country bankers to continue the issuing of notes "under 57. until the expiration of the Bank Charter in "1833. As the law previously stood, these notes were "prohibited on the resumption of cash payments by "the Bank. The Directors made the following refe "rence to this subject, in a memorandum they deli"vered to the Parliamentary Committee of 1832:"

"By the resolution of the House of Commons of 1819, the Bank were required, within four years, to pay off in gold the amount of their one-pound notes then in circulation (about 7,500,000l.); further, to provide the coin for paying off the country small notes in 1825 (about seven or eight millions more); in addition to which, the necessity was imposed of providing the requisite surplus bullion for insuring the convertibility of all their liabilities, which addition of bullion to their then stock, could not be estimated at less than 5,000,000l., making in the aggregate 20,000,000l. of gold, as necessary to be provided from foreign countries, within the space of four years from 1819.

"That supply of gold could only be purchased by reduced prices of commodities; the Bank withdrawing a given amount of securities, in the first instance, the notes for which might be re-issued in payment of the gold as imported. The low prices and general state of trade from 1819 to 1821, and the withdrawal of the Bank's securities, enabled the Bank to cancel their small notes in the latter year, and in the following (1822), three years prior to the time fixed by Parliament, they were in a situation to furnish the gold for paying off the country small notes, when, without any communication with the Bank, the Government thought proper to authorise a continuance of the circulation of country small notes until 1833. The consequence of that measure was, to leave in the possession of the Bank an inordinate quantity of bullion (14,200,000l. in January 1824), and further to afford the power of extension to the country bankers' issues, which, it is believed, were greatly extended from 1823 to 1825."

We are informed, by the above memorandum, that the supply of gold could only be purchased by reduced prices of commodities;" and that the low prices and general state of trade from 1819 to 1821, and the withdrawal of Bank securities, enabled the Bank to cancel their small notes in the latter year; and in the following year (1822), three years before the time fixed by Parliament, they were in a situation to furnish gold for paying off the country small notes;

bullion for insuring the convertibility of all their liabilities; altogether amounting to 20,000,000l.

Horsley Palmer, Esq., Governor of the Bank (Evidence, p. 21. 723.):

"There is no means of supplying the Bank with gold, excepting only the diminution of the amount of Bank notes, which immediately contracts the currency, and lowers prices, by increasing the value of money."

P. 18. (28.):

"The Bank of England being conducted on safe and certain principles, has nothing to fear from foreign demand. No caution, no prudence, no principle of management, can render it entirely safe from being drained of its specie, by internal panic or political discredit."

In the memorandum, it is said, "the supply of gold could only be purchased by reduced prices of commodities." It seems to me a strange expression to purchase by "reduced prices of commodities." To purchase with commodities at reduced prices, might raise the inquiry, What commodities? But the Bank has no commodities wherewith to purchase. In the words of Adam Smith (b. ii. c. 5. v. ii. p. 138.):—

"This gold and silver, like the tobacco of Virginia, must have been purchased with something that either was the produce of the industry of the country, or that had been purchased with something else that was so."

But the Bank purchases the gold and silver without any produce of industry of its own. Still, some one must have paid with commodities for the gold and silver, from which sort of payment the Bank is exempt.

It is said that "the Bank of England, being conducted on safe and certain principles, has nothing to fear from foreign demand." What are those "safe and certain principles?" Are they not stated to consist in the judicious exercise of the power to lower prices, when the occasion may require, by a control over the currency, by the diminution of the amount of bank notes "in circulation ?"

At a later period, in a pamphlet by J. Horsley Palmer, Esq., the following passage occurs, p. 23.:

"We must keep in mind that England is the centre of the whole commerce of England and America, if not the world; and any hasty or unnecessary step taken, will not only affect the credit and prices of this country, but, to a certain degree, those of all parts of the continent, from whence we are to obtain that bullion which we have lost. The causes of that loss, so seriously affecting the credit and commercial transactions of the country, demands the closest investigation. The fall in price of almost all the leading articles of raw produce (sugar, coffee, tea, silk, cotton, piece goods, metals, drugs, &c.), from the 1st of July last, when the rate of interest was first advanced, has not been less than from 20 to 30 per cent."

