most perfect, the dearest of men, and if he bade her, she would follow him anywhere, anywhere. He looked up and saw her standing in the doorway. She did not realize, girl that she was, how her eyes and face revealed her secret, even though her parted lips made no sound; how tenderness radiated from her dainty presence, betraying that in heart and spirit she had come to meet him, ready for his avowal, glad to be his, overwhelmed with the first wonder of young and innocent love. Somerton, waiting there, had tortured himself as to how best he might commence his wooing-he had intended to be prudent, cautious, perhaps to take a week or more feeling his way, ascertaining whether he had the smallest chance of winning her. And then, if the outlook seemed favorable, he would press his suit ardently, with fervor, to carry her off her little feet, allowing her no loophole of doubt or indecision. Instead, when he looked up and saw her face, he threw his gloves into his hat that he had placed on the table, and came towards her. "Fay!" he cried involuntarily, passion in his eyes and voice, "Darling-how did you know?" Later on, as they sat side by side on the stiff hotel sofa, rendered indifferent to the discomfort of its angles by Love the great magician, who disre gards all physical annoyances, Somerton repeated the words with which he had greeted Fay's entry into the room. "How did you know? Fay-tell me how you knew I was going to ask you to marry me?" He bent down and kissed her neck. With her clear, pale face and tender eyes, and the soft, fluffy cloud of dark hair, she reminded him again of a pastel sketch, so delicate, exquisite, almost impermanent. He caught her to him as though in very fear that she might fade before his gaze. She looked up, smiling, at the firm, keen face of her lover. "It was Rotah who told me!" she said, and as she said it her heart warmed to the young Indian prince who, all unwittingly, had hastened her hour of bliss. She thought of his sad dark eyes with pitying sympathy, and wished he could feel even one quarter as happy as she felt happy now. was sorry she had let him leave her without a word, had ignored his touching outburst of devotion towards Clive and herself-though she had done so unintentionally. She "Rotah!" exclaimed Somerton, interrupting her reflections. "Good Heavens -the young rascal!" He recalled his interview with Rotah the previous afternoon, and perceived that the boy had misunderstood his admission that he hoped to marry Miss Fleetwood-had taken his words as an announcement of their engagement. And at the same time he realized that it was through Rotah that his own decision had come so swiftly and surely. It was Rotah who had released him from all self-argument and doubt, and possibly spared him long days and nights of mental disturbance and unrest, had shown him his own heart beyond all question or uncertainty. Yes, he owed a lot to Rotah, and Rotah's secret should be kept religiously. Fay must never know it. "He said you had told him," Fay went on. "He repeated his own words: 'Are you going to marry her-Miss Fleetwood?' And then yours: "That is my great hope.'" She leaned her pretty head against his shoulder, and sighed in vast contentment. "Are you glad he told you?" demanded Clive, with the fatuous tendency of a man in love to ask superfluous questions of his beloved, that her superfluous answers may thrill him again and yet again. "You know I am glad!" she said softly. Then presently she thought of the Rani with a little shock of remembrance, and explained in haste to Somerton what had happened that morning, told him of the lady doctor's visit and of her own promise to the patient that she would interview the Rajah and try to obtain his consent to the immediate return of the whole party to India. "I met him in the passage," she added, "and asked him to do what the Rani wished. That was how it all came about, you know." "Surely he didn't consent?" was Somerton's anxious query. to us. Will you be obliged to go, too, Clive?" "I suppose I ought," he said with reluctance. "I don't see how I can very well desert him till he's safely installed. The time isn't far off now." Fay rose from the sofa. She stood before him, both her hands held in his. "I shouldn't be much good to you as a wife if I tried to keep you back from duty, should I?" she said with cheerful courage. "Of course you must go. And-and-when you can leave Rotah, shall I come out to you?" He stood up, seizing her in his arms. "Oh! no!" he said in laughing, happy irony. "Heaven forbid that such an awful catastrophe should befall me!" (To be concluded.) "He did. He gave his word, and he must keep it now, whatever it means The Times. THE DECREASING VALUE OF MONEY. From the termination of the FrancoGerman War to the commencement of the war in South Africa there had been in this country a fairly steady decrease in the cost of living: the purchasing power of the sovereign had become gradually but surely greater. Nor was this state of affairs peculiar to Great Britain: it existed in varying degrees in all countries, irrespective of their fiscal policies. During the 'nineties prices of commodities were low throughout the world's markets. For the simple reason that their monetary gains had a large purchasing power, merchants were able to work on a small margin of profit. In proportion as general prices fell the money profit which traders expected