when 'on the feed,' to use an expressive phrase sometimes heard on the Stock Exchange, have shrunk back in fear from some palpably dangerous undertaking which its promoters have nevertheless persisted in going on with, having rashly committed themselves to it. A striking example of this infatuation was afforded by the issue of the Buenos Ayres Drainage and Waterworks in 1888, which was conducted by Messrs. Baring Brothers, and was one of the principal causes of the destruction of that famous firm two years later. Messrs. Baring, who like most other great finance houses were 'registered as bankers,' had allowed themselves, under the guidance of their senior partner, to drift into the position of bankers in fact as well as in name, without at the same time taking the precautions which a banking business demands. Instead of being, on balance, creditors they gradually allowed their necessarily very large liabilities to assume enormous dimensions, by entering into engagements, chiefly in Argentina, which they could only fulfil if everything, political as well as financial, went smoothly in that country. They had undertaken to find five millions of money within a short time and another five millions subsequently for the Buenos Ayres Drainage and Waterworks, thinking that the public would gladly relieve them of a large part of the shares by which this liability was represented. But the public was scared at the magnitude of the scheme, which fairly staggered the wiser heads among them, who began to feel uneasy about other investments which they had acquired from a firm which showed so strange a want of prudence on such a huge scale. There is nothing to show that Messrs. Baring felt any misgiving at that time as to their own safety, to say nothing of other people's, for when, after the collapse of the Comptoir d'Escompte of Paris in the spring of 1889, the Russian Government asked Messrs. Baring to take over a deposit account they had kept with that institution, Messrs. Baring did so with alacrity, thus placing themselves under a fresh liability of a very dangerous kind. It also lent the Argentine Government money, on security, of course; but though fairly good as an investment, the security was not of a kind that could be readily converted into cash in time of

financial pressure, and was, as a matter of fact, quite unsaleable for some time after Messrs. Baring's collapse, though it was at length disposed of.

The mistakes of Messrs. Baring have been dwelt on because they afforded the biggest example that was ever seen of the peculiar kind of madness which comes over the public generally at times. The breakdown of Overends in 1866 was equally striking, but it did not occur in the same way. Overends were broken because, being from the nature of their business, debtors, on balance, at any given moment, they lent the money under their control foolishly, so that they could not get enough of it back immediately when they required cash to meet payments due on demand. Barings, who ought never to have been debtors, on balance, at all, slipped into the position of being so without intending it. Now, small capitalists and manufacturers, who also ought not to be in debt, are from time to time seized with a species of madness, and commit themselves to liabilities which they cannot meet, thinking that they will never have to meet them, that 'it is a mere form,' or that their speculations, whether in stocks or commodities, will have turned out well by the time they have to pay calls or take up securities they have 'underwritten,' or to pay for materials consumed. They do this under the influence of various delusions, such as belief in the infallibility of great finance houses, in the indefinitely great riches and prosperity of foreign countries, and in the ability of foreign governments to construct an unending series of 'productive public works,' or works which, though not directly productive, are supposed to add to the efficiency of production.' The general public, which does not underwrite new loans or intentionally speculate, buys with its savings securities which it fondly believes to be good investments, and thus frequently becomes committed to speculations of a more or less uncertain character. The end of all this is weeping and gnashing of teeth, furious denunciation of the great finance houses, for it is on them that the 'investing public' relies, and equally furious denunciation of foreign governments, ending with rueful acceptance of the fact that a good deal of capital has been lost and a solemn

determination to gather up the wreckage and be content with 'a safe Three Per Cent.' in future. The manufacturer who has risked his capital in a struggle for a new market, and has lost it owing to the general breakdown of credit, suffers in the same way. Many have gone through this experience during the last three years, owing to events in South America, Australia, Portugal, and elsewhere, and until sounder ideas are held as to what a government can wisely do in the direction of 'developing the resources' of a country, similar experiences will probably be the lot of many more unwary persons.

