eral occasions the serious congestion of savings beyond effective demand and a consequent fall in the rate of interest.

In modern times, more than in those more remote, there has been a frequent tendency to the accumulation of saved capital temporarily beyond the legitimate demand for it for the creation of new enterprises. The eminent French economist, Paul Leroy-Beaulieu, in discussing this subject in L'Économiste Français of January 28, 1899, calls attention to the fact that there were interruptions in the downward course of interest when steam came to be generally employed as a motive power between 1850 and 1865, and again after the great destruction of capital in the Franco-Prussian war. But, he declares,

"after each of these interruptions, the rate of interest again tended to decline to a level lower than before; so that, in taking as the point of departure the beginning of the last quarter century, or that of the last half century, or that of the last century, -the year 1874 or the year 1850,- it may be noted that the rate of interest has considerably fallen, not

in a straight line, it is true, but in a broken line, and that never in our history was it as low as in 1897."

One of the best proofs of this superabundance of capital in the market about 1897 was the great number of cases in which governments and stock companies successfully sought to convert old obligations on which they were paying a high rate of interest into new ones paying a low rate of interest. Great Britain refunded her consolidated debt in 1888 at two and three quarters per cent, and in 1897 and 1898 the quotations of these new issues reached 112, and even a maximum of 113. The great Prussian conversion was operated during 1897, and applied to $850,000,000 of consolidated four per cent securities. These four per cents were quoted at 104.5, and the three and a half per cents were quoted at 104.2 in October, 1896. The three per cent obligations issued in 1890, and then quoted at 86.5, reached par on July 5, 1895, and stood at 99.6 on October 5, 1896. Herr Miquel, the Prussian Minister, in announcing his project, recalled the fact that

in 1894 France had converted her four and a half per cents into three and a half per cents; that Sweden, Norway, Luxembourg, Zurich, Saxe-Gotha, Wurtemburg, and Bavaria had converted four per cent into three and a half per cent securities; and that Denmark, Belgium, Holland, Bremen, and Berne had converted three and a half per cents into three per cents, not to speak of the great Russian conversion of five per cents into four per

cents.

In the United States, in spite of the fact that a new country usually makes large demands for capital, the supply of it tended to exceed the legitimate and effective demand down to 1897. The fact that this increase in the supply had greatly reduced its capacity to earn interest is plainly indicated by the facts set forth in the spring of 1903 by Professor Meade1:

"For the last thirty years the investment rate of interest has been steadily sinking. In the early Seventies seven per cent railway bonds were

1 Trust Finance, p. 243.

common.

In the next decade these were largely replaced by five per cent bonds, and in recent years three and a half per cent bonds have been generally issued by railway companies. At the same time that the interest rate was falling, the price of a $1000 bond increased. In the Seventies railway companies often paid ten per cent for money. At the present time three and a half per cent is the ordinary rate."

It is clear that this great accumulation of capital would be employed with great difficulty but for the organization of a system of transferring it readily from hand to hand and place to place. If every one who saved was compelled to employ his savings under his own personal care and direction in order to make them fruitful, many difficulties would arise and serious blunders would be made. Large savings would seem in the natural course of events, therefore, to have suggested the organization of means of employing them without imposing the task directly upon each individual who had made savings. This has been the case in advanced commercial society, but has not been the case in undeveloped society.

The economic efficiency of Europe and America is due in a large degree to the fact that saved capital does not repose in idle hoards, but is transferred as fast as it is saved into hands which are able to put it to productive use. In all civilized countries the mechanism of credit has now attained a considerable degree of efficiency, but this efficiency varies to a marked extent from country to country.

Among the methods of putting capital into negotiable form, these may be enumerated: attracting deposits to banking institutions; the organization of stock companies for banking and other large enterprises; the organization of railroad companies; the capitalization of industrial enterprises as stock companies; the diversification of banking methods and of the forms of security investment.

It is not necessary here to dwell upon the expansion of banking in its simpler forms. This has been more obvious to the ordinary observer as a means of accumulating and transferring capital than some of the other features of the modern