FOREIGN LOANS AND TRADE.

Press, Volume LXIII, Issue 19157, 14 November 1927, Page 10

FOREIGN LOANS AND TRADE.

(wRITTEW TO* THE PRESS.)

'By Hartley Withers.) In the September number of il "American Economic Review" the was an article by Mr A. P. Winsto discussing the question whether tra< follows the dollar; the writer devot a good deal of study and research proving, apparently to his own sati laction, that it does not, while h own admissions and statements see to indicate very clearly that it does. With ail deference to the opinion ■ this very painstaking exponent of t interesting economic problem, I ve ture to think that he Has read far t< much into the arguments of those wl try to prove that a country which investing abroad is likely to sell goo< abroad. Hta puts the case as follow; "Tho opinion has gained general a '•eptance that investments abroad ha\ an important effect in stimulating e: port trade, since (it is assumed) tl manufacturers oi the country suppl; ing the capital are assured of a pr< ferenco over other nationalities in tl nale of materials and equipment ft these undertakings" (presumably tl undertakings financed by the eapiti exported). "This power of aid'in trade is ascribed to one or other « two sorts of investment:—(a) Loans $i for Chinese Government railways. Tl: ioan contract, it is said, commonly r< 'luires the purchase of material an equipment from the country of th lenders; (b) investment at the ir vestor's own risk, as when a Europea company obtains a concession for railway enterprise in South Americs Jn that case, it is said, the investor give a preference in making purchase lo manufacturers of their own natior aljty." Air Winston is able to cite a larg number of quotations, chiefly o American origin, wliich show thci writers have believed that tbe offec of foreign investment is much mor< direct than it is in fact. One of then mi id, for instance, that "if America! financiers were to undertake the build ing of a railway line in Argentina, th« rails, bridges, cars, locomotives, etc.,' would be "largely, if not wholly, sup plied by manufacturers in the U.S." He is also able to show, with regarc io loans, that no borrower wouic voluntarily consent to the restrictions under discussion, which is certainlj true, but does not affect the fact that it is often imposed, as he admits when he says that "Governments (notablj the French) have at times attempted, with doubtful success, to give their manufacturers a preference.' As to tho second class of investments, such as the building of railways in Argentina or Brazil by foreign companies, Mr Winston believes that there is an assumption that the administrators of the enterprise will be led by motives of patriotism to prefer the producte of their own country, and he, adds that no other motive is suggested. This assumption he derides, on the ground that (1) "even the home railways of France and other countries use large amounts of imported material" and "there is no reason to expect a different policy by investors of the same countries when they go abroad"; (2) that railways are so poor an investment that they could not afford it; and (3) that foreign Governments, whether borrowing or granting charters, would not subject theii railway systems to uneconomical methods,of purchasing. And yet he admits that "when the manufacturers of an investing nationality are able (like those of Great Britain) to supply needed material of good quality at low prices, the national prejudice may doubtless have an appreciable influence." This is probably all that those who have rather overstated the case really meant, though they might also point out that it is not only a matter of national prejudice, but also of ease and convenience. When one deals with one's own countrymen there is no question of different language, currency, measures, business methods, and so on. If his goods are not too dear, one's neighbour has all this natural protection in his favour. But it does not, and Mr Winston is right in insisting on this, close the market for liim if he cannot deliver the right goods at the right price. But most of us who believe that goods sold will follow the money lent, argue on much wider and simpler grounds. Mr Winston is good enough to quote an article of mine which said that "if a South African State that is building a railway raises a loan in London, it may spend the proceeds on steel rails manufactured in Belgium or on rolling stock manufactured in the United States, but the Belgian or American seller of the goods will take payment in sterling drafts because sterling credit is all that the borrowing Government has got for making payment for them, and either they or someone else to whom they pass the credit must buy something in England, for England is the only country where the particular kind of money that has been borrowed passes current in exchange for goods and services." Mr Winston reinforces this quotation with his own observation that "it is of course true that, without any contract stipulation, loans and- other exports of capital bring about an exportation of goods from the lending country—as the payment of the loans, like other payments abroad, is effectuated through an exportation of goods." Which, surely, is only anpther way of saying that trade follows the dollar or the pound, or whatever be the money exported. There is this reservation to be made, that a country with an effective gold standard may have money that it lends taken, not in the form of goods or services, but in gold. This is why restrictions on foreign lending, when it threatened to turn the exchanges too sharply against London, were imposed by the Bank of England. But except at times when the gold position needs delicate handling, those who invest abroad can certainly lay the flattering nnction to their souls that they are helping their country's export trade, 1 hough, as Mr Winston has clearly. proved, it need not be that branch of the export trade which might seem most likely to benefit from the investment. DAIRY PRODUCE. A™?- S ew T%* ,a ? d Loan » nd Mercantile «£ES r -°" J", d - h V wdved th « following Srssti: a;*- <*»»•'*<«™°. >J ) %iL aa S F 0 - **" " ceiTed «» follow. SJLIE. #«."**•! f J° m dated No- ■ P* Quote: New Zealand white unil Sfc'SfeiSf S. 1008 : 0"»«i«? bpo, white"