of production and trade, and the ease with which they adjusted themselves on a sound basis the moment apprehension and uncertainty as to the future were removed. Nothing could have been more admirable than the conduct of the Bank. Relieved of the necessity of paying specie, it increased in one year its coin reserves in ninefold greater ratio than its liabilities in the form of notes. It had seldom or never been in a stronger position than it was during the two years after its suspension; and early in 1799, it signified its ability, and, with the consent of government, its willingness, to resume payment. But the latter, influenced by other considerations than those which relate to commercial and mercantile affairs, replied that it was inexpedient to resume in the present state of the country. With the suspension of specie payments came the abundant harvests of 1797 and 1798. Wheat fell to 418. the quarter in January, 1799. The seasons of 1799 and 1800 were unpropitious, and the price of wheat rose in May of the first year to 618. the quarter; and, at the end of the year, to 94s. 2d. the quarter. In June, 1800, it rose to 1348. the quarter; and, in March, 1801, to 1568. the quarter. The market price of gold, however, remained at the mint price, £3 178. 6d., till June, 1800, when the price of foreign gold suddenly rose to 48. 6d. the ounce. Early in 1801, the value of domestic coins had risen 18. per ounce; and foreign exchange, payable in bank-notes, particularly in Hamburg, was depressed 14 per cent below par. The cost of remitting gold from London to Hamburg at the time did not exceed 7 per cent. The difference between the rate of exchange and the cost of remitting specie could only result from depreciation of the currency. The restriction of specie payments had been continued by various acts, the last of which was to expire within six months after a definitive treaty of peace (with France) was signed. This was concluded at Amiens, on the 27th of March, 1802. Although the Bank at that time signified its readiness to resume, the restriction was continued till March 1st, 1803. The price of gold, which averaged £4 5d. the ounce for 1801, and £4 48. the ounce for 1802, fell in 1803 to £4 the ounce, and continued at that figure till 1809, when it rose to £4 10s. the ounce, or to a premium of 13 per cent; the restriction having been, of course, continued for this period. The sudden rise in 1809 caused great alarm; and, early in 1810, a Committee was moved in the House of Commons by Mr. Francis Horner, "to inquire into the cause of the high price of gold bullion, and, to take into consideration the state of the circulating medium and of the exchanges between Great Britain and foreign parts." The Committee consisted of twenty-one members, among whom were those most distinguished in the kingdom for their experience and knowledge in monetary and commercial affairs. Among these, in addition to the chairman, were Alexander Baring, Henry Thornton, William Huskisson, and Spencer Perceval, then Chancellor of the Exchequer. The Committee, in the course of their inquiries, examined thirty persons, most of them eminent merchants and bankers. and thoroughly familiar with all the operations of business and trade. They submitted their Report on the 8th of June, 1810; but this was not considered in Parliament till the 1 Statement showing the average market price, in bank-notes, of bullion, and the average value and average percentage of depreciation of the notes of the Bank of England, in each year from 1797 to 1821 inclusive. The highest point to which gold rose was £5 10s. the ounce, on the 6th of August, 1813. The premium equalled 29 per cent. following year. It reported that the price of gold bullion, which by the regulations of His Majesty's mint was £3 178. 10d. per ounce of standard fineness, was during the years 1806, 1807, and 1808, as high as £4 in the market. Toward the close of the year 1808, it began to advance very rapidly, and continued very high during the year 1809; the market price of standard gold in bank-notes fluctuating from £4 98. to £4 128. the ounce; the market price at £4 10s. the ounce being about 15 per cent above the mint price. The Committee then proceeded to inquire as to the cause or reasons for such advance; and ascribed it, in the conclusion of their Report, to an excessive issue of notes by the Bank. The Bank, on the other hand, contended that, from the manner in which it conducted its business, that is, as it only discounted paper based upon and representing actual mercantile transactions, and payable within short and fixed periods, the currency could not be in excess. It was contended, also, by the public more than by the Bank, that the price of gold had risen in consequence of the excessive demand for it upon the Continent; that the value of its notes was not depreciated. The Committee, however, assumed that its notes were depreciated; and that the only check upon over-issues was a liability for the redemption of its notes upon demand; or that its issues should be made in reference to the state of foreign exchange; and that, specie payments being forbidden, the Bank was bound to conduct its operations in reference to the latter test or standard. - "It is important," said the Committee, "to observe, that when the Bank was bound to answer its notes in specie on demand, the state of foreign exchanges and the price of gold did most materially influence its conduct in the issue of its notes, though it was not the practice of the Directors systematically to watch either the one or the other. So long as gold was demandable on their paper, they were speedily apprised of a depression of the exchange, and a rise in the price of gold, by a run upon them for that article. If at any time they incautiously exceeded the proper limit for their advances and issues, the paper was quickly brought back to them by those who were tempted to profit by the market price of gold or by the rate of exchange. In this manner, the evil soon cured itself. The Directors of the Bank, having their apprehensions excited by the reduction of their stock of gold, and being able to replace their loss only by restricted purchases of bullion at a very losing price, naturally contracted their issues of paper; and thus gave to the remaining paper, as well as to the coin for which it was interchangeable, an increased value; while the clandestine exportation either of coin or the gold produced from it combined in improving the state of the exchange, and in producing a corresponding dimi nution 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 bills growing out of real commercial transactions falling due in a fixed and short period, are sound and well established principles. But that while the Bank is restrained from paying in specie, there need be no other limit to the issues of their paper than what is fixed by such rules of discount, and that during the suspension of cash payments, the discount of good bills falling due at short periods cannot lead to any excess in the amount of Bank paper in circulation, appears to your Committee a doctrine wholly erroneous in principle, and pregnant with dangerous consequences in practice." "If at any time," say the Committee, "they" (the directors) "incautiously exceeded the proper limit for their advances and issues, the paper was quickly brought back to them by those who attempted to profit by the market price of gold, or by the rate of exchange." But all the issues of the Bank are speedily brought back to it in the payment of its bills, or for coin, if these be not paid, only after they have performed their function as currency. The method by which, according to the Committee, they were brought back was a pure fiction. They assumed, with Adam Smith, that the moment there was an excess of paper, such excess would instantly cause a rise in the exchanges, and would immediately be taken back to the Bank for coin by its holders, in order to profit by such advance. But an excess of currency acts upon exchanges, not directly, but through its consequences or effects. If an amount be issued for which there is no constituent, there will be an increased consumption of foreign goods, to pay for which coin must be exported. The consumers of such goods pay the importer in Bank of England notes, which are drawn by him in coin. A long period, however, may elapse between importation and payment, as the purchases may be made on very long time, or may be carried for a long time on bankers' credits. The effect of an over-issue, therefore, is remote and consequential, seldom direct. Nothing whatever would be gained by buying up the notes of the Bank, for the sake of obtaining coin for the purpose of profiting by the rise of exchange, for the reason that the notes would cost their purchaser their value in coin. The only parties who would profit by a rise in exchange would be importers who had accumulated notes when the exchanges were at par, and who could put up the price of their goods with the rise in the price of the former. The Committee simply repeated Smith in saying, that "the whole paper money which can easily be circulated in a country can |