Resolved, That the minimum rate of discount on bills not having more than ninety-five days to run be raised from 9 to 10 per cent.

HAMMOND CHUBB, Secretary.

The comments of the editor of "The Economist" at the time were as follows. They are found in "The Economist," May 26, 1866, and will assist the reader to understand the circumstances of the crisis.

THE PRACTICAL EFFECT OF THE ACT OF 1844.

"The main use of the law is that it compels the Bank to act at an early stage during a foreign drain of bullion. They must with the Act raise the rate of discount; they ought not to raise it without the Act. It accomplishes this end in a most effectual manner. It separates the banking reserve on which a foreign drain always acts, and therefore makes such a drain of more instant importance than it would be otherwise. The Bank is cut into two halves, and the half which feels the foreign drain has to be kept solvent without going to the half which does not feel it. Accordingly the Bank Directors must act early and promptly; if they did not, the Banking Department would be bare, as it was in 1857 and 1847, before they had aroused themselves to act as they ought. During the cotton drain the Act of 1844 worked in this manner. It made the Bank directors act whether they would or no, and so kept a large bullion reserve in the country.

"Of course the Bank directors might have been wise enough to act as promptly and wisely without any legislation. But before the Act of 1844 they did not do so. We have, rightly or wrongly, but by incurable custom and

habit, committed the custody of the Bank reserve of the country to a single establishment. Without the Act of 1844 we should have to rely on their discretion only; but the Act of 1844 makes the danger of neglecting a drain of bullion so tremendous and so palpable that no Bank directors can neglect it.

"But this advantage of the Act of 1844 is purchased at the cost of three great evils:

"1. That a panic is necessarily aggravated. It is absurd to talk of the present state of the money market as having been caused by the Act of 1844. If it had been it would have been cured by the Treasury Letter and the suspension of that Act. But it has not been so cured. The profound distrust created by diffused bad business still exists. But the Act of 1844, for a day, engendered artificial fear. As we have shown, the auxiliary credit currency, the currency of banking credit, having been impaired and injured, more notes, more primary credit currency, is wanted to supply its place. On what is called "Overend's Friday," the want of such currency was palpable, and it was given. The Act of 1844 is responsible not for the present want of credit, but for the difference between the acute agony which preceded the relief from the Treasury and the slow suffering which we still feel. Certainly, Peel's Act is a legal ligament which inflames panic into frenzy.

"2. What is of little consequence in comparison, but yet is of some: The Act of 1844 makes the quarterly payments of the dividends and the salaries very serious matters, whereas otherwise they would scarcely be felt. The banking reserve being isolated, any considerable amount

of notes withdrawn from it, even for internal purposes, makes a marked change, and unless the matter is most delicately managed by the Bank, and most heedful preparations are made beforehand, the rate of interest is raised unnecessarily. Whether a few more notes or not go out to the public is immaterial if we make up the account in the "old form," or as the accounts of the Bank of France are made up; but the loss of those notes at critical instants, is made most important by the Act of 1844.

"3. There is a danger from Sir Robert Peel's Act we now experience for the first time; its suspension is liable to cause foreign discredit. And this defect is most serious. The good of the Act of 1844 is that it compels the directors to raise the rate of interest, and so attract money from abroad. The high value of money makes foreign nations lend it to us. But as no similar legislation to the Act of 1844 prevails out of England, foreigners are puzzled by the frenzy it excites, and the necessity of an extra legal intervention to allay it. They fancy that cash payments have been suspended,—our Foreign Office has to write a letter to explain the matter. As England in times of dear money is a systematic borrower, lives on international credit, the existence of an Act which must at such times often be suspended, and which, when suspended, creates foreign suspicion, is a serious new difficulty. We never felt it before, because we never acted so well before,-never raised the rate of interest so high before.

"Such are in their barest form the defects and the merits of the Act of 1844. We have stated them in the simplest and shortest way of which they are capable, in order that

the practical men of business for whom we are writing may recognize the truth of what we say by the plain testimony of their own experience."

Besides the remarks in the "Economist" newspaper as to the danger of causing discredit of this country abroad, mentioned above, it is well to refer to the fact that "The circular issued at this time by the Earl of Clarendon then at the foreign office, in which it was stated that 'Her Majesty's Government have no reason to apprehend that there is any general want of soundness in the ordinary trade of this country which can give reasonable ground for anxiety or alarm either in this country or abroad,' only served to increase the distrust felt by foreigners."

(History of the Bank of England by A. Andréadès, professor of political science in the University of Athens, p. 361.)

CHAPTER IV.

EXTRACTS FROM EVIDENCE AND REPORTS OF COMMITTEES OF THE HOUSE OF COMMONS, 1832, 1840, 1848, AND HOUSE OF LORDS, 1847-48, ON THE DIVISION OF THE DEPARTMENTS.

The extracts referred to above give an outline of the history of the circumstances which led up to the division of the issue department and the banking department of the Bank of England and of the reasons which caused permission to be given for the suspension of the Act of 1844 in the year 1847. They are taken from various reports of Committees of the House of Commons and House of Lords and from the evidence given before those Committees. Among these I have particularly consulted the Report and Minutes of Evidence taken before the Secret Committee of the House of Commons on the Bank of England Charter (ordered to be printed August 11, 1832), the Select Committee of the House of Commons on Banks of Issue (ordered to be printed August 7, 1840), the Secret Committee of the House of Commons on Commercial Distress (ordered to be printed June 8, 1848), Appendix to the last (ordered to be printed June 8, 1848, and August 2, 1848), and the Report from the Secret Committee of the House of Lords on Commercial Distress, session 1847-48 (ordered to be reprinted February 17, 1857). The best contemporary information as to the history of the country at this period from a commercial point of view is to be found in these Reports. The Enquiry made by the Committee of the House of Lords is the most complete. The quotations I have given are scattered