
 be exported which has an intrinsic value ; the paper will 
 remain in the country, aDd that portion which has an 
 intrinsic value will go abroad ; and that process may be 
 continued by keeping up the amount of the paper money 
 until the whole metallic portion of the money of the 
 country has gone abroad ; when you have arrived at the 
 exclusively paper money in the country, you have arrived 
 at the suspension of specie payments, and then you may 
 go on issuing your paper to any extent which you think 
 proper ; the wants of customers will never restrain or check 
 your issues ; they are absolutely illimitable, in the nature 
 of things ; money is wanted by everybody, to any extent ; it 
 matters not whether you issue 1,000,000/., or 10,000,000/., 
 or 100,000,000/. ; so long as it is the universal equivalent 
 in exchange, the wants of customers will demand it to an 
 illimitable extent, and the multiplied instances throughout 
 the world of the excessive issues of inconvertible paper are 
 clear proof of this. 
 
 [" The plea that no more is issued than the wants 
 of commerce require is of no weight ; because the sum 
 required for such purpose cannot be denned. Commerce 
 is insatiable in its demands, and the same portion of it 
 may employ ten millions or a hundred millions of circu- 
 lating medium ; the quantity depends wholly on its 
 value. If the mines had been ten times more productive 
 ten times more money would the same commerce employ." 
 Ricardo's Reply to Bosanquet, p. 82.] 
 
 4187. You are of opinion, then, that there is abundant 
 proof, according to the principles laid down by Mr. Hus- 
 kisson, of the over issue of paper in the years 1837 and
 
 262 
 
 1839? Undoubtedly; it is as clearly proved as any 
 demonstration in Euclid can be. The paper money in 1837 
 and 1839 exceeded that which would have been the amount 
 of paper money in this country, upon the assumed process 
 of issuing upon 14,000,000/. of securities. But that which 
 is the really conclusive part of the case is this, that whilst 
 the money kept going out of the country, the quantity of 
 money remaining in the country was not diminished, be- 
 cause as the gold went out notes after notes were put out 
 to supply its place ; therefore you had a continual dimi- 
 nution of the metallic money of the country going on, whilst 
 by your paper machinery you kept up the absolute amount 
 of the money of the country undiminished. That, of 
 course, was maintaining a permanent state of depreciation 
 of the money of this country, as compared with the money 
 of other countries of the world, and as long as you kept 
 that up, your gold would go out until it was all exhausted. 
 4188. You consider that the facts which then occurred 
 are perfectly irreconcileable with the opinion which has 
 been held, that a currency convertible of paper and gold 
 must vary as a metallic currency would vary, or that the 
 mere convertibility of the paper is a sufficient protection 
 for the proper regulation of issues ? I cannot suppose that 
 it has ever been stated to this Committee in so many 
 words, that a mixed currency of paper and gold must vary 
 as a metallic currency would vary ; no person could ever 
 have stated anything so absurd as that; it is impossible. 
 Every case, and they are innumerable, in which the paper 
 money has been maintained at an undiminished amount 
 during a drain of bullion, that is during a contraction 
 of metallic money, is a practical contradiction of this 
 doctrine.
 
 263 
 
 4189. Will you have the goodness to refer to the cir- 
 cumstances affecting the currency, which have occurred 
 since the passing of the Act of 1844 ? We have now to 
 trace the effects of the Act of 1844 in full operation, and 
 to contrast the results upon the monetary system with those 
 which occurred before we had the protection of that Act. 
 First as to 1847. In this year we had a severe drain of 
 bullion, arising as usual from a complication of causes, 
 amongst which was the heavy payments for provisions 
 imported ; we had a great demand for capital caused by 
 extensive transference of capital from a circulating to a 
 fixed form in railways ; a consequent high rate of interest; 
 we had very extensive mercantile insolvency ; we had 
 timid action on the part of the Bank of England from 
 the novelty of its position; and, finally, we had ah 
 ignorant panic on the part of the public, caused by their 
 apprehension of the operation of a law, the principles of 
 which they did not at that time fully understand. In the 
 face of all these combined difficulties the bullion reserve 
 was effectually protected, as it never had been on any 
 previous occasion. And I have fully explained to the 
 Committee (and I am prepared if required to do so, further 
 to illustrate that explanation), the grounds upon which I 
 confidently assert that without the Act of 1844 we should 
 in the spring of 1847 have suspended specie payments. I 
 now pass on to 1856 and 1857. During the last two years, 
 we have again been called upon to meet a severe and pro- 
 tracted drain upon the bullion, arising from war expendi- 
 ture and other causes, and to deal also with a violent dis- 
 turbance in the distribution of the precious metals through- 
 out the world. Suffice it to say, that by a strict and prompt 
 adherence to the principles of the Act of 1844, everything
 
 264 
 
 has, thus far, passed off with regularity and ease, the monetary 
 system is safe and unshaken, the prosperity of the country 
 is not disputed, the public confidence in the wisdom of the 
 Act of 1844 is daily gaining strength ; and if the Com- 
 mittee wish for further practical illustration of the sound- 
 ness of the principles on which it rests, or of the beneficial 
 results which it has ensured, the true and sufficient answer 
 is, look around you, look at the present state of our trade, 
 at the prosperous condition of the revenue, at the content- 
 ment of the people, at the wealth and apparent prosperity 
 which pervades every class of the community ; and then 
 having done so, the Committee may be fairly called upon to 
 decide whether they will interfere with the continuance 
 of an Act under which those results have been developed. 
 
 [Since this evidence was given, the apparent prosperity 
 of trade has undergone a temporary interruption, and im- 
 portant monetary events have occurred, which render a 
 short explanation necessary. 
 
 The objection usually urged against the Act has been 
 that, by the stringency of its provisions, and the restrictions 
 which it places upon the amount of the paper issues, it 
 would interfere with the free development of industrial 
 enterprise, and check the natural progress of our commer- 
 cial prosperity. The fallacy, however, of this apprehension 
 has been fully shown by the course of events. Not only has 
 the trade of the country expanded year by year since 1844, 
 with a rapidity previously unknown, but it has now been 
 proved that, even under the restrictive provisions of our 
 present monetary laws, credit may be unduly inflated, and 
 the spirit of commercial enterprise pushed to the most 
 extravagant extent. In the midst of the difficulties and 
 pressure which have unexpectedly arisen from this over-
 
 265 
 
 strained system of credit and speculation, the bullion 
 reserve has again, as was the case in 1847, been effectually 
 protected, and danger to the maintenance of our specie 
 payments has been rendered impossible, so long as the 
 provisions of the Act are maintained. Notwithstanding 
 a combination of circumstances, causing severe pressure 
 upon the exchanges, they have been effectually controlled 
 by the operation of the Act ; the efflux of gold has been 
 arrested before the bullion had been reduced to an incon- 
 venient amount, and all the principles have been brought 
 into action by which a rapid flow of the precious metals 
 into the country may be assured. Under these circum- 
 stances, the direct result of the controlling influence of 
 the Act, Government was enabled, without endangering 
 the monetary system, to sanction a temporary increase 
 of paper issues beyond the amount authorized by the law ; 
 and by so doing to mitigate the alarm and consequent incon- 
 venience which might have arisen in the short intervening 
 period till the influx of gold, insured by the provisions of 
 the Act, had effected a legitimate increase of the amount 
 of money in the country. This measure will, of course, 
 become the subject of investigation in the ensuing 
 session of Parliament ; and little doubt can be entertained 
 that the result of the inquiry will show that it is in no 
 respect inconsistent with, nor, in any degree, tends to in- 
 validate the principles on which the Act of 1844 is founded ; 
 whilst the power of authorizing such temporary suspension, 
 and all the public convenience supposed to arise from it, 
 are due to the efficiency of the Act, by which alone the 
 previous rectification of the exchanges was insured, and 
 the temporary increase of paper issues rendered consistent 
 with the maintenance of specie payments.
 
 266 
 
 Recent events have clearly shown that with our 
 present system of credit the currency may be in a sound 
 state, and we may be surrounded with all the apparent 
 evidences of prosperity, when we are really carrying on a 
 losing trade, and are on the eve of a serious revulsion. 
 Such revulsions would, no doubt, be rendered more exten- 
 sive and violent did our currency not rest on a metallic 
 basis, and if our paper issues were not protected from 
 arbitrary and irregular fluctuations of amount. Still it is 
 plain, that even had we nothing but gold in circulation, 
 we might have great abuse of credit and delusive appear- 
 ances of prosperity, with consequent revulsion, commercial 
 embarrassment, and supposed insufficiency of money. It 
 is some advantage, arising from the crisis through which 
 we have passed, to have gained this knowledge, and to 
 have so dangerous a source of future disaster brought 
 distinctly into view. By what means the abuses of the 
 credit system may be restrained, without improper 
 interference with the freedom of individual action, 
 it may not be easy to determine, but the importance 
 of the subject demands a most careful and searching 
 inquiry.] 
 
