the sums invested in railways, and a still larger share of the money spent in corn speculations, were borrowed from Bankers and Bill-brokers on accommodation-paper. Many banks which did not themselves discount paper of this class, did what was quite as bad-lent their money to those who did. From this share in the causes that produce panic Bankers are scarcely free.

In many respects a commercial crisis exact y resembles a panic in a theatre. Indeed, a false alarm is quite as effective for mischief as an actual fire. If the people in the theatre could only be persuaded to take it quietly, and with neither undue haste nor need less delay to quit the building, the difficulty could almost always be overcome with scarcely any damage. But when each person in the excited crowd considers only how to save himself by rushing to the exit, he induces others to follow his evil example, causing those suffocating crushes in which the higher instincts of humanity seem to be forgotten, and the lives of men, women, and children brutally and needlessly sacrificed, giving time for the fire to do its deadly work. In similar fashion, during the pressure that precedes panic the resources of a bank are reduced by timid depositors who hoard the money they fear to lose, by borrowers desiring to avoid paying the expected higher rate of discount, who ask for money they do not actually want, thus helping to create and to aggravate the very crisis they dread. Many Banks in the race for high dividends-one of those temporary advantages that in the end prove to be a permanent burden—rather than keep the money not required for legitimate purposes unoccupied, offer it on very low terms to Bill-brokers and Finance companies or to jobbers on the Stock Exchange at call or for short periods, and are thus tempted to run their cash reserves very low. This kind of business, which seems so simple, may be quite safe enough in quiet and prosperous times, but when pressure begins it is very difficult to get free in time from those entangling engagements. A price, however low, has been paid, and of course the funds are invested, possibly in bills the Banker himself would not look at, or in securities among the first to become practically unsaleable. These loans can only be repaid. by borrowing somewhere else, and at such a time this is not so easy. In the end the loan turns out to be anything but short, and the money at call has to be called for a good many times before it is paid.

Although the Act of 1844 can scarcely be made accountable for the crisis of 1847, there is no lack of evidence that the restriction in the note circulation at that time prolonged and intensified it. Immediately the Act was suspended there was an extraordinary feeling of relief everywhere; demands for money urgently made were

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at once recalled; stocks sold at tremendous sacrifices were bought back; withdrawn deposits and hoarded coin gradually returned, soon placing the Bank of England reserve on its familiar footing. It stands to reason that when the mere suspension of an Act of Parliament causes such a surprising relief, the restriction must have been the cause of a corresponding anxiety. The defence of this Act is rendered difficult, and its utility scarcely apparent, when we find that in quiet times restriction is unnecessary, and when pressure comes the restriction has to be removed.

The financial difficulties caused by the Crimean War of 1854 were being rapidly overcome, and a period of quiet prosperity anticipated, when in the beginning of 1857 the frightful Mutiny broke out in India, which was then governed by the famous East India Company. The National funds, which in 1852 had reached 1013, in November of 1857 tell as low as 87. Even this calamity, like that of the Russian War, might after some temporary pressure have overpast, but that misfortunes never come singly. The internal trade of a country like ours may be conducted with the greatest caution and skill, but so interlaced are our commercial relations with those of other countries that any trouble overtaking any or all of them is sure, more or less, to react upon ourselves. Our trade with the United States of America, both export and import, has always been large, and it had recently grown at a rapid pace. They supply us largely with food for our popu lation, and with raw materials which they buy back in manufactures, being one of our largest customers. News of disaster in America reached this country in September 1857, beginning with distrust of railway securities owing to disclosures of cooked balance-sheets, and dividends never earned having been paid out of capital. Suspicion once started never stops until, like fire, it consumes everything within reach. The Banks were the next to suffer. In the New England States alone 150 Banks stopped payment. Out of sixty-three Banks in New York, only one maintained its credit. The American rate went up to 18 and even 24 per cent., causing a great demand upon our gold reserve. The effect in this country may be imagined when we remember that our merchants had exported during the year to the United States goods to the value of £22,000,000, besides £80,oco,000 of American securities estimated to be held in this country. The merchants of Liverpool and Glasgow, who trade chiefly with America, were the first to suffer; one Liverpool and two Glasgow Banks had to close their doors; all houses with American connections were in difficulties; and one of the largest London Bill-brokers failed for £5,000,000. On the 12th of November the

Bank Charter Act was for the second time suspended, the rate being 10 per cent.; but on this occasion, unlike the former suspension in 1847, the statutory limit was exceeded by an over-issue of nearly £7,000,000 of notes. The chief feature of this Panic was the vicious system of fictitious credit, created by means of accommodation bills and open credits with no substantial basis or value either given or received. These bills were discounted by Provincial Banks, and during pressure were rediscounted by Bill-brokers in the London market.

