liament, regard to be had to the public convenience in the local apportionment of its issue, rather than to the individual objects of the parties desirous to issue notes.

Provided the total of demand for issue exceeded the amount sanctioned by Parliament, the limitation would chiefly be made in proportion as the claims from particular districts exceeded the ascertained amount of their previous circulation. No reduction

would be desirable (unless the average required it) where the local claim fell

short of that amount.

In the absence of claim from any particular district, where a circulation of local notes had previously existed, it might be desirable to make such an event known to neighbouring banking establishments, and to invite an extension of their proposals, in order to prevent any void that might be incon venient to the public. The Bank of England would, of course, be large issuers, and might supply local de. mand by transactions with bankers as they do at present, in the manner described in the return, (Appendix, No. 6, page 11.)

If the system were once established, the future working of it, in conformity to these principles, would not be difficult; but the privilege of issue ought not to be too readily granted to new bankers, or permitted on too small a scale. Perhaps no issuer should be allowed to pay for less than £10,000.

The returns obtained by the committee, the evidence it is in their power to elicit, and the amount of applications from bankers desirous of issuing notes, would enable Parlia ment to judge, in the commencement of this new issue, of the necessary amount of notes. The proportion of bullion to be deposited might be determined partly by information ob. tained from various sources of the stock in the country; in addition to which, the applicants might be required to tender the amount they were prepared to deposit, with an intimation that the largest depositors of bullion would be preferred as issuers. On subsequent occasions, Parliament might derive perfectly ac

curate information from the actual working of the measure; but it would be desirable to fix the standard for the amount of bullion deposit, making it as high as the nature of the circulation would enable issuers to afford; and in the event of that amount not being attained in the first issue, or of Parliament authorizing, in any particular state of mercantile or monetary affairs, a temporary reduction of bullion, and substitution of other securities in lieu of the portion of bullion given up, the interest of those securities should acerue to the State.

It will be found that a paper currency of this description conforms in all respects to the proposed principles.

I. Considered in the abstract, the power of creating paper notes to represent, and take the place of, and supersede, sterling money, is so extraordinary a privilege, that it seems surprizing that any individual or copartnery should be allowed to exercise it under any circumstances; but infinitely more so when, as has long been the case in this country, it is permitted without any means being taken to ascertain the pretensions or property of the parties, without any restrictions as to amount, and without any peculiar responsibility in the event of the paper notes ultimately turning out worth

less.

The consequence of this has been, that in very many cases the confidence of the public has been enormously abused, and that the poorer classes, in particular, have suffered great losses owing to the issue of large amounts of notes by parties who, in a proper state of the law, would never have been allowed in that way to impose upon the public.

It appears by the return No. 6, in the appendix to this Report,* that the value of this paper money to those who propose to use it for banking purposes, (i. e. to make a further profit upon it,) is about 3 per cent per annum, so that there is great temptation to engage in the manufacture of it; but surely that ought only to be permitted by the legislature on the very reasonable conditions of its value being ascertained, and in a manner stamped

upon it, and its extent accurately defined.

It is not only advantageous to is suers, but it is convenient, and in many cases beneficial, to the public to have notes instead of gold and silver; but those notes should be representative, not-as has too often been the case-fictitious money.

The principal charge to which, by this plan, it is proposed to subject the issuers of paper money, will arise from the locking up or deposit of bullion, which, like all hoards of treasure, must be unprofitable; but in this case the profit is derived from its representative the paper notes, which are more convenient for commercial purposes, and circulate with so much greater rapidity, that a given amount of business can be transacted with not more than one-third the amount that would be required of coin. Notes, therefore, would and must be used, even if their whole value were to be required in deposit of bullion; but that, of course, could not be accomplished.

There ought, to a certain extent, to be a solid basis of gold coin for every paper circulation; the larger the better in ordinary times,* so that, in case of dearth, or any peculiar national emergency, a large proportion might be liberated without hazard to the established system of currency.

