At the same time, the investor in Consols in the early part of the century had done very well in three different ways. The “security” of his investment had come to be considered as near absolute perfection as was possible. Its capital value had uniformly appreciated, partly for the reason just stated, but chiefly because the steady fall in the rate of interest increased the number of years’ purchase of the annual income which represented the capital.[3] And the annual money income had a purchasing power which on the whole was increasing. If, for example, we consider the seventy years from 1826 to 1896 (and ignore the great improvement immediately after Waterloo), we find that the capital value of Consols rose steadily, with only temporary set-backs, from 79 to 109 (in spite of Goschen’s conversion from a 3 per cent rate to a 2¾ per cent rate in 1889 and a 2½ per cent rate effective in 1903), while the purchasing power of the annual dividends, even after allowing for the reduced rates of interest, had increased 50 per cent. But Consols, too, had added the virtue of stability to that of improvement. Except in years of crisis Consols never fell below 90 during the reign of Queen Victoria; and even in ’48, when thrones were crumbling, the mean price of the year fell but 5 points. Ninety when she ascended the throne, they reached their maximum with her in the year of Diamond Jubilee. What wonder that our parents thought Consols a good investment!
[3] If (for example) the rate of interest falls from 4½ per cent to 3 per cent, 3 per cent Consols rise in value from 66 to 100.
Thus there grew up during the nineteenth century a large, powerful, and greatly respected class of persons, well-to-do individually and very wealthy in the aggregate, who owned neither buildings, nor land, nor businesses, nor precious metals, but titles to an annual income in legal-tender money. In particular, that peculiar creation and pride of the nineteenth century, the savings of the middle class, had been mainly thus embarked. Custom and favourable experience had acquired for such investments an unimpeachable reputation for security.
Before the war these medium fortunes had already begun to suffer some loss (as compared with the summit of their prosperity in the middle ’nineties) from the rise in prices and also in the rate of interest. But the monetary events which have accompanied and have followed the war have taken from them about one-half of their real value in England, seven-eighths in France, eleven-twelfths in Italy, and virtually the whole in Germany and in the succession states of Austria-Hungary and Russia.
The loss to the typical English investor of the pre-war period is sufficiently measured by the loss to the investor in Consols. Such an investor, as we have already seen, was steadily improving his position, apart from temporary fluctuations, up to 1896, and in this and the following year two maxima were reached simultaneously—both the capital value of an annuity and also the purchasing power of money. Between 1896 and 1914, on the other hand, the investor had already suffered a serious loss—the capital value of his annuity had fallen by about a third, and the purchasing power of his income had also fallen by nearly a third. This loss, however, was incurred gradually over a period of nearly twenty years from an exceptional maximum, and did not leave him appreciably worse off than he had been in the early ’eighties or the early ’forties. But upon the top of this came the further swifter loss of the war period. Between 1914 and 1920 the capital value of the investor’s annuity again fell by more than a third, and the purchasing power of his income by about two-thirds. In addition, the standard rate of income tax rose from 7½ per cent in 1914 to 30 per cent in 1921.[4] Roughly estimated in round numbers, the change may be represented thus in terms of an index of which the base year is 1914:
[4] Since 1896 there has been the further burden of the Death Duties.
| Purchasing Power of the Income of Consols.[5] | Do. after deduction of Income Tax at the standard rate. | Money price of the capital value of Consols. | Purchasing Power of the capital value of Consols. | |
| 1815 | 61 | 59 | 92 | 56 |
| 1826 | 85 | 90 | 108 | 92 |
| 1841 | 85 | 90 | 122 | 104 |
| 1869 | 87 | 89 | 127 | 111 |
| 1883 | 104 | 108 | 138 | 144 |
| 1896 | 139 | 145 | 150 | 208 |
| 1914 | 100 | 100 | 100 | 100 |
| 1920 | 34 | 26 | 64 | 22 |
| 1921 | 53 | 39 | 56 | 34 |
| 1922 | 62 | 50 | 76 | 47 |
[5] Without allowance for the reduction of the interest from 3 to 2½ per cent.
The second column well illustrates what a splendid investment gilt-edged stocks had been through the century from Waterloo to Mons, even if we omit altogether the abnormal values of 1896–97. Our table shows how the epoch of Diamond Jubilee was the culminating moment in the prosperity of the British middle class. But it also exhibits with the precision of figures the familiar bewailed plight of those who try to live on the income of the same trustee investments as before the war. The owner of consols in 1922 had a real income, one half of what he had in 1914 and one third of what he had in 1896. The whole of the improvement of the nineteenth century had been obliterated, and his situation was not quite so good as it had been after Waterloo.
Some mitigating circumstances should not be overlooked. Whilst the war was a period of the dissipation of the community’s resources as a whole, it was a period of saving for the individuals of the saving class, who with their larger holdings of the securities of the Government now have an increased aggregate money claim on the receipts of the Exchequer. Also, the investing class, which has lost money, overlaps, both socially and by the ties of family, with the business class, which has made money, sufficiently to break in many cases the full severity of the loss. Moreover, in England, there has been a substantial recovery from the low point of 1920.