expenses of American tourists, and earnings of foreign capital largely overtop our trade balances, leaving us with a yearly deficit, the settlement of which causes so much annoyance and worry to Europe and ourselves.

This is a fairly clear confirmation of the theory I am advocating in this article, and have already advocated in THE SEWANEE REVIEW. It is a curious coincidence that it was the Paris correspondent of the Post who, in 1901, corroborated my statement in the World a year before, that so far from having any credit across the ocean, our trade balances were not even sufficient to overcome these annual foreign debts.

During the early part of 1907 there were numerous signs that trouble was brewing, although the financial oracles were doing a tremendous amount of lying to hide the fact from the public. The first was the rapid rise in foreign exchange, and the second was the frantic effort of the big bankers to sell or pledge more securities abroad to avert gold exports. As before stated, they put out some $300,000,000 in the first ten weeks, and while it did not prevent the March panic, it was frequently admitted that gold would have gone out sooner but for this. Says the London correspondent of the Post, May 25: "It is believed here that New York may escape heavy gold exports after all, by putting out finance bills and resorting again to what Lombard Street calls 'hole-and-corner' borrowing." That same week the Wall Street Journal and Dun's Review both stated that foreign purchases of securities warded off the threatened outflow of gold. In spite of more of such work the yellow metal went out the next week and continued to go until it precipitated the August panic.

It might indeed be supposed that in view of the enormous increase of our currency since 1896, the outflow of a few millions would not matter. But the great fact which is constantly. ignored is that one large portion of this money is in the foreign banks here, while another has been carried off by the aliens. A circumstance which proves that these aliens are making away with our gold is, that despite the great increase in production since 1896, the yellow metal is actually scarcer in hand-tohand circulation than in was ten years ago. There has been, it

is true, an increased amount in circulation here in New York City, but it is only because of the large amounts put out by the Treasury and the imports of borrowed gold from Europe.

Prior to the recent bank failures and the October panic, we did not feel the effect of the loss of this currency, because the banks have been replacing it, as much as they dare, with securities. Thus in 1904, New York savings banks held less than $19,000,000 worth of United States bonds, as against $111,000,000 seven years before. In the same period their security holdings rose from nothing to $177,000,000. This identical thing has been going on all over the United States, as is proved by enormous expansion of loans. Referring to this matter, the Wall Street Journal, November 28, 1906, shows that since 1895 there has been an increase of $2,500,000,000 in the amount of stocks and bonds held by the banks and trust companies of the United States. This is an expansion of over 160 per cent in the bond reserves of the banks. In the same period the loans of all banks increased from $4,311,000,000 to $9,863,000,000. Adding the securities to the loans, it is found that there is now an extension of credit by the banks amounting to $13,936,000,000, a sum nearly five times as much as the money in circulation, and representing an expansion of over 137 per cent in eleven years. The total expansion of credit by securities held and by loans amounted to over $8,100,000,000.

That the Wall Street banks have had a hand in this business is clearly shown by the following quotation from the Times, July 10, 1904: "Country banks are being gradually educated up to the acceptance of New York Stock Exchange securities as collateral. Many banks now make loans on such collateral, which some years ago would not have accepted it at all. Where will they be when the pinch comes?"

Well, the pinch came on October 24, 1907, and the American people had a good chance to see where those banks were. Those that had a legal right to demand thirty days' notice took advantage thereof. Those that had no such right simply slammed their doors in the faces of depositors and refused to pay out a dollar. Even now the public seems to have an imperfect idea of the state of affairs. Apparently it thinks that all this money is

still in the country, whereas a great deal of it has been carried off by the aliens. It has gone to Italy, to Austria, to China, to Japan, and to various other countries.

The extent to which the absorption of our currency by these aliens and by the foreign banks, has drained the country and stripped our own banks of their cash, leaving them with nothing. but Stock Exchange securities to do business, is clearly shown. by this statement in the financial column of the Press, November 21, 1907: "There is no disguising the fact that in the highest quarters the pinch for cash is being felt. Folk are just beginning to realize how extensively our financial fabric has been built up on loans secured by stocks and bonds as collateral. The Morse and Thomas method of buying up one bank with the loans obtained on the stock of another and continuing the process indefinitely has spread extensively through the financial world."

