LORD KING'S THOUGHTS ON RESTRICTION OF PAYMENTS IN SPECIE. 
«©The bank of England usually issues its 
notes by discounting bills of exchange to 
merchants ; and it has been supposed that, 
roviding the bills are not fictitious, but re- 
ate to transactions between real debtors and 
creditors, the paper money which is thus 
issued can never exceed the amount which 
would necessarily circulate if the obligation 
to pay in specie existed. But the occasional 
convenience of the merchants has a very re- 
mote connection with the permanent de- 
mands of the public. Though we should 
suppose the bank to possess the means of 
distinguishing in all cases between rea] and ” 
fictitious bills; yet transactions may pass 
between individuals, and payments may be 
‘made by bills of exchange to a large amount, 
upon occasions and for purposes which have 
no reference to the number or amount of such 
_ transactions in the community at large. But 
it is certain that the directors of the bank 
have no such power of distinguishing between 
Bills of different kinds; and that, in any ge- 
neral system of discounting, they must be 
liable to be imposed npon by what are called 
bills of accommodation. ‘This uncertainty 
would occasion great difheulties and constant 
errors in the use and application of any rule 
for the regulation of currency founded upon 
the calls of the merchants for discounts. 
«« But a single instance-of a great demand 
for discounts clearly unconnected with a gene- 
tal demand for currency may at once convince 
us that the rule itself has no just foundation. 
By the impolitic restrictions gf the laws against 
usury, the bank of England, like other lenders, 
is prohibited from receiving an interest upon 
its loans of more than five per cent. But it 
_ may often happen that the rate of mercantile 
' interest, and even that of government securi- 
ties, exceeds this sam. Under such circum- 
stances the merchants have a strong induce- 
ment to obtain money upon loans from the 
bank ; and the demand for discounts in con- 
sequence of this inducement may be carried 
to any assignable extent. Demands originat- 
ing in such causes have in fact frequently 
taken place at different periods during the 
late war ; and the contrary effect of a dimi- 
nished demand would naturally be produced 
by times of peace and prosperity when the 
rate of interest is low. Yet, at these periods, 
in which commerce is most flourishing, the 
currency and circulation of the country 
would naturally be the greatest. 
*©In real practice, it is well known that 
the directors of the bank do not consider the 
number or amount of good bills presented to 
them for the purpose of being discounted as 
- furnishing the rule by which the amount of 
their issues is to be determined. Even since 
the period of the restriction, they have, on 
various occasions, thought it necessary to 
narrow their discounts. ‘hey are under- 
Stood to give a certain limited credit to all 
the considerable bankers and merchants ; and 
to discount for each a certain proportion of 
bills according to the ex'ent of his credit. 
361 
But so long as there is no obligation to ex- 
change their notes for specie, it is evident 
that this proportion must be altogether arbi- 
trary, and dependent upon the will and plea- 
sure of the directors, not upon the actual 
wants or demands of the community. 
«« Some persons have thought, that the 
acknowledged solvency of the bank of Eng- 
land, and its ample sufficiency to pay the 
amount of its bills in circulation, are an 
abundant security against an excessive issue 
of paper; or at least that no danger is to be 
apprehended while the currency is confined 
within these limits. ‘The fallacy of this opi- 
nion may be very easily shewn. It is per- 
fectly obvious, in common cases, that the 
amount of #-banker’s capital, and his power 
of raising money, afford in themselves no 
proof or presumption whatever that he has 
the means of carrying his circulation to the 
same extent; and it is impossible to distin- 
guish between the case of a common banker 
and that of the bank of England. A rule of 
limitation, therefore, founded upon the prin- 
ple of solvency, would be still more inaccu- 
rate than a rule founded upon the demands 
of the merchants for discounts. By addi- 
tional subscriptions the capital of the hank of 
England and the amount of its property are 
capable of being augmented to an indefinite 
extent; but no one will therefore contend 
that the national currency could be extended 
without limit, or that it would admit of any 
considerable increase without great deprecia- 
tion. Of all possible securities for .money 
the security of government has always been 
considered as the most solid and indisput- 
able; yet navy and exchequer bills are often 
brought to a discount by excessive issues: 
and it is known by experience to those per- 
sons who conduct such financial operations, 
that no quantity of these securities can be 
forced upon the market beyond its actual de- 
mand, without producing a reduction in 
value. 
** A mixed consideration of the price of 
bullion and the state of foreign exchanges 
would probably be the best practical rule by 
which the directors of the bank, during the 
suspension of their payments in cash, could 
regulate the issue of their notes ; yet, in con- 
sequence of the irregularities whisk will here- 
afier be shewn to be produced by the balance 
of trade, it would on some occasions deyiate 
from the true standard. But, whatever may 
be the principle by which the directors, since 
February 1797, have limited the issue of their 
notes, the following observations will prove 
that they certainly have not adopted this 
rule: though it is highly probable that a ge- 
neral consideration of the price of bullion 
and of the rate of exchange may have served 
to guard them against a flagrantand impolitic 
abuse of their powers. 
“If the above reasoning is well-founded, 
it must follow that there is mo method of dis- 
covering @ priori the proportion of the cireu- 
lating medium which the oceasions of the 
