CHAPTER XII.

FINANCE.

THE financial aspects of our question are striking and significant. Britain herself is the greatest money-lending nation of the world: her colonies and dependencies, with their vast undeveloped resources, are among the greatest borrowers. The public debts of the Australasian colonies amount to nearly £200,000,000, and private investments for the development of mines, for the wool producing and meat raising industries and so on, amount, I have been told by Australian business men, to even more. It is probably a moderate estimate to say that Australasia borrows £400,000,000, all of which is raised in London, to which the interest steadily flows back.

In his 'Problems of Greater Britain' Sir Charles Dilke says: 'British capital to the extent of £350,000,000 sterling has been sunk in Indian enterprises, on official or quasi-official guarantee; and a further vast amount of British capital is employed by purely private British enterprise in industry.'

Canada's public borrowings amount to about £50,000,000, and allowing an equal sum for private {272} investments, she perhaps draws £100,000,000 of working capital from English sources.

Nothing has been said about South Africa, the West Indies, and the minor divisions of the Empire, but even the rough estimates already given prove that the aggregate of money loaned from Britain, and borrowed by other parts of the Empire, reaches enormous figures, and certainly exceeds £1,000,000,000 sterling.

For investor and borrower the benefit is mutual. The investor has the advantage of placing his money where it will be employed in making the most of vast natural resources, under a settled government, and in the energetic and responsible hands of men of our own race. This advantage is emphasized by the experience of British capitalists in countries like Argentina, where government is unstable, or Turkey, where it is inefficient. It is emphasized by the contrast between the financial position of Egypt, when dominated by British influence and protected by British power, and the same country when free to follow its own methods of administration and compelled to find its own defence.

It is shown by the difference between the rates at which Australia or Canada borrow money, and those paid by many foreign states.

The colonial borrower has the advantage of getting the money he requires at the cheapest rate possible. The last Canadian loan was floated at 3 per cent, and the Australian colonies are borrowing at 3 1/2. Lord {273} Dufferin has said that British capital is ventured in India 'on the assumption that English capital and English justice would remain dominant in India.' In like manner the rate at which colonial loans are issued is unquestionably determined in part by the fact that the industrial position and military security of the colonies is guaranteed by the imperial power. Independent, exposed to face the risks of war unaided, and compelled to bear the whole burden of defending their coasts and commerce, the credit of the colonies could not be what it is to-day.

On the other hand, since cheap capital means cheap production, the money lent on easy terms to the colonies returns far more to the mother-country than the interest which has hitherto been so regularly paid. It secures for Britain what she most requires, cheap food and cheap raw material--wheat, beef and mutton, wool, cotton and minerals. For a great consuming country the free movement of the wheels of industry in the areas of production is all-important. Even the cheap insurance which comes from assured safety in the transport of goods between producer and consumer is no slight element in the prosperity of both.

In view of these considerations there is clearly ground for saying that a close political union between the greatest money-lending centre of the world and countries which have the widest range of undeveloped resources, between the greatest consuming country and those mainly productive, will be of the greatest advantage to both.

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I have often, to audiences in the colonies, put the financial relation in the following way: 'You borrow from Britain in public debts many hundred millions of pounds. When, as merchants, ship-owners, or house-holders, you borrow money in a private capacity, on your goods, your ships, or your houses, the lender requires that as a guarantee your property must be insured, and for this insurance you must yourself pay. Now when British people lend you money, on your state credit, they themselves provide the insurance of the whole strength of the British army and navy--an insurance which it is admitted secures the cheapest money in the world. But not only does Britain lend you the money for the development of your resources, and provide the insurance which enables you to have it at a cheap rate, but under her Free trade system she then in addition throws herself into the open market for every pound of wool or ounce of gold or tin that you produce. She asks no preference in colonial markets. Any conditions which would be more favourable for a borrowing country I cannot find it possible to conceive.'

A further point seems worthy of consideration.

While the colonies, under the national production, borrow money cheaply on the public credit, the United Kingdom borrows more cheaply still. Low as is the rate of interest paid on the National Debt, for many purposes of investment it is deemed the most satisfactory, because the most secure, of all.

One of the advantages which Canada has reaped {275} from internal confederation has been the greatly decreased rate of interest which she pays for her borrowings. A high financial authority has estimated that the Australasian colonies would gain, from a consolidated federal stock, an advantage equal to a diminution of more that £20,000,000 on the general indebtedness. Facts such as these have naturally led the advocates of national unity to suggest a further step and to urge that a financial federation of the public debts of the Empire, guaranteed by the strength and resources of the nation at large, would reduce the cost of public money for the colonies and dependencies to at least the level of interest paid on the National Debt. It has been pointed out with force and reason that the saving which might thus be effected under a guarantee of Imperial unity would of itself be sufficient to enable the colonies to contribute a large sum to the national defence without any addition to the burdens which they now bear, while sensibly relieving the taxpayer of the United Kingdom. The fixing of a reasonable limit to thus borrowing on national credit for each portion of the Empire would, of course, present a difficulty, but it is one which has, on a small scale, been grappled with in the provinces of the Canadian confederation, and does not seem to be altogether insuperable. The federally guaranteed debt would certainly be held almost exclusively within the Empire itself, and the general desire for its complete security might fairly be expected to act as a strong national bond. {276} Enormous as is the amount which the mother-country has already staked in the colonies and dependencies, it seems certain that under favourable conditions capital will more and more seek these areas of peaceful industrial development rather than take the risks of internal revolutions in South America or military convulsions in Europe. With closer union this tendency, in itself essentially healthy, would increase. With separation, it would be deeply affected by two considerations: first, the weakened guarantee of safety to the individual colony: and second, the new burden which would be laid upon the separating colony in undertaking single-handed the whole task of defence, and the whole diplomatic, consular and other organization incident to national independence. Inevitably expenses would go up while credit went down. I am satisfied that people either in England or abroad who for colonial relations thoughtlessly borrow the simile of the ripe fruit dropping easily from the parent tree, have formed little conception of the violent financial wrench involved in the separation of even one great colony, or of the strength of the financial bond which, every day increasing in strength, is binding more closely together with ties of common interest the mother-land and her greatest offshoots.

A very important financial issue has lately been raised by the proposition to permit the investment of British Trust Funds in colonial securities. The proposal has for some time been steadily urged upon the English Government by the Agents General who {277} officially represent the Australian colonies, and by the High Commissioner for Canada, and it is generally believed that the negociations had proceeded so far that at one time Her Majesty's Government had consented to initiate the Legislation necessary for the purpose. Though the discussion is now in abeyance, it will no doubt come up at a later time for decision. If favourable, that decision would confer a considerable financial advantage upon the colonies. Of the sufficiency of the guarantee furnished in such investments careful and responsible financiers entertain no reasonable doubt. It is obvious, however, that any determination to concede this privilege to trustees implies a belief that the colonies will remain a part of the Empire. It is equally obvious that any tendency in an opposite direction on the part of any great colony would be fatal to the proposition. At present such investment can only be made in certain home securities, or in Indian, and a very limited number of colonial securities which are under direct Imperial guarantee. There would be as valid reason for extending them to French, Italian or Russian securities as to those of colonies which might soon become independent nations. It will be scarcely possible to avoid the consideration of ultimate inter-imperial relations should this subject come up for final decision in Parliament. Under a settled system of Imperial unity colonial securities, even without Legislation, would naturally rank with the best in the Empire.

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