It is usually sought in the difference between the value of coin or bullion exported and of that imported. In two sets of circ.u.mstances a large correction is necessary to show the actual condition of trade. One is where a nation is buying on long credit, as in case of great enterprises like railroads or factories, constructed by sale of bonds in foreign countries or by sale of any other securities, government or individual, in a foreign land. The other is where a country like our own is a large producer of gold and silver by mining. In this case the products of the mines are as proper an article of export as the products of the farms or of the factories, and should be estimated as a part of the natural exports. For these reasons the balance of trade must be carefully scrutinized before being accepted as proof of a nation's progress in poverty or wealth.

_Bank loans._-So far, in dealing with the subject of banking, no mention has been made of the function of extending individual credit by time loans. One of the original purposes of banking was to make a convenient office for the meeting of borrowers and lenders. The banks are still the go-betweens of those who have money to lend and those who have to borrow.

In fact, every banking a.s.sociation is a.s.sumed to be a corporation of money lenders. Under ordinary circ.u.mstances this corporation is able to loan to individuals whose credit is good all of its capital not otherwise employed in the machinery of the bank, a considerable portion of deposits from its customers, and to a certain extent its own credit in the commercial world.

In the case of a national bank a portion of capital is loaned to the government in the purchase of bonds, which are the basis of its circulating notes. The circulating notes, from 60 per cent to 90 per cent of the value of the bonds, are an extension of credit; that is, the capital already loaned on time to the government is partially loaned again to individuals. Again, the deposits of the customers, to be drawn as needed, in ordinary circ.u.mstances are not needed the same day. The bank soon learns by experience what portion it is safe to lend from day to day to individuals who are sure to make payments when promised. Double signatures, or endors.e.m.e.nts, double the surety of prompt payment.

Thus the banks are enabled to provide safe keeping for money without charge, and even to pay a low rate of interest upon considerable deposits when times are good. In this way legitimate borrowers and legitimate lenders find a close connection in the bank. A legitimate lender is one who has property not needed at present for his own use. A legitimate borrower is one who can use capital to advantage in production. Any producer may at one part of a year be a lender and afterward a borrower to advantage of everybody. If the banks are thoroughly satisfactory the proceeds of the fall crops may serve the busy manufacturers as circulating capital during the winter. Again, the proceeds of the spring sales of goods and machinery may tide the farmers over the season of growth.

In this way labor of every kind is sustained by labor of every other kind.

In all these ways the banking power of a country is extended to several times the coin money in circulation, and that with perfect safety. But it is possible for banks to be tempted through the very perfection of their own credit. The note of an individual has no established market value. A deposit in the bank is valued as cash. It is possible to secure the credit of having a bank deposit by discounting an individual note. If that note is a time note the bank has increased its immediate liabilities by the amount of a nominal deposit, with only a promise to pay in the future to rest upon. To lend to an individual is practically to enter into partnership with his fortune. The fortunes of the group of individuals representing the bank is less doubtful than that of any one person. The borrower in this instance pays in the discount of his note the difference in risk between his fortune and that of the combination. Such deposits purchased upon credit must be distinguished from deposits of cash, lest the bank should nominally increase its power to lend while in fact it has already lent up to its ability. Sometimes such nominal deposits are maintained by persons deeply in debt for the sake of paying a larger rate of interest than is allowed by law.

_Safety of banking._-In times of business prosperity a bank with usual business caution as to customers, is safe for all concerned. And yet, in the very nature of extended credit, it has promised to pay on any particular day, if demanded, far more than it has cash in hand. Its liabilities embrace the whole of its deposits except a small portion made for a definite time, and all its issues of currency subject to redemption.

