1848 were the Governor and Deputy-Governor of the Bank. These were, at last, the loudest in praise of the virtues of the Act of 1844; the object of which, they said, repeating the words of Lord Overstone, "was to place the circulation of the country exactly in the position that it would have been had it been purely metallic." They declared "that, with regard both to the contraction and expansion of the currency, they would both have taken place under the Act precisely in the same mode, and to the same degree had the currency been purely metallic." They had learned their lesson well. They had had enough of parliamentary and financial Petruchios; and were only too happy to purchase quiet, and exemption from further interference, by declaring the same object to be white or black, according to the caprice of their imperious masters. They even volunteered to reproach themselves for their conduct in not arresting the course of the panic, by raising the rate of interest in the spring of 1847. They claimed, however, that the action of the government in setting aside the Act of 1844 was not solicited, and that it was not necessary to the solvency of the Bank, although it was of great use in quieting the panic; which would, probably, have occurred had the Act never been passed. Its severity was greatly mitigated by the action of the government. The great merit claimed by them for the Act was, that when the pressure did come, it left the Bank in the possession of £8,000,000 of coin and bullion, which those who were entitled to draw it did not want, and which those to whom the Bank was indebted to a much greater amount did want, and could not reach. If one-half this sum could have been transferred from the branch in which it was lying wholly useless to the one which was rapidly becoming exhausted of its means, the panic might have been averted without the action of the government, and long before its interference. The timely transfer of such a sum would have saved the nation ten times its amount. The generalship of the Act is that of a commander who fights the battle with only one-half the forces he has in hand, and suffers in consequence, disastrous defeat, although complete victory would have been assured had he brought the other half into the field. There was all the time an abundance of money; but for fear that the issues of the future might be greatly restricted, every one holding a note or a guinea hoarded it against a wet day. The consequence was

that business men, who had been quietly occupied with their affairs, suddenly woke up to the conviction that the ordinary instruments of exchange might, in a short time, be wholly refused them. It was as if the air necessary to sustain life were to be so reduced in amount as to suffice for only one-tenth the number accustomed to breathe it. Hence the frantic struggle which followed: it was a struggle for dear life. As soon as it was seen that there was to be enough for all, apprehension instantly subsided: affairs at once relapsed into their accustomed routine. Is it wise, every ten years, to put the nation into such an extremity by allowing an institution, upon whose operations the affairs of a world, as it were, turn, to create enormous liabilities, at the same time denying to it all means for their payment?

The Governor and Deputy-Governor, in the conclusion of their evidence, prayed that government would make no alteration in the Act, save perhaps to allow a larger issue of notes upon silver bullion.

The Act of 1844 has been dwelt upon at length, for the reason that it afforded a suitable opportunity for illustrating the principles laid down in the first part of this work, and the opinions prevailing in England, as well as in this country, upon the subject of money; for opinions on this only echo those on the other side of the water. From the vast mass of works on the subject, it is possible only to present the arguments and views of the leading authorities. The literature of money and banking, probably, exceeds in extent that upon any other subject whatever. It is all the same in kind; so that when the theories of a representative writer are presented, those of all others are matters of easy inference. The science of money, as laid down in the books, bears the same relation to the subject itself that Alchemy did to chemistry. Having once demonstrated that gold cannot be produced by any mixture of the baser metals, it is useless to spend time in proving that it cannot after the method of Geber or of Raymond Lulli. To refute each one of the Alchemists who claimed such power, a life-time would not suffice. So a refutation of Adam Smith may be properly accepted as a refutation of all his followers. So with the Bank. Lord Overstone, the real author of the Act of 1844, was to it what Adam Smith was to

Political Economy: the greater includes the less. All the writers upon the Bank since Lord Overstone's Essays, in 1837, have simply repeated one far greater, in statement at least, than themselves. The lesser lights, therefore, need not be dwelt upon. To do this would swell into a dozen volumes what is intended to be embraced in one. The curious may, if they will, enter the boundless field; from which they will be likely to return, if ever, far less wise than when they started upon their perilous and weary way. What the public require is an outline which shall be measurably brief, and still shall present all that is really necessary to be known.1

A prominent figure before the Committees of Parliament, upon the subject of money and the Bank, as well as a great authority with modern Economists, was Mr. Thomas Tooke, who dedicated a life-time to the work of proving that a rise in prices always precedes, and causes an increase of money, in whatever form; in other words, that a rise of water in rivers always precedes and is the cause of rainfall. The following are among the questions put to him by the House Committee of 1840. The Italics are his own:

Question 3292, by Mr. Hume. "Will you state what part of the currency or circulating medium affects prices, under the definitions which you have now given?"-"No one part of them affects the prices of commodities more than any of the other parts."

Question 3293, by Mr. Grote. "Do you mean, not more in degree, or not in any different way?"-"Not more in degree."

Question 3295, by Mr. Hume. "Do you mean, that every transaction of purchase or sale, by any of the means which you have mentioned as included in the circulating medium, equally affects prices?" "Yes, and that was my reason for caring so little about making a distinction among them. I doubt whether they operate upon prices at all."

