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THE RELIGIOUS DOUBTS OF COMMON MEN Being a Correspondence between Two Laymen. 12mo, $1.00 net. THE RELIGIONS OF ANCIENT EGYPT AND BABYLONIA By A. H. SAYCE, D.D., LL.D., Professor of Assyriology, Oxford. (The Gifford Lectures.) A most important and exhaustive work, containing much new material, and far surpassing Professor Sayce's other contributions to this subject. 8vo, $3.50 net. Catalogue of T. & T. Clark's Books Sent Free by Post, upon application. CHARLES SCRIBNER'S SONS, 153-157 Fifth Ave., New York THE YALE REVIEW. NOVEMBER, 1907. COMMENT. Fundamental Cause of the Panic; New Problem of Internal Waterways; Scientific Legislation in Wisconsin. THE HE recent sensational events in Wall Street have been the occasion of a great deal of discussion as to the present soundness or unsoundness of the industrial and commercial world, and as to the causes which have precipitated so sharp and sudden a panic. Among the causes assigned have been the character of the speeches of President Roosevelt and of Gov. Hughes, the evils of "frenzied finance," the organization and promotion of trusts with their "undigested securities" and their arbitrary effect on prices, and the particular characteristics of the individuals and firms who have failed. While undoubtedly some of these factors have had an influence on the result, they have been merely precipitating causes and are of far less importance than the causes which have for years been making ready for present conditions. We refer to the progressive rise in prices due undoubtedly to the increasing supplies of gold. If we turn back to the records of the early fifties and sixties, we shall find the same phenomena of rapidly rising prices, enormous stimulation of trade, gradually rising rate of interest, strikes by workingmen the purchasing power of whose wages was falling, expansion of credit, and a crisis which in 1857 interrupted the otherwise steady movement of prices. Then, as now, few if any business men realized that a rise in prices not only makes an important disturbance for those with fixed salaries and receipts, and affects profoundly the relation between debtors and creditors, but that it gradually affects the rate of interest. It has been generally believed that an increased supply of money would tend to lower the rate of interest. Although it is true that an increased supply of money to lend will tend to reduce the rate of interest, it is not true that a mere general increase in the supply of money in circulation will have that effect. The truth is that as money becomes more plentiful and its purchasing power decreases, it becomes necessary for the lender to recoup himself for the gradually sinking principal by increasing the rate of interest. It would be better for the business world if the readjustment of the rate of interest could take place more promptly, and it is probable that such an adjustment might be brought about if those who make up commercial circles were aware that such an adjustment must sooner or later come about. Owing to their conservatism, rates of interest like all other terms of commerce are only slowly changed. The common notion that the rates of interest were down to stay has operated to prevent borrowers from being willing to accept, or lenders to require any considerable rise in the rate of interest. In many cases banking institutions maintain a fixed rate from year to year, with almost scornful disregard of market conditions. It is clear that if, as is now the case, the purchasing power of money is depreciating to the extent of something like four per cent. per annum, this amount would need to be added to the rate of interest in order fully to compensate for the change. The effect would be to bring the rate of interest up to something like seven or eight per cent. And yet, in spite of the gradual rise in the rate of interest during the last year, there are few contracts that have been put on so high a basis. As usually happens in such cases, those who find themselves in difficulties lay the blame on the wrong factor. Those who have been financing large enterprises find themselves unable to repay, and complain of the high rates of interest which they now encounter in renewing their loans. The trouble, however, is not that the rate of interest is high, but that it had not already been high enough to prevent men from embarking on unprofitable ventures. While it is true that deposits of loanable funds from the government and individuals are at the present moment a benefit, generally speaking, the situation would have been improved during the last few years had the rate of interest been higher than it was. The fact that it was not higher led to speculative enterprises and put off the evil day of reckoning, which must always come when men wake from their dream and realize that they have left out of their calculations a general rise in prices. We believe therefore that the fundamental factor in the situation is that the business world has not forecast the general rise in prices. As this general rise goes on steadily, it necessarily confounds all predictions which have been based upon the belief in relatively steady prices. Many who have plunged into speculative ventures find that their expenses, especially for interest, have unexpectedly risen and have begun to withdraw from their ill-fated enterprises. The result has necessarily been to involve many firms in financial difficulties. We are entering upon a commercial crisis, and if our analysis is correct the effect will not be confined to New York City nor this country. A few years ago there was much complaint that the value of money was rising, and Mr. Bryan and his party were clamoring for a change in the standard which would produce a rise in prices. In a sense their wishes have been fulfilled, for gold unexpectedly turned from appreciation to depreciation. As a consequence we have had experience with the stimulation of business and the glittering appearance of prosperity which a rise in prices at first produces. The time must come when the business world will take up in earnest the subject of a stable standard for debts, and seek to prevent the ebb and flow in the value of money which is able to produce the far-reaching evils alternately of contraction and inflation. There is perhaps no problem in the commercial and industrial world which can compare in importance with this problem of a stable standard of value. But as yet only an insignificant minority of those affected by fluctuations in the value of money are aware that such a problem exists. The subject of improving our inland waterways seems destined to receive renewed attention in the immediate future, and to be viewed in a light quite different from that under which it has hitherto been regarded. For a generation and more, waterways in this country have been looked upon as the natural competitors of the railroads. The strongest argument for their improvement has been rather the effect they would have in regulating and reducing railway rates, than in actually diverting traffic from the railways. Now, however, there appears to be a disposition to regard them as a means of supplementing and assisting the railroads instead of competing with them. Not the least significant feature of this remarkable change in public opinion is the fact that the man whose words have done most to produce it is perhaps the leading railroad manager in the country. The cause of this change of attitude toward the waterways, both on the part of railroad men and the general public, is of course the enormous increase of traffic which has outrun the capacity of the railroads to handle. While these conditions continue, this new relation of railways and waterways will continue, but it can hardly be considered permanent. Sooner or later capital enough will be found to enlarge the capacity of the railroads to meet the volume of traffic, and when that time comes, competition between railways and waterways will begin again. The question of most importance to consider, therefore, in connection with this subject, is not whether waterways can be profitably developed as a means of helping the railroads out of their present difficulty, but whether the conditions of competition in the future are likely to be different from those in the past, so that the investment of labor and capital in waterways will prove as economical and profitable as in railroads. In other words, will the waterways stand any better chance during the next generation of sharing in our vast internal commerce than they have in the last? In one respect the conditions of competition are likely to be much more favorable to the waterways in the future. The rapid building of railroads in this country between 1850 and the end |