The Theory and Practice of Banking

THE
THEORY ANJ) PRACTICE'
BANKING
35Y
HEXKY prxxixa MACLEOD. M.A.

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I; HOVAL
VOLUMB II.
LONGMANS, GREEN, AND CO.

»U !*ATKKXOSTKH HOW, LONDON
KFAV YORK AXI> HUM BAY
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CONTENTS
THE SECOND VOLUME
CHAPTEB 3C
THE BENEWAL OF THE BANK CHABTEB IK 1800,

TO THE ACT FOB THE BESUMPTION OF CASH PAY-
MENTS IN 1819
#At*tt
1, Great failure of the harvest in 1800 . * . » 1
2. Opinionsholdan1096,respectingthe depreciationof paper, **
3. Opinion of Adam Smith respecting the market prioe of
Bullion . 3
4. After the restriction prices ontiraatodin Bank paper * . $
5. Sudden rise in the market price of Gold in 1801 . * .3
6. Discoveryof the truth that a rise in tho marketpriceof g«M
Bullion wana proof of the depreciationof the papercur-
rency 4
7. This discovery duo to Xlr. Boyd, Lord King, and Mr. Thorn-
ton ........... 4
8. Peaceof Amiens-continuation of the nwtrietioa 4
0. Mr. Fox firnt dwJtmwthe oauneof the adverseexchangein
tho HOUBC
of Commons 5
10. Declarationof War in 1803--Lord King's j>rincij»l«»of a
paper eurrcney »,.....«. 7
11. The i»fiue«
of country hanknbanetl«j>onBaukp«p«r * . $
12, Par of Exchange between England and !rrlan4 8
13. The Bankof Ireland directedto auNpond
payment*in en»h . 0
14. Extraordinarydepressionof the Exchan^ l^tw^n Ltmdnn
and Dublin ......... 0
15. Appointmentof & Committeeto inquire into the «tat* «tf Ui«
Irish Cnrreney 9
16. First investigation
into tho theoryof thepap**aurrenryby
Parliament "*"".,«,, ro
17. Opinions of tbe BireotorB of the Bank of Lrolaud . » , 10
VI CONTENTS
PAGE
18. Their description of the extraordinary debasementof the
Irish. Currency 11
19., Exchange with Belfast favourable to Ireland, while that with
Dublin adverse 13
20. Difference of 12 per cent, betweenExchangewith Dublin and
with Belfast 14
21. The fact proved that a balance of payments was due to
Ireland, while the Exchange was so depressed . .14
22. First declaration of the opinion that gold had risen, and paper
had not fallen 14
23. Opinion of Mr. Marshall that Irish Bank notes were depre-
ciated ..... 15
24. His evidence on the subject 16
25. The Theory of the Directors of the Bank of Ireland as to the
regulation of the paper currency 17
26. Eeport of the Committee 18
27. The Committee report that the Directors should regulate
their issues by the price of guineas and the foreign Ex-
changes 19
28. Very debasedstate of the coinage ..... 19
29. The Committee do not discuss the new theory of paper
currency 20
30. They recommend an assimilation of the English and Irish
currencies 20
81. Mr. Fox declaresit to be a fantastical opinion that paper was
not depreciated,and that gold had risen . . . .20
32. First declaration by a Parliamentary Committee that the
paper currency should be regulated by the Foreign Ex-
changes 21
33. Renewal of the Bank's loan to Government . .22
34. Circumstanceswhich lead to the great depreciation of the
British Currency 22
35. Perfidious conduct of Prussia in 1805 23
36. The Berlin decree against British commerce in 1807 . . 24
37. Immense speculation in 1808, and subsequentyears . . 25
38. Great multiplication of country banks in 1809 . .25
39. Great rise in the market price of gold 26
40. Appointment of the Bullion Committee . , .26
41. Eeport of 1810 identical in principal with that of 1804 . 26
42. Names of the Committee 27
43. Identity in sentiment betweenthe witnessesexamined before
both. Committees 27
44. Bemarks upon some of the evidence 23
45. State of facts agreedupon ....... 29
46. Issues maintained by one party 29
47. Issuesmaintained by the other party 30
48. Discussion of the points of difference , .... 31
CONTENTS
49. Evidonco of Mr. Chambers . * * » * * " #2

50. Bemark of Mr. Huskiason , . * * . - * 3*
51* Fallacyof Mr. Chamber'sopinions 8*
52. Another illustration 85
53. One argument to show that there was no differencein value
between guineas and bank notes 85
51 Discussion on second point of difference betweenthe two
parties Sft
55* Opinion of a foreign merchant 87
50. Discussion of the thud point of differencebetweenthe parties 3*
57. Discussion of the fourth point of differencereserved , * .'W
58. Analysis of the Bullion Report . . :w
59. The same continued !W
60, The same continued . -li>
61. The naino continued * . 4U
02, The same continued « . . * * . * * 41
03* The same continued . . * * » . * .41
61. Tho same continued , . * » * . . .41
65. The same continued . * * * . * * * 42
00. The same continued . * * 41
67. The same continued . . . * . , . . 4t
68. The same continued ,43
60. The same continued . . * 4*
70. The same continued . . . , . . . , 4t
71. The same continued * . » 41
72. The same continued ........ 45
73. The same continued 4f>
74. The same continued * . 40
75. The same continued . . . . . . . ,4*',
76. The same continued .,.,.,, 441
77. The same continued . # * * * * » t 47
78. The same continued 47
79. The same continued ........ 47
80. The Bullion Reportis the standardby winchAll taftblaUori
regardingthe papercurrencyshould lo rogulatoi . ,47
81. Besolutions of Mr. Horner ..,,». 4*t
8^. Mr. Ilo80*«reply to Mr. Homer ..»*., 4tf
80. Speechof Mr. Thornton ""»..,. 4j|
84. Mr. Vansittaxt'sresolutioni* .»»**» 60
85. Historicaluntruth of the doctrinethat the coinagencvorw&g
intendedto containany fixedquantity of bullion . #3
86. Prevalence of a |»*fc}>er
price anda cnahprice for good* . 5$
87. Examplesof this givenby Mr. Sharp « 53
88. Instances given by Sir Franeia Burdetfc m 53
89. Theoryof the opponentsof the Bullion Beport . $3
00, Bejectiottof the Bullion Bcport-Mr. Xtoi voteswiOi the
majority +*»«»»»».. 44
ii CONTENTS
i»\n»
91. Resolutions of Mr. Vansittart 01
92. Mr. Canningtries to persuade
Mr. Vansittart to abstainfrom
55'
pressing his lesolution ..,,..
93. Greatabsurdityof the law regardingthe saleof guineas . 55
94. Letter of Loid King 56
95. Lord Stanhope's Act in 1811 56
96. Opposed by Lord Grenville 57
97. Observations of Lord Stanhope 58
98. Absurdity of these opinions * . 58
99. Lord Stanhope's Bill passed 58
100. Remarks upon overtrading of 1R09resenrod . .58
101. Alleged injustice of making the Bank buy gold at the market
pnee 59
102. High price of corn in 1812 59
10S. Great speculations and increase of country banks in 1813 . 60
104. Very abundant harvest of 181B, and revulsion of credit in
1815-16 . 61
105. Great destruction of country bank paper in 1810; rise in tho
foreign exchanges,and fall in the market price of gold . Cl
106. Which is an example of the truth of the principles of the
Bullion Report 02
107. Partial resumption of cash payments in 1816 » . . 0*2
108. Restiiction prolonged till July, 1818 63
109. Mismanagement of the Bank in 1818 63
110. Great drain of bullion in 1818-19--appointment of Com-
mittee by both Houses of Parliament to enquire into the
expediency of resuming cash payments .... 04
111. Names of the Committee 04
112. Great changein the opinions of the mercantile world regard-
ing the principles of the Bullion Report . . . .65
113. Opinion of Mr. Dorrein, Governor of the Bank . .65
114. Opinion of Mr. Pole, Deputy-Governor of the Bank . . 66
115. Opinion of Mr. Haldimand, Director of the Bank * . 67
116. Opinion of Mr. Ward, Director of the Bank ... 71
117. Opinion of Mr. Samuel Thornton, late Director of the Bank, 72
118. Opinion of Mr. Irving 72
119. Opinion of Mr. Holland 72
120. Opinion of Mr. (ThomasTooke 74
121. Opinion of Mr. Ricardo * 75
122. Opinion of Mr, Baring 77
123. Opinion of Mr. John Ward 79
124. Resolution of the Bank of England in opposition to the
evidence of the mercantile witnesses . . , , .79
125. Reports of the Committees to both Houses . . . * 80
126. - Ministerial resolutions 81
127. Speechof Lord Liverpool ....... 81
128. Speechesof Lord Lauderdale and Lord King . . fc3
CONTENTS IX
PAOB
129. Speech oi Lord Grenville , . » I ". . 83
130. The speechesof Lords Liverpool and Gronville deserveto be
carefully studied 86
131. Speecho! Mr. Peel in the House of Commons . " .86
132. Speeches of various members * 89
133. Chief provisions of the Act 90
134. Act to prohibit the Bank making advancesto Government . 91
135. Enthusiasticadoptionby Parliamentof the principlesof the
Bullion Report m 1819 91
136. The Bank of England resists the principles of the Bullion
Beport for eight years longer,but finally adoptsthem in
1827 92
137. Causeof the fallacywhich so long deceivedthe public on
this subject 92
138. The principles of the Bullion Beport are not matters of
Opinion but of Demonstration 93
Table shewing the chief variations in the market-price of
Gold Bullion from 1790 to 1819, and the real value of the
£1 Bank note during the restriction 95
CHAPTEB XI
FB.OM THE ACT FOE THE BESUMPTION OF CASH PAYMENTS

IN 1819, TO THE BANK ACT OF 1844
1. Great disturbance in the proportions of supply and demand
in several articles after 1819 ... * * . 96
2. High prices of corn in 1818 96
8. Market-prico of gold at par with Mint-price in 1819 . . 97
4. Great fall in the price of corn at the end of 1822 . . .98
5. The Bank resumes cash payments 1st May, 1821 . . .98
6. Corn Act of 1815 to secure price of wheat at 80s. a quarter . 99
7. Committee on agncultural distress in 1822 .... 100
8. Prolongation of the issues of the £1 country bank notes * 100
9. Mr. "Western'sattack on the Currency Act of 1819,in June,
1822 101
10. Proposalfor the **equitableadjustment" of contracts . . 102
11. The piico of agricultural produce more depressedon the Con-
tinent than in England 103
12. The Currency Act of 1819 produced no con-
traction of tne Currency 103
13, Sir Robert Peel IHentitled to neither the morit nor the blame
of the Currency Act of 1819 104
14. Fallacy of the nuppositionthat the increasedprices of agri-
cultural produce in 1823wore owing to increased issues . 104
15. Secondattack by Mr. Western on the Currency Act, m June,
1823 105
1ft. Speechof the Marquisof Xitchucld 100
X CONTENTS
PAGR
§ 17. The Marquis of Titohfield'a description of ** Currency " , 10H
18. Fallacy of alleging that the paper currency was depreciated
daring the whole of the roHtrictiou from 1707 to 181D . 100
9. General revival of prosperity in 1823 110
20. Origin of the disaster m 1825 began at the close of 182i * 111
21. Great speculation caused by the recognition of the inde-
pendence of the South American colonies of Spain by
Groat Britain in 1824 Ill
22. Groat apparent prosperity at the beginning of 1825 . .111
23. Description of the speculative mania of 1825 . . .112
24. Fatal conduct of the Bank of England at this period . .113
25. Collapse of Credit in the autumn of 1825 . . .113
26. Bapid efflux of Bullion from the Bank of England in 182JL
and 1825 Hi
27. Banking panic in the autumn and winter of 1825 . 115
28. General run upon the London and country bankers . .110
20. Description of the great crisis of December . . . ,110
SO. Policy of the Bank . 110
31. The greatpressurein the money-market
turns the exchanges
in favour of England . . . . » » ,117
32. Sudden change of policy by the Bank-profuse issuo of
£5,000,000 Bank Notes in four days 117
83, Issue of £1 notesby the Bank, whichstaysthe panicin the
country 118
34. The crisis an exampleof the truth of the principles of the
Bullion lioport 11B
35. The speculative mania not attributable to the Bank or to
the country banks liJO
86. Speculative manias have occurred both before and after-
wards, not attributable to the Bank 120
37. The boldpolicy of the Bank savedit from bankruptcy . 121
38. Determinationof Governmentthat the monopolyof the
Bank must be modified 121
39. Discussion in Parliament on the commercial crisis in
1826 121
40. Abolition of £1 and £2 bank notes . t 1*2*2
41. Mr. Baring's condemnation of the small notes . , , 1*23
42. Speechof Mr. Huskisson 9 123
43. Opinionof Sir John Newport »..».. 125
44. Speechof Sir Eobert Peel . . . . . . .1*2(5
45. Provisions
of theAct suppressing
smallnotesin England , 127
46. Intention of the Governmentto suppressthe small notesin
Scotland abandoned, in consequenceof the recommenda-
tion of Committeesof both Houses , 123
47. Adoption by the Bank of England of the
Principles of the Bullion Report-The Reso*
lution of 1810 expunged flrom their books , 128
CONTENTS Xl
4$ The circulation of Scotch £1 notos in England forbidden . 120

4$. Bun on the Bank in 1832, during the discussion on tho
Beform Bill ......... 120
50. Committee of the Commons on the Bank Charter * . 130
51. The inquiry left incomplete .*,*». 130
62. Principal points inquired into ...... 130
53. Mr. HoiHley Palmer's description of the method adopted by
the Bank, to carry out the principles of the Bullion Report 131
54. Opinions of the witnesses ....... 131
55. First appearance of the heresy that bills of exchangeform
no part of the circulating medium ..... 132
56. Mr. Attwood's attack on the Currency Law of 1819 . . 132
57. Besolutions of the House of Commons, renewing the Bunk
Charter ....... . 132
58. Definition of the Bank's exclusive privilege of banking * 133
50. Tho Bank's privilege held not to exclude the formation of
Joint Stock BunJksof deposit ..... . 131
CO. Provisions of the Act renewing tho Bank Charter in Ib33 . 135
61. Depression of tho price of wheat m 1834-33~3(> . . , 130
62. llise of speculation, and Joint Stock Companies * * . 130
03. Position of tho Bank in 1833-34-35 * 1!W
64. Decline of bullion in the Bank in 1B36 . . » * 131)
65. Negotiation of American securities in England . , . 130
60. The Bank of England refuwes
to discountany bill indorsed
by a Joint Stock Bank of inane ...... 130
67. Difficulties of the Agricultural and Commercial Bank in
Ireland ........ . MO
68. Failure of the Northern and Central Bank . * , .110
60. Position of the Bank in March, 183H ..... 112
70. Failure of the Bank of Belgium in 1H3B .... 143
71. The Bank send**a million of BO\eruignBto America . * 1 13
72. Eapid drain of bullion from tho Dank in 1H3U , » . 1 13
73, Tho bank rate of dincouut much below tho markut rate . 14i
74. On the 13th July, 1H»1», the Bank oi!er« atmuitiort for «a!o . 1M
75. The Bank is obliged to croatu two foreign orutlitH . * 1i 1
76. Appointment of the Committee on baukn of itmuo in !Hi() . 145
77. Lord Overstonc points out the fundamental vice of ilia bunk
principle of 1832 ........ 117
78. Unsatisfactory character of tho inquiry . . t « H8
70. State of the country from 1838 to 18U . , * * uu
CHAI>TBB XII
FROM THE BANK ACT OF 184* TO THE PBEHENT TUI33

1* Sir BobertPeersviewsregardingtheCurrencyonintroducing
the Bank Act of 18-H .,...»., 150
Xli CONTENTS
PAOH
§ 2. Errors committed by him """"'** "

3. Continuationof Sir EobertPeel'sspeech . . . " *"»
.153
4, Unfairness of his illustration
5. Opinion
of President
VanBurenregarding
theBankof the ^
United States
6. Continuation
of Sir EobertPeel'sspeech . . . . X55
7. Furtherproposals
of SirEobert
Peel, . » * .150
8. Heacknowledges
theinconsistency
of his measure
of 1844^$
with his former views
9. Extract from Sir CharlesWood'sspeech « * « * 157
10. The Bill becomes law " ^
11. Chiefprovisions
of theAct . . - « » " 158
12. The Act authorisesa violationof its own principle . * 160
13. Incorrectto saythat theActof 1844is the complement
of
the Act of 1819 ^1
14. The Act of 1844 is a combination of two very erroneous
theoriesof currency Wl
15. Unusualaccumulationof Capitalin 1844 .... 161
16. Great error of writers who think that prices must vary
exactlywith the amountof the Currency . . . .162
17. Variations in the Bank rate of discount after the Act of 1844 102
18. Bapiddrain of bullion in the Autumn of 1846and Springof
1847 163
19. The Bank Act shewnto be subject to the same radical vice
as the bank principle of 1832 165
20. Monetary pressurein April, 1847 166
21. Passesoff after the first week of May 1G7
22. Error of the Bank in keeping down the rate of discount too
long 167
23. The Chancellor of the Exchequer notices the pressure in
Parliament 167
24. Corn speculations in the Summer of 1847 . . . . 107
25. Great failures in the Autumn of 1847 ..... 168
26. Unsound state of commercial credit m 1847-the panic . 168
27. The Government letter authorising the Bank of England to
issue notes beyond the limits prescnbed by the Act of 1844 170
28. Extraordinary aid afforded by the Bank of England to Com-
mercial houses in the Autumn of 1847 . . . .171
29. Meeting of Parliament in November,1847 .... 172
30. Speechof tineChancellorof the Exchequeron movingfor a
Committee of Inquiry into the commercial distress,30th
November, 1847 172
31. Speechof Sir Eobert Peel 175
33. Opinion of the Governor and Deputy-Governor of the Bartk
of England on the Act of 1844 ...... 177
84. Mr. Gurney's opinion ....,,.. 178
CONTENTS
VXOH
85. Mr. Loyd's opinion « " * * * " * .171*
36. Mr. Glyn's opinion 1«0
37. Eeports of the Committees ..""""" 180
38. Mr. Henries' motion ISO
30. Drain of bullion in the Autumn of 18«M * 180
40. Comparativeviewof the bullion, and the rate of discountof
the Bank of England during 1855 . . . * .182
41. Judicious conduct of the Bank during this dram , . * 183
42. The Bank of England allowed fco increase its issues on
securities 183
43. Pressure in 1856 181
44. Unexpected
crisis of 1857 . . * . . » .184
45. Improvedmanagement of the Bank 1H5
46. Commencement of the crisis of 1857 * * 1HC
47. Increase of the panic * 1H7
48. Second Suspension of the Bank Charter Act . 1H7
49. Evidence of the Governor 188
50. Notes issued m excess of the Act 1UO
51. What was to be the next mama? . * » . . . 100
52. Pressure in 1863 and 1804 ....... 101
53. Bank of England joins the Clearing House , 102
54. Commencement of the crisis of 1806 194
55. Third Suspension of the Bank Charter Act . 193
56. Great Bank failures W8
57. Bemarkable difference between the rates of discount of the
Banks of England and France 196
CHAPTER XIII
HISTORICAL SKETCH OP THE RISE AND PROUKKSS OF

BANKING IN SCOTLAND
1. Foundation of the Bank of Scotland in 1695 . . f . 1QB

2. Bivalry to the Bank , HW
8* The Bank issues £1 notes .*.., 200
4. Proposals to the Bank . . * » , , . "201
5. Foundation of the Boyal Bank in 1727 » » » 202
6* The " optional clauses" in the Bank Notes . ml
Fall in the Scotch Exchanges ...... M\
Act to forbid the optional clause** *20d
7. The British Linen Bank founded in 1746 . 208
Extract from Adam Smith ....... SOU
8. The Ayr Bank , 213
9. The Bank of Scotland increasesits Capital * . , .216
10. Great Commercial Crisis in 1793 . . , . . 2KJ
11. The Scotch Banks suspendpayments in cash in 1707 « * 217
12. The Commercial Bank founded in 1810* * » . * 218
XIV CONTENTS
in. Committee* of Parliament on So»tch Hank* » , . i'i »

li. Scotch Hanking Act of IS 15 ....* * uao
15* Failure of tho YVVstwn Bank in IH,"»7 . . , . * &!l
iHitaiift of thin failure WJ
16. Tho ciri'muHtancea
of this failure prove the Hnlidity of tho
Scotch Banking *y«tom . 238
17. On the Hi^ht of tho Scotch Hank* to open nrant'lm* in KiiÛm} JM7
I*. Stopi«)*(Mif tho (*ity of (ilaôvr Hank ****!
19. titacifttitri of the Scotch Hanks in IrtKI 211
CIIAPTKil XIV
SOUS THEOIUBS OF CUlUtKXCV*
1. It is noceafiarynot only to ftscortain tho truo prhmiplcit of

monetary goioneo, but to point out tho fallacy of fabo
thiu>rit\s .......... tti.1
2. Onoof thcrto may bo calW La\\iHtti * * * « ,213
3. Statement of tho question . . . * « . * 2 1ft
4. recuHaitfy of LAW'HHytiti'in " . ..... Stii
5. It in a \iolation of the CunUanU'ntalconception of A Cuircnry
Crttahlishcd in thin \\urk ....... 21*>
6* PiecuworH of Law « * . . » * * * . 2J">
7. Houu*account of LAW'HTheory of Mom»y . . * , 2iO
8. The hamo continued ..... , * . 2i7
0. Thu Hainu contintu'tl ...... * .217
10. The *mme contimHul ........ 2IH
11. Tho same continued ..... * . .218
12* The same continued * . ...... 2 t'J
13* The samo continued ..»..,., 24U
14. The game continued ...-.,., 2f«0
15. Tho same continued ........ 250
10. Tho efisflticcof Lawinin in that money ruprcftontBcommoditit^,
and that impor currency may bu banctl upon commmlitic«,
Money doea not represent Commodities but
only Debt, or Services Due, which havo not yet
received their equivalent in Commodities . . 251
17. The Theory of batting a paper currency upon eomnuxlitiMi
involvcB
thepalpahio
contradiction
in torumthata|>oiDon
may buy commodities and kuep hiH money an w«ll . 252
18. Law's id*w .......... fc>8
10. Law wa«no advocateof an unliniitod inoonvertiblcpaper
currency .......... 2f,3
20. Tho most celebratedexamplesof Lawfom * 234
21. Account**of the French AH*igimtB ...... 2:»r>
32. The Fftinocontinued . ....... 2r»*^
ii3. Tho Hamccontinued , , , . ,257
CONTENTS X
FAGft
24. Accounts of the French AssJgnats « . ". 257
25. Tho samo continued 258
20. The same continued * 258
27. Extracts from Sir Archibald Alison's History regarding tho
assignats 258
28. His extraordinary inconsistency ...... SCO
21). Tho same continued 2f>2
30. Practical results of Law's Theory 263
31, Fourth example of Lawism--The Bank of Norway » . 263
32. Fifth example-The American banking convulsionsof 1837-39264
S3. Tho principle of "basinga paper currency on the public funds
is identical with, and is as vicious as, basing it on land . 266
84. Fundamental vice of the constitution of the Bank of England 267
85. The consequencesof tins vicious pxmciplo axeprevented by
its being hmitod to that single instance .... 268
36. On the Theory of basing a Paper Currency on
the discount of mercantile bills . . . 268
37. Refutation of this theory by tho Bullion Committee . . 268
38. This refutation incomplete 271
3D. Demonstrationof tlio fallacyof this theoryon tho principles
of this work 271
40. The same continued .**.*, 273
41. Specificmeaning of over-issue ...... 274
42. Fallacy of the expression *"goal bills " . . , .275
43* Adam Smith tho parent of both these currency fallacies . 275
44. Bullion as the representativeof debtis the only properbasis
uponwhich to found a papercurrency . 275
45. Bullion is only the regulatorof its amount .... 270
46. Specieand creditform the only true circulatingmedium . 27G
47. Specieand credit must always increaseand decreaseto-
gether ....".,,., 277
48. rioblom to discoverthe true modeof actingupontho paper
cuironcy , 277
49. The rate of discount is the true modeof actinguponthe
paper currency 278
50. Argumentsapplicableto the caseof wheat also apply to
debt . 278
51. Effectsof tho actionof this principle 270
52. In all commercialcrisoHproductionshouldbo curbed. . 280
53. Consequences of violatingthis principle . 260
54* The samecontinued " , . 281
55. Perverseoppositionto this law of nature . 281
56. Error of & prevalenttheory 281
57. Historicalproof of tho fallacy of tins theory . t . 282
58. Mistakenviewsof Sir ArchibaldAlison . . , . 282
50. When the ForeignExchangesare adversetho Bank must
contract its Issues , 283
XVI CONTENTS
§ 60. Consequencesof adopting Sir A. Alison's plan ; . . 2c$

61. Absurdity of it *284
62. Other considerations which prove that the rate of discount
is the true mode of acting on the paper currency . . 284=
&S. Advantages of a proper attention to the rate of discount . 2S5
6£. The truth of the precedingprinciples exemplified in England
on various occasions . 285
65. Conclusion .......... 288
CHAPTER XT
ON THE DEFINITION OP CUBBENCY
1. The Bank Act basedon a peculiar definition of Currency . 287

2. Booms of the Anglo-Saxons regarding the sale of goods,
merchandise, or cattle ....... 288
3. Still in spirit the Common Law of England .... 291
4. Meaning of Currency 292
5. Judicial decisions as to the meaning of Currency . . 293
Bank Notes: Anonymous 294
Miller v. Race 294
Clw & v. Shee . . . ' 295
Cheques : Grant v. Vaughan ...... 295
Bills of Exchange : Peacocl v. Rhodes .... 295
Collins v. Hai tin 296
Foreign Bonds: Gorgier v. Miemlle . . . . 296
2. Currency means Negotiability ..... 297
Woo'keyv. Poole 297
Ingham v. Primrose .,*.*... 302
Whistler v. Forster ........ 302
Shute v. Rolins ...» 302
Lang v. Smyth 303
Foreign Scrip : Gooduin v. Rolarts .... 303
6. All Negotiable Instruments are Currency .... 304
7. Bank Credits are «'Beady Money " 307
8. Bank Credits are Currency 310
9. Writers who include Bank Credits as Currency . . . 312
10 Mr. G. W. Norman on Currency ...... 314
11. Lord Overstoneon Currency 315
12. Discussion between Mr. Hume and Lord Overstone . . 320
13. Colonel Torrens on Currency ...... 322
14. Examination of the modern opinions on Currency . . 324
15. Legal and philosophical errors of these opinions
* . . . 326
16. Consequencesof these doctrines . . . . . . 329
18. Opinion of M. Michel Chevalier ..,.,, 333
CONTENTS
CHAPTER XVI
ON THE ORGANISATION OF THE BANK OF ENGLAND AND

ON THE BANK CHARTER ACT OP 18U
PAOR
§ 1. Oimt complexity of tho Act of 1ft14 334

2. First constitution of tho Bank 335
3. An example of I«awism ....... 336
4. Increase of tho Bank's capital 3IJO
5. Fallacy of the principle , 3,16
6. Tho Bank receivestho power of unlimited issue . . . 337
7. Its power of issue again limited in 1844 . 337
8. Conversion of Peel to the Currency principle . * . 338
9. The Bank Act doesnot carry out this principle * « . 330
10. Arithmetical errors of the Bank Act . . , . .310
11. The Currency Principle cannot be carried except by abohuh-
ing discount banking, - . . . . . .311
12. Tho Bank Act xa ftuhjont to tho same radical vice an Lord
Orerstone shewed afTuct^dthe Bank principle of 1882 . 342
13. Causes of the failure of the Act ...... 343
The Author'sNt»\vPrincipleof Currency .... 344
Li. On the causeswhich compelled the Suspension of the Bank
Act in 1847,1857, and 1«66 3*8
Two conflicting Theories-
(1) Tho Expansive Theory . * » . * " 318
(2) The Bestrictive Theory . . « , » « 31H
15. Crisis of 1703, adoption of the Expansive Th<wy * * 350
16, Crisisof 1797,adoptionof the Bestrictive Theory . * 3f>l
Stoppageof the Bank 355*
Crisis of 1825, adoption and abandonment of the Restric-
tive Theory 3,"54
The Expansive Theory HRWH the Bank and tho country . £»5
CriHiHof 1H37; tho Bank adopts tho Expansive Th<»m*y . 365
Tho Bank Act onactath« Bestrictive Theory by I>aw . 355
Paihire of the Bestrictive Theory in 1847,1*37, and !&«« 355
The Expansive Theory savesfchoBank and the country in
each of these crises ........ 350
17* Failure of the Bestrictive Theory in othrr onuntriiui . 357
18. Contrastof Principle botwwn the supporter**
of the Act of
1819 and the Bank Act of 1H44 358
19. Examinationof the argumentsallegedfor maintainingthe
Bank Act 800
20. An excessiverestriction of Credit producesand causesa run
for gold 303
21. The Bate of Discount is the true Supreme Bower
of controlling Credit and the Paper Currency . 365
2£. Constitution of the Directorate of the Bank . « 30$
VOX* UL «
XVU1 CONTENTS
23. Mr. Lowe on Commercial Panics * » " 3C8

24. Errors of Sir Eobert Peel ....... 368
25. The Bank Act has renderedall banking illegal . . .371
26. TheCheque Bank ........ 374
Illegality of this Bank ........ 375
27. An Inquiry into the Banking System of the country will
become
necessary ........ 378
CHAPTEB XYJI
OK THE BISE AND PKOGBESS OP JOINT STOCK BANKING

IN ENGLAND
1. Joint StockBanks not issuing notes legal at Common Law . 379

2. Mr. Jophn discoveredthat such Banks did not contravene
the Bank Charter ........ 379
3. Statute of 1826,permitting Joint Stock Banks ol Issue 65
miles from London ........ 382
4. Slow progressin forming Joint Stock Banks " " . 383
5. Begulations of Bank Charter Act, 1833 . . . . 384
6. This Act permits formation of Joint StockBanks not issuing
Notes in London ........ 384
7. Joint Stock Banks founded in London ..... 385
8. London and Westminster Bank refused admission to the
ClearmgHouse ......... 385
9. Its contestwith the Bank of England ..... 385
10. Contest of Joint Stock Banks with the Bank . , . 386
11. Statute of 1838, c. 96 ........ 387
12. Statute of 1841, c. 14 ..... . . .387
13. Objectionablepoints in former Banks ..... 387
14. Committees of House of Commons on Joint Stock Banks 388
15. Peel's Joint Stock Bank Act of 1844repealedin 1857 . . 388
16. Statute of 1857, c. 49 ........ 388
17. Limited liability concededto Banks ..... 389
18. Causesof the failure of Joint Stock Banking in England . 390
19. Original monopoly of Banking injurious * . . . 391
20. Consequences of this monopoly ""».«. 393
21. Bevolution in commercialopinion " . . . 394
22. Moderncommercialideas «"""... 395
23. Decayof private Banking ....... 395
24, Mr.Goschen's BiH to extrudethe ScotchBanksfromEngland396
25, Statutesof 1858and1879extendinglimitedliability to Banks 400
CHAPTEB XVIII
ON THE BUSINESS OF BANKING
1. A Bankermaystandin fowrrelationsto hiscustomer . 402
2, Belationof Banker to customeraspurchaserfrom him of
specie
anddebts * . . . r ^
CONTENTS XIX
JPAflS
3. Trading customers . * * * * . . . 4i»5
4. Nature of Banking . ...... 408
5. Belation of Banker to cu^tomor as Agent, Trustee, or
Bailee of apme and banking hmuititw .... <10S
6. Belation of Bankoi to customer as Pawnee of banking
securities . . . . . . . . * .110
7. On Short" Bills" ......... 411
8. Relation of Banker to customer an Warehouseman of his
plato, jewels, specie,doodn,securities, &o..... 413
9. Oa tho Appropriation of Payments .... 413
10. Bankersas Agents or Correspondents of other hanker*415
11. Tho bankruptcy of a customer ; Set-off and Mutual Cioilit . -ILI
12. On Banking Investments ...... 4H)
13. On discounting Bills of K&clmnKO 420
It. Advanceson loan \\ith womity ...... 4Ui
15. Advancesby way of Cash O'mlita and Overdrawn Accounts . 427
16. Investments in public st'cunti**)} .,..,. 4U7
17. Bill brokers .......... 428
18. Advancesto Companies ....... 429
10. Table of Charts of the Scotch Banks ..... 42«,»
20. On tho Clearing* System ...... 435
21. On tho Edinburgh Clearing HOUMO ..... 437
22. On tho London Clearing House ...... 443
xrx
ON COLLATEBAL SEC'UBmBH TAKEN Bt BAKKKRS
1, Collateral Security ........ 41$
2. On a Bonkor'8 tiion on hia Customer's Securities . . 4in
3. lluloB rolatinn to a Bank«»r'HLien ..... 4f g
4. On Goods taken as Security ...... 4 -,3
5. Policies of l»ife Assurance takr»nas K«*enntios * 453
6. On Title Deeds takena«Stxiunty . 455
7. On Secunti^Hby third persons ...... 43$
8. On Dock Warrants and Bill* of Lading * . . 402
The Factor«* Act ........ 4<j,*j
0. Factors* Acts limited to mprrtinttlo tranwactions , . . 4()«j
10. Factors*ActH Amtmdmout Act, 1H77 * 47^5
11. On Bills of Lading- . ...... 474
TJ, BillB of Lading Amnmlmcni Act, IH,*5* * * * ,470
CHAPTKB XX
ON TUB LAW OF CKEIHT, WIAS, AND NOTES

ProHnnnaryItonwrks * . , . . . . 47$
1. Definitionsand OoneralPrinoi^m ..... 4hU
2. On the Transfer of a Credit,or Dobl * t , , 4ai
a '2
XX CONTENTS
PAQH
3. Definition of Instruments of Credit, or Debt " . .482
4. Definition of Parties to an Instrument of Credit . . » 483
5. Definition of Terms relating to the Instrument . * « 483
6-10. General Bules relating to the Instrument " * 485
11-17. On the Stamp " * . 486
18,19. Duration of Instruments .....*. 488
20,21. Days of grace 489
22,23. Transfer of Instruments ....... 490
24. Bills and Notes are goodsand chattels . . . . . 490
25. Property in them . 491
26. When payable by a banker ....«,. 491
27. May be the subject of a Donatio mortis cawd » * * 491
28. Lost and destroyedInstruments ...«,» 492
29. Instruments lost in the post ...... 492
30-35. Eules relating to an " I 0 XJ" . . . . . .493
36-42. Eules relating to the Transfer of Choses-in-action . . 494
Assignment of a Chose-in-action to Transferee . . . 494
Order given by a Creditor to a Debtor to pay a third person. 496
43-59. On Banking Obligations ....... 497
60-120. On Cheques , * ... 505
CrossedCheques .....*»". 520
121. Stamp Duties on Bills and Notes 522
122. Capacity and authority of parties » « " * " 526
124-156. On the Form of Bills and Notes ...... 526
157,158. Liability of Drawer or Indorser .,..«. 535
159. Eights of the Holder ........ 535
160. Funds in hands of Drawee ."...,, 536
161-168. On the Consideration " . 536
169-177. On Presentationfor Acceptance *«**.. 538
178-195. Of Acceptance .....», t . 541
196-213. Of Signing by Procuration ...»».. 545
214-224. On the Alteration of a BUI or Note ..... 549
225-250. On the Negotiation of Bills ....... 551
251-252. Lost Instruments 557
253-256. On the Property in Instruments Lost or Stolen . . . 557
257-264. On Presentmentfor Payment ...«,. 559
265-297. On the Extinguishment of Bills and Notes . . * .562
298-328. Upon Notice of Dishonour 569
329. Measureof Damages of a Dishonoured Bill . . . .579
330-338.Acceptance
andPaymentsupraProtest,or for Honour . 579
339-349.Onthe Orderof Liability of the partiesto a Bill or Note . 583
850-353.
OnForeignBills,andBillsdrawnin Sets,Parks,
or Copies.586
354. Conflictof Laws 587
355-365.Supplementary 533
366-379. On the Forgery of Bills and Note* f , " t . 590
TABLE OF CASES CITED
TheFigure*in thefolkwinyTabk ref&rto theSkcond

Velum*
unless the First Volumeis mentioned
PAQW
FAOK Attenboroughy. Commissioners
Abely. Sntton 549 of InlandKevenua 453
Aoheson
y.Fountain 553 Attwood
v. Oriflin 528,550
Adams
y. Claxton 453 Att\\ooity. Mumniags 515
Adams
y.Jones 484 Aubeitv.Wdsk 512
Adams
v. Tapling 567 AuKtm
y. Bunyard 487,510
AgraandMaster-man's Banky. AyMfcy. Bennett 488
Leighton 568 Aylitf y. Scrimahiore 56$
Alderson y. Langdale 530
Aldous y. Cornwall 650
Alexander
y*Burchfield 515 B
Alexander y. Mackenzie 545
Alexandery. Sizer 540 Backhonae y.Harrison 558
Alexandery. Strong 506 Baconv, Cheflney 461
Alexandery. Thomas 528 Badger y. Shaw 453
Allany. Mawson 529,543 Badnally. Samuel 585
Allenv. Dundas 517 Baileyy. Bodonham 510
Alleny.Edmondson 578,577 Baileyv. Kdwardn 584
Alleny. Keeves 487,510 Bail110
y. Macke\\on 450,4^8
Alleny. Walker 554 Bain^H y. Hwalnnon 408
Aloesy. Hodgson 488 Bukor v. Brook i., 219;ii., 4H1
Amissv. Witt 41)2 BakiTv. Ohailton 5iH
Ancher y.BankofEngland 5f>f> Baldwinv. KtchartlRon 577
Anconay. Marks 5>iO Balfoury. Tlw Hoa,Firo <fcLife
Anderson v, Uillies 567 AHHurancd Co, i., *258;ii., 537
Andrewy*Macklm 503 Bamfk'Ulv,T«p|x>r 507
Andrews y.Franklin 529 Bancrofty.Hall 573
Anonymous 294,413,401,517,557 Bankof Bong&lv. Fagan 558
Anselly.Baker 568 Bankof Bengalv. Maclood 558
AnaonvBailey 575 Bankof Englandy, Anderson506
Apliny*Coatos 495 Bankof Englandy. Newman 4i)0
Appletony. Sweetappla 505,516 Bankof Irelandy. Beretsfora 4B2
Archery. Hale 400 Barberv*Backhouse 548
Arden
y. Sharpo 54R Barber
y. GingaU 544,546
Ardernv. Bowney 480,487,511 Berberv. Hirhurds 484
Armfieldy. Allport 529 Barclayv, Baiby 491
Arnoldy, TheCheque Bank 513 Uardwvlly. Lydall 460
Arnold
y. Mayor
ofPoolo 414 Barfootv. Owdhall 51G,
549
Aahtony. Dalton 450 Barkerv*RichArdaon 6f55
Ashton
y. Dawson 49*2 Barth-tt
y, Burtlott 491
Ashfcon
y, Freeetan 504 Bartlotty. Benson 555
Atkinson
y. Hawdon 550 Bassy. Cliv« 542
PAGE
Bateman v.Joseph 539,574,577 Bonary. Mitchell 587
Bateson v. Gosling 462,563 Bondv.Warden 488
Bathev.Tayloi 549 Bonserv. Cox 461
Baxterv, Jones 561 Bonziv. Stewart 464
Bayley v.Boulcott 480 Boothv.Quin 548
Beale v. Caddick 415 Boiough v. Perkins 587
Bealyv.Greenslade 507 BorrodailevMiddleton 487
Beardsley y.Baldwin 528 Bosanquet v.Wray 414
Beauchamp v. Cash 573 Boswellv. Smith 512
Beaumontv. Greathead 567 Bottomleyy Nuttall 564,565
Beckwith y. Correll 557 Boultbee v. Stubbs 462, 575
Bedford y. Deakm 585 Bouleott v. Woodcott 555
492
Beechingv. 516 Bouts v. Ellis .
Beeohing
y. Gower 504,505 Bowery. Foreign and Colonial
Beeching
y. Westbrook 493 GasCo. 449
Beemanv. Duck 542 Bowesy. Howe 504
Begbiev. Levi 487 Bowmanv. Nichol 549
Belchery. Bellamy 454 Boydy. Emerson 480, 511,516
Belcherv. Campbell 491,495 Borill v. Dixon i., 244
Bell y. Banks 462, 568, 585 Boyson v. Coles 453
Belly Gardiner 550 Bozon y. Bolland 491
Bell v. London and North West Bozon v. Williams 456
Bailway Co. 495 Bradbury v Morgan 460
Bell v. Lord Ingestre 484 Braithwaite y. Coleman 418
Bellasis v. Hester 490 Brandao y. Barnett i., 253 ;
Belshawy. Bush 564 ii., 448, 449
Benbowv. Townsend 480 Bray y. Hadwen 575
Bennett v. Farnell 529, 542 Brett y. Leyett 576
Bent v. Puller 412 Bridges y. Berry 576
Bentinck v. Dorrien 545 Bndgman y. Hill 517
Bevan v. Hill 307, 512 Brind v. Hampshire 484, 497
Beveridgev. Burgis 577 British Linen Co. y. Caledonian
Bickerdike v. Bollman 576 Insurance Co. 519
Bingham v. Stanley 537 Bromage v. Vaughan 572
Bishop y. Chambre 551 Bromley v. Brunton 495, 513, 514,
Bishop v. Chitty 516 518
Bishop y. Bowe 565 Bromwych v. Lloyd i., 221; ii., 481
Blackan y. Doren 576 Brook y. Hook 544
Blackburn Build. Co. v. Cunliffe 452 Brooke v. Enderby 414
Blandy v. Allan 468 Brooks v. Elkins 493
Bleadon y. Charles 556 Brooks v. Mitchell 562
Blesardv. Hurst 576 Brown v. Byers 547
Blestv. Brown 461 Brownv. Carr 4G2,585
Bloss y. Cutting 414 Brown v. De Winton 529
Boales v. Mayor 462 Brown y. Kidger 547
Bobbett v. Pinckett 593 Brown y. Macdermot 561
Bock y. Gomssen 448 Brown v. Maffey 575
Boddington v. Schlencker 505 Brown v. Watts 488
Bodenhamy. Hoskyns 517 Browning v. Kinnear 577
Bodenhamy. Purchas 414, 495, 514 Bruce v. Bruce 490
Boehm y. Garcias 545 Brutt y. Pickard 549
Borland's Case 592 Buck v. Lee 495
Bollandy. Bygrave 449 Bucklery Buttivant i., 368; ii., 537
Bolton y. Puller 412 Bulfin v. Dunne 455
Bonary. Macdonald 460 Bullerv. Crips i., 334
TABLE OF CASESCITED xxiii
PAGE 1'AOH
Bullet 7. Plunkctfc 406 Cluldors 7. Oonlnois 4!»»
Bullock 7. Dodds 401 C'hwûm 7, l>t»\vt»4 "!»VS
Bult 7. Morroll 540 (.'landau v, l>aitou 570, ")(SJJ
Burhridge7. Manners 574 Clmk v. Adair iUO
Burchiield 7. Moor© 540, 550 Clark 7. t'iouu'ut 5U«j
Burdon 7. Hattou 505 Clark 7. Fell 418
Burgh7. Preston 503 OlarU v. Cock 541,542
Bunnester 7. Barren 573 Clarke 7* IVrwval 528
Burn 7. Boltou 414 Clazkov. Khar|io 57^
Burn 7. Carvalho 405, 407 Clarko v, Shw 2U«>, f*()2
Burn 7, Morris 557, 558 Clavonnj; v, York* 4U2
Burton 7. Gray 450 Claxton v. S\vift 5(58
Burton 7. Payne 512 Clayton^ Case 41 1, 101, Jl»3,511
Butterworth 7* Lord I>osponcer 504 Clapton v. Kynnînii 503
Butts 7. Swan 400 Cl«»rk v. JllarUtofk 551
Byron 7. Thompson 540 (Mt»rko
v. Martin j , 22i
Clode v, HaiU'y 51U,573
Closi1 v. U«»lnh»s 40*
C C'<xkkv. Coxvu'H 541)
CtK'lu'Il 7. Tn\Ior 4tHJ
falland 7. Loyd 513 Cocksv. Mask'nnim 503
Callot 7* Haiffh 570 Co^fffA(fun(» 5. 22$
Calvert 7. The Lonct Docks Co. 401 Coli»v. North \Vo-tcrn Bank 408
Canudge7. Allen by 4UO,503 ColeliiLU7. Ct>olv»» 521)
Campbell7. French 48i Cok»iuim7. Hu)*«r 490
Campbell7. Prencotfc 41*1 Cokmv. Jon<m
Capp7. Lancaster 481) Collon7. \Vritfhfc 5\7
Cardwell 7. Martin 537, 5 *9 Coilin H7. Di'nnnig 489
Carew7. Duckworth 570 Collins v, liuth-r 539
Cariss 7* Tattershall 5 19 Collins 7. Martin 206, 558
Carlon 7. Ireland 558 Colhs v, Enict 554
Carlos 7. Fanoourt 528 Colder 7. Fullnn 4t>6
Carr 7. Carr 500, 507 Coinlie 7. A\%»lft» 402
Carr7. Bead 517,518 CoiiiliiiH Stmie Qnnrry Co. 7*
Carter 7. Flower 570 Paikcr 520
Carter 7. Palmer L, 221, 223; Odok v. Lisf< r 507
li.. 4Hl Coukncyv. Uoavorio 503
Carvick v. Yickcry «Vi5 Ccumilmv, In^ratu 5W5
Cary v. GorriHh 512 OorMt v. «Tom>( 511),575
Cawbord
v. Attorney-Gen, 456,401 Coriti»8
7, Taylor
Caseof Lord Aylewbury'a"Will 307 Corm»yv. Mi»nd*'/des Anter 57(J
Caseof MarketOvert 201 Coryv. Hcott 570
Caah7. Taylor 544,510 CVwi'lIv. Sinip-on 451
Cafttrigue7. Buitigeig 5f>»> Cov»ii«7. IJulûU
Cationv. Simpson 540 Cowli'yv. Ihuiiop i, :j07i &, 537
Ca7andoer 7. Bultcel 451 Co\\|wr7. (iroen 501
Ca7ondi«h7. Greaves 419,4HO Coxv, Troy 4Bi 5il,
Chambers7, Miller 512 Crab!) v. Cra!>h 480
Chapcott 7, Cnrlowis 577 Cra^w* v»Joni'K
Chapman 7. Cottrull 511 Creation v. Haukin 401
Charles7. Blaokwell 513 <'rr»ftv, Bt»rtU* 537
CharteredMercantile Bank of Ciichlowv. ?ariry 554
India 7. Dickson 562 (*rmtkcr*H CA*»<* 591
Cheap7. Harky 5HO C'loin\vi»Hv«l£ynf»on
Chathamv. Ward 5f»» Orotikv tTiitHft 401,f/itt
Check
7.Jtoper 530 Cro»«
v*fcJintth 57»,*
575
XXIV TABLE OF CASES CITED
FA0B PAGE
Crossleyv. Ham 556 Drury v. Smith 492
Crouch v. Credit Foncier i., 252 Duff v. East India Co. 517
Crowfoot v. G-urney 495, 567 Dunn's Case 592
Cruikshanks v. Eose 414 Dunsford v. Curlewifl 510
Crutchley v. Clarance 528, 554
Crutchley v. Mann 528
Cuming v. Brown 469, 470 E
Cummmg v. Bailey 491
Oummmgv. Shand 512 Earl of Suffolk v. Cox 496
Cundy v. Marriott 488 East v. Smith 574
Cunhffe v. Whitehead 553 East India Co. v. Tritton 654, 56$
Cutting v. Williams i., 224 Eastwoodv. Bain 543
Curtis T. Eickaids 403 Edge v. Worthington 455
Edie v. East India Co. 553, 556
Edmonds v. Bates 574
Edmonds v. Groves 537
Edmunds v. Bushel! 646
Edwards v. Cooper 491
Barbishire v. Parker 574 Edwards v. Martin 455
Da Silva v. Fuller 566 Egg v. Barnett 512
Daubery v. Cockburn 496 Elder v. Maclean 495
Daubignyv. Duval 452 Elford v. Teed 491,505
Davies v. Stainbank 584 Elliott's Case 591
Davies v. The Eoyal Brit. Bank 514 Elsam v. Denny 484
Davis v. Austin 496 Emanuel v* Eobarts 510
Davis v. Bowsher 449 Emblm v. Dartnell 504
Davis v. Clarke 543 Emly v. Collins 496
Dawsonv. Macdonald 487 Emly v. Lye 490,547
Dawsonv. Eemnant 414 Englishv. Darley 669,583
Deaconv. Stodhart 568 Esdaile v. Lanauze 558
Deanv. Newhall 563 Esdailev. Sowerby 660,576
Deariev. Hall 495 Etty v. Bridges 495
De Berdetv, Atkinson 576 Evansv. Brembridge 563
Dehersv. Harriot 529 Evansv. Cramlmgton 556
De la Courtier v. Bellamy 486, 527 Evans v. Wyle 460
Demainbray v. Metcalf 453 Evansv. Kymer 556
Dennisv. Momce 576 Everettv. Collins 615,567
De Pothonierv. De Matias 563 Ex parteAbelSmith 457
Desbrowev. Wetherby 549,551 ,, Alderson 490
Deux v. Jefferies 563 Arkley 416
Dickinsonv. Bowes 504 Arkwright 454
Dickinsonv. Valpy 547 Armitstead 412
Dimmackv. Dixon i., 245 Ashby 453
Ditton v. .Rammer 565 ,, ,, Barclay 565
Dixon v. Elliott 576 ,, ,, Barnett 418
Dixonv. Johnson 577 »i Bentley 451
Dobree
v. Eastwood 573 ,, Bignold 485,560
Dod v Edwards 564 ,, Bolitho K4.7
VTKI
Donaldson v. Donaldson 495 ,, Bonbonufl UR
iTt<J
Douglas v. Home 493
Downes
v. Eichardson
485,549,550 , Broadwood 451
Dracachiv. TheAnglo-Egypt-
ian Bank 471
,> Brook
Bruce
416,460,51ft
Dragev. Netter 564 , Burton 491,494
jDruxy v. Macaulay 528
TABLE OF CASES OITKD
PAGE PAO*
Ex parteCarlis 405 Ex parte Runhforfh
f, Carstairs 463 ,1 ,, Surjûint 41J
1) Chappie 575 i, Shaip 41$
t> f» Chippendale 456 Himtthiworth 41H)
Collins 518 n j Smith
CoiviHe 401} 494 , Holers 41*2
Coombe 456 ,» , South 4*f«d
I> fl Cotton 451 t> , J5tov<*n8 4«J5
II ,1 CoweU 451 i j Steward 4lti*lf
Dumas 413 , Bwan 583
ff Edwards 412 , Tennyson
99 ff Bmly 547 , Twoody 459
Farley 457 , ff Tw<)f[i>od 413
»l fl Foxley 453 , UHlumio 4lH
Frere 413 , ;, Wuckorbath 5Sli
I, fl Gifford 403 Walkor x.»ir>9
J» }> Glendmning 4t>3 \Vaimg 417, 50(5
Glyn 458 ff *, Warner 4">$
t, ff Goulding 548 Whitbrvad 457
493
»» ft Greenway White 6iU
I, fl Halifax 455 I, ,| WiIkinnoQ 454,
I, » Haward 416 n t» Wilrtou 4r>i
II ,f Heath 576 n Wood 454
IIf1 Holmes 416, 460 553
It ft Hooper 457 Byre v. Bart top 4(H)
jf tt Hornby 416 Eyre r* Everett 461
II Hunt 458 Byton T. lattlcd&Ie 418
II It Hunter 416, 518
ft ff Johnson 416, 475
ff If Johnstone 560 F
W Kensington 457
ff ff Langston 457 Falrcloughv. Pavia C55
fl I, Littledale 454 Fairh»ov. I>onton i.f '2u7; ii., 481,507
If If Lloyd 451, 457 Fairlie v. Homntf 543
II Mackenna 4/51 Faith v. Bichtnuud
y. Manneis 4H8 Fancmirtv Bull 5«"iH!
Martin 455, 456 FarhaU v. Faritall 450
f| If Masterman 454 Farley v, Tunutr 415
If Molmo 574, 575 Farrar v. Pt«niiitte 518
II ff Monro 494 Fearn v. Filioa 5B7
Morrison 563 Fenn v. Hnrriwn 400
II If HationalBank 451 Feunor v. Mparrs J» jt28; il., 481
Ift) Nettloslnp 457 Fenwick v, lH»war 515
fftf North Wtjatorn Bank 4f>0 Fernand(»yv, Oljrnn 612
fttt Ourscll 413 FeBonmuyerv. Atlucek
9)ft Patch 454 Field v, Carr 4i4, m
f>f Pease 413 Firlden T. Marshall
*1tf Perry 456 Firbank v* IM1 49$
IIt! Price 451 FJHhorv, Kiornn 574
flIf Bafael del Bar 413 Fi«h«»rv* Leslie 4U3
ff Bandleson 414 Fitstgrrald v- Trftnt 569
» tl Bcynal 451 Fitxg^rald v. Wiliiamt
» >f Biohardson 491 Fletaher v* Froggati £70
Bigby 517, 51ft Fletcher T, Heath 468
f* II Bowton 413 FletcherT*Manning
xxvi TABLE OF CASES CITED
PAGE
FletcherY. Sutton 567 Glyn v. Hertel 401
Foleyv.Hilli., 333;ii.,J 3,507,511 GobmC Semv. Eyan 469
Forbesv. Marshall 547 Goddardv. Cox 414
Ford'sCase 491 Goddardv. Hodges 414
Ford v. Beech 564,568 Godfreyv. Turnbull 648
Ford & Sheldon's
Case 480 GoggerlyY. Cuthbert 656
Fordyce
v. Williams 480 Goldshede
Y.Cottrell 665
Forth v. Stanton 537 Goldsmidv. Gaden 658
Forsterv. Mackreth 610,547 Goldsmidv. Hampton 529
Foster v. Blackstone 495 Gompertz v. Bartlett 490
Foster Y. Cockerell 495 GoodallY. Dolley 576
Foster v. Pearson 558 Goodall v. Polhill 582
Fowell Y. Forrest 563 Goodbodyv. Foster 514
Fowler Y. Hendon 574 Goodmanv Harvey 558
Fox v. Nott 471 Goodwin Y Cremer 568
Francis v. Mott 553 Goodwin Y Eobarts
FranklandY.McGusty 548 i , 211,259; ii., 303, 481,558
Franklin v Neate 453, 475 Gorgier v. MieviUe 296, 558
Fraser Y. Birch 414 Gould Y. Coombs 493
Free v. Hawkins 554 Gould v. Bobson 585
Frith Y. Thrush 675, 577 Goupy v. Harden 639, 516
Fry Y. HiU 539 GrahamY. Dyster 453
Fuentesv. Mentea 468 Graham Y. Hope 548
Fuller v. Smith 490 Graham Y Thompson 548
Fydell v. Clarke 490 Grant v. Da Costa 527
Fyler v. Fyler 617 Grant v. Vaughan 295,306, 481, 558
Gray v. Johnston 517
Gray Y. Milner 629, 543
Green v. Davis 487
Green v. Deakm 548
Gale Y. Lewis 454 Green Y. Steer 484
Gale Y. Walsh 587 Green Y. Winn 563
Gardner v. Walsh 651 GreeningY. Beckford 41)5
Garland v. Jacomb 543 Greenoughv. MacClelland 585
Garnet Y. Woodcock 491 Greenslade v. Dewar 547
Gaunt Y. Taylor 606, 517 Greenstreetv. Carr 557
GayY. Lander 529,553 GriffinY. Weatherbyi, 257; ii., 497
Geary v. Physick 527 Griffiths v. Owen 564
Geillv. Jeremy 574 Griggv Cocks 414
GeeY. Pack 460 Guardians of Lichfield Union
Georgev. Surrey 486,511 Y. Green 490,502
Geralopulov. Wieler 587 Gunson v. Metz 576
Gerardv. Bowden i., 220
0; ii., 481 Gurneyv. Behrend 468,409
Gibbonv Coggan 575 GurneyY. Evans 643,547
GiblinY. Macmullen 413 Gurneyv. Womersley 490
Gibson v. Hunter 542
Gibson v. Minet 497
GibsonY. Overbury 454,495 H
Giebertv. Spooner 453
Gilbertv. Guignon 469,470 Haddockv. Bury 577
GilesY.Bourne 486,527 Haguev French 486,527
Gilesv.Perkins 412 HallY.Cole 683,58£
Gillardv. Wise 307,
, 503,506 Hall Y.Fuller £14. 553
Gladwellv. Turner 574 Hall v. Wood 41*
Glyn v. Baker ,, 255,2±4 HamelinY. Bruck 549
PiGR
HamSlv. Stokes 496 Hilton Y. Faireloittfh 574
Hamilton v. Spottiswoode i., 257; Hilton v. Khoplwiti 671
ii., 497 Hmton'HCast) i.t 221j ii., 481
Hamilton v, "Watson 461 lime v, AlU'ly 561
Hammond v. Dnfrcne 687 Hiitihman v. Kudd 5ti)
Hansardv. Bobmsoa 566 Hitchcockv, Humfrey 500,575
Hartlman v. Bellliouse 565 Hoaro v. 1'arker 4f$
Hardy v, Calcy 617 Hoeklcy v. JUtHock 6-iG
Hare v. Copland 513 Hodge v. Ftthrt 570
HareY. Henty 505 Hodgesv. Stewart! £.,2*23
Harmanv. Fisher 491 HodgsonY. Anderson i*, 257;
Harpham v. Child 573 ii., 4i)7f 507
Harris v. Birch 453 Hogg Y, Skoon 5-1$
Harrison v* JTackson 547 Holbrow v. Wilkins 575
Harrison Y. Buscoe 573, 57i Holdipp v. Otwuy 501
Hartley v. Case 507 Hollniul v Tc.'d 415
H artley v. Matiton 50i Holme v JJany 503
Hartley v. Wilkinson 528 Hooper v. Marshall 4(>2
Hartop v. Hoare 298, 152 Hopov. Cu-.f 517
Harvey Y. Kay 520 Hopesv. AldiT 57^5
Harvey Y. Martm 539 Hopkinnou v. Unit 4,~>tf
Hassels v. Simpson 453
Hatfield v. Phillips 4<J4 Ilonlorn v. l>altt*n 41*3
Hawkes v. Saltor 673, 571 Horforcl v. WiKtû 57B
Hawkins v. Gardiner 480 Hornbluwor v. J'loud 401
Hawkinsv. llutt 403 Hortcmv. Cogizu i, 223
Haylmg v. Nuthall 56<J Houghv. May 512
Hayuesv. Birks 575 Houwjgov, Oowno 533,575
Heathv. Hall 405 HowardY.Bank of England 503
Heath v. Key 461 Howell Y, Jon«s 461
Heath Y. Sansom 548 Howell Y. Macivor 495
Hedley Y. Bainbridge 547 Hulme v. Collins 585
Heilbut Y. Neville 548 Hulton Y. SamlvM 405
Hendersony. Apploton 504 HuraphreyHv. Briant 4U7
Henderson Y. Comploir d'Bso. Hunter v* Stt»warfc 4,">2
de Paris 470 Husband v. l)a\is 51^
Henderson
v. Stobaxt 563,507 Hutohnihonv. Ml 414
Henderson
v. Wild 517 I {utohm*onv. I lv\« 4^7
Ucnman
v. Dickinson 5.H HutohitiKon
v, H«>yworiii495,4117
Hemuker v. Wigg 414 HutchinHon v. lit;U 41B
Henryv. Leo 401 Hutton Y. Byro 563
Hetheringion v. Kemp 57B
Ucwett v. aooclriek 5B$
Htiwison v. Guthrie 451 I
liewitt v. Kaye 402,495 Ingliam v, Primrose 803
Howtt v. Thompson 573,577 Ingramv. F<isti*r 5^1)
Hiekey v. Bart 503 Innoll v. Newman 50$
Ilickie <fe
Co.'sCase 417 Inneftv. Stt'pIuMinoa 51S
Higginav. Senior 54fJ In ro Atkinson 495
Hill v. Caiilovel 400 lu ro Hnrn|H»au Bnnk 4J1
Hill v. Chapman 402 In re (touontlKntatoH
Co. I., 255
Hillv.HaHord 528 In re ImperialLand Company
Hill 7. Heap d70 of MaraeiHw i., 255
Hill v.Simpson 517 In re TjawrAiico»Mortiuwsr and
Hill Y. Smith 413
xxvm TABLE Off CASES CITED
PAGtt
In re London, Birmingham and Kennard v. Knott 585
South StaffordshireBank 565 Kennerley Y. Nash 549
In re Lowe's Settlement 495 Kershaw v. Cox 549
In re Medewe's
Trust 415,449 Kernsonv. Dorrien 457*
In re Bawbone'sBequest 495 Key v. Matthias 487, 510
Israel v. Israel 498 Keys v. Elkins 563
Keys Y. Williams 456
Kilgorn v. Finlayson 549
Kilpin v. Kilpin 480
Kilsby v. WiUiams 496, 511, 514
Jacaudv. French 548 King Y. Hoare 568
Jacksonv. Duchaire 461 King v. Smith 517
Jacksonv. Hudson 543 Kirby v. Duke of Marlborough 414
Jacob v. Hart 549 Kirk Y. Blurton 547
Jacob v. Hurgate 537 Knight Y. Bowyer 413
Jacomb
v. Harwood 517,563 Knight Y. Clements 551
James v. Child 414 . Williams 549
James v. Holditch 504
James Y. Williams 564
Jamesonv. Swinton 505, 574
Jeffs v. Day 495
Jenkyns v. Usborne 469 Lacon v. Liffen "453
Jewanv. Whitworth 467 Lacy Y. Kinaston 563
Johnsonv. Colhngs i., 239 Lafitte v. Blatter 575, 576
Johnsonv. Duke of Marlbrgh. 551 Lamb v. Attenborough 469
Johnson v. Wilde 558 Lambert Y. Cakes i., 221; ii, 481
Jombart v. Woollett 412 Lambert v. Pack 554
Jonesv. Arthur 307, 512 Lambert v. Starkcy i., 211
Jonesv. Broadhurst 564,568 Lamprellv. BillencayUnion 414
Jones v. Consolidated Ihvestmt. Lane Y. Cotton 493
and Insurance Co. 455 Lane v. Williams 547
Jones v. Parrell 495 Lang Y. Smith 303, 558
Jonesv. Gibbons 494 Langdalev. Parry 462, 585
Jones v. Herbert 563 Langdale v. Tnmmei 575
Jonesv. Peppercorne 448, 558 Langdon v. Hulls 573
Jones Y. Byde 490 Laurie v. Scholefield 460
Jones Y. Tates 548 Laveson v. Lane 548
Jordan Y. Barloe i, 223 Laws v. Band 516
JoscelyneY. Lasserre 485 Lawson v. Lawson 492
JouxdaineY. Lefevre 449 Lawson v. Weston 558
Lazarus v Cowie 567
Leach v Buchanan 544
Leadbitterv Farrow 546
Lechmere v. Hawkins 419
Keanev. Eobarts 517 Leev. Jones 4oi
KeeneY.Beard 481 Leev. Zagury 54$
KearslakeY.Morgan 564 Leedsv. Lancashire 528
KearsleyY.Cole 462,563 Leesev. Martin 449
Kelnerv. Baxter 547 Lefevrev. Lloyd 546
KembleY. Mills 576 Leggev. Thorpe 575
Kemp Y. Balls 568
Kempv. Watt 565 LeonardY.Wilson 553,554
KendallY.Kendall 491 L'EstrangevL'Estrange 405
Kendall
Y.Wood 566 Levendgev. Cooper 495
KendiickY.Lomax 564 LevyY.Pyne $47
TABLE OF OASES CITKD XX LT
PAG* PAGl
v. Ljfltor 564,505 Afanninv. Cary 504
Lewis v. Nicholson 8*7 Manning v, <*«>x 6<>3
Lewisv. Eeilly 5 17 Maimingv. I'«i4»*»Il 109,507
Liokbarrow v. Mason 409 Maimintffoid v. Tolcman 450,
Lilly v. Hays i., 257; iL, 4U7 4,W, tflfi, 55B
Lindo v. Unsworth 505 Manwaring 7. Harmon 503, 505
Lindas v. Bratlwell 543 Maro v. Charlie 450, 647
Lrvertmlge v. Breadbent L, 835 Marryatt« v. White 413
Llewellynv, Wmokworth 646 Marsdenv, Panshall 452
Lloyd v. Ashby 547 Marnhv. Maxwell 574
Lloyd v, Howard 484 Marwhv. P«lclor 567
Lloyd v. Sandilancla 512 Marsonv. Petit 549
Locke v.Prescott 450 Marftton v. Allon 484
Lockett's Case 592 Martun v. Rtvtgvrfrk 405
Lockwoodv. Abdy 517 Martin v. Morgan 487
Lockyer v. Jones 602 Martini v, Colvrt 403
London and County Bank v. Marwtti v. WiHianw 511,514
Batehffo 452 MiiKon v, Bradley 510
Lord Braybrookev. Meredith 4% MaMouv. Fntchard 4<>1
Lord Galwayv. Mathew 548 ManonT. Kunisoy 547
Lord North's Case 415 Ma«t<»rv. Milh*r 540»501
Louvriere v. Laubray 604 Mathor v. Lord Maitfotone 593
Low v. Copcstake 553 Matthews v. Haydon 415
Lowe's Settlement 495 Matthews v. Walhvyn 406
Lowndes v. Anderson 484, 557 Maxmdv* Gregory i., 220j &» 481
Lucas v. Allen 456 Maw v* Pearson 517
Lucas v. Dorrien 460, 460 Maxwell v. Brain 578
Luxnley v. Hudson 565 May v. Chapman 558
Lumley T. Musgrave 565 Mayer v. Isaac 461
Lundy v. Robinson 675 Mayhew v. Cricket* 4Clt 4G2,5G9
Mead T. Young 591
Medealtv.Ifall 505
M Meek v. Baylisa 456
Meggmaonv. Harpnr 489
Maccall v. Taylor 629 Malanotte T. T*»a«ilale 493
Maccombiev. Davis 453 Mollw v, \Yoocta 457
Macdowall v* Boyd 550, 565 Mellt*rrthv. lliption 572
Macfadden v. Jenkyns 480, 41)5 Mcllinh v* Kawdon 539
Macgowan v. Smith 496 Mendtxalml v. Machado 543
Macgregorv. Bhodes 554 Mercerv, Chttwo 550
Machell v. Kmnear 553 MeiTiinan T. Ward 415
MacintoshT. Haydon 549 MoBHcngerv, Southfy 573
Mackersyv. Eamsays 416 Miclmolv. My^ra 569,585
Maclae v. Sutherland 547 Mwrfl v. Brcmn 574
Macleod v. Snee 485 Miller v. Miller 492
Maoklishv. Ekins 558 Uiller v, Itaod i., 2.13;ii., 294,
Blackneev. Gorst 467 307,481,557
Magorv. Hammond Miller7. Thompson 529
Maillard v. Duke of Hills T. BarbiT 537
Maitland v. Chartered [ere.Bk, Mills v. FowUi 414
of India, London& China 520 Mills v, Oddy 515
Malcolm
v. Scott 413,497 Minetv, Gibfion m, 542
Mallory v. Symonds i,216 Misa T* Carrie 452
Mangles
T.Dixoa 46$ MonkT.WhUfembury 460
Mann v. Moor* 573 Moore T* Barton 494
XXX TABLE OF CASES CITED
PAGE
Moorev. Greg 457 Ordv. White 496
Moorev. Jervis 450,496,558 Oriental FinancialCo.v Over-
Moorev.Manning 553 end&Co. 462,585,586
Moorev. Warren 503 Ormev. Young 4G£
Morganv.Davidson 491 Orrv. Maginms 576,587
MoireUv Wotton 497,513 Orr v. UnionBank of Scotland519,
Morasv. Bethell 544 520
Momsv. Lrvie 496 Orridgev. Sherborne 490
Morrisv "Walker 555 Otherv. Iveson 51G
Mossv. Hall 568,585 Outhwaitev. Luntley 545,549
Mossop
vtEadon 492 Owen
v. Heman 56B
Moulev. Brown 505,516 Owenv. Pizey 5G2
Mountford v. Scott 456 Owensonv. Morse 502, 504, 565
Mountford v. Harper 512
Muilman v. D'Egumo 539
Mullick y. Badakissen 539
Murray v. King 575
Murrayv.Pinkett 450 Paleyv.Field 460
Mutual Loan Fund Association Palmer y. Pratt 528
v. Sudlow 584 Pannell v. Hurley 517
Myerstein
v. Barber 472 Parkev.Ehason 412
Parker y. Gordon 491, 505
Parker v. Housefield 457
N Parker v. Leigh 562
Parker y. Marchant 308, 491, 507
Nab v. Nab 480 Paiker v. Wise 460
Nadin v. Battie 585 Parsons v. Middleton 496
Nashv. Hodgson 414 Pasmorev. North 554
Newmarch v. Clay 414 Partndgey. Bank of England 558
Newsomev. Coles 548 Partridge v. Coates 512
Newsome v Thornton 463 Paterson v. Tash 452
Nichols v. Diamond 543 Payne v. Bogers 5G3
Nicholson v. Gouthit 560,575, 576 Peacocky. Pursoll 575
Nicholson v. Znowles 517 Peacock v. Bhodes 295, 553, 558
Nicholson v. Bevill 563 Pearce y. Davis 307, 512
Nicholson v. Bicketts 547 Pearl v. Deacon 413
Nicholsonv Sedgwick i., 223 Pearsonv. Crallan 573
Nisbet v. Smith 461 Pearson v. Garrett 481, 528
Noble v. National Discount Co. 497 Pease v. Hirst 414
Norns v. Solomonson 576 Peckhamv. Taylor 410
North British Insurance Co. v. Pemberton v. Oakes 414
Hallet 454 Pennell v. Deffell 495,514
North British Insurance Co. v, Penny v. Innes 554
Lloyd 461 Percival v. Frampton 537
Norton y. Ellam 489 Perfect v. Musgrave 462
Norton v. Pickering 576 Perry y. Attwood 557, 567
Peters v. Anderson 413. 414
Peto v. Beynolds 529
Pfiel v. Van Vatenberg 566
Philips v. Asthngs 575
Offord v. Dayies 461 Philips v. Huth 464
Ogdenv. Benas 513 Phillips v. Foxhall 4C1
O'Keefev.Dunn 556 Phillips v. Im Thttrn 542, 582
Oliver v. Mortimer 487, 510 Philpot v. Bnant 585
y. Portal 553 Philpott v. Jones 414
TABLE OF CASKS CITED
PASS
Phipson T.Kneller
Pickard v. Bnnkes
576
soa
Beg. v.Ha\\kes
Ib'K. v. Ion
P5I8
4St
Pidcock v. Bishop 401 Beg. v. 3ilit{*h<'ll 5i)2
Pike v. Stroot 555 Ki-g. v. Parke 5t>*2
Pmard v. Klookmazx 580 IU»g.v. Hadf»nd 484
Pinckncy v. Hall 547 Bt»g.v. Kogeis
Pankett v. Wright 450 B*»g.v. Smith 5i3
PinnelTs Case 413, 507 Bt*g. v. \Vatd(*ll 5U2
Pledgev. Bnss 461 Beg. v. \Valfcff 5liJ
Plimley v. Westlcy 564 Bow v. Peflet " 516
Poekhngton v. Sylvester 505, 516 Bex v. Atkinson 591
Polglassv. Oliver 502 Bex v. Bigg 553
Polhill v. Walter 543,547 Bex v.JBmjjIey 501
Pollard v. Ogclen 508 Bex v. Bade 5UI
Pondv. Underwood 517 Bexv. De Yonge fi«
Poole v. Dieas 574 B<»xv. ITalcH 50*3
Poolcy v. Ilarradine 584, fi85 Hex v. } I art 5S!0
Popplewell v. Wilson r>;jr> Box Y, Hnntor 513
Porter v. Taylor 517 AVOXV«JVilKWOOti 501
Port house v. Parker 577 Kt'X T. Lnmbtun 484
Pott v. Clogg 507 Bex v. Purkes
Potfc v. Lomas 496 llox v. Post 501
Potter v. Payworth 575 Hex v* Bandall 528
Powell v. Monmor 5'i*J Bex v. BU'hartls 5iJ8
Powell v* Boaeh 5ttf> Bex v. Hhukard 484
Prescott v. Flynn 5-IB ft* x v. Treble 501
Pi ice v. Barker 503 Ithoile y. Proctor 575
Price v. Edmunds 58,7 Bibbans v. Crickdt 414
Price v. Prko 504 Bi<x»ardv. Pritchard
Pnee v: Toulmia 488 Biohards v. Macoy 520
Priddy v. BOHO 4i)6 Bickford v, llidge 505,f>10
Pring v. Clarkson 585 Bidiey T, Blacket 513
Puokford v. Maxwell 565 Bidloy v. Taylor 547, 54H
llitlout v. Bi ntow
Bippinor v. Wright 400
Q Boaeh
v. Qstlt»r cio
Bobarts v. Tucker 484, 511, Ut'iH,
QuarrierT. Colston 404 500,503
Queiroz v. Trueman 453 BolxxrtBv. Peakfl 528
BototHonv. Kensington 555
Bobins v. Hay 5il8
B Jiohnmonv, JEHand 520
ItoIiiuMon v, Huwknford 516
Bahcy v. Gilbert 676 liohniBon v. Head 567
Baikes v. Todd 4HO Ilolunson v. Yarrow 543
Bandallv. Moon Botinnnv. Bennett50«^611,514,518
Bandail v. Tuniman 547 Bobtttm v, (Jil»Hon 570
Bankmv. Woguolin 41^ Bobionv. Oliver 503,504
Bapbael v. Bank of England 558 Bolmon v. linll* 55$
Bawley v. Bawley 4Mf Bodgo v. Pringle 549
Bawstonev, Gandell 503 Bodgerv. Comptoird'Bseompte
Baynerv. 3?tt8floy 585 ddParia 469,470
Bedmayne T. Burton 492 Bodick v. Oandell 490
Beesv. Berrlngton 461 BojffoyY, Greenwell
Keg.T. BlenMnsop 592 BogeraT. Langford 509
xxxii TABLE OP CASES CITED
PACKB
Eogers
v. Stephens 576,587 Sherrifv.Wilkea 518
Bolfev. Caslon i., 367;ii., 537 Shipley
v.Kymer 463
Eolm v. Steward 511,514 Shiptony. Casson 502
Eosev.Sims i.,368; ii, 537 Shortv. Simpson 471
Eothschild
v. Corney 516,558 Shortbridge's Case 518
Eowv. Dawson 484,494,495 Shutey. Eobins 3O2, 539
Eowev.Tipper 574 Shuttleworth v. Steveng 520, 513
Eowev.Young 545 Sibtreey.Tripp 505, 567
Eowlandsv. Springjett 573 Siebelv. Springfield 415
Eowmng v.Goodchild 493 Siffiny. Walker 547
Eoyal Bank of Scotland Siggersv.Browne 577
Christie '414 Siggersv. Nichols 545
Eoxburghev. Cox Sigourney y. Lloyd 556
Eucker v. Hiller 576 Simon v. Lloyd 565
Euddock's Case 563 Sims y. Bond 506
Euff v. Webb 488 Simsonv. Ingham 414
Eumball v. Ball 489 Skelton y. Braithwaite 573
Eusselly. Hankey 515 Skilbecky. Garbett 573
EussellT. Langstaffe 654,560,575 Sladey. Morley 491
Eussellv. Philhps 541 Sleech'sCase 506
Eyal v. Eowles 454,480,491,494 Slomany. Cox 550
Smith y. Becket 576
Smith y. Cannan 453
8 Smithy. Chester 542
Salmon v, Webb 568 Smith y. Clarke 553
Samuel v. Howarth 461 Smith v. Crayen 547
Sandsv. Clarke 504 Smith v. Everett 495, 517, 502
Sard v. Ehodes 565 Smith y. Ferrand 567
Sargentv. Wedlake 563 Smith v. Knox 583
Sandersonv. Bowes 504 Smith y. Mapleback 563
Saunderson v. Griffiths 546 Smith y. Martin 537
Saundersonv. Judge 561 Smith y. Mercer 558, 566
Sayerv. Wagstaff 565 Smith y. Mullett 574
Scholes
v. Walsby 566 Smithy. Mundy 4=91,505
Scholeyy. Bamsbottom 514 Smith v. Page 567
Schultz v. Astley 542, 554 Smith y. Parkes 496
Schusterv. MacKellar 470 Smith v. Smith 413, 493, 495
Scottv. Beale 415 Smithv. Wigley 414
Scott v. Franklin 449 Smith y. Winter 549
Scottv. Lifford 575 Snaithy. Mingay 554
Scott v. Lord Ebury 547 Sneey. Prescott 556
Sebagv. Abitbol 545 Snellgrave
y. Bailey 492, 513
Sellers y. Jones 460 Snow y. Sadler 558
Serley. Norton 487,510,516 Sollyy. Forbes 503
Serrelly. Derbyshire 518 Solomons v. Bank of England 556
Sharp y. Bailey 577 Somersety. Cox 496
Sharpey. Gibbs 568 South Carolina Bank y. Case 547
Shawy. Picton 413 Sowardv. Palmer 576
Sheldon
v.Hentley Sowerby
v. Butcher 537, 546
i., 220, 258; ii., 481 Spearv. Travers 469
Shephard's
Case 592 Spmdlerv. Grellet 504
Shephardy. Harrison 472 Spoonerv. Gardiner 576
Shepherd's
Touchstone 564 Sproaty. Matthews 545
Sheppard
v. UnionBankof Stackhouse
y.Countess
ofJersey450
London 409 Staplesy. O'Kinea 676
TA1U-E OF CASKS <TI KI> xxxin
ruts
Staples
v. Staples Th*»C t il r.anknf India.
Starke v. Clubman a, ami t hinu \.
Stodman
v. ttooch ."Hi
I, r*p 1'iMuiti 11">, iTO
Stephens
v.Footer *>"»s Thi*Cliarti'iMtliank nt Inilni,
Stephens
v.Hill 4SIJJ Au-mtlj.i,and <hina \.
Stephens
v. Kojnoldii 317 Urij«iii-i>n 170
Storndalo v. Hankmson 4H
Stevensv. Hill 311 Th*«(foiicial Stranj Na
Stevens v.Lynch
Stewart v. Kennett
f»70
374
<Uv. HuU
Stockenv, Coliin 37JJ The Qiu-t'ii \. JJutemAu
Stockman v. Parr 572 The Quran v. Wi!w»n
Htowteorv. 8. B. Ky. Co. 520 Tlw St. Clotul 471
Stonev. Comptoii 401 1v. Hn>nul«>\v 347
Stone v. Marsh 51« v. <H»]<NrlitnuIt 338
Htoveldv. Kado 413 ThhnMi»l»yv. Huiion 3<>!J
Shakes v. Graham 51W Tliomax v» Hinhnp 340
Strongv. Hait 307 TlummBv. tt*nt<ai 576
Stuait v. Marqum of Bute 307 Thompson v. CluM^y 5«>3
SturgesHv. l)crric*k 677 Thoiujt)tu»i)
v, l*oniitiy
Susev. Pompo 35J i., !i.>8,A,, 47i, 473
Suttonv. Gregory f»iH Thompsonv. Katliter
Button v. Toouicr 330 Thomphtm v. <*J|*»M
Swanv. Bank of Scotland Thompsonv. Jû-k
401, 485,311 ThomjMumv. Spoiis 451
Swanv. Blair 487, 310 ThompHtmv. Tuinkina 454
Swanv. Uteete 547, 348 Thon«»v. Smith 504
fcJwaynev. Bwayne 403 ThrtKJ1*1iosth1Cune 481
Swinyard v. Bowe$ 565, 577 Throp v. 457
Tihbits v. 480, 41)5
Tulmarbh v* (trover 54i)
TimmhtH v. (lihhous J>(4)i

Taft'fi Case 592 ToinkiiiH v. Awhhy 41)3
Tapley v. Martens 554 Toinhn v. Lawranec 517
Tarleton v. Allhtuwa 508 Tooke v,
Tarleton v. Slnngler 4H5, i.,230; h.t 41S
Tassel v. XK»WIH v. 550
Tate v. Uxllxat 402, 404, 518 Twuttrt v, HuraiuUm 65G,558
Tatlock v. Harris 4U1
i., «15, 257 ; u., 481, 52li>t iJ, 507 Tuckt«rv, lioharttf 543
Taylor v. Burgess 581, 583 Turucr v. J,«»mi 574
Taylor v. Croker 342 Turut*r v, M«*it«lo 503
Taylor v. Jomti 570 Turner v* Htonoa 503, 50i
Taylor v* Kt>ymer 413 Tttrtott v. lJ<»nm*n 406
Taylorv. Moseley 549,531 Twopennyv. Vutiug 4Cii,5H5
Taylorv.Okey 410 Tyl«»«
v. \\Vhb 45«
Taylor v. Taylor $08, 506, 307 Tyiwn v, <*t»x 46*2
Teedev. Johnson 46*2 Tytd v, Jon*»« 488
Terry v. Parker 570
Thaokr&yv. Blaokott 576
TheArgentina 40 U
The Bank of Van Diemen'sLand UpHtonev. Marchaut 487
T. The Bank of Victoria 543 Usher v. Dauncy 554
l&e Bankers1Caw i» 443 UUierv. Kich 5*8
VOL* n
XXXIV TABLE OF OASES CITED
PAGE White v. Ledwick 485, 527

Vaisey
v. Eeynolds 307,507 Whiteheadv
Walker 556
Valpey
v.Oaksey 065 Whltfield
v.LordBespencer498
Van Casteel
v. Booker 469 Whitfieldv. Savage 497
Vanderzee
v. Willis 453 Whitlockv. Underwood 486
Vandewall
v. Tynell 587 Whitwellv Bennett 510
Vanheathv. Turner i,258 Whitworthv. G-augam 450
VanWart v. Wooltey 565,575,577 Wickhamv Wiekham 414
Vaughan
v Fuller 575 Wienholtv Spitta 515
Vaughanv Haliday 417 Wiffenv. Eoberts 490
Vealv Veal 492 Wilders v. Stevens 536, 555
Verev. Ashby 546,547 Wilkesv. Jacks 576
Vere v. Lewis 529, 542 Wilkins v. Jadis 491
Vernon v. Bouverie 502, 503 Wilkinson v Casey 565
Vernonv. Hankey 418,506,518 Wilkinsonv. Johnson 555
Wilkinson v L'Eaugier 494
Wilks v. Jacks 575
W Williams v. Clarke 055
Williams v Everett i , 257; u,, 497
Waitham v. Elsee 493 Williams v. Griffith 414, 487
Walker v. Macdonald 553 Williams v Jarrett 487, 510
Walker v. Neville 563 Williams v. Johnson 047
Walker v Eostron i., 257; ii., 497 Williams v. Keates 548
Walinesley v. Cooper 563 Williams v. Seagrave 554
Walter v. Cubley 550 Williams v. Smith 505, 574
Walter v. Haynes 573 Williams v. Thorpe 494
Waltei v Hastings 549 Williams v. Williams i, 221,11.,481
Walton v. Mascall 560 575 Williamson v. Bennett 528
Wahvyn v. St Quentin 576, 585 Williamson v. Eawhnson 414
Wankford v. Wankfoid 563 Willis v Bank of England 058
Ward v. Evans 490, 502, 503, 504 Willis v. De Castro 063
Ward v. Turner 492 Wilson v Kennedy 488
Warrington v. Early 549 Wilson v. Mooie 017
Watrmgton v. Furbor 560, 575 Wilson v. Tnmmon 046
Warwick v Noakes 493 Wilson v. Vysar 488
Watersv. Tomkins 413 Winchv Keely i., 220
Watson v, Poulson 510 Winter v. Lord Anson 458
Watsonv. Bussell 515, 558 Witchei v. Hall 460
Waiters v. Smith 567 Wittv Amiss 492
Wattonv. Hastings 549 Wittersheimv. Lady Carlisle 490
Watts v. Clmstie 451, 506, 511 Woodv. Brown 575
Wattsv. Jefferyes 513 Woodv. Mytton 029
Waughv Wren 413 Wood v. Priestner 461
Webbv. Hewitt 563 Woodv. Eawcliffe 469
Webbv. Spicer 568 Woodhousev luurray 453
Websterv. Webster 496 Woodlandv. Feai 519,575
Welbyv. Drake 567 Woodthorpev. Lawes 573
Wellsv.Masterman 517,548 Wookeyv. Poole 297,058
Wheatcroftv. Hickman 547 Worleyv, Harrison 0*28
Whistler
v.Forester 302,487,510, Wrightv. Hickling 414
558 Wright v. Laing 43,4
Whitaker
v. Bankof England Wrightv.Eiley 437
491,505 Wrightv. Showcross 574
Whitaker
v. Edmunds 537 Wrightv. Watson 449
Vflatbxead
v.Joidan 458 Wylde
v. Eadiord 449,45d
TABLE OF CASKS <'I FED XXXV
P.M.K t'luR
Wynne v. Callander f>«>8 Yi»a(t»«
v. (liovo UK"?
Wynnev. liaikts 542 Youngv. Knghsh 4la
Young v. (£u>t6j oU
Y. B , 41 Edw. III., p. 20 i., 219

Y. B , ai Kd\\. IV., p. 20 iM*2ltf 2inck v. \VaIkor 412
Y. B., f>Ktlw 1V.% p. 42 i., iJl/J 2wtng*»rv. tt&mmfo 4G*J
TIEOEY AID PEACTICf
Off
BANKING
CHAPTER X
FROM TEE RENEWAL OF THE BANK CHARTER IN

1800 TO THE ACT FOR THE RESUMPTION OP
CASH PAYMENTS IN 1819
1, Soonafter the year 1800a remarkablephenomenon began

to attract the notice of personswho had paid attention to the
Oummcy. We have just seen how lamentably deficient the
"harvestof 1700 had been,and the enormousquantities of grain
it becamenecessary to purchase. The autumn of 179J),and the
ensuingwinter, were equally unfavourableas the precedinghad
been to all descriptionsof farming operations. The spring of
1800 was exceedinglywet; and, in the middle of the harvest,
heavyand continuousrains set in. In consequence, the htirvest-
time wasevenmorecalamitousthan the precedingone. In the
north part of the islandthe cropswerea total failure* Notwith-
standingthat the unprecedentedquantity of 1,242,507quarters
of wheatwereimported, pricescontinuedto rise to a faminescale.
The public peacewaswith difficulty preserved,and in November,
TOL. II B
2 THEORY AND PRACTICE OF BANKING
when Parliament met, the country was in a very alarming con-

dition. Parliament
pursuedthe usualcourse,
recommended
the
most stringent economy in the consumption of provisions, and
offeredto guarantee100*.a quarterto all who importedwheat.
In spite of all these measures,wheat rose in March, 1801, to
166*., barley to 90s., and oatsto 47$. In the autumn of 1790,
failures of great magnitude took place in Hamburg ; 82 houses
came down with liabilities amounting to £2,500,000, In con-
sequenceof these, discount rose to 15 per cent. Under the
influenceof the enormoussums of money that had to be sent
abroadin purchaseof grain, the attraction of this high rate of
discount,and other causes,the exchangeon Hamburg, which had
stoodso high for someyears,fell in January, 1801,to 20*8, being
upwardsof 14 per cent, against England
2. We have alreadyseen that, in the great monetary crisis

of 1G9G-97, it wasuniversallyacknowledgedby Parliamentand the
most eminent merchants,that it wasthe bad state of the coinage
which producedthe great rise in the market price of bullion, and
the heavy fall in the Foreign Exchanges; and we have seenthat
the restorationof the coinageimmediately rectified the Exchange.
At that time Bank Noteswerenot a legal tender,and the language
invariably appliedto them, when their current value differed from
their nominal value, was that they were at a discount. When tho
men of that daysawthat the Bank Notes werea promise to pay so
many "pounds" on demand,and when they saw that the persons
who issuedthem were unable to pay that numberof pounds,and
that no one would give that number of poundsfor them, they
never used any other expressionregarding thesefacts, than that
the noteswere at a discount. There is no trace of any one having
thought of saying that it was the notes that denotedthe pound
sterling, and that bullion had risen. When the reform of the
coinage took place, and the Exchangeswere simultaneouslyrec-
tified, it was said that the reform of the coinage cauml the
restorationof the Exchange,and numerousmerchantshad written
pamphletsto combata delusionwhich wasrather prevalentamong
somepersons,that Bullion, as a commodity,couldhave a different
value to Bullion as Coin, excepton accountof the depreciationof
the coinage
FALL OF THE EXCHANGE IN 1801 3
3. AdamSmithhad laid it downas a principlethat any

permanentdifferencebetweenthe Market and the Mint price of
bullionmustbenecessarily cansed by the conditionof the coinage
itself; and Hume had observed that the Exchangenevercould
varybut little beyondthecostof the transmissionof specie*All
thesefundamentaltruths, which are as pure mattersof de-
monstrationas anypropositionin Euclid, had beendiscoveredand
established
longbeforethe periodwearenowspeakingof
4, Suchwere the truths established, whena MetallicCurrency
was the only one thought of, in estimatingvalue. But at this
time a new principle was introduced-there was what was sub-
stantially an inconvertible Paper Currency. At this period
mostmen'sideaswere transferredfrom the Metallic Currencyto
the Paper Currency. Ever since the issueof £1 notes people
thought of them, when they spoke of prices,as being so many
pounds. When the suspensionof cashpaymentsfirst took place,
therewas a general expectationthat the Bank Noteswould be
depreciated, but the generalresolutionof bankersand merchants
to supportthe credit of the Bank, the determination of the Go-
vernmentto receiveBank Notesin paymentof taxes,at their par
value,and the great caution exercisedby the Directors during
the first few years after the restriction, had removedall thesa
apprehensions, and, for someyears,Bank Notescirculatedat par
5. At this time, however,phenomenaoccurredwhich directed

the attention of many personsto the state of the PaperCurrency.
The market price of standard gold, up to September,1799,had
continuedat £3 17s. 6d per ounce,and the price of foreign gold
in coinhad beensomewhathigher, on accountof its greateruseas
coin than as bullion. But in June, 1800,the price of foreign gold
experienced a suddenand extraordinaryrise: it roseto £4 5s.per
ounce; silver rose 5s. Id. per ounce; and the Foreign Exchanges
fell belowpar. In January, 1801,gold and silver had eachrisen
Is. per ounce,and the exchangeat Hamburgwas 29*. 8&, being
a depression of 14 per cent, belowpar. But the expenseof trans-
mitting specieto Hamburg was estimated not to exceed7 per
cent.; and,consequently,thereremaineda differenceof 7 percent.
to be accounted for
6. It wasat this timethat the greatandpalpabletruth was

discovered,
that if a deterioration
of the coinageproduced a riseof
the Marketpriceof bullionabove the Mint price,and a fall in the
ForeignExchanges underaMetallicCurrency, thenthat theopposite
proposition
wasalsonecessarily true. Thatundera PaperCurrency
whichwasonly the representative of a MetallicCurrency, if the
Market priceof bullion(&.£.,the paperprice)exceeded the Mint
price, and the ForeignExchanges fell beyondthe cost of the trans-
missionof specie,that excesscouldonly arisefrom the depreciation
of the representativeof the Metallic Currency,and, therefore,that
-whenthese circumstancesoccurred, they infallibly indi-
cated that the Paper Currency was depreciated
7. We are not certain to whom the merit of the discoveryof
this greatandimportanttruth is due. If he had not the actual
merit of discoveringit, Mr. Walter Boyd wascertainly one of the
first to proclaimit, and call public attention to it. It wasenforced
"with much greater ability and clearnessby Lord King, and with
not so much distinctnessby Mr. Henry Thornton, in his Inquiry
wio theEffectsof Payer Credit. To thesethree writers, however,
as far as we have been able to ascertain, the merit is due of estab-
lishing this principle, which is as important in the subject of
"Currencyas the Newtonianlaw of gravity is in astronomy
8. The preliminaries of peacewith France were signed in

October,1801,at London, and the definitive treaty at Amiens,
on the 27th March, 1802. The restriction on cash payments
expired of itself six months after that event; but, though tho
Bank declaredthat its cofferswere well suppliedwith specie,and
that it was anxious and ready to resumepaymentsin cash,the
Chancellorof the Exchequer,Mr. Addington, brought in a bill
on the 9th April, 1802,to continue the restriction till the 1st of
March, 1803, which was passed. The arguments alleged in
favour of this measure shew a wonderful decline in financial
knowledgein the Governmentof 1802 comparedto 1G96. At
the latter period the great reasonalleged for the reformation
of the coinagewas the adverseconditionof ForeignExchanges,
and the rise of the Market abovetheMint price,causedby the
depreciation of the Currency, Notwithstanding the vehement
FOX ON TUB STATE OF THE CURRENCY 5
opposition cf the enemiesof the Government,we haveseenthe

triumphant successof the re-coinage,which restored the public
credit and the Exchange. The sagacityof a Montaguewouldat
once have seenthat the adversestate of the Exchange,and the
high price of bullion, wereentirely owing to the depreciatedstate
of the Currency, and that the only method of restoringthemto
par wasthe immediateresumption of cashpayments. So great,
however,wasthe ignoranceupon the subject,that the fact of the
exchangebeing adversewas the very reason allegedwhy cash
paymentsshould not be resumed! Sir R. Peel said the course
of exchangewas, at this moment, against us all over Europe.
Mr. Addmgton, in bringing in the bill, said-
"It cannotbe necessary for me to mform the Housethat the
Rateof Exchangebetweenthis countryand foreign partsis disad-
vantageousto ourselves-that the exporttrade hasbeenfor some
monthsat a stand, that while the Rate of Exchangeis disadvan-
tageous to u$) an augmentation of the circulating cash would create
a trade highly injurious to the commerceof this country. For
severalmonthspast, therehas bem a trade earnedon for yurc/ias&
of guineaswith a mewto eygwrtation.It is on thesegroundsthat
I submitto the Housethe expediency of continuingthe restriction
with regardto the cashpaymentsof the Bank"
Why, these were the very reasonswhy a return to cashpay-
ments should have been made without delay! The reason\\hy
the trade of buying up guineaswas going on \\as just because
of the redundant quantity of paper; the paper "promises t»
"
pay were falling in value as compared to the guineas, and, as a
necessaryconsequence, guineaswere exported,and, so far from a
return to cash paymentsaugmentingthe circulating medium,it
would infallibly have considerablydiminishedit by making the
Bank reduceits paperissues. It wasbecausethe prices of articles
were so high in this country that the exporttrade \\as unprofit-
able, and a reduction of the Bank notes would infallibly have
compelledsucha reduction in prices as wouldhave facilitatedthe
export
9* The result of this extraordinaryamountol financial error

could have been easily predicted. The circumstancesof the
country did not improve, as the Mini,*try had taken the most
effectualmeasuresto preventthem doing so. In February,1803,

Mr. Addington had to come forward again to prolong the re-
striction. He said that the reasonswhich suggestedit were too
strong, and the necessitytoo urgent, to be resisted. The re-
striction wascontinued last Sessionbecausethe Exchangeswere
adverse-the Exchangeat Hamburg wasthen at par-that with
Amsterdamadverse. Upon these grounds,he said, it was ex-
pedientto continuethe restriction, until the progressiveadvance
of our commercewould producesuch a steadyinclination of the
Exchangein our favour, as to renderit safeto resumecashpay-
ments. That the scarcity of the last three years had made it
necessary to exporttwenty millions of bullion in paymentof corn,
and until that cameback cash paymentscould not be resumed.
Mr. Fox saidthat sucha mode of arguing went to establishit a<$
a generalaxiomthat, wheneverthe Exchangeswere adverse,cash
paymentsof the Bank ought to be suspended;and then he
touchedthe right point, " Perhaps,even,it might happen that
the unfavourableturn of the Exchange against this country
might le owing ta the very restriction on the Bank" And he
said-
"In 1772,or 1773,whentherewasa great quantity of bad
money in the country, the courseof exchangewas then also
much against us, but when, in the room of this adulterated
money,goodgold was substituted, the consequence wasthat the
Exchanges turned almostimmediatelyin our favour. As long as
our Currencycontinuedbad, the exchangewas againstus, so it
is now,becausepaper is not much fatter them lad gold; as it is
attendedwith the same inconveniences.May it not, therefore,
be expected
that, as in the formercase,whenour Currencywas
ameliorated,the courseof Exchangeturned in our favour,so also
if the Bank now resumedits cashpayments,the samefavourable
circumstancesmight attendthe change? "
The trace of truth thushit uponwasnot followedup; ami,
whilethe directors
of theBankalleged
thattheywereperfectly
ableta resumecashpayments,the Ministry enforceda continued
restrictionupon them, for political reasons,until six weeksafter
thebeginning
of thenextSession
of Parliament.In theLords,
Lord Pelhamsaidthat the ideaof renewingthe restrictionat
thepresentmomentoriginatedsolelywith the Government,who
LOUD KING ON THE CCRRENCT 7
had had no communication with the Bank on the matter. The

great truth doubtingly hinted at fay Sir. Fox, was much more
stronglyand fully stated by Lord King and Lord Moira in the
Houseof Lords. The Ministry complainedthat the importation
of bullion washanging fire; wasit not plain that the reasonwas
that its value in this country was depreciatedby the plethoraof
paper? and the true way to attract it was by diminishing the
quantity of the paper,and so raising the value of the gold. The
bill was carried without a division
10. If the resumption of cash payments was unadvisable

underthe precedingcircumstances, the untimely end of the short
and feverish peacein 1803 renderedit still moreimpracticable:
and, immediately upon the opening of the Session,a bill was-
brought in to continue the suspension. We liiid it stated that
the hoarding of guineashad been going on to such an extent,
that it waswith the utmost difficulty that they could be procured
for the commonpurposesof life. The Chancellorof the Exchequer
talked of the basenessof sucha practice,which was inconsistent
with public spirit and the duty of a goodcitizen. Preciselythe
samelanguagehad beenheld by the revolutionaryleadersin the
tribune of the French Convention regarding assignats. The
debate in the Lords producedsome excellent speeches. Lord
Grenvillo,who had been,of the Cabinet who proposedthe sus-
pensionoriginally, now gavevery e\ident signs that his opinion:
wasvery much altered,and severelycensuredthe attacks of the
(Chancellor of the Exchequerupon those who preferredto keep
their guineas at home. Lord King now gavethe clearestenun-
ciation of the principles of a PaperCurrency,which had before
beenrather feebly hinted at* He said-
" The natural and only true limit of everyPaper Currency
wasthe powerof etmipellingpaymentin specie,at the will of the
holder. A Paper Currency, not convertible into specie,had no
rule or standard except the discretion of the personsby whom
it was issued* To determinethe quantity of currencynecessary
for circulation was in all casesa difficult and delicate problem.
A verystrictattentiontotheprice of Bullion,and the stateof th$
ForeignffschangeS)was alonecapableof affordinga jw»t criterion
by which t&& qituntity could be truly ascertained. Without a
perpetual
reference
to these
testsit wasimpossible
to maintain
the full valueof theCurrency.Thatthe Bankdirectorshad
failedin theperformanceof this duty wasevident,from the
enormousincrease
in the quantityof their notes,andthe great
derangement
whichhadtakenplacein thepriceof silverandthe
ForeignExchanges
sincethe periodof the restriction.He said
that the excessive
quantityof Banknotes,by raisingthe Market
priceof silverabove
theMintprice,wasoneof thecauses
of the
presentscarcityof the silver coin"
11. The Act which restrainedthe Bank of Englandfrom

paying in speciealso enactedthat countrybankersshouldbe
liable to dischargetheir notesin Bank of England paper. Hence
the very samerulesappliedto the issueof the countrybanks,
where paper was converted into Bank of England notes, as
formerly appliedto the Bank paperwhen convertible into specie;
and the country Bank paper was basedupon Bank of England
paper, just in the sameway as the latter had beenbasedupon
specie. So the Directors of the Bank not only controlled their
own issues,but thoseof everyother Bank in the country, and any
excessof paper issuedby them was immediatelymultiplied and
propagatedthroughoutthe kingdom
12. The facilities of communicationwith the metropolis,

even in that age which we are now accustomed to consider aa
slow, as comparedwith bur own, were sufficient to prevent the
depreciationof a local currencyin GreatBritain, at least since
1765, when the Scotch notes were depreciated,on account of
certainconditionstheycontained
impedingtheir paymentin gold
on demand.But Ireland,from the distanceof the seapassage,
and the difficultyof access,
might be considered as a foreign
country;whichresemblance wasfurtherpromotedby its having
a Currencyof its own,distinct from that of Great Britain, The
Irish shillingin thosedayscontained
13pence,and asthe pound,
both Englishand Irish, was240pence,a slight calculationwill
shewthat £100English=,£108
6s.8d.Irish, Hencethepar
of exchange
between
EnglandandIrelandwascalledeightand
one-third
PALL IS THE IKISn EXCHANGE 9
13. Although there wasno run upon the Bank of Ireland,

and the Exchangewith England was favourable, and bullion was
flowing in, the Batik of Ireland was directed by Parliamentto
suspendits paymentsin cashat the sametim« as the Bunk
of England, and an Act was passedby the Irish Parliament
containing analogousprovisionsto the Englwh Act
14, Ever since the year 1794 the Exchangeat Dublin on

Londonhad beenuniformly in favour of Dublin, standingusually
about£7 10*. In the first three monthsof 3707,it roseso high
as £6 14s. 9<?.; in the secondthree months it rose to £(> 7*. 2*/.;
and in the third period of three months,it attained the very gmat
height of £5 18,<r.HW.; the highest it stoodat on any day beinj;
£5 10,9. From that period it l>egansteadilyto decline,and it
continuedto fall progressivelythrougheachyear,until in January,
1804,it reachedthe extraordinarydepression of £18, No guineas
wereto bo had for Bank of Ireland notes,exceptat a premiumof
2& 4rf. or 2a.CuL This enormousdepressionwasnoticedby Lord
Archibald Hamilton, on the Ittth February,J80£,in the debate
on the Irish Bank Restriction Bill. He stated that, when the
ItctftricfcionAct passed,the issuesof the Bank of Ireland were
£000,000, whereasnow they were £2,700,000. He said that
betweenDublin and Belfast, though not more than 100 miles
apart, therewasa differencein the Exchangeof 10 per cent,, and
that in the Exchangewith London it wus sometimesas much as
20 per cent, againstDublin, That gold coin rosein valuejust in
proportionas paper wasdepreciated
15. This great disorganisationof the monetary business

betweenthe two countries at length excited the seriousattention
of Parliament, and, on the motion of Mr, Foster, a Committee
wasappointed"to inquire into the causeof the presenthigh rate
of Exchangebetween(treat Britain and Ireland, and the state
of the Gurnjuoy in the latter kingdom." The Committeecon-
sintedof Mr,' Foster,Lord A. Hamilton, Lord Henry Petty,
Lord Folkestone,Mr. Pitt, Mr. Fox, Mr, Grey, Mr. Rose,Mr,
Canning, Sir W. PulU-nuy,Sir J. Newport, Mr, J* 0. Beresford,
Mr. Sheridan,and Mr, Brogdeu
16. The circumstances

which gaverise to the appointment
of this Committee
andits report,aredeservingof greatattention,
astheyarethe first regularinvestigation
by Parliamentinto the
theoryof thePaperCurrency, andtheyweretheantetype of what
afterwardsoccurredin England,and gaveriseto the appointment
of the Bullion Committee
17. The Bank of Ireland sent two of its Directors to be

examinedas witnesses,
Mr. Colvilleand Mr. D'Olier. Mr. Colville
stated that the issues of the Bank notes at the time of the re-
striction were between£600,000 and £700,000, but they were
now about £3,000,000; and when askedthe motives for such
an extraordinaryincrease,said that the Exchangebecameex-
tremelyadverseabout two years after the restriction: the money
of the country was carried out of it, for the purposeof paying
the balancesof remittances:and,consequently,as the medium
of gold decreased, it "became necessaryto supply its place with
paper. He said that, after the restriction, it was necessaryto
supply notes for the paymentsthat would have been madein
guineas,and this amounthe placedat £1,200,000. He admitted
that before the restriction,wheneverthere was a drain of gold
from the Bank, they were in the habit of diminishingits issues
to strengthenthemselvesagainst the continuanceof the drain.
That wheneverthe Exchangewasunfavourable,the necessityfor
self-preservationcompelledthem to reducetheir issues,and that
this limitation was for the purposeof lesseningthe drain of
guineas. But he said that it was generallythought that the
extensionof paperin Ireland wasthe causeof thehigh Exchange,
but, in his opinion, it wasdirectly the reverse,inasmuchas far
as the circulationof paperhas suppliedthe circulatingmedium,
it enabledthe gold which beforestoodin its placeto be exported
out of the country, and so far was a clear and decided cause
of preventing the Exchangegetting to a higherpitch; and he
saidthat it must appearthat his opinionwasthat the circulation
of Bankpaperin Irelandwasin noshapethe causeof the high
exchange. He saidthat he clearlyand decidedlyconsideredthe
solecauseof the high rate of Exchangeto be that Ireland oweda
greatdeal more moneythan she could pay. He considered the
truecriterionof suchbalance
of debtto bethestateof Exchange
DEKANGEMBNT OF THE IRISH CURRENCY IN 180$* - H
\N'
betweenDublin and London, and London and Dublin. Thai
whenthe Exchangewas considerablyabovepar it was saidto be
againstIreland, and in that easecertainly at that time Ireland
owesmorenwneythan sheis ableto pay, Mr. Colvillerepeated
theseopinionsseveraltimes: moreoften than it is necessary
to
quote, When pressedwith the, question whether the Hatesof
Exchangemight be influenced by the valueof the medium in
which the balanceof debts was paid, as, for instance,if it were
paid in degradedor adulterated coin, he admittedthat it might
be so with respectto coin,but he deniedthat suchviewsin any
wayappliedto Bank of Ireland paper. Mr, D'Olier coincided
with theseviews,and attributed the stateof the Exchangesto the
samecauses. When askedwhether it was possible,in any case
whatever,for there to be such an augmentationof inconvertible
Bank paper as to diminish its value in exchange for goods,
although the confidencethat they might be paid off at somo
remote and indefinite period might be maintained, he said he
thought it possible,but not probable. He said-" I have heard
it stated that becausegold Is bought at a premium, that, there-
fore, Bank of Ireland no'es are by so much depreciated,and afc
an absolutediscount as to the amount of that premium. That
wasnot the proper wayto look at the question. The circulation
said to be depreciatedmust first be proved to have become
burdensome
to the holders,and bargainsto havebeenmadeby
unnecessarypurchasersto get rid of that which they found
inconvenient,
or wereapprehensive
to hold. The merebuying
of gold afc an advancedprice beyond that of the Mint, is tho
effect, and not the cause,of the Exchange,and, therefore,no
proof of the depreciation
of the pa|mritself," As both those
witnessesmaintainedthat theExchanges might be depressedto
anyextentby the merefact of debtsbeingdueby the country,
it is much to be ivgivtted that the Committeedid not ask them
if it were possible, in their opinion, for the Exchangeto bo
depressed
Inborn!the limit of the expense
of the transmission
of bullion, and, if FO,how it could be possible?
18, The description given by the witnessesof the state of

Urn Metallic Cwrewy was most astonishing Mr. D'Olier had
someof it weighed. The*basecurrencytook about120*.to the
poundweight;the Mint silverwhichwasin circulation,wasvery

scarceand very muchworn, contained94s. 6$. to the pound
weight,whereas,
whennewfrom the Mint, it contained62s.to
the poundweight. Of the baseshillings, the best did not
contain more than 6d., and the worst about M Thesebase
pieceswere coined and sold privately to agents who had the
meansof circulating them, at 28s. to 35s. the guinea. When
euch was the state of the Metallic Currency in Dublin, the
provincesin the south were even worse off. One witnessstated
that the silver Currencyhad totally disappearedfrom the southern
parts, that the vacuumwas supplied by silver notes; that these
silver noteshad driven out the wholeof the silver Currency,and
from their increasedamount, as well as the increasing issues
of private bankers'notes of every other description, prices had
risen greatly. That the bad Currencyhad been increasingmost
mischievously during the last twelvemonths, that there was still
a verygoodsupplyof goodsilver in the south which washoarded
on accountof thesesilver notes; but if they were suppressed, ifc
would comeinto circulation again. He saidall sorts of traders,
as well as bankers,issuednotes for 3s. 9^. and 6s., payableat
twenty-onedays after date. He thought that the increaseof the
papercirculationaugmentedthe stateof ExchangeagainstDublin.
That the premium on guineaswas a proof of the depreciation
of the Banknotes; and that asthe Exchangerosethe depreciation
continued.That the premiumon guineaswasthen 7 or 8 per
cent. He himself had bought large quantities of guineasat a
premium of 2s. &d.each. In the north of Ireland, however,all
bills werepayablein gold; they would have nothing to do with
any Paper Currency,and while the Exchangeon Dublin was16
(7 two-thirdsbelowpar) theExchangeon Belfastwas7 or 8 per
cent,(one-thirdabovepar). He arguedthat, sincethe exchange
in gold wasfavourableto Ireland, the Real Exchange must be in
her favour,and that if anyconsiderable quantityof goldcame
into circulation
it wouldat oncetend to diminishthe premium
on guineas,and lower the rate of Exchange. However,he
thoughtthat the high stateof theExchangewas a clearproof
that the balanceof paymentswas against Ireland annually.
While no Bank of Ireland or private Bank notes could bo
exchanged
for guineas,excepton payinga premiumof 2$.6*i
DERANGEMENT OF THE IRISH CURRENCY IN 1804 13
each,Bank of England paperbore exactlythe samepremium aa

guineas,and were receivedin every transactionas equivalent to
guineas. And yet the directors of the Bank of Ireland mam-
tamedthat their noteswerenot depreciated!
19. In the north of Ireland, where nothing but gold was

current, and paper was tabooed,the Exchange at Belfast with
London had always continued favourable to Belfast, and even
while the Exchange at Dublin was progressivelysinking, the
Exchangeat Belfast continued to rise; thus, the state of the
Exchangesduring the years1803 and 1804,whenthe Committee
wereappointed,wasas follows :-
1803 Dublin Belfast
Averageof 1st quarter ... £11 19 £7 12 6

2nd ... 13 8 11 888
3rd ... 15 17 0 7 12 6
4th ... 15 8 7 5 12 6
1804.
January 27th ... 18 0 0 600
There was, therefore,at that time, a differenceof 12 per cent.

betweenthe Exchangeat Dublin and at Belfast. Consequently,
if the opinionsof the Directorsof the Bank of Ireland weretrue,
enormouspaymentswere being made from Dublin to London,
and a balance of payments was due from London to Belfast.
However,Mr. Marshall, the Inspector Generalof Imports and
Exportsat Belfast, held a very different opinion with respectto
Irish Bank notes, for he appendsto the table of Exchanges
preparedby him this note-
" It has certainly been heretoforeheld as a maxim of com*
merce,that the balanceof trade hasin a great measureregulated
the Eate of Exchange; and if speciewasequallyin circulation in
England and Ireland as formerly, the criterion would, no doubt,
still be tolerably just. But the issueof paper in Ireland is so
great as to makeit subjectto a heavydiscount,whilst in England
it circulateswithout any depreciationat all, / imaginetheRate
of Exchangetetweenthe two countries,therefore,is very much
influencedty therate of discounton Irish Bank notes"
20. It is scarcely
necessary
to observethat if the opinion
of the Directors of the Bank of Ireland were true, that the Rate
of Exchange
at Dublin onLondonwasdue entirelyto the heavy
debts due from Ireland to England, their townsmenmust have
beengreatsimpletons
to purchasebills onLondonin Dublin at
such an enormoussacrifice,when they could have got them at
Belfast10to 12percent,cheaper.But it appearedthat specie
was at a premiumof 10 or 12percent,in Dublin, so that the
bills,whenpaidfor in Mb, wereexactlythesameratein Dublin
and Belfast
81. In orderto test the fact that the Rate of Exchangewas

due to the excessof paymentsowing by Ireland, the Committee
had evidenceon the subject, and it appearedmost decisively
that so far from the balanceof paymentsbeing againstIreland,
there was a very large balancein her favour. The witnesses
differed as to the precisesum, but they agreedas to the fact
of therebeing a large sumdue to Ireland, and,consequently,that
the Exchangeought to be in her favour, which waspreciselythe
caseat Belfast, wherepaymentswere madein specie. With this
incontrovertible evidence before them, the Committee did not
hesitate to expresstheir conviction that the real balanceof
pecuniarytransactionswas greatly in favour of Ireland, and
that, consequently,
the Real Exchangewasand ought to be under
par, and that they felt themselvescompelledto seekin other
causesthan the balanceof debts for the unfavourableExchange
then existing betweenthem
22. We have already seenthat when in 1696 the silver

coinagewasbeingrecoined,a differencearosebetweenBank notes
and specieof 20 per cent.,and betweentallies and specieof 40
per cent., it was universally said that Bank notes and tallies were
at a discountof 20 and 40 per cent. There is no trace of any
other languagebut that being appliedto them. In the year1804
Irish Bank noteswereexchangedfor specieat a differenceof 10
per cent.,so that, with a guineain specie,anyone might purchase
a guinea note and 2s. or more in silver. The merchants of 1696
wouldhaveexpressed sucha stateof thingsby sayingthat the
aotehadfallento a discountof 10 percent. But at thisperiod
DERANGEMENTOF THE IRISH CURRENCYIN 1804 15
a newmodeof expressing it wasdiscovered

; it wasstoutlymain*
taincdthat it wasnot the paperwhichwasdepreciated,but the
guineawhich had risen in value! Thus, one witnessbeingasked
-" Do youknowthatthe Bankof Irelandpaperis depreciated
?"
said-" I am not aware of it, becauseI should not say paper was
depreciated,unlessthere wasa forcedissue of it, and that it was
offered at a discount on all occasions. I should rather now say
that gold is increasedin valuethan the paperis depreciated."
Whenasked-" Whatdo you considerto bethe bestcriterionof
the depreciation of paper currency,an alterationof its value
compared with thegeneralpropertyof anycountry,or itsalteration
compared with a givenarticle,viz.,guineas
?" hesays-" I think
the first the best criterion, becauseguineasmay bft wanted,as in
the presentcase,for specialpurposes."It is somewhat
surprising
that tho witness did not remember that Bank notes are a " promise
to pay " guineas,
andtheyarenot a promiseto payanyotherkind
of property. When asked-" Do you not conceivethat the fact
of a premium existing on English Bant uotes in Ireland and
exchangedfor Irish Bank notes,affordssomeindication that it is
Irish paperwhichis depreciated,
andnot the priceof goldwhich
is locally raised?"-" I do not." Other witnessesagreein these
opinions. When we considerthe nature of an Exchange,and the
state of facts provedwith regardto the Irish coinage,at that time
we might almost smile at these ideas,and attribute them to the
peculiarmethodsof thinking which aresometimes prevalenton the
westernsideof St. George'sChannel; but weshall find that when
a preciselysimilar state of things took placein England, with
regardto theForeignExchanges, the verysamedoctrineswerelong
and stoutly assertedby a very numerousparty in this country,
and wouldprobablybe so again under similar circumstances
23. There wasone witness,however,who heldverydifferent

opinions-Mr. Marshall,the InspectorGeneralof Importsand
Exports. He said that therewereshopsin the principal streetsof
Dublinfor buyingandsellingguineas,
andthat the retailpriceof
a guineathen wasa paperguineaand 2s.M. He said that at the
end of December,1803,the price of a bill in Dublin uponLondon
for £ 100British was£116 10$.,if boughtwith Irish Bank notes,
but if purchasedwith speciethe price wasonly £106 10$.Irish*
The samething wasobservable in all domestictransactions. The

man with a gold guinea in his pocket,going to market, had the
advantageof the same premium over the man with the paper
guinea,so he couldgo to a specieshop,and with his gold guinea
buy a paperguineaandthepremium;thenhehada paperguinea
of the samevalue as the other man and the premium besides.
Bank of England noteswereexactlyequivalentto guineas. From
all thesefacts,it appearedthat the Irish Bank note wanted 10 to
12 per cent, of the value of specie. It was contendedthat this
wasdue to the rising in valueof specie,andnot to the depreciation
of notes; but if speciehad risen so much in value, or, which waa
the samething, if commoditieshad fallen so low as 10 or 12 per
cent., sucha state of things could not have continued for any
length of time, becausesucha degreeof cheapnesswould have
attracted specie from Great Britain, where it had not risen.
Moreover,Bank notes had been issuedat par with specie,at its
currentvalue,whatever
it was,and theyoughtto haverisenpari
passu with it, so as to be exchangeable with it, and, therefore,
whateverthey wantedof this exchangeable property must be con-
sideredas a falling off from their original value, or a depreciation
to that extent. And, therefore,he wasclearlyof opinion that the
Irish papercurrencywasdepreciated
24. After shewing that the balanceof paymentshad been

for a long series of years favourable to Ireland, but that the
exchangehad neverceasedto be greatlydepressed, he wasasked-
" Do you also mean,on the wholeof your evidence,to give it
asyour decidedopinion that thereis and hasbeena depreciation
in the paper currency in Ireland, and that the high rates of
exchange,which haveprevailedand still prevail, have arisenfrom
the depreciation?"
" I do; the high exchange
in Dublin which hasnow continued
for someyears,must, no doubt, have arisen, like all
other permanently high Exchanges which have
ever existed, from the depreciated state of the
Currency with which Bills of Exchange are pur-
chased, and the sameremedymight,perhaps,
be resortedto
with successin the presentcase,which has never failed to be
REPORT ON IRISH CURRENCY IN 1804: 17
effectual on all former occasions,namely, a removal of the

depreciation"
These are the ideas of the men of 1600; we shall find a
long dreary periodelapsebefore their truth was again generally
recognisedin this country. The amazingabsurdityof supposing
that the Exchangecould have fallen to 118, on accountof the
balanceof payments alone, can be easily shewn. We cannot
supposethat the cost of transmitting the speciefrom Dublin to
London could have beenmorethan £2 at most* Consequently,
as £108 6$. 8rf. was the par of exchange,if the rate of the
Exchangefell below£110 tis.8&, it would have beencheaperto
sendthe specieitself. Surely,the Irish would neverhave been
sofoolishas to pay £118 in Dublin to purchasea debt in London
of £100, whenthey could place the cash itself on the spot for
£110 6s. 8&
25. The directors of the Bank of Ireland had admitted that

before the Restriction Act they were obliged to regulatetheir
issuesof paper by the price of guineas and the Exchangewith.
London. Whetherthey had an unusual demandfor guineas,and
the Exchangewasadverse,they had beenobligedto diminish their
issuesto preventthe continuanceof the demandfor guineas. As
soon,however,as they werereleasedfrom paying in cash,they no
longerthought themselvesboundto follow the samerules, and we
haveseenhow prodigiouslythey had extendedtheir issues. They
admitted,however, that it wasa possiblecase,that their issues
might be too great, and a new theory wasnowadvancedwhich we
shall be calledon to discussat some length in a future chapter,
but wenotice it now becausethis appearsto have beenthe first
occasionit waspropoundedby mercantilemen. Mr. Irving being
askedif, in his opinion, Irish Bank noteswere depreciated,said
that he did not think so, although guineaswere selling at a
premium-
"
*' Explain your reasons
" I amof opinion that a bank managedwith prudence,would
only issuenotesin proportionto the demandwhich may be made
for thosenotes in exchangefor good and convertible securities,
such as mercantile bills of exchange,payableat specificperiods
of undoubted
respectability,
foundedupon real mercantiletran.%-
VOL. II 0
18 THEOBT AND PRACTICE OF BANKING
actions,uponGovernmentsecurities,
suchas exchequer bills,in
the purchaseof Spanishdollars,or other bullion; and the
circumstances of the bank notes of Ireland being demanded for
suchgoodand convertiblesecurities,
I am of opinion,is a proof
that theyarenot toolargein amount,andthat their valueis not
depreciated "
We shall see afterwardsthat this theorywas adoptedby the
directors of the Bank of England. It is one quite opposedto
that by which the Irish directors acknowledgedthemselves
obligedto follow whilst they were liable to pay their notes in
gold. Hence,if it was correct, it inevitably followed that the
issuesof a Bank shouldbe governedon totally different principles
under a convertibleand an inconvertiblepaper currency
26. After accumulatinga considerablebody of evidence
uponthe subject,and examiningwitnessesof all sorts of various
opinionsand variousprofessions,the Committeereportedthat the
EealExchangewasin favourof Ireland, and that the difference
betweenthe Eeal and Nominal Exchange arosefrom the depre-
ciation of the Irish paper. They pointed out the absurdity
of supposingthat the value of gold had risen, and not that the
paper was depreciated. They said that the differencebetween
the Eate of Exchange could never vary more than the cost of
transmitting speciefrom one to the other, and that any excess
abovethat couldonly arisefrom othercauses. They then noticed
the enormousincreaseof the paper currency that had taken
place, since the only check against over-issuewas removed,
namely,convertibility into gold at the will of the holder-the
greatquantity of baseand counterfeitcoin fabricatedand forced
into circulation-and shewed that, under an unfavourable state
of the Exchange,the papercurrencyhad alwaysbeendiminished.
" If prudencehad not dictated such a course,necessitywould
have compelleda diminution of issues,by diminishing the stock
of speciewhich could only be replacedat a loss proportionateto
the existing rise of Exchange,and your Committeeobservethat,
in factaswellasin theory,the resultof suchpracticealwayswas
and must be the redressof the unfavourableExchange. Since
the EestrictionAct, however,the directorshad actedexactly
upon the oppositeprinciple, when the Exchangewasunfavour-
BKPORT ON IRISH CURRENCY IN 1801 39
able, they had greatly increasedtheir issues. Excessiveissues

of paperproducea proportionate
rise in the Ratesof the Ex-
change,for these are obviously influencedby the value of the
medium in which the payments are made and the quantity
of that medium necessaryto effect a given payment must be
increasedas the value of the medium diminishes, no matter
whether the paymentsbe made in a degradedand adulterated
coin, or in a depreciated paper. If paper by depreciation
comesto representa lessquantity of moneythan it professes to
do, it must make the Exchangewhich it is to pay appear un-
favourable, in the same manner as coin in \shich it were to be
paid would have done, if by degradation it should cease to
contain the same portion of gold \\hich it used to do ; and
the removal of the degradation in the one ease, and of the
depreciationin the other, would have the nameeffect in bringing
the Exchangeto par, or whatevermight be its real Ftatc>}
27. After recommendingseveral minor remediesthe com-

mittee said-" But all the benefits proposed by this mode of
remedieswould be of little avail, and of very limited duration,
if it did not promiseat the sametime to cure the depreciation
of paperin Ireland, by diminishing its over-isnuc *
And your Committee do, in expressterms, declaretheir clear
opinion,that it is incumbent on the Directors of the Bank of
Ireland,and their indispensableduty, to limit their paper at all
times of an unfavourable Exchange, during the continuance
of the restriction, exactly on the sameprinciple, as they would
and must have done, in casethe restriction did not exist, and
that all the evils of a high and fluctuating
"
Exchangemust be
imputableto them if they fail to do so
28. They then noticed the miserable fitafceof the silver

coinage,or rather the base metal, and notes and I 0 ITs
substitutedin its place, which they said was dearly to be traced
to the unfavourableExchange. As long as thn Exchangecon*
tinued in that unfavourable state, all the genuine silver coin
transferreditself to England, and the placeof the genuine silver
coin was supplied by these small mher notes in the country
districts, and in Dublin, where they were not issuable,by aa
0 2
20 THEOET AND PRACTICE OF BANKING
extremely
basesilver coinagewhichwasprivatelyfabricatedin.
greatquantities,all of whichevils could onlybe curedby the
restorationof the Exchangesto their true state, and the issue
of a genuinesilver coinage
29. The Committeecontentedthemselveswith declaring,

in the most emphaticterms, that the Bank of Ireland ought to
regulateits issuesby the stateof the Exchanges,
but it did not
discussthe new theory propounded,that the Paper Currency
shouldbe regulatedby the mercantileBills of Exchange offered
for discount. No onewho haspaid anyattention to the principles
of the subject,and carefullyconsideredthe facts producedbefore
the Committee,can fail to acquiescein their judgment, and we
cannot fail to remark that none of the professionalwitnesses,
i.e., the directors of the Bank of Ireland, or the other Bankers
examined,had attained the smallest glimpse of the principles
which governedtheir own business,and by which they should
have directedtheir policy. Its true principles were clearlyseen.
and announcedsolelyby the extra-professional witnesses,and laid
down by the statesmenwho formed the Committee. We may
supposethat fear of giving offenceto their customers,and so
diminishing their business and profits, may have somewhat
dimmedtheir perception
30. As it wasevident that as longasthe differentCurrencies

betweenthe countries continued, there must be an Exchange
from the want of a commonmedium of payment,the Committee
stronglyrecommended that the moneysof circulation and account
should be assimilated, and that Bank of Ireland notes should be
payablein Bank of England paper,and that the Bank of Ireland
should establish a fund at their credit in London for that
purpose,and that all bills should be payable at a fixed date,
whichmeasureshad beenfound to reducethe ScotchExchanges
to par, andmaintainthemso eversincetheyear1763,through
all the political and commercialconvulsionsof the period
31. The presentationof this report does not seemto have

excitedany discussion
in the Housetill manyyearsafterwards.
In 1809Mr. Parnellmovedthat the Currencies
of Englandand
CAUSES OF THE CUIStS IN 1808 21
Ireland should be assimilated in accordance \uth the recom-

mendation of the Committee, which was rejected without a
division. The Reportdoesnot seemto havebeenprinted for
public circulationtill 1820; but it wasprobablycommunicated
to the Bank, and producedsomeeffect upon their policy, A fact
was stated by Mr. Foster in the House that in the months of
May,June,andJuly, 1804,the directorsdiminishedtheir issues
from three to two millions and a half, and the Exchange rose
in Augustthey increased
them again,and the Exchangefell.
TheChancellor
of the Exchequer
(Aldington)
declared
thatit
wasa perversionof terms to infer that the depreciationof paper
had any real effect on the Exchange. The excessiveissue ot
paper might produce a depreciation, but each country had a
different circulating medium, and the depreciation of either
could only have a nominal effect on the course of Exchange.
Mr. Addington wholly overlookedthe fact that paymentswere
made in Bank of Ireland paper, and the courseof Exchange
referred to that paper. If payments had been made in silver
coin of full weight, then it would have been true- fchat the
Exchange would not have been disturbed bj the depreciation
of the paper. But the courseof Exchangealwaysrelatesto the
medium in which the payment is actually made, and a depre-
ciation of that medium necessarilycausesan adversestate, in
whatever state the other parts of the Currency may be, which
are not the medium of payment. Of this we have seena con-
spicuousinstance in KJOO,when the restoration of the silver
coinageimmediatelyrectifiedthe Exchange,although Bank paper
continued to be depreciated long afterwards* Mr. Pox, with
premature exultation, said that lie wan glad to hear that tho
Chancellorof the Exchequer allowed that an excessiveJSHUO
causeda depreciation,and that the House was never again to
hearthe fantasticalopinion that th&pttjw wa$ not dt^rf elated,but
the.val'M of gold raised. Had Mr. Fox beenablo to look forward
onlysix yearshe wouldhavefoundthat thin fantasticalopinion
not only re-appeared, but wasmaintainedwith morestubbornness
and pertinacity than ever
32. Suchwas the occranionof the fmfcdeclarationby a

Parliamentary
Committee,
of the principlethat the issuesof the
22 THEORY AND PBACTICE OF BANKING
Bank shouldbe regulatedby the ForeignExchanges;a Cotny

mittee,comprehending almostall the greatnamesof the different
partiesof all opinions. As it wasnot thenthe customto publish
the lists of the divisions in committees, we are not able to say
whether they were unanimous on the subject; but, from the
exceedinglystrongand decisivelanguageof the Report we may
fairly infer that the opinion of the Committeewas equallystrong
and decided,and that if any minority differed from the reso-
lutions of the majority, it must have beena very small one
33. We have not much to detain us in the few following
years. In 1804 the scarcity of the silver coinagewasso severely
felt, that the Bank issued5s. dollarsto supplythe want,of which
1,419,481wereput into circulation. In 1806 the loan of three
millions, which was the consideration for the renewal of the
Charterin 1800, becamedue; but the Bank was persuadedto
renew it at 3 per cent, per annum until six months after the
ratification of peace. In 1807 a Committeewas appointedto
inquire into the various branchesof the public expenditure,
and, amongstothers, into the paymentsmade into the Bank
of England. In the secondreport are someinteresting details
respectingthe connectionbetweenthe Bank and the Govern-
ment
34. At this period political circumstancesoccurred,which

led to a greatderangementof the British currency,and of which
we may be allowedto give a short summary-" For ten years
(before1805)Prussiahad flatteredherselfthat, by keepingaloof,
shewouldavoidthe storm,that shewouldsucceed
in turning
the desperatestrife betweenFrance and Austria to her own
benefit, by enlarging her territory and augmenting her con-
siderationin the North of Germany,and, hitherto, success
had in
a surprising
mannerattendedhersteps. At onceall herprospect
vanished,and it becameapparent, even to her own Ministers,
that this vacillating policy was ultimately to be as dangerousas
it had alreadybeendiscreditable." The state of universal con-
tempt into which Prussia had fallen, preciselysimilar to that
which she did in the CrimeanWar from an analogouscourse
of conduct,wasat last too strongeven for her, and just then the
CAUSES 01? THE CRISIS IN 1808 23
EmperorAlexanderarrived at Berlin, and, by his influence,a

secrettreaty was signedon the 3rd Novemberby the two States,
to curb the ascendencyof Franco,in Europe. Prussia bound
herself, in the event of Napoleonnot agreeingto curtain con-
ditions to be offered him, to declare war against him on tho
15th December,and the King boundhimself by the most solemn.
oaths to adhereto his engagements. After considerabledelay,
the PrussianMinister started for the headquartersof the French
Emperoron the 28th. Napoleon, whowasthen manoeuvring in
preparationfor the Battle of Ansterlitz,but who wasperfectly
awareof the nature of Hangwitss's mission,put off receivinghim
for a short time, and senthim to Vienna. On the 2nd December,
Napoleondestroyedthe Russianand Austrian armiesin the great
Battle of Aualerlitz, beforethe eyesof their respectivesovereigns,
and the PrussianMinister immediatelyrushedoff to congratulate
Napoleonon his successes!and to proposeto him a treaty of
Alliance by which Prussia was to seizeall the continental do-
minionswhich belongedto her ally the King of England* This
treatywassignedwith Napoleon
on the 15thDecember,
the very
day on which Prussiahad agreedto declarewar against him. In
the following March, Prussia,under the compulsionof Napoleon,
issueda decree,prohibiting British merchandisefrom entering
anyportin the Prussiandominions,thus cutting off a principal
sourceof the supplyof corn to GreatBritain
35* Swift and sure wasthe retribution that fell uponPrussia

for her matchlessmeannessand perfidy in 1805. Napoleonwas
perfectlyinformedof the objectof Haugwite'smissionto him.
" Youhavecome,"said he,"to presentyour master'scompliments
on a victory, Imt fortune haschangedthe addressof the letter;"
and, though he was too anxious to forward a measurewhich
would consignher to public infamy, and embroil her with Great
Britain,hedid not, nevertheless
for one iimtantfromthat time,
pausein hisdeterminationto destroyherat thefirst opportunity.
" From the moment the treaty was signed, Napoleondid more
thanhatePrussia,heconceived
for that powerthe mostprofound
contempt" He proceeded
to treat her with the most unmeasured
arrogance,
and, after a seriesof aggravated
insults, that per-
fidiouspowerwas astonishedto discoverthat Napoleonwas
secretlytreating with Great Britain for the restitution of Han-

over to its lawful sovereign. Negotiations for peacehad been
going on for someconsiderabletime betweenFrance,England,
and Eussia, which led to nothing. The popular ferment in
Prussiahad beenincreasing for a longtime fromherdisgraceful
positionbecoming morenotoriousandgallingeveryday,andthe
Government,with a rashness, violence,and imprudenceonlyto
be surpassed
by its perfidy,senta haughtysummons to Napoleon
to evacuateGermany. This insane insult reachedParis on the
1stOctober,
whenNapoleon
wasalreadyfar onhis wayto Berlin,
and on the 14th, Prussiamet her well deserveddoomat the twin
battles of Jena and Auerstadt, Napoleonvisited the tomb of
Frederickthe Great on the anniversaryof the dayon which,on
the samespot,the King of Prussiahadboundhimselfby solemn
oathsto the EmperorAlexander
36. Soon after Napoleonarrived at Berlin he issuedthe

Berlin decree against British commerce,on the 21stNovember.
This decreewas soon,afterwards met by a retaliatory order in
Council on the part of Great Britain, and during the course
of 1807, a series of decreeswere issuedboth by England and
Prance, each endeavouring to outdo the other in violence, ferocity,
absurdity and illegality, the result of which was,however,to ex-
cludethe British flag from everyport of Europe,exceptSweden.
This state of hostility, the avowed object of which was the
destructionof British commerce,led to a short supply, and an
apprehendedscarcity of every article of European production
required as raw materials for our manufactures. The natural
consequence wasa boundlessspirit of speculationin thesearticles;
and, under the influenceof this speculation,the prices of all the
products of Eussia,and the East of Europe,roseto doubleand
triple the ordinary figure. At the same period Spain was
occupiedby the French, and similar specuktionstripled and
quadrupled
the priceof Spanish
wool. France,too,wassupreme
in Italy; and the produceof that country, chieflyconsistingin
silk, rose in a similar proportion. Nor had our own conduct
beenlessruinousin other respects. The vindictive natureof the
orders in Council had proved so destructive to the rights of
neutrals, that a rupture with America was imminent, which
BULLION COMMITTEE 25
produced
an equallyspeculative
rise in the pricesof American
products,suchas tobaccoand cotton
37. Speculationin theseproductionswasfavouredby an

expectednarrowing of the sourcesof supply; circumstancesof an
oppositenature came to excite still further perturbationsin the
usual courseof trade. The entry of the Frenchinto Spain and
Portugalhad paralysedtheir powerovertheir colonies,and the
Great SouthAmerican continent becamefrom this time virtually
independent. It had beenhitherto rigidly closedagainst British
commerce. On the 18th November,1807,Napoleonpublisheda
decreein the Monitewr,deposingthe Houseof Braganzafrom the
throne of Portugal, and Junot took possession
of Lisbon, and the
Eoyal Family immediately embarked for the Brazils. These
events openedup the whole of the South Americantrade to the
British, and the speculationof the merchantsswelled in a pro-
portion commensurate to the vastness of the markets that were
thrown opento them. A completephrenzyof speculationseized
upon the nation. It spreadfrom commerceto joint stock com-
panies. The infatuation of 1720 was reproduced. Joint stock
companiesof all descriptions, for canals, bridges, insurances,
breweries,
and multitudesof others,startedup like mushrooms.
At the same time, the Bank of England fanned the flame of
speculationto an extent far beyondthe boundsof ordinary rash-
ness. It is stated by Sir FrancisBaring, in his evidencebefore
the Bullion Committee, that since the restriction he knew of
many instances of clerks not worth £100, who hud started as
merchants, and had been allowed to have discount accounts
of from £5,000 to £10,000, which demand,he said, was caused
by the Bank, and not by the regular demandsof trade, and
whichcouldnot existif therestrictionwereremoved.The paper
discountedby the Bank, whichhad been£2,046,500in 171)5,
roseto £15,475,700in 1809,and to £20,070,000in 1810
38* Alongwith this extravagantspeculation, partlycaused

by it, andpartlyfanningit, a multitudeof countrybanksstarted
up in all directions,and inundatedthe countrywith their notes,
exactlyashad happened before1703, In the year 1797,they
had been reducedto 270; in 1808, theyhad increasedto 600;
26 THEORY AND PRACTICE OE BANKING
andin 1810,whenthe Bullion Committeewas appointed,they

amountedto 721,and the quantityof papertheyhad put into
circulation was supposedto amount to £30,000,000, At the
same time, the Bank of England had increased its issuesto
£21,000,000,a quantity declaredby someof the most eminent
witnessesfar to exceedthe legitimatewantsof the country
39. Concurrently with these extravagant speculationsand

issuesof notes,the price of gold bullion rose rapidly, and the
Foreign Exchangesfell with equal rapidity, exactly the same
symptoms as had been manifestedin Ireland in 1804. The
following figures,taken at intervals, are sufficient to shew the
rapid rise of the price of bullion and the fall in the Foreign
Exchange:-
Price of Standard Price of
Gold Sllver
Hmburg
£ s. d. $. d. s. d.
Jan. 1805 ..,400 ...... 5 4 ...... 35 6
Oct. 1805 ... 4 0 0 ...... 5 5 ...... 33 9
July 1808 .-no quotation...... 5 3 ...... 34 9
Feb. 1809 ... 4 10 0 ...... 5 3 ...... 31 0
May 1809 ... 4 11 0 ...... 5 5 ...... 29 6
Jan. 1810 ...no quotation...... 5 7 ...... 28 6
40. Tinder these circumstances,Mr. Homer, on the 1st

February,1810,movedfor severalaccountsrelating to Currency
and Exchanges.Mr. Baring statedthat guineasthen brought
26$.or 275. The Bullion Committeewerethen appointed
41. Before proceedingto analysethis famous Report and

the evidenceproducedbeforeit, we may observethat what hasso
frequently happenedwhen two or more personsor occurrences
have contributed to any result, if one of these persons or
occurrences
hasbeenmuchmoreprominentthan the rest, the
others come, in courseof time, to be forgotten, and the whole
merit or blame is attributed to the one which has attracted most
public attention. So it has been in this case. The Bullion
Eeport of 1810 has,from variouscircumstances, attractedso
much public attentionto itself, as to havethrown completely
BULLIONREPORT,1810 27
into the shadethe Reporton the Irish Currencyof 1804;and

that Report seemsto have been BOsoon forgotten, that the di-
rectorsof the Batik of England in 1810had little or no knowledge
of it. The circumstances,however, of the derangementof the
Irish Currency, upon which the Committee of J804 sat, were
preciselyidentical with those of the English Currencyin 1810,
which causedthe appointmentof the English Committee. The
samesets of opinions were delivered and adheredto stoutly hy
the professionalwitnessesin both cases,and the Report of the
Committee
in eachcasewaspreciselyidentical; in eachcasethey
condemnedthe doctrinesand policy of the Bank directors in the
most emphatic manner. The Report of the Committeeof 1810
is written in a more methodical and scientific form, and is
superior as a literary performance,but the principles adopted
and enforcedin it are absolutely identical with those of the
Committee of
42. It may be interesting to comparethe compositionof

the two Committees,who at different times came to similar con-
clusionsas to the principles that should govern,the Bank in its
issuesduring the restriction of cashpayments. The Committee
of 1810 consistedof Mr. Horner, Mr, SpencerPerceval, Mr.
Tierney,Earl Temple,Mr. Brand, Mr. Parnell,Mr. Magens,
Mr. Jolmstone,Mr. Giddy, Mr. Dickinson, Mr. Thornton, Mr.
Sheridan,Mr. Baring, Mr. Manning,Mr. Bharpe,Mr. Grenfcll,
Mr. Foster, Mr. Thompson,Mr. In ing, Air. Huskisson,Mr.
Abercrombie, On comparingthis list t\ith that of the Committee
of 1804,it will l>eseenthat there \vereonly two members,
Mr. Sheridan and Mr. Foster, who were on both Committees
43. The witnesses examined before both Committees con-

sisted of the same varieties, 1. Bank directors. 2. Private
bankers. S. Generalmerchants, 4. Independentwitnesses. On
readingoverthe evidenceby theserespectivesetsof witnesses,we
findthattheopinionsgivenby'the EnglishBankdirectors
and
merchantswere precisely similar to those of the Irish Bank
directors.The directorsof both Banksvehemently
rupudiated
the ideathat the Bank paper was depreciated
; they equally
maintainedthat it was the price of speciethai had risen ; they
"bothadmitted that, while they were liable to pay their notesin

specie,they were obliged to regulate their issuesby the Foreign
Exchanges
and the price of Bullion; they both admittedthat
sincethe restriction they had paid no regard to their former rules,
andtheydeniedthe necessity
of so doing. Theyboth deniedthat
the issuesof their notes had any effectupon the Exchanges,or
werein any way the causeof the high adverseExchange,and they
both deniedthat a limitation of their issueswouldhave the slightest
effectin reducing the Exchangeto par. They both maintained
that there could be no over-issueof their notes so long as they
were confinedto the discount of paper of undoubted solidity
foundedupon real transactions
44. Nothing canbemoreremarkablethan the perfectidentity

in sentimentin every point of opinion and policy, betweenthese
two setsof directors,but wemust remark a circumstancethat will
detractconsiderablyfrom the weight of their opinion,namely,that
they were all interestedwitnesses. In the first place, since the
restrictionupon paying in specie,andso beingrelievedof fulfilling
their obligations,they had extendedtheir discountsenormously,
and their profits upon their extendedissueshad beenproportionate,
the dividends to the proprietors had greatly increased; and
secondly,they were in the position of semi-defendants; their
policy was certainly impugned; the Committeewasa speciesof
court of enquiry into their conduct,and it certainly wasnot likely
that they would admit that the principles they were acting upon
couldbe wrong,whentheywereso very lucrative to the proprietors
of the Bank. The sameobjection of interestedtestimonyequally
appliesto that of the merchants,for they wereinterestedin obtain-
ing as large an amount of accommodationfrom the Bank as
possible,and a restriction of its issueswould have curtailed their
operations,speculativeor otherwise; consequentlytheir interests
were better served by the doctrines and policy of the Bank
directors. Both Committees,however,examinedwitnessesof an
independentposition,who had no interest one way or the other,
and in eachcasethey totally disagreedfrom the opinions of the
Bank directors, and condemnedtheir policy. And in both cases
the Committee, having examined all those witnessesof different
shadesand opposite opinions, presented reports strongly con-
BULLIONREPORT,1810 £0
demningthe opinionsand practiceof the diwtors of eachhank,

ami calledupon them to alter their policy: the report, in the
Irish case,in languageof great severity,that in the Englishease
equallystrongin fact, thoughmilderin expression
45, As this division of opinion on thesefinancial questions
seemsto be as permanentand deep-seatedas the divisions on
political questions,it may be of advantageto state shortly and
preciselythe points upon which the respective
partieswereat
issue. The facts, of course,were easily ascertainedand agreed
upon* They were as follows-
1. That the Mint price of gold bullion, or the legal standard
of the coin, was£t$ 17$. lO^rf. per 02.
2. That the market price of gold bullion wasthen £4 10*.
per 02.
3. That the Foreign Exchangeshad fallen to an enormous
extent; that with Hamburg, 0 per cent-that with
Paris, 14 per cent.
4, That the increaseof Bank Notes had been very great
during the last few years, and was rapidly augmenting
5. That speciehad disappeared from circulation
46. Upon this acknowledgedstate of facts, the opposite

issuesmaintainedby the two parties,wereas follows:-
The one party maintained-
I. (a) That the Bank Noteswere depreciated
(#) That the differencebetweenthe Market price and
the Mint price of gold bullion, wasthe measure
of the depreciation
II. (a) That the extremelimit to which the ForeignEx-
changescould,by the nature of things fall, in
any case,wasdefined,and easilyascertained,and
consistedof the expenseof freight, insurance,
and some other minute causes
(5) That, in the then state of the Exchangestherewas
a very large excessof depressionover and above
that limit, which was not attributed to any of
these causes.
(<;)That this residualdepression
of the ForeignEx-
changes,andthe rise of the Marketpriceabove

theMint price,wascausedby the excessive
issues
of Bank Notes in circulation
III. That a diminution in the quantity of Bank Notes
would increasethe value of the domestic currency
-would causethe Foreign Exchangesto rise to
par-and the Market price of gold to fall to the
Mint price
IV. That the Directorsof the Bank of England ought
to follow the same rules in the extent of their
issuesduring the restriction of cash payments,
as they were obligedto do before,viz., by regu-
lating them by the Foreign Exchanges. When
the Exchangeswere favourable, and bullion
flowing in, they might enlarge them; when
the Exchangeswere adversethey must contract
them
47. In oppositionto these principles,the otherparty main-

tained-
I. (a) That it was not the Bank notes that were de-
preciated,but the price of speciethat had risen
(b) That there was no difference betweenthe price
of Bullion, whetherpaid in Notesor specie
II. That the depressionof the ForeignExchangeswas
in no way whatever Attributable to the de-
preciation of the Currency, but was entirely
causedby the adversebalanceof paymentsto
be made by Great Britain, the remittancesto
the army, the continentalmeasuresof Napoleon,
and other political measures
III. That no diminutionor increase
of the issuesby the
Bank would have any effectwhateverupon the
Foreign Exchanges,either in raising or de-
pressingthem,or on the Market price of Bullion
IT. That sincethe restriction,therewas no necessity
for observingthe same rules in issuing their
Notesby discountsas before,i.e., by observing
the courseof the Foreign Exchanges,but that
BULLION HEPORT, 1810. 31
the public demandwas the sole criterion, and

so long as they adhered to these rules, there
could be no over-issue
48. "With respectto the first point at issue betweenthe two

parties,after the very full explanationof the principlesinvolved
in it, given in a previous chapter,we needsay very little aboutit
here,as,accordingto what has alreadybeensaid, it is quite clear
that it certainlywasa very fantastic opinionto supposethat gold
couldrisein comparisonto a " promiseto paygold." There was
onecircumstance,however,different in the casesof England and
Ireland. In the latter country, the Bank notes were openlyat a
discount; there were two prices in every transaction,a money
price,anda paperprice: and therewerespecieshopswhereguineas
were openlysold sold for Bank notes and severalshillings over.
In Englandthis wasnot the ease,partly because Bank of England
notes were receivedat their full nominal value in paymentof
taxes, but chiefly becauseit was an indictable offenceto sell
guineasfor more than 2U. Shortlybeforethe Bullion Committee
wasappointed,a man namedDC Yongewastried and convicted
for the crime of sellingguineasfor morethan 21&, This law only
applied to heavy guineas. Light guineas,below5 dwts. 8 grns.
might besold, and wereusually sold,for a Bank note and 6s. or
Is. Considering,therefore,that by law it was a crime to sell
guineasof full weight at their [Market price, it is clear that the
value of guineaswas not an open question-they were forcibly
depreciated by law, and, consequently,this is no argumentfor the
equalityin valuebetweenthe pajwrand thecoin* If it hadnot
been a criminal offence, there would have been two prices for
everythinga moneyprice and a paperprice
Mr. Merle was asked-
"What is the differencebetweenthe Mint price and the
Marketpriceof goldpercent.?"
w About fifteen or sixteen '*
" Whenyou buygoldyoupayfor it in Bankpaper?"
"Yes"
**Thepaymentbeingmadein Bankpaper,the priceis £4 10*.
perounce?*'
" What I have soldfor the hometrade I had only £4 8*, for"
32 THEOBY AND PBACTICE OF BANKITO
"If youweretopayin guineas,

shouldyougetthe goldat a
cheaperrate ?"
" I couldnotpayin guineas,
I cannotgetthem"
" Supposingyouhadguineas to give,couldnot youbuythat
goldat acheaperratethan £4 105.an ounce?"
" No,I shouldnot offera lessprice,certainly;if I wereto buy
any quantityof goldandpay "
for it in guineas,
I shouldofferthe
sameprice as in Bank paper
" Whenyouspeakof the Mint Pricebeing£3 17*7. 10|£ an
ounce,doyoucalculate
that in goldcoinor in Bankpaper?"
'" We make no difference; and I do not believe there has been
"
any differencein paying in specieor Bank paper
" Is not thereasonwhy an ounceof gold is worth £8 17s.lOÂ
that as manyguineasas weigh an ounceamount to that sum?"
" Yes,if a gentlemancameand brought me gold,I shouldpay
him exactlythe same,whetherI paid him in gold coin or in Bank
notes "
" The Mint Price of gold is the price calculatedin gold coin?'*
"Yes"
And the Market Price of gold is at presentcalculatedby
paper? " "
" Yes, it is all paid in paper
Thuswe seethat nobodybought gold Bullion at the Market
Pricein gold coin, but only in Bank paper
49. Among the other witnesseswho held the opinion that

the Bank paper was undepreciated,we may cite that of Mr.
Chambers, an eminent merchant, which condenses the whole
subjectinto a singlepoint-
" Have you ever had occasion to consider the effects of an
excessive
or forcedPaper Currencyin any country,upon its
ForeignExchanges with other countries?"
" In a smalldegree,I have"
"What doyou conceive
the effectof suchexcessto be upon
the ForeignExchanges? "
" I apprehend
the effecton the Exchangewouldfollowthe
depreciationof a forcedCurrency"
"What do you sayto an excessive
Currency,though not
forced ? "
BULLION REPORT S3
u I do not conceivethe thing possible"

**What do yon meanby a forcedPaperCurrency? *
*'A paperthat I am obliged to take againstmy will^ for more
than its value; it is not forcedso long as peopletake it willingly,
"whichthey will naturally do whilst undepreciated "
" May not the quantity of Metallic Currency be increasedin
proportion to paymentswhich it has to effect,Dy an increased
issuefrom the mines ,* and will not that havethe effect of raising
the moneypricesof all commodities?"
" I conceivean increaseor abundanceof silver or gold would
have the sameeffectupon those preciousmetals,as a glut of any
othercommodityupon the market"
" And, in the samematter,maynot that PaperCurrencywhich
continuesto preserveits credit unimpeached,and which com-
mercial peopleare perfectly willing to receive,be so augmented
in quantity as to raise the local prices of commodities?"
" I do not conceivethat that piece of paper, for which I am
obligedto give a valuablearticle of merchandise, can b6 increased
beyondthe want of it; nobodywill give a valuable article for a
pieceof paperthat doesnot want it"
" Haveyou everhappenedto pay any attention to the history
of the Paper Currencyof Scotlandbetween30 and 40 years ago,
or to that of Ireland aboutthe year 1804 ?"
**SomeyearsagoI rememberreading somethingaboutthem,
but the recollectionis rather faint upon my mind "
" Do you call that paper,in your senseof the word forced,a
forcedPaperCurrency,which either by law as it stands,or by the
force of public opinion,is not convertibleinto specieat the option
of the holder ? "
" If it be convertible into objectsof my gratification without
depreciationI do not considerit forced"
" At the Mint priceof standardgold in this country how much
gold doesa Bank of England note for £1 represent? "
" Five dwcs.threegrains"
At the presentMarket price of standardgold, of £4 125.per
ounce,how much gold do you get for a Bank of England note
for£l?"
" Pour dwts. eight grains "
*<Do you considerthat a Bank of England note for £1, under
YOU n. J>
34 THEORY AND PRACTICE OF BANKINC*
thesepresent
circumstances,
is exchangeable
in gold for whatIt
represents
in that metal ?"
" I do not conceive
goldto be a fairerstandardfor bunk
of Englandnotesthanindigoor broadcloth
"
(Questionrepeated)
"If it represents
twentyshillingsof that metalafcthe coinage
price,it is "not" " " " *
" "Willyoustateto the Committee,

in your opinion, to what
causeis referablethe presentunfavourable
state of Exchange
betweenEngland and the continent? "
"To the balanceof paymentsbeingagainstthis country"
"Can you give casesto illustratethe fact that you have
assigned
of thebalanceof paymentsbeingagainstthis country?"
"Large British armiesupon the continent; slow returns for
exports;quick payments
for imports; andverylarge stocksof
importedgoodsnow on hand in the country"
" Is there any other causeto which you attribute the present
state of Exchange ? "
"I knov of none other
"
that can affectit, excepting uaacof a
forceddepreciated paper
"Is it your opinion that the Currency of England is de-
preciated?"
"Certainly not"
60. Upon this, Mr. Huskissonremarks-" In these answers

this leading doctrine is manfully and ingeniouslyassorted, and
maintained; and all who stand up for the undepreciatedvalue
of Bankpaper,however
disguised
theirlanguage,
must ultimately
cometo the sameissue." It was,in fact, as the same writer just
before states,that these personshad persuadedthemselves, and
endeavoured to persuadeothers, that Bank paperis the real and
fixedmeasure
of all commodities,
andthat goldis only oneof the
articles, of which in common with others, the value is to be
ascertainedby a referenceto this invariable standard and uni-
versalequivalent,Bank paper
51. It iscertainly
amazing
to thinkhowpersons
of ordinary
intelligence
couldseriously
makesuchanswers
as Mr, Chambers
BULLION HEPORT, 1810 35
did, and that these views pervadedthe whole of the mercantile

evidenceadduced,the reply to ulrieh is BOobvious. A Bank
Note wasa promise to pay a certain specifiedweight of gold of
standard
fineness,
andit did notprofosR
to representanyamount
of indigo or broadclothwhatever. A £1 Bank Note professedto
represent5 dwte.8 grns*of standardgold and nothing else,and
if it was only really equivalent to 4 dwts. 8 grns., those who
maintain that it was not depreciated must also assert that
4 dwts. 8 grns is the samething as 5 dwts. 3 grns. There is no
escapefrom this conclusion. Those who maintainedthat a £1
Bank Note,which wasa promise to pay 5 dwts. 3 grns. of gold
was still a "pound" when it was only worth 4 dwts. 8 grns.,
oughtalsoto have maintained that if the fifth part were to leak
out of a pint bottle oCwine, it wasstill a "pint of wine" because
it was containedin a pint bottle. In each casethe " promiseto
pay" and tho "pint bottle" were only the outwardsign of what
the contents ought to be; in either case,it was the quantity
of the substance, either of gold or wine, they actually did contain,
that was their true value
62. Those who maintained that the Bank Nofcc was not
depreciatedshould also have maintained that the worn, the
clipped,and degradedcoin of William III. wasnot depreciated,
when 6$. 3& and 7s, only containedas much silver as (to,%d.
ought to have done by hiw; so that 5,s'.SW.was only equal in
reality to 4$.Id. of the legal standardCurrency
It must be admitted, however, that there was one

argumentto show that there was no differencein transactions
betweennpeeieand paper,for Kpeciohad totally disappearedfrom
circulation; it had no existence. The Bunk paper and tokens
werethe solecirculating medium of the country. When people
foundthat thoy couldget no more for their good golden guineas
than for the depreciatedBank paper, they hoarded them; they
either retained them locked up, or melted them down for ex-
portation, the temptationto perjury being exactly 12$.per ounce.
Tho explanationof thesephenomenais very simple. When Bank
Notes were declared inconvertible, they took rank as a new
substantiveCurrency(being merelyrepresentative before),exactly
36 THEORY AND PRACTICE OF
like silver. "Sow,the relativevalueof gold and silver purely

depended upontheir relativequantities,and when their relative
valueswerefixedby law,if the legalvaluedid not correspond to
the market value, we have seen over and over again that the
metal which was undervalued was driven out of circulation.
So, also,when heavyand light coins circulated together,the
heavy coins were driven out of circulation because the heavy
coins were undervalued,and nobody would give 6 ouncesof
silver for what they might buy with 5 ounces. It was exactly
the same with Bank Notes. They could only preservetheir
relativevaluewith gold by preservingcertain relative proportions
in their quantity; as soonas this quantitywas exceeded
their
relative valuefell, and as their relative valueto guineaswasfixed
by law, a changein their market value was followed by exactly
the sameconsequences as a differencebetween,the market and
legal value of gold and silver. The guineaswhich were under-
valued were driven out of circulation, as always hasbeendone
under similar circumstances,and as always will be doneto the
end of time. Nobody would give 5 dwts. 3 grns. of gold for
what they could get foi 4 dwts. 8 grns. Thus this iniquitous
and ignorant law to force downthe value of guineas, broughtits
own punishment with it: it destroyedtheir existence as a cir-
culating medium; but then it becameliterally true that there
wasno differencebetween specie
andpaper;the powerof making
an invidiousdistinctionbetweennotesand gold was effectually
cured,-solitudinem factunt, pacem appellant; when the in-
habitantsweremassacred,
the Russians
proclaimed-Vordare
wgn*
a Varsovie "
64. With respectto the secondissuejoined betweenthose

parties, the principal placeswith which London had established
ExchangeswereAmsterdam,Hamburg,and Paris, in all of which
the Currencywasmetallic. The Committee examinedwitnesses,
who provedthat the wholeexpenses of freight, insurance,
war
risk, andeveryothercharge,variedfromabout4 to 5£ percent,
but beyondthesetherewasa depression
of 12 to 14percent.,
totally unaccountablefor by any of thesecauses. If it weretrue
that this differencearosefrom a demandfor gold on the con-
tinent,it is quite evidentthat goldshouldequallyhaverisenin
BULLION BEPORT, 1810 37
the continentalmarkets;but thosewhoallegedthis causeshould

have beenpreparedwith a proof of their assertions, which,
however, theyweretotally unableto produce. On the contrary,
it wasprovedthat there was no alterationin the Mint price
of gold in foreignplaces,and that the Market price had ex-
perienced no riseat all in proportionto the risein England
65. "Whilethe Englishmerchantssostrenuously

maintained
that the Kate of Exchange was entirely due to the balanceof
paymentsbeingagainstEngland,and that the Bankpaperwas
not depreciated,
it maybe aswell to comparethe opinionsof a
foreign merchant,who lookedat the same circumstancesfrom a
different point of view. After stating the difficulty of ascer-
taining the exactpar of ExchangebetweenLondon and Hamburg,
from the fact of one Currencybeing silver and the other gold,
he consideredthat the Rate of Exchangemight be consideredas
15 per cent, againstEngland
11Has not a laxge quantity of circulating speciea powerful

tendencyto steadythe courseof Exchange?"
**Yes,certainly, when its importation and exportation is nofc
prohibited,and as forming the only basisthat regulated the par
of Exchange'*
"Is not, then, any country whose chief circulation is in
paper,likely to experience
great fluctuationsin the courseof
Exchangewith other nations?"
" When that paper is not convertible into cash,it only repre-
sents, in my opinion, an. ideal and not a real value, subject to
public opinion,and, consequently,liable to the very greafc
fluctuations
whichpublicopinionsaresubjectto "
" Is there not an agio (or premium) afcHamburg, for banco
abovethe current money?"
" Not accordingto my ideas; but, on the contrary \ it is fh&
differentcurrentcoinsthat tear an inferior value to the Bank
money,and which vary daily, every thing there being valued
accordingto Bank money,or a certain weight of fine silver "
u What is the extent to which you conceivethat the Exchange
is capableof falling in any country in Europeat the present
time,supposing it to be computedin coinof a definitevalue,or
in something
convertible
intoa definitequantityof goldorsilver
bullion?"
" The chargeof transportingit, togetherwith an adequate
profitin proportion
to the risk thetransmittingsuchspecie
is
liableto, wouldbetheextentof thefluctuation"
The witnessstatedthat the wholeof these causesput together
might amountto 5J or 6 per cent.
" Do you then conceivethat sucha fall of our Exchangeas
has exceededthe sum necessaryto compensatefor the expense
of transportinggoldor silver,in the last 15 months,must bo
referredto the circumstanceof the existenceof a Paper Currency
not convertibleinto specie? "
"Yes, certainly"
" Do you conceive,then, that out of the 15 or 20 per cent*
which the English Exchangehasfallen in the last 15 months,the
large portion of from 10 to 12, or 13 per cent, may be referable
to the circumstanceof our PaperCurrency not being convertible
to cash ? "
" I am clearlyof that opinion"
" Do you then considerour paperas depreciated10 to 18 por
cent, in consequence of its non-convertibility into cash?"
"As I value everything by bullion, I conceive the Paper
Currencyof this country to be depreciated to the fcll extent
of the 15 CK20 per cent.,or rather the difference in this country
betweenthe price of bullion and the rate by which the coin is
issued from the Mint"
"Do you conceivethe balanceof trade with the continent
of Europeto be now for or againstthis country ? "
" I conceiveit to be considerably
in favour of this country,
though not to the extent as generally stated in figures; those
figuresrepresenting,in my mind, only about 80 per cent, of their
nominal value "
56. With respect,tothe third issuebetweenthe parties,

nothingcanbe clearerthan that a diminution in the quantity
of paperin circulationmust haveenhancedits valuerelatively
to all other commodities,including gold; and as the Market
priceof gold wasdetermined solelywith referenceto the price
paidfor it in Bankpaper,andnot in guineas,it is evident lhafc
ANALYSIS OF THE BULLION BEP011T 89
a redactkm of the quantityof papermusthavereduced

theprice
of gold when expressedin paper, and brought the real value
of the note nearerto its nominalvalue; and by thus raising the
valueof the whole Currency,it must necessarilyhave raisedthe
Foreign Exchangesto par, if the diminution wascarried to a
sufficientextent,andso wouldhavebroughtgoldbackagaininto
circulation
67. The fourth issue betweenthese partiescontainsa

perfectly new theory of the Paper Currency, which had pre-
viously beenannouncedby the directors of the Bank of Ireland.
As this may be consideredas one of the most famoustheories
of Currency, we think it will be advantageousto defer the
discussionof it till the chapter in which \\e .shallconsiderseveral
theoriesof the subject together. It is biiiHeientto say herethat
the Bullion.Reportespeciallycondemnsit
68. The above may be consideredas the chief points

agitated before the Committee,which are material to our sub*
ject. We may now give a short abstract of the argumentsand
recommendations of the Report. It beginsby stating the existing
differencebetweenthe Market and the Mint price of gold. The
formerbeing about £4 10$.,being 15^ per cent abovethe latter*
The samedifferenceprevailedin the price of silver. The Foreign
Exchangeshad also begun to be extremely unfavourableto
England in 1808,and had becomemore so during 1809: at that
time the Exchange with Hamburg was D per cent, below par;
\iith Amsterdam7 per cent, below par; and with Paris 14 per
cent, below pur. Ho extraordinary a rise in the Market price
of gold above the Mint price, coupled with the extraordinary
depression
of the ForeignExchanges,
had early convincedthe
Committee that the cause of them wasto be found in the state
of our domesticCurrency* But upon both thosepoints they had
beenanxiousto collect the opinionsof merchants
69. Most of the witnessesattributed the high price of gold

entirelyto an allegedscarcity,arisingfrom the unusualcon-
tinentaldemandfor it, but it waa proved that at Hamburg
during the precedingyear whenthe priceroseso high in this
40 THEORYAND PRACTICE
OF BANKING
country,the fluctuations
hadneverexceeded3 or 4 per cenfc.
At Hamburg thepriceof goldwasexpressed
in silverlike any
othercommodity, andtheCommittee considered
the change ia
theMarketandMintpriceof goldat HamburgandAmsterdam
in thelastfewyears,to shewthatachangehadtakenplacein
the relative value of the two metals all over the world. Silver
havingfallenin its relativevalueto goldall overtheworld,gold
hasappeared to risein pricein thosemarketswheresilveris the
legalmeasure, andsilverto fall in thosemarketswheregoldis
the legalmeasure
60. With respectto the demand

on the continentcausing
the risein the Market price, the sameeffect ought to have been
observed in former wars if that had been the case. But ifc had
not been so during the sevenyears' war, and in the American
war therehad beenno want of bullion in the country. The two
most remarkabletimeswhen the Market price had exceededthe
Mint price,were in King William's reign, when the silver coin
was very much below the standard, and in the beginning of
GeorgeIII.'s reign, when the gold coin was in a very degraded
state. In both cases the reformation of the coinage had
effectuallyloweredthe Market to the Mint price, and since1773,
whenthe gold coinagewas reformed,till 1797, the Market price
had nevermateriallyrisen above the Mint price; even in 1796
and 1797, when there was such a scarcity of gold, on account
of the demandof country bankers to meet the run upon them.
The Committee,moreover,totally disbelieved the fact of the
alleged scarcity of gold, and witnesseshad proved that there
wasno difficultyat all in gettinganyquantity of it, by thosewho
choseto pay the price of it, and that the changeswhich had
lately taken place in commercialmatters, had causedimmense
quantitiesboth of gold and silver to be imported into this
country. There was, therefore,not only no evidenceof the
allegedscarcity,but, on the contrary,the evidenceprovedthe
oppositefact
61, Bat even,had therebeena scarcity, the idea that the

