PSYCHOLOGY possesses a fascinating unsolved problem. Are we sad because we cry, or do we cry because we are sad? Are we merry because we laugh, or do we laugh because we are merry? There is often the same difficulty in international politics in distinguishing cause from effect. Does finance follow the flag, or is the flag dragged in the wake of finance? No generalisation will altogether cover the facts. The bondholders pulled the flag after them to Egypt, and with the Gladstonian Government for standard-bearer, it went, vowing its reluctance, and protesting that its stay would be brief. It seemed, on the other hand, to be a political and sentimental impulse which carried the flag further into the Soudan. The discovery that its sands may be watered and made to bear cotton was an afterthought, which can hardly have visited the minds of the journalists who wished to "avenge Gordon" and the soldiers who hoped to forestall Marchand. The explanation of the remarkable solidarity between the diplomatist and the financier in most modern Empires is not to be sought in any crude labels. For each of them it is part of the providential order of the universe that patriotism should profit the governing class. That is why it is commonly the sincerest of all the disinterested emotions. It would be as false to say that the diplomatist is the sordid tool of finance, as it would be to say that the financier is the disinterested purse-bearer of patriotism. They belong to the same social world; they each submit to the vague influences which cause the world to turn its interest now to this corner of the earth, and again to that. Each has his own formula to cover what he does. The financier knows that in pushing his business he is incidentally buying power for the empire. The diplomatist is convinced that he is serving his country by promoting "trade." However we explain it, the understanding between the City and Downing Street is admirably close. The City does not invest where investments would hamper our foreign policy; the Foreign Office will stand by the City where it has invested. To demand the "control of finance" will seem to some readers superfluous, and to others chimerical. It is both, and it is also an object to achieve. In one sense it exists. With rare exceptions, a British financier will not use his money in any affair which has, or may acquire a political colour, without the approval of the Foreign Office. Our Foreign Secretary does not need the formal veto which a French Ministry possesses over the quotation of foreign securities oil the Bourse. The general astonishment at the daring of an English banker who did venture recently to float a Chinese loan in London against the wishes of the Foreign Office, was an eloquent witness to the usual custom and the general feeling. Persia was successfully prevented from borrowing in London, though she had found a banker willing to accommodate her. Perhaps the most curious instance is supplied by the history of Russian loans. Before the Crimean War they were several times issued in the London money-market. From 1854 to 1906 the City boycotted Russia. The loan of the latter year followed the hints in Sir Edward Grey's speeches, and the evidently inspired articles in the Times which foreshadowed the conclusion of the political understanding then in process of negotiation. The services of finance and diplomacy are mutual, and in the modern world they have become indispensable to each other. It is an immense reinforcement to diplomacy in dealing with a debtor State to know that it has, in effect, behind it the exportable capital of a wealthy nation to give or to withhold. If any Power or group of Powers held the monopoly of the world's money-market even for a few years, and used it with a conscious political purpose, they would in the end dictate to Russia, China, Turkey, and the Latin-American Republics. We habitually classify Powers as Conservative or Liberal, as military or naval, as industrial or agricultural. But there is a classification as vital as any of these for an understanding of world-politics---the division into creditor and debtor States. It is her unequalled stores of capital for export which keep France, in spite of her stationary population and the relative decline of her military strength, in the front rank of the Great Powers. It is her absolute dependence on the import of foreign capital which has forced autocratic Russia into two unnatural associations, the first with Republican France, and the second with her Imperial rival, Britain. It is the financial power of Paris and London which assists the Triple Entente to maintain itself against the compacter military force of the Triple Alliance. It is the aspiration of Germany, a relatively new country which accumulates capital hardly fast enough for its own internal needs, and much too slowly for its over-seas ambitions, to obtain access to the closed money-market of Paris, that explains much of the unrest of Western Europe. Under the alternate bullying and cajolery of German diplomacy towards France there is often discernible the underlying thought that a rough wooing might bring about the fruitful marriage of German enterprise with French thrift.

