savings in the more developed countries, and since then the vast extent of Africa and Asia has been opened to modern civilization under the protection of the more advanced countries. The result has been that the congestion of capital in the older countries, which threatened to paralyze enterprise and result in a long period of depression, has found an outlet in the undeveloped countries and this outlet has contributed to the increased sale of manufactured goods, larger earnings for invested capital and the revival of industry which began all over the world about 1897.

Proof of the extent and rapidity of this recent development is afforded by the creation of stock companies in Germany and Russia within the last few years. In Germany the number of companies incorporated rose to 182 in 1896, with a total capital of 268,600,000 marks; 254 in 1897, with a capital of 380,500,000 marks; 329 in 1898, with a capital of 463,600,000 marks, and 364, with a capital of 545,000,000 marks in 1899,—a total in four years of 1,129 new companies with a capital of 1,657,700,000 marks ($400,000,000). In Russia the year 1895 witnessed the organization of stock companies with aggregate capitals of 129,363,000 roubles; 1896, 232,640,000 roubles; 1897, 239,424,000 roubles; 1898, 256,237,000 roubles, and 1899, 358,354,812 roubles,—a total capitalization in five years of 1,216,018,000 roubles ($632,000,000).1 In Belgium also a great movement took place during the closing years of the century in the creation of stock companies. Brussels became a financial center, on which the issues of banking, railway and industrial securities increased from 26,596,000 francs in 1896 to 463,094,000 francs in 1899.2

In all these countries, and especially in Belgium, the companies formed were as much for the development of the less advanced countries as for operations at home. The surplus capital of France passed largely through the conduit of Belgian and Russian companies to flow finally upon the untilled soil of African 1 Bulletin de Statistique (Feb., 1899), xlv, p. 185; Économiste Francais, April

7, 1900, p. 444.

Bulletin Russe de Statistique (July-Sept., 1898), v, p. 635; and OctoberDecember, 1899), vi, p. 735.

2 Moniteur des Intèrêts Matèriels, March 25, 1900, p. 794.

and Asiatic industrial development. These and similar demands for capital, including a large demand in the advanced countries for electrical equipment, produced a radical change in discount and interest rates by withdrawing from the loan fund and sinking in permanent investments a large part of the surplus savings of the last decade of the century. The average rate of discount rose from 2 per cent. in London in 1895 to 2.75 per cent. in 1897, 3.26 per cent. in 1898, and 3.75 per cent. in 1899, while in Berlin a rate of 3.15 per cent. in 1895 advanced to a rate of 4.28 per cent. in 1898 and 5 per cent. in 1899. These changes in the rate for the rental of money for short terms were accompanied by changes in the permanent rate for the loan of capital which indicated that the outlet found for surplus saving, in the complete equipment of countries not yet fully provided with the means of production and exchange, was larger than any previous demand of the kind for many years.

It is when the loan fund and the supply of saved capital seeking investment have been largely absorbed, that the check thereby imposed upon further ventures brings on a crisis. Many miscalculations are made during the period of development and business activity as to the time when the new enterprises will become productive, even where the enterprises themselves are sound. It is found that investments which were expected to yield their fruits in large wealth and further savings are likely to require years for their fruition. The promoters of new enterprises, who find their profit in floating securities on the market, are often the chief victims of these miscalculations, even where they labored under no misconception themselves in regard to the character of the enterprises. They find that the public have reached the limit of their surplus savings seeking new investments and will take no more of the new types of securities.1

1 An interesting case of this character was the flotation of tramway companies in France in 1899. The stock was taken first by large capitalists, but the latter "are not in the habit of keeping long securities which are unproductive and the appearance of some of them on the Paris Bourse proved that, in spite of the confidence which the enterprises inspired in their promoters, a certain number of the latter tried to realize at a premium a part of their locked-up capital." The investing public failed to respond and prices declined.-Économiste Européen (June 22, 1900), xvii, p. 776.

The promoters become overloaded with securities and appeal for ready funds to the banks, but the banks,—noting the declining prices of the securities on the stock exchanges,—become distrustful, like the public, and curtail their advances instead of increasing them.

The fact that oscillations of business depression and activity follow one after the other, from the inevitable operation of the economic system, discloses the reason for the periodicity of crises. Under the free working of conditions which were undisturbed by cataclysms of nature or serious political events, it might reasonably be assumed that the time intervening between the inception of a period of industrial activity, its culmination, and its final collapse, would be nearly the same in every incident of this character. This has been so nearly the fact that Mr. Jevons was able to divide the crises of the nineteenth century by almost exact intervals of ten years,-1816, 1825, 1837, 1847, 1857, 1866, 1873, 1882, and 1890. The variations in these dates from the exact period of ten years were due to some extent to disturbing political causes, like the close of the Napoleonic wars, the Crimean war, the American Civil war, and the FrancoPrussian war. It is obvious that any important event affecting the economic order from without, like the suspension of specie payments or the liquidation consequent on a great war, must inevitably invoke something like a crisis, independently of the ordinary play of economic forces under normal conditions.

