to advance on them.  The moment this was reported in the City and telegraphed to the country, it made the panic indefinitely worse.  In fact, to make large advances in this faltering way is to incur the evil of making them without obtaining the advantage.  What is wanted and what is necessary to stop a panic is to diffuse the impression, that though money may be dear, still money is to be had.  If people could be really convinced that they could have money if they wait a day or two, and that utter ruin is not coming, most likely they would cease to run in such a mad way for money.  Either shut the Bank at once, and say it will not lend more than it commonly lends, or lend freely, boldly, and so that the public may feel you mean to go on lending.  To lend a great deal, and yet not give the public confidence that you will lend sufficiently and effectually, is the worst of all policies; but it is the policy now pursued.

In truth, the Bank do not lend from the motives which should make a bank lend.  The holders of the Bank reserve ought to lend at once and most freely in an incipient panic, because they fear destruction in the panic.  They ought not to do it to serve others; they ought to do it to serve themselves.  They ought to know that this bold policy is the only safe one, and for that reason they ought to choose it.  But the Bank directors are not afraid.  Even at the last moment they say that ’whatever happens to the community, they can preserve themselves.’  Both in 1847 and 1857 (I believe also in 1866, though there is no printed evidence of it) the Bank directors contended that the Banking Department was quite safe though its reserve was nearly all gone, and that it could strengthen itself by selling securities and by refusing to discount.  But this is a complete dream.  The Bank of England could not sell ‘securities,’ for in an extreme panic there is no one else to buy securities.  The Bank cannot stay still and wait till its bills are paid, and so fill its coffers, for unless it discounts equivalent bills, the bills which it has already discounted will not be paid.  ’When the reserve in the ultimate bank or banks—­those keeping the reserveruns low, it cannot be augmented by the same means that other and dependent banks commonly adopt to maintain their reserve, for the dependent banks trust that at such moments the ultimate banks will be discounting more than usual and lending more than usual.  But ultimate banks have no similar rear-guard to rely upon.

I shall have failed in my purpose if I have not proved that the system of entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.