Mistaken speculation there will always be. Railways, steamships, waterworks, gasworks, breweries, mines, and industrial undertakings generally, do not always yield the profits expected of them, and sometimes give no profit at all. These unsuccessful companies, however, are a small minority, as an inspection of that marvellous embodiment of the financial and industrial energy of this country, the Official List of the London Stock Exchange, shows. But during the last ten years there has been a steady increase in the number of loans to governments and public bodies, which depend for their revenue in the main upon taxation, frequently excessive taxation relatively to the normal income of the people, which is a more precarious security for the payment of interest than the receipts of a wellplanned railway carried out entirely by private enterprise. But governments not only raise loans, the proceeds of which may or may not be used for constructing public works; they also frequently give what are called 'guarantees' to railways, and sometimes to industrial undertakings, by which they undertake to pay an annual subsidy to the companies concerned. When carefully thought out and properly limited, arrangements of this kind may be beneficial. The Government aid given to the early Indian railways was wisely given, but in other countries the principle of granting guarantees has been much abused. In Argentina it was abused to such an extent that payment of the sums promised became impossible, even supposing the revenue of the State had not been unduly pledged in other ways.

The world is at present suffering almost everywhere from

excessive government interference with industry and commerce. It has always suffered in this way, sometimes to a formidable extent, and probably always will in some degree, owing to the exigencies of political parties. As this is not an essay on politics, the ways in which the working of the party system tends in all countries to the establishment of bad financial and economic arrangements intended to place patronage in the hands of party managers can only be touched on incidentally. Politicians will always find suitable excuses for any line of action they may wish to take, and their line of action in regard to finance and commerce is almost always the same, namely, an extension of the sphere of State Action, on pleas which vary much at different times and places. The course of events in the United Kingdom after the great war must be considered as an episode. Owing to a series of fortunate accidents this country got rid, during the fifty years ending with 1870, of an enormous mass of mischievous laws tending to restrict trade and enable the State to control it. We are still enjoying some of the benefit of the supremacy of the philosophic theories which dominated politics during those years, but for some time past legislation has shown a tendency to resume its normal direction, the sphere of State control being extended in several directions. Laisser faire is no longer the economic maxim of either of the great parties of the United Kingdom. On the contrary, both of them have of late made tentative advances towards socialism, and seem likely to move still further in the same direction. So far, however, these advances have not taken the form of open encroachment by the State on the sphere of private enterprise; but if the outcry for the management of railways and other public works by the State becomes sufficiently powerful to make it worth attending to, the politicians will not be long in finding pretexts for accepting that policy. Already some progress has been made in this direction in the sphere of Local Government, gasworks, waterworks, and tramways having in many cases become the property of municipalities. Local bodies, however, provided they are controlled by the ratepayers of the area they administer, are less unfitted than

the national government to manage undertakings of this kind, though even in their case abuses of patronage and other forms of corruption are sure to become prevalent sooner or later. We must look abroad, to our own colonies and to foreign countries, for full-blown examples of administrative control of public works, and of interference with trade generally. In Australia practically all the railways are owned by the State, with very unsatisfactory results from a financial view alone, and almost equally bad consequences politically. In all the Australasian colonies there are strong parties in favour of extending the principle of State ownership still further, but recent events have checked their influence for the time.

We are not now concerned, however, with the mode in which the extension of State ownership of public works and the general spread of socialistic theories affect the finances and political stability of countries, but with the effect of these tendencies on the markets for money, securities and commodities, throughout the world, more particularly in London, the centre through which a large proportion of the world's transactions are 'cleared,' and where considerable quantities of money are lent to states, municipal and other semi-public corporations, and joint-stock companies. The means whereby these various bodies obtain money to carry out their objects are the issues of loans, bonds and shares, or stock. The issues of governments or municipalities are made through finance houses, but the larger public companies sometimes do the work themselves, or employ a bank merely to receive subscriptions. An issue backed by a house of good repute is sure of success in ordinary times, for 'good repute' means that the firm in question is believed to look carefully into any issue they allow their name to be connected with. Sometimes this belief turns out to have been mistaken, and the repute of the firm becomes less 'good' in consequence.

We will suppose that a foreign or colonial government raises a loan in London to provide for some 'productive public work.' Either it has already begun the process of construction, borrowing the money from a bank or finance house in order to pay the