The gold was drawn away to meet demands which, as Mr. Tooke has so clearly shown, nothing but that precise article itself could satisfy. The Bank paper held its accustomed place, spanning the stream like an arch when the scaffolding is gone.

Habitual Standard of Value.

The conviction that this was the real state of matters, that the variation was in the gold and not in the paper, existed in the minds of the most intelligent merchants, and is to be accounted for by a fact originally noticed by Turgot, and afterwards by Malthus, that when exchanges have gone on for any length of time, a certain current value of all commodities in frequent use gets established. In other words, a currency once settled begets a number of habitual associations of comparison, which paint, as it were, a standard of value in the air—an image sometimes more steady than the reality itself, and which may remain distinct to the mind when the reality has vanished. When the currency of Western America was struck down by the sudden failure of the banks in 1836-7, there was a momentary gasping, as of men under an exhausted receiver. The circumambient atmosphere was gone, but instantly the old circulation was renewed, and exchanges went circling on, by means of barter and pure credit, with prices still estimated in dollars, and the ideal dollar continued to do its work, long after every piece of coin and every rag of bank paper had disappeared. This may explain to us the cause of that general persuasion that there was an ideal pound sterling, although the notion seemed to vanish under every attempt to define it. Logic could not seize it, but the practical sense of the merchants did, and was satisfied. Lord Castlereagh's famous definition seemed only folly to Sir Robert Peel, looking back upon it from a time when all the explanatory facts had disappeared; but Lord Castlereagh was no fool', and

This nobleman has had more than usual justice done him by an able and popular writer in a recent work, "Wynville; or, Clubs and Coteries."

knew that an ideal measure did exist in the popular mind. The real reply of the men of that day to the logic of the bullionists was that of the old schoolman when challenged for a definition of time—si non rogas intelligo. Mr. Carlyle, if he looked into the matter, would not be at all surprised to find that their silence was wiser than the speech of their oppo

nents.

Conduct of the Bank under the Restriction.

The Bank Directors, in truth, pursued a very steady course. They lent money to the Government, because they could not help it, but it went much against their will. Whatever harm those loans did is due to the Government, and not to the Bank. In other respects they acted upon one simple rule, which was to discount all good bills of exchange that were offered to them; a rule which would have been perfect but for one circumstance pointed out by Mr. Tooke; namely, that their uniform rate being five per cent., and the market rate being frequently higher, they were, in all such cases, artificially keeping down the lending value of disposable capital. But they went on in the grooves of the old traditional system, taking very patiently a great deal of abuse, and doing their work with the most diligent regularity. The great profits which were then made, and the increased paper circulation drawn into play, were the result of the action of the public upon the Bank under the prodigious stimulus of the Government expenditure. If the principles explained in the present work be sound, there was not at that period, and could not have been, properly speaking, any depreciation of the currency at all, except in so far as the name may be applied to that general alteration in the level of prices, which, allowing the force of Mr. Tooke's explanations, may, or rather must, still have taken place, from the addition which the Government outlay caused to the sum total of annual income. But with the same expenditure and no foreign remittances, this rise in the level of prices would have taken place quite as cer

tainly with a metallic currency as with one of inconvertible paper. Upon the whole, my conviction after some years' study of the question is, that the exercise of a power so vast as that entrusted to the Bank of England in 1797, by a body of private merchants, with so little abuse, is a phenomenon perfectly unparalleled in history, and is in the highest degree honourable to the mercantile character of the last generation. The errors committed by the Directors since the restoration of cash payments, and even since 1844, have been far more serious, in my view, than any that occurred during the twenty-five years of the restriction.

. Present Monetary Position of the Bank.

Under the system which now exists, the Bank of England is the great residuary reservoir of capital for the whole kingdom. Streams flowing from the most distant extremities, after trying in vain to force their way into every possible channel of employment, are at length brought to precipitate themselves into the mass of deposits which the Bank is compelled to hold in a state of complete inactivity. Whatever doubt might have been entertained of the true nature of the position of the Bank before the separation of its departments, now there can be none. The surplus waters are quite visibly poured in, and the only question is, whether when this happens through the action of such a monetary system as has been described, it is wise or unwise to make efforts for forcibly returning to the general circulation of capital and income, what has been so determinedly thrown out of it as superfluous.

The aggregate money income, as we have seen, at any one time requires a certain proportion of gold and notes to effect the distribution of those useful commodities of which real or specific income consists. New capital applied to production may enlarge that income, and therefore call out a greater amount of gold and notes than what previously existed, the addition to the currency, however, being still only in a small

proportion to the addition to the income. Thus we see in

years of growing prosperity a gently progressive rise of the banknote circulation, the addition made to it being evidently equal to no more than a fractional part of the newly-invested capital. At length, after the keenest mercantile intelligence throughout the kingdom, in its efforts after profit, has filled up with capital, and charged to overflowing every channel of safe investment, there is an excess of notes and gold cast off, and rejected from the currency, the basin of which is full, and will hold no more, into the Bank of England. It is still a question whether the Bank ought to make any effort to throw back into commerce what has been so rejected.

To me, looking at the working of the whole system, it is perfectly evident that the raising of a finger for any such purpose ought to be absolutely forbidden by a positive rule. The Bank of England can avoid aggravating the tendency to speculation. That it can positively check it, I do not affirm; but it would seem at least desirable to refrain from adding fuel to -a fire which in any case will blaze up to the uttermost limits of safety.

Power of the Bank over the Money Market.

The power of the Bank of England over the money market varies, according to the direction in which it is exercised, from nothing to infinity. Practically, when the market rate of interest is falling, the Bank can do nothing to prevent it. It may refrain from pressing it down, but that is all. If the market rate is rising, the Bank can retard or moderate the rise to an extent which varies with times and circumstances, and with still more ease it can quicken the movement; but if the rate be falling, and the Bank at the same time chooses to precipitate the fall, its power to do so is unlimited. In such a state of things as the present, it has quite demonstrably the power to reduce the rate of discount on first-class bills, not to one pound only, but to one shilling per cent. per annum, if so

extravagant a result came to be thought desirable by the Directors.

It is evident that the Bank might add immensely to its loans without causing any perceptible diminution in its unemployed. reserve, for whatever went out in loans would directly flow back in deposits. It is, indeed, more strictly correct to say that either nothing or very little would go out at all, because the new loans would be taken out in the form of credit. What, then, is to prevent the Bank from underbidding the brokers until it gets to the point of stopping their operations, and drawing all the bills to itself? Evidently no want of power. There is, however, happily, a restraint, which under all circumstances must operate to a considerable extent, and if it did not exist I see nothing upon the principles now prescribed by leading statesmen of all parties for the conduct of the Bank, which would prevent us from coming to penny discounts for thirtyone day bills as companions to the penny omnibuses. That restraint is, that the Bank Directors do not possess the knowledge of individuals which would enable them to take away business to any extent from the private bankers or the brokers. In fact, they never succeed in doing so. The Bank may, however, place increased funds in the hands of private bankers and brokers, so as to facilitate and push an extension of discounts by the latter at a time when the expansion of Bank credit is already excessive. Further, however, and infinitely more important, is the manner in which the reduction of the Bank rate acts as a stimulus to the whole multitude of discounters through the empire, to use to the utmost the means at their disposal. A reduction in the rate of discount by the Bank is always taken as a signal that money is abundant, and likely to be more so. Advances may then be made and risks run in Glasgow or Liverpool, which would not be hazarded if there were the least doubt of the ability of the lenders to fall back, in case of need, on the overflowing resources of the London money market. The Bank thus everywhere raises the wind, and the whole of the aggregate of the paying power is ex