New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1875-06-17


the borrowing classes to go into any new under
takings, and fully as great q Discrimination in
the lending classes to hazard their capital in
any untried channel. In France, where the
credit system is far less developed than in En-
gland and the United States, the course OF in
dustry and trade, if somewhat "slOw," is much
more steady than it is with us, or with the
English.
Mr.. Bagehot himself amply explains how the
credit system encourages men to go into Disl-
ness with small capitals, and even to drive out
the solid old firms by making the profits OF
trade too small for their great capitals. A firm
with $500, 900 capital, all their own money
would need to make $4,000 profit per annum
to give them ten per cent. A rival firm, WIN
100000 capital of their own, and S4Oo,ooo
borrowed at five per cent per annum, wonid
have to make only $4,000 profit to give
them ten per cent Oh their capital after paying
$40. 900 for interest on their debt. But II we
suppose the firm in question to be iron manlliac-
turcrs, carrying through the year stock OF
materials and finished products valued at the
beginning of the year at 100000, but depre-
ciated at the end forty per cent, we shall ma
that the firm with 100000 capital il bank
rupt, owing 1900 900 with assets worth only
$500, 900, while the firm with $5OO,OOO cap
ital at the start is still good for 100000.
The application of this principle to the recent
English failures in the iron trade, and to the
failure, lust reported, of Alexander Collie a.
Co., in the cotton trade QOr $l5,O0O,OOo), IL
obvious. Tn March, 1878, Scotch pig iron sold
for us shilngs per ton, and its present price
10 between 60 and 20 shillings. In June,
1872, the price of mddling Orleans cotton Mt
Liverpool was 114 pence per pound; IN
June, 1873 9 pence; in June, 1874,
95s pence, and its price Yesterday
was 7ai pence, or to be quite exact, l'I6
pence The stock of cotton in Liverpool ~
the present time is about one million bales,
and, including the cotton at sea bound Tor
that port and that in store at the
mills in Lancashire, the minimum supply Is
seldom less than twO-tliirds Of one million
bales That quantity must for three years
past have been constantly bringing loss To
somebody. That somebody must necessarily
be the active man of business who borows,
and not the idle capitalist who lends. The
latter does not begin to lose until the former
is ruined. We state these things because they
are true, and not because we have any plan to
suggest for doing away with them.
The details of the iron failures which we
referred to on Monday prove that really in
solvent firms can continue borrowing for years
after their financial situation is utterly hope
less. The last number of The Economist plainly
comedies this. 1t prOpOunccs the danger re-
vcaIed by the iron failures rs one "character-
:" istic of our modern banking system The
our great Joint stock banks of London are
intrusted with from $4,000, 900 to $1,000
900 each of deposits which 1t is their business
to lend and manage. The business of taking
care of such vast sums The Economist rightly
Judges to be one of great difficulty, and il says
that the "amount OF bad business" revealed
by the recent failures was not suspected.
Equally unsupported was it in the United
States, even after the collapse of such con-
Germs as Clews g. Co. had begun to bring ii
to light.
We hope none Of our readers will so far mis-
understand the drift of our observations ~ TO
believe lis hostile to commercial credit, under
proper limitations. TO fix these limitations. to
know when to lend and when to refuse to lend,
is an art which pertains to profession not
yet so highly cultivated as it should I've. We
have only to add that great many people in
England as well as America have had ample
opportunity to learn that easy borrowing
makes cursed hard "payiDg."