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idle, and are glad to lend at a very small interest, either upon the security of bills of exchange, or in such a way as to have them still at command if required. The London banker or broker accommodates both parties. While they see only him, he, connected with the two, transmits the discharge from positive to negative, by himself completing the galvanic circle. The rural banks are supposed to be chiefly lenders, the manufacturers the borrowers, but much depends upon individual circumstances. A rural bank has always considerable portions of the incomes of the gentry awaiting their pleasure, but in the busy hives of the north, neither man nor money can be idle. The balance of rural incomes not likely to be immediately wanted goes up sometimes to London, to be held by a broker "at call" even at one per cent., whence perhaps it straightway takes flight for the north, so that monies supposed to be waiting for the election expenses of a protectionist squire in Devonshire or Norfolk, may be actually in Manchester, buying cotton or paying wages for some red-hot free trader. But the most curious part of the matter is the apparent smallness of the motive which induces the broker to take so much trouble and occasionally to run so much risk. Upon him, in a case of this kind, it lies to provide that the deposit sent to Manchester shall still be present in Devonshire, and his remuneration is perhaps one-half per cent. per annum. I do not know the present quotations, but expect soon to hear of eighths and sixteenths, if even it shall not be necessary to adopt some smaller fraction.

Money for Discount and Money for Investment.

The general result of all this system is to scrape up all savings and idle balances that can be spared from the country, even for very short periods, and to sweep them all into the London market, where, like globules of quicksilver, they coalesce with the central stocks, and all run together into one uniform That mass constitutes the supply in the London money market. When it is large, money is abundant; when it is small,

mass.

money is scarce; but the perfect uniformity of this mass is for the eye only, for there is a test which proves it to be composed of two distinct ingredients. That test is the ascertainment of the fact as to whether any particular portion of it can be used for long or permanent investment, or only in loans for short periods. There is evidently some definite portion of the capital really disposable, which is at the unconditional command of the possessors. Such capital may be lent for five years to a railway, or on mortgage without limit as to time. But there is a much larger portion in the hands of those who only place it out in such a way that its return in short periods may be perfectly relied on. Now the perplexity of the subject arises greatly from the fact, that the first kind of capital is always merged in, and constitutes a part of, the second. Whatever amount that may be which is looking out and waiting for permanent investment, is likewise almost invariably offering or offered in loan to merchants. While preparing, perhaps, to settle on the land, or abiding the slow orders of the Court of Chancery, it makes short excursions into commerce. In a word, precisely the same lot of capital appears to be at the disposal of two distinct parties, first of the owner, who will take it fairly out of the market whenever the long wished-for opening comes; secondly, of the broker, who in the mean time is trying to keep it moving in the little revolutions of discount.

Analysis of Discount Capital.

But though the original disposable capital thus doubles itself, like poor Mathews in his transformations, and in its duplicate form becomes identical with the second or derivative species of money available for mercantile purposes, it does not constitute the whole of that second portion, which in the remainder of its extent is composed of funds awaiting the settlement of law-suits, of dormant mercantile balances, and of the innumerable payments of income drawn in the manner already described from all parts of the kingdom. The latter species of

derivative money capital is that portion which, under all circumstances, would leave a certain average available for discounts, even if every atom of saving as it accrued found its way at once into profitable employment. This average would evidently be affected in its amount by a variety of causes. Supposing the average of funds paid into the courts to be uniform, the aggregate of discount capital would tend to rise or fall with the rise or fall of mercantile balances; with the disposition that might prevail to a contracted or a profuse expenditure, the former having the effect of increasing the stock of dormant income; and still more according to changes in the aggregate of annual income, which, of course, when largest, is likely to leave the largest balances waiting in the hands of the bankers. Thus, in a year like 1845, money belonging to some owner as original capital might be taken by him out of a broker's hands to pay up a railway call; then be returned to the broker by the company until wanted for immediate use; then be paid as salary to an engineer, and be returned by him to the broker as dormant income, or partly as income and partly as a new saving destined for investment; in which latter case, while it is discount capital in the hands of the broker, it reassumes with the last owner its character as original capital. It is an inevitable effect of this blending of all the different kinds together, that the whole should present one uniform appearance, both to the eye of the broker, and to the eye of every one with whom he has to deal; that thus an abundance of mere discount capital, which may or may not coexist with an abundance of original capital, should always beget a belief in such abundance; that there should, therefore, be great exaggeration in the popular estimate of the amount of the whole; and that the character of that part which is the most active and prominent in the aggregate should diffuse itself over the general mass. Now, money in the hands of a broker may be said to have a peculiar character. When he receives it, it burns him till he parts with it. The fishmonger will offer his fish in the morning for one price, in the evening for another, and at last will sell it for a

