Read Ebook: The Paper Currency of England Dispassionately Considered With Suggestions Towards a Practical Solution of the Difficulty by Haslam John Of Dublin

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and if we include the country issues, so as to present a view of the total circulation of the country in such a case, we shall have

and in like manner in 1861 the number of notes allowed to be issued at the medium rate, would be ?7,000,000; and so on until, in 1865, the medium rate would reach its permanent limit of ?11,000,000. And, with this explanation, we shall hereafter confine ourselves exclusively to the permanent arrangement that would come into complete operation in 1866.

We are far from deeming it our function to determine on the exact rates which ought to be charged in these three cases, as this is a question of arrangement between the Government and the Directors of the Bank of England; nevertheless as without some estimate of this sort it would be difficult if not impossible to enter upon any close examination of the probable working of such a system, we shall now proceed to consider what rates would appear to us most equitable. And first, to take the minimum rate to be charged on the ?11,000,000 of notes issued on the loan to Government. On these ?11,000,000, as has been more than once observed, the Bank receives 3 per cent. from Government in addition to the profit which it derives from operating on the notes issued in lieu thereof. Assuming therefore, as a not unreasonable rule, that the Bank and the State should share this extra 3 per cent. on equal terms, it would follow that 1 1/2 per cent. to each would be a fair participation of the profits; and if we allow the Bank an additional 1/2 per cent. as a sort of equivalent for the expense and trouble required in the management of the issues, it will hardly admit of dispute that the remaining 1 per cent. will form an extremely moderate governmental charge on the first ?11,000,000. The same principle will be no less applicable to the medium rate to be changed on the second ?11,000,000. Whatever profit the Bank would derive from the circulation of these notes would be entirely owing to the privilege of issue delegated by the State; it would be equitable therefore that the Bank should share the whole of this profit in equal proportions with the Government. Now, as a general rule it would only be when increased banking accommodation would be required by the public, and when the rate of interest would be proportionally high, that the Bank would ever be likely to circulate any considerable proportion of these second ?11,000,000; so that the gross profit derived from their issue would not be less than 4 to 6 per cent. On the principle just laid down, therefore, 2 1/2 per cent. to each would be an equal participation of the profits; and if we again allow the Bank an additional 1/2 per cent. to cover the expense of management, the remaining 2 per cent. will certainly appear a very moderate governmental charge. There still remains the maximum rate, and that should be determined on a totally different principle. The ?22,000,000 already provided for constituting what we have called the extreme normal unrepresented circulation of the Bank, the rates imposed upon their issue should be such as would present no obstacle to the free expansion of the circulation to this extent, in conformity with the wants of trade. But any issue in excess of these ?22,000,000 should be a very rare occurrence, to be justified only under urgent pressure; the rate to be imposed therefore should be such as would effectually prevent the circulation from ever exceeding its normal limits, except in cases of undoubted necessity, and for this purpose less than 4 per cent. could not be considered adequate. Indeed the Bank rate of interest so frequently rises higher than 4 per cent. that the imposition of any lower rate would present little barrier to the issue in excess of ?22,000,000. The three rates therefore, the minimum, the medium, and the maximum, might very reasonably be fixed at 1, 2, and 4 per cent. respectively; in other words, the Bank should be authorized to issue the first ?11,000,000 of its unrepresented notes at 1 per cent. the second ?11,000,000 at 2 per cent. and any notes issued in excess of those ?22,000,000 at 4 per cent.

There is one explanation, however, that must be made as to the method in which these rates should be imposed. We have said that the respective rates should be levied on the amount of notes that might be actually in the hands of the public. To this plan it may, perhaps, be objected, that inasmuch as a very considerable portion of the deposits in the Bank of England are well known to be as profitable to the Bank, and to operate as currency just as much as if they continued in the hands of the public; and that, as under our proposed system, the Bank will be enabled to re-loan their whole amount, and thereby derive a two-fold profit upon a large proportion of the notes in actual circulation--that, therefore, consistency would require that the notes in deposit should be considered chargeable just the same as if they had never been deposited. Now, it must be conceded, that this objection is not altogether void of force; but there is an overruling consideration on the other side of the question. For it must not be forgotten that the Bank of England, in common with other banks, is necessarily a bank of deposit, and has its legitimate functions as such; a very considerable part of the profit, therefore, derived from the re-issue of the notes deposited, is exclusively the result of the constitutional exercise of its functions, and lies entirely beyond the sphere of Governmental jurisdiction. It might not, perhaps, be impossible to devise a test for distinguishing between these profits and those arising more directly out of the privilege of issue; but such a distinction would be far too minute to serve as a basis for legislation; and on the other hand, any indiscriminate charge upon the deposits, as a whole, would not only be extremely vexatious, but would even place the Bank of England at a serious disadvantage as compared with every other bank of deposit. It follows, therefore, that while the rule already laid down, of confining the operation of the rates to the actual amount of notes in the hands of the public, may not attain to absolute theoretical perfection, yet in practice it is clearly preferable to any regulation that would either discriminate between two classes of profits derived from the deposits, or impose the rates upon their total amount.

It will be seen from this, that while we are anxious to maintain in its integrity the right of the State to receive an equitable proportion of the profits derived from the issue of unrepresented notes, we have no desire to stretch this right so as to bear oppressively upon the interests of the Bank of England. But a closer examination will conclusively show, that the effect of our proposed arrangement, as a whole, would be to leave the present profits of the Bank altogether intact, as the profits arising out of the additional notes which the Bank would be authorized to circulate, would amply cover the governmental charges on the total circulation. The simplest method of establishing this point, will be to compare the actual circulation of unrepresented notes under the Act of 1844 with the probable circulation under the proposed arrangement. And first, to take the average circulation as the standard of comparison. The present average circulation has been shown to be about ?8,000,000, and the profits derived from these, at 4 per cent., would be ?320,000 annually. Now, under our plan the average circulation would be at least ?15,000,000, the gross profit upon which, at 4 per cent., would be ?600,000 while the governmental charges would be

or a total of ?190,000 which, deducted from ?600,000, would leave a nett profit of ?410,000, or considerably more than the present profit on the ?8,000,000. A comparison of the maximum circulation of unrepresented notes, again, will fully establish the same conclusion. The present maximum can never exceed about ?12,000,000 without imperilling the safety of the Bank; and these ?12,000,000, if advanced at 8 per cent., to which the rate of discount under the Act of 1844 has sometimes advanced, would return a profit at the rate of ?960,000 per annum. Under the proposed arrangement, on the other hand, the maximum would not improbably, in a case of extreme pressure, be ?22,000,000, or even ?24,000,000; and the gross profit on ?24,000,000, at the same rate, viz., 8 per cent., would be at the rate of ?1,920,000 per annum. On these the governmental charges would be

