ward movement of prices, were to continue unchecked for a very long time. Gradually, the increase in the cost of production would catch up with the advance in the price of the product, and the profits would gradually decrease to what was considered normal before the great expansion began. As the earning power diminished, so the value of the ownership of or of the equity in that earning power would decrease, and the prices of stocks decline proportionately.

Sooner or later, in this great expansion of credits, the desire to do more and more business is indulged to such an extent that the superstructure of credits is out of safe proportion with its foundation of cash reserve; and then there is trouble. Such was the case in 1907, when the ratio of the actual cash reserves of the national banks of the country to their net deposits fell to below 13 per cent as compared with 17 per cent in 1899, in spite of the fact that the reserve held was $700,000,000 in 1907 as against $500,000,000 in 1899. In the past, in similar crises, the only remedy was a forced contraction of credits, which resulted in panic followed by a long period of depression. This was expected by many wise observers to be the outcome of the troubles of 1907, but it was averted by the constantly increasing stock of gold, which made it possible within a wonderfully short time to increase the bank reserves to such an extent as to avoid any considerable contraction of credits. In other words, the superstructure was saved by enlarging the foundation. This, with an ensuing short period of rest and recuperation, saved the day and made it possible to resume within a few months the onward march of business, and the upward movement of prices.

It is not generally realized how small the curtailment of credit was

that actually took place in the fall of 1907. The total decrease in loans by the national banks of the country was only $250,000,000 out of a total of $4,600,000,000 and probably represented largely the calling of collateral loans, or loans with stocks and bonds as security. By February or March of 1908 the curtailment ceased, and by July the loans were nearly equal to the highest of 1907; and on March 29 of this year had increased to $5,400,000,000. Broadly speaking, commercial credits were not curtailed. In the height of the trouble they could not be; and, thanks to the heavy imports of gold, in a short time there was no need. That there was no curtailment of commercial credits the almost immediate resumption of business in record volume is proof, if proof be required.

This is the amazing feature of the panic of 1907, the non-contraction of commercial credits. Indeed there has been, broadly speaking, no contraction of commercial credits in this country since 1896. This is the reason why the upward movement of prices and interest rates has been checked for such very short periods by the financial upsets of 1903 and 1907. And it may be fair to infer that until there is a decided contraction of commercial credits there will be no downward movement of any duration in prices or rates.

If the enormous gold production makes it possible quickly to increase the foundation of bank reserves whenever the superstructure of credits expands beyond safe proportions, is there any cause that will produce a contraction of commercial credits? If there is not, there is apparently nothing to prevent a continuation of the present movement of prices and rates for an indefinite time. Such an indefinite movement is inconceivable, though theoretically it may be possible. Our

common sense tells us that it is not practical. There must therefore be some cause that will operate to check and reverse this movement. Such a cause may well be the inability of the consumer to purchase in present volume, due to the increased cost of living, and to the extravagance of the times which has caused the old-fashioned quality of frugality to disappear, and has led the average consumer to live up to the limit of his income. Or it may be the diminishing profits of the producer, due to the increasing cost of production. Either of these causes, or any one of a dozen others to which we give little thought to-day, might bring about a questioning of individual credits. Whenever such suspicions exist, and prove to be not unfounded, there is bound to be a general liquidation. Such a liquidation may not take place in the immediate future, but it is sure, sooner or later, to occur. When it comes it will result in lower prices for commodities. The effect on interest rates may be even more pronounced. After the acute panic, the bank reserves will be as large as ever, though the superstructure of credits be much contracted. Though credits be shattered, the gold will remain.

The relation of bank reserves to interest rates is more intimate than might be supposed. The great bulk of loanable funds is bank credits, and interest rates reflect the demand and supply of these credits, and are affected by whatever affects them. Bank reserves affect the supply of bank credits or loanable funds, and therefore affect interest rates. When the ratio of bank cash-reserves to bank credits rises, interest rates decline; and when it falls, interest rates advance. At the time we are considering, the period following the collapse, the curtailment of commercial credits or bank loans has equally curtailed bank credits or deposits,

