in

obliged to withhold, the severity of the crisis would have been still greater than it was. If the Bank, it is justly remarked by Mr. Fullarton,* complies with such applications, "it must comply with them by an issue of notes, for notes constitute the only instrumentality through which the Bank is in the practice of lending its credit. But those notes are not intended to circulate, nor do they circulate. There is no more demand for circulation than there was before. On the contrary, the rapid decline of prices which the case in supposition presumes, would necessarily contract the demand for circulation. The notes would either be returned to the Bank of England, as fast as they were issued, in the shape of deposits, or would be locked up the drawers of the private London bankers, or distributed by them to their correspondents in the country, or intercepted by other capitalists, who, during the fervour of the previous excitement, had contracted liabilities which they might be imperfectly prepared on the sudden to encounter. In such emergencies, every man connected with business, who has been trading on other means than his own, is placed on the defensive, and his whole object is to make himself as strong as possible, an object which cannot be more effectually answered than by keeping by him as large a reserve as possible in paper which the law has made a legal tender. The notes themselves never find their way into the produce market; and if they at all contribute to retard" (or, as I should rather say, to moderate) “the fall of prices, it is not by promoting in the slightest degree the effective demand for commodities, not by enabling consumers to buy more largely for consumption, and so giving briskness to commerce, but by a process precisely the reverse, by enabling the holders of commodities to hold on, by obstructing traffic and repressing consumption."

The opportune relief thus afforded to credit, during the excessive contraction which succeeds to an undue expansion, is consistent with the principle of the new system;

* P. 106.

for an extraordinary contraction of credit, and fall of prices, inevitably draw gold into the country, and the prin ciple of the system is that the bank-note currency shall be permitted, and even compelled, to enlarge itself, in all cases in which a metallic currency would do the same. But, what the principle of the law would encourage, its provisions in this instance preclude, by not suffering the increased issues to take place until the gold has actually arrived; which is never until the worst part of the crisis is past, and almost all the losses and failures attendant on it are consummated. The machinery of the system withholds, until for many purposes it comes too late, the very medicine which the theory of the system prescribes as the appropriate remedy.*

This function of banks in filling up the gap made in mercantile credit by the consequences of undue speculation and its revulsion, is so entirely indispensable, that if the Act of 1844 continues unrepealed, there can be no difficulty in foreseeing that its provisions must be suspended, as they were in 1847, in every period of great commercial difficulty, as soon as the crisis has really and completely set in.† Were this all, there would be no absolute inconsistency in maintaining the restriction as a means of preventing a crisis, and relaxing it for the purpose of relieving one. But there is another objection, of a still more radical and comprehensive character, to the new system.

Professing, in theory, to require that a paper currency shall vary in its amount in exact conformity to the varia

* True, the Bank is not precluded from making increased advances from its deposits, which are likely to be of unusually large amount, since, at these peri. ods, every one leaves his money in deposit in order to have it within call. But, that the deposits are not always sufficient, was conclusively proved in 1847, when the Bank stretched to the very utmost the means of relieving commerce which its deposits afforded, without allaying the panic, which however ceased at once when the Government decided on suspending the Act.

This prediction was verified on the very next occurrence of a commercial crisis, in 1857; when Government were again under the necessity of suspending, on their own responsibility, the provisions of the Act.

tions of a metallic currency, it provides, in fact, that in every case of an efflux of gold, a corresponding diminution shall take place in the quantity of bank notes; in other words, that every exportation of the precious metals shall be virtually drawn from the circulation; it being assumed that this would be the case if the currency were wholly metallic. This theory, and these practical arrangements, are adapted to the case in which the drain of gold originates in a rise of prices produced by an undue expansion of currency or credit; but they are adapted to no case beside.

