general want of confidence, such a destruction of provincial paper took place as has rarely been paralleled. In 1814, 1815, and 1816, no fewer than 240 country banks stopped payment; and eighty-nine commissions of bankruptcy were issued against these establishments, being at the rate of one commission against every ten and a half of the total number of banks existing in 1813."

M'Culloch then adds:- "The destruction of country bank paper in 1814, 1815, and 1816, by greatly reducing the total amount of the currency, raised its value in 1816 almost to a par with gold." There is one remarkable circumstance with respect to the operations of the Bank Restriction Act, which I have not noticed as yet, but which is clearly indicated in the table I have given in page 262. The columns of "Total Bullion" (No. 5) and of "Bullion held against issue" (No. 3) show the advantage the bank took of the Restriction Act relieving them of demand for their notes, to diminish the quantity of bullion in their coffers. In 1794 and 1795, after providing for their deposits, the bank had £4,000,000 of gold (column No. 3) to meet an average total issue of about £12,000,000; being one third of the total issue, or the proportion required for prudent banking. But in the year 1801, when the issue had risen to £16,000,000, the bullion to meet it had fallen to £1,000,000; and in 1804, when the issue rose to £17,000,000, the bullion fell to half-a-million. Then from 1810 to 1815, when the issue was never less than £21,000,000, and rose as high as £27,000,000, there was not for six years a single sovereign in the bank beyond what was required to meet the deposits. On the contrary, the total bullion was a great deal less than a third of the deposits, as will be seen by comparing column 5 with column 6.

The effect of this state of affairs was, that as the security of the bank decreased, its profits increased, for the profits of a bank of issue depend on its effective, and not upon its total issue. The Bank Restriction Act of 1797 operated as a bounty on the over-issue of the bank, and the strongest inducement of private profit was held out to the bank to violate its trust to the public.

Thus the price of bank stock rose under the operations of the Act from £176 in January, 1796, to £274 in 1810.

The depreciation of the currency was finally terminated by Sir Robert Peel's Act of 1819, which repealed the Bank Restriction Act of 1797, and rendered the Bank of England, after a certain period, liable to pay notes in gold. The bank resumed cash payments in May, 1821; and to be enabled to do so, purchased gold to such an extent that there was £10,000,000 of bullion (column No. 3) to meet a total circulation of £23,000,000. The immediate effect of this measure was to contract the effective issue of the bank to about £14,000,000; a slight increase on what it had been in 1800, before the depreciation commenced, and one-half of what it was when the depreciation was at its height in 1814.

The Act of 1819 was intended to prevent over-issue by the Bank of England; and it has been perfectly successful in that respect, for, from 1821 till 1843, the effective issue of the Bank never rose above £18,000,000; except on one occasion in 1825-26, when the destruction of private bank paper created such a diminution of the total

circulation that there was an extraordinary demand for the Bank of England notes.

The quantity of bullion held by the bank during these 20 years contrasts most favourably with what was held during the previous 20 years under the Bank Restriction Act, as will be seen at once in column 3 (page 262).

It will be seen, however, from this column, that on three occasions the bullion in the bank did fall to a very low amount; namely, in 1825-26, 1837, and 1839. At these periods the convertibility of the bank notes was in serious danger; the amount of bullion against issue being only £100,000 in 1826 to provide for a circulation of £25,000,000; and being less than a million in 1837 and 1839, to provide for a circulation of over £17,000,000. No one can maintain that this was prudent management on the part of the bank, as trustees of the issue of notes for the public.

The crisis of 1825-26 was caused by the mismanagement of the private banks; between 1823 and 1825 they had doubled their circulation when they ought to have contracted it; the result was a failure of seventy banks and a panic which has scarcely ever had a parallel in England. This was followed by a very wise change in the law. For the benefit of the Bank of England, all other joint stock banks had been prohibited in 1708. In 1826 they were allowed to be established. In a recent article in a leading newspaper the public were much blamed for the folly of placing their deposits in the private bank of Paul, Strahan, and Co. what shall we say for the legislation which, for upwards of a century, compelled the public to deposit either in the Bank of England where no interest was allowed and no accommodation afforded, or else in private banks? What shall we say for the statesmen who required three periods of universal bankruptcy, 1797, 1814, and 1825, to convince them of the folly of limiting banks to six partners, and of not allowing the only perfect remedy, large joint stock banks?

