Ludwell Denny

America conquers Britain

Chapter Six


CHANGED WORLD CONDITIONS are as unfavourable to Britain, the industrial producer and world trader, as they were once favourable.  American competition magnifies all her problems.  Unable to solve her problems of over-industrialisation and over-population, either by migration or by maintaining—much less increasing—the sale abroad of her surplus manufactured products in open or in preferred Dominion markets, she is in a bad way.

But her present condition is hardly as desperate as these factors, taken alone, would indicate.  The answer is in her great financial reserve strength, built up by the prosperity of a century.  She is living on her fat.  She is even adding to that accumulation of fat, though at a much slower rate than formerly, by exploiting backward Asiatic and African colonial areas and by taking tribute from most of the rest of the world in her capacity as international banker.  It is as world banker that she is able to change her unfavourable commodity trade balance into a favourable “invisible” trade balance.  The United States, though displacing her as chief world manufacturer and chief world merchant, has not yet displaced her as chief world banker.

Thus to the extent that international finance affects international trade, the two foregoing chapters, by isolating Anglo-American trade competition for the purpose of study, have somewhat distorted the significance of the trade facts.  To complete the picture, it is necessary to put in the investment perspective.


Profits are made not only by export of tangible goods but by the export of capital, not only through sales abroad but through investments abroad.  International economic relations consist not only of an exchange of “goods”—that is, of commodities and bullion—but also an exchange of “services.”  And the latter are sometimes, as in the case of Britain, more important than the former in achieving a so-called credit balance.

In its publication, The Balance of International Payments of the United States in 1928, the Department of Commerce shows that exports of the United States in that year amounted to $5,334 million and imports to $4,497 million, leaving an apparent credit trade balance of $837 million.  But inclusion of “miscellaneous invisible transactions” reduced the credit balance to $730 million.  Those compensating invisibles included not only such credit items as $523 million interest received from private foreign investments and $210 million receipts from War debts, but also such debits as $525 million of American tourist expenditures abroad, and $189 million of American immigrant remittances to other countries.  For the same year the Board of Trade statement showed that the British excess of imports over commodity exports, amounting to a debit balance of $1,795 million, was transformed by invisible exports into a net credit balance of $745 million.  The largest of these credit invisibles was $650 million of “net national shipping income,” and $1,425 million from “oversea investments.”  From these figures it would appear that the net credit balance of each country is roughly the same, with Britain having a slight advantage.  These totals, however, are arrived at through somewhat different methods by the two governments;  therefore, they are not entirely comparable in the form given.

Approximate comparisons are made by several authorities annually, the most widely accepted probably being those of the London Economist.  The following table and quotation from the Economist, June 2, 1928, cover the period 1922-27:

“In the following table, giving the results for six years past, we have added to the figures from Mr. Hoover’s Bulletin a column of amended figures in which the full total of ‘errors and omissions’ has been assumed to be an addition to the balance on ‘current items account,’ and therefore an addition to the net export of capital.  Even on this extreme basis the American outflow does not equal that of Great Britain.  Comparison of either column with the figures for Great Britain—which in this case have been converted at the precise average current rate of exchange of each year—amply bears out in fact the general thesis we have put forward:

“Our readers will recall that the enquiries recently carried out by Sir Robert Kindersley indicate that the Board of Trade estimate of our income from abroad in 1927 understates the position by at least £10 millions.  None of these figures are of very great accuracy, and they cannot be strained too far.  But they are not inherently improbable.  The great fact of recent years is not that American capital, unable to find a use at home, is inundating foreign countries, but that the outflow has now reached such dimensions that it equals and even appreciably exceeds the inflow of capital from foreign countries which was stopped by the War, but has now revived in very considerable volume.  The fact is that America’s trade balance shows no sign of producing a very large export surplus the proceeds of which she can lend abroad.  She can only swell her foreign issues by lending money that is lent to her or by shipping gold.”

In quoting the above conclusions of the Economist, the National City Bank of New York, in its Bulletin of November 1, 1928, stated:  “The table is a comparison of the official American and British figures, and we are not prepared to question the showing or conclusions drawn from it.  The important point is that there has not been so large an outflow of capital from this country as the list of foreign flotations in this market would indicate.  In the onward march of what some persons have called Economic Imperialism, Britain apparently is still leading.”

The judgment of the London Economist and National City Bank of New York, that the United States has not yet attained the high position of Britain as an exporter of capital, is accepted by others—though certain important qualifications will be presented here later.  In a foreword to The Balance of International Payments of the United States in 1928, Secretary of Commerce Lamont stated:  “The investigation shows that, as a creditor nation, we are no such giant as is often supposed.  War debts aside, we are a net creditor nation in the amount of probably less than nine billions.  The growth of New York as a world financial centre has put us in net debt, on short-term account, to the extent of some $1,638 million;  and foreign long-term capital invested in the United States is now over four billions.”

America’s position as a creditor “is not so advanced as we commonly imagine, at least in comparison with our resources and with the position of a full-fledged and old creditor nation like Great Britain,” according to Dr. Virgil Jordan, chief economist of the National Industrial Conference Board.1  “At present the United States is merely coming of age as a creditor nation.  We are by no means fully developed industrially and financially.  Despite our rapid and sudden alteration from a debtor to a creditor position, we still stand in this respect midway between the older and more highly industrialised nations of Europe and the undeveloped nations like Canada and of South America, destined for long to draw capital from the former for our own development and to lend capital to the latter for theirs.  As our creditor relations grow naturally in the course of 10 or 20 years we shall find ourselves lending more than we borrow and therefore bound to receive in payment more goods than we sell.”

That the United States—which before the War was a debtor nation to the extent of $5,000 million—has now become a net creditor nation of $9,000 million (in addition to $11,000 million of questionable government War debts due), is significant.  Dr. Max Winkler in his The Ascendancy of the Dollar, Foreign Policy Association Information Service Supplement, March 1929, uses higher estimates than the Department of Commerce and fixes the gross total of American private investments abroad in 1928 at $15,600 million.  That would mean a net total of almost $12,000 million, allowing for $3,700 million of foreign holdings here estimated by the Department of Commerce.  Our present creditor position is a healthy and normal one, rather than a temporary inflation.

The comparison between British and American foreign loans and investments shows again that Britain must export a major part of her products and savings in order to exist, whereas the United States with a larger home market and undeveloped domestic outlets for large-scale investment has much less need at this stage of her progress to export a predominant part either of her goods or of her capital savings.  This point, which is frequently ignored by persons unable to understand why Britain in her weakened condition has larger foreign investments than the healthier and potentially stronger United States, was stressed by the Midland Bank of London in its July 1928, Bulletin:

“So-called ‘invisible’ trade is, therefore, far more important, both absolutely and relatively to merchandise trade, in the case of Great Britain than of the United States.  But perhaps a more important point is that, combining the two groups, the total turnover of current trade, ‘visible’ and ‘invisible,’ is probably three to four times as great per head in the case of the United Kingdom as in that of United States.  This is an interesting but not surprising conclusion, for with a vast country, containing some 120 million of people, unrestricted by tariff and other barriers to trade, and largely self-contained in the matter of raw materials, the internal market must necessarily be vastly predominant.”

More significant than the relative positions of Britain and the United States as creditor nations is the comparative trend.  Britain is adding to her foreign investments, but much more slowly than formerly.  She has about $20,000 million in foreign investments compared with our (gross) $15,600 million (excluding War debts).  But her average surplus for foreign investments during the last four or five years has been about $500 million less annually in actual money value than her pre-War rate.2  Meanwhile we are adding to our total much more rapidly than formerly.  Thus we are catching up with her.  Foreign lending by the United States was almost twice as large as that of the United Kingdom during the four year period 1925-28.  The average annual amount from the United States was an estimated net of about $1,100 million compared with an average British net of about $650 million.3  In 1928 America’s figure was $1,100 million and Britain’s $700 million.  That American total, though almost double the British total of the same year, was somewhat less than the $962 million record for all time made by Britain in 1913, if the pre-War price level is adjusted to the present.

