Destruction Of Property And Capital During Russo-Japanese War

The destruction of property and capital during the Russo-Japanese war affected values by the withdrawal of money to those countries. The substantial extent of newly-created municipal corporation stocks of an attractive character should also be counted as one of the prominent factors acting against the inducements of Consols.

The Commercial Crisis Of 1890

In 1890, again, a commercial crisis occurred; banks consequently fortified their position by unusual accumulations of cash, which was thus diverted from Consols and other securities, and by the sale of Consols and other investments.

Great Estates No Longer Comprise A Substantial Amount Of Consols

Rules founded upon experience afford power of forecast.

It should finally be remembered that in former days an estate was supposed to gain in dignity if it comprised a substantial amount of Consols among its assets. This preferential choice has now succumbed to the smallness of the interest and the inconvenient variations in the value of the capital. The effect on prices is obvious. The inductive method of science - which discovers the uniformities of relation between certain conditions and certain other conditions (in other words, the causes of effects) - is applicable to the problem of investments. We are assured of a causal connection when a definite effect appears on the appearance of a given condition, or set of conditions, and is absent when that condition is removed. A consideration of the circumstances which have been related in respect of Consols (and the observations embrace securities of all descriptions) will enable the investor to form a code of rules which express the constancy of these connected conditions and results. And rules thus founded upon experience afford a power of forecast and thus a guide to action. And here, perhaps, a general remark may suitably be submitted - applicable equally to books of the scope of the present one as to treatises on political economy - that a financial exposition does not consider man in the completeness of his nature, but simply regards those qualities of his character which embody the desire for gain and station.

II. The Recent Crisis In America As A Lesson

A period of severe commercial depression with resulting social misery and financial loss is fitly termed a crisis,1 when we remember the significance of the word. For the general condition which it involves constitutes a judging or testing of the character of the causes by which it has been produced, and also the sentence which that condition itself has pronounced.

The Rapid Development Of The Industrial Resources Of America

The excessively rapid development of the resources of America (premature in its relation to the genuine demand); the extensive profits which were consequently realised in manufactures, and the stimulated prosperity which seemed to possess no limit, tempted the influx of additional capital into this particular branch of industry in the hope of participating in its success. Owners of existing manufactories increased their plant, and the buoyancy of hope thus engendered spread beyond the manufacturing confines and incited speculation in all classes of securities.

Money Not Competent Of Indefinite Supply

When companies, also engaged in production, and the distribution of the products, are thus securing considerable profits, the prices of their stocks and shares naturally advance as the result of the augmented dividends, and speculators alert for a yet more prosperous rise borrow the utmost capital they can command for purchases. The demand for money becomes more and more clamorous under competition, and the rate of interest ascends, to the profit of the lenders. But the provision of money is not competent of & judgment, sentenoe, from a verb meaning to search into, to distinguish between good and bad ; then to decide, and finally, as the result of inquiry and discrimination, to pass sentence : the conception is then transferred to signify a decisive stage in the progress of anything, a turning-point.

1 Crisis: Derived from the Greek indefinite supply. Paper documents or representative money may be manufactured in volumes, but the limit of expansion is measured sooner or later by the confidence in their convertibility into gold.

Alarm Amongst The Lending Institutions

Lending institutions, for the integrity of their own obligations, gradually grow alarmed - as these excited demands continue - about the disturbed equilibrium between their depleted reserves and congested liabilities. An attempt is made to diminish the pressure by advancing the rate of interest charged for loans, and fresh loans are ultimately refused and old ones called in.

Premonitions Of Collapse

With the exhaustion of the monetary source the definite premonitions of collapse accumulate. The machinery being arrested the work abruptly ends.

An enormous general speculation coincident with the feverish industrial activity.

As part of the universal recklessness an enormous general speculation in commodities and securities had alike occurred, and railways and other undertakings grasped the chance afforded by the feverish temper of the nation, to create fresh and extensive issues of bonds resting upon no real accession of material security.