A third doctrine sanctioned by the authority of the Bullion Committee was new and correct; namely, that the issues of the country Bankers are regulated by those of the Bank of England. The theory itself, however, if it did not originate with Mr. Ricardo, received from that gentleman one of the fullest and clearest expositions that had appeared of its operation: of this the reader shall judge for himself. The following are the remarks of the Bullion Committee upon it.

"So long as the cash payments of the Bank are suspended, the whole paper of the country Bankers is a superstructure raised upon the foundation of the paper of the Bank of England. The same check which the convertibility into specie, under a better system, provides against the excess of any part of the paper circulation, is, during the present system, provided against an excess of country Bank paper, by its convertibility into Bank of England paper. If an excess of paper be issued in a country district, while the London circulation does not exceed its due proportion, there will be a local rise of prices in that district, but prices in London will remain as before. Those who have the country paper in their hands will prefer buying in London, where things are cheaper; and will, therefore, return that country paper upon the Banker who issued it, and demand from him Bank of England notes, or bills upon London; and thus the access of country paper, being continually returned upon the issuers for Bank of England paper, the quantity of the latter necessarily and effectually limits the quantity of the former."

The way in which Mr. Ricardo expressed the opinions he had arrived at was this: "The money of a particular country is divided amongst its different provinces; by the same rules as the money of the world is divided amongst the different nations of which it is composed. Each district will retain in its circulation such a proportionable share of the currency of the country as its trade, and, consequently, its payments, may require, compared to the trade of the whole; and no increase can take place in the circulating medium of one district, without being generally diffused or calling forth a proportionate quantity in every other district. It is this which keeps a country banknote always of the same value as a Bank of England note. If in London, where Bank of England notes only are current, one million be added to the amount in circulation, the currency will become cheaper there than elsewhere, or goods will become dearer. Goods will, therefore, be sent from the country to the London market, to be sold at the high prices; or, which is much more probable, the country Banks will take advantage of the relative deficiency in the country currency, and increase the amount of their notes in the same proportion as the Bank of England had done; prices would then be generally, and not partially, affected.

"In the same manner, if Bank of England notes be diminished one million, the comparative value of the currency of London will be increased, and the prices of goods diminished. A Bank of England note will then be more valuable than a country bank-note, because it will be wanted to purchase goods in the cheap market; and as the country Banks are obliged to give Bank of England notes for their own when demanded, they would be called upon for them until the quantity of country paper should be reduced to the same proportion which it before bore to the London paper, producing a corresponding fall in the prices of all goods for which it was exchangeable.

"The country Banks could never increase the amount of their notes, unless to fill up a relative deficiency in the country currency, caused by the increased issue of the Bank of England. If they attempted it, the same check which compelled the Bank of England to withdraw part of their notes from circulation, when they used to pay them on demand in specie, would oblige the country Banks to adopt the same course. Their notes would, on account of the increased quantity, be rendered of less value than the Bank of England notes, in the same manner as Bank of England notes were rendered of less value than the guineas which they represented. They would, therefore, be exchanged for Bank of England notes, until they were of the same value.

"The Bank of England is the great regulator of the country paper. When they increase or decrease the amount of their notes, the country Banks do the same; and in no case can country Banks add to the general circulation, unless the Bank of England shall haw previously increased the amount of their notes3."

Two remarks present themselves upon reading this extract, which are perhaps worth noting. In the last paragraph we detect the first suggestion of the legal tender clause, which however did not come into operation until 1834. If the supply of paper furnished by the country Banks was necessarily at all times great or small in proportion to the quantity of notes issued by the Bank of England, you obviously governed the paper currency of the country Banks whenever you succeeded in governing the issues of the Bank of England. If then you could command this latter power, and found that you effectually regulated the issues of the Bank of England by compelling it to pay its notes in gold, it necessarily followed that the same ends would be ensured at the country Banks by requiring them to pay their notes in Bank of England paper. By this, it was argued, you simplified the action of your monetary system, and economised in the most commendable manner the use of gold.

The other remark I have to make is this. The views of Banking and currency we are now ex-amining were promulgated in 1810 - and they were in the main incontrovertible; but they were none of them acted upon until 1820. We could not have a more apt case in point, to show how slow is the triumph of truth over error, or how hard it is to bring a country back into a good condition, after it has once fallen into a bad one. The French say, Ce n'est que le premier pas qui coute - and they may be quite right in saying so. At the same time it is plain that the observation does apply with equal force to England. Perhaps it is, as Sterne said long ago, that "they manage those things better in France." In England we took our first step in Banking and currency reform, as already stated, in 1809; we are now in 1842, and we are far from seeing our way at all clearly to the consummation of our improved system.