Whether the Bank of England contracts the circulation, or, by raising the rate of discount, shocks the commercial credit, both operations have one object in view, which is, by lowering prices, to bring back the gold to the coffers of the Bank.

The Governor of the Bank of England states his opinion, that circumstances may arise, when it may be impossible for the Bank to retain the specie; namely, "an internal panic or political discredit;" and that the only way to procure bullion is to lower prices; and that a fall of 20 to 30 per cent. took place in the prices of the leading articles of commerce after the Bank raised the rate of discount.

If, on the return to cash payments, the general state of trade and low prices, from 1819 to 1821, enabled the Bank to acquire bullion to the extent of twenty millions, is it not fair to conclude that the action of the Bank may have contributed to produce the depression? This state of things enabled the Bank to meet its engagements three years before the time fixed by the Government. It is certain that, if not the proximate cause, the Bank was the original cause of much of this distress: if the Bank had not suspended payments, this reaction would not have occurred. It may appear to some extraordinary that

Causes and Consequences of the Pressure upon the Money Market. By J. Horsley Palmer, Esq. London. 1837.

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the Bank could procure the bullion three years be fore the stipulated time; but the greater the shock to credit, the greater the depression of trade and the lower the prices, the more intense the effect on the value of commodities the more unprofitable is commerce, and the less employment there will be for the two instruments of commerce-credit and bullion. The Governor expresses himself alarmed at the loss of bullion which the Bank had sustained, and at the effect it might have upon credit and prices; the Governor does not contemplate the power of the Bank of England to repair its loss from its own property, but from the low prices of the commodities of other people. Was it not to uphold the credit of the Bank, and not to uphold "public and private credit"? Public and private credit would not be strengthened by reduced prices of commodities, by a loss to the owners of those commodities of 20 to 30 per cent.; but unprofitable traffic would occasion a stagnation of commerce, and the unemployed bullion would flow into the coffers of the Bank, and the exportation of gold would cease: and it ought to be clearly understood, that the interest of the Bank is not, in this proceeding, identified with the interest of the merchants and manufacturers: it can never be the interest of the latter, that the prices of merchandise should be lowered by an operation quite independent of supply and demand

In the commercial concerns of this country, a party is introduced whose interest, as bankers, may be quite distinct from the interest of the country, and upon whose operations may depend the prosperity or misfortune of the trading community, and indirectly acting upon the commerce of the whole world. The gold may be wanted by foreign Governments in case of war, or on account of financial operations of states, as was the case with America; or in the legitimate use of bullion for the purposes of the roundabout foreign trade, as explained in a former part of this treatise, having no connection with the credit

of Bank of England notes, or of commercial credit generally.

It is quite clear that the Bank of England gave no equivalent for the fourteen millions of gold which they held in January 1824; this "inordinate quantity of bullion" was imported by the great mercantile republic, and was deposited in the Bank of England, as any other foreign commodity might have been deposited in a bonded warehouse, waiting till a demand should arise for it. The Bank had given a solemn undertaking, in the shape of Bank notes, or a credit, that they would restore it on demand. When the Bank withdrew their small notes from circulation, and gave gold in exchange, they did not cancel their debt, or in any degree lessen it. They owed still the same sum, but to a different party. They owed it in the form of credits which they had given, or bank notes which they had given, that is, promises to pay the gold on demand. They took the gold imported by the "great mercantile republic," and with it fulfilled their contract with the "British public." They withdrew the gold from international circulation, and locked it up in the national circulation; and for the gold which should have supplied the demand for the international circulation, were substituted, by means of the low price, the produce and manufactures of the merchants and manufacturers.

The bullion employed in the round-about foreign trade of consumption by the great mercantile republic, the international traders of all nations, is not only a safety fund, but it is also a corrective fund. In a period of very high prices from speculation or other causes not connected with the cost of production, the bullion is exported instead of commodities, and this cessation of demand occasions a fall in the prices, at the same time that the influx of commodities is checked by the reduced demand and lower scale of prices. In a state of unnaturally depressed prices, the influx of bullion, instead of commodities, lessens the supply, and tends to raise the prices of those com