To meet these engagements its immediate resources are whatever currency in any form of coin or bills it may have at hand. This amount, since its profits are made from lending, not from holding, must be small in proportion to its liabilities. The bulk of its means of payment is in notes not yet due, and to be collected when due. Of other property it is likely to have bonds of munic.i.p.alities or of great corporations, and these are supposed to be a more available form of resources than individual notes, because they usually have a definite market value and can be sold or used as security for loans in any money market. If real estate forms a part of the capital, it can never be made available for immediate use.

Hence any bank dealing in mortgages on real estate invests its funds where they cannot be had when wanted. All banking schemes based upon security in land have necessarily failed, because land has no current use in trade.

Under the pressure of panic, from whatever source, each depositor is sure to demand every cent due him from the bank, and just as certainly the bank's own resources are insufficient to meet those dues without the sale of bonds and notes in other markets. For these reasons in any great period of distrust the banks are obliged to suspend payments. Since all the banks of the community are in similar circ.u.mstances they cannot help each other, and time must be given for the collection of loans, according to agreement, that the gradual acc.u.mulation of ready cash may return to the vault, and so to the depositors, all that has been loaned. Because of this necessary instability bankers watch most carefully the tendencies of the money market, and necessarily reduce their loans for safety when any anxious pressure begins. For the same reason legitimate banking is limited to short time loans-on demand, thirty, sixty, ninety days-the shorter being the safer. Laws sometimes prohibit a bank from dealing in any other business, where a stock of goods must tie up funds, or from speculation in real estate, which confines capital more certainly.

In most banks the amount to be loaned to a single individual or firm is limited to a small portion, one-tenth to one-fifth, of the total capital.

The princ.i.p.al causes of failure in banking are defalcation of officers, misuse of funds in speculative enterprises, dealing in speculative securities or on boards of trade, careless loaning to poor paymasters, investment in long time securities not readily marketable, or sacrifice in hurried sale of stocks and bonds under the pressure of panic.

The better the customers of a bank understand its condition and management, the less is its danger, for the basis of banking, as of the credit of the world, is the public confidence. Farmers who acquaint themselves with the workings of neighboring banks by making use of their aid in business benefit both themselves and their neighbors. The progress of the world demands of every farmer a closer contact with business and, therefore, a greater familiarity with business methods. Even the burden of debts will be lessened when farmers understand and appreciate the advantage of systematic credit. The dangers from over expansion of credit are lessened when all the people clearly understand the essential conditions for maintaining credit. The final perfection of a banking system depends upon the interest of the whole people, with a fair knowledge of the growth already made.

Chapter XII. Deferred Settlement And Credit Expansion.

The general bearing of settlement in trade, deferred by promises to pay in the distant future, has been several times referred to in preceding chapters; but its bearing upon the general welfare is so marked in many ways as to deserve more particular treatment. The special form by which one man becomes a purchaser on the strength of future abilities may have little importance in the total result, but some peculiarities of the different forms are worthy of mention.

A _standing account_ without definite period of settlement easily becomes a temptation to waste, as well as a source of worry, when the account is extended. A friend remarks, "You never seem so well off as when you don't expect to pay for what you buy, although the reason may be that you can't pay for it." The fact that the day of settlement may be indefinitely postponed makes the temptation to overestimate the chances of future ability. An account almost certainly insures the purchase of ordinary supplies without asking the price, and only frequent and complete settlement makes safe for ordinary people the expenditure of income through store accounts.

_Promissory notes_ due at a definite time have less effect upon the imagination; yet payment a year hence seems always easier than payment now. Only repeated bitter experiences teach one to say, as I once heard an old gentleman, when offered a horse to replace his dead one without limit as to the time of payment, "That sounds very well, my friend, but it is a mighty hard way at the latter end." Every farmer familiar with country auctions, with a year's credit upon purchases, sees the effect of such postponements in magnifying the value of articles purchased.

A note secured by _chattel mortgage_ in the nature of the security is less extended and has the distinct hardship of future payment presented in the possible loss of the chattel offered as security. The chattel mortgage, therefore, becomes a favorite method for short time delays in payment, not only because the security is good, but because the full attention of the maker is given to the necessity of payment.

