Events which are still fresh in the memory of business men show the extraordinary interdependence of the modern financial world. A financial crisis in New York sends up the English bank rate to 7 percent, thus involving the ruin of many English businesses which might otherwise have weathered a difficult period. It thus happens that one section of the financial world is, against its will, compelled to come to the rescue of any other considerable section which may be in distress.
From a modern and delightfully lucid treatise on international finance,13 I take the following very suggestive passages:
Banking in all countries hangs together so closely that the strength of the best may easily be that of the weakest if scandal arises owing to the mistakes of the worst. … Just as a man cycling down a crowded street depends for his life not only on his skill, but more on the course of the traffic there. … Banks in Berlin were obliged, from motives of self-protection (on the occasion of the Wall Street crisis), to let some of their gold go to assuage the American craving for it. … If the crisis became so severe that London had to restrict its facilities in this respect, other centres, which habitually keep balances in London which they regard as so much gold, because a draft on London is as good as gold, would find themselves very seriously inconvenienced; and it thus follows that it is to the interest of all other centres which trade on those facilities which London alone gives to take care that London’s task is not made too difficult. This is especially so in the case of foreigners, who keep a balance in London which is borrowed. In fact, London drew in the gold required for New York from seventeen other countries. …
Incidentally it may be mentioned in this connection that German commerce is in a special sense interested in the maintenance of English credit. The authority just quoted says:
It is even contended that the rapid expansion of German trade, which pushed itself largely by its elasticity and adaptability to the wishes of its customers, could never have been achieved if it had not been assisted by the large credit furnished in London. … No one can quarrel with the Germans for making use of the credit we offered for the expansion of the German trade, although their over-extension of credit facilities has had results which fall on others besides themselves. …
Let us hope that our German friends are duly grateful, and let us avoid the mistake of supposing that we have done ourselves any permanent harm by giving this assistance. It is to the economic interests of humanity at large that production should be stimulated, and the economic interest of humanity at large is the interest of England, with its mighty worldwide trade. Germany has quickened production with the help of English credit, and so has every other economically civilized country in the world. It is a fact that all of them, including our own colonies, develop their resources with the help of British capital and credit, and then do their utmost to keep out our productions by means of tariffs, which make it appear to superficial observers that England provides capital for the destruction of its own business. But in practice the system works quite otherwise, for all these countries that develop their resources with our money aim at developing an export trade and selling goods to us, and as they have not yet reached the point of economic altruism at which they are prepared to sell goods for nothing, the increase in their production means an increasing demand for our commodities and our services. And in the meantime the interest on our capital and credit, and the profits of working the machinery of exchange, are a comfortable addition to our national income.
But what is a further corollary of this situation? It is that Germany is today in a larger sense than she ever was before England’s debtor, and that her industrial success is bound up with English financial security.
What would be the situation in Britain, therefore, on the morrow of a conflict in which that country was successful?
I have seen mentioned the possibility of the conquest and annexation of the free port of Hamburg by a victorious British fleet. Let us assume that the British Government has done this, and is proceeding to turn the annexed and confiscated property to account.
Now, the property was originally of two kinds: part was private property, and part was German Government, or rather Hamburg Government, property. The income of the latter was earmarked for the payment of interest of certain Government stock, and
