SIX PER CENT.
j�TE do not wonder that the approach of this gigantic French Loan, which is to be placed to-day, depresses the English Funds and most foreign securities ; rather we wonder that the depression is comparatively so slight. At the rates announced, the Loan will yield £6 3s. 4d. per cent., or say, in colloquial parlance, 6 per cent. free of income-tax, and to thousands that must be a most attractive offer, how attractive rich men can scarcely under- stand. The Duke of Wellington, who said " high interest is only another name for bad security," would, if living, rather honour the poor man who tries to get 10 per cent. for his money by some speculation like a shop, yet he thinks him foolish for trying a speculation not much more risky in the way of bonds, which leaves him free to use his time at his own discretion. The Duke, having more than he wanted, did not realise the force of the temptation which high interest presents to the man who has just too little ; a temptation so powerful, that our only wonder is that we have not a Honduras Loan every week. Just think what the difference between 3 per cent. and 6 per cent. means to the man with, say, £10,000, three children, and a house to keep up. It is nothing to the big capitalist in comparison with the security of his money ; but to the little capitalist it is ease, respectability, education for his children, relief from that worst of the minor worries of life, a necessity for incessant watchfulness over six- pences. To a professional man in a county town £300 a year is only decent poverty, while £600 a year is " competence "—there is only one good definition of competence, " as much as you want and lots of sixpences,"—a pleasant house, sufficient dinners, such society as he wishes for, and total fearlessness of his tradesmen ; and those things are valuable enough to justify, in his own eyes at least, some small amount of risk,—as much risk, he thinks, as there usually is in the conduct of any business. To a man of that kind, holding £10,000 in Consols, and still more to a man hold- ing £5,000, an offer of 6 per cent. from a great State well known to him, a State whose history he can watch from day to day, a State which can hardly be insolvent from mere defect of means, must be almost irresistible, and we do not know that he is wrong in yielding to the temptation. The immense ad- vantage of such success being considered, the solid gain for years to all about him, the larger means of usefulness as well as of enjoyment, the education made possible for the boys and the pro- posals attracted to the girls, it may be well worth while to run the single risk involved in the transaction,—big, as with all deference to the Economist, we must consider that single risk to be. There is no chance of voluntary repudiation in France, for those who fill the armies hold the debt. There is no chance of insolvency in France, for even with £40,000,000 a year to pay as interest, she will be less taxed than Great Britain, getting as she does so large a share of the rental, £20,000,000, which in England goes to the gentry. The contribution fonciere, the sheet-anchor of the French Treasury, goes in England to the lords of the soil. But there is a chalice that she may fight Germany for her lost provinces, may be totally defeated, may be threatened with another huge fine, and may in her despair render the levying of the fine impossible by repudia- tion. It is most improbable that so tremendous a catastrophe will occur, quite as improbable as that India will shake us off, and so render rupee paper worthless ; but it is possible, is the risk by incurring which the fundholder will purchase his new free- dom from the annoyances to which narrow means subject him, and should be carefully pondered by all subscribers to the Loan. They may think, that if war breaks out they can sell out in time, but the new practice of extorting indemnities makes war-risks so heavy, that a declaration of hostilities, with Germany as one of the combatants, may involve a sudden fall of as much as thirty per cent.
