International Finance Part 4

There are thus many good reasons why it is the business of a careful issuing firm to see not only that any loan that it offers is well secured, but also that it is to be spent on objects that will not impair the productive capacity of the borrowing country by leading it down the path of extravagance, but will improve it by developing its resources or increasing its power to move its products. On the other hand, the temptation to undertake bad business on behalf of an importunate borrower is great. The profits are considerable for the issuing house and for all their followers in the City. The indirect advantages, in the way of trade orders, conferred on the lending country, are also profitable, and there is always the fear that if London firms take too austere a view of what is good business for them and the borrowing countries, the more accommodating loan-mongers of foreign centres may reap the benefit, and leave them with empty pockets and the somewhat chilly comfort conferred by the consciousness of a high ideal in finance.

One of the most unsatisfactory features about the monetary arrangements of society, as at present const.i.tuted, is the fact that the reward of effort is so often greater with every degree of evil involved by the effort. And to some extent this is true in finance. Just as big fortunes are made by the cheap-jacks who stuff the stomachs of an ignorant public with patent medicines, while doctors slave patiently for a pittance on the unsavoury task of keeping overfed people in health; just as Milton got 5 for "Paradise Lost," while certain modern novelists are rewarded with thousands of pounds for writing romances which would never be printed in a really educated community; so in finance the more questionable--up to a certain point--be the security to be handled, the greater are the profits of the issuing house, the larger the commissions of the underwriters and brokers, and the larger are the amounts paid to the newspapers for advertising. As has already been observed, that part of the City that lives on handling new issues has been half starved since the war began, because its activities have been practically confined to loans issued by the British Government. These loans have been huge in amount but there has been no underwriting, and brokerages are cut to the bone. Advertising for the second War Loan was on a great scale, but in proportion to the amount subscribed the cost of it was probably small, according to the ideals that ruled before the war. A Colonial loan, or a first-cla.s.s American railroad bond, almost places itself, and the profits on the issue to all who handle it are proportionately low. The more questionable the security, the more it has to pay for its footing, and the higher are the profits of those who father it and a.s.sist the process of delivery, as long, that is, as the birth is successfully accomplished.

If there is failure, partial or complete, then the task of holding the baby is longer and more uncomfortable, the more puny and unattractive it is. If, owing to some accident in the monetary atmosphere, a Colonial loan does not go off well, the underwriters who find themselves saddled with it, can easily borrow on it, in normal times, and know that sooner or later trustees and other real investors will take it off their hands.

But if it is an issue of some minor European power, or of some not too opulent South American State, that is coldly received by the investing public, bankers will want a big margin before they accept it as security for an advance, and it may take years to find a home for it in the strong boxes of real investors, and then perhaps only at a price that will leave the underwriters, like Sir Andrew Aguecheek, "a foul way out." There is thus a logical reason for the higher profits attached to the more questionable issues, and this reason is found in the greater risk attached, if failure should ensue.

Thus we arrive at the reply to those who criticize International Finance on the ground that it puts too big profits into the pockets of those who handle it. If the profits are big, it is only in the case of loan issues which carry with them a considerable risk to the reputation of the fathering firm, and to the pockets of the underwriters, and involve a responsibility, and in the case of default, an amount of wholly unpaid work and anxiety for which the big profits made on the opening proceedings do not nearly compensate. As in the case of the big gains made by patent pill merchants, and bad novelists, it is the public, which is so fond of grumbling because other people make fortunes out of it, that is really responsible for their doing so, by reason of its own greed and stupidity. Because it will not take the trouble to find out how to spend or invest its money, it asks those who are clever enough to batten on its foibles, to sell it bad stuff and bad securities, and then feels hurt because it has a pain in its inside, or a worthless bond at its banker's, while the producers thereof are founding county families.

If the public would learn the A B C of investment, and also learn that there is an essential difference between investment and speculation, that they will not blend easily but are likely to spoil one another if one tries to mix them, then the whole business of loan issuing and company promotion would be on a sounder basis, with less risk to those who handle it, and less temptation to them to try for big profits out of bad ventures. But as long as

"the fool mult.i.tude that choose by show"

give more attention to the size of an advertis.e.m.e.nt than to the merits of the security that it offers, the profits of those who cater for its weaknesses will wax fat.

