No sooner was the Act passed than the Committee set to work. A large sum, £70,000, was at once set down to Manchester and Glasgow on the strength of the Exchequer bills, which were not yet issued. This unexpected supply, coming so much earlier than was expected, operated like magic, and had a greater effect in restoring Credit than ten times the sum would have had at a later period.

When the whole business was concluded, a report was presented to the Treasury. It stated that the knowledge that loans might be had, operated in many instances to prevent them being required. The applications granted were 238, and the sum advanced was £3,855,624. The whole sum advanced was repaid: two only of the parties assisted became bankrupt: all the others were ultimately solvent, and in many instances possessed of great property. A considerable part of the sum was repaid before it was due, and all the rest with the utmost punctuality. After all expenses were paid, the transaction left a clear profit to the Government of £4,348.

Contemporary writers all bear witness to the extraordinary effects produced. Macpherson says that the very intimation of the intention of the Legislature to support the merchants operated like a charm over the whole country, and in a great degree superseded the necessity of relief by an almost instantaneous restoration of confidence. Sir Francis Baring concurs in this view, and adduces the remarkable success of the measure as an argument to show the mistaken policy of the Bank. After careful deliberation, the Bullion Report warmly approved of it: censured the proceedings of the Bank: and especially cite it as an illustration of the principle they laid down, that an enlarged accommodation is the true remedy for that occasional failure of confidence to which our system of Paper Credit is unavoidably exposed.

This occasion, therefore, is a most important example of the beneficial effects of the Expansive Theory in a monetary panic.

Towards the end of 1794 the Exchanges began to fall rapidly, and in May, 1795, were so low that it was profitable to export bullion. While, however, the Exchanges were so adverse the issues of the Bank were immensely extended. After some time however the Directors became alarmed and took the most rigorous measures to contract them. In April 1796 the Exchanges became favourable, and they continued so till February 1797.

The excessive contraction of its issues by the Bank caused the greatest inconvenience to commerce, and a meeting of bankers and merchants was held to devise some means of relief. The failures among the country bankers in 1793 had caused an immense diminution of the country issues, and Thornton says that in the last three months of 1796 the issues of the bank were no higher than they had been in 1782, with an amount of commerce many times larger than in that year. As the public could not get Notes, they made a steady and continuous demand for guineas: and although the Exchanges were favourable to the country and gold was coming in from abroad, there was a severe drain on the Bank for gold. Political circumstances added to the alarm, and about the middle of February a stoppage of country banks became general. The panic reached London, and a general run began upon the bankers. Before this the Directors had used the most violent efforts to contract their issues. In five weeks they had reduced them by nearly £2,000,000. On the 21st January they were £10,550,830, and on the 21st February they were £8,640,250. But even this gave no true idea of the curtailment of mercantile accommodation: for the private bankers were obliged for their own security to follow the example of the Bank. In order to meet their payments, persons were obliged to sell their stock of all descriptions at an enormous sacrifice. The 3 per cents, fell to 51!

On Saturday the 25th February 1797, the specie in the Bank was reduced to £1,272,000 with the drain becoming severer every hour. The Directors now felt that they could hold out no longer: and on Sunday a Cabinet Council was held, and an

Order in Council was issued directing the Bank to suspend payments in cash until the sense of Parliament could be taken on the subject. Accordingly on Monday the 27th, the cash being then reduced to £1,086,170, the Bank suspended payments in cash, and did not resume them partially till 1816, and completely till 1821.

But immediately this was done, they enlarged their accommodation liberally: within a week they increased their issues by two millions, and the relief was very great. A meeting of 4,000 merchants and traders agreed to support the Credit of the Notes.

The most eminent authorities afterwards severely censured the management of the Bank. Thornton said that the excessive contraction of Notes had shaken public credit of all descriptions, and had caused an unusually severe demand for guineas: that the Bank ought to have extended its issues to supply the places of the Country Notes which were discredited. Boyd was clearly of opinion that the excessive restriction of Notes was the chief cause of the forced sale and depreciation of the public securities. In 1810 the Governor of the Bank said that after the experience of the policy of restriction, many of the Directors repented of the measure: and the Bullion Committee explicitly condemned the policy of the Bank both in 1793 and 1797.

Nothing in short could be more unhappy than their regulation of their issues. When the Exchanges were violently adverse, so that it was very profitable to export gold, they enlarged them to an extravagant extent: and when the Exchanges were extremely favourable, so that gold was flowing in, they contracted them with merciless severity. The issues which were £14,000,000 when the Exchanges were against the country were reduced to £8,640,250 when they had been for several months eminently favourable. The entire concurrence of the evidence shews that it was this excessive restriction of Credit which caused the severe demand for gold.