were increasing, clearing-house transactions were multiplying, and the securities of the South American republics were eagerly accepted by investors under the endorsement of such a house as the Barings.

Money had been poured into the Argentine Republic for the development of banking, public works, and retail trade, until the natives might well have been convinced that their credit in London was without limit. A boom began in 1886 which carried up the price of lands, which a few years before could be had almost for the taking, to $50,000 per league, while suburban lots bounded upward from a few cents to several dollars per square metre. Extravagance and luxury ruled among the governing classes, and the banks which were opened in 1887 under the Guaranteed Banking Law advanced money without security, by the hundreds of thousands to men of prominence and by the thousands to their humbler followers. The requirement of payment by instalments disclosed the fact that the banks had made many bad debts, and it soon appeared that these had been covered up for a time by fraudulent over-issues of bank-notes. The legal circulation, which amounted to $160,000,000, or about $40 per capita, was increased by the fraudulent issue of $50,000,000 to $60,000,000 in additional paper. The National Bank, alone, exceeded its limit $26,000,000. Notes supposed to be redeemed were constantly reissued, and when the crash came paper money was so discredited that gold went to a premium of three hundred in paper, and tickets for a few cents were issued by barbers and retail stores to take the place of the small coins which disappeared.'

The interest rate at the Bank of England was gradually lowered during 1890, from six per cent. on February 20th, to three per cent. on April 17th, where it remained until June 26th. It was then raised to four per cent., and afterwards to five per cent., where it stood on Thursday, November 6th. Uneasiness began to be felt among well informed bankers over the increase in the acceptances assumed by the Barings

1 "Gaucho Banking," London Bankers' Magazine, Jan., 1891, LI.,

and other houses, and the decline of securities indicated a more pressing demand for money and a slackening of business activity. The bank rate was advanced to six per cent. on Friday, November 7th, and ugly rumors were afloat in Lombard Street. The real cause of the uneasiness among the great financiers did not, however, become public property until a week later. It was made known on November 8th, to the Governor of the Bank of England, Mr. William Lidderdale, fortunately a man of great ability and decision of character, that the Barings were on the eve of suspending payment, with liabilities of £21,000,000.

Mr. Lidderdale believed, in spite of the unfortunate history of previous crises, that measures could be adopted which would prevent a crash. He accordingly perfected arrangements within the following week, by which the Bank of England was able to announce on November 14th that all the liabilities of Baring Brothers and Company would be provided for by the bank, and that any loss to the bank would be made good by a circle of guarantors embracing the greatest institutions of Great Britain. The joint stock banks of London, the leading banks of the provinces, and the joint stock banks of Scotland entered into a combination aggregating £15,000,000, "to make good to the Bank of England any loss which may appear whenever the Bank of England shall determine that the final liquidation of the liabilities of Messrs. Baring Brothers and Company has been completed, so far as in the opinion of the governors is practicable." This guarantee was to continue for three years, and afforded absolute assurance to the business community that no great losses to individuals and respectable houses would occur. The Chancellor of the Exchequer was in

constant consultation with Mr. Lidderdale while the negotiations for the guarantee were going on and offered him the benefit of the suspension of the Bank Act of 1844, so as to permit the issue of additional notes, if he thought it desirable, but Mr. Lidderdale declined to foster alarm by admitting the necessity for the classic remedy of the great crises of 1847, 1857, and 1866.

Mr. Lidderdale preferred to keep within the law, and at the same time to equip the bank with the means of meeting heavy demands for notes, by borrowing gold from France, Russia, and other sources. The sum of £3,000,000 in gold was brought over under a special contract with the Bank of France,' £1,500,000 was obtained from St. Petersburgh, and £500,000 was drawn from other sources. All this sum of £5,000,000 thus became available as the guarantee of additional note issues if the pressure for money should become serious. Mr. Lidderdale would not even alarm the community by forcing up the rate of interest to an extreme point, but maintained it at six per cent. and insisted that the great joint stock banks should continue discounting, as usual.* These measures were so successful that the period of stress was passed without actual panic and liquidation set in without important failures. The note issues of the Bank of England increased from £34,507,580 on November 12th to £39,939,900 on November 26th, but the increase was almost exclusively in the notes held in the banking department and there was no unusual pressure for currency.

