"SEVEN PER CENT."
THE Edinburgh Review which appeared this week, contains an article with this title, which will, we think, attract some attention among men careless as a rule of " City" ques- tions. It has for some time been apparent not only to finan- ciers, but to politicians, to all men in business, and to all who, though out of business, have money to invest, that some new cause is at work tending to some unknown extent to raise the general "rate of interest," or in other words the hire demanded and paid for money. That is a matter which affects every interest and every property in the kingdom, worries people who think with Mr. Weller that funds are " things which run up and down in the City" just as much as people who make their livelihood by astute calculation on the chances of the market. Long before the year to which the reviewer con- fines his remarks one symptom of a coming change attracted at- tention. Quiet folks who were never in London in their lives, who regarded speculation as having in it something of the nature of sin, and who purchased Consols as if they had been compelled to that womanish expedient by law, found that their fondly trusted securities were dropping, dropping, drop- ping till they stand to-day 12 per cent. below the level of 1852. People said,—the able writer who treats of money in the Daily News very pertinaciously said,—the effect was pro- duced by the competition of Indian securities, which was true, but that competition was only the smallest step towards a great innovation. By the end of 1863 and throughout 1864 classes who look on Consols only as a standard, and would no more teach them than touch the quick- silver of a barometer, began to feel the change. Three- fourths of the business of the country is carried on by payments in bills received by the seller and given by the purchaser, on the theory, conscious or unconscious ac- cording to intelligence, that the loss in turning them into cash will not exceed on an average the limit of 4 per cent. In the latter part of 1863 this tacit rule began to appear fallacious, and all through 1864 the hiring price of money rose and fell, and then rose again, till the average rate of the whole year exceeded 7 per cent., and but that trade was prosperous would have disorganized the whole business of the country. The effect was not felt only by the promoters, and speculators, and money-jobbers, of whom City articles speak so constantly, and whose fate, except so far as they tempt investors, is matter of very secondary concern, but it im- perilled every trade, manufacture, and regular distributor of wealth. No tradesman can afford to fix his rate of profits, no manufacturer regulate his prices under competi- tion, no bank conduct its business without a permanent theory as to what the hire of money is likely to be. Sudden and very temporary rises can be borne, but the trader and producer must have some glimmering of the general rule, and if —not to talk about maximums—the minimum hire were to be 5 per cent. instead of 3 all prices must be refixed to meet the change of level. No wonder that " during weeks and months a general tone of anxiety and foreboding pervaded City articles and financial journals, and not in financial circles only, but generally throughout society, a vague impression prevailed that there was something wrong in the City," and that "in all quarters, under the belief that some change for better or worse must immediately arise, and that a continu- ance of the existing state of things was unnatural and im- possible, there was a growing tendency to exaggerate and misinterpret every symptom, till under the lassitude of increasing apprehension, the crisis which seemed for ever impedding and never to -come was almost invoked." The men who produce found their calculations not only impeded but in danger of proving permanently wrong. Prices could not adjust themselves quick enough, and they felt as if they had been ordered to receive their debts at the rate of eighteen shillings to the pound. The panic of course produced scores of theories, but of them all we believe the most lucid and consistent will be found to be that embodied in the article we have mentioned in the Edinburgh Review. The theory of its author, believed to be a financier of no mean repute, is that a new condition has been imported into the whole question which disturbs all previous calculations, and the effect of which, though not within strict estimate, mast nevertheless be permanent. Communication has, he believes, been opened between the great reservoir of capital always existing in England and the hollows existing in other countries, and till they are full the drain must con- tinue in a greater or less degree. Formerly there were all over the world a dozen different levels of capital, now the tendency is to one. Brazil, for example, might be willing to give 20 per cent. for money, while Lombard Street was offering 3, but as there was no communication between them, investors know- ing nothing of Brazil, 3 remained the English rate. To use the reviewer's own simile, before roads had been made London might be paying famine prices for corn, which in Cornwall was unsaleable from its superabundance. The needed com- munication, he contends, has at last been established, and as money is usually worth more abroad than at home the money flows abroad, and the " London rate" must be exchanged for an international onb. There are fifty competitors in the market instead of five. Every trader who had formerly when asking for money only to expect the competition of other traders in England has now to meet that of all other traders within reach of civilization, and of all govern- ments within and indeed outside it. Aqueducts have been constructed from the reservoir to the hollows, and the neighbours' monopoly of the water is destroyed. These aqueducts, thinks the reviewer, are the financial societies which, though drawing capital to the centre by their dividends, are flinging it abroad with infinitely greater force. He gives a list of a score of such societies under different names, each of which acts as a permanent communication between the country which can afford 10 per cent. and the country which thinks 5 very good interest indeed, and each of which has an interest in suggesting new demand. Perhaps in saying that these societies really caused the new process the