 4190. Do you entertain any doubt as to the solidity of 
 the principles upon which the Act of 1844 is founded, or 
 the vindication of those principles which the events of the 
 last 13 years have afforded? I entertain no doubt of any 
 sort or kind upon that subject. I look upon it that Sir 
 Robert Peel in 1819 restored the money of this country to 
 its just value. I look upon it that by the provisions of the 
 Act of 1814, he gave to the country good security for the 
 permanent maintenance of that just value, and thus com- 
 pleted, it is a noble work ; and I feel confident that this
 
 267 
 
 Committee will never take upon itself the disgrace of now 
 destroying that work. 
 
 4191., Reference has been made in the evidence already 
 given before this Committee to the circumstances of the 
 issue of paper money in the United States ; are you at all 
 acquainted with the facts as regards that issue of money 
 in that country ? I certainly lived in active prosecution of 
 business whilst those events took place; they occupied a 
 great deal of my attention and my thought at that time, 
 and I have not forgotten them since. I have with me a 
 statement, made as short as the circumstances would permit 
 with reference to those events, and I would ask leave to 
 read it to the Committee, because I am sure that if any- 
 thing further is requisite, this statement addressed to 
 practical men is quite sufficient to settle the question 
 which they have now before them. 
 
 4192. Will you have the goodness to inform the Com- 
 mittee, as far as you know, what was the state of the law 
 of the United States by which the issues of banks were 
 regulated ? I think you will find that the answer to that 
 question is fully involved in the statement which I am 
 about to make. 
 
 4193. Have the goodness then to place that statement 
 before the Committee? " It has been the uniform practice 
 of the different States of the Union to allow banks to be 
 established for the issue of notes, payable in specie on de- 
 mand. In cases where the liability of the shareholders in 
 these banks was to be limited, they have been established 
 by an Act of the local legislature ; but down to a compara- 
 tively late period banking was, speaking generally, quite 
 free, and all individuals or associations might issue notes, 
 provided they engaged to pay them when presented. Under 
 this system the changes in the amount and value of the
 
 268 
 
 paper currency of the United States have been greater than 
 
 in any other country, and it has produced an unprecedented 
 
 amount of bankruptcy and ruin. Between 1811 and 1820 
 
 about 195 banks in different parts of the Union became 
 
 bankrupt, and it is said in a report by the Secretary of the 
 
 Treasury of the United States, dated the 12th May, 1820, 
 
 that these failures, which mostly happened in 1819, had 
 
 produced a state of distress so general and severe that few 
 
 examples of the like had then occurred ; but bad as this 
 
 instance was, it was nothing to that which took place 
 
 subsequently to 1834. The accounts of the aggregate 
 
 issues of the banks differ a little, but the following 
 
 statement is believed to be nearly accurate, viz., 
 
 Years. Notes. 
 
 1830 66,628,898 dollars ; 
 
 1834 94,839,570 dollars; 
 
 1835 103,692,495 dollars ; 
 
 1836 140,310,638 dollars ; 
 
 1837 149,185,190 dollars." 
 
 (These were issues made by banks in obedience to the 
 
 wants of customers, and in notes payable to the bearer on 
 
 demand.) " Now, observe that this sudden and enormous 
 
 increase took place under the obligation to pay notes on 
 
 demand ! The result is such, as every man of sense must 
 
 have anticipated; that is" (now I beg attention to this), 
 
 " every bank within the Union without, it is believed, a 
 
 single exception, stopped payment in 1837. In 1838 such 
 
 of the banks as had been best managed, and had the 
 
 largest capitals, resumed payments in specie; but in 1839 
 
 and 1840 a farther crash took place, and the bank notes 
 
 afloat which, as has been seen, had amounted to 1 49,185,890 
 
 dollars in 1837, sunk to 83,734,000 in 1842, and to 
 
 58,563,000 in 1843." I hope we shall hear no more of 
 
 the violent fluctuations unnecessarily produced by the Act
 
 269 
 
 of 1844 in this country. "It is supposed that in this latter 
 crash nearly 180 banks, including the Bank of the United 
 States, were totally destroyed ; and the loss occasioned by 
 the depreciation which it caused in the value of stock of 
 all kinds, and of all sorts of property, was quite enormous; 
 and yet vast as the loss was, it was really trifling, as a 
 writer in the American Almanack has stated, compared 
 with ' the injury resulting to society from the upheaving 
 it occasioned of the elements of social order, and the utter 
 demoralisation of men, by the irresistible temptation to 
 speculation which it afforded, ending in swindling to retain 
 ill-gotten riches/ " Now this is the result of the applica- 
 tion of that very system which the opponents of the Act 
 of 1844 are pressing upon the consideration of this Com- 
 mittee. It is perilous nonsense coming from high quarters, 
 from which we are entitled to expect more sound informa- 
 tion and safe advice, you may rest well assured ; I must 
 speak plainly ; I have a great public duty to discharge in 
 giving my evidence upon this matter. " Since 1842 there 
 has been much bankruptcy among the American banks ; 
 but there has been no such crash as that now referred to.* 
 This has been a consequence of the measures that have 
 been taken in nearly all the States to restrain the free 
 action of the banks/' Now you come to the question of 
 taking security. "Thus, in New York, the banks arc 
 divided into two great classes, the incorporated and the 
 free banks. The former, which are incorporated by a State 
 
 * Since this evidence was given there has occurred another crash, upon 
 a still more extended scale, and, if possible, of a more disastrous character. 
 Almost all the hanks of the Union have suspended specie payments, whilst 
 insolvency and ruin have been widely diffused amongst private concerns. 
 When the proper time arrives for a full examination of the various circum- 
 stances connected with this crisis, it will be found to afford the strongest 
 confirmation of all the principles maintained in this evidence.
 
 270 
 
 law, have to conform to certain regulations, and have to 
 contribute a certain sum annually to a security fund, which 
 is devoted to the payment of the notes of defaulting banks. 
 But this is a most objectionable plan, for in the first place 
 it does not prevent bankruptcies; and in the second place 
 it compels the well-managed banks to contribute to a fund 
 which goes to pay the debts of those that are mismanaged. 
 It is consequently declining in favour. The other plan is 
 for the banks to deposit securities in proportion to their 
 issues, and this is certainly by far the more efficient of the 
 two. But it is objectionable, because, first, a longer or 
 shorter, but always a considerable, period necessarily 
 elapses after a bank stops before its notes can be retired ; 
 and, secondly, because in a period of panic or general dis- 
 trust, the securities lodged for the notes would most likely 
 become inconvertible. The Under Secretary of the Trea- 
 sury of the United States has animadverted as follows on 
 this plan, in a letter dated 27th November, 1854." " The 
 policy of many of the State governments has of late years 
 consisted in encouraging the issue of small notes by sanction- 
 ing the establishment of what are popularly called ' free 
 banks/ with deposits of stocks and mortgages for the ' ulti- 
 mate ' security of their issues. This ' ultimate' security is, 
 it may be admitted, better than no security at all. The 
 mischief is, that it is least available when most wanted ; 
 the very causes which prevent the banks from redeeming 
 their issues promptly, cause a fall in the value of the stocks 
 and mortgages on the ' ultimate security' of which their 
 notes have been issued. The 'ultimate security' may 
 avail something to the broker who buys them at a discount, 
 and can hold on to them for months or years; but the 
 labouring man who has notes of these ' State security 
 banks ' in possession, finds, when they stop payment, the
 
 271 
 
 'ultimate security ' for their redemption does not pre- 
 vent his 16sing 25 cents, 50 cents, or even 75 cents in the 
 dollar. In a circulating medium, we want something more 
 than ' ultimate security/ we want also 'immediate security;' 
 we want security that is good to-day, and will be good 
 to-morrow, and the next day, aad for ever thereafter. This 
 security is found in gold and silver, and in these only." 
 (Those are the words of the Under Secretary of the Treasury 
 of the United States.) We find nothing here about the 
 impossibility of banks regulating their issues by their own 
 will nothing of the safety of leaving the amount of paper 
 issues to be regulated by the demands of customers or the 
 wants of trade nothing of the doctrine that paper issues 
 beyond the supposed wants of customers will assuredly be 
 merged and lost in the increase of deposits. I proceed 
 " On the whole it is sufficiently certain that there is only 
 one way in which notes can be issued so that it shall be 
 absolutely certain that they will be paid on their being 
 presented, and that is by not permitting them to be issued, 
 except in exchange for an equivalent amount of coin or 
 bullion. That is the plan on which the Act of 1844 pro- 
 ceeds, and it is the only plan of the sort that is effectual 
 for its object." 
 
 4194. I understand from the early part of your last 
 answer that during the whole of this time, by the law of 
 the United States, the notes were payable on demand in 
 bullion? During the whole of this time the notes were 
 payable to the bearer on demand, and they were issued by 
 the banks in compliance with the demands of customers. 
 
