THE INVESTORS' GRIEVANCE. T HE Investors' .Review,an able and honest though
perhaps rather sensational financial magazine, publishes this month a suggestion, signed by Mr. D. L. B. Schloss, which, in a time when home politics are nearly dead, deserves a moment's attention. It has been received with much ridicule by most economists ; but its principle will not be ridiculed by the middle class even in England, while on the Continent it has just obtained a signal triumph. The Finance Minister of Prussia has refused to arrange for a possible, and indeed easy, reduction of interest on the Prussian Debt, pleading arguments which in the main are precisely those of the Investors' Review. Mr. Schloss's contention is that the payment of the British National Debt is going on too fast ; that that grand security has already shrunk from £838,000,000 to £660,000,000; and that if the existing system continues, it will within twenty years be reduced to £400,000,000. That reduction, the essayist argues, is injurious to the public ; first, because with every million paid off, the price of Consols tends to rise, so that the State, in buying up its Debt, is making a bad investment—it may have to buy at 110 or more—and secondly, because the absence of a great State security will bother bankers, who must let their reserve capital lie idle, will diminish thrift, the Post Office and other savings-banks being unable to employ the money deposited with them, and will drive the saving middle-classes into speculation, mostly in unsound securities which offer a large per- centage. Mr. Schloss would therefore cease to pay off Consols, until the mass of that security had again risen, by borrowings sanctioned either for war or for social ex- periments, to £750,000,000, and would employ all sur- pluses either in helping the Budget of the succeeding year—a wild alternative which Mr. Schloss cannot have thought out—or in assisting agriculture, or in forwarding schemes for pensioning old age, or in supplying the grow- ing needs of the naval and military departments. The taxpayers, he contends, would hardly notice the change of system, while the permanent holders of Consols, who no doubt would be shocked, ought to be shocked, for the country has been taxed for years in order to make them richer while they are asleep.
As we have said, the middle-class, and especially the professional middle-class, will not be at all inclined to ridicule Mr. Schloss's suggestion, for they feel, in the most painful and direct way, the result of the process which he depicts. It is perfectly true that the reduc- tion in the interest on good securities, which has been going on for thirty years, has excessively harassed and injured them, has, in fact, deprived them of all the benefit yielded to other classes by the reductions of taxation, and of nearly all, if not quite all, the advan- tage to be derived from the general fall in prices. They save and save ; and as they save, the value of their savings is taken away from them by an automatic process which they can neither prevent nor censure. In 1860, with a little management, an investor could obtain on the best security £500 a year for every £10,000 he possessed ; while at present, in the same securities, he is lucky if he can get £275 ; and, indeed, he cannot get it without running some risk. As the first object of saving in this country is to obtain income, either for the investor or for those whom he is bound to protect, the effect of the fall of interest has been to reduce the reward of thrift by one- half,—a half which the unlucky investor cannot in any way make up. He dare not speculate, lest his daughters should starve ; he cannot, be he never so industrious, add an hour, much less four hours, to his working-day—besides injuring his health, that would drive clerks, assistants, patients, and clients, into flat rebellion—and he cannot raise his scale of charges, which is fixed either by law or by a custom which experience proves to be very nearly immutable. A solicitor's fees are fixed ; a greedy counsel is avoided till he gets to the very top; engineers and the like feel the reckless competition ; and as for a doctor, he could as easily obtain two guineas a visit as twenty-five shillings,—indeed, more easily, for patients who would not object to the double fee would strike at once at an increase of 25 per cent. It is also perfectly true, as Mr. Schloss argues, that one grand cause of the fall of the interest on " gilt-edged securities " is the rise in the price of Consols caused by the purchases of the Commissioners of the National Debt. Consols act as the barometer for all borrowers who have perfect security to offer. When they are high, the municipalities, the great railways, the owners of land, and the companies which issue safe deben- tures, will only offer low interest, while the investing public forces up the value of such securities to within a few shillings, sometimes within a few pence, of the price to he paid for the National Bonds. The process, with its automatic regularity, has even affected investors' imagina- tion, so that although they all expect a Great War, which if it comes will cost Europe a thousand millions, and are all sure of approaching social experiments which will be enormously costly, they all apprehend a steady reduction in the interest on the best securities. Let any- body who doubts this just compare London Consols with State Consols, or watch the result of offering any kind of loan with a promise not to pay it off. The loan is " jumped at," at a reduction of 10 per cent. upon the capital value. So far, Mr. Schloss is entirely in the right, so much in the right that we can only wonder that he has not received a chorus of adhesions, and should not be in the least surprised if the clergymen, widows, and orphans of Great Britain voted him a service of plate as a most kindly and effective advocate of their cause.
He is talking nonsense all the same. The duty of a Chancellor of the Exchequer—outside Prussia—is not to protect investors, who must take care of themselves, but to protect the nation, which benefits, as a whole, by every rise in the value of its bonds. Such rise both enables it to borrow at a low rate, thus reducing taxation while maintaining credit, and to obtain on an emergency great sums of money, the possession of which is nearly equiva- lent to that of fleets and armies. The lenders know that their interest is secure, because it can be paid without fresh taxation, and they will lend in a moment without guarantee, save the national word, and at almost imper- ceptible rates. At this moment her Majesty's Government could raise, say, £250,000,000 in forty-eight hours at 3 per cent., and pay the interest without adding a farthing to the taxation of the country,—a reservoir of power of which it is impossible to exaggerate the importance. It would drive Frenchmen half-mad with self-sufficiency and a wish to spend the money in inflicting on England or Germany some grand humiliation. It would be doubtful wisdom to throw away such a source of strength, even by further reductions of taxation, while it would be madness to pledge all surpluses for the relief of agriculture—which is not entitled to eleemosynary relief, but only to relief from any injustice she may be suffering under—or for the purchase of old-age pensions, or for any other continuous purpose whatsoever. That is merely to tax the country for the benefit of investors. That surpluses might be so invested as to produce a larger return is conceivable—for example, we might cut a second Suez Canal, and find it yield 10 per eent. besides facilitating trade ;—but would Mr. Schloss seriously advise the British Government to enter the market as a gigantic promoter of profitable speculations ? Certainly we should not. We are rather disposed to believe that our Government does its remunerative work very well, as witness the Post Office, and we entirely confide in the honesty of Members of the House of Commons ; but we would not trust them with this kind of power for a single year. The nation would go mad with hopes of profit on shares, and every Minister and Member of influence would be in the position of a musical critic supping with prime donne. We cannot invest the surpluses in risky .foreign stocks for political among other reasons, and to form a gigantic war reserve would be simply to waste national wealth in locking up useless sums in coin. to the despair of all who wanted to use the money. There is nothing to be done with surpluses, except to be honest and pay our debts with them, leaving investors to take care of themselves as best they can. We entirely admit their grievance, which we have often pointed out for ourselves ; but it cannot be remedied, or even partially relieved, at the expense of the nation. That nation con- tains millions who unhappily never invest, and who—we are forced to say it—benefit in two ways by investors' suffering. They benefit by paying less taxes, and they benefit also by the extra exertion which the investors are forced to make. The more numerous the men who are able to retire, the less does the community profit by those men. That seems a harsh doctrine ; but unfortunately for Mr. Schloss's proposal, it is mathematically true.
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