1. We shall now endeavour to explain as clearly as our limits allow us - 1st. The Causes which led to the enactment of the Bank Charter Act of 1844; 2ndly. The Objects intended to be effected by that Act; 3rdly. The Mechanism devised for effecting those objects.

When the Bank of England was founded it lent all its Capital to Government, and was allowed to issue an exactly equal amount of Notes. On several subsequent occasions its Capital was increased, and at the same time it was allowed to issue an equal amount of Notes. Thus for a considerable time its power of issuing Notes was strictly limited to the amount of its Capital, and it was provided that if the Directors issued Notes exceeding the amount of their Capital they should be liable in their private capacity. Afterwards they were released from this limitation, and they were allowed to issue Notes to any amount they pleased, provided always that they were payable in specie on demand.

2. In 1797 the Bank suspended payments in cash, from causes which we need not detail here. But during the war, being endowed with the power of issuing any quantity of Notes they pleased, they gave countenance to very wild speculations, and at the same time an immense number of country banks started issuing torrents of Notes. The natural result of this was a heavy Depreciation of the Paper Currency. In February 1810, the Market, or Paper, Price of gold had risen to £4 10s., and the Foreign Exchanges had fallen to a similar extent. Guineas commonly passed for a £1 note and 6s. or 7s.

This state of matters caused such a derangement of commerce that the Bullion Committee was appointed, who came to the resolution that this effect was caused by the excessive issues of Notes. They said that the true value of the Paper was to be estimated by the Market or Paper Price of gold, and the state of the Foreign Exchanges. In former times a high price of bullion and an adverse state of the Exchanges, had compelled the Directors to reduce their issues to counteract the drain of guineas, and to preserve their own safety. Since the restriction they had not followed the same principles, as they did not feel the inconvenience. Nevertheless they ought to observe the same rules as before the restriction, and to continue to regulate their issues by the Market Price of bullion, and the state of the Foreign Exchanges.

Some proposals had been made of remedying the evil by a compulsory limitation of the Bank's power of issuing Notes. But the Committee entirely discountenanced the plan of imposing a numerical limit on the Bank's issues, because the necessary quantity could never be fixed: and such a course might very much aggravate the severity of a temporary pressure.

A very important distinction however was to be observed between a demand for gold for domestic purposes, sometimes great and sudden, and caused by a temporary failure of confidence, and a drain arising from the unfavourable state of the Foreign Exchanges: that a judicious increase of accommodation was the proper remedy for the former phenomenon: but a diminution of its issues the correct course to adopt in the latter.

The Report emphatically declared that the mere numerical amount of notes in circulation at any time was no criterion whatever of their being excessive: the only sure criterion was to be found in the Price of gold bullion and the state of the Exchanges.

3. The House of Commons, however, rejected the Report of the Committee: and the Bank being freed from all restraint, still further increased its issues, which became still more depreciated, until in August 1813, the price of gold bullion rose to £5 10s., and the real value of the note was about 14s. 2c?.

In 1814-15-16 an immense number of country banks failed, which reduced the Paper Currency to about one-half: and the effect of this was that in October 1816 the Paper Price of gold had fallen to £3 18s. 6d. Thus the truth of the principles of the Bullion Report was clearly proved.

The Bank Note was now so nearly brought to par, that in November 1816, the Bank gave notice of their intention to pay off all notes dated before the 1st of January 1812: and in April 1817, all their notes dated before the 1st of January 1816.

But in April 1817 a drain of gold began: the Bank took no measures to stop it: the Paper Price of gold began to rise and the Foreign Exchange to fall. In January 1819, the Paper Price of gold was £4 3s., and the Exchange on Paris 23·50: the Bank would have been very soon drained of all its gold: and an Act was passed in April 1819 forbidding the Bank to make any payments in gold whatever.

4. The Bullion Report had been contumeliously rejected by Parliament: but it had been vehemently discussed by the press, and in 1819 it had entirely converted the mercantile world. The evidence given in its favour in 1819 was just as strong, as it had been adverse in 1810: and among other persons, it converted Peel, the chairman of the Commons' Committee in 1819, who said in his speech that there was no test of the excess or deficiency of the notes but a comparison with the price of gold. He also resisted the imposition of a limit on the issues of the Bank as a very unwise position, because there were occasions when what was called a run on the Bank might be arrested in its injurious effects by an increase of its issues. It was, therefore, impossible to prescribe any specific limitation of issues to be brought into operation at any period how remote so ever.

An Act was passed in 1819, commonly called Peel's Act, that the Acts in force for restraining cash payments should be continued till the 1st May 1823, when they were finally to cease. During the intervening period they might pay in bars or ingots of gold bullion of 60 oz. at certain prices: after the 1st of May 1823, they were to pay in gold coin as usual. This was Peel's Act which has been so much talked about: but it never came into operation at all. In 1821 the Directors having accumulated a large amount of treasure procured an Act by which they were allowed to resume cash payments on the 1st May 1821.