Capital, then, is wealth invested in the industry, finance is the machinery by which this process of investment is administered, and international finance is the machinery by which the wealth of 1 country is invested in another.
Let us consider the case of a doctor in a very provincial town who is making an annual income of about L800 a year, living on L600 of it and saving L200. Rather than spending this quarter of his income on immediate enjoyments, like wine and cigars, and journeys to London, he invests it in several parts of the globe through the mechanism of international finance, because he has been attracted by the benefits of a system of investment which was fashionable some years ago, which worked by what was called Geographical Distribution.
[2] This meant to mention that the investors who practiced it put their money into as many alternative countries as possible, so that the danger of loss thanks to climatic or other disturbances may be spread as widely as possible. So here we've got this quite general practitioner spreading everywhere the globe the cash that he gets for dosing and poulticing and dieting his patients, stimulating industry in many climates and bringing some a part of its proceeds to be added to his store. Allow us to see how the method works.
First, He incorporates a bank, into which he pays day by day the fees that he receives in coins or notes and therefore the checks that he gets, each half-year, from those of his patients who have an account with him. As long as his money is within the bank, the bank has the employment of it, and not much of it's likely to travel abroad. The banks use most of the funds entrusted to them in investments in home securities, or loans and advances to home customers. A part of them they use in buying bills of exchange drawn on London houses by merchants and financiers everywhere on the planet, so even when he pays money into his bank our doctor may be already forming a part of the machinery of international finance and involving us within the need for a proof of 1 of its mysteries.
A bill of exchange is an order to pay. When a merchant in Argentina sells wheat to an English buyer, he draws a bill on the client (or some bank or firm in England whom the customer instructs him to draw on), saying, “Pay to me” (or anybody else whom he may name) “the sum of numerous pounds.” This bill, if it's drawn on a firm or company of well-known standing, the vendor of the wheat can immediately lose, so possesses payment for his goods. Usually, the bill is created payable two or three, or sometimes six months after sight, that's after it's been received by the firm on which it's drawn, and “accepted” by it, that's signed across the front to indicate that the firm drawn on pays the bill when it falls due.
These bills of exchange, when thus accepted, are promises to pay entered into by firms of first-rate standing and are held as investments by English banks. Bills of exchange are drawn on English houses to finance trade transactions between foreign countries, and also as a method of borrowing money from England. Once they are drawn on behalf of English customers, the credit given is given reception, but because it is (almost always) given about international trade, the transaction is also considered a part of international finance.
When they are drawn on behalf of foreign countries, trading with other foreigners, or using the credit to lend to other foreigners, the reference to international finance is apparent. They're readily taken everywhere on the planet, because everywhere around the globe there are people that have payments to create to England because of the wide distribution of our trade, and it's long been England’s boast that bills of exchange drawn on London firms are the currency of international commerce and finance.
Some people tell us that this commanding position of English people bill within the world’s markets is in peril of being lost as a result of this war: in the first place because America is gaining wealth rapidly, while we are shooting away our savings, and also because the Germans will make every endeavor to free themselves from dependence on English credit for the conduct of their trade.
Certainly, This danger may be a real one, but it doesn't follow that we shall not be able to meet it and defeat it. If the war teaches us to figure hard and consume little, so that when peace comes we shall have a good volume of products to export, there's no reason why the bill on London mustn't retain much if not all of its old prestige and supremacy within the marts of the planet. For we should always remember that finance is just the handmaid of industry. She is commonly a part handmaid who steals her mistress’s clothes and tries to flaunt before the globe because of the mistress, and then she sometimes imposes on many of us who should know better, who think that finance is an all-powerful influence.
Finance could be a mighty influence, but it's a mere piece of machinery that assists, quickens, and lives on production. The lads who make and grow things, and carry them from the place where they're made and grown to the place where they're wanted, these are the lads who furnish the staple of finance, without which it'd shut up its shop
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