which, deducted from ?1,920,000, would leave ?1,510,000 as compared with ?960,000 under the present system. This, however, is an exaggerated estimate, as we shall presently show that the rate of interest would not be likely to exceed from 6 to 7 per cent. Taking 6 per cent., then, as the more probable rate, the gross profit on ?24,000,000, advanced at 6 per cent., would be at the rate of ?1,440,000 per annum; from which, if we deduct the governmental charge of ?410,000, there will still remain ?1,030,000 as compared with ?960,000 under the present system. While one effect of our arrangement, therefore, would be to augment the national income by from ?190,000 to ?410,000 per annum; this advantage evidently would not be purchased by appropriating any portion of the present profits of the Bank of England.

Before proceeding any further with our inquiry, it will now be desirable to take a rapid survey of the ground already traversed. We found at starting, that according to one of the best established doctrines of monetary science, the issue of paper money is essentially a function of the State, and should be exercised exclusively for the promotion of public interests. To the immediate establishment of a State bank of issue, however, there appeared to be one cogent practical objection, arising out of a political necessity which is very generally recognised, that the Government of the day should have no direct control over the monetary system. In lieu of a State Bank, therefore, we were obliged to go in search of the best possible substitute; and guided by the well-grounded principle, that there should only be a single bank of issue, we arrived at the conclusion that, under existing circumstances, the safest and most consistent course would be to entrust the whole circulation of England and Wales to the Bank of England, on condition that the Bank should equitably share its profits with the public treasury. The general subject of the extent of the paper circulation next passed under review; and while it did not seem prudent that the unrepresented issues should at present undergo any considerable increase beyond the ?22,000,000 which are now the statutable limit, it yet appeared very necessary that the absolute prohibition of any issue in excess of that limit should be removed, and that the Bank of England should be allowed to expand its unrepresented issues in conformity with the wants of trade, subject only to certain regulations required for their due adjustment. On the other hand, we found it manifestly desirable that the Bank should be encouraged freely to increase its issues on bullion, and that, in order to accomplish this, it should at once be permitted to issue at least from ?5,000,000 to ?10,000,000 of notes under five pounds sterling. Returning, then, to the country banks of issue, it was shown to be a matter of justice, that they should be granted sufficient time for the gradual withdrawal of their issues, and the substitution of Bank of England paper. We, therefore, proposed that they should contract their authorized circulation by one-tenth annually, for the next ten years, the Bank of England as gradually supplying the vacancy according as the notes should be withdrawn. We then proceeded to consider the mode in which the Bank of England should be required to share its profits with the public, and found upon examination that the most advantageous plan would be that of imposing an annual rate on the amount of unrepresented notes retained in circulation, or, rather, a series of rates arranged upon an ascending principle, viz.--a minimum rate on the ?11,000,000 of notes issued in consideration of the loan to Government; a medium rate on whatever notes might be required to increase the total unrepresented circulation of the country to ?22,000,000 , and a maximum rate on whatever notes might at any time be issued in excess of the total ?22,000,000. And, on further consideration, it appeared that 1, 2, and 4 per cent. would form a not unreasonable scale for the three respective charges.

In embracing so extensive a field as the preceding, in the compass of a single paper, we have necessarily omitted any reference to several important branches of the subject. The expediency of the separation of the banking from the issuing department in the Bank of England has been sometimes canvassed, but the best authorities are agreed in regarding the separation simply as a matter of account. Should the alterations we have suggested be adopted, some corresponding changes would be required in the weekly returns of the assets and liabilities of the Bank, but no peculiar difficulty would arise out of this necessity. Another and a more important feature in the present system, has sometimes been assailed, but as appears to us on a very nugatory grounds. We refer to the provisions by which the Bank is required to purchase all the gold that may be presented, at ?3 17s. 9d. per ounce, and to render gold for all the notes that may be tendered for payment, at ?3 17s. 10 1/2 d. per ounce. As one of these provisions is absolutely requisite for securing the convertibility of the issues, and as the other is equally indispensible for preserving an adequate stock of bullion, we are not aware of any valid reason for objecting to either. We may also remark that it is now the opinion of some of the most influential bankers, and of Mr. Gurney amongst the rest, that the proportion of silver on which the Bank may issue bullion notes as compared with gold, might judiciously be increased to one-third. So far as we know, this appears a very judicious proposition; at the same time we think that the permission to issue small notes, if conceded, would in great measure remove the necessity for its adoption.

There now remains for consideration the probable effect of the measures we have proposed, in meeting and providing for those great commercial crises, which have hitherto invariably produced severe disasters, and the periodical recurrence of which, under the existing system, can be predicted with almost scientific certainty. We have indeed already in part anticipated this inquiry, but its pre-eminent importance to the pecuniary interests of the whole trading community, demands an ampler treatment at our hands. And if it should be found that the system we propose would not be calculated to alleviate the evils produced by such calamities, or if at least it cannot be shown that it would prevent their unnecessary aggravation, we shall be perfectly willing to abandon it as unworthy of adoption. For we fully unite with those who maintain that the merits of a system of currency are not to be tested by its operation during the ordinary course of trade, but by its adaptibility to those periods of convulsion when the machinery of commerce is subjected to the severest dislocations.

Now we think it will be generally admitted, that nearly every monetary crisis arises either out of some deficiency or excess in the circulating medium, or else out of some circumstance that is intimately connected with such deficiency or excess. And if this be admitted, it will clearly follow that the principal object that ought to be kept in view in the regulation of a system of currency, is the prevention of any undue increase or diminution in the amount of the circulating medium, and the immediate restoration of a state of equilibrium, wherever the balance may have been, through whatever cause, disturbed. Unfortunately, however, it is the peculiarity of the present system, that whenever the money market is tending either to an excess or a deficiency, the inevitable effect of the Act of 1844 is to aggravate and not to neutralize the tendency. It may at first sight appear extraordinary, if not incredible, that the same system should at different periods produce results apparently so opposed to each other; but a little consideration will show that this is undoubtedly the fact. And we shall first take the case in which the tendency is towards an excess of circulating medium.

