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America's Opportunity
in Foreign Investments









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Guaranty Trust Company
of New York



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America's Opportunity
in Foreign Investments



Guaranty Trust Company of New York



140 Broadway



FIFTH AVENUE OFFICE MADISON AVENUE OFFICE

Fifth Avenue and 43rd Street MadisonAvenueand60thStreet

LONDON OFFICES LIVERPOOL OFFICE

32 Lombard Street, E. C. 27 Cotton Exrhanpe Tuildings

5 Lower Grosvenor PI., S. W.

PARIS OFFICE HAVRE OFFICE BRUSSELS OFFICE

1 & 3 Rue de3 Italiens 122 Boulevard Strasbourg 158 Riie Roy ale



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COPYRIGHT, 1919
GUARANTY TRUST COMPANY OF NEW YORK



Gil



America's Opportunity
in Foreign Investments



'T^HE World War has created an oppor-
tunity for America by hastening the
time when America should play a more
important part in world trade and world
finance. It is imperative that the in-
vesting public should not overlook our
present opportunities. The necessity of
maintaining our position in world trade,
of keeping markets open for our products,
emphasizes the need for financing our
export trade through extension of credit
abroad and purchase of foreign securities.

The rapid development of the extensive
new areas of the United States was made
possible by the investment of capital
from other countries. The continued
investment of capital in combination
with our nationalistic policy encouraged
the development of a diversified industry
which, during the period of our expansion,
found the market for its products within
the country. Our industries grew to such
an extent that many producers became
interested in foreign trade as an outlet for
their products. The recent World War
led to a further expansion of our industrial
capacity and the establishment of com-
paratively new industries. The main-
tenance of an outlet for our products in
other countries is essential to the well-
being of American industries. The in-
vestment of capital in other countries is
one of the effective ways to keep world
markets open for American products.
This involves the purchase of foreign
securities and the development of an



mternational finance market in this
country.

The World War changed this country
from a borrowing to a lending nation and
set in operation forces that will make
this country an increasingly important
lender of capital.

As we are entering this period of devel-
opment it is well to consider what other
countries have done, what methods they
have used to obtain outlets for their
surplus of capital. As their wealth in-
creased and they w^ere able to lend large
amounts, Amsterdam, London, Paris,
Brussels, and Berlin became in their turn
financial centers, to which all countries,
but especially those seeking to develop
new sources of wealth, looked for assist-
ance through credit extensions. When
the fleets of the Netherlands dominated
the seas and the possession of the rich
islands in the Far East gave them pre-
dominance in world trade, Amsterdam
was the financial center of the world. It
lost its predominance to London after the
Napoleonic Wars. Later, the industrial
development on the continent of Europe
led to the development of important
financial centers at Paris, Brussels, and
Berlin.

We must not rest with a passive recog-
nition of the opportunities of America
in foreign trade and in the foreign invest-
ment field. We individually must do our
utmost to induce the public and our
financial leaders to play the great part



[31



which has been made possible. It takes
vision and courage to \eiituro out into
new activities v Inch vail le-id to an ex-
pansion of world trade. The American
public should understand the necessity of
investing in foreign securities and the
relation that it bears to our own industrial
and economic life.

Growth of Great Britain For a long
as a Creditor Nation time before

the war the
pre-eminence of London as a financial
center was everywhere recognized. The
great trading routes went through English
ports. In all the principal markets of the
world payments for goods were made by
means of drafts on London drawn in
pounds sterling and traders considered
them as good as gold because of the
existence in London of a wide market
where they could be disposed of for cash.
Through W'Orld-wide trade connections
the English financiers had developed an
international point of view, so that men
from every country going to London to
seek capital for new enterprises felt sure
that their plans would get a sympathetic
hearing and that in all probability the
money oi credit required would be forth-
coming.