From the standpoint of our national strength it is well that we are not catching up with Britain in accrued foreign investments too quickly.  The basic consideration is the rate at which a nation’s total national wealth is increasing, whether by domestic or foreign investments.  Just because we are so much richer—and therefore stronger as an economic Power—than she, our problem is the relatively simple one of apportioning to the best advantage our large annual savings between lucrative domestic and foreign investments.  She has the much more difficult problem of creating sufficient wealth and savings under conditions of over-production and over-population with which to make mounting foreign investments to compensate for her heavily adverse trade balance.  With ample investment opportunities at home, we are under no temptation, or should be under none, to force unduly our natural growth as a foreign investor.  Britain, in exactly the opposite position, is torn between the need of ploughing back her savings into the, for her, all important foreign field, and the need of using them instead to “rationalise” her domestic plant that it may compete with the United States as a producer and exporter of wealth in the form of manufactured goods.

Furthermore Britain in her foreign investments is constrained more than the United States to choose those with the most direct immediate return.  This touches the question of the nature of the capital export.  The form of such a credit, in its effect upon the lending nation, is no less important than the amount in any comparison of America and Britain as creditors.  For instance, one effect of loaning money to poorer nations is to increase their immediate purchasing power.  This helps not only the lender but other nations, especially other creditor nations, which compete with the lender for the trade thus financed.  In that sense British pre-War credit operations created better markets for her chief competitor, Germany, as well as for British trade (though, as will appear later, Britain wherever practicable has earmarked such credits for her own trade).  Similarly, in the post-War period American credits have revived a sick world, and in so doing increased international trade for Britain and others.

Apart from the War debts to us, which represent wealth already destroyed in contrast to reproductive credits, much of the post-War activity of the United States as banker for Europe has been of a quasi-humanitarian sort.  Much of that money was loaned under conditions and for purposes much less profitable directly to the United States than alternative investments possible in this country, Canada, or Latin America.  By loaning Europe the money she wanted, it is true we have gained a certain amount of “ownership” of Europe.  But ownership in Europe during this period has involved relatively greater risk than profit.

While we have been loaning money to European governments, municipalities and corporations, Europeans themselves have been sending their own funds in large amounts to the American money market.  Thanks to this process, in effect we have been borrowing their money and loaning it back again to them.  In return for the slightly higher interest rate received, we took the risk of underwriting Europe at a time of great chaos and uncertainty.  The American paper held by Europeans is good, but it remains to be seen whether all the European paper held by us is good.  Francesco Nitti, former Finance Minister and former Premier of Italy, puts it as follows:  “Europe has sufficient capital to make loans to her industries, but she prefers to have a guarantee of a third party.  The United States insures the European investor against the danger of political disorders and against monetary disorders, which are largely the result of the first.  Europe prefers to lend to herself, but she prefers to lend through America, because in this way she feels more secure.”4  Presumably most of central and western Europe is passing out of the post-War period of political and fiscal instability, and is becoming again an investment safe enough for the Europeans themselves.  They may be expected therefore to buy back some of that American ownership.

Britain has been no more anxious than the Europeans to carry this European financing load during these unfavourable years.  In 1927, for instance, when our total foreign investments were twice as large as Britain’s, our European investments were four-fold as large as hers, or, put in another way, she risked in Europe about one-sixth of her foreign total, while we risked almost half of ours.  It would be absurd, of course, to suggest that these European investments represent chiefly altruism on our part.  But so far as direct trade returns are concerned they have probably helped Britain and others as much as they have helped us and as direct investments have been less profitable to us than certain British investments made elsewhere during the same period.  In part these large European flotations on the New York market have been possible only because of the relative inexperience of the small American investor as compared with his British cousin.  Our supremacy in the field of European financing in the post-War period, therefore, should not be understood altogether in the light of winning in banking competition against Britain.

But there has been direct Anglo-American credit competition in some other fields, a competition which is growing as the world overcomes the capital shortage caused by the War destruction.  First, in the richest of all fields, the United States itself.  British investments, which in this country were at the rate of $111 million a year just before the War or approximately double that amount at present money values, dropped in 1927 to $1.5 million.  Britain’s next longest drop was in Canadian flotations, from $645 million (present value) in 1913 to $50 million in 1927, compared with our $268 million.  Her annual rate of investment in Latin America dropped almost to one-fifth of her pre-War rate, and is now only at one-third the American rate of growth.  In the Far East, including her Dominions and India, she fares somewhat better, investing now at an annual rate of $255 million, which is almost up to her pre-War rate and considerably above our own.  The only area in which she is dominant, as she formerly was dominant almost everywhere, is Africa, where there is as yet virtually no American credit competition.  Africa is the only region in which Britain has increased her annual rate of investment, rising from $78 million (present value) in 1913 to $172 million in 1927.

In other words, Britain, partly because she is being restricted in Dominion and Latin American markets by United States credit competition and partly by deliberate design, is turning increasingly for foreign investment outlet to undeveloped colonial regions such as Africa, the Malay Peninsula, and similar regions rich in raw materials such as copper, tin, oil, and rubber.  By so doing she is gaining in rapid monetary returns and in mineral and other natural resources of the colonial areas;  but she is losing her hold on raw materials and markets in the larger semi-industrialised countries.  This also explains in part Britain’s poor showing in trade competition, as compared with the United States, in such regions as Latin America.

We practically have bought our way into Latin America in order to sell to that combined market 39 per cent of its total imports.  To do this we increased our investments in South America proper from $177 million in 1912 to $2,215 million in 1928.  Including Cuba and Mexico, our Latin American investments exceed $5,000 million.  Our 200 per cent gain in South American trade in the last 15 years reflects our twelve-fold increase in investments there.  Our investments there are also superior to Britain’s in the matter of geographical and financial diversification.  Hers are chiefly in the Argentine, Brazil, and Chile, mostly in railroads, while ours spread to all countries.  In the Argentine, our total of $500 million is still far below her $2,000 million, half of which is in railroads.  The phenomenal growth and diversification of American investments is shown by the following comparative figures in millions of dollars for 1912 and 1928:  Chile from 15 to 520, Argentina 45 to 500, Brazil 50 to 447, Colombia 2 to 211, Peru 35 to 150, Venezuela 3 to 172, Bolivia 10 to 110, Uruguay 5 to 67, Ecuador 10 to 30, Paraguay I to 15, Guianas from 1 to 9, according to estimates by Dr. Max Winkler.  Diversification extends from government and municipal loans to branch banking, merchandising, manufacturing, railroads, communications, electric power and public service corporations, raw materials such as copper, nitrates, iron, tin, rubber, and oil, and foodstuffs such as fruits and sugar.

Rapid extension of foreign investments has been made possible in part by growth of our international banks, with branches abroad.  In the period 1927-29 in New York alone 50 banks participated in mergers, creating ever larger concentration of capital for domestic and foreign use.  National City Bank, in addition to its extensive organisation in this country arid Canada, has 98 branches in 26 foreign countries.  Such branches are outposts of the American trade and investment empire.


Wide diversification of American investments abroad raises the question of the effect of foreign financing upon the creditor and debtor nations, politically and economically.  Effects vary widely with the type of credit.  First, there are loans made by one government to another, such as the War and post-War debts due the United States amounting to $11,000 million.  These are in a class apart, and will be considered later.  In addition there are private American investments abroad amounting—according to Winkler—to about $15,600 million of which about $13,000 million was made in the period 1914-28.  The geographical distribution in round millions is:  Europe $4,800;  Canada $4,100;  Latin America $5,500;  Far East and elsewhere $1,200.

