The Bank, they might have said, upon whom the brunt of any derangement must fall, is increasing her issues; the currency is therefore clearly deficient, and we may safely increase ours. Hence it is clear that the adherence of the Bank to principle was in this instance productive of mischief. And it is the more to be regretted, as the Bank is seldom equally inflexible on the other side. She has, on various occasions, yielded to the pressure of external circumstances, and increased her issues in the anticipation of events, when she well knew that such increase was contrary to her own rule and to strict principle.

When, however, the exchange did set fairly against the country in the latter end of April, the Bank took the most proper methods for meeting the drain for bullion. She, it will be borne in mind, has, whether beneficially or not we need not stop to enquire, a sort of double character. Besides issuing notes in exchange for bullion, she issues them in discount of mercantile paper, and on deposits of convertible securities, &c. Now, it is clear that when paper begins to get scarce in the metropolis, in consequence of a demand for bullion on the Bank, there will be a greater demand upon her for discounts; and if she do not contrive, in one way or other, to check this demand, it will be impossible for her to reduce the issues, or, consequently, to lessen the demand for gold. There are, however, only two ways in which the Bank can effect this necessary contraction of discounts. She must either reject great numbers of the bills sent in to be negotiated; or she must raise the rate of interest so as to make fewer be sent in. The latter is uniformly almost the wisest course. If the Bank proceed by rejecting bills she exposes herself to the imputation of acting partially and unfairly; and though such charges are generally made without the least foundation, she can hardly help doing what is almost as bad, that is, acting arbitrarily and capriciously. The parties whose bills are rejected have frequently good grounds for complaints; and they never fail to ascribe the worst motives to the Bank, and to proclaim that she is answerable for all the difficulties in which they may be involved. But though nothing of this sort happened, still the rejection of bills to narrow the circulation should never be resorted to except in cases of necessity. The contraction ought, in as far as possible, to be brought about by a general and equal pressure, and not by throwing the whole burden on the shoulders of Messrs A, B, and C, who should bear no more than their fair proportion. The Bank directors, impressed with a sense of the justice of what has now been stated, raised the rate of interest in June from four to four and a half per cent; but as the drain for gold still continued, and the increasing demand for discounts prevented the contraction that would other

wise have been effected, the interest was still further raised in August to five per cent, at which rate it has since continued.

The effect of this rise in the rate of interest on the part of the Bank, intended as it was known to be to assist her efforts to narrow the currency, so as to meet the drain for bullion, had a powerful influence. The market rate of interest in the metropolis immediately rose to the rate fixed by the Bank, or a little higher; a feeling of suspicion and distrust was generated; American securities ceased to be in demand; a severe check was given to the abusive and dangerous practice of rediscounting, which had been carried on to an enormous extent by many of the country hanks; and not a few of the latter began to find themselves in a very perilous situation. It is, however, of importance to observe, that though speaking generally, the engagements and issues of the private banks have been very considerably diminished, this does not appear to have been the case with the joint-stock banks. On the contrary, the latter went on increasing their issues, as if bullion, instead of leaving, had been continuously flowing into the coffers of the Bank;-the amount of their notes in circulation during the quarters ended the 26th of March, 25th June, 24th September, and 31st December, 1836, being respectively L.3,094,025, L.3,588,064, L.3,969,121, and L.4,258,197;-making an increase of L.1,164,172, or at the rate of no less than thirty-seven per cent; though from April to September there had been a heavy drain of bullion from the country, and none had been imported from September to December. This, were there nothing else to allege against them, strikingly exemplifies the extreme inexpediency of vesting the power to issue paper in numerous bodies, having conflicting interests, and being only remotely affected by the exchange. Perhaps, however, it will be said that they only followed the examples set by the Bank of England, and that her issues, which amounted to L.18,063,800 on the 5th of April, when the drain was beginning to take effect, were hardly at all diminished in the subsequent months when it was at its height, and amounted to L. 18,061,000 on the 23d August. But this is at most only a non-reduction, and can never be alleged as an excuse for a great and rapid increase. In truth and reality, however, the whole statement is fallacious. In estimating the issues of the Bank of England, we must, if we would arrive at any sound conclusions, separate between her London and her country issues. The latter depend upon entirely different principles, and are noways connected with the former. They principally come in the place of the paper of country banks that has been by agreement withdrawn to make room for them, and they

are always less in amount than the paper so withdrawn. It is plain, therefore, that the Bank may consistently increase her country circulation at the very time that she is exerting herself to diminish the circulation generally; and conversely. It is by the state of the London circulation, of which she has a monopoly, and which becomes a standard for the rest of the empire, that her proceedings with respect to the currency are to be estimated. And if we refer to this, which is the only unerring test, it will be found that the London circulation, which amounted on the 1st of October, 1833, to L.16, 500,000, was reduced, on the 27th of December, 1836, to L.13,500,000; being a deduction of three from sixteen and a half millions, or of eighteen per cent. During the past year the London and country issues were respectively as follows::

