25th Feb.
At the annual dinner of the Wolverhampton Chamber of Commerce which was held last month, Sir Henry Fowler, in the course of an interesting speech, let fall some pregnant remarks on the present condition of commerce. The supremacy of British trade was not, in his opinion, the cloud that darkened the commercial horizon; it was the relationship between capital and labour. "There could not in this conflict be conquest. Let them remember that capital could never conquer labour and that labour could never conquer capital. The two together produced the product of the manufacturer. the difficulty arose as to the respective shares of the product." 'I'his is sound sense. How to make an equitable division between the two. great factors of production is indeed the economic cruz of the day. What, in fact, constitutes, first, a fair profit, and, second, a just wage? We are not going to weary our readers with economic subtleties as to the nature of profits, We shall not attempt to analyse the three branches of interest, insurance against risk, and wages of management, into which profits are usually divided, or to determine their rela~ tive proportions, For the practical purpose we have in view it will suffice if ye use the word profits in its popular sense as return on money invested. The sources of profits consist either in the right to levy taxes, or in the success with which the public demand is supplied, according as money is either ent, or employed in business, Every government bond represents the holder's right to tax the borrowing nation, a right which has been exercised in a somewhat rough fashion in our own time in Egypt. A municipal debenture secures an interest in the local rates, A mortgage deed conveys aright to tax the landlord's rental, No one would lend except on the conditions of being able to tax the borrower's resources. 'Yhe man who invests his money' in some business is in a different position. He turns his money into something which he thinks he can sell for more than it cost. If successful he will get back his capital and something more in other words he will make a profit. The amount of his profit will of course vary from year to year according as business is good or bad, or as he is successful or unsuccessful in catering for the public. The lender on the other hand contracts for a fixed return, Business may be good or bad, The borrower may have used his money to ouch or to little purpose. It makes no difference to the lender, whose right to tax resources to the extent agreed upon remains unaffected. The profits of both are, however, alike in this—they are both a return for services rendered.
There is no question as to the service rendered by the man who invests his money in loans. We need go no farther than our own municipality for an example of the judicious application of borrowed money. The many and varied sanitary, architectural, and—looking to the future may we add—educational achievements of what we are proud to call the Model Settlement would hardly have been possible without the assistance of those who had money to lend. This is trae in a greater degree of every civilised country. Now what are we to consider a fair return to the lender for the risks he runs and for the abstinence he must. practise in order to make these loans? The common answer to this question is, of course, that a fair return ix just as much as we are able to get. There is trath in the reply, albeit savouring somewhat of the advice of the Scotch father to his young hopeful: "Get money, my boy, honestly if you can—but get money!" For undoubtedly in free competition we have a potent cortective of undue profits, and the ordinary business rate of interest can never, at least for any length of time, be other than a fair return. On the other hand free competition is not always possible and circumstances may, and often do, combine to give one of the parties to a bargain an undue advantage over the other. Cases of this kind will readily present themselves, Salvage operations, for instance, are usually remunerated at a high rate, but to bargain with a drowning man before throwing him a rope would be neither usual nor humane. It is plain we must look a little more closely into the nature of profits if we are to reach a right conclusion in the matter.
We have already decided that it will not do to measure our profits by the necessities of the borrower, There are times when a man would pay almost anything to be extricated from some financial embarrassment. If it is the prodigal's last chance and he has no security to offer, he must, of course, pay heavily for the accommodation. But if it is the temporary embarrassment. of a well-to-do man it would be mere extortion to trade upon his necessities, That it is often done we know; but that does not make it right. The opinion is growing that the doctrine of laissez faire has been so abused by the money-lending harpies that some protection against extortion should be provided by law. There is less fear of extortion where the Government is the borrower, although cases are by no means rare of a people ground down to repay money wasted by the senseless and unproductive expenditure of their rolers. But as a rule a Government is rich enough to borrow at " rate of interest. so low that, if the loan is applied to productive purposes, it may be used to show a handsome return onthe outlay and so tend to diminish rather than increase the burden of national taxation.
The conclusion then appears. to be that the lender is entitled to receive for his loan a rate of interest equal to the average profits of the country's industries at the same time. He might have employed his money to advantage in trade, and, if he abstains from so doing, and lends it instead, he may fairly claim to be compensated by a return equal to that which he might reasonably have expected to derive from trade, after due allowance had been made for the relative degrees of risk involved.
But how is profit derived from trade? It is clear it is not the same as the income derived from loans. That is steady while the profits of trade are fiuctaating, One year profits may be large; another year they may be small, or even non-existent. In any case they are never likely to he quite the sume, For business profits depend upon the efficiency of industry, and the efficiency of industry is a varying quality, The meaning of this somewhat technical phrase is, that, when inure is made at a less cost the profit is greater; when less at greater, the profit is less. Let us explain a little further, Even so clear a thinker as Bagehot confesses to jan initial difficulty here. "Of what is there more?" he asks, The answer is, more exchangeable value, But let us take his own illustration, "T£ 10,000 sovereigns are invested in gold-mining in paying wages, in buying machinery, and in accompanying expenses, and if that produce per annum, gold, which can be made into
Text read from the printed page and cleaned; old type leaves the occasional error.