It is a well understood circumstance, that whenever any unusual stimulus is imparted to the work of production, and the export trade proceeds with more than ordinary activity, the necessary consequence is, that the exports exceed the imports, and that gold flows into the country from those nations which have purchased more largely of our commodities, than they have paid for in their own. Now, whether this gold is converted into coin, and is directly expended in the purchase of commodities or the payment of wages, or whether it is taken to the Bank of England and exchanged for paper, in either case it immediately increases the amount of circulating medium in the possession of the public; in the one case in the form of metal, in the other in the form of bullion notes. And just in proportion as money becomes abundant, prices rise, and the rate of discount falls in a corresponding ratio. This in itself, although in some degree inevitable, is nevertheless a serious evil. But unfortunately, the tendency of the present currency system, instead of alleviating, is to aggravate it. For, as money becomes abundant with the commercial public, it simultaneously increases with those who usually deposit in the Bank of England, and they immediately enlarge the amount of their deposits. Now every addition to the deposits, is really an addition to the unemployed reserve of unrepresented notes in the Bank; in proportion, therefore, as money becomes abundant with the public, the Bank reserve increases; so that it very speedily exceeds the amount which the ordinary rules of sound banking would hold to be necessary for discharging the functions of a reserve. In such circumstances it becomes the immediate interest of the Bank to force the superabundant notes of the reserve again into circulation; and this it can only do by entering keenly into the competition of the loan and discount market, and by proffering advances on more advantageous terms than those allowed by other banks and capitalists. And as the superabundance of money must have already produced a considerable decline in the rate of interest, and a corresponding rise in the scale of general prices, and must have thereby given an impetus to the spirit of undue speculation, so this disastrous competition of the Bank of England for an extended share of business, must not only induce a still further depreciation in the one case and enhancement in the other, but must inevitably impart a very powerful incentive to the rapid progress of speculation.

We are not now dealing with mere surmises, but with well ascertained facts which every intelligent reader may verify from his own experience. That the liberty to issue ?14,000,000 of unrepresented notes free of charge, does actually induce the Bank of England, when money is abundant, to make advances at an injuriously low rate of discount is a matter of common observation. For a glaring illustration of this we need only refer to the year 1844, when, a few months after the passing of the Act, so ardent was the competition of the Bank Directors for an increased share of discounts, that they even forced accommodation on the public at 1 3/4 and 2 per cent. And that the effect of this course was extremely mischievous is now a matter of universal agreement. We have indeed the testimony of the Committee of the House of Lords on Commercial Distress--a testimony fully sustained by the witnesses examined before the Committees of both Houses--to the fact that the operation of this low rate of discount, in imparting an active stimulus to speculations of every kind, was to contribute in no small degree to the severity of the crisis in 1846-7. The mode in which it produces such a result is readily intelligible. It does so in two ways. In the first place, the rise of prices at home, unless it should happen by an extraordinary coincidence to be accompanied by a corresponding rise of prices in all the foreign countries with which we trade, must necessarily have the two-fold effect of putting a check to the export of our own commodities to the foreign markets, and of encouraging an increased importation from those foreign markets to our own. And in the second place, the decline in the rate of interest produces a proportionate rise in the price of public securities; and this rise in the price of securities, unless accompanied by a simultaneous enhancement in the price of foreign securities, has the two-fold effect of preventing foreign capitalists from purchasing our securities and of inducing our own capitalists to sell out their securities at home and purchase in the foreign market. Now, the effect of both of these operations--the one on the relation between our imports and exports, and the other between domestic and foreign securities is to necessitate the transmission of the unfavourable balance in treasure to those foreign countries from which we have obtained the increased securities and imports. The ultimate result therefore of the low rate of interest is in both respects an exportation of gold, and this exportation of gold is so serious an evil that it becomes an essential object, in currency legislation, to adopt every possible precaution against any occurrence that might unnecessarily induce or aggravate it.

Now in this most important particular the superiority of our proposed measures over the present system must be at once apparent. It is unquestionable that the Bank of England could never have been induced to force its notes upon the money market, at so low a rate of interest as 1 3/4 and 2 per cent. if it had not been allowed the privilege of issuing, for the purpose of loans, at no expense to itself. If a certain rate of interest had been charged upon the issue of all its unrepresented notes, that rate would have sufficed to prevent its loaning or discounting on such terms. And, supposing 1 3/4 per cent. to be the lowest rate at which the Directors might consider it profitable to advance money to the public, when the notes were perfectly free of charge, it is only a legitimate conclusion, that if a certain rate should be imposed on the issue of the notes, they would then be restrained from making advances on lower terms than the sum of that rate, added to the 1 3/4 per cent. supposed to be the present minimum. Now, the rate we have proposed to be levied on the first ?11,000,000 of the unrepresented issues, being 1 per cent., there is no probability, according to this principle, that they would ever make loans on securities at a lower rate than 2 3/4 , or discount lower than 3 per cent. In practise, indeed, it is not likely that they would ever descend so low as this, as it is highly improbable that the unrepresented issues would not at all times exceed ?11,000,000, and, in that case, the imposition of the 2 per cent. upon the notes in excess of the first ?11,000,000, would inevitably keep the rates of interest and discount about 1 per cent. higher than if the issues were ever to consist entirely of notes that would be subject to no higher charge than 1 per cent. On our plan, therefore, there appears no probability that the Bank rate of discount would ever fall, for any considerable period, below 3 1/2 to 4 per cent. And, if this be correct, then whatever evils are admitted to arise from the encouragement of undue speculation, and the ultimate aggravation of a drain of the precious metals, through the low rate of discount at times adopted by the Bank of England, it must be conceded that our scheme of currency possesses this one advantage in addition to those already described, that it would, in very great measure, provide an adequate safeguard against such aggravation.

So far with respect to the operation of the present system in augmenting the evils arising out of an excess of circulating medium, together with our provision for preventing that augmentation. We have still to justify our assertion that the present system also aggravates the evils arising out of a deficiency of circulating medium, and that our proposed system provides a remedy for this as well as the former evil. And here the subject will demand a greater degree of amplification. For a deficiency of circulating medium may arise out of several different causes, each of which will require a special consideration. To treat of them generally, in the first place, they may be disposed of under two cases, the one proceeding from an actual drain of the precious metals, the other arising out of the hoarding of currency by merchants and bankers, through the dread of monetary pressure. In point of fact, these two cases are not always kept distinct; indeed the former is not unfrequently accompanied by the latter. But it will be more convenient to treat of them separately, and to dispose of the latter before proceeding with the former.

