Financial Legislation in Principle and in History 15 



ascribed to them, in rendering the same sum adequate to a much 

 greater amount of trade and payments than formerly. Some of 

 those improvements will be found detailed in the evidence : they 

 consist principally in the increased use of bankers' drafts in the 

 common payments of London; the contrivance of bringing such 

 drafts daily to a common receptacle, where they are balanced 

 against each other ; the intermediate agency of bill-brokers ; and 

 several other changes in the practice of London bankers are to 

 the same effect, of rendering it unnecessary for them to keep so 

 large a deposit of money as formerly." 1 



The Bank Act of 1844, known as Peel's act, professed to be 

 founded upon the principles of the Bullion Report, which, how- 

 ever, in some respects, was profoundly misinterpreted by the act, 

 for the Bullion Report was infused with the spirit of freedom 

 that prevailed at the time that it was written ; whereas Peel's act 

 endeavored to restrict the issues of the bank within the narrow- 

 est limits. The Bullion Report understood that notes were issued 

 in response to the needs of commerce, whereas Peel's act looked 

 upon the issue of notes as an issue of money. Peel's act, there- 

 fore, looked upon notes as a standard of value, whereas the Bul- 

 lion Report looked upon them as a means of circulating goods. 



The act fell into this error, doubtless, also, through the influence 

 of the materialistic reasoning of the economist Ricardo, whose 

 doctrines, correct as they are in many respects, and hedged about 

 with every safeguard against absurdity of conclusion, neverthe- 

 less gave a wrong turn to analysis of money and credit. Ricardo 

 was trying to account for the level of prices, and jumped at the 

 apparently obvious conclusion that the contraction of the amount 

 of paper money affects the level of prices in the same way that 

 it is affected by the similar movement of metallic money. 2 Peel's 

 act, accordingly, sought to make every paper pound in circula- 

 tion as good as a gold pound. It required that for every pound 

 of paper money, i. e. Bank of England notes, issued, a corre- 



1 The Bullion Report, Sound Currency, vol. II, no. 14, p. 23. Vid. also, 

 W. G. Sumner's History of American Currency,, Appendix. 



2 David Ricardo. Principles of Political Economy and Taxation (E. C. 

 K. Gonner, ed.), par. 125. 



235 



