Chambers's Journal of Popular Literature, Science, and Art, fifth series, no. 121, vol. III, April 24, 1886

LITERATURE, SCIENCE, AND ART, FIFTH SERIES, NO. 121, VOL. III, APRIL 24, 1886 ***

[Illustration:

CHAMBERS’S JOURNAL

OF

POPULAR

LITERATURE, SCIENCE, AND ART

Fifth Series

ESTABLISHED BY WILLIAM AND ROBERT CHAMBERS, 1832

CONDUCTED BY R. CHAMBERS (SECUNDUS)

NO. 121.—VOL. III. SATURDAY, APRIL 24, 1886. PRICE 1½_d._]

FINANCE WITHOUT FUNDS: OR, HOW TO FLOAT A COMPANY.

Amongst the many social and legal anomalies for which England has long been celebrated throughout the civilised world, there are none more extraordinary than the rules and customs which have reference to all sorts of gambling and obtaining money by chance or by hazard. An example of this was given a short time ago in a French paper, in which a correspondent relates how he saw a constable take into custody three or four men who were quietly laying wagers amongst themselves and comparing notes on one of the great races. This happened a few yards from the Strand, under the colonnade of the Lyceum Theatre. Half an hour afterwards—so the writer states—he was passing the door of a large house close by where the above capture had been made, and saw the same constable keeping order amongst a number of cabs and vehicles waiting for their owners, whilst on the steps and at the door were a number of gentlemen talking and comparing notes. He asked the policeman what the place was, and whether any public meeting was going on. Considering what he had previously seen, he was more than a little surprised when the guardian of the law informed him that ‘This is the Victoria Club, the great betting club; and these gents are making up their books—the Two Thousand stakes will be run to-morrow.’ The writer goes on to say, that however excellent English law may be as a whole, it is evidently not the same for all classes of men, and that the social morals of the poor seem to be better looked after than those of the rich.

But if the anecdote here related astonished the foreigner, how much more amazed would he be at the rules and regulations, written and unwritten, of what may be called the art of making money by speculation, or gambling. All, or most of us, would regard with horror—supposing a similar thing were possible—the introduction of such an establishment as that of Monte Carlo into England, and yet we tolerate and even encourage that which creates far more wretchedness and ruins many more families than even the gaming-tables. Every day, in almost every paper we take up, we see the most plausible and seductive advertisements, persuading all sorts and conditions of men to apply for shares in this or that Joint-stock Company, with assurances—in which truth is at least economised—of a sure and certain fortune to be made in a few weeks. There are comparatively few of us who have the opportunities of knowing the enormous amount of harm done in this country by these continued and continual temptations, or who can estimate the misery that has been caused in our midst by them.

Twenty years ago, when the Overend and Gurney failure spread such ruin amongst the upper and middle classes, this system, of trying to make money without labour, received a shock which for a time crushed it. But in the last decade, it has again sprung into existence, and has now reached a point at which it cannot be allowed to remain, and when steps must be taken, if not to suppress, at least to regulate and place under proper control what threatens to become an evil of no small magnitude.

Let any one who doubts this, take the trouble, for even one or two weeks, to note the number of Joint-stock Companies which are advertised, the amount of capital they require, and above all, the inducements of gain which they hold out to the unwary. Recently, in one week, there were registered nine new Joint-stock Companies, of which seven came forth in the columns of the daily and weekly papers, offering to all who would join them the most magnificent return for money invested. The aggregate capital of these Companies amounts to no less than _two millions one hundred thousand pounds_, which a confiding public is asked to subscribe, and this at a time when money is exceptionally scarce, and when the general aspect of public affairs both at home and abroad is very much the reverse of assuring. Nor need it be thought that this number of enterprises was exceptionally large, for, on the contrary, the average weekly advertisements of similar concerns is much greater both as to actual number and capital. But even of the former total, who is there who could deem it possible or probable that such an amount would be subscribed even on the limited liability system? How is it, then, that men waste their time and money in proposing what common-sense, to say nothing of business experience, must tell them can only end in disappointment? In the answer to the question is contained the whole history of Joint-stock Company ‘promoting’ as at present practised. That some of these enterprises are _bonâ fide_, and may give those who join them a fair return for their money, is no doubt true; but these are decidedly the exception to the rule. The real working of the vast majority of these proposed Companies is known to but a comparative few outside the circle in which financial schemes, often of great magnitude, are worked without funds.

