Bank of England rose to £21,000,000; those of all country bankers in a similar proportion. The total notes in circulation, in England alone, reached £28,000,900; in Great Britain and Ireland they exceeded £39,000,000. It was this copious issue of notes which gave, for the time at least, nearly sufficient accommodation for the immense undertakings which were set on foot; which, beyond all doubt, both gave birth to, and nurtured the infancy of that vast network of railways which so soon overspread the country, and, while it was in course of formation, diffused such general prosperity over the land.

Had the impulse thus given to industry, and the enormous domestic undertakings thus set on foot by the sanction and with the approbation of Government, been cautiously sustained, as a similar impulse had been during the war, by a corresponding increase of the circulation, based on a footing which was not liable to be contracted by a failure of the harvest, or an enhanced demand for gold in foreign states, it might have been the commencement of an era of prosperity, and a general spread of happiness, unprecedented in British annals. It had one immense advantage, which distinguished it both from the previous lavish expenditure during the war, and the extravagant South American speculations which ended in the monetary catastrophe of December 1825. The money was all expended at home, and on undertakings useful to the nation. No man will dispute, that, whether or not all the railways undertaken during that period were in themselves reasonable, or likely to yield a dividend to the shareholders, they were beyond all doubt, one and all of them, advantageous to the public. They afforded facilities for the transit of goods and the conveyance of passengers, which was not only an immense advantage to individuals, but a great relief and benefit to the commerce and manufactures of the country. So far from being blamed, Government deserve the very highest credit for having given this direction to the industry and expenditure of the nation. Their fault consisted in the simultaneous and fatal measures they adopted regarding the currency.

Having taken this great step in the right direction, it became the first and most important duty of Government to have provided, simultaneously with the commencement of

the undertaking, a currency independent of foreign drains, commensurate to the vast addition made to the industry and engagements of the nation. Its capital was far more than adequate to the undertakings, how vast soever. This is now decisively proved by the event. Two-thirds of the railways are finished; the remaining third is in course of construction; and interest is in London from three to two-and-a-half per cent. But capital alone is not sufficient for carrying on undertakings. Currency also is requisite; and if that be deficient, the most boundless overflow of capital will not avert a monetary crash, or save the nation from the most dreadful calamities. Here, too, the event has thrown a broad and decisive light on this vital question, and the cause of our calamities. In October 1847, interest was fixed by Government, after the crash, for advances by the Bank of England, at eight per cent; it rose, in private transactions, to twelve and fifteen per cent. Why was that? Not because capital was awanting, but because the bankers, from the drain of specie to buy foreign grain, and the operation of the Bank Charter Acts of 1844 and 1845, could not venture to issue notes to their customers. The nation resembled a great army, in which vast stores of provisions existed in the magazines at its disposal, but a series of absurd regulations affecting the commissariat prevented the grain they contained being issued to the soldiers. Accordingly, when the absurd restrictions were removed, things soon began to amend. When the Bank Charter Act was pro tempore repealed, by Lord John Russell's famous letter of October 1847, the effect was instantaneous in allaying the panic: interest gradually fell, until now money has become overflowing, and is to be had at two per cent, although the years since that time have been the most disastrous to capital ever known in the British annals, so that no subsequent increase of it has been possible.

What Government should have done, when they engaged the nation in the vast system of inland railways, was what Pitt actually did with such happy effect, when its currency was exposed to a similar strain from foreign expenditure, and immense engagements, in 1797. They should have provided a currency under proper control as to amount, but capable of being increased, according to the wants and engagements of society, and, above all, not liable to be

VOL. I.

2 R

withdrawn by the mutations of commerce, or the demand for gold in foreign states. The example of Great Britain during the war, when a gigantic expenditure, varying from £80,000,000 to £120,000,000 yearly, was carried on for twenty years with the aid of such an expansive domestic currency-not only without any lasting distress, save from the stoppage of foreign markets, but with the utmost prosperity and happiness to all classes, although guineas had altogether disappeared from the circulation was not only an example of what was required, but the best indication of how it was to be done. No period more loudly called for such a precautionary measure than one in which, under the sanction of Government, no less than £363,000,000 was to be expended on railways in the short space of four yearsa sum equal, if the change in the value of money is taken into consideration, to £500,000,000 during the war-at a time when all other branches of industry, foreign and domestic, were in an unusual state of activity, from the sudden return of prosperity after a long period of suffering. To expect that the nation, however great its capital may have been, could, without some addition to its currency, carry out so great an increase in its undertakings, was as hopeless as to imagine that an army, with a half added to its mouths, is to go on successfully with no addition made to its distribution of rations. And it is evident that this addition to the currency could be effectually made only by extending paper circulation on a scale proportioned to the increase of work undertaken. By no possible means could gold, in adequate quantities, be brought to the scene of activity, the place where it was required; and even if brought there, no reliance could be placed on its continuing there for any length of time. On the contrary, nothing is more certain than that it would speedily be re-exported to other countries where it was less plentiful, and, therefore, more valuable; and thus its support would have been lost at the very time when it was most required.

