SECTION CLXXXVII.. History of the Rate of Interest.--Emigration of Capital.

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]

In Buenos Ayres, the producer or collector of export articles required the price to be paid usually a long time in advance (habilitacion), a very bold but necessary procedure, on account of his poverty. (Robertson, Letters on S. America, I, 174 ff.) In the corn trade in South Russia, at least one-half of the purchase money was required to be paid in advance, and even before shipment, the other half as soon as the corn arrived in the harbor, and, hence, sometimes, long before it was put on board. (W. Jacob, On the Corn Trade of the Black Sea, 23.) Compare Tooke, View of the Russian Empire, I, 339, Richesse de Hollande, II, 43, Storch, Handbuch, II, 61 seq. Russia was, about 1770, a credit-giving nation to the still poorer Persians. (Gmelin, Reise, III, 413.) The Spaniards also, in their American colonies, had always an expedition ready and waiting, the payment for which was made on the arrival of the second. (Depons, Voyage dans la Terre Firme, II, 368.) Moreover, active commerce simply, especially when circuitous, may be considered as in some way an international loan; and thus it is that the favorable "balance," by means of which claim-rights are obtained in foreign countries, is secured.]