We have spoken of the extreme temptation under which small capitalists live, to invest in anything reasonably secure which offers a high rate of interest. Considering the force of that temptation, and the number of little capitalists, and the great interest felt by all classes in the subject of investment, the general ignorance, or rather indifference to information about finance, is all but inexplicable. Englishmen hold millions upon millions of foreign bonds, and if there is a subject upon which Englishmen are as a rule ignorant, it is the financial position of the States which offer the " illimitable produce of their printing-presses " in return for English gold. The dealers on the Stock Exchange know a very
little, and a few scientific economists know a great deal ; but the great majority of the public know absolutely nothing, have not an idea of the data upon which their fortunes depend, or may be made to depend. Ask an average Englishman why he thinks Chili likely to pay her coupons, and he will have no answer to give, except perhaps that she does pay them ; yet he will give a higher price for the bonds than for the bonds, say, of the Russian Govern- ment, about which he knows just as little, but which, at all events, are not likely to be affected by invasion. Of all who subscribed to the Honduras Loan, not one in ten can have known anything about Honduras, or made any effort whatever to get any know- ledge of the resources that wretched little State might possess. Nor does anyone ever take any serious trouble to enlighten the public. There is not, that we know of, anything like a trustworthy account of the finances of the borrowing States available to in- vestors, and thoroughly to be trusted by them, though trust- worthy accounts of every Treasury in the world lie buried among our own blue-books. Still less is there anything like an exhaustive account of the comparative solvency of the States, including, of course, among the data of solvency the willingness of their popu- lations to be taxed. As for the journals, the Times now and then may give a distinct hint that such and such an undertaking is a swindle, and the City journals sometimes venture on an opinion in favour of some loan ; but for the most part they introduce every demand for money silently, and their readers are quite content, though they may out of sheer ignorance be accept- ing half the interest obtainable. That is really the case; we take it, with regard to American Bonds. So far as we can understand politics, they are exactly as " good" as English Consols ; that is to say, they are as little likely to be repudiated or paid in inconvertible paper, and they are secured on an indefi- nitely richer property ; yet with people hungering for even frac- tional additions to their interest, they are nearly 50 per cent. cheaper than Consols. It is sheer ignorance, and nothing better, which keeps Chilian Bonds and United States' Bonds on a level, ignorance discreditable to our national capacity for doing business. One- half the energy and acumen which English tradesmen display in ascertaining the solvency of their debtors would give them infor- mation worth three, four, or five per cent. additional on their capital, but it is never displayed. How many of the crowd of eager seekers for investment take the slightest trouble to know what sort of a security Illinois Railway Shares are, though by not knowing they may, for aught they can tell, be losing interest thrice that of Console, and very nearly as secure ? Will any human being explain why Indian Four per Cents. should be 104, and Indian Five per Cents., called Railway Bonds, secured by the same Government on the same revenues, payable in the same coin in the same city, should be 105 ? That is ignorance surely, if there can be ignorance in finance. Americans say the first mort- gage bonds of their railways are the best security in the world, because by American laws the bondholders if unpaid can seize the railway, and it cannot therefore be the interest of even men like Fisk to give them such a chance, and even bad directors always pay. We know nothing of the truth of their statement, and dread always the action of American State Legislatures ; but of all the crowd who will be rushing for French Six-per-Cents., and who think one per cent. additional a godsend, how many will take the trouble to ascertain if Americans really think as we say, and why they think so? As for the smaller enterprises, of which so many hundreds are quoted every month or week in City publications, the investing public, greedy as it is, will just out of ignorance and indolence pass by undertakings which yield to those who know things fifteen per cent., while rushing after rotten bonds which only profess to yield seven or eight. In the one case they would have, as they see, to inquire carefully, and in the other they think they can do without inquiry, and men who will grasp at pennies in business will lose pounds in speculation for want of a little industry. If there were a particle more energy, honesty, and confidence in the world, 5 per cent. might be realised for the poorer capitalists of the country with as much security as 3i, but it will not be realised. The principle, for instance, of the Trust Companies, as they are called, the Companies which buy bonds of foreign States, or Railways, or Banks, or other undertakings, and insure their purchases as they would insure houses, is not only sound, but if they are honest and moderate, and reasonably careful, can be mathematically proved to beau. Yet these Companies are, with exceptions, of course, of little use to investors. They give so much to promoters, and want to divide so large a rate, and are so in- clined to job hard, that the public distrusts them quite as much as the governments ajainst which they ought to afford an
absolutely perfect security. It is as certain that a Trust for, say, American Railways, could be made to pay 5 per cent. with perfect insurance, as perfect as any great ship- owner relies upon to protect his shipping property, as that Consols yield 3 per cent. ; and it as certain that such a rate would, the security being granted, attract investors in heaps; and, nevertheless, what with ignorance, and jobbery, and greed, that certainty will never be of the smallest practical use. The investors would not understand, to begin with, what mathematical security meant, and would consider one system just as good as another, till in the end the rascals would have it all their own way, and an idea as well-founded as any proposition in Euclid would be discredited. That is just what has happened in Life Assurance, a method of in- vestment which could be made—if everybody knew mathematics and were honest—as absolute a certainty as the raising of corn from seed. It is of no use to lecture, however, and our object to-day is to tell small investors that the new French Rente is a very splendid investment,—six per cent. with no trouble, or risk of voluntary repudiation or of ordinary insolvency,—but that it is exposed nevertheless to one very terrible war-risk. •
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