i . - 23 : i C ' : i: < ED E R 1 C K W A R N X C O FREDERICK WARNE & Co., PUBLISHERS. B PC D( R; BE BF BE Tl BI BEETO N'S BOOK OF GARDEN MANAGEMENT. Bedford Street^ Covent Garden. Frederick Warne & Co.^ Publishers. STONEHENGE'S RURAL SPORTS. NEW EDITION. In foolscap Sf0, price los. 6d. y half-bound^ A MANUAL BRITISH RURAL SPORTS. BY STONEHENGE. Embracing SHOOTING, HUNTING, COURSING, FISHING, HAWKING, RACING, BOATING, PEDESTRIANISM, and the various Rural Games and Amuse- ments of Great Britain. Illustrated 'with many Hundred Engravings. " Scarcely any of the conventional methods of pursuing sport in the country are left undescribed by STONEHENGE. We should say that every one who desires to understand how the most enjoyment can be extracted from life in the country upon visits to country friends, will be glad to be possessed of this full and solid volume, which may inform the most prac- tical sportsman, while it will help the least practised through a course of rural revelries, without the risk of being thought a cit or a hedge cock- ney." Athenaeum. * No one can doubt for an instant the utility and importance of out- door amusements in promoting health, and this alone ought to be suffi- cient to cause their encouragement. In an age like the present, when, in the struggle for precedence in the senate, the bar, or the haunts of com- merce, time is considered as of equal value with money, it can scarcely be wondered at, that many of the competitors in the race lose health, both of body and mind. Nothing enfeebles and lowers the bodily and mental tone more than an entire giving up of all the energies to one single pur- suit. The overworked lawyer or merchant, however, has only to bestow an occasional day upon any one of the various sports within his reach, and he speedily recovers himself, and instead of losing way in the course which he is pursuing, he is enabled to do more than make up the lost time which his absence has occasioned, by the increased vigour that his change of scene and occupation have given him." u Invaluable to all Sportsmen." Bell's Life. " The very best and most instructive work on British Rural Sports." Sporting Review. " The English Sportsman's vade-mecum." Illustrated News. " A complete, readable, and instructive book." The Field. Bedford Street^ Coven t Garden. Frederick Warne fef Co., P Mis hers. A VALUABLE WORK FOR EVERY AGRICULTURIST. In demy 81/0, price los. 6d. half-bound, 640 pp., THE FARMER'S CALENDAR. BY J. CHALMERS MORTON, AUTHOR or " THE PRINCE CONSORT'S FARMS," " THE CYCLOPAEDIA or AGRICULTURE," " FARMER'S ALMANACK," ETC. A systematic Work on Farm Practice, accompanied by Explanations and References to Theory when necessary ; but mainly and intentionally descriptive of actual Experience and Work in Field, Fold, and Farmery. It is fully illustrated with Wood Engravings of Buildings, Land Drainage, Machinery, and Plants. Mr. J. CHALMERS MORTON, from whose pen it comes, has long been well known as an agricultural writer, and by the description of Farm Practice in all parts of the country, which, during the last eighteen years, has been given in his paper, " The Weekly Agricultural Gazette" There is thus ample guarantee that the readers of this volume have not only the most trustworthy, but the latest agricultural experience laid before them in its pages. Amongst the GENERAL CONTENTS will be found 1. The whole work of all kinds of Farms is described in monthly succession, as step by step it occupies the attention of the Farmer throughout the year. 2. The Cultivation of all kinds of Soil their Drainage, Tillage, and Manuring. 3. The Cultivation of all Farm Crops food for man or beast in- cluding the lesson of actual experi- ence on the different varieties of each, and on the cultivation proper for each. 4. The Breeding, Rearing, and Feeding of all the Live Stock of the Farm, including a full account of the several breeds of Horses, Cattle, Sheep, and Pigs ; of their respective peculiarities and merits j of the Management required by each; the value of the different foods and processes employed in the meat manufacti're ; with in- formation on Marketing, Locali- ties, and Prices. 5. The Use of all kinds of Agricultural Tools and Machines for Hand-work, Horse-labour, and Steam-power respectively ; and the Economy of their employment. 6. The relation of the Farmer to the Landowner, the Labourer, and the Soil, including all ques- tions of Rent, Lease, Tenant's Rights, Wages, Permanent Im- provements of Land by Buildings, Roads, Drains, Fences, &c. j and its Current Cultivation by Imple- ments, Plants, and Animals, re- ceives full and systematic narra- tion. 7. The Influence of Weather, which overrides and influences all, is given in great detail, month by month, in reference to 30 or 40 stations in England, Scotland, and Ireland. Bedford Street, Covent Garden. THE MONEY MARKET. THE MONEY MAEEET: WHAT IT IS, WHAT IT DOES, AND HOW IT IS MANAGED. . C, v\ v ' * ST *AA-**- S ^ o -e v~\ V"M "" BY HENRY NOEL-FEARN, F.R.S.. LONDOX : FREDERICK WARNE AND CO. BEDFGED STEEET, COVENT GARDEN. 1866. H SAVILL AND EDWARDS, PRINTERS, CHANDOS STREET,. TO HENEY SYKES THORNTON, ESQ., M.A., F.R.S., THIS SMALL VOLUME OX A GREAT SCIEXCE AS A MARK OE ESTEEM AND REGARD. M. 9365 PREFACE. BUT few words can be needed by way of preface to so small and unpretending a work as this. Its object is to familiarise the public mind with the first principles of monetary science, to render the " City Articles " in our newspapers intelligible to the general reader, and by showing that its diffi- culties are more imaginary than real, to do some- what towards cultivating a taste for the science itself. In all commercial schools, at least as much as this book contains ought to be known ; and it is a matter of just reproach to us as an educated nation, that political economy, of which monetary science forms one of the most important branches > is so little studied. H.N.F. LONDON, June, 1866. CONTENTS. CHAPTER I. THE TEEMS MONEY CURRENCY THE MONEY MARKET, &C. &C.. What is a Pound ? Terminology Meaning of the Terras Money, Currency Money of Account William the Conqueror Difference between Money and Currency Value and Price pp. 1 7 CHAPTER II. ORIGIN AND VARIETIES OF MONEY BARTER COINAGE. Ancient Money The Patriarchal Age System of Barter Exchange Difficulties Use of Bullion Invention of Coinage Lydian Coins Names of Ancient and Mo- dern Money Coinage of Athens Modern Coins Base Coinage pp. 8 20 CHAPTER III. OP PAPER-MONEYCREDIT COMMERCE AND ITS NECESSITIES. Advance of Commerce Features or a New Era Navigation and Discovery Transfer of Debt Bills of Exchange Mercantile Credit Public Credit Theories of Commerce Paper Money Convertible and Inconvertible Currency Imports and Exports Balance of Trade . . pp.21 36 X CONTENTS. CHAPTER IV. BANKS AND BANKING PRINCIPLES AND PRACTICE. Origin of Banking Seizure of Money by Charles I. Why Banks Fail Early Theory of Banking How Enlarged What Business is Proper for a Banker Frauds and Failures Anecdotes '..... pp. 37 50 CHAPTER Y. THE BANK OF ENGLAND AND ITS CHARTER. 'Origin and Objects of the Bank of England Its Early Success Suspension of Cash Payments The Restriction Act Lord Stanhope's Act Peel's Act of 1819 Ditto 1844 Con- vertible and Inconvertible Currency .... pp. 51 G7 CHAPTER VI. NATIONAL DEBTS OR OBLIGATIONS ENGLISH AND FOREIGN. How National Debts arose Illustrated by Examples Questions to be Solved National and Governmental Obligations Case of Prussia Case of Virginia Case of Greece Sup- posed Beneficial Effect of a National Debt The Case Ex- amined pp. C8 82 CHAPTER VII. PUBLIC FUNDS CONSOLS EXCHEQUER BILLS, ETC. The Funds Consols Other Government Stock The Unfunded Debt Mediaeval Loans Revenue Anticipated Irredeem- able Debt Acts of Consolidation Perpetual Annuities Dr. Price's Opinions Variations in the Price of Stocks- Causes of such Variation pp. 83 'j a CONTENTS. xi CHAPTER VIII. OF THE STOCK EXCHANGE BROKERS JOBBERS, ETC. History and Business of the Stock Exchange Mode of Transfer Brokers, Jobbers, and Speculators Bulls, Bears, and Lame Ducks Time Bargains High Character of the Stock Exchange Nature and Manner of Gambling Tragedy of the Money Market pp. 94109 CHAPTER IX. PRINCIPLES OF COMMERCE FREE TRADE AND RESTRICTION. Freedom of Commerce Instances of Necessity of Taxation Employment of Duties Retaliative Duties Protective Duties Chili Stockings Corn Laws How to be under- stood Competition Rent Colonial Produce Commerce to be entirely Free pp.110 121 CHAPTER X. OF JOINT-STOCK COMPANIES AND LIMITED LIABILITY. Necessity of New Legislation Meaning of the term Comrnandile Equity of the New Law Real Liability Large and Small Shares Lord Overstone's Opinion Progress of the Prin- ciple Early Opposition Joint-Stock Banks Their Lia- bility pp. 122135 CHAPTER XI. DISCOUNT AND FINANCE COMPANIES. Nature of Discount Companies Nature and Origin of Finance Companies Their vast Designs - Examples from the Turkish Empire Danger of distant Enterprises Perils of Finance Companies Aid to Railways Prospects of the Prin- . ciple pp. 136148 xil CONTENTS. CHAPTER XII. PANICS AND THEIR CONSEQUENCES. Nature of a Panic Various Causes Operations for the Fall Bank Failures How Caused Hints to Shareholders Effect of Wise Conduct on the part of the Public Maxims of the late Duke of Wellington Description of a Panic pp. 149169 CHAPTER XIII. HOW THE NATIONAL DEBTS ARE TO BE PAID. Necessity of the Payment Taxation How to be Arranged Direct and Indirect Argument in favour of Each Income Tax Excise and Customs Balance in favour of Taxation, partly Direct and partly Indirect .... pp. 170 17S CHAPTER XIV. GREAT FINANCIAL FAMILIES. Great Financial Families The Houses of Coutts Payne and Smith Jones Loyd Lord Overstone The Barings Lord Ashburton The Rothschilds Original Name Amschel Origin of the name Rothschild Nathan Rothschild. pp. 179192 CHAPTER I. THE TERMS MONEY CURRENCY THE MONEY MARKET, &C. &C. What is a Pound ? Terminology Meaning of the terms Money, Currency Money of Account William the Conqueror Difference between Money and Currency, Value and Price. THE late Sir Robert Peel startled the House of Commons into a remarkable confession of uncon- scious ignorance, by asking the apparently simple question " What is a Pound ?" It is probable that a great majority of persons considered well educated would feel as much embarrassed were they asked What is money ? and what is meant by the Money Market ? They imagine that they are acquainted with all that is necessary on the subject, and are not aware how little they do know, till they come to take their knowledge to pieces. Of all sciences monetary science has been branded as at once the most dry and the most difficult, and the notion thus formed has deterred thousands from attempt- ing its study. Yet the elements of the science are singularly interesting. To trace the causes which B 2 WHAT IS MONEY? have led to the civilization of the world, to the greatness,* of nation^': the comforts and con- veniejice.s of life^ cannot but, be a fascinating em- ployment f iancf likkalLfctheay sciences, as its interest increases its difficulties diminish. To prosecute this study with success, we must first clearly ascertain the real meaning of the terms in use. Half the difficulties which ha,ve agitated mankind have derived their origin from neglect in doing this. We shall commence this treatise, therefore, by explaining its terminology. Money is a term applied, in the first place, to the circulating medium. Thus in our own country gold, silver, copper, and bank-notes are called by this name. In the second place, it is used to ex- press whatever may be the representative of value or property, such as mercantile securities ; and thus an individual may be said to be " a monied man/' when what is meant is that he is a rich man, whose resources represent money, and can be converted into it at his pleasure. On the other hand, we should not apply the term to a man whose lands were extensive, or who was the master of many flocks and herds. Money, therefore, is a general term, signifying the circulating medium, or anything representing it. The word " currency" differs from money in extent WHAT IS CURRENCY? 3 it signifies that which is accepted in any district as its circulating medium, its instrument of purchase and sale ; and as that which is so accepted in one district is declined in another, " currency" is a more restricted term than "money :" it implies that which is subject to changes, to the operations of law and national custom. Thus, a Greek drachma or a Roman denarius will be a piece of money so long as it exists, but it is no longer currency. The authority which made it current or, in other words, enabled it " to run" has passed away, New rulers have superseded it, and have stamped other pieces to fill its place. Hence we have no word bearing the same relation to " currency * that " monied" does to money. There is yet another use of the word which is a relic of the barbarous ages of commerce. We still hear of ei money of account/* This is when the currency of a country and the mode of keeping accounts adopted by its merchants do not cor- respond. But we cannot call that money of ac- count which, though it does not exist as a coin, is yet in accordance with the monetary system of the country. When William the Conqueror intro- duced into England the mode of reckoning by pounds, shillings, and pence, he did not introduce a mere money of account, because, though there * B 2 4 MONEY OF ACCOUNT. were indeed neither pounds nor shillings, yet the penny, the only coin, was of such weight that two hundred and forty made up the Saxon pound, and twelve, therefore, the Saxon shilling. This was a convenience for reckoning, and nothing more. But where the terms and system of an obsolete coinage are retained, and accounts are kept in ac- cordance with it, and the circulating medium is modern as if English merchants employed pounds, shillings, and pence in actual payments, but kept their accounts in marks and nobles then we have that which is with strictness called money of account. The mark " hils" that is, the mark of Lubeck, 14ff/. of our money in the terms of which accounts are kept in Hamburg, is a case in point ; and there is more intricacy in these accounts and in settling the rate of exchange between Hamburg and other countries in consequence of this relic of barbarism. Indeed, the whole German currency is a puzzle for the unpractised a puzzle as intricate as the money itself is dis- agreeable. " THE MONEY MARKET/' again, is a term which sometimes occasions a great amount of perplexity to the uninitiated ; for, to those who consider money solely as the instrument by which purchases THE MONEY MARKET. 5 and sales are effected, to buy or sell money must appear an unintelligible expression. We must bear in mind that time and distance are elements in our calculation. Thus, I have a promissory note from A. B. to pay me 100 at three months' date. I want the money now. I luy it, therefore, with A. B.'s note; and the difference between 100 and the sum I receive for the note is the price I pay for the accommodation. On the other hand, the purchaser or " discounter" of the note buys with a sum of money short of 100 the right of receiving 100 at the end of three months. Here time and money are the elements of the transaction. In like manner, I may introduce the element of distance. With 105 I may bargain, at a certain date, to receive 110 at Madrid. The money market exists, therefore, wherever monetary transactions are carried on, and the term signifies the rationale of such transactions over the whole mercantile world. When money is abundant, the market is said to be " easy ;" when it is scarce, the market is " tight" It is affected by peace and war, by diplomacy and politics, as well as by commerce; and it affects in turn public and private credit ; mercantile and individual inte- rests. It aids or hinders enterprise, and is, gene- rally speaking, the gauge of commercial prosperity. 6 VALUE AND PRICE. Two other terms, of an abstract nature, require a few words of explanation ; these are " value" and " price." Value, as a term in ordinary use, implies utility ; a thing is valuable according as it is useful. Air, fire, health, life, energy, morality, are valuable, because without some of these we cannot live happily ; without others we cannot live at all; but they are of no direct value in the money market, where the term is solely used in the sense of that market. If a man could sell his share in the July sunshine, or his right to breathe the common air, then these would have ' c value" that is, they would become marketable and sus- ceptible of price. " Value/' then, is the worth of anything expressed in monetary terms ; and "price," the amount realizable at any given time. Com- modities are frequently sold above, and frequently below, their value. I select, as an instance, Spanish bonds. The real value of these instruments is very difficult to ascertain ; it depends on many con- tingencies. I incline to rate it highly. The im- mense resources of the country, the general tone of feeling in the Spanish nation, the probability that the Spanish Government will have to apply to the European markets for loans and those of consider- able extent and the certainty that this can only be done successfully by a nation which keeps faith SPANISH BONDS. 7 with its creditors, induce me to form this opinion as to the value of these bonds. Their price is, however, very low much under their nominal value. We shall now proceed to consider the nature and value of money. CHAPTER II. ORIGIN AND VARIETIES OF MONEY BARTER COINAGE. Ancient Money The Patriarchal Age System of Barter Ex- change Difficulties Use of Bullion Invention of Coinage Lydian Coins Names of Ancient and Modern Money Coinage of Athens Modern Coins Base Coinages. THERE are few questions connected with political economy more surrounded with difficulties than what is called the " currency question/'' and there are few about which greater errors prevail. Of these, one of the greatest, perhaps the greatest of all, is that which confounds wealth with money an error all the more serious from its almost uni- versal diffusion. A little attention to the etymo- logical meaning of words would help us greatly in this and many other matters. Wealth is a Saxon word, and signifies that which consitutes our well- ' O being. We speak of the commonwealth, or common weal, which is a more comprehensive term than the Roman res-pvMica, and applies not only to the pos- session, but also to the happiness of the body THE CIRCULATING MEDIUM. 9 politic. Another phrase shows us that the opposite of weal or wealth is not poverty, but woe. Riches and poverty are correlative terms, but wealth and poverty are not so. But neither may riches be confounded with money, nor the want of money be considered synonymous with poverty. What, then, is money ? Money is the circulating medium. It may be gold, silver, and copper, as in civilized Europe ; it may be tin, as in the Birman empire ; it may be shells, as on the coast of Africa ; or it may be salt, as in the interior of the same conti- nent ; but whatever form it may assume, it is the current representative of value. Were there no such thing as money, all the products of the earth would have to be bartered one for the other ; the division of labour would be all but impossible, and trade could hardly exist. Let us take a familiar instance: A boat- builder has constructed a boat; he wants boots ; a bootmaker can supply him with boots, but he does not want the boat, which is all the builder has to offer, nor does the builder re- quire so many boots as will make up the value of the boat. Both, then, must wait till they find other parties with other goods, by means of which, through a series of barters, the builder may dis- pose of his boat and obtain his boots. Now, all this is done by a simple transaction when money 10 MEASURE OF VALUE. is used. It acts, in the first place, as a universal measure of value; so that, instead of saying one boat is equal to thirty pairs of boots, and one leg of mutton is equal to ten and a half four-pound loaves, we say the boat is worth 30 sterling, the pair of boots is worth one pound, the leg of mutton is worth seven shillings, and the four-pound loaf is worth eightpence; secondly, it renders ordinary barter needless, for the boat-builder is able to sell his boat at once to the person who requires it, and with the money to buy boots, and whatever else he requires instead. Yet this is but a new and more convenient kind of barter, after all; instead of obtaining bread, meat, boots, coats, and a cottage, directly in exchange for so many boats, he obtains a certain amount of silver and gold, which in his turn he barters for the necessaries of life. Or, to take a step deeper still, the money is a common measure, which, in the great division of productive labour, enables him to barter his own for that of his fellows. The necessity of some kind of currency would arise in a very early state of civilization. The di- vision of labour would require some measure of value ; this must soon become a common measure, and actual barter would speedily take a more com- plicated but more convenient form, by making this THE PRECIOUS METALS. 11 common measure to serve as a circulating medium. Mankind was not long in deciding that the pre- cious metals formed by far the most convenient material for such a medium ; they are subject to little fluctuation of value : they are durable, ex- tremely divisible,, and of small bulk ; they readily take and long retain the impress of any stamp made upon them, and thus may easily be rendered repre- sentatives of any amount of current value. A^ain, they are not a merely fictitious standard ; the coin which I call a sovereign, does not derive its value solely from the amount at which it is fixed by the Government ; for if I melt it, or cut it in pieces, I can procure with it nearly as much of any com- modity. It is intrinsically worth what I buy with it, and the same may be said of all the coins of this realm j they are, in fact, valuables, capable of being bartered for other valuables, and by their divisions and subdivisions, extremely convenient for the pur- pose. The civilization of Egypt was the first, so far as we can discover, which adopted and enjoyed the inevitably beneficial results of this expedient. Com- mercial dealings gradually became smaller in the individual transaction, but larger on the whole, as men were gathered into cities, and the division of labour more complete. Rings of gold and silver. 12 EGYPTIAN CURRENCY. adjusted to a certain weight and fineness, and strung on cords by certain numbers, supplied for ages the requisite currency. These rings saved all the trouble of weighing and dividing; they could be made small enough for daily purchases, and so far possessed all the advantages of a coinage pro- perly so called ; but on the other hand they might- be easily counterfeited, and their weight and quality had to be taken on the authority of him who offered them. The touchstone and the scales were occasion- ally necessary, and all purchases seemed to require the weighing as well as the counting of the rings ; thus much we gather from Egyptian monuments. Caesar, describing the currency used in Britain before his invasion, speaks of rings graduated to a certain weight as forming an important part of it. He mentions indeed only iron as so used ; but, as in Ireland, gold and silver rings, very carefully adjusted as to their weight, have been found in considerable numbers, and as it appears certain that they were used as currency, it seems most probable that such was the case also in our own island. To this day small bars of silver, bent into a half circle, and called fish-hook money, pass cur- rent in Ceylon ; these, however, are stamped with certain Cingalese characters, and are always of the same weight (68 grains) ; so that they are in fact NAMES OF MONEY. 