This position in finance and trade to
which London attained is indicated by
the variety of the securities which are
listed on the London Stock Exchange.
The character and number of foreign and
colonial securities listed is as follows :

Colonial and Provincial Gov-
ernment Securities 185

Indian and Colonial City

Securities 176

Foreign Cities 76

Foreign Government Securities 210
Railways in British Colonial

Possessions 110

Indian Railways 68

American Railroad Securities.... 56

Foreign Railways 276

Total 1.157



The total number of domestic securities
of the United Kingdom in these same
classes is as follows :

British Funds 72

City and County 176

Public Bonds 34

Railways, Shares, Stocks &

Debentures 361

Total 643

In addition to these there are many
commercial and industrial securities which
cannot be readily classified, it being mi-
certain to what extent they are domestic
and to what extent they are foreign,
because of the overlapping of the in-
terests which they represent. But the
number of foreign and colonial securities
is certainly greater than the number of
domestic securities.

Investment in foreign enterprises had
begun in a small way in the sixteenth and
seventeenth centuries. The industrial
revolution in tlie middle of the eighteenth
century created a great demand for
capital with which to obtain machinery,
to build new factories, and to develop
coal mines. The prolonged wars of this
period forced the Government to borrow
heavily from the English people and also
from other countries. Money rates were
high and Dutch capitalists took advant-
age of the situation to invest very large
amounts in the bonds and notes issued
by the British Government, in stock of
the Bank of England, and in commercial
or industrial enterprises. Amsterdam at
that time was the chief financial center of
the world. At the end of the century
Great Britain was still a borrowing
nation.

During the Napoleonic Wars little
progress was made by Englishmen in
extending their foreign enterprises. All
the capital and credit available were
needed at home to finance the war, to
provide subsidies amounting to $'219,-
859,000 for the country's Allies, and to
keep up the development of industrial



[4]



enterprises. This imposed great burdens
on the people for a time. Everything in
the land was taxed to the limit of en-
durance, but at the end of the war the
industrial capacity of England had been
expanded, a sizeable merchant marine
had been built, and the people had learned
how to save money. There began im-
mediately a rapid development of British
foreign investment. Carried forward by
the same spirit which had enabled them
to overcome Napoleon, the people of the
British Isles took the utmost advantage
of their expanded productive capacity and
of their experience in saving and investing.
Important loans were made to the con-
tinental countries which had suffered the
most from the long years of war and
foreign holdings of British bonds and
stocks were bought back from the Dutch
and others.

With this effort to get out of debt and
to buy into foreign enterprises there
went an increase in trading with foreign
countries everywhere. This expansion of
world trade, which became pronounced
about 1820, led to important invest-
ments in South American mines, and
loans to the South American Govern-
ments. American canal and railway
bonds, as well as bonds issued by various
State Governments, were readily taken
by English investors. French and Bel-
gian railroad securities also found a
market in London. The disturbances in
Europe and the growth of France and
other continental countries led British
investors in the latter part of the first
half of the century to seek more
profitable openings in America. After our
Civil War investors turned their attention
to the British Colonies, to South America,
South Africa, and the Far East.



Distribution of British
Foreign Investments



The foreign
investments
of Great
Britain, as estimated by Sir George Paish



in 1913, were mainly in railways and
government securities, as indicated by
the following table, in which the value
of the pound sterling is taken as
$4.8665.

Railways $7,402,014,631.50

Government Securities 4,669,518,679.50

Mines 1,327,527,668.50

Finance Land & Invest 1,188,336,035.50

Municipal 718,037,475.00

Commerce and Industrial 707, 258, 1 78.00

Tramways 378,565,035.00

Banks 354,811,648.50

While there was a wide distribution of
British investments throughout the
world, the largest amounts were invested
in the colonial possessions, in the United
States and in the Argentine Republic, as
shown by the following:

INDIA AND COLONIES

Canada and Newfoundland $2,505,614,855.00

Australia 1,616,223,048.00

New Zealand 410,411,411.00

South Africa 1,801,539,368.00

West Africa 181,544,782.50

India and Ceylon 1,843,313,404.00

Straits Settlements 132,821,384.50

Hongkong 15,105,616.00

British North Borneo 28,323,030.00

Other Colonies 127,448,768.50

Total India and Colonies $8,662,345,667.50

FOREIGN COUNTRIES

United States $3,672,343,680.50

Cuba 160,959,487.50

Philippines 39,988,030.50

Argentina 1,555,163,072.50

Brazil 718,125,072.50

Mexico 481,875,963.50

Chile 297,552,409.50

Uruguay 175,797,446.00

Peru 166,302,904.50

Miscellaneous American 124,280,677.00

Russia 324,240,295.50

Egypt 218,564,248.00

Spain 92,740,890.50

Turkey 90,984,084.00

Italy 60,539,260.00

Portugal 39,593,844.00

France 39,029,330.00

Germany 30,970,406.00



[5]



Miscellaneous European 265,613,570.00

Japan 305,694,064.00

China 213,556,619.50

Miscellaneous Foreign 339,180,450.50

Total Foreign $ 9.413,005,756.00

Grand Total $18,075,441,423.50

This total does not include a large
amount of capital privately invested
abroad and, were this added, the total
British investments in the colonies and in
foreign countries would amount, as esti-
mated, to $19,466,000,000.

Bases for The wide distribu-

Wide Distribution tion of securities
on the London
Stock Exchange has been an outgrowth
of Great Britain's extensive trade rela-
tions, of British colonial expansion, of
the settlement of English-speaking peo-
ple in many countries, and of the estab-
lishment there of institutions similar
to those of England. Through the
participation of the British mercantile
marine in trade with all countries, Eng-
land became the clearing house and trans-
shipping center for world trade. Out of
this trade the imposing structure of
British overseas investments developed.
^\herever ships went, capital followed and
was invested freely in the enterprises of
every nation, thus insuring the con-
tinuance of trade and its increase as these
enterprises enlarged their activities.

British investors, compared with in-
vestors in other countries, have generally
acted as pioneers in discovering and
opening up new areas for development.
After the enterprise became stabihzed it
was possible to transfer a part of the
capital to other countries, and thus
British capital advanced continually into
the more distant and less developed parts
of the world. These new countries
produced raw materials which industrial
England needed. Like all new countries,
they paid high rates of return on capital



invested in their enterprises. They
offered opportunities gradually to in-
crease England's control of their trade
and industry.

Influence of Foreign Invest- The in-
ments upon Great Britain vestment

of cap-
ital in other countries, the extensive
trade relations of Great Britain with
other countries, the reliance upon other
markets for the growing output of
British industry, and the dependence
upon many countries for sources of
raw materials, have been bound up
very closely with British economic
life. The influence of British institu-
tions in civilized countries and the
wide-spread settlement of English-speak-
ing people have been in part the out-
growth of Great Britain's policy of econ-
omic expansion. It is impossible to pic-
ture the conditions of living, the economic
life of the British Isles, if business had
only been national in scope and there had
been no effort to expand their interests
beyond their own boundaries.

Foreign Capital Ever since its

in the United States discovery Amer-
ica has attract-
ed the investment of European capital.
It was because of the opportunities
which they saw to develop trade — -a
market for their own wares and a source
of raw materials for their home industries
• — that merchants of England, France,
Spain, and Holland formed companies to
promote colonizations in this Hemisphere.
Their willingness to invest made possible
the obtaining of ships to bring the
colonists here and of supplies to sustain
them until they had established them-
selves.

As the colonies grew in strength
and importance more capital was im-
ported for the development of tobacco
and cotton plantations, and for mercantile



[61



purposes. The large merchants were the
investing class. The population of the
American colonies was swelled by emigra-
tion from the United Kingdom, which
naturally brought with it considerable
supplies of capital. Attracted by the
opportunities for trade and industry,
enterprising men came to America from
all parts of Europe. The War of In-
dependence for a time checked the in-
vestment of British capital here, and as
a result, considerable Dutch capital
entered the country.

