neither such recovery, nor the relation of the Bank to the government, were made subjects for consideration by the Committee, shows how narrow were their vision and scope. It is not improbable, however, that both Directors and Committee assumed that no inflation or harm could come of loans made upon public securities; that the value of such must be a sufficient guarantee of the propriety and value of all issues made upon them. Nothing can be more natural than such inference, as the share capital of the Bank had, from the outset, been wholly invested in public securities; and as the Bank, so organized, had continued to pay specie for more than one hundred years consecutively. With Englishmen, a precedent - an ounce of the past—outweighs a ton of the future; so that, with them, the old disappears only by being absorbed or overlaid by the almost imperceptible growth of the new. Such trait may be referred to in their praise, and may be the reason why their progress, though so slow, has been so uniform and sure, and, through the ages, so immense.1

1 Economists have never been able to master the reason of the sudden recovery of the Bank after the Restriction Act, due wholly to the prudent conduct of the Directors in making their loans. For them, it only re-enforced the old dogma, that the value of the currency depends upon quantity alone. The rise of the notes of the Bank to par after the suspension is now accepted as fully proving such assumption. The explanation given by Tooke is a curious illustration of the treatment by the Economists of this as well as of similar subjects :

"It becomes a curious matter of speculation to inquire, how, with motives so strong to constant and progressive excess, and under the guidance of maxims and principles so unsound and of such apparently mischievous tendency as those professed by the Governor and some of the Directors of the Bank, in 1810, such moderation and (with some exceptions which will be noticed hereafter) such regularity of issue should, under chances and changes in politics and trade unprecedented in violence and extent, have been preserved, as that a spontaneous readjustment between the value of gold and the paper should have taken place, as it did, with out any reduction of their circulation.

"The explanation of the difficulty seems to be this: the rule by which the Bank Directors professed to be, and were in the main, guided, — viz., the demand of good mercantile bills, not exceeding sixty-one days' date, at the rate of five per cent per annum, - did, with the necessary policy of government in periodically reducing the floating debt within certain limits by funding, operate as a principle of limitation upon the total issues of the Bank. And the reason of the rule having so operated is to be found in the fact, that the market rate of interest for bills of the description which were alone discountable at the Bank did not materially, or for any length of time together, exceed the rate of five per cent per annum. But the Bank Directors seem to have been unaware of the precise mode of operation by which their rule had the effect of a principle of limitation against great or permanent excess in their circulation."— Tooke's History of Prices, Vol. i. p. 158.

The rule of the Bank in discounting bills having sixty-one days to run, at the

"By far the most important of these consequences," continues the Report," is, that while the convertibility into specie no longer exists as a check to an overissue of paper, the Bank Directors have not perceived that the removal of that check rendered it possible that such an excess might be issued by the discount of perfectly good bills. So far from perceiving this, your Committee have shown that they maintain the contrary doctrine with the utmost confidence, however it may be qualified occasionally by some of their expressions. That this doctrine is a very fallacious one, your Committee cannot entertain a doubt. The fallacy upon which it is founded lies in not distinguishing between an advance of capital to merchants and an addition of supply of currency to the general mass of circulating medium. If the supply of capital only is considered, as made to those who are ready to employ it in judicious and productive undertakings, it is evident there need be no other limit to the total amount of advances than what the means of the lender, and his prudence in the selection of borrowers, may impose. But in the present situation of the Bank, intrusted as it is with the function of supplying the public with that paper currency which forms the basis of our circulation, and at the same time not subjected to the liability of converting the paper into specie, every advance which it makes of capital to the merchants in the shape of discount, becomes an addition also to the mass of circulating medium. In the first instance, when the advance is made by notes paid in discount of a bill, it is undoubtedly so much capital, so much power of making purchases, placed in the hands of the merchant who receives the notes; and, if those hands are safe, the operation is so far, and in this its first step, useful and productive to the public. But as soon as the portion of circulating medium in which the advance was thus made performs, in the hands of him to whom it was advanced, this its first operation as capital, as soon as the notes are exchanged by him for some other article which is capital, they fall into the channel of circulation as so much circulating medium, and form an addition to the mass of currency. The necessary effect of every such addition to the mass is to diminish the relative value of any given portion of that mass, in exchange for commodities. If the addition were made by notes convertible into specie, this diminution of the relative value of any given portion of the whole mass would speedily bring back upon the Bank which issued the notes, as much as was excessive. But if by law they are not so convertible, of course this excess will not be brought back; but will remain in the channel of circulation, until paid in again to the Bank itself in discharge of the bills which were originally

rate of five per cent, did, according to Tooke, “operate as a principle of limitation upon the total issues of the Bank." And why? Because "the market rate of interest for bills of the description which were alone discountable at the Bank did not materially, or for any length of time together, exceed the rate of five cent per annum!" Such is the argument and conclusion of one of the great lights among the modern Economists, whose works are probably more referred to, and quoted with more approbation, than those of almost any one of his school.

discounted. During the whole time they remain out, they perform all the functions of circulating medium; and, before they come to be paid in discharge of those bills, they have already been followed by a new issue of notes in a similar operation of discounting. Each successive advance repeats the same process. If the whole sum of discount continue outstanding at a given amount, there will remain permanently out in circulation a corresponding amount of paper; and, if the amount of discounts is progressively increasing, the amount of paper which remains out in circulation over and above what is otherwise wanted for the occasions of the public will progressively increase also, and the money prices of commodities will progressively rise. This progress may be as indefinite as the range of speculation and adventure in a great commercial . country."

