International Finance

by Hartley Withers

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 classes 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 destitution, 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 platitude 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 butter, 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 shores 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:

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