A most familiar form of deferred payment for farm property is the _mortgage note_, secured by a deed ent.i.tling the holder to take possession of the farm, or real estate of any kind, upon failure of the maker of the note to meet its conditions. This is esteemed the best possible security for payments long deferred, because the ordinary values of real estate in a growing country like ours increase rather than diminish. Except in cases of overvaluation from speculative investment, or in the settlement of a new country under misconception of its conditions, the security remains ample. And even then the lender has no greater risk than the borrower.

Since final settlement by foreclosure of mortgage involves the law's delay, increased by the natural sentiment growing up about a home which has been occupied for years, such mortgage notes are only to a limited extent available in general commerce. In large measure they are likely to stand between the original purchaser and seller. The exception to this is found in investment of large trust funds, as with insurance companies and endowments of colleges and other benevolent inst.i.tutions. In these cases a permanent investment, with stated income, is desirable, and mortgage notes with five to ten years' credit give better rates of income than long time bonds of great corporations or governments. The ease with which purchase is made by a mortgage tempts many a young man to promise more than he can fulfil. The weight of the farm mortgage is felt throughout the country, doubling the disaster of every deficient crop. Variations from the mortgage in deeds of trust and instalment contracts have essentially the same relation to credit, involve essentially the same burdens, and differ only in the legal forms for taking possession of the real estate in default of payment.

Where a company or a community defers payment for its purchases, it is said to issue _bonds_, which are simply formal notes, usually with attached notes, or coupons, for interest at stated times, issued by qualified officers under specific legislation. These are so easily understood and tested for their quality as to become a part of the general credit of the country. They gain a well understood market value, and pa.s.s from hand to hand with greatest readiness. This fact adds to the ease with which they may be issued, while the extended time, from ten to thirty years, increases both the convenience of possession and the readiness to issue. The people of a city do not hesitate to supply themselves with magnificent waterworks at the expense of the people a generation later.

Thus munic.i.p.al indebtedness is easy to contract, and the hard lesson of paying for dead horses is seldom effectually learned. More insidious still is the temptation to issue the bonds of a county for the building of a railroad, whose prospective benefit in adding to the value of lands is indefinitely magnified. A community of farmers already burdened by mortgages can be tempted into additional burdens in county bonds from expectation that a new railroad will double the value of their farms. The facility with which states and nations negotiate bonds is so well understood that it scarcely needs mention. Yet the burdens of taxation so grievously felt are often self-inflicted by the people who favor unbounded indebtedness. It is rarely the case that a well-to-do school district is not better off when it meets the cost of its schoolhouse by immediate taxes rather than to postpone payment by bonds.

The organization of a _stock company_ involves a peculiar system of deferred payments, in that every holder of stock becomes in a sense both debtor and creditor. He is debtor to all his a.s.sociate shareholders, and is also their creditor to the extent of his share. _Stock certificates_, like bonds, may pa.s.s from hand to hand with ease, and foster the innate spirit of speculation among a commercial people. The organization of a stock company, especially of a great trust, is made relatively easy from this fact, and in this way the general credit of a people is indefinitely extended. A prosperous corporation is likely to distribute the results of its prosperity by increased issues of stock, and the readiness with which the public accepts such issues makes natural, though vicious, the so-called _watering of stock_, familiar to all. The immediate object of watered stock in fairly managed companies is the immediate distribution among shareholders of any increased value without increased cost. As the farms along a line of railway may have doubled their value with no expenditure in improvements, so the railroad itself may have doubled its value in the possibility of earnings through the rapid development of settlements along the line. In ordinary ways this increased value will be shown in the market price of the stock, but an issue of more stock to the present holders of stock certificates will keep down the price of individual shares and yet give the benefit of the increased value to shareholders.