because loans and deposits move practically pari passu. The bank cash-reserves, after the moment of panic is over, being as large as ever, and the bank credits much reduced, it follows that the ratio of cash reserves to credits will have materially risen, and interest rates will decline. Because therefore the volume of bank reserves has been made possible by the increased gold production, credit must be given the gold production of becoming at this time a positive factor in assisting the decline in interest rates. This is not always true of any kind of an increasing volume of money, but it is true of an increasing volume of gold, because gold is bank-reserve money the world over. If, for example, the increasing volume of money were national bank notes, it would not swell the bank reserves; though it might, by acting as a home circulating medium, prevent in some degree a decrease in reserves by a demand for circulation. On the other hand, if issued to a dangerous degree, bank-notes might drive gold from the country and deplete the reserves. In any event, they could never actually increase the reserves as gold does. The character of an increasing volume of money determines its effect at this stage on interest rates. Only an inflation of the best money can at this stage produce a positive effect toward a decline in rates.

After the acuteness of the liquidation is over, for the reasons given above interest rates on unquestioned security should run very low, perhaps lower than in years, and should so continue until confidence in credits is slowly restored. During this period, securities of the first rank, whose earning power is unquestioned, should advance in price, reflecting the decline in interest

rates.

The decline in interest rates would probably be sharp and quick, and in

strong contrast with the movement of commodity prices, which would continue doubtless to decline while the depression in trade lasted. This would result in bonds and stocks taking widely different courses: bonds moving up, and stocks continuing to decline even after the liquidation was over and until the subsequent period of depression was at an end.

It goes without saying that recovery would follow the collapse of credits, and its coming would perhaps be hastened by the constant increasing of bank reserves by the gold production; though it is not unlikely that the effect of the gold production would be less and less as the years go on, and the ratio of yearly output to stock on hand declines.

In conclusion, the last fifteen years have been a period of expanding credits and trade; stocks have advanced through increased earnings, because of increased volume of trade and higher prices for products; and bonds have declined because of higher interest rates. In all these results, the increased gold production has been a factor of importance. We have seen that moments of financial stringency have been quickly remedied, without the contraction of commercial credits, through the quick reinforcements of bank reserves, thanks to the great production of gold; that such moments have, relatively speaking, had little, and no lasting, effect on prices or interest rates. It is unlikely that any lasting effect will be attained until there has been a serious contraction of commercial credits. Until that

time comes, the prices of bonds will continue to decline or not advance, because interest rates will be maintained; stocks, on the other hand, will continue to rise, provided the earning power they represent continues to increase, with the probability that it will wane because of the increasing cost of production. When a contraction of commercial credits occurs, as it must sooner or later, the fact that increased gold production has brought into existence such vast bank reserves should cause interest rates to decline to perhaps the lowest on record. While the prostration of credit would bring about a decline in commodity prices, it is doubtful if the decline would bring prices to what they were when the increase in the production of gold began.

If there be logic and truth in the above, it will be seen that the increased production of gold will have had quite different effects on prices and on interest rates. On the former it will have had the positive effect of assisting an advance, and after a collapse of commercial credits it will have a negative effect to diminish the extent of the decline. But on interest rates its influence may be found to be twofold: first, as a positive factor in aiding an advance; and second, after the acute moment of panic is over, as a positive factor, through a large permanent increase in bank reserves, in assisting a decline. Those effects that have not already been felt will, when they occur, be reflected in the movements of securities.

AT Mrs. Curring's, domestics came and went, like wind-driven leaves that eddy, mid-course, into some hollow by the dusty roadside, and then scurry along again, restless, inconstant, here to-day, to-morrow whither? Domestics came; domestics went; only Todie Love stayed on and on through the years, a fixture, an institution, a tutelary presence.

It was Todie who set out the ash-cans, beat the carpets, and washed the windows, always wheezing for breath, moving with slow, stiff, rheumatic joints, speaking rarely, but groaning much.

Within the past six months the kitchen had seen the brief incumbencies of a full half-dozen domestics. First, Irish Lizzie, who was so nervous with her hands that she could seldom wait on table without incontinently dropping a dish of soup or a cup of coffee; and so she had to be sent away. And in her stead appeared colored Jenny, who was capable, good-natured, and an excellent cook, but who daily brought a clandestine whiskey bottle in her pocket, and was thereby far too often incapacitated for duty. Therefore Jenny had to go; and in her stead came poor English Martha, a shrunken, patheticlooking widow, whose weazened baby squalled from morning till night, and finally drove the ground-floor-extension lady to declare that she simply and positively could not stand it, and one or the other of them must go.