 4195. When you speak of an over issue, do you mean 
 an absolute increase of paper issue, or the maintenance of 
 notes at a higher amount than would be justified by the
 
 272 
 
 amount of bullion in the country during a drain? When 
 I speak of an over issue, I speak of both, because they are 
 the same in principle. You may make an absolute increase 
 in the amount of the money of the country by a further 
 issue of paper notes, or you may, whilst a drain of bullion 
 is going on, maintain the amount of money in the country 
 at an undiminished sum, by continually re-issuing the paper 
 notes which have been paid in for the purpose of obtaining 
 the bullion : it is in reality, in both cases, an over issue of 
 precisely the same character, and producing the same effects; 
 it is identical in principle, varying only in its external form, 
 and it is by over-issue in both of those forms that the mone- 
 tary system of this country has been repeatedly convulsed ; 
 in 1797, by an over issue of that sort, it was brought to the 
 absolute suspension of its specie payments ; on other occa- 
 sions it has been brought only' to the extreme verge of it. 
 
 4196. Do you conceive that the Act of 1844 was pro- 
 posed by Sir Robert Peel on the notion of its lasting for a 
 few years only, or as a permanent measure, at any rate in 
 principle? I presume that there cannot be room for the 
 slightest doubt on the mind of any person whatever upon 
 that subject ; in the first place, there are many Acts in this 
 country which are absolutely passed for a limited period, 
 but with respect to which it is still perfectly well known 
 that they are intended to be continuous Acts. When we 
 pass at the close of every session, the Mutiny Act for one 
 year, I apprehend that no man living supposes for one 
 moment that this is an Act passed for one year, and to last 
 for one year and no longer. But the case here is far different 
 from that. The Act of 1844 is an Act permanent in the 
 very construction of it ; it is an Act which goes on in per- 
 petuity unless Parliament interposes its own hand to destroy
 
 273 
 
 it j a power of doing so is undoubtedly reserved ; at the 
 end of ten years a power arises upon giving a certain com- 
 plicated notice to revise that Act, to amend it or to repeal 
 it. But if Parliament does not exercise that power, the 
 Act is by its own construction and words permanent. And 
 there is a great deal more than that. That is the language 
 of the Act, but we interpret the meaning and purpose of an 
 Act by many collateral evidences. I am sure everybody 
 will remember, or at least those who paid any attention to 
 the subject will remember, that when the Government pro- 
 posed to the Bank to make this Act revisable after a period 
 of ten years upon its giving a certain notice, the Bank 
 Directors partially only acquiesced in that, and suggested 
 that the true course would be to give a power of revising 
 the Act at the end of ten years upon proper notice; but that 
 if that notice was not given at the end of the ten years, then 
 the Act should have a continuous existence for another ten 
 years. To this Sir Robert Peel and the Treasury objected, 
 and what was the ground of their objection? I beg leave 
 upon that point to make this statement, because I think it 
 may be a useful admonition with reference to a good deal of 
 what has passed in this Committee. They objected to that 
 proposal upon this ground, that they thought such a pro- 
 vision would necessitate discussions at the end of ten years ; 
 but the plan which they proposed they thought was far 
 better, because they hoped that it would obviate all neces- 
 sity for reviving discussions upon currency and banking 
 questions, which they held to be very detrimental to the 
 public interests. A clause therefore was introduced for the 
 express purpose of obviating even the probability of discus- 
 .sion upon the subject of the Act, and here are the words of 
 Mr. Goulburn's letter: " Tn making the proposal contained 
 
 T
 
 274 
 
 in my letter of the 27th ult., the Government were mainly 
 influenced by the consideration (to which you appear also 
 to attach much weight), that it was not advisable unneces- 
 sarily to agitate questions affecting the banking interests 
 and the currency of the country. We confidently hope that 
 the arrangement now to be made will be found, at the end 
 of ten years, to have satisfied public expectation." Is that 
 any indication of an intention that it should not last longer 
 than ten years? " And in that case there would probably 
 be a disposition, encouraged by the knowledge that the 
 subject was at any time open to discussion, to forbear from 
 proposing a change in the existing system. But, on the 
 other hand, if the opportunity of revision afforded at the 
 end of ten years was not again to occur till the expiration of 
 a similar period, the necessity of reviewing what was other- 
 wise to be for so long a time irrevocable, could scarcely be 
 denied." I apprehend that that passage at once disposes of 
 the question as to the intention of Sir Robert Peel, with 
 regard to this Act, and as to all idea of the Act being passed 
 with the view of its lasting ten years and no longer. 
 
 4197. We have had a good deal of discussion about the 
 reserve of the Bank of England. What do you conceive 
 the reserve of the Bank of England, that is to say, of the 
 Banking Department of the Bank of England, to consist 
 of? The reserve of the Bank of England consists of that 
 portion of the money of the country which it has at its 
 immediate command and disposal for the working of its 
 business. 
 
 4198. I need hardly ask you whether you consider that 
 the bullion in the Issue Department is any portion of the 
 reserve of the Bank of England in its banking business? 
 It has no sort of connection with it. The bullion is the
 
 275 
 
 reserve of the Issue Department to meet the demands of 
 note holders ; the bank notes in the till of the Bank of Eng- 
 land are its reserve to meet the demands of its depositors. 
 
 4199. Do you think that it would be advisable, either 
 in the old form or in some forms which have been suggested 
 to the Committee, again to mix the accounts of the Issue 
 Department and of the Banking Departments of the Bank 
 of England ? I dare not tax the time of the Committee 
 further; otherwise upon the subject of blending the accounts 
 again into one I should be prepared to go into a statement 
 of some length. But I have no hesitation in saying, that it 
 would be a retrograde movement from light back again into 
 darkness. We have seen in the course of the discussion to- 
 day very clearly and distinctly what has been the practical 
 result of a blended account, and what would have been the 
 beneficial protection to be derived from the present sepa- 
 rated form of account had it been established much earlier 
 than it was. The objections to returning to the blended 
 account are perfectly distinct and obvious. First of all, it 
 completely suppresses all knowledge of the banking reserve, 
 and therefore renders the account necessarily incomplete 
 in a most important particular, and is therefore calculated 
 to deceive, and not to instruct. Secondly, it affords facility 
 (and that is the real object of proposing the blended account) 
 for again issuing notes not in correspondence with the 
 fluctuations of the bullion ; in other words, for again 
 plunging us in the evils of 1783, of 1797, of 18.25, of 1837, 
 and of 1839, and choosing that as a state of things prefer- 
 able for the interests of this country to that which we 
 have enjoyed for the last twelve years. 
 
 4200. Do you consider that the groat objection would 
 be, that it would conceal from the public the knowledge of 
 
 t 2
 
 276 
 
 the state of the banking reserve, and would not therefore 
 give that timely warning to the public, as well as to the 
 Directors, which you think should induce them to contract 
 their issues, or to take measures for preventing the exhaus- 
 tion of their bullion ? I think that it is calculated directly 
 to throw the public mind into a state of perfect confusion 
 upon the question of their monetary system; that it can 
 lead to nothing but the most dangerous and deceptive 
 results ; that it would facilitate, during a drain of bullion, 
 the re-issue of paper notes, thus keeping the aggregate 
 money of the country undiminished, and therefore depre- 
 ciated, until the whole of the bullion is banished from the 
 country, or nearly so ; and, to put it shortly, that it is 
 calculated to restore us to the condition and subject us to 
 all the calamities which we experienced before 1844, and 
 of the possible extent of which calamities I have given to 
 the Committee a practical illustration, in the condition of 
 the monetary system of the United States in 1837. 
 
 [When the resumption of cash payments took place 
 in 1819, the management of the joint business of issue and 
 banking was left to depend upon the system of a blended 
 account. The natural result ensued a continued and 
 dangerous decrease of bullion, not counteracted by any 
 corresponding contraction of circulation. This was in 
 operation through the years 1823-4, as we have already 
 seen, and the final result was the catastrophe of 1825. 
 
 The first attempt to correct this defect in our monetary 
 system was the plan proposed by Mr. Horsley Palmer. 
 Hitherto the bullion and securities jointly had varied as 
 the circulation and deposits jointly 
 
 Securities + Bullion cc Deposits + Circulation. 
 The rule suggested by Mr. Horsley Palmer, but soon
 
 277 
 
 abandoned and apparently given up by everybody as im- 
 practicable, required that the securities should be main- 
 tained at an invariable amount that they should in fact 
 be made a constant in the above equation. The conse- 
 quence of course was that deposits and circulation jointly 
 would vary as the bullion varied 
 
 Bullion cc Deposits + Circulation. 
 In other words, the bullion might vary to an unlimited 
 extent, and be met by no corresponding decrease of circu- 
 lation, but solely by a decrease of deposits. 
 
 My first Tract in 1837 was written for the purpose 
 of drawing public attention to the fallacy involved in this 
 rule. 
 