When all has been said that can be urged against the record of international finance, the fact remains that from the purely material point of view it has done a great work in increasing the wealth of mankind. It is true that capital has often been wasted by being lent to corrupt or improvident borrowers for purposes which were either objectionable in themselves, or which ought to have been financed, if at all, out of current revenue. It is true, also, that crimes have been committed, as in the case of the Putumayo horrors, when the money of English shareholders has been invested in the exploitation of helpless natives, accompanied by circ.u.mstances of atrocious barbarity.

Nevertheless if we compare the record of finance with that of religion or international politics, it stands out as by far the cleanest of the influences that have worked upon the mutual relations of the various groups of mankind. International Finance makes a series of bargains between one nation and another, for the mutual benefit of each, complicated by occasional blunders, some robbery, and, in exceptional cases, horrible brutality. Religion has stained history with the most ruthless ma.s.sacres, and the most unspeakable ingenuity in torture, all devised for the glory of G.o.d, and the furtherance of what its devotees believed to be His word. International politics have plunged mankind into a series of b.l.o.o.d.y and destructive wars, culminating in the present cataclysm. Finance can only prosper through production; its efforts are inevitably failures, if they do not tend to the growing and making of things, or the production of services, that are wanted. Destruction, reduced to a fine art and embellished by the nicest ingenuities of the most carefully applied science, is the weapon of international politics.

_Note_.--The names of the actors in the Honduras drama were printed in blank because it seemed unfair to do otherwise, in revising fifty years' old scandals, as an example of what International Finance can do at its worst.

FOOTNOTES:

[Footnote 5: _Merchant of Venice_, I, 3.]

[Footnote 6: Pages 75, 76. (NOTE: See Chapter IV, "In the beginnings of international trade...")]

CHAPTER VII

NATIONALISM AND FINANCE

So far we have considered the working of International Finance chiefly from the point of view of its effects upon the prosperity and comfort of mankind as a whole and on this country, as the greatest trader, carrier, and financier of the world. We have seen that the benefit that it works is wrought chiefly through specialization, that is, through the production of the good things of the earth in the lands best fitted, by climate or otherwise, to grow and make them. By lending money to other lands, and the goods and service that they have bought with it, we have helped them to produce things for us to consume, or to work up into other things for our consumption or that of other peoples. Thereby we have enriched ourselves and the rest of mankind. But the question still arises whether this process is one that should be left altogether unchecked, or whether it involves evils which go far to modify its benefits. In other words is it a good thing for us, socially and politically, to enrich ourselves beyond a certain point by a process which involves our dependence on other countries for food and raw material?

a.n.a.logy between a State and a man is often useful, if not pushed too far. The original man in a primitive state is always a.s.sumed to have been bound to find or make everything that he wanted by his own exertions. He was hut builder, hunter, cultivator, bow-maker, arrow-maker, trapper, fisherman, boat-builder, leather-dresser, tailor, fighter--a wonderfully versatile and self-sufficient person. As the process grew up of specialization, and the exchange of goods and services, all the things that were needed by man were made much better and more cheaply, but this was only brought about at the expense of each man's versatility. Nowadays we can all of us do something very much better than the primitive savage, but we cannot do everything nearly as well. We have become little insignificant wheels in a mighty great machine that feeds us and clothes us and provides us with comforts and luxuries of which he could never have dreamt. He was the whole of his machine, and was thereby a far more completely developed man. The modern millionaire, in spite of his enormous indirect power over the forces of nature, is a puny and ineffective being by the side of his savage ancestor, in the matter of power to take care of himself with his own hands and feet and eyes, and with weapons made by his own ingenuity and cunning. Moreover, though in the case of the millionaire and of all the comparatively well-to-do cla.s.ses we can point to great intellectual and artistic advantages, and many pleasant amenities of life now enjoyed by them, thanks to the process of specialization, these advantages can only be enjoyed to the full by comparatively few. To the majority specialization has brought a life of mechanical and monotonous toil, with little or none of the pride in a job well done, such as was enjoyed by the savage when he had made his bow or caught his fish; those who work all day on some minute process necessary, among many others, to the turning out of a pin, can never feel the full joy of achievement such as is gained by a man who has made the whole of anything. Pins are made much faster, but some of the men who make them remain machines, and never become men at all in the real sense of the word. And when at the same time the circ.u.mstances of their lives, apart from their work, are all that they should not be--bad food, bad clothes, bad education, bad houses, foul atmosphere and dingy and sordid surroundings, it is very obvious that to a large part of working mankind, the benefits of the much vaunted division of labour have been accompanied by very serious drawbacks. The best that can be said is that if it had not been for the division of labour a large number of them could never have come into existence at all; and the question remains whether any sort of existence is better than none.