the

The rise of prices during the war, when such a domestic currency was provided by Government in adequate quantities, was really owing, not so much to the circulation having become redundant, as to its having permitted an adequate remuneration to be given to industry. This is a most

important consideration, which Mr Taylor has most ably illustrated. The proof that the circulation had not, like the assignats of France, become redundant, is to be found in two things which are decisive of the point: 1. At no period of the war was there any difference between the price of an article when paid in bank notes and when paid in silver. No man ever saw the price of anything five pounds in bank notes, and four pounds ten shillings in silver. Gold bore an enhanced price, because it was required urgently for the operations of the Continental armies. 2. The increase in the paper circulation, considerable as it was, was yet not so great as the parallel and simultaneous increase in our national industry, as measured by our exports, imports, and public expenditure. Prices rose, therefore, and reached, for a time, more than double their level anterior to the contest, not because too much paper had been put in circulation, but because enough had been issued to let the demand for labour keep pace with the enlarged undertakings of the nation.

Instead of imitating this great and decisive example of wise and statesmanlike policy, what did Sir Robert Peel and the Free-traders do, on the commencement of a similar period of vastly augmented national industry? Why, they did just the reverse. Not only did they make no provision for enlarging the currency of the nation at the time, when they themselves had occasioned or sanctioned so immense an increase to its undertakings, but they took the most effectual measures possible to contract the circulation, both in gold and paper, directly in proportion to the necessity for its expansion. They first passed a law which limited the circulation of the Bank of England, irrespective of the notes issued on the basis of gold in its coffers, to £14,000,000; and that of the whole banks in Great Britain and Ireland

The

to about £32,000,000; and then they introduced a system of free trade which permitted the unlimited entrance of foreign agricultural produce at a nominal duty, and thereby sent nearly half the gold headlong out of the country. Under the influence of this monstrous system, the gold in the vaults of the Bank of England was progressively diminished, until, in the end of October 1847, it was reduced to £564,000 sterling in the banking department; at the very time that, by the same judicious law, above £8,000,000 of sovereigns were lying useless, and locked up in the issue department of the same establishment. governor of the bank very candidly admitted, in his examination before the House of Lords, that the bank, under the existing system, might have broke while there were still £8,000,000 of sovereigns lost to them and the nation in the cellars of the issue department. * Of course the whole banks of the country were compelled instantly to contract their credits, and force payment of their debts; and thence the universal distress and ruin which ensued. And all this took place at the very time that the bank had eight millions of sovereigns chained up by act of parliament in its cellars, at the issue end of the building; and when the Government, which so chained it up, had landed the nation, by act of parliament, in engagements requiring an expenditure on railway shares of £363,000,000 in the next four years. You may search the annals of the world in vain for a similar instance of infatuation in the rulers of a nation, and selfimmolation in a people.

It will be said that the vast importation of grain, in the course of 1847, was a matter of necessity, from the failure of the potato crops in Ireland, in the preceding autumn; and that, be the consequences what they may, they cannot be ascribed to Sir Robert Peel or the Free-traders.

In

In reference to this state of things, the following important evidence was given by the governor and deputy-governor of the Bank of England:"You had only £1,600,000 in the banking department for the payment of your liabilities-Yes.

"If anybody had called upon you for anything beyond that million and a half, you must have stopped payment?-Yes, we must.

"At the same time, if there had been no separation between the two departments, and the Bank of England had been conducted on its old principle, instead of being within one million and a half of stopping, there would have been very nearly £8,500,000 of treasure in your vaults -We should have had £8,500,000 in our vaults."-Lords' Report, 1848.