In a word, in purchasing a foreign war bond be sure to get a stable national name, accumulated wealth, habits of thrift, an ample taxing power, and a good conversion basis behind the security.

Amid all our war lending lurks a menace to future and necessary American financing.  In flush times like these it is comparatively easy for us to spare large sums of money, because such capital is available and not missed at home.  If there was the absolute certainty that all the foreign short term loans would be paid on maturity there would be no reason to show the red light.

But any man who knows anything about the European financial situation also knows that it will be extremely difficult, almost impossible, for the fighting nations to meet their obligations within the time specified.  This does not mean that they will be unable to pay.  It does mean, however, that the inroads of the war will have been so terrific that pressing needs will so continue to pile up that renewals must be sought.  Thus our money will still be tied up.

What will happen at home?  Simply this.  American enterprise which will need capital for expansion may have to wait.  In discussing this matter one of the best known American bankers said this to me the other day: 

“If America had a benevolent despot I believe that he ought to set aside an arbitrary sum which would represent the limit that we as a nation could lend each year to foreign countries.”

There is still another hardship in this outward flow of our capital.  It lies in the fact that the very attractive terms of the war loans have made it very difficult for American railroads and corporations to finance their needs.  They must pay more for their requirements than ever before.

Yet this war financing has done more for us than merely provide an opportunity for the profitable employment of hundreds of millions of dollars.  It has brought back home about $1,500,000,000 of our securities, mostly in railroad, that were held abroad.  This has not only meant a considerable cutting down in the sum that we formerly had to send to Europe in interest and dividends, but it has helped to make us more economically independent.  There is still $1,780,000,000 of our securities held abroad, and if the war keeps on much longer a great portion of it is likely to come back.

There were two good reasons for this liquidation.  One was that the holder of the American security in England is subject to a very high tax in addition to the normal income tax on large fortunes.  Another was the necessity for the mobilisation of American securities to become part of the collateral offered by the British Government for the loans made in this country.  In many instances the English owner of American securities has simply loaned them to his country as a patriotic act.  In numerous other cases, however, he has sold them outright and put the proceeds into home war issues.