There exists in the city of London a somewhat numerous class of men, who were formerly called ‘Promoters of Companies,’ but who have of late years assumed the more sounding title of Financial Agents. Let us suppose that to one of these gentlemen there occurs the happy thought of starting a ‘Fiji Islands Tramway Company.’ He loses no time in putting his scheme into shape; and the following may be taken as a fair example of how he carries out his intentions. His first work is to get together a Board of Directors; and this, supposing he has had a fair business experience, is not so difficult as might at first be supposed.

Together with the Financial Agent, another class of men has been called into existence by the great extension of the Joint-stock Company system. The gentlemen who help with their names the floating of such enterprises form a distinct class of themselves, and are termed ‘guinea-pigs,’ most probably from the fact of each ordinary director receiving a guinea for each meeting he attends. In order to be considered of any value as Director of a Company, a guinea-pig ought to have a handle to his name. A Lord, a Baronet, or even a Knight is looked upon as unexceptionable, and may almost command his own price; for it is not to be supposed that a director is to work for nothing. His value, like most other things, varies with the quality of the article. A peer who has a seat in the Upper House will probably not allow his name to appear on a prospectus under three hundred to four hundred pounds a year, besides some fifty or a hundred fully paid-up shares. And he is worth the money. The Financial Agents are well aware that when a peer of the realm is secured and heads the list of directors, the most difficult part of their task is accomplished. What remains will follow as a matter of course.

The next step is to write, or to get some one to write—for the promoter has generally a soul above literary composition—that portion of the prospectus beginning: ‘The object for which this Company is formed,’ and so on. This is quickly accomplished. There are certain gentlemen who describe themselves as connected with the press whose speciality is to compose these prospectuses. The charge for such a document varies from two to five guineas, and they are cheap even at the latter price. There is perhaps no kind of writing which requires more care or skill than this. In the case of the ‘Fiji Tramway Company,’ the writer must make it appear that no undertaking so purely philanthropical, or so sure to cause so much prosperity to Fiji, has ever been proposed either by government or by private enterprise; while at the same time he must, as it were, allow to escape from his pen the fact that a Tramway Company in the Fiji islands is certain to be exceedingly lucrative to all concerned. To repeat the old French joke, he must not lie in what he writes, but he must economise the truth. The prospectus written, and the officials, such as secretary, solicitors, bankers, &c., chosen, an expensive step comes next—namely, very long advertisements in the leading daily papers and elsewhere. But here also modern enterprise comes to the help of the promoter, and sees him over the difficulty, which to an outsider might seem almost insurmountable.

There are in London a number of advertising agents whose special business it is to undertake jobs of this kind on credit, their conditions being that they are to be paid out of the first moneys received from applicants for shares. If the applications are not sufficient, the promoter stands the loss; but it more frequently happens that the advertising agent receives something like fifty per cent. or more on what he has disbursed. It is in some respects risky, but it generally pays; and when it does so, the advertising agent makes an uncommonly good thing of it; and from one point of view, he deserves to do so. Without his aid, the Company would have probably proved a fiasco.

Once the prospectus is published, and applicants for shares commence to send in their one pound apiece, the promoter begins to recoup himself. Presently, the allotment of shares begins, and the simple-minded public have to pay one pound on each share. The prospectus distinctly affirms that a tramway in the Fiji islands is sure to be remunerative, and what true-born Briton would dispute a statement which a peer of the realm, a baronet, an M.P., and sundry military officers of high rank tacitly confirm by lending their names to it? There are 150,000 shares in the Company, of which not more than 10,000 have been applied for. But this is better than nothing. Even if a few thousand pounds are received from the would-be shareholders, the promoter is not to be pitied. With a matter of three to four thousand pounds, he can satisfy all claims, even to paying directors’ fees for the few times they have sat at the Board. The whole affair is then allowed to die a natural death; unless, indeed, as sometimes happens, some disappointed creditor petitions the Court that the Company shall be wound up. By some mysterious means, the promoter or his nominee is named liquidator; a solicitor, who, as a matter of course, does not get the berth for nothing, takes the matter in hand; and so long as there is any money left to divide, all those concerned work together, and once more matters are made pleasant all round.

And what happens when the money comes to an end? Why, what would you have? The liquidation of a Joint-stock Company can no more go on when there are no more funds, than a human body can live when the breath has left it. The business must then sink into oblivion, and for the present at least the Fiji islanders will have to do without their tramway.

And what about the unfortunates who were rash enough to apply for shares in the Company? Well, they must, like the rest of the world, be content to suffer for their own acts. No one persuaded them to apply for shares; they have lost their money; and no doubt some of them will be ruined. But what of that? If any one is to gain in a business of this kind, some one must lose. And how about the prospectus which induced them to part with their money? Many who have never been behind the scenes in the Company promoting business will doubtless think this sketch overdrawn. But let such persons inquire amongst those who know the real meaning of Finance without Funds. Some who read this paper will say there are in London Companies and Companies, and it may be that many, even that the great majority of these are blameless as to their representations and statements. It may be so; but what of the others?

In the year 1884, there were registered in London no fewer than 1541 Companies, with a capital amongst them of £138,491,428, and even this was a great falling-off from the number of previous years. In 1882, the registered capital of the Companies that had sprung up was £250,000,000; and in 1883 it amounted to £167,000,000. Of these, who shall say how many were _bonâ fide_, and how many were, in plain English, mere financial swindles—swindles of a far more objectionable kind, and infinitely more dangerous to the public at large, than many offences which have been classed as such, and for which those who have perpetrated them are now undergoing penal servitude?

And what of the numerous individuals who have been reduced to poverty, who have been, owing to their credulity, forced into the Bankruptcy Court, and condemned for the rest of their days to a miserable struggle for existence? It is very certain that neither Monte Carlo, nor Homburg when its gambling-tables were in existence, ever did, or ever will, work one-tenth part of the moral and social evil that what may be called commercial swindlers have in England during the last twenty years. And the evil is still on the increase.

The figures quoted above speak for themselves, and require little or no comment. Is it possible that in two consecutive years, 1883-84—both of which were noted as being exceptionally dull as regards commercial enterprise—such an enormous sum as upwards of four hundred and twenty millions could have found any legitimate source of employment by means of new Joint-stock Companies? Were it possible to work out such a problem, it would be a good thing if a far too confiding public could be authentically informed how much of the four hundred millions was subscribed for such Companies as the ‘Fiji Islands Tramway Company (Limited).’ Still more instructive would it be to know how many individuals who play at the game of amateur finance were ruined by the means they expected should make their fortune.

In England, we have the greatest possible objection to state interference in private affairs. As a rule, we are right. But are there not exceptions to this as to every rule? Is it not part of a government’s duty to protect the foolish and unwary from being made the dupes of men who trade upon the credulity of others, and who bring ruin to countless numbers? It is not the idle or depraved of society who are the victims of these spurious concerns. Unlike those of the gaming-tables, the Joint-stock Company swindles generally entrap and ruin men who try to increase their income by legitimate means. The following is a case which has come under the present writer’s personal knowledge.

A gentleman who had served nearly thirty years in the Indian Civil Service, came home with his well-earned income of one thousand a year and a few thousands at his banker’s. His children were grown up and well settled in life. He had no expensive habits; and beyond an occasional game at whist, limited to sixpenny points, and perhaps half-a-crown on the rubber, he never staked money in playing or betting. He took chambers in the West End, was a member of the Oriental and other clubs, and settled down apparently to pass a comfortable uneventful life, until summoned to go over to the majority. For a time all went quietly and well with him; but, like most Englishmen, he found it hard to live without work, and time was very heavy on his hands. While in this frame of mind, he, very unfortunately for him, as it turned out, met an old Indian friend, a retired military officer, who believed himself to be making a fortune in Joint-stock Companies. As was to be expected, this old friend took him into the City and introduced him to some so-called City men, individuals whose right to such a title would certainly be repudiated by members of the Stock Exchange, or by those engaged in any legitimate City business. By these new acquaintances he was at once marked down as a new, and therefore a very valuable addition to the numerous body of ‘guinea-pigs,’ who are so useful to the fraternity. It was soon ascertained that, in addition to a comfortable pension, he had by him a by no means despicable sum in ready-money. Very few days after these introductions, he was asked by a Financial Agent if he would accept a seat at the Board of a Company that was about to be floated. The terms to be, two hundred pounds a year paid him as a director, and fifty fully paid-up shares of ten pounds each.

