sons who impute the principal error in the over-development of the system of credit in London to the joint-stock banks, which are now so remarkable a feature in its pecuniary system. We have no desire to enter the lists for every thing which these banks have done; we should be inclined, on a proper occasion, to maintain that they have committed errors; and that, in consequence of the law which requires that every shareholder shall be liable for the debts of the bank to his last shilling and his last acre, there are defects in their management which it will be difficult to amend. Still, on the whole, the joint-stock banks of London have stood remarkably well; not only have none of them failed, but none of them have been in danger of failing. They have now gone quite safely through a general pressure, and some time since they passed through a special pressure consequent on the failure of the Royal British Bank; and in both cases the result has been beneficial. It is quite true that they have adopted the bill-broker's business; but they have divested it of the dangers of which we have spoken. Being possibly conscious that, as apparent, and perhaps in some degree real, competitors of the Bank of England, they might not find extreme favour with the authorities of the "Discount Office" the joint-stock banks do not rely on the support of that establishment in times of difficulty. Mr. Chapman the bill-broker, whom we have more than once cited, has given evidence on this point which we must believe to be conclusive, as it is in favour of those whom he admits to be his competitors. "Is it," he is asked, "within your experience that the London joint-stock banks, such as the London and Westminster and other banks, re-discount their bills?" "I never heard of such a thing." Then in that respect the London joint-stock banks differ materially in their mode of carrying on business from that which is adopted by the discount houses in Lombard Street, do they not?" Certainly they do; because it is our business to sell our bills again, and they do not sell their bills again that I know of." These banks are enabled to carry on this course of business without recourse to the expedient which those who first practised it have been compelled to rely upon, because their situation is in one most important respect far more advantageous. The bill-brokers pay an interest for all the money which they borrow; the banks which compete with them have a great deal of money on the balances of drawing accounts for which they pay no interest-they can afford to keep idle some of their cheap money in order to provide for the occasional withdrawal of the money for which they pay highly. Of course they do this at the expense of a diminution in the profits which they might derive from the other

parts of their banking business. If they did not keep their money idle for this peculiar purpose, they might employ it in the common way, and obtain a profit upon it. But this is a matter which may be safely left to the practised pecuniary judgment of the managers. If they carry on such a business, we may without rashness infer that it is a profitable one. Possibly they may, from an implied engagement to give for money one per cent less than the minimum rate of discount, have been recently induced to give higher rates for deposits than we shall be likely to see again; perhaps the time of notice in which they hold their interest-bearing deposits may be too short; but these are points of detail-on a general view of the subject they must be considered to have diminished one of the most serious risks of the bill-broking business, at the same time that they have continued to afford to the public all characteristic advantages.

We do not consider as important arguments in favour of the conclusion that the system of credit has been perhaps too largely developed in England, the reckless advances which appear to have been made by the three large banks which have failed in Scotland and the north. In a great country like this there will always be some unsound banks, as well as some insolvent merchants. Two of these banks nearly suspended payment, and perhaps should have suspended payment, in 1847; and the other has been well known in the banking world for a speculative and exceptional business. We would not ground our conclusion on any singular and casual facts. We wish to base it solely on the small amount of cash, especially of cash available for banking liabilities, held by the Bank of England; and on the exclusive reliance of Lombard Street, and indirectly of the rural bankers, on the Bank of England.

This extreme development of credit must of course be attended with peril during a crisis, in whatever manner that crisis may be occasioned. Every crisis must disturb confidence; and credit is the effect of trust and confidence. We cannot but believe, however, that during the last two months the peril of this inevitable disturbance of credit has been much enhanced by our peculiar legislation. The proof of this seems to us to lie on the surface of the subject. The cause of panic is the expectation of insolvency. People who have during many years given long and large credit, become apprehensive, and wish to be paid in cash immediately. The peril of this state of feeling is measured by the amount of cash which is available to meet the demands for such repayment. As we have explained, the sole reserve applicable to such repayments dur

ing a pressure on Lombard Street is the banking reserve of the Bank of England. Previously to the Act of 1844, the Bank of England resembled the Bank of France, and held a single reserve of coin and bullion against all its liabilities, whether to note-holders or depositors. If this state of things had continued, the reserve of cash applicable to a domestic panic, and its proportion to the claims upon it, would have been shown by the following figures:

