The Salt Lake tribune. [volume] (Salt Lake City, Utah) 1890-current, 1913-09-22
HOW LONDON VIEWS
FAMINE OF CAPITAL

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 con-
ditions were likely to prevail. In making
this forecast Sir Felix had most In mind
the immediate future Of the money mar
ket, and the recent course OF events cer-
tatnly tends to support his view. The
indications are favorable, and. given a
satisfactory sequel TO the peace of Buch-
Arrest, there is no reason why autumn
business should not proceed on more or
less normal lines. But behind the prob
lem Of Short" money and discounts lie
relation between borrower and investor.
the worlds demand for capital. and the
long movements in the rate of interest
Is the borrower 10 continue for years in
the attitude OF suitor. pleading. cap In
hand for accommodation, or shall We see
a recurrence OF the old conditions. when
lenders were pressing their spare capital
on semi reluctant borrowers at . and
80 per cent?
In his recent book on the foreign ex-
changes, Mr.. Withers divides the worlds
financial countries into three classes.
ID Young growing nations, who every
year borrow more than they pay out in
interest.
(2) Half-developed nations. whose pay
ments OF interest more than counter
balance their fresh borrowings.
(3) Further developed nations, who
normally have q surplus of money to In
vest and import interest on past loans
more quickly than they export capital
for the new.
The division is convenient one. very
cause the shortage OF capital is due
gravity between the three classes the
great increase In class 1. which seems
TO have been growing more rapidly than
class 3: What are the facts? In the
past fifteen years an enormous develop
young countries which in the nineties
were not greatly regarded as fields for
investment, but which have since those
benefit OF their own prestige Fashion
has set capital flowing freely in their
direction, with the result that enormous
Of land, railways, industry and public
utilities: Unfortunately. much OF the
money has gone 10 waste,
IF the taps which supply capital to the
new countries were suddenly turned off
the rate OF interest, SO far as they are
concerned, would go up, and their de-
velopment would be checked This check
would result In slackening of European
trade. which has depended for its stimu
lus partly on their demand The inter-
est on past loans would still flow toward
Europe (except where interest payments
depend upon annual borrowing), and
there would be less export Of capital to
counterbalance the export Of coupons
Thus we should have two classes work
Ing TO the same end: ID 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 Lord Goschen published in
1865 an essay on 7 per cent. designed to
show that money was likely TO become
permanently dear. Three years later he
wrote sister essay on per cent. ex-
planning why money had become perIna-
nentiy cheap. The two essays are now
printed side by side as warming to ali
lesser publicists not to pry too far into
the future in considering the price Of
money. We do not overlook that warn
ing, but 1t does seem as though a prima
facie case can he made out for the theory
Of cheaper money IT home and dearer
money abroad, AS confidence returns
after the war, boarded supplies OF CAPT.
tai may come to-light bur II is doubtful
whether the Important borrowing coun-
tries will enjoy again the spacious oppor-
tunities OF four years ago.-The London
Economist