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 platitude 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 classes 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 destitution. 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 accumulated, 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 accumulated 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 shells 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 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 destitution 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.