Marketpricecouldrise abovetheMint price, arosefrom a mis-
conception.
Thatgoldwasin this countrythe measure
of all
ANALYSIS OF THE BULLION REPORT 41
exchangeable value both hj custom and law. That commodities

were said to be dear or cheap,according as they exchangedfor
more or lensgold; bid that a given quantity of (/old could never
txchangefor a greater or hss qitantity of gold of the mm&
standardfineness,except by a rery small quantity, which was
the measureof the convenienceof having it in coin rather than
in bullion, or the reverse. An ounce of standardgold, then,
couldneverfetch morein the market than £S 17s. 1Q%£9 unless
£$ 175. 10|<t in our Currencycontained U$s than an ounce
of (/old. That if gold becameexceedinglyscarceit would become
more valuable, compared to other commodities,whose prices
would consequentlyfall, while the money price of gold must
necessarily remain unaltered,but that wasnot the caseat present,
the prices of all commoditieshad risen, and the price of gold
had also risen, which facts could only be accountedfor by the
state of the Currency
62. The Report, then, explains the circumstanceswhich

mightcausea difference
between
the Marketand the Mint price
of gold, the deterioration of the coinage,the delay in having
bullion coined, the obstructionto exportation,-these two latter
causesamountedto about 5£ per cent. None of these causes
existedat Hamburg with respectto silver. The Currencywas a
regular fixed weight of silver, of standard fineness,and no
obstructionwas offered to the utmost freedom of exportation,
And in England, the variation had never exceeded5| per cent,,
while the Bank paid in gold, and the coin wasof full weight
63. Sincethe suspensionof cash payments,however,gold,

in a manner, had ceasedto be the measureof value, nor wasthere
anyotherstandardof priceathan that circulatingmedium,issued
partly by the Bank of England,and secondly, by the country
hanks,the variations in value of which were only proportionate
to their quantity. That it washighly desirable
that the value
of this circulating medium should be brought to a conformity
with its real and legal standard,gold bullion
64* If the gold coin of the country wereto becomemuch

in weight,or debased
in the standard,the Marketprice
42 THEORY AND PRACTICE CXFBANKING
wouldevidentlyrise in like proportionabovethe Mint price;

for the Mint price is the sum in coin, which is equivalent in
valueto a givenquantity, say an ounce,of the metal in bullion,
andif the intrinsicvalueof that sumin coin be lessened,
it is
equivalentto a lessquantity of bullion than before. The same
effectswouldfollow, if a PaperCurrency,no longer convertible
into gold, were issuedin excess. For that excess,not being
exportableto othercountries,or convertibleinto specie,remains
in the channelof circulation,and is gradually absorbedby the
increasingprices of all commodities, which will rise exactly in
the samemanneras they rose when the great increaseof the
preciousmetals took place. Consequentlythe prices of all
commodities,bullion included, must rise, and, if this fall in the
value of the Currency of one country takes place without a
correspondingfall in the value of neighbouringcountries,their
Currencieswill no longer retain the samerelative value, and,
consequently,the Exchangeswill fall to the disadvantageof
that particularcountry. Such must be the effectsin any
country of an excessivequantity of Currency which is not
exportable,and which is not convertible into coin which is
exportable.
65. The differenceof Exchange betweenany two places,

arisingfrom the state of trade,and paymentsbetweenthem,
could never permanentlyexceedthe expenseof conveying and
insuringtheprecious
metalsfromoneto the other. Theposition
wasso plainlytrue,andagreed uponby all practicalauthorities,
both commercial and political,as to be perfectlyindisputable.
Thatin timeof wartherisk would,of course, be increased;but,
taking into considerationall these circumstances,the entire
expenses
of sending bullionto Hollanddidnot exceed
7 percent.,
andto Parisa little more; thesecausesmight,thereforedepress
the Exchangeto that extent,but no lower. But the depression
had latelyamounted to nearly20percent.; consequently,
after
exhaustingall thesecauses
of depression,
thereremaineda large
residual'depressionto be accountedfor; and that residual
depression could only be accounted for and was
owing to the depreciated state of the domestic
Currency
66. The great generalresult,then, of all theseforegoing

principlesand factswas,that in the then artificial stateof the
Currency,it was a point of the greatestimportanceto watch the
ForeignExchangesand the Market price of gold bullion, and tho
Committee were anxious to know ii the Directors of the Dank
of England regardedthe matter in the same light, and whether
the great disturbance in the price of gold and the Foreign
KxchungeH,during the last year, had made them suspectthat
the Currency
wasexcessive.The directors,however,totally re-
pudiatedthosenotionsand ideas; they maintainedthat their
issuesand tho Foreign Exchanges and price of gold had no
connectionwhateverwith each other, and that, in making their
issuesthey ne\er puid the slightest regard to either one or the
other, and that no modification of theii Paper Currency would
influenceeithei the price of gold or the Foreign Exchanges
67. The,report then proceeds

to disprovethe opinionsof
the Hankby historical references. They quotedthe casesof tho
derangementof the Scotchcurrencyin 17C&, of theIrish currency
in 1804,bothof whicharefully detailedin this work; theythen
quotedthe caseof the Bank of Englandin ICO6-07, whichhas
beendescribed with muchminuteness in the preceding chapter,
wherethe extract from this Eeport has alreadybeenquoted and
commentedupon. But, though we have been obliged to point
out the grievouschronologicalerrorswith which id abounds,it is
remarkable
that the correctionof thcMO
errorsdoesnot in any
way weakenor oontituhct the argumentsof the Bullion Report;
on the contrary,the true state of the cane materiallystrengthens
and addsforce to all the principlesof the llcport
68* In former times,a high price of bullion, and an adverse

Ktutcof the Kxehangen,had compelledthe Directors of the Bank
to reducethdr JKHUCH, to counteractthe drain of guineas,and
preservetheir o\\n nafefey. They, perhaps,did not understand
the principlesof the casebetter than the Directors of the then
time,but theyfelt the practicalinconvenience,
andwereobliged
instinctively to obey its impulse,which circumstanceimposeda
practical limit uj)on their issues. But, sincethe restriction,they
did not feel the inconvenience, and that checkhad beenremoved;
nevertheless,
it was the clear and decidedopinion of the com-
mittee,that the Bank oughtto continueto regulatetheir issues
bytheMarketpriceof bullionandtheForeignExchanges,
in the
samemanneras they had been obliged to do before the suspen-
sion,andthat the high priceof goldbullion,and the depression
of theForeignExchanges beyondthe limits beforedescribed,were
to be ascribedto the neglectof the duelimitationof the Paper
Currency
69, Sincethe checksabovedescribedhad beenremoved,the

Committee were anxious to know upon what principles the
Directors had regulated their issues. The Directors and some
of the merchantssheweda great anxiety to state a doctrine,
of whosetruth they werethoroughly convinced,that there could
benopossible
excess
in the issueof Bank of Englandpaper,so
long as the advancesin which it is issuedconsistof the discount
of mercantilebills of undoubtedsolidity, arising out of real com-
mercial transactions,and payable at short and fixed periods.
Thesewere the principles which then governedthe Bank, and
what they said indicatedthe only true limit that needbe imposed
on their issues. Nevertheless,the Report says such a doctrine is
whollyerroneousin principle, and pregnantwith dangerouscon-
sequences.The Reportthen proceedsto shewthe fallacy of this
theoryof Paper Currency,which, as we have already observed,
we shall reservefor future consideration,along with severalother
theoriesupon the subject
70. The limitation of the rate of interestby law to 5 per

cent, producedinjurious effects,by fanning a spirit of specu-
lation, and making more extensive demands for discounts.
Consequently,the Directors themselveshad been obliged fre-
quentlyto limit their advances,and did not act up to their own
principles,which they consideredsound and safe, and, conse-
quently,they had no distinct or certain rule to guide them
71. The suspensionof cashpaymentshad thrown into the

handsof the Directorsof the Bank the important chargeof
supplyingthe circulatingmediumof the countryat their sole
discretion. That the most completeknowledgeof the state
ANALYSIS OF THE BULLION REFOKT 45
of trade, combinedwith the most profound scienceiu all the

principlesof Moneyand Currency,could not enableany set
of men ahvaynto adjust the circulating mediumproperly to the
trade of tho country. That the preciousmetakweretho only
naturaladjusters
of thosethings,whichconldnot bo replacedby
any humanwisdom or skill. That the Directors of tho Bank
had exercised tho new and extraordinarydiscretionarypowers
entrustedto them,with greatintegrity andregardto the public
interests,according to their conception of it, and with more
forbearance
than might havebeenexpected;but, unfortunately,
the principlestipon which they acted,were fundamentallyerro-
neous,and they had boon in a great measurethe cause of the
continuanceof tho great disturbancein the monetarysystem
72. The Report then gave some atatistics regarding the

quantity of notes in circulation at different periods since,the
restriction* However, they said that the actual numerical
amount of notes in circulation at any given time was no cri-
terion whatever, as to whether it was excessiveor not. Different
states of trade, and different extents of commercialoperations,
wouldrequiredifferentamountsof notes. Whenpublic credit
wasgood,a smalleramountwouldbe requiredthan whenpublic
alarm was felt, and peoplehad recourseto hoarding. Moreover,
the differentmethodsof doing business,and economisingthe use
of the Currency, much influenced the amount which might lie
properand necessary
at any period. The improvedmethods
of buHino&fi,
the policy of the Bank, the increasedissues ot
countrybankers,had all tendedto diminiahthe quantity of
Bank Notes necessaryfor commerce. Consequently,the uu~
inerical amount alone was no criterion whatever; a surer tesfc
must be applied,and that sure criterion was only to be found ia
the stateof the Exchanges,and the price of Gold Bullion
73* The experienceof the crisis of 1793 had proved thafc

an enlargedaccomrmxlation
wasthe true remedyfor the failure
of confidencein country districts, such as the systemof Paper
Creditwas occasionally
exposedto. That it wastrue that the
Bank had refusedthe enlargedaccommodation
ia 1798. But the
fogue
of ExchequerBills w«aexactlythe samein principle,and
46 THEOBr AND PRACTICE 03? BANKING
thegoodeffects thatfollowed
thatissueprovedthetruth of the
principle,that if theBankhadhadthecourage to extendits
accommodation
in 1797,insteadof contractingit as they did, the
catastrophe
whichfollowed mightprobably
havebeenavoided.
Somepersons
thoughtsoat thattime,andmanyof theDirectors,
sincethe experience
of 1797,werenowquite satisfiedthat the
course
adopted
by the Bankin that yearincreased
the public
distress,
in whichopinionthe Committee
fully concurred
74. A very importantdistinction,however,was to be ob-

served between a demand for gold for domestic purposes,
sometimesgreat and sudden,and causedby a temporaryfailure
of confidence,and a drain arising from the unfavourablestate
of the Foreign Exchanges,that a judicious increaseof accommo-
dation was theproper remedyfor theformer phenomenon,"buta
diminution of its issuesthecorrectcourseto adoptin the latter
75. That the presentissueswere excessive, but that it was

essentialto the commercialinterests of the country, and to the
general fulfilment of mercantileengagementscontracted during
the too free issueof paper, that the reduction should be made
graduallyand with greatcaution and discretion. They then give
somedetailsof the greatincreaseof countryBank Notes, and the
facilities of abuseand excessiveissuesafforded by the then state
of the Law respectingthem
76. Upon all those facts and reasonings,then, the general

conclusions arrived at were: That at that time there was an
excessive
PaperCurrency,of which the mostunequivocalsymptom
wasthe very high price of gold bullion, and next to that the very
depressed
state of the Foreign Exchanges. That the excesswas
to be attributed to the removal of all control on the issues of the
Bank of England by the suspensionof cashpayments. It was
greatly to be regretted,therefore,that this Act, which at best was
onlyintendedto betemporary,
hasbeencontinued
asa permanent
war measure. The enormousevils and injury to all classesof the
communityby the greatderangement of the measureof value,
weretoonotorious to benecessary
to describe,
andtherewasevery
prospectof their continuingand increasing:that the integrity
andhonour
of Parliament
imperatively
requiredthat an endshould
be put to this state of things at the earliestpracticablemoment
77. That the continuance of this state of matters held onfc

a temptationto Parliament,to have recourseto a depreciationof
the gold coin, by an alterationof the standard,which had been
done by many Governmentsunder similar circumstances,and
which might be the easiestremedyto the evil. But it wouldbe
a greatbreachof public faith and of the primary duty of Govern-
ment,to prefer the reductionof the coin downto thepaper,rather
than the restorationof the paperto the legal standardof the coia
78. Someproposalshad beenmadeof remedyingthe evil,

by a compulsorylimitation of the amountof the Bank's advances
or discounts,or of its profits or dividends. All these,however,
werefutile, becausethe necessary proportionsneverco^d befaxed,
aud even if it were so, might very much aggravatethe incon-
veniencesof a temporarypressure,and evenif their efficacycould
be madeto appear,they would be most hurtful and improper
interferenceswith the rights of commercialproperty
79. The only true and properremedyfor all theseevils was

therefore, a resumption of cash, payments. That,
however,was an operation of the greatestdelicacy,and it must
be left entirely to the discretionand prudenceof the Bank to
carry it into effect. Parliament should merelyfix the time, and
leaveit to them to carry out the details. Tinder all the circum-
stances,a period of two years seemedto be not longer than
necessary, and at the same time sufficient to enable them to
prepare for it. The Committee finally concludedby recom-
mendingan Act to be passedto compelthe resumptionof cash
paymentsin two yearsfrom that time
80. Such,wetrust, is a fair analysis

of thisfamousReport,
which has acquireda celebrityprobablyexceeding any report
that has ever been presentedto Parliament. It contains the
eternaland immutable
principleswhichmustregulateevery
PaperCurrencywhich makesany attemptto conformto the
valueof the goldit represents,
andif anylegislation
onPaper
Currency be considerednecessary,it mustendeavour to enforce

the practicalapplication
of the principlesof this Report,and
just in sofar asit deviatesfromor contravenes thorn,soit
will befound to thwart and contravene the eternal principles of
Economics.All legislation,
then,on the Currencyshouldhaveas
its object
merely
to providethebestmachineryfor ensuring
tho
practical
application
of these
principles.Thegeneralprinciples
laid downin this Eeportareas completea matterof demonstra-
tion asanyin Euclid; the methodof treatingthe subjectis as
scientificas any of the great discoveriesin, natural philosophy,
which have excited the admiration of the world, nor could it
fail to carryconvictionto anyone of ordinaryintelligencewho
was capable of understanding
the force of the arguments.No
sooner,however,wasit published,than it wasassailedby a whole
multitudeof pamphleteers,
whoseobscurememoryit is not worth
while to revive now* The interestsaffectedby the Eeport were
too deepandextensive
for it not to be attackedby everyspecies
of ridicule and acrimoniouscontroversy. We must now advert to
its reception
andtreatmentin the Houseof Commons
81. The Eeport was presented by Mr. Homer on the
9th June, 1810, but was not formally taken into consideration
till the 6th May, 1811. It was the joint compositionof Mr.
Horner, Mr. Huskisson,and Mr. Henry Thornton. The debate
was openedby Mr. Horner, who addressedthe housefor upwards
of threehoursin a speechwhich obtained the admiration of ail
who heard it. It is unnecessaryto go over that speechhere,
becauseits line of argumenthas alreadybeenanticipated. He
endedby moving a seriesof sixteenresolutions. The first seven
related to the legal standard of value in this country, with
referenceto which all contracts were made in this country,
8. Thatthe promissory
notesof the Bank werestipulationsto
pay on demandthe numberof poundssterling specifiedupon
them. 9. That when Parliamentpassedthe Eestriction Act it
had no intention that the value of these notes should be altered,
10. That, nevertheless,they had for a considerabletime been
belowtheirlegalvalue,(11) whichwascausedby the excessive
issues
of them,bothby the Bankof Englandandthecountry
banks.12,13.Thattheextraordinary
depression
of theForeign
DEBATE ON THE BULLION KEFORT $3
Exchangeswas in great part owing to the depreciationof the

Currencyof this country, relatively to that of other countries.
14. That during the suspension,the Directorsof the Bank ought
»oregulatetheir issuesby the price of bullion and the Foreign
Sxohanges.15. That the only method of preservingthe Paper
Currencyat its propervalue was to make it payableon demand
n the legal coin of the realm. 16. That cashpaymentsought to
>eresumedat the period of two yearsfrom that time
82. Mr. Roserepliedto Mr. ITorner-"He said that he

ould shew that there was no depreciationof Bank Paper from
xcessiveissue,and that the Report was more full of errors and
nsstatementsthan any that had ever been made to Parliament.
te was convinced that the issue of Bank Notes could have no
[feet on the price of gold, or on the Foreign Exchanges. He
sniedthat the increasedprice of commoditieswas in any way
>be attributed to the increaneof Bank Paper. The Report
* the Committee was directly in opposition to the opinions of
1 the witnessesexamined,except two. All '*experiencew was
gainst the " reasonings" of the Report. He produced a table
icwing the number of Bank Notes in circulation at different
>riods,and the Market price of bullion and the Exchangewith
amburg, to shew that there was no connection whatever
ibween them. However the Committee had themselves most
"intedly remarked that the numerical amount of Notes alone
is no test of their depreciation. The enormouspaymentswhich
igland made to the continent during the last two yearswere
ite sufficient to account for the fall in the Exchange* That
3 rise in the prices of all commoditieson the continent had
an equallygreat in countries wherethere was no Paper
rrencyashere. He went into argumentsat greatlength to
provethe ideathat the inaneof BankNoteshadanyeffectoa
*priceof goldor the Exchanges
83. Mr. HenryThorntonstatedthat thegreatquestion
at
le between
the Bullion Committeeandthe Bankwas,whether
issuesshould be regulatedby the price of gold and the
*eignExchanges,andif its excessive
issuesproduced
anyeffect;
m them. Mr. Thorntonarguedat great lengthin
VOL. ix.
50 THEORY AND PRACTICE OP BANKING*
of the principlesof the Eeport,andcitedthe caseof the Bank

of France in 1805 as a remarkable confirmation of the truth
of its principles. TheFrenchGovernment, havingoccasion for a
loan,appliedto the merchantsfor it, sucha transactionbeing
contraryto the rulesof the Bank. Themerchants proceededto
fabricateamongthemselves bills to the requisiteamount,which
they discountedat the Bank, which thus ultimately becamethe
real lender. There was, in consequence, an enormousincrease
of the Bank paper,a great demandfor specie. The Bank had to
bring backspeciefrom the provincesat a great loss-at length
it stoppedpayment. Bank Notes fell to a discount of 10 or 12
per cent.,and the Foreign Exchangesfell 10 per cent. But the
Bank reducedits paper, and in threemonths resumedpayment
without difficulty, and the Foreign Exchanges were rectified.
Mr. Thornton also quoted severalother casesof other countries
where the same phenomenonhad occurred. He then passedon.
to the questionof the standard of the Currency,which he said
wasbecoming endangeredby this continued depreciation. In-
deed,the argumentin favour of a deteriorationof the coin grew
strongerevery day. The very argumentof justice, after a certain,
time, passesover to the sideof deterioration. If we havebeen
only two or three years using a depreciatedpaper, justice is on
the side of the former standard; if ten or twenty years have
passedsince paper fell, it may be deemedunfair to restore the
ancient standard. He concludedby strongly urging Parliament
to return to the ancient standard before it was too late
84. Mr. Yansittart, who moved the counter-resolutions to

Mr. Horner, controverted,at great length, the principles of the
Report. He assertedthat the only mode in which a Metallic
Currencycould have a favourableeffecton the Exchangeswasby
exportation,and that if exportation was prohibited by law, no
effectcouldbe produced. The amazingabsurdity of this assertion
hasbeensufficientlyproved in the courseof this work to need
repetitionhere. Theseassertions,
however,were sobergood
sensecomparedto the lengths of wild extravaganceinto which
he subsequently
plunged. He said that the first sevenresolutions
arguedon the suppositionthat the standardwassomethingvisible
andtangible. " I affirm that a standard,in the senseusedby
DEBATE ON THE BULLION REPORT 51
these gentlemen,namely, a fixed and invariable weigM of the

precious metals as a measure of value never existed in this
country!!" He ridiculed the idea of the resolution that the
weight at which any suchmoneyis authorisedto passcurrent fs
fixed!! These extraordinary ideashe attempted to supportby
referenceto the degradedstate the coin had been in at different
periods,but which were yet legal tender, and which, he con-
tended,proved that the coin was not any definite weight of
bullion. It was upon this point, he said, that the question
of depreciation depended. "Now, I do not considermyself
boundeither to admit or deny that Bank Noteshavelost a value
which they never possessed, and which the legal coin of the
country never possessed, namely, a value estimatedby a fixed
weightof gold or silver bullion. They never had any otherthan
currentvalue, foundedon the public confidencein the Bank, and
this value, I firmly believe,and have distinctly statedin my third
proposition,that they possess as much as ever." Whenthe whole
of the rest of his speechwasa mererepetition and development
of such crazyideas, it is mere waste of time to give any more
details of it. There is one more specimen,however,which we
cannot refrain from extracting. He says-"It appears,then,
that a diminution of the value of Currencymay have the effect
of improving the Exchange,but cannot by possibility depress
it!!" Which means that the more debased and worthless the
Currency of a country is, the more favourable should be the
ForeignExchanges,or the higher should foreigners estimateit.
So that, while the French assignatswere daily falling lowerand
lowerat home,the more should foreignershave given for them:
so that, while the French themselvesgave one livre in coin for
1,200 in assignats,the English and other foreignersought to
have given their full nominal value in coin, and even more
than that accordingto Mr, Vansittart. He then madeseveral
triumphantobservationsaboutthere being no differencein trans-
actions between Bank Notes and coin. He admitted that he had
been a member of the Irish Committee of 1804, and had con-
curred in the opinion that Irish Bank Noteswere depreciated,
but he said that the,two caseswere not parallel; for it appeared
not only that the current coin was openlysold at a premium,but
that an establisheddifferenceof price existed betweenpayments
E 2
52 THEORY AND PRACTICE OP BANKING
in coinandin Irish paper,whileBank of Englandpaperpassed

as equivalentto guineas. This depreciation,however,he denied
had proceededfrom excessiveissues, but from the political
circumstancesof the period
85. Such were the leading arguments against the con-

clusions of the Committee, which, though somewhatvaried in
expression,were constantlyrepeated. After the expositiongiven
in our chapter on the Coinage, it would be waste of time
to attempt seriously to disprove the outrageousfolly of the
proposition,
that the coinsof GreatBritain neverwereintended
to contain any fixed or certain quantity of gold or silver bullion
in them. If this had been true, what was the need of having
any gold or silver in them at all; if it was not to regulate their
value?
86. With respectto the assertionthat therewasno difference

in commonpaymentsbetweenguineas and Bank Notes,and that
guineas
werenot openlysellingat a premium,as in Ireland,the
answer was simple and decisive: if it were so, it was merely
through the terrors of the penal law. At the very time of this
debate three men were lying under a conviction of the crime
of selling guineasfor morethan 21s. They had been convicted
under an old statute of Edward VI., which did not extend to
Ireland,so that the reasonwhy guineasweresoldpubliclyat a
premiumin Ireland was,that therewasno law againstit; in
Englandit wasa criminaloffence,and,in consequence of this,
guineashad disappeared from circulation. But Mr. Vansittart
threwout anotherchallenge : he acknowledged that it waslegal
for tradesmen to makea distinctionin prices,according asthey
werepaidin money,or in BankNotes,and he deniedthat such
a distinction existed. On this point, however, he was met with
a distinct denial by Mr. Huskisson,who said-" If paper were
sustainedat all in public estimation,it must be by a support
growing out of terror, by an estimationproceedingat that
moment from a considerationof a pending judgment. If this
were once settled, public estimation would soon shew what it
really was. In every part of the countrythere werealready
twoprices; he had undoubted proofof the fact. He hadin his
DEBATE ON THE BULLION REPORT 53
pocket a letter from a person intimately acquaintedwith such

matters,which said that two prices wereprevalentin the country,
and that the usual premiumfor guineaswashalf-a-crown"
87. Mr. Sharp, a memberof the Bullion Committee,adduced

further facts to provethat the Bank Notes were depreciated;he
said it had been,usual to send over specieto Guernseyto pay
the troopsthere. Eachguineahad lately leenpaid to the soldiers
at 235.; one regiment, however, had refused to receive them at
that rate. In anothercasehe knewof a personwho had received
a legacyof 1,000guineaswhich waspaid in specie; he wentto
invest it in the funds, and, on askingthe price of the 3 per cents.,
wastold 64^. But, on asking what the price wouldbe if paidin
real money, he was told, after some consideration, he might have
it at 60, which wasthe price actually paid. So that, while the
Government were arguing at Westminster that guineas were
of the same value as Bank Notes, they were at the sametime
dishonestenoughto pay them awayto the soldiersat 23$.
88. Sir Francis Burdett stated that, in Jersey, Bank of

England Noteswere at a discount of 3 per cent, as comparedto
the notes of their own little bank; that it wasperfectlynotorious
that two prices were common throughout the country. He knew
it from his own experience5 he had been offeredwine at far
differentprices, accordingas he should pay for it eitherin Bank
Notes or in specie
89* We have now given so much spaceto this interesting

discussion,that we can scarcelyaffordroom to notice any of the
other speeches upon the subject. When we read the arguments
and evidence,which seemto be so perfectlysatisfactory,according
to all the usual principles that commandassent,we feel some
curiosity to know what was the opposingtheory set up against
them, and it wassimply this, that the poundsterling wasnothing
tangible at all I It was an imaginaryvision! a vagueidea! an
airy nothing! which neverhad any existencein natureat all, and
that, accordingly,everything, moneyand bullion included,might
vary in endlesschangesround this ideal centre. It had evenless-
"
substantialitythan a whiff of smoke1 It was a sense of value *
communicatedin some mysterious way from one person to

another. Mr, Canningpursuedthe author of this insensatefolly
with unsparingridiculein his speech.He alsoablypointedout
the consequence of not allowingguineasto circulateat their
market value, which had been followed by their total dis-
appearance,
whereasdollars,whichwerebeginningto disappear
whenthey werebounddownto the value of the depreciatedBank
paper,wereimmediately
restoredto circulationwhen theywere
allowedto passcurrent at their real value. However,though he
fully agreedin all the principles and reasoningsof the Bullion
Keport, he did not think it expedient that the Bank shouldbe
calleduponto resumecashpaymentsin so short a periodas
two years
90. After a debateof four nights the Committeedivided on

the first of Mr. Horner's resolutions,and it was negativedby a
majority of 151 to 75. The fourteen next were negatived
without a division, and the last was rejected by a majority
of 180 to 4=5. Among the namesof the majority wasthat of
Robert Peel
91. The Ministry, having defeatedthe Bullion Committee

by so great a majority, would have donewell to let the matter
rest. As to the matter of fact agitated betweenthe parties,the
depreciationor the non-depreciation of the Bank Notes,it would
be uselessto waste one word more, and in arguing against so
palpable a fact, the ministerial party shewed little discretion.
They might easilyhave savedtheir credit by admitting the fact,
l«t arguingthat it was not expedientfor the public servicethat
so momentousa changeshould be made during the war. Not
content, however, with procuring the total rejection of Mr.
Homer's resolutions, Mr. Vansittart, in the plenitude of his
power and party strength, and in the mere wantonnessof
tyranny, determined to drag the House through the lowest
depthsof ridicule anl absurdity. He moved a seriesof reso-
lutions which are too long to be inserted here, to the effectthat
there was no legal weight of bullion in the coins,beyondwhat
the capriceof eachSovereignmight dictate; that the BankNotes
were merelypromisesto pay in these coins, and they alwayshad
MR. VANSITTAUT'S RESOLUTIONS 55
been, and at that moment were held equivalent in public

estimation to the legal coin of the realm, and generallyaccepted
as such in all pecuniary transactionsto which such coin is
lawfully applicable,and that the price of bullion and the state
of the Foreign Exchangeswere in no way owing to excessive
issuesof Bank paper
92. In introducing his resolutionsMr. Vansittart made a

speechof enormouslength, repeatinghis former views,that the
state of the domestic Currency had no effect upon the Foreign
Exchanges,and, with a tight of unheard-of audacity,he, in de-
fiance of the recordedopinion of Parliamentand the unanimous
testimony of all contemporarywriters, madethe extraordinary
assertion that in 1G90 and 1774 "the fall of the Exchange was
the cause,and not the consequenceof the depreciationof the
Currency!" Mr. Canning in vain attempted to persuadethe
Ministers to* rest satisfied with the defeat of the Bullion Com-
mittee, and, for the sake of the reputation of the House,not to
make them passa vote which no one outside the House could
speak of without laughter. His amendmentwas rejected by a
majority of 82 to 42; and, after some other minor divisions,
Mr. Vansittart's resolutions were carried
83. We have observedthat guineaswerenot soldopenly at

a premium, becauseit was generallybelievedto be a criminal
offence to do so, and three men were tried and convicted for so
doing. To draw any argumentof the equality of the valueof the
note and coin under such circumstances,was nothing but a
contemptible piece of sophistry. But nothing could be more-
whimsical or absurdthan the presumedstate of the law on the
subject. It was held to be penal to part with a Bank Note
for less than 20s. in bullion, but it was quite legitimate for a
tradesman to make two prices for his goods. In. his speech,
against Mr. Horner's resolutions, Mr. Vansittart had taunted
his opponentswith the circumstancethat this was not done. It
is incredible how any one could have madean argumentof such
an absurdity, when it was so easy to outwit the law. If any
one wished to avoid the legal offenceof parting with a guinea
for more than 28**, what more easy than a collusive sale ? Sell
a loaf to anymanfor a £1 note and 55.,and buyit againfrom

him at a guinea,andthe interchangebetweenthe guineaand
the £1 5s. was effectedin the most legal manner. But such
subtletieswereat onceput an endto by the Courtof Common
Pleasunanimously quashingthe convictionof De Yonge,and
declaringthat it wasno crimeat all to sell guineas at a premium
94. After the Househad indulged in this wild freak-the

very saturnalia of unreason-and given so great an encourage-
ment to the Bank to pursueits wild career, it becameevident
to any one who understoodthe subject, that the value of every
man's property dependedupon the will of the Bank directors.
This wasfraught with the most alarming consequences to every
one who had a fixed annuity, as, while the price of every article
of prime necessitykept pacewith the depreciationof the currency,
any one,like a landlord, having a fixed rent to receive,waspaid
in a depreciatedpaper, while his tenants receivedthe increased
nominal prices of their commodities. As matters were con-
tinually getting worse, gold having risen to s64 16s. per ounce
in March, Lord King issueda circular to severalof his tenants,
reminding them that their contract wasto pay a certain quantity
of the legal coin of the country, and that the present Paper
Currency was considerablydepreciated. He said that, in future,
he should require his rents to be paid in the legal gold coin
of the realm, but that, as his object was merelyto securethe
paymentof the real intrinsic value of the sum stipulatedby the
agreement,he shouldbe willing to receivethe amountin Portugal
gold coin of an equalweight with that of the stipulatednumber
of guineas,or by an amountof BankNotessufficientto pur-
chase the weight of standardgold requisite to dischargethe
rent
95. That such a demandwaslegal no one pretended

to
deny;but whenthis practicalsarcasm
waspassed
uponthe
resolutionof the Houseof Commons,it drovethat partywild,
and the most unmeasured abusewas heapedupon him for
incivism.Not only wasthis in everywaylegal,but nothing
couldhavebeenmoreequitable.Histenants werereceiving
the
increased
marketpricesfor their crops,and only paid himin the
LOKD STANHOPE'SACT 57
eamenumberof depreciated notes. It is quiteclearthat, if his

tenantsgot an increasein the price of their corn, owingto the
depreciation,he ought to have receiveda proportionate increase
in his rents. Lord Stanhopebroughtin a bill, which,afterbeing
considerably modified,was ultimatelypassed,makingit a mis-
demeanour to makeanydifferencein paymentsbetweenguineas
and Bank Notes. Lord Stanhope,in bringing in the bill,
mentionedseveral instanceswhich he had been informed of, in
which27$.weredemanded for a guinea. Lord Hollandalsosaid
that a poundnote and sevenshillingswerecurrentlygiven for
guineas. Admirablecommentary uponthe resolutionscarriedso
triumphantly in the House of Commonsonly two monthsbefore,
and then standing on their journals, that in public estimation
guineasand Bank Noteswere equal!
96. Lord Grenville opposedthe bill with great earnestness,

and his opinion is particularly valuable becausehe was one
of the Cabinetwho originally proposedthe Eestriction Act. He
said he had neverseenthe Ministers of the country in so dis-
graceful a position as they were that night. He turned the
famousresolutionsof the Houseof Commonsinto greatridicule,
and saidthat it had been left for Robespierre,the Jacobins,and
the presentMinistry to raise a cry of incivism againstthe private
actions of individuals. He said that it was one of the most
painful days in his and Mr. Pitt's political life, when they felt
compelledto come to Parliament to propose the restriction,
"By what considerationwe were afterwardsinduced to extend
it for successiveshort periods,it is unnecessaryto explain, suffice
it to say, that they are considerationswhich I shall ever deeply
regret had any influenceupon my mind. I do assuremy noble
friend (Lord King) that I have long sincefully concurredin the
argumentswhich he has urged againstthe original policy of that
restriction." He said that the present course,if perseveredin,
must end in the samemanneras the Mississippi and South Sea
Schemes,in total ruin. " My Lords,it has often beenmy lot to
point out the inevitable resultsof the issueof assignatsin France.
How little did I then imagine that, in the description I then
gave,I wasbut anticipating what, in the courseof twenty years,
wouldbo the faithful picture of my own countryI"
58 THEOBY AND PRACTICE OF BANKING
97, Althoughwehavegivenso muchspaceto this debate,

we cannot refrain from giving a few sentences
of Lord Stanhope's
reply, astheyconcentrate
in the shortestspacethewholeof the
ministerial argumentsand views on the subject-
" Earl Stanhope,in explanation,said that therewas no such
thing in this country as a measureof valuefoundedon a quantity
of bullion of standardfineness. The legal coin wasthe money
with the stampupon it. The stampwaswhat madeit the lawful
coin, not to be melted nor transported,and not the weight and
fineness. He did not know what mathematicians he had to deal
with, but if Bank Notes and gold borea fixed proportionalratio
to the pound sterling by law, they were equal to one another,
and to prove this he need go no further than the first book
of Euclid, where it was laid downas an axiom that things equal
to the sameare equalto oneanother"
98. "We are accustomed to smile at the famous decree of the
Inquisition, which resolvedthat the motion of the earth was
false, and sympathisewith Galileo, who, when retiring from
their rebuke, said " e pur si muove" " it moves for all that,"
But the famous resolution that guineaswere equal in public
estimation to Bank Notes,when guineaswere currently sold for
a £1 note and sevenshillings, and the dictum of Lord Stanhope
that they were equal becausethe law declaredthem to be so,
infinitely transcendsit in absurdity; and, whenwefeel inclined
to be merry at the expenseof the worthy fathers of the In-
quisition, we shouldthink of Mr. Vansittart's resolution,and be
grave
99. The Bill was warmly contestedin every stageof its

progressthrough the Houseof Lords,but finally passedthe third
reading by a majority of 43 to 16. In the House of Commons
the debateswere equallywarm and protracted,but it wasfinally
passedby a majority of 95 to 20. The Act wasoriginally limited
to the 24th March, 1812, but it was subsequentlycontinued
during the continuanceof the Bank Restriction Act
100. "Weshall reservesome remarksregarding the effects

of the great overtradingof 1809and 1810,till the chapterin
BISB OF PRICES IN 1811 59
which we shall considerthe theory of the Bank respecting

the
issues
of its notesuponmercantilesecurity
101. Amongotherarguments
allegedagainstthe opening
of the Bank,wastheinjusticeof compellingit to buygoldat the
increasedMarketprice. Nowthat weareenabledto takea more
dispassionate
viewof the subjectthanthosewhoseinterestswere
BOmuchinvolved in it at the time of the debate,we can seethat
there was no hardshipin sucha requirement.Every creditor
whowaspaidin thesedepreciated noteswasdefraudedof 20 per
cent,of his debt, and,considering
the enormousgainsmadeby
the Bank at the expenseof the holdersof its notes,justice
evidentlydemanded that the Bank should purchasewhatever
quantity of gold was sufficient to dischargeits obligations, cost
what it would. The injury to the holders of its notes,severeas
it was,wasonly temporary,
but a verymuchmoreseriousinjury
was done to the nation, by adding an enormousamount to the
national debt, which wascontracted in this depreciatedCurrency
102. The harvestof 1811 wasextremelydeficient, and that

was the period,too, whenthe powerof Napoleonwas at its
height, and the continental sourcesof supply were cut off.
Towards the middle of 1811, the price of corn began to rise
very rapidly, and continued doing so till August, 1812,when it
reachedits greatest height during the war. The averageof
wheat for England and Waleswasthen 155$.,and some Dantzic
wheat brought 1805.,and, in one or two instances,oats were
sold at 845. The advocates of the rival theories attributed this
extraordinary rise to different causes;one party almost entirely
to the depreciation of the Paper Currency, the other party
almost entirely to the great scarcity. Mr. Tooke is the most
distinguishedadvocateof the latter view,and,in supportof it,
brings most forcible argumentsfrom the correspondingrise which
took placein Prance during the sameperiod, wherethe currency
was almost purely metallic. Admitting to the full extent the
powerful arguments adducedby Mr. Tooke, which derive ad-
ditional force from his being a contemporaryof the circumstances
he describes,we can yet hardly think he can be correct in so
entirelyexcludingthe effectof the depreciation
of the Paper
GO TIIEOBY AND PRACTICE OF BANKING
Currency as he does. We have abundanceof evidencethat

before the Gold Coin and Bank Note Bill, there were very
generally two prices in the country, a gold price and a paper
price: after that Bill that wasabolished,and there was nothing
but a paperprice,andgoldtotally disappeared
fromcirculation;
but canwe doubt that if anypricehad beenpaidin gold,there
wouldhavebeena verygreat differencebetweenthe two, fully
as great as before that Act? If, then, it be grantedthat such
would havebeenthe caseif paymentshad beenmadein gold,it
seemsto followthat,whenpriceswerepaid solelyin paper,they
must be consideredto have been enhancedby just so much as
the differencewould have been if any paymentshad beenmade
in gold. There doesnot appearto be the leastreasonto suppose
that the scarcitywas comparativelygreaterin 1812 than it was
in 1800; in fact, the evidenceseemsto be entirely the otherway,
that the scarcity and distresswas much greater in the former
period, yet in 1812, the averageroseto 155sj in the formerit
was only 133s. Whencethis difference? We think the evidence
points clearlyto the depreciationof the Paperin which payments
were reckoned. Now, in May and June, 1812,the price of gold
bullion was about £4 18s. per ounce,at which the real value
of the Note was 15s. lid. Now, are we to supposethat the
enhancementof prices when paid in paper, which was quite
notorious before Lord Stanhope'sBill, was actually annihilated
by that Act?
103. The principles of the Bullion Eeport havingbeende-

cisivelyrejected by Parliament, and pronouncedto be fallacious,
by the resolutionswhich declared21 to be equalto 27, the Bank
took no measuresto bring their Notesto a nearerconformityto
their nominal value, and the Market or Paper price continuedto
rise till, in November,1813, it stood at £5 10s., the greatest
height it ever reached. The long continuanceof high prices,
partly causedby a continued seriesof deficient harvests,and
partly by the depreciationof the Paperin which they werepaid,
gave rise to the belief that they would continue permanent.
Immensespeculationsbeganin land-jobbing,vast tracts of waste
and fen land were reclaimed. It was at this time that the
immenseagricultural improvementsin Lincolnshirewereeffected.
BISE^CXF
PRICESIN 1811 61
Rents in most casesrose to treble what they were in 1792; all

the new agricultural engagementsentered into at this period
were formed on the basisof these extravagantprices; landlords
and tenants increasedtheir expenditure in a like proportion,
family settlementswere made on a commensuratescale. As a
natural consequence, country banks greatly multiplied. In 1811
they were 728, in 1818 they had risen to 940, and the amount
of their issueswere supposed,on the most moderateestimate,to
be about £25,000,000. After the disastersof the French in the
Eussiancampaign of 1812, and the Battle of Leipsic,the ports
of Eussia and Northern Germanywere thrown open to British
commerce. This naturally gave rise to enormousspeculative
exportsand overtrading
104. The harvest of 1813 was prodigiously abundant, so

that the price of corn, which in August, 1812, had been155&f
and had recededgradually from that point, till August, 1813,
fell with great rapidity, and in July, 1814,was only 685. The
exportingspeculationswere at their height in the spring of 1814,
and the prices of all such commoditiesrose to a very unusual
height, in many casesto doubleand triple of what they had been
before. Every branch of industry was by the precedingcauses
affected,and the natural and inevitable consequencessoon
followed: a violent revulsion and general depressionof prices
of all sortsof property, which entailedsuchgeneraland universal
losses and failures among the agricultural, commercial, manu*
facturing, mining, shipping,and building interests, as had never
beforebeenparalleled. As is always the case,the consequences
of the wild speculationsand engagementspersonshad entered
into during the continuanceof the fever continuedto be felt for
some years after. The disasters commencedin the Autumn
of 1814, continued with increasing severity during 1815, and
reachedtheir height in 1816-17. During these years89 country
bankers becamebankrupt, and the reduction of the issuesof
countrypaper was such,that in 1816 its amount waslittle more
than half what it had been in 1814
105. This generaldiscreditof country bank paper,re-

semblingwhat had previouslyoccurredin 1793-and17(J7,caused
(52 THEORY AND PRACTICE0^ BANKING
a demandfor additionalissues
fromthe Bankof England,to help
to maintainpubliccredit; and,thoughthis caused
an extension
of theBankpaperbyupwardsof threemillions,
sogreatwasthe
abstraction
of country
Bankpaperfromcirculation
(to certainly
threetimesthe amountof theBankof Englandissues), that the
valueof the wholeCurrency
rapidlyrose,so that, whilein May,
1815,the Market or Paperpriceof gold was£5 6$.,the Ex-
changeon Hamburg28% and that on Paris 19* in October,
1816,the Paperpriceof gold hadrapidlyfallento £3 185.6&,
the Exchangewith Hamburgwas 38', and that on Paris 26-10,
and they remainedwith little variation at thesepricestill
July, 1817
106. Hence, at length, was manifestedthe most complete

triumph of the principles of the Bullion Report. The great
plethora of this worthless quantity of Paper Currency being
removed,the value of the whole Currencywas raisedalmost to
par, so near,in fact, that the smallestcare and attention would
have broughtit quite to par; and if meanscouldhavebeentaken
to preventthe growth of the rank luxuriance of countryBank
Notes, cash paymentswould have been resumedat this period
with the utmost possiblefacility, and, as a matter of course,
without exciting the leastcomment
107. We have seenthat, on severalpreviousoccasions, the

Bank had intimated to the Governmenttheir perfect readiness
and ability to resumepaymentsin cash,but had alwaysbeen
preventedfrom doing so for political reasons. In 1815,when
peace was finally restored,they preparedin good faith to be
readyto do so as soonas they should be required,and,during
that year and 1816,they accumulatedso much treasurethat, in
November,
1816,theygavenoticeof their intentionto payall
their Notes dated previouslyto the 1st January, 1812, and in
April, 1817,all their Notesdatedbefore1st January,1816. When
this wasdone,therewasfoundto bescarcely anydemand onthem
for gold. Thenationhadgot soaccustomed to a PaperCurrency
that theyweremostunwillingto receivegoldforit. Mr. Stuckey,
one of the largestbankersin the Westof England,said,that
during this partial resumptionof cashpaymentsit costhim
PARTIAL RESUMPTIONOF CASH PAYMENTSIN 1816 63
nearly £100 to remit the surplus coin which accumulatedupon

him to London,as he couldnot get rid of it in the country,his
customersall preferringhis Notes; many personswho had
hoarded guineas requested as a favour to have Notes in
exchange
108. In March,1814,the restrictionwasprolongedto July,

1816. The bill was broughtIn and passedbeforethe newsof
Napoleon'squitting Elba had reachedEngland. The Act was
scarcelypassedwhen the new war broke out which endedat
Waterloo,andthe expensesof the campaign madethe Ministers
dreada monetarycrisis, and the restrictionwas subsequently
prolongedtill July, 1818
109. The partialresumption

of cashpayments
wasattended
with perfect success;it causedno very great demand for gold,
which continued to accumulate in the Bank till October, 1817,
when it reached its maximum, being £11,914,000. In that
month the Bank gave notice that it wouldpay off in cashall the
Notes dated before 1st January, 1817, or renew them at the
option of the holders. In the course of 1817 a very large
amount of foreign loans were contractedfor; Prussia,Austria,
and other continental States of lesser importance, were en-
deavouring to replace their depreciatedpaper by a Metallic
Currency,and, as moneywas abundantin England, a very large
portion of these loans was taken up here. The effect of this
beganto manifestitself in April, 1817,whenthe Exchangeswith
Hamburg and Paris began to give way, and the Market price
of gold to rise. Thesephenomenaincreasedgraduallythroughout
1818,until January, 1819,the price of gold was£4 3«.,the Ex-
changeon Hamburg 83*8,and that on Paris 23'50, In July,
1817, the new gold coinagebeganto be issuedfrom the Mint in
large quantities. The consequencewas a steady demand for
gold set in upon the Bank, and, in pursuanceof its notices,the
sum of £6,756,000 was drawn out of it in gold. Just at this
time the British Government
reducedthe rate of interestupon
Exchequerbills. The much higher rate of interest offered by
continental Governmentscauseda great demand for gold for
exportation,and in the beginning of 1818a very decideddrain
set in. The Bankdirectors,

however,
determined
to set all tho
principles
oftheBullionReport
ostentatiously
at defiance.
While
this greatdrainwasgoingon, theyincreased
their advances
to
Government from£20,000,000to £28,000,000,
andthoughthey
knewperfectly
wellthatthedemand
of goldwasfor exportation,
they tookno measureswhateverto reducetheir issuesfor the
purposeof checkingthe export. At the sametime the issues
of countrybankshadincreasedby two-thirdssince1816
110. This demandfor gold becamemoreintenseduring

1818 and 1819, and it becameevident that the Bank would
Boonbe exhausted if legislative
interference
did not takeplace.
Accordingly, onthe 3rd February, 1819,both Housesappointed
Committees to inquireinto the stateof the Bank; and,onthe
5th April, theyreportedthat it wasexpedient to passan Act
immediatelyto restrain the Bank from paying cash in terms
of its noticesof 1816-17. An Act for that purposewaspassedin
two days' time. It wasstatedin the Eeport of the Commons
that in the first six months of 1818, 125 millions of francs had
been coined at the French mint, three-fourths of which had been
derivedfrom the goldcoin of this country. The Act forbadethe
Bank to make any paymentsin gold whatever, either for
fractional sumsunder £5, or any of their Notes, during that
Sessionof Parliament The Act, therefore,totally closedthe
Bank for paymentsin cash
111. As wehavegiventhe namesof the Committees of 1804

and 1810,we subjoin thoseof the Committeesof both Houses
in 1819. Thosein the Commonswere Lord Castlereagh,Mr*
Vansittart, Mr. Tierney,Mr. Canning,Mr. WellesleyPole,
Mr. Lamb,Mr. F. Robinson, Mr. G-renfell,
Mr. Huskisson,Mr.
Abercromby, Mr. Banks,Sir JamesMackintosh, Mr. Peel,Sir
John Nicoll,Mr. Littleton, Mr. Wilson,Mr. Stuart Wortley,,
Mr. Manning, Mr. Frankland Lewis, Mr. Ashhurst, Sir John
Newport. The Committee of the Lords were the Earl of
Harrowby,Dukeof Wellington,Marquisof Lansdowne, Duke
of Montrose,Earl of Liverpool,Earl of St. Germazns,
Earl
Bathurst,
Viscount
Sidmouth,
Earlof Aberdeen,
EarlGranville,
LordKing,LordGrenville,
LordEedesdale,
Earlof Lauderdale
EVIDENCE BEFORE THE COMMITTEES 65
112, The chief pointsof interestin thosereportsregarding

our presentsubject are the opinions held by the witnessesre-
spectingthe great doctrines of the Bullion Report. The reports
of neitherJlotiseenteredinto the questionof the theory of the
Currency: they were confinedto recommendinga certain course
of action; but they examineda numberof witnessesof the first
eminenceon the subject, and the result of their evidenceis most
extraordinary.It will be remembered
that, both in 1804and
1810, the immensepreponderance of commercialtestimonywas
entirely adverseto the doctrinethat the issuesof Paper Currency
had any effect upon the Exchanges,or the price of Bullion, or
shouldberegulated by them. Nevertheless,the reports of both
Committeeswere entirely in the teeth of the mercantileevidence.
The Bullion Report had now been before the country for nine
years,and had causedmorepublic discussion,both in Parliament
and in the press, than almost any subject whatever? and it is
. perfectly manifest that if its principles were erroneous,the
commercialworld would only have been further strengthenedin
their opposition to them. But what wasthe result now? The
overwhelming mass of commercial evidence was entirely Jn
their favour. The current of mercantileopinion wasnowjust aa
strongon their side as it had formerly beenagainstthem. What
could be more triumphant than this? What could be more
splendidtestimonyto their accuracyand soundnessthan the fact
that they had converted the immensehostile majority of the
commercial world ?
113, In order to give some idea of this remarkablechange

in opinion,we must makesomeextractsfrom the evidenceof the
witnesses
Mr. Dorrein, Governorof the Bank, said to the Lor&f Com-
mittee,p. 31-
" The advances
of the Bank to Government
uponExchequer
bills cannotbe recalledafethe pleasureof the Bank. But, when
moneyis lent afeshort periods, the Bank has a control over at*
excess
of circulation,soasto checkanyimproperspeculation,
and
the meansof sendingbullion out of the country; and thus the
Bankwouldhavean influenceovertheForeignExchanges w
"Are you,then,of opinionthat the Exchanges
areaffected
by
VOL. n. t
66 THEOBY AND PKACTICE Ofl BANKING
the increase or diminution of the number of Bank Notes in

circulation ? "
" A scarcityof circulating medium,of whateverit maycon-
sist, will oblige merchantsto draw in their funds from foreign
countries, and the superabundance of it will send the precious
mefcals out of the country"
" The consequences of a scarcityof moneywouldbe to force
an export of merchandise and manufactures, which would render
the Exchangesfavourableto this country"
(BeforeCommons' Committee,]?.32)
"A lessened circulation will have an effect to render the
Exchangefavourable? "
" Because it would force an export of merchandise,and an
exportof merchandise
wouldbring moneyinto the country"
" You have said that a contraction of the issues would lower
all prices. Are the Committeenot to understandthat it must
lower the prices of gold and silver, as well as of all other
commodities ? "
" I apprehendit would"
" Assumingthe courseof ForeignExchangesto be 5 per cent.
againstthis country,wouldnot the effect of a diminution in the
price of commodities,clearly, consequenton a diminution of
issues,be to restorethe Exchanges to par ? "
*' The effectwouldbe to forcean export,and therebyraisethe
Exchange1'
114. Mr. Pole,Deputy-Governorto the Bank, said to the

Lords9Committee, p. 35-
" Whetherthe gold appearingto vanish, and going out of the
country, does not proceed,in your judgment, from the un-
favourablestate of the Exchanges
?"
" Certainly "
" Is it your opinionthat the Exchanges
areaffected
by tho
increaseor diminution of the circulation of Bank of England
Notes?"
" Inasmuch as in that casethe interestof moneybecomes so
reducedin this country as to hold out a beneficialprospectto
personsin sendingtheir capital from this country,to be invested
Ui foreign securities,wherea larger interest is made, conse-
EVIDENCE BEFORE THE COMMITTEES C7
qucntly, a debt is created from this country, payableto foreign

countries "
(To Commons1 Committw,p.8J>)
"Do you think a considerablereduction in the amountof your
paperissueswould affect the Exchange? "
"I do"
" Is the answeryou havegiven with respectto the effectupon
the Exchange of a reduction of the issuesof the Bank founded
on observationand experienceof particular cases,or the result
of reasoningonly ?"
"Entirely upon reasoning; and my reasonsare, that I con-
ceive it would compel personsto withdraw their capital from the
continentto this country, on purposeto be able to support their
own payments"
115. Mr* Haldimand, a director for ten years, but at that

time out by rotation, said to the Lords' Cwnmtttw,p* 40- '
" Do you conceive that, by a considerablereduction on the
part of the Bank of the amountof its issues,the Bank would be
enabledto resumewith safety its paymentsin cash?'*
«Most decidedly"
"Are we to understand,then, that, in your judgment, the
effect of such a reduction of its issues would be to render the
Exchangefavourableto this country?"
" I certainly have always consideredthe amount of the issues
of the Bank of England to act as a powerful lever upon all our
Foreign Exchanges,so as to regulatetheir rise and fall"
"I conceive the Exchange to be affectedby the aggregate
amountof the issuesof the country bank, and Bank of England
paper"
"You have stated, on a former day, that you always con-
sideredthe amount of issuesof Bank Notesto act as a powerful
lever upon all Foreign Exchanges,so as to regulatetheir rise and
fall; do you apply this to the price of gold ? "
«Ido»
" Do you ground this opinion upon reasoning,or upon whafc
you have observedto take place? "
" I have grounded my opinion formerly upon reasoning,and
my observationhassincejustified that opinion "
Thewitness
produced
areportof theGovernor
of theBank
of France,detailinga commercial
crisis,andofferingverystrong
andclearproofthatanexcess
of papercirculation
didaffectboth
the Exchangesandthe priceof bullion
"Ifc appearing
fromthe accountsbeforeus that theExchanges
wereverynearlyparin the monthof September
last,andafter-
wardsbecamemoreunfavourablethan they had beensince1815,
to what do you ascribethe greatdepression
which hastaken.
placesincethat time ? "
"It would be difficult to point out the particularcircumstances
independent
of the great principleof the depreciation
of our
Paper Currency,which affect our Exchangesfrom time to time.
I believethat the investmentsin foreign stocksdid for a moment
producepart of that fall, but I should attribute a very small
part of it to that cause,and fall backuponmy principle of, an
excessof Currency. I mostcertainlybelievethat, had the Bank
at that moment been paying its notes in specie,the depression
alluded to would not have taken place, I ground my opinion
on what I observeto be passingbetweenother countrieswith
regardto their Exchangeoperations. Francehas at this minute
nearly twenty millions sterling to pay to foreign powers; and
althoughthree paymentshavebeenalreadymade,and the whole
are to be completedwithin 27 months, no sensibleeffect has
beenproducedupon its Exchangeswith other countriesequally
paying their notes in specie,such as Holland and Hamburg;
nor doesit appear that any inconvenientdiminution has yet
taken,or is contemplatedto take placein the Metallic Currency
of that country. My opinionis, that a very small portion of this
largepaymentwill be madein specieor bullion. Whena certain
amountof the circulatingmediumhasleft France,theremainder
will rise in value,andgoodsfall in price,when,consequently,
it
will becomemoreadvantageous to Franceto remit the remainder
in its produceand manufactures from time to time "
(BeforeCommons9 Committee.)
"I look upon this forcedreductionof the issuesof the Bank
of Englandas necessary in orderto restore
the restof thepaper
in circulationto its ancientvaluein gold,andthe Exchanges to
par. I haveno hesitationin statingit to be my decided opinion
that the Exchanges wouldbe restoredto par immediately the
Bank resumedits payments,I think the depressed

stateof the
Exchangesarises entirely from the excessiveissue of Bank of
England Notes. I have never heard of any country not paying1
its paper in specieon demand where such paper hus not been
depreciated"
"You are understood to say, it is your opinion that the
ForeignExchanges
andthe price of goldareprincipallyaffected
by the amount of issuesof Paper Currency? "
" That is my opinion "
" What reasonhave you for believing that the circulation for
the last half-year bore a greaterproportion to the supply required
for the purposesof trade than the circulation of the last half-year
of 1817?"
" Becausethe paper wasmore depreciatedat one time than at
the other; or, in other words,becausethe market price of gold
washigher at the former than at the latter period"
"Do you considerthe price of gold to be the chief criterion by
which to judge of the excessiveissueof Bank Notes? *
"I do"
" I happenedto be in Paris in Octoberlast, whenthe Bank
of Francereducedits issuesupon discountsvery considerablyand
suddenly. The issuesof the Bank of Franceupon discountsat
that period were 130 millions of francs, which was more than
double the highest amount that was ever previously known.
This step on the part of the directors of the Bank of France
was occasionedby the following circumstances. The Metallic
Currencywas leaving the country in all directions,owing, in all
probability,to sometrifling degreeto the over-issueof paper,
partly to some large financial operationsin Kussia,and partly to
the enormouspayments that France had engagedto make to
foreign powers, which amounted to nearly 20 millions sterling.
The Paris bankers, therefore,anticipating a great demand for
bills upon all foreign countries, were remitting specieto meet
the drafts which they intended to negotiate to the agentsof all
those foreign powers, with a small advantage upou their re-
mittance. The sudden diminution, however, of the discounts
of the Bank, causedthe Exchange to turn in favour of France,
and immediatelyparalysedall theseoperations;the Metallic
Currency made a retrograde movement, and was restored to
70 THEOEY AND PRACTICE OF BANKING
Parisandto thosepartswherethe greatest

distress
hadbeen
felt"
"You havestatedthat youattributethepresent
highprice
of goldabove
theMintPrice,andtheunfavourablestateof the
Exchange, to the excessive
issuesof the Bank of England,in-
fluencingtherebythe generalpapercirculationof the country;
haveyouanyotherreason
for deeming
theissues
of the Bank
of Englandto be excessive,exceptthat indicationwhichyou
collect from the price of gold and the state of the Ex*
change?"
" I neversawtheseeffects
produced
by anyothercausein any
country in the world "
" Is the Committeeto understandyouropinionto be,that a
high priceof goldand anunfavourable stateof the Exchange
ought,in the discretionof the Bankof England,to leadto a
reduction of their issuesuntil that high price of gold or un-
favourable state of Exchangeis reduced,if not to par, to that
price abovepar which amountsto the expenseof transferof the
preciousmetalsfrom onecountryto the other"
" I am decidedlyof that opinion"
*'Is the Committeeto understandyou to be of opinion that
that is the true criterion for the Bank to look to, whetherthe
Bank beopenor shut? "
" It is, in my conception,the only criterion "
" I considerthe" samedoctrineto hold goodin the caseof wai
as well as of peace
**You are of opinion that the partial openingsof the Bank
failed in effect,becausethe Bank did not simultaneouslycontract
their paperissues,and not becausea partial openingwould in no
casehave any effectwhatever?"
"In my view of the subject,a partial openingwill alwaysfail
unlessthe whole Currencyof the countrybe previouslyreduced
in amount, so as to restore it to the standard of the Metallic
Currencythuspartially issued"
" Of that restoration,you are understoodto admit no other
test than the favourableness
of Exchangeand the reduction
of the price of gold to the Mint Price?"
"I know of no other test"
"If wereduce
theamount
of ourpaper
circulation
sufficiently
the precious metals would flow Into the country from every
clxrcction-no Act of Parliamentcouldstop the current"
" I should consider it a breach of contract for the Government
of this country to alter the Mint Price of gold"
This witness entered into numerousdetailsin supportof his
opinions,which would be too long to insert here
116* Mr. William Ward, a Bank director,a cambist,and

Mediterraneanmerchant. Lords" Committee,
p. 60-
" You have stated that a reduction of four millions in the
amountof Bank Notes in circulation would probably producea
favourableturn in the Exchanges; do you found suchan opinion
uponreasoning,or upon having observed,as a cambist, that the
diminution or increase in the numerical amount of Bank Notes
has usually produced correspondingeffects upon the Exchange,
and the price of gold in this country, since the Bank re
stricUou?"
" I ground my opinion upon reasoning; I do not rely upon
the numericalamountof Bank Notesexclusively"
" Can we confidentlydependupon the effect of a reduction
of BankNotes towardsproducinga favourableExchange?"
**I wouldrely upon it in an Exchangetransactionwheremy
own interest was at stake "
(To the Commons'1 Committee,p. 73)
" To what extent do you conceivethe rate of Exchangeand
the price of gold are affectedby the issueof Bank Notes? "
" I conceivethey are affected to a very considerableextent,
directly or indirectly "
" Supposingthe other causeswhich affect the Exchangeto
operate equally at two different periods,do you think the price
of gold, and the rate of Exchange,would be the criterion by
which you might judge the adequateor excessiveissueof Bank
Notes?"
"Yes, I do"
'* Under a system of cash payments,do you believe that the
MarketPrice of gold will everbe permanently
abovethe Mint
Price, or the rate of our ForeignExchangesmorebelowpar than
would amount to the expenseof the transmissionof gold ftom
this country to the Continent2'*
72 THBOEY AND PRACTICE QJ BANKING
"No; the Market Price wouldnot exceedthe Mint Price

permanently"
*' Then,wouldthe Bankeverhaveoccasion
to paymorethan
the Mint Price for the gold they purchase? " **
*' I conceivethey would not have to pay more
117. Mr. Samuel Thornton, Bank director for thirty-nine

years. Commons' Committee,p. 85-
" In regulatingthe amountof their issues,
by whatprinciple
is the conductof the Bankof Englandguided?"
" I have alwaysconsidered ifcmy duty to considerthe amount
of the Notes out, and what couldbe the cause for a call for an
increase. I alsofelt it my dutyto look at the state of theForeiga
Exchangesand the price of bullion"
"Have the goodnessto state your reason for thinking ifc
desirableto take into the accountthe rate of Exchange,and the
price of bullion, in regulatingtheamountof the issues? "
" It must be obvious that if there were an excess of Bank
Notes beyondwhat was required by the trade of the country,
the price of bullion wouldtherebybe raised; and I am readyto
admit that it would havethe sameeffectupon the Exchanges"
118. Mr. John Irving, of the firm of Eeid, Irving, and Co.
Commons9 Committee, p. 94-
" Putting out of considerationthe embarrassment of trade,
which might be occasioned by a limitation of the issuesof the
Bank, do you think it is in the power of the Bank, by such
limitation, to restore a favourable rate of Exchange,and to
reducethe price of gold ?"
" I am of that opinion"
*' Gould such fluctuations take placeif we possessed a Me-
tallic Currency,as the measure
of our Exchange
with foreign
countries ? "
"Certainly not"
119. Mr. Holland, a partner of Baring, Brothers, and Co.

Commons'Committee,
p. 114=-
"In whatdegree
doyouconsider
thattheForeignExchanges
arc affectedby the increaseor diminutionof Bankof England

paper?"
" I certainlyconsider
that the Foreign'*Exchanges
areaffected
by the increaseof Bank of England paper
" Doyouthink a considerable
reductionof the amountof Bank
of England paper would have the effectof restoring the Exchange
in favourof this country,and of preventinga veryconsiderable
depression? "
**That is my opinion "
" As you considerthere would be no great fluctuation in the
price of gold, supposingthe circulation of this country to consist
of coin, or paper convertible into coin, to what do you attribute
the presentfluctuations ?"
<£The quantity of paper in the market is greater than the
market can bear. If it is thought desirableto reducethe price
of gold to £8 175. 10JdL, I " conceive that that can only be done
by a reductionof the paper
"You have stated that action and re-action will bring Ex-
changesround, and bring gold to its level ,* if that Is the case,
in what way can you accountfor the circumstancethat the coin
has,from the beginning of his presentMajesty'sreign, constantly
foundits way out of the country, and not found any re-actionto
bring it backagain ?"
" If the Market Price of gold is higherthan the Mint Price,it
is impossibleto keep it in the country"
" Would you not think one of the circumstances that would
renderthe Exchangesunfavourableto this country, and raisethe
price of gold above the Mint Price, to be an unfavourablestate
of things in this country, or, in other words,a balanceof pay
mentsagainstthe country ? "
" No, I do not; becauseI shouldcall gold the generalleveller
betweenall commercial nations, and that it invariably brings
back the Exchangesto their proper level,taking gold againstgold,
as the standard of value "
"If the Bank of England paid in specie upon demand,
do you believe there ever could exist, for any length of time,
a material difference between the Mint and the Market Price
of gold?"
" Decidedlyno* in my opinion
74 THEORY AffD PRACTICE OF BANKING
120. Mr. Thomas Tooke. Lords' Committee,p. 168-

" By whatmeans
doyouthink that theExchanges
couldbe
restored,and the price of gold reduced?"
" By keeping
downthe Bankissues
of their notesto their
present
amount,andjudging,
bythe courseof Exchange andof
thebullion market,howfar any furtherreductionmightbeno
cessaryto acomplishthat object"
" Whatdoyoumeanby our circulationbeingat a levelwith
that of other countries ? "
" Whenthepriceof bullion
"
andthe Exchanges
combined
are
at, or within a trifle of, par
" Do you consider a favourablecourse of Exchangeas an
indicationthat thereis not an excess of paperissues?"
" If that state of Exchangeis of any considerable
duration,It
affordsa presumptionthat the issuehasnot beenexcessive during
that period,but the only undeniabletest is the price of gold
being that into which the paperis convertible"
" It appearingby accountsbefore the Committee,that from
the 13th April, 1804,to the 17thNovember,1805,being eighteen
months,that the Market Price of gold was uniformly £4, and
that during the sameperiod of eighteenmonths the courseof
Exchangewas uniformly in our favour, are you of opinionthat
during that time therewasan excess of paperissued?"
" Upon the wholeI shouldanswerin the affirmativeas I have
before said that I considerthe price of gold to be the only
unerringtest,andthat the Exchanges,
evenfor moderately
long
intervals,afford only a presumption
"
"State the ground upon which you considerthe price of
bullion as a surer test of the questionof the excessiveissueof
paper,than the courseof Exchanges ?"
¬tBecause, if the coinbe perfect,and the paperstrictlycon-
vertibleinto that coin,therecannotbe anyinducement to any
individual(the Bank issuingthe paperexcepted) to givemore
than £3 175.lOî per oz.for gold of the samestandard,while
the Exchangemay be influencedby severalcircumstances, within
the limits in time in which,and of expenseat which, the coin
couldbebroughtfromonecountryto theother. TheExchango
maytherefore
fluctuate,
whilethepriceofgoldremains
stationary
" Do you meanby an excess
of paperissued,
not aa excess
EVIDENCE BEFOKE THE COMMITTEES 75
abovewhat the demand of internal commercemay require,but

an excessabovethat amount to which you think the papershould
be reduced,in order to bring the Market Price of gold downto
the Mint Price ? "
u I do not know any criterion of the internal demandfor a
mediumof circulation,
but that amountwhichwouldhaveîr-
culatedif the Currency had consistedof coin only, or coin and
paperconvertibleinto coin "
121. Mr. Ricardo, Lords' Committee,

p. 187-
**The Bank has alwaysthe powerto regulatethe priceof
bullion by limiting or increasingthe quantity of their notes"
(Commons? Committee, p. loi>)
" Do you conceivethat the Paper Currencyof this country is
now excessive,and depreciatedin comparisonwith gold, and
that the high price of bullion, and low rate of Exchange,are tho
consequences as well as the sign of that depreciation? "
"Yes I do"
**Then, do you considerthe high price of gold to be a certain
sign of the depreciationof Bank Notes?"
" I considerit to be certainsign of the depreciationof Bank
Notes,becauseI considerthe standardof the Currency to be
bullion, and, whether that bullion be more or lessvaluable,the
paperought to conform to that value,and would under thesystem
wepursuedpreviouslyto 1797"
u It appearsby the accountsalreadyreferredto, that the price
of gold in this country in April, 1815 was £5 7s.,and in April,
181G,£4 Is., being a differenceof from 25 to 30 per cent.,such
price being always measuredin our Paper Currency; do you
know whether, during the same period, any such variation, or
any variation, in the price of gold, took place in France,or in
any othercontinentalcountry? "
" It appearsto me that in Francetherecan be no variationin
the price of the metal, which is the standardof the Currency,
and, with respectto the variations in the other metal,which is
not the standardof the Currency,it must at all times beconfined
to the variationswhich take placein the relative valueof the two
tnetalsgenerallyin Europe"
* If then it shouldappearthat during the period referredto
no variationwhatever
hastakenplacein thepriceof goldin
Paris,wouldyou infer fromthat circumstancethat thevariation
in the priceof goldbetween April, 1815,andApril, 3810,arose
from the variationin thevalueof paper,andnot of gold?"
" Everyfall in thepriceof thestandard
metalisimmediately
correctedin France,by a reductionof the amountof the circu-
lation; if no similar reduction takes place under the same
circumstancesin our circulation there must necessarilybo a
redundancy,and an excess of the marketabovethe Mint price
of gold; in a sound state of the Currency the
value of gold may vary but its price cannot"
" The variationyou alludedto in your answerto a former
question
is what you meantby the depreciationof the paperin
your answerto a questionbeforeput to you? "
" From whatevercausemay arise the differencein the value
betweenpaper and gold (and I have enumeratedseveral),
I always call the paper depreciatedwhen the Market Price
exceeds
the Mint Price of gold"
"Do you considerthe differencebetweenthe Market and
Mint Price of gold to be the criterion of the depreciation
of Bank Notes ? "
"
" Strictly so
" Do you not considerthat coin or bullion are distinguishable
from Bank Notes in this important respect,that the coin or
bullion, being the mediumof universalExchange,operatesin the
nature of a Bill of Exchange,whereasthe Bank Note does not
possessthis quality; must not, therefore,the value of the coin
or bullion follow the rate of the Exchange,whilst the Bank Note
cannotbe influencedby suchan operation?"
" Certainly; a BankNote not payablein specieis confinedfx>
our circulation, and cannot make a foreign payment; a Bank
Note payablein specieis the samething as coin or bullion"
" May not this distinguishingquality betweenthe Bank Note
and the bullion explain the differenceof value, without its
followingthat the Bank Note is depreciated for any purpose
of measuring thevalueof commoditieswithin thiscountry?"
" No, I think it cannot;the term depreciation,
I conceive,
does not mean a mere diminution in value, lut it meansa
diminished
relativevalueona comparison
with something
which
EVIDENCE BEFORE THE COMMITTEES 7?
w a standard. And, therefore,

I think it quite possiblethat a
BankNote maybe depreciated, althoughit shouldrisein value,
if it did not risein valuein a degree
equalto the standard,
by
whichonly its depreciation
is measured"
"Yon havestatedan opinion,that the contractionof issues
of paperwouldat all timesrestorethe price of goldto the Mint
Price,andrenderthe Exchangefavourableto the country;sup-
posingthe balanceof paymentsof the country to be againstus,
in whatmannerwonldyouhavethempaid?"
" It appearsto methat a reductionin the amountof Currency
mayalwaysrestorethe priceof bullionto the Mint Price; but I
havenot saidthat that will alwaysrestorethe Exchangeto par"
122. Mr. Alexander Baring, afterwards Lord Ashburton.
Lords' Committee, p. 10-
" Is it your opinion that the Exchangesand the price of gold
are affected by the increaseor diminution of the circulation
of theNotesof the Bankof England?"
*' I can have no doubt of it whatever; I have always con-
sideredthe price of bullion and the ratesof Exchange,which, for
this purpose, are the same things, dependent on the paper
circulation, and liable to be regulated by its contraction or
expansion. I do not mean to say that the Foreign Exchanges,
or the price of bullion, wonldvary always in proportion to any
alterationin the amount of the paper of the Bank of England,
or even of the paper of the country at large, becausethere are
various circumstanceswhich, at different times, vary the amount
of the circulating mediumrequired for the use of everycountry;
and sometimes,for instance,twenty-five millions of Bank paper
may be too much, when, at anotherperiod, thirty millions may
be too little. It is the great defect of a Paper Currencythat
it cannot adapt itself to this changeof circumstances'*
"Are you of opinion that the loans which have been con-
tracted for in Foreign States,particularly in France, since the
peace,have had an unfavourableeffect upon the Exchanges
of this country ?"
**The circulation of the country being in its presentstate^
payments abroad, from whatever causearising, must have an
effectupon the Exchange"
78 THEOKT AND PRACTICE OF BANKING
" Whatdo you mean

bythepresent
stateof thecirculation
of the country?"
"I mean that if the circulation were in its former state
of payment
in specie,
that no payments abroadwouldbringthe
Exchanges
materially
belowtheir par; but with a paperwhich
has no regulatorof its value,it is undoubtedly
liableto depre-
ciationby foreignpayments,
"
as has beenamply provedin tho
course of the last war
" Wereyou at Paris at the time of the greatcrisisof tho
Bank of Paris ? "
"I was; and I believe the information contained in the
Governor'sreportto the proprietorsin Januarylast, as to tho
effect of the reduction of their issuesupon ForeignExchanges,
anduponthe amountof bullionin their vaults,to be correctly
stated. The effect of the reductionin their discountsupon the
Exchanges,and upon their bullion, seemsto me singularly
applicableto the presentquestion. Theirbullionwasreduced,
by imprudent issues,from 117 millions of francs to 34 millions
of francs, and has returned, by more prudent and cautious
measures,to 100 millions of francs, at which it stoodten days
ago"
" Are we to understand,then, that, in your judgment, con-
siderable importationsof grain in yearsof unfavourableharvests
would have an unfavourableeffectuponthe Exchange?"
"I think it would in any country having a circulation of
paper, not payable on demand,and where there are no meana
of contracting its amount, so as to perform for the circulation
the sameofficewhich a sound circulation of speciewoulddo for
itself"
" Would it have the same,or any,effect in a countrywhere
the circulation was partly of specieand partly of paper, con-
vertible into specie,as beforethe Bank restriction?"
"I think that no demand,howeverpressing,and of whatever
nature, wouldmakesuch a fall in the ExchangesasWouldexceed
the expenseof the transport of coin, combinedwith the risk
of the violation of the law, so long as a law exists againstex-
porting the com. This opinion, founded, as it is, upon tho
principle of circulation, is amply confirmed by the uniform
experience
of thiscountrybeforetherestrictionof cashpayments,
EVIDENCE BEFOftE THE COMMITTEES 79
and of everyother countrywith whichI haveboonacquainted.

This principlehas beenput, perhaps,
moreseverelyto the tost
within the last two years in France than in any other instance.
France having had a large paymentto make abroad,beyondthe
apparent means of her commerce,and without any equivalent
return, and these paymentvS having produced no derangement
whateverof the circulation of that country"
123. Mr. John Ward, general merchant, with much ex-

periencein moneyoperations. Commons? Committee,
p. 289-
" Is it your opinion that the rate of Foreign Exchanges,and
theMarket Price of gold, are affectedby an increaseor diininutiou
iu the amountof Bank paper? "
"Certainly"
" Do you think it would be in the powerof the Bank, by rv
reduction in the amount of their paper issues,to restore a
favourable rate of Exchange,and to reduce the Market Price
of gold to the Mint Price? "
"That is my opinion"
"Are you of opinion that, under the restriction of cash
payments,the excessof the Market Price abovethe Mint Price
of goldis an indication of the PaperCurrencybeing depreciated,
during the restriction of cashpayments? "
"Certainly"
" Is the amount of that excess of the Market above the Mint
Price of gold the measureof that depreciationin your opinion? "
"It is"
4iYou have stated that you considerthe paperof the Bank
of Englandto havebeendepreciated
by excessive
issue; during
how long a period do you considerthat depreciationto have
existed ?"
" I cannot distinctly state for howlong a period unlessI could
compareit with the valueof gold "
*' About how long ? "
" So long as the price of gold bullion has beenabovethe Mint
Price"
124. The above extracts,which are only a portion of the

evidencegiven by the great majority of the witnesses,
are
sufficientto shewthe extraordinarychangewhich had taken

placein theopinionof the commercial
worldsincethe Beporfc
of the Bullion Committee,with respectto the great question
of the connectionbetweenthe Paper Currency,the price
of hullion,andthe Foreign Exchanges.The old opinionshad
scarcelya voicein theirfavour;evenMr. Earman, whohadon
allpreviousoccasionsbeen thestoutest
antagonist
of theprinciples
of the Bullion Keport,wasconsiderably
shakenin his opinion*
Notwithstanding,however,that thegovernorand deputy-governor,
and severalotherdirectorsof the Bank,hadgivenin their ad-
herenceto thesedoctrines,
themajorityof thecourtstill persisted
in the old opinions; and, on the occasionof somequestions
havingbeensentfor their consideration
by theCommittee of the
Houseof Commons,took the opportunityof recording publicly
their disapprovalof the doctrineswhich were now in the
ascendent. On the 25th Marchthey resolved-
<{That this court cannotrefrain from advertingto an opinion,
stronglyinsistedupon by some,that the Bankhad only to reduce
its issue,to obtain a favourableturn in the Exchanges,and a
consequentinflux of the preciousmetals; the court conceives it
to be its duty to declarethat it is unableto discoverany solid
foundation for such a sentiment"
125. The Reporfcof the Lords' Committeecontenteditself

with recordingthe opinionsof the differentwitnesses
uponthe
great questionso long agitated,it pronouncedno judgmentof its
own upon the soundnessof the different views. It, however,
was very decided in the recommendationto return to the ancient
metallicstandardas speedily
ascouldbe done,with a dueregard
to the interests of commerce. The Committee of the Commons
expressed
their opinionthat, whenthe Exchanges
became
un-
favourable,and the Market Price of gold rose abovethe Mint
Price, the only modein which the Bank could have retainedthe
coinin cuculationwasby contracting
their issues.And theysaid
that, howeverthe Exchanges
mighthavebeenaffected duringthe
last and precedingyear,theyhad no reasonto apprehend the
same or any other causescould continue to affect them in such a
degreeas to precludethe Bank of England,by a constant
referenceto the Exchanges
and the price of gold, and, when
REPORT OF THE LORDS* COMMITTEE 81
necessary, by a cautiousreduction of their Paper Currency,from

gradually approximatingits valueto that of gold, and ultimately
re-establishingand maintaining it at par. Both Housesagreed
in recommendingthat after the 1st February, 1820, the Bank
should be required to deliver gold of standard fineness in
quantities of not lessthan 60 ounces,at £4 1$.per ounce; that
after the 1st October, 1820, the rate should be reduced to
£3 195.Bd.; and after the 1st May, 1821, it should be reduced
to the Mint price of £3 17$. Ityd. per ounce, that this liability
to pay in bullion shouldcontinue for not lessthan two, nor more
than three years, from 1st May, 1821,when paymentsin cash
should be resumed. They also expressedtheir opinion that the
great destructionof country bank paper of 181G-17had been
partly instrumental in reducing the price of gold, and making
the Exchangesfavourable during that period. That, from the
numerouscircumstancesaffectingthe valueof Bank of England
paper- the varying state of commercialcredit and confidence--
the fluctuationsin the amount of country bank paper, and other
reasons,no satisfactoryconclusioncouldbe drawn from the mere
numericalamount of their issuesat any given time
128. The Report wasbrought beforethe Lords on the

May, 1819, when a petition, signed by about 500 merchants,
bankers,and others,waspresentedagainstit, on the ground that
the extensive contraction of the Bank's issues in so short a time,
as would be renderednecessaryby it, would cause generalem-
barrassment. The directors of the Bank communicateda very
strongrepresentation,containingsimilar views,to Lord Liverpool,
which wasalso laid beforethe House. Lord Harrowby,however,
that evening,brought in the ministerial resolutions,which were
framed in accordancewith the Eeport, and the last of which
was - " That it was expedientto repeal all laws prohibiting the
melting or exportation of the gold or silver coin of the realm/'

Lord Lauderdalemoveda seriesof resolutionsin opposition,the
principalof which wasthat the Mint Price of gold shouldbe
alteredto correspondwith the Market Price
127. The resolutionswere moved in the Lords by Lord

Liverpool,in a speechof singularclearness
and ability. Everjr
VOL. n. <»
word that he tittered told with crushing effect upon the course
of the Government in 1810. He was an entire convert to the
principlesof theBullionKeport,in their fullestextent. He said
that the threechief points in questionwere,whether-1. It was
expedientto return to somefixedstandardof value. 2. Whether
that standardshould be the ancient one. 3. By what meansit
could be done. That the first point was the most important,
becauseit would be foundthat all the oppositionto the measure
wassimplya disguised
hostilityto returnto cashpaymentsat all.
Manyconsideredthatthereshouldbeno standard of value; but
what civilized country had ever actedupon this principle since
the world began? In formertimesthe most disgracefulmeasures
had beenresortedto, to depreciatethe standard,but even that
was not so bad ashaving no standard. No countryin the world
had everestablisheda Currencywithout a fixed standardof value;
it might be gold, silver, copper,or even iron, but it must be
somethingwhich had a real value; it could not be paper,which
had no real value,but is only a promiseof value, and England,
,the first country for commerceand knowledge of political
economy,shouldnot be the first to conferon any bodyof men,
howeverpure their motives and conduct,the powerof making
money accordingto the suggestionsof their own interests.
Policy, goodfaith, and commonhonestycalledon themto return
to the ancientstandard. No doubtsomeof the publicdebtswere
contractedin a depreciated Currency,but yet the contractwasto
pay accordingto the ancientstandard,and they must adhereto
that if they meantto act honestly. He ridiculed the ideaof the
dangeror difficulty of doingso. In 1816 gold fell to the Mint
Price,and, whenit wasquotedat £3 18s.6$. in thepublic lists,
it might, IE fact, have been bought cheaper,only the Bank
determinedto be the only purchaser,and gave that price. Since
.thenit hadrisen to 6| per cent, abovethe Mint Price, but at the
time he was speakingit wasonly 3 per cent, abovethe standard
.price. A noble Earl had doubtedwhetherit was in the Bank's
powerto bring gold to the Mint Price by contractingits issues.
The questionwas, no doubt, somewhatobscure,but the Report
would shew that there was not a single practical man, even
amongthose most hostile to the intended measure,who did not
admitthata contraction
of theBank'sissues
mustnecessarily
LORD LAUDERDALE'S SPEECH S3
have the effect of rendering the Exchange favourable to this

country, and of lowering the price of bullion. He himself enter-
tained no doubt upon the point. The plan proposedby the
resolutionsgave ample time for the Bank to make all necessary
preparationswithout injury to the commercialinterestsby too
suddena contraction* The subject of the quantity of the circu-
lating medium necessaryfor commercial transactionswas one
of the greatestimportance; it wasone,however,in which it was
impossibleto fix any nice proportion, and in his opinion, the
only criterion of a circulation being: sufficient
or excessive was to be found solely in its value
when compared with the precious metals* The
real valueof papercould only be ascertainedby its convertibility
into specie. If that test was adopted it made little difference
what the circulating medium was composedof. In Lancashireit
chiefly consisted of Bills of Exchange, which was found to
succeedperfectly in that county. If any country or district was
possessed
of real and substantialwealth,it wouldsoon,find a
circulating medium for itself. The measuresproposed,in his
opinion,would lead to no inconvenience;if any could have
arisen,they had been incurredalready, and if Parliamentwould
steadily adhereto the courserecommended,they would seethe
ancientstandardrestoredwithout material distressto any one
128. Lord Lauderdalemade somesevereremarksupon the

strong speechmade by Lord Liverpoolin favour of the very
doctrineshe had beentwelve yearsin controverting. Lord King
heartily approvedof the resolutions,and especiallythat the time
was fixed by Parliament, when the Bank should resume cash
payments,
as the public wouldnow havea securitybeyondthe
discretion of the Bank directors. The numerical amount of
Bank notescould be no guidancefor the amountof issues. The
onlyrule which couldbe given for theirregulationwasto keep
gold at the Mint Price. This wasthe onlycheckon the vicious
practicewhich 22years1 usagehad accustomed someto consider
as the natural state of the Currencyof the country
129. Lord Grenville spokewith great earnestnessin favour

of the resolutions,and his sentiments deservemost particular
0 2
attention, becausehe was one of the Cabinet who originally

proposedthe Restriction Act. He now, however,cameforward
to repeat, in the most emphatic terms, what he had already
avowed,that he consideredthe restriction as one of the greatest
calamities under which this sufferingcountry laboured. He had
frequentlyhad occasionto lament and deplorethe part which he
had himself taken on its original proposition, in prolonging it
for the term of the then existing war. Having avowedhis error
in so doing, asbecamean honestman, at the commencement of
the last war, and having foreseen,but too truly, all the misery
that followed, he felt great joy that the country could now look
forward with certainty to the repeal of that injudicious and
unfortunate measure. There was no difference in principle
betweenthe excessiveissuesof the Bank of England andthose
of Austria, Prussia,and Russia. He was most anxiousto place
on record his opinion,that the evils of the restriction had far
counterbalancedits good,and that future statesmen might know
that the opinion that this measurehad saved the countrywas
not unanimous. He hopedit would be recordedof him, as his
decided conviction, that in proportion to the danger under which
the country laboured,wasthe impolicy and desperatemadness
of such a measure as they were now considering how to rescind.
Whatever temporary advantagesmight be furnished to indi-
viduals from too liberal issues,thosevery individuals generally
suffered tenfold injury. While the Bank was lending money
with one hand, with the other it was shaking the foundation of
contracts, affecting all prices, involving the country in distress
and individualsin ruin ten timesgreaterthan anybenefits
they
could derive from liberal issues. Increasedbankruptciesin-
variably followed increasedissues. The miseriesof 1816 were
the sure consequences
of the extravagantissuesof the pre-
ceding year; the country bank paper, which was not propped
up by law like Bank paper,was fearfully depreciatedand had
involved the wholekingdom in generaldesolation.Trade,
commerce, agriculture,the classesevenmostremotefrom any
connectionwith the papersystem,found themselves suddenly
consignedto totalandinexplicable
ruin. Thesightof the misery
thus causedwouldfill themwith horror. In commerce, as in
war,therecouldbe but onesurebasisof management, andthat
DEBATE IN THE LOKDS 85
was a Currency regulated by a standard of metallic value. Not

that metal was necessary as metal,but as possessing
value.
It was impossibleto representvalue except by value. For
this reason,all civilized countries had adopteda metallic
standard. The original names of the divisions of money ia
all knownlanguagesreferredto the weightof the metal. Ifc
wasso amongthe Hebrews,the Greeks,the Bomans,the French,
the English. The poundin England,andthe livre in France,
were originally a pound weight of metal. The weight of the
metal had been diminished in each country in the coins at
different periods, but each case of such reduction was a fraud
upon the people,and it had always been donein times of dis-
content and turbulence. It was attempted to be done in the
daysof Edward VI., but the advisersof the measurewere com-
pelled to retrace their stepsthrough fear of an insurrection. It
wastime, therefore,to return to a fixed measure,and to put an
end to a system of variable value, when every one's property
was at the mercy of a body of individuals* We must have a
Currency£ established on public faith-on public laws. The
depreciationof the Paper Currency had been nearly onethird,
and every one who held it had lost t© that amount. There was
no disposition now in any class to deny this. The Directors
of the Bank of England alonerefused to admit the principlesof
the Bullion Report-so wisely and irrefragably established by
that greatman, the late Mr. Horner-a report, which could not
be read without instruction and admiration, for the depth and
soundnessof its doctrines, and bitter regret for the- premature
loss of a statesman who was so well calculated to serve and
adorn his country. If the Directors would only now believein
the Bullion Beport, there might be some hope of them,but as
they did not, they were the last personswho should be left to
managethe Currency at their own discretion. He did not believe
in any calculations as to the quantity of circulating medium
necessary.It was now time that the connectionbetweenthe
Governmentand the Bank of England should be dissolved. It
was in direct violation of the principles upon which the Bank
wasfounded. They mustrevert to the legitimatestandardof
this country, in respectto its currency. It was not the value
of that currency, but the value of the metal by which it waa
86 THEORY AND PRACTICE Off BANKING
regulated,
aspaperwasregulated
by thepriceof bullion. la
theBullionBeport,
whichhereafter,
he did not doubt,
would
form a standard, constant and unerring, in the
politicaleconomy
of this country,
of whose
extraordinary
merit
he was not aware until lately, this subjectwas clearlydefined.
He gavehis entire,unlimited,andunqualified
approbation
to the
ministerial resolutions
130. Suchare shortoutlinesof the speeches

of Lord Liver-
pool and Lord Grenvilleuponthis momentous
question,
which
well deserveto be studiedat length in the presenttime, when
manyof the heresies
andfallacies
theycombated sostronglyand
convincingly,
seemspringing up againin the publicmind. The
resolutionswere then put and agreedto without a division
131. The resolutionsin the Commonswere introducedby

Mr. Peel,on the 24th May,who freelyownedthat, in consequence
of the evidencehe had heard, and the discussionsupon it, his
opinions had undergonea material change. He acknowledged,
without shameor remorse,that his opinionswerevery different
now to what they were when he voted against Mr. Horner's
resolution in 1811. Having determinedto dismiss from his
mind all former impressions,and the memory of the vote he
had formerly given, and to give the questionhis unprejudiced
and undivided attention, he had now come to the conclusion that
Mr. Horner's resolutionsrepresented the true nature and lawsof
our monetarysystem. Every soundwriter agreedthat the true
standardof valueconsistedof a definite quantity of gold bullion,
a certainweight of which, with an impressionon it denotingit to
be of that certain weightand fineness,constitutedthe only true,
intelligible, and adequatestandardof value. No doubtthe Bank
wasperfectlysolvent,but did it follow from that there could be
no over-issue of its paper ? If solvency alone was a sufficient
proof that there was no excessof circulation,the theoryof Mr.
Law wasjust, and the land, aswell as the funds, might be safely
convertedinto a circulatingmedium. There was,in fact, no test
of excessor deficiency,but a comparisonwith the price of gold.
As the Bank had so entirelyrepudiatedthe principlesof the
.BullionEeport,theycouldnot be expected
to actuponthem; it
DEBATE IN THE COMMONS 87
might, therefore, appearnecessary

to prescribesuch a limitation'
of their issuesas would securethe powerof the Bank over the
foreign Exchanges. Ho himself thought this a very unwiseplan
becauseit dependedso.much on circumstances, whether or not;
there was an excess of circulation. There ivere occasions when
what was called a run on tii& Bank might be arrested in its
injurious consequences by an increaseof its issues. There were
other occasionswhen such a state of things demandeda curtail-
ment. In the year 1797,when a run was made on the Bank,
but whenthe Exchangeswere favourable,and the price of gold
had not risen, it was provedthat an extensionof issuesmight,
by restoring confidence,have rendered the original restriction
unnecessary. On the other hand, if the run was the effect of
unfavourableExchangesand the consequentrise in the price of
gold, the alarm must be met by a reduction of the issues. It
was, therefore,impossible to prescribe any specific limitation
cf issuesto be brought into operation at any period, however
remote. The quantity of circulation,which was demandedin a
time of confidencevaried so-materiallyfrom the amount which a
period of despondencyrequired, that it was an absolute im-
possibility to fix any circumscribedamount. He said that the
time was come when the connection that existed between the
Governmentand the Bank must be dissolved,and it must revert
to its original principle of business. The obstinateopinionsof
the Directors of the Bank shewedthat they were unfit to be
trusted with the managementof the pecuniaryinterestsof the
British community. The House must resume its powerswhich
it had abdicatedtoo long. There could be no inconveniencein
compellingthe Bank to pay in specieat the Mint Price. They
had doneso from 1776to 1797,and the price of gold neverrose
above £B 17$, 6& But it was said that it had since risen to
£5 2$.>and that the standardwasvariable. The fact was,we
had since then introduced a substitute for gold, and its price
was considered ia relation to that substitute. Let not the House
be led away by any calculation to mistake the price for the
value, When peopletalked of gold rising in,price, were they
prepared to shew that it had risen in intrinsic value? Let
them not talk of its price in paper,but in any othercommodity
of a real and fixed value* Sofar from gold having risen in valuer
sincethelast fifty years,it hadactuallyfallenin value,partly

fromthegreater abundance of the metalitself,andpartlyfrom
the substitutes
that wereusedfor it. A veryprevalenttheory
was,thatinsteadof regulating
paperbythevalueof gold-gold
shouldbe regulated by thevalueof paper.Thiswasnothing
lessthanafrauduponthepubliccreditor.It wasvainto think
thatforeignnationscouldbe imposed uponbysuchadeception.
The onlyresultwouldbe,that afterthe publiccreditorhad
been cheated,the coin would be debased. The only coursewas
to revert to the ancient standardof the realm,and to beware
of arguments, which werenot only fraudulent,but wouldnot
accomplish their ownobjects,whiletheywouldaggravatepresent
difficulties. Everydeviationfromthe ancientpracticewouldbe
quotedas a precedent for a moreextendeddeparturefrom that
practice. Under future difficultiesthe conductof their ancestors
wouldbepanegyrised
by the advocatesof the suspensionof cash
payments,
andconcludebecausethe priceof gold had risenstill
further in its relation to paper, that the principle by analogy
ought to be extended. The restoration of the value of our
Currency had always been a striking political feature in the
history of the country, and an object of the most earnest
solicitude of our most distinguishedstatesmen. Three periods
were especiallymemorablefor great reforms in the coinage-
in the reigns of Edward I., QueenElizabeth, and William III.
Theseperiodsmust everbe regardedwith pride and satisfaction.
They were of much greater difficulty than the present. Oa
QueenElizabeth's accession the coin was reducedto £ of its
nominalvalue. Under Burleigh's advice she resolvedto restore
the value. Plenty of persons dissuadedher from that idea,
allegingthe difficultiesof the attempt. But Burleigh maintained
that those very difficulties should constitute the motives for
perseverance,as they must raise and establish the character
of the country, and inspire its enemieswith respect. The
<Jueen had nobly persevered,and in her monumentalinscription,
above all her titles to distinction, this one shone preeminent
"Honeta in jtistum valorem reducta." He then
detailed the restoration of the coinage by William III. The
argumentsagainst it in those times were identical wilh those
usedagainstit at the presenttime. However,fortunately,the
DEBATE Iff THE COMMONS 89
firmnessof King William and Mr. Montaguetriumphedover

prejudices in theory, misconceptionsin reasoning, and the
greatest financial and political difficulties. The idea that this
country owed its glory and military honoursto an inconvertible
papercurrencywas ridiculous; we had abundanceof prosperity
and military glorybefore1797, beforewewereblessedwith an
inconvertiblePaper Currency. The true reasonof her difference
from other Stateswasthat she alwayskepther faith inviolate.
It wasthis that cheeredthe country under all dangers,and
causedher to exult in victory. It was this feeling that carried
the countrythrough the dismalvoyageshehad just accomplished,
and now that they had reachedthe other shorein safety,let them
not abandonthe great principle which had supported them*
Everyconsiderationof policy,goodfaith, andjustice,calledupon
them,to restorethe ancientand permanentstandardof value.
He allowed that he had once entertained views different from
those he now held, but he had given his mind candidly to a
re-investigation of the whole subject, and he felt himself bound
to state honestly, that he was now a convert to the doctrines
regardingour currencyhe had once opposed
132. The debate that followed was chiefly composedof a

strain of congratulation and rejoicing at the courseadoptedby
the Governmentand approval of the resolution. Mr. Tierney
was averseto compliment Mr. Peeltoo much,as he wasthereby
only complimentingthe opinions he himself and his Mends had
been advocatingfor many years. But, nevertheless,it was a
sourceof sincere pleasureto him to see the maximshe had so
long been contending for adopted as true policy by the House,
especiallyas such ample justice had been done to them by
Mr. Peel, who now avowed them for the first time. Mr. Bicardo
said that, when the directorsof the Bank werecalled individually
before the Committee,they fully admitted that the price of gold
and the foreign Exchangeswere affected by the amountof their
issues,but, when collected as a court they resolved in direct
opposition to such opinions. When they avowed such incon-
sistent opinions, and after the experiencethe Househad had of
their conduct,it would be the highest indiscretion in Parliament
pot to take the preparationsfor the resumptionof cashpayments
'90 THEORY AND PRACTICE OF BANKING-
out of their hands. Mr. AldermanEeygatewas almostloft

alone,to adhereto the opinionsof Parliament
in 1811;h$
maintainedthat no depreciation
of thepaperdid existatthat
time, or ever could exist. However,the current of opinionwas
sostrongandunanimous,
that,thoughsome
unimportant
amend-
mentswerebroughtforward,modifyingsomedetailsin the
resolutions,
but not at all denyingtheirgeneral
truth, thesewere
all withdrawn,and the resolutions werepassedwithouta dis-
sentient
voice.Mr. Canning
declared,
amidstloudandgeneral
cheering,that it wasthe unanimous
determination
of Parliament
that the countryshouldreturnas soonaspossible
to the ancient
standardof value,in the establishmentof a Metallic Currency.
The bill passed
the Commons
with little furtherremark
133. In the Houseof Lords the Marquisof Lansdowne

rejoicedat the introductionof the Bill, on accountof the sound
principles of political economyit contained by recognisinga
metallic standardas the only safe foundationfor the circulating
medium. It recognisedthe great principles, that the price
of gold and the foreign Exchangesdependedupon the state
of the Currency. He hopedthe countryneveragainwouldhear
the wild theoriesabout the Currencywhich had beensoprevalent,
which were very properly stigmatisedby the bill beforethorn,
every enactmentof which declaredtheir falsehood. By acting
on those ruinous ideas, the country had beenburdenedwith an
overwhelmingmassof debt and taxation. The Earl of Liverpool
said the bill had met with no opposition, and required no
defence. The chief provisionsof this Act, Statute 1819,c. 49,
were-
1. "The Acts then in force for restraining cashpayments

shouldbe continuedtill the 1st May, 1823,whenthey were
finally to cease"
2. " That, on and after the 1st February,and beforethe 1st
October,1820,the Bank of Englandshouldbe bound,on any
person presenting an amount of their notes, not lessthan of the
value or price of 60 ounces,to pay them on demandat the rate
of £4 1$. per ounce,in standardgold bullion,stampedand
assayedat the Mint "
3. " Thatbetween
the1stOctober,
1820,
andthe1stMay,
BANK ACT OF 1819 91
1821,it should pay in a similar mannerin gold bullion at the

rate of £3 195. 6d.per ounce"
4. "That betweenthe 1st May, 1821, and 1st May, 1823,
the rate of gold bullion shouldbe £3 17s.10^. per ounce
5. " During the first period abovementioned,it might pay
in goldbullion, at any rate, less than £4 1$.,and not lessthan
£3 19s. 6d. per ounce in the secondperiod, at any rate, less
than £3 195.6&, and not lessthan £3 175.lO^d, upon giving
three days'notice in the £Gazette,'and specifyingthe rate; but,
after doing so, they werenot to raiseit again"
6. " Thesepaymentswereto be madein bars or ingotsof the
weight of 60 ozs. each,and the Bank might pay any fractional
Bumlessthan 405.abovethat in the legalsilver coin"
7. " The tradein gold bullion and coin wasdeclaredentirely
free and unrestrained "
134. In conjunction with this Act, a most salutarymeasure

waspassed(Statute 1819,c. 76), to put a stop to the evil which
the Bank directors themselvesalleged had brought about the
catastropheof 1797, viz., the enormoussumsthe Government
had been,in the habit of demandingfrom the Bank by way of
advances,without any Parliamentary security, which Mr. Pitt
had so grossly abused. By this Act, the Bank wasforbiddento
makeany advancesof any description,without the expressand
distinct authority of Parliamentfor that purposefirst had and
obtained
135. Thus, at length, this great act of national goodfaith

wasaccomplished.The final triumph of thesegreatprinciplesof
truth andhonestyis a memorable
example
of theinnatepowerof
truth to gain the ultimate victory when allowedthe inestimable
advantageof free discussion. No one of ordinary intelligence
will nowventureto denythat the Currencywasgreatlydepreciated
at the time the Bullion Committeewere appointed,and if the
coin had beendegradedto the valueof the paper, it wouldsimply
have beena national bankruptcy. An amazingamount of in-
genioussophistrywas employed,no doubtmuch of it proceeding
from honestthough mistaken conviction,a still larger portion of
it arising from the supposedinterests of commerce, to maintain
92 THEORY A.ND PRACTICE OF BANKING
that BankNoteswerenot depreciated.The real truth,however,

wasdiscoveredby Mr. Thornton and Lord King, and published
by them, in thepamphletsalludedto above. It wasunhesitatingly
adoptedby the greateststatesmenof that day, as appearsby the
Report of the Committeeof 1804; it wasthen pronouncedmore
loudly and distinctly,and with greaterauthorityby theBullion
Committee in 1810,but it was ridiculed and condemnedby the
great majority of the commercialworld, whosewild speculations
it had a tendencyto curb, and rejectedby an immensemajority
In Parliament in 1811. But the labour was not wasted in vain.
The seedsof truth were firmly plantedin the public mind; the
doctrines, thus despisedand rejected in 1811, were sifted and
discussedby the public during the next eight years,and whenthe
next discussionupon them took placein 1819,they had obtained
the irresistible ascendencyin the public mind, so that they were
enthusiasticallyadopted by Parliamentwithout a dissentingvoice
136. The overwhelmingpreponderance of mercantileopinion

in 1819 adheredto the doctrines of the Bullion Report. On<*
body alone obstinatelyrefused to be convinced-the majority o*
the Court of Directors of the Bank of England. Six of their
directors had given their evidence in favour of the new doctrines;
but the court determined, with inveterate pertinacity, to have a
last fling at them, and passedthe resolution we have already
quoted. It took eight yearslongerfor the light to penetratethe
Bank parlour. At length, in 1827, the Bank was at last com-
pelled to strike its colours, and the resolution of 1819 was
solemnly expungedfrom its books
137. When, as we have already seen,the doctrineof the

rise of the Market Price of bullion, and the fall of the foreign
Exchangesfrom a depreciatedcurrency,were so well understood
by the merchantsand statesmen of 1696-97,and the political
economists
of the last century,it maybe interestingto inquii*e
what wasthe fallacy that so long imposeduponmen of undoubted
ability, andwho doubtlessheldtheir convictionsin perfectgood
faith andhonesty? Whatwasthe causeof the greatdegeneracy
in sound doctrine between1696 and 1811, so that it became
necessaryto argue the questionfrom its very foundations? It
DEBATE IN THE COMMONS 93
wasthis,that the men of 1696couldseethat the coinagedid

not containmuch morethan half of its properweightof bullion.
But themenof 1811failedto seethatthe Banknote couldonly
preserveits value by maintaining a certain proportionwith the
Metallic Currency.That an excessof quantityof the notes
diminishedtheir valuerelativelyto gold; andthis diminutionin
the valueof the promisecompared to whatit professed
to repre-
sentwasexactlyidentical in principle with a debasement
of the
coinage
by alloy,or a depreciation
of it fromdeficiency
in weight
of bullion. When the Bank note becamethe measureof value,
it wasimperatively
necessary
that theyshouldbeableto purchase
in the markettheweightof bulliontheyprofessed
to represent.
"Whenbullion rose to £5 10s. when paid in Bank notes,they
were exactlyin the samepredicamentas the coinagewasunder
WilliamHI., whenit had lost 25 percent,of its weight. The
diminution in the weight of the coinagewas palpableto the
senses,the diminution of the valueof the "promisesto pay" was
only perceptibleto the eye of reasonand intelligence,and long
escapedthe observationof men who conscientiously disbelieved
it
138. We will now bring this long but important discussion

to a close,by observingthat the grand principlesof the Bullion
Reportare not what are properlytermed mattersof Opinion at
all, but of Demonstration. Personsof the most excellenttaste
and judgment may entertain the widest differencesof opinion
on the comparative merits of various poems,or pictures,or
piecesof music. Thereis no absolutestandardof truth,which
will enableany man to assumethe office of arbiter on any of
thesesubjects; at leastnonehas yet beendiscovered. Different
poets,artists,and musiciansaremostin harmonywith different
mental constitutions, of which there is no unerring standard of
excellence. So in politics, it is a pure matter of opinionand
judgmentwhichis the bestform of government,
andwhichis
most suitable for any particular people. But the principlesof
monetaryscience, aslaid downin theBullionEeport,arematters
of a totallydifferentnature,theyaremattersof puregeometrical
demonstration. They are no more matters of opinion,in the
propersenseof the expression,
than the demonstrations
of
Euclid are mattersof opinion, It is acknowledged
that thereis
94 THEOBT AND PBACTICE OF BANKING
an absolutestandardof truth in such matters. There are many

excellentpersons,and of goodability in other respects,
whose
mental constitution is such that they never can foUowout the
train of reasoning,which establishesthe truth of a certain
famouspropositionin Euclid. But we neverheardof anyone
writing a pamphletagainsttheponsasinorum. Now,the famous
doctrine of the regulation of the Paper Currency by the price
of bullion is demonstrablytrue, and it is as vain to write
pamphlets against it as againstEuclid, B. L, prop. 5. When,
therefore, a modern author says,"the fundamentalerror of
Mr. Huskisson,and the Bullion Committee,on the subject,con-
sistedin the principleswhich theylaid down as axioms,that the
measureof the depreciationof the Currencywasto be found in
the difference between the Market and the Mint Price of Gold";
this sentenceis as wise as if onewereto say,"the fundamental
error of Cocker, and subsequentwriters on arithmetic, is the
principle which they adopt as an axiomthat twenty-oneis equal
to twenty-one"; and when he says a little further on, " for as
Bank notes neversankin value comparedwith specie,whatever
party spirit may have affirmed to the contrary," he makesa
statementwhich there ia overwhelmingevidenceto proveto be
untrue*
VARIATIONS IN THE PEICE OP GOLD BULLION 95
Talle shelvingthe chiefvariationsin the MarketPrice of Gold

Bullion from 1790 to 1819, and the true value of theBank
of England £1 Note duriny the Jtntnction.
Market Pi Ice of Gold Real Valuo of the
Bullion. Bank Note
January, 1790 £ s. d. £ s. d.
to ,. 3 17 6 ..
August 25, 1797
September1, 1797
to .. 8 17 10| "" ..100
October19, 1798
October26, 1798
to .. 3 17 9 .. ..100
September13, 1799
September20, 1799
to No quotation.
April 6, 1804
April 13, 1804
to ..4 0 0 .. .. 0 19 6
October 15, 1805
October 22, 1805
to No quotation.
October 2, 1810
October9, 1810.. ..450. .. 0 18 4-2
February 12, 1811 .. .. 4 12 0 , .. 0 16 11-4
March 26, 1811.. .. 4 16 0 * .. 0 16 3
October 25, 1811 .. 4 18 0 . .. 0 15 11
October 2, 1812 ,.570. .. 0 14 6
January 22, 1813 ..540. .. 0 15 0
August 6, 1813 .. .. 5 10 0 . .. 0 14 2
February, 1814 .. ..580. .. 0 14 4-2
April 12, 1814 .. .. ..550. .. 0 14 9
May 31, 1814 .. .,530. ,. 0 15 1-7
June 7, 1814 .. .500. .. 0 15 7-2
June 28, 1814 ., , 4 10 0 . . 0 17 4
September20, 1814 . . .460. . 0 18 1-6
November 15, 1814 .. .480. . 0 17 8-7
April 4, 1815 .570. . 0 14 5
June 9, 1815 .550. . 0 14 10
June 30, 1815 .. .500, . 0 15 7-2
July 7, 1815 .. . 4 14 0 . . 0 16 7-2
August 4, 1815 .. .. 4 10 0 . . 0 17 4
September15, 1815 . . ..490. ., 0 17 63
October 13, 1815 ..430. .. 0 18 95
January 2, 1816 ..420. .. 0 19 0'3
April 9, 1816 .* ..410. .. 0 19 3-1
April 23, 1816 .. ..400. .. 0 19 6
July 9, 1816 ,. .. ,. 8 19 0 . .. 0 19 8-7
October8, 1816 )
to' .. 8 18 6 .. ,. 0 19 102
April4, 1817 J
April 18, 1817 .. .. 8 19 0 .. .. 0 19 8-7
July 18, 1817 .. .. ..4 0 0 .. .. 0 19 6
January 23, 1818 ..4 1 0 .. .. 0 19 3-1
February 13, 1818 ..4 2 6 .. .. 0 18 11
October6, 1818.. .. ..4 2 0 .. .. 0 19 03
January 22, 1819 ..4 3 0 .. .. 0 18 9-5
96 THEOUY AHD PRACTICE 01 BANKING
CHAPTER XI
FROM THE ACT FOR THE RESUMPTION OF CASH

PAYMENTS IN 1819 TO THE BANK ACT OF 1844
1. The greatAct for the preservationof the nationalgood

faith, the restoration
of the measure
of value,wasaccomplished
amidst universal applause;"but,unfortunately, it had no sooner
becomelaw, than an unusually severeand long-continueddis-
turbancein the ordinaryproportionsof supplyanddemandin a
great variety of productionstook place. The violent fluctuations
in prices, which necessarilyfollowed this great derangement
causedmuch public distress,and affordedan opportunityfor the
antagonistsof the Act of 1819 to acquiresuch strength as to
induce the Governmentto tamperwith the Act beforeit came
into full effect
2. The utter prostrationof all the greatproducinginterests

of the country in 1815-16, had causedsuchseveredistressas to
dimmish the consumingpowersof the people to an enormous
extent. The importations of the great articles of consumption
in 1816 were, in most cases,not half what they had been in
1814. In 1817,when the general prosperitywas reviving, the
shortnessof the supply causeda very generaland rapid rise in
prices of all commodities. The inevitableconsequence followed,
speculationbegan to revive again, and was much fosteredin
1818 by an expecteddearth of provisions. A long-continued
drought from May to Septemberwas supposed to have destroyed
the greater part of the crops, and, as imported producewas
unusuallylow, the prices of all sorts of farming producerose to
an extravagantheight. Enormousimportations of wheat,added
to the home crop, which turned out considerably better than waa
expected,causedrather a reduction in the price of that, but all
MB. TOOKE'S OBSERVATIONS 97
other sorts of farming produce mounted up to a great height,

barley being at 63$. 6&, oats at 35s., beansat 765.,and peas at
70^.,in December,1818. The high prices thus held out in this
countrycausedimportations on a scale of enormousmagnitude
at the closeof 1818. After deductingthe quantities re-exported
the imports of colonial and foreign produce were more than
double what they were in 1816. Mr. Tooke well remarksthat
before any great turn in the prices of commodities,there is
usuallya pauseof more or less duration beforeit finally declares
itself, like the slack water at the turn of the tide. There is a
periodduring which sales are difficult or impracticable,when the
prices are at a maximum, the buyer refusesto submit to them;
and whenthey are at a minimum, the sellerrefusesto submit to
them. A struggleof this natureprevailedthrough the autumnand
winter of 1818-19,and just asthe Act for the restorationof cash
paymentspassed,the fall in prices wasdecidedlyin progress*
8. The usual consequences followed these extravagantim-

portations. Importers, trusting to the prices of 1817,had given
orders to the growers, basedupon these prices, and, when the
crops came to be brought to market, the price had given way.
Failures,accordingly,were numerous in 1819,both in England
and in America, the necessaryconsequence of a transition from
high prices,causedby scarcity, to low prices, arising from excess
of supply. Towardsthe autumn of that year commercialcredit
had revived. The great importationsof wheatin 1818somewhat
reducedthe price in 1819, but it stood at 755.in August, and the
averagefor the wholeyear was72s. This price continued,with
a few fluctuations, till August, 1820, and at that time wheat
was still at 725. A decidedand unanswerableproof that the
discussions in Parliament, and the Act for the resumptionof cash
payments,had no effect at all on the price of corn. Although
the Bank was permitted to pay its notes in gold, at the rate
of £4 15.per ounce,yet they were actually at par, as the market
price of gold fell to £3 175. 10J& in August, 1819, and con-
tinued at that rate till June, 1822, when it fell to £3 175. G&
* The whole of Mr. Tooke's observationson this great crisis are perfectly in-
valuable, and must be read at length by every one who wishes to form A
fair judgment on the subject.-Vol. II., pp. 60-116
VOL. II. H
98 THEOBY AND PKACTICE 03? BANKING
And, in fact, it must be remembered,

that for a greatpart of
1816-17 the note had beenwithin a few pence of par, and had
not varied morethan about5 per cent, from par since that time
4. The springof 1820 had beenunpropitious,and vegetation

backward, until the 18th of June, when some warm and very
brilliant weather occurred just at the critical period of the
blooming of the wheat. In July somewet weather excited fears
for the crop, and the prices advancedto 725.,but the weather
becamevery fine in the beginning of August, and thenceforth
continued most propitious during the ripening and gathering
of the harvest. The result was a harvestof most extraordinary
abundance,and excellentquality. And even its unprecedented
exuberancedid not becomefully known till two or three years
afterwards,whenit wasnot yet exhausted. The best authorities
calculatedthat the quantityof the cropof 1820was onethird
abovethe average. In July, 1821,wheathad fallen to 51$.from
72s.in August,1819. May, June, and July, 1821,werecoldand
wet, and the harvestvery late; wheat rose to 62$.in September,
but the quantity producedwas extremelylarge, and the quality
very bad. In consequence of the enormousunexhaustedstock
of 1820, wheat fell to 50*. at the end of 1821, and to 425. in
August, 1822. The harvestof 1822wasremarkably good both
in quantity and quality, and was got in early, long beforethe
precedingcropshad been consumed. In addition to this, the
importations from Ireland were on an unprecedented scale. In
1817com was obliged to be exportedto Ireland; in 1820 and
1821 Ireland exportedto Englandupwardsof 4,000,000quarters
of grain of all sorts. The natural and inevitable consequence
of this was an immense and ruinous fall in the pricesof all
agriculturalproduce. Wheatfell to 38s.at the end of 1822
6. The accumulationof treasure becameso rapid in the

vaults of the Bank in 1820,that early in 1821the directorsfelt
themselvesin a positionto resumecashpayments,and anAct was
passedto permit them to do so on the 1st May, 1821,insteadof
in 1823. By this time the Governmenthad repaid£10,000,000
of the debtit owedto the Bank,whichall the witnesses
agreed
was a necessarypreliminary to enablethe directors to contract
ATTACK ON THE ACT OF 1819 99
their own issues. The Statute 1821, c, 26, enacted that the
Bank might resumepayments in gold coin on the 21st May,
1821. That personsofferedto be paid in coin should not have
the right to demandingots. That if the Bank did not offer to
pay in coin, the right to demandingots should continue. The
last impedimentsto the exportof bullion were sweptaway. The
Bank wasbound to exchangetheir larger notes for any one who
demandedit, for £1 notes or gold coin, but they had the option
of paymentin gold or notes
6. The extravagantheight to which the combinedeffects

of an unusualand long-continuedscarcityand the greatlydepre-
ciatedcurrency,in which paymentswere madein 1811 and 1812,
had produced the most extravagant speculations in farming.
Barren wasteswere reclaimed at an enormousexpense,which
never could have been repaid, except by maintaining corn at
famineprices. Eents and debts had advancedin a similar pro-
portion, and all classesof agriculturists, farmers, and landlords
had adjustedtheir expenditureaccording to the new scale of
prices which they expectedwould endure. Family settlements
and encumbrances were calculated on the same basis. Imme-
diately after the peace,the greatfall in the price of all sorts of
agricultural produce, both from greater abundance and the
destructionof the rotten countrypapercurrency, threatenedall
personsconnectedwith the "landed interest" with general ruin,
and, after a considerablestruggle, the Corn Bill of 1815 was
passed,the intendedand expectedeffect of which wasto prevent
wheat ever falling below805.a quarter. The "landed interest"
calculatedthat, with the "cost of production" of which they
considered**rent" as a necessaryelement, wheat could not be
grown with a profit at lessthan 805.a quarter, and the intention
of that Act was to securethat price to agriculturists. Buoyed
up with delusive hopes,and firmly believing that the Act had
for ever nailed up wheat to 80s.a quarter, the farmers received
a fresh stimulus to speculation,and vast sumswere laid out in
further extending the cultivation of barren wastes. However,
the circumstances we have alreadydetaileddisappointedall these
calculations, and wheat stood at 885. at the end of 1882 in
defianceof the Act which saidit ought to be at 80*.
n 2
100 TIIEOEY AND PRACTICEOF BANKING
7. Theadvocates
of anational
bankruptcy
hadbeenin such
a small minority in 1819,that they scarcelyuttereda wordiu
Parliament,muchless attempted a division. Whenthe distress
causedby the fall in pricesbeganto pinch someclasses in the
country, they beganto gatherstrengthagain,and commenced
an attack on the Currency Law onApril 9,1821. Thisattack
proved a completefailure,beingrejectedby a majorityof 141
to 27. As prices continuedto fall during that year,the distress
continuedto increase,and earlyin 1822 a Committeeof the
Houseof Commons was appointedto reportupon the subject.
They presentedtheir reporton the 1stof April; but it didnot
contain a word imputing the low state of prices to anything
connectedwith the currency. They attributed it to the unprece-
dented abundance
of agriculturalproduce,and proposed
plans
for affording the farmersand othersrelief by temporaryadvances
of Exchequer
bills, until the glut in the markethad diminished.
They recommended that the limit of 80s. should be reducedto
70s., as 80s.representeda highervalueat that time than in 1815.
In the debatethat followed,the first symptomsweremanifested
of the determinationto make an onslaughton the CurrencyAct
of 1819. But Lord Londonderry ridiculed the idea that the
currency had anythingto do with the question,and said Members
had only wastedprecioustime in bringing it forward. But he
declared that he entered his most solemn protest against the
purposeof theseMembersto induce Parliament to committhe
most flagrant deviationfrom soundpolicy and commonhonesty-
a breach of faith towardsthe public creditor. Coulda British
House of Commons sanction such a measure,it would relieve no
class of the community; but it would overwhelmall classes with
ruin. "Wereit possiblefor them to be dishonestand baseenough
to listen to a project of national bankruptcy,the result must be
most calamitous. If a Parliament couldbe found so degenerate,
and a peopleso destitute of honourand commonhonesty,as not
to start at the idea of such an abandonmentof principle, the
most sordid calculation would forbid the adoption of such a
measure
8. The £1 note issuesof the countrybankers in England

bad been suppressed
by statute1777,c. 30; but in 1797they
ATTACK ON THE ACT 01* 1819 101
were again permitted, and, by various Acts of Parliament, this

permissionwas continued till two years after the resumptionof
cash payments by the Bank of England. By the operation
of these severalActs, they must have beenwithdrawn in 1825.
The distress,however,which was attributed by so numerousand
powerfula party to the contractionof the currency,wasemployed
to induceMinisters to relax this restriction, and country bankers
were permitted to continue their £1 notes till the expiry of the
Bank Charter in 1838. (Statute 1822, c. 70.) In order to
improvethe quality of the countrybank notes, the Government
attemptedto enter into negotiationswith the Bank of England
to permit joint stock banks to be formedat a distanceof 65 miles
from London. The Governmentwas satisfiedthat if joint stock
banks on the Scotch system could be formed, it would add much
to the stability of public credit. Lord Londonderrypronounced
a warm eulogyupon the Scotchbanks, and said that it was the
wish of the Ministry that a similar system should be introduced
into England. The bribe to the Bank of England to consent
to this arrangementwas an extensionof their Charter for tea
years. But the negotiationfailed
9. The attacks upon the Act of 1819, thrown out in the

discussion of the Agricultural Distress Beport, were merely
preparatoryto a formal onslaught on the Act itself. On the
llth of June, 1822, Mr. Western moved for a Committee to
inquireinto the effectof the Act uponthe generalinterestsof
the empire. The burden of his speechwasthat all the distress
the country wasthen suffering was due to the Act of 1819, and
to that only, which, he said, had made a violent contraction in
our currencyat once. Tins assertion,which wasthe main pillar
of his argument, is demolishedby the simple fact that the
great contractionof the currency,and the restorationof the
note to par, took place in 181G. He moreoverassumedthat the
currencyhad been depreciatedever since the restriction Act in
1797. Mr. Huskisson immediately followed in a speech de^
molishingthe wholeof Mr. Western'ssophistries,
one by one,
and drawing a closeparallel betweenthe state of the currency
in 1696and at that time; and he concludedby moving the same
resolution that Mr. Montague had done in 1695-"That thii
102 THEOBY AND PRACTICE OF BANKINO
Housewill not alter the standardof gold or silverin fineness,

weight, or denomination," After a debate of two nights, in
which severalmembers who supported the motiondisavowedall
intentionof tamperingwith the standard,Mr. Western'smotion
was rejectedby a majority of 194 to 30, and Mr. Euskissou's
amendmentagreedto
10. It was stronglyallegedby one party that they were

compelledto pay in the restoredcurrencythe debtsthey had
contractedin a depreciated
one,and they calledfor what they
were pleasedto term an "equitable adjustment of contracts."
But the argumentwasfutile, astheyknewat the timetheymade
their contracts that Parliament was pledgedto return to cash
paymentswithin a very short period after the termination of the
war. Moreover,they totally left out of considerationthat they
had beea able to dischargean immenseamount)of mortgages,
burdens, &c., in a depreciatedcurrency,which had been con-
tracted in a goodcurrency. All the mortgagesand annuitieson
landed property which were contracted before the great de-
preciation of the currencywerepaid for someyears in a currency
25 per cent, lessvaluablethan at the time of the contract. But
while thesedebtorsclamouredso loudly for an " equitable adjust-
ment " of contractsgrievousto themselves,they neveruttered a
whisper indicative of their vush to have an "equitable adjust-
ment of those contracts where the changewas favourable to
themselves. The only instancerecordedof any person making
an "equitable adjustment" against himself, and paying his
creditors according to the true value of the Bank note, was
Lord King, who incurred so much resentmentfor his letter in
1811. It is quite evident that such a one-sided"equitable
adjustment" as was proposedby this party was nothing elsebut
robbery. Tinder the double stimulus of famine prices and a
depreciated currency, the rents of land had tripled since the
beginning of the war, so that propertieswhich were mortgaged
before it, might have been comparativelyunincurnberedat its
close. But the unfortunatemortgageesand annuitantswerepaid
in a fixed amount of depreciatedcurrency,so that, when prices
rose to meet the depreciation,they were clearly mulcted. Bufc
they had no powerfulparty to advocatean "equitableadjust-
NO CONTRACTIONOF THE CURRENCYIN 1819 103
ment" in their favour; and it is quiteclearthat no " equitable

adjustment"could take place,unlessall thesepaymentswere
included in it
11. Therewasoneperfectly
satisfactory
argument
to shew
that the lowpricesof that yearhadnothingto do with the act
of 1819,namely,that the pricesof all sorts of agricultural
producewere equallydepressed all overthe continent of Europe
from the samecause. The fluctuations,indeed,on the continent
were much more violent than even in England. Wheat, in
France, which had risen higher, fell lower. At Vienna wheat
whichwas 114<?.
in March,1817,fell in September,
1819,to
195.Gd.; at Munich wheatfell from 1515.in September,1817,
to 245. 5d. in September,1820. The same phenomenawere
observed in Italy. A similar fall, but not to so great an extent,
took placeat Lisbon. What could the Act of 1819 haveto do
with theseplaces? The speechfrom the throne,in France,very
properly attributed the low prices to the enormousabundance
of production
12, But not only is it an absolutelycertain historical fact,

that the Act of 1811 had not the remotest connection with the
low pricesof 1822,but it is proved by the most overwhelming
evidencethat it causedno contractionof the currency at all.
Mr. Turner, a director of the Bank, states-" With regardto the
effect of Mr. Peel's bill on the Bank of England, I can state
from having beenin the directionduring the last two years,that
it hasbeenaltogethera deadletter. It has neither accelerated
nor retarded the return to cash payments." And Mr. Tooke
shewsmost conclusivelythat the amountof the currency,so far
as it consistedof Bank of England notes and coin, was much
larger in 1822than it had been in 1819. That this Act caused
any Contraction of the currencyis, therefore,a statement
most contraryto the truth. Its only effectwas,what Parliament
had over and over again solemnlypledgeditself to do,to fix a
time for the return to cash payments,and such a return to
paymentsin cash would, by its own natural operation,prevent
the extravagantissueswhich the Bank had made during the
restriction,which depreciatedthe note 80 per cent, and robbed
104 THEORY AND PRACTICE Otf BANKING
every creditorof one-thirdpart of his property. The Act of

1810 merelyrestoredthe Bankto its conditionbefore1797,and
it becamesubjectto the sameunerringlaws of nature as its
directors had confessedit felt before the restriction
13. There is much invidiousnessin endeavouringto fasten

the responsibilityof this Act uponSir RobertPeel,as if hehad
had any either of the peculiarmerit or blameof passingit
through Parliament. The Legislature was solemnlypledgedto
return to cash paymentsas soon as the war was over, while he
was yet a schoolboyin the junior forms of Harrow. There does
nob appear to have beenany speakerfantastic enoughto propose
that the Bank shouldnever return to cashpayments. The Bank
itself, of its own accord,attemptedto resumepaymentsin cash,
in 1817, and would have succeeded in doing so, if it had not so
perverselyrejected the principles of the Bullion Eeport; and if
it had not been owing to circumstanceswhich disturbed its
management in 1818, cash paymentswould have been resumed
while Peel was still in that unconverted state in which he voted
against Horner's resolutions in 1811. So far was he from
converting Parliament, that he was himself one of the latest
converts, and the Ministry conferred great honour uponhim in
allowing him, while yet so young,to take sucha prominentpart,
and be the mouthpieceof the unanimousdeterminationof the
Legislature
14. By the beginning of 1823 the very inferior stock of

1821 had been chiefly consumed,and the crop of 1822,being
of far superiorquality, pricesbeganslowlyto rise,and the spring
of 1823, proving very backward, prices rose rapidly, so that in
June wheat stood at 62s. 5d. Theseprices, however,tempted
the farmersto producetheir long reservedstores,and an unusual
quantity having thus been brought to market, wheat fell in
October to 4=5&5^., but the crop turning out worse than was
expected, prices rose a little at the end of the year, but they
were still 37 per cent, below the " remunerative" 80s., which
Parliament had held out to farmers as the point which should
be insured to them. It is a favourite theory with manypersons
that the rise of prices in 1823 was owing to the extension
SECOND ATTACK ON THE ACT OE 1819 105
of countrybank issues,in consequence of the Act of 1822

prolongingthe term of their existence.Sucha supposition,
however,is very decisivelynegativedby the evidenceof Mr.
Burgess,secretaryto the committeeof countrybankers,before
the Committeeof 1832 (Eeport,p. 414). He presentedreturns
from 122 countrybanks, forming a fair evidenceof the whole.
Assumingthat the issuesof each bank were 100 in 1818, the
issuesof the whole were12,000 in that year, and the following
table exhibitstheir valueup to 1825-
£ Difi arence. £ 8. d.
1818 ., , 12,200 .,
1819 ., , 11,991 ., , 209 being 1 15 0 per cent, decreasefrom 1818.
1820 .. , 11,487 .. , 709 5 16 10J
1821 ., , 11,352 ., , 848 6 19 0
1822 ., , 10,778 ., , 1,422 .. 11 3 li
1823 ., , 10,748 ., > 1,452 11 18 OJ
1824 ., , 11,640 .,, 560 411 9
1825 ., , 12,478 ., , 278 2 5 6| increase.
Mr. Tooke also shewsthat during 1823, while the price of

wheat was rising, the prices of most other commoditieswere
falling, from which circumstanceshe very conclusivelypro-
nouncesthat the idea that the variationsof the currencyhad
anything to do with the prices in those years to be utterly
unfounded*
15. The continueddepressionof prices of agriculturalpro-

duce so much belowwhat had been expected, created,no doubt,
much distress among those personswho were hamperedwith
obligationsthey had enteredinto uponthe scaleof 1811and
1812,and severalpetitionswerepresented to both Housesof
Parliament complainingof it. Mr. Western,not satisfiedwith
the greatrebuffhe met with in 1822,whenthe distress
wasfar
more severe,again endeavoured
to induceParliamentto disturb
* If anything were wantedto shewthe utter fallacy of the idea that the con-
traction of the currencyhad anythingto do with the low pricesof 1822,we
might refer to the presentprice of wheat. Thereare manyclamoursof a
contractedcurrencyat present,andyet the price of wheatis nearly90$per
quarter;in the Edinburghmarketit wassoldat 104$,a fewweeksago.
(December,1855.)
106 THEORYAND PRACTICEOF BANKING
the settlement of 1819. He introduced his motion on the

llth June, 18*23.It may be as well to take noticeof some
of the leadingfallacieshe broughtforward,astheyaretoo often
repeatedevenat the presentday. After sayingthat greatvaria-
tions had taken placein the valueof the currencyduringthe
preceding30 years,whichwasunquestionable, hesaid-
** It will be admitted that a diminution of value followed the
suspensionof cash paymentsby the Bank in 1797; that such
diminution continuedand increasedduring the latter yearsof the
Avar,and up to thetime ofPeeVsBill; and that Peel'sBill, whilst
it restoredthe old metallic currency,gave to it the valuewhich
It possessed prior to its suspension. The injustice attendant
upon an alteration of a currencyin any way cannotbe questioned
a moment. The injury that was done to creditors by the Act
of 1797 (the origin of all our difficulties in regardto currency)
is not to be doubted,but my position is that, after a period of
twenty-two years,the resumptionof the old standardcouldby no
means be an act of justice or retribution. A newcurrencyupon
a new standardnecessarilyceasesto be new in any senseof the
word at someperiod, and an old one revived again is, to all
intents and purposes,newand productiveof all the sameeffects.
Is twenty-two years sucha periodas shall suffice so to establish
a standard as to make recurrence to the antecedent as mischievous
as the adoptionof the newone? This is the important question;
and I answermost distinctly, yes; and that justice requiredus to
establish and perpetuatethat measureof value which had been
so long current,as nearas the samecouldbe ascertained "
16. The Marquis of Titchfield supported Mr. Western's

motion, but madesomecausticremarksupon Mr. Vansittart, and
his famousresolutionsof 1811,sayingthat he might possiblybe
ridiculed for advancingaxiomsand evident truth-
" Thislatter danger,however,
he shouldmakeboldto defy,
sheltering himself under the fact that, notwithstanding all the
discussionthis subject had undergone,it might still be heard
any day in society,from personsotherwiseintelligent, that, in
their opinion,to talk of the depreciation
of the currency,
must
be nonsense,for that they were unable to comprehendhow a
pound note at one time could differ from a pound note at
SPEECH OF LOUD TITCKFIELD 107
another--that a pound note must be a poundnote always-that

it was impossiblethat the samepieceof paper,with the same
characters markeduponit, shouldbe morevaluable at one time
than at another; and when, aboveall, the famousresolutionof
1811 was recollected,he thought it would be perfectlyexcusable
for him, even in that assembly,said to be so enlightened,to set
out with the mathematical axiom" that * a part is lessthan the
whole'-an axiom which now that the late Chancellor of the
Exchequer was no longer amongthem, he apprehended no one
would be found hardy enoughto dispute. In mentioningthe
name of that extraordinary person, he much lamented his
inability to do justice to the merits of so great a masterof
reasoning and eloquence, which so confoundedthe philosophers
of 1811, by unfolding to his admiring audiencethat the old
favourite axiom of Euclid was nothing but a populardelusion,
that in reality a part might easily be equal to the whole; and
that, therefore, therewas no reasonfor doubtingthat the pound
note, which required the assistance
of eight shillings to procurea
guinea, was equalto the pound note,which requiredthe assist-
ance of but a single shilling of preciselythe samevaluewith
those of which eight had becomenecessary.That greatman,
for his singular merits, he supposed, or, perhaps,for their un-
wor thin ess of Mm, had been taken from them, and bestowed
upon another assembly, which, not havinghad the samepractice
in finance, it wasto be hopedhe wouldlongcontinueto enlighten.
He could not, however,be said to havefinishedhis coursepre-
maturely, for twelve yearsbeforehe had obtainedan imperishable
name, by placing triumphantly on the journals of the House
of Commons that astonishingresolution which had deprived
Euclid of his ancient and long-acknowledged reputation. He
was most anxiousto disclaim all personalill-will towardsthelate
Chancellor of the Exchequer. Indeed,it wasimpossible he should
be under any suchimpulse,but he would not shrink from con-
fessing that, in a politicalpointof view,he couldneverhearhis
name pronounced,much less pronounce it himself,withouta
feeling somethinglike bitter animosity,because he considered
that minister as the author in great part of the calamitiesin
which the landed interest of the country was involved. He
believed that few partsof the financialadministration
of thai
108 TIIEOBY AND PRACTICE OF BANKING
period were exempt from much and well-merited censure,but all

the other measureswere trifling in the scale of mischief com-
pared with that fatal resolution which ministerial influence
unfortunately carried in the House of Commons, the effects
of which werenowhelplesslydeplored,andwhichwouldso long
survive the name as well as the administration of those with
whom it originated. The mischiefof that resolutionmight be
described with perfect justice in a very few words. Its effect
was to blind the public to their real situation; thereby both
promoting the evil and rendering the sufferers less capableof
guarding against it. It assuredthe public, in the midst of a
great and rapidly-increasing depreciation,that no depreciation
existed. The Bank, therefore,went on fearlessly addingto its
issues,which, of course,increasedthe evil by increasingthe
causeof it, andthe landlordwenton with the cultivationof poor
soils, undertaking expensiveimprovements,fondly imagining that
the additional Bank notes he wasreceivingwere additionalriches.
The landholder, never suspectingthat his dealingswerevirtually
in a lower coin, borrowed fearlesslysums vastly larger than he
could have dreamedof, that would havestaggeredhis imagination
if he had had a suspicion that wheat could ever be at 39s.
a quarter,for, while he wasreceiving140s.,he took for granted
he might safelycalculateupon hard times not bringing him.
lower, perhaps,than 70s. or 80s.; and thus the prudent man,
even, was inducedto borrowwhat it was clearhe had nowno
chance of paying without ruin. That ever memorableHouse
of Commonstold him what theyknewto be false,or oughtto
have known, that the poundnote was of full value, whenit was
iu reality depreciated20 per cent. He borrowedpoundnotes
worth 13s. and he was' called upon to repay pound notes
worth 20s."
17* After developingthese ideas still further, he said that

in currency quantity was everything; for, if forty millions of
notes were in circulation at one time, and eighty millions at
another, while the transactionsof the country remainedthe same,
then two notes would be required to do the duty that one had
formerly done; and, therefore, the currency would become
depreciated;'but
if transactions
doubled,
thenthesame
quantity
CAUSES OF THE CRISIS OE 1825 109
of currencywould represent
the sameamountof transactions,
and its value would not be altered. He said-
"Economyof moneywas,by contrivances to sparethe uses
of it, according
to thedescriptionof his right honourablefriend,
by substitutionsfor theprecious
metals,in theshapeof voluntary
credit. Every new contrivanceof this kind-and every one
improved-had that tendency. Whenit was consideredto how
greatan extentthesecontrivances
had leenpractisedin thevarious
modesof verbal, book, and circulating credits, it
was easy to see that the country had received a
great addition to its currency. This addition to
the currency would, of course, have the same
effect as if gold had been increased from the
mines "
Lord Titchfield then pointed out how an excessivequantity

of paper causeda depreciationof it, which was exactlythe same
thing as a depreciation
of the coinagefrom a 'deficiencyof
weight; but he afterwardsfell into the extraordinaryerror of
saying," The Bank noteswere depreciated,and became,there-
fore,in the situation of clipped or debasedguineas,which state
of the circulationprevailedfrom 1797to 1819"
18. This allegationof the great depreciationof the paper

currencyduring the wholeinterval from 1797to 1819is the only
one that can afford the smallest ground for attack upon the Act
of 1819; but we have shewn,by such overwhelmingevidence,
that suchan ideawas the greatestdelusion that could be con-
ceived. The Bank note sustainedno sensibledepreciationfor
severalyears after the RestrictionAct, and it was not till the
greatmercantilespeculationsof 1808-9 that it becameseriously
so. It did not continuelongerthan five or six years,and roseso
nearlyto par in 1816-17that its depreciationwas insensible.
If, therefore,Parliament,in 1819,had gonebackto the de-
preciatedstandardof 1813-14,it wouldhavebeenthe most
unjustifiablerobberyrecordedin history. It wouldhavebeen
infinitelyworsethan the bankruptcyof anycontinentalnation,
Raciias Austria,Russia,or France,because,whentheydeclared
themselves bankrupt,their paperwas at a hopeless and irre-
deemablediscount,and they had not the remotestprospectof

ever bringing it back to par. Their conduct,therefore,was tho
result of sheer necessity; they were driven to bankruptcy only
when they were irretrievably insolvent, but they did not de-
liberatelycheattheir creditorsaftertheir currencywasrestored
to par. The motionwasrejectedby a majorityof 9Gto 27,and
was thelast attemptto tamperwith the measure of value
19. The harvest of 1823 wasdeficient,both in quality and
quantity, and pricesroseconsiderably
in thebeginningof 1824,
old wheat being then at 78,9.; later in the year, however,they
declined;but theharvestof 1824beingalsoinferior,theyrallied
again. The Bank had for someyearsbeenaccumulatingtreasure
to meet the anticipateddeficiencyof the countryissuesexpected
to follow the suppressionof the £1 notes. When the unhappy
change in the policy of the Governmenttook place, this great
amount of bullion was renderedcomparativelyuseless,and the
country banks beganto extendtheir issuesin 1824, and in 1825
they werebeyondwhat they were in 1818. In January, 1824,
the bullion in the Bank amountedto £14,200,000. Daring the
precedingyear, an adjustmentof rents to meetthe alteredstate
of prices had taken place, and the old stocks having bean
gradually worked off, the energy of the peoplebeganto revive.
The enormous amount of cash in the Bank, for which there was
no immediate use, enabledthe Governmentto carry througha
great financial operation, the reduction of the interest upon
nearly a quarter of t>ie national debt. The 3STavy 5 per cents,
were reduced to 4 per cent, and the 4 per cent, stock to 3£.
This vast operation had a very considerableinfluencein cur-
tailing the incomesof many personswho could ill afford it, to a
very inconvenient extent, and prepared them to look out for
more profitable investments for their money. Notwithstanding
the unhappyand severedistressto the agricultural portion of the
community, Mr. Tooke saysthat the trading and manufacturing
interestshadneverbeenin a moreregular,sound,andsatisfactory
state than in the interval from 1821 to 1824. At the close of
the Sessionof 1823,the King congratulatedParliament on the
flourishing condition of all branchesof our commerceand manu-
factures,and the gradualabatementof agricultural distress
CAUSES 01? THE CRISIS OF 1825 111
20. At the close of 1824 the seeds of the disasters which

ensuedin the end of 1825weresown. The Koyal speechopened
Parliamentwith the samestrain of congratulationas had closed
the precedingSession,and the samecongratulationswere used
at the close of the Session of 1824. Towards the end of that
year it becamevisible that in someof the leading articles of
consumptionthe supply was falling short of the demand,which
gaverise to a spirit of speculation,and as, in all similar cases,a
few early purchases,which were successful,induced extensive
imitation; and at the end of 1824, and beginning of 1825,this
had amountedto positive infection, numbersof personsbeing
induced to go out of their own line of businessto speculatein
articleswith which they had no concernwhatever,but induced
by representationsof thoir brokers to do so in the hopes of
realisinggreat and immediategains
21, Just at this period occurredone of those eventswhich

have sofrequentlylured the commercial worldto their destruction.
The long contestbetweenSpainand her SouthAmericancolonies
had now finally terminated in favour of the colonies. We have
alreadynoticed the great commercialcatastrophebrought about
in 1810,by the extravagantspeculationson the openingof the
Brazils bo British trade. Preciselythe samecourseoccurredin
1824. The recognition of the independenceof the South
American States and Mexico openedout a boundlessfield for
speculation,and the consumptionof British manufactures;and
this spirit of speculationwas aggravatedto the utmost by the
visions of countless wealth which was to be extracted from the
gold and silver producingcountries,and immenseschemes were
formed for working the mines with British capital. However,
the longstruggle for independence
had inspiredthe British people
with much sympathyfor the juvenile republics,and when they
wanted to borrow money to support their public credit, the
British were only too eager to lend it. It is alleged that
£150,000,000of British capital was sunk in differentways in
Mexico and South America
22. Although the symptomsof a comingmercantile catas-

trophewereplainlyevidentin the beginning
of 1825,the speech
put Into the King's month declaredthe utmostgratification at

the continuanceand the progressiveincreaseof the public
prosperity. " There neverwasa period," it said, *'in the history
of this country, when all the great interests of the nation were
at the sametime in so thriving a condition, or whena feeling
tf contentand satisfaction
wasmorewidelydiffusedthroughall
classes
of the British people." The speechof Lord Dudleyand
Ward was exactly in the same strain. After contrasting the
sufferingsthe nation had gonethrough, during the last 30 years,
he said it was his goodfortuneto ask their lordshipsto carry to
the foot of the throne their unmixed, and, he hoped,their
unanimouscongratulations,
upona stateof prosperitysuchashe
believedwas unequalledin this country,and had neverbeen.
surpassedin any age or nation. And yet, though the whole
debatewas in this strain, no soonerwasit endedthan the Lord
Chancellor called the attention of the Houseto the dangerous
extent to which the mania for joint stock companieshad gone,
and said he wouldmovefor leaveto bring in a bill to restrainthe
system. Within seven weeksafter that Lord Lauderdalecalled
the attention of the Houseto the " fury for joint stockcompanies
which had taken possession of the people," and said that the
schemesalreadysubscribedfor amountedto £200,000,000
23. The following extract from the Annual Register of

1824 containsa sufficient description of the rising of the Joint
Stock Company mania. After stating that the "mines of
Mexico " was a phrasewhich openedvisions of boundless wealth
to the imagination,and how the maniaspreadfrom foreign
enterprisesto homeones,it says-
"In all these speculations,only a small instalment, seldom
exceeding5 per cent., was paid at first, so that a verymoderate
risein thepriceof the sharesproduced
a largeprofit onthesum
actually invested. If, for instance,sharesof £100 on which £5
"hadbeenpaid, roseto a premium of £40, this yielded on every
Aharea profit equalto eight timesthe amountof the money
which had beenpaid. This possibilityof enormousprofit, by
risking so small a sum, was a bait too tempting to be resisted.
All the gamblingpropensities of humannaturewereconstantly
solicited into action, and crowdsof individualsof everyde-
CAUSES OF THE CRISIS OF 1825 113
scription-the credulousand the suspicious-thecraftyandthe

bold-the raw and the experienced-theintelligent and the
ignorant-princes,nobles,politicians,placemen,
patriots,lawyers,
physicians,divines,philosophers,poets,intermingledwith women
of all ranksanddegrees-spinsters,
wives,andwidows,hastening
to venture some portion of their property in" schemesof which
scarcelyanything wasknownexceptthe name
As a specimen
of the madness
of the speculations,
we may
quote the prices of mining shares. The Anglo-Mexican, on
which £10 was paid, were at £43 on December10th, 1824; on
the llth January, 1825, they were at £150. The Eeal del
Monte, with £70 paid, wereat £550 in December,and at £1,350
in January, and others in similar proportions. The prices of
most othercommoditiesdoubledand tripled
24. Now, what was the conduct of the Bank of England

duringthis period? The bullion which stoodabove£14,000,000
in January,1824,was reducedto £11,600,000in October,1824.
The exchangeon Paris had been falling ever sincethe close of
1823. The last time it was abovepar was in June, and since
then the fall had been continuous. The decrease in bullion had
beensteady,uniform, and rapid ever since March. Now, when
it wasknown that immensesumswere leaving the country, and
the exchangefalling lower, what did the Bank do ? It increased
its issues. During the month of October, 1824, they were in-
creased£2,300,000. When every consideration of common.
senseand prudence demandeda rapid contraction,when the
speculativefever was plainly declared,instead of doing what
they couldto check it, they addedfuel to the flames. But the
directors seemeddetermined to set all the principles of the
Bullion Eeport at defiance; and the drain uponthem proceeded
with increased severity. In April, 1825, the bullion was
diminished by upwards of £4,000,000, and their issueswere
£3,600,000higher when they had only £6,650,000 of bullion
than whenthey had £14,000,000
25. The speculative

feverwasat its heightin the first foux
months
of 1825,whenit hadspentits forceandcame
to an end
VOL. II. *
in the naturalcourseof things. Vast numbersof personswho

had embarkedin these wild schemes,with the hope of selling
out of them before the inevitable crash came,were now called
upon for their subscriptions. Vast quantities of capital having
been alreadyabsorbed,had the inevitable effect of raising the
rate of interest. Successivecalls compelledthe weaker holders
to realise, and, while the calls for ready-moneywere immediate
and pressing,the prospect of returns was distant and uncertain.
Accordingly,after May and June,the declinewas rapid. The
South Americanloans, and the Mexican mining schemes,proved
almost universally total losses. In the meantime, that slack
wat&r, which Mr. Tooke observesalways precedesa great turn
in the tide of prices, took place. The increaseof commodities
which speculationhad caused,could no longer be kept from
being realised,prices fell as rapidly as they had risen. The
obligations of the speculatorsnow becamedue, and the sale of
the commodities had to be forced to meet them. Universal dis-
credit now succeeded,goodsbecameunsaleable,so that stocks
which are usually held in anticipation of demand were wholly
unavailable to meet the pecuniaryengagementsof the holders.
Merchants who had acceptedbills for only half the value of the
goods consignedto them, wereunable to realise eventhat half,
or even obtain advances,on security of the bills of lading, and
even the advancesalreadymade were peremptorily called in.
The usury laws, which limited interest to 5 per cent., greatly
aggravatedthe distress; nobodywould lend moneyat 5 per cent.
when its real value was so much greater; hence,numberswho
would gladly have paid 8 or 10 per cent, interest, were obliged
to sell goodsat a differenceof 30 per cent, for cashcompared
with the price for time
86. The bankersin the country had followed exactlyin the

stepsof the Bankof England. Whilethe feverwasragingthey
had increasedtheir issuesand liabilities, by speculativeadvances
on commodities. The personsto whomthese advanceshad been.
"
madehad no meansof repayingthem,but the " promisesto pay
the bankershad lent them still remainedin circulation, and must
be met. The bankersforesawthe comingstorm,and endeavoured
to providefunds to meetit. The Bank of England itself had its
THE GREAT CRISIS OF 1825 115
eyesopento the suicidal careerit wasfollowing in May, and then

endeavoured violently to contract its issues. This suddenchange
of policy only aggravatedthe generalfeelingof discredit. During
the autumn everythingportendedthe approachof the impending
catastrophe. The following table shewsthe progressivedecrease
in the bullion in the Bank during 1824and 1825-
IBM 1£(25
Jan. 31 » £13,527,850 Jan. 29 £9,490,420
Feb. 28 " 13,800,390 Feb. 26 8,857,730
March 27 13,871,280 March 20 8,152,340
April 24 . 13,405,550 April 30 6,659,780
May 29 * 12,887,840 May 28 6,131,300
June 26 + 12,809,140 June 25 5,482,040
July 31 . 11,814,720 July 30 4,174,830
Aug. 28 . 11,763,550 Aug. 27 3,626,570
Sept. 25 " 11,811,500 Sept. 24 3,496,690
Oct. 30 " 11,433,430 Oct. 29 3,150,360
Nov. 27 " 11,323,760 Nov. 20 3,012,150
Deo. 24 . 10,721,190 Deo, 31 1,260,890
27. The inevitablecentrecoupof the undue expansion

of
credit in the spring beganto pressheavily on the countrybanks
in the autumn of 1825. It gradually becamesevererduring the
month of November. On the 29th November it was announced
in the London papersthat Sir William Elford's-a large bank at
Plymouth-had failed, and that was immediatelyfollowedby the
fall of Wentworth and Co., a great Yorkshire firm. By the 3rd
December,the panic had fairly set in, and the whole city was
thrown into the most violent state of alarm and consternation.
On that day (Saturday)someof the directorswereinformed that
the houseof Poole, Thornton, and Co., one of the leadingcity
banking houses,wasin difficulties, and at a hurried meeting held
on the following day it was decidedto place £300,000 at their
disposalupon, proper security. During that week the utmost
attention waspaid to the position of that housewhich fought it
through the following week,though it wasprivately known to the
governorthat, if the storm did not abate, they must fail on the
Mondaymorning. Instead of abating, however,it becamemore
furious than ever on Monday; and Pole and Co. stoppedpayment,
and the ruin of forty country banks which were connectedwith
them wasexpected
x 2
116 THEOftY AND PRACTICE OP BANKING
28. Thefall of this great bankinghousewasthesignalfor

a generalrun upon all the Londonbankers,and threeor four
moregaveway, and spreaduniversalconsternation amongthe
country banks, sixty-three of which succumbedto the crisis,
though a considerable
number paid 205. in the pound,and
eventuallyresumedbusiness
29. From Monday,the 12th, to Saturday,the 17th Decem-

ber, wasthe height of the crisis in London. Mr. Bichards,the
Deputy-Governorof the Bank at that time, said-
"On Monday morning the storm began, and till Saturday
night it ragedwith an intensity that it is impossiblefor me to
describe; on the Saturdaynight it had somewhatabated. The
Bank had taken a firm and deliberate resolution to make common
causewith the country, as far as their humble effortswouldgo,
and on Saturdaynight it was my happiness,when I wentup to
the Cabinetreelingwith fatigue, to be able just to call out to my
Lord Liverpool,and to the membersof His Majesty's Govern-
ment then present,that all was well; that was,I believe,on the
eveningof Saturday,the 17th December. Then in the following
weekthings began to get a little more steady,and by the 24th,
what with the £l notes that had gone out and other things,
peoplebeganto be satisfied,and then it wasfor the first timein
a fortnight, that thosewho had been busiedin that terrible scene
could recollect that they had families who had someclaim on
their attention "
30. As the crisiswas evidently approachingat the end of

November,the papers discussed
the probablepolicy of the
Bank, and it was generallyanticipated that it would continueto
contractits issues,andlet the evil workits owncureby the fall
of thosehouseswhichhad beenimprudentin their speculations,
and this wasthe courseadoptedby the Bank,andto whichthey
adhered asmattersgrewworse,andtheyweresupported in it by
public opinion. On the day after Poleand Co. fell anotherhouse
of equalmagnitudefell, Williams,Burgessand Co. The panic
thenbecame
universal,
and,asthe directors
thoughtthatthey
would certainly have to stop payment,they soundedthe Govern-
mentasto a Restriction
Act, but the Government
absolutely
declinedit, and it wasresolved

that the Bank shouldpayaway
its last sovereign. The Mint was kept constantlyat work day
and night, but it could not supplycoin with sufficientrapidity, so
that it kept constantlydiminishing. On the Saturday the coin
in the Bank vaults scarcelyexceeded one million, but, by a happy
circumstance,when the Saturdayeveningcamethe tide receded,
and the directorswere ableto assurethe Ministry that all danger
was over
31. The great pressure had produced the effect which

necessarilyresults from suchcircumstances.The great increase
in the value of moneyhere had turned the exchangesin favour
of the country, the directors expected remittancesfrom Paris,
and they fortunately came soonerthan was expected. On the
Mondayfollowing the 19fchabout £400,000 came from France,
and the demand having sensiblyabated,the supplies from the
Mint fully equalledthe sumsdrawn out of the Bank-or rather
exceeded them
32. Mr. Huskisson said afterwards, in the House of

Commons,that, during forty-eight hours (Monday and Tuesday,
December12 and 13), it wasimpossibleto convertinto moneyto
any extentthe bestsecuritiesof the Government. Personscould
not sell Exchequerbills, nor Bank stock, nor East India stock,
nor the public funds. Mr. Baring said that men would not part
with their moneyon any terms,nor for any security. The extent
to which the distress had reachedwas melancholyto the last
degree. Personsof undoubtedwealthand real capital were seen
walking about the streetsof London, not knowing whetherthey
shouldbe ableto meet their engagementsfor the next day. By
this time, however, the exchange had decidedly turned in
favour of the country, and on Wednesday,the 14th, the Bank
totally changedtheir policy, and discountedwith the utmost
profuseness.They made enormousadvanceson Exchequerbills
and securities of all sorts. Mr. llarman said-
"We lent it by every possiblemeans,and in modeswe had
neveradoptedbefore; we took in stock as security,we purchased
Exchequerbills, we made advanceson Exchequerbills, we not
onlydiscounted
outright,but we madeadvances
on depositof
bills of Exchange to an immense amount; in short, by every

possible meansconsistentwith the safety of the Bank, and we
were not, on someoccasions,
overnice; seeingthe dreadfulstatein
whichthe publicwere,werendered
everyassistance
in ourpower."
This audaciouspolicy was crownedwith the most complete
success,the panic was stayed almost immediately. On Friday
evening, the 16th, the Courier said-"We are happy to think
that the worst is over, though thereare still great demandsupon
the Bank, particularly from the country." The samepaper, on
the next day, the 17th, said-"Although public confidenceis on
the return in the metropolis,and things are resumingtheir usual
course,yet, asmight be expected,
this hasnot yet communicated
itself to the country." In fact, the London panic wascompletely
allayed in this weekby the profuseissueof Bank notes. Between
the Wednesday,
the 14th,and the Saturday,the 17th, the Bank
issuedupwardsof £5,000,000of notes
33. The waves of discredit, however, were propagated

through the country, and throughout the following week the
demand still continued greatfrom the London bankersfor their
country correspondents.During the courseof it, it cameto the
remembrance of some of the directors that there was a chest
of their £1 notes which had never been used. As soon as this
was discovered,it occurredto them that they might beused to
stay the panic in the country districts, and the discreditof the
country bank notes. Upon communicating this idea to the
London bankers,it was eagerlyapprovedof, and the sanctionof
the Governmentwasaskedfor the experiment. The Government
consented,and the notes were sent off to the country bankers
without delay, and producedinstantaneousrelief. At Norwich,
when the Gurneys shewedupon their counter so many feet of
Bank notes of such a thickness,it stopped the run in that part
of the country. By the 24th Decemberthe panic wascompletely
allayed all over the country, and the amount of the £1 notes
the Bank issued was under £500,000, and by the beginning
of 182Cthe credit of the banking world was completelyrestored
34. The circumstances of this famous crisis are the most
complete and triumphant examplesof the unquestionabletruth
THE GREAT CRISIS 03? 1825 119
of the principles of the Bullion Report, and of Sir Francis

Baring, already quoted in Chapter VIIL When the drain of
treasurefrom the Bank wassevereand unceasing,and notoriously
for exportation, on account of foreign loans, the Bank, with
infatuated obstinacy,had increasedtheir issuesinstead of con-
tracting them, in defianceof the clearestwarningsof the Bullion
lleport. When, after six months'continuancein this fatal policy,
they at last reversedtheir course,and contractedtheir issues. In
the courseof the autumn the drain for the exportationceased,
but continued for internal purposes; the demandfor gold was
entirely to support the tottering credit of the country bank notes.
Now, as the country bankers were only too glad to- withdraw
their own notes,and substitute gold for them, there was not the
slightest dangerof an increaseof Bank of England notes adding
to the generalamount of papercurrencyin the country, but just
the reverse; consequently,it was just the precisecasein which
Sir Francis Baring and the Bullion Committeesaid that it was
the duty of the Bank of England to extendits issuesto support
general credit. There was not the smallest danger that an
extensionof issues would, under such circumstances,turn the
foreign exchangesagainst the country. The character of the-
demand was declared in the most unmistakeable manner. On»
Thursday, the 15th, a meeting of merchants and others took
place at the MansionHouse,when it was stated that Sir P. Pole
and Co. had a surplus of £170,000 after payment of all claims
against them, besideslarge landed property belonging to Sir
Peter Pole, and about £100,000, the private propeity of other
members of the firm. Williams and Burgess had enoughto
pay 40s. in the pound. Now if the coursewhich was adopted
on the Wednesdayhad been adopted on the Monday,the whole
of that terrific crisis would have been saved. Mr. Vincent
Stuckey, one of the most eminent country bankers in the
kingdom, says-
"My opinion was that the crisis at that time was brought
on by excessive issues; but, when the panic came, country bank
paper was brought in for Bank of England, and, therefore,alL
that was immediately wanted wasan Exchange of Paper.
I stated,in a letter I wrote upon the subjectto the Bank on the
14th of December,1825, that they would not have to, increase
the sumtotal of circulation, but that all they would have to do

wasto exchangeA for B; and in my letter I recommended them
to issuea million a day, which they did; for, otherwisemost of
the Banksin London,aswell as the country, must have stopped."
And, accordingly,theydid issue,and all contemporaryevidence
provesthat it was this profuse issue £5,000,000 of paper in a
few days that stayed the panic. If they had perseveredin the
restrictive policy for three days longer, the total and entire
destructionof commercial credit would infallibly have ensued.
In short, if they had followed the precedentsof 1793and 1707,
sostronglycondemned
by the Bullion Eeport,all creditwould
have been destroyed;they followed the principles laid downin.
the Bullion Eeport, and the country wassaved
35. When the causesof this terrible calamity cameto be

discussed,there were not wanting many who laid the whole
blame to the excessiveissuesof the Bank, as well as the excessive
issuesof the country banks. But though it is indisputablethat
the Bank actedon the most unsoundprinciples,in not contracting
its issueswhenthegreatdrain of bullion for exportationwasgoing
on, it is a meredelusionfor men to attribute the consequences
of
their own wild and extravagantmania to the Bank of England,
or to any bank. The errorsof all the banks put together were
trivial comparedto the outbreaksof speculativeinsanity which
seizeduponaUclasses. It wasnot the issuesof someBank notes
that led to a respectablebooksellingfirm to risk £100,000 on a
speculationin hops?
36. The Bank had committedmany errors before,asserious

as thoseof 1325,without leading to any such disaster. In fact
ifc was the nature of the speculationswhich men had rushed
headlonginto that must inevitably have brought about a most
terrible calamityif there had not been a Bank note in existence.
The speculativemania of 1694took place before the Bank was
in existence;the great South SeaBubblemania took placewhen
there wereno country banks at all, and no one accusedthe Bank
of England,or the Londonbankers,of havingmadetooprofuse
issuesof notesthen; and the great railwaymaniaof 1845-46
took place after it was supposed
that the Act of 1844 had
REFLECTIONS ON THE CRISIS OF 1825 121
effectuallysecuredthe country against the recurrenceof similar

calamities
37. The bold policy of the Bank of England in that terrible

week,in entire accordancewith the principles laid downby Sir
FrancisBaring and the Bullion Report, not only saveda multi-
tude of commercial houses,both banking and trading, but
certainly preserved itself from bankruptcy. Though several
banks did succumb,the distress was slight, comparedto what
it would have been if the Bank had perseveredin adheringto
the policy of 1797. Many houses,it is true, that were aided by
the Bank, were only enabledto stagger on for a short time
longer, and subsequentlyfailed when their obligations became
due; but delaying their fall even for a short time, till the panic
had subsided, was of considerable service
38. The worthless character of a great portion of the

country paper had greatly aggravated the intensity of the
calamity; in fact, it beganwith them, and the great commercial
failures did not take place until after the banking panic had
subsided. The Government and the Bank, at last learning
wisdomfrom these repeatedconvulsions,which seemedto recur
periodically,becamesensiblethat it was imperatively necessary
to providea currencyof a moresolid descriptionfor the country,
and that the frightful evils of the monopolyof the Bank of
Englandmust cometo an end
39. Parliamentmet on the 3rd of February,1826, and six

paragraphsof the speechfrom the Throne were occupiedwith
the commercialcatastrophe,and it said that part of the remedies
to be applied consistedin placing the currencyand circulating
credit of the country on a more firm foundation. Lord King
said that the causesof the calamity werepartly to be attributed
to the Government,in a greater degreeto the countrybanks,
and in a still greater degreeto the Bank of England monopoly.
There was no period of distressduring the last thirty or forty
years,in which the conduct of that establishmenthad not been
injurious, and in every caseaggravatedit. It was a most faulty
machine. It was impossiblethat a Bank so incorporatedcould
do good. If the purpose