It is impossible in all this intricate play of motives and forces to say where the pressure of finance ends, and the control of diplomacy begins. There is no antagonism, and there is no subordination. The British reconciliation with Russia appeared on the surface to be purely political, a strategical move dictated by the posture of the struggle for a balance of power. But the knowledge that an understanding with Russia would provide a profitable outlet for British finance must have furnished a powerful secondary motive, and the influence of Lord Revelstoke and the interests which he leads, was undoubtedly a force which helped to reconcile middle-class opinion to the change in our traditional policy, French statesmen were ostensibly buying the Russian army for eventual use against Germany when they concluded the Dual Alliance, but we may feel sure that the French banks, which control the French press far more directly than any one interest controls our English newspapers, did their part in preparing a connection which has been worth incalculable sums to them in commissions and profits of flotation. If the reader asks for a more recent illustration, there is the Mexican crisis. It may have been, and probably was, a train of purely disinterested and even doctrinaire reasoning which induced President Woodrow Wilson to oppose the Dictator Huerta. But without suspecting that the Standard Oil Trust, which has long been at feud, first with Porfirio Diaz, and then with General Huerta, directly influenced either Dr. Wilson or Mr. Bryan, it did undoubtedly help to make the public opinion which approved their policy. They could not have acted against it; a fortunate concurrence of humanitarian views with financial interests enabled them to act with it. It was, one supposes, the influence of the rival British Cowdray group of financiers which made our own Government well-disposed both to Diaz and to Huerta, though in the end this influence was not powerful enough, after the initial stages of the crisis, to set our diplomacy in direct antagonism to that of the United States. The mischief of this relationship is not that finance invariably dominates diplomacy; in point of fact that is not an assertion which could be maintained. The mischief is rather that the relationship is uncertain, obscure, secret and capricious.. There is no avowed control of finance by diplomacy. It is rather that the right hand and the left of the same organism normally work in response to the brain of the same governing class. In the conversations which decide policy the financial groups, well-informed and alert, are always early in the field, and against their claim to represent a national interest, there is no popular influence, equally alert, equally well informed, to balance their pressure. Finance may be on occasion the subtle master of diplomacy. It may be also an invaluable instrument. To provide against the danger and to ensure the use, it seems essential for a modern State to possess an avowed and public means of control. It ought to be possible in the national interest that a Foreign Office should be able to do avowedly and publicly what ours does privately and semi-officially. Finance, as we have seen, relies on diplomatic support in all its dealings with States like China, Turkey, and Mexico. That is the basis for control. The power of sanction and veto exists already, but in a form so covert and irresponsible that public opinion is unable to control it, and can hardly question it. It is not in order to strengthen the bureaucratic authority of the Foreign Office that one desires formal control, but rather to make the Foreign Office itself accountable for its acts. These sanctions and vetoes are among the most important transactions of public policy. They ought to be subject to review by some such body as the Committee of the House of Commons proposed in the last chapter. They depend at present on conversations between financiers and public servants conducted, no one knows how, between the four walls of a room. The only way to convert them into responsible acts of an avowed policy, is to introduce in this country legislation on the lines of the French model, which lays it down that the assent of the Government is necessary before a foreign security may be quoted on the Stock Exchange.

A single illustration will suffice to show the advantage which this power of control would give, on occasion, to those who desire that British policy should serve a high international purpose. There was a moment when the action of British finance was the decisive factor in the Russian struggle for constitutional freedom. It is rather difficult for Englishmen to realise how important the attitude of the rest of Europe is to Russia. Our foible is a certain disdain for foreign opinion: we can afford this luxury, for we are independent of foreign finance. Russia is sensitive because she depends as absolutely as any Latin-American Republic upon her repute in Western markets. She must float by far the greater part of her loans abroad. She cannot even provide from her own resources for the municipal enterprise of her cities. Her undeveloped coal and iron and petroleum fields all await the fertilisation of foreign capital. If we can conceive for a moment what German opinion would mean to us, if we had to float Consols through the Deutsche Bank, if Manchester had to go to Berlin for money to build her tramways, if a South Wales coal mine were awaiting the good opinion of some financier in Hamburg, we shall be able to realise dimly why and how much the good opinion of the English people matters to the Russian Government. Credit is a delicate possession. So long as British investors thought of Russia either as a hostile empire dangerous to ourselves, or as an unstable autocracy menaced by revolution, it was in vain that the Russian financier brought his proposals to the City. Prudence, patriotism and humanity were all against him. The change in the opinions of the moneyed classes began when the Conservative press advocated a rapprochement, when the Times ceased to give prominence to news damaging to the Autocracy, and when it was known that an agreement over Persia was in process of arrangement. There was no mystery about the reasons for this change of attitude. Sir Edward Grey had said that it was necessary to restore Russia to her rank as a Great Power in order to redress the balance in Europe. In plain words, our diplomacy wanted Russian support against Germany, and France was urging and engineering the reconciliation. The early months of 1906 were the critical moment for Russian finance, and it happened to coincide with the critical moment in the development of her constitution. While she was endeavouring to secure a loan of one hundred millions in Western Europe, the elections for the first Duma were about to be held. The Constitution was still a sheet of paper. Everything turned on the ability of the Duma to assert itself, to control the bureaucracy, to make itself the supreme power in Russia. There was one obvious method open to it. It must possess control of the purse, and that meant at the moment control over this foreign loan. If the loan were concluded before it met, the bureaucracy would meet it with its war-chest full. For a few months or weeks European public opinion was potentially the master of Russia's destinies. It professed full sympathy with the constitutional movement, and it had the means of giving its sympathy effect. The Russian Liberals (Cadets) were at one with the Socialists in urging that the granting of the loan should be made conditional on the consent of the Duma. This would have involved a delay of two or three months, but it would have enabled the Parliamentary majority to drive its bargain with a Tsar who had already repented his concessions. Fresh from their sweeping victories at the polls, the Liberals and Socialists might have said to the Tsar's Ministers: "We have Russia behind us, and we have Europe behind us. Your coffers are empty; your credit is exhausted. Concede our full rights of responsible government, and we will vote your taxes and sanction your loan. Deny our rights, and we are convinced that neither in London nor in Paris will you find the money to finance your oppressions." But the great loan had already been floated in Paris and London by March, 1906, and in May when the Duma assembled, it found itself confronted by a Government which had nothing to fear from Russia, and nothing more to hope from Europe. Europe had enabled it to pay its Cossacks. For two generations we closed our money-market to the Tsars. We opened it three months too soon. Had we waited those three months, as the Russian Liberal press implored us to wait, the progressive parties must have triumphed. The Cossack can do little, unless the financier stands behind him. But no Parliament can effectively wield the traditional weapon of supply, if foreign banks have first provided for the despot's needs. The decision, in this instance, rested with London. The Paris banks, weary of the burden of supporting the tottering Russian chaos, had made it a condition of their supporting this loan, that English banks should share the profitable burden. It lay with the English banks on their side to insist on the brief delay required to obtain the Duma's assent. It may be said that "business is business"; one cannot fairly expect a banker, when he is offered a large commission for floating a loan, to weigh all the consequences which his action will have for the liberties of a foreign nation. Perhaps not. But the bankers, one may be sure, consulted Downing Street, and Downing Street in its turn thought only of buying the dead weight of Russia to fling into the scales of a balance of power. Even from that standpoint it miscalculated: a free Russia would be a more trusty friend and more valuable ally than a Russia enslaved, oppressed, and busied with unending internal strife. But such foresight is as rare among diplomatists as disinterestedness among bankers. The decision in what was really an act of European policy, fraught with the gravest consequences for human peace and freedom, ought to have lain neither with the diplomatists nor with the bankers. Had it come before a Parliamentary Committee, some members at least would have listened to the appeals of the Russian progressives, and insisted on postponing the loan.