13 coins, and only differ from those more commonly used by the peculiarity of their shape. The names given anciently to money are very suggestive ; some indicate weight or quality, and others value or wealth. The earliest with which we are acquainted occurs in the book of Genesis, xxxiii. 19, where Jacob is said to have bought a part of a field from the children of Hamor for a hundred pieces of money ; bufc the word used has been translated " a laml" Coined money was not in use for many centuries later ; and the question raises whether the bullion was marked with the figure of a lamb, or whether lambs themselves were the medium of barter. The same expression occurs in the book of Job, xiii. 11, where friends are described as giving him each one a " lamb/'' or " a piece of money" so marked ; but the word there used, " kesitali" signifies a portion, and the whole argument as to the stamp of a lamb thus falls to the ground. There is, however, nothing improbable in "portions" of silver having such a stamp, and being called by such a name, just as, in subsequent periods, we find masses of lead or iron cast into the shape of a pig, and called respectively pigs of lead or iron. The kesitak, as a coin, belonged to Cyprus, and was not struck till B.C. 450. The Uoman pecunia, signifying cattle, did certainly in- 14 DENOMINATIONS OF COIN. dicate the patriarchal condition, in which the wealth of the rich consisted in flocks and herds; and some of the earliest pieces are, in consideration of this, marked with an ox. Money is derived from t'monereS* to advise or instruct an etymology less obvious than the rest. It arose from a tradi- tion that the first coins were struck in the Temple of Juno Moneta or the adviser. The shekel is a weight, from sakal, to weigh ; the stater has a similar meaning, as also has the drachma, with its multiples and divisions ; but the original meaning of drachma is a handful, six oboli being considered a handful, and going to make up the drachma. The ololus is a small spike, or nail. In modern times, the terms cash, rapp, doit, stiver, used to re- present money in general and in the three last cases very small sums are, in fact, names of coins all extant. The words gold, silver, brass, tin, have in all languages, and in all ages, been used with more or less elegance for money, as indicating the material of which the circulating medium was composed; and the devices on coins have served to give denominations to pieces, apart from their actual value; thus we have the crown, the sovereign, the noble, the rial, the ecu, or shield, the lion, the eagle, and of old, the owl, the tripod, &c. ANCIENT USE OF BULLION. 15 The pecuniary transactions recorded in the Bible were all, we can scarcely doubt, effected by means of bullion, the shekel being simply a recognised weight. One remarkable proof of this will be found in the history of Joseph. On the return of his brethren from Egypt, each man, on opening his sack of corn, found his "bundle of money" Gen. xliii. 21, in the mouth of his sack. The pictures in Sir Gardiner Wilkinson's work on Egypt show, as we have already seen, that the " bundles" of money consisted of rings of silver or gold tied together ; and that this custom, or some- thing analogous to it, continued till after the captivity, is plain from the words of Jere- miah, xxxii. 9 : " And I bought the field of Hanameel, my uncle's son, that was in Anathoth, and weighed him the money, seventeen shekels of silver." At this time, however, there can be little doubt that coined money was beginning to find its way into Jerusalem. These passages and several others seem to indi- cate that silver, ready cut and weighed, furnished the currency of the Israelites during the long period comprehended between the time of Abraham and that of Saul, and that, for a considerable time after, no great change took place, is equally clear ; but at what period coined money was introduced 16 REQUIREMENTS OF COMMERCE. it is difficult to say. Up to the time of Saul the value of men and cattle seems to have been com- puted in "pieces of silver." Gold was probahly reserved for personal ornament. Thus we find Pharaoh casting a gold chain round the neck of Joseph ; and we hear of jewels of gold, as well as jewels of silver, among the "spoils" which the Israelites brought away from their Egyptian cap- tivity. Of gold used as money we have only one early instance recorded in Scripture, and that as late as the time of David : " He bought the thresh- ing-floor, cattle, and agricultural implements of Oman, the Jebusite, for six hundred shekels of gold, 'by weight,' " 1 Ch. xxi. 25. It must, how- ever, be borne in mind that the transaction is differently related in the second book of Samuel, and that the price paid for the threshing-floor and cattle is said to be fifty shekels of silver, 2 Sam. xxiv. 24. The exigencies of commerce soon required a currency which might pass unquestioned, might admit of subdivisions minute enough to serve for the smallest purposes, and might render imitation, if not impossible, at least a diffi- cult achievement. The common sense of man- kind -point out that sovereignties alone, how- STATE RIGHTS. 17 ever constituted, could exercise advantageously the right of striking coins on this principle, and that the security of the public required that it should be committed to no other hands. The piece of metal stamped with the symbol indicating the recognised authority of the State would, as a matter of course, pass unquestioned within the limits of that State, and the counterfeiting it would be severely punished. At the same time, there must be a close approximation between the actual and the nominal value; if the coin be worth much less than it claims to be, it will, in spite of all penalties, be extensively counterfeited, even in fine metal. If it be worth a little more, it will speedily disappear from circulation. And this approximation must be very close indeed if the coin be intended to circulate beyond the State in which it is struck. Thus, the early Athenian silver currency passed not only all over Greece, but round all the shores of the Mediterranean. And when the growth and progress of art made the home coinage of Athens so beautiful that it has never yet been equalled, the pieces intended for foreign circulation were obliged to be struck in the same rude archaic form in which they had at first obtained the confidence of barbarous nations. It is a singular circumstance that, to satisfy a c 18 EARLY COINAGES. similar requisition in Africa and the remote East, dollars are struck in Spain and Austria bearing respectively the dates and portraits of Charles III. and Maria Theresa. The early materials for coins were gold, silver, and electrum a beautiful metal, formed by a mixture of gold and silver. It seems at first to have been a natural amalgam and afterwards made by art. Coined metal was probably an invention of the Lydians, though there is necessarily a considerable doubt on the subject, Herodotus gives the earliest gold coinage to that people, and we hear of no other coins till a much later period. Pheidon, of Argos, according to the Parian Chronicle, first coined silver in the island of ^Egina. But the date of this is very uncertain ; according to the marble at 895 before Christ; according to Bockh, Clinton, and Miiller, from 783 to 744; and according to Grote from 770 to 730. If we take the first of these periods, and suppose Pheidon to have been the inventor of coinage, then the art will be coeval with the reign of Jehoshaphat ; if the last, with that of Hezekiah. The question of priority between Lydia and Greece is one which is never likely to be accurately decided. We, however, judge the earliest coins extant to be of about the eighth century be- BASE COINAGES. 19 fore the Christian era. Whether of gold or silver, they are mere shapeless lumps of metal, having on the obverse some design more or less rude and archaic in character; and on the reverse,, one or more cavities, being the impression or impressions of a punch. It is by no means improbable that Croesus struck gold coins, and that some of the gold coins found about Sardis may be the coinage of that wealthy monarch. These were called staters, from a Greek word signifying "a standard/ 3 and the term was afterwards applied to all coins in gold of the size and weigh o corresponding to the drachma, and in silver to the tetra-drachma. It will be unnecessary to dwell longer on the de- nominations of coin, and its employment in ancient times ; a few words on the base coins of modern Europe will conclude this chapter. Faith has not always been kept with the public in the matter of coinage. In many countries the currency has been depreciated to an extent disgraceful to the govern- ment which perpetrated the fraud, and to the age in which it was tolerated. In our own country, the reigns of Henry VIII., Edward VI., and Mary were signalized by this barbarous and dishonourable expedient. Elizabeth, while she abolished it in England, continued it in Ireland, but from the time of James I., the currency of this country has 20 GERMAN SILVER. always been of good metal, as it was from the first coinages of the Anglo-Saxon kings to the latter end of the reign of Henry VIII. The condemnation which we apply to this miser- able expedient, is not shared by those coinages of mixed metal which yet prevail in Germany, and some other parts of the continent of Europe. They are dirty, greasy, and unpleasant, both to the touch and the sight, but they are not dishonest; they do not pass for silver ; they are ugly, however, and in- convenient, and the sooner they are " reformed " away from the face of the earth, the better for all concerned. CHAPTER III. Or PAPER-MONEY CREDIT COMMERCE AND ITS NECESSITIES. Advance of Commerce Features of a New Era Navigation and Discovery Transfer of Debt Bills of Exchange Mercantile Credit Public Credit Theories of Commerce Paper Money Convertible and Inconvertible Currency Imports and Exports Balance of Trade. WHEN the great step had been taken of establish- ing a metallic currency, it seemed as if all the possible requisitions of commerce were provided for, and for a while, indeed for many centuries, nothing more was needed, but as in process of time the necessities of trade advanced, as distant lands were brought within the sphere of mercantile opera- tions ; more especially after a way had been found to India, round by the Cape of Good Hope, and America had been added to the dominions of trade, the old modes of communication proved insufficient. It will be clear too, that contact with an older, though more imperfect civilization, must have had some effect on the commercial operations of Europe. India and China exercised their influence in this 22 PORTUGAL, SPAIN, AND VENICE. way, while the impulse given to enterprise and specu- lation was increased tenfold by the Reformation, and the invention of printing. The whole world was wakened up to the life of a new era, and Portugal, Spain, and Venice took the lead in the mercantile operations of the rising age. Then it was that paper-money was felt to be the currency which the time required. Book-keeping became a science, and commerce assumed her due place in the agencies of civilization. The first and simplest operation, according to the new system, was the transfer of debt; the making a simple acknow- ledgment of a debt from A to B, a negotiable instrument. It is impossible to say at what time this simple transfer became common ; isolated instances must have taken place at a very early period ; but it required a large commercial commu- nity, of which the chief members were well known one to another, to make what may be called a credit circulation possible. The purchase by gold or silver is a reliance on the actual wealth of the individual, and in point of fact, is but a barter of one commodity against another of equal value, but more convenient bulk ; but if A says to B, I will give you an ac- knowledgment of my debt to you, and will pay you at the end of three months, and in the mean- TRANSFER OP DEBT, 23 time you can transfer the acknowledgment to another person, and thus have the same advantages as though I had paid you ; we have the introduction of a new system. Now, if under these circumstances A is suffi- ciently well known to make his acknowledgment of equal value with the actual sum, we have all that is required, so far as he is concerned, to esta- blish a paper currency. There are hundreds and thousands of men so thoroughly known in all com- mercial circles at the present time, that their acknowledgments would pass through the mer- cantile world as money. The general credit of all these collectively, makes up what is called mercan- tile credit add to this, faith in the honesty of governments and the resources of nations, and we have what is commonly denominated public credit. The common system of shopkeeping is one of the simplest forms of ordinary credit ; it is very ancient, and is hardly susceptible of much im- provement. It is inconvenient for those who require continual but moderate supplies to pay cash for all the small articles they want at the time of sending for them ; it would be still more inconvenient to be obliged to purchase in large quantities. Thus the shopkeeper became a distri- butor and at the same time a creditor, and the 24 SIMPLE FORMS OF CREDIT. consumer a debtor, the profits of the shop in the first place being measured by the difference be- tween the wholesale and the retail prices of the commodities dealt in. The shopkeeper therefore sells his time and labour, and expends capital in the keeping up of his shop and in all the minor expences connected with it, receiving the above- named difference as his payment, and setting the credit given by him to his customers, and that re- ceived by liim from manufacturers and wholesale dealers, the one against the other. From this simple form of credit we advance up- wards till we come, by easy transitions, to opera- tions involving millions of money, and the names and reputations of the greatest capitalists. On this public credit the members of the mer- cantile class draw, and on the whole the system is found to work well, to supply all the requisite facilities for carrying on the world's business, and to be accompanied by (comparatively speaking) so few failures, as not to give cause for any harassing suspicion. It is understood that honesty is the best policy, and most men know that others understand it to be so. Frauds, forgeries, and failures always will occur, but their proportion is small compared with the amount of bond fide busi- ness, and the best authorities are of opinion that the IMPORTANCE OF PUBLICITY. 25 proportion is rather on the decrease than other- wise. Indeed the great advance in the means of communication which modern times supply is in itself a hindrance to fraud. Science is employing its powers as well to repress as to forward it, with this difference, that the effects of science in this respect are permanent for good and transient for evil. Newspapers, the telegraph, photographs, and many other ways of conveying intelligence, are every day more and more used. Publicity is recognised as one of the chief requisites of commerce. The value of a bill bearing the names of Baring or Rothschild depends upon the actual solvency of those capitalists, but its useful- ness depends on the general knowledge which mercantile men have of their solvency. Were a series of misfortunes to occur to a man of such a class, so far as these misfortunes were extensively known, so far his credit would suffer and his bills be less negotiable ; yet it might be that every one of these instruments would have precisely the same real value, and be paid at the time when it became due without the slightest delay. A credit circu- lation requires constant publicity, and can only exist where the fullest liberty of communication exists likewise. The old notion of commerce was, that it consists 26 ANCIENT VIEW OF COMMERCE. ill knowing how to buy as cheaply and to sell as dearly as possible, and this required little commu- nication among nations. The price of an article was made to depend on the need of the buyer and the greed of the seller, and nothing else was taken into consideration. This notion even still prevails in the East ; and though more lofty and scientific principles are slowly making their way among the honest Turks and the crafty Chinese, the intel- lectual Hindoos, and the versatile Persians, still the ancient principle or no principle governs the majority, and will take many years still to root out. But commerce in civilized nations is regarded from a totally different point of view it is no longer the mere art, or rather " knack," of buying cheap and selling dear. It is a great science the object of which is to take all the productions of nature, and to distribute them over the surface of the globe or, as a well-known writer has expressed it, to take the various gifts of our common Father, and distribute them among His great human family. A very good definition declares it to be the science of distribution. Regarded under this aspect, credit becomes an important part of commerce, and with- out this, commerce would soon go back to metallic payments and barter. It is by credit alone that BILLS OF EXCHANGE. 27 trade can be freely carried on between distant nations ; and the less necessity there is for bullion, the more rapidly and more easily are its objects accomplished. The great instrument of modern commerce is the Bill of Exchange, and this is described as follows by Mr. Gilbart : A bill of exchange is a written order from one person to another, directing him to pay a sum of money either to the drawer or to a third person at a future time. This is usually a certain number of days, weeks, or months, either after the date of the bill, or after sight ; that is, after the person on whom it is drawn shall have seen it, and shall have written on the bill the word " Accepted" and his name. If the bill be drawn after sight, he also writes the date of the acceptance. Besides their utility as a means of transferring money from one place to another, bills have the following advantages : They are a means of transferring debts from one person to another. If I owe a man ^lOO, and another man owes me ^100, I will draw a bill for that amount on my debtor, and give it to my creditor. I have thus transferred the debt from my debtor to my creditor, and my own debt is liquidated. My debtor, instead of paying me the 28 OPERATION OF BILLS. money lie owed me, will pay it to the holder of the bill. My creditor will now look for payment to my debtor, and consider me simply as a guarantee for the payment of the bill. If he wishes to make use of the bill, he will again transfer the debt to another party, placing his own name on the bill as an additional guarantee. The bill may thus pass through a variety of hands and liquidate a great number of debts, before it be- comes due. When due, it will be paid by the acceptor who was the original debtor, and all these intermediate transactions will be closed. Bills fix the period for the payment of debts, and in case of litigation they afford an easy proof of the debt. A person will have little scruple in putting off a tradesman to whom he owes money, and the creditor dares not be urgent, lest the debtor should no longer deal with him ; hence the time of payment can never be calculated upon with certainty. But if the customer has given a bill for the amount he owes, that bill will circulate into the hands of other persons who will be more peremptory in demanding payment, and whose applications cannot be disregarded with impunity. Bills afford an easy mode of giving a guarantee. A person may wish to borrow money of me, and I may be unwilling to lend it to him, unless he pro- ANECDOTE ABOUT KITES. 29 cure a more wealthy person to guarantee the re- payment at a given time. If he has a friend that will do this, the most easy way of effecting the guarantee is by means of a bill drawn by the borrower upon his friend. This, in point of se- curity, is the same thing as a letter of guarantee; but it has also this additional advantage, that if I should want the money before the time fixed for its repayment, I can get this bill discounted, and re- imburse myself the money I have advanced. Bills of this description are called accommodation-bills, or wind-bills, or kites. When employed only as a means of affording occasional assistance to a needy friend, or for raising a sum of money for a short time, to meet an unexpected call, they do not appear to be very objectionable. But when syste- matically pursued for the purpose of raising ficti- tious capital whereon to trade, they uniformly indicate the folly and effect the ruin of all the parties concerned. A curious anecdote is related of an eminent judge recently deceased, illustrative of these terms. When yet a junior, he had to refer to some ques- tionable proceedings of this kind, and observed : "Now, gentlemen of the jury, the unfortunate defendant had been amusing himself by flying kites." 30 FLYING KITES. " Doing what?" interrupted the judge. " Flying kites, my lord putting his name to accommodation-bills." "Why are they called kites?" inquired the judge. " Why, my lord, as in the case of schoolboys' kites, there is a connexion between the kite and the wind only there the wind raises the kite, and here the kite raises the wind." But all this indicates that the paper or credit circulation is convertible, that the notes or pro- mises are promises to pay at a given time and in metallic currency. If the gold be not forthcoming, or is not supposed to be forthcoming at the ap- pointed time, the bill is not negotiable, and becomes a mere piece of waste paper. The next step, therefore, in the progress of monetary science is to establish a currency which shall actually take the place of money shall be independent of the per- sonal credit of individuals, and shall be payable on demand. This so far approaches an incon- vertible currency, that it may be made a legal tender that is, not to be refused when offered for payment. No man can be compelled to accept payment for his rent in bills of the first merchants on ' Change, but if bank-notes are offered he must be satisfied. Yet these bank-notes are but pro- USE OF BANK NOTES. 31 mises on the part of a company of merchants to pay, on demand, the sum which they represent. The persons who would refuse to accept a bill on Rothschild as money, will gladly receive notes for which a company are responsible, not one member of which has half the wealth of the great Hebrew. In fact, law and custom have made the note cask, the bill is only so among those who know the enormous capital of the issuer. The new principle is applied as follows : I give my tailor, in exchange for a suit of clothes, a piece of fine paper, the intrinsic value of which is too small to be easily expressed, and he not only accepts this, but gives me in addition to my suit of clothes many pieces of intrinsically valuable gold and silver. How is this ? The paper is a bank- note, and the tailor knows that by presenting it to its issuers, he shall receive as many sovereigns as it is stated to be worth ; it is, in fact, a token or pledge, and its value must manifestly depend upon the credit of those who issue it. Were it known that the Bank could not redeem it, it would no longer have any marketable value ; if any doubts arose on the subject, and these doubts could not at once be satisfied, it would be depreciated in proportion ; it is a promissory note payable on demand. The ad- vantages of a paper currency are, its portability 32 THE BALANCE OF TRADE. and convenience of transmission, and its enabling large masses of specie to be advantageously en- joyed in other directions. A paper currency is of two kinds, convertible and inconvertible ; it is con- vertible when those who issue it are bound to exchange it for specie on demand ; and it is in- convertible when they are not so bound. An in- convertible currency prevailed for many years in this country ; but, after many struggles and much discussion, the principle was abandoned as an unsound one, and the convertible paper sub- stituted. The arguments on both sides would require too much space to be admissible in an elementary book like the present, and may be found, more- over, considered at length in Mill's " Political Economy." We come now to the consideration of what used to be called " the balance of trade" This theory taught, as an axiom, that the advantage of foreign commerce lay chiefly in exports ; and that in proportion as these exceeded the imports, in like manner the country became rich ; just in the same way as a man who sells much and buys little accu- mulates money. But this fallacy depends on that already noticed, that money is wealth ; were this the case, any government might become rich ad FOREIGN BUSINESS. 