HF 
 
 1456 
 
 1914 
 
 S89* 
 
Cornell University 
 Library 
 
 The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924006824753 
 
FOREIGN TRADE 
 AND FOREIGN LOANS 
 
 Address prepared by 
 
 WILLARD STRAIGHT 
 
 President, American Asiatic Association 
 
 For the 
 
 National Foreign ' Trade Convention 
 Washington, D. G-, May 27th and 28th, 1914 
 
 NEW YORK 
 1914 
 
FOREIGN TRADE AND FOREIGN 
 LOANS. 
 
 The United States is rapidly becoming an industrial 
 as well as an agricultural country. For the first time 
 since the Civil War destroyed our merchant marine and 
 the construction of the great transcontinental railroads 
 demanded our concentrated energy, we are actively in- 
 teresting ourselves in the extension of our export trade, 
 in the hope that we may penetrate, or create, new and more 
 capacious markets. 
 
 For the successful accomplishment of this purpose we 
 need a credit machinery which will adequately finance the 
 manufacture and distribution of our products and which 
 will "carry" these goods until they are paid for by the pur- 
 chasers. 
 
 This financing of the transition from the producer tO' 
 the consumer is, in the case of ordinary commercial trans- 
 actions, handled automatically as a matter of banking rou- 
 tine. The purchaser may settle at once or arrange for 
 sixty or ninety days, — or perhaps six months, — credit from 
 the merchant, and the merchant, in turn, is either "carried" 
 by his bankers or by the manufacturer who would, in the 
 latter case, also be obliged to rely upon the bank for the 
 necessary accommodation. When the purchaser, however, 
 desires credit for a period of from five to sixty years, it 
 is no longer an ordinary banking transaction ; and it be- 
 comes necessary for him to obtain funds by the sale, on the 
 
market, of stocks or bonds rather than by discounting com- 
 mercial paper. 
 
 In other words, the purchaser, instead of obtaining 
 credit from the merchant, the manufacturer or the banker, 
 through the banker as his agent, borrows from the in- 
 vesting pubhc. 
 
 Most of the countries which are now rapidly develop- 
 ing their resources and which cannot themselves finance 
 such development, must secure money in this way. If we 
 expect to realize the full possibilities of our export trade, 
 we must, by our readiness to purchase foreign bond issues, 
 be able to extend to foreign purchasers the accomodation 
 which they now obtain in the markets of our competitors. 
 
 This, roughly, is the prc^blem of the foreign loan and 
 foreign trade. Its satisfactory solution, which is of vital 
 interest to our merchants and manufacturers, depends pri- 
 marily upon the attitude of the American investors who, 
 while they may not directly benefit by the increased sale 
 of particular American commodities will, in addition to 
 the return on their investment, share in the ensuing general 
 prosperity. 
 
 This paper is especially concerned with the direct bear- 
 ing of foreign loans on our export trade. It is impossible 
 adequately to treat this subject, however, without ana- 
 lyzing the general aspects of international finance. 
 
 We must distinguish between foreign securities pur- 
 chased solely as an investment and foreign loans which, 
 in addition to their investment value, bring to the lender 
 certain collateral advantages. Under the first classifi- 
 cation should be included, for example, railway bonds or 
 stocks, issued in the United States, but purchased in Eu- 
 rope for investment or for speculative purposes. In the 
 same category would fall bonds issued by the Russian, 
 Spanish or other Governments, which, though politically 
 and financially independent, require for their development 
 larger amounts than they themselves are able to supply. 
 
 Foreign holders of such bonds or stocks do not attempt 
 to share in the management of the American railway 
 corporation and are powerless to control the action of the 
 
Russian, Spanish or other Government, whose needs they 
 have financed. Such loans, therefore, are judged according 
 to their investment value. 
 
 Under the second classification would fall, loans issued 
 on behalf of a foreign government or corporation in the 
 markets of the bankers who negotiate the loan. These 
 may be roughly classified as follows: 
 
 (i) Loans secured upon revenues which are collected 
 under the supervision of the lenders, as in the case of 
 certain loans to Greece, Turkey, Egypt, China, Nicaragua 
 and Santo Domingo. 
 