The general introduction of this new element (that is to say, ascertained security) into paper money, involves, of course, the making it a legal tender to the extent proposed; because, if you take from an issuer (and lock up)

the funds by means of which he is to pay his notes, you must for the time secure him from the demand for payment.

This seems like the introduction of a new principle into the system of paper money, viz. permanent inconvertibility instead of "permanent convertibility;" but, in fact, it has been distinctly acted upon for a very long period with the notes of the Bank of England-that is to say, the only paper money for which any ascertained security existed; and it has taken place practically throughout Britain for many years, because notes have uniformly, and without scruple or objection, passed current in all cases where the solvency of the issuer was credited, or rather where his insolvency was not suspected,

The change of system proposed, is to provide for the country a secure and limited domestic circulation, independent of transactions with foreign countries, and not acted upon by the fluctuations of the exchanges; and it is thought that, by rendering all notes as good as Bank of England notes, they would perform all the functions of those notes with equal satisfaction to the public.

According to the present system of regulating the bank-note circulation with a view to the "permanent convertibility of paper," it is systematically established that every foreign demand for bullion, from whatever cause or quarter it may originate, shall derange entirely the paper circulation of this country, and, as a consequence

£ 140,000

3

570,000

per annum.

Bank of England,

M. MARSHALL, Chief Cashier."

of that, its internal and foreign commerce, the prices of goods, the activity of manufactures, and the wages of the manufacturing classes.

The following evidence of the late Mr Rothschild in the House of Commons' Report on the Bank resuming cash payments, published 1819, shows how all this mischief may be inflicted on the country, from causes which really ought not to have the slightest influence on the public or private affairs of this empire:

"Do you know whether a considerable quantity of bullion has gone out of this country on account of foreign loans?Certainly, an immense deal.

"Was there a particular demand for gold in Russia on account of the loan made there?-The gold in Russia has paid from 10 to 15 per cent profit.

"Was any considerable part of that gold sent from this country?—No, not so much from this country as from Paris and from Germany.

"What effect upon the exchange between Paris and Petersburg had the sending that quantity of gold from Paris to Petersburg?-The premium on gold rose in Paris from 1 to 1 per cent; in Hamburg about 2 per cent; in Berlin 2 per cent; in almost every place on the continent it improved from 1 to 2 per cent.

"With what do you compare it? silver, or the price of other commodities ?With silver.

"Had that demand for gold in Russia any particular effect upon the price of bullion in the English market? Yes, certainly; it rose, I believe, about 2s. per oz., from 81s. to 83s.

66 'Supposing the Bank to have been paying in cash, would not the same rise in the price of gold have taken place in consequence of such a demand?—I think not, because a great deal of our coinage would have gone there.

"The price of gold having risen considerably at Petersburg, would not that high price have had a natural tendency to attract gold from all other parts of the world as to a better market?- When gold was paying so well in Russia, gold went from all places on the continent to Russia, and gold rose in almost every place, in France, in Prussia, in Austria, and almost every where.

66 Supposing the same thing were to take place again, and there was an extraordinary demand in Russia, that they chose

and that the bank were to be paying in

"Supposing such a case to arise again,

cash, would not such an extraordinary demand, and such an extraordinary price abroad, drain us of the gold in circulation? No doubt it would."

II. It is hardly necessary to point out how completely distinct a paper circulation of this kind is from a Government or national paper money. The issue of notes would be confined, as at present, to individual responsibility, and proportioned, of course, to commercial and local demand with exact precision, instead of being issued ad libitum for the necessities of the state.

III. Neither in this case would there be monopoly, but equal justice, as well as general security. The Bank of England, joint-stock banks, and private bankers would be placed in a fair state of competition, and subjected to a rateable charge for the provision of bullion; the duty, responsibility, and expense of which now fall exclusively on the Bank of England; and, on the other hand, the issue of paper money, which is a matter of general concern, would be in no way mixed up with the private trading operations of the Bank of England. There might be some errors in the first proceedings of issuers, and they might be allowed to adjust their issues, in the early stages of the measure, subject to the important consideration of local supply before mentioned, but after the first year there would be no practical difficulty in the working of the system.