33 libitum, by simply increasing an inconvertible paper currency ; but such a government would be soon taught that " The value of a thing Is just as much as it will briug," and that they could not grow rich by multiplying money. Setting aside for the present all the higher ad- vantages of commerce, its power of civilizing and refining, we must look to the actual benefits which it confers on a country ; and these will be found to consist in what it brings in, not what it takes out ; bullion must be regarded just as any other com- modity, and if the whole value of the imports be greater than the whole value of the exports the country must be necessarily a gainer. A few words as to the way in which foreign business is transacted may help the reader to a more accu- rate understanding of this question. In large ope- rations there is often little, if any, cash payment. A. sends from Bordeaux wine to the value of 1000 francs to B. in London ; B. has sent a quantity of cotton cloth to C. at Bordeaux, worth 40 ; A. re- ceives the 1000 francs from C., and the transaction is closed ; or B. may send bills, that is, promises to pay money in France, and A. is paid with that which has in like manner been given in payment D 34 DOCTRINE OF EXCHANGES. to B. : thus a mercantile transaction in one land is made to balance a similar transaction in another. Even travellers for pleasure often regulate their payments unconsciously in the same way. I go to spend a month with my friends in Spain ; I pay 50 into the hands of my banker, who furnishes me with circular notes ; thus I take out of the country neither gold nor silver, but only pieces of paper ; for these I receive Spanish gold at Madrid,, or Cadiz, or Barcelona, and my pieces of paper are made circuitously to pay for British manufactures exported into Spain. And here may be a proper place to speak of the doctrine of exchanges. The nature of a bill of ex- change has been already explained, but as the bill has to be paid in the currency of the country to which it is ultimately transmitted, it will be neces- sary to take into consideration the real value of the currency in the two countries. For instance, the Mint regulations of London and Paris agree as to the value of their respective coinages say that the sovereign shall be worth 25 francs and 20 centimes and when a sovereign in Paris purchases exactly this sum, and this sum in London purchases a sovereign, then the exchange is said to be at par. But many causes may disturb this equality, for, first, it rarely happens that the coins of any DIFFERENCE OF COINAGES. 35 country come up precisely to their strict legal standard either in weight or quality some coins and some coinages are much worn, some are de- based to a greater or less degree, not sufficient to injure their value as a circulating medium, but quite enough to cause their substitution as far as possible for the more pure and weighty coinages. If this tendency be not checked, the latter will dis- appear from circulation and a loss will be occa- sioned to that country which issued it. Thus, as the English sovereign is a well-known and popular coin, and rarely deviates much from its legal standard, the exchange is frequently in favour of England on this account. Bank-notes share the advantage because they are merely promises to pay on demand so many sovereigns. But again, from various causes, there may be a divergence from the equality of exchange even when the purity of the metal is not called in question- at all. Gold must be somewhat cheaper in California or in Australia, and silver in Mexico, than either metal can be in London, so that exchange between these countries may be really at par though nomi- nally against the one which produces the precious metals. The depreciation of paper currency,, the advance or decline of public credit, the statf> of trade in one country as compared with that in, D 2 36 INFLUX AND EFFLUX OF BULLION. another, all influence the rate of exchange. The great agent, however, in all this fluctuation is the influx or efflux of bullion. All monetary trans- actions, though carried on by means of paper, have a metallic basis, and if this metallic basis be in- creasing in any country, then the exchange is in lavour of that country if decreasing, the reverse. Hence arises the interest with which men engaged in commerce regard the daily accounts of bullion brought into the country, and transmitted abroad ; and hence the care with which all transactions of this kind, and especially those of the Bank of Eng- land, are chronicled. CHAPTER IV. BANKS AND BANKING - PRINCIPLES AND PRACTICE- Origin of Banking Seizure of Money by Charles I. Banks Fail Early Theory of Banking How Enlarged > What Business is Proper for a Banker Frauds and Failures Anecdotes. THE practice of banking arose in the first place from a feeling of insecurity as to the safe keeping of money. In the seventeenth century merchants sent it to the Tower, fancying it safer there than in their own strong boxes ; but on this point, as well as on several others, they were undeceived by Charles I., who, having been refused a loan by the City of London, seized upon 200,000 lodged by merchants in the Mint (which was then established in the Tower), and compelled them to consider the robbery as a loan. The first banks were merely banks of deposit ; but soon they began in one way or another to utilize these deposits, and to issue notes on their own authority. So long as they did not go beyond this first in- tention, banks were at once safe and profitable. WHY SHOULD BANKS BREAK? They seem to have been known in ancient times, though we are unable to decide on what principle they were established, or to what extent they carried their operations. Nor is it our object to expatiate upon banking in the middle ages, or in other lands ; our limits will compel us to confine our remarks to our own country, and as far as possible to our own time. We have had so many failures of late that the uninitiated are inclined to think that there must be -something extremely " rotten in the state of bank- ing/' What business lias a bank to break ? Such is the question hundreds are asking, in various tones of fear, anger, astonishment, and inquiry. Theo- retically speaking, the reply is None whatever. Practically Very little, and that little very rarely. So that if a bank does, to use the popular phrase, " break," it may be presumed that its business has been either unskilfully or dishonestly conducted ; and it will usually be found that the true cause of its failure has been a combination of the two. The primary idea of banking is at once a safe and a simple one. Merchants found it disadvantageous to keep large sums by them, and out of a chest of bullion to pay small accounts. It obviously would be a great step towards the emancipation of commerce, from minute and constantly recurring restrictions, ORIGIN OF BANKING. 39 if one person would undertake to keep the floating capital of a number of others, and to pay on demand such portions as might be required. The money itself was safer, because the necessary pro- tection was unremitting and sufficient ; and it was more economical, because it was quite as easy to hold against robbers a million as a thousand pounds. The merchant had the advantage of making his payments by simple slips of paper, had no anxiety about the safety of his floating capital, a great temptation to dishonesty was removed, and the transaction of business became at once all the easier and all the safer. But, supposing this safe and simple idea reduced to practice, what gain would accrue to the banker ? He received from his customers they were not called clients in those days certain specific sums, which he was to return without deduction. He would have in the meantime to keep a staff of clerks, a shop for so it was then termed to give up his own time and attention, and to support his family, as well as to make a provision for the future, by his business. To secure this, and thereby give the commercial world the inestimable advantage of the banking system, it was absolutely necessary that the balances left in his hands should fructify. Out of the gain thus produced his profit was to accrue. 40 BANKERS "PUR ET SIMPLE." It was the payment made to him by the merchants and others whom he accommodated. Thus, then, the business of a banker, pur ei simple, becomes clearly defined. He is to be always ready to answer any demand made on him to the extent of the deposits which he has received. But it soon became clear that these demands would be limited to a tolerably well-defined proportion of the deposits; and that, except under extraordinary circumstances, one-fourth of the deposits would be sufficient to satisfy the claims. Three-fourths, therefore, of the money in his hands could be employed so as to produce a profit to himself; but to render this employment legitimate, it must be vested in securities easily and rapidly con- vertible, and not subject to any great fluctuation in the market. If this rule were attended to, the failure of a bank would be practically an impossi- bility, save only in the case of a long-continued and violent panic and then it would be highly improbable. Let us, for instance, suppose a bank established in England by Messrs. Slowboy and Safe. They receive deposits in the course of a year to the extent of one million sterling; they keep one quarter of this to answer all demands made upon them, and invest the rest in Govern- ment securities, and thus there will accrue a gain EARLY AND SIMPLE THEORIES. 41 of more than 25,000; for if the signs of a panic appear in the mercantile horizon, it would certainly in the first place affect houses of an inferior posi- tion; so that Messrs. Slowboy and Safe would have ample time to prepare for the storm. Moreover,, their securities being of the highest order, easily and rapidly convertible into cash, and seldom affected to any ruinous extent by the fluctuations of the market, they would " ride out" a long pressure with scarcely any injury, and their depo- sitors would suffer no loss. When the panic passed; away, they would reap the advantage of their prudence in an increase of business. This is the simplest, if not the earliest, theory of banking; and if rigidly adhered to, would war- rant the query : What business has a bank to break ? But it was hardly to be expected that a system so simple, even if ever reduced to practice, could remain in its simplicity. We have supposed two partners, and both devoted to their business as bankers. Now let us add another element, which, even in the earliest days of banking, was rarely ab- sent; that of separate and independent business. Mr. Slowboy is a brewer a very common combination ; he uses the money of the depositors in carrying on the business of his brewery; and he does this the more easily if Mr. Safe be a partner in this concern 42 HAZARDOUS TRADES. also. This is a deviation from the principles laid down in the first place ; for no one will contend that it is the same thing for the depositor to have his property dependent on the national credit, and to have it contingenb on the credit and solvency of two gentlemen, however wealthy and upright, con- cerned in the manufacture of beer. However, if the brewery be carried on well and prudently, it may be safe enough ; and the partners, aware of their ability to meet all demands made upon them, may be held excusable for strengthening one of their trades by means of the other. They are, nevertheless, under a comparative disadvantage in case of a panic ; and their example might be pleaded and followed by Messrs. Slap, Dash, Hazard, and Crasher, who have joined half-a-dozen new and untried modes of business to their original one of bankers. We proceed, then, to the third step, that of hazardous business. And to this, and to what may be denominated over-trading, we attri- bute the fall of so many banking establishments. But here it will at once be evident that business which is perfectly safe and legitimate for a mer- chant or a financial company, may be in the highest degree unsafe for a banker. His securities must be not only good, but easily realizable ; they may viz., the Aggregate, the South Sea, the General^ and the Sinking Fund. The latter was formed PERPETUAL ANNUITIES. 8 from the surplus of the three former, and was intended for the purpose of reducing, and ultimately discharging, the debts of the nation. To each of these funds a variety of duties was appropriated, comprehending altogether the whole revenue, except the Land Tax and Malt Tax, which were granted annually, and other branches then appropriated to the support of the civil Government. This was the commencement of the funding system. The Perpetual Annuities are distinguished ac- cording to the rate of interest they pay, or the time and purpose of their creation. "When the Govern- ment, by a new loan, contracts an additional debt bearing a certain fixed rate of interest, it is usual to add the capital thus created to the amount of that part of the public debt which bears the same interest and name, and to add the produce of the taxes levied for the payment of the interest of such new debt to the fund provided for paying the interest of the original or former capital ; thus con- solidating the old and new debts, and making the whole interest payable out of the general produce of the same fund : hence we have the Three per Cent. Consolidated Annuities, &c. When the Govern- ment were desirous of borrowing money, the Three per Cents, were generally preferred; and supposing 90 OPINIONS OF DR. PRICE. they could not negotiate a loan for less than 44 per cent., the object was effected by giving the lender, in return for every 100 advanced, 150. In consequence of the prevalence of this practice, the principal of the debt now existing amounts to nearly one-fifth more than the sum actually ad- vanced by the lenders. On this subject Dr. Price, in his preface to the third edition of his " Observations on Reversionary Annuities," p. 14, says " Were a person in pri- vate life to borrow dOlOO at 5 percent, on condition it should be reckoned 200 borrowed at 2^ per cent., he would, by subjecting himself to the neces- sity, if he ever discharged the debt, of paying double the sum he received, gain something of the air of borrowing at two-and-a-half per cent., though he really borrowed at five. But would such a person be thought in his proper senses? One cannot indeed, without pain, consider how needlessly the capital of our debts has been, in several instances, increased. Thus do spendthrifts go on, loading their estates with debts, careless what difficulties they throw on the discharge of the principal, leaving that to their successors, and satis- fied with any expedients that will make things do their time." The price of stocks is influenced by a variety of VARIATIONS IN PRICE. 91 circumstances. Whatever tends to shake or in- crease the public confidence in the stability of Government, tends at the same time to lower or to raise the price of stocks. They are also affected by the state of the revenue ; and more than all by the facility of obtaining supplies of disposable capital, and the interest which may be realized upon loans to responsible persons. From 1730 till the rebellion of 1 745, the Three per Cents, were never under 80, and were once, in June, 1737, as high as 107. During the rebellion they sank to 76; but in 1749 rose again to 100. In the interval be- tween the peace of Paris in 1763, and the breaking out of the American War, they averaged from 80 to 90 ; but towards the close of the war they sank to 54. In 1792, they were, at one time, as high as 96. In 1797, the prospects of the country, owing to the successes of the French, the mutiny in the fleet, and other adverse circumstances, were by no means favourable; and in consequence the price of the Three per Cents, sank, on the 20th of September, on the intelligence transpiring of an attempt to nego- tiate with the French Republic having failed, to 47 f, being the lowest price to which they had ever fallen. A few words will be necessary on the subject of foreign loans ; these will be considered chiefly as 92 FOREIGN LOANS. investments, the principle of loans having been sufficiently investigated in those chapters which treat of our own. None of these are equal in security to those of our own Government, and some are of a kind so especially " risky " as to make all prudent persons unwilling to meddle with them. Austria has paid her interest duly and fully, but her financial prospects on the eve of war are not promising, and her internal condition in a monetary point of view is the reverse of favourable. Belgian stock is safer, for even should Belgium lose her inde- pendence, she can only lose it to France, and France will pay all her obligations. Brazilian is good ; the empire is rich and quiet, and too far from the United States to be much affected by that tur- bulent power. Buenos Ayres has behaved badly, but promises well for the future; moreover, she has the power to keep her promises. Chili is very safe ; the commerce carried on is considerable, and the interest has for some time past been regularly paid. The Peruvian debt is secure for the present, that is, as long as the guano on the Chincha Islands lasts ; after that is carried away, the debt will probably assume a less agreeable aspect. The other South American republics are careless of their reputation, and appear totally destitute of any moral sense. In Europe, Denmark, Holland, COUPONS. 93 and Sweden have always paid punctually the in- terest on their debt, as have Russia and Turkey, but there is a degree of uncertainty respecting the interior condition of both these empires, which renders their securities less valuable than those pre- viously named. These foreign debts pay their interest by means of coupons, a sheet of which is attached to each bond; the coupon itself being a small square divi- sion capable of being easily detached from the rest, and representing half-a-year's interest. These, bonds with their coupons are transferable from hand to hand, they require no endorsement, and hence are more convenient as negotiable securities, and at the same time more liable to be stolen, and if lost, less likely to be recovered. CHAPTER VIII. OF THE STOCK EXCHANGE BROKERS JOBBERS, ETC. History and Business of the Stock Exchange Mode of Transfer Brokers, Jobbers, and Speculators Bulls, Bears, and Lame Ducks Time Bargains High Character of the Stock Exchange Nature and Manner of Gambling Tragedy of the Money Market. As all other markets have their localities, so the money market, though carrying on its operations wherever the great agent of commerce is at work, has nevertheless its special place of action its mart for securities its locality for the meetings of bankers, merchants, brokers, jobbers, buyers and sellers of stocks and shares, and all who deal or speculate in money. In London, which may be called the financial metropolis of the world, this locality is about the centre of the City proper. It comprehends the Bank, the Royal Exchange, the Stock Exchange, most of the houses of the chief bankers, the joint-stock banks, the finance and dis- count companies, the great insurance offices, and nearly all the principal establishments connected with or dependent on these. A little farther to THE OLD MONEY MARKET. 95 the east are the Corn and Coal Exchanges, and beyond these, still farther, in the same direction, lie the wine markets, the Docks, and all that con- stitutes London a port of the first magnitude. How little these limits are changed may be seen from the words of an old writer, who, nearly a century ago, discusses the same topic : " The centre of jobbing is in the kingdom of Change Alley and its adjacencies. The limits are easily surrounded in a minute and a half. Stepping out of Jonathan's into the Alley, you turn your face full south ; moving on a few paces, and then turn- ing due east, you advance to Garra way's ; from thence, going out at the other door, you go on still east into Birchin Lane ; and then, halting a little at the Sword Blade Bank, you immediately face to the north, enter Cornhill, visit two or three petty provinces there on your way to the west ; and thus having boxed your compass, and sailed round the stock- jobbing globe, you turn into Jonathan's again ."* Arrangements for the sale of stock are generally made at the Stock Exchange (situated in Capel Court, opposite to the Bank), which is frequented by brokers, buyers, and sellers, and a body of inter* * Jonathan's Coffee House served as a Stock Exchange about the year 1770. 96 JOBBERS AKD BROKERS. mediate agents called jobbers, whose business is to accommodate the buyers and sellers of stock with the exact sums they want. A jobber is generally possessed of considerable property in the funds; and he declares a price at which he will either sell or buy. Thus, he declares he is ready to buy 3 per Cent. Consols at 85^, or to sell at 85|; so that, in this way, a person willing to buy or sell any sum, however small, has never any difficulty in finding an individual with whom to deal. The jobber's profit is generally J per cent., for which he transacts both a sale and a purchase. He frequently confines himself entirely to this sort of business, and en- gages in no other description of stock speculation. The broker is a distinct person he is simply the agent, who buys and sells for his principal. That a stock-broker should be a man of good standing and character is evident, considering the magnitude and importance of the business which he has to transact. To secure this he should be a member of the Stock Exchange. This implies that he should have been regularly recommended to the Exchange by three members, who become at the same time security for him during a limited period. He then becomes a member, pays ten guineas per annum for the privilege, and as much for any clerk whom he may authorize to act in his name. His THE STOCK EXCHANGE. 