The Online Library of Liberty

A project of Liberty Fund, Inc.

• The Works and Life of Walter Bagehot, Volume Ii
• William Cowper. 1 (1855.)
• The First Edinburgh Reviewers. 1 (1855.)
• Thomas Babington Macaulay. 1 (1856.)
• Edward Gibbon. 1 (1856.)
• The Character of Sir Robert Peel. 1 (1856.)
• Percy Bysshe Shelley. 1 (1856.)
• The CrÉdit Mobilier and Banking Companies In France. 1 (1857.)
• Lord Brougham. 1 (1857.)
• The Monetary Crisis of 1857. ( National Review, January, 1858.)

THE MONETARY CRISIS OF 1857.

(National Review, January, 1858.)

Report from the Select Committee on the Bank Acts; together with the Proceedings of the Committee, Minutes of Evidence, Appendix and Index. Ordered by the House of Commons to be printed, July 30, 1857.

Debate in the House of Lords on the Bank-Issues Indemnity Bill, on the 11th December, 1857. Reported in Times Newspaper of December 12th.

Debate in the House of Commons on the Reappointment of the Bank Charter Committee, on the same day, and reported in the same journal.

For once the serious attention of business-men is applied to the subject of the currency. The recent commercial crisis, bringing anxiety to all active merchants; the failure of many houses believed to be solvent, and of some who really were so; the suspension of the Act of 1844, which, being a repetition of what happened in 1847, looks, to say the least, like an indication of defect in that famous piece of legislation,—these circumstances and others have called to the topic of the currency the real minds of many who generally regard it as the peculium of dry economists, and the puzzle of captious speculators. In Lombard Street, on Thursday the 12th of November, there was no denying that the bank-note question was a practical one. Some months ago, a parliamentary committee elaborately investigated much of the subject; it was curious to compare the listless curiosity of its speculative interest with the eager queries,—“Will the Act be upset?” “What will the Government do?” “Is the Governor come back from Downing Street?”

This crisis throws a more remarkable light on our banking practice and currency legislation, because it does not seem to be the result of any circumstances so peculiar that we may not often expect to see others of which the effects may be the same. The circumstances of 1847 have been put aside of late years as exceptional. The extreme errors of the Bank directors, the railway mania, the bad harvest, were singularities of that time, and might never be expected to recur; at least, not all of them at one time, or in so aggravated a form. The present year has no such peculiar features. Our domestic trade—the trades of banking and money-dealing perhaps in part excepted—is, on the whole sound.1 Considering the enormous development which our commerce, whether of export or import, has recently undergone, few thoughtful men looked without some apprehension at the probability of a severe pressure. Most of them perhaps really anticipated a good many mercantile failures from domestic and personal causes. There have scarcely been any; of large firms exceedingly few.

The trade of two important foreign markets has been deranged by circumstances peculiar to them; we have been affected, naturally and inevitably, by these derangements; but except among a few bill-brokers and money-lending companies no one, even with the acute anger of disappointed theory, has been able to find blamable error in our national trade.

The time is not yet come for attempting to estimate or analyse the causes of the American panic, or of the extensive failures in the North of Europe. We have hardly as yet the facts before us. We have enough to refute a few old popular fallacies. We know that they did not arise from any excess of paper currency; for in Hamburg, where the disasters have been greater than anywhere else, they have a pure metallic currency; and in New York, which seems the centre of the monetary disasters of America, it has been proved by figures that there was no extension of the bank circulation of any importance at all.1 Our knowledge is only as yet, however, sufficient for the purposes of refutation; we do not know enough to advance a comprehensive and positive theory. We clearly discern, however, that the trade of the North of Europe has been conducted for a very considerable period on a most unwholesome system of fictitious credit. Houses in Hamburg have given their names to acceptances for which they did not know what was the equivalent—for which, in point of fact, there was no equivalent. These acceptances were discounted on the faith of the acceptor; and, though with changes of amount and detail, in reality renewed whenever they became due. The acceptor of course ran a great risk, as his liability was for a very large sum; but he considered that he was remunerated by a commission, of which doubtless the proceeds were considerable. Every system of renewed acceptance is, however, unpleasantly affected by a tightness in the discount market: the old bill becomes due with an unfailing rapidity, but the new bill which is to replace it can only be discounted slowly, after a hesitation, after a conversation with the banker—in the end, cannot be discounted at all. Such a pressure in the discount market, was produced at Hamburg by the continued drain of silver to the East—silver being there the standard of value and the metal stored as bullion—and by the American panic, which largely affected the continental city most immediately connected with the Transatlantic trade. After all that has been said of the “dashing” system of Liverpool trade, after every concession to the opponents of “re-discount” and “fictitious” bills, it is nevertheless not without pride that we may compare the consequences of the American panic on the North of England with its effects at Hamburg. The stability of Liverpool, Manchester, and of the vast industrial region which is situated round them, can only be explained by a generally sound state of industry. At what former period could a great failure of remittances, a great contraction of accommodation, a ten-per-cent. rate of discount, have been borne by the most enterprising of our traders with so few disasters? We can only hope that the next time an American panic occurs, it may find us equally well prepared; very much better, we fear, looking to the past experience of commerce, it would be over-sanguine to expect. That panics will occur every now and then in many of the countries with which in our ramified trade we largely deal, it is impossible to question. We may not in many cases be able to trace them by very indisputable reasoning to causes we know to be real: at the present moment there is a mist over the whole topic of the American disasters; we indistinctly discern a vast series of investments in railways, hastily planned, and still more hastily made; we think we can see that an incautious course of banking has very extensively aided these over-rapid efforts. Thus, though we are suffering from the effects of the disease, we have not yet been able to set forth in facts and figures an accurate description of its causes. The point, however, which it behoves us especially to have in our minds, is that neither at Hamburg nor in America have any events happened so singular or out of the common course of mercantile things that we can be sure of their not happening again,—that we cannot reasonably anticipate anything but an occasional repetition of them, either in the same places or in others,—that we must settle our mercantile usage, our banking practice, our currency laws, to suit the recurrence, not unfrequently, of events very similar and as dangerous.

If we look attentively at these subjects, as the very great importance of these remarks should incline us seriously to do, we shall perhaps be struck by two conspicuous facts—the development in this country of an extensive—possibly a too extensive—system of credit, and the existence of a law which aggravates all disturbances and hesitations in that system of credit.