The firm of Baring Brothers and Company was reorganized as a limited company with a capital of £1,000,000, and made arrangements to continue business. The affairs of the Argentine Republic were found in an extremely bad shape and have not yet been entirely adjusted, but the surplus resources of the Barings enabled a gradual reduction of their liabilities outstanding at the time of the failure. The adjustment proceeded so rapidly that Mr. David Powell, the Governor of the Bank of England, was able, at a general court held on March 16, 1893, to make the following report :'

The liabilities, which have been increased during the past six months by a claim from the executors of the late T. C. Baring, now

1 This loan was secured by the deposit of Exchequer bonds issued to the Bank of England by the British Government, in exchange for national debt stock. The cost of the transaction was £100,000, besides interest.-Pol. Science Quar'ly, March, 1894, IX., 23.

? MacLeod, Theory of Credit, II., 836.

3 London Bankers' Magazine, April, 1893, LV., 610.

stand at £4,558,813, while the value of the assets under the new estimate stands at £4,908,935, giving an apparent surplus of £350, 122. It will be seen that progress, though not so rapid as in the previous six months, has been made in the liquidation, the debt to the bank having been reduced in the past six months by £625,000. It may be well, however, to remind you how much has been effected since the guarantee was set on foot. The liabilities, which in the aggregate reached a total of £30,313,000, have been reduced, in a period of about two years and a quarter, to £4,558,813; nearly the whole of the "bills receivable," "remittances to come forward," etc., amounting to £21,193,664, have been got in without loss, and securities have been realized to the value of £4,560,523. It will be remembered that the period of three years, for which the guarantees were originally given, will expire in November next, and, looking to the question how far the liquidation could be carried out without material loss before that date, it was felt desirable, in the interests of the guarantors, that the time should be extended; and I am happy to be able to say, that practically the whole body of guarantors have consented to continue their guarantee for one-fourth of the original amount-which is all that is required-for one year certain from November next, and for a further period of one year if deemed expedient in the interests of the guarantors.'

The intimate connection between the world's markets is indicated by the fact that the withdrawal of British deposits in Australia caused a stringency which foreshadowed the crisis of 1893, and that the Imperial Bank of Germany for bore for a time making drafts upon London.' The stringency which occurred in the United States, however, in the autumn of 1890 came before the Baring crisis and was less intimately related to that event than to the accumulation of surplus revenues in the Treasury. This had been so serious a danger for several years that Secretary Fairchild in 1888 deposited a large part of the surplus in national banks, while he extended the policy, which he had already inaugurated, of purchasing unmatured bonds at a premium. The purchase of bonds was continued by Secretary Windom, and was pursued on a large scale during the summer and autumn

'The guarantors were relieved of further liability towards the close of 1894, and the further settlements were undertaken by a private company.

Jannet, 113.

of 1890. "The amount of public money set free within seventy-five days by these several disbursements," Secretary Windom declared, referring to circulars issued up to September 6th, "was nearly $76,660,000, and the net gain to circulation was not less than forty-five millions of dollars, yet the financial conditions made further prompt disbursements imperatively necessary." Another offer to purchase these bonds was issued on September 13, 1890, and the total disbursements between June 30th and the close of September were $98,276,682, of which $75,828,200 was on the principal of bonds redeemed and the remainder for interest and premiums. The resources of the Treasury were practically exhausted and no assistance could be given to the money market when the reflex action of the Baring crisis was felt two months later in the United States. A number of important failures occurred, but the more disastrous results of the exhaustion of the Treasury were reserved for 1893.