When the trade of the country is prosperous, we expect to see banking companies paying high dividends, because rising prices stimulate borrowing on the part of the public; and, consequently, as the resources of the banks are limited, the increased demand for loanable capital sends up rates, with the result that distributions are enhanced, and that the prices of bank shares advance in sympathy with improving dividends.

We all know that there is a link which binds industries together, and that a depression in one trade, if it prove lasting, must communicate itself to the rest. Nor is this movement confined to any one nation. Therefore, when we hear that a depression exists in Germany or in any other great manufacturing country, it is a matter for regret rather than otherwise, because the goods of that country are almost certain to be exported here in large quantities.

If there be stagnation in Germany, then money will be cheap in that country, and commodities will be cheap too. Manufacturers, therefore, will be able to obtain better prices in foreign markets; consequently, German exports will increase, and prices will soon begin to fall in England. Again, depression in the States speedily makes itself felt in the English markets, which become glutted with American goods, with the result that production lessens at home, and times gradually become, as we colloquially say, "bad."

But there is one factor with which we have not reckoned, and that is time; for though after a period of prosperity prices generally fall suddenly—as, for instance, during 1901—it usually takes two or three years before production is again in full swing. In these days, when commercial ties bind the whole world so closely together, one nation cannot afford to rejoice at the misfortune of another; and when this fact is more clearly seen and is better understood, possibly large standing armies will become an unnecessary evil, for the secret of true progress is the fact that commerce and civilisation always advance together.

The Bank of England, which deals in money and credit like every other bank, is exposed to the same influences as the rest of its kind; consequently, when trade is brisk and loanable capital dear, it pays larger dividends than during the depressed portion of a cycle. The following table will illustrate the fact:—

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£14,553,000 STOCK.
1892.1893.1894.1895.1896.1897.1898.1899.1900.1901.
Highest344343338336345351½367361½349342
Lowest325325322322½322326341325326319¼
Dividend % per annum
5th April		1010888½1010101010
Dividend % per annum
5th October		9½98½8½101010101010
Average Distribution, 9½ per cent.
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It is at once evident that when its distributions are compared with those of the large banking companies, the Bank does not excel as a dividend-payer, and the reason, of course, is because it has to distribute its earnings over so large an amount of stock or capital; but, although it pays fluctuating dividends—which are regulated by the average rate capital may earn during any half-year—it is noticeable that, since 1899, despite the fact of dividends being maintained at ten per cent. per annum, the price of Bank stock touched lower figures than any recorded during the decade, when, according to every financial rule, prices ought to have been well maintained. Further, the shares of the joint stock banks did not exhibit this tendency to any marked extent. Why, then, should Bank stock be an exception to the rule?

The years 1894 and 1895 were distinguished by cheap money and indifferent trade, therefore we should expect to see the Bank's dividends decrease, and its stock fall in sympathy with diminishing distributions. If we glance at the table we shall see that our deductions were realised. In 1896 trade began to improve. Rising prices lessened the purchasing power of money; consequently the industrial machine required more capital after the rise, because a given sum would then purchase less. The result was an increased demand for loanable capital, which at once became dearer; and the Bank of England, together with the other banks in the country, earned more. Again, as one would have expected, dividends and stock moved up together. During 1897 the same movements were witnessed; but in 1899 Bank stock began to fall, although distributions were maintained. This deviation from rule evidently calls for explanation. Compare, for instance, the prices of the shares of the undermentioned banks during the period in question:—

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1895.1899.1900.1901.Dividend %
per annum
each year
since 1898.
London and County—Highest95½109½10710722
" " " Lowest89½103101½100¼
London and Provincial—Highest21¾22½22¾23⅜18
" " " Lowest19¼2121½20½
London Joint Stock-Highest34¼3937⅞37¾12
" " " Lowest30⅞33¼3434½1900 & 1901
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We can see, in the above instances, that where dividends were maintained, prices moved between much the same figures, whilst in every case a marked advance is shown on the quotations of 1895, whereas Bank stock receded further in 1901, when the dividend was ten per cent. per annum, than it did during 1895, when the distribution for the year was only eight-and-a-quarter per cent. It is this anomaly which we have to discuss. The trade of the country from 1896 to the end of 1900 was progressive, and though in 1901 a reaction set in, the large requirements of the Government, and the state of uncertainty created by the war, kept loanable capital dear. The banks, consequently, were enabled to support their huge dividends during 1901, though their being able to declare the same rates for the last half of the present year seems doubtful.