song rather than let it grow stale. The broker is nearly in the same plight. His commodity is not properly the capital itself, so much as a mere temporary use of it, which runs out, to his loss, every moment that it waits. Its general aspect, therefore, is that of a thing forced upon the public with pressure and solicitude; something which teases, tempts, and provokes men to make use of it.

Two Rates of Interest.

This gives rise to an important distinction with respect to the rate of interest, which is frequently overlooked. There are two rates, very broadly to be distinguished; namely, the rate of interest for long loans and mortgages, and the rate of discount; to which latter always closely approximates the rate of interest allowed by the broker to his depositors. A loan on mortgage may not be obtainable at less than five per cent., when two per cent. is the rate for discounts. The rate of interest for permanent investments is, according to general understanding, the rate of interest proper. We may, therefore, dismiss from consideration the lower rate of interest, or that allowed, whether by bankers or brokers, to depositors, as included under the phrase "rate of discount," which it so nearly follows'. For the same reason the Bank of England rate of interest for loans may be spoken of as included under the rate of discount, with which it nearly corresponds.

"Rate of interest" will, then, mean the rate of interest for permanent loans; "rate of discount," the rate paid for all sorts of temporary loans, or loans held returnable at short notice.

1 Indeed, the Scotch bankers, who go as near the wind as the brokers themselves, sometimes find that the narrow margin between interest and discount, which is their profit, absolutely vanishes. In such cases they are wisely unwilling for a temporary cause to disturb the minds of their depositors by reductions, which might drive them to rash speculations. But I fear there is a time coming which will task their forbearance and sagacity to the utmost.

Different Variations of the two Rates.

From what has been already said it will be easily understood that these two rates by no means correspond in their variations. The rate of interest does not vary much, and upon the whole there is no index to its fluctuations so true as the very finelymarked barometer of consols. The quotations, however, must be taken not in their daily changes, but in averages for periods of some duration. Thus, when consols have risen from 90 to 100, the rate of interest upon the most highly-valued security, where the capital is sunk, has fallen from 37. 6s. 8d. to 31. per cent. The rate for loans on mortgages or railway-bonds, of course, will follow this at a certain distance, according to the estimation in which the security is held. The limits, therefore, within which the rate of interest fluctuates, are comparatively small; but the sweep of the rate of discount, on the other hand, is of immense magnitude. At one time it is high enough to be denounced by the world as usury. At another it touches the ground-level of one per cent., a point at which Mr. Bosanquet, with a whimsical forgetfulness of the necessity of repaying a loan, once said, that money borrowed would be nearly the same as money possessed. It is clear that the rate of discount, when it rises, must have a tendency to drag up the rate of interest; but if it goes up much, the latter will only follow at a respectful distance. For instance, during the eight-per-cent. period at the close of 1847, no man in his senses would have thought of giving or asking anything like eight per cent. on mortgage, if with an outlook so uncertain men were then found to engage in such a transaction. On the other hand, when the rate of discount falls, it has even a less tendency to draw the rate of interest after it. After a crisis, the rate of interest for a time remains high, while the rate of discount rapidly falls, from the in-pouring of mercantile capital, to be held at command for those who are letting stocks run off and avoiding new engagements. At the present moment, in the language of Lombard Street, money "is a drug." But a land

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