 The rule is " that the securities being kept equal, any 
 diminution in the amount of specie may be met by a 
 corresponding decrease in the aggregate amount of circu- 
 lation and deposits." The possible consequence is, that 
 a large diminution of specie may take place, and be met, 
 not by a corresponding decrease of circulation, but solely 
 by a decrease of deposits. Thus a heavy drain upon the 
 treasure of the Bank might take place under this rule 
 without any contraction of the circulation by which that 
 drain is to be checked or the Bank to be protected," 
 p. 7 Tracts, &c. This was a fatal defect the consequences 
 of which became apparent in the events of 1837 and 1839. 
 
 The next attempt to correct these defects and to esta- 
 blish the management of the circulation upon sound prin- 
 ciples, was the Bill of Sir Robert Peel in 1844. 
 
 By this measure a complete separation is established 
 between the issue of paper money and the legitimate busi- 
 ness of banking, and the accounts relating to each are 
 kept entirely distinct. In other words, the above equation
 
 278 
 
 was resolved by the Act of 1844 into its constituent 
 elements. 
 
 Circulation is now made to vary in amount as the 
 bullion, and upon this rule the management of the Issue 
 Department is founded. 
 
 Securities are therefore left to vary in relation to the 
 deposits, and this forms the natural and the only correct 
 rule by which the Banking Department can be managed. 
 
 By this principle our monetary system has been re- 
 gulated during the last thirteen years. What has been the 
 result? Previous to 1844 on almost every occasion, a 
 pressure upon the foreign exchanges and a consequent 
 export of bullion remained unchecked until our metallic 
 store was reduced to an extreme point and well-founded 
 alarm arose respecting the safety of our monetary system, 
 and of our power to maintain the convertibility of the 
 
 Bank note. 
 
 Subsequent to 1844, and under the provisions of Sir 
 Robert Peel's Bill, the safety of our specie payments has 
 never been exposed to the slightest doubt; the bullion, 
 even under the severest pressure upon the foreign ex- 
 changes, never having been reduced below eight millions. 
 
 To accomplish this was the one object and purpose of 
 the Act of 1844, and in this it has completely succeeded. 
 Nor has this result been obtained by any sacrifice of public 
 prosperity or any interference with its progressive develop- 
 ment. Since the passing of the Act in question, the trade, 
 the public revenues and every branch of productive industry 
 have been more prosperous and more expansive than in any 
 previous period of our history. 
 
 Experience then as avcII as general reasoning confirm 
 the principles upon which the Act of 181 4 is founded
 
 79 
 
 and especially that main principle of the Act by which an 
 effectual separation, in account, as in all other respects, is 
 established between Issue and Banking. 
 
 To this however objection is raised, and a plan is 
 suggested for again mixing in one form the accounts of the 
 Issue Department and those of the Banking Department. 
 The analysis effected by the political sagacity of Sir It. Peel 
 must be abandoned, and the heterogeneous and incongrous 
 compound resulting from the blended account must be 
 restored. 
 
 The grounds upon which I think this proposal ought to 
 be firmly resisted have been stated already in various parts 
 of the preceding evidence, but it may be useful for the pur- 
 poses of this discussion shortly to recapitulate them. 
 
 1. It would be a virtual repeal of the Act of 1844, and 
 would entirely deprive us of the protection which under 
 the provision of that Act we have obtained against the 
 recurrence of the disaster and alarm to which we have 
 been exposed on all former occasions. It is a return, 
 almost undisguised, to the old form of accounts which was 
 abandoned because it had been shown to be inconsistent 
 with sound monetary principles and to be dangerous in its 
 practical results. 
 
 2. It unites together and treats as one homogeneous 
 whole, things totally dissimilar things dissimilar in prin- 
 ciple, and dissimilar as regards the management to which 
 they ought to be subjected. It fuses into one account two 
 distinct and separate businesses that of Issue and that of 
 Banking a course which in any other case would be at 
 once condemned as improper, suspicious, and calculated to 
 facilitate and conceal improper practices. 
 
 3. It suppresses all traces of the Banking Reserve, and
 
 280 
 
 of course all knowledge of the fluctuations in its amount. 
 The notes constituting the Bank Reserve are perhaps the 
 most important and influential portion of all the notes put 
 forth by the Issue Department ; and the great merit of the 
 Act of 1844 one principal cause of its efficiency is, that 
 it distinctly defines the Bank Reserve, draws it forth from 
 the darkness and ambiguity in which it was previously con- 
 cealed, and exposes it to the full knowledge of the public. 
 
 4. It allows the fluctuations in the bullion to be com- 
 pensated, not necessarily by any corresponding fluctuations 
 of the notes, but possibly by corresponding fluctuations in 
 the securities alone. A drain of bullion may therefore go 
 on, subject to no certain or efficient control, until either the 
 bullion is entirely exhausted and suspension of specie pay- 
 ments becomes inevitable, or until the bullion is reduced to 
 so low an amount that public alarm and panic ensue. The 
 result of this may or may not be a correction of the drain 
 before the bullion is entirely exhausted. But if that ex- 
 tremity be obviated, it is through means altogether irregular, 
 uncertain, and unmanageable in their action, and seriously 
 detrimental to the public interests. The events of 1825, 
 1837, 1839 proclaim their serious warning on this point. 
 
 5. It gives a false and delusive impression to the public 
 through the suppression of the Bank Reserve, as to the 
 amount of money really requisite for, and employed in 
 conducting the business of the country. And it further 
 throws ambiguity over the real extent of the legitimate 
 means which the Bank has at its command.] 
 
 4201. Mr. Gladstone.'] You have given your opinion 
 strongly with regard to the permanence of the provisions of 
 the Act of 18 11; is the Committee to receive that as a general 
 opinion, having reference to the essential principlesof the Act,
 
 281 
 
 as you have explained them, or is the Committee to under- 
 stand that you likewise think that the particular enactments 
 admit of no change in the sense, either of development or 
 otherwise ? The question to which I was replying had 
 reference, as I understood it, to an intimation which had 
 come before the Committee that the Act of 1844 had been 
 passed by Sir Robert Peel, intending it to last for 10 
 years, and no longer. My reply was, that that was com- 
 pletely contradictory to the terms of the Act, and to the 
 explanation of the meaning of those terms, as derived from 
 the correspondene between the Treasury and the Bank of 
 England upon which the Act was founded ; I meant that 
 Sir Robert Peel, in passing that Act, passed it as an Act 
 which he hoped, and fully believed, would satisfy public 
 expectation, and to such a degree, that it might be per- 
 mitted to continue as a permanent measure for the regula- 
 tion of our monetary system. But, at the same time, 
 knowing that when such an Act was for the first time 
 applied it might be open to imperfections and defects, of 
 one kind or the other, in its details, to be ascertained only 
 by experience, that it was wise to retain a power of revising 
 it after a sufficient period had elapsed to have learned the 
 results of experience, and, retaining that power, to retain 
 it in such a form that it would not be used except under a 
 strong sense of the necessity of applying it to its legitimate 
 purpose, the correction of details, the imperfection of which 
 was ascertained by experience, and, at the same time, not 
 to encourage unnecessary discussions, which he believed to 
 be very prejudicial to the public interests, upon the general 
 questions of currency and of banking. 
 
 4202. Therefore it would not be inconsistent, if I un- 
 derstood you rightly, with the views which you have
 
 282 
 
 expressed, that changes in the particular terms of the Act 
 might be proposed, in conformity with the spirit in which 
 the Act itself was framed, and with the view of giving a 
 more complete or more satisfactory effect to its principles ? 
 Undoubtedly, modifications in the details of the Act, 
 calculated to carry out more efficiently, and in a more 
 simple manner, its great and main principle, are perfectly 
 consistent with the view 'which I take, that the Act essen- 
 tially was intended to be of a permanent character. 
 
 4203. With respect to those particular provisions of 
 the Act which relate to the private issues of the country 
 bankers, would you be disposed to say that they carried 
 with them the aspect of finality ? I have been examined 
 at considerable length upon the subject of those country 
 issues ; I do not think that they do ; I have stated, 
 throughout my evidence, that I think that the whole state 
 of the country issues is very anomalous, and that some very 
 serious objections may still be offered to them ; that I 
 believe it to have been the view of Sir Robert Peel, that, 
 as a matter of practical policy, having placed an effectual 
 limitation to their amount, it was better to leave them to 
 be absorbed by the gradual process of natural causes than 
 to adopt any direct operation for that purpose ; and I rather 
 concurred in that view, not, however, to such an extent 
 but that if a measure for the extinction at once of the 
 country issues, of a tolerably practical character, could be 
 devised, I should be glad to see it. 
 
