From the beginning till the end of 1871 the bank rate never rose over 3 per cent., except for a week or two in the autumn, when it reached 4 and 5. The years 1872-73, were characterized by higher rates-the average being about 4 1/8 for 1872, and 4 3/4 for 1873, against about 2 7/8 for the previous year, and nearly 3 1/8 for 1870. This arose chiefly from the great drain of gold from this country in connection with the French war indemnity; and in addition, from the American panic in the autumn of 1873.

It will be remembered that this indemnity was about 200,000,000, and that its payment, according to the original proposition, was to extend over four years, during

X which time, and in proportion to the amount unpaid, the Germans were to occupy certain parts of the country.

But M. Thiers, with the view of freeing every inch of the country at the earliest possible moment from foreign occupation, and with that superhuman energy and ability which he brought to bear on everything he took in hand, took steps to pay the indemnity forthwith. He issued a 5 per cent. loan of 80,000,000 in the summer of 1871, which in a few days was more than twice subscribed for in France alone. Out of this, before the end of the year, he paid Germany nearly fifty millions, of which over thirty millions consisted of bills on London.

By the imposition of fresh taxes, and in other ways, he paid a further instalment of twenty-five millions in the beginning of 1872.

In the summer of that year he issued a loan of 140,000,000, which turned out to be a most astonishing success. In France alone it was subscribed for five times over, while the foreign applications were for nearly seven times the amount. The total amount subscribed was 1,640,000,000.

Out of this loan France paid a further instalment of twenty millions, thereby making about 100 millions paid; and leaving about the same amount to be paid, in instalments of 20 millions due 1st February, 1873; 40 millions due 1st March, 1874; and 40 millions due 1st March, 1875. But M. Thiers anticipated all these instalments, and by his unprecedented energy and ability he finally wiped off the whole of this balance of the indemnity by monthly payments extending from about the end of 1872 till the autumn of 1873.

The bulk of the indemnity having thus been paid in the years 1872-3, the chief monetary feature of these years was, as we have already said, the drain of gold from this country. It was agreed that some of the first instalments of the indemnity should be paid in hard cash, and that the remainder should be paid in bills. Gold therefore in 1871 went direct from France, while in 1872-73 it chiefly went from England. The course was this :-

English exchange being much more plentiful on the Paris market than that of any other country, the French Government bought as much of it as they possibly could, and remitted it to Berlin. The bills payable in London, so bought, were next sent by the German Government to their agents in this country-The London Joint-Stock Bank-for collection and credit of account at maturity. And then, from time to time and under instructions, the London Joint-Stock Bank bought gold of the Bank of England or in the open market, and shipped it to the German Government, by whom it was used up for the purposes of their new coinage.

The drain of gold from this cause had been so persistent and pronounced during the summer of 1872, that between June 20th and November 9th, the bank had been obliged to raise their rate from 3 to 7 per cent.; and at the last-named date, when the discount rate was 7, the bank were charging 9 per cent. for advances. Similarly, in the autumn of 1873, the discount rate was raised from 3 per cent. on the 21st of August to 9 per cent. on the 7th November; while on the latter date the bank were charging 12 per cent. for advances.

It can easily be imagined that, notwithstanding occasional tightnesses in the money market, this period was one of great prosperity in England. When the war broke out in 1870 people had not long recovered from the prostration following the panic of 1866. They had recovered, however, and had begun to breathe freely again, and to operate with confidence. They were ripe to take advantage of any fortuitous event which might happen. And the event which did happen, unfortunately, was that unparalleled war, which, while benefiting this country, desolated France and Germany. As has been said the immediate effect of the war was to induce the wealthy classes on the continent to send their money to this country for safe-custody, or for investment, or for other employment. This made money abundant, raised the prices of securities, and generally gave a great impetus to trade. Traders, from the superabundance of money, were able to get it at a cheap rate, and to go into operations into which otherwise they could not go. Manufacturers also, having before their eyes the necessities of the contending armies, kept their hands going full time. The cloth trade, the leather trade, the chemical trade-every trade, in short, bearing directly or indirectly upon the equipment of soldiers in the field, was active. The coal and iron trades also began to look up. Indeed, deep seemed to call unto deep; and all round, almost without exception, every industry in this country was in a state of the greatest prosperity.

This condition of affairs lasted, generally speaking, for about three years, from the beginning of 1870 till the end of 1872. The height of this prosperity was reached during 1872 and the beginning of 1873 by the enormous prices of coal and iron. But this prosperity was by no means altogether an unmixed blessing. With many men money that comes easily goes easily. Merchants, manufacturers, and traders having a surplusage of money in their hands speculated wildly, and laid the foundation of that reaction which was inevitable. Workmen, especially the miners, instead of laying by some of their hard-earned money against a rainy day, spent their wages, which had been un-precedentedly high, in all kinds of sensual luxuries.