The principal instance of a domestic drain, that is of a scarcity of money produced by domestic hoarding, which has occurred in recent years, was that which took place in October, 1847. In this case, as is well known, there was no actual deficiency of currency in the country at the moment of pressure. There was no unfavourable exchange; on the contrary, gold was steadily returning after the drain of the previous twelve months. The apparent deficiency, therefore, as compared with the pressure of the preceding April, originated solely in the accumulation of currency by the merchants and bankers. And this accumulation is admitted to have been caused exclusively by the knowledge that the Bank of England was rapidly drawing towards the end of its resources, under the law that limits the unrepresented issues to ?14,000,000; and the truth of this is clearly demonstrated by the fact, that the temporary suspension of the Act of 1844, at once removed the panic without requiring the issue of a single note beyond the statutable limitation. Now, we contend that our provision for allowing the Bank of England to issue unrepresented notes, beyond the ?22,000,000 at present allowed to be issued by the whole united banks of England and Wales, subject to the charge of 4 per cent., would entirely preclude the possible recurrence of any similar panic. For it was not the rate of interest at which the Bank had been discounting in the previous months that produced the alarm, but solely the knowledge that the reserve of unrepresented notes was nearly exhausted, and that the provisions of the Act prohibited the extension of that reserve, no matter what rate of interest might be offered by the public for increased accommodation. The certainty, therefore, that whenever the rate of interest should materially exceed 4 per cent., the Bank would be placed in a position to afford any further accommodation that might be required by the public, would effectually prevent the recurrence of any apprehension as to the possible exhaustion of the Bank's available resources.

We will now proceed to the case in which the deficiency of currency is produced by an actual drain of the precious metals. Such a drain may obviously arise from a variety of causes too numerous to specify. But there are three cases which are not only in themselves the most important, but which also serve as fair representatives of the remainder. These three are, first, a drain arising out of general high prices at home, originally produced by an excess of currency and great overtrading; secondly, the exportation of gold to pay for some staple article of food or manufacture, caused by the deficient supply of such article at home; and thirdly, the maintenance of a large military expenditure abroad during time of war. The first of these was the main cause of the crisis of 1825; the second was the chief, but not the exclusive, agent in producing the pressure of April, 1847; the third is now in operation, and should the war prove of long continuance, may possibly subject the present system to as severe a test as that of October, 1847, provided the Act should not in the mean time undergo amendment.

To take the case of a drain produced by over speculation first. We have already seen that one operation of the present currency system is, either directly to produce a drain whenever money is redundant, or else materially to aggravate it if produced by other agencies. We have now to consider the effect of another part of the same system, which comes into operation when the drain has taken place, and money is deficient. It is a generally admitted principle, that in such a case as this, in which the drain has been occasioned by a low rate of interest and high prices, there is nothing but a rise in the rate of interest, and a fall in prices, that can remedy the evil and recover the exported treasure. But it by no means follows that prices must necessarily fall as much below, as they had previously risen above their average, or that the rate of interest must rise as much above, as it had previously fallen below its average; as, in this case, the evil produced would be fully equal to that which it was designed to cure. For it must be remembered that the exported treasure will, in its turn, produce an excess of currency in the countries which receive it; and that that excess will necessarily lead to a rise in prices and a fall in the rate of interest, precisely commensurate with the amount received. It will not be necessary, therefore, that prices should fall much below the average at home, in order to stimulate an increased export of commodities to those countries in which prices have risen; nor that the rate of interest should much exceed the average, in order to encourage the purchase of our securities on account of the same countries; both of which operations will have the effect of recovering the treasure. But secondly, there is no necessity for our regaining the gold as rapidly as we have previously parted with it; as the less violent is the reaction, the less severe are the concomitant evils. And thirdly, if indeed it should not have taken the first place, it has been repeatedly proved to demonstration, that a rapid fall in prices, instead of stimulating exportation, has the inevitable effect of paralyzing industry, and thereby retarding the production of those very commodities of which a more than ordinary quantity is required. Now, in each of these respects, the effect of the present system is to aggravate the severity of the reaction in every case in which the reserve of unrepresented notes in the Bank of England, is not at the very highest point when the drain begins to operate. For, supposing the gold exported considerably to exceed the amount of this reserve, which is invariably the case in every extensive drain which commences while the reserve is either at or below its ordinary average, the amount of circulating medium in the hands of the public must contract, at least by the difference between the amount of the available reserve and that of the exported treasure. Now this contraction in itself would alone suffice to cause a serious fall in general prices, and could hardly fail to put a sensible check upon the operations of productive industry. But long before the contraction would have reached its climax, and indeed before the available reserve of the Bank would have been exhausted, the Bank would be compelled, in self defence, to raise the rate of discount so high as completely to arrest the demand for increased accommodation consequent on the drain. In addition, therefore, to the contraction in the amount of circulating medium operating directly upon prices, we have a rapid and excessive rise in the rate of interest, proceeding step by step with that contraction, till, ultimately, as the Bank reserve approaches to the verge of exhaustion, a state of general discredit arises; the hoarding of currency at once ensues, a still more ruinous decline in prices is the consequence, and nothing but the suspension of the Act can avert the spread of universal panic.

But, secondly, a drain may be produced by the failure of some staple article of food or manufacture, and the consequent importation of an adequate substitute. The most calamitous case of this kind which has occurred in recent times, was the general failure of the potato crop in 1846, which necessitated the transmission of more than ?8,000,000 of treasure in payment for bread-stuffs, chiefly to America. In this and similar cases the efflux of gold is not produced by any excess of circulating medium, with its attendant rise in prices and fall in the rate of interest; the recovery of the gold, therefore, should be effected with the smallest possible diminution of currency, reduction of prices, or enhancement of the rate of interest, and any unnecessary aggravation of either of these is a perfectly gratuitous evil. Yet here, as in the previous case, the provisions of the Act of 1844 require that the circulating medium should contract, at least by the difference between the amount of the available reserve and that of the exported gold. For example, should the drain commence when the available reserve should amount to only ?4,000,000, which is about the average, and should it extend to six, eight, or even ten millions, the amount of the circulating medium must inevitably contract, at the very least by two, four, or six millions. And yet, there can be little doubt that in such a case as this, a contraction of one or two millions would be amply sufficient for the recovery of the treasure.

