86 



THE POPULAR SCIENCE MONTHLY.— SUPPLEMENT. 



of affairs in the nation ? what is the connection 

 between one per cent, and the commercial de- 

 pression ? 



The impoverishment we have described would 

 seem at the first blush to lead us to expect a 

 high and not a low rate of interest on loans. A 

 diminution of the capital of a country, by con- 

 sumption carried out beyond income and savings, 

 would naturally, one would think, create a loud 

 demand for capital. Capital has been destroyed, 

 and capital is the one vital instrument for the 

 production, in this case for the recovery, of 

 wealth. A rush for the loan of capital might 

 have been looked for. The bankers and mer- 

 chants of the city are fond of speaking of loan- 

 able capital, as being actually in their hands : 

 how comes it to pass that their doors are not 

 thronged with applicants for advances ? Why 

 do Ihey find it so difficult to employ the means 

 at their disposal with a profit to themselves ? In 

 the colonies and other new countries, the very 

 opposite phenomenon presents itself to the eye. 

 There capital is scarce, and so are laborers ; and 

 there is pressing demand for them : and the rate 

 of interest is very high, and workmen earn im- 

 mense wages ; and the cry is ever for the loan 

 of more capital, to be paid for handsomely, and 

 with perfect ease to the borrowers. Why is it 

 not so in England at this hour, when so many of 

 the circumstances seem to be the same ? Be- 

 cause, in a colony, the capital and the laborers 

 are applied to the uncultivated fields, and raise 

 new crops of corn and multiplied fleeces of wool, 

 which yield brilliant profits and wages, from the 

 largeness of the return compared with the ex- 

 penses of the tillage. The machinery for pro- 

 ducing is deficient: if it is supplied, the land 

 forthwith raises up wealth, which enriches all. 

 The depression of trade, on the contrary, in 

 England, means not a deficiency but an excess 

 of the machinery of production : and that con- 

 stitutes the essential difference between the two 

 states. The vocation of English industry is to 

 produce articles needed over the whole globe : 

 she manufactures them in order to be exchanged 

 for the products of other countries ; she makes 

 them in order to be sold. But buyers have 

 fallen off in number and ability to purchase. 

 Her goods are in feebler demand, but her pro- 

 ducing power, her fixed capital, her machinery, 

 remain unchanged. Here is the very pinch of 

 the matter. She is compelled to shut up many 

 of her factories, to dismiss or put on half-time 

 immense numbers of her working-people, because 

 there are fewer buyers of the articles they manu- 



facture. Americans, Germans, the colonies, Tur- 

 key, Egypt, South Americans, have reduced 

 means for buying: their orders are scarcer in 

 the English markets : stocks of iron and other 

 goods accumulate : but there are no buyers. 

 " There is, therefore, nothing for it," we read 

 from Middlesborough as we write, " but to reduce 

 the make of iron." In a colony the desire is to 

 make more corn and more wool — hence capital 

 is in demand, additional capital to be imported 

 from another country. Applied to the fields, it 

 produces wealth which is needed, and the rate 

 of interest accordingly is seven per cent, or more. 

 In Cleveland less iron is demanded, and the fur- 

 naces are in excess : some must go out of blast. 

 Thus there is seven per cent, in New Zealand, 

 and one per cent, in London. No bills upon iron 

 sold are crowding up for discount to the city; no 

 merchants are seeking advances upon steamers 

 laden with rails for America, Russia, and Aus- 

 tralia. 



A second important distinction must be 

 drawn between the borrowing of capital by a 

 colony and by application for discount to the 

 banking community of England. It merits at- 

 tention, as revealing the nature of banking de- 

 posits. What a colony seeks and obtains is an 

 actual importation of positive wealth and sub- 

 stances into its territory. Its loans, as has been 

 already explained, are taken out in goods. There 

 is a clear accession of additional wealth to the 

 colony. Not so in the money-market of Eng- 

 land. No new capital is obtained for the nation 

 by discounting at a bank. Loanable capital 

 does not exist in any bank, or in any money- 

 market : it is not to be found there. It may be 

 readied through the agency of a bank ; but the 

 bank has not got it in its own possession. The 

 resources of banks are debts due to them by 

 holders of property : nothing else. To discount 

 a bill is virtually to order a debt to be paid : 

 and the effect of that order is to transfer prop- 

 erty — capital — from the hands of the previous 

 debtor to the hands of a new one. That is the 

 real nature, the true fact, of discount. No ad- 

 ditional help of capital is given to England by 

 banks: it is only placed in different hands. 

 The question, then, under the present commer- 

 cial distress, becomes, Are there traders who 

 desire to tempt a banker, by the offer of a 

 higher rate of interest, to withdraw capital from 

 his debtors and to transfer it over to them? 

 The answer now is, that there are few or no such 

 traders. Businesses are not competing for the 

 capital possessed by banking debtors : and one 



