The very same principle was decisively proved in 1847, 1857, and 1866 : the Restrictive Theory was in those years enforced by Law. But no Government could maintain the Act and the Restrictive Theory to the bitter end, and face the consequences of producing universal ruin in pursuance of a Theory which all the most distinguished authorities had unanimously condemned.

It is therefore irrefragably proved by the unanimous opinion of the most eminent commercial authorities, and the clear experience of 100 years that the Restrictive Theory in a commercial crisis is a fatal delusion: and that when a commercial panic is impending, the only way to avert and allay it is to give prompt, immediate, and liberal assistance to all houses who can prove themselves to be solvent, at the same time allowing all houses which are really insolvent to go. Universal experience proves that this is the only means of separating the sound from the unsound, and averting general ruin by preserving the former.

As a matter of fact it is perfectly well known to all bankers that an excessive restriction of Credit produces and causes a run for gold.

Sir William Forbes, in his interesting Memoirs of a Banking House, says of the crisis of 1793 - "These proceedings which obviously foreboded a risk of hostilities were the signal for a check on mercantile Credit all over the kingdom: and that check led by consequence to a demand on bankers for the money deposited with them, in order to supply the wants of mercantile men."

The Bullion Report expressly attributes the stoppage of the Bank in 1797 to the merciless restriction of Credit.

In 1857 discounts had ceased at the various banks and a general run was commencing upon them when the Treasury letter came: this allayed the panic and stopped the run.

In 1866 matters were a great deal worse. In consequence of the restriction on Credit, a most severe and general run took place on all the London bankers. The sum paid away during the panic can probably never be known, but it was something perfectly fabulous. And this general run upon the bankers was certainly caused and produced by the excessive restriction of Credit, caused by the Bank Act.

The result of such an Act was most distinctly predicted by Henry Thornton, one of the joint authors of the Bullion Report, in his treatise on the Paper Credit of Great Britain published in 1802. He says "Two kinds of error on the subject of the affairs of the Bank of England have been prevalent. Some political persons have assumed it to be a principle, that in proportion as the gold of the Bank lessens, its paper, or, as is sometimes said, its loans (for the amount of the one has been confounded with that of the other) ought to be reduced. It has been already shewn, that a

"MAXIM OF THIS SORT, IF STRICTLY FOLLOWED UP, WOULD LEAD TO UNIVERSAL FAILURE."

The Bank Act of 1844 was constructed on this precise principle, and Thornton's prediction has been strictly verified.

Seeing then that it is a matter of absolute demonstration that it is indispensably necessary that there must be some source having the power to issue solid Credit to support solvent houses in Monetary Panics, it only remains to consider whether that source should be the Government, or the Bank - and very convincing reasons shew that it ought to be the Bank rather than the Government.

Such a duty is quite out of the usual line of the Government. They must issue a Special Commission to investigate the solvency of those merchants who ask for assistance. Such a Commission would never be appointed until matters had become very severe, and much suffering would be caused by the unnecessary delay.

But such a thing is the ordinary and every day business of the Bank. The merchant simply goes in the ordinary way of business to the Directors, satisfies them of his solvency, gives them the necessary security, and receives the assistance without delay.

These considerations as well as others which might be adduced, shew that the proper source to have this power is the Bank of England, and not the Government.

Some persons however might suppose that such an issue of notes might turn the Foreign Exchanges against the country. It was formerly supposed, and the idea pervaded Sir Robert Peel's speech, that the Foreign Exchanges are mainly influenced by the numerical amount of Notes issued. But in modern times it has been proved that the Rate of Discount is an infinitely more powerful method of acting on the Exchanges than the amount of Notes. And this may be said to be a new discovery since Sir Robert Peel's speech: for there is not a trace of this principle to be found in it: nor did any of the practical men of business who supported the Act ever shew that they appreciated the importance of this principle. In former times certainly, when there were multitudes of Banks issuing torrents of Notes, these Notes lowered the Rate of Discount, and drove the bullion out of the country. But under the modern system when these issues have been happily suppressed, all danger on this score has vanished: and under present circumstances no issues are excessive which do not lower the Rate of Discount.

