International Finance

by Hartley Withers

not only makes no attempt to deny that he has spat on the wicked Shylock, and called him cut-throat dog, but remarks that he is quite likely to do so again. Such was the behaviour towards Jews of the princely Venetian merchant, whom Shakespeare was portraying as a model of all the virtues.[^[5]] Compare also, for a more modern example, Kinglake in a note to Chapter V of "Eothen."

"The Jews of Smyrna are poor, and having little merchandize of their own to dispose of, they are sadly importunate in offering their services as intermediaries; their troublesome conduct had led to the custom of beating them in the open streets. It is usual for Europeans to carry long sticks with them, for the express purpose of keeping off the chosen people. I always felt ashamed to strike the poor fellows myself, but I confess to the amusement with which I witnessed the observance of this custom by other people."

Originally, as we see from the Hebrew scriptures, a hardy race of shepherds, farmers, and warriors, they were forced into the business of finance by the canonical law which forbade Christians to lend money at interest, and also by the persecution, robbery and risk of banishment to which Christian prejudice made them always liable. For these reasons they had to have their belongings in a form in which they could at any moment be concealed from robbers, or packed up and carried off if their owners suddenly found themselves told to quit their homes. So they were practically compelled to traffic in coins and precious metals and jewellery, and in many places all other trades and professions were expressly forbidden to them. This traffic in coins and metals naturally led to the business of moneylending and finance, and the centuries of practice, imposed on them by Christianity, have given them a skill in this trade, which is now the envy of Christians who have in the meantime found out that there is nothing wicked about moneylending, when it is honestly done. At the same time these centuries of persecution have given the Jews other qualities which we have more reason to envy than their skill in finance, such as their strong family affection and the steadfastness with which they stand by one another in all countries of the world. The fact of their being scattered over the face of the earth has given them added strength since finance became international. The great Jew houses have relations and connections in every business centre, and so their power has been welded, by centuries of racial prejudice, into a weapon the strength of which it is easy for popular imagination to exaggerate. Christendom forced the money power into the hands of this persecuted race, and now feels sorry when it sees that in an ordered and civilized society, in which it is no longer possible to roast an awkward creditor alive, money power is a formidable force. That a large part of this power is in the hands of a family party, scattered over all lands in which finance is possible, is another reason why, as I have already shown, international finance works for peace. The fact of the existence of the present war, however, shows that the limits of its power are soon reached, at times when the nations believe that their honour and safety can only be assured by bloodshed.

A large part of the popular prejudice against financiers may thus be ascribed to anti-Semitic feeling. We are still like the sailor who was found beating a Jew as a protest against the Crucifixion, and, when told that it had happened nearly two thousand years ago, said that he had only heard of it that morning.

But, when we have purged our minds of this stupid prejudice, we are still faced by the fact that international finance is often an unclean business, bad both for the borrower and for the lender and profitable only to a horde of parasites in the borrowing country, and to those who handle the loan in the lending country, and get subscriptions to it from investors who are subsequently sorry that they put their eggs into a basket with no bottom to it. Under ideal conditions our money is lent by us, through a first-rate and honourable finance house, to a country which makes honest use of it in developing its resources and increasing its power to make and grow things. The loan is taken out from England in the shape of goods and services required for the equipment of a young country, and the interest comes in every year in the shape of food and raw material that feeds us and helps our industry. Such, it may be asserted with confidence, is the usual course of events, and must have been so, or England could not have been so greatly enriched by her moneylending operations abroad, and the productive power of the world could not have grown as it has, under the top-dressing that our finance and trade have given it. But though it is thus clear enough that the business must have been on the whole honestly and soundly worked, there have been some ugly stains on its past, and its recent history has not been quite free from unsavoury features.

In 1875 public opinion was so deeply stirred by the manner in which English investors and borrowing states had suffered from the system by which the business of international finance was handled, that a Select Committee of the House of Commons was "appointed to inquire into the circumstances attending the making of contracts for Loans with certain Foreign States and also the causes which have led to the non-payment of the principal moneys and interest due in respect of such loans." Its report is a very interesting document, well worth the attention of those interested in the vagaries of human folly. It will astound the reader by reason of the wickedness of the waste of good capital involved, and at the same time it is a very pleasant proof of the progress that has been made in finance during the last half century. It is almost incredible that such things should have happened so lately. It is quite impossible that they could happen now.

In 1867 the Republic of Honduras had been for forty years in default on its portion, amounting to £27,200, of a loan issued in London in 1825, for the Federal States of Central America. Nevertheless it contracted with Messrs. B---- and G---- for a loan of £1,000,000 to be issued in Paris and London. The loan was to be secured on a railway, to be built, or begun, out of its proceeds, and by a first mortgage on all the domains and forests of the State. The Government undertook to pay £140,000 annually for fifteen years, to meet interest on and redemption of the loan. As it had been forty years in default on a loan which only involved a charge of £1632, it is hard to imagine how the State could have entered into such a liability, or how any issuing house could have had the temerity to put it before the public.

The public was the only party to the proceedings which showed any sense. Don C---- G----, representative of the Honduras Government in London, relates in the record of these events that he put before the Committee, that "the First Honduras Loan in spite of all the advantages which it offered to subscribers" [issue price, 80, interest 10 per cent., sinking fund of 3 per cent, which would redeem the whole loan at par within 17 years] "and the high respectability of the house which managed the operation, was received by the public with perfect indifference, with profound contempt; and according to the deficient and vague information which reached the Legation, there were hardly any other subscriptions than one of about £10,000 made by the firm of B----itself," Don G----, however, seems to have slightly exaggerated the wisdom of the public; in any case the Committee found that by June 30, 1868, by some means £48,000 of the loan was held by the public, and £952,000 was in possession of the representatives of the Honduras Government. On that day a Mr. L---- undertook to take over the Government's holding at £68 12s. per bond, and pay current interest. A market was made, brokers were prevailed on to interest their friends in the security, and in two years' time the bonds were disposed of. The quotation was skilfully kept above the issue price and in November, 1868, it reached 94.

The story of this loan is complicated by the fact that half of it was at the time alleged to have been placed in Paris, but it appears, as far as one can disentangle fact from the twisted skein of the report, that the Paris placing must have resulted much as did the first effort made in London, and that practically the whole of the bonds there issued came back into the hands of the representatives of Honduras.

At the end of the proceedings the whole amount of the loan seemed to have been disposed of in London, £631,000 having been sold to Mr. L---- and passed on by him by the means described above, £200,000 having been issued to railway contractors, £10,800 having been "drawn before issue and cancelled," while £49,500 was "issued in exchange for scrip," and £108,500 was taken on account of commission and expenses.