This illustration might be continued at will. When once the Russian bureaucracy had found its way to the British market, it knew how to establish itself. With steady and open official encouragement, with the aid of the financial press, and of the special Russian supplements of the Times, Russia has become popular as a field for British investments. One firm alone boasts in an advertisement that between November, 1909, and October, 1911, it placed Russian bonds worth £4,891,700 on the English market. Such transactions have two aspects. On the one hand, our propertied class was acquiring a stake in Russia. On the other hand, our good will was becoming increasingly important to the Russian bureaucracy. Banquets, official visits, and Royal courtesies were steadily employed to raise the temperature of opinion to the point at which money flows. And this went on while two Dumas were dissolved, the franchise gerrymandered, Finland enslaved, and Persia overrun. Even from the narrow standpoint of diplomatic technique our procedure was singularly inept. With all our buying, we never bought Russian loyalty, nor prevented her from coquetting with the German rival. Yet the cards were all in our hands. Whatever else Germany can do for Russia, she cannot lend her money. Had we made terms before we lent, had we even checked the flow of gold, we could have won some measure of control over Russian policy. If France had backed us (and we were earning her backing during the Moroccan crisis), it ought to have been possible to say to Russia, "No more money until Persia is evacuated." Persia, after all, is a luxury for Russia; money is a necessity. When Conservative diplomatists retort to those who would have our diplomacy pay some regard to the interests of liberty and humanity, "Would you have us go to war for Persia? " (or for Finland or Macedonia, as the case may be), there is a simple and effective answer, "War is an obsolete barbarism. In the modern world finance is a more effective weapon. At any moment, France and Britain, if they were really at one, as they professed to be, could deal with Russia or with Turkey as they chose. Shut the doors of the banks, and these despotisms would be helpless."

What is true of the impolicy and immorality of allowing and encouraging the export of British capital to assist a tyranny in its enterprises against liberty, is even more obviously true of the use of capital to assist a foreign war. It has been cogently argued that if the munitions and provisions intended for a belligerent army are contraband, money exported for its use is equally so, and that the lending of money to a State engaged in war is a flagrant breach of neutrality. There is no obvious answer to this argument, and it would seem to follow that the open flotation of loans in neutral markets for the benefit of belligerents ought to be rigidly forbidden. It is not so certain, however, that the reform in law is worth making. It is on the eve of war that such loans are usually contracted, and this could be dealt with only under a general Act by which all foreign loans require the sanction of the Foreign Office. Europe made or pretended to make some futile efforts to prevent the outbreak of the Balkan wars. They failed because they were insincere. Russia, as we now know, so far from wishing to prevent the war, had actually arranged it by presiding over the formation of the Balkan League. At the very moment when she joined the concert in declaring that none of the Allies would be allowed to keep the territory they won, she had set her seal to a treaty of partition, and accepted the post of arbiter in the division of the territory. It is such duplicity which makes concerts ineffective. Either of these wars could have been prevented, if the French banks had been forbidden to finance the combatants. They were not forbidden, because Russia willed it otherwise. Our own finance was comparatively, perhaps wholly, innocent. The case is worth citing only as an illustration of the importance of securing first of all that diplomacy shall control finance, and secondly that public opinion shall control diplomacy. More and more, finance is becoming the arbiter of war and peace, the master of despotisms, the unseen agent which might, by a bloodless intervention, check the ambitions of the world's rulers and relieve the sufferings of oppressed races. Looking back upon the records of recent years we can see how it might have been used to prevent Russian aggression in Persia, to save the Duma, to control the aberrations of Turkish policy, to prevent the outbreak of a shameful war. The tool lies ready for the grasp of a European democracy strong enough and united enough to use it. Together the three Western Powers could use it to control the world. But the first step in the realisation of that dream is to make it our servant at home.

