out notes to the amount of the export have to be
cancelled. Under 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 statement 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 Committee'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 operative.
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 operative 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 cancelled, 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
limiting systems the old one advocated by the Committee, though
apparently more severe, would seem to have much less alarming
possibilities behind it.

A point on which the commercial world does not seem to have made up
its mind, however, is whether there should be a limit at all. Under
the old Act there was a limit which could only be passed by a breach
of the law. Under the Cunliffe proposal the limit could be passed
with the consent of the Treasury. Sir Edward has not told us of what
machinery he proposes for the passing of the limit which he lays down;
but in view of the great apprehension that an approach to the limit
point would, as shown by the Committee, produce, it is clear that
there would have to be a way round. In Germany there is no limit; you
pay a tax on the exces