The doctrine laid down in the Bullion Report and by all the most eminent authorities of that period, was, that the true criterion of the proper quantity of Paper Currency was not its numerical amount, but the state of the Foreign Exchanges and the Market Price of Gold Bullion. This doctrine was true so far as it went: but unfortunately it was incomplete: the Committee never laid down the Rule for carrying this principle into effect. The principal method thought of until after Peel's time, was simply diminishing the numerical amount of the Notes. It is true that raising the Rate of Discount was reckoned among the subsidiary methods of arresting a drain, but so little was its true importance understood that it was not even mentioned by Peel. But in our Theory and Practice of Banking we shewed by the plainest arguments that it is the true keystone of the Theory of the Bullion Report, and it is now proved by conclusive experience that it is the true supreme power of controlling the Exchanges and the Paper Currency, and all other methods are insignificant compared to it. And since the Directors now thoroughly understand and act upon this principle, they may be entrusted with unlimited powers of issue.

Some able authorities however are of opinion that the Act should be maintained, as it strengthens the hands of the Directors in carrying out this principle, and enforcing the rule. That without the Act commercial pressure upon them might sometimes be too strong to resist. Whatever force there may be in this argument, it will be found that the other arguments completely outweigh it: and in fact such an argument naturally leads us to consider the constitution of the Directorate itself.

By a remarkable custom professional bankers are excluded from the Directorate of the Bank, which is exclusively composed of merchants. It has long been recognised that Commercial Credit and Banking Credit are of two distinct natures and in many respects conflicting and antagonistic. The same persons should not carry on both kinds of business: great bankers should not be merchants, and great merchants should not be bankers. The Duty of a banker frequently conflicts with, and is antagonistic to, the Interest of a merchant. A banker's duty is to keep himself always in a position to meet his liabilities on demand: and when there is a pressure upon him it is his duty to raise the price of his money. But the Interest of a merchant always is to get accommodation as cheap as possible. Hence as the Directors emanate exclusively from the Commercial body, the Interest of the body from which they come, has been frequently opposed to their Duty as Directors of the Bank. And formerly it cannot be denied, that their sympathy for the body to which they belonged has interfered with their proper course of action as Directors of the Bank, and has been the cause of many errors.

The whole principles of the subject have now been brought to strictly scientific demonstration. If therefore the Directors find themselves unable to withstand Commercial pressure, and fulfil their undoubted duty, it would seem to raise the question whether some modification of the constitution of the Directorate might not be desirable, and whether a certain portion of them at least, should not be unconnected with commerce, as private bankers are. There are very good reasons why they should not be exclusively taken from the Commercial body.

The overwhelming weight of practical considerations is in favour of restoring the Bank to its original condition, and abolishing the separation of the departments: which, as has been shewn, was intended to carry out a particular Theory, but which it wholly fails to do. For while times are quiet, or even during a moderately severe monetary pressure, the Act is wholly in abeyance: it is entirely inoperative. But when a real commercial crisis takes place - and it totally fails to prevent these as it was expected to do - and when the Crisis has deepened beyond a certain degree of intensity, then the Act springs into action with deadly effect. It prevents by Law the only course being adopted which the unvarying experience of 100 years has shewn to be indispensable to avert a panic, namely, a timely and liberal assistance to solvent houses: then follows wild panic: and if the Act were rigorously maintained, then universal ruin.

The true object of the Act is to insure the convertibility of the Bank Note. But the principle of the Act, or the machinery devised for that purpose, is merely a means to that end, and it has been proved to be defective. A better means of attaining the object of the Act has been ascertained and demonstrated to be true by the strictest scientific reasoning, as well as by abundant experience, since the passing of the Act, which is acknowledged to be efficacious: and, therefore, the Act is no longer necessary. The necessity for passing the Act was a deep discredit to the Directors of the Bank. It was a declaration that they were not competent to manage their own business. But now that they have shewn that they are perfectly able to do so it is no longer necessary. It may be sometimes necessary to put a patient into a strait waistcoat: but when the patient is perfectly recovered and is restored to his right mind, the strait waistcoat may be removed - especially as it is found that under certain circumstances the strait waistcoat not only strangles the patient, but scatters death and destruction all around.