The control of finance, where the dealing of British banks with foreign governments is concerned, is not the most difficult aspect of our subject. In practice it exists, though in a covert and unavowed form. In theory it would be a natural extension of the existing law. The meaning of the foreign Enlistment Act and of the orders which enforce neutrality in war-time, is that in his dealings with foreign governments a good citizen is expected to subordinate his own personal interests to those of his country. The State, when once it has begun to protect and even to aid the financier in his operations abroad, has the right to regulate them. At any moment these operations may compromise us, lead to a demand for intervention, bring us into conflict with other Powers, and require the use of the prestige or even of the actual force of our Navy. Operations which may have such consequences cannot be regarded simply as the private acts of a private trader, of which the State need take no cognisance. We enter more difficult and contentious ground when we turn to the larger question of the export of capital abroad in the form, not of loans, but of railway building, mining ventures, and other enterprises which usually involve some direct dealings with foreign governments. The evils and risks of this peculiar modern development of "trade" have been dealt with in a previous chapter. Whatever view the reader may take of it, this at least is clear, that it differs in kind from the older and more familiar type of trade, the exchange of goods. It differs at both ends. Send a shipload of goods abroad, and the benefit of the transaction must be counted not merely in the merchant's profit, but in the wages of workers who made the goods and the sailors who carried them. Send a supply of capital, and no one save the investor (and a few bank clerks) shares in the direct gains.

Capital accumulates too rapidly, and the inducement to send it where labour is cheap, tends to prevent its employment at home, limits the supply of capital at home, and helps to make it relatively scarce and dear. A further consequence is that in order to support and promote its safe and profitable investment abroad, the whole nation is taxed and its policy encumbered, to maintain the armaments which are increasingly an insurance for the foreign investments of the few. The direct profits of the trade in capital so vastly exceed the direct profits of the trade in goods drawn by the moneyed class, that our national policy has evolved from what the Germans call "Manchesterism," to Imperialism.

This is, of course, a partial presentment of the facts; there is another side. The peculiarity of this modern trading which begins with lending, and is conducted throughout on an elaborate credit basis, is apt to be overlooked. It is not "trade" as Cobden's world understood it, nor as Lancashire still understands it. It has its own special risks and mischiefs, and if the distinction has been unduly emphasised in these pages, even an exaggerated statement of it may have its uses. It would be a mistake, however, to ignore the connection between the export of capital and the trade in goods. The former process prepares and facilitates the latter, opens new markets, unlocks latent resources, and hastens a movement of population and goods which would at the best have come slowly without it. Because money has been lent to Canada, India and Argentina to build railways, the seas are laden to-day with the ships which carry our food supplies from these countries. On the produce of the tropics and the colonies we depend for most of the raw material of our manufactures, and for many of the staples of our daily life. Had the colonists or the natives of these countries been left to accumulate their own capital unaided, and to build their ports and railways slowly as their own resources permitted, this trade would to-day be incomparably less in volume than it is. All this is so well known and so universally recognised, that it is hardly necessary to lay stress upon it. It would, moreover, be misleading to use language which recalled the primitive fallacies in the history of economics. We have long outlived the notion that the sending of capital abroad involves a diminution of our wealth; nor is there in the end anything but a gain to the world's wealth and a saving of the world's labour from a process which stimulates production where it can be most economically carried on. It is not from the protectionist standpoint that the process is here criticised. There is, moreover, this to be said in mitigation of any criticism. It is a process of which the evils diminish with the lapse of time. While a new country is being "penetrated" or conquered, we must witness uncompensated mischief which involves us only in diplomatic conflicts and increased armaments. As years go by the need passes for special military efforts; and other Powers recognise the accomplished fact, and benefits of one kind or another begin to figure on the credit page of the national ledger. The permanent mischief remains as a dead weight on the national debt, and a standing annual addition to the Navy estimates. The evils of the process are a necessary and inevitable accompaniment of capitalistic civilisation. They cannot be ended or avoided. The utmost we can do is to enquire how far they can be regulated and limited, so that the minimum of injury shall result to ourselves, to native races, and to our European neighbours.

