THE BENEFITS OF INTERNATIONAL FINANCE
When once we have recognized how close is the connection between finance
and trade, we have gone a long way towards seeing the greatness of the
service that finance renders to mankind, whether it works at home or
abroad. At home we owe our factories and our railways and all the
marvellous equipment of our power to make things that are wanted, to the
quiet, prosaic, and often rather mean and timorous people who have saved
money for a rainy day, and put it into industry instead of into
satisfying their immediate wants and cravings for comfort and enjoyment
It is equally, perhaps still more, true, that we owe them to the brains
and energy of those who have planned and organized the equipment of
industry, and the thews and sinews of those who have done the heavy
work. But brain and muscle would have been alike powerless if there had
not been saving folk who lent them raw material, and provided them with
the means of livelihood in the interval between the beginning of an
industry and the day when its product is sold and paid for.
Abroad, the work of finance has been even more advantageous to mankind,
for since it has been shown that international finance is a necessary
part of the machinery of international trade, it follows that all the
benefits, economic and other, which international trade has wrought for
us, are inseparably and inevitably bound up with the progress of
international finance. If we had never fertilized the uttermost parts of
the earth by lending them money and sending them goods in payment of the
sums lent, we never could have enjoyed the stream that pours in from
them of raw material and cheap food which has sustained our industry,
fed our population, and given us a standard of general comfort such as
our forefathers could never have imagined. It is true that at the same
time we have benefited others, besides our own customers and debtors.
We have opened up the world to trade and other countries reap an
advantage by being able to use the openings that we have made. It is
sometimes argued that we have in fact merely made the paths of our
competitors straight, and that by covering Argentina with a network of
railways and so enormously increasing its power to grow things and so to
buy things, we have been making an opportunity for German shipbuilders
to send liners to the Plate and for German manufacturers to undersell
ours with cheap hardware and cotton goods. This is, undoubtedly, true.
The great industrial expansion of Germany between 1871 and 1914, has
certainly been helped by the paths opened for it all over the world by
English trade and finance; and America, our lusty young rival, that is
gaining so much strength from the war in which Europe is weakening
itself industrially and financially, will owe much of the ease of her
prospective expansion to spade-work done by the sleepy Britishers. It
may almost be said that we and France as the great providers of capital
to other countries have made a world-wide trade possible on its present
scale. The work we have done for our own benefit has certainly helped
others, but it does not, therefore, follow that it has damaged us.
Looking at the matter from a purely business point of view, we see that
the great forward movement in trade and finance that we have led and
fostered, has helped us even by helping our rivals. In the first place,
it gives us a direct benefit as the owners of the mightiest fleet of
merchant ships that the world has seen. We do nearly half the world's
carrying trade, and so have reason to rejoice when other nations send
goods to the ports that we have opened. By our eminence in finance and
the prestige of a bill of exchange drawn on London, we have also
supplied the credit by which goods have been paid for in the country of
their origin, and nursed until they have come to the land in which they
are wanted, and even until the day when they have been turned into a
finished product and passed into the hands of the final consumer. But
there is also the indirect advantage that we gain, as a nation of
producers and financiers, from the growing wealth of other nations. The
more wealthy they grow, the more goods they produce want to sell to us,
and they cannot sell to us unless they likewise buy from us. If we
helped Germany to grow rich, we also helped her to become one of our
best customers and so to help us to grow rich. Trade is nothing but an
exchange of goods and services. Other countries are not so philanthropic
as to kill our trade by making us presents of their products and from
the strictly economic point of view, it pays us to see all the world,
which is our market, a thriving hive of industry eager to sell us as as
it can. It may be that as other countries, with the help of our capital
and example, develop industries in which we have been pre-eminent, they
may force us to supply them with services of which we are less proud to
be the producers. If, for example, the Americans were to drive us out of
the neutral markets with their cotton goods, and then spent their
profits by revelling in our hotels and thronging out theatres and
shooting in Highland deer forests, and buying positions in English
society for their daughters we should feel that the course of industry
might still be profitable to us, but that it was less satisfactory. On
the other hand, it would be absurd for us to expect the rest of the
world to stand still industrially in order that we may make profits from
producing things for it that it is quite able to make for itself.