Nothing can strike the mind of an observer, who can sufficiently abstract his thoughts from the crowding detail of affairs to be alive to the just impression of great facts, more than the slight effect which the recent monetary panic, which we have seen pass like an epidemic across the two sides of the Atlantic, has produced on the trade of France. This time last year we heard many complaints that the imperial government, its stock-jobbing courtiers, the Crédit Mobilier, had produced a state of things in that country fraught with danger to European nations. At that period we took occasion to show, that though these accusations by no means appeared to be without a foundation, yet that the speculative temper so induced did not penetrate very deep into the country, and that its common and legitimate commerce was in all likelihood sound. The trial has come, and the truth has been found to be so. In fact, the trade of France is, as compared with the trade of more enterprising nations, so strictly a ready-money trade, that it is not possible to create any wild panic among those who are concerned in it. If you trust no one, you need not be in a fright as to those you trust; the deferred payment for extensive purchases is the primitive element of commercial credit; it is this which creates bills of exchange, promissory notes, drawings, indorsements: where that element does not exist, there is no occasion for credit and confidence; everything is settled at the time. The same is the case with lending and borrowing. Where everybody keeps his own money, no one need be alarmed, or need care as to the solvency of those around him. All banking, as well as all “the industry of credit,” is based on trust. The revolutions which have been so frequent in France, by inevitably disturbing all contemplated transactions, have been so fatal to this essential confidence, that no ramified system of commercial credit has ever grown up there. Something too—such at least was the doctrine of Burke—of a timorous and peddling spirit may lurk in the recesses of the national character. At any rate, the result is certain; the trade of France is so little based upon borrowing or trust, that it is not exposed to a panic such as Lombard Street and Wall Street have experienced.

Our own system of commerce is precisely the reverse. A certain energy of enterprise is the life of England. Our buoyant temperament drives us into action; our firm judgment makes us steady in real danger; our solid courage is inapprehensive of fanciful risk; an impassive want of enjoyment in that which we are prompts us to try to be better than we are. Accordingly our commercial men have for years been prone to great undertakings; possibly there may not be in the world at this moment a single and adventurous speculation in which there is not some sum of Anglo-Saxon capital. The probity which, after every deduction, is really, as compared with most active nations, a conspicuous feature in the English character, has enabled us to aid our enterprises by a vast and elaborate system of credit, based on defined trust, and tested by verified anticipation. Both of the two elements of commercial credit, of which we have just spoken incidentally, exist among us to a greater extent than anywhere else in Europe. A deferred payment for large purchases is more general than elsewhere; wholesale dealers, as a rule, give and take very large credit. Our borrowing and banking systems draw from the pockets of the people every sixpence which is not wanted at once; and place it, through the intervention of bankers and brokers, at the command of the mercantile and active community. So deeply has this penetrated among the mercantile community, as to have become, perhaps even to a perilous extent, the habit of the money-lenders themselves. A correspondent of the Economist, who writes under the signature of “A Banker,” has described this plainly: “The certain fact is, that, according to the existing practice, no private banker keeps more actual coin than he wants for daily necessary occasions. In London, the Bank of England is the bankers’ bank. Especially since the admission lately of the great joint-stock banks to the clearing-house, no London banker keeps in his till more coin, or even more bank-notes, than the minimum he can get on with. If there is any unusual demand on him for payments across the counter, he draws a cheque and gets it cashed at the Bank. The Bank of England is to him what he is to his customer—the source of supply in case of need. Country bankers probably for the most part keep more cash, because they are further from the focus. As they have further to send when they want fresh supplies, their supply of current cash must be larger. This does not, however, affect the principle. Country bankers, I apprehend, as well as London bankers, only keep the minimum in their tills which their ordinary business plainly requires; the rest of their reserve is kept at the bill-brokers, or with London bankers, who all keep accounts at the Bank of England, and who, as I have said, keep nothing anywhere else except the narrowest and most necessary minimum. The consequence is, that there is no other large pecuniary hoard in the country on which a drain of bullion can act except that which is in the vaults of the Bank.” The inevitable consequence of this is, that when by any terrifying circumstance or perilous calamity the confidence between man and man is disturbed, our danger is considerable and our suffering extreme. We have made necessary to our vast transactions a system of delicate machinery; by some blow from without, or defect from within, that machinery will be occasionally impaired. Our hard capital is clothed in a soft web-work of confidence and opinion; on a sudden it may be stripped bare, and with pain to our prosperity.

We may perhaps doubt whether this system of enterprise and trust has not occasionally been carried too far. When we consider the vast extent of English trade, it is not satisfactory to think that a single establishment holds our entire bullion reserve. The fact is a consequence, not of the natural growth of commerce, but of legislative interference with that growth. By a series of enactments and a course of policy which, even if we had the space, it would be inopportune at present to describe, the English Government have given to the Bank a vast, and, until lately, a nearly absolute predominance in the London district. The consequence has been, that not unnaturally, all inferior banks have clustered around it. As there was no doubt of the solvency of the Bank of England (seeing that, even in 1797, when the Bank had no money, the Legislature intervened and said it need have no money), all other bankers, instead of running the risk—and, as experience has shown, the considerable risk—of keeping their own metallic reserve, place that reserve at the Bank, and draw it out by cheque as they want it. Obvious convenience has fixed the habit too deeply in our existing system to permit a hope of its removal: but it has the inevitable, and perhaps dangerous, result of placing under the uncontrolled management of a single set of directors the sole hoard of actual cash—the only fund we have to draw on for international payments, for foreign wars, or domestic panics. Under a more natural system, a set of banks of nearly equal magnitude, and nearly equal prestige, would have grown up, as very recently the London joint-stock banks have in fact grown up; and each of these, having no reason for particular friendship with any other, would have kept its own reserve. We are almost reviving the Aristotelic definition when we say that oligarchy is the government of wealth: but in real and modern truth, the tendency of a mercantile community in each trade is towards the supremacy of a few large establishments enjoying the means of carrying on their respective trades at the greatest advantage, and, as the case may be, trusted by or giving credit to the smaller firms grouped and collected around them. The Bank of England is a τύραννος, who has overthrown this free constitution, and maintains by irresistible usage its unnatural supremacy. The effect has been seen lately; what the Act of Sir Robert Peel sets aside as the banking reserve has recently been reduced from several millions to £959,000; and then, by a violation of the law, to less than nothing. Even if we disregard the technical provisions of that statute, the entire bullion reserve held, both for the banking credit and the paper currency of England, was on the 18th of November £6,684,000; a very small amount, as will be almost universally admitted, when we consider the vast amount of the contingencies and liabilities against which it is held; and that, in addition to these, it is liable to sudden calls to replenish, in case of need, the cash stores of Scotland and Ireland. We can hardly, with these circumstances before us, deny that we have pushed our system of credit rather too far,—have relied on too small a basis of actual capital, and incurred serious and needless danger from any vicissitude of foreign speculation.