Our capital export is of two general classes.  The purpose of one class is to stabilise foreign exchanges, to relieve foreign banks, or otherwise aid foreign governments in their exclusively financial operations.  The second class in the main are industrial credits and investments, made to governmental agencies or private concerns for the purpose of developing natural resources and industry.  Of the present total almost half are direct American investments in foreign resources and industries.  Our pre-War investments were almost exclusively of that type.  But in the period 1914-28 two-thirds of the total went to foreign governmental agencies.

Now that the world is passing out of the post-War period, our investments are beginning to flow again in larger proportion to direct investment in industrial enterprises.  Industrial distribution of our 1914-28 foreign corporate securities, which total $4,500, is in round millions of dollars as follows:  Public utilities 1,000, railways 777, banking 666, paper 443, sugar 349, mining 261, oil 185, iron and steel 152, matches 99, steamships 98, chemicals 73, harbours and docks 28, miscellaneous manufacturing 24, automobiles 22, department stores 21, tobacco companies 20, churches 16, chain stores 15, fruit companies 15, rubber 13, cables 12, lumber 11, dairy companies 10, and dozens of other industries including the rapidly growing motion picture foreign investment.  Narrow distribution in ownership is indicated by the fact that “17 American corporations operating in foreign countries floated bond and stock issues totaling $147 million in 1928” out of a total of $845 million, according to the Department of Commerce.5

Of the two general types, financial and industrial credits, the effects of the former are less direct and therefore more difficult to trace.  As indicated, the general effect of financial credits is to increase purchasing power, either through furthering the rehabilitation of old countries or development of new countries.  Such increased world purchasing power tends to benefit all exporting nations.  Thus this type of American loan has benefited British trade as well as our own.

In order to get as much direct benefit in trade as possible from her foreign financing, Britain has long resorted to “earmarking” and other discriminatory practices.  Largely through this hook-up between her foreign banking and export trade she was able to maintain the latter at such a high point and against severe world competition that its proceeds be expended by the borrower on British goods she built up a compulsory trade.  Much of her investment field has been consciously chosen with an eye to its adaptability as a direct market for the surplus of British heavy industry.  Thus the predominant position of railway loans in her total foreign investments;  first in the United States, later in China and in Latin America.  In his The Export Capital, 1914, Mr. C.K. Hobson estimated that of Britain’s total foreign investments about 60 per cent, that is, $10,500 million, was in foreign railways and their construction.

Besides the unofficial earmarking method Britain has certain official credit schemes for stimulating exports.  The Empire Marketing Board and its appropriation of more than $48 million, already discussed, is one.  The East African Loan Act, extending a $48 million revolving credit for railroad, highway, and harbour materials and construction, is another.  The Export Credit plan is another.  This was initiated in 1919 with a fund not to exceed $125 million to finance merchandise exports.  At first limited to trading with America and certain Eastern European and Balkan countries, it was changed in 1921 to more of an export insurance plan and extended to all countries except Russia and certain products, chiefly textiles, for India and the Far East.  Its credit and insurance facilities were changed again in 1926 and 1928.  The Government now at a loss to the state of about $100,000 is guaranteeing export credits of more than $15 million annually.  Its adherents claim it has materially increased British exports and to that extent reduced unemployment, and has been especially helpful to small and medium sized companies.

The United States Government has no such financial and insurance machinery to increase manufactured exports.  In this country private sources are apparently adequate without the governmental aid required by the unhealthy British economic conditions.  Our bankers and acceptance companies, judging by results, are efficient in extending credits in such a manner that the foreign buyer will be “encouraged” to continue favouring Yankee goods.  One typical American method is to extend to the foreign market the plan of instalments selling and instalment financing, so successful in the last decade in multiplying consumer demands and buying power in the domestic market.  The “advantage” of this is that it mortgages the domestic or foreign buyer’s future, and at the same time insures “follow through” marketing and financing operations on the part of the seller.6

Though the Washington Government, unlike the British, has not entered directly into the practice of obtaining export markets for manufactured products through credit influence or control, American firms have in many cases tried to ape the British “earmarking” method of compulsory trade.  In general, however, such crude methods are frowned upon both by the American Government and American business in favour of subtler methods.  The Government’s attitude is described as follows by Assistant Secretary of Commerce Klein:  “Our American investment bankers have been warned that unless they proceed warily in this field, with every precaution against the stimulation of undue foreign competition through such loans, they may destroy the American industries which, so to speak, are producing the very funds that are being used in the given loan or investment.  Governmental control over such loans is obviously out of the question ...;  the perils of such bureaucratic paternalism are too evident to require discussion.  There are, however, other devices which are being suggested.  In various European countries considerable use is being made of interlocking directorates;  that is, the same executives sit both on the investment bank board and on that of the given industrial enterprise;  consequently, the bank will be careful not to finance a foreign enterprise competing with the native industry controlled by the bank’s officials.  This was a conspicuous feature of Germany’s oversea activities just before the War, and there are occasional evidences of the practice in our recent experience in one or two South American countries.”7

To say that there are “occasional evidences” that Americans practice this indirect method of “earmarking” puts it very mildly.  But it is doubtless true that American business on the whole realises that the cruder forms of compulsory trading create resentment on the part of the foreigner and to that extent are not “good business” in the end, especially in highly competitive markets.

These strong-arm credit-trade methods are believed to be one factor among many responsible for Britain’s recent losses in competition with the United States in the export of credit and of goods.  Obviously Britain can still succeed with such methods in markets where she has a virtual monopoly, such as British East Africa.  But even in her preferential Dominion markets, such practices often increase her unpopularity and turn the Dominion borrower toward New York.

In quasi-open and in free markets Britain fares worse by such methods.  There was a striking case in 1929 in Greece, which has long had close political relations with Britain amounting to a virtual alliance.  Britain always has attempted to exploit that relationship for her own economic ends.  The British firm of Hambros has been the Greek Government’s banker for a century.  When the Greek Government in 1929 sought a large loan from Hambros, the latter tried to force the Government to enter an agreement giving the bank a monopoly on all future state loans.  Premier Venizelos replied by introducing a bill in the Chamber for obtaining the money from the American house of Seligman.  “We have a moral as well as a material interest in seeing that we are as free to turn to New York as to London when we need money,” the Premier told the Chamber.  But Seligman, no more than Hambros, was able to control absolutely the expenditure of the loan, which was for reconstruction of most of the country’s public service works.  British firms were later said to have obtained contracts up to $50 million in sharing the material and construction expenditures with American companies.  British papers reported that the Americans as well as the British had attempted “earmarking” methods.8

Even in the case of railway loans, in which “earmarking” has been more successful than in other types of loans, it has not always worked.  After a special study of the trade in railway materials to Asiatic and South American countries, Dr. A.P. Winston, University of Texas, concluded:  “This class of merchandise has not been purchased with a prevailing regard for the nationalities of manufacturers.  For each nation trade has followed investment somewhat in proportion to each nation’s industrial capacity.  French manufacturers have not found a market even when large amounts of French capital have been placed.  Manufacturers of the United States and Germany have sold in large amounts where substantially no American capital has been employed.  Even railways financed from Great Britain-great in manufacturing as well as in foreign investments-have drawn in some degree upon the markets of other nationalities.”