The extension of the Panic of 1857 to Scotland was not surprising, seeing the intimate relations the trade and shipping of Glasgow have always had with those of America. Ten years before, the Panic passed over Scotland with hardly any damage, owing to the solidarité with which the Scottish Banks in an emergency stand by each other, as well as the soundness of its Banking administration. In 1857 so much could not be said of all the Scottish Banks. Without wise and prudent management, solidarité would be weakness, not strength. This solid front presented by the Scottish Banks for business purposes at all times, and for common defence in time of pressure, was fortunately neither blind nor indiscriminate; just as it in no wise prevented a healthy rivalry at their headquarters and their numerous country branches. Were this otherwise, a Banking Trade Union might prove most mischievous to the commercial interests of the Scottish people, for, owing to the Act of 1845, the existing institutions have ever since possessed a practical Banking monopoly. The Western Bank of Scotland had more than once lost repute with the other Banks owing to its sharp practices, on one occasion permitting its London agents to actually dishonour its drafts. With such a Jonah on board it would be quite impossible for the Scottish Banks to weather any gale; so after remonstrances, more than once repeated, followed by promises of amendment that were never kept, it was not only just but prudent that they should refuse further assistance, and repudiate a Bank whose practices they unanimously condemned, and which wrought ruin for itself and brought discredit upon them all.

To lay our finger on the principal cause of the Panic of 1866 it is necessary to go back for some years. After discussion, prolonged through several years, an Act was passed in 1855 permitting the formation of companies with "Limited Liability." Banks were at first specifically excluded from its operation, but after the bitter experience of 1857 this unreasonable restriction was removed in the following year. The soundness of the principle of "Limited Liability"

has now been amply justified by the varied experience of more than thirty years. Indeed, no one would no wdream of projecting any jointstock company, whether for Banking, Commercial, or Manufacturing purposes, except on this principle of "Limited Liability." But this idea, like many others equally valuable, was for some time brought into great discredit. It ought not to have been surprising that the unscrupulous partners of many weak and worthless concerns should gladly avail themselves of the opportunity this Act supplied of getting rid of their obligations by bribing the very gullible public with hollow promises of impossible dividends. Companies were promoted to conduct many new and doubtful experiments which no single capitalist or firm would undertake; the profits, according to the highly-coloured prospectus, were so tempting and the risk to each shareholder seemed so small. When this Act had only been a few years in operation it was officially announced that 300 companies had been formed with "Limited Liability," each having a capital of one million and upwards, making between them a total of £504,000,000. The smaller companies were simply innumerable. Out of these 300 there were twenty-seven Banks and fourteen Discount and Finance companies. "Limited Liability" is a very reasonable security against utter ruin to shareholders in a large concern who cannot possibly know or control the character of its business, but it furnishes no adequate protection against reckless trading or culpable mismanagement. Many of these new Discount and Finance companies locked up the greater portion of their funds in large loans to the projectors and contractors of foreign railways and public works executed abroad, which, under the most favourable auspices, could make no return for years.

During 1864 and 1865 there were great fluctuations in the rate of discount, which had more than once to be raised to check a foreign drain of bullion. Immediately the pressure began to be felt the shareholders of the new companies took alarm, rushed into the market to sell their depreciated stock; aided by "bearing" operations on the Stock Exchange, the shares fell tremendously; their creditors next becanie clamorous, the result being that many of these companies were wound-up before they were really started, and their hollow pretensions exposed. The only profits went into the pockets of the promoters who presided at their birth, and the commercial. undertakers, better known as liquidators, who buried them. As money became scarce, the contractors of foreign undertakings were unable to obtain fresh loans or the renewal of their long-dated acceptances; many of them accordingly suspended payment, the

chief assets in many cases being plant and materials located abroad or shares in a half-finished foreign railway, about the most unsaleable security conceivable. From these insolvent contractors suspicion quickly spread to the Finance companies which had hitherto supplied them with funds. There is no reason whatever why Finance companies might not quite legitimately make advances upon long-dated acceptances to the full extent of their capital and such deposits as had been received for a term of years; but for companies to do so while receiving money at call and at short dates, this was the height of midsummer madness. The "birds of prey" on the Stock Exchange soon sent the shares down by the run, frightened depositors vainly. demanded their money, the Banks who had aided them in their folly, and must bear their full share of the blame, refused any further assistance, and then the end was near. The brooding storm began to burst in February with the stoppage, as usual, of a large Discount house. In March a large Provincial Bank failed for £3,500,000. The rate rose daily, until on May 10, the day before that memorable "Black Friday," it stood at 10 per cent. On the morning of the 11th the newspapers announced the failure of Overend Gurney & Co., Limited, for more than 10,000,000. This was the most tremendous failure that had ever happened in the City of London during its long and varied history, and the excitement that followed simply baffles description. That same evening Mr. Gladstone, then Chancellor of the Exchequer, announced to the crowded House of Commons, amid loud and general cheering, that the Bank Charter Act was again suspended. For the third time during its chequered existence of twenty-two years "it was weighed in the balance and found wanting."

The evil of a time of suspicion and distrust is, that not mismanaged institutions only, which deserve no sympathy, but also those perfectly well-conducted suffer and are often sacrificed: the Consolidated Bank, an admirably-managed concern both before and since, having chivalrously undertaken to pay the deposits of the Bank of Londor. which had been run upon, and make advances to its customers, a most public-spirited and prudent step, which deserved a better fate; but on refusing to take over this Bank's acceptances a lawsuit followed, which very absurdly caused a run upon itself, and, after vainly struggling for three days, it was obliged temporarily to close its doors. Owing to a lying telegram sent to Bombay, Agra and Masterman's Bank, after a long struggle, was obliged for a time to suspend payment. It was hardly creditable to the other Banks, and supplies further proof of the weakness of isolation and disunion,