 (2) Loans, the proceeds 6f which are expended under 
 the supervision of the lenders, as in the case of certain 
 loans to Turkey, China and Egypt; or 
 
 (3) Loans, the proceeds of which are utilized to pur- 
 chase goods manufactured by the lender, as in the case 
 of certain loans to Russia and Spain, to various of the 
 South American Republics, to Turkey and to China. 
 
 Loans of the foregoing character, besides the return to 
 the actual subscriber thereto, assure certain advantages to 
 the Government or industry of the lending nation, which 
 are shared directly or indirectly by the investing public. 
 
 France, Great Britain, Germany, the United States, 
 Belgium, Switzerland and Holland, are the chief lending 
 nations. Switzerland and Holland are concerned primarily 
 with investing their surplus capital. The British, German, 
 and Belgian — even the Russian and Japanese — and partic- 
 ularly the French, Governments, however, have recognized 
 the value of their investing power as a political instrument 
 in the great diplomatic struggle in which all are engaged 
 to secure markets for their foreign trade. 
 
 The great European nations are so well prepared for 
 war that none dare to fight, except under the most extreme 
 provocation, as was proved by their success in not be- 
 coming embroiled in the Balkan war. They have, there- 
 fore evolved a system of co-operative international finance, 
 under which they maintain stable conditions, favorable to 
 trade development, and secure an equality of commercial 
 opportunity for their nationals, in the countries whose 
 
political independence has been impaired by financial 
 debauchery. Thus in Egypt and Turkey the foreign debt 
 is administered by commissions, representing the English, 
 German, French, Russian, Austrian and Italian bankers, 
 acting under the direction of their respective governments. 
 Thanks to a similar arrangement which is still in force, 
 Greek credit was re-established in 1908, and although there 
 is no foreign debt commission, practically the same rela- 
 tion now exists between China and the lending powers. 
 
 A highly efficient mechanism of economic production 
 has only a potential value. The aggressive strength of 
 a nation depends on its political and financial stability, 
 and its international position upon its investing power 
 and the disposition of its government effectively to rep- 
 resent its citizens or subjects and to assist in the extension 
 of their trade. 
 
 The great lending nations recognize both these facts. 
 They utilize their investing power as a national asset. By 
 building up the weaker nation through financial reorganiza- 
 tion and the development of its resources, they create for 
 themselves a financial and political influence which they 
 convert to their commercial advantage. In this task Gov- 
 vernment, bankers, merchants and manufacturers, supported 
 by the investing public, which the Government represents, 
 and of which the bankers, merchants and manufacturers 
 are an integral part, co-operate for the common good. 
 
 The political and commercial importance of foreign 
 loans, if not most clearly appreciated, is at least most 
 effectively utilized by the French Government, which 
 counts upon the absorbing power of the French investor 
 as a factor more potent even than the French Army or 
 Navy, in the maintenance .of the diplomatic prestige of 
 France and in the extension of French foreign trade. No 
 foreign loan can be quoted on the Paris Bourse without 
 the approval of the Minister of Foreign Affairs as well as 
 the Minister of Finance. 
 
 In Germany, although the Government does not form- 
 ally sanction a foreign loan before a quotation is granted, 
 the great bankers work in close co-operation with the 
 
Foreign Office; and no loan of which the Government does 
 not approve is apt to be listed on the Berlin, Hamburg 
 or Frankfort Stock Exchange. 
 
 In England, while the Foreign Office encourages and 
 supports foreign loans, there have been frequent instances 
 in which foreign issues have been listed on the Stock 
 Exchange despite governmental opposition. 
 
 The United States became a world power on the con- 
 clusion of the war with Spain. We have only recently 
 developed an investment capacity, the potentialities of which 
 we do not appreciate, although we have already, without 
 evolving any general policy, attempted to utilize it both 
 for the maintenance of order and for the extension of our 
 trade. 
 
 The first instance, as far as the author is aware, in 
 which the American Government took official cognizance 
 of the political importance of foreign loans, was under the 
 Piatt Amendment, which provides that the Cuban Govern- 
 ment shall not increase its indebtedness until it has first 
 satisfied the American Government that such increase will 
 not, by creating an excessive charge upon the Cuban rev- 
 enues, prejudice the financial stability of that Republic. In 
 making the stipulation, the American Government desired 
 to preclude foreign financial domination and to safeguard 
 the credit of the Cuban Republic, in order that the people of 
 the United States, as well as the Cubans, might benefit 
 by the development of the resources of the Island. 
 
