them to issue notes to the amount of their separate issues. But if the number of the united bank exceeded six, their privilege of issuing notes was to cease

16. If any banker exceeded his authorised issue he was to forfeit the excess

17. Every bank of issue was to send a weekly account of its issues, which was to be published in the London Gazette

18. The mode of taking the average was laid down, and bankers were to permit their books of account to be inspected by a Government officer properly appointed, and to make a return to Government once every year, within the first fortnight in January

19. The Bank of England was allowed to compound with private banks of issue, to withdraw their own notes, and issue Bank of England notes, for a sum not exceeding one per cent. per annum, up to the 1st August, 1856

20. All banks whatever in London, or within 65 miles of it, were allowed after the passing of the Act to draw, accept, or indorse bills of exchange not being payable to bearer on demand

21. The privileges of the Bank were to continue till twelve months' notice, to be given after the 1st August, 1855; and repayment of the public debts, and all other debts whatever

12. Such are the leading provisions of Sir Robert Peel's Act, which was meant to carry out a particular theory of currency, which we have no hesitation in affirming is one of the most stupendous delusions on the subject that any one ever conceived. A theory as opposed as possible to the opinions of all the greatest authorities on the subject, during the great discussions on the currency in 1804, 1811, and 1819, which we have already abundantly quoted in the former part of this volume. But the most remarkable circumstance is that the Act authorises the most flagrant violation of the principle it is intended to enforce; for the issuing of notes upon the public funds is the most vicious principle possible. It is the theory of John Law, which we shall more fully consider in a subsequent chapter. Indeed, so utterly blind was one of the most distinguished advocates of this theory to the true nature of monetary science, that he boasted that, "practically considered, fluctuations in the

rate of interest, and in the state of commercial credit, so far as they can result from alteration in the value of the currency, may, under the operation of the proposed system, be taken at nihil”*

13. The avowed object of the Act of 1844 was to take the regulation of the currency out of the hands, or even the power, of the directors of the Bank of England. The incorrigible mismanagement of that body had, in the opinion of everybody, aggravated every crisis. The authors of the Act of 1844 flattered themselves that for every five sovereigns that left the country a five-pound note must be withdrawn from circulation. We shall see hereafter how this expectation was fulfilled. In the meantime Sir Robert Peel himself and all the supporters of the Act gave out that it was the complement of the Act of 1819, though we confess we do not clearly see the meaning of the phrase. If, however, they mean to say that it was in the spirit of the Act of 1819, or of the statesmen of that period, we wholly deny such to be the fact, and to suppose so only argues the most profound ignorance of the doctrines of the authors of the Act of 1819

14. The issues of notes, then, of the Bank of England are founded upon two of the most fatal delusions that ever prevailed on the subject of the paper currency; the one the theory of John Law and the other the "Currency Principle," which came into fashion about thirty years ago

15. We have observed, in the last chapter, that, owing to the good harvests of 1842-43-44, the bullion in the Bank accumulated very rapidly during these years, and a very large quantity of money, which the nation must otherwise have spent in food, was set free for commercial purposes. Other circumstances occurred at the same time to liberate a large quantity of the capital of the country from its accustomed use, and to render it applicable to commercial purposes, which have been very clearly and ably pointed out by Mr. James Wilson. He shews that the rapidity and certainty of conveyance reduces very greatly the amount of stock it is necessary at all times to keep on hand when communications are slow and uncertain. That the amount of

*Col. Torrens.

VOL. II.

Tooke's Hist. of Prices, Vol. IV., p. 282.

