| | | The Times not long since gave a list of the many | new schemes and joint-stock companies which have lately | been admitted to the Stock Exchange. Our contemporary’s | intention, of course, was to warn the public against | unreasonable speculation, and his advice was well timed. | Money was long much dearer than it now is, and whenever | money becomes very cheap, experience teaches us to | expect that it will be misspent. John Bull, as it has been | wisely observed, can stand a good deal, but he cannot | stand two per cent. The particular form of mania differs in | various years; but when the common and tried | employments of money yield but a low profit, recourse will | be had to new and untried ones, some of which will be | unprofitable, and a few of which will be absurd. It is only at | the outset of such manias that warning is of the least use | ~~ when they attain a certain growth, advice is thrown | away. Everybody is seen speculating; and what | everyone does must be judicious. | Foolish person No. II. imitates foolish person No. I. It was | so with the railway mania in 1845 ~~ it was so with the | general mania of 1825. The daily publication of new | joint-stock schemes was so conspicuous in those years that old | men of business, who remember the terrible results, have | been deeply impressed by the warning of the Times. | No-one can be more in | favour of pecuniary caution than ourselves. | No-one can hold more strongly that this is the | time for sound advice. People still have their money, and | this is the time for telling them to be content with moderate | returns from investments they understand, instead of | expecting large profits from undertakings they cannot | understand. Some reasons may, however, be offered for | the origination of new companies at this moment; and while | we wish to see judicious watchfulness, we have a dread of | nervous apprehension. If we begin with misplaced timidity, | we shall probably end in unreasonable rashness. | In the first place, there is the Limited Liability Act. The | object of this Act is to give new facilities for the foundation | of joint-stock companies. says Lord Brougham, | ; and that wisdom has decided that persons | desirous of embarking their capital in a commercial | undertaking shall be liable to the whole extent of their | fortunes, unless they combine with a certain number of | others, and go through a considerable number of legal | ceremonies incident to that combination. The Legislature | has not allowed persons to lend their capital to their | personal friends on the venture, so to speak, of a | commercial undertaking, and with a view of sharing in its | profits ~~ it has enacted that those who desire to embark | their capital in commerce shall combine with many | strangers, or be liable to the extreme penalty of losing all | they possess. The effect of such legislation is obviously a | bounty on the creation of joint-stock companies. If you will | not allow those who would gladly lend their money to their | friends, to lend it without an overwhelming risk, you must | not complain that they avail themselves of the remedy | which your legislation affords them, and that they associate | with many unknown people to do that which you forbid | them to do in conjunction with a few well-known people. | The necessary consequence of passing the Bill which | Parliament has passed, and rejecting that which it has | rejected, is the advertisement of useless companies with | admirable names. | Again, there is the more legitimate effect of recent | legislation. A great many undertakings really require large | aggregations of capital, and in unknown spheres of action | it is necessary to protect these by a limitation of the liability | of each capitalist. Before the passing of the late Act, this | required the consent of a Government department or of | Parliament. We have often thought that it was a great | advantage to railway companies that, in consequence of | their requiring peculiar powers and privileges, they had an | excuse for coming to Parliament and obtaining, as a | secondary accessory privilege, a limited responsibility for | their shareholders. Mere greatness of scale might have | sufficed to procure this concession for the large lines, and | the novelty of the undertaking would have been an excuse | for granting it to the first applicants. But successive | Presidents of the Board of Trade would have been much | puzzled to find a good excuse for granting a privilege | unknown to our common law to subsidiary companies | which undertook nothing rash and nothing new ~~ which | professed only to convey the people of small districts short | distances ~~ but which, from their number and dispersion | over the kingdom, have perhaps done even more than the | great lines to promote cheap travelling and continuous | civilization. This legislative anomaly has, however, at last | been removed. The formation of joint-stock companies, the | liability of which is confined to the capital subscribed, is | now open to the choice of the public without the leave of | bureau or Parliament. The natural and intended | consequence is the formation of many new schemes, | some good, some bad ~~ some for the benefit of all men, | some for the benefit of solicitors ~~ which now seem | huddled together, and which can only be gradually divided | by trail and experience. Older men of business scarcely, | perhaps, advert to the consequences of the new legislation. | Doubtless many of the schemes are pompous and foolish. | We have not a word to say for the “Cosmopolitan Coal | Association,” or the “Dying Man’s Life Insurance | Company;” but setting aside enterprises such as these, it is | probable that, if the Limited Liability Act be not an entire | error, a fair proportion of the new schemes are based on | rational prospects and legitimate commercial calculation. | There are also causes why the whole of these schemes | are brought out together, instead of being, as might have | been better, distributed over a longer time. This requires a | little explanation. Some time since we ventured to give the | odd name of blind capital to that portion of the | savings of the country which belongs to persons like | country clergymen, squires, and ladies, who, from | ignorance of the business world, are not commonly able to | employ them commercially. This spare capital, as | everyone knows, is generally | invested in Government securities, or left on deposit with | bankers and other monetary persons, who give interest for | it, and lend it again at a higher interest elsewhere. The | latter are, as it were, the middlemen by whom the | accumulations of passive hoarders are distributed through | the hands of active people of business. If we were to divide | capital into classes, we should say that it was blind capital | in the hands of the hoarders who cannot employ it, | loanable capital in those of bankers, and intelligent capital | when at the disposal of intelligent men of industry. | One of the ablest observers of our monetary phenomena | lately remarked in the Economist newspaper | that there never had been a time when the difference in the | rates of interest, as indicated by the price of consols | compared with the charge made by discounters on the | discount of bills, had been so great as during the last year. | This means that the income which quiet saving persons | can make of their money has been unusually different from | the charge which active men of business have been forced | to pay for the use of it. The reason is plain ~~ a new | employer of capital came into the market. The Government | was compelled by the enormous expenses of the late war | to withdraw many millions from the loan-markets of the | world. In the end, the effect of this would have reached the | first hoarder of money. if the war had gone on, the rate at | which Government would have been obliged to borrow | would not have been that indicated by consols at 00. when | the Bank minimum rate was six per cent. It would have | been more like the proportion of the old French was, when, | according to Mr. Newmarch, money in the pockets of | ordinary people was worth to them fully six per cent. | The lowness of profit derivable from their capital by | persons not in trade was the great incentive to the very | considerable number of joint-stock associations which | were forced into notice before the conclusion of the war. | Those associations were intended to meet the wants of | quiet persons who could make little of their money, and | who desired to make more. The slight progress in actual | business operations made by such companies was owing | to the other feature of the period ~~ the unusual rate | charged by lenders and discounters to persons in trade. | For the actual conduct of commercial operations, a | certainty of being able to borrow upon occasion is a | necessity, and as much so to joint-stock companies as | others. The Credit Mobilier of the Parisians has | this for its avowed object ~~ one of the conditions of its | charter was its affording to “societes anonymes” | the same accommodation that existing banks were giving | to private traders. In extensive transactions, scarcely any | amount of individual means will prevent the necessity of | sometimes borrowing ~~ perhaps no individual means | would enable the most cautious trader to transact business | if he knew that borrowing was impossible. The high rate | charged by the discount houses, the expectation that the | rate might go higher, and the fear, that, if the war continued, | it might be impossible to procure accommodation at any | price, inevitably kept many projected companies from | commencing operations and engaging in real business. | Their shares might be quoted in the market, but the issue | of scrip is a cheap and innocuous operation. It is the | contact with substantial work that is dangerously expensive. | When wages come to be paid for ~~ when ready money, in | a word, is required ~~ the difficulty of a time when cash is | scarce begins to be felt, and the credit of even the best | houses may be found wanting. This difficulty doubtless | prevented the starting of many companies during the last | months of the war, and its removal has caused an | accumulation of them during the first months of the peace. | On the whole, therefore, though admitting the apparently | absurd nature of many companies which have been | brought forward ~~ though maintaining that the moment | when money begins to be cheap is the exact period when | watchfulness is useful, and when warning may not be | thrown away ~~ we nevertheless think that there are | special reasons for the formation of many companies just | now, and that, though there is every ground for cautious | vigilance, there is none for anxious apprehension or | immediate alarm.