£112 of notes; and it remained at about this figure until shortly before the resumption of specie payments. The large issue of these notes in America had a very great influence in raising prices in that country. The loss of credit sustained by the American Government by too large an issue of inconvertible notes produced a disparity in value between gold and green-backs, and this circumstance brought into existence a class of speculators whose operations were most detrimental to the interests of legitimate industry. These people speculated in gold, that is, they treated gold as an ordinary article of commerce, buying up large quantities of it in hopes of increasing its value.

The Gold Ring of New York. The speculations of the Gold Ring of New York became famous all over the world in the autumn of 1869. The members of the Gold Ring conspired together to buy up all the gold in the country, and all the gold cheques. (The latter are instruments of credit in the form of cheques, and payable in gold coin, not in green-backs.) These large purchases of gold began to produce effect in September 1869, when the members of the Ring held nearly all the gold in New York; the amount owed to them being estimated at 100,000,000 dollars. As the gold owing to them was paid in, they stored it away, and the value of gold began rapidly to advance. The gold speculators thought that they would be able to force up the value of gold 100 per cent. The only thing which they feared would mar their designs was a sale of gold by the Government. Against this contingency they endeavoured in vain to protect themselves; they therefore were obliged to be content with the hope that they would raise the price of gold so quickly, that there would not be time for the Government to suspect the plot. Their expectations were very nearly realised. In one morning before 12 o'clock the value of gold rose from 130 to 160. At 12 o'clock the Secretary of the Treasury ordered a sale of four millions of Government gold; the plot of the Ring was frustrated, and in eight minutes the value of gold fell 12 per cent. At 12 o'clock it was at 160, and at eight minutes past 12 it was at 140; in nineteen minutes more the premium was only 33.-(Fraser's Maga

zine, Jan. 1870.) It is not necessary to dwell upon the injury inflicted upon legitimate industry by the possibility of such occurrences as that just described. It casts a hazardous uncertainty over the transactions of every merchant: and all business partakes more or less of the nature of gambling. The influence of Credit on General Prices is beneficial. Where credit is kept within legitimate bounds, there is no doubt that its influence on prices is beneficial to the general interests of the community. For the use of credit tends to prevent those fluctuations in general prices which are always so disastrous to production, owing to the uncertainty which they cast over commercial transactions. The manner in which credit tends to prevent fluctuations in general prices may be perhaps best described by tracing the operation in this direction of bills of exchange. It has often been explained that the more buying and selling there is, the more money is required; and, if no more money or no substitute for money is forthcoming, prices must decline. With every increase of buying and selling a direct tendency is exerted to increase the number of bills of exchange. If a merchant doubles his buying and selling, he will be sure to give and receive a far larger number of bills of exchange. Hence every increase in commerce produces spontaneously an increased use of credit. A corresponding influence is exerted when trade declines, for when buying and selling are restricted, a smaller number of bills of exchange is employed. If it were not for the use of credit every fresh development of commerce would produce a decrease in general prices, and prices would rise during periods of stagnation in trade. The elasticity of credit thus has a very beneficial influence in preventing great fluctuations in general prices, although in isolated cases the use of credit sometimes produces the most rapid variations in the price of a commodity.

The Direct Economy of a Paper Currency. There is one more advantage derived from the use of credit, which has not been noticed. It has been pointed out that the paper currency of any country forms a more or less complete substitute for money. If bank notes, cheques, and bills of exchange ceased to be used, a much larger quantity of

gold and silver coin would be required. Hence there is a direct economy in the employment of these instruments of credit, because a comparatively worthless substance like paper is used as a substitute for the highly valuable commodities, gold and silver. The material of which a Bank of England note for £1000 is composed does not cost as much as a farthing; its intrinsic value is inappreciably small, but owing to the purchasing power which credit confers upon it, it is as useful to its owner as 1000 sovereigns.

QUESTIONS ON CHAPTER II. Credit, and its influence on Prices.

1. What is credit?

2. What is the test of the credit of an individual or of a nation?

3. What other circumstance besides "ability to pay" produces different rates of interest in different countries?

4. Why is it foolish to assert that credit is capital?

5. Explain the nature of the service which credit renders to the production of wealth.

6. How do banks promote the productive employment of wealth?

7. How do joint-stock companies promote the productive employment of wealth?

8. Shew that the existence of banks and joint-stock companies depends upon credit.

9. What are bills of exchange, and in what way do they facilitate the exchange of wealth?

IO. What is meant by discounting a bill?

11. Explain the manner in which a bill performs the functions of money.

12. What is endorsing a bill?

13. What effect does credit, in the form of bills of exchange, produce upon prices?

14. Why does credit tend to raise the prices of com modities?

15. What would be the consequence, did bills of exchange or some similar instruments of credit cease to be used? 16. What is a bank note?

17. Wherein does a bank note differ from a bill of exchange?

18. Why have Bank of England notes the same purchasing power as gold?

19. How do bank notes influence prices?

20. What are cheques, and how do they provide a substitute for money?

21. What is the Clearing-house?

22. State the annual value of the cheques exchanged in the Clearing-house.

23. What are book credits, and how do they obviate the exchange of coin?

24. How does credit increase the purchasing power of individuals?

25. What effect has this increased purchasing power on prices?

26. On the price of what class of commodities does credit produce the greatest effect?

27. What is the cause of commercial panics?

28. What effect do they produce on credit?

29. What was the object of the Bank Charter Act?

30. What are the provisions of the Act?

31. Has the Act been successful in preventing panics? 32. Describe the regularity with which panics recur, and name the years in which they have taken place since the passing of the Act.

33. Explain why the Act does not restrict the purchasing power of speculators.

34. What is the real effect of the Act?

35. Why, during a panic, would Bank of England notes be accepted, when all other instruments of credit are refused?

36. How often and on what occasions has the Bank Charter Act been suspended?

37. What has been the effect of the suspension of the Act?

38. Name the great service guaranteed by the Act.

39. What is meant by a convertible and an inconvertible paper currency?

40. What are the dangers connected with an issue of inconvertible notes?

41. Describe the famous operations of the New York Gold Ring.

42. Explain the manner in which credit tends to prevent fluctuation in general prices.

43. How is a direct economy involved in the use of paper money?

I. Does a man who forges a bank note add to the wealth of the country?

2. Am I wicked for having £1000 at my banker's and not using it?

3. Would a banker make himself poorer if he burnt one of his own £1000 notes?

4. Can a banker make himself rich by issuing notes? 5. Can any one make himself rich by writing cheques?

CHAPTER III. On Taxation.

The Necessity of Taxation. The legitimate functions of government are generally admitted to be the protection of life and property, and the maintenance of the equal freedom of all. These functions cannot be performed without incurring a considerable expense. To meet this expense taxation is necessary; great interest has always been felt in the questions how taxes should be levied and on what classes they should fall. It has of late years been rightly considered that every one who benefits by the protection which such institutions as a standing army and the constabulary afford, should contribute to defray the expense which their maintenance necessarily incurs. In feudal times this principle was not recognised. There is no doubt that one of the immediate causes of the French Revolution was the immunity from taxation enjoyed by the French nobles and clergy. The whole weight of taxation was thus thrust on the poorer classes, who were not allowed any voice in the management of the national finances. At the present time the principles of justice are not so grossly violated; no class is allowed to enjoy immunity from taxation, but rates and taxes are now levied from all classes indiscriminately; no exemption from taxation is permitted to any one on the ground that he does not approve of the object to which