The Sun.
London, England, 1866-05-10 00:00:00

SPIRIT OF THE PUBLIC JOURNALS.

TIMES.—The great moral to be drawn from the
present Financial Panic is that money is really not
worth 30 per cent. A delusion upon this point was
the source of the speculations which are now proving
so unfortunate. Owners of money handed it over to
organised Finance Companies with the expectation
of receiving four or five times the amount of interest
usually returned. The Finance Companies, bound
to exact these rates of interest for the satisfaction of
their shareholders, were compelled to make corre-
sponding reductions in the quality of the securities
obtained for their advances, and the result is what
we now see. It is not to be assumed, and is pro-
bably not the fact, that anygreat proportion of these
advances has been lost. The moneyis not lost, but
it is locked up, and that at a moment when it is im-
peratively needed, is almost as bad. We called this
Panic " Financial" because it is in the new system
of " financing" that it has originated, and because
the new Finance Companies feel the effects most
severely. Of course the difficulty is complicated
and aggravated by the calamitous prospect of Euro-
pean war, which depreciates ruinously the funds
and securities of the States embroiled, and neces-
sarily acts in some degree upon the whole money-
market at home. But the depression thus created
is comparatively slight, and it is due, moreover, as
regards our own Funds, in some degree to other
causes. Mr. Gladstone explained the other day that
the present quotations of Consols indicated, not a
diminution of the national credit, but an enhance-
ment in the value of money. Our credit stands as
high as ever it did, but the highestcredit in the world
is not proof against competition. No national credi-
tor doubts for a moment that he will receive histhree
per cent. for his money, but people have now become
unwillingto lend their money at three per cent. They
expect at the least three and a half, and the actual
price of Consols shows that they can get it, even on
Government security. It isnot probable, even if the
world were at peace and the share-market tranquil,
that the funds would stand now where they stood
in 1859. It is something, indeed, to find that the
perfection of our credit saves us so much as it does,
and that consols can only be bought to pay three
and a half per cent. when judicious investments re-
turn six or seven, and unexceptionable securities
nearly five. But all this, though perfectly intelli-
gible, will not explain the condition of the " finance"
market, nor even help to explain it. The panic in
that quarter is special and peculiar, arising partly
from the nature of the dealings adopted, and partly
from the terms on which the capital was raised. If
the capital of a company were represented by £5O
shares, and £5 only of each share had been called
up, every holder of a share- would be liable to a de-
mand for £45 more: Practically this is unlimited
liability, and so formidable is the obligation that
nobody is willing to accept it when it looks like a
reality. In theory, of course, the original in-
vestor in such a company should hold his money
in readiness to meet any call up to the value of his
shares, whether to provide for losses sustained or
the needs of expanding business. But this is theory
only ; in practice, the speculator looks only at the
actual price of the share, and thinks nothing of the
contingency of further demands. If he has £5O to
spare, he buys, not one share of that amount, but
ten shares, with a payment of £5 each. This leaves
him with a liability extending to £450 more, but
of that obligation he takes little heed. In the or-
dinary state of the market, he would either
never be called upon for further payments, or, if
calls were made for business purposes, he could
easily and without loss make a partial realisation of
his securities in order to meet them. But when a
panic sets in, this chance is gone, and gone just
when it is most -wanted. Calls are regarded, either
with or without reason, as inevitable, and no money
can be had for the occasion. At last we see shares
at an actual discount—that is to say, shareholders
offering money to any purchasers who will take them
off their hands, and so relieve them of the dreaded
obligation. ut how came these money-lending
companies to be without the money which is their
stock in trade, and why should it be feared that
they will call upon their shareholders for further
contributions ? The answer is to be found in the
new system of business, which the new expecta-
tions of interest rendered almost inevitable. The
finance companies raised their capital, or, in other
words, obtained subscriptions from the public, on
the faith of the profits which they promised. It
was represented that the fabulous profits made by
old banks and discount houses could, through the
agency of joint-stock companies, be realised by the
humblest individual. A capital of a million formed
by £lO shares was just as good as the same amount
in the hands of a single millionaire, and would
yield just as large a return. The doctrine, condi-
tions of management being equal, was sound enough,
though it should have been remembered that if there
were twenty money-lenders in the market instead
of one they would certainly undersell each other in
some way. And they did undersell each other, not
in interest asked, but in credit given. They de-
manded higher interest than had been ever exacted
before, but they contented themselves with inferior
securities. They did not trouble themselves with
petty transactions at bank rates of profit, but
" financed" new concerns on a prodigious scale of
business. In other words, they took up the whole
of some great speculation—say, a railway or other
such work—and found the money for it on condi-
tion of getting a lion's share of the ultimate profits.