The history of these events has shown, however, that their effect upon business conditions differed materially according to the stage of industrial development at which the influence from without was felt. In the case of the Franco-Prussian war, liquidation was comparatively easy in France, because the country had just emerged from the effects of the depression which began in France in 1864, but whose influence was still felt after 1866 as the result of the reflex action of the severe crisis in Great Britain. In Germany, which up to the Franco-Prussian war was almost isolated from the international money market, a new era of economic development dated from the payment of the war indemnity by France. Speculative resources were so plentiful in Germany, from the proceeds of the indemnity and the imperial

policy upon which the government entered, that all enterprise was dragged in the train of speculation and inflation and the results were severely felt after the crash of 1873. In the United States the crisis which began in London in 1890, with the failure of the Barings, was not felt until 1893, partly because short crops in Europe in 1891 and 1892 resulted in large exports of agricultural products from America and created a balance abroad in her favor which cloaked the withdrawal of foreign capital and prevented adverse foreign exchanges.1

While crop-failures in Europe and large exports of agricultural products operated on this occasion in favor of the United States, as they had done after the resumption of specie payments in 1879, the failure of the crops has come to be a less serious factor in recent economic crises than was the case when the mechanism of industry was less complex than at the present day. Recent crises have been world-wide in their influence, at least as wide. as the extension of the modern mechanism of industry and credit. This condition is not so much an evil as might at first appear. The spread of the disturbance over a wider area seems to mitigate its severity at any given point. The scarcity of food supplies or money at one point is rectified at least in part by the supplies of other parts of the world, and a surplus of goods on one market may sometimes be relieved by their exportation to another market. The prices of food products no longer fluctuate wildly as in the early days of the century, when adequate means of transport did not exist and there was no sympathy between national markets. In England, as recently as 1840, it was estimated by Mr. Tooke that a deficiency of one-sixth in the English harvest resulted in a rise of at least one hundred per cent. in the price of grain, and prices for grain varied nearly 100 per cent. at the same moment between England and Prussia, and more than 30 per cent. between England and Belgium. Such differences reacted strongly upon the prices, not only of food products, but of the articles from which the purchasing power of the community was diverted by the necessity of applying so much to the purchase of food. These differences are no longer possible under the modern system of transportation, which places the granaries

1 Vide "A History of Modern Banks of Issue," pp. 524, seq.

of the world at the command of any country within a few weeks and which determines to a nicety by the prices upon the produce exchanges, the relative inducements for sending products to one market or another.

While a crop-failure, therefore, has ceased to involve the menace to human life and the impairment of the world's resources which was once the case, it is not without effect upon economic conditions. If a given country is led under the law of marginal utility to devote its productive resources largely to paying an enhanced price for its food, it may be compelled to reduce its demand for other articles. The necessity for making heavy payments abroad for food products has influences upon the international money market which are revealed by the outflow of gold, the increase of discount rates, and the fall of the price of negotiable securities to a point which makes their purchase profitable on other markets. Such conditions, however, are not sufficient to invoke a crisis unless every other condition is ripe for the event.1 The economic equilibrium may indeed be partially maintained by the increased purchasing power of the agriculturists in those countries where there is no serious deficiency of food-products and whose products are sold at high prices to the countries where deficiency exists.

This interplay of the supplies of one producing country upon the markets of another illustrates the powerful influence of the modern organization of industry in mitigating the severity of crises, in spite of the extreme delicacy of the mechanism and its easy liability to derangement. The more complete the knowledge of business men becomes in regard to production and supply throughout the world, the wider the market in which goods may be marketed if they prove to be superfluous at a given point, and the more accurate the judgment which becomes possible under these conditions, the less is the danger that a disturbance of the

1 It was declared of the crop failure in England in 1879 that "no such disaster had befallen English agriculture within the memory of living men," and continental states, which usually exported wheat, had not raised enough to supply their own people."-Noyes, Thirty Years of American Finance, p. 55. But no crisis broke out upon European money markets, in spite of some exports of gold, and the chief effect of the heavy exports of wheat from the United States was to enable them to carry through successfully the resumption of specie pay

ments.