These countries, like Brazil and the Argentine, have been drawn into the circle of international trade, exchange, and finance. Their economic relationships have become sufficiently extensive and complex to make repudiation the least profitable form of theft. The financier will tell you “they cannot afford to repudiate.” If any attempt at repudiation were made, all sorts of property, either directly or indirectly connected with the orderly execution of Governmental functions, would suffer, banks would become involved, great businesses would stagger, and the whole financial community would protest. To attempt to escape the payment of a single loan would involve the business world in losses amounting to many times the value of the loan.
It is only where a community has nothing to lose, no banks, no personal fortunes dependent upon public good faith, no great businesses, no industries, that the Government can afford to repudiate its obligations or to disregard the general code of economic morality. This was the case with Argentina and Brazil a generation ago; it is still the case, to some extent, with some Central American States today. It is not because the armies in these States have grown that the public credit has improved. Their armies were greater a generation ago than they are now. It is because they know that trade and finance are built upon credit—that is, confidence in the fulfilment of obligations, upon security of tenure in titles, upon the enforcement of contract according to law—and that if credit is seriously shaken, there is not a section of the elaborate fabric which is not affected.
The more our commercial system gains in complication, the more does the common prosperity of all of us come to depend upon the reliance which can be placed on the due performance of all contracts. This is the real basis of “prestige,” national and individual; circumstances stronger than ourselves are pushing us, despite what the cynical critics of our commercial civilization may say, towards the unvarying observance of this simple ideal. When we drop back from it—and such relapses occur as we should expect them to occur, especially in those societies which have just emerged from a more or less primitive state—punishment is generally swift and sure.
What was the real origin of the bank crisis of 1907 in the United States, which had for American business men such disastrous consequences? It was the loss by American financiers and American bankers of the confidence of the American public. At bottom there was no other reason. One talks of cash reserves and currency errors; but London, which does the banking of the universe, works on the smallest cash reserve in the world, because, as an American authority has put it, English bankers work with a “psychological reserve.”
I quote from Mr. Withers:
It is because they (English bankers) are so safe, so straight, so sensible, from an American point of view so unenterprising, that they are able to build up a bigger credit fabric on a smaller gold basis, and even carry this building to a height which they themselves have decided to be questionable. This “psychological reserve” is the priceless possession that has been handed down through generations of good bankers, and every individual of every generation who receives it can do something to maintain and improve it.
But it was not always thus, and it is merely the many ramifications of the English commercial and financial world that have brought this about. In the end the Americans will imitate it, or they will suffer from a hopeless disadvantage in their financial competition with England. Commercial development is broadly illustrating one profound truth: that the real basis of social morality is self-interest. If English banks and insurance companies have become absolutely honest in their administration, it is because the dishonesty of any one of them threatened the prosperity of all.
Must we assume that the Governments of the world, which, presumably, are directed by men as farsighted as bankers, are permanently to fall below the banker in their conception of enlightened self-interest? Must we assume that what is self-evident to the banker—namely, that the repudiation of engagements, or any attempt at financial plunder, is sheer stupidity and commercial suicide—is forever to remain unperceived by the ruler? Then, when he realizes this truth, shall we not at least have made some progress towards laying the foundations for a sane international polity?
The following correspondence, provoked by the first edition of this book, may throw light on some of the points dealt with in this chapter. A correspondent of London Public Opinion criticized a part of the thesis here dealt with as a “series of half-truths,” questioning as follows:
What is “natural wealth,” and how can trade be carried on with it unless there are markets for it when worked? Would the writer maintain that markets cannot be permanently or seriously affected by military conquests, especially if conquest be followed by the imposition upon the vanquished of commercial conditions framed in the interests of the victor? … Germany has derived, and continues to derive, great advantages from the most-favored-nation clause which she compelled France to insert in the Treaty of Frankfurt. … Bismarck, it is true, underestimated the financial resilience of France, and was sorely disappointed when the French paid off the indemnity with such astonishing rapidity, and thus liberated themselves from the equally crushing burden of having to maintain the German army of occupation. He regretted not having demanded an indemnity twice as large. Germany would not repeat the mistake, and any country having the misfortune to be vanquished by her in future will be likely to find its commercial prosperity compromised for decades.
To which I replied:
Will your correspondent forgive my saying that while he talks of half-truths, the whole of this passage indicates the domination of that particular half-truth which lies at the bottom of the illusion with which my book deals?
What is a market? Your correspondent evidently conceives it
