We have seen that the formation of banks and a great development in the use of bills of exchange acted as a stimulus towards increasing the trade of the country. On the other hand they have been utilised during periods of speculative activity for the purpose of promoting new undertakings, and have thus contributed at various epochs in the history of British commerce towards producing a commercial crisis.

We know that the trade of this country is attended with considerable risk. Goods are purchased and paid for by means of bills drawn at various dates. During the interval between the time when the bill is drawn and the day of payment, a series of events may possibly happen. For example, a great fall might have occurred in the value of the commodities against which the bills were drawn, or there might be a change in the state of commercial confidence or credit. Traders incur great liabilities and carry on their business upon the understanding of being able to discount bills at all times, without reference to other influences which may possibly disturb the money market. If, therefore, one of the links in our modern system of credit becomes broken, the result is sometimes disastrous.

Again, the division of labour has had the effect of making the various industries of the country dependent upon one another. If one industry becomes depressed, other industries are soon affected by the same depression.

Trade bills represent risks both in time and space: in time when a merchant purchases goods to sell at a higher price at some future date, and in space when goods are purchased to be sold in a distant market. There are, however, less risks in the inland than in the foreign trade. Goods manufactured and sold in this country represent transactions for short periods, whereas in the foreign trade a longer period elapses between the purchase and the sale of goods. We know also that markets fluctuate considerably, even in a month.

In 1869 74 per cent. of inland bills were for amounts of less than £100, whilst the foreign bills showed only 47 per cent. less than £100, the bulk being from £400 to £4000.

Trade, therefore, being conducted principally through the medium of bills, it follows that the number in circulation would be a good index as to the condition of English industries. The transactions at the Clearing House on the 4th of each month, that being the principal day on which bills mature, would tell us somewhat whether trade is active or depressed.

The late Mr. B. Price stated* that it is sometimes difficult to ascertain the forces which lie underneath the vast number of bills passing through the bankers' hands. Do they represent legitimate trade transactions or those of a speculative nature?

It is, therefore, important that the banks should study closely the credit documents which come into their possession.

* Currency and Banking.

Mr. Hankey states that a banker should know the difference between a mortgage and an ordinary bill of exchange. An ordinary bill has such a provision or security. It is based on the transfer of capital in some shape or other in a manner which contemplates that at a fixed date such capital will have passed into the required hands, and that means will be provided to meet it. The other kinds of bills, which we may term mortgages, are based upon money being raised to meet them when they fall due.