"No such discount or advance, however, should be granted at a rate of interest less than 10 per cent., and her Majesty's Government reserve it to themselves to recommend, if they should see fit, the imposition of a higher rate. After deduction by the bank of whatever it may consider to be a fair charge for its risk, expense, and trouble, the profits of these advances will accrue to the public.

"We have the honour to be, gentlemen,
"Your obedient Servants,

(Signed) "W. E. GLADSTONE.”

The official correspondence is completed by the following letter and accompanying resolutions:

"To the Right Hon. Earl Russell and the Right Hon. W. E. Gladstone, M.P.

"MY LORD AND SIR,

Bank of England, May 12.

Having laid before the court of directors the letter received from you yesterday with respect to a further issue of notes, if necessary, beyond the limit affixed by the Act of 1844, we have now the honour to enclose a copy of the resolutions of the court thereupon.

"We have the honour to be, my Lord and Sir,
"Your most obedient servants,

"H. L. HOLLAND, Governor. "THOS. N. HUNT, Deputy-Governor."

(Copy of Resolutions Enclosed.)

"At a court of directors of the bank, on Saturday, the 12th of May, 1866.

66

II.

Resolved, That the governors be requested to inform

A A

the First Lord of the Treasury and the Chancellor of the Exchequer that the court is prepared to act in conformity with the letter addressed to them yesterday.

66

Resolved, That the minimum rate of discount on bills not having more than ninety-five days to run be raised from 9 to 10 per cent.

"HAMMOND CHUBB, Secretary.”

In Patterson's "Science of Finance," pp. 237-239, the following observations are made with reference to the suspension of the Bank Act on this occasion:

"It was midnight before the announcement was made. In the interview which the deputation from the banks had with the Chancellor of the Exchequer, the necessity of suspending the Act was urged upon the Government by all present, except the representative of the Bank of England. This was mere bravado on the part of the bank. The other banks could have shut it up at once, simply by withdrawing the reserves which they keep at the bank. Indeed, one of the representatives of the jointstock banks is reported to have said plainly, addressing the bank's representative, "I can draw a couple of cheques to-morrow morning which will shut you up at once." The Bank Directors knew this quite well; but they knew also that they could indulge in bravado safely, as it was perfectly certain that the Bank Act must be suspended. The effect of the announcement of the suspension of the Bank Act was so salutary that next day (Saturday) it was generally thought that the crisis was at an end. But, as became visible in a day or two, the crisis was not at an end-the panic revived. Large commercial failures began, imperilling the banks which held the bills of the fallen merchants; the 'bearing' operations went on; a run for deposits was kept up on several of the banks. It was

rescue.

impossible for these establishments to convert their securities into bank-notes in sufficient amount to meet the run upon them. After paying out 50 per cent. of its deposits in cash, the Bank of London (a substantially solvent establishment) had to stop; as almost every bank in like circumstances must do. When the Bank of London stopped, the Consolidated Bank came to the But as the Consolidated Bank did not engage to take over the acceptances' of the Bank of London, the legality of the arrangements between the two banks was challenged, and the Consolidated Bank was threatened with a suit in Chancery. . . . . In these circumstances, the Consolidated Bank was unable to meet the run upon it; and after paying out a large sum to the depositors of the Bank of London as well as its own during a struggle of three days, it closed its doors. After a still longer struggle and mainly in consequence of a lying telegram sent from this country to Bombay, announcing its failure -the Agra and Masterman's Bank was likewise compelled to suspend payment.

"Contemplate the magnitude of the disaster. Overend, Gurney, and Co., the oldest and most powerful discounthouse in the kingdom-the English Joint-Stock Bank, which fell because a large portion of its deposits was locked up in the stoppage of Overend and Co.-the Imperial Mercantile Credit Company, the European Bank, the Bank of London, the Consolidated Bank, and the Agra and Masterman's, with its wide-spread connections, were wrecked during that terrible season of panic. All three-the Bank of London, the Consolidated Bank, and the Agra and Masterman's-were perfectly solvent establishments; and the two latter subsequently resumed business. Their suspension (which was only momentary in the case of the Consolidated Bank) was caused not

by a want of assets, but from the impossibility of converting their assets into currency (Bank of England notes), in order to meet the unusual demand upon them."

causes.

The several panics that have occurred have originated, or are supposed to have originated, in as many distinct Thus, the panic of 1825 has been ascribed to anticipated profits on working foreign mines; that of 1836 chiefly to the rapid extension of joint-stock banks; that of 1847 to excessive railway undertakings; that of 1857 to reckless over-trading; and that of 1866 (mainly due to a mistaken estimate of the advantages of the Limited Liability Act, which led to the too rapid formation of financial companies), has been styled a "banking panic." But, although it be true that each crisis of the kind is in large part produced by a distinct proximate cause, yet the primary cause of each and all is inordinate speculation begotten of the lust of gold. Men are in haste to be rich. This is no new thing. It has been observable in all times, and in all countries. But the fact is more patent now than ever. Men live, as they journey, at railroad pace. So long as appearances can be kept up, they "lay the flattering unction to their souls" that some lucky hit will make all right. Honesty gives place to expediency. Shifts, evasions, trickery, undermine the moral sense, and grow into confirmed habits. The shams of private life are transported into men's public business. To seem is to be. Existence is undervalued unless men

can "grow to what they seem❞ as respects wealth, and hence petty frauds develop into gigantic swindles.

The disclosures elicited by the Select Committee of the House of Commons (appointed, after the panic of 1857, to inquire into the operation of the Bank Act of 1844), and published in their Report issued the succeeding year,

show, so instructively, the mechanism of the "bubbleblowing," whose brilliant but evanescent colours dazzle and bewilder the public eye so as to cheat the multitude into a belief of the airy nothings being globes of solid metal, that we quote largely from its warning pages. It is to be regretted that a like inquiry was not instituted after the panic of 1866. Revelations of even more startling character would, most probably, have been the result. The exposure of the machinery of commercial fraud, of banking incapacity, and of general gullibility which we proceed to extract, will, however, apply, mutatis mutandis, to every monetary crisis yet recorded; and affords far too valuable a lesson to be omitted. The Committee, then, report as follows:

"The first occurrence in this country which caused alarm, was the failure of the house of Macdonald and Co., of Glasgow and London, which took place in October, and was accompanied by the failures of Monteith and Co., and Wallace and Co., of Glasgow. The house of Macdonald employed a great many work-people in sewing muslin goods for the home trade, and for the American market, and this they carried on to a very large extent. They had been in fair credit till very nearly the time of their failure, but shortly before that period they are described as having given out that they had changed their mode of doing business, for the purpose of embracing a wider field. This, however, is represented as having been a deception, intended to cover a system to which they had recourse of drawing fictitious bills, and to give to those bills the appearance of genuine business transactions.

"From the records of the public tribunals, it appears that a very considerable number of persons (one of the partners is said to have admitted as many as seventy-five) in London, and other places, were employed by this firm, for