to say how long each of these periods may last, as they will be influenced by political events—the abundance of the harvests— the direction which speculation may take-and the state of the public mind. Their approach or decline is generally indicated by the stock of gold in the Bank of England.

During the first period money will be abundant, because the importation of gold will cause an increased issue of bank notes; because, the import of commodities being diminished, there will be fewer bills drawn from abroad upon English houses, and offered for discount to the London bankers; and because trade will have become paralyzed at home, and prices will have fallen, so that less money will be required to carry it on. A banker at this period, will have more money than he can employ. But at this period, the prices of the public funds and of other securities are low. The Act of 1844, by causing great fluctuations in prices, gives great advantage to prudent capitalists, at the expense of the less prudent or less wealthy classes of the community. "All fluctuations in trade," says Mr. Gurney, "are advantageous to the knowing man."* To those who are not "knowing men," these fluctuations are injurious. The abundance of the circulation produces a multiplication of contracts, and then the contraction of the circulation produces an inability to fulfil them.† And those who have stock or any other kind of saleable property, are obliged to realise in order to fulfil their engagements. Bankers may during this period make advantageous investments; and as they may calculate that another pressure will not arrive for two or three years, they may purchase a limited amount of securities that have six or twelve months to run. During the second period, money will be in demand. though there may be no great advance in the rate of interest. The securities purchased by the banker in the first period, will now be falling due or advancing in price. But this will be the period of his greatest danger, and he must have a care not to let his desire of getting higher interest lead him to make undue advances upon the commodities or securities that may be the subject of speculation. The third period will be the most profitable for the banker in his direct business. Money will be in full demand at a good rate of interest, and his deposits will hardly have begun to decline. He should now sell out stock and exchequer bills, or + Lords, 3845.

* Lords, 1324.

any other securities likely to be affected by the approaching pressure. He should make advances only by discounting short bills or making short loans. He should weed his accounts of such customers as have deeply engaged in the previous speculations and put himself in a condition, to support liberally through the pressure, those who may be entitled to his

assistance.

It seems, therefore, probable that bankers will, under the Act of 1844, endeavour to make up for diminished profits by investing more largely in securities. According to the evidence of Mr. Pease, the fluctuations in the currency have already produced similar effects in the departments of trade and

commerce.

"I stated, as clearly as I was able to do, that the man who bought from hand to mouth, which is the common case, and did not watch those fluctuations of capital, so as to buy when things were unusually depressed, and to sell when things rose again, failed. The only man who succeeded in making money, succeeded in carrying on a speculative kind of business that has arisen from the want of regularity in the values of money and produce. The man who did not so speculate-buying largely at one time and selling very freely at another-did not succeed. It is of great importance that persons who do not desire to carry on a speculative business should have some assurance that it is moderately productive. That assurance they have lost, by being suddenly deprived by those fluctuations of that which they thought they had secured by their industry."

Though we would not confound this kind of speculation with that which takes place by means of time bargains on the Stock Exchange, yet we do not think it desirable that banks should deal in the public securities merely with a view of making a profit from the fluctuations in price. Sometimes the banker will be out in his calculations, and, instead of selling at a profit, he will have to sell at a loss, or else submit to a lock-up of his funds. And at all times there is a danger that he will acquire a speculative feeling which will lead him to disregard the steady pursuit of his trade.

* Commons, 4700, 4702.

SECTION IX.

THE ADMINISTRATION OF THE BANKING DEPARTMENT OF

THE BANK OF ENGLAND.

By the Act of 1844, the banking department of the Bank of England was separated from its issuing department; and was to be managed like "any other banking concern issuing Bank of England notes." Taking this view of the banking department, we propose to inquire on what principles it ought to be administered. We shall do this, however, not so much with the view of bringing forward any notions of our own, as to lay before the reader some account of those principles which the bank directors have adopted for their government. This will lead us, peradventure, to discuss some principles of practical banking to which we have not hitherto had occasion to refer. We shall then trace the operations of this department for some years subsequent to the passing of the Act of 1844.

The Act for separating the two departments came into operation on the 31st of August, 1844, and the following was the first return made under the Act, showing the condition of the banking department on the 7th of September, 1844:

Account of the Liabilities and Assets of the Bank of England, for the week ending 7th September, 1844.

The following table will give a more detailed account of some

of the items in the above return :

It will be seen from the above, that the means or funds of the banking department for carrying on its business, consist of:1. The Paid-up Capital-2. The Rest or surplus fund--3. The Public Deposits-4. The other Deposits-5. The seven-day and other Bills. These funds are invested in "Government securities" and in "other securities," and the remainder is kept as a reserve in the till.

1. Viewing this as the condition of a private and independent bank, the first thing that would strike the mind of a practical banker, would be the large amount of the PAID-UP CAPITAL. The capital is 14,553,0007.; while the total deposits are only 12,275,1577. The object of a large capital is, in the first place, to secure the public confidence; then, to have the means of repaying the deposits whenever demanded; and also, of affording to the customers of the bank every reasonable accommodation in the way of loans or discounts. But after making due provision for these objects this amount of capital appears unnecessarily large. Were it only 7,000,0007., that would be amply sufficient for carrying on the present extent of business, and the rate of dividends might then be increased. All above this amount could only be invested in Government securities, never likely to be required for banking purposes; and if required, could not be suddenly realised, or at least not within the period in which they are likely to be wanted.

2. The next thing that would appear remarkable for a private bank, is the large amount of the REST, or surplus fund.

The Rest, or surplus fund, or Guarantee Fund, as it is sometimes called, consists of the accumulation of surplus or remaining profits after the payment of the dividend. The amount of this fund should be regulated by the extent of the business, and the probable loss that might arise in conducting that business. If the fund is five or six times the amount of the deficiency that might possibly arise in making up the annual dividend, it would appear to be sufficient. For if, after making up this deficiency for one, two, or three years, it should appear that the profits of the bank had become permanently diminished, then the course would be to reduce the dividend, until the surplus fund had recovered its former amount.

Banks that have made large profits, have either increased the dividend, or distributed them among the shareholders in the form of bonuses, or have added them to the capital. The Bank