ping to inquire whether it possesses the reality as well as the look of knowledge. But if men choose to let their actions be guided by such methods, they must look out for crises-sharp, sudden, and overwhelming crises. The responsibility weighs heaviest upon banks, not upon the Bank of England only, as some proclaim, but upon all bankers collectively. Everything depends on the sagacity and prudence they bring to bear on the loans they grant. The periodical recurrence of these convulsions seems to indicate that prudence lasts a year or two after disaster has punished folly; care and caution are developed in all commercial classes; and the energy and industry of the people restore the losses incurred. Prosperity follows; prudence gradually disappears; then heedlessness encourages every kind of enterprise; and again the thunder and lightning avenge forgotten virtue."

SECTION XXXVII.

THE CRISES OF 1875 AND 1878.

THE quotation with which we closed the preceding section constitutes a heavy, and we fear too true, indictment against a certain class of bankers, for it is beyond doubt that to a large extent they are responsible for the panics which recur from time to time.

Constituted as human nature and human society at present are, the speculative mania in times of ease is sure to fan itself into new life, like the phoenix, and seize upon the minds of those, who, so long as their own selfish interests are served, are utterly regardless of the general. good. And it is at this juncture that the prudent banker ought to step in and put difficulties in the way of the attainment of the objects of such individuals. Were this done more often, were fewer advances made on dead and unmarketable securities, and for long periods, and were consequently a banker's resources more readily available in times of pressure, we should have fewer panics, and those of a much less virulent nature. It is the facile acceptance in times of ease by the easy-going, unobservant, unreflective banker, of the illegitimate proposals of speculative individuals of all classes that paves the way in the long run for the inevitable reaction and ultimate disaster.

The experience of the past shows that the lessons derived from the various panics which from time to time have visited us pass away from the minds of most men

like a vague dream. The writer whom we have just referred to, writing in 1866, truly says that prudence seems only to last for a year or two after disaster, during which time care and energy gradually restore the losses incurred; then prosperity again follows; prudence disappears and recklessness takes its place; and once more the cycle is completed by another panic.

That this has been so in the past is a matter of history, and that it will be so in the future is only too likely. The most we can hope for, we fear, is that the extreme virulence of panics in the future may be toned down by those who have the dispensation of credit in their hands being wise in time and putting the curb on all excessive speculation before it has gone too far.

There is good reason to hope that the lessons of the past have not been altogether fruitless, for, from whatever cause arising, it is certain that the crises which we are about to consider in this section, black though they for a time looked, never culminated into absolute panic.

The crises of 1875 and 1878 had their origin in very different causes from those of 1857 and 1866.

In those years speculation had been carried on to a very dangerous extent, and as a consequence money was scarce, and the reserve of the Bank of England was at a very low ebb. But at the time of the crises of 1875 and 1878 money was abundant, and the Bank of England was in a position to supply all demands. The average reserve in the latter years was nearly double that of 1857 and 1866.

After the panic of 1866 had spent itself, and when confidence began to be restored, the value of money declined by easy stages from 10 per cent. in the middle of May, till the end of December, when the bank rate stood at

3 per cent. From this time onward for several years there was a period of a dead level of low rates and cheap

money. From the beginning of 1867 to the middle of 1870 the bank rate, except during April and May, 1869, never reached more than 3 per cent.

But about the midsummer of 1870 the disposition on the part of France to pick a quarrel with Germany began to be much noticed and commented upon, and the market, in order to be prepared for any eventuality, soon necessitated a rise in the bank rate. Events on the continent moved fast; and almost before men had time to comprehend the grounds of the dispute, France declared war on the 23rd of July. From the preceding November the bank rate had stood at 3 per cent. until the 21st of July, when it was raised to 32. From this point it was moved rapidly up to 4, 5, and 6 per cent., in consequence of the pulls on the reserve by those who wanted to make themselves safe in view of the seriousness of the struggle about to be engaged in, and of the possibility of a general European war. But when on reflection it was seen that England was not likely to become embroiled; and when money began to pour into this country for safe keeping from almost every European centre, the bank rate just as rapidly fell away from 6 per cent. on the 4th of August, by easy gradations to 2 on the 29th of September, at which rate it remained till the following March.

Meanwhile, by a series of bloody victories the German armies had without a check completely conquered France. The Emperor, and the entire army which he nominally commanded, were captured at the battle of Sedan in the beginning of September. By the end of that month Strasburg was taken, and Paris was entirely invested. Metz capitulated at the end of October; and thereafter the chief attention of the German staff was concentrated upon the siege of Paris. The siege dragged slowly on until February, 1871, when an armistice was agreed upon,

out of which sprung at the end of that month a definitive peace. Among other terms which the Germans imposed was one that the French should pay an indemnity of two hundred millions of pounds, and that during its partial payment part of the German soldiery should occupy certain provinces of France. This procedure kept the wound open, and it was felt that so long as the Germans remained in the country any accident might lead to the renewal of hostilities. Hence foreign money remained in this country, and so kept rates low, although business was brisk enough.

No sooner did the terms of peace become known in Paris, than the Communists of Belleville and Montmartre, furious with the Government for agreeing to such conditions, rose in insurrection against it. No one could tell the possibilities that lay in the future. But every one felt that if the Government troops were not strong enough to put down the rising, the Germans, who were quartered in the towns around Paris, would have to return and occupy the city; and this contingency was looked upon with the greatest apprehension, in view of the heated state of the French mind at the time. Hence foreign money still remained in this country, keeping rates low.

From the beginning till the end of 1871 the bank rate never rose over 3 per cent., except for a week or two in the autumn, when it reached 4 and 5. The years 1872-73, were characterized by higher rates the average being about 4 for 1872, and 4 for 1873, against about 27 for the previous year, and nearly 3 for 1870. This arose chiefly from the great drain of gold from this country in connection with the French war indemnity; and in addition, from the American panic in the autumn of 1873.

It will be remembered that this indemnity was about £200,000,000, and that its payment, according to the original proposition, was to extend over four years, during