cent to an American exporter. The British characteristics of care, attention and accuracy outweigh the lower commission of the American house, to say nothing about the irritating list of petties which the English exporters so often tack on to their invoices, which the American usually waives. British exporters and manufacturers seem to work together with more mutual confidence than do the two classes in the United States. British manufacturers seem to have more confidence in the exporter and value him rather more highly, while the exporter feels reasonably sure that the manufacturer will supply exactly the right kind of goods in the right way.

Furthermore, the British export merchant is not so eager to seek, indeed, to demand, special confidential discounts for his own use from the manufacturer. British exporters establishing branch offices in New York have been known to protest energetically against what they have considered the dishonest practices of American exporters in demanding such discounts from our manufacturers, when they are supposed to give every advantage to their foreign customers who entrust them with their orders. This is one of the reasons why in traveling around the world it is so often found that importers, even when they criticize British exporters, yet regard them as more square and honest than American exporters.

FACILITIES OF ENGLISH AND AMERICAN

HOUSES COMPARED

British export merchants undeniably possess certain advantages and facilities which are not yet ours; for example, they have heretofore had an advantage or have been more interested than Americans in seeking out and developing advantages in shipping facilities. I am not now referring to the English merchant marine as contrasted with

the American merchant marine. I mean that there have been more ships in British harbors loading for more different parts of the world, more liners and tramps soliciting cargo. This has sometimes made it possible for British shippers of crude commodities to make exceptionally advantageous arrangements for freights. I have seen Portland cement shipped from England to Egypt at almost nothing per ton, chiefly because a ship needed ballast.

The banking facilities of English exporters as contrasted with our American facilities have been generally exaggerated, with the sole exception of the London discount market. Bankers in London have offered as a rule no better facilities in financing than have been available to New York exporters. It can not be claimed that the branches of certain large British banking institutions in New York have not offered just as good facilities to our exporters as the offices of the same bank in London offered to British exporters. The sole and only distinction that I know of, so far as banking practises and indulgences are concerned in the routine handling of export transactions, has been that the more intimate acquaintance with exporting and with foreign exchange on the part of the British has occasionally developed an ingenious operation devised to help a comparatively small but worthy exporter, whereas in our own country bankers have not always shown the same anxiety to devise means of helping.

The London discount market has, however, offered a very genuine and a very important help to the British exporter. We are now trying to promote a discount market here and progress is certainly being made; however, so far as our export trade is concerned, there are many difficulties in the way of our taking as full an advantage as the British of such a discount market as we

may develop. Ordinarily, a New York exporter's transactions are covered by his drafts on his foreign customers, the exporter gives an acceptance and a bank lends its endorsement in order that the acceptance may be discounted. The operation is a somewhat complicated one in general exports of manufactured goods as contrasted with bulk shipments of cotton or grain. For example, in the case of a merchant making twenty different shipments by one vessel to as many different customers in Brazil, the draft on one customer being at sight, on other customers at thirty days, sixty days, or ninety days and all for varying amounts, some of them perhaps small. British exporters, with their own organizations in foreign markets shipping to their own houses, finance for their own people. Take, for example, such a great East Indian house in London as that which I have described; millions of dollars' worth of Manchester goods are purchased every year. The London house finances these large invoices, accepts, in conjunction with the Hongkong Bank or the Chartered Bank; the London discount market absorbs this paper; and the export merchant used to secure before the war-an annual interest charge of about 3 per cent instead of our American 6 per cent. The London house refinanced according to circumstances on its own branches in India, often merely by debit and credit entries, since the branches in India were shipping Indian produce, and since the financial interests of both the branches and the parent house were identical.

Investments in foreign securities are being strenuously urged upon Americans, very often as a means of developing our export trade. Of course investments in any kind of foreign securities may help the present critical condition in the foreign exchanges through the export of funds in payment

for such securities in addition to our remittances to cover our imports, all going to offset our tremendous export figures; but the present are abnormal times; it is not always necessary to correct adverse or favorable rates of exchange, and there is much more to be made of American investments in foreign securities in the way of developing American export trade than most people seem to realize. The late Willard Straight was one of the few Americans who differentiated sharply between American investments and saw clearly the kind of investment necessary for the expansion of our foreign commerce. We have many offerings to the American public of foreign government and municipal bonds; occasionally small offerings of the bonds or shares of foreign railways or public utilities. Most of our financiers, above all our banks, which are nowadays giving so much attention to their bond departments, emphasize only the desirability of investments in bonds and mortgages. We are neglecting, if not forgetting, the essential, basic theory of such investments as a help to export trade. The ownership of bonds and mortgages gives no control over the properties; sufficiently heavy investments in shares do give such control.

The English have profited in their export trade from their foreign investments because they control the enterprises which their money finances. If a railway is to be built in Iceland, the money will be raised in London, the Chairman will be an Earl or a Baronet, the board of directors will meet and the financial offices will be located in London; the purchasing agent as well as the constructing and operating engineers will be Englishmen, and the equipment and supplies of that railway will naturally drift, so far as possible, to those English suppliers known to the engineers and the purchasing agent. They

will not be averse to buying American supplies if they can be persuaded that such supplies are desirable and suitable, but their wholly human disposition will be to buy their goods in the market from which their enterprise is financed and from suppliers with whom and with whose products they are best acquainted. We may buy up all the mortgages and bonds of a railway or any other company and it will not help us in the least so far as exporting merchandise to that company, its associates or its neighbors is concerned.

Even our present Edge Act, professedly designed to assist in the development of our export trade through the creation of agencies able to give us more adequate export credit facilities, specifically prohibits—as it now stands -banks organized under that Act from dealing in the shares of foreign corporations. Edge Act banks can only deal in bonds and mortgages, and whatever foreign securities the Edge Act banks may handle under the provisions of the present law will not directly affect one cent's worth of export trade for the United States. It is only through the actual control of a property that its policy can be dictated.

The one great lesson for us to learn, so far as I see it, in reviewing British methods, is the need of more thorough

training of American business men for foreign work, and for a longer, more practical and more comprehensive apprenticeship of our young men in export work. The development of the organizations of American merchants in foreign countries will very likely be promoted as time passes, knowledge increases, and funds attracted to this sort of development become more easy. The more thorough training for foreign trade is a serious and imperative necessity. I am not now referring to courses in foreign trade, which fortunately are becoming more and more common in our universities and even in our high schools. They are thoroughly desirable so far as they go. Supplementing them there must be a longer and more practical apprenticeship in the actual conduct of commerce in its day by day routine and many different aspects. We work rather rapidly in the United States; too fast by far. We have extended our characteristic half-baked efforts to our export trade expansion. All sorts and conditions of young men have been attracted to the export "game," as they lightly term it, and men of all sorts and conditions have been sent abroad to represent American interests, more often than not with no or little adequate training. Real and great success is not thus to be obtained.

informed critics that in some way these banks are not "supporting" this trade adequately.

It seems that such a charge ignores the primary fact of the relation of banks to our foreign commerce. Their essential interest and profit must al

ways lie in rendering the utmost assistance to overseas trade that it is possible for them to give safely, and within the limitations imposed by law upon their operations. The word "safely" is of paramount significance. This factor of safety must receive the first consideration by banking officers, if they are to be true to their obligations as guardians of the property of others.

The funds which are the basis of any aid to commerce that banks may give are the demand deposits of their clients, and this demand quality of commercial banking funds at once fixes very definite limits to the use that may be made of them. It positively excludes their employment in any large amount for loans of a term longer than three or four months. Hence, the utmost care must be exercised to assure that advances made upon the basis of commercial transactions with foreign countries shall have more than a reasonable probability of liquidation within the term for which these loans are agreed upon.

The most frequent form of aid extended to export trade by a commercial bank is through the discount of drafts covering sales of goods abroad, these drafts maturing at a definite date -usually not exceeding four months from the time when they are discounted. The collateral held by banks to protect such loans usually consists of merchandise in transit to the foreign buyer, held under the control of the lending bank through possession of bills of lading and other documents by its trusted agents, either in its own branch banks abroad or in correspondent banks with which it holds close, continuing relations. When all goes smoothly, these drafts are paid, as they fall due, to the foreign agents of the American bank and the loan is liquidated by the transfer of the proceeds to the lending company, or by a credit through the open

accounts which international banks throughout the world maintain with one another.

Thus, an active bank at any given date may have hundreds, or even thousands, of outstanding loans on foreign trade transactions, some of which are due and paid every day and, in consequence, afford a renewed supply of funds for new transactions. When times are good and there are no clouds upon the horizon of trade, this system of revolving credit functions uninterruptedly and to the advantage of all concerned, and we hear little complaint of indifference on the part of banks to demands. It is when the movement we have described is checked -as it is today-that doubt rises in some minds as to whether the banks are doing their full duty in the situation.

As a matter of fact, however, it is the bank that first of all feels the shock of any stoppage to the normal functioning of this credit system. When drafts are not paid by foreign buyers, the bank at once finds itself holding an overdue and unpaid loan and also is burdened with the responsibility for collateral, which it must handle to the best possible advantage of the American shipper and to the protection of its own equity in it. The seller, who has discounted his draft, is already in possession of his money, although it is true that he is liable to the bank in the event that his draft is unpaid. He is also liable if the proceeds of collateral sold do not fully cover the amount of the loan involved. When, as today, in markets throughout the whole world there is cancellation of contracts, refusal to accept shipments or to pay drafts, the immediate result is to tie up banking funds in very large amounts and to burden the banks with the problems incident to the care and disposal of shipments upon which funds have been advanced.

How seriously this may cripple their ability to continue their normal volume of loans to their American clients should be recognized readily enough. When, in addition to cancellations and protest of drafts, there are added to the situation the factors of falling prices, depreciated exchange and flooded markets, it is clear that the difficulties confronting the banks are real enough. Moratoria and embargoes exist in certain countries and are threatened in others. Forced sales of shipments are extremely difficult-impossible in many cases. Banks are handicapped in their power to serve their clients to the degree that their resources are involved in those transactions in which prompt liquidation has failed of consummation.

Sound business principles must preclude the officers of any bank from extending their commitments unduly when such international trade conditions arise. They must keep their house in order, and, until these temporarily non-liquid loans are brought into liquid form again, the utmost care must be exercised lest the rights of the demand depositors should be jeopardized. A commercial bank must recognize its obligation to avoid, if possible, any loan transactions that will involve it for undetermined periods of time. Long-term loans are the affair of the investment banker and are not for the international commercial bank to handle. This distinction should be fully comprehended by the public and, when understood, will serve to refute the criticisms to which we have referred.

The present world situation is admittedly a difficult one. The banks are as much concerned as any branch of business in finding a solution for these problems and are committed by selfinterest to the support of any policies safe policies that will aid to bring back better conditions. All that should be

asked of the banks is that they "carry on" with prudence and contribute every particle of effort, in the way of expert technical knowledge to the encouragement of steadfast confidence, that they can offer under trying conditions. It would not help at all to adopt unsound banking practices during a term of stress. It would merely add to any dangers that already exist.

The world today looks to the United States as the one solidly fortified nation in the realm of finance and trade. No other country has to a like extent the great power needed to meet the present emergencies. This fact is receiving general and a constantly extending degree of recognition in our own country. We have come to realize thoroughly that Europe must have food, raw materials and machinery before she can hope to return to normal health in finance and trade, and that she must have a considerable time extended to her before she can pay for these products. We recognize that this implies thrift and the saving of investment funds in large amounts here in order that they may be available in rehabilitating the industries of Europe.

Many now see that depreciated exchange can be restored only through Europe's resumption of normal production and exporting. We know that great markets for our own raw products are now stagnant because of idle factories in France, Germany, Italy and elsewhere. Furthermore, markets in South America and the Orient, which would otherwise be absorbing our manufactured products continuously, are stricken for the same reason. Their products, wheat and wool, hides and skins, and metals, which normally are in urgent demand in Europe, move but slowly. The whole intricate machinery of world trade is clogged by the prostration of economic life in the countries so seriously devastated by the war.