Throughout the whole of 1907, financial leaders and Treasury officials were repeating that the boasts of previous years were sound at the bottom. But any student of the facts as published from time to time could see that conditions were very unsound and that the banking position was liable to break down even before any industrial decline set in. And, as usual, the surest indication of this was the frantic effort to stave off gold exports. According to one foreign authority, the new borrowings for this purpose up to September 11, 1907, aggregated $150,000,000. Along with the failure in Amsterdam and our own bank difficulties came the announcement of a resumption of gold exports to Germany, October 19. It was said that Dutch liquidation caused this last efflux, but the reports showed that other foreigners bought much more of our securities than the Dutch sold.

Now, there is no doubt that it was this last outflow of gold, small as it was, that precipitated the panic of October 24. This is proved by this statement in the Wall Street Journal, October 12, 1907: "After the panics Europe must have received extra inducements from some quarters, for the reports of the Journal of Commerce and other papers show that it was foreign capital along with Treasury aid that finally checked the disaster."

Writing of "Foreign Exchange in 1907" in the Times' "An

ual Review," January 5, 1908, S. J. Bieber points out it was the refusal of London bankers to take any more American finance bills that was a "contributory cause of the distressing scenes that were witnessed on the New York Stock Exchange during the middle of October."

When our bankers were refused aid by London, they applied to Paris, but there, too, they were rebuffed. This latter refusal led to some recrimination in French banking cricles and caused the publication of the following statement from the Finance Minister, Caillaux: "At this writing violent recriminations are being indulged in against the Bank of France for what is called its 'refusal to advance gold to a group of American financiers.'' This has led to a published statement by Minister Caillaux through his chef de cabinet: "First, the American Government cables the French Government to inquire if the loan can be obtained; second, the French Government, after consulting with the Bank governors, cables back: 'Yes, if the American Treasury guarantees repayment.' President Roosevelt now replies that this is impossible, that the Bank must accept the bankers as sole guarantee - which was impossible by the Bank's own charter."

This refusal of French bankers to lend money without a guarantee by our Government, along with the refusal of London bankers to help us out, not only precipitated the October panic, but it also disclosed, in a very striking manner, the main cause of that trouble.

If these foreign bankers had based their action upon our unsound monetary system the event would have been heralded far and wide as an unanswerable argument in favor of asset currency. But they did not do anything of the kind. The sole reason they gave was that our foreign debt, based almost entirely upon railroad securities, had assumed such frightful proportions that they did not consider it safe to lend us any more on such collateral without a Government guarantee.

Here we have a flat contradiction, by the very highest authorities, of all this talk about foreign liquidation of American railroad securities. For the past ten years we have been told by financial experts that Europe's holdings of our railroad issues

was in consequence of this liquidation, nothing to what it was before 1893, and that the remittances of interest dues were greatly reduced. But now we learn that Europe's holdings of securities have grown to such dimensions that she refuses to take any more of them.

When I combatted the claims of this foreign liquidation in THE SEWANEE REVIEW, and presented facts which showed that instead of such liquidation there had been enormous increase of foreign investments in our railroad securities, my views met with the same chilling reception among financial experts here in New York that was accorded to my letter on the "Creditor Nation" lunacy three years before.

The action of these foreign bankers not only confirms my view as to foreign liquidation, but it also confirms my estimate of these annual foreign debts. It shows that they largely overtop our trade balances, leaving us with a huge deficit to meet every year. During the past ten years the net imports of gold that was not borrowed in 1906-1907, was but little more than the net imports of silver. How then could Europe have paid for all these railroad securities without sending us the cash? Or, to put it in another way, how could we have piled up this enormous debt which staggers Europe, unless it was in settlement of a deficit? Is there any other answer to this question than the one already given?

The panic of October, 1907, was, it is now generally admitted, the greatest financial disaster that ever visited any country; and the fact that it was caused by this enormous foreign debt, should warn the American people that their country is rapidly drifting towards financial slavery. It is time for them to learn that Micawber's philosophy is as true on a large scale as a small one: "Annual income, twenty pounds; annual expenditure, twenty-ought-six; result, misery."

Brooklyn, New York.

W. H. ALLEN.