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ing with Russia in regard to the Balkans and have no further cause for anxiety.

So long as Russia and Germany have ends in common and France has given hostages to Russia, Germany has nothing to fear. It may or may not be true that the Kaiser's purpose in creating a great navy is to hold England in check; but it can be easily seen that if Germany and Russia are agreed on a policy, the German navy will prove one of its most effective instruments; the whole calculation, of course, being based on the premise that Russia dominates the Far East. Russia victorious over Japan will, after she has healed her bleeding sores, turn her thoughts to India; and Germany, so long as the present Emperor lives, will do nothing unless she is absolutely certain that she takes no extraordinary risks. Then, with England's military resources strained to the breaking point, a powerful German fleet off the coast of England could prove of more help to Russia than half a dozen army corps. As a naval power Russia need not be feared for many years to come; but the Germans are good sailors, and there is in them the blood that in all the world's history has always answered to the call of the sea, to whom the sea is mistress as well as wife.

So long as Britain endures, so long as her history is written in the Seven Seas, so long as she retains her virility and her vitality, her genius for trade and her genius for colonization, Germany must always play a subordinate part in weltpolitik. Germany, under the inspiration of the Kaiser, longs to occupy the first place; and as England waxed while Holland waned, so Germany hopes to found a great oversea empire on ruins where once waved the British flag. Vast as is the world, it is all too small for two great colonial Powers, for both Germany and England. One and only one can survive; and the future of Germany, according to the belief of the Kaiser, lies in the hands of her sons building a new Vaterland in South America, in Africa, in Asia, her commerce reaching to the nethermost ends of the earth, her flag in every port, her ships mistress of the seas.

France has successfully weathered another storm. The reassembling of the Chamber of Deputies was awaited with considerable trepidation, as it was feared that it might mean the fall of the Combes Government. An attempt was made by the reactionary nationalist opposition to precipitate a cabinet crisis; but the effort proved futile and only served to show the real strength of the present Government of France and the disorganization and demoralization of the opposition. The opponents of

the Premier during the recess laid great stress on the supposed disgust which had been aroused in the country by the rupture with the Vatican and the evident purpose of the cabinet to abolish the Concordat. M. Combes met the issue with characteristic firmness. He boldly challenged his enemies; and by a decisive vote, 325 to 237, the Chamber approved the course of the Government in breaking off diplomatic relations with the Vatican, after an extremely boisterous and unseemly session in which personalities were freely exchanged.

As the leaders of the opposition are now forced to admit that there is no chance of overturning the Government on the religious issue, it follows naturally that the present programme will be carried out to its logical conclusion, and that the time is not far distant when there will be complete separation between state and church in France. In fact, in the course of his speech, when he challenged a vote of censure, the Premier said:

The separation of church and state has become inevitable. Those who advise a revision of the Concordat are dupes who would condemn the Government to final humiliation. I am in favor of a free church, but with the same freedom as are other institutions. In reality it is the Pope who wants separation. He wants to enslave the state as he enslaves the church. Let those who will perform penance before Popes. I have neither the age nor taste for such practices.

The opponents of the present Government attempted a still further effort to dislodge it from power by an attack upon General André, the Minister of War. For years the War Office has pursued a systematic policy of espionage on subordinate officers, and promotion has been largely a matter of favor and not a matter of merit. Much of the wretched system which prevails was exposed during the various trials of Captain Dreyfus, who was the victim of malice and oppression, and who was finally sacrificed to save the reputation of others. A savage assault was made on General André with the hope that it would pull down the entire cabinet, which it came very near doing, as the ministry was sustained by a majority of two. André was forced to resign, and Henri Berteaux, a member of the Chamber of Deputies and a successful broker on the bourse, was appointed his successor. His appointment is unusual, because French ministers of war have generally been military men. The change from military to civilian control at the War Office may be accepted as a radical change in the conduct of affairs, and indicates, perhaps, the beginning of a new system that will be for the advantage of both France and her army.



IN matters of finance, notably in great movements of the markets, it is always comparatively easy to find reasons for the event after it has occurred. This is a very different thing, however, from examining such governing causes as they develop, and forecasting the outcome which should result from them. It is quite safe to say that nobody, five or six months ago, would have ventured to predict exactly the situation which arose in American finance last autumn. There were plenty of people who believed that the reaction of the previous year was carried too far. Critics and financiers could hardly overlook the fact that the disasters which had been widely expected as a result of 1901 and 1903, and which, if they were to come, would most naturally have come last spring, did not materialize. Aside from such vague anticipation of a shock like that of May, 1884-which followed a similar period of speculation and liquidation - there had been tangible elements of discouragement, notably the Eastern war, with its possible consequences on Europe's financial markets and indirectly on our own; the Presidential canvass, with the chance that the currency issue might be revived; the impending Northern Securities decision, involving important investment interests; and the persistent belief, in many quarters, that the country's cotton crop would run short again. These sources of apprehension had disappeared. Every one knew by autumn that Europe's markets were soundly buttressed against the shocks of the RussoJapanese War, that the silver issue had been laid on the shelf in politics, that the merger decision was a relief rather than a menace, and that the new cotton crop bade fair to be the largest in our history.

We saw also, in reviewing the situation of three months ago, that railway earnings, after five months of continuous decrease from 1903, began to show gains again in June, and that the New York banks reached in August the strongest position, with only four exceptions, in their history. All this gave abundant ground for expecting financial recovery, and it was not taken as surprising that the midsummer markets did display returning optimism. Very few financiers, however, would

even then have risked their professional reputation on predictions that the recovery would continue so long, and go so far, as to cancel, in the majority of important stocks, all the losses in price suffered in the great liquidation of 1903. Much less would it have been imagined, even a good while after the 75,000-share day of March, that within seven months the New York Stock Exchange would again be witnessing long successions of business days with transactions of a million shares, that, in November, the 2,000,000-share mark would be touched again, for the first time since the May 9 panic of 1901, and that daily and weekly trading in bonds would surpass all records of any year.

With the public mind pretty generally prepared for something very different, it is not strange that this bewildering series of events should have called forth, by way of explanation, some extravagant theories. The hypothesis of an irresistible "Money Power," usually pictured in the form of some selected capitalist, did service again as in the early days of 1901. Stress was laid on the increased gold production of the world as an influence on the markets a convenient theory, because no one can prove a negative, but surely an awkward theory when one thinks of 1903. More convincing, to the average mind, was the argument that the country's trade prosperity had returned, or was returning, to the high level which was reflected in the excited markets of 1901 and 1902. The question as to what the course of American prosperity will be in the nearer future is debatable, but the theory is at all events reasonable that the stock market has been foreshadowing such a renewed ascent to the heights of financial prestige. I shall have occasion in the course of this article to examine the grounds for such a supposition. But it is perfectly safe to say at once that American finance has not yet regained that position. The reason for such belief we shall find fairly conclusive.

On the whole, the most satisfactory explanation of last season's financial phenomena is the simplest. It is, that investors, great and small, who withdrew their capital from the market during the troubled autumn of 1902 and the summer of 1903, have been rather suddenly convinced that prosperity was still around us, and have put their money back into its former lodging-places. Adding to this the well-known fact that money could be borrowed cheaply all the year, because of the lessened demands of trade and the consequent plethora of bank funds, we shall have no trouble in understanding why the professional speculators, who cut so amazing a figure in the markets of 1901 and 1902, should have returned in force to the Wall Street scene.

Considered in this light, the recovery in the markets, during last year, has a precedent which we may study with profit. Attention has often hitherto been converged on the parallels between the recent "boom" and that of twenty years before; the foreign harvest failures and bountiful home crops of 1879 and 1897; the immense prosperity of 1880 and 1900; the wild speculation of 1881 and 1901, with the strange coincidences in each of a President's violent death and a corn-crop failure; and the "rich men's panic" of 1883 and 1903. It was, indeed, this familiar parallel which added weight to apprehension felt lest May, 1904, should repeat the Stock Exchange panic of that month in 1884.

The parallel did not hold in that regard; but the season, more or less prolonged, of uncertainty in trade and industry, appeared in the one generation as in the other. Twenty years ago it lasted longer — partly, no doubt, because the shock of reaction had at that time been more formidable, partly because 1884, unlike last year, was a period of railway rate wars and low agricultural prices. But in 1885 there came, on a smaller scale, what we have just been witnessing in the markets of the recent season. Then, as now, dismissal of fears and return of confidence began among investors; there was restlessness over accumulating savings which had been kept out of securities; and, in particular, there appeared an idle New York bank reserve of unprecedented magnitude, and a money rate which for ten months of the year hardly rose above one per cent. The outcome in 1885 was a recovery on the Stock Exchange, beginning in midsummer and not culminating until the middle of December. Such historical precedent as this is not merely curious. It is extremely useful at a time when imaginative minds are fond of dreaming that a set of conditions, wholly new in the records of finance, has been created for us.

I called attention in the last number of THE FORUM to the testimony which the rise in the investment markets had already borne, up to the opening of October, regarding the general situation. What has happened since can be best understood by reviewing the movement as a whole from its start last summer. There is now no doubt that the buying of securities during the summer months for genuine investors was extremely large. Purchases were made by what is commonly called the outside investing public, meaning the smaller class of capitalists, but also in great quantities by the very wealthy capitalists who withdrew their money from Stock Exchange securities at the close of 1902 and during the early months of 1903. Purchases by this class of buyers were probably as large last year as were their sales in 1903. Evi

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