imported a large number of Spanish dollars, which were to be current at 4s. 6d. However, it was discovered that the dollars were undervalued by 2d. each, so their current value was enhanced by 3d. These dollars were stamped with a small king's head. The Bank, having put the dollars into circulation at 1d. each above their intrinsic value, the bullion merchants were not slow in seizing the advantage, and imported an immense quantity of similar dollars, which they had stamped in a similar manner. They were all called in on the 31st October, 1797, by which time the Bank had put 2,325,099 into circulation. It at first attempted to refuse payment of the forged ones, but they were executed in so close imitation of the real ones that it was impossible to detect them, and they were obliged to pay them all

143. When the actual suspension took place, the foreign exchanges were highly favourable, so much so as to make it profitable to import gold, which began to flow in in great abundance. On the 30th May, Mr. Manning stated in the House, that vast quantities of gold had flowed into the Bank, both from the country and from abroad. The Government, however, and the directors of the Bank, concurred in thinking that it would be imprudent to resume payments in cash at the period when the restriction Act expired, and it was prolonged to one month after the meeting of the next Session of Parliament

144. Parliament met again on the 2nd November, and on the 15th the House of Commons appointed a Secret Committee to inquire whether it was expedient to continue the restriction. On the 17th they reported that on the 11th of that month, the total liabilities of the Bank were £17,578,910, and their assets £21,418,460, leaving a balance in their favour of £3,839,550 exclusive of the Government debt of £11,686,800. That the advances to Government had been reduced to £4,258,140, while the cash and bullion were five times the sum they stood at on the 25th February last, and much above what they had been at any time since September, 1795. That the exchange with Hamburg was unusually favourable, and had every appeaarnce of con

tinuing so, unless political circumstances should affect it. That no inconvenience seemed to be felt by the bankers and traders of London, for, whereas by law they were entitled to demand three-fourths of any deposits in cash they might make, they had only actually demanded one-sixteenth. They presented a resolution of the directors, stating that the condition of the Bank's affairs was such that it could with safety resume its usual functions. The Committee, however, recommended that in consequence of the state of public affairs, it was advisable that the restriction should be continued for a further period. After a short debate, an Act was passed to continue the restriction until one month after the conclusion of a definite treaty of peace

145. The opposition in Parliament and in the country to the policy of the Ministry was very powerful, and the transactions between the Bank and the Government were severely commented upon by the leaders of that party in Parliament. They, however, did not venture to divide against the bill. In the course of the discussion, however, Sir William Pulteney spoke with very great ability against the national evils and inconveniences of the monopoly of banking by one company, and moved for leave to bring in a bill to establish another bank in case the Bank of England did not resume cash payments on the 24th June. His speeches on this and a subsequent occasion were full of admirable argument, but the interests arrayed against him were so strong that leave was refused to bring in the bill by a majority of 50

to 15

146. The exchange with Hamburg at the time of the suspension of cash payments was 35 10; it continued to improve throughout the whole of the year, and in December stood at 38.5, which was about £13 per cent. above par; the issues of the Bank were about 11 millions during the year. This extraordinary state of the exchanges continued during the whole of 1798 when they began gradually to fall, and in March, 1799, they were at 377, which was still £11 6s. above par. This was, of course, followed by a very great influx of gold, and at the end of 1798, the Bank had upwards of £7,000,000 in its vaults, and the

directors expressed their readiness to the Government to resume payments in cash. The Ministry, however, thought it inexpedient in the state of the country

147. The harvests of the two preceding years had been unusually abundant, and in January, 1799, the prices of all sorts of corn were extremely low, wheat being 498. per quarter, and other kinds in proportion; but the winter of 1798-99 was extremely rigorous and unfavourable for farming operations. The spring was equally unfavourable, and in May, wheat was at 61s. 8d. This was followed by an extremely wet summer and autumn, so that at the end of the year wheat was at 94s. 2d. In February, 1800, the subject of the scarcity was taken up in both Houses, Lord Auckland said it was estimated that the produce of last year's crop was little more than half an average. Under the influence of this unparalleled deficiency, the price of wheat rose in June, to 134s. 5d., and remained to the end of the year at 133s., after having fallen for a short period to 96s. 2d., in consequence of large importation introduced by the temptation of heavy bounties

148. Under the influence of the enormous importation of wheat, the exchange with Hamburg continued to decline all through the summer of 1799, till in the last week of August, it had fallen to par. It continued steadily to decline after that until, in December, 1800, it reached 30. In the meantime, the price of foreign gold in coin, which had been at £3 17s. 6d. in May, 1797, rose to £4 in December, and continued at that price till September, 1799. In June, 1800, it rose to £4 5s., and in December to £4 68.

149. The arguments and ability of Sir William Pulteney in advocating the foundation of another bank, produced great effect, and during 1799 it excited great public interest. Meetings were held for the purpose of promoting it, and numerous pamphlets were published on the subject. The Bank Directors took alarm, and as the Minister was in want of a supply, they took advantage of his necessities to obtain a prolongation of their monopoly. The charter had still twelve years to run, but upon advancing

£3,000,000, without interest for six years, Mr. Pitt agreed to renew it for twenty-one years from 1812. Very soon after the opening of the Session in 1800, a bill for this purpose was brought forward and passed

150. We now see the results of two conflicting theories. For a considerable period there have been two opposite doctrines as to the true policy of the Bank during a great commercial crisis. The one is that the Bank should rigorously restrict its issues, and think of itself alone, and stand unmoved amid the universal ruin of the commercial world. The second is that due care should be taken to continue a restrictive policy while the exchange is adverse, but that, when the exchange becomes favourable, the Bank should enlarge its accommodation to support houses which are really solvent, but which may be brought down in the general discredit. Each of these theories has been tried, but the supporters of the first, or Restrictive theory, have quite overlooked one fact. Every banker of experience would tell them that an excessive restriction of credit causes a run for gold. Thus Sir William Forbes, speaking of the crisis of 1793, says "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 restrictive theory was likewise explicitly condemned by Sir Francis Baring, Mr. Thornton, the Bullion Committee, and all the most eminent authorities of the times, as we shall abundantly show; and they expressly condemned an absolute limitation of the Bank's issues, because, in certain states of credit it would cause certain ruin, and a run for gold. They expressly recommended the Expansive theory, and we see the results of the two

In 1783, during a great commercial crisis, the Bank restricted its issues until the exchange became favourable, and then it freely expanded them, and passed safely through the crisis

In 1797, the Directors having for some years previously prodigiously extended their issues, while the exchanges were adverse, and, being at last sensible of their imprudence, and

having contracted them so that for a considerable period the exchanges had become favourable, continued their policy of merciless restriction long after gold was flowing into the country, AND THE RESULT WAS THE STOPPAGE OF THE BANK

END OF VOLUME I

A. P. BLUNDELL & Co., PRINTERS, 26, GARLICK HILL, CANNON STREET, E.C.