to earn decreased; in other words, the rate of interest fell. The effect of this steady reduction of interest was nowhere more marked than in the value of securities on which a fixed rate of interest was payable. Such securities re sponded immediately, as they always have responded, to changing monetary conditions. As the expectation of profit on money embarked in trade fell, so the price of Consols and other British and Foreign Government Se curities, Debenture, and Preference Stock in all sound undertakings which offered a fixed rate of interest rose, and continued to rise, in fairly accurate proportion to the decline in the rate of interest obtainable on money invested in commercial undertakings. The cost of living was lower during the period of 1895-98 than it ever has been in modern times; and, during that period, Consols and other first class securities were quoted higher on the Stock Exchange than ever before or since. When, in 1899, war broke out in South Africa, the cost of living in the United Kingdom immediately rose; and the ramifications of commerce caused the increase of prices to ex tend to other countries, just as, to a greater extent, the Crimean and the Franco-German Wars had each temporarily inflated the cost of living throughout the whole civilized world. The upward movement of trade prices which commenced in 1899 was a perfectly natural consequence of the war. That war certainly marked an epoch in the history of trade prices and in the history of Stock Exchange quotations; but it obviously does not furnish an explanation of the drastic economic changes which commenced about that period. On the restoration of peace, prices not only did not resume the course that they had been pursuing before the intervention of a disturbing element, but they continued to rise, and their general tendency has ever since been upwards, whether trade has been good or bad, whether the world has been at peace or disturbed by war. Profits which fifteen years ago would have been regarded by a business man as satisfactory would now be looked upon as altogether inade. quate. The rate of interest has gone up, and, with it, the expectation of trade profit. In such circumstances it would be futile to expect that the price of Consols and other securities which yield a fixed rate of interest could possibly remain at anything like the level of fifteen years ago, when conditions were totally different. Nor would it be reasonable to suppose that those securities would fail to observe the economic laws by which they have always been governed. As the rate of interest in the commercial world rises, the price of Consols, debenture stocks, and other securities known as "giltedged" must fall; but if, on the other hand, commercial monetary profits decline, "gilt-edged" securities inevitably move upwards in price. There is, of course, an essential difference between a rise of prices in a particular industry, or in a limited locality, and a general rise experienced throughout the whole mercantile world. In the former case the phenomenon is attributable to well-defined industrial or political causes; but any universal increase of prices necessarily implies an alteration in the value of money. Like that of other commodities, the value of money is measured by the ratio of supply to demand. If there be a large increase in the amount of gold coin in circulation, without a corresponding increase in the volume of trade, the exchange value of each unit of the currency necessarily declines, just as the exchange value of each bushel of wheat decreases if there be a large addition to the amount of wheat offered for sale without a correspondingly greater demand. As Adam Smith put it, "gold and silver, like every other commodity, vary in their value; are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. The quantity of labor which any particular quantity of them can purchase or command, or the quantity of other goods which it will exchange for, depends always upon the fertility or barrenness of the mines which happen to be known about the time when such exchanges are made." The most remarkable illustration of this fact is afforded by the effect upon prices of the discovery of the Potosi silver mines about the middle of the sixteenth century. Huge additions were then made to the stock of silver; and, as there was not a sufficient increase in the demand to counteract the effect of the vast increase in the supply, it was inevitable that the real value of the metal should undergo an enormous decline, the measure of which was indicated by the very considerable increase in the prices of all other commodities. It is estimated that during a period of seventy years general prices rose in England by no less than four hundred per cent! That a check was eventually imposed upon the upward movement was due solely to the fact that silver fell so low in value in relation to other commodities that it became unremunerative to work any but the richest mines. Probably there is no danger that we shall have to face anything like so serious a situation in the near future. At the same time, one cannot shut one's eyes to the fact that the output of gold is increasing at a remarkably rapid rate, and that, unless legitimate currency requirements are increasing with corresponding rapidity, there must necessarily be a tendency for the metal seriously to depreciate in real value. Dur Until the middle of last century gold was a comparatively rare metal; the enterprise of adventurers and the labor of diggers had resulted in an output of less than £700,000,000 worth in four hundred years. But a great change was wrought by the discovery of the precious metal in California in 1848 and in Australia in 1851. ing the period 1851-1885 the produce amounted to no less than £890,500,000. When, however, towards the close of that period, the great rushes in California and Australia slackened, there was a decline in the output; for the produce of the then newly-discovered gold-bearing area in the Transvaal was at first insufficient to counterbalance the diminished returns from the two other centres. Nevertheless, in the years 1886-1890 the annual output averaged £23,000,000. Then, as the productiveness of the South African mines became firmly established, the output steadily increased, and in the year 1899 it reached £65,066,000. 1900 there was a drop to £52,621,000; but, chiefly as a result of the removal of disabilities on mining in the Transvaal, there has since been a In £2,315,830,000 period 1851 to 1911. Roughly, therefore, the output of gold was three times as great during the period 1851 to 1911 as in the preceding 400 years. Undoubtedly the actual stock of gold coin in 1911 was far more than three or four times greater than the stock in 1851; for, in the long period of 400 years, wastage and the demands of goldsmiths had absorbed a very large proportion of the gold won from nature. It would be an economic impossibility for the enormous increase in the amount of gold placed on the market in recent years to fail to depreciate largely the value of the metal, in other words to raise general prices, unless expansion of trade has been such as to necessitate the absorption of the additional gold into the world's currencies, or unless there have been other exceptional demands for gold. The truth is that a large part of the increased supply has been absorbed in the necessary extension of currencies, a large part has been applied to meet exceptional demands and a surplus has remained which has had an appreciable effect upon prices. In considering the effects upon prices of variations in the currency it is desirable to refute a popular theory that, as gold forms only a relatively insignificant portion of the actual circulating medium, any variation in the quantity of the metal can have only a relatively minor effect upon prices. As a matter of fact the different elements of currency brought into being by the exigencies of trade imply the existence of a corresponding stock of gold. For example, bank notes, with the exception in this country of those issued without reserve, by the Bank of England under the Bank Charter Act, are covered by the detention by the issuing banks of an equivalent amount of specie: they simply, therefore, take the place in circulation of the gold which their face value represents, and it is a fallacy to suppose that cheques and bills of exchange augment the currency. A person who draws a cheque has, presumably, lodged with his bank gold of the value represented by the cheque. All that the check does is to transfer that gold to another person: its function is simply to save the mechanical labor of conveying bullion from one person to another. A temporary addition to the currency is certainly made if a cheque be drawn in respect of which there are no funds at the bank, in other words, in respect of which there is no gold reserve. But, in that case, the addition to the currency is a spurious one, and it is re jected with ignominy as soon as the inherent fraud is discovered. A man by accepting a Bill of Exchange merely participates in an operation by means of which someone who possesses money lends it to another who has for the time being greater need of it. Credit purchases are on a similar basis. Although no written document passes, the purchaser virtually gives a bill payable at some agreed upon or tacitly understood date. The vendor either discounts the bill himself by drawing on his own stock of specie, or discounts it at a bank by raising a loan on his book debts: in either case the result is merely to transfer the immediate control of specie from one person to another. In none of these instances is there any real addition to the circulating medium. The whole effect of the various bill-broking, discounting and credit operations is simply to facilitate the transfer of gold from one control to another: such operations do not augment the amount of the currency: they merely secure to gold its maximum fluidity. If it be true and it is a point on which all authorities are agreed-that prices depend upon the amount of money in circulation, it follows that for prices to remain constant the stock of gold and the volume of trade should vary in much the same proportion. If in any definite period the supply of gold increases by, say, 20 per cent, and the volume of trade by 10 per cent. only, it is evident that the quantity of gold has exceeded the requirements of trade, that there is a superfluity of gold and that, consequently, the real value of the metal has fallen. Commodities and services command a greater exchange value in terms of gold: in other words, prices are higher. When the free action of supply and demand is not interfered with by local disturbances and artificial restraints, such as war, pestilence or |