270 THE REGULATION OF THE CURRENCY

Sir Edward's policy the influx and efflux of gold would
have an effect on the note issue which would be three
times the amount of the gold that came in or went
out. This at least is the logical effect of his state-
ment that " the notes should not exceed three times
the gold or the cash balance/' This law does not
seem to be quite consistent with his view that the
fixed ratio of gold to notes may be lowered by the
payment of a tax; but presumably the tax would
come into operation before the three to one part
was reached, and at three to one there would be a
firm line drawn. On this assumption the Com-
mittee's argument is a very strong one. " If," says
its report (Cd. 9182, p. 8), " the actual note issue is
really controlled by the proportion, the arrangement
is liable to bring about very violent disturbances.
Suppose, for example, that the proportion of gold
to notes is actually fixed at one-third and is opera-
tive. Then, if the withdrawal of gold for export
reduces the proportion below the prescribed limit,
it is necessary to withdraw notes in the ratio of three
to one. Any approach to the conditions under
which the restriction would become actually opera-
tive would then be likely to cause even greater
apprehension than the limitation of the Act of
1844.'' Certainly if, during a foreign drain, for
every million of gold that went out, another two
millions of credit, over and above, had to be can-
celled, it is easy to imagine a very jumpy state of
mind in Lombard Street and on the Stock Exchange.
Sir Edward and the Committee seem to be agreed
as to a limit on the note issue, but of the two