healthy and normal condition. An adverse exchange caused contraction, which was still to disturb only temporarily the relation between liabilities and reserves, as the rate of interest would be raised to such a pitch that the coin lost would flow back into the country, and into the Bank, from being more valuable there than elsewhere. This doctrine was implicitly adopted by the Bank, and appeared to work satisfactorily in the drain which began in 1830, and continued until 1832, although the proportion of one-third between reserves and liabilities was by no means maintained. The drain continued so long as it was profitable to export gold, or so long as the country had no means of discharging its liabilities but by export. It turned, when it became profitable to import it, or when England became the creditor instead of the debtor nation. During these automatic movements, as they may be called, every thing worked pretty smoothly. In the mean time, the Bank conducted its operations as if the currency had been full, and had the satisfaction of seeing its gold brought back to it in full volume, without raising a finger on its part. The correctness of the dogma of the Bullion Committee seemed to be established beyond cavil. From 1833 to 1837, however, the exchanges remaining at par, the Bank was subjected to a steady drain for coin, which took from it, in a period of three and a half years, nearly £7,000,000. The rule no longer worked; or, rather, the Bank no longer followed the rule. It no longer applied, for the reason that the demand for coin was domestic, not foreign. This demand, to use the language of Mr. Palmer, "seems in no degree to have arisen from overtrading, or any undue speculative advance in commercial prices: occurrences of that nature tend to produce an unfavorable foreign exchange, an evil only to be remedied by that contraction of the circulation which eventually restores prices and currency to a level with those existing in foreign countries." With conditions not contemplated by the Bullion Committee, the Bank was no longer to be governed by the rules it had laid down. It must meet a domestic demand both for currency and coin; otherwise there would be a domestic convulsion or disturbance most fatal in its effects. "It is evident," said Mr. Palmer, "that the additional issue by the Bank has not caused any foreign demand for gold; and, unless that be exhibited, the Bank ought not, under circumstances of un

natural pressure, strictly to enforce the principle laid down. We must keep in mind that England is the centre of the whole commerce of Europe and America, if not of the world; and any hasty or unnecessary step taken will not only affect the credit and prices of this country, but, to a certain degree, those of all parts of the Continent from whence we are to obtain that bullion which we have lost. . . . And, in order to prevent that pressure, the Bank is required to reissue the amount of notes so cancelled" (taken in), "without reference to the amount of bullion in its possession." While no longer recognizing the old rule under the new condition of things, Mr. Palmer seems measurably to have lost confidence in its value. in reference to the exchanges. "It remains for Parliament," he says, "to express an opinion upon either of those points" (that is, whether the rule should hold in reference to the currency when exchanges are even, or whether it should be abandoned when they are even, but when the demand for coin is a domestic one); "and there can be no question but that the Bank will immediately regulate its course accordingly. If, however, the amount of paper money be limited, and it be issued by one body with an adequate reserve of bullion, expanding and contracting as the currency may fluctuate in value with reference to foreign exchanges, there could be no difficulty in preserving it against depreciation for all purposes of foreign payment. If paper money ever become discredited by any internal convulsion, it can then be only upheld by the power of the government; and in such cases it becomes the duty of the ministers of the Crown to undertake the responsibility of upholding the public credit. For relief against commercial discredit, the issuing body should be so formed as to be able to afford protection."

With such incoherency and incompetency on the part of its managers, no wonder that the Bank constantly found itself involved in the greatest straits, and commerce and trade in great uncertainty, embarrassment and loss. The reserves held by the Bank are, at all times, to have reference as much to a domestic as to a foreign demand, - to its own condition as to that of the public. They are held to make good losses, however arising. That coin is drawn from it in considerable quantities, and continuously, is evidence that large losses have been made. It is the same, so far as the volume of the cur

rency is concerned, whether they have been made by the Bank or by its depositors. If the Bank make a loss of a million of sovereigns, it must reduce its issues in far greater ratio. If its depositors make a similar loss, and draw in consequence a corresponding amount of coin, it must reduce its issues in the same ratio as if the loss were its own. The capital on which it bases the greater part of its operations, belongs to the public; but, whether belonging to the public or itself, its loans must always be in ratio to its reserves. As already shown, the drain upon it for specie does not begin till the goods, the payment of which is to cause the foreign or domestic demand for coin, have been purchased for consumption, and probably in great part consumed. But for the instruments issued by the Bank, such purchases for consumption would never have been made. The Bank, when it makes its loans, has no means of knowing the purposes for which their proceeds may be applied. Their use in the purchase of imported merchandise may be upon a full currency; when, in fact, specie is flowing into its vaults. At that very moment it may be pursuing a course which imperils its condition. To make two sets of rules in reference to its reserves - one having reference to a foreign, and one to a domestic, demand - is to make distinctions where no differences whatever exist. To assume the Bank to be in a perfectly safe condition when it is not being called upon for specie, is an absurdity which any tyro in finance should be able to detect. The step or act, which is to involve it in future embarrassment or loss, is always taken in a period of apparent prosperity, in a period of full currency, and when it is not on its guard.

