and if we include the country issues, so as to present a view of the total circulation of the country in such a case, we shall have

Issued on bullion, £14,000,000
” at the minimum rate,£11,000,000
” at the medium rate,6,200,000
” by the country banks,4,800,000
22,000,000
” at the maximum rate, 1,800,000
£37,800,000

and in like manner in 1861 the number of notes allowed to be issued at the medium rate, would be £7,000,000; and so on until, in 1865, the medium rate would reach its permanent limit of £11,000,000. And, with this explanation, we shall hereafter confine ourselves exclusively to the permanent arrangement that would come into complete operation in 1866.

We are far from deeming it our function to determine on the exact rates which ought to be charged in these three cases, as this is a question of arrangement between the Government and the Directors of the Bank of England; nevertheless as without some estimate of this sort it would be difficult if not impossible to enter upon any close examination of the probable working of such a system, we shall now proceed to consider what rates would appear to us most equitable. And first, to take the minimum rate to be charged on the £11,000,000 of notes issued on the loan to Government. On these £11,000,000, as has been more than once observed, the Bank receives 3 per cent. from Government in addition to the profit which it derives from operating on the notes issued in lieu thereof. Assuming therefore, as a not unreasonable rule, that the Bank and the State should share this extra 3 per cent. on equal terms, it would follow that 1½ per cent. to each would be a fair participation of the profits; and if we allow the Bank an additional ½ per cent. as a sort of equivalent for the expense and trouble required in the management of the issues, it will hardly admit of dispute that the remaining 1 per cent. will form an extremely moderate governmental charge on the first £11,000,000. The same principle will be no less applicable to the medium rate to be changed on the second £11,000,000. Whatever profit the Bank would derive from the circulation of these notes would be entirely owing to the privilege of issue delegated by the State; it would be equitable therefore that the Bank should share the whole of this profit in equal proportions with the Government. Now, as a general rule it would only be when increased banking accommodation would be required by the public, and when the rate of interest would be proportionally high, that the Bank would ever be likely to circulate any considerable proportion of these second £11,000,000; so that the gross profit derived from their issue would not be less than 4 to 6 per cent. On the principle just laid down, therefore, 2½ per cent. to each would be an equal participation of the profits; and if we again allow the Bank an additional ½ per cent. to cover the expense of management, the remaining 2 per cent. will certainly appear a very moderate governmental charge. There still remains the maximum rate, and that should be determined on a totally different principle. The £22,000,000 already provided for constituting what we have called the extreme normal unrepresented circulation of the Bank, the rates imposed upon their issue should be such as would present no obstacle to the free expansion of the circulation to this extent, in conformity with the wants of trade. But any issue in excess of these £22,000,000 should be a very rare occurrence, to be justified only under urgent pressure; the rate to be imposed therefore should be such as would effectually prevent the circulation from ever exceeding its normal limits, except in cases of undoubted necessity, and for this purpose less than 4 per cent. could not be considered adequate. Indeed the Bank rate of interest so frequently rises higher than 4 per cent. that the imposition of any lower rate would present little barrier to the issue in excess of £22,000,000. The three rates therefore, the minimum, the medium, and the maximum, might very reasonably be fixed at 1, 2, and 4 per cent. respectively; in other words, the Bank should be authorized to issue the first £11,000,000 of its unrepresented notes at 1 per cent. the second £11,000,000 at 2 per cent. and any notes issued in excess of those £22,000,000 at 4 per cent.