97 dealings are under the general supervision of his co-members not far from a thousand in number and any overt dishonourable conduct is invariably punished by expulsion. The Stock Exchange is governed, or rather managed, by a committee of thirty persons, and if any dispute arise between a broker and his client, it may be referred to this committee, who will investigate the question and arbitrate between the two. So various and so nu- merous are the checks upon irregularity, and so jealous is the Stock Exchange of its honour, that in all intelligent circles the character of a stock- broker is looked upon with great and well-merited respect. The same may be unhesitatingly said also of the stock-jobber, if he be a member of the body in Capel Court. But there is a notion in many minds that the jobber is merely a speculator in stock a kind of gambler, who lives by the profit he can make on his own ventures, and is often in no condition to pay his losses, should he incur any. This is an error. He is in reality a stock-merchant he acts according to the best of his judgment in purchasing such stocks as he thinks will rise, and be therefore in demand ; and he sells, like other men of business, when he expects a foil, and desires to H 98 SALE BARGAINS. limit his own losses. All respectable jobbers are members of the Stock Exchange, subject to its rules and sharing its reputation. Those who have business to transact, unless it be on a large scale and they themselves professionals, are rarely brought into contact with the jobber at all. They apply to the broker, who obtains from the jobber the particular amount of the stock re- quired, and effects its transfer to his principal. It is not considered advisable for a jobber to be a broker also ; and though there are many who com- bine the two branches, they are looked upon with some distrust by the highest members of the profession. As a rule, it is expedient for per- sons unversed in the mysteries of the Stock Ex- change, whenever they have business there, to employ a sworn broker that is, who has obtained a licence from the City, and who confines himself strictly to buying and selling upon commission. A bargain for the sale of stock being agreed on, it is carried into execution at the Transfer Office at the Bank, or the South Sea House. For this purpose the seller makes out a note in writing, which contains the name and designation of the seller and purchaser, and the sum and description of the stock to be transferred. He delivers this POWERS OP ATTORNEY. 99 to the proper clerk * and then fills up a receipt a printed form of which, with blanks, is obtained at the office. The clerk, in the meantime, examines the seller's accounts, and if he finds him possessed of the stock proposed to be sold, makes out the transfer. This is signed in the books by the seller, who delivers the receipt to the clerk; and upon the purchaser's signing his acceptance in the book, the clerk signs the receipt as a witness. It is then delivered to the purchaser upon payment of the money, and thus the affair is completed. This business is generally transacted by the brokers, who derive their authority from their employers by powers of attorney. Forms of these are obtained at the respective offices. Some authorize the broker to sell, others to accept a purchase, and others to receive the dividends. Some comprehend all these objects, and the two last are generally united. Powers of attorney, authorizing to sell, must be deposited in the proper office for examination one day before selling; a stockholder acting personally, after granting a letter of attorney, revokes it by implication. * The letters of the alphabet are placed round the room, and the seller must apply to the clerk who has his station under the initial of his name. In all the offices, there are supervising clerks, who join in witnessing the transfer. H 2 100 PRICES "EX DIV." The person in whose name the stock is invested when the books are shut, previous to the pay- ment of the dividends,, receives that for the half year preceding; and therefore, a purchaser during the currency of the half year has the benefit of the interest on the stock he buys, from the last term of payment to the day of transfer, unless a special reservation is made, in which case the stock is said to be sold ex div. i.e., with- out the dividend. The price of stock, therefore, rises gradually, c&teris paribus, from term to term ; and when the dividend is paid, it undergoes a fall equal thereto. Thus the 3 per Cent. Consols should be higher than the 3 per Cent. Eeduced by | per cent, from the 6th April to the 5th of July, and from the 10th of October to the 5th of January; and should be as much lower from the 5th of January to the 5th of March, and from the 5th of July to the 10th of October; and this is nearly the case. Accidental circumstances may occasion a slight deviation. The dividends on the different stocks being payable at different terms, it is in the power of stockholders to invest their property in such a manner as to draw their income quarterly. The business of speculating in the Stocks is founded on the variation of the price of stock, SPECUJ^AtORS. 101 which variation it probably tends in some measure to perpetuate. It consists in buying and selling stock according to the views entertained by those who engage in this occupation, of the probability of stock rising or falling. It is or should be conducted by persons who have property in the funds; but a practice also prevails among those who have no such property, of contracting for the sale of stock on a future day at a price agreed upon. For example, A may agree to sell to B 10,000 of 3 per Cent. Stock, to be transferred in twenty days for 6000. A has, in fact, no such stock; but if the price on the day appointed for the transfer be only 58, he may purchase as much as will enable him to fulfil his bargain for 5800, and thus gain 200 by the transaction ; on the other hand, if the price of that stock should rise to 62, he will lose 200. The affair is generally settled without any actual purchase of stock or transfer, A paying to E, or receiving from him the difference between the price of the stock on the day of settlement and the price agreed upon. Bargains of this kind are called time bargains. This practice, which amounts to nothing else than a wager concerning the price of stock, is not sanctioned by law, yet it is carried on to a great 102 SETTLING DAYS. extent; and as neither party can be compelled by law to complete these bargains, their sense of honour, and the disgrace attending a breach of contract, form the principles by which the business is governed. In the language of the Stock Exchange, the buyer is called a Bull, the seller a Bear, and the person who refuses to pay his loss, a Lame Duck. The names of defaulters are exhibited on a large black board in the Stock Exchange, where they dare not appear after- wards. These bargains are usually made for certain days fixed by a committee of the Stock Exchange, called settling days, of which there are about eight in the year viz., one in each of the months of January, February, March, May, July, August, October, November; and they are always on Tuesday, Wednesday, Thursday, or Friday, being the days on which the Commissioners for the Re- duction of the National Debt make purchases. The settling days in January and July are always the first days of opening the Bank books for public transfer; and these are notified at the Bank when the Consols are shut to prepare for the dividend. The price at which stock is sold to be transferred on the next settling day, is called the jprice on account. Sometimes, instead of closing BACKWARDATION. 103 the account on the settling day, the stock is carried on to a future day, on such terms as the party agree on. This is called a continuance. In the account of Stock Exchange transactions the terms " put and call/' " options/' " backward- ation" a most awkward and ill-contrived word, by-the-bye are frequently met with. These have reference to time bargains. A speculator may buy the right to purchase stock at a given price on a given day from another speculator this is termed purchasing the call; he may obtain the right to sell, compelling the other to buy this is denomi- nated the "put" or he may buy the choice between the two, which is called " buying the put or call ;" or otherwise, " making a speculation in options." " Backwardation" is a fee paid to have the time of payment deferred; this is sometimes very heavy, and is only resorted to in cases of ex- treme necessity. All the business, however, which is done in the Stocks for time, is not of a gambling nature. In a place of so extensive commerce as London, opulent merchants, who possess property in the funds, and are unwilling to part with it, have fre- quently occasion to raise money for a short time. Their resource in this* case is to sell for money and buy for account ; and although the money raised 104 GAMBLING IN STOCK. in this manner costs more than the legal interest, it affords an important accommodation, and may be rendered strictly legal and recoverable. But, after making all allowance, it must still Le confessed that the amount of actual gambling carried on within these precincts is such as to pro- duce mischief of the most terrible extent, equally destructive of fortune, honour, and moral character. If the chronicles of the Stock and Share market could ever be fairly written, they would furnish some of the most frightful histories of crime and its punishment that the world has ever seen. Colossal fortunes overturned, bright prospects blasted, and domestic happiness destroyed murders, forgery, suicides would occur in page after page, and the reader would close the volume, at once ap- palled and disgusted with its revelations. At a very early period in the history of the Stock Exchange, transactions began to find a place in which an unfair advantage was taken of political position; and this, though at all times counted eminently dishonourable, is be- lieved to occur even still. Such a charge was brought against Sir Robert Clayton, a governor of the Bank of England in the reign of William III., and for many years after one of its directors. It is difficult to decide SIR HENRY FURXESE. 105 whether there were any grounds for the accusa- tion. Another director whose honour was thus im- pugned was Sir Henry Furnese, one of the most enterprising men of the day. He main- tained at his private expense a complete train of intelligence through Holland, Flanders, France, and Germany. In not a few instances he received the news of important events, such as battles, long before the Government; and the fall of Namur, among others, largely added to his profits, owing to his early intelligence. At times he conde- scended to communicate such intelligence to his Majesty's Ministers, which loyalty King William rewarded on more than one occasion by costly presents. The pamphleteers reproach Sir Henry Furnese with having fabricated news, and having turned his " Renter" agency to the most mercenary account. It is said that, if Sir Henry wished to buy, his brokers were ordered to look gloomy and mysterious, hint at important news, and even effect sham sales. Their movements were closely watched ; the contagion spread ; and the specula- tors having got fairly alarmed, the prices lowered not un frequently four or five per cent. Now was the time for other agents to buy of course to the 106 PROGRESS OF GAMBLING. immense benefit of their employer. Similar stories are told of the wealthy Hebrew banker, Medina, who accompanied Marlborough in all his campaigns. It is tolerably well proved that he prevailed upon the avarice of the great commander to accept a regular annuity of six thousand pounds. He largely repaid himself by expresses containing early intelligence of the battles fought ; and Hamilies, Oudenarde, Blenheim, administered as much to the purse of the shrewd Hebrew banker as they did to the glory of the English nation. These proceedings cannot be called gambling they are something far worse; but the game of chance which is now carried on is more dangerous, because more extensive. This vice, in one form or another, is lamentably on the increase among the lower orders, properly so called the ill-educated, half-washed, and more than half-criminal classes. Betting on horse-racing is one of its favourite ex- pressions : shopboys and young clerks become cor- rupted by these scoundrels, and an abundant crop of robberies and small forgeries is the result of the seed thus sown. The class above these have lately added to their turf gambling, that which the out- skirts of the Stock Exchange can offer, and have found there precisely what they wanted. It has become notorious that the proceedings carried on THE DERBY OF 1866. 107 with those closed doors on a grand scale have been imitated on a smaller one without, and a sort of unlicensed jobbing has tempted its victims to their ruin. It was remarked that less interest than usual was felt on the turf on the Derby of 1866 ; less holiday-making took place at Epsom, because there was a gambling place open, more like a Hegent- street "hell," where greater stakes were to be played for, more ruinous "operations" were to be carried on, minus the pure air and the breezy downs. Capel Court was more than a match for the Surrey fields. How many volumes have been written against gambling ! What praise has been bestowed on police magistrates when they have dispersed a greasy assembly of vagabonds, and imprisoned perhaps one or two for blocking up Bride Lane, or some other such thoroughfare, in order to carry on their betting transactions. We, too, praise the magistrates, but we should like to ask what would become of the Stock Exchange if its frequenters met with even-handed justice. " Gambling, my son/' says worthy Pater- familias, " is the ruin of thousands ; never let me hear of your making a book ; stick to your legiti- mate business and you will do good and not harm to yourself and others."" Very true; but you, 108 PREVENTIVE STEPS. Paterfamilias, have yourself placed your son with Messrs. Bruin and Bear, who, in addition to being stock-brokers, do a pretty considerable amount of time-bargains, and have always a choice collection of rumours ready in store, in whatever direction they choose to speculate. Our mercantile honour has long been the subject of " operations for the fall." Deeds which our fathers would have blushed to name, are now acknowledged without the least con- fusion ; embezzlement, malversation, dishonour- able conduct of every kind, are growing terribly common. We no longer regard the best names as security for commercial integrity ; the obligations of business are made light of, and what are we to look for next ? It is to be hoped that some steps will be taken to purge our markets from crime, the effects of which are becoming alarming. At present there is a great dif- ficulty in dealing with that class of offenders who, for selfish purposes, propagate mercantile scandal ; but something ought to be done, and that speedily. Meantime, the best advice to persons concerned is to resist resuscitation of panics. They will pro- bably be attempted. Too much booty has been made by the banditti in that of 1866 not to en- courage them to try again; and the rather less guilty pickpockets will be glad to gather another golden SIGNS OF THE TIMES. 109 harvest such as they had. But better times will come ; few firms are really bankrupt ; few banks in more than temporary difficulty. A wise and general confidence will speedily restore the tone of the markets, and save many hundreds of thousands of pounds from the hands of robbers ; and terrible as the late revelations of fraud have been, it is yet asserted, by those best informed, that commercial crime is not on the increase. CHAPTER IX. PRINCIPLES OF COMMERCE FREE TRADE AND RESTRICTION. Freedom of Commerce Instances of Necessity of Taxation Employment of Duties : Retaliative Duties, Protective Duties Chili stockings Corn Laws, how to be understood Competition Kent Colonial Produce Commerce to be entirely free. THE principles of commerce will not be discussed here further than as they affect and are affected by those of monetary science. Money is the instru- ment of universal barter, the world^s common measure of value ; whatever, therefore, encourages trade, stimulates the money market; whatever makes money abundant and easy to obtain on rea- sonable terms, encourages and enlarges commercial operations. If the merchant can trade freely and profitably, it is worth his while to trade ; the ne- cessities of his position bring him into the money market, and the banker, the bill discounter, the stock-broker and jobber, participate in his prosperity as well as the shipbuilder and the manufacturer. If on the other hand, restrictions are laid upon him beyond those dictated by absolute necessity, FREE TRADE. Ill his efforts are relaxed, and all those dependent upon his operations are proportionally restricted in theirs. Commerce, to fulfil its great objects, must be free, and in proportion as this freedom is really enjoyed among nations, they will be increasingly able to develop their various resources, the more inclined to peace, and the money market will be excited to a more wholesome activity in providing that which was once called the sinews of war, and may be called still more emphatically, the sinews of prosperity. By freedom of commerce, is meant that all who wish to buy, shall buy where they find the best and cheapest articles, and that all who wish to sell, shall have the liberty of selling where .they find the most advantageous market. I want oil, wine, and furs ; a merchant in the Papal States will supply me with the first, one at Bordeaux with the second, and one at St. Petersburgh with the third. I may have them all of home growth, but the one will be thick and coarse, the other poor and unwholesome, and the last-named neither fine nor durable ; those which are offered to me from abroad, are all excellent in their kind. On the other hand, the Italian merchant wants cotton, the French farmer wants machinery, and the Russian fur-dealer wants cutlery. All these things I can 112 EFFECT OF CUSTOMS. supply much better and cheaper than each of my foreign correspondents can make for himself: why should we not exchange ? I send abroad, therefore, my home-grown or home-made productions, and receive in return, the produce of foreign lands. Now that this should be done with regard to all commodities, is the theory of free trade. Founded on nature, it is obviously for the general advance- ment of mankind, but when the theory comes to be applied to practice, we are met with many difficul- ties, and much opposition. First, the Government says : " We must have money for the service of the public ; direct taxation, though best in principle, will not serve us, for no Government would be able to raise by direct taxation the amount required for that purpose in England ; we must, therefore, have Customs' duties, and Excise duties." This demand is one which is both just and expedient ; let us see how it acts. Suppose that I can buy in Italy a quart of olive oil for sixpence, and suppose that the freight, land-carriage, and profit to merchant and retainer amount to as much more, then if trade were quite free, I should pay one shilling for the same article in London ; but there is a duty levied of threepence, which goes to the Government here, and I pay one shilling and threepence to the Italian warehouse-keeper for my bottle of oil. But DIVISION OF PRICE. 113 it may be also that the Papal Government imposes an export duty, that is, does not allow oil to leave the country without first paying somewhat for the permission; letus call this export duty another three- pence ; I then pay one shilling and sixpence for my bottle of oil, and the payment may be divided some- what in this manner : sixpence goes to the Italian cultivator, and is the return for his labour and capital; sixpence goes to the shipowners, carriers, merchants, and retailers; threepence, minus the expense of collecting, goes to the British Govern- ment, and maybe expended in gunpowder and scarlet cloth, or it may help to make up the salary of the Lord-Chancellor, or the pay of policeman B 22. While the remaining threepence may, in like man- ner, when the expense of collecting is deducted, go towards keeping in prison some unfortunate noble- man who has been detected in reading the Bible. With the uses to which the Papal Government may put their funds, we have, however, no concern here. No government can be carried on without money, nor can any nation be left without govern- ment. So long as the duty is a moderate one, it will have little or no effect upon consumption ; the foreign grower will find his market, the consumer here the required commodity, and the civil autho- rities the sums necessary for the public service, i 114 RETALIATIVE DUTIES. But now let us suppose that the grower of oil at Valencia and Malaga can supply the same article at the same price, and that the Spanish Govern- ment imposes no export duty, then the Spanish oil can be L sold for fifteenpence. When the Italian oil costs eight eenpence, one fifth, that is, 20 per cent., is added by the Papal Government to the price of this oil, and the article is excluded from the market by legislative restriction. Let us fur- ther suppose, that in consequence of a commercial treaty with the States of the Church, a duty is laid on Spanish oil, greater than that paid by the produce of Italy, or that the duty is remitted on the latter and not on the former, the value of the two articles would then be equalized, and they would divide the market ; but Spain would imme- diately impose some retaliative duty on British produce, which would counterbalance, and probably more than counterbalance, the advantages gained by the treaty. From this it will appear that the imposition of a duty does not necessarily interfere with the freedom of commerce, but only in those cases where the amount imposed excludes desirable commodities. At the same time it is almost a maxim of political economy, that alow rate of duty (on articles of com- mon use) is more productive than a high one ; thus- PROTECTIVE DUTIES. Ii5 there appears reason to believe that, were the pre- sent duties on tea and French wines even still more reduced, a larger sum would be paid to the Govern- ment, and the comfort and welfare of the people materially augmented. Articles of mere luxury are fair objects of heavy import duties. It matters nothing to the nation at large, and very little either to the foreign producer or the home con- sumer, that the rich man should pay two or three hundred per cent, duty on his bottle of Curagoa or Maraschino the State is a gainer, and no one is a loser. Erom the consideration of import duties simply as means of raising a revenue, we come to regard them in the light of protective enactments. A single stocking-frame was set up some twenty years ago in Santiago, the capital of Chili; the Chilian authorities forthwith, to protect their home- manufacturers, imposed upon all foreign stockings an almost prohibitive duty. This was done with a view to protect home-interests. What was the result ? The Nottingham stocking- weaver wanted Chilian produce, but he was unable to pay for it, because his payment that is, his manufactured goods would not be taken. The Chilian farmer lost his market, and the inhabitants of Santiago were obliged to go without stockings ; at least this I 2 116 DUTIES ON COKN. would have been the effect had so absurd a regula- tion been persisted in. But to take a familiar instance : let it be sup- posed that, under his present circumstances of rental, the English farmer cannot grow corn to remunerate him at less than forty-five shillings a quarter; let it be also supposed that from Poland and Russia corn of equal quality can be sent into the market at forty shillings ; the foreigner, in this case, undersells the home -grower by five shillings per quarter. Go- vernment lays on a protecting duty of five shillings, and thus equalizes the two articles for the benefit of the English producer. Let us, then, investigate this transaction: First, we see that the State takes five shillings from the foreigner, in order that the farmers may take five shillings from the British consumer ; the weight therefore falls on the public, who are thus taxed because the conditions of farmers are unprosperous. The artisan says to the Government, You make me pay tenpence for the loaf which, were it not for your enactment, I should get for eightpence; and, as other commo- dities follow, to a great extent, the price of bread, your corn law makes my coat, my tools, and my cottage all dearer to me, while my wages are not in any way raised by it." Now, as the object of this protection duty is to secure the interest of the COMPETITION WITH POKEIGNERS. 