this is not always indispensable. For in the second place, it is not necessary that the gold should return with the same suddenness with which it went out. A great portion would probably return in the ordinary way of commerce, in payment for exported commodities. The extra gains made by dealers and producers in foreign countries through the extra payments they receive from this country, are very likely to be partly expended in increased purchases of English commodities, either for consumption or on speculation, though the effect may not manifest itself with sufficient rapidity to enable the transmission of gold to be dispensed with in the first instance. These extra purchases would turn the balance of payments in favour of the country, and gradually restore a portion of the exported gold; and the remainder would probably be brought back, without any considerable rise of the rate of interest in England, by the fall of it in foreign countries, occasioned by the addition of some millions of gold to the loanable capital of those countries. Indeed, in the state of things consequent on the gold discoveries, when the enormous quantity of gold annually produced in Australia, and much of that from California, is distributed to other countries through England, and a month seldom passes without a large arrival, the Bank reserves can replenish themselves without any re-importation of the gold previously carried off by a drain. All that is needful is an intermission, and a very brief intermission is sufficient, of the exportation.

For these reasons it appears to me, that notwithstanding the beneficial operation of the Act of 1844 in the first stages of one kind of commercial crisis (that produced by overspeculation), it on the whole materially aggravates the severity of commercial revulsions. And not only are contractions of credit made more severe by the Act, they are also made greatly more frequent. "Suppose," says Mr. George Walker, in a clear, impartial, and conclusive series of papers in the Aberdeen Herald, forming one of the best existing discussions of the present question-"Suppose that,

of eighteen millions of gold, ten are in the issue department and eight are in the banking department. The result is the same as under a metallic currency with only eight millions in reserve instead of eighteen. . . . . The effect of the Bank Act is, that the proceedings of the Bank under a drain are not determined by the amount of gold within its vaults, but are, or ought to be, determined by the portion of it belonging to the banking department. With the whole of the gold at its disposal, it may find it unnecessary to interfere with credit, or force down prices, if a drain leave a fair reserve behind. With only the banking reserve at its disposal, it must, from the narrow margin it has to operate on, meet all drains by counteractives more or less strong, to the injury of the commercial world; and if it fail to do so, as it may fail, the consequence is destruction. Hence the extraordinary and frequent variations of the rate of interest under the Bank Act. Since 1847, when the eyes of the Bank were opened to its true position, it has felt it necessary, as a precautionary measure, that every variation in the reserve should be accompanied by an alteration in the rate of interest." To make the Act innocuous, therefore, it would be necessary that the Bank, in addition to the whole of the gold in the Issue Department, should retain as great a reserve in gold or notes in the Banking Department alone, as would suffice under the old system for the security both of the issues and of the deposits.

5. There remain two questions respecting a bank note currency, which have also been a subject of considerable discussion of late years: whether the privilege of providing it should be confined to a single establishment, such as the Bank of England, or a plurality of issuers should be allowed and in the latter case, whether any peculiar precautions are requisite or advisable, to protect the holders of notes against losses occasioned by the insolvency of the issuers.

The course of the preceding speculations has led us to

attach so much less of peculiar importance to bank notes, as compared with other forms of credit, than accords with the notions generally current, that questions respecting the regulation of so very small a part of the general mass of credit, cannot appear to us of such momentous import as they are sometimes considered. Bank notes, however, have so far a real peculiarity, that they are the only form of credit sufficiently convenient for all the purposes of circulation, to be able entirely to supersede the use of metallic money for internal purposes. Though the extension of the use of cheques has a tendency more and more to diminish the number of bank notes, as it would that of the sovereigns or other coins which would take their place if they were abolished; there is sure, for a long time to come, to be a considerable supply of them, wherever the necessary degree of commercial confidence exists, and their free use is permitted. The exclusive privilege, therefore, of issuing them, if reserved to the government or to some one body, is a source of great pecuniary gain. That this gain should be obtained for the nation at large is both practicable and desirable: and if the management of a bank note currency ought to be so completely mechanical, so entirely a thing of fixed rule, as it is made by the Act of 1844, there seems no reason why this mechanism should be worked for the profit of any private issuer, rather than for the public treasury. If, however, a plan be preferred which leaves the variations in the amount of issues in any degree whatever to the discretion of the issuers, it is not desirable that to the ever-growing attributions of the government, so delicate a function should be superadded; and that the attention of the heads of the state should be diverted from larger objects, by their being besieged with the applications, and made a mark for all the attacks, which are never spared to those deemed to be responsible for any acts, however minute, connected with the regulation of the currency. It would be better that treasury notes, exchangeable for gold on demand, should be issued to a fixed amount, not exceeding the minimum of a bank

note currency, the remainder of the notes which may be required being left to be supplied either by one or by a number of private banking establishments. Or an establishment like the Bank of England might supply the whole country, on condition of lending fifteen or twenty millions of its notes to the government without interest; which would give the same pecuniary advantage to the state as if it issued that number of its own notes.

The reason ordinarily alleged in condemnation of the system of plurality of issuers which existed in England before the Act of 1844, and under certain limitations still subsists, is, that the competition of these different issuers induces them to increase the amount of their notes to an injurious extent. But we have seen that the power which bankers have of augmenting their issues, and the degree of mischief which they can produce by it, are quite trifling compared with the current over-estimate. As remarked by M. Fullarton,* the extraordinary increase of banking competition occasioned by the establishment of the joint-stock banks, a competition often of the most reckless kind, has proved utterly powerless to enlarge the aggregate mass of the bank note circulation; that aggregate circulation having, on the contrary, actually decreased. In any case it appears desirable to maintain one great establishment like the Bank of England, distinguished from other banks of issue in this, that it alone is required to pay in gold, the others being at liberty to pay their notes with notes of the central establishment. The object of this is that there may be one body, responsible for maintaining a reserve of the precious metals sufficient to meet any drain that can reasonably be expected to take place. By disseminating this responsibility among a number of banks, it is prevented from operating efficaciously upon any or if it be still enforced against one, the reserves of the metals retained by all the others are capital kept idle in pure waste, which may be

* P. 89-92.

dispensed with by allowing them at their option to pay in Bank of England notes.

6. The question remains whether, in case of a plurality of issuers, any peculiar precautions are needed to protect the holders of notes from the consequences of failure of payment. Before 1826, the insolvency of banks of issue was a frequent and very serious evil, often spreading distress though a whole neighbourhood, and at one blow depriving provident industry of the results of long and painful saving. This was one of the chief reasons which induced Parliament, in that year, to prohibit the issue of bank notes, of a denomination below five pounds, that the labouring classes at least might be as little as possible exposed to participate in this suffering. As an additional safeguard, it has been suggested to give the holders of notes a priority over other creditors, or to require bankers to deposit stock or other public securities as a pledge for the whole amount of their issues. The insecurity of the former bank note currency of England was partly the work of the law, which, in order to give a qualified monopoly of banking business to the Bank of England, had actually made the formation of safe banking establishments a punishable offence, by prohibiting the existence of any banks, in town or country, whether of issue or deposit, with a number of partners exceeding six, This truly characteristic specimen of the old system of monopoly and restriction, was done away with in 1826, both as to issues and deposits, everywhere but in a district of sixty-five miles radius round London, and in 1833 in that district also, as far as relates to deposits. It was hoped. that the numerous joint-stock banks since established, would have furnished a more trustworthy currency, and that under their influence the banking system of England would have been almost as secure to the public as that of Scotland (where banking was always free) has been for two centuries past. But the almost incredible instances of reckless and fraudulent mismanagement which these institutions have