But speculation was by no means confined to fictitious or fraudulent enterprises and companies, nor to worthless foreign loans. It invaded every walk of life and every department of industry and trade. In the general delirium, the relation between values and price was wholly lost sight of. For a brief period, the people rioted in their imagined wealth; coming to consciousness only when their actual means were well-nigh dissipated, to see no trace of their magnificent bubbles but the ruins left behind.

66

The Bank, for a considerable time after the drain set in, endeavored to protect itself by refusing to make loans. Such refusal only added to the alarm which prevailed, and to the run upon it. Seeing nothing but certain destruction in such a course, the Bank suddenly changed its policy, and determined, as far as its means would go, to meet all calls that could properly be made upon it. The mint was driven to its utmost capacity; turning out daily 150,000 guineas. Notes could not be so readily provided. The Bank luckily, however, found a large package of £1 and £2 notes which had been taken in, but by some accident had not been cancelled. Before these were wholly paid out, the panic subsided. During its continuance," said Mr. Harmon, Governor of the Bank at the time, in his evidence before a Committee of the House of Commons, we lent by every possible means, and in modes that we never had adopted before. We took in stock as security; we purchased Exchequer bills; we made advances on Exchequer bills; we not only discounted outright, but we made advances on deposits of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the Bank; and we were not, upon some occasions, over-nice. Seeing the dreadful state in which the public were, we rendered every assistance in our power. . . . As far as my judgment goes, the discovery of the package of £1 notes saved the credit of the country."

66

The events of 1826 were well calculated to arrest the attention of government. No sooner had the panic subsided than Lord Liverpool addressed a communication to the Bank, remarkable for being one of the few papers in the literature of finance in which there is any recognition of the principles upon which a symbolic currency must rest.

"However much," said Lord Liverpool, "the recent distress may have been aggravated, in the judgment of some, by incidental circumstances and particular measures, there can be no doubt that the principal source of it is to be found in the rash spirit of speculation, which has pervaded the country for some time, supported, fostered, and encouraged by the country Banks.

"The remedy, therefore, for this evil in future must be found in an improvement in the circulation of the country paper; and the first measure which has suggested itself to most of those who have considered the subject, is a recurrence to gold circulation throughout the country, as well as in the metropolis and its neighborhood, by a repeal of the Act which permits country Banks to issue £1 and £2 notes, until the year 1833; and by the immediate enactment of a prohibition of any such issues at the expiration of two or three years from the present period. . . .

"But though a recurrence to gold circulation in the country, for the reasons already stated, might be productive of some good, it could by no means go to the root of the evil.

"We have abundant proof of the truth of this position in the events which took place in the spring of 1793, when a convulsion occurred in the money transactions and circulation of the country more extensive than that which we have recently experienced. At that period, nearly a hundred country Banks were obliged to stop payment, and Parliament was induced to grant an issue of Exchequer bills to relieve the distress; yet in the year 1793 there were no £1 or £2 notes in circulation in England, either by country Banks or by the Bank of England.

"We have a further proof of the truth of what has been advanced, in the experience of Scotland, which has escaped all the convulsions which have occurred in the money market of England for the last thirty-five years; though Scotland, during the whole of that time, has had a circulation of £1 notes, and the small pecuniary transactions of that part of the United Kingdom have been carried on exclusively by means of such notes.

"The issue of small notes, though it be an aggravation, cannot, therefore, be the sole, or even the main, cause of the evil in England.

"We have, to a considerable degree, the proof of this position in the very establishment of so many country Banks.

"Within the memory of many living, and even of some of those now engaged in public affairs, there were no country Banks except in a few of the great commercial towns.

"The money transactions of the country were carried on by supplies of coin and bank-notes from London.

"The extent of the business of the country, and the improvements made from time to time in the mode of conducting our increased commercial transactions, founded on pecuniary credit, rendered such a system no longer adequate; and country Banks as, in fact, they did arise from the increased wealth and new wants of the country.

must have arisen

"The matter of regret is, not that country Banks have been

suffered to exist, but that they have been suffered to exist so long without control or limitation, or without the adoption of provisions. calculated to counteract the evils resulting from their improvidence

or excess.

"It would be vain to suppose that we could now, by any act of the Legislature extinguish the existing country Banks, even if it were desirable: but it may be within our power, gradually at least, to establish a sound system of banking throughout the country; and, if such a system could be formed, there can be little doubt that it would ultimately extinguish and absorb all that is objectionable and dangerous in the present banking establishments. "There appear to be two modes of attaining this object :"1st. That the Bank of England should establish branches of its own body in different parts of the country.

"2dly. That the Bank of England should give up its exclusive privileges as to the number of partners engaged in banking except within a certain distance of the metropolis.

"It has always appeared to me, that it would have been very desirable that the Bank should have tried the first of these plans, that of establishing branch Banks upon a limited scale.

"But I am not insensible to the difficulties which would have attended such an experiment; and I am quite satisfied that it would be impossible for the Bank, under present circumstances, to carry into execution such a system to the extent necessary for providing for the wants of the country.