But the remaining case is still more glaring in its character. For, should the war be protracted for several years in succession, it will necessitate, not merely a single drain of gold to the extent of some ?8,000,000 or ?10,000,000, but a continued series of annual drains, every one of which may extend to that amount. In this case, therefore, under the Act of 1844, the currency will be subjected either to one continuous strain throughout the whole duration of the war, or else to a succession of violent oscillations from deficiency to excess, and from excess to deficiency, according as the bullion imported exceeds that exported, as would probably be the case during the winter months; and as the bullion exported may exceed that imported, as would probably be the case during the summer months. Should the amount of bullion received during the winter be equal to the amount exported during the previous summer, we should then have an excess of currency with high prices, and a low rate of interest in every spring, followed by a deficiency of currency with low prices, and excessively high interest in every autumn, except so far as this rule might be interfered with in the case of those commodities, the supply of which would be diminished through the rupture of our commercial relations with the hostile country. But should the influx of gold during the winter, fall short of the previous efflux, the effect would be, that the currency would be subjected to a permanent deficiency; and we should only have to look forward to low prices and enormous interest throughout the whole continuance of the war, with the not improbable contingency of the spread of general panic at every period of unusual pressure. And to this it must be added, that should any serious deficiency in some staple article of domestic consumption occur in the meantime, requiring the importation of an adequate substitute from abroad, the additional efflux of treasure which this would necessitate, might not only lead to a suspension of cash payments by the Bank of England, but be the means of throwing the whole commercial affairs of the nation into extreme, if not irreparable, disorder.

It is now admitted by the best authorities, both practical and theoretical, that what is really wanted in such cases as those just described, is the adoption of some system that would recover the exported treasure, with the smallest possible interference with the amount of circulating medium, and the general prices of commodities. It is likewise admitted that a rise in the rate of interest, accompanied by a very moderate contraction of the currency, would be quite sufficient to recover the exported treasure, without inflicting any serious injury on the commercial public. For example, Mr. J. S. Mill, who is perhaps the most eminent of living economists, in the chapter on the Regulation of the Currency, thus expresses himself: "In the first place, the gold might be brought back, not by a fall of prices, but by the much more rapid and convenient medium of a rise of the rate of interest, involving no fall of any prices except the prices of securities. Either English securities would be bought on account of foreigners, or foreign securities held in England, would be sent abroad for sale, both which operations took place largely during the mercantile difficulties of 1847, and not only checked the efflux of gold, but turned the tide and brought the metal back." And in confirmation of this statement, we have the evidence of Mr. Morris, late Governor of the Bank, before the Committee of the House of Commons on Commercial Distress, to the fact, that a rise in the rate of discount to 6 per cent. sufficed to recover the gold from Russia and other continental countries--"Parties were importing gold during the time that we were discounting at 6 and 7 per cent., but latterly, when gold became scarce, they exerted themselves still more to bring it." But the testimony of Mr. J. Horsley Palmer, who has passed the Bank Chair, is still more decisive. He was asked, "May not a favourable exchange be maintained by the rate of interest being higher in this country than on the Continent?" His answer is emphatic: "It is the only mode, in my judgment, for correcting the foreign exchanges."

Now this is the precise mode in which our proposed system would operate in the case of every drain of bullion. The immediate effect of any drain, from whatever cause produced, would be, not a contraction of the circulating medium, but a gradual rise in the rate of interest. If the drain were not very great, this rise in the rate of interest would be sufficient to turn the exchanges in the manner described by Mr. J. S. Mill. If the drain were more severe, the rate of interest would rise still higher, till it would ultimately affect the public demand for loans and discounts, at which point it would begin to produce a very gradual contraction of the circulation. With this contraction would proceed a slight reduction in prices sufficient to stimulate an increased exportation, but not to paralyze domestic industry; and the united operation of the rise in the rate of interest and the moderate fall in prices, would recover the exported treasure, without involving any serious convulsion in the commercial system.

As this is a matter of more than ordinary importance, it will be best to enter somewhat more minutely into the mode of operation. We have already observed that the present average amount of bullion held by the Bank of England is about ?14,000,000. Should the Bank, as we propose, be allowed to issue some ?10,000,000 of small notes, the average amount of bullion would probably be thereby increased to about ?24,000,000. We have also shown that the present average issue of unrepresented notes by the Bank is about ?8,000,000, and that if it were allowed to replace the country issues, the average would probably be thereby increased to ?15,000,000. We shall now suppose that a drain of bullion commences when the amount both of the bullion and the unrepresented issues is at this estimated average. In such a case the total issues of the Bank of England would be thus composed:

the Bank having still a reserve of ?7,000,000 of unrepresented notes, which it might issue at 2 per cent. before the issues at 4 per cent. would be called into requisition. We shall also assume that the rate of interest is at its ordinary average of about 4 per cent. In these circumstances, then, we shall suppose that a drain originates from any of the preceding causes to the extent of say ?4,000,000; the effect will be as follows:--According as each million of bullion is withdrawn from the Bank, for exportation, the amount of bullion notes, and therefore of circulating medium in the possession of the public, will suffer a corresponding diminution: an increased demand for banking accommodation will therefore arise; but as this can only be accorded by the Bank of England, through a further extension of the issues at 2 per cent., and as any considerable issue of such notes would require a higher rate of interest than 4 per cent. to render it adequately profitable, the effect of this increased demand for accommodation will probably be a rise in the rate of interest from 4 to 4 1/2 or, perhaps, 5 per cent. It is possible that this rise in the rate of discount might not produce any effect upon the demand for accommodation, but the probability is, that it would have some sensible influence, though not very considerable. We shall estimate it, therefore, as likely to diminish the amount of the currency by ?1,000,000 of the ?4,000,000 exported. The total issues would then have undergone the following change:--

In order to guard against misapprehension, it may be necessary to observe, that when speaking of the amount of any drain of bullion, we invariably mean the excess of the treasure exported over that imported during the given period. For example, should the efflux amount to ?6,000,000 and the influx to only ?2,000,000, the effect would be the same as if there had been an efflux of ?4,000,000 and no simultaneous influx: we should, therefore, assign ?4,000,000 and not ?6,000.000, as the actual drain in such a case.

and we should have a rise in the rate of interest to 4 1/2 or perhaps 5 per cent., accompanied by a contraction in the total circulation to the extent of ?1,000,000, as a means of correcting the exchanges, which there is little doubt it would suffice to do, if the drain were one of only slight severity.

