INTERNATIONAL FINANCE

BY

HARTLEY WITHERS

BY THE SAME AUTHOR.

OUR MONEY AND THE STATE,
SECOND IMPRESSION. 3s. net.

STOCKS AND SHARES. FIFTH IMPRESSION.
6s. net.

MONEY CHANGING: an Introduction to
Foreign Exchange,
THIRD EDITION. 6s. net.

THE MEANING OF MONEY.
FIFTEENTH IMPRESSION. 6s. net.

POVERTY AND WASTE. 6s. net.

WAR AND LOMBARD STREET.
THIRD EDITION. 3s. 6d. net.

INTERNATIONAL FINANCE. 6s, net.

INTERNATIONAL FINANCE

First Edition    May, 1916.
Reprinted        June, 1918.

PREFACE

Responsibility for the appearance of this book—but not for its contents—lies with the Council for the Study of International Relations, which asked me to write one "explaining what the City really does, why it is the centre of the world's Money Market," etc. In trying to do so, I had to go over a good deal of ground that I had covered in earlier efforts to throw light on the machinery of money and the Stock Exchange; and the task was done amid many distractions, for which readers must make as kindly allowance as they can.

HARTLEY WITHERS.


6, LINDEN GARDENS, W.
March, 1916.

CONTENTS

PREFACE

CONTENTS

CHAPTER I

CAPITAL AND ITS REWARD

Finance the machinery of money-dealing—Lenders and borrowers—Capital and its claim to reward—Stored-up work—Inherited wealth—The reward of services—Questionable services—Charles the Second's dukedoms—Modern equivalents—Workers and Savers

CHAPTER II

BANKING MACHINERY

Money at a bank—Bills of exchange—Finance and industry—Supremacy of bill on London—London's freedom—The Bank of England—The great joint stock banks—The discount market—Bills and trade

CHAPTER III

INVESTMENTS AND SECURITIES

Stock Exchange securities—Government and municipal loans—Machinery of loan issue—Underwriting—The Prospectus—Sinking fund—Bonds and coupons—Registered stocks—Companies' securities—Stock Exchange dealings

CHAPTER IV

FINANCE AND TRADE

Why money goes abroad—Trade before finance—Prejudice in favour of home investments—Prejudice against them—The reaction—Mexico and Brazil—Neutral moneylenders and the war—Goods and services lent and borrowed—The trade balance

CHAPTER V

THE BENEFITS OF INTERNATIONAL FINANCE

International finance and trade—Opening up the world—Exchange of products—Finance as peacemaker—Popular delusions concerning financiers—Financiers and the present war—The cases of Egypt and the Transvaal—Diplomacy and finance

CHAPTER VI

THE EVILS OF INTERNATIONAL FINANCE

Anti-Semitic prejudice—The story of the Honduras loans—The problem to be faced by issuing houses—Their moral obligations, responsibilities, and difficulties—Bad finance and big profits—The public's responsibility

CHAPTER VII

NATIONALISM AND FINANCE

Dangers of over-specialization—Analogy between State and individual—Versatility of the savage—Specialization and peace—Specialization and war—Should the export of capital be regulated?

CHAPTER VIII

REMEDIES AND REGULATIONS

Regulation of issues by Stock Exchange Committee—Danger arising therefrom—Difficulty of controlling capital—Best remedy is keener appreciation by issuing houses, borrowers, and investors of evils of bad finance—Candour in prospectuses—War as financial schoolmaster—War as destroyer of capital—War as stimulator of productive activity

INDEX

INTERNATIONAL FINANCE

CHAPTER I

Finance, in the sense in which it will be used in this book, means the machinery of money dealing. That is, the machinery by which money which you and I save is put together and lent out to people who want to borrow it. Finance becomes international when our money is lent to borrowers in other countries, or when people in England, who want to start an enterprise, get some or all of the money that they need, in order to do so, from lenders oversea. The biggest borrowers of money, in most countries, are the Governments, and so international finance is largely concerned with lending by the citizens of one country to the Governments of others, for the purpose of developing their wealth, building railways and harbours or otherwise increasing their power to produce.

Money thus saved and lent is capital. So finance is the machinery that handles capital, collects it from those who save it and lends it to those who want to use it and will pay a price for the loan of it. This price is called the rate of interest, or profit. The borrower offers this price because he hopes to be able, after paying it, to benefit himself out of what he is going to make or grow or get with its help, or if it is a Government because it hopes to improve the country's wealth by its use. Sometimes borrowers want money because they have been spending more than they have been getting, and try to tide over a difficulty by paying one set of creditors