caused panic and a decrease in manufacturing industry and improvement enterprises. This diminished employment for labor and necessarily decreased the consumptive demand for all commodities. This again

caused still further cessation of industry and a further decrease of demand for commodities. Theorists have been jangling for three years about the cause of the reaction which began in 1872-3, and the decline of prices which has continued almost without interruption since. These causes are, however, not obscure. The progress of the physical sciences and of labor-saving inventions has undoubtedly had an important tendency to reduce the prices of nearly all manufactured articles and, to a small extent also, the values of raw materials. But the increased burden of debt, the increase of traffic (thus requiring a larger volume of the circulating medium), and the demonetization of silver, have all contributed to increase the value of gold beyond its equitable value as a measure for values of commodities.

The era of golden debt, like the era of gold, has had its culmination, and the causes at work now are preparing the way for some new era in financial affairs which will, in all probability, be as unique as either of the two which have preceded it. No man can yet foresee what it is to be. It is, however, not difficult to distinguish a few tendencies that must continue to operate toward the new development. The first of these is the decline in the rates of interest for money in order to reduce the burden of funded and mortgage debt everywhere. This will be accomplished partly by the repudiation and complete loss of a very large portion of the existing volume of funded debts, and partly by the concentration of capital (seeking safety rather than

high rates of interest) on a smaller amount of debt. Another tendency that must continue, is the necessity for supplementing the stock of gold in the world with the stock of silver, and a universal recognition of both metals as money at about the same relative values they maintained prior to the era of gold. Until these things are accomplished, "prices" will continue to decline and the commercial world will be in distress. A great war in Europe would afford temporary relief by creating an extra demand for commodities, partly as munitions of war and partly to supply new stocks in place of those destroyed. But this would neither reduce the burden of interest on funded debts nor increase the stock of gold or silver, nor in any way decrease the demand for the precious metals. On the contrary, some nations would be obliged to pay interest in gold on the cost of the war, viz.: the value of the property destroyed and the industry diverted from its proper channels. Thus while a great war would temporarily cause a rise in prices, this would only be a reason for their ultimately declining to a lower point than before the war. Financiers and statesmen have taken an exceedingly narrow-minded view of this era of debt. While they have not failed to call attention to the magnitude of debt, it has only been in a tone of reproach to the commercial and financial community for indulging in what has been termed an "inflation of credit." The truth, however, is that the greatest part of the present burden of debt was created by war. The four great wars since 1860 (viz.: the Italian, the Austro-Prussian, the American and the Franco-Prussian) increased the national, municipal and State debts of the countries involved about seven thousand millions of dollars, or over 30 per cent of the total

of present funded debts in the world. The increase of debt as the result of wars in the last sixteen years has been more than double the increase of debt from the expansion of the railroad system, and all other national and municipal improvements and enterprises in the same time. It is the war debts not the debts of excessive enterprise that have created the present burden of annual interest. It is war debts also that are represented in all the inconvertible paper money now afloat in the world. Now, it is not to be presumed that the "reign of peace" has begun, or that it will begin any time in the next hundred years. In the last quarter of a century great wars have averaged less than five years apart. The wars of this period, also, have been more largely financial contests than ever before in the history of modern civilization. It is a trick of capital in all countries to persuade the people that their honor is at stake in the payment of all these war debts at the highest valuation the avarice of the holders may set on them. But it is plain that a few years more of such war experience as the last sixteen, would place the burden of annual interest and the redemption of the paper money beyond the ability of the people. Indeed, with gold as the exclusive standard of values, it is extremely problematic whether "specie payments" could be maintained even in all the countries that do now propose to pay interest and redeem paper money in gold. The countries that propose to do this are Great Britain, France, Germany and the United States. The aggregate of paper money in these is about $1,700,000,000, and the total amount of gold does not exceed $1,600,000,000. Assuming that an average reserve of 50 per cent would sustain the present volume of paper money by con

stant daily redemptions—at par with gold, it would require that an aggregate of $850,000,000 of gold should be evenly and constantly distributed in all the countries. But with so small a stock, outside of banks and national treasuries, the movements of foreign trade would soon disturb this distribution of the metal and cause suspension again, in one country or another.*

Even if we state the problem upon a broader basis, it is equally difficult of solution, viz.:

Europe and North America are now using an aggregate of about $7,300,000,000 of gold, silver and paper money as mediums of exchange. Of this amount over $3,100,000,000 is paper promises to pay gold or silver. But on just about three fourths of this aggregate of over $3,100,000,000 of paper money, specie payments.

*Early in the current year (1876) the London Economist, referring to the situation of the Bank of France as compared with its position in 1860, said:

And here, just as in 1860, the principal component in the reserve is the comparatively appreciated metal. The metals have, indeed, changed places: in 1860 the metal which had augmented in value was silver; now the metal which has increased in value is gold. But the position of the Bank of France is, for the purpose now in hand, identical. It now holds an enormous amount of gold, which it would be dangerous to pay away; just as in 1860 it held a much smaller, though still considerable, amount of silver, to pay which would have been equally dangerous.

Of course, as long as the Bank of France suspends specie payments it does not feel this difficulty. If we may be permitted to say so, it is on a lower level altogether. It is not perplexed by the possibility of having to pay in the appreciated metal, for it does not, except in minor sums, and when it chooses, pay in any metal. But as soon as the Bank of France performs its legal obligations, the problem which the defective currency system of France sets before it must be solved. There is, indeed, one obvious mode of solving it. There is something very singular in a difficulty which is caused by holding a commodity which has enhanced in value. The obvious remedy is to sell it in the market and to obtain the advantage of that value. If the Bank of France could sell its gold for silver at the present price, it would get a large profit; it would have done a capital bullion transaction on a magnificent scale, and the shareholders would be large gainers in consequence. In 1860 the Emperor Napoleon, to whom the accounts of the Bank of France were then constantly submitted, would not permit the natural remedy to be tried, and, therefore, the Bank of France had to forego the profit, and to change away the dearer metal with the Bank of England. But now there can be no choice; the sums to be dealt with are so large that no such palliative by exchange can be thought of. If cash payments are to be resumed in France, large sales of gold for silver must precede and accompany it. And the effect of such sales will, of course, be to raise the price of silver as compared with gold. The circumstances of the Bank of France will make the possession of much silver constantly essential to it, and the effect of this new large demand will be a rise of price.

have been suspended for many years. Even if it were possible for Russia, Austria, Italy, France and the United States to acquire the coin with which to resume specie payments on their respective amounts of paper currency, the amount of coin that would be drawn into national treasuries for that purpose would cause a contraction of over 20 per cent in the aggregate volume of circulating medium in the hands of the people of Europe and North America. It is beyond reasonable doubt that such a change would cause a proportionate enhancement of the vast volume of war debts, which would be shown in the corresponding decline in the prices of commodities. It would require that the peace of Europe and America should remain undisturbed for at least ten or fifteen years before the industry of the people could produce wealth enough to pay off this increase in the burden of debt and so adjust the values of commodities and the value of money to the new basis. probability of such a peace is the measure of the improbability of the resumption of specie payments in all the countries where they are now suspended.

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