The Peel Bank Act of 18^. 
399 
to put into actual working the theories of the “ currency ? 
school. Their exclusive view of the conditions of a metallic cur¬ 
rency, of an unfavorable balance of trade as only caused by unnec¬ 
essary foreign expenditures, and of money as including only gold 
or notes in circulation, led them to concern themselves only with 
the Department of Issue. Their expectations were most san¬ 
guine, but were balanced on the other hand by Tooke, Wilson, 
Fullarton and others with the most distinct predictions of dis¬ 
turbances which might be intensified, to a most distressing de¬ 
gree, through the operations of the act. And these conditions 
were not long in coming. In 1847, within three years of the 
institution of the new order of things, the reserves of the Bank¬ 
ing Department had been seriously reduced, the bank had been 
forced to suddenly increase its rate of discount, this had been 
followed by a disastrous crisis, and the government had seen 
the necessity of temporarily suspending the operation of the 
act. 1 
We have seen that the purpose of the framers of the act was, 
through an attempt to regulate the amount of notes in circulation, 
to effect a contraction in circulation coincident with the diminu¬ 
tion of the bullion; and, what was inseparably bound up with this 
in their minds, to prevent, or at least check at an early stage, 
financial crises, and so reduce them to insignificant fluctua¬ 
tions. Their mistake was in supposing that commercial dis¬ 
trust affected only the notes of the bank, and that, therefore, a 
reduction of the reserves of the bank would never take place, 
except through a presentation of notes for redemption. The 
real course of events showed itself to be different. If for any 
reason connected with the operations of trade, gold was de¬ 
manded in considerable quantities for shipment, the Banking 
Department was compelled to replenish its reserves by with¬ 
drawing notes from its stock to present at the Issue Depart¬ 
ment for gold. 2 The combined influence of the shipment, and 
^he Austrian copy of the Peel Act underwent the same fate. Herk- 
ner in Conrad’s Handworterbuch, Bd. IV, p. 903. 
2 The quick and severe check which the operation of this act put upon 
the export of gold was adapted only to the case when such a drain was 
the result of increased prices due to speculation or over issue of notes 
cf. Mill op. cit., Bk. III., ch. 24, § 4. Tooke, IV., pp. 389-392. 