 4201. Chairman.'] When you say that an opinion has 
 been intimated to this Committee that Sir Robert Peel's 
 Act was intended to be temporary, do you refer to question 
 and answer 913? I certainly have been given to under- 
 stand that the question has been put by this Committee, I
 
 283 
 
 believe almost verbatim, in this form : " The Act of 1844 
 was passed, I believe, to last for 10 years, and no longer/' 
 
 4205. The question is put by Mr. Wilson to Mr. 
 Weguelin, and it is as follows : Sir Robert Peel, I think, 
 contemplated that the Act of 1844 should last for 10 
 years, and no more ? " Mr. Weguelin's answer is, " He 
 thought that by that time the country circulation would be 
 so diminished, that it would be possible to deal with the 
 remainder by legislative enactment." Is not the meaning 
 of the question and answer this, that Sir Robert Peel con- 
 templated that this Act should not be a final one, but that 
 it should receive further development and extension in the 
 direction of the policy of the Act at the end of 10 years. 
 Do you not understand that to be the meauing of the 
 question, and of the answer ? I certainly understand that 
 to be the meaning of the answer. I do not understand that 
 to be the meaning of the question. I do not conceive that 
 the question was shaped with any view of recommending 
 or suggesting the further development and extension of the 
 policy of the Act. 
 
 4206. Then what do you understand to be the meaning 
 of the question? I understand that question to be an 
 endeavour to introduce to this Committee an impression 
 that this Act was intended, in the very words of the ques- 
 tion, by Sir Robert Peel in passing it, to be an Act to last 
 for 10 years and no longer. 
 
 4207. Do you think that it was intended to intimate 
 to the Committee an opinion that the Act was to be simply 
 repeated at the end of 10 years, and that nothing was to be 
 substituted for it? It is a very awkward thing to ask 
 me what is the interpretation to be put upon another 
 man's question. I can only say that when I read that
 
 284 
 
 question, it produced upon my mind a feeling of great 
 astonishment. 
 
 4208. If it created so much astonishment, might it not 
 have induced you to doubt whether that was the correct 
 meaning of the question ? It seemed to me that the ques- 
 tion was so distinct that it precluded the possibility of doubt. 
 
 4209. At all events it was not understood in that 
 sense by the witness who answered it ? I must refer to 
 the witness upon that subject. 
 
 4210. Does not the answer clearly show that he under- 
 stood the question to mean that it was intended to intro- 
 duce further legislative enactment at the end of the 10 
 years ? I really think that it is not necessary to press me 
 further upon that subject. I have stated that when I read 
 that question it produced upon my mind, especially reading 
 it at the end of the whole of that day's examination, a 
 feeling of very great and painful surprise ; and when I read 
 the answer the impression made upon me was, that the 
 witness was so struck by the monstrous character of the 
 question, that he put upon it a limited interpretation, 
 which was an exceedingly good mode of getting rid of the 
 difficulty before him. 
 
 4211. Does not the monstrous character of the question 
 depend upon the assumption that it means that the Act 
 should simply be repealed at the end of the 10 years, 
 and nothing substituted for it ? It certainly depends upon 
 the assumption that the purport of that question was to 
 produce an impression that there was something in that 
 Act, by the intention of Sir Robert Peel in passing it, 
 showing that the Act was to last for 10 years, and no longer. 
 
 4212. And that when it ceased to be in existence, no 
 other Act of a similar character, carrying into effect an
 
 285 
 
 identical policy, should be substituted for it? I go uo 
 further than the words of the question. 
 
 4213. Mr. Hildyard.~\ Your Lordship stated that there 
 were several Acts which had been passed for a limited 
 period, but which nevertheless it was clearly contemplated 
 should be continued when the end of that period arrived, 
 and you cited the Mutiny Act. Are you prepared to tell 
 the Committee that you think there is the slightest analogy 
 between the fact that we pass the Mutiny Act merely for a 
 year, and the fact that the Bank Act was passed for 10 
 years ? No ; I said distinctly that it was a very different 
 case. The Munity Act does expire by virtue of its own 
 terms at the end of a year ; the Act of 1844 is, by virtue of 
 its own terms, ever enduring. It simply contains a clause 
 which enables the Legislature, upon giving a certain notice, 
 to bring it under revision : but unless the Legislature 
 originates that notice, the Act of 1844 is permanent. 
 
 4214. Is it not notorious that the reason why we pass 
 the Mutiny Act for only one year is an old jealousy 
 (whether now a well-founded one or not we need not 
 inquire), that it is necessary for political reasons to have 
 that Act annually renewed? No doubt it is perfectly 
 notorious. 
 
 4215. "Will you cite any other instance where we pass 
 an Act for only a limited period, contemplating neverthe- 
 less, as a matter of course, its re-enactment ? I am not pre- 
 pared at this moment to cite any other case ; but I believe 
 there will be no difficulty in doing so ; there are a great 
 many cases. But that fact does not bear upon this question, 
 because this is not an Act terminating at a definite period. 
 
 4216. If I understood you in the opinion which you 
 stated of the Under Secretary of the Treasury in America,
 
 286 
 
 with respect to the free banking system, he concluded by 
 saying that the system now adopted of having security and 
 a portion of bullion is defective, because there is not bullion 
 kept in reserve to meet the whole amount of issues ; did I 
 rightly understand that ? I will read any passage of the 
 paper which is required. 
 
 4217. It is just the concluding sentence. Did I rightly 
 understand you, in reading the end of that question, to read 
 the opinion of the Under Secretary of the Treasury, that 
 there ought to be bullion to the extent of the whole number 
 of notes issued? I do not understand that the Under 
 Secretary of the Treasury of the United States, in the 
 document which I have read, intimated any opinion that 
 there ought to be an amount of bullion always in itself 
 equal to the total amount of notes out. 
 
 4218. "Will you oblige me by reading the last sentence 
 of that paper ? " In a circulating medium we want some- 
 thing more than ' ultimate security;' we want also 'imme- 
 diate security ; ' we want security that is good to-day, and 
 will be good to-morrow and the next day, and for ever 
 thereafter. This security is found in gold and silver, and 
 in these only." 
 
 4219. Do you concur in that opinion ? Yes, I concur 
 in that opinion entirely. 
 
 4220. The Bank Act does not provide that there shall 
 be gold and silver to meet the amount of notes in circula- 
 tion : The Act of 1844 provides that there shall be gold 
 and silver sufficient to meet any quantity of notes that the 
 condition of the country will permit to come in, in exchange 
 for gold and silver. 
 
 4221. The Bank Act makes no provision for meeting 
 any portion of the country circulation by gold and silver,
 
 287 
 
 with the exception of that which is issued in excess of the, 
 authorised issue, does it ? We shall revive a discussion 
 which has already occupied a large portion of the time of 
 this Committee. The provisions of the Act of 1844 have 
 reference to the protection generally of the monetary 
 system of this country, meaning thereby to preserve an 
 adequate amount of bullion against any action which can 
 come upon it through the exchanges. An action through 
 internal panic is one which it does not pretend to deal 
 with, and that I have already stated. The only security 
 against internal demand must consist in the retention, 
 under any state of the exchanges, of an amount of bullion 
 sufficient to meet that demand. The peculiar merit of the 
 Act of 1844 consists in the fact that under its provisions a 
 large amount of bullion will always be retained to meet 
 internal demands. 
 
 4222. As regards the English circulation, does the Bank 
 Act make any provision whatever that there shall be 
 bullion forthcoming to meet any portion of the country 
 circulation? I cannot answer questions by simply saying 
 that is the fact, or that is not the fact, because it is quite 
 necessary to explain these facts. You may stale that such 
 is the fact, and leave a very false impression and inference 
 derivable therefrom. The bullion in the Issue Department 
 is a store of bullion, for the purpose of meeting any demand 
 of Bank of England notes which can come against it, for 
 the purposes of meeting and dealing with a pressure in the 
 foreign exchanges. Country bank notes have no power 
 whatever of demanding bullion out of the Issue Depart- 
 ment. 
 
 4223. Did 1 rightly understand you to say, that you 
 thought in defence of the Act of 1841 you might appeal to
 
 .288 
 
 the state of this country, and say, here is its prosperity, as 
 the result of that Act, and that that was a triumphant 
 argument ? Not quite in that form. My first appeal was 
 this, that the Act of 1844 has accomplished that which 
 was its great and direct object, namely, the protection of 
 the bullion reserve against any drain which should bring 
 it down below a safe and convenient amount ; and secondly, 
 that it has accomplished those results by means which 
 have not only been not inconsistent with the develop- 
 ment of public prosperity, but which have in my judg- 
 ment had a considerable connexion with that development. 
 
 4224. I understood you to say that if we wanted a 
 vindication of the principles of that Act, we had only to 
 look at the prosperity of the country; those were your 
 words, were not they, or nearly so? Not of the principles, 
 but of the results. 
 
 4225. Might not the miserable American circulation 
 which you have brought under our notice, be defended by a 
 similar argument ; might not the advocate for that system 
 say, Look at the prosperity of America, and is not that proof 
 of the good results of our system of circulation? Then 
 you have omitted the first part of my argument, that the 
 Act had been efficient in preserving the bullion from 
 an undue and inconvenient exhaustion. Now, in the 
 early part of my evidence, I quoted the authority of 
 Mr. Webster, to show that under the provisions of the 
 American system the gold had been entirely banished from 
 the country. 
 
