Joint Stock Companies Unaffected By Government Disturbances

But although Governments have to pay for their vagaries by having the rate of interest raised on their loans, there is no reason why private businesses or Joint Stock Industrial Companies should have their rates of interest also raised in proportion, provided they are sufficiently secured otherwise; for, as we saw in a former chapter, private business concerns dealing with the manufacture, transportation, or sale of the staple and customary necessaries and luxuries of life, are comparatively safe in times of political disturbance, and would hardly be more depreciated in value by a revolution than Government Stocks, in times of threatened insurrection, would be by a street riot.

Money Market Influence On Rate Of Interest Of Government Stocks

Now, the part played by this Political factor in the composition of the rate of interest of a Government Loan, great as it is, is usually absorbed and embodied in the second factor, viz., that of the Money Market which reflects it, but which has, besides, a distinct status and individuality of its own apart from the influence of Politics and political movements as such. That the Money Market factor in a Government Loan embodies and absorbs into itself the Political factor is evident from the fact that the tightness of money, which raises the rate of interest, is not so much due to the relation between the amount of money as such and the amount of products it distributes, as it is to the degree of general credit which exists at the time in relation to these products - as is proved by the fact that when markets are buoyant and general credit good, little money is necessary to effect the ordinary transactions of business, whereas when markets are suspicious and credit is bad much more money is required; and when, as in a panic, credit is for the time absolutely shattered, there is often not money enough in a whole country to carry out its necessary business transactions. And as it is the credit of a country which political troubles and complications affect, it is evident that the Political element is included in the Money Market element in any and every alteration of the rate of interest of a Government Loan.

Money Scarcity A Cause Of High Interest On Loans

But that the amount of money itself in the market is, in spite of this, a separate element in the total make-up of the market rate of interest, is seen in the fact that if the money floating in the market, or lying in the banks waiting for investment, has from any cause become depleted, and ready money in consequence is scarce, not only is the ordinary rate of discount high, but the interest demanded for the flotation of loans, Government or other, will be higher than it otherwise would be. And hence it is usual for the projectors of all large industrial enterprises, as well as of all new loans, to wait until these temporary periods of money depletion have passed.

Permanent High Rate Of Interest On Loans

But when a conjunction of circumstances has conspired to give this period of money depletion a permanent rather than a passing character, as when a destructive and barren war has absorbed many millions of a nation's money without reproductive return, then the rate of interest for loans remains high over long periods of years together; and while it lasts there is not a Corporation or Debenture Stock in the country which does not fall in value, however strongly it may be secured from an industrial point of view.

Value Of Ready Money

Carrying with us then the fact that a certain customary amount of money always on hand for loanable purposes is necessary as a basis or support for the credit on which a money market has been in the habit of conducting its transactions; and that if any considerable amount of this loan money is suddenly withdrawn from any cause, the national credit will suffer, and the rate of interest to be paid for loans will rise; we are led to the third factor which enters into the rate of interest to be paid for a Government Loan, viz., the Industrial Factor.'

Money Market And Industrial Elements In Government Loans

And this brings us to the point which we must now determine, namely, as to what relation the Money Market element (embodying and reflecting in itself, as it does, the Political element) bears to the Industrial or wealth-producing element in a Government Loan; or, to put it into other words, which has the greater effect on the rise or fall of the rate of interest of a Government Loan, and indirectly through that of all other Debentures and loans whether of Industries or Corporations - the Money Market factor, or the strictly Industrial and wealth-producing one.