Another circumstance, which has been much more dwelt on, but to which we ascribe much less importance, is the system pursued by the joint-stock banks of the North of England of lending the whole, or more than the whole, of their capital and deposits on the spot, and obtaining the necessary funds by re-discounting the north-country bills in London. Like every other contrivance of money-lending, this may be carried to an extreme at which it becomes dangerous; but within reasonable and proper limits, the system seems a proper and even an excellent one. The bills of Liverpool must be, in the main, good; for with all this pressure,—a pressure, too, likely to tell with unusual effect at the port which is the outlet and inlet of our American commerce,—very few Liverpool houses have suspended payment, when we consider the number of houses there are, and the complication as well as magnitude of their transactions. The Liverpool bills therefore are, in general, good securities for those who have money to lend. By the course of banking business, the bill-brokers and similar traders in London will have much to lend. The agricultural and nearly uncommercial counties of England, as anyone may see by looking at the map, are many: none of these, especially during the recent prosperity of agriculture, anything like employs its own money; the surplus funds of all these counties, by a natural gravitation, seek an outlet in the capital, which is the focus of national finance, and the market for securities best known and most accessible to the whole country. These funds are lent to bill-brokers, and joint-stock banks, who carry on a similar business—who are, in truth, bill-brokers as well as bankers; and by these they are employed in re-discounting the bills forwarded to London by the northern banks. In its essence, the system is this: A man in the north is trustworthy, and wants money; a man in the south has money, but does not know who is trustworthy; a middleman in London knows who is trustworthy, and lends the money of the south to the man in the north. Of course, as re-discounting is a system of extensive borrowing, it is exposed to all the evils incidental to every system of extensive borrowing. The banks which require re-discounts should, as a rule, confine them within limits which they can be sure of obtaining in times of adversity as well as of prosperity—should have distinct arrangements with bill-brokers to re-discount within those limits—and should select good bill-brokers who are able to perform those engagements. These are, mutatis mutandis, the same conditions which every prudent merchant who requires discounts would make with his banker who gives such discounts; and if these conditions be duly complied with, both re-discounts and discounts are safe to the borrower, and distribute with singular advantage the capital of the nation.

It is much to be regretted that members of parliament should have spent, in attacking the really beneficial system of re-discounts, the moral influence which might be applied with so much effect to other parts of our banking system. The obvious convenience which we have explained will insure to that system a longevity far greater than that which can be expected by peer or representative. The use of parliamentary eloquence is not to bewail fixed habits, but to improve improvable habits. If the re-discounting system has been pushed too far, as is possible, the effect is owing to the condition of the bill-broking trade in London, the state of which is certainly not in accordance with strict principle and may not perhaps be practically safe.

In its theory, nothing can be sounder than this trade. Money is received commonly in considerable sums; an interest is paid for them, smaller if they are to be repaid on demand and greater if they are only to be repaid after the expiration of a notice: this money is employed in the discount of commercial bills—the kind of security which runs off most regularly and most constantly, and which in times of scarcity and anxiety admits most easily of being curtailed. On the surface this would appear the safest kind of banking; the way of employing the money is the best; so much of the money is only repayable after a notice that the reserve which need be retained is smaller than usual. This apparent safety, however, is at present vitiated by a single fact. The rate of interest now given is so high, that the business would become unprofitable if any reserve were kept at all. Of this fact, which is familiar to those who are in any degree acquainted with the practice of Lombard Street, there is a very distinct explanation in the recent parliamentary inquiry furnished by a very experienced witness. The most influential partner in the house of Overend, Gurney, and Co., the most important house in the bill-broking trade, is examined as follows:—

“5206. You are aware, as you have referred to the habits of banking business, that it is the habit of the Bank of England, as well as, I believe, of other bankers, to keep a certain amount of their deposits in bank-notes in reserve?—Certainly.

“5207. Do the money-dealing houses in Lombard Street act on the same principle with regard to that money which is left in their hands at call?—They could not afford to do it; it is not the nature of their business, except under circumstances of danger as to the currency; they could not afford to pay interest for money and not to use it; it is the nature of their business to bring into action and useful employment the banking money of the country; it is their business to use it.

“5208. Do you, then, think that they may safely use all the money which they borrow, in lending it out at interest, provided it is on safe security?—Assuming that they employ it on bills of exchange falling due de die in diem, then experience shows that they may do it safely, without any hazard.

“5209. Without keeping any reserve beyond a banking balance?—Certainly. How could I afford to pay five or six per cent. for money if I did not use it? It would be certainly the road to ruin.”

At first sight this seems contrary not only to abstract argument, but to evident prudence. How can other people’s money be securely kept, a good deal of it on demand and the rest of it at a short notice (seven days is the usual period), if all of it is invested; and if none is retained in the till to meet sudden demands? The doctrine that a reserve is necessary to borrowers so situated has been maintained ad nauseam by all theorists on banking. The same authority, however, has explained the expedient by which it is rendered, as he thinks, safe, and, as all will agree, less entirely insecure. The explanation is rather long, but is curiously illustrative of real life:—

“5192. Then you think that the Bank of England could not stop discounting for the discount houses in Lombard Street, at particular times at least, without creating great injury to the commercial community?—I think it would create very great injury indeed. Of course the Bank Directors would use their own discretion; if they saw these houses discounting very long bills with them, and bills which were not suitable in any way, I take for granted they would not take them. Of course that would not affect the general question; but assuming that there is a drain upon the monetary system, and that the great money-dealers are driven to convert their bills more quickly than they fall due, I think it would be a very great calamity for the Bank to hesitate for a single moment; I cannot conceive any greater.

“5193. No matter what the reserve of the Bank of England was at the time?—Certainly.

“5194. Then you think that that is one of the grounds, in addition to those four which you have stated, which ought properly to be included in an act of parliament as a ground for infringing the act?—I hardly understand that point.