A peculiarly gross scandal has recently led to some discussion of the need for a means of controlling British companies which operate with British capital abroad. The organisation which had imposed in the Putumayo region a system of virtual slavery, as cruel and as wasteful as anything which King Leopold created on the Congo, was a British company with British directors, and an office in the City. Public opinion discovered, as the revelations went on, that no device exists by which British financiers, whose agents have imposed slavery on a primitive race by massacre, torture, and rape, can be either punished or checked, provided they confine their cruelties to foreign territory. Public opinion was moved, and a suggested remedy, in itself, natural and simple, will shortly be proposed to Parliament. It is, in a word, that British subjects who in future lend their names and their capital to companies engaged in such criminal ventures, shall be liable to prosecution and imprisonment in this country, wherever the scene of. their vicarious crimes may have been. The proposal embodies a salutary principle, and it marks the first recognition of the fact that British capital exported abroad is in some sense an emanation of ourselves, a function of the national life which ought to be subject in some degree to British law and national control. But the criminal law is a clumsy means of control. It is only in the rarest and the grossest cases that it could be successfully set in motion. One has only to conceive the difficulty and expense of obtaining evidence in the heart of Africa or South America and transporting the witnesses to London, to realise how seldom the thing could be attempted. The defence would never be at a loss for hired or terrorised witnesses, who would swear that the worst of its agents was regarded by the natives as a beneficent deity, and the jury, ignorant of the local conditions, and ready enough to believe that if wrong was done, the directors in England were not to blame, would seldom be eager to convict. No fair-minded man had any doubt about the Putumayo atrocities, but evidence which would convince a historian is not always enough for a court of law. For one gross case like this there are a score of cases in which exported capital, while it may avoid crude, bloody crime, is, none the less, guilty of grinding exploitation, which only a lawyer could distinguish from slavery. The nightmare horrors of the Putumayo could take place only in the remotest regions of an unsettled and almost untrodden wilderness. They are not common, nor are they apparently very profitable, and they tend to cure themselves by their own excess. The system known as peonage is, on the other hand, general throughout Latin-America, and the capital by which it is worked is often foreign and sometimes British. It is the rule in Mexico and Brazil, and probably in all the more backward Republics of South America. The victim, usually a native, but sometimes a white or a half-breed, incurs a debt to the planter or merchant, and by the Latin-American law of debtor and creditor, which knows no Truck Acts, becomes in effect his slave until the debt is paid off. It never is paid off; the planter keeps the books. Under this transparent fiction of debt, slaves are bought and sold, villages broken up, peasant landowners reduced to the level of serfs, and tribes carried off to distant scenes of oppression. Children are bought and sold, and young women driven into commercial prostitution. All of this is a typical expression of Latin-American civilisation. But foreign capital venturing into these regions adapts itself to its environment, and does in Mexico as the Mexicans do. It turns the rather slovenly, inefficient oppressions of the lazy Spanish landowner into a competent and extensive system, conducted with a ruthlessness and on a scale which transcend the habits of the country. The spectacle is not one which a European democracy ought to watch with indifferent eyes and folded arms. If the people of Mexico or Brazil developed a capitalistic system of their own, then however gross its evils might be, the process ought clearly to be allowed to follow its own natural evolution. For purely Mexican wrongs, the Mexicans themselves must find the remedy. But the European financier goes forth equipped with resources taken from our stores on a career of conquest and exploitation, protected by our flag and backed by our prestige.

Our moral responsibility for what he does is as clear as was the complicity of our fathers when they allowed the slaver and the buccaneer to fit out their ships in Bristol harbour. The mischief is far wider than any extension of our criminal law could control, and it assumes multitudinous shapes. To-day British capital is migrating to Russia. It finances a Siberian gold-mine, and presently we read that the workers, who had revolted against intolerable conditions, have been shot down literally by the hundred. To-morrow it will be building factories in China and the worst evils of our own nascent industrial era will be repeated under incomparably worse conditions.

It is not easy to prescribe a remedy, and honest thinking ought to admit at once that there is no adequate remedy. If one could regulate this process of the export of capital with an autocratic hand, one would like to exclude all foreign capital from weak and undeveloped States until they are strong enough to master it themselves, to make it their servant, and to subject it to Factory Acts and Truck Acts of their own. There is work enough for it to do in the newer countries which have a civilised government. Such a policy, however, would require a firm agreement among all civilised States, and it would postulate a degree of self-restraint and a sensitive humanity which exist at present in none of them. The utmost we can do as yet is to formulate our standard, to study methods of control, and to introduce them by degrees. At present we are faced by the fact that the doctrine of the rights of the Civis Romanus is the undefined principle of our foreign policy. Our diplomacy acts on the principle that it is its duty to promote and defend the interests of the British investor and concessionaire abroad. If we could begin the world anew, or if we were strong enough to reverse an established practice, we probably ought to meet this principle with a direct negative, and instruct our embassies and consulates that British subjects who invest capital or seek concessions abroad do so entirely at their own risk. The result would be an automatic regulation of the export of capital, which would achieve most of the results which we desire. Capital would not go to disturbed, unsettled and uncivilised regions, because the risk of being robbed by the native government would usually overbalance the chance of exploiting native labour profitably. In dealing with the more intelligent of these "native" States, it is possible that the subjects of a Power which did not protect them might enjoy a positive advantage. China, for example, pays her debts and keeps her bonds without external pressure. If she knew that she might favour British capital without risking diplomatic intervention, and without finding that areas which it was developing had been ear-marked as a British sphere of penetration, it is certain that she would prefer to deal with British financiers, if she were free to choose. The answer to this argument is, of course, that she would not be free. Other Powers would take advantage of our abstention to force their own capital by their own methods on China. It is clear that the policy of abstention could not be recommended as necessarily good for British business, unless it were adopted by our chief competitors as the result of an agreement. That is not, however, a fatal objection. On the contrary, the nation as a whole has the right to say that it does not choose, for the sake of profits to finance, to involve itself in the competition for concessions and spheres of influence in China, a competition which must bring in its train some aggravation of the struggle for a balance of power, and some stimulus to the accumulation of armaments. We have an immense estate to develop. It is no hardship to ask British capitalists, if they must have the protection of the British flag, to confine themselves to an intensive cultivation of the vast Empire which we possess already. If that does not content them, the whole world is open to them, provided they face its risks without expecting the support of our diplomacy. There is nothing chimerical or Utopian or impracticable in suggesting the reversal of this Palmerstonian doctrine. The Tory party was opposed to the Civis Romanus formula before Disraeli and Mr. Chamberlain had taught it the new financial Imperialism. Nor is there any reason why Liberals should cling to it. They dislike criticism of the export of capital at present, because they suspect those who indulge in it of a mercantilist or protectionist bias. That is entirely to miss the relevant point. The main point is simply that the backing of investments by diplomacy means inevitably an increase of the armaments which are the diplomatist's last word. When that has been realised by any party which sincerely cares for peace and can shake itself free of the financiers who maintain the party funds, it will begin the reduction of armaments by the simple step of reversing the Palmerstonian doctrine. Armaments are an insurance for our exported capital, and they will continue to grow so long as we allow our diplomacy to be used to serve finance. The surest way to stop their growth is to instruct our Ambassadors that they must never again assist a financier who is endeavouring to obtain a concession.

