The Evening Star TUESDAY, OCTOBER 3, 1876.

Evening Star, Issue 4244, 3 October 1876, Page 2

The Evening Star TUESDAY, OCTOBER 3, 1876.

Cur contemporary the 'Daily Times' occas;onally essays to enlighten us on financial matters, and for every help to understand that abstruse branch of political economy we ought to be profoundly thankful. Unluckily, in most of its efforts to penetrate the gloom that surrounds financial operations it only adds to the perplexity. In an article last week it predicted that our turn for a time of depression must come, because the w or ld has been converting " floating" into " fixed" capital. Our contemporary should always append an "interpretation clause" to his leaders on such subjects, for otherwise to ordinary minds they are incomprehensible. From the facts which he brings forward of the world's method, according to him, of converting " floating " into " fixed " capital we should have thought he would have called the process by a different name. In New Zealand we have done a good deal in , the way of fixing capital by building houses, making railways, fencing runs, improving harbors, constructing wharves, warehouses, and machinery. These investments are, 1 however, reproductive, and New Zealand is | the richer for them and the better able to give security for further advances. Tho money, excepting the three million loan, has been laid out in national improvement. No matter whether laid out by the Government or by private individuals, the capital remains, and in need can bo transferred by means of " floating capital" from hand to hand. Thus a man can sell a house, or a store, or a shop, or railway shares, and Government has shown that it can buy Provincial railw ays, and, so far as similar investments are concerned, there is a possibility of the reconversion, in case of need or convenience, of "fixed" into "floating" capital. By reproductive investments a country becomes better able to pioduce and sell in the world' 3 markets ; better able to feed and sustain a large industrial population. Its resources are more cheaply and more profitably opened up. It can do more work with less money. In fact, the common result of wise reproductive outlay is eventually to set more "floating" capital free thsn has been converted into "fixed." Our contemporary's mistake is in calling destruction of capital conversion. We are told that Germany, France, Turkey, Egypt converted vast loans into "fixed" capital by war. This is what we call "destruction," even when expended on fortifications; for the cost of the latter is only an insurance fund that cannot be used for profit. They are capital sunk to meet a contingency that may never occur. They can be applied to no other purpose ; nobody would buy them—they Btand on the debit side of the ledger, and, in mercantile phrase are "a bad debt." Our contemporary does not Beem to see that commercial difficulties arise from t'e same cause—" war "—but he attributes them to "protection." N» c'oubt "protec tion" has thrown increased difficulty in the way of the adjustment of accounts, but it is "war " that has been the cause of the curse of "destruction" of capital—not merelj protective duties. There is an excellent ebapter on " Commercial equilibrium " in a work by the late Professor Cairnes, published in 1874, in which he conclusively traces the difficulties of the United States to this cause. All transfers of money between nations are not for "value received" in goods, or for investment in payable works, as the ' Daily Times' clearly proves, when it points out what we term the "destruction "of capital by war. We will now let Professor Caibnes speak. In reference to the United States, he says, page 438

But the advent of the Civil war brought with it a aeries of events, each of potent influence, and which in their combination have sufficed to shako American trade to its centre, and to render the iiuancial position of the Union in presence of Europe unprecedented and critical in the extreme. Of these events the most impoitaut were (1) the enactment of the Morill tariff in 1861, by which the United States passed from what was substantially a free trade commercial regime to one of high Protection: (2) the sudden cessation of cotton cultivation, and as a consequence of this and of the civil war, the temporary collapse of the cotton trade with Europe • (3) the creation of an enormous national dobt| simultaneously with considerable additions inado' to State and other debts previously contracted, a large portion of the funds in both cases beiti" furnished by foreigners; and lastly, the issue of an inconvertible paper currenoy to take the placo of the mixed system of coin and convertible credit which foimerely prevailed. On page 441 The reader will remember that, previous to the war, the exports of the United States had, r.s a normal state of things, exceeded the imports • the excess on this account during tho ten years botweenlßsl and 1860 (inclusive) having amounted to an average sum of 6,000,000 dols. annually. Now however, the balance is on the other side. It is the imports which are in excess of the exports. In the fire years, 1869-1872 (inclusive), the excess amounted to 41,000,000 dols. annually; while in tbo last year of the period {1872) it grew to no less a sum than U0.0C0.000 dols. .... We have thus a balance of £9,000,000 on oommeroial account, plus a further sum of #6,000,000 on extra commercial account—in all, *35,0L0,000-duo, year by year by the United States to foreign countries, iu cxccs3 o' what the value of her exported goodß ox ables her to discharge. Again, Professor CairnE!3 says : The end (t e. the bateuco) may bo readied either by an extension of exportation, or by a curtailm ut of importation, or by combining both these processes, but by one means or other reached it will seed be. It is simply the conditiov. of her remaining a solvent nation. The shortest way would be to levy a special tax to meet the foreign liabilities, and to return to a system of unrestricted trade, by which the people would be relieved from the burden of supporting unprofitable industries. The financial evils of the world are traceable to war—to the destruction of capital and the destruction of men to reproduce it—not to the conversion of " floating" into " fixed;" although even that may be too rapidly done, as we And in Now Zealand, where works originally intended to be spread over ten years are nearly completed in five—thanks to our Opposition legislators, Possibly this, combined with the fall in the price of wool • the consequence of war may cause a "pinch," although the provident forecast of our banks has done much to prevent it.