The drain of 1847, however, was much more severe than this--and in order to show the operation in a somewhat analogous case, we shall suppose the efflux of bullion to proceed to the extent of a second ?4,000,000. The effect would necessarily be very similar to that just described, except that it would be more strongly marked in its features. According as the demand for accommodation would increase, and as the Bank would approach the exhaustion of the ?11,000,000 of unrepresented notes allowed to be issued at 2 per cent., it would be obliged to raise the rate of discount still higher, so that, by the time that the efflux of the second ?4,000,000 would be complete, the rate of discount would probably be not less than 5 1/2 or 6 per cent., and as this rise would undoubtedly have considerable effect in checking the increased demand for accommodation, we may confidently assume the consequent contraction of the circulation to be at least one million of the four. The total issues therefore would have assumed this position:--

exhibiting a rise in the rate of discount, from 4 to 5 1/2 or 6 per cent., and a decrease of ?2,000,000 in the amount of circulating medium, as the total effect produced by a drain of ?8,000,000 of bullion. And should the drain proceed no further, we have ample data both in theory and practise, for assuming that this rise in the rate of interest would draw over foreign capital in the purchase of securities--that this contraction in the currency would lower prices sufficiently to stimulate the export of commodities, without paralyzing industry--and that through the combined operation of the two agencies, the bullion would be slowly but certainly recovered, with the smallest possible detriment to commercial interests.

The case of a drain arising out of military expenditure presents no peculiar feature of difficulty, as compared with the preceding. Should the loss of gold continue to the extent of another ?4,000,000, making ?12,000,000 altogether, the chief point of difference would be, that the exhaustion of the ?11,000,000 of unrepresented notes allowed to be issued at 2 per cent., would necessitate a recourse to the issues at 4 per cent.; and that this would require a proportionate rise in the rate of discount, in order to render such issue adequately profitable to the Bank. But a rise in the rate of discount to 6 or 6 1/2 per cent., would allow the Bank a profit of 2 or 2 1/2 per cent. out of such issue, over and above the governmental charge; we may, therefore, assume that such a rise would suffice as an inducement for the Bank to draw on those issues. And supposing that a rise to 6 or 6 1/2 per cent. would produce a contraction in the demand for accommodation of a single million, as before, the total operation on the issues would be as follows:--

the efflux of ?12,000,000 of bullion having raised the rate of interest from 4 to suppose 6 or 6 1/2 per cent., and having reduced the total issues of bullion notes and unrepresented notes from ?39,000,000 to ?36,000,000; that is, by ?3,000,000 out of ?39,000,000. Now, in order to convey an adequate conception of the advantages derived from such a plan as this, we must contrast it more closely with the operation of the present system in a similar case. We will suppose, therefore, that a drain of ?12,000,000 of bullion commences under the present system, at a time when the bullion notes and unrepresented notes of the Bank are both about their ordinary average, viz. ?14,000,000 and ?8,000,000 respectively, making a total of ?22,000,000. Now, bearing in mind that the reserve of unrepresented notes can never practically be reduced below ?2,000,000, it will be at once apparent that a drain of ?12,000,000 in such a case would produce the following change:--

thereby effecting a reduction in the total circulation of the Bank of ?8,000,000 out of ?22,000,000, while raising the rate of discount in some fabulous proportion in order to keep down the demand for accommodation, and at the same time placing in imminent jeopardy the convertibility of the issues, if not the solvency of the Bank.

We should not be doing justice to our proposed system if we did not subject it to a test still more severe than any of the preceding, and one which could not arise under the present currency laws without entailing upon the nation a very serious difficulty in meeting its engagements. We refer to the very possible contingency already alluded to, of our being obliged to discharge some heavy foreign liabilities through the failure of some important article of domestic consumption, or through any other cause, while already embarrassed by an excessive military outlay. The events of the past twelve months, indeed, have indubitably proved that it lies within the competency of a foreign country at any time, when the bullion is at a minimum, to buy up all the marketable English bills on the Continent at a trifling monetary sacrifice, and by transmitting them for discount, entail so sudden a demand for gold upon the Bank as may completely exhaust the treasure in the coffers of that establishment. Now, it can be readily shown that the provisions which we have proposed would altogether preclude the possible occurrence of such a calamity as this. For, supposing such an operation to be effected at a time when the bullion had been already reduced, as just now supposed, to ?12,000,000, and supposing ?4,000,000 to be the highest probable limit of such a demand, the effect of this sudden drain of an additional ?4,000,000 might possibly be to raise the rate of discount momentarily to perhaps 7 per cent., and might thereby produce a contraction in the actual circulation of ?1,000,000 or ?2,000,000, yet the result upon the issues could hardly be more violent than to reduce them as follows:--

and as the bullion withdrawn by such an operation should be rapidly recovered, the additional pressure would be very soon relieved, and would pass over without entailing any abatement of confidence in the perfect security of the unrepresented issues.

We have not alluded in the text to the effect of our proposed system, in reducing the enormous fluctuations in the rate of discount produced by the operation of the Act of 1844; but this is a feature of the question too important to be altogether passed over without reference. In his examination before the Committee of the House of Lords on Commercial Distress, Mr. J. H. Palmer, a very competent authority, declared, that in his whole experience he had never known such vicissitudes in the rates of interest and discount as since the passing of the Act; and the greater number of the witnesses were unanimous in deploring the excessive injury inflicted on the community by those vicissitudes. Now, one essential part of the operation of the governmental charges of 1, 2, and 4 per cent. would be the reduction of those violent oscillations within more salutary limits; as we have just now seen that 3 1/2 to 4 per cent. would be the probable minimum, and 6 to 7 per cent. the probable maximum, at which the Bank of England would ever grant accommodation, and that moreover it would only be in extraordinary cases that the range of variation would exceed from 4 to 6 per cent.

We have now contrasted the operation of the present and the proposed systems, in the cases in which there is an excess and in which there is a deficiency of circulating medium. But the contrast would not be complete if we did not consider a third case, somewhat intermediary to the other two; viz. that in which an occasional or only temporary expansion of the circulation is required by the domestic transactions of the country. The principal case in which this occurs, is at the payment of the dividends. At such times, whenever the reserve in the banking department happens to be small, through a low stock of bullion or through some degree of pressure, the effect of the restrictive clauses of the Act of 1844 is to render the payment of the dividends a matter of considerable difficulty, except at the expense of a serious temporary contraction in the amount of accommodation afforded to the public. In both the cases of April and October, 1847, already referred to, this was one of the circumstances which contributed to aggravate the pressure. But other cases not unfrequently arise, in which advances are requisite for some temporary purpose, and which the Act of 1844 has rendered almost impracticable. A striking illustration of this occurred in the beginning of the year 1846, when Parliament required that all Railway companies which intended applying for an Act, should lodge 10 per cent. upon their capital, within fifteen days after the meeting of Parliament. It may well be doubted whether, if Government had been fully enlightened as regards the difficulty of performing such a condition, this measure would have been insisted on; but however that may be, it is indisputable that had the reserve in the banking department been small at that period, or had not the Bank lent out the notes as fast as they were received, the effect of the restrictive clauses of the Act of 1844 was such, that the lodgments could not possibly have been made at all; and even as it was, the difficulty of effecting then occasioned great anxiety in the public mind. And similar cases may at any time arise, in which the operation of the Act must necessarily produce considerable inconvenience to the public.