117 farmer, under his present circumstances, it would be clearly the same thing, so far as he is concerned, to tax the public by a corn law, or to give him direct bounty out of the proceeds of the other taxes to the extent of five shillings in the quarter; in each case, all the public would pay it ; in each case, the object would be the same; in each case, it would be equally effectual ; but in the latter, stripped of its indirect character, it would be an odious and iniquitous piece of favouritism. But hitherto we have seen the matter only in one light ; two questions remain : Is it so impos- sible to compete with the foreigner, even under present circumstances ? and, secondly, if so, why ? The rate at which land continues to be sold, 'and the continuing eagerness to possess it, would seem to indicate that the impossibility itself is not by any means a self-evident proposition. No one contends that the soil of England and Ireland is less fertile than that of Poland or Russia ; the in- creasing knowledge of agricultural chemistry a science as yet in its infancy will probably make our harvests more than sufficient for our wants. In fine, the problem of competition has yet to be solved. But supposing that it be solved, and solved un- favourably, then comes the other question Why 118 ENGLISH AND FOREIGN TAXATION. cannot the English farmer compete with him of Poland or Lithuania? The reply is, he does not live in the same manner, subsist on the same fare ; he is more taxed, and, above all, fie pays a higher rent. Now, no one would wish to degrade the English farmer, to the condition of the Polish serf or the Russian slave ; the equalization cannot be made in that manner ; and besides, it is to be hoped, on the contrary, that the less civilized will gradually be brought up to the level of the more civilized; and the equalization of condition will thus be effected. Again, it is not true, to any extent worthy of notice, that the English farmer is more heavily taxed than the foreigner. If direct and indirect taxation be taken together into con- sideration, it will appear that this country is not more burdened than the generality . of continental nations. The third objection is a true and valid one he pays a higher rent. This is a matter which will soon rectify itself; and with its rectification will disappear all the inconveniences which have been supposed indissolubly connected with free trade in corn. It has been strangely forgotten, by many writers, that land is a commodity as well as corn, and that its price, whether for sale or hire, must depend on what can be gained by means of it. If brooms fetch threepence each in the market, COLONIAL PKODUCE. 119 the man must be mad who buys the materials for threepence-halfpenny, and then says to the State I cannot sell my produce save at a loss, to speak nothing of my own support; make up to me the deficiency out of the taxes. Another case supposed to require protection duties, is that of colonial produce. Other nations and their colonies may undersell us ; we must, it is said, protect our colonists, by imposing a duty on produce similar to theirs when it reaches us from other sources. But it is by no means clear that we have a right to lay an extraordinary tax on our home population for the benefit of our colonies. Colonies are established to be an aid, not a burden, to the parent state ; and if rightly managed, would be so. Besides which, it is difficult to assign any irremediable cause by which our colonists are un- dersold, and the wiser plan is not to bolster up a corrupt system by protection duties, but to remove those causes which make free trade unprofitable. It is said that slave labour is so much cheaper than free labour, that our West Indian colonies cannot sell their produce at the same rate as Cuba and Brazil. If this indeed be so, it may be a question between a protection duty which treats negro slavery as an element in prices, and an absolute prohibition of all importation of slave-labour 120 NATURAL LIMITATIONS. produce, on the ground that the system itself is bad, unchristian, and unlawful. This principle will find its natural limitations. TV here an article is necessary, and is only to be ob- tained in sufficient quantities from states employ- ing slave-labour, then the old maxim, " Necessitas non habet leges," is applicable. But even then a Christian nation will make no small exertion to procure a sufficient supply from the produce of free labour, and will use the other only so long as the absolute necessity remains. It must never be forgotten that all duties fall on the consumer : so long as they do not materially reduce the amount of the article imported, they are a tax on the home population more or less justi- fiable in proportion as they affect the necessaries of life. If they do reduce to any considerable extent the amount of importations, then they do to a certain extent affect the comfort of the people, the prosperity of the merchants, and the welfare of foreign producers. Commerce, to be really free, must beTree in all its branches; that enactment is but a deliberate injustice which sets only one class of producers free, and holds back the rest by a system of restrictions. If the English farmer be made to stand on a com- mercial equality with the Pole and the Russian, he KEASONS FOR DUTIES. 121 ought to be compensated by free access to all the products of the known world : whatever he can gain by free trade, is the return made to him for his otherwise reduced profits. The only lawful reason for any import duty is that the support of the State renders it necessary; and then it should be so arranged, so levied, and so collected, as to in- terfere in the slightest possible degree with the freedom of trade. As a general principle protection has been long given up in this country and freedom of commerce substituted in its place. If the subject of this chapter should seem but slightly connected with financial science, let it be remembered that not only do duties and commerce and the money market all reciprocally affect each other, but that the price of our own stocks depend on our commercial prosperity, and the payment of the interest and principal of foreign loans on the customs of great foreign ports. CHAPTER X. OF JOINT-STOCK COMPANIES AND LIMITED LIABILITY. Necessity of New Legislation Meaning of the term Commandite Equity of the New Law Real Liability Large and Small Shares Lord Overstone's Opinion Progress of the Principle Early^Opposition Joint-stock Banks their Liability. FOE many years a notion was afloat in the finan- cial world that undertakings of decided importance were retarded, and the general course of commerce impeded, by the peculiar liabilities of all who entered into partnership. If a man shared the profits of a business, how- ever small his share might be, he became to all intents and purposes a partner, and was answerable, to use the powerful phrase current at the time, "to his last acre and his last shilling," for the debts incurred by the firm or company. This, it was contended, prevented hundreds from investing moderate sums in enterprises of great public utility, keeping capital and intellect alike out of the market, and unnecessarily and prejudicially re- stricting the field of investment. PARTNERSHIP "EN COMMANDITE." 123 It was proposed that a plan which had been found to act well in France should be introduced into this country, and that partnership " en com- mandite" should become an English institution. The meaning of this was that any person having a sum, large or small, which he wished to employ in business, might do so without endangering more. This plan was, of course, only applicable to joint- stock companies the minimum number of partners was to be fixed, but any extension allowed, and it was provided by the Act that no member of such company should be held legally responsible for more than that which he covenanted to pay. It is difficult to object to an arrangement morally and philosophically so reasonable, and there is no doubt that the system has largely in- creased the commerce and therefore the prosperity of the country. It has employed, and thereby rendered profitable, immense sums which would otherwise have been hoarded, or what is nearly the same thing, been invested in consols. Losses were less felt when they entailed no further con- sequences than such as could be clearly foreseen, and ventures were bolder when the extent of the risk was clearly defined. The principles of equity make this indispensable in large companies having numerous shareholders, for as these are necessitated 124 "CAVEAT EMPTOR." to trust the management of their common business to directors, secretaries, and others, and cannot look after it themselves, they are entitled to say, " We will trust you so much and no more /' and it would be hard upon them to call for larger sums when these have been expended. With regard to the general public engaged in trade, this seems a case in which the maxim "caveat emptor" may be fairly applied. In fact, few men of ordinary sagacity trust joint-stock companies of limited liability without having first satisfied themselves of the solvency of the company. But while freely admitting the benefits derived to commerce from this mode of transacting it, I cannot refrain from noticing how much larger are the responsibilities in joint-stock companies than they are sometimes aware of. A prospectus is sent to me of a new Company. It has a fine name Albert, or Victoria, or Royal, or Imperial, or something equally high-sounding and as remote from trade. Tables are added which show that the lowest percentage of profit to be realized is far beyond the usual gains of business ten or twenty, or thirty; that there is absolutely no risk ; that the capital is to be two millions ; that application must be made at once, or, so great is the pressure for shares, it will be too late. This NOMINAL LIABILITIES. 125 captivating document further informs me that the shares are 10 each, and it is not considered pro- bable that more than two pounds will be required ; one pound to be paid on allotment, and the other shortly afterwards, to carry on the operations of the company. I know little of business, but the thing seems feasible enough. I have heard some of the directors spoken of as mighty men in the City, perhaps even millionaires. I have fifty pounds which I am willing to invest, and I apply for twenty-five shares. The shares are allotted to me, and I pay my twenty-five pounds ; soon after I am called upon for another sum of the same amount, and I set my mind at rest, feeling that I am not, " in all probability," to be called on for any further contribution. But the real state of the case is this : I have made myself actually liable for 250. If the company prosper, they will want to call up the rest of their capital, to enlarge and improve their business ; if unsuccessful, they will have to make calls to cover their responsibilities. Nor can I, by the simple process of selling my shares (that is, if I can sell them), release myself from my liability. One twelvemonth must pass before my transfer frees me from the possibility of further calls, or " contributions/' in case the company should 126 UNCALLED CAPITAL. " wind up." And here, too, is a further safeguard for those with whom it may contract debts, a class of persons for whom sometimes a greater amount of sympathy is expressed than their positions require. A very able writer on the subject of limited liability expresses himself as follows : "The law of 'limited liability 5 is exceedingly defective in one of its chief elements, and it re- quires to be c limited' itself in one very important particular viz., the amount of uncalled capital. No company ought to have a certificate of ' limited liability' unless the shares are issued on the prin- ciple of being paid up at least one-half say 50 per cent, of the nominal amount. If this had been adopted, much of the alarm and distress of unfor- tunate shareholders would have been simply impos- sible. Most people would prefer shares of small denominations paid up in full; but if that be thought too severe a restriction, certainly one- half should be paid. The intention of Parliament was to sanction and protect the joint employment of private capital, not joint credits; and the departure from this principle will always be fraught with danger. " It may be said in reply, the law leaves it open. The law should not leave it open, inasmuch as EXCESSIVE LIABILITY. 127 ninety-nine persons out of every hundred are not aware of the dangers they incur; and the law ought to be wisely framed, so as to protect the ninety-nine per cent, of unthinking or ignorant persons who may have small capitals to in- vest," It is evident that what is required is a limitation of excessive liability whilst the company is in its infancy, and increasing it as the company makes progress. The plan of companies limited by gua- rantee will be found the best suited for effecting this improvement. To exemplify the method of obtaining it, the capital of a guarantee company should be separated into two parts viz., the paid- up capital, and the guarantee capital. The guarantee capital is purely a liability, and the company cannot call it up. It is only a gua- rantee fund for creditors, to come into operation in case the company suspends. The advantage of this cannot be overrated. By assuring to creditors an exclusive fund, to be divided rateably among them, guarantee companies will never find any difficulty in obtaining support and credit to carry on their operations. A company formed in the following manner would, probably, be found to work excellently. We will say a bank is to be established, which 128 GRADUATED LIABILITY. in the usual way would be formed with a capital of 1,000,000, in 10,000 shares of 100 each. It should be shaped as follows : Number of shares, 10,000. Total limit of amount of each share, 100. Half thereof working capital (liable to be called up) 50. Half thereof guarantee capital, 50. Of these amounts, shareholders should incur liability for such. Shareholders are hardly yet awakened to the fact that companies having 50 shares, with 5 or 10 paid, are practically unlimited. A company's shares must always be fixed at an amount com- mensurate with the extent of business it intends or hopes to do, and no provision is made for share- holders incurring a less amount of liability, whilst the company is advancing towards the summit of its ambition. Although in its earlier stages its trans- actions must be small, shareholders incur precisely the same amount of liability which they will incur when the company has attained full vigour, is doing an extensive business and paying profits accordingly. Thus, not only do shareholders incur a great risk without return, but the amount of their liability gives the company a fictitious kind of credit, and encourages directors to enter into GUARANTEE CAPITAL. 129 transactions not in keeping with the paid-up capital and standing of the company, and which, on the slightest disturbance of the commercial world, provokes its downfall. It is sometimes said, " have fully paid-up shares ;" but a company must needs have some small credit, it cannot possibly carry on business, having to pay from hand to rnouth, and a company with fully paid-up shares in these days has no credit whatever. Formerly confidence in the integrity of the direc- tors would ensure a little, but that is now at a great discount. If such part only of the working capital as is actually called, and of the corresponding amount of guarantee capital at first, say, when 5 per share is called up, then the real capital would be 50,000 working capital, 50,000 guarantee capital; with 10 called up, 100,000 working capital and 100,000 guarantee capital, and so on until the amount of capital as registered is called up, when, if further capital is required, a fresh issue of shares should be made the calling up of capital under these circumstances amounts in effect to a power of increasing the capital by in- creasing the amount of the shares up to a certain limit named in the articles. The power to increase the number of shares, does not put the shareholders under any liability until they have actually resolved 130 TRIAL OF THE PRINCIPLE. on the increase. Of course the proportion of working and guarantee capital might be greater or less than one-half, according to the nature of the company. Thus the responsibility of share- holders would from time to time be exactly in ratio to the amount of business the company was doing ; as that increased calls would become necessary, so that the amount of their liability would increase to a fixed amount, and directors of new companies would not be able to enter into the transactions which have recently proved the downfall of so many companies. We have now had eleven years' trial of limited liability, the Act authorizing it having received the Royal assent in the autumn of 1855. The time has come when the whole Act might with advantage receive a revision ; but the alterations required are merely matters of detail, and it is hardly likely that the principle will ever be called in question. Regarding the rationale of a joint-stock com- pany with limited liability merely as an enlargement of the old one of partnership, and differing from it simply by the introduction of this necessary limi- tation, there are several questions which at first appear merely of detail, but which, when carefully examined, will be found to involve principles, and SMALL OR LARGE SHARES. 131 some of great magnitude. With a few of these we must briefly deal. Should a joint-stock company divide its stock into small shares or large ones this is an impor- tant question small shares attract small share- holders, and large ones the reverse. The capital may be the same in both cases ; but the larger body, which is of course that of the small share- holders, will be necessarily more fluctuating than the smaller constituency, and in consequence of this the value of the shares will be more fluctuating also. This is a disadvantage, and one which makes companies of this kind eminently distasteful to great capitalists. On the other hand, the broader basis is on the whole quite as secure as the narrower one; and if it be advisable to induce the middle classes to invest their savings in this kind of company, there can be no doubt that the only way to effect this object is to frame the system of shares so that they may be at once within the reach, and suitable to the circumstances, of this class of investors. All that tends to extend a knowledge of mercantile affairs to employ capital to the greatest general advantage should be en- couraged by those who desire to promote the welfare of the nation at large. The pence of the poor may do their part with the fifty-pound notes K 2 132 OPINIONS OF CAPITALISTS. of *the rich ; and as there is nothing more prejudi- cial than the system of hoarding, so there is nothing more advantageous, in a moral as in a financial point of view, than the judicious invest- ment of savings. Among great capitalists, however, such opinions are not held. They look at investments from their own stand-point ; they wish, for the most part, only to be associated with the leviathans of the money market ; and they have, with few excep- tions, set themselves against the principles of joint-stock associations and limited liability. If it were impossible to enter into companies which effect large commercial transactions without taking large shares, which at once require extensive capi- tal and entail corresponding risks; if, in case of non-success, each shareholder were liable to his last shilling or his last acre, none but wealthy men could undertake the responsibility. Under the old system this was the case, and its natural tendency was to make great houses greater, rich men richer, and to abolish gradually what may be termed the middle classes of commerce. In fact, mercantile operations became so gigantic that these last were in a fair way of being crushed out altogether; there was no room for them; and just as they were about to disappear the joint-stock SCALE OF SHARES. 133 principle came to their aid, and enabled them to make head against what had been hitherto out- buying, out-selling, and out-financing them. Now it is clear that the principles of joint-stock trade, which is only an enlarged kind of partnership, and those of limited liability, must stand or fall to- gether. All contracts must be free if commerce is to flourish. No unnecessary interference on the part of Government is to stand in the way of its development. The tendency of the age is so far a wholesome one as it is towards a removal of all restrictions on trade, of what kind soever they may be, and to leave it to the natural effect of its own operations. But if a company is clearly at liberty to frame ' its system of shares on such a scale as it may deem best, may it not alter that scale according to the requirements of its shareholders ? May it not say to these,, At present your shares are shares of 20 each ; we wish to double the number of these, and at the same time to reduce the value of each share by one-half. Thus A. B., who has twenty shares, the collected value of which is 400, will have forty shares of 10 each, amounting in value to the same sum. Nothing can be simpler than this, and nothing can seem fairer than that the company should have power to effect the change. But, as 134 JOINT-STOCK BANKS. the law now stands, it cannot do this without a new charter. Application was made for an altera- tion of the law in this respect, and (mainly through the instrumentality of the great capitalists, with Lord Overstone at their head), the bill for the change was thrown out. The grounds of the refusal may be briefly stated thus : That by this change the whole character of the constituency would be altered, and that those who purchase 20 shares do so with the understanding that they are co-operating with a class of investors having certain elements of stability ; that the understand- ing is broken if the value of the share be altered, and a new constituency be introduced. In fact, that the change is much like the reduction of the parliamentary franchise, and susceptible of being defended or opposed on similar grounds. Under these circumstances the bill was rejected by the House of Lords in the present month (June, 1866). Joint-stock banks are capable of adopting the principle of limited liability, but only with regard to their business as banks of deposit. Such as have the privilege of issuing notes are of unlimited liability as regards such issue. Thus, if I hold a five-pound note of the West Diddlesex Bank, a joint-stock bank formed out of the private busi- LIABILITY FOR NOTES. 