The Bridgeport times and evening farmer. (Bridgeport, Conn.) 1918-1924, 1918-01-07

In the last three lessons we have
been talking about the up and down
movement of prices. In Lesson NO
Fl we showed that everything in the
world is subject to the law of chang
ing prices In No. % we carried the
discussion a step further by pointing
out that even money itself is no eX-
ception to the rule. No. % made
special application of the law to
Liberty Bonds.
But this was all just preparing the
way for discussion of a still bigger
reason for price changes in Liberty
Bonds. The four or five imaginary
buyers and sellers that we pictured
last time are all real enough and
there are thousands more like them
who are buying and selling for as
many thousand different reasons. But
the effect upon prices of all these
natural purchases and sales is, after
all, very slight when compared with
that brought about by another great,
silent powerful force which carries
everything irresistibly before it.
You have stood on the shore and
have seen a bit of wood tossed about
on the surface of the sea- Now it
is on the crest and now in the trough
of the wave. It rides gaily in toward
shore on some big breaker. Then it
is whisked back to make the try all
over again. But as you watch you
gradually realize that in spite of the
inrolling waves that again and again
pick up the little waif and toss it
shoreward it is nevertheless getting
farther and farther from land. The
tide is going out!
! There is an equally strong silent
force which is carrying prices in long
swings up and down in spite of the
| little changes in a central direction
which take place from hour to hour
and day to. day. 1t is the price OF
money.
We have explained to you how
| the price of a dollar changes with
the price of flour and coal and shoes
But there is another kind of money
price,-the price of money in large
quantities. 1t, is commonly called the
interest rate. You may call it the
rental price Of money, if you wish
But whatever you call it, it is the
price you have to pay in order e
borrow a fair-sized sum of money.
Now you know, of course, that there
are many different kinds Of invest
ments. For illustration we will con
slider just four. Let's go back before
! the war and assume that we are in {
period when the government can Dor
row money at 8 per cent, high grade
railroad at 4 IL per cent, an individ-
uaI, by means of first mortgage OF
good real estate at per cent, an6
a factory at 6 per cent. That will
make q pretty fair scale to work on
Now suppose that a year later
| times have changed so that the f1rst
mortgage class has to pay per cent
You can readily see that all the 9th
er classes will have to get in step anC
| make similar changes. If they DOM
the men who lend money to factories
will refuse to do so at per cent
since they can get 6 per cent. from
the next higher claSs-the first mort
gage kind. And those who have beer
lending to the railroads at IL pei
cent. will refuse to continue because
the per cent, from the first mort
gage is so tempting. When the diff
ference between the two classes wa!
only 1-2 per cent. in interest they pre-
ferred the extra safety of the rail
road, but they are willing to take {
little more chance to get full l.:
Per cent additional
And so the process will go all alon&
the line. Each class of investment
will have to change its interest rat
to meet the competition from the 9th
ers But if it's interest rate is fixet
and can't be changed, as in the cas-
of a railroad bond, or a Liberty Bond
what then? Why the price will simp
" have to go down to a point wher'
the yield on the investment will equa
the required new rate.
For example, if you had bought
Pennsylvania R. r. Co., IL pc
cent. bond at 100 it would yield yo1
IL per cent If the new stat
Of affairs required that kind of bon
to yield per cent. the price will hav
to go down, down, and down to sc
It won't drop all at once, nor in
week, nor perhaps in a month. Blu
it is in the grip of the tide, and though
like the bit of wood, it may struggl
backward and forward, in the end
will be carried relentlessly to tn
point where the tide itself is ready t
turn.
Think of this when you are lookin
at Liberty Bond prices, but do not b
discouraged because there are som
wonderfully cheerful words yet to b
said to you on the subject.
Next time we shall try to show 20
which way the money tide is run