Question 3296, by Mr. Grote. "You mean, that none of those items which you have enumerated under the general term circulating medium' have, in your opinion, any effect upon prices?" "Yes. I mean that they are not operative causes of prices."

Question 3297, by Mr. Hume. What is it, then, which does

1 The crises, similar to those of 1847, which the Bank went through in 1857 and 1866, are not referred to here, for the reason that an examination of them would add nothing to our knowledge of the laws of money. That of 1847 has been dwelt upon chiefly for the purpose of illustrating the principles laid down in the first part of this work. Any further illustration of them, by reference to the operations of the Bank, would be in great measure superfluous.

affect prices?"-"The cost of production limiting the supply on the one hand, and the pecuniary means of the consumer limiting the demand on the other."

Question 3298. "Will not the variations in the quantity of the circulating medium affect prices?"-"No."

Question 3299. "Will it not, if abundant, be more at the disposal of individuals for purchasers than when it is scarce?"-"It will be more easily disposable; but it will not be necessarily so disposed of. I believe that the amount of the circulating medium is the effect, and not the cause, of variations in prices."

Question 3301, by Mr. Warburton. "Supposing the quantity of the precious metals in the world to remain constant, and that in any country you go on increasing the quantity of the notes payable on demand, will the prices of commodities estimated in those notes undergo a variation proportionate to the increase of the notes?"— "Not if the notes are payable in gold, on demand, unless in the degree in which it may be supposed that the value of gold is affected in the commercial world by an extensive substitution of paper for gold: I consider that those points were distinctly understood as the only conditions by which the money prices of commodities were likely to be affected, independently of the circumstances affecting the articles themselves."

Question 3303. "Suppose, as before, the quantity of precious metals in the world to remain constant, and that the number of deposits in banker's hands available to the purchase and sale of commodities is doubled, trebled, and so on, will the prices of commodities vary in proportion to that increase of deposits in banker's hands?"-"Not in the slightest degree." 1

The following extracts from Mr. James Wilson's "Essay on Capital, Currency, and Banking," are quoted by Mr. Tooke approvingly, as fully expressing his own views:

"The assumption before us involves two questions: first, expansion and contraction of the currency at pleasure; and, second, as the consequence, a corresponding action on prices. Many authors, in treating of the latter as a consequence, and even combating its truth, have labored under great difficulties, by proceeding upon the admission of the former; but, if the former be admitted, we confess we cannot understand how the latter can be denied as the legitimate consequence. If, in the language of Mr. Horner, there be any means by which the quantity of circulating medium (being convertible paper and coin) can be permanently augmented, without a corresponding augmentation of internal trade, a rise will unavoidably take place in the price of exchangeable commodities.' Such means, as we have already seen, do exist in the case of an inconvertible currency; but the rise in price in consequence is only nominal in that case, being immediately compensated to other

1 History of Prices, vol. iv. p. 461 et seq.

countries by a fall in the exchange. But with a convertible currency, if such means exist at all, the rise in price would not be nominal, but real; as it would be expressed either in coin, or notes convertible into coin, and, therefore, would not, as in the other case, be compensated by any fall in the exchange. But this fact shows at once the impossibility of the augmentation' alluded to in the premises, when the currency is convertible. A currency augmented without any corresponding augmentation of the internal trade,' implies a quantity of notes retained in circulation, at the will of the issuers, which the public do not require. Now, the public do not receive notes from a banker without paying interest for their use; and, however low that may be, they will take no more than they absolutely require; nor do they retain notes in their possession beyond what the convenience of trade requires; and, therefore, if issued in excess of that quantity, and if convertible, a portion would be instantly returned upon the issuers. Nor can we conceive any means whatever by which the circulation could be so augmented; and we have deeply to regret that, although such a power on the part of Banks has been taken for granted by most of the writers during the last twelve years, no one has yet attempted to explain by what process it could be accomplished; and we are compelled to think that impressions which gained ground many years since as applicable to an inconvertible currency have been inadvertently associated also with a convertible currency.

"The impossibility of increasing the quantity of paper in circulation (when convertible), except as the effect of a corresponding increase of an internal trade, or of any depreciation in its value taking place, will be more evident when it is considered by what process an inconvertible currency becomes depreciated. On all hands it is admitted, that, as long as inconvertible paper is not issued in excess, as long as coin continues freely to circulate with it, the paper will not become depreciated; but as soon as the paper is issued in excess, and the coin is pressed out of circulation, it becomes depreciated, and the prices of commodities rise in consequence; though it is only a nominal rise, which would be better expressed by depreciation of the circulation. Now, how does this depreciation and rise of price take place? During the early issue of the French assignats, no depreciation or rise in price of commodities took place until the coin was pressed out of circulation; because, as the paper was issued, the tendency to a redundant currency was constantly corrected by the withdrawal of silver, which, being a commodity having a general value in the markets of the world, could be exported or taken for the general uses of the cambist or the silversmith. But as soon as silver was exhausted from the circulation, the issue of assignats still continuing, and the same quantity of internal exchanges only remaining, the currency became redundant; there being no means of absorption except in the existing quantities of commodities.1

"Money" (says Tooke, on a preceding page) "has two functions: the one, that of serving as an instrument of exchange; the other,

1 History of Prices, vol. iv. pp. 194-196.