demands, and a rise in the rate of discount is the only way in which such demands can be effectually resisted.

The close connexion between the rate of discount and the rate of the foreign exchanges has already been noticed. When the rate of discount is low money is cheap, and gold tends to go and to stay where money is dear, for where it is cheap people borrow freely for commercial purposes, large numbers of bills are sent to be discounted, and money flows rapidly out of the country. The rate of exchange, however, is affected by the balance of trade-that is, by the quantity of imports as compared with exports—as well as by the price of money, and for this reason and as a result of the conditions of trade the exchanges are generally favourable to England. "England is the place of settlement for the whole world; what is wanting in India, in the Brazils, etc., gets settled here; and suppose you import iron from Sweden-if you receive £1,000 worth of iron and manufacture it you will then get £10,000 for it, and then, when it is manufactured, it is sent to all the world. Suppose you get cotton from America-the cotton costs there 3d. or 6d. per pound, but when it is manufactured that pound of cotton is worth four times as much. In the regular course of things the exchanges with every country must be in favour of this." England is no longer the only great workshop of the world, as it was when Rothschild wrote this passage in 1832, but it is still far the greatest shop, emporium, bank, and storehouse of capital and credit. Hence it always imports far more than it exports, the difference being made up by what are known as "invisible exports" in the shape of credit and loans on which other countries have to pay interest, and by the profits of the carrying trade.

The management of the Bank is under the control of the Directors, who form the Bank Court and who are practically appointed by co-option, though they are nominally

chosen by the proprietors. The Directors are generally members of leading London firms; they are not bankers themselves, and the qualification required is merely the possession of £2,000 worth of Bank stock. The Governor of the Bank, who holds office for two years, is generally one of the senior members of the Board of Directors; he must have served two years previously as deputy governor, and after his term of office is over he retires into the Committee of the Treasury, whose work it is to advise the Governor. It is complained that the element of permanence is wanting in this system, and that it is not wise to give the control of the Bank to a body of amateurs who cannot give their whole time and attention to the work and whose composition is constantly changing; and it has been suggested that though it might be dangerous to give the post of Governor to a permanent official, because of the enormous influence he might be able to wield, it would be quite possible and probably advantageous to have a permanent official in the post of deputy governor. The close connexion between the Government and the Bank has also given rise to adverse criticism. The Bank is not a State institution, but it was created by State aid, and as it is the bank in which the Government funds are deposited, the Government has an interest in its security. The idea that the Bank could always depend on Government support in times of crisis. has perhaps led people to attach less importance than they might to the serious disproportion between its reserve and its liabilities. The Bank acts, in fact, in two capacities— as a national bank which ought to be managed solely in the public interest, and as a private company which has to consider the interests of its shareholders—and these two aspects of its functions are to a certain extent antagonistic. In the national interests the security of the Bank should be safeguarded as far as possible by maintaining a sufficient reserve, whilst on the other hand, this

policy, by keeping a large stock of money in the Bank vaults, which is consequently unremunerative, reduces the dividends to be paid to the shareholders.

Notwithstanding the criticism that has been brought against the Bank and against some of the main principles of the Act of 1844, yet its work has gone on steadily since that time, and of late years without the catastrophes and recurrent periods of crisis that marked the early and middle parts of the nineteenth century. "From 1870 to the present day England and the Bank of England have been successful in playing their part without a suspension of the Act of 1844, and this during a quarter of a century characterized by activity of business and by financial and commercial crises. The Bank has always been able, in fact, to supply gold to those who demanded it, not only to settle extraordinary purchases of cereals and commodities, but for foreign loans and investments. All that it has done has been to charge more highly for the gold at certain times. Under the influence of general conditions, and also of the Act of 1844, the position of the Bank of England has become much more definite. Strictly speaking, it does not supply credit facilities. Its function is to be the general repository for the cash reserve of British trade and finance, and even ultimately of the trade and finance of the world" (Leroy Beaulieu).

CHAPTER XIII

BIMETALLISM IN THE NINETEENTH CENTURY

UNTIL the nineteenth century there had been, since the discoveries of the sixteenth century, considerable steadiness and uniformity in the production of the precious metals. Throughout this period the production of silver had been much greater than that of gold, for, though after the middle of the seventeenth century the yield of the Potosi mines had decreased, larger supplies were coming from Mexico. Towards the end of the seventeenth century more gold was obtained from Brazil, but it was not until the middle of the nineteenth century that any great increase in production took place. At that time the discoveries of gold in California and Australia added enormously to the gold supplies of the world, and between the years 1850 and 1880 as much was produced as in the three and a half centuries before. The amount was greatest between the years 1852 and 1856, when the value of the average annual production was estimated at £29,000,000; from 1857 to 1861 the average value was £25,000,000, and then it gradually decreased, until between 1881 and 1890 it had fallen to £21,738,000. Since that time it has increased again, partly as a result of the application of the cyanide process, which enabled otherwise unremunerative mines to be worked with profit, partly because the gold supply is now drawn from so many different sources— from the Transvaal and the Klondike, India and British Guiana, as well as from Australasia and the United States.

In 1892 the value of the gold production of the world was again over £29,000,000, in 1896 it was £41,539,355, in 1903 £68,440,000, and between 1899 and 1908 it averaged £54,740,000 a year.

The increase in the production of gold caused a distinct, though moderate, rise of prices, and it was estimated that gold fell in value about 9 per cent. Prices, which had ranged high in the early years of the nineteenth century, had fallen after 1818, and had reached their lowest point between the years 1849 and 1852. The average prices for the year 1858 were 18 per cent. above those for 1852, and Jevons estimates that between the years 1849 and 1865 the average rise was 21 per cent. It is difficult, however, to determine the exact part played by the increased gold supply in the movements of prices, because they were affected probably to a greater extent by other economic conditions. The great industrial development, the decreased cost of production, the increase of population, would all have tended, if there had been no counterbalancing cause, to bring about a fall of prices, and the result of the gold discoveries was to neutralize the effects of the industrial and commercial expansion; hence the rise, though distinct, was not great.

The relative value of gold and silver was only slightly affected by the gold discoveries. The average market price of silver had for the ten years before 1850 been a little over 4s. IId. per ounce, and between 1850 and 1860 it had only risen by about 24d., the average price for the decade being 5s. 1 d. per ounce. This was due partly to the causes already mentioned, which prevented any great general rise of prices, partly to the fact that gold and silver are to a certain extent interchangeable, and consequently, as gold fell in value, it was for some purposes substituted for silver. A very marked and rapid change in the gold value of silver was, however, caused by the great increase in the production of silver after 1870. As a