THE SCRAMBLE FOR CAPITAL.

Dominion, Volume 7, Issue 1910, 19 November 1913, Page 9

THE SCRAMBLE FOR CAPITAL.

LORD MILNER ON FINANCE "CAPITAL STRIKES FOR HIGHER WAGES." A speech of especial interest to a borrowing country such as New Zealand, was delivrfrcd by Lord Jlihier last month at the Birmingham and Midland Institute's annual gathering in the Birmingham Town Hall. Lord Milner, prefacing his addfess with the statement that he felt some* trepidation in approaching an economic subject, stated that ho would suggest to them an inquiry into the "ser-amble. for capital" wbicli was to he observed, in every eommu.iiity which was economic- ' n-Uy progressive—a scramble which had as its outward and visible sign a rise in the average rate of int-orest—the toll exacted by the suppliers of capital, sought by borrowers for reproductive purposes. Of course, this invcstn-icnt rate was higher in one country than in another, highor in young countries in process of rapid development than in old countries of fully-developed J'e-i sources, higlior in lawless or turbulent 5 coiwnnmities than whoro social order wa.s stable and tho reign of law assured. It was highor, also, for ono class of securities than for another. But, broadly speaking, and in the.long, run, and subject to ■_ innumerable) variations duo to tho special circumstances affecting each, individual investment, the tendency of the rate of in.to.rest to rise or fall mado itself felt in every class of security and all over tho world. This influence was -of very slo-W Operation, but of impressive universality. For several decades before tho end of tho last century, and perhaps for a longer period, tho tendency of tho rate of interest on permanent investments Was to faH. Then, very, gradually'at first, but latterly with increasing force, an -opposite tendoney began to manifest itself, awl ; that tendency was clearly operative all over tha world to-day. How long it might continue was beyoiid the wit o£ j man to predict. Against siich temerity the miscalculations mado in the past by the best informed, the most experienced., the most, sagacious students of I economic phenomena wore an impressive I warning.

Lofcj Coschon and Consols. ■ . • ' "I remember," continued Lord 3HI- - "that when my former chief and ktad friend, tiie late Itfril Gosebcn, 'converted' Consols in 1888 providing for ail immediate reduction of interest upon them from 3 per cent, to - 2$ per cent, and a further reduction from '2| per cent, to 2J per ceiiii. after 15 years, lie was firmly convinced that by this measure ho was only reducing the yield: of Government Stock proportionately to the reduced, yield of , every forms of capital, and, niabinc it fall into line, go to speak, with .1 general and continuing teiide,ii"cy of the rate of interest to deeliiie. Capital all round, so he argued, was being obliged to content itself with a lower rate of re* mttneraiion, and it was only fight that tho State should benefit, along '■ with other borrowers, from that uhlvefsal change. And this tendency of the rate of interest to decline- was," ho believed, in. the absence of son?© tremendous arid world-wide cataclysm, almost certain to continue. But for that GD'nyietioii, even his natural and legitimate dosiro to effect, as he did effect, so groat an annual saving to the Exchequer *ould never have induced hifi) to propose a reduction of interest to tho creditors of the State. Ho thought 'ho was making thorn ijuite a good offerj'■' Ho 'bftieV'ed he ftfis fcoidliig the balanco even between them aijd the taxpayers. That wjis the view of a man who .combined groat- practical know-: ledge of finance with a bi'oiid and philosoplirc grasp of principles, and vsho was animated by a spirit of equity I have never known - surpassed, And iris opinion was shared, at the timo not only by all tho Treasury afljemlij'who might perhaps bo suspected of bias in the matter, but. by the great .majority of financiers and men of business, whoso personal bias in inaiiy cases must have been against the proposed change. Many people in those days talked quite freely of tihe coming of a time, liot so far distant, whan investors wtic> looked for absolute .security would havo to bo content with 2 per cent."