There is at present no force in our political life strong enough to carry a reversal of the Palmerstonian maxim. For this reason, and also because some means are needed by which existing investments can be controlled, it may be well to attempt a sketch of some less heroic alternative policy. British capital operating abroad is in a position comparable to that of the traveller who applies for a passport. Passports are not granted as a matter of right. In theory, and to some extent in practice, they are regarded as valuable titles to protection which are granted only to respectable applicants. If a man or a company wishes to trade or lend money abroad under the cover of our flag, it is obvious that if we intend in any degree to protect or recognise his business, it must be open to investigation, and it must conform to such rules as the present standards of international morality may lay down. It we are going to protect or assist the operations of private finance at all, we have a right at least to stipulate that it shall not engage in any form of veiled slavery, or by quasi-political activities embarrass our diplomacy. The first step is clearly to make some measure of surveillance possible, by requiring British businesses which operate abroad to apply for registration. A careful register, subject to annual revision, ought to be kept at the Foreign Office or the Board of Trade, of all the capital owned abroad by British subjects, whether in the form of loans, concessions, mines, railways, factories, or share investments. The keeping of such a register would be no light task, and a fee for registration proportionate to the capital involved would naturally be imposed to meet expenses. With the proceeds of these fees it would be possible to improve the consular service, and to maintain a staff which could report on the conduct of business, and investigate charges of slavery and kindred offences. The register would naturally distinguish two classes of undertakings---those which merited recognition and some measure of official protection, and those to which recognition was refused. This classification would be much less difficult than one might at a first glance suppose. The greater part of this exported capital goes to British colonies or dependencies, and this would be registered without question or examination. It is amenable there to British law and British administration, and we need invent no new machinery to deal with its activities. Nor need we concern ourselves closely with companies operating only in fully civilised regions---the United States and Western Europe. There are some other parts of the world so barbarous and unsettled, or so fatally involved in unfree conditions of labour, that no company operating in them ought to be recognised. The debatable area, where recognition might either be granted or refused, would still be considerable, and would include Russia, Turkey, China, Persia, the Portuguese colonies, and most of Latin-America. If the first task of compiling the register were entrusted to the officials of the Foreign Office, it would obviously be necessary to provide some Board or Commission, composed of non-official persons, before which appeals might be heard. Certain bodies, such as the Aborigines' Protection Society, ought also to have the right to state their case against a company, as the Societies for the Protection of Animals and of Children may do against an individual in a police-court. Certain general principles might be defined from the outset, or would gradually be established by precedent. It is easy to say in advance what some of them would be. No business ought to be recognised which offended in any one of the following ways:--

(1) By slavery or any of the disguises of slavery, by sweating or systematic ill-treatment of employees, or by tolerating conditions unfavourable to health.

(2) By usurious dealing with a native State, e.g., by such terms as the bondholders imposed on the Khedive Ismail.

(3) By political activities, such as the financing of a revolution or civil war, as English financiers are said to have done (perhaps falsely) in Turkey and Mexico.

(4) By assisting a State at war or about to go to war, with money or arms.

Experience would certainly bring to light other principles which ought to govern the recognition and non-recognition of British enterprises abroad. A "recognised" company would have the right to ask for protection in the conduct of its business; how far that protection would go in any given case must, of course, depend on general considerations of policy. An "unrecognised" company, though no one could prevent it from trading at its own risk, would find the doors of our legations and consulates rigidly closed to it. The register must, of course, be public, and its contents open to the inspection both of investors and of the representatives of foreign governments. Adventurers would sometimes evade this machinery where the stake was high enough. But it can hardly be doubted that this method of control would prove to be effective. The first question which any careful investor at home would ask, would be whether the company which invited his support was "recognised," while abroad, the unrecognised company, if it had overcome the first difficulty of obtaining capital, would find that its inferior and disreputable status exposed it to continual suspicions and humiliations at the hands of reputable firms and foreign governments. Once on the list, a firm would know that if at any time it were tempted to ill-use its native employees, or to speculate in revolutions, it risked the loss of its favoured position. The registration fee (which ought to be an annual charge) might become a valuable instrument of fiscal policy. When it is generally realised that the Navy is largely an insurance for the investments of the propertied class abroad, the conclusion will be drawn that it ought to pay its full share of the cost, if possible, directly. That might be attained either through an annual registration fee, or by imposing a higher rate of income tax on the profits of foreign investments. This possible development of the register of exported capital need not be elaborated here. The case for the register is that it supplies a simple and automatic means of controlling capital abroad. Any use which might be made of it as a means of providing revenue ought to be secondary and incidental.

This proposal of a control over foreign investments exercised through a classified register, is put forward as the only logical development of the momentous innovation which Palmerston introduced in the theory and practice of diplomacy. He bestowed nationality on money. He lent the shelter of the flag to investments. We have seen how the whole evolution of Imperialism has proceeded from this premise. From the coercion of Greece because a Levantine money-lender had a claim against her, we have advanced to the modern practice of using diplomacy to back the financier who is engaged in concession-hunting. To some of us this whole development seems wrong and mischievous from start to finish, both in morals and in economics. It is a question, however, whether a principle which has helped in half a century to transform a large part of the earth's surface can be reversed. If the Empire intends to proceed on this principle, as no doubt it does, the reformer will endeavour at the least to define it and to regulate its action. We do not seriously mean to place the whole resources of our diplomacy and our armaments at the beck and call of every usurer, every sweater, every concession-hunter who has taken the trouble to be born or naturalised in these islands. We back some ventures at present and ignore others, but what the principle of selection may be, is a mystery hidden from unofficial persons. The argument of these pages is that the selection ought to be drastic and systematic, that it should follow certain axioms of humanity and policy, and that its results should be publicly known in such a way as to discourage and handicap disreputable enterprises.

The evils of an unrestricted competition for concessions and monopolies between rival financial groups backed by their Governments, are so notorious that diplomacy has found several typical formulae for bringing them to an end. Some of them have been mentioned already, and it will suffice to pass them briefly in review. The obvious method of resolving such conflicts is the demarcation of spheres of "influence," "interest" or "penetration" within which each of the competing Powers enjoys a monopoly respected by the others. This method is open to two grave objections. In the first place, it is rarely adopted before a ruinous conflict has exhausted the competitors. For years or decades they carry on a trial of strength which affects not merely their local relationship, but their attitude to one another in Europe, and is measured year by year in their military and naval estimates. If we were to take the sum by which British and German armaments have increased in the present century, it would be possible to allocate the increase, roughly, somewhat as follows: 50 per cent. or less for the settlement of the question, Who shall exploit Morocco?; 25 per cent. or more for the privilege of building a railway to Bagdad and beyond it; 25 per cent. or more for the future eventualities which remain unsettled---the fate of the Portuguese colonies in Africa, and the destinies of China. In the second place, the delimitation of spheres of interest is almost inevitably fatal to the national existence of the country partitioned, and as inevitably adds a vast burden to the commitments of the Imperial Power. Persia furnishes the obvious illustration. Sir Edward Grey is clearly resolved that he will not allow himself by the march of events to be drawn into the assumption of any direct responsibility for the administration of the British sphere. It is a laudable resolve, but Russia may at any moment frustrate it. She deals with her own sphere on the opposite principle, and her sphere happens to include the seat of the central government. That government is already a puppet of Russian policy, enjoying only a simulacrum of independence. How much longer can a government which is not a government continue to rule the southern sphere? Sooner or later a choice must be made. Either Russia must withdraw, or some separate government under British protection must be created for the south, Turkey is drifting rapidly towards a dissolution in which the spheres which the Great Powers already claim will be formally delimited. It is easy to predict what that will mean. There will be first provincial loans, then provincial advisers, and finally a military control, under which each of these "spheres" will become what Egypt already is, a dependency of a European Power.

The method of avoiding financial competition by marking off zones of monopoly, is clearly the worst which can be pursued. There are alternatives. Let us consider what methods might be followed if the Powers were sage enough to shrink from the terrific conflict which may one day overtake them for the partition of China. China is so thickly peopled that crude conquest presents few attractions. Even Japan could not settle her surplus population in a country where every hill is terraced and every field subjected to intensive cultivation. But there is here a field which capital is already eager to exploit, and every year diminishes the resistance of prejudice and inertia to its ambitions. The attempts to mark out spheres of influence have so far been tentative and unsuccessful. Our own claim to the lion's share, the Yangtse Valley, is admitted by no other Power, and it is doubtful whether the Foreign Office still maintains it. There are several principles which might be adopted if the Powers desired to avoid the jealous and dangerous struggle for concessions. In the first place, the simplest plan and the best would be the adoption of a self-denying ordinance by all the chief competitors. Let it be understood that British, French and German banks may compete among themselves for railways and loans, but that none of them shall receive any aid or countenance whatever from the embassies or consulates of their respective countries. If that could be decided, the allotment of concessions would be settled either by the merits of the competitors or more probably by their skill and audacity in bribing Chinese officials. One may doubt, however, whether any of the Powers has sufficient faith in the honour of its competitors to enter on such an undertaking. A second and more hopeful plan might be borrowed from the undertaking negotiated by France and Germany over Morocco. They agreed to promote co-operation among their subjects. who were to share in agreed percentages in the coveted opportunities for public works. A vast "pool" or syndicate in which all the rival financial groups were represented, might be left to internationalise all the opportunities of monopoly in China on a plan which would give to each its allotted share in the risks and profits. The scheme worked badly in Morocco, and indeed created the friction which led to the Agadir incident. Something of the kind existed in China while the alliance of the banks of the Six Powers subsisted. and it eventually broke down. By this method friction may be avoided among the Great Powers, but China would be subjected to an intolerable financial dictation, which would be none the less oppressive because it was cosmopolitan. There exists, however, in the Ottoman Public Debt, a model which might be followed elsewhere. Its council represents all the bondholders of every nationality, and usually maintains good relations with the Porte. If the railways of Turkey, China and Persia could be amalgamated, each in a single system under a cosmopolitan administration, the risk of partition and all the danger to peace, which this risk entails, might be removed. The obvious step is to confer on these syndicates of capitalists an international legal personality, which would enable them to sue or be sued before the Hague Tribunal. Some disinterested council nominated by the Hague should be interposed between the syndicate and the State in which it operates, so that the intervention of diplomacy may be as far as possible eliminated.

