that the ministerial comparisons of economic stability and financial staying power are much too good to be true. No stress can fairly be laid on the amused reception given to these boasts in England. It was only natural that we islanders should smile. But unless the extracts from the American press published in London are entirely misleading, expert opinion on your side seems to have had equal difficulty in swallowing Dr. Helfferich's mixture. It fails to supply the missing figures that are necessary for general enlightenment, and the gloss which it puts upon known facts seems of too obvious a kind to take in even that usually receptive person, "the man in the street."

It is sometimes possible to construe in different ways the same set of facts, according to the point of view of the commentator. There may, for instance, be two opinions about Germany's wealth, her capacity for endurance, the actual number and condition of her unemployed, the extent of the rioting against food prices, how she will face the impending heavy taxation, what the loss of her colonies signifies, how she will make good the decline in customs revenue, what is the effect of the inactivity of her passenger ships and merchantmen, where the next loan is coming from, and a number of other interesting points. All these may be so dressed up and disguised as to support, more or less, the academic theorists of the Empire, just as they may be exaggerated and colored to support the case of the Empire's enemy critics. But there are some facts that cannot be twisted out of recognition, or bent to suit the purpose of misrepresentation, favorable or otherwise. The most salient and significant of these is the heavy fall in the value of the German mark in neutral countries. Its significance lies in the fact that it is the logical outcome of the suspension of specie payments and of the wholesale manufacture of irredeemable paper money. The mark has collapsed because neutral traders no longer consider that it represents its face value. In other words, they doubt if Germany will be able to pay 66 twenty shillings in the pound" after the war. It is possible, of course, in such an age of miracles as this, that they may be wrong. Inconvertible legal-tender paper money is a financial expedient, the justification of which depends very largely upon ultimate developments. In some ways it resembles one of those insurrectionary movements which, if they succeed, are lauded as patriotic, but which, if they fail,

are punished as treason. A country that deals with a currency crisis by resorting to a full-steam use of the printingpress must be judged, sooner or later, not by its choice of method, but by its dexterity in avoiding the disasters which such a method invites. Much depends upon two things: the probabilities of success and the power of recuperation. A soft-money country that emerges from a costly conflict with the material spoils of victory, and that, moreover, possesses a vast natural wealth and a population with the qualities of industry and alertness, will most likely get out of its difficulties, discharge its liabilities, re-establish its credit, and build up a sound specie currency, as the North did after the War of Secession. It does not follow that the critic is blind or prejudiced if, when he applies this test to Germany, he fails to discover any evidence that she can obtain a nominal-let alone a material-success, or that she possesses the physical advantages upon which a rapid and permanent recovery can alone be based.

One has only to refer to the Reichsbank's weekly returns to see how enormously the notes in circulation exceed the gold which it is claimed is in its vaults. On this showing alone, the State could not redeem its paper in the proportion of more than four marks in twenty. But there is a reason to believe-not on hostile, but on German, evidence that the notes of one kind and another actually issued amount to close on 12,000,000,000 marks, against which the gold is said to amount to about 2,400,000,000 marks, in which case, if specie payments were resumed, the Reichsbank could not convert more than twenty per cent. of the paper currency. Notwithstanding, or perhaps because of, the uncertainty of the political and economic outlook, new issues are forthcoming pro re natâ, and apparently in disregard of the authorized ratio between paper and gold. Last December, for instance, in consequence of the hoarding by the public of Imperial bank-notes, the Reichsbank was compelled to issue for circulation upwards of 600,000,000 marks in new notes to make good the growing scarcity. If the recognized proportion between notes issued and gold held in reserve had been honestly maintained, this addition to the fiduciary circulation would be equivalent to the withdrawal from the Reichsbank of over 170,000,000 marks.

There may not be any immediate danger in this so far as internal business transactions are concerned. If a piece of

paper impressed with an engraved plate has the same purchasing power as coined money, it answers all the requirements of home trade as long as its par value is maintained. It matters not what the internal currency of a country consists of-whether silver tokens, or cowrie shells, or fiat money-provided it is an effective medium of exchange and is stabilized by having a fixed standard of value. The latter proviso is important. All the difference in the world exists between paper currency that is convertible and paper currency that is not. The German people cannot demand gold in exchange for their notes; all they can do is to use them as legal tender and discharge their liabilities with them. This is, no doubt, just as useful (except for its effect on prices), since if they had the gold they could not do any more with it. But the disability attached to inconvertibility has enlarged the credit functions of German paper in a very curious way. It has multiplied its power without increasing the strength or volume of the basis on which it rests. For instance, the holder of 20,000 marks in bank-notes can buy War Loan with them; he can then borrow from a bank very nearly up to the issue price of the latter, and buy more Loan with the proceeds. He can again pawn this and buy still more Loan, and so on in an endless chain of fiat money and bonds, bonds and fiat money. The sum of these operations resembles an inverted pyramid standing on a geometrical point. Two hundred thousand marks may thus have no further foundation than the twenty thousand originally invested, and those twenty thousand can have no higher ratio to their nominal gold value than the actual gold in the Reichsbank has to the number of notes in circulation. Meanwhile, the pawned stock is classed as gold, it figures as gold in bank balance sheets, and even the Reichsbank itself treats it as a security realizable at par. This is a kind of finance for which nothing but sheer necessity can find an excuse. It is the reductio ad absurdum of the vast system of credit which for years has been the chief plank in Germany's economic platform.

