Now the weak point in the Act of 1844 is that it takes no notice of this grand principle: it takes no precaution that the Directors of the Bank of England shall recognise it, and counteract it. On the contrary it leaves them in full power to repeat their oft committed error of causing a depreciation of the Currency from an unnaturally low Rate of Discount. And thus the fundamental vice of the Bank Act of 1844 is exactly the same as Lord Overstone said was the fundamental vice of the Bank principle of 1832. The whole of the gold may be drawn out of the Bank without withdrawing a single Note from circulation, i.e. from the hands of the public.

11. This principle was extremely little understood in 1856, when our work was published; but its truth was soon signally verified and acknowledged to be true by the most competent authorities. After the great crisis of 1857, a Committee of the House of Commons was appointed to investigate its causes, and Mr. Norman, a Director of the Bank of England, and one of the most prominent and influential advocates of the "Currency Principle" and of the Bank Act of 1844 was asked -

Q. 3529. Is it not principally by raising the Rate of Interest that you check the amount of discounts which may be demanded of you ? - Yes: we have found, contrary to what would have been anticipated, that the power we possess, and which we exercise, of raising the Rate of Discount, keeps the demand upon us within manageable dimensions. There are other restrictions which are less important. The Rate we charge for our Discounts, we find in general, is a sufficient check.

In 1861 Mr. Goschen published his Theory of the Foreign Exchanges, in it he says "The efficacy of that corrective of an unfavourable state of the Exchanges, on which we have been dilating (i.e. raising the Rate of Discount) has been most thoroughly tested by late events. Every advance in the Bank Rate of Discount has been followed by a turn of the Exchanges in favour of England, and vice versâ, as soon as the Rate of Interest was lowered, the Exchanges became less favourable."

It is quite needless to quote any more evidence in favour of this principle: its truth is now as universally admitted by all competent persons as the Newtonian Law of Gravity. It is the acknowledged principle upon which the Bank of England is now managed: after our work was published in 1856, the Usury Laws in France were modified in order to enable the Bank of France to adopt it: and in fact it is now adopted by every Bank in the world.

In former times when the only communication between different countries was by means of sailing ships and common roads, and therefore very slow, expensive, and uncertain, this principle, though actually true, could seldom be called into action, because the cost and delay in the transport of gold would far exceed any profit to be made out of the difference in the Rates of Discount, in quiet times. It was like some mechanical force, which actually exists, but which is overpowered and prevented from producing any visible effect, in consequence of friction. But it did act in times of commercial crisis, when the Rate of Discount became extreme. In 1799 enormous failures took place at Hamburg: discount rose to 15 per cent., and this rate immediately drew gold away from England.

But in modern times, since communications have been so much accelerated and cheapened, even since the Act of 1844, by means of railroads and steamers, this friction, as we may call it, has been immensely diminished: and this great principle is called into action with a much less difference between the Rate3 of Discount than at any former period. Bullion would probably have taken ten days to go from London to Paris : it can now go in ten hours, and at probably the tenth part of the expense. A difference of 2 per cent, between the Rates of Discount in London and Paris will now draw bullion from one place to the other.