loons in the Far West-"Please do not shoot the performer, He is doing his Best." We have arrived at the fact that borrowed money is an important element in an enormous number of transactions in all kinds of business enterprise, so important that the rate or price to be paid for its use will often determine whether a transaction is to be carried out. And we know that Bank Rate is the rate at which the Bank of England is prepared to lend money. And so we begin to see the importance of Bank Rate, especially when we add to these ingredients the further fact that Bank Rate indirectly rules the rates at which all the other banks and moneylenders in the United Kingdom will lend money, and has a considerable effect on the rates asked by moneylenders in other countries. And now we are beginning to see why everybody "makes such a fuss" when Bank Rate goes up or down. The Bank of England, as is well known to every one who has read Macaulay's History, was founded to give financial assistance to the Government of William III., and was given a monopoly, as far as joint-stock companies were concerned, of banking business, which then consisted chiefly of issuing notes. Private firms had already developed businesses and could not be made to suppress themselves; but no other company consisting of more than six members was allowed to start as banker. In 1833 the Bank's monopoly was restricted to a radius of 65 miles round London, and at the same time it was discovered that even the monopoly that it possessed had already been upset by the development of banking business, which had by this time begun to be more and more a matter of taking money from depositors and lending it to borrowers, and less a question of issuing notes. This development had not been allowed for by the terms of the Bank's charter, which only retained for it the exclusive right of issuing notes. Consequently the Bank's privilege, which was still meant to give it a monopoly of jointstock banking in London, had been broken down by an unnoticed development of business; and when the founders of the London and Westminster and Joint Stock Banks decided to form joint-stock companies to take deposits and carry out all the other details of banking business, it was found that as long as they refrained from issuing notes they could not be prevented from establishing themselves in the heart of the Bank of England's privileged territory. It is a curious and interesting example of the manner in which laws are drawn in England with results quite contrary to the intention of their introducers. The example of the pioneer joint-stock banks was quickly followed, but, by another curious development, the formation of all these new rivals, instead of degrading the Bank of England to the position of a mere one among many, established it more firmly than ever, as the bell-wether of a numerous and fleecy flock. For the new banks found it convenient to bank with the Bank of England, and deposit with it their necessary reserves of cash, apart from the small amounts that they kept ready in their tills to supply the demands of their customers. If you look at the balance-sheet which your bank tucks into the pocket of your passbook every half-year, you will see that among its assets it includes an item of "cash in hand and at the Bank of England." Thus established as the bankers' bank and acquiring a host of new and rich customers, who collected deposits for it all over the kingdom, the Bank of England was greatly strengthened in its position, and was enabled to fulfil much more easily and cheaply its prlmary duties as banker to the Govern ment and leader of the London money market. This explanation was necessary, to show how it came about that Bank Rate indirectly rules the rates at which all other banks and moneylenders are prepared to lend. There is no obligation on other banks, when the Bank Rate is raised, to follow it by charging more to their customers for accommodation, but when the most important moneylender leads the way, it is natural that others should follow, especially when it is a question of charging more for an article of general use; and it is now established as a matter of convention and custom that when Bank Rate goes up, the rate that the other banks allow to their depositors or pay to those who lend them money-is also raised, and it follows from this that they have to recoup themselves by charging more to those who borrow money from them. As to the effect of a movement in Bank Rate on the price of money all over the world, this will be better appreciated when we arrive, later on, at the fact that London is not only the most important money market in the world, but the only money market, in the real sense of the phrase, to which borrowers can apply. If we can now claim to have won our way to a point at which the importance of a movement in Bank Rate has been made more or less clear, it must be admitted that the question why it should move at all has not been dealt with. "Why can't the tiresome thing keep quiet," and why should not money always be available at a fixed price, without any of these fluctuations in its value which startle the nerves of the City and cover the contents bills of the evening papers with terrifying legends in huge letters? Bank Rate goes up and down because the price of money-of which Bank Rate is the most important ex money fluctuates because it is regulated, like the price of everything else, by variations in the supply and demand, I apologize for the use of this horrid old phrase, with its reminiscences of the Manchester School and the study of political economy, but one cannot get away from the fact that if a thing is plentiful and not much wanted it will be cheap, and if it is scarce and wanted eagerly it will be dear. only throws us back on the necessity for discovering why money