Capital Strikes far Higher Wagtis. 'file causes Which h,ad upset that general miscalculation wero iiext analysed by Lord Milher. When the- gf est fail iit Consols began it was tho fashion at first to- attribute it to temporary causes. !Ho thought tliat tho great fall in the price of Consols was -dive, ia some measure., to i.nflueitGe.s, especially affecting that stock and British 'fciavcrii.ment stocks generally. But llley were .not tho oaljf or principal causes Of the fall. A. similar fate ftad overtaken thestocks of almost every Government ill the world.which had been in tljo enjoymejit of first-rate ■ <sredit. The- fact simply w.as that .capital was no longer prepared to serve -on the terms w-liioli it was wiUing to accept when those

securities Were created. It had, so to speak, Struck for higher wages. And it was for tho time being, at anyriite, in a position, to obtain, them. Tile squeeze was greater in ytiung countries like- Canada, or hi countries Of recent vast industrial development like Germany, than in a country like France., whore capital had been piling itp. for years and had not had the same sudden spurt of industrial activity to absorb it. But with the free movement of capital from one country to another a greatly heightened dema.nd_ in any part of the world made itself felt, mare or less, in every part. {Seeking for tlio 'cause, a search'which, was very puzzling, and in. which he did not pretend to ha'vo found a complete solution, it could bo ia the first place observed that it was not tlio total Wealth of tlttf world, or even its, total capital, which affected tlio situation, It' was only the fresh capital coming forward which could bo of any use in assisting the ■expansion, of old or the inception of new enterprises, It was tho amount of this fresh, capital, its abundance or scarcity, relatively to tho demand.for it, which dominated the sitviation. It Was indeed true? that tho production of wealth thfoiiglioitt. the., world nt the present time Was enormous, and constantly increasing. But it diet not fallow that tlio portion of that wealth devoted to the encouragement of further production increased to the samo degree. Allowance must ho m.ado for tho effects of tlait great.and growing extravagance, public and private, which was perceptible in almost all civilised countries. And granted that, despite that extravagance, tho portion of tlio world's output which became available as capital was larger and larger every year, was there not a corresponding and even more rapid umltiplieatloii of" tire purposes for which capital \vw wanted? New methods, new materials' now instruments of production were constantly being introduced,. a.nd they all clamoured for capital to. help tliom to develop themselves. Was it surprising tliat there should ugt be enough. to go round, or that in their (struggle not to be left out in the cold the various applicants should send up tlio price of Unit for which they Wore all competing? And in this development of new machinery m.iic'h old wealth was destroyed. Costly. machinery was Tendered obsolete, and had to ho discarded long, before it w;w worn out. Tho operation known a:i scrapping lmd of l ft *o years assumed dimensions quite inconcotyabSc to for-, mer generations. Profitable., no doubt, in tho long run, it was in tlio .first instance a costly operation, and the cast of it diminished prft tanto the amo.Unt ■pf icajfit&L <-"-44jdil« for other

purposes at the time, When., it, y:as racing canned otft. . Another factor increasing the demand for capitai \v<is the rapid development of flow countries, sncti as Caiiada and. South America, and the. awakening into groat in* dttstrinl activity of certain old conn* •tries which before had been itaifoly agricultural countries. • Germany's dash forward into the very first rank of industrial growth had perhaps been almost stupefying. In German}' industrial growth, liad. perhaps by thin (imo- reached, a ;,.pdi].it .iit jyhidh th«; pace must soon begin to slaokon,. But behind fie'rniatiy thoro was Russia, It staggered the- imagination to tliurk what would bo tiro coiiscauoiiciis if the change which ijad come over GormaViy wore to extend to the whgl.o of that enormous territory, aV.it was already extending to certain portions' Of it. Neither wflst the.Jr forget the progress of industrialism m the Far East, in India, in Japan, and even in C.lihm, Tho effect of all these changes,.: however greatly they knight in the 'ton g rliii eiiliaiice tlio Wealth' aiid' tiie capital of the. world; wan in the first mstanco to increase rather than-to diminish the competition for capital,