-wasto erectan establishment
to do
mischief,theywoulderectit on the veryprinciplesof the Bank.
Theywouldgiveit a monopoly, removefrom it all fearof rivalry,
and connect it with the Government. He lamented that the
pressureof the countrygentlemen andthe countrybankershad
beentoo powerfulto beresisted
by theMinistryin 1822,andhad
forced them to continue the issues of £1 and £2 notes to keep up
pricesandencourage
speculation.The-Earlof Liverpoolchiefly
blamedthe excessiveissuesof the country banks, and said that
the small notesmust be graduallywithdrawn and a metallic
currency substituted. He said that he was perfectly satisfied,
and had entertainedthe conviction for years,that the country
had grown too large,that its concernshad becometoo extensive
to allowof the exclusive
privilegeof theBankof England. Its
privilegeshad operatedin. a most extraordinaryand, as ho
thought, unfortunatemannerfor the country. Any smalltrades-
man, a cheesemonger, a butcher, or a shoemaker,might opena
country bank, but a set of persons,with a fortune sufficient to
carry on the concernwith security,were not permitted to do so
40. The Ministry took upon themselvesto prohibit anymore

stamps being issuedto the countrybanks for £1 and £2 notes.
The Chancellorof the Exchequersaid that those noteswereto
be deprecatedas an infringement of the Act of 1819,which no
man could deny was passed,if ever any Act was, with the
unanimousapprobationof all the parties of which Parliament
wascomposed:an Act which had beensolemnlyresolvedupon as
the only measurewhich could enablethe countryto meetany
future danger,by placing the circulating medium on a permanent
and stable footing. No man could insinuate that that Act was
not the result of the deliberate conviction of almost every
individual of every party in that House. He then detailedthe
continual evil and insecurity of the small notes, and said that he
always had regretted, and still regretted the step taken by
Parliament in 1822, which permitted them. The intention of
the Governmentwas, therefore, to suppressthem as soon as
possiblein England, and subsequentlyin Scotlandand Ireland.
lie moveda resolution,
that no freshnoteswereto be issuedby
countrybankersin Englandunder£5, and that thoseprinted
DEBATE ON THE CRISIS 123
beforethe 5th of February,182G,might be issued,re-issued,and

circulated,until the 5th April, 18:29,and no longer
41. The opinionsexpressed

in Parliamentand the country
were, of course,most conflicting, as to the causesof this great
catastrophe,but the great preponderanceof opinion was adverse
to the small note issues. Mr. Baring, who defendedthe country
bankersfrom the accusations
levelledagainstthem, said that
their small notes were bad as a permanentsystem,and they
ought to be called in. Even although they might sometimes be
of almost indispensableuse to the country, still, if the misery
which had been causedby their use, among the poorer classes,
was taken into consideration, it was a sufficient reason why the
nuisanceshould be abated; and it was his opinion that the
House had not got rid of this delugeof paperat the time when
it had the powerto do so, and that it had not resistedasit ought
to have resisted,the importunity of the country bankers. That
thesesmall notes shouldbe abolishedassoonas practicable
43. Mr. Huskissou describedthe frightful nature of the

panic during 48 hours (Mondayand Tuesday,December12 and
13), and said that it had beentruly observedthat the Bank, by
its promptand efficaciousassistance,had put an end to the panic,
and avertedthe ruin, which threatenedall the banking establish-
mentsin London, and, through them, the banking establishments
and moniedmen all over the country. The conductof the Bank
had been most praiseworthy, and had, in a great degree,saved
the countryfrom a general convulsion. The Bank, through its
prompt, efficacious,and public-spirited conduct, had had the
countenance,advice, and particular recommendationof the
Premierand Chancellorof the Exchequer. He admittedthat the
commercialdistress in Scotlandwasvery great, but that did not
prove that the system of Scotchbanking did not affordgreater
securitiesthan the English system, and that it wasdesirableto
introduceit into this country. He then describedthe wild spirit
of speculationwhich had seizedthe country, which produceda
rise of prices so rapid as had neverbeen equalled. He might
mention,as an instance,the price of nutmegs,which rosein one
month from 2s. 6& to 12$. 6^f.a lb., and speculationin other
TTIEOKY AND PRACTICE OF BANKING
spicescauseda corresponding
rise in their prices. The mania
extended equally to other articles of consumption; merchants,
traders, shopkeepers,clerks, and apprenticespartook equally of
the frenzy of vying with eachother m their endeavoursto secure
a monopoly of each article. And this state of things took its
rise, not among the wild, insane,and bedlamite schemers,but
among those who were consideredthe sober,steady merchants
and traders of the metropolis. And all this took placeat a time
when moneywas rapidly leaving the country. Now, if, when it
when it was leaving the country so rapidly, it was still hawked
about at a greatly lowered rate of interest, that showedthere
must be somethingwrong in the currency. And to what would
any soberman say sucha state of things must cometo at last ?
The Bank, at last, was obliged to provide for its own safety,by
narrowing its issues,which checkedthe spirit of speculation,and
as a necessaryresult, those country banks which had beenmost
rash and immoderatein aiding these speculationsby advances
were ruined. The ruin of these bad and unstable banks had
affected even the stability of the most solvent ones. A general
panic ensued,and seven or eight hundred country banks had
asked for assistancefrom the Bank of England. Shehad 700 or
800 drains for gold suddenlyopenedupon her. Was this a safe
or proper condition to leave the country in? Certainly not.
It was his opinion, an opinion not hastily formed,but the result
of long and anxious observation,that a permanentstate of cash
payments,and a circulation of one and two-pound notes could
not co-exist. If there were in any country a paper and a coin.
currency of the samedenomination,the paperand the coin could
not circulate together,the paper woulddrive out the coin. Let
crown notes be made, and a crown piece would never be seen,
make half-crown notes, and no half-crowns would remain in
circulation. Allow one-poundnotes to circulate, and we should
never seea sovereign. Oneof the great evils they were calledon
to correct wasthe excessiveissue of paper. This had beenthe
causeof the greatestdistress,it had causedthe ruin of thousands
of innocent persons. Nothing but disgraceand danger could
attend the deviation from the true principles of currency,which
Parliament had solemnly recognised. If they wishedto prove
the value of a steadyunchangeablecurrency,they had it in the
DEBATE ON THE CRISIS 125
exampleof France,which had twice been invaded by a foreign

army, her capital had been taken, and she had beenobligedto
pay a large sum to foreign countries for corn, but she had a
steady metallic currency, and, however much the great con-
tractors might have suffered,the great body of the peoplehad
remaineduninjured. This was due bothe excellentfooting upon
which the currency of that country was established. If this
measurewas adopted,every country banker would be obliged to
haveas great a regard to the exchangesas the Bank of England,
and be compelledto providefor his own safety,without leaning
upon the Bank in times of danger. Now wasthe time to with-
draw these small notes,when the bankers were smarting under
the consequences of their over-issues. They had at present a
large amountof gold and bank notes; if they allowedthe favour-
able time to passby, the small noteswould soonbe issuedagain.
They had now got the gold in their coffers,and now wasthe time
to provide that it should not be exportedagain. It wouldbe
advantageous to the public to have charteredjoint stock banks,
lestablishedunder a propersystem,with only a limited liability.
This would,no doubt, inducemany persons,of great fortune and
credit, to take sharesin them, but the Bank objectedto the
extensionof limited liability, and had stipulatedthat the Banks
of Scotlandand Ireland should not have this privilege. Some
thought that the currency should be even morepurely metallic
than wasnow proposed,and that notes of a higher denomination.
should be suppressed. For himself, he entirely differed from
Mr. Bicardo, as to the true basisof the currency,and he believed
that if Mr. Ricardo, ingeniousas he was,had beensoleDirector
of the Bank of England, it would before now have stopped
payment. He thought Mr. Eicardo'sview of the currency quite
erroneous
43. Sir John Newport,as a banker himself, consideredthe

issueof small notes to be most injurious to all connectedwith
them,as affording the most dangerousfacilities for extravagant
speculation.It had beensaid that a considerable
part of the
commerceof the country could not be carried on if thesenotes
wereabolished. lie wasquit-ewilling to accept that alternative,
and abandona portion of our commerce,rather than continue
THEORY AND PEACTICB OF BANKING
them. Tie did not believe thab such would be the case. Now
was the besttime to abolishthis pernicioussystem,whenso
many of the country bankershad failed
44. Mr. SecretaryPeel was convincedthat the root of the

evil lay in the monopolyof the Bankof England,and that if in
the year1703a set of bankshadexistedin this countryon the
Scotch systemit would have escapedthe dangerit wasthen
involved in, as well as the calamitywhichhad just occurred,
In 1793upwardsof 100bankshad failed. In sevenyears,from
1810 to 1817, 157 commissionsin bankruptcy were issued
against countrybankers; in the crisiswhich had just occurred70
failureshadtakenplace. But, fromthe differentwaysof making
compositions, etc., the number of failures should probably be
estimated at four times the number of the commissions of
bankruptcy. What systemcould be worse,or more prejudicial
to every interestin the country, than one which admittedof such
an, enormous amount of failures ? Contrast what had been the
case in Scotland, under a different system. Mr. Gilchrist, a
manager of one of the Scotch banks, had been asked by the
committee of 1819how many failures there had beenin Scotland
within his recollection,and said therehad only beenone,that the
creditors had beenpaid 145.in the poundimmediately,and finally
the whole of their claims. Thesefacts werea strongpresumptive
proof that the Scotchsystem,if not quite perfect, was at least
far superiorto the one existing in England. The presentsystem
of country banking was most prejudicial in every point of view*
He then describedthe terrible misery causedby the failure of the
country banks. He trusted that the institution of Joint Stock
Banks would place the currency on a firmer footing. He most
sincerelytrustedthat the greatobstacleto the proposedinstitutions,
the want of a charter,wouldbe removed. He hopedthe directors
of the Bank of England would seriouslyconsiderwhat advantage
they would derive from refusing chartersto these banks. He
himself couldnot imaginewhat benefitthey would derivefrom it;
they no doubt had the right to prevent such charters being
granted, but he hoped they would refrain from exercisingtheir
right. He eulogisedhighly the conduct of the directorsduring
the late crisis; he could not conceiveit possiblefor any body
SUPPRESSION OF SMALL NOTES 127
of mento haveactedbetter,or f,ohaveexercised moreJudgment,

discretionandliberality than theyhad done-of whichhehoped
theywouldgivea further instanceby not opposing the grantsof
chartersto the proposednewbanks. He fully concurredwith
Mr. Huskisson,that it was impossibleto maintain coin in circu-
lation if paperof the samedenominationwere allowedto circulate
along with it. Now was the most favourable opportunity of
getting rid of the small notes. It would be impolitic and unsafe
to wait the moment of returning prosperity, as the country
bankerswould be more reluctant to agree to it, and moreable
to opposeit. To stand gazingon the bank in idle expectation,
now that the river waspassable,would be an irreparablemistake.
The ministerialpropositionsprevailedby a majority of 222 to BO,
and a motion to continuethe small notesof the Bank of England
wasrejectedby 66 to 7
45. The chief provisionsof the Act (Statute 1826,c. 6) for

prohibiting small notesin England are as follows-
1. The Act repealing the Act (Statute 1777, c. 80) which
prohibited promissorynotes and bills under 20#. was repealed,
therebyreviving the former Act; but all notesof private bankers
stampedbefore the 5th of February, 1826, or of the Bank of
England stampedbeforethe 10th of October,1826,wereexempted
from its operation,and were permitted to be issued,re-issuedand
ncgociateduntil the 5th of April, 1829
2. Any person after that date making, issuing,signing or
re-issuing any note or bill under £5, was subject to a penalty
of £20
3. Any personwho published,utteredor negociated
any
promissoryor other notes,or any negociableor transferablebill,
draft or undertaking in writing, for the paymentof 20$.,or above
that sum and less than £5, or on which such sum should be
unpaid,shouldforfeit the sumof £20
4. Thesepenaltieswere not attachedto any persondrawing
a chequeon his bankerfor his own.use
5, All promissorynotes under £20, madepayableto bearer
on demand,were to be madepayableat the Bank, or placewhere
theywereissued;andasmanymoreplacesastheissuerpleased
46. When the Governmentdeterminedon suppressingtho

small note issuein England, they said it was their intention to
extend the measure in a short time to ScotlauJ and Ireland.
However much Scotlandmay have suffered from commercial
overtrading,as every commercialcountry must occasionallydo,
no banking panic had ever occurredsuchas thosewhich had FO
frequentlydesolatedEngland. As soon as the ministerial inten-
tions were know in Scotland,a great ferment was excited. Sir
Walter Scott publishedthree letters on the subject, under the
name of "Malacbi Malagrowther,"which tendedmuch to fan tho
public enthusiasm,and such an opposition was organised,that
the Ministry were obliged to consentto appoint committeesof
both Houseson the subject. These committeessat during the
spring of 1826, and investigated the whole subject of Scotch
banking at great length, which had been very little understood
in England before that time; and the result wasso eminently
favourable to the Scotch banking system, that the Ministry
abandoned their intention of attemptingto alter it. The evidence
and reportsof thesecommitteeswill be noticedfurther on
47. The year 1827 is memorableas the era whenthe prin-

ciples of the Bullion Report wereat length acknowledgedto bo
true, and professedlyadoptedby the Bank. Mr. William Ward
stated in 1832 that there was not a single personin the Bank
but who admitted that its issues should be regulated by tho
Foreign Exchangesand the bullion market, or disposedto act in
opposition to it. That in 1819 the directors had forwardeda
resolutionto the Houseof Commons,denying that the exchanges
were to be regardedin regulatingthe issues. Subsequently,how-
ever,to that year, opinions becamechanged,and they found the
merits of the case such as they really were. He himself had
always been convincedof the truth of Mr. Homer's principle,
and, from his being connectedwith the exchanges,had many
opportunities of observingthe practical truth of it. The Bank
Directors,however,were not convincedof it, becausethey found
in practice that the exchangesdid not follow the issuesof the
Bank. But the truth was that they neglectedto considerthe
country issues,and it was only in 1819 that they obtained a
correct accountof the issuesof country banks; whenthat was
SUPPRESSION OF SMALL NOTES 129
got it wasfound that, takingthe Bank and the countryissues

together,the principle was shownto be quite correct. The
observationof thesefactshad graduallyconvincedthe directors,
and, in 1827, he thought the court ripe for expunging the
resolution of 1819, and it had accordinglybeendone. And, in
3, there wasnot a single director who disputedits truth
48. Although the Act of 1775had forbiddennotesunder£6
to be issuedin England, it did not prohibit the circulation of
the Scotch£l notes in England, and they had alwayscirculated
in the districts adjacent to Scotland,and even as far South as
York, Whenthe English£1 notesweresuppressed,
it seemed
naturally to follow that the circulation of the Scotch notes in
England should be forbidden. But the districts in which they
had always circulated, were as unanimous as Scotland itself
againstthe measure. In 1828,the Ministry brought in a bill to
restrain the circulation of Scotch bank notes in England. Sir
James Graham presenteda petition from the borderers,depre-
cating, in the most earnest terms, the withdrawal of the Scotch
notesto which they had been so long accustomed. For seventy
years,they said, they had possessed the advantageit was now
soughtto deprivethem of- the advantageof the Scotchcurrency.
Seven-eighthsof the rents of estateswere paid in the paper
currencyof Scotland,and no loss had been sustainedin conse-
quence of it. After a debate of two nights, the motion was
aimed by 15>Jt to 45. The Act (Statute 1828,c. 65) provided
that after the 5th of April, 1820,no corporationor personwhat-
ever should publish, utter, negotiate,or transfer in any part of
England,any promissorynote, draft, engagement, or undertaking
in writing, payable to bearer on demand,for less than £5, or
upon which less than £5 remained unpaid,which should have
been made or issued,or purport to havebeenmadeor issued,in
Scotlandor Ireland, or elsewhereout of England,under a penalty
of not lessthan £5, or morethan £20. The sameexemptionas
to chequesas in the former Act
49. In 1832,during the crisis of theEeformBill, a run
upon theBank took place,which lastedfor abouta fortnight;
but, asit wasmerelyfrom political feelingin London,and di(J
not extendinto the country, no seriousresult ensued
VOL, II K
130 THEORY AND PRACTICE OE BANKING
60. The Bank Charter expired at the end of oneyear's

notice, to be given after the 1st August, 1832,and this time the
Bank had done no such services to the Government as to be in a
position to demandfrom it a renewal of its monopolyseveral
years before it expired. Moreover,these exclusiveprivileges,as
Lord Liverpool said, in 1825,were out of fashion. Many great
monopolieswere now on the eve of breaking up, and the public
mind wasmorerousedand enlightenedon the subject of banking
from the discussions caused about the severe distress of 1825.
Before taking any steps towards a renewal of the charter,the
Governmentdeterminedto have an inquiry before a SecretCom-
mittee of the Houseof Commons,which was appointed on the
22nd of May, 1882,and consistedof the following members-
Lord Althorp, Sir Eobert Peel,Lord John Bussell,Mr. Goul-
burn, Sir James Graham, Mr. Herries, Mr. Poulett Thompson,
Mr. Courtenay,ColonelMaberley,Sir Henry Parnell, Mr, Vernon
Smith, Mr. John Smith, Mr. Eoberts, Sir M. W. Ridley, Mr.
Attwood, Sir J. Newport,Mr. A. Baring, Mr. Irving, Mr. Warbur-
ton, Mr. G. Philips, Lord Morpeth, Mr. Morrison, Mr. Heywood,
Lord Ebrington, Sir J. Wrottesley, Mr. Lawley, Mr. Cavendish,
AldermanWood,Mr. B. Carter, Mr. Strutt, Mr. Stanley,Alderman
Thompson
51. The Committeewasappointedduring the height of the

political excitementattendingthe passingof the ReformBill,
and sat for some months,and did not make any report till the
end of the Session. The inquiry was extremely incomplete.
Many of the most interesting subjectsconnectedwith it were
scarcelytouched upon. But the closeof the Sessionmadethem
report the evidenceto the Houseasfar asit had gone. It was
expected that a newcommitteewouldhavebeenappointed in the
new Parliament to continue the inquiry, but the Government
in the meantime made up their mind as to the changesthey
intended to makein the Bank monopoly,and dispensedwith any
further inquiry
62. Although the inquiry wasleft in a very incompletestate

as to many branchesof the subject, the evidencegiven embraced
many interesting points. The most important of which were,
BANK COMMITTEE OF 1832 131
the rulesadoptedby the Bankfor regulatingtheir issues-the

expediencyor the contraryof publishingtheir accounts-theex-
pediencyor the contraryof establishing
Joint StockBanks,or of
havingoneormoreBanksof Issuein themetropolis-the
causes
of thepanicof 1825,andthe actionof theBankduringthat
period-the advantages or the contraryof making Bank notes
legaltender,andthe effectsof the usurylawson commerce
63. Thegreat truths regardingthe regulationof a paper

currency,which had beenapprovedof by the Bullion Committee,
were now unanimouslyrecognisedby the Directors, and Mr.
HorsleyPalmer,the Governorof theBank,beingaskedby what
principle,in ordinarytimes,theBankwasguidedin the regulation
of its issues,said, that in a period of full currency,and, conse*
quently,with a par of exchange,the Bank consideredit desirable
to investtwo-thirds of its liabilities of all sorts in interest-bearing
securities, and one-third in bullion. The circulation of the
country being then regulated by the action of the foreign ex-
changes,
the Bank was extremelydesirousto avoidusing any
active power of regulating the circulation, but to leave that
entirely in the handsof the public. The action of the public was
fully sufficientto rectify the exchangeswithout any forcedaction
of the Bank in buying or selling securities. He thought it
desirableto keepthe securitiesvery nearly at the sameamount,
becausethen the public couldalwaysact for themselvesin return-
ing notes for bullion for exportation when the exchanges were
unfavourable,and if there wasa great influx of gold, the Bank
could alwaysre-assumeits proportion by transferring part of the
bullion into securities. He consideredthat the discountof private
paper was one of the worst meanswhich the Bank could adopt
for regulatingits notes,as it tendedto producea very prejudicial
extensionof their notes. He condemned strongly the practiceof
the Bank during the restriction with respectto the extensivedis-
counts of mercantile paper at 5 per cent, when the market rate
wasmuch higher, which necessarily led to an excessiveissue
64, Thegreatmajorityof the witnesses

werein favourof a
publication
of the accounts
of the Bank,astendingto inspire
greaterpublicconfidence
than the mystery
in whichtheywere
then enveloped,
andalsoactingasa checkuponthedirectors
themselves.Almostall the witnesses wereagainstthe establish-
ment of Joint Stock Banksin London,astheywouldtend to
injure the privatebankers.Considering the ideasof the age
vhenclassinterests weresupreme, we neednot be surprisedat
this unanimityof feeling;northat it ratherescapedthe attention
of the witnessesthat it was not the interests of the private
bankers,howeverrespectablethey were,that was the paramount
consideration,
lut what was lestfor thepublicgood. And still
more decidedlywere the witnessesopposed,
with scarcelyan ex-
ception,to the establishment
of any new joint stockbanksof
issuein London. Therewasa veryprevalentfeelingthat Bank
of Englandnotesshouldbe madelegal tender,as a meansof
allaying a drain on the countrybankersfor gold during a panic
65. It wasat this time that wemay datethe first prominent

appearanceof the greatmodernheresy,that bills of exchangeand
chequesform no part of the circulating medium or currency.
As this unhappydoctrine,however,wasmuch more emphatically
pronounceda few yearslater, wemay deferconsideringit to that
period. The committeepronouncedno opinion of their own on
the variouspoints broughtout in the evidence
66. The harvestof 1832 was unusually abundant, which

causeda greatdepressionof the price of all sortsof agricultural
producetowardsthe end of 1832,followed,of course,by * agri-
cultural distress." This wasbrought beforethe notice of Par-
liament in the speechfrom the throne at the opening of the
Sessionof 1833,and a committeewasappointedto inquire into it.
This distress afforded the irreconcileable enemies of the Act of
1819 anotheropportunity of attacking it. Mr. Attwood moved
for a committee
to inquirehowfar thepresent
distress
wascon-
nectedwith the monetarysystem.Lord Althorp immediately
met the motionby an amendment,that any changein the mo-
netarysystemwhichwouldhavethe effectof loweringthestandard
of valuewasinexpedient,
which,after a debateof threenights,
wascarriedby a majority of 304 to 49
£7. Onthe 31stMay,1833,Lord Althorpmoveda seriesof

BANK CHARTER ACT OF 1833 133
resolutionsfor the renewalof theBankCharter,oneof whichwas,

that so long as the Bankwas boundto payits notesin gold,
banknotesshouldbe declaredlegal tender,exceptby the Bank
itself. Severalmembers wishedfor furtherdelayto considerthe
resolutions,as the Sessionwasnearly at an end ; but Sir Robert
Peelwasdecidedly of opinionthat theHousewouldbeabandoning
its duty if it consented to postponethe question. He wasof
opinionthat it was desirableto continuethe privilegesof the
Bank, and that there should be but one bank of issue in the
metropolis,in order that it might exercisean undividedcontrol
over the issue of paper,and give facilities to commerce in times
of difficulty and alarm, which it could not give with the same
effect if it were subjectto the rivalry of another establishment.
He resisted,at great length, the proposition for making bank
noteslegal tender,as a departurefrom the principleof the Act of
1819,and the true principles that shouldgoverna papercurrency.
It was decided,by a majority of S1Gto 83, to proceedwith the
considerationof the resolutions. The plan of making bank notes
legal tender gave rise to much difference of opinion, but was
carried by 214 to 156
68. We have alreadyseen that the public had attempted,at

various times,to form rival banking companiesto the Bank of
England,and in 1709 and 1742,the Bank Acts had beenframed
to stop up various loop-holeswhich had been successively dis-
covered. In 1742, the phraseologyused had been supposedto
be quite effectualfor that purpose. At that time, the customof
giving notes payable to bearer on demandto their customersin
return for deposits,wasconsideredso essentiallythe fundamental
idea of banking, that to prohibit the giving of thesenoteswas
deemedan effectualbar upon carrying on the business of banking.
But in processof time-about 1793-the London bankers dis-
continuedissuing notes payableto beareron demand. The Acfc
of 1742wasconsideredto be so effectuala bar upon establishing
banking companiesin general, that for a long time it escaped
public observationthat the method of doing businessby way of
chequesenabledbanking companiesto eludethe wording of the
Act of 1742. In 1796,when,in consequence of the restrictive
measuresof the Bank of England, much distresswas felt ia
134 TIIEOKY AND PRACTICE OF BANKING
Londonfrom the wantof a circulatingmedium,an association

Of
merchants and bankerswasformed,for the purposeof providing
a circulatingmediumwhich shouldnot infringethe privilegesof
the Bank;the question
wasconsidered
by them,in whatthe
Bank'sprivilegesof exclusive" banking" did consist,and they
determined,
" Theprivilegeof exclusivebankingenjoyedby the
GovernorandCompany of the Bank of England,as definedby
the Acts of Parliamentunder which they enjoy it, seemsto con-
sist in the power of 'borrowing,owing, or taking ?{pmoneyon
their Ulls or notespayable on demand" About the year 1822,
somewritersdetected
this flaw in the monopoly
of the Bank,and
maintainedthat a joint stockbank of depositwasno infringement
of the Charter,and that suchbanks might be formed,and carry
on a verysuccessful
business withoutissuingnotesat all,but by
merelyfollowingthe practiceof the Londonbankersby adopting
cheques. Though this idea wasmuch discussedin pamphletsat
that period,no practical result ensued
59. It is somewhatremarkablethat the discoveryshould

have been allowed to lie unfruitful for so long a period. When
the Governmentfirst enteredinto negotiationwith the Bank in
1833,concerningthe terms of the renewalof the Charter,they
were persuaded, aswell as the wholemercantilecommunity,that
the monopolyforbade banks of any description whatever,with
more than six partners, being formed. In the courseof the
negotiation,however,this was brought under the notice of the
Government,who took the opinion of their law officerson so im-
portant a point. The opinion of the Crownlawyerswasthat the
clausedid not prohibit joint stockbanksof depositbeingformed.
The directors and proprietorsof the Bank were much disturbed
at finding this flaw in their monopoly,and requestedthe Govern-
ment to haveit rectified; but Lord Althorp said that the bargain
wasthat their privilegesshould not be diminished,but he would
not agree to any extension of them. In order to remove all
doubtsupon the subject,the Solicitor-General
brought up a
clause,by way of rider, declaringthe right to form such banks.
He said that the basisof the contractwith the Bank was,that
they wereto enjoywhatevermonopolythey alreadypossessed, bnt
nothing beyondit. He had examinedthe casewith the utmost
BANK CIIAKTER ACT OF 1833 1?>5
care,und therewas no pretence

for sayingthat snchbankswere
an encroachmentupon the monopolyof the Bank. The Bank,
as originally founded, was a lank of issue,and the monopoly
first grantedin 1G97mnst be held to refer only to banks yusdem
generis. Such had been the uniform languageof all the sub-
sequentActs. The clauseuponwhich their monopolyrestedwas
strictly confinedto the issue of paper money. Banksof deposit
werelawful at commonlaw, and it restedwith thosewho said it
wasforbidden,to point out the Act which prohibitedthem
60. The chief provisionsof the Act wereas follows (Statute

1833, c. 98)-
1. The Bank was continued as a Corporation,with such
exclusiveprivileges of banking as was given by the Act, for a
certain time, and on certain conditions,during which time no
societyor companyexceedingsix personsshouldmake or issuein
London,or within sixty-fivemiles thereof,anybill of exchange
or promissorynote,or engagementfor the payment of moneyon
demand,or upon which any personholding the samemay obtain
paymenton demand.' But countrybankersmight have an agency
in Londonfor the sole purposeof paying suchof their notesas
might be presentedthere
2. For the purposeof removing any doubtsthat might exist
as to what the exclusiveprivilege of bankingwhich the Bank of
England enjoyedconsistedin, it wasenactedthat any body politic
or corporate,or societyor company,or partnership,of whatever
namberthey consisted,might carry on the businessof banking in
London,or within sixty-five milesthereof,providedthat they did
not borrow,owe, or take up in England any sum or sums of
moneyon tlieir bills or notespayableon demand,or at any less
time than six months from the borrowing thereof, during the
continuanceof the privilegesof the Bank of England
8. All the notes of the Bank of England, payable on
demand, which should be issued out of London, should be
payableat the placewherethey wereissued
4. Upon one year's notice, to be given within six months
after the expiration of ten years from the 1st day of August,
1834, and repayment of all debts due by Parliament to the
Bank,its privileges
wereto cease
anddetermine
afethe end
of the year'snotice
5. Solongasthe Bankpaidits notesondemand
in legal
coin,theyweredeclared to belegaltenderof payment,exceptby
the Bank itself, or any of its branches.KTonotesnot made
speciallypayableat anyof the brancheswereliableto be paid
there; but the notesissuedat all the brancheswereto be payable
in London
6. Eegulations
aboutpublishing
its accounts,
andexemptions
of bills and notes not having more than three monthsto run,
from theusurylaws-thesebeingalterednow,neednot be do-
tailed
7. The publicwereto payoff one-fourthpart of the debt
due to the Bank, and the proprietorsmight reduce the capital
stock of the Bank by that sumif they chose
8. In considerationof theseprivileges,the Bank wasto give
up £120,000a year,from the sumtheyreceivedfor managing
the public debt
61. For severalyears after the renewalof the Bank Charter

the harvestswere unusuallyabundant,which causedall sorts of
agricultural produce to be ruinously depressed. Wheat fell
continuouslythrough 1884 and 1835, till, in the last week in
December,1835,its price was36s. the imperial quarter. As all
agricultural contractswere framedon the expectationthat wheat
would not bemuch lessthan 705.the quarter,this long-continued
depressionproducedthe mostseveredistress. At the sametime,
however,all the manufacturinginterestswere in a state of un-
exampledprosperityfrom the abundanceand cheapness of food.
The long-continuedlow price of corn causedlessto be sown in
1835, and the spring of 1836 was unfavourable. These causes
combinedto raise the price of wheat in 1836,and the harvest
time beingwet and cold, causedthe price to rise to 61$.9d.in
the autumn
62. The stateof extraordinary

prosperityenjoyedby the
commercialinterestsduring 1833-34-35gaverise to an immense
amountof speculation
anddabblingin foreignloans,asif people
seemedincapableof learningwisdomfrom the experienceof 1825.
The unexpectedsuccessof the first railway gave rise to a con-
PRESSURE IN 183G 137
Biddable
amountof speculation
in the formationof railways. An
immenseextensionof the joint stock banking system economised
capital to a great degree,and afforded the meansof the most fatal
extensionof credit. On the 14th August,1834,Lord Wharncliffe
calledthe attention of the Ministry to the prodigious extension
of joint stock banks and their branches,and the insufficient
capitaltheyweretradingwith. The importantsubjectof joint
stock banking was brought before the House of Commonsin
1836,and a Committee was appointed to inquire into it. The
Committeesat during the Sessionand made two reports,which
will be noticed in a subsequentchapter. This fever of specu-
lation reached its acme in the spring of 183G. Mr. Poulett
Thompson,Presidentof the Board of Trade, said in the House
of Commonson the 6th of May, 183G-
" It is impossiblenot to be struckwith the spirit of specu-
lation which now existsin the country, but I believethat thereis
a greatdifference
in the stateof things and what took placein
1855. The spirit of speculationwas then turned to foreign
adventure
of themostextraordinary
description;but nowspecu-
lation is directed to home objects,which, if pushedtoo far, may
be very mischievous,though the consequences may not be quite
so mischievousas in 1825. But really, on turning to any news-
paper, or any price current, and observingthe advertisements
of joint stock companiesupon every possible subject, however
unfit to be carried on in the present state of society, everyman
must be struck with astonishmentat the fever which ragesat this
momentfor these speculations. I felt it my duty sometime ago
to direct a register to be kept, taking the namesmerelyfrom the
Londonand a few country newspapers, of the differentjoint stock
companies, and of the nominal amount of capitalproposedto be
embarkedin them. The nominal capital to be raised by sub-
scription amounts to nearly £200,000,000and the number of
companiesto between 300 and 400 The greater
partof thesecompanies
aregot up by speculators,
for thepurpose
of selling their shares. They bring up their sharesto a premium,
and then sell them, leaving the unfortunate purchasers, who are
foolish enough to invest their moneyin them, to shift for them-
selves. I have seenalso,with great regret,the extent to which
joint stock banks have sprung up in differentparts of the
cotintry. I believe,indeed,that great good has arisenfrom
338 THEORY AND PKACTICE OF BANKING
joint stockbanks,
but theobservations
I havemadewith regard
to other companies
are equallyapplicable
to manyof the joint
stockbanksthat are springingup in differentpartsof the
country,and the existenceof which can onlybe attended
with
mischief"
63. We have seenthat sincethe Bank of Englandhad

adoptedthe principlesof the BullionReportin 1827,the method
they adoptedof carryingthem into effectwas to keeptheir
" securities " as nearlyaspossible
even,andto keeptheir bullion
and cashequalto one-halfthe " securities ;" the bullion,cash,
and securities beingtogetherequalto their" liabilities*" Having
got the Bank into this position while the exchangeswere at par,
to throw any action either of increaseor decreaseof their issues
of notes entirely upon the public, eitherby meansof the foreign
exchanges
or by an internalextra demandfor gold. The Bank
was got into this normal condition in October,1833,when its
"liabilities, i.e., the issuesand the deposits,were £32,900,000,
the " securities " were £24,200,000 and the bullion £10,900,000.
Sometransactionswith the East India Companyand speculations
in SouthAmericanstock occurredto derangetheseproportionsin
1834, and causedan export of specie; but in 1835 the foreign
exchanges becamefavourableand the drain wasarrested. But in.
the meantimethe Bank had totally lost all powerof preserving
the proportion betweenthe bullion, securities,and liabilities ib
had professedto adhere to. The following table, taken at
intervals,will exhibit this very clearly-
Liabilities.
i fw urn ^nq^wnnn I Securities,

£22,640,000
1 Oct.,1838,
£30,937,000
| ^.^ £10j527}000
11 Mar is<u *qi<W9nnn / Security,£24,777,000
11Mar,18S4,
£31,872,000
| ^^ £8)90i,000
15July,
i* TiwIMA
1884,
£37,554,000
wt&Annn
/| Securities,
£81,735,
£8)298)000
q <Unf ism fnawfinn J Securities,
£26,643,000
9 Sept.,
1834,
£31,058,000
| ^mon, £7,010,000
13 Tiu 1825£33071000 / S60"*'68'^29,165,000
13Jan.,1825,
£33,071,000
| ^^^^ £6>608,000
Km IQQ- .COO^TJAAA f Securities,£26,179,000
5 May,
PRESSURE IN 1836 139
This was the lowest point which the amountof bullion

reached,and the drain was arrested. The abovetable shewshow
totallyderangedthe proportions wereto what tLe directorscon-
sideredto be a properpositionfor the Bank. From that time
bullion continuedto flow in, till, in March, 1836, it slightly
exceededeight millions; but, even then, the securitieswerethree
timesthebullion,insteadof twice,astheyoughtto havebeen
64. The amount of bullion in the Bank wasat its height

in March,1836,andthenbegansteadilyto declineagain; in the
middle of July it had fallen belowsix millions, when the Bank
thought it was necessaryto endeavourto stop it, and it raised
therateof discount
to 4^ percent. Thishadnoeffect,however,
in stoppingthe demandfor discount. In Septemberthe bullion
barely exceededfive millions, and the Bank raised the rate of
discountto 5 per cent. Now the bubblesblownin the preceding
year and spring of 1836 werefast bursting on all hands
65. The drain on the coffersof the Bank proceeded at a

rapid rate, both from external and internal causes. President
Jackson had determined that the Oharfcer of the National Bank
of the United States, which expired in 1836, should not be
renewed,and that the currency of that country shouldbe placed
on a sounderfooting than it had hitherto been,by forming a
sound metallic basis. Operationsto effect this purpose soon
commenced. Immense quantities of American securitiesof all
sortswereimported into England, and negotiatedfor the purpose
of remitting the specieto America. The improperlylow rate of
discountin this country,favouredby the inordinatemultiplication
of Banks,enableda great quantity of these securitiesof various
descriptionsto be realizedin England,and the cashwasremitted
to America
66. The joint stock banks had beenblowingthe bubbleof

credit to the utmost tenuity, by re-discountingmost of the bills
which they discounted. This practice largely increasesthe pro-
portion of papercurrency comparedto the metallicbasis,and, of
course,adds to any peril in times of discredit. The Bank of
England,at length, but too tardily, as hasalmostinvariably been
the case, awoke to the impending danger,and determinedto
MO THEORY AND PRACTICE OF BANKING
strike a blow at the distendedstate of credit. It not only raised

the rate of discountto five per cent,in August,but absolutely
refused
to discount
anybillsindorsed
byanyjointstockbankof
issue. Thiswasa greatblow at the greatamountof American,
securitiesafloatin the country,as mostof thosebills had been
purchasedby the joint stockbanks,and re-issuedwith their
indorsementupon them
67. In the autumnof 1836,the symptomsof the coming

stormwereveryapparent,
especiallyin Ireland. Oneverylargo
joint stockbank, the Agricultural and Commercial,wasknown to
be in difficultiesearly in the autumn, andit madeseveralapplica-
tionsto the otherjoint stockbanksin Ireland,and England,and
Scotland,for assistance,
which they all refused. It alsomadea
call upon its shareholderswhichiwas not respondedto. The
otherIrish banks,foreseeing
a stoppage
of the Agriculturaland
Commercial,had been laying in a stock of gold, to meet the run
which would necessarilyfollow the failure of a bank with so
many ramifications. The sum in gold which the Irish banks
laid in, to providefor the run, was estimatedto be not lessthan
£2,000,000, all of which came from the Bank of England*
Much of this was required on account of the extraordinary
differencesof opinionthat weregiven by the most eminent Irish
counsel,as to whetherthe Bank of England noteswere tenderin
Ireland. Three very eminent lawyersheld that they werelegal
tender,and three equallyeminent held that they were not. The
Bank of Ireland itself thoughtthat they were not, and "were still
less inclined to make the experiment when there was such a
difference of opinion among the lawyers. The other banks
followedthe exampleof the Bank of Ireland, and provided gold
68. The catastrophethat had been foreseentook placeon.

the 14th of November,when the Agricultural and Commercial
Bank stopped payment, which was immediately followed by a
generalrun upon all the Banks in Ireland; but it waswell met,
fromthe carewhichhadbeenpreviously
taken to providespecie.
So greatwasthestate of discredit,that eventhe Bank of England
notes were at a heavy discount in Dublin. The Bank of Ireland
would only take themin very smallquantitiesfrom their customer!
PRESSURE IN 1836 141
at a discountof 25.6dLeach. Duringall this time,the diminu-

tion of bullionin the Bank of Englandwasgoingon rapidly.
At the beginning of October,it had £5,035,000in bullion, to
meet £29,869,000 of liabilities; at the end of November its
liabilitieswere£80,941,000, andits bullion £3,640,000.During
December its bullionslightlyincreased,
andin Januarydiminished
again. In November,the Northern and Central Bank, with its
headofficein Manchester,andthirty-nine branches
in the manu-
facturingdistricts,becameseriouslyembarrassed,
and appliedto
the Bank of England for assistance,which the Bank at first
refused; but upon consulting the leading bankersin London,
their opinion wasthat the stoppageof so extensivea concernin
the manufacturing districts would very probably bring on a
general panic. The Bank, therefore determinedto advancethe
sum of £500,000, to enableit to meet its engagements, which
upon subsequentlydiscovering that these were much more
extensivethan had beenat first represented,wasfurther increased
to the sumof £1,370,000. Early in January,a London banking
houseappliedfor assistance to the Bank, and, on the other London
bankersgiving their guaranteeto the Bank of England, it made
advancessufficientto enablethat houseto meet its engagements.
The difficulties attending the American houses,both in London
and Liverpool,became now sopressing,that they alsowereobliged
to apply to the Bank. Personswere appointedto look into their
affairs, who representedthat, if assistancewere given them to
meet their outstandingengagements, they wouldultimately prove
solvent. As an additional reason for granting this assistance,it
wasstatedthat if these American houseswere permitted to stop
payment,their concernswereso vast,and so extendedthroughout
the north of England, that a generaldestructionof credit would
ensue. After full consideration,the Bank determinedto attempt
to carry thesehousesthrough their embarrassments, and for this
purpose,it advanced
the enormous
sumof £6,000,000.This
greatoperation
was,however,
successful,
thoughthe final liquida-
tion of the account was retarded by the great prostration of
American credit in 1839. The advancesmade to the banking
interestsin England were all repaid, principal and interest,with
one very trifling exception. The Bank thus followed,for a second
time, the principles laid down by the Bullion Keport and there
canbeno doubtaverteda calamityonlysecondin magnitude

to
the catastropheof 1825
69. The assistance of the Bank wasonly intendedto be of a

temporarynature,to give time for the gradualwithdrawal of the
great massof unsoundpaper from circulation. This having been.
effected to a large extent,the result followed which always has
been the case,and alwaysmust be the case - a great influx of
gold, to fill the vacuumcausedby the great annihilation of this
papercurrency.Duringthe wholeof 1837bullionrapidlyflowed
into the Bank ; and in December it reached the sum of ten mil-
lions and a half. The position of the Bank on the 13th of March,
1838, was as follows-
Liabilities.
^m *7*nnn J Securities
......£21,046,000
£31,573,000
| Bn]]i0a
.........
£io,527,000
Thus, after a long period of nearly five years,the Bank wasat
length brought back againinto what the directorshad laid down
for themselvesas the normal position; and it enabledcredit to
passthrough a crisiswhich would have beentenfold moresevere
if it had not been met by that " judicious increaseof accom-
modation" which the Bullion Eeport declaredwas the proper
remedyfor a temporaryfailure of credit
70. From 1832 to 1837 there had been a series of seasons
of remarkableabundance. For severalyearsa seriesfollowed of
extremescarcity. The crop of 1838 wasthe worstthat had been
known since 1816; that of 1839was scarcely,if at all, better.
This great deficiencyrenderedit necessary
to import foreign corn
to the value of £10,000,000, a considerableportion of this
required to be remitted in specie. But, just at this period,a
number of other concurrent causeshappenedto createa great
demandfor gold for foreign countries. During the preceding
yearsAmerica,France,and Belgium had carried the extensionof
paper credit to most extravagantlengths. In Americathe fatal
systemof issuing banknotes upon "property" and "securities"
had beencarried to a length almostworthy of Law. In France
and Belgium joint stock banks had been extensivelyformed.
This greatextensionof papercurrencyhad the verysameeffect
BULLION IN THE BANK 143
astheoverissueof paperhadin England;it drovebullionoutof

thesecountries,
andwasoneof the causeswhich,togetherwiththe
fortunatedestruction
of the extravagant
papercreditin England,
in 1887,caused
suchan influxof goldin thiscountryup to
March,1838. But, in this latter year,thesebubblesburst. In
the autumnof 1838the Bankof Belgiumfailed,anda severe run
upon the banks at Paris took place. This revulsion of credit,
andextinctionof paperissuesin thosecountries,
caused
a current
of bullion to set in towards them which came from the Bank of
England
71. In the beginning of 1838,when the bullion in the Bank

had been rapidly increasingfor severalmonths,the commercial
world thought it was time for the Bank to make use of the
treasurein its vaults. It accordinglyreducedthe rate of discount
from 5 to 4 per cent.,and wasinduced to send over onemillion
of sovereignsto America, the exchangesbeing favourableto that
countryin consequence of the destruction of paper,to assistthe
Americanbanks to resumepaymentsin cash
72. The bullion in the Bank kept a pretty evenamounttill

December,1838. On the 18th of that month the liabilities
were £28,120,000,the securities£20,776,000,and the bullion
£9,794,000. From this date a rapid and steadydrain set in,
which continued with unabated severity till October, 1839.
When the Bank loweredits rate of discountto 4 per cent,in
February, 1838, the market rate had fallen still lower, and in
summerwasabout 3 per cent. From that timeforward it began
to rise,and at the end of the autumn waslevel with the Bank.
"While everything was symptomaticof an impendingdrain of
bullion, the Bank on the 29th of November,suddenlyloweredits
rate to 3£ per cent, for advancesupon bills of exchange,East
India bonds,Exchequerbills, and otherapprovedsecurities. The
market rate of interestwasnow decidedlyhigherthan that of the
Bank,andthe consequence
wasan immediate
pressure
for accom-
modationon the Bank. The securitieswhich,in December, 1838,
were £19,536,000,mountedup in January,1839,to £27,594,000,.
and thebullion fell from £9,522,000to £8,826,000.Thefollowing
tablewill exhibitclearlytheprogressive
diminutionof bullion-
THEORY AND PRACTICE OF BANKING
Liabilities. Securities. Bullion

18 Dec., 1838 £28,120,000 £20,776,000 £9,794,000
1 Jan.,1839 28,156,000 22,377,000 9,048,000
15 Jan. 30,305,000 24,529,000 8,336,000
12 Feb. 26,939,000 22,628,000 7,047,000
12 March 26,088,000 22,143,000 6,580,000
9 April 29,039,000 22,173,000 5,213,000
30 April 26,475,000 24,536,000 4,455,000
14 May 25,711,000 24,098,000 4,117,000
73. Up to this time the Bank seemed

to havebeenstruck
with actual paralysis. Notwithstanding the continuous rise in
the market rate of interest, and the unmistakeabledrain of
bullion that had set in, they, on the 28th of February,issueda
notice continuingthe samerates on the samesecuritiesas in the
previousNovember. And it wasnot until the 16th May that they
suddenlyraisedit to 5 per cent. The above figures show how
completelythedirectorshad beliedtheir own principlesof keeping
their bullion at one-third of the liabilities. The market rate
had advancedconsiderablymore rapidly, so that the Bank was
yet belowit. The drain still continued. On the 28th May the
bullion stood at £3,910,000, and the liabilities upwards of
twenty-four millions and a half; but the directors seemedso
utterly blind that, on the 30th May, the time of shutting the
booksfor the dividends,they still offeredadvancesat 5 per cent.
till the 23rd July on the same securitiesas have been last
mentioned. However,on the 20th June, they at last became
alarmed,andissued
noticesthat therateof discountwouldbe 5J
and no securitieswould be receivedexceptbills of exchange
74. On the 16th July the liabilities were £28,860,000,

the securities£28,846,000,and the bullion £2,987,000. The
Directorsat last awoketo the fact that the Bankwasrapidly
drifting into bankruptcy. On the 13th July they gave notice
that theywouldbe readyto receivetendersfor the purchases
of
someterminableannuities,
but theminimumpricetheyfixedwas
BOhigh that no saletook place
75, Besides
raisingthe rateof discountin May,the Bank
CRISIS IN JULY, 1830 145
soldpublic securitiesto the amountof £760,000,and it authorised

bills upon Paris to be drawn to its account to the amount*of
£600,000. These measures had the eflect for a short time of
arrestingthe drain. But whenthesebills came to maturity the
Bank wasin no better position to meet them, and it then became
necessaryto create a larger credit in Paris to meet the first.
The position of the Bank was, of course,well known to all
the foreign dealersin exchange, and in Juneit was generally
expectedabroadthat the Bank could not maintainpaymentsin
specie. In consequence of this, all long-datedbills uponthis
countrywere sent over for immediate realisation,and the values
withdrawnas speedilyas possible. To counteractthis drain, as
well as to meet the payments of the first credit which had been
createdon behalf of the Bank, it wasobliged,in July, to organise
a measureof a much larger nature. Messrs.Baring enteredinto
an agreementwith twelve of the leading bankers in Paris, to
draw bills upon them to the amount of upwardsof £2,000,000;
and as eachof them had only a fixed credit*at the Bank of
France, that Bank agreed to honour their acceptances in case
they should be presentedthere and exceedtheir usual limits.
An operationof a similar nature to the amountof £900,000 was
organisedwith Hamburg. As soon as any bill was drawn on
accountof one of theseoperations,the Bank transferredan equal
amount of the annuities it had offeredfor sale in July to two
trustees,onefor the drawersand the other for the acceptor. Out
of this second credit the bills which fell due from the creation
of the first credit were paid. This measurehad the effect of
graduallyarresting the dram of bullion, which reachedits lowest
pointin the weekendingthe 2nd September,
1839,whenit was
reduced to £2,406,000. From that time it began slowly to
increase; and in the last weekof the year it stoodat £4,532,000,
the liabilities being £23,864,000,and the securities£22,098,000.
The operationsensuing from this foreign credit extendedover
nine months, from July, 1839, to April, 1840, and the highest
amount operated upon was in November,1839, when it was
£2,900,000
76. The figures we have quoted, shewing the proportions

betweenthe bullion and the liabilities of the Bank, are sufficient
VOL, IL L
to sheweither that there was somenatural impossibilityin

adheringto the rule the directorshad laid down for their
guidancein 1832,or that they had not sufficientfirmnessto
contract
theirsecurities
in timeof pressure
to maintainit. The
flagrantdisproportion
whichthesefigureshad assumed, which
wouldscarcelybe safein an ordinarybankinghouse,but which
wereto thelastdegree
perilous
in theBankof England,
which
wasknownto bethe lastresource of everybankin the kingdom
in times of difficulty,turnedthe attentionof writersto devise
someplanby which,if possible, the Bankshouldbe compelled to
maintainthe properproportionbetween bullion and liabilities.
ColonelTorrensappears to havebeenthe originatorof the idea,
which was eventuallyadopted,of dividing the Bank into two
distinct departments, independentof eachother; one for the
purpose of issuinga regulatedamountof notes,andthe otherfor
carryingon the business of banking. Thisplanwasfirst started
in 1887, and was much canvassedand discussedby several
eminent
writersonthe subject,
sucha*s
Mr.Tooke,Mr. Norman,
and others; and we shall see was afterwards one of the most
prominent featuresin Sir Eobert PeePsAct of 1844, and we
shall reserveto its properplace the accountof the plan which
was ultimately adopted. The great commercialand monetary
crisis the country had passedthrough within the few preceding
years, attracted much public attention, and several petitions
were presentedto Parliament; andin March, 1840,the Govern-
ment determinedto institute an inquiry into the whole system
of paperissues. On the 10th of that month the Chancellorof
the Exchequermoved for a Committeefor that purpose. He
reminded the House that the Bank Charter would terminate in
1844,and he thought it expedientthat they should not postpone
inquiry into the subject till the last moment. That whatever
might be the differenceof opinion among the most intelligent
men, as to what part of the difficultiesthey had gone through
were to be attributed to the Bank of England,or other Banks,
still they were very stronglyof opinion that the present system
required revision and alteration. Leaving out of consideration
former transactions, the difficulties and embarrassments which
the country had gone through,within the last few years,had led
the most important bodies,and the largest of the manufacturing
DEFECT OP BANK RULE OF 1832 M 7
towns,to makecomplaints-in calm and temperatelanguage-

and to expressan anxietythat the Houseshouldinstitute an
investigationinto their complaints,and endeavourto provide
adequateremedies.The chief pointsof interestconnectedwith
the reportandevidence are-
1. That the principle propoundedin 1832 for the manage-
ment of the Bank, for the purpose of conforming witli the
principlesof the BullionReportwastotallycondemned
2. The great modernheresy,that bills of exchangeform no
part of the circulating medium, or currency, which was first
assertedbefore a Parliamentary Committee in 1832, was now
maintainedby the great majority of the commercialand banking
witnesses
8. This seemsto have beenthe first adoptionby mercantile
men of the theory, which is the reigning banking fallacy of the
presentday,which is now knownby the name of the " Currency
Principle." The principle shortly stated is this-TMt when
Bank notes are permitted to be issued, the numberin circulation
sJwuld always be exactly equal to the coin which would be in
circulationif they did not exist. The advocatesof this principle
maintain that it is the only true mode of regulating a paper
currency,and preservingthe paper of equalvalue with the gold
coin. This theory sounds remarkably speciousand plausible
and, from the eminenceof the personswho have beenconverted
to it, has acquired much importance. Nevertheless,we affirm
that there never was a greater delusion palmed off upon the
credulity of mankind, and that it never could have emanated
from, or be believed in by, any one who had the slightest
knowledgeof banking accounts
77* The rule for managingthe Bank so as to conformto

theprinciplesof the Bullion Eeport,whichhad beenconsidered
as the acmeof wisdom by all the witnessesbeforethe Committee
of 1832,wasthusspokenofby Mr. S.J. Loyd,nowLord Overstone
-" The rule of keepinga fixed amount of securities,it is true,
hasbeen, suggested
by the Bankherselffor herguidance:but the
folly hasconsisted
entirelyin the suggestion
of sucha rule,and
notin the departure
from it." (Q. 2904.) And again(Q. 2907)
L 2
-"" First for the simpleand exclusivepurposeof regulatingthe

circulation of the country, it leavesus without any rule whatever:
and accordinglywe find by the publishedreturnsthat no fixed
relation oxis*s between the amount of bullion and the amount of
circulaticn. Second,the circulation may decreasewhile the bul-
lion is increasing,
or it may increasewhilst the bullionis de-
creasing. Wehavehadpracticalexamples of eachkind within
thelast few years. Third, the bullion, thoughthe demands
of the
depositorsmay leavetheBank coffersin largeamounts; in fact
it may be wholly drained out without any con-
traction of the circulation, and, therefore, without any
effectleing producedon prices or theforeign exchanges, ly means
of which the drain may le checked "
This passage deservesthe closestattention, becausethe Bank
Act of 1844wasexpresslydevisedfor the purposeof preventing
such a thing, and we shall seeshortly how far it was effectualfor
this purpose
78. Nothing can be more wearisomethan to read through

the enormousmassof heterogenousquestionsheapedupon one
another,without aim or drift, tending to no result, and capableof
producing none. Nothing can be more humiliating than the
contrast between the Bullion Committee of 1810 and the Com-
mittee of 1840. The Bullion Committee were masters of the
science; they knewhow to govern the direction of the inquiry,
to cross-examine the witnesses,and to make them exposetheir
own fallacies,by involving them in contradictionsand incon-
sistencies. And, when the witnesseshad given their opinions,
the Committeewere able to judge and decideupon the value
of the testimony, and the result was the complete demolition
of the opinions of the great majority of the witnesses. But,
in the Committeeof 1840,the want of a presidingmind is pain-
fully conspicuous. They weretotally destituteof any knowledge
of the principles of the scienceof banking; and after having
protracted the inquiry through two Sessions, they were obliged
to cometo the humiliating confessionof their own incompetence
to frame a report on the evidence given, and to suggest to
Parliament the expediencyof appointing a commissionfor that
purposeI
DEFECT OF BANK RULE OF 1832 149
79. From 1838 there ensued a dismal series of four bad

harvestsin succession, which were attended with much suffering
to the people; high pricesof corn, and, as a natural consequence,
largeimportationsof foreign corn, and a very low amountof
bullionin the Bank. In fact, the allegedrule of 1832wasa
completedeadletter, and it wasnot till the 27th of August, 1842,
that theseproportionswereagainattained,whenthe liabilities
stoodat £29,022,000,and the bullion at £9,729,000. The crops
of 1842-48-44wereprodigiously
abundant-thelattermoresothan
anyfor ten yearspreceeding.The consequencesof this, aswell
as othercircumstanceswhich happenedat that time to economise
the capitalof the country,produceda cycleof yearsof great
apparentprosperity,but which endedin the general revulsionof
1847. This latter part is beyondthelimits of this Chapter. The
bullion in the Bank continued steadilyand rapidly to accumulate
until in December,1848, it reacheda higher limit than it had
ever done before, being £14,982,000,and continuedto increase
afterthat until the passingof the Act of 1844
150 THEORY AND PRACTICE OF BANKING*
CHAPTER XII
FROM THE BANK ACT OF 1844 TO THE PRESENT

TIME
1. On the 6th May, 1844,Sir Robert Peelmoveda resolution

of the House,that it wasexpedient
to continuefor a limitedtime
certain of the privileges then enjoyedby the Bank of England,
subject to any conditions that might be passedby any Act for
that purpose.In bringing this resolutionforward,he gavea
preliminary sketchof the evils of the paper currency asit then
stood, and the methodshe proposedfor placing it on a sounder
footing. After dwelling on the importanceof a metallic standard
and exposingthe absurdityof the theorieswhich weresoprevalent
during the Restriction Act, and the advantageof having a single
standardof value, he addressedhimself to the more immediate
subject of consideration-the state of the paper circulationof the
country, and the principleswhich ought to regulateit-"I must
state, at the outset,that, in using the word money,I mean to
designateby that word the coin of the realm,and promissorynotes
payableto beareron demand. In usingthe wordspapercurrency,
I mean only such promissorynotes. I do not include in these
terms bills of exchange,or drafts on bankers,or other formsof
paper credit. There is a natural distinction, in my opinion,
betweenthe characterof a promissorynote payableto beareron
demand,and other forms of paper credit, and betweenthe effects
which they respectivelyproduceupon the price of commodities,
and upon the exchanges. The one answersall the purposesof
money,passes from hand to hand without indorsement,without
examination,if therebe no suspicionof forgery; and it is, in fact,
what its designationsimply it to be, currency, or circulating
medium . . .1 think experienceshewsthat the paper
cuiTency,that is, thepromissorynotespayableto beareron demand,
stands,in a certain relation to the gold coin and the foreign ex-
changes,in which other formsof papercredit do not stand. There
ERRORS IN SIR R. PEEL'S STATEMENT 151
arestriking examplesof this, adducedin the Reportof the Bullion

Committeeof 1810,in the caseboth of the Bankof Englandand
of the Irish and Scotch Banks. In the caseof the Bank of England
and shortlyafter its establishmenttherewasa material depreciation
of paper in consequence of its excessiveissue. The notes of
the Bank of England were at a discount of 17 per cent.
After trying various expedients,it wasat length determined to
reducethe amountof Bank notesoutstanding. The consequence
was an immediate increase in the value of those which remained
in circulation,the restorationof them to par and a corresponding
improvementin foreign exchanges. ... In
the case of Ireland, in 1SOAthe exchange with England was
extremely unfavourable. A committeewasappointedto consider
the causes. It wasdeniedby most of the witnessesfrom Ireland
that theywereat all connectedwith excessiveissuesof Irish notes.
In the spring of 1804 the exchangeof Ireland with England was
so unfavourable,that it required £118 10*. of the notes of the
Bank of Ireland to purchase£100 of the notes of the Bank of
England. Between,the years 1804 and 1806 the notes of the
Bank of Ireland were reducedfrom £8,000,000to £2,410,000,
and the effectof this, taken in conjunctionwith an increaseof the
Englishcirculation,wasto restorethe relative valueof Irish paper
and the exchangewith England to par. In the samemanneran
unfavourablestate of the exchangebetweenEngland and Scotland
hasbeenmorethan oncecorrectedby a contractionof the paper
circulation of Scotland. In all these cases the action has been on
that part of the paper credit of the country which has consisted
of promissorynotes payable to bearer on demand. There had
beenno interferencewith other forms of papercredit, nor wasit
contendedthen, as it is now contendedby some,that promissory
notesare identical in their naturewith bills of exchange,and with
chequeson bankers,and with deposits,,and that they cannotbe
dealt with on any separateprinciple "
2. Thereis no neednowof sayinganythingmoreregarding

the unhappy heresy with which Sir Eobert Peel was then
infected>that nothing but Bank notes are papercurrency,,
becausewe have nothing newto say. But it is impossibleto
imagineanythingmore inaccurately
statedashistoricalevidence
to supporthis ideas. In the first place,he committedtho

immenseerrorof omitting to consider that, in the Englishand
Irish cases,thesethings happened whenthe Englishand Irish
Bank noteswerenot payableto beareron demand,whenthey
were,in fact,inconvertible.In hisstatementregardingtheBank
of Englandhe relieduponthe Bullion Eeport. Now,wehave
shewn,by the most incontrovertible evidence, in ChapterIX-,
that this passageof the Bullion Eeport is the most amazingmass
of chronologicalerror and confusionthat canbe imagined. It
was not the profuseissuesof Bank notes that depressed tho
exchanges,but the badnessof thecom; it wasnot takingBank
notes out of circulation that brought the exchangesto par, but
the restoration of the coinage,and the exchanges
were broughtto
par nine months before the Bank note was brought to par.
Hence, in this case,the statementthat the excessiveissuesof
Bank notes causedthe exchangesto fall, and the withdrawal of
them restoredthem to par, has not a shadowof a foundation in
truth. Hence, there is no truth whatever in saying that tho
action was upon the Bank notes-the action was simply and
solely on the silver coinage. The Irish case is equally inap-
plicable, becausethe notes were then inconvertible, and they
were the medium in which payment of bills of exchangewas
made; and then, unquestionably,an excessivequantity of them
depressed the exchangesprodigiously; but how does sucha case
applyto notesstrictlyconvertible
? The Scotchcaseis equally
inapplicable-which will be explainedin the following chapter,
for the notes were not payableto bearer on demand,but six
monthsafter demand.Consequently, of thesethreeexamples,
the first is wholly inaccurate,and the other two are wholly
inapplicableto the casehe had in hand
3. He then proceeded to expatiateon the evils of unlimited

competitionof issues-
"Are the lessonsof experienceat variancewith the conclusion
we are entitled to draw from reason and from evidence ? What
has been the result of unlimited competition in the United
States
? In theUnitedStates
thepapercirculation
wassupplied,
not by private bankers,but by joint stock banks, establishedon
principlesapparentlythe mostsatisfactory.Therewas every
ERRORSIN SIR R* 3?EEI/S STATEMENT 153
precaution taken against insolvency,unlimited responsibilityof

partners, excellent regulations for the publication and audit of
accounts, immediate convertibility of paper into gold. If the
principle of unlimited competition,controlled by such checks,be
safe,why hasit utterly failed in the United States? How can it
be shewn that the experiment was not fairly made in that
country? Observethis fact, while there existed a central Bank
(the United StatesBank) standing in some such relation to the
other banks of the United States as the Bank of England stands
to the banks in this country, there was some degree (imperfect,
it is true) of control over the generalissuesof paper. But when
the privileges of the central Bank ceased,whenthe principle of
free competitionwasleft unchecked,then came, notwithstanding
professedconvertibility, immoderateissuesof paper, extravagant
speculation, and the natural consequences, suspensionof cash
payments and complete insolvency. Hence I conclude that
reason, evidence and experience combine to demonstrate the
impolicy
"
and dangerof unlimitedcompetitionin the issueof
paper
4. It is impossibleto saywhichis the moreremarkable

in
this extract-the evidence Sir Robert Peel omitted, or the
evidence he adduced. The first thing that strikes us is-What
was the need of crossing the Atlantic in searchof an example
of joint stock banks, with unlimited competition of issues?
Why did he not crossthe Tweed? On the north sideof the
Tweedthere had existedjoint stockbanks, with unlimited issues,
for 150 years, and no central bank to control the others,*the
principleof free competitionwasleft unchecked,
andthe natural
consequences,
"suspension of cash payments and completein-
solvency,"had never occurred. But Sir Eobert Peelcarefully
avoidedsayingone word about that case,and the reasonwasthat
it militated against the theory he was determinedto carry at all
hazards,that of one CentralBank of Issue
5- But the evidencehe adducedwasas great a misrepre-

sentationof historical fact as what we have quotedin Section2.
The American Banks, indeed,establishedon principles the most
satisfactory
I whyJohnLawwastheparentof Americanbanking)
154 THEOftY AND PRACTICE OF BANKING
Theywerea formaladoptionof the wild theoriesof Law. How-

ever, we cannot fully exposethe fallacy of Sir Robert Peers
views of Americanbanking until a subsequent
chapter;but
as to the fact of the Central Bank of the United States exercising
anydue controllinginfluenceoverthe otherBanks,wewill only
quotea passagefrom PresidentVan Buren'smessage
to Congress,
1839-
"I am awareit hasbeenurgedthat the control(overtho

operationsof the local banks)maybe bestattainedandexerted
by meansof a National Bank. The history of the Me National
Bank, throughall its mutations,
$7iew$
that it wasnot so. Onthe
contrary,it may, after a carefulconsideration of the subject
be, I think safelystated,that at every period of banking excess
it tookthe lead; that in 1817 and 1818,in 1823,and in 1803,and
in 1834,its vast expansions,followed by distressingcontractions,
led to those of the State institutions. It swelled and maddened
the tides of the banking system,but seldomallayed or safely
directed them. At a few periods only was a salutary control
exercised,but an eagerdesire,on the contrary,exhibitedfor profit
in the first place; and if afterwards its measureswere severe
towardsother institutions, it wasbecauseits own safetycompelled
it to adoptthem. It did not differ from them in principle or iu
form ; its measuresematedfrom the samespirit of gain; it felfc
the sametemptationto over-issue;it sufferedfrom and wastotally
unableto avert, those inevitable laws of trade, by which it was
itself affectedequally with them, and at leaston one occasion,at
an early day,it was savedonly by extraordinaryexertionsfrom
the samefate that attendedthe weakestinstitution it professedto
supervise. In 1837it failed equally with othersin redeemingits
notes,though the two yearsallowedby its charterhad not expired,
a large amountof which remainsat the presenttimeoutstanding."
Such was the languageheld by the Government regarding
that institution to whose abolition Sir Eobert Peel attributed the
destruction of American credit! and if we were to descend from
the evidenceof the Executiveto that of the most eminentprivate
commercialwriters, suchas Mr. Q-alatin,Mr. Lee, Mr. Appleton,
and others,weshall find that the most recklessmis-management
was the chief characteristic of that Bank. So much for the value
of it as an argumentin supportof Sir Eobert PeePsviews
BANK CHARTEK ACT, 1844 155
6. Sir Robert Peel then said that some contended-and he

wasnot preparedto deny the proposition-that if we had a new
Btateof societyto dealwith, the wisestplan wouldbe to claim for
the statetheexclusiveprivilegeof the issueof promissory
notes,
as we have claimedfor it the exclusiveprivilegeof coining. They
consideredthat the State is entitled to the whole profits to be
derivedfrom that whichis the representative
of coin,andthat if
the Statehad theexclusivepowerof issuingpaper,therewouldbe
establisheda controlling power which would ensure, as far as
possible,an equilibrium in the currency. Is it necessary to point
out the gross and ludicrous fallacy of Sir Robert Peel in this
sentence? It is the height of incorrectnessto saythat the State
has the exclusivepower over the coinage,or at least,that shehas
reservedit to herself. Ever since the reign of CharlesII., every
private personhas the right to have bullion coinedat the Mint;
formerly both gold and silver, to anunlimited extent. Since1816
this privilege is confinedto gold coin. At this momentall persona
are entitled to have as much gold bullion as they pleasecoinedat
the Mint; the only thing the Statereservesto itself is theprivilege
of coiningit so as to insure its being of a certainweight and fine-
ness. But in what wayis this analogous to the issueof promissory
notes? The only duty of the State is to takemeasures that those
who issuenotes shall be in a condition to fulfill their promiseof
paymenton demand^ He then statedit wasthe intention of the
Governmentto increaseas much as possiblethe powerof a single
bank of issueand that bank shouldbe the Bankof England. The
Bank was, therefore, to continue its privileges of issue,but it was to
be divided into two departments,the onefor thepurposeof issuing
notes,and the other for the ordinary businessof banking, Bufc
the Bank was to be deprived,once for all, of the powerof un-
limited issues. These were to take place in future on two
foundationsonly: 1st, a fixed amount of public securities; and
2ndly, bullion. The amountof issuesupon public securitieswas
permanentlyfixed at £14,000,000; every other note wasto be
issuedin exchangefor bullion only, so that the amount of notes
issuedon bullion should be governed solelyby the action of the
public. AlthoughSir RobertPeelwishedthat thereshouldonly
be a singlebank of issue,yet existing interestswereto beregarded;
and those banks which wereat that time lawfully issuing their
ownnotesmight remain banksof issue; but their amount wasto

be strictly limited to a certaindefiniteaverage. There wereother
detailsconcerningjoint stock bankswhich we shall reserve
7. Onthe20thof May,Sir EobertPeelintroduced

hisfurther
resolutions,and proposedthat, in the eventof any country banks
of issue failing, or withdrawing their notes voluntarily from
circulation, the Bank might, with the consent of the Crown,
increaseits issuesto a definite proportionof the notesthus with-
drawn. And further, that the Bank should be obliged to buy
all gold bullion presentedfor purchaseat £3 17s. 9d. per ounce
(the Bank had been giving only £8 175. 6dL),and a certain
proportion was allowedto be on silver bullion, as the export of
that wasa proper remedyfor the inconvenienceof our standard
differing from that of other nations. It was thereforeof great
importanceto ensuresuch a stock of silver in this country, as
might meetthe wantsof merchants,and prevent them having to
sendto the Continentfor it. He proposedthat the silver bullion
upon which the Bank might issue notes should not exceedone-
fourth of the gold bullion
8. It wasimpossiblefor Sir Eobert Peelnot to seethe incon-

sistencyof his measureof 1844,with his expressed sentimentsin
1819 and 1833,that it was inexpedient to limit the issuesof the
Bank to any fixed amount, becausethere were times of com-
mercial difficulty, whenan increasedissue of notes might be the
properremedy. Thereis no doctrinemorestrenuouslyinsistedon
by the Bullion Report, by the Statesmenof 1819,as well as by
the Governmentin 1833,and Sir Eobert Peel himself, at both
theseperiods,than that it was impossibleto fetter the discretion
of the Bank in its issues. Sir Eobert Peel knew that he was
now taking away this power from the Bank altogether, and,
accordingly,he wasobligedto meet this objection. He said-
" It is said that the Bank of England will not have the means
which it has heretoforehad of supporting public credit, and of
affordingassistance to themercantileworldin timesof commercial
difficulty. Now, in the first place,the meansof supportingcredit
are not meansexclusively possessed by banks. All who are
possessed
of unemployed
capital,whetherbankersornot, andwho
BANK:CTTAIOTEB
ACT, 1844 157
cangain an adequatereturn by the advanceof capital, are enabled

to afford,and do afford, that aid which it is supposedby some
that banksalone are able to afford. In the secondplace,it may
be a question,whether there be any permanentadvantagein the
maintafnanceof public or private credit, unless the meansof
maintaining it are derivedfrom the bondfide advanceof capital,
and not from a temporaryincreaseof promissorynotes,issuedfor
a specialpurpose. Someapprehendthat the proposedrestriction
upon issue will diminish the power of the Bank to act with
energyat the period of monetarycrisis and commercialalarmand
derangement. But the object of the measureis to prevent
(sofar as legislation can prevent) the recurrenceof those evils
from which we suffered in 1825,188G, and 1839. It is better
to prevent tlie paroxysm than to excite it, and trust to
"
desperateremediesfor the meansof recovery
Sir RobertPeel,therefore,deliberatelytook awaythe power
of the Bank to act on extreme occasions,under the impression
that his Act wouldpreventtheseextremeoccasions
fromarising.
We shall seehow his hopewasfulfilled
9. Sir CharlesWoodfollowedSir Eobert Peel, travelling

overthe sameground,andgivingthe samecaricatured
description
of American,banking as he had done; moreover,he also was
infected with what is known by the name of the "currency
principle"-
" It is not enough,then, to enact that the Bank notesshall be
convertible. The paper circulation must not only be convertible,
but must vary in amount from time to time as a metallic circu-
lation wouldvary, A system, therefore, of paper circulation is
required,which will attain this object, and insure a constantand
steadyregulationof the issueson this principle. This, and this
alone,affordsa permanent securityfor the practicalconvertibility
of the notesat all times,andfor the consequent maintenance of
the standard "
10. The bill wasreada secondtime, after a feebleopposition,

by a majority of 185 to 30. It passedthrough the Houseof
Lords with a very short debate,and no division. Lord Radnor
alone protestedagainstit, and it receivedthe Eoyal Assent on

the 19th of July, 1814
11* The chief provisionsof this Act areasfollows(Statute

1844,c, 82)-
1. That, after the 31st August,1844,the issueof Bank
notes by the Bank of England should be kept wholly distinct
from the general banking business,and be conductedby sucha
committee
of the directorsasthe Courtmightappoint,underthe
nameof the " IssueDepartmentof the Bank of England "
2. That, on the same day, the Governor and Company
shouldtransfer, appropriate, and set apart to the issue depart-
ment securitiesto the value of £14,000,000, of which the debt
due by the public to the Bank was to be a part; and also BO
much of the gold coin and gold and silver bullion as should not
be requiredfor the bankingdepartment.The issuedepartment
was then to deliver over to the banking department an amount
of notes exactly equal to the securities,coin, and bullion so
depositedwith them. The Bank wasthen forbidden to increase
the amount of securitiesin the issue department; but it might
diminish them as much as it pleased,and increasethem againto
the limit defined,but no further. The banking departmentwas
forbidden to issue notes to any person whatever, except in
exchangefor other notes,or suchas they receivedfrom the issue
departmentin termsof the Act
3. The proportionof silver bullion, in the issuedepartment,
on which noteswere to be issued,wasnot at any time to exceed
one-fourthpart of the gold coin and bullion held at the time by
the issuedepartment
4. All personswhatever,from the 31st August, 1844,were
to be entitled to demand Bank notes in exchangefor standard
gold bullion, at the rate of £3 175. 3d.per ounce
o. If any banker who, on the 6th May, 1844, was issuing
his own notes,should ceaseto do so, it should be lawful for the
Crown, in Council,to authorisethe Bank to increasethe amount
of securitiesin the issuedepartmentto any amountnot exceeding
two-thirds of the amount of notes withdrawn from circulation
6. Weekly accountsin a specifiedform were to be trans-
mitted to Government,and publishedin the next London Gazette
BANK CHARTER ACT, 1844 159
7. From the samedate the Bank wasrelievedfrom all stamp

duty on their notes
8. The annual sum payableby the Bank for their exclusive
privileges shouldbe increasedfrom £120,000, as settled in 1833,
to £180,000. And all profits derived by the Bank from the
increaseof their issuesabove the £14,000,000 as prescribedby
the Act, shall go to the public
9. After the passing of the Act, no person other than a
bankerwho waslawfully issuing his own notes on the 6th May,
1844,shouldissueBank notesin any part of the United Kingdom
10. After the passing of the Act, it wasforbidden to any
banker to draw, accept,make,or issue,in England or Wales,any
lill of exchange,or promissorynote,or engagement
for thepayment
of money payable to bearer on demand, or to bo?row, oive, or take
up in England or Wales,any sum or sums of money,on the Mis
or notesof such banker,payableto beareron demand,exceptsuch
bankers as were on the 6th May, 1844,issuingtheir own Bank
notes, who were allowed to continue their issues in such manner,
and to such extent, as afterwardsprovided. The rights of any
existingfirm were not to be affectedby the withdrawal,change,
or addition of any partner, provided the whole number did not
exceedsix persons
11, Any banker who ceasedto issuehis own notesfrom any
reason whatever, after the Act, was not to resume such issues
12. All existing banks of issue were forthwith to certify to
the commissionersof stampsand taxesthe place,and name,and
firm at and under which they issued notes during the twelve
weeksnext precedingthe 27th April, 1844. The commissioners
werethen to ascertainthe averageamountof eachbank'sissues,
and it should be lawful for such banker to continue his issues to
that amount, provided that on an averageof four weeksthey
werenot to exceedthe averageso ascertained
18. If any two or more banks of issue had becomeunited
during that twelve weeks,the united bank might issuenotesto
the aggregateamount of eachseparatebank
14. The commissioners were to issue in the London Gazette
a statement of the authorised issues of each bank
15. If two or more banks afterwards becomeunited, each of
lessthan six partners, then the commissionersmight authorise
1GO THEOBY AND PBACTICE OF BAKKINO
them to issuenotesto the amountof their separateissues. Bnt

if the number of the united bank exceededsix, their privilege
of issuingnoteswasto cease
16. If any banker exceededhis authorised issue he was to
forfeit the excess
17. Every bank of issuewasto senda weekly accountof its
issues,which wasto be publishedin the London ffazette
18. The mode of taking the average was laid down, and
bankers were to permit their books of account to be inspected
by a Governmentofficerproperly appointed,and to make a return
to Governmentonce every year, within the first fortnight in
January
19. The Bank of England was allowed to compoundwith
private "banksof issue,to withdraw their own notes, and issue
Bank of England notes, for a sum not exceedingone per cent.
per annum,up to the 1st August, 1856
20. All banks whatever in London, or within 65 miles of it,
were allowed after the passingof the Act to draw, accept,or
indorsebills of exchangenot being payableto beareron demand
21. The privileges of the Bank wereto continuetill twelve
months' notice, to be given after the 1st August, 1855; and
repaymentof the public debts,and all other debtswhatever
12. Such are the leading provisions of Sir Robert PecFs

Act, which was meant to carry out a particular theory of
currency,which we have no hesitationin affirming is one of the
most stupendousdelusions on the subject that any one ever
conceived. A theoryas opposedaspossibleto the opinionsof all
the greatestauthorities on the subject, during the great dis-
cussionson the currencyin 1804,1811,and 1819,which wehave
already abundantly quoted in the former part of this volume.
But the most remarkable circumstance is that the Act authorises
the most flagrant violation of the principle it is intended to
enforce; for the issuing of notes upon the public funds is the
most vicious principle possible. It is the theory of John Law,
which we shall more fully consider in a subsequentchapter.
Indeed, so utterly blind was one of the most distinguished
advocatesof this theory to the true nature of monetaryscience,
that he boastedthat, " practically considered,fluctuations in tha
BANK CHAKTERACT, 1844 161
rate of interest, and in the state of commercialcredit, so far as

they can result from alteration in the valueof the currency,may,
under the operationof the proposedsystem,be taken at nihil "*
IS* The avowed object of the Act of 1844 wasto take the
regulationof the currency out of the hands,or even the power,
of the directors of the Bank of England. The incorrigible
mismanagementof that body had, in the opinion of everybody,
aggravatedevery crisis. The authors of the Act of 1844flattered
themselves that for every five sovereignsthat left the country a
five-pound note must be withdrawn from circulation. We shall
seehereafterhow this expectationwasfulfilled. In the meantime
Sir Robert Peel himself and all the supportersof the Act gave
out that it was the complementof the Act of 1810, though we
confesswe do not clearly see the meaning of the phrase. If,
however, they mean to say that it wasin the spirit of the Act
of 1810,or of the statesman >of that period, we wholly deny such
to bethe fact, and to supposeso only arguesthe most profound
ignoranceof the doctrinesof the authors of the Act of 1819
14. The issuesof notes,then,of the Bankof Englandare

founded upon two of the most fatal delusions that ever pre-
vailed on the subject of the papercurrency; the one the theory
of John Law and the other the " Currency Principle," which
cameinto fashionabout thirty yearsago
15. We have observed,in the last chapter,that, owing to

the goodharvestsof 1842-43-44,the bullion in the Bank accumu-
lated very rapidly during these years, and a very large quantity
of money,which the nation must otherwisehave spent in food,
was set free for commercial purposes. Other circumstances
occurred at the same time to liberate a large quantity of the
capital of the country from its accustomeduse,and to renderit
applicableto commercialpurposes,which have beenvery clearly
and ably pointedout by Mr. JamesWilson. He shewsthat the
rapidity and certainty of conveyancereducesvery greatly the
amount of stockit is necessaryat all times to keep on hand when
communications are slow and uncertain. That the amount of
* Col Torrens. ftbofoVffist. of /ViVw, F«*. /r.,jp. 282.
VOL. II. tf
162 THEORYAND PRACTICEOfl BANKING
goodsin transit is muchlargerwith a slowconveyance than a

quickone. For example,whenManchester suppliesLondonwith
manufacturedgoods-if it takes seven days by canal for these
goods to reach London, it is clear that there must always be
seven days' consumption of goodson the way. If the same
transit is accomplished by railway in one day,it is only necessary
to have one day's consumption on the way; and the capital
employed in producing the other six days' consumption is
liberated, and may be employedin promoting other commercial
operations. When we considerthe enormouseconomyof capital
required in the transaction of the same amount of business
which was effectedby the introduction of more rapid modesof
communication, whether by railways or steamboats,we shall
understand how greatly they increasedthe national resources.
There can be no doubt that the economyof national capital
effected by the extension of railways far exceededthe losses
which occurred from unsuccessfulspeculationin them. Now,
theseoperationswere beginning to have their full effectin saving
the national capital, simultaneouslywith the good harvestsof
1842-48-44,and helpedto swellthe quantity of disposablecapital
to an unprecedented extent
16* An attentive consideration of these circumstances is

absolutely necessary,because they shew, if anything were
necessaryto shew it, the gigantic error committed by many
writers, who think that the prices of goodsmust vary exactly
with any increaseor decreaseof the amount of the currency,
whereasthere is no necessary relationbetweenthe two whatever*
The particular methods of doing businesshave the most im-
portant influence on the quantity of capital necessary
to carry it
on; and a clumsy or more ingenious method of transacting
businessmay make the most important changesin the quantity
of money necessaryto circulate any given amount of com-
modities without causing any alteration in the price of those
commodities
17. The Act of 1844 having placedan absolutelimit upon

the discretionof the Bank in issuingnotes, Sir Robert Peel said
that he thought that banking businesscould not be too free and
BANK CHARTERACT, 1844 Ifi3
unrestrained.The extraordinary
accumulation
of capital,arising
from the circumstanceswe havejust detailed,loweredthe market
rate of discount to If and 2| on the best bills, and the Bank of
England immediately conformed to the market rate on the
passingof the Act, and reducedits rate from 4 per cent, to ty
for the bestbills. The daytheAct cameinto operation,
indeed,
the whole of the discountswere done at J|, and they continued
at that rate for a fortnight, when somewere doneat 2 per cent.;
and up to the 26th October a considerableportion was done
at 2£. From this date, however,up to October,1845, the rate
was2£. In November,1845,the rate wassuddenlyraisedto 8£,
and continued at that figure till August, 1846, when it was
loweredto 3 per cent. These rates being governed by the flow
of bullion, which diminished from 15J millions when the Act
of 1844 passed,to 13| millions in November,1845; after which
it increasedagain to above16 millions in August, 184C,and then
begansteadilyto decline till it reachedits minimum in the great
crisis of October, 1847
18* The first failure of the potatocropsin Irelandin 1845,

and the railway mania of that year, must be too fresh in the
recollectionof most personsto needrepetition here; nor had they
anything to do properly with the managementof the Bank,whose
soleproperduty wasto look to its own affairs, and preserveits
own stability. The calamity of 1846 was far more severeand
extensivethan that of the preceding year. It was absolutely
certain that an immensequantity of bullion would require to be
exportedin payment of the grain it would be necessaryto import.
Accordingly, from the middle of September,184C, a steadyand
continuous drain of bullion set in, fast the Bank made no
alteration in the rate of discountuntil the 16th January, 1847,
when the bullion had fallen to £13,049,000 it raised the rate of
discountto 8^, and on the 28rd, the bullion having been further
diminishedby £500,000, it raisedthe rate to 4 per cent. Hence-
forth the drain continuedrapidly, but the Bank still continuedto
make no alteration until the 10th April, when its treasurebeing
reducedto £9,867,000, the rate of discountwas raisedto 5 per
cent. Here we have the same inveterateblunder committedby
the Bank as on so many previous-occasiona-ân immensedrain
H 2
164 THEORY AK0 PRACTICE OF BANKING
of bullion, and yet none but the mostfeeble,inefficient,and

puerile means taken by the Bank to raise the "valueof money
here. But the operationof the Bank at this time is an excellent
exampleof the self-actingnatureof the Act of 1844. We need
onlyobservethat the BankingCapitalof the Bankof Englandis
£14,000,000 of notes,baseduponpublicsecurities,togetherwith
notes representing as much bullion as there is in the issue
department.Consequently,
the notesheldin reservemustalways
be equal to the differencebetweenthe notes in circulation, or
held by the public, and the sumof £14,000,000addedto tho
quantity of bullion. Now,wehaveseenthat theintentionof the
framersof the Act of 1844wasthat, asthe bullion fiiminwhcd,
the notesin the handsof the public shouldbe diminished,in con-
formity with the "currency principle." Let us now see,1st-
How the Bank wasinclined to act on the principle; and, 2ndly-
Supposing theyweredisinclinedto doso,howfar the Act,by its
self-actingprinciples,compelled
them to do so. The following
figuresspeakfor themselves-
Bank Notes.
Minimum
1846. Held in Restive Total Amount
ctf Bullion. Kateof
Diwmin'
Held by the by the Bank
Public. of England. For IfcU.
August 29 .... ..20426,000.. 9 450 000 . 1C366 000 3

October 3 ..20,551,000.. .. 8,809,000.. ..15,817,000.. . * ||
November 7......20,971,000.. .. 7,205,000.. ..14,760,000.. . * jy
December19 . , ..19,549,000.. .. 8,864,000., ..15,163,000.. "" »>
1847.
January 9 . . . * ..20,837,000.. .. 6,715,000.. ..14,303,000 a

16 .... ..20,679,000.. ., 6,546,000 . ..13,949,000.
30......20,409,000..
February 20....
.. 5,704,000..
..12,902,000.
2*
.,19,482,000.. .. 5,917,000.. ..12,215,000. it
March 6 ..19 279 000.. 5 715 000 11 5% 000 A.
20 .,19,069,000.... 5,419,000,...11,232,000. »»
April 3 ..19,855,000.. .. 3,700,000.. ..10,246,000 >»
,, 10 ..20,243,000.. .. 2,558,000 . .. 9,867,000. 5
Thesefigures showthe utter futility of the idea that, as the

bullion diminished, the Act couldcompela reduction of notes in
the hands of the public, for the notesin circulation werewithin
PRESSURE
IN APRIL,1847 165
an insignificant trifle as large in amount whenthe bullion was
only £9,807,000, as when it was £16,306,000. Consequently,
nothing could be a more total and complete failure of the Act
of 1844, on the very first occasionits serviceswere required
19. N"ow,let us recall our readers'attention to what Mr. S.

J. Loyd had pointed out as the fatal defectof the Bank rule of
1832,which we have given in § 77 of theprecedingchapter. He
said that under it the whole tuition m tJie Bank might bedrained
outwithout any contractionm the circuMion, and it wassupposed
that the Act of 1844 had especiallyprovided against this delect.
In fact, the whole theory of the framers of the Act was,that for
every iive sovereignswhich left the country a £5 note should be
\\ithdrawu from circulation : and that if the directors failed to do
so of their own accord,the "mechanical'* action of the Act would
compelthem to do so. But what was the actual result ? The
Bank had lost £7,000,000 of treasure,and its notesin circulation
were only reducedby £200,000; the wholeof the reduction had
been thrown upon its own reserves. Hence the Bank Act was
opento exactly the samechargeas the Bank rule of 1882 I
Mr, "P.T, Baring, ex-chancellorof the Exchequer,who main-
tained that the Act had beensuccessfulon severalpoints, allowed
that it had completelyfailed on this point*-" I find that the
amount of bullion in the Bank on September 12, 1840,
was £10,854,000, and on April 17, 1847, it was reduced to
£9,330,000, being a diminution of £7,024,000. Now, I take
the samedateswith respectto the circulation of notes,and I find
that on KSuptember 12, 184G, the amountwas£20,982,000, and
on April 17, 1847, it was £21,228,000, being an increaseof
£240,000 I must say that I never entertainedthe
ideathat it would have beenpossibleunder the operation of this
bill to have shewnsuch a set of figures I believe,
if welookbackweshallfind that theojwationof thefopodt*and
thequestion
of thereserve
was not Biifficwntly
considered
eitherby
thosewho were favourable or thosewho were opposedto the bill
I cannot find in the evidence before the Committee of 1840 more
thana fewsentences
leadingme to suppose
that dangerarising
* Jttan*ar& jParl Debates,
Vol.95,.p.615.
166 THEOllY AND PRACTICE Otf BANKING
from sucha causewas contemplated

or referredto: yet this was
a most important consideration,for it was ly thereservetheHank
was mailed to do what was contraryto thespirit oftfie Ml-tchoi
gold was running out, not to reducetheir circulaiwn ly a sinyfo
pound. I do not think that the systemworks satisfactorilym
this respect: and, in fact, the point did not receive anything like
a sufficient consideration. Perhapsit was impossiblebeforethe
bill wasin practicaloperationto seehowthe reserveof notes
would operate: but it certainly neverentered into the contem-
plation of any one then consideringthe subject that £7,000,000
in gold shouldrun off,and yet that thenotesin thehandsof the
public would rather increasethan diminish"
20. The numberof notes held in reservein the Banking

department, under the new system of 1844, correspondedin
effect very much to the amountof the bullion held by the Bank
before its division. When, therefore,the public saw that the
wholebankingresourcesof the Bank werereducedto £2,558,000,
a completepanic seizedboth the public and the directors. The
latter adoptedmeasuresof the most unprecedentedseverity to
check the demand for notes. The rate was not only raisedto
5 per cent., but this was only applicableto bills having only a
few daysto run, and a limit wasplacedupon the amount of bills
discounted,howevergood they might be. Merchants who had
received loans were called upon to repay them without being
permitted to renew them. During somedays it was impossible
to get bills discountedat all. Thesemeasureswere effectualin
stopping the efflux of bullion, and a sum of £100,000 ia
sovereigns,which had been actually shipped for America, was
re-landed. During this periodthe rate of discount for the best
bills rose to 9, 10, and 12 per cent. During all this time the
price of wheat continued steadily to rise, notwithstanding the
monetary pressure,and at the close of May the price on one
occasionreached 181$. in "Windsormarket. The foreign ex-
changes,which had beenadverseto the countryduring the latter
part of 1846 and the beginning of 1847, from the immense
quantity of foreign corn which was imported, becamefavourable
in the middleof April, partly owing to the great monetary
pressure
PRESSURE
IN APRIL, 1847 167
2L The pressurepassedoff after the first week in May,

having lasted about three weeks,and bullion began to flow in
after the 24th of April, until, at the end of June, it amountedto
£10,526,000,the notesin circulation being £18,051,000,and the
notes in reserve £5,025,000
22. The conductof theBank,In keepingdownthe rate of

discountwhen a rapid drain was going on, and the foreign
exchanges
were unfavourable,wasthe exact counterpart of what
it haddone on so manypreviousoccasions,
and excitedmuch
comment and adversecriticism by the whole commercialcom-
munity of London. The market rate rose decidedlyaboveit, so
that a rush for discounts was made to the Bank, which were no
soonergrantedthan the gold wasimmediatelydrawn out
23. On the 27th of May the Chancellorof the Exchequer

brought the subject of the monetarypressurebeforethe House,
and stated that he had numerousdeputationsto him respecting
a suspensionof the Act of 1844,which the Governmentwerenot
preparedto adopt. However,he meant to assistthe Bank so far
as to dispensewith the aid the Governmentusuallyhad from the
Bank at Quarter day. "With this view he intended to raise the
interest on Exchequer bills, which were then at a greater
depreciationthan any other speciesof Governmentsecurity, to
8dLper day. On the 10th he brought in a resolutionto allow ail
personswho had subscribedto the eight million Irish loan a
discountof 5 per cent, on any instalment paid in beforethe 18th
of June, and 4 per cent, if paid in beforethe 10th of September
24. The enormously high price of grain, which had no

parallel since 1812, had the natural effect of tempting a great
numberof housesto enter into speculationsfor the import of
grain, far beyond their power to support. The enormousim-
portationsin May, June, and July, coupledwith the very
favourableappearanceof the harvebt, causeda heavy and con-
tinuous fall in the price of grain, and the reports of the potato
crop being favourable, the price of wheat fell to -49*. 6rf. in
September. But the tremendousfall in the price of wheat had
beenattendedwith ruin to the houseswhich had speculatedin it
Moreover, that hideous nuisancewhich always flourisheswith

noxious luxuriance in times of speculation-accommodation.
paper-was extensively prevalent. The failures in the corn
tradebeganin August,which engendered
a great discreditin
that and other branches of commerce. On the 7th of August
the minimumrate of discountwasraisedto 5^, but this only
referredto very short-datedpaper,as the greaterpart of the
paper discountedwas charged at much higher rates,even up to
7 per cent., which were maintainedup to the 9th October
35. Onthe 9th Augustthe first of the frightful catalogue

of failuresbegan. Leslie, Alexanderand Co. stoppedpayment,
with liabilities amounting to £500,000. On Wednesday,the
llth, Coventry and Sheppardstoppedfor £200,000, and King,
Melville and Co. alsofor £200,000, and severalother minor firms
made the total failures in the first week amount to £1,200,000*
In the next week Giles <feCo. failed for £100,000, and the total
in the secondweek was £800,000. In the following week
Robinson and Co. failed for £110,000, the senior partner of
which firm wasthe Governorof the Bank of England. In three
weeks the failures were £8,027,000. Week after week followed,
each one increasing in severity,until at last the total exceeded
£15,000,000. In the middle of SeptemberSaundersonand Co.,
the eminent bill brokers,stoppedpayment,being much involved
with the greathousesin the corn trade. The exchanges, which
had been brought to par in April by the monetarypressurein
that month, were,in consequence of the increasingseverityof the
crisis,becomedecidedlyfavourable,and on the 25th of September
bullion began to flow in. During the whole of Septemberthe
commercialcalamitieswerefalling fast and thick
JJ6, Almost all the firms connectedwith the Mauritius, such

as Eeid, Irving & Co., failed, principally from having their funds
lockedup in sugar plantations. This was accompanied
by
immensefailures in the India trade; the credit commonlygiven
in that trade being of unusual length, which affords dangerous
facilitiesfor stretchingit to too greata length. The railway
works which had beensanctionedin the sessionof 1845-46,were
now in full operation,causingan immensedemandfor ready
money. Almost every tradesmanin the kingdom, from Land's

End to John O'Groats,was deep in railway speculations. The
extravagant delirium of prosperity in 1845-46had causedgreat
mirnbers of them, not only to live far beyondtheir meansthem-
selves,but to trust their customersbeyond all the boundsof
ordinary credit. We have heard it said that in numberless
instancestheir bills for goods furnished in 1845 were unpaid in
1847, There can be no doubt whatever but that commercial
credit of all sorts and descriptions,amongall classesof traders,
was in probably a more unhealthy state than it had ever been
before, and that an unprecedentedlylarge portion of the com-
munity were entangled in obligations, of which there was no
prospect of their ever working themselvesfree* Sharp and
severe,therefore,as the remedywas, it unquestionablywas the
very best thing that could happen, that this unhealthy super-
structure should be clearedaway,and that commerceshould be
reconstructed upon an improved and renovated basis. The
extreme pressuremay be consideredto have begunon the 23rd
of September,when the Bank adopted more stringent measures
for curtailing the demand upon its resources. Ever since the
20th of June the diminution of bullion had been going on
rapidly; on the 2nd of October it was reducedto £8,565,000,
the notes in. circulation being £18,712,000, and the reserve
£3,409,000. This rapid diminution of their resourcesshewed
the directors that the time had come when they must think of
their own safety; and on that day they gave notice that the
minimum rate on all bills falling due before the 15th of October
would be 5£; and they refused altogether to make advances
on stock or Exchequer bills. This last announcementcreated
a great excitementon the StockExchange*The town and
country bankers hastenedto seji their public securities, to
convertthem into money. The differencebetweenthe price
of consolsfor ready money and for the account of the 14th of
Octobershewed
a rate of interestequivalentto 50 percent,per
annum. Exchequerbills weresoldat 35$.discount. Everything
becameworse and worse day by day. On the 10th of October
the Bank rates of discount varied from 5J to 9 per cent. At
this time the bullionwas£8,431,000;the notesin circulation,
£19^59,000; and in reserve,£2,680,000. Thefollowingweek,
from Monday, the 18th, to Saturday,the 23rd, was the great

crisis. On that Monday the Royal Bank of Liverpool, with a
paidup capitalof £800,000,stopped
payment,whichcausedthe
funds*to fall 2 per cent. This was followed by the stoppage
of the North and South Wales Bank, also of Liverpool, the
Liverpool Banking Company, the Union Bank of Newcastle,
heavy runs on the other banks of the district, and other bank
failures at Manchester,and in the West of England. As the
whole of the commercial world knew that the resources of the
Banking department were being rapidly exhausted,a complete
panic seizedthem* A completecessationof private discounts
followed, No one would part with the money or notes in his
possession*The most exorbitant sumswereofferedto and refused
by merchantsfor their acceptances
27. The continuedand ever-increasingseverity of the crisis

causeddeputationafter deputationto be sentto the Government,
to obtain a relaxation of the Act, and on Saturday, the 28rd of
October,the final determination of the Ministry to authorisethe
Bank to issuenotesbeyondthe limits prescribedby the Act was
taken and communicatedto the Bank, who immediately acted
upon it, and discountedfreely at 9 per cent. The letter itself
was not actually sent till Monday,the 25th, It stated that the
Governmenthad expectedthat the pressurewhich had existed
for some weekswould have passedawaylike the one in April
had done,by the operationof natural causes; that, being disap-
pointedin this hope,they had come to the conclusionthat the
time had come when they ought to attempt, by some extra-
ordinary and temporary measure,to restore confidenceto the
mercantilecommunity. That for this purposethey recommended
the directors of the Bank of England, in the emergency,to
enlarge the amount of their discountsand advancesupon ap-
provedsecurity; but that, in orderto restrainthis operation
within reasonablelimits, a high rate of interest should be
charged, which, under the circumstances, should not, they
thought, be less than 8 per cent. That if sucha courseshould
leadto any infringement of the law, they would be preparedto
proposeto Parliament,on its meeting,a Bill of Indemnity. Thi»
letter wasmadepublic about1 o'clock on Monday, the 25th, and
no soonerwas it done so than the panic vanishedlike a dream!

Mr. Gurney stated that it producedits effect in ten minutes!
No soonerwas it known that notes might be had, than the want
of them ceased! Not only did no infringement of the Act take
place,but the wholeissue of notes, in consequence
of this letter,
wasonly 400,000; so that, while at one momentthe whole credit
of Great Britain was in imminent dangerof total destruction,
within onehour it wassavedby the issueof £400,000
28. The extraordinaryand disastrousstate of public credit

at this period may be judged of by the aid afforded by the Bank
of England to different establishments,from the 15th of Sep-
tember to the 15th of November, as follows-
1. It advanced£150,000 to a large firm in London, who
were under liabilities to the extent of several millions, on the
security of debenturesof the Governor and Companyof the
Copper Miners of England, which prevented them stopping
payment
2. It advanced£50,000 to a country banker,on the security
of real property
8. It advanced£120,000 to the Governorand Companyof
the CopperMiners,which preventedthem stoppingpayment
4. It advanced£800,000 to the Royal Bank of Liverpool,
on the security of bills of exchange,over and abovetheir usual
discounts; but this was inadequate,and the bank, having no
further securityto offer,stoppedpayment
5. It advanced£100,000 to anotherjoint stock bank in the
country
6, It advanced£180,000 on real property, to a largemer-
cantile house in London
7. It advanced£50,000 to anothermercantilehouse,on the
security of approvednames
8* It advanced£50,000, on bills of exchange,to a joint
stock bank of issue,which soonafter stoppedpayment
9. It advanced£15,000, on real property, to anothermer-
cantile house in London
10, It saveda large establishmentin Liverpool from failing,
by forbearingto enforcepaymentof £100,000of their accept-
ancesfalling due
11. It assistedanother very large joint stock bank in the

country,by an advanceof £800,000beyondits usual discount
limit
12. It advanced£100,000 to a country banker, on real
security
13. It advancedto a Scotchbank £200,000, on the security
of local bills, and £60,000 on London bills
14. It assistedanotherScotchbank,by discounting£100,000
of local and London bills
15. It advanced£100,000 to a large mercantile housein
London, on approvedpersonalsecurity
16. It assisteda large house in Manchesterto resumepay-
ment, by an advanceof £40,000 on approvedpersonalsecurity
17. It advanced£30,000 to a country bank on real property
18. It assistedmany other houses,both in town and country,
by advancesof smallersums on securitiesnot usually admitted;
and it did not reject, in London, any onebill offeredfor discount,
excepton the ground of insufficientsecurity
The far larger portion of this assistancewas given beforethe
23rd of October
29. A general election had taken place in the autumn of

1847, and the Ministry, having taken upon themselves the
responsibilityof authorisingthe Bank of England to violate the
Act of 1844, lost no time in calling a meeting of the new
Parliament. It met on the 18th of November, and, after a few
preliminary dayswere occupiedin swearingin the members,the
speechfrom the throne was delivered on the 23rd. The iirat
paragraphsstated,as a reasonfor calling them together, that the
embarrassments of trade were so alarming that the Queenhad
authorisedthe Ministry to recommendto the Bank of England
a coursewhich might have led to an infringement of the law.
Happily, however, the power given to infringe the law, if
necessary,
had allayed the panic
30. On the 30th of November,the Chancellor of the Ex-

chequermovedfor a Committeeto inquire into the causesof the
recentcommercialdistress,and howfar it had beenaffectedby
the Act of 1844. He spokeof the panicin the spring. lie
THE GBEAT CRISIS Otf 1847 173
paidthat he had seen no reason to change the opinion he had

then expressed,that it was mainly owing to the imprudenceof
the Bank, which, having full warning of the various demandsit
would haveupon it, wastoo tardy in raising the rate of discount,
and had lent out, over the period when the dividends became
payable,the moneythey had provided for that purpose; so that
they were not in possessionof adequatefunds when they were
required. The low state of their reserve then excited conster-
nation. The Bank then took the severestep of reducing the
amount of discounts; they pulled up as suddenlyas they had
unwiselylet out their reserve before. With respectto the panic
of October,he said that the severepressurein the Money Market
had abatedwhen the bank failures in Liverpool and the North of
England took place, which renewedthe alarm. After describing
the greatpressureon the banks in the country he said-
"The Bank of England were presseddirectly for assistance
from all parts of the country, and indirectly through the London
bankers,who were called upon to support their country corres-
pondents. The country banks required a large amount of notes,
to renderthem secureagainst possibledemands; not so much for
paymentof their notes as of their deposits. Housesin London
wereapplying constantlyto the Bank for aid. Two bill brokers
had stopped and the operations of two others were nearly
paralysed. The whole demandfor discountwasthrown upon the
handsof the Bankof England. Notwithstanding this, as I before
said, the Bank never refused a bill, which it would have dis-
counted at another time, but still the large massof bills which, under
ordinary circumstances,are discountedby bill brokers,could not
be negociated. During this period, we were daily, I may say
hourly, in possession of the state of the Bank. The Governor
and Deputy-Governorat last said they could no longer continue
their advances,to supportthe variouspartieswhoapplied to them;
that they could save themselves,that is, they could comply with
the law; but that they could not do so without pressingmore
stringently on the commercial world. At this crisis, a feeling as
to the necessityof the interposition of Governmentappearedto
be generallyentertained; and those conversantwith commercial
affairs, and least likely to decide in favour of the coursewe
ultimately adopted, unanimouslyexpressedan opinion, that if
somemeasurewere not taken by the Governmentto arrest the

evil, the most disastrous consequences
must inevitably ensue.
Evidencewaslaid beforethe Government,which proved not only
the existenceof severepressure
from the causesI havestated,
but alsothat it wasaggravatedin a very great degreeby the
hoardingon the part of many persons,of gold and Bank notes,to
a very large extent,in consequence
of which an amountof
circulation,which under ordinary circumstances,would have been
adequate,
became
insufficient
for the wantsof the community. It
was difficult to establishthis beforehand,but the best proof of
the fact is in what occurred after we interfered. As soon as the
letter of the 25th October appeared,and the panic ceased,
thousands and tensof thousands
of poundsweretaken fromthe
hoards, somefrom boxes deposited with bankers, although the
parties would not leavethe notesin their bankers'hands. Large
parcelsof notes were returned to the Bank of England cut into
halves,asthey had beensent downinto the country; and so small
wasthe real demandfor an additional quantity of notes,that the
wholeamounttaken from the Bank, when the unlimited powerof
issue was given was under £400,000. The restoration of con-
fidence released notes from their hoards, and no more was
wanted, for this trifling quantity of additional notes is hardly
worth notice. . . . Parties of everydescriptionmade
application to us, with the observation, * We do not want notes,
but give us confidence.' They said 'We have notes enough*
but we have not confidenceto use them; say you will stand by
us, and we shall have all we want; do anything in short that
will give us confidence. If we think that we canget Bank notes,
weshall not want them. Chargeany rate of interest you please,
ask what you like-(Mr. Spooner,SToI no !) I beg pardonof
the honourablegentleman,but I may bepermitted to know what
was actually said to me. I say, that what I have stated, was
the tenor of the applicationsmade to me. Parties said to me,
*Let us have notes,charge 10-12 per cent, for them; we don't
care what the rate of interest is. We don't mean, indeed,to
take the notes,becauseweshall not want them ; only tell us that
we canget them, and this will at once restore confidence.' We
have been asked what was the changeof circumstanceswhich
inducedus to acton Saturdaywhenwe declinedacting a dayor
DEBATE ON THE SUSPENSION OF THE ACT 175
two before. I reply, that the accountswhich we receivedon

Thursday, Friday, and Saturday, were of a totally different
descriptionfrom thosewhich had beenpreviouslybrought us. It
wason Saturdayand not before,that this conviction wasforced
upon us, and it was not till then that we felt it necessaryto
sanction a violation of the law "
The personsapplying generally said that it was necessaryto
placea limit on the amount to be authorised,which they pro-
posedshould be £2,000,000 or £8,000,000,but the Government
thought that the limit should be placed on the rate of interest,
and,accordingly,this wasthe methodadopted
31* Sir Eobert Peel felt particularly called upon to come

forward and defend the Act of 1844. After defendiug himself
from some minor charges, he protested against singling out
individual membersof Parliament,and making them responsible
for the actsof the whole Legislature. He said that somepersons
allegedthat the Act of 1844had beenpassedwithout due inquiry,
but he recountedthe committeesthat had sat for five years,and
had asked,on the whole,upwardsof 14,000 questions-questions
and answerswithout end, but with no practical result from those
apparentlyinterminableinvestigations.Thelastcommittee
had
closed its labours without any practical results. At last, the
Ministers determinedto bring forward a measureon their own
responsibility,
whichhadbeencarriedby extraordinary
majorities;
but, nevertheless,
if it. could be shewnthat the Act of 1844 could
be amendedthat it ought to be done
"There hasbeensomemisrepresentation respectingthe objects
of this Act. I do not deny that one of the objectscontemplated
by theAct wasthe preventionof the convulsions
that hadhere-
tofore occurred in consequence
of the neglect of the Bank of
Englandto takeearly precautionsagainstthewithdrawalof its
treasure. I did hope that, although there was no imperative
obligationonthe Bankof Englandto takethoseprecautions,
that
the experience
of 1825,1830and1839,wouldhaveinducedthat
establishmentto conform to principles which the directors of the
Bank acknowledgedto be just, and which they had more than
onceprofessed to adoptfor their ownregulation. Sir,I ambound
to say,that in that hope,that in that objectof the Bill, I have
176 THEORT AND PRACTICE OF BANKING
beendisappointed. I amboundto admit,seeingthe extentof

commercialdepressionwhich has prevailed,and the numberof
houseswhich have been swept away,someof which however,I
think, wereinsolventlong beforethe Bill cameinto operation,
and others of which became insolvent in consequenceof tho
failure of those who were connectedwith them, and wereim-
prudent in their speculations,I am bound to admit that that
purpose of the Bill of 1844, which sought to impress,if not
a legal at least a moral obligation on the Bank, to prevent the
necessity for measuresof extreme stringency by timely precau-
tions, had not been fulfilled. Sir, I must contend,that it wasin
the powerof the Bank, if not to prevent all the evils that haro
arisen,at least,greatly to diminish their force. If the Bank had
possessed
the resolutionto meet the coming dangerby a con-
traction of its issues,by raising the rate of discount,by refusing
much of the accommodationwhich they granted betweentho
years184=4 and 1846-if they had been firm and determinedin
the adoption of those precautions, the necessityfor extrinsic
interferencemight have beenprevented; it might not then have
beennecessaryfor the Governmentto authorisea violation of tho
Act of 18M. . . * The bill of 1814 had a triple object.
Its first object wasthat in which I admit it has failed, namely,
to prevent,by earlyandgradual,severeand suddencontraction,
and the panic and confusion inseparablefrom it But the bill
had at leasttwo other objects of at least equal importanco~~tho
one to maintain and guaranteethe convertibility of the paper
currency into gold; the other to prevent the difficulties which
ariseat all timesfromunduespeculation
beingaggravated
by the
abuseof paper credit in the form of promissorynotes. In these
two objects my belief is that the bill has completelysucceeded.
My belief is that you have had a guaranteefor the maintenance
of the principle of convertibility such as you neverhad before;
my beliefalsois, that, whateverdifficultiesyou arenowsuffering
from a combination of various causes,those difficulties would
have been greatly aggravatedif you had not wisely taken tho
precautionof checking the unlimited issuesof the notes of the
Bank of England,of joint stock banks,and private banksn
32. Sir Robert Peel then entered into a most able de*
DEBATE ON THE SUPENSIONOF THE ACT 177
Rcripfcion
of the trueevilsthe countrywassufferingunder,which
arosefromthe enormous destructionof capitalby the dearthof
food, and the unusualabsorptionof capital in one channel
of commerce, the construction of railroads, which were not yet
remunerative.He shewedthe absurdityof expectingto have
cheapmoneywhilecapitalwasscarce. The whol6of hisremarks
are so admirable that we regret that their length prevents m
from giving them entire. He cordially approvedof the course
the Governmenthad taken in not issuingthe letter soonerthan
they did, and in doing it whenthey did. The true remedy for
the state of things under which the country was sufferingwas
individual exertion,the limitation of engagements,the cessation
of all demandswhich couldbe postponed; an earlier issueof the
letter would have relaxedthesenecessary exeitkms. But to lhafc
pressurea panic succeeded, which could not be provided u*»uin*fc
or foreseenby legislation,which could not be reasonedwith, and
which could only in* met by a discretionaryoKHumptiuii of power
by the Governmentsuitable to the emergency. Whether any
modification of the Act of 1844 was desirable,was a question
for future connideration. His own opinion was fu favour of
the maintenanceof the great principles of that measure. If
the identical restrictions were not imposedupon the Bank as
were then in force, still there must be some restrictions; for,
after the experience* of 1825,183(5,and 1830,he, for one,would
not be content to leavethe regulation of the monetaryconcerns
of this country to the uncontrolled discretion of the Bank. In
1814,the general conviction was that it ought not to be so left,
and lie, for one, knew no better mode of imposing restriction
than that which was devisedby the At* of 3844. Fully
agreeingwith Sir Robert Peel on the necessityfor a restriction,
we think that the restriction devised by the Act of 1844 is
not the true ontk,and that it leavesopen the door to the Bank
for the most fatal mismanagement. We shall endeavourto shew,
in a future chapter, that one may be devised which must bo
effectual
33. The Committeeappointedby eachHousebeganto fiifc

in February,1*U8. The Governor,Mr. Morris, and the Deputy*
vou n. K
178 THEORY AND PRACTICE Otf BAKKING
Governor,Mr. Prescott,wereexaminedat great length before

eachCommittee, and expressed
their unqualifiedapprobationof
the Act of 1844,andthe mannerit hadworked. The object of
the Act wasto placethe circulation of this country exactlyin the
same,position as it would have been if the currency had been
entirely metallic
4*Your opinion is, then, that with regard both to the con-
traction of the currency and the expansion of the currency,
they would both ha\e taken place precisely in the same
mode, and to the same degree,had the currency been purely
metallic?"
Mr. Morris-" Yes,I havenot the slightestdoubt uponthe

subject**
They said that its object was to securethe convertibility of
the note, which it had effectuallydone* That the Bank acted
erroneouslyin the spring of 1847 in not raising their rate of
discount sooner,which much contributed to the monetarypres-
sure in April. They said that the Governmentletter of the 25th
Octoberwas not nought for by them, nor issued in any way at
their instance,that they had no fear whateverfor the Bank, and
that it wasnot required to maintain the solvencyof the Bank;
but, nevertheless,it hud the best effects in allaying the com-
mercial panic. That the panic would inevitably have occurred
«vonwithout the Act of 1814, but that Act brought it on sooner,
andprobablymadeit lesssevere*That the great merit of the
Act was, that when the pressuredid come,the Bank was in
possession
of £8,000,000of treasure;that if the Bankhad been
left free it would probably have followedthe courseof dangeroUB
liberality which it had done on so many previous occasions.
That, though the Government letter did relieve the panic,
it would probablyhave passedawaywithout it. They ear-
nestly deprecated
any alterationof the Act, exceptthat they
thought the permissionto i&mc notesupon silver bullion too
limited
34. Mr. 8. Gnrneyagreed in blaming the managementof

the Batik during the lirst three monthsof IB 17,and said, timt if
COMMITTEES ON THE CRISIS OF 1847 179
the Bank had commenced restrictive measures much earlier, the

pressureof April would have been mitigated. He said, that in
Octoberthe rapid diminution of the reservecauseda very general
distrust among the public as to how they were to obtain cir-
culating medium. The wealthy and more powerful took care
very largely to over-provide themselves,infinitely beyond the
necessitiesof the case. The consequence was, that the notesin
the hands of the public amounted to nearly £21,000,000, of
which, he had no doubt that four or five millions were lockedup
and inoperative, in consequence of the alarm and fear of not
being able to get Bank notes at all. In illustration of this, he
said that his own housewas largely called upon for moneyon
Saturday,the 2;Jrd, not from distrust of the house, but from
doubt that Bank noteswere to be hud ut all. They applied to
the Bank for discount to a large amount,which was agreed to,
but they were told the rate must be ten per cent.; upon remon-
strating with the Governor, and saying that it would have the
worst effect if it becameknown that their housewas paying ten
per cent, for money,the rate wasfinally agreedupon at nine per
cent. At this rate they took £200,000. On Monday, the 25th,
however,the demandwas again very heavy,and they appliedfor
£200,000 more. It wasa caseof difficulty with the Bank under
its reducedreserve and the limitation of the Act, and a final
decisionwaspostponedtill two o'clock. At one o'clock, however,
the letter from the Governmentwas announced,authorising the
relaxation. Its effect was immediate. Those who had sent notice
for their moneyin the morning sent word that they did not want
it, and that they had only ordered payment by way of pre-
caution. After the notice, they only required £100,000 instead
of £200,000, the alarm passedoff, and by the end of the week
they had to ask the Bank, as a favour, to be allowed to repaythe
moneythey -had taken. Mr. Qurneystated,that the experience
of the last two yearshad altered his opinion resecting the Act,
and that ho thought; it necessarythem should be a relaxing
powersomewhere
35- Lord Overstonowas of opinion that the Act of 1844

had no effect whateverin aggravatingthe pressurein April 3 tlmfc
K 2
the coursepursuedby theBatik from Januaryto April wasex-

tremelyerroneous
anddetrimentalto the publicinterest,andwas
onlystoppedby the positiveprovisions
of the Act; and,if that
systemof procedure
had not beensostopped,it musthaveended
in the most disastrous consequences
36. Mr*GeorgeCarr Glynnhadbeen of opinionbeforeth<*

Act passedthat the division of the Bank into the issue and
banking departmentswas a desirableexperiment, but after tho
experience
of the precedingyear,considered
that it haddecidedly
failed
37* The Committeeof the Commonspresentedtheir Report

on the 8th June, 1848. It enteredinto no philosophicalexamina-
tion of the correctness,or the contrary, of the opinions of the
witnesses;it aspiredto and attained to no higher function than
acting as a kind of prefaceto the massof evidence,but concluded
by stating the opinion of the Committee that it was not expe-
dient to make any alteration in the Act of 1844. The Report
of the Committee of the Lords was presentedin July, and was
a much more elaborateproduction. It not only examined the
evidenceat considerablelength, but pronouncedan opinion of
its own,and recommended that the Act should be so far amended
as to introduce a discretionary relaxing power,which wasonly
to be exercisedduring the existenceof a favourable foreign
exchange
38. On the 22nd of August Mr. Homes moved that the

Housewould,early next Session,take the Report into considera-
tion, which motion was negatived. In the next Session ho
made another attempt to induceParliament to alter the Act, but
without avail
39. After the severe medicine the body commercialhud

been subjectedto by the great crisis of 1847,which there can
be little doubtwasof greatservice,by removiug housesthat, had
beeninsolventfor years,the commerceof the country wasestab**
BRAIN IN W>4 181
lished on a sounder basis,and had gone on, generallyspeaking,

with groat prosperity,up to the autumn of 18f>7. The chances
of war led to u great demandfor shipping,and, of course,much
speculativedealing in that property* Tim occurredespeciallyat
Liverpool, in the autumn of 1854,and led to somevery extensive
failures. The revelations which ensued from these failures dis-
closed that the same inveterate and abominable practices of
accommodation paper wereagain rampant. Fictitious bills to an
enormousamount were fabricated among personswho were in
the samespeciesof business,and were negotiatedall over the
kingdom* Other parties resorted to practiceseven more dis-
graceful still, if possible. These great failures, which are too
well km»>\nto require naming here, gave credit a very serious
shock; in addition to which, a considerablenumber of persons
who were engaged in extravagant over-trading in Australia,
sufferedseverelosses. There is nothing to call for specialremark
exceptthat a great drain of bullion beganfrom the Bank of Eng-
land at the end of June, and continued rapidly and steadily
till the middle of October. On the 23rd June it stood afc
£18,100,000,including the coin and bullion in both departments;
and by the 13th of October it wasreducedto £11,752,800. The
causesof this great outflow are nobsufficiently ascertainedfor us
to reasonupon them with accuracy. Someattributed it to the
purchasesof corn which the high price of wheat herecausedto
be made for importation-some to operationsof the Bank of
France. Time will probablyfurnish us with moresatisfactoryand
accurateinformation. What the causeswere is of comparatively
slightmoment. We are happyto saythat the Bankof England
acted, in this case, with a promptitude and decision most
favourably
contrastedwith its former errors. The rate of dis-
count was rapidly ruined, to enhancethe value of money. On
no former occasion had the rise been so frequent and ex-
tensive in so short a time; but the effect produced was most
salutary
40. The following table,taken at intervals,showsthebullion

in the Bank, and the rate of discount-
Bullion m the Issue

1855. Kate of Discount.
Department.
January 4 ... ... 13,180,835... ... 5 per cent.

20 ... .. 11,880,500... ... ,j
February 22 ... ... 12,313,230... ...
March 22 ... ... 13,479,975...
April 12 ... ... 14,892,500... ... 4^ per cent.
May 3 ... ... 14,791,785... ... 4 per cent.
17 ... ... 15,836,510... ... j,
31 ... ... 16,337,685... ...
June 14 ... ... 17,056,945... ... 3^ per cent.
28 ... ... 17,429,435,.. *.* ,,
July 19 ... ... 16,631,890...
August 9 ... ... 15,601,590... ... ,,
September 6 ... ... 14,368,010... ... 4 per cent.
13 ... ... 13,668,005... ... 4^ per cent.
27 ... ... 12,695,250... ... 5"percent.
October 4 ... ... 12,368,255... ... 5^ per cent.
1q
99 4.
0 **" ... 11,205,855 6 per cent for bills
not longer than
COdays.
November 8 «"" ... 10,741,320
not longerthan
05 days.
December 6 ... ... 10,580,570.., **" 91
At
27 ... .., 10369,595
For severalprecedingweeksthe EconomistreportedtheMoney

Market to be as tight as it could well be. But on the 20th of
December it said-
" The MoneyMarket continuesas stringent as it canwell be,
and no bills can be discountedunder the Bank rates. Paperat
long datescannot be discountedon any terms. The great extent
of our trade,as indicated by the returns for November,confirms
the suspicionawakenedby the continueddemandfor money,tfutt
trade has receivedno seriouscheckfrom the advancein the rate
REFORM OF THE CLEANING HOUSE IN 1854 3 85
of discount,
andis still moreextensivethanprudence
warrants,or
in the end will be justified "
41. This most judicious conduct on the part of the Bank,

which merited nothing but the most unqualified commendation,
exciteda great clatter amongst a certain immlwr of peoplewho
think that moneyis to be created ad libitum by writing **pro-
mises to pay'* on bits of paper, when thereis no moneyto pay
them with, and who think it possibleto send one'smoneyabroad
and also to have it at home. The paperswerefilled for weeks
with letters and articles exhibiting all the rank follies which \\ero
once prevalent on the subject of the price of eorn, and \\lwh
have been so admirably exposedby Adam Smith. But iu this
respecta most marked and healthy changehas boonof late jears
most manifest in the majority of public writers. The ^tvafc
majority now understandthat the rule of discount is the true
regulatingpowerof the papercurrency,and, inntead of assailing
the Bank with howls and execration when it does its duly in
raining its rate, they, with a few exceptions, now universally
commendit. This is great, real, and sound progressiu the
spreadof true Economicscience
42* At the endof this yearthe Queenexercised

thepower
reservedin the Act of 1844,to enable the Bank of England to
extend its issues to not more than two-thinls of the amount of
those of any banks of issue that might ceaseto issue notcn.
From the passingof the Act up to this period forty-sevenbanks,
whoseauthorised issuesamounted to £713,633, ceasedto IKSUO
their own notes,and, on the loth December,1855, the Queenin
Councilissuedan order authorisingthe Bank of Englandto
increaseits issuesto the amountof £475,000upon public
BceurifchiH.But thin is not the bon&Jitbincreaseto the issuing
powerof the Bank. For in the year1854the ClearingHouse
was organised on a better plan, and whereasbefore that an
averageamount of £200,000 of bank notes was required to
adjust its transactions,by the new systemtheseweretotally
dispensed with, and no notesat all arc nowrequired. Moreover,
by the admission of the joint stockbanksto the ClearingHouse,
they are saved from keeping an enormousamount of notesto
moebthe '*bankers'charges,"which may safelybe calculatedat

£500,000. Thesenotes,therefore,are now availableto the Bank
to use for commercialpurposes,and, consequently, are to be
considered as so much additionalpowerof issueto the Bank,
which hasthusin realityacquiredan increased
powerof issueto
the amountof £1,175,000since the Act of 1844, Up to
February,1857, seven other banks,whoseaggregateissues
amountedto £111,020, haveceasedto issuenotes,but no further
po\\er wasgrantedto the Bank to extend its issuesuntil 18GC
43. For severalmonthsafter the beginningof 1850 the

HoneyMarketcontinuedin a stateof great" tightness,"andthe
bullion in the .Bank scarcely varied. The lowest was on the
sJGth
April,whenit stoodat £9,081,675 5afterthatit gradually
rose,andtherateof discountfell in summerto about4Jto 4£,
but in Octoberthe bullion fell very considerablyagain, and
discount rose to 7 and 8 per cent., and a pressurefollowed of
aboutthe sameseverityas in 1855,andcontinued
with very
little variation to the end of the year
The Crisis of 1857

44. The crisis we havejust beenconsidering
wasthe in-
evitable termination of a multiplicity of derangementsof the
propercourseof commerce.No oneconversant with commercial
historycouldfail to foresee
that the entanglements
of solarge a
portion of the public with railway speculations,and the losses
causedby the failure of the harvestmust produce a crisis. We
haveseenthat this crisisgavea fatal blowto the prestigeof the
Bunk Act of 1844,which was enacted in expresscontradiction
to the opinions of the most experiencedauthorities of former
times,whomit professed
to follow. Theyhadalwaysprotested
against imposinga numerical limit on the issuesof the Bank.
The experience
of the crisis of 1847,amplyconfirmingthat of
1793, 1797, and 1825, shewedthat suchrestrictions cannotbe
maintained
in theparoxysm
of a greatcrisiswithoutendangering
the existence of the whole mass of commercial credit
The crisiswe arenowgoingto describewasof a verydifferent
nature. It burstuponthe worldin the mostunexpected
manner.
THE CRISIS OF 1857 185
It gaveno premonitorysymptomswhich wereapparentto any

but very watchful and experiencedeyt'H;and, when it did come,
it revealeda depth of rottennessin the commercialworld >\hirh
appalledevery one, and proved to be of much severer intensity
than that of 18* 7
45. The supportersof the Act were much crestfallenby its

failure ia 1847,,but they took courageagain after the Crimean
war. The Act had been subjectedto the tot of a great com-
mercial crisis and had failed. It was now subjectedto the test
of a war,and many of its opponentspredictedthat it would fail
again; but it did not. Its efloots during the Crimeanwar were
probablysalutary; but the war did not proceedto sucha length
as to test its powers severely. Peace vuis restored before the
resourcesof the country werein any mannerstrained
We have said above that the rate of discount in the autumn
of 185(5wan7 and 8 per cent. It wasgradually reduced,and on
December4th it was (>£,and on the l$Lh 6 per cent., and con-
tinued so till the autumn of 1857
These rates were, of course, very much higher than the
averageones of former times, and they were one ground of
accusationbroughtby many againstthe Act. But, in truth,
they were its very merit. The directors had now learnt from
experience,and it wasthesevery variations which preservedthe
securityof the Bank
In August nothing seemedamissto the public eye. * Things
were then pretty stationary," &aid the Governorof the Bank-
" the piuspectsof harvestwereverygood; therewasno appre-
hension that commerce at that time was otherwise than sound.
Therewere certain more far-seeing personswho consideredthat
the great stimulus given by the war expenditure,which had
created a very large consumptionof goods imported from the
East and other places, must now QCCUKIOU some collapse,and
still more those who observedthat the merchants, notwith-
standing the enhanced prices of produce, were nevertheless
importing as they had done successfullyin the previousyears.
But the public certainly viewed trade as sound,and were little
awarethat a crisis of any sort wasimpending,far lessthat it was
so near at hand "
The bullion at this time was £10,606,000, the reserve

£0/296,000, and the minimum rate of discount 5^, when on
the 17th August the Bank entered into a negotiation with
the East India Companyto send one million in specieto the
East
46. Things were in this state when, about the middle of

September,news came of a great depreciationof Americanrail-
road securities. It wasfound that for a long time they had been
carrying on an extravagant system of management,and paying
dividends not earned by the traffic. The system had at last
collapsed,and, of course,an enormousdepreciationof their stock
followed,to the amount of nearly 20 per cent. It was supposed
that asmuch as eighty millions of this stock washeld in England,
and that the effects of this fall would be very serious. On the
25th August the Ohio Life and Trust Company,with depositsto
the amount of £1,200,000,stoppedpayment. The panic spread
throughout the Union. Discount rose to 18 and 24 per cent.
On the 17th Octobernews camethat 150 banks in Pennsylvania,
Maryland, Virginia, and Ehode Island had stopped payment.
The drum was then beginning to be severe on the Bank of
England. On the 8th the bullion was £0,751,000, the reserve
£4,931,000,and discountwasraised to 6 per cent. On the 12th
the rate at Hamburg was 7|, and bullion was flowing towards
New York; discount was then raisedto 7 per cent. About this
time rumours strongly affectingthe Western Bank of Scotland
were abroad. On the 19fchdiscount was raised to 8 per cent.
The commercialdisasterswere increasing in America. In one
weekthe Bank of Francelost upwardsof a million sterling. The
bullion in the Bank had sunk to £8,991,000, and the reserveto
£4,115,000, Discount was raised to 7£ in Paris, and to 9 per
cent, at Hamburg. On the 26th a deputation from the Western
Bank of Scotlandappliedfor assistance, but the Bank was afraid
to undertake so enormousa concern. The Borough Bank of
Liverpool was also in difficulties, and after sometime the Bank
agreedto assistthemto the amountof £1,500,000on condition
of their winding up. But the arrangementsfell through iu
consequence of the Liverpool Bank closingits doorsbeforeit was
completed
SECOND SUSPENSION OF THE BANK ACT 187
47. On the 13th Octobera general run took placeon the

New York banks, in consequence
of the severemeasures
of
restriction they were obliged to adopt to protect themselves.
Eighteenimmediatelystopped,and soonafterwards,out of <W
banks,only one maintainedits payments. This immediately
reacted on Liverpool and Glasgow,which were much involved
with Americanfirms. By the 19th Octoberthe failures beganto
be numerousin this country. Uneasinessgreatly increased5u
London. On the 28th the principal discount houseapplied to
the Bank for an assurancethat they would give them any assist-
ance they might require. On the 30th an expresscame lor
£50,000 (sovereigns)for a Scotch bank, part of £170,000, and
£80,000 for Ireland. On the 5th November discount was raised
to 0 per cent. The great house of Denmstoun,with habilitiVn
of nearly tuo millions, stopped payment on the 7th, and tho
Western Bank of Scotland closed its doors on the S)th. Failures
in London were rapidly on the increase. Purchasesand salesof
stock were enormous,much beyond what they had ever been
before. The bullion in the Bank had sunkto £7,719,000,
and
the reserveto £2,834,000. On the 9th discountwas raisedto
10 per cent. On the 10th Novembera large discount houso
appliedto the Bank for £400,000. The Bank of France raised
its ratesto 8, 0, and 10 per cent, for one,two, and three months.
Another English bank was assisted. The City of GlasgowBank
then stopped. On that day the discounts at the Bank wen*
£1,120,000. On the 10th and llth upwards of one million
sterling in gold was sentto Scotland,and there wasa great
demandfrom Ireland. On the llth Sanderson & Co.,the great
bill brokers, stoppedpayment\\it\i depositsof 8J millions. On
the 12th the discountsat the Bank were £2,373,000. On tho
llth, in consequenceof these sudden demandsfor Scotlandand
Ireland, the bullion was reducedto £6,600,000, and the reserve
to £1,4 02,000
48. As the failures in London becamemore tremendous,

discountsbecamemore and more contracted* The stunning
newsof the stoppageof somanybankscreateda bankingpanic*
Privatebanksstoppeddiscountingaltogether.The onlysource
of discountwas the Bank of England. The public,however,
and the directorsknew that the precedentof 1847 must be

followed, and, though they made no direct application to the
Government
for the suspension
of the Act, they laid the state
of the Bank continually beforethem, and continued to discount
as if they knew the Act must be suspended. At last private
persons,being unable to obtain discounts,beganto make a run
for their balances.Whenuniversalruin was at last impending,
the Government,on the 12th November, sent a letter to the
Bank to say,that if they should be unableto meet the demands
for discountsand advancesupon approvedsecurities,without
exceedingthe limits of their circulation prescribedby the Act
of 1844, they would be preparedto proposeto Parliamenta Bill
of Indemnity for any excessso issued. In order, however,to
preventthe temporaryrelaxation of the Act from beingextended
beyondthe necessitiesof the case,the rate of discountwasnot to
be reducedbelowtheir presentrate, 10 per cent.
49. The issue of this letter immediately calmedthe public

excitement. But, on the eveningof the 12th, the total banking
reserveof the Bank and all its brancheswasreducedto £581,000,
Truly, said the Governor of the Bank, to the question 132,
ft Supposingthe letter in question had not been issuedon that
day, would the Bank, on the morning of the 13bh,have beenin a
condition to continueits discounts?-No; certainlynot
"133. Would it not have been compelledto announceit
could not discount any more commercial paper?-Yes, or
nearly so
" 138. Is it not likely that the announcement
of the cessation
of discounts at the Bank of England would have increasedthe
alarmof the mercantilepublic in London?-Materially
" 139. Would not an increasedalarm on the part of the mer-
cantile public have naturally led to an increaseddemandupon
the bankers?-It would have led to immediate failures, and
would so far have lessenedthe quantity of bills comingfor din-
count by the number of bills which were actually rendered
unavailable
" 140. Without referenceto bills, do you not think it likely
that therewould have beenincreaseddemandsupon the bankers,
which would have compelledthem to withdraw a portion of their
FINANCIAL CONDITION OF THE BANK 189
depositsfrom the Bank of England?-I think certainly that in

part there would have been"
To shew the state the Bank was reduced to, the Governor
gave in a paper to the Committeewith the following figures,
shewingits reserveon the llth and 12th November-
On Wednesday,Novemberllth, the reserveconsistedof-
A £
Notesin London ... " 875,005
at Branches " ... 582,705
057,710
Goldcoin in London 810,781:
at Branches 97,(Jtif>
4.08,449
Silver coin in London , ... 41,010
» at Branches 51,918
95,904
Total Reserve ... £Mfii>,ir>3
On Thursday, November12th, at night, the reserve con-

sisted of-
£ £
Notes in London 68,085
at Branches 62,545 0
0 , ),i
274,95:5
8;y2r>r>
858/208
Silver coin in London ... 41,100
w at Branches 50,807
" " 91,913
Total Reserve ... £580,751
That is to say, the total reservein London on the eveningof tho

12th was £384,144* Such were the resources of the Bank of
England feocommencebusinesswith on the morning of the 13th!
Truly, said the Governor,it must haveentirely ceaseddiscounting
which would have brought an immediate run upon it; and the
bankers'balancesalone were £5,458,000. It is easyto see that
the Bank could not have kept its doorsopenan hour
50. The Governorof the Bank said that the panic of 1857
wasnot so greatas that of 1847,but the real commercialpressure
wasmoreintense. This is proved by the fact, that while in the
formeryearthe issueof the letter immediatelyallayedthepanic,
and by that meansstoppedthe demandfor notes, and there was
only requiredan issueof £400,000in notesto surmountall
difficulties, which did not exceedthe statutorylimits; in 1857the
issue of the Government letter produced no cessationof the
demandfor advances* The statutory limit was £14,475,000 of
notesissuedon securities,and there wereissuedin excessof these-
£ £
Nov. 18 186,000 Nov. 28 807,000
14 622,000 24 817,000
16 860,000 25 81,000
17 886,000 26 248,000
18 852,000 27 842,000
ID 896,000 28 184,000
20 928,000 80 15,000
21 617,000
On the meeting of Parliamentan Act waspassedpermitting

a temporary suspension of the Bank Act till February 1st, 1858,
providedthe directorsdid not reducetheir discountbelow 10 per
cent On the 24th December they reduced it to 8 per cent.,
thereby reviving the operationof the Act
In 1858 the inevitable consequencefollowed from the great
crashof 1857. The enormousmassof falsetrading being cleared
awaymoneynaturally flowed into the Bank, and the quantity of
bullion gradually and steadilyincreasedup to the end of the year.
The Bank now learnt to adopt much higher ratesof discountthan
formerly. In 1847 it kept the rate at 5 per cent, while the
bullion was under £10,000,000 ; in 1858 the rate of 5 per cent
wasmaintainedtill the bullion exceeded
£15,000,000-agreat
advancein soundprinciple
51. In our Dictionary of Political Economy,Art. Banking in

England^ § 254, published not long after this great crisis, we
said-"This year (1858)passedaway in great tranquility, persons
not yet having forgotten the lessonof 1857. But we cannot
OKTGIN OF THE CRISIS OF 18G6 191
doubt,judging from all former experience,that an uneasyspirit

will soon be abroad again ; we cannot doubt that the brood of
speculatorsare now anxiously casting about to see if they can
planttheseedsof the nextcrisis,andit is the duty of those\\lu>
are now at the head of monetary affairs to be on the watchto
counteract all such attempts as they can detect; and, in the
meantime,the most interesting questionat the presenttime, in a
bankingpoint of view, is-What is to be the next mania ?tt
Time has given an answerto this question* Thereis nothing
specialto arrest our attention during the next few years. The
ratesof discountcontinued generallymoderatethrough 1859and
1800. In February,1801,it rosefor a short time to 8 per cent.
but soonsubsidedagain. The unhappycivil war in Americathen
being imminent, creatednatural apprehensionas to our cotton
supplies,and most personscould foreseethat tins would lead to
monetary complications. These, however, were for the future.
Through1861andI8<>2
theMoneyMarketwas,generally
speaking,
extremelyeasy,the issueof paper moneyby both the belligerent
Governmentshaving the inevitable effectof driving bullion over
to this country; consequentlytradeflourishedamazingly,and the
price of moneywasvery easy
62. And so things went on till October,18G8,wheneveryone

began to foreseea disturbancein the Money Market. In the
first place,the rapid rise in the price of cotton, from the failure
of the supplyfrom the SouthernStatesof America,forcedup the
price to a great height. Tineworld had to be searchedto produce
the supply. Immense quantities came from the East Indies,
from Egypt, and from the Brazil**,besidesother quarters. This
vast trade being suddenly created,had to be paid for in cash,as
wohave explainedin tlw chapter on Exchanges. Consequently a
great drain of silver begantowardsthe Bust, which wasobtained
from Parisand Hamburg, the great marts for silver us London
is for gold. The Italian Government,too, contracted a loan at
this period
The law of limited liability beganto operateat the sametime,
and the numberof new companiesbeing formedunder it inspired
uneasiness.The Rank of Francelost great quantitiesof specie.
The Bank of Bnglund raisedits rate twice in one week,from 5 to
6, and then to 7. The Bank of France alsoraised its rate to 7,

and spokeof issuing50 franc notes; on the 2nd of Decemberthe
Bank raisedits rate to 7, and on the 3rd to 8. At the sametime
a great fall took placeia the Russian Exchange,in consequence
of certain Governmentmeasuresnot having succeeded. In con-
sequenceof these circumstances,the reservesof the Bank were
considerablystrengthenedafter a short time. But in January,
1864,a fresh export of speciebegan and continued with great
severity till the middle or end of May, so that discount varied
from 8 to 7, and 6, and again up to 9. In May the Bank again
raised its rate twice in one week to 9. With a few fluctuations
this great pressurecontinuedall through the summer. Having
fallen to 6 per cent, in Juue, it gradually rose again to 9 in
September, After that it gradually fell to 3 per cent, in June, 1865
53. Already in March, 1864, the numbersof new companies

formedunder the limited liability principle gave great uneasiness.
Up to that time it appearedthere were263 companies
formed
with a nominal capital of £78,135,000, out of which 27 were
banks, and 14 discount companies. In August, 1864,the long-
dated acceptances of the new financial companiesbeganto press
on the market, and lay the foundationsof the crisis of 1866. In
April the Bank of England joined the Clearing House,thereby
still further economisingthe useof Bank notes
On the 8th of Septemberthe Bank raised its rate to 9 per
cent., and this measurestopped the foreign drain, lowered tho
price of foreign commodities,
and strengthened
their reserves.
The price of cotton was greatly lowered owing to the expected
peacein America,andthis risein therateof discount,
strikingoa
a falling market, producedan immensecurtailment of businessin
all directions
The Great Crisis of May, 1866
64. On the 20th June, 1865,the rate of discount reached

its minimum, 3 per cent. On the 5th August it wasraisedto 4,
and then graduallyand continuously,with very slight fluctuations,
till it culminated in the crisis of May, 1866
In November
a strongforeign drain began,the exchange
fell
THE CBISISOF MAY, 1806 103
and, this growing stronger in January, 18(56,the Bank raisedits

rate on the 6th to 8. This had someeffectin arrestingthe drain,
but it did not bring in freah supplies from abroad. At this
period the National Provincial Bank beganto bank in London,
and, in consequence, were obliged by law to give up their issues,
which amountedto £442,371. Severalother bankshaving ceased
to issue,since the Bank of England had been last authorisedto
increaseits issues,it was now permitted to increaseits issueson
securitiesto £15,000,000. The high rate of interest herecaused
a gooddealof foreign moneyto be investedin long-datedbills
Towards the end of January the difficulties began, which
broughton the panic in May. In consequence of there having
beenno Parliamentaryinquiry, as might have beenexpected,the
circumstances of this panic have neverbeenfully explained. But
it may be statedgenerallythat theseFinanceand DiscountCom-
panieshad advancedenormoussums of moneyto promote great
enterprises,
such aa railways,and other schemes,
whichcould
neverrepay their cost until completed,which might fcakeyearsto
do. The first companythat wenfcwasthe Joint Stock Discount
Companyin February, This spreada generalfeeling of alarm,
as the doings of this Companywere merely a type of a large
amountof businesswhich was known to have been engagedin
by numerous other companies. In March Barned's Bank at
Liverpool stopped payment, with liabilities of upwards of 8^
millions. Severalgreat railway contractorssuspended,involving
in discredit the companieswith whom they were known to have
"financed"
64* On the 3rd of May the Bank raised its discount to

7 per cent. Every one now felt that the long-dreadedcrisis was
at last come. The air wasthick with rumours. Every one knew
now that it was merely a question of weeks,perhapsof days,
when the storm should burst On the 8th of May the Bank
raisedits discountto 8 per cent. The advocatesof the Bank Act,
in their usual strain, proclaimedthat on no account whatever
must the Act be suspended. Sucha thing wasnot to be thought
of. Credit wasthen tottering and receiveda blow from the report
of a speechof the EmperorNapoleonIII., said to havebeen
addressedby him to a meeting at Aoxerre,in which he expressed
VOL. u. 0
THTSOKY AND PRACTICE OF BANKING
his detestation of the treaties of 1815. This, in the feverish

political state of the Continent,was held to mean that he was
determined on war
It is possiblethat this excitementmight havepassed
off, as
the Bank had a fair reservein the banking department,and
abundance of bullion in the issuedepartment.On the Othof
May the Bank raisedthe rate of discountto 9 per cent. On
this day, however,occurredthe event which it is probablepro-
ducedthe greatpanic. The Mid-WalesRailwayCompany
had
acceptedbills of exchangeto the amount of £60,000, which were
held by threeparties-Bateman;Overend,Gurney<fe
Co.; and
the NationalDiscountCompany.The Companyhaddishonoured
the bills, and actionshad beenbrought againstthem by the three
parties above named. As ill fortune would have it, judgmentin
theseactionswasdeliveredon the 9th of May,in the veryheight
of the excitement. The Court of Common Pleas held unani-
mouslythat the Railway Companyhad no authority whateverto
accept such bills, and consequentlythat they were absolutelyin-
valid, and so much waste paper. For some time back it was
known that Overend,Gurney& Co. werevery deep in with con-
tractors and other parties; moreoverthey held forged bills to a
large amountof anotherfirm. Their shareshad beenpressedon
the market, and were going down. This fall in their sharespro-
duceda steadywithdrawal of their deposits. The judgment in
the caseof the Mid-WalesRailway convertedthis into a complete
run; and, on the afternoonof Thursday,May 10th, the terrible
news spread through London that the great establishmentof
Overend, Gurney & Co. had stoppedpayment, with liabilities
exceeding£10,000,000-the most stupendousfailure that had
ever taken placein the City. Thifl news only spreadaboutafter
banking hours,but everyone could foreseewhat the effectswould
be next morning. The Chancellorof the Exchequersaid next
evening in the House that the oldest inhabitants of the City
declaredthat the excitement was without a parallel Early in
the eveninghe was questionedfib to whether Governmenthad
authorisedthe Bank to issue notes in excessof the legal limit.
The Chancellorreplied that he had not yet doneso, but that he
had receiveda deputation from the private bankers, and was
expectingone from the Joint Stock Banks,on the subject. Very
THE CRISIS OP MAY, 18C6 195
soon afterwards this came, and the Members of the Cabinet,

havingretiredto a committee
roomandconsulted,
the Chancellor,
later in the evening, announced, amidst the loudest cheers from
all parts of the Honws that the Government,followingthe
precedentsof 1847 and 1857, had informed the Bank that,
if theythoughtproperto makeadvances beyondthe limit, the
Government wouldbring in a Bill of Indemnity, He alsostated
that the Bankhadadvanced £4,000,000that day
66. The announcement
of the suspension
of the Bank
CharterAct producedthe besteffectsnext morning. The Bank
raisedits rate to 10 per cent., and everything calmeddown, and
though subsequentlyto this some other stoppages took place,yet
the knowledgethat the Bank had power to make advanceson
good securities abated the panic. On the 18th of May the
Chancellorof the Exchequerstated that the Bank had advanced
£12,225,000 in five days. The mm that waspaid awayduring
the panic can probably never be known, but it was something
perfectlyfabulous. It hasbeensaid, though of courseweknow
not on what authority, that one great bank alone paid away
£2,000,000in six hours. The establishmentsthat stoppedpay-
ment were as follows, with their liabilities, according to their
hist publishedbalance-sheet,though, of course,theseweregreatly
diminishedduring the panic-
Paid-up Capital. Reserve. Liabilities,
. £1,500,000 «-WMI £11,000,000
English Joint Stock Bank 9 150,000 £0,000 not stated.
Oriental Commercial Bank 375,000 40,500
New Zealand Banking Corpora on 80,(X)0 16,000 136,000
Hallot, Ommanney & Co. . . 238,000
Imperial Mercantile Credit 500,000 not stated.
Commercial Bank of India 1,000,000 238,802
European Bank 01-Muo 31,3U3 2,112,838
Kobinson, Cerytoa & Co.
Alliance Financial Company 20,000
Bank o! London 4QCMXK) 302,324 . . 4,335,877
Consolidated Bank .- 600,0110 . 71,808 . 3,817,999
Agra and Mastennan's «* 1,500,000 . 500,000 . . 15,582,003
Besidesthese stoppages,several other banks connectedwith

the Bast confessed to enormous losses. Thus, the Bank of
IliudoBtan,China,andJapanstatedits profitsat £23,485,and
02
its lossesat £87,796, with a further expectedloss of £70,000;

the AsiaticBankingCompanystatedits profits at £61,494,and
its lossesat £142,000; the Bank of Queenslandstated its profits
at £10,878, and its lossesat £42,071. What lossesthe other
banks madewe of coursehave no meansof knowing, but they
were probablyheavy
56. In the great crisis of 1866, the Law given in Chapter

Til., § 87, that the Rate of Discountis the most powerful
method of controlling the Exchanges,seemedfor sometime to
be at fault. Prom the beginning of that year the differencein.
the Ratesat Parisand Londonwas constantly2 per cent,and
gradually increasedto 8, 4, and even 6 per cent.; and while the
storm wasraging in England, the Bank of France wasin a state
of the greatestserenity. The high rates in England weretotally
unableto preventa severeforeign drain, and the Bank of France
rapidly gained large quantities of bullion, while discount was
only 4 per cent. This remarkable and, indeed, unprecedented
phenomenon, led many personsto question the truth of the law:
and evento maintain that the Rates m different countriesought
to be quite independentof each other. But as we have shewnin
that Chapter,the Rate of Discount,although the most powerful,is
only one of severalcauseswhich influence the flow of bullion,
which may at any time act in the same or in contrary directions.
On this occasionit was overpoweredfor a short period by other
causes. The principal of thesewasthe utter discredit into which
England had fallen. It was fully expectedthat the Bank would
stoppayment,and there would be a generalstoppageof the other
banks,involving the mercantilecommunityin ruin. The high rate
of discountfailed to attract supplies,becauseit wasfearedthat the
wholeprincipal would be lost. Consequently large quantities of
long-datedbills on England were hurried over here,and realised
at any sacrifice,and the proceedsremitted abroad. But as soon
as these temporary causeshad ceasedto act, large supplies of
bullion pouredin, and the equilibrium betweencredit and bullion
was restored. As was well pointed out in a pamphlet by Mr.
Fowler at the time, it was only that a longer period than was
usualwasrequiredto producethe requiredeffectonthe exchanges
than had been found needful in other cases
THE CRISIS OF MAY, 18GG 107
With respectto the Bank of Prance the explanationis also

easy. There was no commercialcrisis in France, but strong
expectationsof war. Consequentlymercantile enterprise was
curbed, and specie naturally flowed into the Bank of France.
Alsoin anticipationof war the Government
of Italy suspended
cashpaymentsand adopted paper money. This of courseneces-
sarily drovespecieout of the country, and it also naturally went
to the Bank of France
Thus it is seenhow necessaryit is to have a knowledgeof the
circumstancesat any period to understandthe operation of the
Laws of Economics
Thus weseethat true scienceis vindicatedby experience,and
the history of Banking since 18<!(>
has amply confirmedthe truth
of this principle, \\lneh was first demonstratedin the First
Edition of this Work in 1850,and since then has madeits way to
universal acceptance by all competent persons. The Usury Laws
in Prance wore modified in order to enable the Bank of Prance to
adopt it, and by a sedulousattention to this principle the Notes
of the Bank of Prance,which werefor severalyearsinconvertible,
circulatedexactly at par with specie; and, in fact, every bank in.
the world is now managedon this principle
Having brought the history of Banking up to this point, we
do not think it necessaryto give any further details of events
since then* The primary object of the history we have given is
to establish Principles. We have given an exact history of
the different doctrineswhich have been held as to managingthe
Bank and the Paper Currency, until at last scientific reasoning
and practicalexperiencehave equally demonstratedthat the true
method of controlling credit and Paper Currencyis by meansof
the Rate of Discount. We have givenampledetailsof the
stopsby which this great doctrine gradually establisheditself in
the Banking and Mercantile world. To pursue the subject
further would not bring out any new principles; it would only
give superfluousillustrations of a principle which is now as firmly
establishedamong all competentpersonsas the NewtonianLaw
of Gravity is among men of science: and, therefore,prolonging
an accountwouldonly occupyspacewithout any good object
198 THEOEY AOT) PRACTICE OF BANKING
CHAPTER XIII
HISTORICAL SKETCH OP THE RISE AND PROGRESS
OF BANKING IN SCOTLAND
1* The Bank of Scotland is the first instance in the world oC

a private joint stock bank formed by private persons,for the
expresspurposeof makinga trade of banking,dependenton
their own private capital, and wholly unconnected
with the
State- It differed in kind from any of the other banks existing
at that time. The successfulinstitution of the Bank of England
led to a project being formed to establish a Bank in Scotland.
A merchant of London, Mr. John Holland, was the author of
the scheme,and he got eleven Scotch merchants to join him.
They obtained an Act of the Scotch Parliament on the 17th
July, Iti95, authorising the Crown to grunt them a Charter of
Incorporation. The principle provisions of this Act are tus
follows :*
L The joint stock wasto be £1,200,000Scots,or £100,000
sterling, and authorisescertain personsto receivesubscription*
for not less than £1,000 Scots (£88 6$. 8rf.)> &<>*"
more than
£20,000Scots(£6,060 18*.4&) for eachperson,with a deposit
of 10 per cent.
II. They wereallowedto lend on real or personalsecurity,at
not morethan 6 percent.; and,on failureof payment,to sellor
disposeof the security publicly
III, They were allowedto transfer their stock freely, or by
will
IV, No dividendto be made,but by consentof general
meeting
V, Thejoint ntockto be freefromnil taxenaffectingmoney
for tfl yuan*from that date
Att9 tf thf fttrtittmriif t\f tiittthitui, rot. u., y* 4!)i.
BANKING IN SCOTLAND 199
VI. It wasdeclaredto beillegal for anyother Companyto

set up banking for 21 years
VIL Various legal privilegesweregrantedfor the more
speedyandeffectualrecoveryof debtsdueto the bank
VIII. Prohibitsany sum to be withdrawnfrom the joint
stock
IX- Prohibits the Company,directly or indirectly, from

using or employingthe joint stockof the Bank, or any of its
profits,in any other tradeor commerce,exceptthetrade of lending
ami borrowingmoneynpon interest,and negociatingbills of
exchange
X. ProhibitstheCompany
frompurchasing
land,or heritages,
or advancingmoneyto the Government,upon the anticipation of
any sumsto be granted by Parliament, expect only thosepar-
ticular onesupon which a credit of loan should be authorised by
Parliament,under the penalty of forfeiting triple the amount,of
which one-fifth to the informer
XI. All foreigners who subscribedto the joint stock, were
ipMj'«cto naturalised to all intents and purposes. It wasalso
provided that two-thirds of the stock must always belong to
persons
residingin Scotland.TheScotch
subscription
of £800,000
Scots(£66,660) wasbegunin November,and filled tip at the end
of December,1695* The English subscriptionof £400,000 Scots
(488,8't;1)
wastaken up in one dayin London,a greatpart by
Scotchmen. As the Scotchat that time were supposedto know
nothing about banking, it was also provided that for a certain
number of years the Governor and twelve Directors should be
English, and the Deputy-Governorand twelve Directorsshould
be Scotch. However, it was soon found that the Scotch were
ttuchgoodmanager*,that this arangementwas changed,and all
the Directors were Scotch, and thirteen trustees were chosen to
managethe English businessand affairs in London
JJ# No soonerwasthe Bank fairly established,than, in 1696,

the Aft'ieanCompanyattemptedto set up the trade of banking,in
defiance
of the Bank'sprivilege. This wasthecelebratedDarien
Company, which was organisedby William Paterson,who was
one of the foundersof the Bank of England. Mr. Holland was
Governorof the Bank, but so little wasit thought of, that it did
not ventureto vindicate its privilegesagainstthe African Company

for whichtherewasa nationalfrenzy,andwhichafterwards
ended
*fcsadly. The Bank wasobligedto contentitself by strengthening
its position by calling up two-tenths of its capital
The African Companysoon,however,
burnt its fingerswith
hanking,as,in order to rival the Bank, they advancedtheir notes
with great imprudenceto severalof their ownshareholders
and
others, and sustainedgreat losses,which made them stop. The
Bank then began the businessof exchanges,but, finding that
theycould not compete
with private merchants,
gaveit up. la
1G(J(>,
they openedbranchesat Glasgow,Aberdeen,Dundee,and
Montrose; but nobfinding them to pay, withdrewthem. In May,
16D8,the rivalry of the African Companybeing at an end, the
directorsrepaid the two-tenthsof capital last called up, as being
more than necessaryfor their business
3. The Bank at first receivedno depositsfrom the public ?

its businessconsistedin circulating its own notesupon the credit
of the subscriptionsthat waspaid in. Thesenoteswere for £100,
£50, £20, £10, and £5. It is disputedwhenthey beganto ISHUO
£1 notes,for, while a pamphletpublishedin 1728on their behalf,
«uysthat they beganto issuethem in January, 1090-1700,Mr.
Kinuear, a director of the Bank, stated to the Committee of the
House of Commonsthat, though many proposalswere made to
them to circulate "tickets" or "tokens" of £1 they had always
hesitated to adopt so novel an experiment till 1704. Which
authorityis rig*htwe haveno meansof deciding. In 1701 a
greatfire destroyedthe ParliamentClose,in which the Bank was,
but the cash and all the effects were safely removedinto the
Castleby the Earl of Leven, who wasGovernorof both
In December,1704, soon after, as it would appear by one
account,that they had issued £1 notes,a rumour wasspreadall
over the kingdom that the Privy Council were going to raise the
valueof coin, which causeda run upon the Bank, and afclast it
wasobliged to stoppayment. A meeting of the proprietorsWHS
held, who declaredthat all their notes should bear iiitercBtuntil
they were paid. The directorsalso requestedthe Privy Council
fcoappointa Committee
to examinetheir books. They report<*d
that the Bank wasin the inowtsound and flourishing condition.
andtheir notesthen passedwithoutdepreciation.The directors

madea call of one-tenth,andin lessthanfive monthspaidoff all
their notes with interest
By theAct of Union betweenEnglandand Scotland,
it was
stipulatedthat the coinageof Scotlandshould be reducedto uni-
formitywith that of England,andthe lossor deficiency
to private
individualsmadegood out of the Equivalentfund* (Art. XV.)
The Bankassistedthis operationby receivingall the oldmoney
andgivingtheir ownnotes,or newmoney,in return,receivinga
commissionof half per cent. This wassucessfullyaccomplished
without any disturbance
In September,1715, the rebellion broke out, which imme-
diately causeda run upon the Bank, the directors themselves
urging it on, that the moneymight not fall into the handsof the
insurgents. They then stopped,retaining all themoneybelonging
to the Crown,which wasabout £30,000, which theylodgedin the
Castle. They then gave notice that all their notesshould bear
interest,ashad beendonein 1704. In May, June and July, 171$,
they wereall called in and paid. In this year the monopolyof
bunking granted by their charter expired, and no steps were
taken to renew it
It appearsthat up to this time the profits of the Bank were
enormous, A rival pamphletstatesthat the dividend was35, 40
and 50 per cent., and, accordingly,as we may well suppose,these
profits attractedrivals. A cry wasgot up againstthem,that they
weretoo niggardly in advancingloans, that they exactedtoo high
interest, and that the concernwasaltogethertoo small
4. In December, 1719, proposalswere made to them to

unite with the proprietorsof the Equivalent fund, to the amount
of £'250,000,so as to increasethe capital to £850,000,and share
the annualgrant of £10,000 (being four per cent,on the amount)
in theproportionof two-sevenths
and five-sevenths.But asthe
Bankhadonly one-tenthpaid up,the proprietorsof the Equivalent
fund were to draw out of the Bank, as might be agreedupon,
nine-tenths,or £225,000, in notes, so that there might be a
capitalof £85,000to bankupon
The Bank replied that-Ist9 They had no powerby their Act
to amalgamate
with the Equivalent,as they werelimited to
202 THEORY AKD PRACTICE Off BANKING
£100,000sterling; %ndly,That they wouldnot uniteat par with

the Equivalentat four percent.,while theirownstockwasworth
at least ten per cent.; 8n%, That the stock of the Bank was
large enoughfor the country; and,if theywantedit enlarged,
theycoulddoit themselvesby callingon their proprietors. They
nlso gaveothercalculations,shewingthe absurdnatureof the
proposals
No sooner were the advancesof the Equivalent proprietors
repulsedthan anotherset of personsbegananotherrough wooing,
to thrust themselves into a union with them. The Edinburgh
jSocwfy,
formedon a pretended
plan of insuringagainstfire, tried
to force a junction with them, and being defeatedin this, they
tried to get up a run upon them. They got together £8,400
of their notes, and spread a report of a run. This, however,
failed; and shortly after the Bubble Act passed,by which the
societyfound that they were an illegal company,and were obliged
to dissolvethemselves. The London AssuranceCompanythen
**proposed" to them,but met with a similar refusal
5. At the time of the Union a considerable number of
persons,both civil and military, were creditors of the Htate,and
the Equivalent sum stipulated in the Act of Union was not
sufficient to dischargetheir claims. In 1714 they obtainedan
Act of Parliament, constituting their debts,but no Parliamentary
provision was made to pay it till 1719,when £10,000 wasset
apart for that purpose,to be paid annually, in preferenceto all
other claims. The Act of 1719 empoweredHis Majesty, by
letters patent, to incorporatethe proprietorsof this debt into a
bodypolitic and corporate-aMonte-with powersto do and
performall mattersappertaining to themto do,touching01con-
cerningthe said capitalsum; and the yearlyfund, payablein
refipectthereof,asHis Majesty,by the saidletterspatent,should
think fit to grant. In pursuanceof this Act, the proprietors,
who included personsin all ranks of the State,were incorporated
in 1724; and, by the same letters patent the King agreed and
covenantedwith the corporation that he would, from time to
time, grant them suchother powers,privileges and authorities M
he lawfully might
This wa«the body of personsTV horn we have seen attempt to
force themselves on the Bank of Scotland.When they were

repulsedby that body,theydeterminedto applyto the King to
grant them powers of Banking in Scotland, in pursuanceof
Ins agreement
to grant themanypowers
thathelawfullymight.
Theyaccordingly petitionedhim to grant them powersto bank
iu Scotland,limited to such of the companyas shouldon or
beforeMichaelmas, 1727, subjecttheir stock to the trade of
banking. This petition cameto the knowledgeof the Bankin
1726,and,of course,theydid everythingtheycouldto oppose it.
A cry wasgot up againstthem that they werehostileto the
Houseof Hanover-that theychargedtoohighinterestfor their
loans-that they were too particular in the securitiesthey
required-that they would not lend on their own stock, and
other things. To all thesevarious charges,they, or a friend for
them,elaborately
replied,andtheysaidthat sucha thingastwo
banks in one country was neverheard of-that if Scotlandhad
two England should have ten. By this time they had calledup
8-lOths of their stock, or £30,000, and they alleged that that
was sufficient to circulate all the credit that could be required
in Scotland* They had somesound views on the subject-" For
the quota of credit in a banking companymust be proportioned
to th& stockof speciein the nation, learned and understoodby
long experience,and not extendedto a capital stock subscribed
for, which cannot in the least help to support the company's
credit if the specieof the nation decay"
The call that had beenmadewaspartly paid up in the Bank's
Dwnnotes,just as we shall see that the subscriptionto the new
Block of the Bank of England was partly paid in its own de-
preciated notes. An outcry was made about this, but it was
well answered-" But the objectors do not at all considerthis
point. For the paymentsare many of them madein specie,and
bank notes are justly reckonedthe sameas speciewhenpaid in
on a call of stock, because,whenpaid in, it kssens the demand
OHtto Bank." He also says-"A certain stock of speciecir-
culating in the country is needful for currencyof paymentsin
markets,and amongst the meanersort of people,bearinga due
proportionto what is runningon papercreditupon the faith of
the Banking Company." Excellent doctrines,in strict accordance
with the principleswhichmadethe Parliamentof Scotlandreject
30-I THEORY AND PRACTICE OF BANKING
the plausibleand delusiveschemes of Dr. CharnberlenandJolm