“5195. You gave four grounds as reasons for an alteration of the act at particular periods, but you did not enumerate that to which I have just alluded. Do you think that that is one which ought to be included in the provisions of the act of parliament?—I will mention a case, if you will allow me to refer to the house which I represent, because this is a fact which has taken place before. About twenty years ago, the Bank tried to adopt that course; I am obliged to speak personally, which I hope you will excuse. I happened to have been absent from London for three or four weeks: I came back to town, and found the whole of Lombard Street as if we had had a dark cloud hanging over it; our desk was piled with bills of the very finest commercial character; I said to my partner, ‘Mr. Gurney, what in the world has happened? Why do you not discount these bills?’ He said, ‘Because the Bank have intimated that they are doubtful whether they will discount for us.’ I said, ‘It is impossible.’ He said, ‘It is perfectly true; and therefore we will not discount the bills.’ I was quite shocked; I went over to the Bank, the Governor then was Sir John Rae Reid, and Sir Henry Pelly was the Deputy Governor; it was about 1839. I told them exactly what had taken place, and what the effect of their act had been. I said, ‘We have taken care of ourselves; it is not that we want the money for ourselves, because we have our bills to rely on, and unless there is a regular conspiracy, we shall not mind anybody. But we have to supply the public. You have stopped the issue of notes to us; and if you, who have been in the habit of supplying us with money when we required it, will not do so now, we, on the other hand, will not supply the public.’ I satisfied them that if they wished to curtail transactions, which was really their object, the way to do it was to make us act harmoniously with the Bank. Sir John Rae Reid said at once, ‘I perfectly understand you’; and after a little consultation he said, ‘If they are all proper bills, go and discount away; and if you want money, come to us.’ I went home, and told them what had taken place. It not only affected us, but it affected the whole of Lombard Street; this dark cloud disappeared, and a perfect sunshine took place in an instant. We discounted everything; and, as far as my memory serves me, I do not think we went to the Bank for a shilling; there was no interruption to the ebb and flow of the banking money. But when the Bank of England said, ‘You shall not have it,’ the effect was to lock up millions immediately; for a large portion of the Banking money deposited with us is in great masses, because the parties know that they can have it in a moment. If, in our own arrangements between ourselves and the Bank, the Bank say, ‘We will not do this,’ all that is stopped in a moment; and those millions, which would otherwise be of benefit to the public, under existing circumstances become immediately locked up; because people say, ‘We would rather have no interest at all, than have a doubt about our getting the money in case we require it.’ ”

Probably this is a satisfactory resource if the Bank of England is ready at all times, and willing at all times, to give the re-discount required. A man may advance every shilling of borrowed money on securities which he is sure that he can pledge in any quantity and at any time. But can these traders be sure that the Bank will be at all times so able and so willing?

Of the willingness of the Bank there need be no question. Its leading director has explained the system on which it acts. Mr. Norman is asked:—

“3527. The advances of the Bank of England are made through what is called the Discount Office?—The greatest part of them.

“3528. What is the nature of the Discount Office?—It is a very anomalous institution, because the Bank is supposed to hold out an offer to everybody to lend money to any amount on bills of exchange at a rate of interest fixed by itself, and subject, first of all, to variations in the rate of interest, and then to certain other contingencies, such as a diminution in the échéance, and an occasional rejection of securities ordinarily admitted.

“3529. Is it not principally by raising the rate of interest that you check the amount of discounts which may be so demanded of you?—Yes; we have found, contrary to what would have been anticipated, that the power we possess, and which we exercise, of raising the rate of discount, keeps the demand upon us within manageable dimensions. There are other restrictions which are less important. The rate we charge for our discounts we find, in general, is a sufficient check.”

The power of the Bank is far less evident. If Sir R. Peel’s Act is to be retained, and really acted on during a crisis of difficulty, that power would, if we may trust our experience, not exist. When there was less than a million in the reserve of notes, it was quite certain that the Bank could not make unlimited advances. Unquestionably, by keeping a much larger reserve in times of security, the Bank may retain the power of making these sudden and large advances in times of insecurity. And if the Bank directors in the forthcoming inquiry mean to support the Act of 1844, they most certainly should assure the public that they will in future adopt that expedient. It is idle for them to undertake to make very great loans, and also to defend an Act which limits their means, unless they can show us that by judicious management these means can be made practically adequate to such advances. They must either abandon the argumentative defence of the statute of restriction, or they must show us how the business which they profess to carry on can be managed within the provisions of that statute. And even irrespectively of the conditions of this Act, a cautious banker hardly likes to be under an engagement to make advances however great, in times of difficulty however severe. It may be safe, but it does not sound safe. A much larger reserve of bullion than six or seven millions seems quite necessary to render the profession to afford such advances even plausible.

We are therefore of opinion, that though the state of other trades in England was as satisfactory during the present autumn as we can in general hope to have it, the condition of the money-lending trade was critical, and perhaps perilous. We think that the reserve held by the Bank for its banking liabilities was dangerously low; especially when we remember that this is the only actual cash reserve for all the banking liabilities of the country. We believe that the bill-brokers of Lombard Street incur serious risk in depending on the ability of the Bank to make unlimited advances at moments when money is remarkably scarce. On both these points we have the same fault to find with the money-lenders: that they have developed too highly the system of credit—in more graphic, though less elegant words, that they have “used up their money too close”; and do not keep enough of it unemployed to meet the contingency of an occasional pressure.

As we are using phraseology so similar, we would desire, however, to distinguish ourselves particularly from those persons who impute the principal error in the over-development of the system of credit in London to the joint-stock banks, which are now so remarkable a feature in its pecuniary system. We have no desire to enter the lists for everything which these banks have done; we should be inclined, on a proper occasion, to maintain that they have committed errors; and that, in consequence of the law which requires that every shareholder shall be liable for the debts of the bank to his last shilling and his last acre, there are defects in their management which it will be difficult to amend. Still, on the whole, the joint-stock banks of London have stood remarkably well; not only have none of them failed, but none of them have been in danger of failing. They have now gone quite safely through a general pressure, and some time since they passed through a special pressure consequent on the failure of the Royal British Bank; and in both cases the result has been beneficial. It is quite true that they have adopted the bill-broker’s business; but they have divested it of the dangers of which we have spoken. Being possibly conscious that, as apparent, and perhaps in some degree real, competitors of the Bank of England, they might not find extreme favour with the authorities of the “Discount Office,” the joint-stock banks do not rely on the support of that establishment in times of difficulty. Mr. Chapman the bill-broker, whom we have more than once cited, has given evidence on this point which we must believe to be conclusive, as it is in favour of those whom he admits to be his competitors. “Is it,” he is asked, “within your experience that the London joint-stock banks, such as the London and Westminster and other banks, re-discount their bills?” “I never heard of such a thing.” “Then in that respect the London joint-stock banks differ materially in their mode of carrying on business from that which is adopted by the discount houses in Lombard Street, do they not?” “Certainly they do; because it is our business to sell our bills again, and they do not sell their bills again that I know of.” These banks are enabled to carry on this course of business without recourse to the expedient which those who first practised it have been compelled to rely upon, because their situation is in one most important respect far more advantageous. The bill-brokers pay an interest for all the money which they borrow; the banks which compete with them have a great deal of money on the balances of drawing accounts for which they pay no interest—they can afford to keep idle some of their cheap money in order to provide for the occasional withdrawal of the money for which they pay highly. Of course they do this at the expense of a diminution in the profits which they might derive from the other parts of their banking business. If they did not keep their money idle for this peculiar purpose, they might employ it in the common way, and obtain a profit upon it. But this is a matter which may be safely left to the practised pecuniary judgment of the managers. If they carry on such a business, we may without rashness infer that it is a profitable one. Possibly they may, from an implied engagement to give for money one per cent. less than the minimum rate of discount, have been recently induced to give higher rates for deposits than we shall be likely to see again; perhaps the time of notice in which they hold their interest-bearing deposits may be too short; but these are points of detail—on a general view of the subject they must be considered to have diminished one of the most serious risks of the bill-broking business, at the same time that they have continued to afford to the public all characteristic advantages.

