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.

International Finance Page 46

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