"There remains, therefore, only the other plan, — the surrender by the Bank of their exclusive privileges as to the number of partners within a certain distance form the metropolis.

"The effect of such a measure would be the gradual establishment of extensive and respectable Banks in different parts of the country; some, perhaps, with charters from the Crown, and some without.

"Here we have again the advantage of the experience of Scotland.

"In England, there are said to be between eight and nine hundred country Banks; and it is no exaggeration to suppose that a great proportion of them have not been conducted with a due attention to those precautions which are necessary for the safety of all banking establishments, even where their property is more ample. When such Banks stop, their creditors may ultimately be paid the whole of their demands; but the delay and shock to credit may, in the mean time, involve them in the same difficulty, and is always attended with the greatest injury and suffering in the districts where such stoppages occur. If this be the case where the solidity of the Bank is unquestionable, what must it be, as too often happens, when they rest on no solid foundation?

"In Scotland there are not more than thirty Banks, and these Banks have stood firm amidst all the convulsions in the money market in England, and amidst all the distresses to which the manufacturing and agricultural interests in Scotland, as well as in England, have occasionally been subject.

"Banks of this description must necessarily be conducted upon the general, understood, and approved principles of banking.

"Individuals are, from the nature of the institutions, precluded from speculating in the manner in which persons engaged in country, and even in London Banks speculate in England.

"The failures which have occurred in England, unaccompanied as they have been by the same occurrences in Scotland, tend to prove that there must have been an unsolid and delusive system of banking in one part of Great Britain, and a solid and substantial one in the other.

"It would be entirely at variance with my deliberate opinion, not to do full justice to the Bank of England as the great centre of circulation and commercial credit.

"I believe that much of the prosperity of the country for the last century is to be ascribed to the general wisdom, justice, and fairness of all its dealings; and I further think, that, during a great part of that time, it may have been in itself and by itself fully equal to all the important duties and operations confided to it but the progress of the country during the last thirty or forty years in every branch of industry-in agriculture, manufactures, commerce, and navigation—has been so rapid and extensive as to make it no reflection upon the Bank of England to say that the instrument, which by itself was fully adequate to former transactions, is no longer sufficient, without new aids, to meet the demands of the present times.

"If the concerns of the country could be carried on without any other Bank than the Bank of England, there might be some reason for not interfering with their exclusive privileges; but the effect of the law at present is to permit every description of banking except that which is solid and secure." 1

The Bank, conscious of its impotence, contented itself with a feeble protest. An Act was presently passed allowing the formation of banking companies to be composed of any number of partners or members. It also authorized the Bank to establish branches in various parts of England. Its object was to increase the value and stability of the country circulation. It had been claimed, some time previous to its passage, that joint-stock Banks consisting of more than six persons might be organized under existing laws, although not possessing the power of issuing notes. The right to form them was now declared to exist in all parts of England, with right to issue notes except' within sixty-five miles of London. Banks, other than the Bank of England, were allowed this privilege, there was every reason, argued Lord Liverpool, why they should be so organized as to give the highest value to their 1 Correspondence between the Government and the Bank of England, 1826.

If

issues. Although the continued issue of £1 and £2 notes was revoked, Lord Liverpool by no means referred the panic chiefly to their use. The Scotch Banks, he said, issued £1 and £2 notes; indeed, exchanges in that part of the country were largely effected by the use of such; yet during the panic of 1826 not a single Scotch Bank failed, nor were the business operations of that country materially affected by the panic of that year. Scotland almost wholly escaped the disasters that befell England. The Scotch system was shown, in its results at least, to be an admirable one. It seems incredible, considering the magnitude and importance of the subject, and in view of the terrible losses on one, and the uniform prosperity on the other side of an imaginary boundary between sections composing a political, geographical, and commercial unit, only with different monetary systems, that neither Parliament nor its Committees, writers upon the subject of money, — nor, in fact, the English people, should have taken the least pains to trace out the cause of the wonderful difference between the two. An examination of the Scotch system, in a proper spirit, would have readily solved all the laws on which a symbolic currency rests. It was certainly the duty of those who assumed to unfold the principles of money, to give the reasons of the widely different phenomena presented by the two systems. Instead of doing this, they shrugged their shoulders when the Scotch system was referred to, with an "Ah! Scotland is a very different country from England;" while one of the most distinguished among the Economists, in reply to an assertion of the excellence of the Scotch system, replied: "Yes; but a lion's tail is a very different affair from his maw."

The Bank, upon its recovery from the effects of the panic of 1826, held a pretty even course till 1832, when it was subjected to a heavy drain of specie, to check which no extraordinary means were resorted to. In that year, as was the wont of the House of Commons upon similar occasions, a Committee were appointed to consider the subject of the extension of the charter of the Bank, which was to expire in 1834. It took an enormous amount of evidence; the number of questions put to the persons examined being nearly six thousand. The substance of its report is embraced in the following paragraph: