FINANCE AND TRADE

We have seen that finance becomes international when capital goes abroad, by being lent by investors in one country to borrowers in another, or by being invested in enterprises formed to carry on some kind of business abroad. We have next to consider why capital goes abroad and whether it is a good or a bad thing, for it to do so.

Capital goes abroad because it is more wanted in other countries than in the country of its origin, and consequently those who invest abroad are able to do so to greater advantage. In countries like England and France, where there have been for many centuries thrifty folk who have saved part of their income, and placed their savings at the disposal of industry, it is clear that industry is likely to be better supplied with capital than in the new countries which have been more lately peopled, and in which the store of accumulated goods is less adequate to the industrial needs of the community. For we must always remember that though we usually speak and think of capital as so much money it is really goods and property. In England money consists chiefly of credit in the books of banks, which can only be created because there is property on which the banks can make advances, or because there is property expressed in securities in which the banks can invest or against which they can lend. Because our forefathers did not spend all their incomes on their own personal comfort and amusement but put a large part of them into railways and factories, and shipbuilding yards, our country is now reasonably well supplied with the machinery of production and the means of transport. Whether it might not be much better so equipped is a question with which we are not at present concerned. At least it may be said that it is more fully provided in these respects than new countries like our colonies, America and Argentina, or old countries like Russia and China in which industrial development is a comparatively late growth, so that there has been less time for the storing up, by saving, of the necessary machinery.

So it comes about that new countries are in greater need of capital than old ones and consequently are ready to pay a higher rate of interest for it to lenders or to tempt shareholders with a higher rate of profit. And so the opportunity is given to investors in England to develop the agricultural or industrial resources of all the countries under the sun to their own profit and to that of the countries that it supplies. When, for example, the Government of one of the Australian colonies came to London to borrow money for a railway, it said in effect to English investors, "Your railways at home have covered your country with such a network that there are no more profitable lines to be built. The return that you get from investing in them is not too attractive in view of all the trade risks to which they are subject. Do not put your money into them, but lend it to us. We will take it and build a railway in a country which wants them, and, whether the railway pays or no, you will be creditors of a Colonial Government with the whole wealth of the colony pledged to pay you interest and pay back your money when the loan falls due for repayment." For in Australia the railways have all been built by the Colonial Governments, partly because they wished, by pledging their collective credit, to get the money as cheaply as possible, and keep the profits from them in their own hands, and partly probably because they did not wish the management of their railways to be in the hands of London boards. In Argentina, on the other hand, the chief railways have been built, not by the Government but by English companies, shareholders in which have taken all the risks of the enterprise, and have thereby secured handsome profits to themselves, tempered with periods of bad traffic and poor returns.