Out of these difficulties Italy was lifted within a few years by the constructive ability of her leading statesmen and the recuperative energy of her people. Already, before the outbreak of the bank scandals of 1893, Signor Rudini, the Premier of the day, had urged the adoption of rigid economies in all branches of the public administration and had deplored the "multiplied and gigantic projects, out of proportion to her powers," which had been saddled upon the budget of the kingdom.' The first efforts at reform were counteracted by the cost of the expedition to Erythrea, which failed so disastrously in 1896; but with the advent of Signor Luzzatti to the head of the finances a surplus of 9,000,000 lires took the place in 1898 of the recurring deficits which had so complicated the relations of the Treasury with the banks. Reciprocity with France, abandoned in 1887 with disastrous results to Italian exports, was reëstablished November 21, 1898, and was followed by an increase in total exports from 1,091,000,000 lires ($210,000,000) in 1897 to 1,472,000,000 lires ($284,000,000) in 1902. Remittances to meet the interest on the national debt held abroad were reduced for several years by the drastic process of the return of the debt to Italy, until interest payments abroad fell from 192,000,000 lires in 1893 to 105,000,000 lires in 1897.'

But these measures of rectification began to produce results. From 1891 to 1902 public revenue advanced by 203,400,000 lires, while expenditures advanced only by 62,560,000 lires, and the total surplus of the budgets for five years ending with 1902 was 212,300,000 lires ($41,000,000). Exchange on Paris, which reached a maximum in 1894 of 115.70, fell to a minimum in 1901 of 101.50, and in August, 1902, it was hailed as a notable event that the premium was only 80

1 Fochier, in Questions Monétaires Contemporaines, 454. The denunciation of the treaty with France was due partly to political motives and was accompanied by withdrawals of French capital from Italian investments.—Brouet, 14.

* Vide the author's Principles of Money and Banking, II., 346.

4

• Théry, Situation Économique et Financière de l' Italie, 82.

centimes, or four-fifths of one per cent.' Then came in October the restoration of parity, which has ever since been substantially maintained.

Both the Treasury and the banks aided in the restoration of sound conditions. The Treasury began in 1898 the retirement of the small notes which had driven silver across the French and Swiss borders, and by 1903 had reduced the amount from 110,000,000 lires to 2,358,000 lires. A decree of February 18, 1899, restored to circulation 20,000,000 lires in subsidiary silver, and a law of March 3d reduced by 45,000,000 lires the special circulation of the Treasury. Customs duties were collected in gold, with the result of a rapid increase of gold resources. On behalf of the failed banks, the Bank of Italy addressed itself resolutely to reducing the mass of locked up or unliquid assets, which amounted in 1894 to about 501,000,000 lires ($96,700,000). This amount was reduced by the close of 1899 to 245,000,000 lires, in spite of some friction with the government in the latter year over the proposal to create a special corporation to take the matter in hand.' The Minister of the Treasury, at the beginning of 1903, in his presentation of the budget, declared that it was "an immense advantage for the general economy of the country to possess, like other great states, a potent organism which knows how to exercise the double function of regulator of the money market and of a faithful and trustworthy aid to the public finances.""

Some changes were made by a law of 1900 in the statutes of the banks of Italy affecting their note circulation. The legal limit of issue not fully covered by the reserve was to be subjected to an annual reduction which should leave the total in 1906 for the Bank of Italy at 630,000,000 lires; Bank of Naples, 190,000,000 lires; and Bank of Sicily, 44,000,000 lires. The banks were required to accumulate a reserve of

1 Fochier, 467.

Raffalovich, Le Marché Financier en 1898-99, 593.

: Économiste Européen (April 6, 1900), XVII., 443.

› Arnauné, La Monnaie, le Crédit et le Change, third edition, 446.

forty per cent., part of which might be in foreign securities. Excess issues subject to tax continued to be permitted, substantially as provided by the law of 1893. This law, however, imposing a charge of two-thirds of the rate of discount on the amount of the circulation in excess of the legal limit, was modified by a law of December 31, 1907, so as to afford a little greater elasticity to the movement of the circulation.' The time seemed at length to have come when the danger was passed that the circulation would be unduly expanded and when the legitimate business demands of the country had more than grown up to the limits imposed by law. The bank was subjected to severe pressure during the crisis in America. Discounts rose from 398,290,560 lires on July 31, 1907, to 494,988,781 lires on November 30th, and advances rose in the same interval from 40,002,533 lires to 75,257,128 lires. The discount rate was advanced to five and a half per cent.-the highest rate touched since 1894. The demand for accommodation, while it swelled note issues from 1,265,692,550 lires on June 30th to 1,412,418,450 lires on November 30th, did not at any time cause a reduction of reserves, which increased during the same interval from 932,014,944 lires to 1,099,995,262 lires ($212,300,000). Only during five weeks of this period was circulation issued under the special tax and the maximum subject to tax was only 48,619,046 lires ($9,480,000).

The adequacy of the reserve was no longer in question at the Bank of Italy in 1907. The gold held at the close of that year was 896,307,000 lires ($173,000,000) and the silver 122,475,000 lires ($23,640,000). Between the maximum and minimum circulation there was a difference of 304,000,000 lires, or 21.4 per cent. of the maximum.'

men.

The Bank of Italy, like the Bank of France, rediscounts much paper for small amounts for the benefit of retail tradesThe classification of the paper discounted during 1907, which reached a total value of 2,261,968,257 lires ($436,500,000), showed that 232,387 pieces were for amounts 1 Adunanza Generale Ordinaria degli Azionisti, 1908, 9.

Ibidem, 35.

up to 100 lires ($19.30) and 1,147,640 pieces for amounts from 100 lires up to 1000 lires ($193), leaving only 268,534 pieces for larger amounts.' The average value per piece of paper discounted was 1397.52 lires and the average term 59 days. The average value in 1904 was 959.41; in 1905, 1140.75; and in 1906, 1204.44 lires.

The following table shows the principal items of the balance sheet of the Bank of Italy for representative years since the failures of 1893:

The Bank of Naples has shared in some degree the prosperity of the national bank. Material progress was made after 1900 in the liquidation of mortgage obligations, and savings deposits attained a volume second to those of only one other institution in Italy.' Total assets at the close of 1907 were 590,597,829 lires ($114,000,000), of which 181,153,631 lires was in gold, 15,810, 131 in silver, 107,255,871 in commercial paper, and 80,285,532 in government securities. Circulation was 360,319,200 lires ($59,500,000) and current debtor accounts were 88,921,791 lires.

1 Adunanza Generale Ordinaria degli Azionisti, 1908, 27. • Économiste Européen, May 1, 1908, XXXIII., 572.

CHAPTER III.

BANKING IN FRANCE.

The Events Out of Which the Bank of France has Grown-The Mississippi Bubble of John Law and its Collapse-The Banks of Paris before the Revolution-Failure of the Assignats and the Revival of Commercial Banking-Birth of the Bank of France and its Absorption of the Departmental Banks-The Latin Union and the Embarrassments Caused by the Fall in the Price of Silver -The Recent Renewal of the Bank Charter.

THE

HE Bank of France is the greatest and in many respects the strongest of the banks of the world, and its development exhibits many of the most interesting phases of banking history outside of Great Britain. French banking is done pre-eminently through the issue of circulating notes, and the per capita monetary circulation of France is greater than that of any other country. The origins of banking in France go back to the "Mississippi plan" of John Law, but its history during the present century has been essentially one of prudence and moderation, if not always of the most enlightened financial policy. Monopoly of the power of note issue now belongs to the Bank of France, but is far from having been its immemorial right. The régime of the independent departmental banks, which were absorbed by the central institution in 1848, is still recalled with pride by many French economists, and the most recent expiration of the charter of the Bank of France inspired them to a renewal of the contest then so warmly waged between "monopoly" and "liberty."

The first French bank of issue was created by John Law under the regency of the Duke of Orleans, at the beginning