 In the case of Santo Domingo, our Government as- 
 sumed much the same position as that taken by the Eu- 
 ropean Powers with respect to Turkey and Egypt, and 
 latterly with respect to China. The finances of the Domin- 
 ican Republic were reorganized and its foreign debt con- 
 solidated by means of an American loan, and the collection 
 of the revenues hypothecated as security therefor was 
 placed under American supervision. While similar ar- 
 rangements were proposed, but not consummated, with Hon- 
 duras, they were successfully effected with Nicaragua. 
 
 Corrupt Governments of the countries bordering the 
 Caribbean Sea have, in times past, sold their national 
 
birth-right to foreign concessionaires. They themselves 
 were not able, or apparently willing, honestly to admin- 
 ister their finances and, unable to borrow for their devel- 
 opment on ordinary "financial" terms, they were obliged 
 Lo give additional inducements, which have threatened to 
 impair their sovereign rights. When they defaulted on 
 their interest payments, their European creditors have in 
 comparatively few instances attempted to collect their debts 
 by force. Yet these debtor nations have not escaped the 
 penalty of improvidence, for their credit cannot be restored 
 until they meet their obligations. This situation has be- 
 come increasingly embarrassing to the United States. 
 
 Dr. Henry Jones Ford, in a paper entitled "Disorderly 
 States," in the Atlantic Monthly for May, points out that 
 President Wilson, in his speech before the Southern Com- 
 mercial Congress at Mobile, has supplemented the "Mon- 
 roe" by the "Wilson," Doctrine. The former was aimed 
 at military or territorial aggression. The latter serves 
 notice on those who would attempt to dominate American 
 States by financial means. President Wilson anticipated 
 the day when, through the beneficent influence of the United 
 States, the weaker South and Central American States would 
 be enabled to borrow on their national credit and no longer 
 be obliged to grant concessions. These nations derive practi- 
 cally their entire income from their customs dues. Possession 
 of the custom-houses, therefore, is the aim of each recurrent 
 revolution. President Wilson's object can only be attained by 
 placing these collectorates under foreign supervision, as 
 has already been done in Santo Domingo and Nicaragua. 
 Such action would assure a regular revenue amply sufficient 
 to meet the service of the loans which these republics 
 now need. Without such security, except in the case of rail- 
 ways which the lenders could control, neither European nor 
 American bankers will loan money to these countries on 
 ordinary financial terms. The profit on investment must 
 be proportionate to the risk involved. 
 
 These nations, however, must not be permitted to 
 utilize the Monroe Doctrine to protect themselves from the 
 consequences of financial profligacy. We cannot refuse to 
 
permit foreign Governments to collect the debts due 
 their subjects, unless we ourselves are willing to insure 
 their payment: If we insist that the European countries 
 shall not intervene, the United States must assume a cor- 
 responding responsibility. If we object to the enforcement 
 of the mortgage, we must act as receivers ourselves, and 
 must either by Congressional enactment guarantee the 
 foreign debt of these countries, or by diplomatic arrange- 
 ments and by utilizing the services of American bankers, 
 bring about financial reorganization by the establishment 
 of reliable customs collectorates. 
 
 If the first of these alternatives were adopted, the 
 United States Government, in case of default, would be 
 obliged either itself to pay the debts of the recalcitrant rep- 
 uiblics, or by intervention to force them to meet their 
 obligations. If the second, the chance of default would 
 be minimized if nqt entirely avoided by assuring in ad- 
 vance a sufficient and safe revenue. 
 
 If we desir.e, therefore, to avoid complications with the 
 European powers and develop our own export and import trade 
 in the Caribbean Sea, we must, by means of foreign loans, 
 establish ourselves as the guardians of the financial stability 
 as well as the territorial integrity of some of our southern 
 neighbors. 
 
 In China, the Administration of President Taft at- 
 tempted a task of a somewhat more ambitious character. 
 The balance of power in the Far East, to which China 
 owed and still owes her continued existence as a nation, 
 has for some years, and is now, largely maintained by the 
 nice adjustment of the financial and commercial, and there- 
 fore political, interests of the great powers. It is to the 
 advantage of all that none should exercise a dominating in- 
 fluence. It is to their mutual interest to maintain the 
 "open door" and share in the general Chinese trade, rather 
 than by the seizure of territory to endeavor to monopolize 
 the commerce of any particular region. President Taft 
 desired to assist in the maintenance of the "open door," 
 by securing for the United States a voice in this council 
 of nations, the weight of whose influence depends primarily 
 
upon the extent of their material interest. He wished also 
 to gain for American manufacturers a share in the profits 
 of China's industrial development. He, therefore, induced 
 a group of American bankers to establish an organization 
 in China with a view to securing for this country a par- 
 ticipation in Chinese loans. It was hoped that, owing 
 to the approval of the Government and the reputation of 
 the bankers concerned, an American investment in China 
 might be created, and American influence be established 
 upon a sQund economic basis, as well as upon the friend- 
 ship and goodwill which had been gained by the work 
 of American missionaries and educators. The time for 
 this undertaking, however, was nqt yet ripe. The Taft 
 Administration was accused of supporting an American 
 banking monopoly and of co-qperating with European 
 financiers in the exploitation of China. With the apparent 
 hearty approval of the American public. President Wilson 
 denounced the policy which had been adopted by his pred- 
 ecessor. 
 
 Foreign bonds have never been a popular investment 
 in this country. It was hoped that a market for this class 
 of security might gradually have been created. The action 
 of the Administration, with respect to the Chinese Reor- 
 ganization Loan made this task more difficult, and develop- 
 ments in the Mexican situation have not encouraged the 
 investor to take an interest in foreign loans. Because of 
 the circumstances above set forth, as well as because of 
 the generally unsatisfactory market conditions, American 
 bankers have recently been obliged to refuse to undertake 
 a number of South American and Chinese loans, the issue 
 of which, in this country, would have strengthened the 
 influence of our Government in the borrowing countries, and 
 the proceeds of some of which would have been directly 
 expended in the purchase of American materials. This then 
 is the situation by which we are confronted. 
 
 Our Government is stable ; our credit is good ; we can 
 finance our domestic neefds, and are able to obtain trom 
 the European markets much of the fluid capital which we 
 require. We are in a position analogous to that of the 
 
 10 
 
prosperqus merchant who, while borrowing from his banker 
 to extend his plant and to finance his business, employs 
 his surplus in advertising ahd in developing new markets. 
 Germany, whose situation is similar to our own, while 
 obtaining commercial accommodation in London or Paris, 
 has utilized its investing power to increase German political 
 influence and German trade throughout the world. 
 
 We ourselves have reached a point where we must 
 be less introspective and seriously consider the possibilities 
 of developing our trade in a similar manner. This, doubt- 
 less, will be admitted. It remains to devise means by which 
 this purpose can be accomplished. Merchants and manu- 
 facturers blame the bankers for lack of enterprise. The 
 bankers are inclined to blame the Government, and the 
 Government, in turn, looks to the banker, the merchant 
 and the manufacturer to take the initiative. 
 
 Under present conditions, if the market is good, Amer- 
 ican bankers will doubtless from time to time be ready, 
 by attempting to sell foreign securities, to aid our merchants 
 and manufacturers. 
 
 The Department of Commerce is specifically charged 
 by Congress to encourage foreign commerce, and our Dip- 
 lomatic and Consular officials show commendable zeal in 
 their efforts to aid the development of our export trade. 
 Such undertakings, therefore, would doubtless receive of- 
 ficial approval and assistance. In the present state of public 
 opinion, however, any administration may be attacked if it 
 utilizes the power of the Government for the profit of 
 private interests, no matter what indirect advantage might 
 accrue to the country as a whole. 
 
 There are those who would even urge the separation 
 of business and politics. The one is the vitals, the other 
 the brain of the nation. Attempted segregation will result 
 in disaster. In this country we have, perhaps, in times 
 past, suffered from indigestion. There are those who claim 
 that we are now afflicted by brainstorm. Neither condi- 
 tion is salutary. We pride ourselves on being a practical 
 people, tempered by idealism. If this estimate is just we 
 
 II 
 
should have the intelligence to recognize, and the imagina- 
 tion constructively to deal with, facts. 
 
 Governments to-day, although some are still autocratic, 
 are no longer purely personal. International relations are 
 concerned, not with the conflicting ambitions of sovereigns, 
 but with the economic development of nations. Contem- 
 porary struggles are for markets in which to sell — rather 
 than for territory to exploit — between bankers, merchants 
 and manufacturers, and not between the armed forces which 
 are now maintained as a guarantee against war, rather 
 than as instruments of aggression. International trade and 
 finance, therefore, are the focal points of international pol- 
 itics, just as our own business life, upon which we all 
 depend for our well-being, furnishes us with our most 
 important domestic problems. 
 
