an insignificant trifle as large in amount when the bullion was only £9,867,000, as when it was £16,366,000. Consequently, nothing could be a more total and complete failure of the Act of 1844, on the very first occasion its services were required 19. Now, let us recall our readers' attention to what Mr. S. J. Loyd had pointed out as the fatal defect of the Bank rule of 1832, which we have given in § 77 of the preceding chapter. He said that under it the whole bullion in the Bank might be drained out without any contraction in the circulation, and it was supposed that the Act of 1844 had especially provided against this defect. In fact, the whole theory of the framers of the Act was, that for every five sovereigns which left the country a £5 note should be withdrawn from circulation: and that if the directors failed to do so of their own accord, the "mechanical" action of the Act would compel them to do so. But what was the actual result? The Bank had lost £7,000,000 of treasure, and its notes in circulation were only reduced by £200,000; the whole of the reduction had been thrown upon its own reserves. Hence the Bank Act was open to exactly the same charge as the Bank rule of 1832! Mr. F. T. Baring, ex-chancellor of the Exchequer, who maintained that the Act had been successful on several points, allowed that it had completely failed on this point*"I find that the amount of bullion in the Bank on September 12, 1846, was £16,354,000, and on April 17, 1847, it was reduced to £9,330,000, being a diminution of £7,024,000. Now, I take the same dates with respect to the circulation of notes, and I find that on September 12, 1846, the amount was £20,982,000, and on April 17, 1847, it was £21,228,000, being an increase of £246,000.. I must say that I never entertained the idea that it would have been possible under the operation of this bill to have shewn such a set of figures. I believe, if we look back we shall find that the operation of the deposits and the question of the reserve was not sufficiently considered either by those who were favourable or those who were opposed to the bill. I cannot find in the evidence before the Committee of 1840 more than a few sentences leading me to suppose that danger arising *Hansard. Parl. Debates, Vol. 95, p. 615, from such a cause was contemplated or referred to: yet this was a most important consideration, for it was by the reserve the Bank was enabled to do what was contrary to the spirit of the bill—when gold was running out, not to reduce their circulation by a single pound. I do not think that the system works satisfactorily in this respect and, in fact, the point did not receive anything like a sufficient consideration. Perhaps it was impossible before the bill was in practical operation to see how the reserve of notes would operate; but it certainly never entered into the contemplation of any one then considering the subject that £7,000,000 in gold should run off, and yet that the notes in the hands of the public would rather increase than diminish" 20. The number of notes held in reserve in the Banking department, under the new system of 1844, corresponded in effect very much to the amount of the bullion held by the Bank before its division. When, therefore, the public saw that the whole banking resources of the Bank were reduced to £2,558,000, a complete panic seized both the public and the directors. The latter adopted measures of the most unprecedented severity to check the demand for notes. The rate was not only raised to 5 per cent., but this was only applicable to bills having only a few days to run, and a limit was placed upon the amount of bills discounted, however good they might be. Merchants who had received loans were called upon to repay them without being permitted to renew them. During some days it was impossible to get bills discounted at all. These measures were effectual in stopping the efflux of bullion, and a sum of £100,000 in sovereigns, which had been actually shipped for America, was re-landed. During this period the rate of discount for the best bills rose to 9, 10, and 12 per cent. During all this time the price of wheat continued steadily to rise, notwithstanding the monetary pressure, and at the close of May the price on one occasion reached 131s. in Windsor market. The foreign exchanges, which had been adverse to the country during the latter part of 1846 and the beginning of 1847, from the immense quantity of foreign corn which was imported, became favourable in the middle of April, partly owing to the great monetary pressure 21. The pressure passed off after the first week in May, having lasted about three weeks, and bullion began to flow in after the 24th of April, until, at the end of June, it amounted to £10,526,000, the notes in circulation being £18,051,000, and the notes in reserve £5,625,000 22. The conduct of the Bank, in keeping down the rate of discount when a rapid drain was going on, and the foreign exchanges were unfavourable, was the exact counterpart of what it had done on so many previous occasions, and excited much comment and adverse criticism by the whole commercial community of London. The market rate rose decidedly above it, so that a rush for discounts was made to the Bank, which were no sooner granted than the gold was immediately drawn out 23. On the 27th of May the Chancellor of the Exchequer brought the subject of the monetary pressure before the House, and stated that he had numerous deputations to him respecting a suspension of the Act of 1844, which the Government were not prepared to adopt. However, he meant to assist the Bank so far as to dispense with the aid the Government