In 1800 no American securities were
quoted in what was -then regarded as
the official list of the London Stock
Exchange, but in 1825 nine issues of
United States Government bonds and
a number of state and city bonds
were quoted in London. In 18'^0 there
began a period of extensive canal and
highway construction. The most im-
portant of these undertakings was the
Erie Canal, which in IS'io connected the
Atlantic Coast with the great agri-
cultural regions west of the Allegheny
Mountains. This was a period of ex-
tensive investment of foreign capital in
America. From 1830 to 1840 the imports
exceeded the exports by about $200,000,-
000, which may be taken as an indication
of the amount of foreign capital invested
here. In 1839 President Jackson esti-
mated that the total accumulated invest-
ments of European capital was about
$200,000,000.

A period of active railroad building in
the forties and fifties brought into this
country additional sums of foreign capital.
The first American railway loan floated in
London was that brought out by Baring
Brothers in 1846, an issue of $2,000,000
of Baltimore & Ohio Railroad bonds.
Considerable Dutch capital was invested
in American securities during this period.
The outbreak of the Civil War led many
Europeans to dispose of their American
securities. Because of their interest in



the production of cotton in the Southern
States, British and Dutch capitalists
were reluctant to invest in Federal
Government bonds. On the other hand,
the investors of Germany took an active
interest in United States bonds because
there had been a large Teutonic immigra-
tion to this country in the forties and
fifties. In 1866 the total amount of
French and British capital in this country
was estimated at only $350,000,000, but
by 1869 it had increased to $1,000,000,000.

The total amount of all foreign capital
invested in the United States was esti
mated by Mr. Wells in 1869 to be $1,465,-
000,000. The greatest share belonged to
British investors, but substantial amounts
were held by Holland and Germany. In
the early seventies extensive railway con-
struction made possible still larger invest-
ments of foreign capital in this country,
rt is estimated that these increased from
$243,000,000 in 1869 to $345,000,000 in
1876.

In the eighties and nineties foreign
capital became interested in a variety of
enterprises other than railways, particu-
larly in mining, agriculture, manufactur-
ing plants, and public utilities. The
development of industrial combinations
and the formation of large corporations,
made attractive conditions for foreign
capital seeking to enter the general in-
dustrial field.

In a report made to the United States
Monetary Commission in 1910 Sir George
Paish estimated that the total amount of
foreign capital, including bank loans, in-
vested in the United States was approxi-
mately six and one half billion dollars.
Domestic capital, meanwhile, had been
accumulating and while we continued to
borrow, our capitalists were able, on the
other hand, to make advances for the
development of neighboring countries,
especially Canada, Cuba, Mexico, and
some of the South American countries.
At the time Paish estimated that the



[71



total investment of American capital in
foreign countries amounted to about one
and one-half billion dollars, leaving
America a debtor nation to the extent of
about five billion dollars.

The capital which America obtained
from abroad was used chiefly in extending
and improving the railroads of the
country. No one can survey the remark-
able growth in the population, wealth,
and productiveness of the United States
without being impressed by the great
part which the railroads have played.
They made possible the cultivation of
vast tracts of agricultural land, the
produce of which before the war was
valued at more than eight billion dollars.
They made possible the opening up of our
immense stores of minerals. In other
directions the investment of foreign
capital here was invaluable. It enabled
the American peopje to devote their own
savings to the building and furnishing of
homes, to the equipment of their manu-
factories, and to fitting out retail estab-
lishments; and in this way accelerated the
growth of population and wealth.

Sir George Paish estimates that the in-
crease in the annual production of wealth
in the United States made possible by the
investment of foreign capital here has
been at least twenty times greater than
the sum paid for interest. The interest
paid to foreign capitalists by the United
States has been of less importance to those
capitalists than the increase in the
wealth of this country which their in-
j vestments made possible. Such increase
I in our wealth has meant increased buying
j power, and demand for the products of the
lending country so that the returns from
the foreign investment have been in-
definitely larger than the mere interest
payment. In the same way every invest-
ment now made by us in other countries
means an increase in their wealth and,
consequently, in their ability to purchase
our products. The war has reversed the



position of America and instead of other
countries increasing their sales here
through increases of wealth brought about
by investments in American enterprises,
we are now able to increase our sales
abroad upon the same principle.

World Need All the world needs cap-
for Capital ital today as a result of the
war. For four years and
a half the normal life of mankind has been
upset. An unparalleled destruction of the
things which men need for food, shelter,
and clothing has taken place and the
processes by which those goods are pro-
duced and placed in the hands of those
who use them have been disorganized.

At the same time the nations which
have been at war have been increasing
their industrial capacity by the adoption
of more efficient methods of production.

While Europe needs foodstuffs, raw
materials, and machinery for the period
during which she will be adjusting her
industries to a peace basis, it is becoming
increasingly evident that this industrial
capacity built up during the war will be
a very important factor in the rehabilita-
tion of devastated areas.

But the fact remains that new sources
of food and raw materials must be found
and they can be found only through the
investment of capital in those enormous
areas of the earth's surface which are still
undeveloped. A survey of railway con-
struction during 1914 and of the programs
then contemplated leads to the conclusion
that the world then was getting ready for
an era of world-wide expansion of trade
and industry. It is believed now that the
war will be found to have accelerated that
movement.



Bases upon which America
may be a Lender of Capital



In view of
the pres-
ent world
demand for capital, a survey of the bases
upon which America may become a



[81



lender of capital makes evident the
opportunity which our industrial and
financial leaders have of directing
capital into the most profitable channels.

A century and a half ago Amsterdam
was the money center, partly because it
was a large trading center. England,
following the Napoleonic Wars, became a
large lending nation because it had be-
come a large industrial country as well as
a trading center. English capital was put
into French industrial enterprises, and in
turn the French gradually developed an
industrial capacity that gave them lend-
ing power, and Paris became a growing
financial center. More recently we have
seen the same development in Belgium,
making Brussels a growing financial
center.

Following the Franco-Prussian War,
Germany started an industrial develop-
\y ment which in time made possible the
investment of German capital in other
countries, and Berlin became a growing
financial center.

The United States, through its whole
history, with a large undeveloped area,
./ has, generally speaking, been absorbing
' foreign capital as well as the growing
accumulations of domestic capital. To-
ward the end of the nineteenth century
however, it had reached such an industrial
development that American capital began
to seek an outlet in other countries, and
there was increasing interest in world
trade and the development of a merchant
marine. ~

The United States is now in an un-
usually favorable situation for making
foreign loans. There are available for
export vast supplies of food stuffs and raw
materials. According to the industrial
census for 1914, the industrial plant of the
United States had a total capital of
$22,791,000,000, wliile the value of output
was $24,246,000,000. The war resulted
in additions to our industrial plant. This
is indicated by the pig iron production,



which is about forty -five per cent, larger
than before the war; the establishment of
important chemicals and dyestuffs indus-
tries ; and the great expansion of our ship-
building industry. Our diversifed pro-
duction and our natural resources will
enable us to supply the materials which
will form the material bases of loans to
other countries.

A As a further basis for foreign loans, this
country has large absorbing power for
investments. The annual savings, which
amounted to $6,000,000,000 before the
war, reached a total of at least $15,000,-
000,000 during the war. The annual in-
come from the balance of foreign loans,
which will be due this country as a
creditor nation, will probably be largely
absorbed in new investments. The de-
velopment of a strong and growing
merchant marine will further add to our
ability to invest capital in other countries.
The extraordinarily large gold supply of
the country, in combination with a free
gold market, will give bills drawn in
American dollars a world-wide reputation
as synonomous with gold, and funds can
be loaned payable in gold. This gold
reserve is a sound basis for our credit
structure — an essential requirement in an
expansion program.



Nature of

Foreign Investments



Credit is the key-
note of business.
To eliminate
credit from business would hamper and
restrict its opportunities. The invest-
ment of capital in domestic as well as
foreign enterprises is a way of granting
long term credit. There is no mystery
about foreign investments. The in-
vestment of capital in other countries is
really only a means of financing our
export trade. The purchase of bonds of
a new railroad in South America by the


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Online LibraryGuaranty Trust Company of New YorkAmerica's opportunity in foreign investments → online text (page 1 of 2)