definitely fixes the amount which shall be issued upon certain securities, appropriated and set apart for the purpose at such a moderate sum that the average proportion of the notes issued against gold to those issued against securities for the first year after the Act came into operation was over 90 per cent., and it has never been below 70 per cent. in any year since. In fact, the Act has made the Issue Department of the Bank of England, to all intents and purposes, a national institution; created for the administration of a national currency; with the directors of the Bank of England appointed, as officials* of the Government, to administer its affairs upon strict lines from which they have no power to depart.

The mere fact that the directors of the Bank of England are managers on behalf of the public of the circulation of the country, under regulations which give them no more facilities to obtain the legal tender for carrying on their banking business than have the directors of any other

* NOTE.-The Chancellor of the Exchequer writing to the Governor and Deputy Governor of the Bank of England on 26th April, 1844, says: "In fixing the proportion of the amount which ought to be paid to the public I do not, on the one hand, put out of view the fair claim of the Bank to compensation as managers on behalf of the public of the circulation of the country.

bank, affords no justification for a reliance upon the reserve in the Issue Department. That reserve has been appropriated, and set apart, to secure the convertibility of the bank notes; and cannot properly be regarded as money available at all times to supply the demands of bankers and others who have rendered their own assets unavailable.

The effect, however, of the three suspensions of the Act has been so completely to imbue "the City mind" with the idea that the bullion in the Issue Department may be utilised in an emergency for the purpose of increasing the moneymarket's supply of available cash that on the occasion of the recent "Baring Crisis" it is generally understood that the Directors of the Bank of England actually made arrangements with the Government-and obtained their consent for the suspension of the Act before the firm's difficulties became known to the public. The adoption of this policy prevented a great disaster; but it was tantamount to an admission that the cash reserves of the banks were not equal to the strain which a failure of that magnitude might have occasioned.

Under these circumstances it is not surprising

that Mr. Goschen feels the time has come when the question of banks' cash reserves should be dealt with. It is a serious matter that the Government should have again been called upon to authorise a violation of the law; and that the security for the convertibility of the notes, created by Act of Parliament, should be impaired under any stress of circumstances. The three actual suspensions of the Act have, moreover, involved a great hardship upon those who happened to succumb just before the suspensions took place, and who would have surmounted their difficulties if they had taken place earlier. The arbitrary interference with the law of the country just in time to save A who had to meet liabilities on Tuesday, whilst B whose liabilities became due on Monday was allowed to fail, is a very invidious act, and condemns the system which necessitates it.

CHAPTER III.

"LOMBARD STREET."

MR. BAGEHOT in his "Lombard Street" does not base the claim upon the Bank of England to keep a reserve for the purpose of supplying the demands of bankers and others when they have rendered their own assets unavailable, upon the relations of the Government either with the Banking Department or the Issue Department. He says (p. 63):-"It is imagined that because bank notes are a legal tender, the Bank has some peculiar duty to help other people. But bank notes are only a legal tender at the Issue Department, not at the Banking Department, and the accidental combination of the two departments in the same building gives the Banking Department no aid in meeting a panic. If the Issue Department were at Somerset House, and if it issued Government notes there, the position of the Banking Department under the present law would be exactly what it is now. No doubt, formerly, the Bank of England could

issue what it pleased, but that historical reminiscence makes it no stronger now that it can no longer so issue. We must deal with what is, not with what was. And a still worse argu

ment is also used. It is said that because the Bank of England keeps the State account,' and is the Government banker, it is a sort of 'public institution' and ought to help everybody. But the custody of the taxes which have been collected and which wait to be expended is a duty quite apart from panics. The Government money may chance to be much or little when the panic comes. There is no relation or connection between the two. And the State in getting the Bank to keep what money it may chance to have, or in borrowing of it what it may chance to want, does not hire it to stop a panic or much help it if it tries."

In this way he throws overboard the reasons which had been previously given for the extraordinary assertion that it is the Bank of England's duty to save all other banks the trouble and expense of keeping cash reserves. Nevertheless he reiterates the demand, declaring that hitherto (p. 63) "the real reason has not been distinctly seen." Under these circumstances