_The stock exchange._-The last mentioned forms of indebtedness so easily become matters of everyday purchase and sale as to lead to the business of stock brokerage, found everywhere in greater or less extent. In large cities the brokers naturally unite for convenience of business in the so-called stock exchange, in which the market price of all current forms of indebtedness or deferred payments is fixed from day to day, or from hour to hour, by the higgling of the market, just as the price of produce is fixed in the produce exchange. Naturally, as in the case of produce, a fict.i.tious business, purely speculative, grows up around the legitimate dealing in stocks and bonds. Other forms of deferred payments enter less into the business of the brokers, because the market value of any particular mortgage or individual note cannot be easily determined outside the immediate neighborhood where it is made. The chief way in which these enter the general brokers' market is through the stock or bonds of large brokers' companies, sometimes called guaranty loan companies. In this way the universal extension of credit through deferred payments finally has its effect upon the general confidence. The broker's business grows legitimately out of the need of ready transfer of claims, for the sake of larger use of the floating capital of the country, and readiness of investment in more fixed forms. It adds, however, to the dangers of extended credit by making more easy the gratification of present wants through expectation of future ability. The broker makes his gain, without reference to the final settlement, by taking a commission upon the loan.

His interest leads to an overestimate of the borrower's ability, and cases are not infrequent where appraisers of real estate have been hired by brokers to misrepresent the value of property, for the sake of securing improper loans.

Every period of expanding credit in speculative movements has furnished proofs of this tendency. A standing example is furnished in mining stocks, in which the temptation to misrepresent prospects by "salting" and false a.s.says is proverbial. Almost as notorious are the misrepresentations a.s.sociated with bonds of newly established cities or other munic.i.p.alities.

Not all such misrepresentation is intended fraud, but the immediate interest of the broker clouds his judgment as to conditions of final settlement. With little to lose and everything to gain in the immediate transaction, his judgment is necessarily biased. The merely speculative buying and selling of stocks by margins has little to do with the general character of indebtedness, except to increase somewhat the risks of legitimate brokerage. The "bulls and bears" on exchange make their gains by fluctuations in market values, and, like all gamblers, delight in producing false impressions upon their opponents in the game. This fact adds to the uncertainty of all standing credit, and so increases the natural rate of interest. This effect upon interest will be noticed in considering the nature of interest and conditions affecting it.

"_Borrowed money._"-In all the forms of deferred payment, except standing accounts, it is customary to represent the amount of the debt as "borrowed money," no matter how the transaction occurs. When a farmer buys his farm with a promise to pay five years hence, his note is said to represent so much "borrowed money," while in fact he has simply borrowed the farm. The reason is, that the farm is represented by its value in dollars, and the promise is to return that value in dollars at the end of five years.

The same is true, in fact, of all purchases on credit. Even when the purchase is made by means of a note at the bank, the actual transfer of property is from the owner of the farm to its prospective owner, the bank simply acting as agent, and interposing its credit or capital only to promote the exchange. In many instances no money in any form is used, and where it is employed at some stage of the transaction, it is used, as in any other exchange, simply as a machine of transfer. Even the final settlement is likely to be made through the ordinary channels of trade, without the intervention of money in any of its forms. The deferred payment takes its place when the time of payment comes in the ordinary everyday transactions of the universal credit system, ill.u.s.trated in banking. Even if the farm is paid for by instalments, those instalments are simply ordinary transactions in trade, the farmer transferring the check which he receives from the sale of his steers or his wheat to the former owner of the farm. The money involved is simply money of account, referring to a well understood standard of value. The importance of this standard in reference to deferred payments has already been referred to.

It cannot be overestimated. But any estimate of the currency needed, or to be needed for the transaction of business, founded upon the amount of deferred payments, is wholly fallacious.

It is equally wrong to suppose that the bankers are the princ.i.p.al money-lenders. The real lenders are those who have sold their produce, the use of their tools or their time, at a price to be paid next week, next month or next year. Every man who has wages due him is as truly a money-lender, to the extent of the wages due, as any banker who accepts a promise to pay in the future for service or value given in the present.