"The result of which is, that the Bank reserve, beginning at about one-fourth of its general liabilities, was reduced to between one-sixth and one-seventh of them in five weeks. In that space of time, while the liabilities have been increasing, one-third of the bullion reserve has been abstracted." This is evidently an account likely to create a serious feeling in the minds of attentive and cautious men. It would have convinced many of them, at least in our judgment, that our credit system rested on a basis dangerously small but it is evidently an account requiring to be looked at with attention, and reasoned upon after consideration; it would not produce a frantic alarm in the minds of any of those who are incapable of steady reasoning, and are solely acted on by the tendencies of the moment, and the opinions of those around them. The extreme danger of a period of discredit consists in the frantic alarm which it occasions among such unreflective and undiscriminating persons. Sir Robert Peel's act enjoins a form of account which is felicitously apt to catch and rivet the minds of such persons. The amount applicable to the banking liabilities of the Bank of England, so long as the ordinary business of the Bank is going on, is the reserve in the banking department; this, it is true, consists of notes, but these are exchangeable on the other side of the Bank for bullion, and may therefore be regarded as tickets for so much bullion. The history of this reserve, and of the liabilities to which it is applicable, is as follows:

"Starting on the 19th of September with a reserve of more than one-third of the deposits, the Bank reserve was reduced on the 11th of November to less than one-eighteenth; and even supposing the 2,000,000l. said to have been withdrawn for Scotland and Ireland not to have been so withdrawn, that reserve would have been under one-fifth.” Now these are figures which can be read not only by a man who runs, but by a man running very fast. The most inconsiderate mind must be struck by an account which shows so frightful a decrease of available resources. Every one, in truth, was so struck at a much earlier period than the last of the above dates; and the result was the panic of 1857. We think all candid persons should allow, that whatever other advantages the act of 1844 may have, its effect just then was to aggravate seriousness into apprehension, and apprehension into terror.

This effect is the more perverse, because the first of the accounts, as legal authorities tell us, represents the real state of the Bank, and the other only embodies a theoretical form of account. This may seem unlikely to persons only slightly familiar with the subject; but it will not seem so to those who have studied the controversies in which the theory of the Act of 1844 originated. According to the accomplished persons who suggested that theory, it was desirable that the amount of the paper circulation (whether including the reserve of notes in the Bank of England, or excluding it, was by no means clear) should conform to the fluctuation of the bullion in the Bank; that for every new five pounds of bullion there should be a new fivepound note somewhere, and that for every new five-pound note there should be a new five pounds of bullion somewhere. The framers of the act looked at the matter with the eyes of the economists rather than with those of lawyers. They wished that the five-pound note and the five pounds of bullion should always co-exist; but they did not care to appropriate or earmark the bullion for the payment of the note. They wished, as Lord Overstone has expressed it, that the note should be "the

shadow" of the metal; but they did not especially care to enforce a legal tie between them. In the same way, the same school of legislators and thinkers enacted expressly that gold should go down to Scotland as a basis for the note circulation (above a certain limit); and yet did not at all specifically appropriate it to that circulation. In a word, it was rather the representative character of the note that they were anxious to secure, and not its convertibility, in its obvious meaning that whoever has a five-pound note should be sure of having five pounds in gold for it. It struck these theorists as immaterial whether the note-holder had the five pounds, or some one else had it.

The consequence has been, that a fictitious form of account, which really gives no priority to the note-holder over the depositor, appears to give such priority, and that the depositor is frightened into panic by the idea of his postponement; although it is not true.

The evils of a crisis so produced and so aggravated are of a complicated nature; and it would require much more space than we have at our disposal to specify all of them. A knowledge of one of them, however, is particularly important to a correct understanding of very recent events. By one of the most elaborate contrivances of our commercial system, credit, in its various forms, is largely employed as a currency. The bank-note is one of the most obvious forms of this; it is a mere promise to pay, but in its transference from hand to hand it closes bargains as effectually as gold itself. The bank-note, however, though the earliest and simplest, is not by any means in our refined commerce the most operative form of the credit currency. The large wholesale transactions, which really determine the general price of important articles, are rarely now settled in bank-notes. The real instrument of large operations is the cheque. It is within the familiar experience of every one, that all the ordinary purchases of private life are now so settled; the large purchases of trade are so also. Some people have a notion that a cheque is not currency because it is immediately paid and cancelled; but this is a mistake of fact. Very few cheques, in comparison with the whole number, are really paid over the counter in sovereigns. The person who receives a cheque probably keeps a banker, and pays the cheque in to his account with such banker: if the latter is the banker on whom the cheque is drawn, the cheque is "paid" by a simple transfer from the account of the drawer to that of the payee; even if the banker of the drawer is a different person from the banker of the payee, the process is the same. The rural bankers, as a rule, settle their accounts in London. All London bankers settle their accounts at the "clearing-house;" that is, they see