 4226. If we are to support the Act 1811 by appealing 
 to the prosperity and industrial development of this country, 
 might not any one who advocated the American system 
 make the same appeal, and with just as true a logical
 
 289 
 
 accuracy ? No ; I think it would be as illogical as a thing 
 could possibly be. My defence of the Act 1844 (I am 
 sorry to repeat it so often) is this: First, that' it has 
 accomplished its great end and object; namely, the preser- 
 vation in this country of an amount of bullion in store, 
 which under even the most trying circumstances is never 
 reduced to a low or inconvenient amount. And secondly, 
 that consistently with that accomplishment of its great 
 purpose it has not interfered with, but in my judgment has 
 materially aided and assisted the development of national 
 prosperity. Now that argument cannot be applied by any 
 person with reference to the American system, because he 
 will break down ; the first arch of the bridge will let him 
 into the water, and therefore he will never reach the 
 second arch ; he will tumble through at the first, because 
 he will never be able to prove that the American system 
 has succeeded in protecting the bullion reserve of that 
 country from entire exhaustion ; and that he will not 
 succeed in that is shown by the passage which I have 
 already referred to by Mr. Webster, the best authority 
 that I can possibly refer to, who says distinctly that the 
 gold at that very time was entirely banished from the 
 United States. 
 
 4227. Do you deny that the commerce and industry of 
 the United States has developed itself in a most extra- 
 ordinary manner during the period to which you have 
 drawn our attention ? That the commerce and prosperity 
 of the United States has developed itself in a most extra- 
 ordinary manner is true, but not during the period to 
 which I referred; that was a period of great national 
 disaster, and that is the whole gist of the question, that 
 the American system of managing the money and the 
 
 u
 
 290 
 
 monetary affairs of the country has exposed it to periods 
 of tremendous monetary disaster. No doubt those periods 
 of disaster are overcome, and they again go ahead ; but the 
 object of our Act is to prevent the occurrence of those 
 periods of disaster. 
 
 4228. You spoke of a most vicious currency in America 
 for a period extending over a great portion of the present 
 century ; do you mean to say, that during the whole of 
 that period to which your evidence had reference, there has 
 not been a very great development of the resources of that 
 country ? In the first place, I think you do not state 
 accurately the period to which I referred ; I believe that I 
 began with 1820, and ended with 1837; I certainly do not 
 deny that even during that period American prosperity 
 advanced and extended itself, but I do assert that during 
 that period it went through crises and trials and sufferings 
 of such a nature, that if you are prepared to subject this 
 country to similar calamities, I shall be very shy of sharing 
 your responsibility. 
 
 4229. But, during the whole of the period from 1838 
 up to the present time, it has been competent for any bank 
 to be established in New York, and I believe in other 
 States, provided securities are lodged to the extent of 120 
 per cent, upon the amount of notes issued, and bullion 
 to the extent of 12 per cent. ; is that within your 
 knowledge ? It is not within my knowledge. 
 
 4230. Will you be kind enough to look at that state- 
 ment of what is called the Free Banking Act, and tell me 
 whether I have rightly described it (handing a paper to 
 his Lordship) ? I have stated that it is not within my 
 knowledge that that is the provision of the Act ; of course 
 you are as capable of judging of that as I am.
 
 291 
 
 4231. Is it not within your knowledge that the notes 
 which now circulate in the United States are issued upon 
 security, and that any bank may be established which gives 
 the required security, though you state that you are not 
 aware of the amount of it ? I have no positive knowledge 
 as to what is the state of the arrangements at this moment 
 in the United States. My impression is that it differs 
 very materially in the different States. But, undoubtedly, 
 I have a general impression that in some of the important 
 States, banks are allowed to issue notes upon giving security 
 for the payment of those notes, and retaining a certain 
 portion of bullion. I can only say that I adopt entirely 
 the view of the Under Secretary of the Treasury of the 
 United States, that that is a much better arrangement 
 than any one of the others which had been previously 
 tried, but that still it is a very defective arrangement. 
 
 4232. That defective state of circulation having existed 
 since 1838, I ask, do you deny that since 1838 there has 
 been an enormous development of the industrial resources 
 and commerce of America ? No, I do not deny it all. 
 
 4233. Then might we not, according to your own 
 reasoning, appeal to that prosperity as a proof that the 
 banking system was a good one, with as much justice as 
 you have appealed to the state of prosperity in England, 
 and ascribed it to the banking Act of 1844? I do not 
 think that the arguments are logically parallel to each 
 other. I really do not think it is necessary to go over the 
 thing again. 
 
 [The argument, if so it may be called, that runs through 
 these questions has been disposed of as follows, by a writer 
 in Hunt's New York Commercial Magazine for September 
 last : " The people of the United States have prospered, 
 
 u 2
 
 292 
 
 not in consequence of their mixed currency, but in spite 
 of it. The immense advantages of their position, their 
 unparalleled energy and industry, have given them great 
 wealth, notwithstanding all the derangements of business 
 in which their currency has so frequently involved them. 
 It would be as reasonable to assume, and quite as true, 
 that the great prosperity of the American people was 
 owing to the large quantities of alcoholic drinks they have 
 consumed as to this mixed currency." Recent occurrences 
 in the United States, and the present condition of its 
 monetary system, afford a farther commentary upon the 
 purport of the preceding questions, and exhibit a practical 
 verification of the principles for which I have contended 
 throughout this evidence.] 
 
 4234. Mr. Spooner.~\ There are two points which 
 have arisen, upon which I very much wish to have your 
 opinion. You have just stated that you thought that 
 this country was in a very great state of prosperity? 
 Yes. 
 
 4235. Has your Lordship inquired at all into the con- 
 dition in which the small traders and the retail dealers are 
 situated now in all the great manufacturing districts, in 
 consequence of the great difficulty which they have in 
 obtaining any sort of discounts for their paper ? No; I 
 cannot say that I am conversant with that fact. I only 
 speak generally ; there will be, in a country like this, as a 
 consequence of the great activity of competition of all 
 kinds, and the great progress which is going on, some 
 classes who are more or less in difficulty. The fact is, that 
 all great progress and all great improvements necessarily 
 involves that. In the transition of prosperity from one 
 form to another form, there must be some classes always
 
 293 
 
 distanced in the competition. A perfectly quiescent state 
 of all the great classes of the community will be found 
 very far indeed from a state which indicates great national 
 progress. 
 
 4236. Your Lordship is not aware that there is in the 
 class to which I have alluded, at the present moment, great 
 complaints both of a want of the means of carrying on 
 their business, and likewise as to the profits attached to 
 that business ? That there is now a much greater demand 
 for capital than there was some years ago is an undoubted 
 fact, with respect to which we have had a great deal of dis- 
 cussion in this room ; and when there is a great pressure 
 for adequate capital to carry on the business of the country, 
 some classes will feel that pressure more severely than 
 others. One cannot suppose that the trade of this country 
 is to be tripled in the course of a very short time without 
 some classes or other being severely pinched to find capital 
 for carrying on their business. 
 
 4237. Your Lordship has likewise stated that you think 
 that the great crisis of 1797, when the Bank was compelled 
 to stop payment, was owing chiefly to the conduct of the 
 Bank itself, in not sufficiently contracting its paper issues 
 as gold went out of the country? I have rested that 
 rather upon the authority of Mr. Tooke than upon my own 
 authority. I accompanied the quotation of Mr. Tooke's 
 opinion upon the subject with the observation that, un- 
 doubtedly, political panic and fear of foreign invasion had 
 a considerable share in the circumstances of that period, 
 and that upon that ground a plausible and, perhaps, a 
 sufficient defence of the suspension might Le founded. 
 4238. Is your Loidsbip aware that an exactly contrary
 
 294 
 
 opinion is given by the Secret Committee which sat in 
 1797, of which Mr. Pitt was a member, as to the Bank not 
 having sufficiently contracted its issues ? I do not now 
 remember what was the case in this respect; the subject 
 was not then so well understood as it is now. 
 
