but in the scarcity of collateral of the proper kind to be pledged at the bank to form the base of a loan.

The theory is widely held throughout Canada at this very time that what we need most of all now is an increase of the currency of the country to quicken and revivify industry. The essence of the contention is found in the expectation that prices would rise still higher and that goods would find readier sale if the quantity of the circulation were increased. But prices will not rise, other things being equal, merely from an increase of the medium of exchange, unless there were a serious fall throughout the world in the value of gold. This is probably the real reason for the increase of prices during the last decade. But it is also plain as a pikestaff that a rise of prices may be brought about by any device that would lower the value of gold, such as a debasement of the coinage, or any legislative enactment that would transfer Canada's standard (which is now gold) to a cheaper metal, such as silver, or that would establish an inconvertible paper as a standard. Here is the milk in this cocoanut. An increase of convertible paper, granting immediate redemption without delay and without expense, would not raise prices any more than would an importation of gold in the course of international trade.

Among the more intelligent supporters of the theory that an increase of circulation would quicken industry, it is held that an increase of gold in the country would strengthen the reserves, and so cause an expansion of credit and make money "easier." It is well recognized, however-certainly in the history of English banking since Peel's Act of 1844-that the banks cannot lead, but must necessarily follow, the attitude of the business public. An increase of reserves may often, and properly, result from the unwillingness of the banks to lend, due to doubts as to the future of trade.

Putting aside the undoubted rise of prices due to a fall in the value of gold, it is quite clear that the same result may be brought about through over-trading and by too heavily discounting the future. It is an open question whether that is not precisely what wehave been doing in Canada during the last few years. Real estate values, both in eastern Canada and in the West have soared to unprecedented figures. It may quite well be the case that the quickening of industry and trade in

this case is only the excitement caused by intoxicants, certain to be followed by collapse and serious financial trouble. An increase in money in itself cannot quicken industry. An expansion of credit which is not based on the real earning power of the country undoubtedly will do so for a time until the inevitable day of settlement comes to hand. As long as the circulating medium of a country is convertible into gold an increase in its amount will not quicken industry or raise prices. Only by effecting a change in the value of the standard metal itself (gold), or by an over-extension of credit through the banks, can the money mechanism of a country have any direct bearing upon increasing the prices of commodities. This is far from denying, of course, that money and credit are not essential for the proper carrying on of the nation's business. But the relationship existing between these has been too often overlooked in present-day discussion. The actual amount of money circulating in Canada to-day-whether government money or bank money-makes up a very small part of the huge wheel of exchange by which the commodities of the nation find their way to the market, in comparison with the enormous and constantly increasing rôle played by the credit functions of the banks and other financial institutions.

And yet, as has been said, it is commonly believed that an increase of the currency is a gain to a community. General Walker in his work on Money, in answer to the question how much money does a country require, says:

"It is that amount which will keep its prices (after allowance is made for the cost of transporting goods) at a level with those of the countries with which it has commercial relations."

It goes without saying that the distribution of the precious metals between commercial countries is in the proportion that the transactions of each bear to those of the other. But it does not follow from this that prices in any one country will be in proportion to, or will be regulated by, the quantity of money which it holds as compared with the goods to be exchanged. General Walker argues further, that high prices stimulate industry, and that these high prices result from an increase in the "circulation." Such a result depends very much on what is meant by "prosperity." If a feverish speculation is prosperity,

sum would do the work equally well-is taxing itself foolishly. then it may be brought about without any increase whatever in the amount of money in the country. All that is needed is to increase prices by the government establishing our currency system on a silver basis, or, as is far more likely, by the banks extending their credit without limit on any security offered. Then prosperity will spread like weeds.