But the fact that crude credit methods to obtain compulsory trade cannot be depended upon by Britain in the future as in the past, except in a few of her monopoly colonial markets, does not minimise the importance of foreign loans in obtaining a market for foreign manufactured exports provided the methods used are not too direct and too offensive to the borrower.  That the United States has been somewhat more effective than Britain in turning loans into orders is clear from comparative loan and trade statistics.  Mr. Thomas W. Lamont, a partner of the House of Morgan, in addressing the 1927 meeting of the Academy of Political Science used the South American example to support the familiar dictum that “Trade follows loans.”  He concluded:  “It is not unreasonable to assume that our enlarged share of South American trade will be sustained, if we continue to invest at the rate of $300 million a year or more in that continent.”9

Probably, however, all such generalisations need to be qualified.  Such a qualification, difficult to escape in view of the figure cited, was provided by the Department of Commerce in its The Balance of International Payments of the United States in 1928:  “It is generally believed that trade (meaning the export of merchandise) follows the loan.  There is better reason to expect that, at least, the visible trade balance will follow the net export (or import) of capital, though even this more direct relationship failed completely in the case of the United States during the 35-year period ended in 1910.  It is, therefore, noteworthy that, while our aggregate favourable trade balance (unadjusted) was $4,855 million during the seven years ended on December 31, 1928, our net export of capital was only $3,253 million.  We may infer from these approximate facts that, had we neither exported nor imported capital, there still would have been favourable trade balances averaging about $229 million a year.  To some such extent has our visible trade followed not the loan but the invisible items—plus (or minus) gold and silver shipments.”10

There is a limit therefore to the influence which foreign credit can have, directly and indirectly, in increasing the commodity trade of Britain or the United States.  To the extent that Britain in the past has depended upon credit to maintain an artificial commodity export trade, she is now finding her industrial problem increased.  With increasing credit and trade competition, paralleled by the crumbling Empire monopolies and quasi-monopolies in foreign markets, production and marketing efficiency as well as credit facilities are the determining factors in obtaining export orders.  America is better able to succeed under such competitive conditions.  This is not only because of our natural production advantages and larger home market, but because the British compulsory foreign market schemes in part have maintained, through virtual subsidy, inefficient British industries which are now unable to compete equally in open markets.


In contrast to such financing loans are direct investments abroad, either through establishment of branch factories or acquisition of foreign industries.  Such industrial investments enable the investor to cut under tariff and preference walls and other trade barriers, to lower costs of production and distribution to foreign markets, and to establish a peculiar and close relationship between the creditor and debtor nations, sometimes helpful and at other times harmful.

This type of investment abroad tends to destroy the purpose and effect of tariff.  A national tariff under such circumstances not only fails to protect domestic industry against a foreign competitor, but actually aids the foreign competitor—with his usually superior producing, marketing, and credit organisation—to conquer the domestic market.  The tariff subsidy, which is justifiable, if at all, on the ground that it robs the domestic consumer to protect an essential national industry, becomes a subsidy to the American trust or Continental cartel.  These ramifications are wide.  They often involve, as in the case of France, access to a monopoly colonial market;  or in other cases involve access to national raw material monopolies.  Moreover, profits of the enterprise do not remain in the country, much returning to the American, or other foreign, headquarters of the trust.  President Hoover often uses the phrase “polyangular” trade to describe the indirect exchange of goods, raw materials, and services between nations, which enables debtor nations to “pay” the United States despite its high tariff walls shutting out many of their goods.  But here is a new kind of polyangularity which, if developed, will make the entire protective tariff principle absurd.

So far, however, this process has worked to the advantage of the United States, because there are so many more American companies working behind foreign tariff walls than foreign companies operating in the United States.  Britain suffers.  For this has become one more of the many advantages seized by Yankees in the Anglo-American economic warfare.  Britain, with fewer factories in Europe, is less able to compete in those markets against the American trusts and Continental cartels.  The situation is even worse for Britain in the Dominions, where the American interloper—for instance, the American controlled automobile industry in Canada—obtains not only the normal advantages of a tariff protected industry but in addition nullifies all the carefully built up British advantages under the Empire Preference scheme.

Second, the American factory abroad is able to cut distribution and marketing costs, and in many cases labour production costs.  That is the most difficult form of competition for Britain to meet.  We come back again to the basic British problem, which is not foreign trade alone but foreign trade to provide work for an over-industrialised and over-populated home country.  In the case of automobiles, for instance, it will not solve Britain’s problem to establish factories as the United States has done in Canada and Europe.  Her primary interest in automobiles is a new home industry to provide work for her army of unemployed, who can never again be absorbed by the older heavy industries, who apparently cannot be forced to migrate, and who cannot make a living unless new industries are established in Britain on a large scale.  But Britain cannot have a large scale automobile industry without export trade.  And how can she meet superior American competition in the export field, which meant originally higher American production efficiency and larger home market as the basis for a cheap export product, and which has now, come to mean also the advantage of American factories located in the foreign markets themselves?  The difference is wide.  America is able to utilise the most economic adjustment of production to market, in the domestic and foreign fields.  Britain is unable to do so because of her task of maintaining an uneconomic industrial system at home.

A third effect, or series of effects, have to do with the general relation between the creditor and debtor nations created by American industrial penetration of other countries.  On the one hand, this tends to “Americanise” the invaded country, and to that extent improves the market for all other American products.  Conversely, it has created in many cases an anti-Yankee reaction, inspired by fear that the home land is becoming an “American colony.”  To determine how much of this reaction is spontaneous and general in the population;  how much is inspired by domestic business interests naturally resenting such intrusion by their American competitor;  or how much the nationalistic governments are directly responsible, is difficult.  Apparently the foreign business interests and governments are more resentful than the consumers, who in foreign countries as in the United States are apt to worry more about the price and value of a product than the ownership or nationality of the factory which produced it.

In any event, several foreign countries have taken precautions, and others are on the point of doing so, to protect themselves against Yankee investment invasion.  The nature of those discriminations varies in different industries and different countries.

American automobile manufacturers have been least affected by foreign retaliation.  This is because of the unusual popularity of their product, and their wisdom in co-operating with local credit, raw material, and manufacturing interests, and in offering their stock for local subscription.  A large part of our automobile export business is operated through assembling plants abroad.  Export of automobiles and accessories in the first half of 1929 increased 36.4 per cent over the same period in 1928, reaching a total of $339 million and displacing raw cotton as our leading export.  It was an easy step from assembling plants to establishment of production branches in foreign countries.  As in this country, local conditions determined whether the large American corporations bought out or bought into a foreign competitor, or started a new competing plant.

General Motors, which has 24 overseas plants and 6000 foreign distributing centres, several years ago acquired the Vauxhall Company in England.  In 1929 it acquired controlling interest in the Opel Company of Germany and is said to be conducting negotiations for control of the Citroen Company of France.  The Opel transaction, amounting to $30 million, brought to General Motors the largest automobile manufacturer in Central Europe.  Citroen has 40 per cent of France’s total production.  Ford has established large manufacturing plants in Ireland and England, and is negotiating for properties in Germany, France, Poland, Russia, and elsewhere.  Ford, to prevent a “Yankee peril” cry, sold the public shares of his British company and its Belgium subsidiary to Britons and Belgians.  But they succumbed to higher Wall Street bids, and within a few weeks most of the stock was reported in American hands.  The British and Belgians can hardly blame the Ford Company, whose products probably will be enhanced in popularity by this gesture of nationalistic sentiment.  General Motors, and other American factories in Germany, such as Ford, Graham-Paige, Willys-Overland, Chrysler, and Hudson, are now using or planning to use German steel and other materials, partly to minimise the hostility of German industry toward the “invader.”


The largest American industrial investments abroad are in the public utilities field—accounting for more than $1,000 million of our total $4,500 million of foreign corporate security acquisitions since 1914.  Penetration of utilities and electrical industries has stimulated the anti-American “protective” movement.

Any one doubting the bitter and unscrupulous nature of the Anglo-American economic struggle should study the recent case of the British General Electric.  To prevent American control that company took two revolutionary steps destroying the sanctity of property rights upon which the capitalist system itself is based.  One step was the complete denial of voting rights to Americans, who now own more than 60 per cent of the stock.  The other step was to confiscate property rights of the American majority stockholders by excluding them completely from participation in a new stock issue limited to Britons.  The latter action was later withdrawn under the pressure of British capitalism, which feared this would be used as a precedent for destruction of British investments in foreign countries.