 4239. There is the following passage in the Report of 
 that Committee : " Your Committee further observe, that 
 as the Directors of the Bank had, previous to the actual 
 existence of the alarm, lessened the amount of their dis- 
 counts, so as to have reduced them by the 25th of February 
 one-fourth of the sum at which they stood at the beginning 
 of the present year ; and as the restriction of the accom- 
 modation afforded by them to individuals produced a similar 
 decrease in the amount of discounts by private bankers, the 
 joint effect of this diminished accommodation to the public 
 at a time when the circumstances above mentioned, and 
 others to be hereafter adverted to, seemed to require an 
 increase of it, must necessarily have been an additional 
 embarrassment in commercial and pecuniary transactions, 
 tending to increase the demand for cash on the Bank ?" 
 In that passage there is an allusion to the contraction 
 of discounts, but no positive allusion to an absolute con- 
 traction of paper money, and the contraction of discounts, 
 it is stated, stimulated the demand for cash; a very natural 
 result. But then it goes on to observe that the peculiar 
 circumstances of the time required an increase, not a con- 
 traction of accommodation to the public. This directs our 
 attention to the conflicting difficulties of that period to 
 which I have already alluded. Restriction was requisite 
 to preserve the power of paying the notes in gold ; extended 
 accommodation was deemed to be necessary to relieve the
 
 295 
 
 alarm which the fear of invasion and other circumstances 
 had generated. There is no donbt that monetary phe- 
 nomena were not then so clearly understood as they are 
 now ; and I could not quote a passage more illustrative of 
 that fact than the one which you have read. There is no 
 distinction between a demand arising from foreign ex- 
 changes and a demand arising from internal panic and 
 alarm, which are two totally different things ; and a person 
 mixing up those two different considerations, and looking 
 at the joint result, without separating the causes producing 
 it, will never form a clear view of the subject ; and that 
 was the state of the public mind even of the most intelligent 
 persons at that period. The phenomena of that period first 
 led us to understand this subject, by analysing them into 
 their component principles. A contraction of your paper 
 money will check and correct the demand through the 
 foreign exchanges, but it will not necessarily check or 
 correct the demand for internal purposes. 
 
 4240. Mr. Vance.'] Your Lordship spoke of the mone- 
 tary crisis of 1837, and of the way in which it worked in 
 America ; are you aware that it was a good deal aggravated 
 there by the operations of some of the English houses who 
 opened discount establishments there, and charged a high 
 rate of interest, they getting their own paper in this country 
 discounted at a very low rate ? There were undoubtedly 
 a great number of very strange and complicated transac- 
 tions going on between this country and the United States 
 at that period ; but that will not affect the question. The 
 question is here an absolute increase of the paper issues of 
 the United States from the year 1830 to the year 1837, 
 from 06,000,000 of dollars to 149,000,000 of dollars ; the
 
 296 
 
 result of that was, that in 1837 not one of the banks 
 issuing that paper was able to pay. 
 
 4241. The object of my question was still further to 
 develope your principle ; at that time we had not the Act 
 of 1844, and those English houses had unlimited credit in 
 this country for their paper at an exceedingly low rate, I 
 believe 2^ per cent., while they discounted in America at 
 8 or 10 per cent., consequently draining this country of gold, 
 and producing the crisis which arose ? I do not at all 
 know the accuracy of the facts stated in the question ; but 
 if you assume that the price of money in this country was 
 2| or 3 per cent., and that the price of money in the 
 United States was 10 per cent., there would of course be a 
 transference of money and capital from this country to the 
 United States : there cannot be a doubt of it. 
 
 4242. Mr. Cayiey.~] Assuming that the rate of interest 
 is dependent from century to century on the supply of 
 capital, that in new countries, like the United States, where 
 the accumulation is comparatively small, the rate of interest 
 is, cceteris paribus, high; and in old countries, like Eng- 
 land and Holland, where the accumulations are large, the 
 rate of interest has a tendency, cceteris paribus, to lessen. 
 My question at the last sittiag but one applied to short 
 periods, namely, to two or three months, or two or three 
 years; is it your opinion that the rate of discount and 
 interest for such short periods depends for the most part on 
 the supply of capital, or on the supply of money ? The 
 shorter the period of variation the greater the probability is 
 that it has reference to an alteration in the value of money, 
 but that does not necessarily follow. 
 
 4243. Does the quantity of capital, do you think, oscil-
 
 297 
 
 late from month to month to such a degree as to alter its 
 value in the way exhibited of late years in the oscillations 
 in the rate of discount ? The relation between the demand 
 and the supply of capital may undoubtedly fluctuate, even 
 within short periods, very considerably, because the opera- 
 tion of that system is facilitated by the various relations 
 between one country and another to a very great extent ; 
 for instance, you may take such a case as this : if France 
 to-morrow put out a notice that she wishes to borrow a 
 very large loan, there is no doubt that it would immediately 
 cause a great alteration in the value of money, that is to say, 
 in the value of capital in this country ; it would produce it 
 the very next day. 
 
 4244. Are you now referring to France contracting a 
 loan in gold? I am supposing France to put out a notice 
 to-morrow that she wishes to contract a large loan; the 
 result of that notice would instantaneously be to produce 
 a considerable effect upon the rate of interest, as indicating 
 the increased value of capital in this country. 
 
 4245. How would the borrowing of money in France 
 affect the rate of interest in England, except as the base of 
 the currency in France aiid England is the same ? In the 
 first place, you must remember that money is only a means 
 of effecting the interchange ; the interchange is really of 
 capital or of commodities. If France announces that she 
 wants suddenly, for any purpose, 30 millions' worth of 
 commodities, there will be a great demand for those com- 
 modities; there will be a great demand for capital, to use 
 the more scientific and the simpler term, and that great 
 demand for capital will affect all the principal markets iu 
 Europe, and especially in London.
 
 298 
 
 4246. The capital which France would wish to buy 
 with her loan is one thing, and the money with which she 
 buys it is another ; is it the money which alters in value 
 or not? We seem to be reviving the old question, which 
 I think is more fit for the chamber of a student than for 
 this committee-room. The essential thing is the value of 
 capital ; money is the instrument through which capital is 
 exchanged between person and person, and between country 
 and country. The first effect, only a temporary and short 
 effect, may be upon the value of money, but no permanent 
 effect can be produced but by some alteration in the relative 
 demand and supply of capital, connected with some change 
 in the productiveness of capital, or by some permanent 
 alteration of the quantity of money ; a permanent alteration 
 in the quantity of money can hardly take place, because it 
 will be rectified through the exchanges; therefore the 
 fluctuations in the rate of interest, as dependent upon the 
 quantity of money, will be short in duration, and probably 
 small in amount; but the relation between the demand 
 and supply of capital may undergo a great and permanent 
 alteration, and the fluctuation in the rate of interest 
 dependent upon it will partake of the same character. 
 
 4247. If France gives notice of raising a loan, the 
 tendency of that is to withdraw gold from other countries, 
 is it not ? I would rather put it upon the general principle ; 
 the tendency of that is to disturb the equilibrium existing 
 between the different countries; there will be a demand 
 for additional capital to go from different countries to 
 France, and the transference of that capital will be through 
 the form of money. 
 
 4248. But if it withdraws gold from the Issue Depart-
 
 299 
 
 ment of the Bank of this country, it then affects the rate of 
 interest of money ? If you diminish by any means what- 
 ever the quantity of money in the country, at the time of 
 that diminution the first effect will be an alteration in the 
 rate of interest on account of the diminished quantity of 
 money; that will be an effect of short duration, and, 
 generally to a limited extent.
 
 APPENDIX. 
 
 EXPORTATION OF GOLD AND SILVER. 
 STATE OF THE COUNTRY BANKS. 
 
 From the "Scotsman," 3rd August, 1825. 
 
 It appears from a published account of the gold and 
 silver coin and bullion exported from London during the 
 last three months, that their aggregate value amounts to no 
 less than 2,834,000/. Almost all this amount has been 
 obtained from the Bank ; and it is estimated that the stock 
 of bullion in the coffers of that establishment has been 
 reduced by the demands for exportation, from twelve 
 millions on the 1st of January, 1824, to about four millions 
 at this moment. Under these circumstances, and consi- 
 dering that the exportation still continues unabated, the 
 rumours so prevalent in London about two months since of 
 the embarrassment and consternation of the Directors are 
 again revived with increased confidence. 
 
 This drain is really, however, the necessary result of the 
 proceedings of the Directors. And though we are most 
 ready to acquit those functionaries of all intentional error, 
 still we are fully satisfied that their proceedings, during the 
 last ten years, have been equally opposed to their own and 
 the public interest. Not satisfied with opposing the pro- 
 posal for paying in bars, which would have enabled them to 
 keep tbe usual amount of paper in circulation with a com-
 
 301 
 
 paratively small amount of bullion in their coffers, the 
 Directors amassed, in the course of 1820, 1821, and 1822, 
 a quantity of bullion that has been variously estimated at 
 from twelve to sixteen millions ; and so long as the value of 
 the paper and gold coin in circulation continued at its 
 proper level, this immense capital lay idle on their hands 
 without their having a possibility of employing it. In con- 
 sequence, the Directors became as anxious to get rid of a 
 portion of their gold as they had formerly been to accumulate 
 it ; and for this purpose they purchased additional quanti- 
 ties of Exchequer Bills, reduced the interest on their 
 discounts to four per cent., and announced their intention 
 to lend on mortgage a proceeding quite inconsistent with 
 every sound principle of banking. These measures, in 
 conjunction with others which the Directors could not 
 control, but which they might have foreseen, occasioned a 
 demand for bullion, and the coffers of the Bank began to be 
 relieved of a portion of their surplus stock. But the 
 Directors have found that it was easier to open than to shut 
 the sluices of their wealth. And it must be owned, too, 
 that there has been something not a little unusual in the 
 continuance of the demand for bullion for the purpose of 
 exportation. During most previous drains the market price 
 of bullion exceeded the Mint price, or the price at which 
 the Bank are obliged to give gold in exchange for their 
 notes, and, of course, there was an obvious advantage in 
 demanding it of them. Such, however, is not the case at 
 present, nor has it been the case any time during the last 
 three years. The notes of the Bank of England are now of 
 exactly the same value as the coin that circulates along with 
 them. There is not, in fact, at this moment, the slightest 
 depreciation in the value of Bank of England paper as com- 
 pared with gold ; and the Directors, or rather that portion 
 of them who know anything of the principles of their busi-
 
 302 
 
 ness, contend, as we are informed, that from whatever 
 causes the drain may have arisen, it cannot be owing to 
 their paper being in excess, for if it were, their notes would 
 be at a discount ; and that to contract their issues, would 
 only be to cause embarrassment in the commercial world 
 without stopping the drain for bullion. 
 