usually had from the Bank at Quarter day. With this view he intended to raise the interest on Exchequer bills, which were then at a greater depreciation than any other species of Government security, to 3d. per day. On the 10th he brought in a resolution to allow all persons who had subscribed to the eight million Irish loan a discount of 5 per cent. on any instalment paid in before the 18th of June, and 4 per cent. if paid in before the 10th of September 24. The enormously high price of grain, which had no parallel since 1812, had the natural effect of tempting a great number of houses to enter into speculations for the import of grain, far beyond their power to support. The enormous importations in May, June, and July, coupled with the very favourable appearance of the harvest, caused a heavy and continuous fall in the price of grain, and the reports of the potato crop being favourable, the price of wheat fell to 49s. 6d. in September. But the tremendous fall in the price of wheat had been attended with ruin to the houses which had speculated in it. Moreover, that hideous nuisance which always flourishes with noxious luxuriance in times of speculation-accommodation paper-was extensively prevalent. The failures in the corn trade began in August, which engendered a great discredit in that and other branches of commerce. On the 7th of August the minimum rate of discount was raised to 5, but this only referred to very short-dated paper, as the greater part of the paper discounted was charged at much higher rates, even up to 7 per cent., which were maintained up to the 9th October 25. On the 9th August the first of the frightful catalogue of failures began. Leslie, Alexander and Co. stopped payment, with liabilities amounting to £500,000. On Wednesday, the 11th, Coventry and Sheppard stopped for £200,000, and King, Melville and Co. also for £200,000, and several other minor firms made the total failures in the first week amount to £1,200,000. In the next week Giles & Co. failed for £100,000, and the total in the second week was £300,000. In the following week Robinson and Co. failed for £110,000, the senior partner of which firm was the Governor of the Bank of England. In three weeks the failures were £3,027,000. Week after week followed, each one increasing in severity, until at last the total exceeded £15,000,000. In the middle of September Saunderson and Co., the eminent bill brokers, stopped payment, being much involved with the great houses in the corn trade. The exchanges, which had been brought to par in April by the monetary pressure in that month, were, in consequence of the increasing severity of the crisis, become decidedly favourable, and on the 25th of September bullion began to flow in. During the whole of September the commercial calamities were falling fast and thick 26. Almost all the firms connected with the Mauritius, such as Reid, Irving & Co., failed, principally from having their funds locked up in sugar plantations. This was accompanied by immense failures in the India trade; the credit commonly given in that trade being of unusual length, which affords dangerous facilities for stretching it to too great a length. The railway works which had been sanctioned in the session of 1845-46, were now in full operation, causing an immense demand for ready money. Almost every tradesman in the kingdom, from Land's End to John O'Groats, was deep in railway speculations. The extravagant delirium of prosperity in 1845-46 had caused great numbers of them, not only to live far beyond their means themselves, but to trust their customers beyond all the bounds of ordinary credit. We have heard it said that in numberless instances their bills for goods furnished in 1845 were unpaid in 1847. There can be no doubt whatever but that commercial credit of all sorts and descriptions, among all classes of traders, was in probably a more unhealthy state than it had ever been before, and that an unprecedentedly large portion of the community were entangled in obligations, of which there was no prospect of their ever working themselves free. Sharp and severe, therefore, as the remedy was, it unquestionably was the very best thing that could happen, that this unhealthy superstructure should be cleared away, and that commerce should be reconstructed upon an improved and renovated basis. The extreme pressure may be considered to have begun on the 23rd of September, when the Bank adopted more stringent measures for curtailing the demand upon its resources. Ever since the 26th of June the diminution of bullion had been going on rapidly; on the 2nd of October it was reduced to £8,565,000, the notes in circulation being £18,712,000, and the reserve £3,409,000. This rapid diminution of their resources shewed the directors that the time had come when they must think of their own safety; and on that day they gave notice that the minimum rate on all bills falling due before the 15th of October would be 5; and they refused altogether to make advances on stock or Exchequer bills. This last announcement created a great excitement on the Stock Exchange. The town and country bankers hastened to sell their public securities, to convert them into money. The difference between the price of consols for ready money and for the account of the 14th of October shewed a rate of interest equivalent to 50 per cent. per annum. Exchequer bills were sold at 35s. discount. Everything became worse and worse day by day. On the 16th of October the Bank rates of discount varied from 5 to 9 per cent. At this time the bullion was £8,431,000; the notes in circulation, £19,359,000; and in reserve, £2,630,000. The following week, |