20 FEBRUARY 1886, Page 11


IN spite of the depression, capital still accumulates, and some at least of the ordinary ways of investing it are. closed. The depreciation of certain classes of house property, though little noticed, has been considerable—as witness, for one strong bit of evidence, the debate of Tuesday in the Birmingham Town Council—and capitalists fear that it may go further, They acknowledge that "it is a cheap time for houses," but say it is not cheap enough, and abstain from buying houses almost as completely as they do from buying land. As to the latter, timidity has risen to the height of panic. What with the prices of grain and stock, and the fears excited by Mr. Jesse Collings, land is almost unsaleable at any but ruinous, prices ; mortgaged owners are being ruined every day by forced sales ; and but that landlords "bold on through the depression" by almost any sacrifices, the fall would. attract the attention of Parliament. The capitalists fear that recovery will be slow, and buy Colonial Stocks, India, Stocks, and good Railway Bonds, till smaller investors are at their wits' end. They think their money is becoming worthless, and turn with a new feeling towards proposals which at another time they would scorn. As the money yields so little, may they not gamble with it ? Keen speculators have noticed this feeling, and there is quite a shower of new projects, which the promoters hope to carry out by dint of promising almost fabulous interest. One before us now, assures us of interest at 65 per cent, per annum, while another gravely declares that the investor may be confident of 25 per cent. for an indefinite period. They reckon, as lottery-keepers do, on small investors, who will buy with a conscious feeling that they are betting ; but we fear that they often catch dupes who can ill spare even the small sums necessary for their low-priced shares. Just at present there is a revival of the mania for shares in gold-mines. After about a score of specu- lations have collapsed, the managers of one Indian mine have hit upon rocks which yield a profitable number of ounces to the ton, and their shares have gone up to six times their par value. That, no doubt, means fortune for the shareholders; and instantly other mines are started, the grand claim made for which is that they are situated in the same Indian State as the prosperous mine. Mysore is a little smaller than Scotland ; but because the Mysore mine has yielded money, therefore anything in Mysore must yield it, and ranch more, for, as usual, the sellers of new mines ask much more than the sellers of the original undertakings, who were parting with untried properties. Oddly enough', investors never seem to look at the amount of capital asked for ; but because a mine on which 250,000 has been spent yields, say, 40 per cent., they think they can get the same return out of a mine for which perhaps £/00,000 has been paid to its owners, who, we may rely upon it, if they had felt sure, would have kept their property. Then, because there is gold in South India and one mine has yielded ore in paying quantities, there is gold also in West Africa, in Spain, and above all, in the wilder States of the American Union. There is a perfect shower of gold prospectuses, and we fancy small investors, attracted by the fact of one success, and angry with the price they are getting for their money, are biting very freely. At all events, the share-lists are closed at very short dates. We have nothing to say to them if they are betting and know they are betting, except that unearned money rarely stays, for we have never quite seen the proof that betting is more immoral, though it is far more harmful, than any other form of interesting waste ; bat we would just give a caution to those who fancy that they are investing money. Seven times in ten at least they are being taken-in by men whose eyes are quite open, and the other three times they are buying a very poor chance. Gold- mining very rarely pays. It is doubtful if all the gold-mines of the world yield 5 per cent., even if they are not carried on at a loss, and the few prospecters who hit upon good things always keep them. American speculators, in particular, are more alive than Europeans to mining advantages, and with a certainty in their hands, can get• plenty of money without

coming to London. The notion of a Californian with a grand gold-mine coming away from San Francisco to sell it, except in the hope of a price that San Francisco is too 'cute to give,

is simply comic. Silver, though it appears to be less risky, is really almost as doubtful as gold. A grand vein will pay, no doubt,