Now very few words will suffice to show that our proposed system would be as well adapted to the exigencies of those occasional advances, as to the more normal requirements of the circulation. It must, we think, be conceded, that if an advance be made for some definite individual purpose, such as those referred to, the money so advanced will not continue any length of time in circulation, but will return into the Bank without producing a sensible effect on prices or on credit. But this being granted, it clearly follows that a system which is only intended to prevent such an over issue as would have the effect of raising prices, ought not to interfere with some indispensable advance which would necessarily be temporary, and would therefore exert no influence on prices. Be that as it may, however, our system would be equally applicable to both cases. For, if the advance be really for a permanent purpose, its effect will be precisely similar to any other advance of equal extent; if considerable, it will raise the rate of interest and thereby diminish the amount of accommodation required in other quarters; so that the currency in the hands of the public will still be preserved at an expedient level. On the other hand, if the advance be made for some individual application, the governmental charge will only be imposed for the few days during which the money will be actually in circulation, and will therefore cause no sensible inconvenience to the Bank; while the necessary effect of its imposition, will be either to recover the money at the termination of that period, or else, by inducing the Bank to raise its rate of interest, to produce a contraction equivalent to the amount of expansion. In short, the operation of the proposed system, will be such that unless the amount of notes advanced in such circumstances be really required for the purpose of currency, they will not continue in circulation, but will inevitably return to the Bank at the earliest possible period.

It may be considered necessary that we should make a brief reference to some of the schemes that have been recently proposed, for the regulation of the currency. The only one of these that appears to have met with much attention, is that suggested by Mr. Glyn, in his examination before the Committee of the House of Lords on Commercial Distress. His proposal was, that the whole responsibility of the circulation should be left in the hands of the Bank of England, but that the Bank Court should include certain persons appointed under Act of Parliament, who should have, not an absolute veto upon the proceedings of the Court, but the right, when they dissented from the majority, to submit the reasons for that dissent in writing, or even lay them before Parliament from time to time. To this he would not add any regulations with respect to the management of the currency, with a view to the exchanges, or to any other circumstances, but would leave that entirely to the determination of the Court and the Commissioners. As coming from a practical banker of such experience as Mr. Glyn, this proposal is certainly entitled to an attentive and respectful consideration. To us it appears, however, that several weighty objections oppose themselves to its adoption. To one of these we assign great practical influence, independently of all considerations of principle. We apprehend that the adoption of such a measure would almost inevitably establish very undesirable relations between the Bank and the Parliament or Government of the day. It is not to be assumed that Commissioners appointed by Act of Parliament, are necessarily more likely to be infallible than Directors selected by the proprietors of the Bank; but even if this were assumed as probable, it would not still follow that it would be at all expedient that such Commissioners should be invested with the power of becoming public accusers of the Directors, on any occasion in which the latter might not assent to their recommendations. The ultimate effect of such a measure could hardly fail to be, that the Commissioners, if men of large abilities, would come to be regarded in the light of dictators whose proposals the Directors would often shrink from negativing, through a natural aversion to have their proceedings investigated, and perhaps condemned, by Parliament.

But there are higher considerations than even this, on which we should mistrust the expediency of such a plan. It does not appear, so far as we recollect, whether Mr. Glyn would repeal the provisions requiring the Bank to purchase all gold which may be presented at ?3 17s. 9d. per ounce, and recur entirely to the measure of 1819; but we cannot see why, if the Bank Court are to have the sole responsibility of the amount of unrepresented notes to be held in circulation, they might not also be entrusted with the complete management of the issues on bullion, and, therefore, why the above provisions might not be altogether repealed. Now, whatever may be the defects of the Act of 1844, it is, we believe, disputed by few whose opinions are entitled to respect, that the operation of this part of the system has been in the main beneficial, and that on the whole the measure of 1844 has been a very great advance upon that of 1819. If however, Mr. Glyn only contemplated the issue of unrepresented notes, when he recommended entrusting the whole responsibility to the Bank Court, there still appear very serious objections to his proposal, taken even with this limitation. Amongst others we may again repeat what we have already strenuously insisted on, that it is time that the Bank of England should render some better equivalent than at present for the privilege of issue. But independently of this consideration, we do not consider that the course which the Bank Court has adopted at various periods throughout the past half century, has been sufficiently judicious to justify our entrusting so unfettered a capacity for good or evil to its care, even though guided in its decisions by the advice of any number of Commissioners appointed under Act of Parliament. A very considerable discretionary power must undoubtedly be confided to the Bank Directors, but we cannot perceive that past experience would justify the extension of that discretion to the absolute control either of the unrepresented issues or of the rate of interest. Thus, while we would place no absolute restriction upon the Bank, either with regard to the amount of its issues or to its rate of interest, we would certainly endeavour to devise such measures as would prevent the Bank, on the one hand, from exerting itself to keep too large an amount of unrepresented notes in circulation, and on the other, from loaning and discounting at too low a rate of interest, and thereby directly contributing to stimulate excessive speculation. And both of these objects we believe would be completely and judiciously effected through the adoption of the scale of charges already described; as the imposition of the minimum rate would necessarily prevent the rate of interest from falling too low in speculative periods, while the operation of the three ascending rates, as a whole, would produce a rise in the rate of interest directly proportionate to the efflux of gold and the increased demand for accommodation in times of pressure.