Law,for issuingpaperbaseduponland
Notwithstanding the oppositionof the Bankof Scotland,the
charter,with powersof banking,was grantedto the Equivalent
Company on the 31stMay,1727. TheKing's deathon the llth
June followingdelayedit for a shorttime,but it was sealedot*
the 8th July. The Companytook the nameof the Royal
Bank and commenced business on the 8th December, 1727,
with a capitalstock of £151,000
Grantingthat all the chargesagainstthe old bankwerefutile
aud groundless,
\vemay well rejoicethat the monopolyof the
Bank of Scotlandwas not permitted to subsist, A writer, who
professesto be independentof either bank, touched the right
point in replyto the statementput forth on behalfof the old
bank-"The power of monopoliesis, I believe,an exploded
doctrine. . , . Did ever any nation make an exclusivebank
perpetual,or for longer than twenty-one years? Or if such au
instance can be given, wasthe measureright ? . * . If the
old bank should reply-\Ve are in possession, what have we done
to deserveto have our possession disturbed? The answerupon
that abstract question is plain by anotherquestion-What hum
we, the othersubjects^doneto be secluded '9 or by wMt law are we
secluded from the advantagesyou enjoyt" The writer then says,
after comparing the rival companies-"The obvious reflection
which arises from comparingthesetwo is, that these candid and
fair dealershave also dealt profitably for themselves(as it is but
reasonable
that theyshould),theyhavetakenverygoodpayment
for all the servicesthey have done to the nation, and what title
they, or any otherset of men,have to an hereditaryor indefeasible
monopoly
of bankingis hardto understand.. . . As readyas
our Parliament was at the Union to accommodatepetitioners,
a perpetualmonopolyof tanking was a thing so manifestly
pernicious,
that noprivatemm couldhavetheassurance
to aimat
tttfar lesscould any Parliament le so unthinking as to grant it"
On the south of the Tweed there was found a Parliament so
unthinking as to granta monopolyof bankingto a singlecom-
panyfor upwardsof 180 years,and the consequences
fully
justifiedthe opinionsof the sagacious
Scot
The directors of the companywere authorisedto make calls
upon the proprietors, to the amount of one-half of their stock,

but therewereno meansgiven of enforcingthe callsbeyond
retaining the accruing dividends until the call was satisfied.
Theygot,however, great assistance
by having£20,000deposited
with themby the Crown. This was sentdown by the Govern-
ment to be placed out at interest, to assist the fisheries and
manufactures,and several of the directors of the Royal Bank,
beingamongtht>trusteesfor managingthe fund vofced that it
shouldbeplacedin their own bank. Theii charteralsogranted
them unlimited powersof issue. The alarmand jealousycreated
by the establishment
of a newbank happilysoonworeoff, asit
wasdiscoveredthat, so far from injuring it, the inevitableconse-
quencefollowed that enlarged experiencein commercewould
enableus to predict; it increasedthe prosperityof both of them,
so that the stock of the Bank of Scotland rose to 400 per cent,,
and that of the Royal Bank also very high
The Royal Bank had been in existenceonly two years,when
it invented a further developmentof the system of banking,
which, by the unanimoustestimonyof all personswho know that
country, has done more to developeits resources,and promote
its agricultural and commercialprosperitythan any othercause
whatever. This is the systemof CashCredits,or GashAccounts.
This systemdeservesthe most attentive consideration,becauseit
is entirely of the nature of AccommodationPaper, which has
falleninto suchdisreputein England, from the enormousabuseof
it that hastaken place. We have already,in ChapterVI,, given
an account of Cash Credits. In 1731, the Bank of Scotland tried
again to establish branchesat Glasgow,Aberdeen,and Dundee,
but, after a trial of two years,was obliged to discontinuethem,
and the plan wasnot tried again till 1774
6. The unlimited powerof issuing"promisesto pay," placed

in the hands of two hostile parties, must naturally have led to
greatover-issues,before they acquired sufficient experience. To
protect themselvesfrom the consequences of theseover-issues,as
well as from the attacks of each other, the Bank of Scotlandin
1780introduceda clauseinto their notesmaking them payable,at
the option of the directorsof the Bank, at the end of six months,
with a sum equalto the legal interest from the time of demandto
£0f> THEORY AKD PRACTICE OF BANKING
that time* This practicewas adoptedby all the otherbanking

companies,for the manifest advantagesof banking were so
strikinglydisplayed,that afterthe expiryof the monopoly of the
Bankof Scotland,bankingcompanies startedup in all directions,
and inundatedthe countrywith notes, "Whentheholdersof the
notesdemanded paymentfor them,the directorsof the companies
threatened that theywouldtakeadvantage of the optionalclause,
unlessthe demauders would contentthemselves with a part of
whattheywanted* Moreover, as therewasno restraintuponthe
amount of their notes, many of the companiesissued notesfor
10*., 5*., and even lower than that. In Perthshire there were
notesfor 1*. and even for Irf., and the Perth Banking Company
was founded partly to put an end to this nuisance. The in-
evitableconsequence
followed; thesepapernotesdroveall the
gold and silver out of the country, and the exchangewith London
fell. Adam Smith says-"While the exchangebetweenLondon
and Carlisle was at par, tiiat between London and Dumfries
wouldsometimesbe 4 per cent, against Dumfries, though this
town in not thirty miles distance from Carlisle. But at Carlisle
bills were paid in gold and silver, whereasat Dumfriesthey were
paid in Scotchhank noten,and the uncertainty of getting those
bank notesexchangedfor gold and silver coin had thus degraded
them 4 jwr cent, belowthe value of that coin/' And this wasat
the time when, owing to the degradedstate of the English coin,
the foreign exchangeswere adverseto England, and the market
priceof goldwas£4 per ounce,so that thewholedepreciation
of
the note wasabout 0£ per cent* Tims we see at this time, when
the Scotch bank notes were at a discount, they were, in fact,
inconvertible,or only payablesix months after demand,a circum-
stance of great importance, and one which must be especially
observed,as this was one of the instancesalluded to by Sir
Kobert Peel in introducing his Bank Act of 1844
The manifest consequencefollowed. All the gold left the
country,as it alwaysdoesfromthe excessive
paperissues,
andthe
banks were all obliged to employ agents in London constantly
collectingmoneyfor them, at an expense
of seldomlessthan
one-and-a-halfto two per cent. Adam Smith says-"This money
wasRentdown by the waggon,and insured by the carriers at au
additionalexpenseof three-quarters
per cent,,or 15$.on the
OPTIONAL CLAUSE IN NOTES 207
£100. Thoseagentswerenot alwaysableto replenishthe coffers

of their employers
sofastastheywereemptied. In this casethe
resourceof the bankswas to draw upon their correspondents
in
Londonbills of exchange
to the extentof the sum.theywanted.
Whenthosecorrespondents afterwardsdrewuponthem for the
paymentof this sum, togetherwith the interestand commission,
some of those banks, from the distress into which their excessive
circulation had thrown them, had sometimesno other meansof
satisfying this draughtbut by drawing a secondset of bills either
upon the sameor upon someothercorrespondents in London,and
the samesum, or rather bills for the samesum, would in this
mannermake morethan two or three journeys, the debtor bank
always paying the interest and commissionupon the whole
accumulated sum. Even those Scotch banks which never distin-
guishedthemselvesby their extremeimprudence,were sometimes
obligedto employthis ruinousresource
*' The gold coin which was paid out either by the Bank of
England or by the Scotch banks,in exchangefor that part of
their paper which wasover and abovewhat could be employedin
the circulation of the country, being likewise over and above
"whatcould be employedin that circulation, was sometimessent
abroadin the shapeof coin, sometimesmelted down and sent
abroadin the shapeof bullion, and sometimesmelted down and
sold to the Bank of England, at the high price of £4 an ounce.
It wasthe newest,the heaviest,and the bestpiecesonly, which
were carefully pickedout of the old coin, and either sentabroad
or melted down at home, and while they remained in the shape
of coin, thoseheavy pieceswere of no more valuethan the light,
but they were of more value abroad,or whenmelteddowninto
bullion at home." This passage well illustratesthe quotationwe
have given from Aristophanes,and is admirably illustrated by
what took placein France during the existenceof the Assignats,
and in England during the suspension of cashpayments
At this period the Scotch banks had got themselvesinto a
very alarming position,from their ignoranceof the true principles
of regulating a paper currency, as well as of the effect of an
excessiveissueof paperin depressingthe exchanges, and causing
an export of gold, and not perceiving that, while in this state,
bringing gold into the country was like pouring wate? into, a
sieve,or like the toil of the Dauaides. They had boon far too
prodigal in granting cash credits, and allowing them to becon-
verted into dead loans, without observing the rules that wero
specially applicable to them. And everything seemedto show
that matters would get worse, as the annihilation of the last
Jacobite rebellion in 1746 had freed the country for ever from
the fear of internal distuibanco?,and numerousother companies
were forming to add to the currency, which was alreadysuper-
abundant.
Unitedin a commondanger,the two principalbanksagreed
to combinetheir influence,and obtain an Act to remedythis, and
the Statute17G5,e, 49, waspassed,
suppressing
all notesunder
20& and prohibiting thoseto be issuedwith the optional clause,
and enactingthat all such notes should be payableto the bearer
on demand. The banks also curtailed their cash credits very
extensively,and called up fresh capital. Owing to these com-
bined measures,silver immediatelyreturned into circulation,the
valueof the Scotchcurrencywasrestoredto par,and from that
time to the present, although the issue of bank noteswasabso-
lutely free until 1845,the Scotchcurrencyhas never varied
from par
7. The Bank of Scotlandand the Royal Bank continuedto

be the only chartered banks till 1740,when the British Linen
Companywas incorporated,for the purposeof carrying on the
linen manufacture,and banking in connection with it. This
Companysoonfound it expedient to discontinuethe linen part of
their businessand confinethemselvesto banking,and it hassince
becomeone of the most powerful and wealthy of the Scotch
banks, but it did not introduce any new feature into Scotch
banking
This is the first occasion,that we are awareof, on which that
abominablesystem of accommodationpaper, which is the sure
precursorof mercantile convulsion,was fully manifested. The
Scotchbanks seemto have learnt a very wholesomeleww>n, and
contracted their issues more within the bounds of prudence.
This wasa sourceof prodigious annoyanceto a vast numberof
speculatorsand adventurers. The prudence which the banks
exercised
in discounting,
not only alarmedbut enragedthesepro-
THE AYR BANK 209
jeetorsto the highestdegree. "Their own distress/*

saysAdam
Smith, "of which this prudent and necessaryreserve of the
banks was no doubt the immediate occasion,they called the
distressof the country; and this distressof the country they said
was altogether owing to the ignorance,pusillanimity, and bad
conductof the banks,whichdid not givea sufficientlyliberalaid
to the spiritedundertakingsof thosewho exertedthemselves in
order to beautify, improve, and enrich the country. Ifewasthe
duty of the banks,they seemedto think, to lend for so long a
time, and to as great an extent, as they might wish to borrow.
The banks, however,by refusing in this manner to give more
credit to thoseto whom they had alreadygiven a great deal too
much, took the only methodby which it was now possiblecither
to savetheir own credit or the public credit of the country
" In the midst of this clamour and distress a new bank was
establishedin Scotland, fur the expresspurposeof relieving the
distress of the country. The design was generous,but the
executionwas imprudent; and the nature and causesof the
distresswhich it meant to relieve were not, perhaps,well under-
stood. This bank wasmoreliberal than any had ever been,both
in granting cash accountsand in discountingbills of exchange.
With regard to the latter it seemsto have made scarce any
distinction betweenreal and circulating bills, but to have dis-
counted all equally. It was the avowedprinciple of this bunk
to advance,upon,any reasonable security, the wholecapital\\hick
wasto be employedin those improvementsof which the returns
are the most slow and distant, suchas the improvementsof land.
To promote such improvementswas even said to be the chief of
the public-spirited purposesfor which it was instituted* By its
liberality in granting cash accounts,and in discountingbills of
exchange,it no doubt issuedgreat quantities of its bank notes.
But thosebank notes being, the greater part of them, over and
above what the circulation of the country could easily absorb
andemploy,returneduponit, in orderto be exchanged
for gold
and silver, as fast as they were issued. Its cofferswerenever
well filled. The capital, which had beensubscribedto this bank
at two differentsubscriptions,
amountedto £160,000,of which
80 percent,onlywerepaidup. This sumought to havebeen
paid in at severaldifferentinstalments.A great part of the
YOU II, *
210 THEOKY AKI) PRACTICE OF BASKING*
proprietors,
whentheypaid in their first instalment,
openeda
coshaccount with the imnk;andthe directors,thinkingthem-
selvesobliged tc>treat their own proprietorswith the same
liberalitywithwhichtheytreatedall othermen,allowed
many
of themto borrowuponthis eawh
accountwhattheypaidin upon
all their subsequent
instalments.Such payments,therefore,
onlyputinto onecofferwhathadthemomentInifore
beentaken
out of another. But, had the coffersof this bank Innmfilled
everso well,its excessive
circulation
musthaveemptiedthem
fasterthan theycould havebeenreplenished by any other
expedient
but theruinous
oneof drawing
uponLondon,
and,
whenthe bill becamedue, payingit, togetherwith interestand
commission,by anotherdraughtuponthe sameplace. Its
coffershavingbeenfilled soveryill, it is saidto havebeen
driven to this resource
within a veryfew monthsafter it began
to dobusiness.Theestatesof the proprietors of this bankwere
worth severalmillions,and by their subscriptionto the original
bond,or contract
of thebank,werereallypledged
for answering
nil St«engagements.
By meansof the great credit which so
greata pledge
necessarily
gave it, it wasnotwithstanding
itstoo
liberal conduct,enabledto*carryon businessfor morethan two
years."When it wasobliged
to stop,it hadin circulation
about
£*200,000
iu banknotes.In orderto support thecirculation
of
thosenotes,whichwerecontinuallyreturninguponifc,asfast
astheywereissued,it hadbeenconstantly
in thepractice
of
drawing
billsof exchange
uponLondon,
of whichthe number
andvaluewerecontinually
increasing,
and,whenit stopped,
amounted
toupwards
of £600,000.
Thisbunk,therefore,
hadin
little morethan the course
of two yearsadvanced
to different
people
upwards
of£800,000
at5percent Upon
the£200,000,
whichit circulated
in banknotes,
this5 percent,mightperhaps
be consideredascleargain,withoutanyotherdeduction
besides
the expense
of management.
Butuponupwards
of £600,000,
for whichit wascontinuallydrawingbills of exchange
upon
London,it waspaying,in thewayof interestand commission,
upwards
of8percent.,
aridwas,
consequently,
losing
morethan
3percent,
upon
morethanthree-fourths
of allitsdealings
**Theoperations
of thisbankseem
tohaveproduced
effects
quiteopposite
to those
which
wereintended
bytheparticular
THE AYE BANK 211
persons who planned and directed it. They seem to have

intended to support the spirited undertakings,for as suchthey
consideredthem, which wereat that time carrying on in different
parts of the country, and at the sametime, by drawingthe whole
bankingbusinessto themselves, to supplantall the other Scotch
banks, particularly thoseestablishedat Edinburgh,whoseback-
wardnessin discountingbills of exchangehad givensomeoffence.
This bank, no doubt, gave some temporaryrelief to thosepro-
jectors, and enabledthem to carry on their projectsfor about
two years longer than they could otherwisehave done. But it
therebyonly enabledthem to get so much deeperinto debt, so
that, when ruin came, it fell so much heavier both upon them
and upon their creditors. The operationsof this bank, therefore,
instead of relieving, really aggravated,in the long run, the
distresswhich thoseprojectorshad broughtboth upon themselves
and upon their country. It would have been much better for
themselves,their creditors, and their country, had the greater
part of them been obliged to stop two years soonerthan they
actually did. The temporary relief, however,which this bank
affordedto thoseprojectors,proveda real and permanentrelief to
the other Scotch banks. All the dealers in circulating bills of
exchange,which those otherbanks had becomeso backwardin
discounting, had recourseto this new bank, where they were
received with open arms. Those other banks were enabled to get
very easily out of that fatal circle, from which they could not
otherwise have disengaged themselves without incurring a con-
siderableloss,and perhaps,too, even somedegreeof discredit
" In the long run, therefore,the operationsof this Bank
increasedthe real distressof the country, which it meant to
relieve; and effectuallyrelievedfrom a very great distressthose
rivals whom it meantto supplant
" At the first setting out of this Bank, it wasthe opinionof
some peoplethat how fast soeverits coffersmight be emptied,
it might easily replenish them, by raising money upon the
securitiesof those to whom it had advancedits paper. Ex-
perience,I believe, soon convincedthem that this method of
raising moneywas much too slow to answertheir purpose;and
that coffers,which were originally so ill filled, and which emptied
themselvesso very fast, could be replenishedby no other ex*
p 2
212 THEORY AHD PRACTICE OF BANKING
pedientbut the ruinous one of drawingbills upon London,and,

when they becamedue,paying them by other draughtsupon the
same place, with accumulatedinterest and commission But
though they had beenableby this methodto raise moneyas fast
as they wanted it, yet, instead of making a profit, they must
have suffereda lossby everysuch operation; so that, in the long
run, they must have ruined themselvesas a mercantilecompany,
though perhapsnot so soonas by the moreexpensivepracticeof
drawing and re-drawing. They could still have madenothing
by the interest of the paper,which, being over and above the
circulation of the country could absorb and employ, returned
upon them,in order to be exchangedfor gold and silver, as fast
as they issued it, and for the payment of which they were
themselvescontinually obliged to borrow money. On the con-
trary, the whole expenseof this borrowing,of employingagents
to look out for the peoplewho had moneyto lend, of negotiating
with thosepeople,and of drawingthe properbond or assignment,
must have fallen upon them, and have been so much clear loss
upon the balanceof their accounts. The project of replenishing
their coffersin this mannermay be comparedto that of a man
who had a water pond, from which a stream was continually
running out, and into which no streamwas continuallyrunning,
but who proposedto keep it alwaysfull by employinga number
of peopleto go continuallywith bucketsto a well at somemiles'
distance,in order to bring waterto replenishit
" But, though this operation had proved not only practicable
but profitable to the bank, as a mercantile company,yet the
country could have derived no benefit from it; but, on the con-
trary, must have suffereda very considerablelossby it. This
operation could not augmentin the smallestdegreethe quantity
of moneyto be lent. It could only have erectedthis bank into
a sort of generalloan office for the whole country. Thosewho
wanted to borrow must have applied to this bank, instead of
applying to the private personswho had lent it their money.
But a bank which lends money,perhaps,to 500 differentpeople,
the greater part of whom its directors can know very little
about, is not likely to be more judicious in the choice of its
debtors than a private person who lends out his moneyamong
& few people,whom he knows, and m whosesober and frugal
THE AYR BANK 213
conduct he thinks he has good reasonto confide. The debtors

of such a bank as that whose conduct I have been giving some
accountof werelikely, the greaterpart of them,to bechimerical
projectors, the drawers and re-drawersof circulating bills of
exchange,who would employ the moneyin extravagantunder-
takings, which, with all the assistance
that couldbe giventhem,
they would probably never be able to complete,and which, if
they should be completed,would neverrepaythe expensewhich
they had really cost,would neverafforda fund capableof main-
taining a quantity of labour equal to that which had been
employedabout them. The soberand frugal debtorsof private
persons,on the contrary, would be more likely to employthe
moneyborrowedin soberundertakings,which were proportioned
to their capitals,and which, thoughthey might have less of the
grand and the marvellous,wouldhave more of the solidand the
profitable, which would repay with a large profit whateverhad
been laid out upon them, and which would thus afford a fund
capableof maintaining a much greaterquantity of labour than
that which had beenemployedaboutthem. The success of this
operation, therefore,without increasingin the smallest degree
the capital of the country, would only have transferreda great
part of it from prudent and profitable to imprudent and un-
profitableundertakings"
8. This bank, to which this long extract refers, was the

celebratedAyr Bank, which was foundedto remedy the alleged
distresscausedby the niggardly conduct of the existingbanks.
It was started by a companywhich comprisedthe Duke of
Hamilton and many otherlandedproprietorsof immensewealth,
and it was basedon the fatal delusion that, because the capital
and property of its proprietorswasundoubted,it might therefore
issue notes to any amount without depreciation. This was
exactlyJohn Law's theory of money,and this bank is a pregnant
instanceof its fallacy. The pamphlet we have alreadyquoted
from, relating to the Bank of Scotland,had alreadyseenand
denouncedthis fallacy, for it said,with perfect truth and wisdom,
that no matterwhat thecapitalof a bankingcompanyis, thePapev
Credit,in theshapeof Notes,whichit cancirculate> bearsa certain
yroportwnto the existingspeciein the country, and this can only
214 TIIEOBY AND PRACTICE OF BANKING
be ascertained
by experience.Now this strikesat the root of
John Law's whole theory, becausethat is basedupon the fallacy
that banknotesonly represent
property,and thereforemay be
multiplied to the extent of any existing property without depre-
ciation-a theory whoseresultsmay be seenin the history of the
Assignats; whereasthe real truth and fact is, that bank notes do
not representany property whatever, but are themselvesinde-
pendent entities, and can only maintain their value, like any
other independententities, by bearinga certain proportion to the
specie. Nor is Adam Smith correct in what he says,that the
operationsof bankingdo not increasethe capital of the country;
there is no more delusive fallacy than this in Economics; it is
just because banking doesincreasecapital so rapidly that it is so
dangerous. It is just for the very reason that bank credits,
whetherin the form of promissorynotes,or entries and cheques,
perform exactly the same functions, and are in all respects
equivalent to the creation of so much additional capital, that
they so fatally depreciatethe valueof the existing specie,if they
are multiplied too rapidly. The fatal error of the Ayr Bank, and
of Law's theory is this, not that capital might be increasedby
banking, but in not perceiving the true natural limits to the
increase-and in not seeing that the true limits were to be found
iu its maintaining an equality of value with gold and silver.
This unfortunate concern was supposedto have been insolvent
within a fortnight after it commencedbusiness. Its mistaken
courseinflated speculation;the accommodation bill system,which
has been the causeof every commercialcrisis from that time
to this, promoted by this bank and other speculators,formedthe
exact antetype of the proceedingsof the Western Bank and its
herd of adventurersin 1857. The exportsof 1771and 1772rose
to a height they had neverdonebefore, and which they did not
again equal till 1787. While commercewasin this apparently
prosperous,but in reality bloated and diseasedcondition, the
puncture of a pin was sufficient to make it collapse. On the
10th June,1772,a partner of one of the greatestfirms in London
Neale & Co., decampedwith £300,000, having beendeeplyen-
gagedin speculationin funds. This man, namedFordyce,was a
Scotchman, and had a large Scotch connection; these were blown
uponby the failure of their Londonagent,anda completecoin-
LIABILITY OF SCOTCH BA]S7KS 215
mercial panicbegan. The Ayr Bank had branchesin Edinburgh

and Dumfries,and a run beganupon it on the 17th June, 1772,
in Edinburgh, and it stoppedpaymenton the 25th, along with a
crowd of speculators. The whole of Scotlandwas shakento its
foundations. The paperof the Ayr Bank in circulation amounted
to £800,000. There had been no disaster similar to it since the
Darien scheme,and there has been none since like it, until the
failure of the Western Bank. The credit even of the other banks
was almost gone. Besidesthe three Public Banks, only three
of the private onessurvived. The personwhowasthe immediate
cause of the collapseof the rotten bubble of credit being a
Scotchman,the London papers teemed with tirades of abuse
of everythingScotch
A writer in one of the paperssaysthat the accommodation bill
systemfirst sprungup then. In the Public Advertiser,July 8th,
1772,it saysin a letter-*' Banking companieshaveappearedin
almost every cornerof the kingdom, and bills of exchangehave
beenmultiplied by a new method calledSwivelling,without any
solid transactions." Adam Smith, however, places it earlier.
Speaking of the refusal of the banks to discount to the extent
the speculatorswished, he says-" Someof those traders had
recourseto an expedient,which for a time servedtheir purpose,
though at a much greaterexpense, yet aseffectuallyas the utmost
extensionof bank credits could have done. This expedientwas
no otherthan the well-knownshift of drawing and re-drawing;
the shift to which unfortunate traders have sometimes recourse
to when they are on the brink of bankruptcy. Thepracticeof
raising moneyin this mannerhad long beenknown in England,
and, during the courseof the late war, when the high profits of
trade afforded a great temptation to over-trading, is said to have
been carried on to a very great extent. From England it was
brought to Scotland,where in proportion to the very limited
commerce, and to the very moderatecapitalof the country, it was
soon carried on to a much greater extent than it ever had been in
England. The practice of drawing and re-drawing is so well
known to all men of businessthat it may perhapsbe thought
unnecessaryto give an accountof it." And yet a respectable
witness,Mr. Latouche,deputedby the private bankersof Dublin
to give evidencebeforethe Committeeof the Houseof Cimmona
216 THBOIIT AND PRACTICE Off
in 1858,saysthat the accommodation

bill system
"arosefroma
new element,which, when the Act of 1844 was made,did not
exist at all, and that wasthe immenseamountof depositsin the
handsof Joint StockBankspaying interest! V
9. In 1774,by the Statuteof that year, c. 82, the Bank of

Scotlandwas authorisedto doubleits capital stock,and the limit
which any shareholdermight hold was raised to forty shares.
In this year the bank began successfullyto establishbranches,
which has since becomeso markeda featurein Scotchbanking.
In 1784,by the Statute of that year, c. 12, the capital of the
bank was raised to £800,000, and all restrictions as to the
amountof stock any proprietor might hold taken off. In 1792,
by the Statute of that year, c, 25, the capital was raised to
£600,000,and by Statute,1794,c. 19, to £1,000,000,and by
Statute, 1804, c. 28, to £1,500,000, of which £1,000,000 has
beencalledup, and at which it still remains
10. The next great commercialcrisis was in 1798. This

also extendedto Scotland. This was attributed by the best con-
temporarywriters to the inordinatemultiplicationof the country
bankers and the commencement of the revolutionarywar. This
crisis was most severelyfelt in Glasgow. Numbersof the most
wealthyfirms, both commercialand manufacturing,failed. The
GlasgowArms Bank, one of the three oldestin the city, stopped
on the 14th March. Three-fourthsof the country bankers in
England were greatly shaken. The Bank of England refusedall
assistance,in spite of all solicitations madeto it, for which it is
severely
blamedby Sir FrancisBaring and the Bullion Report.
When the Bank adoptedthis perversecourse,universalfailure
seemedimminent. Sir John Sinclair rememberedthe precedent
of 1697,when Montaguehad sustainedpublic credit by an issue
of Exchequerbills, and thought that a similar plan might be
followedin this crisis. Mr. Pitt desiredhim to proposea scheme
for the purpose,which he presentedon the 16th April. A Com-
mittee of the House of Commonswas immediately appointed.
In the meantimea director of the Eoyal Bank of Scotlandcame
up, with the most alarming news from Scotland, The public
bunkswerewhollyunable,with dueregardto their ownsafety,
COMMERCIAL CRISIS IN 1793 217
to furnish the accommodation necessaryto support commercial

housesand the country bankers. That, unless they received
immediate assistancefrom Government,general failure would
ensue. Numeroushouses, which wereperfectlysolvent,must fall,
unlessthey could obtain temporaryrelief. Mr. Macdowall,M.P.
for Glasgow,statedthat the commercialhousesand manufactories
there were in the greatestdistress,from the total destruction
of credit. That the distress arose from the refusal of the
Glasgow,Paisley, and GreenockBanks to discount, as their
notes were poured in upon them for gold. This panic was
allayedby the Governmentconsentingto issue small Exchequer
bills, and by the activity of Sir John Sinclair in getting money
sentdownto Glasgowin anticipationof theseExchequerbills
An idea of the great severity of this crisis may be formed
from the interesting memoirs of Sir William Forbes, of the
history of that house. He says, p. 80, speakingof deposit
receipts-
" In ordinarytimes the numberpaid and granted are pretty
much the same
" Amount paidabovegranted,in December,1792,£10,670
January, 1793, 16,916
February, 11,561
March, 52,961
» April, 105,075
to 23rd May, 66,541
£263,724
"The diminution on current accountbalanceswas in pro-
"
portion,that is, nearlyasmuchmore
11. The news of the suspensionof cash paymentsby the
Bank of England reachedEdinburgh by expresson the 1st of
March. An immediate run on the banks took place. The
managersof the public banks waived all etiquette,and met at
Sir William Forbes's to consider what was to be done. It was
agreedto follow the exampleof the Bank of England,and
suspendall paymentsin specie. A meeting of the principal
inhabitantswascalledby the Lord Provost, and attendedby the
Lord President of the Court of Session, the Lord Chief Baron
218 THEORY AKD PRACTICE OF BANKING
of the Exchequer,the Lord Advocate,and the Sheriff of Edin-

burgh. The meetingcameto a unanimousresolution to support
the credit of the banks,and to receivetheir notesas specie. This
resolutionwas advertisedin the papers,and expresses sent oil' to
the principal townsin the kingdom to inform them of it
The suspensionof cashpaymentsgave rise to terrible scenes
of confusionand uproar. The doors of the banks werebesieged
by crouds,clamouringfor gold and silver in exchangefor notes.
The demand for small changeby the lower classeswas most
urgent They adoptedthe plan of dividing the £1 notes into
halvesand quarters. Spanishdollars,stampedby the Mint, were
issuedat 4#. 6d., and quarter guineaswere coined. An Act was
speedilypassed,to allow thosebanks which had beenin the habit
of issuing notes to issue 5s. notes for a limited period. The
panic was allayed, and confidencequickly returned. The notes
were receivedas readily as ever, though the banks refusedto cash
them; and, what wassomewhatremarkable,no attempt wasever
made by the peopleto compel them to pay specie,and not a
single action was brought against them, although they were
entirely unprotectedby any Act of Parliament, and in a short
time businessproceededmoreprosperouslythan ever
12. The next occurrencethat we may mention, as it was

regardedas a political event, was the foundation of the Com-
mercial Bank in 1810. This was at the time when the high
Tory regimewasin its highest and palmieststate, and the banks
were alleged to carry their politics into their business. The
Liberal party then determined to found an opposition bank,
which wasnamedthe Commercial,which hasattained as great an
eminenceas any of the older ones in public estimation. Its
capital, as yet paid up, is £1,000,000,which, its directors very
recently gave the satisfactory assuranceto its shareholders,is
perfectly intact, and in addition to that, it has £400,000 of
accumulatedprofits as a reservefund. This bank subsequently
obtaineda charter,but the liability of its shareholders
is specially
declared unlimited
*In 1818, it being found that many foreignersavailed them-
selvesof the privileges of naturalisation,by purchasingstock in
the Bankof Scotland,
thisclause
in theiroriginalActwasrepealed.
SUSPENSION OP CASH PAYMENTS IN 1797 219
13. The long and dreadfulcatalogueof banking failures in

England,chiefly owing to the monopolyof the Bank of England,
and which were attributed to the issues of the £1 notes of the
country bankers,madethe Ministry of 1826 desirousto abolish
them in Scotlandand Ireland, at the sametime asthey did those
of England, But this raisedsucha ferment in the country that
the Government consented that Committees of both Houses
should be appointedto inquire into the matter. The result was
so eminently favourable to the Scotchbanking systemthat no
further interferencewasattempted. " With respectto Scotland,"
says the report of the Lords, " it is to be remarkedthat during
the period from 1766 to 1797, when no small notes were by law
issuablein England,the portion of the currencyof Scotlandin
which paymentsunder £5 weremadecontinuedto consistalmost
entirely of notesof £1 and £1 Is., and that no inconvenience
is
known to have resulted from this differencein the currencyof
the two countries. This circumstance,among others, tends to
prove that uniformity, howeverdesirable,is not indispensably
necessary. It is also proved, by the evidence,and by the
documents, that the banks of Scotland, whether chartered or
joint stock companies,or private establishments,have for more
than a centuryexhibiteda stability which the Committeebelieve
to be unexampledin the history of banking; that they supported
themselvesfrom 1797to 1812without any protection from the
restriction by which the Bank of England, and that of Ireland,
were relieved from cash payments; that there was little demand
for gold during the late embarrassments in the circulation; and
that in the wholeperiodof their establishmentthereare not more
than two or threeinstancesof bankruptcy. As during the whole
of this period a large portion of their issuesconsistedalmost
entirely of notes not exceeding£1, or £1 1$., there is the
strongestreasonfor concludingthat, as far as respectsthe Banks
of Scotland,the issueof paperof that descriptionhasbeenfound
compatiblewith the highestdegreeof solidity; and that thereis
not, therefore,while they are conductedupon their present
system, sufficient ground for proposingany alteration,with the
view of addingto a solidity which has so long been sufficiently
established." The report of the Commonswas also adverseto
any legislativeinterferencewith Scotchbanking
2^0 THKOltY AND PRACTICE OF BANKING
14, No interference with fcVotehbanking took place till

IH45, whenHii Robert iVel, having carried Im Bank of Kngiaml
Charter Act, and Joint Stock Banking Act with scarcelya breath
of opposition*determined to reûUte those of {Scotlandund
Ireland us well The principal provisionsof this Act, Statute
181,1,c. 5W,an* aa follows-
1. All personshad been prohibited by the Statute 1844,
e. 82, from commencingto issue notes after the (Uh May, 1KH,
in the United Kingdom, and all such persunnin Scotlandan were
lawfully issuingtheir nolcnbetweenthe tiih May, 1844, and the
M May, l«45i were to certify to the CommiHmonera of Stamps
und Taxesthe nameof the firm and the placeswherethey issued
Bueh notes
IL The Commissioners
wereto ascertainthe averagenumber
of suchbankers*notesin circulationduring the yearpreceding
the 1st May, 1845
III. Such bankers were authorised to have ia circulation an
amountof notea,whoseaveragefor four weekswas not to exceed
the amountthus certified by tho Oommissionero,
together with an
amount equalto the averageamountof coin held by the banker
during the namefour weeks. Of the coin three-fourths must be
goldand one-fourth
silver
IV. lu case the bank exceedsthe legal amount, it is to
forfeit the excess
V. If two or morebanksunite, they are authorised to have
an issue of paper to tho aggregateamount of issues of the
separatebanks, as well as the amount of the coin held by the
united bank
VI. Notesof the Bankof Englandnot to belegaltenderin
Scotland
The reader will see that there are some striking points of
differencebetween the restraints laid upon the Knglinh and
Scotchbankfi,for, while the former are bounddownto an abso-
lute listedlimit of issue,the latter are permitted to innueto any
amount,providedtheyholdan equalamountof coin abovetheir
authorisedamount. Moreover, if any imml>erof l*uukti unite,
they may havean aggregate,authorisedInwie,equal to that of the
separatebankn;but in England,if the numberof partnersof the
unitedbankexceed**
BIX,theyforfeit their powerof i&juingnotet*
STOPPAGE CVFTWO SCOTCH BANKS 221
altogether.This absurdrestrictionasto the numberof partners

in u bank neverhad any force in Scotland
15. The year1857was remarkable for a calamity,to which

therehad beenno precedentexceptthe Ayr Bank, namely,the
suspensionof two very large joint stock banks, the Western
Bank and the City of GlasgowBank. The latter, indeed,has
nwunuxlbusiness,and on an investigationof its affairs,it
appeared
that, out of a capital of above£800,000,it had lost
about£70,000; havingthus a verylarge paidup capitalintact,
it resumedbusiness,and it might have been hoped that after
having receivedthis severelesson,its businesswould havebeen
conductedon better principles in future. But the Western Bank
wu«found to have lost not only the whole of its paid-up capital,
£l,!W<MKK)fbut nearly as much more besides. This Bank was
founded in 1KS2,ao that, in the courseof twenty-four years,it
loHt £3,000,000 of money. The Ayr Bank, in two yearsand a
half, lout£400,000,so that,of thetwothe latter is proportionably
the more severecalamity. The failure of the Western Bank,
however,hascalled forth the most bitter attacks upon the general
syatemof Scotch banking, which we shall find to be totally
unmerited, becauseit is clearly proved, in the evidencegiven
before the Committeeof the House of Commonsin 1858,that
during th& whole courseof its career,%tpursueda systemwhich
T/VMdittmttrically opposedto the usual courseof the otherScotch
tonfr*
The WesternBank began businessin 1832, and in the next
year had a paid up capital of £209,170, which was increased
year by year,till, in 1849, it amountedto £1,792,850, at which
it continued till 1852,when a number of shareshaving fallen
into the Bank's handsby bankruptcy and insolvency,they were
written off against the capital, which was thus reduced to
£1,500,000, at which it continued till the closingof the bank.
The modeof bunineasadoptedby this bank, from the beginning,
WMnot accordingto the usualplan of Scotchbanking, for while,
artexplained
by the witncmtcs
Ixsforethe Committeeof 1858,one
Vfsryimportantfeatureof it i« to keepvery large reservesin
London, either at their bankers or in Government securities,
»>u?
Wr*»U'rnBank invested its meanschiefly in local accoinmo*
THROW AN1> PRACTICE OF
dation,and kepttery insufficientreservein London,so muchso

that in 18$4its liomionagents,Mown*.Loyd& (1t>Mdishonoured
its drafts. It appearsthat upon thin the other Scotch hunks
refusedits nntPtsandremonstratedwith it for its mismanagement
On the 30th Octoher, 1H:U, the directors, in answer to thei«»>
ronuwwtranees,notified to tin* «»ih»»r
hunks that they had rcHohed
to invest, in mnrkt'tahle securities,a sum amply sufficient to
preventsuchathinghapjvnitt"aâin. Theypromised
to com-
mencethe necessaryoperations in the fnHuwinjLr
.January, and
complete
themin April, if n«»iearlier. Theyalsoentêd to
tautentheir diseountH,and to continueto do BO,in order to ha\o
snifidcnt funds at its eominand, Up«m this proiniBe of better
conduct Jn fbtnror the three clmrtered JmnkB advaneedthu
Western Bank £100,000 to enahlit them tyo purchase thej-o
securitieaforthwith* But tiic Western direetontvery Boonlm»ko
their engagement,
andrevertedto their formermodeof business
In 1838theyappliedto the Boardof Tradefor a grantof letters
patent,whena numberof the otherSeat
eh bunkspresenteda
joint memorialagainstit. They studthat they shouldbo
wantingin their duty to the public, as well UKtheir owncon-
stituents,if theysanctioned
by f hHr silencesuchanapplication--
*'The fact in well known to you, that while there hu\e occurred,
during the past fifty jeurs, periodicalnmvnlwmwamongtho
banksin England,which have led to the fuiluni of wevend
hnndreds,Scotlandhas,for the tnmt pnrt maintuinetla »tat*k
of
generaltranquility,andtlicrcjhave,in the*naino
time,oc<nirn'd
onlythroeorfourfailures, nnd thosoof a veryminorcharacter.
The causeof this is notorioarfy owing, first, to the largo capital
employed
in the Scotchbanks,and,second,
to the system
of
administrationadopted. Capital alone,as has been recently
experienced
In England,by extending
the scaleof operations,
mayonlyincrease
the mischief. In the like mannera mtntaroug
proprietary,
constitutinga protectionto the public against
eventualloss,may, by addingto the credit, add to the power
of such an institution for evil The safeguardof the Scotch
systemhas"been
the uniformpracticeadopted
of retaininga
largeportionof the capitalanddepositsinvestedin Government
securities,capableof l>eingconvertedinto money,at all times
and under ail circumstances. This requires a sacrifice, because
THE WESTERN BANK 223
the rate of intercutis Kmall,and,in timesof difficulty,the sale

involves a I<w«,but it has given the Scotch banks absolute
security,and enabledthorn to passunhurt through periodsof
great discredit
" It is not then unreasonable
that the managers
of the Scotch
bankftshould look with favour on a systemwhich, notwith-
standingtheir closeconnectionwith England,has exempted
them from these calamities, and, in the doubt that exists on
bankingtheorieselsewhere,
it is at this moment
sufficientto say
that the system establishedin Scotland has worked well, and
ought not to be disturbed there
**The WcBternBank was establishedin the year 1832, and
the,principleon whichit hasavowedly
actedhasbeento employ
us much as possible,of its capital and assetsin discountsand
loanR,retaining only the cash necessaryto meet its current
**As this is a more profitable investment than Government

securities, there is always a strong temptation to speculative
or inexperienced
persons
to adoptthis course,and if the conse-
quences
wereto affectthemselves
alone,it wouldbe of small
moment,but unfortunately,in banking, this cannotbe. The
wholesystemdependsuponcredit,and thefailureof an ill-regu-
lated establishmentaffects those differently constituted. Such
a body,in prosperous times,boldly extendsits business,and,
from seeingthe readinesswith whichin suchseasons
commercial
pajver
isdiscounted,
coniesto the conclusion
that it is thebest
and most convertible description of investment that could be
found
u Prudent banta, knowing the delusive nature of this ex-
pectation,
arecompelled
to increase
theirownreserve
to meetthe
ctmnequeneeR
of UUKunwiseexpansion;and,whenthe difficulty
wmeH,theymoat eithermint their rival to preventan explosion,
or must makea heavy sacrificeby selling their securitiesat a loss
**The Western Bank, acting on this principle, allowed their
I/melon transactionsto aaaumesuchan irregular shapethat their
Ixmtlon agents,the reHpeetable
houseof Jones,Lloyd & Co.,-
t*w»kalarm,and in 1834dishonoured their drafts. The Bank
of footland, Koyal Bank, and British Linen Companywere
compelled to come to their assistance,and made them con-
224 TltKOKY AND PIUCTICK OF BANKING
sideraMcadvances*Theseeireumntances
occurringin a time
when the money market wan perfectly tranquil, shewed the
extremedangerof the practice* The EdinburghbanksinsiKtud
on a better «jntcm of managementbeing adopted, and that the
Western Bank should have invented in Uovermnent securities
a sum amply sufficient to meet emeigencies. TIio Director**,
after mwh duration, at length, by u resolution dated 80th
October, 18;il, distinctly assentedto the requisition, but, as
they had «o engagedthe a&setnof the Bunk a« to renderit
impossibleimmediatelyfa procure*the fututa, tho Ktlinhurgh
banks lent them £100,000 for tha purpw, FwM
WwternBank mayA/nvinr/^dton fAtitagrwwwnt,but Urn
of prqfit appw* to tww got thefatterof theirfrutitnci, wtd llwy
now rqwdM* their eng<t$MMil
u It will bo quite,apparentthat & bank that canemployits
whole funds in this manneris enabledcither to divide a larger
shareof profits than its competitors,or to do bu«in«8Son moro
favourable terms; and we repat, that if the only consequence
of this was to increase or diminish the dividends of the rival
establishments,it would be of comparatively nmall importance,
but in its result it rndungiTAthe exwtvncc of every bank in tho
countryand the fortunedof a large portion of the,community.
We.feel that, if letter**patentnhal! tw grunted to thw hank, after
whathaspa«8edf
U wilt bea ptthliexanetwn
andcounlnnwMof a
new and mischievousprinciple^ ojôsed to th& banking &y$lc>n
of Scotland
" The questionfe not, in thifi instance,whetherGovernment
will intcrponenewrestraintson bankingcompanies, bat whether
they will encourage a violation of tho old syatera,by granting
distinction and privileges to a companywhich, having pledged
itself fcothtur olwervanrc, now disownsthem in it« practice,arid
under thesecircuniRtanceH applies for a charter." This memorial
wassigned by the Bank of Bcotland,tho Britinh Linen Company,
the Commercialand National Bunks; and the charter, if applied
for, neverwas granted
This ftystemof keeping mich small removesin London pro-
duoed the consequenceforeneenin the precedingmemorial In
IK 17 the Western Bunk wan in diflkultiVn, and received a^HiBtance
from the Bunk of England to the amount of £^00,000 in No-
THE WESTEttN BANK 225
vcmberandDecember, 1847,whichit repaidin March,1848.

Fromthistimeforwardtill 1852,whenachangein themanage-
menttookplace,a rathermore cautionscoursewas pursued,
but
they did what we believewas totally contraryto the usual
practiceof the other Scotchbanks-they rediscounted.The
followingfiguresshewthe amountsof discountsandrediscounts
from 1847 to 1852-
Discounts. Rediscounts.
In 1847 £15,711,438 £656,077

1848 12,088,643 374,707
1849 10,522,022 249,957
1850 12,048,669 290,813
1851 13,322,753 588,247
1852 13,525,382 407,143
At this time the Bank had £356,000 of overduebills, besides

other very heavy locks-up of capital, in one caseamounting to
£120,000, which was covered with insurances on the lives of the
obligants, on which it had paid £33,512 as premiumswhenit
stopped. "But even at this time," says Mr. Fleming, "it had
a cluster of those peoplewho had manufacturedaccommodation
bills, doing businesswith them." So that in this year,he says,
the Bank wasnot in a satisfactorystate
In 1852 a new managementcommenced,and to shewhow
the practice of rediscounting increased,we give the following
figures-
Discounted. Rediscounted.
In 1853 £14,987,740 £1,682,320
1854 18,596,704 4,856,292
1855 19,835,781 4,969,669
18f>6 20,410,884 5,407,363
1857till Nov. 9 20,691,415 4,881,221
Thus we seethe enormousincreaseof this most perilousprac-
tice during theseyears,a practicewhichplacesthe existenceof
anyinstitutionthat depends uponit to any greatextent,at any
momentat the mercyof thewill, the caprice,
or anyaccident
that mayhappento thepurchaser
of its bills
But this was by no meansthe only instanceof reckless
VOL. II. Q
226 THBOBT AND PRACTICE OF BANKING
management.Over and aboro all the othor

there were fcmr accounts particularly to \\hirh tho
calamitywasdim; wowill shewthe ftale of tlwHO
accounts
in
1852 and 1857-
18,52, PxMcmiuR Ovvnlrnim Account.

Macdonald & Co............. £107,1 U> ...
Menteith & Co ............. 83,77!) ... !«,:»:»:)
-
Wallace & Co............. 18,141 ...
Pattiaon&Oo............. 8J>,«78 ... I.l.M
£188,717 .£Uu7
Shewingthat thesefour firms weretinder obligation!*to th<*

Bank in 1852 to the amount of £198,394. The following w«#
the state of the same accounts in 1857-
«*««*. °r±T "Sa"

Macdonald..«...X*io#,7l(5 £«V»ttG £8,^^(1
Mcnteith ...... ;)7fi,7lW ¬7,O.S5 9:)t129
Wallace 2i'7,4<»4 - -
Pattison :W,iM)ti (J7,2:i» II,:»7I
£ 1%SW7» £ 1 35,524 £ 1 1: W2
Beinga sumtotalof £1,603,725

to thenefourhcmwft
alone*,
when
they failed. And, to shewthe characterof the hill* dlnccmnUnl
forthofie firms, of £402,716 bills of MacdonaidVt cum*nt at tho
timeof their failure,£398,349werediaho&onrecl
at maturity; of
Montcith's, £370,609 current at their failure, ,£8ti9,?2ti
dishonouredat maturity; of Wallacu'fl, of £2S6t741
thereweredinhonoured
XS09,&84
; andof Pattiaon'B,
of £3
current, therewereduihonoared£1 50,7-19
Soon after the general meeting of June, 1857, the directors
requestedanother person to examine tho Bnak'H hook*, who,
after doing so, aad allowing all the current Inuttiinmof th<*Hank
to be good,including the abovefour firms, found I hat l«d dvbU
to the amountof £573,000werekept on the imokflm g<HKiF
which,afterdeducting
the restandguarantee
fund,amounting
FAILURE OF THE WESTERN BANK IN 1857 221
fco£246,000, madea lossof £327,000in the capitalof the Ban!

and the advances to the shareholders, holding 7,626 sharesin th
Bank, amounted to £988,487. In the month of Septembe
1857, Mr. Fleming, the personwhom the directorshad requeste
to assumethe temporary managementof the Bank, bega
seriouslyto inquire into the nature of theseimmenseaccount]
and on the 7th the "Wallacesacknowledgedthat they weredealin
in accommodation bills, and he saw that the Macdonalds must t
doing the samething, as the two houseswere drawing on th
same names. It was found that the Macdonaldsdrew upo
124 acceptors,only 37 of whom had been inquired about,and <
these,reports on 21 were extremelybad. But there were 60 (
70 personswhom they drew upon, who madeit a regulartradei
acceptbills for a small commission;in fact, it appeared
that the
engageda man in London to procure them accommodatic
acceptances. As soon as the true nature of these accountswi
ascertained, there was no resource but to stop them. The failun
of Menteith and Macdonald, which were the first that becan
notorious,created a panic on the Stock Exchangeon the lOt
October, and the price of stock rapidly fell, it being common!
reportedthat the whole capital of the Bankhad beenengaged i
enabling theseparties to carry on their businessfor a series<
years. These rumours created a run on the Bank, to a sligl:
extent, on the following Tuesday,which continuedfor two c
three days, and during that week, ending the 17th of Octobe
the Bank paid awayabout £36,000 in coin,but this wastheon!
run for gold of any amount on the Bank, for duringthe followin
week it only paid away £4,000, and in the week after that abot
£2,000; and the whole paid awayin coin betweenthe 10th <
Octoberand the 7th of November,the Saturdaybeforeit stoppe<
was only £44,000. But, during this period, the total deposi
demandedwere£1,280,000,and,exceptthe sum abovementione
as paid in coin, thewholeof thesedepositswerepaid in theBank
own notes, which were immediately taken and lodgedin the oth
banks
This dreadful catastrophedeservesto be minutely detaile

becauseit is strenuouslyassertedby a very influential party,th
the small note circulation of Scotlandtends to increasea pan
among its holders. But in this case,the Bank'snotesin circi
228 THEORY AND HIACTICE OF BANKING
lation did not in any way increasethe panic. Mr. Fleming

says-"I may say that there WUHno rnn for tho payment of
notes all through. There may have beena few notes presented,
but I shouldcertainly limit the demandfor gold in exchangefor
notesto £5,000 or £0,000. I do not think it \\ould exceedthat.
Mr. Wifcon: In point of fact, the whole pressure,upon tho
Bank at any time was in mspeel of its deposits,and not in
respect to its circulation ?-Ihritfrdlih Mw iras no prawnw
in rcywt to its circul<ttwn; so much so, thut during the last,
two days for which the Bank wua in operation, I do not think
£1,000 was paid away in gold at the head oilice. The whole
moneywithdrawn wastaken away in notes, and the conHequeuee
wasthat on the afternoon of the 9th November,when the Bank
stopped,therewas a very large amount of notes in circulation,
somethingahout £720,000. Then the depositorsbecameuneasy
about the security of their deposits,went to the Bank, and took
the Bank's notes?-Yes. Did they pay them immediatelyinto
other banks ?-Yes Wiw there much drain in the
provinces upon the balances?-Not a very large amount, cer-
tainly; a wonderfully Hinull amount, in proportion to the*total
deposits,was withdrawn from the country. I think you Ruid
that at the branchesthere \uus very little demand for gold;
almost none ?-Almost noneJ*
At the same time a very heavy blow fell upon them from
anotherquarter. TheBank,insteadof keepingits fundswell in
hand in London, engagedin exchangeoperationswith America.
They had an agentin NewYork, though,perhaps,not openly
and avowedly in that character, who granted letters of credit
uponthem,in favourof persons
whowishedto raisemoney,such
partiesarrangingwith the agent, the securitiesto be lodged
to meet the Bank's acceptances.Thesecredits wore not by any
meansalways paid at maturity, but were renewed to a large
extent. By this operation a very considerableportion of the
Bank's funds were locked up in America, instead of being in
London asthey ought to have been. At tho time of its suspen-
sion its acceptances
current and its obligationsto acceptamounted
to £317,000 in two months' bills, which, multiplied by sk, gives
the amount of the year's transactions. The amount of funds
lockedup in America by their agent there appearsto have becrn
VAII-UKE OF THE WESTERNBANK IX I8"»7 2 29
JM7<vr>-0, against which hi* hold railway bondsand current hills.

Mr, Fleming said, Q. ,r>.">10-**Ifc appearsto me in many rasios
the credits establishedhy Lee npon the WesternDank have been
modesof raining moneyfor the purposeof conquering: American
nuhvaysand for speculationin stocksin New York." *4Thotwo
banks, i>., the Western and the City of Glasgow/* said Mr.
Robertson,the cashier of the Royal Bank, **were in the habit
of accepting four months* inland bills drawn from London,
Liverpool,and Glasgow,in respectof thesecredits,which*/wr
quit* condemned
lij theBank of JKityhnd,and all th& otherBanks
in Scotland "
The general fitoppagoand failure of Americancredit at this
time renderedthe expectationsof any remittanceshopelessfr*»m
there. And Mr. Fleming, who undertook the duty of manager
on the 15th Oetober,told the dtivdors it was absolutelyefênlial
to makepro\isiuu f<*ra contingent drain upon the depositmoney,
and also for the American ueceptaneeH becomingdue. Ontho
17th (Mober the directors resolved to apply to the Bank of
Scotland* On the 21st a written applicationwas madeto that
Bank for assistance,and on the 2ttrd a meeting having been held
of all the Edinburgh Irnnkfl,they declined to assist,until appli-
cation had licen madeto the Bank of England. This application
wasrefused. This refusal being telegrapheddown to Edinburgh,
a meeting of the banks \um held the same evening and they
agreed to advance £500,000 on condition that the directors
should dissolve and \\ind tip the eomvrn. After some days*
negotiation the Edinburgh bunks agreed to forego the com-
pulsorywinding up, HHthe duvetorftof the Westernsaid that
they had no powerto do so,and advanced the moneywithoufc
this condition. This sum wu**accordinglyadvancedon the 20th
October, on the promissorynotes of the Western Bank, at six
months*date, for i'310,000, the terms ix*ing that the Western
Bunk should 1& boundto replacethe Kdinhurgh banksin Consols
at the priceof the day. In additionto the loanso advanced
hy
the Edinburgh hanks, the ClydesdaleBank advanced£IootuoO
on a note of tho Bank's at six month*, with the individual
guaranteeof the directory which was discountedat the current
rate of 8 per ceiife,
The withdrawal of the depositsfrom the Bauk, which was
230 TIIEOBY AND PRACTICE OF BA1SKIN0
almost entirely amongthe small depositors,had greatly abated,

and, whatevermight have beenthe ultimate result which might
have beennecessitated in consequence of the examinationof the
Bank's affairsthat wasthen in progress,there was no immediate
danger of a catastrophe; when, on the 20th October,the City
article of the Timrs announcedthat the Edinburgh bankshad
resolvedto carry the Western Bank through its difficulties, on
eondilion that it should wind tip. The Times reachedScotland
on the morning of the 30th, and immediatelya fresh pressure
commenced on the Bank. But thin time it was of a different
character from the previous one. The first presnurehad been
amongthe small depositors,the secondconsistedof the traders
who kept large accounts,who, seeingthat the WesternBank
wasgoing to close,madehasteto transfertheir balances
to the
other banks and open accounts with them, and it was this
pressurewhich continued and madethe Bank closeits doomon
the OthNovember,not from a demandfor {/old, but bwauw th&
balancesof theseaccountsbeing ivitMraim in Hie Bank's nofts,
and paid into otherbanks,the Wetfrrn Bank wasunabletoprovitfo
for the pmchaw of Exchequerbills from Ihe otherbanks,to rectify
this balanceInj a draft on London
To shewhow mischievousthis publication of the terms pro-
posedwas,wo quotefrom Mr. Fleming^letter to the Bank of
Scotlandof 81st October,1857-"The application madea fort-
night ago by the Directorsof this Bank to the other Scotch
banksfor a creditto the extentof £500,000,wasbamtdoti iny
calculation that £350,000or £400,000 would keep our London
finance in perfect order, and that the remainder would be a
sufficient reserveto meet any probablewithdrawal of deposits.
This calculation,I still believe,would have proved correct, had
the assistancerequiredbeengivenpromptly, quietly, and fre& from
any conditiona* to winding up
" But the demandsmade upon us have considerablyexceeded
my calculation, from two Cannes;first, the notoriety of our
financial embarrassment, createdby the delayin accedingto our
application,and the coursewhich the negotiationstook from our
having beenreferred to the Bank of England; and second,tho
condition as to winding up, which tho other hanks .noughtto
impose,and the publicity given by the Timesto this condition
FAILURE OF THE WESTERN BANK IN 1857 231
<£It is not; easyto say in figuresto what extentthesecauses

have respectivelyoperatedin inducing withdrawals,or to estimate
to what extent they may still operate. But as to the past, my
own observationhere,and the reports from our branch agents,
all convince me that the secondhas been immeasurablymore
mischievousthan the first. Depositson receiptsham beenwith-
drawn to a v&ry limited extentindeed,but balanceson current
accountskept"bythetrading communityhavebeenremovedto other
banks to a considerable extent. The reason is natural and obvious.
If this Bank is to wind up, tradersknow that we cannot give
them accommodation,and they take the earliest opportunityof
arranging for that accommodation elsewhere, and withdraw their
balances
"I am hopeful that the mischief alreadydone is not irre-
parable. That we retain sfcilla measureof public confidenceis
proved by the fact that nofixed depositsof any largeamounthave
beenwithdrawn, and nothing like a run lias takenplace, and gold
Ms scarcelyeverbeendemanded
" I have alreadysaid that there has been no demandmade
upon us for gold, all sums withdrawn having beentakenin our
own notes, andj consequently,the other banks have got the
The Western Bank then asked a further loan from the Edin-
burgh banks, which, having been discussedfor somedays,was
unanimously refused
On Saturday,the 7th November,there was, from the heavy
withdrawal of depositsin the Bank's notes, and their lodgment
with the other banks, a heavyadversebalanceon the exchange
of that day. The Edinburgh banks were immediatelyinformed
that the "WesternBank was unable to provide for this adverse
balanceon the following Monday. On the Sundaytheyresolved
as soonas this inability to pay the balanceshouldbe declared,to
instruct their agentsto refusethe Western'snotes. And %twas
beyondall questionshewnthat it was this injudiciousline of con-
duct that chiefly broughton thesubsequent rim for gold
The Exchangebeing heavilyagainstthe Westernon Saturday,
it made a final proposal to the Edinburgh banks, and sent a
schemefor an amalgamationwith the ClydesdaleBank, to be
discussedby them on Mondaymorning, the 9th, and kept its
doorsopentill 2 o'clock,to learntheir final decision.Thisbeing

a decidedrefusalto entertain the terms proposed,the Western
Bank shut its doorsat 2 p.m.,on Monday,the 9th November.
Another Bank, the City of Glasgow,it wasalsoknown, had been
engaged
in transactions
of the samenatureas theWestern,in
America,and had alsobeenequallynegligentin keepingdue
reservesin London. This bank, too, required the assistance
of the Edinburghbanks,though it is not statedhow much they
received. On the evening of the 9th a run commencedon the
savingsbank branchesof this bank, " On the Tuesdaymorning,"
says Mr. J. Robertson,the managerof the Union Bank, " when
the doorsof the banks were opened,a greatnumber of parties
appeared with depositreceiptsdemandinggold; in fact, the office
of our own establishmentwas quite filled with partieswithin a
quarter of an hour of the openingof the doors. I think at half-
past 9, The Chairman: You are now speakingof the Union
Bank?-I am speakingof most of the banks; I speakof the
Union Bank particularly. Werethe Westernnotes at that time
current, or were they refused?-They were not current, itufor-
innately. Wasthere anydeputationfrom Glasgowto Edinburgh
on the subject of the otherbanks agreeingto take the Western
Bank'snotes?-This run, as you may call it, or panic, increased
so much that the continuedrefusal of the notesof the Western
Bank addedverymuchto theexcitement.Thosepeoplewho came
for moneywould not take the notes of any bank, it did not
matterwhatbankit was; theyrefused
everything
but gold. We
thought that it would allay the excitementif wewere to take the
WesternBank'snotes,therebeingno dangerof ultimatepay-
ment. We wereso muchimpressed with that feelingthat two
of thebankssenta deputationto their directorsto Edinburghto
conferwith themanagersof theEdinburghbankson thesubject,
andto inducethemto rescindtheir order. Theyfailed in that;
the notesof theWesternBankwererefused thewholedayon the
Tuesday"
Therun of Tuesday
exhausted
the Cityof Glasgow
Bank,
and it did not openon Wednesday,
the llth. The stateof
Glasgow
wassoalarming that the magistrates
sentfor troops,
anddidall in theirpower
to allaytheexcitement;
theyissueda
proclamationadvisingthe peoplenot to pressthe banks for
FAILURE OF THE WESTERN BASK IN 1857 233
payment,and to takethe notesof all the banks. Theyissued

an
order to all the rate collectors in the city to take all notes
printed to thorn, including those of the two suspended banks.
lint thf fhuitMtl /'"»;"//<>/</
//w*?tihnoni ttttirrly cotiftwd to the
ttfjwufhw* wry fur twhh"M*r$ cwninijforward. On Wednesday
and Thnrwlay large remittance* of goM from London arrived
about 10 oYloek in the morning, and were taken in waggonsto
the hanks escorted by Mmng bodies of police. But the run
entirelyceasedabout 2 o'clockou Wednesday.At half-past2,
Rayfithe munewitness,therewerenot half-a-dozen
peoplein the
establishment* The panic*,as the witness said, only lasted one
wholeday and part of the next
In fad. the refusal to take the Western Bank'n notes was one
of the chief <*uuM*rt
of the run for gold ; and, as soon as the other
banks agreed to take them the panic ceased. <Mr.Laurence
RoherfMHi
was a^kcd,"What wasit whichfirst causedthe panic
to cease?---When the stoppage*of these banks took placethe
other 1*ankswere not precisely informed of their position,and
hesitated a little in taking their notes; after further consideration.
the other banks iwuivcd to take all the notes as they came
forward, and wlwn thtft teas d<m$t/w thing suMdNl. As soonas
it Iwcamo known that the notus of the Western Bank would be
roceiv«»d
by the general body of the banksin Scotlandthe panic
with regardto the, notes of the WesternBank cameto au end?
The w»nu», witness alô naid thai therewas no run upon any
of the (ilusgowbanks ln»forothe stoppageof the WesternBank.
**Who werethosepartieswho drew out gold over the counterin
exchangefor notes or by chequeson their deposits? - It was
chk'lly in the caseof Mtmil deposit receipts. And not for any
corifciderabli!amount ?- No. Do you think that it exceeded
£1,000?- -It ia diflirult to fix upon a sum; I neverlooked at
thftt. It wasnot of Bufficientimportanceto call your attention
to it?- No.1* The City of Olwgnw Bank resumedpaymentin
about a month, bat the WcnternIfauikhad lost not only its whole
paidup capitalof £1,500,000,but as muchmoreagain
10, The detailsof this greatcatastrophe welldeserveonr
closestattention,because
It is the firstinstanceof a bankingpanic
234 THEORY AKD PRACTICE OF BANKING
in Scotland,and eventhat was confinedto one town. The

commercialfailureswere confinedexclusivelyto the herdof
adventurers
who had beenfosteredandsupportedby the mw-
management of the WesternBank. Therowasbut one ht»n«e
of any magnitude
connected
with Glasgow
whichmiHpended
payment during this period, Dennistoun<&Co., who wore more
a Liverpooland Londonhousethan a Glasgowone,and \UioRo
temporarystoppagewas broughtabout 1>3*
other eauscH.But
this calamityhas beenseizedhold of by persons\\lrn are hostile
to the Scotchsystemof bankingin generalamialsoto the £1
note currency of Scotland, to condemnthorn. But, when wo
cometo investigatethe truefacts,we nhalllind that they lend
no supportto thesecharges.For, with respectto thefirnt, it it*
distinctlyprovedby the mostunanswerable)evidence,that from
the commencement to the closeof its career,the WesternBank
pursueda systemof businessthat was totally opposedto the
well-recognisedsystemof Scotchbanking, and unanimouHly con-
demnedby all the well-conducted banks. That, during its whole
course,it wasa subjectof terror and alarm tu the other banks.
That its locking up its funds in America,wastotally condemned
by the Bank of England and all the other Scotch banka.
And the directors themselves, when, however, it Mas too late,
acknowledged their own misconduct,for iu their iml application
for assistanceto the Bank of Scotland, on the 21st October,
1857,the directorssay-** On the part of the boardof direction,
it is right that we shouldfrankly $ay, that th#y<tr*fully a!ir&
to the recJclessnm of the past managementof the Jfank; that it#
credit has been strained to the extremepoint; and that, in the
attempt to make large profits for the proprietary, unwise and
unduerisks have beenrun. Feeling all this, the directors have
enteredon a courseof management,
which(althoughthe prownt
commercialcrisis renderscurtailment difficult of ppcedyaccom-
plishment)
will eventuate
in the establishment,
ona necnre
banify
of a businessof a saferand a moreIctfitmale,thoiu/hcertainlyufa
morelimited description,than hasfor many I/MM torn rwHlueinl
by theWestern Bank of Scotland" Habmtts i/tm wnfitwitM nw
The directors themselvesacknowledgedthat their course of
business
was not in accordance
with the unimiHootchbunking
system. What possible reflection, then, can it be on the
FAILURE OF THE WESTEBN BANK IN 1857 235
recognisedsystemthat a bank,which wentright in the teethof it,

failed? The very sameremarksapply,only, of course,in a lesser
degree,to the City of GlasgowBank. This Bank, too, wasguilty
of speculatingin America, instead of keeping its reservesm
London; and it, too, paid the penalty by a temporarysuspension.
The secondcharge,too,is equallygroundlessagainstthe small
note circulation. For it is said that thesesmall notesaggravate
a panic, and that a panic is most likely to commenceamongst
their holders. But, in this case,the evidencemost decisively
negativesthe suppositionthat any part of the panicwasdue to
the small notes,and not only that, lut it decisively
provesthat the
demand for gold was greatly lessenedon account of the notes.
Mr. Fleming says,Q. 5532-u I may say there was no run for
paymentsof notes all through. There may have been a few
notespresented,but I shouldcertainlylimit the demandfor gold
in exchangefor notes to £5,000 or £6,000. I do not think it
would exceedthat. Mr. Wilson: In point of fact, the whole
pressureon the Bank at any time wasin respectto its deposits,
and not in respectto its circulation?-Decidedly, therewas no
pressurein respectto its circulation; so much so, that during
the last two days for which the Bank wasin operation,I do not
think £1,000 was paid away in gold at the headoffice. The
wholemoneywithdrawn was taken awayin notes,and the con-
sequence
was,that on the afternoon
of the 9th November,
when
the Bank stopped,there was a very large amount of notesin
circulation,somethingabout£720,000. Mr. Wilson: Thenthe
depositors
becameuneasyaboutthe securityof their deposits,
went to the Bank and took the Bank's notes ?-Yes. Mr. Wilson:
Did they pay them immediatelyinto other banks?-Yes. Mr.
Wilson: Theytherebyindirectlyobtainedpaymentthroughthe
other banks?-Precisely so ; they transferredtheir depositsfrom
one bank to the other. Mr. Wilson: Did any of the depositors
demandgold?-Almost none; during the week,afterthe 10th
October,therewasa slightdemand for gold,andin the country,
I
believe,therewasa veryslight demandfor gold." Mr. Fleming
then gavethe figures,shewingthat the total demand for gold
duringthe wholemonth,from the 10th Octoberto the9th No-
vember,wasonly £44,000,of which morethan £6,000 wasin ex-
change
for notes,but the total demandfor deposits
andbalances
on accountwas£1,280,000;from which it follows,of course,

that the totalpressure
onthe Bankwasthis-
For goldin exchangefor notes £6,000
For depositstakenin gold 38,000
For depositsand balancestaken in Bank's
notes 1,236,000
£1,280,000
Now, if the Bank had not issuednotes,how would this last

item have been demanded ? Of course,in gold. So that it is
quiteclearthat the powerof the Bankto issuenotessavedand
lessenedthe demand for gold to that extent. And we have
alreadyshewnthat it was not any run for gold that madethe
Bank stop,"butits inability to providefor paymentof the adverse
balanceof exchange.But it may be said-See what followedthe
next morningon someof the otherbanks. But then therewould
have beenthe very samerun if therehad beenno notesat alL
And that very run wasgreatly aggravated,if indeedit wasnot
chiefly due to the most unfortunate decision of the other banks
to refuse the "Western Bank's notes. As soon as the other banks
agreedto take the Western's
notes,thepanic immediately subsided,
eventhougha secondbankstoppedthe samemorning. Now,what
is the effect we might naturally have expectedfrom a second
bank's stoppingin the midst of a panic? Clearly that the panic
would have beengreatlyintensified. But in this caseit wasnot
so. The City Bank did not openon the"Wednesdaymorning,
and yetthewholepanicwasoverby twoo'clockthat day. The
wholedemand onthe EoyalBankfor golddidnotexceed£1,000
Now,without prejudicing the questionin any way, whether
the Scotch
£1 notesshouldbesuppressed,
thereis nodispassionate
man whocan,after reading the detailsof this crisis, cometo the
conclusion
that theyhadanythingwhatever
to do with thispanic.
The greatwonderis, that after the unprecedented
circumstance
of
twogreatbanksstoppingpayment,
the panicwassoshort,andso
slightasit was. Doesanymanwho knowsLondonthink that,
if a similarcasehad happened
there,the consequences
would
have beenso comparativelytrifling ? The two London banks of
mostnearlyequalmagnitude
withtheGlasgow
ones
thatstopped
RIGHTS OF SCOTCH BANKS 237
aretheUnionandtheLondonandCounty. Let usimaginethat

the Union Bankof Londonwasto stoppayment,
and two days
after the Londonand County. Doesany man whoknowsLondon
suppose
that in sucha casethepanicwouldbelimitedto oneday
and a half. No man in his senses would think so
Nor can there, we think, be any reasonabledoubt that the
refusalof the Edinburgh banksto take the notesof the Western
Bank wasa most unfortunateone. When the Ayr Bank failed,
all the other banksimmediatelygavenotice that they would take
its notesat par, becausethey knew very well that its proprietors
wereperfectlywell ableto discharge all the claimsupon them. It
was perfectly well known that the proprietors of the Western
Bank wereworth many millions of money,and that therewasno
possibledangerof anyultimateloss. Tet the bankson this occasion
decidedto refusetheir notes,which decisionthey wereafterwards
obliged to rescind. And this is a very good proof that it was
wrong from the first; and immediatelythat the notesweretaken
the panic ceased
In the yearsof the great speculationsin railways,numbersof
personswished to carry on the gameof speculationby buying
shares,and then raising moneyupon them from bankers. The
old banksprudently declinedthis sort of business, and a number
of banks weregot up, principally for this business-if, indeed,it
can be called businessat all--as it was, in fact, pure gambling.
After a short time, the railway shareswent downas fast as they
had risen, and all thesebanks,which werecalledExchangeBanks
wereruined,someof them underthe mostdisastrouscircumstances
On theEight of theScotchBanlcsto openBranchesin England

17. We must now touch upon a point which hasbeenmuch
discussedlately
Within the last few years all the ScotchBankshaveopened
branchesin London, and one has openedsomein the north of
England. It is perhaps somewhatsurprising, in these days
of free competition, that their doing so has created some
opposition, and in fact their right to do so has even been
questionedin Parliament. Of coursein this place we do not
discusstheir reasonsfor so doing: that is a matter exclusively
for their own consideration.Oursolepurposeis to statetheir

legalright to actastheyhavedone
As for the purposes
of tradeandcommerce
Englandand
Scotlandare onecountry,thereis no apparentreasonwhythey
shouldnot havethis right. No onequestions theright of English
Banksto openbranches in Scotland, if theychoose:andin fact
severalof the EnglishColonialBankshaveagencies in Scotland*
Whythenshouldit be supposed that it is contraryto lawfor tho
ScotchBanksto openbranchesin England?
Manyof the leadingScotchInsuranceofficeshaveopened
branchesin London,andnot a wordof objectionwaseverheard
from the EnglishInsuranceOffices.But because the Scotch
Bankshavefoundit necessary
for their businessto openbranches
in London,a greatdealof ill-feelinghasbeendisplayed
by the
EnglishBanks; andeventheir Eightto do sohasbeendenied
Theonusof proofliesentirelyonthosewhodenytheir Eight
to do so. It maybe said at oncethat the whole questionturns
on the privilegesof the Bank of England: and it is necessary to
state exactly what these privileges are. The privilegesof the
Bank of Englandare a penalenactmentagainstthe rights of the
rest of the trading community, and thereforethey are to be con-
strued strictly. Nothing is contraryexceptwhat is clearly and
distinctly forbidden by them: everything else is legal and
permissible
It has been seenthat, at its first institution, the Bank of
Englandreceivedno monopoly."Whenthe capitalof the Bank
was increased in 1697 it was first enacted that no other Bank
should be sanctionedby Act of Parliament. In 1700 it was
enactedthat no company
or societyexceeding
six persons
might
borrow,oweor takeupanysumor sumsof moneyontheir Bills
or Notespayableat demand,or at any lesstime than six months
from the borrowingthereof, in that part of Great Britain called
England
At that timeno onehadframeda definition
of Banking.
But it was supposedthat issuingNotes payableon demandwas
so essentially
what constitutedthe business
of Banking,that to
preventpersonsfrom doingthat was to preventthem from
Banking
In 1742,
to strengthen
thismonopoly
moreeffectually,
it was
RIGHTS OF SCOTCH BANKS 239
enactedthatt( to prevent any doubtsthat mayarise concerning

the privilege or powergiven by former Acts of Parliamentto the
said Governor and Companyof Exclusive Banking, and
also in regard to the erecting any other Bank or Banks by
Parliament,or restraining otherpersonsfrom Banking during
the continuanceof the said privilege granted to the Governor
and Companyof the Bank of England, as before recited, it is
herebyfurther enactedand declared,by the authority aforesaid,
that it is the true intent and meaningof the Act that no other
Bank shall be erected, established,
or allowedly Parliament,and
that it shall not belawful for any body politic or corporatewhat-
soever, united, or to be united, in covenants or partnership
exceeding the number of six persons,in that part of Great
Britain called England, to borrow,owe, or take up any sum,
or sums of money,on their Bills or Notespayableat demand,or
at any less time than six months from the borrowingthereof,
during the continuanceof suchsaidprivilege of the saidGovernor
and Company,who are merely declaredto be and remain a
Corporation with the privilege of Exclusive Banking as
aforesaid "
Thesewordswhich werealwayscontainedin subsequent Bank
Charter Acts, strictly define the exclusiveprivelegeof the Bank
of England. Its sole monopolyis that no Bank having more
than six (now ten) partnersshall issuenotespayableat lessthan
six monthsin England: but all other kinds of banks and
banking are left absolutelyfree
There is no doubt whatever that Parliament intended to confer
an absolutemonopolyof bankingon the Bank of England: but
by strictly defining what that they conceivedbankingto consist
in, they in fact, ultimately defeatedtheir own purpose. If the
wordshad beengeneral,and givena simplemonopolyof Banking,
no other bank of any other sort or description exceedingsix
persons,could havecarriedon businessin England. But in order
to make assurance doubly sure,they gavewhat they conceivedto
be a descriptionof banking: and the legal effectof doing sois to
confinethe monopolyto that particular method of banking so
described
After the great crisisof 1825the Bank consentedto give tip
a portion of their monopoly,and in 1826Joiat StockBankswere
240 THEORY AKD PRACTICE Off BANKING
allowedto beformedto issuenotesbeyondthe limit of 65 miles

fromLondon,
provided
that theyhadnoheadofficeanddidno
business in London
But ashas"been shown,the privatebankersof Londonabout
1793,discontinued issuingnotesof their own accord: and they
werethusthefirstto showthat bankingmaybecarriedonwithout
notes. About1820somepersonsbeganto allegethat therewas
nothingin the monopoly of the Bank of Englandto prevent
banksof any magnitudeand numberof personsbeingformed,
providedthat theydid not issuenotespayableon demand : and a
declaratory
clauseto the effectwasinsertedin the BankCharier
Act of 1882. And it wasunder this declaredcommonlaw right
that the London Joint Stocks have been founded
Suchis a simplestatement
of thelaw of the case. And with
respectto the ScotchBanksopeningbranches in London,or any
other part of England the solequestionis-Do they issue notes
payableat lessthan six monthsafter demandin England ? The
clear answeris that they do not: and consequentlythey have an
absoluteright to openbranchesin London,or in any other part
of England if they choose
The sore point of the caseis this: the National Provincial
Bank and the Capitaland CountiesBank have foundit expedient
to establish their head offices in London and become London
bankers: and probably in courseof timn other country banks
will find it expedientto do the same. But to do this they must,
by the Act of 1826,abandontheir issuesin the provinces. And
theyconsider
it a verygreatgrievance
that theyhaveto giveup
their lucrativecountry issues,
whenthey becomeLondon bankers,
while the Scotch Banks may do businessin London, and still
maintain their issues in Scotland
Theanswerto all thisis that it is a matterof pureandsimple
law. By openingbranchesin London the Scotch Banksdo not
infringethe monopoly
of the Bankof England,80longasthey
do not issuenotespayableat demandin England: whereas
countrybanksissuingnotesin the provincesdirectlycontravene
the Act of 1826,if they do businessin London
It is moreover
somewhat
snprising
thatsomuchill feelinghas
beencreatedby theScotchBanksopeningbranches in London,
whilea greatIrish Bank,the National,hasnot only its head
RKJ1ITS OK SCOTCHBANKS 241
office but a considerable number of branches in London, and all

tho while maintains an authorised circulation of notes m Ireland,
groator than that of all the Scotch Bankstogether : and yes not
a word of objection was ever made to it
As a matter of fact any bank in any part of the world has a
legal right 10open any number of branchesin London or in any
part of England, so long as it doeanot issue notes payable on
demandin England* It would be perfectly competentto tho
Scotch Banks to remove their head offices to London, if they
chose, aa the National Bank of Ireland has tlono
Whatever may be the hardship or the injustice of tho case,
the remedydoesnot lio in depriving the Scotch Banks of their
legal rights : but rather in the*thoroughrevision and rectification
of the banking laws of England, which the logic of facts will
probably force, however unwillingly, on the Governmentbefore
very long
18. At tho ond of 1H7Hthe country was startled by the

failure of tho City of (ilangow Bank, which had suspended
payment in 1H57, The directors of the other Banks, having
loarnt wisdomfrom their experienceof refusing the Notesof tho
Wiwtorn Bank in 1B57,unanimouslyreceived the Notes of tho
City Bank, and thus averted a severepanic. But the terror of
tho Shareholders of the other Banks was BOgreat at finding them-
flelv<«8
involved in such ruinous liabilities that iht»ythrew their
rfmres on the market in vast quantities, and Bank Sharonfell
about HOper cent. " and in tin* next seas'ion
an Act was passedto
Hiablo all Joint Stock Bunksto limit their liability. This Act
will bo fully consideredin a tm1>w<jut*utchapter
19. The followingtableexhibitsthe positionof the Scotch

Banks in
voi.
POSITIONOF THE SCOTCHBA
1 |
Aut
Of
Branches
Subscribed
Paid up. Beserre. Deposits. Is
Bank. Date.#0. CapfcaL N
£ & £ £
Bankof Scotland1695106 1,875,000
1,250,000775,00012,929,4793
Boyal,...,,.,.. 1727125 2,000,000
2,000,000762,000
; 12,463,2882
BritishIiinsn.... 1746103 1,000,000
1,000,000750,00010,082,3504
Commercial.... 1810113 5,000,000
1,000,000545,0009,903,7313
National 1825 94 5,000,000
1,000,000660,00012,766,0062
Union ..,.,»..,
1830 123 5,000,000
1,000,000330,00010,937,1574
TownandCounty1825 51 1,250,000252,000126,0001,975.177
Northo£Scotland
1836 64 2,000,000400,000213.<
A) 3.101,9111
Clydesdale
,»,,». 183S99 5,000,000
1,000,000;
531.fki<)
7,ifl9,9312
Caledonian
*, ». , 1838. 23 760,000 150,000 32.UMI ^71.223
Janm i
i901 9,052,000
i4t735,ii&fi*2.650*533
*2,6
LAW'STHEORY
CXF
PAPERMONEY '243
CHAPTER XIV
ON SOME THEORIES OF CURRENCY
1. It nowbecomes
ouressential
andmostimportant
dutyto
investigate someTheoriesof Currency,which have acquired
great celebrity,not onlyfromtheir historicalinterest,as having
led to someof the mostextraordinaryand heartrending public
calamities on record, but becausethey are still extensively
believed in at the presentday. It is of essential importance
not only to lay the true foundationsof monetaryscience,but also
to point out the fundamental
fallaciesuponwhichsomespecious
but fatally delusive theories rest, which have brought the most
disastrous consequences upon those nationswhich have adopted
them, as will alwaysbe the casewhenthe eternal laws of nature
are systematically and perseveringlyviolated
&. Thefirst of thesetheoriesweshalldesignate

asLawism,
not becauseJohn Law wasthe original deviserof it, but because
he was the first who wrote the most formal treatise on it, and he
had the opportunity of carrying it out on the most extensive
scale. His name, therefore,must alwaysbe most prominently
associated with it; and it is one so specious, but so dangerous,
and so widely prevalentat the presenttime, that it requiresto be
branded with a distinctive name, and to be combatedwith all the
powerof argumentthat canbe broughtagainstit
3. The question shortly stated is this. All persons,except
those who advocate an inconvertible papercurrency,agreethat
a paper currencymustrepresentsomearticleof value,andbullion
has been generally chosenfor that purpose. Now, the idea has
occurred to 'a great many persons-If it is only necessary
that a
paper currencyshould representsomearticle of value,why
shouldit not representanyor all articlesof value,suchas land,
B 2
corn,ailk,or any othercommodities,

and,amongothers,the
publicfunds? And this has actuallybeentried in several
instances,yet they have universally failed, and in many cases
have been attended with the most dreadful calamities. Now, as
this has uniformly happened,and, as we shall shewfurther on,
it must happen,it necessarilyfollows that there must be some
radical error in the principle, and that it must violate somegreat
law of nature. And this is beyond all comparisonthe most
momentousproblem in Economics-Why is it improper to issue
a papercurrencyon anyotherbasisthan that of bullion? All
the most eminent British statesmenhave instinctively resisted
suchproposals,
althoughrepeatedly
pressedto do so. No doubt
it hasbeena mostfortunate instinct for the country; but all their
reasoningson the subject, if only pursuedto their legitimate
consequences,tend to that result. The Bank Act of 1844 was
the first occasion on which a small bit of this theory was
introduced,which, if only followed out to its legitimate con-
clusion, would produce in this country the horrors of the
Mississippischemein Prance. But though the British Parlia-
ment, by a blind, unreasoninginstinct, has always, with the
exceptionjust named, resistedsuch fatal advice, this will not
satisfy the demandsof science. Scienceimperatively demands
a reasonwhy sucha plan is wrong; shewill not be satisfiedwith
a simple dogmatic assertionthat it is wrong, even though that
dogma may be right, but she must know the reasonwhy; and,
until a true, scientific reasonis given why such plans are fatal,
there will be a constant demand for them
4. It is, moreover,the thing which has brought the name

of Law into suchunhappynotoriety. Law has,in many respects,
very great merit as a writer. In many respectshe had clearer
and sounderviews on monetaryscience; he had infinitely more
practicalinsightandscientificknowledge
of whathewaswriting
aboutthan the most eminent of modernpolitical economists. la
his various writings is to be found the refutation of all the absurd
follies of the G-overnment
and of the Bank of England in 1811.
But all this wasmarredby a singledefect. He wasthe great
advocate of whatis nowthepopularcry-basinga papercurrency
upon any article of value besidebullion. The only difference
LAW7STHEORY
OF PAPERMONEY 245
betweenhim and our greatest statesmenis that he carriedout
their arguments to their legitimate conclusion. He had the
opportunity of carrying this theory into effect,and the result has
beento obscureall his other merits, and brand him for everas a
charlatan. What, then, was his error ?
6. Upon sifting his theory to discoverhis error,weshall

obtain one of the mostbeautifultriumphsof purereasoningto
befoundin anyscience.Weshallfind thatthe plausible scheme,
whichwe shall designateby his name,is founded upona direct
contraventionof the fundamentalconceptionof the nature of a
Currency which we have establishedin this work, and the
propositionwhich directly flowed from it, viz., that wherethereis
no Debt, therecan beno Currency. We shall find that these
awful monetary cataclysmswhich have shakennations to their
foundations,producing calamitiesmorefell than famine,tempest,
or the sword, have been brought about by attemptingto carry
into practicea philosophicalfallacy which involvesa contradiction
in terms
6. It is impossibleto say who first invented the theorywe

are going to notice; in fact, it must havesprangup indigenously
amongalmostany people who beganto form theoriesof Paper
Currency. Severalpersons about the sametime seemto have
hit upon it. The earliestwe know of was a certain Mr. Asgill,
a Memberof Parliament, who paid much attention to commercial
questions.The mostnotoriousprecursors
of LawwereDr. Hugh
Chamberlain,who brought forward a rival schemeto the Bank
of England in 1(393,and Mr. Briscoe,oneof the chief promoters
of the Land Bank in 1696. Chamberlain's ideas will be noticed
a little further on. He strongly accusedLaw of havingstolen
his ideasfrom him, which Law strenuouslyrepudiates,andpoints
out the distinction between them, and it must be allowed that
Law's ideaswere not so extravagantas Chamberlain's. Law first
publishedhis theory in a tract, called" Moneyand Trade
Considered,"at Edinburgh,in 1705. He wasthesonof a gold-
smith,andof dissipatedhabits,butof anextremely
acuteintellect;
and,up to a certainlength,his viewsaresagacious
andcorrect-
muchmoreso,indeed,than thoseof manywritersof thepresent
#
day. He observedthe extremepovertyand barbarousness

of
Scotland,which he thought might be cured by bringing an
additionalquantityof moneyinto the country;and,assilverwas
scarce,
he attempted to devisea schemefor providinga substitute
for it
7. Hebeginsby manyverysoundandacuteremarkson the

value of commodities,and the causesof their changeof value.
He describesthe qualities which fitted silver to be usedas money,
*iboveeveryothercommodity.He attributesthe very incon-
siderabletradeof Scotlandto the smallquantityof moneyshe
possessed. Thisis the first fundamental
fallacy,because
the fact
was it wasjust the reverse; Scotlandhad little moneybecause
ehe had little trade. He, however, perceivedthe fallacy of
loweringinterestby law. He then goeson to consider
the
variousmeanswhich havebeenemployedto increasethe quantity
of money. He says that some countrieshave raised moneyin
the denomination; some have debasedit; somehaveprohibited
its exportunder the severestpenalties; somehave obligedtraders
to bring homebullion in proportion to the goodsthey imported.
But he says that all these measureshave been futile and vain,
and noneof them havebeenfoundto increaseor preservemoney.
He then says that the only effectualmethodhitherto discovered
for the increase of money was the erection of Banks. He then
describes
variousbanks. Somemade it a principle to issue no
more notes than they had of actual bullion. He then mentions
the Bank of England,and the superiorityof its notes over those
of the goldsmiths. He then describesthe Bank of Scotland,and
says that it issuednotes to four or five times the value of the
moneyin the Bank, which he very justly sayswere equivalentto
so muchadditionalmoney. He then pointsout the absurdity
of supposingthat raising the denominationof the moneyadded
to its value,that if the shilling was raisedto 18rf.,it paid debts
by two-thirdsof whatwas due,but did not addto the money;
"for it is not the soundof the denomination,but the valueof the
silver is considered."The wonderfulphilosophers
of 1811,no
doubt,
looked
down
withprodigious
disdain
upon
Lawfbutthey
might havestudiedhim with advantage.He thenpointsout
with muchdetail the fraudandinutility of tamperingwith the
LAW'S THEORYOF PAPERMONEY 247
currency.He describes
the additionaleffectwhichcreditmay
give to money;but saysthat creditwhichpromises a payment
of moneycannotwell be extendedbeyond a certainproportion
it
oughtto havewith the money, Nothingcanbe morejudicious
and soundthan his remarksuponcredit-that it mustalways
varyin proportionto the metallicbasisit is built upon; andup
to this point his sagacityand penetrationarein advanceof the
doctrinesof a centurylater; but hereis the boundary,after
which he plungesinto that fatal and delusivefallacy,which is the
distinctive feature of what we denominate Lawism
8. Thinking that moneywasso scarcein Scotlandthat any

credit that could be built upon,it would be insignificant, he
says-
" It remainsto be considered,whether any other goodsthan.
silver can be made moneywith the samesafetyand convenience.
" From what has beensaid about the natureof money,it is
evident that any othergoodswhich have the qualities necessary
in money,may be made money equal to their value
with safetyand convenience. There wasnothing of humour or
fancy in making silver to be money; it wasmadebecause it was
thought bestqualified for that use
"I shall endeavourto prove that another money may be
establishedwith all the qualities necessary
in moneyin a greater
degreethan silver"
9. He then proceedsto shewat greatlength that silver had

somepeculiarities
that disqualified
it frombeingthebestsubstance
to form moneyof; that it varied in value; that it had increased
much faster in quantity than the demand for it, and had,
therefore,fallen much in value. In fact, he tries to prove that
silver had varied in value more than any other kind of goods,
within the last two hundred years; that goodswould always
maintain a uniformity of value, becausethey only increasedin
proportionto the demand; that land wouldalways
risein value,
becausethe quantity would always remain the same,but the
demandwouldcontinually increase; but that silver would always
fall in value, asthe quantity increasedfasterthan the demand
10. Law then proceedsto deny that he had taken his ideas
from Chamberlain,of which the latter had accusedhim ; and it
must in candour be admitted, that his ideas were many degrees
less mad than those of Chamberlain. Law asserts that he had
formedhis schemesmany yearsbeforehe had seenany of
Chamberlain's
papers-"Land, indeed,is the valueuponwhich
he founds his proposals,
and 'tis upon land that I found mine;
if for that reasonI have encroachedupon his proposal,the
Bank of Scotlandmay be said to have done the same. There
werebanksia Europelong beforethe doctor'sproposal,and
books have beenwritten on the subject beforeand since. The
foundationI go uponhasbeen known aslong as moneyhas been.
lent on land, and so long asan heritablebond hasbeenequal to
a quantity of land"
11. The differencebetweenChamberlain'stheory and Law's

wasthis. Chamberlainmaintained that if land was mortgaged
for 100 years,it was a good security for 100 times its annual
value: so that, if a man had landed property worth £1,000
a year, and if he mortgagedit for 100 years to the State,the
Statemight issuenotesto him to the amountof £100,000,which
were to be declaredequal to value in silver, and made legal
tender for their nominal value. Now, if this theory be true,
there is no good reason why land should be pledged for only
100 years; why not for one million years? which would do tho
thing on a somewhat more magnificent scale. But what need
of stopping there? Why not pledge it to all eternity? And
then everyinch of land might be coveredwith papernotes,and
they might be piled high enoughto reachthe moon,wherethe
deviserof this schemewould probablyfind his lost wits. Law
properly points out that the fallacy of this theory was, that
Chamberlainassumedthat the value of £100 to be paid
100 yearshenceis still £100, He says-"No anticipationis
equalto whatalreadyis; a year'srent nowis worthfifteenyears*
rent fifty yearshence,because
that moneylentout at interestby
that time will produceso much." But, saysLord Macaulay-
" Onthissubject
Chamberlain
wasproofto ridicule,
to argument,
even to arithmetical demonstration. He was remindedthat the
feesimpleof land wouldnot sell for morethan twentyyears*
THEORY OF PAPER MONET 249
purchase.To say,therefore, that a terraof 100yearswasworth

five times as muchas a term of twentyyears,wasto saythat a
term of 100 years wasworth five times the feesimple; in other
words, that a hundred was five times infinity. Those who
reasonedthus were refuted by being told they were usurers; and
it shouldseemthat a large number of countrygentlementhought
the refutation complete"
12* Law's theory was to calculate the value of the fee

simple of the land at twenty years'purchaseand to coinnotes
to the value of that amount, and advance them to the owner
of the land. This plan, therefore,had a limit, howeverabsurdit
was. It wasbounded,in the first instance,by the value of the
land expressedin silver money,but Chamberlain'shad positively
no Timit at all to carry ft out to its full length; the advance
might be made to infinity; consequently,in mathematical
language,we should say that Chamberlainwas infinitely more
mad than Law
13. Law showedthat notesissueduponChamberlain's

plan
would immediatelyfall to a heavy discount; but yet he saysthat
though £500 of these notes were only equalto £100 in silver,
yet the nation would have the sameadvantageby that £500 m
notes as if an addition of £100 had been made to the silver
money
" So far as thesebills fell under thevalueof silver money,so
far would exchange ivith other countriesle raised.* And if
goodsdid not keep their price,i.e.,if they did not sell for a
greaterquantity of thesebills, equalto the differencebetwixt
them and silver, goodsexportedwould be undervalued,and goods
importedwouldbeovervalued
" The landedman wotild have no advantageby this proposal,
unUsshe oweddebt,for though he received£50 of thesebills for
the samequantityof victuals,he wasin useto receive£10 silver
* This is the first occasion that we are aware of on which the great principle,
that a depreciationof the paper currency would producea fall in the foreign
exchanges,which was so ardently contestedin 1811 and subsequentyears,is
averted. And it has all the more merit, that it is a prediction and not an
observation
money;
yetthat£50wouldonlybeequalin valueto £10of
silver,andpurchase
onlythe same
quantityof homeorforeign
The landedmanwhohad his rentpaidhim in moneywould
be a greatloser,for,byasmuchasthesebills wereunderthe
valueot silver,hewouldreceivesomuchlessthanbefore
" The landedmanwho oweddebtwouldpayhis debtwith a
lessvalue than was contractedfor, but the creditor would lose
what the debtorgained"
Ohthatthephilosophers
of 1811hadonlypondered
overthis
extract from John Law
14. Law then shows that-

" Notwithstanding anyAct of Parliamentto forcethesebills,
they wouldfall muchunderthe valueof silver; but allowing
that theywereat first equalto silver,it is nextto impossible
that
two different speciesof moneyshall continueequalin valueto
one another
" Everything receivesa value from its use,and the valueis
rated accordingto its quality, quantity, and demand. Though
goodsof different kinds are equal in value now, yet they wiU
changetheir value from any unequalchangein their quality,
quantity,or demand
"And as he leavesit to the choiceof the debtor to pay in
silver money or bills, he confines the value of the bills to the
value of silver money, but cannot confine the value of the silver
moneyto the value of the bills, so that thesebills must fall in
value as silver moneyfalls, and may fall lower, may rise above
the value of these bills, but these bills cannot rise above the
value of silver "
15. Lawsucceeds, with greatskill andacumen,in exposing

the wild insanityof Chamberlain'splan,andtruly predictsthe
resultswhichwouldfollow from it, or at leastsomeof them,
for there are many important ones he has omitted. The exact
consequences
which he predicted were manifested in Ireland
and Englanda centurylater; andthe sentenceswehavequoted,
if we did not knowtheir origin, might havebeensupposed
to
have been written to rebuke the folly of the directors of the
LAW'STHEORY
OPPAPERMONEY* 251
Banksof Ireland and England, and the mercantilewitnesses
of
1804and1810. But havingdemolished Chamberlain,
he comes
to his own proposal,which he saysis " to makemoneyof land
equal to its value, a?id that moneyto "beequalin valueto silv&r
money,and not liable to fall in value as silver moneyfalls"
He then says-"Any goods that have the qualities
necessary in money, may be made money equal
to their value. Five ouncesof goldis equalin valueto
£20, and may be mademoneyto that value; an acre of land,
rented at two bolls of victual, the victual at £8, and land at
twenty years*purchase,is equalto £20, and maybe mademoney
equalto
"
that value, for it has all the qualitiesnecessary
in
money
16, In this sentence is concentrated the whole essence of

that eternal delusion, so speciousand plausible,and so fatal,
whichwe designate
asLAWISM. It is, indeed,nothingbut the
stupendousfallacy tJiat moneyrepresentscommodities,
and that
payer currency may tie "basedupon commodities.This delusion
is deeplyprevalentin the public mind at the presentday,and
probablythere are few persons,exceptthosewho havestudied
the true philosophical principles of Political Economy,whose
views are not deeplytainted with this infection. No man who
does not thoroughly understandthe great fundamentaldoctrine
establishedby Turgot and others, that moneydoesnot represent
commodities,
can ever havesoundideason this subject. Money
does not represent commodities at all, but only
DEBT, or services due, which have not yet re-
ceived their equivalent in commodities. Now, the
views of Law are much more extensivelyprevalent than is
generallysupposed.All thosewho think that there is any
necessary
connectionbetween
the quantityof moneyin a country
and the quantityof commodities
in it areinfluencedby them.
Take the caseof a private individual. Is there any necessary
relation between the quantity of money he retains and the
quantityof commoditieshe purchases? The quantityof money
he has is just the quantity of debt-of servicesdueto him-
which he has not yet parted with for somethingelse. It is the
quantityof powerof purchasingcommodities
he has over and
abovewhathehasalreadyexpended.And thequantityof money

a nationpossesses
is simplythe quantityof accumulated
industry
it possessesover and aboveall commodities,but they have no
relation whateverto eachother. Now, moneydoesnot represent
commodities, but it representsthat portion of a man'sindustry
which is preserved for futureuse. Whatevera manearnsis the
fruit of his industry,moneyincluded;andnoneof theseseparate
itemsrepresents anythingelse,thoughit maybe exchanged for
other things. Now, the value of money depends upon its
relations to what it represents,namely debt, and not to com-
modities. If moneyor currencyincreasesfasterthan debt or
servicesdue, it immediatelycauses
a diminutionof its value.
If debt increasesfaster than moneyor currency,then the value
of moneyis raised. The infallible consequence,
therefore,
of an
increase of currency,without a correspondingincreaseof debt,
is to changethe existing proportionbetweendebt and currency,
and to causea depreciationof the latter commensurate to the
changedproportion. The necessaryand inevitable consequence,
then, of issuingvast quantitiesof papercurrencyon the assumed
value of property, is simply to cause a total subversionof the
foundationof all value and of all property,and to plunge every
creditor into irretrievable ruin
17. In fact, a moment's consideration will shew that the

theory of basinga paper currency on commoditiesinvolvesthis
palpable contradiction in terms, that one can buy com-
modities and also have the money as well. When
a man buyscommodities
with money,he giveseithera portion
of his own industry representedby that money,or a portion of
someone else'sindustry who gave him the money. But it is
quiteclearthathecannotluy thecommodities
and keephismoney
as well It is exactlythe samewith a nation. A nation cannot
buy commoditiesand have the moneyit bought them with as
well,whichistheprinciplenecessarily
involvedin issuingpaper
currencyasthe representative
of commodities.But the money
of the nation is the mode and form in which the accumulation
of industry which has not yet been spent in commoditiesis
preserved; and if a nation wants other commodities besideswhat
it hasgot, it must payfor them eitherwith money,or with the
LAW*STHEOBYOP PAPERMONEY 253
goodsit has already. The ideaof basingpapercurrency

upon
commoditiesis just as wild and absurdas if England wereto sell
her cotton goodsto Americafor coin, and then demandback her
cotton goods. The only result of such an attempt carried out
into practice must be the most tremendousconvulsions,and
destructionof credit and all monetary contracts
18. Law, as we have seen,immediatelysawthrough it, and

exposedthe ridiculousabsurdity of Chamberlain'sproposal. His
own was that the value of all the land in Scotland should be
estimatedat 20 years'purchase,and that a parliamentarycom-
missionshouldbe appointedwith powerto issue an inconvertible
paper currency to that amount. He says-" The papermoney
proposedwill be equal in value to silver, for it will have a value
in land pledgedequal to the same sum of silver moneythat it is
given out for. . . , This papermoneywill not fall in value,
as silver moneyhas fallen or may fall"
19. We must, therefore,be careM to be just to Law. He

was no advocateof an unlimited inconvertible paper currency.
Quite the reverse. But seeingthat a convertible paper currency
could only be based upon bullion to a certain limited extent,
preservingits equalityin valuewith bullion,his ideawasto base
a papercurrencyupon someother article of value. And he
thought that it might preserveits equalityin value to silver on
an independentbasis. His idea was, that it is only necessary
to haveit representsomearticle of value. But this attemptwas
contrary to the nature of things. His paper currency,though
avowedly based upon things of value, had exactly the same
practicaleffectsas if it hadbeenbaseduponsilver. It became
redundant, and swampedeverything. And the reasonis plain.
It was a violation of that fundamental principle we have
obtained-" Wh&re there is no debt there can le no currency"
And the fresh quantities of currencyissuedon sucha principle
onlyrepresentthe previouslyexistingamountof debt,andthen
suffer a necessarydiminution in value. The necessaryand
inevitable consequence,
then, of issuingvast quantities of paper
currencyon the assumed
valueof propertyis simplyto cause
254 THEOBY AND PKACTICE OF BANKING
a total subversion of the foundation of all value and of all

property, and to plungeevery creditor into irretrievableruin
20. To give a fall account of Law's banking career in

France would far exceedour limits, and to give an imperfectone
would be of no use. We must, therefore,contentourselveswith
referring those of our readers who want information on the
subject to our Dictionary of Political Economy,Art. Bankingin
France,wherea full accountof Law's schemeis given. It maybe
sufficientto say that his career,like his writings, is divided into
two distinct portions. His writings are on Banking and Paper
Credit, and his schemefor Paper Money, which are quite
distinct from eachother. Nothing can be sounder,or morejudi-
cious than the first. He clearly saw that paper credit must be
limited by specie-his schemewasto createa Paper Money,
beyond the limits of PaperCredit basedon specie,which he ex-
pected would maintain an equalityof valuewith specie. Multi-
tudesof peoplehavethought the same,and multitudes of people
believe in it to the presenthour. In 1705 the Parliamentof
Scotlandfortunately turned a deaf ear to Law's speciousproposal
of creating PaperMoneybasedupon land. In 1855 the repre-
sentativesof commerce in the samecity whichhad rejected Law's
plan 150 yearsbeforememorialisedthe Government,and " do most
emphaticallyobject to the plan of restricting the security (upon
which thePapercurrencyis based)to the possession of goldalone,'*
which is simply Lawism
Nothing could be moreextraordinarythan the restorationof
prosperitycausedby the foundationof Law's Bank in 1716. It
is probably one of the most marvelloustransitions from the
depths of misery to the height of prosperityin so short a space
of time in the annalsof any nation. And, if Law had confined
himself to that he would havebeenone of the greatestbenefactors
anynation everhad. It wasonly when after threeyears,he had
attained the very pinnacleof success, that he determinedto carry
out his schemeof Paper Money, which was the famous
Mississippi scheme
The next exampleof Lawism wasthe Ayr Bank. The pro-
prietors of this Bank wereenormouslywealthy,and, becausethey
were so, they thought that their known wealthwould sustainth«
THE FRENCH ASSIGNATS 255
creditof anyamountof paperissues.But, alas!their experience too

fully and fatally verified the sagacityof the directorsof the Bank
of Scotland,who, in 1727,in answer to proposalsfor enlarging
their credit, said-" For the quota of credit in a bankingcompany
must le proportionateto the stock of speciein, thenation,learned
and understoodby long experience,and not extendedto a capital
stock subscribedfor, which cannotin the leasthelp to supportthe
company's credit, if the specie of the nation decay." This
doctrine contains the refutation of many wild schemes, and the
true plan of regulating a papercurrency,is simplyto discoverhow
a certain proportion shall be maintained betweenspecieand
credit
31. The third great outburst of Lawismtook placein the

samecountry that witnessedhis first exploits. In preparationfor
it, Law's "Money and Trade Considered" was translatedinto
French in 1789,as if all the memoryof the great catastrophe
sixty-nine yearsbeforehad perished. The NationalAssemblyhad
confiscatedthe property of the Church,but, insteadof yielding
a revenue, it cost the nation £2,000,000 a year more than it
produced and in a few years augmentedthe public debt by
£7,000,000. The property seizedwas valued at £80,000,000
The expenseof managementrequired that it should be sold,but
no purchaserscould be found; for all personsin that terrible
politicalearthquake
wishedto havetheir propertyin asportable
a shapeas possible,and few werewilling to trust to a revolutionary
title. In this dilemma,the municipalities agreedto purchasea
considerableportion of it, in the first instance,and resell it in.
smallerportionsto individuals. But, as therewasnot specie
enoughto completethe sale,they issuedtheir promissory notes
to the public creditor,to passcurrent until the timeof payment
came; but when they becamedue, the municipalitieshad no
meansof dischargingthem. To meetthem the Assembly,in the
spring of 1790, authorisedthe issueof £16,000,000of assignats
on the security of the land. In September,further issuesto the
amount of £32,000,000 were authorised. The additional issues
were warmly opposedby Talleyrandand other leaders,who
predictedtheir depreciation;but Mirabeaustronglysupported
them, denying the possibility of their depreciation,saying-
256 TIIEOftY AND PBACTICE OF BANKING
" It is vainto assimilate

assignatssecured onthe"solidbasisof
thesedomains, to an ordinarypapercurrencypossessing a forced
circulation. Theyrepresent realproperty,the mostsecureof all
possessions the land on which we tread. Why is a metallic
circulationsolid? Because it is basedupon subjectsof real and
durable value, as the land which is directly or indirectly the
sourceof all wealth. Papermoney,we are told, will become
superabundant; it will drivethe metallicout of circulation. Of
what paperdo you speak? If of a paperwithouta solid basis,
undoubtedly;if of one basedon the firm foundationof landed
property,never. Theremay be a differencein the valueof a
circulation of different kinds ; but that arisesas,frequently from
theonewhichbearsthehighervaluebeingrun after,asfromthe
onewhichstandsthe lower being shunned-fromgold beingin
demand-not paper at a discount. There cannot be a greater
error than the terror so generally prevalent as to the over-issue
of assignats. It is thus aloneyou will pay your debts,pay your
troops, advancethe revolution. Re-absorbedprogressively,in
the purchase of the national domainu, this paper money can
never becomeredundant, any more than the humidity of the
atmospherecan becomeexcessive, which descends
"
in rills, finds
the river, and is at length lost in the mighty ocean
22. Although these assignatsbore4 per cent, interest, they

had becomedepreciatedin June, 1790; by June, 1791, they had
lost one-third of their value. In September,1792,further issues
were decreed. The two precedingAssemblieshad authorised
assignats to the amount of 2,700,000,000francs, equal to
£130,000,000,to be fabricated,of which only 200,000,000francs
remainedunspent. On the llth of April, 1793, the Convention
decreedsix years'imprisonmentin chainsto any one who bought
or sold assignatsfor any sum in speciedifferent to their nominal
value,or madeany differencebetweena moneyprice and a paper
price in paymentof goods. Vain effort! In June the assignat
had fallen to one-third of its value,and in August to one-sixth.
The exchangewith London fell exactlyin a correspondingratio
with the depreciationof the assignat at home. In June, 1791,
it fell to 23; in January, 1792,to 18; in March, 1793,to 14; in
June, 1793,to 10; on the 2nd of August it wasas low as 4-i ; on
THE FRENCH ASSIGNATS 257
the 18th of Octoberit had risen to 8; but after that it ceasedto

be quotedat all. Cambon, the Ministerof Finance,proposeda
furtherimmediateissueof 800,000,000 of francs,equivalent
to
about£33,000,000,in additionto the quantityalreadyissued.
Thepublicdomains he calculated
at £350,000,000.Henceupon
the theoryof Law and Mirabeautherewasanamplemargin,and
the assignatsshould not have been depreciatedbelowthe value
of silver; and, in fact, accordingto them,it was impossible
they should. Wonderful commentaryupon the wisdom of the
philosophers,
who maintainthat if a papercurrencyonlyrepre-
sentsvalue, it cannot be depreciated!
23. We must refrain from detailing the terrible misery

causedby the forcible issue of assignats,which were legal tender
at their nominal amount, the destructionof debts, the famine
from the scarcity of provisions,the lawsof the maximum,the
penalty of deathenactedagainst all who should keep back their
produce from the market. All specie disappearedfrom the
country and from circulation; those who possessedany, not
deeming it securefrom revolutionary violence, exportedit to
London,Hamburg, Amsterdam,and Geneva. But many persons
stoutly maintainedin pamphlets,that it was not the paperwhich
wasdepreciatedbut the speciewhich had risen
24, The intolerable misery causedby this state of things

induced the Governmentwhich succeededthe Reign of Terror
to make an attempt to withdraw a portion of the assignatsfrom
circulationby demonetizing them, that is, depriving them of their
quality of money, and forcing their holdersto receivepayment
in land for them. But when a man wantedto buy food to eat,
what wasthe use of giving him land ? The report that a portion
of the assignatswere going to be demonetized sent downtheir
valuestill lower, and a decreeagainstit was obligedto be passed
to appeasetheir holders. All sorts of plans were devisedto
withdraw them from circulation; lotteries, tontines, a land bank,
where they were to be lodgedand bear3 per cent, interest. But
the constantissue of them, required for the necessarypayments
of the State,renderedall suchattempts useless
VOL. IL s
25. In January,1706,the assignats in circulationamounted

to forty-fivemilliards,or about£2,000,000,000, andthe paper
money had fallen to one thousandth part of its nominal value.
The Government then determined to issue territorial mandate*,
at the rate of SO assignatsto one mandate,which were to be
exchangeabledirectly for land, at the will of the holder, on
demand. The certainty of obtaining land for them made them
rise for a short time to 80 per cent, of their nominalvalue; but
necessitycompelledthe Governmentto issue £100,000,000of
these mandatessecuredupon land, supposed to be of that value.
This prodigiousissuesent the mandatesdownto nearly the same
discountas the assignatswere,and, consequently, as one mandate
was equal to 80 assignats,the latter had fallen to nearly the
thirty-thousandthpart of their nominalvalue. At length on the
IGth of July, 1796,the whole systemwas demolishedat a blow.
A decreewas published that every one might transact business
in the money he chose,and that the mandatesshould only be
taken at their current value, which should be published every
day at the Treasury. Two days afterwards it was decreedthat
the national property remaining undisposedof should be sold
for mandates at their current value. As a matter of course the
public creditors receivedpayment of their debts in the same
proportion
26. No sooner,however,was this great blow struck at the

paper currency, of making it pass at its current value, than
specieimmediately reappearedin circulation. Immensehoards
came forth from their hiding places; goods and commodities
of all sorts being very cheap from the anxiety of their owners
to possessmoney, causedimmense sumsto be imported from
foreign countries. The exchangesimmediatelyturned in favour
of France, and in a short time a metallic currency was
permanentlyrestored. And during all the terrific wars of
Napoleonthe metallic standard was always maintained at its
full value
27. One thing, however,we cannot help noticing. When

describing the history and effects of the assignats,nothing can
ABOLITION OF THE ASSIGNATS 259
bo more clear and coiTect than the narrative of Sir Archibald

Alison. He seesclearly that a differencein value betweenthe
assignatand speciewastruly a discount, or fall in the value of
paper. Thus he says:*
" They for some time maintained their value on a par with
the metallic currency. By degrees,however,the increasingissue
of papercurrency producedits usualeffecton public credit; the
value of moneyfell, while that of every other article rose in a
high proportion, and at length the excessiveinundation of
fictitious currency causeda universalpanic, and its value rapidly
sank to a merely nominal ratio. Even in June, 1790, the
depreciation had become so considerable as to excite serious
"
panic
Again, speakingof 1791, p. 005-

"Public and private credit had alike perished amidst the
general convulsions. Speciehad disappearedfrom circulation.
The assignathad/a7&?ito a third of its value-[This is not quite
correct; at this time the assignathad lost one-third of its value,
not fallen to one-third of it]-and occasionedsuch an amount
of ruin to private fortunes that numbers alreadywishedfor a
return to the ancientregime
" While the unlimited issuesof assignats,at whateverrate of
discountthey might pass,amply provided for all the presentand
probablewantsof the Treasury,the vast and increasing expendi-
ture of the Republic could only, amidst the total failure of the
taxes,be suppliedby the issue of assignats;and this, of course,
by rendering paper money redundant, loweredits value in ex-
changewith other commodities,and occasioneda constant and
even frightful rise of prices
"All the personsemployedby Government,both in the civil
and military departments,were paid in the paper currency at
par; but as it rapidly fell, from the enormousquantity in circu-
lation, to a tenth part, and soona twentieth of its real value, the
pay receivedwas merely nominal, and those in receipt of the
largestapparentincomeswere in want of the commonnecessaries
of life. Pichegru, at the headof the army of the North, with a
* History of Europe, Vol.J/., jp. 219, lik Edit*
8 2
260 imOftY AND PRACTICE OP BANKING
nominalpayof 4,000francsa month,was in the actualreceipt,

on the "Rhinein 1705,of only 200francs,or £8 sterlingof gold
and silver
"The funds on which the enormouspaper circulation was

basedembracingall the confiscatedproperty in the kingdom in
land, houses, and moveables,were estimated at fifteen milliards
of francs, above £600,000,000sterling; but, in the distracted
state of the country few purchaserscould be found for such
immense national domains; and, therefore, the security for all
practical purposeswas merely nominal. The consequence was
that the assignatfell to one-twelfth of its real value; in other
words,an assignatfor 24 francswasworth only 2 francs; tfyatis,
a note for a poundwasworth only Is. Bd.
"Forefgn commercehaving begunto revive with the cessation
of the Reign of Terror, salesbeing no longer forced,the assignat
was "broughtinto comparisonwith the currencyof othercountries,
and its enormousinferiority precipitatedstill further its fall
" By no possiblemeasureof financecouldpaper money,worth
nothing in foreign states,from a distrust of its security, and
wdundnntat home from excessive*>««*»,
be maintainedat anything
like an equality with gold and silver. The mandateswere,in
truth, a reductionof assignatsto a thirtieth part of their value;
but, to be ou a par with the preciousmetals, they should have
beenissuedat one-thousandthpart, being the rate of discountto
which the original paperhad now fallen
**The excessivefall of the paper at length madeall classes
perceive
that it wasin vain to pursuethe chimeraof upholding
its value. On the 10th July, 1796, the measures,amounting to
anopenconfession
of a bankruptcywhichhadlongexisted,were
adopted"
28. We have quoted these passagesfor the purpose of

shewing how completely Sir Archibald Alison, when he is
speakingof the papercurrencyin Prance,acknowledges the
greatprinciplethat the valueof thepapercurrencyis onlyto be
estimatedat the value it will purchasein specie,that the measure
of the difference between the real and the nominal value is its
INCONSISTENCIES OF SIR A. ALISON 261
depreciation,
and that a payment in coin at the currentvalue of
the papercurrency is a National Bankruptcy. Yet, such
is the amazing inconsistency of this writer, that when he comes
to speak of the paper currency of England, which exhibited
exactly the same phenomena,only on a smallerscale,he reso-
lutely deniesthat it was depreciated. "Whenthe Frenchassignat
had lost one-third of its value comparedto specie,in 1791,he
acknowledges that it wasdepreciated;whenthe Bank of England
note in 1811 had lost one-fourthof its value comparedto specie,
it was not the note which had fallen, but gold which had risen!!
When assignats were made legal tender in France at their
nominalvalue, speciedisappeared from circulation. Sir Archibald
Alison estimatesthe depreciationof the assignatby the difference
betweenthe current and the nominal value of the assignat; but
when the Bullion Committee estimatedthe depreciationof the
Bank note by the differencebetweenits nominal and its current
or market value, he readsa homily to them upon their ignorance
and folly, talks of the "general delusion which so long had
prevailedupon the subject,whenit is recollected
not onlythat
the true principles of this apparentlydifficult, bnt really simple
branch of national economy,which are now generally admitted
wereat the time most ably expoundedby many men both in and
out of Parliament, but that, in the examination of come of the
leadingmerchantsof Londonbeforethe Parliamentary
Com-
mittee on the subject, the truth was told with a force and
precision
whichit nowappearssurprisinganyone couldresist."
This truth, which was told with such irresistible force and
precision,
wasthat twenty-seven
wasequalto twenty-one!He
then acknowledgesthat it was a national bankruptcy of the
French Governmentto pay its noteswith a lessamountof specie
than their nominal value; but nothing can exceedthe bitterness
of his invective against the Currency Act of 1819, which pro-
vided that the Bank of England shouldpay its notes at their full
nominal value in specie. Just as if it wasless a bankruptcyto
pay155.in the poundthan to payIs. in the pound. He sees
clearlythat in France the paper currencyis to be estimatedby
the valueof gold; but in England he maintainsthat gold is to be
estimatedby the value of the paper currency!! Just as if the
eternal truths of science are different on different sides of the
2G2 THEORY AND PRACTICE OF BANKING
Channel,or that they are reversedaccording to the languago

they are expressed
in!
29. Sir Archibald Alison's doctrines, when he speaksof

English and the Frenchinconvertiblepapercurrency, are clearly
inconsistent. He fully allows that any differencebetweenthe
nominal and the current value of the assignatwasa drprmutwn
of the assignat. He never dreamsof saying that1,the papor
assignat
wasthe standard,and that the coinhadrisenin value.
But when he discussesthe questionof-What is a pound? ho
says-" In truth, a poundis an abstractmeasureof valuejust as
a foot or a yard of length, and differentthings hare ut different
periods been taken to denote that measure,according UKthe
conveniencyof men suggested. It wasoriginally a poundweight
of silver, and that metal was, till the present century, the
standardin England, as it still is in most other countries. When
gold wasmadethe standard,by the Bank being compelledby tlm
Act of 1819 to pay in that metal, the old word denoting i(8
original significationof the lessvaluablemetal was still retained.
During the war, when the metallic currency disappeared,the
pound wasa Bank of Englandpoundnote-the standard\\as Urn
paper-for gold wasworth 28$.the pound, fiom the demandfur
ife on the Continent.'* It is scarcelynecessary to point out- the
ridiculous absurdity of this passage. The pound an abstract
thing indeed! Our ancestors
hadveryfewab«tractideasat nil,
and certainly an abstractidea of a poundwas not one of them.
They meant nothing abstract,but, on the contrary,a vory
substantialpound weightof silver bullionând nothing else.
To say that a paperpound wasthe standardduring the war**is a
misconceptionof the fact. Instead of a " promise to pay on
demand,the Bank note duringthe warwasa*'promiseto pay
speciesix monthsafterpeace." It is not true that goldduring
the war was worth 28$. paid in silver money,but only in
depreciated
Banknotes. But Sir ArchibaldAlinon aciniitathat
an excessiveissue of paper would have depreciatedthe Bunk
note, but he of course denies that the fenucB were cxrcHKive.
Now,as a depreciation from an excessive inauecould only be
manifestedby a continuous rise of gold above28#. the pound,
it wouldbedifficultto understand wherethe turning pointwould
FAILURE OF LATfr's THEORY 263
bo at whichthedepreciation
wouldcommence. At whatfigure
shouldwe haveto reverseour expression--at
whatfigureare
we to say that gold has ceasedto rise and paperbegunto
fall ?
30. Suchis a plainstatement, foundeduponincontrovertible

facts,of the resultsof the greatestexperimentthe world ever
sawof issuinga papercurrencysecuredupon commodities or
property-the mostcomplete example of Lawism. Whenthe
issuesof assignatswereat their height,theywerecertainlynot
anythingequalto the valueof the fee-simple
of Pranceexpressed
in silvermoney. And, accordingto the predictionsof Law and
Mirabeau,it wasa matterof impossibilitythat theyshouldever
Ixvomedepreciated, andwhatwasthe resultr Eventhoughthe
experiment was not carried out to its fullest extent, the value
of the paper assignat sank to one 150,000th
part of its value in
silver! There were 2,400 millions of promises of mandates
issuedagainstpropertyvaluedat 3,785millions,and yet, in
July, 171HJ,
the note for 100 livrcs was only 5 centimes! Such
wa&the inevitableconsequence
of basinga papercurrencyupon
property or securities,and suchit must ever be,because,if such
issuesare oncebegun,there is no legitimate conclusionwhatever,
until all the property in the country is coinedinto notes. Pass
the legitimate limits of a circulating medium by one hair's
breadth, and there is no logical conclusionbut in the French
assignats
31. The next examplewe shall cite is the Bank of Norway,

"Khich was founded on the 14th Jane, 1810, with its head office
ut Drontheim and branchesin the provincial towns.* Its capital
was originally raised by a forced loan or tax upon all landed
property,and the landholders
became
shareholders
according
to
the amountH of their respective payments. Tins Bank was
especiallyfor the purposeof forwardingagriculturalImprove-
ments, and only discountedmercantilebills and personal
securities,aa a aeeondarypart of its business. Its principal
businessconsistedin advancingitH own notesupon first securities
overland,to anyamountnot exceeding
two-thirdsof the value
of the property according to a general valuation taken in the

year 1812. The borrower paid half-yearly to the Bank the
interest of the sum that may be at his debit, at the rate of
4 per cent, per annum, and is bound also to pay off 5 per cent.
yearly of the principal, which is thus liquidated in twenty years.
Mr. Laing bestowsgreat commendationupon this institution,
and describesit as well-imagined and well-managed,and there
cannotbe a better exampleto test the truth of Law's principle.
We must bearin mind that Law expresslydeclaresthat on his
principlehis yajwr currencywouldnotfall Mow the valueof
silver. *Now, let us mark what took place with regard to the
Bank of Norway, which was founded purely on his principles.
By the fundamental law of this Bank it should, after a certain
time, havebegunto pay its notesin specie, but in 1822thc>y
could only be exchanged at Hamburgfor silver at the rate of
187^dollarsin paperfor 100dollarsin silver!! That is, in six
yearsthe noteshad fallento about45 percent,discount! Was
there ever a more striking or conclusive exampleof the entire
fallacy of Law's predictionsthan this Bank?<"In 1822 the
Storthing passeda law that the Bank should only be compelled
to give 100 silver dollars for every190 paper dollars, but that
the directors might at their own discretion reduce the rate to
175, without a new law. In 1824the value at Hamburg roseto
145, in 1827it roseto 125,and in 1835,when Mr. Laing wrote*
it stoodat 112,which couldonly have beendoneby a contraction
of its issues. Now, it is quite evident that if the Bank had been
called upon to pay its notes at par at any moment, it would
infallibly havebeonruined. This happened
in Paris in 1808,
when the Land Bank stoppedpayment, and J. B, Sayobserves
that all banks founded upon this principle have uniformly
failed
32. The last examplewe shall cite is the caseof America.

That countrywas unhappilydeeplybitten with the currency
mania of basingissuesof paper on " securities." In most of the
Statesthe Legislature passedActs permitting any individual or
any bankingassociations to issuenotesto any amount,upon
depositingwith a "public comptroller"securitiesof equivalent
value. These" securities
" might be publicstock,or mortgages
ATim OF LAW\S THEORY 2(>5
improved,product ivetandunencumbered lands.* Now,ag

then*"KeruntivK" remained. the propertyof the vendors,and
theymitrhtappropriate the revenuesfrom thornas long-as pay-
mentof the note*warn not demanded fromthe comptroller,people
HUW that theymight derivea proiit from the securityaswellas
from tlw currencywhich represented its value. Therewas,
accordingly, a prodigiousrushto depositsecurities--anenormous
uwnoof paper,duringthe years1834*85-86.Thepricesof every-
thing row immensely*The peopleof the WesternStates,with
theiru pocketsfull of papercurrency,gaveverylargeordersfor
g<KHlsto the merchant**of NewYork,Boston,and Philadelphia,
whodulyexecuted them. Thebills givenfor the purchaseswere
payablein these eastern cities; and, when the westerndebtors
tient to their w\n bunkers for bills of exchangeon theseplaces,
in return for their own local currency, the bankers discovered
that their home customershad bought more from the eastern,
cities than they had Hold; that they had alreadydrawn on the
eantfor every dollar which the east was indebted to them, and
could draw no more. The western merchants then sent their
own currencynotes to the easterncities m payment,but, unfor-
tunatelyfor them,the merchants
therehadalreadypaid all they
owed to the west, and nobody in New York or Philadelphia
wanted westernnotes for any purposeof use,and nobodywas
diHjtotfed
to travel600 or 700milesto requestthe cashiers
of the
Wffitern States to pay their notCH,or in those Statesin which
securityhad beengiven,to requirethe comptrollerto sellthe
pledgedsecuritiesand paythemthe moneyproduce.Moreover,
everyoneknewthat it wanphysicallyimpossible
in eithercaseto
obtain the amount in money,for there was no currencyin which
the pledgedproj«*rtywhensold couldhavebeenpaid, except
Hunk notes resting on aeeuritk'R,or on the merepromiseof the
banker." In the meantime the usual effects followed,specie
(lihupjx»ared
from circulation. The extended
paperissues
ledthe
Americansto order immensequantities of good* from Europe,
and,pricesbeing very high from the bloatedpai>ercurrency,
theycouldnendno goodsin returnto payfor them. For some
* A wry prRphfonwnmt of th<»fttrtvnry ta#nri«*« of tho United Sink'sis givan
tn two itrtirfra of tii« ^/irm<i«» N<m 21 ami 21, 1H&5, S«e*3uoThefroyrtts
r, £*i|.»H,I% ?«i 2, p. H0H,
266 THEOKY AND PRACTICE OF BANKING
time they sent over great quantitiesof their stock,but this

becamesuperabundant, and at lastno onein Europewouldbuy
it. It becamenecessarythen for them to pay their debts m
specie;but speciethere was none. In 18,17all the banksin
America, without exception, stopped payment. The general
suspension
beganat NewYork on the llth May, and spreadin
everydirection. In May, 1838, the New York banks resumed
speciepayments,which were followed by all the New England
banks in August, 1838. This was followed by the bauk« in
Philadelphia,and on the 1st January,1830,the banksthroughout
the Union professedto do so. No sooner,however,wensthey
set up again than they resumedthe samewild operations on
credit, and on Ofch
October,1839,out of 850 banks in the Union
843 suspendedpayment entirely and 621partially* On this
occasion
the NewEnglandbankswerehonourably
distinguished;
they had gatheredwisdom; and out of 108 banks in New York
only four stopped; whereas,in the Southernand WesternStates
about two out of three stopped. The United StatesBank, with
a paid up capital of £7,000,000, was found fco be utterly
insolvent; its shares, which were at 123 dollars on the llth
August,1838,were at 3 dollarsin January, 1812. This \UIHthe
fifth grand experimentof Lawism, pure and unadulterated,ou
the most magnificentscale,and suchwasthe result!
33. All ideas, therefore,of basing a paper currency upon

property, or commodities,are essentiallyerroneous,and can
have no other possibletermination, if only carried out to their
legitimate consequences, than what happenedin France in 17SIG
and America in 1837-30. There is onespeciesof property,how-
ever,which, from its being more nearly confoundedwith money
in the public ideasthan any other, is supposedby many peraoiw,
who would repudiate any imputation of being disciples of Law,
to be a soundbasisfor a papercurrency. This property in public
stock A very prevalent idea is, that all banks of mm should
give securityby purchasingthe public funds, and then dq»uhi&
the stock with a Government officer. But what is this but tho
wildest, rankest, and most odiousLawism ? The rule that is
goodfor one is good for all. If thepublicfundsare a proper
basisfor £1,000 of papercurrency,theymustof necessitybe a
FAILURE OF LAWS THEORY 267
good basisto their wholeextent. If onebank or bankeris

allowedto issuepaperon the securityof stock,everyotherone
must be permitted to do the same,until the wholefundeddebt
of GreatBritain is coinedinto papernotes. If £100 of public
debt is coined into £100 of notes,we must, by an irresistible
conclusion,have £800,000,000 of public debt coined into an
equal quantity of notes. The principlesof basing a paper
currencyuponland, and upon the public funds,are absolutely
identicaland equallyvicious. To permit a man to spmdhis
moneyin buyingpart of the publicdebt, and to haveit as well,
in the form of notes,is as rank an absurdity as to permit him to
spendit in land,and alsohaveit as notes. The onlyadvantage
one has over the other is, that the funds are more easily con-
vertible into moneythan land is. The sameis true of a nation
asan individual-that a nationcanspendits moneyin destroying
its enemiesand have it too as bank notes,or '* currency,"is a
wild and mischievous delusion
34. The drift of these remarks is evident. The whole

constitution of the Bank of England is fundamentallyvicious.
It is as completean exampleof pure Lawismas the French
assignatsor the Americanbanks. It gaveits originalcapitalto
Government,and then was allowed to have it in the form of
notes. The first public debt wasBank of England stock,and for
severalof the early additionsto its capital, i.e.,tne public debt,it
wasallowedto issuenotesto the exact amountof its capital, and
this permissionstill continues.Now, if this systemhad been
carried out to its legitimate conclusion,the National Debt and
the capitalof the Bankof Englandwouldhavebeenthe same
thing, andthe papernotesof the Bankwouldhavebeennearly
£800,000,000.When it was foundedthe nationthoughtthey
might spend£1,200,000
in destroying
the French,andhaê
them too as Bank notes. But, if this principle had beencarried
out much further, it would have ended in fatal and universal
ruin
35. The fundamental principleof the Bankof Englandwas,

therefore,aserroneous
asthat of the Mississippi
scheme,the Ayr
Bank,theFrenchassignats,
orAmerican
banking;but as,in all
thesecases,the mischief is not developeduntil the issuesexceed

a certain limit, the radical -viceof the Bank of England lias neon
prevented from producingits inevitable consequences by rigidly
restraining it to that single instance. But then this vice was
kept downby a most unjustifiable monopoly,which wasthe chief
cause of those tremendousbanking catastropheswhich have
desolatedEngland, and which has,until of late years,prevented
a soundbanking systembeing founded
On tfie Theoryof lasing a Paper Ciorencyon theDiscount

of Commercial JBills
36. We trust that the precedingremarks are absolutely
conclusiveas to the fundamentalfallacy of Lawism of all forms
and descriptions,by which we mean the theoryof basing issues
of paper on property or commodities,whether the public funds,
or land, or any moveablegoods. We must now examinea much
moresubtleand plausibletheory,which wasthe guiding principle
of the Bank of Ireland and the Bank of England during the
restriction,and which was adheredto by a large majority of the
commercial world; nor are we aware of any refutation of it on
philosophical
grounds,exceptthe one in the Bullion Eeport,
which we shall quote and commentupon. This theory was first
prominentlybroughtforwardbeforethe Committeeon the Irish
Currency
in 1804,andwehavequotedit elsewhere.The Bullion
Committeeexpressit in the following words-
" The Bank directors,as well as someof the merchantswho
have been examined,sheweda great anxiety to state to your
Committeea doctrine, of the truth of which they professed
themselvesto be most thoroughlyconvinced-that there can be
no possibleexcessin the issueof Bank of Englandpaper,so
long as the advances in which it is iHHiied
are madeuponthe
principleswhichat presentguidethe conductof the directors;
that is, solong as the discountsof mercantilebills are confined
to paperof undoubtedsolidity,armingout of real commercial
transactions,and payableat short and fixed periods"
37* The germ of this doctrine is to be found in Adam

Smith, who says-" Whena bank discountsto a merchant a rt-ui
THIS REPUTED IN TUB BULLION REPORT 2G9
bill of exchange,
drawnby a real creditorupona realdebtor,and
Mhich,as soonas it becomes due,is reallypaid by that debtor,
it only advancesto him a part of the value, which he would
otherwisebe obligedto keepby him unemployed,
and in ready
moneyfor answeringoccasionaldemands."It was first promi-
nently brought forward as a practical rule by the Irish Bank
directorsin 1804. The Committeeof that yeardid not attempt
to dealwith this theory; but the witnessesexamined beforethe
Bullion Committee reproducedit, and alleged that it was the
principle by which the Bank of England regulated its issues
daring the restriction. The directors of the Bank allowed that
beforethe restriction they were compelledto regulatetheir issues
by a drain of gold on them for exportation; when that checkwas
removed,the controlling powerwaslost $ and, indeed,one of the
directors stated that, in his opinion, that was one great merit
of the restriction, that they were no longerobliged to adhereto
their former rules. The Bullion Committee,however,decidedly
condemn
theseopinions. Theysay,speaking
of the consequences
of the Restriction Act-
" By far the most important of these consequences is, that
while the convertibility into specieno longerexists,as a checkto
an over-issueof paper, the Bank directors have not perceived
tlmt the removal of that check renderedit impossiblethat such
an excessmight be issuedby the discountof perfectlygoodbills.
So far from perceiving this, your Committee have shewnthat
they maintain the contrary doctrine with the utmost confidence;
howeverit may be qualified occasionallyby some of their ex-
pressions.That this doctrine is a very fallaciousone, your
Committeecannot entertain a doubt. The fallacy upon which it
is founded lies in not distinguishing betweenan advanceof
capitalto merchants and an additional supplyof currencyto the
generalmassof circulatingmedium. If the advance
of capital
only is consideredas made to thosewho are readyto employit
in judicious and productiveundertakings,it is evident that there
need be no other limit to the total amount of advances than
what the means of the lender and his prudencein the selection
of borrowers may impose. But, in the present situation of the
Bank, entrusted, as it is, with the function of supplying the
public with that papercurrencywhichformsthe basisof our
270 ITOEOBY AND PRACTICE OF BANKING
circulation,and,at the sametime,not subjectedto the liability

of converting the paper into specie, every advancewhich it
makes of capital to the merchant in the shape of discount
becomesan addition also to the mass of circulating medium.
In the first instance,whenthe advanceis madeby notes paid iu
discount of a bill, it is undoubtedly so much capital, so much
powerof making purchases,placed in the hands of a merchant
\vhoreceivesthe notes; and, if thesehandsare safe,the operation
is sofar, and in this, its first step,useful and productiveto the
public. Bat as soon as the portion of circulating medium in
which the advancewasthus madeperformsin the hands of him
to whom it was advancedthis, its first operation as capital-as
soon as the notes are exchangedby him for someother article
which is capital, they fall into the channel of circulation, as so
much circulating medium,and form an addition to the massof
currency. The necessaryeffect of every such addition to the
massis to diminish the relative value of any given portion of
that mass in exchangefor commodities. If the addition were
made by notes convertible into specie,tins diminution of the
relative value of any given portion of the whole masswould
speedilybring back uponthe bank which issuedthe notesas
much as wasexcessive.But if by law they are not so convertible,
of coursethis excess
will not be broughtback, but will remain in
the channelof circulation until paid in again to the bank itself,
in discharge of the bills which wore originally discounted.
During the whole time they remain out, they perform all the
functionsof circulatingmedium,andbeforetheycometo be paid
in dischargeof thosebills, theyhavealreadybeenfollowedby a
new issue of notes,in a similar operation of discounting. Each
successiveadvancerepeatsthe sameprocess. If the whole sum
of discountscontinuesoutstandingat a given amount, therewill
remain permanentlyout in circulation a correspondingamount
of paper; and if the amountof discountsis progressively
increasing,the amountof paperwhich remainsout in circulation
overandabovewhatis wantedfor the occasions
of the public
will progressivelyincreasealso; and the moneyprices of com-
moditieswill progressivelyriso. This progressmaybe asindefinite
as the range of speculationand adventure iu a great commercial
country"
THIS REFUTED IN THE BULLION REPORT 271
38. Such is the reasoningof the Bullion Report, to shew

the fallacyof the rule of the directors. "Wearenot awareof any
other attempt to refute it so elaborate as the one given. The
conclusionsare perfectly just, but the expressionsare in some
respectsambiguous, in some inaccurate; and, altogether, the
reasoningis inadequate to effect its purposeof demonstrating
the fallacy of the doctrine. In the first place, the expression
"good bills" is one which we shall shewis full of fallacy. The
Reporthas further beencloudedby the false distinction between
"capital" and " circulating medium." Again, it saysthe necessary
effectof every addition to the massof the currencyis to diminish
the value of the whole, which assertion is entirely erroneous,
becausethe value of the currencyis alwaysproportionateto the
work which it hasto do ; and it is only a changein the proportion
betweenthe currency and the work that it hasto do that causes
a change in its value. The Committee wore further in great
error in supposingthat so small an amount as could be addedto
the circulating medium in so short a time as during the currency
of the bills that were discountedcould have any generaleffect on
prices
39. We shall find that, by starting from our fundamental

definition of currency, as transferabledebt, and that the value
of the currency dependsupon the quantity of transferabledebt
which it represents,the fallacy of this theory can be demonstrated
with great easeand simplicity, and the mischievousconsequences
which followed from it explained. When the merchantA comes
to the bank to discount the acceptanceof B, it is a sale of the
debt to the bank. The bank buys a debt payable at a fixed time
after date, \\ith its notes,which are so many small debts payable
to beareron demand,while the notesare convertible. The trans-
action is flimply an exchangeof debts. At the appointedtime it
is B.'s duty to take a quantity of currency fcothe bank, and
discharge his debt. He doesthis either in coin or in the bank's
own notes. If he pays his own debt by the bank's notes, it is
simply a re-exchangeof debts betweenhim and the bank; he
extinguisheshit* own debt to the bank at the sametime an equal
quantity of the bank's debt is taken out of circulationand
extinguished; consequently,the proportion existing previously
272 THEORY ANT>PRACTICE OF BANKING
betweenthe currency and the quantity of debt it represents

remainsunaltered. If the merchantdischargeshis debt partly in
coin and partly in bank notes, or wholly in coin, the sameresult
follows; the noteswhich remain out in circulation still represent
the sameamountof capital. But let us supposethat the acceptor
fails to meet his engagement,and cannot pay his debt. Then
the debt due to the bank is lost and extinguished; but the debt
against the bank remains; and the bank, whilst the notes are
payableto bearer on demand,must pay this debt out of its
remainingcapital. Still, however,though this is loss of capital
to the bank, as the notes are taken out of circulation, the value
of the notes remainingin circulation will not be affected. But
now let us supposethe notesto be inconvertible,then, asbefore,if
the acceptorpaysthe debt, the noteswill be taken out of circula-
tion, and extinguishedsimultaneouslywith the debt which they
purchased,and the value of those remaining in circulation will
not be altered. But supposethat the acceptorfails, and cannot
pay his debt,then that debt is extinguished,but the noteswhich
purchasedit remain in circulation,and are a mereaddition to the
circulating medium alreadyexisting, without any corresponding
addition to the debt or capital which it represents. It would
have exactlythe samepractical effectsas if for every goodbill of
£1,000 the bank wereto issuean excessof currency,say £1,500
for example,and when the bill was paid only £1,000 wouldbe
taken out of circulation, and the remainder,£500, would remain
in circulation. This residuum,as we may call it, would go in
diminution of the value of the remainder,exactly in the same
wayas a constantincreaseto the gold currencywould gradually
causea diminution in its value. Every suchoperation,therefore,
alters the proportion betweenthe currencyand the capital, or the
debt it represents; and though, no doubt, a few unsuccessful
operationsof this sort would not haveany sensibleeffectin
changingits value,yet a repeatedsuccession
of them must ne-
cessarilydo so ultimately, just as adding a drop to water in a
bucket may not perceptiblyincreasethe height of the water,yet
a continued series of drops will at length causethe water to
overflow the bucket; so a continued seriesof such operations
under an inconvertible paper currencymust necessarilyresult in
a serious diminution in the value of the whole
OF THIS THEOBY 273
40. But it may happenthat eventhough the merchant

payshis debt,and no loss of capital ensues to the bank,yet it
may be a loss of capital to him. Thus,whenhe boughtthe
goodson credit, and gavehis acceptance for them,whichwas
purchased by the bank, he meant to employthese goodsas
capita^that is heboughtthemmerelyfor the purposeof selling
them again,with a profit. If he succeeds in this object,and
sellsthemto advantage,
hepayshis acceptance outof the proceeds
realisedby the goods,and his capitalis increased moreor less,
accordingto the greateror lessadvantagehe sellsthemat. But
if he hasmadea miscalculation, andsellsthe goodsat a loss,he
must still make good his debt to the bank out of his remaining
capital: and such a transactionis a lossof capital to him. But
everylossof capital to an individual is a lossof capital to the
wholecommunity.* And the greatgeneralresult to the community
is absolutelythe same, whether the lossof capital falls upon the
individual or upon the bank. The capital of the nation is
diminished, but the currency remains the same. Consequently,
every unsuccessfuloperation in trade alters the proportion
between the quantity of the currency and the quantity of
the debt, or the capital it represents; and, therefore, every
unsuccessfuloperation necessarilytends to diminish the value
of the whole currency, unless some means can be devised
by which a quantity of currency can be removedfrom cir-
culation corresponding
to the loss of capital* Now, the
diminution in the value of the currency inevitably shews
itself in processof time, by a generalrise in prices. It may
do so graduallyand imperceptiblyat first-in the hourly
variationsof prices,it maynot, perhaps,be perceived at first
juRtaswhenthe wavesare breakingupontheshore,it is impos-
sibleto tell whetherthe greattide is advancingor receding; but
if it continuesfor any length of time, all traders begin to feel
it instinctively.It is impossible,
perhaps,
to pointout theprecise
influencein any particulartransaction;but yet it makesitself
felt in commercialoperationsby a generalrise in prices. The
fact is, that when the operationwas done,and the product
* J. B. SayhasalsoremarkedtMs-"XJn mauvaisspeculatesestaussifatal
&la prosperity
g£n6ralnii'tin dissipateur."-Traitl d'Econotnie
rolitiqut) jp. 445,
Mdit. Quillaumin
YOU II. *
exposed for sale,it was expected

andcalculatedthat a certain
portion of currencywouldbe appropriated
to its purchase.But,
if peopledo not want the article, they will not appropriate that
portion of currencyto its purchase
; the producerloseshis
capital,and the currencyremainsin circulation. And the in-
creasedquantity of it gradually enters into the pricesof other
commodities,aggravating them, and swelling them up. Now,
when this is the case,when the currencyis madeof a material
which has a universallyacknowledged
value, nature herself
provides a remedy. When commoditiesrise m pricem this
country "beyondtheir pricesin foreign countries,besidesthe cost
of transporting them here,theywill be imported, and the extra
quantitythrownuponthe marketdiminishes
their price,bothby
alteringthe ratioof supplyanddemand,
aswell as by removing
the quantity of currencynecessaryto payfor them from circu-
lation, until the generalequilibrium is again restored between
prices,currency,
and capital. But, if the currencybe madeof a
material which hasno value whatever,like paper,this great re-
storing processof nature cannot take place. The quantity of
currencyremainsthe same,while the debt it representsis
diminished. The consequence is a general diminution in value
of the wholecurrency-all the portion of the currencywhich has
value as a material is driven out of circulation: then follows
a great rise in the marketprice of bullion, and, as a necessary
consequence, a fall in the foreign exchanges
41. The foregoingconsiderations enableusto affix a definite

and specificmeaning to a phrasewhich is now in constantuse,
but which we have never yet seenany attemptto explain. All
discussionsupon currencyare full of misty and vagueexpressions
about " excessiveissues," " over-issues," but we have never seen
any attempt to define what an"over-issue" is. Now, "over-
issues" in general, must consist of specific instancesof "over-
issues*' in particular cases. Where is the use or the .senseof
casting vague and indefinite accusations against the Bank of
making "excessive issues," unlessthe person who makesthe
charge is preparedto point out specificallywhich issuesare ex-
cessive,and which are not ? Now, the meaning which we affix
to an "excessive issue" or an "over-issue,"is an advanceupon
SMITH ADOPTS CONTRADICTORY THEORIES 273
an unsuccessfuloperation,or the "purchase of a bad debt."

Every quantity of currencyadvancedto promotean unsuccessful
operation, or which purchases a bad debt, alters the proportion
betweenthe currencyand the debt, or the capital it represents.
"
Each specificinstance,then, of such an operation,is an over-
issue," and the expression" over-issue,"or "excessiveissue,"has
no other meaning
42. The foregoing considerationsalso shew the complete

fallacy of the theory we have been discussing,of issuing notes
upon "good bills." In a banker'ssense,a "good bill" means
simply a bill which is duly paid by the properparty at maturity.
It is not the smallestconsequence to him, whether the transac-
tion out of which the bill originated is a profit or lossto the
person who incurred the obligation, as long as he is paid. But
if the expression" good bill " be taken in a more extended
and philosophicalsense,to denote a bill upon which it is safe
to issue currency, it is a very different matter indeed,for
then a " goodbill" can only mean one generatedby a successful
operation
43. It is not a little remarkablethat Adam Smith adopts

both the theoriesof papercurrency,which haveimposedso exten-
sively on the banking and mercantile world, and that within a
very few pagesof each other. The one theory, that which the
Bank Directorsand merchantsadoptedin 1810; the other,which
is the great currency fallacy of the present day. The two
theories are utterly irreconcilable and inconsistentwith each
other ; the one necessarilyleadsto the most excessive over-issues
and depreciationof the paper currency; the other, if carried out
in all integrity, would be utterly destructive of the businessof
banking
44. What, then, is the only true foundationof a papercur-

rency ? Every considerationof sound reasoning and science,
provesthat the only true foundation of a paper currencyis that
substancewhich is the legal or universallyacceptedrepresenta-
tive of Debt, i.e.,of servicesdue, whateverthat substancebe.
Now, among all civilised nations, gold or silver bullion is the
T 2
276 THEORY AND PRACTICE 0? BANKING-
acknowledged representative of debt. Consequently, gold or

silver bullion is the only true basisof a papercurrency. Among
all civilised nations the iveightof lulkon is thBacknowledged
measureof value, and, consequently,bullion is the only true basis
of the " promises
to pay." Many unthinking personsdeclaim
against the absurdity of foundinga papercurrencyuponthe
commodityof gold bullion rather than any other commodity,such
as wheat, or silk, or sugar. Bat it is not as a commoditythat
bullion is the basisof a papercurrency,but as the substance
which is the acceptedrepresentative
of debt. It wouldbeperfectly
possible to make a yard of broadcloth,or a Dutch cheese,the
symbol of debt, and the measure of value; then broadcloth or
Dutch cheeseswouldbe the onlytrue basisof a papercurrency;
andto issuepaperuponthebasisof bullionwould,in sucha case,
be as improper as to issue paper on the basisof broadcloth,or
Dutch cheeses, under existingcircumstances. But all nationsare
agreedthat bullion is better fitted by nature for sucha purpose
than broadcloth, or Dutch cheeses;and, consequently, as it seems
to be the substancepointedout by nature herselffor representing
debt, it is the substancewhich forms the only true basisof a
paper currency
46. Bullion, then,as the symbolof debt,is not only the sole
properbasis of a papercurrency,but is the only true regulator of
its amount. As all paper currencyis a " promise to pay" gold
or silver bullion at somedefinitetime, it is quite evidentthat the
" promisesto pay " floating in a nation must bearsomeproportion
in quantity to the actual quantity of the bullion. It is quite im-
possibleto fix any definite proportion,becausethat dependsupon
a multitude of peculiar circumstances. Experienceis the only
guide on the subject
46* Specie
andcredit,or moneyandpromises
to paymoney,
then, form the only true circulating medium or currency, and
they are its limits. If the limits of specieand credit are once
transgressed,weplunge at once into the dreadabyssof Lawism,
and there is no logicalgoal till we arrive at the assignatsof 1796,
or the issues in America in 1837; and even these did not reach
the full limits allowed by the theory. It is impossibleto exceed
TRUE METHOD OF REGULATING CREDIT 277
the boundariesof money and credit by a single iota, without

involvingthis absurdity-that we can buy a thing and Jceep
the
price of it as well
47. Moneyand credit,then,must alwaysincreaseanddecrease

together. If a man's real capital is reducedfrom £1,000 to £100,
it is quite clear that" he cannotsafelykeepin circulation as many
" promisesto pay as when he had £1,000, and if his real
capital is leaving him, he must reducehis liabilities in a similar
proportion. If he choosesto spend£500 in buying commodities,
suchas corn, it is quite clear he cannot spend the money,buy
the commodity,and have the price as well. Now, what is true
of a single individual is equally true of a bank, or of a nation.
"Whenan ordinary bank feels a drain upon its bullion, it must
reduce it liabilities, its " promisesto pay," or else the ruin of
that bank is certain. Now, somepeoplethink, that though this
mustbetrueof privatebanks,yetit is the reverseof trueapplied
to the Bankof England,andthat, asits bulliondecreases
it ought
to increaseits i&sues. Sir Archibald Alison frequently reminds
us of the truism that the samegreat law regulatesthe fall of a
pebbleand the motionof the planets. Sowemaysaythat the
samegreat law regulatesthe relations betweenthe credit and the
capital of the humblest individual, the smallestbank, the Bank
of England,and the British nation. Somepeoplethink that as
capitaldecreases
credit shouldincrease. What makesthecredit
of Great Britain so great? Becauseher capital is so great.
Why is the credit of Russia so low ? Becauseher capital is so
small
48. The operation of reducing" issues" or " advances,"is

always one which will excite much complaint,and requiresto be
done with much delicacy; and, indeed, the great problem in
regulating the paper currency, is to discoverthe true modeof
acting upon it, so as on the one hand to maintain alwaysits uni-
formity ift value with the coin it represents,and on the other not
to contract it too suddenlyand violently, and without giving the
public sufficient warning to enablethem to reducetheir liabilities
in proportion
49. From the amazing confusionof languageand thought

which pervadesalmostall treatiseson monetaryscience,the plain
and obviousmethodof controlling the papercurrencylias almost
entirely eluded observation. No person who apprehendedthe
true nature of banking, and expressedit in simple language,
could fail to see the natural controller. The main business of
commercialbanking is discounting mercantilehills-that is Imy-
ing debts. Discounting a bill for a merchantis not kndiny him
moneybut luying a debt due to him ; and the price of »uchdebt
must follow exactlythe samelaws as the price of corn, or any
other article. If moneyis very scarce,and wheatvery abundant,
the priceof wheatmustfall; if moneyis veryabundant,the price
of wheatwill rise. The price of debts obeys?
the samerules. If
moneybecomes
veryscarce,
the priceof debtsmustfall, *>.,the
discount must rise. If speciebecomesabundant, the price of
debts will rise, «.#.,the discount will fall. The price of debts,
then, must follow the samegreat lawsof naturethat the price of
wheat does. Now,does not every man of commonsenseknow
that it is the most foolishand insanething to try to control tlm
priceof wheat? As wehaveshewnin anotherplace,it is not the
fluctuationof the price of wheatthat is the evil, bill it m only the
*>iynof evil. The real evil is the changein the proportionof the
demand andsupply,and the fluctuationof thepriceis the grand
naturalcorrectorof the evil Doesnot everyoneknowthat a
highpriceof cornis the wayto attractcornwhereit in deficient,
and a lowpricethe wayto repolit from whereit is alreadytoo
abundant? Doesnot everyone with commonBonne know that it
is the most fatal folly to force down the price of wheat when
thereis a real scarcity, and to sell it below the price it would
naturallyattain ? Can any coursebe jnore suicidal?
60. Now,applyall the arguments

whichsuggest
themselves
so irresistiblyin the caseof wheat to the caseof credit, or the
purchase
of debts,and the sameresultsfollow.%The winegreat
law of nature operatesto preservethe due proportion between
specieand credit and any interferencewith this great law must
necessarily
be attendedwith the sameevil consequences an an
interference
with the naturalpriceof wheat. Andyet almostall
legislationup to a very reccut period, and almostall writers on
THE RATE OE DISCOUNT GOVERNS CREDIT 279
political economy,and too many of the commercialworld,were

in a perversecombinationto thwart this great law of nature,and
attempt to keep the rate of discount,or the price of debts,fixed
at a uniform scale !
61. While, therefore,the greater part of commercialcom-

plaints are levelled againstvariations in the rate of discountas
the great evil, the truth is, it is only the *>ignof the evil. The
real evil is the altered proportionbetweenspecieand credit,and
a variation in the rate of discount is the grand natural corrector
of the evil. To attempt to keep the rate of discountuniform,is
to thwart and contravene the laws of nature just the sameas an
attempt to fix the price of wheat. Like all true laws of nature,
the simplicity, beauty, and perfection of its action is marvellous,
and it producesa multitude of resultswhich are not perhapsvery
obviousat first. If specieis leaving the country and becoming
scarcecomparedto credit, every principle of nature shewsthat
the value of money must rise, «.&, the rate of discount must rise ;
and this has a tendencyto prevent the outflow of bullion, andto
attract it from abroad; on the other hand,if speciebe flowing
into the country and likely to become too abundant comparedto
credit, a fall in its value, or a fall in the rate of discount r&pelsit
from the country. If a nation be visited with a great failure ot
the crops it can only buy suchfood from foreign countrieswith
its commoditiesor its money; it cannotsend its credit in pay-
ment abroad. Now, if commodities are too dear, it must pay with
money,and credit in this country is the great producingpower,
and credit for a time is a greatsustainerof prices by enabling
peopleto withhold their commodities
from the market. Now,
raising the rate of discountcurtails credit,forcessales,andthereby
lowersthe prices of commodities,and makesit lessprofitableto
export specie,and more profitable to export goods. Moreover,
this rise in the value of money here, i.e., the low price of debts
and commodities,temptsbuyersfrom neighbouringcountriesto
bring their moneyhere. It thus causesan inflow of bullion and
restoresour currencyto a uniformity of value,with that of neigh-
bouring countries. Again, if this nation has to spenda great
part of its moneyin buying foreign corn,it is quite clear that it
hasnot got so much to spendin purchasinggoods; an over-pro-
duction of goods,therefore,
canonly end in a disastrousfall in
prices. And here,too, the beautiful action of this great law of
nature is manifest. So enormousa proportionof the commodities
of this countryare produced
by the creditsystem,that a rise in
the rate of discount just hits profits betweenwind and water, as
we maysay. Consequently,
a risein the rateof discountretards
and curtails production in proportion to the diminishedconsum-
ing powersof the nation, and so preventssuch a ruinous fall ia
prices as would necessarilyfollow an undiminished production,
accompaniedby a diminishedpowerof consumption
52. In fact, when a commercialcrisis occurs in a country,

it invariably meansthat more personsare wishing to sell than
thereare personsto buy,or,at least,at remunerative
prices. A
commercialcrisis invariablyarisesfrom a lack of purchasers
which is, in fact, over-production. True prudencestherefore,
shewsthat in all commercialcrises,production should be curbed.
It is much better not to produceat all, than to produce and be
obligedto sell at a loss. To produce,and be obliged to sell below
the cost of production,is loss of capital. It fa butter, therefore,
not to employthe capital at all than to loseit. Kausingthe rate
of discount,therefore,atitn as a timely warning to producersto
hold hard. It is necessaryto disposeof the stock alreadypro-
duced,beforeproducingmore, and if the streamof saleis stopped
while productioncontinues,it can only end in a moreaggravated
fall at last
53. Now,what is the necessary

consequence
of an attempt
to thwart this great law of nature ? In time of scarcityof food,
and a necessary exportof moneyto buy it, if the rate of discount
be kept unnaturallylow, nothing but moneywill go; commodities
are too dear, they will not go. Again, moneybeing kept at an
unnaturallylow rate here,no one will bring it here from neigh-
bouring countries; consequently,great quantities of money will
go out and nonewill comein, till at last the circulating medium,
will be nothing but "promisesto pay," and no moneyto pay them
with. Then, at last, violent convulsions, total destruction of credit,
everyonewishingto sell,andno onewishingor ableto buy
EIUIORS OF ALISON'S PLAN 281
54. Ou the otherhand, if, when specieis flowingin with

too great abundance,it be not repelled by a due diminution in
the value of money, £&, a fall in the rate of discount,it will
continueto do so until it is so superabundantthat a violent fall
takes place. Persons who are accustomedto depend on the
incomesthey derive from the interest of money, suddenly find
that their means are seriously diminished. In the year 1824
there was such a plethoraof capital in the country that the
Scotchbanksgave no interest on deposits; after 1824:came1825.
Then wild speculationsfind favour in the public mind, promising
higher profits; and then the community goesthrough the cycleof
bubblespeculations,extravagantcredit, ending in a commercial
catastrophe.We may feel quite certain that if during the various
crisesthis country had passedthrough, there had been more
attention paid to observethe natural rate of discount,insteadof
thwarting the courseof nature, though the variations wouldhave
beenmore frequent, they would have been lessviolent and ex*
treme. If specieis coming in with too great speedit is goodto
lower the rate of discount quickly to prevent it getting lower; if
specieis going out too rapidly, it is good to raisethe rate quickly
to preventits being higher
65. Such,however,is the perversityof man, that many

think that a uniform and invariable rate of discount is the great
thing to be preserved,no matter what nature may sayto the
contrary,and their ingenuity is racked to devisea plan for always
keepingit so, just as if the governorof the steam engineought
always to revolve with uniform velocity. Now, the inevitable
consequence of taking thesemeansto thwart nature will be, that
whenspecieis scarce,it will be repelled by a lower rate than the
natural one; when it is already too abundant, it will be still
further attracted by a rate higher than the natural one
56. The extremeanxiety of personsto obtain an impossible

object,alwaysto have the powerof selling debtsdue to them at
a uniform rate, has led to a very prevalent theory, which seems
very innocentand simple. It being desirablealwaysto maintain
the currency at a uniform amount, they proposethat, as gold
goesout, papershould be issuedto supplyits place. This theory
is adopted by Sir Archibald Alison, who says,after condemning

the theory that gold and papermust vary together-
" The true systemwouldbe just the reverse. Proceedingon
the principle that the great object is to equalisethe currency,
and with it prices and speculations,It would enlargethe paper
currency when the preciousmetals are withdrawn, and credit
is threatenedwith a stoppage,and proportionatelycontract it
when the preciousmetals return, and the currency is becoming
"
adequatewithout any considerableadditionto the paper
67. There wouldbe certainlysomethingspeciousin the idea

of issuing bank notes to supplythe placeof the gold that wenfe
out if, unfortunately,it had not been tried over and over again,
and beenattendedunfortunatelywith a catastrophe. When gold
wasleaving the countryin vast quantities in 1796, the Bank of
England still maintained its issues,against its own will, it is
true, but yet the fact illustrates the principle^ and the conse-
quencewasthe suspension of cashpaymentsin 1797. When the
Bank had got right again in 1817, a drain for foreign loans
began, and the bank extendedits issuesin 1818, and the con-
sequence was the secondsuspensionof cash paymentsin 1819.
In 1824 when bullion was departing from the country like a
flood, the Bunk extendedits issues;then, whenit sawitself right
in the vortex of bankruptcy, it suddenlyaltered its policy, and
the result of all this wasthe catastropheof 1825. In 1838-89,a
similar drain occurred, the Bank with marvellous perversity,
maintainedits rate of discount considerablybelow the market
rate,and the result was the monetary crisisof 1839, In 1847,
there was the same error and the same result. Surely these
instancesare enoughto destroythis fatal delusion
68* In fact, Sir Archibald, and the great body of public

writers who share these sentiments,wholly mistake the object
to be soughtfor in so delicateand artificial a machineas a paper
currency. The object to be aimed at is not to preservea uniform
rate of discountin this country, but to maintain a uniformity in
the valueof the British currencywith that of other countries. If
moneyis madeartificiallycheapin this country,that is, cheaper
than it is in neighbouringcountries,personsin this country will
ERRORS01? ALISONS I?LAN 283
exportit to whereit is of greatervalue; theywill buyforeign

securities,they will import foreign commodities. On the other
hand, foreign nations will flood this country with their securities
-just as the Americansdid in 1839,whenthe Bankkept down.
the rate of discountbelowits proper level-becausethey can
sell themat a betterpriceherethan,in their own country. If a
man wishesto sell a horse,and my neighbourwill only give
£00 for it, and I will give £06, he, of course,will sell the horse
to me, and take away my cash. So,when the Americanswished
to sell their debts,and found that in their own country they
could only get £00 per cent, for them, whereasthey could get
£07 per cent,for them in England,as a natural consequence,
they sentthem to England for sale,and took awaythe cash. The
only way for England to have stoppedthis would have been to
give no morefor thesesecuritiesthan the Americanswouldthem-
Helves;in other words,to maintain a uniformity in valuebetween
the currencies of the two countries
69, When the foreign exchangesare unfavourableto this

country, the simple meaning of that is, that it is profitable to
export gold. Now, where is the gold got from for exportation?
Ifrom the Bankof England. And howis it got from there? By
getting hold of the Bank's " promisesto pay" gold on demand.
Now, whenthe Bank of England knows that a multitude of per-
sons are trying to get hold of its " promisesto pay" for the
purposeof demandinggold for them, to carry out of the country,
would it not be the height of folly in the Bank to be multiplying
its " promisesto pay " in all directions,and selling them cheap?
This would be exactly as wise as if the captain of a ship, directly
he sawa stormcoming on, were to set all his studding-sailsand
royals. When the captain seesthe tempestapproaching,he must
get down his top-gallant mustsand reef his topsails; so, whenA
commercialtempest is threatened,it behovesthosewho pilot the
vesselsof credit to contracttheir " promisesto pay"
60. Theplanproposed
by Sir Archibald,anda multitudeof
unthinking writers, is, that when gold is leaving the country,
commissionersshould be appointed to issuean equal amountof
inconvertible paper, which is to bo withdrawn when gold coinea
backagain. But what is to be donewith the convertiblepaper

alreadyin existence? Is it to be declaredinconvertible? For,
as long as the rate of discount is depressed,there will be a con-
stant demandfor gold in exchangefor notes,and a corresponding
amountof inconvertiblepapermust be issued. Let this wonderful
theory be put in practice,and the drain will not ceaseuntil every
sovereignhas left the country; and, moreover,they neverwill
comeback again. For, as the avowedintention is to keep down
the rate of discount, and to keep up prices,there is nothing to
bring the bullion back again. Nothing can bring it back again
here,exceptwe can sell our commoditiesor debts cheaperthan
other nations. But it is the avowed intention of these issues to
prevent that; consequently,no bullion everwill comeback
61- But, moreover,this wonderful panaceaof all monetary

ills-issuing an inconvertible paper currency,to supplythe place
of the gold that goes out-is just our old friend John Law's
schemeover agaia,of issuing paper currencybasedupon com-
modities. Those who advocate this think that the nation can
send its moneyabroad to buy food, and have it as well in the
form of paper money. Jusfcas if a man might go infcoa shop,
spendhis moneythere in buying goods,and then have it againin
the form of a " promise to pay." When will this stupendous
delusionbe eradicatedfrom the public mind ? If I havea cer-
tain quantityof moneyin my till, I maysafelygive a " promise
to pay;" or, if I know for certain that moneyis comingin to mo
on a certain day,I may give my " promiseto pay" at a certain
date ; but when I haveactually spent my money,and it is gone
awayfrom me for ever, to think that I couldthen grant a " pro-
miseto pay" worth anything, is an ideawhich savours little of
sanity* In 1606-97,during the re-coinageof the silver, the Bank
of Englandmight haveissued£1 noteswith the greatestad-
vantage and propriety for a temporarypurpose,becauseit knew
that it would shortly have the money to pay them with; but
when the moneyis gone from the Bank to buy corn abroad,it
Wouldbethe mostdangerous
folly possible
to issuenotesto supply
the placeof gold
62* But therearc severalother considerations

whichpoint
THE ABSURDITY OF THIS PLAN 285
out thabthe rate of discountis the truemethodof actingupon

the paper currency. As soon as the exchangebecomesso un-
favourableas to make it profitable to export gold, an immense
numberof bills are fabricatedfor the purposeof being soldfor the
sakeof the premium; and thesewill continueto be fabricatedas
long as the rate of discount is kept below that of neighbouring
countries; now,raising the rate of discount strangles all such
operationsin the birfch. If only the numerical amount of notes
be lookedto, and the rate of discount be kept down, thesespecu-
latorsmay get their bills passed,while legitimate trade bills may
be refused. A moderate rise in the rate of discount will never
inflict any real injury on trade at all equal to the refusalto dis-
count trade bills altogether; and that is the result which has
alwaysensuedfrom a perseverancein keeping down the valueof
moneybelowthe natural level
63. Moreover,
whenthe nationis actuallyobligedto spend
its moneyin buying foreign corn, or on any other object, suchas
war, it is quite impossible that it can have so much moneyto
spend upon other things; its consuming powers,therefore,are
diminished; it must economisein other things. JTow,if the
rate of discount is kept belowits natural level,it stimulatesand
encourages productionso muchbeyondthe powersof consumption,
that it must necessarilyterminate in an aggravatedfall in prices.
A timely raising of the rate of discountis, therefore,a warning to
producersto contract their operationsgradually. But keepingit
unnaturally low lulls them into false security; they maintain
their engagements on credit on an undiminishedscale,till at last
the Bank, for its own safety,is obliged to pull up on a sudden-
to bring up all standing. Then follows a total refusalto discount,
commercialpanic, and ruin
64. It is, then, an incontrovertiblefundamental truth in

monetaryscience,that specieand credit form the circulating me-
dium, and that they must increaseand decreasetogether. An
increaseof currency,without an increaseof debt,hasno effectbut
to diminish the value of the currency. The samething happens,
if, whendebt is destroyed,currency is not destroyedwith it. If
a metallic currency increasesfaster than debt, nature providesa
remedy-it Is immediatelyexported. But, with an inconvertible

paper currency,this cannot happen,and whendebt is destroyed,
currency remains in circulation; when this goes ou for any
length of time, or to any extent, the inevitable result is a depre-
ciation of the papercurrency,which is shewn by the rise of tho
market above the Mint price of gold. This was eminently ex-
emplified in England in the years subsequentto 1810. Tho
extravagantspeculationswerefollowedby an enormousdestruction
of capital; but the currency which was issued to representit
remained in circulation, and soon manifested itself in a rapid fall
of the value of paper. It was impossiblethat paper ever should
right itself, unlessthis superfluouscurrencywas destroyed. It
is recordedthat an Irishman once having taken a dislike to a
banker,in order to spite him, collecteda number of his notesand
burned them. It would have been an excellent thing for the
country bankersof England in 1814-15,if someone had donethe
samekind officefor them. The quantity of paper currency was
so excessive, comparedto what it represented,that nothing could
restoreit to its par value but the destructionof a large portion
of it; and this was brought about by the destruction of the
issuers of it; and, when this was done, the value of the remainder
rose to par
65. We have gone over most of the theories of currency

\*hich haveattainedthe greatestpracticalimportance. That
there are others,is true; but they have generallybeen confined
t/oa small knot of fanatics. But, as they seem,at last, to havo
died out,we neednot wearyour readers'patienceby disturbing
their peacefuloblivion
CIS THE DEFINITION OF CURRENCY 287
CHAPTER XT
ON THE DEFINITION OF CURRENCY
I. Having in the precedingchapterscompleteda general

surveyof the mechanismof Banking and the Foreign Exchanges,
weare now compelledto examinethe peculiarsystem of Banking
which is at presentestablishedin this country; but, beforewe do
BO,we must give a little time to settlethe meaningof the word
Currency. Most personsengagedin practical businessare
morbidly averseto discussionson the meaningof words,thinking
them to be pure waste of time. But no sciencewas ever yet
founded without such controversies,and ifc is preciselybecause
writers on Economicshave systematicallydespisedand neglected
the only meansby which a sciencecan.be founded,and by which
every other great sciencehas been createdand established, that
Economicsis at the presentmomentin such a discreditablestate,
In the presentcasethis investigation is absolutelyindispensable,
becausethe Bank Charter Act of 1844,which now governsthe
wholemonetarysystemof the country, is expresslyfoundedupon
a peculiar definition of the word Currency, and is expressly
devised to carry out a peculiar Theory of Currency. In this
chapterwe must thereforeinvestigate and settle the meaningof
the word Currency
A very distinguished statesmanhas said that the word
Currency has driven more peoplemad than anything except
love. Nor, to say the truth, is this very surprising. If we were
to assemblea companyof purely literary men,and requestthem
to **Differentiate the Equation to a Curve/' we have not the
smallestdoubt but that sucha mysteriousexpressionmight drive
them to despair, whereasany moderatelyeducatedschool-boy
could do it at a glance. It is preciselythe samewith the word
Currency. It is a term of pure Mercantile Law, Any mer-
cantilelawyercantell in an instantwhat the wordCurrency

means,andwhat it includes; whereas,thosewho haveoccupied
themselveswith discussionson it, know absolutelynothing of
MercantileLaw, and haveexactlyas much chanceof settling
the meaningof Currency, as they have of Differentiating an
Equation. We have alreadygiven a short account of its true
meaning,*
but wemustnowinvestigate
thequestioncompletely
2. Our Saxon ancestorsutterly discountenancedand pro-
hibited the sale or exchangeof any goods,merchandise,or cattle
by private saleor bargain. It was a matter of fixed policy with
them that no salesshould take place except in the presenceof
witnesses. A seriesof kings madelawsto this effect,and as these
laws are to this very hour in spirit the CommonLaw of England,
and are very little known, we may give a little spaceto quote
them textually, asconstitutional curiosities
Thus, among the Dooms, or Laws, which Hlothsere and
Eadric, kings of the Kentish men, about 683 A.D.,establishedis
thist-" 16. That if any Kentishman buy a chattel in Lunden-
wic (London),let him then havetwo or three true men to witness,
or the king's wic-reeve. If it be afterwardsclaimed of the man
of Kent, let him then vouch the man who sold it to warranty,in
the wic at the King's Hall, if he know him, and can bring him
to warranty; if he cannot do that, let him prove at the altar,
with one of his witnesses,or with the king's wic-reeve,that he
bought the chattel openlyin the wic, with his own property, and
then let him be paid its worth ; but if he cannot prove that by
lawful averment, let him give it up; and let the owner take
possession of it"
Among the Dooms of Ine, King of Wessex(688-725AJ>.),is
thist-** 25. If a chapmantraffic up among the people,let him
do it before witnesses. If stolen property be attached with a
chapman,and he have not bought it before good witnesses,let
him prove,accordingto the wite, that he was neither privy nor
thief, or pay as wite thirty-six shillings "
* Yol. /., p. 49
f Ancient Law* and Institutes of England; mintedl>ycommand
of William /F.f
$. 14. We quotethe official translation of the Anglo-Saxon
p. 51
DOOMS OF THE ANGLO-SAXONS 289
Among the Doomsof Edward the Elder, son of Alfred

(901-924A.D.),is this*-" 1. And I will that everyman have
his warrantor,
and that no man buy out of port,t but havethe
portreeve's
witness,or that of other unlymgmenwhomonemay
believe. And if anyonebuyout of port let him incurthe king's
ofer hyrnes" («.&,contempt,or hearingand refusingto obey,
which incurred a penalty of 1205.)
Amongthe Doomsof JEthelstan(925-960AJ>.)is this$-
*f 10. And let no man exchangeany property without the witness
of the reeve,or of the mass-priest,or of the landlord, or of the
liordere, or of other unlying man. If any one so do, let him give
thirty shillings, and let the landlord take possessionof the
exchange"
Among the Doomsof Edgar (959-975A.D.)are these-
"4, To every burh let there be chosen thirty-three as
witnesses
" 5. To small burhs, and ia every hundred, twelve; unless
ye desiremore
"6. And let every man, with their witness, buy and sell
every of the chattelsthat he may buy and sell, either in a burh,
or in a wapentake; and let every of them whenhe is first chosen
as witness,give the oath that he never, neither for moneynor for
love, nor for fear, will deny any of those things of which he was
"witness,nor declare any other thing in witness,save that alone
which he saw or heard; and of such sworn men, let there be at
every bargain two or threeas witnesses"
Among the Dooms of Ethelred (979-1016A.D.) is this§-
**8. And let no man buy or exchangeunlesshe have burh and
witness; but if any so do, let the landlord take possession
of, and
hold the property, till that it be known who rightfully ownsit'*
Among the Dooms of Cnut the Great (1017-1035A.B.) is
tlusl-"24, And let no one buy anything above the value of
four pence,either living or lying, unlesshe have the true witness
of four men,be ifcwithin a burh, be it up in the country. For if
* Ancient Laws and Institutes of England,$. 68,
f That!«Market Overt; i& Boman3Jaw»Porttiseatconclusnslocusqiuoimportantur
merccset indo exportantur. Est ot static conclusaet munita.
%Ancient Laws and Institutes of England, $. 87,
§ /£/£, #. 120. I /5w£, jp. 1C7.
TOL. II. U
iOO THEORY AHD PRACTICE OF BANKING
it then "beattached,and he have no suchwitness,let therebe no

vouchingto warranty; but let his own be renderedto the pro-
prietor; andthe aftergildand the wite to him who is entitled
thereto"
Amongthe Lawsof Edwardthe Confessor
(1013-1006
A.ix)
is this*-"38. Defensumerat eciam in Icge, ne aliquis emat
viYum animal vel pannuin usatum sme plegiis ct bonistestilms
. . . . Et si venditor non pofecstliabereple«i<>«,retiwatur
cum pecunia doneeveniat domiuusejus, aut quilibefcalias, qui
justepossiteumwarantizare.Quodsi aliteraliquisument,quod
sfculteemit perdat et forisfacturam"
WilliamtheConqueror
(10CG-1087
A.D.)continued
thislawf-
"45. Nemo emat vel vivum vel mortmim ad valonciam III I.
denariorumsine IIII. tcstibus, aut de bnrgo aut tie villa earn-
pestri. Quodsi aliquisrempostmoclum
calumpniatua
ftu'rit, et
neetesteshabuerit neewarantum,ct rem reddat ct forisfacturam,
cui de jure competit"
Also in a Chartergrantedby him he says$-
" 10. Interdicimuseciam ut nulla viva pocuniavomlafcuraufc
ematur nisi intra civitates et hoc ante tres fidelcs t(kKtcH; nee
aliquamremvetitam,siueHdejnsHore
et waranto. Qutulsi aliter
feccrifc,solvat,et pcrsolvat,et postoaforisfacsturam
«11. Item nullum mercatum vel forum ait, noc fieri
permittatar,nisi in civitatibusregni nostri,et in burgin[clauHin]
et muro villatis, et in castellis, ct in locis tutisshnis, ubi
consuetudines
regninostri,efcjus nostrumcommune,
et dignitaics
coronenostre,que constitutesunt a bouis predecessoribus
nostris
deperirenon possint,nee defraudari
neeviolari,sedomniarite,
et m aperto,et per judicium et justiciam fieri debeantn
And so also the Mirrour of Justice says, p. 14-** Ifc was
ordainedthat fairsandmarketsshouldbe ia places,and that the
buyers of corn and cattle should pay toll to the lords*bailiff of
marketsor fairs; that is to say,a falsepennyof six shillingsof
good,and of good,lessand of more, more; so that no toll exceed
a pennyfor onemannerof merchandise : and this toll wasgiven
to testify the contracts,for that everyprivate contractwas
forbidden"
* AncientLam andInstitutesof England,p. 101.
t Mid., $. 200. t Mid,, p. 212*
- MARKET OVERT 2D1
3. HowlongtheseDooms
continued
in forcewecannot
say:
Mr. JusticeStephen says*that theylastedtill thetimeof Bractont
and theyare in spirit the foundationof the CommonLawat the
presenthour. It istheestablishedprincipleof Common Lawthat
if anyperson steals
orfindsanychattelbelonging
to anyoneelse,
andsellsit privately
to a thirdperson,
thetrueowner mayreclaim
it fromthat thirdperson, eventhoughheboughtit honestly,
and
gave full value, and had no suspicion that the sellerhad no title
to sell it For the law holdsin generalthat no one can sell what
he doesnot possess
himself; and it doesnot allowthat the true
ownerhaslost the propertyin the chattelor goods,by having
accidentallymislaid them, or having them stolen from him
If, however,
the thief or finder manages
to sell the goodsin
market overt,then the buyer is by commonlaw entitled to retain
them against the true owner
However,by Statute24 & 25 Viet. (1861),c. 99, § 100,it is
now enactedthat if the loserprosecutes
the thief to conviction,
then the court may grant a writ of summaryrestitution to the
true ownerof the property,in whoseeverhandsit maybe,even
though he may have bought it honestly, and given full value
for it
In the City of London every day exceptSundayis, by ancient
custom,market day; and everyshop is market overt for the goods
which are usually sold there, but for no others. It washeldby
all the judgesf-" that if plate be stolen,and sold openlyin a
scrivener'sshop on the market day (as every day is a market day
in London except Sunday),that this sale should not changethe
property; but the party shouldhave restitution; for a scrivener's
shop is not a market overt for plate, for nonewould searchthere
for sucha thing ; et sic de similibus, <fc?. But if the sale had
beenopenlyin a goldsmith'sshop in London,so that any one who
stood or passedby the shop might see it, then it would change
the property. But if the sale be in the shop of a goldsmith,
either behind a hanging, or behind a cupboard upon which his
plate stands,so that one stood or passedby the shopcouldnot see
it, it would not changethe property; or if the salebe not in the
ehop,but in the warehouse,or other placeof the house,it would
* History of the Criminal Law, Vol. UL, p. 129.
t Thecaseof Market Overt, 5 Co. S3 &., Hit., 38 Eli»,
292 TITEOTIY ATO PBAOTIOE Otf BANKHTO
not changethe property,for that is not in market overt, and none

would searchthere for his goods. So everyshop in London w
market overt for such things only which by the trade of the
ownerare put thereto sale"
But in countrytowns only thosedays are market dayswhich
are appointedby law or ancientcustom;and thoseplaceaonly arc
market overt for any goods, merchandise,or cattle, which arc
expresslyappointedfor the sale of such articles. And, conse-
quently, all sales of any articles made in any other than *mrh
placesare void against the true owner,if the articlesbe not tiro
property of the seller. The samerule alsoholdsgoodwith regard
to pledgingstolengoodswith a pawnbroker,
orotherpernon.Wo
might, if necessary,
illustrate thesedoctrinesby severalrecentcases
but that wouldoccupytoomuchspacein sucha work asthis
4. Such is the tow with regardto all kinds of goods,mer-
chandise,and cattle. But with regard to Money the cm* was
alwaysdifferent. If a personstoleor found moneybelongingto
any one else,the true ownercould compelhim to give it up, if ho
couldprovethe fact, and identify the money. But if the finder
or thief paidawaythe moneyin the ordinary courseof busmens;
as if, for instance,a shopkeepersold goodwto the thief, and took
the moneyin the ordinarycourseof hi« busiucss,without knowing
that it wasstolen,then he couldretain themoneyHguinHfc the truo
owner, even though he could identify it. That is to say,tho
property in tho moneypassedalong with tho honestpossession of
it m everysale or exchange. And from this peculiaritymoney
was said to be Current, i&, that theproperty in it pasaedby
delivery. And this was necessary by the very nature of com-
merce,becauseno transactionscould take placeif the sellerwas
bound in every sale to inquire into the right of the buyerto the
money. And from this exceptional property of money, tho
expressionaroseof the Currency of money,but no one for
a very long time ever thought of sucha barbarism as to call the
moneyitself Currency
But when in the courseof time Bills of Exchange,and other
securitiesfor money,cameinto use,it wasadoptedas a customor
usageby the Law Merchant,that the samerule nhould apply to
them as appliedto money; that is to say,that the propertyiu
INSTRUMENTS LOST OR STOLEN 293
themshouldpasswith the honestpossession. It wouldhavebeen

a great impediment to all commerce
if the vendorof goodshad
beeuobligedto inquireinto the title of anyonewho offereda
Bill of Exchangeor Bank Note in paymentof them. Conse-
quentlythis principleof Currency wasappliedto all negotiable
securitiesfor money
And so important is this principleof the Currency of
all negotiableinstruments,that in the Statuterespectingthe
restitutionof stolenproperty,it is expressly
providedthat it shall
not applyto negotiableinstruments. It says*-" Provided that
if it shall appearbefore any award or order made that any valu-
ablesecurityshall havebeenbond, fide paid, or dischargedby some
personor body corporateliable to the paymentthereof, or being a
negotiableinstrument shall have been bondfide taken or received
by transfer or delivery by some person or body corporate,for a
just and valuableconsideration,without any notice or without any
reasonablecause to suspect that the samehad by any felony or
misdemeanour been stolenor taken, obtained,extorted,embezzled,
converted,or disposedof, in suchcasethe Court shall not award
or orderthe restitution of suchSecurity "
Thus we see that the law has taken the utmostprecautionto
preserveas absolutelyinviolable the Negotiability or Cur-
rency of all negotiable instruments under all circumstances
whatever. And if sucha barbarism be generallyacceptedas to
call money Currency, for preciselythe samereason all Ne-
gotiable Instruments must equally be called Currency; for
they are equally subject to the same rules of Law, from which
they derive the name
5. These doctrines,however,are so important as being at

the very basis of the wholeof our monetarysystem; and as they
havegiven rise to so manycontroversies
whichareyet raging;
and as they have been so misunderstoodand misrepresentedby
literary men who never took the smallest pains to inquire intci
the law of the subject, that we think it will be more satisfactory
to our readersnot to rest satisfiedwith the precedingexposition,
but to lay beforethem the actual decisionsof the Courts of Law
and Equity establishingthem
* 24 & 25 rtct. (1861),ch. 96, § 100.
29-i THEORY AND PRACTICE OF BANKING
"We shall therefore demonstrate to our readers as matters of

pure CommercialLaw-
(1.) That all Negotiable
Instrumentsaresubjectto thesame
Law regardingtheir transfer and property asMoney
(2.) That it is from this property exclusivelythat the name
Currency has beenderived
(3.) That all Negotiable
InstrumentsareCurrency aswell
asMoney
1. Toshewthat all Negotiable

