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regulation. This changing attitude of the people was well reflected in the national election of 1924, when the strongest argument which returned President Coolidge to office was the maintenance of business stability.

Not the least of the influences, however, which have made for American stability and growing confidence during the past five years has been the sometimes slow and halting but certain 'come-back' of the war-ridden nations of Europe. Each year has seen advances in this respect. All the European calamity prophets have been continuously discredited; especially since the German settlement of 1924 has confidence grown in the future of Europe. It is perhaps not too much to say that one of the great fundamental factors which has reacted profoundly on the psychology of the American people within recent years is the growing belief, especially among the thoughtful classes, that there is a real possibility of what might be termed a general renaissance developing on the European continent during the coming generation. Especially in business and financial circles in this country is the belief growing that a long period of peace is in store for the civilized nations of the Old World.

Such are the main constructive facts which, it seems to the writer, constitute the background of the long and sustained upward trend of security prices in Wall Street of the past few years.

Stock-market manipulation, rumor, overconfidence, seasonal changes in business, credit strain, and the like, always, of course, affect the financial markets currently and temporarily; but the longer trend is only to be accounted for by facts such as are outlined above.

No one can examine the panorama of business and finance in America

during the past half-dozen years without realizing that we are living in a new era; that we have been going through an economic revolution of the profoundest character. America's world of to-day is not the world of twenty years ago.

In fact, a new age is taking form throughout the entire civilized world; civilization is taking on new aspects. We are only now beginning to realize, perhaps, that this modern, mechanistic civilization in which we live is now in the process of perfecting itself. Political problems nowadays are looming less large in the minds of men than are economic factors. The public more and more are thinking in terms of industry, wealth production, efficiency of method, income, and profits. What this portends for the longer future, no one can say; but it is a fact of great significance, nevertheless.

III

Naturally enough, forecasts made in 1923, which correctly foreshadowed what subsequently has happened in the security markets, would have been looked upon as fantastic by the average man, and any present forecast of the coming few years may also be looked upon as fantastic. Nevertheless, there seem to be many reasons for believing that the coming period may prove quite as stable and constructive in this country as have the five past years, if not more so. And, though the prices of investment securities of standard quality look high to us to-day, they easily may, by 1933, be quoted in many cases at far higher values. Five years ago the prevailing income yield on high-grade securities ranged around 6 per cent. To-day it ranges, for the same type of investments, around 4 per cent. It may not be at all extraordinary, after five years more of constructive growth

and business development in this country, combined with the further stabilization which is in prospect in Europe, if income yields on high-grade investments fall far below 4 per cent. Already United States Government issues are yielding little more than in the days long before the war, when our government debt was merely nominal. Thirty years ago British consols were selling on a 2 per cent to 2 per cent basis. Is it unreasonable to suppose that American Government obligations in future years, assuming a continuance of the present trend, may sell on even a lower income basis than this?

There is every indication that the steady growth in the wealth and savings of the American people which has been going on without material interruption for years, and is still persisting, will continue through many years to come, thus adding steadily to and maintaining a relative plethora of available capital and credit; a plethora which has by no means been offset thus far by the immense outpour of new securities or the heavy borrowings of foreign peoples. Capital, credit, and confidence are practically interchangeable terms in our modern, mechanistic civilization. In the last analysis, their plenitude depends on faith; that is, faith in the future.

In looking to the future it is worth emphasizing that the modern hand-tomouth custom of carrying on the business machinery of the country seems destined to remain with us. Corporate interests and business men generally no longer tie up great sums in inventories, but tend to accumulate secondary and other cash reserves which normally have a directly easing effect on credit conditions. A comparison of the cash position of the typical large corporation to-day with that of half a dozen years ago is illuminating. Moreover,