should be more plentiful at one time than at another, and also why the demand for it should vary. And perhaps it will be worth while first of all to find out what money really is. This Many things have been money at various stages of the world's history. In very early days cattle appear to have been the chief medium of exchange and standard of value, and we find in Homer that expensive treasures were assessed as worth SO many beeves, while a bride is mentioned as bringing a dowry of 100 oxen. In this connection somebody once perpetrated a joke about "current kine of the realm," but perhaps it would be kinder to forget it. Tobacco, bullets, hides, and many other commodities have fulfilled the functions of a currency in primitive or frontier communities, the chief essential required from this kind of money being its ready acceptability in the place where it is used. Other essentials which the more fastidious demands of growing civilization have required are portability, durability, and, as far as possible, steadiness in value. These essentials have been found best in the precious metals, gold and silver, which were the money of the Middle Ages, and still are important items in the fluid and elusive compound which is the money of to-day. In the richest and most civilized countries gold has gradually ousted 363717 silver, and as a medium of exchange has been itself, to a great extent, ousted by paper, though it still remains the basis on which the paper is ostensibly founded. The circulation of bank notes, payable on demand in gold, was the first step towards this general use of paper money, and now in the United Kingdom-the country in which banking facilities have been brought to their highest perfection-bank notes have themselves been largely superseded by the safer and more convenient cheque, the most perfect form of credit instrument that has yet been devised. In England the use of paper money has been developed to such a high point that it has been calculated that nearly 99 per cent. of our monetary transactions are carried through without the use of coin; but it must be remembered that gold, coined or in the form of bullion, is always at the back of the paper. Every bank note is a promise to pay gold to the bearer on demand; every cheque gives the holder a right to demand notes or gold. Consequently, though our development of the use of paper money has economized the use of gold to an extraordinary extent, every piece of paper is still a certificate representing a right to so much gold, and as we shall see later, it is only in England that this is so, not only in theory but in practice. The consequence of this important fact is that the supply of inmoney depends to a certain definite extent on the supply of gold. There is, of course, never enough gold in the country to cash all the pieces of paper that are flying about in payment for all kinds of transactions; this is not necessary, because most of the pieces of paper are mere book entries between banks, and are crossed off against one another without intervention of coin, so that a store of gold is only wanted for the few cases in which coin is used, and to act as a reserve in the case of emer gency. But it is admitted as an axiom of sound banking that a certain amount of actual gold must be held in the country-the chief store being kept in the vaults of the Bank of Englandto protect the mercantile community against the awkward consequences that would ensue if anything like a scramble for the metal took place. Thus it comes about that most monetary transactions are now carried out by the exchange of pieces of paper, but the supply of money depends, indefinitely and to a certain extent, on the supply of gold. That the demand for money should fluctuate is also obviously reasonable. At first sight it would seem that everybody always wants as much money as he can get, and in this sense it may be said that the demand for money is invariable, inexhaustible, and incalculable. But the demand for money, in the sense in which the phrase is used in mercantile circles, means a demand for loans on the part of folk who have the necessary security to offer and credit to pledge; and they naturally expand their demands when they see a chance of using money profitably in any kind of enterprise or speculation. Consequently the demand increases when trade is active and a general spirit of buoyant enterprise is abroad in mercantile circles. There is also a regular tidal movement in the demand for money, when crops are harvested either at home or abroad. This makes itself felt keenly, for in the far-off country districts where banking is little developed, crop movements require actual currency to finance them, and consequently we find that in the autumn season there is, under normal circumstances, a regular demand for gold in the great agricultural countries such as the United States, Egypt, and Argentina. Hence it is that in the autumn we commonly hear of "tight money" in the City. We have thus arrived at the following conclusions: That the Bank Rate, or price at which the Bank of England will lend money, rules the rates charged by other moneylenders in Eng land, and affects those current elsewhere; that money is wanted when trade and speculation are active and when crops are being harvested; and that the supply of money depends to a certain extent on the amount of gold which is held in the vaults of the Bank of England. A demand for money in the United Kingdom is naturally met by drafts on this store kept by the Bank of England. We have seen that it is the bankers' bank, and consequently has to meet any requirements that fall on the other banks. But it also is true that a demand for money in the great producing countries abroad also falls to a greater or less extent on the Bank of England. This happens partly be cause England