to estimate the results of acting on a section only. In particular, an element of confusion would be thereby introduced into the problem of fixing the terms under which fresh capital should be sought by a company. On the score of safety, the wider field secured and the higher average rate of interest would compensate for the absence of exceptional guarantees on a portion of the purchases.

However desirable it may be that we should take the railway system as a definite entity, it is obvious that a certain amount of weeding is absolutely necessary. There is no reason why Government should participate in the results of foolish and extravagant ventures and faulty management. Certain conditions must be fulfilled before the stock of a company can be considered an eligible object of investment. It must have paid a regular dividend over a sufficiently long period to justify confidence in its future profitableness; and it must represent a sufficiently large capital to allow of purchases being made on such a scale as will make investment worth the trouble entailed. For example, it might be decided that the stocks of such companies only should be utilised as had a total paid-up capital of five millions and upwards at a date ten years back, and had in the interim paid a dividend at least once a year on their ordinary shares.

In whatever degree the effect might follow of raising the prices of the stocks of the larger systems, the displacement of purchases occasioned thereby would find an outlet in the funds of the lesser companies; and this would tend to produce an equilibrium. In like manner other industrial enterprises would not suffer; but a fresh level for all would be found, differing only from the previous level, since there is no creation of fresh capital but a transference only, in that consols would fall to their real value and other funds be slightly appreciated.

Having fixed the limits of our sphere of action we come to the question of selection. It would appear, however, that this problem is dealt with by the money market in a manner and with a certainty that no individual or body of persons can equal, much less improve upon. If a £10 share in one concern is quoted in the market at £18, and a £10 share in another is quoted at £9, although the former is the superior stock, the meaning of the price is that by paying £18 for one and £9 for the other the investments are made equally good, provided the concerns are of like character. It would not follow that what are considered steady businesses can be compared in this way with speculative

undertakings. But, in the case of long-established railway companies differing in no material circumstances, the value of their shares will be fixed by a keen and active market following the purchases and sales of those who are supposed to be in the best position to know and to be well able to judge the prospects of profit; and, to those who are not in a position to watch the movements closely, there can be no question of superiority as investments once the prices are so fixed. Besides being superfluous, it would be an impossibility for the board to make the necessary investigations, in regard to any considerable number of stocks, to justify them in deciding, in spite of the prices agreed upon by the market, that such and such stocks would prove better investments than certain others. Consequently, the best plan would be to make no distinction in this respect between the various companies, nor yet between the various classes of stock of any particular company. And, in order that the play of forces in the market may remain undisturbed, the investments should be made in exact proportion to the share of each company in a total of the paid-up capital of the eligible systems. For instance, it might be made compulsory on the part of the board to deal with. each £100,000 to be invested, according to the following suggestions, viz. :

(1) The railway companies to be divided into two classes according as they represent more or less than a given amount of capital.

(2) An amount in strict proportion to its share of the total capital to be carried to each class.

(3) The sum devoted to a class to be divided amongst the companies composing it on the same proportional system; and

(4) Each company's share to be distributed in like manner between the various kinds of stock of which its capital is made up.

At the end of each financial year a statement of the purchases made might be published and an estimate of the proposed rate of investment for the ensuing year furnished. The publicity of the transactions, the forewarning of investors of their probable extent, and the automatic character of the operations would leave little room for genuine complaint. Prices would be affected at the outset only, and that as the result of a necessary effort to remedy the position of Government stocks.

In order to counteract any excessive rise in the price of any class of shares involved, whether as a direct result of Government purchases or through the action of speculators, and to avoid loss

arising therefrom, an actuarial estimate would be requisite showing the price in each case, as compared with a tabulated set of prices of consols, at which the difference of profit in favour of any particular stock might not be considered sufficient to make further investment advisable. Any funds apportioned to such a stock would then be redistributed amongst the remaining railway stocks when consols were much above par, and, in the alternative case, would be applied to the purchase of consols, either for cancellation or for the savings banks funds as the circumstances required. Since the values of shares on which the dividends. fluctuate are affected by time, such an estimate would require annual revision; and, as the respective capitals of the railway companies are also variable quantities, a fresh statement of the proportion of investment would likewise be required annually, including therein such further companies as had qualified in the meantime, and excluding such as had failed to maintain the necessary status.

Whilst railway stocks lend themselves to the easy classification necessary to make an automatic system practicable, corporation stocks, on the other hand, do not exhibit sufficiently strong and permanent lines of demarcation to permit of the adoption of similar treatment. Furthermore, a constant succession of fresh loans is raised by local bodies, and the instability is increased by the action of sinking funds. Adding these practical difficulties to the economic objections that have been adduced, there can be little hesitation in giving judgment in favour of railways.