As the issue was in 1826 still intrusted to the banks, another measure was adopted to prevent their mismanagement having such an effect on the total circulation. The issue of all notes under five pounds was prohibited in England. This diminished the paper and increased the metallic portion of the circulation.

The crises of 1837 and 1839 showed that the arrangements with respect to the issue of bank notes were still incomplete. Too much discretion was given to the banks. The honor of discovering a remedy for these evils is due to the celebrated Mr. Samuel Jones Lloyd, an eminent banker, since raised to the peerage by the title of Lord Overstone. His views are contained in an able pamphlet entitled, "Thoughts on the Separation of the Departments of the Bank of England," which led to Sir Robert Peel's Bank Act of 1844.

He showed that the union of the duties of the bank directors, as issuers of notes and as discounters of bills and holders of deposits, caused confusion in reasoning and in action.

That the directors were likely in their confusion to sacrifice the public to their private interests.

He showed that they were not, therefore, likely to regulate their

issue so as to make the whole circulation of paper and coin vary as a pure metallic currency would vary.

He showed that the natural contraction, such as takes place in a metallic currency, was an effectual and the only effectual means of gradually checking and ultimately stopping a drain of gold.

He showed that a mixed currency of coin and paper could be as effectually protected against the effects of a drain of gold, by being so constructed as to vary in the same manner as a metallic currency would vary.

Such being the object to be attained, the means of effecting it can be readily explained in the language I have already adopted. To make the entire circulation of paper and coin vary as a metallic circulation would vary, it is only necessary to make the effective issue of paper constant.

In the Act of 1844, Lord Overstone's principle was completely applied to the issue of the Bank of England alone. In the case of all other banks of issue, it was the total and not the effective issue that was limited. The banks, too, were not required to publish the amount of their deposits, so that it is impossible even to calculate their effective issue from the bullion stated, as we do not know how much bullion is held to meet deposits, and how much against issue. It was assumed, however, that they would hold bullion to the extent of one-third their issue, as the provision for transferring their issue to the Bank of England allows its effective issue to be increased by only two-thirds of their total issue before the transfer.

In the case of the Bank of England, however, the issue depart ment was separated from the banking department, and the effective issue fixed at £14,000,000. A great deal of nonsense has been written about this number, as if it were arbitrary. But it can be shown to be the correct amount by the simplest yet soundest calculation. If you refer to column 3, in the table in page 262, you will see that the average of the effective issue of the Bank of England, from 1827 till 1843, was as near as possible £14,000,000.

Those who wish to study the principles of the Bank Act of 1844 in greater detail, I must refer to Lord Overstone's pamphlet and Sir Robert Peel's speeches, 1844.

But I have, I think, stated enough to show that the Act of 1844, by limiting the total issue of country banks, and the effective issue of the Bank of England, brings into operation the most perfect safeguard now known against over-issue by the banks, and secures an early and regular contraction of the currency under a drain of gold, and thus adopts the only effectual means by which gold can be brought back.

I have shown further that this Act, and the Act of 1819, taken together, are the safeguards of our monetary system.

The opponents of the Act of 1844 chiefly rely on two arguments. The Act failed, they say, in 1847; and it is opposed to the principles of free trade.

The facts respecting the letter of Lord John Russell and Sir Charles Wood in 1847, the causes which led to it, and its effects, would require too much time to be fully discussed this evening. But as I have shown the fundamental principle of the Act of 1844 to be based on

sound scientific principles, it is for those who rely on what took place in 1847 to show that it proves the failure of the Act of 1844. I believe the letter to have been the weak act of a government not strong enough to resist the pressure of bank directors, and a dangerous precedent; but let any man of science, any economist, come forward to maintain that the letter was right, and I shall be prepared to meet him and defend the Act of 1844. I am not bound to prove a negative.