is the only country which has sufficient commercial courage and self-reliance to buy the goods that all other lands produce, without imposing artificial restraints on their importation, and so is the great mart to which all surplus produce tends to be sent. The magnitude of her purchases, especially when crops and raw material are coming to market, gives the sellers the right to demand gold, and gold is practically an English product owing to the large number of gold mines in other countries owned by English shareholders. But another very important reason why a demand for gold elsewhere is likely to fall on London lies in the fact that of the great financial centres London is the only one in which the obligation to pay gold, immediately and on demand, is recognized as an essential part of the banking system. Any one who receives a cheque in England can get gold for it or Bank of England notes; and he can then take the Bank of England notes to the Bank and change them, there and then, into sovereigns. No other centre gives this facility. If it does not suit the Bank of France to part with gold, a holder of its notes is liable to be paid in silver five-franc pieces, mere tokens, intrinsically worth about half their face value. In Germany the obligation to pay gold exists in theory, but in practice the Reichsbank makes matters so unpleasant to those who ask it for gold when it does not want to part with it that even "Captain von Köpenick" would hesitate about raiding its store. In New York it is generally easy to obtain gold; a holder of a draft on a New York Bank asks to have it paid in gold certificates, one of the many forms of American paper currency, and exchanges the certificates into gold at the Treasury. But the possession of a credit in New York does not give an absolute right to a gold certificate, and it is quite conceivable that the supply of them might be made difficult. It follows from this great advantage-the importance of which it is difficult for those not actually engaged in business to measure-possessed by London as a monetary centre, that London is the world's banker, and that commercial transactions all over the world are settled by a draft on London, the only place where the possession of a draft gives the immediate and unquestioned right to its equivalent in gold. And here we see a very important reason why active trade elsewhere is likely to affect, sooner or later, the Bank's store of gold. And if any accident happens anywhere, if one of those moments arrives when the teeming earth is with a kind of colic pinch'd and vexed, and a San Francisco earthquake results, we find that British insurance companies, with their enormous worldwide business, have to make good nearly half the realized losses, and here again is another pull on London's gold store. So that when we have active trade all over the world, with great expansion and development going on in more backward countries, and at the same time there is great speculative activity among the dare-devil operators of the New York Stock Exchange, and then the autumn season arrives with harvests to be financed and paid for, and at the same time San Francisco claims are coming forward for settlement, and fears of Socialistic legislation at home are making investors put money into foreign securities and so increasing the pull that foreign countries have on our gold store, it is not surprising to find that the gold in the Bank's vaults has been reduced to a point at which the directors are obliged to take energetic measures for its protection. And this they do by raising the rate or price at which they will lend money, and so influencing all the other moneylenders in London to do the same. The Cornhill Magazine. And the result of this measure is that money in London is worth a higher price, and foreign traders and financiers are encouraged not to withdraw money from London but to leave it there, and to send more money to London, to earn the high rates that it commands. And so, though London cannot get much gold out of other foreign centres, because of the difficulties that they place, as we have seen, in the way of its export, a high Bank Rate checks its withdrawal and enables us to keep the proceeds of our gold mines as they come in from South Africa and elsewhere. As originally given, the above explanation of the Bank Rate and its movements was summed up by the comment that "it all seems very stupid.” I agreed readily, and, hoping that feminine intuition might flash out a new and ideal currency system, free from barbaric dependence on the supply of a metal, pressed for a suggestion of improvement. But our hostess gave the signal and the opportunity was lost. Hartley Withers. THE TIGER-TRAP. To'kaya was a fine specimen of a Malay of the last generation. He was some fifty years old, but time had had little apparent effect upon his wiry agile frame. He was a short man, not more than five feet four inches in height, of neat trim build, with square shoulders and small hands and feet; he had little superfluous flesh, but the curves of his arms and chest showed a muscular development considerably greater than would have been expected. His head was small and well shaped, its poorest feature being a broad and somewhat flat nose. The whole of his scalp was clean shaven, and chin and cheeks were kept free of occasional hairs by the use of tweezers. The striking feature of his face was a small, fierce, closely cropped moustache of rather coarse, bristly hairs, whose almost snowy whiteness afforded a brilliant contrast to the smoothness of his face and head and to the rich olive brown of his complexion. His eyes were somewhat sunken, with an expression of suffering and patience, but the crows' feet at their corners often curved into unexpected lines of humor. In every expression the old man showed |