This very important transition, upon a such large mass of investments, is to be anticipated as one of the most conspicuous financial events of the comparatively near future. One of its first effects may be expected to appear in a certain tone of depression among investors, who will feel themselves impoverished through the fall in the market value of their bonds, and by the impending reduction of one-third in their income from this class of securities. The bondholders—and, indeed, investors generally—will be likely to reason that the reduction in the fixed charges of the roads will leave so much more available for the stockholders; and there would be this extent of warrant for such a conclusion, that, as the stock of a company usually about equals the amount of its bonds issues, any reduction in the rate of interest on the latter would be just so much per cent. saved towards the dividend on share capital. Under such circumstances, there would naturally be a marked increase in the demand for railroad stocks, and a large advance in their market value would in all probability result. To those who contemplate investing in railroad shares, this is a consideration which, it appears to me, should claim their consideration.
It would seem probable that, in the process of conversion here foreshadowed, there are the elements of an era of unusual speculative activity at a period not very remote. That speculative movement may be expected to consummate and finally adjust the change. Naturally, such an excitement would tend to produce a great inflation in the price of stocks (as distinguished from bonds); the final stroke of adjustment, however, would come ultimately through the construction of new competing roads, which would take out of the net earnings of the roads as much as had been saved by the reduction of interest on their debts, thus leaving the dividend resources where they stood before the change. The final issue of this transition, therefore, would be to give the public at large about the entire benefit of what the railroads saved by the amelioration of their debt charges.
The tendency I have here aimed to foreshadow is one that must largely tend to the public advantage. In other words, the railroads, having reduced by 30 to 40 per cent. their interest charges, will be in a position to perform their services for correspondingly lower charges. This will be an invaluable advantage to all our industries, and especially to such as have to deal with bulky products, a considerable portion of the costs of which consists of charges for transportation, and the working class, who constitute the bulk of our consumers, will be especially benefited.
In another chapter I have shown how the overcapitalization of our railroads has caused a false and unjust distribution of wealth, and burdened our industries with transportation charges which are a serious obstacle to our national progress. The tendency above delineated shows how seriously the natural laws governing the distribution of wealth provide an ultimate remedy for such violations of these laws. The railroad capitalists who have made their millions by providing railroads at such an inflated cost are now faced with the certain prospect of a loss of one-third of their income from their investments; and that deduction will have to be distributed among the community at large in the form of cheaper carriage.
This is but a repetition of what we find so many times in the history of nations, that when any important class exacts, by some artificial process, a vast amount of wealth that does not naturally and justly belong to it, it ultimately finds the earning capacity of its accumulations declining. This is one among the many reasons why a low rate of interest is apt to prevail in countries where privileged or aristocratic classes have absorbed an undue proportion of the national wealth.
CHAPTER XLIV.
THE SILVER QUESTION.
Its Fundamental Importance.—Dangers of Neglecting it.—Attempts at Evasion.—How it must be finally met.—Silver Paper Currency Schemes, and their Futility.
Of all current public questions, I know of none that so vitally affects the future of our financial interests as this one—what shall be the status of silver among the world’s currencies? At the present time, about one-half of the world’s metallic money consists of silver, and the other half of gold. It is clear that silver cannot maintain its necessary function as money unless it is invested with stability of exchangeable value. Such stability it cannot possess without the intervention of a conventional arrangement which, with all the force of a uniform law, makes a given weight of silver virtually exchangeable for a given weight of gold. This principle once established, and silver bullion being made convertible into silver coin at the mints of the chief nations on demand, it follows that the bullion value of silver must constantly conform closely to its value as coin, and the stability of the value of silver coin would thus be insured.
The difficulty has been that, owing to petty jealousies and prejudices, Governments have hesitated to act with the unanimity that is necessary to an efficient conventional arrangement. Each one has preferred that others should take the responsibility of free coinage; and the result has been that unrestricted coinage has been adopted only by those nations which happened to be most imperatively committed to the necessity of protecting their silver circulation. Those nations were comprised in the international combination known as “The Latin Union.” That Union was found competent to take care of all the new supplies of silver, so long as the principle of free coinage was maintained and the value of the metal was kept uniform under its operation. In an evil hour, however, certain German theorists persuaded Chancellor Bismarck to commit Germany to the demonetization of silver. The large supply of the metal thereby suddenly thrown into the mints of the Union nations alarmed that combination, first, into a limitation of their coinage of silver, and, finally, into a suspension of it. The coinage demand for silver being thus cut off, the price of silver bullion was cut loose from the relative legal valuation between silver coin and gold, and was left to drift with the variations in the commercial demand, and to decline in consequence of an excess of supply over demand. This is a brief explanation of the causes of the present depreciation in the value of silver.