It is clear from this statement that the London issues of the Bank were materially reduced during the course of last year. Whether they should have been more reduced, is a point as to which we shall afterwards have something to say. But of the fact that they were reduced there can be no manner of doubt; and had the issues of the joint-stock and other banks been reduced in the same proportion, or had they even continued stationary at their amount on the 25th of March, there is reason to think that the drain for bullion might have been easily dealt with, and that the stock of bullion in the coffers of the Bank would have been at this moment at least double what it really is.

However, despite the contrary action of the joint-stock banks, the contraction of the London circulation, the rise in the rate of interest to five per cent, combined with the moral apprehen'sion it excited in all prudent minds that there was mischief abroad,' produced, as already stated, a powerful reaction. The blind and undistinguishing confidence that had previously prevailed, was shaken, and it became much less easy to obtain pecuniary accommodation in London; and as the number of bills afloat, and

the facilities for obtaining fresh discounts were both reduced, prices began rapidly to give way. In consequence of this altered state of things, the drain upon the Bank for gold gradually declined; and since the 1st of September there has been either none demanded for exportation, or none worth notice.*

It is true, however, that there has been, between the 1st of September and the present moment (30th March, 1837,) a reduction of from L. 1,500,000 to L.2,000,000 in the stock of bullion held by the Bank; and that this heavy reduction has not been accompanied by any corresponding diminution even of her London issues. This apparent contradiction of all sound principle, and especially of the peculiar principle by which the Bank professes to regulate the amount of paper afloat, has been severe

*The following table, prepared at the Custom House, is said to exhibit the export of bullion from London in 1836. But considerable quantities are exported without being entered, and it cannot be much depended on. The exports to the United States principally take place from Liverpool.

Quantity and Value of the Precious Metals Exported to Foreign Countries in 1836 :The Value calculated at the average Price of Bullion in London in 1836.

But though we agree

ly censured by Mr Loyd and others. with Mr Loyd in thinking that the issues of the Bank have not been sufficiently contracted since September last, we do not admit that the diminution of bullion in her coffers in the interval, while her paper remains undiminished, affords any solid ground on which to impeach her management. When it is affirmed that the issues of the Bank ought to be governed by the influx and efflux of bullion, reference is always, either expressly or tacitly, made to its influx or efflux from or to foreign parts. The fact of an unusual supply of bullion being required in consequence of the discredit of the local currency, or of any other cause in a particular part of the country, would not warrant the Bank making any alteration in the amount of her circulation in London. An internal demand of this sort might take place when the exchange is in our favour; and when, therefore, the issues of the Bank should be increased. The state of the exchange is generally, in fact, the only thing that should be looked to in determining whether the currency be at its proper level. And hence, whatever changes may take place in the distribution of bullion at home, cannot, so long as they do not depress the exchange, afford any room or ground for diminishing the issues of the Bank.

Now, the greater part by far of the bullion withdrawn from the Bank, since September, has not been abstracted in consequence of the depression of the foreign exchanges, but through discredit at home. The abuse of every sound principle in the conduct of banking had been, if possible, carried to a greater extent in Ireland than in England; and the reaction and discredit was, of course, felt more severely there than here. There was scarcely, indeed, a bank in Ireland of which suspicions were not entertained; and in the course of October a run began upon most of the Irish banks, which in the ensuing month proved fatal to the Agricultural Bank-a great joint-stock association, established about two years before, and which had about thirty branches. It was not supposed, while this run was in progress, that Bank of England notes were legal tender in Ireland; and the Bank of Ireland, the Provincial Bank, &c., consequently made every effort to provide themselves with gold coin; which they could only do by selling securities in London, and then demanding specie from the Bank of England. The sum so obtained exceeded a million sterling; and the events in Ireland, and other circumstances, having excited an incipient degree of discredit in various parts of England, the bankers began very generally to increase their reserves of Bank notes and coins. This is the true history of the diminution of the stock of bullion in the Bank's coffers since the 1st of September last. There was not, as Mr