It was Martha who went; and after her came colored Lily, who in one

week's time stole two dozen towels, three pairs of trousers, and a silk petticoat; and was heard of no more. And in Lily's stead was appointed an immense German Adelaide, florid of countenance and stout of arm, who promised excellently; but oh, my dear, if you had once seen the awful cooking she served up! In vain Mrs. Curring labored to teach her not to scorch the oatmeal, not to make tea in the coffeepot, not to steep the potatoes in tepid water on the back of the range. Nothing availed. With all her superabundance of physique, Adelaide was deficient in mentality.

And in her stead came English Annie, who took dope; and Irish Nan, who was too bellicose; and I think that was all, before the coming of Rose; but two or three incumbents, still more ephemeral, may have been omitted. Lizzie, Jenny, Martha, Lily, Adelaide, Annie, and Nan had all had their little day, and ceased to be; and still Todie Love was faithful, after his fashion.

"Them as treats me on the squire,' he liked to announce, sententiously, 'I treats on the squire, contrariwise.'

That was his reason for staying with Mrs. Curring. For five years he had been her devoted ally. When she was without a girl, he would even don a ragged old carpenter's apron and wash up her dishes for her. With soiled shirtsleeves rolled back over red, freckled arms, the stub of an unlighted clay pipe stuck imperially into the corner of his mouth, wheezing, groaning, splashing, he would perform the womanish

task; and when it was finally over, would scrub out the sink carefully, wring the dishcloth, and hang it over the bottom of the dishpan on the wall. 'As tidy as a wren, if I do say it,' declared Mrs. Curring vehemently.

Mrs. Curring was always vehement, no matter what she was saying, or to whom addressing herself. She had a sturdy, almost defiant way of hurling out her assertions, with many an affirmative nod or negative toss of her touzled head, as if resolutely holding her ground against a host of adversaries.

'Say what you like about poor old Todie,' she challenged; 'but where this house would be without him, I'm sure I don't know. Todie's better than a dozen of your lying, thieving servant girls. It's my honest belief, and you may laugh at it, if you will, - yes, laugh away! - it won't make any difference with me, because I think what I think, and what I think about Todie is that he wasn't never in this world born a bum. No, sir! Since Todie Love first set foot in this house, five years ago, I've never heard him swear but once; and that was last spring at that monster of a Jenny, you remember black Jenny? She was the one I had before the little English widow or was it after?'

Once Mrs. Curring fairly got started, it was as bootless to attempt to stop her as to fetter the whirlwind or to choke the geyser. Your one salvation, unless you happened to be in the mood to relish her impetuous, assaulting chatter, was to flee. Stay, and after a scattering fire of reminiscences of the reigns of black Jenny and English Martha, she would finally charge full upon you with the tale of Todie's one profane explosion. 'Many 's the time, as poor Todie has confessed to me since, that black Jenny would be wheedlin' and bribin' of him to do some of her own work for

her because she was too you-knowwhat to see straight herself.

""She plied me with the bottle, ma'm," says Todie to me, “day in an’ day out, and," says he, “I did n't just 'ave the strength, ma'm, to resist the temptation."

'Only think of it, will you!- that abominable creature offering him one swig after another; and what could poor Todie do, being as the bottle is one of his great failings, as everybody knows only too well. Indeed, it's my own opinion, and you can accept it or not as you choose, that it's nothing less than the bottle as has been the ruin of poor Todie Love. No, sir, he was never born a bum, never! In London he was born, as he's told me himself more than once, and of parents as honest as any in all England.'

Here would follow an excited little digression on the honesty of the English, as a race, in comparison with the shiftiness of the Irish, and the downright treacherousness of the darky.

But to return once more, with unabated zeal, to the anecdote of Todie and black Jenny. Mrs. Curring had come in one afternoon from getting a dozen new dish-towels at a sale on Sixth Avenue; and as she entered the dining-room, she heard the sounds of a noisy wrangle in the next room; and so, quite naturally, she tiptoed to the kitchen door, and listened.

'And that monster of a Jenny must have been plaguin' the life out of poor Todie to run round to the corner, and get her some more you-know-what, for all of a sudden I heard him bang his hand down on the table like that, bang! and say,

"Oh, you knows very well you can get me to do anythink you wants about this bloomin' 'ouse, you old crow, you; but if you thinks as I'm a-goin' to run of your bloomin' herrands for you, an' fetch your dope for you, you're mis