The landing of a French frigate in one of the Welsh harbors and orders from the government to the farmers to drive their stock into the interior, caused a run upon the Bank of England which finally brought the long dreaded catastrophe of suspension of payment in coin. The bank had been making frantic efforts for several weeks to contract their issues and had reduced them from £10,550,830 on January 21, 1797, to £8,640,250 on February 25th, but their cash was reduced on the latter date to £1,272,000. The cabinet met the next day, which was Sunday, and issued an Order in Council, "That the directors of the Bank of England should forbear issuing any cash in payment until the sense of Parliament can be taken." A meeting of merchants was held on Monday, with the Lord Mayor in the chair, which adopted a resolution similar to that adopted on the successes of the Pretender in Scotland in 1745, that “ we will not refuse to receive banknotes in payment of any sum of money to be paid us, and we will use our utmost endeavors to make all our payments in the same manner." A select committee was appointed. by Parliament to inquire into the bank's affairs, and found them in a prosperous condition except for the scarcity of coin and bullion. Their assets were £17,597,280, representing a surplus of £3,826,890, exclusive of the government debt of £11,686,800, which paid three per cent. Suspension of payments was enacted until June 24th and the bank was authorized to issue notes under £5. The bank-notes were made legal tender and were to be received at par in the payment of taxes. The bank was authorized to receive special deposits in coin in exchange for notes and to repay three-fourths of the amount in coin if demanded. The restriction was prolonged on June 22d to one month after the meeting of the next session of Parliament and was again prolonged on November 30th, at the next session, until six months after the conclusion of a definitive treaty of peace.

The policy of the bank in restricting commercial discounts, though forced upon it in a measure by the demands of the

1 Levi, 74.

government, was the cause of serious complaint in the mercantile community and led to much discussion of other methods of meeting the demand for credit. The bank refused to establish branches in the country and their charter prohibited any other strong company from doing so. The very policy of restricting their issues in the autumn of 1796, which the directors regarded as a measure of extreme precaution, intensified the demand for gold by creating a scarcity of currency which led to the withdrawal of gold by depositors. The irritation among the merchants was such that a meeting was held in London Tavern on April 2, 1796, which appointed a committee to devise a plan to restore the circulating medium, if practicable without infringing the monopoly of the bank. Mr. Walter Boyd, an eminent merchant, drew up a report on behalf of the committee, authorizing a board of twenty-five members to be named by Parliament to issue circulating promissory notes upon deposits of coin, bankbills, and commercial paper.' The committee were persuaded by the Chancellor of the Exchequer to delay action and nothing ever came of their plan, but it was the opinion of Mr. Boyd that the public stocks suffered as well as commercial paper by the scarcity of currency and the necessity of forced sales of securities to obtain it. Sir William Pulteney, during the debate on the bill authorizing the suspension of cash payments, asked leave to bring in a bill for another bank if the Bank of England did not resume on June 24, 1797, as was then proposed. The proposition was defeated at the time but gained such strength within the next two years that public meetings were held and pamphlets written in its support. The bank directors became alarmed, and as government was still pressing for money, they offered £3,000,ooo without interest for six years as the price of a renewal of the charter. Mr. Pitt accepted the terms and passed a bill in 1800 extending the monopoly of the bank for twentyone years after 1812, or until 1833.

1 MacLeod, Theory and Practice of Banking, I., 523.

CHAPTER V.

SECOND CENTURY OF THE BANK OF ENGLAND.

The Continued Suspension of Specie Payments-The Bullion Report and the Act of 1819-The Contest against the Monopoly of the Bank of England and the Rise of the Joint Stock Banks-The Bank Act of 1844—Theory of its Operation and its Failure to Carry Out the Theory-The Recent Accumulation of Gold in the Bank.