In the case of a nation the process of specialization has not, for obvious reasons, gone nearly so far. Every country does a certain amount of farming and of seafaring (if it has a seaboard), and of manufacturing. But the tendency has been towards increasing specialization, and the last results of specialization, if carried to its logical end, are not nice to forecast. "It is not pleasant," wrote a distinguished statistician, "to contemplate England as one vast factory, an enlarged Manchester, manufacturing in semi-darkness, continual uproar and at an intense pressure for the rest of the world. Nor would the continent of America, divided into square, numbered fields, and cultivated from a central station by electricity, be an enn.o.bling spectacle."[7]

It need not be said that the horrible consequences of specialization depicted by Dr. Bowley need not necessarily have happened, even if its effects has been given free play. But the interesting point about his picture, at the present moment, is the fact that it was drawn from the purely economic and social point of view. He questioned whether it was really to the advantage of a nation, regarding only its own comfort and well-being, to allow specialization to go beyond a certain point. It had already arrived at a point at which land was going out of cultivation in England, and was being more and more regarded as a park, pleasure ground and sporting place for people who made, or whose forbears had made, fortunes out of commerce and finance, and less and less as a means for supplying food for our workers, and raw material for our industries. The country workers were going to the new countries that our capital was opening up, or into the towns to learn industrial crafts, or taking services as gamekeepers, grooms or chauffeurs, with the well-to-do cla.s.ses who earned their profits from industry or business. Even before the war there was a growing scarcity of labour to grow, and harvest, even the lessened volume of our agricultural output.

Dr. Bowley's picture was far from being realized and even if the process of specialization had gone on, it may be hoped that we should have had sense enough to avoid the blackest of its horrors.

Then came the war, which went far to undermine the great underlying a.s.sumption on which the free interchange of capital among nations and the consequent specialization that proceeded from it, was taken to be a safe and sound policy. This a.s.sumption was in effect, that the world was civilized to a point at which there was no need to fear that its whole economic arrangements would be upset by war. We now know that the world was not civilized to this point, and is a very long way from being so, that the ultimate appeal is still to "arms and the man," and that we have still to be careful to see that our trade and industry are carried on in such a way as to be least likely to be hurt if ploughshares have suddenly to be beaten into swords. At first sight, this is a somewhat tragical discovery, but it carries with it certain consolations. If the apparent civilization evolved by the nineteenth century had been good and wholesome, it might have been really sad to find that it was only a thin veneer laid over a structure that man's primitive pa.s.sions might at any moment overturn. In fact, the apparently achieved civilization was so grossly material in its successes, so forcibly feeble in its failures, so beset with vulgarity at its summit and undermined by dest.i.tution at its base, that even the horrors of the present war, with its appalling loss of the best lives of the chief nations of the earth, may be a blessing to mankind in the long run if they purge its notions about the things that are worth trying for.

At least the war is teaching us that the wealth of a nation is not a pile of commodities to be frittered away in vulgar ostentation and stupid self-indulgence, but the number of its citizens who are able and ready to play the man as workers or fighters when a time of trial comes.

"National prosperity," says Cobbett, "shows itself ... in the plentiful meal, the comfortable dwelling, the decent furniture and dress, the healthy and happy countenances, and the good morals of the labouring cla.s.ses of the people." So he wrote, in Newgate gaol, in 1810.[8] Since then many reformers have preached the same sound doctrine, but its application has made poor progress, in relation to the growth of our riches in the same period. If we now decide to put it into practice, we shall not long tolerate the existence in our midst of disease and dest.i.tution, and a system of distribution of the world's goods which gives millions of our population no chance of full development.

