£.-12

56

Orders because they have been infringed. The analogy, however, is incomplete. In one case we are dealing with a matter of principle ; in the other one of mere policy and convenience. The law, moreover, is not openly evaded without fear of punishment; while the Standing Order is. The pickpocket is not punished only because his offence cannot be brought home to him; the Standing Order is evaded by men who are in evidence, but whom the House of Commons cannot punish. A rule which can be set aside in this fashion requires modification in one way or another, and none of those who yesterday opposed Sir Arthur Otway's motion suggested any means of rendering the Standing Order effective for the ends they desire to attain. It will be cheerfully conceded by every one that, according to common-sense and sound business principles, profits ought to be earned before they are divided. Indeed, we may go further, and say that nothing but the general approbation accorded to the venerable but illogical aphorism concerning the'counting of chickens before they are hatched could justify us in even contemplating the possibility of dividing what is as yet non-existent. If it could be shown that there are persons weak enough to suppose that a railway not yet constructed is earning profits it might become a question whether the Education Department should not insist upon maintaining the prohibition against payment of interest out of capital. But, as a matter of fact, the most credulous investor is aware that the interest he receives while the line is in process of construction cannot be profit. If he ever thinks at all he must be quite aware that he is really receiving back a portion of his own capital, and that what remains in the form of shares is by exactly so much less valuable. Yet experience shows that this process of paying out of one pocket and receiving into the other exercises so magical a charm over the investing mind that a railway which promises to pay interest during construction will obtain money, while one which does not will fail. On promise of 4 per cent, for his money a man will invest £100, knowing that at the end of a couple of years he will have only ninety-two pounds' worth of labour and material for it; while without any interest he will not invest, although ne knows that in two years he will have the worth of the whole £100 in property. The interest-loving investor is in the position of a dog who dines off a joint of his own tail —if, indeed, he escapes the yet worse fate of the animal whose astute master is said to have dined off the tail and given only the bone to its owner. But then the whole transaction is so open and aboveboard that there is nothing to be said. If people prefer to build their railways in that fashion, there is no reason why the Legislature should step in to hinder them. Interest upon the money used in constructing a railway is an item of cost as unavoidable as the wages of the navvies or the fees of the engineer. The shareholder has to pay it somehow, and it would be positively cruel to interfere with a process so ingenious and delightful that it actually makes him feel as if the interest were profit. At first sight it looks as if the interest paid to shareholders were an actual addition to the cost of the concern. But it would in any case have to be paid to somebody. Suppose that the shareholders did not step in until the line was finished, and that the contractor had borrowed five millions from his banker to carry on the works. They would have to pay the interest on that money in the purchase price. But if they find the money to start with, they receive the interest instead of the banker, and are charged with it exactly as if it had been paid to the banker instead of to themselves. Sir J. Pease and others are much concerned for the small investor, the little shopkeeper, or country clergyman, who may be tempted by the promise of interest to go into undertakings of an unsound kind. But no legislation can help people who can be tempted to invest capital on the promise of 4 per cent, for a year or two, without knowing anything of the prospects of the line when finished. The mere payment of interest during construction does not make the enterprise one iota better or worse ; and if, notwithstanding the ample warning secured to them by Sir A. Otway's amendment, people mistake the nature of the advantages offered them, they must be far beyond the reach of legislative assistance. It may, indeed, be laid down as a sound general principle that small investors have no business to speculate in new lines. They can know 7 nothing about their prospects, they can hope for no share in their management; and if they take shares at all they are gambling just as truly as if they backed a horse for the Derby. It is all very well for men who have money to play with, or who can go into the thing on a big scale; but the small investor should stick to certainties. He may rely upon it that, if a new line is judged by those who know to be a very good thing, nobody will ask him for a penny. So long as people are simple enough to think that a number of financiers lay their heads together only to put good investments in their way, so long, we fear, will there be unfortunate small investors, no matter what may be the Standing Orders of the House of Commons.

Enclosure 6 in No. 3. [Extract from the Times, Wednesday, 27th June, 1883.] Debate in House of Lords, Tuesday, 26th June.—Eailway Bills : Payment op Inteeest out of Capital. The Earl of Bedesdale said he wished to ask the careful attention of their Lordships to the subject of altering the Standing Order relating to the payment of interest out of capital. He wished most distinctly that their Lordships should determine the matter according to their own judgment, and let him know what their opinion was. He would not have brought the question before their Lordships at that period of the session were it not for the Order that had been adopted by the House of Commons. The subject was fully debated in the House of Commons; and, on a division, the proposed alteration of the Order was carried by 131 to 123. The division was, therefore, a narrow one; but then the whole question was raised, and the matter was of great importance. Some slight alterations had been made in the Order as it came from the House of Commons. As their Lordships were aware, there was a Standing Order against the payment of interest or dividend out of capital. That Order, as it stood at present, was~ made in 1848, and had since practically governed the action of that House with regard to Eailway Bills. At the same time, in one or two instances,