"It may also be observed, that the issues of the joint-stock banks, and of the private banks, are subject to the same laws. The issues of both classes of banks rise together and fall together, and they have maintained nearly the same relative amount during the last seven years.

"The laws which regulate the annual fluctuations of the country circulation, that is, which determine the variations in the amounts of the country circulation, not within the year, but taking corresponding periods of different years, are also dependent on the state of trade in those years. If there be an increase of trade without an increase of prices, more notes will be required to circulate the increased quantity of commodities. If there be an increase of commodities, and also an advance of prices, a still larger amount of notes would be required. There are also other circumstances that may permanently affect the amount of the country circulation."

Principles of the Country Circulation.

I cannot better state my own views of the principles of the country circulation, than by transcribing a portion of my evidence given before the Committee on Banks of Issue, in March, 1841, when examined by Sir Robert Peel:-

"Sir Robert Peel. - Would you recommend that the paper thus issued should be convertible into gold at the will of the holder? - Yes.

"You think that is an absolutely necessary check against excessive issues? - I think it is a necessary check.

"What reference is made in the issue of paper to the quantity of gold in the country, and to the ultimate ability of the parties to discharge their paper engagements in gold? - The bankers in issuing their notes do not make any reference to the quantity of gold in the country, but they make reference to their ability to discharge those notes when returned to them for payment.

"What is the nature of the reference which they make? - By keeping securities available for the purpose of being sold, in order to discharge those notes whenever presented to them for payment.

"They have no reference whatever to the state of the exchanges? - No: when I say no, I mean not with the view of regulating the amount of notes by the exchanges; but bankers, whether banks of issue or not, notice the exchanges as naturally as they would notice the prices of the funds, in order that they may be able to judge as to the future value of money, so as to exercise their discretion with reference to their investments.

"They do not notice the state of the exchanges with a view to determine the policy of contracting or increasing their issues? - No; not with a view of making the amount of their issues correspond. If they see that the exchange is likely to become unfavourable, bankers will naturally be more cautious in making advances, and more cautious of coming under engagements, than they would be when they found that the exchanges were favourable; but there is no intention on the part of the country banks to make their notes correspond with the amount of the bullion in the Bank of England.

"A country banker would rely upon the sale of his securities, and that only in case of a demand for gold?-In case of a general run, he would depend upon the stock he had in hand, and the further stock he might realize by a sale of securities.

"If all parties continued to issue, none of them having reference to the state of the exchanges, but relying upon the available resources which a sale of securities might supply, do not you think that there might be a danger of a sudden demand for gold, and of an inability on the part of those issuers to discharge their engagements in gold?-I do not think there would be any danger of that at all, because each bank would take care of itself. If you suppose that the whole circulation of the country comes in at once and demands gold, it is quite clear that gold cannot be found to pay it off, and that is equally the case with the Bank of England and any other bank, and it is equally the case with us who are banks of deposits. If all the depositors were to come together at the same time and require their deposits, we should be unable to pay them; but we could realize our securities, and pay them off, if they were to come gradually.

"Suppose there was one bank which had the charge of the paper circulation of the country, and had the means, therefore, by constant reference to the state of the exchanges, of determining the amount of the paper circulation, do not you think that there would be a greater security against a sudden demand for gold, and an inability to pay that gold, than there is when there are a great many issuers, none of whom, according to your own statement, pay the slightest regard to the state of the exchanges?-No, I think not.

"What then supplies the check?-The check upon the private bankers is, that their circulation cannot be issued to excess; whereas if you had a bank which should issue notes for so much gold, then every time there was a favourable course of exchange, there would be a large issue of notes, which notes would necessarily reduce the rate of interest, lead to speculation, and turn the exchanges again by causing investments to be made in foreign countries. Now, as issues are at present conducted, bankers are under several checks which would not apply to such a bank. For instance, the check of the interchange with each other of their different notes once or twice a week, and the check of having their notes payable on demand; whereas the notes of such a bank as you suppose would not be diminished except when gold was wanted to be sent abroad. Another check is the practice of giving interest upon deposits, by which all the surplus circulation is called in and lodged with the banks. Now, such a bank as you have supposed would not be under the control of those checks, and it would be under the necessity of increasing the circulation whenever the exchange became favourable; and we know by experience, that the most sure way of making the exchanges unfavourable is a previous excessive issue; that previous excessive issue would necessarily arise, on the principle you have supposed, every time the exchange was favourable.