Government Stocks Affected By Political Complications

What, then, are they? To begin with, it is evident that as Government Stocks do not vary mainly with the ups and downs of business as all other stocks do, they must vary with what must fall under the head of Political complications in one shape or another. But this can only be because in some way the financial security of the National Stock is affected by the political complications; for investors will not lose their sleep over political complications that are not likely to touch their pockets. And, indeed, when we look closely, we see that there are several ways, short of the expropriation of territory, in which political troubles may affect a nation's financial security and stability.

Public Conscience An Unreliable Asset

In the first place, we have the somewhat far-fetched, but nevertheless real, moral, and psychological fact, viz., that the Public Conscience, which is ultimately responsible for a Government Loan, is not as reliable an asset as is the private conscience of a private firm in the discharge of private business debts, as the income tax returns would show; nor, what is more important, is there any law enforceable against a nation that refuses to pay its public debts, as there is in the case of private firms.

Increased Taxation Borne By Property-Holders And Employers

In the second place, in most civilised countries, even those of uncertain political stability, national debts are spread fairly equally over all classes of the people; and to them all classes contribute either through direct or indirect taxation. But it is to be observed that it is only the Property-holders and the Employers of Labour on whom in a national emergency the Government could rely to make good any such large increase of taxation as would be involved in a great and unsuccessful war; the rest of the population being, like the proverbial Highlander, without anything on which an additional levy can be made with assurance of success; as would be seen, for example, if it were attempted to throw the increased taxation of a large and unsuccessful war on the rent or salt-tax of the Hindu taxpayers, swarming in their millions though they be.

The Capitalist And Political Complications

The Capitalist Classes stand in the fighting line, as we have said, and are the first to bear the brunt of taxation caused by Political complications. And although in the end the increased tax is usually fairly enough distributed among all classes of the population, still the fewness in number of the employing and property-holding classes, and the magnitude of the financial risks they run in proportion to their numbers in the event of an adverse issue, so affect the imagination, that they throw the Government Stocks into a state of commotion and fluctuation more violent than that of any other stocks whatever. For most businesses, ministering as they do to the necessaries and conveniences of everyday life, would go on more or less as usual in face of any but the most imminent and pressing political complications; and the capitalists and property-holders are quite well aware of the fact.

Yield And Fluctuations Of Government Stocks

And when we remember that it is these capitalists and property-holders almost exclusively who regulate the Money Market; and, further, that it is the Money Market, with Government Stocks at the top, that regulates the price of all the stocks below them in the scale which, like Debentures and Corporation Stocks, are founded on Money; when we remember that this rise or fall is quite independent of any change in the industrial or business bases of these stocks - the loans all falling in value with the fall of Government Stocks and rising with their rise - when we remember all this, we can see how it is that Government Stocks, which always stand in point of ultimate security at the head of all other stocks in a nation, may not only have a less yield of interest, but a greater fluctuation and less value over periods of time sufficiently long for investment purposes, than stocks like Corporation Loans and Industrial Debentures, naturally much lower in the scale of securities. In a word, the best stocks of a country, the Government Stocks, while always paying less interest than other stocks, are often less stable for purposes of investment as well.

Further Reasons For Fluctuations In Government Stocks

But there are other reasons equally important for the more violent fluctuations of Government Stocks over other Loans, not only in times of political uncertainty but of industrial or business uncertainty; and these may all be summed up in the conditions of the Money Market, strictly so called, which permanently mark off Government Stocks from all others.

Money Market And The State Of Trade

The first is the relation between the state of the Money Market and the state of Trade. If trade is brisk and industrial operations expanding, capital is withdrawn from Government Stocks and invested in Industrial operations for the sake of their greater yield; and Government Stocks in consequence remain depressed. On the other hand, if credit is slack and trade depressed from any cause, Government

Stocks become a haven of refuge until the danger passes by, and so far rise; but it is the passage upwards of a sick and wounded, not a healthy, activity.