We need not, then, stay to shed tears over the civilization, such as it was, which we thought we had and had not. Its good points will endure, for evil has a comfortable habit of killing itself and those who work it. All that we are concerned with at this moment is the fact that its downfall has shaken an article in our economic faith which taught us that specialization was a cause of so much more good than evil, that its development by the free spreading of our capital all over the world, wherever the demand for it gave most profit to the owner, was a tendency to be encouraged, or at least to be left free to work out its will. This was true enough to be a plat.i.tude as long as we could rely on peace. Our capital went forth and fertilized the world, and out of its growing produce the world enriched us. As the world developed its productive power, its goods poured into us, as the great free mart where all men were welcome to sell their wares. These goods came in exchange for our goods and services, and the more we bought the more we sold. When other nations took to dealing direct with one another, they wanted our capital to finance the business, and our ships to carry the goods. The world as a whole could not grow in wealth without enriching the people that was the greatest buyer and seller, the greatest moneylender and the greatest carrier. It was all quite sound, apart from the danger depicted by Dr.

Bowley, as long as we had peace, or as long as the wars that happened were sufficiently restricted in their area and effect. But now we have seen that war may happen on such a scale as to make the interchange of products between nations a source of grave weakness to those who practise it, if it means that they are thereby in danger of finding themselves at war with the providers of things that they need for subsistence or for defence.

Another lesson that the war has taught us is that modern warfare enormously increases the cost of carriage by sea, because it shuts up in neutral harbours the merchant ships of the powers that are weaker on the sea, and makes huge calls, for transport purposes, on those of the powers which are in the ascendant on the water. This increase in the cost of sea carriage adds to the cost of all goods that come by sea, and is a particularly important item in the bill that we, as an island people, have to pay for the luxury of war. It is true that much of the high price of freight goes into the pockets of our shipowners, but they, being busy with transport work for the Government, cannot take nearly so much advantage of it as the shipmasters of neutral countries.

The economic argument, then, that it pays best to make and grow things where they can best be made and grown remains just as true as ever it was, but it has been complicated by a political objection that if one happens to go to war with a nation that has supplied raw material, or half-raw material, for industries that are essential to our commercial if not to our actual existence, the good profits made in time of peace are likely to be wiped out, or worse, by the extent of the inconvenience and paralysis that this dependence brings with it in time of war. And even if we are not at war with our providers, the greater danger and cost of carriage by sea, when war is afoot, makes us question the advantage of the process, for example, by which we have developed a foreign dairying industry with our capital, and learnt to depend on it for a large part of our supply of eggs and b.u.t.ter, while at home we have seen a great magnate lay waste farms in order to make fruitful land into a wilderness for himself and his deer. It may have paid us to let this be done if we were sure of peace, but now that we have seen what modern warfare means, when it breaks out on a big scale, we may surely begin to think that people who make bracken grow in place of wheat, in order to improve what auctioneers call the amenities of their rural residences, are putting their personal gratification first in a question which is of national importance.

We may seem to have strayed far from the problems of International Finance and the free interchange of capital between countries, but in fact we are in the very middle of them, because they are so complicated and diverse that they affect nearly every aspect of our national lives.

By sending capital abroad we make other countries produce for us and so we help a tendency by which we grow less at home, and export coupons, or demands for interest, instead of the present produce of our brains and muscles; and we do much more than that, for we thereby encourage the best of our workers to leave our sh.o.r.es and seek their fortunes in the new lands which our capital opens up. When we export capital it goes in the shape of goods and services, and it is followed by an export of men, who go to lands where land is plentiful and cheap, and men are scarce and well paid. This process again was sound enough from the purely economic point of view. It quickened the growth of the world's wealth by putting men of enterprise in places where their work was most handsomely rewarded, and their lives were unhampered by the many bars to success that remnants of feudalism and social restrictions put in their way in old countries; and it cleared the home labour market and so helped the workers in their uphill struggle for better conditions and a chance of a real life. But when the guns begin to shoot, the question must arise whether we were wise in leaving the export of capital, which has such great and complicated effects, entirely to the influence of the higgling of the market, and the price offered by the highest bidder.

