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 ON 
 
 FLUCTUATIONS 
 
 IN THE 
 
 I' 
 
 SUPPLY AND VALUE OF MONEY, 
 
 AND THE 
 
 BANKING SYSTEM OF ENGLAND. 
 
 \Fr(m the Edinburgh Review, No. 86, about to appear.^
 
 ON 
 
 FLUCTUATIONS 
 
 IN THE 
 
 SUPPLY AND VALUE OF MONEY, 
 
 AND THE 
 
 BANKING SYSTEM OF ENGLAND. 
 
 {^From the Edinburgh Review, No. 86, about to appear.'^ 
 
 /^REATLY as the destruction of private fortunes,"and the wide- 
 ^^ spread mischief and ruin occasioned by the late crisis 
 in the money market are to be lamented, it is no small satis- 
 faction to know, that they have not proceeded from any thing 
 affecting the real foundations of the wealth and prosperity of 
 the country. The sails and rigging of the vessel of the State 
 have been torn and injured by the violence of the tempest; but 
 her timbers are as sound and fresh as ever. The bankruptcy and 
 distress in which so many have been involved, have come upon 
 us in the midst of profound peace ; and at a period when all 
 the great branches of industry — when agriculture, manufac- 
 tures, and commerce were in a state of rapid improvement, and 
 when the public revenue was more than sufficient to meet all 
 the wants of the state. No one, indeed, who has given the least 
 attention to the subject, can suppose for a moment that the late 
 crisis was either primarily occasioned, or in any degi'ee aggra- 
 vated, by a falling off in any of the sources of wealth ; it is ad- 
 mitted on all hands that it sprung from a totally different cause, 
 from some defect in the system on which the business of bank- 
 ing is conducted in England. And while the frightful extent 
 of the evils experienced calls loudly for inquiry into their cause, 
 it at the same time enforces the necessity of adopting some 
 such system as may be fitted to guard effectually against their 
 future occurrence. 
 
 We are not of the number of those who consider it as diffi- 
 cult to discover those defects in the banking system of England, 
 
 A
 
 • Fluctuations in the Sirpply and P'alue ofMuiicy—' 
 
 that have occasioned the recent bankruptcies, or to suggest a 
 remedy for them. The cause and the cure of the evil seem to 
 to us to be abundantly obvious. But befoz'e we set about point- 
 ing out either the one or the other, we may be permitted to ob- 
 serve, that neither the present distress, nor that which took place 
 in 1814, 1815, and 1816, have in any degree shaken our confi- 
 dence in the statements and opinions we formerly advanced, with 
 respect to the vast advantages resulting from the substitution of 
 a well regulated paper currency in the place of gold or silver. 
 We still look upon the employment of paper as money under 
 judicious regulations, as one of the greatest improvements that 
 have ever been made. And we are prepared to show, that 
 none of the mischiefs resulting either from the late 6r any for- 
 mer revulsion, can justly be ascribed to any thing necessarily 
 belonging to a paper currency ; but that they have been wholly 
 owing to its being issued on vicious and unsound principles. 
 
 In order to have a clear perception of the real nature and 
 operation of the causes which produced the late revulsion, it is 
 necessary to state one or two principles with respect to the cir- 
 cumstances which determine the amount and value of money in 
 one country, as compared with its amount and value in others ; 
 for, though these principles are sufficiently familiar to those 
 who have studied the subject, they are yet, we are sorry to sa}', 
 but very imperfectly understood by the public. Let us then 
 endeavour briefly to inquire into the circumstances that deter- 
 mine the quantity of money in a country ; j'frs^, when the cur- 
 rency consists wholly of gold or silver ; second^ when it consists 
 wholly of paper that has been made a legal tender, but which is 
 not convertible at pleasure into the precious metals ; and thinly 
 when the currency consists partly of coin and partly of paper 
 immediately convertible into coin. 
 
 With respect to the Jird case, or that in which the cur- 
 rency of any given country consists entirely of the precious me- 
 tals, it is evident, inasmuch as they are always in demand, and 
 as they can be imported and exported at a very small expence, 
 that the quantity of the precious metals which such a country 
 would in all ordinary cases use as money, would be limited to 
 the quantity which was required to preserve their value at the 
 same level in it as in other countries. If, on the one hand, any 
 greater additions were made to the amount of gold or silver in 
 circulation than were required to preserve the currency at 
 this its proper level, its value would Jail, and there would, in 
 consequence, be an immediate exportation of the precious me- 
 tals ; and if, on the other hand, the amount of gold or silver in 
 circulation were unduly diminished, the opposite efFectswould be
 
 Banlciiig Sj/siem of England. 3" 
 
 produced ; the value of the currency would then be raisrd above 
 its proper level, and there would be an importation of the pre* 
 cious metals from all the surrounding countries, to restore that 
 equality of value which could not in either case be permanently, 
 or even considerably deran^ved. 
 
 It is needless to enter, in this place, into any disquisition with 
 respect to the principle which determines the vakie of gold and 
 silver. It is sufficient to observe, that it is identical with that 
 which determines the value of all commodities not subjected to 
 any artificial or natural monopoly, or with the cost of their 
 production. 
 
 In the second case we have supposed, or in that of a country 
 with a paper currency declared to be a legal tender, but not 
 convertible at pleasure into the precious metals, it is evident, 
 inasmuch as such paper can neither be exported to other coun- 
 tries, when it is issued in excess, nor imported when the issues 
 are unduly limited, that it is not possessed of the same princi- 
 ple of self contraction and expansion, inherent in a currency 
 consisting of the precious metals, and that, consequently, its 
 value must always depend on the extent to which it has been 
 issued compared with the demand. Let it be supposed, to illus- 
 trate this principle, that the currency of any particular country 
 consists of 50 millions of gold sovereigns; and let it be further 
 supposed, that government withdraws these sovereigns, and 
 supplies their place with 50 millions of bits of engraved paper 
 called one pound notes, and declared to be a legal tender : Un- 
 der such circumstances it is obvious, supposing the same quan- 
 tity of commodities to be brought to market, that their price 
 would undergo no change whatever. It is true, that in the case 
 now supposed, no one would exchange the produce of iiis la- 
 bour for money, on the ground that that money was itself a 
 commodity, on which an equal quantity of labour had been ex- 
 pended, and which could be advantageously used in the arts, 
 but because it was the universal equivalent, or legal tender used 
 by the society, and because he knew that it would be willingly 
 received as such by all who had produce to dispose of. 
 
 If, instead of supplying the place of the 50 millions of sove- 
 reigns with 50 millions of one pound notes, it had been sup- 
 plied with only 40 millions, then, as the quantity of money in 
 circulation would have been reduced one-fifth or 20 per cent., 
 the prices of all sorts of commodities would have sustained a 
 corresponding reduction : and if, on the other har.d we sup- 
 pose 60 millions of one pound notes to have been thrown into 
 circulation, the opposite effects would have been produced, 
 and prices, instead of falling, would have risen 20 per cent.
 
 > 
 
 4 Fhictuations in the Supply and Value of Money — 
 
 The essential difference, then, between a currency consisting 
 wholly of the precious metals, and one consisting wholly of in- 
 convertible paper, is this, that the value of the former, in any 
 particular country, can never difier, either permanently or con« 
 siderably, from itsvalue in others; and that its value, as compared 
 with commodities, depends on the comparative cost of their and 
 its production ; — whereas the value of the latter, in any one coun- 
 try, may vary to any conceivable extent from its value in others; 
 and its value, as compared with commodities, does not depend 
 on the cost of producing it and them, but on the extent to 
 which it has been issued compared with the demand. If a 
 guinea commonly exchanges for a couple of bushels of wheat, 
 or a hat, it is because the same expense has been incurred 
 in its production as in that of either of these commodities; 
 but if these commodities exchange, when the currency con- 
 sists of inconvertible paper, for a guinea-note, it is because 
 such is the proportion which, as a part of the aggregate mass 
 of commodities offered for sale, they bear to the supply of pa- 
 per, or of money, in the market. 
 
 It results from these principles, that convertibility into gold 
 and silver, at the pleasure of the holder, is not necessary to 
 give value to paper money : And that, if perfect security could 
 be obtained, that the power of issuing it would not be abused, 
 or that it would always be issued in such quantities as would 
 render a one pound note uniformly equivalent to the quantity 
 of standard gold bullion contained in a sovereign, the precious 
 metals might be entirely dispensed with as a medium of bar- 
 ter, or used only to serve as small change. 
 
 Unluckily, however, no such security can be given. This is 
 a point with respect to which there can be no difference of 
 opinion. The widest and most comprehensive experience 
 shows, that no set of men have ever been invested with the 
 power of making unrestricted issues of paper money without 
 abusing it; or, which is the same thing, without issuing it in 
 inordinate quantities. Should the power to supply the State 
 with paper money be vested in the managers of a private bank- 
 ing company, then to suppose that they should, by limiting 
 their issues, endeavour constantly to sustain the value of their 
 paper, would be to suppose that they should be extremely at- 
 tentive to the public interests, and extremely inattentive to 
 their own private interests ! It is quite certain that the re-enact- 
 ment of the reUriction on cash payme7ils by the Bank of England, 
 and the rendering of it perpetual, ivoidd not har>e the least effect 
 on the value of our paper currency, provided its quantity isoas not 
 at the same time increased. But there cannot be the shadow of a 
 doubt that, under such circumstances, it would be increased.
 
 Banking St/iiem of England. 5 
 
 Such a measure would enable the Directors of the Bank of 
 England to exchange bits of engraved paper, not worth perhaps 
 5s. a quire, for as many, or the value of as many hundreds of 
 thousands of pounds. And is it to be supposed that they would 
 not avail themselves of such an opportunity to amass wealth 
 and riches ? — that if Government allows a private gentleman to 
 exchange a bit of paper for an estate, he will be deterred from 
 doing so by any considerations about its effect in sinking the 
 value of the currency? In Loo Choo we might, perhaps, meet 
 with such a disinterested individual ; but if we expect to find 
 him in England, the chances are a thousand to one that we shall 
 be disappointed. In this quarter of the world, we are much too 
 eager in the pursuit of fortune, to be in any degree affected by 
 such scruples. It is indispensable, therefore, that the issuers of 
 paper money should be placed under some efficient check or con- 
 trol ; and the comparative steadiness of the value of the precious 
 metals at once suggests, that no check can be so effectual as to 
 subject tlie issuers of paper money to the obligation of ex- 
 changing their notes, at the pleasure of the holder, for a giveii 
 and unvarying quanlity^ either of gold or silver. 
 
 We are thus naturally led to the consideration of the third 
 and most important head in our inquiry, or to that which has 
 for its object to discover the circumstances which determine 
 the amount and value of the currency of a country when it con- 
 sists partly of corn and partly of paper, immediately converti- 
 ble into coin. 
 
 It appears, from what has been already stated, that an ex- 
 cessive quantity of the precious metals can never be imported 
 into any country which allows them to be freely sent abroad, 
 without occasioning their instant exportation. But when the 
 currency of any particular country, as of England, consists 
 partly of the precious metals, and partly of paper convertible 
 into them, the effects produced by an over-issue of paper are 
 the same as those resulting from an over-issue of gold or silver. 
 The excess of paper will not be indicated by a depreciation, or 
 fall in the value of paper as compared with gold ; but hy a de- 
 preciation in the value of the Xi:hole currency ^ gold as lui II as paper , 
 as compared "with that of other states. Suppose that our cur- 
 rency is, at this moment, at its proper level, or that the quantity 
 of gold and paper in circulation is the exact quantity requir- 
 ed to render any given portion of the currency of Great Bri- 
 tain equivalent to the same portion of the currency of the sur- 
 rounding states ; and suppose that, under these circumstances, 
 an additional million of notes are issued by the Bank of Entr- 
 land, or by the country banks. It is obvious, that this issue of 
 paper must have precisely the same effect on the vahie of mo-
 
 6 Fltichiutions hi the Siippljj and Value of Money — 
 
 ney, as tlie issue of an additional million of sovereigns. There 
 cannot, it is clear, he any tiepreciation in the value of paper as 
 compared witli gold,* for gold may be innnediately obtained in 
 exchange for it, and it is as readily received in all payments 
 throughout the country. The effect of increased issues of 
 notes, immediately convertible into gold, is not, therefore, to 
 cause any discrepancy between the vaUie of paper and the va- 
 lue of gold in the home market, but to increase the amount of 
 the currency, and, by I'endering it redundant or depreciated as 
 (Compared with that of other countries, to depress the nominal 
 exchange ; and thus, inasmuch as notes do not circulate 
 abroad, to cause the exportation of coin, and, consequently, a 
 drain upon the Bank. 
 
 It is perfectly well known, that a drain for gold on the Bank 
 of England was the proximate and immediate cause of the late 
 revulsion. So heavy had this drain become, that gold and sil- 
 ver of the value of 2,834,000/. had been entered for exporta- 
 tion. at the Custom House, in the months of April, May> and 
 June last. During most previous drains, the market price of 
 bullion had exceeded its mint price, or, which is the same 
 thing, paper had been depreciated as compared with gold ; and 
 there was, of course, an obvious advantage in demanding cash 
 from the Bank. But such was not the case during the late 
 drain ; nor has it been the case any time during the last five 
 years. The notes of the Bank of England have been, ever 
 since 1820, of the same value as the coin that has circulated 
 along with them. And it has been stated, that when the late 
 drain for bullion began, the Directors of the Bank of England, 
 or at least a considerable portion of them, contended that, from 
 whatever causes it mifjht have arisen, it could not be owin"*; to 
 their pr.per being in excess; for had that been the case, their 
 notes would have been at a discount; and that were they, un- 
 der such circumstances, to contract their issues, they would be 
 only causing embarrassment in the commercial world, without 
 ^topping the drain for bullion. 
 
 It is evident, however, from the principles already establish- 
 ed, that this reasoning was wholly fallacious ; and that the fact 
 of coin and bullion continuing, for any considerable period, to 
 be exported from a country in the actual situation of Gi'eat 
 Britain, is of itself a conclusive proof that its whole currency, 
 gold as well as paper, is depreciated from excess^ or has become 
 redundant as compared with the currency of other countries. 
 And as it is im))ossil)le that a drain originating in such a cause 
 can ever be stopped except by a contraction of the currency, it 
 is (juite obvious that it would, in. the event of the Banks sup- 
 plying the place of the gold and silver demanded from them by
 
 Banking Sj/stefn of England, 7 
 
 fresh issues of paper, continue until it had drained them of 
 their last shilling. 
 
 It is certainly true, that a derangement in the usual channels 
 of commerce sometimes occasions a drain upon the Bank for 
 gold, and an exportation of the precious metals ; though it is 
 at the same time no less true, that it is always in the power of 
 the Directors of that Establishment to stop every such drain, 
 by contracting their issues. It is unnecessary, however, for us 
 now to inquire whether there were any circumstances connected 
 with the commerce of the country to originate the drain for 
 bullion that began in 1824 ; for admitting that the drain had begtm 
 from such causes, it is undeniably certain that it could not pos- 
 sibly have attained to a tenth part of the magnitude to which it 
 did actually attain, except from an overissue of paper. Suppose 
 that, when the drain began in June or July 1824, no notes had 
 been issued to supply the place of the first million of sovereigns 
 that were exported ; it is quite certain, had such been the case, 
 that the diminution of the currency consequent upon the with- 
 drawal of this quantity of coin, would have had the effect so to 
 raise its value as effectually to prevent any further exportation 
 from being made : And the fact, that the drain did continue from 
 June 1824- till October 1825, and that coin and bullion, to the 
 amount, it is believed, of from te7i to twelve millions were ex- 
 ported, affords at once an incontrovertible proof not only of its 
 having been occasioned by the excess of paper in circulation, 
 but of the extreme reluctance of the Bank Directors to con- 
 tract their issues. 
 
 Assuming, therefore, the fact, that the late drain for bullion 
 was wholly owing to an overissue of paper as fully established, 
 we have next to inquire into the circumstances which led to 
 that overissue ; for, as the contraction of the currency which 
 the drain ultimately produced, was the immediate cause of the 
 late revulsion, it is evidently of the utmost importance, with a 
 view to the guarding against such a crisis in future, to be fully 
 aware of the circumstances which occasioned it. 
 
 Now, it is self-evident, inasmuch as the Bank of England 
 and the country banks are the only issuers of paper, that when 
 an overissue does actually take place, it must be wholly owing 
 to some erroneous proceedings on the part of one or both of 
 these parties. In the present case, it may, we think, be very 
 easily shown, that neither party has been free from blame; 
 though it is perhaps impossible to point out the exact degree 
 of demerit attaching to each. Certainly, however, the result 
 of all the investigations we have made has been, to impress us 
 with a conviction that, though several of the proceedings of 
 the Directors of the Bank of England, during the last four or
 
 ^. Flitduations in the St^ppl^ and Valiie of Money-— 
 
 five years, seem utterly inconsistent with every sound jTi'inci- 
 ple, they are, notwithstanding,' more to blame for what they 
 did not do, than for what they actually did, — that their great 
 error consisted in their not foreseeing the impending storm,, 
 and taking measures to guard against it, or at least to mitigate 
 its violence. But the share which the country bankers have 
 had in bringing on the late revulsion, has not been passive, but 
 active ; and it is not difficult to discover, that it is to their pro- 
 ceedings, or rather to the vicious principle on which the esta- 
 blishments they conduct are founded, that the mischief we have 
 so recently experienced is mainly to be asci'ibed. 
 
 The truth is, that the late distresses cannot have taken any 
 one by surprise, who is at all familiar either with the principles 
 or the practical operation of our money system ; and we have 
 access to know that they were confidently predicted, and cal- 
 culated upon by the most experienced merchants. So long, 
 indeed, as all individuals who choose are permitted to issue 
 notes without restriction, to serve as money in the common 
 transactions of life, so long may we lay our account with expe- 
 riencing a regular recurrence of similar distress and ruin. In 
 periods when confidence is high, and prices on the advance, 
 country bankers are sure, under the present system, to over- 
 issue. Every individual is then naturally inclined to extend 
 his business ; and most of those who possess produi;e are de- 
 sirous to obtain loans to enable them to withhold it from mar- 
 Jcet, and to speculate upon an advance ; while, at the same 
 time, the country bankers, whose profits depend chiefly on the 
 amount of their paper in circulation, are, on their part, no less 
 disposed to make liberal advances, and to lend to all who can 
 give them a reasonable security for repayment. In such pe- 
 riods, not only do the old established Houses add greatly to 
 their issues, but new ones are every now and then coming into 
 the field, who, from a natural desire to get their paper into cir- 
 culation, are necessarily less scrupulous in their investigations 
 with respect to the circumstances of the applicants for loans. 
 From 1809 up to 1813 inclusive, the facility of obtaining dis- 
 counts from the country banks was so very great, that indivi- 
 duals who could barely afford to buy a stamp for a bill, very 
 often succeeded in obtaining the command of a considerable 
 capital ; and, as they had nothing of their own to lose, boldly 
 adventured upon the most hazardous speculations 1 * 
 
 * For a further account of the oscillations in the amount of the pa- 
 per currency of the country, we beg to refer to the first part of Mr 
 Tooke's work on High and Lotv Prices — a work equally distinguifhed 
 for the soundness and comprehensiveness of its general views, and the 
 extent and accuracy of its practical information.
 
 Baii/dng Sj/siem of England.. 9 
 
 The public, we believe, is but little aware that the uniform 
 effect of a rise in the price of corn, in a country possessed of a 
 metallic currency, is to cause an exportation of gold and silver, 
 and a consequent diminution in the amount of the circulating 
 medium, and conversely when prices fall. In all ordinary cases, 
 foreigners are fully supplied with such quantities of our manu- 
 factured goods and colonial produce as they require. If, there- 
 fore, our currency consisted exclusively of gold and silver, when 
 we had an %imimaUy great demand for corn, we should export a;^ 
 portion of this currency in payment of such excess of corn until 
 the increase in the value of money in this country, and its diminu-' 
 tion in the foreign country, consequent upon its exportation from' 
 the one and importation into the other, had unfitted it for be- 
 ing advantageously sent abroad : But before this took place, the 
 fall in the price of other articles amongst us, caused by the rise 
 in the value of our money, and their rise in the foreign markets 
 caused by the fall in the value of their money, would have oc- 
 casioned their being again exported in preference to gold or 
 silver. And if, on the other hand, we had, under such cir- 
 cumstances, an unusually luxuriant crop, or such a crop as 
 either caused a cessation of a portion of our customary imports 
 from other countries, or an increase of exports to them, an in- 
 creased quantity of gold and silver would be imported ; for, in- 
 asmuch as in such a case our imports from foreign countries 
 are either decreased or our exports increased, and as the de- 
 mand of the foreigners for our commodities cannot be immedi- 
 ately affected in consequence of this variation, we should re- 
 ceive the prir>cipal part of the value of the excess of imports 
 we were formerly in the habit of making, or of the excess 
 of exports, in bullion. By this admirable arrangement, the 
 effects that variations in the harvests have on prices are very 
 much counteracted ; because, in the first case, the exportation 
 of gold and silver prevents them from rising so high as they 
 otherwise would rise in dear years, and in the second their im- 
 portation prevents them from falling so low as they would 
 otherwise do when the crops are unusually productive. 
 
 But the country bankers act in the very teeth of this principle, 
 and invariably avgment their issues the moment prices begi7i to 
 rise. Mr Hudson Gurney, M. P., a partner in some of the 
 Norfolk banks, explicitly stated, in his evidence before the Se- 
 lect Committee of the House of Commons, appointed, in 1819 
 to inquire into the expediency of the Bank's resuming cash 
 payments, that the country bankers proportioned their issues 
 to the price ()f corn, — increasing them when the price of corn 
 rose, and diminishing them when it fell. (Report, p. 24'9). 
 It is obvious, that a currency issued on such principles must,
 
 10 Fliicluations in the Supply and Value of Money — 
 
 on the one hand, ajjgravate all the evils which dear years inflict 
 on the consumers of corn, while on the other it must add great- 
 ly to the digresses of the ajrriculturists in naturally cheap years. 
 Mr Wakefield, whose extensive employment in the mana<^e- 
 ment of estates in all parts of the country, ^ave him the most 
 favourable opportunities for acquirinjj correct information, in- 
 formed the Agricultural Committee of IS'21, that * up to the 
 ' year 1813 there were banks in almost all parts of Eng- 
 
 * land, forcinf^ their paper into circulation at an enormous 
 
 * expense to themselves; and in most instances to their own 
 
 * ruin. There were bankers who gave commission, and who 
 
 * sent persons to the markets to take up the notes of other 
 
 * banks; these people were called money-changers, and com- 
 
 * mission was paid them.' (Report, p. 2i3.) And among all 
 the various answers to the queries sent by the Board of Agri- 
 culture in 1816 to the most intelligent persons in different dis- 
 tricts of the country, there is hardly one in which the excessive 
 i^-sue of country bank paper is not particularly mentioned, as 
 one of the main causes of the unprecedented rise of rents and 
 prices previously to 18 i4. 
 
 But while the issues of country banks are thus, on the one 
 hand, sure to be unduly enlarged when prices are rising and 
 confidence high, they are, on the other, as sure to be unduly 
 and suddenly contracted when prices experience any very serious 
 fall, or when any very serious shock is given to conrmercial confi- 
 dence. The fall of prices that took place in the autumn ol J8i3, 
 in consequence of the luxuriant harvest of that year, and of the 
 renewed intercourse with the Continent, produced a dtstruction 
 of country bank paper that has not been paralleled ex(ef)t only 
 by the late revulsion. In 1814-, 181.0, and I8i6, no fewej than 
 NJNETY-Two Commissions of bankruptcy were issued against 
 English country banks ; and r;?zp in every sevm and a half of 
 the total number of these establishments existing in 1813, was 
 entirely destroyed ! Nor did the mischief stop here. — The cur- 
 rency was not only diminished by the sudden withdrawal of the 
 notes of the insolvent bank*, but the issues of all the rest were 
 very greatly contracted. Mr Lewis Lloyd, a gentleman who;-e 
 opinion on such subjects is entitled to the greatest deference, 
 from his long experience as a partner in one of the first banking 
 houses in the kingdom, (Jones, Lloyd, and Co.), estimated the 
 reduction of country bank paper in i»16, as compared with its 
 amount in 1814, at about a /io//'.' (Commons' Rfport, 1819, p. 
 170). Perhaps, however, the estimate of Mr Sedgwick, Chair- 
 man of the Board of Stamps, may be the most accurate; who 
 reckoned, from computations founded on the number of stamps
 
 " ' / ' Bafi/cijig System of 'England. 1 1 
 
 issued to the country bankers, that the amount of the notes in 
 circulation from 1810 to 1818, both inclusive, had been as un- 
 der: — 
 
 18i0 - - L.21, 819,000 
 
 18 11 - - 21,4.53.000 
 
 1812 - - 19,94*,000 
 
 1813 - - 22,597,000 
 
 1814 - - 22,709,000 
 
 1815 - - 19,011,000 
 
 1816 - - 15,096,000 
 
 1817 ~ - 15,898,000 
 
 1818 - - 20,507,000 
 
 This table sets the vicious nature of the existing system in 
 the clearest point of view. It shows how much the high prices 
 of 1811, 1812, and 1813, and again of 1819, must have been 
 increased by excessive issus of paper, and iiow much the prices 
 of 1815. and 1816, must have been reduced below their natural 
 level by their sudden and undue contraction. That extrinsic sup- 
 port on which too many of the agriculturists and manufacturers 
 depended, gave way at the moment when it was most necessary. 
 The fall of p) ices in 1814, was undoubtedly begun, in the first in- 
 stance, as we have already stated, by an abundant crop and by 
 iiiiportation from the Continent; and this fall having produced a 
 want of confidence, and an alarm amongst the country bankers, 
 a reduction of the currency took place, that became, in its turn, 
 the cause of a farther and he.ivier fall. The bank failures that 
 then occurred, were the more distressing, as they chiefly affect- 
 ed tlie industrious classes, and frequently swallowed up in an 
 instant the fruits of a lono; life of unremittiu"; and laborious 
 exertion. Ihousands upon thousands, who had, in 1813, con- 
 sidered themselves as affluent, found th' y were destitute of all 
 real property; and sunk, as if by enchantment, and without 
 any fault of their own, into the abyss of poverty ! The late Mr 
 Horner, the accuracy and extent of whose information on such 
 subjects will not be disputed, stated, in his place in the House 
 of Commons, that the destruction of country bank paper in 
 1815 and 1816 had given rise to a universality of wretchedness 
 and misery, which had never been equalled, except perhaps by 
 the breaking up of the Mississippi scheme in France. 
 
 But nations are stubborn scholars. Notwithstanding the 
 principles on which the country banks increase and diminish 
 their issues had been clearly explained in 1819, and notwith- 
 standing the experience of the disastrous effects occasioned by 
 their improvident proceedings, no change has hitherto been 
 made in their constitution. With an Irish sort of consistency,
 
 12 Flucluations in the Supply {ind Value of Money — 
 
 we hang a man for issuing a spurious sixpence, and allow every 
 adventurer, however unprincipled, to open a money shop, and 
 to thrust notes, not worth the paper on which they are en- 
 graved, into circulation ! The consequences have been such, 
 as all men of sense must have anticipated. We have seen, 
 from Mr Sedgwick's Table, that a very great addition was made 
 to the number of country bank notes in circulation in 1818 ; 
 but as the prices of corn in 1819, 1820, 1821, and 1822, were 
 very much depressed, in consequence of the abundant har- 
 vests of these years, it is most probable, that no great addition 
 was then made to the amount of country bank paper previ- 
 ously in circulation, if it was not actually diminished. But in 
 1823 prices rallied ; confidence was again restored ; and the is- 
 sues of the country banks were gradually and rapidly in- 
 creased up to the late crisis, when the unsubstantial and base- 
 less fabric again fell to pieces ! 
 
 It is certainly true, that in 1814, 1815, 1816, and previously, 
 the notes of the Bank of England, and of the country banks, 
 were not payable in gold at the pleasure of the holder. But 
 the circumstance of their being now so payable does not, and 
 cannot possibly prevent those destructive oscillations in the 
 amount of country paper, though its tendency is to lessen the 
 extent to which they can be carried. The obligation on the 
 banks to pay their notes in gold prevents their value, so long 
 as they continue to circulate, from ever varying materially from 
 the value of gold in the home market, or from being depreciated 
 as compared with the standard. But though one part of our 
 currency cannot, under our present system, become redundant, 
 as compared with the other, the whole currency, gold as well 
 as paper, may become redundant, and will consequently sink 
 in value, as compared x<Qitli the currency of other countries^ either 
 from too great issues being made by the Bank of England, 
 or by the countr}^ banks. And it is next to impossible, that 
 the contraction of paper, to which such an over-issue must ulti- 
 mately lead, can be effected, without occasioning a most de- 
 structive revulsion. 
 
 We have no means by which to form any estimate of the ad- 
 dition made to the amount of country paper in circulation dur- 
 ing the last three years ; but it is abundantly certain, from the 
 sudden reduction that took place in the rate of interest, and 
 from the facility with which discounts were everywhere obtained, 
 that it was very great ; and we may mention, that we have heard 
 gentlemen of much experience in banking state, that they 
 were fully convinced, that the amount of country notes in cir- 
 culation in 1823 was at least from thirty to forty per cent, great-
 
 Banling System of England. 13 
 
 er than their amount in 1822 ! * It was this excessive addition 
 to the currency, that rendered it redundant, and caused a drain 
 for bullion. And this drain having forced the Bank of Eng- 
 land to narrow her issues, a shock was in consequence given to 
 credit ; the currency of the metropolis became more valuable 
 than that of the country ; and the difficulty of obtaining ac- 
 commodations in London being increased at the very moment 
 that the notes of the country bankers were beginning to be re- 
 turned upon them, their embarrassments and ruin inevitably fol- 
 lowed. A few isolated failures in different parts of the country 
 served to excite a general panic ; and so rapid and sweej)ing 
 was the destruction, that, in the short space of five or six weeks, 
 from SIXTY to seventy banking establishments were compelled 
 to stop payment ! 
 
 But though the proceedings of the country bankers were 
 thus, beyond a doubt, mainly instrumental in bringing about 
 the late crisis, we are not to suppose that the proceedings of tiie 
 Bank of England were altogether unexceptionable. The Di- 
 rectors of the Bank ought to have been aware of the periotli- 
 cal oscillations in the amount of country paper. They could 
 not fail to know that the country bankers had begun to make 
 very great additions to their issues, after prices had rallied in 
 1823 ; and it ought to have occurred to them, that if they did 
 not, by contracting their issue?, check the iaordinate issue of 
 country paper, the whole currency of the country would become 
 redundant; and that the drain for gold thence ai'ising would 
 operate, in the first instance, exclusively on their coffers. It is 
 difficult to believe that such obvious considerations should not 
 have suggested themselves to any of the Bank Directors; 
 though, whatever influence they may have had on their private 
 judgment as individuals, they do not seem to have had the least 
 influence on their conduct as a body. So far, indeed, from direct- 
 ing their proceedings so as to check that over-issue of country 
 paper that was sure otherwise to take place, the Directors, be- 
 sides reducing the rate of interest on their discounts to 4 per 
 cent., increased their purchases of Exchequer bills, and actually 
 went so far as to lend 1,400,000/. on mortgage, — a proceeding 
 
 * We Have received, while these sheets were passing through the 
 press, Mr Tooke's Tract On the State of the Currency. There are 
 some principles advanced by Mr Tooke with which we cannot con- 
 cur ; but the Tract is, notwithstanding, exceedingly valuable, and 
 throws a great deal of light on the circumstances which led to the 
 late crisis, and on the effects resulting from the working of our pre- 
 sent money system. Mr Tooke estimates, from calculations found- 
 ed on the number of stamps issued to country bankers, that their 
 issues in 1825 were about^/j/ per cent, greater than in 1822. (p. 39)
 
 1 4 Fhichiatiotis in the Supply and Value of Money — 
 
 •whichj as every one knows, was quite inconsistent with every 
 sound principle of banking. 
 
 Even after the exchange had become unfavourable, and the 
 drain for bullion had begun to set heavily upon the Bank, the 
 Directors, instead of diminishing, actually increased the amount 
 of their issues ! It is true, that the Governor stated, at a meet- 
 ing of proprietors in March last (1825), ' That the bank notes 
 
 * in circulation were something w?zcf'tT ^wt?;z/?/ millions ; that they 
 
 * had not increased within the last six months; and that he bc- 
 
 * lieved they were not too large for the wants of the country. ' 
 But such loose statements, even though coming from a very 
 high quarter, are not often entitled to much attention ; and the 
 present instance does not seem to be an exception. Official ac- 
 counts of the number of bank notes in circulation, from the 5th 
 of April l8^() to the 5th of April J825, have been rendered to 
 the Stamp Office; and the following statements, extracted from 
 them, will show how the fact really stands : 
 
 BANK-NOTES IN CIRCULATIONS 
 
 1825. 
 
 L. 
 
 1824. 
 
 L. 
 
 Feb. 1, 
 
 • - 18,652,607 
 
 Feb. 7, 
 
 - 20,309,188 
 
 8, 
 
 l8,404-,360 
 
 14, - 
 
 - 20,357,168 
 
 15, 
 
 17,802,629 
 
 21, ^ 
 
 19,866,854 
 
 22, 
 
 17,839,486 
 
 28, 
 
 19,736,986 
 
 May 2, 
 
 - 18,994,049 
 
 May 1, 
 
 - 20,514,142 
 
 10, 
 
 18,585,349 
 
 8, - 
 
 - 20,289,684 
 
 17, - 
 
 - 18,464,533 
 
 15, 
 
 - 19,961,919 
 
 24, 
 
 - 17,97], 839 
 
 22, 
 
 - 19,719,356 
 
 31, 
 
 - 17,425,713 
 
 29, 
 
 19,149,373 
 
 Aug. 2, : 
 
 - 20,221,912 
 
 Aug. 7, 
 
 - 21,312,124 
 
 9, 
 
 19,996,005 
 
 14, 
 
 - 20,960,542 
 
 16, 
 
 - 19,716,775 
 
 21, - 
 
 20,535,550 
 
 23, 
 
 19,582,348 
 
 28, 
 
 - 20,293,326 
 
 30, 
 
 - 19,231,240 
 
 Nov. 6, 
 
 - 21,413,902 
 
 Nov. 1, 
 
 - 21,779,665 
 
 13, 
 
 - 21,411,425 
 
 8, 
 
 - 20,679,004 
 
 20, 
 
 - 20,817,379 
 
 i5, . 
 
 - 20,353,142 
 
 27, 
 
 - 20,850,260 
 
 22, 
 
 19,820,208 
 
 
 
 29, 
 
 19,400,803 
 
 
 
 Average of 1823, L.19,206,404 Average of 1824, L.20,423,481 
 
 In one year, therefore, there was an augmentation in the 
 currency of upwards of 1,200,000/. Nor did it stop here; for 
 in the month of February 1825, the circulation of the Bank 
 of England was increased still farther, as will be seen from the 
 following account : —
 
 Banking System of England. 15 
 
 1825 Feb. 5, Bank-notes irv circulation L.2L93!,937 
 
 12, 21,307,879 
 
 19, 21,234-,673 
 
 26, - - - - - 21,060,144- 
 
 Average amount - L.21,383,658 
 Now the av'eranfe amount of the Bank circulation in the 
 month of February, 1823, was 18,174,770/ , and in the month 
 of February, 1821., it was 20,067,544/. ; and therefore, com- 
 paring 1824 with 1823, there is an augmentation of about 
 2,000,000/.; and comparing 182,5 with 1824, there is an aug- 
 mentation of 1,300,000/.; and, finally, if we institute a com- 
 parison between 1823 and 1825, the circulation of the latter 
 year presents us with an increase of 3,200,000/ * 
 
 But the continued and increasing pressure of the drain for 
 bullion ultimately compelled the Directors to change their tac- 
 tics, and to withdraw a portion of their paper. The Governor 
 stated at a meeting of proprietors, on the 22d of September last, 
 (1825) that the amount of bank notes then in circulation, was 
 18,200,000, being a reduction of above three millions, as com- 
 pared with their issues in February that year. We have no 
 means of knowingf when the Directors began to reduce their is- 
 sues, or whether this was the whole extent to which it was carried. 
 This much, however, is certain, that their reduction was a mea- 
 sure which had become indispensable for the safety of their 
 own establishment; and had they, as sound policy would have 
 suggested, resorted to it when the drain first began, in June 
 1824, they would have given an early check to the overissue 
 of the country banks, and would in consequence have greatly 
 mitigated, though it is clear they could not have entirely pre- 
 vented, the crisis that ultimately took place. 
 
 We have no doubt that the Bank Directors acted through- 
 cut the whole of this affair, in the way which they conceived 
 was most likely to promote the real interests of the country ; 
 and that their disinclination to contract their issues arose, not 
 from any considerations about the almost imperceptible influ- 
 ence such a measure might have had on their profits, but from 
 an apprehension lest, by doing so, ihey might give an injurious 
 shock to commercial credit. These, however, we take leave 
 to say, are considerations, which persons in the situation of the 
 Directors of the Bank of England, ought very rarely to allow 
 to influence their proceedings. Their business is not to take 
 
 * See a valuable letter, signed Daniel Hardcastle, in one of the 
 Numbers of the Times for October last.
 
 16 Fhiduationt 171 the Supply and Value of Money — 
 
 care of the commerce of the country; but to adjust the issues 
 of their paper, so that the mint and market price of frold, and 
 tlie exchanges, may always he at or near par. When the Go- 
 vernor of the Bank said in his speech to to the proprietors in 
 March 1825, that he believed 20 millions was 7ioi a large?' circu- 
 lation^ than the real business of the country required^ he was 
 plainly stepping out of his proper province, and was giving an 
 opinion on a point, of which r^either he nor any one else could 
 be otherwise than wholly ignorant. The truth is, that the ab- 
 solute number of Bank of England notes in circulation, never af- 
 fords any means of judging whether they are, or are not in excess. 
 They only form a part, perhaps not more, in ordinary ca«es, 
 than a third of the circulating medium ; and supposing the de- 
 mand for money to be as constant as it is fluctuating, they 
 should vary, not to be in excess, inverst ly, as the amount of 
 coin and provincial paper in circulation. In one case. Bank 
 of England paper might be in excess, \{ fifteen or eighteen mil- 
 lions were in circulation ; when in another, an issue of twenty 
 or twenty-five millions might not be enough. It is idle, there- 
 fore, to talk about proportioning the supply of paper to the 
 wants of the country, otherwise than by enlarging or contract- 
 ing its amount, so as to preserve the value of the entire mass 
 of the currency on a par with the value of the currency of o- 
 ther countries. If the Directors follow any other principle, 
 they are sure to err. So long as gold is demanded from them, 
 so long ouuht they to continue gradually to contract their issues, 
 and so long as it is not demanded, so long ought they to con- 
 tinue gradually to enlarge them, without caring about the ac- 
 tual number of their notes in circulation. When they con- 
 tinue, on purpose to avoid giving a shock to commerce, to 
 maintain the same number of notes in circulation, notwithstand- 
 ing a demand for gold, they may depend upon it they will 
 greatly aggravate the mischief they are attempting to avert. 
 Sooner or later the propriety of making a reduction in the 
 amount of their issues will cease to he optional with them ; and 
 they will be compelled, in order to prevent the total exhaustion 
 of their coffers, to take that step which they ought in all cases 
 to take, the moment the drain begins to set in. When they 
 defer reducing their issues, the overissue of the country banks, 
 and all those gambling and absurd speculations which uniform- 
 ly abound in periods when there is an unusual facility of ob- 
 taining discounts, are carried to an extreme extent, and the 
 revulsion becomes proportionally severe, whenever the Bank 
 is compelled, as she is sure to be in the end, to narrow her 
 issues. 
 
 It is evident from the previous statements, that the Dh'ectors
 
 Banking System of England. 1 7 
 
 of the Bank of England fell into a double error ; ^rst, in at- 
 tempting to force the issue of their own notes at the very 
 period when they ought to have foreseen that the increased 
 issues of the country bankers, consequent upon the renewed 
 prosperity of the country, would of themselves render the cur- 
 rency redundant, and occasion a drain for bullion ; and second, 
 in refusing to reduce, and indeed actually increasing, the num- 
 ber of their own notes in circulation for upwards of a twelve- 
 month after the drain for bullion had begun to operate on their 
 coffers. Had the Directors conducted their establishment on 
 sound scientific principles, and forborne considering themselves 
 as the appointed guardians of commercial credit and confi- 
 dence, they would have avoided both these errors. But what- 
 ever mistakes the Directors of the Bank may have committed, 
 and none will accuse us of having any wish to conceal or palliate 
 them, we have not the remotest idea that the injurious effects that 
 have resulted from their proceedings would have been, as many 
 suppose, in the slightest degree mitigated, had there been se- 
 veral such establishments in London. Suppose another metro- 
 politan bank for the issue of notes had been in existence during 
 the last two years, and that some of our first monied men, as 
 Messrs Baring, Rothschild, &c. had been at its head ; we ven- 
 ture to sa}^, that though the present state of our pecuniary af- 
 fairs might have, in consequence, been much more unfavourable 
 than it really is, it could not have been in any degree improved. 
 Had Messrs Baring & Co. discounted at a lower rate of in- 
 terest than the Bank of England has done, or had they negoci- 
 ated bills refused by the Directors of that Establishment, there 
 must, of course, have been a greater quantity of their paper a- 
 float than has been of the Bank's. But it is evident that, un- 
 der such circumstances, the redundancy of the currency and 
 the drain for bullion would have been proportionally greater : 
 and it would, in consequence, have been necessary to make a 
 more considerable reduction in the amount of the currency, 
 which would have unavoidably occasioned a still more serious 
 revulsion : And if, on the other hand, Messrs Baring & Co. 
 had not discounted at so low a rate of interest as the Bank of 
 England, or been more scrupulous about the quality of the 
 bills discounted, their issues would have been so confined as 
 not sensibly to affect those of the Bank ; and the currency 
 would have been in the exact state that it now is. 
 
 It is not now necessary that we should enter into any ex- 
 planations with respect to the proper constitution of a National 
 3ank. We certainly entertain a very decided opinion on the 
 subject ; but it is of too great consequence to be discussed in- 
 cidentally ; and so long as Government chooses to delegate the
 
 18 Fluctuations in the Supply and Value of Money — 
 
 impoitant trust of supplying the country with paper money Xq 
 a set of irresponsible private genilemen, we tlo not know that 
 it could b(^ in better hands than in those of the Directors of the 
 Bank of England. Without, therefore, stojiping at present 
 to aoitate this fjuestion, it is clear, from the statements and rea- 
 sonings previously advanced, that so long as the present or- 
 ganization of the country banks is permitted to continue, so long 
 shall we be periodically revisited with the same sort of revulsions 
 we have just experienced. When the agitation caused by 
 the present storm has subsided, and confidence been once 
 more restored, the seeds of future mischief will begin to germi- 
 nate. The experience of the present crisis will be very soon 
 forgotten ; the country banks will again become exceedingly 
 liberal in their discounts ; their paper will gradually become 
 redundant ; a drain for gold on the Bank of England will be 
 the consequence ; and as that establishment must, in self-de- 
 fence, contract its issues, a fresh period of bankruptcy will be 
 the ultimate and inevitable result ! 
 
 • It may indeed be supposed, that the lesson taught by the 
 events of the last three or four years, will not be thrown awaj"" 
 on the Directors of the Bank ; and that in future they will, 
 by immediately reducing their issues on the first setting in of 
 a drain for gold, give an early check to the overissue of country 
 paper, and thus lessen the severity of the paroxysm. This, 
 however, it must be confessed, is but a slender security to which 
 to trust for protection ! And should a single banking esta- 
 blishment give way in consequence of the contraction of the 
 paper of the Bank of England, it might, by exciting a panic, 
 lead to the destruction of hundreds more. It seems, therefore, 
 to be quite indispensable that a complete and radical change 
 should be made in the entire system of country banking, — that 
 Government should interfere to put down a system that naturally 
 and unavoidably leads to periodical revulsions that plunge 
 thousands into bankruptcy and ruin, — and that, when it gives 
 private individuals the power to issue money, it ought, at the 
 same time, to have ample security, that the public shall lose 
 nothing either by their improvidence or their fraud. 
 
 To effect that improvement in the system of banking in Eng- 
 land, that is so essentially, necessary, three different plans have 
 been proposed, viz. — First, to repeal the statute of 1708, and 
 to allow the formation of joint- stock banking companies, with 
 numerous bodies of partners, on a plan similar to those 
 established in Scotland : Second, to suppress all private bank 
 notes for less than 5/., and to supply their place with coin, 
 or with smaller notes of the Bank of England : and, Thirds
 
 Banking System of England. 19 
 
 to allow private banking companies to issue notes as at pre- 
 sent, but to oblige such as chose to avail themselves of that 
 power, to deposit securities for their payment in the hands of 
 Government. We shall offer a few remarks on each of these 
 plans. 
 
 I. With respect to i\\e first, there can be little doubt that the 
 repeal of the injurious and absurd restriction by which more 
 than six individuals are prevented from joining in any copart- 
 nery for the issue of notes, would be a considerable improve- 
 ment on the existing system. It would most probably lead to 
 the formation of banking companies with a considerable num- 
 ber of partners in most of the great commercial towns ; and it 
 is said that, inasmuch as the partners of these establishments 
 would all be bound to the whole extent of their fortunes for the 
 debts of the copartnery, security would be afforded to the pub- 
 lic against ultimate loss, even though the bank should, from any 
 sudden pressure, be obliged to suspend its payments, at the 
 same time that the knowledge of this ultimate stability would, 
 by conciliating the public confidence, have a powerful tendency 
 to prevent runs. That the formation of joint-stock banking 
 companies in England would in some degree realize these ad- 
 vantages, is, we think, quite obvious ; but it is the merest de- 
 lusion possible, to suppose that it would afford that security to 
 the public against those sudden and ruinous changes in the a- 
 mount and value of money which is so indispensable. Those 
 who have speculated on this subject, have reasoned exclusively 
 from observing what has taken place in Scotland ; and because 
 the Act of 1708 does not extend to Scotland, and we have afeta 
 banking establishments with numerous bodies of partners, it is 
 contended that the comparative exemption of this part of the 
 empire from the revulsions that have made so much havoc in 
 England, is wholly to be ascribed to this circumstance. But 
 this is to come to a conclusion a little too much in the four-in- 
 hand style ; nor do we conceive that any thing can be more 
 absurd than to argue, that because few of the Scotch banks 
 have failed, similar establishments would succeed equally well, 
 if attempted in a country so differently circumstanced as Eng- 
 land ! The fact is, as any one who has ever reflected a mo- 
 ment on the subject must be aware, that there must always 
 be infinitely more hazard in conducting the business of bank- 
 ing in England than in Scotland, With the exception of 
 Glasgow, and the country immediately contiguous thereto, 
 Scotland has hardly any foreign trade, and but very little ma- 
 nufacturing industry. The business that is carried on in Edin-
 
 20 Fluctuations in the Supplj/ and Value of Money — 
 
 burgh and other parts of the country, is either confined to a 
 retail trade, or to the sale of produce, by the growers, to 
 n^erchants from England, or to dealers scattered through the 
 country. The situation of these persons is generally well known 
 to the bankers with whom they deal, who must be very careless 
 indeed, if they ever lose anything considerable by them. It 
 would be worse than idle to attempt to prove bj' argument the 
 vast difference in the situation of those persons as compared with 
 that of a very large proportion of tlie merchants and manufac- 
 turers of England. The foreign trade of Liverpool only, is 
 equal to about y^W times that of all Scotland; and we are quite 
 sure we are a good deal within the mark when we affirm, that 
 there is more speculation in Lancashire in a week, than there 
 is in Scotland in a twelvemonth. 
 
 It should also be kept in view, that owing to the compara- 
 tively limited extent and population of Scotland, we have only 
 from tiaenty-eiglit to ^/?2r(2/ establishments for the issue of notes; 
 and in consequence of this fewness of their numbers, it is easy 
 for them to concert their measures in common, and to support 
 each other during a period of panic. Those who were ac- 
 quainted with the real state of things in Scotland, were not a 
 little amused by the paragraphs in the newspapers about the 
 confidence, stability, &c. of the Scotch banks during the late 
 crisis. The truth is, that these establishments were then, we 
 shall not say on the brink of destruction, but certainly in a 
 state of very great danger. Had the British Linen Company 
 and the National Bank not stepped forward to the assistance 
 of the Fife Bank, the latter must have stopped payment; and 
 the alarm that would have been caused by that circumstance, 
 in conjunction with that which was caused by the failure of 
 Pole, Thornton & Co., could hardly have failed to occasion a 
 run that might have been productive of the most disastrous 
 consequences. 
 
 It is obviously impossible, however, that any such concert 
 can ever obtain amonjx the hundreds of banking establishments 
 that must always exist in England ; and this circumstance is of 
 itself sufficient to vitiate all inferences drawn from the state of 
 banking in the one country to its state in the other. No con- 
 tagion spreads so rapidly as that of a panic. A failure in 
 Portsmouth not unfrequently excites a strong sensation in 
 Newcastle ; and has ukimately, on more than one occasion, 
 led to a run in the latter ! 
 
 We apprehend, indeed, that most of those who have been so 
 very lavish of their eulogies on the Scotch banks, have been 
 but very slenderly informed with respect to the real situation
 
 Banking Syslem of Engla7id. 2\ 
 
 of these establishments. From the statements recently put 
 forth, one would be led to suppose that there is not a bank in 
 Scotland without some hundred partners ; whereas, the plain 
 matter of fact is, that out of twenty- eight or thirty establish- 
 ments for the issue of notes, there are twenty, the number of 
 whose partners vary ^romfifteen to two, 07ie, and three! The Bank 
 of Scotland and the Royal Bank are out of the question : For 
 they are chartered banks, and the partners are only liable for 
 the amount of the shares which they respectively hold, or, tak- 
 ing them in the aggregate, for the capital of the banks, which 
 is any thing but an excessive security. And with the excep- 
 tion of the Commercial Bank, the British Linen Company, the 
 National Bank, established only the other day, two banks in 
 Dundee, the Aberdeen Banking Company, and the Perth Bank- 
 ing Company, the partners in most of the other banks are very 
 little, if at all, more numerous than those in the English banks. 
 For example, there are ox\\y Jijteen partners in the Leith bank, 
 and nine in the House of Sir William Forbes & Co. ; the 
 Greenock bank, the two Paisley banks, and the Renfrewshire 
 bank, have aviongst them only twenty-five partners ; two of the 
 very first banks in Glasgow, the Ship Bank and the Thistle 
 Bank, have oxAj thirteen partners; the Ayr bank has on\y7iine; 
 the Kilmarnock bank_yfw, and so on. * And it will be observ- 
 ed, not only that many of the establishments with the smallest 
 number of partners are founded in the West of Scotland, 
 where the risk incurred by the bankers is infinitely greater 
 than in the other parts of the country, but that the notes of 
 some of them have a most extensive circulation ; and that they 
 enjoy, and we believe most justly, an equal share of the public 
 confidence with those that have more numerous bodies of pro- 
 prietors. 
 
 Seeing, therefore, that notwithstanding the power to esta- 
 blish banks with numerous bodies of proprietors has always 
 existed in Scotland, not more than a third of the banks in this 
 part of the Empire are so 'established, on what pretence can it 
 be said, that the mere repeal of the Act of 1708, preventing the 
 establishment of great joint-stock banks in England, would 
 lead to the suppression of the existing banking houses, and the 
 general foundation of large establishments ? It is most pro- 
 bable, indeed, that such a measure would lead to the formation 
 
 * For an official account of the number of partners in the Scotch 
 banks, see p. 420 of the Appendix to the Lords' Report on the 
 Resumption of Cash Payments.
 
 S2 Fluctuations m the Supply and Value of Money — 
 
 of a few great banks ; and there neither is nor can be any good 
 reason why the same privilege that is given to an association of 
 six should not be given to one of six hundred individuals. But 
 it is quite certain that the repeal of the Act of 1708 would not 
 of itself occasion any material change in the present system. 
 The superior stability of the Scotch banks is owing to wholly 
 different causes — to the different state of the country, the few- 
 ness of their numbers, and their consequent power to concert 
 measures, and, perhaps, also to the greater caution and shrewd- 
 ness of the Scotch bankers. We do, therefore, hope that the 
 public will not be so far duped and misled by the eulogists 
 of the Scotch system as to suppose that its introduction 
 into England can afford any adequate or effectual security 
 against the endless recurrence of revulsions similar to that 
 which has been just experienced. The fact is, that no com- 
 pany, whether it consists of six or six thousand partners, 
 ought to have the power to issue notes at pleasure : For, you 
 can have no security that they will not abuse this power; at the 
 same time that it is certain, that the ruin occasioned by the 
 bankruptcy of any establishment, will most commonly be di- 
 rectly proportioned to the number of its partners, and the cre- 
 dit and confidence it has enjoyed. 
 
 The charter granted to the proprietors of the Bank of Eng- 
 land does not expire until 1833 : and until then, they have the 
 right to prevent the establishment of any banking company with 
 more than six partners. To get rid of this restriction. Lord 
 Liverpool made a proposal to the Bank Directors in April 
 1822, in which he offered, on the part of Government, to ex- 
 tend the duration of the Bank Charter for ten years, or until 
 1843, provided the proprietors would agree to waive their 
 right, to prevent the establishment of banks with numerous 
 bodies of partners, beyond the distance of 65 miles from Lon- 
 don. As -might have been expected, the Bank Proprietors 
 eagerly catched at this proposal, and unanimously authorized 
 the Directors to accept the terms offered by Lord Liverpool. 
 Luckily, however, his Lordship seems to have perceived, just 
 before it was too late, that he had been infinitely too liberal in 
 his offers ; for the measure was not submitted to Parliament : 
 And we do hope, that no such improvident and prodigal ar- 
 rangement will ever be heard of again. We acknowledge that 
 the abolition of the restriction in question would be an advan- 
 tage; but to buy that advantage by prolonging the Bank Char- 
 ter for either five or ten years, would really be to barter gold 
 for chaff. The restriction is of no real benefit to the Bank ; 
 and we have not the slightest doubt, that the Directors would
 
 - '•^^'^^^^i^^■ JBatiking Sjjstem of England. 23 
 
 readily consent to its abolition, on fair and reasonable terms-^ 
 that is, on paying them 50,000/. or 100,000/. 
 
 II. The plan that has been proposed for suppressincr the 
 issue of all country bank-notes under 5/., and for supplying 
 their place, either with 1/. notes of the Bank of England, or 
 with gold coin, is much better calculated than the preceding, 
 to give security to the public. ?- ? *o E-r ri 
 
 From the principle on which the business of banking is con- 
 ducted, that is, from the circumstance of the profits oi' a bank- 
 ing company, for the issue of notes, depending mainly on the 
 excess of the value of their notes in circulation, above the value 
 of the dead stock retained in their coffers, to meet the demands 
 of the public, it is obvious that no company, however wealthy, 
 and however well its affairs may be managed, can avoid being 
 considerably distressed and embarrassed by sudden runs, or de- 
 mands for payment of their notes. But panics, which are thegreat 
 cause of runs, seldom or never become general, except when the 
 banks issue notes of so low a value as to fit them for beinsr used in 
 retail trade, and in the ordinary business of society. Previously 
 to 1797, neither the Bank of England, nor any of the English 
 country banks, were permitted to issue notes of less than five 
 pounds. The currency used in small payments was thus made 
 to consist exclusively of the precious metals; and as there was 
 no opportunity for a panic taking place among the holders of 
 small notes, only very few runs were made upon the banks, and 
 very little loss was sustained by their failure. In 1797, this 
 system was changed. The Bank of England was then, for the 
 first time, empowered to issue one and two pound notes — a pri- 
 vilege which was soon after granted to the other banks. Bank 
 paper having, in consequence of this arrangement, become the 
 only currency of the country, and being in the hands of almost 
 every individual, the chances of runs, and, what is more to the 
 purpose, runs themselves have been multiplied to an unpre- 
 cedented extent. Panics uniformly operate with the greatest 
 effect on the lower classes, or on the holders of small notes; 
 and it is they that, on such occasions, press to the banks 
 to demand payment. Extensive merchants and money-deal- 
 ers are aware, that no bank could retire all its notes in the 
 short space of eight or ten days; and they are also aware, 
 that the maintenance of their own credit is intimately con- 
 nected with that of the banks in their vicinity. But such 
 considerations do not influence the holders of small notes; 
 and, accordingly, we find, that the crisis of 1797, the 
 revulsion of 1815, and the late riuj, were chiefly caused by
 
 24 Fluduations in the Supply and Value of Money— 
 
 tlie prevalence of a panic amongst the retail traders, and small 
 farmers. 
 
 So long, therefore, as any individual, or association of indivi- 
 duals, may issue notes of a low value, to be used in the common 
 transactions of life, without lodging any security for their ulti- 
 mate payment, so long is it certain that those panics, which 
 must necessarily occur every now and then, and against which 
 no effectual precaution can be devised, must occasion the de- 
 struction of a greater or smaller number of banking establish- 
 ments, and, by consequence, a ruinous fluctuation in the supply 
 and value of money. 
 
 Up to a comparatively late period, the banks of the United 
 States were authorized to issue notes of any value; and many 
 did issue them for so small a sum as a dollar ! The consequences 
 were such as might have been anticipated. In 1814, there was 
 a general demolition of the banks, from one end of the Union to 
 the other; and so universal was the destruction, that hardly a 
 single establishment for the issue of notes escaped ! The mis- 
 chief and ruin occasioned by this universal crash, or, in other 
 words, by the defective constitution of the banks, are forcibly 
 depicted in a Report drawn up by Mr W. H. Crawford, Secre- 
 tary of the Treasury in 1819: And Congress have latterly in- 
 terfered, to guard against such tremendous visitations in future, 
 by forbidding the issue of low notes. 
 
 In order to lessen the chances of runs, the directors of seve- 
 ral of the country banks have adopted the ingenious device of 
 making their notes payable in London, and not in the place 
 where they are issued ! This is a good deal similar to the 
 clause that was formerly inserted in the notes issued by some 
 of the Scotch banks, which made it optiojial for them either to 
 pay the bearer when the note was presented, or six months after 
 such presentment, allowing legal interest for these six months. 
 The effects of this clause, which was abolished by act of Parlia- 
 ment, in degrading the value of the Scotch notes, are detailed 
 by Dr Smith; and there can be no question, that the clause in- 
 serted in the English notes will have similar effects. A note, 
 which cannot be converted into cash, unless it is carried two or 
 three hundred miles, perhaps, from the sphere of its circulation, 
 is plainly not so valuable as a note payable at the place where 
 it is issued ; and, if the Legislature does not interfere to stop this 
 practice, we shall most probably have as many different values 
 of paper, as there are different distances between the principal 
 country-towns and London ! An abuse of this kind cannot be 
 tolerated. 
 
 The only objection of weight that can be made to the plan
 
 Banking System of England. 25 
 
 for suppressing the smaller notes of the country banks, and sup- 
 plying their place with coin or notes of the Bank of England, 
 are^Jirsty that if their place be supplied with coin, the country 
 will be subjected to the expense of maintaining an extraordinary 
 quantity of gold and silver in circulation ; and second, that if 
 their place is supplied with Bank of England paper, forgtry 
 will be practised to as great an extent as ever. 
 
 With respect to the first of these objections, it is quite clear, 
 that in the event of 10 or 12 millions of one pound notes being 
 withdrawn from circulation, and their place being supplied by 
 an equal number of sovereigns, a very considerable expense 
 would be entailed on the country ; though, if the issue of this 
 additional quantity of coin be the only means by which unifor- 
 mity can be given to the value of the currency, and ruinous 
 fluctuations in its supply avoided, the expense would be well 
 and properly incurred. We are satisfied, however, that the 
 fluctuations in question may be avoided without any such sa- 
 crifice. It was not to the increased issue of Bank of England 
 notes that took place during the latter years of the war, but 
 to their shamefully defective execution, that their forgery was to 
 be ascribed. There has not, for upwards of half a century, 
 been any visible improvement in the manufacture of Bank of 
 England notes. Apparently satisfied with the security derived 
 from private marks, the Directors have allowed notes to be is- 
 sued, engraved in so wretched a style, and which afford so few 
 distinguishing points or peculiarities, on which the eye can rest 
 in comparing them with each other, that they almost seem to 
 be intended to stimulate the efforts of forgers. It would be 
 rather rash, however, to conclude from this, that the arts have 
 been stationary for the last fifty years, and that it is impossible 
 to render the imitation of a bank note a work of greater difficulty. 
 It is, we admit, no easy task to manufacture a note which may 
 not be counterfeited, even by ordinary engravers, with suffi- 
 cient exactness to deceive the mass of those into whose hands 
 it might be supposed to come in the course of circulation. But 
 this is a difficulty that has been surmounted. Previously to 
 1814, the period when the Directors of the Bank of Ireland 
 adopted Mr Oldham's plan for engraving their notes, their for- 
 gery was carried on to a vei-y great extent. Since then, however, 
 it has almost entirely ceased ; and it appears from a paper print- 
 ed in the Session 1821-22, by order of the House of Com- 
 mons, that only seventeen persons had been convicted of issuing 
 forged notes in Ireland in the three years ending with 1820 ! 
 Although, therefore, we do not pretend to be informed with re- 
 spect to the obstacles which have hitherto prevented the Direc-
 
 26 FlucliiaUuns in l/ic Supplij and J'utiic of Money — 
 
 tors of the Bank of Englancl from issuing the improved notes of 
 whicli so much has been said, there are good grounds for doubt- 
 ing whether they can be so formidable as has been represented. 
 It is a very mistaken notion to suppose, as the Directors of the 
 Bank of England seem to have done, that nothing less than the 
 issue of iniini/ able notes can be of any material service. This 
 is a degree of perfection to which it is in vain to expect to 
 reach. Whatever has been executed by one set of artists, ;««// 
 be imitated by some other set. But, provided this imitation be 
 rendered as it may be, a work of comparative difficulty, the 
 public interests will be sufficiently protected. Notes which 
 can only be conterfeited by first-rate engravers, will very 
 rarely be counterfeited at all ; and never in such numbers as to 
 be productive of any seriously injurious consequences. 
 
 Forgery, it must be remembered, is an evil inseparable from 
 the use of money — an abatement from the innumerable advan- 
 tages of which it has been productive. Whatever commodity 
 may be adopted to serve as a circulating medium, it must, in the 
 nature of things, be a hopeless task to attempt to guard completely 
 ao-ainst the efforts of the issuers of spurious money. If the cur- 
 rency consists of paper, it will be counterfeited, and if it consists 
 of the precious metals they will be adulterated and debased- All 
 that can be done is to throw obstacles in the way of forger}'^ — to 
 render it, if possible, a work of extreme difficulty ; and there 
 is no good reason for supposing that it would be more difficult 
 to do this with notes than with coins. Indeed the very contrary 
 seems to be established. No scheme for the improvement of 
 the coinage has had the same success in preventing the issue of 
 spurious coins, that Mr Oldham's inventions have had in pre- 
 ventino- the issue of forged notes. In reasoning on this sub- 
 ject, we have been led into error by referring exclusively to the 
 paper of the Bank of England. But the difficulties opposed to 
 the issue of forged paper must be estimated by the success 
 which forgers have had in imitating the best, and not the worst 
 notes in circulation. And if we refer to this proper criterion — 
 if for example, we take the improved notes of the Bank of Ire- 
 land, or of the Scotch Banks for a standard, instead of the nn- 
 improved notes of the Bank of England, it will be found that 
 the security of the public against fraud and imposition is any 
 thing but impaired by the issue of paper. 
 
 We do not, therefore, think that the plea, that thewithdraw- 
 ino- of the smaller notes of the country banks, and the supply- 
 ing of their place with one pound notes of the Bank of England, 
 would lead to a great increase of forgery, is well founded. We 
 are persuaded that all danger that could arise from this source
 
 BaJiJcing Ssystem of England, 27 
 
 migbt be effectually obviated by a little attention on the part 
 of the Directors of the Bank of England to the improvement 
 of their notes. And if this were done, and the notes of the 
 country banks made payable in Bank of England paper or gold 
 bars^ at the option of the payers, and the paper of the Bank in 
 gold bars exclusively, the issue of gold coin would be rendered 
 quite superfluous; at the same time that the over- issue of paper 
 would be more effectually prevented than it is at this moment, 
 and that a very great security would be obtained against injuri- 
 ous fluctuations. 
 
 At the same time, however, it must be admitted, that this se- 
 curity would not be adequate to guard comjpletely against the 
 improvidence or bad faith of the issuers of paper. That the 
 suppression of the smaller notes of the country banks would 
 lessen the frequency and intensity of runs and panics, is certain ; 
 but it is at the same time obvious, that though a bank should 
 not issue notes of a less value than 5/., it might, notwithstanding, 
 become insolvent from a variety of causes — from advancing its 
 notes on insufficient security, or from a run caused by its issuing 
 them in excess. But this is plainly a contingency against which 
 nothing but the suppression of all private banks for the issue of 
 notes, or the /orci?ig them to furnish securities equivalent to the 
 amount of their issues, can ever completely guard. In the event, 
 however, of the smaller notes being prohibited, and the law 
 limiting the number of partners repealed, we do not think that 
 much future inconvenience would arise from the uncontrolled 
 proceedings of the country banks. But if it should be found 
 that these measures were not sufficient to give that protection 
 to the public, against fluctuations in the value of money, to 
 which they are entitled, then certainly it would be the bounden 
 duty of Government either wholly to suppress the country 
 banks, or to make them find security for their issues. We be- 
 lieve, however, though it is impossible to speak with confidence 
 on such a point, that any further interference would be unne- 
 cessary ; and that the suppression of all country notes under 5/., 
 and allowing any number of partners to form themselves into a 
 banking company, would go far sufficiently to improve the exist- 
 ing system. 
 
 III. But, in the event of any of the country banks finding 
 security for the payment of their issues, as is proposed in the 
 third of the plans we have taken the liberty to examine, it 
 would not be necessary to prohibit them from issuing small 
 notes. In this case, the public would have a guarantee ao-ainst 
 suffering loss from their proceedings ; and the circumstance of
 
 28 Flucluations in the Supply and Value of Money — 
 
 its being known that this guarantee had been obtained, would 
 prevent their being exposed to sudden runs. There can be no 
 question, however, that Parliament will bejustly chargeable with 
 the most culpable inattention to the public interests, if it does not 
 interpose its authority, either entirely to prevent the issue of 
 small notes by the country bankers, or to subject those who is- 
 sue them to the obligation of finding sufficient security for their 
 payment. It is in vain to attempt to palter with the existing 
 system. 'Without the adoption of one or other of these plans, 
 it will be found to be altogether impossible to give stability to 
 the pecuniary transactions of the country ; or to prevent the 
 endless recurrence of those ruinous variations in the supply of 
 money, which we have shown to be inseparable from the pre- 
 sent system. 
 
 There may be some difference of opinion with respect to the 
 amount and species of security that should be required from the 
 country banks issuing small notes, and some little difficulty 
 might be incurred in adjusting it. It appears to us, that the se- 
 curity might most advantageously be made to consist of funded 
 property ; and that every banking company for the issue of 
 small notes, should be obliged to deposit in the hands of Go- 
 vernment as much stock as should be equal to the whole, or, at 
 the very least, to three-fourths of the entire stamps issued to 
 them, as well for large as for small notes. In order, however, 
 to guard against the effect that might be occasioned by a de- 
 cline in the price of the funds, it should be enacted, that a given 
 amount of stock should be required when the 3 per cents, were 
 at or under 60, and a greater amount according as they rose in 
 price. Thus, suppose a bank to be established for the issue of 
 all sorts of notes, when the 3 per cents, were at or under 6o, 
 they might be obliged to deliver stock to Government in secu- 
 rity equal to 15 per cent., or three-fourths of the stamps issued 
 to them. And if a bank were to be established, or additional 
 stamps issued to an old one, when the 3 per cents, were at 90 
 or upwards, a deposit of stock, equal at the then prices to the 
 whole amount of the stamps required, should be demanded ; and 
 so in proportion when the price varied between these two points, 
 which might be made the limits of the range. 
 
 By the adoption of such a plan as this, the public would have, 
 in all ordinary cases, a security equal to three-fourths of the to- 
 tal paper afloat of such country banks as issued small notes ; 
 and it is hardly conceivable, under such circumstances, that any 
 considerable loss could ever be incurred by their failure. It is 
 obvious, too, that this system would have many collateral advan- 
 tages. By obliging the bankers to increase their securities,
 
 Banking Sj/stem ofEnglatid. 29 
 
 whenever they made any considerable addition to their issues, 
 this plan would have the effect to throw very considerable ob- 
 stacles in the way of that excessive issue of paper that invari- 
 ably takes place under the present system when prices are on 
 the advance ; and would, consequently, prevent its sudden and 
 injurious contraction when prices begin to decline, or when the 
 Bank of England begins to narrow her issues. It is obvious, 
 too, that this system would exclude the possibility of any bank- 
 ing company for the issue of small notes being formed, without 
 its being possessed of considerable capital. Adventurers spe- 
 culating on the funds of others, and sharpers, whose only object 
 is to get themselves indebted to the public, would find that 
 banking was no longer a field on which they could advantage- 
 ously enter. And while the public would be protected from loss, 
 the business of banking would gain both in respectability and 
 security ; for, it is next to impossible, that such a panic could 
 ever be excited, as would occasion any thing like a general or 
 continued run on banks, who had given security for payment of 
 their issues. 
 
 It has been said, that this plan would be injurious, by lock- 
 ing up a portion of the capital of the banks; but this is plainly 
 a mistake. The only effect in this respect that it would have, 
 would be to force such banks as issued small notes, for it is to 
 such only that we would make the regulation, in the first in- 
 stance applicable, to hold a supplemental capital as a securit}', 
 over and above the capital that was equal to the conducting of 
 their business. But this supplemental capital would not be un- 
 productive. Its owners would obtain the same profit on it that 
 is realized by all other individuals who hold funded property; 
 while the fact of its being known that they were possessed of 
 this supplemental capital would, by increasing the public con- 
 fidence, enable them to conduct their business with a much 
 less supply of floating or available capital than would otherwise 
 be necessary. 
 
 With respect to the great objection to this plan — that it 
 would be an improper and unwarrantable interference with the 
 great principle of the freedom of industry — we confess we do 
 not think it entitled to the smallest weight. We respect this 
 principle as much as any one can possibly do, and are anxious 
 that it should be carried to its fullest extent. But still we think 
 with Dr Smith and Mr Ricardo, that the interference of Go- 
 vernment is not only justifiable, but that it is most properly ex- 
 erted in preventing the adoption of any system that must neces- 
 sarily lead to embarassment and disorder, in conducting the or- 
 dinary business of society, and in preventing such frauds as
 
 30 Fliicluations in the Supjjhj and Value (yf Money — 
 
 may be easily practised, and cannot be easily prevent d, except 
 by its means. We are not aware that any one has ye thoug it 
 of finding fault with the regulations enforcing an unif >rmity in 
 the same species of weights and measures. There may be, how- 
 ever, and we have no doubt there are, many individuals, who 
 would prefer manufacturing foot- rules of eleven inches in length, 
 rather than of twelve, and others who would prefer making them 
 of nine or ten ; and however oppressive it may seem to inter- 
 fere with these partialities, still it is clear that the public interest 
 is much better consulted, by keeping the foot-rule at one uni- 
 form standard, than it would be by gratifying the whims of these 
 worthy persons. Now, we hold that this principle is decisive 
 with respect to the case in question. Money is by far the 
 most imjportant of all the measures used in a state ; and if 
 it be, as it undoubtedly is, most proper and expedient, to 
 take measures for rendering all foot-rules of the same length, 
 and all bushels of the same capacity, it must be equally proper 
 and expedient to take measures to prevent any variation in the 
 measuie of value, or, which is the same thing, in the value of 
 money. The justice of this principle is obvious, and we have 
 recognised it. At present, the notes of the Bank of England, and 
 of the country banks, are prevented from circulating as money, 
 unless they are made payable on demand : and it is admitted on 
 all hands, that this is a most proper regulation. But why is it 
 proper ? — because it prevents any considerable excess of paper 
 getting into circulation, and hinders it, so long as it continues 
 to circulate, from being depreciated as compared with gold. 
 Surely, however, if it be advantageous to prevent bankers issuing 
 too much paper, it must be infinitely more so to prevent them 
 issuing paper that is altogether "doorthless, and which they have 
 neither the means nor probably the wish to pay I * But this is 
 what we have not done, — we have organized a system to pre- 
 vent a bank note from losing one-tenth of its value as com- 
 pared with gold, but we have taken no steps to prevent it 
 losing its entire value ! — we have been so much engrossed 
 with the shadow that we have had no time to bestow a thought 
 on the substance. 
 
 Those who are most inclined to question the soundness 
 of Mr Ricardo's views in other departments of economical 
 
 * Mr Tooke mentions, in his recent Tract, that it appears, by the 
 disclosures arising out of the late failures, that several of the country 
 banks had been, for some time before, insolvent, and had been kept 
 afloat merely by the confidence of their customers, and the facilities 
 of the money-market ! {5Q.)
 
 Batiking System of England. 31 
 
 science, are universally disposed to admit that he had a more 
 profound and intimate knowledge of the theory and practical 
 operation of our money system than any other individual ; and 
 there could be no more zealous and uncompromising advocate 
 of the great principle of the freedom of industry. We, there- 
 fore, feel very great pleasure in being able to quote the follow- 
 ing paragraph from his Tract, On a?i Econu7nical and Secure 
 Currency, published in 1816. It corroborates in every parti- 
 cular all that we have now advanced. — ' In the examinations to 
 
 * which medical practitioners are obliged to submit, ' says Mr 
 Ricardo, ' there is no improper interference ; for it is necessary 
 
 * to the welfare of the people, that the fact of their having re- 
 
 * quired a certain portion of knowledge respecting the diseases 
 
 * of the human frame should be ascertained and certified. ' The 
 
 * same may be said of the stamp which Government puts on 
 
 * plate and money ; it thereby prevents fraud, and saves the 
 
 * necessity of having recourse, on each purchase and sale, to 
 
 * a difficult chemical process. In examining the purity of 
 
 * drugs sold by chemists and apothecaries, the same object is 
 
 * had in view. In all these cases, the purchasers are not sup- 
 
 * posed to have, or to be able to acquire sufficient knowledge to 
 
 * guard them against deception ; and government interferes to 
 
 * do that for them which they could not do for themselves. 
 
 * But if the public require protection against the inferior 
 
 * money which might be imposed upon them by an undue mix- 
 ' ture of alloy, and which is obtained by means of the Govern- 
 
 * ment stamp when metallic money is used ; how much more 
 
 * necessary is such protection when paper money forms the 
 
 * whole, or almost the whole, of the circulating medium of the 
 
 * country ? Is it not most inconsistent that Government should 
 
 * use its power to protect the community from the loss of one 
 
 * shilling in a guinea ; at the same time that it does not interfere 
 ' to protect them from the loss of the whole twenty shillings in a 
 
 * one pound note? In the case of the Bank of England notes, a 
 ' guarantee is taken by the Government for the notes which 
 
 * the Bank issue ; and the whole capital of the Bank, amount- 
 
 * ing to more than eleven millions and a half, must be lost be- 
 
 * fore the holders of their notes can be sufferers from any im- 
 
 * prudence they may commit. Why is not the same principle 
 ' followed with respect to the country banks? What objection 
 
 * can there be against requiring of those who take upon them- 
 
 * selves the office of furnishing the public with a circulating me- 
 
 * dium, to deposit with Government an adequate security for the 
 
 * due performance of their engagements? In the use of money 
 
 * every one is a trader. Those whose habits and pursuits are
 
 32 Fluctuations in the Siipplij and Value of Money — 
 
 * little suited to explore the mechanism of trade, are obli<^ed to 
 
 * make use of money, and are no way qualified to ascertain the 
 ' solidity of the different banks whose paper is in circulation. Ac- 
 
 * cordinfTJy we find that men living on limited incomes, women, 
 
 * labourers, and mechanics of all descriptions, are often severe 
 
 * sufferers by the failure of country banks, which have lately 
 ' become frequent beyond all former example. Though I am 
 
 * by no means disposed to judge uncharitably of those who have 
 
 * occasioned so much ruin and distress to the middle and lower 
 
 * classes of the people, yet, it must be allowed by the most in- 
 
 * dulgent, that the true business of banking must be very 
 
 * much abused before it can be necessary for any bank, posses- 
 
 * sed of the most moderate funds, to fail in their engagements; 
 
 * and I believe it will be found, in by far the major part of 
 
 * these failures, that the parties can be charged with offences 
 
 * niuch more gross than those of mere imprudence and want 
 ' of caution. 
 
 ' Against this inconvenience the public should be protected, 
 
 * by requiring every country bank to deposit with Government, 
 ' or with commissioners appointed for that purpose, funded 
 
 * property or other government securities, in some proportion to 
 
 * the amount of their issues. ' p. 34-. 
 
 We have thus endeavoured to trace the circumstances which 
 led to the late crisis, and to show that they grew naturally out 
 of the system on which the business of banking is conducted in 
 England, and that, so long as that system is continued, we shall 
 unavoidably be subjected to similar revulsions. We have also 
 endeavoured to ascertain the means by which these ruinous va- 
 riations in the supply and value of money might be mosteasily 
 and effectually prevented. And we think we have said enough 
 to show, that although the repeal of the Act limiting the number 
 of partners who can enter into a private banking house, is a 
 most proper and expedient measure, still it would be altogether 
 incompetent to remedy the evils complained of, or to protect 
 the public from the injurious efl'ects of the fraud or improvidence 
 of the issuers of paper money ; and that, nothing less than the 
 suppression of all country notes under 5/., or the compelling 
 such individuals or associations as issue notes below that sum to 
 find security for their payment, can give stability to the bank- 
 ing system, and guard completely against the endless recurrence 
 of the most ruinous revulsions. 
 
 We have not learned any thing with respect to the intentions 
 of ministers on this subject ; but it is quite impossible that mat- 
 ters can be allowed to continue on their present footing ; and
 
 Banking System of England. .33 
 
 we feel assured, that Messrs Robinson and Huskisson cannot 
 be otherwise than anxious to subvert a system that exposes the 
 fortunes of individuals to such tremendous shocks, and goes 
 far to render every industrious undertaking no better than a 
 gambling speculation. This, however, is a subject that ought 
 not to be left wholly to the decision of even the most intelli- 
 gent ministers, but on which the public should speak out. — 
 There can be no doubt that a large proportion of the bankers, 
 and landholders, and all that vile brood of gamblers with which 
 London and the other great towns throughout the empire are 
 gorged, will adopt every means in their power to prolong the 
 existing system. But the opposition of these persons to the 
 change we have recommended, will be one of the strongest 
 proofs of its expediency. And if ministers do their duty, and 
 the public be not grossly deficient in theirs, the ensuing Session 
 will not be allowed to elapse without that change being effected 
 in the banking system which is so highly necessary. 
 
 Printed by the 
 Heirs of D. Willison.
 
 ■■J^SSITT^LUNOIS-UHb A"« 
 
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