It is in connection with external credit, however, that the shoe pinches. A debtor nation cannot force its inconvertible paper upon creditor nations. Payment has to be made in the money of the latter, and this money must be obtained in exchange for the currency of the former. If the debtor's credit stands high he can buy the foreign money

he wants at the normal rate of exchange; if it is low he must give more for it. The value put upon this paper by his creditors is, in certain cases, a measure of their faith, or want of faith, in his solvency. The conditions are altogether different from those of a country whose exchange is adversely affected by a genuine swing round of the balance of trade. If we study fairly the case of Germany, we can hardly escape from the conclusion that the depreciation of the mark in neutral countries is nothing more or less than the expression of a belief that after the war she will be unable to meet her obligations in full. It is therefore a practical condemnation of the manufacture and abuse of paper credit. The neutral countries do not like the look of this excessive production of inconvertible paper, and their suspicions take the shape of a refusal to exchange their own currency for it except at a rate much higher than its face value. They want half as much again in German paper, as a kind of insurance against risks; and as the mark falls it tells a tale of increasing risks and a higher premium. In some quarters it has been argued that the fall in exchange is the result of Germany's inability to manufacture goods for export on account of a shortage of labor. This does not agree with the stories of unemployment; but even if the military drain upon her industrial manhood has put an effective check on production, and the output of the manufactories has consequently shrunk to next to nothing, the adverse balance of trade thus created would not of itself be enough to account for the demoralization of the mark. The true reason for this is the one already given: that German paper is not believed to be worth what it stands for, and can be exchanged into neutral money only on terms which imply scepticism with regard to Germany's credit.

This distrust is intensified by general economic conditions, such as the revenue position and prospects, the growth of the imperial debt, the burden of heavy taxation, the paralysis of foreign trade, the price of food, and the suspension, on a large scale, of industrial activity. In order to see these in their proper light, it is desirable to recall the fact that the financial situation was causing a good deal of anxiety in Germany before the war. For some years she was carried away by a feverish spirit of trade ambition. Nearly 1,000,000,000 marks were spent on developing her colonies; strennous efforts, aided by State subsidies, were made to capture

business all over the world; and national credit was organized on a scale commensurate with these grandiose enterprises. It became increasingly evident to the more conservative financiers of the Empire that the pace had been too hot. The commercial results could not keep up with the terrific rate of expenditure. In 1909 it became necessary to increase the revenue by imposing 500,000,000 marks of additional taxation, and still the budget did not balance. Four years later the exacting requirements under the army bills made it necessary by means of the "Wehrbeitrag " to tax wealth, both capital and income, and also to make a special non-recurrent appropriation of huge amounts for military preparations. There is evidence to show that the financial position was officially regarded, even then, with considcrable uneasiness. A post-haste trade expansion and the creation of new battalions, if carried on simultaneously are enough to beggar the richest country; and the rumblings of discontent, in spite of repressive measures, were audible in the early part of 1914. It would not be possible perhaps to demonstrate the existence of a direct connection between this state of things and the determination to force war upon Europe a few months later, but such a connection has been alleged, and it is not improbable that disaffection and anxiety at home made a sudden attack, with the hope of getting rich indemnities, the only way of escape from threatening financial disaster. The hope of obtaining indemnitiesalthough Dr. Helfferich still professes to count on themhas already faded into nothingness, and the clouds of oncoming bankruptcy loom, therefore, blacker than ever.

For the first eighteen months of the war no new taxation was asked for, and the war costs were raised by longrunning loans and Treasury bills, together, aggregating 40,000,000,000 marks. Now, however, the area of personal pressure must begin. Dr. Helfferich has sounded the warning note that for 1916-1917 there will have to be " a colossal burden of taxation." This is rendered all the more serious because a new loan is imminent, with its additional obligations of interest.

Germany's imports of raw materials for her industries have been seriously interfered with by the blockade; her export trade outside the ring of her own allies and neighbors has practically vanished; she is therefore deriving next to no revenue from her customs, and her manufacturers