either of coin or the gold produced from it combined in improving the state of the exchange, and in producing a corresponding diminution of the difference between the market price and mint price of gold, or of paper convertible into gold.

"It was a necessary consequence of the suspension of cash payments," continued the Committee, "to exempt the Bank from that drain of gold which was sure to result from an unfavorable exchange and a high price of bullion; and the Directors, released from all fear of such drain, and no longer feeling any inconvenience from such a state of things, had not been prompted to restore the exchanges and the price of gold to their proper level, by a reduction of their advances and issues. The Directors in former times did not, perhaps, perceive and acknowledge the principle more distinctly than those of the present day; but they felt the inconvenience and obeyed its impulse, which practically established a check and limitation to the issue of paper. In the present times, the inconvenience is not felt; and the check, accordingly, is no longer in force.

"Your Committee beg leave to report it to the House, as their most clear opinion, that, so long as the suspension of cash payments is permitted to subsist, the price of gold bullion, and the general course of exchange with foreign countries, taken for any considerable period of time, form the best general criterion from which any inference can be drawn as to the sufficiency or excess of paper currency in circulation; and that the Bank of England cannot safely regulate the amount of its issues without having reference to the criterion presented by these two circumstances. And, upon a review of all the facts and reasonings which have already been stated, your Committee are of the further opinion, that, although the commercial state of the country and the political state of the Continent may have had some influence upon the high price of gold bullion, and the unfavorable course of exchanges with foreign countries, this price and this depreciation are also to be ascribed to the want of a permanent check, and a sufficient limitation of the paper currency in this country.

"In connection with the general subject of this part of their Report, the policy of the Bank of England respecting the amount of their circulation, your Committee have now," said the Report, "to call the attention of the House to another topic, which was brought under their notice in the course of their inquiry, and which, in their judgment, demands the most serious consideration. The Bank Directors, as well as some of the merchants who have been examined, showed a great anxiety to state to your Committee a doctrine of the truth of which they professed themselves to be most thoroughly convinced that there can be no possible excess in the issue of Bank of England paper, so long as the advances in which it is issued are made upon the principles which at present guide the conduct of the Directors; that is, so long as the discount of mercantile bills is confined to paper of undoubted solidity, arising out of real commercial transactions, and payable at short and fixed periods. That the discounts should be made only upon

the Bank, if properly made, can never be in excess. If improperly made, every note will be in excess. The Committee simply reiterated, in effect, the dogma of Smith, that money was an instrument, a wheel of commerce, - the value of which depended upon the relation its quantity bore to the quantity or value of goods to be exchanged; and that inherent value was no necessary attribute of it.

So long as the Bank was liable, say the Committee, to discharge its notes in coin on presentation, it conducted its affairs in view of such a liability. Relieved from this obligation, it should have conducted them in reference to the price of gold and the condition of the exchanges. To act in reference to such standard or rule would be to resume; for it could make its notes equal in value to coin, only by paying coin when demanded. This it was forbidden to do. It could not do this so long as it remained in the power of government; and there was no hope that the latter would relax its grasp till peace was finally established. The proposition of the Committee, therefore, was an absurdity upon its face. No contraction of the currency in the condition of affairs would have increased the amount of gold in the Bank. It could not expect its bills to be paid in any other currency than its own notes; and, if it had not reissued them, the country would speedily have been without any currency whatever. The nation would have succumbed in the tremendous struggle in which it was engaged, while society would speedily have been remitted to a condition of barter. In the emergency, the Bank adopted the only possible course open to it: it continued to pursue that which had enabled it to maintain specie payments for more than a hundred years consecutively, previous to the Restriction Act. By a rigid adherence to it, it restored its position, after suspension, with marvellous celerity. So rapidly did it recover itself, that in 1800 it was perfectly able to resume payment, and would have resumed could the consent of government have been obtained. It is very probable that the Directors did not realize the great importance of such a step, or they might have brought the government to their views. The rule they followed during suspension, of discounting paper representing merchandise and having a short time to run, was the only possible one for them to follow. It not only saved the nation from ruin, but promoted

its welfare in the highest degree. While acting in such manner, they did not see that suspension removed the real check to an undue expansion of the currency. In this they were not wiser than their time. So long as a Bank pays specie, every mistake it makes, every improper discount, has finally to be made good by paying out a corresponding amount of coin. As this is drawn, its ability to make further loans is lessened in the same degree. After suspension, in case its notes are not retired by the payment of its bills, its ability to make loans in the future is not reduced, for the reason that, by creation of new notes which cost nothing, it can replenish its reserves, consisting of notes, to any amount. It is like a ship at sea that has lost its compass, and all means of determining its position. It must sail, if it sail at all, by the best lights it has; and, although its general direction may be plain enough, it may in time find itself far out of its proper course; so that, when it makes land, it may be wrecked, or may have to refit, and so reach its destined harbor with great loss and damage. It was only when the Bank came into port, as it were, when it undertook to resume by converting its assets into coin, — that the degree of its departure and the losses it sustained could be ascertained. It was not shipwrecked, although it suffered great loss. With the lights it had, it pursued the course best fitted to promote the welfare of the nation as well as its own. The error of the Committee consisted not only in denying the correctness of the rule followed by the Bank, which was the only practicable one, but in imposing one impossible to be followed. It never occurred to them to inquire whether the evils complained of might not have arisen from other modes by which the Bank made its loans. At that time it had loans upon governments, Exchequer bills, to the amount of fully £17,000,000; the amount of loans upon bills at the time equalling about £20,000,000. Such inquiry, if made, might have shown that the condition of affairs might be almost wholly referrible to the action of the Bank in its relation to the government. The sudden recovery of the former, after the passage of the Restriction Act, -a recovery wholly due to a rigid adherence to the principles upon which a convertible currency must rest, attracted no attention whatever. It would be supposed that so remarkable a phenomenon would have received the most careful investigation. That

