Geographical Distribution Of Capital And Yield Of Income

Summing up, then, this part of Mr. Lowen-feld's scheme dealing with the effects on a Geographical Distribution of Capital of its most potent and important regulator, viz., the different rates of interest paid by the different Government Loans of the different nations, and the different yields of income that may be got from investments in them according to the skill with which, as on a chess-board, they are played off against each other; we may say (1) that it is the difference in the yields of the Government Stocks of different nations that enables him to get a higher average interest, with equal practical security, and greater stability, than he could otherwise do; (2) that this average yield is raised still higher by the investments being made, not in Government Stocks themselves, but in Loans, Debentures, and Preference shares of the different nations instead, all of which pay higher rates of interest than their own Government Stocks, and, being more free from political and international influences, are more steady and less fluctuating; while, of course, preserving all the while the same relative position to each other as the different Government Stocks themselves do, and thus keeping the harmony of the whole unimpaired; and (3) that by permitting of periodical changes in the stocks held - whether these changes are from one stock to another in the same geographical division, or from one geographical division to another - the investment list can keep time, measure, and pace with the more permanent fluctuations of wealth and trade in the different divisions of the world.

The Influence Of Stock Exchanges, Trade Currents, And Money Markets

Turning from the part played in Mr. Lowen-feld's scheme of Geographical Investment by the rate of interest of Government Loans, and their effect on all the other stocks in the same country, we have now to say something on that part of his scheme which deals with the influence of Stock Exchanges, Trade Currents, and Money Markets, all of which, although exercising in their aggregate a continuous, unceasing influence on the value of stocks, have, when each is taken separately, a transient and intermittent influence only on the changes that take place in their quotations; each when it has exhausted itself being taken up by one of the others, like that torch of learning which the ancients figured as being passed on without a break from hand to hand continuously. I have said so much on my own account in the previous chapters as to the effects of Money Markets, Stock Exchanges, and Trade Currents on the value of stocks, that it would be a supererogation to repeat it again here. It will be sufficient if I say, in general terms, that trade currents between particular countries affect the price of their stocks, inasmuch as a blow to the trade of one reacts on the trade of the others that deal with it, and so they suffer all alike. The temporary ease or stringency of the Money Market of a particular country again raises or depresses for the time being all the stocks of that country; so, too, the Stock Exchange in which a particular stock is mainly dealt in, whether situated at home or abroad, necessarily dominates the price of that stock, and for the time being elevates it above or depresses it below its inherent natural worth; while an Industrial stock that does not often change hands, but is far removed from the haunts of Stock Exchange operators, and is rarely quoted in the Stock Markets, is, if otherwise sufficiently secured, freer from fluctuation, and sounder for an investment which is to be permanent, than many a gilt-edged security with loftier pretensions. And I am given to understand by those who are in the business - what I otherwise should have doubted - viz., that a sound stock of this kind need never want for a ready purchaser.

Causes Of Stock Fluctuations. Relative Importance Of Industrial Productivity And The Money Market

Now, the way in which these Stock Exchange, Money Market, and Trade influences override the natural and intrinsic values of stocks is known to no one better than to Mr. Lowenfeld; and he has digested it into two leading maxims or aphorisms which bring out his sense of its deep importance. The first is, that "it is the value of the money which purchases stocks that varies"; and the second is, "that it is on the value of money that the international standard of investments depends." He is aware, of course, that a nation's industrial productivity or barrenness determines in the long run the relative position which its Money Market will take among the nations of the world; but he sees equally clearly that, for the comparatively limited term of years during which a stock held for investment may be expected to run, the state of the National Money Market overrides the Industrial productivity of the National resources. For it will be remembered that he limits his scheme of investment to jealously safeguarding the security of the capital invested, and confining its investment to the highest rate of interest compatible with that (viz., 4 1/2 per cent or 5 1/2 per cent, according to the amount of it which can be realised at any moment when it may he wanted, without loss); and, further, that it is only Bonds, Debentures, and Preference shares that can fulfil these conditions of capital security with the greatest possible income. And as these (unlike Ordinary shares, which are mainly the subject-matter for speculation on their probable industrial yield) make their appeal in the first instance to the Money Market for loans, it is evident that he is right in making the value of money the primary and immediate, if not the ultimate controlling factor, in his scheme of Geographical Distribution.