ment are separately managed, and of the latter the directors have no control. Professor Price says that it is not a department of the hank in any sense; that "it is a self-acting institution of the state, working on the bank's premises, by rules laid down by the state, and absolutely beyond the control of the directors."
If the terms of Peel's act were at all times rigidly adhered to, this description of the operation of the issue department would be correct. As a matter of fact, however, they are not adhered to, but are suspended in times of financial stress, and the directors assume control of the issue department for the relief of the strain upon the banking department and the business community. Three times since the adoption of the act has its operation been suspended. The supposition that a "suspension of the act" involves a suspension of specie payments is, perhaps, still common enough to warrant an explanation of its true nature.
The Bank of England is the custodian of the principal portion of the reserve of all the banks and bankers of England, and to it the latter must look for money to meet the excessive and unusual demands that are made upon them in time of panic. At such times, therefore, a rapid inroad is made upon the bank's supply of gold, and, if the act of 1844 continues in force, a point is soon reached where the directors are compelled, for self-protection, to cease discounting even upon the best securities. Whenever the strain becomes unendurable, an appeal is made to the Government, through the Chancellor of the Exchequer, to suspend the act. If granted, the legal restrictions upon the bank's note-issues are removed, and the directors are authorized largely to increase their issue without reference to the amount of bullion in their vaults; the effect of which is that for the time both departments of the bank are under the management and control of the directors. They are not likely to use this privilege recklessly, for the obligation to redeem their notes in gold on demand remains in full effect. Moreover, for some reason not wholly apparent, it has become a custom—so far as three instances can make a custom—for the Government to stipulate that the bank shall charge a very high rate of interest, say ten or twelve per cent, upon the extra note-issues, the profit thereon to go to the state. The result of this is that prudence and self-interest combine to make the directors use the powers conferred upon them most sparingly, and they do so. In but one instance has there been an over-issue. This was in 1857, and to the extent of eight hundred thousand pounds. In 1847 and in 1860 the fact of suspension proved sufficient to allay the panic and to avert, at least, its worst consequences.
A recent writer recommends the mechanical and local separation of the issue department from the Bank of England to a Government office, as tending to the propagation of clearer ideas on the subject of note currency. No suggestion is offered as to the way in which relief could be afforded in emergencies similar to those which have hereto-