IV. The useful and important power of regulating, or rather controlling, the amount of paper circulation, would by this mode be for the first time satisfactorily and completely established, and the greatest of all the evils and dangers of paper money would be obviated by the opportunity of guarding against its excess.

"permanently convertible" principle, which stops manufactures, and renders cheap labour the concomitant of dear bread.

Mr Loyd says, q. 2870, that nothing will secure the permanent converti bility of the paper currency but a constant regulation of the amount of that paper currency by the variations of the exchange, because, without that, the paper currency, whatever other measures you may resort to, may be liable to permanent depreciation. The answer to this is, prevent excess, and you prevent depreciation.

VI. Of course the regulation of this currency, by an officer acting on prescribed rules, but competent to judge with nice discrimination of their application in all cases, would be preferable to a board of bank directors, having interests of their own to mislead their judgment; and such officer would of course be responsible to Government and Parliament.

We are, however, inclined to think that the necessity for it would very seldom occur; partly because merchants and exchange-brokers, if compelled to pay a premium for gold coin, which may be anticipated under such circumstances, would adopt other means for providing themselves with the gold that might be necessary for their own transactions with foreign countries, and partly because a productive, mercantile, and manufacturing country like Britain would rarely have the balance of exchange against her with any part of the world. During the existence of an ill-regulated and therefore redundant paper circulation, a large exchange transaction, for a foreign loan or coinage, would be actually serviceable, by demonstrating the excess of our paper circulation, and compelling its reduction. But when it appears that the exportation of three or four millions of gold bullion has an injurious and distressing effect on all our trading and manufacturing interests, and on the state of the labouring classes, it must be admitted that the country pays very dear, in the opera tion of the permanently convertible principle, for enabling a huge capitalist to work out his grand operation, some three or four per cent cheaper, by draining the bank of its bullion, than he would accomplish it by realizing, in different parts of the continent, merchandise, produce, or manufactures, and drawing the net proceeds in gold to the required focus, in the manner described in Mr Rothschild's evidence, before quoted. Two or three of the victims who, in the final result, are saddled with foreign national bonds, active and passive debts, bank shares, and other trash, for which some genius of the Stock Exchange invented the term "securities," might be examined as to the national benefit of facilitating the outflow of bullion from the bank for future speculations of the like nature.

Even under the circumstances of a demand for foreign corn, the payment is made by bullion chiefly to facilitate the transaction. In most cases, the corn required could be purchased by the sale or barter of produce, merchandise, or manufactures, though perhaps it would cost more; but it would be far better for the country to submit to that, than to the contraction of the currency necessarily resulting from the export of bullion under the

The plan proposed would have no visible difference to the public at large, except in the aspect of the notes arising from the new description of stamp; and with those of the bank of England there need not even be that change, if Government think proper to confide to the directors, on certain conditions, the management of that portion of issue they may contract for, in their present mode, subject to terms of supervision and verification that may be satisfactory to Government. The whole operation of the measure would be between Government and the banks and bankers; the transactions of the latter with the public would be the same as at present in appearance, and nearly the same in fact-the total change in the nature of paper money would be unseen. It is, however, necessary to bear in mind that the whole principles of issue being altered, a great deal of the reasoning that has been justly applied to the system at present acted upon has no bearing upon that very different system proposed; nevertheless the latter is not inconsistent with one very general theorem, enunciated by Mr S. J. Loyd, viz. q. 3074, "I apprehend the sound principle to be, that you put a correct restraint founded on principle upon the paper money of the country; and that being strictly and correctly regulated, all transactions, all forms of credit, all superstructure that is raised