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No. 449, nn ^ HMM&i THE LEADER. 1167 ' —...
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MERCANTILE AND COMMERCIAL.
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SURPLUS CAPITAL. —DISCOUNT SPECULATION. ...
Note: This text has been automatically extracted via Optical Character Recognition (OCR) software. The text has not been manually corrected and should not be relied on to be an accurate representation of the item.
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Note: This text has been automatically extracted via Optical Character Recognition (OCR) software. The text has not been manually corrected and should not be relied on to be an accurate representation of the item.
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No. 449, Nn ^ Hmm&I The Leader. 1167 ' —...
No . 449 , nn ^ HMM & i THE LEADER . 1167 ' — : 1 ——— —* ^" M * "" M ^^^^^^^^
Mercantile And Commercial.
MERCANTILE AND COMMERCIAL .
Surplus Capital. —Discount Speculation. ...
SURPLUS CAPITAL . —DISCOUNT SPECULATION . Iy November , 1857 , the bullion in the Bank of England was G . 4 millions ; a fortnight ago it was 19 . 5—difference , 10 . 1 . In tlie Bank of France last November , the bullion Avas 7 . 6 millions , now it is 22—difference , 14 . 4 . In the banks of New York ,
Philadelphia , Boston , and New Orleans , the bullion last November was 3 . 2 millions , now it is 13 . 4—difference , 10 . 2 . In these banks , therefore , the bullion in the autumn of 1857 was only 17 , 000 , 000 / ., now it is " 55 , 000 , 000 / . —a difference of 3 S , O 0 O , OOO / . ; all real capital , the produce of labour ; a vast sum , equivalent to half the annual revenue when the nation was taxed to pay for the Russian war .
This , however , is not all . In the Banks of Hamburg , ' Trunk fort , Vienna , & e , the bullion now is much greater than last autumn . " We are not in possession of the particulars , but looking at the large increase in the Bank of Vienna , we may venture without exaggeration , and without making any claim to pedantic exactness on a point concerning which one or two millions is of no importance , to say that the bullion lying idle in the vaults of the several banks of the commercial world is now
5 O , OO 0 , OOOZ . more than at this time last year . Not taking into account the bullion won in the year by labour , and only to be turned into capital by saving , this 50 , 000 , 000 / . represents an amount of capital whichlast year was diffused amongst the industrious classes . How much of it might have been hoarded cannot be known , but probably very little ; and this amount of capital , now lying idle , was then actively circulating . As long as it lies idle it is surplus , and the existence of this surplus capital is the fact to which we direct attention .
There is no reason to suppose , notwithstanding so much , capital is idle , that much productive and necessary labour is anywhere suspended . Agriculture is , we know , extending , and more land will probably be cultivated in 1859 than in 1 S 58 , or the land already in cultivation will be better cultivated . A few manufactures are slack , the construction of new works and implements , including ships , is not active , and there might be less production in future were this inactivity to continue . There is ,
however , more work going on now than in the early part of the present year , when there was a less amount of capital lying idle . A part of the capital may be unemployed as the consequence of diminished trade , but not much , for trade , when confidence exists , is carried on with little capital beyond the ships nnd the warehouses which are its necessary instruments , and beyond the merchandise including manufactured articles as well as raw products , which it exchanges , and these are as plentiful , as well conditioned , and as fully omployed as last year .
Tho great business of the merchant , the mere exchange of commodities , except in thoso cases in which he makes lai'ge advances , is oarricd on extensively by credit as contradistinguished from accumulated onpital . From these circumstances we may infer that the chief purpose served by this surplus capital when actively employed is to promotes new and speculative enterprises , Few of those being now undertaken , Ihis surplus capital is liltlo required , andlicnco it lies unemployed in the vaults of the bankers .
l'Yom tho prioo of Consols not having fallen below 80 for imvny years , uov risen much above par , and from tho rate at ; which monoy oau bo borrowed on good landed security , generally between 4 and 5 per cent ., it is plain that tho mto of interest koops tolerably steady . Tho rate of dis--count , lioweVor , and tho interest of monoy borrowed for short periods , varios vory much and very frequently , Tho prioo of Consols last November was
88 | , and the rate of discount was 9 per cent . ; now the price is 98 i , and the market rate of discount is not more than 2 h " per cent ., the variation in the interest oh Consols not having been £ per cent ,, while the variation in the rate of discount approximated to fourfold , or 3 G 0 per cent . The rate of profit made in business , too , unless on some special occasions like the gold discoveries or the introduction of some new and very useful invention , never undergoes such rapid and great variations as the rate of discount . On the whole , it is comparatively steady , particularly in old employments , custom liavin" - settled for each of them a different rate , and ther circum
proportioned to the risk run , o - stances . The reward in all the chief and established busiuessof society and its quantity , with the amount of capital usually employed in it , are all liable to only small fluctuations , not greater than the fluctuations in the harvests and the seasons against which human foresight and prudence pro-vide , and which are lessened , or even neutralised by commerce as it extends . The variations in the rate of discount , then , do not depend on variations in the quantity of business in society , nor are they connected directly with the rate of profit in business , or the rate of ' interest on perfectly good securities . To show how little these variations are connected with actual trade we must remark that at the end
required in any of the old occupations of society . Of late it has accumulated very rapidly , and seems likely to accumulate , unless employed in new enterprises . Hampered as all the ordinary and old industry of society everywhere is by fiscal and protective regulations , by restrictions and prohibitions , it can expand only very slowly , except as these be removed . But expand it must , growth is the law of its life , men are everywhere anxious to improve their condition . This capital , therefore , must be and will be employed , and the more it is accumulated by artificial restrictions on industry , or artificial impediments , the more certain it is at some d
