same manner as the Bank. The same amount would be in circulation after as before. It would only have changed hands. Sales and purchases made by individuals produce little disturbance, for the reason that they do not usually act in mass, in one direction. It is not when the Bank purchases governments, but when it seeks to sell them, that the mischievous character of the transaction shows itself. When it wishes to sell, it cannot. To go into the market with its securities in seasons of great pressure, or in a panic, would only serve to increase the run upon it. Should it attempt this, it would only be an additional competitor for money which it would have to pay out again as soon as received. It might be utterly powerless, from inability to convert its means. In such a crisis, the public do not want securities, but money, - that which will instantly discharge their liabilities. If, on the other hand, its loans were made wholly in the discount of bills, no panic, or run upon it, could arise, that could not be speedily checked by a refusal to make further discounts. There can be no considerable inflation, so long as the currency is symbolic, for the reason that the public, in such case, deal in actual values, in equivalents, whose real, or representative, equals their nominal value. A panic arises only when it is seen or feared that, in the exchanges that have taken or are taking place, equivalents are not exchanged, that the currency does not entitle its holder to a corresponding amount of capital. If such fear or suspicion become a conviction, there

and of its assets, other than its share capital, as they were on the 29th of February, 1832.

Of its advances on various accounts, only one tenth was in commercial bills. Its liabilities of the same date were: notes, £18,051,710; deposits, £8,937,160: total of £26,988,870. Its rest, or accumulated earnings, equalled £2,637,760.

is a contest of speed to see who shall secure to himself whatever reserves the issuer of the currency may hold. If this be issued in large amount, the panic may become excessive and general, involving issuers whose currency was purely symbolic, as well as those whose currency was wholly fictitious. As a

rule,

able

no issuer of currency, no matter how legitimate, will be to liquidate all his liabilities upon the instant. As the parties to whom the issues upon bills have been made are the very ones who undertake to return them, they will, so long as they are solvent, seldom or never seek to draw coin for what they may hold, when they must speedily return it to the Bank in payment of their bills. The danger arises when there are no reciprocal obligations between the issuer and holder of currency. If the Bank were to make an issue in the purchase of government stock, for example, against a large amount of gold which it might happen to hold, it might have to provide all the means for taking it in; and it would be almost certain to have, not the support, but the opposition, of the public, who would not only refuse to purchase its securities, by the sale of which it must replenish its means, but present all the notes they held for payment in coin. What adds to the peril is, that the Bank must, as a "manager of the currency," issue to all parties who come within its rules in the matter of security, rules that were established, very likely, when the demand for money was far below the supply. The public, in such case, not the Bank, are the judges of the amount of money required. Its only means of defence is in its power to raise the rate of interest to a point that shall render it unprofitable for them to borrow, a most impotent defence, as the catastrophies of 1847, 1857, and 1866, abundantly prove.

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The state of the exchanges is a wholly inadequate test whereby to regulate the issues of the Bank, for the reason that the causes which are to render them unfavorable may be in most active operation at the very time they are in the highest degree favorable-when every thing wears the appearance of the greatest prosperity. The currency may be, and often is, excessive in amount― more than full-long before the exchanges become unfavorable. Such, indeed, is usually the case. Το take them as a rule for the regulation of the currency has the same and no higher wisdom than to lock the door after the horse is stolen. Gold is not exported, as Smith and the Econo

mists assume, the moment an excess of paper is issued; but only when the paper has been expended in the purchase of that which can be paid for only in gold. The final payment in gold, with the facilities which now exist for renewing and extending banker's credits, may be put off for years; so that the state of exchanges may not, for years, sufficiently indicate the financial condition of a country. A rule or test, to be worth any thing, must be that which shall prevent the possibility of an adverse exchange, which shall put it out of the power of a people to consume more than they possess or produce. This can only be done by restricting the currency to the amount of merchandise fitted for consumption; the instruments, to the means of expenditure. This done, exchanges could never be long unfavorable, and never excessively so. In the ratio that such rule is not followed, in the ratio that the currency is not symbolic, will the exchanges be unfavorable; the degree of aberration in one case measuring very accurately that in the other.