We do not consider as important arguments in favour of the conclusion that the system of credit has been perhaps too largely developed in England, the reckless advances which appear to have been made by the three large banks which have failed in Scotland and the North. In a great country like this there will always be some unsound banks, as well as some insolvent merchants. Two of these banks nearly suspended payment, and perhaps should have suspended payment, in 1847; and the other has been well known in the banking world for a speculative and exceptional business. We would not ground our conclusion on any singular and casual facts. We wish to base it solely on the small amount of cash, especially of cash available for banking liabilities, held by the Bank of England; and on the exclusive reliance of Lombard Street, and indirectly of the rural bankers, on the Bank of England.

This extreme development of credit must of course be attended with peril during a crisis, in whatever manner that crisis may be occasioned. Every crisis must disturb confidence; and credit is the effect of trust and confidence. We cannot but believe, however, that during the last two months the peril of this inevitable disturbance of credit has been much enhanced by our peculiar legislation. The proof of this seems to us to lie on the surface of the subject. The cause of panic is the expectation of insolvency. People who have during many years given long and large credit, become apprehensive, and wish to be paid in cash immediately. The peril of this state of feeling is measured by the amount of cash which is available to meet the demands for such repayment. As we have explained, the sole reserve applicable to such repayments during a pressure on Lombard Street is the banking reserve of the Bank of England. Previously to the Act of 1844, the Bank of England resembled the Bank of France, and held a single reserve of coin and bullion against all its liabilities, whether to note-holders or depositors. If this state of things had continued, the reserve of cash applicable to a domestic panic, and its proportion to the claims upon it, would have been shown by the following figures:—

“The result of which is, that the Bank reserve, beginning at about one-fourth of its general liabilities, was reduced to between one-sixth and one-seventh of them in five weeks. In that space of time, while the liabilities have been increasing, one-third of the bullion reserve has been abstracted.” This is evidently an account likely to create a serious feeling in the minds of attentive and cautious men. It would have convinced many of them, at least in our judgment, that our credit system rested on a basis dangerously small: but it is evidently an account requiring to be looked at with attention, and reasoned upon after consideration; it would not produce a frantic alarm in the minds of any of those who are incapable of steady reasoning, and are solely acted on by the tendencies of the moment, and the opinions of those around them. The extreme danger of a period of discredit consists in the frantic alarm which it occasions among such unreflective and undiscriminating persons. Sir Robert Peel’s Act enjoins a form of account which is felicitously apt to catch and rivet the minds of such persons. The amount applicable to the banking liabilities of the Bank of England, so long as the ordinary business of the Bank is going on, is the reserve in the banking department; this, it is true, consists of notes, but these are exchangeable on the other side of the Bank for bullion, and may therefore be regarded as tickets for so much bullion. The history of this reserve, and of the liabilities, to which it is applicable, is as follows:—

“Starting on the 19th of September with a reserve of more than one-third of the deposits, the Bank reserve was reduced on the 11th of November to less than one-eighteenth; and even supposing the £2,000,000, said to have been withdrawn for Scotland and Ireland not to have been so withdrawn, that reserve would have been under one-fifth.” Now these are figures which can be read not only by a man who runs, but by a man running very fast. The most inconsiderate mind must be struck by an account which shows so frightful a decrease of available resources. Every one, in truth, was so struck at a much earlier period than the last of the above dates; and the result was the panic of 1857. We think all candid persons should allow, that whatever other advantages the Act of 1844 may have, its effect just then was to aggravate seriousness into apprehension, and apprehension into terror.

This effect is the more perverse, because the first of the accounts, as legal authorities tell us, represents the real state of the Bank, and the other only embodies a theoretical form of account. This may seem unlikely to persons only slightly familiar with the subject; but it will not seem so to those who have studied the controversies in which the theory of the Act of 1844 originated. According to the accomplished persons who suggested that theory, it was desirable that the amount of the paper circulation (whether including the reserve of notes in the Bank of England, or excluding it, was by no means clear) should conform to the fluctuation of the bullion in the Bank; that for every new five pounds of bullion there should be a new five-pound note somewhere, and that for every new five-pound note there should be a new five pounds of bullion somewhere. The framers of the Act looked at the matter with the eyes of the economists rather than with those of lawyers. They wished that the five-pound note and the five pounds of bullion should always co-exist; but they did not care to appropriate or earmark the bullion for the payment of the note. They wished, as Lord Overstone has expressed it, that the note should be “the shadow” of the metal; but they did not especially care to enforce a legal tie between them. In the same way, the same school of legislators and thinkers enacted expressly that gold should go down to Scotland as a basis for the note circulation (above a certain limit); and yet did not at all specifically appropriate it to that circulation. In a word, it was rather the representative character of the note that they were anxious to secure, and not its convertibility, in its obvious meaning that whoever has a five-pound note should be sure of having five pounds in gold for it. It struck these theorists as immaterial whether the note-holder had the five pounds, or some one else had it.

The consequence has been, that a fictitious form of account, which really gives no priority to the note-holder over the depositor, appears to give such priority, and that the depositor is frightened into panic by the idea of his postponement; although it is not true.