Instrumentshavethoattribute
of Currency, £0,,aresubject
to ffw same
Law regarding
thdr
transferas Money
Bank Notes,-(Anonymous, 1 Lord Kaymond, 738.) A
Bankbill waspayableto A or bearer, A gaveit to B. B lostifc,
0 found it, andassigned
it overto D for valuableconsideration.
D went to the bank and got a new bill in his own name. A
brought trover againstD for the formerbill And ruled by Tloi/r,
0. J., at Guildhall, 1C98, that an action did not lie againHt1)
because he had it for a valuable consideration
The leading case,however,ou the subject is that of 3filler v*
Race(I Burr., 452). Finncy, the true owner of a Bank Noh%
sentit by postto a friend in the country* The mail wan robluul,
and on the next day the note came into the possosHion of the
Plaintiff, Miller, for a full and valuableconsideration,and in tho
usual courseand way of his business,and without any notice of
the robbery. Finneystoppedthe note at the Bank. A short
time after Miller applied to the Bank for payment of the note,
and delivered it to Race, the defendant, a clerk in the Bank*
Eace refusedeither to pay, or return, the note to Miller; and
Miller brought this action to recoverpossession
of the note. Lord
Mansfieldruled, with the unanimousconcurrenceof tho Court,
that Miller had the right to have the note given back to him
as his property, becauseBank Notes have the Credit and the
Currency of money,to all intents and purposes. An action
wouldlie againstthe finder; that no onedisputed:but notafter
thenote hadbeen^'d awayin Currency, Lord MansMd saul
that in thepreceding
casejust cited,the actiondid notHoagaiimt
the defendant because
he tookit in the courseof Currency;
and therefore it could not be followed in his hands, It ntwr
CURRENCY OF NEGOTIABLE INSTRUMENTS 295
shall be followedinto the handsof a personwho ton&fide tookit

in the courseof Currency* A bank noteis constantlyand
universally,both at home and abroad,treated as money,as cash;
and it is necessaryfor the purposesof commerce,that their
Currency shouldbe establishedand maintained
So in Clarfo v. Sfm (Cowp., 200), Lord Mansfield said-
"Where notes or moneyare paid lon&fide, and upon a valuable
consideration,they shall never be brought back by the true
owner; but wheretheycomemal&fideinto a person's
hands,
they
are in the nature of specificproperty : and if their identity can
be tracedand ascertained,the party has a right to recover." And
this doctrineis such firmly establishedlaw that there is no need
to cite any morecasesto supportit
Cheques.-In the caseof Grant v. Vauyhan(3 Burr., 1516),
Yaughangave a cash note (*.*., a cheque)upon his bankerto B
in thesewords," Pay to ship *Fortune' or Iwrer? B lost the
cheque. The finder, or the possessorof it, four days afterwards
cameto Grant'sshop,and offeredthe chequein paymentof some
goodshe bought, Grant took the chequein the usualcourseof
business,and gave the balancein cash. Yaughan,hearing that
the chequehad beenlost, stoppedthe paymentof it. Grant
brought an action againsthim for the amount. Lord Mansfield
held that the same rule applied to chequespayableto beareras
to bank notes. WILKOT,J., said that such bills or notesastins
areby lawnegotiable.SoalsoYATES, J., said-"nothing canbe
morepeculiarlynegotiable
thandraughtsorbillspayabletobearer.
.... It is just the sameas a Bank Note." Hencethis ease
establishedthat Chequespossess the attributeof Currency,
exactlyin the samewayas BankNotes: andthis doctrineis so
iirmly established
that it is needless
to quoteanymorecases
Bills of Exchange.-In Peacockv, Rhodes(2 Douglas,
G38),a Bill of Exchange
indorsedin blankwasstolenandnego-
tiated. The innocent indorsee for value was held, entitled to
recover
againstthe drawer. Lord Mansfieldsaid-" The holder
of a Bill of Exchangeor PromissoryNote is not to be considered
in thelight of an assignee
of the payee. An assignee
musttake
the thing assignedsubject to all the equity to which the original
partywassubject. If this rule appliedto Bills andPromissory
Notes,it would stop their Currency. The law is settledthat
296 THEOBT AND PRACTICE OF BANKING
a holder,comingfairly by a note or a bill, hasnothingto do

with the transactionsbetweenthe original parties. I see no
differencebetweena note indorsedblank, and one payable to
bearer. They
"
both goby delivery,andpossession
provesproperty
in both cases
The samedoctrinewas againenforcedin CollinsY, Martin
(1 B, £ P., 648),wherea bankerpledgedsomeof his customer's
bills indorsed in blank with another banker, who advanced money
on themhonestlyin the nsualcourseof business.EYRE,0. J.»
deliveringthe judgmentof theCourt,said-" For the purpose of
renderingBills of Exchange negotiable,the Eightof Propertyin,
thempasses with thebills. Everyholderwith the bills takesthe
property,andhis title is stamped uponthebillsthemselves,Tho
propertyandthe possession are inseparable.This wasnecessary
to makethemnegotiable, andin this respect
theydifferessentially
from goodsof whichthe propertyandthepossession maybem
differentpersons."And this rule of law is sofirmly established,
that weneednot quoteany morecasesin supportof it
Foreign Bonds.-In Gorgi&rv. MimlU (3 B. & 0,, 45),
the plaintiff depositeda Prussianbond in the handsof his aênfe,
to receivetheintereston it for him. The bondwasmadepayablo
to any personwho at the time shouldbe the holderof it. It was
provedthat thesebondsweresold in the market,and passedfrom
hand to hand daily like Exchequerbills. The plaintiffs agent
pledged the bond with the defendants. The Attorney-General
triedto drawa distinctionbetween
banknotes,bills of exchange,
and exchequerbills, because
such instrumentsconstitutea part of
the circulating medium of the country, but that rule did not
applyto the bond of a foreign country. But ABBOT, 0* J.»
said--" The instrument,in its form, is an acknowledgment
by
the King of Prussiathat the summentionedin the bond is duo
to everypersonwhoshallfor thetime beingbethe holderof ifc,
andtheprincipaland interestis payablein a certainmode,and
at certainperiodsmentionedin the bond- Ifeis, therefore,
in its
naturepreciselyanalogousto a banknotepayable to bearer,or to
a bill of exchange
indorsed
in blank. Beingan instrument,
therefore,of thesamedescription,
it mustbesubjectto the samo
ruleoflaw,thatwhoever
is theholderof it, haspowerto givo
title to anyperson
honestlyacquiringit"
CURRENCY MEANS NEGOTIABILITY 297
Wehavenowsufficiently
establishedour first point,thatall
Negotiable
Instruments
aresubjectto the samerule asmoney
with regardto title by transfer,and we now cometo the two
latterpoints,whichwemayconveniently
taketogether
2. To shewtMt it is fhisprincipleof Negotiability
which
in Commercial
Law exclusively is meantly Currency; and
also that all Negotiable
Instrumentsare Currency
Theleadingcaseon this subjectis Wookey v. Pole,Bart, &
others(4 B. andAid*,1),and as it is absolutely
decisiveof the
question,wemustquoteit at considerablelength
Wookeywasproprietorandpossessor of an Exchequerbill for
£1,000, payableto blank or order. The bill stated that if the
blank wasnot filled up it would be payableto bearer
Wookey
sentthe Exchequer
bill to his brokers,directingthem
to mil it and buy 5 per cent. Stock with the proceeds. The
brokersdisobeyed
theseorders,and pledgedthe Exchequerbill
with Pole & Co., their bankers,and got the full amount of it,
j£l ,000, placed to their credit, without the bankers having any
knowledgeof the terms on which the brokersheld the bill. As
poonas Wookeyheard of theseproceedings, he demandedthe bill
from,Pole& Co,,who refusedto deliver it up, and afterwardssold
it and receivedthe proceeds* Wookey brought trover against
Pole & Co. for the bill
Wookey'scounselsaid the questionwaswhetherthe Exchequer
bill wasto be consideredas moneyor goods. If it were goodsit
might be followed into the handsof a third person,unlessit be
transferred by the owner or under his authority, or by sale in
market overt. Money, Bank Notes, and Bills of Exchange
could nut be recovered from an innocent holder for value, because
theyarethe Circulation of the country: but Exchequer
bills
constitute no part of the Currency of the country, nor are
theyNegotiable Instruments
In giving judgment BEST,J., said-" The questionwhich
the Court is called on to decide is, whether ExchequerBills are
to be consideredas goods,or as the representativesof money$and
as such,subjectto the samerules as to the transferof the property
in them as are applicableto money. The delivery of goodsby a
personwhois not the owner(exceptin a mannerauthorised
by
i)(t)8 THEORY AND PRACTICE 0£ BANKING
the owner) doesnot transfer the right to suchgoods: but it has

long beensettledthat the right to moneyis inseparablefrom the
possessionof it. I conceivethat the representativeof money,
which is made transferableby delivery only, must be subject to
the samerules as the moneywhich it represents. ... It is
not becausethe loser cannot know his moneyagain that he can*
not receiveit froma personwhohasfairly obtainedpossession
of
it; for if his guineasor shillingshad someprivate marks on them,
by which he could provethey had beenhis, he could not get them
back from a bondfide holder. The true reasonof this rule is that
by the useof moneythe interchangeof all other property is most
readily accomplished. To fit it for its purposethe stampdenotes
its value,and possessionalonemust decideto whom it belongs.
If this becorrect as to money,it must be so as to what is made
to representmoney,and Lord Holt hashimself so decided. . . »
It cannot be disputedbut that this Exchequerbill was made to
representmoney,as much as a Bank Note or Bill of Exchange.
It wasgiven for a debt due from Government: it is payable(the
blank not being filled up) to bearer,and transferableby delivery,
and is on its face made Current, and to IMSSin any of the
public revenues, or at therewijrt of Ike JSrrJirquer. But it hasbeen,
said that thesebills are not used as Negotiable Instruments,as
bank bills and bills of exchangeare, but are the objects of sale.
I do not seewhy they should not be used as NegotiableInstru-
ments: they are transferredwith the samefacility as other bills,
and I knowfrom the legislaturethat theymaybe usedin pay-
ments,for the statutes direct that they should bo received for
taxes. Weknowthat bills of exchange
areasfrequentlysoldas
they are delivered in payment The receiver never
inquires from whom they come, further than to satisfy himself
that they are genuinebills. Indeed,when they are in blank, he
has no meansof ascertainingfrom whom they come. . . . Ifc
seemsto be the opinion of L. 0. J. Lee, who pronouncedthe
judgmentof the Court of K. B. in Hartopv. Iloare (3 Atkyns,
50), that there is no differencebetweenmoney,bank notes,and
exchequer
bills This alsogivesme the authority
of Lord Holt for sayingthat there is no differencebetween "bank
and ejBchftfuer
bills; and the samelearnedjudge hasdecidedthat
bills of exchangepassas money. Shouldthe depositof this bill
CURRENCY MEANS NEGOTIABILITY 299
with the defendants, iinder the circumstances in which it was

deposited,be consideredas pledging the bill, that circumstance
will makeno difference,if the propertyin the bill passes
by
delivery," Best,J., then, agreeingwith Collins v* Martin, cited
above,gave his opinion againstthe plaintiff
HOIJROYD, J.-" It hasbeenlong andfully settledthat bank
notesor bills,draftson bankers,bills of exchange,
or promissory
notes,either payableto orderand indorsedin blank,or payable
to bearer,when taken bondfid&>and for a valuableconsideration,
ptassby delivery, and vest a right thereto in the transferee,with-
out regardto the title, or want of title, in the persontransferring
them This was decided as to a bank note in the case of Miller
v. liftcc; as to a draft on a banker in Grant v. Vaughan: and as
to a bill of exchangeindorsed in blank, in Peacockv. Rhodes.
Thosecasi»8 have proceededon the nature and effectof the instru-
ments,which have beenconsideredas distinguishablefrom goods.
In the CORO of goods,the property, except in market overt, can
only 1)0transferred by the owner,or someperson having either
an expressor implied authorityfrom him; and no onecan,by
his contract or delivery, transfer more than his own right, or
the right of him underwhoseauthorityheacts. But theCourts
have consideredthese instruments,either promisesor the orders
for the payment of money,or instruments entitling the holder
to a sumof money,as being appendages to money,and following
the nature of their principal. In the one casethey are payable
to the person,whoever
he maybe, whois the beareror holder
of the instrument; and so, also, in the other case, unless the
paymentis restrained by a specialindorsement."After quoting
the judgmentsin Peacock v. Rhodesand Miller v. Race,given
above,he aaid-" Theseauthoritiesshew,that not only money
iUolf maypass,and the right to it may ariseby Currency
alone,but further, that thesemercantileinstruments,which
entitle the bearer of them to money,may alsopass,and the right
to themmayarise,in the like manner,by Currency or De-
livery* Thesedecisions proceeduponthe natureof the pro-
perty(viz.,money)to whichsuchinstruments
give theright,
«ndwhichis itself Current; andthe effectof the instruments,
\\hicheithergiveto their holders,
merelyas such,the right to
receivethe money,or specifythem as the personsentitledto
300 THEORY ASD PRACTICE OF BANKING
receiveit* The question,then, is whether these principles apply

to the presentcase,or whether this exchequerbill, and the right
thereto,follow the nature of goods,which, exceptin market overt,
can only be transferred by the owner,or under his authority ?
In order to ascertain that, we must consider the nature and effect
of the instrument,both as to the property which it concerns,and
as to its negotiability or Currency by law. In its
original state it purports to entitle the holder to the sum of £100
and interest; and the original holdermay, if he pleases,secure
it to himself; but it is payableto the beareruntil somename
is inserted,and when that is clone,it becomespayable to such
nominee,or his order. But if the original holder parts with it,
or keeps it in blank, he by that very act, or by his negligence
if he loses it, authorises the bearer, whoever he may be, to
receive the money; and so, if he were to insert his own name,
but indorseit in blank, instead of restraining its negotiability,
either by not indorsing it at all, or by making a specialiudorso-
meut, he thereby authorisesand empowersany personwho may
be the holder lond fide, and for value, to receive it: and he
cannot revoke that authority when it has becomecoupledwith
an interest. The instrument is createdby the Statute 48 Qeo.3,
c. 1, and is therebymadeNegotiable and Current. By
§ 2 the Commissionersof the Treasuryare to makeout exchequer
bills, in such manner and form as they ahull direct: and after
certain things are doneto put them into Circulation. By
§ 5 theymaybepaid in to the receiverof taxes; and in § 1#
arethesewords-*And for the bettersupportingthe Currency
of the said exchequerbills, and to the end that a sufficient
provision may be made for circulating and cxcJuwf/inffth& same
for ready money,during such time as they or any of them are
to be Current, the Commissionersof the Treasury are em-
poweredto contract with personswho will undertaketo circulate
and exchangethem for ready money. An exchequer bill IK,
therefore,an instrument for the repaymentof money originally
advancedto the public, purporting therebyto entitle the bearer
to receivethe moneyput into circulation, and made Current
by law. It is not, therefore,like goodssaleableonly in market
overt, and not otherwisetransferable,except by the owner or
underhis authority,but is in all thoseseveralrespects
aimilar
CURKENCY MEANS NEGOTIABILITY 301
to bills of exchangeand promissory

notes,and transferable
in
the samemannerastheyare. Thecase,
therefore,
stands
thus:
this exchequer
bill wasa Current and Negotiable In-
strumentfor the paymentof money. Now moneypasses
from
one personto another by reason of its Currency, and for
that reasononly,and not because it has no ear-mark,it cannot
berecovered from the personto whomit hasbeenpassed.The
exchequer bill, therefore,seemsto me,uponthe sameprinciple,
to followthe natureof the moneyfor whichit is a security.
This, like the case of a bill indorsedin blank, is
payableto bearer, where the right arises from the instrument
itself, and it is not necessaryto deducethe title through the
intermediate holders "
BAYLKY,J,, quite concurredin the doctrine as to bank notes
and bills of exchange-" A pawneeof goodsor chattels, or a
vendorout of market overt, hasin generalno better title than his
pawnoror vendor, and cannot resist the claim of the rightful
owner: but bank notes and bills of exchangestand upon a dif-
ferent footing in this respectfrom ordinarygoods and chattels.
The holder bondfide, and for a valuable consideration of a bank
note or hill of exchange,has a good title against all the world;
because,in the caseof bank notes,they are consideredas money,
andpassassuch,andit is essential
for the purposes
of tradethat
deliveryshould give a perfect title, and becausein the caseof
bills of exchangethis is the law and custom of merchants."
J. Bayleycameto the conclusionthat exchequerbills wereof the
natureof goods,and not of bank notesand bills of exchange
ABBOTT, 0, J., however,agreedwith the two former learned
judges,andRaid-*'I think this instrumentis of the samenature
ns notesand bills of exchange Notesand bills have
beendistinguinhed
from goodsin regardto their transfer,for the
convenienceof trade and commerce, and in regard to their being
mercantileand commercialinstruments,and by law negotiable. It
maybetrue that exchequer billsarenot sofrequentlynegotiated,
ia fact,assomeotherbills or notes;but I think weareto regard
the negotiabilityof the instrument,and not the frequencyof
actual
negotiation Compulsion
to receive
aninstru-
ment in paymentis not by any meansrequisiteto give it the
characterof a NegotiableInstrument. No man is compelled
to take a bill of exchange

in payment For these
reasonsI am of opinionthat exchequer
bills arenegotiable,
and
may be transferred in the same manner as bills of exchange:
and that in those bills, as in bills of exchange,the property
passeswith the possession by every modeof transfer, fraud and
collusionapart"
In Ingham v. Primrose (7 0, B. N. S,, 85), WILLIAMS,J.,
delivering the judgment of the Court said-" It is, we think,
settledlaw that if the defendanthad drawn a cheque,and before
he had issued it he had lost it, or it had beenstolen from him,
and it had afterwards found its way into the hands of a holdci
for valuewithout notice,who had sued the defendantupon it, he
"would have had no answer to the action. So if he had indorsed
a bill in blank, or a bill payableto his order,and it had been,lost
or stolen before he delivered it to any one as indorsee The
reason is, that such Negotiable Instruments have by the law
merchant becomepart of the Mercantile Currency of the
country ; and in order that this maynot be impeded,it is requisite
that innocent holdersfor value should have a right to enforce
paymentof them againstthosewho,by making them,have caused
them to U part of the Currency If an act
done with such an intention (*.&, of cancelling it) by the
maker of a Negotiable Instrument, does not manifest the in-
tention on the face of the instrument, it can hardly be main-
tained that the Act would be of any eflicacy, becausethe
instrument would nevertheless be apparentlya part of the Mer-
cantile Currency "
In Whistler v. Forster (14 0. B. N. S., 248), EELB, 0. J.»
said-*' Accordingto the law merchant,the title to a Negotiable
Instrument passesby indorsementand delivery. A title so ac-
quired is good against all the world, provided the instrument is
taken for value, and without notice of any fraud "
WILLES,J,-" The generalrule of law is undoubted,that no
one can transfera better title than he himself possesses; Nemo
dat quodnon habet. To this there are someexceptions: one of
which arisesout of the rule of the law merchantas to Negotiable
Instruments. Theseleing" part of the Currency, are subjecfc
to the samerule as money
In Shut* v. Holms (1 M. & II., 133), LORDTENTEEDEN
CtmiiENCY INCLUDES MONEY AND CREDIT 303
spokeof bankers'paperas being part of the Circulating

Medium of the country
in Lang v. Smyth (7 Bing., 284), TINDALL,0. J., said-
" Thefirst questionwaswhetherthe instrumentsin disputehad
acquiredfrom thecourseof dealingpursuedin the City,thecha-
racter of Bank Notes,Bills of Exchange,DividendWarrants,
Exchequer
Bills,or otherInstruments
whichform partof the
Currency of this country"
And this quality of Currency or Negotiability is
appliednot only to Securities
for Moneyof all sorts,but alsoto
Htumritics
for Securities
for Money; as Scripto deliverBondsof
a ForeignGovernment
In Goodwinv, Rotarts,*the plaintiff boughtsomeScrip of
ForeignGovernments, througha stockbroker,
and allowedit to
remainin his hands. The stockbrokerpledgedit unlawfully
with the defendants, Robarh,Lulbock& Co.,whoarebankers, as
securityfor a loanof money. The stockbroker became bankrupt
and absconded ; and the defendants
soldthe Scripat themarket
price*of the day. The plaintiff suedthem for the amountrealised
by michsale. The Scripentitled the beareron due paymentto
receive definitive Bonds payable to bearer from the Foreign
(ilovernments. It wasproved at the trial that-" The Scrip of
loans to Foreign Governmentsentitling the bearer thereof to
Bonds for the same amount, when issuedby the Government,
has beenwell known to, and largely dealt in by, bankers,money
dealers,and membersof the English and foreign stock exchanges,
and through them by the public, for over fifty years. It is, and
IMAbeen,the usageof suchbankers,moneydealers,and members
of the stockexchanges,during all that time, to buy and sell such
Scrip, and to advanceloans of moneyupon the securityof it,
before the Bondswere issued,and to pass the Scrip upon,such
dealingsby moredelivery as a negotiableinstrument transferable
by delivery[i*., as Currency], andthisusagehasalways
been
recognisedby the Foreign Governmentor their agentsdelivering
the Bondswhenissued to the bearersof the Scrip. This usage
extended
alike to Scripissuedby their agentsin England,andit
extended
to the Scripnowin question,whichwaslargelydealtin
* &. £. (1875)
10much.
76; Exch,Oh.377. 82L. T. N. S.JM. 199. 33L. T.N>S,
jftcft. Ch, 272. 44 I*. J. N. S. Jtoft. 67 / JBach. Ch. 157.
304 THEOEY AOT) PRACTICE OF BANKING
as abovementioned. SuchScrip often passesthrough the hancfa

of several buyers and dealersin successionbefore the issueof
the Bondsrepresentedby it"
The Court of Exchequerheld that this Scrip possessed the
attribute of Currency, or Negotiability, exactly the same
as the Bonds themselves; and this judgment was affirmed by
the ExchequerChamber on the last day of its existence,July
7th, 1875
6. We have thus laid before our readers an authoritative

expositionof the true legalmeaningof the word Currency,
and the subjectswhich are included in it. "Weseeby a seriesof
decisions,which are now the establishedCommercialLaw of the
country, that the word Currency means simply ETegoti*
ability, and nothingelse, *,*., that the property and the honest
possessionof thosethings which possess this exceptionalattribute
are inseparable,contrary to the general principlesof the common
law regarding stolen goods,merchandise,and cattle. And what
doesthis exceptionalclassof articles include ? Why, Money,and
all Negotiable Securitiesto pay moneyof all sorts and forms,
bank notes,cheques, bills of exchange,promissorynotes,bondsof
all sorts;in fact,money,andeverykind of negotiable
engagement
to pay money
It will be seen,then, that in strict legal phraseologythe word
Currency can only be applied to those rights which arc
recordedon somematerial. An abstract Eight cannot bo lost,
mislaid,or stolen,and passedawayin commerce. But if it bo
recorded
on somematerialsubstance,
it maythenbelostor stolen,
and soldlike any other material substance:and the word Cur-
rency, then,simplyrefersto somelegal rules relatingto the
transferof the propertyin it, in the caseof its beingstolenand
passedawayin commerce.For an obligationto be capable of
being Currency in law, it must be recordedon somematerial
so as to be capableof being carried in the hand,or put awayin
a drawer,and dropped in the street,and stolenfrom the drawer
or from a man's pocket,and carried off by the finder, or thief,
and soldlike a pieceof goods. Theword Currency hasno
reference
whateverto anypropertyit hasof paying,discharging,
and closingdebts
MEANING OF CURRENCY 305
Nothing,therefore,can be moreunphilosophical
primd facie
than to designatethe articles themselvesby the nameof Cur-
rency, becausethey possessthe attribute of Currency. It
is quite common to speakof the Currencyof an opinion; but no
one ever yet, that we are awareof, thought of calling the opinion
itself Currency.It is quiteusualto speakof theCurrencyof the
Sessionof Parliament; but nobodyevercalled the Sessionitself
Currency, This very confusionis alsoused in speakingof bills
of exchange; becauseit is a commonexpressionto speak of the
currencyof the bill, meaningthe timeduring which it is Current;
whereasthe bill itself is calledCurrencybecausethe property in
it passesby delivery. It would be just as rational to call a horse
a velocity, or a wheela rotation, as to call moneyCurrency; and
we have shewn that in the earlier legal reports no one ever
thought of sucha barbarism
Nevertheless, if the force of public usageis too strongto be
shaken,and the word Currency is too firmly establishedas
the designation of a certain class of articles to be rejected,we
must disregard its literal legal meaning,and observeits philo-
sophicalsense; becausethere is an enormousmassof Credit, or
Eights, which is not embodiedin any material instrument, and
which, therefore,cannot be lost, stolen, or passedawayin com-
mercewithout the owner'sconsent: and, consequently,
though
these cannot be subject to the legal rulesof Currency, they
perform a gigantic part in commerce,just in the samewayas if
they were recordedon paper
Taking a banker and his customeras the standard caseof
debtorand creditor, if I havea right of action againstmy banker
for money,it makes not the slightest differencein the nature of
the Right whetherit is recordedon paper or not. If I wish to
transfer the right to someone else,I may do it by meansof a
bank note or cheque,or a verbal order to my banker to transfer
a certain quantity of the credit in my nameto someone else's
name. We have alreadyshewnthat in Romanlaw, wherewritten
instruments were not used, the creditor, the debtor, and the
assigneewere obliged to meet, and the creditor transferred the
debt orally to the assignee. This was a valid transfer. And
such a mode of proceedingis a valid transferin English Law at
the present day. But in a vast number of casesthis is a very
VOL. II. X
306 THEOKY AND PRACTICE Off BANKIKG
clumsyand inconvenient
wayof transferringdebts. It is infi-
nitely moreconvenient!
to do it by writing. But whetherthe
transfer be effectedorally or by writing, it can make no possible
differencein the nature of the Right. Consequently,if I have
a Right againstmy banker,and if I write a chequefor the
purposeof transferring this Right to someoneelse,this doesnot
affect the nature of the existing Right: it is nothing more than
a convenientway of transferring it to someone else. Writing a
chequedoes not createa new Right; it merelyrecordson paper
an existingRight. And it equallyexistswhetherit is recorded
on paper or not. Payment,therefore,by meansof a bank note,
a cheque,
or a bank credit,is absolutely
the same. Now,bank
notes and chequesare Currencyin strict legal phraseology;but
bank credits are not Currency,becausethey cannotbe lonl, mis-
laid, stolen,and passedawayin commercewithout the consentof
the owner
So, also, of a book credit, or book debt, in a tradesman's
books. If I buy goods from a tradesmanon credit, that credit
hasperformedexactly the samepart in Circulating the goods
as money: becausewe have expresslydefined Circulation to IMS
the sale of goodsfor moneyor credit, and the credit has been.
equally the medium of circulation,or sale,whether it is recorded
on paper or not; but it is not Currency, becauseit cannot
be droppedin the streets,stolen, and transferred to someone eke
by manualdelivery
If, then,wearecompelled
to adoptthis barbarism,
andemploy
the word Currency as a philosophicalterm, it must moat
manifestlybe extendedto include bank credits or deposits,book
credits,and verbal creditsof all descriptions
And this is exactlywhatcommerciallawdoes. It treatsany
form of creditpayableby a bankeron demand,
asmoneyor cash,
no matter whether it be a bank note,a cheque,or a bank credit.
They are all, in the eye of the law, equally payment: that is,
noneof them arelegal money:that is, a debtorcannotcompel
his creditor to take them in paymentof a debt: but if he chooses
to do so without objection,they all stand on exactlythe same
footing as payment. The caseof bank notes is so well known
that weneednot cite anyauthorities. With regardto cheques,
Lord Mansfield
said,in Grant v. Vaughan, that u chequeis the
MEANING OF CURRENCY 307
samething as a bank note. In Pearcev. Davis (1 Moo. & Rob.),

PATTESON,J., saidthat a cheque" operates as paymentuntil it
hasbeenpresented andrefused."Soin Jonesv. Arthur (8 DowL,
442),COLERIDGE, J., held that tenderof paymentby chequeis
goodunlessobjectedto on that account. Also in Bevan v. Hill
($ Camp.,381),wherea personhavingaccepted
a chequein pay-
ment, and lost it, and the banker failed, having funds to meet the
cheque,
LordELLENBOROXTGH
heldthatthecheque
waspayment
And the very same doctrine is true regarding a Bank Credit
or Deposit, In Gillard v. Wise (5 B, & C,, 134), EOLROYD, J.,
said-"The defendants,insteadof sendinga clerk to receivecash
for the notes,sent them to the personswho ought to havepaid
them; but they sent them, not for the purposeof being paid in
money,but of being placed to their credit in account. When
that credit wasgiven, the legal effect
"
wasthe sameas if the notes
had beenpaid to them in money
Thus a Right of action against a banker payableon demand
Is, in commercialcircles,consideredas money,or cash,whether
it be in the form of a bank note, a cheque,or a bank credit: and
though, of course,in the strict Ugal sense,only the two former
can be Currency, yet, in a philosophicalsense,if we are com-
pelledto adoptthe word, all three formsmust be Currency
7. And so, in other points of Law, Bank Notes and Bank

Credits are held to be included in the term money, or cash. In
the caseof Lord Ayhsbury's Will, Lord Hardwicke held that
bank notes passedunder the title of cash: and in Miller v. Race,
Lord Mansfieldsaid-" Bank notespassby a will which bequeaths
all the testator'smoneyor cash"
But thevery samedoctrineis held regardinga BankCredit,
or deposit,or a balanceon a bankingaccount. Thus,in Vaisey
v. Reynolds(5 Russ.,12), the testatorbequeathed" to his wife
all his book debts,moniesin hand; and to his executorsall his
moniesout at interest or mortgage,notesof hand, or any security
whatsoever." Lord LYNDHURSTsaid-" The testator has referred
to two descriptionsof money,monies in hand, and moniesout at
interestor mortgage,notes of hand, and other securities. The
balancein the banker's hands,though it carriesinterest, wasnot
out at interest or security, and it was in the same order and
dispositionof the testator,as if it had beendepositedin his own

drawer. It must be inferred that the testatormeant to passit by
oneof the two descriptionswhich he hasused. In no sensewas
it moneyon security, and in a reasonablesenseit was moneyin
hand,and passedthereforeto the wife"
So,in Taylor v. Taylor (I Jurist., 401), where the testator
bequeathedall his ready money,Lord LANGDALEsaid-'* It is
true that in strict legal language,what is called moneydeposited
at a banker's is nothing morethan a debt, and cannot be called
readymoney,but in the ordinary languageof mankind moneyat
a banker'sis called ready money,and we must construea will
accordingto the ordinary languageof mankind"
Again in Parker v. MarcJiant(1 Y. & 0., 200), ButJOB,V. G.,
said-" Undoubtedlyan ordinarybalancein a banker's handsis,
in a sense,a debt due from him-certainly he may be suedfor it
as a debt. But it may be equally true that in a senseit is ready
money The term' debt,' howevertechnicallycorrect,
is not colloquially,or familiarly appliedto a balanceat a banking1
house. No man talks of his banker in that character being in-
debted to him. Men speakingof such a subject saythat they
have so much at their banker's, or so much in their banker's
hands,a modeof expressionindicating virtual possession, rather
than that right to which the law applies the term c/iosG-m-ctrfwn.
«, . , . Agreeingthat the term (readymoney)is applicable
to moneyin the purse,or the house,I cannot agreethat it is con-
fined to moneyso placed. Moneypaid into a banking hoime,in
the ordinarymode,is so paid for the purposeof beingnot safe
merely,but readij&swellas safe/' And, consequently,
the V, 0.
heldthat a BankCredit,or depositpassedunderthe term**ready
money." And this opinionwasconfirmed onappeal(1 Phil.,85(>)
by Lord LYNDHXTRST-" Nobodycan doubtthat in the ordinary
use of language,money at a banker's would be consideredas
* readymoney.' Everybody speaksof the sum which he has at
*
his banker's as money: my money at my banker's' is a usual
modeof expression.And if it is moneyat the banker's,it is
emphatically ready money, becauseit is placed there for the
purposeof being ready when occasionreqmrca; it is received
upontheunderstanding
that it shall be soready. If a mangoes
to his banker,the moneyis countedout to him on the table* If
BANK CREDITSARE "READY MONEY'1 309
he sendsan order for the money,it is countedout to his servant,

or the personin whosefavour that order is made. I consider,
therefore, that it is strictly *ready money* accordingto the
ordinary acceptationof those terms among mankind"
So again in Manning v. Purcell (2 Sm. & Giff., 284), the
questionwas whether a balanceon a current account,and a
balanceon a depositaccountpayableon demand,passedunder
the word moneysin a will, STUART, V. 0., said-" The question
as to the next subject of gift which the plaintiffs denyto be in-
cludedin the gift of *moneys,'is as to the balancesof the testator
at his banker's. The testator seemsto have had balancesupona
current account,and balancesupon a depositaccount. Now, the
balanceupon the current accountcertainlypassed. It is alsomy
opinionthat the money,the evidence of whichwasthe depositnotes,
alsopassedunder the description of moneys. It hasbeenmain-
tained in argument,that the depositnotesare the vouchersgiven
by the bankerswith whom the depositsweremadeassecurityfor
money,and they havebeenlikened to the caseof moneysecuredby
a bond. It is said that the balancedue is simply a debt, and the
depositnote is evidenceof the debt, just as a bond,which shews
a debt, and bindsthe obligor to the paymentof it. But moneys
deposited
by a testatorwith his bankers,on a depositaccount,
the balancecarrying interest, is so muchmoneyat the disposalof
the testator,and is as readily accessible
by him as moneysin an
ordinary current account. The fact that interestis allowedupon
thesedeposits,is a reasonfor the depositormorereluctantlydraw-
ing upon his depositaccount; but in point of fact, there is no
distinction at all shewnto me upon the customof the bankers.
The bankers have been examined in this case, and the habit is so
notoriouson this, that it wouldnot requireevidenceto shewthat
wherea banker holds moneyfor which he gives a depositnote, it
is just as accessible
to his customeras if it was held on a current
account
**If a customerhaving a balanceof £10,000 at his banker's
wants £1,000, he must take a pieceof paperand deliver it to the
bankersbefore the bankerswould pay him the moneywhich they
, hold for him. Now, with respectto the deposit money,the cus-
tomer,if he wants that money,or any part of it, must bring the
depositreceipt instead of an ordinary cheque; but that doesnob
make it less accessible to him than if the bankers held it liable

to be paid on cheques. If the slightest doubt were cast upon
the accessibilityof a depositor'smoney which a banker holds
on deposit receipts,it would soon put an end to the account
altogether
" My decisionproceedsupon this, that as to the depositnotes,
as much as to the current account, the relation of banker and
customer exists; that the bankers holding money of a customer,
whether on a depositaccountor a current account,unlessthere
is someexpresscontract to take it out of the ordinary caseof
deposit,holdsit as money,and as money,so readily accessible
to
the customer on the relation of banker and customer, that it is
heldto passunderthe description
of moneygenerally
"
8. The importanceand the practical bearing of theseinves-

tigations and decisionsare evident. In modern times private
bankersdiscontinuedissuingnotes,and merelycreatedCreditsin
their customers'favour to be drawn againstby Cheques. These
Credits are in banking languagetermed Deposits. Now many
personsseeinga material Bank Note, which is only a Right re-
cordedon paper,are willing to admit that a Bank Note is cash.
But, from the want of a little reflection,they feel a difficulty with
regard to what they seeas Deposits. They admit that a Bank
Note is an " Issue," and *' Currency,nand *' Circulation," but
they fail to see that a Bank Credit is exactlyin tho samesense
equally an "Issue," "Currency," and **Circulation**
Whena banker,in exchangefor money,or in exchange
for the
purchase
of a Bill of Exchange,
giveshis Notesto his customer,
he createsand Issues a Eight of action against himself, which
the customermay transfer to any one else. But also when a
bankerin exchangefor money,or in Exchangefor a Bill of Ex-
change,createsa Creditin hisbooksin his customer's
favour,he
equallycreatesand" Issues" a Bight of actionagainsthim-
self; andbydelivering
a cheque
booktohiscustomer
hethereby
engagesto pay the Credit to any one elseto whom his customer
maytransferit. Either form of Credit,therefore,is eqimllythe
Issue of a Right of Actionto thecustomer. lie hasexactlythe
sameright to demandpayment of his Credit from the banker.
BANK CRKDITS ABE "READY MONEY" 311
and exactlythe sameright to transfer it to any one else,whether

it be by Note or by Cheque
Unreflectingpersonsseeonly so many figuresin a book; they
are startled at hearing them calledWealth: but, in fact, these
figures are only the evidenceof so many transferablerights of
action in the personsof the banker's creditors. Theserights are
just asmuch "issued" and in "circulation" as if they wereNotes*
They are equally liabilities to pay on demand. No doubt it is
usualin bank returns to distinguish betweenNotes and Credits;
but supposethey were not so distinguished,but merely called
liabilities, would not every one see that they stand on exactly
the samefooting ? Would any one then make any difference
between them ?
Thus theseBank Credits, or Deposits,are a massof Property,

just like so much corn or timber ; they are Pecunia,JBona,Res,
MGTX;they arc now, though, of course,legally only debts,for all
practicalpurposesthe current coin of commerce: and the great
mediumof payment of the country: and specieis now only used
occasionally,and as a supplement to payments in Credits of
different forms
Nothing can be more unfortunate or misleading than the
expression
which is so frequentlyusedthat bankingis onlythe
**Economyof Capital," and that the businessof a banker is to
borrowmoneyfrom one set of personsand lend it to anotherset.
Bankers, no doubt, do collect sums from a vast number of persons,
but the peculiar essenceof their businessis, not to lend that
moneyto other persons,but on the basis of this bullion to create
a vast superstructureof Credit; to multiply their promisesto pay
many times: theseCredits beingpayableon demandand perform-
ing all the functionsof an equalamountof cash. Thusbanking
is not an Economy of Capital,but an increaseof Capital; the
businessof banking is not to lend money,but to create Credit:
andby meansof the ClearingHousetheseCreditsarenowtrans-
ferred from one bank to another, just as easily as a Credit is
transferred from one account to another in the samebank by
meansof a cheque. And all theseCreditsarein the ordinary
languageand practiceof commerce exactlyequalto so much
cashor Currency
9. After the authoritative expositionwe have given above

of the real meaning of the word Currency, and the judicial
decisionsof what it includes,it is rather a work of supererogation
to cite the opinions of lay writers. The controversiesas to the
meaningof Currencydid not arise until Smith had beenseveral
yearsin his grave; but wethink that no one who readshis work
can form any doubt but that bills of exchangeare necessarily
included under his designationof paper money. The question,
however,
is extremely
unimportant,andwouldtakefar too much
spaceto examinethoroughly
The first occasionon which we havemet the term Circulating
Medium is in the debateon the Bank RestrictionAct, 1797,* in
which Mr. Fox saidhe wishedthat gentlemen," insteadof amus-
ing themselveswith new terms off Circulating Medium' and the
like," which shewsthat it must then have been of very recent
introduction. Mr. Pitt, in his reply, said-"As so much has
been said upon the nature of a Circulating Medium,he thought
it necessary to notice that he did not for his own part takeit to
be of that empiricalkind which had beengenerallydescribed. It
appearedto him to consist in anythingthat answeredthe great
purposes
of tradeandcommerce,
whetheriu specie,
paper,or any
other term that might be used,'* It is quite evident,therefore,
that bills of exchange,cheques,and bank credits would all bo
included under such a designation,becausethey all effect the
circulation of merchandise
The first placein which wehavemet the doctrinethat the word
Currency,or CirculatingMedium,is to berestrictedto specieand
Bank Notesonly, is in a letter of Mr. Boyd,a wellkaown financial
agent,to Mr. Pitt. He says,p. 2-" By the words * Meansof
Circulation/ 'Circulating Medium/ and 'Currency/ which are
used almost as synonymousterms in this letter, I understand
alwaysreadymoney, whetherconsistingof BankNotesor specie,
in contradistinction
to Bills of Exchange,
NavyBills, Exchequer
Bills, or any other negotiablepaper, which form no part of the
circulating medium,as I have alwaysunderstoodthe term. The
latter is the circulator ; the former are merelyobjects of circula-
tion." But Mr. Boyd, in his preface,says-" But from the mem
return of bank notes (without that of the balanceson the looks
* Pailiamentary
Historyof England,Vol.XXXHI.,p. 840.
PITT ON aCIRCULATING MEDIUM" 313
for whichthebankislikewiseliable,andof thespecie

in itscoffers)
no accurateestimate can be formed of the positive difference
betweenthe presentand the former circulation.1'Mr. Boyd
therefore,expressly
includesBank Credits,or Deposits,
underthe
title Currency,andashis notionof Currencywasreadymoney,it
is quiteevidentthat Cheques werealsoCurrencyin his opinion,
becausewehave seenthat Mercantile Law considersBank Notes,
Cheques,
andBankCredits,asall equallyreadymoney
Whetherthis opinionof Mr. Boyd'sgainedanyadherents
we
cannotsay; but, in oppositionto this novel doctrine, Mr. Henry
Thornton,oneof the authorsof the BullionEeport,said*-" A
multitude of bills passbetweentrader and trader in the country
in the mannerthat hasbeendescribed; and they evidentlyform,
in the strictest sense,a part of the Circulating Medium of the
country." And in a note on this passagehe says-" Mr. Boydin
his publication addressedto Mr. Pitt on the subjectof the Bank
of England issues,propagatesthe same error into which many
othershad fallen, of consideringbills as no part of the circulating
medium of the country."-After quoting the abovepassagefrom
Mr, Boyd, he says-" It will be seenin the progressof this work
that it was necessary to clear away much confusion which had
arisen from the want of a sufficientlyfull acquaintancewith the
severalkinds of paper credit, and, in particular,to remove,by a
considerabledetail, the prevailing errorsrespectingthe nature of
bills,beforeit could be possibleto reasonproperlyupon the effects
of paper credit"
Certainlyno influential personat that time adoptedsuch an
opinion, and we may quote a passagefrom the speechof the
Marquis of Tichfield, one of the most distinguishedof the rising
men of the day, on Mr. Western'smotion,in 1822,regardingthe
Act of 1819. He said-" Economyof moneywas,by contrivances
to sparethe useof it, according
to the descriptionof his right
honourablefriend, by substitution of the preciousmetals in the
shapeof voluntarycredit. Everynewcontrivanceof this kind,
and everyone improved,had that tendency.Whenit wascon-
sidered to how great an extent these contrivanceshad "been
practised,in the various modesof Verbal, Book, and
Circulating Credits, it was easy to $ee that the country
* Inquiryinto theNatureandEfectsoftiie PaperCreditof GreatBritain,p.40.
314 THEORY AHD PRACTICE OE BANKING
had receiveda great addition to its Currency. This addition

to the Currency would, of course,haw the sameeffectas i/
gold had lem increased from the mines." Here, therefore,wesee
it explicity stated that Credit, in all its shapesand forms, is
independent,exchangeable property, of the valueof, and produc-
ing the sameeffectsas,gold
10. The question" What the term Currencyincludes?" was

mach discussedbefore the Committee of 1#40; but it is only
necessaryto state herethe viewsof thosewitnesses
whosoopinions
prevailedwith the framersof the Bank Charter Act of 1814-
Mr. GEORGE WAKDENORMAN,a Director of the Bank of
England,wasasked-
1691, " Are there any groundsfor consideringthe depositsof
the Bank of England as Currency?-No, I think not
1692. "Do yon considerthat any deposits,merely in their
character of deposits,can be consideredas Currency?-No, I
do not
1603. "Will yon state what, in your opinion, forms the
distinction between Currency and deposits?-I consider that,
looking broadlyat depositsand Currency,they are quite distinct;
they have little to do with each other. But I conceivethat the
use of depositsis one of the banking expedients,which is avail-
able for economisingcurrency,along with a great many others.
I donot considerthem asCurrencyor money. I ought to observe,
perhaps,to the Committee,that I employthe words *money' and
*currency' as synonymous. Depositsare usedby meansof trans-
fers made in the books of bankers ; and these afford the meansof
adjustingand settling transactions,andjpre tanto dispensewith a
certain quantity of money; or they may be set off against each
other, from one banker to another,to a certain extent, and thus
producethe sameeffect. Still theypossess
the essential
qualities
of moneyin a very low degree
1694. "Do you entertain a similar opinion as to Bills of
Exchange?-Yes,exactly; I think they arealsousedto economise
Currency.I look upon them as bankingexpedients for that
purpose;but they do not possess
fully the qualitieswhich I
considermoneyto possess
1695. "Will you explain the differencebetweenthe functions
MR. G. W. NORMANON "CURRENCY" 815
whichmoneywill performand thosewhich Bills of Exchange or

depositswill perform?-To answerthat questionfully, onemust,
I am afraid,takerathera wideview; but I lookuponit that the
three mostessentialqualitiesmoneyshouldpossess arethat it
should be in universal demandby everybody,in all times and all
places5 that it should possessfixed value; and that it shouldbe
a perfect numerator. There are other qualities; but I think
thesearethe mostessential.Now,when I look at all banking
expedients,
I find theydo not possess
thesequalitiesfully. They
possessthemin a very low degree; and, therefore,as we seetook
place in the autumn of 18S5,with a very large increaseof the
depositsof the Bank, the circulation diminished,and there was
every appearanceof the effects of contraction: there was an in-
creased influx of treasure ; and I conceive from that there were
lower prices. By a numerator I mean that which measuresthe
valueof othercommoditieswith the greatestpossiblefacility. If we
look at all these banking expedients,we seethat they possess the
threequalitieswhich I have mentionedin avery muchlowerdegree
1696. "Will you state in what respect?-I can only take
them oneby one. A Bill of Exchangeis an instrument commonly
payableat somefuture time, at a certainplace,and to some
particularindividual; it is of no useto any otherindividual,
exceptit is indorsedto him. A man cannotgo into a shopwith
a Bill of Exchangeand buy what he wants; he couldnot pay his
labourerswith a Bill of Exchange. The samewith a banker's
deposit,he cando nothing of that sort with that; he can do
with lessmoneythan he would otherwiseemploy,if he has Bills
of Exchange,
or bankers'deposits;but he cannot,with Bills of
Exchangeor bankers1 deposits,
do whateverhe couldwith sove-
reignsandshillings. By a banker'sdeposit,I meana creditin a
banker'sbooks; nothing more nor lessthan that"
U. Mr. SAMUELJONESLOTB, now Lord OVEBSTONE,

was
asked-
2655, "What is it that you includein the term circulation?-
I include in the term circulation, metallic coin, and paper notes
promising
to paythemetalliccointo bearer
ondemand.. . .
2661. " In your definition, then, of the word circulation,you
do not includedeposits
?-No, I do not
2662."Do youincludeBills of Exchange ?-No, I donot

2668." Whydoyounot includedeposits in yourdefinitionof
circulation
?-To answer
thatquestion,I believeI mustbe allowed
to revert to first principles. The preciousmetalsare distributedto
the different countriesof the world by the operationof particular
laws,which have beeninvestigated and are now well recognised.
Theselaws allot to each country a certain portion of the precious
metals, which, while other things remain unchanged,remains
itself unchanged. The precious metals, converted into coin,
constitute the money of each country. That coin circulates
sometimesin kind; but, in highly advancedcountries, it is
representedto a certain extent by paper notes,promising to pay
the coin to beareron demand; thesenotesbeing of sucha nature
in principle that the increaseof them supplantscoin to an equal
amount. Where thosenotesare in use,the metallic coin,together
with thosenotes,constitutethe moneyor Currencyof that country.
Now, this moneyis markedby certain distinguishing characteris-
tics ; first of all, that its amount is determinedby the laws which
apportion the preciousmetals to the different countries of the
world ; secondly, that it is in every country the common measure
of the valueof all other commodities,the standard,by reference
to which the value of every other commodity is ascertained, and
every contract fulfilled; and, thirdly, it becomesthe common
mediumof exchangefor the adjustmentof all transactionsequally
at all times,betweenall persons,and in all places. It has,further,
the quality of dischargingthese functions in endlesssuccession.
Now,I conceivethat neitherdepositsnor Bills of Exchange, in.
anywaywhatever,possess thesequalities. la the first place,the
amount of them is not determinedby the laws which determine
the amountof the preciousmetalsin eachcountry; in the second
place,they will in no respectserveas a commonmeasureof value,
or a standard,by referenceto which we can measurethe relative
valueof all other commodities;and,in the next place,they do not
possess
that powerof universalexchangeability
whichbelongs
to
the moneyof the country
2664. "Why do you not include Bills of Exchangein cir-
culation ?-I excludeBills of Exchangefor precisely the same
reasonsthat I havestatedin my formeranswerfor excluding
deposits.There is anotherpassagein the samereportwhich
LORD OVERSTONE ON "CURRENCY" 317
appears to me to shew very clearly that the French Chamber

havefully appreciated
the distinctionbetween
Bills of Exchange
and money-£ Every written obligation to pay a sum due may
becomea signof the money:the sign hasacquiredsomeof the
advantagesof circulatingmoney;becauselike bills of exchange,
it maybetransmittedby the easyand promptmethodof indorse-
ment. But what obstaclesthere are! It does not representat
every instant to its holder the sum inscribedon it; it can only
bepaidat a distant time: to realiseifcat once,it mustbeparted
"with. If one finds any one sufficientlytrustful to acceptit, it can
only be transferred by guaranteeingit by indorsement. It is an
eventual obligation which one contractsone'sself, and under the
weight of which, until it is paid, one's credit suffers. Oneis not
always disposedto reveal the nature of one's businessby the sig-
naturesone puts in circulation. Theseinconveniences led people
to find out a sign of moneystill moreactiveand more convenient,
which shares,like the Bill of Exchange,the qualities of metallic
money, becauseit has no other merit but to representit, but
which can procure it at any moment; which, like the pieceof
money,is transferredfrom hand to hand, without the necessityof
being guaranteed,without leavingtracesof its passage. The note
payable to bearer on demand,issuedby powerful associations
formed under the authority and acting under the continual
observation of government, has appeared to present these.
advantages* Hence Banks of circulation'
2GG5.**Under similar circumstances,will the aggregate
amount credited to depositorsin bankers'books bear somere-
lation to the quantity of moneyin the country ?-During tem-
poraryfluctuations
in theamount
of circulation,
all Other
things
remainingunchanged,
I conceive
the amountof deposits
will be
affectedby suchfluctuations
26CG."Is the amount of bills of exchangedependentin some
degreeon the quantityof money ?-I apprehend
that it is
dependent
in a verygreatdegree.I consider
the money
of the
countryto be the foundation,andthe bills of exchange
to be the
superstructure
raiseduponit. I conceive
thatbillsof exchange
arean importantform of bankingoperations,andthe circulation
of the countryis the moneyin which theseoperationsareto be
adjusted;anycontraction
of the circulation
of thecountrywill,
318 THEORY AND PRACTICE 0$ BANKING-
of course,act upon credit; bills of exchange,being an important

form of credit, will feel the effect of that contraction in a very
powerful degree; they will, in fact, be contracted in a much
greater degreethan the papercirculation
2667. Sir Robert Peel: "What are the elements which con-
stitute moneyin the sensein which you use the expression,
*quantity of money?' What is the exactmeaning you attach to
the words* quantity of money-quantity of metallic Currency? *
-When I usethe words quantity of money,I mean the quantity
of metallic coin and of papernotes,promisingto pay the coin on
demand, which are in circulation in this country
2668. **Paper notespayableby coin ?-Yes
2669. "By whomsoever issued?-Yes
2670. "By countrybanks as well as other banks ?-Yes
2671. Chairman; " Would this superstructure,consisting of
sums credited to depositorsin bankers*books and bills of ex-
change,equally exist, although no notes payable in coin on
demandexisted in the country?-Yes ; I apprehendthat every
questionwith respectto deposits,and with respect to bills of
exchange, is totally distinct from the questionwhich has reference
to the nature of the processof substituting promissorynotes in
lieu of coin, and of the laws by which that processought to be
governed. If the promissorynotes be properly regulated,so as
to be at all times of the amount which the coin would have been,
deposits
andbillsof exchange,
whateverchanges
theymayunder*
go, would sustain these changesequally, cither with a metallic
Currency, or with a paper Currency properly regulated; conse-
quently,everyinvestigation
respectingtheir characteror amount,
is a distmci?
question
from that which has referenceonly to the
substitutionof the paper notesfor coin
2672. **There would be no reasonwhy, if there woreno notes
payablein coin on demand,the amountof this superstructure
shouldbe lessthan it nowis, with a mixedcirculationof specie
andof notespayableon demand?-None whatever,T apprehend
that, upon the suppositionthat the papernotes are kept of the
sameamountof the metallicmoney,the questionof the super-
structure, whether of depositsor of bills of exchange remains
preciselythe same
2673. " That answertakesfor granted that, in the first case
LORD OVEBSTONEON "CURRENCY" 319
the metallic Currency, and, in the secondcase, the metallic

Currency, plus the notes payableon demand,are the same in
quantity ?-Yes
2d74. Sir RobertPeel: "You supposethe notes payableon
demandto displacean amountof coin preciselyequalto those
notes?-They ought to be so undera properregulationof the
paper money,otherwise
theyare not kept at the samevalueas
coin
2675* Mr. Aftwood: u Would you considerthat the super-
structuro of bills of exchange,founded entirely upona metallic
Ctirrency, might, at particular times, becomeunduly expanded?
--The answerto that question dependsentirely upon the precise
meaning of the word *unduly/ I apprehend,undoubtedly,that
it is perfectly possiblethat credit, and the consequences which
sometimesresult from credit, viz., over-bankingin all its forms,
and the over ibsueof bills of exchange,which is one important
form of over-banking,may arisewith a purely metallicCurrency;
and it mayalsoarisewith a currencyconsistingjointly of metallic
money mid papernotes promising to pay in coin; and I conceive
further, that if the notesbeproperly regulated,that is, if they be
kept at the amountwhich the coin otherwisewouldbe, whatever
over-banking would have arisenwith a metallic Currency,would
arise, and to the sameextent, neither more or less,with money
consisting of metallic coin and paper notesjointly
2876, **May not over-bankingand over-isbueof bills of ex-
change, forming a superstructurebasedupon money composed
of metal and papernotes,derangethe certaintyof the notesbeing
duly paid in gold?-I apprehend that if the papernotesbe
properlyregulated,
accordingto the sensewhichI havealready
attributed to that expression,and if a properproportion of gold
be held in reserve,the solidity of the basiscauuot be disturbed;
that ifl, that if there be a propercontractionof the papernotesas
gold goesout, the convertibilityof the papersystemwill be
effectuallypreservedby the continuallyincreasingvalueof the
remaining quantity of the Currency,as the contractionproceeds "
About this period, and for a long time preceding,the greatest
part of the CirculatingMedium of Lancashirewas bills of
exchange,which sometimeshad 150 indorsements
on them before
they cameto maturity. Lord Overstone
wasasked-
8026. " Doesnot the principal circulation of Lancashirecon-

sist of bills of exchange?-As I contend that bills of exchange
do not form a part of the circulation,of course I am bound, in
answerto that question,to say No
3027. " Is therenot a large quantity of bills of exchangein
circulation in Lancashire?-Undoubtedly, wherevera large mass
of mercantileor trading transactionstake place,there will exist a
large amount of bills of exchange; and that is the case,to a
great extent,in Lancashire
302S. " Do not the bills exceed, to an immense amount, the
issue of notes payableon demandin Lancashire?-Undoubtedly
they do,to a great amount"
12. Mr. Hume had a long fencing match with Lord Over-
stone as to the distinction between Bank Notes and Deposits.
Lord Overstoueadmitted that a debt might be dischargedeither
by the transfer of a Bank Note, or by the transfer of a Credit in
the books of the Bank: but he strongly contendedthat Bank
Notesare money,and that Bank Credits,or Deposits,are not
3148. " Do you considerany portion of the deposits in the
Bank of England as money?-I do not ....
3150. " Could 20,000 sovereignshave more completely dis-
charged the obligation to pay the £20,000 of bills than the
depositsdid ?-Where two parties have eachan accountwith a
depositbank, a transferof the credit from one party to the credit
of another party, may certainly dischargean obligation in the
samemanner,and to the sameextent to which sovereignswould
have dischargedthat obligation . , . ,
3169."Will not the debt betweenthe two be discharged
thereby?-Yes
3170. "In the one caseI have supposedthat payment of
£1,000 wasmadeby meansof notesin circulation ; paymentwas
made by the delivery of these notesfrom onehand to another,
and they are transportedfrom place to place: but in the caseof
a paymentmadeby meansof a transfer in the booksof the bank
from one accountto another,I ask you are not thosepayments
equallyvalid, andwouldnot the debt be dischargedequallyin
either case?-In the onecasethe debt hasbeendischarged by
theuseof money: in the othercasethedebthasbeendischarged
LOBB OVERSTONEON "CURRENCY" 321
withoutthenecessity
of resortingto theuseof money,
in con-
sequence
of the economising processof depositbusinessin the
Bankof England
3171." Can the debt of £1,000 which one personowesto
another
bedischarged,
withoutmoneybeingpaid,orits value?-
A debtof £1,000cannotbedischarged
without,in some wayor
other,transferringthe valueof £1,000; but that transferof
valuemaycertainlybeeffected
withouttheuseof money
8172." Wasnot the deposittransferin the Bankof England,
to satisfythat debt of £1,000,of the samevalue as the £1,000
noteswhich passedin the other case?-A credit in the Bank of
England I consideris of the same value as the same nominal
amount of money; and if the credit be transferred,the same
value I considerto be transferredas if moneyof that nominal
amount had been transferred ....
3177. "Is there any fallacy in the statement that in the
accountspublished by the Bank, their liabilities are divided into
two heads,circulation and deposits?-I am not preparedto state
that thereis any fallacy in it
8178. " Have you not said that depositsdo not, in any way
whatever,possessthe qualities of money?--If I have said so,I
shall be glad to have the statementlaid beforeme
8179. "Have you not, in question2663,enumeratedcertain
distinguishingcharacteristicsof money?-I have
3180. " Have you not, in the same question, stated that
depositsdo not, in any way whatever,possessthose character-
istics ?-Yes, I have
3181. " Have you not, in answerto previousquestions,ad-
mitted that for the dischargeof debts,depositshave the charac-
teristics of money?-All that I have admitted is, I believe,that
a depositmay, under certain supposedcircumstances, be usedto
discharge
a certainsupposed
debt"
Lord Overstonealso said (3132)-"" Will any man in his com-
mon senses
pretend to saythat the total amount of transactions
adjustedat the ClearingHouseare part of the money,or cir-
culating medium of the country? " No, of course,no one says
that a transactionis money; but the operationsof the Clearing
Houseconsistexclusivelyof the transfers of Bank Credits from
VOL. n.
322 TIDSOftY ANT) PRACTICE OF BANKING
onebank to another; and, most undoubtedly,theseBank Credits

are part of the circulating medium of the country
Now, we have alreadyseenthat in Roman Law theseRights
are expresslyclassedas Pecunia; we have seen,that both by our
Courts of Law and Equity they are held to be equivalent to
Money; and Lord Overstonehas himself admitted that they are
of the samenominal valueas money. How, then, can it be con-
trary to commonsenseto say that they are part of the circulating
medium of the country ? However,to avoid all suchdiscussions,
every one must admit that they have now become,in consequence
of the generalspreadof the useof banking,the great medium of
the paymentsof the country. And, therefore,thosewho consider
the essence of moneyto be " closingdebt,'* must admit them to
be money. Thus they are answeredby their own arguments;
which are,however,erroneous,becausemoneyis not that which
mayhappento closea debt,but that whicha debtorcan by law
compelhis creditor to take in paymentof a debt
Lord Overstonefurther said (3082)-** When I give a defini-
tion of 'Currency,' of courseit ia Currencyin the abstract: it is
that which Currency ought to be : that definition properly laid
down, and properlyapplied,\\ill include paper noten payableott
demand,and it will excludebills of exchange"
Here, again, Lord Overstoneis absolutelywrong. It will be
seenfrom the judicial decisionsgiven above that it is perfectly
impossibleto frame a true definition of Currency which shall
include bank notesand excludebills of exchange; and, moreover,
no bank notes in England, except Bank of England notes,aro
money;because no debtorcan.compelhis creditorto takeany
banknotesin paymentof a debt,exceptBank of Englandnotes,
and these only so long as the Bank pays them in money oil
demand. If the Bankwereto stop payment,Bank of England
noteswouldimmediatelyceaseto be legal tender; a consideratioa
which will be found of the greatestimportance when we come
to investigatethe mechanismand operation,of the Bank Charter
Act of 1844
13. Lastly, we may quote ColonelTorrcns, becausehe was

not only one of the most influential of this school, but it was
sometimesallegedthat he was,in reality, the author of the scheme
TORRENSON "CURRENCY" 323
which Sir Robert Peeladoptedin his Bank Charter Act of 1844.

lie says*-" The termsMoneyand Currency
havehithertobeen
employed to denotethoseinstruments
of exchange
whichpossess
intrinsicor derivative
value,andby which,fromlaworcustom,
debtsaredischarged
and transactions
finallyclosed. Banknotes,
payable in specieon demand, have been included under these
termsaswellas coin,because,
by law and customthe acceptance
of the notesof a solventbank,no lessthan the acceptance
of
coin, liquidates debts and closes transactions; while bills of
exchange,
bankcredits,cheques,
andotherinstrumentsby which
the use of money is economised,have not beenincludedunder
the terms moneyand Currency,becausethe acceptanceof such
instrumentsdoesnot liquidate debts andfinally closetransactions"
Again he says,in reply to someperfectly just observationsof
Mr. Fullarton-" It is an obvious departurefrom ordinary lan-
guage fcosay that whethera purchaseis effectedby a paymentin
bank notes, or by a bill of exchange,the result is the same.
According to the meaning of the term, Money and Credit, as
establishedby the universal usage of the market, a purchase
effectedby a payment in bank notes is a readymoneypurchase,
while a transaction negotiated by the payment of a bill of ex-
changeis a purchaseupon credit. In the former casethe trans-
action is concluded,and the vendor has no further claim upon
the purchaser; in the latter casethe transactionis not concluded,
and the vendor continuesto have a claim upon the purchaser
until a further payment has beenmadein satisfactionof the bill
of exchange. A bank note liquidatesa debt, a bill of exchange
recordsthe existenceof a debt, and promisesliquidation a future
day. Mr. Fullartonnot only inverts language,but mis-states
facts,when he says that the transactionsof which bank notes
have been the instruments must remain incompleteuntil the
notesshall be returneduponthe issuingbank,or discharged
in
cash. A bank note for £100 may pass from purchasersto
vendorsmany times a day, finally closing on the instant,
each successivetransaction. A bill of exchangemay also pass
frompurchasers
to vendors
manytimesa day,butno oneof the
successivetransactionsof which it is the medium can be finally
* ThePrinaittesand PracticalOperation
of Sir RobertPeeVs
Act of 1844,
explainedand defended,
p. 79.
V 2
closeduntil the last recipient has receivedin coin or in bank

notes f/wj amount it represent*
" Now it is the necessity
of ultimatere-payment
whichcon-
stitutes the main point of distinction, which marks the boundary
betweenforms of credit and money. It is a necessitywhich
appliesto bills of exchangeand cheques,
but which doesnot
apply to bank notes; and, therefore,upon Mr. Fullarton's own
shewing, upon his own definitions and his own conditions, as
to what constitutesmoney,bank notes come under the head of
money: while bills of exchangeand bankers'cheques,and such
other instruments as require ultimate payments,transfers,and
settlements,do not come under the phrase money. . , .
"UponMr. Fullarton's own shewing moneyconsistsof those in-
strumentsonly by which debts are discharged,balancesadjusted,
and transactionsfinally closed: and, therefore, Mr. Fullurion,
unless he should choose to coniinuc to contradict himself, must
admit that bank notesare,and thai bills of exchange,cashcredits,
"
and chequesare not, money
14. We have now cited at length the doctrinesupon which

the Bank Charter Act of 1811 is based, and we have now to
examine the necessarylogical consequencesto which these
doctrines lead
Mr. NORMANsaid that money, or Currency, should possess
fixed value,and be a perfectnumerator. But how can money,or
any thing, possessfixed value,when its value is changing from
hour to hour ?-An instrument of credit maypreservean equality
of value with respectto money,but not with respectto anything
else,unlessit is expressedto be payablein it. He said that he
meant by a numerator that which measuredthe value of other
commoditieswith the greatest facility. Why doesa promise to
pay£50 measure
the valueof thingswith lessfacility than £50
itself ?
It is not a little amusingto find the celebratedphrase of the
Roman Catholic Church,-Quod semper,qitod ubiqiw, quod ab
omnibus,starting up and meeting us m a discussionon Currency.
In Lord Overstone'sopinion, moneyand Currencyare identical,
and includethe coinedmstalhcmoney,and the papernotespro-
mising to pay the bearercoin on demand; and, he says, that
THESE OPINIONS EXAMINED 325
the characteristic
of their beingmoneyis, that theyarereceived
equallyat "all times,Mweenall persons,and in all places"
For the sakeof shortness, let us designatethis phraseby 3A,
from the threealls in it. He excludesBills of Exchange from
the designationof Currency,because " theydo not possess that
powerof universalexchangeability whichbelongsto the money
of the country." This definition is fatal to Lord Overstone's
ownview. In fact,if it betrue, thereis no suchthing asmoney
or Currencyat all. In the first place,it at once excludesthe
whole of bank notes. The notes of a bank in the remote district
of Cumberlandwould not be current in Cornwall; thereforethey
are not 3A ; thereforethey are not Currency. Again, the notes
of a bank in Cornwall would not bo current in Cumberland;
thereforethey are not Currency, Similarly, there are no country
bank noteswhich have a general Currencythroughout England ;
therefore no country bank notes are 3A; thereforeno country
bank notesare Currency. Till within the last fifty years or so,
Bank of England noteshad scarcelyanyCurrencybeyondLondon
and Lancashire; iu country districts a preferencewasuniversally
given fcolocal notes; thereforeBank of England noteswere not
8A; they had not a powerof "universal exchangeability"; there-
fore they werenot Currency. Bank of Englandnoteswould,
evennow, not passthroughout the greaterpart of Scotland. If,
therefore, the test of 3A and " universal exchangeability" be
applied,the claimsof all banknotesto beconsidered
asCurrency
are annihilated at once. The acceptanceof a Baring or a
Rothschild would be receivedin payment of a debt by a far
larger circle of personsthan the notesof an obscureand remote
country bank
But the universality of Lord Overstone's
assertionis fatal to
his argument in other ways. On the Continent, silver is the
legalstandardof value; in England,silver,like copper,
is merely
coinedinto small tokens,called shillings, &c., which are madeto
passcurrentabovetheir naturalvalue,andareonlylegaltender
for a verytrifling amount,henceit cannotbeusedin the adjust-
ment of all transactions5 thereforeit is not 3A ? thereforeit is
not Currency. There are other countrieswheregold is not a legal
tender,thereforeit fails to satisfy Lord Overstone's
test, therefore
it is not Currency. If, then,the testproposed
by LordOverstone
?>2C> TIIEOKY AND PRACTICE OF BANKING
be consideredas correct,it is easyto seethat thereis no substaneo

or material whatever that will not fail under it; and, therefore,
thereis no such thing as Currency
The fact is, that the only differencebetweena Bill of Exchange
and a Bank Note is, that the former is a promise of a deferred
payment,and the latter that of an immediateone, and there is
lessrisk in taking the latter than the former. From thesecir-
cumstances, a Bank Note possesses a greater thyrw of circulating
j'ower than a Bill of Exchange. But, in the Midland Counties
of England, it used to be quite commonfor the banks to issue
the bills of exchange they had discounted with their own
indorsementupon them. In which respectthey wore in every
"wayequivalent to Bank Notes; moreover,there is not the same
inducementto put a bill into circulation as a Bank Note, because
the former increasesin value as the day of payment approaches,
and it is unprofitable to keep a note idle. But it is to the last
degreeunphilosophicalto maintain that thesetwo obligationsaro
of different natures, becausethey are adapted to circulate in
different degrees
15* Every commerciallawyer would at once perceivethe

fundamental fallacy of the reasons\\hy Colonel Torrens and
othersmaintain that Bank Notes are Currency,and that Cheques
and Bills of Exchangeare not* They supposethat bank notes
passwithout indorsement,
and that bills of exchangedo not,
}]veu if that were true, it would not be any valid ground for the
distinction, becausesuch a thing would in no way affect the
wature of the instrument. It is wholly untrue to supposethat
bank notes and money are the only things which close trans-
actions. By the table given above* it is seenthat upwardsof 95
per cent, of commercialpayments and receipts were made by
Messrs. Morrison and Co. in instruments of credit, other than
bank notes
But it is a very great mistake to say that bank notespass
without indorsementand bills of exchangedo not At the time
the Bank of England was founded,it was supposedto be illegal
for any such things as promissorynotes to PUKK by assignment.
The negotiabilityof bank noteshad to be providedfor by the Act
THESE OPINIONS EXAMINED 327
It wasenacted,
thatall theBank'sbillsobligatory
andofcredit,
madeor givento anyperson,
might,ly indorsement
of suchperson,
be freelyassigned
to anyperson
whoshouldvoluntarily
accept
them, and so by such assignees
totiesquotiesby indorsement
thereon,and all such assigneesmight sue thereonin their own
names
The assignmentof the Goldsmiths'notes,or the private

bankers'notes, washeld to be illegal much later than this. In
1703it wasdecidedthat no promissory
noteswereassignable
or
indorsable over within the custom of merchants. In 1704 the
Act waspassed
whichallowedpromissory
notesto beassigned
by
indorsementlike Bills of Exchange. It is true that the custom
of indorsing Bunk of England Notes,and,it is probablecountry
bank notes too, soon fell into disuse, but that makes no difference
iii the Itw of the subject
It is alboan error to supposethat Bills of Exchangerequire
an indorsementat each transfer. A Bill of Exchangemay be
madepayableto bearer,and then it requiresno indorsementat
all Bills, however, are generally drawn payableto order, and
then they require that the payeeshould indorsethem3 but he
may do that without making himself liable on them, as is donein
manycases.After the first indorsement
in blank,the Bill is pay-
ableto bearer,and may be passedby meredelivery,in all respects
like a Bank Note. " I see no difference," said Lord Mansfield,
" betweena note indorsedin blank, and one payableto bearer."
" And," says Mr. Justice Byles,* " a transfer by mere delivery,
without indorsement,of a Bill of Exchange,or PromissoryNote,
madeor becomepayableto bearer,doesnot renderthe transferor
liable on the instrument to the transferee
**And it is conceivedto be the generalrule of the Englishlaw,
and the fair rmilt of the English authorities,that the transferor
is not even liable to refund the consideration, if the bill or note
so transferredby delivery, without indorsement,turns out to be
of no valueby reasonof the failure of the otherpartiesto it. For
thesendingto marketof a bill or notepayable
to bearerwithout
indorsing it, iajprimd facie a sale of the bill. And there is no
impliedguarantee
for the solvency
of the maker,or of anyother
party
* A Treatiseon ike Laws qfMU qfExcliawe, etcn8A &&.,& 146.
" If a bill, or note, made or becamepayable to bearer, bo

delivered without indorsement,not in payment of a pre-existing
debt, but by wayof exchangefor goods,for other bills or notes,
or for moneytransferred to the party delivering the bill at the
same time, such a transactionhas been repeatedlyheld to be a
sale of the bill by the party transferring it, and a purchaseof
the instrument, with all risks, by the transferee. ' It is extremely
clear,said Lord Kenyon,' that if the holder of a bill sent it to
market without indorsinghis nameupon it, neither morality, nor
the law of this country, will compelhim to refund the moneyfor
which he sold it, if he did not know at the time that it wasnot a
goodbill' So,when A gave a bankrupt, beforehis bankruptcy,
cash for a bill, but refusedto allow the bankrupt to indorseit,
thinking it better without his name,and afterwards,on dishonour
of the bill* proved the amount under the commission,the Lord
Chancellororderedthe debt to be expunged,observing that this
wasa saleof the bill So,if a party discountsbills with a banker,
and receives,in part of the discount,other bills, but not indorsed
by the banker,which bills turn out to be bad, the bankeris not
liable. *Having taken them without indorsement,'says Lord
Kenyon,' he has taken the risk on himself. The bankerswere
the holders of the bills, and, by not indorsing them, have refused
to pledgetheir credit to their validity; and the transfereemust
be taken to have receivedthem on their own credit only.' So
where,in the morning, A sold B a quantity of corn, and, at throe
o'clockin the afternoonof the sameday,B deliveredto A, in pay-
ment, certain promissorynotesof the Bank of 0, which had then
stoppedpayment,but which circumstancewas not at the time
known to either party, Baylcy,J., said-' If the notes had been,
fiven to A at the time when the corn wassold,he couldhave no
/cmedyuponthem againstB. A might have insistedon payment
in money,but, if he consented to receivethe notesas money,they
would have been taken by him at his peril.' Such seemsthe
general rule governing the transfer by delivery, not only of
ordinary Bills of Exchange and PromissoryNotes, but also of
Bank Notes. Nor is there any hardshipin such a rule, for the
remedyagainstthe transferormayalwaysbe preservedby indorse-
ment, or by specialcontract"
While it hasalwaysbeenacknowledgedthat the delivery of a
ANSWER TO LORD OVERSTONE 329
"bill without indorsement,in exchangefor a valuableconsideration,

is a saleof it, it hus frequentlybeen said that, if the bill be in-
dorsed,it is onlya loan. We havepointedout the ambiguityof
the word loan already. It is often said that a banker lendshis
customermoneyou the securityof bills* But this is an inaccurate
mode of statement. What the banker doesis to buy a debt due
to his customer,and,whenhe indorsesthe bill, his customergives
him a limited warranty of its soundness.If the banker lent his
customer the money,it would be his duty to repayit. But that
is not so. It is the acceptor'sbusinessto pay the bill, and,if he
does not do so, the bankermay,by giving his customerimmediate
notice, and making a demand,makehis customertake back the
l>ill, and repay the money. But if the banker fail in giving
immediate notice,his remedyagainsthis customeris gone
16* But the Law of Continuity shewsthe fallacy of the

doctrine that Bank Notes payableto beareron demandalonearc
Currency. Lord Overstonerigorouslyrestricts the term to such
notes. But would not notespayableone minute after demandbo
Currency? or onehour? or two,or three,or four hours? Would
not notespayable onedayafter demandbe Currency? or twoor
three days? Lord Overstone deniedthat Bank postbillswhich
are issuedpayablesevendaysafter sight,are Currency.Accord-
ing to this doctrine,if a mandepositsmoneyin the Bank and
receivesin exchangefor it a bank note payableon demand-that
is Currency;but if he asks,for his own convenience,
for a note
payablesevendaysaftersight-that is not Currency! But the
note becomes payableon demandon the seventhdayaftersight,
and then, by his owndefinition,it is Currency.What wasit
before? It used formerly to be the custom for banks in the
countryto issuenotespayable20 daysafter demand.These
notescirculatedand produced
all the effectsof money. What
werethey,if theywerenot Currency? Cheques arepayable
on
demand. How arc they not Currencyas much as notes? How
are Bills of Exchangenot Currency on the day they becomepay-
able ? And, if they are so then, what were they before? It is
quite plainthat therecan be but oneanswer.Theyare all
species
of Currency,
thoughdifferingin degree,and the distinc-
tion between them is untenable
330 TIIKOEY AND PRACTICE OF BANKING
Nay, accordingto this doctrinea Bank Note itself is only

Currencydaring about six hoursout of the twenty-four : because
it is only payableon demandduring banking hours, say from
1)a.m.to 3 p.m. As soonas the clockstrikesthreethe Noteis
not payabletill next day ; and, consequently,it is not Currency,
and has ceasedto affect the foreign exchanges. Therefore,at 5
minutesbefore three it is Currency,and 5 minutesafter threeit
is not Currency. So at 5 minutes before nine a.m. it is not
Currency,at 5 minutesafter nine it is Currency. We must leave
our readersto judge whethersuchdoctrinesarc soundphilosophy
Not only are Colonel Torrens's statementsof law perfectly
inaccurate,but also his statementsof fact and the routine of
business. He assertsthat Bills of Exchangeare not Currency
becausethey are intendedto be,and are, ultimately liquidated in
coin or bank notes. Sucha statementasthis shewsthe most pro-
found ignoranceof the ordinary routine businessof banking; for
comparativelyvery few bills are ever paid by meansof coin or
bank notes; in moderntimes they are almost universallypaid by
meansof Bank Credits : and, consequently,by ColonelTorrens's
own definition, theseBank Credits must be money
17. But wemust point out the further conclusionswhich the

doctrines set forth by these witnesseslead to, which may some-
what surprisetheir advocates
They say that the fundamentalessenceof Currencyor Money
is that it " closes a debt"
Now to this we shall reply as was the fashion in the glorious
old days of specialpleading-(1) there is no debt to otose; and
(2) it doesnot closethe debt
1. When moneyis exchangedfor goodsno debt arises: and if
it be said that the moneyclosesthe debt which would havearisen
onthe saleof thegoods,it is perfectlyobviousthat it mayequally
be said that the goodsclosethe debt which would have arisenon
the saleof the money. It is simply an exchange; and the goods
and the moneyclosethe debt equally on each side. Therefore,
if it be the essenceof Currency to "close debt," the goodsare
Currencyfor preciselythe samereasonthat the moneyis
It is quitecommon
in the City to discharge
a debtby stock
ANSWER TO LORD OVERSTONE 331
nowbythis the debtis closed, and,consequently,

according
to
thisdoctrine,
theStockis Currency orMoney
Soin innumerable
cases it isthecustomto discharge
a debt
by a paymentof goods. A baker or a tea merchantbecomesin--
ilebtod to a wine merchant,and for the sake of conveniencehe
maytakepayment in breadortea. If he doesso,thenthedebt
is closed;andbythis doctrine
thebreador theteaaceCurrency
or Money
Soin all cases
of Barteror Exchange
of goods,
thegoods
on
each side dischargeor closethe debt which would have arisen
without the exchange;consequently,
the goodsexchanged
on
either sideare equally Currencyor Money
Furthermore,
let us testthe doctrineby cases
regardingother
paper documents
A merchant, suppose,puts his acceptanceinto circulation:
anotherpersonhappensto be indebtedto him in an equalamount,
and chancesto come possessed of his acceptance.The merchant
u«k«for payment of his debt, and the debtor hands over to the
merchanthis own acceptance. By this meansthe debt is closed;
and according to this doctrine the merchant's acceptanceis
Currencyor Money
So a banker, say, issuesnotes, and discounts a merchant's
acceptance. When the acceptance falls due,the merchantcollects
an equal amount of the banker's notes. Each is then equally
indebtedto the other; and in payment of their reciprocalclaims,
the merchant hands the notes to the banker, and the banker
handsthe acceptanceto the merchant. By this meansthe debts
are mutually closed,and if the Notes are Currencybecausethey
have closedthe debt, is it not manifestthat the acceptanceis
equallyCurrency,because
it has performedexactlythe same
function ?
So if two merchants issue their acceptancesfor the same
amount,and they get into eachother'shands,eachwill offer
to the other his own acceptance
in paymentof the debt by him.
Bythese
means
thedebtsaremutually
closed.Andconsequently
eachacceptance
is Currencyor Money
Thusweseethat the dogmasof thesewritersaretransfixed
by
darts drawn from their own quiver!
The samedoctrinem?ybe extended
to othercases.Suppose
332 THEORY AND PRACTICE OF BACKING
a man buys a ticket from a RailwayCompany,

the Company
ia
then indebted to him. But when they have carried him to his
journey'send,the debt is closed*Therefore,accordingto this
doctrine, the carriageof the passengeris Currencyor Money
So if a personbuysan operaticket, the managerof the theatre
is indebtedto him. But whenhe haswitnessedthe play, thedebt
is closed; consequentlythe performanceof the play is Currency
or Money
So if a personbuys PostageStumps,the PostOfficeis indebted
to him: but when he has sent his letters by post, the debt is
closed. Therefore the carriage of the letters is Currency or
Money. And so on, the sameprinciple may be applied to many
other cases
2. In the next place, we affirm that a payment in Money
does not close the debt, because all Economists have shewn that
the transactionis not closeduntil someproduct or satisfactionhas
been obtained in exchangefor the one originally given. The
earliest Economistspointed out that in a sale for money the
exchangeis not consummated
A baker, we will say, wants shoes: he sells his bread for
money; but can he wear his moneyas shoes. Certainly not; ho
must exchangeaway his money for shoos. Consequently,the
Physiocrates
held that the exchange was nobconsummated, or
completed,
until the baker had got Insshoes. And J. B, Suy
calleda salea demi-exehange
And it is preciselyfor this reasonthat all Economistsfrom
Artistotledownwards, haveperceived and declaredthat money
itoelf is onlya species
of Credit,or generalBill of Exchange,
as
wehaveshewnby a wholecatenaof writers. Hence,moneyand
bills of exchangeare fundamentallyanalogous; they are eachof
themmerelythe evidenceof a debt due to their possessor ; and
thepaymentof a bill of exchange
in moneyfaonly the exchange
of a particular and precariousinstrument of Credit for a general
and permanentone. But, as Economists,
we havenothing to
do with satisfactionand enjoyment; we have only to do with
exrlKtnges;
and the exchangeof goodsfor a bill or noteis one.
exchange;the exchangeof a bill or note for moneyia another
exchange;and the exchangeof moneyfor goodsis another
ANSWER TO LORD OVERSTONB 333
they are all equallyexchanges,

and thereforeEconomic
phenomena
18. We are happy to say that on this subject M. Michel

Chevalier is entirely of the same opinion as ourselves. After
showing* the untenablenature of the distinction setup between
Bank Notes and Bills of Exchange, he says-"The English
language has a generic word which comprehendsmoney,bank
notes,papermoney,or assignatsnot convertibleinto specie,
and
everyother kind of securitywhichcanbe put into circulation,
and is accepted more or lessgenerallyamong men: and that is
the word Currency. Our languagehasno preciseequivalent:
nevertheless, the word Nnmwaire may be taken in the same
sense,and I shall employit for the future in this work." And
the same distinguished writer has given his formal adhesionto
the fundamental nature of a Currencyset forth in this workf
But, while we contendthat Lord Overstone's criterionof a
CurrencyIs fatal to his ownview,we are quitewilling to accept
it. For what is it that existsin all places,in all times,andamong
almostall persons
? Debt, or Services due. And what is
ife that is universally required to measure,record,and transfer
them* Soinematerial But we seethat all Currenciesare more
or lesslocal, noneare universal. The idea, or the want alone,is
universal. The notesof a country banker,only circulatingin his
ownneighbourhood,
arelikea country
patois,each
districthasits
own. A national Currency rises to the dignity of a language.
But eventhat is only local,on a largerscale. The ideasonly
expressedin the language are universal.We are,therefore,
strenq;the*ied
in our conviction,
that the onlytrueideaof a
Currencyis thatit istheRepresentative
ofTransferable
Debt,and
that wJiatevtrrepresents
Transferable
Debtis Currency
* La M&nnait,§3, ck.6. t JournaldesEcononmtes,
August,
1862.
33-i THEORY AKD PRACTICE OF BANKING
CHAPTER 5VI
ON THE ORGANISATION OF TUB BANK OP

ENGLAND;
AND ON THE BANK CHARTER ACT OP 1844
1. We are now, at length, in a position to take a compro*

hensivesurvey of the organisationof the Bank of England, and
of the Bank Act of 1844. Of all the Acts in the Statute Book
there is nonewhich comeshome to everyman, which so nearly
affectseveryman'sinterest, as this Act. Pew personsare awareof
its extremelycomplicatednature. We hear,sometimes, of theprin»>
eyrieof theAct of 18i4, as if therewerebut oneprinciple involved
it! or as if the object of it were the same thing as llw principle:
the object it aimsat, the same thing as the theory it adopts to
obtain that object. Whereas,in truth, it is founded upon a
multiplicity of theories-it is a combination of several theories
of Currency, and, moreover,devisesa particular machinery for
carrying them out. When, therefore,we considerits very com-
plicated nature,we seewhat a boundlessfield of controversyit
may give rise to; for each of the severaltheories it embodies
maybe partially or totally erroneous;and even if they be correct,
the machinerydevisedfor enforcing them may be imperfect,or
erroneous,and insufficient for its purpose. We think, however,
that weare now in a positionto examinethe theoriesupon which
it is founded-to test them by the fundamental principles of
monetary scienceestablishedin the precedingchapters, and to
point out thoseprinciples-if any-which it violates
In the first chapterwe obtained the greatfundamentalcon-
ception,which is the basisof monetaryscience,that money5sthe
representativeof debt, or servicesdno-That where there
is no Debt, there can be no Money, lu the pro
OftGANIMATION OF THE BANK 335
cedingchapterwe found that the fundamentalerror of Law's

Theoryof PaperMoneyis,that it creates
Currency
wherethere
is noDebtfor it to represent.The consequence
of whichis,
that anadditionalquantityof materialis pouredinto the channel
of circulation,as it is called; that is, a greaterquantityof
materialis requiredto do exactly the sameduty as a smaller
quantitydid before; the consequence of which is a depreciation
of the whole,which mayproceedto any length; and we have
given severalexamples of the practicalresultsof this plausible
andwide-spread but delusivetheory
We must now examine the organisation of the Bank- of
England,andweshall findthat it, too,is baseduponLawism
But furthermore, we have said that the Bank Act of 1844is
basedon a peculiardefinitionof the word Currency ; andis
expresslydevisedfor the purposeof carrying into effecta peculiar
Theory of Currency. In the last chapterwe have examinedthe
meaningof the word Currency, and shown the entirely erro-
neous doctrines of those writers from whom the scheme emanated
which was embodied in that Act, We have now to examine the
Theory upon which it is founded; and to seehow far it really
carriesout the Theory it is intendedto do; and the consequences
it hasproduced
2. The Bank was a corporation who advanced£1,200,000

in cash to Government. In exchangefor this they receivedan
equal amount of Governmentstock, with interest at 8 per cent.,
or an annuity of £100,000 a year
Now, whenthey had receivedthis annuity, they had already
receivedan equivalentfor their cash. But, in additwn to that the^
were allowed to createan amountof notesequal to their capital
to trade with, and it wassupposedthat the annuity of £100,000
in cashwassufficient to support the credit of thesenotes
Now, we at onceperceivethe essentialdistinction betweenthe
Banks of Venice, Amsterdam,and Hamburg, and the Bank of
England. The formerbankswereexamples
of the Currency
Principle. The bullion paid into themwaskept, or wasprofessed
to be kept, in their vaults, and, as long as it was so,the credit
createdby them wasexactly equal to the bullion paid in. Their
function wassolelyto exchange
Credit for Bullion and Bullion
for Credit. Hence these banks createdno augmentationof the

Currency
But the caseof the Bank of England wasmanifestly wholly
different. The Bank paid over the moneyto Government,who
put it into circulation. The Bank receivedthe annuity, and was
also permitted to create £1,200,000 in Bank notes, and trade
with them, by discountingbills of exchange,or otherwise. Thus
the Bank had not only sold its cash to Government,but it was
also allowed to have it as well in the form of notes, to trade with,
and make a profit by
3. Now, can any one fail to seethat this proceedingaug-

mentedthe Currencyby the amountof £3,200,000, andthat the
Bank madea doubleprofit; first, the intereston the cashpaid
to the Government,and, secondly,tliQcommercialprofit madeby
trading with the notes?
Therefore,so far as this went, this was clearlyan exampleof
Lawism
4. In 1G97the Bank was authorisedto increaseits capital

by upwards of a million. Of this sum, above £800,000 was
receivedin Exchequertallies, then at a discount of f>0per cent.,
and £200,000in its own notes,then at a discountof 20 per cent.
Both the tallies and the Bank noteswere counted as upocieat
their full nominal value; and upon this augmentedcapital of
tallies and notes they werepermitted to createan equal amount
of new notes to trade with 1
Law only proposed to issue paper money based upon the
securityof land, or some other solid article of value. But the
Bank of England was permitted to createpaper currencybased
tipon the security of its own depreciatedcredit!
In 1709 the Bank was allowed to doubleits capital, and to
ereatean equalamountof notesto trade with
Now, is it not as clear as the sun at noon day, that each of
theseissuesof noteswas so much increaseof Currency,and aa
exampleof Lawism
6* Now, if the sameprinciple had been carried out to the

present time, is it not clear that all the public funds would have
AN EXAMPLE OF LAW1SM 337
beenBankstock,andthat the Banknoteswouldhaveequalled

the amountof theNationalDebt,or about£800,000,000
? Some
persons,even now, seemto think that this is a good principle.
Theyseemto think that if theycarryStockto theBank,they
havea rightto haveifccoinedinto notesto anyamount.It is
clearthat this principlecould neverbe carriedout to its full
extent. For, if it weretrue,Government might go on creating
public debta& infinitum,and then the Bankwouldcreatean
equalamountof notes. If thisprinciplebetrue,whatwouldbe
the useof goingto Californiaand Australiafor gold? Is not
this principlemoremadthan anythingLaw everwrote? Law's
issuesof paperwerelimitedby the valueof the land,but this
plan haspositively no limits whatsoever
6. Up to 1711 the issuesof the Bank were strictly limited

to the amountof their capital; and it was declared that if the
Directors exceededthat limit they should be liable in their per-
sonalcapacity* Afterwardstheywerereleasedfrom this limitation,
and they were allowed to issuenotesto any extent they pleased,
providedalwaysthat they werepayablein specieon demand
And so the Bankwent on till 1797,whenit stoppedpayment,
and committeeswere appointedby Parliament to investigateits
affaire,who reported it to be in the most solid and flourishing
condition, and that they had a surplus of assetsaboveliabilities
of nearly four millions, besidesthe Governmentdebt, amounting
to £11,686,800
The reasonof this wasplain. The notesit had issuedwere
given in exchange
for mercantilesecurities,
and, therefore,the
Bank had as security for the payment of its notes, both the
commercial bills and the Government debt
This no doubt amply securedthe solvencyof the Bank and
the paymentof its notes,but it playedutter havocwith the
Currency Principle
7, The Bankpossessed the powerof unlimitedissuetill 1844.

On severaloccasionsit had been most recklesslymismanaged.
Proposals
hadbeenmadeto limit its powersof issue;but such
a planhad beenexpressly
condemned in the Bullion Eeport,and
amongnumerous otherauthorities,by Sir RobertPeelin 1819,
VOL. n. z
3?>8 THEORY ANB PRACTICE OF BAKKTKG
in 1826,and in 1833. In 1824 and 1825,in 1887,and 1839a.n

immenseoutflow of bullion took place,without the Bank taking
any meansto stop it* The consequence was that it was brought
to the very vergeof stoppingpayment
8. We have seen that all Banking consistsin creating and

issuing Eights of action, Credit, or Debts,in exchangefor Honey,
or Debts* When the Banker had createdthis Liability in his
books,the customermight, if he pleased,have this Credit in the
form of the Banker'snotes. London bankerscontinuedto give
their notestill aboutthe year 179;%when they discontinuedthis
practice,and their customerscould only transfer their Eights, or
Credit, by meansof cheques. But it is perfectlymanifest that
the Liabilities of the Bank are exactlythe samewhether they
givetheir owanotesor merelycreatea Deposit
Soon after the renewal of the Charter, in 1833, certain writers
of influence adoptedthe Currency principle. They maintained
the doctrine that bank notes,payableto boareron demandonly,
are Currency-to theabsoluteexclusionof all otherformsof paper
Credit-and that when bank notes are permitted to be issued*
they ought to be exactly equal in quantity to the Bullion they
displace,which wehaveshewnelsewhere*is a doctrine inventedin
China,and was the principle uponwhich the Banks of Venice,
Amsterdam,Hamburg,and otherswere constructed. They main*
tained that all Paper Currency created in excessof tins is a
depreciationof the Currency
Thesedoctrinesbeingmaintainedby personsof eminenceand
influence,and aided by the incorrigible mismanagementof the
Bank of England, convertedSir Eobert Peel,who now entered
upon the third stateof his opinionsuponthe Currencyques-
tion. It is frequentlysupposed
that Sir Eobert Peelhad only
two statesof opinion upon the Currencyquestion. But this is
quite a mistake. In 1811 he repudiatedthe doctrinesof Horner
and the Bullion Eeport, and voted in the majority that 21 waa
equal to 27. In 1819 he becamea convert to the doctrines
which he had repudiatedin 1811: and heexpressly repudiated
the doctrineof the Currencyprinciple,and the principleof im-
posinga numericallimit on the issuesof the Bank; which
* jfyMcijdM of EconomicaljPAt£0w|%,c/*. 18.
BANK CHAETER ACT OF 1844 339
doctrine
heheldupto 1833. In 1844hehadcompletely
repu-
diatedthe doctrinesof the BullionReport,Mr. Homer,and hia
own of 1819, and formally adoptedthoseof Lord Overstone*
Colonel Torrens, and others,which maintained the doctrine of
the Currencyprinciple: and, naturally and justifiablyirritated
by the incorrigible misconductof the Directors,he determinedto
imposea numerical limit on the issuesof the Bank-
" Sic volvendasetascommutattemporarertun;
Quod fait in pretio, fit nullo deniquehonore,
Porro aliud succedit,et e contemptibusexit,
Inque dies magis appetitur,floretque repertum
Laudibus, et miro'st mortaleis inter honore."
In order to carry out this principle the Bank wasdivided into

two departments-an Issue departmentand a Banking depart-
ment. The Bank wasto transfer to the issuedepartmentpublic
securitiesto the value of £14,000,000, of which the original
Governmentdebt wasto be a part, and also so much of the gold
coin and gold and silver bullion as shouldnot be requiredfor the
bankingdepartment. The issue departmentwasthen to deliver
over to the banking departmentan amountof notesexactlyequal
to the securities,coin, and bullion so depositedwith them. The
Bank might diminish the securitiesasmuch as it pleased,cancel-
ling the notes; and might increasethem again,but not so asto
exceedthe precedinglimit. In consequence of the lapsedissues
of other banks,the securitiesupon which it may issuenotesare
now £15,000,000
Thus the amount of notes issued by the Bank is strictly
limited to £15,000,000 plus the amount of bullion held by the
issue department
9. It wassupposed that theseprovisionssecured that the

quantityof notesin circulation,t.&,in the handsof thepublic,
wouldbe exactlyequalin amountto what a MetallicCurrency
would have been,and that the outflow of bullion would,by its
ownnaturaloperation,withdrawnotesin circulationto an equal
amount. Having madetheseprovisions, the framersof the Act
supposed
that theyhad takenout of the handsof the Bankall
power
of mismanaging
thecurrency,
andthattheymightmanage
the bankingdepartmententirelyat their owndiscretion
To say that the amountof Notesshouldonly be equalIB
Zt>6
340 THEORY AND PRACTICE CVFBANKING
amount to what a metallic Currency would have been,is a very

intelligible proposition,and, as we have before observed,several
banks had been conductedon that principle, such as thoseof
Venice, Amsterdam and Hamburg, but no Bank conductedon
this principle ever did, or Inj any pOMsilntiti/could do, banking
business. Those banks were pure banks of deposit,they did no
discount business whatever; and if the Bunk of England were
forbidden to discount, there is no reasonwhy it should not be
reconstructedon this principle
But if the framers of the Act of 18M- really believed that
this Act curried out this theory into practice,no netof menever
committeda more manifest error. It is quite evident that the
£15,000,000of notes issuedagainstpublic debt and securitiesare
in direct violation of the **CurrencyPrinciple." How did the
Bank obtain thesesecurities? By purchase. Now,the purchase-
moneyof thesesecuritiesis in circulation, and the notescreated
on their securityas well. Is it not clear that these 15 millions
of notesare an augmentationof currencyto that amount? If it
be true that these 15 millions of notes are not a violation of tho
Currency Principle, then the very same argument would shew
that the whole National Debt might be coined into notes,and
then therewould be no morepaper in circulation than under a
pure metallic currency!!
It is quiteclearthat this is pureandsimpleLawism; and,
if we may coin the funds into money,we may just as well coin
the land into money: and then, whereshouldwe be ?
10. Certainly,it is an excellentplanfor everyoneto buy

the funds with their cash,and then to beallowedto have it, too,
in the form of notes. At all events,solongasthis is permitted,
let no one laugh at John Law
But even this does not shew the full extent of the error of
thosewhothink that the BankAct of 1844enforces
theCurrency
Principle- The banking department of the Bank doesbusiness
like any other bank. That is, it purchasesor discounts bills of
exchange
in the first instance,
by creatingCredit in its books;
that is, it increases its liabilities in another form besides notes.
This Credit is equallyin excessof the MetallicCurrency. The
reserveof notesandgold beingthebasisof the Bank'spowerof
BANK CHARTER ACT OF 1844 341
creatingcredit,of coursetheymustusetheir own judgmentas

to howfar theymaysafelyextendthis,just aseveryotherbanker
does. But any one who examinesthe Bank's returns will
perceive
that its liabilitiespayableondemandconsiderably
exceed
its notesin reserveand gold
Therefore,
it is quiteclearthat thosewho seriously
maintain
thatthe BunkAct reallycarriesoutthe " Currency
Principle,"
must maintain this proposition-
Twice15 millions + an indefi- }
nitenumber
ofmillions j ~ 15milllolis
It has been shewn that in Banks constructed on the " Cur-
rencyPrinciple,"the Credit createdis alwaysexactlyequalin
quantity to the moneydepositedand kept in the Bank. But how
doesthis matter stand with the Bank of England? Let us tesfc
this principle by any one of its published returns taken at
random. On the 3rd October,1884,it appearsthat the Credit
createdby the Bank amountedto £55,928,398,and the specie
held by the Bank amountedto £21,790,392,or about 2'6 to 1,
If, therefore,it be maintained that the Bank is constructedon
the " CurrencyPrinciple," it must also be maintainedthat 2'6
are equal to 1
As a matter of pure arithmetic, therefore, it is perfectly
manifest that the Bank Act completelyfails to carry out the
u Principle" it wasintended to enforce. In fact, the framers of
the Bank Act had a Theory, and they passedan Act; but
theynever took the slightest pains to ascertainwhetherthe Act
corresponds with the Theory
11. Now, we say nothing here as to the correctness, or the

contrary,of the " Currency Principle," or as to the expediencyof
carryingit out; but to suppose that the BankAct doesreally
carryit out is simplyone of the mostastonishing
delusions
that
ever deceivedthe public mind. Truly, saysBastiat-
" Btre duped'aubruin'est pasdejatr&splaisant; mais em-
ployerle vasteappareilrepr&sentatifa se dupersoi-m&me, a se
duperdoublement, et,dansum affairedenumeration, voilaqui est
bienproprea rabattreunepeu1'orgueildu si&cledeslumi&es"
Every"banker" whatever, who discounts a bill of exchange,
violatesthe " CurrencyPrinciple." Thereis no modewhatever
342 TIIEOEY AND PRACTICE OF BANKING
of carryingout the CurrencyPrinciplebut by abolishingdiscount

banking altogether; as we have alreadyobserved, the banks
constructedon this principle did no discountbusiness
12. Lord Overstone, in his evidence before the Committee

of the Houseof Commons,said that it wasa fundamentalvice of
the principledevisedby the Directorsin 1882,to carryout the
doctrinesof tho Bullion Report,that the gold might all leavethe
country without causing any diminution of the amount of Notes
in the handsof the public: and we have seen thai this assertion
wascompletelyverified iu 1830
It was,therefore,
expressly
declared
that it wasthe purpose
of
the Act that, if anydrain should ariseafter it cameinto operation,
an exact amount of notes should be withdrawn from the hands of
the public, or from circulation. Having securedthat object, us
theyimagined,theyleft the Directorsfree and uncontrolledin
their banking business. For the first two yearsafter the Act was
passedno occasionoccurred to test its merits; it wasa periodof
unusualprosperityand accumulationof capital But when the
first seasonof real ferialcame,in the beginning of 1847,we have
seenthat the Act wholly failed in its intendedeffect of canninga
withdrawal of notesin circulation, in proportionto the outflow of
bullion. The Directors pursuedexactly the samefatal courseas
they had done on so many former occasions,and the result was
the pressureof April. It was manifestly proved,therefore,that
the Act provided no effectualcheck against mismanagementon
the part of the Bank
And whencedid this failure arise? From this verysimple
circumstance. The framers of the Act supposedthat them Is
only one way of extractinggold from the Bank: namely,by
meansof its notes: and that if peoplewantgoldtheymustbring
in notes; and, consequently,
as the gold comesout the notesmust
go in
But, as a matter of simple banking business,there are two
methodsof extractinggold from the Bank-namely,by Notes
and by Cheques* Whoeverhasa Creditin its booksmaygo
andpresent
a Cheque,andthusdrawoutgoldfromthebanking
departmentwithout a single Bank Note being withdrawn from
the public
CAUSE OF THE FAILURE OF THE ACT 343
In fact,insteadof withdrawingthe Notesfromthepublic,aa

the framers of the Act intended,the Directors threw the whole
effectof the drain of gold on their own reserves. And that hap-
penedin this way. The public has two methodsof drawing
gold from the banking department,namely, by Notes and
Cheques ; but the bankingdepartment hasonly one method
of drawinggoldfrom the issuedepartment,
namely,its Notesia
reserve. And when the bank felt a drain on its banking depart-
ment for gold, it had to replenish it by obtaining a freshsupply
from the issuedepartment; at the sametime giving up an exactly
equal amount of Notes. And thus the whole drain fell on its
own reserves
No legislation can prevent this power of extracting gold

from the Bank by meansof Cheques,exceptprohibiting Cheques
altogether. And thus is explainedthe complete failure of the
" Mechanical" action of the Act to compelthe Directorsto cany
out the " Currency Principle." The Directorswere able to com-
mit, and actually did commit,,the very same error, as they had
done before the Act-which Lord Overstonehad truly saidwas
the fundamentalvice of the Bank principle of 1882-and it was
powerlessto prevent them
And this simplefact completely
upsetsthe wholetheoryof
the Act
There are,in reality, twa leaks to the ship. The framers of
the Act could only perceiveone; and they only provided against
one: and they were utterly astonishedto. find the ship rapidly
sinking from the otherleak, which they had forgotten
13. Now, as-the Act notoriously and manifestly failed on

this most important point, which wasfully and candidly admitted
by Sir Robert Peel,it becomesa natural inquiry to ask why it
failed on.this point,,which it was supposedhad beenrenderedso
secure. We reply to this that the Act failed becauseit aimedat
the wrong mark altogether. It wholly missedthe true yoint in
the case
In former times it wasa mercantiledogmathat the Exchanges
couldonly be against the country in consequenceof its being in-
debtedto other countries. Nothing can be morestriking than the
vicious circle ia which the commercialwitnessesargued before
the Bullion Committeeof 1810. They maintainedwith unflinch-

ing perseverancethat the Exchanges conld only be adverse,
becausethe country was indebted: and as the Exchangeswere
adverse, they maintained that the country must be indebted
(without the slightest inquiry into the fact) because
the Exchanges
were adverse
However, the Bullion Committee completelydisprovedthis
Commercialdogma; and they demonstratedbeyonddispute,that
the depreciatedpaper currency was the causeof the Exchanges
being apparentlyadverse; but that when this depreciatedpapor
currency was reducedto its true value in gold, the Exchanges
werein reality mfavour of the country
The Commercial witnesses maintained that when the indebted-
nesswaspaid off, the drain of buillion would ceaseof itself. But
the Bullion Committee proved that with a paper currency so
depreciatedas Bank Notes then were,the drain would not cease
until all the speciein circulation had left the country, which was
amply verified
The Bullion Committee thus shewed that there are two causes
of a drain of bullion-1st, the indebtedness
of the country; 2nd,
a depreciatedpaper currency
But in the first edition of this Work publishedin 185fi, we
shewedthat thereis a Third causeof a drain of bullion, and aa
adverseexchange,which,howeverit might beknown amongcom-
mercial men,had neveryet, that wehave seen,found its way into
any commercialbook whatever,and most certainly had never
beenbroughtforwardprominentlybeforethepublicin Currency
discussions,
as a causeof an adverseExchange,wholly irrespective
of any indebtedness
of the country,or of the stateof the Paper
Currency
The Principle is this-
That whentheRate of Discount"between
any two placesdiffers
"bymorethansufficient
topay th&costof transmittingBullionfrom
oneflace to the other,Bullion, will flow from where Discountis
lowerto wh&reit is higher
The old mercantiledogmawas that Bills of Exchangecan
onlybe createdto representdebtsarisingfromthe saleof mer-
chandise: and if there are no debts,therewill be no bill« created:
and that whenall the bills arepaid,no morebullionwill go
NEW PRINCIPLE OF CURRENCY 345
But, suppose(the stateof Credit at both placesbeing assumed

to be equallysecure)that the Rate of Discount at Londonwas2
per cent.,while the Rate at Paris was8 per cent.,we shewedthat
bullion dealerswouldfabricatebills-not basedupon anyprevious
debt, or any mercantile transactionswhatever-but simply for
the sakeof being discounted; that is, for the purposeof buying
gold in London at 2 per cent., and selling it in Paris at 8 per
cent.,and this operation will infallibly go on, and the drain of
bullion will not cease,until the Rates of Discount are sonearly
equalisedas to destroythe profits to be madeby fabricating bills.
Hence,if such a state of things, as is just supposed,arises,the
Bank must, as an indispensablemeasureto preserveits own
security,raise its Rate of Discount so as to destroytheseprofits,
and soarrestthe drain which is exclusivelycausedby the difference
of the Ratesin the two places
Now, this practice causesno increaseof Bank Notes in cir-
culation; on the contrary, they are not wanted: it is goldthat is
demandedand taken for export, and it stealsout of the country
noiselesslyand unobserved. Also, if bankersin this countrywill
perverselymaintain theRateof Discountlowerherethan in neigh-
bouring countries, and, therefore,lower than the natural rate^
personsin foreign countries send their debts and securitiesover
herefor sale,and the proceeds areremitted abroad. Consequently
this practice causesan export of gold without diminishing the
notes in circulation. Of all speciesof property, Debts are the
most easilytransportable. The chargesevenon the transmission
of gold are heavy comparedto thoseon the transmissionof Debts.
Debts to any amount can be transmitted from one country to
anotherat the mereexpenseof the postage. Consequently, if the
Americanscan only get £85 per cent for their debtsin their own
country, and they can get £96 per cent, in England, of course
they will send them here in vast quantitiesfor realisation. This
waseminentlyand notoriouslythe casein 1839,when the Bank
of England kept its rate so perverselybelow the natural rate,
and it wasthe causethat aggravatedthe drain of bullion to so
alarming an extent. Hence we have shewn that beyond the
causesuniversally known for an export of specie,namely,pay-
ments of genuineDebts,there is anotherand most potentcause,
whoseimportancehasonly recently beensufficientlyrecognised-
316 T1IEOHY AND PRACTICE OF BANKING
namely,an unnatural depressionof the Rate of Discount, below

that of neighbouringcountries
Now, this principle was certainlynot generallyunderstoodat
the time the Bank Act of 1841 was punsed;and in the first
edition of this Work (185G) we stated this as a fundamental
principle of the Currency-
" An Improperly Low Rate of Discount is,

in its Practical Effects, a Depreciation of the
Currency "
We thereforeshewedthat the only true methodof striking at this

demandfor gold is by raising the Bate of Discount, and
that the true greatpower of governing and controlling the Paper
Currency,or Credit, is by carefully adjusting the Bate of
Discount to the state of the Foreign Exchanges,
and the state of the Bullion in the Bank
Now, the weak point in the Act of 1841,is that it takes no
notice of this grand principle,it takes no precaution that the
Directorsof the Bank of England shall recogniseit, and counter-
act it. On the contrary,it leaves them in full power to repeat
their oft-committederror of causinga depreciationof the Currency
from an.unnaturally low rate of discount
This principle wasextremelyill understoodin 185G,whenour
work was published,and wasvery unpopular; but its truth WHS
soonsignally verified,and acknowledgedto be true by the most
competent authorities. After the great crisis of 1857,a Com-
mittee of the Houseof Commonswas appointedto investigateits
causes,
andMr. GLW. Norman,a Directorof the Bank of Eng-
land, and one of the most prominent and distinguishedadvocates
of the " CurrencyPrinciple,'*and of the Bank Act of 184.4,was
asked--Q.3529. *' Is it not principally by raising the rate of
interest that you check the amount of discountwhich may be
demandedof you ?-Yes; we havefound,contrary to what would
luive beenanticipated,that the power we possess, and which we
exercise,
of raising the Bateof Discount,keepsthe demandupon
us within manageable dimensions. There are other restrictions
which are lessimportant. Therale ive chargefor our discounts^
wefind, in general,is a sufficientcheck"
NEW PRINCIPLE OF CURRENCY 347
In 1SG1,Mr. Goschenpublishedhis Theoryof the Foreign

Kwhanges; in it lie says-
" The efficacyof that corrective of an unfavourablestate of
the Exchanges, on whichwehavebeendilating(i.e.9raising the
rate of discount),has beenmostthoroughlytestedby lateevents.
Every advancein the Bank rate of discounthasbeenfollowedby
a turn of the Exchangesin favour of England, and viceversa,as
soon as the rate of interestwaslowered,the Exchangesbecame
less favourable "
This is nowthe acknowledged

principleuponwhich the Bank
of England is managed;and after our work waspublished,
in
1856,the Usury Laws in Francewere modified in order to enable
the Bankof Franceto adoptit, and,in fact,it is nowuniversally
adoptedby every bank in the world
In former times, when the only communicationbetweendif-
ferent countries wasby meansof sailing shipsand commonroads,
and thereforeveryslow,expensive,
and uncertain,this principle,
though actually true, could seldom be calledinto action, because
the cost and delay of the transport of gold would far exceedany
profit to be made in the differenceof the Eatesof Discountii*
quiet times. It was like some mechanicalforce,which actually
exists,but which is overpoweredand preventedfrom producing
any visible effect,in consequence
of friction. But it did act in
times of commercial crisis, when the rate became extreme. In
1799,enormousfailures took place in Hamburg; discount rose
to 15 per cent., and this rate immediatelydrew away goldfrom
England
But in modern times, since communications have been so
much acceleratedand cheapened,even sincethe Act of 1844,by
meansof railroads and steamers,this friction, as we maycall it,
has beenimmenselydiminished; and this greatprinciple is called
into action with a much less difference between the Eates of Dis-
count than at any former period. Bullion would probablytake
ten days,formerly, to go from London to Paris; it can now go in
ten hours, and at probably the tenth part of the expense. A
differenceof 2 per cent, betweenthe rates of discountin London
and Paris, will now draw bullion from oneplaceto the other
On the Causes
whichcompelled
theSuspension
of the Bank Act
in 1847, 1857, and 1866
14. Themonetarypressure
whichwehavebeenconsidering
passedawayfor the time, but another,much moresevere,cameon
in the autumn,which endedin a monetarypanic, and on the 25th
November,1847,the Governmentauthorisedthe Bank to exceed
the limits allowedby the Act of 1844,if they consideredit neces-
saryso to do to restore commercial confidence. This suspension
of the Act wasperfectlysuccessful;and on two similar occasions,
in 1857 and in 1866, a similar course was followed with similar
icsults. We have given a full narrative of the courseof events
precedingthese panics in a precedingchapter. We must now
only examinethe reasonswhich made this coursenecessary, and
why it was successful
Ever sincethe enormousdevelopmentof ,the Credit systemof
commercein modern times, great commercialfailures have pe-
riodically recurred,producing the most wide-spreaddistress; and
therehave beentwo conflicting Theoriesas to what the actionof
the Bank ought to be in a Monetary Crisis
1. One Theory maintains that in such a Crisis the Bank
shouldliberally expandits issues,to support CommercialCredit.
This Theory may be calledthe Expansive Theory
2. The other Theory maintains that in such a Crisis the
Bank should rigorouslyrestrict its issuesto their usual amount,
or even contract them. This Theory may be called the Re-
strictive theory
Both theseTheorieshave beentried in practice,and discussed
by the most eminent authorities,and we may succinctly examine
the results
The first great monetarycrisis in moderntimes took placein

1763,after the termination of the sevenyears' war. This great
disasteroccurredat Hamburg and Amsterdam,wherethe " Cur-
rency Principle" wasin full operation,and there wasno Banking
Credit whatever,except what representedspecie. The failures
beganat Amsterdam,amongthe principal merchants. The Bank
had no powerto assist them; and the resourcesof the private
bankerswere exhausted. Hearing that the Amsterdam bankers
MONETARY CRISES 349
had determined to allowthe merchants

to fail, theHamburg
bankerswroteto themin thegreatest
alarmto saythat if they
did notsupportthemerchants,
theywouldinstantly suspend
then-
ownpayments.But by the time the letterreached
Amsterdam,
the merchants had already stopped. Generalfailure followed
ab Hamburg, where no business was for sometime transacted but
for readymoney. The failureswereequallygeneralthroughout
Germany. The Crisis extendedto England,and Smith says
that the Bank made advances to merchants to the amount of
a million
Thus weseethat the " Currency Principle" was no protection
whatever against a Monetary Crisis; and on this occasionthe
Bank actedon the Expansive Theory
In 1772 the most severeMonetary Crisis in England since
the SouthSeaSchemetookplace. On this occasion,
again,the
Bank cameforward to supportCommercialCredit
In 1782 our unhappy war with America wasended; and the
usual results of the termination of a great contest took place.
The Bank had greatlyextendedits issues;anda veryalarming
drain of specietookplace,whichat onetimethreatened
to compel
them to stoppayment. The Directors,however,consideredthat
if they could only restrain their issues for a short period, the
returns in speciein paymentof the exportswouldsoonset in in a
morerapid mannerthan they went out. They determined,there-
fore, to make no communicationto the Government,lut, for
the present, to contract their issues until the Exchanges
turned in their favour. The Bank felt the greatest
alarm in May, 1783. They then refusedto make any advances
to the Government on the loan of that year; but they did not
make any demand for payment of their other advances,which
were betweennine and ten millions. They continuedthis policy
up to October,when at length the drain had ceasedfrom the
country, and moneyhad begun to flow in from abroad. At
length,in the autumn,whenthefavourablesignsbegantoappear,
theyadvanced freelyto Government
on theloan,althoughat that
time the cash in the Bank was actually lower than at the time
theyfelt the greatestalarm. It wasthenreduced
to £473,000
The doctrine then stated by Mr. Bosanquetthat guidedthe
Directors was this-That while a drain of speciewas going on,
S50 THEORY AND PRACTICE OF BANKING
their issues shouldbe contractedas much as possible; but, that

as soon as the tide beganto give signs of ceasing,and turning
the other way, it wasthen safeto extendtheir issuesfreely. This
policy had been entirely successful,and the credit of the Bank
\\as saved
15. After the peaceof 1782,the commercialenergiesof the

country weregreatly developed: to carry on this increasedcom-
merce a greatly enlarged currency was necessary; and as the
monopoly of the Bank prevented solid banks being founded,
innumerable tradesmenstarted up in every part of the country
issuing notes. Burke says,thafc when he came to England, in
1750,there were not twelve bankers out of London; in 1702
there were about 400 : the great majority being grocers,tailors,
drapers,andpetty shop-keepers.In the autumnof 1792very
numerousfaihircs took placein Europeand America. In January,
1793,the general alarm was greatly increasedby the rapid pro-
gressof the French Revolution. Somegreat failures occurredin
London in February: and soon the panic spread to the banks.
Of these100 stoppedpayment,and 200 were much shaken. The
pressure
in Londonwas intense; and this naturallyproduced
a
demandon the Bank for support and discounts. But the Bank
being thoroughly alarmed,resolvedto contract its issues: bank-
ruptciesmultiplied with frightful rapidity. The Government
urged the Bank to comeforward to supportCredit,but they
resolutelydeclined
In the meantimethe most alarming newscamefrom Scotland.
The public banks were quite unable,with due regard to their own
safety,to supportthe private bankersand commerce.Unless
they receivedimmediateassistancefrom Government,general
failure would ensue. When universal failure seemed imminent,
Sir John Sinclair rememberedthe precedentof 1697,whenthe
public distresswas allayedby an issueof Exchequerbills. A
Committeeof the Houseof Commonswasappointed,who reported
that the suddendiscredit of so large an amount of bankers'notes
had produceda most inconvenient deficiencyin the circulating
medium; and that unlessa circulating medium was provided,a
generalstoppage must takeplace. Theyrecommended that Ex-
chequerbillsto the amountof £5,000,000shouldbe i.*sued
under
THE CBISIS OP 1797 351
the directionof a Boardof Commissioners

appointedfor the
purpose,in sumsof £100, £50, and £20
No sooner was the Act passedthan the Committee set to
work. A large sum, £70,000, was at once sent down to Man-
chesterand Glasgow,on the strengthof the Exchequer bills,
whichwerenot yet issued. This unexpected supply,comingso
muchearlierthan wasexpected, operatedlike magic,andhada
greater effect in restoring credit than ten times the sumcould
have had at a later period
When the wholebusiness
was concluded,
a reportwaspre-
sentedto the Treasury. It stated that the knowledgethat loans
might be had, operated,in many instances,to preventthembeing
required. The applicationsgranted were 238, and the sum ad-
vancedwas£3,855,6*24. The whole sum advancedwas repaid;
two, only, of the parties assistedbecamebankrupt; all the others
were ultimately solvent, and in many instancespossessed of great
property. A considerablepart of the sumwas repaid beforeit
was due, and all the rest with the utmost punctuality. After
all expenses were paid, the transactionleft a clear profit to the
Government of £4,348
Contemporarywriters all bear witness to the extraordinary
effects produced. Macphersonsays,that the very intimation of
the intentionof the Legislatureto supportthe merchantsoperated
like a charm over the whole country, and in a greatdegreesuper-
sededthe necessityof relief by an almostinstantaneousrestoration
of confidence. Sir Francis Baring concursin this view, and
adducesthe remarkable successof the measureas an argument to
shewthe mistakenpolicy of the Bank. After carefuldeliberation
the Bullion Reportwarmlyapprovedof it; censured
the pro-
ceedings
of theBank; andespecially citeit asan illustration
of
theprincipletheylaiddown,that an enlarged accommodation is
the trueremedyfor that occasional
failureof confidence
to which
oursystem
of PaperCreditisunavoidably
exposed
This occasion,
therefore,is a mostimportantexample
of the
beneficial effects of the Expansive Theory in a monetary
panic
16. Towardsthe end of 1794 the exchanges
beganto fall
rapidly,
andin May,1795,
weresolowthatit wasprofitable
to
352 THEOEY AND PRACTICE OF BACKING
export bullion. While, however,the exchanges were so adverse,

the issues of the Bank T\ereimmenselyextended,from circum-
stanceswhich are too long to state at length here,but which wo
have given already,* and which there is no necessityto detail,
becausethe simplefact is enough that the issue of Bank Notes
wasgi%eatly increasedwhile gold was rapidly leaving the country.
The Directors now becameseriouslyalarmedfor the safety of the
Bank, and took the most rigorous measuresto contract their
issues. In April, 1796, the exchangesbecamefavourable, and
they continuedto be so till February,1797
The excessivecontractionof its issuesby the Bank causedthe
greatest inconvenienceto commerce,and a meeting of bankers
and merchants was held to devise some means of relief. The
failures among the country bankers,in 1798,had causedan im-
mensediminution in the country issues,and Thornton says that
in the last three months of 1796 the issuesof the Bank were no
higherthan theyhadbeenin 1782,with an amountof commerce
many timeslarger than in that year. As the public could not get
Notes,they madea steady and continuous demandfor guineas;
and, although t?i&exchanges werefavourable to the country, and
gold was coming in from abroad,there wasa severedram on the
Bank for gold. Political circumstancesaddedto the alarm,and,
about the middle of February,a stoppageof countrybanksbecame
general. The panic reachedLondon,and a generalrun began
upon,thebankers. Beforethis the Directorshad usedthe mont
violent efforts to contract their issues. In five weeks they
had reduced them by nearly £2,000,000. On the 21st Jan-
uary they were £10,550,880, on the 21st February they were
£8,640,250. But even this gave no true idea of the curtailment
of mercantile accommodation; for the private bankers were
obliged, for their own security, to follow the exampleof the
Bank. In order to meet their paymentspersonswere obliged to
sell their stock of all descriptionsat an enormoussacrifice. The
three per cents,fell to 51!
On Saturday,the 25th February,1797,the speciein the Bank
was reduced to £1,272,000, with the dram becomingseverer
every hour* The Directors now felt that they could hold out no
longer: andon Sundaya CabinetCouncilwasheld andan order
* I'ul, /., p. 519,
THE CRISIS OF 1797 353
in Councilissued,directing the Bank to suspendpayments

in
cashuntil thesenseof Parliamentcouldbetakenon thesubject.
Accordingly,onMonday,the 27th,the cashbeingthenreduced
to
£1,086,170,the Bank suspendedpaymentsin cash,and did not
resumethem partially till 1816,and completelytill 1821
But immediatelythis wasdone,they enlargedtheir accom-
modationliberally; within a weekthey increased
their issues
by two millions, and the relief was very great. A meeting of
4,000 merchants and bankers agreed to support the credit of
the Notes
The most eminent authorities afterwards severelycensured
the managementof the Bank. Thorntonsaid that the excessive
contractionof Noteshad shakenpublic credit of all descriptions,
and had causedan unusuallyseveredemandfor guineas; that
the Bankoughtto haveextendedits issues
to supplytheplaceof
the countryNoteswhichwerediscredited.Boydwasclearlyof
opinion that the excessiverestriction of Notes was the chief cause
of theforcedsaleand depreciationof the publicsecurities.In 1810
the Governorof the Bank said,that after the experienceof the
policy of restriction, many of the Directors repented of the
measure: and the Bullion Committeeexplicitly condemnedthe
policy of the Bank both in 1793and 1797
Nothing, in short,could be more unhappythan their regula-
tion of their issues. Whenthe exchanges wereviolentlyadverse,so
that it wasvery profitable to export gold, they enlargedthem to
nn extravagantextent: and when the exchangeswereextremely
favourable,so that gold wasflowing in, they contractedthem with
mercilessseverity. The issues,which were £14,000,000 when
the exchangeswere against the country, were reduced to
£8,640,250 when they had been for severalmonths eminently
favourable. The entire concurrence of the evidence shews that it
was this excessive restriction of credit which caused the severe
demandfor gold
And nowwe seethe practicalresultsof the two policies: when
all commercialand banking credit wason the vergeof universal
ruin, it wassaved and restored by the Expansive Theory in
1793; in 1797the Eestrictive Theorywascarried out to the
bitter end,and the result was the Stoppage of the
Bank
VOL. II. M
A consideration of all the circumstances induced the Bullion

Committee to condemnthe Restrictive Theory in the most
emphaticterms: andall the greatestmercantileauthoritiesof
that period, including Peel himself, aswe have shewn,in 1810,
entirely concurred in these doctrines: and they said that no
limitation of the Bank's powerof issuecouldever be prescribedat
any period,howeverremote. That period,however,camein 1844
The next great crisis wasin 1825. Ever since the beginning
of 1824 there was a continual drain of bullion, winch the Bank
took no meansto stop. It fell from 18J millions in March, 1824,
steadilyandcontinuously,
to barely8 millionsin November,
1825,
when every one felt a crisis to be impending. The papers
discussedthe policy of the Bank, and ifcwas generally expected.
that it would rigorously contract its macs. The panic beganon
Monday, the 12th of December,1825, with the fall of Polo,
Thornton & Co.,oneof the principal city banks,which drew down
with them forty country banks, A general run began uponall
the city bankers. For three days the Bunk pursueda policy of
the most severerestriction. Mr, Huskissonsaid that daring 48
hours it was impossibleto convert into money,to any extent, the
best securitiesof the Government, Exchequerbills, Bank Stock,
East India Stock,as well as the public funds, were unsaleable,
At last, when universal stoppagewas imminent, the Bank
completely reversed its policy. On Wednesdaythe 14th, it
discountedwith the utmost profuseness.Mr, Ilannan said-
""We lent by every possible means,and in modeswe had never
adopted before ; we took in stock as security; we purchased
Exchequerbills; we made advanceson Exchequerbills, we nofc
only discounted
outright,but wo madeadvances
on depositsof
bills of exchangeto an immense amount: in short by every
possible meansconsistentwith the safety of the Bank, and we
werenot, on someoccasionsover-nice; seeingthe dreadful state
the public were in we renderedevery assistancein our power."
BetweenWednesdayand Saturdaythe Bank issued£5,000,000in
Notes, and sent down to the country a large box of £1 notes
which they accidentallyfound. This bold policy was crowned
with the most complete success;the panic was stayedalmost
immediately,and by Saturday\vasover
SUCCESS 01? THE EXPANSIVE THEORY 355
The circumstancesof this crisis are the most completeand

triumphant exampleof the truth of the principlesof the Bullion
Report, and the Expansive Theory: and signallyvindicate
the wisdom of Peel in 1819, when he refused to adopt the
Restrictive Theory, and imposea numerical limit on the
Bunk's issue
The next crisis was in 1837: but the Bank, foreseeingit,

judiciously anticipated it, and made the most liberal issuesto
houseswhich required it. By thus adoptingthe Expansive
Theory in good time, nothing moreoccurredthan a severemone^
tary pressure,which was prevented from deepeninginto a crisis
entirely by the judicious conduct of the Bank
The Bank Act waspassedamid generalapplause,but, as said

above,on the very first occasionon which its powersweretested,
in April, 18£7, it completelyfailed to compel the Directors to
curry out its principle, and one-third of its bullion ebbedaway,
without any appreciablediminution of the amountof its notesia
circulation
But, in October,1847, a far severercrisis took place. The
Bank made immenseadvancesto otherbanks and houses,to pre-
vent them from stopping payment. But numerousBanks and
CommercialHousesdid stoppayment,and the resourcesof the
Bank were exhausted. At last, after repeateddeputationsto the
Governmentto obtain a relaxation of the Act, and with the stop-
page of the whole commercialworld imminent, the Government
authorised the Bank to issue at discretion. And what was the
result? The panic vanishedin ten minutesI No soonerwas
it known that notesmight be had, if necessary, than the want of
them ceased. The whole issue of Notes,in consequence of this
letter, was only £400,000, and the legal limits of the Act were
not exceeded
Thus, on this occasion again, the Restrictive theory
wholly failed; and the Expansive theory saved the country,
and wasthe onlymeansof savingthe Bankitself from stopping
payment
The next great crisis was in November,1857,which wasfar
more severe,as regards the Bank itself, than that of 1847* Oa
the 12th November,1857,the Bank closedits doorswith the Sum

of £68,085 ia notes; £274,953in gold ; and £41,106 in silver;
being a total sum of £387,144I Suchwere the resourcesof the
Bank of England to begin businesswith on the 13th ! Truly,
saidthe Governor,
it mustentirelyhaveceased
discounting,
which
wouldhavebroughtan immediaterun upon it. The bankers'
balancesalonewere £5,458,000. It is easyfcoseethat the Bank
couldnot havekept its doorsopenfor an hour
On the evening of the 12th the Governmentsent a letter to
the Bank, authorisingthem to issueNotesat their discretion,but
not at a lessrate than 10 per cent.; and next morning the panic,
as before,passedaway
Thus, on this occasion,again, the Restrictive theory
wholly failed: and the Expansive theorysavedthe country:
and wasthe only meansof savingthe Bank itself from stopping
payment
The next great crisiswasin 186G,which wasstill moresevere.
Unfortunately, no investigation was held respectingit, so that
there is no reliableaccountof its circumstances. But speculation
had exceededall due bounds. On the 10th of May therewasa
general run upon all the London batiks. It was said, but we
cannot saywith what truth, that one greatbank alone paid away
£2,000,000in six hours. After banking hoursit becameknown
that the great discount house of Overend,Gurney & Co, had
stopped,with liabilities exceedingten millions-the most stupen-
dous failure that had ever taken place in the city. The result of
such a catastrophewas easilyforeseen; not another bank could
have survivedthe next day ; and that evening the Government
again authorisedthe Bank to issueat discretion,at not lessthan
10 per cent. The Bank advanced£12,225,000in five days; but
the panic passedaway
Thus, again, the Restrictive theory wholly failed: the
Expansive theorysavedthe country, and was the only means
of saving the Bank itself, as well as every other bank, from
stoppingpayment
Thusweseethe entirefailure of Sir Robert Peel'sexpectations.
He took awaythe power of unlimited issuesfrom the Bank, and
imposeda rigorousnumericallimit on its powersof issue,under
the hopethat hehad preventedthe recurrence
of panics. But
SUCCESS OE THE EXPANSIVE THEORY 357
the panicsrecurredwith preciselythesameregularityasbefore;

and, therefore,in this sensetoo, the Act has failed : and when
panicsdooccur,it is decisively
provedthat it is whollyincom-
petent to deal with them
17. It hasbeenseenthat it is a completedelusionto suppose

that the Bank Act carriesout the "Currency Principle." It
might be supposed,perhaps,that if it did reallycarryout the
" CurrencyPrinciple/'it might preventpanicsarising. General
experience,
however,entirelynegativesthis view. In 1764the
most terrible Monetary Crisiswhich had up to that time occurred,
took placein Amsterdam
and Hamburg,wherethe bankswere
really constructedon the " CurrencyPrinciple"
A decisiveexampleof this took placeat Hamburgin 1857. A
similar Monetary Crisis took place there, as here,and the Bank
being constructedon the 4<CurrencyPrinciple," had no powerto
issueNotes to supportCredit. The magistrateswere obliged to
issueCity Bondsto supportthe Credit of the merchants,
exactly
as the Government had issuedExchequerBills in England in
1793. Here, also,the Restrictive theory wholly failed, and
it was found necessaryto adopt the Expansive theory to
avert universal failure
Thesedisasterstook placewheretherewasno Credit Currency
at all, but what representedbullion: and they are conspicuous
examplesthat panicsoccurjust as readily under a purely Metallic
Currencyas under a Paper Currency
The experienceof every other country exactlyconfirmsthe
experienceof England. At Turin the bank was constructedon
some principle of limitation: but, in 1857,during a monetary
panic, it was found necessaryto suspendits constitution, and
allow it to issueNotes to support Credit
The very same thing was conspicuously proved in 1873. In
Austria, in North Germany,and in America,the banks were all
constructedon some analogousprinciple of limitation on their
issues. But in the severemonetarypanicin each of these coun-
tries, it was found necessaryto suspendtheir constitutions,and
authorisethem to issueat discretionto support commercialCredit;
Thus, universally, throughout the world, it is proved by
abundant experience,that the Restrictive theory cannot be
338 TIIEOIIY AND PRACTICE OF BANKING
maintainedafter a monetarypanichas reacheda certain degreeof

intensity; and that it is absolutelynecessary
to adopt the Ex-
pansive theoryto avert universalfailure
18. The supportersof the Act of 18 U strenuouslymaintain

that it is the complementof, and in strict accordancewith the
principlesof the Act of 1819,andthe Bullion Report. But such
statementsare utterly incorrect: and the following are the
fundamentaldifferencesof principle betweenthem-
I. The Bullion Report declaresthat the mere numerical
amountof notesin circulation,at any time, is no criterion whether
they are excessiveor not
The theoryof the framersof the Act is that the Notes in cir-
culation ought to be exactlyequal in quantity to what the gold
coinwould beif therewere no Notes: and that anyexcessof Notes
abovethat quantity is a depreciationof the Currency
Is this principle of the supportersof the Act in accordance
with the principle of the Bullion Report?
II. The Bullion Report declares,and the supportersof the
Act of 1819maintained,that the sole test of the depreciationof
the PaperCurrencyis to be found in the Price of Gold Bullion,
and the state of the Foreign Exchanges
Ricardosays*-u The issuers of paper moneyshouldregulate
their issuessolelyby the price of bullion, and never by the quan-
tity of their paperin circulation. The quantity can neverbe too
great nor too little, while it preservesthe samevalue as the
standard "
According to the supportersof the Act of 1844,the true cri*
terion is whethertheNotesdo or do not exceed
in quantitythe
gold they displace
Is the doctrineof the supportersof the Act of 1844 in ac-
cordancewith the principles of the Bullion Report,and of tho
Act of 1819 ?
III. It was proposedto the BullionCommittee
to imposea
positivelimit on the issuesof the Bank, to curb their powersof
mismanagement. The Bullion Report expresslycondemnsany
positivelimitation of its issues: and Peel,in 1819,and in
fully concurredin this condemnation
* tfoyobulsfor an JZconvnncal
and SecureCuncncy,§ 3»
PRINCIPLES 01? ACTS OF 1819 AND 1844 359
The Bank Act of 1844speciallylimits the issuesor the Bank

Doesthe Bank Act of 184=4 coincidewith the principles of
the Bullion Report and the doctrinesof Peelin 1819 and 1833?
IV. The BullionReport,afterdiscussing
the mostimportant
monetarycrises which had occurred up to that time, expressly
condemns
the Restrictive theory in a monetarypanic,and
says that it may lead to universal ruin; and recommendsthe
Expansive theory
TheBankAct enactsthe Restrictive theoryby Law; and
prevents
the Expansive theoryfrombeingadopted
Does
the*feank
Act of 1844agreewith the doctrines
of the
BullionReport,andof Peelin 1819and1833,on this point?
In 1793 the Bank adoptedthe Restrictive theory; and,
whenall commercewason the brink of ruin, the Government,by
issuing ExchequerBills, adopted the Expansive theory, and
commerce was saved
In 1797 the Restrictive theory was carried out to the
end, and the result wasthe stoppageof theBank
In 18"25the Restrictive theory was adopted for three
days,and whencommercewas on the brink of ruin, it wassud-
denly abandoned; the Expansive theory was adopted,and
commercewasinstantly saved
In 1836a great crisis wasimminent; the Bank, foreseeingit,
adoptedthe boldest measuresbefore it came on, and madeim-
menseadvancesto sustain commercial credit: the policy was
successful,and averteda generalpanic
Peel,in introducing his measureof 1844,said that we must
neveragain have such discreditableoccasionsas 1825,1836, and
1839 : but since 1844 we have had 1847, 1857, and 18C6. Oil
eachof theseoccasionsthe Restrictive theorywas enactedby
Law : and on each occasionthe Governmentwasobliged to come
forward and authorise the Bank to break the Law, to abandon the
Restrictive theory and adopt tLe Expansive theory. And
by so doinguniversalruin wasaverted,andthe Bankitself saved
from stoppingpayment
Experience,therefore,
hasindisputablyprovedthat theBullion
Reportwasframedwith truer wisdomandscientificknowledge of
thePrinciplesof PaperCurrencythanthe BankAct of 1844. The
onlydeficiencyin the Reportwas that it failed to point out the
SGO THEORY AND PRACTICE OF BANKING
propermeansby whichthePapercouldbekept at par with gol<!.

But the true principle of controlling the Paper Currencyis now
well understoodto be by adjustingthe Kate of Discount by
the ForeignExchanges,and the state of the bullion in the Bank
Examination of the Argumentsallegedfor maintaining th$

Barih Act
19. It has now been clearly shewn that the Bank Act has
completely failed both in Theory and Practice* It has
been shewn that it is basedon a Definition of the word " Cur-
rency,"which is entirelyerroneousin Commercial
Law,,and in
Philosophy-that it professes to adopta Theoryof Currency
which it has entirely failed to enforce-that, if the Directors
choose,they can mismanagethe Bank quite aseasily under the
Act as before it. Lord Overstonejustly pointed out that the
radical vice of the Bank principle of 1832 was that the Bank
might be completelydrained of gold without a single notebeing
withdrawn from the hands of the public: the Bank Act was
expresslyframedwith the intention of compellingthe Directorsto
withdraw notesfrom the public exactlyas gold was drawn out of
the Bank. But it wasdecisivelyproved in April, 1847, that the
Bank Act had preciselythe sameradical defectas the Bank prin-
ciple of 1832 ; the Directorsallowedmany millions of gold to bo
withdrawn from the Bank without withdrawing a single noto
from the public, and the pretended" Mechanical" action of tho
Act wholly failed to prevent them doing so-that the Act was
expresslyframedwith the expectationthat it would preventcom"
mercial panics,and that it has wholly failed in doing so: and
hitherto panics have recurredwith the sameregularity as beforo
--and, furthermore,althoughthe Act is in no sensewhateverthe
original causeor sourceof thesecrises,yet, when they dooccur,
and they reacha certain degreeof intensity, the operation of the
Act, by visibly limiting the meansof assistance,deepensa seven*
monetarypressureinto a panic, which can only be allayed by its
suspension, and a violation of its principles
In everyone of these respectstho Bank Act hascompletely
failed: and in regardto thesethings its credit and reputation is
utterly dead and gone. It is, therefore,necessaryto
ARGUMENT IN FAVOUR OF THE ACT 361
fairlythearguments
alleged
in its favour,andthereasons
urged
\\ hy it should still be maintained
Thesupporters
of the Act, allowingthat it hasfailedin some
respects,
yet maintainthat the Directorshaving committedthe
same mischievouserrors as they had done before it, it arrested
their mis-managementmuch sooner than would otherwisehave
beenthe case;and that whenthe panic did occur,it was only
throughthe Act that the Bankhadsix millions of gold to meet
thecrisis; and that, by this means,
the convertibilityof the Note
was secured
Sofar as regardsthe crisis of 1847,it must be admitted that
thereis muchforce and truth in this argument. The Directors
ut that dateshewedthat they had not yet acquiredthe true prin-
ciples of Banking, and it must be concededthat it wasentirely
owing to the Act that they were checkedin their mistakenpolicy
while there wasstill six millions of gold in the Bank
But the sameground of censuredid not apply to the crisis of
1857. In the interval between 1847 and 1857, the Directors
really at last graspedthe true method of controlling the Paper
Currencyby meansof the Bate of Discount. The truth of this
principle wasprobably more enforcedupon their attention by the
limitation imposedby the Act than it would otherwisehave been.
It hasneverbeenallegedthat the crisis of 1857 was in any way
due to the Act. But it is a matter of positivecertainty that since
that datethe Bank has fully recognisedand adoptedthe principle
of governingthe PaperCurrencyby meansof the Eate of Dis-
count. The samerule has beenadoptedby the Bank of France,
nnd this is now the recognisedprinciple by which every Bank is
managed.Certainly,since 1857,there hasnot beena breath
of blameon the generalmanagement
of the Bank. Granting
everymerit whichcanfairly bedue to the Act, that it hascom-
pelledtherecognitionandadoptionof this principlesomeyears
earlierthan it otherwisewould havebeen,it may be said that the
Act has now fulfilled its purpose. It hasdoneall the goodthat
it can do. The Directors now perfectly understand,and have
ever since1857, conductedthe Bank with the greatest success on
soundprinciples. Having,therefore,accomplished
this great
purpose,
theAct hasdoneits work,andhasceased to beneces-
sary; and its operationat other most importanttimesbeing
302 TIIEOUY AND PRACTICE OF BASKING
provedto be injuriousby the mostoverwhelming evidence,it

mayaowbe safelyand advantageously repealed-sofar, at least,
asregardsthe limitationof its powerof issue. And the reason
for the expediencyof this changeis this-
Under the present system of CommercialCredit^there must

be someSourcewith thepowerof issuingundoubtedCredit to
support solvent CommercialHousesin times of Monetc*y Panic
It has beenconclusivelyshewnin the precedingremarks,that
it is entirely futile to expect that Commercial Crises can be
prevented,and that they occur with preciselytl a same violence
in placeswhere there is a purely metallic currency as anywhere
else. Hence the illusions in this respect,on which the Act was
founded,are now completelyvanished
In all cases,houseswhich are clearly insolvent should not bo
supported; they ought to be compelled to stop without any
hesitation. To supportsuchhousesis a fraudupon their creditors.
But under our complicatedsystem of commerce,the Credit of
even the most solvent houses is so intertwined and connected with
others,that no one can tell how far any house,even of the highest
name,is solvent. Consequently,every one is affected by this
universaldiscredit. Many houseswhich are really solvent,may
have their assetslockedup in someform which is not readily con-
vertible. Under suchcircumstancesit is absolutelyindispensable,
to prevent universal ruin, that there should be some source to
afford undoubtedcredit to houseswhich can provetheir solvency.
And there are but two sources from which such credit can bo
issued-the Governmentand the Bank of England
In 1798,'the Bank resolutelyrefusedto support Commercial
Credit,and the Governmentworeobliged to assist solvent houses
with Exchequerbills, and this savedthe commercialcommunity
from ruin* In 1797,the Bankalsorefusedto supportcommerce,
and the result wasits own stoppage. After the stoppage,how-
ever, it largely extended its issues, and commerce was relieved
In everycommercial crisis since 1797, howeversternly the
Bank has adopted the Restrictive Theory at first, it has
ultimatelybeendriven to abandonit, and adopt the Expansive
Theory. In 1825,while the Bank persistedin the Restrict! vo
THE CREDIT SYSTEM 3G3
Theory,someeminentl>inkersstoppedpaymentwith assets worth

40s.in the pound. Two daysafterwardsthe Bankchangedits
policy,andissuednoteswith the mostprofuseliberality,andthe
panicvanished.If the Bankhad adopted this principleat first,
and assistedthosebankerswho werereallysolvent,theywould
havebeensavedfrom stoppingpayment
The verysameprinciplewasdecisivelyprovedin 1847,1857,
and 18GG;the Restrictive Theorywasin thoseyearsenforced
by law. But no Government could maintain the Act and the
Restrictive Theoryto thebitter end,andfacethe consequences
ot" producinguniversalruin in pursuanceof a Theory, which the
most distinguishedauthorities of former times had unanimously
condemned
It is, therefore,irrefragably proved by the unanimousopinion
of the most eminent commercial authorities, and the clear
experienceof 100 years, that the Restrictive Theory in a
commercial crisis is a fatal delusion; and that when a commercial
panic is impending,the only way to avert and allay it is to give
prompt, immediate,and liberal assistanceto all houseswho can
prove themselvesto be solvent j at the same time allowing all
houseswhich are really insolvent to go. Universal experience
provesthat this is the only meansof separatingthe soundfrom
fcheunsound,and averting generalrain by preservingthe former
An Excessive Restriction of Credit producesand

causes a Run for Gold
20* As a matter of fact it is perfectly well known to all

bankersthat an excessiverestriction of credit producesand causes
a run for gold
Sir William Forbes,in his interesting Memoirsof a Banking
House,saysof the crisis of 1703-"These proceedings, which
obviouslyforebodeda risk of hostilities,werethe signalfor a
check on mercantile credit all over the kingdom; and that check
ledby consequence
to a demandon bankers
for themoneydeposited
"
with them,in order to supply the wants of mercantilemen
The Bullion Report expresslyattributes the stoppageof the
Bank in 1797to the mercilessrestriction of Credit
In 1857, discountshad ceasedat the various banks, and a
8C4 THEORY AND PRACTICE OF BANKING
generalrun was commencing

upon them, when the Treasury
letter came: this allayedthe panic, and stoppedthe run
In 186G,matterswerea great deal worse. In consequence of
the restriction on Credit, a most severeand general run took
placeon all the London bankers. The sum paid away during
the paniccan probablynever be known,but it wassomething
perfectlyfabulous. And this generalrun upon the bankerswas
certainly causedand produced by the excessiverestriction of
Credit, causedby the Bank Act
The result of such an Act was most distinctly predictedby
Henry Thornton, one of the joint authors of the Bullion Report,
in his treatiseon the PaperCredit of Great Britain, publishedin
1802. He says-
" Two kinds of error on the subject of the affairs of the Bank
of England have been prevalent. Somepolitical personshave
assumedit to be a principle, that in proportionas the gold of the
Bank lessens,its paper,or, asis sometimessaid,its loans(for the
amountof the one has beenconfoundedwith that of the other),
ought to be reduced. It has been already shewn, that a
maxim of this sort, if strictly followed up, would
lead to universal failure"
The Bank Acfc of 1844 was constructed on this precise
principle, and Thornton's prediction has been strictly verified
Seeing,then, that it is a matter of absolutedemonstration
that it is indispensablynecessarythat there must be somesource
having the powerto issuesolid Credit to supportsolventhouses
in Monetary Panics,it only remains to considerwhether that
sourceshould be the Government,or the Bank-and very con-
vincing reasonsshewthat it ought to be the Bank rather than
the Government
Sucha duty is quite out of the usualline of the Government.
Theymustissuea SpecialCommission
to investigatethe solvency
of those merchants who ask for assistance. Such a Commission
wouldnever be appointeduntil matters had becomevery severe,
and muchsufferingwould be causedby the unnecessary delay
But such a thing is the ordinary and every day businessof
the Bank. The merchantsimplygoesin the ordinaryway of
businessto the Directors,satisfiesthem of his solvency,gives the
accessarysecurity,and receivesthe assistancewithout delay
KATE OP DISCOUNT COKTEOLS CREDIT 365
Theseconsiderations,
aswell asothersthat might beadduced,
shewthat the propersourceto havethis poweris the Bank of
England and not the Government
21. Somepersons, however,

might suppose
that suchanissue
of notesmight turn the ForeignExchangesagainstthe country.
It wasformerlysupposed,andtheideapervaded Sir RobertPeel's
speech,that the ForeignExchangesaremainlyinfluencedby the
numerical amount of Notes issued* But in modern times it has
beenprovedthat the Rateof Discountis an infinitelymorepower-
ful methodof actingon theExchanges than the amountof Notes.
And this maybe saidtobe a newdiscovery sinceSir RobertPeel's
speech; for thereis not a traceof the principle to be found in it.
In former times, certainly, when there were multitudes of Banks
issuing torrents of Notes,theseNotes loweredthe Rate of Dis-
count, and drove bullion out of the country. But under the
modern system,when theseissueshave been happily suppressed,
Jill dangeron this scorehasvanished: and under presentcircum-
stancesno issuesare excessivewhich do not lower the Bate of
Discount
The doctrine laid down in the Bullion Report,and by all the
most eminent authorities of that period, was, that the true
criterion of the proper quantity of Paper Currencywas not in its
numerical amount,but the state of the Foreign Exchangesand
the Market Price of Gold Bullion. This doctrine was true so far
as it went: but unfortunately they never investigatedthe correct
methodof keepingthe Paper Currencyin its proper state. The
principal method thought of until after Sir RobertPeel'stime,
was simply diminishing its numerical amount. It is true that
raising the Rate of Discountwasreckonedamong the subsidiary
methodsof curbing it, but so little wasits true importanceunder-
stood,that it wasnot even mentionedby Sir Robert Peel. Since
his time, however,it has been demonstratedby argument,and
provedby conclusiveexperience,that it is the true supreme
power of controlling the exchanges andthe Paper
Currency, arid that all other methodsare insignificantcom-
paredto it. And sincethe Directorsnowthoroughlyunderstand
andactuponthis principle,theymaybeentrusted with unlimited
Bowers of issue
SG6 THEORY AND PHACTICE (XF BANKING
22. Someable authorities,however,are of opinion that the

Act should be maintained, as it strengthensthe hands of the
Directors in carrying out this principle, and enforcing the rule.
That, without the Act, commercialpressureupon them might
sometimesbe too strong to resist. Whateverforce theremay be
in this argument,it will be found that the other argumentscom-
pletely outweigh it; and, in fact, such an argument naturally
leads us to consider the constitution of the Directorate itself
By a remarkablecustom professionalbankers are excluded
from the Directorate of the Bank, which is exclusivelycomposed
of merchants. It has long been recognisedthat Commercial
Credit and Banking Credit are of two distinct natures,and in
many respectsessentiallyconflicting and antagonistic. The same
personsshouldnot carry on both kinds of business;greatbankers
should not be merchants,and great merchants should not be
bankers. The Duty of a banker frequentlyconflicts with, and
is antagonisticto, the Interest of a merchant, A banker's
duty is to keephimself always in a position to meet his liabilities
on demand; and whenthereis a pressureuponhim, it is his duty
to raise the price of his money. But the Interest of a mer-
chant alwaysis to get accommodation ascheapaspossible. Hence,
as the Directors emanateexclusivelyfrom the Commercialbody,
the Interest of the body from which they come has beenfre-
quently opposedto their Duty as Directorsof the Bank. And,
formerly, it cannot be deniedthat their sympathyfor the body to
which they belongedhas interfered with their proper courseof
action as Directors of the Bank, and hasbeenthe causeof many
errors
The wholeprinciplesof the subject have now beenbrought to

strictly scientific demonstration. If, therefore,the Directorsfind
themselvesunable to withstand Commercialpressure,and fulfil
their undoubtedduty, it would seemto raise the questionwhether
somemodificationof the constitution of the Directoratemight not
be desirable,and whether a certain portion of them, at least,
should not be as unconnectedwith commerceas private bankers
are. There are very good reasonswhy they should not bo
exclusivelytaken from the Commercialbody
The overwhelming weight of practical considerationsis in
favour of restoringthe Bank to its original condition,and abolish-
THE DIRECTORATE OF THE T3A"NK 556?
ing the separation of the two departments; which has been

shewn wasintendedto carry ont a particular Theory, but which
it wholly fails to do. For while timesare quiet, or evenduringa
tolerably severemonetarypressure,the Act is wholly in abeyance,
it is utterly inoperative. But whena real commercialcrisistakes
place, and it totally fails to prevent these,as it wasexpectedto do
-and when that crisis has deepenedbeyonda certain degreeof
intensity, then the Act springsinto actionwith deadlyeffect. It
prevents by Law the only coursebeing adoptedwhich the un-
varying experienceof 100 years has shewnto be indispensable to
avert a panic, namely,a timely and liberal assistanceto solvent
houses: then follows a wild panic; and if the Act wererigorously
maintained, then universal ruin
There is alsoanothercircumstanceof the greatestimportance
to bo observed,but which has not obtainedsufficientnotice. By
the Bank Act of 1883,Bank Notes are made legal tenderonly
whih the Bankpays its Notesin gold on demand. As soon as it
ceasesto do so,no one can be compelledto take them,any more
than any other bank notes. Consequently, if the Bank werecom-
pelled to stop payment in a panic, by enforcingthe Bank Act of
1844, to its last extremity, as it most certainlywould havedone
in 1847, 1857, and 1866,its Notesimmediatelyceaseto be legal
tender by the Bank Act of 1833,and their holders could not
compelany one to receivethem in paymentof a debt
The true object of the Act is to eiisurethe convertibilityof
the Bank Note. But the principle of the Act, or the machinery
devised for that purpose,is merelya meansto that end,and it
has beenprovedto be defective. A better meansof attaining the
object of the Act has been ascertainedand demonstratedto be
true by the strictest scientific reasoning,as well as by abundant
experience,
sincethe passingof the Act,whichis acknowledged
to
be efficacious,and, therefore,the Act is no longernecessary.The
necessityof passingthe Act wasa deepdiscreditto the Directors
of the Bank. It wasa declarationthat theywere not competent
to managetheir own business.But nowthat theyhaveshewn
that theyareperfectlyableto doso,it is nolongernecessary. It
maybesometimes necessary to put a patient into a strait-waist-
coat ; but when the patient is perfectlyrecovered,and is restored
to his right mind, the strait-waistcoatmaybe removed-especially
368 THEORY AND PRACTICE (XF BANKING
as it is found that, undercertaincircumstances,

the strait-waistcoat
not only stranglesthe patient,but scatters
deathand destruction
all around
23. In the debate on Mr, Anderson's motion in the House

of Commons,on the 25th March, 1878, the Chancellorof the
Exchequer, Mr, Lowe, seemedto turn commercial panics into
ridicule. He saidthat we neverhear of military panics,or naval
panics; why, then, should we hearof commercialpanics? He
seemedto considerEnglish merchantsas an inferior breedof men
to English soldiers and English sailors. Tor once the Eight
Honourablegentleman'sacumen was at fault. The analogyis
wholly erroneous. It is the duty of military and naval men to
facedeath; it is their profession. But it is not the duty of com-
mercial men to faceruin with equalequanimity. Underthe
modernsystemof commerce, discountis asnecessary
to commercial
existenceas air is to the life of the body. When the wholecom-
mercial communityseesthe very meansof their existencerapidly
diminishing beforetheir eyes,they naturally rush to obtain Notes
while they can,and on suchoccasionsno raising of the Bate of
Discountcan checkthe demand. If they cannot get Notes,they
run for Gold. Such a state of things naturally and inevitably
produces,and invariably will produce a panic. The analogy
of the Black Hole at Calcutta is much more true. When 150
wretchedmen wereshutup for a wholenight, in a tropical climate,
in a roomlessthan twenty feetsquare,with only one small window
to admit air, they naturally fought and struggledto get near it to
preservetheir existence. Tinder such circumstancesthere was,
and therealwayswould be a panic. So,in the commercialworld,
when they see the very meansof their existencerapidly dimi-
nishing beforetheir eyes,they naturally fight and struggle to get
possession of it, and they alwayswill do so under similar circum-
stances. If the " CurrencyPrinciple" werecarried out to the last
extremity in a Monetary Panic, the survivors of the commercial
communitywould not be proportionatelymorenumerousthan the
survivors of the Black Hole of Calcutta
24. We thus seethat Sir Robert Peel wasgreatly deceived

in his expectationthat the limitation of the Bank's powerof issue
CAUSES OF VAKIOUS CRISES 3G9
>>
would prevent commercialcrises. On this occasionhe erred,a&

so many others have erred,in Economics,by too limited a con-
sideration of facts. It is true that on some occasions the Bank
hadfosteredan over-spiritof speculation
by too profuseanissue
of notes. But commercial crises occur from other causesbesides:
they haveoccurredwhentherewasno profuseissueof notes,and
in placeswheretherewereno notesbeyondbullion. "Whenever
thereareexpectedto be greatfluctuationsin pricesfromwhat*
sver cause arising-either from great scarcity or from great
abundance-fromthe transitionfrom peaceto war,or from war
to peace-from the discoveryof new profitable openingsof every
description-fromgreatdisturbance
in the usualcourseof trade-
the speculativeor gambling propensityis sure to be calledforth,
and lead to a pressuremore or less intense. In 1694 the first
joint stock maniatook place,when there wasno excessive credit.
In 1720 there was no excessive issue of notes. In 1763 there
was no excessiveissue of notes, and the great commercial crises
of that year took place at Amsterdam,where the " Currency
Principle" was in full operation. In 1772 therewere excessive
issuesof notes,which greatly conducedto the crisis. In 1783
the crisis seems to have been due to the transition from war to
peace. Before 1793 there were excessiveissuesof notes by the
miserabletraderswhom the monopolyof the Bank permittedto
grow up as bankers. Previousto 1797 the Bank itself had made
excessiveissues,compelledthereto by Pitt. In 1808 the Bank
greatly fosteredthe spirit of speculation. In 1824 and 1825the
Bank wasfar too long beforeit contractedits issues. Soalsoin
183G and 1839. But in 1847,1857, and in 18G6, the great crises
were in no waywhateverattributable to excessive issues. In 1847
it was excessiverailway speculation. In 1857 it was due to a
seriesof causeswholly irrespectiveof issues,and in that yearthe
severityof the crisisat Hamburg,wherethe"CurrencyPrinciple"
Is carried out, was so great that the Governmentwas obliged
to comeforward to createa solid credit to supportsolventhouses.
In 1866 there were no excessive issues of notes. The most
bigoted opponentof the Bank could by no possibility say that
the crises of 1857 and 1866 were in any way whatever attri-
butable to the Bank, or could, by any possibility have been
averted by any managementof the Bank
VOL. II, BB
The crisis of 1808 wasdue to the suddenopening of the Sonth

American markets. That of 1825to the anticipated profits on
workingforeignmines. That of 1830partlyto the rapidexten-
sion of Joint Stock Banks. That of 1817 to excessive railway
speculations.That of 1857to excessive
trading especiallyin,
America. That of 1800 to the too rapid extensionof Financial
Companieson the limited liability principle. Hencewe seethat
a lawmadeon the suppositionthat all crisesare causedby a single
circumstance,and whoseoperation is only adaptedto that cause,
must necessarilyfail
Sir Eobert Peel was further in error in paying,that during
periodsof commercialcrisis private personsmake advances. It
may, perhaps,happenthat here and there a private person may
assista friend, but, as a generalrule, it is wholly without founda-
tion. It was observed,before the passing of the Act, that in
times of commercialpressurethere was a general tendency to
hoard. This was observed in 1825, in 1886, and in 1H;*9. And
this tendencywasgreatly aggravatedby the Act of 184 I, and \sas
displayedwith far greater intensity in 18i7. When the public
sawthat the Bunk'sreservewasdiminishingso rapidly, and no one
knew what would be done,a general rush \\as made at its nofcs,
and they werehoardedawayin millions. No soonerwas the Act
expendedthan theycameforth in millionsfrom their hiding places,
and the panicpassed away. Therefore,in this fundamentalpoint,
there is no doubt whatever that Sir Robert Peel Man entirely
wrong, and that the allegationof the opponentsof the Act is
strictly justified-that, when a pressurereachesa certain point,
the Act aggravatesand intensifiesit infcoa panic, which can only
be allayed by the suspensionof the Act
Moreover,Sir Eobert Peel was quite mistaken in supposing
that bankersonly make advancesout of lon&fide capital. This
is so fully set forth in the chapteron the Theory of Banking, that
we needonly to remind our readersthat all banking advancesare
made,in the first instance,by creating credit. Every banker
knows perfectlywell that an excessiverestriction of credit causes
and producesa run for gold. "Whenthe banks see that they can
get no assistance from the Bank of England, they must ceasedis-
counting. But if they ceasediscounting,their customershave
still engagements
to meet,which,of course,theywill do aslong
LEGAL DOUBTS AS TO BANKING 371
as they can; and, in orderto do so, they have no other resource

but to draw their balances,and this, of course,will end in making
their bankersstoppayment; and bankersand customerswill fall
together
Many personshave observedthat the variationsin the Rate o£
Discounthavebeenmuch morefrequent sincethe Act than before
it; and they maintain that the Bank Act is the causeof these
variations. In answerto this, it may be saidthat it wasthe very
fixedness of the Rate of Discount in former times that was the
main cause of many calamities; and that if the variations had
beenmore frequent and severe,thesecalamitieswould have been
saved. And as for the frequentvariationssince the Act, it may
be confidentlysaid that the Bank Act is in no waywhatevertheir
cause. Their true cause is the increased knowledge of the true
scientific principles of Banking, and the increasedspeed and
cheapnesswith which bullion now flies from one commercial
centre to another
These considerationsgive a final and conclusiveanswer to
thosepersonswho conceivethat the Rate of Discountcanbe kept
fixed. , Thesevariations are in modemtimes absolutelyindispen-
sable,and the only method by which the Bank can preserveits
security. They must necessarily have been made,had the Bank
Act neverexisted at all. In fact, if this principle of controlling
Paper Currencyhad been understoodand acted upon in former
times, therenever wouldhave beenany necessityfor the Act. It
was the very ignoranceor neglect of this principle which had
brought the Bank into dangerso many timesbefore
25, It is a matter of very seriousdoubt indeedwhetherthe

sweepingwords of the Bank Act of 1844 havenot renderedall
English banking illegal. For the eleventhsectionenacts,in the
broadestpossibleterms,that no banker " shall makeany engage-
ment for the payment of moneypayableto beareron demand."
Now wehaveshewnthe utter misconceptionof the very natureof
banking businessso generallyprevalent,evenamong personswho
might naturally have beenexpectedto have beenbetter informed.
Thus, even Gilbart and Lord Overstoneconsiderthe businessof
banking to consistin borrowingmoneyfroni one set of persons
and lending it to another. So,also,paragraph62 of the Report
372 THEORY AND PRACTICE OF BANKTXG
of the Committee of the House of Commons,on the crisis of 1857;

among other errors and misconceptions,
which we have already
refuted,says-" the tm of Monfy,and thai only,theyregardas
the provinceof a bank,whethera privatepersonor incorporation,
or of the banking departmentof the Bank of England "
Now wehave over and over again pointedout that; this is the
business of a Bill Discounter, aud not of a " Banker." A banker
neverlendsmoney,in the first instance; we have alreadyexplained
that the very essence
of banking is to createCredit, or liabilities
payable to bearer on demand. "We have already shewn* how
completely
Mr. Cardwelland Mr. Wilsonweremistakenasto the
verynatureof the businessof banking. Equallyill informed,
also,wasMill, for, in the earlyeditionsof his PoliticalEconomy,
hehasthis note in his chapteron the Regulationof Currency,
Book III., ch. 24, § 8.-" It would not be to the purposeto say,
by wayof objection,that the obstacle
maybeevadedby granting
the increasedadvancein book credits,to be drawn against by
cheques,
withoutthe aid of banknotes. This is, indeed,possible,
as Mr. Fullarton has remarked,and as I have myself said in a
former chapter. But this substitutefor bank note ntmncy cer-
tainly has not yet beenorganised(//); and the law having clearly
manifested its intention that, in the case supposed,inmased
CreditsshouldnotIBgranted,it is yet a problemwhetherthe law
wouldnot reachwhat might beregardedas an evasionof its pro-
hibitions, or whether deferenceto the law would not produce(as
it has hitherto done!) on the part of banking establishments,
conformityto its spirit and purpose,as well as to its mereletter "
Now what Mill, in this extract,said had never yet beenor-
ganised,happensto be the precisething in which **banking**
consists! It is right to add,that in the later editionsof his
work this paragraphhas beenomitted
But though Mill shewedhis ignoranceof the existing facts in
this case,his admissionis valuable that this practice is a direct
violation of the spirit and purposeof the Bank Act; but whether
it is not also a direct violation of its letter, is very seriously
doubtful
All banking advances,then, arc made by creating Credit, or
Deposits; and whetherthis Credit is transferredfrom one person
* Vol /., Oh. 6, § 7
LEGAL DOUBTS AS TO BANKING 373
to another,
by meansof BankNotes,or Cheques, in no wayaffects
its natureor its quantity. And it is this verythingwhich is
alreadycreatingso muchalarm in the minds of manypersons
when theyseethe huge massof Deposits, or Banking Credits,
reared up by the London banks on so slendera basisof Bullion:
for theseDepositsare,in reality,neither morenor lessthan so
many Bank Notes in disguise
Now, whena banker createsa Credit in his customer'sfavour,
eitherin exchange
for money,or bills,or any other security,by
the fundamental contract betweenbanker and customer,he en-
gages to pay this Credit to his customer,or to any one elseto
whom his customermay assignit: and in token of this he delivers
to his customera book containing blank slips payableto beareron
demand,or to order on demand, called in modern commercial
language, Cheques. The very essenceand businessof banking
consistsin " making engagements to pay moneypayableto bearer
on demand." It may be said,indeed,that a banker is not a party
to the cheque: true, his nameis not on the faceof the instrument,
as an obligor; but he is, ton& fid^ and, in reality, a party to it
so long as he has funds to meetit: for it is a legal liability of his
to pay his customer,or any one his customer may assignit to ;
and by the very fact of his creating the Credit, he authoriseshis
customerto put it into circulation. So long as his customerdoes
not exceed the amount at the credit of his account, the banker is
legally a sleepingpartner to the cheque
Now, supposethat two men agreeto assaila traveller; oneof
them pointsa loadedpistolat the traveller'shead,the otherpulls
the trigger : both are equallyguilty of the murder. Supposeone
man lights a match and gives it to anotherman, and tells him to
set the houseon fire, both are equally guilty of the arson
The very sameargumentapplies to the ordinary routine busi-
ness of banker and customer. The law distinctly says that no
banker "shall make any engagementto pay money payableto
beareron demand." But the ordinaryroutine businessof a banker
is to createa credit in favour of his customerwhich he expressly
authoriseshis customerto make payableto beareron demand,and
put it into circulation. Now,whatis this transaction
but a clear
conspiracybetweenthe banker and the customerto violate the
expresswords of the Bank Charter Act of 1844? The banker
createsthe engagement,and the customerputs it into circulation.

