Relative Security Of Foreign Government Stocks

Now, it may be freely admitted that it is not likely that the above rates of interest will be found to do more than approximately represent the real relative security in the future of these Foreign Government Stocks in their relation to each other; but this we may affirm with certainty, that they are as near the existing truth as human calculation and foresight can make them. For, like the relative positions and distances of the stars, they have been fixed by the great world-financers who, like astronomers with their telescopes, are stationed at different points on the axle of the great revolving wheel of World Industry and Finance; and, as nation after nation passes successively before them, fix the meridian points, as it were, of the financial stability and security of each, before passing them over to the public and the Stock Exchange for Money Market and other influences to work their will on them in their future rise or fall.

The Business Of The World-Financer

It is these world-financers who float, underwrite, or otherwise by their influence finance the loans of Foreign Governments; they bear the full brunt and risk of the loans in the first instance; and as they may at any moment be called upon to send in estimates for them, it is their business to know all that can be practically known of the financial status and of the industrial resources of foreign countries, as well as what may be legitimately hazarded by way of prediction in the matter of their future prospects. They can speak with authority on the past financial history of these countries, their previous loans, and on what they have been spent - whether on productive labour on the one hand, and the opening up of new sources of industry which will add to the country's wealth; or in military expenses and armaments, in corruption, in the payment of old debts, or in fruitless internal revolutions or foreign wars, on the other. And when in relation to all this they have taken into consideration the existing industrial resources of the country in question, and its power of development in the near or immediate future, they are then able to compare these total resources and drawbacks with the weight of taxation which the country is able to bear, either at the present time or later; and as the result of it all to fix what may be called the natural rate of interest on a loan to that particular country.

Component Parts Of Natural Rate Of Interest On Foreign Government Stocks

But before we can see clearly how it is that capital may be distributed and invested among these foreign countries with a greater scientific certainty and security and stability than in the home investments of any particular country, it is necessary that we should resolve this natural rate of interest of these Government Loans into its component parts, with the view of exhibiting the part played in it by each of these parts respectively. The first part consists of what may be termed the Political factor; the second of the Money Market factor; and the third of the Industrial factor. Of these the Political factor is the most uncertain and the least scientific in character, but, like a dangerous object seen through a haze, it has, through its influence on the imagination, and the anxiety to ensure a sufficient margin of safety under any contingency, a greater effect in raising the rate of interest to be paid on Government Loans (and, in consequence, in raising the rate that has to be paid on every Corporation Loan, Railway Debenture, or Joint Stock Industrial Debenture in the country, however well-secured, industrially speaking, these latter may be) than it ought legitimately to have.

Causes Of High Rates Of Interest On Government Stocks

Should there be any elements of political danger or instability in the form of Government of the country; any elements of corruption in its habitual administration; any danger of insurrection; any tendency to plunder the capitalist classes by exorbitant or capricious taxation, by badly laid tariffs or the absence of tariffs, or by direct taxation laid on the instruments of production; any tampering with the currency; any danger of war with neighbouring Powers, and the like - should any, or most, of these conditions be present in a country, it is only natural that the rate of interest it has to pay for loans should rise to a point higher than it ought to be, or than it would be were there any possibility of treating these separate loans to Foreign Powers by a distribution of the risks among them as in an insurance company; or as would be the case, most probably, if there were only a single great financial house in the world which had the exclusive patronage of them all.