by the organizer of the Bank of England. The Bank issued bank notes for £5. The Royal Bank, a Tory venture, was set up in 1727. There was great inconvenience from want of coin of all kinds, even to pay wages. The coin left the country to pay for the excess of imports, leading to the almost exclusive use of paper money. Between 1700-60 small Banking Companies grew up all over Scotland, issuing notes for sums down to one shilling Scots equal to one penny sterling. In 1765 Parliament forbade the issue of notes for less than £1.

These ventures were not in every way looked on favourably. The placing of money at a good rate of interest on safe security withdrew capital from the chances of commerce, while the money loaned by the Bank to the Crown was spent for the most part abroad, without any permanent advantage to the islands.

Another great Corporation which had to suffer at the period from political necessity and political corruption was the East India Company. The tendency at the time of the Revolution was towards freedom of trade, depressing the East India Company as a commercial monopoly. William and the Parliament favoured free trade in the Indies, and for a time ruined the trade of the Company. After a ruinous competition for a loan to Government, in which the old Company offered £700,000 at 4 per cent., and the body of interlopers who afterwards became the new Company £2,000,000 at 8 per cent., a competition in which an enquiry brought out the fact that £90,000 had been spent in bribes, of which William had had £10,000, an Act was passed accepting the £2,000,000 and forming a new Company with exclusive trading rights after 1701, when the old Company Charter expired.

The competition and want of capital, combined with the evil behaviour of the new Company's servants, crippled the East India trade until by an award of Godolphin in 1708 both old and new Companies were formed into one Joint Stock Company, which was unmolested until 1730. Then they were compelled to reduce the interest to 4 per cent., and to pay blackmail of another £200,000 for the maintenance of their monopoly, followed by a loan of £1,000,000 in 1744 for a renewal to 1780. Meanwhile the Dutch Company, well supplied with money, made profits three or four times as great as the English Company.

ii. The Value of Credit-Gambling. These last years of the seventeenth and first quarter of the eighteenth century were a time of experiment in finance, of wild speculation based often on unsound or untested theory, the trader and speculator alike feeling their way by risk of failure to more certain ground. Attempts made to prevent the export of bullion were superseded by a theory for so regulating the flow of trade as to cause bullion to come into the country. Naturally people brought bullion most freely to places from which they could carry it out-Spain with her Indian wealth of metals contrasting with the states which allowed free export such as Holland, Genoa and Venice.

Two theories conflicted throughout the eighteenth century over the regulation of and interference with trade, (1) the view that, the good of the community being the chief object, the community should regulate the course of trade, granting monopolies to great Companies and imposing terms for their existence, and (2) the theory which was supplanting it, claiming freedom from all State regulation in the interests of the individual without reference to the advantage of the State. Pushed to extremes, the one theory leads to socialism, the other to selfish

ness.

The stock of the precious metals had been tripled during the sixteenth century, the mines of Mexico and Peru bringing a much greater bulk of silver than of gold. The transport of metals in large quantities by road or ship under the conditions of conveyance which I have mentioned inclined men readily to a system of credits represented by paper bills of exchange or notes of promise to pay, which would obviate the dangers attending the messenger who travelled for long distances carrying bullion. The great increase of trade in all directions encouraged this credit system, which put paper in the place of the precious metals. Yet, with all its advantages, this untried novelty had to be tested as to the proportionate relations of the bullion and of the paper pledges representing cash.

I believe myself that ignorance of the relations between capital and credit, and of the necessity for, and great value of credit, is responsible in great part for most revolutions. The man, unacquainted, as are all except a very few, with the mysteries of finance, seeing the great results obtained by the energy of the great capitalists, the profiteers as they call them,

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are inclined to believe that if the property, whether real estate or commercial venture, was divided among a hundred men instead of belonging to a few, the results would be far greater and the profit divided in much more even proportions among the many. They are ignorant of the power of credit, which rests on belief in capacity to pay and good management of the security, a belief which enables the financier of large means and long experience to obtain facilities for the use of money which would not be entrusted to the many inexperienced with varying plans and views, among whom the property would be divided.

When the revolutionaries or idealists, whether in the eighteenth or twentieth centuries, steal, or, as they call it, nationalize, private property, they injure the community in many ways. They slowly drive out the capital unwilling to move, but fearful of confiscation; they check the employment of labour which, dependent on the hope of future enlargement, rests on the credit of the employer; and they encourage the increasing formation of great accumulations of capital, syndicates, trusts, as the only safe mode in which the men whose skill and energy have enabled them to amass wealth can hope to protect it from the Socialist State at any time. Eventually they cause national bankruptcy, because the fountain of credit from which the wealth flows has dried up.