135 ness of Messrs. Slap, Dash, Hazard, and Crasher, I can, on the failure of such a bank, obtain my five pounds out of the private property of the partners, though I could not make them pay me my deposits beyond the amount which their shares when paid up would furnish. Joint-stock banking met with great opposition when the system was new. The private banks re- fused even to acknowledge the new corporations, and the directors of the Bank of England acted steadily against them for many years. Now the principle seems acknowledged on all hands to have been a great success, and to be eminently suited to the exigencies of the time. CHAPTER XI. DISCOUNT AND FINANCE COMPANIES. Nature of Discount Companies Nature and Origin of Finance Companies Their vast Designs Examples from the Turkish Empire Danger of distant Enterprises Perils of Finance Companies Aid to Railways Prospects of the Principle. DISCOUNT companies will require but little ex- planation here ; their business is to discount bills, and this they transact, or should transact, on the same principles as do private bill-brokers. The profession is an extremely lucrative one, but as its great profits depend on the judgment and financial skill of the brokers, it is one which should only be undertaken by such as feel they have these requisite qualifications in a more than usual degree. Hence it is less adapted to be worked by a company than most others, as it must ultimately depend for success on the individual ability of its managers. Bankers are always bill-discounters, and when they have been brought into difficulties, it has often been by errors in this branch of their business. As the discount varies with the character of the bills offered, as well as the condition of the market REQUIREMENTS OP A DISCOUNTER. 137 of the time, the capacity to seize and combine all the circumstances of the paper, requires at once a powerful memory, a keen judgment of character, an accurate knowledge of money affairs, and of busi- ness in general, and a power forecasting future events, as connected with mercantile transactions, which few possess in perfection. The nature of a bill of exchange has been already explained. The holders of these acceptances take them to bankers or bill-brokers, and secure for them cash, minus the rate of discount agreed upon. But it is not to be inferred that the market has no rule for this rate, or that if various rates be charged there is anything necessarily unfair in it. For, on the one hand, the Bank itself fixes the rate at which it will transact discount business, and this varies with the state of the market, sometimes reaching as high as 10 or even 11 per cent., and sometimes falling as low as 2^-. On the other hand, there is a vast amount of paper brought into the market, which neither the bank nor any house of eminence can even look at, and this is taken up by speculators of all classes, and forms a hazardous and sometimes dis- creditable kind of business, which is nevertheless often highly remunerative. Thus the rate of dis- count is various, for even on the best paper the bank rate is generally a little higher than that of 138 FINANCE COMPANIES. the market in general. It will usually be found that with the rate of discount as charged by the bank, the funds rise and fall, another proof of the close connexion existing between monetary and commercial interests, between cash and trade, between the bank and the country. Discount companies are taking the place of private bill- discounters, just as joint-stock banks are of private bankers, and if due care be taken in the selection of managers, and those managers exert all their faculties and all their diligence, there seems no rea- son to doubt that they will have an equal success. Finance companies are a new kind of power. They are to work the same results as the great capitalists have hitherto done they undertake to supply cash for the most gigantic undertakings, they make railways, tunnel under mountains, build cities, establish great public works, assist vast enterprises, and do with their huge capital what few even among millionaires can accomplish alone. Such an idea is a grand one, and it is by no means improbable that the world owes it to the brain of the most subtle thinker and energetic actor of the age the Em- peror Napoleon III. While, however, no one can doubt the magnitude of the idea, or the extent of its probable results, it must be understood that the risks are proportionate, and companies of this kind AN ORIENTAL SPECULATION. 139 fire peculiarly liable to the operations of panic- makers. If successful, their profits must neces- sarily be immense ; if other wise, the losses will be tremendous. In regarding these associations as offering investments, it must be noticed that they do not communicate their plans to their share- holders, except in a very general way, so that no man can properly judge for himself as to the pro- babilities of success or failure. As a specimen of what may sometimes be done, I take the following report of an Oriental under- taking, very recently commenced. It has some evident elements of success. No country is richer in natural resources than Turkey ; nowhere are legitimate profits greater ; no nation has a higher character for integrity. "When, therefore, a com- pany was formed to develop the profit-producing powers of such an empire, it is scarcely to be won- dered at that it should speedily give tokens of success. Still, there is something astonishing and ' O O a little suspicious in such a statement as that ac- tually put forth by the company. It runs thus : " The first report of the 8otiet& Gene-rale de V Empire Ottoman, which was founded in 1864 by the Imperial Ottoman Bank, and some of the leading Turkish and Greek houses connected with the East, has been received. The company seems 140 UNDEVELOPED RESOURCES. completely to have realized so far the anticipations which were originally formed respecting it. The net profits for the eighteen months embraced in the accounts referred to in the report, a period which includes the time occupied in establishing the com- pany, have been 335,000, equal to nearly 31 per cent, per annum on the capital paid up from time to time ; and the dividend which is now to be dis- tributed is 2 per share, leaving a balance of over 5000 to be carried forward. This dividend does not include nearly 32,000 placed to reserve, and about 10s. per share already divided amongst the shares. The report and accounts (a translation of which can be had at the Imperial Ottoman Bank) are most interesting to all connected with Turkey. To one remark in the report we can direct attention with satisfaction viz., that the whole of the profits now to be divided have actually been realized." This may or may not be true, and the prospects thus held out may or may not be fulfilled ; but two things are certain. One is, that the resources of a country so rich and so undeveloped as Turkey are fully equal to produce such results as are here indi- cated ; and another is, that what may be called the natural interest of money is greater in countries only partially cultivated than in the old and highly civilized communities of Europe. Ten per cent, in DANGEKS OF DISTANCE. 141 such countries is the usual rate, and being so the actual profit on its employment may be reasonably estimated at something much higher nor would another twenty per cent, be an unreasonable expec- tation. At the same time, the distance of such lands from our own the lax notions of commercial morality which too frequently prevail among their inhabitants, the difficulty of obtaining redress in case of fraud, and many other drawbacks, must be taken into account when we contemplate entering into speculations of this nature. Finance companies are, as I have already said, the grandest productions of modern commerce, and they are also the most speculative. Hence they require the greatest care and the most extensive information on the part of those who are to conduct them. They have another dis- advantage which they share with all joint-stock companies more or less; and that is, that it is -comparatively easy to get up " bubble" com- panies of this description. Few persons know much of the real grounds on which a company is formed; the public puts its faith in the principal names on the direction, and these have often been either fraudulently obtained or boldly printed without their owners' consent. It is a notorious fact that a company was formed by three penniless 142 LEGITIMATE BUSINESS. adventurers, who could not among them pay for a luncheon at a tavern where they met to frame their prospectus ; and yet they " floated" their company, and it ultimately became prosperous; but then the scheme was a good one. But finance companies are especially subject to danger, if they pass out of their legitimate field of operation. They ought never to be subject to " a run/' and ought therefore to eschew all deposits save for considerable periods. Most of those which suffered in the late panic did so by not adhering to this rule. Their business is to have their capital " locked up/ 5 and to be subject to no demand save for dividends. They require also peculiar care, on the part of shareholders, to have satisfactory and searching examinations into the state of their affairs, and it is the duty of these, in case of any irregularity, to deal stringently with managers, secretaries, directors, and auditors. The following details of a case tried before Vice- Chan cellor A. B. will exhibit the need of such vigi- lance. A morning paper of a certain date not long since, gives them thus : " This was a motion for an injunction to restrain C. D. from purchasing with the company's money any further shares in the company, or in any other company which the directors of the X. Y. are not CURIOUS CASE. 143 justified in purchasing by its articles of association. The bill alleged, that although the company was forbidden by its articles of association from pur- chasing its own shares, C. D. had previously to the last general meeting, on the of , purchased more than 20,000 of its shares at premiums varying from to per share out of the funds of the company ; that if the shares increased in value C. D. resold them, and appropriated the profits; if they declined he allowed the shares to remain in the names of his nominees as trustees for the company. The bill contained further allegations, that C. D. out of the company's funds purchased upwards of 12,000 shares in the Z. Improvements Y. Company (1750 being re- gistered in the name of F. G., and 2349 in the name of H. I., two of the clerks of the X. Y., and 350 in the name of J. K., a clerk in the employment of C, D., and a stockbroker) ; and the plaintiffs further alleged, that in case the company should be wound up, the dona fide shareholders would not have the benefit of any contribution whatever from the persons in whose names the shares so purchased stand, as such persons were in humble means and wholly unfit to pay calls; that L. M. had spent upwards of 200,000 in buying shares in the Im- perial Land Company of W., and that they had 144 INJURY TO SHAREHOLDERS. bought large numbers of shares in the U. Free- hold Land and Docks Company, in the S. T. Rail- way, and in the Q. R. Coal Company, all these purchases being entirely unwarranted by the articles of association, and for the purpose of ' rigging the market/ that the shares so purchased had been in- cluded among the assets of the company in its balance-sheet, while they were in fact entirely valueless, and involved it in heavy liabilities. Other charges against the defendants were, that they had occasioned ruinous losses to the company ; that they had appropriated profits made with the company's moneys to their own use. C. D. was further charged with receiving from the Z. Im- provements Company a large sum in cash, for having used his influence with the company to in- duce his co-directors to introduce the defendants' company, and that C. D. and L. M. had shared such money between them."" It is true that these charges were indignantly denied, and it is no province of the mere chronicler to doubt the truth of the denial, but similar charges were made against many companies, and they aided greatly to keep up and intensify the recent panic. The very nature of a finance company requires a greater amount of reticence than is necessary in most others. Were their plans all divulged the NECESSITY OF RETICENCE. 145 directors would never be allowed to carry out any one ; their whole time would be spent in discus- sions, all fruitless, and all expensive. Few share- holders would be competent to advise, and all would take upon them to interfere. This reticence is, how- ever, by no means an element of danger. It happens that those very companies in which there is the least probability of trouble or interference on the part of shareholders, are precisely those which to a dis- criminating 1 mind have the best chances of success. We must except, however, those cases in which a company is formed out of an old private business, supposed to be fortunate. These speculations are quite as often failures as successes. In the first place, there is the antecedent improbability that a flourishing concern will be given up by those who possess it. In the next, there is the inconsistency of such persons remaining to manage a firm for others, which they have, as it is presumed, con- ducted with a profit all their own. There is little danger of interference on the part of shareholders here, for it is an ominous and significative circum- ' O stance, that in the share-list will rarely be found the names of persons engaged in any similar occupation. But to return to finance companies. They are subject, of course, to most, if not all, of the dangers to which other commercial associations are 146 RAILWAY CONTRACTS. liable, and they have some which are peculiar to themselves. They suffer from foreign intrigues and diplomacy, from the vicissitudes of war, from the non-fulfilment of foreign obligations, and these because many of those undertakings for which they furnish the means, are in foreign lands, and subject to foreign conditions. At the same time, they are frequently, by the imprudence of their managers, victimized considerably at home. Here is an instance, imaginary indeed, but one which is by no means merely so. It is taken from an able and well-known periodical : A railway contractor finds that he is in want of funds with which to conclude the contracts. On application to, the company to which the line belongs, he meets with a frank avowal that what between fare expenses, surveying fees, engineers' charges, and other outlays, their balance with their bankers is in a state of collapse. What is to be done? To go on without money is impossible; to declare his inability to proceed is bankruptcy and ruin. In place of hard cash, will the directors give him a certain amount in debentures paid up, or paid-up shares, upon the future line ? Of course they will are delighted to do so in other words, they virtually discount the future problematical profits of a line not yet made, or, at any rate, not PAYMENT BY SHARES, 147 finished. It is as if a young man, newly appointed to a commission in the army, should pay for his outfit by bills which would fall due when he shall become a captain in the service. But anything is better than to stop the works of the railway. To place debentures bearing four, five, or even six per cent., and which are only payable after a term of years, with the general public, is an impos- sibility. What sane man would dream of in- vesting in such securities with consols at 88, and finance companies paying 40 per cent. ? But these securities serve the purpose of the contractor, who has undertaken far more than his capital justified him in doing, and his employers are equally pleased to pay him on these terms. But of what use are these debentures to a man whose chief outlay is the weekly wages he has to pay? Navvies, even if they could be made to understand the nature of such securities, could hardly be induced to take them in lieu of their weekly wages. But the contractor has no intention of making any attempt to palm off the paper he holds upon the rough giants he employs. With, say, 50,000 of these debentures in his hand, he betakes himself to the " Universal Finance and Comprehensive Credit Company, Limited;" and after one or two interviews with the general manager, his pecuniary L2 148 PROSPECTS OF FINANCE COMPANIES. arrangements are completed. By depositing these debentures for 50,000 with the " Universal Finance/' he obtains the acceptances of that company to sundry small bills, drawn in sums of perhaps 500, and amounting to a total perhaps of 80.000, thus leaving a margin on the security of 20,000. But though nothing could be more satisfactory than this on paper, yet it is evident that these bills must be continually renewed till either the railway itself is complete, and begins to pay, or till some catastrophe occurs to the financial company. If the latter has been well managed, and has had few transactions of the kind, then this, as an excep- tional proceeding, may pass ; but if it be a specimen of the company's operations, they will before long clash, and railway and finance company will go down together. The error will have been in taking obligations which required speedy fulfilment, and balancing these with securities which could only be realized at long periods. But, after all, if any great works are to be carried out in the coming age, it will be the new Finance Company principle which will have to accomplish them. It is the widest and grandest development of the limited liability system which has been witnessed; and it is as likely to be as useful to the age which wonders at it, as it is magnificent in itself. CHAPTER XII. PANICS AND THEIR CONSEQUENCES. Nature of a Panic Various Causes Operations for the Fall Bank Failures How Caused Hints to Shareholders Effect of Wise Conduct on the part of the Public Maxims of the late Duke of Wellington Description of a Panic. WHAT is a panic ? It is a wild, groundless, un- reasoning, and unreasonable terror. It once para- lysed statesmen, and defeated armies, and destroyed dynasties. Now it for the most part contents itself with causing banks to close, merchants to fail, and finance companies to make calls on their shareholders ; it brings ruin to speculators, embar- rassment to contractors, and poverty to families. There is, therefore, quite as much mischief effected now as there was when persons of high degree were the ostensible victims. We have just passed through such a season in London ; and, as we would gladly help those who look a little before them, we ven- ture to express an opinion that we have not yet seen the last of it, and we think that those con- cerned will do well to be prepared for a relapse. Yet there is no reason in the nature of things why 150 CAUSES OF PANIC. this should be. There is very little that is un- sound in the present condition of business ; perhaps taken on the whole it was never more satisfactory ; but the crisis which is now passing away favourably has had a cause which is no secret ; and, knowing this,, we do not consider a little caution altogether to be despised. It is generally understood that the late panic was to no small extent the deliberate work of specu- lators for the fall, or, as they have been more accu- rately denominated, operators for the fall. To a great many of our readers this will be intelligible enough, but the nature and work of the money market is so little understood by the multitude, that we shall take on ourselves to offer a few illus- trations of a subject very interesting to the initiated,, and equally dry to all beside. An " operator for the fall" is one who wishes, for his own personal benefit, to bring down the value of securities, so as to throw them on the market in large amounts, and at a low price. This may be done by those who wish to buy largely for investment, or by those who intend to make fictitious sales. To accomplish his object the "operator" circulates rumours prejudicial to the Government whose stock he desires to depreciate, or the firm or com- pany whose shares he traffics in. " Jacob Omnium RUMOURS ON 'CHANGE. 151 is about to resign the chairmanship. I have it from a sure source. He knows which way the wind blows, and he is quietly throwing all his- West Diddlesex on the market/'' "They do say that Baron Redshield has refused aid to the Cur- sitor-street Finance and Discount, and it is quite certain they can get no assistance from Grubber and Grabber." " Have you heard the last tele- gram from Paris ! The Emperor has agreed to re- call his troops from Mexico, and a filibustering expedition is by this time on its way to the frontier. Seward has given the leaders his assurance that they shall not be interfered with, and Maximilian has ordered the Palace at Miramar to be got ready for his reception.'" So far as these rumours are .credited, down go West Diddlesex, Cursitor-street, and Mexicans. People who only judge by the articles in the papers take fright accordingly, sacri- fice their shares in bank, company, or foreign stock, and the speculators make their own market. Few persons, save those on the spot, can imagine how sensitive a thing the money market is, and how far a well-imagined calumny will travel, or what amount of mischief it will do before its falsehood is discovered. Never was this diabolical act carried to so great a pitch of perfection as at the present time; never did a few ingenious lies work such 152 CAUSE OF FAILURES. widespread devastation. Dr. Watts, in one of his innocent hymns, says Bolts and bars can secure me from robbing and wrong, But nought can protect from a liar's vile tongue. Like a celebrated classical prayer, half the doc- tor's assertion has been dismissed to the four winds of heaven ; bolts and bars wont protect one against Mr.Caseley ; but the other half of the poet's distich remains in all its truth. It is said by well- informed persons that from twenty to thirty brokers deliberately set themselves to run down Overend, Gurney, and Co., and effected it ! This company is far from being the only one which has met with similar treatment, and to combinations of this sort, men of experience have no hesitation in attributing the severity of the recent crisis. There is no doubt that many unsound speculations were afloat, many houses in business insolvent ; but these were not the only sufferers. Firms that could have gone on, tided over their difficulties, furnished safe investments, and carried on a long, enduring, and valuable business, were utterly destroyed. From the example both of the Agra and Master- man's Bank, and of the Consolidated, it will be clear to those who shall chronicle the panic of 1866, that no amount of reputation on the part of AGRA AND MASTERMAN'S BANK. 153 directors and managers was sufficient to protect the firm marked for destruction. It was emphati- cally said of the latter bank that its directors were " solid, responsible men rich, and up to their eyes in large affairs ; some of them, who, like Mr. Smith, had managed millions, or like Mr. Fender, had built up first-class fortunes by their own skill and daring ; or like the Messrs. Hankey, had been bankers from their youth up." Yet this very board did what any bankruptcy lawyer would have told them was a very doubtful one in respect of legality. They agreed to take over the business of another bank which had given way that is, to take part of the assets, and pay part of the credi- tors. They would pay deposits, but not accep- tances. Of course, this intention was disputed ; holders of acceptances insisted on being paid ; and the miseries of unsuccessful litigation were added to those of rash speculation. But though there was so able a Board of Directors, and so large a subscribed capital, the whole history of the case showed that the managers made as many blunders as it was well possible for them to make, and that to gratify the demand for immense dividends, they undertook equally immense risks. But they were in a great degree the victims of their own share- holders. We need not contend with some that 4 per 151 MONEY LOCKED UP. cent, is better than 40, but we may be quite sure that when the prospect is held out of obtaining an ab- normally large percentage, the shareholders of a joint-stock company should look carefully into their securities, and rather hold back their direc- tors than urge them into untrod, and probably dangerous, paths. When under such circumstances as these, a panic is created no matter by whom, or with what object a bank or company has no chance of recovery. Nor in enumerating the many evils which arise out of panics, must we omit to mention the great inconvenience which the public suffer from large sums of money being locked up in monetary companies under liquidation. At such time men in business are distressed, not so much from hav- ing lost some of their money, as from having been suddenly deprived, although, perhaps, only for a time, of the use of all their available cash. On Saturday nights masters cannot pay their workmen, and even private individuals are placed in an awk- ward position from their inability to command a single shilling. This difficulty can be easily met by the liquidator granting to the creditor on his releasing his debt a certificate of indebted- ness payable to bearer, or where the sum is large, a number of certificates representing the total amount. These certificates would be immediately PANICS CAUSED BY IGNORANCE. 