 We recognize that the prosperity of the nation depends 
 upon the business success of the individuals who form its 
 component parts : the capitalist seeking investment, the 
 merchant seeking trade and the laboring man who will 
 benefit by the increased demand for the fruits of his labor. 
 Our Government concerns itself with adjusting the domestic 
 affairs of its citizens, and it should actively exert itself in 
 conserving and extending their interests abroad. 
 
 There should be effective co-operation between the 
 Government, the bankers, the merchants, the manufacturers 
 and the public. Such concerted action is particularly es- 
 sential in matters affecting our international position. We 
 should aim to develop public opinion to approve the use 
 of our national investing power for the extension of our 
 trade. This would enable the Government to adopt a def- 
 inite policy and to declare that proper diplomatic support 
 would be given to promoters and investors in foreign loans, 
 the terms of which had been submitted to and approved by 
 the Departments of State and Commerce. 
 
 It might be objected that in enunciating such a policy 
 the Government would pledge itself to use the Army and 
 Navy to extract interest payments due individual Amer- 
 ican investors. 
 
Such a contention, however, is scarcely justified. Just 
 as debtors prisons have been abolished in civilized coun- 
 tries, so international opinion deprecates the collection of 
 debts by military pressure. Private contracts are enforced 
 by the courts, and international differences, thanks to the 
 increasing recognition of the economic waste of war, are 
 now generally adjusted by diplomacy and arbitration. The 
 creditor nations employ their lending power to develop the 
 resources and strengthen the credit of their clients. It is. 
 no longer considered sound finance to debauch a weaker 
 Government by encouraging it to borrow ; to create a mort- 
 gage which will ultimately be foreclosed by the seizure 
 of territory. The British, German and French Govern- 
 ments insist that their bankers demand certain loan con- 
 ditions, not because they desire to extend their political 
 control, but because through assuring financial stability 
 they hope to avoid the necessity of intervention. Debtor 
 nations, therefore, increasingly realize that they must main- 
 tain their credit if they desire to expend borrowed funds 
 free from the supervision of the lender. They are aware 
 also that repudiation of their debts, or failure to meet 
 obligations when due, will prevent them from obtaining 
 funds on "financial" terms, not in one only, but in all the 
 money markets of the world. The world's lending capacity 
 depends upon the investing power of the creditor nations, 
 not upon the accumulations of a few individuals. Money 
 is highly sensitive : active in times of peace, timorous in 
 the face of any form of military activity. It is becoming 
 increasingly evident, therefore, that because of its inter- 
 national character and its democratic foundation, world- 
 finance must be regarded as a guarantee of world-peace 
 and commercial development, rather than the means by 
 which the stronger are enabled to exploit the weaker na- 
 tions. 
 
 The Government of the United States is each year 
 being drawn farther into the vortex of world politics. As 
 a nation we are seemingly not yet conscious that the very 
 development which has resulted from our irresistible energy 
 and restless ambition imposes upon us greatly increased 
 
 13 
 
responsibilities to ourselves and to the nations with whom 
 we are obliged by mutual interest to deal. 
 
 We have hitherto stood somewhat aloof, but this is no 
 longer possible. Our enterprise has carried our interests 
 beyond the seas. The present tariff, as President Wilson 
 has stated, will stimulate our commercial and industrial 
 genius by forcing us to meet the keen test of world com- 
 petition. The Government, therefore, should co-ordinate 
 the foreign trade activities of the nation. American di- 
 plomacy should stand sponsor for those whose resources 
 and character guarantee the honorable performance of their 
 obligations. Our export trade has been constantly in- 
 creasing because the American merchant and manufacturer 
 give "a dollar's worth of service with a dollar's worth 
 of goods." This should assure to them the assistance of 
 our Government in extending their activities. Such assist- 
 ance should now be forthcoming in connection with the 
 development of our foreign trade by means of foreign loans. 
 
 14 
 
Cornell University Library 
 HF 1456 1914.S89 
 
 Foreign trade and foreign loans :address 
 
 3 1924 006 824 753 «i.,™i