the stable and nonspeculative trend of wholesale commodity prices, as measured over the longer period, is an insurance against the return of the old dangerous custom of speculating and profiteering in inventories; for, though raw material and goods prices have their seasonal trends, unless a long upward trend sets in, such as existed in the decade before the war, there is no inducement to profiteer or to accumulate for speculative advances. It seems probable that a stable or nonrising trend in raw materials and other costs will continue in this country for many years to come, just as was the case in Great Britain for thirty years or more after the Napoleonic Wars of a century ago. This was the period of England's greatest expansion and growth, it being coincident with the famous Industrial Revolution of the nineteenth century; a revolution in industry and wealthproducing methods which is being duplicated on an immensely higher scale in America to-day. The days of the great English Industrial Revolution were marked by the dislocation and unsettlement of labor and social conditions, but in our day we have largely advanced beyond these conditions.

Not the least important fact of this new age in which we live is the profound change which has taken place within recent years in the public attitude toward corporate enterprise. To-day it is estimated that more than 15,000,000 Americans own stocks and bonds and governmental obligations, and the number is still growing by leaps and bounds. When it is realized that twenty years ago not more than 500,000 security investors existed in the United States, the significance of this fact will be recognized. And in this connection it should be noted that a rapidly increasing percentage of the genuine investment capital in America is going into 'equities' - that is, into

preferred and common stocks of corporations as distinguished from bonds. To some extent, at least, does this account for the broad and stable condition, at high levels, of recent Wall Street markets. Not all of the 4,000,000share days are the work of speculators and manipulators.

It is not for a moment intended to imply that in this new era the oldfashioned principles of cause and effect have lost their meaning. There is still as much truth as ever in the axiom that what is pushed up in speculative Wall Street is certain sooner or later to be pushed down. We have had demonstration enough, during the past five years, as values have been rising, that rash stock-market speculation is as dangerous as ever. The impressive thing, however, has been the gradual, though fluctuating, upward trend from year to year and the relative maintenance of values at the higher levels, regardless of business reactions, of temporary recessions in profits, money-market fluctuations, or such seemingly abnormal things as the heavy outflow of gold to Europe. Though the latter are all matters of importance, and are certain in the future, as in the past, to affect currently the speculative security markets, yet in the long run they are all rela

tively unimportant as compared with the broad fundamentals which have been discussed.

The mistake that many, no doubt, make is to assume that times have not fundamentally changed. They have changed. We are living in a new era, and Wall Street, in its present condition and activity, broadly stated, is simply reflecting this new era. It will continue to reflect it as the years go by, and if, as has been assumed, the present national and world trends continue without material change through the next decade, it is obvious enough that security values during future years will rise to higher levels.

But it should finally be emphasized that, though we are in the midst of a new and remarkable era, we have not reached the millennium. We should not assume that business reactions, periods of recession and unsettlement, are to be abolished, or that Wall Street will enjoy an uninterrupted bull market indefinitely. Plenty of shocks will come in the months and years ahead to the speculator and gambler, and perhaps there will be more than one massacre of the innocents in Wall Street during the coming year or two. This seems likely enough, if only because of the vast increase in our 'lamb' population.

THE VATICAN AND ITALY

BY JULES SAUERWEIN

I

EVER Since that fine day in 1870 when the troops of King Victor Emmanuel II penetrated a breach they had made in the Porta Pia and entered the city of Rome, there has been an endless conflict between the Holy See, which used to possess the city, and its new sovereign, the Italian State. This conflict has, however, been tempered by discreet arrangements and secret negotiations. To-day the so-called Roman question has assumed a new aspect, owing to the fact that Italy is no longer ruled by a normal government, but by a sort of second pope, who has adopted the programme of giving this nation a new religion to be put beside its former religion.

But it would be impossible to understand why the negotiations between Mussolini and the Vatican have fallen through, and why an inevitable and increasing state of tension is going to separate these two powers still further, if we failed to recall the relations that have existed between the Church and the monarchy during the last fifty years. I shall sum up these relations in a few words, basing my statements not only upon ordinary publications, but upon statements by prelates and former accredited diplomats who have been close to the Holy See. In short, I am giving here the results of an investigation made on the spot only a few weeks ago.

In the first place, the beginning of the struggle is less tragic than we

ordinarily believe. The two persons most responsible were General Cadorna, Chief of Police at Rome and father of the man who was generalissimo of the Italian army during the last war, and Pantaleoni, a politician and a supporter of the General. Neither of these two men, however, had anything to do with the Carbonari or with the Freemasons. They were both practising Catholics who took Communion every Sunday, simple patriots eager to give the new Italy her historic capital. Being what they were, they were guided by a mixture of nationalist and religious idealism. They were the natural successors of those two eloquent priests, Gioberti and Romini, who pursued a vigorous campaign from 1830 to 1850 with a view to preventing the Church from continuing as the sovereign of Rome. During that period the kingdom of Italy did not exist, and these two good priests believed that they would be rendering a service to the Vatican if they were to relieve the sovereign pontiff of the temporal care of administering the Papal States. They thought that the Pope lost prestige and dignity by intervening in the petty affairs of his turbulent subjects, and that it would be much better for him merely to be a sovereign in his own palace, without having to govern a few hundred thousand individuals who lived near him.

It is admitted to-day that the sham assault made on Rome in 1870 was executed after a secret agreement had been drawn up with the Pope. Pius IX

wanted the fact to be well established that he was yielding to violence, but he was content to have this violence symbolized by a mere gesture and the firing of a single cannon.

Just when the Italian Government was installed in the Roman capital and the inhabitants of Rome had confirmed in a plebiscite their own desire to be Italians, the State tried to give the pontiff a special statute appropriate to the dignity of the chief of the Catholic Church. Italian statesmen were alive to the difficulties of the affair, for the Pope has two qualities - he is Bishop of Rome, and Head of the Universal Catholic Church. As Bishop of Rome he participates in Italian affairs, while as Head of the Church he has to be entirely independent of any state, for if he showed any connection with any government he would arouse the defiance of states to which other faithful subjects of his belong.

For many centuries this condition of independence took the form of a pontifical state over which the Pope exercised a sovereignty which legally disappeared when Rome became the capital of Italy. The Law of Guarantees, which to-day lies at the bottom of the debate and which dates from May 13, 1871, was at least intended to assure the Holy See total independence.

Many advantages might have been given to the pontiff by virtue of a freely accepted contract, had not Pius IX objected that this law of May 13, 1871, was a law, and not a concordat, forgetting that a concordat had been offered him three times. The law in question confirmed everything that previous negotiations had proposed, but it did not appear to assure sufficiently the sovereign character of the Holy Father. Pius IX, like his successor, Leo XIII, insisted on revindication of the status quo pure and simple that is to say, the reëstablishment

of the Papal States. What shocked him most in the proposed statute was that the Italian State offered him a stipend of thirty million lire a year, which he declared reduced him to the rank of a salaried person. Moreover, he could not accept the idea of having the functionaries and officials of his court all looked upon as Italian subjects. It may also be added in parentheses that one of the most curious consequences of the Law of Guarantees is that now any person of any nationality whatever is treated as an Italian subject once he enters the service of the pontiff.

In spite of the uncompromising attitude of Pius IX, the relations between him and Victor Emmanuel II were not very tragic, and I have it personally from one of the former French ambassadors at the Vatican that Pius IX often wrote affectionately to Victor Emmanuel, to whom he referred as 'il nostro dilettissimo figlio il rè Vittorio Emanuele.' In other words, he recognized Victor Emmanuel's title of king, but not the fact that he was King of Italy.

II

Contrary to what one might believe, it was Pope Leo XIII, whose compliance and moderation were so generally admired, who returned to a violent intransigent attitude. He showed moderation toward other countries, but never toward Italy.

Now that we have seen the archives that show how his policies worked, we discover that he spent his entire life patiently pursuing his dream of getting revenge on the kingdom of Italy. He abandoned the French monarchists, who had placed their hopes in him, and adopted the most friendly attitude toward the French Republic, in the hope of inciting France against Italy and driving the two nations to war.

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