155 marketable at a price, and also available as security. Debtors to the estate, and shareholders having calls to pay, would be glad to purchase these certificates to extinguish their liabilities, and thus the company would gradually liquidate itself. The plan has been adopted in the case of Overend, Grurney and Co., and was perfectly suc- cessful. Panics often arise from commercial ignorance, and especially from two prevailing errors one of which is, that wealth and money are synonymous terms ; the other is, that in commercial transac- tions there are two opposing interests involved that of the buyer, and that of the seller. The national wealth of a country abounding, like our own, in coal, iron, tin, lead, and copper in cereals and cattle in fish, wool, and flax must entitle it to the appellation of a rich country, even though there were not a coin in it. France, with her boundless store of corn, wine, and oil, is of her own nature wealthy; and money is in such countries only the medium of exchange by which wealth is made available. It is quite possible for a man to have a fertile estate, often of many thousand acres, and yet to have only a balance of one hundred pounds at his banker's; but he does not oh such grounds cease to be a rich man. Now what is true of nations and private men, is true also of merchants and 156 WEALTH AND MONEY. mercantile associations. In fact, the truth is self- evident ; and it would be almost ridiculous to insist upon it, were it not that so much of our com- mercial distresses arises from its being ignored or forgotten. A credit, or finance company, possesses securities to the amount of a million sterling. These form its wealth ; but these cannot, in their very nature, be prematurely turned into cash. Its members have invested their money in them, in order that it may fructify ; and to draw out that money till it has done what they invested it to do, is the trick of a child who pulls up the flower he has planted, to see how it is " getting on." All mercantile business must be carried on in a spirit of confidence. Money and time are its elements, and the result is wealth. An opinion has lately obtained, that all our recent embarrassments have arisen from "over- trading" and some newspapers have been lecturing the public on this topic, and preaching a kind of crusade against Finance and Credit Companies, as particularly guilty of this great commercial sin ; but have not been good enough to tell us what " over-trading" means. We should define it thus : It is the entering into arrangements which the contractor has no legitimate means of meeting. A company purchases, with money entrusted to its dis- WEAK HOLDERS. 157 cretion, a tract of land say in Brazil, for instance rich in mineral wealth and in timber, fitted for the production of cotton and cocoa, and advanta- geously placed with regard to the sea. It wants capital to develop its resources. This the Com- pany supplies. The scheme begins to prosper shares rise in the market dividends increase. Now occurs a panic. Reports are diligently spread that the prosperity is all fictitious; the shareholders have been deceived ; the great men who joined the company are leaving it; weak holders that is, those who hold a few shares, and are afraid of a call take alarm. Country holders hear of the decline, and make inquiries. Too often they also, with the idea of realizing something out of their venture, even if they sacrifice the rest, sell out at a loss. Speculators effect fictitious shares at low prices, and thus frighten those who read the money articles in the daily papers, and the fall goes on. There is a run upon the deposits, property cannot be converted into cash fast enough to satisfy the demand, and the result is a " crash." Now, it is impossible for one bank, or company, or great house, to fall alone. These business transactions are so blended, too, that the ruin of one must en- tail that of others likewise ; the panic increases, and widespread destruction is the result. Certain 158 NEWSPAPERS SUSPECTED. of our own papers are said, it is to be hoped incorrectly, to have been among the chief " operators for the fall /' and the curious but incorrect reports which they occasionally circulate, make it necessary for men of business to be very cautious, and to make very close inquiries before they act upon them. For, canards as they are, they do still considerably affect the price of securities on our Exchange. It is true that their influence is diminishing, and will soon be rendered all but innocuous ; but what has been done by one agency may be done by another ; and it is above all things necessary to remember, that it is by such means that the most deplorable kind of gambling is perpetuated. The following observations from an eminent financial writer are quite to the present purpose : he says, " those who act in concert to depress the shares of financial companies and banks, to suit their own purposes, bring themselves within the reach of an indictment for conspiracy."" It is a matter of notoriety that regular combinations have for some time past been formed for the purpose of making money by sending down shares in the market. The modus operandi is as follows : they select the company which is to be the victim of their nefarious plotting, and then unite in seeking by every possible means MODE OF OPERATING. 159 to withdraw public confidence from it. At first they were tolerably cautious in their opera- tions, confining themselves chiefly to fictitious sales among themselves, which were subsequently quoted as genuine in the price lists ; but recently, grow- ing bolder by impunity, they have resorted to more daring and speedier methods of shaking public confidence in the stability of the company against which they are operating. Printed notices are scattered broadcast in the City, advising depositors to withdraw their balances. Circulars are sent to shareholders, counselling them to sell out without delay. The effect of all this, combined with the critical state of affairs, is to cause a run upon the doomed establishment, which, sooner or later, re- sults in a stoppage. The conspirators pocket their paltry gains, gains procured by entailing ruin and misery upon hundreds and da cavo ! There can be little doubt that these and kindred operations constitute a complete conspiracy. What is the definition of a conspiracy ? " A combination or agreement between several persons to carry into effect a purpose hurtful to some individual or to the public at large/'' What can be more hurtful to the shareholders of a company than to depreciate the value of its shares ? What can be more hurtful to the public at large than to depreciate without reason shares which are a vendible commodity in the public 160 INDICTMENT FOR CONSPIRACY. market? An agreement or combination is entered into to depress shares : what is it but a conspiracy? What are those who are concerned in it but con- spirators, and indictable accordingly ? If several persons determine to sell out of a company, because they have doubts of its stability and no longer think it a desirable investment, the carrying out of their determination might probably result in depressing the shares of the company, but as they acted lond fide they would commit no offence. If they agreed however, to sell out of the company, simply to de- press the shares for purposes of their own, they would act mala fide, and would, I think, be indict- able for conspiracy. Granting that these combinations are illegal, and that those who take part in them can be in- dicted for conspiracy, it is said that it is difficult to obtain sufficient proof. It is certainly not an easy thing to obtain evidence of conspiracy, but the greater the number of persons engaged in it the greater the facility there is for finding it out. But it is not impossible to detect a conspiracy even where great care has been taken to conceal its operations, for some of the conspirators will gene- rally be found ready to save themselves by turning Queen's evidence. In the case of the conspirators in the City, no great difficulty would be found, COLLECTING OF EVIDENCE. 161 in collecting evidence in proof of their opera- tions, their clerks, messengers, and porters must have some inkling of their proceedings, and a reward of 1000 would be a tempting bait. The printers of the memorandum and notices flying about in the City would come forward if properly remunerated. Strong suspicion would attach to large buyers after a sudden and unexpected fall, and the city detectives have tripped up cleverer fellows ere now than the bears. But these are only hints. Cannot an association or body of persons be found, who, from motives of interest or public spirit, will take the matter in hand ? If successful, they will earn the gratitude of thousands, they will save many a tottering company, will reinstate financial affairs upon their legitimate and sound basis. Even if they fail, which I think is ex- tremely unlikely, they will not have wasted their time or their money, for the circumstance that the law is on the alert will have a very salutary effect in deterring the culprits. Why is the Bankers' Association quiescent ? Why do not the respect- able members of the Stock Exchange start a fund and engage competent legal assistance thoroughly to sift the affair ? The laws of finance teach us that, wealth and money not being convertible terms, a banker may 31 162 HOW TO STOP A PANIC. trade with three-fourths of the capital in his hands. Over-trading, then, means going beyond this ; but if a panic be created, then a house which has never over-traded may be forced to close not by any fault of its own, but by that of the creators of the panic. We come, then, to the question, How can a panic be prevented, or stopped when already exist- ing? The latter is almost impossible; though something, as we will presently show, may be done even then. But prevention is not only better it is also easier than cure ; and the physician who knows the cause of disease is far more likely to cure it than one who goes blindly to work. Ad- mitting, what can hardly be doubted in modern times, that a panic is created for the purposes of gain, by parties whose greed of gold is utterly careless of the ruin they cause, and that opera- tions for the fall or rise, as the case may be, are among the chief instruments by which they work, it will be plain that the Legislature and the Stock Exchange, acting together, might render much of the fraud now perpetrated impossible; and that a still further diminution of its success might be effected if the public would second both in carrying out such regulations as might be made to that effect. IMPUNITY OF BROKERS. 163 An d first, the impunity with which at present a broker contracts to sell shares which he does not possess should be entirely removed. He should be compelled to specify the shares he disposes of, and to give th e dates of the whole transaction ; and the omission of this might be made penal. The Stock Exchange might refuse to ratify all transfers in which sufficient formalities were not gone through. It is much to be regretted that the Stock Exchange Committee have declined to insist on this, and though a bill is to be brought into the House of Commons to effect the object, yet it will be, in all probability, defeated by the agency of the Stock Exchange. Purchasers however may insist on having such . particulars, and on having their shares or stock on the day specified, and not be put off on any pre- tence whatever. These measures would be a check on operators, and a security for genuine investors ; but the chief reliance of the public must be on themselves. The following extract from the Standard news- paper, referring to the money market, on June 13th, shows the soundness of the preceding obser- vations, and gives hope of a better state of things : M 2 164 LONDON AND COUNTY BANK. " The great feature of the day was the rise in the shares of the London and County Bank, owing to the ' Bears,' who sold so largely a day or two pre- viously, being unable to supply the purchasers with the security at the settlement which commenced on that morning. The dilemma in which the small clique, whose operations have lately been the principal cause of the ruin of thousands of share- holders, was placed, has occasioned general satis- faction. Many of these gentlemen who succeeded, a week before, in reducing the value of the shares to 62, were compelled to give 72 for them, or to a backwardation of 5, and in some cases as much as 7 and 9 for the loan of the security for a fortnight. These rates were quite unprece- dented; and it is hoped that their effect will be to teach a moral lesson to those who have so ruth- lessly endeavoured to damage the property and prospects of their neighbours. There are a few maxims which seem to be for- gotten when chiefly they ought to be remembered. " Nothing venture, nothing have," is one ; and another is that famous one of the late Duke of Wellington, " High interest means bad security." Now, all commercial companies banking, finance, discount, mercantile, or manufacturing mean trade, and trade means risk. If I buy shares in TRADE BISKS. 165 Jones and Popkins' brewery, I become a brewer to the extent of my liabilities ; and just as much a tradesman as though I invested my money in a grocer's shop, and carried on the business myself. I buy shares as I might buy the retail business : if either be well selected, and well carried on, the profits will be large ; if otherwise, I shall in both cases lose my money. I am induced to do what I do by the hopes of having trade profits ; but then I must at the same time undertake trade risks. It must also be borne in mind that when a private business is made into a company, there is always a presumption against it ; for what man, realizing a large income, will hand over its sources voluntarily to a body of strangers? This objection does not apply to banks, finance, and discount companies, by reason of the enormous capital they re- qaire. Having then, with sufficient care, selected my investment with a view to trade profits, and recog- nising the impossibility of avoiding trade risks, I do not go to sleep ; I watch the proceedings of my directors ; I attend the meetings of the company ; I study its balance sheets ; I vote at all elections ; and I bear in mind that it is only by attending to business duties that business risks can be kept down. Lastly, I support the company with my 166 DUTIES AND RISKS. credit and my confidence. I will not accept the c operation* for the fall ; and under such circum- stances I may not only hope to make my invest- ment a good one, but I shall rarely fail. This is an exemplification of the maxim "Nothing ven- ture, nothing have." The Iron Duke's maxim applies to those who forget that trade profits imply trade risks. He would not have said to a young man about to esta- blish himself in a retail business "Put your two hundred pounds in Consols, and live on the interest, for high interest means bad security;" but he would have counselled rigid scrutiny, and then permitted legitimate adventure. Only, if a man chooses to become a tradesman, and then leaves the shop to take care of itself, the least he can expect is an unpleasant notice in the Gazette. I will conclude this chapter by a return to its primary subject, and subjoin a most vivid and pic- turesque description of a scene during the panic of 1825. It is taken from the shorthand writer's notes of the evidence given by Mr. Eichards, the Deputy-Governor of the Bank of England, before a Committee of the House of Commons ; and it will in some respects remind thos e who were in the City during the panic of 1866 of what they saw at that time. PANIC OF 1825. 167 " I think," says Mr. Richards, "it must have been in the autumn of 1825 that the Bank began very seriously to contemplate what would be the result of the speculations and of various circum- stances that were going forward. That increased in October and November, when there continued to be a very great demand for gold, which I think began aoout April ; and I believe it advanced down to the fust Saturday in December. Not only the Bank, bub, I believe, every man's mind connected with the City, was in an extreme state of excite- ment and alarm. I think I can recollect, on the first Saturday in December, having come home after a veiv weary and anxious day from the Bank, receiving a visit from two members of this com- mittee and one of our bankers, at my own house, stating a d fficulty in which a banking-house near to the Ban! was placed. I will not assert it, but I believe tfcy had gone so far as to take care of the clearing of that house that evening, so that it might fulfil its engagements. The object of that visit was to ascertain what would be my views upon the subject. I was called upon because the Governor was particularly connected ivith the house of Pole and Co., ly marriage and other cir- cumstances of relationship. After speaking upon the subject for some time, I was pretty sure that I 168 HOUSE OF POLE AND CO. could answer for the firmness of the Bank ; and I ventured to encourage these gentlemen to hope that, upon anything like a fair statement, the Bank would not let this concern fall through. It was agreed that upon the following morning (Suiiday), we should meet as many directors as I could get together, with the three gentlemen who had called upon me, at the house of one of them ; and that in the meantime some eminent merchants, friends of the house, should also be called to the meeting to assist with their opinion. We so met; ^nd, after hearing all the facts, which were collected in the first instance by the bankers and merchants pre- sent, the directors authorized their ehairnan to say that assistance should not be wanting It was agreed that 200,000 should be placed at the dis- posal of Pole and Company the next mcrning, for which the Bank was to receive, as securities, a number of bills of exchange and notes of hand; and over and above, a mortgage on Sir ?eter Pole's property, which was to ride over the whole. They fought it through till Thursday or Friday pretty manfully, and up to Saturday evening, whm their position was such, that without assistance of the same eminent individuals who had takm part before, the clearing would not have gon< right. Sunday passed : and on Monday morning the TERMINATION OF THE PANIC. 169 storm began ; and till Saturday night it raged with an intensity that it is impossible for me to describe. On Saturday night it had somewhat abated. The Bank had taken a firm and delibe- rate resolution to make common cause with the country as far as their humble efforts would go. In the following week things began to get a little more steady ; and by the 24th, what with the one- pound notes which had gone out, and other things, people began to be satisfied ; and then it was, for the first time in a fortnight, that those who had been busied in that terrible scene could recollect that they had any families who had some claim upon their attention. It happened to me not to see my children for that week." CHAPTER XIII. HOW THE NATIONAL DEBTS ARE TO BE PAID. Necessity of the Payment Taxation How to be Arranged Direct and Indirect Argument in favour of each Income Tax Excise and Customs Balance in favour of Taxation, partly Direct and partly Indirect. NATIONAL debts follow the same rule with regard to their payment as other obligations of the kind they require to be defrayed out of national resources. Foreign debts are usually secured by hypothe- cating some sources of these revenues ; but in our own country the whole burden falls on the general income, and is annually paid out of the amount collected by taxes. It is to be observed that no creditor of the Government can require the pay- ment of his individual debt, he can only transfer it to another person, who will, in that case, become the creditor of the nation in his place, and receive his portion of the dividends. And here intervenes the connexion between the money market and the taxation of the country. If the debt be a national one, the payment of the interest becomes a national duty ; and all who derive benefit from the results TAXATION AND FINANCE. 171 produced by the money lent to the nation are bound to take a part in that payment. Taxation, also, affects the money market directly and mecha- nically, as well as philosophically, for an unpopular or impolitic tax will cause a fall in the funds in direct proportion to its unpopularity or its impolicy. Again, whatever is an evidence of the general welfare raises the price of the funds and nothing can be a greater evidence of this than a surplus revenue a deficit always lowers the current value, while a surplus income as invariably has the opposite effect. On this account the subject of taxation must not be omitted here, though it will require to be briefly treated. "We have arrived at the conclusion, that the purposes for which, among ourselves, taxation is imposed, are just and right. We come next to the questions, in what manner these public contributions should be levied ? and who are the persons on whom the burden ought to fall ? Of these two questions, the latter must take precedence, because the manner of raising the public income is wholly determined by the con- sideration upon what classes it is intended to lay the burden. If I wish to tax solely the rich, I must lay an 172 TAXATION AND SUFFRAGE. impost on all articles of luxury, and establish a property-tax of such a nature as to leave untouched small sums and small incomes. If I wish to tax chiefly the poor, I must tax the necessaries of life, and the wages of the workman. But it may be remarked, that no system of mere taxation can be devised by which the wealthy can be altogether exempted, and the poor alone burdened. All that can be done towards this iniquitous and impolitic end is to make the poor man pay as much as the rich ; and this would be effectually accomplished by taxing simply the necessaries of life ; for as the rich man cannot consume more than the poor, so he would not be called upon to pay more. I think it will hardly be denied that, as Govern- ment exists for the welfare of all, it has a claim upon all for support; and this will be the more evident in proportion as the right is recognised of universal representation (universal suffrage is another thing). No man is exempt from this claim simply because he is poor, for he, in return, makes his claim upon Government for protection in life and limb, in the exercise of his civil rights, and his religious duties. He requires to be sure of his wages, to be defended against invasions from abroad, and riots at home ; and for TAXATION AND REPRESENTATION. 