by inventions, or by improved machinery and methods which require the substitution of new appliances and equipment for the old. These changes require the loss of much of the investment which has been utilized for prior demands of production. Material and appliances which have been used to furnish supplies are abandoned to the scrap heap, and great investments of capital are lost. An incident of this progressive tendency is the unequal development of invention in different lines, and greater profits in certain branches of business or manufacture than in others. As a result of this there is an absence of equilibrium between different lines of production; too much is produced of some things, too little of others. In a period of advancement also, when there is an increased demand for the necessities and luxuries of life, there is an inevitable tendency to over-action, or to engage in an unusual number of unprofitable undertakings, manifesting itself in seasons of expansion by an unusual amount of speculation and fraud.

The course of advancement is marked by a demand for increased production, which stimulates enterprise. This is attended first by a rise in prices, then by a great increase in the equipment for production, and later by an over-supply, which causes prices to fall. In the course of these disturbances, prices almost always reach and pass a maximum before a crisis occurs. The crisis. comes when, instead of a demand greater than the supply, the supply is greater than the demand, and there is a glut in the market. Manufacturers and traders are confronted by slower sales and by diminished profits. In the banking business the visible indications of the approach of a crisis are an increase of loans and discounts; that is, an increase greater than that which is required by the ordinary expansion of trade and industry; by a decrease of deposits, at least of deposits not based on discounts; by a rise in the rate of interest, or a scarcity of available money; also by a decrease of specie and of bank reserve.

One of the most accurate indications of healthful financial conditions or the reverse is the relation between specie and loans, as shown by the statements of the banks. In the first half of the last century this was the infallible indication. While this same indication now forecasts the approach of a crisis, it is much less prominent. The same conditions which have caused its diminished

prominence as an indication have also lessened the severity of crises. Among them are the growth of international financial relations, and the recognition of a general interest which renders it desirable that the stronger should support the weaker, and that all should unite in giving attention to localities or interests where disturbances exist. As a result, assistance is rendered where support is needed in time of stress. There is also the adoption of substitutes for money, which diminishes the strain on the monetary supply, metallic or paper; the larger capital invested in the banking business; the custom of increasing the rate of discount at a time when gold reserves begin to diminish, and, as important as anything, the greater skill and prudence exercised by bankers.

In the consideration of crises in our own country it is necessary to take into account certain exceptional conditions which have existed or which now exist here. Among the most notable causes of crises in the United States in the past has been the lack of certainty that paper money would be redeemed in specie, and in the standard of values, whether it should be gold or silver. Great losses and great disturbances have arisen from the evils of irredeemable paper currency. A further injury has arisen from frequent changes and constant agitation, in regard to vital matters of economic and fiscal policy, such as tariffs and the issue of paper money. Happily, recent legislation has given assurance of the maintenance of the gold standard, and public sentiment has unequivocally declared against sudden changes in economic policy.

The notable defect at the present time is the absence of elasticity in our currency, with the resulting scarcity at times when large quantities of money are required, and the tendency to speculation when money is redundant. It requires little discrimination to discover that the demands for money are unequal at different seasons of the year, and in the same seasons of successive years. The term "autumn drain" has been applied to the great demand for currency in the autumn season. It is clear that the quantity of paper money should be so regulated that it may increase or decrease according to the requirements of trade. The function of the treasury as a bank of deposit also has an injurious effect, because of the tendency to lock up money in the government vaults when it is most needed, and to disburse it in large quantities when a less supply would be sufficient.

A remedy for these two conditions, the absence of elasticity in the currency and the accumulation of money in the treasury, has been advocated by those who say that the government should go out of the banking business. The issuance of greenbacks in the time of war was clearly intended as a temporary expedient. President Lincoln, in his message of December 1, 1862, seemed to take the view that the United States notes were of doubtful expediency, and to regard the issuance of paper money as the function of the banks.

While the proper custody of government money presents a different problem, it would seem that some method might be devised under which a limited amount, as nearly equal as possible, from month to month, might be retained by the treasury, and the balance made part of the circulation.

