have ceased to be lenders, and have even, in most cases, passed over to the class of borrowers. Their subscriptions have been abstracted -from the funds which feed the loan market, and they themselves have become competitors for a share of the remainder of those funds: of all which, the natural effect is u rise of interest. And it would not be surprising if, for a considerable time to come, the ordinary rate of interest in England should bear a higher proportion to the common rate of mercantile profit, than it has borne at any time since the influx of new gold set in.[1]
The demand for loans varies much more largely than the supply, and embraces longer cycles of years in its aberrations. A time of war, for example, is a period of unusual drafts on the loan market. The Government, at such times, generally incurs new loans, and as these usually succeed each other rapidly as long as the war lasts, the general rate of interest is kept higher in war than in peace, without reference to the rate of profit, and productive industry is stinted of its usual supplies. During part of the last war with France, the Government could not borrow under six per cent, and of course all other borrowers had to pay at least as much. Nor does the influence of these loans altogether cease when the Government ceases to contract others; for those already contracted continue to afford an investment for a greatly increased amount of the disposable capital of the country, which if the national debt were paid off, would be added to the mass of capital seeking investment, and (independently of temporary disturbance)
- ↑ To the cause of augmentation in the rate of interest, mentioned in the text, must be added another, forcibly insisted on by the author of an able article in the Edinburgh Review for January, 1865; the increased and increasing willingness to send capital abroad for investment. Owing to the vastly augmented facilities of access to foreign countries, and the abundant information incessantly received from them, foreign investments have ceased to inspire the terror that belongs to the unknown; capital flows, without misgiving, to any place which affords an expectation of high profit; and the loan market of the whole commercial world is rapidly becoming one. The rate of interest, therefore, in the part of the world out of which capital most freely flows, cannot any longer remain so much inferior to the rate elsewhere, as it has hitherto been.
