NOTE. All per contra entries, as those of the notes of the banks held by themselves, etc., are omitted so as to show the real position of the accounts.

a Bills in Belgium, £19,738,332; foreign bills, £7,421,639. Total, £27,159,971. NOTE.- -All per contra entries, as those of the notes of the banks held by themselves, etc., are omitted so as to show the real position of the accounts.

I will now endeavor to explain the reasons which induced Sir Robert Peel, who was the author of the Bank Acts of 1844-45, the acts which, as far as the issue of notes is concerned, govern the banking system of the United Kingdom at the present date-and incidentally the amount of the notes held in the Banking Department, which forms the reserve of the Bank of England-to make this alteration and to overcome, as he had to do, all the objections which were felt by most of the business men and the economists of his time to the great change that he thus introduced in the method of the statement of the accounts

of the Bank of England, which is the very center and heart of the banking system of Great Britain. The division of the two departments is not only the outward sign of a great change in the method of conducting one large portion of its business, which Sir R. Peel introduced, but it provides the machinery by which that change is carried into effect—a change which affects the course of business in a very material way.

The primary reason which induced Sir Robert Peel to adopt this arrangement is to be found in the fact that he was a great supporter of that form of opinion respecting the influence of the paper currency of the country on business in general, which is known under the name of the "Currency principle." As the expressions of opinion on this point go back to a period considerably earlier than the introduction of the Bank Act, and many years have hence passed since this subject was originally discussed by business men and economists, it will be necessary to explain the meaning of the term before proceeding further. One of the best descriptions of the theory is to be found in the "Investigations in Currency and Finance" of Prof. W. Stanley Jevons, published in 1884. The currency theory, he states, "attributes every fluctuation of prices to an extension of the bank-note circulation" (p. 33). Jevons refers (p. 107 of the same book) to the subject again: "It was the mistaken notion of some few persons that convertible Bank notes might have a peculiar efficacy in regulating prices and sowing the seeds of fluctuations." Although those who held this opinion were at that period comparatively few in number, they were

sufficiently powerful to cause their opinions to influence the legislation of the time. Another description, given by Mr. William Newmarch in his address as president of the Section of Economic Science, at the meeting of the British Association, Manchester, 1861, will also be of service, as it puts the subject before us from a different point of view. "There used to be received, with scarcely any dissentients, three principal doctrines relating to a Convertible Paper Currency. It used to be held that fluctuations in the amount of bank notes in the hands of the public operated in some direct manner on prices—that consequently the convertible paper currency must be properly regulated, so that vicious fluctuations of prices might be prevented-and thirdly, that what were called appreciation and depreciation of the currency," and not the operations of supply and demand, and capital and credit, govern the foreign exchanges and produce overtrading and lead to financial disasters and panics."

"But," Mr. Newmarch continues, "by a persevering and systematic application of the test of observation and experiment, it has been proved, by evidence so extensive and various that we may well claim for it the force ® of a demonstration-first, that fluctuations in the amount of a paper circulation strictly convertible into coin does not govern prices at all, but that prices are governed by supply and demand, and by operations of capital and credit. Second, that due and rigid enforcement of cash payment is the only wholesome regulation which a paper

a In speaking thus of the "appreciation and depreciation of the currency,” Mr. Newmarch obviously referred to what he had just mentioned, "the convertible paper currency.”

circulation requires—and, thirdly, that bank notes are no more than the mere small change of the ledger, and that the phenomena which are really worth attention are not infinitesimal fluctuations in the amount of bank notes, but changes in the rate of interest." (Address of Mr. William Newmarch, printed in the Journal of the Statistical Society of London, December, 1861, vol. xxiv, pp. 463-464.) The importance of this treatise is recognized by foreigners as well as by our own authorities. In reference to this I have quoted further on the opinions of Dr. N. G. Pierson, the well-known Dutch economist, who was at one time Governor of the Bank of the Netherlands, on the subject.

I have described above the general principles which those who held the currency principle or theory maintained. It now remains to explain the opinions of those who held the "banking principle." To describe this we shall in the first place quote from the writings of Mr. Thomas Tooke, who maintains "that the theory of the currency principle, according to the exposition of its promulgators, involves the error of confounding convertible with inconvertible paper; as regards its issue, and its effects in circulation up to the point of its convertibility."

Mr. Tooke continues: "By the same authorities it is assumed, as an axiom, that a purely metallic circulation is the type or model of a perfect currency; and that, therefore, a mixed circulation of coin and paper ought to be made to conform in amount to the same variations as would be incidental to a purely metallic currency. I, and those who with me are opposed to the doctrine of the

currency theory, as adopted by Sir Robert Peel and embodied in the act of 1844, readily admit so much of it as relates to this assumption." With regard to the banking system Mr. Tooke says: "We are willing to consider a metallic currency as the type of that to which our mixed circulation of coin and paper ought to conform; but, further, we contend that it has so conformed, and must so conform, while the paper is strictly convertible." (Tooke's History of Prices, vol. iv, p. 218.)

Having thus given a rough sketch of the two theories respecting the issue of notes which prevailed in the time of Sir Robert Peel, of which the one which is termed the "Currency Theory" is, as mentioned before, the basis of the Bank Act of 1844, I will go on with the history of the changes which he made in the management of the Bank of England.

The discussions respecting the separation of the two departments of the note issue and of banking, which took place in the year 1844, go back at least as far as 1832, 1836, and 1837.

The particular form according to which the restrictions of the note circulation of the Bank of England was carried out in the Act of 1844 had been thought of several years earlier by the directors of the Bank of England, as is shown in the extracts from their evidence given before committees of the House of Commons which follow.

There had been at a somewhat earlier date much fluctuation in money matters, partly arising from the disturbed state of Europe toward the close of the