When the efflux of gold is the last stage of a series of effects arising from an increase of the currency, or from an expansion of credit tantamount in its effect on prices to an increase of currency, it is in that case a fair assumption that in a purely metallic system the gold exported would be drawn from the currency itself; because such a drain, being in its nature unlimited, will necessarily continue as long as currency and credit are undiminished. But an exportation of the precious metals often arises from no causes affecting currency or credit, but simply from an unusual extension of foreign payments, arising either from the state of the markets for commodities, or from some circumstance not commercial. In this class of causes, four, of powerful operation, are included, of each of which the last fifty years of English history afford repeated instances. The first is that of an extraordinary foreign expenditure by government, either political or military; as in the revolutionary war, and, as long as it lasted, during the late war with Russia. The second is the case of a large exportation of capital for foreign investment; such as the loans and mining operations which partly contributed to the crisis of 1825, and the American speculations which were the principal cause of the crisis of 1839. The third is a failure of crops in the countries which supply the raw material of important manufactures; such as the cotton failure in America, which compelled England, in 1847, to incur unusual liabilities for the purchase of that commodity at an advanced price. The

fourth is a bad harvest, and a great consequent importation of food; of which the years 1846 and 1847 present an example surpassing all antecedent experience.

In none of these cases, if the currency were metallic, would the gold or silver exported for the purposes in question be necessarily, or even probably, drawn wholly from the circulation. It would be drawn from the hoards, which under a metallic currency always exist to a very large amount; in uncivilized countries, in the hands of all who can afford it; in civilized countries chiefly in the form of bankers' reserves. Mr. Tooke, in his "Inquiry into the Currency Principle," bears testimony to this fact; but it is to Mr. Fullarton that the public are indebted for the clearest and most satisfactory elucidation of it. As I am not aware that this part of the theory of currency has been set forth by any other writer with anything like the same degree of completeness, I shall quote somewhat largely from this able production.

"No person who has ever resided in an Asiatic country, where hoarding is carried on to a far larger extent in proportion to the existing stock of wealth, and where the practice has become much more deeply engrafted in the habits of the people, by traditionary apprehensions of insecurity and the difficulty of finding safe and remunerative investments, than in any European community-no person who has had personal experience of this state of society, can be at a loss to recollect innumerable instances of large metallic treasures extracted in times of pecuniary difficulty from the coffers of individuals by the temptation of a high rate of interest, and brought in aid of the public necessities, nor, on the other hand, of the facilities with which those treasures have been absorbed again, when the inducements which had drawn them into light were no longer in operation. In countries more advanced in civilization and wealth than the Asiatic principalities, and where no man is in fear of attracting the cupidity of power by an external display of riches, but where the interchange of commodities is still

almost universally conducted through the medium of a metallic circulation, as is the case with most of the commercial countries on the Continent of Europe, the motives for amassing the precious metals may be less powerful than in the majority of Asiatic principalities; but the ability to accumulate being more widely extended, the absolutè quantity amassed will be found probably to bear a considerably larger proportion to the population.* In those states which lie exposed to hostile invasion, or whose social condition is unsettled and menacing, the motive indeed must still be very strong; and in a nation carrying on an extensive cominerce, both foreign and internal, without any considerable aid from any of the banking substitutes for money, the reserves of gold and silver indispensably required to secure the regularity of payments, must of themselves engross a share of the circulating coin which it would not be easy to estimate.

"In this country, where the banking system has been carried to an extent and perfection unknown in any other part of Europe, and may be said to have entirely superseded the use of coin, except for retail dealings and the purposes of foreign commerce, the incentives to private hoarding exist no longer, and the hoards have all been transferred to the banks, or rather, I should say, to the Bank of England. But in France, where the bank-note circulation is still comparatively limited, the quantity of gold and silver coin in existence I find now currently estimated, on what are described as the latest authorities, at the enormous sum of 120 millions sterling; nor is the estimate at all at variance with the reasonable probabilities of the case. Of this vast treasure there is every reason to presume that a very large proportion, probably by much

* It is known, from unquestionable facts, that the hoards of money at all times existing in the hands of the French peasantry, often from a remote date, surpass any amount which could have been imagined possible; and even in so poor a country as Ireland, it has of late been ascertained, that the small farmers sometimes possess hoards quite disproportioned to their visible means of subsist

ence.