The fear which drove the British General Electric to this—from the capitalist point of view—madness was reported by Mr. Norman Crump of the London Financial Times to be the following:  “The view put to me broadly is this:  ‘American electrical interests have already acquired complete control of the industry in many European countries.  They also have their footing already in Great Britain.  It is virtually only the General Electric Company of Great Britain that stands between us and American control.  If once America gained control, she would have a virtual world monopoly. ...'”11According to the financial editor of the London Standard, March 20, 1929:  “It is no secret of course that the real basis of objection to American control of our General Electric Company is the fear that it may become a subsidiary of American General Electric.”

An extraordinary meeting of the British company called by its chairman, Sir Hugo Hirst, in August 1928 deprived foreign stockholders of all voting rights.  Concerning the revolutionary implications of this “financial Bolshevism,” an article in the London Chronicle, March 15, 1929, said:  “It seems extraordinary that American shareholders did not object strongly against this revolutionary act of disfranchisement.  It is a common enough practice to limit the voting rights of foreign shareholders.  For example, to comply with Swedish law the great Swedish match company in issuing shares in London and other international centres has always limited voting rights to one-thousandth of a vote per share, while Swedish owned shares receive one vote per share.  No objection ever has been raised to this practice.  To deprive foreign shareholders of the right to vote at all is revolutionary.  It is a step which British holders of foreign securities would describe as financial Bolshevism.”

But American stockholders did not then or later formally protest that astounding abolition of the right of franchise.  Instead they went on buying, increasing their holdings in six months from 40,000 shares when the disfranchisement occurred to 1,500,000 shares.  That was too much for Sir Hugo.  At a company meeting in March 1929, he announced that Americans had acquired 60 per cent of the stock.  He proposed that the British character of the company be re-established by issuing and selling only to Britons 1,500,000 shares of new stock.  Though the old stock was selling at $14, the new was to be sold for $10—which involved an added element of confiscation.  The meeting enthusiastically passed the resolution, to the tune of anti-American speeches, with less than a dozen negative votes.  This action was taken over the protest of a vote-less representative of the American majority stockholders.

But the British press objected almost unanimously.  More effective was the protest by representatives of the Bank of England and the London Stock Exchange.  British objections were of three kinds:  1—The plan, by destroying the right of stockholders to participate in new stock issues, would tend to jeopardise rights of all Britons in all British companies.  2—Britain’s existence depends upon her foreign investments, returning an annual income of $1,140 million, which might be wiped out by retaliation of other countries following the British General Electric example.  3—The plan threatened to provoke an American capital boycott of Britain “at a time when it is in the supreme national interest that nothing stop the flow of money from New York to London, which is helping the Bank of England in its desperate struggle to protect its gold reserves and to maintain the pound against the dollar.”

A typical statement regarding the larger British interests, which would be sacrificed for the smaller gain of the British General Electric, was given in the London Chronicle article quoted above:  “The decision of the General Electric Company to restrict its new issue of shares to British subjects only strikes a blow at the position of London as the world’s financial centre.  There are no two opinions about this matter among responsible authorities in London.  Unfortunately, the General Electric directors seem to have insulated their minds against the shock of City opinion.  The consequences of this discrimination may be serious if foreign companies in which British investors are interested retaliate or follow General Electric’s example.  The extent of our foreign holdings is enormous.  The Board of Trade has just estimated that the net income from overseas investment is $285 million a year.  If British shareholders were to be deprived of voting rights and subscription rights in foreign companies it would bring heavy loss to the national income and wealth.  It is quite true that General Electric occupies an important position in the British electrical industry and that that industry contributes to the national wealth.  But the City of London is also contributing to the national income and its earnings depend upon the extent to which its financial machinery is used as an international centre for investment business.  The London Stock Exchange is one of the most important parts in that financial mechanism and if it cannot guarantee the foreign capitalist free dealings in British securities because of restrictions which British companies impose, the London Stock Exchange will lose its position as an international market and business will flow to other centres.  It is these broad national considerations which seem lost on Sir Hugo Hirst and his colleagues in their desire to be 100 per cent British.”

Representatives of the majority American stockholders hurried from New York to London after having induced the State Department to instruct the American ambassador to watch the situation and render any proper aid.  While they were at sea, Sir Hugo as a sop to British objections recast his plan so that the Americans would have an equal right to buy the new shares provided they were sold back to Britons within ten weeks.  This revised plan won the support of part of the British press, including the London Times.  But the American representatives objected as much to it as to the original plan.  They threatened a virtual American capital boycott of Britain:  “May we not suggest that should the action proposed by your company be consummated, it will not only react most unfavourably on American sentiment with respect to your shares, but also as to other English shares traded in by the American public?” The statement of Mr. Swope and Mr. Chadbourne, the American representatives, on arriving in England was reported by the New York Times as “virtually an ultimatum in this financial war.”12

The London Herald, Labour organ, under a headline across its front page, “Growing Grip of U.S.A. on World Business,” stated:  “Every one knows that since the War New York has become the arbiter of world finance;  but not every one knows that the United States is becoming also the centre of world capitalism.  The power that Britain’s capitalists wielded prior to the War through their hold on foreign investments and developments is passing into the hands of their American confreres.  And it is realisation of this that has led Sir Hugo Hirst to try to condition the nationality of his shareholders.”13

Threat of an American capital boycott and pressure by the London Stock Exchange, which amounted to a reported refusal to deal in the proposed discriminatory shares, forced the company to withdraw its plan.  But Sir Hugo at the company’s annual meeting in July 1929, after boasting that many other British companies and industries by various methods were fighting the American invasion, announced that his more extreme plan had been withdrawn only “to wait until public opinion was better informed on the subject.”  He said:  “During the recent controversy in connexion with the creation of our British ordinary shares I ventured to predict that we should have plenty of imitators.  This prediction has justified itself, and the numerous examples in which action has been taken to secure British control, be it in the rubber industry, railways, cable, or motor-car industries, convince me that the stand we then made has drawn attention to this very important problem, and public opinion is beginning to see that our aims were right.  I think that this justifies our action in preferring to withdraw from that controversy and to wait until public opinion was better informed on the subject.  The main lesson that 1 learnt abroad was the profound patriotism of the people in our overseas Dominions, and their desire to remain British and to the fullest extent to support British industries.”14

It is interesting to note that the two most extreme leaders of the “100 per cent British” movement against American capital, Sir Hugo Hirst and Sir Henri Deterding, are not men of British origin.  Sir Henri, who is the British general in the oil war, is a Hollander by birth.  Sir Hugo at the height of the General Electric controversy was denounced by a Labourite in Parliament as “a super-patriot of German origin.”

Sir Hugo’s pledge to revive his plan of confiscation of American capital’s property rights probably cannot be carried out.  There is no reason to suppose that British capital as a whole will be any more willing in the future than it was in 1929 to permit him to jeopardise all British foreign investments.  Doubtless he will have to be content with that large measure of “financial Bolshevism” involved in his complete disfranchisement of American stockholders, which still stands.

Meanwhile the American General Electric stockholders, besides large holdings in British General Electric, have become the largest stockholders in a giant merger of other British electrical companies which dwarfs British General Electric.  American General Electric (through the International General Electric Company) for many years had controlled British Thomson-Houston.  Then it bought large holdings in Metropolitan-Vickers Electrical, Edison Swan Electric, and Ferguson Pailin.  Early in 1929 those four were fused in a holding company, Associated Electrical Industries, representing “the largest combination of undertakings engaged in electrical manufacture in Great Britain.”  At the time of the fusion American General Electric was the largest individual shareholder, though lacking a majority of the shares in value or in voting power.

Negotiations are under way to merge Associated Electrical Industries and British General Electric into one complete British manufacturing monopoly, in which American General Electric interests would be the chief and perhaps the majority stockholders.