The agreeable picture drawn by Mr. Palmer and his associates of their happy lot as managers of the Bank, having nothing to do but to allow the oscillations in the amount of its circulation and coin to regulate themselves with a certainty and uniformity far transcending human skill, was soon to give place to a very different one. The oscillation which carried gold into the Bank in 1832 and 1833 began, in 1834, to carry it in an opposite direction. The amount held by it on the 31st of August, 1833, was £10,870,000. This was reduced, on the 31st of August, 1834, to £7,303,000; on the 31st of August, 1835, to £6,255,000; and on the 21st of February, 1837, to £4,077,000, the last-named sum equalling only oneseventh of its liabilities, instead of one-third, according to the rule claimed to have been laid down for the management of the Bank. The reduction in the amount of specie in the three and a half years equalled £6,793,000. In the same period its note circulation was reduced from £19,925,000 to £18,165,000; its deposits from £11,927,000 to £10,040,000: the total reduction being only £3,647,000,-a sum equalling only about half of the reduction in the amount of its coin. The balance of the coin lost, that is, £3,146,000, must have been paid out in new loans; these being increased

from £23,245,000, in 1833, to £27,297,000, in 1837. The action of the Bank, therefore, in increasing its loans while its specie was being withdrawn, was enough to defeat the operation of the rule laid down for its guidance, assuming its competency when no increase of loans was made. As there was no evidence that a return flow of specie was likely to set in, and as great alarm and disturbance in monetary circles were the natural consequences, Mr. Palmer felt called upon to explain the reason why the rule was no longer observed, or refused to work. This he attempted to do in an elaborate essay published in the early part of 1837.

"The system" (prescribed for the conduct of the Bank), he said," appeared to work satisfactorily, and without any forced action on part of the Bank in contracting its circulation. It was tried upon the change of government in France in July, 1830, when credit throughout that kingdom was shaken to its foundation. At that period, the Bank of England was possessed of about twelve millions of bullion. Immediately upon the events referred to taking place, the currency of England exhibited an excess compared with that of France and other parts of Europe. The consequence of that derangement between the currencies of this and other countries was a continued diminution of the bullion held by the Bank from July, 1830, to February or March, 1832, when the increased value of money in England, and the gradual restoration of credit upon the Continent, gave a favorable turn to the foreign exchanges; which continued in our favor till the autumn of 1833, at which time the bullion in deposit at the Bank amounted to nearly eleven millions. At this period, an exportation of the precious metals again commenced, from causes that will hereafter be explained, as well as the reason why that system, which appeared to adjust itself so satisfactorily from 1830 to 1832, failed from 1833 to 1836: for, although during the former period the bullion of the Bank was diminished from twelve to five millions, yet in the progress of this reduction, as there was no excitement, and no undue credit given by the Banks in the interior of the country, the interest of money gradually rose from 2 to 4 per cent per annum for firstrate commercial paper; and then, without discredit or distrust of any kind, the bullion returned into the coffers of the Bank, and money nearly resumed its former value, the rate of interest having gradually fallen from 4 to 23 per cent in July, 1833. . .

"But, before preceding farther, it is necessary to allude to the rise and progress of joint-stock Banks in England, Wales, and Ireland. Scotland having, fortunately for that part of the empire, kept itself free from the mania for the extension of these companies, it is unnecessary particularly to allude to the proceedings of its Banks.

"Immediately subsequent to the panic of 1825, which affected

almost every banking establishment in London as well as the country, the government of that day was unfortunately induced to call upon the Bank of England to relinquish, beyond sixty-five miles from London, its exclusive privileges as to the number of partners authorized by law to be associated for the formation of Banks, in order to enable ministers to frame regulations authorizing the establishment of joint-stock Banks throughout all parts of the country beyond the limit above specified; thereby virtually declaring that the existing private Banks were unworthy of credit. The term 'unfortunately' is used; for, perhaps, there never was a measure more uncalled for by the wants of the community. The existing system was intimately connected with the prosperity of the country, and was good in all parts, except the power of issuing paper money ad libitum. The change in question laid the foundation of a new system, to be brought into the field by competition in the issue of paper money, the most prejudicial means that could be devised. A reluctant concession was obtained from the Bank; and, in order to place the whole subject before the public, the correspondence which then took place between the government and Banks is annexed to the present statement. Very little progress was made in the formation of those projected institutions prior to the year 1830, when a further application was made by government to the Bank for concessions intended to have formed part of the conditions at that time for the renewal of the charter. The opinion of the Bank remained unchanged as to the danger to be appre hended from the extension of the system of joint-stock Banks, and this opinion was pressed upon the government at that period.

...

"Having thus briefly stated the proceedings which have occurred in the establishment of joint-stock Banks prior to the renewal of the charter of the Bank of England, it may, perhaps, be proper to state the periods of increase of those of issue from the year 1826. They are as follows, taken from returns furnished by the Stamp Office: