HISTORY OF THE RATE OF INTEREST.—EMIGRATION OF CAPITAL.
Midway between these classes of obstacles lies the very usual proceeding of highly civilized nations whose rate of interest is low, to transfer their capital into countries with a higher rate of interest, where the production of raw material is predominant.[187-1] This is most thoroughly accomplished by the emigration for good of the capitalists themselves; but also least frequently, because the natural attachment of man to his native country is usually too powerful, among the well-to-do classes, to be overcome by the attraction of a higher rate of interest. Temporary settlements in foreign countries are by far more frequent. Either the capitalist removes there himself, for a time, to return enriched, at farthest, in his old age; or he establishes a permanent branch of his business there, and superintends it through the agency of a trusted representative. The inhabitants of northern Italy, during the last centuries of the middle ages, maintained such establishments, not only for the purpose of carrying on commerce in merchandise along the shores of the Levant, but also the money trade in the principal countries of the west.[187-2] Similarly, the Hanseatic cities contemporaneously in the north and northeast of Europe; and, to-day, the English in almost all the important seaport cities in the world.[187-3] Such enterprises are always somewhat dangerous, especially in countries but little advanced in civilization.[187-4]
The best means to facilitate the migration of capital is credit. It is, indeed, true, that in international trade, ordinary private loans are seldom made. To make such loans would be to run too many risks; risks through a want of knowledge of persons or circumstances, on account of the difficulties in the way of continued supervision, and of being able to assert and defend one's rights away from home.[187-5] Loans are much more readily made to foreign states, to great corporations, or joint-stock companies, whose condition is well-known; and which, by reason of their perpetuity, have a deep and obvious interest in maintaining an honorable reputation. The issuing of certificates of stock, etc., has greatly facilitated international trade in capital.[187-6] But the mode of loaning in foreign parts preferred is to sell them commodities, and to require payment for them only after some time has elapsed, of course, with interest. Purchases, on the contrary, are paid for immediately, possibly even in advance.[187-7] The lower the rate of interest in a country is, the longer and more cheaply can it give credit to others; a new reason why the less civilized countries are particularly fond of trading with the most civilized. [187-8] [187-9]
[187-1] Nebenius, Der öffentliche Credit, 83 ff. After the end of the Napoleonic war, English capital flowed, by way of preference, towards South America, afterwards towards Spain and Portugal; after 1830, to North America; after 1840, towards Germany and France, to be invested in the construction of railways in the latter countries.
[187-2] The inhabitants of Asti began in 1226 to carry on the trade in money in trans-Alpine counties. In 1256, Louis IX. ordered 150 Asti money-changers to be thrown into prison, and he confiscated the money they had loaned in France, to the amount of over 800,000 livres. They were afterwards turned over to their enemy, the Count of Savoy, as usurers. (Muratori, Scr. Rerum Ital., XI, 142 seq.) About 1268, Louis IX. banished all money-changers of Lombard or Cahors origin: they were allowed only three months in which to collect their debts. (Sismondi, Histoire des Fr., VIII, 112.) About 1277, again all Italian money dealers were imprisoned, and 120,000 gold guldens extorted from them. (Giov. Villani, VII, 52.) After the Lombards had lost their freedom, the business passed into the hands of the Florentines and of the inhabitants of Lucca. (Sismondi, Gesch. der ital. Republiken, IV, 602; Dante, Inferno, XXI, 38.) Great part played by the brothers Franzesi as dealers in articles of luxury, and loaners on pledge etc., at the court of Philip IV. They seem to have instigated the persecution of other Italian money dealers, in 1291, from jealousy. (Sismondi, Histoire des Fr., VIII, 429 seq.) Great losses of the Florentines by the English-French war in 1337: Edward III. remained in the debt of his bankers Peruzzi and Bardi to the amounts respectively of 135,000 and 184,000 marks sterling; so that they and many others failed. France imprisoned all the Italian money dealers, and compelled them to pay a large amount of ransom-money. (G. Villani, XI, 71.) In 1376, the Pope who was engaged in a struggle with Florence, called upon all princes to despoil all Florentine merchants within their jurisdiction of their wealth, and to sell them as slaves; and France and England actually did so. (Sismondi, Geschichte der ital. Republiken, V, 257 seq., VII, 74.)
[187-3] Shortly before the French Revolution, Cadiz had over 50 wholesale merchants against 30 retail, 30 modistes and at least 100 tradesmen from France. (Bourgoing, Tableau, III, 130.) Commercial colonies!