The bankerloadsand pointsthepistolat the BankAct, andthe
customerpulls the trigger: or the banker lights the match and
delivers it to the customer who consumes the Act. How is this
transaction one whit lessa conspiracyin law than in the caseof
the murder or the arson ?
Of course,thewholedifficultyhasbeencreatedby the gross
ignoranceof thosewho drew the Act of the routine businessof
banking: but that is no businessof ours. There stand the
distinct words of the Law; and there are the actual facts of
banking; and it is not possiblefor the wit of man to reconcile
them
The Cheque Bank

26. The subject cannot fail, we think, very soonto engage
the attention of the Courts of Law and the Legislature,for very
recentlya new institution has beenfoundedwhich is still a bolder
contravention,not only of the Bank Charter Act of 1844,but of
all our monetarylegislation for the last 100 years,with a certain
exception
This Bank is called the Cheque Bank, and we will first
describe its method of business,and then compareit with the
existing monetaryLaws
It receivesMoney only, and in exchangefor this money it
issuesan exactlyequal amount of chequespayableto order,and
crossed with the words " & Co."
Thus, supposea personpaysin £50 ; it will give him a book
containing ten chequespayableto order and crossed,and per-
forated with the mark not exceeding£5. The customermay, of
course,fill up the chequewith £5, or any lesssum: but not with
any greater sum: and supposingthat any balanceremainsafter
the customerhas exhaustedthe 10 cheques,the Bank will give
him chequesto the amount of the balance
As the chequesare crossedit pays no moneyover the counter,
but all its chequesmust passthrough the handsof a banker,and
ure only payableto a banker. But though the Bank itself only
pays them to a banker,any banker or other personmay give cash
for them just in the sameway as for an ordinary cheque,arid in
THE CHEQUE BANK 375
the first yearof its existence

ifchasalreadyestablished
relations
with about 1,500 home, foreign, and colonial banks, which will
cashits cheques
Theplanadopted by this Bankobviates
an objectionto which
ordinarycheques areliable: whena customer placesmoneywith
an ordinarybanker,the bankergiveshim a chequebook,but
thereis no securitythat the customermaynot drawcheques in
excessof the credithe hasin theBank: consequently,
no onewho
takesan ordinarychequehasanyguarantee that the drawerhas
any funds to meet it. But this cannothappenwith the cheques
of theCheque
Bank. Theyarenot issuedexceptin exchange
for
money: and any onewho takesone of them is positivelyassured
that it will bepaid. Thesecheques,
therefore,
haveall theactual
securityof cash. They are intendedby the promotersof the bank
to be receivedas a substitute for cash; and alreadyseveralRail-
way and other companieshave agreedto receivethem as cash,
The Directors also proposeto supersedePost OfficeOrders; and
there can be no doubt that they are far more convenient and
cheaperthan Post Office Orders. As the Directors take care to
issueno morechequesthan moneypaid in, theypublicly announce
that none of their chequeswill ever be refused,howeverlong it
mayremainin circulation. Thesechequesare,therefore,in reality,
crossed Bank Notes
Now we do not intend for one moment to questionthe merit,
the ingenuity, and the utility of this Bank. But the questionis,
How doesit consistwith the whole of our monetary legislation
for the last hundred years,as well as with the Bank Act of 1844?
About one hundred years ago many parts of the country were
delugedwith silver notes for 55.and 10$.,and even loss: they
were found suchan intolerablenuisancethat an Act waspassedin
1775to prohibit all notesunder 20s.; and in 1777 anotherAct
was passed,prohibiting all notes under £5. And, with the
exceptionof the period between1797 and 1829,it hasbeen the
inflexible determinationof the Legislatureto prohibit anybanking
obligationspayableto bearoron demand,for lessthan £5, from
being issuedand circulated. And sincethe Bank Act of 1844,
even this right has been restricted to thosebankerswho were in
existenceat that period. No new banks may issue obligations
payableto besureron demand. It waseven for a long timeillegal
to drawcheques for lessthan£5, thoughthat restrictionis now

removed. It is perfectlywell knownthat coin cannotcirculate
alongwith paperof the samedenomination;consequently, for a
hundred years it hasbeen the settled purposeof Parliament that
no papershall comeinto competitionwith the coin of the realm
Now the ChequeBank publicly guaranteesthe paymentof all
its cheques. It is, therefore,avowedly a party to them. What,
then,preventsthem,or is supposed
to preventthem,from being
an expressviolation of the words of the Bank Charter Act ?-
1st. It is said that they areissuedpayableto order on demand,
and not to bearer on demand
Now, this cannot save them from, the penalties of the Act,
because
assoonasthe payeehasindorsedthem,theybecome
pay-
ableto beareron demand; and consequently,the bank is a party
to an obligation payable to beareron demand contrary to the
expresswords of the Act
This subtlety, therefore,will not hold water for an instant
2nd. But thereis a secondone. The chequesare crossed, and,
therefore,they are not literally payableover the counter to bearer
011demand; but only to the bearer'sbanker, or agent,on demand
Now this is the sole subtlety which is supposedto save these
instrumentsfrom being a direct violation of the Bank Act. They
are distinctly Bank Notes-but they are crossedBank Notes,and,
therefore,are supposedto evade,by the skin of their teeth, the
precisewordsof the Act. Nowit is a well knownmaximof law,
that no one shall do indirectly ^hat the law forbids to be done
directly. Now the Law most expresslyforbidsany banking obliga-
tionspayableto beareron demand
to beissued;andit is supposed
that it will allow its solemnpurpose to be set aside by the flimsy
dodgeof making the obligationspayableto bearer'sagenton
demand!
Now whethera Court of Law could,by any possibility,hold that
theseingeniousgentlemen
havesucceeded
in evadingthe precise
Utter of theLaw, we shall saynothing; becausewelittle doubt but
that beforeverylongthe question
will beformallyinvestigated
But therecan be no possibledoubtthat theseinstruments,
thesecrossedBank Notes,are an utter and completeviolation of
the manifestpurpose and intention,not onlyof the BankCharter
Act, but of all ourmonetarylegislationfor the last century. For
THE CHEQUE BANK 377
what is easierthan for the Bankand its customers

to agreeto
maketheseCheques for £1, and put them into circulation? Then
we have at once £1 Bank Notes. So also the chequesfor 105.
and55.arethe old silvernotesbackagain. If theCheque
Bank
maydothis with impunity,whymaynot everyotherbankin the
kingdomdo the same?
The Cheque
Bank professes,
for the presentat least,to issue
its chequesonly in exchangefor cash. But if it does so in
exchangefor casb, what is there to prevent them from issuing
them in exchangefor bills and other securities? And why should
not everyother bank do preciselythe samething, if the Cheque
Bank may? If the crossingis sufficient to savethem from the
penaltiesof the Act, they may equallybe issuedin exchangefor
bills and other securities
No bank discounts a bill, or creates a credit in favour of a
customer, unless it believesits advancesecured. And if it creates
a credit in his favour which he may the very next instant demand
paymentof in cash,it may just as well give him these crossed
Bank Notes,which will probablyremainsometime in circulation.
Thereis nothing wanting but that the banker and the customer
shouldagreeto draw these chequesfor evensumssuchas £5 and
£1, or any others,and we have at once the power of unlimited
issues of Bank Notes restored to the banks
Now if it shouldbe found that the ingenuity of thesegentle-
menhasbeensuccessful, they will have completelypicked the lock
of the Bank Charter Act, and openedthe floodgatesto inundate
the country with boundlessquantities of paper money,which it
has beenthe settled purposeof the Legislatureto suppress
The directors of the Bank, to do them justice, make no secret
of their intentions; they intend to revolutionise the banking
systemof the country, and they will assuredly
do it, if their
experiment
is allowedto proceed.For thisBankis the germof a
system
whichwill reduce
all our monetary
lawsandBankCharter
Acts to waste paper
After the passing of the Bank Act of 1844,a custom sprang
upin some
of theMidlandCounties
of customers
drawing
cheques
on their bankers,which the banker accepted. These,of course,
weresimplyBankNotes: anda clausewasinsertedin the Stamp
A.ctof 1854to precludesuchproceedings
Thus the Legislaturehasmanifestedits fixed determinationto

suppressbankingobligationspayableto bearer on demand; and
whencertainpartieshaddiscovered
whattheythoughta loop-hole
in the Act, Parliamentimmediatelytook care to stopit up. Now,
is it likely that whenthe Law Officersof the Crown and the Chan-
cellor of the Exchequerare fully awareof the inevitable conse-
quenceswhich will, sooneror later, follow the operations of this
Bank, they will suffer it to exist ? ChequeBank chequesare
nothing morethan acceptedcheques,which have alreadybeenput
down by law. The expresspurposeof Parliament is to suppress
unlimited issuesof circulating Banking Credit, and is it likely
that they will permit their fixed determination to be set at nought
by the paltry quibble that these Bank Notes are not payable to
beareron demand,but to learer's ag&nton demand? The in-
genious gentlemenwho devisedthe ChequeBank have laid a
cockatrice'segg, which, if suffered to come to maturity, will
inevitably devourthe Bank Charter Act
27, This circumstance will, no doubt, tend to accelerate what

statesmenof all parties are so anxiousto avoid, a thorough and
searchinginvestigation into the whole of our Banking system.
But, howeverthey may try to stave it off, such an inquiry will
inevitably come. For each succeeding crisis will be more severe
than its predecessor.In 1847,the first crisis after the Act of
1844,the Credit systemwas comparativelysmall; it had greatly
increasedin 1857,and the crisis wasmoresevere; in 1866it had
greatly increased,
and the crisiswas far more terrible; and so it
will bein future. Everyyearthe systemof Credit is attaining
more colossaldimensions,and, like a huge octopus,it now grasps
all classes,
and almost all persons,in its embrace. And, like the
throes of Enceladus,it will periodicallyconvulsethe world, until
it is settledon truescientificprinciples
RISE AND PROGRESSOff JOINT STOCK BANKS 379
CHAPTER XVII
ON THE EISE AND PEOGEESS OF JOINT STOCK

BANKING IN ENGLAND
1. It is very commonlysupposed
that Joint StockBanks
wore not permitted by law in England before 1826,nor in the
metropolistill 1833,but the precedingnarrativeshewsthat this
idea is incorrect. By the commonlaw Joint StockCompanies of
all sorts,including,of course,
banks,areperfectlylegal,andcon-
sequently,if we wish to have a correct idea of the matter, we
must observethis, and then ascertain what changesand modi-
ficationsweremadein the commonlaw by successive
Acts of
Parliament
2. Although the first joint stock mania in England took

placein 1694,no one, at that time, thought of getting up a joint
stock bank, in fact, joint stock bank sharesare the very last thing
any one wouldthink of getting up as a mere speculation. When
the Bank of England wasfounded,it receivedno monopolyin its
favour, and it wasonly in 1697,after the disastrousfailure of the
Laud Bank Scheme,and the ruin of public credit, that the Bank
wasenabledto obtain a monopoly. But even that did not affect
the commonlaw right to establishsuch institutions, it only said
that no rival bank should be erected or countenanced by Par-
liament. None, however, were formed; but, in 1708, another
Company
begandoing bankingbusinessby issuingnotes. The
Bank then, in 1709, obtainedthe clausein the Act of that year,
prohibitingany companyof persons,exceeding
six in number,
from" borrowing,owing, or taking up moneyon their bills,or
notespayableto beareron demand,"which,wehaveshewn,was
the well understoodmeaning of the word "banking" at thai
time. This clause was effectualup to 1742,when,in theAct of

that year,it wasre-enacted in muchmorefull andexplicitterms.
But still the restrictionwasconfinedto borrowing,or owing,
money on their bills, or notes. Consequently,the method of
creating liabilities by meansof entries and cheques,\\hich was
borrowed
from theDutchby our bankers,
wasnot affectedby the
restrictivewordsof the Act. When,therefore,the London bankers
discontinuedtheir issuesof notes, and restricted themselvesto
entriesand cheques,there was no law whatever to prevent joint
stock banks being formed, and carried on by that method. Tins,
however, completelyescapedobservation,and we can have very
little doubt that if this flaw in the monopolyhad beendiscovered,
and an attempt madeto take advantageof it, Parliamentwould
immediatelyhave put it down, and there can be no possibledoubt
but that it wastheir manifestintention to createa completeand
effectualmonopolyon behalf of the Bank, and protect it from any
rival banks of any sort whatever. The effects of this monopoly,
Aowever,weremost disastrous. Bank of England notes had no
circulation beyondLondon, and it would not establishany branches
in the country. No other powerful and wealthybanks could be
formed,the consequence was,that when enterpriseawoke in the
country, in the last quarter of the last century, and there wasa
greatdemandfor an increasedCurrency,all sorts of petty trades-
men in all directions,grocers,linen-drapers,cheesemongers, tailors,
&c., started up and turned " bankers,"i.e., issuers of promissory
notes,so much so, that, in 1798, there were about 400 of these
country " bankers." But, of course,this Paper Currencywasof a
most rotten description,and on the occasionof any great com-
mercialcrisisthey failed by dozens. In the great crisis of 1798,
no lessthan 100 stoppedpayment,and double that numberwere
greatlyshaken. In 1810abouta similarnumberstopped,
a great
number in 1812,and in the three years,1814-15-16,ninety-two
commissions in bankruptcywereissuedagainstbanks,and,allowing
the usual proportion of four suspensionsto one bankruptcy,in
thosethreeyearsaloneabout 360 banks stopped. In twenty-eight
years,from 1791 to 1818, the official return shewsthat 27Scom-
missionswereissuedagainstbankers,or we may fairly assume that
upwardsof 1000 banksstoppedpaymentduring that period. Th£
intolerablehardshipof the monopolyof the Bank Charter may be
FLAW IN THE BANK MONOPOLY 381
conceived,
whenthe Bank,doingnobusiness itself at suchplaces
asBristolor Liverpool,no powerfulbankcouldbeformedat these
placeson accountof it. Theseenormous failures amongthe
country bankers,spreadingruin and desolationthroughout whole
districts of territory, naturally turned public attentionto the
Scotchsystem of banking,where,with the singleexception of the
Ayr bank,therehad beenno failure of a joint stockbank. Mr.
Joplinis theearliestpersonthat weare awareof, whodiscovered
that theCharterof the Bankof Englanddidnot preventbanking
companiesbeingformedwhich did not issuenotes. In a pamphlet,
entitledSupplementaryObservations
to the Third Edition of an
EssayonBanking,&c.,1823,he says,p. 84-" That publicbanks
havenot hitherto existed,moreespecially
in Londonand Lan-
cashire,seems
to haverisenfromthe want of a properknowledge
of the principlesof banking, rather than from the Charter of the
Bank of England,ivhich, I find, doesnot preventpublic banksfor
the depositof capitalfrom beingestablished. . . . That banks
ought to be the permanent depositoriesof the capital of the
country, is an idea which no writer has hitherto entertained,and
the silentoperations
of the Scotchbankshaveeludedobservation.
It has,in fact, always been hitherto consideredthat theproper
businessof a bank was to issue notes and discount bills at short
dates. This is very strikingly exemplifiedby the clausein the
Charter of the Bank of England, which restrictsother banksto
six partners." (Mr. Joplin then quotes the clause,and says-)
" It is quite evidentthat theframersof the aboveclauseconsidered
the businesspursued by the Bank of England the only proper
banking. It appearedto them that preventing bankswith more
than six partnersfrom issuing bills at short dates,or notespayable
on demand,wasaltogetherconferring on the Bank the privilege
of exclusivebanking as a public company. This it did, no doubt,
accordingto their definition of the term, but it still leavesthemost
important part of banking open to the public. Thereis at this
momentno legalimpedimentto theestablishment of joint stockcom-
panies
for tradingin real capital. Both the letter and the spirit
of the Charter has reference to the circulation of bilk and notes
alone. A bank which traded only in capital would not in the
leasttrenchupon the monopolyof the Bank of England, nor be
any infringementof its charter." Thus Mr* Joplin has,asfar as;
weaieaware,themerit of perceiving
the loop-holein theAct, by
meansof which, ten years later, the first joint stock bank was
established in London
3. An attempt,in 1823,to gain the consentof the Bank of

England to give up the privileges of their Charter,so far as to
permit joint stock banks to be formed in the country, ha\ ing
failed,eventhougha bribewasoffered,nothingfurther tookplace
till 1826, \\lien the disastersof the precedingyear being very
generallyattributed to the impropermanagementof the country
banks,the Ministry werepowerfulenough to compelthe Bank to
give up its unjustifiablemonopoly,and at length agreedto permit
joint stock banks to be formed beyondsixty-five milesfrom the
metropolis. The Statute 182G,c. 46, waspassedfor this purpose*
Its chief provisionsare-
I. That banks of an unlimited number of partners may be
formed, and carry on all descriptions of banking businessby
issuingnotesand bills payableon demand,or otherwise,provided
that suchcorporations,or partnerships,shouldnot have any house
of businessor establishmentas bankersin London, or at any place
within sixty-five miles of London ; and that eachmemberof snoh
corporation,or partnership,should be liable for all its debts of
everydescription,contractedwhile he wasa partner, or which fell
due after he becamea partner
II. No such banking companywasto issue,or re-issue,either
directly or indirectly, within the prescribeddistance,any bill or
note payableto beareron demand,or any bank postbill, nor draw
uponits London agentsany bill of exchangepayableon demand,
or for any less sum than £50, but they might draw any bill for
any sumof £50, or upwards,payablein London or elsewhere, at
any periodafter date, or after sight
III* Such banking companieswere expresslyforbidden, bj
themselvesor their agents,to borrow, owe,or take up in London,
or at any placewithin sixty-five miles of London, any sum of
moneyon any of their bills or notespayableon demand,or at any
time less than,six months from the borrowing thereof,but they
might discountin London,or elsewhere,any bill or bills of ex-
change,
not drawnby,or upon themselves,
or by, or upon,any
person in their behalf
JOINT STOCK BANK ACT OF 1826 383
IV. Beforesucha company"beganbusiness,

they wereto make
a return of the names and addresses of all their partners, and
placesfor carrying on business,and the namesof two or moreof
their partners,being residentin England,whowere to be appointed
public officers,and in whosenamesthe companywere to sueand
be sued,which return wasto be verified by oath. And they were
requiredto makereturns of all changesin their body
V. That all proceedingsat law and in equity, civil and
criminal, shall be taken by and againstthe public officersof the
company. All decreesandjudgmentsobtainedagainstsuchpublic
officers should be valid against all and every member of the com-
pany ; and executionupon a judgment againstthe public officer
might be issuedagainst any memberof the company. But that
everysuch public officer or person,againstwhom such execution
was issued,should be fully indemnified by the other membersof
the company; but that no executionshould issue against any
personmore than three yearsafter he had ceasedto be a partner
VI. The Bank of Englandwasauthorisedto establishbranches
at any placein England
VII. Such banking companiesmight issueunstampednotes
upon giving certain securitiesto the Crown,to maketrue returns
of the amount of their issues,and to pay the amountof stamp
duty on them; and they were not obligedto take out morethan
four licensesfor issuingnotesin different places. For any breach
of theseprovisionsin neglectingto sendreturns,the penaltywas
£500 per week, and various penalties were enactedfor false
returns. And every breach of the provisionsrelating to their
banking businesssubjectedthe companyto a penaltyof £50
VIII. The rights and privilegesof the Bank of England were
to remain intact and unaltered,exceptsofar asvaried by that Act
4. Subjectto theserestrictionsupontheir business,this Act

madeno provisionsregarding the constitution or capitalof these
companies. Each one was allowedto devisea constitution for
itself, to nameits own capital, and to makeany public announce-
ment regarding it that it pleased. The formation of joint stock
banks under this Act proceeded very slowly at first, not morethan
four or five being formed in as many years. In fact, suchbanks
couldonly be successfully
formedby influentialpersons,
and,of
384 THEORY ANP PRACTICE OP BANKING
course,each of thesehad alreadyhis own bank, which,he would

naturally be unwilling to injure by the formation of so powerful
a rival. The first joint stock bank was formed at Lancaster,the
next at Bradford, and another at Norwich, before any one was
formed at one of the great manufacturingtowns. It wasnot till
the prosperousyears of 1833-34-35-36,that any very remarkable
increase took placein their numbers. In these years,however,
theymultipliedrapidly,moreespecially
in 1836,whenupwards
of
40 were establishedin the spring
6. On the renewalof the Bank Charterin 1833,it wasdeter-

minedto takeoff the vexatiousrestrictionof preventingbanking
companiesmaking their bills and notesfor lessthan £50, payable
on demandby their agentsin London, And they were required
to keep weekly accounts,to be verified on oath, of the amountof
their notes in circulation,and make a return to the Commissioners
of Stampsof the average
amountin circulationeveryquarter
6, It wasat this time, as we have alreadynoticed,that the
discoverymadein 1822 by Mr. Joplin, that the Bank Charterdid
not prohibit joint stock banks being formedin London,and carry-
ing on their businessin the method then adoptedby the London
Bankers, attracted attention, and, on the casebeing submitted to
the law officersof the crown,they confirmedthis view. The flank
of the monopolyof the Bank of England, as we may say,being
turned in this extraordinaryand unexpectedmanner,excitedmuch
consternationand alarm in that body, and they requestedto have
this omission rectified,but Lord Althorp decidedlyrefusedany-
thing of the sort, and told them that the bargain was that their
privileges should remain as they were,and he would not consent
to any extensionof them. To remove all possibledoubtson the
subject, a declaratoryclausewas inserted in the Bank Charter
Act, expresslypermitting the joint stock banks to be formed,
provided they did not borrow, or take up in England, any sumor
sumsof money,on their bills or notes payableon demand,or at
any less time than six monthsfrom the borrowingthereof. This
declaratoryclausewas not long in being acted upon; and soon
after the Act waspassed,measuresweretaken to constitutea joins
stock bcink in London. This was the London and Westminster
FOUNDATION OF LONDON JOINT STOCK BANKS 385
Bank, which has sincebeen managedwith such distinguished

success
7. The enormous difficulties which must have attended the

successfulorganisationof this great establishmentmay be con-
ceived when we remember that it was not formed under the Joint
Stock Banking Act at all, which had no force within sixty-five
miles of London,but that it wasnothing but an ordinary partner-
ship at commonlaw. One of the least of the inconveniences of
this was that it could not maintain an action at law for the most
trivial debt,without enumeratingall and eachof the partners,and
the slightestmistakein the spellingof a single namewould at that
time have vitiated any proceeding. This bank was the largest
commonlaw partnershipwhich has existed in England; and all
the London joint stock banks which were formed before the Act,
Statute 1844,c. 118, are nothing but commonlaw partnerships.
The excessive inconvenienceattending this state of things, led to
a bill being brought into Parliament to enablethe London and
Westminster Bank to sue and be sued in the name of its chairman.
This waswarmly opposedby the Bank of England, and by Lord
Althorp. Nothing could be more paltry than the reasonsalleged
by himin opposition
to it, but hewasbeatenby a majorityof 141
to 35. The Government,however,had influenceenoughto have
the bill thrown out in the Lords. The Bank being thus defeated,
adoptedthe plan of making all contracts through the mediumof
trustees,and all the London joint stock banks had to adoptthis
plan,tiU the Joint StockBankingAct of 1844. Theotherbanks
formedon a similar plan to the London and Westminsterare,the
London Joint Stock Bank, founded in 1836 ; the Union Bank, in
1839; the London and County Bank, in 1839; and the Com-
mercial Bank, in 1840,which afterwardswoundup its business
8. When the London and Westminster Bank was founded, it

appliedto havea drawingaccountat the Bank of England,and
to be admitted to the Clearing House, and both requestswere
9. A question,however,of very muchgreaterimportance

soon arose. It was a settled question, that no partnership or
VOL. II. CXI
3*86 THECXRYAND PRACTICE OF BANKING
corporationconsistingof morethan six personscould acceptbills,

at any lessdate than six months,no matter whether they were a
oanking partnership or any other. It was clear,therefore,that
the bank could not itself directly accept bills. But it did not
appearthat the words of the Act prohibited trusteesaccepting
bills for a lessdate,on behalf of the Company. Nor, if trustees
could accept,wasthereany thing to prevent them acceptingby
procuration. Consequently,there appearedto be this method
open of circumventing the monopolyof the Bank of England.
On the 21st February,1835,the Bank of St. Albans drew a bill
for £25 upon the London and WestminsterBank, payabletwenty-
one days after date; which, on the twenty-third, was presented
for acceptanceat the London and Westminster Bank, and was
acceptedin the following form-
Accepted,
At 86,TJxrogmorton-st,per procurationol
the trustees of the London and Westminster Bank.
JT, W. GXLBART, Manager*
10. The Bank of England moved for an injunction to

restrainthe Bank from acceptingbills in this form, and, the case
having beenargued,the Court of CommonPleasheld that it was
an infraction of the Bank Charter Act of 18«%%
and the other Acts
then in forcerespectingthe Bank of England. Accordingly, the
Master of the Eolls granted an injunction, restraining them from
acceptingbills at lessthan six months'date* The only result was,
that the Bank paid the bills drawn npon,it, without acceptance.
The Londonand WestminsterBank being defeatedixi this man-
ner, the London Joint Stockenteredthe lists againstthe Bonk of
England in anotherform. It agreedwith a bank in Canada,that
the latter might draw upon Mr. GeorgePollard,who might accept
in his own name,and the London Bank agreedto find the funds
to meetMr. Pollard's acceptances, and such transactionswere to
be matters of account between the two banks, Mr. Pollard was
not a shareholderin the London Bank: but he wastheir manager,
and the transactionwas substantiallyan acceptanceby the bank.
The House of Lords, however,declaredthis ingeniousdeviceto
be illegal, as it was merelydoing indirectly what they were for-
bidden to do directly. Thus endedthe attempts of the London
JOINT STOCK BANK LEGISLATION 387
Joint Stock Banks to free themselvesfrom this monstrous

oppression,from which they werenot relievedtill the Act of 1844
11. It wasalwaysheld at commonlaw that a man could not

suehimself. Consequently,if the sameindividual wasmemberof
two partnerships,they could not go to law against each other.
Theconsequence
of thiswas,that no partnership
couldsueoneof
its members,or viceversa,and if the sameperson had sharesin
two differentbanks,they could not have sued eachother for any
demands,or debts. The Statute 1838, c. 96, was passedto
remedythis anomalous stateof matters; it enactedthat a banking
companymight sue,or be sued,by any of its members,exactlyas
if they wereseparateindividuals; and by the Statute1840,c. Ill,
this was extended to criminal cases,so that if a member of such a
bankingpartnershipstealsor embezzles anypropertybelongingto
it, of any description,or shall commit any offenceagainst it, he
may be indicted, and convictedexactlyas if he werea stranger
12. It being unlawful for spiritual personsto engagein any

trading concerns,and suchpartnershipsof which any of its mem-
berswere spiritual persons,being held to be void and illegal, it
was suddenlyfound that most of the bankingcompaniesin Eng-
landwereillegal, and all their contractsvoid,becausesomeof their
shareholderswere clergymen. The Act, Statute 1841, c. 14, was
passedto remedy
this,anddeclared
thatsuchpartnershipsshould not
beillegalandvoid; andthat their contractsshouldnot beillegal
and void, although someof their shareholders
wereclergymen
13. "Whenthe impedimentsto the formation of joint stock

banks beyondsixty-fivemilesfrom Londonwereremovedin 1826,
they wereleft perfectlyfree as to the provisionsof their deedsof
constitution,their nominal and their paid up capital,and aUthe
details of management,nor were they obliged to publish any
accounts. The public, consequently, were perfectly in the dark
asto the magnitude
andpositionof thebank,because
theymight
advertisethat their nominal capital was£1,000,000,dividedinto
anynumber
ofshares.But no onehadanymeans
of knowing
howmanyof the sharesweretakenandpaidupon. Consequently,
althoughthe capitalof the bank might be advertisedin the
co2
388 THEOET AND PEACTICB OF BANKING
papersas £1,000,000,
no onecouldtell whetherit had bondfid$
£500 paid up
14* The first few Joint stock banks having beenapparently

successful,
naturally turned speculationinto that channel. Num-
bers of new banks were started in all parts of the country, and
many private bankers,fearing that the competitionwould be too
powerfulfor them, united and formedthemselvesinto joint stock
banks. The rapid growth of these establishmentsled to much
mismanagement, and manydisasters,as might have beenexpected,
and Committeesof the Ilouse of Commonswere appointed to
inquireintothe subjectin 1836-37and1840-41
15. The great abuseswhich were revealedin the courseof
theseinquiries determinedSir RobertPeel,who was supposedto
be the minister who, par excellence,
understoodbanking, to bring
in a bill to regulate the future constitutions of these establish-
ments. An Act, containing many elaborateprovisions for this
purpose,wasaccordinglypassed,Statute 1844,c. 113. Fully ad-
mitting theenormousevils which this Act wasintendedto remedy,
we will only say that a more unfortunate specimenof legislation,
or onemoreentirely unsuitable to the nature of the businessit
related to, has not emanated from Parliament in recent times;
and, being found to be an unmitigated nuisance,without any
counterbalancing
advantages,it waswholly repealedin 1857
16. We havealreadysaid that Sir Robert Peel'sJoint Stock

Banking Act, Statute 1844, c, 118,wasfound to be wholly un-
suitable for the purposesit was intended, and totally repealed.
This was doneby theAct, Statute1857,c. 49. The principal
provisionsof the Act are as follows-
L Every Companyformed under the Acts, Statute 1844,
c, 118, or the Statute 181=5,c. 75, were to register themselves
before the 1st January, 1858,under the said Act, under severe
penalties
II. Any BankingCompany,
consisting
of sevenor moreper-
sons,having a capitalof a fixed amount,divided into sharesalso
of a fixed amount,and legallycarrying on thebusinessof banking,
before the passingof the Act, may registeritself under this Act,
LIMITED LIABILITY 389
and then all provisionsof anyAct, letters patent,or deedof settle-

ment, constituting or regulating the Company,as are incon-
sistentwith the Joint StockCompanies'Acts, 1859,1857, or with
the said Act, are thereby repealedin regardto that Company
III. The aboveBankingActs werethen repealedas to any
future companies,
and as to existingcompanies,
as soonasthey
wereregisteredunder this Act
IV, Seven,or more,persons
might registerthemselves
as a
company,other than a limited company,under this Act, provided
theshares
into whichthe capitalof the company
is dividedarenot
less than £100 each
V. The numbersof partners permitted in a private hank is
extended to ten
17, The question of admitting the principle of limited

liability into commercialpartnershipsin this country has long
been debatedwith much acrimony. The old theory of the law
wasexpressed by Lord Eldon, who said that a man who entered
into a commercialpartnership,renderedhimself liable " to his last
shilling and his last acre" for the debtsof the company. And
this, no doubt, was true, as far as regardsordinaryprivate part-
nerships. But many great companieshad been formed and
incorporated,in which the privilege of limited liability was
speciallyconferredupon them. A principle may be good when
appliedto ordinary traders,who are supposedall to take an active
part in the business,and to be eachand all partiesto everytransac-
tion. But in the caseof great companiesit is rather different.
In them the great majority of the partners are speciallydebarred
from all knowledgeof the real nature of the transactions,which
are expresslyleft in the hands of a small committee. jNTow, as
there are many great objects in commercewhich can only be
carried by means of a great company, and it was obviously
desirablethat they should be carried out, it has long been the
practicein grantingActs to thesecompanies
to limit theliability
of the shareholders. This was done in the case of the Bank of
England itself; in railway and other companies,also, almost
universally,in the chartersgranted to Colonial banks. But for a
very long time the applicationof this principle to private partner-
shipsin Englandwasvehemently
resisted.However,
thisresistance
wasovercomein 1855,and in that year an Act waspassed, Statute

1855, c. 133, to permit the formation of joint slock companies
with limited liability. However, although the principle was
conceded as to other companies, joint stock bankswere still most
jealouslyexcluded,on accountof some unintelligible distinction
betweentheir trading and other trailing. In the Joint Hlock
Banking Act, of 1857,this exclusionwasstill strictly maintained.
But the terrible examplesof the failures of joint stock banksin
1857,at last compelledthe Legislatureto yield, and, ixi 3858,an
Act waspassed to extendlimited liability to banks
The chief provisionsof this Act, Statute 1858,c, 91, are-
I. So muchof the last-mentionedStatuteof 1857as prevented
banks being formed on the principle of limited liability was
repealed
II. All bankswhich, issuepromissorynotesare subjectto un-
limited liability, as far as regardstheir notes,for which they are
to beliable, in addition to the sumfor which they are.to be liable
to the generalcreditors
III. Every existing Banking Companymay register itself
tinderthis Act, upon giving thirty days'notice,to each and all of
its customers. Any customerto whom it may fail to send notice
retaining his full rights, as before
IV. All companiesformed, or registering themselves,under
this Act, must, on the 1st Februaryand 1st August, in each year,
postup in a conspicuous placein its headoffice, and eachbranch,
a statementof its liabilities and assets,made up in a form pre-
scribedby the Act
18. When,in the courseof less than,thirty-five years,men

had seenthe whole of England shakenfrom end to end by those
tremendousbankingcatastrophes, which seemedto be of periodical
occurrence,they turned to the exampleof a country where,though
there had been commercialdifficulties,there neverhad beenany
banking disastersat all comparableto thoseof England. Many
private "bankers,
it is true, had failed, but, exceptthe Ayr Bank,
up to 1826,no Joint StockBank in Scotlandhadfailed. A very
strongandgeneral demand, therefore,arose
for the Scotchsystem,
manymen thinking, that because the Scotchbankswerejoint
stockbanks,that, therefore,joint stockbankingwasall that was
FREE TRADE 391
requisiteto attain security. When,therefore,the monopolyof

the Bankwas,to a certainextent,brokenup in 1826,theyex-
pectedto enjoysimilar prosperityand safetyto what Scotlandhad
done,andwhen,afteran experience of fourteenyears,theyfound
that the joint stockbankswerescarcely moresecure,andequally
ill-managed asthe privatebanks,greatand bitter disappointment
ensued,and joint stock banking becamea bye-wordof reproach
But, in truth, the causesof this are very evident. In Scotland
the growth of banking has been extremelygradual. The first
joint stock bank wasfounded in 1695,the secondin 1727,the
next in 1747,and, excepta few countryones,no newone of any
magnitudewas founded till 1810. The consequence was that
they graduallyexpandedwith the increasingwealthof the country.
They grew with its growth. Moreover,they correspondingly
increasedtheir capital. They acquired great experience,after
committing many errors,which brought them to the bnnk of
destruction. When the country required additional accommo-
dation,it was done chiefly by throwing out branchesfrom the
parentestablishmentsin the metropolis,so that they had all the
experience and effectivecontrolof the superiorofficers. At present,
there are but ten distinct establishmentsin the country, but
thesehave 901 branchesextendinginto everyvillage in the king-
dom, so that banking accommodationis ample and abundant.
But these are all independentinstitutions, dependingupontheir
own wealth and resources, and except,perhaps,in the caseof a
suddenrun upon oneof them, never seekingassistance from each
other. To supposethat the English systemof joint stock banking
boreany similarity to this would be a most egregiousfallacy, and
it wasthis differencechiefly which led to those disastrousconse-
quences
whichso completely
falsifiedthe expectations
whichwere
formed on the introduction of Joint Stock Banking into this
country
19. There are, in truth, laws of nature in the industrial

world, as well as in the moral and physicalworld; and a sys-
tematic attempt to violate these terminatesin disaster,as surely
andascertainlyas a systematic
disregardof thelawsof naturein
thephysicalworld. It maybe a long timebeforethe mischiefis
developed,
nay,for a considerabletime, the resultsmayappear
392 THEOKY AND PBACTICE OF BAKKINQ
to bebeneficial,
but, in the long run, the faulty principleis sure
to produceits fruits-
** Rare antecodentem scclestum,
Doseruitpedepomaclaudo."
Now, the greatlaw of nature in the industrial world is Free

Trade. There is nothing more certain in all the range of
science,than that exclusive privileges in commerceare great
violationsof natural right. Trading monopoliesare moral crimes.
When Parliament sold to the Bank of England the exclusive
monopolyof banking, it sold what it had no right to
sell. It had no more right to sell to one body of personsthe
right of carryingon thebusiness
of bankingthan it hadto sella
monopolyof the businessof bookselling,or leather dressing,or
any other tradewhatever. This monopolywas as unjust and as
perniciousas any of thosewhich the Commonsof Elizabeth and
James I. had rebelled against. For a considerableperiodevery-
thing seemedto go well. The Bank of England renderedun-
questionableservicesto the State-so might any other trading
corporationin its line-and any other corporationmight have
done the same,if they had been permitted. But, nevertheless,
the principle of the monopolywasutterly vicious ; and Time, the
Avenger,brought retribution at last. Injustice slumberslong,
but it is sureto have its revengeat last. When, in the natural
courseof events,the commerceand wealth,and increasing spirit
of enterprise,demandedan.increasedCurrency,and, savefor this
monopoly, powerful and wealthy companieswould have beea
formedin the metropolis,with ramifications all over the country,
theseunjustifiableprivileges of the Bank prevented them. The
Bankwouldneithersupplythis Currencyitself,nor permit any
otherpowerfulcompanyto do so. The consequence wasthat the
duty of supplying the necessaryCurrencyfell into the hands of
any grocer,or tailor, or cheesemonger
who choseto call himself
a banker. Their powerwasunlimited. Then came 1703; then
1797; then the long seriesof disastersfrom 1810 to 1816 ; and
then 1825
Whentheseterriblelessons
effected
a breachin the monopoly
of theBank, it wasonly a partial one,a largeportion still remained
and exercisedits deadly influence. When the new joint stock
banks wereformedthey weremerelylocal banks,all as dependent
VICE OF THE BANK MONOPOLY 393
on the Bank of England as the private banks had been. The

Bank maintainedits exclusiveprivilegeswithin sixty-fivemiles
of the metropolis;andthis wasthe inherentvice of the English
systemof joint stockbanking. Insteadof beingindependent
banks, strong in their own resources,and able of their own
strengthto withstanda shock,they werecarriedon uponthe
mostdangerous principleof rediscounting
the bills theybought,
as indeedtheycouldnot helpdoing; thus their veryexistence
depended"uponthe Bank of England andthe Londonbill brokers
20. To supposethat this in any way resembledthe Scotch

systemwould be a gross fallacy; the English banks were for-
bidden to have establishmentsin the metropolis,which, of all
others,is the bestfeatureof the Scotchsystem.Wehavealready
pointedout that capital has a tendencyto accumulatein certain
districts of the country, wherethere is not sufficient demandfor
it, and in others there is a greater demand for it than the district
supplies. Now, in the Englishsystem,the bankersin the former
part of the country remit moneyto London to beheld in deposit
for them, and in the latter the bankers remit their bills to be
rediscounted, and have the moneyremitted. Now,this legitimate
operation,which is all done by one establishmentin Scotland,
requiresthree distinct and independentestablishments to do it
in England, and has given rise to that system of rediscounting
which is so perilousand so objectionable. But it is the natural
result of the monopolyof theSank. Because,if it had not been
for that, thesethreeestablishments wouldall havebeenunderone
control and management;underthe presentsystemthey arethree
different and frequently conflicting interests
And this great violation of natural justice manifestedits evil
consequences
in manyotherstrikingways. No manof common
sensenow disputesthe great principles laid downby the Irish
Committeeof 1804,the Bullion Report of 1810,and the authors
of the Act of 1819,that the Paper Currencymust be governed
by the Exchanges.But long afterthe directorsof theBankof
Englandhad learnt this principle,andprofessedto governher
issuesby the exchanges,
they complainedloudlyand justly that
their efforts to contract their own issues in an adverse exchange
were counteractedby the issuesof the country banks,and that aa
39i THEORY AND PBACTICE OF BANKING
soonas theywithdrewtheir paper,the vacuumwasimmediately

filled up by country issues. The reasonis very manifest. The
Bankof England,beingsituatedat the heart of the exchanges,
felt the danger,and sawthe necessityof contracting her issues;
the country banks,being situatedat a distance,knew and cared
nothing about the exchanges;nay* they continually professed
that their issueshud nothing to do with the exchanges,and
naturally, wheneverthey sawan opening,issuedtheir paper
Now, if it had not been for this iniquitous monopolyof the
Bank, what would probably have been the condition of English
Banking at the present day? There would have probably been
thirty or forty great banks in the metropolis,each as great as
the present Bank of England, with ramificationsand branches
all over the country. It would, in fact, have been the Scotch
system on a much larger scale-one commensuratewith the
greater magnitude of the country. It would have been one
great monetarynervoussystem* If this had been the case,they
would have been acted upon immediately by the exchanges.
London, being the centre of the exchanges,any drain of gold
would have caused immediate measures of counteraction, which
wouldhave beenpropagatedand enforcedby the parent establish-
ment all over the country. The tremor of the exchangeswould
havebeeninstantly felt in every village in the kingdom. Thus,
under a natural system,any eiFectin London would have vibrated
throughall England,and no countrybankscould possiblyhave
actedin. oppositionto the onesin London. And this is the result
to whichthe bankingsystemof the countryis slowlygravitating,
and which it will ultimately assume. And if this, which is the
naturalsystem,
hadbeenallowedto growup fromthe beginning,
webelievethat thosegreatbanking catastrophes
neverwouldhave
occurred.If anycrisis had occurred,
theywouldhavestoodby
and assistedone another,but, when any shock did occurunder
the unfortunate system which has prevailed,the country banks
haveall dependedon the Bant of England for their very
existence
21. It is a melancholyreflectionthat thesegreatchanges

cannot take placewithout producingmuchinjury to private
individuals. The very obnoxiouslaw itself gave birth to the
PROGRESS OF OPINION 395
businessof a number of persons,which the removal of the

shacklesof monopolymust necessarilyextinguish. In 1832,the
banking witnessesfelt that the establishmentof joint stockbanks
wouldbefatal to the existenceof many of the privatebankers,
and somewent so far as to wish to prohibit them on that account.
Sincethese4i yearshavepassed,
we haveundergone
a mighty
revolutionof opinion in commercialmatters. The ideasof that
ageare now as antiquatedand obsoleteasthoseof the menbefore
the flood. Then, the generalpublic was supposedto be madefor
the benefitof eachseparatemonopoly,and interest,and class.
But now that is all changed. It was akin to the greatEicardian
heresy,that cost of production regulatesvalue. Every interest
which had bestowedlabour and expensein making productions,
was allowed to hold the public in thraldom. The value of the
law appearedto be measuredby the quantity of labourbestowed
in masteringits intricacies and technicalities. Obstinatepedants
maintainedit gravely as a valid argument for upholding all the
old abusesof the law, that great and eminentmen had bestowed
so much labour and unhappy diligence in accumulatingsomuch
legal lore. What, said they, is the fruit of so much ingenuityto
be thrown away? In fact, they determinedupon loading the
public with all sorts of oppression,for the sake of preservinga
fictitious valueto so much misdirectedindustry
22. But all theseideasare now pastand gone. They were

congenialto timeswhen education
wasnarrowed
to a smalland
selectcircle, and the generalpublic wasin a state of helplessand
inertignorance.But theyhaveall beensweptawaybeforethe
advancing tideof publicintelligence. It is nowwellsettledthat
the communityin generalis not madefor the benefitof agri-
culturists,or manufacturers,or lawyers,orbankers,or anysetof
menwhatever, but theyarefor the benefitof thecountry. It is
the wantsof the community which must give riseto the valueof
their occupations;andall whoengage
in themmustregardthem
aspurelycommercial
speculations.
Thewantsandrequirements
of all are not to be restricted or mouldedby legislation to be sub-
servientto the advantages
of a few,but the interestof particular
classes
mustbe subordinateto the necessities
of all
23. Wehavecarefullyand purposely

abstainedthroughout
this work from making any invidious comparisonbetweenthe
merits of private and joint stock banking. All we say is, let
eachof them havefull and fair play, and let the public generally
choosewhich they think most suitablefor their purpose. Some
will prefer one,and some the other. Each then will find its own
level; and the public wantswill maintain in existencea sufficient
supplyof each. But it is impossibleto be blind to facts. It is
impossiblenot to seethat the days of the private bankers,gene-
rally, in England, are numbered. A few of the most eminent
may long continue to flourish; houseswhich are an honour to
commerce,and present all the security and power of any joint
stock bank. But it is impossiblenot to see that the force of
nature is againstthem. The connectionsof the joint stock banks
are so numerous,and ramified through all ranks of society,that
inevitable decayawaits the great bulk of private banks. They
will maintain their hereditary and long-establishedconnections
for some time to come, but most of the new business will go to
the joint stock banks. Every caseof failure and mismanagement
of a private banker will tend to shakethe credit of the majority
of the remainder. But no failure of a joint stock bank can
destroythe system,because,howevermuch the shareholdersmay
suffer,the customersand depositorswill seldomsuffer
24* In the session of 1875 a circumstance occurred which

brought out veryclearlythe chaosof absurdity which the banking
lawsof England present
We have shewnthat it has alwaysbeen the cardinal principle
of the ScotchBanksto hold very large reservesin London : and,
as differencesamong them are settled by Drafts upon London,
London is, in fact, the pivot upon which the system rests. A
change in the mode of businessof the Scotch merchants still
further increased the London business of the Scotch Banks.
Thirty yearsago Scotchmerchantsvery rarely acceptedbills pay-
able in London, or thought of having London accounts. But
now it has becomequite the exceptionfor Scotch merchantsof
Glasgow,
Dundee,and othergreat commercialcities,to accepta
bill payablein Scotland. Their remittancesfrom abroad come
homein the shapeof bills drawnupon London,and,of course,
BAKES OF ISSUE COMMITTEE,1875 397
payablethere. Naturally, therefore,Scotch merchantsdomicile

their own acceptances where their own resources are available.
Scotchmerchants,
therefore,havenowan absolute
necessity
for a
London account,and if they cannot get this conveniencefrom
their own bank they must go to a London banker. The business
of the Scotchbankswith their London agentshas becomeenor-
mous. It 7/sssaid that one Bank passed£60,000,000
a year
through its London agency. The Scotch banks have found it
necessary, in their own self defence,and to preservetheir own
custom,to turn their London agenciesinto branches. The Na-
tional Bank of Scotlandopeneda branchin Londonin 1865,and
the Bank of Scotlandin 1872. The charterof the EoyalBank
did not permit it to bank out of Scotland,bnt, in 1873,with the
full consentof the Bank of England, and the English bankers,
it obtainedan Act of Parliament(36 and 37 Yict., c. ccxvii.) to
enableit to opena branch in London, and to carry on banking
there, except only issuing Notes. The bill was carried through
Parliamentby Mr. Goschen. This branchwasopenedin August,
1874. These are the only ScotchBankswhich had then opened
branchesin London. These branches were opened without
evokingany openhostilityfrom the Englishbankers. But, in
1878,in consequence
of the increasingconnection
betweenGlas-
gowandCumberland,the Clydesdale Bankopenedthreebranches
in Cumberland,at Carlisle,Whitehaven,and Workington
This invasion of the English provincesby a Scotch Bank
excited the vehementopposition of the English bankers,both
privateandjoint stock,andin April,1875,
Mr. Goschen,
thevery
gentlemanwhohadtakenchargeof thebill of theEoyalBank
in 1873,at their instancebroughtin a bill to extrudetheScotch
banksfrom England. Theinjusticeof thisproceeding wasmani-
fest, becauseit was directedsolelyagainstthe Scotchbanks,
whereasthe National Bank of Ireland hasnot only a HeadOffice,
but alsoeight branches
in differentpartsof London:bnt not a
word wassaidagainst the Irish Banks
Mr. Stephen
Cave,on behalfof the Government,
moved
an
amendmentto the secondreading of Mr. Goschen'sBill, that " a
SelectCommittee shouldbe appointed
to consider
andreportupon
the restrictionsimposedand privilegesconferredby Law on
bankersauthorisedto make and issuenotesin England,Scotland,
andIreland,respectively,"
which wascarriedwithout a division,
and Mr. Goschen'sbill remainsin suspension-in limbo-neither
pressednor withdrawn
This Committeebeganits sittings on the 19th of April, 1875,
and took evidenceduring 21 days,and reportedthe evidencetaken
to the House, but made no report on the evidencetaken, and
recommendedits reappointmeutin the next session. But the
Committeewasneverreappointed
The primary object of the Committeewas to ascertain the
legality or the contrary of the establishmentof the Scotch
branchesin London. It examinedMr. Fitzjames Stephen,Q.O.,
and Sir Henry Thring, C.B., Parliamentarydraughtsmanto the
Government,personally,as to the state of the Law: and besides
that they had the written opinionsof Sir JamesScarlett (Lord
Abinger), Sir EdwardSugden(Lord St. Leonards),Mr. Richards,
and Mr. EoundellPalmer (Lord Selborne)
"We shall commenceby stating the opinions of these several
Counselon the point
Mr. Stephengave it as his opinion, among other points,inat
-"No joint stock bank which issuesnotes anywhere,exceptthe
joint stock banks in England and more than G5 miles from
London,may carry on businessin any part of England "
He consideredthat all "foreign banks whatever, including
tinder the name ' foreign* not only continentalbanks,but British
banksout of England,that is, Scotch,Irish, and colonial banks,aro
forbidden by the various Acts of Parliament to establishthem-
selvesin any part of England." (Q. 206)
Hedeniedthat the Bank of Amsterdam,
for instance,
could
opena branchin London. (Q. 207.)
Mr. Stephenadmittedthat he had neverturned his attention
to the subjectbefore,and that he had merelybeeninstructed to
look at the matter on behalf of the English bankerssometwo
daysor a weekpreviously;and that he wassomewhat
biassed
by
the side on which he was called. lie also said that he derived
most of his information from the memorandumof Sir Henry
Thring, to be mentionedimmediately
Sir Henry Thring differed so far from Mr. Stephen,that he
thought the ScotchBanks might open branchesin the provinces
beyondthe G5mileslimit, though he spokesomewhatdoubtfully
BANKS OE ISSUE COMMITTEE,1875 399
(Q.404,400). Buthe agreed

with Mr, Stephen
thatit isillegal
to openbranchesin London or within the limit of 65 miles
He alsopresented
a memorandum
to theCommittee
containing
frequent
references
tothesecond
editionof thiswork;andstating
certaingeneralconclusions
he hadarrivedat. " Suchbeingthe
circumstancesof the case,the first questionis whetherit is or is
not legal for Scotch Joint Stock Companybanks of issue to
establishbranchesin England. In answerto that question
it is
submittedthat the prohibitions containedin the Acts of 1697and
1708,and repeated in 1800,are still in force,with the special
modificationintroducedby the Act of 1826,and areperfectly
generalin their terms,and extendto Scotchbanks of issueas well
as to countrybanks of issuein England, and, consequently,that,
with the exception of the Royal Bank of Scotland,which is em-
poweredby Act of Parliament to have a branch in London,all
other branchesbelonging to Scotchbanks of issuein London,or
within 65 miles thereof, are illegal. On the other hand, there
doesnot appearto be any legal prohibition againstthe Clydesdale
Banking Companyestablishing their branchesin Cumberland,
beingat a distanceof morethan 65milesfromLondon"
Sir Henry Thring then presentedsomesuggestionsas to the
policyof expellingthe Clydesdale
Bankby law fromCumberland:
into this considerationwe shall not follow him, as,of course,every
one is entitled to have his own opinion as to expediencyand
policy
The Author of this work having beenexpresslyselectedby the
EoyalCommissioners
for the Digest of the Law to declarethe
Law on all points respectingto Bank Notes,and,moreover,having
beenfrequentlyreferredto in the memorandumpresentedby Sir
HenryThring, and beingperfectlysatisfiedthat therewas no
foundationwhatever for the doctrines laid down by Mr. Stephen
andSir HenryThring, appliedto theChancellor
of theExchequer
to be heard before the Committee, but the Chancellor refused to
hear him. As the opinions given by these learned gentlemen
werecalculatedto strike at suchwide-spreadinterests,he wrote a
letter to the Daily News,which appearedin that paperon the
8th May, 1875, shewingthat the opinionsexpressed
by these
gentlemen
wasquitedestitute
of anyfoundation
Therewere alsopublished,in the appendix,the opinionsgiven
in 1833 by Sir James Scarlett, Sir Edward Sugden, and Mr.

Griffiths,on the question
whetherJoint StockBanksof Deposit
could be establishedin London previouslyto the clausein fche
Bank Charter Act of 1833. All these three gentlemen held that
they could not; they maintained that the wordsof the monopoly
clauseof the Act of 1607,and subsequentAct, includedBanks of
Depositas well as Banksof Issue. But the legal adviser of the
Government,Sir John Campbell,held exactly the reverse: he
held that the monopolyof the Bank of England wasexclusively
restrictedto issuingnotes,and that it was perfectlylegal at Com-
mon Law to establish Joint Stock B$nksof Deposit; and upon
that opinion the Governmentof the day acted, and introduced
the declaratoryclausein the Bank CharterAct of 1838
In 1855 the Clydesdale Bank took the opinion of Mr, Boundell
Palmer (now Lord Selborne)as to whetherit was legal for them
to open branchesin London and other parts of England,and
carry on banking business,except only issuing notes; and Mr.
Palmer gave it as his opinion that it wasperfectlylegal for them
to do so. The opinion of Lord Selborne,therefore,exactly agreed
with the opinionpublishedby us in the Daily Newsof 8th May,
1875
"Wehave already,in Chap,xiii,, § 17, explainedfully the strict
law of the question; and shewnthat any Bank, in any part of the
world,is perfectlyentitled to openbranchesin London,or any
partof England,solongasit doesnot issuenotesin England,
payableon demand, or at any lesstime than six monthsafter
demand
Since then, all the Banks in Scotland,except only the local
onesat Aberdeenand Inverness,have openedbranchesin London;
and the question is now finally set at rest, and will never be
mootedagain
26* In 1858,as we have seen,an Act was passedto enable

Banks to adopt the principle of limited liability. But it was
adoptedin veryfewinstances;as Banksdo not readilychange
their constitution; and they thought that sucha change would
probablyendanger
their credit. But the catastrophe
of the City
of GlasgowBank, in 1878,createdsuchconsternationamongthe
shareholders
of banksthat theymadedeterminedefforts to compel
LIMITED LIABILITY ACT 401
their Directorsto adopt theprincipleof limited liability. This

wasthe case,especiallyin Scotland,where investment in Bank
shareswas recognisedby the Law Courts as a legitimate invest-
mentof trustfunds. But the Trustees
werepersonally liablefor
all callsandlosses
sustained
by thebanks,aswellasto makegood
the losses to their clients
To facilitatethis the Act, Statute,1879,c. 76, waspassed,
which enacts-
I, That any unlimited Companymay increasethe nominal
amount of its Capital by increasingthe nominal amount of its
shares
Provided that no part of such increasedCapital shall be
capableof being called up except in the event of and for the
purposesof the Companybeing wound up
In caseswhere no such increaseof nominal Capital is made,
the Companymay provide that a portion of its uncalledCapital
shall not be capableof being calledup, exceptin the eventof and
for the purposesof the Companybeing woundup
II. A limited Companymay declare that any portion of its
still uncalledfor Capital shall not be capableof being calledup
exceptin theeventof andfor the purposeof the Company
being
wound up
III. All Banksare subject to unlimited liability with respect
to their Notes in circulation
The three senior chartered Bankswere createdCorporations
beforethe Crownwasempoweredby Act of Parliament to create
trading corporationswith unlimited liability : therefore,theyhad
alwaysbeenlimited Banks; and did not require to avail them-
selves of the Act of 1879 to become so. All the other Scotch
Bankswhich were corporationswith unlimited liability, without
lossof time registeredthemselvesas limited companies,
underthe
provisionsof theAct of 1879: and almostall the Joint Stock
Banksin Englandhavedonethe same: andthe resulthasbeen
to shew that the fears which had been entertained that limited
Banks would enjoy less credit than unlimited ones have been
perfectlygroundless
VOL. II,
CHAPTER XVIII
ON THE BUSINESS OP BANKING
1, In modernpracticea Bankermaystandin four relations

to Iris customer-
1. As the Purchaser from him of specieor debts
2. Ashis Agent, Trustee, or Bailee of his specie
and
valuable securities: £&, securities for money and convertible
securities; termedBanking Securities
8. As the Pawnee of the same
4. As his Warehouseman for plate, specie,jewels,deeds,
&c.,not beingBankingSecurities
On tfw Relationof a Banker to his Customeras the Purchaser

from him of Specie,or Specieand Debts
2. The first of these casesis the ordinary one wherea cus-

tomer opensan account
with a bankerby payingia moneyto his
account. The customercedesthe property in the moneyto the
banker,and in exchangefor it the banker writes down a Credit in
his booksto his customer'saccount. This Credit is a Right of
action which the customer has to demandan equalamountof
moneyfrom the banker at anytimehe pleases.ThisCredit,or
Eight of action,is, in modernbankinglanguage,termeda De-*
posit. It is alsotermedan Issue, from exttus; because by
creatingthisCreditthebankerhasissueda Eight of actionagainst
himself. The transactionis, therefore, a sale-an exchangeof
Moneyfor a Debt: and the banker and his customerstandto
each other in the common law relation of Debtor and Creditor
It is alsopart of thefundamental
contractbetween
bankerand
customerthat the customermay transfer his Debt, or Right of
action,to anyoneelsehe pleases,
and the transferee
haathe same
THE BUSINESS OP BANKIKG 403
Eight againstthebanker that hisoriginal creditorhad. If the

transfereeis alsoa customerof the samebanker, he mayeither
demandthe money; or he may direct the banker to transfer the
credit from the transferor's account to his own : and this transfer
of the Credit is in all respectsequivalentto a paymentin money
It must be carefully observedthat in sucha casethe banker is
not in any way the Trustee of his customer'smoney. He has
absolutelybought the money,and may apply it exclusivelyto his
own private benefit or purposes,in any way he pleases: and his
customerhasno legal ground of complaintagainsthim. If, there-
fore,the banker loses the moneyin unfortunate speculations,the
customeris only entitled to receive a portion of the banker's
property, rateably with other creditors
It is not unusualfor personsto say that they have so much
**money"at their banker's. This expression,however,is entirely
"
erroneous. A customer has no money " at his banker's : he has
nothing but a Right of actionto demandso much money
But a Credit in a banker'sbook is so universallyconsideredas
" money,"that if a person makes his will bequeathing" all his
readymoney," " all his debts," " all his moneys,"the sumstanding
at his credit in his banker's books has been held by numerous
decisionsin equity to passunder thesedesignations
The relation betweenbankerand customerbeing strictly that
of Debtor and Creditor, if a customer were to leave a balance in
his banker's handsfor morethan six years,without operating on
it, the Statute of Limitations would take effect, and the banker
might, if he chose,refuseto pay it
Formerly there were three ways in which the creditor of a
banker might transfer his Debt, or Eight of action to another
person-
1. He might givea verbaldirectionto the bankerto payor
transfer the credit to some one else. This, as far as we can ascer-
tain wasthe usualpracticewith the Greeks: it wasalsosometimes
doneat Eome: and it appearsalso to have beensometimesdone
in thedaysof earlyEnglishbanking
But in modernEnglish practice theseCredits,or Debts,are
alwaystransferred
by meansof written documents
2. Either the banker gave the customerhis own promissory
notes,payableto bearer,whichhe mighttransferto anyoneelse.
DD 2
404 TIIEOBYAND PRACTICEOF BANKING
3. Or, the customermight write a Note to his "banker

directingMm to paythemoney
to some
oneelse. SuchaNote
wasformerlytermeda CashNote; in moderncommerce it is
termeda Cheque
It is obviousthat thesepaperdocuments
do not createany
new liability: the liability was created when the banker first
wrote down the Credit in his books: the paper documentsare
only madefor the purposeof transferring a liability which has
beenpreviouslycreated
For various reasonswhich neednot be statedhere,the Legis-
lature hasdeemedit againstthe public interestthat bankersshould
be allowedto issue their own Notes. By the Bank CharterAct
of 1844, bankers who were then issuing their own noteswere
allowedto continuedoing so to a certain limited amount. But no
banker wasallowedto begin to issuenotesafter the 6th of May,
18U : consequently,
at the presentday,exceptthe smallamount
of bankers'noteswhich still survive, Banking Credits can only be
transferredby meansof Cheques
The casewe have been consideringis the simplestbetweena
bankerand a customer,and is called a Drawing or a Current
Account
Somecelebratedbanks in Europe,such as those of Venice,

Amsterdam,Hamburgh, Rotterdam,&c., neverwent any further
than this. They simply bought speciefrom their customers,and,
in exchange,gavethem Credits for the amount in moneyof full
weight. Thus they only exchangedCredit for Specie,and Specie
for Credit, The Credit they created was exactly equal to the
Speciethey bought. It is evident that suchbanks could makeno
profits. TheseCreditswere calledBank Momy
The Post Officeacts as a Bank in two ways-
1. It receivesdepositsas a Savings'Bank, and paysan interest
for their use
2. In exchangefor moneyit grants PostOfficeOrders,payable
at a particularOffice,or PostalOrders,payableat any Office.
This is genuinebanking
When " banking" wasfirst introducedinto England the usual
rate of interestwas 10 percent.,and bankersallowedtheir cus-
TUB BUSINESS OF BANKING 405
toraers6 per cent, on their balances. But with the reduction of

the usualrate of interest,chieflyproducedby the increaseof
bankingandtheinstitutionof the Bankof England,thesehalcyon
daysfor customers soonpassed away. And whenthe usualrate
of interestwas reducedto 3 per cent.,it became
impossiblefor
bankers to allow interest on current accounts. Some Joint Stock
Banks allow a small interest on the condition that the customer's
balance
doesnot fall belowa fixedlimit for a certainperiod
It had alwaysbeena fixed principle of the Banksin Scotland
co allow interest on daily balances
: but this has just been
abolished
But bankersreceivemoneyplacedwith them for fixedperiods,
or only repayableafter a certain notice, upon which they allow
interest, and grant receipts. ThesedocumentsaretermedDeposit
Receipts
It is part of the fundamental contract betweenbankerand
customerthat a customercan transfer his Right of action on a
current accountto any one else ha pleases: but Deposit Eeceipts
are only given payable to the customerhimself: and so by the
commonlaw theseDepositEeceiptswere not transferableso as to
allow the transferee to sue the bank in his own name. But the
transfereemight alwayssuethe bankerin equity. By the Supreme
Court of Judicature Act it is declared that wherever the rules of
Equityconflictwith thoseof theCommon
Lawthe rulesof Equity
shall prevail: consequently,a DepositKcceipt is now as transfer-
ableas a Bank Note or a Cheque: just as a Bill of Exchangeno
longernowrequiresthe words" or order" to makeit transferable
A most important branch of banking consists in giving
customersbills or drafts on distant towns in the samecountry,or
on foreign towns, called Bills of Exchange. This, as we have
alreadysaid,wasoriginatedby the Romanbankers.A " foreign
banker" is a banker who, in exchange for money, gives his
customerbills upon foreign towns, payable at the exchangeof
the day
3. Bankers who merely receivemoneyon current accounts

can, of course,make no profits by such customers. To make
profits they require a different set of customers
406 THEOHY AND PRACTICE OF BANKING
It is the custom in trade to allow three months' credit on

all transactions.In fact,a threemonths'bill is oftendesignated
in trade as "ready money," and for paymentin real ready money
a discount is allowed. But a three months7 bill is inconvenient
for manypurposes
in trade:traderswantrealreadymoney. They
accordinglygo their banker and offer him this threemonths' bill
for sale. If the bankerthinksthe bill a goodonehebuysit from
his customer: that is, he buys the customer'sdebt or right of
action againstanotherperson
But whenhe buys this debt he does not do so with " money'*
as is so often supposed. Ho buys this debt exactlyin the same
way as he bought moneyfrom his former set of customers--with
his own Credit* He writes down to the credit of his customer
the full amount of the bill; and at the sametime he chargesto
his debit the amountof profit agreedupon. And exactlyas in
the former casethe Credit he creates in his customer's favour is
termeda Deposit
The profit agreedupon and subtractedfrom the amount of the
bill is termedDiscount: and to Discounta Bill meansto buy a
Eight of action which one personhas againstanother
When a banker discountsa Bill it is a completeSale of the
Debt. He buysall the Eights which his customerhad againstall
thepartiesto it. He makeshis customerindorseit. Theeffect
of this is, that his customerbecomes
security for the payment of
the bill* The bankerfirst demandspaymentfrom the acceptor,or
principaldebtor,and if ho doesnot payit at maturity,hemust
within twenty-fourhoursgive notice of the dishonourof the Bill
to all the other partiesto it. If he fails to do this, they are all
discharged: biit the acceptorstill continuesliable
Having thus bought the absolutePropertyin this Eight of
action, the banker may, of course,sell it again to any one ho
pleases: this is termed re-discountingthe bill: and if he becomes
bankrupt the bill becomes the property of his assignees
In the looselanguagein which Economicsubjectsarc usually
treated,it is commonlysaid that whena banker discount**a bill
for a customer,he makes him a loan on the security of the bill.
This, however,is a completemisconceptionof the nature of the
transaction. If the bunker merelymadea loan to Inn customer
on the security of the bill, it would be the customer'sduty to
THE BUSINESS OF BANKING 407
repaythe moneyat the time fixed : just as in all other loansit is

the duty of the personreceivingthe moneyto repayit. But a
banker who discountsa bill never,in the first instance,demands
paymentfrom his own customer: he demandspaymentfrom the
acceptor:and if the acceptorpays it duly, the customernever
hearsof, or sees,the bill again. It is only in the event of non-
payment by the acceptor that the banker comesupon his own
customer as security
The transaction is in reality an exchange, or Saleof Debts:
the banker buys a Debt, payableat a future time, by creating a
Debt in his customer'sfavour, payableon demand. This Debt is
termeda Deposit: hencea bankerdoesnot makean advanceout
of his Deposits,as is so often alleged; but he makesan advance
by creating a Deposit
But a banker does, also, often make a Loan to his customer.

If a customer wants an advance, the banker discounts his cus-
tomer'sPromissoryNote; either with or without other partiesas
joint securities. He docsthis in exactlythe sameway ashe dis-
counteda Bill. He buys the PromissoryNote from his customer,
and in exchangefor it he createsa Credit in his favour in his
books,which is termeda Deposit. In this casethe customer
is the principal debtor; and is bound to repaythe Loan,and the
otherpartiesare only called upon in the event of the customer
failing to do so
In creating,however,these Credits, or Deposits,the banker

mustalwayshavestrict regardto the quantityof speciehe pos-
sesses
: so as to meet all demandsfor payment at once: if his
speciegetstoo low, from an unusualdemand,
he must sell,or
re-discount,someof his securities,and so providea fresh supply
of cash
All **banking" profits are madeexclusivelyby meansof

creatingtheseCredits,or Deposits:and, of course,the more
Depositshe can create,the greaterwill be the amountof his
profits.We havealready,
in chaptervi., § 9,explained
thedif-
ferent methods by which these Credits can be utilised without
demandingpaymentin money
These bankingCredits
are,for all practicalpurposes,
thesame
asMoney.Theycannot, of course,be exported like money:but
J.>rall internalpurposes
theyproduce identicallythesameeffects
as an equal amount of money. They are, in fact, Capital
created out of Nothing
"Whattheamountof BankingCreditsmaybe in Englandwe
haveno means of knowing: for manybanksin Englandpublish
no accounts.But in Scotlandwe havea completeaccountof
bunkingstatistics: and, by the officialreturns,it appears
that m
1884there were,in Scotland, £108,582,4.18 of BankingCredits
maintained on a basis of £4,220,258in cash: which was,for all
practical purposes,an augmentationof £104,356,160to the mone-
tary resourcesof the country. It is usuallyestimatedthat the
commerce of Scotlandis aboutone-tenthpart of the commerceof
the wholekingdom. We may,therefore,estimateroughlythat
the total amountof BankingCredits in this country exceeds
£1,000,000,000
4. Thus the student must carefully observethat in the tech-

nical languageof commercea " banker" is a trader who issues
his own Credit, in various forms,for Money and Debts. This
speciesof business,
no doubt, originatedwith the moneychangers:
but yet moneychangingis not " banking." For are " bankers "
moneylenders: in all caseswhatever they issuenothing but their
»wn Credit, which, however,is exchangeablefor money. Ex-
changeoperationsconsistin dealing m specieand bills : dealings
in bills are termed "Banking" operations. Mr. Norman evea
calleddrawing an ordinary bill a " banking expedient"
On theRelationof a BanJcerto his Customer,as his Agent, or

Trustee, or Bailee of Specie, and Banking Securities
5. Besides,however,the simplestand most ordinary relation
betweenbankersand their customers,as exchangersof Moneyand
Debts, bankers do undertake trusts, and enter into fiduciary
relations with their customers. They receive sums of money,
which are specificallydirectedby their customersto be appro-
priated to somespecialpurpose, aswell as securities,
and other
valuableproperty,such as Stock,Shares,&c., to receivethe
dividends,&c.,on behalfof their customers ; theyreceiveBills

of Exchange on behalf of their customers,and collectthem for
their customers,
in exactlythe samemanneras theydofor them-
selves,andareanswerable to themfor anylossincurredthrough
anynegligence in not complying with the knownusages of com-
merce. BiUs of Exchange,Stock,Shares, Exchequer Bills, &o.f
are called Banking Securities
In suchcases asthis, thepropertyin thesevaluablesecurities
doesnot passto the banker; heis the mereAgent, Trustee,
or [Bailee of his customer,and he has to obeyhis specific
instructionsin eachcase,and if he appropriatedthemto his own
use,it would be criminal. Moreover,in the event of his bank-
ruptcy, the property in suchthings would,manifestly,not passto
liis assignees
The temptation to a banker to use, for his own benefit, the
valuablesecuritiesentrusted to his care,is so great in times of
commercial pressure,that it has been enacted,by the Larceny
Act, 24 & 25 Viet. (1861), c. 96, s.75-"As to fraudsby Agents,
Bankers, or Factors.-75. Whosoeverhaving been entrusted,
cither solelyor jointly with any other person,as a Banker,Mer-
chant, Broker, Attorney, or other Agent, with any Money, or
Securityfor the paymentof Money,with any directionin writing
to apply, pay, or deliver such Money or Security, or any part
thereofrespectively,or the proceeds,or anypart of the proceeds of
suchSecurity,for any purpose,or to any personspecifiedin such
direction, shall, in violation of good faith, and contrary to the
terms of suchdirection, in any wise convert to his own use or
benefit,or the useor benefitof any person otherthan the person
by whom he shall have been so entrusted,suchMoney,Security,
or Proceeds,or any part thereof respectively: and whosoever
having been entrusted, either solely or jointly with any other
person,as a Banker, Merchant,Broker, Attorney,or otherAgent,
with any Chattel or valuableSecurity,or any Powerof Attorney
for the sale or transfer of any share or interest in any Public
Stock or Fund, whether of the United Kingdom, or any part
thereof,or of any Foreign State,or in any Stockor Fund of any
Body Corporate,Company,or Society,for safecustody,or for any
specialpurpose,without any authority to sell,negotiate,transfer,
or pledge,shall,in violation of goodfaith, and contraryto the
410 THEOBY
AND PBACTICE
OP BANKING
objector purpose
for whichsuchChattel,
Security,
or Powerof
Attorneyshall havebeenentrustedto him, sell,negotiate,
transfer,
pledge,or in anymannerconvertto his ownuseor benefit,or the
use or benefit of anypersonother than the personby whomhe
shouldhavebeenso entrusted,such Chattelor Security,or the
proceedsof the same,or anypart thereof,or the shareor interest
in the Stock or Fund to which such Powerof Attorneyshall
relate,or anypart thereof,shallbeguilty of a misdemeanour,
and,
being convicted thereof,shall be liable at the discretion of the
Court to be keptin penalservitudefor anyterm not exceeding
sevenyears,andnot lessthan threeyears,or to beimprisonedfor
any term, not exceedingtwo years,with or without hard labour,
and with or withoutsolitaryconfinement"
On the Relation of tfw Banker to Ms Customera$ Pawnee
of Banking Securities
6. In the first of the relations between the banker and his
customerabovedescribed,the banker was the absolutepurchaser
of the Money and Securities of his customer,so that he might do
what he pleasedwith them; in the secondhe was merelyhis
customer's agent,and it is highly penalfor him to appropriate to
his own use any of his customer'ssecurities. A relation inter-
mediate betweenthese two frequentlyexists,in which securities
are depositedby a customerwith hisbanker; the absoluteproperty
in them remains with the customer: but he obtains a loan or
advanceof moneyfrom his bankeron their security,which, when
he pays off, the full property and possessionof his securities
reverts to himself. The banker thus becomes the Pawnee of
his customer's securities,and while he is so,he acquirescertain
Rights overthem,thoughnot exactlya Propertyin them,andit
is out of such cases as these that the most difficult and abstruse
questionsbetween
bankersandtheir customers
arise
It has always been the custom that if a banker makesan
advance,or a loan, to a customer,on the security of bills, &c.,
deposited
with him, hehasthe right to re-pledgeor sellsomuch
of thesesecuritiesas is necessaryto satisfy his own claim. And
this custom is expresslysanctionedin the last recitedclause,which
saysthat nothing in theclauseshallrestrainanybanker " from
selling,transferring,or othenvisedisposingof, anySecuritiesor
Effectsin his possession,

upon which he shall haveanyLien,
Claim, or Demand,entitling him by law so to do, unlesssuch
Sale,Transfer,or other Disposalshall extendto a greaternumber
or part of such Securitiesor Effects than shall be requisitefor
satisfying suchLien, Claim, or Demand"
This principlehasalwaysbeenheldto applywhena banker
makesa loanonthe pledgeof thesesecurities.It is alsoheldto
apply where a customer,having an ordinary account with his
banker, has overdrawn it and become indebted to him: the
banker has the right to retain all lanUng securitiesdeposited
with him by his customersuntil his debt is paid off
7. Questionsof greatnicety frequentlyoccurbetweenbankers

and their customers,and,in the event of the bankruptcyof either
or both of them,their assignees,respectingthe propertyin bills
placed by customersin the hands of their bankers for various
It is a very common practice for customersto placein the

hands of their bankers the bills they receivefor the purposeof
collection
This is very convenientfor the customer. By placing these
bills in the hands of his banker he frees himself from all anxiety
and trouble regarding their safe custodyor preservationfor pay-
ment. The banker is bound, as his customer'sagent,to present
them for payment,and carry them to his customer'scredit assoon
as they are paid. And if he fails to do so, and any loss occurs
through his neglect of the usagesof trade, he is liable to his
customer
For the sake of convenience it is usual to note down the
amount of such bills on the proper day, in the customer'saccount,
in a column " short of " or before the column for cash. Hence
those bills are said to be " entered short," and the banker is said
to hold such bills " short"
This entry is a mere memorandumto remindthe bankerthat
he has such bills to collect for his customer on a certain day.
The sum is in no way placed to his customer'scredit: and the
bills so " held short" are the exclusiveproperty of the customer,
which he is entitled to demandback at any time previousto his
bankruptcy
THEORY AND PRACTICE OP BANKING
ButIn thecaseofthecustomer's bankruptcythebankermust

not deliverup his " shortbills" to him,asall his property
has
vested in his creditors
As " short bills " are merelyintrusted to the banker for the
purposeof collection,if he appropriatedthem to his own use,by
Bellingorpledgingthem,hewouldbeindictableundertheLarceny
Act, 24 & 25 Viet. (1SG1),
c. 96,s. 76
The courseof dealingbetween bankersand their customers in
suchcases oftencreatesperplexity
The point to be ascertained is, whetherat the time of the
bankruptcythe relationbetween the bankerand his customer was
that of Principal and Agent,or that of Debtor and Creditor.
That is, whetherthe propertyin the bills can be ascertainedto
have passedfrom the customerto his banker
In somecountrybanksit is the customto enterthe amountof
suchbills in the cashcolumn,and to permitthe customer
to draw
againstthe amount. But this is a matter of comity, and doesnot
transfer the property in the bills to the banker. They are only
held as collateral securityagainst the advance,and are not dis-
counted. The customer,or his assignees, are entitled to demand
back the bills, in specie,if the account showsa credit balance
without them
Giles Y. Perl&n$t 9 East, 12. Ex pmte Dumas, 1 Atk., 233.
2 Yes., sen., 582. Masparte Oursell, Amb., 297. Thompsonv Giles,
2 B. & C., 422. Ete parte Sargeant, 1 Rose, 153. Jombart v»
Woollen, 2 My. A Or., 389. Ex parte Bond, 1 M. D. & De G., 10.
Ex parte Armitstead, 2 Gl. <feJ., 371. Ex paite Eowton, 17 Ves,,
420. Ex parte Smith, Buck., 855. Expaite Frere, Mont. & Mac.,
203. Ex part* Sailers, 18 Ves., 229. Ex parte Pease,19 Ves., 25.
Ex 'parte Twogood,19 Ves, 227. Ex parte Edwards, 2 M. D. & De
G., 625. Zinck v. Walker, 2 W. Bla.( 1154. Parke v. Ehason, 1
Bast, 544
But if the courseof dealing shewsthat the customerintended

the bankerto considerand dealwith the bills as his own property,
they will not be recoverable
Ex parte Ounell, Amb., 297. Sent v. Puller, 5 T. K., 494. Took*
v. Holhngworth, 5 T. B., 218. Bolton Y. Puller, 1 B. <feP., 539
The bills cannot be held to hayebecomethe property of tho
bunker unlessthe customerhas an immediate Eight of action
againsthim for the full amount,lessthe discount; and the banker

hasacquireda Eight of actionagainstall thepartiesto thebill
On,therelation of a Banker to his Customeras Warehouse-

man of his Plate, Jewels,Specie,Deeds,Securities,<fe.
8. Besidesreceiving money and securitiesfrom their cus-

tomersin the way of banking business,bankersalso receivefrom
their customerschestsof plate, jewels, specie,deeds,securities,
<fcc.,as mere Deposits, for the sake of safe custody in their
strongrooms. In this capacitythey act simplyas Warehouse-
men for their customers,and no property of any description
passesto them in the goodsdeposited
The banker makes no chargefor sucha deposit,he is, there-
fore, a gratuitous Bailee : and he is not liable for any loss that
may occurby the dishonestyof a clerk or servant,provided that
he wasnot awareof his servant'sdishonesty,
and that he exercises
that degreeof care and diligencewhich men of prudencewould
do in their own affairs
Qiblin v. McMuUen,Ii. B., 2 P. 0., 3X7; 38L. J".,P. 0., 25
A banker misappropriatingany such depositsto his own use
"wouldbe indictable under the LarcenyAct, 24 & 25 Viet. (1861),
r 96, s. 75
On 'theAppropriation of Payments
9. 1. If a debtor owes several debts to a creditor he may
appropriate
or imputeanypaymenthemakesto whicheverof the
debtshe pleases,
if he declareshis intention at the time of making
the payment(a)
And suchan appropriationmaybeimpliedfrom circumstances,
eventhoughnot expressly
declared(£)
(a) Anon. Cro.Bhz.,68. PinneVs
case,
5 Co.,117b. Petersv.
Anderson, 5 Taunt., 596. Malcolm v. Scott, 6 Hare, 570. Smith v.
Smith, 9 Beav., 80. Waugh v. Wren, 11 W. 11., 244. Ex parte
Rafael del Sar, 1 De GK& J., 152
(6) Shawv. Picton, 4 B. & 0., 715. Youngv. English,7 Beav.
10. Stoveld v. Bade, 4 Bing., 154. Waters v. Tompkins, 2 0. M.
& B., 723. Knight v. Bowyer,4 Be G-& J.f 619, Pearlv Deacon,
24 Beav.,186. ftlarryats v. White, 2 Stark.,101, Newmarchr.
Clay, 14 East.,239. Taylor v, Kymer,3 B. & Ad., 320. Wright

v. HicUing, L. B., 2 0. P., 199. Nash v. Hodgson, 6 Be G. M. &
G., 474. Henniker v. ITw, 4 Q. B., 792. Williamson v. Jtewrtin-
son, 10 J. B., Moore, 862. Pease v. Hirst, 10 B. &. C., 122.
Wickham v. TFzcfc/iam,2 K. & J., 478
2. If the debtormakesno appropriationat the time of the
payment,the creditor may appropriate it to whichever debt he
pleases(&)
The appropriation is not completeuntil he has notified it to
Ms debtor,but whenit is oncenotifiedhe cannotrevokeit (c)
The creditor cannot appropriate the payment to an illegal
debt (d)
But he may do so to one uponwhich the remedyonly is
barred by a Statute, or by a legal technicality (0)
If one debt be certain, and another doubtful or uncertain,
he mustappropriate
it to the certaindebt (/)
(a) Goddard v. Cox, 2 Stra., 1194. Bloss v. Cutting, 2 Stra.,
1194. Hall v. Wood, 14 East., 243n. Kirly v. Duke of Marl"
borough, 2 M. <&S., 18. Hutchison v. Bell, 1 Taunt., 558. Dawson
v. Remnant, 6 Esp., N. P. C., 24. Peters v. Anderson, 5 Taunt.,
596. Grigg v. Cocks,4 Sim., 438. Bosanquet v. Wray, 6 Taunt
597. Nash v. Hodgson, 6 De G. M. & G-., 474
(&) Philpott v. Jones, 2 A. <feE., 41. Simson v. Ingham, 2 B. &
C. 65. Williams v. Griffith, 5 M. & W., 300. Nash v. Hodgson, 6,
Do G. M. & 0., 474
(c) Eraser v. Btrc7i, 3 Knapp., 380. Bodenham v. Purchas, 2 B.
& Aid., 39. BoyaZ Barafc o/ Scotland v. Christie, 8 0. <fcF., 214.
Wickham, v. Wickham, 2 K. & J., 47S
((2) Wright v. Laing, B B. & 0., 165. So;#ar£e Randleson,2 Pea.
& Oh., 534, JR«6&ans v. Crickett, 1 B. <fe.P., 264
(e) AfiZfev. Fowkes,5 Bing., N. 0., 455. PAiZpottv. /owes,2 A.
<fc K., 41. Cruikshanks v. .Rose,1 Moo. & B. 100. Arnold v.
JBfayoro/ Poole, 4 M. & G., 860. Lamprell v. BtWericay Union, 3
Ezch., 2S3.
{/) Goddardv. Hodges,1 0. & M.,-38. Btwn v. BowZton,
2 0. B.,
476. aoddard T. Cox, 2 Str., 1194. Jamesv. CfciZd,2 Or. & Jer., 678
8. If neither the debtor nor the creditor appropriatesthe pay-
ment,andnonecanbepresumed fromcircumstances,the Lawwill
appropriate
it to thedischarge
of the earlierdebts
Clayton'scase,1 Mer., 608. Bodenham
v. Purchas,2 B. & Aid.,
39. Field v. Carr, 5 Bing., 13. Pembertonv. Oake$,4 Buss., 154.
Simson v. Ingham, 2 B. & C., 65. Brooke v. Enderby, 2 B. <feB.,
70. SterndaU v. Hankinson, 1 Sim., 893. Swfafcv, Wigtey, 3 Mo.
<&Sc., 174. Scale v. Caddick,2 H. & N., 326. Hollond v»Teed,

7 Hare, 50. Biebel v. Springfield, 12 W. B. Q. B., 73. Re Hedewe's
trubt, 26 Beav., 588. Memman v. Ward, 1J. & H., 371. Scott v,
.BeaZe,6 Jur., N S., 559
4. An executorcannot alter a previous appropriationof pay-

ments so as to revive a liability on the estatewhich has already
beenextinguished
Merriman v. Ward, 1 J. <feH,, 371
5. If a customerpays in money to his bankers,specifically

appropriatedto certain purposes,the banker must appropriateit
to thosepurposesonly, and to no other
Cliartered Bank of India, Australia, and China v. Evans, 21,
L. T., N. S.,407. Hitt v. Smith, 12 M. & W., 618
Sandersas Agents or Correspondents of otherBankers

10. 1. Bankersnot only have their own customers,but they
act as agents and correspondentsof other bankers. They are,
therefore,the agentsof an agent
A customerfrequently requireshis banker to perform some
duty for him which can only be done by his employinganother
banker at a distance; and even,sometimes,that agent employing
another agent. In these successiveagencieslossesmayhappen
quite innocentlyin the courseof trade. In all such casesthe
banker originally employedis liable to his customer,becauseit
washe whochosethe agentwho madethe loss: or who chosethe
agent who chose the agentwho made the loss. Therefore,the
first banker must bear the lossas regardshis customer,and then
have recourseagainsthis own agent
Lord, North's case, Dyer, 161. Matthews v. Haydon,"2 Esp., N,
P. 0., 509. Mackersy v. Ramsays, 9 01.<feFin., 818
2. If a customerpaysin a sum of moneyto his own bankers,
with directions to him to remit it to another banker, and the first
banker fails beforehe hasdoneso, the propertyin it remainswith
the customer
Farley v* Turner',26L. J. Chanc.,710
TheBankruptcy of a Customer: Set-off tm&

Mutual Credit
11.1.Directlyacustomer
isbankrupt
heiscommercially
dead
416 TIIEOUY AKD PRACTICE OF BANKING
and he haslost all powerto dealwith hisproperty,whichis gone

to his creditors
Consequently,a banker may receivemoney on a bankrupt
customer'saccount,becausehe doesMO as trustee,for the creditors;
bat he must not pay awayany moneyto his customer'sorder aftor
notice of his bankruptcy,and if he doesso,he will have to refund
it to the creditors,and he will not be allowedto prove for it under
the fiat
Vernonv. Hantoy, 2 T. B., 113
2. Where a bank, by special agreement with a customer,
retaineda sum of moneyas securityfor bills discounted,and the
customerafterwards becomesbankrupt, it was held entitled to
retain this sumagainstthe assignees
The Chartered Bank of India, Australia, and China v. Evans, 21
Ii. T., N. S., 407
8. On the bankruptcyof a customer,each bill of his under
discount is to be treated as a separatedebt, and the bank cannot
recover the full amount of the bill from the other parties,and
receivethe dividend upon it from the bankrupt'sestateas well
MXparte Hornby, Do G., 69. Ex parte Holmes, 4 Deac., 82. 33%
parte SrooK, 2 Eoso, 33Jt
4. A banker, knowing that his customerhad committed an
act of bankruptcy, took from a surety,who did not know of this
act of bankruptcy, a guaranty to secureall debts then, or to
become,due from the customerto a given amount; which the
suretypaidwithoutspecifyingwhichportionof the debtit should
be appliedto. Held that it was to be appliedto the portion
proveableunderthe fiat,andnotthat whichwasnot provcable
Ex parte Sharp,3 M. B. & Bo Or.,490
5. A creditor generally may apply any security he holds to
dischargewhicheverdebt of the bankrupt debtorho pleases
Ex parte Haward: ex parte Arlley, Cooko's Bank. Laws, 147,148.
Ex parte Hunter, 6 Yos.» 94. Ex parte Johnson, 8 Be G. M. <fe
G,, 218
6. The holderof a bill of exchangehasno Lien on any securi*

ties given by the drawerto the acceptorto protect his acceptance,
so long as the partiesare solvent: but if they fail, the holderhas
then a Lien on thesesecuritiesto dischargethe bill
7. But this doctrinedoes not apply whenthe draweehasnot
acceptedthe bills (a); nor in any casewherethe creditor has not
SET-OFF AND MUTUAL CBEDIT 417
double
rightsagainstbothfirms(Z>)
; norwheneitherthedrawer
or acceptoris a Joint Stock Company,which has been ordered
to be woundup, unlessit can be shewnthat the Companyis
insolvent (c)
(a) Exparte Waring, 19 Ves., 345
(I) Vaughanv. Halliday, L. E., 9 Ch. ApM561
(c) Hickie & Co.'s case,L. E., 4 E<j., 226
8. Set-offand MutualCredit. By the common
lawof England
if two persons weremutuallyindebted,andonebroughtan action
against the other for payment of his debt, the other could not
pleadthat the first wasalso indebted to him; he was obliged to
pay his debt first; and then, if he chose,he might bring an
action to recoverpaymentof his own debt
The Courts of Equity, however, adopting the Law of the
Pandectsof Justinian, recognisedthe principle that when two
parties weremutually indebted,the debt of one shouldbe set-off,
or subtractedfrom the other, and the balanceonly should be pay-
able. The want of this practice in law wasfound, as commerce
increased,to be productiveof greatinjustice in the caseof bank-
rupts. Personswho oweddebts to bankruptswereobliged to pay
their debts in full, and then they receivedonly a dividend on
what the bankrupt owedthem
The principle of set-offwas allowedin the caseof bankrupts,
by Statute 4 Anne,c. 17, and afterwardsin the Insolvent Debtors'
Act
At last two generalStatuteswere passed, 2 Geo.II., c. 22,
8. 13, and 8 Geo.II., c. 24, s. 1, calledthe Statutesof Set-off,
which gavea generalright of set-off,or Compensation, in the
caseof mutual debts: that is, in the caseof ascertainedmoney
demands
But, under these Statutes, the respectiveclaims must be
existinglegaldebts: hence,a debt couldnot be set-offagainst
damages soughtto berecovered in anaction: as,if a bankerhad
damaged his customer'screditby his conduct,a debtowedto him
by his customer couldnot be set-offagainstit. Nor cana debt
barredby the Statuteof Limitationsbeset-offagainstan existing
one. Norby theseStatutescoulda debt,onlyto ariseat a future
time,ason a bill or notenot yetdue,beset-offagainstan existing
debt
VOL. II. JSB
418 THEOIIY AND PRACTICE OF BANKING
Thedebts,
therefore,
mustbe dueandpayable
at thetimeof
the action, and alsoat the trial
Braithwaite v. Coleman, 4 N. <feM., 654. Hutehinson v. Reid,
a Camp.,320. Eytonv. Littledale, 7 D. <&L., 55
9. The debts,also,must be strictly mutual: hence,if a firm sue
for a partnershipdebt, a debt due from somemembersof the firm
couldnot be a set-off. If a firm be sued,they could not set-off
debtsdue to someof them. Onepartner,however,
maysettlea
debt due to the partnership by setting-off against it a debt due
from himself
The Statutesonly permit set-offin the caseof mutually existing
legaldebts. But the BankruptcyAct goesfurther$ it allowsthe
set-off of mutual credit, as well as of mutual debts; and mutual
credit is more extensive than mutual d&bt
Thereis mutualcredit,though,one of the claimsconstituting
it is notyet due,asin the caseof a bond,bill, or note,payable
at
a future time
Thus,if a bankeris indorseeof a bill of a bankruptacceptor
or indorscr,and the acceptoror indorserholds an equivalent
amountof the banker'snotespayableon demand,thereis a mutual
credit, and the banker mayset-offone againstthe other
A Bill, acceptedfor the bankrupt's accommodation, is within
the mutualcreditclause,
and may,underthe BankruptActs,be
set-offagainsta demandby bheassigneesfor moneyhad and
receivedto their useafter the bankruptcy
If a banker, however,commits a breach of trust, as, if he
receivesbills or notes,with ordersto applytheir proceedsto a par-
ticularpurpose,
and,insteadof doingso,converts
themto hisown
use,he could not pleadset-off
10. Mutual credit and a Lien do not destroyeachother
Clark v, Fell, 4 B. <feAd., 404. Ex parte Barnett, L. B., 9 Chano.
Ap. 293
11. Under the Bankrupt Act a set-off is available in all
actions, whether for debt or damages
Under the term mutual credit-the credit neednot necessarily
begivenin money.Thus,if goods
bedeposited
withtheauthority
to convertthem into money,that may be pleadedas set-off. Thus
the mutual credit must be such as wasintended to terminate in a
ON BANKING INVESTMENTS 419
debt. Thisis manifestly

thesame
principle
asapplies
to billsand
notes not yet due
Mutualcredit,however, mustactuallyexistat thetimebetween
thebankrupt; therefore, whenthe defendant promised to indorse
a bill to the bankrupt,in consideration
of hisacceptance, it was
held not to be mutual credit
12. A creditor borrowsmoneyfrom his debtortinder an
expresspromiseto repay. He may, nevertheless,
plead set-offof
his original debt
Lechmere v. Hawkins, 2 Esp., B. 6. Taylor v. Okey, 13 Yes.,180.
Seealso Cavendishv. Greaves,24 Beav., 163
13. Eight of set-off,under the Statute, only existswherethe
debtsare enforceableby action
Rawley y. Eawl&y, 1 Q. B. D., 460
On Banking Investments
12. Though a banker is bound, theoretically,to repayevery
oneof his customersinstantly on demand,yet, as no man whatever
would spend all his moneyif it were in his ownpossession, but
wouldkeepa storeof it, and spendit gradually,so,whenhe keeps
it at his banker's,he will not be likely to requireit all at once,
but will keep a store of it there, just as he wouldhavedoneif he
had kept it at home; and the banker is ableto tradewith it in a
variety of ways,if he takescareto keep by him sufficientto meet
any demandhis customersare likely to make on him. The
different methods in which a banker tradeswith the moneyleft
with him by his customers,dependvery much on the classof his
customers,and their occupations,and the generalbusinessof the
locality helives in. lie must adapthis businessin sucha wayas
may be most suitable for the classof customershe has to deal
with; so that he may never fail, for an instant, to meet any
demand. If his customersare chiefly countrygentlemen,whose
rents are remitted regularly,and who draw them only for family
expenditure,he may calculatepretty accuratelyon the demand
likely to be madeon him, and he may lendout his funds on more
distant securitiesthan areproperin other cases. Such are chiefly
countrybankersin agriculturaldistricts,and thoseat theWest
End of London
EE %
Butwhena banker
does
business
in a tradingcommunity,
who
arc in consent want of their money,and whosedemandsare much
morefrequent and unexpected, he must adopt a very different line
of business. He must then havehis funds within reach at a very
"herbnotice,andhe oughtto havetheminvestedin suchproperty
as he can re-sellona veryshort notice,to meetanyunexpected
pressureupon him. The businessof sucha banker will chiefly
< mststin discountingbills of exchange,and is of a distinct nature
from that of lendingmoneyon mortgage
We must now consider the various methods in which bankers
trade. Theyare-1st, by discountingbills of exchange
; Sndly,
by advancing
to their customers,
on their own promissorynotes,
with or without collateral security; Srdly, by means of cash.
credits, or, as they are sometimescalled, overdrawn accounts;
4thly, by lending money on mortgage; Sthly, by purchasing
public
securities,
suchasstockor Exchequer
bilis
On DiscountingBills of Exchange
13* In Chap.IV., sect.3, we have fully explainedthe nature
and origin of bills of exchange-in the presentChapter wehave
only to makesomepractical observationson the subject
If an abundantsupplyof perfectlygoodbills of exchangewere
alwaysto behad, they are,no doubt, the most eligible of banking
investments,for their date is fixed, and the banker alwaysknows
the preciseday when his money will come back to Mm. He
chargesthe profit at the time of the advance,
and he gainsit,
whether the customerdraws out the money or not; and, in a
large bank,it must often happenthat drawers,acceptors,
and
payeesare all customersof the samebank, so that when the
drawerhas his accountcreditedwith the proceedsof the bill, and
drawsout the money,so far as he is concerned,in many casesit
must often happenthat the chequefinds its way to someonewho
is a customer to the same bank, and, therefore, the bank has
reapeda profit on creatinga credit,whichis simplytransferred
from oneaccount to another. And the same results take place
muchmorefrequentlyby meansof the systemof clearing,ex-
plainedin the nextSection,by whichall the banksthat join in
it, arc,in fact,but onegreat banking institution. If it should
ON DISCOUNTING BILLS 421
happen
thatacustomer
of oneof thegreatbanks
draws
a cheque
in favour of the customer of another, the chancosare that some
customerof the other bank has donepreciselythe samein favour
of a customerof the first bank,and theseclaimsare settledby
meansof the ClearingHouse,by being set off one againstthe
other,withoutanydemand whateverfor coin. The moreperfect,
of course,the clearingsystem,the lesscoin will be required.
Consequently,
the greaterpart of bankingprofitsarenowmade
simplyby creatingcredits,andthesecreditsarepaid,not in cash,
but in exchangingthem for other credits
When a banker discountsa bill for a customerhe buys it, or
purchases it, out and out from him, and acquiresall his customer's
rights in it, that is, of bringing an action againstall the parties
to it, and alsoof re-selling it again if he pleases,
or re-discounting
it, and this is one of the greatadvantagesof discountingbills,
that if there be an unusual pressurefor cashon the banker,he
can re-sell the bill he has bought
The bills a banker, then, has bought,are his stock-in-trade.
lie buys them from his own customerat a certainprice,and sells
them again to the acceptor,just as a hosier maybuy stockings
from the manufacturer, and sell them to a customer
"When a banker discounts a bill he writes down the full amount
of the bill to the credit of his customer, and at the same time he
debits him with the discount on it
The systemof discountingbills is intended to be the saleof
lon&fide debtsfor work done,or for property actuallytransferred
from one party to another, and there is nothing that requires
moresleepless vigilance on the part of a bankerthan to take care
that the debtshe buys are genuineand not fictitious ones. When
bills are offeredfor sale,he ought to know whosedebt it is that
h$ is buying, and he ought to be able to form someconjecture
as to the courseof dealingbetweenthe parties,which couldgive
rise to the bill. Bills should not only be amongtraders,but only
according
to a particularcourseof trade. Wewill speakof real
debts in the first place; and these may arise in a number of
differentways. First, between
tradersin thesamebusiness,and,
secondly,betweentradersin differentspecies
of business,
but yet
for work done. If we take the case of manufactured or imported
goods,
thereareusually
threestages
theypassthrough-1st,
the manufactureror importerto the wholesale

dealer; 2ndly,
from the wholesaledealer to the retail dealer; and, Sixlly,from
the retail dealer to the consumer. Each transfer of property
may give rise to a bill; but, of those,the lirst two are by far tho
most eligible, and are most peculiarly suitable for a banker to
buy; the third should only be purchasedwith very great caution,
and 1mt rarely
There are other casesof goodtrade bills, when one business
requiresthe supplyof differentproductions,such as a builder
requires
a supplyof wood,lead,slates,bricks,andothermaterials
I fence,a bill of a wood merchant,or a lead merchant,on a
builder, would be a very natural proceeding,and apparentlya
proper trade bill Again, bills may legitimately arise between
traders of wholly different descriptions,but yet for work done.
Thus, if a builder fits up premisesfor a shopkeeperor merchant,
a bill betweentho parties for the work doneis a very legitimate
one for a hanker to discount. All these bills, therefore,follow
the natural courseof trade, and carry the appearance,on the faco
of them, of being genuine
But if a banker seesbills drawn against the natural streamof
trade, it shouldinstantly rousehis suspicion. Thus, a bill drawn
by a wholesale
dealerupona manufacturer,
or by a retail dealer
upona wholesaledealer,would be contrary to the natural course
of trade, and should arousesuspicion. A bill drawn by a leiul
merchant upon a builder would be proper on tho faco of it, if
therewerenothing to excite suspicion; but a bill of a builder
upon a lead merchantwould be sutyicwus, unlessit were satis
fautorily explained. Moreover,bills of one personuponanother,
doing the namebusiness,are suspiciousupon the face of them.
Thus, a bill of one manufacturer upon another, in the same
business,or betweenone wholesaledealer and another,are eî-
dently suspicious,becausethere is no usual courseof dealing
between them. Besides,such bills are chiefly generatedin
speculativetimes,whencommodities changehandsrepeatedly,
o»
speculationthat thepriceswill rise. Bankersshouldbe particu-
larly on their guardagainstbuying bills drawnagainstarticles
which are at an extravagantprice, in timesof speculation
As it by no Ineunscommonlyhappensthat the drawersand
acceptors
of bills arecustomers
of the samebank,the bankerm
ON DISCOUNTING BILLS 423
primafade influencedby therespectabilityof his owncustomer,

whois thedraweror indorserof the bill. Heought,however,to
require specificinformationregardingthe personsuponwhom
his customers
arein the habitof drawing,
andsatisfyhimself
that they are likely to be genuinebills. And this vigilance
shouldneverbe relaxedin anycasewhatever.We holdit to be
utterly contraryto all sonndbanking to takebills merelyon
thesupposed respectability
of the customer.But webelieveit to
befar too commona practiceto lookmerelyto the customer's
account. Customersbegin by getting the characterof being
respectable-they bring, perhaps,good bills at first-and keep
goodbalances ; and their bills are punctuallymet. This regu-
larity and punctualityare very apt to throw a bankeroff his
guard. He thinks his customeris a most respectable man, doing
u good business; all the bills are taken to be tradebills. By-
and-bythe customerappliesfor an increaseddiscountlimit, on
accountof his flourishing business. The bankeris only too happy
to accommodateso promising a customer. His discountsswell,
und his balances diminish, bufchis bills are still well met. How-
ever,the time comes,perhaps,when the bankerthinks it prudent
to contract his businessgenerally, and this maybe one of the
accountshe maythink it expedientto reduce; and then he makes
the pleasantdiscoverythat there are no such personsat all as the
acceptors,and that the funds for meeting all thesebills havebeen
got from himself!
Suchcasesas these are not unlikely to happenwhenLondon
housessupplysmall country tradesmen,and drawbills on them.
When a man has establisheda good character,it is impossible
to require information about everybill before it is discounted;
but we do not hesitateto say,that it is of the first importance
that a banker should be constantly probing his customers*ac-
counts,and get information of the personsthey draw upon. It
waswittily said by someone (Lord Halifax,we believe)" that
man in this world is saved chiefly by want of faith." This is
eminentlytrue of banking. A bankershouldhavefaith in no
man. The amount of villainy and rascality which is practised
bymeans
of accommodation
andfictitiousandforged
bills,would
exceedbelief,if suchdisclosures
weremadepublic. However, it
is contraryto the policyof bankeisto allowit to beknownhow
they are robbed and cheated. Their interest coversa multitude

of sins. If criminals were prosecutedaccording to their merits,
the calendarwould swell up to a frightful extent. There is,
probably,no classof societywho seefelonies committed so fre-
quentlyasbankers,andarenecessitated
to let themgo unrepressed
and unpunished. The numberof unconvictedfelonsthat goabout
with impunity in the commercial world is something horrible;
and there is reasonto fear that such things are encouragedby the
too easyfaith reposedin their customersby bankers. If bankers
weremorevigilant in scrutinising their customers* accounts,many
would have been cut short in a career of crime-of accumulated
robberies,which generallyterminate in disasterto the bank
As it is contrary to all soundprinciplesof banking to discount
bills solely on the customer'srespectability,as appearingfrom his
account,so any customershould be regardedwith suspicionwho
is not readyand willing to communicateinformation to his banker
about his affairs. If he will not candidly communicatethe state
of his affairs to his banker, how can he expect him to give him
assistance in the day of trouble ? Somecustomers,however,are
mightily indignantif their bankerwill not discounttheir bills on
the strength of their nameswithout regardto the acceptor. But
as sucha practice is contrary to sound banking, so it will invari-
ablybefoundthat thesearenot desirablecustomers
to have,and
it would be well for a banker quietly to shake off his connection
with them, as in the long run, they will probablybring him more
lossthan profit
Advanceson Loan with Security
14. Bo much for discounting bills of exchange, which

consistsin buying debts, and not lending money. A banker,
however,may not alwaysbe able to find a sufficientquantity
of debtsto buy, to absorball his disposable
credit, or he may
not chooseto employ it all in that manner; and some of his
customersmay want a temporaryloan on security, who have no
bills to Bell. The bankertakeshis customer'spromissorynote for
the sum payableat the dateagreedupon,auclalsoa depositof lh<*
cwuvurtiblesecurity us eollaUjralsecurity. lie does not advauco
ADVANCES ON LOAN 425
on the goodsor securityitself-that is the business

of a pawn-
broker-but on the personal obligation of his customer,and the
securities are only to be resorted to in case of the failure of the
customerto pay his debt. Theseconvertiblesecuritiesare chiefly
public stock, Bank stock, India bonds, sharesin all sorts of
companies,railway, bank, insurance, &c., dock warrants,bills of
lading. Wheneverhe takes any of theseas collateralsecurity,h&
ought to have a power of sale from his customer,in casehe fails
fcodischargehis obligation. Theseloans,though often they may
be madeto respectablecustomers,are not desirableadvancesfor a
bankerto make,and he shouldbe chary in encouragingthem too
much,for they frequentlyare demandedfrom the borrowerhaving
locked up too much of his funds in an unavailableform; con-
sequently, there is much danger of the obligationsnot being
paidat maturity, and then comesrequestsfor renewals,and the
banker is either driven to the unpleasantnecessityof realising
this security,or elsehaving his temporaryadvanceconvertedinto
a dead loan.
Personswho seekfor suchadvanceshabitually,are most pro-
bably speculating in joint stock companies'shares. They buy
up shareson speculation,
which theyhopewill advancein price;
theythenwishto pledgethe sharestheyhavealreadyboughtto
purchase
more:thenperhaps, a turn in the marketcomes,
andthe
value of the whole goes down rapidly ; they are unableto pay
their note, and the banker mayhave to realisethe sharesat a loss.
During the railwaymaniaof 1845, a numberof banks,called
exchangebanks,were foundedexpresslyon this principleof
making advanceson joint stock companies' shares,especially
railwayshares; but theyhaveall beenruined,andsomeof them,
we believe,sufferedfrightful lossesfrom the greatfall in the value
of railway stock
Theobjectionto suchtransactions
in a bankingpointof view-
is that thepromissory
notesof thesecustomers
andtheir securities
are not availableto the banker in casehe is pressedfor money.
Moreover,they are barrenisolatedtransactions,whichleadto
nothing; whereasa discountaccountpromotes commerce, and
becomes moreprofitableasthe business
of the customer
increases
Thereis alsoa veryimportantpoint to be consideredin the
sharesof manycompanies whichare offeredascollateral
security,
420 TIIEOKT AND PRACTICE OF BANKING
that, by the deedsof the companies,

no propertyin the shares
passes,except by the registration of the name of the holder in
their books. Now, while the customeris in good circumstances,
theremay be no danger; but if lie becomesbankrupt, the banker
is not entitled to retain the sharesagainst the other creditors.
If the bankrupt is the registeredownerof the shares,his creditors
are entitled to thorn, consequently,if the banker meansto com-
plete hiw security, he must have himself registered as the owner
of the share*,and therebybecomea partner in a multitude of
joint stock companies,of whosecondition he can know nothing.
Then, perhaps,calls are made,and the banker iiuds that, instead
of buying a security,he hasbought a liability, and he must pay
up the calls,or forfeit the shares
All such advances,therefore,should be made very sparingly,
and only with such surpluscashas the banker may not be able to
employin buying good bills; and they should only be made to
suchpersonsas he beKevesto beperfectlysafewithout the deposit
of the seciirity. No banker would make such an advanceif he
really believedthat he should be obligedto realisethe security to
repayhimself,as suchproceedings
will alwaysmakea soreness
betweenhimself and his customer,who will be averseto seeing
his properfcy
soldat a sacrifice,ashe maycall it
Advanceson. dock warrants, and other similar securities,
are also liable to many similar objections,and should be very
sparinglydone,astheysubjecta bankerto muchtroublebeyond
the line of his proper business,and are indications of weakness
in a customer. Many customerswill expect to have loansupon
leaseholdor freehold property left as security,but these are the
mostobjectionable of all ascollateralsecurities. Many,if not the
greaterportionof leases, prohibitthe tenantletting the property,
without the written permissionof tie landlord,consequently,such
Iwweholdproperty is no security at all to a banker. Freehold
propertyis not exposed
to this disadvantage,
but the process
of
realisation is so uncertain, and long, and tedious, that it is
perfectlyunavailable
to the bankerin caseof necessity.In fact,
we believethe bestrule in all casesof loanswith collateralsecurity
(exceptin suchinstancesaspublicstock)is to avoid,asmuchas
possible,making thexuto any one who is not perfectlygood
without them
INVESTMENTS IN PUBLIC SECURITIES 427
GnAdvancesly way of Cash. Credits and Overdrawn

Accounts
15. We have,in Chap.VI. § 17,givena full account

of the
systemof CashCreditsin Scotland,
andof theprodigious
ad-
vancesin wealthwhichthe countryowesto it. But that system
originatedand owesits success
entirelyto theissueof £1 notes;
andit wouldbe almostdestroyed bytheir suppression.When,
therefore,
it is seenin Scotland
thatit isentirelyduetothe£1
note systemthat the Banks are able to push their branchesinto
the wildest and remotestparts of the country,they naturally
resent and resist interferencewith it by personswho have no
personalexperienceof its advantages
To a certain extent the systemof OverdrawnAccountsserves
thesamepurpose
in the countrydistrictsof England: but onlyto
a very limited extent. It is quite impossibleto extendthe same
bankingaccommodationto the poorer and humbler classof cus-
tomers by meansof overdrawnaccounts,wherebankerscanonly
deal with the money placed with them by their customers,as
when they are able to coin their own moneyby the issue of
£1 notes
The objectionsto CashCredits and OverdrawnAccounts,in a
banking point of view, are that in times of pressureit is all but
impossibleto call up the advances,and the securitiesare not
realisable: henceit is only wherebanksare of great solidity, and
not liable to runs, that it is safeto carry out sucha systemon a
large scale
The sameobjectionsapply to advanceson mortgages,which
arc intended to last for years. Suchtransactionsare, therefore,
chieflyconfinedto countrybankersand thoseat theWestEnd of
London,whoseconnectionslie more with the landed than the
mercantileinterest,and whoarenot liable to suchsuddendemands
for cash
On Investments in Public Securities
16. Besidestheseoperations,all of which are foundedupon

personal
liability-all of whichcontain
personal
obligations
to pay
iixcd sumsof money,and are,therefore,Healings
in "Currency"-
428 THEORY AND PRACTICE OF BANKING!
bankers usually invest part of their funds in public securities,

which are supposedto be more readily convertible into cash
than others. Public securitiesare of two descriptions-the one
" currency,or securitiesfor money," such as ExchequerBills-
the other " property, or convertible securities" such as stock, or
the funds ; the former being an engagementon the part of the
Exchequerto pay a certain sum of money,like any other bill;
and the latter being no engagementto repayany fixed sum at all,
but only a fixed rent, or sum, for its use. The public funds are a
greatestate,of which the nation is tenant, and paysa rent for it,
solelyguaranteedby the public faith
Each description of public securitieshas its advantagesand
disadvantages.The intereston public stock will be found in the
long run, to be higher than thoseon anyother descriptions of
publicsecurities
; but thereis this seriousconsideration,
that the
value of these stocks is so extremelyfluctuating, that whenany
public crisiscomes,and'bankerswish to sell their stock,they
maysustaina verygreatloss. In theweekof the greatcrisisof
1847,when manybanks had to sell stock to providefor contin-
gencies,the losses
wereimmensewhentheyboughtin again to
replaceit. Anotherdisadvantage
^regarding
stockis, that all the
transactionsof bankers must becomeknown, as they have to
transferit. ExchequerBills have this advantage,that a banker
can deal in them without its being known to any one but the
broker. Exchequerbills, being, like any other promissorynote,
an engagement of the Governmentto pay a definite sum of money,
it is not probablethat the banker can ever loseso much on them
as on stock. In order to prevent Exchequerbills falling to a dis-
count,they always bear interest, and, in consequence of this, are
usuallyat a premium; and when,by the changein the market
rate of interest, they fall to a discount,the interest upon them is
usuallyraised. Prom thesecircumstances the profit of investment
in Exchequer
bills is lessthanfromstock
17. Bankerscollect moneyfrom thosewho have it to spare,
and advanceit, or its equivalent,to thosewho require it. They
maysometimes, themselves,be in a similar predicament. Some-
Umestheymayhavemoreby them than theyhaveemployment
for; sometimes,
from unusualdemands,they may be in want of
CHARGES OP THE SCOTCH BANKS 429
temporaryadvances. There is a classof personswho undertake

this great equalising process
- namely,the bill brokers. They go
the round of the bankersevery morning, and borrow from those
have to lend, and lend to those who want to borrow
18. At the presentday, the principle of associationhasbeen

developedto a much greater degree than ever it was before.
Companies
arebeingformedfor all mannerof purposes.When
thesecustomersapply to open an accountwith a banker,it will
generallybe found that they want accommodation. But a banker
should very rarely indeed accommodatethe company,of whose
aflairs he can know very little. He should never grant accom-
modation to such a company,unless he is well assuredof the
responsibilityand respectabilityof the directors themselves; and
if he allows the companyto have accommodation, it should be
only on the personalliability of the directors. He shouldrequire
from them a joint and severalnote,payableon demand,reserving
hia right againstthe companyonly as a collateralsecurity. This
coursewill be foundto be attendedwith manyadvantages, because,
if anything goeswrong with the company,he hasan immediate
remedywithout any trouble. Whereas,if the companygoesinto
the Winding-up Court, it will be a considerabletime before his
claim can be settled; and then there may be some technical
objection. The contributors may say the directorshad no right
to draw bills by the constitution of the company,or theymayhave
exceeded their power ; and then he may have to contesthis claim
through a numberof different courts,bringing him nothing but
vexation and anxiety
Table of Charges of the ScotchBanks

19, In June, 1882, the Scotch banks unanimouslyagreed
to the following scaleof charges-
Tableof Interest,Discount,and Charges
applicable
to
Scotland
I. - INTEREST ON MONEY LODGED:

The Kates to be fixed, from time to time, at Meetings of tha
Banksto be held in Edinburgh
430 THEORY ANB PRACTICE 03? BANKING
Note.-No Interest to bo paid on other titan regular operative

Accounts,unlessthe Moneyhas been lodgeda month, Savings*
Banks may, accordingto the discretion of each Bank, be allowed
upon moneylodgedon DepositReceipt-^per cent, more than the
ordinary DepositReceipt rate for the time, whenthat rate is not
above2J per cent.
II.-INTEREST ON ADVANCES ON CURRENT ACCOUNTS:
The Rates to be fixod, from time to time, at Meetings of the

Banksto heheld in Edinburgh-but the chargeon Overdrafts on
CashCredit, or other Current Accounts,may be limited to the
CashCredit Rate in specialcasesin which this is sanctionedly th&
Head Office
%* In June, 1885,the ScotchBanks unanimouslyagreedto
abolishintereston the daily balancesof current accounts: and to
allowit onlyon the minimummonthlybalance
III.-DISCOUNT AND COMMISSION ON BILLS :
The Rates of Discount to be fixed, from time to time, at

Meetingsof the Bunksto be held in Edinburgh
The following1Rates of Commissionto be charged on P»ills
other than Local, in addition to the Discount-
1. On Bills payablein Scotland,Is. §d.per cent. Maximum
charge, 75. 6&
2. On Bills payablein London,no commission
3. On Bills payableelsewhere
in England,or in Ireland, 2& 6<i
per cent.
Exemptfrom Charge.-1. Bank of England Post Bills. 2. Bills
on London not having more than four days to run, inclusiveof
daysof grace
4. On Bills payableon the Continentof Europeat " ExcJwntj*
as par Indorsement" DiscountedBills, 10s.per cent, in lieu of
Discount. Bills lodged-see below
IV.-CHARGES FOR NEGOTIATING DOCUMENTS PAYABLE

ON DEMAND :
1. On Chequesand Drafts on Bankers in Scotland,whether

CHABGES OF THE SCOTCH BANKS 431
cashedor lodgedfor Collection,Is. Bd.percent. Min. charge,

6^. Max. charge,155.
2. On Chequesand Drafts on Bankers,payablein London,no
Commission
"2. On Cheques
upon English Banks cashed,payableelsewhere
than in London(whetherbearinga reference
to a LondonBanker
or not), sent to London for negotiation through the Country
ClearingHouse,Is. 3d.percent. Min. charge,6d.
Note.-If preferred,
creditmaybegivenforamountof Cheque,
free of charge,
on the fourth businessdayafter the Chequehas
been handed to the Bank
4, On Cheques
upon English Banks,payableelsewhere
than in
London,if sentdirect to thetownon whichdrawn (Ibydesireof
Vie customer),2s. 6d. per cent. Min. charge,6$.
5. On Documentson Demandon Bankers,payablein Ireland,
whether cashedor lodgedfor Collection, 2s. 6d per cent. Mm.
charge,OJ.
6. On Cash Orders, Cashed, payablein London, 5s. pei
cent. Min. charge, Is, Max. charge, 10s. If dishonoured,5s.
per cent. Min. charge,Is., with Interest due
7. On Cash Orders, Cashed, payable in Scotland, 5s. per
cent Min. charge,Is. Max. charge,40s. If dishonoured,2s. 6&
per cent. Min. charge,Is., with Interest due
8. On CashOrders,Cashed, payableelsewhere in the United
Kingdom, 5s. per cent. Mm. charge,Is. If dishonoured,5s.per
cent. Min. charge,Is. Max. charge,10s,
9. On CashOrders,Lodged for Collection, whetherpaid
or not, payablein London, 2s. 6d per cent. Min. charge, Is.
Max. charge,10s. Payablein Scotland, 2s. 6d. per cent. Min.
charge,Is. Max. charge,20s. Payableelsewherein the United
Kingdom, 2s. 6^. per cent. Min. charge,Is. Eachdocumentto
be chargedfor separately. The term " CashOrder" to include
Eeceipts,Receipted Accounts, and other Documentsof a similar
description." Orders" unpaidto be returnedon thedayafter
receiptat latest,and not to beheldoveron anypretextwhatever.
" Orders" sent by postto a Bank by a private party to be charged
the rate applicableto "Orders" lodgedfor Collection,together
with theremittingCommission,shouldthe proceeds be accounted
for by Draft or Transfer
10. Couponsand Bondspayableat anyotherthan Bank Offices.

Theseare to be treatedas Cheque*,not as Cash Orders
Exemptfrom Cfatrge.-Chequesdrawn by the Bank's cus-
tomers on any other Office of the Bank, whenpresentedby the
customerspersonally,by membersof their families, or by persona
exclusivelyin their employment;also,whereverpayable.Cheques
on ChurchAccounts,issuedin favour of Clergymenor Teachers,
Chequesin favour of religious or charitable Institutions, and
Chequesor Receipts on forms issued by any Government
Department
V.-CHARGES FOE GEAHTING DEAFTS AND MAKING
TEANSFEES BY ADVIOB :
1. On the Bank'sAgentsor Correspondents in London, Drafts

or Transferspayableon demand;-For sums up to £800, 2$.per
cent.; minimum charge, §d. For sums from £300 to £600,
uniform charge,65. For sumsabove£600, Is. per cent. Each
Draft or Transferto be chargedfor separately,and the Stampsto
be chargedin addition. Drafts payableat "sevendaysafter date"
to be chargedthe Stamponly. When at a shortercurrency,or at
a currencyto coverthe expenseof the Stamp,the differenceto be
reckonedat the Deposit Receiptrate. Transfersby adviceto lie
made free,if payment be postponedten days. Drafts for remit-
tanceof GovernmentRevenueto be grantedat elevenclays'date,
free of Stampduty
2. OntheBank'sCorrespondents
elsewhere
In England,or in
Ireland,2$.Bd.percent.; minimumcharge,Gd. Tho Stampsto
be chargedin addition
8. On the Bank's Head Office,Branches,or Correspondents
in
Scotland,
Is. percent. Max.charge,10*.; min. charge,6rf.; but
for sumsof £5 and under,*£d. The Stampsto be chargedin
addition
Exemptfrom Charge,.-I. Drafts on the Bank's Agents or
Correspondents in Scotland,purchasedby Collectors of Revenue,
as such,and all Remittancesto Religiousand Charitable Insti-
tutions. On thesethe Stampaloneto be charged. II. Tnwwfers
of sumspaid in by customers
personally,
by membersof their
families, or by persons exclusivelyin their employment,
for their
CHARGES OF SCOTCH BANKS 433
creditat anotherOfficeof theBankin Scotland

; the Stampto be
charged whena Draft is given
Evasion of Charges for Bank Drafts.-In order
fcopreventpartiesfrom evadingthe chargefor BankDrafts,by
lodgingthe amounttemporarilyin nameof their Correspondents,
with a viewto its being drawnout at anotherOffice,free of charge,
the usualCommission shouldbe exactedon all DepositReceipts
cashedat otherOfficeswithin ten daysof their date
VI.-OTHER CHARGES
1. On Retiring Bills in London, 2s. 6d. per cent., with In-

terestdue. The following modified chargesmay be made,at the
option of eachBank, in the caseof Customershaving large trans-
actions,viz.:-For the first £50,000 in any one year, 2s. §d.per
cent.; for the second£50,000 in any one year, Is. $d. per cent.;
for the excessbeyond£100,000 in any one year, 1$.per cent.-
Chargeable at the end of the year
2, OnDrafts on DemandagainstCreditswith English Pro-
vincial or Irish Correspondents,
3s.percent.,with Interestdue.
If againstcashdepositedwithout Interest, sameRate as for Drafts
on London
8. On Drafts on Demand against Creditswith London Cor-
respondents.SameCommission
asfor Draftson London
4. On Bills payable in England or Ireland, recalled before
maturity,2s.Gd.percent. Bills recalledfor non-acceptance
only,
discretionary
5. On Discounted Bills, or other Documents(except Cash
Orders),payablein Scotland,returneddishonoured,
2s. 6d. per
cent.,with Interest due
G. On DiscountedBills, or other Documents(exceptCash
Orders),payableelsewhere,
returneddishonoured,
5s. per cent.,
with Interest due
7. On Acceptancesby the Bank,or their LondonCor-
respondents,
of ForeignBills, payablein London, if secured
bya
special
Deposit
of theamount, 5*.percent.,with Interestdue; if
on otherSecurity,if not exceeding3 monthsin currency,10$.per
cent.,with Interestdue; if exceeding3 monthsin currency,155.
percent.,with Interestdue
8. OnBills or Documents on Bankers,payablein Englandor
VOL.. ii. Fr
434 THEOBY AND PRACTICE OP BANKING
Ireland,lodgedfor Collection,2s.6& percent,whetherpaid or

dishonoured
9. On Bills or Documentson Bankers,payable in Scotland,
lodged for Collection, if paid, same Commissionas on similar
Documentsdiscounted; if dishonoured,3$.#rf. per cent.
10. On Bills or other Documents,payableabroad,lodgedfor
Collection*5s. per cent.,in addition to chargesincurred by Bank,
whetherpaidor dishonoured
11. On Pay, Dividends,or Annuities drawn by London Cor*
respondents,except for regular customers,2*v.Orf.per cent. Mi-
nimum, Is.; maximum, 5s.
12. On Purchasesof Governmentor other Stocks,in London,
8s. per cent.,with Interest due
18. On Transfers of Government or other Stocks,without
purchase,discretionary,accordingto trouble and amount
H. On Powersof Attorney taken out, and Wills or Deaths
proved for Transfer of Stock, etc., discretionary, according to
trouble, but not less than 2s. fid. each
15. Callsand Dividends of Joint-Stock Companies,any Com-
mission to be discretionary,exceptas regardsDividendspaid in
London, on which not lessthan Is. per cent, shall be charged.
The aggregateamountrequired for the paymentof eachDividend
to be placedon a separateaccount,bearingno Interest
1C, Paymentin LondonagainstWhippingDocuments,whether
or not accompanied by a Draft on Demand,2s. Grf.per cent.
17. Delivery in London of Shipping Documents,or Stock
Transfers,on receiptof value,charge,if any, discretionary
18. Delivery in Scotland of DocumentaryBilk, payablehi
London, or elsewherein the United Kingdom, taken up under
rebate,Commission
to beat Eatesfor Draftson London,or other
place,as the casemay be
Note.-Bills and other Documents,not having more than fire
days to run, to be cashedby the Bankswith each other, \vithout
charge. The usualDiscountto be chargedfor the additionaldayfl
on Bills of longercurrency
In all matters of Charges Berwick-on-Tweed to be
treated as a Scotch town
Questionsas to the true meaningof anypart of the Healeshall
be decidedat Meetingsof the Banksto be held in Edinburgh
THE CXEARING SYSTEM 435
On the Clearing System
20. "We must now explain the mechanismof the Clearing

System,which has beengreatlymisunderstood
It is usuallysupposedthat the ClearingSystemis an example
of the great principle of Compensation,by which Debtsare paid
and extinguishedby beingexchangedor set-offagainsteachother:
as was the customof merchantsat a large numberof continental
fairs: and in foreign treatisesthe Clearing House is usually
termed Maison de Liquidation, or Compensation
This, however,is a great misconception:and an explanation
of the mechanismof the Clearing House clearlyillustrates the
distinction betweenthe two systemsof Commercialand Banking
Credit: Commercial Credit is only created to last for a certain
definite time, and is extinguished with the documents which em-
body it: Banking Credit is not intended to be extinguishedat
any definite time : and it is not generallyextinguishedwith the
documents which embody it
In many parts of the Continent it wasthe customfor mer-
chantsto maketheir bills payableonly at the greatfairs in various
cities. In the meantimethey circulated throughoutthe country,
and performed all the functions of money. At these fairs the
merchantsmet together and exchangedtheir acceptances:thus
the paper documentsand the debts were extinguishedsimul-
taneously,by the principle of Compensation, or Set-off.
But by this devicean enormousamount of commerce wascarried
on, and debtswereextinguishedwithout the payment of one sou
in coin
But the purpose and effect of the ClearingSystemare very
different. When any number of the customersof the samebank
have transactionsamongthemselves, and give eachotherCheques
on their accounts,if the receiversof the Cheques do not draw out
the money,but pay them into their own accounts,the Creditsare
simply transferredfrom one accountto the other. The Cheque
is extinguished: but the Credit is not extinguished; it is only
transferred: and the same Credit may be transferred any con-
ceivable number of times from one account to another in the
samebank, to the end of time, without ever beingextinguishedat
FF 2
436 THEORY AND rKACTICB OF BANKING
alL In all such cases,therefore,the Chequeis a mere order of

transfer : and when the Credit is transferred from one account to
the other, the documentlias effectedits purpose,and is cancelled
-but the Credit existsexactlyas it did before
So with a Bank Note. If a person holding a banker's notes
pays them into his account,the Notesare extinguishedbut the
Credit is not extinguished: the amount is entered to the cus-
tomer's credit: he has exactly the same Right of action as
before: and the bunker'sliability remains the same. If a cus-
tomer pays into his account the notes of another banker,the
banker collects the notes and gives his customercredit for the
amount. The ClearingSystemis a deviceby which all the banks
which join in it arc formed into one huge institution for the
purposeof transferring Credits from one bank to another, just as
Credits are transferred from one account to another in the same
bank
Everybankerhaseverymorningclaimsagainstmost,if not
all, of his neighbours: and of coursethey have claims against
him. These claims are called flankers1 chart/PS. Each banker
having collected all the sums due to himself, re-adjusted the
(Creditsto the different accounts. By this meansit is evident
that no Credits \\ere cancelledor extinguished between the
different banks: they were only re-adjusted among different
customers'accounts: and this was done by the means of ex-
changinga vast amountof Bank Notesbetweenthe different
bankers. Thus an immenseamount of Noteswererequired to be
kept out of circulationfor no otherpurposethan to bedancing
about from bank to bank to settle their accountsagainstcadi
other. It was stated in evidencebeforethe Houseof Commons,
many years ago,that the London and Westminster Bank alone
wasobligedto keep£150,000in Notesfor this solepurpose.And
if one bank alone,then comparativelyin its infancy, was obliged
to keep sucha sum idle for this purpose,what would have bee,n
the sum necessary at the present time to be retained by all the
different banks? It is certain that it would have ab«ork*d at
leasthalf of the authorisedcirculationof the Bank of England
To remedythis inconveniencean ingeniousplan wasdevised,
it is said, by the Banksat Naples,in the sixteenthcentury. The
banks instituted u Central Chamber,to which each senta clerk.
THE EDINBURGH CLEARING HOUSE 437
Those clerks then examined and stated their different claims

aâiiwt eacli other, and paid only the differencein Notes. By
tiiis HUMUS the diiteivnt Credits were re-adjusted among the
diilerent customers'accountsjust as easily as before: and an
immenseamountof Noteswere sefcfree for the purposeof cir-
culation and commerce: and were,in fact, equivalent to so much
increaseof Capital to the hanksand to the country
21. The Banksin Edinburgh were the first in this country

to adopt this plan. T?ora considerabletime they used to do ail
they could io injure eachother. They usedsometimesto collect
a large amount of each other'snotesand presentthem suddenly
for payment,in the hope of ruining their rivals. At last they
bocMinesensiblethat this undignified conduct\\as mutually in-
jurious: andtheyagreedthat theyshouldmeettwicea weekand
adjust their respwtuu claims; and that they should make no
demandupon each other e\<vpt at thesetimos. This exchangeis
made alternatelyat the offices of the Bank of Scotlandand tlie
RoyalHank. Thebanksusedformerlyto settletheir differences
by ten days1
drafts upon London, Subsequently
to this, it was
agreedthat eachbankshouldkeepa fixed amountof Exchequer
Bills, and the differenceswere paid by these Exchequer Bills*.
This plan,however,
was discontinued
in 186J-,andthe following
rules, which are now in force,weresettledin 1876
filtics to be,observedat the Edinburgh GtearingHouse

I. The ('Intring House shall be openedevery businessday,
exceptSalunlay, at one o'clock,and closedat fifteen minutespast
one,after which no documentsshall be received. On Saturdays
the dlearmj* Houseshall be openedat eleven o'clock,and closed
at iifieen minutespast eleven
II. The Clearing Houseshall not beopenedon Bank Holidays.
On half-holidaysit Khali be openedat ten o'clock,and closedat
fifteen minutespast ten
III. EachBankshallberepresented at theClearingHouseby
a competentclerk,who shall deliverand receivethe documents
referable to his Bank. An assistant clerk shall also attend when
required,
thattheremaybenodelayin closing
theclearing
IV. Each clerk shall be furnished with a set of books for the
various Banks,in which the documentsdelivered by him shall be
enteredand summedup beforehe goesto the ClearingHouse,and
he shall hand to each of the other Banks a duplicatelist along
with the documents delivered. He shall also be furnished with a
book in which he shall strike the balancesagainsthim or in his
favour with the other Banks, and he shall not leavethe Clearing
Houseuntil the generalbalanceis completed
V. Besidesorders payableon demandat the Batiks in Edin-
burgh (including district branches),and bills domiciledwith the
headofficesof the Banks in Edinburgh, orders or bills payable
elsewherein Scotland,and requiring to be cashedby the Bunks
with each other, may be passedthrough the Clearing House.
Although the general rule is to pass all clearing documents
through the Clearing House, it shall be in the option of each
Bank to collectany suchdocumentsin cash
VI. Each document shall be sufficiently dischargedbefore
being sentin, and shall beara Clearing Housestampcontaining
the name of the Bank to which it belongs, and the date?of
clearing,m addition to which, if it hasbeen cashedat a district
branch,it shall bearthe stampof that branch
VII. Documents
passed
throughthe ClearingHouse,payable
at the district branchesof banksin Edinburgh,shall be forwarded
in time for presentationthe next morning
VIII. Documents drawn on the head office of any Bank,
whicharenot dulyhonoured,
shallbereturnedon winu»
day,by
messengerto the head office of the Bank to which they wore
cashedby 8 o'clock on ordinary days,and 12.80 on HalurclnyH,
and shall be repaid in cash. Documentspayableat the district
branches,which are not duly honoured,shall be returnedthrough
the Clearing House on the day after that on which they were
cleared; or it shall be optional to return any such document
direct by messenger to the officeafcwhich it was cashed*
provided
that this be done before the hour of clearing,on the day after
that on which the documentin questionwas passedthrough the
ClearingHouse
IX. All documents returned unpaid shall have a written
answerappended,stating the causeof dishonour
THE EDINBURGH CLEARING HOUSE 439
X. The Banks agree to dispensewith the indorsementof

country exchangevouchers,passedthrough the clearing
XL The Bank of Scotlandand the Royal Bank of Scotland
agreeto undertake the settlementof the clearingseach alternate
month. On Monday,Tuesday,and Thursday,the balancesshall
be includedin the generalsettlementof the exchange and clearing,
the odd shillings and pencebeingaccountedfor in cash. On other
days,the settling Bank will receivefrom thoso Bankswhich are
Debtorson the settlement,and give to thosewhich are Creditor.v,
exchangevouchersfor the respectivebalances,including the odd
shillings and pence,within one hour after the closingof the Clear-
ing House,and thesevouchersshall bo broughtinto the nextday's
clearing. The rules for conducting the generalsettlementof the
exchangeand clearing are laid down separately.-Neither the
Bank of Scotlandnor the Royal Bank of Scotlandshall incur any
responsibilitywhateverin respectof thesetransactions
XIf. AHexpensesconnected
with theHearingHouseshallbo
borneby the Banksin equalproportions
and shall be paid by
them half-yearly
Rules to be observedat ike Rrchanflesof Notes anrf General

Settlementsof Balancesbetweenttw Banks in Edinburgh
I. There shall be Exchanges of Notes, nnd General Settlements

of theseExchanges,and of the ClearingHouse,as follows:-
Genetal Settlement of TCxelmiigoH

and Clearing
Exchange of To include
Notes.
On
Kotos. Cloui ings.
Daily, except Tuesday,at 2 P,M, Small Notofiof Sa- Thursday.

Monday, at 10 turday, the Notes
A.M. of Monday, and
the Glasgow Set-
tlement of Tues-
day.
Thursday, at 2 p M The Koios of Tues- Wodnwrtftyaiul

day ami "Wedne- Thurbday.
day ; also, tho
Count] y Kx-
chaiigt's of \W<1-
msduy, and the
(Hangup As Loiih
Settlements of
Thuiaday.
Also on Satur-
day,at 1.80P.M.
for large Notes
only
Monday,
at 2 P.M. ThonotesofThxirs-Friday, Satur-
day and Friday, day, & Mon-
and the large day.
notes of Saturday,
also tho Glasgow
and Country Kx-
changuBof Satur-
day.
Thegeneralsettlements
shallbemadeby the clearingclerks
II. WhenTuesdayis a holiday,the generalsettlementttiml]
be madeonWednesday; whenThursdayis a holiday,thogeneral
settlementshall be madeon Friday ; whenSaturdayis a holiday,
THE EDINBURGH CLEANING HOUSE 441
thereshall be an exchangeon Friday afternoon; and when

Mondayis a holiday,the generalsettlement shallbe madeon
Tuesday,but there shall be no exchangeof notesthat day.--
Whenthe Termdayfalls ona Saturday, the Exchange shallmeet
in the afternoon,
at suchhourasmaybeagreed upon
III. Theclerksshall bein attendance
punctuallyat thehour
ttete£,fifteenminutesafterwhichthe doorsareto beclosed,and
Uienotesin thehandsof theBanksnotrepresented excludeduntil
next exchange.SuchBanksshall,however, retire,by granting
bills on London in accordance
with EuleVII., the notesbrought
into th6 exchangeagainstthem by otherBanks
IV. Each Bank shall be representedby at least two clerks.
On arriving at the ExchangeEoom,oneof the clerksshalldeliver
the notes, and the other clerk shall remain in the box to receive
the notes from the other Banks. Unless there is a clerk to receive
them,on no accountshall anynotesbe passedthroughthewickets.
No one shall enter th*> box of another Bank-the door must be
keptlocked
V. Theclerksfromeach.
Bankshallall remainin theExchange
Eoom,until the whole of the notes receivedby them havebeen
counted, and at least one clerk from each Bank shall remain until
the wholeof the notesdeliveredby that Bank have beencounted.
The notes receivedfrom any one Bank shall not be mixed with
those received from the other Banks, until they have beenfound
to agreewith the specificationreceivedalong with them* In case
of a dispute arising on any occasionasto the amount contained
in any parcelof notes,receivedor deliveredby a Bank, whichhas
infringed the rules in this clause,suchBank shall,in the absence
of conclusiveevidencein its favour, beheld to be in the wrong.-
To prevent any undue delayin counting the notes,eachof the
Banksshall providea competent
staff for that purpose,
to the
satisfactionof the settling Bank of the day
VI. The settlements shall be undertaken each alternate month
by the Bank of Scotland,
and by the EoyalBank of Scotland
;
but neither Bank shall be held to incur any responsibility in
respect
of thesetransactions.-OnMonday,Tuesday, andThurs-
day,the balancesshall be includedin the generalsettlementof
the exchangeand clearing. On Wednesday, Friday,and Satur-
day,unlesswhena generalsettlement falls on anyof thesedays
the settling Bank shall grant and receive vouchers for the
balances,
whichshallbecarriedinto the nextday'sclearing
YIL Whenthe balancesof the generalsettlementhavebeen.
struck, the settling clerk of the day shall at once enter the par-
ticularsin a recordprovidedfor that purpose,
andthe Bankswho
are debtorsin the settlementshall, on the sameday before the
close of business,send to the Banks who are creditors a bill or
bills on London for the respectiveamountsdue. Thesebills shall
be drawn 5/8 days'date. The Banksdrawingthem shall bearthe
expenseof the stamp-duty,and shall, on delivering them, pay in
cashto the respectiveBanks in whosefavour they are drawn,
eight days'intereston the amounts,at the rate of 3 per cent, per
annum
VIII. In the event of any exchangedraft being dishonoured

without prompt and satisfactoryexplanation of the cause,the
Bank issuing such draft shall be immediatelyexcludedfrom the
ExchangeBoomand ClearingHouse
IX. When exchanges are establishedin provincial towns,the
exchangeable notesreceivedat the agenciesthere must wait for
the return of the next local exchange day; and must under no
pretext be forwardedto meetthe exchangesin Edinburgh, or at
the other agencies
X. It is further understoodand agreed,in considerationof the
circulationof each Bank (other than what may be issuedagainst
gold and silver coin), beingfixed and limited by the Act 8 and 9
Viet., cap.38, that the Banksshall bring to the ExchangeRoom
regularly,at their headofficesand agencies,
all the exchangeable
noteswhich they receive; and that under no circumstances shall
any of the subscribingBanks issuethe notesof anotherBank of
Issuein Scotland,without permissionfirst askedand obtained
XL Thevouchersof the GlasgowExchanges shall be conveyed
by railwayguard; and the letterscontainingthe vouchers
shall
be deliveredby the guard to the ClearingHousemessenger, to be
delivered by him personally at the Banks to which they are
addressed in Edinburgh
XII. The record of the generalsettlementsshall be openfor
theinspection
of anyof the subscribing
Banks,at suchtimesas
may be convenient
THE LONDON CLEARING HOUSE 443
XIII. Any of the parties to this agreementshall be entitled

to withdraw from it on giving three months'notice
On the London ClearingHouse

22. About1775the inconvenience
of sendingoutto collect
thesecharges
led a numberof thecitybankers
to organise
an
exchangeamongthemselves, on a similarplan to that already
practised
amongthe banksin Edinburgh. Theymetin a room
andexchanged
theirmutualclaimsagainsteachother,andpaidonly
the differencein cash,or Bank notes. It is statedin the Bullion
Report,that in the year1810therewere46 bankers
whocleared
;
that the averageamountof drafts, &c., passed throughthe
ClearingHouseevery day wasabout £4,700,000,and that all the
balanceson this accountwas settled by about£220,000in Bank
notes. The Clearing Housewasmerelyan assemblage of private
bankers; whenthe joint stock bankswere instituted in the city,
they were rigidly excluded until 1854, when the intolerable
inconvenience causedto them by the large amountof notesthey
had to keep idle to meet the " charges,"set a questionafloatof
organisinganotherClearingHouseamongthemselves.Moreover,
it is said,that the private bankers,themselves,felt the incon-
venienceof the heavy "charges" of the joint stockbanks. Partly
owing to these circumstances, and partly, we hope,owingto the
feeling againstthe joint stock banks having abated,the London
and Westminster,the Union,the LondonJoint Stock,the London
and County,and the CommercialBanks, were admittedto the
Clearing House in August, 1854,and the SouthwarkBranchof
the Londonand Westminster,in August,1855. The latter being
remarkable,not only as a branch of a bank beingtreatedas an
independent
bank,but alsoasnot beingin theCity of London.
The Bank of England wasnot admitted to the ClearingHouse
till 1864.
Rules and Regulationsto le observedin the London

Clearing House
ORDINARY DAYS, EXCEPTINGSATURDAYS
MorningClearingto openat 10.30. Drafts,&c.,to be re-
ceived not later Shan 11. Morning Clearing must be closedby 12
CountryClearingto openat 12. DraftsincludingEeturns,

to
be received
not later than 12.30. CountryClearingmustbe
closedby 2.15
Afternoonclearingto openat 2.30. Drafts, &c.,to be received
not laterthan4. Returnsto bereceived notlaterthan 5, except-
ing onsettlingdays,whenthe last deliveryshall beat 4.15,and
Returns at 5.15
FOURTHS OF THE MONTH
Morning Clearing to open at 9. Drafts, &c., to be received

not later than 10. Morning Clearingmust be closedby 12
Country Clearingto openat 12. Drafts, including returns, to
be receivednot later than 12.30. Country Clearingmust be closed
by 2.15
Afternoon Clearing to open at 2.30. Drafts, &c., to be re-
ceived not later than 4.15. Eeturns to be received not later than
5.15; exceptingwhen the 4th of the month shall occur on a
Saturday,whenthe CountryClearingshall closeat 2, the Afternoon
Clearing commenceat 2, and the last delivery shall be at 3.30
and Returns at 4.30
SATURDAYS,
(NOT BEING FOURTHS)
MorningClearingto openat 9. Drafts,&c.,to be received

not later than 10. Morning Clearingmust be closedby 11
CountryClearingto openat 11. Draftsincludingreturns,to
be receivednot later than 11.30. Country Clearing must be
closedby 1.15
Afternoon Clearing to open at 1.30. Drafts, &c., to be re-
ceivednot later than 3. Eeturns to be receivednot later than 4
JANUARY IST AND DECEMBER 31sx
On thesedaysan extension
of a quarterof an hourshallbe
giventothelastdelivery,
andtoEeturns;
andasimilar
extensioo
on dayssucceedir*
BankHolidays
GENERAL ETJLES
Thetotalamountof theMorningand CountryDeliveryshall

beagreedby eachClearerbeforeleavingthe ClearingHouse
All Clerksthat are in the ClearingHouseby thetime ap-
pointedfor final delivery,shall be entitled to delivertheir articles,
thoughtheymaynot havebeenableto passthemto thedifferent
desks before the clock strikes
All Returnsin the courseof deliveryuponthe strokeof the
clockof thetimeappointedfor final delivery,mustbereceived
by
theClearers,andcreditedthe sameday
Any Bank which has acceptedand paid an article returnedto
it in. error,may require repaymentthrough the ClearingHouse
on the followingday
Noticeshall be enteredupon a Board at the ClearingHouse,
giving monthly statementsof those settling days at the Stock
Exchange, uponwhich thetime for receivingReturnsis to be5.15
With regard to all Drafts not crossed,and all Bills not
receipted,sent to the Clearing House as Returns,the *Clearer
holdingthem must fully announcethe particularsto the Clearing
House,and if not claimed,the casemust be represented to the '
Inspectors; but on no accountcan theClearerbeallowedto debit
the ClearingHousewith the amountuntil an owner canbefound
No Return can be receivedwithout an answerin writing on
the Return whypaymentis refused
It shall be sufficient in order that a Return shall be received
and credited,that it shall have on it an answer,whyreturned;
and no Clearershall refuseto passto credit anyReturnthat shall
be so marked
All Returnschargedupon the BalanceSheetmustbe marked
up andagreed
by theClearerchargingthesame
All the differencesarising from Marked Articles beyondthe
sum of £50 must be finally ascertainedand placedto. account,
beforethe Clearermakesup his BalanceSheet
No Clearer shall be allowed to chargeout Drafts in the
Clearing-out
Bookat the ClearingHouse
All differences of more than £1,000 that may have been
accidentally
passed
over at night,shallbesettledby a transferat
the Bankof England,the first tiling thenextmorning
The Inspectorsare chargedwith the preservationof order and

decorum
in the ClearingHouse,and are instructedto reportto
the Committeeof Bankers disorderlyconducton the part of any
persons,calculated,in their opinion, to obstruct the adjustmentof
the business of the House
Bachclearingbank keepsan accountat the Bank of England,

and the inspectorof the Clearing housealso keepsone. Printed
lists of the clearing banks are made out for each bank, with its
own name at the head,and the others placed in a column in
alphabeticalorder below it. On the left side of thesenameis
a column headed" Debtors,"and on the right side are marked
"Creditors." The clerk of the Clearing Housethen makesup
the accountsbetweeneachbank, and the differenceonly is entered
in the balancesheet,according as it is debtor or creditor. A
balanceis then struck betweenthe debtor and creditor columns,
and the paperdeliveredto the clerk, who takesit back to his own
bank. The balancethen is not paid to, or received from, the
other bankers, as formerly, but it is settled with the Clearing
House, which keeps an account itself at the Bank of England.
The accountsare settled by meansof a speciesof chequeappro-
priated to the purpose,called transfer tickets. They are of two
colours,white and green,the white when the Bank has to pay a
balanceto the ClearingHouse,the greenwhenit has to receivea
balancefrom it. They are signedby someauthorised official of
the Bank. Thus, if the Bank is debtor on the balance,it givesa
White Picket
SETTLEMENT AT THE CLEAKING SETTLEMENT AT THE CLEARING
HOUSE HOUSE
London, 18 BANK o» ENGLAND,
To the Cashiers of the Bank of England 18

Be pleased to transfer from our A TRANSFER/OP
the sum oj
Account the sum of
lias this evening "beenmade at the Bank
from the account of Messrs.
andplaceit to the credit of theAccount
to the account of the Clearing Bunl&en
of tlie Cleaning Bankers, and allow it to
le drauon
for by anyof them(withthe FortheBankofEngland
knowledgeof either of the Inspectors, £
signified ly his countersigning the
Viafts)
The Certificate has "beenseen "bymo
Inspector
If the Bank is creditor on the balance,it givesa

Cfreen Ticlcet
Settlement at the Clearing House Settlement at t7ie Cleai ing House
London, 18 BANKOFENGLAND,
To the Cashiers of the Bank of England 18
Bepleasedto CREDIToui Account Theaccountof Messrs.
Hie Sum of hasthis eveningbeenCREDITED
with the
Sum of
out of the money at the credit of the
accountof the ClearingBankers out of tlie moneyat the credit of the
account of the Clearing Banlers
For the Bank of England
Seen by me,
Inspector at the deanng House
By this admirablesystem, transactionsto the amountof many

millions daily are settledwithout the interventionof a single
Bank note
CHAPTER XIX
ON COLLATERAL SECURITIES TAKEN BY BANKERS
1* Bankingaswehaveseendealsexclusively with persona)

obligations.Bankerssell their owncredit in exchange for the
creditof otherpersons:and in all caseswhateverthesepersons
are liable and bound to dischargetheir obligations. Bankers,
however, do take additional and collateral securities of various
sorts,to makegoodanylossfromtheir customers
beingunableto
dischargetheir obligations
The first kind of these collateral securities which we shall
consider is a banker's Lien
On a Banker's Lien on Ms Customers Securities
2, When a customerhasplacedany Banking Securitiesin the

hands of his banker, without specificallyappropriating them to
any purpose,the banker has the right to retain them until his
customerhasdischargedall debtsthat may be due to him: even
thoughthe debt wasnot incurred, or the advancegrantedon the
depositof the Securities
This right of retention of Securities,placedunconditionallyin
his hands is termed a Lien
3. 1. A banker'sgeneralLien is part of the Law Merchant,

and is judicially noticedas such
Brandao v. Barnett, 12 0. & F , 787. Bock v. Gorrissen,2 De GK
F. & J , 434. Jonesv. Peppercorne,Johns, 430
2. A banker hasa general Lien upon all Banking, or Paper
Securitiesplacedin his handsas a banker by a customer,for his
generalbalance
Such Paper Securitiesinclude Bills, Notes, ExchequerBills,
Stock,Coupons,Foreign Bonds,and othersof a similar nature
ON A BANKER'S LIEN 449
AndhisLienextends overtheseSecurities,
notonlyfordebts
whichhavealready accrued,
butfor thosewhichmayaccrue,such
as bills discounted,
or for a bill accepted
for his customer's
accommodation
Unlesstherebe a specialcontractrelatingto theseparticular
chattels,
takingthemout of the generalrule
But to dothis theparticularcontractmustbeinconsistent
with
the notionof a generalLien
Davis v. Bowsher,5 T. E., 488. Bollandv. Bygrave,JRy.& Moo.,
271. Jourdaine v. Lefevre, 1 Esp., 65. Scott v. frankhn, 15 East,
428. Wylde v. Eadfoid, 33 L. J., Ohanc., 51
8. But this generalLien doesnot extendto Securitieswhich
are not Banking, or Negotiable Securities, unless by special
contract
A customerdepositedwith his banker a deedof conveyance

includingtwo distinct properties,
with a memorandum
pledging
one of them as security for his general balance. Held that the
bankerhad no lien on the other property
Wylde v. Eadford, 33 L. J., Chan., 51
4. A customerby deed gave his banker a securityover his
estateto cover a debt which was then due. Held that it only
applied to the actually existing debt, and was not a continuing
securityfor the floating balance
He Medewe's trust, 26 Beav., 588
5. A banker has no lien on any plate, jewels, cash, or securities
containedin a box depositedwith him in his characterof Ware-
houseman,and not as banker (a)
Eventhough he has recoveredjudgment in an action against
his customer for a balance due on his account (b)
Nor can money lodgedwith a banker for a specific purpose
which fails, be retained by the banker againsta debt due by the
depositorwhenbankrupt (c)
(a) Brandaov. Barnett, 12 0. & J?.,787. Wyldev, Radford,83
L. J"., Qhano., 51
(b) Leesev. Martin, L. B., 17 Eq., 224
(c) Wright v. Watson, 1 0. & E., 171
6. A banker has no Lien on a customer's balance for bills
discountedfor him, during the currencyof the bills
Bower v. Foreign <6Col. Gas Co., 22 W, B., 740
VOL. II. CM*
450 THEOETAND PRACTICEOF BANKING
7. If securities be offered to a banker for a loan which ha
refuses
(a): orona condition
whichisnotfulfilled(Z>):thebanker
hasno Lienonthemfor hisgeneralbalance
(a) Lucasv. Dorrien,7 Taunt., 278
(5) Burtonv. Gray,43 L. J., Chano.,229
8. If a trustee,
in violation
of histrust,pledges
securities
with
hisbanker, thetrustwill override
theLien,andthebankercannot
retain them
Manningford v. Toleman, 1 Coll., 0. C., 670. Moore v. Jervis,
2 CoL, C. 0*, 60. Pznkett v. Wright, 2 Hare, 120; affirmed in
Dom Proc. as Murray v. Pinkett, 12 0. & F., 764. Baillie v.
MacKewant35Beav.,177. Staclthoustv. Countess
of Jersey,30L.
J., Chanc., 421
9. But wherean executrixpledgedtitle deedswith a bank,as a
securityfor a loan, which, shespent in violation of a trust, it was
heldthat the bank, having no notice of the breach of trust, had
a Lien on the deeds
Farhall v. Farnall, L. E., 7 Eq., 286
10. A banker has a Lien on Banking Securitiespledgedwith.
him by a customer,if he has no notice, or reasonablecause to
believe,that they belong to another person: but if he receives
notice that they, ia fact, do belong to anotherperson,he has no
Lien for any advancehe may make after receiving suchnotice,
nor for his generalbalance
Locke v. Prescott, 32 Bear., 261
II. A cestuique trust being indebtedto a bank at which the
trust accountwaskept, gavethe bank a Lien on his shareof the
trust fund, and gavenotice to oneof the trusteesto pay his share
iilto Ms account with the bank. Held that this was a valid and
irrevocable assignmentof the fund, and that the bank's Lien
prevailedagainstthe customer's
assignees
in bankruptcy
Ex parte Steward, 3 M. D. & De a., 265
12. A debtor depositedtitle deedswith his creditor assecurity
until his debt should be reduced to £100 ; he died indebted to his
creditor in £274. Held that the creditor's Lien extended to the
whole £274
Ashton v. Dalton, 2 Col., 565
13. An equitablemortgageby the occupierof Iandsxmills,
houses,machinery,and premises,gives the depositeea Lien on all
ON A BANKER'S LIEN 451
fixt " whethererected

beforoor afterthe deposit,
including
those
rei*lOVa^c>
as^cfcwoen
landlord
andtenant
px parte Price,2 M. D. & Be GM518. Ex parte Layd,8 Deac,
C.* 765. ETC parts Rroadmod,1 M. B. <fcBo GK,631. JEte parte
l, 17 L. J., Bank., 16, fix part* Bentley,2 M. B. & Be a.,
jp«tt«Wilton, 4 B. <fcCh.»143. Ex parte Cotton,2 M. B.
J)c G.»725. J&r jparte J&»i/«a2,
2 M. B, & Be GK,443
14 -A-ânêrt00^fromonePa^^ of afirmalegalmortgage
overprapcrfeywM°hhe knewbelonged to thepartnership,
as
security
f °Ta Pr^ViXtc
^)fc °' fcâtpartner.Heldthattherights
of theot>Ii°rpartnerprevailed
overthebanker's
Lien
tfavander Y. Bultecl, 3J.B., 9 Oh. Ap., 70
15. A- customerkept threeaccountsat a bank,and received
advancesfrom fc'ieîlll^»W5iich
wereenteredin oneof them. He
sentsectt^k8 fcoîe ân^ to covcra ^r¬S'1 advance.Heldthat
the bank: l"& a ^êl1<)11
tiwsesecurities
for thegeneralbalance
Jn r« Kwropra7iPanJfe,L. BM 8 Oh. Ap., 41
16. A- Companycan create an cqnitable mortgage by the
deposit
of Acc^Sf
without
complying
withtheformalities
prescribed
bytheir dt*cdof constitution
forexecuting
legalmortgages
; andA
banker is entitled to the samoLien on suchdeedsas if they had
beendeposited
bya privatepewon
j&e part* National ftank, L. B,, 14 Eg., 507
17. A. banker has no Lien on the balanceof a partner on his
separate
ttccounfc
for adebtclueto himfromthefirm
Watts v. Ghnstie, It Beav., 54G
18. A. firm had an accountwith a bank, and one ojf the part-
ners had also a separateaccountwith it. The bank discounteda
promissorynote of the partneruponhisdepositing certainshares
assecurity : thosesharesafterwardsbecaniethe propertyof the
firm, whldi failed, being indebted to the bo-nk. Held that the
banl holtl thirm onlyassecurityfor the debtof the partner,and
had no I-*!on on them for the debt duo from the partnership
Expttrte McKenna, 30 L. J., Bank., 210
19. X f a banker takes a security payableat a future day, his
Lien is gono
Oowellv. Simpson*
IB Yes.,275. Hwiaon T. QutJvie,3 Scott,208
20. The Directors of a Colonial Banking Companywere em-
poweredl>ytheir Deedto issueshares
on suchtermsasthey
00 2
452 THEOKY AND PBACTICE OF BANKING
pleased;and It was alsoprovidedthat theyshouldhavea Lieu

on such sharesfor any debt of such shareholder. They issued
shares,
with powersof attorney,to enablethe holdersto remit
them to England,and dealwith them as negotiablesecurities.
Held that theyhadno Lienon suchshares
Hunter v. Stewart, 4 Be G. F. & J., 168
21. "K mortgagedto E certain securities. The value of the

securitieswaspaid into the hands of E?s banker with whom his
account was overdrawn. Held that the banker had a Lien on the
amount so paid in for the amount of his debt
Hoxburghe v. COT,17 Ch. D., 520
22. A Bank made advances on title deeds to land. The owner
contractedto sell the land to a purchaserwho had notice of the
banker's claim ; and the bank had notice of the intended sale. If
the bank makesfurther advanceson the deedswithout informing
the purchaser,it hasno Lien on the deedsfor suchfurther advance
London and County Bank v. Rat cliffe, 6 App. Gas.,722 -
23, A Companywhich had no power to borrow moneyover-
drew their account with their bankers, and deposited certain
private deeds of the members to the company. Held that the
banker had no Lien on the deeds for the overdrawn account
Blackburn Building Society v. Cunltffe, 22 Ch. D , 61
24. A banker's Lien on securities taken by him lonafifa from
a customeris not affectedby any equities betweenhim and a
third party
Misa v. Currie, 1 App. Gas., 544.
On Goods taken as Security
4. 1. If a banker takes Goods as a security for a loan, he

ought to satisfy himself that his customeris entitled to them :
because,by CommonLaw, the real ownerwill be able to recover
them, or their value, from him, if unlawfully pledged
The principle of CommonLaw regarding the transfer of the
Property in goods by a sale in market overt, does not apply to
pawns
Manden,v, PanshaU,1 Vern., 407. Paters&ny Tush, Strange,1178.
ff<trto$ v. Hoare. 8 Atk., 44. Hoarev, Patler, 2 T. R., 376. Daubigny
POLICIES AS SECURITY 453
T. Duvat, 5 T. B.} 604. Maccombiev. Davis, 7 East, 5. Graham,r.