As the Bank, in making its loans, pays out its notes instead of capital, these, if they represent capital, will as a rule be discharged only by its consumption. That they are outstanding, is evidence that the merchandise they represent is not consumed. They have, therefore, until taken in by the Bank, the same value, by virtue of representing the same merchandise, no matter into whose hands they may fall. It is their possession which entitles their holder to the merchandise they represent. That they change their character before their retirement -being capital in the hands of the party to whom they were first issued, and currency, representing no capital, in the hands of all subsequent holders is an assumption which is exactly opposed to the fact. They are never discharged of their value till they come back to the party issuing them. Whatever are issued, equally fall into the channel of circulation, and alike return to the Bank for retirement; so that, unless they were reissued, there would presently be no currency outstanding. Just in ratio that the bills of a Bank are paid are its liabilities taken in. They will be paid in equally after as before suspension by the Bank. If, at a particular moment, currency, which was capital in the hands of one person ceased to be capital in the hands of another, without any change in its form, or in that which it represented, certainly the Committee should have shown, or have attempted to show, the process by which, and the time at which the change in value was effected. A moment's reflection would have shown that no such change could have taken place; but such is not the way with the Economists. Not one of them ever broke through the crust of words and assumptions by means of which the

real principles of currency have been concealed from sight. How the fictions they uttered could have been accepted as sober truths by Horner, Thornton, and Huskisson exceeds belief. It is infinitely more incredible than that those of the Alchemists should have been accepted in a credulous and unscientific age. The transmutation of lead, tin, and quicksilver into gold was a proposition ten times more credible than the transmutation of a bank-note from something into nothing. That such fables could really have been accepted as fundamental truths by the wisest, most discreet, and most earnest of our race, is mortifying evidence of our weakness, and shows how little confidence we are entitled to place even in our strongest convictions.

"We must not omit," continues the Committee, "to state one very important principle: that mere numerical return of the amount of bank-notes out in circulation cannot be considered as at all deciding the question whether such paper is or is not excessive. It is necessary to have recourse to other tests. The same amount of paper may, at one time, be less than enough, and, at another time, more. The quantity of currency required will vary in some degree with the extent of trade; and the increase of our trade, which has taken place since the suspension, must have occasioned some increase in the quantity of our currency. But the quantity of currency has no fixed proportion to the quantity of commodities; and any inferences proceeding upon such a supposition would be entirely erroneous. The effective currency of a country depends upon the quickness of circulation, and the number of exchanges performed in a given time, as well as upon its numerical amount; and all the circumstances which have a tendency to quicken or to retard the rate of circulation render the same amount of currency more or less adequate to the wants of trade. A much smaller amount is required in a high state of public credit than when alarms make individuals call in their advances and provide against accidents by hoarding, and in a period of commercial security and private confidence, than when mutual distrust discourages pecuniary arrangements for any distant time. But, above all, the same amount of currency will be more or less adequate, in proportion to the skill which the great money-dealers possess in managing and economizing the use of the circulating medium. Your Committee are of opinion, that the improvements which have taken place of late years in this country, and particularly in the district of London, with regard to the use and economy of money among bankers, and in the mode of adjusting commercial payments, must have had a much greater effect than has hitherto been ascribed to them, in rendering the same sum adequate to a much greater amount of trade and payments than formerly. Some of those improvements will be found detailed in the evidence. They consist principally in the in

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creased use of banker's drafts in the common payments of London; the contrivance of bringing all such drafts daily to a common receptacle, where they are balanced against each other; and the intermediate agency of bill-brokers. And several other changes in the practice of London bankers are to the same effect, of rendering it unnecessary for them to keep so large a deposit of money as formerly. Within the London district, it would certainly appear that a smaller sum of money is required than formerly, to perform the same number of exchanges and amount of payments, if the rate of prices had remained the same. It is material also to observe, that both the policy of the Bank of England itself, and the competition of the country Bank paper, have tended to compress the paper of the Bank of England more and more within London and the adjacent districts. All these circumstances must have co-operated to render a smaller augmentation of Bank of England paper necessary to supply the demands of our increased trade, than might otherwise have been required; and show how impossible it is, from the numerical amount alone of that paper, to pronounce whether it is excessive or not. A more sure criterion must be resorted to; and such a criterion, your Committee have already shown, is only to be found in the state of the exchanges and the price of gold bullion.

"Upon a review of all the facts and reasonings which have been submitted to the consideration of your Committee in the course of their inquiry, they have formed an opinion, which they submit to the House: That there is, at present, an excess in the paper circulation of this country, of which the most unequivocal symptom is the very high price of bullion, and, next to that, the low state of the Continental exchanges; that this excess is to be ascribed to the want of a sufficient check and control in the issues of the paper from the Bank of England, and, originally, to the suspension of cash payments, which removed the natural and true control. For, upon a general view of the subject, your Committee are of opinion, that no safe, certain, and constantly adequate provision against an excess of paper currency, either occasional or permanent, can be found, except in the convertibility of all such paper into specie."

If money be capital, it must obey the laws of capital. For the movement of the latter, two parties must consent, each governed by considerations having reference to his interests alone. Suppose one hundred hogsheads of sugar to be sold and paid for three times during the same day: no one would say that the activity of its movement had any necessary relation to its value, or that a less quantity was required by reason of such activity. Precisely the same law holds as to money. That it changes hands several times in a day does not increase or diminish its value; nor is a greater or less quantity required in consequence. If money be active, merchandise must be active. The relation of one to the other,