TH

HE great events of the second century of the history of the Bank of England have been the resumption of cash payments, the restriction of circulation by the Bank Act of 1844, and the recent accumulation of gold in the custody of the bank. The Act of 1844 has been the turning point of almost infinite discussion of the theory and practice of banking in England, but, whatever its merits or defects, it has not destroyed the character of the Bank of England as the guardian of the cash reserve of the country, nor prevented London from becoming the centre of the exchanges of the world. Freedom from danger of invasion, the development of banking and credit beyond any point attained elsewhere, a market free to the world's commerce, and a single fixed standard of value have raised England to supremacy among commercial countries and linked the history of her financial progress in some degree with that of all other nations.

The British nation was far from her present position at the close of the Napoleonic wars. Political and military triumphs had come to her, but they had been at the expense of the crippling of her merchant marine, the increase of her

debt to $4,000,000,000, and the suspension of payments in specie. The Bank of England by prudent management kept its notes for several years at par with coin and the depreciation was at first so gradual as hardly to be noticed. One of the elements of confusion in the discussion of the effect of the restriction of specie payments was the fact that bank-notes became the sole medium of ordinary transactions. The issue of L1 notes by the bank drove the gold from circulation even before the depreciation of the paper and made metal only a subsidiary money. If an effort had been made to keep the circulation saturated with coin by continuing the prohibition upon notes below £5, the depreciation of the paper would have been quickly felt by the disappearance of gold and accurately measured by the premium upon gold. The fact that the paper was maintained at a substantial parity with gold for nearly ten years while gold disappeared from circulation, misled those who did not look to the simple and indisputable facts regarding the foreign exchanges which were stated in the celebrated Bullion Report of 1810. Silver had been rapidly disappearing from circulation for some years, because the English mint ratio gave it a less value in relation to gold than the market price. The country bankers were authorized by the restriction laws to redeem their notes in Bank of England notes in exactly the same manner as they had formerly done in specie, so that the expansion and contraction of the country note issues was in a measure placed in the hands of the central bank as well as the control of its own circulation.

Bullion rapidly accumulated in the bank after the suspension of specie payments and the bank announced their willingness on January 3, 1799, to redeem sums under £5 and to pay in full after February 1st, notes for £1 and £2, dated prior to July 1, 1798. The bank then held £7,000,000 in coin and bullion and had increased its note issues to £16,000,000. The government were not willing to take the risk of resumption. and continued the restriction even after the peace of Amiens,

1 Gilbart I., 49.

when the bank again declared that it was well supplied with cash and was ready to resume. A bill was brought in on April 9, 1802, only thirteen days after the signature of the definitive treaty, to continue the restriction until March 1, 1803, and the restriction was continued again on February 28, 1803, until six weeks after the beginning of the next session of Parliament. War broke out before this date arrived and the restriction was continued until six months after the ratification of a definitive treaty of peace. No such treaty was ratified until after the abdication of Napoleon in the spring of 1814, when the problem of restriction was again taken up.

The price of gold began to rise in September, 1799, and in June, 1800, had reached £4 5s. per ounce, which was about seven shillings above the mint price.' Exchange with Hamburg fell and the unfavorable state of the exchanges was made an excuse for postponing the resumption of specie payments after the peace of Amiens. The fact that the unfavorable exchange was due to the depreciation of the currency was denied or evaded by the Parliamentary leaders and Mr. Addington, the Chancellor of the Exchequer, urged that the restriction be continued because, " for several months past, there has been a trade carried on for purchase of guineas with a view to exportation."

1 The mint price of gold was £3 17s. 101⁄2d., which was four and a half pence above the market price, in order to cover the cost of coinage and the loss of interest while the bullion was detained in the mint. The value of gold coins was fixed as they exist to-day in 1717, when it became necessary, upon the recommendation of Sir Isaac Newton, to reduce the coining value of the gold in the guinea to arrest the exportation of silver. The reduction made the ratio of gold to silver about fifteen and a quarter to one, but as the ratio in France and Holland was about fourteen and a half, it continued to be profitable to export silver from England to those countries and to import gold into England. Silver disappeared from circulation, gold became the sole metallic medium of exchange, because it was the cheaper metal at the legal ratio, and the law of 1816, which gave England the gold standard, simply recognized in law what had been the fact prior to the suspension of cash payments.