The evils of a crisis so produced and so aggravated are of a complicated nature; and it would require much more space than we have at our disposal to specify all of them. A knowledge of one of them, however, is particularly important to a correct understanding of very recent events. By one of the most elaborate contrivances of our commercial system, credit, in its various forms, is largely employed as a currency. The bank-note is one of the most obvious forms of this; it is a mere promise to pay, but in its transference from hand to hand it closes bargains as effectually as gold itself. The bank-note, however, though the earliest and simplest, is not by any means in our refined commerce the most operative form of the credit currency. The large wholesale transactions, which really determine the general price of important articles, are rarely now settled in bank-notes. The real instrument of large operations is the cheque. It is within the familiar experience of every one, that all the ordinary purchases of private life are now so settled; the large purchases of trade are so also. Some people have a notion that a cheque is not currency because it is immediately paid and cancelled; but this is a mistake of fact. Very few cheques, in comparison with the whole number, are really paid over the counter in sovereigns. The person who receives a cheque probably keeps a banker, and pays the cheque into his account with such banker: if the latter is the banker on whom the cheque is drawn, the cheque is “paid” by a simple transfer from the account of the drawer to that of the payee; even if the banker of the drawer is a different person from the banker of the payee, the process is the same. The rural bankers, as a rule, settle their accounts in London. All London bankers settle their accounts at the “clearing house”; that is, they see what cheques each holds payable by the others, set off an equal amount one against another, and pay the balance themselves by a cheque on the Bank of England. Every London Banker has an account at the Bank of England, from which the cheque so drawn, by a slightly complex machinery of book-keeping which we need not explain, is transferred to the account of the banker who is to receive it. By this artificial arrangement, cheques drawn in Dorsetshire or Lancashire are really paid by transfers in the deposits of the Bank of England. No sovereigns or notes pass at all; the whole is a matter of book-keeping. It is evident that all this supposes a general feeling of confidence in the banking community. If every person who received a cheque took fright about the stability of the banker on whom it was drawn, or the adequacy of the provision made by such drawer in the hands of that banker for its payment, the system would be at an end. If every person who received a cheque rushed at once to the banker and obtained coin for it, there would be no room for this currency of set-offs, and the work of the clearing-house would cease altogether. In times of panic there is a good deal of this. If at such a period there is a run on the bill-brokers of Lombard Street (as there is understood to have been last November for two or three days after the stoppage of Messrs. Sandeman and Saunderson), a good deal of it is taken in bank-notes. Nervous persons do not like to trust to the operations of the clearing-house, which they will not know for some hours; especially if they hold securities, they will be very unwilling to rely on this distant process, or to part with them except on the payment of bank-notes. The expectation of this process produces even a worse effect than its reality. Every money-dealer, especially every country banker, who cannot from geographical difficulties at once replenish his stores, strengthens himself to meet the sudden demands of apprehensive persons. He has no confidence that other people will have confidence, and he provides accordingly. The consequence is, that a larger amount of coin and bank-notes is required in times when credit is large than in times when credit is small, because in our elaborate commercial civilisation we have coined credit itself into a currency.

These considerations afford the best reply to those theorists who seem to consider the letter from Lord Palmerston and Sir G. C. Lewis, permitting an additional issue of bank-notes upon securities, as a “debasement of the currency”. The exact state of things was this: The knowledge of a limit prescribed by former legislation has produced a feeling of apprehension which has destroyed the efficiency of a portion of your currency. The real bargaining medium of the country is as much diminished, or rather is even more diminished, by the diffused nervousness which we have spoken of, than it would be by the failure of a country bank issuing notes. Yet it has been generally admitted that, in the case of such a failure, economic principle did not forbid, and obvious common sense warranted, an issue of other paper by solvent persons of credit to supply the vacuum which had been so created. We can acknowledge no distinction for this purpose between bank-notes and other forms of credit. The circulating medium of the country, in this relation, must be regarded as an entire whole; whatever by the course of usage settles our domestic transactions, is a part of it; and when any important part of it is destroyed or impaired, we can recognise no violation of principle in a development of that which is unimpaired. The place of that which is wanting may surely be supplied by the substitution of that which we have. In the instance before us, the case is even a stronger one. What caused the panic was the apprehension of the legislative limit; the mere removal of that limit was in itself equivalent to a great increase of currency, because it supported so much credit which by custom and habit was performing the functions of currency. Lord Over-stone has observed of the circumstances of a former panic: “Look to the Government letter of 1847. What was the Government letter of 1847? Why, it was an indefinite increase of the Bank reserve. What was its effect? Not one note was put into what is called its active state. Not one single note passed out of the Bank in consequence of it; but the Bank reserve was instantaneously augmented. What was the result? A miracle was instantaneously worked. The want of confidence was removed; everything became 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.” Can there be a more satisfactory testimony to the effect of the limit upon the issue of bank-notes in impairing the efficiency of the “credit currency” of the country, or of the instantaneous rapidity with which that credit currency is repaired by its removal? On the present occasion it has been necessary not only to erase, but to overstep the limit. There is hardly any one, in the midst of the facts, but will find, however, that the amount of circulating credit impaired by apprehension is very much greater than the not very considerable sum which has been issued beyond the law.

This affords also the reply to the suggestion of Lord Grey, that an issue of Exchequer-bills or stock would be more appropriate than an issue of notes. Neither of these would, however, repair the deficiency. A portion of the transferable credit which effects the purposes of money in the community has become inefficient; you can only substitute for it some other form of credit which will be efficient; and neither exchequer-bills nor stock are, in our present practice, capable of being used as money.1

There is, indeed, no other credit so well adapted as that of the Bank of England for sustaining and replacing other credits. Its central position, its great capital, its peculiar prestige, fit it especially for so doing; and if it kept a sufficient bullion reserve, and were unhampered by the restrictive operation of the Act of 1844, it could do so safely and without difficulty. The knowledge that it was able to do so would very likely prevent a panic; and a judicious use of its power would mitigate and relieve a panic if it should occur. We are aware that this involves the necessity of intrusting our entire bullion reserve to the discretion of the Bank directors. But, as we have seen all of our bullion reserve which is held for the banking liabilities of the country (or, if any one likes it better, all the reserve of notes in the banking department) is at present intrusted to their discretion. They can, by errors in judgment and miscalculations of events, with facility reduce this part of our reserve to the zero at which it lately stood. Is there any great additional risk in giving them an entire control over the whole?

It is, indeed, alleged, and in part truly alleged, that the operation of Sir R. Peel’s Act is to compel the Bank to make provision for a drain of bullion at an earlier period than it would otherwise have done. No one can deny that the Act of 1844 has been a most instructive scientific experiment; and the evidence recently given by the Bank authorities, as compared with that given by them ten years ago, certainly proves that they have learnt a good deal that is very valuable. But now that the precedent of breaking the Act is thoroughly established, we may well question whether the conduct of the Bank under it will be different from what that conduct would be without it. The resource of breaking the law will always be in the background of the mind. In overt argument the Directors may allege that they are not relying on such a resource; but patent facts will have their influence. They know that they can have a letter of licence if they choose; and they will never act as though they could not have it. Although, therefore, Sir R. Peel’s Act, and the reasonings on its working, have taught us much valuable caution, we cannot expect that the Act will enforce a degree of prudence on the Bank which it would not exercise otherwise,—certainly not that the degree of extra prudence which we shall so obtain is worth the feverish apprehension which the knowledge of the restriction is sure to produce.