No such rule, however, as that formally set forth by Mr. Palmer ever did exist; nor could it exist, considering the manner in which the Bank is organized and conducts its operations. It can make no rule which shall control the operations of its depositors. They will draw the coin which belongs to them as it suits their necessities. It might as well make a rule that the exports of the United Kingdom shall not exceed a certain tonnage and value. In a panic, its gold as well as its rules are scattered to the winds. No more meaning was attached to the phrase "full currency" than to "rapidity of circulation." A paper currency can be said to be full, only

when all articles entering into consumption are symbolized. "Full currency" was borrowed from the Bullion Committee. It meant with them the equilibrium of the currency. If it were more than full, if it were redundant, then the rates of exchange rose, to be brought down again only by a reduction of the excess, by export of coin, which was the only part of the currency that could be exported. The reason that gold goes forward is not because the proper equilibrium in the circulating medium common to all commercial countries has been disturbed, but for the reason that, from an excess of instruments of expenditure, the country in which such excess exists has created debts which can be discharged only by an exportation of coin, in default of the ordinary subjects of commerce.

The holding, by the Bank, of an amount of gold unusually large, is always proof that the currency is, or, rather, that production and trade are or have been, in an unhealthy condition; that liquidations to a large extent have taken place; and that the business public, in their distrust, or want of opportunities, have deposited in Bank the balances due them, which have been liquidated in gold, for safe-keeping and to wait a favorable turn of affairs. A large amount of gold in its vaults, therefore, indicates the exact opposite of what it is supposed to indicate. With the Bank of England it is always a prelude to, or always follows, great speculative movements. It is the rule with it to issue notes against the coin it holds. If the amount be large, the issues act correspondingly upon prices and upon expenditure. As a necessary consequence, gold is drawn from the Bank to meet such expenditure, and in the adjustment of balances that necessarily arise. This done, the gold returns to it again, to be made the basis of loans to be drawn from, and again to be returned in manner described. As the viciousness of the system is not seen, the same inflations and contractions periodically occur, alike disastrous to itself as to the public, until their regular recurrence has come to be regarded as a necessary law or condition of all currencies.

There can be no doubt that the condition of the country in 1836 and 1837 seemed to call for extraordinary exertions on the part of the Bank; nor that, in making them, it was guided

by the most laudable intentions. In November of the former year, the Northern and Central Bank, which had thirty-nine branches, and whose central office was at Manchester, finding itself in trouble, applied to the Bank of England for help to the extent of £500,000. This, after some hesitation, was granted, from fear of the consequences that might follow the failure of such an extensive concern. It was soon found that the sum first applied for was by no means sufficient, and further aid had to be granted, till the whole amount reached £1,370,000. This application was quickly followed by one from a leading London house, which was granted upon the guarantee of other houses. Applications for aid to other concerns, both in London and in the provinces, followed; which were granted for the same reason as the preceding. To meet the demands for such aid as was regarded indispensable to avert a general crash, the Bank advanced, in a short time, fully £6,000,000. The final repayment of these advances, and the great relief they seemed to afford, might be considered as a precedent to be followed in similar emergencies. It must, however, so long as the Bank is conducted as at present, be regarded as a very questionable one. The Bank makes its loans by issuing its own obligations, payable presently, for those of its borrowers or of other parties, payable at a future day. The safety of the transactions on its part is in having its obligations circulate as money, until those upon which they were based become payable. In ratio as they are returned, previous to the maturity of the securities for which they were issued, the Bank must pay out a corresponding amount of its own means. It should never attempt to loan its capital, or to make loans that are likely to impair its amount. This is always to be held in reserve to meet such portions of its liabilities as are not seasonably returned to it by its securities. As its issues, however, so far as their credit is maintained, serve to it as capital, it is under the greatest temptation, in an active demand for money, to make an excessive use of them. In case of a temporary pressure, were its loans properly made, it might act with a good degree of liberality, by increasing them to a considerable amount; as in such case there would be a reasonable probability that all its issues, however made, would be seasonably returned. But as itself is its chief customer, — that is, as it makes its loans chiefly in the purchase of governments, not, perhaps, to