We are far from certain, however, that Mr. Glyn intended to express himself so forcibly against the adoption of any regulations, as the tenor of his language might appear to indicate. In several other parts of his evidence before the same Committee, we may very fairly refer to him in striking corroboration of our views. For, not only does he unite with us in reprobating the effect of the low rate of interest at which the Bank accommodates the public when money is abundant, in stimulating excessive speculation, and not only does he advocate the essential importance of maintaining a more equable rate of interest than has hitherto been the case, but he even expresses his entire approval of the plan of imposing a governmental charge upon the ?3,000,000 of unrepresented notes which the Bank is allowed to issue on securities. "I am not aware of the terms upon which it is advanced to the Bank of England, but my idea was, that the additional three millions ought not to have been advanced to the Bank of England by the issue department, except upon such a rate of interest as would have regulated the amount of notes out; that whenever money was worth only 3 1/2 per cent. they should not have had the whole of that three millions issued; thus acting upon the circulation and lowering the value of money." Now, in this important passage is contained the most essential feature of the system we propose; the only difference of any moment consisting in this, that the principle which Mr. Glyn would apply to a certain portion of the circulation, we should desire to see extended, with the necessary modifications, to the total amount of the unrepresented issues.

We are strongly disposed to think that Mr. Glyn, Mr. Tooke, and several other leading opponents of the Act of 1844, have been carried too far in their objection to any system of regulations, through witnessing the mischievous effects of the inflexible restrictive clauses of that Act. So far as Mr. Tooke, however, is concerned, while shrinking from prescribing any absolute regulations on the subject of the currency, he has not omitted to offer some valuable suggestions as to the principles by which the Court of Directors should be guided in its management. He recommends that the average amount of bullion should be ?12,000,000, the maximum being ?18,000,000, and the minimum ?6,000,000; and assuming 4 per cent. to be the average rate of interest, he supposes a drain to set in while the bullion is at its maximum. In such circumstances he would suffer the drain to reduce the gold to ?12,000,000, and would then raise the rate of interest to 6 per cent., at which he would maintain it until the gold had fallen to ?6,000,000, below which amount he does not consider it probable that the efflux would ever be likely to descend. In case it should exceed that point, however, he would then allow the Bank to take measures for its own security, by restricting its discounts or otherwise; but as soon as the bullion again amounted to ?6,000,000, he would recur to the rate of 6 per cent. and would adhere to the same until the treasure should again attain its maximum of ?18,000,000.

If taken merely as a rough outline of the mode in which the Bank Directors should control their issues, we see little to object to in this plan of Mr Tooke's, but in its specific details it would hardly bear a close examination. Its principal defect, perhaps, regarded under this aspect, consists in its appearing to recommend a series of violent transitions. We ran hardly think that its eminent proposer would suddenly raise the rate of interest from 4 to 6 per cent. at any particular stage in the efflux of bullion, or vice versa, or that he intended the preceding as other than an approximate statement of the mode in which the rate of interest ought to be raised in proportion as the drain proceeded. But apart from this consideration it seems somewhat inconsistent that, while he would strongly recommend the adoption of some such plan by the Directors, he would refrain from enacting any regulations that would have the tendency to ensure their practical adherence to it. Now, in this respect, we must, although reluctantly, dissent from the views of Mr. Tooke. We should not feel satisfied with merely advising the Bank Court as to the proper course to be pursued, and leaving the whole responsibility of so doing in their hands, but we would adopt such regulations as, while leaving them their own sphere of action sufficiently unfettered, would still impart a very sensible stimulus to their adoption of the proper course. For, while we admit that the Government has not the right to determine on the rate at which the Bank of England should grant accommodation, we strenuously maintain that it has the right to impose an equitable rate of interest on the amount of unrepresented notes which it allows the Bank to issue, and that it has an equal right to adopt the ascending principle, as a means of inducing the Bank to adhere to a similar rule in making its advances to the public.

There is one conclusion, however, as we have already observed, on which a large majority of the highest authorities, scientific and practical, are fully agreed, viz., that the present system of currency is extremely defective, and ought to be amended in the ensuing session of Parliament. The restrictive clauses of the Act of 1844 are, we think, likely to be repealed whenever the subject is presented for reconsideration. But if the remedial measures are confined to the mere repeal of those provisions; there will be little practical difference between the new system and that established by the law of 1819. We must once more repeat, that neither experience nor sound principle would justify the placing so serious a responsibility as the unrestricted issue of notes unrepresented by bullion, under the uncontrolled direction of the Bank of England. And if this be admitted, the question at once presents itself what is the nature of the control which the State ought to exercise over such issue. It must not consist of the simple limitation of the number of notes issued; for either that would be ineffectual, or would repeat the error of the Act of 1844. Nor must it consist of the legislative enactment of certain rates of interest at which the Bank should accommodate the public; for that would be an unwarrantable interference with the functions of the Bank. We know of no other legitimate course, therefore, save that already propounded, viz. the imposition of certain rates of interest on the amount of notes which the State may authorize the Bank to issue, and which the latter would not issue unless it derived a profit from the transaction. The adoption of this course would not involve the assumption of any undue prerogatives on the part of the Government; for if the State consents to transfer the privilege of issuing paper money from itself to any banking company, it unquestionably possesses the right to require an adequate equivalent for the exercise of the privilege thus transferred. And if the principle be once admitted, that the State has the right to impose certain equitable rates of interest upon the unrepresented issues of the Bank of England, we think it follows indisputably, on grounds which we need not here repeat, that the mode in which those rates should be assigned, should be that of an ascending principle.

To proceed still further, we think it no less expedient that whenever our currency system shall undergo revision, that revision shall be made as complete as practicable. And if so, we do not see how the subject of the country banks of issue can escape consideration. The advantages of having a single bank of issue are now so generally admitted that the chief, if not the only difficulty which would be likely to obstruct the question would be that relating to the mode of protecting the country banks from any unnecessary loss arising from the deprivation of their privilege. And of several methods in which this might be accomplished, we think by far the best and simplest would be that of allowing the present banks of issue to retain the privilege for a certain equitable number of years, on the single condition of gradually diminishing their issues, on such a plan that they would altogether cease at the expiration of the stipulated period. The question of the number of years that should be allowed is a matter of detail; but, for our part, we consider that ten would be amply sufficient for this purpose. The gradual substitution of Bank of England paper for the notes withdrawn would present no difficulty; as all that would be necessary is, that the Bank of England should be permitted to increase its normal issues on equitable conditions in proportion as the country notes diminished, until, at the expiration of the stipulated period, the former would have totally replaced the latter. We see no objection, therefore, either of principle or of practice, to any of the leading features of the plan we have just propounded: and so far as the minuter details are concerned, we think they might safely be entrusted to the care of any intelligent body of public men who would honestly endeavour to carry the principles themselves into execution.

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