Dyster,6 M.& S , 1. Boyson
v. Coles,
6 M. & S,,14. Queiroz
v. ZVueman,
3 B. & 0., 348
2. Goodswere depositedas a security for a loan. The cus-
tomer afterwards obtainedfurther advanceswithout referring to
the goods. He diedwithout paying off his debtto the banker.
His executorsclaimedthe goodson paymentof thefirst loanonly.
Held,that the bankerwasentitledto haveall the debtpaidoff.
But if therehadbeenbondcreditors,or a bankruptcy,thebanker
could only have held the goodsfor the sumfirst advanced,and
must haveproved under the flat for the rest
Demainbray
v. Metcalf,Prec.Chanc.,419. Adamsv. Claxton,6 Vesff
229. Vanderzee
v, Wittts, 3 Bro, C, 0., 21
3. Suchtransactionsought to be completedby a Bill of Sale,
and registeredunder Act 17 & 18 Viet. (1854), c. 36
If the debtor is a trader the banker shouldalsotake possession
of the goodsor premises,as registration under the Bills of Sale
Act only does not defeat the operation of the doctrine of
" reputedownership" in bankruptcy
Badgerv. SJuxw,26 L. J., N. S., 78. JE»parte AsTiby,re Daniel,25
L. T., 188
4. A banker cannottake a Bill of Saleon the wholeproperty
of his debtor,assuch an instrument is an act of bankruptcy
Lacon v. Li/en, 82 L. J., Cbanc., 815. Hassels v. Simpson, 1 Doug., 89%
Gtebertv. Spooner,1 M. & W., 714. JSniithv. Cannan,2 E. <feBM35, 45,
22 L. J., Q. B., 290. Woodhousev, Murray, L. B., 2 Q. B., 638. J&B
parte Foxley,in re Nurse, L. B., 3 Oh. Ap., 515
5. An instrument, stating that goods are deposited as a
securityfor a loan, even though containing a power of sale in
defaultof payment,doesnot requireto bestampedasa mortgage
deed
ITarris v. J3itc&,9 M. & W., 591, Atteriboroughv. Commissionera
of
Inland Revenue, 11 Exch., 461. See also Franklin v. Neatc, 13 M. &
W.,481
Policies of Life Assurance a» Security

6. 1. A banker sometimestakesa Policy of Life Assurance
as securityfor a Debt. In such case,he should give notice to
the office of the assignment; as,in the event of his customer's
bankruptcy,
the Policywouldvestin hisassignees
454 THEORY
AND PRACTICE
OFBANKING
It is a well-established
principlethat Chose$-in-Activn,
or
Rights,
or adebtduetoa trader,
though
assigned
byhim,arein
his" orderanddisposition
" in theeventof hisbankruptcy,
even
thoughthe instrument recordingthe obligationbe delivered
over,unlessnotice of the assignment
hasbeenduly givento the
obligor
Hyattv. JRowles,
1 Yes.,sen,348. Ex jparteArlcwright,3 M. D. <fe
Be
G-.,143. Ex parte Wood,3 M.D. & De <3K,
315. Thompson v. Spews,
13
Sim., 469. Ex parts Wilkinson, 13 Sim., 475. Belcher v. Bellamy, 2
Excli.,803. Thompson
v. Tomkins,
2 Drew.& Sim.,8
2. Notice,asa rule,shouldbegiven to the officerrepresenting
t.he-Company^ whomayeither be the Chairman,the Directors,or
the Secretary,according to the Deedof Constitution
,' Wherea Companyhas authorisedtheir agentsto receive
noticesof assignments, it washeldthat whereone of their agents
had actedas attorneyfor the assignor and assignee of a Policy,
thatwassufficient
noticeto theCompany >
Galev. Lewis, 9 Q. B., 730
3. But if the agent is not agentfor that particularpurpose,
hisknowledge of the assignment
is not sufficient
2&B
parte Patch, 7 Jur., 820. 12 L. J., N. S., Bank., 44
4. Such notice need not be in writing, verbal notice is suffi-
cient ; eventhough the officerefusesto receiveverbal notice
North British Insurance Co. v Ballet, 7 Jur., N. S., 1263. -Efeparte
3 Masterman,2 Mont. & Ay., 209. Ex jparte LittledaU, 6 M. D & De
a., 74
, 5. If the assignee
hassentnoticeby post to the obligor,and
the assignorbecomes bankrupt beforethe notice reachesthe
obligorin the courseof post,that is sufficientto takethe caseout
of the Statute
Belchery. Bellamy,2 Exch, 303
6. Thoughthe assigneeis a partner in a mutual office,that is
not sufficientnotice to the Company
Thompson
y. Speira,13 Sim., 469. Ex jparte Wilkinson, 13 Sim., 475
7* In the caseof an. equitable mortgageby the meredeposit
of the Policy, the assigneesof a bankrupt cannot recover the
Policy itself at law: but they may claim the debt from the"
Company,and give a valid dischargefor it
Gibsonv. Overbuy 7 M. & W., 55$
ON TITLE DEEDS AS SECURITY 455
8. if a Policy be depositedby way of equitablemortgage,the

onuslies upon the assignees
of the bankruptto provethatthe
notice of assignmentwas not given to the office beforethe
bankruptcy
Exparte Stevens,4 Dec. & Oh.,117
9. Thebankermust alsohavepossession of the Policy. A
memorandum of depositof securitieswas given to a banker,
statingthata Policyof Insuranceon the life of the depositor
was
among them. The Policy, however,was not delivered,and was
in the possession
of thedepositor
at thetimeofhisbankruptcy.
Heldthat the Policypassed
to his assignees,
andthe banker
ranked amongthe generalcreditors
J&cpart* Halifax, 2 M D. & De G., 544
10. A condition of a Policy of Life Assurancewas that it
shouldbevoid if the assured
diedby his ownhand,unless
it had
been assignedfor valuable considerationsix months before his
death. The holder depositedit with his bankers,with a letter
charging it with the paymentof any debtsthat might be dueto
them at the time of his death; and three years afterwardscom-
mitted suicide,being indebtedhis bankers. Held that the bankers
were entitled to recover
Jones v. Consolidated Investment and Insurance Co., 26 Bear., 256
11. Bankerswho had two Policiesof Life Assurancedeposited
with themgaveno noticeto the offices; but the assuredmentioned
in conversationwith the secretariesthat the Policieswereheld by
his bankers. He died bankrupt, and Stuart, Y. 0., held that
the Policiesremained in his order and disposition,and that his
assignees wereentitled to the proceeds
Edwards v. Martin, L. B., 1 Eq., 121
On Title Deeds taken as Security
6. 1. A banker frequentlytakesa depositof Title Deedsby

wayof equitablemortgageto securean advance.In all such
caseshe should have a written memorandumdistinctly stating
the purposefor which the depositis made. A writtenmemo-
randumof depositis not, indeed,necessary,
for theremaybe a
valid depositin equitywithout evena word spoken,whenthe
possession
of the securities
cannotbeaccounted
forin anyother
way,the holderbeinga strangerto the title and deeds(a). But

it is laid down that if thereis no memorandum of deposit,the
Court leansagainstconsideringthe depositas securityfor an
antecedentdebt (b)
(a) JBosson
v. Williams, 3 Y. & J., 150
(b) Ex parte Martin, 4 Deac. & Gh , 457
2. If deedsare depositedwith a personexpresslyas a security
for a future advance, the creditor has no lien on them for an
antecedent debt
Mount/Orel T. Scott, 1 Turn. &sRuss., 274
3. But if a banker has completedhis equitable title by ob-
taining possessionof the title deedsalong with a memorandum
stating the purposeof the depositto be to securepayment of the
mortgagor's antecedentdebt and interest, as well as all future
advances,hewill beable to enforcehis claim againstall judgments
of any sort recoveredagainst the mortgagorafter the date of the
equitablemortgage
Whitworth v. Qaugain,8 Hare, 416 affirmed,I Phil., 728. Casbertr.
Att. General, 6 Price, 411
4. There must be an actual deposit of the title deedsto ex-
cludethe operationof the Statute of Frauds. An order to a third
party to deposita lease,when executed,is not sufficient
JSxparte Perry, 8 M. D. & De G-.,252
5. An agreementto executea mortgagewith a delivery of the
title deedsto have the agreementcarried out, is an equitable
mortgagefrom the date of the agreement
JBdffev. WortUvgton,1 Cox,211. Ex parte Xruce,1 Rose,374. JHbckley
Y- Jfantoek,1 Buss,, 141. Keys v. WiUiam, 3 Y. <fcCoL, 0. C., 55-
Bulfin, v. Dunne, 12 Ir. Ch. Rep., 67
6. To constitute an equitable mortgage it is not necessary
that all the title deedsshould be deposited,providedthat real and
material portionsof them are
Ex parte Chippendale,
1 Deac.,67. Lucas v. Allen, 26L. J., Ch., 18
7. A memoraudumaccompanyingtitle deeds,stating the pur-
posefor which they are deposited,
is not an agreementfor a
mortgage,and doesnot require to be stamped
Meelc v. Sayliss, 31 £. J., Ch , 448
8. A verbalagreement
to deposita leasewhenexecuted
is not
an equitablemortgage
Ms parte Coonibe,
4 Madd., 249
ON TITLE DEEDS AS SECURITY 457
9. To createan equitablesub-mortgageby depositof deeds

originallydeposited
as an equitablemortgage,it is not necessary
to depositwith the seconddepositeethe written memorandum
depositedwith the first
Ex parte Alel Smith, 2 M. D. & De G , 587
10. The expression" may advance,"in the memorandum
given
with title deedsasanequitablemortgage,
mayincludepastaswell
asfuture advances,if it appearsthat the partiesintendedit
Ensparte Farley, 1 M. IX & De 0,, 683. Meparte Alel Smith, 2 M. D»
& De a., 587
11. A legal mortgagecannotbe extended

by parol (ct); but
an equitablemortgagemay (5)
(a) Ex parte Hooper,2 Kose,328
(6) Ex parte Langston,1 Kose,26 Ex parte Kensington,2 Ves. & Bea.,
79. Ex parte Lloyd, Gl. & Jam , 339. Ex parte Nettleslnp,2 M. D. Ss
De G., 124
12. An equitable mortgageis the samein effect as a legal

mortgage,and a mortgagorwill have six monthsto redeem
Parker v. ffousefieU,2 My. & K., 419. Throp v. Gartside, 2 Y. & Col.
Ex. Eq., 730. Meller v. Woods,1 Keen, 16. But see 15 & 16 Viet
(1852),c. 86, s. 48
13. An equitablemortgagee,by depositof a lease,is not com-
pellableto take a legal assignmentof the leaseat the suit of the
lessor,eventhough he has enteredinto possession of the premises
and paid rent: nor is he liable to the lessorupon the covenants
of the lease,as there is no privity of contract betweenhim and
the lessor
Moore v. Greg, 2 Phil., 717
14. If deedsare depositedwith a personas an equitablemort-

gage,they are not to be consideredas an equitablemortgagefor a
loan by anotherperson,without a memorandumin writing
Ex parte WUtlread, 1 Rose,299
15. A person conveyedcertain property to trusteesby a post
nuptialsettlement.Havingobtainedthe deeds
fromthe trustees,
he depositedthem with his bankers as an equitablemortgagefor
a loan. Held that the banker was not a purchaserwithin 27
Eliz. (1585),c. 4, s. 2, and the trusteeswereentitled to recover
the deeds
v. Domen, 9 Mng^ 70
458 THEOBY AND PBACTICE Off BANKING
16. A conveyanceof a houseand furniture was depositedas a

securityfor a debt,with a memorandum
stating that it wasthe
depositof the title deedsof an estate. Held that this wasnot an
equitablemortgage of the furniture: if the intention had been
to includethe furniture, it shouldhavebeen so statedin the
memorandum,and a scheduleof the articles given (a)
But whenthe leaseof a housewas deposited
as an equitable
mortgage,and the premiseswere sold along with the goodwill of
the businesscarried on.on the premises; and the produce of the
saleof the leaseand goodwill was insufficient to satisfy the debt,
the depositeewas held entitled to the whole of the proceeds,as
the goodwillwasthe incident of the lease(#)
(a) JSbjparteHunt, IM. 3X & De G-.,139
(6) Okissumv. Dewes,5 Buss.,29
17. A mortgagor granteda mortgageto securean antecedent
debt, and future advancesto a limited amount: he then granted
a secondmortgage of the same property to another person on
similar terms: eachparty wasawareof the mortgageof the other.
The first mortgageemadeadvancesto the mortgagorafter he was
aware that the second mortgageemade advancesto him on the
securityof the secondmortgage: he cannot claim that the ad-
vanceswhich he had madesubsequentlyto this knowledgeshould
havepriority over the advancesmadeby the secondmortgagee
HopTdnson
y. Kelt, 9 H. L. Ca., 514
18. A misdirectionof the mortgagor'sinterestin land will not
invalidate an equitablemortgage
Exparte Glyn,1 M. D. &:De G., 29
19. An equitable mortgagemay be created by a deposit of
copyof Court Eoli
Ex parte Warner, 19 Ves., 202. Winter v. Lord Anson,3 Brass.,493,
WUfbread v. Jordan, 1 Y. <feColl., Ex. Bq., 803. TyUe v. Webb,6
Eeav., 552
20. If deedsincluding several estates are depositedas an
equitable mortgage,with a memorandumspecifying only one as
mortgaged,it is not a mortgageof the other estatesmentioned
in the deeds
Wyldey. Radford, 83L. J., Chanc.,51
21. If a trusteefraudulently deposittitle deedsas an equitable
mortgage,the trust will prevail over the mortgage
Manning
ford y. Toleman,1 Coll., 670. fiattie y*McEewtn>35 Jfeav.,177
THIRD PARTIES AS SECURITY 45 &
22. A customer deposited

Title Deedsof premisesto secure
a
debtwithout anymemorandum.The equitablemortgagewasa
securityfor further advances
by virtue of the banker'sgeneral
lien on the deeds
JEtoyarte Tweedy, 5 Ch. I)., 559
On Securitiesgiven ly Third Parties to Bankers to secure

advances to their customers
7. We have now given what appearsto us to be necessary to

explain the relations betweena banker and his customer,and
securitiesgiven by the customer; we have now to considerthe
casewherestrangersgive securitiesto bankers on behalf of their
customers,which are much more strictly interpreted than
securitiesgiven by the customerhimself
The generalrule is this-That if a persongives a guarantyto
a banking firm to secureadvancesmadeor to be made to another
firm ascustomers,if any changetakesplacein either firm, either
from deathor the withdrawal of any partner; or the adoptionof
a newone ; the guarantyholds good as to any operationswhich
havealreadybeencommenced but not completedbeforethe change:
as,for instance,to bills accepted,discounted,or negotiatedbefore
the change,but which did not becomepayabletill after it; but it
then becomesipsofacto void and determinedas regards any new
transactions
Thesedoctrineshaving beenestablishedby a host of cases were
confirmedby Statute, 19 & 20 Viet. (1856), c. 97, s. 4-
" No promiseto answerfor the debt, default,or miscarriageof
another,madeto a firm consistingof two or morepersons,or to a
singlepersontrading under the name of a firm: and no promise
to answerfor the debt, default,or miscarriageof a firm consisting
of two or more persons,or of a single person trading under the
name of a firm, shall be binding on the person making such
promise,
in respectof anythingdoneor omittedto be done,after
a changeshallhavetakenplacein anyoneor moreof the persons
constituting the firm, or in the persontrading under the nameof
a firm, unlessthe intention of the parties that such promiseshall
continueto be binding, notwithstandingsuchchange,shall appear,
titber by express
stipulation,or by necessary
implicationfromthe
natureof the firm, or otherwise."
If, therefore,it be the intention that the guarantyslionld be&

continuing security,notwithstandingany changein either or both
of the firms, sucha stipulation must be clearly set forth in it
A guaranty is also vitiated if the banker deviates in the
slightest degreefrom its precise terms, for there is, in fact, a
dealing betweenthe banker and his customer to which th*
guarantorhas never consented
1. Before 1856a guarantyrequiredto have theconsiderationit
wasgiven for statedon the faceof it; but by the MercantileLaw
AmendmentAct, 18 & 19 Viet. (1856), c. 97, s. 3, it is enacted-
"No specialpromiseto be made by any personafter the pass-
ing of this Act to answerfor the debt, default, or miscarriageof
another person,being in writing, and signed by the party to be
charged therewith, or someother person by him thereunto law-
fully authorised,shall be deemedinvalid to supportan action, suit
or other proceedingto charge the person by whom suchpromise
shall have beenmade,by reasononly that the considerationfor
suchpromisedoesnot appearin writing, or by necessary inference
from a written document"
Evans v. Whyle, 5 Bmg, 485. Eyre v. Baitrop, 3 Madd., 221.
ArcJier v. Hale, 4 Bmg., 464. Witcher v. Hall, 5 B. & 0., 269.
Bonar v. Macdonald, 3 H. L. Ca., 226
2. If the banker advances to his customer a sum in excess of
the sum guaranteed,that is not a variation of the terms of the
guaranty
Sellers v. Jones, 16 M. <feW., 112. Parker v. Wise, 6 M. & S.,
239. Laurie v. Scholejield,L. R., 4 0. P., 622
3. If a suretyguaranteesa fixed sum, and thebanker advances
to his customerbeyondthe sum fixed, and the customerbecomes
bankrupt, the surety is only liable for the sumhe guaranteed,less
the amountof any dividend on the bankrupt's estate
Exparte Rushfmth, 10 Yes., 409. Paley v. Field, 12 Ves., 435.
J&ardwellv. Lydall, 7 Bing., 489. Baileesv. Todd, 8 Ad. & B., 846.
Ex parte Brook, 2 Rose, 334. Ex parte Holmes, M. & Oh., 301.
Geev. Pack, 33 L. J., Q. B., 49
4. But a guaranty is not determined by the death of the
guarantor,so long as the obligation is uncompleted
Bradbury vf Morgan, 1 H. & 0., 249
5. A guaranty,eventhough it statesa specifiedtime, is always
THIRD PABTIES AS SECURITY 461
countermandable-except,
of course,as regardsany advances
made
under it
Offord v. Davies, 12 C. B., N. S., 748
G.Any variationbetween
tlie preciseterms of the guaranty
and the actual dealing betweenthe banker and the debtorwill
avoid the guaranty
Glyn v. Hertel, 8 Taunt., 208. Bacon v. Chesney,I Stark., N.
P. C., 192. Bonser v. Cox, 6 Beav., 110. The General Steam
Navigation Co. v. Eolt, 6 0. B., N. S , 550. Calvert v. the London
Docks Co., 2 Keen, 638
7. A guarantywill beconstruedmoststrictly againstthe grantor

Masonv Pritchard, 12 East., 227. Mayer v. Isaac, 6 M. & W.,
605. Wood v. Ptiestner, L. B , 2 Exch , 66
8. An omission or misstatement of facts which affects the
guarantor's
responsibility
will avoidthe guaranty(a)
But an omissionto state facts which do not affect the guar-
antor'sresponsibilitywill not do so (V)
If the creditor knows that the principal has committedan act
of dishonesty,
anddoesnot informthe surety,heis discharged
(c)
(a) Pidcockv. Bishop,3 B. & C.,605. JacksonT. Duchaire,3 T.
B., 551. MayJiew v. Crickett, 2 Swanst., 189. Glyn v. Hertel, 8
Taunt., 208. Stone v. Compton, 5 Bing., N". 0., 142. Pledge v.
JBtm, John, 663. Swan v. Bank of Scotland,1 Deac , 272. Blest v*
Broion, 8 Jur., N. S., 602. Lee v. Jones, 17 C. B., N. S., 482
(6) Hamiltonv. Watson,1201.&JB\,109. Noi th Bi itish Insurance
Co. v. Lloyd, 10 Exch., 523
(c) Phillips v. Foxall, L. B., 7 Q. B., 666
9. If the creditor,without the surety'sknowledgeand consent,
givestheprincipaldebtortime by a positivelegalcontractwhich
suspendshis right of actionagainsthim-and is not a merefor-
bearanceto sue: or if he obtains executionagainsthim and then
withdraws it (1): or agreesthat the debtor's estate shall be
administered for the benefit of the creditors, " in like manner as
if he had obtaineda dischargein bankruptcy" (2) : the suretyis
discharged(a)
But notif it is donewith thesurety'sknowledge
andconsent
(b)
(a) Nislet v. Smith,2 Bro., 0. 0., 579. ReesT. Berrington,
2
Yes., jun., 540. Samuellv. Howarth,3 Mer., 272. Creightonv,
Rankin, 7 01.& F., 346. Eyre v. Everett,2 Buss.,381. Heathv.
Key,1 Y. & Jer.,434. Howellv.Jones,
1 0. M.<feB., 97. Comb*
Y. Woolf, 8 Bing., 156. Onne v. Toung,Holt, N. P. G., 84. Boultbee

v, Stubbs, 18 Yes., 20. Sank of Ireland Y. Beresford, 6 Bow., 233.
Perfect v. Musgrave, 6 Price, 111
(1) Mayhewv. Crichett,2 Swanst.,191
(2) Cragoev. Jbrces,Ii. B., 8 Exeh., 81
(5) Tyson v. Cos, Turn. <feBuss., 395
10 But an additional and collateral securitywhich doesnot
suspendthe creditor'sright of action docsnot dischargethe surety
Twopenny v. Young, 3 B. & C., 208. Bell v. Banks, 3 M. &
G., 258
11. If the principal debtor is dischargedby operation of law,

as by a certificateof bankruptcy, the surety is not discharged
Brown v. Carr, 7 Bing., 508, Langdale v. Parry, 2 Dow. <fc
By., 337
12. If the creditor takesa security of a higher order,suchas a
specialtyinsteadof a simple contract,the latter is "merged" and
the surety is discharged
But if the remedyagainstthe suretyis expresslyreservedin
the specialty,the surety is not released,even though it is given
without his knowledge
For a specialtyto operateas a mergerit must coincideexactly
in amountand with the parties,with the simplecontract
JE#parte Carstairs, Buck, B. 0., 560. JExparte Glendinning,
Buck, B. 0., 517. Ex pai te Gijford, 6 Ves.,805. BoalesT. Mayor,
19 0* B., N. S., 76. Keardeyv. Cole,16M. & W., 128. Hooperv.
Marshall, L. B., 5 C. P., 4. Bateson Y. Gosling, L. B., 7 0. P., 9.
Teede v. Johnson, 11 Exch., 840
18. If the holder of a security agreeswith the principal debtor

to givetimeto the surety,he therebydischarges
the surety
Oriental Financial Co. v. Overend<feCo., L. B., 7 Ch. Ap., 142,
On Bock Warrants and Bills of Lading:
8, Bills of Lading and Dock "Warrantsare titles to certain

specific goods; they therefore follow the law of goods and are
AssignableInstruments,but not NegotiableInstruments
Hence the real owner does not lose his Property in them
though they have been lost or stolen, and sold for value to au
innocent purchaser. He can recover them in the hands of an
THE FACTORS' ACTS 463
innocentholderfor valuejust in the samewayas he canrecover

the goodsthemselves
Gurney v. Belirend, 3 El. & BL, 622. Mangles v. Dixon, 3 H, L.,
Ca. 702
The Factors9 Acts
It was establishedby a long seriesof casesthat a factor could

TI^ pledgethe goodsof his principal by indorsing and delivering
the bill of lading, although he might sell them, and confirmed
by-
Uaitini v. Coles, 1 M. & S., 140. Shipley v. Eymer, 1 M. & S.,
484. Newsom v. Thornton, 6 East., 17
But this doctrine was altered by Statute 4, Geo.,4 (1824), o.

83, amendedStatute 6 Geo.,4 (1826), c. 9i, commonlycalledthe
Factors' Act
By this latter Act it wasenacted,§ 1-
" Any personor personsintrusted for the purposeof consign-
ment or of sale with any goods, wares, or merchandise, and who
shall haveshippedsuch goods,wares,or merchandise,in his, her,
or their nameor names,and any personor personsin whosename
or namesany goods,wares,or merchandiseshall be shippedby any
other personor persons,shall be deemedand taken to be the true
owner or ownersthereof, so far as to entitle the consigneeor
consignees
of suchgoods,
wares,andmerchandise
to a lien thereon,
in respectof any money or negotiable security or securitiesad-
vancedor given by such consigneeor consignees to or for the use
of the person or personsin whosename or namessuch goods,
wares,or merchandiseshall be shipped,or in respectof anymoney
or negotiable
securityor securities
receivedby him,her,or them
to the use of such consigneeor consigneesin the like mannerto
all intents and purposesas if such person or personswasor were
the true owner or owners of such goods, wares, and merchandise.
" Providedsuch consigneeor consigneesshall not havenotice
by the Bill of Ladingfor the deliveryof suchgoods,wares,and
merchandise,
or otherwise,at or beforethe time of any advanceof
suchmoneyor negotiablesecurity,of suchreceiptof moneyor
negotiable
securityin respectof which suchlien is claimed,that
suchpersonor personsso shippingin his,her,or their ownname
or names,or in whosename or namesany goods,wares or mer-

chandiseshall be shipped by any person or persons,is or are nob
the actualandbondfideowneror owners,
proprietoror proprietors,
of suchgoods,wares,and merchandiseso shippedas aforesaid"
By 8. 2.-" Any person or personsintrusted with and in pos-
sessionof any Bill of Lading, India "Warrant, Dock Warrant,
"Warehouse keeper'scertificate, "Wharfinger'scertificate, "Warrant
or Order for delivery of goods, shall be deemed and taken to bo
the true owner or ownersof the goods,wares,and merchandise
described and mentioned in the said several documents herein-
beforestatedrespectively,or of them, so far as to give validity to
any contract or agreementthereafter to be made or enteredinto
by suchpersonor personsso intrusted and in possessionas afore-
said, with any person or persons,body or bodies politic or cor-
porate,for the sale or disposition of the said goods,wares,and
merchandise,or any part thereof, or for the deposit and pledge
thereof, or any part thereof, as a security for any money or
negotiableinstrument or instruments advancedor given by such
personor persons,body or bodies politic and corporate,upon the
faith of such several documents or either of them
" Provided such personor persons,body or bodies politic or
corporate,shall not have notice by such documentsor either of
them or otherwise,that such personor personsso intrusted as
aforesaid is or are not the actual and lona fide owner or owners,
proprietor or proprietors,of such goods,wares,or merchandise,so
sold or deposited,or pledgedas aforesaid"
As to the meaning of " a personintrusted with" the documents
mentioned, see-
Closev. Holmes, 2 Moo. & Rob., 22. Philips v. JBTwtfc, 6 M. & W.,
572. Hatfield v. Phillips, 9 M. <feW.> 647; 14 M. <feW., 665. Bonzi
v. Stewart, 5 Soott., N. R., 1; 4 M. <feG%,295
In consequence of these decisions,the Statute 5 & 6 Viet.
(1842),c. 39, was passed,which enacted,s. 1-"Any agentwho
shall hereafterbe intrusted with the possession
of goods,or of the
documentsof title to goods,shall be deemedand taken to be the
owner of such goodsand documentsso far as to give validity to
any contract or agreementby way of pledge,lien, or security "bon&
fide madeby any personwith suchagent so intrusted as aforesaid,
as well for any original loan, advance,or payment,madeupon the
securityof suchgoodsor documents, or also for anyfurther OT

continuingadvancein respectthereof,andsuchcontractor agree-
ment shall be binding upon and good against the owner of such
goods,and all otherpersonsinterestedtherein,notwithstanding
the personclaimingsuchpledgeor lien mayhavehadnoticethat
the personwith whomsuchcontractor agreement is madeis only
an agent"
S.2 enacts-"Whereanysuchcontractoragreement for pledge,
Sen,or securityshall be madein consideration
of the deliveryor
transfer to such agent of any other goods or merchandiseor
documents
of title, or negotiable
security,uponwhichthe person-
so deliveringup the same had at the time a valid and available
lien and securityfor or in respectof a previousadvanceby virtue
of somecontract or agreementmadewith suchagent,such con-
tract and agreement,if bondfide on the part of the personwith
whom the samemay be made,shall be deemedto be a contract
made in consideration of an advance within the true intent and
meaningof the Act, and shall be as valid and effectual, to all
intents and purposes,and to the sameextent,as if the considera-
tion for the samehad beena donafide presentof money
" Providedthat the lien acquired under such last-mentioned
contract or agreementupon the goodsor documentsdepositedin.
exchangeshall not exceedthe valueat the time of the goodsand
merchandise which, or the document of title to which, or the
negotiablesecuritywhich shall be deliveredup and exchanged"
8. 8.-This Act and everymatter and thing hereincontained,
shall be deemedand construedto give validity to such contracts
and agreementsonly, and to protect only such loans, advances,
and exchanges, as shall be madebondfide, and without notice that
the agent making sueh contractsor agreementsas aforesaid,has
not authority to make the same,or is acting maidfide in respect
thereofagainstthe ownerof suchgoodsand merchandise
"Nothing herein containedshall be construedto extendor
protectanylien or pledgefor or in respectof anyantecedent
debt,
owingfromanyagentto anypersonwith or to whomsuchlien or
pledgeshallbegiven,norto authoriseanyagentintrustedasafore-
saidin deviatingfrom anyexpress ordersor authorityreceived
from the owner: but that for the purposeand to the intent of
protectingall such bondfide loans,advances,
andexchanges
as
VOL. II. HH
466 THEORY AND PRACTICE OF
aforesaid
(thoughmadewith noticeof such agentnot beingthe
owner, but without any notice of the agent's acting without
authority), and to no further or other interest or purposesuch
contract or agreementas aforesaidshall be binding on the owner
and all otherpersonsinterestedin suchgoods"
S. 4.-" Any Bill of Lading, India Warrant, Dock "Warrant,
Warehouse keeper's Certificate,Warrant, or Order for delivery of
goods, or any other document used in the ordinary courseof
businessas proof of the possession or control of goods,or author-
ising, or purporting to authorise, either by indorsementor by
delivery, the possessorof such documentto transfer or receive
goodsthereby represented,shall be deemedand taken to be a
Documentof Title within the meaningof this Act: and any agent
intrusted as aforesaidand possessed of any suchdocumentor title
whetherderivedimmediately
from the ownerof suchgoods,or
obtained by reason of such agent's having been intrusted with
the possession of the goods,or of any other documentsof title
thereto, shall be deemedand taken to have been intrusted with
the possession of the goodsrepresentedby such documentof title
as aforesaid,and all contractspledgingor giving a lien upon such
documents of title as aforesaid, shall be deemedand taken to be
respectivelypledgesof and liens upon the goodsto which the same
relates: and suchagent shall be deemedto be possessed of such
goodsor documents,whether the same shall be in his actual
custody,or shall beheld by any otherpersonsubjectto his control
or for him, or on his behalf
" Whetherany loan or advanceshall be londfide madeto any
agentintrusted with and in possession of any such goodsor docu-
mentsof title as aforesaid,on the faith of any contract or agree-
ment in writing to assign,deposit,transfer, or deliver suchgoods
or documentsof title as aforesaid,and suchgoodsor documentsof
title shall actuallybe receivedby the personmaking suchloan or
advance,without notice that such agent was not authorised to
makesuchpledgeor security,every such loan or advanceshall be
deemedand taken to be a loan or advanceon the securityof such
goodsand documents
of title within the moaningof this Act,
though such goodsor documentsof title shall not actually be
receivedby the person making such loan or advancetill the
periodsubsequentthereto
THE FACTORS' ACTS 46 f
rt Any contract or agreementwhether made direct with snch

agentas aforesaid,or with any clerk or other personon his behalf,
shallbedeemed
a contract
oragreement
withsuchagent:andany
paymentmade,whetherby moneyor bills of exchange,
or other
negotiablesecurity,shall be deemedand taken to be an advance
within the meaningof this Act: and an agentin possession
as
aforesaidof such goods or documents,shall be taken for the
purposesof this Act to have been intrusted therewith by the
ownerthereof,unlessthe contrarycan be shewnin evidence"
By 6 Geo.4 (1825),c. 94,s. 3, it is enacted-"In caseany
personor persons,body or bodiespolitic or corporate,shall accept
and take any such goods,wares,or merchandise,in depositor
pledgefrom any such person or personsso in possession and in
trust as aforesaid,without notice as aforesaid,as a security for
any debt or demanddue and owing from such personor persons
so intrusted and in possessionas aforesaid,to such person or
persons,body or bodiespolitic and corporate,before the time of
such deposit or pledge, then and in that casesuch personor
persons,body or bodies politic or corporate,so accepting or
taking such goods,wares, or merchandisein deposit or pledge,
shall acquireno further or otherrighfc,title or interestin or upon,
or to the said goods,wares,or merchandise, or anysuchdocument
as aforesaid,than was possessed, or could or might have been
enforcedby the said personor personsso possessed and intrusted
as aforesaid,at the time of suchdepositor pledgeas a securityas
last aforesaid: but such personor persons,body or bodiespolitic
or corporate,so acceptingor taking such goods,wares,or mer-
chandisein deposit or pledge,shall and mayacquire,possessand
enforce,such right, title or interest as was possessed and might
have beenenforced by such personor personsso possessed and
intrusted as aforesaid "
As to what constitutes antecedent debt, see-
Jewan v. Whitworth, L. B., 2 Eq., 602. Macneev. Gorst, L. B.
4 Eg., 315
S, 4.-" It shall be lawful to and for any personor persons
body or bodiespolitic and corporate,to contract with any agent
or agentsintrusted with any goods,wares,or merchandise, or to
whomthe samemay be consigned,for the purchaseof any such
goods,wares,or merchandise, and to receivethe sameand pay for
HZI £
the sameto suchagent or agents: and suchcontract and payment

shall be binding upon and good against the ownerof such goods,
wares,and merchandise,notwithstanding such person or persons,
"bodyor bodies politic or corporate,shall have notice that the
personor personsmaking and entering into such contract,or on
whosebehalf suchcontract is madeor enteredinto, is an agentor
agents
" Provided such contract and paymentbe made in the usual
and ordinary courseof business,and that suchpersonor persons,
body or bodiespolitic or corporate,shall not, when such contract
is enteredinto or paymentmade,havenotice that such agent or
agentsis or are not authorisedto sell the said goods,
"
wares,and
merchandise, or to receivethe said purchasemoney
On this section see-
Baines v. Swainson,4 B. & Sm., 270. Fuentes y. Montis, L. R.,
3 0. P., 268: 4 G. P., 93. Cole v. North WesternBank, L. R., 9 0.
P., 470: affirmed in Ex. Oh., 10 C. P., 354
S. 5.-" It shall be lawful to and for any personor persons,
bodyor bodiespolitic or corporate,
to acceptand takeanysuch
goods,wares,andmerchandise, or anysuchdocument as aforesaid,
in deposit or pledge from any such factor or factors, agentor
agents,notwithstandingsuchpersonor persons,bodyor bodies
politic or corporate,
shall havesuchnoticeas aforesaidthat the
personor persons makingsuchdepositor pledgeis or area factor
or factors,agentor agents;but then and in such casesuchperson
or persons,
bodyor bodiespolitic or corporate,
shall acquireno
further or other right, title or interestin or upon or to the said
goods,wares,or merchandise,
or anysuchdocument
asaforesaid,
for the deliverythereof,than waspossessedor could or might have
beenenforcedby the said factor or factors,agent or agents,at the
time of suchdepositor pledgeas a security as last aforesaid: but
suchpersonor persons, bodyor bodiespolitic or corporate, shall
andmayacquire,possess and enforcesuchright, title or interest,
aswaspossessed andmight havebeenenforcedby suchfactoror
factors,agentor agents,at the time of suchdepositor pledge,aa
aforesaid
On this section see-
Blanfy v. Allan, Dans.& LI., 22. Fletclierv. Heath,7 B. & d,
517, Thomsonv. Farmer, 1 Moo. & Ma., 48
THE FACTORS7 ACTS 469
9. 1. These Statutes are limited to mercantile transactions

Woodv. Rowcliffe, 6 Hare, 183. Monk v. Whitteribiiry, 2 B. &
Ad., 484 Lamb v. Attenborough, 1 B. <feSm., 831. Jenkyns v.
Vsborne,8 Scott., N. B., 505. Van Casteelv. Booker, 2 Exch., 691
See also-
GoUnd Ghunder Sein v. Ryan, 9 Moo. Ind. Ap., 140. Sheppard
v. Union Sank of London, 7 H. & N., 661
2. DockWarrants are assignableinstruments,and beingduly
indorsedand delivered,the property in the goodsthey represent
passesby the delivery of the instrument,so as to empowerthe
holder to take possessionof the goods. And if the Assignor
becomes bankrupthis assignees haveno title to the goods
Zwinger v. Samuda, 1 Moor, 12. Lucas v. Dorrien, 1 Moor, 29*
Spear v. Travers, 4 Camp., 251
3. A brokergavea banker a letter of hypothecationof goods,
promising to lodge the warrants for them next day. Having
failed to do so after repeatedapplications,the bankerobtainedthe
keys of the warehouse and took possession of the goods. Bacon,
V. 0., held that the banker had acquireda goodtitle to the goods
underthe Factors'Act, 5 & 6 Viet. (1842), c. 39, s. 4
Ex parte North WesternBank, re Slee,42 L, J., Bank, 6
4. Bills of Lading made out to the order of the shipperor
consignee are instrumentsassignableby indorsementand delivery,
so as to transferthe property in the goodsto a bond,fide indorsee
for value, in the absenceof any notice of fraud, insolvency,or
want of title in the indorser
If the consignee
or vendeebecomesinsolvent,the unpaidvendor
or consignormay stop the goodsin transitu beforetheyhave been
delivered to the vendee, consignee, or his agent
But if the consigneeor vendeehasassignedthe Bill of Lading
for valuable consideration to an indorsee, who has no notice of his
fraud or insolvency,such an indorsementand deliverywill defeat
the unpaidvendor'sright of stoppagem transitu
Lickbarrow v. Mason, 2 T. B., 63. Smith's L. 0., vol. L, p. 756.
Cuming v. Brown, 9 East., 506. Gurney v. Behrend, 3 El. <feBL,
622. The Marie Joseph,L. B., 1 P. 0., 219. The Argentina, L. B.,
1 Ad. & Be., 370. Rodger v. The Comptoir d'JEscompte de Paris, L.
B., 2 P. C., 393. Gilbert v. Guignon, L. B., 8 Oh., Ap. 16
5. The forbearance or release of an antecedent debt is not a
goodconsideration
for an engagementto indorseBills of Lading
470 THEORY AND PRACTICE OF BAKKXKO
whichhadnotyetcomeintotheconsignee's
hands,
soasto defeat
theunpaidvendor'sright of stoppage
in tramttu
Rodger v. TheComptoird'Mtc&mptedeParit,L, B., 2 3>.C.»SOS
6. A Bill of Lading in which the words" or order or assigns"
areomittedis notan assignable
instrument, [But this !a cured
nowby theSupreme Courtof JudicatureAct]
But wherethe consigneeof a Bill of Lading without the words
"or orderor assigns"had actuallyreceivedthe,goodsand had
assignedthemoverto a Bankfor valuableconsideration, who thus
unitedin themselves
the legalandequitabletitle to the gootta,the
" omissionof the words " or order or assigns" is not sufficient to
give the indorsees
constructivenotice of someequitable arrange-
ment betweenthe consignorand the assignee
Hmdmon v. The Cmptoir fflStcmptedeP<ir&,t».R,»£ P, <X»
253
7. Whena Bankhaddiscounted
Bills of Exchange
to a large
amountonthe express
agreement
that theyshouldbeaccompanied
by shipping documents,which the sellersfailed to give ; and,
being pressedby the Bank, indorsedanother Bill of Lading in
substitution of the documentsfirst promised,it was held to bo
indorsedfor valuableconsideration,and to defeatthe coxuugnur'g
right of stoppagein transittt
The Chartered Rank ofXndia, Amtmlut, and China *,»Ifrmfcnum,
Ii. B., 5 P. ¬ 501
8. A personto whom an indorsedBill of Lading wassent by
mistakeby the consignorcannotassignit so asto defeattonAJUe
assignees
of othersof the sameset of Bills of Lading for value
Gilbert T. Guignon, I*. E., 8 Oh. p., 10. Schwttr T» JfeftKfltof,
7 E. & B., 7(U
9. If theindorseeknewthat the consignee

wasin insolvent
circumstances,
and had not paid for the goods; and that BObill
hadbeengivenfor them,or that onehavingbeenaccepted, it was
not likely to be paid,the assignment
is void againstthe unpaid
vendor
Gumingv. Brown, 0 East, 506
10. Formerly
theindorsement
anddelivery
ofaBill of Lading
wassufficientto transferthe propertyin the goods,but it did not
transfer the contract to the assignee. But the 18 & 19 Viet
(1855), c. 111, enacts-
S.1.-"Every consignee
of goods
named
in a Bill of Lading,
and everyindorseeof a Bill of Lading to trhoni the property in

ike goodsthereinmentionedshallpns$% upon or by reason of such
consignment or indorsement, shall havetransferredto and vestediti
him all rights of suit, and be subject to the same liabilities in
respectof suchgoods,as if the contract containedin the Bill of
Ladinghadbeenmadewith himself"
Short v. Simpsont Ii. R-, 1 G, P., 248. The St. Glmtd, Br. & Lush,
Ad. 0. 4. Dracachi v. The Anglo-Eyypti&n Bunk, L. B., 8 C.
P., 100. The Jfret&m, L. E., 3 P. C., GOi. Fox v. Nutt, C H. &
N., 630.
11. A nudeassignee of the Bill of Lading cannotsuein a Court
of CommonLaw under the Statute 18 & 19 Viet. (1855), c. Ill,
nor in the Admiralty Court, under the Hfcat.2i Viet. (1801),c. 13
The St. Cloud, Br. & Lush., Ad. Ca., 4.
S. 2.-"Nothing herein containedshall prejudiceor affectany
right of stoppagem transitu, or any right to claim freight against
the original shipperor owner, or any liability of the consigneeor
indorseeby reasonor in consequence of his being suchconsignee
or indorsee,or of his receipt of the goods by reason,or in conse-
quenceof, such consignmentor indorsement"
S, 8,-" Every Bill of Lading in the handsof a consigneeor
indorseefor valuable consideration,representinggoods to have
beenshippedon board a vessel,shall be conclusiveevidenceof
suchshipmentas against the master or other personsigning the
same,notwithstanding that such goods,or somepart thereof,may
not have beenso shipped,unlesssuchholderof the Bill of Lading
shall have had actual notice at the time of receiving the same
that the goodshad not beenin fact laden on board
" Provided that the master or other personso signing may
exoneratehimself in respectof suchmisrepresentation by shewing
that it wascausedwithout any default on his part, and wholly by
the fraud of the shipper, or the holder, or some personunder
whom the owner claims "
Whore goodsare at sea the parting with the Bill of Lading
which is the symbol of the goods,is parting with the ownership
of the goods themselves: and this principle applies to goods
which,for the convenienceof the parties have been landed at a
sufferancewharf. (11 & 12 Yict. [1848], c. xviii, and 25 and
2GViet. [1802], c. 63, s, 67.)
472 THEORY AND ERACTICE OF BANKING
The Bill of Lading is a living instrumentso long as the

engagement of the shipownerkis not beencompletelyfulfilled.
and the transferof it for valuepassesthe absoluteproperty in the
goods. And it has not beenfulfilled so long as the goods,though
landedat a wharf, are subject to a stop order
The personwho first gets the Bill of Lading (though only one
of a set of three) gets the property in the goodsit represents: he
neednot do any act to assert his title-which the transfer of the
Bill of Lading itself renders complete: and any subsequent
dealingswith the othersare subordinateto the rights passedby
that one
MyersUinv. Barber,L. K,, 2 0, P., 38; 6GL 4 H. L., 317.
12. If Bills of Exchangeare sentto be acceptedand a Bill of
Lading along with them to protect the Bills of Exchange,if the
consigneerefusesacceptanceof the Bills of Exchangehe cannot
retain the Bill of Lading
A Bill of Ladingretainedin sucha mannerconveysnopro-
pertyin the goodsto an assignee
of the Bill
Shepherdv. Harrison, L. B., 4 Q. B., 196; 493. 5 H. L., 116.
Factors' Acts AmendmentAct, Stat. 1877, c. 39
10. Whereasdoubts have arisen with respectto the true

meaningof certain provisions of the Factors' Acts, and it is ex-
pedient to remove such doubts and otherwiseto amend the said
Acts, for the better securityof personsbuying or making advances
on goods,or documentsof title to goods,in the usualand ordinary
course of mercantile business:
Be it enactedby the Queen'smost Excellent Majesty, by and
with the adviceand consentof the Lords Spiritual and Temporal,
and Commons,in the present Parliament assembled, and by the
authority of the same,as follows:
1. In this Act, the expression"the principal Acts "means
the following Acts: that is to say,
The Act of the 4th Geo.IT. (1823), c. 83
The Act of the 6th Geo.IV. (1825), c. 94
The Act of the 5th and 6th of Her Majesty (1842), c. 39
And the saidActs and this Act may be cited for all purposes
as the "Factors1 Acts, 1823 to 1877"
2. Where any agentor personhas been entrustedwith and

continuesin the possession
of any goods,or documentsof title to
goods,within the meaningof the principalActs as amended
by
this Act, any revocationof his entrustment or agency shall not
prejudiceor affectthe title or rights of any other personwho,
without notice of such revocation,purchasessuch goodsor
documents
8. Whereanygoodshavebeensold,and the vendoror any
personon his behalf continuesor is in possession
of the documents
of title thereto,anysale,pledge,or otherdispositionof the goods
or documentsmadeby suchvendoror any personor agententrusted
l>ythe vendor with the goodsor documentswithin the meaningof
the principal Acts as amendedby this Act so continuing or being
in possession,shall be as valid and effectualas if suchvendoror
person wore an agentor personentrusted by the vendee\\ith the
floods or documentswithin the.meaningof the principal Acts as
amendedby this Act, provided the personto whom the sale,pledge
or other dispositionis made lias not notice that the goodshave
beenpreviouslysold
4. Whereany goodshave beensold or contractedto be sold,
and the vendeeor any personon his behalf,obtainsthe possession
of the documentsof title thereto from the vendoror his agents,
any sale,pledge,or dispositionof suchgoodsor documentsby such
vendeeso in possession or by any other personor agententrusted
by the vendeewith the documentswithin the meaning of the
principalAct asamended
by thisAct shallbeasvalid andeffectual
as if suchvendeeor other personwerean agentor personentrusted
l>y the vendor with the documentswithin the meaning of the
principalAct as amendedby this Act, providedthe personto
whom the sale,pledge,or other dispositionis madehasnot notice
of any lien or other right of the vendorin respectof the goods
5. Where any documentof title to goodshas been lawfully
indorsed or otherwise transferred to any personas a vendeeor
owner of the goods,and such person transferssuchdocumentby
indorsement(or by delivery wherethe documentis by custom,or
by its expressterms transferableby delivery,or makes the goods
deliverable to the bearer) to a personwho takes the same bond
flda and for valuable consideration, the last-mentioned transfer
shall have the sameeffect for defeatingany vendor'slien or righfc
ill THEOKY AND PRACTICE OF BANKING
of stoppagein transitu as the transferof a bill of lading has for

defeatingthe right of stoppagein transitu
6. This Act shallapply only to acts doneand rights acquired
after the passingof this Act
On Bills of Lading
11* The caseof Bills of Lading is another unfortunate in-
stance of a conflict between the Courts of Law aud the mercantile
community,arising from the dogmawhich Lord Kenyon imposed
on the Judges that choses-in-action are not transferableby the
CommonLaw of England, so as to allow the transfereeto suethe
obligor in his own name. And in this caseit was an entirely
erroneousapplicationof that dogma
Ever since Bills of Lading had come before the Courts the
Judgeshad acknowledgedthat a Bill of Lading, madetransferable
by the shipmaster,wassufficient to transfer and vest the property
in the goodsin the consignee,or indorsee. But by an incom-
prehensibledistinction it washeld that though the Bill of Lading
vestedthe legal property of the goods in the indorsee,yet that it
did not transfer the contract to deliver them : aud therefore that
the indorseeof the Bill of Lading could not suethe shipmasterin
his own name, but must sue in the name of the consignor
This dogma having beenincidentally assertedin severalcases,
was formally decided in the caseof Thompsonv. Dominy (14
II. & "W.,403)
In this casethe indorseeof a transferableBill of Lading sued
the ownerof the ship in his own name
Parke, B. (afterwardsLord Wensleydale)admitted that the
Bill of Lading wastransferablefrom hand to hand; and it passed
the property in the goodsmentionedin it; but he never heard of
an action being brought on it, and thought such an action quite
untenable. By the law of England a chose-in-action is not trans-
ferable: by the custom of merchants it is transferablein one
instance,that of a Bill of Exchange: but there is no authority to
shewthat a Bill of Lading is transferableunder sucha custom,so
as to enablea party to bring an action upon it
It is remarkable that this decision was in flat contradiction to
a casedecidedin the sameCourt only a few monthspreviously
BILLS OP LADING 475
In Franklin v. Neatc (13 M. £ W., 481) a personhad pawned

a watch assecurityfor a loan. He then sold the watch to another
person. The transfereesuedthe pawnbroker for the watch ou
paying off the loan and charges. The pawnbroker refusedto
deliver the watch to any personbut the original owner; becausea
chose-in-action was not transferable
But the Court unanimouslyheld that the transfereehad ac-
quired the legal property in the watch,and had the right to sue
for it in his ownname,as hehadacquiredthe samerightsas the
original pawnor
It would be impossible to imagine two casesin which the
decisionswerein moreflagrant contradiction than thoseof Thomp-
son v. Dominy and Fran&lm v. Neate
It is perfectly evident that the transfereesin both caseswere
exactly in the same position. By the acknowledgementof the
Court, they hud in each caseacquired the legal property in the
goods: yet in one casethe Court held that he had the right to
sue,and in the other that he had not. In the casein which the
baileehad not consentedto return the watch to any one but the
original pawnor,the Court held that the transfereemight sue: in
the casewhere the bailee had expresslyconsentedto deliver the
goodsto any assignee,the Court held that the indorsee had no
right to sue!
In this casethe Court lost sight of the fundamentaldistinction
betweena Bill of Lading and a Bill of Exchange. A Bill of
Lading is a title to certain specificgoods,and the indorseeof the
Bill acquiresthe legal propertyin thesespecificgoods: and who
but the legal owner of the goodscan havethe right to sue? The
shipmasterand the pawnbrokerwere merelybaileesof the goods.
But a Bill of Exchangeis not a title to any specificmoney: it is
a mere right of action againsta personto pay a sum of money;
and the Bill can transfernothing but the right of action. A Bill
of Lading is not a chose-in-action:it is a chosein possession.
Even, therefore,if the dogmathat no choses-in-adion exceptBills
of Exchangewere transferableby the law of England, it did not
apply to the caseof Bills of Lading
The dogma of the Courts being thus in hopelessconflict with
the interest of the mercantilecommunity,had to be remediedby
Act of Parliament, as in the caseof PromissoryNotes
Hills of Lading AmendmentAct, Stat. 1855, c. Ill

12. Whereasby the customof merchantsa BUI of Lading of
goodsbeing transferableby indorsementthe property in the goods
maytherebypassto the indorsee,but neverthelessall rights in
respectof the contract containedin the Bill of Lading continue
in the original shipper or owner, and it is expedient that such
rights shouldpasswith the property : And whereasit frequently
happensthat the goods in respectof which Bills of Lading pur-
port to be signed have not been ladenon board,and it is proper
that such Bills of Lading in the handsof a "bomfide holder for
value should not be questionedby the Master or other person
signing the sameon the ground of the goods not having been
ladenas aforesaid: Be it therefore enacted by the Queen'smost
Excellent Majesty, by and with the advice and consent of the
Lords Spiritual and Temporal, and Commons,in this present
Parliament assembled,and by the Authority of the same, as
follows:
I. Every Consigneeof Goodsnamed in a Bill of Lading,

and everyindorseeof a Bill of Lading to whom the Property in
the Goodstherein mentionedshall pass,upon or by reasonof such
consignmentor indorsement,shall have transferredto and vested
in him all rights of suit, and be subject to the sameliabilities ia
respectof suchgoodsas if the contract contained in the Bill of
Lading had beenmadewith himself
II. Nothing herein contained shall prejudice or affect any
Eight of Stoppagein transitu, or any Eight to claim freight
against the original shipper or owner, or any Liability of the
consignee or indorsee,by reason or in consequenceof his being
such consigneeor indorsee,or of his receipt of the goods by
reasonor in consequence of suchconsignmentor indorsement
III. Every Bill of Lading in the handsof a consigneeor
indorseefor valuable consideration representinggoodsto have
beenshipped on board a vesselshall be conclusive evidenceof
such shipmentas against the master or other personsigning the
same,notwithstanding
that suchgoodsor somepart thereofmay
not havebeenso shipped,
unlesssuchholderof the Bill of Lading
BILLS OF LADING 477
shall have had actual notice at the time of receiving the same
that the goods had not beenin fact laden on board: Provided
that the masteror other personso signing mayexoneratehimself
in respect of such misrepresentationby showing that it was
causedwithout any default on his part, and wholly by the fraud
of the shipper,or of the holder, or some personunder whom the
Holder claims
CHAPTER XX
ON THE LAW OF CREDIT, BILLS AND NOTES
Preliminary Remarks
It has alreadybeenstatedin a former part of this work, that

the author was selectedby the Law Digest Commissionersto
preparethe National Digestof the Law of Credit, Bills and Notes
for the guidanceof the Courts of Law, in contemplationof the
fusion of Law and Equity which was afterwards effectedby the
SupremeCourt of JudicatureAct
,As all the Courts were henceforth to administer both Law and
Equity, it was necessaryto combineboth the rules of Law and
Equityrelatingto Credit,Bills andNotes
Most of the usual treatiseson Bills of Exchangeare merely
collectionsof CommonLaw casesrelating to them, and they take
very slight notice of the casesin Equity. But the number of
casesin Equity is very little, if at all, lessthan thosein Common
Law. Moreover,the rules of Equity relating to Credit conflict in
severalimportant points with the rules of CommonLaw: and the
Act providesthat in all caseswhere the rules of Equity conflict
with thoseof CommonLaw, the rules of Equity shall prevail
The author'sDigest wasthereforea completeexpositionof the
principles both of Law and Equity relating to Credit, Bills and
Notes. But the commissioners discontinued the work, so that ifc
was never publishedofficially: but the author included several
important portions of it in the third edition of this work
Sincethen the Bills of ExchangeAct of 1882has beenpassed,
which is entitled " An Act to Codify the Law relating to Bills of
LAW OF CREDIT, BILLS AND NOTES 479
Exchange." It might perhapsbe supposedfrom the title that it

wasa codificationof the whole Law relating to Bills and Notes.
But suchan idea is an entire delusion* Omitting wholly obsolete
caseswhich may have beenreversed,and are otherwiseuseless, it
may he estimatedthat there are at least 8,000 casesin Law and
Equity which ought to be includedin anyAct which hasany
pretensionsto be calleda codeof " the Law won the subject
The Bill upon which the Act wasfoundedcontainedreferences
to exactlyIOCcases;and though perhapssomeof thesemight be
consideredaa representativecases,yet it is a matter of certainty
that it doesnot contain one-tenthpart of the wholeLaw
Nor doesit contain any expositionof scientificprinciples; and
only a very few references to cases
in Equity. In fact it is nothing
morethan a seriesof dogmatic rules on a very small part of the
subject,and is perfectly inadequateas a practicalcode
It wouldl>eutterly impossibleto give a completecodeof the
Law of Bills and Notes in this work, as it \\ould requirea treatise
considerablylarger than the work itself
The line we have endeavoured to draw is this: There are
certainlegal doctrinesand caseswhich areateolutelyindispensable
for a bankerto be familiar with in his daily business,any one of
which may occur in practice at any instant. There are other
doctrinesand caseswhich are only necessary to be known, when
the banker IB unhappilydrawn into legal proceedings;in these
caseshe will be in the hands ofsand be guidedby, his solicitor
and counsel
We have endeavouredto give a selectionof those doctrines
and canesonly which are comprisedunder the former of these
division*
In endeavouringhoweverto draw this line, weare sure that
every one conversantwith the subject must be aware of the
difficulty of selectingout of the great massof casesand decisions,
thoseonly which are fundamental,and passingover thosewhich
are only of secondaryimportance
In the presentchapterthe resultsof our own work on the
Digestand the Bills of ExchangeAct, 1882,are incorporated.
Thoseclauseswhich are taken from the Act are distinguished
by an asterisk
Definitions and General Principles
On the Origin and Nature of Credit or Debt

1. 1. When one person "borrows" money,or buys goods
from another " on credit" an Obligation, or Contract, is created
betweenthesetwo persons,consistingof two parts-
(a) A Hight to Demand payment is created in the
person of the lender or seller
(6) A Duty to pay is createdin the personof the
borrower or buyer
2. Thelenderor seller'sRightto Demand
paymentis termeda
Credit: andthe borrower'sor buyer'sDuty to payis termeda
Debt
3. But in law and commonusagethe Right to demandpay-
ment is also called a Debt
4. The word Debt is, therefore,usedindiscriminately to mean
the Right to demandas well as the Duty to pay: and it must
alwaysbe observedfrom the context of the passagein which sense
it is used
5. HenceCredit or Debt in Legal, Commercial,and Eco-
nomicallanguage,meansa Right of Action against a personfor a
sum of mouey
6. Sucha Riglit, Credit, or Debt is a Ohose-in-aotion^
and is
included under the term Goods and Chattels
Sheppard. A grand Abridgment of the Commonand Statute Law
of England. 1675. #.329. Ford <feSheldon'sCase,12 Co, Bop., 2.
Eyal v. Bowles,I Ves.,son.,348. Stephen'sBlackstcme,Vol.
I., oh*5
7. A creationor declarationof trust of a Debt, or Chose-in-
action,maybe madeby merewords,without writing,and when
oncemadeis irrevocable,exceptby consentof all parties
Nab v. Nab, 10 Mod,, 404=. Fordyce v. William, 3 Bro., C, 0.,
577. Ardern v. Rowney, 5 Esp., 255. Baylsy v. Koulcott, 4 Buss.,
345. Benbow v. Towwend, 1 My. & K, 506. Crabb v. Crabb, 1
My. & K., 511, Kilpin v. Kilpin, I My. & K., 520. Soyd v.
Emerson,2 A. <fe
B., 184, Tibbits v. George,5 A. & B., 107. Mac*
fadden v. Jenkym^ 1 Hare, 458. XXawKinsv. Gardiner, 2 Sm. 4s
Gil, 441. Peckliam v. Taylor, 31 Beav., 250
8. The personwho owes the moneyis termed tho Debtor:
the personto whomit is owedis termedthe Creditor, and
sometimes the Debteo
T,AWOF CREDIT,BILLS AND KOTES 481
On tfa Transfer of a Credit, or Debt
2. 1. A Credit, Debt, or Chose-tn~action may be transferred

orally by the Creditor to another personwith the consentof the
Debtor: a trust is thencreated
in the personof the Debtor,and
the transfereemaysue him in his own name
Braetoa, Lib. iii.f o. 2., s. 13. TatlocJcv. Hani*, 3 T. B., 174.
Fairhe v. JDinfoft, 8 B. <feC., 395
2. If a debtor createsan Obligationassignableor transferable
to bearer,suchan Obligationmaybe sold or transferred; whether
it is in the formof a simpleContractor a Deed: and the assignee,
or bearer,maysue the Debtor in his own name
Three Pntttf Case, Y. B., 41 Edw. III. (13GB),27. Raiserv.
MttHtK, T>yer,<>5t1. Mmtnd v. Gregory, 1 Co. Rep., 2Kb. Geiatd
v. Utnrtfrn, IMl , fiO. Nhi'Mt'it v, Henthy, %Show., 1601. Huiton's
CW,2 Hlion.,2&3./;/<»««irk
v. Z*/<>yi,
2 Lutw.,1583.TFiHwwf
v. William*, Carth., 2G1>. /V«mm v. Oarrett, Comb., 227. Lamlwrt
v. Onto, 1 Ld. Kaym.v 413. Ctoifrr v. Palmer, 12 Mod., 380,
J/t7/<T v. J^rtff, 1 Burr., 452. grant v. Vaughan, 3 Burr., 151G.
A>«« v. /taird, 8 C. B.t N. S., 372. £Vnn«r y. Mean*, 2 W. BL,
1269. Goodwin v. Robarts, L. B,, 10 Ei., 357
" Any absoluteassignment

by writing underthe handof the
assignor(not purporting to beby wayof chargeonly) of any Debt,
or other legal Chose-in-adion, of which expressnotice in writing
fthall have been given to the Debtor, Trustee, or other person
from whom the assignorwould have been entitled to receiveor
claim snchDebt, or CAow-in-ariion, shall be, and be deemedto be
effectualin law (subject to all equities which would have been
entitled to priority over the right of the assigneeif this Act had
not piwsed)to passand transfer the legal right to such Debt, or
C/wM~in-(tcti(m9 from the date of such notice,and all legal and
other remediesfor the same, and the power to give a good
dittchargefor the same,without the concurrence of the assignor
**Providedalwaysthat if the Debtor,Trustee,or other person.
liable ia respectof such Debt, or ChoM-iti-action, shall have had
notice that such alignment is disputed by the assignor,or any
oneclaiming tinder him ; or of any other opposingor conflicting
claimsto such Debt, or GAosewwtcKon, he shall be entitled if he
think fit, to call upon the severalpersonsmakingclaimthereto,
to intopleadconcerning the same,"or he mayif he think fit pay
vol.. n» 11
thesameintothe High Courtof Justice,underandin conformity

with the provisions
of the Actsfor the reliefof trustees"
36 & 37 Yict. (1873), ch. 66, s. 25, § 6
Generallyin all mattersin which there is any conflict or
variancebetweenthe Rulesof Equity and the Rules of the
CommonLaw with referenceto the samematter, the rules of
Equity shall prevail
36 & 37 Viet. (1873),ch. 66, s. 25, § 11
Definition of Instruments of Credit or Debt

3. 1. Any written recordof a fact is termedan Instru-
ment. Anywritten evidence of a Debtis termedan Instru-
ment of Credit or of Debt
2. A written contract by which one person is bound to pay
(1) a certainsumof money;(2) to a certainperson;(8) at a
certaintime; is termedan Obligation, or Security for
Money, or a Valuable Security
24 <fe25 Viet. (1861), c. 96, s. 1
3. A written Order from one personto another who owes,or
appearsto owe,him moneyas a Debtor, directing him to pay
absolutelyand at all events(1) a certain sum of money; (2) to a
certain person; (3) at a certain time; is, in modem language
termeda Bill of Exchange, or, shortly, a Bill
4. A written Promise madeby one personto pay absolutely
and at all events(1) a certain sum of money; (2) to a certain
person; (3) at a certain time ; is in modern languagetermeda
Promissory Ifote, or, shortly, a Note
5. A written Order addressed by one personto another, who
holdsa fund not ashis ownproperty,but merelyasthe Agent,
Bailee, Trustee, or Servant of thewriter,to paya sumof
money, is termeda Draft, or Order for the paymentof money
Row v. Dawson, 1 Ves., sen., 881
6. A mereacknowledgment
of a debt, not containingany
promiseto pay, is usually termedan I 0 TJ
7. A BUI, Note,or I 0 U is alwaysa cho$e-in-action,
that IB,it
operates
asa charge,or Credit,againstthe personof the Debtor
8. A Draft, or Order,is alwaysa chose-in-possession,
and it
operatesas a charge,or Credit, againstthe fund
How v. Dawson, I Vcs, sen., 331
LAW OF CRKDIT,BILLS AND NOTES 483
DylnHbn of Partiesto an Instrumentof Credit

4* I, In a Hill the person
whoaddresses
the orderis termed
the Drawer; the personto \\homhe addresses
it is termedthe
Drawee
£. If the Draweeconsentsto pay the orderlie must subscribe
his nameto it, usuallywith the word " accepted
" beforeit; he is
then termedthe Acceptor
8. In a Notethe personwhomakesthepromiseis termedthe
Maker
4. The person
to whoma Bill, Note,or Draftis madepayable
is termedthe Payee
f>.The Acceptorof a Bill and the Maker of a Note is termed
the Principal Debtor or Obligor
0. Before the M & ;i7 Viet. ILH7:J), c. GG,came into effect,
tmk'KBthe Obligor of a Bill or Xute expresslymadeit payableto
the payee,or order, the instrument could not be transferredso us
to enablethe transfereeto wie the obligor ut lawiu hisowu name:
and Buchan instrument wastermednon-Negotiable
Since that Act cameinto effect on Nov. 1, 1875,this is no
longerthecase,and anyinstrumentof Credit or Debt maynow
Ix* transferredso that the transfereemaysue the Obligor in his
own name
7. Ift however,the instrument is made payableto the payee

44ororder," it cannot be transferredwithout tbe payee'sorder;
this the payeedonnby writing his nameon it, usuallyon the back
of it; hence,this signatureia termedthe Indorsement. The
payeet»then termedthe Indorser, andthe personto whomho
deliver* it is termed the Indox*see
H, Theperson
whobusthelawfulpoRsoraion
of theinstrument,
either actual or constructive,and is entitled to suethe partiesto
it, is termedtheHolder
Definition of Ttrm* relating to the Instrument

6, I. To "Draw," uMake," "Accept" (<r) or
**Indorse M (I) a IiiII> Note,or Draft, meansbesideswrit-
ing the instrument,or the nameon ifc,m the casemayhe,to
deliverit to somepenton,or hisagent,ashisproperty
TT2
484 THBOCT AND PBACTICE OF BANKING
»5 B. & AML, 474

(b) to Y. Zrfjnfttoii,5 Price,42& $rtn<I Y, H<*mjf>*Mr<%
1 M, *%
WM 865* Mum* v. /<>«<%1ftA, ft B., 455, JUrnmtcm
v. Allen, 8 M.
& W.t 40L town v. tffm*, 1 Q. B,, 707. JR<«Y. Lont fiwrrfir,
12 Q. B., 317. Ltoyd v. jftwtri*, 15 Q. B., 905. jforto Y.
Riffuirdit 0 Kxch., 153
2, To " Issue" a Bill, Note, or Draft, is to deliver ifc to
someouo vho tluavhy acMjuires a rijrht of action on ifc
& To "Present" a Bill for *4Acceptance*' or " Sight"
(/y) is to bring it to the Drawee,and to mjucgt him to undertake
to pay it
(a) CamflM Y. French,6 T. B,, 300
4. To **Present" a Bill or Note for " Payment fl is to
"bringit to the Principal Debtor and demandpaymentof it
5. To **Collect "
a Bill or Note,or Draft, is to prtisentit
for paymentasagentfor the holder
6. To **Retire " a Bill or Noto is for oneof the partiesto
it to buy it up and so withdraw it from circulation
Elsam v, Denny, U 0. B.» 87
7. To ** Discount " a Bill or Note is to buy from the holder
of it the right to receivethe moneydtw uponit
8. To u Domicile " a Bill or Noteis to statein it theplwse
whereit is payable
Lvwndts T, ^rn&ww, IS East, 130. Itolart* v. Turtar, 10
Q. B., 579
9. To *' Utter" a Bill or Noteis for a personeitherhimself,
or by his agent,to useit in anywaywhatever to obtainMoneyor
Credit by meansof it
Jfajj v. ftkukard,B. & B.f $00, Reg.T, JfatifQrdt1 Don.f0* 0,»
69, Rtg T* Ion, 2 Do»., 0. 0.» 475
10. **Days of Grace " aredayswhichmercantilem&gsand
law allowthe obligoron certainNotesand Iiillt»to paythemin,
beyondthe daylimitedin the instrumentitself
11. If a personmerelywrites a Bill or Noto,or sitfiw hisnanm
on one,and then retainsit in his own pm'SHwn,hi* <!«*<"«not
draw,make,aerjpt,or indorw,the iiiHlnuncntan the CWHC
in.iy!»«*»
12. But if he then foliwn tho instrument t(»um»Uu'r
withoutany considorution,
and for hin act'onniUHhUitin
<>uly»
that the tnwjKforecnr«jnin*8a proprty iu it; the wrih«r
LAW OF CHEDIT, BILLS AND NOTES 485
s, acceptsor indorsesthe instrument as the casemay be,but

ho does not fanuc it
1$. A Bill, Note, or Draffcis not i$$tieduntil it is deliveredto
somepcwon,whois entitledto sueall the partiesto it
JDmrnrav. JttcAardfton,
5 B. <fcAid., 074. Bignoldt ex parte, 2
Mont <fcAyr., 633. ZVirfefon7, Shmgter,1 C. B., 812. fifwaav.
JtewJfe
of Scotfond, 2 Mont <feAyr., 656
14* If onepersonmakeshimselfa partyto a Bill or Note,
eitherby drawing,making,accepting,
or indorsingit, for the use
benefit,or advantageof anotherperson,without receivingany
considerationfor BOdoing or being indebted to such person,such
an instrumentis termedan Accommodation Bill, or Note,
and the personwho so makeshimself a party to id is termedthe
ttwtwwtotliituw,drawer, maker, acceptor,or endorser,as the case
may bo
The person for whoseuse, benefit, or advantagehe has so
madehimnelfa party to suchan instrument,hasno right of action
againsthim uponit
6. No consideration,nor even the words " value received"

needbe expressed
in * Bill, Note, or Draft
Whit* v. fadwick, 4 Doug., 247. Matlcod v. Swc> 2 Ld.f Baym.,
1481* Joscelin* v. Lasstrrc, Fort., 281
7** BillK, Notes,and Drafts usually have the sumfor which

theyarepayable
written at full length in thebodyof theinstru-
ment,mid iilno in figuresin the margin. If the two sumsdiffer,
the instrumentis good for the sum stated in the body of ib: the
8umBtotucl
in the marginin figuresis a merememorandum
8» BillsandNotesmustbo drawnpayableabsolutely andat

all eventsin moneyonly,at somecertainevent,michas demand,
tight,or somedab,or someeventwhich mustcertainlyhappen ;
or at a certaintime after demand,
sight,or date,or suchcertain
event
9« An instrumentbearingno date or time of payment,is

heldto bedatedat thetimeit is made,andis payable
on demand
Dela Courtier
Y.Bellamy,2 Show.,422. Haguev, French,3 B.
&P., 173. G^fesv. JBoiwTK?,
6 M. <fcS., 73. Whitlocb v.
d, 2 B. & 0., 157
10. Thesignature
of anypartyto a Bill orNotemayboby
a mark or stamp
Georgev. Surrey, 1 M. & M., 516
Oil the Stamp

11. 1. All Bills andNotesmust bestampedwith an impressed
stamppreviousto their execution
33 & 34 Viet. (1870),o. 97, s. 53, § 2
2. "The fixed duty of one pennyon a bill of exchangefor the
payment of money on demand may be denotedby an adhesive
stamp,which is to be cancelledby the personto whom the bill is
signed,beforehe deliversit out of his hands,custody,or power1'
33 & 34 Viet. (1870), c. 97, B. 50
3. "Where a Bill of Exchangeor PromissoryNote has been
written on material bearing an impressedstamp of sufficient
amount,but of improper denomination,it may be stampedwith
the properstampon paymentof the duty, and a penalty of forty
shillings,if the bill or note be not then payableaccordingto its
tenor,and of ten poundsif the samebe so payable
^> 33 & 34 Viet (1870),o. 97, s. 53, § 1
4. "Every personwho issues,indorses,transfers, negotiates,
presentsfor paymentor pays any bill of exchangeor promissory
note liable to duty and not being duly stamped,shall forfeit the
sum of ten pounds: and the personwho takes or receivesfrom
any otherpersonany suchBill or Note not being duly stamped,
eitherin paymentor as a security,or by purchaseor otherwise,
shall not be entitled to recover thereon, or to make the same avail-
ablefor any purposewhatever"
12. 1. An instrument not "lawfully" stampedis absolutely
void, and no action canbe brought on it by any personcognisant
of its illegality
2. An instrumentnot " duly "stampedsubjectsthe issuerof it
to penalties,but it maybe receivedin evidence,and an action may
be broughton it
55 Geo. 3 (1815),c. 181, s. 10
LAW OF CREDIT, BILLS ANB NOTES 487
13- An inurnmentnot ulawfully" stampedis a bill or note

written upon unstampedor insuilieientlystampedpaper(a); or
uponpaperstumped with a superseded die(6); or a postdated
chequepayableto heareron demand (e). Suchinstruments are
absolutelyvoid,andcannotboreceivedas evidence in anyaction
broughtuponthemby anypersonwhotakesthemwith knowledge
of the facts
(«) 31 Gcp.3 (1701),c, 28,H.19. Greenv. Davis,4 B. & C., 235.
(b) 3 <fc4 Will. 4 (1833),o. 97, fl. 16. Jtanwn v. iftttdomzZd,
2 M. A W,, 26
(r) Alhnv. Xiwrra,1 East.,135. Aifarn v.Jfowwy,5 Esp.,SW5.
&rJV v. Lofton, 0 M. <Xs
W., 309. Bormhiitt v. Midtlleton, 2 Camp.,
^3. ,SVrmv. Jl^rttr, 3 01. <Ss
Fin., 610. OZioer v. JUoitimer,2 F.
A P.t 127
14. An inurnment n<»t"duly" stampedis one upon which

then* is a stampof un improperdenominationor rate of duty, but
of equal or greater \alue in the wholewith or than the stampor
btumprtwhich oujjht regularlyto have beenusedthereon(a)
Thus Hill* andNotesdrawnuponwrongstampsof equalvalue
with the properone(A): or a postdatedcheque
payableto order
on demandstampedwith aid* stamp(c) areinstrumentsnot duly
stamped,but they are nevertheless
valid andreceivablein evidence
(«) 31 GOO.
»(1815),o. ifti. a. 10
(b) 65 U«i. 3 (1815) c. 184, s. 12. Upton* v. HarcMnt, 2 B. A
C.» 10. Wttlinm* v. Jarrctt, 5 B. A Ad., 32
{r) AVyv. JIdtftia«t3 F, & F.f 279. Whistlerv. JPorster,
140. B,,
N. B., aw
If an instrumentappearsto be properlydatedand
on the faeeof it, thoughreallyinvalid from havinga
plaeeand dateon it, and thereforevoid as between the
partien
<»u#nkmt
of thoillegality,
yet if it betakenbya holder
for value,whois ignorantof the iacte,hemayrecover
on it
Wrightv. mity, Puako,
230, Martinv. Morgan,
3 B. & Mcr.,
6»5. William* v. Jarrttt, 5 B. & Ad., 33. Whistler v, JH»rrt<>r,
14 0. B., K- B»,248. ûitin v. Xunyttrd,6. B. <fcB., 087. Bcybie
V. Ltvi, 1 0. <fcJ.t 1BO
16. Z. An inntrumentwhich is void under the stamplawsis

EOpayment
eventhoughthereceiver
takeit without
objection
(a)
2. The receiverof suchan instrumentcannotbe chargedwith

laches
for notpresenting
it in duetime for payment
(5); norfor
not givingnoticeof dishonour(c); nor evencanit be usedto
prove a debt in bankruptcy (d)
3. Neitherwill equityrelieveon theinstrument
(e); butif a
personboundto givea stampedinstrumentgivesonevoid under
the stamplaws,equity will make him a goodone (/)
4. Takingan instrumentvoid underthe stamplawsdocsnob
avoid the consideration(#)
(a) Ruff v. Webb,1 Esp., 128. Wilsonv. Vysar,4 Taunt., 288.
Eond v. Warden, 1 Coll., C. C., 583
(6) Wilson v. Vysar, 4 Taunt., 288
(c) Cundyv. Mwnott, 1 B. & Ad., 696
(d) Manner, ex parte, 1 Rose, 68
(e) Price v. Toulrmn, 5 Yes., 235
(/) Aylett v. Bennett, 1 Anst., 45
(g) Ruffv. Webb,1 Esp., 129. Wilsonv. Kennedy,I Esp., 245.
Brown v. Watts, 1 Taunt, 35B. Tyte v. Jones, 1 East., 58a. Aloes
T. Hodgson, 1 T. B , 24=1
17. All instrumentsnot allowedto be re-issuedare upon pay-

ment to be cancelledand annulledby the personpaying them; and
if any one re-issueor negotiatethem,or if the personpaying them
neglectto cancelthem, he is to forfeit £50. The personissuing
them is also liable for the duty, and any person taking them in
paymentis to forfeit £20
65 Geo.3 (1815),c. 184,s. 19
18. 1. Bills and Notesmadepayableafter datemaybe issued

any number of times even by the principal debtor until the time
whenthey becomepayable
2. But if they be paid at maturity by or on behalf of the prin-
cipal debtor,they are finally extinguished,and cannotbe re-issued
8, If, however,theybenot paid by or on behalfof theprincipal
debtor,they may be re-issuedunder certain conditions
19. 1. A Bill or Note may be negotiatedfor the spaceof six

yearsafter it hasbecomepayable
2. The Statute of Limitations preventsanyaction being fcaken
after that period,either on the instrument or on the consideration
(a); withouta freshpromisein writing signedby theparty to bo
LAW OF CIUIDIT, BILLS AND NOTES 489
'd (fi); orInsagent(r); orbypartpayment

of principal
or
-t
;*. Su«'h
writtenpromise
orpayment
willrevivetheremedy
for
six yearsfrom it« tlutc
(,i) 21 Jao, 1 (1023),c. 10, s. 3
(ft) 9 ««»., f>(IK138),
o, 14, s. 1
(r) 19<fe20Viet. (1836),o*97,s. 13
20* I. Buysof Graceare not allowedon anyinstruments

puyublt!
onor afterdemand: or at sightor presentation
(a)
2. Instrumentspayable on demandare dueand payableim-
mediately:no demandis nccvssary beforeactionbrought: and
the Statuteof Limitationsheimwto run fromtheir date(&)
(«) 31 A 85 ViH. (1871),c. 74, R.2
M t'»i/7> v, /.r/jimsffr, Oro. Kh/», 548. Collins v. Bcnning, 12
MMO.,411. Humltitll v. /?«?/10 Moo*, 3$. MtgyiwoJi v, Hamper,2
C. A M.t 3*2* A'orftw v. JKttrtm,2 M. <SiW-, 461
21. 1, Three daysof graceare allowedon instrumentspay-

ableafter sight (a) ; at or after a fixed date,or a certainevent
2. Suchinstrumentsare payableon, and not before(5), the
lastdayof grace: noactioncanbebrought,nor doesthe Statute
of Limitations begin to run until the last day of grace has
S. If the instrument is payableby instalments,daysof grace

areallowedon eachinstalment(//)
4. If the last day of grace be Sunday,ChristmasDay, Good
Friday, or a public fast or thanksgiving,the instrument is payable
the day In'fon*(f)
f>.*HyHtuttiU'
!U Yict.(1871),
c. 17,thefollowing
daysare
(frt'hirwl lo IK*Hunk HolidujH-
In Kngliind and I njland- Easter Monday; the Monday in
Whitnun wif k ; the firnt Mondayin August ; the Twenty-sixth
<kyof DtwinU^ if a weekday
In Scotland- Neir Year'sDay; OhrislniasDay; (if either of
thcHCdaysfalls on a Sunday,the next Mondayshallbea Bank
Holiday:) GoodFriday; the first Mondayof May; the first
Monduyof Augnnt
All Bills and Notesdue andpayableon thesedaysshallbe
payable
onthe followingday: and in caseof non-pjiyment
may
le notedandprotested
on thedaynextfollowingonwhichthey
maybelawfullyprotested
If the dayon whichanynoticeof dishonourof an unpaidbill
or note shouldbe given* or anybill presented or receivedfor
acceptance, or accepted
or forwardedto anyrefereeor referees,
is
a bankholiday,suchnoticeof dishonourshallbegiven,andsuch
bill or noteshallbepresentedor forwardedon the daynextafter
suchbankholiday
(a) Colemanv. Sayer,Stra, 829. Betlasis v. Heater I Ld.
Baym., 280
(6) Wtffen v. Eoleits, I Bap., 261
(c) Wittersheim
v. Lady Carlisle,1 H Bla , 631
(d) Orridge v. Slierbo1}
ne, 11 M. &. W., 374
(e) 7 & 8 Geo.4 (1827),o. 15, s. 3
22* If any Bill, Note,Obligation,or ValuableSecuritymade

or becomepayableto bearer,be taken in exchangefor any goods,
merchandise, money,or other Bill, Note, Obligation, or Valuable
Security,without the indorsementof the transferor, it is an un-
conditionalsaleof the security,and the transfereehasno right of
action against the transferor if it be not paid, either on the
instrument or on the consideration
Bank of England v Newman,1 Ld. Baym , 442. Ward v. /d'tvm*,
2 Ld. Baym., 298. Fenn v. Harrison, 3 T. B., 787. A> part*
Shuttleworth, 2 Ves, junM 368. Fydell v. Ctatfo, I Ksp,, 447.
JSmtye v. Lye, 15 East., 7. Gamidge v. Allenby, 6 B. <&C., 373,
Guardians of Lichfield Union v. Green, 1 H. & N., 884.
23. 1. The transferorof a Bill or Note by meredelivery

warrants the genuineness
of the instrument, £#., that it is not
forgedor fictitious; he doesnot warrantthe solvencyof the
partiesto it
2. But if heknewthat the parliesto it had failed,or if it be
forgedor fictitious,he is liable to refund paymentto the transferee
Jones v. Hyde, 5 Taunt., 488. Rntce v. Itruce, 1 Maish, HM.
Gurneyv. Womervley,
4 E, & B., 133. Gompeitsv. Jiartfatt, 2 E.
<feB., 849. ffvtter v. Smith, 1 0. <fcP., 107
24. A Bill, Note, Chose-in-acfwn, Oblation, or Valuable

Security is included under the words"goods and rliattd«" or
"effects,"
in anAct of Parliament
(a); or underan extent(It);
rifr ofttfm ftrcftt* (r); in a will, unlessthere bo wordsto

ni'jruthvRurhan inforenre(d) ; and in the clauseof "reputed
ownership"in bankruptcy (r)
(<f)*S7tnfr
v, 3/<>r?<7/,
4 Co.Bop.,92b, Ford"*(tow, 12Co.Bop,1.
Cliyttm'i ("W, Lytt,, HG* Jty«Jv, Jtouto, 1 Yes.,son.,3*18
(&} fylf* on îW*, 3
{<?)I A 2 Viet (183H),
c. 110,fi. 12
(d) Anon., I P* "Wins.,267. Campbell
v. Prescott,15 Vcs, 500.
JSVnrfrittv, AVmfcrft, 4 Buss., C. CM300. Parfer v. Marchant, I T.
& Col!,, C. C., 29i)
{<*)%<!/ v. litnrlf* 1 Vos.,Bon.,^18. JBa;
jpartetfoZnft, Mont,,
C. B.» 1 U). JFJ^rrm v. Itolltuid, M. <&Bl , 74. ffornWowr v. Pro«<f,
2 li. A AM., 327. JB* partt JTiurMn,1 Gl A J., 207. Rckhcr Y.
CnM/)?w//,8 Q. B., 1. J-;j!jwjrt*' llH'hanlMm, Buck, 483. Jiaitlett
T. /InifHf, 1 I>c O. ft J.f 127. AVmird* v. Cdojwi, 11 Q. B., 33.
Jlutlwk v. frmftfr, 2 H. tVrAid., 2,"ft. dimming v. Ittnlcy, 6 Bing.,
Utifi. jTjTtir7«<m
v. ^Mt^rt 1 Cuxvp.,117
25. The property in an in^trunu»ntremainsin the OWIHT

until he hasc/ititrly parted \\ith it: if he cutsit in two and sends
one part by po«t,he dwB not lose the proi^rty in it till he has
sentthe other juirt, and he may reclaimthe first part seat
Smith v. Munday, 8 E. A B,, 22
28. 1. Instruments payableby a banker must, in general,

be prewntcd for payrwut during banking hours,otherwisesuck
pro,st»tttm«int
is void (n)
2. But if the bunkor 1msa clerk stationed to give answers
ttftcr houiR,nut! th« sumoanswer is given as would have been
given (luring houw, KUt-hpresentmentis Ruftioienl(b)
\\. InHtnum*nt8puyahh*by other jusmmfimaybe presentedfor
ut any wmwwble hour (r) : between8 and 9 p.m. is the
hour yet dii'i<li»«lto bu roanonuble
(d)
(n) Parkt-rv. f/ii«/*wn KH|»M
41; 7 Kast.,3R6. Itffordf v. rêd,
I M. «%B., «2H. WMttiltfr v. itonfc o/ Knghtnd, 3 0. M. <feB., 7i4
(6) Oarntt v. jri««/i'i»r*,0 M. A B., 44. jf/*»«ryv. Lee,2 Chit.,
124. Craw* v. Jutlu, 0 C. ft IN, Wl
(<?}Harclay v. faulty, % Cftiup.,527. Moryanv. Dari'dum,1
Stiwk., 1X4. miHn* v. /«r^>, 1 Mo. ft It., 17; 8 B. ft Ad., 188
. Newnham,1 0. ft K, 031 ; 10 Moo., 240
27. A Bill, Note,or ValuableSecuritymaybe thesubjectof

donatw moriia cauxd
BankNotes. X>ruryv. Smith,P. Wms,»404. Ashtonv, Dawson,

2 Coll., 0. 0., 863n. Claveringv. Yorke,2 Coll. 0. 0., 863nu
Miller v. ITiZkr, 3 P. \Vrns.,356. HiZZv. Chapman,1 Bro., C. 0.,
612
Bills of Exchange. Eankin v. WtgueUn,27 Beav.,800
PromissoryNotespayableto donor'sorder unindorsed. VealV*
Veal, 27 Beav., 19
Cheques.* Lawson v. Laioson, 1 P. Wins., 440. Sncllgrave V.
JBflyfy,Bidg.,ca.t. Hard , 202. Ward v. Turner,2 Yes., sen.,431.
Tate v. JSftZ&ert,
2 Ves, jun., 111. JBowtev. Ellis, 17 Beav., 121
Bank Deposit Beceipt. Witt v. Amiss, 1 B. & S., 100. -4mm v.
Witt, 33 Beav., 19
28. 1. If any Bill, Note, or Security for money be losfcor

destroyed,the right owner may sue any party to it, upon giving
him an indemnity to the satisfactionof a court, judge, or master,
againstthe claimsof any other personupon it (a)
2. And sucha securitymay be proved in bankruptcy (5)
3. If half of an instrument be lost or destroyed,the owner of
the other half may enforce payment of it with or without aix
indemnity (c)
(a) 17& 18Viet. (1854),c 125,s. 87
(6) Ex pai te Greenway,6 Ves., 812
(c) Mossopv. Eadon, 16 Ves, 430. Eedmayne v. Burton, 2 Iu
T., N. S., 324
29. 1. If any ValuableSecurity be lost in its transmission

through the post, or by any conveyancewhich the person who
shouldreceiveit directs,the lossfalls upon him (a)
2. No action lies against the Postmaster-Generalfor the loss
of anyinstrumentduringits transmission
throughthe post(&)
*In severaltext booksof authonty it ia laid down absolutelythat a chequecannot
be the subjectof a gift mwtiscausd(Roperon Legaciesvol. i., p. 11;
Williams on "Executors, vol. i, p. 723; Syles on Bills, 9th Edit., p. 170;
White and Tudor's lead. ca. in Eg,., vol i., p. 743), and in tbo caseof
Hewitt v. JSaiye(L. K., 6 Eq , 189),Lord Romilly, M. E., laid it down as an
absolute doctrine that a chequeis incapableof bemg made a gift mortis
causd. But havingbeenobligedto investigatethe questionin my Digeutof
the Law of Bills of Exchange,as preparedfor the Digest of Law Commis-
sioners,I was satisfied that the doctrine stated by the writers, and the
decisionof Lord Bomdly,abovementioned,is erroneous;and I accordingly
excludedthe caseof Hewitt v Kaye from my Digest. My reasonsfor «o
doingaregivenat full lengthin that Digest;but are,of courKe,
far toolong
to be insertedhere. I merelystate this that I may not bo supposedto havft
oveilookedthe caseof Hewitt v. Kaye
LAW OF CUBDIT, BILLS AND NOTES 493
8. But anypersonin theemployment

of thepostofficeisliable
for anyactof negligenceor misconduct
of hisown(c)
(11)WnnnVJfe v. tfoafcw,Feake,98. Hawliiw v. JRwtt,
Pealce,
211
(ft) JUwfiv* Coffcwi,1 Ld. Baym., 646. Whitficld v. JCord
DrtrjWHvr, Ctwp., 754
(c) £aw v. Cotton, 1 Ld. Baym, 646. Whitficld v. Loni
Dfwitw, Cowp.,745, Jtoiroty v* Goofohild,2 W. Bla., 900.
Hordtrn v. Dtfttoa,1 0. <fe
P.f 181
Of an I 0 U
30. A mereacknowledgment
of a debtnotcontaining
any
promise to pay is usuallytermed an I 0 XI, and is often in the
following form-
London,May 4, 1876
I OH £100
To Mr. A, B, 0. D*
31* Snchan acknowledgment,

or an acknowledgment
or
receipt for money lent or depositedto be accountedfor, does
not requirea stamp
JPUherv. j&cviif, 1 Esp., 425. Xtrael v. Isratl, I Camp.,449.
GUlden v. J&wZnofr, B* <fe
B. N. P. Ca.»8. Tamkinsv. XJTA&y,6 B.
<fe0., 54L toteehing v. fftotaoofc, 8 M. & W., 412. Mdanotte r.
TtasdaU, 13 M. A W., iil0. OouZav. Cbomb, 1 0. B., 543
32, Nor doessucha documentrequirea stampif it contains

a promise to pay only interest on the sum due, and not the
principal(a)
But if it promises
to paythe principalit mustbestamped
as
a Note (J)
(«} Jt/Vfanottfv. Tea8dalef
IS M. & W., 216. Smith v. Smith,1
$) JSrooJlf
v. JEtlEini*
2 1C.* W,f 74. Waithamv. Ebetf,1 0.
A K., 35
33, An I 0 U not having the nameof any creditor on it is

prim&faw evidence
Snfavourof thepartywhoproduces
it
t- Lt*li*t I E«p.»427* Curtit v. Rickards,1 M. <fcOr.,46.
tfmt IS A. <feB., 641. tf&wmayor v. Adcock,16M.
A Vf.t 449
34. Anacknowledgment
of debtmaybegivenas a donalio
mortis causft
Moore v. Darton, 4 De GL<fcSm., 517
35. A bill in equityliesto discover

whetheranI 0 U was
givenfor a gamingdebt(a): and equitywill restrainan action
on an I 0 TJgiven for an illegal consideration(£)
(a) Wilkinson v. L'Eaugier, 2 Y. & Coll., C. C., 366
(&) Quanier v. Colston,12 L. J., Ch., 57
Rules relating to the Transfer of Choses-in-action

1.-Assignment of a Chose-in-actionby Creditor to Transferee
36. 1. An assignmentof a chose-in-action
In equity is
equivalentto the deliveryof the chattel in Law
2. As soon as the assignmentof the chose-in-action is com-
pleted,so that nothing more remainsto be doneby the assignor,
the property in the chose-in-action is transferredto the assignee
3. The assigneehas a good and effectualtitle against the
assignorand all personswho claim by, through, or against him,
such as his executors,administrators,assigneesin bankruptcy,
judgmentcreditors,or an extent at the suit of the Crown
4. But the title of the assigneeis not final and complete
against all the world until the debtor hasreceivednotice of the
assignment
5. Until this notice has beengiven the chose-i/i-action is still
in the "order and disposition" of the assignor,and in the event of
his bankruptcyor deathpassesto his assignees or representatives
6. Immediatelythe debtorreceivesthe notice, he is fixed with
the trust, and is convertedinto a trustee for the assignee: if ho
makesany paymentto the assignorit is no dischargeto him, and
and he is still liable to the assignee
7. If he has good reasonto dispute the assignment,he may
pay the assignoruntil the point is settled in equity (a)
Ex parte Byas, 1 Atk., 124. JRowv. Dawson, 1 Ves., son,, 882.
Ryal v. Rowles,1 Ves., sen,,318. Tale v. Hilbcrt, 2 Ves.t jun., 111.
Jones v. Gibbons,9 Ves., 410. Casberd v. Att. Gen., 6 Price, 411.
Ex paite Monro, 1 Buck, 300. Ex parte Button, 1 CH.$ J,, 207,
Ex parte Usboine,1 G-l.& J , 358. William v. Thorpe, 2 Sim., 237.
Ex parte Oolvitt, Mont., 0. B., 110. KJSparte Tennyson,M.*& Bl.f
LAW Off CREDIT,BILLS AND NOTES 495
0* B., 67. Crowfootv. Gurnty, 9 Bing.,372. Buck v. Lee, I A. <fc
E., 801. /tent v, Cbmif/io, 4 My, <feOr., 690. Macfaddenv.
Jrnkyn*, I Ph., 133. JfWi r. London<£JV.JP.Ity. Co.,15 Beav.,
(M& />*iwiftfmm v. JDtwrtfcfton,
Kay, 711, (?t5sonv, Overfiwr^,7 M.
<fcWMiwfi, Lure's iSVttfrmint,re, 80 Beav.,95. J>jf«v. Day,L,
BM1 Q-&" 3W. //«*/« v. JBTaye, &* B., 0 Eg., 198* Bromleyv.
lirunton, TJ,B., 6 Kq., *^75
(a) îa v. Coite, 30 L. J,, Oh,,0. $6<fca7Viet (1873),c.6(Jf
8. 25, § 6
37* IF severalassignees havea right to thefund,theassignee

whofirst giws noticeto the holderof the fund acquiresthe first
chargeoverit, and the otherassignees accordingto the orderof
their assignments
/)#vn/<*v. Hall, 3 Him., 1. LtverlAffe v. Gooper>3 Kuss,, 81*
jr/itfriw v. iS'airr/j/^,
1 YouuKi<>02. Greeningv. Bedford, 5 Sim., 195.
F«h/.r v. nittrh^mt\ 1 My. & K.»207. Jftwter v. Cockcrell, 3 CL <ft
l«'in., $5(>. J/Aiwôw, i« jv, U Do C>.M. «fc GM ItO. J^wc/f v. Lee,
I A it- KM 80f. J:tty v, /*rWj/M, 2 Y. A CMEx. K<I.»486. Belcher
v. Cttmpbell,8 Q, B,t 1. ATnrf^nv. Setlywick, 1)Buav., 333, Swayns
v. Ntctiyne,11 IU»av.,403. JK&fcrv. AT<zc2«aa,5 W. B., 447.
T. D*/c»«, 4 Bo <** M. ^s G,, 373. Ctoyton't Case, I Her.,
liodcnhttm v. 2'wrcâs,2 B. <fcAid., 39
38. For the purpose

of nofcice
noparticularform of wordsis
necessary. Any wordsare sufficient which shewan intention of
transferring or appropriatingthe chose-in-action
to or for the use
of the assignee
lltw v. Dfiwjfon, 1 Voa., sen.^802. Yeatesv. Grove, 1 Yes , jun,f
281. Ilowell 7, Macirer, 4 T, B., 690. Smith v. Everett, 4 Bro. 0.
O., 03. Hnth v* W«W,i Taunt., 326. Esparto Alderson, I Mad.f
53. Crowfoot v. Gurnty, 2 Mo. <fc$c., 473. ^m*^ft v. Stoftn, 3
& M., 231. J?j?pfir^r C'«rK»,4 B. & CL, 857. JSUpart* South, 8
Hwnntf., 31>3. XiMtits v. tfeorê, 5 A. A B,, 107. Hutclwmon v.
llsyKtirth, 0 A* & K., 375* Maffadden v. Jenkyns, I Hare, 458.
JSKtt range v, L*JK*triinijrt 13 Buav., 281. Jîccard v. Pn"<c?iar(Z,
1 1L A JM 277. Itttwlwne't j&v/ucjrt, rtf, 8 K. <&J., 300. J<w« v.
Jor., N. BM751
39. But the notice given mu«tbe kf/al An instrumentnot

**lawfully*'stampedis void andof no effect; if noticebegiven
by suchan instrumentthe holderof the famlmuntnot regardit :
if ho payson suchan instrument
thepaymentis void,
though he agreedto do so
But if the notice be given by an instrumentnot "duly"

stamped,the notice is valid
Firbank v. Sell, 1 B. & Aid., 36. Mmly v. Collins, 6 M. <feS., U I.
Eippiner v. Wright, 2 B. <feAid., 478. Butts v. Swan, 2 Bro. & B.,
78. Collner v. Fallon, Turn. <feB., 459. Lotd ttiaybnn>kev.
Meredith, 13 Sim., 271. Parsons v. Middleton, 6 flare, 2tU. ,V**e-
v. fifwutfc,26 L. J. Oh., 8. Pott v. .Lorno*,6 H. <feN., 521)
40. 1. Notice given to a personwho has not yet received

the fund is null, void, and of no effect
2. If, therefore, several assignmentsof the fund have bcou
made,and noticesgiven to a personbeforehe hasreceivedit, they
are null and void, and the priorities take effect according to the
order of the assignments(a)
3. But if the personwhoexpectsto receivethe ftzndpromises
the assigneethat he will hold it when received for him, he is
boundby that promise(#)
(a) Rodickv. GandeU,1 De G. M. & a., 763. Buller T. Plunkttt,
1 Johns. & H., 441. Websterv. Webster,31 Beav., 393. Somerset
v. COT?,
33 Beav., 634. Marl of Suffolk v. Cox, 36 L. J., Ch., 501
(&) Clarkv. Adair, cited 4 T. B., 343. Stephens
v. Hill, 3 Esp.t
247. KiUby v. Williams, 5 B. & Aid., 815
41. ThePurchaser
of a chose-in-action
takesit subjectto any
prior trusts, equities,claims, or possibilitiesof such, at the time
of the assignment
Colesv. Jones,2 Yern., 692. Turton v. Benson, 1 P. Wins,, 406.
Davis v. Austin, 1 Ves , jun., 247. Matthews v. Wallwyn, 4 Verf.,
118. Hill v. Caillovel, 1 Yes., sen., 12$. Daubery v. Ctoft&urn, 1
Mer., 626. IfrwmZ v. Stokes, 4 Price, 161. Prtddy v. J&w, 3 Her.,
86. Morris v. ii«?t«, 1 Y. & Col., 0. 0., 380. Ord v. flPTu^, 3
Beav.,357. Ifoo?«v. Jervis,2 OoU.,60. £mftAv. Parkes,16Beav.,
115. Cockell v. Taylor, 15 Beav., 103. Cav«m&*/i v. Greave$>$&
Beav., 163. Manningford v. ToZ^wian,1 Col., 0. C., 235
2.- 0/Yferjruwi 5y a Creditorto a Debtorto pay a tldrtl penon

42. If a creditor gives an authority or order to his debtor
to pay a third person,then-
1. If the debtorpaysthe moneyto the third personin pursu-
anceof suchauthority,thepaymentis good(a)
LAW 0? CIM3PIT, BILLS AND NOTES 497
2. If the debtorabsentsto makesuchpaymentand com-

municatessurh us-t*nfch> th«»third jwi'son,a trust m eroated,
irrevocable,ewpl by the consentof ail parties,and the tliird
penumhananactionagainstthe debtorfor the money(#)
8, An agreementto pay funds which will only bereceivedat a
future time is equallybinding as one to pay funds in actual
possession(0)
4, If the third person becomesinformed that the debtor has
beendirectedto payhim asunxof money,hemaysuehimfor it (rf)
5. Until the debtor has actually paid the moneyor entered
into a binding agreementto do so in pursuanceof the authority,
the creditor may countermandthe direction and demandrepay-
ment of the money(/»)
v. Ifutff, 2 Bing., 7. BHnd v. Hampshire^ 1 M. &
(ft) William* v, Rwrctt, li Ka«t.»582. Hodgson v, Anderson,3

B. & 0., 812. Kumithrt >/«v. Jf2rfant,4C. <ftP., 157. Lilly v. Hays,
5 A. <fcK., 5 IB. J/uf flftiitrtoAv. HîrortA, 9 A. t%B.t 375. JT<i
ttdr
v. J?t>ifron9 9 M. it W.f 411. Hamilton v. Spottiswoode,4 Ex., 200,
îr^y v. Turntfi 26 L. J-, Oh., 710. Noble v. National Discern*
Co., 5 IL A ».f *225. Or^fn v. Wtathtrby, Ji. K., 3 Q. B.» 753
(<*}H'a/JKwr
v, Jf^*ITon»
9 M. A W., 411. Hamiltonv. Spottwwoofat
18 Ii. J,, Ch., 89S». Oryin v. Wmtherby, L. B., 8 Q. B., 758
(d) JF?«rft
v, CbnuJAtft4 My. «feOr.,090. 36 & 37Viet., (1873),o-
(«) Whitfald T.Savage,SB. <fcP., 277. Ot&irort

v. JUftntft,
2 Bing.,
7. Jf?n"»«t
v. Hampihir*! I M. <&W., 305. KateoZwiv. 5fcot«,5 Ex,t
601. AfomU v, Wotton, 16 Beav.»197
On Banking Obligations
43. 1. A hanker is a trader whosebusinessconsistsin buy-
in«»money,or moneyand Debts,in exchangefor which lie gives
hirt own t?rwlit
5J.A bankergives his Credit in two forms-
(a) His ownPromissory Notes
(J) Cruditsin his books,termedin bankinglanguage
Deposits
8. BankingObligationsare Bank Notes,Deposits,
Glieqnos,
SyLetters of Credits,Bankers'Drafts, and Circular
44. No bankerwho wasnot on the Cth of May, 18W, law-

L a* 3KK
fully issuinghis ownnotes; nor anybankerthen lawfullyissuing

his ownnoteswhohasbecome bankrupt,or discontinued
the issue
of bank notes; nor any personsincethat date,maybecomea party
to anyobligationpayable
to beareron demand,
in anypart of tho
United Kingdom
7 & 8 Yict. (1844),o. 32, SB.10, 11, 12. 17 & 18. Viet. (1854),
o. 83, s. 11
45. No bankingpartnership
consistingof morethan tm (a)
personsin London, or within 65 miles thereof,may borrow,owe,
or takeup in Englandanysumor sumsof moneyon their billn
or notespayableon demand,
or at anylesstime than six inonlliB
from the borrowingthereof (J)
(a) 20 <fe
21Viet. (1857),o. 40, s. 13
(&) 3 <fe
4 WilL 4 (1833),0. 98, s. 8
46. A Bank Note is definedby Statuteto be-" AnyBill,
Draft, or Note (other than Notes of the Bank of England) which
shall be issuedby any banker, or the agent of any banker, for the
paymentof moneyto the beareron demand,and any Bill, Draft,
or Note so issued, which shall entitle, or be intended to entitle,
the beareror holder thereof,without indorsement,or without any
further or other indorsementthan may be thereon at tho Hmeof
issuing it, to the payment of any sum of money on demand,
whetherthe sameshall be so expressedor not, in whatever form
and by whomsoeversuch bill, draft, or note, shall be drawn or
made"
17 & 18 Yict (1854), o. 83, s. 11
47. Thefollowingestablishments
only mayissueobligations
payableto beareron demandin England-
1. The Bank of England
2. Private bankingfirms which werelawfully issuing their own
notes on the 6th day of May, 1844, and which have not become
bankrupt, or discontinuedsuch issuesincethat date
3. Joint stockbanksformedunder Stat. 7 Goo.4 (1820),
issuingtheir own notesat a distance not lessthan 65 milesfrom
London
48. The following provisionsrelating to the i&sueof Notei

by the Bankof Englandareat presentin force-
LAW OF CHBBIT, BILLS AOT>NOTES 499
1. The Bank is divided into the banking departmentand the

issuedepartment,
7 As8 Viet. (1844),a, 32, B. 1
2. The intfuedepartmentcreatesand issuesto the banking
department
XoteH in exchange
for £15,000,000
of publicsecurities
and any amountof gold and silver coin and bullion, of which the
silvercoinandbullionmustnot bemorethanone-fifthpart
7 & 8 Viet (1844),c. 82, ss. 2, 3, £
8. Thebankingdepartment
maynot issuenotesto anyperson
whateverexceptin exchangefor other notes,or suchas they have
receivedfrom the isauedepartmentin termsof the Act
7 <fc8 Viet. (1844), c. 3*2,H.2
4. Any person may demand bank notes in exchangefor
standardgold bullion at the rate of £$ 17s.9d. per ounce
7&8 Ywt. (1811), 0.32,8. i
6. If any banker who waslawfully issuinghis own noteson
the (Uh day of May, IK 14,tvtusesto do so, the Crown in council
may authorisethe Bank to iucrcuHC its issueson public securities
to any amount not exceedingtwo-thirds of the amount of notes
withdrawn from circulation
7 <fe
8 Viet. (1844),0.32, s. 6
6. So long as the Bank paysits notesin legal coin on demand
they are legal tender of payment for all stunsabov&£5, by all
pt'wons,exceptby the Bank itself, or any of its branches
3 <fe4 Will. 4 (1833),o. <J8,s. 4
7- Notesissuedat any branch of the Bank must bo madepay-
able in coin at that branch us well as in London(#): no branch
may i«aue notes not made payablethere (&): and no note not
made* «|Hu»iallypayableat any branchis liable to bo paid there(c)
(n) 7 <%8 OtH>.4 (iHStf),c, 46, R.18
(b) 3 tfe4 Will. 4 (1H3»),e. 98,s. 4
(<?)3 <fe4 WilL 4 (1833),o.98, 8. 6
8. Bank of England noteamay circulate, and bo offeredin
payment,but they are not legal tenderin Scotland(a): or
Ireland (i)
(a) 8 & 9 Viet. (1846),o. 85, 9,15
(6) 8 <fc0 Viot. (1845),o. 37, 8*0
9. No personexceptbankerslawfullyissuingtheir ownnotes
maymake,sign,issue,
or re-issue,
anypromissory
notepayable
to
KK 2
500 THEORY AND PBACTIOE OF BANKING
beareron demandin England,tinder a penaltyof £20 for each

offence
7 Geo.4 (1826),c. 6, 0. 3
10. No personmay by any art, device,or means whatsoever,
publish, utter, negotiate,or transfer, in any part of England, any
promissoryor other note, draft, engagement,or undertaking in
writing madepayableon demandto the bearerthereof,and being
negotiableor transferablefor the payment of any sum of monoy
lessthan five pounds,or on which lessthan the sumof five pounds
shall remainundischarged,which shall have beenmade or issued
or shall purport to havebeenmadein Scotlandor Ireland, or else-
whereout of England, under a penalty of not less than five nor
morethan twenty poundsfor eachoffence
9 Geo. 4 (1828), c. 68, s. 1
11. By Statute 7 Anne (1709), c. 7, s.61, no banking partner-
ship exceedingsix persons,other than the Bank of England,might
borrow,owe,or take up any sum or sumsof moneyon their bills
or notespayableon demand,or at any lesstime than six months
"from the borrowing thereof
12. By Statute 7 Geo.4 (1826), c. 49, partnershipsconsisting
of an unlimited numberof membersmight carry on the businessof
banking,and make and issue bills and notes payableon demand
at any placein England,exceedingthe distanceof 65 miles from
London,and not elsewhere, and borrow,owe,or take up any sum
or sumsof moneyon their bills or notesso madeand issued
13. Suchpartnershipsmaynot have any houseof businessor
establishmentas bankersin London,or at any placenot exceeding
65 miles from London
7 Geo. 4 (1826), o. 46, s. 1
14. Every memberof such partnership shall be liable for all
moneyborrowed,from the time he becamea member,and for nil
bills andnoteswhicharedue and unpaid,or whichbecomepay-*
able after he has become a member
7 Geo. 4 (1826),o. 46, s. 1
15. No suchbankingcompanymay issueor rc-issucin London
or at any place not exceedingG5 miles from London,any bill or
notepayableondemand, or anybankpostbill, nordrawuponany
partnernor agent,or otherpersonsresidentwithin theselimit*,
LAW OF CREDIT, BILLS AXD NOTES 501
anybill of exchangepayableon,demand,or for a lessamountthan

£r>o,undera penalty of £5u for each,ofTeiiee
7 Ck'0.4 (l^D), c. 40, a. 3
10. Snchbunkingcompany
maydrawanybill for anysumof
£50,or upwards,
payable
in Londonor elsewhere,
afeanyperiod
after date or after sight
7 (U*. '1 (1880), c. 46, a. ID
17.Suchbankingcompany
maynotborrow,
owe,or takeup
in Londonor at anyplacenot exceeding
05 milesfrom London,
any Htuiiof moneyon any bill or promissory
note payable
ou
demand,
orat anykw timethansix mouths
fromtheborrowing
thereof;underu.penaltyof £50 for eachoffence; but theymay
discountin Londonor elsewhereanybills of exchangenot drawn,
by or uponthem, or by or uponany personon their behalf
7Ut>o.4 (ls;Sfi),e. 10,HH.3, It)
18. All banksin Londonor within 05 milesof it, maydraw,
necept,or indorsebilla of exchange,
not beingpayableto bearer
on demand
7 <fc8 Viet, (1*44),o. 32,fl. IX
ID, AHbanksof issueexistingon the Gthof May,1844,may
continueto tamoan amountof notesnot exceedingon an average
of four weekR,
such AHaveragesum as they were issuingduring
the 12 weeksprecedingthe 27th April, 1844,certifiedby the
Commismonen*
of Stampsand Taxes
7 A 8 Viet. (IH'H), e, 3398.13
20. If anytwo or morebanksof issuebecomeunited,such.
unitedbankmaycontinueto issuethe aggregate
averageamount
of notes uirculntwl by the neparatebanks, provided the united
bank (lotv not e<c<*e,ed
fr;i (1) pensous
7 AH Viet. (IHli), c.32, «. 17
(1) W tfe*2I Viet. (I«57)»o. 40
81. If any Iwnkcr in his monthly averageexceedshis
authorisedi«m*e,he is to forfeit the excess
7 A H V»ot.(1*14),o. »2,fi, 17
2^* Everybankof mm mustBendto the Commissioners
of
Btumpa
andTuxen,
weekly,
an account
of its issues,
shewing
the
amountofits notesiu circulationon everydayof the preceding
k, uudalsothe averagedaring the week;and at the endof
every period of four weeks,a statementof the averageamount

of the saidfour weeks,alongwith the authorisedamount,duly
verified,in the caseof a private banker,by the signatureof the
banker or his cashier; and in the caseof a companyor parlner-
ship,by the signatureof the managingdirector,partner,or chief
cashier. Any neglect or refusal to render such an account,or u
falsereturn, incurs a penalty of £100
7 & 8 Viet. (1844), c, 32, a. 18
23. All existingbankingcompanies mayregisterthemselves
under the Limited Liability Act, 1858,upon giving 30 da}8'
notice to each of their customers
21 & 22 Viet. (1858), e. 91, s. 1
49* If therebeseveralpartnersin a countrybankof issue,

the right of issue,on the death of the other partners,belongs
exclusivelyto the surviving partner
Smith v. Everett, 27 Beav., 446
50. 1. Tender of paymentin country bank notesis good,if

not objectedto on that account(a)
gt Even if a banker tender his own notes which are afterwards
dishonoured (b)
(a) Vernonv. Bouverie, 2 Show., 296. Tassel V. Lewis, Ld. Itaym.,
743. Ward v. Evans, 2 Ld. Baym., 298. Polglass v. Oliver, 2 Tyr,f
89. Owensonv. Morse, 7 T. B., 64. LocJcyerv. Jones, Pcako, 230.
Tiley v. Courtier, 2 0. <feJ., 6n, Pickard v. Bankes, 13 Bast., iiO.
Shipton v. Casson,8 D. & B., 130. Clarke v. Shee,1 Gowp., 197
ft) Guardians ofLichfield Union v, Green, 1 H. & N., 884
61. 1. If country bank notes be taken in paymentof goods

at the time of the sale,and as part of the contract,so that no debt
is created, and without indorsement, the vendor takos them at hi«
own risk, and hasno remedyagainstthe transferor, if the bunker
fails beforehe obtainspaymentof them
2. But if the transferor knew at the time he offered the notes
in paymentthat the banker had failed, he is liable
8. But if the note be taken, not at the time of the exchange,
but in paymentof a pre-existingdebt,howevershorta periodIJUH
elapsed
between
the creationof thedebtandthetenderof tlw
notes,if the transfereepresentsthe notes within, due time, ami
findsthat thebankerhasfailed,andgivesduenoticeof dishonour

to thetransferor,hemaydemandpaymentof hisoriginaldebt
TVrmwv. Jiotim i>, 2 Show.,3«M),CooKxey v. Rouvcne,2 Show.,
SDU. Wanf v. Know,Ld. Kaym.,OS8. Jlfowev. HVwreft, 1 Stra,,
415. Ihtlmf v. /torry, 1 8tra.t US. Turnerv. J/«i<fe,1 Stra.,410.
Atamcarfngv. {/(imam, I vStia.,508. Howardv./tanfcof England,
I Htrn.,r>l>0.Camidfffv. ,4fteiity, GB. & C.,373. liters v. J
jfowf,1 C. A ST.,637. jRafain?. Oitver, 10Q. B., 70*
52. L If a customerpaysinto his accountwith his banker,

the notesof anotherbanker,for whichhis bankergiveshim either
creditin account,
or a depositreceipt; and if the bankeronduly
presentingtlm notesfor paymentfinds that the bankerwhoissued
them lias failed, ami if he gives due notice of dishonourto his
euHlomor, he may cancelthe credit (ft)
a. Hut if insteadof dftnauiling paymentof the noteshe takes
a credit in amnmt with the hanker\\ho issuedthe notes,that is
equivalent to payment, and he is liable to Ids customer,if the
other banker fails (ft)
(«} TiiMnin* v. ffiftfemt,18Q. B.»72$
(ty Qiltord v. Witt, 5 B* A <X»134
83. I f oneperaonchangesa bank noto asa favourfor another,

and if on <lnlypresentingthe note for paymenthe findsthat the
bankerhas failed, and if he gives duo notice of dishonourhe may
demandback ins money
v. Langford, I 0, <&M.t G87« Turner v. Stone*, 1 i». &
64* I* Bank not(*Bmadepayableat a particular placemust

be presented
thitru for payment,to enablethe holderof themto
MICthe maker(//)
8. Even if the bankctris notoriouslyinsolventand hasclosed
JUBplattoof huHiucHH,
thivfcwill not excusethe wantof present-
incut {#)
3. But betweenthird parties,if a bankerhasbecomenotoriously
insolventand haneJomtdhis placeof bumnens, presentmentof his
notiMtherein not necomatyto charge the transferor,if the trans-
fereei« informedof the banker'sstoppageof paymentwithin the
time limited for presentment,
and givesnoticeof dishonourto
501 THEOBY AND PBACTICE OF BANKING
thetransferorwithin reasonable
time after beinginformedof the
fact (c)
4, Andreasonable
timefornoticeof dishonour
is not necessarily
limited to the time for presentmentfor payment(d)
(a) Sanderson v. Bowes,11 East., 500. Dickinson Y. JE?ouwr, 10
East., 110. Bowes v. Howe, 5 Taunt, 30. Butterworth v* Lotd
Despencer,3 M. & S., 150. Einbhn v. Dartntll, 12 M. <fcW., 830.
Spindler v. Grellet, 1 Ex., 384. Sands v. Clarke, 8 0. B,, 751
(6) Bowesv. Howe, 5 Taunt., 30. Sands v. Clarke, 8 C. B,, 751
(c) Henderson
v. Appleton,Chit., 8th od.tp. 388. Turnerv. Stones,
1 D. & L., 122. JRo&stm v. 07ij?«r, 10 Q. B., 704:
(d) jRo&sonv, Oliver, 10 Q. B., 704
65. If countrybank notesare given in paymentto a servant,

suchacceptance by the servant doesnot bind the master,and ho
has full time to presentthem for payment after he has received
them from his servant
Ward v. Evans, 2 14. Baym*, 928. James v. Holditch, 8 B. &
B.,40
56. If payment for goodsbe made in country banic notes,

and the banker fails beforedelivery of the goods,the vendor may
retain them if not sent, and has the right of stoppagein transit it
Owensonv. Morse, 7 T. B., 64
57. If a personpayshis acceptance

by notesin which he has
no property,it is no payment,
andheis still liable
Mannin v. Gary, I Lutw., 277
58. A banknotemadepayable at twoplacesmaybepresented

at either,and if paymentbe refusedat onceit is no laches,
even
though it might be more convenientto present it at the otlior
whereit wouldhave beenpaid
leeching v. Goner, Holt, N. P., 313
69. 1. The holderof countrybank notesmust circulatethorn

or presentthem for paymentwithin bankinghours(a), of tho
next day after he has receivedthem, if the banker lives in tho
Bauie
place,
to charge
thetransferor
if thobunker
fuils(£)
2. If the bankerlives in a differentplace,he musttiunsmii
LAW OF CREDIT,BILLS AKD NOTES 505
themforpayment
bythepostofthenextdayafterhehasreceived
them (r)
5, Thexwehvr hasallthe,hanking
hours
ofthenextdayafter
hehasrwivotlthorn
to presentthemforpayment
(c)
4. Thewildermaycutthenotesin halves,
andsendonesetof
halvesthedayafterhohasreceived
them,andthesecondsetthe
day after that (c)
5.Thetimeforthereceiver
to present
thenotes
forpayment
doesnot beginto run until he hasreceived
the second
setof
halves
(c): thesender
hasnotparted
withtheproperty
of the
notesuntil hehassentthe secondsetof halves:anduntil hehas
donethathemayreclaimthefirstsetof halves
(d)
6. Sunday,Christmasday,GoodFriday,a publicfast or
thanksgiving
day;or a dayonwhicha manis forbidden
byhis
religion
totransact
neeular
business
(f); butnotabank
holiday
(/); arc not counted;therefore,
if a manreceives
a banknoteon
Hurha day,hehaatill theBecjond
dayafterto present
ortransmit
it for payment (r/)
(a)Parkerv. Gordon,
7 Ewst,880. MlfortiL
v. Teed,
1M*& S.,
23. JaMfgon
T, Swintan,
$ Taunt.,224. Whitaktrv. Sankof
Mntf&nd, I C. H, <fcB., 744
(6) M&nwating
v, Harrison,I Stra,,508* Mtdc&lfv, Hall, 3
Pong., HS* AppUtm v. fiwtttapple,8 DotJg*,137. Rtfaon v.
jTteftRtft,
3 Taunt.,S88.Rickford
v.Ridge,
2 Camp.,
537.Bceching
T. , Holt, N, ?*, 315. William v. Smith,2 B. <&AltL,496.
Jlotltlington
v.8chtrncktrt 4 B.& Ad.»752.PodItnylonv.Sylvester,
Chitty, 9th e<L,|>.8B5. Mwle v. llrown,4 Biug.,N. 0., SCO,Hare
v. //wary, 10 0. B,, N. BM05
(c} tt'ttftamr v, SmitA, tt B, & Aia*»496
(i2) .VmiVftv, JS/untfy,2 B. A BM22
(<»)7,imto v. t/«*uv»rr/i»2 Cainp., 602
(/) 34 Viet. (IH7I), o. 17
(*/)Ttwelv*Litcfe,1IjtLHnyrn.,
743. 39<fc
40Geo.
3 (1800),
a,
42, 7 A 8 Goo.4 (1827),o. 15
On Cheques
60. I. The relation betweena bankerand his customeron an
ordinarybankingaccountIs that of simpledebtorandcreditor:
andnot that of trusteeandmfui giw trust
3. Money
paidbyft customer
to a banker
Imlongs
absolutely
to thebanker;it is a Mulmmôr Loan,andnota Dyositum^
or
Bailment
506 THEORY AHD PftACTTCE OF BANKING
8. In exchange for the moneythebankergiveshis customera

Credit,or a right to demandan equalsumof moneywith or
without notice
Vernon v. Hankey, 2 T. R., 113. Carr v. Carr, 1 Meriv., S41ru
SUecb's case,1 Mer., 560. Sims v. Bond, 5 B, & Ad., 89$. ftank
of England v. Anderson, 3 Bing., N. CM580. Taylor v. r<*ytor» 1
Jur., 401, <?awn«v. Taylor, 2 Hare, 413, JFoky v. ZZ7H,2 H. L.
Ca., 31. Watts v. Christie, 11 Beav., 546, J£x parte Waring, 80
L. J., Oh., 151
61. A Credit in a banker's books in favour of a customer, is

in banking language,termeda Deposit
Banking Credits,or Deposits,are of two sorts-
1. Wherethe customerhas the right of requiringrepayment
of his moneywithoutnotice. This kind of account,in banking
language,is termeda Drawing or Current Account
2* Where the customeragreesnot to demandrepaymentwith-
out a certainnotice. Thisaccountin bankinglanguage is termed
a Deposit Account. In exchange for the money,the banker
giveshis customer a receipt,termeda Deposit Receipt con-
taining the termsof the contract
8. Formerly thesedepositreceiptswere what wastermed non-
negotiable. They were made payable to the cuHlomerhinwclf
only,and, consequently,
if the customertransferredhis depunit
receiptto any oneelse,the transfereecould not sue the banker at
Law in his own name,though he might in the nameof the trans-
feror; but hemightsuehim in Equity. But sincethe Supreme
Courtof Judicature
Act,whichenacts
that the rulesof Equity
shallprevailoverthoseof CommonLaw,a DepositReceiptIBas
transferableas a Bank Note or a Cheque
62. A Creditin accountor Deposit,if taken insteadof

money,is good payment
Gillard v. Wise, 5 B. & 0., 134
63. 1. If a customerleavesa depositor balanceon hfc account

without operating on it for six years,the Statute of LimitatioiM
applies,and the bankeris not liable (a)
But if the bankerentersup interestto the credit of his
customer,that will savethe statute (#)
LAW OF CREDIT, BILLS AXD NOTES 507
(*i) Putt v. Gtwj, 16 3L «fcW., 321. Fnlcy v, Hill, 2 H. L ,

Ca., 3i>
(f*)
" 0 Goo.4 (ltt2S),c. li» fl. 1. Bamjieldv. Tupper,7 Ex., 27,
f v. (?r^rNAZti^ 2 C. <fcJ., 01
64. A Deport or Balanceon a bankingaccountpasses by

will underthe words"all his readymoney"(a); "all debtsdue
to him" (i); but nobunder"all his stockin trade" (c)
{«) Vabey7. Reynoldt,5Kuas.,13. TaylorT.tfVzytor,
1Jur., 401.
Parker v. Afarcfamf,1 Phil., 856. Manningv, PwrccW,2 Sm.&
Git, 20*
(ft) CVirrv. Carr, 1 Her., 501n
(c) Stuart v. Marquit of &utet11Yes,,66C
65. Au Orderon a drawingaccountat a banker's,payable

to any person,or u Inniror,or u order," on demand,is in modern
commercial
language
usuallytermeda Cheque
68.* A Cheque
is a bill of exchange
drawnon.a bankerpay-
able on demand
ISxcoptas otherwiseprovidedin this part, the provisions
of
this Act applicable
to a bill of exchange
payableon demand apply
to a cheque
Subjectto the provisions
of this Act-
I. Wherea chequeis not presented for paymentwithin a
renwmabietime of its isnue,and the draweror the personon whoso
accountit is drawnhadtheright at the timeof suchpresentment
as betweenhim and the bankerto havethe chequepaid and
MufTtwactual damagethrough the delay, he is dischargedto tho
extentof Buchdamage,that in to say,to the extentto which suoli
draweror jnwm in u creditorof mushbankerto a largeramount
than lu»wouldhav«beenhadnuehcheque been,paid
2* In <lfti*rmiuingwhat is a reasonabletime regard shall bo
had to the nature of UK*instrument,the usageof trade and of
banker**,
and the factsof the particularcase
3. Tim holder of Htiehchequeas to which such drawer or
is discharged
film!!be a creditor,in lieu of suchdraweror
of such banker to the extent of such discharge,and
entitled to recoverthe amountfrom him
67. By the GeneralStampAct (a) draftsor ordersfor the

508 TIIJEORT AND PRACTICE OF BANKING
paymentof moneyfeobeareron demandwereexemptedfrom fltamp

duty, providedthat-
1. They were drawn upon a banker or a person acting as a
banker
2. The placewhere they were drawn did not exceedlf> (/>)
miles from the banker'splaceof residence
8. The placewherethey weredrawn was truly statedon them
4. They were issued on the day or the clayafter they \venj
dated
5. The paymentwasdirectedto be madein money,and not in
bills or notes
(a) 55 Geo.3 (1815),o. 184,ached,
(b) 9 Geo.4 (1828),o. 49, s. 15
68. The stampduty on any draft for the paymentof money

to beareror to order on demand,or at sight or presentationIB one
penny
33 & 34 Viet. (1870), o. 97, s. 50
69, Everypersonwho makesor issuesan unstampeddraft

violatinganyoneof the previousconditions,
is liableto a penally
of £100 ; every one knowingly taking it to a penalty of £:>n;
anybankerknowinglypayingit to a penaltyof £100; andhe M
not allowedit in accountagainst the personsby whom or for whom
it wasdrawn,or any personclaiming under them
55 Geo. 3 (1815), c. 181, s. 13
70. 1. If anypersonremitsan unstamped

draft payableto
beareron demand,drawn upon a banker, to any placemore tlmu
15 milesdistantfrom the placewheresnchdraft is payable,or
circulate,negotiate,or receive in payment such a draft in sucha
place,heshallforfeit £50 (a)
2. But if it be duly stampedit may be remittedto or circulated
and negotiatedin such a place (5)
(a) 17 & 18 Viet. (1854), c. 83, s. 7
(b) 17 <fe18 Viet. (1854), o. 13, s. 8
71. 1. The pennystampon sucha draft maybeeither im-

pressed
on thepaperor adhesive:and mayeither be a draft or u
receiptstamp (a)
LAW OF CHBDIT, BILLS ANT) NOTES 509
2. If thi» stamp UM'dho adhesive,the person who signs the

draft IUUM,
More he t^ws it, euneelor obliteratethe stampby
writing his nameor initials over it, under a penaltyof £10
(«i) 17 .1 1H Viot. (IW *)i c- H;*»«" 1(>
{//) 33 A 3i Viet. (W70), o. U7,8. 21, § 2
7£. The penaltyfor waningan unstamped chequeon a

lunker is tin* HJUUO
as isnuingan unstamped
bill of exchange
n & 2*2Viefc,(1858),o. 20, s. a
73. I. It anydraft or ordersubjectto thepennystampduty

onlineundampedinto the bundsof a banker,he mayaffix the
Htaiupandeuneelit, andpaythedraft andcharge the dutyagainst
tl»»juT-Mmliable, or deduetit from the sumpayable
2. Tin* draft is then *?oodand valid, so fur as it relates to
the stampduty, but it dtM\snot relieve the personwho issuedit
im>iuinpul front the penalty
83 & :U Viet (1H70),o. 07»0. 54, § 8
74, A draft or orderfor paymentsentor deliveredby the

draweror makerto the bankeror personactingas such,by,or
through,whomthe paymentis to bemade,and not delivered to
the ]H'rmnto whomthe paymentis to l>emade,
or to anypoison,
on bin Ix'hair, requiresa pwmy stampand maybe postdated
35 it" 3i Viet, (1870), o, 07, s. 48, § 8
76. If a draft or order lie duly stampedpreviouslyto issno,

whether it bo payableto beareror order on demand,It may be
drawnat or remitted to any distancefrom the placeof payment;
it maybedrawnuponanypersonand requires
no placenordate
upon it
1G<fc17 Vxcfc.(1B53),o. 69, ached.
78* If it be issued,stamped,and post dated,or dated on a

dayHulwquentto its iasue-
1.-If fchechequebe payableto bearer-
(1.) It is whollyvoid in the handsof all partiescognisant
of
the fuels; it cannotbo given in evidencein any proceedingin law
or equityto establish
a valid contractbetween
them(a)
(2.) But It is valid in the handsof an innocentindorseefor

valuewho wasnot awareof the facts (b)
(3.) If a banker pays such an instrument without knowing
the facts,the paymentis good(c)
(4.) It maybeusedin evidenceto provea fraud (d); or in
any criminal proceeding(e)
(a) 31 Geo.3 (1791),o. 25, s. 19. Men v. Kenn, 1 East.,435.
WUtwtll v. Bennett, 3 B. <feP., 559. Swan v. JBtair, 3 01. <&jPin.,
610. Serle v. Norton, 9 M. & W., 309. Dunxford v. Curlewi*, 1 1«\
<feF., 702. Oliver v. Mortimer,2 1?.& P.,702. uftutfi/i v. Jiuinjtmt,
6 B. <feS., 687
(6) TTOZiaww
v. Jarrett, 5 B»<fcAd., 32. Austin v, Ptinârd, 6 1)»
& 8., 687
(c) TFateonv. Pontoon, 15 Jur., 1,111
(d) Watson v. PouUon, 15 Jur., 1,111
(e) 17 & 18 Viet. (1854), o. 83, s. 27
2.-If the chequebe payableto order-
(1.) It is a valid instrumentandmaybe receivedin evidence*
(a); and shouldbe paid by a banker at its date,even though he
knew it to be post dated(5)
(2.) But the issueris liableto a penaltyfor issuinga bill not
duly stamped(0)
(a) Key v. Jtfathias,3 F. <&F., 270. Whistlerv. Forster,14 C.B.f
N. S., 248
(6) Emanuelv. JBofaMfr, 17L. T., N. S., 046
(c) 55 Geo.3 (1815),o, 184,s. 11. 21& 22Viet. (1858),o. 20, a. SI
77. A post datedchequedrawn by a member of a firm who

has no power to bind his partner by bill is absolutelyvoid in tho
handsof a person cognisantof the fact, whether it be payableto
bearer or to order
Foster v. Machreth, L. K,, 2 Eg., 163
(2.) A bankerwho acceptsor engages
to paya chequenwftfc
include suchchequesin the return of his issueof notes
7 <fe8 Viet. (1844),o. 32, s. 11
17 & 18 Viet. (1854), o. 83, s. 11
78. 1. By the custom of bankers, the contract betweena
bankerand his customerhaving an ordinarydrawingor current
account
with him,is to payon demand,
eitherto him or to any
one else to whom his customermay assignthem, whatever funds
lie may have at his customer'scredit, within a miHonablctime
LAW OF OKEDrr, BILLS AND NOTES 511
afterhe hasreceivedthem,and to accepthis customer's

billsto
that amount(a)
& By the customof bankers1
possessionof fundsis equivalent
to acceptance,
and admission
of fundsis a legalacceptance of a
chequedrawn by a customer(ft)
& A verbalpromiseto pay,or a collateral
writing promising
to pay,or anymarksuchas initialsplacedon a cheque, the well
understoodmeaningof which,is a promiseto pay,is a legalac-
ceptanceby a banker having fundsof his customer
4. The Acts, I & 2 Geo.4 (1821), c. 78, s. 2, and ID <fc20
"Viet. (18r>(?),
a 07, s. 6, requiring the acceptance
of a bill to bein
writingon the bill, do not applyto the promise
of a bankerfcopay
a cheque,having funds of bis customer
(u) .Vnr:«'«i v. ll'illmm*, 1 B. & Ad., 415. Swanv. Bank of
»SVofta»r/, ii Mont, ol Ayr., 030. Foley v. Hill, 2 H. L., Ca., 28.
H'ciff i v. (Vi; t ,f<«»,11 B*>a\.,T>Hi. .Ko&arfcv. Tucker, 16 Q. B., 500.
JvV/in v. ,SV»'rt«u<f,1'i C. B., ,?,»5
(ft) ,S'f«
n w*v. //*?/,# Knp,,2i7. .rfrrZem
v. Rowncy,0 Esp.,254
&*fo*m v, ;>Vniirft, 2 Taunt., 3KB. JTifctfyv. ITt*ZZfa»w,
5 B. <fcAid.,
8lti. ttwriw v. $urrey> I M» JfeM,, 516. Boy^ v. Emenon, 2 A. <fe
B., IH4, M*rzf«t v. William, I B. <fe
Aid.,415. .Ro&wte
v. AcoJfe«rf
10 Q. B,, 570
79* 1. A chequei» paymentunlessdishonoured,

and tender
of paymentby chequein good,unlessobjectedto on that account
& A cheque,to IK)good feender, must be unconditional;and if
the urtulitur refusesit UKIwing conditiontil,he maycommencean
ad ion uûin«tthe debtor beforehe returns the cheque(b)
i*. But the fact of a chequebeingdrawnin favourof any oneis
no proofof payment,
UHit mayIKJdrawnin anyone'sname: there
must i«' cvitlenw*.
that the moneycameinto the creditor'shands,
a# by his indorsement(r)
4. A ttheque
in notevidenceptr seof a loanfromthe drawerto
the payee(lj: nor to onlahlinh
a set-off(2): nor of a loanfrom
th<!drawee(a banker)to thedrawer(8): withoutfurtherevidence
of the circwinRlauccs
under which it wasgiven(d)
& But, if a debtbeprovedto haveexistedbetween
thedrawer
andthepayotf,
a cheque,
thoughnotgivendirectlybythedrawer
to thepayee,
if proved
to havepassed:
throughfche payee's
hands
andIwn paidtohim,isyrimd
facie'evidence
ofthepayment
of
thedebt,imtawcontradicted
by collateralevidence
(e)
(a) Pearce
v.Davis,I Mo.& Bob.,365. Jon**v.Arthur,
442. .Beiwji v. JfJTiH,2 Camp , 381
(Z»)JEZougrA
v. Ifoy, 4 A. & K , U51
(c)Eggv. Barnett,
3 Eap.,106. Ctery
v. Qtrrteh,
4 E«p.t
0
(<Z)(1) Caryv. Cterrfofc,
4 Esp.,9. Lloydv. tfajutttuwb,Uow,
15. Pearctfv. JDavte,1 Mo. <£Bob., 3G5
(2) -4ttfori v. Welsh, 4 Taunt., 203
(3) Fletcher v. Manning, 13 L. J., Ex., ISO
(e)Eggv. Barnett,3 Esp.,106. Monntford
v»Harper,10 M. «&
W., 825. Boswell v. £«»£*&,6 C. & P., 60
80. Whena customerhasplacedsecuritiesin the hamtaof

his banker,andis allowedto drawagainstthemin a certainwell-
understoodway, the banker cannot changethe usual counw of
dealing,and dishonourhis customer'schequeswithout giving
him notice
Cummingv. Shand, 5 H. & N., 95
81. A banker who paysa chequemust cancelit by crossing

out the drawer'ssignature,under a penaltyof £50
55 Geo. 3 (1815), c. 184, s. 19
82. Paid chequesare the property of the drawers,who may

demandthem back at any time: unlessthey be overdrafts, lor
then the banker hasa right of action on them
Partridge v. Coates,1 By. & Mo., 156. Burton v. Payne, 3 0. <fc
P., 520. JRe0.v. Watts, 2 Den. 0. C. K., 14
83. No cheque,
draft, or orderfor the paymentof money,
drawn by any person or accountantauthorisedto draw for the
publicservice,is payable
at the Bankof Englandafter$ p.m.
4 & 5 Will. 4 (1834),o. 15, s. 21
84. 1. If a bankercancelsthe drawer'ssignatureto a cheque,

and if, beforeactualpayment,he discoversanyreasonwhy he
shouldnot payit, hemaywithholdpayment(ft)
2. But if the moneybe actuallypaid overto the prenenfer<-f
the chequein mistake,the propertyin the moneyis gonefrom
the banker,andhecannotretakeit (#)
(a) Fernandey v. Gtynn, 1 Camp,, 426
(ft) Cluimbersv- Miller, 13 C. B., N, S., 125
85. Cheques
mayho takenin execution
1 & 2 Viet. (1838),c. 110, s. 12. Watt* v. Jc/eiyet, S Mac. <fe
Our., 422
86. I. If a chequepayableto order bearsan indorsement

purporting to bo that of the payee,the banker is not bound to
inquireinto its genuineness: andan indorsement
by procuration
is withinthe meaning of theAct (a)
2. But if any other banker cashesit for the bearer,or gives
him crwlit for it, andobtainspaymentof it fromthe bankerupon
whuiii it is drawn,he will be liable to the drawer(J)
(«i) 16 A 17 Viet. (1862), o. 52, s. 19. Hare v. Copland, 13 IT.
Com.,&, R.»426. Ctarfe*v. DZacfcwtt,TheTimes,May0, 1876
(/») <)*/<fniv. 2*fR«tf,L. E., 9 C. P., 013. 4rnoW v. 27i* Cheque
Dank, The Timtt, April 2i, 1876
87* An infant cannotdraw a valid chequeexceptasan agent

v. Lttgdt 6 M. <&W., 26
88, 1* A chequeis an assignment

of a chose-in-action,
and
wltfn communicated
or notified by the holder to the bankeris a
complete assignment of thefund (a)
2. If a chequebo notifiedto thebankerandthedrawerdies
beforeit is paid,theholderis entitledto payment(&)
(a) SntllgraveY. Bailey, Bidg. oa. t., Hard., 202, Morrell Y.
9 10 Boav.» 197
tiwmlfy v. DruAton,L, BM6 Bq.t 275
89, I. If a bankerpaysa chequewith a forgedsignature,be

tnuftt \rn\r the ICWH
(a)
2. S^»if the Ixnly of the chequebe written by his customer,
and framluliiitly uUwsdby anotherjxsrson,soas to bepayablefor
a hirfcurwwiithanori|ri»allydrawn,and,thebankernot detecting
thealteration,paysit, he mustbearthelossof theexcess(&)
8. But if the customerauthorisesanotherpersonto write the
bmlyof thecheqao,
andthatperson
frattdulently
altersthecheque
noanto makeit payablefor a largersumthanauthorised,
andso
th«» turfyof thechequeis all in thesame
handwriting,
thebanker
* ill not*beliable(r)
n. **
4. Soif a bankerpaysa cheque

undercircumstances
winch
areevidentlysuspicious,
he mustbearthe loss(d)
(a) Youngv. Grote,4 Bing,,253. Hall v. Fuller,5 B. * 0., 750
(&) Hall v. Fuller,5 B. <feC., 750
(c) Youngv. Giotc,4 Bing., 253
(d) Sclioley
v. Ramsbottom,
2 Camp.,
485. Thedrawerhft&torn
tlio chequeinto four pieces,and thrown them away. A perntm
found the pieces,pastedthem together,and presentedthe chuq.ue.
The banker paid it, and was hold liable
90. 1. A bankermust pay his customer'schequesstrictly

in theorderin whichtheyarenotified,communicated,
orpresented
to him for payment(a)
2. He mustdebit his customer's
accountwith cheques
on tho
daythey are notified or paid, and not on the day they are drawn (ft)
3. Sumspaid by a banker extinguishthe debts createdby
sumspaid to him in strict chronologicalorder (a)
(a) EobBonv. Bennett,2 Taunt.,388. Clayton'sease,I Mor.t 572*
Bodenhamv. Purchas,2 B. <fe
Aid., 89. Kilsly v. Willwm, 5 B. tte
Aid., 816. Pcnnell v. Dejfdl, 4 De G. M. & GK, 372. ItromUt/ v.
Bi union, L. E., GEg., 275
(6) Goo&bodyv. Potter, Byles, 8th ed., p. 25
91. 1. If a banker having funds of his customerwrongfully

dishonourshis chequeor bill made payableat the bunk, ao that
the customersufiersdamage,he has an action against the banker
for suchdamage(a)
2. But suchspecialdamage
mustbelaid andproved(&)
3. If the customer
becomesbankruptin consequence
of tho
wrongful dishonourof his cheques,his assignees
have aa action
against the banker
4. The holderof the chequeor bill may suethe banker on the
instrument
(a] Marzetti v. Williams, 1 B. <fcAid., 4X5. Eolin v. Steward, L. J.
(&) Daviesv. TheRoyalBritish Bank, The Times,July 10,
92. 1. The holderof a chequeis not entitledto enlarged

time by presentingit through an agent
He must thereforepay a plain chequeinto his lianktir'Hthe
samedaythat he receivesit, and the hankerhasall tho n<jxtday
to presentit, being the sametime that the holderhas (a)
LAW OF CIUSDIT, BILLS AND KOTES 515
a chequepayableto orderdoesnot enlargethe

linn* for prowntmont(If)
3. Buttheholderof a eroHstul
chequewhichcanonlybepaid
throughanagent,hitsall thenextdayto payit intohisbanker's,
andLiu;hunker
busall thenextdayafterthatto present it (a)
(a) Alexanderv. fturchfitld, 3 Scott, N. B., 555. Fenwickv.
Dficar, Tfo Tim**, Pcb,22, 1BC7
{ft) Jfrmrirfcv. JDwar,Tfo 2*fa*i, Fob.22, 1867
83. 1. If the holderof a bill givesit up to the acceptor

in
pgrhangtifor hi« cheque,
and the chequeis dishonoured, he may
iriv« notice of dishonour of the bill, and sue the drawer and
imloftera; andthe bill mayhedeclared on asa lostbill (a)
2. A Londonbankeris not guilty of negligence in givingup
billsremittedto him for collectionby his countrycorrespondents
to the acceptor,in exchange for his cheque,thoughit is dis-
luwouml (It)
{«) Kidlfy v. Ite kctt, Peafce,Ad. Ca., 02
(h) Hunftl v. Xtontoy, 6 X, B., 12
94* If a creditor,beingofferedpaymentby his debtor'sagent

either in moneyor by his cheque,prefershis cheque,and the
cheque
is dishonoured,
thedebtoris still liable
Kverett v. CulUw, 2 Camp., 515
95. 1* If a chequeis givenona fraudulentmisrepresentation

of facts(#) : or on a verbalconditionwhich the drawerfindsis to
btt broken(&): he may stoppaymentof the cheque
2. But he is liable to an innocentholdarfor value(c)
(a) SHU*v. Oddy,S3>owl.» 722
(fc)Witnhttlt v. tipittat 3 Camp.,375
{<?)ir«f*<mv. JZuttttt,3 B. <&S., 34
98. 1. A cheque
maybepresented
anytimewithinsix years
of its daio to chargethe banker,and the drawer,if the banker
ctoosnot fail (a)
2* If the banker fails with sufficient funds of his customer to
the cheque,the samerule appliesto chequesas to bank
the payeemustpresentit withinbankinghours,or remitit
byjwHtthedayafterhe receives
it ; otherwise
it islaches
andhe
bearthe to (*)
LL 2
51 6 THEORY AND PRACTICE OF BANKING
8. If the cheque is indorsed

away,the drawer'sliability is
Jischargedafterbankinghoursof thedayafterhohasissued it:
andtheliabilityof eachindorser
in succession
is discharged after
bankinghoursof the day after he hasindorsedit
4. If the drawerhas not funds to meetthe chequein his
banker'shandswhenhe fails, he is liable immediately
(a)SerUv. Norton,2 Moo.<&B., 401. RoUnwnv»HawMord,
9 Q. B , 52. Laws v. Rand, H 0. B. N., 4 IS
(6) Btohopv. Ctutty, 2 Sfcia.,lli)3. Appletonv. ftwftnppl*,»
Doug., 137. Rickford v. Rutye, 2 Camp., 51*7. Ilefchtnff v. -~»
Holt's N P., 315n. PocKhnffton,
v. Sylvester,Ch.<feHu., 9th etlit.*
385. Moulev. Brown,5 Scott,694. Bailey v. ttodeuhaM,10 0* B,»
N. S., 288
97. Thetransferee of an overduechequeis not subjectto

theequitiesof the transferor,as the transferee
of an overduebill
Rothschild v. Corney, 9 B. <feCM 388
98. If a customerpaysinto his accounta chequedrawn npon

the banker by another customer, and the banker takes ifc without
engagingto pay it, he may receiveit as the agent of the holder,
and has the sametime to presentit and considerif he will pay ifc,
asif it were drawnupon another banker
JBoydv. jEmenon, 2 A. <&E., 184
99. A chequedrawn by severalpersonsas a colkterul

securityis a joint, andnot a joint andseveral,
liability
Other v. Iveson, 3 Brew., 177
100. A change
in thenames
onthecheques
supplied
bya
banking firm to their customersis sufficientnotice to them of the
changeof the partners
Earfort v. Goodall,3 Camp.,46
101. 1. If acustomer hasanaccount of a fiduciarynufuro,

suchasTrustee,Executor, or otherwise,
a bankermaynotrcftine
his chequeson the account, becausehe maybelievethut tho
customerintendsto applythefundsin abreach of trust(a)
2. Andhewill notbeliableto thecestui
qnetrust if heis not
privy to the breachof trust (b)
LAW OF ORE! IT, BILLS AN!) NOTES 517
8. ttut if hoaofsin concert,agreement, or collusion

with his
uTin committin'j: tlu*breachof trust; andespeciallyif he
somebenefitby itt asby hiscustomer payinga debtof his
ownto him by means of chequesdrawnon the trustaccount, he
iwKt roplwv the trust fund (/>)
I. Tim Statuteof Limitations
doesnot applyto a banker
ing u trust fund (c)
(«} AVrin*v. IiV&artt,4 Mad.,332. Nicholsonv. Knoivles,
5 Mad.,
7. to/frr v* Jiycr, 8 Boav.,&"0. -CocAnrood
v. Abdy,14Sim.,437.
v. fVfirmm,28 Boav., 1%. Om// v. Johnston,L. R., 3 H. L , 1
//itt v. tfimjwwn,7 VtH., 132. AVa»«v. JRo&arf*,
4 Mad , 333.
»»v. Mwwf, 1 My. A KM 13«, 187. JParott'H v. J/ierZcy,2 Coll ,
C. ('., 210, JFybrv. Fylet, 3 I3oav.t550. Bodfnhamv. Hoslyns,
a IV (i. M. A IK, ttoa. tiridgmun v. ZhH, li Beav., 802. jEfa?%v.
(c) /;nJj/wim v. ///a, 2i Boav., 302
102. If tin ftcoouut in a bank stands in the name of several

jw<m»iH,
unlfH^therebe a specialcontractwith the bankerto the
contrary-
i. L If they !>eregardedin law as oneperson,suchas
^)j executoisor administrators(#): each may draw
amipaymentto oneis payment
to all
S\vn »ft«*ra dissolutionof partnershipand a receiverhas
aj»poiute<l
to colluctt
thepartnership
debts(c)
8. Hut if one dmws a chequethe others may countermand
it <</)
(«) .4n*mM
12Mod.,440. Henderson
v. I?r£W,
2 Camp.,5GO.J)t(#
v. tonf /»</!« Co., 15 Vts., 10H. J/OJMv. Curt, cited 1 East., 53.
/*i»r/»»rv. Tttylor, <>M. & B., 15C. 2*omZ£n
v. Lawrance, 3 Mo. <fc
XX fM,r». A"i'B»;v. Smith, 4 0. & P., 108
(/*) r«»»civ, Kntlfnewdt$ Ld. Raym.,1210. Oarr v. JReacZ,
3
AtkM <)Uf».lAintmf v, HnricQod,2 Ves.t205* ^Ww v. DM«da^,3 T.
li., 123. Kx partt Kigby,1UYos.,462. Gauntv. Taylor,2 Hare,
4X& Kmif/i v, ^r^mt, 27 Bcav,, 4iC
{!") Jf)n/v. Ktut fiulia CU,15VesM198, PorUr v. TayZor,6 M.
& S,»110. A"f»i?v*Smith,4 C. <fcP., 108
(<J)C?««w< T, Taylor, 2 Hftre»413
2, But if theybo not regarded in lawas oneperson, suchas
TriMtoeft(tf) "" or Assignees
of a bankrupt(b): all mustsign*
Itiiwtora of a compftny mtist sign m directors(c): andpayment
to km than all will not dischargethe banker
(a)Ex parteRigby,19Yes,,4G2,Stone
v. Manh>
6 B. <&C.,
551. Husband v, Davis, 2 Low. M. <feP., 60
(6)Carrv. Jfoad,
3 Atk,,G95.Innesv. Siepfcsnson,
1 Mo.A
Bob., 145.
(c) fitemrtZ
v. DerbyshireRy. Co.,GK0. B., 811
3. If anyof theassignees
or trustees
diethe right remains
with the survivors
: andif anybecome
disqualified,
asby abscond-
ing,goingto reside
abroad,
equitywilldirectthefundsto bopaid
to the remaining ones
Staplesv. Staples; Shortbridge'scase,12 Vos,, 28. Ex pttrttt
Collins,2 Cox,EquGa.,427, JBa?parte Hunter, 2 Hose,863. 13
& 14 Viet. (1850),o. 60, s, 22
103. 1. If a banker,either at the requestof a customer,or

whena chequeis presentedby the holder or his agent, placesa
** mark " on it as by his initials, signifying that the chequeis good
and will be paid, such" mark" is a legal acceptance of the cheque
by the banker (a)
2. A cheque
so"marked" or accepted
becomes
a banknoteof
the banker who makes it (#)
(a) Robson
v. Bennett,2 Taunt.,388
(&)7 & 8 Viet. (1844),o. 32, s. 11. 17 & 18Viet. (1854),o. 83,
s. 11. 33 <fe34 Viet. (1870), o. 97, s. 45
104. 1. A banker must not pay any chequeof his customer

presentedafter he has receivednotice of his having committed uu
act of bankruptcy (a), or of his death(5)
2. Paymentof chequesnotifiedor presentedbeforesuch notice
aregood,andmaybeenforced by the holder; but payments
after
suchnoticearebadandwill not dischargethe banker(c)
(a) I Jao.,1, o. 15, s. 14, Vernonv. Hankey,2 T. B,, 110
(b) Tate v. HUbert, 2 Ves., jun., Ill
(c) 12 <fe13 Viet. (1840),o. 106,s. 133. Bromleyv* $rvntont I>.
B., 6 Eq., 275
105. 1. If a bankingcompanyhasseveralbranchcfl,each
with its owncustomers
andaccounts,
eachbranchis considereda»
anindependent
bank,forthepurpose
ofreceiving
andtransmitting
notice (a)
2. Eachbranchmustcollectits owncheques
andbilte,aud
timewillnotIK*enlarged
soustopermitit tocollect
themthrough
its headoffi<v(i)
(«) Ctrt/rtt v. Jones; Clo<Uv. BcuZey,12M. & W., 51
(&) ftWtomZ v, JPVrtr, 7 E. & B,, 519
108. If a peiaonchanges a cheque

asa favourfor another
iwrxtm,andif the chequebe dulypresented
anddishonoured,he
nwygm* noticeof dishonour,andrecoverthemoney
H'oolmd y, #V«r, 7 B. A B., 519
107* 1. A Letter of Credit isa writtenrequest

byone
jK'wmto anotherrequesting
the latter to give creditto a person
named 121it
2. If the requestIB unconditional,
it is termedan Open
Credit
;*. If the ivqwi8t he on the conditionthat bills of lading
IH»di'pnsiUMias colluteralsecurityit is termeda Document
Credit
4. A Marginal letter of creditis oneby whicha person
mimed in tht! margin guarantees
to anotherpersonthat he shall
Ytcoivts
creditfrom,or havehis bills accepted
by,anotherperson
108. 1- Letters of credit must be stampedas bills

#. Except letters of credit, whether in sets or not, sent by
jx*r«MnK
in the United Kingdomto persons
abroad,authorising
draft* on the United Kingdom
83 & 8-i Viet. (1670), c. 97f 6. 48, § 1, and sobed.
109* I, If a banker pays a letter of credit upon a forged

Htpwtuiv hi* in liable (tf)
"L Tin* Iti & 17 Viet. (1858), o* 59, s. 19, doesnot protect a
bankerjwyi»K» luttvrof creditwith a forgedsignature
(&)
(it) <>rrv. UnionDank(]fScotland,I Macg.,H. L. Ca.,513
(V/)
tiritithLinmCo*
v.Caledonian
Insurance
Co.,
4 Macq..,
H.
.» 107
110* 1* If a personobtainsa letterof creditfroma banker

f^r u mm paiddown,ho maydemandrepayment withoutpro-
ducing the letter
2. The bankercanonlyprovepaymentby producingthe draft

of the personin whosefavour it i« drawn
Orr y. Union Bank of Scotlantl, I Macq., H. L. Ca.»51$
111. The indorseeof a marginal letter of credit, not lu'in**

on fcheface of it a document credit, IA not hound in the iiiwewo
of notice to inquire whether it is being used for the purjHwefor
which it is granted
v. Ghartfred Mercantile Hank o/ jfm/m, Lvnthwt an«l
1. The holdersof a banker'scircular lettersmaydemand

paymentof them from himself,as well as from bin com»|xmdem*
abroad
2. But he is not boundto cashthem unlessthey are returned
to him, or he receivesan indemnity
Confl&w StoneQuarry Co. 7. Parfor, L, B,, $ C, !*.»3,
113. The following are exemptfrom stampduty-

1. Any draft or order drawn by any banker upon any oilier
banker,not payableto Insureror order, and u*»edsolely for tbo
purpose
of settlingor cleanup:
anyaecountlK»twe<«n
wirh banker
2. Any letter written by a banker to any other banker dm'H*
ing thepaymentof anyaumof money,thename»nt ln»in
to Ixjareror to order, and such letter not lH»i»u:Kent<»r
to the personto whompaymentis to be made,or to any
on his behalf
33* U Viot (1870),s. 97»sohed-
114»* I. Wlierea cheque

tevrwacrom
"
it« faceanncMiti«*nnf -
(a) The words**and company <^rany ubbrcviutinniJifr»»"!'
Ixitween two jmnUlel transvem* linen, eitiirr \\iih <»r
without the words"not nogotiabl(»" ; or
(li) Two parallel tniiiHveiw linen simply, either with or
without the wordn"not w#»iiabl<'" ;
that addition constitutesa crowing,uud the chequem cro$*t*d
generally
2. "Whorea chequehem'sacrossits facean additionof tho

lumeof a lmnki*r,either\\ith or withoutthe words" not negoti-
al»hsM
that additionconstitutes
a eroding,andtheclietjueis
speciallyami to that Inuiker
115** L A cheque
maybecrossed
generally
orspecially
by
the drawer
2. Wherea cheque
is uncrossed,
the holdermaycrossit
generallyor ftjtfHMally
:i Where
a cheque
iscrossed
generally
theholder
maycross
ifc
L Wherea cheque
is crossed
srenerally
or specially,
theholder
niuy add the \\nrtlrf u not negotiable"
«*>.
\VhtTe a ehequeis crossedspeeinlly,the bankerto whom
it i« t*r«»H^'il
way ugaiiicrossit speciallyto anotherbankerfor
i'«Mrt ion
f'»,WiiHvan uneroswdcheque, or a cheque
crossed
generally,
to u hankerfur collection,
he maycrossit speciallyto
A cromingatithorisedby this Act is a materialpart of

tin1diwjne; it rfiall not Ixslawfnlfor anyperson
to obliterate
or,
authovtaed
by this Aet, to add to or alter the crossing
117.* 1. Where a chequeis cro&sedspeciallyto more than

CM**
bankerexceptwhencro,s«ed to an agentfor collectionbeinga
banker, thu banker on whom it is drawn shall refuse payment
U. When*the banker on whoma chequeis drawnwhich is so

newrtheleHrtpays the same,or pays a chequecrossed
geijernllyothenvi&*
than to a banker,
or if crossed
specially
other-
wi«i»than to the banker to whom it is crossed, or his agentfor
tfollwtiuu iK'injf a bankerthe is liable to the true owner of the
r hfrjuefar anylosshe maysustainoîng to the cheque
having
IKHWm {wid
Providedthat wherea chequeis presentedfor paymentwhich
Aw* not at the time of presentmentappearto be crossed,or to
Imvi'had a erodingwhichhasbeenobliterated,
or to havebeen
add d to or alteredotherwisethan as authorisedby this Act, the
522 THEORY ANB PRACTICE OF BANKING
banker payingthecheque in goodfaithandwithout

shallnotbe responsible
or incuranyliability*nor rfiallthejmy
mentbequestioned byreason of thechequehavingbwurmw«!»
orof thecrossinghavingl>eenobliterated
or havingbeeniwMeii
to or altered otherwisethan anauthored by thin Act, and of l*uy-
menthavingbeenmadeotherwise
tlmnto H hankeror to the
bankerto whomthechequein or wascrowd, or to hi$ u**rntfor
collection
beinga banker,asthe ciummaybe
118.* Wherethebanker,on whoma crowd cheque in drm\n,
in goodfaithandwithoutnegligence
pay«it, if cronaed
generally,
to a banker,and if crossed8{u»cuiHy,
to tho banker to whom it in
crossed,or his agent for collation beinga lnink«»r, the bunker
payingthe cheque, and,if the chequehartcomuinto th$ hawk of
the payee,the drawer,shall respectivelybe entitled to tho itama
rights and be placedin the samepositionas if paymentof tho
chequehad beenmadeto the true ownerthereof
119.* Wherea persontab's a crowd ehwjuowhich Iran* on

it the words"not negotiable,"he shall not, have uml shall n«»tin?
capableof giving a better title to the cheque than that which tlw
personfrom whom he took it luul
120,* Wherethebankerin Roodfaith and without

receivespaymentfor a customerof a chequecros^'d gi*m*ruiiyor
speciallyto himself, and th<t rimtoiniT h»Hin* title* or a defective
title thereto,tho bankershall not incur anyliability to th<?
trim
owner of the chequeby ruuflon only of having receive! »u«h
payment
StampDuties on Bank N&tw, Itilfa qf Kjcfhang*and

Notes,atprwmt fofwc*. (88 <fe»1 Viet.(1870;, r. U7)
On Bank Notw
121. By the aboveStampAct it in cwnrtcd,«, -15-*

**The term l banker1meant*and inelmlenany e*>rj
society,partnership, and JHTHOHH,ami every individual
carrying on the businemof banking in tin- Unit»ti
The term " bank nute " IUCUHHan<I
(I) **Anyhill of twhungftor promissory

noteissuedby any
t*uikor*nthiT than tin* Governorand Companyof tho Bank erf
Kni*Un1,for flu* paymentof moneynot exceeding onehundred
jimmta to th«*Inwor on demand"
(^) **Any bill of exchange
or promissory
noteso issued
which
cntitlw, or i« intended to entitle, the beareror holder thereof,
withoutindorwinenttor withoutanyfurtheror otherindorsement
than maybe thereonat the time of the issuingthereof,to the
paymentof moneynot exceedingonehundredpoundson demand,
wlwthiTtheAamcbo so expressed
or not,and in whatever
form,
and by whomsoever
suchbill or note is drawnor made"
3.411.'- **A lunk note issued duly stampedor issuedun-
tftuutjrtl by a banker duly licensed,or otherwiseauthorisedto
is-4u*»un4ampiM\bunk nottw,maybe from time to time re-issued
witbout bt'imj liable to any stamp duty by reasonof such
» 47» 1*- u If any banker not being duly licensedor other-

' aitthurmtnli& ianueunstampedbank notes,issues,or causes
or jwntiitHto botamed,
anybanknotenot beingdulystamped,
lie «!ml! forfeit the swm of £50 w
a, " If any personreceive,or takesanysuchbanknotein
paytwntorasa «<*c»urity,
knowing
thesameto havebeenissued
«n«lam{HHi
contraryto law, heshallforfeitthesumof £20"
Dutws on Sank Notes

£ s. a.
For moneynot extwling £1 ...... 005

£1 and nut exceeding£2 ... 0 0 10
£*2 £5 ... 013
X5 £10 -. 019
£10 £30 -. 020
... 030
- 050
£50 w £100 ... 086
BHU and Notes
» Theterm* Bill of Exchange*

for the purposes
of
524 TIIEOET AND PRACTICE OF BAXKIXO
tins Act Includesalso diaft, order, ehvqno,nud letter of credit,

and anydocumentor writing (excepta banknote)entitling or
purportingto entitleanyperson,whethernamedtherein or n»<t,
to paymentby anyother personof, or to draw uponanyother
personfor, anysumof moneythereinmentionedM
2.-"An order for the paymentof any sumof moneyhy a bill
of exchange or promissorynote,or for the deliveryof anybill of
exchange or promissorynote,in satisfactionof anymimof money,
or for the paymentof anyawn of money,out of anyjwrtienW
fundwhichmayormaynot beavailable,or uponanyconditionor
conditionswhichmayor maynot hit performed or !wpjn*tt,in to
bedeemed for thepurposesof this Act a bill of exchangefor th<s
paymentof moneyon demand "
8.-" An orderfor the paymentof anymm of moneyweekly,
monthly,or at anyotherstatedperitxla;and alsounyorderfor
the paymentby any personat any time after the ditto thereofof
anysumof money,andsent or deliveredby the personmaking
the sameby the personto whom the paymentis to IK*made,and
not to the personto \\hom the pjument is to he nwde,or t«»any
personon his behalf,in to be deemedfor the purples of this Act
a bill of exchangefor the payment of numeyon demand"
S. 40, 1.-a The term APromissoryXot*s * iai»uiw and iwlud* "*
any documentor writing (except
'*
a bank note) containinga
promiseto pay any sum of money
2.-** A notepromisingthe paymentof any*wmof moneytint
of anyparticularfundwhichmayor maynot Ui available,or »p*>n
anyconditionor contingencywhichmayor maynot \w jwforxntA
or happen,
isto be deemed
for theporpoMCB
'*
of thinAct a |m*«
missorynote for the aaid sum of money
S. 51,1.-"The aclvaloremdutiea upon bilk of *xr!mng«'a?»d
promissory
notesdrawnor madeout of the UnitedKingdomant
to be denotedby adhesivestamps**
2. "Every personinto whom*handsany fmrh bill or »»»f«
comesin the UnitedKingdom beforeit is Hfamjw-d *lml)vfH*fotn
hepresentsfor payment,or imlotwH,trnw^fcr**, or in anymutiniT
negotiates,
orpayssuchbill or note,allix thereton properudhemui
stamp,or properadhesive
fttuiujwof aufitck'utamountand ciutccl
everystampso affixedthereto>p
3. Provided sts follows-

(tf) "If at the time when any ?nrfi 1)511
or note comesinto
the handsof any IwmifHfr holder thereof thore is affixedthereto
an adhesivestampeffectuallyobliterated,and purportingand
np]xtirmg to be duly cancelled,suchstampshall,so far as relates
to »uohholder,l>e deemedto l>e duly cancelled,althoughit may
not appearto have been so affixed or cancelledby the proper
(ft) **IF at tho time whenany suchbill or note comesinto the

handsof any IMH&fidtt holder thereof there is affixed theretoan
adhesivestampnot. duly cancelled,it shall be competentfor suck
holderto cancelsuchstampas if he ft ere the personby whom it
was affixed, and upon his doing so such bill or note shall be
deemedduly stamped,and as valid and availableas if the stamp
had beenduly cancelledby the personby whom it wasaffixed"
"L ciBut neither of the foregoing provisoesis to relieveany
personfrom any penalty incurred by him for not cancellingany
adhesivestamp"
H. 52. - u A bill of exchange
or promissory
notepurportingto
ftpdrawnor madeout of tho UnitedKingdomis,for tho purposes
of thift Act, to bedeemedto havebeenso drawnor made,although
it mayin fact have beendrawn or madewithin the United
Kingdom**
Duties payable on Bills and Notes & ». a.
Bill of Exchangepayableon demand ... 0 0 1

Bill of Exchange of any otherkind whatso-
ever (cxwj)ta Bunk Note), and Promissory
Noteof any kind whatsoever (fxrept a Bank
.AV/')»drawnor expressed to be payable,or
actuallypaid, or indorsed,or in any manner
negotiatedin the United Kingdom. Where
the amountor valueof themoneyfor which
the Bill or Note is drawn or made does not
exceed £5 ............... 001
Exceeds £5 and does not exceed £10 ... 0 0 2
£10 £i'5 ... 0 0 S
£2f> f, £50 ...006
520 THEORYANT) PRACTICE
OF BANKING
Exceeds
£50 anddoesnotexceed
£75 ... 0 0 9
» £75 £100 ... 0 1 0
For every£100, and alsofor anyfractional
part of £100 of such amount or value ... 0 1 0
S.6f>.-" Whena bill of exchange

is drawnin asetaccording
tothecustom of merchants, andoneof the setis dulystamped,
the other or others of the set shall, unless issued or in some
mannernegotiatedapart from suchduly stampedbill, he exempt
from duty: and upon,proof of the loss or destructionof a duly
stamped bill, formingone of a set,anyother bill of the setwhich
hasnot beenissuedor in anymannernegotiatedapartfromsuch
lost or destroyedbill, may, althoughunstamped,be admittedin
evidence to provethe contentsof suchlost or destroyedbill"
Capacity and Authority of Parties

122** 1. Capacityto incur liability as a party to a bill is
co-extensivewith capacity to contract
Providedthat nothing in thissectionshall enablea corporation
to makeitself liable as drawer, acceptor,or indorser of a bill unless
it is competent
to it so to do underthe law for the time beingin
forcerelating to corporations
2. Where a bill is drawn or indorsed by an infant, minor, or
corporationhaving no capacity or power to incur liability on a
bill, the drawing or indorsement entitles the holder to receivepay-
ment of the bill, and to enforce it against any other party thereto
123.* No person is liable as drawer, indorser, or acceptorof

a bill who hasnot signed it as such: Provided that
1. Where a person signs a bill in a trade or assumedname,he
is liable thereonas if he had signedit in his own name:
2. The signatureof the nameof a firm is equivalentto the
signatureby the person so signingof the namesof all persons
liableaspartnersin that firm
On the Form of Sills and Notes

124.* I- An inland bill is a bill which is or on the faceof it
purports to IK* (fl) both drawn and payablewithin the British

llundK,or (6) drawnwithin the British Handsuponsomeperson
iwulont therein. Any other bill is a foreign,bill
For the purpose of this Act "British Hands" meansany
part of the United Kingdom of Great Britain and Ireland, the
Handsof Man, Guernsey,Jersey,Alderney,and Sark,and the
Handsadjacentto any of thembeingpart of the dominionsof
Her Majesty
2. Unlessthe contraryappearon the face of the bill the
holdermay treat it as an inland bill
125. No particular form of words is necessary

for a Bill or
Note
SJ.It may be written in any languageand on any material;
mid in pencil (//) aawell as in ink
(a) Grary v. X>hy*iektf>B. & C., 234
128* It is nmml, but not necessary,to insert the nameof

the pliUftjwherethe bill or note is made:if thereis no dateit
will IKSconsidered as dated at the time it is made
Da to Courtier v. Bellamy, 2 Show., 42SL Hague y, French, 3 B.
<fe1\ 173. Qilt* v, JBounw,6 M- <feS.»7$
127. Bills and Notes were formerly specialtiesunder seal;

and therefore no considerationwas required to be expressedin
thorn: the nameprinciple holds good now that the formality of
string is dispensedwith, and they are in the form of meresimple
contracts
Whitev, Ledwicls,4 Doug.,247* <?r<wt7. JDaCosta,3 M. & S,t
351
128.* An instrument which orders any act to be donein

addition to the paymentof money,is not a bill of exchange
An order to pay out of a particular fund is not unconditional
within the weaning of this section; but au unqualifiedorder to
pay,coupledwith (a) an indicationof a particularfund out of
which tho draweein to re-imbursehimself or a particular account
to betlrhitfd with the amount,or (£) a statementof the transac-
tion \\lwshgivesriseto the bill, is unconditional
129** A bill is not invalid by

(a) That It is not dated;
(b) That it doesnot specifythevaluegiven,or thai any valua
hasbeengiventherefor ;
(c) Thatit doesnot specifythe placewhereit is drawnor the
placewhereit is payable
130. A bill mnstnot bepayableon a contingency

(«)-
Thehappening of the contingency
beforeactionbroughtduos
not cure the defect(&)
(a) Pearsonv. Garrett, 4 Mod., 242. &*ard*by T. Baldwin,2
Stra., 1151. Carlos v. .Fancourt,5 T. B.» 482, "Rcdwf* 7. Pcafa,
Burr., 323. £*«& v. £awca*ft£re,2 Camp,, 205. )Tiltfom*0n v,
Bcwwtt,2 Camp.,417. JETiUv, ttal/ord>2 B. <ftP., 41$. Jf/artfry
v. TO&nson,4 Camp.,127. CZarJfe* v. ParweaZ,2 B. <feAd.»661.
Drury v. Macaulayt16M. & W., 146. Alexanderv, rômojs,16 Q.
B., 333. Palmer v. Pratt, 2 Bing., 185» Forley v. IZarraon, 8 A,
&B., 669. JRo&wwv.May, 11A.&E., 214
(6) JETiZZ
v. Halford, 2 B. <fcP., 413
131.* 1. Where a bill is not payableto bearer,the payee

must be named or otherwise indicated therein with reasonable
certainty
2. A bill maybe madepayableto two or more payeesjointly,
or it maybe madepayablein the alternative to one of two, or
oneor someof severalpayees.A bill mayalsobe madepayable
to the holderof an officefor the time being
3. Wherethe payeeis a fictitious or non-existingpersonthe
bill may be treatedas payableto bearer
132* 1. A bill drawn payableto - , or order, is void (tf)

