Is, then, the figure fifteen millions the proper one, or is it too low?. This is an issue of fact, and facts will supply the answer. On three several occasions, in 1847, 1857, and 1866, the Act was suspended - that is, repealed for the time, and the Bank of England was free to issue as many notes as it chose, without storing up corresponding gold in its vault. Under these circumstances did the Bank, which had recovered its unrestricted liberty to issue, put into circulation more uncovered notes than would have been possible without suspension? The answer supplied by facts is, with a trifling exception in 1857, NO: and the answer is crushing and decisive. The exception in 1857 was ^800,000, an unimportant sum in a great crisis. This exception would not have occurred had the line stood then where it does now, at fifteen millions. The demonstration is complete that the Act does not restrict. It does not diminish by a single pound the quantity of bank-notes, which, but for it, the public would obtain without buying them with gold. After the suspensions, the weekly reports of the Bank constantly proclaimed that the quantity which the Act would have required for the Issue Department was there through the spontaneous action of the public. The suspensions of the Act were thus shown to be nullities. The sole enactment of the statute which could restrict was the requirement that beyond the fifteen millions gold must be given for notes; the requirement was suspended, yet every pound of gold demanded by the Act was at the Bank. The suspension did nothing whatever, because with it or without it the required quantity of gold was lodged at the Bank.
Such is the proof of the nullity of Suspension; yet the belief in its virtues is as widely spread and as flourishing as ever. Currency is a matter of feeling with the banking world and its oracles; what contradicts feeling and improvised theory is passed by unheeded, but men who know what science is think and speak otherwise. Professor Sumner, in his able work on American currency, states plainly that the nullity of the effect of Suspension disposes of the charge brought against the Act of 1844, that it restricts. But this cannot be so, replies the City. How can it be said that the Act does not restrict, when veteran bankers and intelligent merchants in every commercial agony clamour for its suspension, and declare that they find from it instantaneous relief? To this the answer is simple: a charm often effects a cure. A phial of pure water, believed to be medicine, has often given relief to suffer ing patients; but is it water or the delusion which cures?. A crisis in the money-market is a matter of alarm; wild uncertainty, - who is solvent? and who is going to fail? - terrifies every merchant and every banker. What so natural, then, as the conviction that bank-notes gushing forth in unchecked numbers will dispel the danger? Ignorance and imagination, set in motion by fright, may work miracles. The illusion, once imbibed, changes conduct at once. The frightened depositor or creditor, when he hears of the suspension, ceases to think about rushing to demand payment; the banker, under the same power of belief, lends less grudgingly. But there is no fact beneath this action, only imagination. A nullity, vivified by the imagination, can bring no lasting aid. Let us listen to Mr Patterson, speaking of the crisis of 1866 :"The panic was at its height at mid-day. Shortly before one o'clock the second editions of the daily papers announced that the Bank Act was suspended. A salutary change became possible, and the crowds in the adjoining streets diminished. The run slackened; but the announcement was premature. The Bank Act was not suspended, nor indeed at that time had the Government given any attention to the matter. In this emergency a deputation from the joint-stock and private banks was despatched to apprise the Government of the state of matters in the City, and to urge the immediate suspension of the Act of 1844. In the City the managers and directors of banks and other monetary establishments remained at their post till past midnight, anxiously receiving tidings of disaster, and waiting for the announcement of the suspension of the Act. It was midnight before the announcement was made. The effect of the announcement was so salutary, that next day (Saturday) it was thought that the crisis was at an end." Can picture be more graphic - the terrified and ignorant crowds waiting for the angel to come and trouble the water, and the instantaneous relief when he came. But was it a cure? Let us hearken to the next words of Mr Patterson: - "But, as became visible in a day or two, the crisis was not at an end." How could it? The suspension did not give a note more to the agonised borrowers than they would have had without it. Helpless terror and unreasoning ignorance could not farther go.
Restriction and suspension being swept away, the Bank Charter Act of 1844 comes forth in all its simplicity. It is a good Act, but not in the sense conceived by its authors. It gives to the nation a perfectly protected paper currency, part of it by actual gold in hand, part by the securities in which the Bank is required to place what it receives for its portion of the notes. The nation saves the fifteen millions of capital which it would have cost to purchase metallic tools. The nullity of suspension proves that the Act inflicts no injury on the money-market. The nation receives twice as much profit from the issues as the Bank. The purchase of fifteen millions of securities by the Bank sets free that amount of capital to take its part in the production of wealth. Two amendments would render the Act complete. The office of issue ought to be placed in Somerset House or Whitehall; the world would then understand that the State is the real issuer.
And, secondly, in the weekly reports, the bullion which belongs to the Issue Department should be kept strictly apart from the bullion which belongs to the Bank of England as a private banker.