He agreed willingly enough; and a day or two later, his name appeared in all the leading London papers in which the new Company was advertised. From that day the Anglo-Indian may be said to have entered on a new career. In six months he had become director in as many Companies. He went daily to the City, where he remained till the tide of busy men turned westward, and then went home with the comfortable conviction that he had made money and gained valuable information on financial matters. His clubs were now rarely honoured with his presence; and when he did visit any old Indian friend, his conversation was almost exclusively on the subject of this or that Company, of how much Mr A. had made, or Mr B. had lost, by such and such speculations, and of the good things in store for those who knew how to work the financial oracles. In short, he became, as too many retired Anglo-Indian Civil and Military servants do when they come home, helplessly insane on a subject of which he knew little or nothing, of which he had no experience, and in which he was the victim of designing knaves, who made a tool of him.

Matters went on pleasantly enough for a time; but at last a very decided change for the worse came. One by one the Companies of which he was a director collapsed; and when they were wound up, our friend found, to his dismay, that he had to book up the full value of the shares for which he had never paid. This pretty nearly cleared away the ready-money he had at his banker’s; but there was still worse behind.

Promoters of Companies and others whose business it is to finance without funds, have a friendly way of helping each other when pecuniary difficulties arise. Whether they want money to push on some new scheme, or whether only a much milder sum is required for daily expenses, they rarely refuse to put their names to stamped paper for each other. ‘Help me, and I’ll help thee,’ is held to be one of the standing articles of their social creed. And when a fairly well-to-do ‘guinea-pig’ becomes more or less intimate with these gentlemen, he is generally asked to join one or more of them in raising money by means of bills. Sometimes these useful substitutes for capital may be paid at maturity; but more often they are not met, and are replaced by similar documents. There are, however, occasions on which renewal of financial obligations is no longer possible, and when those who draw, or those who accept, have to book up without delay. Such was the lot of our friend whose short financial career is here briefly described. His name being no longer regarded as valuable, he was called on to find the funds for which he had made himself answerable. For a very short time his pension for three or four years was, so to speak, anticipated. He had given bills which he had not the ready-money to meet, and had to resort to loan offices, West End money-lenders, and other sources of raising money, which, together with the premiums he had to pay insurance offices, seeing that he could not get money without policies on his life, very soon utterly ruined him. He was, of course, made a bankrupt, and four-fifths of his pension was awarded to his creditors. To live on two hundred pounds a year is by no means an easy task to one who has never known the want of money; he dragged on a miserable existence for a couple of years, and then died from what might almost be called a broken heart.

The sketch here given is a true one, and may serve to show how it is that many men who dabble in amateur finance disappear from their usual haunts and come to irretrievable grief. Englishmen, no matter to what class they belong, must, as a rule, have something to do. Unlike any other people, except their American cousins, they are sooner tired and weary of idleness than of any amount of physical or mental labour. And this is particularly the case with Anglo-Indians, who, after, perhaps, a quarter of a century of hard work in the East, come home to enjoy their hard-earned pensions. For a short time—for a few months—they are content to do nothing; but after they have renewed old friendships, and revisited the scenes of their early life, and settled down to what must be a comparatively monotonous life, they find there is something wanting, and that employment or occupation is almost necessary to their very existence. The ways in which this want may be supplied are various. To some, politics and literature fill up, or help to fill up, the gap; racing and betting, hunting, shooting, and other sports are followed by their respective votaries amongst those who have more leisure than they know what to do with. But ‘going into the City’ has the double fascination that it combines pleasure with occupation and imaginary profit. Unfortunately, the unpleasant awakening too often follows the pleasant dream.