during a dozen generations. All merchants were then to some extent bankers, but the trade of banking in its primitive condition was especially a part of the goldsmith's calling. This was only natural when gold was money much more exclusively than it is now. The banking occupation of the goldsmith was unintentionally introduced by Charles I., who, when sorely in need of funds with which to raise an army against the rebellious Scots, took possession of about £200,000, lodged by the merchants of London in the Royal Mint as a place of safe custody. From that time the Mint ceased to be employed as a bank of deposit; but the troubled state of the country, just entering upon civil war, rendered something of the sort more necessary than ever. The example of one or two who entrusted their savings to the goldsmiths, accustomed to the guardianship of large amounts of treasure, was quickly followed by others. This new arrangement found favour more rapidly through the willingness of the goldsmiths to pay interest for the money placed in their hands; and long before the time of the Restoration they found themselves placed in a position very similar to that of private bankers of the present day; some of them, indeed, were actually founders of banking houses that now exist. William Wheeler, one of the number, left his shop in Fleet Street, next door to Temple Bar, to his son-in-law, Francis Child, known-probably because he was the first to throw aside the goldsmith's trade, and make banking his only business-as "the father of the profession," and the same site was occupied till recently by the establishment which he made famous. James Hore, or Hoare, who settled first in Cheapside, and afterwards in Fleet Street, was, in like manner, the builder-up of the business that yet bears his name. (For further details of Banking, &c., the reader is referred to "The Romance of Trade," by H. R. Fox Bourne.) The goldsmiths gave paper bonds for the vast sums of money that they received, just as they had been in the habit of receiving paper bonds for the money that they lent; and they soon had half of the actual coins of the land in their keeping; and the paper equivalents for it, issued by them, came to be used everywhere as money. Thereby inordinate power was placed in their hands, and great risk was incurred by those who made them their cash-keepers. The money entrusted to them was often lent out by them at high rates of interest, and if they failed through their own speculations, their clients were the chief sufferers.

To lessen this danger, and provide a means for merchants to lend and borrow money, the Bank of England was started in 1694. The earliest bank was that of Barcelona, founded in 1401; the Bank of Venice did not receive money on deposit before 1587; the Bank of Genoa did not perform genuine banking business until 1675. Banks

were opened in Amsterdam, Hamburg, and Rotterdam, early in the seventeenth century, in each of which private speculators, in return for special services rendered to the State, in lending it money and collecting its revenues, received from it special privileges and protection in their financial relations with their fellow-citizens. The Bank at Amsterdam was most prosperous when William III. became King of England, and from it William Paterson to a great extent derived the suggestions which he offered to Parliament in 1691. To appreciate at its proper worth the wise methods of banking and finance Paterson advocated, we must recollect the systems of public borrowing then in vogue. "When the Treasury was empty," as Macaulay says, "when the taxes came in slowly, and when the pay of soldiers and sailors was in arrear, it was necessary for the Chancellor of the Exchequer to go, hat in hand, up and down Cheapside and Cornhill, attended by the Lord Mayor and by the Aldermen, to make up a sum by borrowing £100 from this hosier, £200 from that ironmonger; and for these paltry loans he had to pay such interest as spendthrifts now pay to extortionate Jews upon accommodation bills." In 1691, the National Debt being then a new thing, Paterson was examined before the House of Commons as to the best way of collecting and managing public loans, the public debt, then £3,000,000, being apparently an overwhelming burthen to the country. He suggested that a fixed sum of £1,000,000 at 6 per cent. should be subscribed by a corporation of merchants, and converted into a permanent fund, to be employed partly in meeting the pressing claims upon the State, and partly in forming a public bank, "to exchange such current bills as should be brought to be exchanged, the better to give credit thereunto, and make the said bills the better to circulate." The suggestion was demurred to by Parliament, the old struggling ways of borrowing were continued, and by 1694 the debt was thus raised from £3,000,000 to £6,000,000, and the Government found itself in such embarrassment that it was forced to adopt Paterson's project substantially, though not quite as he planned it, for a bank of England.

In 1693, "Mr. Paterson "is mentioned in the journals of the House of Commons as appearing before a committee on behalf of capitalists of London, to offer money for the public service upon parliamentary security, with the new condition, that their bills, payable in coin on demand, should be made transferable without endorsement. Herein you will perceive the origin of the Bank of England note-paper money representation of gold, paper money based on the value of gold; being payable on demand in coin, transferable, and payable to bearer. At the present day we can judge, by the specious arguments of those who advocate paper money, the difficulty Paterson had in

answering by his tracts the specious writings of the numerous projectors of the many wild schemes then so rampant, who, to further their own ends, boldly advocated a Government paper money, or transferable bills not payable in coin on demand. Paterson in 1691 proposed means for restoring the coinage to its proper standard; but his advice was not taken, and ultimately the measures adopted on that head with great ability by Mr. Montague, afterwards Earl of Halifax, were far less economical, and even less effectual, than the plan produced by Paterson. On that occasion, in 1696, the Bank of England, the direction of which he had quitted, was compelled by mismanagement to stop. The stoppage was the more serious as it took place pending the difficulty respecting the coin; and the value of the bank notes sustained a great fall, since the credit of the Bank itself was weakened. From two letters (attributed to Paterson) sent to Mr. Locke against lowering the standard of the coin, as proposed to the Treasury by Mr. Lowndes, I extract the following, as being of universal application; and as they also clearly demonstrate the value of credit, and how alone credit is to be obtained and maintained, the lesson conveyed is no less applicable in 1883 than it was in 1696:

"The discredit of the coin, from its being clipped or worn, and the discredit of the bank notes, in consequence of the refusal of payment by the Bank in gold coin on demand, are the same thing, and he insists that the proprietors of the Bank, and the directors, have only one course open if they would be safe. They must pay the amount of their notes in coin on demand, whatever it might cost them."