2. But a lon&fide holderfor value mayinsert his ownnamein
It, and suethe partiesto it (5)
(a) JRfia;v. Richard*, B. & B. 0. 0., 193. Rex v. Randall, B A
B. 0. 0., 195
(&) Crutchley v. Clarance, 2 M. & S., 190. Attwood v. Griffin, B.
& M., 225. Crutchley v. Mann,, 8 Taunt., 529
133. If the drawer of a bill inserts the name of a fiotiti'oiw

payeewithout the acceptor'sknowledge,and indorsesit in the
nameof the fictitiouspayee,
the holdercannotsuetheacceptor
(«)
But if theacceptor
knewthatthe payee
wasfictitious,the
holdermaysuehim on it aspayable
to bearer(2>)
(a) Bennett v. Farnell, 1 Camp., 130
(6) TatlockY. Hants, 3 T. E., 174. Verev. Lewis,3 T. E , 182.
Minet Y. Gibson,3 T, B , 481: affirmed in Dom. Proc.,1 H. Bla ,
569
134. The eventmust certainlyhappen:though the time

whenit mayhappenis uncertain
Colehan
v. Cooke,Willes,393. Rqffeyv. Greenwell,
10 A. & E.,
222. Andrews v. Ftariklin, 1 Stra., 24
135. A man may draw a bill upon,or makea note payable

to himself,and when indorsedin blank it becomes
payableto
bearer
Statle Y. Cheesman,Garth., 508. Dehers v. Harriot, 1 Show.,
163. RobinsonY. Bland, 2 B , 1077. Richards v. Macey, 14 M &
W., 484. Browne v. De Winton, Gay v. Lander, 6 C. B, 336.
Wood Y. Mytton, 10 Q. B., 805. Mayor v. Hammond, cited in
Harvey Y. JTay, 9 B & 0., 364. Jtoac/i v. Ostler, 1 Marx. <fcBy.,
120. Miller v. Thompson,3 M. & G-.,576
136. A bill, though acceptedis of no force without the

drawer'ssignature,either as a bill or note
Stoessiqerv. S. E. Ry. Co., 3 E. & BM553. Goldsmidv. Hampton,
5 0 B., N. S., 94. Maccall v. Taylor, 34 L. J., 0. P., 365. Rex
v. Hart, 6 C. & P., 106
137. If an instrument is madein termssoambiguousthat it

is doubtful whetherit is a bill or note, the holder may treat it as
either
Peto v. Reynolds, 9 Ex., 410. Armfield v. Allport, 27 L. J., Ex.,
42. Fielden v. Marshall, 9 C. B., N. S , 606. Shuttleworth v.
Stevens,1 Camp., 407. Allan Y. Mauson, 4 Camp.,115. Gray v.
Milner, 8 Taunt., 739. Miller v. Thompson,3 M, & GL,576
138.* 1. "Whena bill containswordsprohibiting transfer,or

indicating an intention that it should not be transferable,it is
"validas betweenthe partiesthereto,but is not negotiable
2. A negotiablebill may be payableeither to orderor to
bearer
3. A bill is payable
to bearerwhichis expressed
to besopay-
VOL. TJ MM
able,or onwhich the only or last indorsementis an indorsementin

blank
4, A bill is payableto order which is expressedto be so pay-
able, or which is expressedto be payableto a particular person,
and doesnot containwords prohibiting transferor indicating an
intention that it should not be transferable
5. Where a bill, either originally or by indorsement,is ex-
pressedto be payableto the order of a specifiedperson,and not
to him or his order,it is neverthelesspayableto him or his order
at his option
139.* The sum payableby a bill is a sum certain within the

meaningof this Act, althoughit is required to be paid-
(a) "With interest
(6) By statedinstalments
(c} By stated instalments,with a provision that upon default
in paymentof any instalmentthe wholeshall becomedue
(d) Accordingto an indicatedrate of exchangeor according
to a rate of exchangeto be ascertainedas directedby the bill
1. Where the sum payable is expressedin words and also in
figures, and there is a discrepancybetweenthe two, the sum
denotedby the wordsis the amountpayable
2. Where a bill is expressedto be payablewith interest,
unlessthe instrument otherwiseprovides,interest runs from the
date of the bill, and if the bill is undated from the issue thereof
140.* 1. A.bill is payableon demand-

(a) Which is expressed to be payableon demand,or at sight,
or on presentation;or
(#) In which no time for paymentis expressed
2. Wherea bill is acceptedor indorsedwhen it is overdue,it
shall, as regardsthe acceptorwho so accepts,or any indorserwho
so indorsesit, be deemeda bill payableon demand
141.* A bill is payableat a determinate future time within

the meaningof this Act which is expressed to be payable-
1. At a fixed periodafter date or sight
2. Onor at a fixedperiodafter the occurrence
of a specified
eventwhich is certain to happen,though the time of happening

may be uncertain
An instrument expressedto be payableon a contingencyis
not a bill, and the happeningof the eventdoesnot cure the defect
142.* Wherea bill expressed to be payableat a fixedperiod

afterdateis issuedundated,or wherethe acceptance of a bill pay-
ableat a fixedperiodaftersightis undated,anyholdermayinsert
thereinthe true date of issueor acceptance,
andthebill shallbe
payableaccordingly
Providedthat (1) wheretheholderin goodfaith andby mis-
take inserts a wrong date, and (2) in every casewherea wrong
dateis inserted,if the bill subsequentlycomesinto the handsof a
holderin due coursethe bill shallnot be avoidedthereby,but
shall operateand be payable as if the date so insertedhad been
tho true date
143.* 1. Where a bill or an acceptance

or any indorsement
on a bill is dated,the dateshall,unlessthe contrarybeproved,be
deemedto be the true dateof the drawing,acceptance,
or indorse-
ment, as the casemay be
2, A bill is not invalid by reasononly that it is ante-datedor
post-dated,or that it bearsdate on a Sunday
144.* The drawer of a bill and any indorser may insert

therein the name of a person to whom the holder may resort
in caseof need,that is to say,in casethe bill is dishonoured by
non-acceptance or non-payment. Suchpersonis calledthe referee
in caseof need. It is in the option of the holderto resort to the
refereein caseof needor not ashe may think fit
146.* The drawer of a bill, and any indorser,may insert

thereinan expressstipulation-
1. Negativing or limiting his own liability to the holder:
2. Waiving asregardshimself someor all of the holder'sduties
146.* 1. Wherea simplesignatureon a blank stampedpaper

is deliveredby the signer in order that it maybe convertedinto a
bill, it operatesas a primdfatie authority to fill it up as a com-
MM 2
532 THEOEY AND PRACTICE OF'BANKING
pletebill for anyamountthestampwill cover,usingthe signature

for that of the drawer,or the acceptor,
or an indorser; and,in
like manner,whena bill is wantingin anymaterialparticular,the
personin possession of it has &pnm&facie authority to fill up the
omissionin any way he thinks fit
2. In order that any suchinstrument whencompletedmay be
enforceableagainstany personwho becomesa party thereto prior
to its completion,it must be filled up within a reasonabletime,
and strictly in accordance with the authority given. Eeasonable
time for this purposeis a questionof fact
Provided that if any such instrument after completion is
negotiatedto a holderin due courseit shall be valid and effectual
for all purposesin his hands,and he may enforceit as if it had
beenfilled up within a reasonabletime and strictly in accordance
with the authority given
147.* 1. Wherea personsigns a bill as drawer,indorser,or

acceptor,and addswordsto his signature,indicating that he signs
for or on behalfof a principal, or in a representative
character,lie
is not peisonally liable thereon; but the mere addition to his
signatureof words describing him as an agent, or as filling a
representativecharacter, does not exempt him from personal
liability
2. In determiningwhethera signatureon a bill is that of the
principalor that of the agentby whosehandit is written,the
constructionmost favourableto the validity of the instrument
shall be adopted
148.* 1, A bill maybe drawn payableto, or to the order of,

the drawer: or it may be drawn payableto, or to the order of,
the drawee
2. Where,in a bill, drawerand draweeare the sameperson,or
where the drawee is a fictitious person, or a person not having
capacityto contract,theholdermaytreat the instrument,at his
option,eitheras a bill of exchange
or asa promissory
note
149,* 1. The drawee must be named or otherwise indicated

in a bill with reasonablecertainty
2. A bill maybe addressedto two or more draweeswhether

they are partnersor not, but an orderaddressedto two draweesin
the alternative or to two or more drawees in succession is not a
bill of exchange
150.* 1. An instrument in the form of a note payable to
maker'sorder is not a note within the meaning of this section
unlessand until it is indorsedby the maker
2. A note is not invalid by reasononly that it containsalso
a pledge of collateral security with authority to sell or dispose
thereof
3. A note which is, or on the face of it purports to be,both
made and payablewithin the British Hands is an inland note.
Any other note is a foreign note
151.* The maker of a promissory note by making it-

1. Engagesthat he will pay it accordingto its tenor ;
2. Is precludedfrom denyingto a Hlder in due coursethe
existenceof the payeeand his then capacityto indorse
153.* 1. Subject to the provisionsin this part and, exceptas
by this section provided, the provisionsof this Act relating to
bills of exchangeapply, with the necessarymodifications,to
promissorynotes
2. In applyingthose provisionsthe maker of a note shall be
deemedto correspondwith the acceptorof a bill, and the first
indorserof a note shall be deemedto correspondwith the drawer
of an acceptedbill payableto drawer'sorder
3. The following provisionsasto bills do not applyto notesj
namely,provisionsrelating to-
(a) Presentmentfor acceptance;
(V) Acceptance;
(c) Acceptance supra protest;
(d) Bills in a set
4. "Wherea foreign note is dishonoured,protest thereof is
unnecessary
153.* 1. Every contract on a bill, whetherit bethe drawer's,

the acceptor's,or an indorsees,is incompleteand revocable,until
delivery of the instrument in order to give effectthereto
534 THEORY AND PRACTICEOF BANKING
Providedthat wherean acceptance is written on a bill, and

the draweegivesnotice to or accordingto the directionsof the
person entitled to the hill that he has acceptedit, the acceptance
then becomescompleteand irrevocable
2. As betweenimmediate parties, and as regardsa remote
party other than a holderin due course,the delivery-
(a) In order to be effectualmust be made either by or under
the authority of the party drawing, accepting,or indorsing, as the
casemay be:
(6) May be shownto have been conditional or for a special
purposeonly, and not for the purposeof transferring the property
in the bill
But if the bill be in the hands of a holder in due course a
valid delivery of the bill by all partiesprior to him so as to make
them liable to him is conclusivelypresumed
8. Where a bill is no longer in the possession of a party who
has signed it as drawer, acceptor,or indorser,a valid and un-
conditional delivery by him is presumeduntil the contrary is
proved
154.* A promissorynote is inchoateand incomplete until

delivery thereofto the payeeor bearer
155.* 1. A promissorynote may be made by two or more

makers, and they may be liable thereon jointly, or jointly and
severallyaccordingto its tenor
2. Where a note runs " I promiseto pay" and is signed by
two or more personsit is deemedto be their joint and several

note
156.* 1. Wherea note payableon demandhas beenindorsed

it must be presentedfor paymentwithin a reasonable time of the
indorsement. If it be not so presentedthe indorseris discharged
2. In determining what is a reasonable time, regard shall be
had to the nature of the instrument, the usage of trade, and the
facts of the particular case
3. Where a note payable on demandis negotiated,it is nok
deemedto be overdue,for the purposeof aflectingthe holderwith
defectsof title of whichhe had110
notice,byreason
that it appears
LAW OF CREDIT,BILLS AND NOTES 535
that a reasonable
timefor presentingit for paymenthaselapsed
since its issue
Liability of Drawer or Indorser
157.* 1. The drawerof a bill by drawingit-

(a) Engagesthat on due presentmentit shall be acceptedand
paid accordingto its tenor, and that if it be dishonouredhe will
compensate the holderor any indorserwho is compelledto pay it,
provided that the requisite proceedingson dishonour be duly
taken;
(&) Is precludedfrom denying to a holder in due coursethe
existenceof the payeeand his then capacityto indorse
2. The indorserof a bill by indorsing it-
(a) Engagesthat on due presentmentit shall be acceptedand
paid accordingto its tenor, and that if it be dishonouredhe will
compensatethe holder or a subsequentindorserwho is compelled
to pay it, providedthat the requisiteproceedingson dishonourbe
duly taken ;
(6) Is precludedfrom denying to a holderin due coursethe
genuineness and regularity in all respectsof thedrawer'ssignature
and all previousindorsements;
(c) Is precludedfrom denying to his immediate or a sub-
sequentindorseethat the bill was at the time of his indorsement
a valid and subsisting bill, and that he had then a goodtitle
thereto
158.* Where a person signs a bill otherwisethan as drawer

or acceptor,he therebyincurs the liabilities of an indorser to a
holder in due course
Rights of the Holder

159.* The rights and powersof the holder of a bill are as
follows:-
1. He may sueon the bill in his own name:
2. Where he is a holder in due course, he holds the bill free
from any defect of title of prior parties,as well as from mere
personal
defences
availableto prior partiesamongthemselves,
and
may enforcepaymentagainstall partiesliable on the bill:
3. "Where Mstitle is defective

(a) if henegotiates
the bill to a
holderin duecourse, that holderobtainsa goodandcomplete title
to the bill, and (Z>)if he obtainspaymentof the bill the person
whopayshim in duecourse getsa valid discharge
for the bill
Funds in Hands of Draivee

160.* 1. A bill, of itself,doesnot operateas an assignment
of fundsin the handsof the draweeavailablefor the payment
thereof,and thedraweeof a bill whodoesnot acceptasrequired
by this Act is not liable on the instrument. This sub-section
shall not extend to Scotland
2, In Scotland,where the draweeof a bill has in his hands
fundsavailablefor the paymentthereof,the bill operates
as an
assignment of the sum for which it is drawn in favour of the
holder,from the timewhenthe bill is presented
to the drawee
On the Consideration
161. A Considerationis any lossor detriment to the plaintiff

sustainedat the requestor for the sakeof the defendant: or any
benefitto the defendantmoving from the plaintiff
162.* 1. Valuableconsiderationfor a bill may be consti-

tuted by-
(a) Any considerationsufficient to support a simplecontract;
(&) An antecedentdebt or liability. Sucha debt or liability
is deemedvaluable considerationwhether the bill is payable on
demand or afc a future time
2, Where value has at any time been given for a bill the
holder is deemedto be a holder for value as regardsthe acceptor
and all partiesto the bill who becamepartiesprior to suchtime
3. Where the holder of a bill has a lien on it, arising either
from contract or by implication of law, he is deemedto be a
holder for value to the extent of the sum for which he has a lien
The debt of a third personis good considerationfor which a
personmaybindhimselfby bill payable
afterdate
Popplewell y. Wilson, 1 Stra., 2G4. Coombsv. Ingi am,4 D. & B.»
211 fiulout v. Bribtow, I 0. & J , 231. Wildcis v. Stevens, 15 M
LAW OF CllEDIT, BILLS AND NOTES 537
& W., 208. Soweity v. Butcher, 2 C. & M., 368. Balfour v. Tte
tf, aw<Z
JCi/eInsu. Co., 3 C. B., N. S., 300
163. But not for a bill or note payable

on demand,unless
taken, in substitution for the other debt
Foith v. Stanton,1 Wins.,Saunders,p. 210c.,note o. Croft v.
Beale, 11 0. B., 172
164. Crossacceptancesfor mutual accommodationare re-

spectivelyconsiderations
for eachother
Rolfe v. Caslon,2 H. Bla , 571. Ro<>e v. Sims, 1 B. & Ad., 521.
Cowh'i/ v. Durilop, 7 T. E , 568. Buckler v. Buttwant, 3 Bast., 72.
Cat dwell v. Mat tin, 9 East., 190
165. 1. If the bill or note has been given for an illegal

consideration,or has beenobtainedby fraud, or duress,or lost, or
stolen, the defendant may call upon the holder to prove the
considerationhe gave for it
2. But not otherwise
Mills v. Barber, 1 M, & W., 425. Percival v. Frampton, 2 0. M.
<fcE., 180. Whitaker v. Edmunds, 1 A. & E., 638. Jacob v.
Hurgate, 1 Moo. & Eob., 445. Edmondsv. Groves,2 M. & W., 642.
Smith v. Martin, 9 M. & W., 304. Feat n v. Fihca, 7 M. & GL,513.
Bingham v. Stanley, 2 Q. B., 117
166.* 1. An accommodationparty to a bill is a personwho

tiassigneda bill as drawer,acceptor,or indorser,without receiving
paluetherefor, and for the purposeof lending his nameto some
Dtherperson
2. An accommodationparty is liable on the bill to a holder
for value ; and it is immaterial whether, when such holder took
bhebill, he knew suchparty to be an accommodation
party or not
167.* A holder in duecourseis a holderwho hastaken a bill,

3ompleteand regular on the face of it, under the following
jonditions, namely-
(a) That he becamethe holder of it before it wasoverdue,
md without notice that it had been previouslydishonoured,if
such was the fact :
(b) That he took the bill in goodfaith and for value,and
538 THEOKYAND PRACTICEOF BANKING
that at the timethebill wasnegotiated

to himhehadnonotice
ofanydefectin thetitle oftheperson
whonegotiated
it
2. In particularthe title of a personwhonegotiates
a bill is
defective withinthemeaningof thisActwhenhe obtainedthe
bill, or theacceptance
thereof,
byfraud,duress,
or forceandfear,
or other unlawfulmeans, or for an illegal consideration,
or when
honegotiatesit in breachof faith, or undersuchcircumstances as
amount to a fraud
8, A holder (whetherfor value or not) who derives his title
to a bill through a holderin due course,and who is not himself a
party to any fraud or illegality affecting it, has all the rights of
that holderin duecourseasregardsthe acceptor
andall partiesto
the Mil prior to that holder
168.* 1. Every party whosesignature appearson a bill is

primd facie deemedto have becomea party theretofor value
2. Every holder of a bill is primd facie deemedto be a
holder in due course; but if in an action on a bill it is admitted
or proved that the acceptance, issue,or subsequentnegotiationof
the bill is affectedwith fraud, duress,or force and fear, or ille-
gality, the burdenof proof is shifted,unlessand until the holder
proves that, subsequentto the allegedfraud or illegality, value
hasin good faith beengiven for the bill
On Presentation for Acceptance

169. The holder of an unaccepted bill should presentit for
acceptanceas soonas possible
If the draweerefusesacceptancethe precedingpartiesbecome
liable immediately
If the holder is a mere agent he will be liable for any loss
whichmayoccurthroughhis negligence to present
A bill payable
at sight or presentation
ispayableondemand
If a bill is payableat any period after sight thereis no right
of action againstany oneuntil presentmentfor acceptance
Unless presentmentfor acceptance is madewithin reasonable
time the holderloseshis remedyagainstthe precedingparties
What is reasonable
time is a mixedquestionof law andfact,
anddependsuponthecircumstances of eachparticularcase
Theholdermayput it into circulationwithoutpresenting

it
Muilmen v. D'Eguino, 2 H. Bla., 565. Goupy v. Harden, 7
Taunt., 160. Fiy v. Hill, 7 Taunt., 395. Strakes v. Graliam, 4
M. & W., 721. Hellish v. Rawdon, 9 Bmg., 416. Shute Y. JSo&ins,
1 M. & Mai., 133. Mullick v. RadaMssen,9 Moore, P. 0. Oa., 46.
170. Presentment must be made to the drawer or his au-

thorisedagent
Cheekv. Roper,5 Esp., 175
171. Thedrawee is entitledto havereasonable

time,usually
twenty-fourhours,to considerwhetherhewill acceptor not. If
hedetainsthe bill longerthan allowedby mercantileusage, he
is heldto haveacceptedit
Ingt am v. Footer,2 Smith, 242. Harvey v. Martin, 1 Camp.,425n
172. If the draweehas changedhis residencethe holder

must usedue diligenceto find him
Collins v. Sutler, 2 Stra., 1087. Bateman v. Joseph,12East., 433
173.* 1. Where a bill is payable after sight, presentment

for acceptanceis necessaryin order to fix the maturity of the
instrument
2. Where a bill expresslystipulatesthat it shall be presented
for acceptance,
or wherea bill is drawnpayableelsewhere
than
at the residenceor place of businessof the drawee,it must be
presented
for acceptance
beforeit canbe presented
for payment
3. In no other caseis presentmentfor acceptance
necessary
in orderto renderliable any party to the bill
4. Where the holder of a bill, drawn payable elsewherethan
at theplaceof business
or residence
of the drawee,
hasnot time,
with the exerciseof reasonablediligence,to present the bill for
acceptance
beforepresentingit for paymenton the daythat it
falls due,the delaycausedby presenting the bill for acceptance
beforepresenting
it for paymentis excused,
anddoesnot discharge
the drawer and indorsers
174.* 1. Subject to the provisionsof this Act, when a bill

payable
after sight is negotiated,
the holdermusteitherpresent
it for acceptance,
or negotiateit within a reasonable
time
2. If he do not do so, tlie drawerand all indorsersprior to

that holderaredischarged
3. In determining what is a reasonahletime within the
meaningof this section,regardshall be had to the nature of the
"bill, the usageof tradewith respectto similar bills, and the facts
of the particular case
175.* 1. A bill is duly presentedfor acceptancewhich is
presentedin accordance with the following rules :-
(a) The presentmentmust be madeby or on behalf of the
holder to the draweeor to someperson authorised to accept or
refuseacceptance on his behalf,at a reasonable hour on a business
day, and beforethe bill is overdue:
(&) Where a bill is addressedto two or more drawees,who
are not partners,presentmentmnst be madeto them all, unless
one hasauthority to acceptfor all, then presentmentmaybe made
to him only :
(0) Where the draweeis dead presentmentmay be madeto
his personalrepresentative:
(a) Wherethe draweeis bankrupt presentmentmay be made
to him or to his trustee :
(e) Where authorised by agreementor usagea presentment
through the postofficeis sufficient:
2. Presentment in accordancewith these rules is excused,
and a bill may be treatedas dishonouredby non-acceptance-
(a) Where the draweeis deador bankrupt, or is a fictitious
person,
or a personnothavingcapacityto contractby bill:
(b) Where, after the exerciseof reasonablediligence, such
presentmentcannotbe effected:
(0) Where, although the presentment has been irregular,
acceptance
hasbeenrefusedon someother ground
8. The fact that the holder has reason to believe that the
bill, on presentment,will be dishonoureddoes not excusepre-
sentment
176.* Whena bill is duly presentedfor acceptance,

and is not
acceptedwithin the customarytime, the personpresentingit must
treat it as dishonouredby non-acceptance. If he do not, the
holder shall lose his right of recourseagainst the drawer and
indorsers
LlW OF CREDIT,BILLS AND NOTES 541
177.* (1.) A bill is dishonouredby non-acceptance-

(a) When it is duly presentedfor acceptance,and such aa
acceptance
as is prescribedby this Act is refusedor cannotbe
obtained; or
(Z>)When presentmentfor acceptance is excusedand the bill
is not accepted
2. Subject to the provisions of this Act when a bill is dis-
tionoured by non-acceptance,an immediate right of recourse
againstthe drawer and indorsersaccruesto the holder, and no
presentment for payment is necessary
Of Acceptance
178. Acceptanceis, in general,an engagementto pay the
bill when due in money
Clai & v. Cock, 4 East., 72. Russell v. Phillips, U Q, B., 89X
179.* 1. The acceptance

of all bills inland(#), andforeign
(V),mustbein writingonthebill,signed
bytheacceptor
orsome
persondulyauthorised
by him
2. The mere signature of the drawee without additional
words is sufficient
(a) 1 & 2 Geo.(1821),o. 78,o. 2
(6) 19& 20Viet. (1856)c. 97, s. 6
180. The term "acceptance" includes deliveryor notifica-

tion of the fact of acceptance
to the partiesinterested
Cox v. Troy, 5 B. & Aid., 474. Chapman v. Cottrell, 34 L. J.f
Ex., 186
181.* It must not expressthat the draweewill perform his

promiseby anyothermeansthanthepaymentof money
182.* A bill may be accepted-
1. Before it has been signedby the drawer,or while other-
wiseincomplete:
2. When it is overdue,or after it hasbeen,dishonouredby a
previous
refusalto accept,or by non-payment:
3. When a bill payable after sight is dishonouredby non*
. acceptance,
andthedraweesubsequently
acceptsit, the holder,in
theabsence
of anydifferent
agreement,
is entitledto havethebill
acceptedas of the date of first presentment
to the drawee
for
acceptance
183. 1. An acceptance oncecompleted,

i.e.,by writing and
deliveryor notification,
is irrevocable
(a)
2. But the drawee may cancelhis signature beforedelivery
or notification if he pleases(b)
(a) Clarke v. Cock, 4 East., 57. Wynne v. Bailees, 5 East., 514.
Poioell v. Monnier, 1 Atk., 611. Mendizabal v. Machado,3 Moo. &
So, 841. Fairlee v. Herring, 3 Bing., 625
(b) Cox v. Troy, 5 B. & Aid., 474. The Bank of Van Dieman's
Land v. The Bank of Victoria, L. B., 3 Pr. 0., 526
184.* The acceptorof a bill by acceptingit-

1. Engagesthat he will pay it accordingto the tenor of his
acceptance
2. Is precludedfrom denyingto a holderin due course-
(a) The existenceof the drawer,the genuineness of his signa-
ture, and his capacityand authority to draw the bill:
(1} In the caseof a bill payableto drawer's order,the then
capacity of the drawer to indorse, but not the genuineness or
validity of his indorsement:
(c) In the caseof a bill payableto the order of a third person
the existenceof the payeeand his then capacityto indorse,but
not the genuineness or validity of his indorsement
Unless he knew of the forgery at the time of acceptance, and
intendedthe bill to be circulatedwith a forged indorsement
Smith v. Chester, 1 T. B., 655. Robinson v. Yarrow, 7 Taunt.,
455. Beeman v. Duck, 11 M. & W., 251
185. If the bill is drawnin a fictitious name,or is a forgery

of a real name,to the knowledgeof the acceptor,he undertakesto
pay to anindorsement
by the samehand
Tatlock v. Han is, 3 T. B., 174. Vere v. Lewis, 3 T. B., 182.
Minet v. Gibson,1 H. Bla., 569 Gibsonv. Hunter, 2 H. Bla., 187.
Bennett v. Farnell, 1 Camp., 130. Schultz v, Astley, 2 Bang.,N.
C., 544. Taylor v. Croher, 4 Esp , 187. Bass v Clive, 4 M. <
251. Phillips v. Im Thurm, L. B., 1 0. P., 463
186. Theacceptance
of a bill purportingto be indorsedby
thepayee
does
notadmitthegenuineness
oftheindorsement
Tucker v. Robaits, 16 Q. B., 560. Garland v. Jacomb,L. B., 8
Ex, 216
187. A personwho acceptsa bill ostensiblyas agentfor

anotherperson,
but withouthis authority,is personally
liable
Gwney v. Evans, 3 H. & N., 122
188. A bill can only be acceptedby the drawee,and not by

a stranger; unlessthe draweeratifies and adoptsthe signatureas
that of his agent: or for the honourof the drawee
Nicliols v. Diamond, 9 Bxch , 154. Lindus Y. Bradwell, 5 0. B.,
583. Polhill v. Walter, 3 B. & Aid., 114. Eastwood v. Sain, 3 A.
& N., 738. Davis v. Clarke, 6 Q, B., 16. Jackson v. Hudson,2
Camp.,447
189. There cannot be two or moreseparateacceptors to a

bill not jointly responsible
But the secondacceptancemaybe held as a guarantyfor the
first
Jacksonv. Hudson, 2 Gamp.,447
190. An instrument drawn,but not addressed to any one,is

yet a valid instrument,if anyone acceptsit, or it maybe inferred
who the drawee is intended to be
Gray v. Milner, 8 Taunt., 739. Rex v. Hunter, Buss.& By, 511.
Shuttlewoith v. Stevens,1 Camp., 407. Allan v. Mawson,4 Camp ,
115. Reg. v. Hawkes, 2 Mood., C. C., 60. Reg. v. Smith, 2 Mood.,
C. C., 295
191. If the draweehasonceadmitted that the acceptance

is
his writing,hecannotafterwards allegethat it is forged(a)
If hepaysseveralbills drawnuponhimby a person connected
with him in business,but who has forged his signature,he is
liableto payotherbills drawnuponhim in a similarway (J)
But if he paysone bill drawn upon him by a personnot con-
nectedwith him in business,who hasforged his signature,that
will not bind him to pay similar forgeriesin future (c)
(a) Leach v. Buchanan, 4 Esp., 226. Brook v. .HooJfe,

L. R., 6
Ex., 89
(6) Barter v. Gingell, 3 Esp , 60
(c) Cashv. Taylor, LI. & Webs., 178. Morris v. Bethell, L. R., 5
0; P., 47
193.* An acceptance is either generalor qualified

A generalacceptanceis an absoluteengagementto pay the
bill accordingto its tenor and effect
A qualifiedacceptance is either conditional,i.e.,an engagement
to paythe bill on a certainconditionbeingfulfilled; or partial,
that is, varying from the tenor of the bill
In particular,an acceptance
is qualifiedwhichis-
(a) Conditional, that is to say,which makespayment by the
acceptordependenton the fulfilment of a condition therein stated:
(b) Partial, that is to say,an acceptanceto pay part only of
the amount for which the bill is drawn :
(c) Local, that is to say,an acceptance
to payonlyat a par-
ticular specifiedplace:
An acceptanceto pay at a particular place is a general ac-
ceptance,unless it expresslystates that the bill is to be paid there
only, and not elsewhere:
(d) Qualifiedas to time :
(e) The acceptanceof someone or more of the drawees,but
not of all
193. 1. Theholderof the bill is entitled to havea generalac-

ceptance
; andif thedrawee offersa qualifiedacceptance,
theholder
mayrefuseit; notethe bill; andgivenoticeof dishonourto the
precedingparties
2. If he intendsto receiveit he must give notice to the other
partiesandobtaintheir consent,
or theywill bedischarged
(«)
3.* When the drawer or indorser of a bill receives notice of a
qualifiedacceptance,
anddoesnot within a reasonable
timeexpress
his dissent to the holder, he shall be deemed to have assented
thereto
4. But he must not note or protest the bill, or give general
notice of dishonour,as by doing so the acceptorwould be dis-
charged (b)
5. Whether an acceptanceis absolute or conditional is a
questionof Law
(a) Sebagv. Abifbol,4 M. & S , 462. Eowev. Young,2 Bhgh,

391: seeanswers of the Judges to question three Outhwaite v.
Luntley, 4 Camp , 177. Boehmv. Garcias, 1 Cam., 425n
(6) Sproatv. Matthews,1 T. BM 182. Bentinckv. Dorrein,6
East., 200
194.* A bill domiciledat a particularplaceis a generalac-

ceptanceunlessmadepayablethereonly, and not elsewhere
1 G-eo.4, c, 78. Siggersv. Nichols, 3 Jur., 341
195.* The provisionsof this sub-sectiondo not apply to a

partial acceptance,whereof due notice has beengiven. Where a
foreign bill has been acceptedas to part, it must be protestedas
to the balance
On Signing ly Procuration
196. It is very commonfor personsto authoriseothersto
draw, accept,or indorse and negotiatebills for them,and such
signing is called-signing ly procuration
As the agentis the merehand which performsthe duty,
personsmay sign by procurationwho have no capacityin their
ownright to contract,suchasinfants, personsattainted,or, in fact,
labouringany disqualification
Co. Litt., 52a
197.* A signatureby procuration operatesas noticethat the

agenthasbut a limited authorityto sign,and the principalis
only bound by such signature if the agent in so signing was
acting within the limits of his authority
198. No particularform is necessary to conveythis authority,

eitherverbal or written. But any one who takes a bill drawn,
accepted,or indorsedby procuration,shouldmake inquiry whether
or not the authority has beenproperlyfollowed
Alexander v. Mackenzie, 6 C. B., 766. Attwoofc v. Munnings, 7
B. & CM 278
199. Generalauthority to transact businessdoesnot carry

jrith it powersto negotiatebills: but if the agent gives notice
VOL. II. ffN
that*heis acting as agent,and the principal afterwardsadoptshis

acts,he will be boundby them
Saundenon v. Griffiths, 5 B. & C., 909. VereY. Ashby, 10 B. &
C., 288. Wilson v. Tummon, 6 M. <feG-, 236. Ancona v, Jfarfcs, 7
H. <feN., 686
200. Specialauthoritieswill be construedstrictly: but if an

agenthasbeenin the habit of negotiatingbills for his principal,
or otherpersonconnected
with him in business, andhe hasadopted
thisperson's
acts,hewill beboundby them
Barter v. Gingell, 3 Bsp , 60. Llewellyn v. Wincltworih, 13 M. <fc
W., 598. Cash v. Taylor, LI. <feWeb., M. 0., 178. Prescott v.
Flmn, 9 Bing., 19
201, An agent'sauthority will be presumedto continue

until noticeis given of its termination. Such notice asregards
strangersmust be given in The Gazetteând to customersand
correspondents by individual communication
202. An agentwho wishesto avoid personalliability, must

either sign his principal's nameonly; or expresslystate on the
faceof the instrumentthat he signsas agent
203. Evidencecannotbe receivedto chargea principal who

is not namedon the faceof the bill or note (a): nor to discharge
an agentwhosignsit in his own name(&)
(a) Leadbttter v. Farrow, 5 M. & S., 349. Suit v. Mori ell, 12 A.
& B., 750. EdmundsY. Bushell, 35 I* J., Q. B., 91
(fc) Higgins v. Senior, 8 M. & W., 834
204. Wherean agent,being duly authorised,expressly states

on the faceof the instrument that he merelysigns it by procura-
tion, for a principal,he will not be bound
But if in any casewhateverhe signsit without authority, he,
and he only, will be personallyliable ; and his representatives
as
well
Lee v. Zagury, 8 Taunt., 114. Leadbitter v. Fairow, 5 M. <feS.,
345. Sowerby v. Butcher; Alexander v. Sizer, L. R., 4 Ex., 105.
Goupy v. Rat den, 7 Taunt., 160. Lefevre v. Lloyd, 5 Taunt., 749.
Thomas v. Bishop, 2 Stra., 955. Hew v. Pettet, 1 A, & B., 196.
Mare v. Charles,5 E. & B,, 978. Lewisv. Nicholson,

18Q.B., 509*
Randall v. Tummen,18 0. B., 786. Collenv. Wright,7 E. & B.,
301. Kelner v. Baxter, L. B., 2 0. P., 174. Scott v. .Lord
L. E., 2 0. P., 255. Polhill v. TFaZter,
3 B. & Ad., 114
205. In ordinary
tradingpartnerships
eachmember
of the
firm may bind it by bills
But he must use the name of the firm, or one which it is
sometimes known by
Dormant or secret partners,and also ostensiblepartners,or
personswho hold themselvesout as partners,are alsobound
Pinckney v. Hall, I Salk., 126 Lane v. Williams, 2 Veru., 277.
Wells v. Masterman, 2 Esp., 731. Harnson v. Jackson, 7 T. B.>
207. Swan v. Steele,7 East., 210. Ridley v. Taylor, 13 East,, 175.
Lewis v. Reilly, 1 Q. B., 349. Stephensv. Reynolds, 5 H. & N >
513. Mason v. Rumsey, 1 Camp , 384. Nicholson v. Ricketts, 29
L. J., Q. B., 55. South Carolina Banl& v. Case, 8 B. & 0., 427.
Ex parte Bolitho, Buck., 100. Thicknessev. Bromilow, 2 C. & J.,
425. Lloyd v. Ashby, 2 B. & Ad , 23. Vere v. Ashby, 10 B. & C.,
288. Gwnei/ v Evans, 3 H. & N., 122. TPiZS'ams v. Johnson,1 B.
& C., 146. Forbesv. Marshall, 11 Ex., 166. KacZasv. Sutherland*
3 E. & B., 1. Brown v. Kidger, 3 H. <feN., 853
206. If he doesnot sign the nameof the firm it will not be

bound
Faith v. Richmond, 11 A. & E., 339. Kirk v. Blurton, 9 M. <fc
W., 284. Sijfin v. IFaZ&er,
2 Camp.,308. Ex parte Emly, 1 Bose»
61. JE?«fo/
v. Lyet 15 East., 7
207. But a member of a non-trading partnershipcannofc

bindit by bills: unlessauthoritymaybeinferred
Dickinson v. Valpy, 10 B & C., 128. Brown v. Byers, 16 M. &
W., 252. Thicknesse
v. Bwnulow,2 Or. & J., 425. Greenslade
v*
Deioar, 7 B. & C., 635. Hedley v. Bainbridge, 3 Q. B., 316. J/evy
v. Pz/7?<?,
C & Mar., 453. Fouter v. Mackietli, L. E., 2 Ex., 69»
, Craven, Or. & JM 500
208. Creditorscarrying on a businessto satisfytheir debts

out of the businessare not partners
Wheatcroft
v. Hickman,9 C. B., N S , 47
209. 1. A person,
however,
whotakesa bill or notefromone
KIT 2
partner, knowing, or having reasonablecauseto suspect,that it is

contraryto the consentof the other partners,cannotsuethem (a)
2. And theindorseeof such bill taken in fraudof the partner-
ship,mustprovethat he innocentlygavevaluefor it (#)
(a) Heilbut v. Neville, L. E , 5 C. P., 478. Bat lev v. Backhouse,
Peake, 86, Jones v. Yates, 9 B. & C., 532. Jacaud v. French, 12
East., 317. Laveson v. Lane, 13 0. B., N. S., 278. Ex parte
Boribomis,8 Yes., 540. Green v. Deakin, 2 Stark., 347. Ex paite
Goulding, 2 Gl & J., 118. Fianlland v. McGusty, 1 Knapp., P. C.,
274. Lord Galway v. MatUew, 10 East., 264. Shernjf v. Wilkes,
1 East., 48
(b) Arden v. Sharpe,2 Esp., 524. Wells v. Masterman, 2 Esp.,
731. Ho00 v. Skeen, 34 L. J., C. P., 153. Ridley v. Taylor, 13
East., 175. SuttOTiv. Gtegory, 2 Peake,150
210. If the sameperson,a pa-rtnerin two firms of the same

name,negotiates
a bill in the commonnameof the firms,the
holder may sue either
Baker v. Gharlton, Peake 80. Swan v. Steele, 7 East., 210
211. Dissolutionof partnership should be notified in The

Gazette,which will avail againstpersonsft ho have had no deal-
ings with the firm : but all customersand correspondents
should
receive individual notice of dissolution ; otherwise ex-partners
maystill bindthe firm to partieswhohavehadno noticeof the
fact
Heath v. San$om,4 B. & Aid., 172. Sooth v. Quin, 1 Price, 193.
Godfreyv. Turribull, 1 Esp.,371. Grahamv. Hope,Peake,154.
Grahamv. Thompson,Peake,42. Newsomev. Coles,2 Camp., 617.
Farrar v. Deflinne, 1 C. & K., 580. Williams v. Keatcs, 2 Stark.,
290
212. The changeof the nameson the chequesof a firm of

bankers is a sufficient notice to their customers of a change in the
firm
Barfootv. Goodhall,3 Camp.,147
213. After a dissolution of partnership the members are

separate
individuals,and, therefore,all mustjoin in signinga
bill (a)
Unlesstheygiveauthorityto oneof their numberto signfor

them (#)
(a) Abel v. Sutton, 3 Esp., 108. Kilgorn v. Finlayson, 1 E.,
Bla., 155
(Z>)Smith v. Winter, 4 M. & W., 454
On the Alteration of a BUI or Note

214. A bill or note may be altered by the consentof the
partiesbeforeit is issued,i.e.,passedawayfor value
Kennerley v. Nash, I Stark., 452. Dowriesv. Richardson, 5 B. &
Aid., 674. Tarleton v. Shlngler, 1 0. B., 812. Mai son v. Petit, 1
Camp., 82n
215. After a bill or note has once been issued it cannot be

altered in any material part, «.«.,so as to alter the responsibility
of the parties
Except only to correct a mistake, and to fulfil the original
intention of the parties
Master v. Miller, 4 T. B., 320; affirmed 2 H. Bla., 141. Bowman
v. Niclioll, 5 T. K., 537. Kershaw v. Cox, 3 Esp., 246. Trapp v.
Spearman,2 Esp., 57. Cardwell v. Martin, 9 East., 190. Knill v.
Williams, 10 East., 431. Cowie v. Halsall, 4 B. & Aid., 197.
Tidmarsh v. Grover, 1 M. & S., 735. Cock v. Coxwell,2 0. M. &
B., 291. Cotton v. Simpson,8 A. <feE., 136. Burchfield v. Moore,
3 E. & B., 683. Macintosh v. Haydon, By. & Mo., 362. Desbrowe
v. Wetherby, M. <feBob., 438. Taylor v. Moseley,6 0. <fcP., 273.
Hamelin v. JSn^cfc,9 Q. B., 306. Hodge v. Pnngle, 29 L. J., Ex.,
115. Outhwaithev. Luntley, 4 Camp.,179. TFattow v. Hastings,
4 Camp.,223. Bata<?v. TayZor,15 East., 412. Brutt v".Pickard,
By. & M., 37. *Taco&v. Hart, 6 M. 4? S., 142. Ex parte White, 2
Dea. & Ch., 334. Byrom v. Thompson,11 A. A E., 31. Ctoma v.
Tattershall, 2 M & G., 890. Masow v. Bradley, 11 M. A W., 590.
Hiichman v. JSwdd,
L. B. & Ex., 171. Wartingtonv. .Earty,23L.
J., Q. B., 47
216.* 1. Where a bill or acceptance

is materially altered
without the assent of all parties liable on the bill, the bill is
avoidedexceptas againsta party who has himself made,author*
ised,or assented
to the alteration,and subsequentindorsers
Provided that-
Where a bill has been materially altered, but the alteration is
not apparent, and the bill is in the hands of a holder in due

course,suchholder may avail himself of the bill as if it had not
been altered, and may enforce payment of it accordingto its
original tenor
2. In particular, the following alterations are material,
namely,
anyalterationof the date,the sumpayable, thetimeof
payment,theplaceof payment, and,wherea bill hasbeenaccepted
generally,
the additionof aplaceof paymentwithouttheacceptor's
217. An alterationwhich is not material,«.*.,which doesnot

vary the responsibilityof the partieswill not vitiate it
Trapp y. Spearman,3 East., 57. Walter v. Cubley, 2 C. <feM.f
151. Aldoiis y. Cornwell, L. R., 3 Q. B., 573
218. An accommodation bill may be alteredby the partiesto

it beforeit is issued,£0., beforeit is passedawayfor value
Dowriesv. Richardson, 5 B. & Aid., 674. Atwood v. Griffin, 2 0.
& P., 968. Tarleton v. SUngler, 7 C. B., 812
219. An alterationby the drawer or payeeof a bill, or the

payeeof a note,doesnot extinguishthe debt (a): unlessthe bill
or notewastaken in satisfactionof the debt (5)
(a) Buttonv. Boomer,
7 B. & C., 416. AtUnsony. Hawdon,2 A.
& E., 628. Slomanv. Cox, 1 C. M & R., 471
(6) Macdowall
v. Boyd,17L. J., Q. B., 295
220. An alterationby the indorseenot only makesthe in-

strument void as against all, parties, but also extinguishesthe
debtdue from the indorserto the indorsee
Alderson y. Langdale, 3 B. & Ad., 660
221. Th& trassfereeof an,alteredbill hasonly the rights of

the transferor
BurchJieW
y. Moore,B E. <$?
B., 683
222. If a persongivesa renewalfor a bill whichhasbeen

vitiated by an alteration,he is not liable on the renewal,if he was
not awareof the alterationat the time he gave the renewedbill
Bell y. Gardiner, 4 M. & G., 11
LAW OE CREDIT,BILLS AND NOTES 551
383. The makerof a promissorynoteis dischargedfrom his
liability by any alterationof the note,"wherever
the alteredinstru-
ment, if genuine, would operate differently from the original
instrument,even though it should be to his advantage:as,for
instance,if namesare addedto a joint and severalnote besides
thoseoriginally intendedto be on it
Cleik v. Blackatock, Holt's N. P. 0., 474 Gardner v. Walsh, 5
E. & B., 83
224. A personwhosuesuponan alteredbill will be required

to provethe circumstancesof the alteration; and if he cannot,it
is a questionfor the jury
Johnson v. Duke of Harlborough, 2 Stark., 313. Henman v.
Dickinson, 5 Bmg., 183 Knight v. Clements,8 A. & E., 215.
Bishop v. Chanibre, 1 M. <feMai., 116. Dlsbrowe v. Wetherby, 6 0.
& P., 758. Taylor v. Moseley,6 C. & P., 273
Negotiation of Mils
225.* 1. A bill is negotiatedwhenit is transferredfrom one
personto anotherin sucha manneras to constitutethe transferee
the holder of the bill
2. A bill payableto beareris negotiatedby delivery
3. A bill payableto order is negotiatedby the indorsementof
the holdercompletedby delivery
4. Wherethe holderof a toll payableto his order transfersit
for value, without indorsing it, the transfer gives tfte transferee
such,title as the transferor had in the bill, and the transferee
in addition acquiresthe right to have the indorsementof the
transferor
5. Where any personis under obligationto indorsea bill in a
representative
capacity,hemayindorsethebill in suchtermsas
to negativepersonalliability
226.* All bills and notes are now transferableor negotiable

without being madepayableto the payee,or "bearer," or "order"
36 <fe37 Viet. (1873),c. 66, s. 26, § 6,11
If, however,the words " or order" areinserted,
theycanonly
be transferredby the payee'sindorsement
Signatureand deliveryconstituteindorsement
§ 5j 1, supia.
227.* 1. Where the holderof a bill payableto bearer nego

tiatesit by deliverywithoutindorsingit, heis calleda "transferor
by delivery "
A transferorby deliveryis not liable on the instrument
3. A transferor by delivery,who negotiatesa bill, thereby
warrants to his immediatetransferee,being a holderfor value,
that the bill is what it purports to be, that he has a right to
transferit, and that at the time of transferhe is not awareof any
fact which renders it valueless
228.* An indorsement,in order to operateas a negotiation,

must comply with the following conditions,namely:-
1. It must be written on the bill itself, and be signed by the
indorser. The simplesignatureof the indorseron the bill, without
additional words, is sufficient
An indorsementwritten on an allonge,or on a " copy" of
a bill, issuedor negotiatedin a country where " copies" are
recognised, is deemedto be written on the bill itself
2. It must be an indorsementof the entire bill. A'partial
indorsement,that is to say, an indorsementwhich purports to
transfer to the indorseea part only of the amount payable,or
which purports to transfer the bill to two or more indorsees
severally,doesnot operateas a negotiationof the bill
3. "Wherea bill is payableto the order of two or more payees
or indorsees,who are not partners,all must indorse,unlessthe one
indorsing hasauthority to indorsefor the others
4. "Where,in a bill payableto order,the payeeor indorseeis
wrongly designated,
or his nameis mis-spelt,he may indorse
the bill as therein described,adding,if he think fit, his proper
signature
5. "Where there are two or more indorsements on a bill, each
indorsement is deemed to have been made in the order in which
it appearson the bill, until the contraryis proved
229. An indorsementmayeither be in blank; or spatial,or

in full
An indorsementin blank is when the indorsersimply writes
his name, usually, but not necessanty
(1), on the back of the
nstrument,and deliversit to the indorsee. Suchan indorsement
aakesthe bill or note payableto bearer(a)
The delivery maybe either actual or constructive,as where
he indorser notifies to the indorsee that he has indorsed the bill
o him, but yet retains it in his own possession
(a) Peacock v. Rhodes,2 Doug , 633. Francis v. Mott, cited in
precedingcase. Ord v. PortaZ,3 Camp., 239. Low y. CopestaJce, 3
0. <feP., 300. Machell v. Kinnear, I Stark., 499
(1) Rex v. Bigg, I Stra., 18. Ex parte Jates, 27 L. J., Bkcy., 9
230. A specialindorsement,or an indorsementin full, is

vherethe instrumentis indorsedby nameto somespecificperson
Thespecialindorsee canthenonlytransferit by indorsement:
i.ndthis he maydo,whetherit is merelyindorsedto him, or to
lim " or order "
The provisionsof this Act relating to a payeeapply with the
lecessary
modificationsto an indorseeunder a specialindorsement
Moore v. Manning, Com., 311. Achesonv. Fountain, 1 Stra.,557.
Edie v. East India Co., 2 Burr., 1216. Cunliffe v. Whitehead, 5
Scott, 31. Gay v. Lander, 6 C. B., 336
231. A bill onceindorsed in blank, and afterwardsindorsed

n full, is payableto bearer as regardsall the partiesbeforethe
specialindorser: but as againstthe specialindorser,title must be
nadethroughhis indorsee
Smith v. Clarke, 1 Peake, N. P. C., 295. Leonard v. Wilson, 2
Cr. & M., 589. Walker v. Macdonald, 2 Ex., 527
232.* When a bill has been indorsed in blank, any holder

nay convertthe blank indorsementinto a specialindorsementby
vriting above the indorseessignaturea direction to pay the bill
-o or to the order of himself or someother person
233.* 1. An indorsementis restrictive which prohibits the

'urther negotiationof the bill, or which expresses
that it is a mere
tuthority to deal with the bill as thereby directed, and not a
,ransfer of the ownership thereof; as, for example, if a bill be
ndorsed" Pay D. only," or " Pay D., for the accountof X.," or
u Pay D., or orderfor collection"
2. A restrictive indorsementgives the indorseethe right to
receivepaymentof the bill, and to sueanyparty theretothat his

indorser could havesued,but giveshim no power to transferhis
rightsas indorserunless
it expressly
authorise
himto do so
3. "Where a restrictive indorsement authorises further transfer,
all subsequentindorseestake the bill with the samerights, and
subject to the sameliabilities, as the first indorseeunder the
restrictive indorsement
234. Theremaybeanynumberof indorsements on a bill

or note; and if there is not roomfor them on the original
instrument,an additionalpieceof papermaybe addedto it-
calledan allonge-whichrequiresno stamp
235. A mis-spelling
doesnot necessarily
avoidan indorse-
ment
Leonard v. Wilson, 2 Or. <fcM., 589
236. Every indorseris in the natureof a new drawer

Penny v. Innes, I C. M. & B., 441. Allen v. Walker, 2 M. & W.
317
237. He contracts that if the draweedoesnot at maturity

pay the bill, he will, on receiving due notice of dishonour,pay
the holder the sumwhich,the draweeought to havepaid, together
with such damages as the law allowsas an indemnity
Susev. Pompe,8 0. B., N. S., 538
238. A personwhoacceptsor indorsesa blank bill or noteis

liable for any amountthe stampwill cover
Russell v. Langstafe, 2 Doug., 514. Usher v. Dauncy, 4 Camp.,
97. Pasmorev. North, 13 East, 517. Snaith v. Mingay, 1 M. <fe
S., 87. Cruchleyv. Clarance,
2 M. & S., 90 Collisv. Emet,1 H.
Bla., 313. Schultz v. Astley, 2 Bing., N. C., 544
239. An indorseradmitsthe signatureand capacityof every

priorparty (a), but he doesnot warrantthem
(a) Lambert v. Pack, 1 Salk., 127. Williams v. Seagrave, 2
Barnard., 82. Cnchlow v. Pairy, 2 Camp, 182. Free v. Hawkins,
Holt., N. P C., 550. Macgregorv. Rhodes,25 L. J., Q. B., 318
(6) EastIndia Co.v. Tritton, 3 B. & C., 280
240. If DWO
persons,not partners,are the payeesof a bill or
ote, both must indorse
Carvick v. Vickery, 2 Doug , 653n
241.* Where a bill purports to be indorsedconditionallythe

ondition may be disregardedby the payer,and paymentto the
adorseeis valid, whether the condition has been fulfilled or not
242. A bill maybeindorsedconditionally,and if, after such

onditionalacceptance,the draweeacceptsit and paysit without
he condition being fulfilled, he is liable to pay it again to the
>ayee
Robertsonv. Kensington, 4 Taunt., 30
243.* Wherea bill is negotiatedback to the drawer,or to a

>rior indorser,or to the acceptor,suchparty may, subject to the
)rovisionsof this Act, re-issueand further negotiatethe bill, but
ie is not entitled to enforce payment of the bill against any
nterveningparty to whom he waspreviouslyliable
Unlessthere are special circumstanceswhich would prevent
hem from suinghim
WiUers v. Stevens, 15 M. & W., 208. Morris v. Walker, 15
Q. B., 589. Eoulcott v. Woodcott,16 M. & W., 584. Williams v.
Clarke, 16 M. & W.» 834
244. An indorsermay exempthimself from liability by

idding the words " sans recours," or " without recourseto me,"
>r similar words
He may also exempthimself from personalliability to his
mmediateindorseeby an agreement,written or oral
But this would not affect a holder for value without notice
Pike v. Street, 1 M. <feM., 226. Thompsonv. CluUey, 1 M. & W.f
212. Castriguev. Buttigeig, 10 Moore,P. C. Ca., 94
245. Striking out an indorsementintentionally discharges

he indorser(a): but not if doneby mistake (&)
(a) Faircloughv. Pavia, 9 Ex., 690
(b) Wilkinsonv. Johnson,3 B. <fc0., 428
246* A trustmaybeexpressed
onthe faceof the bill, or in
the indorsement
Evans v. Gramlington, Garth,, 5. Snee v. Prescott, 1 Atk., 247.
Anclier Y. Bank of England, 2 Dong., 637. Edie v. East India Co.t
2 Burr., 1227. Treuttel v. Batandon, 8 Taunt., 100. Sigourney v.
Lloyd, 8 B. & 0., 622; affirmed, 5 Bing., 525
247. The transferee of a bill held in trust cannot retain it

against the true owner(a): and if the acceptoris obligedto pay
it, he mayrecoverthe amountfromthe depositary
(&)
(a) Qoggertyv. Cuthbert, 2 N. E., 170. Evans v. Kymer, 1 B. &
Ad., 528. Robsonv. Rolls, 1 M. & Rob , 239
(6) Bleadon v. diaries, 7 Bing., 246
248. If a personholdsa bill or note merelyasthe agent of

another person,he hasonly the title of his principal
SolomonsY. Bank of England, 13 East., 135
249* 1. If an indorsee gives value for a bill which has been

refused acceptance,without knowledgeof the fact, he has the
usual remedies against the parties to it (a)
2. But if he takes it with knowledge that it has been refused
acceptance,he can only chargehis immediateindorser (#)
(a) O'KeefeY Dunn, 6 Taunt, 305; am., 5 M & S.,282. White-
head v. Walker, 9 M. & W., 506: 10 M & W., 696
(6) CrossleyY. Ham, 13 East., 498. Bartlett v. Benson, 16 M.
& W., 696
250.* 1. Wherea bill is negotiablein its origin it continues

to be negotiableuntil it hasbeen(a) restrictively indorsedor (V)
dischargedby payment,or otherwise
2. Where an overduebill is negotiated,it can only be nego-
tiated subject to any defect of title affecting it at its maturity, and
thenceforwardno personwho takesit can acquireor give a better
title than that which the personfrom whom he took it had
3. A bill payableon demandis deemedto be overdue,within
the meaning and for the purposesof this section,whenit appears
on the face of it to have been in circulation for an unreasonable
length of time. What is an unreasonablelength of time for this
purpose is a questionof fact
4. Except wherean indorsementbearsdateafter the maturity
LAW OT CREDIT,BILLS AND NOTES 557
the bill, everynegotiationis prima facie deemedto havebeen

fected before the bill was overdue
5. Wherea bill which is not overduehas been dishonoured,
ty personwho takes it, with notice of the dishonour,takesit
bject to any defect of title attachingtheretoat the time of dis-
mour,but nothing in this sub-section shall affect the rights of a
>lder in due course
Lost Instruments
251.* Wherea bill hasbeenlost beforeit is overdue,the per-

>nwhowasthe holderof it mayapplyto the drawerto give him
lother bill of the sametenor, giving securityto the drawer,if
quired, to indemnifyhim against all personswhatever,in case
le bill allegedto havebeenlost shall befound again
If the drawer, on request as aforesaid, refuses to give such
aplicatebill, he may be compelledto do so »
252. In any actionor proceedingupon a bill, theCourt,or a

udge,may orderthat the loss of the instrumentshall not be set
p, provided an indemnity be given, to the satisfactionof the
iourt or Judge,against the claimsof any otherpeisonuponthe
istrument in question
On the Property in Instruments Lost or Stolen
253. If any negotiablebill, note,obligation,or securityfor

loneybe lost or stolen,thefinder or thief cannotretain it against
tie true owner,or recoveragainstthe partiesto it
Anonymous. 1 Ld. Eaym., 738. Oreenstreetv. Carr, 1 Camp.,
551. Burn v. Morris, 3 L. J., N. S., Ex., 193.
254. But if suchfinder or thief, or if a personholdingsuch

ecurityas Agent (1) for the ownerof it, passit awayor pledge
2) it for value,and the transfereeis ignorant of the fraud, such
nnocentholder,or pawneefor value, mayretain it against the
rue owner,and hasa right of action againstall the partiesto it
Bank Notes. Anon., I Ld. Raym., 738. Miller v. Race,1 Burr.,
452. Lowndes v. And&son, 13 East., 130. Beckwith v. Correll-
2 C. & P., 261; 11 Moo., 335. Snow v, Sadler, 11 Moo., 506,

Raphael v. Bank of England, 17 C. B., 161
Cheques. Grant Y. VaugJian,3 Burr., 1516. Carlon v. Ireland,
5 El. <feBl., 765. Rothschild,v. Coiney, 9 B, & C., 388. TFartscm v.
Russell, 3 B. <&S , 34; 5 B. & S., 968
Bills of Exchange. Peacockv. JRftocfes, 2 Doug , 633 Lawson v.
TFestow, 4 Esp , 56. C7roo/cv. Jadis, 6 C. <feP., 191; 3 Nov. & Man.,
257. Backhouse v. Harrison, 3 Nev. & Man , 188. Goodman v.
Haivey, 4 A. & E., 870. Eftfo?v. JZfooTi,
10 A. <fcE., 784. Ifay v.
Chapman,16 M. & W., 355. Thiedeman v. Goldschmidt, 1 B. G-.
F. & G , 4
Na^y Bills. GoZdmtd v. Gaden,1 B. <feP., 649
Exchequer Bills. Wookeyv. Pole, 4 B. & Aid , 1
Foreign TransferableBonds. Gorgier v Miemlle, 8 B. & C., 45.
(1) Bank of Bengal v. Macleod; Id. v. Fagan, Moo , P. C., 35, 61
(2) Collins v. Martin, 2 Esp,, 520; 1 B. & P., 648. Jones V.
Peppercorne,1 John., 430
Scrip for Foreign Bonds. Goodwinv. Robarts,L. E., 10 Exch., 357
255. But if the transfereeknowsat the time of taking the

Instrument that it has been lost or stolen (1), or if he Jcnowsthat
the personhe takesit from hasno authority to sell or pledgeit (2)>
or if it betakenfor an illegal consideration(3), he cannotretain it,
or recoveron it, eventhough he hasgiven full valuefor it
(1) Bum v. Morris, 8 L. J. N. S., Ex, 193
(2) Maclish v. Ekins, Say ,73. Ti euttel v. Barandon, 1 Moo.,
543. Foster v. Pearson, and Stephensv. Foster, 1 C. M. <fcB , 849.
Fancouit v. Bull, 1 Bing , N. C., 681 Willis v. Bank of England,
4 A. & E., 21. Whistler v. Forster, 14 C. B., N. S., 248
(3) Wynnev, Callander, 1 Buss., 293
256. But if the instrument be not negotiable, or if the

transferorheldit as Trustee, or if he acquiredor transmittedit
by meansof a forgery,the innocentholder, or pawneefor value,
has only the equitiesof the transferor,and cannotretain it against
the true owner,or recoveron it
Manningford v. Toleman, 1 Coll, 0. 0., 235. Moore v. Jervis, 2
Coll., C. C., 60. Lang v. Smith, 7 Bing., 284. Partridge v. Bank
of England, 9 C. B., 408. Smith v. Mercer, 6 Taunt, 76. Hall v.
Fuller, 5 B. & C., 750 Rolarts v. Tucker, 16 Q. B., 560. EbdaiU
v. Lanauze, 1 Y. & C., 394. Johnson v. Wilde, 3 Bing, N. C., 225.
Whistler v. Forster, 14 C. B., N, S., 248
On Presentment for Payment
357.* Subject to the provisions of this Act, a bill must be

luly presentedfor payment. If it be not so presented,the
Lrawerand indorsersshall be discharged
A bill is duly presentedfor payment which is presentedin
iccordance with the followingrules:-
1. Wherethe bill is not payableon demand,presentment must
Demadeon the dayit falls due
2, Wherethe bill is payableon demand,then,subjectto the
provisionsof this Act, presentmentmust be madewithin a reason-
ible time after its issue in order to render the drawer liable, and
within a reasonable
time after its indorsement,in order to render
ihe indorser liable
In determiningwhat is a reasonabletime, regardshall be had
to the natureof the bill, the usageof trade with regardto similar
bills, and the facts of the particular case
3. Presentmentmust be madeby the holderor by someperson
authorisedto receivepayment on his behalf at a reasonable hour
on a businessday, at the proper place as hereinafterdefined,
either to the persondesignatedby the bill as payer,or to some
personauthorisedto pay or refusepayment on his behalf if with
the exerciseof reasonablediligencesuchpersoncantherebefound
4. A bill is presentedat the properplace:-
(a) Where a placeof paymentis specifiedin the bill and the
bill is therepresented
(&) Whereno placeof paymentis specified,but the addressof
the draweeor acceptoris given in the bill, and the bill is there
presented
(o) Where no place of payment is specified,and no address
given, and the bill is presentedat the drawee'sor acceptor'splace
of business,if known, and if not, at his ordinary residence,if
known
(d) In any othercase,if presentedto the draweeor acceptor
whereverhe canbe found, or if presentedat his last known place
of businessor residence
5. Wherea bill is presentedat the properplace,and after the
exerciseof reasonablediligence,no person authorisedto pay or
refusepaymentcan be found there,no further presentmentto the

draweeor acceptoris required
6. Where a bill is drawn upon, or acceptedby two or more
personswho are not partners,and no placeof paymentis specified,
presentmentmust be madeto them all
7. Where thedraweeor acceptorof a bill is dead,and no place
of payment is specified,presentmentmust be madeto a personal
representative,if suchtherebe,and with the exerciseof reasonable
diligencehe can be found
8, Where authorisedby agreementor usagea presentment
through the post officeis sufficient
258. Demand must be made even though the drawee or

acceptor is bankrupt (a); or even if he declaresin the presence
of the drawer that hewill not pay the bill (&)
(a) Russell v. Langstaffe, 2 Doug., 514. Nicholson v. Gouthit, 2
H. Bla., 610. Ex parte Johnstone,1 Mont., & Ayr., 622. Esdaile
v, Soweily, 11 Bast., 114
(&) Ex parte Bignold, 1 Deac., 728
259. Presentmentfor paymentis not necessary

to chargethe
guarantorof a bill or note
Hitchcock v. Humfrey, 5 M. & G., 559. Walton Y. Mascall, 13 M.
& "W., 453. Warrington v. Furbor, 8 East., 242
260. Usanceis a periodwhich in early timeswasappointed

as the usual time between different countries
Whenusanceis a month, half usanceis alwaysfifteen daya
Usance between London and-
1. Aleppo, Altona, Amsterdam,Antwerp, Brabant, Bruges,
Flanders, Q-eneva,Germany, Holland, the Netherlands, Lisle,
Paris, and Rouen-is one month
2. Spain and Portugal-two months
3. Italy-three months
261. Where a promissorynote is in the bodyof it madepay-

able at a particular place,it must be presentedfor paymentat
that placein orderto renderthe makerliable. In any other case,
presentment
for paymentis not necessary
in orderto renderthe
maker liable
2. Presentmentfor payment is necessary

in order to render
the indorser of a note liable
3. Wherea note is in the body of it madepayableat a par-
ticular place,presentmentat that place is necessary in order to
render an indorser liable ; but whena placeof paymentis indi-
catedby wayof memorandumonly, presentmentat that placeis
sufficient to render the indorserliable, but a presentmentto the
makerelsewhere, if sufficientin other respects,shall alsosuffice
262. If the acceptor of a Bill or the maker of a Note

changeshis residence,
he is boundto leavefunds on the premises
no meet the bill
Brown v. Macdermot, 5 Esp , 265. Saundersonv. Judge, 2 HM
Bl., 510. Baxter v. Jones, 1 M. & G., 83. Hine v. Allely, 4 B. &
Ad,, 624
263.* 1. Delayin making presentment for paymentis excused

when the delayis causedby circumstancesbeyondthe control of
the holder, and not imputable to his default, misconduct,or
negligence. When the causeof delayceasesto operatepresent-
ment must bemadewith reasonable diligence
2. Presentmentfor paymentis dispensedwith-
(a) Where,after the exerciseof reasonable diligence,present-
ment, asrequired by this Act, cannotbe effected
The fact that the holder has reason to believe that the bill
will, on presentment,be dishonoured,does not dispensewith the
necessityfor presentment
(£) Wherethe draweeis a fictitious person
(c) As regardsthe drawer wherethe draweeor acceptoris not
"bound,as betweenhimself and the drawer,to accept or pay the
bill, and the drawer has no reason to believe that the bill would
be paid if presented
(d) As regardsan indorser, where the bill was acceptedor
made for the accommodation of that indorser, and he has no
reasonto expectthat the bill would be paid if presented
(e) By waiverof presentment,expressor implied
264. Promissorynotes, payableon demand,are often in-

tended to be continuing securities: and whetherany unnecessary
VOL. n. 00
delayhastakenplacein presentingthemfor payment,mustbe

determined,in eachcase,by the Court and Jury
Brooks v. Mitchell, 9 M. & W., 15. OJiarteredMercantile Bank
of India, <fcc.,
v. Itoc&sow,L. B., 3 P.O., 574
On the Extinguishment of Bills and Notes

265. The liability of parties to Bills and Notes may be
dischargedand extinguishedby Waiver or Discharge, by
Release, and by Payment and Satisfaction, Judg-
ment, Execution, and Merger
Of Waiv&r
266.* 1. 'Whenthe holder of a Bill at or after its maturity
absolutely
and unconditionally
renounces
his rights againstthe
acceptorthe Bill is discharged
The renunciation must be in writing, unlessthe Bill is de*
liveredup to the acceptor
2. The liabilities of any party to a Bill mayin like manner
berenouncedby the holder before,at, or after its maturity ; but
nothing in this section shall affect the rights of a holderin due
course without notice of the renunciation
267. If the waiver be not for the whole amount and un-
conditional there must be a consideration
Pdiker v. Leigh, 2 Stark., 228* Owen7. Pizey, II W. B. 0.
P., 21
Of Release
268. A Releaseunder seal may be given which requiresno
consideration
269. 1. The Releaseof a Debt by oneof the severaljoint

Creditors dischargesthe Debtor from his liability to all the
Creditors(a)
2. But if the releaseis givenin fraud of the other Creditors
fcheCourts will set it aside (#)
LAW OF CREDIT, BILLS AND NOTES
3. If a Creditor gives a release of the Debt to one of the

severaljoint Debtors,the Debt is extinguishedand all the joint
Debtorsare discharged(c)
4. A covenantnot to sueonejoint Debtoris a releaseto him;
but it doesnot discharge
the otherjoint Debtors(d)
5. Wheredeedsare drawn releasingone of severaljoint
Debtors, but expressly
reservingthe remediesagainstthe others,
the Courtsinvariably hold them to be merecovenantsnot to sue
the Debtor,but not a releaseof the debt (d)
(a) Ruddock's
Case,6 Co.,Rep.,25a. Jacomb
v. Harwood,2 Ves.,
sen., 267. Bai Jeerv. Richardson, IY. & Jer., 362. Webb v, Hewitt,
L. E., 7 Eq., 28
(b) Payne v. Rogers,Doug., 407. Hichey Y. Bait, 7 Taunt., 4=0.
Jones v. Hewlett, 7 Taunt., 42. Legh v. Legh, 1 B. <feP., 447.
Innell Y. Newman^ 4 B. <fc Aid., 419. Manning v. Cox, 7 J. B.,
Moore, 617. Sargent v. Wedlake, 11 0. B., 372. Ramtone Y
Gandell, 15 M. <feWM 305. Barker Y. Richardson, 1 Y. & J., 3G2.
2Sxyarte Morrison, 33 L. J., Bkcy., 47. De Pothonier v. De Matias,
E. B. & E., 461
(c) Y. B., 21 Edw., 4, 81, o. 33. Co. Litt., 232a. Lowell Y.
Forrest^ 2 Wms. Saund., 48. Clayton v. Kynaston, 2 Salk., 574.
Wankford Y. lânfc/ord:,1 Salt., 300. CheetliamY. FFa»d,1 B &
P., 630. Evans v. Brembridge, 2 K & J., 174. Nicholson Y. JB«;tM,
4 A. & E., 675. Price Y. Barter, 4 E. & B., 760
(d) Lacy v. Kinaston, 1 Ld. Baym., 690. Fitzgerald Y. T-mnf, 11
Mod., 254. Dean v. Newhall, 8 Tr., 168. Button v. J5yr<?,6 Taunt.,
289. &>ZZy v. Foibes, 2 Bro. & B., 38. ThompsonY. JLac/i,,3 0. B.,
240. Ptice v. Barlcer, 4 E. & B., 750. Walmeslyv. Cooper,11A.
& E., 216. Kemdey Y. Cote, 16 M. & W., 128. Henderson v.
Stobatt, 5 Ex., 99. Willis v. De Castro,4 0. B., N.S., 216. Oi0era
v. Homan, 4 H. L. Ca., 1037. Batesonv. Gosling,L. B., 7 0. P., 9.
GreenY. Winn, L, B., 7 C. P., 28: aff , 4 Gh. Ap., 204. Keys v.
ElUns, 5 B. & S,, 240. Andrew Y. MaMin, 6 B. & S., 201
270. 1. A covenant not to sue for a limited time is not a

"elcase
and cannotbe pleadedin bar (a)
Unlessit is expresslyprovidedin the deedthat it maybe
fleadedin bar (5)
(a) Ayliffv. Scrimshiere,I Snow.,46. Deux v. Jeffenes,Cre.
Eliz , 352. Smith v. Mapleback, 1 T. B., 446. Burgh v. Preston,8
T. B., 486. Thimblebyv. Barron, 3 M. & W., 210
(6) Walkerv. JfotrtZte,
34L. J., Ex. 73
00 2
564 THEORY AND PEACTICE Off BANKING
871. A releaseafter the bill is due dischargesall the parties,

prior to the releasor
2. But a releasebefore the bill is due, though good between
the parties,doesnot invalidate the claimsof an indorseefor value
without notice of the release
Dod v. Edwards, 2 0. & P., 602
272. A releasegivento the draweebefore acceptance

is void
Drage v. Netter, 1 Ld. Eaym., 65. Ashton v. Freestun,2 Scott.,
K. B., 173. Hartley v. Wanton, 5 Q.B., 247
273. A creditor who releasesa debt cannot retain any

securities he holds for the debt
Shepherd'*Touchstone(Preston), 342. Cowper v. Green, 7 M. &
WM 633
Of Payment,DiscTutrffe,
and Satisfaction
274. 1. The words Payment,Discharge,and Satisfaction

are not synonymous
Payment,pacatio,is anything which is taken as an equivalent
in exchangefor something else,and which appeases or estopsa
right of action for a time, but it is not necessarilya final dis-
charge,or a satisfaction
Thus a Bill or Note taken"for or on accountof" a debt; for
goodssoldand delivered; or a Bill taken in renewalof a previous
one ; is payment for the time being, becausethe vendor has
agreedto take it as an equivalentfor the goodsor Bill; but it is
not a satisfactionuntil the Bill is paid. If the secondBill is not
given and acceptedexpresslyin satisfactionof the former bill, tha
holdermay suefor intereston the first
Louvriere v. Laubray, 10 Mod , 37. Holdipp v. Otway, 2 Wins.
Baund., 103 b. n. (e). Kearslake v, Morgan, 5 T. B., 513. Tapley
v. Martens, B T. B., 451. Plimley v. Wettley, 2 Bing., N. 0., 249.
Thome v. Smith, 10 0. B., 659. Belshaw v. Bush, 11 0. B., 191.
Jonesv. Broadhurst,9 C. B., 173. StedmanT. Gooch,1 Esp.f
N. P. 0., 3. Lewis T. Lystei, 4 Bowl, 377. Bottomley v. Nuttall,
5 0. B., N, S., 122. Ford v. Beech, 11 Q B , 854. Maillard v.
Duke of Argyll, 6 Scott, N. B., 938. Mercerv. Cheese,5 Scott,
N. E., 664. Griffithsy. Owen,13M. <fe
W., 58. Jamesv. Williams,
13 M. & \V,, 828. Price v. Pnce, 16 M. & W., 232. Kendiick v.
LAW CXFCREDIT,BILLS AND NOTES 565
Lomax, 2 0. & J., 405. Simon v. Lloyd, 2 0, M. & B., 187. Wil-
kinson v. Casey, 7 T. B., 713. Ex paite Barclay, 7 Ves,, 597.
Bishop v. JRowe,3 M. & S., 362. Dittos v. JRwimer,1 Bmg., 100.
IiOTuZonand Birmingham and S. Stafoidshwe Bank, in re, 34 L J.,
Oh., 418. Lumley v. Musgrave, 5 Scott, 230. Lumley v. Hudson,
5 Scott, 238
275. If, however,the security is dishonouredat maturity,

and is in the possession
of the plaintiff, the original debt remains
in force,and may be suedfor
Puckford v. Maxwell, 6 T. E , 52. Owenson v. Motse, 7 T. B,,
64. Swinyaid v. Bowes, 5 M. & S., 62. Van Wart v. Woolley, 3
B. <fc0,439. Bui don v. Hatton, 4 Bmg., 454. Sayerv. Wagttaff,
5 Beav., 423. Maillaid Y. Dufo o/ Argyll, 6 Scott, N. R, 938.
v. Oaksey,16 Q. B., 941
376. The word " Payment" doesnot meana final and ab-
soluteextinguishmentof the debt
" Satisfaction" is the only legal term which meansa final
and absoluteextinguishmentof the debt (a)
If a creditor takes a bill or note in " satisfaction " and dis-
charge of a debt (J) : or if he takesa bill or note " for or on
accountof" a debt, and commits lachesby nofcgetting it paid in
due course(c): it is a satisfactionand extinguishmentof the debt
If he hasonceconsentedto accepta bill in u satisfaction" of
a debt, he cannotrevokehis consent(d)
(a) Maillard v. Duke of Argyll, 6 Scott, N. B., 938. Kemp T.
Watt, 15 M. & W., 672. Macdowall v. Boyd, 17 L. J., Q. B., 295.
Bottomley v. Nuttall, 5 0. B., N. S., 122
(6) Sard v. Rhodes, 1 M. & W., 153. Lewis v. Lyster, 5 Dowl.,
377
(c) 9 6s3 Anne (1704),c. 9, s. 7
(d) Hardman v. Bellhouse, 9 M. & W., 600
277. "Whethera security is given " for and on accountof *

or in " satisfaction" of a debt is a questionfor the Jury
Goldshedev. Cottrell, 2 M. 6s W., 20, Sibtree v, Trtyp, 45 M. *
W.,23
278.* 1. A bill is dischargedby paymentin due courseby or

on behalfof the draweeor acceptor
"
" Payment in due course meanspayment madeat or after
5G6 THEORY AND PRACTICE OF BANKING
the maturityof the trill to the holderthereofin goodfaith, and

without notice that his title to the bill is defective
2. Subject to the provisionshereinaftercontained,whena bill
is paidby the draweror an indorserit is not discharged;but-
(a) Where a bill payableto, or to the older of, a third party
is paid by the drawer,the drawermayenforcepaymentthereof
againstthe acceptor,but maynot re-issuethe bill
(5) Where a bill is paid by an indorser,or wherea bill pay-
able to drawer's order is paid by the drawer,the party paying it
is remitted to his former rights as regardsthe acceptoror ante-
cedentparties, andhe may,if he thinks fit, strike out his own and
subsequentindorsements,and againnegotiatethe bill
3. Where an accommodation bill is paid in due courseby the
party accommodated, the bill is discharged
279. Paying a securitybefore it is due doesnot discharge

the debtor
Da Silva v. Fuller
280, Payment should be madeto the holder,or his agent:

but it is sufficient if the funds reach him
Field v. Garr, 5 Bing., 13
281. The party payinga bill hastheright to demand

it (a):
receipted(£): which importsprimAfaciethat it hasbeenpaid
by theacceptor(e)
(a) Hansardv. Robinson,7 B. & 0., 90. Powell v. Roacli, 6
Esp., 76. Alexanderv. Strong,9 M. & W., 733. Cornes
v. Taylor,
10 Ex., 441
(&) 43 Geo.in (1803),c. 126,6. 5
(c) Pfiel v. Vambatenberg,
2 Camp.,431. Scholesv. Wal*>ly,
Peate, 27
282. If a person acceptsand paysa bill under a mistake of

facts,hemayrecover
it back
Kendall v. Wood,L. R., 6 Ex., 243
»
283. Paymentof abill ornoteto a personwhoholdsthrough

a forgedindorsement
doesnot discharge the debtor
East India Co. v. Tntton, 3 B, <fc0., 280. Smith y, Metcar, 6
Tauut., 70- Rolarts v. Tucler, 13Q B., 575
284. 1. If a creditorhavingthe optionof receiving

cash
fromaprincipalchooses
to takeasecurity,
thatisa"satisfaction"
of his debt (a)
But not from an agent(&)
(a) Strongv. Hm *, 6 B. & C., 160. Smithv. Ferrand,7 B. & 0.,
19. Andersonv. Sillies, 12 C. B., 499. RoUmonv. Read,9
B. & C., 494
(&)Marshv. Pedder,4 Camp.,257. Everettv. CWZMW.
2 Camp.
515
285. A creditormaytransferhis debt againstanotherperson

to a creditor of his own, by the consentof the commondebtor;
and if the arrangementis consentedto by all the parties,it is a
" satisfaction " of the first creditor's debt
Bracton Lib. iii., c. 2, s. 13. Tatlocb v. Harm, 3 T. K,, 174.
Fairhe v. Denton, 8 B & 0., 400. Ciowfoot v. Gurney, 2 M. & Sc.f
482. Hodgson v. Anderson, 3 B. & C., 842
286, Paymentmay be demanded at any reasonablehour of

the day on which the bill or note is due,and if refused,notice of
dishonourmay be given
But the acceptoror makerhasthe wholeday to pay, and if he
paysthe instrument on the day, the notice is void
Hartley v. Case,4 B. & 0., 339
287. Paymentof an accommodation

bill by the drawerex-
tinguishesthe bill
Lazarus v. Cowie, 2 Q. B., 459. Cook v. Lister, 32 L. J., 0. P*
121
288. 1. Paymentby the debtor of a smaller sum is not

satisfactionof a larger sum due (a)
2. But paymentby a strangermay be (#)
3. Or a negotiablesecurity given by a debtor (c)
(a) PinneVsCase,5 Co.Bep., 117. Adamsv. Tabling-,4 Mod.,
88. Fletcher v. Button, 5 East., 230. Watteis v. Smith, 2 B & Ad.,
889. Beaumont v. Greathead, 2 0. B., 294. Smith v. Page, 15
M. & W., 683. Perry v. Attwood, 6 E & B., 691
(6) Welbyv. Drafas,1 0. & P., 557. Henderson
v. Stolart, 5 Ex.,
SO
(c) giftfrM T. Tripp, 15 M. & W., 23
289* An agreement
not to suefor a limited time doesnot
suspendthe right of action on a bill or note
Ford v. Beech, 11 Q. B., 842, Moss v. Hall, 5 Ex , 50 Webb
v. Spicer, 13 Q. B., 894.: afl. m Dom. Proc., as Salmon v. Webb,3
H. L., Ca., 510
290. A setoff, or a partpaymentin cashandpart setoff, is

now payment of a bill or note
36& 37Viot. (1873),c. 66, s. 25, § 11
291. Paymentby a stranger,or anyotherparty,to a bill is

not paymentby the acceptor; unlessmadefor or on his account,
and ratified by him (a)
A banker who has re-discounteda bill acceptedby his cus-
tomer, payableat his bank, maypay the bill either asindorseror
as agent for the acceptor,and take time to considerin which
capacity he doesso (5)
(a) Deacon v. Stodhart, 2 M. & G-., 317. Jones v. Broadhurst,
9 C. B., 173. Randall v. Moon, 12 0 B., 261. Goodwin v. Cremer,
22 L. J., Q. B., 30. Kemp v. Balls, 10 Ex., 607. Agra and Mas-
terman's Bank, v. LeigTiton, L. R., 2 Ex,, 56
(6) Pollaid Y. Offdm, 3 T. & B., 459
292. Taking a co-extensive security of a higher nature in

"
lieu of a bill or note, "
merges or extinguishesit: but unlessit
is strictly co-extensiveit will not
Ansell v Baker, 15 Q B., 20. Bell T. Banks, 3 M. & <*., 35$.
King v. Roare, 13 M. <fcW., 494. 8harpe v. Gibbs,5 0. B., N. S.,
527
293. Judgmentrecoveredon a bill or note extinguishesthe

original debt of the defendant,and all partiesjointly liable with
him
But without satisfactionit doesnot extinguishthe plaintiff's
claim against otherpartiesnot jointly liable with the defendant
Nor betweena prior party to whomthe plaintiff after judgment
returns the bill, and the defendant
A judgment recoveredagainstonejoint and severaldebtor is
no bar to an action againstanotherjoint and severaldebtor
Claxton v. Swift, 2 Show, 441* King v. Hoare, 13 M. & W.,
494. TaiUton v. Atlhusen, 2 A & E,, 32
LAW 0^ CREDIT, BILLS AND NOTES 569
294. Discharginga party from executionis a satisfactionof

the debtfromall partieswhoaresureties
for him,but notof those
parties who are not
Hayling v. Nutliall, 2 W. Bla., 1235. English v. Darley, 2 B.
&P., 61. Clark v. Clement,6 T. B., 525. Mayhewv. Gricfatt,
2 Swans,190. Michael v. Myers, 6 M. & GL,702
295.* Whena bill payableto orderon demandis drawn on a

banker,
andthe bankeron whomit is drawnpaysthebill in good
faith, and in the ordinary course of business,it is not incumbent
on thebankerto showthat the indorsement
of the payee,or any
subsequentindorsement,was made by or under the authority of
the personwhoseindorsementit purports to be,and the banker
is deemedto have paid the bill in due coarse,although such
indorsementhasbeenforged or madewithout authority
296.* "Whenthe acceptorof a "billis or becomes the holderof

it, at or after its maturity, in his own right, the bill is discharged
297.* 1. Where a bill is intentionally cancelledby the owjier

or his agent,and the cancellationis apparent thereon,the bill is
discharged
2. In like mannerany party liable on a bill maybe discharged
by the intentional cancellationof his signatureby the holderor
his agent. In such,caseany indorserwho wouldhave had a right
of recourseagainstthe party whosesignatureis cancelled,is also
discharged
3. A cancellationmade unintentionally, or under a mistake,
or without the authority of the holder,is inoperative; but where
a bill, or any signature thereon,appearsto have beencancelled,
the burden of proof lies on the party who allegesthat the can-
cellationwasmadeunintentionally,or under a mistake,or without
:
authority ".
Upon Notice of Dishonour

298.* 1. A bill is dishonoured
by non-payment
(a), whenit
Is dulypresented,
for paymentand paymentis refused,or cannot
te obtained,
or (#), whenpresentment is excused
and the bill is
overdueand unpaid
2. Subject to the provisionsof this Act, whena bill is dis-

honouredby non-payment,
animmediate
right of recourse
against
the drawer and indorsers accrues to the holder
299.* Subject to the provisionsof this Act, whena bill has

been dishonoured
by non-acceptance,
or by non-payment,
notice
of dishonourmust be given to the drawer and eachindorser,and
any drawer or indorser to whom suchnotice is not given is dis-
charged: Providedthat-
1. Where a bill is dishonouredby non-acceptance, and notice
of dishonour is not given, the rights of a holder in due course,
subsequentto the omission,shall not beprejudicedby the omission
2. Where a bill is dishonouredby non-acceptance, and due
notice of dishonour is given, it shall not be necessaryto give
notice of a subsequentdishonourby non-payment,unlessthe bill
shall in the meantimehave beenaccepted
300.* Notice of dishonour, in order to be valid and effectual

must be given in accordance
with the following rules:-
1. The notice must be given by or on behalf of the holder, or
by or on behalf of an indorserwho, at the time of giving it, is
himself liable on the bill
2. Notice of dishonourmay be given by an agent,either in
his ownname or in the nameof any party entitled to give notice,
whetherthat party be his principal or not
3. Where the noticeis given by or on behalf of the holder, it
enuresfor the benefit of all subsequentholders, and all prior
indorserswho have a right of recourseagainstthe party to whom
it is given
4. Where notice is given by or on behalf of an indorseren-
titled to give notice,as hereinbefore
provided,it enuresfor the
benefit of the holderand all indorserssubsequent
to the party to
whom notice is given
5. The notice maybe given in writing, or by personalcom-
munication, and maybe given in any terms which sufficiently
identifythe bill, and intimatethat thebill hasbeendishonoured
by non-acceptance or non-payment
6. The return of a dishonouredbill to the drawer, or an
Indorser,is, in point of form,deemed

a sufficientnoticeof dis-
honour
7. A written notice need not "besigned,and an insufficient
writtennoticemaybe supplemented
andvalidatedby verbalcom-
munication. A misdescriptionof the bill shall not vitiate the
noticeunlessthe partyto whomthe noticeis given is,in fact,
misledthereby
8. Wherenoticeof dishonour
is requiredto begivento any
person,it maybe given either to the party himself,or to his agent
m that behalf
9. Where the draweror indorseris dead,and the party
giving notice knows it, the notice must be given to a personal
representative,
if suchtherebe,and with the exerciseof reasonable
diligencehe canbe found
10. Where the drawer or indorseris bankrupt,notice may be
giveneitherto the party himself or to the trustee
11. Where there are two or moredrawersor indorsers,who
arenot partners,notice must begiven to eachof them, unlessone
of them hasauthorityto receivesuchnotice from the other
12. The noticemaybe givenas soonasthe bill is dishonoured
andmustbegivenwithin a reasonable
timethereafter
In the absenceof specialcircumstances
noticeis not deemed
to havebeengiven within a reasonable
time unless-
(a) Wherethepersongivingandthepersonto receivenotice
residein the sameplace,the notice is given or sent off in time to
reachthe latter on the day after the dishonourof the bill
(&) Wherethepersongivingand the person
to receivenotice
residein different places,the notice is sent off on the day after
the dishonour of the bill, if there be a post at a convenient hour
on that day,andif therebeno suchpostonthat day,thenby the
next postthereafter
13. Wherea bill, when dishonoured,
is in the hands of an
agent,he may eitherhimselfgive noticeto the partiesliable
on the bill, or he may give notice to his principal. If he give
noticeto his principal,hemustdo sowithin thesametimeasif
he werethe holder,and the principal,upon receiptof suchnotice,
has himself the same time for giving notice as if the agenthad
beenan independentholder
, 14.Wherea party to a bill receives
due noticeof dishonour,
he has,after the receipt of such notice,the sameperiod of time

for giving notice to antecedentpartiesthat the holder has after
the dishonour
15. "Wherea notice of dishonouris duly addressed
and posted,
the senderis deemed to havegiven due notice of dishonour,not-
withstandingany miscarriageby the post office
301.* 1. Delay in giving notice of dishonour is excused

wherethe delay is causedby circumstancesbeyondthe control of
the party giving notice, and not imputable to his default,mis-
conduct,or negligence. When the causeof delayceases to operate
the noticemust be givenwith reasonable diligence
2. Notice of dishonouris dispensedwith-
(a) When, after the exorciseof reasonablediligence,notice as
required by this Act cannot be given to or does not reachthe
drawer or indorser sought to be charged
(&) By waiver expressor implied. Notice of dishonourmay
be waived before the time of giving notice has arrived, or after
the omissionto give due notice
(c) As regardsthe drawer in the following cases,namely,(1)
where drawer and drawee are the same person; (2) where the
draweeis a fictitious person,or a personnot having capacityto
contract; (3) wherethe draweris the person to whom the bill is
presentedfor payment; (4) where the draweeor acceptoris as
betweenhimself and the drawer under no obligationto acceptor
paythebill; (5) wherethe drawerhascountermanded payment
(d) As regardstheindorserin the followingcases,
namely,(1)
wherethe draweeis a fictitiousperson,or a personnot having
capacityto contract,and the indorserwasawareof the fact at
the time he indorsedthe bill; (2) wherethe indorseris the person
to whomthe bill is presentedfor payment; (3) wherethe bill was
acceptedor madefor his accommodation
302.* The notice should describe the instrument, so that it

maynot be confoundedwith any other
But minor mistakeswill not invalidatethe notice,so long as
the bill or note can be identified
Messenger v. Soittfiey, 1 Seott, N RM 180. Stockman v. Parr, 11 M.
& R., 809 Afellet&h v. Rippen, 7 Ex . 578. Brovnage v. Vaughan, 9 Q.
LAW OFCREDIT,BILLSANDNOTES 573
B., 608. Harphamr. Child, 1 F. & P., 652. Beauchampv. Cash,1 D,
& By., N. P., 3
303.* Notice of dishonour need not state on whose behalf

paymentis appliedfor, nor wherethe bill is lying ; mistakeson
thesepointswill not invalidateit (a) : northe omission
of a sig-
nature,so long as it appearsthat the notice camefromthe proper
quarter (&)
(a) Waodthorpev. Lawes, 2 M. & W., 109. Housegov, Cowne,2,
M. & W., 348. Harrison v. Ruscoe, 15 M. & W., 231. Rowlands T.
tipringjett, 14M. & W., 7
(b) Mamoea v. ôwi, 10 Jur , N. S., 777
304.* The letter should be addressedparticularly to the per-

son's residence
: and not generallyto a large town: unlessthe
drawer has dated it so
Walter v. JSaynes,E. & M , 142. Mann v. Moors, 1 B. <feM., 249,
Clarke v. Sharpe, 3 M & W., 166, Stggers v. JBiowne, 1 M. <feBob,,
520, JBurmester
v. Earron, 17 Q. B., 828. Hewitt v. Thompson,
1 M. to
Bob., 543
305,* Someevidencemust be given that the notice was

actuallyposted
Sfalleck v. Garbett,7 Q. B., 846. Hetheringtonv. Kemp.,4 Camp.,
194. IfawTces v. Salter, 4 Bing., 715. Langdonv. J2wZ&,
5 Esp., 156.
JStockenv. CoZZtw,7 M. «fcW., 515
306.* It may be sent by special messenger;and, under

peculiarcircumstances,
the expenses
of the messenger
havebeen
allowed
Dobtee,
v. Eastwood,3 C. & P., 250. Bancroft T, Halt,, Holt, N. P ,
476. Pearsonv. OraUan,2 Smith, 404. Housegov. Obwwfi,2 M. <fe
W., 348
307.* Thenoticeshouldbesentto theparty'sresidence,

or
placeof business
: unlessotherwise
directed
Helton v. Braiikwaite,8 M. & W., 252. doss v. Smith, 1 M. <fcS.,
545. Bancroft v. JM, Holt, N. P., 476. ^ZZewv. Edmundson,2 Ex.,
719. Howegov. Cfowwe, 2 M & W., 348. Cromwellv. Hynson*2 Esp.,
511. JStedmanv. #0<?c&,
1 Esp., 4
308. A stranger(a): or a party discharged

by ladies(V):
cannot give notice
574 THEORYAND PKACTICEOF BANKING
(a) Stewart Y. Kennett,2 Camp, 177. Mast Y. Smith, 16 L. J., Q.
B., 292
(5) Harrison Y. Enseoe,15 M. <fcW., 231
309, Noticemaybegivenby theholderor anyparty to all

thepreceding
parties
Fisherv. Kieian, 4 Camp.,87
310. 1. If thepartieslire in thesametown noticemustbe

sentsoasto be receivedon the dayfollowingdishonour:unless
the partysendingit is unableto ascertain
the address
of the other
partiesin time (a)
2. If the partieslive in differenttowns notice must be posted
so as to go on the day after dishonour(&)
(a) Smith Y. Mutiett, 2 Camp.,208. JamesonY. Swmton,%Taunt., 224.
WztMams Y.Smith, 2 B. & Aid., 500. Fowler Y. Hendon,4 Tyrw., 100*2.
Hilton Y, Fairdough,2 Camp.,633. DarbishireY. Parker,6 Blast.,3.
JPoofe Y. Dioas,1 Scott, 600. Edmondsv. Gates,2 Jur., 183. JBateman
v. Joseph,2 Camp.,461. GtadweUv. Turner,L B , 5 Ex., 59
(&) Williams v Smith, 2 B & Ad., 496. Qeill v. Jeremy,M, & Mai.,
61. Hawkesv. Baiter, 4 Bing., 715. Wright v. SJiawaross,
2 B. (toAid.,
501n. Mm v. j& 020/1, 11M. & W., 372
311. Notice may be given on the day of dishonour

BwrbridgeY. Manners^3 Camp.,193. JSxjparteMoline, 19 Yes., 216.
Hine Y. AlUly, 4 B. & Ad., 624
312. 1. If the holder givesnoticeto all parties,he must do

so within the time limited to givenoticeto his immediateinclorser
2. Eachindorseris entitled to notice and to a dayto transmit
it to the indorser(a)
3. If any indorseefails to give notice to his indorser all the
prior partiesare discharged: unlessthe holderhas preservedhis
remedyagainstthem by giving him notice as above(&)
(a) JRowev Tigper,13 C. B , 249. Hilton v. Shepherd,6 East, 14n.
Smith Y. Muttett, 2 Camp., 208. MarsJi,v. Maxioell, 2 Camp, 210.
JamesonY. Swinson, 2 Taunt. 224. Turner Y. Leach, 4 B. & Aid , 451
(6) MarshY. Maxwell,2 Camp.,209. Hilton v. Shepherd,6 East, 14u.
Y. Mullett, 2 Camp., 208
313. A banker who holds a bill for collection is, for the
purposeof notice,a distinct holder, and has a day to give notice
to his customer; and the customerhas a dayto give notice to the
other parties
LAW OF CREDIT, BILLS AND NOTES- 575
Lane/dale v. Trimmer, 15 East., 291. J5>ay v Haiiwen^ 5 M. & S., 63.
Fnth v. Thrush,8 B. & C., 387. Scottv. Lifford, 9 East , 347. Haynes
Y. .Sir&s, 3 B. & P., 599
314. Where a bill passesthrough severalbranchesof the

same
bank,eachbranchis a separate
bankfor givingnotice
Corlett v. Jones: Clodev. Bailey, 12M. & W , 51. Woodland
v. .Fear,
7E. &B.,519
315, Noticeto an agentfor this purpose

is sufficient; but
motto a person'sgeneralsolicitor
Crossv. Smith, 1 M & S., 545
316. A creditor who holds a bill as collateral security is

boundto presentandgivenotice
Peacockv, Pursell, 14 C. B., N. S., 728
317. A personwho guaranteesa bill or note, is not entitled

to notice of dishonourunlesshe incurs specialdamageby such
want of notice
Warringtonv Furbor, 8 East., 242. Philips v Asthngs,2 Taunt , 206.
Holbrowv. WilUns, IB & C.,10. Van Wart v. Woolley,3 B. &(X, 439.
Waltonv. Mascall,13 M. & W., 72. Hitchcockv. Humfrey,5 M. <fcG-.,
559. Murray y. JSwgr,5 B. & Aid., 165
318* The death or bankruptcy of the drawer or acceptor

does not excuse want of notice
JRussell
r. Langstaff, 2 Doug, 514 Esdattev. Sowerby,11 East, 114.
J5oultoeev, Stubbs, 18 Ves., 21. Housegov. Qowne,2 M & W , 348. JKx
parte Moline,19Yes., 216. Mode v Proctor,4 B. & 0 , 517. Expaite
Johnson,3 D. <feCh., 433. JKejparte Chagple,3 Deac, 218. Nicholson,
v.
rt, 2 H. Bla., 609. iq/?«« v. Slatter, 6 Bmg., 623
319. 1. If any party to a bill or note, with a knowledge

that lacheshas been committed,and that he is legally free,
expresslypromisesto pay it entirelyor partially, suchpromiseis
binding (a)
2. But not if he makessuchpromisewithout suchknow-
ledge(5)
(a) VaugJianv. FuUer, 2 Stra, 1216. Hopleyv.Dufierte, 15 East.,
275. LundZe v. JRobinson,7 East, 231. Haddock v. Bury, 7 East, 230.
Hodgev. Mills, 3 Camp, 463. Ansonv Bailey,Bull , N P , 276. Wdka
v. Jacks,Peake,202. Uorford v. Wilson,1 Taunt., 12 Gibbonv. Coggan,
2 Camp , 181. Potter v. Payworth,13 Eas>t,417. Woodv.
Stark., 217. Hopes v. Alda, 6 East, 16n. Rogeisv. Stephens,

2 T. B.,
713. Dixon v. Elliott, 5 0. P., 437. Stevensv. £?/nc&,12 East, 38.
Taylorv.Jones,
2 Camp, 103 Fletcherv. Froggatt,
2 0. P., 569 0«won
T. JHete,1 B. & C., 193. Rabeyv. OSZfort,6 H. & N., 536. JVoms v
fiolomonson, 4 Scott, 257
(6) ONKfaZZ
Y. £oZ%, 1 T. B., 712. Blesardv, jQuvf,5 Burr., 2670
320. A party who is entitled to receivenotice of dishonour

and doesnot,is discharged
from all liability, either on the note
or the consideration
Bridgesv. Berry-,3 Taunt., 130. SowardY. Palmer', 8 Taunt., 277
321. A drawer who has no funds in the hands of the

drawee,
or haspreviously
instructedhim not to pay,is not en-
titled to notice of dishonour
Dennft v. Mbrriee, 3 Esp , 158. J5SZZ
v. Heap,D, & E., N. P. C., 59.
Brett v. Levett, 13 East, 214
322. Notice of dishonourmay be waived by agreementof

the parties
Phfysonv. Kneller, 4 Camp.,285. Hill v Heap,D. & B., N. P. 0., 57
323. 1. If the drawer of a bill, or the payeeof a note, has

no funds in the hands of the drawee,or maker,he is not entitled
to notice of dishonour(a)
2. But if he had any reasonableexpectationthat the bill or
note would be paid by the drawee,or maker,he is entitled to
notice (fy
8- An indorseris entitled to notice in all cases(c)
(a) Bickerdikev. Bolivian,1 T. B,, 406. De Berdet v. Atlamson,2 H.
Bla., 336. Legge v. Thorpe,12 East, 176. Staplesv. O'Kines,1 Esp.,
332. Ooiney v. MendezdesAster,1 Esp , 301. Callotv. Hough,3 Camp.,
281. Clandgev. Dalton, 4 M. & S.,226. Walwynv. St. Quentm,1 B.
& P., 652. Thomas v. Fenton, 2 B. & C , 68. Jfitogerdld v. Wdluutu, 6
Bmg., N. C., 68. Terry v. farler, 6 A. & E., 502 JEemble v. Mitts, 1 M.
& G., 757. Carewv* JDuclworth,L B , 4 Ex., 313
(6) 0rr v. Maginnis, 7 East, 359. Blackan v. .DoreTi,2 Camp., 503.
Hammondv. Dufrene,3 Camp.,145. Jto&sow v. Gibson,3 Camp, 334,
Thackrayy. £Zodbett,3 Camp, 164. .fiucfer v. Hiller, 16 East, 43.
Atpooner v. Gardiner,1 B. & M , 48. JEfe pa)te Heath,3 V. <fcBea., 240
jLafitte v. Blatter, 6 Bing., 623. Claridge v Z>alton,4 M. <feS., 226.
Cory v flfaotf,3 B. <fcAid., 619. JVb*
ton v. Pwlei iug, 8 B & C., 610
(c) NicholsonT. Qouthit,2 H Bla., 610. JSsdailev. Soweriy,11 East,
114. JFittesv. Jac7.5, Peake,N. P. C, 202. Strathv J?¬ê^,13East, 187.
frown Y. a/^y, 15 East, 216. Carterv Flower, 16M. & W.} 749
LAW OE CREDIT, BILLS AND NOTES 577
324. If thedrawerof a bill makesit payable at his own

house,
it ispresumed
to beanaccommodation bill, andhe is not
entitled to notice of dishonour
Sharg Y. Bailey, 9 B. & 0., 44
325. Noticeneednot be givento a transferorof theinstra*

ment, without indorsement
Unless
theinstrument
wastakenforandon account
of apre-
existing debt,which is not a saleof the bill: if, therefore,the
bill is dishonoured,
his liabilityrevives,andheis entitledto notice
And allowance
for time for givinghim noticewill begivenfor
transmittingnoticeto prior parties
Van Wart v. Woottey,3 B, & C.f 439. SwinyardY. Bowes,5 M. &
S., 62
326. "When
partiesare jointly liableon a bill, noticeto one
is notice to all
Porthousev. Parker,1 Camp.,83
327. The owner must, in all cases,give notice of dishonour

in reasonable time
But delayin giving notice may be excusedif he is ignorantof
the addressesof the precedingparties: or other circumstances
But he must useall diligenceto discoverthem
Whether he has used due diligence or not is, in all cases,a
questionfor the jury
JBateman v. Joseph,12 East, 433. Browning Y. Kinnear, Grow,81.
Baldwin,v. Richardson,1 B. & 0., 245. SiggersY. Browne,1. M. <fc.
Bob.,
520. Hewitt Y Thompson, 1 M. & Bob., 54H. OhapcottY. Curlewis,2 M.
8s Bob., 484. Beveridgev, Burgis, 3 Camp.,262. Frith v. Thrush,8 B.
& C., 387. Dixon v. Johnson,I Jur., N. S.,70. Allen v.Edmundson,H
Ex., 719. Sturgessv. Derrick, Wight., 76
328.* 1. Where an inland bill hasbeendishonoured,it may,

if theholderthink fit, benotedfor non-acceptance
or non-payment,
as the casemaybe; but it shall not benecessaryto note or protest
anysuchbill in orderto preserve
the recourse
againstthe drawer
orindorser ";
1,.Wherea foreignbill, appearingon the faceof it to be
such,hasbeendishonoured by non-acceptance,
it must be duly
protested
fornon-acceptance,
andwhere
such
a bill,whichhasnot
VOL. II 2*
beenpreviouslydishonouredby non-acceptance, is dishonouredby

non-payment,it must be duly protestedfor non-payment. If it
be not so protested,the drawer and indorsers are discharged.
Where a bill doesnot appearon the faceof it to be a foreign bill,
protestthereof,in caseof dishonour,is unnecessary
3. A bill which hasbeenprotestedfor non-acceptance may be
subsequently protestedfor non-payment
4. Subject to the provisions of this Act, whena bill is noted
or protested,it must be noted on the day of its dishonour. When
a bill has beenduly noted,the protest may be subsequently
extendedasof the date of the noting
5. Wheretheacceptorof a bill becomes bankrupt, or insolvent,
or suspendspaymentbefore it matures,the holdermay causethe
bill to be protested,for better securityagainst the drawer and
indorsers
6. A bill must beprotestedat theplacewhereit is dishonoured:
Provided that-
(#) Whena bill is presentedthroughthe postoffice, and
returned by postdishonoured,it maybe protestedat the placeto
which it is returned,and on the day of its return, if received
during businesshours,and if not receivedduring businesshours,
then not later than the next business day :
(&) When a bill, drawn payableat the place of businessor
residenceof someperson other than the drawee,has been dis-
honouredby non-acceptance, it must be protestedfor non-payment
at the placewhereit is expressedto be payable,and no further
presentmentfor paymentto or demandon the draweeis necessary
7. A protest must contain a copy of the bill, and must be
signedby the notary making it, and must specify-
(a) The personat whoserequestthe bill is protested:
(J) The place and date of protest, the causeor reasonfor
protesting the bill, the demandmade,and the answer given, if
any,or the fact that the draweeor acceptorcouldnot be found
8. Where a bill is lost or destroyed,or is wrongly detained
from the person entitled to hold it, protest must be madeon a
copy,or written particularsthereof
9. Protest is dispensedwith by any circumstancewhich would
dispensewith notice of dishonour. Delayin noting or protesting
is excusedwhen the delayis causedby circumstancesbeyondthe
controlof theholder,andnot imputable

to hisdefault,misconduct,
or negligence.Whenthe causeof delayceases to operate,
thebill
must benoted or protestedwith reasonablediligence
Measureof Damagesof a DishonouredBill
329.* Wherea bill is dishonoured,

the measure
of damages,
which shall be deemedto be liquidateddamages,
shall be as
follows:
1. Theholder mayrecoverfrom anypartyliable on the bill,

andthe drawer,
whohasbeencompelled
to pay thebill, may
recoverfrom the acceptor,and an indorser,who has been com-
pelledto paythe bill, mayrecoverfrom the acceptor,
or fromthe
drawer, or from a prior indorser-
(a) The amountof the bill:
(&) Interestthereon,from the time of presentment
for pay-
ment,if thebill is payableon demand,
and from the maturityof
the bill in any other case:
(c) Theexpenses
of noting,or, whenprotestis necessary,
and
the protesthas beenextended,the expenses of protest
2. In the caseof a bill which has been dishonouredabroad,
in lieu of the abovedamagesthe holder may recoverfrom the
drawer or an indorser, and the drawer, or an indorser who has
beencompelledto pay the bill, may recoverfrom any party liable
to him, the amount of the re-exchange,with interest thereon,
until the time of payment
3. Where,by this Act, interestmaybe recovered
as damages,
suchinterestmay, if justice require it, be withheld, whollyor in
part,andwherea bill is expressed
to bepayablewith interestat a
given rate,interestas damagesmay or may not be given at the
same rate asInterest proper
Acceptance
and Payment supraprotest, or for Honour
330. Protest for non-acceptanceand non-paymentis in

completedisusefor inland bills, but it is necessaryfor foreign
bills; but not for foreign promissorynoteswhich are not intended
for generalcirculationthroughoutthe world
PF 2
331,* 1, "Wherea bill of exchangehas beenprotestedfor

dishonour by non-acceptance,
orprotestedfor bettersecurity,and
is not overdue,
anyperson,not beinga partyalreadyliablethereon,
may, with consent of the holder, intervene and accept the bill
supraprotest^for the honour of any party liable thereon,or for
the honourof the personfor whoseaccountthe bill is drawn.
2. A bill may be acceptedfor honour for part only of the
sum for which it is drawn
3. An acceptance
for honour supraprotestin order to be valid
must-
(a) Bewrittenonthebill, andindicatethat it is an acceptance
for honour:
(&) Be signedby the acceptorfor honour
The acceptancemaybein this form-" Acceptedsupraprotest
in honour of A. B."
4. Where an acceptancefor honour doesnot expresslystate
for whosehonourit is made,it is deemedto be an acceptance
for
the honour of the drawer
5. Wherea bill payableafter sight is acceptedfor honour, its
maturity is calculated from the date of the noting for non-
acceptance,and not from the dateof the acceptancefor honour
The draweemay refuseto accept it generally: but he may
acceptit supraprotestfor the honourof any party to it
A bill which hasbeenacceptedsupraprotectfor the honour of
one party maybe acceptedsupraprotestby anotherpersonfor the
honourof anotherparty to it
The holderis not boundto take an acceptance for honour
Mitfoid v. Waleott)1 Ld. Raym, 575
The holderat maturity must present the bill to the drawee,
who mayin the meantimehave receivedfunds to pay it
If the draweerefusespaymentthe holder must then have the
bill protestedfor non-payment,and it shouldthen be presentedto
the acceptorfor honour
332*. 1. The acceptorfor honour of a bill by accepting it

engagesthat he will, on due presentment,pay the bill according
to the tenor of his acceptance,
if it is not paid by the drawee,
'providedit has beenduly presentedfor payment,and protested
for non-payment,and that he receivesnotice of thesefacts
2. The acceptorfor honour is liable to the holderand to all

parties to the bill subsequentto the party for whosehonour he
has accepted
333** 1. Where a dishonoured bill has beenacceptedfor

honoursupraprotest,or containsa referencein caseof need,it
mustbeprotested
for non-payment beforeit is presented
for pay-
ment to the acceptorfor honour,or refereein caseof need
2. Where the addressof the acceptorfor honouris in the same
placewherethe bill is protestedfor non-payment,the bill must be
presentedto him not later than the day following its maturity ;
andwherethe address
of the acceptorfor honouris in someplace
other than the placewhere it was protestedfor non-payment,the
bill mustbeforwarded
not laterthanthedayfollowingits maturity
for presentment to him
3. Delay in presentmentor non-presentmentis excusedby
any circumstancewhich would excusedelay in presentmentfor
paymentor non-presentmentfor payment
4. When a bill of exchangeis dishonouredby the acceptor
for honourit must be protestedfor non-paymentby him
334.* 1. Where a bill has beenprotested for non-payment,

any personmay interveneand pay it supraprotest for the honour
of any party liable thereon, or for the honour of the personfor
whose account the bill is drawn
2. Where two or more personsoffer to pay a bill for the
honour of different parties, the person whosepaymentwill dis-
chargemost partiesto the bill shall havethe preference
3. Payment for honour supraprotest,in order to operateas
suchand not as a merevoluntary payment,must be attestedby a
notarial act of honourwhich may be appendedto the protest or
form an extension of it .... .
4, The notarial act of honour must be founded on a declara-
tion madeby the payer for honour,or his agent in that behalf,
declaring his intention to pay the bill for honour,and for whose
honourhe pays
5 Where a bill has been paid for honour, all parties sub-
sequentto the partyfor whosehonourit is paidare discharged,
but thepayerfor honouris subrogatedfor, andsucceedsto.both
582 THEOEY AND PRACTICEOF BANKING
the rightsanddutiesof, theholderasregardsthepartyfor whosa

honour hepays,andall partiesliableto that party
6, The payerfor honouron paying to the holder the amount
of the bill andthe notarialexpenses
incidentalto its dishonour
is
entitled to receiveboth the bill itself and the protest. If the
holder donot ondemand
deliverthemuphe shallbeliableto the
payer for honourin damages
7. Wherethe holderof a bill refusesto receivepaymentsupra
protest he shall lose his right of recourseagainst any party who
would havebeendischargedby suchpayment
335. The acceptorsupra protest is bound by the same

admissions
asbindthepartyfor whose
honourhe accepts
PMlips v. lm Thurn, L. B., 1 0. P., 463
336. The acceptorsupra protest acquiresall the rights of

the party from whom he receivesthe bill; exceptthat he dis-
charges all the partiesafter the onefor whosehonourhe takesit
up, and he cannotindorseit over
Ex parte Wackerbatht& Yes. 574. Ex parte Swant L. B., 6
Eq... 344
337, Paymentfor the honourof any party putsthe person

in the placeof an indorseefrom that party: he may,therefore,
either send notice of dishonourto all partieshimself, or he may
send it to the party for whom he pays,and that party may send
notice in due course
Goodatt v. Polhill, I 0. B., 233
Form of Protest which may le used wTien the Services

of a Notary cannotle obtained
338. Know all menthat I, A. B. [householder],of

in the countyof , in the United Kingdom, at the request
of 0. £., therebeingno Notary Public available,did on the
day ot , 188 , at demandpayment
[or acceptance]
of the Bill of Exchange
hereunder
written,from
JB. jF7.,to which demandhe made answer[state answer,if any,]
whereforeI now,in the presence
of ff. H. and /. K., doprotest
the said Bill of Exchange
(Signed) A. B.
Q; H. )
J K \ âessea
N.B.- The Bill itself shouldbe annexed,or a copyof the Billf
and all that is written thereon should be underwritten
On the Order of Liability of the Parties to a Bill or Note
339. The partieson a Bill are never,and the partieson a

Noteareveryfrequentlynot, liablein an equaldegree
In a Bill the acceptor,and in a Note the maker,is the prin-
cipal debtor, liable always and in any case to the holder; the
draweeof the bill or the payeeof the note, and the indorsersin
either case,are only sureties,liable only to pay on certain con-
ditions : and a releaseof the debt to the principal is in all casesa
dischargeto the sureties
Bach partyin succession
is a principaldebtorto the holder,
andthe subsequent
partiesarehis sureties
Thus the acceptoror maker is the principaldebtorto the
holder; and the drawer,or payee,and the indorsersare his
sureties
Betweenthe holderand the draweeor payeeand subsequent
indorsers,the draweeor payee is the principal debtor,and the
indorsers are his sureties
So the first indorseris a principal debtor to the holder,and the
subsequentindorsersarehis sureties; and so on in succession
Where the payeeis a different person from the drawer he
standsin the positionof first indorsee
of a bill payable
to drawer's
oi'der
Claridge v. Dalton* 4 M. <feS., 226
340. A discharge to any party is a dischargeto all sub-

sequentparties,becausethey are merely his sureties
: but a
discharge
to a suretyis no discharge
to a principal
Smith v. Knox, 3 Esp., 46* Claridge v. Dalton, 4 M. & S., 226-
y. Darky* 3 Esp., 49. JBTaZZ
v. Cole,4 A. & E., 577.
584 THEOKY AND PKACTICE OF BANKING
341. If the holder of a bill has notice that it is an accom-

modation bill and given without value to the drawer he must
considerthe drawer as his principal debtor, and the acceptoras
his surety
Daviesv. Stairibank,6 De G-.M. <fcOK,679. Bailey T.Edwards^
4 B. & S., 671
342. " Every personwho being surety for the debt or duty
of another, or being liable with another for any debt or duty,
shall pay such debt,or perform such duty, shall be entitled to
have assignedto him, or to a trustee for him, every judgment,
specialty,or other securitywhich shall be held by the creditor in
respectof such debt or duty, whethersuch judgment,specialty,
or othersecurity shall or shall not be deemedat law to have been
satisfiedby the paymentof the debt or the performanceof the
duty ; and such personshall be entitled to standin the placeof
the creditor,and to useall the remedies,and,if needbe,and upon
a properindemnity, to usethe nameof the creditor in any action
or other proceedingat law or in equity, in order to obtain from
the principal debtor,or any co-surety,co-contractor,or co-debtor,
as the casemaybe,indemnification for the advancesmadeand
losssustainedby the personwho shall have so paid such debt or
performedsuchduty: and suchpaymentor performanceso made
by suchsurety shall not be pleadablein bar of any such action or
other proceedingby him; provided always that no co-surety,
co-contractor,or co-debtorshall be entitled to receivefrom any
other co-surety,co-contractor,or co-debtor,by the meansafore-
said,more than the just proportion to which, as betweenthose
partiesthemselves,
such last-mentioned
personshall be justly
liable"
19 <fe20 Viet, (1856),o. 07., s. 5
343. In a joint and severalnote one party is frequently

the principal and the othersthe sureties
Evidencemay be given that the holder has possession
of the
instrumentwith this knowledge:and thereforehe must deal with
the partiesas principal and sureties
PooUy v. Harra&inc, 7 E. <feB,» 431, Taylor v. Burgess^5 H. <fe
N., 1. Mutual Loan .Fund Am* v. Sudlow, 28 Ii. J., 0. P., 108.
Raynerv. Fussey,28L. J., Ex., 132. Greenough Y. McClelland,30

L. J., Q. B., 15. OrientalFinancial Co.v. Overend,
Gurney& Co.,
L. B., 7 Ch. Ap., 142
344. A legal agreement foundedupona goodconsideration

to givethe principaldebtortime to pay,or taking a newbill from
him in lieu of the former one, without the consentof all the
sureties,will dischargethem
Unlessthe agreement containsa stipulationthat the holder
shall,on default,havejudgmentat asearlya periodasif hehad
sued him
(a) Moss v. J-TaZZ,
5 Exch. 46. Gould v. Robson, 8 East., 576.
Pooleyv. Harradine,1 E. & B,, 431. Taylor v. Burgess,
5 H. <fc
N., 1. Michael v. Myers, 6 M. <fc<*., 702
(6) Kennardv. Rnott, 4 M. <feG,, 474. Hall v. Cole,4 A. & E.,
677. Price v. Edmunds, 10 B. & C., 578. Sulme v. Collins, 2
Sim., 12
345. But a mere forbearanceto sue; or a promise not to

sue; or an offer to give time not actedupon ; is no dischargeto
the sureties,becauseit is a nudum pactwn revocableat will
Philpot v. Briant, 4 Bing., 717* Bell v. Banks, 3 Scott, N. E.t
497. Ilewet v. Goodriclt, 2 0. & P., 468. Badnall v. Samuel, 3
Price, 521, Walwyn v. St. Quentin, 1 B. & P., 652
846. So,if the creditor takesa new bill, or othersecurity,

as a merecollateralsecurity,and in addition to and not in lieu or
substitution of the old one,the suretiesare not discharged
Pring v. Clarfaon, 1 B. & 0., 14. Twopennyv. Young,3 B. <feO.f
208. Bedfordv. DeaUn, 2 B. & Aid., 210. Bell v. Banks,3 M. &
G.,258
847. If the acceptoror any party is dischargedby operation

,of law, as by the Bankrupt Act, it doesnot dischargethe sureties
Browne v. Carr, 1 Bing., 508. Langdale v. Parry, 2 D. & K.,
837. Nadin v. Battie, 5 East, 147
848. So,if the creditor expresslyagreeswith the principal

debtor that the suretiesshall not be discharged,they are not
' "
" f "
349. If the creditor agreeswith the principal debtor to
give time to the surety,the surety is discharged
586 THEOttY AND PKACTICE OF BANKING
Oriental Financial Co, v, Qvcrend, Gurney <feCo., Ii. B., 17 Oh.,

Ap. 142
On ForeignBills, and Bills drawn in Sets,Parts, or Copies

350.* 1. Wherea bill is drawn in a set,eachpart of the set
being numbered,and containing a referenceto the other parts,
the whole of the parts constitute one bill
2. Where the holder of a set indorsestwo or more parts to
different persons,he is liable on every such part, and every in-
dorser subsequentto him is liable on the part he has himself
indorsed,as if the saidparts were separatebills
3. Wheretwo or moreparts of a set are negotiatedto different
holders in due course, the holder whose title first accrues is as
between such holders deemed the true owner of the bill; but
nothing in this sub-sectionshall affect the rights of a personwho
in due courseacceptsor paysthe pait first presentedto him
4. The acceptancemay be written on any part, and it must
be written on onepart only
If the draweeacceptsmore than one part, and suchaccepted
parts get into the handsof different holdersin due course,he is
liable on everysuchpart as if it were a separatebill
5. When the acceptorof a bill drawn in a set paysifcwithout
requiring the part bearing his acceptanceto be deliveredup to
him, and that part at maturity is outstandingin the handsof a
holder in due course,heis liable to the holderthereof
6. Subjectto the precedingrules,whereany one part of a bill
drawn in a set is dischargedby payment,or otherwise,the whole
bill is discharged
351. Every transferor ought to deliver over to Ms trans-
fereeall theparts in his possession:
but if a subsequenttransferee
takes one part from his transferor without demandingthe re-
maining parts, he cannot sue au indorser prior to his own who
hasnot got them
Pinard v. Klockman, 3 B. <fcS., $88
352* If the draweepays one part of the bill with a forged

indorsement,he is still liable to pay the real holder of another
part
Cheap v. llarky, 3 T, K., 127
LAW OF CBEDIT, BILLS AND NOTES 587
353, If a foreignbill is refusedacceptance

or payment,it
is necessary,
in orderto charge
thedrawer,
to haveit protested
(a)
But a protestis not necessary
on a foreignpromissory
note(b)
(a) Borough v. Perkins, 2 Ld. Eaym., 993. Rogersv. Stephens,
2 T. B., 713. Gale v. Walsh, 5 T. B., 329. Orr v. Haginnis, 1
Easb.,359. Vandewallv. Tyrrell, M. & Mai., 87. Geralopulov.
Wider, 10 0. B,, 690
(&) Sonar T. Mitchell, 5 Ex., 415
Conflict of Laws
354.* Wherea bill drawn in one countryis negotiated,
accepted,or payablein another,the rights, duties,and liabilities
of the partiestheretoare determinedas follows:
1. Thevalidity of a bill as regardsrequisitesin form is de-
termined by the law of the place of issue, and the validity as
regardsrequisitesin form of the superveningcontracts,such aa
acceptance,or indorsement,or acceptancesupra protest, is de-
terminedby the law of the placewheresuchcontractwasmade
Provided that-
(a) Where a bill is issuedout of the United Kingdomit is not
invalid by reason only that it is not stampedin accordance with
the law of the placeof issue:
(&) Wherea bill, issuedout of the United Kingdom,conforms,
as regardsrequisitesin form, to the law of the UnitedKingdom,
it may, for the purposeof enforcing paymentthereof,be treated
as valid as betweenall personswho negotiate,hold, or become
partiesto it in the United Kingdom
2. Subjectto the provisionsof this Act, the interpretation
of
the drawing, indorsement,acceptance,
or acceptance
supraprotest
of a bill, is determined
by the lawof the placewheresuchcontract
is made
Provided that where an inland bill is indorsedin a foreign
country,the indorsement shall,as regardsthe payer,be inter-
pretedaccordingto the law of the UnitedKingdom
3. The duties of the holderwith respectto presentmentfor
acceptance
or payment,
andthe necessity
for orsufficiency
of a
protest,
or noticeof dishonour,
or otherwise,
aredetermined
by
the lawof theplacewheretheact is doneor thebill is dis-
honoured ..
4. Wherea bill is drawnout of, "butpayable,

in the United
Kingdom,and the sum payableis not expressed in the currency
of the United Kingdom, the amountshall,in the absenceof some
expressstipulation,be calculatedaccordingto the rate of exchange
for sight drafts at the placeof payment on the day the bill is
payable
5. Where a bill is drawn in one country, and is payablein
another,the due date thereof is determinedaccordingto the law
of theplacewhereit is payable
Supplementary
355.* A thing is deemed
to be donein goodfaith,within
the meaningof this Act, whereit is in fact donehonestly,whether
it is donenegligentlyor not
356.* 1. Where; by this Act, any instrument or writing is

required to be signed by any person,it is not necessary that he
should sign it wifchhis ownhand, but it is sufficientif his signa-
ture is written thereon by some other person by or under his
authority
2. In the caseof a corporation,where,by this Act, any in-
strumentor writing is requiredto be signed,it is sufficientif the
instrumentor writing be sealedwith the corporateseal
But nothing in this sectionshall be construedas requiring the
bill or note of a corporationto be under seal
357** Where, by this Act, the time limited for doing any
act or thing is less than three days, in reckoning time, non-
businessdaysare excluded
" Non-business days,*'for the purposesof this Act, mean-
(a) Sunday,GoodFriday, ChristmasDay:
(b) A bankholiday,underthe Bank HolidaysAct, 1871,or
Acts amendingit:
(c) A day appointedby Royal Proclamation as a public fast
or thanksgivingday:
Any otherdayis a businessday
358.* For the purposesof this Act, where a bill or note is

required to be protestedwithin a specifiedtime, or before some
further proceedingis taken, it is sufficientthat the bill hasbeen

notedfor protestbeforethe expiration of the specifiedtime,or the
takingof theproceeding;andtheformalprotestmaybeextended
at any time thereafteras of the date of the noting
859.* Where a dishonoured bill or note is authorised or

required to be protested,and the servicesof a notarycannot be
obtainedat the placewherethe bill is dishonoured, anyhouse-
holderor substantialresidentof the placemay,in thepresence
of two witnesses,
givea certificate,
signedby them,attestingthe
dishonourof the bill, and the certificateshall,in all respects,
operateas if it werea formal protest of the bill
The form given in Schedule1 to this Act maybe usedwith
necessarymodifications,and, if used,shall be sufficient
360.* The provisionsof this Act as to crossedchequesshall

apply to a warrant for paymentof dividend
361.* The enactments mentioned in the secondSchedule to

this Act are herebyrepealedas from the commencement
of this
Act to the extent in that Schedule mentioned
Provided that such repeal shall not.affect anythingdone or
suffered,or any right, title, or interest acquiredor accruedbefore
the commencement of this Act, or any legal proceedingor remedy
in respectof any suchthing, right, title, or interest
362.* 1 The rules in bankruptcy relating to bills of ex-

change, promissorynotes, and cheques,shall continueto apply
thereto,notwithstandinganything in this Act contained
2. The rules of common law including the law merchant, save
in so far as they are inconsistentwith the expressprovisionsof
tMs Act, shall continue to apply to bills of exchange,
promissory
notes,and cheques "
3. Nothingin thisAct, or in anyrepealaffected
thereby,
shall
Effect-
(a) Theprovisions
of the StampAct, 1870,or Actsamending
it, or anylawor enactment
for thetimebeingin forcerelating
to
the revenue:
(£) The provisionsof the Companies'
Act, 1862,or Acta
amendingit, or any Act relating to Joint Stock Banks, or

Companies
(c) The provisionsof anyAct relating to or confirmingtho
privilegesof the Bank of England,or the Bank of Ireland,
respectively
(rf) Thevalidityof anyusagerelating to dividendwarrants,
or the indorsements thereof
363** Nothing in this Act, or in anyrepealeffectedthereby,

shall extendor restrict, or in any way alter or affect the law and
practice
in Scotland
in regardto summarydiligence
364,* Whereany Act or document refersto any enactment

repealedby this Act,the Act or document shallbe construed,
and
shall operate,
as if it referredto the corresponding
provisions
of
this Act
365.* In any judicial proceeding in Scotland, any fact

relating to a bill of exchange,bank cheque,or promissorynote,
which is relevant to any question of liability thereon, may be
provedby paroleevidence
: Providedthat this enactmentshall
not in any wayaffect the existing law and practicewherebythe
partywho is, accordingto the tenourof anybill of exchange,
bank cheque,or promissorynote, debtor to the holder in the
amount thereof,maybe required,as a condition of obtaining a
sist of diligence,or suspension
of a charge,or threatenedcharge,
to make suchconsignation,or to find suchcaution,as the Court
or Judgebeforewhomthecauseis depending
mayrequire
This section shall not apply to any casewhere the bill of
exchange,
bank cheque,or promissory
note hasundergone
the
sexennialprescription
On the Forgery of Bilh and Notes

366. Forgeryis definedto be the making,altering, or mis-
applyinganywritingwith intentto defraud
Forgingbills or notes,or anypart of them,aswellasuttering
them, knowing them to be forged, are each felonies,punishable
by penalservitudefor life, or for anytermnot lessthanfive (1)
years-or by imprisonmentfor anytermnot exceeding

two years,
with or without hard labour,andwith or withoutsolitarycon-
finement
24 & 25 Viet. (1861), c. 98, s. 22
(1) 27 & 28 Viet. (1864),o. 47, s. 2
367. If severalpersonsmakedifferentpartsof the instru-

ment, theyare eachchargeablewith forging the entireinstrument,
though they may be ignorant of eachother'sproceedings
Rex v. Bingley, B. & B., C. 0., 446. Rex v. Kirkwood, 1 Mood.,
0. 0., 304. Rex v. Dade, 1 Mood., 0. 0., 307
368. The offenceof forgery is completewithout any pub*

lication or uttering
Elliott's Case,1 Leach, 0. 0., 175. Crocker's Case,B. & B.f
0. 0., 97
369. Altering the date of a Bill of Exchangeafter ac-

ceptance(a): altering the placewhere a note is madepayable
(ft): or altering the sumfor which a bill or note is made pay-
able(c), are forgeries
(a) Masterv. Miller, 4 T. B., 320. Rexv. Atkinson,7 0. & P.,
699
(b) Rex v. Treble, 2 Taunt., 328
(c) Rex y. Post, B. & B., 0. & 0., 101
870. If a personis authorisedto fill up a bill or note with

one sum, it is a forgery to fill it up with a larger sum,or evena
lesssum,andapplytheinstrumentto purposes
differentfrom his
instructions
Rex v. Hart, Mood., C. 0., 486. The Queenv. Bateman, 1 Cos,
0. 0., 186. The Queenv. Wilson, 1 Den., 0. C., 284
371. To write onau own name, with the intention that it

shouldpassas the signatureof anotherpersonof the samename,
is forgery
Mead v. Young, 4 T. B., 28. Rex v. Parkes, 2 Leach, 0. 0., 775
372. A personhaving obtainedgenuinesignatures, wrote

above
oneapromissorynote; andon the othersideof the other
92 THEORY
ANDPRACTICE
0* BANKING
promissory
note
payable
to thatperson,
andsochanged
the
Mature into anindorsement
; was
convicted
offorging
the
note
ad the indorsement
Rexv.Bales,
17StateTr., 161,209,229
373 Usingthegenuine
signature
of oneperson
in any
my,soastomake
it appear
thatit is thesignature
of another
>erson
of the samename,is forgery
Reg.v. Sbnfcfnsop,
1 Pen.,0. 0.,276. teg.Y.JKteMZ,1Pen.,
C.0.,282.teg.v*Rogers,
8 0. A P.,6*9, teg.v. Porfce,
1 Cox,,
0. 0., 4
374. Discounting
bills, or drawing
draftswith,fictitious
nameson them, is forgery
Dunn'*Case,
1Leach,57. BotlanffsCast,I Leach,
8S, £0cfottf*
Coso,
1 Leach,
94 Ta/t's Case,1 Leach,172. Sheyhard'*
Case,I
Leach,
226. Reg.
Y. TFar&Bi3 F. & F.»82
375. Signinga bill or note by procuration

for another
person
fraudulently,
andwithoutlawfulauthority
; anduttering
sucha bill knowingthat it is so signedby procuration,
without
Lawfulauthority,is felony,punishablewith penalservitudefor
not morethan fourteenand not lessthan five years: or imprison-
ment for not morethan two years,and with or without hard
labourand solitaryconfinement
24& 25Viet.(1864,),
c. 98, 8. 24
376.* Subjectto the provisionsof this Act, wherea sig-

natureon a bill is forged,or placedthereonwithouttheauthority
of the personwhosesignature it purports to be, the forged or
unauthorised signatureis wholly inoperative,and no right to
retainthebill, or to givea dischargetherefor,or to enforcepay-
ment thereofagainstanyparty thereto,canbe acquiredthrough
or under that signature,unless the party against whom it is
soughtto retainor enforcepaymentof the bill is precluded
from
setting up the forgeryor want of authority
Provided that nothing in this section shall affect the ratifi-
cationof anunauthorised
signature
notamounting
to aforgery
877.* A debtorwhopaysa holderwhoderiveshistitle through

forgeryis not discharged
In Rolarts v. Tucker (16 Q. B., 575),MATILE,J., said, that
in his opinionif a banker is called uponto pay an acceptanceof
his customer's, bearing several indorsements, he is entitled to
reasonabletime to inquire into their genuineness,
and the title of
the presenter
A banker who issueschequesto his customer,payable to
order,is not boundto inquire into the genuineness
of the payee's
indorsement
But any personwho obtains the moneyfrom the bankerby
meansof a forged indorsement is liable to the true owner of the
cheque
Bobbett v. Pinckett, Ex. Div., May 5,1876
378. A person who discountsa forged bill or note may

recover the money back .
Jones v. Hyde, 5 Tatmt., 488. Bruce v. Bruce, 5 Taunt., 495.

Gurney v. Womersly, E. & B., 133. Wilkinson v. Johnson,3 B. &
C.,428
379. Wherebankerspaid a forged acceptance of their cus-

tomer,and did not discoverthe mistakethe sameday,they were
held not entitled to demand it back
In OocJcsv. Masterman,the Court expresslyrefrained from
giving an opinionas to whether they might havedoneso if the
demand had been made the sameday
Smith v. Mercer, 6 Taunt., 76. Cocks v. Masterman, 9 B. & C,
902. Mather v. Lord Maidstone, 0. B., 273
These seem to be the chief points relating to bills and notes,

which occurin daily practice,and aremost necessary
to beknown
fa !brae%
VOL. II. QQ
INDEX
PAGE.
Acceptilation I, 167, 288
Accommodation Bills i 359
Acton Burnell, Statute of i 84
Addington ii 4
2Esc3iines Socraticus i 3
African, or Darien Company » ii 199
Algebra, Principles of, applied to Commerce i 283
Alison, Sir A., on Currency .. .. ii, 259, 282
Althorpe, Lord .. .. * ii 132
Amuleius i 169
Annuity, Definition of .. «. . .. i 30
Appropriation of Payments ., .. .. .. ., ii 413
Arcaria IKTomina .. ". ,« ., .. .. .. i 166
Aristophanes .. .. .. .. ,. ., .. .. i 151
Aristotle on Wealth .. .. " '.. -" "* .. .. i 2
f, on Money .. .. .. ., ., .. .. i 36
on Value .. . ... .. i 104
Aslxe .. .. .> .. i 85
Asnhurst, J .. .. i 229
Assignable Instruments .. .. .. .. .. .. i 233
Assignats .. .. .. .. ii 255
Aurelius, Marcus .. ... .. .. .. .... i 296
Austin .. ., .. i, 87, .193
Ayr Bank ii 208
Azo .. .. .. .. .. .. i 209
Bacon, Lord .. .. .. .. .. i, 21, 118, 119, 140, 316

Bailey on Value .. .. .. .. .. .. t.. i 116
Bailment, Meaning of .. .. i 95
Balance of Trade .. .... .. i 404
Bank, Meaning of .. .. i 314
Act> Joint Stock, 1826.. ., .. .. .. .. ii 382
,, Joint Stock, 1844 .. .. .. .. .. ii 388
Scottish, 1845 .. .. .. .. .. it 220
QQ 2
5i)() INDEX
PAGE.
Banker, Moaning of i 313
Definition of i 321
Relationto customer i, &J3: ii, 402
Contract with customer i 334
London, ceaseto issue Notes ,. i 615
Agent for other bankers ii 415
Banking, Origin of, in Europe i 161
Invented by the Romans i 161
a department of Economics i i
Mechanism of i 324
Theory of i 313
Scotch System of i 341
.,, Economical effects of «. .. i 354
Erroneous ideas on i 357
Discount .. .. , i 372
Base of, in England .. i 433
Ho monopoly of, in Scotland ii 204
Joint Stock, rise of, in England ii 379
Business of .. .. 11 402
,, Investments * ii 410
In Scotland n 198
Bank of England Founded i 448
Stops payment in 1697 i 473
Capital increased,1697 i 477
1709 i 486
First monopoly of i 487
Best formed m 1722 i 500
Charter Act, 1742 ii 380
Monopoly Clause i 500
Notes, discount on, 1696-7 i 479
Issues £15 and £10 Notes, 1759 .. .. i 502
Charter Act, 1764 i 504
1782 i 505
Illegal advancesby .. i 517
Difficulties of, 1796 i 523
Stoppage of, 1797 i 528
Notes, 1800 ii 3
Besumes partial payments, 181G .. .. ii 62
Totally closed, 1819 ii 64
Resumespayment, 1821 ii 98
NotesmadeLegal Tender ii 136
Chaiter Act, 1844 ii 158
Organizationof * ii 334
INDEX 597
PAGE.
Bank of Norway , ii 263
of Scotland Founded ^ ,. ii 198
Issues £1 Notes ii 200
of Venice i 321
Bankruptcy of customer ii 415
Banks, American,1837 ii 266
Land i 351
Scotch, suspend payment, 1797 ii 217
Eight of, to open branches in England .. .. .. ii 237
Barbon on intrinsic value .. i 109
Baring, Sir Francis i, 510, 516
,, Evidence before Lords* Committee, 1819 ii 77
F. T ii 165
Barter i, 33, 46
Basilica cited i, 14, 87, 290, 295
Bastiat on Money i 38
,, on Production .. .. ., .. .. .. i 65
Beccaria on Value i 122
Bell i 308
Benbrigge i, 315, 316
Berkeley, Bishop, on Money i 37
on Credit .. i 174
Bill of Exchange, Definition of i 275
ofLading ..i, 309: ii 462
Acts .. .. .. .. .. .. .. ii 474
Bill Discounter .. .. ... .. .. .. .. i 305
Bills, Accommodation, Nature of ... i 307
Danger of ., i 363
Beal, exaggeratedidea of i 306
Bills and Notes as Specialties i, 270, 309
Bills, Invented by Eom an bankers i 168
Negotiableby law .. i 209
Blackburn, J , .. .. .. i, 252, 25?
Blackstone .. .. .. i, 15, 228, 243, 318
Blanqui .. .. i 63
Boisguillebert on Consumption .. .. .. .. ,« i 6i
on Wealth .. '.. .. i 121
t, on Compensation .. .. .. .. .. i 306
Borrow, Doublemeaningof - .. .. i 88
Bosanquet i 508
Boyd, W. i, 419, 532: ii, 4
Bracton.. ,. .. .. ..i, 215, 218, 234
British Linen Bank.. .. .. .. .. .. .. ii 208
Buller, J. .. .. .. -. "" -" .,i,215;229,242
Bullion, Meaning of i 142
598 INDKX
PAGE.
Bullion Committee, 1810 .. .. ii 27
, Pointsin issue ii 29
, Evidencebefore ii 31
, Analysis
of Beport ii 39
, ,1 ,, Errors in .« .. i 481
, Condemns ^RestrictiveTheory .. .. ii 359
Committees of 1819 h 64
Burdett, Sir Francis ii 53
Burke, Edmund,on Monoy i 36
on Market i 65
0
Campan,Madame, onWealth i 8
Capital, DMinitionof i 70
, Mayincreasein twoways i 74
, Absolute,no i 74
, Fixed i 77
, Floatingor Circulating i 77
, Floating,conversionof, into Fixed i 80
Capmany , ,< .. i 268
Cardwell onLabor i 72
on Deposits i 828
Careyon Value i 126
Gary,John ii 471
210
Cellini, Benvenuto »
Cerxxuscliion Credit i 180
Chamberlain, on PaperMoney u 248
Chambers, EvidencebeforeBullion Committee ii 32
Channel of Circulation i 52
ii 429
Charges of ScotchBanks ..
Charisius i 1G9
Charles I. seizesthe merchants'money i 435
Charles II* coinsguineas i, 155, 438
seizesthe bankers1
money i 441
Cheques,Formsof i 281
Dennitionof i 331
Chevalier, Michel,onProduction i 61
,, on Currency ** .. ii 333
Child, SirFrancis i 304
Child & Co i 331
Choses-in-actioUj
Transfer
of .. ,. « i 218
,, heldnot assignable *, i 234
Chronicle, Arnold's i 2(>9
Cibrario i 315
Cicero cited ., *. .. ,. ,, .. i, 162, 163,109, 170
INDEX 599
PAGE.
Circulating Medium, Meaningof i 48
Circulation, Meaning of i 46
Clearing House, The .. i 837
London ii 443
Bules of Edinburgh ii 437
System,The ii 435
Cobden i 76
Cockburn, C. J. .. i 260
Cognitores .. .. i 207
Coinage, Theory of i 142
Depreciated i 384
Restoration of depreciated.. .. .. .. .. i 396
in 1690 i 453
Coke,Lord i, 211 220
Collateral Securities ii 448
Colquhoun, Sir Patrick .. .. i 12
Columella .. i 169
Commerce consists of six kinds of Exchange i 18
,, treats of Exchangeable Bights i 25
Commercial Crisis of 1772 i 504
1809.. . ii 25
1836-39 .. .. .. .. .. ii 139
,t April, 1847 ii 164
Committee on Banking, 1840 .. ii 146
of 1875 .. .. *. .. ii 398
Commodatum, Meaning of i 90
Compensatio .. i 296
Comte ., i 140
Condillac on Value i, 122, 130
Confusio i 291
Consumption, Meaning of .. .. .. i 62
Continuity, Law of .. .. .. *, .. .. .. i 136
Contract, Unilateral .. ,.'..- ., i 202
Bilateral .. .. ., i 202
Convertible Securities .. .... i 55
Copyright i 11
Cost of Production .. 67
Cottennam, Lord .. 333
Country Banks after 1763 .. .. .. 506
Cournot.. .. .* .. .. 63
Cradoeke, F., on Money .. .. .. .. *. .. 35
,,onBanks 317
Cranwortn, Lord .. -* .. 2^6
Credit, Meaning of *. .. .. ... ..,.. .. .. 9
Personal .... .. .. .. .* .. i 29
(500 INDEX
PAGE.
Credit, Nature of 1,33,41,178
Ambiguities of i 81
Theory of i 157
Origin of, in Europe i 101
Erroneous ideas on i 180
as Negative Capital i 197
Transfer of i 200
Instruments of i 265
Banking InHtiuments of i 281
llatio of Money to , i 299
Limits of * 1285
Two brandies of i 800
Cormneicial .. .. .. i 302
Applied to 101m now Pi oduet« i 311
Cash i 314
Banking, how utilised i 331
How, Capital to a Bank ., ,. i 350
Why, lias value i 138
Transformation of, into Capital i 369
Banking, necessaryin a ciifais i 362
Excessive icstriction of i 363
Law of, Bills and Notes h 478
Definitions n 480
Transfer of n 481
Instalments of n 482
Parties to n 483
Terms iclatmg to a 483
Stamps on . n 48(5
on LO.XJ li 4<)3
Transfer of n 41) i
Banking .11 41)7
Bank Notes ii 498
Cheques ., , a 505
Letter of Ci edit 11 510
Crossedcheques .. ., ii 520
Stamps on bills and notes ii 522
Capacity of parties . , n 526
Liability of drawer .. , , n 535
Highta of holder ii 535
Funds in hands of drawee .. ii 5.36
Consideration ii 530
Presentation for acceptance ii 53S
Acceptance ii 541
Procuration .* ». .. .* ii 545
Alteration ,, ,, , n 549
INDEX 601
PAGE.
Credit, Negotiation ii 551
,, Lost Bills ii 557
Property in bills lost or stolen .. ". ii 557
Presentment for payment ii 559
Extinguishment ii 562
Waiver , ii 562
Eelease ii 562
Payment ii 564
,, Measure of damages for dishonored bill ii 579
Acceptanceand Payment supra protest ii 579
,, Protest .. ., ,. ii 582
Order of liability ii 583
Conflict of Laws ii 587
Supplementary ii 588
Forgery ii 590
Currency, Meaning of.. .. i 49
Forms of i 51
Principle i, 321; ii 335
Irish, in 1804 ii 11
Debate on 18*21 ii 100
1822 .. ii 100
Irish, Beport on .. .. ,. *,.... .. ii 10
Theories of.. " ..'. .. ., ii 243
'"
Paper, us Bills .. ,. .. .. ... .. ii 268
Definition of .. ,. .. .. ». .. ii 287
Decisions of Courts of Law ,. .. .. .. ii 294
Author's principle of .. .. ii 346
D
Dante i 267
Debate on Bullion Eeport .. » ii 48
on Reports of 1819 .. ii 81
on Panic of 1847 .. ,. ^. ii 172
Debt, Meaning of .. i 9
Unit of i 57
not Money owed by Debtor .. .. .. .. ,. i 81
Personal Duty to pay Money i 8V
as Creditor's Bight of action .. ., i 83
and Bailment .. .. ,, i 95
Documents of .. .. i 169
Beleaseof .. * 289
Debtor, Opinions of Jurists on .. .. i 177
Debts as Movable Bights .. .,, t. .. ,. .. i 17
as Negative Quantities.. .. .. ., .. i, 160, 198
as Goods and Chattels .. ,. .. .. ,, i, 15,199
602 INDEX
PAGE.
Debts Saleof, in Boman Law i 200
Saleof, in English Law .. .. I 211
Yalue of , i 133
Definitions, Summary of .. .. i OB
De JTontenay on Capital i 70
Delegatio i, 205,295
Demand sole Cause of Yalue i 12S
Demosthenes on Debts .» 1 i 87
on Value i 104
on Credit i 173
on Trapezifcse i 171
Deposit, Meaning of .. i 325
Error respecting ,. i 327
sameas an Issue i 380
Deposits, Banking, as ready Money ii 307
Deposition .. *. .. i, 95,161, 327
De Quincey on Labor i 72
Depreciated Coinage, Effect of i 382
Depreciation, Meaning of .. .. i 112
Dickens i 60
Diophantus i 187
Discharge, Meaning of i 68
Discount, Meaning of i 58
Discounting Bills of Exchange ii 420
Dock Warrant i 96
as securities » ii 402
Documents of Title i 309
Dooms of the Anglo-Saxons ii 288
Dorrein, Evidence before Lords* Committee, 1819 ii 65
Draft, Definition of i 277
Ducange .. .. * i 315
Dupuis i 62
Du Puynode on Credit i 157
Dutot on Credit i 174
Duty» Meaning of .. . i 87
E
Economic Quantity, Meaning of .. *, i 2
Economics, The Scienceof Exchanges or of Commerce .. .. i, 1,179
Comprehendssix exchanges i 18
Treats of Exchanges of Bights i 25
Why a Physical Science i 137
General Equation of i 138
Caution necessaryin applying Mathematics to .. i 339
Economists on Bights 1 16
INDEX 603
PAGE.
Edward III i 155
Eldon, Lord, on Credit i 159
Ellison, Oeorge i 532
Ennius i 169
Erskine , .. i 22
Euler on Debts 1,183,289
Evelyn , i, 318,473
Exchange .. .. i, 46,473
Definition of i 381
»* Nominal i 382
»» Real or Commercial .. .. .. .. i, 389, 401
Foreign .. .. i 392
Favorable and Adverse .. ,. ' i 393
Operations .. i 397
,, Means of correcting Adverse i 430
Exchangeability sole essence
of Wealth i 2
Exchanges Derangedin 1810 .. .. ii 26
Irish in 1804 ii 9
Foreign Loans as affecting . .. i 418
Foreign, Theory of .. ,. i 381
Limits of Yariations of .. .. .. .. .. i 395
Governedby seven causes .. .. .. ... i 402
*, Bate of Discount as affecting .. .. .. .. i 417
Monetary and Political convulsions as affecting .. i 430
Bates of in 1695-6 ,. .. ;.. .. .. i 480
Exchequer Bills .. .. .. .. .. .. .. i 484
Issue of in 1793 .. .. .. .. .. i 511
Expansive Theory in a Panic .. ..
in 1782 .. .. i 508
in 1793 ,. .. .. .. .. .. i 512
in 1825.. .. .. .. .. .. ii 116
in 1838 ii 144
in 1847 ., .. .. .. .. .. ii 171
in 1857.. .. .. ii 184
in 1866 .. .. .. ii 192
always successful , ii 348
Expensilatio .. .. .. i, 167,288
F
Factors' Acts .. * ., -... ii, 463, 472
Fleetwood .» .. ' .. .. .. ' i 453
Forbes, Sir William .. .. .. .. ... i, 539; ii, 217, 363
Formulse .. .. .. .. .. .. .... i 207
Fox on Circulating Medium .. .. .. .. .. .. i 48
on Paper Money ..*" .... .. .. ., ii 6
CO i IN'ttKX
PAflTB.
Franklin on Credit » .. i 175
French. Indemnity i 421
Fullarton on Cturency ». u 8215
Funds, the i 10
Fungibles, Meaningof .. .. i 1)3
G-
Gains cited ». !<»">.

W. 170, 230
Galiani *
Genovesi f^
*^°
onValuo 321
Gideon Debt *&
Gilbart on Banking " "- SIB
on Credit Soff
Glanville i 21»
Godfrey, Michael i, ^47, 451
Goldsmiths, The i 436
called Bankers i 487
Goods taken as Securities ii 452
Goodwill of a business i 10
Goschen ii, 817, 8«7
Grenville, Loicl g -. .. i, 51i ; 11, 7, 57, H.-J
Greslxam's Law of the Coinage i 131
Guineas first coined i 151
Haldimand, Evidence before Lordb7 Committee, 1810 .. ,. ii 07

Hamilton, Alexander, on Banking » i 334
Hardwicke, 0 , on Debts i 15
Henry III. coins gold,. .. *. i 155
Herodotus .. . i 14(5
Holland, Evidence before Commons'Committee, 1810 .. .. ii 72
Holroyd, Comniiasionei i 361
Holt, Lord i 223
Homer i, 33, 145
Horace i 102
Homer, Francis u, 10,48
Hume on Value i 130
Hunter on Debts . i 17
Huskisson on Labor ii 72
on Bullion Bejiort ii 3i
on Panic of 1W5 u, 117,123
INDEX 609
PAGE.
Priscian .. i 160
Procurators i 207
Produce, Meaning of i 60
Producers, Three classesof i 61
Product, Meaning of i 60
production, Meaning of .. ., i 59
Production and Consumption, Meaning of i 61
Productive Labor .. i 67
Profit, Definition of .. i 67
Rate of .. .. i 67
Promissory Note Definition of .. .. . i 278
Property, Meaning of.. i 10
Eight of i 22
Classification of i 27
held in Contract .. .. i 201
Proprietas, Meaning of i, 20, 21
Pulteney, Sir William i 538
R
Ranke .. .. i 368
Rate of Discount controlling Credit ,. .. . ... . ... ii 197
Recoinage of 1774 .* ,. *. .. ..... .'..-.. ...' i 505
Release of a Debt .. .. .. .'. " .. .. .. i 292
Report of 1819 .. ., .... .. .. .. . ... . ii . 79
,, Protest against, of Bank .. .. .. "'... ii 80
Eles,Meaning of i 24
Mancipi .. .. .. i 164
'
Nee Mancipi .. .. i 164
lestrictive Theory in 1793 .. i 511
in 1797 .. .. i 528
in 1825 , ii 117
in 1847.. .. .. ii 170
in 1857.. .. .. ii 188
in 1866.. .. ii 195
Licardo on Value .. ..... .. .. .. i, 125, 129
,, Evidence before Committees, 1819 ... .. .. ii 75
" ii 116
Richards, on Panic of 1825 ,. ». ,
,ights as Wealth .. .. .. .. .. .. .. i 9
as Goods and Chattels .. .. .. .. .. i 14
Incorporeal .. .. ,. .. .... .. i 25
to Things, and againstPersons .. i 30
Personal .. .. .. i 31
Beal, or Coi*poreal .. .. .;.,.: i 31
Nominate .... .. .... .. .. i 201
ose, Sir George .. .. .. .. .* .. .. ii 49
VOL. II. E B
606 INDEX
PAGE.
LexÊbutia i 207
Lien, Bankers' * . ii 443
Limited Liability ii, 3<)0,400
Littre i 87
Liverpool, Lord .. ii 81
Livy i 162
Loan, Double meaning of i 88
with Security ii 424
Locke on Value i 123
on Coinage i 463
London and Westminster Bank ii 384
1, Contest with Bank of England ii 386
Lords' Committee of Secrecy, 1797 i 152
Lowe, B., on Panics ii 368
Lowndes, W., on Coinage i 459
Loyd, S.,Lord Overstone ii, 147,165,179
on Currency ii 315
Befutationof ii 830
Lucretius on Life i 20
M
MacCulloch., J., on Value i, 125,129
Descxibesa Foreign Loan i 420
Maclaurin on Debts i 182
Macpherson i 513
Malynes, Gerard i, 274,316
Mansfield, Lord i, 226, 239
Market Overt ii 291
Price of Gold and Silver i 148
Marius i 274
Marlowe i, 67,273
Marquardus i 320
Martin, B i 330
Measure of Value, Oxen as. 33
Melon on Credit.. 174
Merciere de la Bivi&re. 22
Michelet 63
Mill on Wealth ., 2,8
on Honey .. 39
on Production 61
on Demand 66
onCapital i 74
on Personal Qualities i 173
on Currency i 823
on Banking ii 372
INDEX 607
PAGE.
Mint Price, Meaningof ............ i 146

Monetary Panic of 1763 ............ i 502
of 1793 ............ i 510
of 1797 .. .......... i 528
of 1825 ............ ii 113
of 1847 ............ ii 168
of 1857 ........... . ii 184
of!866 .......... ... ii 192
Science Fundamental Concept of ...... i 54
Money, Nature of .............. i 33
". , ...... i 30
Equivalent to ......
Different Substances used as ., ...... i 40
and Credit, distinction .. .. ...... i 45
as Positive Capital .. .. .. . ..... i 197
Montague issuesExchequer Bills .. .. ...... i 484
Monte, Meaning of .............. i 315
Monteitb ........ .. . ..... i 346
Mutuum, Meaning of ........ . ..... i 91
Negotiable Instruments ............ i 233

Newton on the Guinea .. .. .. ,. .. .. i 155
Beport on the Coinage ..... ,. .. .. i 489
Nexus .-.. .. .. .. .. .. .. .. .* i 165
Nomen .. .. .. .. .. .... ,. .. i 167
Norman, G. W., on Currency .. . ....... ii 314
Notes, £1 and £2, suppressed .. .. .. .. .. ii 127
Novatio .. , .. .. .. . ..... 1,203,205,294
o
Obligatio .. .. .. .......... i 168
Be .. .. .. ........ ,. i 165
Verbis ...... .. .. .. .. f. 165
Litteris .......... .. .. i 166
Consensu .. .. .. ..... . .. i 168
Obligations, Creation of .. .. .. .. .... i 176
Extinction of ........ ,. .. i 285
Optional Clause, in ScotchNotes .. ,,' .. .. .. ii 208
Ortolan cited ........ .. .. ..1,85,193,291
Overissues, Meaning of .. .... .. .. , . ii 274
Overtrading ., «... .. ,. .. .. ... i 412
P
Pandects cited . . ., .. .. . . i, 12, 81, 203, 290, 295
Paper, Why, can supersedeCoin .. ,. .. ,, ., i 44
608 INDEX
PAGE.
Paper Money, Inconvertible i 386

Par of Exchange i 384
Paris, Matthew 1 269
Pascal on Consommer i 62
Pasion i 172
Patents i 11
Paterson, William, Pioposalto found a Bank i 447
Founds Darien Company .. . .. 11 199
Payment, Meaningof i 68
in Money .. *. .. " "" "" .. i 293
Peacock on Debts i, 182,185
Peel, Sir Bobert
What is a Pound? i 153
on Panic of 1797 i 534
Protests againstlimiting the issuesof the Bank ii 87
on Panic of 1826 ii 126
Act of 1844 ii 150
Bepudiatesformer opinions ii 153
on Panic of 1847 ii 175
Changein Principles of Currency ii 338
Acknowledges failure of Act of 1844 .. .. ii 370
Persona, Meaningof i 23
Personal Qualities as Wealth i 5
Pheidon of Argos i 145
Physiocrates on Value i 122
on Money i 37
Pitt, W., and the Bank i 517
Deceives the Bank i 519
Unscrupulousconduct of i 52L
on Circulating Medium i 530
Pitt Taylor on Credit i 178
Plautus cited 1,70,162,166
Plutarch, on Discount i 172
Pole, Evidence before Lords' Committees .. ii 66
Policies of Assurance i 11
,, as Securities u 453
Popnam, C. J i 15
Positive and Negative Terms usedby Jurists .. .. i 193
Possession, Bight of i 22
Post Bills, Bank of England i 275
Pothier on Debt i 82
onBelease i 390
Practice, a i 11
Price, Definitionof i 57
and Value l I
INDEX 609
PAGE.
Priscian .. i 160
Procurators i 207
Produce, Meaning of i 60
Producers, Three classesof i 61
Product, Meaning of i 60
production, Meaning of .. ., i 59
Production and Consumption, Meaning of i 61
Productive Labor .. i 67
Profit, Definition of .. i 67
Rate of .. .. i 67
Promissory Note Definition of .. .. . i 278
Property, Meaning of.. i 10
Eight of i 22
Classification of i 27
held in Contract .. .. i 201
Proprietas, Meaning of i, 20, 21
Pulteney, Sir William i 538
R
Ranke .. .. i 368
Rate of Discount controlling Credit ,. .. . ... . ... ii 197
Recoinage of 1774 .* ,. *. .. ..... .'..-.. ...' i 505
Release of a Debt .. .. .. .'. " .. .. .. i 292
Report of 1819 .. ., .... .. .. .. . ... . ii . 79
,, Protest against, of Bank .. .. .. "'... ii 80
Eles,Meaning of i 24
Mancipi .. .. .. i 164
'
Nee Mancipi .. .. i 164
lestrictive Theory in 1793 .. i 511
in 1797 .. .. i 528
in 1825 , ii 117
in 1847.. .. .. ii 170
in 1857.. .. .. ii 188
in 1866.. .. ii 195
Licardo on Value .. ..... .. .. .. i, 125, 129
,, Evidence before Committees, 1819 ... .. .. ii 75
" ii 116
Richards, on Panic of 1825 ,. ». ,
,ights as Wealth .. .. .. .. .. .. .. i 9
as Goods and Chattels .. .. .. .. .. i 14
Incorporeal .. .. ,. .. .... .. i 25
to Things, and againstPersons .. i 30
Personal .. .. .. i 31
Beal, or Coi*poreal .. .. .;.,.: i 31
Nominate .... .. .... .. .. i 201
ose, Sir George .. .. .. .. .* .. .. ii 49
VOL. II. E B
610 INDEX
PAGE
Royal Bank of Scotland ii 202
Commission to prepare a Digest of the Law .. .. i 214
35»un, Meaning of .. .. .. i 337
in 1667 i 439
in 1745 i 502
in 1832 ii 129
s
Sale i 46
Satisfaction, Meaning of i 68
Say, J. B , on Wealth i 6
on Bights i 16
on Pioduction .. . i 61
,, on Consumption i 64
on Value i 103
,, on Personal Qualities i 173
,, on Banking.. .. .. i 355
Say, Leon i 421
Sciences deal with Quantities and Operations .. .. .. i 188
Scotch. Banking-, Committee on in 1826 ii 397
Banks, attempt to extrude, from England .. .. ii 397
Securities for Money . i 55
given by third pei sons ii 459
Senior on Wealth i 6
,, on Capital i 70
onValua i 110
on Personal Qualities i, 6, 173
Severus, Alexander i 208
Shakespeare cited i, 47, 48, 60,103, 105,149
Shares i 10
Shelburne, Lord i 87
Sheppard i 15
Siculus Flaccus 169
Sidmouth, Lord 514
Signs, Algebraical, applied to Property 26
applied to Economics 186
applied to Time .. 194
Sinclair, Sir John 511
Smith, Adam, on Bights .. 16
on Money 38
on Consumption 64
on Fixed Capital 77
on Floating Capital i 78
on Value i, 110, 128
on Cied;t .. ,. , i 174
INDEX 611
PAGE.
inith on derangement
of ScotchCurrency '.. .. .. ii 206
on Theories of Currency ii 275
omers, Lord .. .. . 1,217,443
outli Sea Company .. .. .. i 495
» Failure of .. i 499
tanhope's. Lord, Act ii 57
tephen, Sir James .. . i, 70: ii, 291,398
tephens, Thesaurus .. .. .. i 70
tipulatio .. i 165
tublbs, Bishop i 193
ituckey, Vincent ii 119
iupply and Demand .. .. .-. .... .. i 65
iupreme Court of Judicature Act i 86
Fable of Market Price of Gold and true Value of Bank Notes ii 95

Fait, G. P i 339
Terence i, 59, 162
Permes de la Ley .. .... .. i 85
Phackeray .. .. .. .. .. ... .. .. i 103
Pheojihilus .. .. .. .. .. i 93
Thompson, Poulet .. .. ii 137
Thornton, Henry .. ,. i, 38, 180, 307, 531: ii, 4, 49, 364
Chornton, Samuel, Evidencebefore CommonsCommittee,1819 ii 72
Chring, Sir Henry ii 398
Cichneld, Lord, on Currency.. .. .. .. .. i, 51: ii, 106
Cime Par of Exchange i 391
Citle Deeds as Securities .. .. ii 455
Colet .. .. i 316
Pooke,W. .. i, 509,516: ii, 59, 97, 103, 110
Corr, John .. ' i 327
Torrens on Currency .. .. ii, 146, 322
Trade Secrets .. i 11
Trader as an Economic Quantity .. .. .. .. .. i 196
Trapezitse, Greek i 171
Turner "" "" .. ii 103
Twelve Tables, Codeof .. .. i 206
Ulpian onWealth .. .. .* .. i, 2,12

onDebts .. .. .. .. .. ... -" i 208
tlsury Laws in.France .. .,;",. ..'""" .» .« ii 347
612 INDEX
PAKE.
V
Vaitie, Definition of .. .. i, 32,10S
Theory of i 102
Intrinsic .. i 10')
Diminution of .. .. . .. .. .. i 112
Standard of i 114.
Measure of i 111
Cause of .1 118
Demand, sole Cause of i 120
Instances of . i 120
Labor not Cause of i 123
General Law of i 135
Vansittart .. . .. n 50
Venice, Bank of i 315
Verri on Value . .. . i 122
Von Savigny i 201
Vulteius on Money i 30
w
Ward, Evidence before Loids'Committee, 1819 ii 71
,, » Committee n 79
Wealth, Definition of »i 2
,, Three speciesof i <"$
Definition of, in the Pandects i 12
Absolute, no .. i 18
is an Exchangeable Eight i 2C
Webster, Darnel, on Credit .. i, 44, 156, 200
Western 11101,105
Western Bank, failure of ii 221
Wkately on Value i 130
William tne Conqueror ^ i 143
Williams on Debt .. .y i, 82, 85
Wilson, J., .. .. f. v i 328
Wilson, Janies . .. r..- ftm ..^ ^ ii 161
Wood, Sir Charles ],/., ..' >.. .. ii 1,37
Wright, Sii Maitin .. ., ^ ,f ^ .. i, 202,213
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THE

THEORY ANJ) PRACTICE'

HEXKY prxxixa MACLEOD. M.A.

\ru,s ron TK« i»it*i HT **F Tin:

isrt MI M*i»,u or Tin:

LONGMANS, GREEN, AND CO.

THi At Tili»H KKHKHVKH THK JUtiliT ul*

THE SECOND VOLUME

THE BENEWAL OF THE BANK CHABTEB IK 1800,

49. Evidonco of Mr. Chambers . * * » * * " #2

FB.OM THE ACT FOE THE BESUMPTION OF CASH PAYMENTS

4$ The circulation of Scotch £1 notos in England forbidden . 120

FROM THE BANK ACT OF 184* TO THE PBEHENT TUI33

§ 2. Errors committed by him """"'** "

HISTORICAL SKETCH OP THE RISE AND PROUKKSS OF

1. Foundation of the Bank of Scotland in 1695 . . f . 1QB

in. Committee* of Parliament on So»tch Hank* » , . i'i »

SOUS THEOIUBS OF CUlUtKXCV*

1. It is noceafiarynot only to ftscortain tho truo prhmiplcit of

§ 60. Consequencesof adopting Sir A. Alison's plan ; . . 2c$

ON THE DEFINITION OP CUBBENCY

1. The Bank Act basedon a peculiar definition of Currency . 287

ON THE ORGANISATION OF THE BANK OF ENGLAND AND

§ 1. Oimt complexity of tho Act of 1ft14 334

23. Mr. Lowe on Commercial Panics * » " 3C8

OK THE BISE AND PKOGBESS OP JOINT STOCK BANKING

1. Joint StockBanks not issuing notes legal at Common Law . 379

ON TUB LAW OF CKEIHT, WIAS, AND NOTES

TheFigure*in thefolkwinyTabk ref&rto theSkcond

TimmhtH v. (lihhous J>(4)i

PAGE White v. Ledwick 485, 527

Y. B , 41 Edw. III., p. 20 i., 219

FROM TEE RENEWAL OF THE BANK CHARTER IN

1, Soonafter the year 1800a remarkablephenomenon began

when Parliament met, the country was in a very alarming con-

2. We have alreadyseen that, in the great monetary crisis

3. AdamSmithhad laid it downas a principlethat any

5. At this time, however,phenomenaoccurredwhich directed

6. It wasat this timethat the greatandpalpabletruth was

8. The preliminaries of peacewith France were signed in

opposition cf the enemiesof the Government,we haveseenthe

9* The result of this extraordinaryamountol financial error

effectualmeasuresto preventthem doing so. In February,1803,

had had no communication with the Bank on the matter. The

10. If the resumption of cash payments was unadvisable

11. The Act which restrainedthe Bank of Englandfrom

12. The facilities of communicationwith the metropolis,

13. Although there wasno run upon the Bank of Ireland,

14, Ever since the year 1794 the Exchangeat Dublin on

15. This great disorganisationof the monetary business

16. The circumstances

17. The Bank of Ireland sent two of its Directors to be

18, The description given by the witnessesof the state of

poundweight;the Mint silverwhichwasin circulation,wasvery

each,Bank of England paperbore exactlythe samepremium aa

19. In the north of Ireland, where nothing but gold was

Averageof 1st quarter ... £11 19 £7 12 6

There was, therefore,at that time, a differenceof 12 per cent.

81. In orderto test the fact that the Rate of Exchangewas