And what had been taking place here had been taking place also abroad. America, like England, being outside the zone of conflict, benefited also by the war, and her prosperity also laid the seeds of future reaction. Germany herself, though enriched to an unprecedented degree by the war indemnity, also began to show signs of poverty. It might almost be said that the indemnity became a curse in her hands. She was like an ill-conditioned youth who suddenly finds himself the possessor of a large fortune. The careful protection of suddenly acquired wealth had formed no part of her education. "Light come, light go," is a maxim which is true in the case of nearly every human being, and the careful German was no exception to the rule.

Germany at this time passed through an experience such as England did in the years 1823-25. In the former year public companies were formed by hundreds, but no sooner had they been formed, and the promoters feathered their own nests, than the great bulk of them collapsed; and the larger number of those that remained were obliged to give way before the panic of 1825. Germany, as has been said, passed through the same experience. The immense amount of money which flowed into the country from France in 1871-3 gave birth to a great number of public companies, some good, some bad, some indifferent. The natural result followed. Companies formed at a period when money was plentiful did well enough for a time, and so long as money could easily be got to bolster them up; but so soon as money became scarce the inherent unsoundness of these concerns brought them to a standstill. As all classes of society were involved in these concerns, and as no more money was forthcoming, a crisis followed.

Austria being a neighbour of Germany, and being mixed up socially, financially, and otherwise, with the latter, the crisis extended to the former. These crises of course naturally reflected upon England. Gold was withdrawn from the bank, and the rate was moved up from 4$ on the 7th of May to 5, 6, and 7 per cent.-the last-named on the 4th of June. This German crisis may be said to have been the first note of warning to us to put our house in order, and prepare for the inevitable reaction after a period of prosperity. The second took place later in the same Year of 1873, and came from America in the autumn.

To understand thoroughly the causes of the American panic of this period, it is necessary to go back for some years and consider the system which prevailed there in the construction of railways.

After the Civil War came to an end, the Americans, with that wonderful energy for which they are remarkable, immediately turned their attention towards repairing the waste which the war had made. As a chief means to this end they developed their railway system; but this, for some years, they kept within reasonable bounds, and only constructed where construction was expedient. After a time, however, certain individuals, having got their hand in, and having as it were warmed to the work, saw their opportunity and embraced it. These individuals may be called professional company-mongers. They, for the sake of commissions, and the hundred and one pecuniary advantages derivable from such undertakings, promoted railways in districts which could not possibly support them. This was particularly the case in the building of what were called the " land grant" roads, in respect of which they could go to the public in justification of their enterprise, and feasibly plead that if those roads were not undertaken the land grant privileges would soon lapse.

Both before, and for some time after the war, railway enterprise was kept within due bounds, and was by no means in excess of the legitimate requirements of the country. During the years 1850-59, the average annual increase of new railways was 2159 miles; and during the years 1860-7 1311 miles. But for some years after the last-named period the professional constructors began to come to the front, as we have said, and the result was an enormous and unnecessary annual increase of railway mileage.

The following table will show the extent of the mania which was prevalent during those years for the construction of new lines :-

During

1868

there were built

2979 miles

,,

1869

,,

4953

,,

,,

1870

,,

5690

,,

,,

1871

,,

7670

,,

,,,

1872

,,

6167

5)

,,

1873

,,

3948

,,

,,

1874

,,

1940

,,

It will be inferred from what has been said of the inutility of the bulk of this fresh mileage that the public were not so foolish as to find the money for the whole of its construction. Really the construction was effected in great part without any real solid capital at all. The promoters of the railways financed them in some such way as this :-Having possessed themselves of the necessary land, or land rights, they met together and formed what was called a "Pool." Thereafter the members of the pool, or certain members in turn, formed themselves into the railway company, the capital stock of which they subscribed, but for which they paid no cash. Then they, the members of the pool, being also the directors of the railway, generally sold to themselves the 6 or 7 per cent, bonds of the company at, say, 75 per cent. These bonds they then resold to the loan contractors who placed them with the public. So far so good; but in addition to allotting to themselves the bonds of the company they also allotted to themselves as a kind of bonus the fully paid up ordinary stock of the company, for which they paid nothing.

It will be seen therefore that a company with a nominal capital of 20 million dollars, consisting of half of ordinary stock and half of first mortgage bonds, on which dividends were expected to be earned and paid, might only receive in actual capital about 7 1/2 million dollars, a large portion perhaps of which had already gone to pay for concessions, or land, or preliminaries, and leaving but a small portion wherewith to carry on the actual construction of the road. When therefore the actual capital had been all expended, which was very soon, recourse had to be had to financing to raise fresh money wherewith to carry on the works. This was accomplished by the companies pawning the Lower classes of bonds with the financial houses-some of them of very high class standing-who raised the wind in the following manner. They either drew their own promissory notes, payable to their own order, at six months date, which notes were bought and sold by the note brokers at varying rates of interest and commission; or, they drew bills at sixty days sight on their London correspondents and handed them to the railway companies, whose only care was to sell the bills in the market to the best advantage.