government, increase its issues upon securities equal to twothirds the amount so lapsed.

6. After the passage of the Act, no person, other than a banker who was lawfully issuing his own notes on the 6th of May, 1844, should issue bank-notes in any part of the kingdom.

7. Any banker who should cease to issue his own notes, from any cause whatever, after the passage of the Act, was not to resume their issue.

8. All existing Banks of issue were required to certify forthwith the places, name, and firm, at, and under which they issued notes during the twelve weeks which preceded the 27th of April, 1844, and the average amount of such issue; and no Bank or banker was, for the future, to be allowed to exceed the amount of such average; if, however, any two or more Banks of issue had become united within the said twelve weeks, the issues of the united Bank might equal the aggregate of those composing it. If two or more Banks became united after the passage of the Act, each of less than six partners, the new Bank might issue notes equalling the amount of the separate issues; but if the partners in the new or consolidated Bank exceeded six members, then its right of issue was to cease.

Such, in its more important features, was the Act of 1844. Its effect was, in the place of one, to create two Banks of issue. The first was to hold, or was assumed to hold, at all times, means (securities and coin) equal in value to its liabilities, and sufficient for their immediate conversion into coin. The credit or value of these, consisting wholly of notes, was further sustained by their being made legal tender everywhere but at the Bank; and also by being receivable in payment of the revenues, which exceeded the notes by three times the amount ordinarily in circulation; so that, should the means provided for their redemption wholly fail, their value, from the uses to which they could be applied, could never fall much, if any, below their par in coin. In case of a panic, their holders owing debts due, either presently or in the future, including the revenues and taxes of all kinds, would have no motive to convert them into coin, for the reason that it would be of no greater value to them than notes, wherever the latter could be used. With the provision described, a few millions

in coin would be all that would ever be required for the Issue Department to hold to meet all demands likely to be made upon it. Experience has shown that such arguments or inferences would have been entirely correct. No panic that has occurred since the Act went into effect has ever caused a considerable reduction in the amount of notes in the hands of the public. A large part of the coin held by the Issue Department always has been, and always will be, wholly superfluous to its objects. The holders of its notes are the very parties who do not want the coin for them, and would not draw it if they could; at least, so long as they were assured that they would discharge their own liabilities.

The provision made for the conversion of the liabilities of the other Bank- that is, of the Banking Department, which is equally with the former a Bank of issue, and whose issues and liabilities are, equally with notes, payable on demand in coin is a small amount of coin, and the notes of the Issue Department which it may happen to hold. The Banking Department, of course, always holds securities exceeding its liabilities; but these are not coin, nor are they immediately convertible into coin. Its issues have no other support than that described. They are not legal tender, nor are they receivable in the payment of the revenues. It would naturally be supposed, that, if something like the present system were to be established - that is, if the Bank were to be divided, as at present, into two departments, the amount of coin that would be transferred to that of issue would be only so much as would be required to meet the demands liable to be made upon it: the balance, whatever it might be, which would always be the greater portion of what the Bank might hold, would be allotted to the Banking Department, as the one chiefly concerned in production and trade, and upon which rest the whole commercial and financial interests of the kingdom. This is an obvious mode of reasoning; but reason had no more to do with the matter of the present organization of the Bank than it has with the shape or color of an amulet which is to serve as a fetish to shield one from harm.

The passage of the Act of 1844 exerted no apparent influence at the time; for, so long as there was no considerable

demand for money, it was immaterial in which till of the Bank its notes lay, or what proportion of them was in the hands of the public. So long as the condition of production and trade existing at the time of the reorganization remained unchanged, the Act was a dead letter. At that very time, however, causes were at work that were soon to put it to the test. The mania for the construction of railways, which culminated in 1847, had already gained no little strength. Up to the 17th of November, 1845, the amount already expended upon the completed railways in the United Kingdom equalled £70,680,877; that expended, or to be expended, upon those in process of construction, £67,317,325. The amount which the companies chartered up to January 1, 1849, were entitled to raise upon share capital and debentures, equalled £320,000,000, as follows:

The total amount called up in 1847 by the railway schemes put upon the London market, including foreign railways, equalled the enormous sum of £47,000,000, or more than £800,000 weekly. During the same year, the greatest fluctuation in the amount of bank-notes in circulation equalled only about £1,500,000. The monetary transactions having reference to railways were carried on almost wholly by means of checks drawn against deposits; the notes of the Bank, as well as country Banks, being hardly a makeweight in the general mass. The enormous amount expended on account of these works, in 1846 and 1847, would have produced a financial crisis, even had the crops for those years been favorable. They proved very unfavorable. The Irish potato crop, which began to fail in 1845, was almost wholly cut off in 1846 and 1847. Large importations of food had to be made, requiring the exportation of considerable amounts of gold, but not sufficient to seriously affect the money market, or the ability of the Bank, as the great monetary institution of the kingdom, to lend. It was the immense investments in railways, many of which proved unproductive, and the consequent stimulus given to all branches of production and trade, and which affected every class and every interest in the kingdom, that caused, by

a necessary recoil, the panic of 1847. It would have occurred, only perhaps a little later, even if the crops had not been unfavorable; and with almost equal severity, had not the Bank of England aided it to the extent of a single penny. The Bank undoubtedly contributed something, but by no means in the ratio that its capital bore to that of the other Banks and bankers of the kingdom. Its means, during the whole period under discussion, were in great measure employed in the methods and according to the precedents of the past; so that only a comparatively small fraction of them found its way into railways, or into other speculative schemes, which, for a time, so engrossed the attention and absorbed the means of the nation.

The enormous amount of deposits of the Bank in 1846 was full proof of the magnitude of the financial operations of that year. Their excessive reduction showed the severity of the contraction which followed. Their amount, at the reorganization of the Bank, on the 7th of September, 1844, equalled £12,274,000; their average for 1845 equalled £17,300,000; for 1846, £21,500,000. For the first three quarters of that year, their average equalled £23,100,000. The average amount held in 1847 equalled £14,750,000. The amount of notes in circulation on the 7th of September, 1844, equalled £20,176,270. In 1845, the average was £21,000,000; in 1846, £20,300,000; and in 1847, £20,000,000. The drain upon the Bank, chiefly by its depositors, began in the latter part of 1846; reducing the amount of deposits in February, 1847, to £14,600,000. The drain, which had to be met by the notes in the Banking Department, reduced these, on the 1st of January, 1847, to £6,500,000, and on the 3d of July, 1847, to £5,015,000. From that time it steadily continued till the 23d of October, 1847, when the notes in the Banking Department were reduced to £1,540,000; its deposits at that time standing at £13,500,000; its specie, at £7,860,000; and its notes in circulation, at £20,860,000. It was evident that the Bank could not go on much longer; and, on the 23d of October, a deputation of London bankers waited upon the government to represent the position of affairs, and the consequences that must result from the inability of the Bank to make further loans. On Monday following, October 27th, Lord John Russell, then Chancellor of the Exchequer, addressed a communication to the Directors,

informing them, that, should they deem it necessary to exceed in their issues the limit prescribed by the Act of 1844, the government, upon the assembling of Parliament, would apply to it for an Act of Indemnity. The communication suggested that such advances as might be made by notes issued in excess of the provisions of the Act, should be at a rate of interest not less than 8 per cent. The communication was no sooner made public than confidence was instantly restored. The notes which had been hoarded were at once brought into use, and discounts were everywhere attainable. So instant and complete was the relief, that the Bank was not compelled to avail itself of the authority to increase its circulation.1

The crisis past, Parliament was speedily called together; for, although the Act of 1844 was not violated, the authority to do so had been given, and must be condoned. Upon its assembling, the Chancellor of the Exchequer moved for the Committee usually appointed in such cases "to inquire into the causes of the recent commercial distress, and how far it had been affected by the Act of 1844." In the course of his remarks, after describing the progress of the panic, which he largely ascribed to the failure of the Bank in not taking earlier measures for its arrest, he said:

"The Bank of England were pressed directly for assistance from all parts of the country, and indirectly through the London bankers, who were called upon to support their country correspondents. The country Banks required a large amount of notes, to render

1 When the Bank, in 1847, was compelled to invoke the aid of government, it had £7,860,000 of coin in its vaults. Of this sum, only £440,000 were in the Banking Department. That department had at the same time only £1,540,000 in notes, making a total of £1,980,000 where with to carry forward the operations of an empire. This is the only available sum it had for the discharge of £13,500,000 of deposits, and to provide the means for the loans it was called upon to make. When the panic was at its height, over £7,000,000 coin were unavailable in its vaults. The average amount of the note circulation for 1847 equalled £20,000,000. The amount in circulation, October 25th, 1847, when an increase of its notes was authorized, equalled £20,860,000,-a sum considerably larger than the average for the year. The panic had no tendency to reduce the amount of the circulation. It resulted, so far as the Bank was concerned, not in any want of confidence in it, or in the solvency of its notes, only from fear that a sufficient amount of these could not be had. The moment such fear was allayed, the demand for them instantly ceased. If it were proper to quiet this alarm by enlarging the authority of the Bank, why not invest it permanently with such power, instead of compelling it to throw itself upon the government whenever a crisis arises?