173 these advantages lie looks to the rulers of the country. Universal taxation, therefore, must follow uni- versal representation ; and if the principles of pure justice were applied to the question, none would be more easily solved, for each would then be called upon to contribute in proportion to his ability. Not simply because he who has ten thousand pounds receives ten times as much protection as he who has but one thousand, nor solely on account of any arithmetical proportion whatever, but also because all men are stewards of that wealth which God has given, and which is His ; they are bound as such, therefore, to distribute it. The duty of supporting Government is of divine authority, and men are under obligation to fulfil it according to what they have, and not according to what they have not. The object of taxation, then, is to raise by the contributions of every member of the community a sum requisite for, and adequate to, the public service, and to arrange these contributions so that no one shall pay more or less than his share. This is attempted to be done by two modes of taxation, direct and indirect. Taxation is direct when a specific sum of money is demanded of the citizen for the use of the 174 DIRECT TAXES. 'Government. An income-tax, a property-tax, a land-tax, a poll- or capitation-tax, assessed taxes, legacy-duties, poor-rates, and rates of all kinds, are instances of direct taxation. Corn-laws, excise, customs, and stamp-duties, are instances of indirect taxation. It has been contended by some, that all taxation ought to be direct; by others, that it ought to be wholly indirect. The advocates of direct taxation say that as pro- perty and persons alone require Government pro- tection, so an income-tax which repays the one, and a capitation tax which defrays the expenses of the other, would be at once the fairest, the easiest to collect, and the least expensive in the collection of all imposts ; and that therefore into these, all taxes should be commuted. They further observe that direct taxation is by no means so unpopular as it is sometimes supposed ; that men are willing to pay their contributions, when they are satisfied of the necessity, which all are now, and when they see the fairness of the assessment, which all then could understand. They also contend that the negative benefits of direct taxation are yet greater than the positive, for in all indirect taxation the expense of collection is doubled : the interests of particular classes or BENEFITS OF INDIRECT TAXATION. 175 trades are consulted, to the disadvantage of the rest, a new crime is created, that of smuggling, the moral evil of which it is very difficult to exhibit to the uneducated classes in its true light, and that the public revenues are diminished, without any corresponding benefit in return. Besides all these objections, indirect taxation interferes with the freedom of trade, and by its restrictions, limits and sometimes neutralizes the advantages which the industry of a country may obtain for its in- habitants. The advocates for indirect taxation rest their de- fence on these points, they contend that 1. It reaches most easily all incomes, securing the contributions of all to the public need. It may be very difficult to obtain the payment of a few shillings by way of direct taxation from the labour- ing man ; but it is very easy to lay a tax upon his bread, his beer, and his tea, which tax he cannot avoid paying, and does indeed pay unconsciously, and without a murmur. 2. That it avoids the unpopular and apparently oppressive measure of demanding so much money as a direct payment for Government protection, and at the same time is free from the objection of encouraging falsehood and concealment, which an income-tax is sure more or less to occasion. 176 INCOME AND CAPITATION TAXES. 3. That it involves the principle of protection, without which, as they allege, the agriculturist and manufacturer of our own country have no chance of success in contending with the more lightly-taxed foreigner. Now, as all these arguments have their weight, and require to be taken into account (save the last, which is to be decided on other grounds, and has been considered in a separate chapter), we have to strike a balance of benefits and evils, and decide accordingly. The theory which would commute all taxes into an income-tax and a capitation-tax would be a perfectly true one, were it possible for an income- tax to be levied on perfectly fair principles, and to reach accurately the incomes it professes to assess ; but the first of these desiderata has not yet been so much as attempted, and all experience shows us that the latter is not to be expected. Let it be supposed, however, that a fairly graduated income-tax were established, reaching all incomes, and enabling employers to pay for their workmen, while it did not press too heavily upon the larger incomes, it would still be necessary to create supplementary taxes to supply the de- ficiency a growing deficiency, too occasioned by the evasions of the tax. HOUSE-TAX. 177 Should this deficiency be made good by direct or by indirect taxation ? Partly, without doubt, by the former j a few direct taxes on articles of luxury or ostentation such as carriages, horses, dogs, armorial bearings, servants not employed in business would be expedient, both as supplying the required sum and equalizing the irregularities of the greater and more universal tax. A house-tax, if equitably levied, is perhaps as fair as any of these supplementary imposts, for few more accurate means exist of ascertaining the amount of any man's income than the manner in which he chooses to be lodged. Few taxes are, on the other hand, more noxious than a window-tax, its results being equally injurious to health, to taste, to art, to trade, and to comfort. If, after all, any mode of indirect taxation should be considered needful in aid of the more direct mode, it should be levied on such subjects as are of sufficiently general use to produce a sum large enough for the purpose required, and which are yet not the absolute necessaries of life. The argument against the principle of direct taxation, on the ground of its unpopularity, may be speedily disposed of. Men for the most part regard the matter in a purely utilitarian point of view, and are keen enough to perceive which system N 178 BALANCE IN TAXATION. is really the most oppressive. If a Government which obliges me to pay seven pounds per annum in direct taxes does at the same time enable me to save ten pounds every year in the necessaries of life, I shall hardly be so foolish as to clamour against direct taxation, nor is it likely that the real state of the case can be hidden from the great mass of the nation. On the whole, the balance of argument is really in favour of the more direct method, while at the same time direct taxation could not be imposed to the extent which our necessities require; and there are also limits within which indirect taxation may at all times be per- mitted without disadvantage. The last question is, Whether there be any probability of liquidating this debt? That it is desirable, no one can doubt ; although, as its desirability consists in the decrease of taxation, every tax, either direct or indirect, which is re- mitted, has precisely the same effect on the amount demanded from the public, as though a portion of the debt,, with its consequent burdens, were removed. There is, moreover, this advantage attending the removal of taxes, instead of liquidating portions of the debt, that those imposts which are most objectionable may be taken off in succession; and when no obnoxious taxes remain, then the sur- plus may be applied to the liquidation of the debt. CHAPTER XIV. GREAT FINANCIAL FAMILIES. Great Financial Families The Houses of Coutts Payne and Smith Jones Loyd Lord Overstone The Barings Lord Ashburton The B-othschilds Original name Amschel Origin of the name Kothschild Nathan Rothschild. A PEW anecdotes of distinguished financiers may tend to enliven the drier topics of monetary science : " There is a tide in the affairs of men (says Shakspeare), Which taken at the flow, leads on to fortune." The above oft -repeated truism has been signally exemplified in the history of the great banking- houses. We begin with the origin of COTJTTS AND Co. The founder was William Coutts, a careful but enterprising merchant of Edinburgh, whose two youngest sons, James and Thomas, were brought up in business under the paternal eye, working daily at their respective desks. The former came to London at the age of twenty-five, and soon after undertook the business of a banker in the Strand, in the same house in which the N 2 180 COUTTS AND CO. business of the firm is at present carried on. His brother Thomas joined him in the enterprise; and after the death of James, which soon oc- curred, Thomas became the sole proprietor of the bank. An instance of his inherent shrewdness has been recorded by Mr. Lawson, the historian of banking. In order to secure the co-operation of the heads of the leading banking-houses, it was his habit fre- quently to invite them to dinner. On one of these occasions, a guest remarked that a certain nobleman that day applied for a loan of 30,000, and had been refused. Mr. Coutts heard this, said nothing, but that same night he waited upon the nobleman in question, and requested a call from him at the banking-house the next morning. The invitation was accepted. Mr. Coutts received his visitor with much politeness, and offered for his acceptance the sum which he had asked for from the other house. Agreeably surprised, he exclaimed, "But what security shall I give you?" "I shall be satisfied with your lordship's I.O.U." was the reply. 10,000 was received, and 20,000 returned to open an account with the bank in his lordship's name. The 10,000 was soon repaid, and 20,000 more deposited in the care of the bank. High patronage began to flow into the firm, and JONES, LOYD AND CO, 181 among the new customers was, for a time, King' George the Third. The origin of the firm of Jones, Loyd & Co. was curious and romantic. The father of the present Lord Overstone, the Rev. Mr. Loyd, began his career as a Dissenting Minister in a small chapel at Man- chester. One member of his congregation was a Mr. Jones, half banker and half manufacturer, whose daughter attended the ministry of the Rev. Mr. Loyd. Between the minister and the banker's daughter an attachment sprang up, and, despairing of obtaining the consent of Mr. Jones, they con- tracted a secret marriage. Mr. Jones, like a wise man, made the best of the case, and was re- conciled to his reverend son-in-law ; but, as he did not consider preaching to be a lucrative business, he proposed that Mr. Loyd should doff the gown and become a banker in partnership with himself. He yielded to this suggestion, and became one of the firm of Jones, Loyd & Co. Mr. Loyd, as a banker, appears to have been the right man in the right place ; his head was clear, his eye single, and his industry, combined with great talent for business, proved successful for many years, and he was succeeded by his son, Samuel 182 BARCLAY AND CO. Jones Loyd, who was created a pe er under the title of Lord Overstone. The origin of the bank of Messrs. Barclay & Co., whose founders were linendrapers in Cheapside, is rife with interest. Mr. Lawson relates that on Lord Mayor's Day, 1760, George III. made a State visit to the City. There was, from political causes, some irritation among the people, and much tumult in the great thoroughfare between St. Paul's and the Bank, so that one of the horses in the royal carriage became restive, and the king and queen were in apparent danger. In this emergency David Barclay (a Quaker) rushed to the rescue, and, addressing the king, said " Wilt thee alight, George, and thy wife Charlotte, and come into my house and see the Lord Mayor's show." The king with many of his family, like Nicholas the late Emperor of all the Russias, had a profound respect for the Society of Friends, he accepted the invitation of the draper, and went up to the first floor. The cavalcade having passed, the Quaker went through the ceremony of introduction, which, although opposed to formalities in general, David Barclay on this occasion minutely performed. " King George of England Priscilla Barclay, my BARCLAY AND PERKINS. 183 wife ;" " Priscilla, my wife George, King of England/' &c. &c. On taking his leave the king most courteously invited the Quaker to visit him at the Palace of St. James's. At the next levee David Barclay went to court with his son John. When the king saw them he threw aside the restraint of etiquette, and gave David a hearty shake of the hand. One of the king's inquiries to David was " What do you in- tend to do with your son John? Let him come here, and I will find him good and profitable em- ployment" an offer civilly, and perhaps wisely, declined. It is necessary to state that the truth of this story has been disputed. Soon after this interview he established his two sons, James and John, as bankers, in Lombard Street. The descendants of David Barclay sub- sequently became great brewers as well as bankers, and founded the world-renowned firm of Barclay and Perkins. The two great banking and brewing firms are, at the present time, composed almost en- tirely of the descendants of the linendraper of Cheapside who entertained George III. Another private banking firm whose story is replete with interest, is that of Smith, Payne, and 184< SMITH, PAYNE AND CO. Co., Lombard Street. This rich and important firm sprang into existence at Nottingham, at the begin- ning of the eighteenth century, Smith, the first the taproot of all the other Smiths like David Barclay, was a draper, and, being an obliging man, was well patronized, especially on market days, by the wives of the farmers from the country round about. When they had disposed of their chickens, eggs, and butter, they resorted to Smith's the draper to buy their linsey-wolsey gown-pieces, their tapes, neckerchiefs, and thread. Their husbands, after selling their corn and pig=, were wont to smoke their pipes in the draper's cozy back-parlour while their wives were making their purchases in the shop. There they would be joined by Mr. Smith, who could entertain them with the news of the day. One theme of conversation was often uppermost how they should get safe home with their money; the outskirts of Nottingham being proverbially infested by footpads. Here had been the home of Robin Hood and Little John, and the frequent resort of Dick Turpin himself, so that there was old prescription for the then existing state of things. The calculating head and the honest heart of Mr. Smith hit upon a plan to give security to the farmers, while it would bring credit and profit to THE BARINGS. 185 himself. " I will keep your money," said he, " and what is more, I will keep an account of your market transactions ; and then you can draw your cash or get goods from me, as it may best suit your interest and convenience." The plan was feasible, and it was acted upon at once. Mr. Smith was soon in possession of large sums of money, with which he could and did accommodate merchants and tradesmen in Nottingham. The interest for this money became a fruitful source of income, the profits being entirely his own. In time Mr. Smith became a regular banker. After his death his son extended his operations to Lincoln and to Hull. His grandson sought for and found a cor- respondent in London, who, like himself, was active and shrewd in all his dealings. This was Mr* Payne, with whom he entered into partnership, and hence arose the firm of Smith, Payne, and Co., near the Mansion-house, which still keeps its footing notwithstanding the all-absorbing influ- ences of the Joint-stock Banks. A still more important firm was that of THE BAKINGS. Their immediate ancestor was a Lutheran pastor 186 SIR FRANCIS BARING. settled in England. His son, John Baring,, esta- blished himself as a cloth manufacturer in Devon- shire. He acquired a fortune, and left behind him. four enterprising sons, of whom Francis, the second, devoted himself to banking. He speculated largely in Government loans, and subsequently became the friend and monetary adviser to Lord Shelbourn, the predecessor of Mr. Pitt. To secure the good- will of this great banker, Mr. Pitt created him a baronet. He died in September, 1810, leaving a fortune of more than 2,000,000. In the next generation we find Alexander Baring, the son of the late Sir Francis, placed at the head of the firm, and undertaking the greatest monetary operations ever effected by a single banker. Upon one occasion he lent to France the sum of 1,000,000, at five per cent., which freed France from the burden of 150,000 foreign troops which were occupying that country. Alexander Baring died at Longleat in Wilts, in 1848, after being- elevated to the peerage as Lord Ashburton. The present head of the house is Thomas Baring, M.P. for Huntingdon since 1844. Parliament in the session of 1864 could count six Barings one among the Lords, and five in the House of Commons. In the course of a century the descen- dants of the German pastor have risen to the THOMAS GUY. 187 highest political influences and become princes in the commercial world. Thomas Guy, the founder of the hospital which bears his name, though not, strictly speaking, a banker, yet as a clever speculator and an extensive dealer in scrip, must have a passing notice on account of the incalculable benefits he has conferred upon the afflicted by the erection and endowment of that princely building, Guy's Hospital. He was the son of a lighterman and coal- dealer in Horselydown, and was apprenticed to a bookseller in 1660. He opened a small shop at the corner of Lombard Street, where he made money by selling Bibles. Cool, calculating, and extremely parsimonious, his active mind was ever on the alert; and during the time of the South Sea Bubble, which engulphed thousands of families in ruin, though foreseeing the tremendous catastrophe which hung over the land, he purchased the scrip to the utmost of his means. When the price had risen to 1000 per cent, he sold out, and realized a profit to the extent of a million sterling. Towards the close of his life he grew more and more rapa- cious ; but he, nevertheless, determined to risk the expenses of matrimony, and to take his maid- 188 THE ROTHSCHILDS. servant to be his wife. The nuptials were arranged, when he ordered some slight repairs to be made on the pavement in the front of his shop ; the in- tended wife, elated with her prospects, ordered the repairs in question to extend a few inches further than her master had directed. This so displeased the millionaire that he broke off the match and gave the whole of his property, by his will, for the foun- dation of an hospital upon the largest scale ever known. He likewise built a number of almshouses at Tarn worth. He died December, 1724, in the eighty-second year of his age, having dedicated more money to charitable purposes than any other man upon record. Thus, out of the most swindling transaction of the age, rose up the most magnifi- cent hospital that ever adorned the world. We conclude this chapter with a brief account of THE ROTHSCHILDS. In the centre of the city of Frank fort-on-the- Maine there is a dirty, narrow, unsightly, and most miserable street, called Juden Gasse (in English, Jew Lane) ; here, in fact, the whole race were imprisoned ; they were not permitted to reside in any other part of the city, nor to move out of their dismal dwelling-place on Sundays or holidays, nor MEYER AMSCHEL. 189 before a certain hour in the morning, nor after a certain hour at night. It was in this lane Meyer Amschel, the founder of the house of Rothschild, was born. He lost his parents at the tender age of eleven, after he had been at school but a few years, and he then marched off with his stick and a bundle over his shoulders to seek his fortune at Hanover, where he was employed as a clerk by a money-changer. He saved a trifle of money, married, and set up a shop as a dealer and collector of old coins; his sign was "THE RED SHIELD," from which circumstance he was called Rothschild. The one only object of his life was to get money, and this art he completely understood. The calamities of war made ready money scarce; nobles deposited their jewels, and freeholders mortgaged their estates which they could never redeem into the hands of Rothschild, often for small sums of money; suffice it to say that, in six years, he had amassed an enormous fortune. He died worth one million sterling, leaving a family of ten children, five sons and five daughters. The five sons surrounded the death-bed of their father, and each of them swore to act upon his will ; this was, that they should enter into a co-partnership, and carry on the business of banking. Anselm, the eldest, was the nominal head, but Nathan, who 190 NATHAN KOTHSCHILD. inherited his father's talents, was the real chief of the firm. Eager to make money, and seeing the rising importance of the English money-market, Nathan left his home, and came to Manchester with eighty-four pounds in his pocket. He began business by lending small sums of money at extor- tionate interest; and at the end of five years (1803) he came to London with a sum of 200,000, and became a member of the Stock Exchange, He speculated in the public funds, where his eagle-eyed shrewdness and intuitive knowledge enabled him to realize immense profits. At times, during the Peninsular War (1810), the Government was pressed for money to supply the heavy demands from the great Duke, and the exchequer was nearly empty ; Nathan Roths- child having faith in the ultimate success of the British arms, often supplied the money. He pur- chased bills at a large discount, and made them over to the Government at par, and then furnished the money for redeeming them. This proved a splendid speculation. By employing a staff of agents abroad to collect all intelligence of a warlike nature, which was conveyed to him by carrier- pigeons, he was supplied with the news of victories and defeats long before they were known in Downing Street; and was thus prepared to make ROTHSCHILD AT WATERLOO. 191 his bargains on ec change." By means like these the wealthy Hebrew brought almost daily large sums into his coffers. When Napoleon returned from Elba, 1815, Rothschild's anxiety knew no bounds. During those memorable one hundred days prior to the decisive Battle of Waterloo, he was in a fever of excitement. He went himself to the battle-field, and placed himself on the hill of Hougoumont, to watch the progress of the engagement, and there he remained until near sunset, on June 18th. When he beheld the French in full retreat, he saw that Waterloo was won for England, and wealth almost immeasurable for himself. He galloped off to Brussels, and from thence to Ostend. Next morning, by sunrise, he was opposite the coast of England ; the waves were high, and the troubled sea moaning as though it were sounding a requiem for the thousands of the dead who had been sacri- ficed to quell the ambition of Napoleon, and to replace a Bourbon on the throne of France. The great financier tempted a poor fisherman by an offer of 80 to carry him across from Ostend to- Deal or to Dover, where he landed in safety, and having procured the swiftest horses to convey him on his journey to London, he artfully but most heartlessly contributed by his hypocritical fore- 192 FALL OF STOCKS IN 1815. bodings to increase the gloom that hung over Threadneedle Street. " Blucher," he whispered, to a few of his friends, " has been routed at Ligny, and Heaven only knows what has become of Wel- lington !" The fall in the funds was tremendous. Rothschild's known agents were all eager to sell, while his secret agents bought while there was a C3 ~ bit of scrip in the market. 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