Even where the borrowed articles have been consumed or wasted, the promise to pay is simply a promise to return so much of value as the articles received were estimated to be worth. This may be easily seen in thinking of a running account at the store for the ordinary supplies of the family.

It may amount to five hundred dollars, if one's credit is sufficient, and seem only the actual articles used, and yet to be paid for; but if settled by a note fixing a future definite time of payment, the debt at once becomes in thought borrowed money, though no change whatever has been made in the actual facts. If the same purchases had been made by means of credit at the bank, gained by discounting a personal note, the same articles exactly would have been borrowed, the bank instead of the merchant being the lender. In all probability the bank has been the means in the first case of enabling the merchant to meet these current wants on credit, for he himself has gained the credit of the bank by discounting his own note. In either case the bank has been the means of serving both the borrower and the lender. It is simply a machine for accommodating both.

_Legal tender._-All forms of deferred payments imply the possible intervention in final settlement of the force of government. While the great ma.s.s of promises to pay are met without an appeal to laws or courts, the whole is put in such form by customs of society as to involve the possibility of such arbitration. Government takes no note of debts which cannot be proved in court, and the forms of legal proof are well settled.

All the formalities of credit in systems of book-keeping, forms of notes and bonds, and wording of stock certificates imply the possibility of final adjustment in a court of equity. For this reason, governments establish some form of currency as the representative of value, which must be accepted by the creditor in complete satisfaction of a debt. This is naturally what custom has established as the standard of value, but anything else may be subst.i.tuted if the government so decides. Thus, Ma.s.sachusetts once made bullets legal tender at a certain price, up to a certain number. Our government now makes copper cents and nickels legal tender to the value of twenty-five cents.

The current notes of the government are usually legal tender, unless otherwise stipulated, whatever their current value. This means simply that the government through its courts secures the collection of _bona fide_ debts, in terms of value defined by law or by contract. The a.s.surance of final settlement, given in this way by the government, is one princ.i.p.al element in extending credit on time. Without such machinery credit would be confined to intimate acquaintances and very limited time.

_Expanding credit._-All the machinery of credit tends to bring the floating capital of a country within the reach of great enterprises. If a body of men have faith in some great undertaking, like a continental railroad or a Panama ca.n.a.l, their faith in the enterprise is easily made a basis for the faith of others. Even the small acc.u.mulations, the savings of day laborers, may be turned to account in such great enterprises if the popular expectation of success is thoroughly aroused. The greater the undertaking, the greater is the general faith under skilful leadership.

The same principle applies to undertakings of less national character, like immense factories or combinations in a trust. The stock of such enterprises is often widely distributed, and when profits are fairly begun, even upon a small scale, the chances of gain on the value of the stock are made more prominent than the actual profits of the enterprise.

It is not uncommon to find enterprises starting with the expectation that a large portion of this stock will be paid for out of the profits of the business and the profits on a portion of the stock to be sold. This is especially true when business is reviving after a period of depression. It is one of the first symptoms of the return of a speculative spirit. With the rise of such enterprises there is almost sure to be an advance in prices of real estate, though it follows later.

The starting of a railroad line involves the purchase of station sites, and almost surely the laying out of villages at intervals along the line.

The promoters of the railroad are likely to be promoters of town sites as well. And this increased demand for farms and lots brings a larger faith in the future of these locations. Everyone who can save a little from his income hopes to increase that little indefinitely by investment in the chances of increased value of a lot or a home. Under such circ.u.mstances the machinery of credit moves easily, and one does not hesitate to extend his credit to the utmost for the purchase of what is increasing in value each day. The result is a temptation to larger expenditures.

