(2) In periods of excessive expansion time engagements should be checked rather than multiplied.

(3) The rate of discount should be raised in good time, either to moderate excessive expansion or to recall money that has left the country. A higher rate of discount, by lowering prices, brings back buyers and specie with them.

§ 6. Industrial Crises.

These crises are not general like the preceding ones, but attack sometimes one industry, sometimes another. Several causes produce them.

(1) The closing of an important market, as in 1864, when all the southern ports of the United States were blockaded.

(2) Competition from a fresh quarter, such as the agriculture of Western Europe is suffering at the present time from the supply of corn furnished by the United States at very low prices.

(3) Excess of production. When an industry has yielded exceptional profits a large amount of capital is invested in it, and too many manufactories established. Production surpasses the needs of consumption. Prices fall, and the manufacturers not supplied with the best machinery are ruined. There is a crisis of "over-production."

§ 7. Speculative Crises or Crashes.

Crises of this class have been called "crashes," because their mode of manifestation is by a sudden

collapse. Any one who wishes to learn their nature and causes should read the history of the "system" of Law. Law was a Scotchman who arrived in France in 1715. By his knowledge of finance, and brilliant genius, he seduced the Regent, who placed all the power of the state at his disposal. So supported, Law founded a bank on the model of the Bank of England, created commercial companies like those of Holland, obtained a monopoly of all the trade with Asia, Africa, and America, farmed the taxes, and repaid the national debt of fifteen hundred million francs. To effect these vast operations he issued 624,000 shares of 500 livres, which, increasing in price to 10,000 livres, represented a sum of 6,240,000,000 livres, and 1,700,000,000 more in bank notes. He thus at one stroke created an object of speculation, and the means of pushing it to madness. The shares were fought for. Every one was anxious to obtain them at any price, for to touch them brought wealth. Their price rose incessantly, until on January 5th, 1720, it reached the insensate sum of 18,000 livres. Stockjobbers realised enormous fortunes in a few days; all prices rose and every one was enriched. Soon the reaction set in; shares declined. Law tried to stop the fall by buying them in at 9,000 livres by means of an issue of bank notes. The discredit then extended to these; the public would have no more paper of any kind, but demanded coin. Coin there was none to have, for it had all been hid. There was a general collapse;

and the mass of bonds and notes which at one time had represented ten thousand million livres, vanished with the confidence which had brought them into being.

The characteristics of the "crash" may thus be very shortly explained. The infatuation of the public causes a rise of value. If this infatuation is general, the rise is considerable, maintains itself, and yields enormous profits. This attracts buyers, and the greater the number of buyers the greater the gains; the greater the gains the more the buyers. The shower of gold falls on every one; but with the slightest hesitation there begins a headlong fall, and everything collapses. The imposing edifice was but a fata morgana created by credit. When the mirage disappears, no real wealth has been destroyed, but enormous amounts have changed hands. Clever men are enriched and their dupes ruined.

CHAPTER VI.

FREE TRADE AND PROTECTION.

§ 1. Free Trade.

A MERCHANT, on being asked by the French statesman, Colbert, what was the best way of favouring commerce, made answer: Laissez faire; laissez passer, "Leave it alone;" and this reply of his has

become the watchword of the supporters of freedom of trade, or, as it is sometimes called, free exchange. What, in fact, can be more natural than to allow every one to buy and sell where he can do so most advantageously, whether in or out of his own country?

To raise a revenue a state is still justified in imposing custom dues on the importation of certain foreign goods, though the tax is a bad one; but to establish these duties under the pretext of protecting national industries is an iniquitous measure, fatal to the general interest. By forcing consumers to buy from the protected manufacturers at higher prices than they would elsewhere have to pay, the gross injustice is committed of taxing one class for the benefit of another. It is in this that the system of protection consists. If it be said that the object is to favour labour, and consequently labourers, a double error is committed.

Error the First.-The aim of economics is not to increase but to diminish labour. If I can obtain a yard of cloth from a foreigner by means of one day's work, it is contrary to this aim to force me to spend two. This eagerness to increase labour without augmenting production has been well called "Sisyphism," for it chains humanity to efforts that lead to no result, just as Sisyphus was compelled to roll to the summit of a hill a stone that always fell back again. The goal we should pursue is the increase of commodities and diminution of toil.

Error the Second.-No service, but an injury, is done to workmen in thrusting them into manufactories by force of law and in spite of nature. Thus in the case of Italy it is a thousand pities that the custom-house should have snatched workmen and work women from their open-air tasks in this lovely country with its genial climate, to chain them in gloomy workshops for twelve or fourteen hours a day to the monotonous movements of machines.

Free trade by applying to whole peoples the principle of the division of labour, assures them all the benefits it can bestow, and thus greatly increases their welfare. If in a family each member is employed at what he can do best, it is clear that the total product, and consequently the individual shares, will be as great as can be attained. On the contrary, if each is forced by legislative restrictions to devote a part of his time to a labour for which he has no aptitude, each and all will be worse off. Apply this principle to nations, and it is plain that when each country devotes its energies to the tasks which its. nature most favours, not only will it bring to the international market the maximum of products obtained with the minimum of toil, but the welfare of humanity at large will be increased in proportion to the increase of the productivity of each country's labour.

A man who, in the wish to be self-sufficing, should constrain himself to manufacture everything he needed, food, clothing, furniture, and books, would