period to be misemployed or wasted , ancause commercial convulsions . _ As the capital must and will be employed , and cannot be absorbed by the old industries of the world , from the produce of which it is saved , the great consideration is to employ it properly . Nobody can judge of the mode of employing it so well as the owners and borrowers . But it is impossible to make sure ¦ of the success of all new enterprises . Even with the utmost caution many will fail . This is the lot of humanity . It is no reason for stopping them altogether , or condemning the enternrisiuff and speculative spirit in which they
origiof the fifth month of the present year the value of our exports was 15 . 7 per cent , less than at the end of the fifth month of 1 S 57 . At the end of the eighth month , the difference was only 10 , 7 , and at the end of the ninth month , only 9 . S per cent . . The greater part of the reduction in value , as compared with 1857 , as we have shown in a former article , was merely nominal —a change in price rather than a . diminution in the quantities of articles produced and exported , and in the employment of the people . We know from the monthly poor-rate returns that the number of able-bodied paupers in . the manufacturing districts has continually decreased since the spring . Thus we have the evidence both of them and the
public and the Legislature to be settled by the owners of the capital and those who expect to gain by borrowing i ' . The market for it , as for corn , should be perfectly free , and the owners or custodiers of the surplus capital , whether they be the Bank of England or other bankers , should , unbiased by any public interference , be left to their own discretion in lending it and in settling the terms of the loans with their borrowers . But we must reniind the public that this capital , not being required for agriculture , manufactures , or interchange , is precisely that part of the national resources which can be devoted to new enterprises . It can only be employed in them . For the time being it is not
nate , but an excellent reason for taking great care and for making a close examination of all the conditions on which success depends . To stigmatise all speculation is to stigmatise new -undertakings ; and could it possibly stop speculation , it would stop progress and make the saving which is so earnestly and continually recommended a fruitless virtue . As mercantile men . deal much in discount or use a portion of our accumulated capital , let us notice , to bring them within our description , that many of their undertakings are new enterprises . Every expansion of trade is a new business for somebody , and trade is , as the rule , for ever expanding . Every
trade returns to show that since the spring the trade and business of the country have increased , but in the rate of the discount there has been no increase . By the end of the year we may expect that the diminution of our trade , as against 1 S 57 , will be next to nothing , though so much capital has been lying idle , and the difference between the rate of discount now and last autumn is between 300 and 300 per cent . Variations in the rate of discount , then , arc not due to variations in the actual trade and business of the nation .
Last autumn , however , the surplus capital , as we have seon , was very small , now it is very large ; then the rate of discount was very high , now it is very low . Clearly , then , the rate of discount and the variations in it , and the amount of surplus capital , are connected with one another , and the variations depend on the relations between the amount of surplus capital and the demand for discount . They arc not the consequences of changes in the actual business of society . In this surplus—because it is a surplus—there may bo any amount of change without aficoting the national welfare , just as there might be any amount of chango in the quantity of corn over and above an ample average supply without causing the least inconvenience The owners of the surplus corn indued , and the owners of tho
cargo purchased abroad is a speculation . The profitable future sale depends on future conditions , which may be happily conjectured but cannot be accurately known , Merchants , thcreforo , make large claims on surplus capital , and there is an increased demand for it M'hcn trade is active , because they continually engage in new enterprises , tho majority of which are successful . By employing capital in making railways , or erecting telegraphs , & c ,, it is not diverted from old industries to new industries , but a new industry is promoted or created , and capital which would otherwise be unproductive finds profitable employment .
It is qiuto an error to suppose that capital is diverted by speculation and new enterprises from , legitimate to illegitimate undertakings . It is merely put into activity . Much as tho surplus has accumulated in the lust year , no legitimate and customary industry has been stinted of a duo supply . Tho vast accumulation , therefore , while every kind of productive industry has oontinuod , leads to tho conclusion that capital is less necessary to industry than industry is to capital . "Without onpital man can labour , all capital is the produot of labour , but
surplus capital , with the persons who wish to borrow it , may suffer severely from changes in the relations between tho supply and the demand , but to tho rest of the community—except as we are all affected by the well-being of ono another—those relations aro unimportant . Par otherwise would it be did the rate of discount depend on the actual business of society , or did it increase and decronso with tho quantity of employment and tho rate of profit , and were in any degree an index to social welfare Thou wo should all be as deeply interested in it as arc now the owners of this surplus , and the men who would borrow it and employ it if they could . Now , because tint * capital is surplus , and tho relations bctwoon it ; anil tho rate of discount arc
without labour capital is worthless , und it only becomes profitable us it is used by labour . Lying idle it is utterly useless , and only as it is brought into use by new undurtakings is it distributed Jrom hand to luind und begots much activity . Tl » o labour it then employs obtains wages , but tho now undertaking may Toad to no corresponding luerciwo ot production , and may imliu-cmJ diminish tho luncl out of which wngc iii-u paul ,-au additional reason for great caution iu tho emp loyment of oumtal , but none for hampering I lie emp loyment wither by publw opinion or logisluuvu restriction .
uttorly unimportant compared to tho steady employment , of tho people , ami Uio incessant though quiet ; production of the necessaries of life , those relations may be left with . much uucouoom by tho
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Citation
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Leader (1850-1860), Oct. 30, 1858, page 23, in the Nineteenth-Century Serials Edition (2008; 2018) ncse.ac.uk/periodicals/l/issues/cld_30101858/page/23/
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