drain of specie to which the Bank was subjected in consequence of the great foreign expenditure of the country previous to the year 1797, or in consequence of any unfavourable balance of trade, though con - - - • stant, was confined within certain limits ; that provi sion could have been made for it ; and that, though it imposed on the Bank a certain annual expence, yet, with due exertion to procure the necessary supplies of specie, it could never have been fatal to the cre. dit of so great an establishment.
2. The drain of specie to which a great national bank may be subjected from the prevalence of a ge neral alarm, is in all respects different from that which may be produced by a great foreign expendi. tare, or by the fluctuations of trade. The impulse given by panic is, in its very nature, sudden and in stantaneous. It generally terminates also, and that in some violent crisis. If we suppose, there that a bank, which circulates its notes exten sively, suddenly falls into discredit, that from some un known cause, a sudden suspicion of its solvency seises all the holders of its notes, it is obvious that all these persons, under the violent impulse of their fears, will . rush at once to the bank with notes in exchange for specie; and it is equally certain, that whatever funds a bank may ultimately possess, its stock of specie must be speedily exhausted by such a sudden inun dation of its discredited notes. In this case its cash payments must be suspended for. a time, until the alarm of its creditors be dissipated by a full disclo sure of its affairs. Such being the fatal operation of domestic alarm on the credit of a bank, it can scarcely be doubted that this was the immediate cause of the catastrophe which befel the Bank of England in 1797; more especially, as we find 'that it was exposed tor mere than two years to the drain of specie occasioned by foreign expenditure, with-' out any injury to its credit, while one single week or little more of domestic alarm, terminated in a suspension of its cash payments. On Tuesday the 21st February, the Directors of the Bank were so alarmed by the increasing demand for specie, that they communicated to the Chancellor of the Ex chequer the precise reduction which had taken place in the amount of their cash. In the course of the preceding week, the drain of guineas had been con siderable; but after Tuesday the 81st, it continued increasing with the most alarming rapidity, insomuch that, according to the evidence of the Directors, the demand for specie, on the two last days of the week, exceeded that of the four preceding days. This is
the great and conclusive fact, which points at once to the cause of the ruin which was impending over the Bank. It was not so much the actual loss of specie which excited apprehension, its cash having been lower both during the American war and in the year 1782 ; but the unparalleled rapidity with which the drain increased, was the alarming circumstance which defied all precautions, and which finally render ed the suspension of cash payments by the Bank an act of overruling necessity. Its stock of specie had no doubt been previously reduced by the demand arising from an unfavourable balance of trade, and this would naturally tend to bring matters more speedily to a crisis. But however well replenished the Bank might have been with specie, the demand was increasing at such an accelerated rate, that, in the course of a few days mere, it would have been quite sufficient, without the help of any other cause, to have drained it of its last guinea. • The act restricting the Bank of England from paying its notes in specie, or rather the act by which t obtained this privilege, was, when it was ed, justified by the necessity of the case. The , was so general, that no other expedient remained to save the credit of the Bank. But all sudden and violent alarms are in their own nature of short dura tion ; and when the Parliamentary inquiry, which was commenced into the affairs of the Bank, disclos ed in its favour a large balance of accumulated pro fits, all suspicion of its solvency, and all farther alarm, was immediately done away. In these circumstan ces, the privilege of refusing specie for its notes be ing still continued to the Bank, it was necessary to justify this proceeding on different grounds from those urged in favour of the original measure ; and with this view, Mr Thornton, the great advocate of the Bank, insists, that, to have enforced the resump tion of cash payments, after they were once suspend ed, at any subsequent period of the last war, would have endangered the credit of the Bank as much as when the first restriction act was passed ;—that, after the conclusion of peace, the country was embarrassed by an unfavourable balance of trade, proceeding chiefly from the necessity of making large importa tions of corn, in order to supply the deficiencies of two successively bad crops,—that the Bank must, in consequence, have been exposed to a continual drain of its specie,—and that the restriction on its cash . payments was, therefore, still necessary, as a securi ty against this danger.