adhered to; and doubts have been expressed as to the soundness of its principle, as applicable to the Bank of England, from its mixing up deposits and circulation. It appears, however, at the same time, from the following questions and answers in Mr. Norman's evidence, that the Bank Directors conceive that this rule has received some sort of legislative sanction, in consequence of which they feel bound to adhere to it, as nearly as circumstances will permit, and that on a particular occasion they were fettered by this impression:

1890. Referring to the accounts of the Bank, does it not appear that the drain, in the first quarter of 1839, fell almost entirely on the deposits of the Bank, and in no degree upon the circulation?

I believe that it fell almost wholly upon the deposits. 1891. The effect, then, which you anticipated in a former part of your evidence, from any reduction of circulation during a drain, did not take place during that quarter? No, not to any considerable extent.

1892. Would it not have been expedient that the Bank should in that quarter have taken some further measures for the reduction of the circulation, looking to the rapid drain which was going on?

The Bank considered itself at that time bound to adhere as nearly as it could to the principle of holding a fixed amount of securities, that principle having been to a certain extent recognized by the legislature and the public; but, if I am asked now, with my present experience, whether it would not have been wise in the Bank to have taken earlier measures, I must say that I think it would have been wise so to do.

Without entering into the question either of the soundness of the rule, or of the degree of sanction which it may

be supposed to have received from the Legislature, your Committee are clearly of opinion that such an impression on the part of the Directors of the Bank of England ought not to prevent them from adopting any other principle of management which, after their further experience, and upon mature consideration, they may consider to be better adapted for the primary object of preserving, under all circumstances, the convertibility of their notes." AUGUST 7, 1840.

EXTRACT FROM EVIDENCE, SECRET COMMITTEE ON COMMER

CIAL DISTRESS, HOUSE OF COMMONS, 1848.

[The next occasion when these questions came under notice was after the crisis of 1847. The quotations which follow are from the evidence given before the above-named committee. The questioner was Mr. James Wilson, the founder of the Economist newspaper; the answers by Mr. S. Jones Loyd, a leading Banker in London.]

5206. Seeing that formerly the Bank was obliged to pay its notes in bullion, if the Bank had paid proper attention to the obligation that it had to pay those notes, and not to stop payment, would not the Bank's holding at all times a sufficient reserve of gold practically have had the same operation upon the action of the Bank as the operation of the Act of 1844?

The gist of the question turns entirely upon the supposition involved in it, viz, that the Bank paid proper attention to the obligation which it had to pay its notes, and under that supposition it is perfectly true that the operation would be the same as under the Act of 1844; and that at once brings out the distinction between the Act of 1844 and the previous system. The Act of 1819 ordained specie payments, but it took no measures toward securing or carrying out that ordinance. Then the Act of 1844

rendered compulsory the measures which were necessary for securing the convertibility of the notes; if, therefore, you put a case which involves the supposition that the Bank previously did all that it was right for them to do to carry out the Act of 1819, then upon that supposition the course of things preceding the Act of 1844 will be identical with the course of things under the Act of 1844; but we had repeated experience that that could not be relied upon, and that the Bank repeatedly failed in doing what was wise and necessary, and that caused the passing of the Act of 1844. The Act of 1844 is based upon the assumption that repeated experience had proved that that which it was wise and necessary to do in order to secure specie payments had not been done, and it was passed to secure that henceforth it should be done,

5207. Then the Act was passed with a view to make the Bank of England do, under the Act of Parliament, that which they had not formerly done, in the exercise of a wise discretion?

It was passed for the purpose of securing by law the proper course being taken for protecting the convertibility of the, note, which we had found, by previous experience, could not be safely intrusted to any discretionary action.

EXTRACT FROM EVIDENCE, SECRET COMMITTEE OF THE HOUSE OF LORDS, COMMERCIAL DISTRESS, 1847-48.

[The Questioner was the Lord President, Henry, Marquess of Lansdowne; the answers by Mr. John Horsley Palmer, a Director of the Bank of England, and formerly Governor.]

730. The Act of 1844 prescribes the same Rule of Action to the Bank whether the Foreign Exchanges are in favor or whether the Foreign Exchanges are against the Country?

Certainly.

731. Do you, from your Experience connected with this Subject, conceive that it is defensible in reasoning or maintainable in Practice that in managing the Bank the same Rule should be applied to the Case whether the Foreign Exchanges be favorable to the Country or adverse to the Country?

I think it is always in the Power of the Bank to protect itself against a Foreign Demand, but it is totally impossible to protect itself against an internal Demand.

732. The Question is with respect to the Restriction imposed upon your Issues for the Accommodation of the Public, whether you think that it is defensible in Theory or maintainable in Practice that you should have the same Rule in managing the Bank when the Exchanges are adverse and when the Exchanges are favorable? Certainly not.

733. Then in that respect you consider the Act of 1844 to be defective?

Manifestly defective.

EXTRACT FROM EVIDENCE, SECRET COMMITTEE OF THE HOUSE OF LORDS ON COMMERCIAL DISTRESS, 1847–48.

[The Questioner was the Lord President, Henry, Marquess of Lansdowne; answer by Mr. James Morris, Governor of the Bank of England.]

32. Do you think that the Act began to have any Operation upon the practical working of the Bank when the Distress of 1847 began?

Mr. J. MORRIS. I think we worked the Bank upon the System established by the Act of 1844 ever since 1840, though the Accounts were mixed up, because there was no Act of Parliament obliging us to separate them; but, for our own Guidance, there was a Separation. But I maintain that it was not necessary for the Bank of England in the Management of its Affairs to have this Act of Parlia

ment. I maintain that the Bank was bound to act upon the Principle laid down in the Act even though the Act had not existed. I stated so at the time the Act was passed. But I have no doubt that the Government was right in passing it, as a Security for the Public; but it did not establish any new Principle.

EXTRACT FROM EVIDENCE, SECRET COMMITTEE OF THE HOUSE OF LORDS ON COMMERCIAL DISTRESS, 1847–48.

[The Questioner was the Lord President, Henry, Marquess of Lansdowne; answers by Mr. John Horsley Palmer, a Director of the Bank of England, and formerly Governor.]

740. Then does it not follow from the Evidence that you have given that a totally different and opposite Mode of Treatment ought to be observed in the Management of the Currency in those Two cases, comprising a Foreign Efflux and a Home Demand?

I consider that against Foreign Demand there is, as I have already said, no Remedy so effective as an Advance of the Rate of Interest. In the Case of a Home Demand, there would be no just Cause for raising the Rate while the Circulation might be maintained, and even increased, by Accommodation given upon substantial and good Security. In case of a Home Demand, in a Time of Distress of the Nature which occurred in October last, there is a general Abstraction of the circulating Medium, and it is to meet a Demand arising from that Abstraction that the Bank necessarily is applied to, when it can, with perfect Safety to itself, give the Assistance without increasing its Rate of Interest.

741. Is not the Effect of the Act of 1844, under those Circumstances, to deprive the Bank altogether of its free Agency in giving that Accommodation which you think it could under such Circumstances give with Safety to itself? Certainly.