There is one explanation, however, that must be made as to the method in which these rates should be imposed. We have said that the respective rates should be levied on the amount of notes that might be actually in the hands of the public. To this plan it may, perhaps, be objected, that inasmuch as a very considerable portion of the deposits in the Bank of England are well known to be as profitable to the Bank, and to operate as currency just as much as if they continued in the hands of the public; and that, as under our proposed system, the Bank will be enabled to re-loan their whole amount, and thereby derive a two-fold profit upon a large proportion of the notes in actual circulation—that, therefore, consistency would require that the notes in deposit should be considered chargeable just the same as if they had never been deposited. Now, it must be conceded, that this objection is not altogether void of force; but there is an overruling consideration on the other side of the question. For it must not be forgotten that the Bank of England, in common with other banks, is necessarily a bank of deposit, and has its legitimate functions as such; a very considerable part of the profit, therefore, derived from the re-issue of the notes deposited, is exclusively the result of the constitutional exercise of its functions, and lies entirely beyond the sphere of Governmental jurisdiction. It might not, perhaps, be impossible to devise a test for distinguishing between these profits and those arising more directly out of the privilege of issue; but such a distinction would be far too minute to serve as a basis for legislation; and on the other hand, any indiscriminate charge upon the deposits, as a whole, would not only be extremely vexatious, but would even place the Bank of England at a serious disadvantage as compared with every other bank of deposit. It follows, therefore, that while the rule already laid down, of confining the operation of the rates to the actual amount of notes in the hands of the public, may not attain to absolute theoretical perfection, yet in practice it is clearly preferable to any regulation that would either discriminate between two classes of profits derived from the deposits, or impose the rates upon their total amount.

It will be seen from this, that while we are anxious to maintain in its integrity the right of the State to receive an equitable proportion of the profits derived from the issue of unrepresented notes, we have no desire to stretch this right so as to bear oppressively upon the interests of the Bank of England. But a closer examination will conclusively show, that the effect of our proposed arrangement, as a whole, would be to leave the present profits of the Bank altogether intact, as the profits arising out of the additional notes which the Bank would be authorized to circulate, would amply cover the governmental charges on the total circulation. The simplest method of establishing this point, will be to compare the actual circulation of unrepresented notes under the Act of 1844 with the probable circulation under the proposed arrangement. And first, to take the average circulation as the standard of comparison. The present average circulation has been shown to be about £8,000,000, and the profits derived from these, at 4 per cent., would be £320,000 annually. Now, under our plan the average circulation would be at least £15,000,000, the gross profit upon which, at 4 per cent., would be £600,000 while the governmental charges would be

£11,000,000 at 1 per cent.£110,000
  4,000,000 at 2 per cent.80,000
£190,000

or a total of £190,000 which, deducted from £600,000, would leave a nett profit of £410,000, or considerably more than the present profit on the £8,000,000. A comparison of the maximum circulation of unrepresented notes, again, will fully establish the same conclusion. The present maximum can never exceed about £12,000,000 without imperilling the safety of the Bank; and these £12,000,000, if advanced at 8 per cent., to which the rate of discount under the Act of 1844 has sometimes advanced, would return a profit at the rate of £960,000 per annum. Under the proposed arrangement, on the other hand, the maximum would not improbably, in a case of extreme pressure, be £22,000,000, or even £24,000,000; and the gross profit on £24,000,000, at the same rate, viz., 8 per cent., would be at the rate of £1,920,000 per annum. On these the governmental charges would be

£11,000,000 at 1 per cent.,£110,000.
 11,000,000 at 2 per cent.,220,000.
  2,000,000 at 4 per cent.,80,000.
£24,000,000£410,000 

which, deducted from £1,920,000, would leave £1,510,000 as compared with £960,000 under the present system. This, however, is an exaggerated estimate, as we shall presently show that the rate of interest would not be likely to exceed from 6 to 7 per cent. Taking 6 per cent., then, as the more probable rate, the gross profit on £24,000,000, advanced at 6 per cent., would be at the rate of £1,440,000 per annum; from which, if we deduct the governmental charge of £410,000, there will still remain £1,030,000 as compared with £960,000 under the present system. While one effect of our arrangement, therefore, would be to augment the national income by from £190,000 to £410,000 per annum; this advantage evidently would not be purchased by appropriating any portion of the present profits of the Bank of England.