308 Money and credit

it could issue notes upon its own private security. The original government debt
of £11,015,000 remains to this day, and still figures in the weekly banking return
of the Bank of England.
In 1844 the Bank Charter Act was passed to revise the conditions of note issue,
to substitute Bank of England notes for the note issues of other banks, as far as
possible, and at the same time to make the Bank of England note absolutely safe
by insuring that it should be backed either by government security or actual gold.
The Bank Charter Act of 1844, commonly referred to as “Peel’s Act,” was
the final outcome of a long controversy between the advocates of the so-called
“currency” and “banking” schools, which had begun in the period of the
Napoleonic wars, when the Bank of England had suspended specie payments,
and when its notes, issued in large quantities, were at a discount as compared
with gold. The act of 1844 embodies the “currency” principle, which is to the
effect that a country needs a certain amount of money and no more and that,
since bank-notes serve as money, their quantity should be definitely fixed by law.
The gist of the “banking” principle is that the amount of money a country needs
depends upon the volume of trade and that there can be no overissue or inflation
of bank-notes so long as they are put into circulation to finance actual
commercial transactions. The federal reserve system of the United States, like the
banking systems of France and of Canada, embodies the banking principle.
The bank, in accordance with the act of 1844, has two distinct departments:
the issue department, solely concerned with the issue of notes, and the banking
department, which handles the ordinary business of banking. The workings of
this system at the present time are clearly shown in the accompanying bank

Table 36.1 Bank return: January 9, 1924