BRITISH CREDIT.

[TO THE EDITOR OF THE " SPECTATOR."I

Sin, —The continued fall in the price of "gilt-edged" securi- ties has made even politicians see that it is not due to political causes, as Mr. Lloyd George's recent moderate speech shows. May I occupy a little of your space in insisting on the true causes?—since you are always so hospitable to any unpreju- diced endeavour after the truth. The rate of interest has risen since 1896; the leading cause is the increased production and depreciation of gold. This effect is explained in the writings of Professor Irving Fisher ; and I have recently given a more detailed analysis of the several causes which affect interest (" Econ. Journal," March 1912). The statistical data associated with this analysis are not yet published, so I will quote from an article on British investments, by "A Stockbroker," in the " Econ. Journal," June 1912, instead (whose theory, however, is not satisfactory) :-

Yield from Bonds and Debentures (per cent.).

Consols.

British Municipal Securities. British Railway Debentures. Foreign Railway Obligations.

1896 2.30 2-67 2.55

4'01

1901 2.65 3.07 3.00

3.93

1906 2'86

3.32 3.28

4-00

1911

3.20 3.50 3.70

4°10

This little table shows at once (1) that consols have held their position relatively to other British stocks, so that neither the Boer War nor the present Government's social policy has had more than the most trifling influence; (2) that British investments still yield less than foreign, but the difference between the two is steadily diminishing. This is the crux of the matter. Good foreign investments are now so sound and trustworthy tbat there is no reason why they should not fetch approximately the same price as British. It is not that the latter have become less trusted, but the former more so. This, com- bined with a rise in the rate of interest due to universal causes, results in a rapid rise in the yield of British securities and a slow rise in the yield of foreign. I expect to see consols down to 70 or near it.

The subject needs treating at much greater length, but I hope that the above may make the essential points stand out.