People who are counting their future gains are sure to have larger wants, and their seeming prosperity in acc.u.mulation of value gives them a larger credit among dealers. The next step is an enlargement of sales of current supplies of all sorts and an increasing manufacture of such supplies to meet the increasing wants and naturally enhancing price. Soon the staple products of farms and factories and mines become themselves objects of speculative purchase. Men buy simply to hold for the increase in price.

This speculation itself is a temporary cause of success, and goes on until some accident somewhere reveals the exaggerated proportions of expectation. Sometimes this speculative spirit continues for a series of years, in which case it pervades every circle of producers and consumers.

Sometimes it is temporary and local, being produced by some special undertaking and destroyed by a special failure. Sometimes the death of an enterprising man destroys the "boom" he has created. When speculation is rife over a large territory, everybody is employed to his utmost ability, and the times are said to be good. All property of every kind is counted at its highest price in the mind of the owner, and all credits are easily extended from month to month, or from year to year, because of the universal faith. There seems to the casual observer no reason for doubt, and the most conservative judges overestimate the ability of the people.

_Financial crisis._-At such a time as that described, when credits of every kind are interlocked and expectations are high, the so-called floating capital of the country, under indefinite promises to pay, is gradually being actually locked up in huge plants of machinery in great railroad routes, in vacant city lots, and uncultivated farms held for future sale, or in warehouses and elevators full of the products of industry,-especially such products as do not immediately deteriorate in quality, such as grains, cloths, raw materials of every kind and machinery of general use. This is apparently the property of the holders, but against it are the claims of all those who have contributed by loans on time, by credit for sales, by labor unpaid for and by provisions on account. One can easily see that with all these people bound together by credit a single failure may be far-reaching in its effects. The inability of a single man to meet his promises, if those promises are widely enough distributed, may bring a panic among his creditors, their creditors, and so on down to even the solid men, supposed to hold the acc.u.mulation of years untouched by speculation. For every channel of trade is full of credit, which now everybody loses.

In 1873 the promoter of the Northern Pacific railroad had borrowed everywhere, even the small savings of widows and workmen, through his intimate connection with banking. All this acc.u.mulation of savings had been expended for labor upon what was only a huge embankment, making no possible returns to any owner. The only possible means of continuing the work was continued borrowing, or the sale of additional stock. The revenue promised upon the means already used could be given only by larger borrowing. On a certain day the amount to be borrowed was less than the amount to be paid, and the failure of Jay Cooke to meet his expectations and promises was known. Within six hours every village in the land felt the disaster. The financial crisis was seen and realized. Bargains partially completed were stopped in the midst. Materials about to be shipped were held at the station. Deposits at the bank were needed immediately, notes due at the bank could not be extended, collectors of accounts appeared at every corner, thousands of workmen directly and indirectly employed on the great railroad building were out of employment and out of wages due, the banks were unable to furnish even paper currency to their depositors, and the whole world felt absolute loss of confidence in any undertaking or any expectation.

I select this particular panic because its beginning was so comparatively simple, its progress so evident and its results so well defined. Any other failure of speculative purpose might have been equally disastrous. It could hardly have been so rapid, because it could not have been so directly distributed among the ma.s.ses of the people. Yet the machinery of credit is such that any considerable failure in enterprise or speculation is felt everywhere. The banks are at once called upon for larger loans and for deposits together, an impossibility in the nature of the case. All exchangeable forms of credit are immediately offered in market at constantly decreasing prices. Current credit of every kind is checked, and exchange is limited to the barest necessities. All productive energies are practically stopped, except such as are out of the line of daily exchanges. Very soon all domestic expenses are reduced to the lowest notch, domestic help is discharged, the well-to-do undertake to help themselves, and the poor are left without resources. It seems as if all the wheels of progress had stopped.

