ABSTRACT
THE fact that public finance functions within a complex system and is affected by disturbances which tend to throw it into dislocation has been fully demonstrated by the review of the history of the nineteenth century. General prosperity has been attended by great elasticity in the yield of the taxes and depression of trade has always involved the Chancellor of the Exchequer in difficulties. But, in addition to the alternate rise and fall, there have been critical moments when exceptional measures have been necessary in order to prevent a collapse of the whole credit economy. Of these crises those of 1847, 1857 and 1866 have been noticed. On these occasions the Government empowered the Bank of England to assist the commercial world to meet its obligations by advancing money, in the form of notes, on all sound bills presented for discount. The mere knowledge that such facilities were available proved sufficient in two of the instances to allay panic ; only once had it been necessary to exceed the legal limit in issuing bank notes. 1 Past experience had indeed so perfected the skill of the bankers in dealing with emergencies that in 1890 a serious situation was successfully handled without resort to the device of the suspension of the Bank Charter Act. 2 One natural consequence of the fuller understanding of the working of the credit system was that it became more elaborate ; for confidence is the basis of all financial operations. The preservation of peace, however, was the underlying assumption on which the whole fabric rested. When peace was endangered it began 204to totter, and when war between the Great Powers seemed imminent, it came down with a crash.
