the final step. The more society experiments with the advantages of training the talented children of wageearners, the higher will it rate the prospective advantages of granting even the children of the unskilled all the education by which they can profit.

Now this is no place to argue the plausibility of Mr. Walling's forecast at large; but it is the place to consider the concept of human nature on which it rests. The reader must have noticed both that this concept is very different from that held by Thorndike, Wallas, Veblen, Sombart and Lippmann, and that it is very like the concept implicitly held by most economic theorists. For Mr. Walling's expectations are tacitly based on the assumption that the factor controlling political behavior today and tomorrow is a clear apprehension of economic self-interest and a firm determination to follow it. Indeed, Mr. Walling's fundamental amendment of orthodox Marxism carries economic determinism further than most socialists will go. He smashes the romantic notion of working-class solidarity by applying the "economic and class interpretation to the constituent elements of the Socialist Party (p. 240). Quite in the spirit of the classical economists, he makes place in his system for only one set of limitations upon the pursuit of economic self-interest - the limitations of ignorance; and he holds that even these limitations will decline rapidly as education extends. He imputes to the unskilled laboring masses of the future a mobility greater than that imputed by Ricardo to capital (p. 296). Even so sentimental a matter as patriotism gets reduced in his analysis to business elements (chapter XV).1 In fact, the only set of people in Mr. Walling's

1 One sentence might be construed to mean something different from economic determinism: when we look for the motive behind the political act and its immediate guiding principle we find with Wells (in his New Macchiavelli) that it is prompted' by interests and habits, not ideas.'"' Of course in psychology "interests " means some

book who are not guided by enlightened self-interest are the members of the present Socialist parties. They are not " as well-informed and aggressive in defending their interests as pure democracy and Socialism require.

And so the Party machinery is used almost as much to bring the Party to follow its leaders, who follow the non-Socialist public, as it is used to persuade the nonSocialist public to follow the Party" (p. 221).

It is a suggestive fact that Mr. Walling has a long and intimate acquaintance with the doings of the Socialist party in America. If he could know as well the Progressives, the conservative wings of the Republican and Democratic Parties, the Labor Party, and the Socialists of the future, would he not find that they too lack clearness of vision and singleness of purpose? brother socialist, Mr. Lippmann, says shortly, "No genuine politician ever treats his constituents as reasoning animals.” 1 If our social psychologists are not wholly mistaken, we may add: No political theorist should treat human beings as calculating machines.

His

In short, I think Mr. Walling's book is an excellent piece of "pure theory." But "pure theory" is an even more fallible guide to what we may expect from political evolution than to what we may expect from business activities.

VIII

"There can be no question," wrote a distinguished psychologist in 1909, "that the lack of practical recognition of psychology by the workers in the social sciences has been in the main due to its deficiencies. The department of psychology that is of primary

thing very different from what it means in economics. But I fear Mr. Walling confused the two meanings for a moment. Judging from the book as a whole, "interests" means material advantages.

1 A Preface to Politics, p. 217.

importance for the social sciences is that which deals with the springs of human action, the impulses and motives that sustain mental and bodily activity and regulate conduct; and this, of all the departments of psychology, is the one that has remained in the most backward state, in which the greatest obscurity, vagueness, and confusion still reign." 1

Happily, the preceding reviews justify the belief that this situation is changing for the better. For Parmelee and Thorndike, Wallas, Veblen, and Lippmann, even in a measure Sombart and Walling, are endeavoring to explain how men act. Studies of tropisms, reflexes, instincts, and intelligence; of the relations between an individual's original and acquired capacities; of the cultural roles played by racial endowments and social institutions are vastly more significant for economics than classifications of conscious states, investigations of the special senses, and disquisitions on the relations between soul and body.

It was because hedonism offered a theory of how men act that it exercised so potent an influence upon economics. It is because they are developing a sounder type of functional psychology that we may hope both to profit by and to share in the work of contemporary psychologists. But in embracing this opportunity economics will assume a new character. It will cease to be a system of pecuniary logic, a mechanical study of static equilibria under non-existent conditions, and become a science of human behavior.

WESLEY C. MITCHELL.

COLUMBIA UNIVERSITY.

1 W. McDougall, An Introduction to Social Psychology, pp. 2, 3.

THE CITY OF LONDON AND THE BANK

OF ENGLAND, AUGUST, 1914 1

SUMMARY

I. Peculiar position of Great Britain, a creditor country, as regards external payments, 48. II. Depositories opened by the Bank of England outside Great Britain, 50. - III. Obligations by foreigners not paid, 52. IV. Embarrassments of accepting houses, discount houses, joint stock banks, 55. — V. Stock exchange closed, 58; Bank of England guaranteed by Government against loss on bills taken over, 60; the bank rate kept moderate, 60.— VI. Possibility of internal drain, 64; Bank act suspended, 65; Currency Notes issued by Government, 66; extent of additional issues, 68. — VII. Conclusion,

70.

I

THE peculiar relation of Great Britain to the international money market has again enabled the Bank of England to accomplish without the support of a large gold reserve what has been beyond the power of the great state banks of Europe in spite of unexampled gold hoards. The Bank of England alone met the catastrophes of August, 1914, without a suspension of specie payments and without availing herself of emergency privileges. A greater leniency than usual, supported by a guarantee from the Treasury, in regard to the character of the bills taken over from the outside market, was the only respect in which she departed from her usual courses. So happy a result may be attributed partly to an obstinate, conservative courage; but chiefly to the peculiar position of Great Britain in

In an article published in the Economic Journal, September, 1914, I have attempted to deal generally with the financial situation in England during the first month of the war. In this article I shall treat more particularly of the relations of the City to the Bank of England.

A

the international money market, referred to above. large part of London's difficulties, however, as well as her strength, arose, as we shall see, out of this same peculiarity.

one.

In a general financial crisis, whether due to war or not, there are two separate problems, namely, due provision for the internal currency and due provision for external payments, of which the second is in general the crucial The question of the internal currency I postpone for the moment. It is the position of Great Britain in respect of external payments in case of sudden emergency, which is peculiar. This is a commonplace of the subject. Great Britain is a creditor nation, not only in the sense that she has large permanent foreign investments and an annual balance available for increasing them, but also in the sense that she habitually loans to foreign centers large sums of money which are repayable at short notice. It is always within her power, therefore, by refusing to renew these loans, to turn the immediate balance of indebtedness in her favor. The central bank of a country which in this second sense is on the whole a debtor and not a creditor, must clearly, if it is to be certain of always being able to meet international obligations and to maintain the local currency at parity, keep a much larger reserve of gold than a country which, even if it is temporarily in the position of debtor, can quickly turn round and become creditor.

It has

All this, as I have said, is a commonplace. been the reason and justification for the Bank of England's holding one of the smallest gold reserves in Europe, while building up on the basis of it the largest volume of business.

Broadly speaking, reasonable anticipations based on this have been borne out by the event. For the first week or two we should have felt somewhat easier in our