M

goods in transit is much larger with a slow conveyance than a quick one. For example, when Manchester supplies London with manufactured goods-if it takes seven days by canal for these goods to reach London, it is clear that there must always be seven days' consumption of goods on the way. If the same transit is accomplished by railway in one day, it is only necessary to have one day's consumption on the way; and the capital employed in producing the other six days' consumption is liberated, and may be employed in promoting other commercial operations. When we consider the enormous economy of capital required in the transaction of the same amount of business which was effected by the introduction of more rapid modes of communication, whether by railways or steamboats, we shall understand how greatly they increased the national resources. There can be no doubt that the economy of national capital effected by the extension of railways far exceeded the losses which occurred from unsuccessful speculation in them. Now, these operations were beginning to have their full effect in saving the national capital, simultaneously with the good harvests of 1842-43-44, and helped to swell the quantity of disposable capital to an unprecedented extent

16. An attentive consideration of these circumstances is absolutely necessary, because they shew, if anything were necessary to shew it, the gigantic error committed by many writers, who think that the prices of goods must vary exactly with any increase or decrease of the amount of the currency, whereas there is no necessary relation between the two whatever. The particular methods of doing business have the most important influence on the quantity of capital necessary to carry it on; and a clumsy or more ingenious method of transacting business may make the most important changes in the quantity of money necessary to circulate any given amount of commodities without causing any alteration in the price of those commodities

17. The Act of 1844 having placed an absolute limit upon the discretion of the Bank in issuing notes, Sir Robert Peel said that he thought that banking business could not be too free and

unrestrained. The extraordinary accumulation of capital, arising from the circumstances we have just detailed, lowered the market rate of discount to 1 and 2 on the best bills, and the Bank of England immediately conformed to the market rate on the passing of the Act, and reduced its rate from 4 per cent. to 2 for the best bills. The day the Act came into operation, indeed, the whole of the discounts were done at 12, and they continued at that rate for a fortnight, when some were done at 2 per cent.; and up to the 26th October a considerable portion was done at 24. From this date, however, up to October, 1845, the rate was 24. In November, 1845, the rate was suddenly raised to 3, and continued at that figure till August, 1846, when it was lowered to 3 per cent. These rates being governed by the flow of bullion, which diminished from 15 millions when the Act of 1844 passed, to 13 millions in November, 1845; after which it increased again to above 16 millions in August, 1846, and then began steadily to decline till it reached its minimum in the great crisis of October, 1847

18. The first failure of the potato crops in Ireland in 1845, and the railway mania of that year, must be too fresh in the recollection of most persons to need repetition here; nor had they anything to do properly with the management of the Bank, whose sole proper duty was to look to its own affairs, and preserve its own stability. The calamity of 1846 was far more severe and extensive than that of the preceding year. It was absolutely certain that an immense quantity of bullion would require to be exported in payment of the grain it would be necessary to import. Accordingly, from the middle of September, 1846, a steady and continuous drain of bullion set in, but the Bank made no alteration in the rate of discount until the 16th January, 1847, when the bullion had fallen to £13,949,000 it raised the rate of discount to 3, and on the 23rd, the bullion having been further diminished by £500,000, it raised the rate to 4 per cent. Henceforth the drain continued rapidly, but the Bank still continued to make no alteration until the 10th April, when its treasure being reduced to £9,867,000, the rate of discount was raised to 5 per cent. Here we have the same inveterate blunder committed by the Bank as on so many previous occasions-an immense drain

of bullion, and yet none but the most feeble, inefficient, and puerile means taken by the Bank to raise the value of money here. But the operation of the Bank at this time is an excellent example of the self-acting nature of the Act of 1844. We need only observe that the Banking Capital of the Bank of England is £14,000,000 of notes, based upon public securities, together with notes representing as much bullion as there is in the issue department. Consequently, the notes held in reserve must always be equal to the difference between the notes in circulation, or held by the public, and the sum of £14,000,000 added to the quantity of bullion. Now, we have seen that the intention of the framers of the Act of 1844 was that, as the bullion diminished, the notes in the hands of the public should be diminished, in conformity with the "currency principle." Let us now see, 1stHow the Bank was inclined to act on the principle; and, 2ndlySupposing they were disinclined to do so, how far the Act, by its self-acting principles, compelled them to do so. The following figures speak for themselves

These figures show the utter futility of the idea that, as the bullion diminished, the Act could compel a reduction of notes in the hands of the public, for the notes in circulation were within