It is only by understanding our monetary system that we can realize the power of "credit." Our commercial system is based upon faith; cheques, bills, notes, are mere bits of paper, and only promises to pay; yet so great is the power of "credit," that transactions to the extent of "over £100,000,000" weekly are effected through the Clearing House. Gold is a mere pigmy, as a medium of exchange, to this giant, "paper," based upon "credit." Simply by system and faith, in conjunction with banking, this institution settles the exchanges, the buying and selling, to this enormous amount, without the aid of a single metallic coin,-merely by book-keeping, or transfer of cheques, the debiting or crediting of A or B. Credit-few know its power, how strong it is; as the air, to buoy you up; how slight it is, as a mere vapour; when roughly touched, can do an amount of mischief of which it is impossible to foretell the extent. Mr. Harvey says, "Paper money is the money of civilization." He is right; but I contend we have already in operation a paper money, "cheques," doing its work well, and a monetary system, based on reality, that,

with an intelligent expansion, is quite capable to meet the needs of 1883. There must be no tampering with this principle; it must be a paper binding its issuers to their last penny to honour it on demand with gold, or with securities or produce calculated upon the value of gold. It is this belief that has made bank notes so useful to us, and enables " cheques" to take the place of coin. Paper money, unless based on real money, is like a bill of exchange from a doubtful trader, or an order from a man in bad credit. Prudent men leave both alone; the gain is doubtful, the certainty of a loss at some period is inevitable. For paper money to have a legal security, to have the value of real money, it is essential that the belief exists that the law compels that it shall not be issued except upon a money basis redeemable in gold, or of equal value to gold, on demand. Any faltering in payment of paper diminishes its value; it has become a kind of clipped coin, and no security can restore the apparent value but the confidence of the nation that the note will at all times and anywhere be of equal value to the money it represents. There is no necessity for this metallic guarantee to be abolished, as our commercial panics do not arise from too little gold, but upon the too large use of paper bills of exchange, that have got into circulation upon the representation that the merchant has consigned goods. abroad to the value thereof, or that they represent a debt due by A to B; and the value in both cases not being real, the collapse is inevitable. And I have failed in all the methods ever brought under my notice to see how this can be remedied by any system of paper money based upon labour, land, and other so-called articles of value, as the value must depend upon supply and demand; and if paper money could be had by all producers, there would be too much of one thing and too little of the other. Therefore gold is the best measure of value, and the basis of the best medium of exchange between all men. We do not take a note if we think it can only be paid by another note which has a limited sphere of value, but we take it because we think at any time the five sovereigns it represents are to be had by applying for the same, and that the five sovereigns will give us equal value to what we gave for the note anywhere, everywhere. You may talk as you like about money being only a medium of exchange, you cannot alter the fact that money is the universal medium of exchange, because it is based on the value of gold or silver; and paper is taken as money because it is accepted as a promise to pay gold for it when wanted. Paper, like steam, is eminently useful in prudent hands, but of tremendous hazard when not controlled; and the majority lack the practical wisdom required to manage paper money, the sagacity to know when to expand and

contract it; and they forget that, working with such explosive materials, whenever there is a doubt, they should incline to the side of safety. Hopeful men are not fit to use such a dangerous weapon, they over-trade; but there could be no over-trading without reckless credit, and the latter is caused by the facilities offered by banks. The remedy for panics is to borrow less, to give less credit, and to keep trade to legitimate demands and healthy channels. Keep, in fact, to real money, which can hardly ever multiply too much in any country, because its legitimate increase is the certain sign of the increase of trade, or thrift, of which it is the measure, and consequently of the soundness of the whole body. But paper money may, does increase, without any increase of trade or thrift, for it is not the measure of the trade or providence of a nation, but of its necessities; and it is absurd, and must be ruinous, that the same cause which naturally exhausts the wealth of a nation should likewise be the only productive cause of, or representative of, its money. For instance, there are those who argue that "Consols" should be the basis of money. A, they say, lends the Government £1,000, and if he had a transferable promissory note, he would retain a representative of his money, although he had parted with the reality. I know no better way of explaining the respective merits of gold and paper. Those in favour of the gold currency say "No." A has transferred his gold to B, therefore is simply entitled to his name being entered down as a creditor of the State, entitled to so much interest, and with power to sell his debt when he can find a purchaser, and it would be very unfair, and depreciate the value of every one else's gold, if he had a piece of paper like a bill of exchange that he could cash in case of need for the money so lent. There would be in reality two moneys in existence, the "paper money" and the "real money," for which the borrower has been able to obtain value in exchange, the paper money representing a debt truly, but with no real money behind it; as money in the funds is not money at all, it is a debt, bringing in a certain interest yearly, and on account of the regularity of payment of this interest, the people with money generally are willing to pay the money back to A and have the indebtedness transferred from his name to theirs. But, in plain language, the possessor of £1,000 worth of stock possesses nothing in reality but the right of receiving the interest of £1,000, which money of his, the Government of the time having need of, borrowed of him, and spent. Bank notes as now issued are the only legitimate paper money, and the nation should watch jealously any increase thereof, unless warranted by an increase of gold in the coffers of the Bank; or, as you will perceive further on, my opinion is, that the