American General Electric interests which invaded Britain represent one of the largest, if not the most powerful, international trusts and combinations of international trusts in the world.  At its head is Mr. Owen D. Young, whom the European governments twice called in to adjust international finances through the German reparation settlements.  It dominates the electrical manufacturing industry of the United States and the world export trade.  Its offspring, Electric Bond and Share, directly controls companies in 29 states producing 15 per cent of the power used in the United States, and has connexions with the other four of the “big five” holding companies, which together control 52 per cent of the United States power production, according to the 1929 report of the Committee on Coal and Giant Power.  General Electric capital interlocks with Electric Bond and Share, the identity of stock holdings being 79 per cent, according to the Federal Trade Commission (1927).

The Electric Bond and Share Company subsidiary, American and Foreign Power, controls the public utilities of eleven foreign countries and has large holdings in six other countries.  Its large interests are in Cuba, Argentina, Mexico, Brazil, Chile, Colombia, Venezuela, Ecuador, Panama, Costa Rica, Guatemala, China.  In 1928 it more than doubled its investments, from $108 million to $285 million.  Part of this expansion meant the sacrifice of foreign utilities control by British interests.

American General Electric also has holdings in or owns 14 electrical distributors including Canadian General Electric.  It is also reported to have “substantial” interest in Italian Super-Power, whose ramifications extend to virtually every electric company of size in Italy and which is making that country independent of British coal exports.  It helped to organise the Sociéte Générale Constructions Electriques et Mécaniques, the largest French electrical manufacturing combine.  It has a $26 million equipment contract and 10-year “technical assistance” agreements with the Russian Government.

More important, the German General Electric or famous “A.E.G.” (Allgemeine Elektrizitaets Gesellschaft) has come under partial control of American General Electric, which in 1929 increased its stock holdings to approximately one-third interest in the German trust.  A.E.G. was made the most powerful corporation in its line in Europe by the late Dr. Walter Rathenau, the statesman of the German Republic.  The 1929 agreement between A.E.G. and American General Electric provided for co-operation in every country in the world and placed Mr. Young and four other directors of the American trust on the A.E.G. board.  American General Electric promised not to seek absolute control.  But the Berlin Vossische Zeitung observed:  “The American electrical industry has conquered the world, and only a few of the remaining opposing nations have been able to withstand its onslaughts.”15  Dr. Karl Friedrich von Siemens, head of the largest competitor of A.E.G., called upon Germany to save the Fatherland from falling into the hands of “foreign pilots who would use German captains [of industry] as cabin boys to do the will of the foreigner.”16  The American-German combine in the electrical field was all the more alarming to certain Germans because similar American penetration was taking place in several other key industries, such as shipping, chemicals, oil, and automobiles.

Nor do ramifications of American General Electric stop with the countries and industries described above.  It interlocks with the Radio Corporation of America, which in turn is a many-headed international trust embracing several industries.  And there is perfected an agreement, subject to removal of American legal restrictions, for merger of R.C.A. with that remarkable world combine of communications trusts, International Telephone and Telegraph.  (The R.C.A.—I.T.T. struggle against the British for international domination of cable, radio, telegraph and telephone systems is the subject of Chapter XIV.)

In addition to American General Electric and I.T.T. other American corporations and banks have heavy holdings in foreign electric and public utility companies.  Wall Street since the War has loaned German electric and power companies $210 million and Italy $115 million.  In 1928 alone foreign public utility offerings in the United States amounted to more than $382 million, including one bond issue of $70 million to Tokio Electric Light.  As stated above, American investments in foreign public utilities in the period 1914-28 reached a total exceeding $1,000 million.

Two of the independent American groups active abroad are Westinghouse Electric and Manufacturing and the Harriman interests.  The latter have large electrical holdings in Poland.  The former in 1929 joined with the great French Schneider trust (iron, coke, steel, locomotives, machinery, electrical industries) to form the Westinghouse-Schneider Company.  Though the new company will compete in part with the American General Electric combine in France, as Westinghouse competes in part with General Electric in the United States, nevertheless American General Electric and Westinghouse have a contact through Radio Corporation of America.

American banks and American General Electric interests have substantial hold on the international utilities combine, Trust Financière de Transports et d’Entreprises Industrielles.  This was organised in 1928 by Mr. Dannie Heineman, an American living in Belgium.  He was an associate of the mysterious magnate Alfred Loewenstein, who, a few months before organisation of the Trust, disappeared while crossing the English Channel in a plane.  The Trust represents—besides American—German, French, British, Spanish, Swiss, Belgian, Dutch and Italian interests.  Many of the leading banks of the world are connected with it, including:  American—Guaranty, Bankers Trust, Dillon Read, Kuhn Loeb, Lee Higginson, International Acceptance;  British—Midland, Baring, Rothschild;  German—the four Big “D” banks;  Belgium—Cassel, Banque de Bruxelles, Allard;  Swiss—Credit Suisse;  Dutch—Mendelssohn, Handel Maatschappy, Hope;  French—Financière Electrique.  The Trust constitutes a reorganisation and extension of the earlier Heineman combine, Sociéte Financière de Transports et d’Entreprises Industrielles (“Sofina”), the Compania Hispano Americana de Electricidad (“Chade”—which had previously acquired the Dutch Overseas Electric or “Dueg”).  The new Trust is of unusual character, combining qualities of a holding company, a cartel, and an operating company;  it will operate and co-ordinate a vast group of public utility companies all over the world, in many of which it will have only a minority stock interest.

Utilities Power and Light Corporation (an American concern with assets now approaching $475 million) in 1929 acquired the entire common stock of Greater London Counties Trust, one of the largest British utility corporations.  This London corporation controls the seven chief British power companies, which operate on a monopoly basis in 95 cities in England and Scotland, and also controls the Edmundson Electrical Corporation, which owns 12 electrical supply companies.  The deal whereby American capital acquired the entire common stock of this super-trust, dominating such a large portion of the British utilities industry and so many British cities, was investigated by the British Government.  The Minister of Transport, Colonel Ashley, on Feb. 18, 1929, told the House of Commons the Government had decided that efficient operation was of more consequence than “whether the capital happens to be British or American.”17

Under the new American owners the Earl of Birkenhead, former Secretary for India and Lord High Chancellor in the Conservative Government, became chairman of the board of directors.  His “explanation” of the transaction, which is as unsatisfactory to many Britons as it is unclear to Americans, follows:  “The organisation with which I have decided to associate myself is British, although it is associated with the Clarke interests in the United States.  Its board of directors is and will remain British. ... It is not interested in any respect in the purchase of American or other foreign materials or machinery, and its purchases will result in the employment of British material and labour, and its entire staff will remain British.  So far as finance is concerned this has been found up to the present almost entirely through Clarke interests in America, but the broad policy of the trust is to obtain money in the cheapest market, and it is within its province to obtain funds in Britain if it is possible to do so at a cheaper rate than elsewhere.”

That language of a great legalist cannot obscure the fact that the Americans own this huge semi-monopoly, but it apparently indicates that the owners have agreed to use British materials and labour and retain, nominally at least, a British “board of directors.”  Obviously such an arrangement is a happy one for the Americans, who own and control the trust—especially if such an arrangement will quiet British opposition to American financial and industrial penetration.

This episode is enlightening because it reveals the desire and the ability of Yankee capital to bid higher than London bankers to obtain control of a British key industry upon which the modernisation of Britain depends.  Why ?  The Manchester Guardian Commercial has stated the question and the answer:  “Is it owing to some lack of enterprise on the part of British investors ?  Or is it owing to the overpowering wealth of America which enables her to sink capital in undertakings which promise a smaller return than could attract British capital at the existing level of interest rates ?  Probably both reasons play a part in the matter.  Thanks to close co-operation between technique and finance, the American electrical interests have been very successful in developing and extending electrical service throughout their continent and that of South America, where they have recently added considerably to their spheres of influences by the purchase of undertakings previously controlled by British capital.  It is probable that they have discerned the potentialities of the electric field with a more vivid imagination than have their British rivals.”18

Efforts of British General Electric to prevent control by American stockholders are in line with similar action by other industries.  The Burma Corporation has deprived foreign shareholders of all voting rights, on the ground that its large mining leases from the Indian Government make British control essential.  British companies restricting foreign stockholdings to a minority, usually not more than 20 or 25 per cent, or in other ways preventing American control, include:  Imperial Chemical Industries, Rolls-Royce, Imperial Airways, Buenos Aires Great Southern Railway, Buenos Aires Western Railway, Entre Rios Railway, and Marconi International Marine Communications.  Similar steps are being taken in such industries as oil (Dutch-Shell, Venezuelan Consolidated Oilfields) and rubber (Rubber Plantations Investment Trust).

In France the system of plural voting shares is employed against foreign control.  That system was originated at the time of the fall of the franc in 1926.  It prevented American interests, and Germans acting for Americans, from capturing such important banks as the Crédit Lyonnais and such corporations as the Establissements Kuhlmann, the French chemical trust.  Since then many other large French companies have adopted the plural voting plan, including the Pechiney aluminum trust, Pennarroya lead company, Les Acieries du Nord et l’Est, Les Acieries de la Marine, Compagnie Français de Metaux, Electro-Metallurgie de Dives, Compagnie des Travaux Metalliques, Moteurs Gnome, Les Mines et Fonderies de Zinc de la Vieille Montagne.  Under the plan company control falls into the hands of a special class of small shares, distributed to nationals and withheld from American and other foreign holders of regular stock.  A national minority owning, say, only five per cent of the total capital is thereby enabled to control the company.  To prevent possible future misuse of this weapon against nationals instead of against foreigners, there is a demand that the system be under government regulation and permitted only when the national interest requires.

This plural voting system is perhaps best known in the case of the Svenska Tandstick, which gives certain Swedish stockholders a thousand-to-one voting strength in that perhaps most complete of all world industrial monopolies, the International Match Corporation.  Other countries using this device against American stockholders are Germany, Italy, and Switzerland.

Other methods are used in several countries against American capital, notably the system of discriminatory taxes.  For instance, in 1929 the State Department protested to the French Government against the official proposal of an additional 18 per cent levy on profits of American companies operating there, which would make their total profit tax 51 per cent.  Appeals are pending in the French supreme court, though several American companies already have transferred their plants and offices to neighbouring countries.

No retaliation has been attempted in the United States against British and other foreign investors in American industrial stocks.  For several reasons:  Until the War the United States was a debtor nation being developed in part by foreign capital, and so is not unaccustomed to foreign holdings here.  Our present economic and financial strength is so great there is no fear that foreigners will obtain a “dangerous” hold upon American industry.  Although the pre-War foreign investment in the United States of about $6,000 million was almost wiped out during the War, it has since climbed to about $3,700 million, according to Department of Commerce estimates.  Some recent developments, however, have caused a little uneasiness, especially the British and German invasion of the rayon manufacturing field.  (The more important Anglo-American rivalries over chemical, shipping and communications companies, and over nickel, tin, and other raw materials and oil in this country and abroad are the subject of later chapters.)


In credit competition with the United States, Britain is handicapped by a diminishing capital surplus available for foreign investment.  An adequate export surplus capital has been provided here, not only by domestic savings from increased industrial efficiency much of which has gone back into domestic investment, but also from interest and dividends on our foreign investments which could be reinvested in foreign fields.  In addition there has been an inflow of foreign money which we are able to lend back to foreigners at higher interest rates.

In Britain the problem of apportioning capital between domestic and foreign investments is more difficult.  She is caught between two opposing forces;  her need for capital is greater and her supply of capital is less.  The demand is greater because she must deflate and rationalise old industries and float new ones.  But over against these domestic needs is the necessity of maintaining her foreign investments as a source of direct income and a stimulant to production and foreign trade.  And she has not enough money to meet both demands adequately.

All agree that there has been a sharp decline in British savings, that is, in the amount of surplus capital available for investment.  The real value of savings has declined about one-quarter, compared with pre-War, according to the Colwyn Committee;  it estimated the national savings in 1924 as about $2,500 million, which on the pre-War scale should have been (at adjusted values) $3,250 million.  The loss in that period is also put at $750 million by the Balfour Committee Report.19

What to do ?  While recognising the need of continuing to export capital the Report of the Liberal Industrial Inquiry recommended “restricting our foreign investments, the high total of which was formerly a reflection of our large favourable balance of trade, to a scale commensurate with our present diminished balance. ... Moreover, a greater employment of labour in home trade can only take place if there is a greater investment of our savings at home. ... It is a fallacy to assume that the national wealth is more truly increased if the fruits of British savings embodied in British labour are used to embellish the city of Rio de Janeiro than if they are employed to demolish the slums of South London or to build motor-roads through the Midlands.”20  Mr. John Maynard Keynes also urges reduction of unemployment through cutting foreign investments and increasing investments at home.

But the Balfour Committee Report recommended an increase in capital exports, using the activity of American capital abroad as one reason:  “We think it would be dangerous, even if on other grounds it were practicable or desirable, for Great Britain to abdicate its function as an investing country, and to rely, for example, upon American capital for the pioneer work which is necessary in many parts of the world if our future supplies are to be ensured. ... It seems clear to us that full employment in our exporting industries, having regard to their character and extent, can only be attained in the near future if there is a substantial increase in the export of capital.”21

Actually the domestic need for capital to rationalise industry has been so great as to produce an inevitable decrease in the proportionate share of capital flowing outward.  Whereas new capital issues floated in the United Kingdom in 1913 were divided, 82 per cent foreign and 18 per cent for domestic purposes, in 1928 foreign issues represented 40 per cent and domestic 60 per cent.22  In the last five years home industry has absorbed twice as much new capital as in the five years before the War.  The pre-War average was $166 million, compared with the present annual average of $342 million (adjusted values).23

Despite this increase, absolute and relative, in domestic investments there is still the domestic credit shortage of which Mr. Keynes and so many others complain.  The basic problem, however, is not financial but industrial, and no amount of extended credit could entirely solve it.  British heavy industry cannot obtain “enough” new capital because it is not a good investment.  Hence some British heavy industrialists themselves send their money abroad rather than turn it back into their own uneconomic business.  As the Balfour Committee Report states:  “The weight of the evidence of representative traders and trade associations was to the effect that there is no lack of loan capital available for the use of British industry, at moderate rates of interest, provided that reasonable security is forthcoming [Italics mine]. ... It is clear, therefore, that, particularly in the case of the great basic industries of cotton, steel, and coal, failure in dividend-earning power has made it impossible for them to get additional capital from the general investing public, while their capacity to furnish security for advances which a bank would consider adequate has been seriously impaired.”24

All of which comes down to the point that some British basic industries, relatively speaking, are hardly worth owning, and that the newer British industries such as electric power and public utilities which have an investment future are being bought by Americans.  This can happen, of course, only because British capitalists prefer to put their money in the colonies where “slave” labour in mines and on plantations will earn them fat profits.  Thus the nice question arises as to which is the better British “patriot,” the British capitalist who leaves British labour in the lurch so he can make bigger profits in backward countries, or the American “invader” who provides capital to electrify British homes and industries ?  Even in the United States, where the capital surplus is so much larger, there is some opposition to foreign industrial investments.  Here the reasons are not so much financial, except in the case of the farmer who has difficulty in obtaining credit, as a matter of trade competition.  Thus President John E. Edgerton of the National Association of Manufacturers:  “Our American banks have undertaken to finance our competitors abroad and certain industries in Germany have been entirely rehabilitated by American finance. ... I don’t want to attack the Golden Rule, but I believe it is best for America to maintain the integrity of its own institutions first.”25  Also the American Federation of Labour officially expresses its fear that American foreign loans and investments are financing foreign competition which will cause more unemployment and lower wages in this country.  But American Government officials, bankers, economists, and manufacturers drawn into export trade, are agreed that foreign loans and direct foreign business investments are necessary to American prosperity.  Of course, no American manufacturer or worker who faces direct competition from an American low-cost factory abroad can be expected to approve that particular aspect of America’s role as a creditor nation.  But considering that less than $750 million out of almost $7,000 million of American investments in foreign securities in the last five years have gone into enterprises which compete directly with American industry, this factor has not as yet become an important one for the United States.26

It is a very serious issue, however, for British labour;  for instance, the unemployed textile worker whose job has been taken by the coolie workers in British mills in India and China.  The Briton who cannot find work because the home factories and mines are running only part time, does not want to see the rich sending their money out of the country for foreign investment—it is like taking bread out of his mouth.


