period it was in wholesome dread of public opinion, and the necessity of retaining public confidence made it cautious.  But the English Government removed that necessity.  In 1797, Mr. Pitt feared that he might not be able to obtain sufficient species for foreign payments, in consequence of the low state of the Bank reserve, and he therefore required the Bank not to pay in cash.  He removed the preservative apprehension which is the best security of all Banks.

For this reason the period under which the Bank of England did not pay gold for its notes—­the period from 1797 to 1819—­is always called the period of the Bank restriction.  As the Bank during that period did not perform, and was not compelled by law to perform, its contract of paying its notes in cash, it might apparently have been well called the period of Bank license.  But the word ‘restriction’ was quite right, and was the only proper word as a description of, the policy of 1797.  Mr. Pitt did not say that the Bank of England need not pay its notes in specie; he ‘restricted’ them from doing so; he said that they must not.

In consequence, from 1797 to 1844 (when a new era begins), there never was a proper caution on the part of the Bank directors.  At heart they considered that the Bank of England had a kind of charmed life, and that it was above the ordinary banking anxiety to pay its way.  And this feeling was very natural.  A bank of issue, which need not pay its notes in cash, has a charmed life; it can lend what it wishes, and issue what it likes, with no fear of harm to itself, and with no substantial check but its own inclination.  For nearly a quarter of a century, the Bank of England was such a bank, for all that time it could not be in any danger.  And naturally the public mind was demoralised also.  Since 1797, the public have always expected the Government to help the Bank if necessary.  I cannot fully discuss the suspensions of the Act of 1844 in 1847, 1857, and 1866; but indisputably one of their effects is to make people think that Government will always help the Bank if the Bank is in extremity.  And this is the sort of anticipation which tends to justify itself, and to cause what it expects.

On the whole, therefore, the position of the Chancellor of the Exchequer in our Money Market is that of one who deposits largely in it, who created it, and who demoralised it.  He cannot, therefore, banish it from his thoughts, or decline responsibility for it.  He must arrange his finances so as not to intensify panics, but to mitigate them.  He must aid the Bank of England in the discharge of its duties; he must not impede or prevent it.

His aid may be most efficient.  He is, on finance, the natural exponent of the public opinion of England.  And it is by that opinion that we wish the Bank of England to be guided.  Under a natural system of banking we should have relied on self-interest, but the State prevented that; we now rely on opinion instead; the public approval is a reward, its disapproval a severe penalty, on the Bank directors; and of these it is most important that the finance minister should be a sound and felicitous exponent.