reviewer exaggerates their influence. We should be disposed to say rather that the enormous increase of knowledge of foreign countries had brought foreign speculation home to investors, and that the financial societies simply served as convenient channels for a process which would have gone on without them, but in either case the effect is the same. The investor who can get 10 per cent. abroad, whether from a Govern- ment, as in the Italian loan, or a tea plantation in India, or an oil well in Canada, or a contract for a Prussian railway, or any other source of reasonable promise, will not take 3 per cent. at home, and security for security the English rate must rise till it meets the foreign one, and instead of an Eng- lish rate of interest the trader must reckon on an inter- national rate, limited only by the capacity for profitable developments existing all over the world. What that rate may be the boldest financier would not venture to predict. It may be urged on one side, that the first rush being over and the stream created things are adjusting themselves, that 4 per cent. looks as if it would be the minimum instead of 21, and there is an end of the disturbance. On the other hand, it must be remembered that there is no proof that the limit of remunerative foreign enterprise has been reached, that the financial societies have generally confined themselves to very large undertakings, that smaller enterprises want capital and may return yet larger interest, that the knowledge which encourages people to embark in small foreign undertakings is growing up, and above all that enterprise has in reality scarcely touched Asia. Suppose such a native demand for money arises in India and China as is being supplied in some European countries,—quite a possibility, being already true of the cotton trade,—and that the normal rate of profit there, viz., 16 and 24 per cent., should be felt in London as the normal rate of more civilized countries has been felt. What will the average be then ? Does anybody know the limit of absorption in those countries, how many millions, for ex- ample, might be sunk at immense return in planting tea in China, or digging that amazing bed of minerals Japan, or selling water for irrigation to the Chinese ? The only cer- tain fact is that for years to come the minimum rate tends to be higher, not 15 or 10, or 5, or any other per-cent., but higher than it has hitherto been, and traders must lay their account to that as the cardinal fact of business. Those who are dreaming about short crises, expect to see Consols again touch par, or reckon on profits obtainable if discounts remain at their own rate, will be, if not ruined, thrown out in the great race. In other words, competition notwithstanding, the general average of prices may rise by at least the amount of difference between the old and the coining hire of money. Will this great change, whioh if it is as real as we believe it to be will Boon be felt in every relation of society, work evil or good? On a broad view the answer is simple, that it must work good, for that it implies an immense, almost an indefinite extension of the scope for English energy and English commerce. The demand for English money throws down all barriers, and opens all countries to Englishmen as completely as if the world were one great coparcenery. Every new plantation, or mine, or railway, or branch of business opened anywhere means competence to so many more adventurous Englishmen, careers for so many more stay-at-home Englishmen, wealth for so many more English distributors of the thing pro- duced. Nothing will be done for any length of time which does not pay better than a similar investment would pay at home, and profitable work anywhere is always better than less profitable work. But there are incidents accompanying the innovation which are likely to press very hardly indeed on some classes, and even some occupations. The movement is not pleasant to men with fixed incomes—as the clergy, or to owners of im- moveable securities—as Consols, who will have to suffer by yet another inflation of prices, and to endure perhaps yet another fall in the saleable value of their property. Their lot in the midst of these changes is as hard as that of the officials in Bombay, who are screaming out already, under a precisely similar change, that they actually cannot live, cannot some of them get meat more than once a week. In Bombay the pro- cess is accidentally intensified, but something of the same kind will go on in a less degree everywhere, to the marvellous discomfort of a class which can make itself very audibly heard indeed. Then if the change is at all extreme, we should not wonder at all if both the State and the landed interest suffered very considerably.
Each loses a very valuable borrowing power. Let Mr. Glad- stone ask to-morrow for fifty millions at 3 per cent., or the Duke of Blankshire for money on mortgage at 4, and see the answer they will receive. Then the tendency of all such rises is to withdraw capital from the trades which pay least interest, and none in England pays so little as agricul- ture. Land in England is so protected and sheltered by our territorial system of Government that there is no knowing how far such a change will operate, but the tendency will be to a less expensive cultivation, and therefore to lower rents.
It may be a slight one, for farming is not pursued with a single eye to obtaining the highest interest for money, but still pro tanto that will be the tendency, and one the more felt as the farmers become more and more intelligent and en- terprising. The effect doubtless will be felt by the farmers' competitors in Illinois and Hungary as well as Essex, but then the farmer there with his great acreage, rough processes, freedom from rent, and exemption from rates, has a margin the English farmer has not, gains an interest on his outlay, which is chiefly in his own labour, which the English farmer does not on his, which is chiefly cash. A Russian peasant would look very dismal if promised 8 per cent. on his in- vestment, while the security of that amount would suggest to his English rival very good times indeed. The subject is one on which prediction is very vain, but the tendency of things- is towards an immensely increasing prosperity for the nation, with the exception of a single class, and that one the agricul- tural.
Previous page
