tion and in the pursuit of economy, it has not been pushed a little further than is consistent with the interests of trade and commerce. Where reserves are small, any 'pull' upon them by withdrawals to foreign countries necessarily makes a large reduction in our reserve, and, as I have already explained, as that reserve is practically the reserve of the country, the reduction has a much larger effect upon the value of money than it would have if the balances were larger." The sensitiveness of the market when a "pull" takes place would not be so keen if there was a second reserve of available cash. The supply of money could be increased at any time on payment of 10 per cent. interest, and if withdrawals continued the value of money would gradually level up to that amount; but there would be no unreasonable increase in the value of money as sometimes now arises from dread of a scarcity, and the uncertainty as to how far matters might proceed until the Government saw fit to authorise a suspension of the Act. The mercantile community would no longer be subject to the inconvenience occasioned by banks suddenly discontinuing their ordinary advances; and although, if the first reserves were generally allowed to be

unduly diminished, they might have to pay a stiff price for the accommodation, yet it could be obtained.

A reserve so created would be the means of placing the burden of maintaining a stock of unused cash upon the shoulders of the proper persons to bear it, viz., those who undertake to pay large sums on demand; it would grow pari passu with the growth of those liabilities; and it would add to the existing stock of gold in this country. On the other hand, Mr. Goschen's proposal to establish a second reserve by means of an issue of £1 notes is to sacrifice the profits of the issue which belong to the community as a whole for the benefit of a section thereof; to establish a fund which has no relation to the purpose for which it is required, and which has no elasticity to meet the growing demands of the future; and to draw upon the stock of gold circulating in the country-not for any national emergency such as a great war *-but for the purpose of carrying on the ordinary business of the country.

*

Mr. Weguelin, the Governor of the Bank of England in 1856, wrote to the Chancellor of the Exchequer that “It should be the policy of the Legislature to encourage the circulation of coin for small payments, and prohibit the use of £1 and £2 notes. This would be a reserve in times of extreme difficulty." (See Appendix B).

CHAPTER VIII.

CONCLUSION.

THE speech which Mr. Goschen delivered at Leeds has been republished, and in a preface he says:-"On one topic alone of those touched in my speech I should like to say one word of explanation, or rather of correction. I find that the way in which I expressed myself as to devising possible precautions against panics, and as to the establishment of larger reserves, side by side with remarks on the 'Baring crisis,' has led to some misapprehension. I did not mean that, if financial houses undertook liabilities on too gigantic a scale, any banking or currency precautions could prevent disastrous results, especially to themselves. But I intended to call attention to the fact that the catastrophe might have been vastly aggravated to others from the existence of too small aggregate reserves in the hands of the banking and financial world to meet such a crisis. I wished to emphasise the 'unpreparedness,' in my judgment, of the banking world to meet a

strain even less than that which so extraordinary an event as the straits of the great house in question brought about. Some of my critics have said: 'Such an abnormal event can never occur again.' But even if this were granted, it seems to me nevertheless to be true that the lesson of insufficient reserves and insufficient stock of gold, taught the country in November last, is none the less of the deepest importance, as it is applicable to many panics and times of difficulty falling far short of the extreme danger revealed on this particular occasion."

The difficulties of the "Baring crisis" were great because of the magnitude of the firm's operations; but there were circumstances connected with it which reduced it to much smaller proportions than the crisis the money market would be called upon to go through in the event of the failure of one of the large London jointstock banks. When those institutions were, comparatively, in their infancy, Mr. Weguelin, the Governor of the Bank of England, drew the attention of the Chancellor of the Exchequer to the danger to the credit of the country in consequence of the smallness of their reserves, remarking that it was "impossible to foresee the

consequences of the failure of one of these large establishments; and it is a branch of the subject which in my opinion more pressingly requires the attention of Parliament than any alteration in the Bank Acts of 1844 and 1845." (Mr. Weguelin's letter of 10 November, 1856, see Appendix B.) Thus, in Mr. Weguelin's opinion, the attention of Parliament was pressingly required thirty-five years ago to the dangers to the community, which would arise in the event of the failure of one of the large joint-stock banks, in consequence of the smallness of their reserves. Since then the business of those institutions has enormously increased, and the question more urgently requires to be faced. Mr. Goschen's critics who do not consider that provision should be made against the contingency of a repetition of the "Baring crisis," as "such an abnormal event can never occur again," should take into consideration the state of affairs, which would be produced with our present reserves if one of the large London joint-stock banks should fail. The "Baring crisis" was an extensive affair, but its effects were very much minimised by the fact of one of the members of the firm-a director of the Bank of England-supplying information which enabled