Much will evidently depend on the way in which the present war ends. If it should prove to be, as so many hoped at its beginning, a "war to end war," and should be followed by a peace so well and truly founded that we need have no fear for its destruction, then there will be much to be said for leaving economic forces to work themselves out by economic means, subject to any checks that their social effects may make necessary. But if, as seems to be probable, the war ends in a way that makes other such wars quite possible, when we have all recovered from the exhaustion and disgust produced by the present one, then political expediency may overrule economic advantage, and we may find it necessary to consider the policy of restricting the export of British capital to countries with which there is no chance of our ever being at war, and especially to our own Dominions oversea, not necessarily by prohibitions and hard and fast rules, but rather by seeing that the countries to which it is desirable for our capital to go may have some advantage when they appeal for it.

This advantage our own colonial Dominions already possess, both from the sentiment of investors, which is a strong influence in their favour, and will be stronger than ever after the war, and from legal enactment which allows trustees to invest trust funds in their loans. Probably the safest course would be to leave sentiment to settle the matter, and pray to Providence to give us sensible sentiments. Actual restraints on the export of capital would be very difficult to enforce, for capital is an elusive commodity that cannot be stopped at the Customs houses. If we lent money to a friendly nation, and our friend was thereby enabled to lend to a likely foe, we should not have mended matters. The time is not yet ripe for a full discussion of this difficult and complicated question, and it is above all important that we should not jump to hasty conclusions about it while under the influence of the feverish state of mind produced by war. The war has shown us that our wealth was a sure and trusty weapon, and much of the strength of this weapon we owe to our activity in International Finance.

FOOTNOTES:

[Footnote 7: "England's Foreign Trade in the Nineteenth Century," p, 16, by Dr. A.L. Bowley.]

[Footnote 8: "Paper against Gold," Letter III.]

CHAPTER VIII

REMEDIES AND REGULATIONS

Apart from the political measures which may be found necessary for the regulation, after the war, of International Finance, it remains to consider what can be done to amend the evils from which it suffers, and likewise what, if anything, can be done to strengthen our financial weapon, and sharpen its edge to help us in the difficult fight that will follow the present war, however it may end.

It has been shown in a previous chapter that the real weaknesses in the system of International Finance arise from the bad use made of its facilities by improvident and corrupt borrowers, and from the bigger profits attached, in the case of success, to the more questionable kinds of issues. With regard to the latter point it was also shown that these bigger profits may be, to a great extent, justified by the fact that the risk involved is much greater; since in the case of failure a weak security is much more difficult to finance and find a home for than a good one. It may further be asked why weak securities should be brought out at all and whether it is not the business of financial experts to see that nothing but the most water-tight issues are offered to the public. Such a question evidently answers itself, for if only those borrowers were allowed to come into the market whose credit was beyond doubt, the growth of young communities and of budding enterprises would be strangled and the forward movement of material progress would be seriously checked.

It is sometimes contended that much more might be done by the Stock Exchange Committee in taking measures to see that the securities to which it grants quotations and settlements are soundly based. If this view is to prevail, its victory has been greatly helped by the events of the war, during which the Stock Exchange has seen itself regulated and controlled by outside authority to such an extent that it would be much readier than it was two years ago to submit to regulations imposed on it by its own Committee at the bidding of the Government. Nevertheless, there is this great difficulty, that as soon as the Stock Exchange begins to impose other than merely formal rules upon the issue of securities under its authority, the public very naturally comes to the conclusion that all securities brought out under its sanction may be relied on as absolutely secure; and since it is wholly impossible that the Committee's regulations could be so strict as to ensure this result without imposing limits that would have the effect of smothering enterprise, the effect of any such attempt would be to encourage the public to pursue a happy-go-lucky system of investing, and then to blame the Stock Exchange if ever it found that it had made a mistake and had indulged in speculation when it flattered itself that it was investing.

The whole question bristles with difficulties, but it seems hardly likely that after the war the Stock Exchange and the business of dealing in securities will ever be quite on the old basis again.

In any attempt that is made to regulate them, however, it will be very necessary to remember that capital is an extremely elusive thing, and that if too strict rules are laid down for it, it very easily evades them by transferring itself to other centres. If the authorities decide that only such and such issues are to be made, or such and such securities are to be dealt in in London, they will be inviting those who consider such regulations unfair or unwise to buy a draft on Paris or New York, and invest their money in a foreign centre. Capital is easily scared, and is very difficult to bottle up and control, and if any guidance of it in a certain direction is needed, the object would probably be much more easily achieved by suggestion than by any attempt at hard and fast restriction, such as worked well enough under the stress of war.

Any real improvement to be achieved in the system by which we have hitherto supplied other nations with capital will ultimately have to be brought about by a keener appreciation, both by issuing houses and investors, of the kind of business that is truly legitimate and profitable. It does not pay in the long run to supply young communities with opportunities for outrunning the constable, and it is possible that when this wholesome plat.i.tude is more clearly grasped by the public, no issuing house will be found to bring out a loan that is not going to be used for some definite reproductive purpose, or to float a company, even of the semi-speculative kind, the prospects of which have not been so well tested that the shareholders are at least bound to have a fair chance of success. The ideals of the issuing houses have so far advanced since the days of the Honduras scandal, that in the time of the late war in the Balkans none could be found to father any financial operation in London on behalf of any of the warring peoples. It only remains for the education of the investor to continue the progress that it has lately made, for the waste of capital by bad investment to be greatly curtailed. Probably there will always, as long as the present financial basis of society lasts, be outbursts of speculation in which a greedy public will rush madly after certain cla.s.ses of stocks and shares, with the result that a few cool-headed or lucky gamblers will be able to live happily ever after as country gentlemen, and transmit comfortable fortunes to their descendants for all time. This is the debt that society pays for its occasional lapses in finance, just as its lapses in matters of taste are paid for by the enriching of those who provide it with rubbishy stuff to read, or rubbishy shows in picture palaces. The education of the individual in the matter of spending or investing his or her money is one of the most pressing needs of the future, and only by its progress can the evils which are usually laid to the door of finance be cured by being attacked in their real home. In the meantime much might be done by more candid publicity and clearer statements in prospectuses of the objects for which money lent is to be used and of the terms on which loan issues have been arranged. Any reasonable attempts that may be made to improve the working of International Finance are certain to have the support of the best elements in the City.

At the same time we may hope that as economic progress goes slowly ahead over the stepping stones of uncomfortable experience, borrowing countries will see that it really pays them to pay their yearly bills out of yearly taxes, and that they are only hurting themselves when they mortgage their future revenue for loans, the spending of which is not going to help them to produce more goods and so raise more revenue without effort. War is the only possible excuse for asking foreign nations to find money for other than reproductive purposes. In time of war it can be justified, even as an individual can be justified for drawing on his capital in order to pay for an operation that will save his life. But in both cases it leaves both the nation and the individual permanently poorer and with a continuous burden to meet in the shape of interest and sinking fund, until the loan has been redeemed. Loans raised at home have an essentially different effect. The interest on them is raised from the taxpayers and paid back to the taxpayers, and the nation, as a whole, is none the poorer. But when one nation borrows from another it takes the loan in the form of goods or services, and unless these goods and services are used in such a way as to enrich it and help it to produce goods and services itself, it is bound to be a loser by the bargain; because it has to pay interest on the loan in goods and services and to redeem the loan by the same process, and if the loan has not been used to increase its power of turning out goods and services, it is inevitably in the same position as a spendthrift individual who has pledged his income for an advance and spent it on riotous living.

One of the great benefits that the present war is working is that it is teaching young countries to do without continual drafts of fresh capital from the older ones. Instead of being able to finance themselves by fresh borrowing, they have had to close their capital accounts for the time being, and develop themselves out of their own resources. It is a very useful experience for them, and is teaching them lessons that will stand them in good stead for some time to come. For the old countries, when the war is over, will have problems of their own to face at home, and will not be able at once to go back to the old system of placing money abroad, even if they should decide that the experiences of war have raised no objections to their doing so with the old indiscriminate freedom.

