The Washington herald., 1914-12-18
The UnfoIding Financial Position.

we think that everybody viii admit that 1t has been
more favorable than otherwise. The result of the
election was very favorable. The disposition of
the political party in power has become less rad-
cal The measures taken to restore business con-
fdence by financial agencies, large and small have
been highly successful. We do not hear much
as we did some time ago of reduced dividends by
corporations 1t is obvious that in many quarters
the war has acted as a positive stimulus to bust
ness. Even in the South, which has been hit hard
by the war than any other portion of the United
States there seems to be less dismay than formerly
But the development of greatest moment is, in
our opinion, the disappearance of the foreign
liquidation scare" that has frightened the country
half to death since the outbreak of the great
European A good deal of this
real, because up to the time of the closing of the
stock exchanges European liquidation had been in
unchecked progress. Every sees now that it
was liquidation from this source that had been
going ever SINCE the summer of 1911. Selling
of this character gradually increased in force in
our security, and even in commodity, markets
until it assumed the dimensions of panic in July
of the present year when it became evident to
everybody that war was at hand. Our stock ex-
changes were forced to close on the last day of
July in order to avoid being shot to pieces. The
country found itself at this time staggering under
load of securities sold here for European account
that taxed its carrying powers to the utmost The
feeling was, very naturally that inasmuch
were then almost crushed under the load, in
crease in the burden would be more than could
stand and might result in a national financial caam-
ity of greater proportions than any living person
had ever before
The war began and has necessitated an even
greater expenditure the part of the nations in
volved than any imagination pictured. 1t was
hat fbe foreion Iiouidatiop Of
American securities which had been stopped in full
downpour at the end of July, might be resumed at
any moment. But the surprising and encouraging
fact is that it has not been resumed. Although the
worlds stock exchanges have been closed in the
meantime, dealings in securities have by no means
been absolutely suspended and markets of an in
formal sort have been in existence in many places.
There have been plenty of avenues through which
sales of American securities could have taken place
both here and in Europe, if there had been any
large amount of securities pressing for sale There
FORE everybody has taken heart from the fact that
no such pressure to sell has been witnessed; and
the very strong probabilities that such pres
sure will be witnessed in the immediate future. All
this directs renewed attention to the important in
qury as to the permanent effect of the war upon
financial and business conditions in the United
States.
The opinion has been hitherto expressed in
these columns that this destructive influence has
already measured its full effect in business and
financial markets, and our chief reason for sol
thinking is that general proposition these in
fuences are usually discounted" even if the de-
cline in values which they induce not ae-
companed with definite knowledge that war
cloud is about to break Modern history, how
ever is to the effect that when war clouds do
break financial conditions usually prepared or
very largely prepared to meet them In plain
words. war bolts do not come out of clear skies in
these days of newspapers telegraphs and quick and
general communication between nations. We have
also expressed the opinion that after great war
like the present one there will be movement to
repcnish capital and to re-engage in industry, and
that this will necesstatc in general enlarged
demand for money and a consequent rise in in
terest rates We arc still of this opinion but we
desire TO point out, nevertheless, that for some
time perhaps for several years, interest rates are
likely to be depressed in the countries that were
the chief sufferers by the war. When the war
ceases in these countries, the immediate and in
Simultaneous effect will be one of Impeachment.
People there will have less money to buy things
with and therefore, although there will be great
need of capital than ever, there will be less
demand for it, because people will not have the
means with which to secure capital. 1t has been
nOlntcQ out WIFI great liIlCIlIlCSS lidl uhSSlly
after our own civil war; which resulted in loss OF
capital in this country of over $S,ooo 900 600, the
discount rate of the Bank of England fell in four
years considerably over per cent Likewise the
loss of $4,000 10000 in the Franco-Prussan war
was followed by an almost similar decline in the
banks discount rate. Interest rates in New York
also declined greatly.
Another fact which is exceedingly worth re-
memberng in this relation is that both after the
civil war and the Franco-Prussian war commodity
prices both here and in Great Britain fell heavily.
To say that commodity prices fall means, of
course that a given number of dollars can be ex-
changed for a greater quantity of commodity
than could be exchanged before. The rule is,
therefore that because of the lessened demand for
money due to impoverishment over so large sec
ton of the worlds surface and because also of the
fall in the value of commodity prices due to the
lessened demand for these commodities owing to !
the cessation of the war; interest rates fall on bond
and stock prices rise little later on of course the
increase in stock and bond prices that has been
thus stimulated and has probably resulted in a.
BOOM meets with a collapse. We think most of
our people just would be willing to run the |