This section is from the "The Science Of Wealth" book, by Amasa Walker.
No sentiment or opinion is more common, perhaps, among the people, than that it is very undesirable, or dangerous even, to have the national debt held abroad. Is this opinion well founded?
1st, A debtor cannot always choose who his creditor shall be. If deeply involved, those will hold his securities who are most able to hold them. They will, like commodities, go where they are most wanted, where they will bring the highest price.
2d, It makes little difference to the debtor, if he can meet his obligations when due, who may hold them. There is no friendship in trade. Native or foreigner will alike demand his pay, when he has a right to do so.
If these propositions are true, we see that it is quite impossible to prevent foreigners from purchasing our national securities, and of little importance if we could. It is a great misfortune, that we are deeply in debt as a nation. If that indebtedness were wholly to our own people, it would be quite favorable; for then, as a people, we should owe nothing at all, since what was to the debit of one citizen would be to the credit of another: but if this cannot be, and if capital is worth more to us than it is to others, then is it not fortunate if others are ready to loan us theirs, that is, are ready to take our public indebtedness? As an admitted fact, the use of capital is about twice as valuable in the United States as in England: why, then, should we not allow Englishmen to hold our public debt? We are aware that there is a deep prejudice in the public mind against this. That prejudice has influenced the financial action of the government. When the war of the Rebellion broke out, and vast demands were made upon the national treasury, instead of looking abroad for capital, and offering our loans in foreign markets, on favorable conditions, such a course was officially denounced as derogatory to the American people. Foreign capitalists were actually snubbed, if we may use so unscientific a term. The Confederates on the other hand, took the wise precaution, from the outset, to establish their credit abroad, and negotiated loans as extensively as possible. This fact gave strength to their cause, since they soon built up in Europe a large pecuniary interest in their success. A foreign loan to the United-States government of one hundred millions in the latter part of 1861 would have saved the country several hundred millions, inasmuch as the suspension of specie payments might thus have been postponed for a twelvemonth, and perhaps even been avoided through the war. By this means, the prices of all the government had to purchase would have been kept down to the natural standard. This measure, if accompanied with the expulsion of all bank currency from circulation and with the issue of government notes to take their place so far as desirable, would, in the end, have saved a great part of the present national indebtedness.
But, whatever may be true in regard to the past, it is unquestionably an object of much importance to secure foreign loans in the future at a low rate of interest. It is not a question whether we shall owe a foreign debt, for that is certain; but whether we shall negotiate it abroad at par at five per cent in gold, or at home at six per cent in a depreciated currency. If bonds were made payable, principal and interest, at London, Paris, Hamburg, and Frankfort, in the currency of those places, and suitable efforts were made to inform foreign capitalists in regard to the resources of the United States, there is not the slightest doubt that most advantageous operations might be made.
But this, we are aware, cannot be done so advantageously now as if we had a sound currency. At present, we could only negotiate at a discount proportionate to the discount upon our currency; say, about thirty or forty per cent: but even that rate would be more favorable than negotiations at home. No financial operations can be made to the best advantage anywhere, until the currency is restored to a specie basis. Then the credit of the nation will be fully established, and its loans at five per cent may be sold at real par; that is, for a currency equal to gold.
What the objections to foreign loans are, we have never heard stated; those who have opposed such loans having, so far as we have seen, contented themselves with denunciation: but the argument which seems to be floating in the public mind is, that such a debt will give foreigners an advantage over us, since they may, at any time, combine to send back our bonds, sell them for what they will bring, carry off the specie, and throw our banks into suspension. A frightful result, indeed. But is there any foundation for such a supposition? Do not men act according to their interests? When hundreds of millions of our stocks are held abroad, is it likely that the holders will "combine" to send all, or any large amount, of them back, and force a sale, when they cannot do so except at a great loss to themselves?
What object would be gained by it? What damage would they do us? If they sacrificed their stocks, we should buy them in at great advantage.
But it may be said, that they might drive our banks into suspension. Possibly they might; but what of that? The banks are accustomed to it: it would be nothing new or uncommon. Besides, if the stocks were held at home, and money became scarce, or the credit of the government was suspected, the public stocks would be thrown upon the market at once, and with the same result. British consols are thus thrown upon the market: why not, American stocks?
From whatever point of view we may look at the subject, we find there can be no well-founded objection to the sale of American stocks in Europe. On the other hand, such a sale of them must be advantageous, when made under a sound currency.