_Hard times._-Succeeding such a crisis must follow hard times. Wage earners generally are without employment; manufactories have put out their fires; the warehouses full of goods are under attachment; farm produce is moved very slowly to market; fancy stock of horses, cattle and sheep are unsalable; farm mortgages are foreclosed as rapidly as the laws allow; skilled workmen meet absolute necessities by half time, and common laborers move from place to place in useless search for employment, their families being barely kept alive by charity. The fact that warehouses and granaries are full leads to the a.s.sumption that over-production has destroyed the market and the demand for labor. This is quite probably true of all articles of such a nature as to be held for speculative purposes.

The staple grains and fancy live stock are ill.u.s.trations of these. An universal over-production, so long as the articles produced are adapted to current wants, is impossible, since every man's product, if needed, is his means of securing another man's product to meet his own wants.

On the other hand, the suffering of mult.i.tudes and the abstinence of everybody lead to the supposition that under-consumption, or failure to use what we might, is a princ.i.p.al cause. It is undoubtedly true that fear of absolute want checks consumption of articles within our reach. This is shown by the immediate increase of consumption as soon as the fear subsides. This, however, is a symptom of the times, rather than a cause.

Some theorists account for the suffering by the ratio of the currency to the population, claiming that a larger circulation of money will fill the empty pockets of the needy, forgetting that money circulates only through the very channels of trade which something else has stopped. It is quite true that any financial legislation involving uncertain results contributes materially to the doubt which stops the machinery. All efforts to make money worth less by legislation have invariably extended the period of hard times. Almost every conceivable cause has been a.s.signed, or given as a partial explanation, for the stagnation of trade. A careful a.n.a.lysis of these recurring periods in the history of our country in 1837, 1848, 1857, 1873, 1887 and 1893, shows many partial causes of disaster in exchange, affecting the peculiar nature of each panic, yet one especial cause is evident in them all. That cause is large investment in fixed capital from which no immediate returns can be expected.

_The chief causes of hard times._-Prior to 1837 there was a rapid development of new country, as shown from the greatly increased receipts for public lands. Every new home involves a permanent investment of somebody's savings to the extent of at least $1,000. With the settlement of every new region a considerable waste in real estate speculation is found. A similar expansion of territory occupied by settlement immediately followed the Mexican war, and was a chief cause of reduced capital and consequent lack of employment.

The crisis of 1857 was preceded by enormous waste in the Crimean war. To that was added the loss of a season's labor in a bad harvest and increase of cost of living, reducing profits. The latter cause was incidental to this particular season, but added materially to the suffering. In this country there had also been an extensive enlargement in iron works and woolen factories without corresponding products.

The panic of 1867, felt widely outside of America, was preceded by immense waste of property in the civil war of the United States, a considerable portion of which expense, on both sides, had been borne in Europe, either during the war or immediately following, through the sale of bonds.

The panic of 1873 followed immense investments of wealth in fixed capital, as ill.u.s.trated in the Northern Pacific railroad, previously mentioned.

Between 1865 and 1873 30,000 miles of railroad were built in the United States alone. This permanent investment involved immense debts at home and abroad, _with all the profits yet in the future_. The fact that imports increased at the rate of nearly $100,000,000 a year in 1871 and 1872 indicates the extent of expenditures. The Franco-Prussian war had also wasted great energies.

The hard times in America, shown especially in the price of farms, about 1888 were immediately preceded by enormous investments in unsatisfactory farming lands and unneeded town sites, as well as in railroad building.

Forty-nine million acres of land were sold by the government, and more than 12,000 miles of railway were built. Enormous expenditures were also made for school-houses, court-houses, and other public buildings by sale of bonds. The actual crisis was perhaps delayed and a new speculation fostered by large payments on the public debt. Again, there was expansion of credit and large investment in railroad and city building in antic.i.p.ation of future growth, during which the small savings of mult.i.tudes had been gathered up through the guaranty loan companies of the West. Upon the top of this came the expenditures of 1892 and 1893 on the great World's Exposition. The expenditure of savings in attendance upon the exposition curtailed the abilities of hundreds of thousands of families. So the panic of 1893 was in no respect an exception to the rule.