Millions are soon spent on terms like these, and pre-
sently the companies found themselves with their
capital sunk in investments which could only be pro-
ductive at some distant date. In some instances,
no doubt, the management was injudicious—per-
haps worse, and actual losses were incurred ; but in
the majority of cases the advances are probably
covered by material securities, only the securities
are inconvertible. A Finance Company, with its
assets represented by an unfinished railway, is
naturally in difficulties. It may possess property to
the extent, perhaps, of its paid-up capital, but it is
not property on which money can be raised. Its
only remaining resource is a " call," and the pro-
spect of a call puts its shareholders in such a fright
that they are ready not only to give their shares
away, but to pay anybody for taking them. If it
is inquired why these Companies should have com-
mitted themselves to so hazardous a system of busi-
ness, the reply is to be found in the conditions on
which they started. They were bound to make
profits enough to provide handsome dividends and
maintain the value of their shares, and they could
only get those profits out of ventures proportion-
ately exceptional. Men will not pay twice for a
thing, even when that thing is money, and a
borrower who was taxed 30 per cent. for interest
balanced his account by a reduction in security.
Good negotiable securities, on which money could
at any moment be raised, would not have brought
all this interest with them. If the customers of the
Finance Companies could have offered such securi-
ties, they need not have paid 30 per cent. interest,
or the fourth part of that rate ; but they could give
no such pledges and so they had to comply with the
demand. Lender and borrower were thus fairly
matched ; but the lender, on the prescribed terms
of business, had no alternative. He could not get
30 per cent. and good security too, and if the share-
holders insisted on the profit they could not escape
the peril.
HERALD.—Even at a time when the political
horizon was unclouded, the speech made a few days
since by the French Emperor at Auxerre would
have occasioned no little uneasiness. At a moment
like the present it is not surprising that it should
have been received as the keynote to a great Euro-
pean war. The Emperor of the French alone,
among the Sovereigns of Europe, has contracted the
habit of indicating from time to time the policy
which he proposes to pursue, not in set speeches to
his Parliament, but in casual observations to indi-
viduals with whom he may happen to be brought
in contact. Now it is in receiving the congratula-
tions of the diplomatic body on a New Year's-day,
now, again, in the act of investing a newly-created
cardinal, and now, again, in acknowledging the
attention of the mayor of a provincial town, that
Napoleon 111. takes the opportunity of raising for a
moment the veil which, in the opinion of the world
at least, conceals his designs. Without venturing
to offer an opinion on the expediency of the prac-
tice, it must be confessed that it has at least one
drawback. The most trifling remark which falls
from the Emperor's lips is submitted to the most
rigid analysis, and, by a process of strained inter-
pretation, it is invested with an importance which
it does not possess. The world is always more ready
to give a person credit for evil than for good inten-
tions, and the net result, after a number of enigmas
have been submitted to the test of popular criti-
cism, must on the whole be unfavourable to their
originator. Now, we are far from thinking that
the language used by the Emperor at Auxerre was
enigmatical, although it turns out that it has been
greatly misunderstood. Indeed, it was PartieUlarly

clear and explicit. He announced his detektation ,
of the treaties of 1815, and declared, by
that he had more confidence in the working classes
ce
than in the bourgeoisie, and those whose intellige?
no less than their wealth, is supposed to place tih./5
at the top of the social tree. It was in the year -"°,d
that Europe was mapped out as it is at present ;
it certainly was not unreasonable for perso
owe;conclude that an expression of detestation lathe
treaties by which the present boundary lines f
established was tantamount to the declaration of implication,
willingness to see any enterprise undertaken Conti.
