THE LINK WITH GOLD 235,

the supply of credit, produce, without the actual
loss of gold, the effects which that loss would have
brought about.

The keystone of the system was the rigid link
between legal tender currency and gold. This was
secured by the provisions of the Bank Act of 1844,
which laid down that above a certain line—-which
was before the war roughly ,£r8J millions—every
Bank of England note issued should have gold behind
it, pound for pound. In other words, the Bank of
England note was, for practical purposes, a bullion
certificate. The legal limit on the fiduciary issue
(that is, the issue of £i8| millions against securities,
not gold) could only be exceeded by a breach of the
law. The many critics of our banking system seized
on this hard-and-fast restriction and accused it of
making our system inelastic as compared with the
German arrangement, under which the legal limit
could at any time be exceeded on payment of a tax
or fine on any excess perpetrated. These critics
might have been right if legal tender currency had
been the only, or even the predominant, means of
payment in England. But, as every office -boy
knows, it was not. Legal tender—gold and Bank of
England notes—was hardly ever seen in commercial
and financial transactions on a serious scale. We
paid, sometimes, our retail purchases of goods and
services in gold; and Bank notes were a popular
mode of payment on racecourses and in other places
where transactions took place between people who
were not very certain of one another's standing or
good faith. But the great bulk of payments was