One of the most unsatisfactory features about the monetary arrangements of society, as at present constituted, is the fact that the reward of effort is so often greater with every degree of evil involved by the effort. And to some extent this is true in finance. Just as big fortunes are made by the cheap-jacks who stuff the stomachs of an ignorant public with patent medicines, while doctors slave patiently for a pittance on the unsavoury task of keeping overfed people in health; just as Milton got L5 for "Paradise Lost," while certain modern novelists are rewarded with thousands of pounds for writing romances which would never be printed in a really educated community; so in finance the more questionable--up to a certain point--be the security to be handled, the greater are the profits of the issuing house, the larger the commissions of the underwriters and brokers, and the larger are the amounts paid to the newspapers for advertising. As has already been observed, that part of the City that lives on handling new issues has been half starved since the war began, because its activities have been practically confined to loans issued by the British Government. These loans have been huge in amount but there has been no underwriting, and brokerages are cut to the bone. Advertising for the second War Loan was on a great scale, but in proportion to the amount subscribed the cost of it was probably small, according to the ideals that ruled before the war. A Colonial loan, or a first-class American railroad bond, almost places itself, and the profits on the issue to all who handle it are proportionately low. The more questionable the security, the more it has to pay for its footing, and the higher are the profits of those who father it and assist the process of delivery, as long, that is, as the birth is successfully accomplished.

If there is failure, partial or complete, then the task of holding the baby is longer and more uncomfortable, the more puny and unattractive it is. If, owing to some accident in the monetary atmosphere, a Colonial loan does not go off well, the underwriters who find themselves saddled with it, can easily borrow on it, in normal times, and know that sooner or later trustees and other real investors will take it off their hands. But if it is an issue of some minor European power, or of some not too opulent South American State, that is coldly received by the investing public, bankers will want a big margin before they accept it as security for an advance, and it may take years to find a home for it in the strong boxes of real investors, and then perhaps only at a price that will leave the underwriters, like Sir Andrew Aguecheek, "a foul way out." There is thus a logical reason for the higher profits attached to the more questionable issues, and this reason is found in the greater risk attached, if failure should ensue.

Thus we arrive at the reply to those who criticize International Finance on the ground that it puts too big profits into the pockets of those who handle it. If the profits are big, it is only in the case of loan issues which carry with them a considerable risk to the reputation of the fathering firm, and to the pockets of the underwriters, and involve a responsibility, and in the case of default, an amount of wholly unpaid work and anxiety for which the big profits made on the opening proceedings do not nearly compensate. As in the case of the big gains made by patent pill merchants, and bad novelists, it is the public, which is so fond of grumbling because other people make fortunes out of it, that is really responsible for their doing so, by reason of its own greed and stupidity. Because it will not take the trouble to find out how to spend or invest its money, it asks those who are clever enough to batten on its foibles, to sell it bad stuff and bad securities, and then feels hurt because it has a pain in its inside, or a worthless bond at its banker's, while the producers thereof are founding county families. If the public would learn the A B C of investment, and also learn that there is an essential difference between investment and speculation, that they will not blend easily but are likely to spoil one another if one tries to mix them, then the whole business of loan issuing and company promotion would be on a sounder basis, with less risk to those who handle it, and less temptation to them to try for big profits out of bad ventures. But as long as

International Finance Page 40

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