It is true that investment bankers and money in securities, and that some of them foreigners, but even here the proportion is invested abroad so small that we can be sure that the money from us links set up in the hands of our bankers at home be.
But in practice those who save do not pile large balances on their banks. You keep what you, the current account, the amount is paid in cash or in the form of a check at another bank or banks themselves, and therefore they took what they for weekly and monthly payments, sometimes necessary, they also save a certain amount on current accounts, ie accounts where they can after a period of one week or more drag.
On their deposit account they receive interest, on their current account they may in some parts of the country receive interest on the average balance kept.
But the deposit account is most often kept by people who have to have a reserve of cash quickly available for business purposes. The ordinary private investor, when he has got a balance at his bank big enough to make him feel comfortable about being able to meet all probable outgoings, puts any money that he may have to spare into some security dealt in on the Stock Exchange, and so securities and the Stock Exchange have to be described and examined next. They are very much to the point, because it is through them that international finance has done most of its work.
Securities, then, are the stocks, shares and bonds which are given to those who put money into companies, or into loans issued by Governments, municipalities and other public bodies. Let us take the Governments and public bodies first, because the securities issued by them are in some ways simpler than those created by companies.
When a Government wants to borrow, it does so because it needs money. The purpose for which it needs it may be to build a railway or canal, or make a harbour, or carry out a land improvement or irrigation scheme, or otherwise work some enterprise by which the power of the country to grow and make things may be increased.
Enterprises of this kind are usually called reproductive, and in many cases the actual return from them in cash more than suffices to meet the interest on the debt raised to carry them out, to say nothing of the direct benefit to the country in increasing its output of wealth. In England the government has practically no debt that is represented by reproductive assets.
Our Government has left the development of the country’s resources to private enterprise, and the only assets from which it derives a revenue are the Post Office buildings, the Crown lands and some shares in the Suez Canal which were bought for a political purpose. Governments also borrow money because their revenue from taxes is less than the sums that they are spending.
This happens most often and most markedly when they are carrying on war, or when nations are engaged in a competition in armaments, building navies or raising armies against one another so as to be ready for war if it happens. This kind of debt is called dead-weight debt, because there is no direct or indirect increase, in consequence of it, in the country’s power to produce things that are wanted.
This kind of borrowing is generally excused on the ground that provision for the national safety is a matter which concerns posterity quite as much as the present generation, and that it is, therefore, fair to leave posterity to pay part of the bill.