would have the effect of reclistributing
nent arhongst its present possessors. Prussia
es
no secret of her intention of plunging Gera.tioo,
into war for the sole purposes of personal ambi god
and the Emperor's speech was therefore interpr.,o
as an approval of the aggressive policy ox
of
Power, if not as an intimation of the existene;io
some bond of Union between France and Frtibieci
with a view to the realisation of the comm bas
of self-aggrandisement. The explanation
t the
the Cnoa_
been given in a French semi-official journal °,.,ed,
Emperor's language has already been well re dire
The Emperor merely intended to repeat the des'_,'
which in different language he expressed two years
and a half ago, when he invited the European
...,"baicf,
to a Congress, namely, that the questions which
be
have arisen during the past half century shell tiler
definitively arranged. Nor is the Emperor
of 1515
in the expressions of a wish that the treaties. e,„ wbo
should be reformed. When the diplonaatis'end a
were assembled at Vienna in that year,diev,theY
scheme by which European territory shonio, as they.
considered, be fairly parcelled out, they never
then
have hoped that the arrangements which thgreadi
made would endure throughout all time. del
more than once, as all the world knows, the *Vesper
of 1815 have been regarded as waste, dame
If Austria and Prussia at this women
between them the sovereignty of tne
f
Duchies, is it not in direct
those much-vaunted treaties which Na
poleon tone.
candid enough to declare that he has easeciintc
spect ?If that Sovereign is to-day in aPo maple
terrify Europe by hinting at his readiness to meth
under foot the treaties of 1815, is it not in the 30;
of the compact which was then formed th,Lt te a
poleon should never again occupy the wythst
France ? And assuredly it must be confess`sas for !:
no Sovereign in Europe has stronger grgalLstlon
detesting the treaties which marked the ternt'O,ond
of the First Empire than the founder of the 1.,,, coo
one. It is, then, scarcely surprising that Sarted
111., when year after year he sees these eele4eo
violatio.k its
treaties modified to, suit the exigencies of that
scarcely so powerful as France, should declarens of
he abhors arrangements by *hich France sloe otal•
all the European Powers is expected to be rrectlif„
It has been surmised, and probably not in c,°*;
that the speech at Auxerre was provoked by butt
has lately passed in the French Chanbeit's the
assuming that such was the case, it furnisme ear
strongest reasons for attributing the laogniag;oten-
ployed to irritation rather than to a settlnin
efh
tion to encourage a great European war.
planation published in the Constitutionnel, licy
1
vague, as all semi-official declarations of Pawed,
French journals invariably are, possesses, t
this important character, namely, the 1:125P'-',„ -peOr''t,
tention of allaying the fears which the i',43area:,
language served to create. It is perfectlY age in
that if the Emperor intended to plunge Frteel I)tr
war, and to avail himself of the present criw. oft
sition of affairs in Europe to increase hie pro)er„l
and if, having such intentions, he though_,of
when replying to the complimentary add wsy:
to
mayor of a fifth-rate town, to go out of nribilisb
declare them, it is not likely that on theLa-ent
day he would be at the pains to put a cIiP.A"- rat
t.erpretation upon the language he eroploYen qo
ing, however, from the consideration of .
_Atme,plo;
uinsgedinbEyutrhoepEe
amtpthereoprrteosetnhtaratoofmwehnatt, iswaeecturoft'othstro:
if danger threatens it is certainly not Francs ettoot]
to blame. We believe that the Enaperor, in ccfeeirevj
with the English Government, is sincereli,4cru'
of seeing peace preserved. The issue, irm`Frall
peace or war, does not, however, deped 011001...ita
any more than it does on England. TelieLerdo'
Clarendon stated frankly in the House 01 "-respelli
Tuesday evening that we were powerless to 1),,;,
the peace of Europe ; and, notwithstanding:, Os
influence, we believe the Emperor is in
position. Prussia—that is to say, Count L-04
marck, insists on war now as he did uPw3r.7"miefi of
years since, and war he will have. The 'lpso
Austria, and Italy, and Prussia, besides 410015
some of the minor States, are prepared for,', 40,0
flict, and it only needs some one to give iiBls"'
to fire the first shot. What the treaties of orrot
to-day, we all know ; what they will be to-11,1...,0,-1'
no one can say. This much, however, is cerce, tbe
the war which now seems imminent takes
treaties of 1815 will, at its conclusion, irraple'"
modifications so great that their original '-
would fail to recognise them.