For the practical management of banks with a view to prevent crises no rules can be formulated better than those stated by Mr. Bagehot: First, that in the time of alarm loans should be made only at a very high rate of interest. This course, he says, will operate as a heavy fine on unreasonable timidity, and will prevent borrowing out of unnecessary precaution. Second, that at this high rate loans should be made on all good security and as largely as the public asks. He says, "What is wanted is to diffuse the impression that though money may be dear, still money is to be had."

The question when another crisis will occur presents an interesting inquiry. The answer is rendered much more difficult by the different conditions which prevail preceding each successive crisis, and especially at the present time. The exceptional conditions of the present are much more marked in our own country than elsewhere. We have attained a commanding position unknown in any other country. Our development has not only been great, but it has been attended by an unusual degree of equilibrium between production and consumption, by skill and aggressiveness in obtaining access to new markets, and by a recognition of community of interests not known before. In several foreign countries, if we may judge by the ordinary indications, the unequaled prosperity of recent years has reached and passed its zenith; but such does not seem to be the case in the United States, though surely a

diminished purchasing power in other countries must in time have an injurious effect upon our country.

One general factor of the most important nature, which cannot be overlooked in the present situation, is the great increase in the production of gold in the past ten or twelve years. This increase stimulates trade by increasing the monetary supply and by rendering it easier for the debtor to meet obligations. Such an increase would naturally be attended by a very considerable increase in prices; but this increase in prices has been very much diminished by the cheapening processes of invention and by improvements in manufacturing and in transportation, and in the methods of managing business enterprises. An increased supply of metallic money has usually been attended not only by a wholesome increase of wealth, but also by an unhealthful stimulus to industry, which in time causes over-action and results in a crisis; but the present development is marked by such harmony and such adaptability to new conditions that the injurious results which attend an increase of metallic money have not been felt so much as in previous years. It must be expected, however, that so great a prosperity cannot continue without abatement. Still it is certain that such crises as may occur will be but temporary checks in the great forward movement. This is especially true in our own favored land. Our aim should be to establish such a degree of steadiness, and to exercise such a caution in our business growth, as will reduce to a minimum the deleterious effects of crises and depressions.

ECONOMIC WASTE OF OUR TREASURY SYSTEM

ADDRESS DELIVERED BY LYMAN J. GAGE, EX-SECRETARY OF THE TREASURY, BEFORE THE AMERICAN BANKERS' ASSOCIATION, AT MILWAUKEE, OCTOBER, 1901. IN every country there is a more or less intimate relation between government finances-debt and taxation-and the general commercial or industrial affairs of such country. In our own country that intimacy has been and is injuriously close. Does this need any demonstration? I think not. The facts of history

are too familiar, and memory readily recalls those periods when our whole financial and industrial progress has been severely checked, while great questions relating to the condition of the treasury or the standard of money have awaited decision. It has been the effort of your association from the beginning to assist in establishing the government finances on secure foundations, and at the same time to reduce to the smallest degree possible the dependency of commercial affairs upon treasury operations. While under our system the government, in a broad sense, is the people, and the people constitute the government, yet in its organization it is a legal entity, separate, distinct, impersonal. It is a corporation with rights, duties, obligations, all clearly set forth and defined in the Constitution or in statute law. Within its proper sphere of action it is supreme; but its proper sphere of action is limited, and it cannot transcend these limits without harm to itself and injury to the people. In other words, there are laws superior to the government-laws which it cannot defy and escape penalty. They are not written laws, but are discoverable. They are varied in form; but I refer now only to the higher economic laws, which have a way of self-operation, blessing the obedient and banning the violater. Of these all men and all governments should be afraid, and to their mandates respect should be shown. The thought I have in mind will be the more distinctly presented by a contrast between the expressed principles of a neighboring state, and our own governmental methods as they have been made familiar to your knowledge and experience.

Some time since I had the pleasure of a long talk with the financial Minister of a South American republic, one of the most securely established in its political life and most advanced in the elements of material growth and industrial prosperity. Desiring to know his government's methods, and their points of view in certain economic particulars, I asked him a series of questions, to which he made the most gracious and frank replies. I confess that I was surprised and not a little humiliated, as a citizen of this great Republic, at the clear perception of economic relationships, and the evident willingness he displayed to forgo tempting advantages in the present, out of obedience to the requirements of higher considerations. I do not believe that I can do better than to repeat