Some theorists have indeed said, that there should be a warning now and once for all explicitly given that the Act shall be broken no more. We have seldom any faith in legislative “compacts” and promises fettering the inevitable discretion of future administrators. But in reality we have now something like a compact that the Act will be evaded when future circumstances are similar to those we have just passed through. Chancellors of the Exchequer are cautious men; the desire of cautious men is to be safe; the way to be safe is to follow a precedent. The boldest man in England would shrink from not following a precedent, when the inevitable and instantaneous result would be the failure of the Bank of England, and the consequent and irretrievable ruin of the banking and money-dealing community. No one who duly considers how formal is the habit, how extreme the prudence, and how tenacious the love of precedent in English statesmen, will have any idea that any of them will ever be so wedded by an abstract, an abstruse, and, in our judgment, an erroneous principle, as, in a pressing crisis, to accept such a responsibility.

Some statesmen have fancied they can elude the difficulty by carrying further the essential principle of the Act of 1844, vesting the business of issue in a Government department altogether and geographically separate from the Bank of England. We do not, however, perceive how, if that course had been adopted previously to the present crisis, it would have at all lightened our difficulties. The issue department of the Bank would have been at Somerset House; but the banking department would have been just in the same state that it was. The demand on it would have been the same, and its funds precisely the same. The destruction of the credit currency, such as we have described it, would have been exactly as important; the need of a remedy as urgent; the kind of remedy identical; public opinion would have pressed the Government to authorise an extra issue, just as now: indeed the pressure in all real likelihood would have been greater, because the interposition of an independent body like the Bank shields the Government from impatient clamour, and mitigates the apprehension of a factious political opposition. At any rate, men of the world will commonly believe that, notwithstanding the change of form, the Government would have done exactly what they have now done. You may make a rigid rule easily enough; but where will you find a rigid statesman to adhere to that rule?

The separation of the issue department from the Bank is supported, as he himself tells us, by Mr. Gladstone, because he believes that it is a confusion of the business of issue with that of banking, which leads to the notion that it is the business of the Bank to aid trade without limitation in crises of difficulty. We have seen, however, that this notion rather arises from the habit of the Bank (as explained by Mr. Norman) to make advances at all times, to unlimited amounts on such securities as come within their peculiar rules, or only to check those advances by the greater rate of interest charged to the borrowers in times of scarcity. So long as the Bank has any such principle as this, no separation of the issue department from the banking department will weaken the pressure upon it. If the Bank of England were to define the limit of its advances to its regular customers, and not consider itself bound to make advances to any but its regular customers, no separation of the business of issue would be needful. We are not recommending this course—for it is not in the parenthesis of an article that the fundamental maxims of the most important corporation of the country can be discussed—we only say, if an alteration is needed, if it is undesirable that the Bank should be expected to advance without stint on occasions of scarcity—this alteration of their banking practice will be absolutely necessary, and will be enough to effect that which is required. A change in the geographical position of the power of issue would have upon it no effect whatever.

The next suggestion which is made by those who wish to retain the essential peculiarity of the Act of 1844, and at the same time to prevent the necessity of extra-legal and recurring suspensions of it, is the “elastic clause”. The details of this proposal have never been very well worked out, and probably differ much in the minds of different theorists. The essential principle of it, under all variations, however, is, that at a certain point in a commercial crisis, either the Bank Directors or the Government, or both together, should have a legal right to authorise an additional issue of notes upon securities. Some persons would restrict the power to occasions at which the bullion was below a certain point; others to times at which the rate of interest was as much as 10 per cent. or 12 per cent.; and others again to times at which the exchanges were not unfavourable to the country; but these persons are all agreed that at some point or other in the crisis some such step should be taken, and some power of taking such a step without infringing the law should be provided. If the Act of 1844 is to be retained, we can scarcely question that such a power should be given; and yet there are many and great difficulties in settling the way in which it should be conferred, and the persons to whom it should be intrusted. We may dispose—at least so it seems to us—almost at once of the suggestion for an exact pre-appointment of the occasions on which this exceptional discretion is to be exercised. The circumstances of commercial crises differ so very much, that even for the few of which we know the details it would not be easy to fix a machinery which would be uniformly applicable; and it would be immeasurably more difficult to prescribe beforehand, and in an enactment, for all which the future may have in store for us. We may have a domestic panic when the bullion in the issue department is above any point which we can exactly specify—when the rate of interest is 8 per cent. or 10 per cent.—during a foreign drain of bullion, or after it. No practical statesman will, it is probable, frame an elaborate proposal of this kind; persons conversant with complicated affairs are habitually averse to minute predescription, and to any profession of foreseeing more than it is possible to foresee. The most plausible of these contrivances is that which would fix the minimum rate of interest to be charged during the time that the Bank may avail itself of such exceptional issues; but even this is liable to the two objections—that it may happen that the minimum is fixed too high; and that the necessity of changing it, in order to obtain the needful notes, may impose a needless burden on the public during a time of difficulty: and secondly, that it only in appearance limits the occasions on which the exceptional power may be exerted, since the fixing the rate of interest must necessarily be in the same hands as the exercise of that power, whether of the Chancellor of the Exchequer or of the Bank, or of both; and if those authorities at any time wish to avail themselves of the power, they can adjust the rate of interest accordingly. On the whole, therefore, if such a clause should be hereafter added to our legislation, it will probably be found necessary to leave the occasions on which it may be exercised, as well as the extent and manner of that exercise, to the unfettered discretion of some persons, and it will only be necessary to consider who those persons should be. At first sight, it seems absurd to place this expansive power in the sole discretion of the Bank directors. These are the persons, it should seem, whose discretion we cannot trust, and on whom we wish to impose a binding fetter; yet great difficulties arise when we attempt to vest any such power in any department of the executive government. As Mr. Gladstone has observed, nothing can be more foreign to our habits, and to the entire genius of our legislation and society, than that ministers of the crown should have to decide which commercial house or firm is to stand and which to fail. Yet in actual practice the discretionary employment of such an expansive power as is proposed does of necessity involve their having to decide such points. The power is only to be exercised in times of extreme pressure or of panic. What is to be the test of the extremity of the pressure? The only test is the stoppage or critical position of great commercial houses. The panic apprehension which brings such eminent firms into a crisis of difficulty can only be tested by communication with such firms, and an examination of their difficulties. No more delicate or unpleasant power can be placed in the hands of any minister, especially of a minister under a parliamentary government, who may be politically and closely connected with some commercial city, and have to decide on the ruin or prosperity of his warmest and most important supporters. Vesting the expansive power in the Government has also some of the inconveniences, just now so familiar to us, of a double government. In 1847, the Bank directors maintained that the state of the Bank was a perfectly safe one, that they desired no help from the administration, and that the issue of Sir C. Wood’s letter was only desirable—if desirable at all—for the general welfare of the commercial community. We do not know if there was any such “coquetting” on the last occasion; but in her Majesty’s Speech, and in the debate, ministers appeared to take on themselves the full responsibility of the extra-legal act. In this there is certainly some anomaly. The Bank directors ought to regulate, and ought to be responsible for, all the acts of the Bank, whether legal or extra-legal; whether they were done in the common course of business, or under the authority of an “elastic clause”. The legislative creation of such an expansive power, assumes that its existence is necessary and its employment at times desirable. The authorities of the Bank can hardly be permitted to abdicate all responsibility at these times—to manage in ordinary periods as they did in the year 1847, so as to aggravate the intensity of a great crisis; and then, in the moment of the most harassing difficulty, to devolve the entire care of the banking community upon the executive government. The warmest admirers of a duplicate administration will scarcely recommend that we should have one set of authorities to get us into trouble, and another set to get us out. We can hardly question, that if there is to be such an elastic element within the limits of the law, the Bank should have a share in the responsibility of withholding it or of setting it free. Possibly the best solution of these conflicting practical difficulties would be, to vest the responsible discretion of making or not making such exceptional issues in the Bank and the Government together. We would recommend that there should be a distinct application from the Bank to the financial executive for the permission to make such unusual issues, and an official reply from the Government authorising such issues to be made. We should then clearly know who was responsible for what has been done; the Bank directors, having expressly asked for permission to overstep the ordinary limit, could not in any degree evade an important share in the responsibility so incurred; the Government, having acted at the request and under the counsel of the Bank directors, would be relieved from some part of the odium which attaches to the intervention of parliamentary statesmen amid the distressing personalities, and what must be to them the unaccustomed scene, of a commercial crisis. As we have formerly remarked, we believe that if such a discretion is to be given at all, it had better be an unrestricted discretion. Only a doctrinaire pedantry can, we think, presume to enumerate circumstances, or define the precise minute at which it will be required.

