Thus on this occasion again, the Restrictive Theory wholly failed: and the Expansive Theory saved the country and was the only means of saving the Bank itself from stopping payment.

The next great crisis was in November 1857, which was far more severe, as regards the Bank itself, than that of 1847. On the 12th November 1857 the Bank closed its doors with the sum of £68,085 in Notes: £274,953 in gold: and £41,106 in silver: being a total sum of £387,144. Such were the resources of the Bank to begin business with on the 13th ! Truly said the Governor it must entirely have ceased discounting, which would have brought an immediate run upon it. The bankers' balances alone were £5,458,000. It is easy to see that the Bank could not have kept its doors open for an hour.

On the evening of the 12th the Government sent a letter to the Bank, authorising them to issue Notes at their discretion, but not at a less rate than 10 per cent.; and next morning as before, the panic had passed away.

Thus on this occasion again, the Restrictive Theory wholly failed: and the Expansive Theory saved the country: and was the only means of saving the Bank itself from stopping payment.

The next great crisis was in 1866, which was still more severe. Unfortunately, no investigation was held respecting it, so that there is no reliable account of its circumstances. On the 10th of May there was a general run upon all the London banks. It was said, but we cannot say with what truth, that one great Bank alone paid away £2,000,000 in six hours. After banking hours it became known that the great discount house of Overend, Gurney and Co. had stopped with liabilities exceeding ten millions - the most stupendous failure that had ever taken place in the city. The result of such a catastrophe was easily foreseen: not another bank could have survived the next day: and that evening the Government again authorised the Bank to issue at discretion, at not less than 10 per cent. The Bank advanced £12,255,000 in five days: but the panic passed away.

Thu3 again the Restrictive Theory wholly failed: the Expansive Theory saved the country: and was the only means of saving the Bank itself as well as every other bank from stopping payment.

Thus we see the entire failure of Peel's expectations. He took away the power of unlimited issues from the Bank, and imposed a rigorous numerical limit on its powers of issue, under the hope that he had prevented the recurrence of panics. But the panics recurred with precisely the same regularity as before: and therefore in this sense too the Act has failed: and when monetary crises do occur, it is decisively proved that it is wholly incompetent to deal with them.

It has been seen that it is a complete delusion to suppose that the Hank Act carries out the "Currency Principle" It might be supposed perhaps, that if it did really carry out the "Currency Principle" it might prevent panics arising. General experience however entirely negatives this view. In 1764 the most severe Monetary Crisis which had occurred up to that time, took place at Amsterdam and Hamburg, where the banks were really constructed on the "Currency Principle."

A decisive example of this took place at Hamburg in 1857. A similar Monetary Crisis took place then; as here, and the Bank being constructed on the "Currency Principle" had no power to issue Notes to support Credit. The Magistrates were obliged to issue city bonds to support the Credit of the merchants: exactly as the Government had issued Exchequer bills in England in 1703. Here also the Restrictive Theory wholly tailed, and it was found necessary to adopt the Expansive Theory to avert universal failure.

This disaster took place where the "Currency Principle" was in full force; another instance that it is no protection against panics.

The experience of every country exactly confirms the experience of England. At Turin the bank was constructed on some principle of limitation: but in 1857 it was found necessary to suspend its, constitution, and allow it to issue Notes to support Credit.

The very same thing was conspicuously proved in 1873. In Austria, in North Germany, and in America, the Banks were all constructed on some analogous principle of limitation of their issues. Hut in the severe monetary panic in each of these countries, it was found necessary to suspend their constitutions, and authorise them to issue at discretion to support commercial Credit.

Thus universally throughout the world, it is proved by abundant experience, that the Restrictive Theory cannot be maintained after a monetary panic has reached a certain degree of intensity: and that it is absolutely necessary to adopt the Expansive Theory to avert universal failure.

13. The supporters of the Act of 1844 assert that it is the complement of, and in strict accordance with the principles of the Act of 1819, and the Bullion Report. But such statements are utterly incorrect: and the following are the fundamental differences of principle between them -

I. The Bullion Report declares that the mere numerical amount of Notes in circulation, at any time, is no criterion whether they are excessive or not.

The Theory of the framers of the Act is that the Notes in circulation should be exactly equal in quantity to what the gold coin would be if there were no Notes: and that any excess of Notes above that quantity is a depreciation of the Currency.

Is this principle of the supporters of the Act in accordance with the principle of the Bullion Report?

II. The Bullion Report declares, and the supporters of the Act of 1819 maintained, that the sole test of the depreciation of the Paper Currency is to be found in the Price of Gold Bullion and the state of the Foreign Exchanges.

Eicardo says - "The issuers of Paper Money should regulate their issues solely by the price of bullion, and never by the quantity of their paper in circulation. The quantity can never be too great or too little, while it preserves the same value as the standard."

According to the supporters of the Act of 1844, the true criterion is whether the Notes do or do not exceed in quantity the gold they displace.

Is the doctrine of the supporters of the Act of 1844 in accordance with the doctrine of the Bullion Report and the framers of the Act of 1819?

III. It was proposed to the Bullion Committee to impose a positive limit on the issues of the Bank to curb their powers of mismanagement. The Bullion Report expressly condemns any positive limitation of its issues: and Peel in 1819 and in 1833, fully concurred in this condemnation.

The Bank Act of 1844 expressly limits the issues of the Bank.

Does the Bank Act of 1844 coincide with the principles of the Bullion Report and the doctrines of Peel in 1819 and 1833 ?

IV. The Bullion Report, after discussing the most important Monetary Crises which had occurred up to that time, expressly condemns the Restrictive Theory in a Monetary Panic, and says that it may lead to universal ruin: and recommends the Expansive Theory.

The Bank Act enacts the Restrictive Theory by Law: and prevents the Expansive Theory from being adopted.

Does the Bank Act of 1844 agree with the doctrines of the Bullion Report, and of Peel in 1819 and 1833, on this point?

Peel in introducing his measure of 1844 said we must never again have such discreditable occasions as 1825, 1836, and 1839: but since 1844 we have had 1847, 1857, and 1866. On each of these occasions the Restrictive Theory was enacted by law: and on each occasion the Government was obliged to come forward and authorise the Bank to break the Law: to abandon the Restrictive Theory, and adopt the Expansive Theory, as the only method of averting ruin.

Experience, therefore, has indisputably proved that the Bullion Report was framed with truer wisdom and scientific knowledge of the Principles of Paper Currency than the Bank Act of 1844. The only deficiency in the Report was that it failed to point out the proper means for carrying its principles into effect so as to maintain Paper on a par with gold. But we supplied this defect by shewing that the true means of controlling the Paper Currency is by adjusting the Rate of Discount by the Foreign Exchanges and the state of the Bullion in the Bank.