For the present we are concerned with the benefits of international
finance, which have been shown to begin with its enormous importance as
the handmaid of international trade. Trade between nations is desirable
for exactly the same reason as trade between one man and another,
namely, that each is, naturally or otherwise, better fitted to grow or
make certain things, and so an exchange is to their mutual advantage. If
this is so, as it clearly is, in the case of two men living in the same
street, it is evidently very much more so in the case of two peoples
living in different climates and on different soils, and so each of
them, by the nature of their surroundings, able to make and grow things
that are impossible to the other. English investors, by developing the
resources of other countries, through the machinery of international
finance, enable us to sit at home in this inclement isle, and enjoy the
fruits of tropical skies and soils. It may be true that if they had not
done so we should have developed the resources of our own country more
thoroughly, using it less as a pleasure ground, and more as a farm and
kitchen garden, and that we should have had a larger number of our own
folk working for us under our own sky. Instead of thriving on the
produce of foreign climes and foreign labour that comes to us to pay
interest, we should have lived more on home-made stuff and had more
healthy citizens at work on our soil. On the other hand, we should have
been hit hard by bad seasons and we should have enjoyed a much less
diversified diet. As it is, we take our tea and tobacco and coffee and
sugar and wine and oranges and bananas and cheap bread and meat, all as
a matter of course, but we could never have enjoyed them if
international trade had not brought them to our shores, and if
international finance had not quickened and cheapened their growth and
transport and marketing. International trade and finance, if given a
free hand, may be trusted to bring about, between them, the utmost
possible development of the power of the world to grow and make things
in the places where they can be grown and made most cheaply and
abundantly, in other words, to secure for human effort, working on the
available raw material, the greatest possible harvest as the reward of
its exertions.
All this is very obvious and very material, but international finance
does much more, for it is a great educator and a mighty missionary of
peace and goodwill between nations. This also is obvious on a moment's
reflection, but it will be rejected as a flat mis-statement by many
whose opinion is entitled to respect, and who regard international
finance as a bloated spider which sits in the middle of a web of
intrigue and chicanery, enticing hapless mankind into its toils and
battening on bloodshed and war. So clear-headed a thinker as Mr. Philip
Snowden publicly expressed the view not long ago that "the war was the
result of secret diplomacy carried on by diplomatists who had conducted
foreign policy in the interests of militarists and financiers,"[4] Now
Mr. Snowden may possibly be right in his view that the war was produced
by diplomacy of the kind that he describes, but with all deference I
submit that he is wholly wrong if he thinks that the financiers, as
financiers, wanted war either here or in Germany or anywhere else. If
they wanted war it was because they believed, rightly or wrongly, that
their country had to fight for its existence, or for something equally
well worth fighting for, and so as patriotic citizens, they accepted or
even welcomed a calamity that could only cause them, as financiers, the
greatest embarrassment and the chance of ruin. War has benefited the
working classes, and enabled them to take a long stride forward, which
we must all hope they will maintain, towards the improvement in their
lot which is so long overdue. It has helped the farmers, put fortunes in
the pockets of the shipowners, and swollen the profits of any
manufacturers who have been able to turn out stuff wanted for war or for
the indirect needs of war. The industrial centres are bursting with
money, and the greater spending power that has been diffused by war
expenditure has made the cheap jewellery trade a thriving industry and
increased the consumption of beer and spirits in spite of restrictions
and the absence of men at the front. Picture palaces are crammed
nightly, furs and finery have had a wonderful season, any one who has a
motor car to sell finds plenty of ready buyers, and second-hand pianos
are an article that can almost be "sold on a Sunday." But in the midst
of this roar of humming trade, finance, and especially international
finance, lies stricken and still gasping from the shock of war. When war
comes, the price of all property shrivels. This was well known to
Falstaff, who, when he brought the news of Hotspur's rebellion, said
"You may buy land now as cheap as stinking mackerel," To most financial
institutions, this shrivelling process in the price of their securities
and other assets, brings serious embarrassment, for there is no
corresponding decline in their liabilities, and if they have not founded
themselves on the rock of severest prudence in the past, their solvency
is likely to be imperilled. Finance knew that it must suffer. The story
has often been told, and though never officially confirmed, it has at
least the merit of great probability, that in 1911 when the Morocco
crisis made a European war probable, the German Government was held back
by the warning of its financiers that war would mean Germany's ruin. It
is more than likely that a similar warning was given in July, 1914, but
that the war party brushed it aside. And now that war is upon us, we are
being warned that high finance is intriguing for peace. Mr. Edgar
Crammond, a distinguished economist and statistician, published an
article in the _Nineteenth Century_ of September, 1915, entitled "High
Finance and a Premature Peace," calling attention to this danger and
urging the need for guarding against it. First too bellicose and now too
pacific, High Finance is buffeted and spat upon by men of peace and men
of war with a unanimity that must puzzle it. It can hardly err on both
sides, but of the two accusers I think that Mr. Crammond is much more
likely to be right. But my own personal opinion is that both these
accusers are mistaken, that the financiers never wanted war, that if
(which I beg to doubt) diplomacy conducted in their interests produced
the war, that was because diplomacy misunderstood and bungled their
interests, and that now that the war is upon us, the financiers, though
all their interests urge them to want peace, would never be parties to
intrigues for a peace that was premature or ill-judged.
Perhaps I have a weakness for financiers, but if so it is entitled to
some respect, because it is based on closer knowledge of them than is
owned by most of their critics. For years it was my business as a City
journalist, to see them day by day; and this daily intercourse with
financiers has taught me that the popular delusion that depicts them as
hard, cruel, ruthless men, living on the blood and sweat of humanity,
and engulfed to their eyebrows in their own sordid interests, is about
as absurd a hallucination as the stage Irishman. Financiers are quite
human--quiet, mild, good-natured people as a rule, many of them spending
much time and trouble on good works in their leisure hours. What they
want as financiers is plenty of good business and as little as possible
disturbance in the orderly course of affairs. Such a cataclysm as the
present war could only terrify them, especially those with interests in
every country of the world. When war comes, especially such a war as
this, financing in its ordinary and most profitable sense has to put up
its shutters. Nobody can come to London now for loans except the
British, or French, Governments, or, occasionally, one of our colonies.
Any other borrower is warned off the field by a ruthless Committee whose
leave has to be granted before dealings in new securities are allowed on
the Stock Exchange. But when the British Government borrows, there are
no profits for the rank and file of financiers. No underwriting is
necessary, and the business is carried out by the Bank of England. The
commissions earned by brokers are smaller, and the whole City feels that
this is no time for profit-making, but for hard and ill-paid work, with
depleted staffs, to help the great task of financing a great war. The
Stock Exchange is half empty and nearly idle. It is tied and bound by
all sorts of regulations in its dealings, and its members have probably
suffered as severely from the war as any section of the community. The
first interest of the City is unquestionably peace; and the fact that
the City is nevertheless full of fine, full-flavoured patriotic fervour
only shows that it is ready and eager to sink its interests in favour of
those of its country.
Every knot that international finance ties between one country and
another makes people in those two countries interested in their mutual
good relations. The thing is so obvious, that, when one considers the
number of these knots that have been tied since international finance
first began to gather capital from one country's investors and place it
at the disposal of others for the development of their resources, one
can only marvel that the course of international goodwill has not made
further progress. The fact that it is still a remarkably tender plant,
likely to be crushed and withered by any breath of popular prejudice, is
rather a comforting evidence of the slight importance that mankind
attaches to the question of its bread and butter. It is clear that a
purely material consideration, such as the interests of international
finance, and the desire of those who have invested abroad to receive
their dividends, weighs very little in the balance when the nations
think that their honour or their national interests are at stake. Since
the gilded cords of trade and finance have knit all the world into one
great market, the proposition that war does not pay has become
self-evident to any one who will give the question a few minutes'
thought. International finance is a peacemaker every time it sends a
British pound into a foreign country. But its influence as a peacemaker
is astonishingly feeble just for this reason, that its appeal is to an
interest which mankind very rightly disregards whenever it feels that
more weighty matters are in question. The fact that war does not pay is
an argument that is listened to as little by a nation when its blood is
up, as the fact that being in love does not pay would be heeded by an
amorous undergraduate.
If, then, the voice of international finance is so feeble when it is
raised against the terrible scourge of war, can it have much force on
the rare occasions when it speaks in its favour? For there is no
inconsistency with the view that finance is a peacemaker, if we now
acknowledge that finance may sometimes ask for the exertion of force on
its behalf. As private citizens we all of us want to live at peace with
our neighbours, but if one of them steals our property or makes a public
nuisance of himself, we sometimes want to invoke the aid of the strong
arm of the law in dealing with him. Consequently, although it cannot be
true that finance wanted war such as this one, it cannot be denied that
wars have happened in the past, which have been furthered by financiers
who believed that they suffered wrongs which only war could put right.
The Egyptian war of 1882 is a case in point, and the South African war
of 1899 is another.
In Egypt international finance had lent money to a potentate ruling an
economically backward people, without taking much trouble to consider
how the money was to be spent, or whether the country could stand the
charge on its revenues that the loans would involve. The fact that it
did so was from one point of view a blunder and from another a crime,
but this habit of committing blunders and crimes, which is sometimes
indulged in by finance as by all other forms of human activity, will
have to be dealt with in our next chapter, when we deal with the evils
of international finance. The consequence of this blunder was that Egypt
went into default, and England's might was used on behalf of the
bondholders who had made a bad investment. This fact has been put
forward by Mr. Brailsford, in his very interesting book on "The War of
Steel and Gold," and by other writers, to show that our diplomacy is the
tool of international finance, and that the forces created by British
taxpayers for the defence of their country's honour, are used for the
sordid purpose of wringing interest for a set of money-grubbers in the
City, out of a poor and down-trodden peasantry overburdened by the
exactions and extortions of their rulers. Mr. Brailsford, of course,
puts his case much better than I can, in any brief summary of his views.
He has earned and won the highest respect by his power as a brilliant
writer, and by his disinterested and consistent championship of the
cause of honesty and justice, wherever and whenever he thinks it to be
in danger. Nevertheless, in this matter of the Egyptian war I venture to
think that he is mistaking the tail for the dog. Diplomacy, I fancy, was
not wagged by finance, but used finance as a very opportune pretext. If
Egypt had been Brazil, it is not very likely that the British fleet
would have shelled Rio de Janeiro. The bondholders would have been
reminded of the sound doctrine, _caveat emptor_, which signifies that
those who make a bad bargain have only themselves to blame, and must
pocket their loss with the best grace that they can muster. As it was,
Egypt had long ago been marked out as a place that England wanted,
because of its vitally important position on the way to India. Kinglake,
the historian, writing some three-quarters of a century ago, long before
the Suez Canal was built, prophesied that Egypt would some day be ours.
In Chapter XX. of "Eothen," comes this well known passage on the Sphynx
(he spelt it thus):--
"And we, we shall die, and Islam will wither away, and the
Englishman, leaning far over to hold his loved India, will
plant a firm foot on the banks of the Nile, and sit in the
seats of the Faithful, and still that sleepless rock will
lie watching, and watching the works of the new, busy race,
with those same sad, earnest eyes, and the same tranquil
mien everlasting."
After the building of the Canal, the command of this short cut to India
made Egypt still more important. England bought shares in the Canal, so
using finance as a means to a political object; and it did so still more
effectively when it used the Egyptian default and the claims of English
bondholders as an excuse for taking its seat in Egypt and sitting there
ever since. The bondholders were certainly benefited, but it is my
belief that they might have whistled for their money until the crack of
doom if it had not been that their claims chimed in with Imperial
policy. It may have been wicked of us to take Egypt, but if so let us
lay the blame on the right doorstep and not abuse the poor bondholder
and financier who only wanted their money and were used as a stalking
horse by the Machiavellis of Downing Street. Mr Brailsford's own account
of the matter, indeed, shows very clearly that policy, and not finance,
ruled the whole transaction.
In South Africa there was no question of default, or of suffering
bondholders. There was a highly prosperous mining industry in a country
that had formerly belonged to us, and had been given back to its Dutch
inhabitants under circumstances which the majority of people in this
country regarded as humiliating. On this occasion even the pretext was
political. It may have been that the English mine-owners thought they
could earn better profits under the British flag than under the rule of
Mr. Kruger, though I am inclined to believe that even in their case
their incentive was chiefly a patriotic desire to repaint in red that
part of the map in which they carried on their business. Certainly their
grievance, as it was put before us at home, was frankly and purely
political. They said they wanted a vote and that Mr. Kruger would not
give them one. That acute political thinker, Mr. Dooley of Chicago,
pointed out at the time that if Mr. Kruger "had spint his life in a rale
raypublic where they burn gas," he would have given them the votes, but
done the counting himself. But Mr. Kruger did not adopt this cynical
expedient, and public opinion here, though a considerable minority
detested the war, endorsed the determination of the Government to
restore the disputed British suzerainty over the Transvaal into actual
sovereignty. Subsequent events, largely owing to the ample
self-government given to the Transvaal immediately after its conquest,
have shown that the war did more good than harm; and the splendid defeat
of the Germans by the South African forces under General Botha--our most
skilful opponent fifteen years ago--has, we may hope, wiped out all
traces of the former conflict. But what we are now concerned with is the
fact, which will be endorsed by all whose memory goes back to those
days, that the South African war, though instigated and furthered by
financial interests, would never have happened if public opinion had not
been in favour of it on grounds which were quite other than
financial--the desire to bring back the Transvaal into the British
Empire and to wipe out the memory of the surrender after Majuba, and
humanitarian feeling which believed, rightly or wrongly, that the
natives would be treated better under our rule. These may or may not
have been good reasons for going to war, but at least they were not
financial.