and mammoth fortunes have been made in silver by men who did their own work and drew up their own bargains ; but so great are now expenses and risks of all kinds, that we are told the silver speculators actually dread the action of Congress. The secret of their desperate exertions there is that if the Union demonetises silver, the margin of profit on raising it will disappear, and their incomes will be gone. Silver, too, of all articles in the world, falls most steadily. It has never ceased falling, except for short periods, for five-and- twenty years, and there is no visible reason why it should cease. Production goes on increasing ; Asia, the ultimate destination of silver, absorbs the metal no faster than she did ; and as for the Governments, the American President pronounces for gold, and the Prussian Finance Minister declared last week that an international attempt to raise the value of silver was quite hopeless. He grew quite sullen and silent about it, and refused to argue. The other metals are in even worse plight. It hardly pays to raise copper, or lead, or iron under the most favourable circumstances, the slightest rise in price only inducing the holders of a few giant mines to deluge the market again. The truth is, the supply of those metals is as much as the world wants ; mines are not closed while they pay even a little ; and without some unexpected increase of demand, there can be no return of prosperity. Those, there- fore, who trust prospectuses, should remember that they are buying a chance of raising a declining article, and that if they believe in a rise, they had much better buy warrants for the article itself. If that is their reliance, why double the chances against them by buying not only, say, copper, but the chance of not getting good copper after all ?

The industrial companies, which are also beginning to offer "going businesses," are almost as unsafe. In the first place, no firm with a first-rate business sells it to the public. Its members know perfectly well how to sell it privately, how eager the capit- alists in their own trade are for partnerships. how different the profit is when a principal is managing and when a hireling must perforce be trusted. Investors may rely on it that men who sell a bank or a bosiness yielding 20 per cent. smell danger somewhere —it may be from competition—and think they had better leave off while their pecuniary record is so good. Moreover, the thing sold loses part of its value the moment it is sold. There is hardly a business in the world part of whose profits does not depend upon the personal qualities of its principal, even if the personal quality is only the attachment of old employes, who always know the right thing to do. When he goes they go, or they grow dissatis- fied, expense sets in, customers go out, trade secrets are disclosed, and the shareholders find that somehow, though the business is good, it yields only 5 per cent. instead of 25 per cent. As the decline is gradual, all shareholders but the first suffer most, for buyers at a premium do not receive the dividends which at first reward this form of industrial enterprise. Of course, if a man is buying into his own trade, he may be safe enough, for even if Directors tell him nothing, he can understand the signs he sees ; but the average investor, who knows nothing, should be as wary of a business enterprise as of a mine, and that even if the vendors take the whole of the purchase-money in shares. It is often much less risky to be a large shareholder in a doubtful business than a principal. If the undertaking goes on well, there are the profits, reduced, no doubt, but still spread over many shares ; while if the undertaking fails, the vendor enjoys a limited, instead of an unlimited, liability.

But where, then, is money to be put? Nowhere just now ; or into an old stocking, or its equivalent, the Two-and-a-Half per Cents. It is safe there, and all things point to a better time for investors in the future. The continued depression clears away month by month all but the strongest concerns, and must in the end restrict production until prices rise again, and yield the profit without which men will not consent long to run risks. The time of holding on lasts long, no doubt, for a variety of visible reasons, of which the reluctance to ruin labourers is one of the strongest ; but it comes to an end at last, and mines and businesses in particular get rapidly thinned off. And then, although it is absurd to prophesy, all the signs show that that great creation of new securities to which the mammoth capitalists look with eyes of longing cannot be far off.

No Government is economising, not even that of Prussia. The demands of civilisation on the Treasuries are becoming crushing, and must be met by loans such as France has lately raised for Public Works, and such as we should raise for the Expropria- tion Bill ; while the European peace is really hanging on the life of the Emperor of Germany. If the aged monarch were to die, there would be a European war in six months ; and even he may be unable to prevent it for a year. The Slav movement may involve war at any moment ; and in the Balkan Peninsula the Slays provoke it once a week. Two years hence investors may find that 4 per cent, is not a liberal interest on first-class securities, and that even 5 per cent, is no longer what it is now, unattainable.