To strike a balance of the effect of that form of economic imperialism known as “the white man’s burden” or the exploitation of colonial regions is not easy.  The natives usually are exploited without stint and receive few of the benefits of that “civilisation” in the name of which they are made to sweat and suffer.  To the people of tropical Africa, British and American investments mean the loss of their land and their personal freedom.  It means some form of disguised slavery, forced labour of one kind or another.  Conditions vary, being worst perhaps in certain Portuguese areas and under the British in Kenya.  But as Mr. Raymond Leslie Buell has revealed in his authoritative study of The Native Problem in Africa, conditions are bad enough under the Americans in Liberia.  It is charged that the notorious African plantation system, in which the black man must work for the foreign capitalist whether he wants to or not, is being adopted in modified form under the Firestone rubber concession—and with the tacit consent of the United States Government.27

Our Government is no more interested than Britain is interested in protecting rights of foreign labour of American capitalists in its own colonial possessions and protectorates, or in any other foreign countries.  It is as interested as the British Government—or even more than a British Labour Government—in protecting the property rights of capital.  In same cases in the past, as in Mexico, the State Department has been interested in protecting property rights which Americans did not possess and in defending titles which would not stand either in a native or in an American court.

The Washington Government, however, has had neither the opportunity nor urge to undertake such large scale colonial exploitation as the British achieved in Asia in the last century and upon which they are now embarking in Africa.  To the United States in the present stage of its development there is no occasion for that type of African adventure which the British consider essential.  Nevertheless the United States to counter British moves in the Panama Canal region has recently taken a new interest in the Suez and road-to-India area.  Thus an American minister has been sent to Abyssinia, where the British formerly acted for us.  An American engineering firm has obtained the contract for the Lake Tsana dam, which will control the Nile waters upon which depend the Soudan and Britain’s plan to escape from the American cotton monopoly.

Built as a colonial political Empire, Britain now turns to find in Africa what she is losing in the transformed Dominions.  The Cairo-to-the-Cape railroad is almost a reality.  The Prince of Wales has toured Africa.  Things are moving.  That this will profit British capitalists is obvious.  But that it will benefit the British people is not so clear.  If the British people are still intent upon world empire perhaps such a new venture in imperialist expansion is justified, though it is unlikely that the whole of Africa slaving for Britain could make her supreme again.  Certainly Britain, like any industrial nation, must have raw materials now locked in undeveloped countries.  But in view of nationalist revolt in the East in recent years, it would seem that the “white man’s burden” method is apt to be the most expensive way in the end for Britain or for the United States to get at the natural riches of those territories.

In this the United States has the advantage.  When America came of age other Powers already had divided most of the colonial areas among themselves in spheres of economic and political influence.  A more enlightened policy for the United States was dictated not only by humanitarianism but by commercial expediency.  Hence the Open Door policy of the United States, by which we demand for ourselves in other lands that equality of economic opportunity which we sometimes neglect to grant to foreigners within our own colonial areas.  And we do have a territorial empire and colonial problem, though smaller than Britain’s.

The programme of the British Labour party out of office, and presumably also to some extent in office, would indicate that the British people are more concerned than Americans in finding a better solution of the colonial problem.  They at least are thinking in economic terms, and we are not.  About all we can see is that politically our foreign subjects are treated fairly well--“better than the British do,” as we say.  But we have no understanding of the economic consequences of American imperialism to the worker in the Hawaiian or Cuban sugar fields, or to the Porto Rican and Philippine peon, much less to the Mexican in Yankee mines or the Venezuelan driving the American oil wells of Maracaibo.

The average American has profited somewhat by economic imperialism of the American investing class-profited, of course, at the expense of the colonial victim.  The “newer capitalism” of post-War America has operated somewhat differently than the old British system.  The following description by Mr. H.N. Brailsford, in Olives of Endless Age, of what has been happening in Britain does not fit the American situation:  “The internal market was starved, because the industrial system, in its struggle for profits, limited the purchasing power of the masses, so that the wages which they had to spend could never keep pace with the growing output of the machines.  Since, by this policy of low wages, the industrial system limited its own internal market, it was driven to enlarge it by conquest.  Toward the middle of the last century, it began to export capital as well as consumable goods.  By this expedient it kept capital relatively scarce, in spite of its rapid accumulation.  The rate of interest was thus preserved against a natural fall, and the passive owners kept their rewards high by comparison with those of the active workers.  The leisured and privileged class was all the while erecting, in Asia and Africa, buttresses and bulwarks for the social and political privileges which it retained at home.”28  Britain has not yet emerged from that low-wage starved domestic market system.

But in the United States, first under War necessity and labour shortage, and then under the Ford-Hoover high-wage philosophy, the efficiency of the capitalist system has been increased to the point where the masses receive somewhat more real wages-though not a larger share of the total increase in industrial profits.  This system, unlike the British, instead of starving the home market has stimulated it.  The size of the middle class has been extended.  This middle class has become an investing group.  It has bought foreign bonds, and stocks in American companies operating abroad.

Thus a much larger proportion of the American population than of the British has a direct stake in foreign financial penetration.  The popular support of British imperialism arises from the geographical factor of insularity and insufficient food and raw materials.  In America the popular base of economic imperialism is the greed of large numbers of petty investors and speculators or would-be investors and speculators.


1. Press release, May 16, 1929.

2. Report of the Liberal Industrial Inquiry, supra, p. 28.

3. Commerce Reports, May 13, 1929.

4. New York Current History, December 1928.

5. Commerce Department, American Underwriting of Foreign Securities in 1928, p. 12.

6. Cf., address on “Installment Selling for Export,” by E.G. Simons, American Foreign Credit Corporation, New York, at the National Foreign Trade Convention, Baltimore;  press release, April 17, 1929.

7. Frontiers of Trade, supra, pp. 172-173.

8. New York Times, Feb. 15, 1929.

9. New York Wall Street Journal, Nov. 19, 1927.

10. P. 58. Cf., also p. 64.

11. New York Herald Tribune, April 7, 1929.

12. New York Times, March 31, 1929.

13. Quoted by New York World, April 2, 1929.

14. New York Times, July 17, 1929.

15. —, Aug. 6, 1929.

16. New York Herald Tribune, Oct. 27, 1929.

17. This Ashley quotation, and the following from Birkenhead, are taken from Washington Editorial Research Reports, April 1, 1929, “American Investments in European Industry,” pp. 263-264.

18. Feb. 21, 1929.

19. P. 50.

20. Pp. 44-45.

21. P. 44.

22. Commerce Reports, Feb. 18, 1929, p. 394.

23. McKenna estimates, Midland Bank report for 1928, as quoted by London Times Weekly, Jan. 31, 1929.

24. Pp. 47, 51.

25. New York Times, Dec. 10, 1027.

26. Cf., study on this subject by Stone and Webster, quoted in the New York Wall Street Journal, Dec. 12, 1928.

27. Cf., Chapter IX.

28. Pp. 282-283.