Summing up the results of this rather discursive chapter we see that the
chief benefit conferred on mankind by international finance is a
quickening of the pace at which the wealth of the world is increased and
multiplied, by using the capital saved by old countries for fostering
the productive power of new ones. This is surely something solid on the
credit side of the balance sheet, though it would be a good deal more so
if mankind had made better progress with the much more difficult problem
of using and distributing its wealth. If the rapid increase of wealth
merely means that honest citizens, who find it as hard as ever to earn a
living, are to be splashed with more mud from more motor-cars full of
more road hogs, then there is little wonder if the results of
international finance produce a feeling of disillusionment. But at least
it must be admitted that the stuff has to be grown and made before it
can be shared, and that a great advance has been made even in the
general distribution of comfort. If we still find it hard to make a
living, that is partly because we have very considerably expanded,
during the course of the last generation or two, our notion of what we
mean by a living.
As to the sinister influence alleged to be wielded by international
finance in the councils of diplomacy, it has been shown that war on a
great scale terrifies finance and inflicts great distress on it. To
suppose, therefore, that finance is interested in the promotion of such
wars is to suppose that it is a power shortsighted to the point of
imbecility. In the case of wars which finance is believed with some
truth to have helped to instigate, we have seen that it could not have
done so if other influences had not helped it. In short, both the
occurrence of the present war, and the circumstances that led up to war
in Egypt and South Africa, have shown how little power finance wields in
the realm of foreign politics. In the City if one suggests that our
Foreign Office is swayed by financial influences one is met by
incredulous mockery, probably accompanied by assertions that the
Foreign Office is, in fact, neglectful, to a fault, of British financial
interests abroad, and that when it does, as in China, interfere with
financial matters, it is apt to tie the hands of finance, in order to
further what it believes to be the political interests of the country.
The formation of the Six Power Group in China meant that the financial
strength of England and France had to be shared, for political reasons,
with powers which had, on purely financial grounds, no claim whatever to
participate in the business of furnishing capital to China. The
introduction to the 1898 edition of "Fenn on the Funds," expresses the
view that our Government is ready to protect our traders abroad, but
only helps investors when it suits it to do so. "If," it says, "a
barbarian potentate's subjects rob a British trader we never hesitate to
insist upon the payment of liberal compensation, which we enforce if
necessary by a 'punitive expedition,' but if a civilized Government robs
a large number of British investors, the Government does not even, so
far as we know, enlist the help of its diplomatic service. Only when,
as in the case of Egypt, there are important political objects in view,
does the State protect those citizens who are creditors of foreign
nations. One or two other countries, notably Germany, set us a good
example, with the best results as far as their investors are concerned."
Germany is often thus taken as the example of the State which gives its
financiers the most efficient backing abroad; but even in Germany
finance is, like everything else, the obedient servant of the military
and political authorities. For several years before the present war, the
financiers of Berlin were forbidden to engage in moneylending operations
abroad. No doubt the Government saw that the present war was coming, and
so it preferred to keep German money at home. It is true that Germany
once shook its mailed fist with some vigour on behalf of its financial
interest when it made, with us, a demonstration against Venezuela. But
it is at least possible that it did so chiefly with a view to the
promotion of the popularity of its navy at home, and to making it easier
to get the money for its upkeep and increase from the taxpayers,
already oppressed by their military burden. In Morocco questions of
trade and finance were at the back of the quarrel, but it would not have
become acute if it had not been for the expected political consequences
that were feared from the financial penetration that was being
attempted; and as has been already pointed out, the financiers are
generally credited with having persuaded Germany to agree to a
settlement on that occasion.
In short, finance, if left to itself, is international and peace-loving.
Many financiers are at the same time ardent patriots, and see in their
efforts to enrich themselves and their own country a means for
furthering its political greatness and diplomatic prestige. Man is a
jumble of contradictory crotchets, and it would be difficult to find
anywhere a financier who lived, as they are all commonly supposed to do,
purely for the pleasure of amassing wealth. If such a being could be
discovered he would probably be a lavish subscriber to peace societies,
and would show a deep mistrust of diplomatists and politicians.
FOOTNOTES:
[Footnote 4: Quoted by the _Financial News_ of September 28, 1915.]