It is easy, however, to exaggerate the effect of the war on our power to finance other peoples. Pessimistic observers, with a pacifist turn of mind, who regard all war as a hideous barbarism and refuse to see that anything good can come out of it, are apt in these days to make our flesh creep by telling us that war will inevitably leave Europe so exhausted and impoverished that its financial future is a prospect of unmitigated gloom. They talk of the whole cost of the war as so much destruction of capital, and maintain that by this destruction we shall be for some generations in a state of comparative dest.i.tution. These gloomy forecasts may be right, but I hope and believe that they will be found to have been nightmares, evolved by depressed and prejudiced imaginations. War destroys capital when and where actual destruction of property takes place, as now in Belgium, Northern France, and other scenes of actual warfare, and on the sea, where a large number of ships, though small in relation to the total tale of the merchant navies of the world, have been sunk and destroyed. Destruction in this sense has only been wrought, so far, in limited areas. In so far as agricultural land has been wasted, kindly nature, aided by industry and science, will soon restore its productive power. In so far as factories, railways, houses and ships have been shattered, man's power to make, increased to a marvellous extent by modern mechanical skill, will repair the damage with an ease and rapidity such as no previous age has witnessed.

In another sense it may be argued that war destroys capital in that it prevents its being acc.u.mulated, but this is a distortion of the meaning of the word destroy. If it had not been for the war, we in England should have been saving our usual three to four hundred millions a year and putting the money to productive uses, in so far as we did not lend it to spendthrift nations or throw it away on unprofitable ventures. If we had invested it well, it would have made us and the rest of the world richer. Instead of doing so we are spending our savings on war and consequently we are not growing richer. But when the war is over our material productive power will be as great as ever, except for the small number of our ships that have been sunk or the small amount of damage done to us by enemy aircraft. Our railways and factories may be somewhat behindhand in upkeep, but that will soon be made good, and against that item on the debit side, we may set the great new organization for munition works, part of which, we may hope, will be available for peaceful production when the time for peace is ripe.

It is a complete mistake to suppose that war can be carried on out of acc.u.mulated capital, which is thereby destroyed. All the things and services needed for war have to be produced as the war goes on. The warring nations start with a stock of ships and guns and military and naval stores, but the wastage of them can only be made good by the production of new stuff and new clothes and food for the soldiers and new services rendered as the war goes on. This new production may be done either by the warring powers or by neutrals, and if it is done by neutrals, the warring powers can pay for it out of capital by selling their securities or by pledging their wealth. In so far as this is done the warring powers impoverish themselves and the neutrals are enriched, but the world's capital as a whole is not impaired. If we sell our Pennsylvania Railroad bonds to Americans, and buy sh.e.l.ls with the proceeds, we are thereby poorer and Americans are richer, but the earning power of the Pennsylvania Railroad is not altered. It may be, if we conduct the war wastefully, and refuse to meet its cost by our own self-denial--going without things ourselves so that we can save, money to lend to the Government for the war--that we shall pledge our property and sell what of it we can sell to neutrals, to such an extent that we shall be seriously poorer at the end of it. At present[9] we are not selling and pledging our capital wealth any faster than we are lending to our Allies; and if we pull ourselves up short, and exercise the necessary self-denial, seeing that we must pay for the war in the long run out of our own pockets, and that far the cheapest and cleanest policy is to do so now, and if the war does not last too long, there is no reason why it should impoverish us to an extent that will cripple us seriously.

It is true that we shall have lost an appalling number of the best of our manhood, and this is a loss that is irreparable in many of its aspects. But from the purely material point of view we may set against it the great increase in the productive power of those that are left behind, through the lessons that the war has taught us in using the store of available energy that was idle among us before. We shall have learnt to work as we never worked before, and we shall have learnt that many of the things on which we used to waste our money and energy were unworthy of us at all times and especially at a time of national crisis.

If we can only recognize that the national crisis will go on after the war, and will go on until we have made this old country civilized in the real sense of the word, that is, free from dest.i.tution and the vice and dirt and degradation and disease that go with it, then our power of recovery after the war will be illimitable, and we shall go forward to a new standard of wealth and national duty that will leave the dingy ideals of the nineteenth century behind us like a bad dream. This may seem somewhat irrelevant to the question of International Finance, but it is not so. We led the way in spreading our capital over the world, with little or no regard for the consequences of this policy on the condition of our population at home. We have now, in the great regeneration that this war has brought, and will bring in still greater measure, to show that we can still make and save capital faster than ever, by working harder and spending our money on improving our heritage, instead of on frivolity and self-indulgence. Then we shall still be free to lend money to borrowers who will use it well, and at the same time have plenty to spare for wise use at home in clearing the blots off our civilization.

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