The difficulty of framing such an “elastic clause” throws great doubt, in our judgment, on the advisability of framing it at all. This arbitrary limit, and authorised manner of overpassing it, have rather an appearance of artificiality and technical theory. All such schemes are likewise liable to the objection that the relief they provide us with, is, if the expression may be allowed, relief with a jerk. The panic is allowed to become imminent, and then is on a sudden calmed by an extraordinary and peculiar act. Under an unfettered system the relief might be given gradually, insensibly, and as a matter of course.

We are aware of the great feeling which exists in England against vesting an unfettered power of issuing notes payable on demand in any body whatever. We believe that this feeling, in so far as it is a just one, is founded on historical circumstances, especially on the insolvency of the old race of country bankers in times when banks were not allowed to be composed of more than six partners, and on remarkable misuses of its metropolitan monopoly during the same period by the Bank of England. Much might be said as to these historical circumstances in mitigation of these apprehensive feelings; but it is simpler to observe that the whole subject is a choice of difficulties. It may be an evil to have discretion; but the events of the last few months prove—and all that we have written is but an attempt to explain—the evils of a rigid rule which admits of no discretion.

Much of the apprehension which prevails in England as to “baseless paper” might perhaps be calmed if we adopted the plan of requiring from all issuers of it a specific security. If all notes were known to be secured by a deposit of consols, with a margin of consols taken at a low value, the fear of our being flooded with paper issued by insolvents, and representing nothing, might be mitigated. This might be extended to the country districts, and to Scotland and Ireland; and the currency of the three kingdoms would then be uniform, would be protected from panic feeling, and would be reasonably and justly relied on by the public.

The whole of our banking system is to be explored, it is said, before the impending committee, with an acuter attention, if possible, than ever before; and though we cannot expect a great deal of new light, we may perhaps hope to have some. We should especially hope that we shall not have on any future occasion the class of theorists who have beset us lately, and who maintain that the Government relaxation of the Act of 1844 is a debasement of the currency, and yet do not dare distinctly to impugn its propriety; with such speculators there ought to be no argumentative quarter. A debasement of the currency is a measure which can never be right under any imaginable conjuncture of events; it is a violation of a fundamental maxim of morality. We can imagine many reasonings under many circumstances for a suspension of cash payments; unfortunate events may prevent our paying our debts for a time, and it may be necessary to postpone all creditors to avoid an unequal preference of some few. But we can imagine no circumstances in which it would be right to compel people to accept little shillings instead of large shillings. No words can be too mean for the subterfuge of professing to pay our debts, when we are really giving less than we contracted to repay. Those whose theory logically compels them to take this view of the Government relaxation, ought to have opposed it with a far greater decision and explicitness. As a matter of fact, we apprehend, however, that the practical good sense of the most accomplished of such persons really makes them feel that if they had been in the position of responsibility, they would have acted as her Majesty’s Government have done; accordingly, whatever a rigid logic may advance, their essential judgment is in its favour.

Notwithstanding the arguments of some eminent orators, the whole subject is not yet exhausted. There is no exhausting subjects on which experience daily accumulates, and of which the details daily change. We have only been able to touch on a few points in comparison of the many which are important, and yet we must have wearied our readers. We can only hope that other writers will be both more exhaustive and more agreeable.

END OF VOL. II.

aberdeen: the university press

[1 ] The chief exception to the remark that our trade is of itself sound, occurs in the houses connected with the North of Europe, who contrary to what might have been expected, have not stood so well as the American houses. This exception is not, however, one of sufficient importance to affect our general argument.

[1 ] The Economist of the 28th November, 1857, gives the following figures as representing the state of the New York banks at their respective dates:—

Yet many considerate persons still impute the disasters of the country to the mismanagement of the currency. Even Mr. Cardwell, in the debate on the reappointment of the Bank Committee, allowed himself to use language which would convey such an impression: “You have gone through a great disaster, emanating from a country, let it never be forgotten, that has this convertible currency, every bank of which has suspended payment,” etc.—Times, Saturday, December 12th.

[1 ] To the issue of Exchequer-bills there would be the further objection that they were scarcely saleable; and if there had been a dream of any large new issue, they would have become unsaleable. The high price of stock, and the readiness with which loans could be obtained upon it, arises from the number of trustees and similar persons who are confined by settlements, etc., to that investment.