It must be admitted that, at the outset, the effect of Government purchases would be to raise the prices of railway shares. Part of this appreciation would be due to the actual investments and part to the moral effect of the change of policy. The latter factor might cause a sharp rise at first, but would ultimately resolve itself into nothing more harmful than is already to be found in the mention of particular securities in the list of the Trust Investment Act. Any objection on the ground that some sort of guarantee would be given to railway stocks may, I think, be met with a reference to the fact that the above-mentioned Act already goes much further in this direction, since it actually specifies certain stocks as being trustworthy; whilst the present scheme only asserts the safety of railway investment when spread equally over the entire system, and gives no ground of opinion whatever for regarding any particular stock as being secure. Any material increase caused by the actual purchases must in the long run be dissipated, as has been already shown, as the wave

of disturbance widens throughout the general range of investments. Prices could never through Government action reach the same level in the market as consols; since such action would cease as soon as a certain fixed margin of profit is touched. Nor could they be appreciated to any serious extent. For, in whatever way the action, or the expectation of action, of the Government could force up the prices of railway shares there must be a corresponding downward pressure on consols. As the former rise towards the limit of profitable investment, this limit is itself falling; and not solely from this cause. It will also have been deprived of the support furnished by the idea that the Government must perforce continue to purchase consols so long as there are any in existence.

In the endeavour to pay off its debt and in investing the savings banks funds, the Government is obliged to enter into competition with the market. In so doing its action differs from that of the general body of buyers and sellers in that it purchases its own stocks, that those stocks are of great value to the commercial world from the peculiar functions they perform, and that, its policy of continuing to purchase until the National Debt is entirely cancelled being well-known, the possessors of consols can, if they choose, hold out for exorbitant terms. To escape from so manifestly unfair a position it becomes necessary for the Government to cease to cancel debt, and to employ in the purchase of other stocks such funds as are not required to meet its necessary expenses. However undesirable such action may appear to competing investors, it is purely defensive in character. The Government is seriously hampered in paying off its debt by the rivalry of the general investor, and it is forced to carry the war, so to speak, into the territory of the latter the better to defend its own. A disturbance of the equilibrium of the money market is not a thing to be wantonly produced; but the price of Government stocks has been forced up to a false level, and the pressure cannot be relieved without distributing it elsewhere.

Such a dislocation would as surely take place were a policy of rapidly reducing the debt to be entered upon and consols cancelled in large quantities, and would be held to be perfectly justifiable. The crux of the problem lies not in this initial disturbance but in the question of non-interference thereafter with the functions of the market. Once the general direction and strength of Government purchases become clear and a fresh equilibrium is attained, the relative prices, if they are to be at all accurately fixed, must be determined as before by business men;

and this would be impossible if power were given to a particular body to select first one stock and then another on its own collective judgment when dealing with investments on the large scale that would be necessary for our purpose. It would be an undeniable grievance to an insurance company, let us say, which had instructed its broker to buy Birmingham 3 per cents. to find that they had risen several pounds in a day through a large Government purchase. Such purchases would be suspected in every case of an unexpected inflation of price, and the introduction of so important a fresh element of uncertainty would give rise to much discontent. The perfect ideal of a stock market requires that the value of each separate concern which solicits capital shall be determined, with reference to the current rates of profit in business generally, by the competition of experts, in order that an as nearly as possible exact knowledge may be obtained of the comparative values of different investments. The prices quoted in such a market thus become a source of trustworthy information to the general investor, by means of which, with an average amount of care and judgment, he will be able to transfer his capital with safety from one object to another without the expense and delay of making a thorough personal investigation (often an impossibility) into the financial soundness of the exchange. Laying aside the moral and intellectual shortcomings and the physical difficulties which prevent the full attainment of this ideal, it can only be even approximately reached when the operators are acting for their own personal interests and when no overbalancing power is wielded by a few hands. But both of these disturbing factors are introduced when Government purchases largely on its own judgment.

There remains to be considered the manner in which the credit of the country would be affected by the proposed change. Although few will be found to deny that the present high price of consols places us at a disadvantage so far as redemption of debt is concerned, an impression exists that were this country to become engaged in a serious war, a corresponding advantage would be ours, since we should then become borrowers. This would be true were the high price occasioned solely by considerations of credit. As a matter of fact consols are at a false price; and, on the outbreak of war, the pressure which had raised them -the Government policy of purchasing-would be withdrawn. A fall would thereby be occasioned to what I shall call the real credit level; and it would be from this point, as though consols had never been higher, that the war depression would act. These