As to the argument that relies on free trade in banking, the great controversy on the free trade question has so far subsided, that there is not the rage for applying free trade to every thing that there was. The coining of money has always been considered one of those functions of government with which trading, whether free or restricted, has nothing to do. So highly did our ancestors consider the prerogative of coining money, that to counterfeit the coin of the realm was treason. Such was their conception of the functions of government; and it is hard to understand why the issuing of coin should be a function of government, and the issuing of notes to supply the place of coin should not.

We have, however, an example of free trade in banking tried on a large scale in a country of the same race as ourselves, and speaking the same language—the United States of America; and what is the result?

The banks are so numerous, their credit so various, the devices of their notes so changeable and so subject to forgery, that it requires a bank-note guide more complicated than Bradshaw's Railway Guide, to determine the genuineness and degree of depreciation of the money that is passed in daily payments. Such a guide is published in New-York once a month, called, "Leonori's New-York Bank Note List, Counterfeit Detector, and Wholesale Prices Current;" and from the number for 18th November, 1854, I have taken the information given in Appendix A and B.

Appendix A (page 272) shows the number of banks in each State, making a total of 1,276. It shows that on 825 of these forgeries were then in circulation, and that the different kinds of forged notes to be guarded against were 3,349 in number.

To illustrate the nature of these different species of forged notes, I have selected from the "Counterfeit Detector" part of the paper, some of the hints as to the means of detection, and given them in Appendix B, page 273.

Opposite each bank there is a remark as to its degree of solvency, indicated by a percentage of discount. If Sydney Smith had seen this work, he would not have risked his money in Pennsylvanian Bonds.

We may form some idea of the complication which the forged and depreciated notes must introduce into all cash transactions. I recollect a story illustrating this.

Some journeymen printers, commonly esteemed a shrewd class in society, went from Dublin to New-York for the high wages they heard prevailed there. After some time they returned to Ireland, and the account they gave was, that though the wages were nominally high, yet when they were paid on Saturday, they never could tell

the value of the notes, and were sure to suffer loss when they went to buy their food and clothes.

But the disastrous effect of this free trade in banking on public morality is a still more serious evil.

As an illustration of this, I shall quote a leading article from the paper I have already referred to, which was given to me by an eminent firm in this city in the American trade, as a leading authority amongst American bankers :

"Leonori's New-York Bank Note List, Counterfeit Detector, and Wholesale Prices Current, for Saturday, Nov. 18th, 1854.

66 PROBABLE SUSPENSION OF ALL WESTERN BANKS.

"It is presumed by those who are conversant with monetary affairs that a general suspension and failure of all the banks in Illinois, Indiana, Wisconsin, Michigan, Tennessee, Georgia, and Louisiana will shortly take place. We have no doubt whatever but that many banks, hitherto considered good, must stop. So many failures as are now taking place must cause much embarrassment, and we see no chance for any favorable change for a number of months to come. Gold is now at a high premium out west, and it will soon be very scarce, at par, among our own best banks. We hear very unfavorable reports about the banks of late organization in the Eastern States, and also have been made aware that many of the Boston city banks are in as bad a condition as the 'Cochituate' was at the time it failed.

"We now tell our subscribers that they must feel no degree of surprise should a general bank suspension take place all over the country. No favorable change can possibly take place before spring, if then. All the banks in Indiana, Ohio, and Michigan may be considered as already in an insolvent condition, so far as regards their ability to pay in specie.

"Gold still goes to Europe in large amounts, and will continue to go till our banks suspend. If they do so, it will be, after all, the best thing for the general welfare of our country, as the European banking world will drain us, if the war continues, without recourse to negotiation by the great powers now embroiled. The sooner our large institutions take this precautionary step, the better. Gold will then accumulate in their vaults-they will then be in a better position to facilitate a more healthful state of commercial enterprise. Nothing can be worse for our merchants than the present state of matters, and we predict, impossible though it seems, that the Bank of England' will suspend in order to protect British interests, should this war continue for fifteen months to come.* We may be wrong in our calculation, but the thing is more probable than improbable. that we have stated in regard to a financial crisis, and all we have written hitherto, seems to have been fully realized."

All

Now it is difficult to know whether to wonder most at the igno

rance, recklessness, or want of principle in this article.

The contrast between the American Banks and the Bank of

* The war continued for more than fifteen months after 18th November, 1854, and the Bank of England did not "suspend, to protect British interests."

T