CONSOLS AT 106. N OT half enough is said about the
great rise in the value of all securities which are at once sound and capable of quick realisation,—a rise which is beginning to affect every interest, every business, and every class in the country above the very poorest. The price of Two and Three-quarter per cent. Consols a few days since rose to 106, while the Two and a Half Stock actually touched 105, equivalent to a price of 126 for the Three per cents., which old investors so loved for their safety and " sweet simplicity." Metropolitan Three per cent. Consols, with a semi-Socialist Council in power, have risen to 711, and it is exceedingly doubtful, if the India Office had the nerve for a great operation, and a Mr. Goschen to manage it, whether it could not float a really large Two and a Half per cent. loan at par. The Municipal Corpora- tions, large and small — sometimes very small — are raising money at less than 3 per cent., and every kind of "Trustee Stock," iucluding especially railway debentures, is running up within measurable distance of Consol price. There are grave men in the City, more- over, who believe that, what with the Trustee-laws, and the immense volume of modern accumulations as compared with modern debts, Two and a Half per cent. Consols, in the absence of great wars, or of any totally new kind of speculation, will within a very short period touch 110, thus reducing the " regular " or barometric interest for secure capital to less than 24 per cent. Nor is even that rate likely to be permanent. It is not a matter of guesswork, but of calculation, that unless the people take to wasting their money in masses on a great war, or on some unprofitable speculation, like the Panama Canal, Mr. Goschen's prophecy, made so many years ago, must come true, and the interest on passive capital securely invested be reduced to 2 per cent. The Govern- ment purchases and the Trustee purchases must act on Consols in particular as a rising tide acts on the ships borne on a tidal stream.
This is, of course, a great advantage to the taxpayer, and an enormous addition to the mobile strength of the State. We pointed out last week, on the authority of the Economist, that the Chancellor of the Exchequer, if he wanted a great sum suddenly—say, for the defence of our Mediterranean route—could raise £200,000,000 without imposing a single tax, by merely suspending repayment of the Debt, and that statement by no means covers the whole truth. By putting back the Sugar-duty, only abandoned in 1874, and adding ld. to the Income-tax, we could raise at least £300,000,000 more—we are under- stating all the figures—or, in other words, we could, with the slightest possible additional pressure on the people, spend for any great national object of which the House of Commons approved, as much as the United States borrowed for their mighty Civil War. It is difficult to over-estimate such a source of strength, which will provide for everything except carelessness in storing munitions of war, and which we have not a doubt is so well known to foreign nations that it is one of the principal factors in the maintenance of peace. Nobody knows on which side Great Britain will strike in, and everybody knows that if she does strike in, it will be with all the weight of a giant armed. Unfortunately, however, there is another side to the process which so benefits the State. Whole classes of business men are beginning to grow alarmed. There is not an Insurance Office or a Bank with large commitments, or a capitalist syndicate with control of great funds which is not stand- ing a little bewildered with the difficulty of investing money safely, which is not trembling for the future of its dividends, and which is not gravely considering whether there must not be, and that quickly, some radical alteration of the rates at which its business is done. They expected, to put it roughly and broadly, 3 per cent. where they will only get 2, and a fall of 33 per cent. is for them an awful change, which, if it were not exceedingly gradual and clearly foreseen, would mean something like a great catastrophe. Half the Banks of London would fail if they paid depositors the rates current between '70 and '80, and that is but a single illustration. The whole body of trustees, who have the care, according to the official witnesses, of a thousand mil- lions sterling, are at their wits' end with the reduction ; while the entire middle-class which used to be esteemed the " strength of the State," and which still accumulates incessantly, and so fills the national reservoir, is not only perplexed-but in a sort of misery of apprehension about the use of its savings. No fortune under a hundred thousand pounds means half what it did ; moderate fortunes which used to be thought "quite comfortable" hardly provide the daily expenses of modest households; and there is not a professional or business family in the land where some of the young are not standing dismayed at the time they will have to waitr before their seniors will be able even to think of making room for them. Even the hand-workers are feeling the pinch, and will in a. very short time feel it acutely. They put by their savings, now £137,000,000, in Government banks, and institutions similarly managed, and they are curiously sensitive about interest. We say " curiously" because the individual amounts are so small ; but they hate to see money produce nothing as much as the capitalists do. The State, however, as the giant Banker, cannot go on paying its present rates of interest ; it must come down to the current minimum, or rob the general body of the community for the benefit of the thrifty, and we do not envy the Chancellor of the Exchequer who has to perform the operation. His life will be safe, but not his popular reputation. The same necessity will affect, though in a smaller degree, every building society, co-operative mill, or industrial association with shares meant for the poorer investors ; in fact, the " aristocracy of the working class," which does not, like the little tradesmen, speculate with its savings, suffers, or will suffer, as much as the middle- class, which is again more heavily hit than the large capitalists, who, to sum up the situation, hardly see their way to investment from month to month.
We are not alleging, be it understood, that there is in all this any national loss or downcoming. Cheap money means cheap energy. The country benefits as much by low rates of interest as individuals lose, and if no interest could be obtained, men would only save the harder. Englishmen are so accustomed to another system, that they can hardly comprehend the existence of hoards, or understand how two-thirds of the world buys everything it wants "out of capital," or how, in the Stuart time, our own forbears kept great sums in strong boxes or at the goldsmiths', and when they wanted money, drew out not interest, but bits of principal. Great Britain could get along very well if the interest on Trustee securities were only 1 per cent., or only five shillings ; but if the reduc- tion were rapid, the period of transition would be one of great social misery. Everybody's income would seem to be reduced to vanishing point, and the habit of spend- ing capital penuriously, as Asiatics and our own life annuitants do, would be wonderfully slow to grow up. We have all grown so accustomed to another system, that people would be afraid of themselves, and turn misers even while at work, out of sheer imaginative alarm. For it must be remembered there is no legislative remedy for this state of things. The boldest Protectionist will not venture to propose that the taxpayer shall " encourage thrift" by always paying too much for deposited money ; and the boldest bimetallist will not assert that by doubling the supply of legal money in a country, ho would make the rate of interest rise higher. The fall is a result of accumulation, and there are only two remedies for it,—waste, and waste on a very grand scale, upon war, which it would be wicked even to suggest as a cure for an economic trouble; or investment, also on a very grand scale, in some new method of ex- pediting or facilitating commerce. There may be such a method. It is conceivable, though most improbable, that a new kind of ship—a floating raft, for instance—might prove so profitable that the entire commercial navies of the world must be remodelled, or commerce would pass to the nation which adopted the new carrying system. It is also conceivable, and quite possible, that a cheap method of utilising electricity as a motor may be discovered, in which case the whole of the mechanical appliances now used for steam would have to be simultaneously exchanged for others. That operation would cost an enormous sum, and while it lasted the rate of interest might rise ; but even from these causes there is little to be hoped for. So enor- mous now is the total industry of the world, and so per- fect are the means of transmitting its result, that capital accumulates at a rate which almost sets calculation at defiance. All Scotland, it is believed, was ruined by the failure of the Darien Expedition in 1701, which caused a loss of £100,000; but in 1890-95 Scotland bore the loss of millions through American ranches, Australian enterprises, and the fall in iron, -without perceptibly growing any poorer. France hardly knew that she had lost seventy millions in the Panama muddle, and England scarcely feels, as a wealth-producing State, that she has lost thirty millions a year in the value of her agricultural products. The scale of everything is so tremendous that a change, which must be dependent on large depletion, is scarcely within the limits of sober calculation, and only large depletion of some sort can raise the general interest rate.
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