The problems raised by the export of capital have been considered in this chapter mainly from the standpoint of the creditor State, which sees its diplomacy involved in the process. We have found, so far, no solution which is satisfactory from the standpoint of the debtor nation. The inroad of foreign capital always means for it some loss of independence, and it has nothing to gain by agreements among competing Empires. It may, indeed, keep its independence by playing on their rivalries. Its shadowy autonomy vanishes when they come to terms. The pacifist and the nationalist are here divided in their sympathies. The former, thinking only of European peace, rejoices when Russia and Britain end their differences by the partition of Persia. The latter, seeing only that a nation has been destroyed, regards the agreement as a peculiarly evil development of Imperialism. Both are right, and both are wrong. The ideal expedient would preserve European peace without destroying the victim nationality. To propose that expedient requires an excursion into the realms of Utopian construction. We can propose nothing which seems feasible to-day, but a solution is conceivable which requires only an easy step in the organisation of the civilised world for peace. The motives for the partition of Persia were rather political than financial. The object-lesson of Egypt, where the occupation had, its origin in debt, is a more typical instance of modern processes. It happens that the Hague Conference has laid down a principle which is capable of fruitful extension for dealing with such cases as these. The Drago Doctrine, put forward by Señor Drago, a jurist and statesman of the Argentine Republic, supported by the United States and eventually adopted by all the Powers, provides that no creditor State may use arms to enforce a liability upon a debtor State, unless a decision of the Hague Tribunal has recognised the liability and prescribed the method of payment. This doctrine, even as it stands, is of immense value to minor but civilised States like the South American Republics, Portugal and Greece, which may find themselves obliged to defer payment of an external debt. The Hague Tribunal would in such a case, if it realised its opportunities, act as a good County Court judge would do at home refuse to admit a merely usurious claim, and lay down terms and dates of payment which would admit of the debtor's recovery from any temporary difficulty.

But to defeat the more unscrupulous methods of the international usurer, this idea requires some amplification. It may be necessary for a debtor State, some grades below the level of Portugal and Greece in civilisation, to mortgage some part of its revenues, and to accept, at least over part of them, some degree of foreign control. That means, if the Creditor country has also political ambitions, the almost certain loss of its independence. There are also States like Turkey which stand in need of expert advice for the reorganisation of their finances, but dread the consequences of admitting any foreigner, who may perhaps think more of the interests of European finance and of his own motherland, than of those of the country which employs him. To draw the full advantage from the international machinery at the Hague, there ought to be evolved a permanent Credit Bureau to which weak and timid States might apply. It might conduct enquiries into their solvency, lend them experts to reorganise their finances, help them to negotiate loans in neutral markets on fair terms, and in case of need provide the commissioners who would control their mortgaged revenues. It would act as a trustee or as a Court of Chancery towards its wards. It could have no political ambitions to further, and the country which applied to it need not tremble for its independence. Persia or Egypt, had this Bureau existed, might have turned to the Hague for help. If, in the end, owing to civil war, or the hopeless incapacity of native statesmen, forcible intervention became inevitable, it would lie not with any interested Power, but with the Hague itself, to take the initiative of summoning a European Conference to prescribe the nature and limits of the interference. It is even possible that the Bureau might be used as an arbitrator at the request of a State like China, hard pressed by the rivalry of Empires competing for concessions, to decide between them in its name, and to appoint a neutral adviser or board of advisers, who would stand between it and the greedy powers in the allotment of its financial patronage.

A Europe which has organised itself for peace will be at no loss for expedients wherewith to reconcile the appetites of capital with the rights of nationality. A spectator of the moving cosmopolitan drama which is played, the world over, around this central motive of the export of capital, can readily invent attractive schemes for the regulation of the process. But such exercises tempt one to ignore the dynamics of the problem. The same primitive forces of greed which in earlier centuries inspired conquests and migrations are still strong enough to grip diplomacy and build navies. Our first task is to win at home the power to control this export of capital, to check it where it disregards the current ethical standards, to rebuff it where it would lead us into international rivalry, and at last to use it as the potent servant of a humane diplomacy. It can be forbidden to carry the devastations of slavery into distant continents. It can be checked in its usurer's practices upon simple States. It can be used, if it be firmly mastered, to starve into submission a semi-civilised Empire which meditates aggressive war. or draws from Western stores the funds to finance its own oppressions.(19)

Chapter Nine

Table of Contents