The Unity of Western Civilization

by Unknown

The discovery of a circulating medium enormously facilitated the progress of commerce, and it was not long before a class of people grew up who specialized in this particular form of business and became financiers and moneylenders. Bankers and financiers were known in Rome and Athens, and we know that some machinery existed by which the monetary claims of one country on another could be settled by something that fulfilled the functions of the modern bill of exchange. The actual provision of metallic currency has from the earliest times been almost entirely under the control of the government which took into its own hands, as an essential part of the police protection which it gives to the people, the coining of currency, stamping the coin in such a way that anybody who took one might know that he was getting a certain weight of a precious metal. But the money-dealing business very soon developed the machinery of credit by which anybody who had an enterprise or a venture out of which he expected to make an attractive profit could, if he had sufficient property to pledge, provide himself with the means to finance it between the day that he started on his operations and the day when he brought home his profits: and this business also became international, though not, perhaps, as rapidly as commerce had overstepped the boundaries between one people and another.

In the Merchant of Venice we find Antonio trading with all the countries of the then known world,

From Tripolis, from Mexico, and England,
From Lisbon, Barbary, and India,

but we do not find that Shylock was lending money on at all the same international scale. When communication was slow, difficult, and untrustworthy, money-lending at a distance was made very risky, because it was impossible for the lender to keep the watchful eye on the borrower's operations and credit that is required if he is to feel comfortable in his venture. For a Lombard Street banker to lend money to a merchant in Cheapside payable at a year hence was, until comparatively lately, a much safer enterprise than to lend it to a merchant in Paris, because the local borrower was always under the lender's observation. If he were overtrading or living on too lavish a scale it would at once be noticed and reported.

Nevertheless, international finance made steady progress through somewhat obscure beginnings. We know that Philip II of Spain was heavily indebted to moneylenders all over the Continent, and that by his famous repudiation he carried consternation throughout Europe.[28] Edward III was also heavily indebted to Florentine bankers, and he also omitted to pay his debt; and it is said that the descendants of the Florentine bankers still have a claim against the English Crown in consequence[29]; but it was not until after the creation of stock exchanges and the machinery of a public market in securities that international finance became a question of general importance.

Here also the effect has been for unity combined with a good deal of disunion. Twenty years ago it used to be said that feeling in the Western States of America was very strongly anti-English because most of the Western farmers were indebted to English moneylenders, and on the whole it may be said that the relations between the borrower and lender are not likely to be so friendly and so likely to promote unity as those between buyer and seller. There is really no logical reason why this should be so: the basis of the bargain between the two is exactly the same. In commercial transactions one man sells to another because the other man wants something that he has got more than he does. It is exactly the same with the borrower and lender of money. A man borrows because he wants money and is prepared to pay a rate of interest for it. The lender lends because he has money to lend and wants to earn interest on it. Nevertheless there is something in this relationship which seems to produce discord. It is not many years since the Australian newspapers used to talk of England as John Bull Cohen, implying that the English money market made more than it ought to do by developing, with the help of its financial resources, the production and commerce of the young countries of the world. Perhaps it is human to feel a grudge against a creditor, because the money has to be paid back, whereas a commercial bargain is done with. Nevertheless, after allowing for all the friction that money-lending seems to produce, there can be no question that the establishment of the international market in securities has enormously widened the world's output of commodities, and it has greatly promoted that unity of interests which has brought mankind together more than anything else.

Englishmen are always supposed to be particularly insular. Nevertheless, any one who looks at the Official List daily published by the London Stock Exchange and sees the enormous number of Government and municipal loans from all parts of the world, the number of foreign railways, and the number of foreign enterprises of all kinds which are dealt in on the London Stock Exchange, cannot avoid the conclusion that this practice of investing money abroad, which has been followed here to a greater extent than in any other country, must have very greatly widened the Englishman's horizon and forced him to confess that at least from one point of view dwellers in foreign countries have some right to exist. At any rate, in practice English investors not only have shown that they do not recognize international barriers, but there have even been times when foreign securities have actually been preferred to English. A few years ago it was reported by stockbrokers that many of their clients would not invest money at home and insisted whenever possible that it should be placed abroad. To such an extent has this process been carried on that it is now calculated by statisticians that no less than four thousand millions of English money have been placed outside England, about one-half of this having been lent to foreign countries, and about one-half to our own colonies. Here again, as in commerce, there arises a possibility of quarrelling, not only between the lender and borrower but also between rival groups of lenders in different countries. When an economically backward country is being developed with the assistance of capital from nations which are at a further stage of economic progress, the moneylender is supposed to acquire a certain amount of political prestige and privilege which makes other nations, which have an eye to increasing their influence in the borrowing country, jealous concerning such operations. A curious example was presented not long ago by China. China wanted to borrow, and probably the only countries which had any genuine surplus of capital available for export were England and France. Nevertheless, owing to the political side issues involved, Russia, Germany, and the United States also all insisted on taking part in the business of lending money to China. China was compelled to borrow more money than it wanted, so that all these so-called civilized Powers could share in the operation, and the absurdity of the position was increased by the fact that some at least of the Powers which lent the money would have had to borrow it somewhere before they could do so.

This freedom with which England has furnished financial resources to the rest of the world is sometimes called in question as having had, or being likely to have, bad effects upon the activity of production at home. It is quite clear that the progress of international commerce and the division of labour among nations by which commodities of all kinds have been very greatly cheapened could not have been carried out if England and other comparatively far developed countries had not supplied the necessary capital for the development of the relatively backward parts of the earth. If English money had not gone into building railways in America, Canada, Argentina, Australia, and all over the world, and supplying capital to the farmers and others who opened up these countries, food could not have been nearly as cheap as it is or as it was before the war, and clothes and other necessaries of life would have been at a very different price. In fact, it may be said that if England had not acted as she has, as the world's financier, the development of the world's trade to anything like its present scale would have been altogether impossible. If we could feel sure that the distribution of the world's production had been as satisfactory as the wonderful increase in its output, there would be no question that all classes in England had been very greatly benefited by its financial activities abroad. As it is, it is sometimes argued that English capital going abroad stimulates production in other countries and increases the demand for labour there, but that the demand for labour in England and its reward might have been on a higher scale if English capital had been kept at home. This is a question which is, happily perhaps, outside my province at present, but it is one which demands serious attention. This much can be said, that the years in which English capital has gone abroad with the greatest rapidity have also been those in which our export trade has been most active, and it is obvious that this must be so, because when England exports capital it does so in the form of lending money either to a foreign Government or to a foreign municipality, or to some company, English or foreign, which is conducting some enterprise in a foreign country.

In whatever way the money is lent the result is that the country to which it is lent is given so much buying power in England and consequently its demand for English goods is to that extent stimulated. It does not follow, of course, that the whole amount of money that it borrows is actually spent in England. It is possible that the Canadian railway which is raising money in England may spend it by buying steel rails in Belgium, but in practical fact the net result is that somebody or other abroad is given a claim on England which finally, by some roundabout process, takes effect in a demand for English goods and services. At the same time, when one does admit that international finance is essential to international commerce and that the specialization, which is an essential product of commerce, is thereby quickened, we have to remember that the objections, such as they are, which can be put forward against the division of labour among individuals cannot be overlooked altogether when the division of labour is applied to nations.

Dr. Bowley, in his book on England's foreign trade, puts the matter dramatically as follows:—