In a young country, such as Canada is to-day, effort is concentrated on supplying the primary necessities of life, such as food, clothing, and comfortable houses. While this new country is being conquered and set ready for production in field and mine, the wealth of the people and of the nation is small, although the potential wealth is truly vast. Under these circumstances, though thousands and tens of thousands of settlers come from every centre of European civilization, there must of necessity be economy in regard to expenditure. So long, therefore, as we can conduct our business by means of credit and credit devices-such as the government notes up to $35,000,000, and the bank note and deposit account-the country cannot expect to possess large supplies of the yellow metal as a medium of exchange, even if it were desirable to do so. Only with the increase of the general wealth and prosperity of the country can we hope to possess and control large supplies of gold. To the extent that gold can be safely dispensed with in the mechanism of exchange of the country, will a saving be effected. Only when Canada becomes a creditor, and not a debtor, among the nations, may she expect to control large supplies of the precious metals. We may say "control" advisedly; for as a nation increases in wealth, and amasses riches, it is quite likely that it will use less and less of the valuable standard metal (gold) as a medium of exchange. Exactly in proportion to its commercial and financial development will Canada economize the use of the valuable money metal, and secure a safe and efficient medium of exchange other than coin. It will always suffice if the money used is constantly tested by presentation for payment on demand in the standard of value (gold). It goes without saying that a country which, by a blundering policy, keeps an unnecessarily large sum of wealth occupied in performing its exchanges, in the shape of the precious metals-when, under skilful management, a much less

There is no more sense in feeling pride in a large per capita circulation than in a large per capita taxation.

In conclusion, after what has been said, the present situation may be briefly summarized. Apart from wars and rumors of wars, the money markets of the world have not been tapped so easily by Canadian borrowers because of one great outstanding fact-over-expansion of the country's credit. It is not that "money" is scarce; but that the quality of economy has been all too scarce in Canada in recent years. The real estate gambling mania has not been confined to the West alone. The result of all this is reflected by the money market. The days of four per cent. borrowing in the London market are about over. Witness the following: During April the total municipal borrowing of Canada amounted to $15,488,936. Four cities made issues in London, as follows:

There are just three rules of sound financial practice which Canada needs to put in operation at this critical juncture. The first is economy; the second is economy; and the third is economy.

SPECULATION AND ITS EFFECTS UPON THE MONEY MARKET.

It cannot be gainsaid that chief among the reasons for the present tightness in the money market is the habit of speculation that has obsessed the Canadian people during the last few years. Such speculation is noticeable in almost every line of business activity and enterprise from real estate to oil shares, and including even the basic industries of the country. The plain fact is that every buyer and seller is a speculator in money, though he may not realize it. Every debtor and creditor is a speculator not only in money but in "futures" as well. Every debtor has sold money short in exactly the same way as

a speculator who deals in wheat has sold that commodity short when he has contracted to deliver a certain number of bushels at a given price at a future time. He gains or loses as the price at the time of delivery has fallen or risen.

It is one of the accepted principles in speculative markets that there is no better guaranty for the maintenance of prices than the existence of a large short interest. The reason is evident, for these persons are potential purchasers who must buy within a given time whether they wish to do so or not. In times of business expansion and general prosperity, when people are extending their business operations and seeking new opportunities of gain, a large short interest in money is being created; and as the time for meeting their obligation approaches it is inevitable that there must be a scramble for money with which to satisfy those credit contracts. And that is exactly what is happening in Canada at the present moment. Business men and financiers have largely discounted the future. They have "taken chances" in almost every direction. While an enormous productive effort has been put forth and the farm, the factory and the mine have been worked as never before, yet a great deal of the country's capital has been invested in purely speculative enterprise with the hope that the upward trend in prices would continue long enough to net substantial profits. Thousands of persons throughout the country, however, have made small payments on their purchases and have borrowed to cover the difference, or are making payments from time to time as these become due. It is this class that suffers most when there is a stringency in the money market. Dealing in a small way, although the sum total of their business amounts to an enormous sum, they are unable, when the market breaks, to hold their own, and must sacrifice their holdings to meet outstanding obligations. The pressure exerted by these small dealers on the entire business structure of the country is very great; and it needs the most consummate skill of the bankers and financiers of the nation to avoid a total collapse of credit and prices.

All that has been said is well reflected in the present monetary situation of Canada. The banks have taken a strong stand in regard to merchants' overdrafts, and manufacturers are compelled to restrict plans for the extension of their plants.