neither such recovery, nor the relation of the Bank to the government, were made subjects for consideration by the Committee, shows how narrow were their vision and scope. It is not improbable, however, that both Directors and Committee assumed that no inflation or harm could come of loans made upon public securities; that the value of such must be a sufficient guarantee of the propriety and value of all issues made upon them. Nothing can be more natural than such inference, as the share capital of the Bank had, from the outset, been wholly invested in public securities; and as the Bank, so organized, had continued to pay specie for more than one hundred years consecutively. With Englishmen, a precedent an ounce of the past outweighs a ton of the future; so that, with them, the old disappears only by being absorbed or overlaid by the almost imperceptible growth of the new. Such trait may be referred to in their praise, and may be the reason why their progress, though so slow, has been so uniform and sure, and, through the ages, so immense.1

1 Economists have never been able to master the reason of the sudden recov ery of the Bank after the Restriction Act, due wholly to the prudent conduct of the Directors in making their loans. For them, it only re-enforced the old dogma, that the value of the currency depends upon quantity alone. The rise of the notes of the Bank to par after the suspension is now accepted as fully proving such assumption. The explanation given by Tooke is a curious illustration of the treatment by the Economists of this as well as of similar subjects:

"It becomes a curious matter of speculation to inquire, how, with motives so strong to constant and progressive excess, and under the guidance of maxims and principles so unsound and of such apparently mischievous tendency as those professed by the Governor and some of the Directors of the Bank, in 1810, such moderation and (with some exceptions which will be noticed hereafter) such regularity of issue should, under chances and changes in politics and trade unprecedented in violence and extent, have been preserved, as that a spontaneous readjustment between the value of gold and the paper should have taken place, as it did, with out any reduction of their circulation.

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"The explanation of the difficulty seems to be this: the rule by which the Bank Directors professed to be, and were in the main, guided, — viz., the demand of good mercantile bills, not exceeding sixty-one days' date, at the rate of five per cent per annum, - did, with the necessary policy of government in periodically reducing the floating debt within certain limits by funding, operate as a principle of limitation upon the total issues of the Bank. And the reason of the rule having so operated is to be found in the fact, that the market rate of interest for bills of the description which were alone discountable at the Bank did not materially, or for any length of time together, exceed the rate of five per cent per annum. But the Bank Directors seem to have been unaware of the precise mode of operation by which their rule had the effect of a principle of limitation against great or permanent excess in their circulation."-Tooke's History of Prices, Vol. i. p. 158.

The rule of the Bank in discounting bills having sixty-one days to run, at the

"By far the most important of these consequences," continues the Report, "is, that while the convertibility into specie no longer exists as a check to an overissue of paper, the Bank Directors have not perceived that the removal of that check rendered it possible that such an excess might be issued by the discount of perfectly good bills. So far from perceiving this, your Committee have shown that they maintain the contrary doctrine with the utmost confidence, however it may be qualified occasionally by some of their expressions. That this doctrine is a very fallacious one, your Committee cannot entertain a doubt. The fallacy upon which it is founded lies in not distinguishing between an advance of capital to merchants and an addition of supply of currency to the general mass of circulating medium. If the supply of capital only is considered, as made to those who are ready to employ it in judicious and productive undertakings, it is evident there need be no other limit to the total amount of advances than what the means of the lender, and his prudence in the selection of borrowers, may impose. But in the present situation of the Bank, intrusted as it is with the function of supplying the public with that paper currency which forms the basis of our circulation, and at the same time not subjected to the liability of converting the paper into specie, every advance which it makes of capital to the merchants in the shape of discount, becomes an addition also to the mass of circulating medium. In the first instance, when the advance is made by notes paid in discount of a bill, it is undoubtedly so much capital, so much power of making purchases, placed in the hands of the merchant who receives the notes; and, if those hands are safe, the operation is so far, and in this its first step, useful and productive to the public. But as soon as the portion of circulating medium in which the advance was thus made performs, in the hands of him to whom it was advanced, this its first operation as capital, as soon as the notes are exchanged by him for some other article which is capital, they fall into the channel of circulation as so much circulating medium, and form an addition to the mass of currency. The necessary effect of every such addition to the mass is to diminish the relative value of any given portion of that mass, in exchange for commodities. If the addition were made by notes convertible into specie, this diminution of the relative value of any given portion of the whole mass would speedily bring back upon the Bank which issued the notes, as much as was excessive. But if by law they are not so convertible, of course this excess will not be brought back; but will remain in the channel of circulation, until paid in again to the Bank itself in discharge of the bills which were originally

rate of five per cent, did, according to Tooke, "operate as a principle of limitation upon the total issues of the Bank." And why? Because "the market rate of interest for bills of the description which were alone discountable at the Bank did not materially, or for any length of time together, exceed the rate of five cent per annum!" Such is the argument and conclusion of one of the great lights among the modern Economists, whose works are probably more referred to, and quoted with more approbation, than those of almost any one of his school.