Capita). Not: In Sight. tip, 'Lbrtt'ililiter gave it as fits opinion that it would be a loiig. while before they again saw- anything like that "'glut of capital" of 'which it Wasonco tlio fashion to speak., And., this conviction would not be shakoirifpresently the kngrS.ustaiuod "boom" in tr.ido was followed by a deprcssion, during which' trluch 'capital was temporarily, idle and apparently unwanted', and ni&ny labourers *ero also in cojiscftuence. out of work,' What that would .mean' Was pot that there Was any real or permanent slackening a tiro demand for capital, tot that a temporary dislocation of financial machinery had rendered the demand inelfectjve. And indeed it was not difficult to ee«a how that feverish zeal for development and production,, of which lie had Spoken, jnight itself be eoi.iductiro to tlia occasional occurrence of ono of thesq financial arises, in which {lie- economic world threw off its -fever, only to find itself afterwards in a, more or less ■ prolonged state of limp • convalescence. With all the in. itself laudable, energy in. multiplying ftihl paffcctiijg the- iristritments of production, and in. opening up Hew regions of the earth and equipping them with the plant of uft.advaiicftd civilisation, mankind might, to use a colloquial phraso, bo "biting off more than it could chow.". That fiieant that sooner or later somebody had got to go to the wall. The Weaker enterprises • had to he nb.a'pdtineid, and the liapital sunt: in 'them wastfidi A period of trade depression, if prolonged and widespread) might tlnis ' .;pro.difco an. ain.ount of ruin.., misery, arid .confusion only comparable to the disastrous-effects of a great and--destructive.Avar. And .if in Soinc .oases tlio seal-amity was due to causes beyond himian co-ittrdl, like a failure of d'OpS, of te .pardonable inia» ' ealsulutiou, there, w.ejce other's.. In. which it -could not bo .sot down to any .s.uch innocent cause/, T.-lip Jury 'of . tio-iij the recfi-les-s promotion of worthless ''enterprises, and even of ..sound ©iitcrpnscs in.o;scOssu - 0 number or'iii too rapid siieeesjioiij Wei?a probably answerable for more misery than .tho sum- total of punishable crime, Great indeed, was the resp.Qnsib.il.ity :of those Who, Irks ' tlio nioclorn Icings of finance, 'had it fargoiy )'n their : po.w*>r to depide into . What channels the, streams of 'capital should 'flow. Yet it Was not fair to' put it ail upon thefti. They wore not -demigods., but men, .and they -could not escape, from the. influence of the atmo* sphere by. which tljoy were, surrounded* It was the temper of tlie sv.h'Dlo, community which w-js the 'most decisive factor in the. case. Whore, tho old-fash* ioiied virtues of thrift, pnidetieo., ami ■concentration succumbed to restlctenes? and haste-, to .the.feverish -desird-io <ia too many 'things at oncoj apd to grow rich too quickly, it waft -boy-ond tha power of 'individuals, to avert economic disaster. , i Capita} and tSbpur,

Concluding, Lord Milner said: "Do not let Any of hiy hearers run away wjt'li the idea that what I have said about !the heightened do'niafld for capital, and the higher ■ruto of ■remuneration' which capital oait command, moans thai there".are- :oponpmic influences ■ at work which are .calculated to .depress tbe-,.c'on-d'itiqu of Labour. ,Tke. contrary is,, I think, tlio truth, The heightened demand for capital inevitably., as it seems to me, Involves a hcigb-tciiod demand for labour also. It moans an .iiicrtjaso of productivity., a larger outpilt, and though, capitalist and labourer (Whett the. -two do,-not, as. is,.of.■course, sometimes, i;ho ca&e, to be -tlib same pcrikii) may/gw.iirrel' bvp:r'tlio proportion of "dioif.sovcV^lTOncfltsV'*!' '* m - I'oasoit Why botli siwu'.kl'.not'bo'tetter off at- tlio same titfioY • That' ißj Indeed-, what we seo every ■d'ay.wiien industry is very ac» tivoi Profits :no doubt rise, but ther'a is a tendency..for W&gcs to rise...also, though there is. frequently, .a djsptfto «p to the extent to which that rUo should he carried. Ami in tho reverse'eass. profits'and "wage's both tend to fait. There Way be 'antago.iu'sur' of interest ■betw'oon-CapitiiKst and Tabouret, but tiro idea -oi an. ah'tagOiii.s.iri. • bo'tween capital . and .'labour., between, .the niffite'riafa . niid.,.instalments, .of production, and tjto luiman pnefgywliich is nci;:e,s-'sar.y to ufiliso them, is an obvious absurdity." .. " '[.'..'■."