[187-4] Thus even the emperor Paul of Russia caused the property of English factors to be confiscated. The galleons which Holland and England captured in the Spanish war of succession belonged mostly to Amsterdam houses. (Ranke, Franz. Gesch., IV, 226.) Even Galiani, Della Moneta, IV, 3, thinks that, on this account, such commerce is incompatible with the warlike spirit. It is certain, however, that a government like the English would do well not to permit a war with such countries as Russia or the United States to break out too suddenly, that their subjects might have time to collect all their outstanding dues. When, in 1855, it was reported in London that all Russian drafts were dishonored, people looked upon that fact as the surest sign of coming war. English merchants had called in their advances to Russia during the preceding economic period, and refused to make new ones.
[187-5] This of course disappears when the borrowing country is dependent on the loaning country. Thus, the Canton of Uri formerly prohibited the inhabitants of the Livinerthal to borrow capital except from them. It is said that, at the beginning of this century, the Uri capital then loaned amounted to one-half a million florins, that is, an average of 250 per householder. Now it is not over one-fifth of that amount. (Franscini, Canton Tessin, 126.) Think also of the plantation colonies! But even the East Indies may be looked upon as a species of colony for England. Hence Fawcett, Manual, 105, is rightly of the opinion that no other country has the possibility of being as useful to the East Indies as England. And in fact, the East Indian railways obtained of their capital of £82,500,000, only a very small part, £800,000, in India itself, a very small proportion of which latter sum was subscribed by the native population. (Ausland 24, Juli, 1869.)
[187-6] What England is to-day, the Italian commercial cities were in the 16th and 17th centuries, viz.: the chief market for foreign loans. (Compare Mun, England's Treasure, 1664, ch. 4.) The Genovese loaned money in foreign countries at 2 and 3 per cent. (Montanari, Della Moneta, 1867, cap. 2.) It is said that the Dutch, in 1778 invested 1,500 millions of livres in foreign national debts, especially those of France and England. (Richesse de Hollande, II, 178.) According to J. G. Forster, Schriften, III, 335, in 1781 alone, in Europe, 800 millions loaned capital. The Niederl. Jaerboek of 1789, p. 729, estimates the amount of interest coming from abroad, English and French not included, at from 50 to 60 millions of florins. About 1844, according to official estimates, 1,000 million florins in foreign loans, that is one-third of whole national income. (Allgemeine Zeitung, 1844, No. 35.) Now, Belgium, 300 million florins, in Austrian evidences of indebtedness. (Quarterly Review, October, 1862, 402.) According to Baumstark, Staatswissensch. Versuche über Staatscredit, etc., 1833, 77, foreign nations, between 1818 and 1825, borrowed in England £49,000,000; and, about the same time, England participated in Russian, French and North American loans to the extent of £55,500,000. It is said that there were, in 1843, £25,000,000 English capital in the canals, railroads and banks of the United States. (Porter, Progress of the Nation, III, 4, 634.)
[187-7] It is evident, from many of Demosthenes' orations on private matters, that Athens was in the habit of advancing the commercial capital needed by a great part of the inhabitants of the Mediterranean coast. Many colonial cities, Phaselis, for instance, had the very worst reputation in this respect. They were virtually pirates as regards Athens. (Adv. Lacrit., 931.) Here also it seems that the goods taken for the loan had to be brought to Athens. (941.) On the regular advances of Prussian merchants to their Lithuanian and Polish vendors, in the 15th century, while the former were forbidden even to buy on credit, see Hirsch, Geschichte des Danziger Handels, 167, 177. In Colbert's time, the Dutch gave 12 months credit in Europe. (J. De Wit, Mémoires, 184.) In England, Child perceives a great advance in this: that in 1650, in all business in the interior, there was a credit of 3 to 18 months given; and in 1669, everything was paid for in cash. (Discourse on Trade, 45.) Concerning previous times, see W. Raleigh, Observations touching Trade and Commerce with the Hollander and other nations, 1603. (Works, VIII, 951 ff.) In North America, merchants in the interior frequently purchase their goods of importers on 6 months credit. (Tellkampf, Beiträge, I, 52.) In the West Indies, about the end of the last century, the English gave a credit, generally, of from 12 to 16 months. (B. Edwards, History of the British West Indies, II, 383.) In Brazil, in the case of imports, 4, 8 and even 12 months credit; payment in monthly installments, and frequently even longer delay, without interest. In the case of exports, when cash payments are not made, 1 per cent. a month, (v. Reden, Garn und Leinenhandel, 332.) Recently only about 40 per cent. of foreign advances are made at 12 to 20 months, 60 per cent. at from 50 to 70 days. (Tübing. Zeitschr., 1864, 517.)