 It must be admitted that there is a good deal of plausi- 
 bility in this statement ; but it is notwithstanding essen- 
 tially fallacious. The truth is, and the Directors of the 
 Bank of England ought to have known it, that the fact 
 of bullion continuing for any considerable period to be 
 exported from a country whose currency consists partly 
 of gold and partly of paper convertible into gold, is of 
 itself a conclusive proof that its whole currency, gold as 
 well as paper, is depreciated, or, which is the same thing, is 
 redundant as compared with the currency of other countries. 
 And as the drain must continue until the amount of our 
 currency be reduced so as to raise its value to a level with 
 that of our neighbours, it is obvious that unless the 
 Directors narrow their issues, their coffers will be entirely 
 exhausted. 
 
 If the currency of countries, having an intercourse 
 together, consisted exclusively of the precious metals, it is 
 evident they could not be accumulated to excess in any 
 country which allows them to be freely sent abroad without 
 occasioning their instant exportation. But suppose that the 
 currency of any particular country, as England, instead of 
 consisting exclusively of the precious metals, consists partly 
 of them and partly of paper immediately convertible into 
 them. In this case, if paper be issued in excess, that excess 
 will not be indicated by a depreciation in the value of paper 
 as compared with gold, but by a depreciation of the whole 
 currency as compared with the currency of other states. In 
 the circumstances under which we are now placed, an issue
 
 303 
 
 of two hundred thousand Bank of England five pound notes 
 has precisely the same effect on the value of money, as if 
 an additional million of sovereigns were thrown upon the 
 market. The notes are of the same value as gold; for gold 
 may immediately be obtained in exchange for them, and 
 they are as readily received in all payments throughout the 
 country. It is quite clear, therefore, that the statement 
 that gold and paper are equivalent in the market is no 
 answer whatever to those who contend that our paper cur- 
 rency is redundant, and that this redundancy is the cause of 
 the present drain of bullion. The effect for increased issues 
 of notes immediately convertible into gold is not to cause 
 any discrepancy between the value of paper and the value of 
 gold in the home market, but to increase the amount of the 
 currency, or to render it redundant as compared with that 
 of other countries; and thus, inasmuch as notes do not 
 circulate abroad, to cause the exportation of coin, and con- 
 sequently, a drain upon the Bank. 
 
 It is quite clear, therefore, that unless the Directors of 
 the Bank of England limit the issue of their notes, so as to 
 raise the value of the whole currency of the country by 
 lessening its quantity, the drain will continue until they 
 are divested of every ounce of bullion in their coffers. It 
 has been supposed that the value of our currency has 
 been depressed, during the last three months, three per 
 cent., as compared with that of France and most other 
 countries ; and as the expense of carrying gold to France 
 cannot well exceed \ per cent., it is plain, if this sup- 
 position be well founded, that the exporters of gold will 
 have realized a profit on the transaction of no less than 
 2\ per cent. It is quite obvious, too, that so long as the 
 Directors of the Bank continue to supply the place of the 
 gold that has been drawn from them with fresh issues of 
 paper, the quantity of the currency can neither be dimi-
 
 304 
 
 nished nor its value augmented ; and so long, consequently, 
 will the bullion merchants continue to demand gold from 
 the bank, and to export it. But the Directors have it in 
 their power to put a stop to their demands. To accomplish 
 this, they have only to narrow their issues, to decline sup- 
 plying the place of the gold demanded of them with fresh 
 notes. If they do this, the quantity of the currency will 
 be diminished; and as the demand for its services, or the 
 commodities to be circulated by its agency, must continue 
 the same, or very nearly the same as before, its value will 
 rise, and the drain will cease. 
 
 We have heard it contended by some of these apologists 
 of the Bank of England, who admit that the demand for 
 gold has been caused by an over issue of paper, that this 
 over issue has taken place in consequence of the proceed- 
 ings of the country bankers, and not of the Bank of Eng- 
 land. We believe this statement to be true to a consider- 
 able extent ; but still we deny that it forms any apology 
 for the proceedings of the Bank. The Directors ought to 
 have foreseen and been prepared for an increased issue 
 of country paper. It is, in fact, one of the most serious 
 inconveniences attached to the use of such a species of 
 paper currency as is supplied by the country bankers of 
 England, that it is extremely apt to be, on the one hand, 
 suddenly and unduly contracted in periods of revulsion, 
 or when the price of any large class of commodities 
 is on the decline ; and that, on the other, it is very apt 
 to be as unduly enlarged in periods when confidence is 
 high and prices generally on the advance. Our readers are 
 all aware how vastly the misery and distress occasioned by 
 the heavy fall of prices that took place subsequently to 
 the close of the last war, were aggravated by the failure of 
 so many of the English country banks. These failures had 
 a double effect : They not only spread irremediable ruin
 
 305 
 
 among those unfortunate individuals who had deposited 
 their money in their hands, but by lessening the quantity 
 of money in the country, they added to its value, and thus 
 rendered the fall of prices much more considerable than 
 it would otherwise have been. Now, however, that the 
 country has recovered from its former depressed state, the 
 country bankers are again adding greatly to their issues. 
 They have confidence in the stability of the farmers and 
 manufacturers, and the latter have confidence in them. 
 Not only are the old houses adding to the number of their 
 notes in circulation, but new competitors are every now 
 and then coming into the field, who, from a natural desire 
 to get their paper into circulation, are necessarily less 
 scrupulous in their investigations with respect to the cir- 
 cumstances of the applicants for loans, than the old and 
 long established houses. We have heard gentlemen of great 
 experience in the business of banking, state that they were 
 fully satisfied that not less than from thirty to forty per 
 cent, had been added to the number of country bank notes 
 in circulation in Britain during the last three years. 
 
 This oscillation in the amount of the country currency 
 should have been known to the Directors of the Bank of 
 England. And it should have occurred to them, at the 
 time they were endeavouring to force the issue of their 
 notes, by lending upon mortgage and other devices, that 
 the renewed confidence and prosperity of the country would 
 necessarily occasion an increased issue of provincial paper, 
 and that unless they contracted the issue of their notes, the 
 whole currency of the kingdom would become depreciated 
 from excess. The Directors of the Bank of England ought 
 also to have been aware, that as our currency is now con- 
 stituted, whenever its quantity becomes excessive, the drain 
 for bullion thence arising, will operate, in the first instance, 
 exclusivelv on their coffers, and not on those of the country
 
 306 
 
 bankers. And hence it is plain that a regard to their own 
 safety ought to have dictated to them the propriety of early 
 restricting their issues, inasmuch as, by doing so, they 
 would have kept the currency in London and its vicinity at 
 a higher level, and would thus have opposed an insuperable 
 obstacle to the excessive issue of country notes. By delay- 
 ing the reduction of their issues the Directors, though no 
 doubt unintentionally, have done very great injury to the 
 country. They have now no choice they must, whether 
 agreeable to them or not, immediately set about making that 
 reduction they should have made long ago. It must not, 
 however, be supposed that the effect of that contraction of 
 Bank of England currency that must speedily take place, 
 will be confined to London ; it will be felt throughout the 
 empire. As soon as the value of Bank of England paper 
 has been raised by the diminution of its quantity, the 
 drain on the bank will cease, and gold will then begin to be 
 demanded from the country banks. These establishments 
 will in consequence be compelled to reduce their issues ; 
 and it is but too probable that this reduction will be pro- 
 ductive not only of ruin to many of the individuals who 
 have obtained loans from the banks, but even to some of 
 the banks themselves. These are not mere speculative 
 conclusions ; and we have the satisfaction to know that 
 they are approved by some of the most extensive and best 
 informed merchants and bankers in the country. 
 
 LONDON : HARRISON AND SONS, ST. MARTIN'S LANE, W.C.
 
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