Wealth may be represented by promises and pledges. But to be of any value the promiser must stand ready on occasion to redeem his pledge, and the pledge must be of a nature to be quickly and easily turned into money. For this last reason land, as shown by the failure of the Tories' Land Bank as a set off to the Bank of England, was not a convenient security for bankers' loans or for advances for some enterprise which might need a quick conversion into cash. Want of proportion between cash and credit brought about ruin, both in France and England, to financial schemes which might otherwise have been carried through with success. We will deal first with the French scheme, which was the earliest in date.

iii. French Finance and Law's System.-In September, 1715, Louis XIV. died just in time to destroy the last chance of any Stuart restoration by French assistance. The Regent for the child Louis XV. supported the Hanoverian succession to prevent

a possible succession to France of Philip of Anjou, who was acknowledged as king of Spain by the Treaty of Utrecht. The industry and commerce of France had diminished from the death of Colbert, partly, no doubt, owing to the Revocation of the Edict of Nantes and partly to the expense of the last two wars and to the weight of the taxes. Louis XIV. had left the finances in a deplorable state :-"un pays ruiné, des impôts lourdement augmentés, un trésor vide, un crédit entièrement perdu, une dette, qui, en y comprenant, outre les rentes constituées, les anticipations, les divers billets d'état, la finance des charges et offices, montait, avons-nous dit, à environ trois milliards et demi de livres (monnaie du temps) sur lesquels 710 millions étaient immédiatement exigibles." In spite of desperate attempts to liquidate the debts by various violent means and by taxes, "la confiance and le commerce ne se ranimaient pas." The debts of the Royal Trésor were about three and a half milliards of livres.

Then came Law with his system claiming that by indefinitely increasing the currency one could indefinitely increase the exchange and the barter. It was not sufficiently realized that success depended on the ability to redeem the promise by replacing the paper with the metallic currency which it represented.

John Law was the son of a silversmith in Edinburgh. He was condemned at the Old Bailey to be hanged for killing a man in a duel, but managed to break out of Newgate and escaped to France, where, after an interval of obscurity, he gained credit with the Regent and evolved his scheme of finance. It rested on the theory that money had no real value equivalent to the article exchanged, but was merely a sign of wealth, and that the best, and easiest, and least costly way of handling it was by paper money, provided that there was a guarantee fund. It was on this last proviso that Law's system broke down, the temptation to print being too great for his honesty, if he ever had any. But, apart from any question of success, Law was only putting into practice in finance the commercial theories of freedom of trade competition opposed to Colbert's system of State regulation of commerce, theories laid down in the first half of the century by Boisguilbert, Vauban, the Abbé Reynal, Vincent Marquis de Gournay, Quesnay,

Claude Dupin, Mercier de la Rivière, and others. This school of philosophers, called the Economistes or Physiocrates, believed that all industries should be equally and entirely free, claiming that exchange was not productive of wealth, but only useful, and that the earth was the only source of wealth, and commerce only the distributor.

Law, in October, 1715, proposed to found a Bank which should be the depository of the silver of individuals and of the Royal Treasure. Owing to the strength of its credit it would furnish notes for a circulation ten times greater than its cash deposits, and by its issues adjust the quantity of specie to the wants of commerce. All the king's revenues were to be carried to the Bank to be exchanged for notes. The king would pay his debts in such notes, and people would like it because of the convenience of handling. The Bank, by establishing the currency, would provide the means for commerce and credit for good trade. Law expected by these means to increase enormously the royal revenue, lower the interest, increase the value of lands, and so forth.

The Assembly was not, as a whole, favourable to this scheme. In May, 1716, he was authorized to start on a modest scale a private Bank with a capital of six millions, of which one quarter was to be silver. The bank notes, regularly paid at sight, were well received by the traders. In April, 1717, Law obtained that his notes should be received for taxes. The Parlement was very hostile. It refused to register the royal declaration in Law's favour and fought the Court, a course which ended in its exile and the creation in December, 1718, of Law's Bank as the Banque Royale. Branches were established at Lyons, La Rochelle, Tours, Orleans, and Amiens. From now on the course of Law's Bank is a story of reckless, excessive inflation until the crash came.

The issue of notes was now at the will of the Regent, amounting in four months to 59 millions of livres. Law distributed them prodigally among the courtiers; he created a demand for the paper in excess of coin; in the course of the year 1719 he had turned out by eight arrêts of the Council 949 millions of livres in notes of the Bank, besides many other millions without any authority. The credit of the notes was sustained by two means, giving them a privileged position in circulation and