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Show HOW LONDON VIEWS FAMINE OF CAPITAL A few weeks ago we were discussing the stringency of the capital market in the light of Sir Felix Schuster's speech to his shareholders, in which he suggested that the extreme severity was past, and that with the return of peace easier conditions con-ditions were likely to prevail. In making this forecast Sir Felix had most In mind the immediate future of the money market, mar-ket, and the recent course of events certainly cer-tainly tends to support his view. The indications are favorable, and. .riven a satisfactory sequel to the peace of Bucharest, Buch-arest, there Is no reason why autumn business should not proceed on more or less normal lines. But behind the problem prob-lem of "short" money and discounts lie still harder problems of tho permanent relation between borrower and investor, the world's demand for capital, and the long movementH in the rate of interest. Is the borrower to continue for years in the attitude of suitor, pleading, cap in hand, for accommodation, or shall wo see a recurrence of the old conditions, when lenders wero pressing their sparo capital on semi-reluctant borrowers at ,'t and 33 per cent? In hiB recent book on the foreign exchanges, ex-changes, Mr. Withers divides the world's financial countries into three classes. (1) Young growing nations, who every year borrow more than th'ey pay out in Interest. (2) Half-developed nations, whose payments pay-ments of interest more than counterbalance counter-balance their fresh borrowings. (3) Further developed nations, who normally havo a surplus of money to Invest, In-vest, and Import interest on past loans more quickly than they export capital for the new. The division is a convenient one, very pertinent to our present question, because be-cause the shortage of capital is due largely to a shifting of the center of gravity between the three classes, the great Increase in class 1. which seems to have been growing more rapldlv than class 3. What aro the facts? In the past fifteen years an enormous development develop-ment has taken place in a number of young countries which In the nineties were not greatly regarded as fields for investment, but which have since those days employed European capital on an extraordinary scale, and to the great benefit of their own prestige. Fashion has set capital flowing freely in "their direction, with the result that enormous sums have been spent in the development of land, railways, industry and public utilities. "Unfortunately, much of the money has gone to waste. If the taps which supply capital to the new countries were suddenly turned off. the rate of interest, so far as they arc concerned, would go up, and thoir development de-velopment would be checked. This check would result In a slackening of European trade, which has depended for its stimulus stimu-lus partly on their demand The interest inter-est on past loans would still flow toward Europe (except where interest payments depend upon annual borrowing), and there would bo less export of capital to counterbalance tho export of coupons. Thus we should have two classes working work-ing to the same end: (1) a check to home trade, and (2) a check to foreign "borrowing, and the combined effect might be to give us for some time In this country money rates which by current standard would look remarkably cheap. The late Lbrd Gosohcn published in 18G5 an essay on 7 per cent, designed to show that money was likely to become permanently dear. Three years later he wrote a sister essay on i per .cent, explaining ex-plaining why money had become permanently perma-nently cheap. The two essays aro now printed side by side as a warning to all lesser publicists not to pry too far Into the future in considering the price of money. We do not overlook that warning, warn-ing, but It docs soem as though a prima facie case can be mado out for the theory of cheaper money at home and dearer money abroad. As confidence returns after the war, hoarded supplies of capital capi-tal may como to-light, but It is doubtful whether the Important borrowing countries coun-tries will enjoy again the spacious opportunities oppor-tunities of four years ago. The London Economist. |
