But as these schemes are completed by degrees, no one ventures to propose new ones; people have been frightened by the losses and bankruptcies and frauds brought to light in the collapse, and when some people are afraid, others readily become frightened likewise by sympathy. In matters of this kind men of business are much like a flock of sheep which follow each other without any clear idea why they do so. In a year or two the prices of iron, coal, timber, &c., are reduced to the lowest point; great losses are suffered by those who make or deal in such materials, and many workmen are out of employment. The working classes then have less to spend on luxuries, and the demand for other goods decreases; trade in general becomes depressed; many people find themselves paupers, or spend their savings accumulated during previous years. Such a state of depression may continue for two or three years, until speculators have begun to forget their failures, or a new set of younger men, unacquainted with disaster, think they see a way to make profits. During such a period of depression, too, the richer people who have more income than they spend, save it up in the banks. Business men as they sell off their stocks of goods leave the money received in the banks; thus by degrees capital becomes abundant, and the rate of interest falls. After a time bankers, who were so very cautious at the time of the collapse, find it necessary to lend their increasing funds, and credit is improved. Then begins a new credit cycle, which probably goes through much the same course as the previous one.

It

90. Commercial Crises are Periodic. would be a very useful thing if we were able to foretell when a bubble or a crisis was coming, but it is evidently impossible to predict such matters with certainty. All kinds of events-wars, revolutions, new discoveries, treaties of commerce, bad or good harvests, &c.—may occur to decrease or increase the activity of trade.

Nevertheless, it is wonderful how often a great commercial crisis has happened about ten years after the previous one. During the last century, when trade was so different from what it now is, there were crises in or near the years 1753, 1763, 1772 or '3, 1783, and 1793. In this century there have been crises in the years 1815, 1825, 1836-9, 1847, 1857, 1866, and there would probably have been a crisis in 1876 or 1877 had it not been for an exceptional collapse in America in 1873. There is at present (February, 1878) the great depression of trade which marks the completion of one cycle and the commencement of a new one.

Good vintage years on the continent of Europe, and droughts in India, recur every ten or eleven years, and it seems probable that commercial crises are connected with a periodic variation of weather, affecting all parts of the earth, and probably arising from increased waves of heat received from the sun at average intervals of ten years and a fraction. A greater supply of heat increases the harvests, makes capital more abundant and trade more successful, and thus helps to create the hopefulness out of which a bubble arises. A falling off in the sun's heat makes bad harvests and deranges many enterprises in different parts of the world. This is likely to break the bubble and bring on a commercial collapse.

Generally, a credit cycle, as Mr. John Mills of Manchester has called it, will last about ten years. The first three years will witness depressed trade, with want of employment, falling prices, low rate of interest, and much poverty; then there will be perhaps three years of active, healthy trade, with moderatelyrising prices, a reasonable rate of interest, fair employment, and improving credit; then come some years of unduly-excited trade, turning into a bubble or mania, and ending in a collapse, as already described. This collapse will occupy the last of the ten years, so that

the whole credit cycle will, on the average, be as

follows:

It is not to be supposed that things go as regularly as is here stated; sometimes the cycle lasts only nine, or even eight years, instead of ten; minor bubbles and crises sometimes happen in the course of the cycle, and disturb its regularity. Nevertheless, it is wonderful how often the great collapse comes at the end of the cycle, in spite of war or peace or other interfering causes.

Now,

91. How to avoid Loss by Crises. these bubbles and crises are very disastrous things; they lead to the ruin of many people, and there are few old families who have not lost money at one collapse or another. The working-classes are often much injured; many are thrown out of employment, and others, not seeing why their wages should be reduced, make things worse by strikes, which, after a collapse, cannot possibly succeed. It is most important, therefore, that all people-working-people, capitalists, speculators, and all connected with any kind of businessshould remember that very prosperous trade is sure to be followed by a collapse and by bad trade. When, therefore, things look particularly promising, investors should be unusually careful into what undertakings they put their money. As a general rule, it is foolish to do just what other people are doing, because there are almost sure to be too many people doing the same thing. If, for instance, the price of coal rises high, and coal-owners make large profits, there

are certain to be many people sinking new mines. Such a time is just the worst one for buying shares in a coal-mine, because, in the course of a few years, there will be a multitude of new mines opened, the next collapse of trade will decrease the demand for coal, and then there will be great losses in the coal business. This is what has happened in the last few years in England, and the same thing has happened over and over again in other trades, As a general rule, the best time to begin a new factory, mine, or business of any kind, is when the trade is depressed, and when wages and interest are low. Mining, building, or other work can then be done more cheaply than at other times, and the new works will be ready to start just when business is becoming active and there are few other new works opening.

This rule, indeed, does not apply to the schemers, speculators, or promoters, as they are called, who start so many companies. These people make it their business to have new schemes and shares to offer just when people are in a mind to buy, that is, during a bubble or time of excited trade. They take care to sell their own shares before the collapse comes, and it is their dupes who bear all the loss. A prudent man, therefore, would never invest in any new thing during a mania or bubble; on the contrary, he would sell all property of a doubtful or speculative value, when its. price is high, and invest it in the very best shares or government funds, of which the value cannot fall much during the coming collapse. The wisest men have been deluded during manias; and in the Library of the Royal Society is shown a letter from Sir Isaac Newton requesting a friend to buy shares for him in the South Sea Company, just at the moment when the South Sea Bubble was at its worst. Let people take warning by Sir Isaac Newton, and never speculate in thing because other people are doing the same; then these

bbles and collapses will be prevented, or will become

much less disastrous. Credit cycles will go on until the public learn to look out for them, and act accordingly. Business men must become bold during depressed trade, careful during excited trade, instead of acting exactly in the opposite way. It is only a knowledge of these credit cycles which can prevent them, and this is the reason why I have said so much about them in this Primer.

CHAPTER XV.

THE FUNCTIONS OF GOVERNMENT.

92. Functions mean performances (Latin, fungi, functus, to perform), and the functions of government mean those things which a government ought to do, -the duties which it undertakes to perform, or the services which it may be expected to render to the people governed. These functions are commonly

divided into two classes

(1) The necessary functions.

(2) The optional functions.

The necessary functions of a government are such as it is obliged to undertake; thus it must defend the nation against foreign enemies, it must keep the peace within the country, and prevent insurrections which might threaten the existence of the government itself; it must also punish evildoers who break the laws, and try to become rich by robbery; it must also maintain law courts in which the disputes of its subjects can be fairly decided, and set at rest. These are far from being all the necessary functions.

The optional functions of government consist of those kinds of work which a government can execute with advantage, such as providing a good currency, establishing a uniform system of weights and measures, constructing and maintaining the roads, carrying letters through a national post office, keeping up a national observatory and a meteorological office,